e10vk
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended
December 31, 2007 Commission File
No. 0-2989
COMMERCE
BANCSHARES, INC.
(Exact name of registrant as
specified in its charter)
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Missouri
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43-0889454
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(State of Incorporation)
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(IRS Employer Identification No.)
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1000 Walnut,
Kansas City, MO
(Address of principal
executive offices)
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(816) 234-2000
(Registrants
telephone number, including area code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title of class
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Name of exchange on which
registered
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$5 Par Value Common Stock
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The NASDAQ Stock Market LLC
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Securities
registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if the Registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes þ No o
Indicate by check mark if the
Registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K
(§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by checkmark 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 Act. (Check one):
Large accelerated
filer þ Accelerated
filer o Non-accelerated
filer o Smaller
reporting
company o
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act).
Yes o No þ
As of June 30, 2007, the aggregate market value of the
voting stock held by non-affiliates of the Registrant was
approximately $2,542,000,000.
As of February 8, 2008, there
were 71,840,379 shares of Registrants $5 Par Value
Common Stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Registrants definitive proxy statement for
its 2008 annual meeting of shareholders, which will be filed
within 120 days of December 31, 2007, are incorporated
by reference into Part III of this Report.
Commerce
Bancshares, Inc.
Form 10-K
2
PART I
General
Commerce Bancshares, Inc. (the Company), a bank
holding company as defined in the Bank Holding Company Act of
1956, as amended, was incorporated under the laws of Missouri on
August 4, 1966. The Company presently owns all of the
outstanding capital stock of three national banking
associations, which are headquartered in Missouri (the
Missouri bank), Kansas (the Kansas
bank), and Nebraska (the Nebraska bank). The
Nebraska bank is limited in its activities to the issuance of
credit cards. The remaining two banking subsidiaries engage in
general banking business, providing a broad range of retail,
corporate, investment, trust, and asset management products and
services to individuals and businesses. The Company also owns,
directly or through its banking subsidiaries, various
non-banking subsidiaries. Their activities include underwriting
credit life and credit accident and health insurance, selling
property and casualty insurance (relating to consumer loans made
by the banking subsidiaries), venture capital investment,
securities brokerage, mortgage banking, and leasing activities.
The Company owns a second tier holding company that is the
direct owner of both the Missouri and Kansas banks. A list of
the Companys subsidiaries is included as Exhibit 21.
The Company is one of the nations top 50 domestic bank
holding companies, based on asset size. At December 31,
2007, the Company had consolidated assets of $16.2 billion,
loans of $10.8 billion, deposits of $12.6 billion, and
stockholders equity of $1.5 billion. All of the
Companys operations conducted by subsidiaries are
consolidated for purposes of preparing the Companys
consolidated financial statements. The Company does not utilize
unconsolidated subsidiaries or special purpose entities to
provide off-balance sheet borrowings or securitizations.
The Companys goal is to be the preferred provider of
targeted financial services in its communities, based on strong
customer relationships. It believes in building long-term
relationships based on top quality service, high ethical
standards and safe, sound assets. The Company operates under a
super-community banking format with a local orientation,
augmented by experienced, centralized support in select critical
areas. The Companys local market orientation is reflected
in its financial centers and regional advisory boards, which are
comprised of local business persons, professionals and other
community representatives, that assist the Company in responding
to local banking needs. In addition to this local market,
community-based focus, the Company offers sophisticated
financial products available at much larger financial
institutions.
The Missouri bank is the Companys largest, with total
assets of $14.7 billion and comprising approximately 92% of
the Companys total banking assets. The banks
facilities are located throughout Missouri, eastern Kansas, and
central Illinois, with new locations in Tulsa, Oklahoma and
Denver, Colorado. Its two largest markets include St. Louis
and Kansas City, which serve as the central hubs for the entire
company. The Kansas bank has total assets of $1.3 billion.
It has significant operations and banking facilities in the
areas of Wichita, Hays, Hutchinson, and Garden City, Kansas.
The markets these banks serve, being located in the lower
Midwest, provide natural sites for production and distribution
facilities and also serve as transportation hubs. The economy
has been well-diversified in these markets with many major
industries represented, including telecommunications,
automobile, aircraft and general manufacturing, health care,
numerous service industries, food production, and agricultural
production and related industries. In addition, several of the
Illinois markets are located in areas with some of the most
productive farmland in the world. The banks operate in real
estate markets that tend to be less volatile than in other parts
of the country.
The Company regularly evaluates the potential acquisition of,
and holds discussions with, various financial institutions
eligible for bank holding company ownership or control. In
addition, the Company regularly considers the potential
disposition of certain of its assets and branches. The Company
seeks merger or acquisition partners that are culturally similar
and have experienced management and possess either significant
market presence or have potential for improved profitability
through financial management,
3
economies of scale and expanded services. During 2007 the
Company completed two acquisitions; acquiring the outstanding
stock of South Tulsa Financial Corporation, located in Tulsa,
Oklahoma, and Commerce Bank, located in Denver, Colorado. The
Company also completed two acquisitions in 2006; a purchase and
assumption transaction with Boone National Savings and Loan
Association in Columbia, Missouri, and the acquisition of the
outstanding stock of West Pointe Bancorp, Inc. in Belleville,
Illinois. For additional information on acquisition and branch
disposition activity, refer to pages 16 and 66.
Operating
Segments
The Company is managed in three operating segments. The Consumer
segment includes the retail branch network, consumer installment
lending, personal mortgage banking, bank card activities,
student lending, and discount brokerage services. It provides
services through a network of 210 full-service branches, a
widespread ATM network of 392 machines, and the use of
alternative delivery channels such as extensive online banking
and telephone banking services. In 2007 this retail segment
contributed 57% of total segment pre-tax income. The Commercial
segment provides a full array of corporate lending, leasing, and
international services, as well as business and government
deposit and cash management services. In 2007 it contributed 34%
of total segment pre-tax income. The Money Management segment
provides traditional trust and estate tax planning services, and
advisory and discretionary investment portfolio management
services to both personal and institutional corporate customers.
This segment also manages the Companys family of
proprietary mutual funds, which are available for sale to both
trust and general retail customers. Fixed income investments are
sold to individuals and institutional investors through the
Capital Markets group, which is also included in this segment.
At December 31, 2007 the Money Management segment managed
investments with a market value of $12.5 billion and
administered an additional $10.2 billion in non-managed
assets. Additional information relating to operating segments
can be found on pages 44 and 85.
Supervision
and Regulation
General
The Company, as a bank holding company, is primarily regulated
by the Board of Governors of the Federal Reserve System under
the Bank Holding Company Act of 1956 (BHC Act). Under the BHC
Act, the Federal Reserve Boards prior approval is required
in any case in which the Company proposes to acquire all or
substantially all of the assets of any bank, acquire direct or
indirect ownership or control of more than 5% of the voting
shares of any bank, or merge or consolidate with any other bank
holding company. The BHC Act also prohibits, with certain
exceptions, the Company from acquiring direct or indirect
ownership or control of more than 5% of any class of voting
shares of any non-banking company. Under the BHC Act, the
Company may not engage in any business other than managing and
controlling banks or furnishing certain specified services to
subsidiaries and may not acquire voting control of non-banking
companies unless the Federal Reserve Board determines such
businesses and services to be closely related to banking. When
reviewing bank acquisition applications for approval, the
Federal Reserve Board considers, among other things, each
subsidiary banks record in meeting the credit needs of the
communities it serves in accordance with the Community
Reinvestment Act of 1977, as amended (CRA). The Missouri, Kansas
and Nebraska bank charters have current CRA ratings of
outstanding.
The Company is required to file with the Federal Reserve Board
various reports and such additional information as the Federal
Reserve Board may require. The Federal Reserve Board also makes
regular examinations of the Company and its subsidiaries. The
Companys three banking subsidiaries are organized as
national banking associations and are subject to regulation,
supervision and examination by the Office of the Comptroller of
the Currency (OCC). All banks are also subject to regulation by
the Federal Deposit Insurance Corporation (FDIC). In addition,
there are numerous other federal and state laws and regulations
which control the activities of the Company and its banking
subsidiaries, including requirements and limitations relating to
capital and reserve requirements, permissible investments and
lines of business, transactions with affiliates, loan limits,
mergers and acquisitions, issuance of securities, dividend
payments, and extensions of credit. If the Company fails to
comply with these or other applicable laws and regulations, it
may be subject to civil monetary penalties, imposition of cease
and desist orders or other written directives,
4
removal of management and, in certain circumstances, criminal
penalties. This regulatory framework is intended primarily for
the protection of depositors and the preservation of the federal
deposit insurance funds, and not for the protection of security
holders. Statutory and regulatory controls increase a bank
holding companys cost of doing business and limit the
options of its management to employ assets and maximize income.
In addition to its regulatory powers, the Federal Reserve
impacts the conditions under which the Company operates by its
influence over the national supply of bank credit. The Federal
Reserve Board employs open market operations in
U.S. government securities, changes in the discount rate on
bank borrowings, changes in the federal funds rate on overnight
inter-bank borrowings, and changes in reserve requirements on
bank deposits in implementing its monetary policy objectives.
These instruments are used in varying combinations to influence
the overall level of the interest rates charged on loans and
paid for deposits, the price of the dollar in foreign exchange
markets and the level of inflation. The monetary policies of the
Federal Reserve have a significant effect on the operating
results of financial institutions, most notably on the interest
rate environment. In view of changing conditions in the national
economy and in the money markets, as well as the effect of
credit policies of monetary and fiscal authorities, no
prediction can be made as to possible future changes in interest
rates, deposit levels or loan demand, or their effect on the
financial statements of the Company.
Subsidiary
Banks
Under Federal Reserve policy, the Company is expected to act as
a source of financial strength to each of its bank subsidiaries
and to commit resources to support each bank subsidiary in
circumstances when it might not otherwise do so. In addition,
any capital loans by a bank holding company to any of its
subsidiary banks are subordinate in right of payment to deposits
and to certain other indebtedness of such subsidiary banks. In
the event of a bank holding companys bankruptcy, any
commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank
will be assumed by the bankruptcy trustee and entitled to a
priority of payment.
Substantially all of the deposits of the Companys
subsidiary banks are insured up to the applicable limits by the
Bank Insurance Fund of the FDIC, generally up to $100,000 per
insured depositor and up to $250,000 for retirement accounts.
The banks pay deposit insurance premiums to the FDIC based on an
assessment rate established by the FDIC for Bank Insurance Fund
member institutions. The FDIC has established a risk-based
assessment system under which institutions are classified and
pay premiums according to their perceived risk to the federal
deposit insurance funds. The FDIC is not required to charge
deposit insurance premiums when the ratio of deposit insurance
reserves to insured deposits is maintained above specified
levels. For several years, the ratio was above the minimum level
and, accordingly, the Company was not required to pay premiums.
However, in 2006, legislation was passed reforming the bank
deposit insurance system. The reform act allowed the FDIC to
raise the minimum reserve ratio and allowed eligible insured
institutions an initial one-time credit to be used against
premiums due. As a result, in subsequent years the Company will
be assessed insurance premiums, which in years 2007 and
2008 may be partly or totally offset by the one-time
credit. The Companys one-time credit is approximately
$12 million. During 2007, approximately $6 million of
that credit was used, leaving a balance remaining of
approximately $6 million.
Payment
of Dividends
The principal source of the Companys cash revenues is
dividends from the subsidiary banks. The Federal Reserve Board
may prohibit the payment of dividends by bank holding companies
if their actions constitute unsafe or unsound practices. The OCC
limits the payment of dividends by bank subsidiaries in any
calendar year to the net profit of the current year combined
with the retained net profits of the preceding two years.
Permission must be obtained from the OCC for dividends exceeding
these amounts. The payment of dividends by the bank subsidiaries
may also be affected by factors such as the maintenance of
adequate capital.
5
Capital
Adequacy
The Company is required to comply with the capital adequacy
standards established by the Federal Reserve. These capital
adequacy guidelines generally require bank holding companies to
maintain total capital equal to 8% of total risk-adjusted assets
and off-balance sheet items (the Total Risk-Based Capital
Ratio), with at least one-half of that amount consisting
of Tier I, or core capital, and the remaining amount
consisting of Tier II, or supplementary capital.
Tier I capital for bank holding companies generally
consists of the sum of common shareholders equity,
qualifying non-cumulative perpetual preferred stock, a limited
amount of qualifying cumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated
subsidiaries, less goodwill and other non-qualifying intangible
assets. Tier II capital generally consists of hybrid
capital instruments, term subordinated debt and, subject to
limitations, general allowances for loan losses. Assets are
adjusted under the risk-based guidelines to take into account
different risk characteristics.
In addition, the Federal Reserve also requires bank holding
companies to comply with minimum leverage ratio requirements.
The leverage ratio is the ratio of a banking organizations
Tier I capital to its total consolidated quarterly average
assets (as defined for regulatory purposes), net of the
allowance for loan losses, goodwill and certain other intangible
assets. The minimum leverage ratio for bank holding companies is
4%. At December 31, 2007 all of the subsidiary banks were
well-capitalized under regulatory capital adequacy
standards, as further discussed on page 89.
Legislation
These laws and regulations are under constant review by various
agencies and legislatures, and are subject to sweeping change.
The Gramm-Leach-Bliley Financial Modernization Act of 1999 (GLB
Act) contained major changes in laws that previously kept the
banking industry largely separate from the securities and
insurance industries. The GLB Act authorized the creation of a
new kind of financial institution, known as a financial
holding company and a new kind of bank subsidiary called a
financial subsidiary, which may engage in a broader
range of investment banking, insurance agency, brokerage, and
underwriting activities. The GLB Act also included privacy
provisions that limit banks abilities to disclose
non-public information about customers to non-affiliated
entities. Banking organizations are not required to become
financial holding companies, but instead may continue to operate
as bank holding companies, providing the same services they were
authorized to provide prior to the enactment of the GLB Act.
In 2001, the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism
Act of 2001 (The USA Patriot Act) was signed into
law. The USA Patriot Act substantially broadened the scope of
U.S. anti-money laundering laws and regulations by imposing
significant new compliance and due diligence obligations,
creating new crimes and penalties and expanding the
extra-territorial jurisdiction of the United States. The
U.S. Treasury Department issued a number of regulations
implementing the USA Patriot Act that apply certain of its
requirements to financial institutions such as the
Companys broker-dealer subsidiary. The regulations impose
new obligations on financial institutions to maintain
appropriate policies, procedures and controls to detect, prevent
and report money laundering and terrorist financing.
Competition
The Companys locations in regional markets throughout
Missouri, Kansas and central Illinois face intense competition
from hundreds of financial service providers. The Company
competes with national and state banks for deposits, loans and
trust accounts, and with savings and loan associations and
credit unions for deposits and consumer lending products. In
addition, the Company competes with other financial
intermediaries such as securities brokers and dealers, personal
loan companies, insurance companies, finance companies, and
certain governmental agencies. The passage of the GLB Act, which
removed barriers between banking and the securities and
insurance industries, has resulted in greater competition among
these industries. The Company generally competes on the basis of
customer services and responsiveness to customer needs, interest
rates on loans and deposits, lending limits and customer
convenience, such as location of offices.
6
Employees
The Company and its subsidiaries employed 4,520 persons on
a full-time basis and 670 persons on a part-time basis at
December 31, 2007. The Company provides a variety of
benefit programs including a 401K plan as well as group life,
health, accident, and other insurance. The Company also
maintains training and educational programs designed to prepare
employees for positions of increasing responsibility.
Available
Information
The Companys principal offices are located at 1000 Walnut,
Kansas City, Missouri (telephone number
816-234-2000).
The Company makes available free of charge, through its web site
at www.commercebank.com, reports filed with the Securities and
Exchange Commission as soon as reasonably practicable after the
electronic filing. These filings include the annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and all amendments to those reports.
Statistical
Disclosure
The information required by Securities Act Guide 3
Statistical Disclosure by Bank Holding Companies is
located on the pages noted below.
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Page
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I.
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Distribution of Assets, Liabilities and Stockholders
Equity; Interest Rates and Interest Differential
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19, 52-55
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II.
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Investment Portfolio
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34-36, 69-72
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III.
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Loan Portfolio
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Types of Loans
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25
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Maturities and Sensitivities of Loans to Changes in Interest
Rates
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25
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Risk Elements
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31-34
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IV.
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Summary of Loan Loss Experience
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29-31
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V.
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Deposits
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52-53, 74
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VI.
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Return on Equity and Assets
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14
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VII.
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Short-Term Borrowings
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75-76
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Making or continuing an investment in securities issued by
Commerce Bancshares, Inc., including our common stock, involves
certain risks that you should carefully consider. The risks and
uncertainties described below are not the only risks that may
have a material adverse effect on the Company. Additional risks
and uncertainties also could adversely affect our business and
our results. If any of the following risks actually occur, our
business, financial condition or results of operations could be
negatively affected, the market price for your securities could
decline, and you could lose all or a part of your investment.
Further, to the extent that any of the information contained in
this Annual Report on
Form 10-K
constitutes forward-looking statements, the risk factors set
forth below also are cautionary statements identifying important
factors that could cause the Companys actual results to
differ materially from those expressed in any forward-looking
statements made by or on behalf of Commerce Bancshares, Inc.
The
performance of the Company is dependent on the economic
conditions of the markets in which the Company
operates.
The Companys success is heavily influenced by the general
economic conditions of the states of Missouri, Kansas and
central Illinois and the specific local markets in which the
Company operates. Unlike larger national or other regional banks
that are more geographically diversified, the Company provides
banking and financial services to customers in such metropolitan
areas as Kansas City, St. Louis, and Springfield in
7
Missouri, Peoria and Bloomington in Illinois, and Wichita,
Kansas. Since the Company does not have significant presence in
other parts of the country, a prolonged economic downturn in
these markets could have a material adverse effect on the
Companys financial condition and results of operations.
The
Company is subject to Interest Rate Risk.
The Companys net interest income is the largest source of
overall revenue to the Company, representing 59% of total
revenue. Interest rates are beyond the Companys control,
and they fluctuate in response to general economic conditions
and the policies of various governmental and regulatory
agencies, in particular, the Federal Reserve Board. Changes in
monetary policy, including changes in interest rates, will
influence the origination of loans, the purchase of investments,
the generation of deposits, and the rates received on loans and
investment securities and paid on deposits. Management believes
it has implemented effective asset and liability management
strategies to reduce the potential effects of changes in
interest rates on the Companys results of operations.
However, any substantial, unexpected, prolonged change in market
interest rates could have a material adverse effect on the
Companys financial condition and results of operations.
The
Company operates in a highly competitive industry and market
area.
The Company operates in the financial services industry, a
rapidly changing environment having numerous competitors
including other banks and insurance companies, securities
dealers, brokers, trust and investment companies and mortgage
bankers. The pace of consolidation among financial service
providers is accelerating and there are many new changes in
technology, product offerings and regulation. New entrants
offering competitive products continually penetrate our markets.
The Company must continue to make investments in its products
and delivery systems to stay competitive with the industry as a
whole or its financial performance may suffer.
Potential
future loan losses could increase.
The Company maintains an allowance for loan losses that
represents managements best estimate of probable losses
that have been incurred at the balance sheet date within the
existing portfolio of loans. The level of the allowance reflects
managements continuing evaluation of industry
concentrations, specific credit risks, loan loss experience,
current loan portfolio quality, present economic, political and
regulatory conditions and unidentified losses inherent in the
current loan portfolio. Over the past few years, historical
losses have been low and the Companys credit loss ratios
have been below industry averages, in part due to the low level
of commercial loan losses. Also, while the industry has
experienced low levels of loan losses for several years, loan
losses on residential construction and consumer loans have
risen, especially in the second half of 2007. Much of this
relates to the effects of the subprime lending issues and a
general housing slowdown creating an uncertain economic outlook.
If the recent trend is prolonged and losses continue to
increase, the Companys results of operations could be
negatively impacted by higher loan losses in the future. See the
section captioned Allowance for Loan Losses in
Item 7 Managements Discussion and Analysis of
Financial Condition and Results of Operations located elsewhere
in this report for further discussion related to the
Companys process for determining the appropriate level of
the allowance for possible loan loss.
The
Companys reputation and future growth prospects could be
impaired if events occurred which breached our customers
privacy.
The Company relies heavily on communications and information
systems to conduct its business, and as part of our business we
maintain significant amounts of data about our customers and the
products they use. While the Company has policies and procedures
designed to prevent or limit the effect of failure, interruption
or security breach of its information systems, there can be no
assurances that any such failures, interruptions or security
breaches will not occur, or if they do occur, that they will be
adequately addressed. Should any of these systems become
compromised, the reputation of the Company could be damaged,
relationships with existing customers impaired and result in
lost business and incur significant expenses trying to remedy
the compromise.
8
The
Company may not attract and retain skilled employees.
The Companys success depends, in large part, on its
ability to attract and retain key people. Competition for the
best people in most activities engaged in by the Company can be
intense, and the Company spends considerable time and resources
attracting and hiring qualified people for its various business
lines and support units. The unexpected loss of the services of
one or more the Companys key personnel could have a
material adverse impact on the Companys business because
of their skills, knowledge of the Companys market, years
of industry experience, and the difficulty of promptly finding
qualified replacement personnel.
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Item 1b.
