e10vq
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark
One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010 OR
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o
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TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For the transition period
from
to
Commission File
No. 0-2989
COMMERCE
BANCSHARES, INC.
(Exact name of registrant as
specified in its charter)
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Missouri
(State
of Incorporation)
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43-0889454
(IRS
Employer Identification No.)
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1000 Walnut,
Kansas City, MO
(Address
of principal executive offices)
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64106
(Zip
Code)
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(816) 234-2000
(Registrants
telephone number, including area code)
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Indicate by check mark whether the
registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for
the past 90 days.
Yes þ No o
Indicate by check mark whether the
registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes o No o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer,
accelerated filer and smaller reporting
company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer þ
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller reporting
company o
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Indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).
Yes o No þ
As of April 30, 2010, the
registrant had outstanding 83,465,264 shares of its
$5 par value common stock, registrants only class of
common stock.
Commerce
Bancshares, Inc. and Subsidiaries
Form 10-Q
2
PART I:
FINANCIAL INFORMATION
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Item 1.
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FINANCIAL
STATEMENTS
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Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
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March 31
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December 31
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2010
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2009
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(Unaudited)
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(In thousands)
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ASSETS
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Loans
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$
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9,834,540
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$
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10,145,324
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Allowance for loan losses
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(197,538
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)
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(194,480
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)
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Net loans
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9,637,002
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9,950,844
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Loans held for sale
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541,104
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345,003
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Investment securities:
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Available for sale ($533,431,000 and $537,079,000 pledged in
2010 and 2009, respectively, to secure structured repurchase
agreements)
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6,256,242
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6,340,975
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Trading
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26,888
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10,335
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Non-marketable
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122,508
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122,078
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Total investment securities
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6,405,638
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6,473,388
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Federal funds sold and securities purchased under agreements to
resell
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500
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22,590
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Interest earning deposits with banks
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7,818
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24,118
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Cash and due from banks
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345,078
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417,126
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Land, buildings and equipment, net
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396,296
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402,633
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Goodwill
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125,585
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125,585
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Other intangible assets, net
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13,419
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14,333
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Other assets
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563,757
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344,569
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Total assets
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$
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18,036,197
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$
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18,120,189
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LIABILITIES AND EQUITY
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Deposits:
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Non-interest bearing demand
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$
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1,583,090
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$
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1,793,816
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Savings, interest checking and money market
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9,496,969
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9,202,916
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Time open and C.D.s of less than $100,000
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1,733,534
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1,801,332
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Time open and C.D.s of $100,000 and over
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1,191,166
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1,412,387
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Total deposits
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14,004,759
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14,210,451
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Federal funds purchased and securities sold under agreements to
repurchase
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998,773
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1,103,191
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Other borrowings
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731,507
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736,062
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Other liabilities
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373,723
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184,580
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Total liabilities
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16,108,762
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16,234,284
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Commerce Bancshares, Inc. stockholders equity:
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Preferred stock, $1 par value
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Authorized and unissued 2,000,000 shares
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Common stock, $5 par value
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Authorized 100,000,000 shares; issued
83,462,940 shares in 2010 and 83,127,401 shares in 2009
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417,315
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415,637
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Capital surplus
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859,849
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854,490
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Retained earnings
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593,102
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568,532
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Treasury stock of 53,263 shares in 2010 and 22,328 shares
in 2009, at cost
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(2,052
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(838
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Accumulated other comprehensive income
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58,088
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46,407
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Total Commerce Bancshares, Inc. stockholders equity
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1,926,302
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1,884,228
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Non-controlling interest
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1,133
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1,677
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Total equity
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1,927,435
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1,885,905
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Total liabilities and equity
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$
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18,036,197
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$
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18,120,189
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See accompanying notes to consolidated financial
statements.
3
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF INCOME
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For the Three Months
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Ended March 31
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(In thousands, except per share data)
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2010
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2009
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(Unaudited)
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INTEREST INCOME
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Interest and fees on loans
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$
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130,922
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$
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142,409
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Interest and fees on loans held for sale
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1,904
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3,432
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Interest on investment securities
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55,163
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47,470
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Interest on federal funds sold and securities purchased under
agreements to resell
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15
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114
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Interest on deposits with banks
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65
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449
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Total interest income
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188,069
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193,874
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INTEREST EXPENSE
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Interest on deposits:
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Savings, interest checking and money market
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7,096
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8,053
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Time open and C.D.s of less than $100,000
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6,815
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14,747
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Time open and C.D.s of $100,000 and over
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3,923
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11,300
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Interest on federal funds purchased and securities sold under
agreements to repurchase
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820
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1,230
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Interest on other borrowings
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6,705
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8,529
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Total interest expense
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25,359
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43,859
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Net interest income
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162,710
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150,015
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Provision for loan losses
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34,322
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|
|
|
43,168
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Net interest income after provision for loan losses
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128,388
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|
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|
106,847
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NON-INTEREST INCOME
|
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|
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Bank card transaction fees
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32,490
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27,168
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Deposit account charges and other fees
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23,981
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25,592
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Trust fees
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|
19,318
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18,873
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Bond trading income
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5,004
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5,804
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Consumer brokerage services
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2,117
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2,900
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Loan fees and sales
|
|
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1,839
|
|
|
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2,961
|
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Other
|
|
|
8,503
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|
|
|
9,133
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|
|
|
Total non-interest income
|
|
|
93,252
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|
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|
92,431
|
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INVESTMENT SECURITIES GAINS (LOSSES), NET
|
|
|
|
|
|
|
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Impairment (losses) reversals on debt securities
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|
|
1,295
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(21,885
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)
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Less noncredit-related (losses) reversals on securities not
expected to be sold
|
|
|
(2,752
|
)
|
|
|
21,332
|
|
|
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Net impairment losses
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|
|
(1,457
|
)
|
|
|
(553
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)
|
Realized gains (losses) on sales and fair value adjustments
|
|
|
(2,208
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)
|
|
|
(1,619
|
)
|
|
|
Investment securities losses, net
|
|
|
(3,665
|
)
|
|
|
(2,172
|
)
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|
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NON-INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
87,438
|
|
|
|
86,753
|
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Net occupancy
|
|
|
12,098
|
|
|
|
11,812
|
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Equipment
|
|
|
5,901
|
|
|
|
6,322
|
|
Supplies and communication
|
|
|
7,338
|
|
|
|
8,684
|
|
Data processing and software
|
|
|
16,606
|
|
|
|
14,347
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Marketing
|
|
|
4,718
|
|
|
|
4,347
|
|
Deposit insurance
|
|
|
4,750
|
|
|
|
4,106
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Other
|
|
|
16,938
|
|
|
|
16,515
|
|
|
|
Total non-interest expense
|
|
|
155,787
|
|
|
|
152,886
|
|
|
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Income before income taxes
|
|
|
62,188
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|
|
|
44,220
|
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Less income taxes
|
|
|
18,377
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|
|
|
13,592
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|
|
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Net income before non-controlling interest
|
|
|
43,811
|
|
|
|
30,628
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Less non-controlling interest expense (income)
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|
|
(359
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)
|
|
|
(208
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)
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|
|
Net income
|
|
$
|
44,170
|
|
|
$
|
30,836
|
|
|
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Net income per common share basic
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|
$
|
.53
|
|
|
$
|
.38
|
|
Net income per common share diluted
|
|
$
|
.53
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|
|
$
|
.38
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|
See accompanying notes to consolidated financial
statements.
4
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CHANGES IN EQUITY
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Commerce Bancshares, Inc. Shareholders
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Accumulated
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Other
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|
|
Non-
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|
|
(In thousands,
|
|
Common
|
|
|
Capital
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
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Controlling
|
|
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|
except per share data)
|
|
Stock
|
|
|
Surplus
|
|
|
Earnings
|
|
|
Stock
|
|
|
Income (Loss)
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
(Unaudited)
|
|
|
Balance January 1, 2010
|
|
$
|
415,637
|
|
|
$
|
854,490
|
|
|
$
|
568,532
|
|
|
$
|
(838
|
)
|
|
$
|
46,407
|
|
|
$
|
1,677
|
|
|
$
|
1,885,905
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
44,170
|
|
|
|
|
|
|
|
|
|
|
|
(359
|
)
|
|
|
43,811
|
|
Change in unrealized gain (loss) related to available for sale
securities for which a portion of an
other-than-temporary
impairment has been recorded in earnings, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,908
|
|
|
|
|
|
|
|
3,908
|
|
Change in unrealized gain (loss) on all other available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,422
|
|
|
|
|
|
|
|
7,422
|
|
Amortization of pension loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
351
|
|
|
|
|
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(185
|
)
|
|
|
(185
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(878
|
)
|
|
|
|
|
|
|
|
|
|
|
(878
|
)
|
Issuance of stock under purchase and equity compensation plans
|
|
|
927
|
|
|
|
3,312
|
|
|
|
|
|
|
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
4,041
|
|
Net tax benefit related to equity compensation plans
|
|
|
|
|
|
|
820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
820
|
|
Stock-based compensation
|
|
|
|
|
|
|
1,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,840
|
|
Issuance of nonvested stock awards
|
|
|
751
|
|
|
|
(613
|
)
|
|
|
|
|
|
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid ($.235 per share)
|
|
|
|
|
|
|
|
|
|
|
(19,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,600
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)
|
|
|
Balance March 31, 2010
|
|
$
|
417,315
|
|
|
$
|
859,849
|
|
|
$
|
593,102
|
|
|
$
|
(2,052
|
)
|
|
$
|
58,088
|
|
|
$
|
1,133
|
|
|
$
|
1,927,435
|
|
|
|
Balance January 1, 2009
|
|
$
|
379,505
|
|
|
$
|
621,458
|
|
|
$
|
633,159
|
|
|
$
|
(761
|
)
|
|
$
|
(56,729
|
)
|
|
$
|
2,835
|
|
|
$
|
1,579,467
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
30,836
|
|
|
|
|
|
|
|
|
|
|
|
(208
|
)
|
|
|
30,628
|
|
Change in unrealized gain (loss) related to available for sale
securities for which a portion of an
other-than-temporary
impairment has been recorded in earnings, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
483
|
|
|
|
|
|
|
|
483
|
|
Change in unrealized gain (loss) on all other available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,901
|
|
|
|
|
|
|
|
14,901
|
|
Amortization of pension loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425
|
|
|
|
|
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(198
|
)
|
|
|
(198
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(357
|
)
|
|
|
|
|
|
|
|
|
|
|
(357
|
)
|
Issuance of stock under open market sale program
|
|
|
15
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
Issuance of stock under purchase and equity compensation plans
|
|
|
266
|
|
|
|
1,001
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
1,225
|
|
Net tax benefit related to equity compensation plans
|
|
|
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80
|
|
Stock-based compensation
|
|
|
|
|
|
|
1,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,640
|
|
Issuance of nonvested stock awards
|
|
|
764
|
|
|
|
(934
|
)
|
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid ($.229 per share)
|
|
|
|
|
|
|
|
|
|
|
(18,259
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,259
|
)
|
|
|
Balance March 31, 2009
|
|
$
|
380,550
|
|
|
$
|
623,236
|
|
|
$
|
645,736
|
|
|
$
|
(990
|
)
|
|
$
|
(40,920
|
)
|
|
$
|
2,429
|
|
|
$
|
1,610,041
|
|
|
|
See accompanying notes to consolidated financial
statements.
5
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
(Unaudited)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
44,170
|
|
|
$
|
30,836
|
|
Adjustments to reconcile net income to net cash used in
operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
34,322
|
|
|
|
43,168
|
|
Provision for depreciation and amortization
|
|
|
12,564
|
|
|
|
12,659
|
|
Amortization (accretion) of investment security
premiums/discounts, net
|
|
|
5,463
|
|
|
|
(300
|
)
|
Investment securities losses, net(A)
|
|
|
3,665
|
|
|
|
2,172
|
|
Gain on sale of branch
|
|
|
|
|
|
|
(644
|
)
|
Net gains on sales of loans held for sale
|
|
|
(569
|
)
|
|
|
(1,627
|
)
|
Originations of loans held for sale
|
|
|
(227,463
|
)
|
|
|
(188,954
|
)
|
Proceeds from sales of loans held for sale
|
|
|
31,883
|
|
|
|
49,770
|
|
Net (increase) decrease in trading securities
|
|
|
897
|
|
|
|
(23,835
|
)
|
Stock-based compensation
|
|
|
1,840
|
|
|
|
1,640
|
|
(Increase) decrease in interest receivable
|
|
|
37
|
|
|
|
(634
|
)
|
Increase (decrease) in interest payable
|
|
|
(2,121
|
)
|
|
|
3,394
|
|
Increase in income taxes payable
|
|
|
18,525
|
|
|
|
13,430
|
|
Net tax benefit related to equity compensation plans
|
|
|
(820
|
)
|
|
|
(80
|
)
|
Other changes, net
|
|
|
22,869
|
|
|
|
(10,499
|
)
|
|
|
Net cash used in operating activities
|
|
|
(54,738
|
)
|
|
|
(69,504
|
)
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash paid in branch sale
|
|
|
|
|
|
|
(3,494
|
)
|
Proceeds from sales of investment securities(A)
|
|
|
19,991
|
|
|
|
2,032
|
|
Proceeds from maturities/pay downs of investment securities(A)
|
|
|
375,027
|
|
|
|
235,716
|
|
Purchases of investment securities(A)
|
|
|
(305,499
|
)
|
|
|
(855,915
|
)
|
Net decrease in loans
|
|
|
279,520
|
|
|
|
307,458
|
|
Purchases of land, buildings and equipment
|
|
|
(2,782
|
)
|
|
|
(5,684
|
)
|
Sales of land, buildings and equipment
|
|
|
365
|
|
|
|
41
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
366,622
|
|
|
|
(319,846
|
)
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net increase (decrease) in non-interest bearing demand, savings,
interest checking and money market deposits
|
|
|
(8,713
|
)
|
|
|
628,446
|
|
Net increase (decrease) in time open and C.D.s
|
|
|
(289,019
|
)
|
|
|
414,304
|
|
Net decrease in federal funds purchased and securities sold
under agreements to repurchase
|
|
|
(104,418
|
)
|
|
|
(24,985
|
)
|
Repayment of long-term borrowings
|
|
|
(4,555
|
)
|
|
|
(100,506
|
)
|
Net decrease in short-term borrowings
|
|
|
|
|
|
|
(800,000
|
)
|
Purchases of treasury stock
|
|
|
(878
|
)
|
|
|
(357
|
)
|
Issuance of stock under open market stock sale program, stock
purchase and equity compensation plans
|
|
|
4,041
|
|
|
|
1,231
|
|
Net tax benefit related to equity compensation plans
|
|
|
820
|
|
|
|
80
|
|
Cash dividends paid on common stock
|
|
|
(19,600
|
)
|
|
|
(18,259
|
)
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(422,322
|
)
|
|
|
99,954
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(110,438
|
)
|
|
|
(289,396
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
463,834
|
|
|
|
1,299,356
|
|
|
|
Cash and cash equivalents at March 31
|
|
$
|
353,396
|
|
|
$
|
1,009,960
|
|
|
|
(A) Available for sale and non-marketable securities
|
|
|
|
|
|
|
|
|
|
|
Income tax net payments (refunds)
|
|
$
|
(169
|
)
|
|
$
|
90
|
|
Interest paid on deposits and borrowings
|
|
$
|
27,480
|
|
|
$
|
40,458
|
|
|
|
See accompanying notes to consolidated financial
statements.
6
Commerce
Bancshares, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010
(Unaudited)
|
|
1.
|
Principles
of Consolidation and Presentation
|
The accompanying consolidated financial statements include the
accounts of Commerce Bancshares, Inc. and all majority-owned
subsidiaries (the Company). The consolidated financial
statements in this report have not been audited. All significant
intercompany accounts and transactions have been eliminated.
Certain reclassifications were made to 2009 data to conform to
current year presentation. In the opinion of management, all
adjustments necessary to present fairly the financial position
and the results of operations for the interim periods have been
made. All such adjustments are of a normal recurring nature. The
results of operations for the three month period ended
March 31, 2010 are not necessarily indicative of results to
be attained for the full year or any other interim periods.
The significant accounting policies followed in the preparation
of the quarterly financial statements are disclosed in the 2009
Annual Report on
Form 10-K.
|
|
2.
|
Loans and
Allowance for Loan Losses
|
Major classifications within the Companys held to maturity
loan portfolio at March 31, 2010 and December 31, 2009
are as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Business
|
|
$
|
2,862,680
|
|
|
$
|
2,877,936
|
|
Real estate construction and land
|
|
|
574,355
|
|
|
|
665,110
|
|
Real estate business
|
|
|
2,028,620
|
|
|
|
2,104,030
|
|
Real estate personal
|
|
|
1,509,980
|
|
|
|
1,537,687
|
|
Consumer
|
|
|
1,281,560
|
|
|
|
1,333,763
|
|
Home equity
|
|
|
484,405
|
|
|
|
489,517
|
|
Student
|
|
|
325,384
|
|
|
|
331,698
|
|
Consumer credit card
|
|
|
760,514
|
|
|
|
799,503
|
|
Overdrafts
|
|
|
7,042
|
|
|
|
6,080
|
|
|
|
Total loans
|
|
$
|
9,834,540
|
|
|
$
|
10,145,324
|
|
|
|
At March 31, 2010, loans of $3.0 billion were pledged
at the Federal Home Loan Bank as collateral for borrowings and
letters of credit obtained to secure public deposits. Additional
loans of $1.5 billion were pledged at the Federal Reserve
Bank as collateral for discount window borrowings.
7
In addition to its basic portfolio, the Company originates other
loans which it intends to sell in secondary markets. Loans
classified as held for sale primarily consist of loans
originated to students while attending colleges and
universities. The Company maintains contracts with various
student loan agencies to sell student loans when the student
graduates and the loan enters into repayment status. Also
included as held for sale are certain fixed rate residential
mortgage loans which are sold in the secondary market, generally
within three months of origination. The following table presents
information about loans held for sale, including impairment
losses resulting from declines in fair value, which are further
discussed in Note 13 on Fair Value Measurements. Previously
recognized impairment losses amounting to $422 thousand were
reversed during the current quarter, as certain impaired loans
were sold.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Balance outstanding:
|
|
|
|
|
|
|
|
|
Student loans, at cost
|
|
$
|
537,780
|
|
|
$
|
335,358
|
|
Residential mortgage loans, at cost
|
|
|
3,730
|
|
|
|
10,473
|
|
Valuation allowance on student loans
|
|
|
(406
|
)
|
|
|
(828
|
)
|
|
|
Total loans held for sale, at lower of cost or fair value
|
|
$
|
541,104
|
|
|
$
|
345,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Net gains on sales:
|
|
|
|
|
|
|
|
|
Student loans
|
|
$
|
149
|
|
|
$
|
1,088
|
|
Residential mortgage loans
|
|
|
420
|
|
|
|
539
|
|
|
|
Total gains on sales of loans held for sale, net
|
|
$
|
569
|
|
|
$
|
1,627
|
|
|
|
The table below shows the Companys investment in impaired
loans at March 31, 2010 and December 31, 2009. These
loans consist of loans on non-accrual status and other
restructured loans whose terms have been modified and classified
as troubled debt restructurings under ASC
310-40. The
restructured loans have been extended to borrowers who are
experiencing financial difficulty and who have been granted a
concession. Restructured loans were $89.8 million at
March 31, 2010, and the December 31, 2009 restructured
total was revised to reflect the retrospective application of
more definitive regulatory guidance. The change in restructured
loans was mainly due to inclusion of certain business,
construction and business real estate loans, totaling
$70.8 million and $85.7 million at March 31, 2010
and December 31, 2009, respectively, and classified as
substandard, which when renewed at maturity were at interest
rates equal to or greater than the previous rates in effect. The
new rates, however, were not judged to be market rates for new
debt with similar risk, and thus these loans were classified as
troubled debt restructurings. These restructured loans are
performing in accordance with their modified terms, and because
the Company believes it probable that all amounts due under the
modified terms of the agreements will be collected, interest on
these loans is being recognized on an accrual basis. However,
because of their substandard classification they are also
regarded as potential problem loans, as disclosed at both
December 31, 2009 and March 31, 2010 in the Risk
Elements of Loan Portfolio section of the following discussion.
Troubled debt restructurings also include certain credit card
loans under various debt management and assistance programs,
which totaled $18.9 million at March 31, 2010 and
$16.0 million at December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Non-accrual loans
|
|
$
|
95,749
|
|
|
$
|
106,613
|
|
Restructured loans
|
|
|
89,781
|
|
|
|
101,765
|
|
|
|
Total impaired loans
|
|
$
|
185,530
|
|
|
$
|
208,378
|
|
|
|
8
The Companys holdings of foreclosed real estate totaled
$14.3 million and $10.1 million at March 31, 2010
and December 31, 2009, respectively. Personal property
acquired in repossession, generally autos and marine and
recreational vehicles, totaled $12.9 million and
$14.5 million at March 31, 2010 and December 31,
2009, respectively. These assets are carried at the lower of the
amount recorded at acquisition date or the current fair value
less estimated costs to sell.
