<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
-----------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-2989
COMMERCE BANCSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 43-0889454
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION
NO.)
1000 WALNUT, KANSAS CITY, MO 64106
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
(816) 234-2000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
X
Yes------- No -------
As of November 3, 1995, the registrant had outstanding 35,927,900 shares of
its $5 par value common stock, registrant's only class of common stock.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I: FINANCIAL INFORMATION
In the opinion of management, the consolidated financial statements of
Commerce Bancshares, Inc. and Subsidiaries as of September 30, 1995 and
December 31, 1994 and the related notes include all material adjustments which
were regularly recurring in nature and necessary for fair presentation of the
financial condition and the results of operations for the periods shown.
The consolidated financial statements of Commerce Bancshares, Inc. and
Subsidiaries and management's discussion and analysis of financial condition
and results of operations are presented in the schedules as follows:
Schedule 1: Consolidated Balance Sheets
Schedule 2: Consolidated Statements of Income
Schedule 3: Consolidated Statements of Changes in Stockholders' Equity
Schedule 4: Consolidated Statements of Cash Flows
Schedule 5: Notes to Consolidated Financial Statements
Schedule 6: Management's Discussion and Analysis of Financial Condition
and Results of Operations
Schedule 7: Comparison of Key Ratios and Selected Bank Data
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1995.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCE BANCSHARES, INC.
/s/ T. Alan Peschka
By __________________________________
T. Alan Peschka
Vice President & Secretary
Date: November 10, 1995
/s/ Charles E. Templer
By __________________________________
Charles E. Templer
Treasurer & Controller
(Chief Accounting Officer)
Date: November 10, 1995
1
<PAGE>
SCHEDULE 1
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1995 1994
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Loans and lease financing, net of unearned............ $5,465,995 $4,432,662
Allowance for loan losses............................. (98,295) (87,179)
---------- ----------
NET LOANS AND LEASE FINANCING..................... 5,367,700 4,345,483
---------- ----------
Investment securities:
Available for sale.................................. 2,528,148 2,621,342
Trading account..................................... 7,584 5,539
Other non-marketable................................ 26,863 18,539
---------- ----------
TOTAL INVESTMENT SECURITIES....................... 2,562,595 2,645,420
---------- ----------
Federal funds sold and securities purchased under
agreements to resell................................. 194,425 72,265
Cash and due from banks............................... 568,591 565,805
Land, buildings and equipment--net.................... 209,265 191,780
Customers' acceptance liability....................... 5,136 15,213
Other assets.......................................... 247,577 199,608
---------- ----------
TOTAL ASSETS...................................... $9,155,289 $8,035,574
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand--non-interest bearing........................ $1,443,352 $1,448,422
Savings and interest bearing demand................. 3,725,926 3,418,450
Time open and C.D.'s of less than $100,000.......... 2,286,211 1,942,986
Time open and C.D.'s of $100,000 and over........... 229,919 180,572
---------- ----------
TOTAL DEPOSITS.................................... 7,685,408 6,990,430
Federal funds purchased and securities sold under
agreements to repurchase............................. 501,659 290,647
Long-term debt and other borrowings................... 15,663 6,487
Accrued interest, taxes and other liabilities......... 59,027 4,213
Acceptances outstanding............................... 5,136 15,213
Minority interest in subsidiaries..................... 296 386
---------- ----------
TOTAL LIABILITIES................................. 8,267,189 7,307,376
---------- ----------
Stockholders' equity:
Preferred stock, $1 par value.
Authorized and unissued 2,000,000 shares........... -- --
Common stock, $5 par value.
Authorized 60,000,000 shares; issued 36,644,405
shares in 1995 and 33,970,106 shares in 1994...... 183,222 169,851
Capital surplus..................................... 47,116 54,575
Retained earnings................................... 668,490 576,331
Treasury stock of 685,539 shares in 1995 and 401,087
shares in 1994, at cost............................ (22,232) (12,148)
Unearned employee benefits.......................... (818) (295)
Unrealized securities gain (loss)--net of tax....... 12,322 (60,116)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY........................ 888,100 728,198
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $9,155,289 $8,035,574
========== ==========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
SCHEDULE 2
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
-----------------------------------------
1995 1994 1995 1994
---------- ------------------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans and
leases............................. $ 120,608 $ 85,844 $ 337,723 $ 239,343
Interest on investment securities... 39,089 40,369 121,897 121,788
Interest on federal funds sold and
securities purchased under
agreements to resell............... 4,394 1,647 6,711 4,272
---------- --------- --------- ---------
TOTAL INTEREST INCOME........... 164,091 127,860 466,331 365,403
---------- --------- --------- ---------
INTEREST EXPENSE
Interest on deposits:
Savings and interest bearing
demand........................... 31,891 22,889 88,081 66,016
Time open and C.D.'s of less than
$100,000......................... 32,072 19,549 86,427 55,610
Time open and C.D.'s of $100,000
and over......................... 3,121 1,611 8,267 4,299
Interest on federal funds purchased
and securities sold under
agreements to repurchase........... 6,235 3,086 18,039 6,939
Interest on long-term debt and other
borrowings......................... 271 139 841 400
---------- --------- --------- ---------
TOTAL INTEREST EXPENSE.......... 73,590 47,274 201,655 133,264
---------- --------- --------- ---------
NET INTEREST INCOME............. 90,501 80,586 264,676 232,139
Provision for loan losses........... 3,927 276 8,690 3,794
---------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES...... 86,574 80,310 255,986 228,345
---------- --------- --------- ---------
NON-INTEREST INCOME
Trust income........................ 8,638 6,825 24,341 21,147
Deposit account charges and other
fees............................... 11,807 10,053 33,053 29,644
Trading account profits and
commissions........................ 1,134 1,135 3,848 3,514
Net gains on securities
transactions....................... 243 1,032 670 2,353
Miscellaneous credit card income.... 5,725 4,776 15,990 12,916
Other income........................ 6,647 6,280 18,779 21,023
---------- --------- --------- ---------
TOTAL NON-INTEREST INCOME....... 34,194 30,101 96,681 90,597
---------- --------- --------- ---------
OTHER EXPENSE
Salaries and employee benefits...... 41,156 35,489 117,952 108,735
Net occupancy expense on bank
premises........................... 5,369 4,747 15,257 13,357
Equipment expense................... 3,579 3,266 10,286 9,603
Supplies and communication expense.. 6,304 4,771 17,614 14,290