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UNRESOLVED
STAFF COMMENTS
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None
The bank subsidiaries maintain their main offices in various
multi-story office buildings. The Missouri bank owns its main
offices and leases unoccupied premises to the public. The larger
offices include:
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Net rentable
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% occupied
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% occupied
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Building
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square footage
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in total
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by bank
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922 Walnut
Kansas City, MO
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256,000
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95
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%
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93
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%
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1000 Walnut
Kansas City, MO
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403,000
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84
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34
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811 Main
Kansas City, MO
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237,000
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100
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100
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8000 Forsyth
Clayton, MO
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178,000
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95
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92
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1551 N. Waterfront
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Pkwy
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120,000
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98
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32
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Wichita, KS
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The Nebraska credit card bank leases its offices in Omaha,
Nebraska. Additionally, certain other installment loan, trust
and safe deposit functions operate out of leased offices in
downtown Kansas City. The Company has an additional 204 branch
locations in Missouri, Illinois, Kansas, Oklahoma and Colorado
which are owned or leased, and 144 off-site ATM locations.
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Item 3.
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LEGAL
PROCEEDINGS
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The information required by this item is set forth in
Item 8 under Note 18, Commitments, Contingencies and
Guarantees on page 93.
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Item 4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted during the fourth quarter of 2007 to a
vote of security holders through the solicitation of proxies or
otherwise.
9
Executive
Officers of the Registrant
The following are the executive officers of the Company, each of
whom is designated annually, and there are no arrangements or
understandings between any of the persons so named and any other
person pursuant to which such person was designated an executive
officer.
|
|
|
|
Name and Age
|
|
Positions with Registrant
|
|
|
Jeffery D. Aberdeen, 54
|
|
Controller of the Company since December 1995. Prior thereto he
was Assistant Controller of the Company. He is Controller of the
Companys subsidiary banks, Commerce Bank, N.A. (Missouri,
Kansas and Omaha).
|
|
|
|
Kevin G. Barth, 47
|
|
Executive Vice President of the Company since April 2005 and
Executive Vice President of Commerce Bank, N.A. (Missouri),
since October 1998. Senior Vice President of the Company and
Officer of Commerce Bank, N.A. (Missouri) prior thereto.
|
|
|
|
A. Bayard Clark, 62
|
|
Chief Financial Officer and Executive Vice President of the
Company since December 1995. Executive Vice President of the
Company prior thereto. Treasurer of the Company from December
1995 until February 2007.
|
|
|
|
Sara E. Foster, 47
|
|
Senior Vice President of the Company since February 1998 and
Vice President of the Company prior thereto.
|
|
|
|
David W. Kemper, 57
|
|
Chairman of the Board of Directors of the Company since November
1991, Chief Executive Officer of the Company since June 1986,
and President of the Company since April 1982. He is Chairman of
the Board, President and Chief Executive Officer of Commerce
Bank, N.A. (Missouri). He is the son of James M. Kemper, Jr. (a
former Director and former Chairman of the Board of the Company)
and the brother of Jonathan M. Kemper, Vice Chairman of the
Company.
|
|
|
|
Jonathan M. Kemper, 54
|
|
Vice Chairman of the Company since November 1991 and Vice
Chairman of Commerce Bank, N.A. (Missouri) since December 1997.
Prior thereto, he was Chairman of the Board, Chief Executive
Officer, and President of Commerce Bank, N.A. (Missouri). He is
the son of James M. Kemper, Jr. (a former Director and former
Chairman of the Board of the Company) and the brother of David
W. Kemper, Chairman, President, and Chief Executive Officer of
the Company.
|
|
|
|
Charles G. Kim, 47
|
|
Executive Vice President of the Company since April 1995 and
Executive Vice President of Commerce Bank, N.A. (Missouri) since
January 2004. Prior thereto, he was Senior Vice President of
Commerce Bank, N.A. (Clayton, MO), a former subsidiary of the
Company.
|
|
|
|
Seth M. Leadbeater, 57
|
|
Vice Chairman of the Company since January 2004. Prior thereto
he was Executive Vice President of the Company. He has been Vice
Chairman of Commerce Bank, N.A. (Missouri) since September 2004.
Prior thereto he was Executive Vice President of Commerce Bank,
N.A. (Missouri) and President of Commerce Bank, N.A. (Clayton,
MO).
|
10
|
|
|
|
Name and Age
|
|
Positions with Registrant
|
|
|
|
|
|
Robert C. Matthews, Jr., 60
|
|
Executive Vice President of the Company since December 1989.
Executive Vice President of Commerce Bank, N.A. (Missouri) since
December 1997.
|
|
|
|
Michael J. Petrie, 51
|
|
Senior Vice President of the Company since April 1995. Prior
thereto, he was Vice President of the Company.
|
|
|
|
Robert J. Rauscher, 50
|
|
Senior Vice President of the Company since October 1997. Senior
Vice President of Commerce Bank, N.A. (Missouri) prior thereto.
|
|
|
|
V. Raymond Stranghoener, 56
|
|
Executive Vice President of the Company since July 2005 and
Senior Vice President of the Company prior thereto. Prior to his
employment with the Company in October 1999, he was employed at
BankAmerica Corp. as National Executive of the Bank of America
Private Bank Wealth Strategies Group. He joined Boatmens
Trust Company in 1993, which subsequently merged with
BankAmerica Corp.
|
PART II
|
|
Item 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Commerce
Bancshares, Inc.
Common
Stock Data
The following table sets forth the high and low prices of actual
transactions for the Companys common stock (CBSH) and cash
dividends paid for the periods indicated (restated for the 5%
stock dividend distributed in December 2007).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
Quarter
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
|
|
|
2007
|
|
First
|
|
$
|
48.35
|
|
|
$
|
44.37
|
|
|
$
|
.238
|
|
|
|
Second
|
|
|
46.59
|
|
|
|
42.53
|
|
|
|
.238
|
|
|
|
Third
|
|
|
46.10
|
|
|
|
41.22
|
|
|
|
.238
|
|
|
|
Fourth
|
|
|
46.32
|
|
|
|
41.96
|
|
|
|
.238
|
|
|
|
2006
|
|
First
|
|
$
|
47.65
|
|
|
$
|
44.57
|
|
|
$
|
.222
|
|
|
|
Second
|
|
|
48.25
|
|
|
|
44.75
|
|
|
|
.222
|
|
|
|
Third
|
|
|
46.49
|
|
|
|
44.09
|
|
|
|
.222
|
|
|
|
Fourth
|
|
|
48.19
|
|
|
|
43.43
|
|
|
|
.222
|
|
|
|
2005
|
|
First
|
|
$
|
43.19
|
|
|
$
|
40.01
|
|
|
$
|
.207
|
|
|
|
Second
|
|
|
44.00
|
|
|
|
39.86
|
|
|
|
.207
|
|
|
|
Third
|
|
|
47.27
|
|
|
|
42.83
|
|
|
|
.207
|
|
|
|
Fourth
|
|
|
48.64
|
|
|
|
43.15
|
|
|
|
.207
|
|
|
|
Commerce Bancshares, Inc. common shares are listed on The Nasdaq
Stock Market LLC (NASDAQ), a national securities exchange and
highly-regulated electronic securities market comprised of
competing Market Makers whose trading is supported by a
communications network linking them to quotation dissemination,
trade reporting, and order execution systems. The Company had
4,581 shareholders of record as of December 31, 2007.
11
Performance
Graph
The following graph presents a comparison of Company (CBSH)
performance to the indices named below. It assumes $100 invested
on
12/31/2002
with dividends invested on a Total Return basis.
The following table sets forth information about the
Companys purchases of its $5 par value common stock,
its only class of stock registered pursuant to Section 12
of the Exchange Act, during the fourth quarter of 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Total Number of
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Shares Purchased
|
|
|
Maximum Number that
|
|
|
|
of Shares
|
|
|
Price Paid
|
|
|
as Part of Publicly
|
|
|
May Yet Be Purchased
|
|
Period
|
|
Purchased
|
|
|
per Share
|
|
|
Announced Program
|
|
|
Under the Program
|
|
|
|
|
October 1 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
1,695,284
|
|
November 1 30, 2007
|
|
|
165,513
|
|
|
$
|
44.85
|
|
|
|
165,513
|
|
|
|
1,529,771
|
|
December 1 31, 2007
|
|
|
768
|
|
|
$
|
45.09
|
|
|
|
768
|
|
|
|
1,529,003
|
|
|
|
Total
|
|
|
166,281
|
|
|
$
|
44.85
|
|
|
|
166,281
|
|
|
|
1,529,003
|
|
|
|
The Companys stock purchases shown above were made under a
4,000,000 share authorization by the Board of Directors on
February 2, 2007. Under this authorization,
1,529,003 shares remained available for purchase at
December 31, 2007. On February 1, 2008, the
Companys Board of Directors approved a new authorization
for the purchase of up to 3,000,000 shares of Company
common stock.
|
|
Item 6.
|
SELECTED
FINANCIAL DATA
|
The required information is set forth below in Item 7.
12
|
|
Item 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
Overview
Commerce Bancshares, Inc. (the Company) operates as a
super-community bank offering an array of sophisticated
financial products delivered with high-quality, personal
customer service. It is the largest bank holding company
headquartered in Missouri, with its principal offices in Kansas
City and St. Louis, Missouri. Customers are served from
approximately 350 locations in Missouri, Kansas, Illinois,
Oklahoma and Colorado using delivery platforms which include an
extensive network of branches and ATM machines, full-featured
online banking, and a central contact center.
The core of the Companys competitive advantage is its
focus on the local markets it services and its concentration on
relationship banking, with high service levels and competitive
products. In order to enhance shareholder value, the Company
grows its core revenue by expanding new and existing customer
relationships, utilizing improved technology, and enhancing
customer satisfaction.
Various indicators are used by management in evaluating the
Companys financial condition and operating performance.
Among these indicators are the following:
|
|
|
|
|
Growth in earnings per share Diluted earnings per
share declined 4.1% in 2007 compared to 2006; however, 2007
earnings included a special indemnification charge related to
certain estimated litigation expenses of Visa, Inc., which is
discussed further below. Excluding this charge, diluted earnings
per share rose 2.0% over 2006, and has risen 6.1% and 8.3%,
compounded annually, over the last 5 and 10 years,
respectively.
|
|
|
|
Growth in total revenue Total revenue is comprised
of net interest income and non-interest income. Total revenue in
2007 grew 5.1% over 2006, which resulted from growth of
$24.9 million, or 4.8%, in net interest income coupled with
growth of $19.0 million, or 5.4%, in non-interest income.
Total revenue has risen 3.2%, compounded annually, over the last
five years.
|
|
|
|
Expense control Excluding the Visa indemnification
charge and the effects of recent bank acquisitions, non-interest
expense grew by 3.4% this year due to prudent management
oversight and expanded use of technology, and salaries and
employee benefits, the largest expense component, grew by 5.3%.
The operating efficiency ratio was 60.42% in 2007 compared to
60.55% in 2006.
|
|
|
|
Asset quality Net loan charge-offs in 2007 increased
$16.7 million over those recorded in 2006, and averaged
.42% of loans compared to .29% in the previous year. While
non-performing assets at year end 2007 increased to
$33.4 million, this balance comprised only .32% of loans at
year end 2007.
|
|
|
|
Shareholder return Total shareholder return,
including the change in stock price and dividend reinvestment,
was 9.9% over the past 5 years and 6.8% over the past
10 years.
|
13
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and
related notes. The historical trends reflected in the financial
information presented below are not necessarily reflective of
anticipated future results.
Key
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Based on average balance sheets):
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
Return on total assets
|
|
|
1.33
|
%
|
|
|
1.54
|
%
|
|
|
1.60
|
%
|
|
|
1.56
|
%
|
|
|
1.52
|
%
|
Return on stockholders equity
|
|
|
14.00
|
|
|
|
15.96
|
|
|
|
16.19
|
|
|
|
15.19
|
|
|
|
14.27
|
|
Tier I capital ratio
|
|
|
10.31
|
|
|
|
11.25
|
|
|
|
12.21
|
|
|
|
12.21
|
|
|
|
12.31
|
|
Total capital ratio
|
|
|
11.49
|
|
|
|
12.56
|
|
|
|
13.63
|
|
|
|
13.57
|
|
|
|
13.70
|
|
Leverage ratio
|
|
|
8.76
|
|
|
|
9.05
|
|
|
|
9.43
|
|
|
|
9.60
|
|
|
|
9.71
|
|
Equity to total assets
|
|
|
9.54
|
|
|
|
9.68
|
|
|
|
9.87
|
|
|
|
10.25
|
|
|
|
10.68
|
|
Non-interest income to revenue*
|
|
|
40.85
|
|
|
|
40.72
|
|
|
|
40.03
|
|
|
|
38.84
|
|
|
|
37.16
|
|
Efficiency ratio**
|
|
|
62.72
|
|
|
|
60.55
|
|
|
|
59.30
|
|
|
|
59.16
|
|
|
|
58.83
|
|
Loans to deposits***
|
|
|
88.49
|
|
|
|
84.73
|
|
|
|
81.34
|
|
|
|
78.71
|
|
|
|
79.96
|
|
Net yield on interest earning assets (tax equivalent basis)
|
|
|
3.80
|
|
|
|
3.92
|
|
|
|
3.89
|
|
|
|
3.81
|
|
|
|
4.04
|
|
Non-interest bearing deposits to total deposits
|
|
|
5.45
|
|
|
|
5.78
|
|
|
|
6.23
|
|
|
|
12.47
|
|
|
|
10.81
|
|
Cash dividend payout ratio
|
|
|
33.76
|
|
|
|
30.19
|
|
|
|
28.92
|
|
|
|
28.26
|
|
|
|
25.19
|
|
|
|
|
|
|
* |
|
Revenue includes net interest
income and non-interest income. |
|
** |
|
The efficiency ratio is
calculated as non-interest expense (excluding intangibles
amortization) as a percent of revenue. |
|
*** |
|
Includes loans held for
sale. |
Selected
Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
Net interest income
|
|
$
|
538,072
|
|
|
$
|
513,199
|
|
|
$
|
501,702
|
|
|
$
|
497,331
|
|
|
$
|
502,392
|
|
Provision for loan losses
|
|
|
42,732
|
|
|
|
25,649
|
|
|
|
28,785
|
|
|
|
30,351
|
|
|
|
40,676
|
|
Non-interest income
|
|
|
371,581
|
|
|
|
352,586
|
|
|
|
334,837
|
|
|
|
315,839
|
|
|
|
297,107
|
|
Investment securities gains, net
|
|
|
8,234
|
|
|
|
9,035
|
|
|
|
6,362
|
|
|
|
11,092
|
|
|
|
4,560
|
|
Non-interest expense
|
|
|
574,758
|
|
|
|
525,425
|
|
|
|
496,522
|
|
|
|
482,769
|
|
|
|
472,144
|
|
Net income
|
|
|
206,660
|
|
|
|
219,842
|
|
|
|
223,247
|
|
|
|
220,341
|
|
|
|
206,524
|
|
Net income per share-basic*
|
|
|
2.86
|
|
|
|
2.98
|
|
|
|
2.91
|
|
|
|
2.72
|
|
|
|
2.45
|
|
Net income per share-diluted*
|
|
|
2.82
|
|
|
|
2.94
|
|
|
|
2.87
|
|
|
|
2.68
|
|
|
|
2.42
|
|
Cash dividends
|
|
|
68,915
|
|
|
|
65,758
|
|
|
|
63,421
|
|
|
|
61,135
|
|
|
|
51,266
|
|
Cash dividends per share*
|
|
|
.952
|
|
|
|
.889
|
|
|
|
.829
|
|
|
|
.757
|
|
|
|
.611
|
|
Market price per share*
|
|
|
44.86
|
|
|
|
46.10
|
|
|
|
47.27
|
|
|
|
43.36
|
|
|
|
40.33
|
|
Book value per share*
|
|
|
21.28
|
|
|
|
19.63
|
|
|
|
17.95
|
|
|
|
18.06
|
|
|
|
17.58
|
|
Common shares outstanding*
|
|
|
71,796
|
|
|
|
73,450
|
|
|
|
74,539
|
|
|
|
79,017
|
|
|
|
82,522
|
|
Total assets
|
|
|
16,204,831
|
|
|
|
15,230,349
|
|
|
|
13,885,545
|
|
|
|
14,250,368
|
|
|
|
14,287,164
|
|
Loans, including held for sale
|
|
|
10,841,264
|
|
|
|
9,960,118
|
|
|
|
8,899,183
|
|
|
|
8,305,359
|
|
|
|
8,142,679
|
|
Investment securities
|
|
|
3,297,015
|
|
|
|
3,496,323
|
|
|
|
3,770,181
|
|
|
|
4,837,368
|
|
|
|
5,039,194
|
|
Deposits
|
|
|
12,551,552
|
|
|
|
11,744,854
|
|
|
|
10,851,813
|
|
|
|
10,434,309
|
|
|
|
10,206,208
|
|
Long-term debt
|
|
|
1,083,636
|
|
|
|
553,934
|
|
|
|
269,390
|
|
|
|
389,542
|
|
|
|
300,977
|
|
Stockholders equity
|
|
|
1,527,686
|
|
|
|
1,442,114
|
|
|
|
1,337,838
|
|
|
|
1,426,880
|
|
|
|
1,450,954
|
|
Non-performing assets
|
|
|
33,417
|
|
|
|
18,223
|
|
|
|
11,713
|
|
|
|
18,775
|
|
|
|
33,685
|
|
|
|
|
|
|
* |
|
Restated for the 5% stock
dividend distributed in December 2007. |
14
Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ Change
|
|
|
% Change
|
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
07-06
|
|
|
06-05
|
|
|
07-06
|
|
|
06-05
|
|
|
|
|
Net interest income
|
|
$
|
538,072
|
|
|
$
|
513,199
|
|
|
$
|
501,702
|
|
|
$
|
24,873
|
|
|
$
|
11,497
|
|
|
|
4.8
|
%
|
|
|
2.3
|
%
|
Provision for loan losses
|
|
|
(42,732
|
)
|
|
|
(25,649
|
)
|
|
|
(28,785
|
)
|
|
|
17,083
|
|
|
|
(3,136
|
)
|
|
|
66.6
|
|
|
|
(10.9
|
)
|
Non-interest income
|
|
|
371,581
|
|
|
|
352,586
|
|
|
|
334,837
|
|
|
|
18,995
|
|
|
|
17,749
|
|
|
|
5.4
|
|
|
|
5.3
|
|
Investment securities gains, net
|
|
|
8,234
|
|
|
|
9,035
|
|
|
|
6,362
|
|
|
|
(801
|
)
|
|
|
2,673
|
|
|
|
(8.9
|
)
|
|
|
42.0
|
|
Non-interest expense
|
|
|
(574,758
|
)
|
|
|
(525,425
|
)
|
|
|
(496,522
|
)
|
|
|
49,333
|
|
|
|
28,903
|
|
|
|
9.4
|
|
|
|
5.8
|
|
Income taxes
|
|
|
(93,737
|
)
|
|
|
(103,904
|
)
|
|
|
(94,347
|
)
|
|
|
(10,167
|
)
|
|
|
9,557
|
|
|
|
(9.8
|
)
|
|
|
10.1
|
|
|
|
Net income
|
|
$
|
206,660
|
|
|
$
|
219,842
|
|
|
$
|
223,247
|
|
|
$
|
(13,182
|
)
|
|
$
|
(3,405
|
)
|
|
|
(6.0
|
)%
|
|
|
(1.5
|
)%
|
|
|
As a supplement to its GAAP (generally accepted accounting
principles) financial results, the Company has provided non-GAAP
operating results for the year ended December 31, 2007.
The Company believes that these non-GAAP financial measures are
useful because they allow investors to assess, on a consistent
basis, the Companys operating performance exclusive of
items management believes are not indicative of the operations
of the Company. Management uses such non-GAAP financial measures
to evaluate financial results and to establish operational
goals. These non-GAAP financial measures should be considered a
supplement to, and not a substitute for, financial measures
determined in accordance with GAAP. The non-GAAP measures
presented below exclude a $21.0 million pre-tax
indemnification charge recorded by the Company in the fourth
quarter of 2007. This charge relates to the Companys share
of certain estimated Visa litigation costs, which are explained
in more detail in the Non-Interest Expense section of this
discussion.