The following is a summary of the allowance for loan losses for
the three months ended March 31, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Balance, January 1
|
|
$
|
194,480
|
|
|
$
|
172,619
|
|
|
|
Additions:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
34,322
|
|
|
|
43,168
|
|
|
|
Total additions
|
|
|
34,322
|
|
|
|
43,168
|
|
|
|
Deductions:
|
|
|
|
|
|
|
|
|
Loans charged off
|
|
|
35,520
|
|
|
|
38,420
|
|
Less recoveries on loans
|
|
|
4,256
|
|
|
|
3,501
|
|
|
|
Net loans charged off
|
|
|
31,264
|
|
|
|
34,919
|
|
|
|
Balance, March 31
|
|
$
|
197,538
|
|
|
$
|
180,868
|
|
|
|
Investment securities, at fair value, consisted of the following
at March 31, 2010 and December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
497,900
|
|
|
$
|
447,038
|
|
Government-sponsored enterprise obligations
|
|
|
212,758
|
|
|
|
165,814
|
|
State and municipal obligations
|
|
|
892,887
|
|
|
|
939,338
|
|
Agency mortgage-backed securities
|
|
|
2,082,409
|
|
|
|
2,262,003
|
|
Non-agency mortgage-backed securities
|
|
|
636,658
|
|
|
|
609,016
|
|
Other asset-backed securities
|
|
|
1,692,250
|
|
|
|
1,701,569
|
|
Other debt securities
|
|
|
191,656
|
|
|
|
176,331
|
|
Equity securities
|
|
|
49,724
|
|
|
|
39,866
|
|
|
|
Total available for sale
|
|
|
6,256,242
|
|
|
|
6,340,975
|
|
|
|
Trading
|
|
|
26,888
|
|
|
|
10,335
|
|
Non-marketable
|
|
|
122,508
|
|
|
|
122,078
|
|
|
|
Total investment securities
|
|
$
|
6,405,638
|
|
|
$
|
6,473,388
|
|
|
|
Most of the Companys investment securities are classified
as available for sale, and this portfolio is discussed in more
detail below. Securities which are classified as non-marketable
include Federal Home Loan Bank (FHLB) stock and Federal Reserve
Bank (FRB) stock held for debt and regulatory purposes, which
totaled $72.6 million at both March 31, 2010 and
December 31, 2009. Investment in FRB stock is based on the
capital structure of the investing bank, and investment in FHLB
stock is tied to the level of borrowings from the FHLB.
Non-marketable securities also include private equity
investments, which amounted to $49.8 million and
$49.5 million at March 31, 2010 and December 31,
2009, respectively.
9
A summary of the available for sale investment securities by
maturity groupings as of March 31, 2010 is shown below. The
investment portfolio includes agency mortgage-backed securities,
which are guaranteed by government-sponsored agencies such as
the FHLMC, FNMA and GNMA, and non-agency mortgage-backed
securities which have no guarantee. Also included are certain
other asset-backed securities, which are primarily
collateralized by credit cards, automobiles, and commercial
loans. These securities differ from traditional debt securities
primarily in that they may have uncertain maturity dates and are
priced based on estimated prepayment rates on the underlying
collateral. The Company does not have exposure to subprime
originated mortgage-backed or collateralized debt obligation
instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Value
|
|
|
|
|
U.S. government and federal agency obligations:
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
$
|
52,955
|
|
|
$
|
52,963
|
|
After 1 but within 5 years
|
|
|
215,948
|
|
|
|
219,468
|
|
After 5 but within 10 years
|
|
|
217,631
|
|
|
|
225,469
|
|
|
|
Total U.S. government and federal agency obligations
|
|
|
486,534
|
|
|
|
497,900
|
|
|
|
Government-sponsored enterprise obligations:
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
66,368
|
|
|
|
67,438
|
|
After 1 but within 5 years
|
|
|
143,020
|
|
|
|
145,320
|
|
|
|
Total government-sponsored enterprise obligations
|
|
|
209,388
|
|
|
|
212,758
|
|
|
|
State and municipal obligations:
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
103,124
|
|
|
|
104,247
|
|
After 1 but within 5 years
|
|
|
399,680
|
|
|
|
411,601
|
|
After 5 but within 10 years
|
|
|
121,957
|
|
|
|
124,821
|
|
After 10 years
|
|
|
256,057
|
|
|
|
252,218
|
|
|
|
Total state and municipal obligations
|
|
|
880,818
|
|
|
|
892,887
|
|
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
2,019,481
|
|
|
|
2,082,409
|
|
Non-agency mortgage-backed securities
|
|
|
667,411
|
|
|
|
636,658
|
|
Other asset-backed securities
|
|
|
1,673,857
|
|
|
|
1,692,250
|
|
|
|
Total mortgage and asset-backed securities
|
|
|
4,360,749
|
|
|
|
4,411,317
|
|
|
|
Other debt securities:
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
4,999
|
|
|
|
5,055
|
|
After 1 but within 5 years
|
|
|
173,940
|
|
|
|
186,601
|
|
|
|
Total other debt securities
|
|
|
178,939
|
|
|
|
191,656
|
|
|
|
Equity securities
|
|
|
17,897
|
|
|
|
49,724
|
|
|
|
Total available for sale investment securities
|
|
$
|
6,134,325
|
|
|
$
|
6,256,242
|
|
|
|
Included in U.S. government securities are
$435.8 million, at fair value, of U.S. Treasury
inflation-protected securities (TIPS). Interest paid on these
securities increases with inflation and decreases with
deflation, as measured by the Consumer Price Index. Included in
state and municipal obligations are $158.1 million, at fair
value, of auction rate securities (ARS), which were purchased
from bank customers in the third quarter of 2008. These bonds
are historically traded in a competitive bidding process at
weekly/monthly auctions. These auctions have not functioned
since early 2008, and this market has not recovered. Interest is
currently being paid at the maximum failed auction rates.
Included in equity securities is common stock held by the
holding company, Commerce Bancshares, Inc. (the Parent), with a
fair value of $36.1 million at March 31, 2010.
10
For securities classified as available for sale, the following
table shows the unrealized gains and losses (pre-tax) in
accumulated other comprehensive income, by security type.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
(In thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
486,534
|
|
|
$
|
11,366
|
|
|
$
|
|
|
|
$
|
497,900
|
|
Government-sponsored enterprise obligations
|
|
|
209,388
|
|
|
|
3,533
|
|
|
|
(163
|
)
|
|
|
212,758
|
|
State and municipal obligations
|
|
|
880,818
|
|
|
|
21,469
|
|
|
|
(9,400
|
)
|
|
|
892,887
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
2,019,481
|
|
|
|
63,395
|
|
|
|
(467
|
)
|
|
|
2,082,409
|
|
Non-agency mortgage-backed securities
|
|
|
667,411
|
|
|
|
7,087
|
|
|
|
(37,840
|
)
|
|
|
636,658
|
|
Other asset-backed securities
|
|
|
1,673,857
|
|
|
|
18,781
|
|
|
|
(388
|
)
|
|
|
1,692,250
|
|
|
|
Total mortgage and asset-backed securities
|
|
|
4,360,749
|
|
|
|
89,263
|
|
|
|
(38,695
|
)
|
|
|
4,411,317
|
|
|
|
Other debt securities
|
|
|
178,939
|
|
|
|
12,749
|
|
|
|
(32
|
)
|
|
|
191,656
|
|
Equity securities
|
|
|
17,897
|
|
|
|
31,827
|
|
|
|
|
|
|
|
49,724
|
|
|
|
Total
|
|
$
|
6,134,325
|
|
|
$
|
170,207
|
|
|
$
|
(48,290
|
)
|
|
$
|
6,256,242
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
436,607
|
|
|
$
|
10,764
|
|
|
$
|
(333
|
)
|
|
$
|
447,038
|
|
Government-sponsored enterprise obligations
|
|
|
162,191
|
|
|
|
3,743
|
|
|
|
(120
|
)
|
|
|
165,814
|
|
State and municipal obligations
|
|
|
917,267
|
|
|
|
25,099
|
|
|
|
(3,028
|
)
|
|
|
939,338
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
2,205,177
|
|
|
|
58,740
|
|
|
|
(1,914
|
)
|
|
|
2,262,003
|
|
Non-agency mortgage-backed securities
|
|
|
654,711
|
|
|
|
4,505
|
|
|
|
(50,200
|
)
|
|
|
609,016
|
|
Other asset-backed securities
|
|
|
1,685,691
|
|
|
|
17,143
|
|
|
|
(1,265
|
)
|
|
|
1,701,569
|
|
|
|
Total mortgage and asset-backed securities
|
|
|
4,545,579
|
|
|
|
80,388
|
|
|
|
(53,379
|
)
|
|
|
4,572,588
|
|
|
|
Other debt securities
|
|
|
164,402
|
|
|
|
11,929
|
|
|
|
|
|
|
|
176,331
|
|
Equity securities
|
|
|
11,285
|
|
|
|
28,581
|
|
|
|
|
|
|
|
39,866
|
|
|
|
Total
|
|
$
|
6,237,331
|
|
|
$
|
160,504
|
|
|
$
|
(56,860
|
)
|
|
$
|
6,340,975
|
|
|
|
The Companys impairment policy requires a review of all
securities for which fair value is less than amortized cost.
Special emphasis and analysis is placed on securities whose
credit rating has fallen below A3/A-, whose fair values have
fallen more than 20% below purchase price for an extended period
of time, or have been identified based on managements
judgment. These securities are placed on a watch list, and for
all such securities, detailed cash flow models are prepared
which use inputs specific to each security. Inputs to these
models include factors such as cash flow received, contractual
payments required, and various other information related to the
underlying collateral (including current delinquencies),
collateral loss severity rates (including loan to values),
expected delinquency rates, credit support from other tranches,
and prepayment speeds. Stress tests are performed at varying
levels of delinquency rates, prepayment speeds and loss
severities in order to gauge probable ranges of credit loss. At
March 31, 2010, the fair value of securities on this watch
list was $292.0 million.
11
As of March 31, 2010, the Company had recorded
other-than-temporary
impairment (OTTI) on certain non-agency mortgage-backed
securities having an aggregate fair value of
$154.9 million, which included an unrealized loss of
$31.3 million. The credit-related portion of the impairment
totaled $3.9 million and was recorded in current earnings.
The noncredit-related portion of the impairment totaled
$27.4 million on a pre-tax basis, and has been recognized
in other comprehensive income. The Company does not intend to
sell these securities and believes it is not more likely than
not that it will be required to sell the securities before the
recovery of their amortized cost bases.
The credit portion of the loss on these securities was based on
the cash flows projected to be received over the estimated life
of the securities, discounted to present value, and compared to
the current amortized cost bases of the securities. Significant
inputs to the cash flow models used to calculate the credit
losses on these securities included the following:
|
|
|
|
Significant Inputs
|
|
Range
|
|
|
Prepayment CPR
|
|
3% - 25%
|
Projected cumulative default
|
|
8% - 45%
|
Credit support
|
|
2% - 14%
|
Loss severity
|
|
33% - 57%
|
|
|
The following table shows changes in the credit losses recorded
in the three months ended March 31, 2010 and 2009, for
which a portion of an OTTI was recognized in other comprehensive
income.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended March 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Balance, January 1
|
|
$
|
2,473
|
|
|
$
|
|
|
Credit losses on debt securities for which impairment was not
previously recognized
|
|
|
20
|
|
|
|
553
|
|
Credit losses on debt securities for which impairment was
previously recognized
|
|
|
1,437
|
|
|
|
|
|
|
|
Balance, March 31
|
|
$
|
3,930
|
|
|
$
|
553
|
|
|
|
12
Securities with unrealized losses recorded in accumulated other
comprehensive income are shown in the table below, along with
the length of the impairment period. The table includes
securities for which a portion of an OTTI has been recognized in
other comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
(In thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
|
At March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprise obligations
|
|
$
|
74,780
|
|
|
$
|
163
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
74,780
|
|
|
$
|
163
|
|
State and municipal obligations
|
|
|
41,824
|
|
|
|
1,163
|
|
|
|
92,171
|
|
|
|
8,237
|
|
|
|
133,995
|
|
|
|
9,400
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
36,385
|
|
|
|
464
|
|
|
|
116
|
|
|
|
3
|
|
|
|
36,501
|
|
|
|
467
|
|
Non-agency mortgage-backed securities
|
|
|
130,134
|
|
|
|
14,530
|
|
|
|
203,787
|
|
|
|
23,310
|
|
|
|
333,921
|
|
|
|
37,840
|
|
Other asset-backed securities
|
|
|
52,785
|
|
|
|
25
|
|
|
|
28,725
|
|
|
|
363
|
|
|
|
81,510
|
|
|
|
388
|
|
|
|
Total mortgage and asset-backed securities
|
|
|
219,304
|
|
|
|
15,019
|
|
|
|
232,628
|
|
|
|
23,676
|
|
|
|
451,932
|
|
|
|
38,695
|
|
|
|
Other debt securities
|
|
|
14,464
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
14,464
|
|
|
|
32
|
|
|
|
Total
|
|
$
|
350,372
|
|
|
$
|
16,377
|
|
|
$
|
324,799
|
|
|
$
|
31,913
|
|
|
$
|
675,171
|
|
|
$
|
48,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
(In thousands)
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
|
At December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
168,172
|
|
|
$
|
333
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
168,172
|
|
|
$
|
333
|
|
Government-sponsored enterprise obligations
|
|
|
24,842
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
24,842
|
|
|
|
120
|
|
State and municipal obligations
|
|
|
16,471
|
|
|
|
121
|
|
|
|
104,215
|
|
|
|
2,907
|
|
|
|
120,686
|
|
|
|
3,028
|
|
Mortgage and asset-backed securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
214,571
|
|
|
|
1,911
|
|
|
|
150
|
|
|
|
3
|
|
|
|
214,721
|
|
|
|
1,914
|
|
Non-agency mortgage-backed securities
|
|
|
209,961
|
|
|
|
18,512
|
|
|
|
215,158
|
|
|
|
31,688
|
|
|
|
425,119
|
|
|
|
50,200
|
|
Other asset-backed securities
|
|
|
290,183
|
|
|
|
218
|
|
|
|
34,456
|
|
|
|
1,047
|
|
|
|
324,639
|
|
|
|
1,265
|
|
|
|
Total mortgage and asset-backed securities
|
|
|
714,715
|
|
|
|
20,641
|
|
|
|
249,764
|
|
|
|
32,738
|
|
|
|
964,479
|
|
|
|
53,379
|
|
|
|
Total
|
|
$
|
924,200
|
|
|
$
|
21,215
|
|
|
$
|
353,979
|
|
|
$
|
35,645
|
|
|
$
|
1,278,179
|
|
|
$
|
56,860
|
|
|
|
The total available for sale portfolio consisted of
approximately 1,200 individual securities at March 31,
2010, with 104 securities in a loss position. Securities with
temporary impairment totaled 90, of which 36 securities, or
4% of the portfolio value, had been in a loss position for
12 months or longer.
The unrealized losses on the Companys investments, as
shown in the preceding tables, are largely contained in the
portfolio of non-agency mortgage-backed securities. These
securities are not guaranteed by an outside agency and are
dependent on payments received from the underlying mortgage
collateral. While nearly all of these securities, at purchase
date, were comprised of senior tranches and were highly rated by
various rating agencies, the adverse housing market, liquidity
pressures and overall economic climate has resulted in low fair
values for these securities. Also, as mentioned above, the
Company maintains a watch list comprised mostly of these
securities, and has recorded OTTI losses on certain of these
securities. The Company continues to closely monitor the
performance of these securities. Additional OTTI on these and
other securities may arise in future periods due to further
deterioration in expected cash flows, loss severities and
delinquency levels of the securities underlying
collateral, which would negatively affect the Companys
financial results.
13
The following table presents proceeds from sales of securities
and the components of investment securities gains and losses
which have been recognized in earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
|
March 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Proceeds from sales of available for sale securities
|
|
$
|
19,991
|
|
|
$
|
2,032
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
Gains realized on sales
|
|
$
|
510
|
|
|
$
|
8
|
|
Losses realized on sales
|
|
|
(102
|
)
|
|
|
|
|
Other-than-temporary
impairment recognized on debt securities
|
|
|
(1,457
|
)
|
|
|
(553
|
)
|
Non-marketable:
|
|
|
|
|
|
|
|
|
Fair value adjustments, net
|
|
|
(2,616
|
)
|
|
|
(1,627
|
)
|
|
|
Investment securities losses, net
|
|
$
|
(3,665
|
)
|
|
$
|
(2,172
|
)
|
|
|
At March 31, 2010, securities carried at $3.9 billion
were pledged to secure public fund deposits, securities sold
under agreements to repurchase, trust funds, and borrowing
capacity at the Federal Reserve Bank. Securities pledged under
agreements pursuant to which the collateral may be sold or
re-pledged by the secured parties approximated
$533.4 million, while the remaining securities were pledged
under agreements pursuant to which the secured parties may not
sell or re-pledge the collateral.
|
|
4.
|
Goodwill
and Other Intangible Assets
|
The following table presents information about the
Companys intangible assets which have estimable useful
lives.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Valuation
|
|
|
Net
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Valuation
|
|
|
Net
|
|
(In thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Allowance
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Allowance
|
|
|
Amount
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit premium
|
|
$
|
25,720
|
|
|
$
|
(13,802
|
)
|
|
$
|
|
|
|
$
|
11,918
|
|
|
$
|
25,720
|
|
|
$
|
(12,966
|
)
|
|
$
|
|
|
|
$
|
12,754
|
|
Mortgage servicing rights
|
|
|
2,931
|
|
|
|
(1,275
|
)
|
|
|
(155
|
)
|
|
|
1,501
|
|
|
|
2,898
|
|
|
|
(1,206
|
)
|
|
|
(113
|
)
|
|
|
1,579
|
|
|
|
Total
|
|
$
|
28,651
|
|
|
$
|
(15,077
|
)
|
|
$
|
(155
|
)
|
|
$
|
13,419
|
|
|
$
|
28,618
|
|
|
$
|
(14,172
|
)
|
|
$
|
(113
|
)
|
|
$
|
14,333
|
|
|
|
Aggregate amortization expense on intangible assets was $905
thousand and $1.2 million, respectively, for the three
month periods ended March 31, 2010 and 2009. The following
table shows the estimated annual amortization expense for the
next five fiscal years. This expense is based on existing asset
balances and the interest rate environment as of March 31,
2010. The Companys actual amortization expense in any
given period may be different from the estimated amounts
depending upon the acquisition of intangible assets, changes in
mortgage interest rates, prepayment rates and other market
conditions.
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
2010
|
|
$
|
3,384
|
|
2011
|
|
|
2,840
|
|
2012
|
|
|
2,309
|
|
2013
|
|
|
1,784
|
|
2014
|
|
|
1,316
|
|
|
|
14
Changes in the carrying amount of goodwill and net other
intangible assets for the three month period ended
March 31, 2010 is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
|
|
|
|
|
|
|
Core Deposit
|
|
|
Servicing
|
|
(In thousands)
|
|
Goodwill
|
|
|
Premium
|
|
|
Rights
|
|
|
|
|
Balance at January 1, 2010
|
|
$
|
125,585
|
|
|
$
|
12,754
|
|
|
$
|
1,579
|
|
Originations
|
|
|
|
|
|
|
|
|
|
|
33
|
|
Amortization
|
|
|
|
|
|
|
(836
|
)
|
|
|
(69
|
)
|
Impairment
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
Balance at March 31, 2010
|
|
$
|
125,585
|
|
|
$
|
11,918
|
|
|
$
|
1,501
|
|
|
|
Goodwill allocated to the Companys operating segments at
March 31, 2010 and December 31, 2009 is shown below.
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Consumer segment
|
|
$
|
67,765
|
|
Commercial segment
|
|
|
57,074
|
|
Wealth segment
|
|
|
746
|
|
|
|
Total goodwill
|
|
$
|
125,585
|
|
|
|
The Company, as a provider of financial services, routinely
issues financial guarantees in the form of financial and
performance standby letters of credit. Standby letters of credit
are contingent commitments issued by the Company generally to
guarantee the payment or performance obligation of a customer to
a third party. While these represent a potential outlay by the
Company, a significant amount of the commitments may expire
without being drawn upon. The Company has recourse against the
customer for any amount it is required to pay to a third party
under a standby letter of credit. The letters of credit are
subject to the same credit policies, underwriting standards and
approval process as loans made by the Company. Most of the
standby letters of credit are secured and in the event of
nonperformance by the customers, the Company has rights to the
underlying collateral, which could include commercial real
estate, physical plant and property, inventory, receivables,
cash and marketable securities.