Federal deposit insurance expense... (339) 3,814 7,907 11,438
Marketing expense................... 3,718 2,842 8,119 6,568
Other operating expense............. 17,218 15,058 50,064 45,098
---------- --------- --------- ---------
TOTAL OTHER EXPENSE............. 77,005 69,987 227,199 209,089
---------- --------- --------- ---------
Income before income taxes.......... 43,763 40,424 125,468 109,853
Less income taxes................... 16,153 15,215 46,076 38,014
---------- --------- --------- ---------
NET INCOME...................... $ 27,610 $ 25,209 $ 79,392 $ 71,839
========== ========= ========= =========
Net income per common and common
equivalent share................... $ .76 $ .75 $ 2.21 $ 2.13
========== ========= ========= =========
Weighted average common and common
equivalent shares outstanding...... 36,453 33,619 35,967 33,713
========== ========= ========= =========
Dividends per common share.......... $ .180 $ .162 $ .540 $ .467
========== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
SCHEDULE 3
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER UNEARNED NET
OF SHARES COMMON CAPITAL RETAINED TREASURY EMPLOYEE UNREALIZED
ISSUED STOCK SURPLUS EARNINGS STOCK BENEFITS GAIN (LOSS) TOTAL
---------- -------- ------- -------- -------- -------- ----------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1995. 33,970,106 $169,851 $54,575 $576,331 $(12,148) $ (295) $(60,116) $728,198
Net income............. 79,392 79,392
Year-to-date change in
fair value of
investment securities. 72,400 72,400
Purchases of 912,848
treasury shares....... (29,076) (29,076)
Sales of 177,536
treasury shares under
various stock option
plans................. (2,156) 5,432 3,276
Issuance of 176,854
treasury shares in
purchase acquisition.. (435) 5,315 4,880
Retirement of treasury
shares................ (286,967) (1,435) (7,190) 8,625 --
Issuance of new shares
in pooling
acquisition........... 2,961,266 14,806 2,318 32,360 38 49,522
Purchase of 33,600
treasury shares in
pooling acquisition... (1,000) (1,000)
Issuance of 20,639
treasury shares under
restricted stock award
plan, net of
reversals............. 4 620 (624) --
Restricted stock award
amortization.......... 101 101
Cash dividends paid
($.540 per share)..... (19,593) (19,593)
---------- -------- ------- -------- -------- ------- -------- --------
BALANCE SEPTEMBER 30,
1995................... 36,644,405 $183,222 $47,116 $668,490 $(22,232) $ (818) $ 12,322 $888,100
========== ======== ======= ======== ======== ======= ======== ========
Balance January 1, 1994. 33,850,360 $169,252 $52,915 $501,500 $ (8,982) $(2,065) $ -- $712,620
Net income............. 71,839 71,839
1/1/94 adoption of SFAS
115-adjustment of
investment securities
to fair value......... 47,116 47,116
Year-to-date change in
fair value of
investment securities. (79,622) (79,622)
Purchases of 1,433,771
treasury shares....... (42,678) (42,678)
Sales of 149,256
treasury shares to the
employee benefit
plans................. 269 4,116 4,385
Sales of 122,784
treasury shares under
various stock option
plans................. (1,126) 2,930 1,804
Issuance of 959,910
treasury shares in
purchase acquisitions. (24) 23,802 23,778
Issuance of new shares
in purchase
acquisition........... 119,746 599 3,116 (156) 3,559
Issuance of 2,887
treasury shares under
restricted stock award
plan.................. 15 71 (86) --
ESOP benefit
allocation............ 27 375 402
Restricted stock award
amortization.......... 78 78
Cash dividends paid
($.467 per share)..... (15,696) (15,696)
---------- -------- ------- -------- -------- ------- -------- --------
Balance September 30,
1994................... 33,970,106 $169,851 $55,192 $557,487 $(20,741) $(1,698) $(32,506) $727,585
========== ======== ======= ======== ======== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
SCHEDULE 4
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS
ENDED SEPTEMBER
30
------------------
1995 1994
-------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 79,392 $ 71,839
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses............................... 8,690 3,794
Provision for depreciation and amortization............. 23,012 19,051
Accretion of investment security discounts.............. (4,346) (842)
Amortization of investment security premiums............ 19,845 23,211
Net gains on sales of investment securities (A)......... (670) (2,353)
Net (increase) decrease in trading account securities... (2,586) 1,740
(Increase) decrease in interest receivable.............. 1,214 (2,593)
Increase in interest payable............................ 8,802 281
Other changes, net...................................... 4,592 12,769
-------- --------
Net cash provided by operating activities............. 137,945 126,897
-------- --------
INVESTING ACTIVITIES:
Net cash received (paid) in acquisitions.................. (33,226) 10,911
Proceeds from sales of investment securities (A).......... 585,688 590,707
Proceeds from maturities of investment securities (A)..... 407,470 186,011
Purchases of investment securities (A).................... (460,174) (640,357)
Net (increase) decrease in federal funds sold and
securities purchased
under agreements to resell............................... (95,325) 256,107
Net increase in loans..................................... (365,305) (222,283)
Purchases of premises and equipment....................... (17,549) (16,036)
Sales of premises and equipment........................... 6,386 8,199
-------- --------
Net cash provided by investing activities............. 27,965 173,259
-------- --------
FINANCING ACTIVITIES:
Net decrease in non-interest bearing demand, savings
and interest bearing demand deposits..................... (285,801) (292,742)
Net increase in time open and C.D.'s...................... 97,049 81,734
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase........... 78,913 (72,870)
Repayment of long-term debt............................... (7,691) (284)
Purchases of treasury stock............................... (28,923) (42,640)
Sales of treasury stock to employee benefit plans......... -- 4,385
Exercise of stock options by employees.................... 2,922 1,645
Cash dividends paid on common stock....................... (19,593) (15,696)
-------- --------
Net cash used by financing activities................. (163,124) (336,468)
-------- --------
Increase (decrease) in cash and cash equivalents...... 2,786 (36,312)
Cash and cash equivalents at beginning of year............ 565,805 534,785
-------- --------
Cash and cash equivalents at September 30............. $568,591 $498,473
======== ========
</TABLE>
- --------
(A) Available for sale and other non-marketable securities, excluding trading
account securities.
Cash payments of income taxes for the nine month period were $27,295,000 in
1995 and $40,390,000 in 1994. Interest paid on deposits and borrowings for the
nine month period was $192,967,000 in 1995 and $132,983,000 in 1994.
See accompanying notes to financial statements.
5
<PAGE>
SCHEDULE 5
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
1. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The accompanying consolidated financial statements include the accounts of
Commerce Bancshares, Inc. and all majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Certain
reclassifications were made to 1994 data to conform to current year
presentation.
The significant accounting policies followed in the preparation of the
quarterly financial statements are the same as those disclosed in the 1994
Annual Report to stockholders to which reference is made.