Comparison
of GAAP and Non-GAAP Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ Change
|
|
|
% Change
|
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
07-06
|
|
|
06-05
|
|
|
07-06
|
|
|
06-05
|
|
|
|
|
Non-interest
expense (GAAP)
|
|
$
|
574,758
|
|
|
$
|
525,425
|
|
|
$
|
496,522
|
|
|
$
|
49,333
|
|
|
$
|
28,903
|
|
|
|
9.4
|
%
|
|
|
5.8
|
%
|
Indemnification obligation
|
|
|
(20,951
|
)
|
|
|
|
|
|
|
|
|
|
|
(20,951
|
)
|
|
|
-
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
|
|
Operating non-interest expense (non-GAAP)
|
|
$
|
553,807
|
|
|
$
|
525,425
|
|
|
$
|
496,522
|
|
|
$
|
28,382
|
|
|
$
|
28,903
|
|
|
|
5.4
|
%
|
|
|
5.8
|
%
|
|
|
Net income (GAAP)
|
|
$
|
206,660
|
|
|
$
|
219,842
|
|
|
$
|
223,247
|
|
|
$
|
(13,182
|
)
|
|
$
|
(3,405
|
)
|
|
|
(6.0
|
)%
|
|
|
(1.5
|
)%
|
Indemnification obligation, net of tax
|
|
|
13,199
|
|
|
|
|
|
|
|
|
|
|
|
13,199
|
|
|
|
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
|
|
Operating net
income (non-GAAP)
|
|
$
|
219,859
|
|
|
$
|
219,842
|
|
|
$
|
223,247
|
|
|
$
|
17
|
|
|
$
|
(3,405
|
)
|
|
|
|
%
|
|
|
(1.5
|
)%
|
|
|
GAAP basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
2.86
|
|
|
$
|
2.98
|
|
|
$
|
2.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
2.82
|
|
|
|
2.94
|
|
|
|
2.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
1.33
|
%
|
|
|
1.54
|
%
|
|
|
1.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity
|
|
|
14.00
|
%
|
|
|
15.96
|
%
|
|
|
16.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio
|
|
|
62.72
|
%
|
|
|
60.55
|
%
|
|
|
59.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-GAAP basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
3.04
|
|
|
$
|
2.98
|
|
|
$
|
2.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
3.00
|
|
|
|
2.94
|
|
|
|
2.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
1.42
|
%
|
|
|
1.54
|
%
|
|
|
1.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average equity
|
|
|
14.89
|
%
|
|
|
15.96
|
%
|
|
|
16.19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Efficiency ratio
|
|
|
60.42
|
%
|
|
|
60.55
|
%
|
|
|
59.30
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Companys diluted earnings per share, based on
operating results as shown in the table above, amounted to $3.00
in 2007 compared to $2.94 in 2006, an increase of 2.0%.
Operating net income for 2007 was
15
$219.9 million, relatively unchanged from 2006. The
operating return on average assets amounted to 1.42% compared to
1.54% last year, and the operating return on average equity
totaled 14.89% compared to 15.96% last year. The operating
efficiency ratio was 60.42% in 2007 compared with 60.55% in 2006.
Financial results for 2007 compared to 2006 included growth in
net interest income and non-interest income. These increases to
net income were offset by a higher provision for loan loss and
an increase in non-interest expense. Net interest income
increased $24.9 million, or 4.8%, reflecting growth in
average loan balances and higher average overall rates earned on
loans and investment securities, partly offset by declining
average balances in investment securities. Countering these
effects was a rise in interest expense on deposit accounts and
short-term borrowings, resulting from increases in interest
rates on virtually all deposit accounts, coupled with growth in
certificate of deposit balances and higher average short-term
borrowings. Non-interest income rose $19.0 million, or
5.4%, largely due to increases of 9.1% in bank card fees, 1.6%
in deposit account fees, and 9.2% in trust revenues. Operating
non-interest expense grew $28.4 million, or 5.4%, which was
mainly the result of a 7.1% increase in salaries and benefits.
Additional smaller increases occurred in occupancy, supplies and
communication expense, and marketing expense. The provision for
loan losses increased $17.1 million to $42.7 million,
reflecting higher incurred losses in nearly all loan categories,
with the largest increases in business, consumer credit card and
personal banking loans. Income tax expense declined 9.8% in 2007
and resulted in an effective tax rate of 31.2%, compared to an
effective tax rate of 32.1% in the prior year. The decrease in
income tax expense in 2007 occurred mainly due to the change in
the mix of taxable and nontaxable income.
The decline in net income in 2006 compared to 2005 was due to
higher non-interest expense and income tax expense, partly
offset by an increase in net interest income, growth in
non-interest income, and a lower loan loss provision. Net
interest income increased $11.5 million, or 2.3%,
reflecting the effects of higher average overall rates earned on
loans and growth in average loan balances, partly offset by
declining average balances in investment securities. Also,
interest expense on deposit accounts and short-term borrowings
rose, mainly related to increases in interest rates on deposit
accounts and borrowings, coupled with growth in certificate of
deposit balances. Non-interest income rose $17.7 million,
or 5.3%, largely due to increases of 10.0% in bank card fees,
2.2% in deposit account fees, and 5.7% in trust revenues.
Non-interest expense grew 5.8%, mainly the result of higher
salaries and benefits (up 5.5%), with additional increases of
6.5% in occupancy, 10.6% in equipment, and 5.7% in data
processing and software costs. The provision for loan losses
decreased $3.1 million to $25.6 million, reflecting
lower incurred losses, especially in credit card and personal
banking loans. Income tax expense increased 10.1% in 2006 and
resulted in an effective tax rate of 32.1%, which increased from
a tax rate of 29.7% in the prior year. The increase in income
tax expense in 2006 occurred largely because tax benefits of
$13.7 million, representing the effects of certain
corporate restructuring initiatives, were recognized in 2005 and
these benefits did not recur in 2006.
The Company completed two bank acquisitions during 2007. On
April 1, 2007, the Company acquired South Tulsa Financial
Corporation (South Tulsa). In this transaction, the Company
acquired the outstanding stock of South Tulsa and issued shares
of Company stock valued at $27.6 million. The
Companys acquisition of South Tulsa added two branch
locations in Tulsa, Oklahoma. On July 1, 2007, the Company
acquired Commerce Bank in Denver, Colorado. In this transaction,
the Company acquired all of the outstanding stock of Commerce
Bank for $29.5 million in cash. The acquisition added the
Companys first location in Colorado.
During 2006, the Company also acquired two banks. The first
acquisition was in July 2006, when the Company, through a bank
subsidiary, acquired certain assets and assumed certain
liabilities of Boone National Savings and Loan Association
(Boone) in a purchase and assumption agreement for cash of
$19.1 million. Boone operated four branches in central
Missouri. In September 2006, the Company acquired the
outstanding stock of West Pointe Bancorp, Inc. (West Pointe) in
Belleville, Illinois, which operated five branch locations in
the greater St. Louis area. The total purchase price of
$80.5 million consisted of cash of $13.1 million and
shares of Company stock valued at $67.5 million.
The transactions discussed above are collectively referred to as
bank acquisitions throughout the remainder of this
report. Additional information about acquired balances and
intangible assets recognized is presented below.
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
(In millions)
|
|
Denver
|
|
|
South Tulsa
|
|
|
Boone
|
|
|
West Pointe
|
|
|
|
Purchase price
|
|
$
|
29.5
|
|
|
$
|
27.6
|
|
|
$
|
19.1
|
|
|
$
|
80.5
|
|
Acquired balances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets, including intangible assets recognized
|
|
|
123.9
|
|
|
|
142.4
|
|
|
|
147.2
|
|
|
|
508.8
|
|
Loans
|
|
|
74.5
|
|
|
|
114.7
|
|
|
|
126.4
|
|
|
|
255.0
|
|
Deposits
|
|
|
72.2
|
|
|
|
103.9
|
|
|
|
100.9
|
|
|
|
381.8
|
|
Intangible assets recognized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
15.1
|
|
|
|
10.6
|
|
|
|
15.6
|
|
|
|
38.3
|
|
Core deposit premium
|
|
|
4.9
|
|
|
|
3.4
|
|
|
|
2.6
|
|
|
|
14.9
|
|
Mortgage servicing rights
|
|
|
|
|
|
|
|
|
|
|
.3
|
|
|
|
.5
|
|
|
|
The Company continually evaluates the profitability of its
network of bank branches throughout its markets. As a result of
this evaluation process, the Company may periodically sell the
assets and liabilities of certain branches, or may sell the
premises of specific banking facilities. During the last three
years, the Company has sold three or four bank facilities each
year, realizing pre-tax gains on these sales of
$1.6 million, $579 thousand and $802 thousand during 2007,
2006 and 2005, respectively. In January 2008, the Company
agreed to sell its branch in Independence, Kansas, with loans of
$29 million and deposits of $83 million. The
transaction is expected to close in the second quarter of 2008,
at which time the Company expects to receive a purchase premium
of $7.2 million in cash.
The Company distributed a 5% stock dividend for the fourteenth
consecutive year on December 13, 2007. All per share and
average share data in this report has been restated to reflect
the 2007 stock dividend.
Critical
Accounting Policies
The Companys consolidated financial statements are
prepared based on the application of certain accounting
policies, the most significant of which are described in
Note 1 to the consolidated financial statements. Certain of
these policies require numerous estimates and strategic or
economic assumptions that may prove inaccurate or be subject to
variations which may significantly affect the Companys
reported results and financial position for the period or in
future periods. The use of estimates, assumptions, and judgments
are necessary most often when financial assets and liabilities
are required to be recorded at, or adjusted to reflect, fair
value. Assets and liabilities carried at fair value inherently
result in more financial statement volatility. Fair values and
the information used to record valuation adjustments for certain
assets and liabilities are based on either quoted market prices
or are provided by other independent third-party sources, when
available. When such information is not available, management
estimates valuation adjustments primarily by using internal cash
flow and other financial modeling techniques. Changes in
underlying factors, assumptions, or estimates in any of these
areas could have a material impact on the Companys future
financial condition and results of operations.
The Company has identified several policies as being critical
because they require management to make particularly difficult,
subjective
and/or
complex judgments about matters that are inherently uncertain
and because of the likelihood that materially different amounts
would be reported under different conditions or using different
assumptions. These policies relate to the allowance for loan
losses, the valuation of certain non-marketable investments, and
accounting for income taxes.
The Company performs periodic and systematic detailed reviews of
its loan portfolio to assess overall collectability. The level
of the allowance for loan losses reflects the Companys
estimate of the losses inherent in the loan portfolio at any
point in time. While these estimates are based on substantive
methods for determining allowance requirements, 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, consumer credit
card and other consumer loans, are individually smaller and
perform in a more homogenous manner, making loss estimates more
predictable. Further explanation of
17
the methodologies used in establishing the allowance is provided
in the Allowance for Loan Losses section of this discussion.
The Company, through its direct holdings and its Small Business
Investment subsidiaries, has numerous private equity and venture
capital investments, which totaled $45.3 million at
December 31, 2007. These private equity and venture capital
securities are reported at fair value. The values assigned to
these securities where no market quotations exist are based upon
available information and managements judgment. Although
management believes its estimates of fair value reasonably
reflect the fair value of these securities, key assumptions
regarding the projected financial performance of these
companies, the evaluation of the investee companys
management team, and other economic and market factors may
affect the amounts that will ultimately be realized from these
investments.
As more fully discussed in Notes 1 and 9 of the
consolidated financial statements, the Company accounts for
income taxes in accordance with SFAS No. 109,
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 the principles of
SFAS No. 109. 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.
18
Net
Interest Income
Net interest income, the largest source of revenue, results from
the Companys lending, investing, borrowing, and deposit
gathering activities. It is affected by both changes in the
level of interest rates and changes in the amounts and mix of
interest earning assets and interest bearing liabilities. The
following table summarizes the changes in net interest income on
a fully taxable equivalent basis, by major category of interest
earning assets and interest bearing liabilities, identifying
changes related to volumes and rates. Changes not solely due to
volume or rate changes are allocated to rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Change due to
|
|
|
|
|
|
Change due to
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
(In thousands)
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
Volume
|
|
|
Rate
|
|
|
Total
|
|
|
|
|
Interest income,
fully taxable equivalent basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
77,356
|
|
|
$
|
14,896
|
|
|
$
|
92,252
|
|
|
$
|
35,616
|
|
|
$
|
87,585
|
|
|
$
|
123,201
|
|
Loans held for sale
|
|
|
412
|
|
|
|
(260
|
)
|
|
|
152
|
|
|
|
16,783
|
|
|
|
4,348
|
|
|
|
21,131
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
|
(8,190
|
)
|
|
|
1,878
|
|
|
|
(6,312
|
)
|
|
|
(15,977
|
)
|
|
|
(1,174
|
)
|
|
|
(17,151
|
)
|
State and municipal obligations
|
|
|
8,058
|
|
|
|
251
|
|
|
|
8,309
|
|
|
|
11,923
|
|
|
|
713
|
|
|
|
12,636
|
|
Mortgage and asset-backed securities
|
|
|
(3,547
|
)
|
|
|
9,520
|
|
|
|
5,973
|
|
|
|
(24,993
|
)
|
|
|
6,285
|
|
|
|
(18,708
|
)
|
Other securities
|
|
|
(3,126
|
)
|
|
|
(2,090
|
)
|
|
|
(5,216
|
)
|
|
|
(75
|
)
|
|
|
5,205
|
|
|
|
5,130
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
11,852
|
|
|
|
(1,608
|
)
|
|
|
10,244
|
|
|
|
5,965
|
|
|
|
5,570
|
|
|
|
11,535
|
|
|
|
Total interest income
|
|
|
82,815
|
|
|
|
22,587
|
|
|
|
105,402
|
|
|
|
29,242
|
|
|
|
108,532
|
|
|
|
137,774
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
|
(5
|
)
|
|
|
(132
|
)
|
|
|
(137
|
)
|
|
|
(29
|
)
|
|
|
974
|
|
|
|
945
|
|
Interest checking and money market
|
|
|
8,541
|
|
|
|
11,248
|
|
|
|
19,789
|
|
|
|
321
|
|
|
|
41,805
|
|
|
|
42,126
|
|
Time open and C.D.s of less than $100,000
|
|
|
11,563
|
|
|
|
13,970
|
|
|
|
25,533
|
|
|
|
10,150
|
|
|
|
24,677
|
|
|
|
34,827
|
|
Time open and C.D.s of $100,000 and over
|
|
|
9,001
|
|
|
|
6,357
|
|
|
|
15,358
|
|
|
|
9,579
|
|
|
|
18,023
|
|
|
|
27,602
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
10,826
|
|
|
|
2,484
|
|
|
|
13,310
|
|
|
|
(7,785
|
)
|
|
|
29,163
|
|
|
|
21,378
|
|
Other borrowings
|
|
|
5,346
|
|
|
|
(315
|
)
|
|
|
5,031
|
|
|
|
(5,819
|
)
|
|
|
2,099
|
|
|
|
(3,720
|
)
|
|
|
Total interest expense
|
|
|
45,272
|
|
|
|
33,612
|
|
|
|
78,884
|
|
|
|
6,417
|
|
|
|
116,741
|
|
|
|
123,158
|
|
|
|
Net interest income, fully taxable equivalent basis
|
|
$
|
37,543
|
|
|
$
|
(11,025
|
)
|
|
$
|
26,518
|
|
|
$
|
22,825
|
|
|
$
|
(8,209
|
)
|
|
$
|
14,616
|
|
|
|
Net interest income was $538.1 million in 2007,
representing an increase of $24.9 million, or 4.8%,
compared to $513.2 million in 2006. Net interest income
increased $11.5 million, or 2.3%, in 2006 compared to
$501.7 million in 2005. The increase in net interest income
in 2007 resulted mainly from growth of $92.3 million in tax
equivalent loan interest income, due mainly to higher average
balances and yields, and an increase in tax equivalent interest
on investment securities of $2.8 million, mainly due to
higher yields. Also, interest earned on federal funds sold and
securities purchased under agreements to resell (resale
agreements) increased $10.2 million, due mainly to higher
balances. Offsetting these increases in interest income were
higher deposit interest costs of $60.5 million as a result
of higher balances and rates paid, coupled with increased
interest expense on borrowings, which grew by
$18.4 million. The increase in rates on both interest
earning assets and interest bearing liabilities was the result
of increases in the federal funds rate initiated by the Federal
Reserve throughout 2005 and 2006 which impacted average balances
and rates for the full year in 2007. The tax equivalent net
yield on earning assets decreased 12 basis points to 3.80%
in 2007 compared to 3.92% in 2006.
19
During 2006, net interest income increased $11.5 million
compared to 2005. The increase was largely the result of growth
in loan interest income due to higher yields and average
balances, but was partly offset by an increase in interest
expense due to higher deposit rates and balances, in addition to
higher rates paid on federal funds purchased and securities sold
under agreements to repurchase (repurchase agreements).
Total interest income in 2007 was $936.1 million, compared
to $832.3 million in 2006 and $697.6 million in 2005.
On a tax equivalent basis, interest income increased
$105.4 million in 2007, or 12.6%, as a result of growth in
interest on loans ($92.3 million tax equivalent),
investment securities ($2.8 million tax equivalent) and
federal funds sold and resale agreements ($10.2 million).
The growth in interest on loans resulted from higher average
balances in commercial loans of $703.7 million (consisting
of business, construction and business real estate loans) and in
personal loans of $381.1 million (consisting of personal
real estate, home equity, consumer and consumer credit card
loans). This growth in average balances also resulted from four
bank acquisitions occurring in 2006 and 2007, which increased
average loan balances by $337.8 million in 2007. As a
result of the increases in the federal funds rate in previous
years as mentioned above, rates on most lending products
increased, contributing approximately $14.9 million (tax
equivalent) to the growth in loan interest income. The overall
tax equivalent rate earned on loans, excluding loans held for
sale, was 7.23% in 2007 compared to 7.08% in 2006, or an
increase of 15 basis points.
The $2.8 million increase in tax equivalent interest income
on investment securities was mainly the result of higher rates
earned on mortgage and other asset-backed securities and
U.S. government and agency securities, which contributed
$11.4 million to interest income. In addition, higher
average balances of municipal investment securities and
mortgage-backed securities contributed to the increase.
Offsetting these increases, however, were the effects of lower
average balances in U.S. government and agency securities,
other asset-backed securities, and short-term money market
investments. The increase in interest on federal funds sold and
resale agreements was mainly due to higher average balances of
overnight resell agreements, which are used for funding and
pledging purposes.
The overall tax equivalent rate earned on total interest earning
assets amounted to 6.56% in 2007 compared to 6.32% in 2006, or
an increase of 24 basis points.
Interest expense increased $78.9 million, or 24.7%, in 2007
compared to 2006 primarily as a result of higher interest
expense on both deposit accounts and other borrowings. Interest
expense on deposits increased $60.5 million as a result of
higher rates on virtually all deposit products, coupled with
growth in average balances of money market accounts and
short-term certificates of deposit. The higher average balances
occurred notably in the Companys premium money market
product, which requires higher customer balances but also pays
higher rates, due to the general rate environment and promotions
during the year. Average short-term certificate of deposit
balances grew by $751.2 million partly due to customer
preference, but also due to efforts by the Company to attract
jumbo certificates of deposit from commercial sources in an
effort to diversify funding sources. Also, the four bank
acquisitions completed in 2006 and 2007, noted above,
contributed to the growth in average deposits by
$362.8 million.
Interest expense on other borrowings increased
$18.4 million, mainly due to higher average balances in
repurchase agreements and higher rates on these balances, but
offset by lower average balances of federal funds purchased. The
increase in the average balances of repurchase agreements was
mainly due to the acquisition in August 2006 of
$500.0 million in term structured repurchase agreements,
which were acquired to mitigate the risk of falling interest
rates. In addition, average advances from the Federal Home Loan
Bank grew $103.8 million as the Company further diversified
its funding sources.
The overall rate paid on interest-bearing liabilities increased
from 2.63% in 2006 to 3.01% in 2007, or an increase of
38 basis points.
Interest income increased in 2006 by $134.7 million, or
19.3%, as a result of a $144.3 million increase in tax
equivalent loan interest income, offset slightly by an
$18.1 million decrease in interest income from investment
securities. The tax equivalent average yield on interest earning
assets was 6.32% in 2006 compared to 5.40% in 2005, representing
a 92 basis point increase. Interest income on loans
increased in 2006 over 2005 as a result of a 98 basis point
increase in the average yield, coupled with an
$859.9 million, or 10.0%, increase in average balances.
Approximately $137.1 million of the increase in average
loan balances
20
was the result of bank acquisitions in 2006, which contributed
$10.2 million to interest income earned on loans in 2006.
Excluding the impact of the acquisitions, the increase in
average loan balances compared to 2005 was $722.8 million,
or 8.4%. The average yield on investment securities increased
36 basis points, which was offset by a $763.5 million,
or 17.7%, decrease in investment securities average balances,
resulting in an overall decrease of $18.1 million in
interest income earned on the investment portfolio in 2006
compared to 2005. The Company funded its loan growth principally
by reducing its investment securities portfolio, in addition to
growth in its overall deposit base.
Interest expense increased $123.2 million, or 62.9%, in
2006 compared to 2005 as a result of the rising interest rate
environment and increases in average deposit balances. Interest
expense on deposits increased $105.5 million, or 78.3%, in
2006 over the previous year as a result of a 92 basis point
average rate increase, coupled with growth of
$607.9 million, or 6.2%, in average interest bearing
deposit balances. Approximately $147.8 million of the
increase in average interest bearing deposit balances was a
result of bank acquisitions in 2006. Bank acquisitions incurred
$5.1 million of deposit interest expense in 2006. Excluding
the impact of bank acquisitions, the increase in average
interest bearing deposits compared to 2005 was
$460.1 million, or 4.7%. Additionally, interest expense on
federal funds purchased and repurchase agreements increased
$21.4 million, or 43.8%, resulting primarily from an
increase of 179 basis points in rates paid. Average
borrowings of federal funds purchased and repurchase agreements
declined 9.6% primarily due to a decrease in federal funds
purchased as a result of lower liquidity needs, offset by growth
in average repurchase agreement balances. Contributing to the
increase in repurchase agreements was the addition of
$500.0 million in structured repurchase agreements,
mentioned above.
Provision
for Loan Losses
The provision for loan losses was $42.7 million in 2007,
compared with $25.6 million in 2006 and $28.8 million
in 2005. The $17.1 million, or 66.6%, increase in the 2007
provision for loan losses reflected higher incurred losses in
almost all loan categories. The provision for loan losses is
recorded to bring the allowance for loan losses to a level
deemed adequate by management based on the factors mentioned in
the following Allowance for Loan Losses section of
this discussion.