Upon issuance of standby letters of credit, the Company
recognizes a liability for the fair value of the obligation
undertaken, which is estimated to be equivalent to the amount of
fees received from the customer over the life of the agreement.
At March 31, 2010 that net liability was $3.0 million,
which will be accreted into income over the remaining life of
the respective commitments. The contractual amount of these
letters of credit, which represents the maximum potential future
payments guaranteed by the Company, was $378.7 million at
March 31, 2010.
The Company periodically enters into risk participation
agreements (RPAs) as a guarantor to other financial
institutions, in order to mitigate those institutions
credit risk associated with interest rate swaps with third
parties. The RPA stipulates that, in the event of default by the
third party on the interest rate swap, the Company will
reimburse a portion of the loss borne by the financial
institution. These interest rate swaps are normally
collateralized (generally with real property, inventories and
equipment) by the third party, which limits the credit risk
associated with the Companys RPAs. The third parties
usually have other borrowing relationships with the Company. The
Company monitors overall borrower collateral, and at
March 31, 2010, believes sufficient collateral is available
to cover potential swap losses. The Company receives a fee from
the institution at the inception of the contract, which is
recorded as a liability representing the fair value of the RPA.
Any future changes in fair value, including those due to a
change in the third partys creditworthiness, are recorded
in current earnings. The terms of the RPAs, which correspond to
the terms of the underlying swaps, range from 5 to
10 years. At March 31, 2010, the liability recorded
for guarantor RPAs was $337 thousand, and the notional amount of
the underlying swaps was $43.1 million. The maximum
15
potential future payment guaranteed by the Company cannot be
readily estimated, but is dependent upon the fair value of the
interest rate swaps at the time of default. If an event of
default on all contracts had occurred at March 31, 2010,
the Company would have been required to make payments of
approximately $3.1 million.
At March 31, 2010 the Company had recorded a liability of
$8.8 million representing its obligation to share certain
estimated litigation costs of Visa, Inc. (Visa). An escrow
account has been established by Visa, and is being used to fund
actual litigation settlements as they occur. The escrow account
was funded initially with proceeds from an initial public
offering, and subsequently with contributions by Visa. The
Companys indemnification obligation is periodically
adjusted to reflect changes in estimates of litigation costs,
and is reduced as funding occurs in the escrow account. The
Company currently anticipates that its proportional share of
eventual escrow funding will more than offset its liability
related to the Visa litigation.
The amount of net pension cost for the three months ended
March 31, 2010 and 2009 is as follows.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
|
Three Months
|
|
|
|
Ended March 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Service cost benefits earned during the period
|
|
$
|
183
|
|
|
$
|
268
|
|
Interest cost on projected benefit obligation
|
|
|
1,367
|
|
|
|
1,363
|
|
Expected return on plan assets
|
|
|
(1,640
|
)
|
|
|
(1,598
|
)
|
Amortization of unrecognized net loss
|
|
|
567
|
|
|
|
675
|
|
|
|
Net periodic pension cost
|
|
$
|
477
|
|
|
$
|
708
|
|
|
|
Substantially all benefits under the Companys defined
benefit pension plan were frozen effective January 1, 2005.
During the first three months of 2010, the Company made no
funding contributions to its defined benefit pension plan, and
made minimal funding contributions to a supplemental executive
retirement plan (the CERP), which carries no segregated assets.
The Company has no plans to make any further contributions,
other than those related to the CERP, during the remainder of
2010.
16
Presented below is a summary of the components used to calculate
basic and diluted income per share. The Company applies the
two-class method of computing income per share, as unvested
share-based awards that contain nonforfeitable rights to
dividends are considered securities which participate in
undistributed earnings with common stock. The two-class method
requires the calculation of separate income per share amounts
for the unvested share-based awards and for common stock. Income
per share attributable to common stock is shown in the table
below. Unvested share-based awards are further discussed in
Note 12 below.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
|
March 31
|
|
(In thousands, except per share data)
|
|
2010
|
|
|
2009
|
|
|
|
|
Basic income per common share:
|
|
|
|
|
|
|
|
|
Net income attributable to Commerce Bancshares, Inc.
|
|
$
|
44,170
|
|
|
$
|
30,836
|
|
Less income allocated to unvested restricted stockholders
|
|
|
234
|
|
|
|
134
|
|
|
|
Net income available to common stockholders
|
|
$
|
43,936
|
|
|
$
|
30,702
|
|
|
|
Distributed income
|
|
$
|
19,487
|
|
|
$
|
18,174
|
|
Undistributed income
|
|
$
|
24,449
|
|
|
$
|
12,528
|
|
|
|
Weighted average common shares outstanding
|
|
|
82,874
|
|
|
|
79,487
|
|
|
|
Distributed income per share
|
|
$
|
.24
|
|
|
$
|
.23
|
|
Undistributed income per share
|
|
|
.29
|
|
|
|
.15
|
|
|
|
Basic income per common share
|
|
$
|
.53
|
|
|
$
|
.38
|
|
|
|
Diluted income per common share:
|
|
|
|
|
|
|
|
|
Net income attributable to Commerce Bancshares, Inc.
|
|
$
|
44,170
|
|
|
$
|
30,836
|
|
Less income allocated to unvested restricted stockholders
|
|
|
234
|
|
|
|
134
|
|
|
|
Net income available to common stockholders
|
|
$
|
43,936
|
|
|
$
|
30,702
|
|
|
|
Distributed income
|
|
$
|
19,487
|
|
|
$
|
18,174
|
|
Undistributed income
|
|
$
|
24,449
|
|
|
$
|
12,528
|
|
|
|
Weighted average common shares outstanding
|
|
|
82,874
|
|
|
|
79,487
|
|
Net effect of the assumed exercise of stock-based
awards based on the treasury stock method using the
average market price for the respective periods
|
|
|
452
|
|
|
|
320
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
83,326
|
|
|
|
79,807
|
|
|
|
Distributed income per share
|
|
$
|
.24
|
|
|
$
|
.23
|
|
Undistributed income per share
|
|
|
.29
|
|
|
|
.15
|
|
|
|
Diluted income per common share
|
|
$
|
.53
|
|
|
$
|
.38
|
|
|
|
|
|
8.
|
Other
Comprehensive Income (Loss)
|
Activity in other comprehensive income (loss) for the first
three months of 2010 and 2009 is shown in the table below. The
first component of other comprehensive income is the unrealized
holding gains and losses on available for sale securities. These
gains and losses have been separated into two groups in the
table below, as required by current accounting guidance for
other-than-temporary
impairment (OTTI) on debt securities. Under this guidance,
credit-related losses on debt securities with OTTI are recorded
in current earnings, while the noncredit-related portion of the
overall gain or loss in fair value is recorded in other
comprehensive income (loss). Changes in the noncredit-related
gain or loss in fair value of these securities, after OTTI was
17
initially recognized, are shown separately in the table below.
The remaining unrealized holding gains and losses shown in the
table apply to available for sale investment securities for
which OTTI has not been recorded (and include holding gains and
losses on certain securities prior to the recognition of OTTI).
In the calculation of other comprehensive income, certain
reclassification adjustments are made to avoid double counting
gains and losses that are included as part of net income for a
period that also had been included as part of other
comprehensive income in that period or earlier periods. These
reclassification amounts are shown separately in the table below.
The second component of other comprehensive income is pension
gains and losses that arise during the period but are not
recognized as components of net periodic benefit cost, and
corresponding adjustments when these gains and losses are
subsequently amortized to net periodic benefit cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
Months Ended
|
|
|
|
March 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Available for sale debt securities for which a portion of
OTTI has been recorded in earnings:
|
|
|
|
|
|
|
|
|
Unrealized holding gains subsequent to initial OTTI recognition
|
|
$
|
6,302
|
|
|
$
|
778
|
|
Income tax expense
|
|
|
(2,394
|
)
|
|
|
(295
|
)
|
|
|
Net unrealized gains
|
|
|
3,908
|
|
|
|
483
|
|
|
|
Other available for sale investment securities:
|
|
|
|
|
|
|
|
|
Unrealized holding gains
|
|
|
12,380
|
|
|
|
24,043
|
|
Reclassification adjustment for gains included in net income
|
|
|
(408
|
)
|
|
|
(8
|
)
|
|
|
Net unrealized gains on securities
|
|
|
11,972
|
|
|
|
24,035
|
|
Income tax expense
|
|
|
(4,550
|
)
|
|
|
(9,134
|
)
|
|
|
Net unrealized gains
|
|
|
7,422
|
|
|
|
14,901
|
|
|
|
Prepaid pension cost:
|
|
|
|
|
|
|
|
|
Amortization of accumulated pension loss
|
|
|
567
|
|
|
|
675
|
|
Income tax expense
|
|
|
(216
|
)
|
|
|
(250
|
)
|
|
|
Pension loss amortization
|
|
|
351
|
|
|
|
425
|
|
|
|
Other comprehensive income
|
|
$
|
11,681
|
|
|
$
|
15,809
|
|
|
|
At March 31, 2010, accumulated other comprehensive income
was $58.1 million, net of tax. It was comprised of
$17.0 million in unrealized holding losses on available for
sale debt securities for which a portion of OTTI has been
recorded in earnings, $92.6 million in unrealized holding
gains on other available for sale securities, and
$17.5 million in accumulated pension loss.
The Company segregates financial information for use in
assessing its performance and allocating resources among three
operating segments: Consumer, Commercial and Wealth. The
Consumer segment includes the consumer portion of the retail
branch network (loans, deposits, and other personal banking
services), indirect and other consumer financing, consumer debit
and credit bank cards, and student lending. The Commercial
segment provides corporate lending (including the Small Business
Banking product line within the branch network), leasing,
international services, and business, government deposit, and
related commercial cash management services, as well as Merchant
and Commercial bank card products. The Wealth segment provides
traditional trust and estate tax planning, advisory and
discretionary investment management, as well as discount
brokerage services, and the Private Banking product portfolio.
18
The following table presents selected financial information by
segment and reconciliations of combined segment totals to
consolidated totals. There were no material intersegment
revenues among the three segments. Management periodically makes
changes to methods of assigning costs and income to its business
segments to better reflect operating results. If appropriate,
these changes are reflected in prior year information presented
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Other/
|
|
|
Consolidated
|
|
(In thousands)
|
|
Consumer
|
|
|
Commercial
|
|
|
Wealth
|
|
|
Totals
|
|
|
Elimination
|
|
|
Totals
|
|
|
|
|
Three Months Ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
86,833
|
|
|
$
|
67,095
|
|
|
$
|
10,605
|
|
|
$
|
164,533
|
|
|
$
|
(1,823
|
)
|
|
$
|
162,710
|
|
Provision for loan losses
|
|
|
(19,278
|
)
|
|
|
(11,928
|
)
|
|
|
(58
|
)
|
|
|
(31,264
|
)
|
|
|
(3,058
|
)
|
|
|
(34,322
|
)
|
Non-interest income
|
|
|
34,430
|
|
|
|
30,148
|
|
|
|
27,486
|
|
|
|
92,064
|
|
|
|
1,188
|
|
|
|
93,252
|
|
Investment securities losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,665
|
)
|
|
|
(3,665
|
)
|
Non-interest expense
|
|
|
(73,144
|
)
|
|
|
(50,185
|
)
|
|
|
(26,773
|
)
|
|
|
(150,102
|
)
|
|
|
(5,685
|
)
|
|
|
(155,787
|
)
|
|
|
Income before income taxes
|
|
$
|
28,841
|
|
|
$
|
35,130
|
|
|
$
|
11,260
|
|
|
$
|
75,231
|
|
|
$
|
(13,043
|
)
|
|
$
|
62,188
|
|
|
|
Three Months Ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
87,418
|
|
|
$
|
56,162
|
|
|
$
|
9,962
|
|
|
$
|
153,542
|
|
|
$
|
(3,527
|
)
|
|
$
|
150,015
|
|
Provision for loan losses
|
|
|
(20,619
|
)
|
|
|
(14,173
|
)
|
|
|
(271
|
)
|
|
|
(35,063
|
)
|
|
|
(8,105
|
)
|
|
|
(43,168
|
)
|
Non-interest income
|
|
|
35,437
|
|
|
|
26,539
|
|
|
|
28,931
|
|
|
|
90,907
|
|
|
|
1,524
|
|
|
|
92,431
|
|
Investment securities losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,172
|
)
|
|
|
(2,172
|
)
|
Non-interest expense
|
|
|
(72,817
|
)
|
|
|
(47,121
|
)
|
|
|
(26,198
|
)
|
|
|
(146,136
|
)
|
|
|
(6,750
|
)
|
|
|
(152,886
|
)
|
|
|
Income before income taxes
|
|
$
|
29,419
|
|
|
$
|
21,407
|
|
|
$
|
12,424
|
|
|
$
|
63,250
|
|
|
$
|
(19,030
|
)
|
|
$
|
44,220
|
|
|
|
The information presented above was derived from the internal
profitability reporting system used by management to monitor and
manage the financial performance of the Company. This
information is based on internal management accounting policies,
which have been developed to reflect the underlying economics of
the businesses. The policies address the methodologies applied
in connection with funds transfer pricing and assignment of
overhead costs among segments. Funds transfer pricing was used
in the determination of net interest income by assigning a
standard cost (credit) for funds used (provided) by assets and
liabilities based on their maturity, prepayment
and/or
repricing characteristics.
The segment activity, as shown above, includes both direct and
allocated items. Amounts in the Other/Elimination
column include activity not related to the segments, such as
that relating to administrative functions, the investment
securities portfolio, and the effect of certain expense
allocations to the segments. The provision for loan losses in
this category contains the difference between loan charge-offs
and recoveries assigned directly to the segments and the
recorded provision for loan loss expense. Included in this
categorys net interest income are earnings of the
investment portfolio, which are not allocated to a segment.
The performance measurement of the operating segments is based
on the management structure of the Company and is not
necessarily comparable with similar information for any other
financial institution. The information is also not necessarily
indicative of the segments financial condition and results
of operations if they were independent entities.
19
|
|
10.
|
Derivative
Instruments
|
The notional amounts of the Companys derivative
instruments are shown in the table below. These contractual
amounts, along with other terms of the derivative, are used to
determine amounts to be exchanged between counterparties, and
are not a measure of loss exposure. The largest group of
notional amounts relate to interest rate swaps, which are
discussed in more detail below. Through its International
Department, the Company enters into foreign exchange contracts
consisting mainly of contracts to purchase or deliver foreign
currencies for customers at specific future dates. Also,
mortgage loan commitments and forward sales contracts result
from the Companys mortgage banking operation, in which
fixed rate personal real estate loans are originated and sold to
other institutions. The Company also contracts with other
financial institutions, as a guarantor or beneficiary, to share
credit risk associated with certain interest rate swaps. The
Companys risks and responsibilities as guarantor are
further discussed in Note 5 on Guarantees.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Interest rate swaps
|
|
$
|
530,774
|
|
|
$
|
503,530
|
|
Interest rate caps
|
|
|
16,236
|
|
|
|
16,236
|
|
Credit risk participation agreements
|
|
|
64,029
|
|
|
|
53,246
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
33,185
|
|
|
|
17,475
|
|
Option contracts
|
|
|
3,360
|
|
|
|
|
|
Mortgage loan commitments
|
|
|
14,485
|
|
|
|
9,767
|
|
Mortgage loan forward sale contracts
|
|
|
18,074
|
|
|
|
19,986
|
|
|
|
Total notional amount
|
|
$
|
680,143
|
|
|
$
|
620,240
|
|
|
|
The Companys interest rate risk management strategy
includes the ability to modify the repricing characteristics of
certain assets and liabilities so that changes in interest rates
do not adversely affect the net interest margin and cash flows.
Interest rate swaps are used on a limited basis as part of this
strategy. At March 31, 2010, the Company had entered into
three interest rate swaps with a notional amount of
$16.6 million, which are designated as fair value hedges of
certain fixed rate loans. Gains and losses on these derivative
instruments, as well as the offsetting loss or gain on the
hedged loans attributable to the hedged risk, are recognized in
current earnings. These gains and losses are reported in
interest and fees on loans in the accompanying statements of
income. The table below shows gains and losses related to fair
value hedges.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
Months Ended March 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Gain (loss) on interest rate swaps
|
|
$
|
(81
|
)
|
|
$
|
75
|
|
Gain (loss) on loans
|
|
|
73
|
|
|
|
(95
|
)
|
|
|
Amount of hedge ineffectiveness
|
|
$
|
(8
|
)
|
|
$
|
(20
|
)
|
|
|
The Companys other derivative instruments are accounted
for as free-standing derivatives, and changes in their fair
value are recorded in current earnings. These instruments
include interest rate swap contracts sold to customers who wish
to modify their interest rate sensitivity. These swaps are
offset by matching contracts purchased by the Company from other
financial institutions. Because of the matching terms of the
offsetting contracts, in addition to collateral provisions which
mitigate the impact of non-performance risk, changes in fair
value subsequent to initial recognition have a minimal effect on
earnings. The notional amount of these types of swaps at
March 31, 2010 was $514.2 million. The Company is
party to master netting arrangements with its institutional
counterparties; however, the effect of offsetting assets and
liabilities under these arrangements is not significant.
Collateral exchanges typically involve marketable securities.
20
The Companys interest rate swap arrangements with other
financial institutions contain contingent features relating to
debt ratings or capitalization levels. Under these provisions,
if the Companys debt rating falls below investment grade
or if the Company ceases to be well-capitalized
under risk-based capital guidelines, certain counterparties can
require immediate and ongoing collateralization on interest rate
swaps in net liability positions, or in certain circumstances,
can require instant settlement of the contracts. The aggregate
fair value of interest rate swap contracts with credit
risk-related contingent features that were in a liability
position on March 31, 2010 was $17.3 million, for
which the Company had posted collateral of $14.2 million.
If the credit risk-related contingent features relating to
collateral were triggered on March 31, 2010, the Company
would be required to post an additional $2.0 million of
collateral to certain counterparties. If other credit-related
settlement features were also triggered at March 31, 2010,
a cash disbursement of $1.2 million, in addition to
collateral posted, would be required.
The banking customer counterparties are engaged in a variety of
businesses, including real estate, building materials,
communications, consumer products, and manufacturing. The
manufacturing group is the largest, with a combined notional
amount of 32.8% of the total customer swap portfolio. If this
group of manufacturing counterparties failed to perform, and if
the underlying collateral proved to be of no value, the Company
would incur a loss of $5.0 million, based on amounts at
March 31, 2010.
The fair values of the Companys derivative instruments are
shown in the table below. Information about the valuation
methods used to determine fair value is provided in Note 13
on Fair Value Measurements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
|
|
|
March 31
|
|
|
Dec. 31
|
|
|
|
|
March 31
|
|
|
Dec. 31
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
Sheet
|
|
|
|
|
|
|
|
Sheet
|
|
|
|
|
|
|
(In thousands)
|
|
Location
|
|
Fair Value
|
|
|
Location
|
|
Fair Value
|
|
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other assets
|
|
$
|
|
|
|
$
|
64
|
|
|
Other liabilities
|
|
$
|
(934
|
)
|
|
$
|
(918
|
)
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
|
|
|
$
|
64
|
|
|
|
|
$
|
(934
|
)
|
|
$
|
(918
|
)
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other assets
|
|
$
|
17,623
|
|
|
$
|
16,898
|
|
|
Other liabilities
|
|
$
|
(17,703
|
)
|
|
$
|
(16,898
|
)
|
Interest rate caps
|
|
Other assets
|
|
|
164
|
|
|
|
239
|
|
|
Other liabilities
|
|
|
(164
|
)
|
|
|
(239
|
)
|
Credit risk participation agreements
|
|
Other assets
|
|
|
132
|
|
|
|
140
|
|
|
Other liabilities
|
|
|
(337
|
)
|
|
|
(239
|
)
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
Other assets
|
|
|
735
|
|
|
|
415
|
|
|
Other liabilities
|
|
|
(340
|
)
|
|
|
(295
|
)
|
Option contracts
|
|
Other assets
|
|
|
1
|
|
|
|
|
|
|
Other liabilities
|
|
|
(1
|
)
|
|
|
|
|
Mortgage loan commitments
|
|
Other assets
|
|
|
115
|
|
|
|
44
|
|
|
Other liabilities
|
|
|
(3
|
)
|
|
|
(16
|
)
|
Mortgage loan forward sale contracts
|
|
Other assets
|
|
|
79
|
|
|
|
184
|
|
|
Other liabilities
|
|
|
(1
|
)
|
|
|
(5
|
)
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
|
$
|
18,849
|
|
|
$
|
17,920
|
|
|
|
|
$
|
(18,549
|
)
|
|
$
|
(17,692
|
)
|
|
|
Total derivatives
|
|
|
|
$
|
18,849
|
|
|
$
|
17,984
|
|
|
|
|
$
|
(19,483
|
)
|
|
$
|
(18,610
|
)
|
|
|
21
The effects of derivative instruments on the consolidated
statements of income are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain or (Loss)
|
|
Amount of Gain or (Loss)
|
|
|
|
Recognized in Income on
|
|
Recognized in Income on
|
|
|
|
Derivative
|
|
Derivative
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
|
|
|
Months Ended
|
|
|
|
|
|
March 31
|
|
(In thousands)
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Derivatives in fair value hedging relationships:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Interest and fees on loans
|
|
$
|
(81
|
)
|
|
$
|
75
|
|
|
|
Total
|
|
|
|
$
|
(81
|
)
|
|
$
|
75
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
Other non-interest income
|
|
$
|
190
|
|
|
$
|
212
|
|
Interest rate caps
|
|
Other non-interest income
|
|
|
|
|
|
|
|
|
Credit risk participation agreements
|
|
Other non-interest income
|
|
|
5
|
|
|
|
5
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
Other non-interest income
|
|
|
276
|
|
|
|
(41
|
)
|
Option contracts
|
|
Other non-interest income
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
Loan fees and sales
|
|
|
84
|
|
|
|
300
|
|
Mortgage loan forward sale contracts
|
|
Loan fees and sales
|
|
|
(102
|
)
|
|
|
(206
|
)
|
|
|
Total
|
|
|
|
$
|
453
|
|
|
$
|
270
|
|
|
|
For the first quarter of 2010, income tax expense amounted to
$18.4 million compared to $13.6 million in the first
quarter of 2009. The effective income tax rate for the Company,
including the effect of non-controlling interest, was 29.4% in
the current quarter compared to 30.6% in the same quarter last
year. The effective tax rate was lower in the first quarter of
2010 compared to the first quarter of 2009 due to a change in
the mix of taxable and non-taxable income on higher pre-tax
income.
|
|
12.
|
Stock-Based
Compensation
|
The Company normally issues most of its annual stock-based
compensation awards during the first quarter. Stock-based
compensation has historically been issued in the form of
options, stock appreciation rights (SARs) and nonvested stock.