2. ALLOWANCE FOR LOAN LOSSES
The following is a summary of the allowance for loan losses (in thousands):
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER
30 30
--------------- ---------------
1995 1994 1995 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, beginning of period............. $99,221 $86,039 $87,179 $85,830
------- ------- ------- -------
Additions:
Provision for loan losses.............. 3,927 276 8,690 3,794
Allowance for loan losses of acquired
banks................................. -- 745 12,932 2,328
------- ------- ------- -------
Total additions...................... 3,927 1,021 21,622 6,122
------- ------- ------- -------
Deductions:
Loan losses............................ 6,653 3,341 15,826 11,153
Less recoveries on loans............... 1,800 2,627 5,320 5,547
------- ------- ------- -------
Net loan losses...................... 4,853 714 10,506 5,606
------- ------- ------- -------
Balance, September 30.................... $98,295 $86,346 $98,295 $86,346
======= ======= ======= =======
</TABLE>
At September 30, 1995, interest income was not being recognized on an
accrual basis for loans totaling approximately $12,494,000.
3. INVESTMENT SECURITIES
Investment securities, at fair value, consist of the following at September
30, 1995 and December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER
1995 31 1994
------------ ----------
<S> <C> <C>
Available for sale:
U.S. government and federal agency obligations. $1,637,381 $1,797,291
Obligations of states and political
subdivisions.................................. 142,126 56,422
CMO's and asset-backed securities.............. 678,525 692,822
Other debt securities.......................... 31,415 45,748
Equity securities.............................. 38,701 29,059
Trading account securities....................... 7,584 5,539
Other non-marketable securities.................. 26,863 18,539
---------- ----------
Total investment securities.................. $2,562,595 $2,645,420
========== ==========
</TABLE>
6
<PAGE>
4. ACQUISITION ACTIVITY
Effective March 1, 1995, the Company acquired the Cotton Exchange Bank in
Kennett, Missouri, for 176,854 shares of treasury stock and $4.1 million in
cash, using the "purchase" method of accounting. The Peoples Bank of
Bloomington, Illinois, was acquired March 1, 1995, for accounting purposes in
a pooling transaction in which 2,961,266 shares of new common stock were
issued. At acquisition date, these banks had combined assets of $510 million,
loans of $262 million and deposits of $362 million. They did not have a
material impact on the earnings per share of the Company. Therefore, prior
year statements were not restated for these transactions.
On April 17, 1995, the Company acquired the Union National Bank in Wichita,
Kansas, for cash of $86.7 million. The Chillicothe State Bank in Chillicothe,
Illinois, was acquired on May 1, 1995, for $3.3 million in cash. At
acquisition date, these banks had combined assets of $697 million, loans of
$416 million and deposits of $522 million. They were accounted for as
"purchases" and did not have a material effect on the earnings per share of
the Company.
7
<PAGE>
SCHEDULE 6
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1995
(UNAUDITED)
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes and with the statistical
information and financial data appearing in this report as well as the
Company's 1994 Annual Report on Form 10-K. Results of operations for the nine
month period ended September 30, 1995 are not necessarily indicative of
results to be attained for any other period.
SUMMARY
The Company's consolidated net income for the first nine months of 1995
totaled $79.4 million; $7.6 million greater than the same period for 1994. Net
interest income increased $32.5 million and non-interest income increased $6.1
million, offset by increases of $18.1 million in other expense, $8.1 million
in income taxes and $4.9 million in provision for loan losses. Net income for
the third quarter of 1995 was $2.4 million greater than the third quarter of
1994 due to increases of $9.9 million in net interest income and $4.1 million
in non-interest income, partially offset by increases of $7.0 million in other
expense and $3.7 million in provision for loan losses. Net income for the
third quarter of 1995 was $851 thousand greater than the second quarter of
1995 due to an increase of $2.3 million in non-interest income and a $1.6
million decrease in other expense, partially offset by a $2.0 million increase
in provision for loan losses.
The Company is continually evaluating acquisition opportunities, and
frequently conducts due diligence activities in connection with possible
acquisitions both on an assisted and unassisted basis. Acquisition candidates
that may be under consideration at any time include depository institutions,
thrift or savings type associations and related companies. They are generally
based in markets in which the Company presently operates or in markets in
proximity to one of the Company's existing markets.
On March 1, 1995, the Company acquired the Cotton Exchange Bank in Kennett,
Missouri, for 176,854 shares of treasury stock and $4.1 million in cash, using
the purchase method of accounting. The Peoples Bank of Bloomington, Illinois,
was acquired effective March 1, 1995 for accounting purposes, in a pooling
transaction in which 2,961,266 shares of new stock were issued. These
acquisitions brought $510 million in assets to the balance sheet of the
organization but did not have a material impact on the earnings per share of
the Company.
Two additional acquisitions were completed in the second quarter of 1995.
Union National Bank of Wichita, Kansas, was acquired on April 17, 1995, for
cash of $86.7 million and increased assets by approximately $673 million.
Chillicothe State Bank of Chillicothe, Illinois, was purchased on May 1, 1995,
for $3.3 million in cash and brought $24 million in assets to the
organization. These acquisitions did not have a material impact on the
earnings per share of the Company.
As of July 1, the Commerce Bank locations in the Kansas City metropolitan
area have merged together to form one bank, thus better serving those
customers at approximately 50 sites on both sides of the Missouri-Kansas state
line.
INTEREST INCOME AND EARNING ASSETS
Total interest income increased $100.9 million, or 27.6%, compared to the
first nine months of 1994 due to an increase of 99 basis points in average tax
equivalent rates earned and an increase of $840.0 million in average earning
asset balances, (which caused an increase of $50.4 million in tax equivalent
interest income). Excluding banks acquired after January 1, 1994, total
interest income increased $48.7 million, or 13.6%, in the first nine months of
1995 over the same period in 1994. Compared to the third quarter of 1994,
interest income increased $36.2 million due to an increase of $1.11 billion in
average earning asset balances and an increase of 81 basis
8
<PAGE>
points in tax equivalent rates earned. Total interest income increased $3.4
million over the second quarter of 1995 mainly due to a $153.7 million
increase in average earning asset balances. The average tax equivalent yield
was 7.94% for the first nine months of 1995, 6.95% for the first nine months
of 1994, 7.96% for the third quarter of 1995, 7.15% for the third quarter of
1994 and 8.04% for the second quarter of 1995.