Non-Interest
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
07-06
|
|
|
06-05
|
|
|
|
|
Deposit account charges and other fees
|
|
$
|
117,350
|
|
|
$
|
115,453
|
|
|
$
|
112,979
|
|
|
|
1.6
|
%
|
|
|
2.2
|
%
|
Bank card transaction fees
|
|
|
103,613
|
|
|
|
94,928
|
|
|
|
86,310
|
|
|
|
9.1
|
|
|
|
10.0
|
|
Trust fees
|
|
|
78,840
|
|
|
|
72,180
|
|
|
|
68,316
|
|
|
|
9.2
|
|
|
|
5.7
|
|
Consumer brokerage services
|
|
|
12,445
|
|
|
|
9,954
|
|
|
|
9,909
|
|
|
|
25.0
|
|
|
|
.5
|
|
Trading account profits and commissions
|
|
|
8,647
|
|
|
|
8,132
|
|
|
|
9,650
|
|
|
|
6.3
|
|
|
|
(15.7
|
)
|
Loan fees and sales
|
|
|
8,835
|
|
|
|
10,503
|
|
|
|
12,838
|
|
|
|
(15.9
|
)
|
|
|
(18.2
|
)
|
Other
|
|
|
41,851
|
|
|
|
41,436
|
|
|
|
34,835
|
|
|
|
1.0
|
|
|
|
18.9
|
|
|
|
Total non-interest income
|
|
$
|
371,581
|
|
|
$
|
352,586
|
|
|
$
|
334,837
|
|
|
|
5.4
|
%
|
|
|
5.3
|
%
|
|
|
Non-interest income as a % of total revenue*
|
|
|
40.8
|
%
|
|
|
40.7
|
%
|
|
|
40.0
|
%
|
|
|
|
|
|
|
|
|
Total revenue per full-time equivalent employee
|
|
$
|
179.0
|
|
|
$
|
175.5
|
|
|
$
|
172.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Total revenue is calculated as
net interest income plus non-interest income. |
Non-interest income was $371.6 million in 2007, which was a
$19.0 million, or 5.4%, increase over 2006. In 2007,
deposit account fees rose $1.9 million, or 1.6%, as a
result of higher corporate cash management fees, which grew by
$2.8 million, or 12.2%. The growth in cash management fees
was mainly due to increased sales of products, coupled with
increased usage. It was partly offset by a slight decline in
deposit account overdraft fees. Bank card fees increased
$8.7 million, or 9.1%, over the prior year, primarily due
to higher fees earned on debit and corporate card transaction
fees, which grew by 12.2% and 30.0%, respectively. The growth in
debit card transaction fees resulted from greater utilization by
consumers and acceptance by retail businesses,
21
which increased volumes. The growth in corporate card fees was
attributable to transaction fees from commercial businesses and
non-profit enterprises that are utilizing these electronic
transactions in greater proportion, in addition to increased
sales efforts to build business in areas outside the
Companys retail footprint. These increases were partly
offset by a decline in merchant fees of 6.8%, mainly due to the
loss of a large merchant customer at the end of last year. Trust
fees rose $6.7 million, or 9.2%, mainly due to an 8.3%
increase in private client account fees and a 14.7% increase in
corporate and institutional trust account fees. Sales efforts in
2007 resulted in new annualized fees of $5.0 million, an
increase of 11.5%, for private client accounts and
$1.1 million for corporate and institutional trust
accounts. Total trust assets, upon which fees are charged, grew
to $22.7 billion, an increase of 7.2%. Consumer brokerage
services revenue rose $2.5 million, or 25.0%, mainly due to
growth in annuity commissions and mutual fund fees. In addition,
due to recent Company initiatives, fees resulting from account
management and sales of various insurance products have also
increased. Bond trading income increased $515 thousand, mainly
due to an increase in underwriting fees on customer debt issues,
in addition to higher corporate and correspondent bank sales.
Loan fees and sales decreased $1.7 million as gains on
student loan sales declined from $6.3 million in 2006 to
$4.5 million in 2007, which resulted from narrowing profit
margins on loans sold to various servicing institutions. Other
non-interest income rose $415 thousand over the prior year,
largely due to increases of $1.1 million in cash sweep
commission income and $1.0 million in gains on sales of
various bank facilities. Additional increases occurred in fees
on tax credit sales and international transaction fee income.
These increases were partly offset by impairment losses of
$1.3 million recorded on several properties and the receipt
in 2006 of $1.2 million in non-recurring income from an
equity investment held by Commerce Bancshares, Inc., the parent
holding company (the Parent).
In 2006, non-interest income increased $17.7 million, or
5.3%, to $352.6 million. Compared to 2005, deposit account
fees increased $2.5 million, or 2.2%, as a result of higher
deposit account overdraft fees, which grew $3.7 million, or
4.7%. This growth was partly offset by lower cash management fee
income and lower deposit account service charges. The growth in
overdraft fees was mainly due to higher unit prices, partly
offset by lower transaction volumes. The decline in corporate
cash management fees continued to be affected by the higher
interest rate environment in 2006, which tended to reduce cash
fees paid by corporate customers. Bank card fees rose
$8.6 million, or 10.0% overall, primarily due to solid
growth in corporate card and debit card fee income, which grew
by 21.8% and 17.5%, respectively. Trust fees increased
$3.9 million, or 5.7%, due to a 5.2% increase in private
client account fees and a 6.4% increase in corporate and
institutional trust account fees. Bond trading income fell
$1.5 million due to lower sales of fixed income securities
to bank and corporate customers, while consumer brokerage income
was relatively flat. Loan fees and sales decreased by
$2.3 million as gains on sales of student loans declined
from $8.0 million in 2005 to $6.3 million in 2006, and
fewer transactions occurred. Other non-interest income rose
$6.6 million, which included growth of $2.2 million in
operating lease-related income, in addition to the non-recurring
income from a Parent company equity investment. Higher sweep
fees and check sales income were also recorded.
Investment
Securities Gains, Net
Net gains and losses on investment securities during 2007, 2006
and 2005 are shown in the table below. Included in these amounts
are gains and losses arising from sales of bonds from the
banks available for sale portfolio, in addition to sales
of publicly traded equity securities held by the Parent. Also
shown are gains and losses relating to non-marketable private
equity and venture capital investments, which are primarily held
by the Parents majority-owned venture capital
subsidiaries. These include fair value adjustments, in addition
to gains and losses realized upon disposition. Minority interest
expense pertaining to these net gains is reported in other
non-interest expense, and totaled $389 thousand,
$2.2 million and $383 thousand in 2007, 2006 and 2005,
respectively. In 2006 the Company sold its shares of MasterCard
Inc., which it had acquired through MasterCards
reorganization and initial public offering in the same year.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
$
|
1,069
|
|
|
$
|
(2,083
|
)
|
|
$
|
5,080
|
|
Equity securities
|
|
|
1,858
|
|
|
|
|
|
|
|
|
|
Non-marketable:
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity and venture investments
|
|
|
5,307
|
|
|
|
8,278
|
|
|
|
1,282
|
|
MasterCard restricted stock
|
|
|
|
|
|
|
2,840
|
|
|
|
|
|
|
|
Total investment securities gains, net
|
|
$
|
8,234
|
|
|
$
|
9,035
|
|
|
$
|
6,362
|
|
|
|
Non-Interest
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
07-06
|
|
|
06-05
|
|
|
|
|
Salaries
|
|
$
|
265,378
|
|
|
$
|
244,887
|
|
|
$
|
234,440
|
|
|
|
8.4
|
%
|
|
|
4.5
|
%
|
Employee benefits
|
|
|
43,390
|
|
|
|
43,386
|
|
|
|
38,737
|
|
|
|
|
|
|
|
12.0
|
|
Net occupancy
|
|
|
45,789
|
|
|
|
43,276
|
|
|
|
40,621
|
|
|
|
5.8
|
|
|
|
6.5
|
|
Equipment
|
|
|
24,121
|
|
|
|
25,665
|
|
|
|
23,201
|
|
|
|
(6.0
|
)
|
|
|
10.6
|
|
Supplies and communication
|
|
|
34,162
|
|
|
|
32,670
|
|
|
|
33,342
|
|
|
|
4.6
|
|
|
|
(2.0
|
)
|
Data processing and software
|
|
|
49,081
|
|
|
|
50,982
|
|
|
|
48,244
|
|
|
|
(3.7
|
)
|
|
|
5.7
|
|
Marketing
|
|
|
18,199
|
|
|
|
17,317
|
|
|
|
17,294
|
|
|
|
5.1
|
|
|
|
.1
|
|
Indemnification obligation
|
|
|
20,951
|
|
|
|
|
|
|
|
|
|
|
|
N.M.
|
|
|
|
N.M.
|
|
Other
|
|
|
73,687
|
|
|
|
67,242
|
|
|
|
60,643
|
|
|
|
9.6
|
|
|
|
10.9
|
|
|
|
Total non-interest expense
|
|
$
|
574,758
|
|
|
$
|
525,425
|
|
|
$
|
496,522
|
|
|
|
9.4
|
%
|
|
|
5.8
|
%
|
|
|
Efficiency ratio
|
|
|
62.7
|
%
|
|
|
60.6
|
%
|
|
|
59.3
|
%
|
|
|
|
|
|
|
|
|
Salaries and benefits as a% of total non-interest expense
|
|
|
53.7
|
%
|
|
|
54.9
|
%
|
|
|
55.0
|
%
|
|
|
|
|
|
|
|
|
Number of full-time equivalent employees
|
|
|
5,083
|
|
|
|
4,932
|
|
|
|
4,839
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense was $574.8 million in 2007, which
included a non-cash expense charge of $21.0 million related
to the Companys indemnification obligation to share
certain estimated litigation costs of Visa, Inc. (Visa). The
expense charge was the result of revisions in October 2007
to Visas by-laws affecting all member banks, as part of an
overall reorganization in which the member banks indemnified
Visa on certain covered litigation. The expense charge relates
to Visas American Express litigation, which was settled by
Visa in November 2007, and other Visa litigation, including the
Discover and other interchange litigation, which has not yet
been settled. As part of the reorganization, Visa plans an
initial public offering early in 2008, and part of the proceeds
from the offering representing the member banks
proportionate share will be placed in escrow and used to fund
the actual litigation settlements when they occur. The Company
currently anticipates that its proportional share of the
proceeds of the Visa initial public offering will more than
offset its liabilities related to the Visa litigation.
Excluding the Visa indemnification charge, non-interest expense
was $553.8 million in 2007, and grew 5.4% over 2006.
Salaries and benefits expense grew by $20.5 million, or
7.1%, due to merit increases, incentive compensation, payroll
taxes and the effects of the recent bank acquisitions, which
contributed $5.4 million of this increase. Partly
offsetting these increases was a decline in employee group
medical plan expense, resulting from favorable claims
experience. Occupancy expense increased by $2.5 million, or
5.8%, over last year mainly as a result of seasonal maintenance
costs, higher building depreciation and real estate taxes.
Higher rent income from tenants, resulting from an increase in
overall building occupancy, partly offset these expenses.
Equipment expense declined by $1.5 million, or 6.0%, mainly
due to declines in depreciation expense on data processing
equipment and maintenance contract expense, in addition to
23
relocation costs of a check processing function in 2006.
Supplies and communication costs grew by $1.5 million, or
4.6%, mainly due to higher costs for supplies, postage and
courier expense, partly offset by a decline in data network
expense. Data processing and software expense declined
$1.9 million, or 3.7%, mainly due to lower license costs
related to online banking systems and a decline in bank card
processing fees. A smaller variance occurred in marketing
expense, which increased $882 thousand, or 5.1%, over the prior
year. Other non-interest expense increased $6.4 million, or
9.6%, in 2007 due to increases in intangible asset amortization
(resulting from recent bank acquisitions), bank card and other
fraud losses, and dues and subscription expense. Partly
offsetting these increases were declines in minority interest
expense and foreclosed property expense.
In 2006, non-interest expense was $525.4 million, an
increase of $28.9 million, or 5.8%, over 2005. Compared
with the prior year, salaries and benefits expense grew
$15.1 million, or 5.5%, due to normal merit increases and
higher costs for incentive compensation, medical insurance, and
payroll taxes. In addition, the effects of the bank acquisitions
occurring in 2006 increased salaries and benefits by
approximately $2.4 million. Partly offsetting these
increases was a decline in stock-based compensation of
$1.8 million, which resulted from the implementation in
2006 of estimated forfeiture accounting requirements and a
slightly longer vesting period for new grants. Net occupancy
costs grew $2.7 million, or 6.5%, compared to the prior
year, mainly as a result of a full year of depreciation, real
estate taxes and utilities expense incurred on two office
buildings purchased in 2005, in addition to costs related to
several branch facilities constructed during 2006. These
increases were partly offset by lower net rent expense as
certain banking offices were moved from leased facilities to the
new buildings and office space was leased to outside tenants. In
addition, in 2006 the Company recorded an asbestos abatement
obligation on an office building in downtown Kansas City, which
increased occupancy expense by $854 thousand. Equipment expense
increased $2.5 million, or 10.6%, mainly due to higher
equipment depreciation expense and the relocation of a check
processing function mentioned above. Data processing and
software expense increased $2.7 million, or 5.7%, due to
higher bank card processing fees, online banking fees and
software amortization expense. Software amortization expense
increased mainly due to the installation of new data system
applications, while bank card processing fees increased
commensurate with the increase in bank card fee income mentioned
above. Smaller variances occurred in marketing, which increased
slightly, while lower telephone and network costs resulted in a
reduction in supplies and communication expense of $672
thousand. Other non-interest expense increased $6.6 million
due to increases in legal and professional fees, operating lease
depreciation, foreclosed property expense (related to a single
property acquired and subsequently sold in 2006) and
minority interest expense relating to investment gains recorded
by venture capital affiliates. Partly offsetting these increases
were lower processing losses and bank card fraud losses.
Income
Taxes
Income tax expense was $93.7 million in 2007, compared to
$103.9 million in 2006 and $94.3 million in 2005.
Income tax expense in 2007 decreased 9.8% from 2006, compared to
a 7.2% decrease in pre-tax income. The effective tax rate was
31.2%, 32.1% and 29.7% in 2007, 2006 and 2005, respectively. The
Companys effective tax rates in those years were lower
than the federal statutory rate of 35% mainly due to tax exempt
interest on state and municipal obligations and, in 2005, the
recognition of additional tax benefits from various corporate
reorganization initiatives. These tax benefits, which amounted
to $13.7 million in 2005, did not reoccur in 2007 or 2006.
24
Financial
Condition
Loan
Portfolio Analysis
A schedule of average balances invested in each category of
loans appears on page 52. Classifications of consolidated
loans by major category at December 31 for each of the past five
years are as follows. The Companys student loan portfolio
was classified as held for sale in the first quarter of 2006,
and is not included in the table below for 2006 and 2007. Refer
to the following section, Loans Held For Sale, for information
regarding student loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
Business
|
|
$
|
3,257,047
|
|
|
$
|
2,860,692
|
|
|
$
|
2,527,654
|
|
|
$
|
2,246,287
|
|
|
$
|
2,102,605
|
|
Real estate construction
|
|
|
668,701
|
|
|
|
658,148
|
|
|
|
424,561
|
|
|
|
427,124
|
|
|
|
427,083
|
|
Real estate business
|
|
|
2,239,846
|
|
|
|
2,148,195
|
|
|
|
1,919,045
|
|
|
|
1,743,293
|
|
|
|
1,875,069
|
|
Real estate personal
|
|
|
1,540,289
|
|
|
|
1,478,669
|
|
|
|
1,352,339
|
|
|
|
1,329,568
|
|
|
|
1,325,999
|
|
Consumer
|
|
|
1,648,072
|
|
|
|
1,435,038
|
|
|
|
1,287,348
|
|
|
|
1,193,822
|
|
|
|
1,150,732
|
|
Home equity
|
|
|
460,200
|
|
|
|
441,851
|
|
|
|
448,507
|
|
|
|
411,541
|
|
|
|
352,047
|
|
Student
|
|
|
|
|
|
|
|
|
|
|
330,238
|
|
|
|
357,991
|
|
|
|
355,763
|
|
Consumer credit card
|
|
|
780,227
|
|
|
|
648,326
|
|
|
|
592,465
|
|
|
|
561,054
|
|
|
|
526,653
|
|
Overdrafts
|
|
|
10,986
|
|
|
|
10,601
|
|
|
|
10,854
|
|
|
|
23,673
|
|
|
|
14,123
|
|
|
|
Total loans
|
|
$
|
10,605,368
|
|
|
$
|
9,681,520
|
|
|
$
|
8,893,011
|
|
|
$
|
8,294,353
|
|
|
$
|
8,130,074
|
|
|
|
The contractual maturities of loan categories at
December 31, 2007, and a breakdown of those loans between
fixed rate and floating rate loans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Payments Due
|
|
|
|
|
|
|
In
|
|
|
After One
|
|
|
After
|
|
|
|
|
|
|
One Year
|
|
|
Year Through
|
|
|
Five
|
|
|
|
|
(In thousands)
|
|
or Less
|
|
|
Five Years
|
|
|
Years
|
|
|
Total
|
|
|
|
|
Business
|
|
$
|
1,704,381
|
|
|
$
|
1,274,730
|
|
|
$
|
277,936
|
|
|
$
|
3,257,047
|
|
Real estate construction
|
|
|
403,394
|
|
|
|
251,142
|
|
|
|
14,165
|
|
|
|
668,701
|
|
Real estate business
|
|
|
709,508
|
|
|
|
1,254,621
|
|
|
|
275,717
|
|
|
|
2,239,846
|
|
Real estate personal
|
|
|
136,099
|
|
|
|
301,669
|
|
|
|
1,102,521
|
|
|
|
1,540,289
|
|
|
|
Total business and real estate loans
|
|
$
|
2,953,382
|
|
|
$
|
3,082,162
|
|
|
$
|
1,670,339
|
|
|
|
7,705,883
|
|
|
|
Consumer(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,648,072
|
|
Home
equity(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
460,200
|
|
Consumer credit
card(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
780,227
|
|
Overdrafts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,986
|
|
|
|
Total loans, net of unearned income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,605,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans with fixed rates
|
|
$
|
610,009
|
|
|
$
|
1,662,509
|
|
|
$
|
506,821
|
|
|
$
|
2,779,339
|
|
Loans with floating rates
|
|
|
2,343,373
|
|
|
|
1,419,653
|
|
|
|
1,163,518
|
|
|
|
4,926,544
|
|
|
|
Total business and real estate loans
|
|
$
|
2,953,382
|
|
|
$
|
3,082,162
|
|
|
$
|
1,670,339
|
|
|
$
|
7,705,883
|
|
|
|
(1) Consumer loans with floating rates totaled
$100.0 million.
(2) Home equity loans with floating rates totaled
$452.7 million.
(3) Consumer credit card loans with floating rates
totaled $695.8 million.
Total period end loans at December 31, 2007 were
$10.6 billion, an increase of $923.8 million, or 9.5%,
over balances at December 31, 2006. Loan growth came
principally from business, business real estate, personal real
estate, consumer and credit card loans, as demand for loan
products remained solid during 2007. The 2007 bank acquisitions
also contributed to the higher loan balances, adding
approximately
25
$262.1 million to the year end 2007 balance. The
acquisition-related growth occurred mainly in business loans
($95.0 million), construction loans ($49.2 million),
business real estate loans ($88.2 million), and personal
real estate loans ($22.2 million). Excluding these acquired
loans, business loans grew $301.3 million, or 10.5%,
reflecting new business in regional markets, strength in
agribusiness lending, and increased borrowings by existing
customers. Lease balances, which are included in the business
category, increased $10.2 million, or 3.9%, compared with
the previous year end balance, as equipment financing remained
strong. Consumer loans grew $207.7 million, or 14.5%,
during the year mainly as a result of continued growth in marine
and recreational vehicle lending. Personal real estate loans
grew by $39.4 million, or 2.7%, and business real estate
loans rose $3.4 million, or .2%. Consumer credit card loans
increased $131.9 million, or 20.3%, and saw growth
especially at year end, when holiday activity is at its peak.
During 2007, home equity loans increased $16.7 million, or
3.8%, due to an increase in new account activations.
Construction loans declined $38.6 million, or 5.9%.
Period end loans increased $788.5 million, or 8.9%, in 2006
compared to 2005, resulting from increases in business,
construction, business real estate, personal real estate and
consumer loans.
The Company currently generates approximately 32% of its loan
portfolio in the St. Louis market, 28% in the Kansas City
market, and 40% in various other regional markets. The portfolio
is diversified from a business and retail standpoint, with 58%
in loans to businesses and 42% in loans to consumers. A balanced
approach to loan portfolio management and an historical aversion
toward credit concentrations, from an industry, geographic and
product perspective, have contributed to low levels of problem
loans and loan losses.
Business
Total business loans amounted to $3.3 billion at
December 31, 2007 and include loans used mainly to fund
customer accounts receivable, inventories, and capital
expenditures. This portfolio also includes sales type and direct
financing leases totaling $276.1 million, which are used by
commercial customers to finance capital purchases ranging from
computer equipment to office and transportation equipment. These
leases comprise 2.6% of the Companys total loan portfolio.