During the first quarters of 2010 and 2009, stock-based
compensation was issued solely in the form of nonvested stock
awards. The stock-based compensation expense that has been
charged against income was $1.8 million in the first three
months of 2010 and $1.6 million in the first three months
of 2009.
The 2010 stock awards vest in 5 to 7 years and contain
restrictions as to transferability, sale, pledging, or
assigning, among others, prior to the end of the vesting period.
Dividend and voting rights are conferred upon grant. A summary
of the status of the Companys nonvested share awards, as
of March 31, 2010, and changes during the three month
period then ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
Nonvested at January 1, 2010
|
|
|
361,399
|
|
|
$
|
37.23
|
|
Granted
|
|
|
150,157
|
|
|
|
39.45
|
|
Vested
|
|
|
(26,442
|
)
|
|
|
37.48
|
|
Forfeited
|
|
|
(3,777
|
)
|
|
|
34.94
|
|
|
|
Nonvested at March 31, 2010
|
|
|
481,337
|
|
|
$
|
37.93
|
|
|
|
22
SARs and stock options are granted with an exercise price equal
to the market price of the Companys stock at the date of
grant and have
10-year
contractual terms. SARs, which the Company granted in 2006
through 2008 and on a limited basis in 2009, vest on a graded
basis over 4 years of continuous service. All SARs must be
settled in stock under provisions of the plan. Stock options,
which were granted in 2005 and previous years, vest on a graded
basis over 3 years of continuous service. In determining
compensation cost, the Black-Scholes option-pricing model is
used to estimate the fair value of SARs and options on date of
grant.
A summary of option activity during the first three months of
2010 is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
(Dollars in thousands, except per share data)
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Outstanding at January 1, 2010
|
|
|
2,287,787
|
|
|
$
|
31.30
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(185,382
|
)
|
|
|
22.87
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
2,102,405
|
|
|
$
|
32.04
|
|
|
|
3.2 years
|
|
|
$
|
19,127
|
|
|
|
A summary of SAR activity during the first three months of 2010
is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
(Dollars in thousands, except per share data)
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
Outstanding at January 1, 2010
|
|
|
1,669,753
|
|
|
$
|
41.71
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(5,134
|
)
|
|
|
40.75
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2010
|
|
|
1,664,619
|
|
|
$
|
41.68
|
|
|
|
6.9 years
|
|
|
$
|
726
|
|
|
|
|
|
13.
|
Fair
Value Measurements
|
The Company uses fair value measurements to record fair value
adjustments to certain financial and nonfinancial assets and
liabilities and to determine fair value disclosures. Various
financial instruments such as available for sale and trading
securities, certain non-marketable securities relating to
private equity activities, and derivatives are recorded at fair
value on a recurring basis. Additionally, from time to time, the
Company may be required to record at fair value other assets and
liabilities on a nonrecurring basis, such as loans held for
sale, mortgage servicing rights and certain other investment
securities. These nonrecurring fair value adjustments typically
involve lower of cost or fair value accounting, or write-downs
of individual assets.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Depending
on the nature of the asset or liability, the Company uses
various valuation techniques and assumptions when estimating
fair value. For accounting disclosure purposes, a three-level
valuation hierarchy of fair value measurements has been
established. The valuation hierarchy is based upon the
transparency of inputs to the valuation of an asset or liability
as of the measurement date. The three levels are defined as
follows:
|
|
|
|
|
Level 1 inputs to the valuation methodology are
quoted prices for identical assets or liabilities in active
markets.
|
23
|
|
|
|
|
Level 2 inputs to the valuation methodology
include quoted prices for similar assets and liabilities in
active markets, quoted prices for identical or similar assets
and liabilities in markets that are not active, and inputs that
are observable for the assets or liabilities, either directly or
indirectly (such as interest rates, yield curves, and prepayment
speeds).
|
|
|
|
Level 3 inputs to the valuation methodology are
unobservable and significant to the fair value. These may be
internally developed, using the Companys best information
and assumptions that a market participant would consider.
|
When determining the fair value measurements for assets and
liabilities required or permitted to be recorded or disclosed at
fair value, the Company considers the principal or most
advantageous market in which it would transact and considers
assumptions that market participants would use when pricing the
asset or liability. When possible, the Company looks to active
and observable markets to price identical assets or liabilities.
When identical assets and liabilities are not traded in active
markets, the Company looks to observable market data for similar
assets and liabilities. Nevertheless, certain assets and
liabilities are not actively traded in observable markets and
the Company must use alternative valuation techniques to derive
an estimated fair value measurement.
Valuation
methods for instruments measured at fair value on a recurring
basis
Following is a description of the Companys valuation
methodologies used for instruments measured at fair value on a
recurring basis:
Available
for sale investment securities
For available for sale securities, changes in fair value,
including that portion of
other-than-temporary
impairment unrelated to credit loss, are recorded in other
comprehensive income. As mentioned in Note 3 on Investment
Securities, the Company records the credit-related portion of
other-than-temporary
impairment in current earnings. This portfolio comprises the
majority of the assets which the Company records at fair value.
Most of the portfolio, which includes government-sponsored
enterprise, mortgage-backed and asset-backed securities, are
priced utilizing industry-standard models that consider various
assumptions, including time value, yield curves, volatility
factors, prepayment speeds, default rates, loss severity,
current market and contractual prices for the underlying
financial instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable
in the marketplace, can be derived from observable data, or are
supported by observable levels at which transactions are
executed in the marketplace. These measurements are classified
as Level 2 in the fair value hierarchy. Where quoted prices
are available in an active market, the measurements are
classified as Level 1. Most of the Level 1
measurements apply to common stock and U.S. Treasury
obligations.
Valuation methods and inputs, by class of security:
|
|
|
|
|
U.S. government and federal agency obligations
U.S. treasury bills, bonds and notes, including TIPS,
are valued using live data from active market makers and
inter-dealer brokers. Valuations for stripped coupon and
principal issues are derived from yield curves generated from
various dealer contacts and live data sources.
|
|
|
|
Government-sponsored enterprise obligations
Government-sponsored enterprise obligations are evaluated
using cash flow valuation models. Inputs used are live market
data, cash settlements, Treasury market yields, and floating
rate indices such as LIBOR, CMT, and Prime.
|
|
|
|
State and municipal obligations, excluding auction rate
securities
A yield curve is generated and applied to bond sectors, and
individual bond valuations are extrapolated. Inputs used to
generate the yield curve are bellwether issue levels,
established trading spreads between similar issuers or credits,
historical trading spreads over widely accepted market
benchmarks, new issue scales, and verified bid information. Bid
information is verified by
|
24
|
|
|
|
|
corroborating the data against external sources such as
broker-dealers, trustees/paying agents, issuers, or
non-affiliated bondholders.
|
|
|
|
|
|
Mortgage and asset-backed securities
Collateralized mortgage obligations and other asset-backed
securities are valued at the tranche level. For each tranche
valuation, the process generates predicted cash flows for the
tranche, applies a market based (or benchmark) yield/spread for
each tranche, and incorporates deal collateral performance and
tranche level attributes to determine tranche-specific spreads
to adjust the benchmark yield. Tranche cash flows are generated
from new deal files and prepayment/default assumptions. Tranche
spreads are based on tranche characteristics such as average
life, type, volatility, ratings, underlying collateral and
performance, and prevailing market conditions. The appropriate
tranche spread is applied to the corresponding benchmark, and
the resulting value is used to discount the cash flows to
generate an evaluated price.
|
Valuation of agency pass-through securities, typically issued
under GNMA, FNMA, FHLMC, and SBA programs, are primarily derived
from information from the To Be Announced (TBA) market. This
market consists of generic mortgage pools which have not been
received for settlement. Snapshots of the TBA market, using live
data feeds distributed by multiple electronic platforms, and in
conjunction with other indices, are used to compute a price
based on discounted cash flow models.
|
|
|
|
|
Other debt securities
Other debt securities are valued using active markets and
inter-dealer brokers as well as bullet spread scales and option
adjusted spreads. The spreads and models use yield curves, terms
and conditions of the bonds, and any special features (i.e.,
call or put options, redemption features, etc.).
|
|
|
|
Equity securities
Equity securities are priced using the market prices for
each security from the major stock exchanges or other electronic
quotation systems. These are generally classified as
Level 1 measurements. Stocks which trade infrequently are
classified as Level 2.
|
At March 31, 2010, the Company held certain auction rate
securities (ARS) in its available for sale portfolio, totaling
$158.1 million. Nearly all of these securities were
purchased from customers during the third quarter of 2008. The
auction process by which the ARS are normally priced has not
functioned since the first quarter of 2008, and the fair value
of these securities cannot be based on observable market prices
due to the illiquidity in the market. The fair values of the ARS
are estimated using a discounted cash flows analysis. Estimated
cash flows are based on mandatory interest rates paid under
failing auctions and projected over an estimated market recovery
period. The cash flows are discounted at an estimated market
rate reflecting adjustments for liquidity premium and
nonperformance risk. Because many of the inputs significant to
the measurement are not observable, these measurements are
classified as Level 3 measurements.
Trading
securities
The securities in the Companys trading portfolio are
priced by averaging several broker quotes for identical
instruments, and are classified as Level 2 measurements.
Private
equity investments
These securities are held by the Companys venture capital
subsidiaries and are included in non-marketable investment
securities in the consolidated balance sheets. Valuation of
these nonpublic investments requires significant management
judgment due to the absence of quoted market prices. Each
quarter, valuations are performed utilizing available market
data and other factors. Market data includes published trading
multiples for private equity investments of similar size. The
multiples are considered in conjunction with current operating
performance, future expectations, financing and sales
transactions, and other investment-specific issues. The Company
applies its valuation methodology consistently from period to
period, and believes that its methodology is similar to that
used by other market participants. These fair value measurements
are classified as Level 3.
25
Derivatives
The Companys derivative instruments include interest rate
swaps, foreign exchange forward contracts, commitments and sales
contracts related to personal mortgage loan origination
activity, and certain credit risk guarantee agreements. When
appropriate, the impact of credit standing as well as any
potential credit enhancements, such as collateral, has been
considered in the fair value measurement.
|
|
|
|
|
Valuations for interest rate swaps are derived from proprietary
models whose significant inputs are readily observable market
parameters, primarily yield curves. The results of the models
are constantly validated through comparison to active trading in
the marketplace. These fair value measurements are classified as
Level 2.
|
|
|
|
Fair value measurements for foreign exchange contracts are
derived from a model whose primary inputs are quotations from
global market makers, and are classified as Level 2.
|
|
|
|
The fair values of mortgage loan commitments and forward sales
contracts on the associated loans are based on quoted prices for
similar loans in the secondary market. However, these prices are
adjusted by a factor which considers the likelihood that a
commitment will ultimately result in a closed loan. This
estimate is based on the Companys historical data and its
judgment about future economic trends. Based on the unobservable
nature of this adjustment, these measurements are classified as
Level 3.
|
|
|
|
The Companys contracts related to credit risk guarantees
are valued under an internally developed methodology which uses
significant unobservable inputs and assumptions about the
creditworthiness of the counterparty to the guaranteed interest
rate swap contract. Consequently, these measurements are
classified as Level 3.
|
Assets
held in trust
Assets held in an outside trust for the Companys deferred
compensation plan consist of investments in mutual funds. The
fair value measurements are based on quoted prices in active
markets and classified as Level 1. The Company has recorded
an asset representing the total investment amount. The Company
has also recorded a corresponding nonfinancial liability,
representing the Companys liability to the plan
participants.
26
The table below presents the March 31, 2010 carrying values
of assets and liabilities measured at fair value on a recurring
basis. There were no transfers among levels during the first
three months of 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
(In thousands)
|
|
3/31/10
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
497,900
|
|
|
$
|
490,615
|
|
|
$
|
7,285
|
|
|
$
|
|
|
Government-sponsored enterprise obligations
|
|
|
212,758
|
|
|
|
|
|
|
|
212,758
|
|
|
|
|
|
State and municipal obligations
|
|
|
892,887
|
|
|
|
|
|
|
|
734,776
|
|
|
|
158,111
|
|
Agency mortgage-backed securities
|
|
|
2,082,409
|
|
|
|
|
|
|
|
2,082,409
|
|
|
|
|
|
Non-agency mortgage-backed securities
|
|
|
636,658
|
|
|
|
|
|
|
|
636,658
|
|
|
|
|
|
Other asset-backed securities
|
|
|
1,692,250
|
|
|
|
|
|
|
|
1,692,250
|
|
|
|
|
|
Other debt securities
|
|
|
191,656
|
|
|
|
|
|
|
|
191,656
|
|
|
|
|
|
Equity securities
|
|
|
49,724
|
|
|
|
33,349
|
|
|
|
16,375
|
|
|
|
|
|
Trading securities
|
|
|
26,888
|
|
|
|
|
|
|
|
26,888
|
|
|
|
|
|
Private equity investments
|
|
|
45,124
|
|
|
|
|
|
|
|
|
|
|
|
45,124
|
|
Derivatives*
|
|
|
18,849
|
|
|
|
|
|
|
|
18,523
|
|
|
|
326
|
|
Assets held in trust
|
|
|
3,912
|
|
|
|
3,912
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
6,351,015
|
|
|
|
527,876
|
|
|
|
5,619,578
|
|
|
|
203,561
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives*
|
|
|
19,483
|
|
|
|
|
|
|
|
19,142
|
|
|
|
341
|
|
|
|
Total liabilities
|
|
$
|
19,483
|
|
|
$
|
|
|
|
$
|
19,142
|
|
|
$
|
341
|
|
|
|
|
|
|
* |
|
The fair value of each class of
derivative is shown in Note 10. |
27
The changes in Level 3 assets and liabilities measured at
fair value on a recurring basis are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
Significant Unobservable Inputs
|
|
|
|
(Level 3)
|
|
|
|
State and
|
|
|
Private
|
|
|
|
|
|
|
|
|
|
Municipal
|
|
|
Equity
|
|
|
|
|
|
|
|
(In thousands)
|
|
Obligations
|
|
|
Investments
|
|
|
Derivatives
|
|
|
Total
|
|
|
|
|
For the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2010
|
|
$
|
167,836
|
|
|
$
|
44,827
|
|
|
$
|
108
|
|
|
$
|
212,771
|
|
Total gains or losses (realized /unrealized):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
(2,616
|
)
|
|
|
(13
|
)
|
|
|
(2,629
|
)
|
Included in other comprehensive income
|
|
|
(8,487
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,487
|
)
|
Purchases, issuances, and settlements, net
|
|
|
(1,238
|
)
|
|
|
2,913
|
|
|
|
(110
|
)
|
|
|
1,565
|
|
|
|
Balance at March 31, 2010
|
|
$
|
158,111
|
|
|
$
|
45,124
|
|
|
$
|
(15
|
)
|
|
$
|
203,220
|
|
|
|
Total gains or losses for the three months included in earnings
attributable to the change in unrealized gains or losses
relating to assets still held at March 31, 2010
|
|
$
|
|
|
|
$
|
(2,616
|
)
|
|
$
|
195
|
|
|
$
|
(2,421
|
)
|
|
|
Gains and losses on the Level 3 assets and liabilities in
the table above are reported in the following income categories:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
Other Non-
|
|
|
Gains
|
|
|
|
|
|
|
Loan Fees
|
|
|
Interest
|
|
|
(Losses),
|
|
|
|
|
(In thousands)
|
|
and Sales
|
|
|
Income
|
|
|
Net
|
|
|
Total
|
|
|
|
|
For the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or losses included in earnings
|
|
$
|
(18
|
)
|
|
$
|
5
|
|
|
$
|
(2,616
|
)
|
|
$
|
(2,629
|
)
|
|
|
Change in unrealized gains or losses relating to assets still
held at March 31, 2010
|
|
$
|
190
|
|
|
$
|
5
|
|
|
$
|
(2,616
|
)
|
|
$
|
(2,421
|
)
|
|
|
Valuation
methods for instruments measured at fair value on a nonrecurring
basis
Following is a description of the Companys valuation
methodologies used for other financial and nonfinancial
instruments measured at fair value on a nonrecurring basis.
Collateral
dependent impaired loans
While the overall loan portfolio is not carried at fair value,
the Company periodically records nonrecurring adjustments to the
carrying value of loans based on fair value measurements for
partial charge-offs of the uncollectible portions of those
loans. Nonrecurring adjustments also include certain impairment
amounts for collateral dependent loans when establishing the
allowance for loan losses. Such amounts are generally based on
the fair value of the underlying collateral supporting the loan.
In determining the value of real estate collateral, the Company
relies on external appraisals and assessment of property values
by its internal staff. In the case of non-real estate
collateral, reliance is placed on a variety of sources,
including external estimates of value and judgments based on the
experience and expertise of internal specialists. Because many
of these inputs are not observable, the measurements are
classified as Level 3. Changes in fair value recognized for
partial charge-offs of loans and loan impairment reserves on
loans held by the Company at March 31, 2010 are shown in
the table below.
28
Loans
held for sale
Loans held for sale are carried at the lower of cost or fair
value. The portfolio consists primarily of student loans, and to
a lesser extent, residential real estate loans. The
Companys student loans are contracted for sale with the
Federal Department of Education (DOE) and various investors in
the secondary market. Beginning in 2008, the secondary market
for student loans was disrupted by liquidity concerns.
Consequently, several investors have been unable to consistently
purchase loans under existing contractual terms. Loans under
contract to these investors have been evaluated using a fair
value measurement method based on a discounted cash flows
analysis, which was classified as Level 3 and resulted in
an impairment reserve of $828 thousand at December 31,
2009. During the first quarter of 2010, $422 thousand of this
reserve was reversed as certain of the related loans were sold.
The remainder of the identified portfolio, for which performance
concern remains, was carried at $12.9 million at
March 31, 2010. The measurement of fair value for the
remaining student loans, most of which will be sold to the DOE,
is based on the specific prices mandated in the underlying sale
contracts, the estimated exit price, and is classified as
Level 2. Fair value measurements on mortgage loans held for
sale are based on quoted market prices for similar loans in the
secondary market and are classified as Level 2.
Private
equity investments and restricted stock
These assets are included in non-marketable investment
securities in the consolidated balance sheets. They include
private equity investments held by the Parent company which are
carried at cost, reduced by
other-than-temporary
impairment. These investments are periodically evaluated for
impairment based on their estimated fair value. The valuation
methodology is described above under the recurring measurements
for Private equity investments. Also included is
stock issued by the Federal Reserve Bank and FHLB which is held
by the bank subsidiary as required for regulatory purposes.
Generally, there are restrictions on the sale
and/or
liquidation of these investments, and they are carried at cost,
reduced by
other-than-temporary
impairment. Fair value measurements for these securities are
classified as Level 3.
Mortgage
servicing rights
The Company initially measures its mortgage servicing rights at
fair value, and amortizes them over the period of estimated net
servicing income. They are periodically assessed for impairment
based on fair value at the reporting date. Mortgage servicing
rights do not trade in an active market with readily observable
prices. Accordingly, the fair value is estimated based on a
valuation model which calculates the present value of estimated
future net servicing income. The model incorporates assumptions
that market participants use in estimating future net servicing
income, including estimates of prepayment speeds, market
discount rates, cost to service, float earnings rates, and other
ancillary income, including late fees. The fair value
measurements are classified as Level 3.