Loans, the highest yielding category of earning assets, were 64% of average
earning assets for the first nine months of 1995. Loan and lease interest
income increased $98.4 million over the first nine months of 1994 due to an
increase of $974.5 million in average loan balances and an increase of 109
basis points in average tax equivalent rates earned. Increases in business
loan rates accounted for a significant portion of the rate increase. The 1995
to 1994 year to year comparative increase was $63.5 million when the effect of
1994 and 1995 acquisitions is excluded. Loan and lease interest income
increased $34.8 million over the third quarter of 1994 due to an increase of
$1.16 billion in average balances and an increase of 81 basis points in
average tax equivalent rates earned. Compared to the second quarter of 1995,
loan interest income increased $2.9 million mainly due to a $115.8 million
increase in average loan balances.
Interest income on investment securities increased $109 thousand over the
first nine months of 1994 due to an increase in average tax equivalent rates
earned (mainly on U.S. government and federal agency securities and CMO's and
asset-backed securities) and an increase in average balances invested in CMO's
and asset-backed securities and state and municipal obligations, partially
offset by a decrease in average balances invested in U. S. government and
federal agency securities. If the effect of 1994 and 1995 acquisitions is
excluded, investment securities interest income decreased $15.9 million in
1995 compared to 1994. Interest income on investment securities decreased $1.3
million from the third quarter of 1994 mainly due to a decrease in the average
balance invested in U.S. government and federal agency securities. Compared to
the second quarter of 1995, securities interest decreased $2.5 million mainly
due to decreases in average balances invested in U.S. government and federal
agency securities and CMO's and asset-backed securities. The unrealized loss
in fair value of available for sale investment securities improved from a
$97.1 million loss at December 31, 1994, to an unrealized gain of $19.9
million at September 30, 1995. The amount of the related after tax unrealized
gain reported in stockholders' equity at September 30, 1995, was $12.3
million.
Interest income on federal funds sold and securities purchased under
agreements to resell increased $2.4 million over the first nine months of 1994
due to an increase of 203 basis points in average rates earned. Compared to
the third quarter of 1994, federal funds sold and resell agreement interest
income increased $2.7 million mainly due to an increase of $160.3 million in
average balances invested. Federal funds sold and resell agreement interest
income increased $3.1 million compared to the second quarter of 1995 mainly
due to a $214.2 million increase in average balances invested.
Summaries of average earning assets and liabilities and the corresponding
average rates earned/paid appear on pages 10 through 13.
RISK ELEMENTS OF LOAN PORTFOLIO
The loan portfolio contained loans on non-accrual status of $12.5 million at
September 30, 1995, compared to $11.4 million at December 31, 1994. These
loans were placed on non-accrual status because management does not expect to
collect payments consistent with acceptable and agreed upon terms of repayment
(generally, loans that are 90 days past due as to principal and/or interest
payments). Loans which were 90 days past due and still accruing interest
amounted to $17.5 million at September 30, 1995, and were made primarily to
borrowers in Missouri and the surrounding region. The subsidiary banks issue
Visa and MasterCard credit cards, and the balance of these consumer loans
generated through credit card sales drafts and cash advances was $438.0
million at September 30, 1995. Because credit card loans traditionally have a
higher than average ratio of net charge-offs to loans outstanding, management
requires that a specific allowance for losses on credit card loans be
maintained, which was $10.9 million, or 2.5% of credit card loans at September
30, 1995. Included in the "Personal" loan category is a home equity loan
product, the "Anytime Line", which had $155.3 million in loans outstanding and
$255.6 million in unused lines of credit at September 30, 1995. At September
30, 1995, a mortgage banking subsidiary held residential real estate loans of
$5.6 million at lower of cost or market, which are to be resold to secondary
markets within approximately three months. Foreclosed real estate amounted to
approximately $1.6 million at September 30, 1995. The risk presented by the
above loans and foreclosed real estate is not considered by management to be
materially adverse in relation to normal credit risks generally taken by
lenders.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
AVERAGE BALANCE SHEETS--AVERAGE RATES AND YIELDS
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
NINE MONTHS 1995 NINE MONTHS 1994
------------------------------- -------------------------------
INTEREST AVG. RATES INTEREST AVG. RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
---------- -------- ---------- ---------- -------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans and leases:
Business (including
foreign) (A).......... $1,684,814 $105,286 8.36% $1,387,165 $ 71,342 6.88%
Construction and
development........... 127,554 9,015 9.45 112,067 6,602 7.88
Real estate--business.. 686,887 46,057 8.96 529,627 30,759 7.76
Real estate--personal.. 943,148 54,792 7.77 746,115 38,970 6.98
Personal banking....... 1,242,857 81,159 8.73 986,310 57,942 7.85
Credit card............ 407,452 42,495 13.94 356,972 34,742 13.01
---------- -------- ----- ---------- -------- -----
Total loans and
leases.............. 5,092,712 338,804 8.89 4,118,256 240,357 7.80
---------- -------- ----- ---------- -------- -----
Investment securities:
U.S. government &
federal agency........ 1,717,948 79,266 6.17 2,136,137 93,062 5.82
State & municipal
obligations (A)....... 119,846 6,897 7.69 44,324 2,569 7.75
CMO's and asset-backed
securities............ 732,843 34,256 6.25 536,774 23,710 5.91
Trading account
securities (A)........ 3,549 163 6.15 4,295 116 3.60
Other marketable
securities (A)........ 73,005 3,315 6.07 68,583 2,995 5.84
Other non-marketable
securities............ 24,227 570 3.15 20,601 502 3.26
---------- -------- ----- ---------- -------- -----
Total investment
securities.......... 2,671,418 124,467 6.23 2,810,714 122,954 5.85
---------- -------- ----- ---------- -------- -----
Federal funds sold and
securities purchased
under agreements to
resell................. 151,419 6,711 5.93 146,608 4,272 3.90
---------- -------- ----- ---------- -------- -----
Total interest
earning assets...... 7,915,549 469,982 7.94 7,075,578 367,583 6.95
-------- ----- -------- -----
Less allowance for loan
losses................. (95,202) (86,564)
Unrealized gain (loss)
on investment
securities............. (27,932) 3,832
Cash and due from banks. 595,039 553,814
Land, buildings and
equipment--net......... 204,251 194,491
Other assets............ 204,167 144,008
---------- ----------
Total assets......... $8,795,872 $7,885,159
========== ==========
LIABILITIES AND EQUITY:
Interest bearing
deposits:
Savings................ $ 312,118 5,970 2.56 $ 271,529 4,828 2.38
Interest bearing
demand................ 3,270,040 82,111 3.36 3,273,557 61,188 2.50
Time open & C.D.'s of
less than $100,000.... 2,188,292 86,427 5.28 1,788,788 55,610 4.16
Time open & C.D.'s of
$100,000 and over..... 208,684 8,267 5.30 150,903 4,299 3.81
---------- -------- ----- ---------- -------- -----
Total interest
bearing deposits.... 5,979,134 182,775 4.09 5,484,777 125,925 3.07
---------- -------- ----- ---------- -------- -----
Borrowings:
Federal funds
purchased and
securities sold under
agreements to
repurchase............ 446,388 18,039 5.40 282,040 6,939 3.29
Long-term debt and
other borrowings...... 16,694 871 6.98 7,318 413 7.53
---------- -------- ----- ---------- -------- -----
Total borrowings..... 463,082 18,910 5.46 289,358 7,352 3.40
---------- -------- ----- ---------- -------- -----
Total interest
bearing liabilities. 6,442,216 201,685 4.19% 5,774,135 133,277 3.09%
-------- ----- -------- -----
Demand--non-interest
bearing deposits....... 1,473,457 1,332,318
Other liabilities....... 49,512 39,871
Stockholders' equity.... 830,687 738,835
---------- ----------
Total liabilities and
equity.............. $8,795,872 $7,885,159
========== ==========
Net interest margin
(T/E).................. $268,297 $234,306
======== ========
Net yield on interest
earning assets......... 4.53% 4.43%
===== =====
</TABLE>
- --------
(A) Stated on a tax equivalent basis using a federal income tax rate of 35%.