Business loans are made primarily to customers in the regional
trade area of the Company, generally the central Midwest,
encompassing the states of Missouri, Kansas, Illinois, and
nearby Midwestern markets, including Iowa, Oklahoma, Colorado
and Ohio. The portfolio is diversified from an industry
standpoint and includes businesses engaged in manufacturing,
wholesaling, retailing, agribusiness, insurance, financial
services, public utilities, and other service businesses.
Emphasis is upon middle-market and community businesses with
known local management and financial stability. The Company
participates in credits of large, publicly traded companies when
business operations are maintained in the local communities or
regional markets and opportunities to provide other banking
services are present. Consistent with managements strategy
and emphasis upon relationship banking, most borrowing customers
also maintain deposit accounts and utilize other banking
services. There were net loan charge-offs in this category of
$4.4 million in 2007 compared to net loan recoveries of
$823 thousand in 2006. The increase in net loan charge-offs over
the prior year was partly due to a $1.4 million charge-off
on an agribusiness loan secured by equipment, grain and real
estate. Non-accrual business loans were $4.7 million (.1%
of business loans) at December 31, 2007 compared to
$5.8 million at December 31, 2006. Included in these
totals were non-accrual lease-related loans of $167 thousand and
$1.2 million at December 31, 2007 and 2006,
respectively. Opportunities for growth in business loans will be
based upon strong solicitation efforts in a highly competitive
market environment for quality loans. Asset quality is, in part,
a function of managements consistent application of
underwriting standards and credit terms through stages in
economic cycles. Therefore, portfolio growth in 2008 will be
dependent upon 1) the strength of the economy, 2) the
actions of the Federal Reserve with regard to targets for
economic growth, interest rates, and inflationary tendencies,
and 3) the competitive environment.
26
Real
Estate-Construction
The portfolio of loans in this category amounted to
$668.7 million at December 31, 2007 and comprised 6.3%
of the Companys total loan portfolio. The table below
shows the Companys holdings of the major types of
construction loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
December 31
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
% of Total
|
|
|
|
|
Land development
|
|
$
|
254,072
|
|
|
|
38.0
|
%
|
Residential construction
|
|
|
159,624
|
|
|
|
23.9
|
|
Commercial construction
|
|
|
255,005
|
|
|
|
38.1
|
|
|
|
Total real estate-construction loans
|
|
$
|
668,701
|
|
|
|
100.0
|
%
|
|
|
These loans are predominantly made to businesses in the local
markets of the Companys banking subsidiaries. Commercial
construction loans are made during the construction phase for
small and medium-sized office and medical buildings,
manufacturing and warehouse facilities, apartment complexes,
shopping centers, hotels and motels, and other commercial
properties. Exposure to larger speculative office properties
remains low. The largest percentage of residential construction
and land development loans are for projects located in the
Kansas City and St. Louis metropolitan areas. Credit losses
in this portfolio are normally low. However, credit exposure in
this sector has risen with the slowdown in the housing industry,
and net loan charge-offs increased to $2.0 million in 2007,
compared to net charge-offs of $62 thousand in 2006. The
increase in net charge-offs was mainly related to charge-offs of
$1.6 million on three specific loans. Construction loans on
non-accrual status rose to $7.8 million at year end 2007,
compared to $120 thousand at year end 2006. This increase was
due to less than ten loans, ranging from $600 thousand to
$1.6 million, placed on non-accrual status during 2007.
Real
Estate-Business
Total business real estate loans were $2.2 billion at
December 31, 2007 and comprised 21.1% of the Companys
total loan portfolio. This category includes mortgage loans for
small and medium-sized office and medical buildings,
manufacturing and warehouse facilities, shopping centers, hotels
and motels, and other commercial properties. Emphasis is placed
on owner-occupied and income producing commercial real estate
properties, which present lower risk levels. The borrowers
and/or the
properties are generally located in the local and regional
markets of the affiliate banks. At December 31, 2007,
non-accrual balances amounted to $5.6 million, or .3% of
the loans in this category, down from $9.8 million at year
end 2006. The Company experienced net charge-offs of
$1.1 million in 2007, compared to net recoveries of $36
thousand in 2006.
Real
Estate-Personal
At December 31, 2007, there were $1.5 billion in
outstanding personal real estate loans, which comprised 14.5% of
the Companys total loan portfolio. The mortgage loans in
this category are extended, predominately, for owner-occupied
residential properties. The Company originates both adjustable
rate and fixed rate mortgage loans. The Company retains
adjustable rate mortgage loans, and may from time to time retain
certain fixed rate loans (typically
15-year
fixed rate loans) as directed by its Asset/Liability Management
Committee. Other fixed rate loans in the portfolio have resulted
from previous bank acquisitions. At December 31, 2007, 63%
of the portfolio was comprised of adjustable rate loans while
37% was comprised of fixed rate loans. Levels of mortgage loan
origination activity increased slightly in 2007 compared to
2006, with originations of $283 million in 2007 compared
with $282 million in 2006. Growth in mortgage loan
originations was constrained in 2007 as a result of the slower
housing starts and lower resales within the Companys
markets. The Company typically does not experience significant
loan losses in this category and since it does not offer any
subprime lending products nor rely on outside sources for
originations, its loan losses remained relatively low. The
non-accrual balances of loans in this category increased to
$1.1 million at December 31, 2007, compared to $384
thousand at year end 2006. The five year history of net
charge-offs in
27
the personal real estate loan category reflects nominal losses,
and the credit quality of these loans is considered to be strong.
Personal
Banking
Total personal banking loans, which include consumer and
revolving home equity loans, totaled $2.1 billion at
December 31, 2007 and increased 12.3% during 2007. These
categories comprised 19.9% of the total loan portfolio at
December 31, 2007. Consumer loans consist of auto, marine,
tractor/trailer, recreational vehicle (RV) and fixed rate home
equity loans, and totaled $1.6 billion at year end 2007.
Approximately 69% of the loans outstanding were originated
indirectly from auto and other dealers, while the remaining 31%
were direct loans made to consumers. Approximately 30% of the
consumer portfolio consists of automobile loans, 48% in marine
and RV loans and 9% in fixed rate home equity lending.
Revolving home equity loans, of which 98% are adjustable rate
loans, totaled $460.2 million at year end 2007. An
additional $685.8 million was outstanding in unused lines
of credit, which can be drawn at the discretion of the borrower.
Home equity loans are secured mainly by second mortgages (and
less frequently, first mortgages) on residential property of the
borrower. The underwriting terms for the home equity line
product permit borrowing availability, in the aggregate,
generally up to 80% or 90% of the appraised value of the
collateral property, although a small percentage may permit
borrowing up to 100% of appraised value.
Net charge-offs for total personal banking loans were
$10.0 million in 2007 compared to $6.2 million in
2006. Net charge-offs increased to .50% of average personal
banking loans in 2007 compared to .35% in 2006. The increase in
net charge-offs in 2007 compared to 2006 was mainly due to
higher losses in the last half of 2007.
Consumer
Credit Card
Total consumer credit card loans amounted to $780.2 million
at December 31, 2007 and comprised 7.4% of the
Companys total loan portfolio. The credit card portfolio
is concentrated within regional markets served by the Company.
The Company offers a variety of credit card products, including
affinity cards, rewards cards, and standard and premium credit
cards, and emphasizes its credit card relationship product,
Special Connections. Approximately 61% of the households in
Missouri that own a Commerce credit card product also maintain a
deposit relationship with a subsidiary bank. Approximately 89%
of the outstanding credit card loans have a floating interest
rate. Net charge-offs amounted to $23.7 million in 2007,
which was a $5.8 million increase over 2006. The increase
in credit card loan net charge-offs was mainly due to higher
delinquencies and losses in the second half of 2007. The ratio
of net loan charge-offs to total average loans of 3.6% in 2007
and 3.0% in 2006 remained below national loss averages. The
Company refrains from national pre-approved mailing techniques
which have caused some of the problems experienced by credit
card issuers.
Loans
Held for Sale
Total loans held for sale at December 31, 2007 were
$235.9 million, a decrease of $42.7 million, or 15.3%,
from $278.6 million at year end 2006. Loans classified as
held for sale consist of residential mortgage loans and student
loans.
Mortgage loans are fixed rate loans, which are sold in the
secondary market, generally within three months of origination,
and totaled $6.9 million and $14.8 million at
December 31, 2007 and 2006, respectively.
The Company originates loans to students attending colleges and
universities and these loans are normally sold to the secondary
market when the student graduates and the loan enters into
repayment status. Student loans are primarily sold to the
Missouri Higher Education Loan Authority and the Student Loan
Marketing Association, in addition to several other
organizations. Nearly all of these loans are based on variable
rates. Student loans declined by $34.8 million, or 13.2%,
to $229.0 million at year end 2007, compared to $263.8
million at year end 2006. This decline was mainly due to planned
loan sales from the portfolio during 2007 which exceeded
originations.
28
Allowance
for Loan Losses
The Company has an established process to determine the amount
of the allowance for loan losses, which assesses the risks and
losses inherent in its portfolio. This process provides an
allowance consisting of a specific allowance component based on
certain individually evaluated loans and a general component
based on estimates of reserves needed for pools of loans with
similar risk characteristics.
Loans subject to individual evaluation are defined by the
Company as impaired, and generally consist of business,
construction and commercial real estate loans on non-accrual
status. These loans are evaluated individually for the
impairment of repayment potential and collateral adequacy, and
in conjunction with current economic conditions and loss
experience, allowances are estimated. Loans not individually
evaluated are aggregated and reserves are recorded using a
consistent methodology that considers historical loan loss
experience by loan type, delinquencies, current economic
factors, loan risk ratings and industry concentrations.
The Companys estimate of the allowance for loan losses and
the corresponding provision for loan losses rests upon various
judgments and assumptions made by management. Factors that
influence these judgments include past loan loss experience,
current loan portfolio composition and characteristics, trends
in portfolio risk ratings, levels of non-performing assets,
prevailing regional and national economic conditions, and the
Companys ongoing examination process including that of its
regulators. The Company has internal credit administration and
loan review staffs that continuously review loan quality and
report the results of their reviews and examinations to the
Companys senior management and Board of Directors. Such
reviews also assist management in establishing the level of the
allowance. The Companys subsidiary banks continue to be
subject to examination by the Office of the Comptroller of the
Currency (OCC) and examinations are conducted throughout the
year, targeting various segments of the loan portfolio for
review. In addition to the examination of subsidiary banks by
the OCC, the parent holding company and its non-bank
subsidiaries are examined by the Federal Reserve Bank.
At December 31, 2007 the allowance for loan losses was $133.6
million, or 1.26% of loans outstanding, excluding held for sale,
compared to a balance at year end 2006 of $131.7 million, or
1.36%. During 2007, the allowance for loan losses increased $1.9
million as a result of two bank acquisitions occurring during
the year. The decline in the percentage of allowance to loans in
2007 was mainly due to a relatively stable allowance balance
coupled with loan growth in 2007. During 2007, the
Companys analysis of the allowance reflected the fact that
while loan losses did increase, the amount of loans delinquent
90 days or more remained near 2006 levels, while non-performing
loans increased only $3.0 million. Also, the Companys
credit practices, which favor conservative underwriting
standards, collateralized positions and regular oversight, tend
to result in lower specific reserves assigned to non-performing
loans. Additionally, the Company continually makes enhancements
to its allowance estimation methodology, which has resulted in a
more consistent balance during the past several years.
Net charge-offs totaled $42.7 million in 2007, and
increased $16.7 million, or 64.0%, compared to net
charge-offs of $26.1 million in 2006. Net charge-offs
related to business loans of $4.4 million in 2007 included
one large agribusiness loan which was charged down by
$1.4 million. Construction loans incurred net charge-offs
of $2.0 million in 2007 compared to $62 thousand in 2006.
Certain construction loans have experienced lower credit quality
in 2007 resulting from the slowdown in the housing market, which
has affected the construction business. Business real estate
loans incurred net charge-offs of $1.1 million in 2007
compared to a recovery position in 2006, and included one large
charge-off of $1.6 million. Net charge-offs related to
personal banking increased by $3.8 million to
$10.0 million, compared to net charge-offs of
$6.2 million in 2006. Additionally, net charge-offs related
to consumer credit cards increased $5.8 million, or 32.7%,
to $23.7 million in 2007 compared to $17.9 million in
2006. The ratio of net charge-offs to average loans outstanding
in 2007 was .42% compared to .29% in 2006 and .38% in 2005. The
provision for loan losses was $42.7 million, compared to a
provision of $25.6 million in 2006 and $28.8 million
in 2005.
Approximately 55.5% of total net loan charge-offs during 2007
were related to consumer credit card loans. Net credit card
charge-offs increased to 3.6% of average consumer credit card
loans in 2007 compared
29
to 3.0% in 2006. At year end 2007, the ratio of credit card
loans 30 days or more delinquent to the total outstanding
balance was 2.8%, compared to 3.1% at year end 2006.
The Company considers the allowance for loan losses of
$133.6 million adequate to cover losses inherent in the
loan portfolio at December 31, 2007.
The schedule which follows summarizes the relationship between
loan balances and activity in the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
Net loans outstanding at end of
year(A)
|
|
$
|
10,605,368
|
|
|
$
|
9,681,520
|
|
|
$
|
8,893,011
|
|
|
$
|
8,294,353
|
|
|
$
|
8,130,074
|
|
|
|
Average loans
outstanding(A)
|
|
$
|
10,189,316
|
|
|
$
|
9,105,432
|
|
|
$
|
8,549,573
|
|
|
$
|
8,117,608
|
|
|
$
|
7,973,386
|
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
131,730
|
|
|
$
|
128,447
|
|
|
$
|
132,394
|
|
|
$
|
135,221
|
|
|
$
|
130,618
|
|
|
|
Additions to allowance through charges to expense
|
|
|
42,732
|
|
|
|
25,649
|
|
|
|
28,785
|
|
|
|
30,351
|
|
|
|
40,676
|
|
Allowances of acquired companies
|
|
|
1,857
|
|
|
|
3,688
|
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
Loans charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
5,822
|
|
|
|
1,343
|
|
|
|
1,083
|
|
|
|
8,047
|
|
|
|
9,297
|
|
Real estate construction
|
|
|
2,049
|
|
|
|
62
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
Real estate business
|
|
|
2,396
|
|
|
|
854
|
|
|
|
827
|
|
|
|
747
|
|
|
|
1,525
|
|
Real estate personal
|
|
|
181
|
|
|
|
119
|
|
|
|
87
|
|
|
|
355
|
|
|
|
660
|
|
Personal
banking(B)
|
|
|
15,293
|
|
|
|
11,522
|
|
|
|
13,475
|
|
|
|
12,764
|
|
|
|
13,856
|
|
Consumer credit card
|
|
|
28,218
|
|
|
|
22,104
|
|
|
|
28,263
|
|
|
|
23,682
|
|
|
|
23,689
|
|
Overdrafts
|
|
|
4,909
|
|
|
|
4,940
|
|
|
|
3,485
|
|
|
|
2,551
|
|
|
|
4,830
|
|
|
|
Total loans charged off
|
|
|
58,868
|
|
|
|
40,944
|
|
|
|
47,220
|
|
|
|
48,153
|
|
|
|
53,857
|
|
|
|
Recovery of loans previously charged off:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
|
1,429
|
|
|
|
2,166
|
|
|
|
4,099
|
|
|
|
2,405
|
|
|
|
4,192
|
|
Real estate construction
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
122
|
|
Real estate business
|
|
|
1,321
|
|
|
|
890
|
|
|
|
330
|
|
|
|
978
|
|
|
|
1,009
|
|
Real estate personal
|
|
|
42
|
|
|
|
27
|
|
|
|
57
|
|
|
|
138
|
|
|
|
196
|
|
Personal
banking(B)
|
|
|
5,309
|
|
|
|
5,286
|
|
|
|
4,675
|
|
|
|
5,288
|
|
|
|
5,386
|
|
Consumer credit card
|
|
|
4,520
|
|
|
|
4,250
|
|
|
|
3,851
|
|
|
|
4,249
|
|
|
|
4,202
|
|
Overdrafts
|
|
|
3,477
|
|
|
|
2,271
|
|
|
|
1,476
|
|
|
|
1,914
|
|
|
|
2,177
|
|
|
|
Total recoveries
|
|
|
16,135
|
|
|
|
14,890
|
|
|
|
14,488
|
|
|
|
14,975
|
|
|
|
17,284
|
|
|
|
Net loans charged off
|
|
|
42,733
|
|
|
|
26,054
|
|
|
|
32,732
|
|
|
|
33,178
|
|
|
|
36,573
|
|
|
|
Balance at end of year
|
|
$
|
133,586
|
|
|
$
|
131,730
|
|
|
$
|
128,447
|
|
|
$
|
132,394
|
|
|
$
|
135,221
|
|
|
|
Ratio of net charge-offs to average loans outstanding
|
|
|
.42
|
%
|
|
|
.29
|
%
|
|
|
.38
|
%
|
|
|
.41
|
%
|
|
|
.46
|
%
|
Ratio of allowance to loans at end of year
|
|
|
1.26
|
%
|
|
|
1.36
|
%
|
|
|
1.44
|
%
|
|
|
1.60
|
%
|
|
|
1.66
|
%
|
Ratio of provision to average loans outstanding
|
|
|
.42
|
%
|
|
|
.28
|
%
|
|
|
.34
|
%
|
|
|
.37
|
%
|
|
|
.51
|
%
|
|
|
|
|
|
(A) |
|
Net of unearned income, before
deducting allowance for loan losses, excluding loans held for
sale |
(B) |
|
Personal banking loans include
consumer and home equity |
30
The following schedule provides a breakdown of the allowance for
loan losses by loan category and the percentage of each loan
category to total loans outstanding at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
|
Loan Loss
|
|
|
% of Loans
|
|
|
Loan Loss
|
|
|
% of Loans
|
|
|
Loan Loss
|
|
|
% of Loans
|
|
|
Loan Loss
|
|
|
% of Loans
|
|
|
Loan Loss
|
|
|
% of Loans
|
|
|
|
Allowance
|
|
|
to Total
|
|
|
Allowance
|
|
|
to Total
|
|
|
Allowance
|
|
|
to Total
|
|
|
Allowance
|
|
|
to Total
|
|
|
Allowance
|
|
|
to Total
|
|
|
|
Allocation
|
|
|
Loans
|
|
|
Allocation
|
|
|
Loans
|
|
|
Allocation
|
|
|
Loans
|
|
|
Allocation
|
|
|
Loans
|
|
|
Allocation
|
|
|
Loans
|
|
|
|
|
Business
|
|
$
|
29,392
|
|
|
|
30.7
|
%
|
|
$
|
28,529
|
|
|
|
29.5
|
%
|
|
$
|
26,211
|
|
|
|
28.4
|
%
|
|
$
|
39,312
|
|
|
|
27.0
|
%
|
|
$
|
39,411
|
|
|
|
25.8
|
%
|
RE construction
|
|
|
8,507
|
|
|
|
6.3
|
|
|
|
4,605
|
|
|
|
6.8
|
|
|
|
3,375
|
|
|
|
4.8
|
|
|
|
1,420
|
|
|
|
5.2
|
|
|
|
4,717
|
|
|
|
5.3
|
|
RE business
|
|
|
14,842
|
|
|
|
21.1
|
|
|
|
19,343
|
|
|
|
22.2
|
|
|
|
19,432
|
|
|
|
21.6
|
|
|
|
15,910
|
|
|
|
21.0
|
|
|
|
20,971
|
|
|
|
23.0
|
|
RE personal
|
|
|
2,389
|
|
|
|
14.5
|
|
|
|
2,243
|
|
|
|
15.3
|
|
|
|
4,815
|
|
|
|
15.3
|
|
|
|
7,620
|
|
|
|
16.1
|
|
|
|
4,423
|
|
|
|
16.4
|
|
Personal banking
|
|
|
30,450
|
|
|
|
19.9
|
|
|
|
23,690
|
|
|
|
19.4
|
|
|
|
25,364
|
|
|
|
23.2
|
|
|
|
22,652
|
|
|
|
23.6
|
|
|
|
21,793
|
|
|
|
22.8
|
|
Consumer credit card
|
|
|
44,307
|
|
|
|
7.4
|
|
|
|
39,965
|
|
|
|
6.7
|
|
|
|
35,513
|
|
|
|
6.6
|
|
|
|
28,895
|
|
|
|
6.8
|
|
|
|
26,544
|
|
|
|
6.5
|
|
Overdrafts
|
|
|
2,351
|
|
|
|
.1
|
|
|
|
3,592
|
|
|
|
.1
|
|
|
|
2,739
|
|
|
|
.1
|
|
|
|
4,895
|
|
|
|
.3
|
|
|
|
4,796
|
|
|
|
.2
|
|
Unallocated
|
|
|
1,348
|
|
|
|
|
|
|
|
9,763
|
|
|
|
|
|
|
|
10,998
|
|
|
|
|
|
|
|
11,690
|
|
|
|
|
|
|
|
12,566
|
|
|
|
|
|
|
|
Total
|
|
$
|
133,586
|
|
|
|
100.0
|
%
|
|
$
|
131,730
|
|
|
|
100.0
|
%
|
|
$
|
128,447
|
|
|
|
100.0
|
%
|
|
$
|
132,394
|
|
|
|
100.0
|
%
|
|
$
|
135,221
|
|
|
|
100.0
|
%
|
|
|
Risk
Elements Of Loan Portfolio
Management reviews the loan portfolio continuously for evidence
of problem loans. During the ordinary course of business,
management becomes aware of borrowers that may not be able to
meet the contractual requirements of loan agreements. Such loans
are placed under close supervision with consideration given to
placing the loan on non-accrual status, the need for an
additional allowance for loan loss, and (if appropriate) partial
or full loan charge-off. Loans are placed on non-accrual status
when management does not expect to collect payments consistent
with acceptable and agreed upon terms of repayment. Loans that
are 90 days past due as to principal
and/or
interest payments are generally placed on non-accrual, unless
they are both well-secured and in the process of collection, or
they are 1-4 family first mortgage loans or consumer loans that
are exempt under regulatory rules from being classified as
non-accrual. Consumer installment loans and related accrued
interest are normally charged down to the fair value of related
collateral (or are charged off in full if no collateral) once
the loans are more than 120 days delinquent. Credit card
loans and the related accrued interest are charged off when the
receivable is more than 180 days past due. After a loan is
placed on non-accrual status, any interest previously accrued
but not yet collected is reversed against current income.