Goodwill
and core deposit premium
Valuation of goodwill to determine impairment is performed on an
annual basis, or more frequently if there is an event or
circumstance that would indicate impairment may have occurred.
The process involves calculations to determine the fair value of
each reporting unit on a stand-alone basis. A combination of
formulas using current market multiples, based on recent sales
of financial institutions within the Companys geographic
marketplace, is used to estimate the fair value of each
reporting unit. That fair value is compared to the carrying
amount of the reporting unit, including its recorded goodwill.
Impairment is considered to have occurred if the fair value of
the reporting unit is lower than the carrying amount of the
reporting unit. These measurements are classified as
Level 3.
Core deposit premiums are recognized at the time a portfolio of
deposits is acquired, using valuation techniques which calculate
the present value of the estimated net cost savings attributable
to the core deposit base, relative to alternative costs of funds
and tax benefits, if applicable, over the expected remaining
economic life of the depositors. Subsequent evaluations are made
when facts or circumstances indicate potential impairment may
have occurred. The Company uses estimates of discounted future
cash flows,
29
comparisons with alternative sources for deposits, consideration
of income potential generated in other product lines by current
customers, geographic parameters, and other demographics to
estimate a current fair value of a specific deposit base. If the
calculated fair value is less than the carrying value,
impairment is considered to have occurred. This measurement is
classified as Level 3.
Foreclosed
assets
Foreclosed assets consist of loan collateral which has been
repossessed through foreclosure. This collateral is comprised of
commercial and residential real estate and other non-real estate
property, including auto, marine and recreational vehicles.
Foreclosed assets are recorded as held for sale initially at the
lower of the loan balance or fair value of the collateral less
estimated selling costs. Subsequent to foreclosure, valuations
are updated periodically, and the assets may be marked down
further, reflecting a new cost basis. Fair value measurements
may be based upon appraisals, third-party price opinions, or
internally developed pricing methods. These measurements are
classified as Level 3.
For assets measured at fair value on a nonrecurring basis during
the first quarter of 2010, and still held as of March 31,
2010, the following table provides the adjustments to fair value
recognized during the period, the level of valuation assumptions
used to determine each adjustment, and the carrying value of the
related individual assets or portfolios at March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Markets
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total Gains
|
|
(In thousands)
|
|
3/31/10
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
(Losses)
|
|
|
|
|
Loans
|
|
$
|
26,244
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26,244
|
|
|
$
|
(9,179
|
)
|
Mortgage servicing rights
|
|
|
1,501
|
|
|
|
|
|
|
|
|
|
|
|
1,501
|
|
|
|
(42
|
)
|
Foreclosed assets
|
|
|
8,646
|
|
|
|
|
|
|
|
|
|
|
|
8,646
|
|
|
|
(780
|
)
|
|
|
|
|
14.
|
Fair
Value of Financial Instruments
|
The carrying amounts and estimated fair values of financial
instruments held by the Company, in addition to a discussion of
the methods used and assumptions made in computing those
estimates, are set forth below.
Loans
The fair value of loans are estimated by discounting the
expected future cash flows using the current rates at which
similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities. This method of
estimating fair value does not incorporate the exit-price
concept of fair value prescribed by ASC 820 Fair
Value Measurements and Disclosures.
Investment
Securities
A detailed description of the fair value measurement of the debt
and equity instruments in the available for sale and trading
sections of the investment security portfolio is provided in
Note 13 on Fair Value Measurements. A schedule of
investment securities by category and maturity is provided in
Note 3 on Investment Securities.
30
Federal
Funds Sold and Securities Purchased under Agreements to Resell,
Interest Earning Deposits With Banks and Cash and Due From
Banks
The carrying amounts of federal funds sold and securities
purchased under agreements to resell, interest earning deposits
with banks, and cash and due from banks approximate fair value.
Federal funds sold and securities purchased under agreements to
resell generally mature in 90 days or less.
Accrued
Interest Receivable/Payable
The carrying amounts of accrued interest receivable and accrued
interest payable approximate their fair values because of the
relatively short time period between the accrual period and the
expected receipt or payment due date.
Derivative
Instruments
A detailed description of the fair value measurement of
derivative instruments is provided in Note 13 on Fair Value
Measurements. Fair values are generally estimated using
observable market prices or pricing models.
Deposits
The fair value of deposits with no stated maturity is equal to
the amount payable on demand. Such deposits include savings and
interest and non-interest bearing demand deposits. These fair
value estimates do not recognize any benefit the Company
receives as a result of being able to administer, or control,
the pricing of these accounts. The fair value of certificates of
deposit is based on the discounted value of cash flows, taking
early withdrawal optionality into account. Discount rates are
based on the Companys approximate cost of obtaining
similar maturity funding in the market.
Borrowings
The fair value of short-term borrowings such as federal funds
purchased and securities sold under agreements to repurchase,
which generally mature or reprice within 90 days,
approximates their carrying value. The fair value of long-term
structured repurchase agreements and other long-term debt is
estimated by discounting contractual maturities using an
estimate of the current market rate for similar instruments.
31
The estimated fair values of the Companys financial
instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
|
Carrying
|
|
|
Estimated
|
|
(In thousands)
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
Loans, including held for sale
|
|
$
|
10,375,644
|
|
|
$
|
10,425,851
|
|
Available for sale investment securities
|
|
|
6,256,242
|
|
|
|
6,256,242
|
|
Trading securities
|
|
|
26,888
|
|
|
|
26,888
|
|
Non-marketable securities
|
|
|
122,508
|
|
|
|
122,508
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
500
|
|
|
|
500
|
|
Accrued interest receivable
|
|
|
74,516
|
|
|
|
74,516
|
|
Derivative instruments
|
|
|
18,849
|
|
|
|
18,849
|
|
Cash and due from banks
|
|
|
345,078
|
|
|
|
345,078
|
|
Interest earning deposits with banks
|
|
|
7,818
|
|
|
|
7,818
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
Non-interest bearing demand deposits
|
|
$
|
1,583,090
|
|
|
$
|
1,583,090
|
|
Savings, interest checking and money market deposits
|
|
|
9,496,969
|
|
|
|
9,496,969
|
|
Time open and C.D.s
|
|
|
2,924,700
|
|
|
|
2,951,898
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
998,773
|
|
|
|
999,073
|
|
Other borrowings
|
|
|
731,507
|
|
|
|
749,929
|
|
Accrued interest payable
|
|
|
19,449
|
|
|
|
19,449
|
|
Derivative instruments
|
|
|
19,483
|
|
|
|
19,483
|
|
|
|
Off-Balance
Sheet Financial Instruments
The fair value of letters of credit and commitments to extend
credit is based on the fees currently charged to enter into
similar agreements. The aggregate of these fees is not material.
Limitations
Fair value estimates are made at a specific point in time based
on relevant market information. They do not reflect any premium
or discount that could result from offering for sale at one time
the Companys entire holdings of a particular financial
instrument. Because no market exists for many of the
Companys financial instruments, fair value estimates are
based on judgments regarding future expected loss experience,
risk characteristics and economic conditions. These estimates
are subjective, involve uncertainties and cannot be determined
with precision. Changes in assumptions could significantly
affect the estimates.
On April 6, 2010 a suit was filed against Commerce Bank,
N.A. (the Bank) in the U.S. District Court for the Western
District of Missouri by a customer alleging that overdraft fees
relating to debit card transactions have been unfairly assessed
by the Bank. The suit seeks
class-action
status for bank customers who may have been similarly affected.
Since this litigation is in a very early stage, a probable
outcome is presently not determinable.
32
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and
related notes and with the statistical information and financial
data appearing in this report as well as the Companys 2009
Annual Report on
Form 10-K.
Results of operations for the three month period ended
March 31, 2010 are not necessarily indicative of results to
be attained for any other period.
Forward
Looking Information
This report may contain forward-looking statements
that are subject to risks and uncertainties and include
information about possible or assumed future results of
operations. Many possible events or factors could affect the
future financial results and performance of the Company. This
could cause results or performance to differ materially from
those expressed in the forward-looking statements. Words such as
expects, anticipates,
believes, estimates, variations of such
words and other similar expressions are intended to identify
such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to predict.
Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in, or implied by, such
forward-looking statements. Readers should not rely solely on
the forward-looking statements and should consider all
uncertainties and risks discussed throughout this report.
Forward-looking statements speak only as of the date they are
made. The Company does not undertake to update forward-looking
statements to reflect circumstances or events that occur after
the date the forward-looking statements are made or to reflect
the occurrence of unanticipated events. Such possible events or
factors include: changes in economic conditions in the
Companys market area, changes in policies by regulatory
agencies, governmental legislation and regulation, fluctuations
in interest rates, changes in liquidity requirements, demand for
loans in the Companys market area, and competition with
other entities that offer financial services.
Critical
Accounting Policies
The Companys consolidated financial statements are
prepared based on the application of certain accounting
policies, some of which require numerous estimates and strategic
or economic assumptions that may prove inaccurate or be subject
to variations which may significantly affect the Companys
reported results and financial position for the current period
or future periods. The use of estimates, assumptions, and
judgments are necessary when financial assets and liabilities
are required to be recorded at, or adjusted to reflect, fair
value. Current economic conditions may require the use of
additional estimates, and some estimates may be subject to a
greater degree of uncertainty due to the current instability of
the economy. The Company has identified several policies as
being critical because they require management to make
particularly difficult, subjective
and/or
complex judgments about matters that are inherently uncertain
and because of the likelihood that materially different amounts
would be reported under different conditions or using different
assumptions. These policies relate to the allowance for loan
losses, the valuation of investment securities, and accounting
for income taxes.
Allowance
for Loan Losses
The Company performs periodic and systematic detailed reviews of
its loan portfolio to assess overall collectability. The level
of the allowance for loan losses reflects the Companys
estimate of the losses inherent in the loan portfolio at any
point in time. While these estimates are based on substantive
methods for determining allowance requirements, actual outcomes
may differ significantly from estimated results, especially when
determining allowances for business, lease, construction and
business real estate loans. These loans are normally larger and
more complex, and their collection rates are harder to predict.
Personal loans, including personal mortgage, credit card and
consumer loans, are individually smaller and perform in a more
homogenous manner, making loss estimates more predictable.
Further discussion of the methodologies used in establishing the
allowance is provided in the Provision and Allowance for Loan
Losses section of this discussion.
33
Valuation
of Investment Securities
The Company carries its investment securities at fair value, and
employs valuation techniques which utilize observable inputs
when those inputs are available. These observable inputs reflect
assumptions market participants would use in pricing the
security, developed based on market data obtained from sources
independent of the Company. When such information is not
available, the Company employs valuation techniques which
utilize unobservable inputs, or those which reflect the
Companys own assumptions about market participants, based
on the best information available in the circumstances. These
valuation methods typically involve cash flow and other
financial modeling techniques. Changes in underlying factors,
assumptions, estimates, or other inputs to the valuation
techniques could have a material impact on the Companys
future financial condition and results of operations. Assets and
liabilities carried at fair value inherently result in more
financial statement volatility. Under the fair value measurement
hierarchy, fair value measurements are classified as
Level 1 (quoted prices), Level 2 (based on observable
inputs) or Level 3 (based on unobservable,
internally-derived inputs), as discussed in more detail in
Note 13 to the consolidated financial statements. Most of
the available for sale investment portfolio is priced utilizing
industry-standard models that consider various assumptions which
are observable in the marketplace, or can be derived from
observable data. Such securities totaled approximately
$5.6 billion, or 89.1% of the available for sale portfolio
at March 31, 2010, and were classified as Level 2
measurements. The Company also holds $158.1 million in
auction rate securities. These were classified as Level 3
measurements, as no market currently exists for these
securities, and fair values were derived from internally
generated cash flow valuation models which used unobservable
inputs which were significant to the overall measurement.
Changes in the fair value of available for sale securities,
excluding credit losses relating to
other-than-temporary
impairment, are reported in other comprehensive income. The
Company periodically evaluates the available for sale portfolio
for
other-than-temporary
impairment. Evaluation for
other-than-temporary
impairment is based on the Companys intent to sell the
security and whether it is likely that it will be required to
sell the security before the anticipated recovery of its
amortized cost basis. If either of these conditions is met, the
entire loss (the amount by which the amortized cost exceeds the
fair value) must be recognized in current earnings. If neither
condition is met, but the Company does not expect to recover the
amortized cost basis, the Company must determine whether a
credit loss has occurred. This credit loss is the amount by
which the amortized cost basis exceeds the present value of cash
flows expected to be collected from the security. The credit
loss, if any, must be recognized in current earnings, while the
remainder of the loss, related to all other factors, is
recognized in other comprehensive income.
The estimation of whether a credit loss exists and the period
over which the security is expected to recover requires
significant judgment. The Company must consider available
information about the collectability of the security, including
information about past events, current conditions, and
reasonable forecasts, which includes payment structure,
prepayment speeds, expected defaults, and collateral values.
Changes in these factors could result in additional impairment,
recorded in current earnings, in future periods.
At March 31, 2010, non-agency guaranteed mortgage-backed
securities with a par value of $187.6 million were
identified as other than temporarily impaired. The
credit-related impairment loss on these securities amounted to
$3.9 million, which was recorded in the consolidated income
statement in investment securities gains (losses), net. The
noncredit-related loss on these securities, which was recorded
in other comprehensive income, was $27.4 million on a
pre-tax basis.
The Company, through its direct holdings and its Small Business
Investment subsidiaries, has numerous private equity
investments, categorized as non-marketable securities in the
accompanying consolidated balance sheets. These investments are
reported at fair value, and totaled $49.8 million at
March 31, 2010. Changes in fair value are reflected in
current earnings, and reported in investment securities gains
(losses), net in the consolidated income statements. Because
there is no observable market data for these securities, their
fair values are internally developed using available information
and managements judgment, and are classified as
Level 3 measurements. Although management believes its
estimates of fair value reasonably reflect the fair value of
these securities, key assumptions regarding the projected
financial performance of these companies, the evaluation of the
investee companys management
34
team, and other economic and market factors may affect the
amounts that will ultimately be realized from these investments.
Accounting
for Income Taxes
Accrued income taxes represent the net amount of current income
taxes which are expected to be paid attributable to operations
as of the balance sheet date. Deferred income taxes represent
the expected future tax consequences of events that have been
recognized in the financial statements or income tax returns.
Current and deferred income taxes are reported as either a
component of other assets or other liabilities in the
consolidated balance sheets, depending on whether the balances
are assets or liabilities. Judgment is required in applying
generally accepted accounting principles in accounting for
income taxes. The Company regularly monitors taxing authorities
for changes in laws and regulations and their interpretations by
the judicial systems. The aforementioned changes, and changes
that may result from the resolution of income tax examinations
by federal and state taxing authorities, may impact the estimate
of accrued income taxes and could materially impact the
Companys financial position and results of operations.
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Per Share Data
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$
|
.53
|
|
|
$
|
.38
|
|
Net income per common share diluted
|
|
|
.53
|
|
|
|
.38
|
|
Cash dividends
|
|
|
.235
|
|
|
|
.229
|
|
Book value
|
|
|
23.13
|
|
|
|
20.18
|
|
Market price
|
|
|
41.14
|
|
|
|
34.57
|
|
Selected Ratios
|
|
|
|
|
|
|
|
|
(Based on average balance sheets)
|
|
|
|
|
|
|
|
|
Loans to
deposits(1)
|
|
|
74.98
|
%
|
|
|
87.23
|
%
|
Non-interest bearing deposits to total deposits
|
|
|
6.79
|
|
|
|
5.82
|
|
Equity to
loans(1)
|
|
|
18.38
|
|
|
|
13.83
|
|
Equity to deposits
|
|
|
13.79
|
|
|
|
12.06
|
|
Equity to total assets
|
|
|
10.70
|
|
|
|
9.30
|
|
Return on total assets
|
|
|
1.00
|
|
|
|
.73
|
|
Return on total equity
|
|
|
9.32
|
|
|
|
7.82
|
|
(Based on
end-of-period
data)
|
|
|
|
|
|
|
|
|
Non-interest income to
revenue(2)
|
|
|
36.43
|
|
|
|
38.12
|
|
Efficiency
ratio(3)
|
|
|
60.49
|
|
|
|
62.58
|
|
Tier I risk-based capital ratio
|
|
|
13.43
|
|
|
|
11.05
|
|
Total risk-based capital ratio
|
|
|
14.79
|
|
|
|
12.42
|
|
Tangible equity to assets
ratio(4)
|
|
|
9.99
|
|
|
|
8.24
|
|
Tier I leverage ratio
|
|
|
9.81
|
|
|
|
8.93
|
|
|
|
|
|
|
(1) |
|
Includes loans held for
sale. |
(2) |
|
Revenue includes net interest
income and non-interest income. |
(3) |
|
The efficiency ratio is
calculated as non-interest expense (excluding intangibles
amortization) as a percent of revenue. |
(4) |
|
The tangible equity ratio is
calculated as stockholders equity reduced by goodwill and
other intangible assets (excluding mortgage servicing rights)
divided by total assets reduced by goodwill and other intangible
assets (excluding mortgage servicing rights). |
35
Results
of Operations
Summary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Increase
|
|
|
|
March 31
|
|
|
(Decrease)
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
Net interest income
|
|
$
|
162,710
|
|
|
$
|
150,015
|
|
|
$
|
12,695
|
|
|
|
8.5
|
%
|
Provision for loan losses
|
|
|
(34,322
|
)
|
|
|
(43,168
|
)
|
|
|
(8,846
|
)
|
|
|
(20.5
|
)
|
Non-interest income
|
|
|
93,252
|
|
|
|
92,431
|
|
|
|
821
|
|
|
|
.9
|
|
Investment securities losses, net
|
|
|
(3,665
|
)
|
|
|
(2,172
|
)
|
|
|
1,493
|
|
|
|
68.7
|
|
Non-interest expense
|
|
|
(155,787
|
)
|
|
|
(152,886
|
)
|
|
|
2,901
|
|
|
|
1.9
|
|
Income taxes
|
|
|
(18,377
|
)
|
|
|
(13,592
|
)
|
|
|
4,785
|
|
|
|
35.2
|
|
Non-controlling interest (expense) income
|
|
|
359
|
|
|
|
208
|
|
|
|
151
|
|
|
|
72.6
|
|
|
|
Net income
|
|
$
|
44,170
|
|
|
$
|
30,836
|
|
|
$
|
13,334
|
|
|
|
43.2
|
%
|
|
|
For the quarter ended March 31, 2010, net income amounted
to $44.2 million, an increase of $13.3 million, or
43.2%, compared to the first quarter of the previous year. For
the current quarter, the annualized return on average assets was
1.00%, the annualized return on average equity was 9.32%, and
the efficiency ratio was 60.49%. Diluted earnings per share was
$.53, an increase of 39.5% compared to $.38 per share in the
first quarter of 2009.
Net income for the first quarter of 2010 compared to the same
period last year included growth of $12.7 million, or 8.5%,
in net interest income due to higher average balances of
investment securities and lower rates paid on interest bearing
deposits, partly offset by lower loan balances and investment
yields. This was coupled with slight growth in non-interest
income, which increased $821 thousand. Compared to the same
period last year, non-interest expense increased
$2.9 million, or 1.9%, largely due to a $2.3 million
increase in data processing and software expenses. In addition,
salaries and employee benefits costs increased $685 thousand and
deposit insurance expense increased $644 thousand, offset by a
$1.3 million decrease in supplies and communication
expenses. The provision for loan losses totaled
$34.3 million for the current quarter, representing a
decrease of $8.8 million from the first quarter of 2009.
36
Net
Interest Income
The following table summarizes the changes in net interest
income on a fully taxable equivalent basis, by major category of
interest earning assets and interest bearing liabilities,
identifying changes related to volumes and rates. Changes not
solely due to volume or rate changes are allocated to rate.