10
<PAGE>
ANALYSIS OF VARIANCE IN NET INTEREST MARGIN (T/E) DUE TO VOLUMES AND RATES
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 VS 1994
-----------------------------
INCREASE OR
(DECREASE) DUE
TO CHANGE IN
----------------- TOTAL
AVERAGE AVERAGE INCREASE
VOLUME RATE (B) (DECREASE)
------- -------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
VARIANCE IN INTEREST INCOME ON:
Loans and leases:
Business (including foreign) (A)................. $14,722 $19,222 $33,944
Construction and development..................... 913 1,500 2,413
Real estate--business............................ 9,127 6,171 15,298
Real estate--personal............................ 10,286 5,536 15,822
Personal banking................................. 15,063 8,154 23,217
Credit card...................................... 4,912 2,841 7,753
------- ------- -------
Total loans and leases......................... 55,023 43,424 98,447
------- ------- -------
Investment securities:
U.S. government & federal agency................. (18,219) 4,423 (13,796)
State & municipal obligations (A)................ 4,377 (49) 4,328
CMO's and asset-backed securities................ 8,661 1,885 10,546
Trading account securities (A)................... (20) 67 47
Other marketable securities (A).................. 193 127 320
Other non-marketable securities.................. 88 (20) 68
------- ------- -------
Total investment securities.................... (4,920) 6,433 1,513
------- ------- -------
Federal funds sold and securities purchased under
agreements to resell............................. 265 2,174 2,439
------- ------- -------
Total interest income.......................... 50,368 52,031 102,399
------- ------- -------
VARIANCE IN INTEREST EXPENSE ON:
Interest bearing deposits:
Savings.......................................... 723 419 1,142
Interest bearing demand.......................... 50 20,873 20,923
Time open & C.D.'s of less than $100,000......... 11,786 19,031 30,817
Time open & C.D.'s of $100,000 and over.......... 1,494 2,474 3,968
------- ------- -------
Total interest bearing deposits................ 14,053 42,797 56,850
------- ------- -------
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase.................. 4,159 6,941 11,100
Long-term debt and other borrowings.............. 528 (70) 458
------- ------- -------
Total borrowings............................... 4,687 6,871 11,558
------- ------- -------
Total interest expense......................... 18,740 49,668 68,408
------- ------- -------
Change in net interest margin (T/E)............... $31,628 $ 2,363 $33,991
======= ======= =======
Percentage increase in net interest margin (T/E)
over the same period of the prior year........... 14.51%
=======
</TABLE>
- --------
(A) Stated on a tax equivalent basis.
(B) Changes not solely due to volume or rate changes are allocated to rate.
Management believes this allocation method, applied on a consistent basis,
provides meaningful comparisons between the respective periods.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
AVERAGE BALANCE SHEETS--AVERAGE RATES AND YIELDS
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND JUNE 30, 1995
<TABLE>
<CAPTION>
THIRD QUARTER 1995 SECOND QUARTER 1995
------------------------------- -------------------------------
INTEREST AVG. RATES INTEREST AVG. RATES
AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
---------- -------- ---------- ---------- -------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Loans and leases:
Business (including
foreign) (A).... ..... $1,801,888 $37,435 8.24% $1,764,666 $37,405 8.50%
Construction and
development........... 128,504 2,989 9.23 124,676 2,948 9.48
Real estate--business.. 728,362 16,219 8.83 715,818 16,320 9.14
Real estate--personal.. 995,477 19,917 7.94 983,982 19,047 7.76
Personal banking....... 1,312,154 29,307 8.86 1,282,396 28,074 8.78
Credit card............ 426,435 15,035 13.99 405,447 14,343 14.19
---------- ------- ----- ---------- ------- -----
Total loans and
leases.............. 5,392,820 120,902 8.89 5,276,985 118,137 8.98
---------- ------- ----- ---------- ------- -----
Investment securities:
U.S. government &
federal agency........ 1,631,558 25,483 6.20 1,721,733 26,572 6.19
State & municipal
obligations (A)....... 144,350 2,826 7.77 141,060 2,792 7.94
CMO's and asset-backed
securities............ 689,092 10,661 6.14 760,937 11,902 6.27
Trading account
securities (A)........ 4,116 57 5.49 3,286 61 7.45
Other marketable
securities (A)........ 55,294 807 5.79 74,764 1,118 6.00
Other non-marketable
securities............ 26,011 272 4.15 25,030 187 3.00
---------- ------- ----- ---------- ------- -----
Total investment
securities.......... 2,550,421 40,106 6.24 2,726,810 42,632 6.27
---------- ------- ----- ---------- ------- -----
Federal funds sold and
securities purchased
under agreements to
resell................. 300,467 4,394 5.80 86,232 1,334 6.20
---------- ------- ----- ---------- ------- -----
Total interest
earning assets...... 8,243,708 165,402 7.96 8,090,027 162,103 8.04
------- ----- ------- -----
Less allowance for loan
losses................. (98,493) (98,541)
Unrealized gain (loss)
on investment
securities............. 17,452 (18,714)
Cash and due from banks. 640,008 589,434
Land, buildings and
equipment--net......... 210,210 208,561
Other assets............ 224,352 220,970
---------- ----------
Total assets......... $9,237,237 $8,991,737
========== ==========
LIABILITIES AND EQUITY:
Interest bearing
deposits:
Savings................ $ 323,151 2,072 2.54 $ 329,934 2,101 2.56
Interest bearing
demand................ 3,402,823 29,819 3.48 3,289,088 27,676 3.38
Time open & C.D.'s of
less than $100,000.... 2,302,078 32,072 5.53 2,266,837 30,168 5.34
Time open & C.D.'s of
$100,000 and over..... 224,026 3,121 5.53 217,137 2,943 5.44
---------- ------- ----- ---------- ------- -----
Total interest
bearing deposits.... 6,252,078 67,084 4.26 6,102,996 62,888 4.13
---------- ------- ----- ---------- ------- -----
Borrowings:
Federal funds
purchased and
securities sold under
agreements to
repurchase............ 460,691 6,235 5.37 474,654 6,530 5.52
Long-term debt and
other borrowings...... 16,177 296 7.27 18,425 341 7.42
---------- ------- ----- ---------- ------- -----
Total borrowings..... 476,868 6,531 5.43 493,079 6,871 5.59
---------- ------- ----- ---------- ------- -----
Total interest
bearing liabilities. 6,728,946 73,615 4.34% 6,596,075 69,759 4.24%
------- ----- ------- -----
Demand--non-interest
bearing deposits....... 1,559,033 1,494,111
Other liabilities....... 66,018 53,525
Stockholders' equity.... 883,240 848,026
---------- ----------
Total liabilities and
equity.............. $9,237,237 $8,991,737
========== ==========
Net interest margin
(T/E).................. $91,787 $92,344
======= =======
Net yield on interest
earning assets......... 4.42% 4.58%
===== =====
</TABLE>
- -------
(A) Stated on a tax equivalent basis using a federal income tax rate of 35%.