Interest is included in income only as received and only after
all previous loan charge-offs have been recovered, so long as
management is satisfied there is no impairment of collateral
values. The loan is returned to accrual status only when the
borrower has brought all past due principal and interest
payments current and, in the opinion of management, the borrower
has demonstrated the ability to make future payments of
principal and interest as scheduled.
31
The following schedule shows non-performing assets and loans
past due 90 days and still accruing interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
|
|
Non-accrual loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
4,700
|
|
|
$
|
5,808
|
|
|
$
|
5,916
|
|
|
$
|
9,547
|
|
|
$
|
19,162
|
|
Real estate construction
|
|
|
7,769
|
|
|
|
120
|
|
|
|
|
|
|
|
685
|
|
|
|
795
|
|
Real estate business
|
|
|
5,628
|
|
|
|
9,845
|
|
|
|
3,149
|
|
|
|
6,558
|
|
|
|
9,372
|
|
Real estate personal
|
|
|
1,095
|
|
|
|
384
|
|
|
|
261
|
|
|
|
458
|
|
|
|
2,447
|
|
Consumer
|
|
|
547
|
|
|
|
551
|
|
|
|
519
|
|
|
|
370
|
|
|
|
747
|
|
|
|
Total non-accrual loans
|
|
|
19,739
|
|
|
|
16,708
|
|
|
|
9,845
|
|
|
|
17,618
|
|
|
|
32,523
|
|
|
|
Real estate acquired in foreclosure
|
|
|
13,678
|
|
|
|
1,515
|
|
|
|
1,868
|
|
|
|
1,157
|
|
|
|
1,162
|
|
|
|
Total non-performing assets
|
|
$
|
33,417
|
|
|
$
|
18,223
|
|
|
$
|
11,713
|
|
|
$
|
18,775
|
|
|
$
|
33,685
|
|
|
|
Non-performing assets as a percentage of total loans
|
|
|
.32
|
%
|
|
|
.19
|
%
|
|
|
.13
|
%
|
|
|
.23
|
%
|
|
|
.41
|
%
|
|
|
Non-performing assets as a percentage of total assets
|
|
|
.21
|
%
|
|
|
.12
|
%
|
|
|
.08
|
%
|
|
|
.13
|
%
|
|
|
.24
|
%
|
|
|
Past due 90 days and still accruing interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
$
|
1,427
|
|
|
$
|
2,814
|
|
|
$
|
1,026
|
|
|
$
|
357
|
|
|
$
|
817
|
|
Real estate construction
|
|
|
768
|
|
|
|
593
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
Real estate business
|
|
|
281
|
|
|
|
1,336
|
|
|
|
1,075
|
|
|
|
520
|
|
|
|
3,934
|
|
Real estate personal
|
|
|
5,131
|
|
|
|
3,994
|
|
|
|
2,998
|
|
|
|
3,165
|
|
|
|
5,750
|
|
Consumer
|
|
|
1,914
|
|
|
|
1,255
|
|
|
|
1,069
|
|
|
|
916
|
|
|
|
1,079
|
|
Home equity
|
|
|
700
|
|
|
|
659
|
|
|
|
429
|
|
|
|
317
|
|
|
|
218
|
|
Student
|
|
|
1
|
|
|
|
1
|
|
|
|
74
|
|
|
|
199
|
|
|
|
1,252
|
|
Consumer credit card
|
|
|
10,664
|
|
|
|
9,724
|
|
|
|
7,417
|
|
|
|
7,311
|
|
|
|
7,735
|
|
Overdrafts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282
|
|
|
|
78
|
|
|
|
Total past due 90 days and still accruing interest
|
|
$
|
20,886
|
|
|
$
|
20,376
|
|
|
$
|
14,088
|
|
|
$
|
13,067
|
|
|
$
|
20,901
|
|
|
|
The effect on interest income in 2007 of loans on non-accrual
status at year end is presented below:
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Gross amount of interest that would have been recorded at
original rate
|
|
$
|
2,987
|
|
Interest that was reflected in income
|
|
|
690
|
|
|
|
Interest income not recognized
|
|
$
|
2,297
|
|
|
|
Total non-accrual loans at year end 2007 rose $3.0 million
over 2006 levels. The increase resulted mainly from an increase
of $7.6 million in construction real estate non-accrual
loans, partly offset by declines in business and business real
estate non-accrual loans of $1.1 million and
$4.2 million, respectively. Foreclosed real estate
increased to a total of $13.7 million at year end 2007.
This balance included $8.7 million in undeveloped land and
residential lots acquired from a single borrower; the
undeveloped land is currently under a sale contract which is
expected to close in the first half of 2008. The balance also
included $3.3 million related to a warehouse building.
Total non-performing assets remain low compared to the
Companys peers, with the non-performing loans to total
loans ratio at .19%. Loans past due 90 days and still
accruing interest increased $510 thousand at year end 2007
compared to 2006.
In addition to the non-accrual loans mentioned above, the
Company also has identified loans for which management has
concerns about the ability of the borrowers to meet existing
repayment terms. These loans are primarily classified as
substandard for regulatory purposes 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
$127.2 million at December 31, 2007 compared with
$67.1 million at December 31, 2006. The balance at
December 31, 2007 included $40.5 million in business
real estate loans, $36.7 million in construction real
estate loans, and $29.2 million in business loans.
32
Within the loan portfolio, certain types of loans are considered
at higher risk of loss due to their terms, location, or special
conditions. Certain personal real estate products have
contractual features that could increase credit exposure in a
market of declining real estate prices, when interest rates are
steadily increasing, or when a geographic area experiences an
economic downturn. Loans might be considered at higher risk when
1) loan terms require a minimum monthly payment that covers
only interest, or
2) loan-to-collateral
value (LTV) ratios are above 80%, with no private mortgage
insurance.
Personal
Real Estate Loans
Out of the Companys $1.5 billion personal real estate
loan portfolio, approximately 3.0% of the current outstandings
are structured with interest only payments. Such loans are
normally made to private banking, high-net worth customers and
marketed with other products. At December 31, 2007, these
loans had a weighted average LTV of 70%, and most had additional
collateral pledged to secure the loan. Private mortgage
insurance is used at times on loans with LTVs greater than
80%. Approximately 11.9% of personal real estate loans with
LTVs greater than 80% do not have such insurance; however,
these loans had high credit scores, averaging 734. The following
table presents information about personal real estate loans with
these risk characteristics for 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
Outstanding at
|
|
|
|
|
|
Outstanding at
|
|
|
|
|
|
|
December 31
|
|
|
% of Loan
|
|
|
December 31
|
|
|
% of Loan
|
|
(Dollars in thousands)
|
|
2007
|
|
|
Portfolio
|
|
|
2006
|
|
|
Portfolio
|
|
|
|
|
Loans with interest only payments
|
|
$
|
42,309
|
|
|
|
3.0
|
%
|
|
$
|
32,175
|
|
|
|
2.3
|
%
|
|
|
Loans with no insurance and LTV:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Between 80% and 90%
|
|
|
94,681
|
|
|
|
6.6
|
|
|
|
84,588
|
|
|
|
5.9
|
|
Between 90% and 100%
|
|
|
72,438
|
|
|
|
5.1
|
|
|
|
66,351
|
|
|
|
4.7
|
|
Over 100%
|
|
|
3,221
|
|
|
|
.2
|
|
|
|
6,953
|
|
|
|
.5
|
|
|
|
Over 80% LTV with no insurance
|
|
|
170,340
|
|
|
|
11.9
|
|
|
|
157,892
|
|
|
|
11.1
|
|
|
|
Total loan portfolio from which above loans were identified
|
|
|
1,431,172
|
|
|
|
|
|
|
|
1,428,475
|
|
|
|
|
|
|
|
Revolving
Home Equity Loans
The Company also has revolving home equity loans that are
generally collateralized by residential real estate. Most of
these loans (93.4%) 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%. The
following tables break out the year end outstanding balances by
product for 2007 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
Unused Portion
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
|
|
|
|
New Lines
|
|
|
|
|
|
of Available Lines
|
|
|
|
|
|
Balances
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
Originated During
|
|
|
|
|
|
at December 31
|
|
|
|
|
|
Over 30
|
|
|
|
|
(Dollars in thousands)
|
|
2007
|
|
|
*
|
|
|
2007
|
|
|
*
|
|
|
2007
|
|
|
*
|
|
|
Days Past Due
|
|
|
*
|
|
|
|
|
Loans with interest only payments
|
|
$
|
429,875
|
|
|
|
93.4
|
%
|
|
$
|
193,158
|
|
|
|
42.0
|
%
|
|
$
|
668,686
|
|
|
|
145.3
|
%
|
|
$
|
2,764
|
|
|
|
.6
|
%
|
|
|
Loans with LTV:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Between 80% and 90%
|
|
|
57,587
|
|
|
|
12.5
|
|
|
|
20,998
|
|
|
|
4.6
|
|
|
|
50,406
|
|
|
|
11.0
|
|
|
|
677
|
|
|
|
.2
|
|
Between 90% and 100%
|
|
|
30,451
|
|
|
|
6.6
|
|
|
|
17,310
|
|
|
|
3.8
|
|
|
|
22,794
|
|
|
|
5.0
|
|
|
|
172
|
|
|
|
|
|
|
|
Over 80% LTV
|
|
|
88,038
|
|
|
|
19.1
|
|
|
|
38,308
|
|
|
|
8.4
|
|
|
|
73,200
|
|
|
|
16.0
|
|
|
|
849
|
|
|
|
.2
|
|
|
|
Total loan portfolio from which above loans were identified
|
|
|
460,200
|
|
|
|
|
|
|
|
203,454
|
|
|
|
|
|
|
|
685,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage of total principal
outstanding revolving home equity loans of $460.2 million at
December 31, 2007. |
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
Unused Portion
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at
|
|
|
|
|
|
New Lines
|
|
|
|
|
|
of Available Lines
|
|
|
|
|
|
Balances
|
|
|
|
|
|
|
December 31
|
|
|
|
|
|
Originated During
|
|
|
|
|
|
at December 31
|
|
|
|
|
|
Over 30
|
|
|
|
|
(Dollars in thousands)
|
|
2006
|
|
|
*
|
|
|
2006
|
|
|
*
|
|
|
2006
|
|
|
*
|
|
|
Days Past Due
|
|
|
*
|
|
|
|
|
Loans with interest only payments
|
|
$
|
407,539
|
|
|
|
92.2
|
%
|
|
$
|
175,226
|
|
|
|
39.7
|
%
|
|
$
|
621,977
|
|
|
|
140.8
|
%
|
|
$
|
2,832
|
|
|
|
.6
|
%
|
|
|
Loans with LTV:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Between 80% and 90%
|
|
|
55,367
|
|
|
|
12.5
|
|
|
|
18,311
|
|
|
|
4.1
|
|
|
|
47,559
|
|
|
|
10.8
|
|
|
|
468
|
|
|
|
.1
|
|
Between 90% and 100%
|
|
|
26,830
|
|
|
|
6.1
|
|
|
|
14,141
|
|
|
|
3.2
|
|
|
|
17,746
|
|
|
|
4.0
|
|
|
|
112
|
|
|
|
|
|
|
|
Over 80% LTV
|
|
|
82,197
|
|
|
|
18.6
|
|
|
|
32,452
|
|
|
|
7.3
|
|
|
|
65,305
|
|
|
|
14.8
|
|
|
|
580
|
|
|
|
.1
|
|
|
|
Total loan portfolio from which above loans were identified
|
|
|
441,851
|
|
|
|
|
|
|
|
201,864
|
|
|
|
|
|
|
|
646,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage of total principal
outstanding revolving home equity loans of $441.9 million
at December 31, 2006. |
Other
Loans Collateralized by Residential Real Estate
In addition to the residential real estate mortgage loans and
the revolving floating rate line product discussed above,
Commerce offers a third choice to those consumers looking for a
fixed rate loan and a fixed maturity date. This fixed rate home
equity loan, typically for home repair or remodeling, 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 totaled
$152 million and $134 million at December 31,
2007 and 2006, respectively. Very few of these loans are made
without mortgage insurance and at more than 80% LTV, as was true
at December 31, 2007 when there were no outstanding
balances in that category. Occasionally these loans are written
with interest only monthly payments and a balloon payoff at
maturity; there were only 10 loans carrying 2.3% of the
outstanding principal in this portfolio with such terms at year
end. The delinquency history on this product has been very
positive, as only $1.3 million, or .9%, and $973 thousand,
or .7%, of the portfolio was over 30 days past due at year
end 2007 and 2006, respectively.
Management does not believe these loans collateralized by real
estate represent any unusual concentrations of risk, as
evidenced by low net charge-offs in 2007 of $139 thousand in
personal real estate loans, $136 thousand in fixed rate home
equity loans and $446 thousand in revolving home equity loans.
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 majority of the personal real estate portfolio (95.1%)
consists of loans written within the Companys familiar
branch network territories of Missouri, Kansas, and Illinois.
Customers credit scoring requirements also play an
important part in credit line approvals and they can be
increased as another means of mitigating risk when considering
high LTV agreements. The Company offers no subprime loan
products and has purchased no brokered loans.
There were no loan concentrations of multiple borrowers in
similar activities at December 31, 2007 which exceeded 10%
of total loans. The Companys aggregate legal lending limit
to any single or related borrowing entities is in excess of
$204 million. The largest exposures, consisting of either
outstanding balances or available lines of credit, generally do
not exceed $70 million.
Investment
Securities Analysis
Investment securities are comprised of securities which are
available for sale, non-marketable, and held for trading. During
2007, total investment securities decreased $230.6 million
to $3.2 billion (excluding unrealized gains/losses)
compared to $3.5 billion at the previous year end. The
decrease was mainly due to sales of asset-backed (home equity,
auto and credit card) securities, state and municipal
obligations, and publicly traded stock, resulting in proceeds of
$239.5 million. During 2007, securities of
$1.1 billion were purchased, excluding those acquired in
bank acquisitions, and were comprised of $27.9 million in
state and municipal obligations, $548.4 million in
mortgage-backed securities, $195.1 million in other
asset-backed
34
securities, and $220.0 in U.S. government and federal
agency securities. Maturities and paydowns amounted to
$1.1 billion. The average tax equivalent yield on total
investment securities was 4.75% in 2007 and 4.41% in 2006.
At December 31, 2007, the fair value of available for sale
securities was $3.2 billion, and included a net unrealized
gain in fair value of $48.4 million, compared to a net gain
of $17.2 million at December 31, 2006. The amount of
the related after tax unrealized gain reported in
stockholders equity was $30.0 million at year end
2007. The unrealized gain in fair value was the result of
unrealized gains of $52.0 million on marketable equity
securities held by the Parent, partly offset by unrealized
losses of $4.3 million in the bank portfolios. Most of the
unrealized loss in fair value in the bank portfolios related to
mortgage and other asset-backed securities. The fair value of
the available for sale portfolio will vary according to changes
in market interest rates and the mix and duration of investments
in the portfolio. Available for sale securities which mature
during the next 12 months total approximately
$586 million, and management expects these proceeds to meet
the expected liquidity needs of the Company.
Available for sale investment securities at year end for the
past two years are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Amortized Cost
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations*
|
|
$
|
359,118
|
|
|
$
|
480,343
|
|
State and municipal obligations
|
|
|
498,628
|
|
|
|
593,816
|
|
Mortgage-backed securities
|
|
|
1,965,290
|
|
|
|
1,809,741
|
|
Other asset-backed securities
|
|
|
182,064
|
|
|
|
358,114
|
|
Other debt securities
|
|
|
21,397
|
|
|
|
36,528
|
|
Equity securities
|
|
|
90,083
|
|
|
|
119,723
|
|
|
|
Total available for sale investment securities
|
|
$
|
3,116,580
|
|
|
$
|
3,398,265
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations*
|
|
$
|
360,317
|
|
|
$
|
474,218
|
|
State and municipal obligations
|
|
|
503,363
|
|
|
|
594,824
|
|
Mortgage-backed securities
|
|
|
1,960,120
|
|
|
|
1,782,443
|
|
Other asset-backed securities
|
|
|
180,365
|
|
|
|
354,465
|
|
Other debt securities
|
|
|
21,327
|
|
|
|
36,009
|
|
Equity securities
|
|
|
139,528
|
|
|
|
173,481
|
|
|
|
Total available for sale investment securities
|
|
$
|
3,165,020
|
|
|
$
|
3,415,440
|
|
|
|
|
|
|
|
|
*
|
This category includes
obligations of government sponsored enterprises, such as FNMA
and FHLMC, which are not backed by the full faith and credit of
the United States government. Such obligations are separately
disclosed in Note 4 on Investment Securities in the
consolidated financial statements.
|
|
Many of the Companys investments in mortgage-backed
securities are collateralized by U.S. federal agency
securities. At December 31, 2007, these comprised 78% of
the total mortgage-backed securities. The Companys
investment securities portfolio does not have any exposure to
subprime or collateralized debt obligation instruments.
Other available for sale debt securities, as shown in the table
above, include corporate bonds, notes and commercial paper.
Available for sale equity securities are comprised of short-term
investments in money market mutual funds and publicly traded
stock, which totaled $58.9 million and $80.6 million,
respectively, at December 31, 2007. These investments are
primarily held by the Parent.
A summary of maturities by category of investment securities and
the weighted average yield for each range of maturities as of
December 31, 2007, is presented in Note 4 on
Investment Securities in the consolidated financial statements.
At December 31, 2007, mortgage and asset-backed securities
comprised 65% of the investment portfolio with a weighted
average yield of 4.97% and an estimated average maturity of
2.8 years; state and municipal obligations comprised 15%
with a weighted average tax equivalent yield of
35
3.72% and an estimated average maturity of 4.0 years; and
U.S. government and federal agency obligations comprised
11% with a weighted average yield of 4.03% and an estimated
average maturity of 1.0 years.
Non-marketable securities, which totaled $105.5 million at
December 31, 2007, included $60.2 million in Federal
Reserve Bank stock and Federal Home Loan Bank (Des Moines) stock
held by bank subsidiaries in accordance with debt and regulatory
requirements. These are restricted securities which, lacking a
market, are carried at cost. Other non-marketable securities
also include private equity and venture capital securities which
are carried at estimated fair value.
The Company engages in private equity and venture capital
activities through direct private equity investments and through
three private equity/venture capital subsidiaries. The
subsidiaries hold investments in various portfolio concerns,
which are carried at fair value and totaled $37.6 million
at December 31, 2007. Outside ownership interests in these
partnerships were $2.1 million at December 31, 2007.
The Company plans to fund an additional $11.1 million to
the newest of these partnerships in the future. In addition to
investments held by its private equity/venture capital
subsidiaries, the Parent directly holds investments in several
private equity concerns, which totaled $7.0 million at year
end 2007. Most of the venture capital and private equity
investments are not readily marketable. While the nature of
these investments carries a higher degree of risk than the
normal lending portfolio, this risk is mitigated by the overall
size of the investments and oversight provided by management,
which believes the potential for long-term gains in these
investments outweighs the potential risks.
Non-marketable securities at year end for the past two years are
shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
Debt securities
|
|
$
|
17,055
|
|
|
$
|
17,225
|
|
Equity securities
|
|
|
88,462
|
|
|
|
56,982
|
|
|
|
Total non-marketable investment securities
|
|
$
|
105,517
|
|
|
$
|
74,207
|
|
|
|
Deposits
and Borrowings
Deposits are the primary funding source for the Companys
banks, and are acquired from a broad base of local markets,
including both individual and corporate customers. Total
deposits were $12.6 billion at December 31, 2007,
compared to $11.7 billion last year, reflecting an increase
of $806.7 million, or 6.9%. Average deposits grew by
$758.2 million, or 6.8%, in 2007 compared to 2006 with most
of this growth centered in money market accounts and
certificates of deposit. The Companys premium money market
deposits grew on average by $260.1 million, or 10.9%, in
2007 compared to 2006, and other interest bearing transaction
and savings accounts grew by $18.6 million. Certificates of
deposit with balances under $100,000 grew on average by
$282.1 million, or 13.6%, while certificates of deposit
over $100,000 grew $192.0 million, or 14.9%. The recent
bank acquisitions in 2007 and 2006 contributed
$362.8 million to the growth in average deposits during
2007.
The following table shows year end deposits by type as a
percentage of total deposits.