Analysis
of Changes in Net Interest Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2010 vs. 2009
|
|
|
|
Change due to
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
(In thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
Interest income, fully taxable equivalent basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
(11,969
|
)
|
|
$
|
627
|
|
|
$
|
(11,342
|
)
|
Loans held for sale
|
|
|
150
|
|
|
|
(1,678
|
)
|
|
|
(1,528
|
)
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency securities
|
|
|
4,204
|
|
|
|
(2,170
|
)
|
|
|
2,034
|
|
State and municipal obligations
|
|
|
1,914
|
|
|
|
(199
|
)
|
|
|
1,715
|
|
Mortgage and asset-backed securities
|
|
|
19,743
|
|
|
|
(15,430
|
)
|
|
|
4,313
|
|
Other securities
|
|
|
344
|
|
|
|
47
|
|
|
|
391
|
|
|
|
Total interest on investment securities
|
|
|
26,205
|
|
|
|
(17,752
|
)
|
|
|
8,453
|
|
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
(99
|
)
|
|
|
|
|
|
|
(99
|
)
|
Interest earning deposits with banks
|
|
|
(368
|
)
|
|
|
(16
|
)
|
|
|
(384
|
)
|
|
|
Total interest income
|
|
|
13,919
|
|
|
|
(18,819
|
)
|
|
|
(4,900
|
)
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
16
|
|
|
|
(57
|
)
|
|
|
(41
|
)
|
Interest checking and money market
|
|
|
1,559
|
|
|
|
(2,475
|
)
|
|
|
(916
|
)
|
Time open & C.D.s of less than $100,000
|
|
|
(2,073
|
)
|
|
|
(5,859
|
)
|
|
|
(7,932
|
)
|
Time open & C.D.s of $100,000 and over
|
|
|
(3,225
|
)
|
|
|
(4,152
|
)
|
|
|
(7,377
|
)
|
|
|
Total interest on deposits
|
|
|
(3,723
|
)
|
|
|
(12,543
|
)
|
|
|
(16,266
|
)
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
138
|
|
|
|
(548
|
)
|
|
|
(410
|
)
|
Other borrowings
|
|
|
(2,003
|
)
|
|
|
187
|
|
|
|
(1,816
|
)
|
|
|
Total interest expense
|
|
|
(5,588
|
)
|
|
|
(12,904
|
)
|
|
|
(18,492
|
)
|
|
|
Net interest income, fully taxable equivalent basis
|
|
$
|
19,507
|
|
|
$
|
(5,915
|
)
|
|
$
|
13,592
|
|
|
|
Net interest income for the first quarter of 2010 was
$162.7 million, a $12.7 million, or 8.5%, increase
over the first quarter of 2009. The increase in net interest
income was primarily the result of lower interest expense on
interest bearing deposits due to lower average rates and
balances, coupled with higher earnings on the investment
portfolio, which were partly offset by lower earnings on the
loan portfolio. The Companys net interest rate margin was
4.03% for the first quarter of 2010, compared to 3.95% in the
previous quarter and 3.83% in the first quarter of 2009.
Total interest income, on a tax equivalent basis (T/E),
decreased $4.9 million, or 2.5%, from the first quarter of
2009. Interest income on loans (T/E) declined
$11.3 million, primarily due to a decrease of
$1.1 billion, or 10.1%, in average loan balances. The
decrease in average loans compared to the first quarter of 2009
occurred in virtually all categories except consumer credit
cards, as loan demand remained weak and commercial line of
credit usage remained low. The largest declines occurred in
average business loans,
37
consumer loans, and construction real estate loans, which
decreased by $510.1 million, $272.9 million, and
$182.7 million, respectively. Interest income on investment
securities (T/E) increased $8.5 million over the first
quarter of 2009. This growth resulted mainly from a
$2.3 billion, or 56.7%, increase in total average balances,
which contributed $26.2 million to interest income. Most of
the growth in average balances occurred in mortgage and
asset-backed securities and U.S. Treasury
inflation-protected securities (TIPS), which increased by
$1.6 billion and $425.1 million, respectively. This
growth was partly offset by lower average yields, which declined
to 3.81% compared to 5.11% during the first quarter of 2009 and
reduced interest income by $17.8 million. The average tax
equivalent yield on total interest earning assets was 4.64% in
the first quarter of 2010 compared to 4.93% in the first quarter
of 2009.
Total interest expense decreased $18.5 million, or 42.2%,
compared to the first quarter of 2009, primarily due to a
$16.3 million decrease in interest expense on interest
bearing deposits, coupled with a $2.2 million decrease in
interest expense on borrowings. The decrease in interest expense
on deposits resulted from a 55 basis point decrease in
average rates paid, coupled with a $1.1 billion, or 26.2%,
decline in certificates of deposit average balances. Interest
expense on borrowings declined mainly due to lower FHLB
advances, which declined $173.5 million, and lower rates
paid on overnight borrowings. The overall average rate incurred
on all interest bearing liabilities decreased to .69% in the
first quarter of 2010 compared to 1.21% in the first quarter of
2009.
Summaries of average assets and liabilities and the
corresponding average rates earned/paid appear on the last page
of this discussion.
Non-Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Increase
|
|
|
|
Ended March 31
|
|
|
(Decrease)
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
Bank card transaction fees
|
|
$
|
32,490
|
|
|
$
|
27,168
|
|
|
$
|
5,322
|
|
|
|
19.6
|
%
|
Deposit account charges and other fees
|
|
|
23,981
|
|
|
|
25,592
|
|
|
|
(1,611
|
)
|
|
|
(6.3
|
)
|
Trust fees
|
|
|
19,318
|
|
|
|
18,873
|
|
|
|
445
|
|
|
|
2.4
|
|
Bond trading income
|
|
|
5,004
|
|
|
|
5,804
|
|
|
|
(800
|
)
|
|
|
(13.8
|
)
|
Consumer brokerage services
|
|
|
2,117
|
|
|
|
2,900
|
|
|
|
(783
|
)
|
|
|
(27.0
|
)
|
Loan fees and sales
|
|
|
1,839
|
|
|
|
2,961
|
|
|
|
(1,122
|
)
|
|
|
(37.9
|
)
|
Other
|
|
|
8,503
|
|
|
|
9,133
|
|
|
|
(630
|
)
|
|
|
(6.9
|
)
|
|
|
Total non-interest income
|
|
$
|
93,252
|
|
|
$
|
92,431
|
|
|
$
|
821
|
|
|
|
.9
|
%
|
|
|
Non-interest income as a % of total revenue*
|
|
|
36.4
|
%
|
|
|
38.1
|
%
|
|
|
|
|
|
|
|
|
Total revenue per full-time equivalent employee
|
|
$
|
50.2
|
|
|
$
|
46.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Total revenue includes net
interest income and non-interest income. |
For the first quarter of 2010, total non-interest income
amounted to $93.3 million compared with $92.4 million
in the same quarter last year, which was an increase of $821
thousand, or .9%. Bank card fees for the quarter increased
$5.3 million, or 19.6%, over the first quarter of last
year, primarily due to continued growth in transaction fees
earned on corporate card, debit card and merchant activity,
which grew by 48.1%, 12.0% and 11.9%, respectively. The growth
in corporate card fees was the result of both new customer
transactions and increased volumes from existing customers.
Trust fees for the quarter increased $445 thousand, or 2.4%,
over the same quarter last year and reflected the effects of new
personal trust business, which were partially offset by the
effects of low interest rates on money market investments held
in trust accounts. Deposit account fees declined
$1.6 million, or 6.3%, from the same period last year as a
result of a 10.1% decline in overdraft fee income. Corporate
cash management fees, which comprised 35% of total deposit
account fees, were essentially flat with the previous year. Bond
trading income for the current quarter totaled
$5.0 million, a decrease of $800 thousand, or 13.8%.
Consumer brokerage services revenue decreased $783 thousand, or
27.0%, mainly due to a 44.4% decline in mutual fund fees. Loan
fees and sales revenue decreased $1.1 million, or 37.9%,
due to a $939 thousand decline in gains on student loan sales.
Other non-
38
interest income for the current quarter decreased $630 thousand,
or 6.9%, from the same quarter last year. Most of this decrease
was due to lower cash sweep commissions, in addition to a
non-recurring branch sale gain recorded in the first quarter of
2009. Partly offsetting the decline was an increase in tax
credit sales income and higher losses recorded in 2009 on the
disposal of repossessed assets.
Investment
Securities Gains (Losses), Net
Net gains and losses on investment securities which were
recognized in earnings during the three months ended
March 31, 2010 and 2009 are shown in the table below. Net
securities losses amounted to $3.7 million in the first
quarter of 2010, compared to $2.2 million in the same
quarter last year. During the current quarter, additional
credit-related impairment losses of $1.5 million were
recorded on certain non-agency guaranteed mortgage-backed
securities which have been identified as other than temporarily
impaired. These identified securities have a total par value of
$187.6 million. The cumulative credit-related impairment
loss on these securities, recorded in earnings, amounted to
$3.9 million, while the cumulative noncredit-related loss
on these securities, which has been recorded in other
comprehensive income (loss), was $27.4 million. Also shown
below are net gains and losses relating to non-marketable
private equity investments, which are primarily held by the
Parents majority-owned venture capital subsidiaries. These
include fair value adjustments, in addition to gains and losses
realized upon disposition. The portion of this activity
attributable to minority interests is reported as
non-controlling interest in the consolidated income statement,
resulting in income of $425 thousand during the first quarter of
2010 and $332 thousand for the same period last year.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
408
|
|
|
$
|
2
|
|
Corporate bonds
|
|
|
|
|
|
|
6
|
|
Non-agency mortgage-backed bonds (OTTI losses)
|
|
|
(1,457
|
)
|
|
|
(553
|
)
|
Non-marketable:
|
|
|
|
|
|
|
|
|
Private equity investments
|
|
|
(2,616
|
)
|
|
|
(1,627
|
)
|
|
|
Total investment securities losses, net
|
|
$
|
(3,665
|
)
|
|
$
|
(2,172
|
)
|
|
|
Non-Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Increase
|
|
|
|
Ended March 31
|
|
|
(Decrease)
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
Salaries and employee benefits
|
|
$
|
87,438
|
|
|
$
|
86,753
|
|
|
$
|
685
|
|
|
|
.8
|
%
|
Net occupancy
|
|
|
12,098
|
|
|
|
11,812
|
|
|
|
286
|
|
|
|
2.4
|
|
Equipment
|
|
|
5,901
|
|
|
|
6,322
|
|
|
|
(421
|
)
|
|
|
(6.7
|
)
|
Supplies and communication
|
|
|
7,338
|
|
|
|
8,684
|
|
|
|
(1,346
|
)
|
|
|
(15.5
|
)
|
Data processing and software
|
|
|
16,606
|
|
|
|
14,347
|
|
|
|
2,259
|
|
|
|
15.7
|
|
Marketing
|
|
|
4,718
|
|
|
|
4,347
|
|
|
|
371
|
|
|
|
8.5
|
|
Deposit insurance
|
|
|
4,750
|
|
|
|
4,106
|
|
|
|
644
|
|
|
|
15.7
|
|
Other
|
|
|
16,938
|
|
|
|
16,515
|
|
|
|
423
|
|
|
|
2.6
|
|
|
|
Total non-interest expense
|
|
$
|
155,787
|
|
|
$
|
152,886
|
|
|
$
|
2,901
|
|
|
|
1.9
|
%
|
|
|
Non-interest expense for the first quarter of 2010 amounted to
$155.8 million, an increase of $2.9 million, or 1.9%,
compared with $152.9 million recorded in the first quarter
of last year. Salaries and benefits expense was well controlled
in the current quarter, increasing only $685 thousand, or .8%,
over the same quarter last year. Full-time equivalent employees
totaled 5,094 at March 31, 2010 compared to 5,222 at
March 31, 2009.
39
Occupancy costs increased $286 thousand, or 2.4%, over the same
quarter last year, primarily due to higher seasonal maintenance
costs and higher real estate taxes paid. Equipment expenses
decreased $421 thousand, or 6.7%, from the same quarter last
year due to lower maintenance contract expense and lower
depreciation expense on data processing equipment. Supplies and
communication expense declined $1.3 million, or 15.5%, due
to lower postage, courier, telecommunication, and supplies
costs, while marketing costs increased $371 thousand, or 8.5%.
Data processing and software costs increased $2.3 million,
or 15.7%, mainly as a result of higher bank card processing fees
(related to higher bank card revenues) and several new software
and servicing systems put in place over the last 12 months.
FDIC insurance expense totaled $4.8 million, an increase of
$644 thousand, or 15.7%, over the same period last year. Other
non-interest expense increased $423 thousand, or 2.6%, over the
same quarter last year due to higher write-downs and holding
costs on foreclosed real estate and personal property, higher
charitable contribution expense, and higher bank card processing
fees, partly offset by a decline in miscellaneous operating
losses.
Provision
and Allowance for Loan Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31
|
|
|
Mar. 31
|
|
|
Dec. 31
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
|
|
Provision for loan losses
|
|
$
|
34,322
|
|
|
$
|
43,168
|
|
|
$
|
41,002
|
|
|
|
Net loan charge-offs (recoveries):
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
267
|
|
|
|
3,842
|
|
|
|
1,991
|
|
Real estate-construction and land
|
|
|
10,966
|
|
|
|
9,226
|
|
|
|
10,030
|
|
Real estate-business
|
|
|
431
|
|
|
|
776
|
|
|
|
2,186
|
|
Consumer credit card
|
|
|
13,065
|
|
|
|
10,763
|
|
|
|
12,721
|
|
Consumer
|
|
|
5,524
|
|
|
|
9,333
|
|
|
|
7,870
|
|
Home equity
|
|
|
580
|
|
|
|
300
|
|
|
|
561
|
|
Student
|
|
|
3
|
|
|
|
|
|
|
|
2
|
|
Real estate-personal
|
|
|
201
|
|
|
|
545
|
|
|
|
1,230
|
|
Overdrafts
|
|
|
227
|
|
|
|
134
|
|
|
|
397
|
|
|
|
Total net loan charge-offs
|
|
$
|
31,264
|
|
|
$
|
34,919
|
|
|
$
|
36,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
Mar. 31
|
|
|
Mar. 31
|
|
|
Dec. 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
|
|
Annualized net loan charge-offs*:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
.04
|
%
|
|
|
.47
|
%
|
|
|
.28
|
%
|
Real estate-construction and land
|
|
|
7.02
|
|
|
|
4.58
|
|
|
|
5.72
|
|
Real estate-business
|
|
|
.08
|
|
|
|
.15
|
|
|
|
.41
|
|
Consumer credit card
|
|
|
6.95
|
|
|
|
5.94
|
|
|
|
6.74
|
|
Consumer
|
|
|
1.71
|
|
|
|
2.40
|
|
|
|
2.30
|
|
Home equity
|
|
|
.48
|
|
|
|
.24
|
|
|
|
.46
|
|
Real estate-personal
|
|
|
.05
|
|
|
|
.14
|
|
|
|
.32
|
|
Overdrafts
|
|
|
12.11
|
|
|
|
6.48
|
|
|
|
14.58
|
|
|
|
Total annualized net loan charge-offs
|
|
|
1.27
|
%
|
|
|
1.28
|
%
|
|
|
1.44
|
%
|
|
|
|
|
|
* |
|
as a percentage of average loans
(excluding loans held for sale) |
The Company has an established process to determine the amount
of the allowance for loan losses, which assesses the risks and
losses inherent in its portfolio. This process provides an
allowance consisting of a specific allowance component based on
certain individually evaluated loans and a general component
based on estimates of reserves needed for pools of loans with
similar risk characteristics.
40
Loans subject to individual evaluation are defined by the
Company as impaired, and generally consist of business,
construction, commercial real estate and personal real estate
loans on non-accrual status or loans modified or restructured
under troubled debt restructuring. These loans are evaluated
individually for impairment, and in conjunction with current
economic conditions and loss experience, allowances are
estimated. Loans not individually evaluated are aggregated and
reserves are recorded using a consistent methodology that
considers historical loan loss experience by loan type,
delinquencies, current economic factors, loan risk ratings and
industry concentrations.
In using this process and the information available, management
must consider various assumptions and exercise considerable
judgment to determine the overall level of the allowance for
loan losses. Because of these subjective factors, actual
outcomes of inherent losses can differ from original estimates.
The process of determining adequate levels of the allowance for
loan losses is subject to regular review by the Companys
Credit Administration personnel and outside regulators.
Net loan charge-offs for the first quarter of 2010 amounted to
$31.3 million, compared with $37.0 million in the
prior quarter and $34.9 million in the first quarter of
last year. The $5.7 million decrease in net loan
charge-offs in the first quarter of 2010 compared to the
previous quarter was mainly the result of lower loan losses on
consumer banking, business and business real estate loans of
$2.3 million, $1.7 million and $1.8 million,
respectively. Consumer credit card losses were only slightly
higher than in the previous quarter. Net loan charge-offs on
construction and land loans totaled $11.0 million this
quarter and were mostly comprised of write-downs on two loans
for which principal and interest payments were current, but
recent appraisals reflected lower collateral values. The ratio
of annualized total net loan charge-offs to total average loans
was 1.27% in the current quarter, compared to 1.44% in the
previous quarter and 1.28% in the same quarter last year.
For the first quarter of 2010, annualized net charge-offs on
average construction and land loans increased to 7.02%, due to
the write-downs mentioned above, compared to 5.72% in the
previous quarter and 4.58% in the same period last year.
Annualized net charge-offs on average consumer credit card loans
amounted to 6.95%, compared with 6.74% in the previous quarter
and 5.94% in the same period last year. Consumer loan net
charge-offs for the quarter amounted to 1.71% of average
consumer loans, compared to 2.30% in the previous quarter and
2.40% in the same quarter last year.
The provision for loan losses for the current quarter totaled
$34.3 million, and was $6.7 million lower than the
previous quarter and $8.8 million lower than the same
quarter last year. However, the Company increased the allowance
for loan losses by $3.1 million this quarter to
$197.5 million, or 2.01% of total loans, excluding loans
held for sale. At March 31, 2010, the allowance for loan
losses was 206% of total non-accrual loans.
41
Risk
Elements of Loan Portfolio
The following table presents non-performing assets and loans
which are past due 90 days and still accruing interest.
Non-performing assets include non-accruing loans and foreclosed
real estate. Loans are placed on non-accrual status when
management does not expect to collect payments consistent with
acceptable and agreed upon terms of repayment. Loans that are
90 days past due as to principal
and/or
interest payments are generally placed on non-accrual, unless
they are both well-secured and in the process of collection, or
they are consumer loans that are exempt under regulatory rules
from being classified as non-accrual.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
14,699
|
|
|
$
|
12,874
|
|
Real estate construction and land
|
|
|
53,617
|
|
|
|
62,509
|
|
Real estate business
|
|
|
19,680
|
|
|
|
21,756
|
|
Real estate personal
|
|
|
7,697
|
|
|
|
9,384
|
|
Consumer
|
|
|
56
|
|
|
|
90
|
|
|
|
Total non-accrual loans
|
|
|
95,749
|
|
|
|
106,613
|
|
|
|
Foreclosed real estate
|
|
|
14,334
|
|
|
|
10,057
|
|
|
|
Total non-performing assets
|
|
$
|
110,083
|
|
|
$
|
116,670
|
|
|
|
Non-performing assets as a percentage of total loans
|
|
|
1.12
|
%
|
|
|
1.15
|
%
|
Non-performing assets as a percentage of total assets
|
|
|
.61
|
%
|
|
|
.64
|
%
|
|
|
Loans past due 90 days and still accruing interest:
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
1,094
|
|
|
$
|
3,672
|
|
Real estate construction and land
|
|
|
3,550
|
|
|
|
1,184
|
|
Real estate business
|
|
|
1,113
|
|
|
|
402
|
|
Real estate personal
|
|
|
2,549
|
|
|
|
3,102
|
|
Consumer
|
|
|
1,600
|
|
|
|
2,045
|
|
Home equity
|
|
|
1,177
|
|
|
|
878
|
|
Student
|
|
|
15,349
|
|
|
|
14,346
|
|
Consumer credit card
|
|
|
16,151
|
|
|
|
17,003
|
|
|
|
Total loans past due 90 days and still accruing
interest
|
|
$
|
42,583
|
|
|
$
|
42,632
|
|
|
|
Non-accrual loans, which are also considered to be impaired,
totaled $95.7 million at March 31, 2010, and decreased
$10.9 million from amounts recorded at December 31,
2009. The decline from December 31, 2009 occurred mainly in
construction and land real estate non-accrual loans, which
decreased $8.9 million. At March 31, 2010, non-accrual
loans were comprised mainly of construction and land real estate
loans (56.0%), business real estate loans (20.6%) and business
loans (15.4%). Foreclosed real estate increased
$4.3 million to a balance of $14.3 million at
March 31, 2010.
Total loans past due 90 days or more and still accruing
interest amounted to $42.6 million as of March 31,
2010, which included $14.8 million in federally guaranteed
student loans that the Company intends to hold to maturity. The
balance of loans 90 days past due or more decreased
slightly when compared to December 31, 2009, resulting
mainly from decreases of $2.6 million in business and $852
thousand in consumer credit card loan delinquencies, offset by
increases of $2.4 million and $1.0 million in
construction and land real estate loan and student loan
delinquencies, respectively.