12
<PAGE>
ANALYSIS OF VARIANCE IN NET INTEREST MARGIN (T/E) DUE TO VOLUMES AND RATES
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND JUNE 30, 1995
<TABLE>
<CAPTION>
CURRENT QUARTER VS
PRIOR QUARTER
-----------------------------
INCREASE OR
(DECREASE) DUE
TO CHANGE IN
----------------- TOTAL
AVERAGE AVERAGE INCREASE
VOLUME RATE (B) (DECREASE)
------- -------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
VARIANCE IN INTEREST INCOME ON:
Loans and leases:
Business (including foreign) (A).................. $ 797 $ (767) $ 30
Construction and development...................... 91 (50) 41
Real estate--business............................. 289 (390) (101)
Real estate--personal............................. 225 645 870
Personal banking.................................. 659 574 1,233
Credit card....................................... 751 (59) 692
------ ------- ------
Total loans and leases.......................... 2,812 (47) 2,765
------ ------- ------
Investment securities:
U.S. government & federal agency.................. (1,407) 318 (1,089)
State & municipal obligations (A)................. 66 (32) 34
CMO's and asset-backed securities................. (1,135) (106) (1,241)
Trading account securities (A).................... 16 (20) (4)
Other marketable securities (A)................... (294) (17) (311)
Other non-marketable securities................... 7 78 85
------ ------- ------
Total investment securities..................... (2,747) 221 (2,526)
------ ------- ------
Federal funds sold and securities purchased under
agreements to resell.............................. 3,350 (290) 3,060
------ ------- ------
Total interest income........................... 3,415 (116) 3,299
------ ------- ------
VARIANCE IN INTEREST EXPENSE ON:
Interest bearing deposits:
Savings........................................... (44) 15 (29)
Interest bearing demand........................... 1,238 905 2,143
Time open & C.D.'s of less than $100,000.......... 499 1,405 1,904
Time open & C.D.'s of $100,000 and over........... 95 83 178
------ ------- ------
Total interest bearing deposits................. 1,788 2,408 4,196
------ ------- ------
Borrowings:
Federal funds purchased and securities sold under
agreements to repurchase......................... (262) (33) (295)
Long-term debt and other borrowings............... (42) (3) (45)
------ ------- ------
Total borrowings................................ (304) (36) (340)
------ ------- ------
Total interest expense.......................... 1,484 2,372 3,856
------ ------- ------
Change in net interest margin (T/E)................ $1,931 $(2,488) $ (557)
====== ======= ======
Percentage decrease in net interest margin (T/E)
from the prior quarter............................ (.60)%
======
</TABLE>
- --------
(A) Stated on a tax equivalent basis.
(B) Changes not solely due to volume or rate changes are allocated to rate.
Management believes this allocation method, applied on a consistent basis,
provides meaningful comparisons between the respective periods.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
PROVISION FOR LOAN LOSSES
Management records the provision for loan losses, on an individual bank
basis, in amounts that result in an allowance for loan losses sufficient to
cover all potential net charge-offs and risks believed to be inherent in the
loan portfolio of each bank. Management's evaluation includes such factors as
past loan loss experience as related to current loan portfolio mix, evaluation
of actual and potential losses in the loan portfolio, prevailing regional and
national economic conditions that might have an impact on the portfolio,
regular reviews and examinations of the loan portfolio conducted by internal
loan reviewers supervised by Commerce Bancshares, Inc. (Parent), reviews and
examinations by bank regulatory authorities, and other factors that management
believes deserve current recognition. As a result of these factors, the
provision for loan losses increased $4.9 million compared to the first nine
months of 1994, increased $3.7 million over the third quarter of 1994 and
increased $2.0 million over the second quarter of 1995. The allowance for loan
losses as a percentage of loans and leases outstanding was 1.80% at September
30, 1995, compared to 1.97% at year-end 1994 and 1.99% at September 30, 1994.
Management believes that the allowance for loan losses, which is a general
reserve, is adequate to cover actual and potential losses in the loan
portfolio under current conditions. Other than as previously noted, management
is not aware of any significant risks in the current loan portfolio due to
concentrations of loans within any particular industry, nor of any separate
types of loans within a particular category of non-performing loans that are
unusually significant as to possible loan losses when compared to the entire
loan portfolio. Net charge-offs on loans totaled $10.5 million for the first
nine months of 1995 compared to net charge-offs of $5.6 million for the first
nine months of 1994, $4.9 million for the third quarter of 1995, $714 thousand
for the third quarter of 1994 and $3.0 million for the second quarter of 1995.
INTEREST EXPENSE AND RELATED LIABILITIES
Total interest expense (net of capitalized interest) increased $68.4
million, or 51.3%, compared to the first nine months of 1994 due mainly to
increases in average rates paid. Excluding banks acquired after January 1,
1994, total interest expense increased $42.9 million, or 32.8%, in the first
nine months of 1995 compared to the first nine months of 1994. Total interest
expense increased $26.3 million and $3.8 million over the 1994 third and 1995
second quarters, respectively, due to increases in both average rates paid and
average balances of interest bearing liabilities. The average cost of funds
was 4.19% for the first nine months of 1995, 3.09% for the first nine months
of 1994, 4.34% for the third quarter of 1995, 3.23% for the third quarter of
1994 and 4.24% for the second quarter of 1995.