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Non-interest bearing demand
|
|
|
11.3
|
%
|
|
|
11.2
|
%
|
Savings, interest checking and money market
|
|
|
57.0
|
|
|
|
58.6
|
|
Time open and C.D.s of less than $100,000
|
|
|
18.9
|
|
|
|
19.6
|
|
Time open and C.D.s of $100,000 and over
|
|
|
12.8
|
|
|
|
10.6
|
|
|
|
Total deposits
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
Core deposits (defined as all non-interest and interest bearing
deposits, excluding short-term C.D.s of $100,000 and over)
supported 75% of average earning assets in 2007 and 77% in 2006.
Average balances by major deposit category for the last six
years appear at the end of this discussion. A maturity schedule
of time
36
deposits outstanding at December 31, 2007 is included in
Note 7 on Deposits in the consolidated financial statements.
The Companys primary borrowings consist of federal funds
purchased and repurchase agreements. Balances in these accounts
can fluctuate significantly on a
day-to-day
basis, and generally have overnight maturities. Balances
outstanding at year end 2007 were $1.2 billion, a
$532.1 million decrease from $1.8 billion outstanding
at year end 2006. Most of this decline occurred in federal funds
purchased, as the Company reduced its reliance on these
borrowings in the fourth quarter of 2007. On an average basis,
federal funds purchased declined $75.9 million in 2007
compared to 2006, which was offset by an increase of
$316.9 million in repurchase agreements. The average rate
paid on federal funds purchased and repurchase agreements was
4.92% during 2007 and 4.82% during 2006.
Most of the Companys long-term debt is comprised of fixed
rate advances from the Federal Home Loan Bank (FHLB). As the
Company diversified its funding sources during 2007, these
borrowings rose from $28.2 million at December 31,
2006 to $561.5 million outstanding at December 31,
2007. Approximately $489.5 million of the outstanding
balance is due or may be called for early repayment in 2008
through 2010. The average rate paid on FHLB advances was 4.68%
during 2007 and 4.88% during 2006. The weighted average year end
rate on outstanding FHLB advances at December 31, 2007 was
4.52%.
Liquidity
and Capital Resources
Liquidity
Management
Liquidity is managed within the Company in order to satisfy cash
flow requirements of deposit and borrowing customers while at
the same time meeting its own cash flow needs. The Company
maintains its liquidity position by providing a variety of
sources including:
|
|
|
|
|
A portfolio of liquid assets including marketable investment
securities and overnight investments,
|
|
|
|
A large customer deposit base and limited exposure to large,
volatile certificates of deposit,
|
|
|
|
Lower long-term borrowings that might place a demand on Company
cash flow,
|
|
|
|
Relatively low loan to deposit ratio promoting strong liquidity,
|
|
|
|
Excellent debt ratings from both Standard &
Poors and Moodys national rating services, and
|
|
|
|
Available borrowing capacity from outside sources.
|
The Companys most liquid assets include available for sale
marketable investment securities, federal funds sold, and
securities purchased under agreements to resell (resale
agreements). At December 31, 2007 and 2006, such assets
were as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
Available for sale investment securities
|
|
$
|
3,165,020
|
|
|
$
|
3,415,440
|
|
Federal funds sold and resale agreements
|
|
|
655,165
|
|
|
|
527,816
|
|
|
|
Total
|
|
$
|
3,820,185
|
|
|
$
|
3,943,256
|
|
|
|
Federal funds sold and resale agreements normally have overnight
maturities and are used for general daily liquidity purposes.
The Companys available for sale investment portfolio has
maturities of approximately $586 million which come due
during 2008 and offers substantial resources to meet either new
loan demand or reductions in the Companys deposit funding
base. Furthermore, in the normal course of business the Company
pledges portions of its investment securities portfolio to
secure public fund deposits, securities sold under agreements to
repurchase, trust funds, and borrowing capacity at the Federal
Reserve. Total pledged investment securities for these purposes
comprised 63% of the available for sale investment portfolio,
leaving approximately $1.2 billion of unpledged securities.
Additionally, the Company maintains a large base of core
customer deposits, defined as demand, interest checking,
savings, and money market deposit accounts. At December 31,
2007, such deposits totaled
37
$8.6 billion and represented 68% of the Companys
total deposits. At December 31, 2006 these deposits totaled
$8.2 billion. These core deposits are normally less
volatile, often with customer relationships tied to other
products offered by the Company promoting long lasting
relationships and stable funding sources. Time open and
certificates of deposit of $100,000 or greater totaled
$1.6 billion and $1.3 billion at December 31,
2007 and 2006, respectively. These deposits are normally
considered more volatile and higher costing, and comprised 12.8%
and 10.7% of total deposits at December 31, 2007 and 2006,
respectively.
At December 31, 2007 and 2006, the Companys
borrowings were comprised of federal funds purchased, securities
sold under agreements to repurchase, and longer-term debt as
follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
Federal funds purchased
|
|
$
|
126,077
|
|
|
$
|
715,475
|
|
Securities sold under agreements to repurchase
|
|
|
1,113,142
|
|
|
|
1,055,807
|
|
Other borrowings
|
|
|
583,636
|
|
|
|
53,934
|
|
|
|
Total
|
|
$
|
1,822,855
|
|
|
$
|
1,825,216
|
|
|
|
Federal funds purchased are funds generally borrowed overnight
and are obtained mainly from upstream correspondent banks to
assist in balancing overall bank liquidity needs. Securities
sold under agreements to repurchase are comprised mainly of
non-insured customer funds, normally with maturities of
90 days or less, and the Company pledges portions of its
own investment portfolio to secure these deposits. These funds
are offered to customers wishing to earn interest in highly
liquid balances and are used by the Company as a funding source
considered to be stable, but short-term in nature.
The Companys other borrowings are comprised mainly of
advances from the FHLB, debentures funded by trust preferred
securities, and debt related to the Companys venture
capital business. At December 31, 2007 and 2006, debt from
the FHLB amounted to $561.5 million and $28.2 million,
respectively. The increase in FHLB borrowings during 2007 was
due to new advances of $542.0 million. Nearly all
outstanding advances have fixed interest rates. Advances of
$10.6 million mature in 2008, while an additional
$200.0 million may be called for early repayment during
2008. Debt called or maturing in 2008 may be refinanced or
may be repaid with funds generated by maturities of loans or
investment securities, or by deposit growth or other types of
borrowings. The overall long-term debt position of the Company
is small relative to the Companys overall liability
position.
In addition to the sources and uses of funds noted above, the
Company had an average loans to deposits ratio of 88% at
December 31, 2007, which is considered in the banking
industry to be a conservative measure of good liquidity. Also,
the Company receives outside ratings from both
Standard & Poors and Moodys on both the
consolidated company and its lead bank, Commerce Bank, N.A.
(Missouri). These ratings are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard & Poors
|
|
|
Moodys
|
|
|
|
Commerce Bancshares, Inc.
|
|
|
|
|
|
|
|
|
Counterparty rating
|
|
|
A-1
|
|
|
|
Aa2
|
|
Commercial paper rating
|
|
|
A-1
|
|
|
|
|
|
Short-term
|
|
|
|
|
|
|
P-1
|
|
Commerce Bank, N. A.
|
|
|
|
|
|
|
|
|
Counterparty rating
|
|
|
A+
|
|
|
|
|
|
Senior long-term rating
|
|
|
A+
|
|
|
|
|
|
Long-term bank deposits
|
|
|
|
|
|
|
Aa2
|
|
Issuer rating
|
|
|
|
|
|
|
Aa2
|
|
Short-term
|
|
|
|
|
|
|
P-1
|
|
|
|
The Company considers these ratings to be indications of a sound
capital base and good liquidity, and believes that these ratings
would enable its commercial paper to be readily marketable
should the need arise. No commercial paper was outstanding over
the past three years. The Companys excellent credit
standing
38
has resulted in lead bank ratings which are significantly higher
than those of many of its peers in the community banking arena.
In addition to the sources of liquidity as noted above, the
Company has temporary borrowing capacity at the Federal Reserve
discount window of $1.1 billion, for which it has pledged
$1.1 billion in loans and $246.0 million in investment
securities. Also, because of its lack of significant long-term
debt, the Company believes that, through its Capital Markets
Group or in other public debt markets, it could generate
additional liquidity from sources such as jumbo certificates of
deposit, privately-placed corporate notes or other debt.
The cash flows from the operating, investing and financing
activities of the Company resulted in a net increase in cash and
cash equivalents of $173.9 million in 2007, as reported in
the consolidated statements of cash flows on page 59 of
this report. Operating activities, consisting mainly of net
income adjusted for certain non-cash items, provided cash flow
of $335.7 million and has historically been a stable source
of funds. Investing activities, consisting mainly of purchases
and maturities of available for sale investment securities and
changes in the level of the Companys loan portfolio, used
total cash of $578.4 million in 2007. Investing activities
are somewhat unique to financial institutions in that, while
large sums of cash flow are normally used to fund growth in
investment securities, loans, or other bank assets, they are
normally dependent on the financing activities described below.
Financing activities provided total cash of $416.6 million,
resulting from a $632.2 million increase in deposits and
additional FHLB borrowings of $542.0 million. Partly
offsetting these cash inflows were a decline in short-term
borrowings of $543.0 million, treasury stock purchases of
$128.6 million, and cash dividend payments of
$68.9 million. Future short-term liquidity needs for daily
operations are not expected to vary significantly and the
Company maintains adequate liquidity to meet these cash flows.
The Companys sound equity base, along with its low debt
level, common and preferred stock availability, and excellent
debt ratings, provide several alternatives for future financing.
Future acquisitions may utilize partial funding through one or
more of these options.
Cash used for treasury stock purchases, net of cash received in
connection with stock programs, and dividend payments were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Purchase of treasury stock
|
|
$
|
128.6
|
|
|
$
|
135.0
|
|
|
$
|
234.5
|
|
Exercise of stock options and sales to affiliate non- employee
directors
|
|
|
(13.7
|
)
|
|
|
(7.3
|
)
|
|
|
(18.4
|
)
|
Cash dividends
|
|
|
68.9
|
|
|
|
65.8
|
|
|
|
63.4
|
|
|
|
Total
|
|
$
|
183.8
|
|
|
$
|
193.5
|
|
|
$
|
279.5
|
|
|
|
The Parent faces unique liquidity constraints due to legal
limitations on its ability to borrow funds from its banking
subsidiaries. The Parent obtains funding to meet its obligations
from two main sources: dividends received from bank and non-bank
subsidiaries (within regulatory limitations) and from management
fees charged to subsidiaries as reimbursement for services
provided by the Parent, as presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Dividends received from subsidiaries
|
|
$
|
179.5
|
|
|
$
|
140.5
|
|
|
$
|
220.0
|
|
Management fees
|
|
|
39.1
|
|
|
|
37.7
|
|
|
|
33.0
|
|
|
|
Total
|
|
$
|
218.6
|
|
|
$
|
178.2
|
|
|
$
|
253.0
|
|
|
|
These sources of funds are used mainly to purchase treasury
stock, pay cash dividends on outstanding common stock, and pay
general operating expenses. At December 31, 2007, the
Parents available for sale investment securities totaled
$121.5 million, at fair value. The portfolio is liquid, and
consisted of $58.8 million in money market mutual funds and
$61.2 million in publicly traded common stock. To support
its various funding commitments, the Parent maintains a
$20.0 million line of credit with its lead subsidiary bank.
Borrowings under the line were $10.0 million at
December 31, 2007.
39
Company senior management is responsible for measuring and
monitoring the liquidity profile of the organization with
oversight by the Companys Asset/Liability Committee
(ALCO). This is done through a series of controls, including a
written Contingency Funding Policy and risk monitoring
procedures, including daily, weekly and monthly reporting. In
addition, the Company prepares forecasts which project changes
in the balance sheet affecting liquidity, and which allow the
Company to better plan for forecasted changes.
Capital
Management
The Company maintains strong regulatory capital ratios,
including those of its principal banking subsidiaries, in excess
of the well-capitalized guidelines under federal
banking regulations. The Companys capital ratios at the
end of the last three years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Well-Capitalized
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Guidelines
|
|
|
|
|
Risk-based capital ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital
|
|
|
10.31
|
%
|
|
|
11.25
|
%
|
|
|
12.21
|
%
|
|
|
6.00
|
%
|
Total capital
|
|
|
11.49
|
|
|
|
12.56
|
|
|
|
13.63
|
|
|
|
10.00
|
|
Leverage ratio
|
|
|
8.76
|
|
|
|
9.05
|
|
|
|
9.43
|
|
|
|
5.00
|
|
Common equity/assets
|
|
|
9.54
|
|
|
|
9.68
|
|
|
|
9.87
|
|
|
|
|
|
Dividend payout ratio
|
|
|
33.76
|
|
|
|
30.19
|
|
|
|
28.92
|
|
|
|
|
|
|
|
The components of the Companys regulatory risked-based
capital and risk-weighted assets at the end of the last three
years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Regulatory risk-based capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier I capital
|
|
$
|
1,375,035
|
|
|
$
|
1,345,378
|
|
|
$
|
1,295,898
|
|
Tier II capital
|
|
|
157,154
|
|
|
|
157,008
|
|
|
|
150,510
|
|
Total capital
|
|
|
1,532,189
|
|
|
|
1,502,386
|
|
|
|
1,446,408
|
|
Total risk-weighted assets
|
|
|
13,330,968
|
|
|
|
11,959,757
|
|
|
|
10,611,322
|
|
|
|
In February 2008, the Board of Directors authorized the Company
to purchase additional shares of common stock under its
repurchase program, which brought the total purchase
authorization to 3,000,000 shares. The Company has
routinely used these shares to fund the Companys annual 5%
stock dividend and various stock compensation programs. During
2007, approximately 2,699,000 shares were acquired under a
prior Board authorization at an average price of $47.66 per
share.
The Companys common stock dividend policy reflects its
earnings outlook, desired payout ratios, the need to maintain
adequate capital levels and alternative investment options. Per
share cash dividends paid by the Company increased 7.1% in 2007
compared with 2006.
Commitments,
Contractual Obligations, and Off-Balance Sheet
Arrangements
Various commitments and contingent liabilities arise in the
normal course of business, which are not required to be recorded
on the balance sheet. The most significant of these are loan
commitments, totaling $8.0 billion (including approximately
$3.8 billion in unused approved credit card lines), and the
contractual amount of standby letters of credit, totaling
$441.4 million at December 31, 2007. The Company has
various other financial instruments with off-balance sheet risk,
such as commercial letters of credit and commitments to purchase
and sell when-issued securities. Since many commitments expire
unused or only partially used, these totals do not necessarily
reflect future cash requirements. Management does not anticipate
any material losses arising from commitments and contingent
liabilities and believes there are no material commitments to
extend credit that represent risks of an unusual nature.
40
A table summarizing contractual cash obligations of the Company
at December 31, 2007 and the expected timing of these
payments follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
After One Year
|
|
|
After Three
|
|
|
After
|
|
|
|
|
|
|
In One Year
|
|
|
Through Three
|
|
|
Years Through
|
|
|
Five
|
|
|
|
|
(In thousands)
|
|
or Less
|
|
|
Years
|
|
|
Five Years
|
|
|
Years
|
|
|
Total
|
|
|
|
|
Long-term debt obligations, including structured repurchase
agreements*
|
|
$
|
10,603
|
|
|
$
|
878,910
|
|
|
$
|
75,529
|
|
|
$
|
118,594
|
|
|
$
|
1,083,636
|
|
Operating lease obligations
|
|
|
5,783
|
|
|
|
9,110
|
|
|
|
5,524
|
|
|
|
24,053
|
|
|
|
44,470
|
|
Purchase obligations
|
|
|
25,289
|
|
|
|
21,391
|
|
|
|
15,319
|
|
|
|
5,500
|
|
|
|
67,499
|
|
Time open and C.D.s*
|
|
|
3,673,515
|
|
|
|
260,408
|
|
|
|
48,018
|
|
|
|
396
|
|
|
|
3,982,337
|
|
|
|
Total
|
|
$
|
3,715,190
|
|
|
$
|
1,169,819
|
|
|
$
|
144,390
|
|
|
$
|
148,543
|
|
|
$
|
5,177,942
|
|
|
|
|
|
* |
Includes principal payments
only
|
As of December 31, 2007, the Company has unrecognized tax
benefits that, if recognized, would impact the effective tax
rate in future periods. Due to the uncertainty of the amounts to
be ultimately paid as well as the timing of such payments, all
uncertain tax liabilities that have not been paid have been
excluded from the table above. Further detail on the impact of
income taxes is located in Note 9 of the consolidated
financial statements.
The Company has investments in several low-income housing
partnerships within the area served by the banking affiliates.
At December 31, 2007, these investments totaled
$3.1 million and were recorded as other assets in the
Companys consolidated balance sheet. These partnerships
supply funds for the construction and operation of apartment
complexes that provide affordable housing to that segment of the
population with lower family income. If these developments
successfully attract a specified percentage of residents falling
in that lower income range, state
and/or
federal income tax credits are made available to the partners.
The tax credits are normally recognized over ten years, and they
play an important part in the anticipated yield from these
investments. In order to continue receiving the tax credits each
year over the life of the partnership, the low-income residency
targets must be maintained. Under the terms of the partnership
agreements, the Company has a commitment to fund a specified
amount that will be due in installments over the life of the
agreements, which ranges from 10 to 15 years. These
unfunded commitments are recorded as liabilities on the
Companys consolidated balance sheet, and aggregated
$2.3 million at December 31, 2007.
The Company periodically purchases various state tax credits
arising from third-party property redevelopment. Most of the tax
credits are resold to third parties, although some may be
retained for use by the Company. During 2007, purchases and
sales of tax credits amounted to $38.7 million and
$40.5 million, respectively, generating combined gains on
sales and tax savings of $2.0 million. At December 31,
2007, the Company had outstanding purchase commitments totaling
$102.6 million.
The Parent has investments in several private equity concerns
which are classified as non-marketable securities in the
Companys consolidated balance sheet. Under the terms of
the agreements with six of these concerns, the Parent has
unfunded commitments outstanding of $2.1 million at
December 31, 2007. The Parent also has commitments to fund
$11.1 million to venture capital subsidiaries over the next
several years.
Interest
Rate Sensitivity
The Companys Asset/Liability Management Committee (ALCO)
measures and manages the Companys interest rate risk on a
monthly basis to identify trends and establish strategies to
maintain stability in earnings throughout various rate
environments. Analytical modeling techniques provide management
insight into the Companys exposure to changing rates.
These techniques include net interest income simulations and
market value analyses. Management has set guidelines specifying
acceptable limits within which net interest income and market
value may change under various rate change scenarios. These
measurement tools indicate that the Company is currently within
acceptable risk guidelines as set by management.
41
The Companys main interest rate measurement tool, income
simulations, projects net interest income under various rate
change scenarios in order to quantify the magnitude and timing
of potential rate-related changes. Income simulations are able
to capture option risks within the balance sheet where expected
cash flows may be altered under various rate environments.
Modeled rate movements include shocks, ramps and
twists. Shocks are intended to capture interest rate risk
under extreme conditions by immediately shifting rates up and
down, while ramps measure the impact of gradual changes and
twists measure yield curve risk. The size of the balance sheet
is assumed to remain constant so that results are not influenced
by growth predictions. The table below shows the expected effect
that gradual basis point shifts in the LIBOR/swap curve over a
twelve month period would have on the Companys net
interest income, given a static balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
September 30, 2007
|
|
|
December 31, 2006
|
|
|
|
Increase
|
|
|
% of Net Interest
|
|
|
Increase
|
|
|
% of Net Interest
|
|
|
Increase
|
|
|
% of Net Interest
|
|
(Dollars in millions)
|
|
(Decrease)
|
|
|
Income
|
|
|
(Decrease)
|
|
|
Income
|
|
|
(Decrease)
|
|
|
Income
|
|
|
|
|
200 basis points rising
|
|
$
|
2.3
|
|
|
|
.40
|
%
|
|
$
|
(1.2
|
)
|
|
|
(.21
|
)%
|
|
$
|
(4.3
|
)
|
|
|
(.80
|
)%
|
100 basis points rising
|
|
|
2.0
|
|
|
|
.34
|
|
|
|
|
|
|
|
|
|
|
|
(.9
|
)
|
|
|
(.17
|
)
|
100 basis points falling
|
|
|
(1.2
|
)
|
|
|
(.20
|
)
|
|
|
(1.6
|
)
|
|
|
(.29
|
)
|
|
|
(.6
|
)
|
|
|
(.10
|
)
|
200 basis points falling
|
|
|
(5.5
|
)
|
|
|
(.95
|
)
|
|
|
(2.8
|
)
|
|
|
(.50
|
)
|
|
|
(.7
|
)
|
|
|
(.13
|
)
|
|
|
The Company also employs a sophisticated simulation technique
known as a stochastic income simulation. This technique allows
management to see a range of results from hundreds of income
simulations. The stochastic simulation creates a vector of
potential rate paths around the markets best guess
(forward rates) concerning the future path of interest rates and
allows rates to randomly follow paths throughout the vector.
This allows for the modeling of non-biased rate forecasts around
the market consensus. Results give management insight into a
likely range of rate-related risk as well as worst and best-case
rate scenarios.
The Company also uses market value analyses to help identify
longer-term risks that may reside on the balance sheet. This is
considered a secondary risk measurement tool by management. The
Company measures the market value of equity as the net present
value of all asset and liability cash flows discounted along the
current LIBOR/swap curve plus appropriate market risk spreads.