42
In addition to the non-performing and past due loans mentioned
above, the Company also has identified loans for which
management has concerns about the ability of the borrowers to
meet existing repayment terms. They are primarily classified as
substandard under the Companys internal rating system. The
loans are generally secured by either real estate or other
borrower assets, reducing the potential for loss should they
become non-performing. Although these loans are generally
identified as potential problem loans, they may never become
non-performing. Such loans totaled $291.8 million at
March 31, 2010 compared with $319.9 million at
December 31, 2009, resulting in a decrease of
$28.1 million, or 8.8%. The decrease was largely due to
declines of $33.3 million in construction and land real
estate loans and $15.4 million in business loans, which
were partially offset by a $22.9 million increase in
business real estate loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
Potential problem loans:
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
77,896
|
|
|
$
|
93,256
|
|
Real estate construction and land
|
|
|
81,905
|
|
|
|
115,251
|
|
Real estate business
|
|
|
121,815
|
|
|
|
98,951
|
|
Real estate personal
|
|
|
9,805
|
|
|
|
12,013
|
|
Consumer
|
|
|
402
|
|
|
|
409
|
|
|
|
Total potential problem loans
|
|
$
|
291,823
|
|
|
$
|
319,880
|
|
|
|
At March 31, 2010, the Company had identified approximately
$125.9 million of loans whose terms have been modified or
restructured under a troubled debt restructuring. These loans
have been extended to borrowers who are experiencing financial
difficulty and who have been granted a concession, as defined by
accounting guidance. Of this balance, $36.1 million have
been placed on non-accrual status. Of the remaining
$89.8 million, approximately $70.8 million were
commercial loans (business, construction and business real
estate), which were renewed at interest rates equal to or higher
than the previous rates in effect. The new rates, however, were
not judged to be market rates for new debt with similar risk.
These loans are performing under their modified terms and the
Company believes it probable that all amounts due under the
modified terms of the agreements will be collected. However,
because of their substandard classification, they are included
as potential problem loans in the table above. An additional
$18.9 million in troubled debt restructurings were composed
of certain credit card loans under various debt management and
assistance programs.
Within the total loan portfolio, certain sectors are considered
at higher risk due to their contractual features and collateral
values that could increase credit exposure in the present
economic environment. Additional information about the major
types of loans in these categories and their risk feature is
provided below. Information based on
loan-to-value
(LTV) ratios was generally calculated with valuations at loan
origination date.
Real
Estate Construction and Land Loans
The Companys portfolio of construction loans, as shown in
the table below, amounted to 5.8% of total loans outstanding at
March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
March 31
|
|
|
|
|
|
Total
|
|
|
December 31
|
|
|
|
|
|
Total
|
|
(In thousands)
|
|
2010
|
|
|
% of Total
|
|
|
Loans
|
|
|
2009
|
|
|
% of Total
|
|
|
Loans
|
|
|
|
|
Residential land and land development
|
|
$
|
153,491
|
|
|
|
26.7
|
%
|
|
|
1.6
|
%
|
|
$
|
181,257
|
|
|
|
27.2
|
%
|
|
|
1.8
|
%
|
Residential construction
|
|
|
92,690
|
|
|
|
16.2
|
|
|
|
.9
|
|
|
|
110,165
|
|
|
|
16.6
|
|
|
|
1.1
|
|
Commercial land and land development
|
|
|
127,741
|
|
|
|
22.2
|
|
|
|
1.3
|
|
|
|
144,880
|
|
|
|
21.8
|
|
|
|
1.4
|
|
Commercial construction
|
|
|
200,433
|
|
|
|
34.9
|
|
|
|
2.0
|
|
|
|
228,808
|
|
|
|
34.4
|
|
|
|
2.3
|
|
|
|
Total real estate construction and land loans
|
|
$
|
574,355
|
|
|
|
100.0
|
%
|
|
|
5.8
|
%
|
|
$
|
665,110
|
|
|
|
100.0
|
%
|
|
|
6.6
|
%
|
|
|
43
Real
Estate Business Loans
Total business real estate loans were $2.0 billion at
March 31, 2010 and comprised 20.6% of the Companys
total loan portfolio. These loans include properties such as
manufacturing and warehouse buildings, small office and medical
buildings, churches, hotels and motels, shopping centers, and
other commercial properties. Approximately 52% of these loans
were for owner-occupied real estate properties, which present
lower risk profiles.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
|
% of
|
|
|
|
March 31
|
|
|
|
|
|
Total
|
|
|
December 31
|
|
|
|
|
|
Total
|
|
(In thousands)
|
|
2010
|
|
|
% of Total
|
|
|
Loans
|
|
|
2009
|
|
|
% of Total
|
|
|
Loans
|
|
|
|
|
Owner-occupied
|
|
$
|
1,044,824
|
|
|
|
51.5
|
%
|
|
|
10.6
|
%
|
|
$
|
1,101,870
|
|
|
|
52.4
|
%
|
|
|
10.9
|
%
|
Industrial
|
|
|
106,972
|
|
|
|
5.3
|
|
|
|
1.1
|
|
|
|
142,745
|
|
|
|
6.8
|
|
|
|
1.4
|
|
Office
|
|
|
222,075
|
|
|
|
10.9
|
|
|
|
2.3
|
|
|
|
214,408
|
|
|
|
10.2
|
|
|
|
2.1
|
|
Retail
|
|
|
217,176
|
|
|
|
10.7
|
|
|
|
2.2
|
|
|
|
210,619
|
|
|
|
10.0
|
|
|
|
2.1
|
|
Multi-family
|
|
|
122,242
|
|
|
|
6.0
|
|
|
|
1.2
|
|
|
|
112,664
|
|
|
|
5.3
|
|
|
|
1.1
|
|
Farm
|
|
|
124,972
|
|
|
|
6.2
|
|
|
|
1.3
|
|
|
|
131,245
|
|
|
|
6.2
|
|
|
|
1.3
|
|
Hotels
|
|
|
108,715
|
|
|
|
5.4
|
|
|
|
1.1
|
|
|
|
115,056
|
|
|
|
5.5
|
|
|
|
1.1
|
|
Other
|
|
|
81,644
|
|
|
|
4.0
|
|
|
|
.8
|
|
|
|
75,423
|
|
|
|
3.6
|
|
|
|
.7
|
|
|
|
Total real estate business loans
|
|
$
|
2,028,620
|
|
|
|
100.0
|
%
|
|
|
20.6
|
%
|
|
$
|
2,104,030
|
|
|
|
100.0
|
%
|
|
|
20.7
|
%
|
|
|
Real
Estate Personal Loans
Out of the Companys $1.5 billion personal real estate
loan portfolio, approximately 1.8% of the current outstandings
are structured with interest only payments. Loans originated
with interest only payments were not made to qualify
the borrower for a lower payment amount. These loans are made to
high net-worth borrowers and generally have low LTV ratios or
have additional collateral pledged to secure the loan and,
therefore, they are not perceived to represent above normal
credit risk. The Company has $177.8 million, or 14.3%, of
loans in this portfolio with no mortgage insurance that also
have an LTV greater than 80% as of March 31, 2010 compared
to $182.8 million, or 14.4%, at December 31, 2009. The
decrease was mainly due to increased customer refinancings. In
order to reduce risk exposure, the Company does not offer option
ARM or junior lien mortgage products.
Revolving
Home Equity Loans
The Company also has $484.4 million in revolving home
equity loans at March 31, 2010, that are generally
collateralized by residential real estate. Most of these loans
(96.2%) are written with terms requiring interest only monthly
payments. These loans are offered in three main product lines:
LTV up to 80%, 80% to 90%, and 90% to 100%. As of March 31,
2010, the outstanding principal of loans with an LTV higher than
80% was $84.3 million compared to $86.7 million as of
December 31, 2009. Loan balances over 30 days past due
with interest only payments within the revolving home equity
loan portfolio amounted to $2.1 million, or .4%, at both
March 31, 2010 and December 31, 2009.
Fixed
Rate Home Equity Loans
The Company also offers a fixed rate home equity loan product,
typically for home repair or remodeling. This product is an
alternative for individuals who want to finance a specific
project or purchase, and decide to lock in a specific monthly
payment over a defined period. This portfolio of loans
approximated $132.7 million at both March 31, 2010 and
December 31, 2009. At the end of the first quarter of 2010,
$43.8 million of this portfolio had an LTV over 80%, down
from $44.9 million at the end of 2009.
At times, these loans are written with interest only monthly
payments and a balloon payoff at maturity; however, less than 5%
of the outstanding balance have interest only payments. Since
2008, the Company has
44
limited the offering of products with LTV ratios over 90%. As a
result, only $350 thousand in new fixed rate home equity loans
were written with LTV ratios over 90% during the first three
months of 2010.
Management does not believe these loans collateralized by real
estate (personal real estate, revolving home equity, and fixed
rate home equity) represent any unusual concentrations of risk,
as evidenced by net charge-offs in the first three months of
2010 of $201 thousand, $580 thousand and $145 thousand,
respectively. The amount of any increased potential loss on high
LTV agreements relates mainly to amounts advanced that are in
excess of the 80% collateral calculation, not the entire
approved line. The Company currently offers no subprime loan
products, which is defined as those offerings made to customers
with a FICO score below 650, and has purchased no brokered loans.
Other
Consumer Loans
Within the consumer loan portfolio are several direct and
indirect product lines, comprised of automobile, marine, and
recreational vehicles (RV). Outstanding balances for these loans
were $1.0 billion and $1.1 billion at March 31,
2010 and December 31, 2009, respectively. The balances over
30 days past due amounted to $14.1 million at
March 31, 2010 compared to $22.4 million at the end of
2009. For the three months ended March 31, 2010,
$36.9 million of new loans, mostly automobile loans, were
originated, compared to $159.9 million during the full year
of 2009. The Company experienced rapid growth in marine and RV
loans outstanding during 2006 through 2008. However, due to
continuing weak credit and economic conditions, this loan
product offering was curtailed in mid 2008.
Additionally, the Company offers low introductory rates on
selected consumer credit card products. Out of a portfolio at
March 31, 2010 of $760.5 million in consumer credit
card loans outstanding, approximately $149.3 million, or
19.6%, carried a low introductory rate. Within the next six
months, $68.9 million of these loans are scheduled to
convert to the ongoing higher contractual rate. To mitigate some
of the risk involved with this credit card product, the Company
performs credit checks and detailed analysis of the customer
borrowing profile before approving the loan application.
Management believes that the risks in the consumer loan
portfolio are reasonable and the anticipated loss ratios are
within acceptable parameters.
Income
Taxes
Income tax expense was $18.4 million in the first quarter
of 2010, compared to $21.5 million in the fourth quarter of
2009 and $13.6 million in the first quarter of 2009. The
Companys effective income tax rate, including the effect
of non-controlling interest, was 29.4% in the first quarter of
2010, compared with 30.2% in the fourth quarter of 2009 and
30.6% in the first quarter of 2009. The changes in the effective
tax rate for the first quarter of 2010 compared to the first and
fourth quarters of 2009 were primarily due to changes in the mix
of taxable and non-taxable income during those periods.
Financial
Condition
Balance
Sheet
Total assets of the Company were $18.0 billion at
March 31, 2010 compared to $18.1 billion at
December 31, 2009. Earning assets (excluding fair value
adjustments on investment securities) amounted to
$16.7 billion at March 31, 2010 consisting of 62% in
loans and 38% in investment securities, compared to
$16.9 billion at December 31, 2009.
During the first quarter of 2010, average loans, excluding loans
held for sale, decreased $189.3 million, or 1.9%, compared
to the previous quarter. Also, these same loans decreased
$1.1 billion, or 10.1%, this quarter compared to the same
period last year. The decrease in average loans compared to the
previous quarter was mainly the result of lower loan balances in
virtually all categories except consumer credit card loans, as
loan demand remained weak and commercial line of credit usage
remained low. Consumer credit card loans grew $14.0 million
this quarter compared to the previous quarter, mainly due to
higher usage during the holiday season which carried forward
into the first quarter of 2010.
45
During the first quarter of 2010, average business, construction
and business real estate loans declined $35.8 million,
$61.4 million and $24.7 million, respectively, while
average personal real estate loans declined $20.6 million.
Average consumer loans, consisting mainly of automobile and
marine and RV loans, declined $51.9 million, as loan
pay-downs continued to exceed new loan originations since the
Company has ceased most marine and RV loan originations. The
average balance of loans held for sale (comprised mostly of
student loans) increased $161.6 million this quarter, as
the Company typically originates new student loans in this time
period under the Department of Educations current loan
program. It is expected that these newly originated loans will
be sold later this year, as occurred last year under this
program. As mentioned below, recent legislation will curtail
student loan origination activity after July 1, 2010.
Total available for sale investment securities (excluding fair
value adjustments) averaged $6.1 billion this quarter, up
$27.3 million compared to the previous quarter. Declines in
municipal securities and mortgage and asset-backed securities
were offset by growth in U.S. government and agency
securities, which grew by $88.2 million this quarter. At
March 31, 2010 the duration of the investment portfolio was
approximately 2 years, and maturities of approximately
$1.5 billion are expected to occur during the next
12 months.
Total average deposits declined $298.7 million, or 2.1%,
during the first quarter of 2010 compared to the previous
quarter, but increased $689.2 million, or 5.2%, compared to
the first quarter of 2009. Compared to the previous quarter, the
decrease in average deposits resulted mainly from a decline in
business demand deposits (down $226.3 million), primarily
due to seasonal changes in the balances of several larger
corporate deposit customers. Also, interest bearing deposits
declined $78.5 million as a result of continued declines in
certificates of deposit balances (down $364.3 million) but
were offset by growth in money market and savings accounts,
which increased by $260.5 million and $19.2 million,
respectively. Part of the reduction in certificates of deposit
totals related to certain jumbo short-term corporate
certificates of deposit, which declined $137.6 million this
quarter as the Company continued to reduce its reliance on
higher cost short-term funding sources. The average loans to
deposits ratio in the current quarter was 75.0%, compared to
73.6% in the previous quarter.
During the current quarter, the Companys average
borrowings increased $147.7 million compared to the
previous quarter. This increase was the result of
$185.9 million in higher average federal funds purchased
and repurchase agreement balances.
Liquidity
and Capital Resources
Liquidity
Management
The Companys most liquid assets are comprised of available
for sale investment securities, federal funds sold, securities
purchased under agreements to resell, and balances at the
Federal Reserve Bank, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
|
|
Liquid assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds sold
|
|
$
|
500
|
|
|
$
|
33,050
|
|
|
$
|
22,590
|
|
Securities purchased under agreements to resell
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
Available for sale investment securities
|
|
|
6,256,242
|
|
|
|
4,550,908
|
|
|
|
6,340,975
|
|
Balances at the Federal Reserve Bank
|
|
|
7,818
|
|
|
|
592,162
|
|
|
|
24,118
|
|
|
|
Total
|
|
$
|
6,264,560
|
|
|
$
|
5,186,120
|
|
|
$
|
6,387,683
|
|
|
|
46
Federal funds sold and securities purchased under agreements to
resell totaled $500 thousand at March 31, 2010. These
investments normally have overnight maturities and are used for
general daily liquidity purposes. Interest earning balances at
the Federal Reserve Bank, which also have overnight maturities,
totaled $7.8 million at March 31, 2010. The average
interest rate earned on these balances during the first three
months of 2010 was 24 basis points. The fair value of the
available for sale investment portfolio was $6.3 billion at
March 31, 2010 and included an unrealized net gain of
$121.9 million. The total net unrealized gain included
gains of $50.6 million on mortgage and asset-backed
securities, $12.1 million on state and municipal
obligations, and $12.7 million on corporate debt. An
additional $31.8 million unrealized gain was included in
the fair value of common stock held by the Parent. The portfolio
includes maturities of approximately $1.5 billion over the
next 12 months, which offer substantial resources to meet
either new loan demand or reductions in the Companys
deposit funding base. The Company pledges portions of its
investment securities portfolio to secure public fund deposits,
securities sold under agreements to repurchase, trust funds,
letters of credit issued by the FHLB, and borrowing capacity at
the Federal Reserve Bank. At March 31, 2010, total
investment securities pledged for these purposes were as follows:
|
|
|
|
|
|
|
|
|
March 31
|
|
(In thousands)
|
|
2010
|
|
|
|
|
Investment securities pledged for the purpose of securing:
|
|
|
|
|
Federal Reserve Bank borrowings
|
|
$
|
1,099,882
|
|
FHLB borrowings and letters of credit
|
|
|
361,708
|
|
Securities sold under agreements to repurchase
|
|
|
1,357,099
|
|
Other deposits
|
|
|
1,040,030
|
|
|
|
Total pledged securities
|
|
|
3,858,719
|
|
Unpledged and available for pledging
|
|
|
1,672,714
|
|
Ineligible for pledging
|
|
|
724,809
|
|
|
|
Total available for sale securities, at fair value
|
|
$
|
6,256,242
|
|
|
|
Liquidity is also available from the Companys large base
of core customer deposits, defined as demand, interest checking,
savings, and money market deposit accounts. At March 31,
2010, such deposits totaled $11.1 billion and represented
79.1% of total deposits. 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 and over totaled
$1.2 billion at March 31, 2010. These accounts are
normally considered more volatile and higher costing, and
comprised 8.5% of total deposits at March 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
|
|
Core deposit base:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
$
|
1,583,090
|
|
|
$
|
1,507,168
|
|
|
$
|
1,793,816
|
|
Interest checking
|
|
|
610,819
|
|
|
|
522,303
|
|
|
|
735,870
|
|
Savings and money market
|
|
|
8,886,150
|
|
|
|
7,606,162
|
|
|
|
8,467,046
|
|
|
|
Total
|
|
$
|
11,080,059
|
|
|
$
|
9,635,633
|
|
|
$
|
10,996,732
|
|
|
|
47
Other important components of liquidity are the level of
borrowings from third party sources and the availability of
future credit. The Companys outside borrowings are mainly
comprised of federal funds purchased, securities sold under
agreements to repurchase, and advances from the FHLB, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
|
March 31
|
|
|
December 31
|
|
(In thousands)
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased
|
|
$
|
73,965
|
|
|
$
|
159,360
|
|
|
$
|
62,130
|
|
Securities sold under agreements to repurchase
|
|
|
924,808
|
|
|
|
842,192
|
|
|
|
1,041,061
|
|
FHLB advances
|
|
|
723,849
|
|
|
|
825,233
|
|
|
|
724,386
|
|
Subordinated debentures
|
|
|
|
|
|
|
14,310
|
|
|
|
4,000
|
|
Other long-term debt
|
|
|
7,658
|
|
|
|
7,732
|
|
|
|
7,676
|
|
|
|
Total
|
|
$
|
1,730,280
|
|
|
$
|
1,848,827
|
|
|
$
|
1,839,253
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase are generally borrowed overnight, and amounted to
$998.8 million at March 31, 2010. Federal funds
purchased are unsecured overnight borrowings obtained mainly
from upstream correspondent banks with which the Company
maintains approved lines of credit. Securities sold under
agreements to repurchase are secured by a portion of the
Companys investment portfolio and are comprised of both
non-insured customer funds, totaling $424.8 million at
March 31, 2010, and structured repurchase agreements of
$500.0 million purchased from an upstream financial
institution. The Company also borrows on a secured basis through
advances from the FHLB, which totaled $723.8 million at
March 31, 2010. Most of these advances have fixed interest
rates and mature in 2010 through 2011. Other outstanding
long-term borrowings relate mainly to the Companys leasing
activities and private equity investments.
The Company pledges certain assets, including loans and
investment securities, to both the Federal Reserve Bank and the
FHLB as security to establish lines of credit and borrow from
these entities. Based on the amount and type of collateral
pledged, the FHLB establishes a collateral value from which the
Company may draw advances against the collateral. Also, this
collateral is used to enable the FHLB to issue letters of credit
in favor of public fund depositors of the Company. The Federal
Reserve Bank also establishes a collateral value of assets
pledged to support borrowings from the discount window. The
following table reflects the collateral value of assets pledged,
borrowings, and letters of credit outstanding, in addition to
the estimated future funding capacity available to the Company
at March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
|
Federal
|
|
(In thousands)
|
|
FHLB
|
|
|
Reserve
|
|
|
|
|
Collateral value pledged
|
|
$
|
2,096,858
|
|
|
$
|
1,990,930
|
|
Advances outstanding
|
|
|
(723,849
|
)
|
|
|
|
|
Letters of credit issued
|
|
|
(386,439
|
)
|
|
|
|
|
|
|
Available for future advances
|
|
$
|
986,570
|
|
|
$
|
1,990,930
|
|
|
|
In addition to those mentioned above, several other sources of
liquidity are available. The Company has strong long-term
deposit ratings from Moodys and Standard &
Poors of Aa2 and A+, respectively. Additionally, its sound
commercial paper rating of
A-1 from
Standard & Poors and
P-1 from
Moodys would help ensure the ready marketability of its
commercial paper, should the need arise. No commercial paper has
been issued or outstanding during the past ten years. Neither
the Company nor its banking subsidiary has any subordinated debt
or hybrid instruments which could affect future borrowing
capacity. Because of its lack of significant long-term debt, the
Company believes that it could generate additional liquidity
through its Capital Markets Group from sources such as jumbo
certificates of deposit or privately placed debt offerings.
Financing may also include the issuance of common or preferred
stock. As mentioned
48
below, the Company concluded a stock sale program in the third
quarter of 2009 which generated $100.0 million in gross
sales proceeds.