Average core deposits (deposits excluding short-term certificates of deposit
over $100,000) for the first nine months of 1995 were $7.4 billion, an
increase of 8.8% over the same period last year. Core deposits supported 93%
of average earning assets in 1995. Interest on deposits increased $56.9
million over the first nine months of 1994. Average rates paid on time open
and certificates of deposit under $100,000 increased 112 basis points and
rates paid on interest bearing demand deposits increased 86 basis points. A
significant portion of the increase in average deposits was due to
acquisitions in 1994 and 1995; if their effect is excluded, deposit interest
expense increased $35.1 million in 1995 compared to 1994. Deposit interest
expense increased $23.0 million over the third quarter of 1994 and increased
$4.2 million over the second quarter of 1995 mainly due to increases in
average balances and average rates paid on time open and certificates of
deposit under $100,000 and interest bearing demand deposits.
Interest expense on federal funds purchased and securities sold under
agreements to repurchase increased $11.1 million over the first nine months of
1994 and increased $3.1 million over the third quarter of 1994 due to
increases in average rates paid and average balances borrowed. Compared to the
second quarter of 1995, interest expense on federal funds purchased and
securities sold under agreements to repurchase decreased $295 thousand because
of lower borrowings.
NON-INTEREST INCOME
Non-interest income increased $6.1 million compared to the first nine months
of 1994. Miscellaneous credit card income increased $3.1 million, deposit
account charges and other fees increased $3.4 million and trust income
increased $3.2 million. These increases were partially offset by a $1.7
million decrease in gains on
14
<PAGE>
securities transactions and a $2.2 million decrease in miscellaneous other
income (which included a $1.9 million decrease in gains on loan and lease
sales and $1.1 million in fees collected in 1994 in conjunction with the
payoff of a specific loan). During the first nine months of 1995, the
affiliate banks sold securities from the available for sale category for
proceeds of $574.3 million and realized net gains of $306 thousand. The Parent
and a non-bank subsidiary sold securities for proceeds of $11.4 million,
realizing net gains of $364 thousand. During the first nine months of 1994,
the affiliate banks sold securities from the available for sale category for
proceeds of $585.6 million and realized net gains of $1.6 million. The Parent
and a non-bank subsidiary sold equity securities for proceeds of $5.0 million
and realized net gains of $793 thousand. Excluding banks acquired after
January 1, 1994, total non-interest income (excluding securities gains)
increased $1.3 million compared to the first nine months of 1994. Most of the
above mentioned 1995 over 1994 increase in deposit account charges and other
fees and trust income was due to activity at recently acquired banks.
Compared to the third quarter of 1994, non-interest income increased $4.1
million mainly due to an increase of $1.8 million in trust income and an
increase of $1.8 million in deposit account charges and other fees. Compared
to the second quarter of 1995, non-interest income increased $2.3 million due
to increases of $687 thousand in deposit account charges and other fees, $709
thousand in trust income and $850 thousand in miscellaneous other income.
OTHER EXPENSE
Other expense increased $18.1 million compared to the first nine months of
1994 due to an increase of $9.2 million in salaries and employee benefits, a
$3.3 million increase in supplies and communication expense, a $1.9 million
increase in net occupancy expense on bank premises, and a $5.0 million
increase in other operating expense. The increase in operating expense
included increases in various outside fees and goodwill/core deposit premium
amortization, partially offset by a decrease in charitable contribution
expense and a potential contingent liability reserve established in 1994. The
above net increases were partially offset by a $3.5 million decrease in
F.D.I.C. insurance expense due to a decrease in the assessment rate. A portion
of the above increases was due to expenses at acquired banks. Excluding the
expenses of banks acquired after January 1, 1994, total other expense
decreased $7.3 million in the first nine months of 1995 compared to the same
period in 1994. Excluding the 1994 and 1995 acquisitions, salaries and
employee benefits declined by $708 thousand with a decrease of 218 full-time
equivalent employees.
Compared to the third quarter of 1994, other expense increased $7.0 million
mainly due to a $5.7 million increase in salaries and employee benefits and a
$2.2 million increase in other operating expense, partially offset by a $4.2
million decrease in F.D.I.C. insurance expense. Compared to the second quarter
of 1995, other expense decreased $1.6 million mainly due to decreases of $4.7
million in F.D.I.C. insurance expense and $1.6 million in expense on
repossessed and foreclosed assets, partially offset by increases of $1.5
million in salaries and employee benefits and $1.3 million in marketing
expense.
INCOME TAXES
Income tax expense increased $8.1 million compared to the first nine months
of 1994, increased $938 thousand compared to the third quarter of 1994 and
increased $639 thousand compared to the second quarter of 1995 due to
increases in taxable income.
LIQUIDITY AND CAPITAL RESOURCES
The liquid assets of the Parent company consist primarily of short-term
investments, U.S. government and federal agency securities and equity
securities, most of which are readily marketable. The fair value of these
investments was $71.6 million at September 30, 1995 compared to $122.8 million
at December 31, 1994. Cash requirements for bank acquisitions during the first
nine months of 1995 caused most of the decrease. The Parent company
liabilities totaled $61.9 million at September 30, 1995, compared to $9.9
million at December 31, 1994. This increase was mainly due to transfers of
funds from subsidiary bank holding companies in order to combine resources for
short-term investment in liquid assets. The Parent company had no short-term
borrowings from
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.)
affiliate banks or long-term debt at September 30, 1995. The Parent company's
commercial paper, which management believes is readily marketable, has a P1
rating from Moody's and an A1 rating from Standard & Poor's. The Company is
also rated A by Thomson BankWatch with a corresponding short-term rating of
TBW-1. This credit availability should provide adequate funds to meet any
outstanding or future commitments of the Parent.
The liquid assets held by bank subsidiaries include federal funds sold and
securities purchased under agreements to resell and available for sale
securities, which consist mainly of U.S. government and federal agency
securities and CMO's and asset-backed securities. These liquid assets had a
fair value of $2.65 billion at September 30, 1995, compared to $2.64 billion
at December 31, 1994. The available for sale bank portfolio included an
unrealized net gain of $7.7 million at September 30, 1995.
In June, 1995, the Board of Directors authorized the Company to purchase up
to 2,000,000 shares of common stock in either the open market or privately
negotiated transactions. This action began after the completion of the stock
repurchase program authorized in 1994. It reflects the Company's view that the
stock is undervalued and that such purchases will enhance long-term
shareholder value and provide future funding for stock acquisitions and
employee benefit programs. The Company acquired 351,383 such shares through
September 30, 1995.