Cash and cash equivalents (defined as Cash and due from
banks, Federal funds sold and securities purchased
under agreements to resell, and Interest earning
deposits with banks as segregated in the accompanying
balance sheets) was $353.4 million at March 31, 2010
compared to $463.8 million at December 31, 2009. The
$110.4 million decline included changes in the various cash
flows resulting from the operating, investing and financing
activities of the Company, as shown in the accompanying
statement of cash flows for March 31, 2010. Operating
activities include net income adjusted for certain non-cash
items, in addition to changes in the levels of loans held for
sale and securities held for trading purposes. During the first
quarter of 2010, operating activities used cash of
$54.7 million, partly due to activity in these portfolios.
Investing activities, which occur mainly in the loan and
investment securities portfolios, provided cash of
$366.6 million. Most of the cash inflow was due to
$395.0 million in proceeds from sales, maturities and pay
downs of investment securities and a $279.5 million decline
in the loan portfolio, partly offset by $305.5 million in
purchases of investment securities. Financing activities used
cash of $422.3 million, resulting mainly from decreases of
$297.7 million in deposit accounts and $104.4 million
in federal funds purchased and securities sold under agreements
to repurchase. Future short-term liquidity needs arising from
daily operations are not expected to vary significantly, and the
Company believes it will be able to meet these cash flow needs.
Capital
Management
The Company and its bank subsidiary maintain strong regulatory
capital ratios, which exceed the well-capitalized guidelines
under federal banking regulations. Information about the
Companys risk-based capital is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Ratios
|
|
|
|
|
|
|
|
|
|
for
|
|
|
|
March 31
|
|
|
December 31
|
|
|
Well-Capitalized
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
Banks
|
|
|
|
|
Risk-adjusted assets
|
|
$
|
12,929,977
|
|
|
$
|
13,105,948
|
|
|
|
|
|
Tier I risk-based capital
|
|
|
1,736,220
|
|
|
|
1,708,901
|
|
|
|
|
|
Total risk-based capital
|
|
|
1,912,624
|
|
|
|
1,885,978
|
|
|
|
|
|
Tier I risk-based capital ratio
|
|
|
13.43
|
%
|
|
|
13.04
|
%
|
|
|
6.00
|
%
|
Total risk-based capital ratio
|
|
|
14.79
|
%
|
|
|
14.39
|
%
|
|
|
10.00
|
%
|
Tier I leverage ratio
|
|
|
9.81
|
%
|
|
|
9.58
|
%
|
|
|
5.00
|
%
|
|
|
The Company maintains a treasury stock buyback program, and in
February 2008 was authorized by the Board of Directors to
repurchase up to 3,000,000 shares of its common stock.
Since 2008, the Company has elected to cease market purchases of
treasury stock in order to preserve its cash and capital
position. Accordingly, during the quarter ended March 31,
2010 the Company purchased only 22,099 shares of treasury
stock, in connection with its equity compensation plan, at an
average cost of $39.74 per share. At March 31, 2010,
2,839,684 shares remained available for purchase under the
current Board authorization.
The Companys common stock dividend policy reflects its
earnings outlook, desired payout ratios, the need to maintain
adequate capital levels, and alternative investment options. The
Company paid a per share cash dividend of $.235 in the first
quarter of 2010, which was a 2.6% increase compared to the
fourth quarter of 2009.
Common
Equity Offering
On February 27, 2009, the Company entered into an equity
distribution agreement with a broker dealer, acting as the
Companys sales agent, relating to the offering of the
Companys common stock. Sales of these shares were made by
means of brokers transactions on or through the Nasdaq
Global Select Market, trading facilities of national securities
associations or alternative trading systems, block transactions
and such other
49
transactions as agreed upon by the Company and the sales agent,
at market prices prevailing at the time of the sale or at prices
related to the prevailing market prices. On July 31, 2009,
the Company terminated the offering.
Total shares sold under the offering amounted to 2,894,773.
Total gross proceeds for the entire offering were
$100.0 million, with an average sale price of $34.55 per
share, and total commissions paid to the sales agent for the
sale of these shares were $1.5 million. After payment of
commissions and SEC, legal and accounting fees relating to the
offering, net proceeds for the entire offering totaled
$98.2 million, with average net sale proceeds of $33.91 per
share.
Commitments,
Off-Balance Sheet Arrangements and Contingencies
Various commitments and contingent liabilities arise in the
normal course of business, which are not required to be recorded
on the balance sheet. The most significant of these are loan
commitments, which at March 31, 2010 totaled
$7.0 billion (including approximately $3.3 billion in
unused approved credit card lines). In addition, the Company
enters into standby and commercial letters of credit. These
contracts amounted to $378.7 million and
$22.9 million, respectively, at March 31, 2010. Since
many commitments expire unused or only partially used, these
totals do not necessarily reflect future cash requirements. The
carrying value of the guarantee obligations associated with the
standby letters of credit, which has been recorded as a
liability on the balance sheet, amounted to $3.0 million at
March 31, 2010.
The Company has committed to borrow $400.0 million under
structured repurchase agreements in August 2010. These
borrowings have a floating interest rate based upon a CMS rate
and will mature in 2013 through 2014. They will largely replace
several other structured repurchase agreements which will mature
in August 2010. These types of borrowings are secured with
marketable securities.
The Company regularly purchases various state tax credits
arising from third-party property redevelopment. While most of
the tax credits are resold to third parties, some are
periodically retained for use by the Company. During the first
three months of 2010, purchases and sales of tax credits
amounted to $10.8 million and $17.6 million,
respectively, and at March 31, 2010, outstanding purchase
commitments totaled $118.6 million.
The Parent has additional funding commitments arising from
investments in private equity concerns, classified as
non-marketable securities in the accompanying balance sheets,
which total $1.3 million at March 31, 2010. In
addition, the Parent expects to fund $29.1 million to
venture capital subsidiaries over the next several years.
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 Complaint was filed seeking monetary damages and injunctive
relief in the United States District Court for the Western
District of Missouri on April 6, 2010 by Leslie J. Wolfgeher, on
behalf of herself and others similarly situated against the
Companys subsidiary, Commerce Bank, N.A. The Complaint
alleges that Commerce Bank breached its contractual obligation
of good faith and fair dealing and was unjustly enriched through
the manner by which it charged overdraft fees for certain debit
card purchases. The Plaintiff seeks to establish a class
comprised of all persons or entities with accounts that incurred
these allegedly improper overdraft fees on debit card
transactions for an unspecified period of time. A Conditional
Transfer Order has been issued by the Judicial Panel on
Multidistrict Litigation transferring the case to the United
States District Court for the Southern District of Florida where
nearly identical lawsuits against more than thirty other banks
are currently pending in a multi-district proceeding known as
In re Checking Account Overdraft Litigation. The Company
believes the claims to be without merit and intends to defend
the action vigorously.
50
Segment
Results
The table below is a summary of segment pre-tax income results
for the first three months of 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Other/
|
|
|
Consolidated
|
|
(In thousands)
|
|
Consumer
|
|
|
Commercial
|
|
|
Wealth
|
|
|
Totals
|
|
|
Elimination
|
|
|
Totals
|
|
|
|
|
Three Months Ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
86,833
|
|
|
$
|
67,095
|
|
|
$
|
10,605
|
|
|
$
|
164,533
|
|
|
$
|
(1,823
|
)
|
|
$
|
162,710
|
|
Provision for loan losses
|
|
|
(19,278
|
)
|
|
|
(11,928
|
)
|
|
|
(58
|
)
|
|
|
(31,264
|
)
|
|
|
(3,058
|
)
|
|
|
(34,322
|
)
|
Non-interest income
|
|
|
34,430
|
|
|
|
30,148
|
|
|
|
27,486
|
|
|
|
92,064
|
|
|
|
1,188
|
|
|
|
93,252
|
|
Investment securities losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,665
|
)
|
|
|
(3,665
|
)
|
Non-interest expense
|
|
|
(73,144
|
)
|
|
|
(50,185
|
)
|
|
|
(26,773
|
)
|
|
|
(150,102
|
)
|
|
|
(5,685
|
)
|
|
|
(155,787
|
)
|
|
|
Income before income taxes
|
|
$
|
28,841
|
|
|
$
|
35,130
|
|
|
$
|
11,260
|
|
|
$
|
75,231
|
|
|
$
|
(13,043
|
)
|
|
$
|
62,188
|
|
|
|
Three Months Ended March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
87,418
|
|
|
$
|
56,162
|
|
|
$
|
9,962
|
|
|
$
|
153,542
|
|
|
$
|
(3,527
|
)
|
|
$
|
150,015
|
|
Provision for loan losses
|
|
|
(20,619
|
)
|
|
|
(14,173
|
)
|
|
|
(271
|
)
|
|
|
(35,063
|
)
|
|
|
(8,105
|
)
|
|
|
(43,168
|
)
|
Non-interest income
|
|
|
35,437
|
|
|
|
26,539
|
|
|
|
28,931
|
|
|
|
90,907
|
|
|
|
1,524
|
|
|
|
92,431
|
|
Investment securities losses, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,172
|
)
|
|
|
(2,172
|
)
|
Non-interest expense
|
|
|
(72,817
|
)
|
|
|
(47,121
|
)
|
|
|
(26,198
|
)
|
|
|
(146,136
|
)
|
|
|
(6,750
|
)
|
|
|
(152,886
|
)
|
|
|
Income before income taxes
|
|
$
|
29,419
|
|
|
$
|
21,407
|
|
|
$
|
12,424
|
|
|
$
|
63,250
|
|
|
$
|
(19,030
|
)
|
|
$
|
44,220
|
|
|
|
Increase (decrease) in income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
$
|
(578
|
)
|
|
$
|
13,723
|
|
|
$
|
(1,164
|
)
|
|
$
|
11,981
|
|
|
$
|
5,987
|
|
|
$
|
17,968
|
|
|
|
Percent
|
|
|
(2.0
|
)%
|
|
|
64.1
|
%
|
|
|
(9.4
|
)%
|
|
|
18.9
|
%
|
|
|
31.5
|
%
|
|
|
40.6
|
%
|
|
|
Consumer
For the three months ended March 31, 2010, income before
income taxes for the Consumer segment decreased $578 thousand,
or 2.0%, from the first quarter of 2009. This decrease was
mainly due to a decline of $1.0 million, or 2.8%, in
non-interest income, coupled with a decline of $585 thousand in
net interest income. Net interest income declined due to a
$4.3 million decrease in net allocated funding credits
assigned to the Consumer segments loan and deposit
portfolios and a $7.6 million decrease in loan interest
income, partly offset by a decline of $11.3 million in
deposit interest expense. Non-interest income decreased mainly
due to declines in deposit account fees (mainly overdraft
charges) and mortgage banking revenue, in addition to lower
gains on the sales of student loans. These declines were partly
offset by an increase in bank card fee income (primarily debit
card fees) and losses recorded in 2009 on the disposal of
repossessed assets. Non-interest expense grew $327 thousand, or
.4%, over the first quarter of 2009 due to higher FDIC insurance
expense, marketing expense and corporate management fees. These
increases were partly offset by lower teller services expense,
loan servicing fees and salaries expense. Net loan charge-offs
totaled $19.3 million, a $1.3 million decrease from
the first quarter of 2009, which was due mainly to lower losses
on marine and RV and other consumer loans, partly offset by
higher consumer credit card loan losses.
51
Commercial
For the three months ended March 31, 2010, income before
income taxes for the Commercial segment increased
$13.7 million, or 64.1%, compared to the same period in the
previous year. Net interest income increased $10.9 million,
or 19.5%, due to higher net allocated funding credits of
$14.8 million and a decrease in deposit interest expense of
$892 thousand, which were partly offset by a $4.8 million
decline in loan interest income. Net loan charge-offs in this
segment totaled $11.9 million in the first quarter of 2010,
a decrease of $2.2 million from the first quarter of 2009.
During 2010, lower charge-offs occurred on business loans, while
construction loan charge-offs were higher. Non-interest income
increased by $3.6 million, or 13.6%, over the previous year
due to higher bank card fees (mainly corporate card), tax credit
sales income and loan commitment fees, partly offset by lower
cash sweep commissions. Non-interest expense increased
$3.1 million, or 6.5%, over the previous year, mainly due
to higher write-downs and holding costs on foreclosed real
estate and other assets, bank card fees expense and FDIC
insurance expense. These increases were partly offset by lower
costs for deposit account processing.
Wealth
Wealth segment pre-tax profitability for the three months ended
March 31, 2010 decreased $1.2 million, or 9.4%, from
the same period in the previous year. Net interest income
increased $643 thousand, or 6.5%, and was impacted by a
$4.1 million decline in deposit interest expense, offset by
a $2.7 million decrease in assigned net funding credits and
a $770 thousand decrease in loan interest income. Non-interest
income declined $1.4 million, or 5.0%, from the prior year
due to lower bond trading income, brokerage fees and cash sweep
commissions, partly offset by higher trust fee income.
Non-interest expense increased $575 thousand, or 2.2%, mainly
due to higher corporate management fees.
The Other/Elimination category in the preceding table includes
the activity of various support and overhead operating units of
the Company, in addition to the investment securities portfolio
and other items not allocated to the segments. In accordance
with the Companys transfer pricing policies, the excess of
the total provision over charge-offs is not allocated to a
business segment, and is included in this category. The pre-tax
profitability of this category was higher than in the previous
period by $6.0 million. This increase was mainly due to a
decline in the unallocated loan loss provision of
$5.0 million. In addition, net interest income in this
category, related to earnings of the investment portfolio and
interest expense on borrowings not allocated to a segment,
increased $1.7 million, while unallocated amounts related
to investment securities losses increased $1.5 million.
Regulatory
Changes Affecting Student Lending
In the past, the Company has originated federally guaranteed
student loans from various colleges and universities in its
markets which it holds for sale in its loan portfolio. In March
2010, the federal government passed legislation that will make
the federal government the sole originator of federally
subsidized student loans beginning on July 1, 2010. These
new rules will effectively require the Company to cease all new
origination activities for federal Stafford and Plus student
loans as of July 1, 2010. The existing student loans held
for sale will continue to be sold as in the past under existing
sales contracts.
Regulatory
Changes Affecting Overdraft Fees
In late 2009, the Federal Reserve issued new regulations,
effective July 1, 2010, which generally prohibit financial
institutions from assessing fees for paying ATM and one-time
debit card transactions that overdraw consumer accounts unless
the consumer affirmatively consents to the financial
institutions overdraft practices. As a result, without
such consent, the Company will not permit ATM or one-time debit
card transactions if they would overdraw a customers
account. As it is not expected that all customers will provide
such consent, it is likely that these new regulations will
result in lower deposit fee income in the second half of 2010
and in 2011. The Company is in the process of implementing new
procedures to solicit and capture required customer consents. In
concert with the rest of the industry, the Company is also
developing other products, some of which include monthly fees as
a means to mitigate some of the effects of these new rules. The
Company estimates that the impact of these new regulations
during the second half of 2010 will reduce pre-tax deposit fee
income by as much as $13 million. The Company estimates
that the full year impact of these regulations will cost between
$16 million and $21 million on a pre-tax basis.
52
Impact
of Recently Issued Accounting Standards
Fair Value Measurements In April 2009, the FASB
issued additional guidance on reliance on transaction prices or
quoted prices when estimating fair value when market volume and
activity have significantly decreased. The guidance reaffirms
the definition of fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. It provides a two-step
process to determine whether there has been a significant
decrease in the volume and level of activity for an asset or
liability when compared with normal market activity for the
asset or liability, and whether a transaction is not orderly. If
it is determined that there has been a significant decrease in
the volume and level of activity for the asset or liability in
relation to normal market activity, transactions or quoted
prices may not be determinative of fair value. Accordingly,
further analysis of the transactions or quoted prices is needed,
and a significant adjustment to the transactions or quoted
prices may be necessary to estimate fair value. The Company
adopted the guidance in March 2009, and its application did not
result in a change in valuation techniques and related inputs.
In January 2010, the FASB issued ASU
2010-06,
Improving Disclosures about Fair Value Measurements,
which requires additional disclosures related to transfers among
fair value hierarchy levels and the activity of Level 3
assets and liabilities. This ASU also provides clarification for
the disaggregation of fair value measurements of assets and
liabilities, and the discussion of inputs and valuation
techniques used for fair value measurements. The new disclosures
and clarification were effective January 1, 2010, except
for the disclosures related to the activity of Level 3
financial instruments. Those disclosures are effective
January 1, 2011. The adoption of ASU
2010-06 did
not have a significant effect on the Companys consolidated
financial statements.
Accounting for Transfers of Financial Assets The
FASB issued additional guidance in June 2009 with the objective
of providing greater transparency about transfers of financial
assets and a transferors continuing involvement. The new
guidance limits the circumstances in which a financial asset
should be derecognized when the transferor has not transferred
the entire original financial asset, or when the transferor has
continuing involvement with the transferred asset. It
establishes conditions for reporting a transfer of a portion of
a financial asset as a sale. Also, it eliminates the exception
for qualifying special purpose entities from consolidation
guidance, and the exception that permitted sale accounting for
certain mortgage securitizations when a transferor has not
surrendered control over the transferred assets. The new
accounting requirements must be applied to transactions
occurring on or after January 1, 2010. Their adoption did
not have a significant effect on the Companys consolidated
financial statements.
Variable Interest Entities In June 2009, the FASB
issued new accounting guidance related to variable interest
entities. This guidance replaces a quantitative-based risks and
rewards calculation for determining which entity, if any, has a
controlling financial interest in a variable interest entity
with an approach focused on identifying which entity has the
power to direct the activities of a variable interest entity
that most significantly impact its economic performance and the
obligation to absorb its losses or the right to receive its
benefits. This guidance requires reconsideration of whether an
entity is a variable interest entity when any changes in facts
or circumstances occur such that the holders of the equity
investment at risk, as a group, lose the power to direct the
activities of the entity that most significantly impact the
entitys economic performance. It also requires ongoing
assessments of whether a variable interest holder is the primary
beneficiary of a variable interest entity. In February 2010, the
FASB issued ASU
2010-10,
Amendments for Certain Investment Funds, which
deferred the application of this new guidance for interests in
certain investment entities, such as mutual funds, private
equity funds, hedge funds, venture capital funds, and real
estate investment trusts, and clarified other aspects of the
guidance. Entities qualifying for this deferral will continue to
apply the previously existing consolidation guidance. The
guidance and its amendment were effective on January 1,
2010, and their adoption did not have a significant effect on
the Companys financial statements.
53
AVERAGE
BALANCE SHEETS AVERAGE RATES AND YIELDS
Three
Months Ended March 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter 2010
|
|
|
First Quarter 2009
|
|
|
|
|
|
|
Interest
|
|
|
Avg. Rates
|
|
|
|
|
|
Interest
|
|
|
Avg. Rates
|
|
|
|
Average
|
|
|
Income/
|
|
|
Earned/
|
|
|
Average
|
|
|
Income/
|
|
|
Earned/
|
|
(Dollars in thousands)
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
|
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business(A)
|
|
$
|
2,830,429
|
|
|
$
|
26,753
|
|
|
|
3.83
|
%
|
|
$
|
3,340,514
|
|
|
$
|
29,746
|
|
|
|
3.61
|
%
|
Real estate construction and land
|
|
|
633,726
|
|
|
|
6,268
|
|
|
|
4.01
|
|
|
|
816,433
|
|
|
|
6,716
|
|
|
|
3.34
|
|
Real estate business
|
|
|
2,088,111
|
|
|
|
25,752
|
|
|
|
5.00
|
|
|
|
2,140,638
|
|
|
|
26,923
|
|
|
|
5.10
|
|
Real estate personal
|
|
|
1,526,254
|
|
|
|
20,145
|
|
|
|
5.35
|
|
|
|
1,620,844
|
|
|
|
22,858
|
|
|
|
5.72
|
|
Consumer
|
|
|
1,306,507
|
|
|
|
22,369
|
|
|
|
6.94
|
|
|
|
1,579,456
|
|
|
|
26,950
|
|
|
|
6.92
|
|
Home equity
|
|
|
488,492
|
|
|
|
5,186
|
|
|
|
4.31
|
|
|
|
504,820
|
|
|
|
5,361
|
|
|
|
4.31
|
|
Student
|
|
|
328,725
|
|
|
|
1,848
|
|
|
|
2.28
|
|
|
|
353,650
|
|
|
|
3,220
|
|
|
|
3.69
|
|
Consumer credit card
|
|
|
762,925
|
|
|
|
23,665
|
|
|
|
12.58
|
|
|
|
734,510
|
|
|
|
21,554
|
|
|
|
11.90
|
|
Overdrafts
|
|
|
7,601
|
|
|
|
|
|
|
|
|
|
|
|
8,388
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
9,972,770
|
|
|
|
131,986
|
|
|
|
5.37
|
|
|
|
11,099,253
|
|
|
|
143,328
|
|
|
|
5.24
|
|