The Company (on a consolidated basis) had an equity to asset ratio of 9.44%
based on 1995 average balances. As shown in the following table, the Company's
capital exceeded the minimum risk-based capital and leverage requirements of
the regulatory agencies:
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1995 1994
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Risk-Adjusted Assets.......................... $6,082,967 $5,007,576
Tier I Capital................................ 772,217 720,838
Total Capital................................. 845,749 782,410
Tier I Capital Ratio.......................... 12.69% 14.39%
Total Capital Ratio........................... 13.90% 15.62%
Leverage Ratio................................ 8.50% 9.14%
</TABLE>
The Company's cash and cash equivalents (defined as "Cash and due from
banks") were $568.6 million at September 30, 1995, an increase of $2.8 million
over December 31, 1994. Contributing to the net cash inflow were proceeds of
$993.2 million realized from sales and maturities of investment securities,
offset by purchases of $460.2 million. In addition, $137.9 million were
generated from operating activities. Partially offsetting these net inflows
were a $285.8 million net decrease in savings and demand deposits and a $365.3
million net increase in additional loans made, net of repayments.
The Company has various commitments and contingent liabilities which are
properly not reflected on the balance sheet. Loan commitments (excluding lines
of credit related to credit card loan agreements) totaled approximately $1.85
billion, standby letters of credit totaled $126.8 million, and commercial
letters of credit totaled $30.9 million at September 30, 1995. The Company has
little risk exposure in off-balance-sheet derivative contracts. The notional
value of these contracts (interest rate and foreign exchange rate contracts)
was $158.7 million at September 30, 1995. The current credit exposure (or
replacement cost) across all off-balance-sheet derivative contracts covered by
the risk-based capital standards was $3.6 million at September 30, 1995.
Management does not anticipate any material losses to arise from these
contingent items and believes there are no material commitments to extend
credit that represent risks of an unusual nature.
16
<PAGE>
SCHEDULE 7
COMMERCE BANCSHARES, INC. AND SUBSIDIARIES
COMPARISON OF KEY RATIOS AND SELECTED BANK DATA
(UNAUDITED)
COMPARISON OF KEY RATIOS
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
RATIOS--THREE MONTHS ENDED SEPTEMBER 30:
(Based on average balance sheets):
Return on total assets.......................................... 1.19% 1.27%
Return on realized stockholders' equity......................... 12.58 13.36
Return on total stockholders' equity............................ 12.40 13.80
RATIOS--NINE MONTHS ENDED SEPTEMBER 30:
(Based on average balance sheets):
Loans and leases to deposits.................................... 68.33% 60.41%
Non-interest bearing deposits to total deposits................. 19.77 19.54
Equity to loans and leases...................................... 16.31 17.94
Equity to deposits.............................................. 11.15 10.84
Equity to total assets.......................................... 9.44 9.37
Return on total assets.......................................... 1.21 1.22
Return on realized stockholders' equity......................... 12.53 13.05
Return on total stockholders' equity............................ 12.78 13.00
</TABLE>
SELECTED BANK DATA*
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
COMMERCE BANK LOANS AND
PRIMARY LOCATIONS SITES ASSETS DEPOSITS LEASES
- ----------------- ----- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
St. Louis, MO........................... 54 $2,649,720 $2,294,654 $1,773,041
Kansas City Metro, MO/KS................ 53 2,585,291 2,018,125 1,327,158
Wichita, KS............................. 21 761,535 606,344 424,188
Springfield, MO......................... 20 712,231 636,892 483,224
Peoria, IL.............................. 11 493,170 431,261 261,126
Bloomington, IL......................... 12 454,306 313,950 237,845
Columbia, MO............................ 15 368,684 337,519 280,699
St. Joseph, MO.......................... 3 321,642 272,318 195,773
Poplar Bluff, MO........................ 7 233,288 210,242 151,990
Joplin, MO.............................. 7 147,600 133,269 97,561
Manhattan, KS........................... 5 145,634 122,291 69,591
Hays, KS................................ 3 101,175 91,382 41,722
Lebanon, MO............................. 3 100,403 91,914 53,920
Hannibal, MO............................ 2 86,788 70,730 46,419
Cassville, MO........................... 3 80,649 73,698 41,354
Lawrence, KS............................ 6 66,540 60,597 38,124
Omaha, NE............................... 1 4,182 1,200 3,296
</TABLE>
- --------
*Balances have not been reduced for inter-company activity.
OTHER OPERATING SUBSIDIARIES
CBI Insurance Company
CFB Venture Fund I, Inc.
Commerce Property and Casualty Agency, Inc.
Mid-America Financial Corp.
Commerce Mortgage Corp.
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
Commerce Bancshares, Inc. 9/30/95 Form 10-Q and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 568,591
<INT-BEARING-DEPOSITS> 0<F1>
<FED-FUNDS-SOLD> 194,425
<TRADING-ASSETS> 7,584
<INVESTMENTS-HELD-FOR-SALE> 2,528,148<F2>
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 5,465,995<F3>
<ALLOWANCE> 98,295
<TOTAL-ASSETS> 9,155,289
<DEPOSITS> 7,685,408
<SHORT-TERM> 501,659
<LIABILITIES-OTHER> 64,459
<LONG-TERM> 15,663
<COMMON> 183,222
0
0
<OTHER-SE> 704,878
<TOTAL-LIABILITIES-AND-EQUITY> 9,155,289
<INTEREST-LOAN> 337,723
<INTEREST-INVEST> 121,734<F4>
<INTEREST-OTHER> 6,711
<INTEREST-TOTAL> 466,331
<INTEREST-DEPOSIT> 182,775
<INTEREST-EXPENSE> 201,655
<INTEREST-INCOME-NET> 264,676
<LOAN-LOSSES> 8,690
<SECURITIES-GAINS> 670
<EXPENSE-OTHER> 227,199
<INCOME-PRETAX> 125,468
<INCOME-PRE-EXTRAORDINARY> 79,392
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,392
<EPS-PRIMARY> 2.21
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.53<F5>
<LOANS-NON> 12,494
<LOANS-PAST> 17,460
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 87,179
<CHARGE-OFFS> 15,826
<RECOVERIES> 5,320
<ALLOWANCE-CLOSE> 98,295
<ALLOWANCE-DOMESTIC> 98,295
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Certificates of deposit of $348,000 are included in Investments-Held-
For-Sale.
<F2>Excludes non-marketable investment securities of $26,863,000.
<F3>Gross of allowance for loan losses.
<F4>Excludes interest of $163,000 on trading account securities.
<F5>Yield is computed on a tax equivalent basis.
</FN>
</TABLE>