It is the change in the market value of equity under different
rate environments, or effective duration, that gives insight
into the magnitude of risk to future earnings due to rate
changes. Market value analyses also help management understand
the price sensitivity of non-marketable bank products under
different rate environments.
The Companys modeling of interest rate risk continues to
show there is modest interest rate risk exposure. The table
reflects a decrease in the exposure of the Companys net
interest income to rising rates at year end 2007, but increasing
exposure to falling rates. At December 31, 2007, the
Company calculated that a gradual increase in rates of
100 basis points would increase net interest income by
$2.0 million, or .34% of total net interest income,
compared with a reduction of $900 thousand calculated at
December 31, 2006. Also, a 200 basis point gradual
rise in rates calculated at December 31, 2007 would
increase net interest income by $2.3 million, or .40%, up
from a reduction of $4.3 million last year. The
Companys exposure to falling rates increased at
December 31, 2007, as under a 100 basis point falling
rate scenario, net interest income would decrease
$1.2 million compared to a $600 thousand decline at
December 31, 2006. In addition, under a 200 basis
point decrease, net interest income would decline
$5.5 million compared with $700 thousand in the prior year.
As shown in the table above, the Companys interest rate
simulations prepared at December 31, 2007 reflect a
reduction in risk to rising interest rates when compared to the
same period in the prior year. This is partly the result of
higher average loan balances in 2007 compared to the previous
year (average increase of $1.1 billion) which contain both
variable and fixed rate loans, but with relatively short
maturities. Additionally, the Companys portfolio of
investment securities, which have mainly fixed rates, decreased
on average $189.8 million during 2007, thus reducing the
percentage of overall fixed rate assets. Federal funds sold and
resale agreements, which generally have overnight maturities,
increased on average $227.8 million, allowing for greater
re-pricing opportunities in a rising rate environment. Growth in
average interest bearing deposits during 2007 totaled
$752.9 million but was mostly comprised of certificates of
deposit with
42
fixed rates. The same factors which reduced interest rate risk
in a rising rate environment also increased overall risk in a
falling rate environment, leaving the Company subject to lower
levels of net interest income. The overall increase in 2007 in
average loans mentioned above allows for faster re-pricing
downward under falling rate assumptions and, while falling rates
can generally lower overall interest costs, the fact that many
of the Companys core deposits are already at low rates
suggests that large decreases in rates may not be realized on
certain deposit products. Also, the increases in average
balances of fixed rate certificates of deposit suggests that a
lower rate environment will only slowly reduce interest costs on
these instruments. Mitigating some of these effects of lower
rates is a relatively large investment securities portfolio
which re-prices slowly, coupled with a higher average balance of
borrowings of federal funds purchased and repurchase agreements
which re-price daily.
Through review and oversight by the ALCO, the Company attempts
to engage in strategies that neutralize interest rate risk as
much as possible. The Companys balance sheet remains
well-diversified with moderate interest rate risk and is
well-positioned for future growth. The use of derivative
products is limited and the deposit base is strong and stable.
The loan to deposit ratio is still at relatively low levels,
which should present the Company with opportunities to fund
future loan growth at reasonable costs.
Derivative
Financial Instruments
The Company maintains an overall interest rate risk management
strategy that permits the use of derivative instruments to
modify exposure to interest rate risk. The Companys
interest rate risk management strategy includes the ability to
modify the re-pricing characteristics of certain assets and
liabilities so that changes in interest rates do not adversely
affect the net interest margin and cash flows. Interest rate
swaps are used on a limited basis as part of this strategy. As
of December 31, 2007, the Company had entered into two
interest rate swaps with a notional amount of $13.4 million
which are designated as fair value hedges of certain fixed rate
loans. The Company also sells swap contracts to customers who
wish to modify their interest rate sensitivity. The Company
offsets the interest rate risk of these swaps by purchasing
matching contracts with offsetting pay/receive rates from other
financial institutions. Because of the matching terms of the
offsetting contracts, the net effect of changes in the fair
value of the paired swaps is minimal. The notional amount of
these types of swaps at December 31, 2007 was
$295.0 million.
The Company enters into foreign exchange derivative instruments
as an accommodation to customers and offsets the related foreign
exchange risk by entering into offsetting third-party forward
contracts with approved reputable counterparties. In addition,
the Company takes proprietary positions in such contracts based
on market expectations. This trading activity is managed within
a policy of specific controls and limits. Most of the foreign
exchange contracts outstanding at December 31, 2007 mature
within 90 days, and the longest period to maturity is
10 months.
Additionally, interest rate lock commitments issued on
residential mortgage loans held for resale are considered
derivative instruments. The interest rate exposure on these
commitments is economically hedged primarily with forward sale
contracts in the secondary market.
In all of these contracts, the Company is exposed to credit risk
in the event of nonperformance by counterparties, who may be
bank customers or other financial institutions. The Company
controls the credit risk of its financial contracts through
credit approvals, limits and monitoring procedures. Because the
Company generally enters into transactions only with high
quality counterparties, there have been no losses associated
with counterparty nonperformance on derivative financial
instruments.
43
The following table summarizes the notional amounts and
estimated fair values of the Companys derivative
instruments at December 31, 2007 and 2006. Notional amount,
along with the other terms of the derivative, is used to
determine the amounts to be exchanged between the
counterparties. Because the notional amount does not represent
amounts exchanged by the parties, it is not a measure of loss
exposure related to the use of derivatives nor of exposure to
liquidity risk. Positive fair values are recorded in other
assets and negative fair values are recorded in other
liabilities in the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Positive
|
|
|
Negative
|
|
|
|
|
|
Positive
|
|
|
Negative
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Fair
|
|
|
Notional
|
|
|
Fair
|
|
|
Fair
|
|
(In thousands)
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
Value
|
|
|
|
|
Interest rate contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap contracts
|
|
$
|
308,361
|
|
|
$
|
4,766
|
|
|
$
|
(6,333
|
)
|
|
$
|
181,464
|
|
|
$
|
1,185
|
|
|
$
|
(2,003
|
)
|
Option contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,970
|
|
|
|
10
|
|
|
|
(10
|
)
|
Credit risk participation agreements
|
|
|
25,389
|
|
|
|
|
|
|
|
(174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward contracts
|
|
|
12,212
|
|
|
|
105
|
|
|
|
(149
|
)
|
|
|
16,117
|
|
|
|
29
|
|
|
|
(20
|
)
|
Option contracts
|
|
|
3,120
|
|
|
|
9
|
|
|
|
(9
|
)
|
|
|
2,670
|
|
|
|
16
|
|
|
|
(16
|
)
|
Mortgage loan commitments
|
|
|
7,123
|
|
|
|
18
|
|
|
|
(10
|
)
|
|
|
11,529
|
|
|
|
|
|
|
|
(43
|
)
|
Mortgage loan forward sale contracts
|
|
|
15,017
|
|
|
|
25
|
|
|
|
(34
|
)
|
|
|
21,269
|
|
|
|
60
|
|
|
|
(14
|
)
|
|
|
Total at December 31
|
|
$
|
371,222
|
|
|
$
|
4,923
|
|
|
$
|
(6,709
|
)
|
|
$
|
240,019
|
|
|
$
|
1,300
|
|
|
$
|
(2,106
|
)
|
|
|
Operating
Segments
The Company segregates financial information for use in
assessing its performance and allocating resources among three
operating segments. The results are determined based on the
Companys management accounting process, which assigns
balance sheet and income statement items to each responsible
segment. These segments are defined by customer base and product
type. The management process measures the performance of the
operating segments based on the management structure of the
Company and is not necessarily comparable with similar
information for any other financial institution. Each segment is
managed by executives who, in conjunction with the Chief
Executive Officer, make strategic business decisions regarding
that segment. The three reportable operating segments are
Consumer, Commercial and Money Management. Additional
information is presented in Note 13 on Segments in the
consolidated financial statements.
The Company uses a funds transfer pricing method to value funds
used (e.g., loans, fixed assets, cash, etc.) and funds provided
(deposits, borrowings, and equity) by the business segments and
their components. This process assigns a specific value to each
new source or use of funds with a maturity, based on current
LIBOR interest rates, thus determining an interest spread at the
time of the transaction. Non-maturity assets and liabilities are
assigned to LIBOR based funding pools. This method helps to
provide an accurate means of valuing fund sources and uses in a
varying interest rate environment. The Company also assigns loan
charge-offs and recoveries directly to each operating segment
instead of allocating a portion of actual loan loss provision to
the segments. The operating segments also include a number of
allocations of income and expense from various support and
overhead centers within the Company. Management periodically
44
makes changes to the method of assigning costs and income to its
business segments to better reflect operating results. If
appropriate, these changes are reflected in the prior year
information in the table below.
The table below is a summary of segment pre-tax income for the
past three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
(Dollars in thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
07-06
|
|
|
06-05
|
|
|
|
|
Consumer
|
|
$
|
238,999
|
|
|
$
|
244,490
|
|
|
$
|
193,253
|
|
|
|
(2.2
|
)%
|
|
|
26.5
|
%
|
Commercial
|
|
|
140,735
|
|
|
|
147,625
|
|
|
|
133,937
|
|
|
|
(4.7
|
)
|
|
|
10.2
|
|
Money management
|
|
|
37,144
|
|
|
|
34,540
|
|
|
|
31,716
|
|
|
|
7.5
|
|
|
|
8.9
|
|
|
|
Total segments
|
|
|
416,878
|
|
|
|
426,655
|
|
|
|
358,906
|
|
|
|
(2.3
|
)
|
|
|
18.9
|
|
|
|
Other/elimination
|
|
|
(116,481
|
)
|
|
|
(102,909
|
)
|
|
|
(41,312
|
)
|
|
|
NM
|
|
|
|
NM
|
|
|
|
Income before income taxes
|
|
$
|
300,397
|
|
|
$
|
323,746
|
|
|
$
|
317,594
|
|
|
|
(7.2
|
)%
|
|
|
1.9
|
%
|
|
|
Consumer
The Consumer segment includes the retail branch network,
consumer finance, bankcard, student loans and discount brokerage
services. Pre-tax income for 2007 was $239.0 million, a
decrease of $5.5 million, or 2.2%, from 2006. This decrease
was due to an increase of $19.8 million, or 6.9%, in
non-interest expense, coupled with an $8.4 million increase
in the provision for loan losses, mainly relating to consumer
credit card and marine and recreational vehicle loan net
charge-offs. The increase in non-interest expense over the
previous year was mainly due to higher salaries expense,
occupancy expense, corporate management fees and various
assigned processing costs. In addition, net investment
securities gains declined by $2.8 million due to a gain
recorded in 2006 on the sale of MasterCard Inc. restricted
shares. Partly offsetting these effects was an
$18.1 million increase in net interest income. This growth
resulted mainly from a $37.0 million increase in net
allocated funding credits assigned to the Consumer
segments deposit and loan portfolios, and higher loan
interest income of $38.2 million, which more than offset
growth of $57.0 million in deposit interest expense.
Non-interest income increased $7.5 million, or 4.1%, mainly
due to higher bank card transaction fees (primarily debit card)
and consumer brokerage and insurance fees, partly offset by a
decline in overdraft and return item fees and lower gains on
sales of student loans. Total average assets directly related to
the segment rose 10.5% over 2006. During 2007, total average
loans increased 9.7%, compared to a 3.5% increase in 2006. The
increase in average loans during 2007 resulted mainly from
growth in consumer, personal real estate and consumer credit
card loans. Average deposits increased 9.8% over the prior year,
mainly due to growth in short-term certificates of deposit and
premium money market deposit accounts.
Pre-tax income for 2006 was $244.5 million, an increase of
$51.2 million, or 26.5%, over 2005. This increase included
growth of $42.9 million in net interest income, coupled
with a $6.4 million increase in non-interest income. The
increase in net interest income resulted mainly from an
$85.2 million increase in net allocated funding credits and
higher loan interest income of $43.2 million, partly offset
by growth of $85.2 million in deposit interest expense. The
rising interest rate environment in 2006 assigned a greater
value, and thus income, to customer deposits in this segment.
The increase in non-interest income resulted mainly from higher
overdraft fees and bank card transaction fees, partly offset by
a decline in gains on the sale of student loans. Non-interest
expense increased $9.3 million, or 3.3%, over the previous
year mainly due to higher salaries expense, occupancy expense,
loan servicing costs, bank card processing expense, and online
banking processing costs. These increases were partly offset by
declines in corporate management fees and credit card fraud
losses. Net loan charge-offs declined $8.4 million in the
Consumer segment, mainly relating to personal and consumer
credit card loans, as a result of lower bankruptcy notices
received in 2006. Total average assets directly related to the
segment rose 3.8% over 2005. During 2006, total average loans
increased 3.5%, mainly due to growth in consumer, personal real
estate and consumer credit card loans. Average deposits
increased 6.4% over the prior year, mainly due to growth in
long-term certificates of deposit.
45
Commercial
The Commercial segment provides corporate lending, leasing,
international services, and corporate cash management services.
Pre-tax profitability for the Commercial segment decreased
$6.9 million, or 4.7%, compared to the prior year. Most of
the decrease was due to a $14.2 million, or 9.8%, increase
in non-interest expense and an $8.5 million increase in net
loan charge-offs. Partly offsetting these increases in expense
were a $10.1 million, or 4.8%, increase in net interest
income and a $5.7 million increase in non-interest income.
Included in net interest income was a $58.0 million
increase in loan interest income, which was partly offset by
higher assigned net funding costs of $43.5 million and
higher deposit interest expense of $4.4 million.
Non-interest income increased by 7.2% over the previous year as
a result of higher commercial cash management fees, overdraft
fees, bank card fees (mainly corporate card) and cash sweep
commissions. The increase in non-interest expense resulted from
higher salaries expense, commercial deposit account processing
costs and corporate management fees, partly offset by a decline
in foreclosed property expense. Net loan charge-offs were
$8.2 million in 2007 compared to net recoveries of $313
thousand in 2006. The increase over 2006 was due to charge-offs
related to several specific commercial borrowers. Total average
assets directly related to the segment rose 14.4% over 2006.
Average segment loans increased 14.1% compared to 2006 as a
result of growth in business, construction real estate and
business real estate loans, while average deposits increased
1.7% due to growth in interest checking deposit accounts.
In 2006, income before income taxes for the Commercial segment
increased $13.7 million, or 10.2%, compared to the prior
year. Most of the increase was due to an $18.1 million, or
9.3%, increase in net interest income and a $6.2 million
increase in non-interest income. Included in net interest income
was a $97.7 million increase in loan interest income, which
was partly offset by higher assigned net funding costs of
$72.8 million and higher deposit interest expense of
$7.3 million. Non-interest income increased by 8.4% over
the previous year mainly as a result of higher operating
lease-related income and commercial debit card transaction fees.
The $8.6 million, or 6.3%, increase in non-interest expense
included increases in salaries expense, operating lease
depreciation, foreclosed property expense, commercial deposit
account processing costs, and bank card servicing expense. Net
loan recoveries were $313 thousand in 2006 compared to net
recoveries of $2.3 million in 2005, which also had a
negative impact on the year to year comparison of the Commercial
segment profitability. Total average assets directly related to
the segment rose 14.7% over 2005. Average segment loans
increased 14.4% compared to 2005 mainly as a result of growth in
business and business real estate loans, while average deposits
decreased slightly.
Money
Management
The Money Management segment consists of the trust and capital
markets activities. The Trust group provides trust and estate
planning services, and advisory and discretionary investment
management services. At December 31, 2007 the Trust group
managed investments with a market value of $12.5 billion
and administered an additional $10.2 billion in non-managed
assets. It also provides investment management services to The
Commerce Funds, a series of mutual funds with $1.5 billion
in total assets at December 31, 2007. The Capital Markets
Group sells primarily fixed-income securities to individuals,
corporations, correspondent banks, public institutions, and
municipalities, and also provides investment safekeeping and
bond accounting services. Pre-tax income for the segment was
$37.1 million in 2007 compared to $34.5 million in
2006, an increase of $2.6 million, or 7.5%. The increase
over the prior year was mainly due to higher non-interest
income. Non-interest income increased $7.4 million, or
8.7%, due to higher private client, institutional and corporate
trust fees, bond trading income in the Capital Markets Group,
and cash sweep commissions. Net interest income increased $546
thousand, or 5.6%, over the prior year. Growth in interest
income on short-term investments was partly offset by higher net
funding charges assigned to the segments short-term
investments and borrowings, in addition to an increase in
interest expense on deposits and borrowings. Non-interest
expense increased $5.3 million, or 8.8%, over the prior
year mainly due to higher salaries expense, assigned processing
costs and corporate management fees. Average assets increased
$148.0 million during 2007 because of higher overnight
investments of liquid funds. Average deposits increased
$14.8 million during 2007, mainly due to continuing growth
in short-term certificates of deposit over $100,000.
46
Pre-tax income for the Money Management segment was
$34.5 million in 2006 compared to $31.7 million in
2005, an increase of $2.8 million, or 8.9%. The increase
over the prior year was mainly due to higher non-interest
income. Non-interest income was up $2.7 million, or 3.3%,
mainly in private client revenues, partly offset by lower bond
trading income. Net interest income, which increased
$1.6 million, or 20.3%, over the prior year, was higher
primarily due to higher assigned funding credits attributed to
the deposit portfolio of this segment. The $1.6 million
increase in non-interest expense was due to higher salaries
expense and corporate management fees. Average assets increased
$216.0 million during 2006 because of higher overnight
investments. Average deposits increased $37.0 million
during 2006, mainly due to growth in short-term certificates of
deposit over $100,000.
The Other/elimination category shown in the table above includes
support and overhead operating units of the Company which
contain various operating expenses such as salaries, occupancy,
etc. Also included in this category is the Companys
available for sale investment securities portfolio, which
totaled $3.2 billion at December 31, 2007. The pre-tax
profitability in the Other/elimination category decreased
$13.6 million in 2007 compared to 2006, and decreased
$61.6 million in 2006 compared to 2005. The decline in 2007
compared to 2006 occurred partly because of a $21.0 million
litigation expense provision, previously discussed, which was
not allocated to a segment. The decline in 2006 from 2005 was
mainly due to LIBOR based cost of funds charges that rose faster
during 2006 than the investment securities yields.
Impact
of Recently Issued Accounting Standards
In February 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards
No. 155, Accounting for Certain Hybrid Financial
Instruments an amendment of FASB Statements
No. 133 and 140. The Statement permits fair value
remeasurement for certain hybrid financial instruments
containing embedded derivatives, and clarifies the derivative
accounting requirements for interest and principal-only strip
securities and interests in securitized financial assets. It
also clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives and eliminates a
previous prohibition on qualifying special-purpose entities from
holding certain derivative financial instruments. For calendar
year companies, the Statement was effective for all financial
instruments acquired or issued after January 1, 2007. The
Companys holdings of instruments that are subject to the
provisions of this Statement are not material, and, accordingly,
its adoption of the Statement did not affect its consolidated
financial statements.
In March 2006, the FASB issued Statement of Financial Accounting
Standards No. 156, Accounting for Servicing of
Financial Assets an amendment of FASB Statement
No. 140. The Statement specifies under what
situations servicing assets and servicing liabilities must be
recognized. It requires these assets and liabilities to be
initially measured at fair value and specifies acceptable
measurement methods subsequent to their recognition. Separate
presentation in the financial statements and additional
disclosures are also required. For calendar year companies, the
Statement was effective beginning January 1, 2007. The
Companys adoption of the Statement did not result in the
recognition of any additional servicing assets or liabilities,
or a change in its measurement methods.
In June 2006, the FASB issued Financial Accounting Standards
Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement
No. 109 (FIN 48), which prescribes the
recognition threshold and measurement attributes necessary for
recognition in the financial statements of a tax position taken,
or expected to be taken, in a tax return. Under FIN 48, an
income tax position will be recognized if it is more likely than
not that it will be sustained upon IRS examination, based upon
its technical merits. Once that status is met, the amount
recorded will be the largest amount of benefit that is greater
than 50 percent likely of being realized upon ultimate
settlement. It also provides guidance on derecognition,
classification, interest and penalties, interim period
accounting, disclosure, and transition requirements. As a result
of the Companys adoption of FIN 48, additional income
tax benefits of $446 thousand were recognized as of
January 1, 2007 as an increase to retained earnings.
The Company adopted Statement of Financial Accounting Standards
No. 157, Fair Value Measurements, on
January 1, 2008. This Statement defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about
fair value measurements. It
47
emphasizes that fair value is a market-based measurement and
should be determined based on assumptions that a market
participant would use when pricing an asset or liability.
Additionally, it establishes a fair value hierarchy that
provides the highest priority to measurements using quoted
prices in active markets and the lowest priority to measurements
based on unobservable data. The Statement does not require any
new fair value measurements. The Statement also modifies the
guidance for initial recognition of fair value for certain
derivative contracts held by the Company. Former accounting
guidance precluded immediate recognition in earnings of an
unrealized gain or loss, measured as the difference between the
transaction price and fair value of these instruments at initial
recognition. This guidance was nullified by the Statement. In
accordance with the new recognition requirements of the
Statement, the Company increased equity by $902 thousand on
January 1, 2008.
The Company adopted Statement of Financial Accounting Standards
No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans, at
December 31, 2006. The Statement requires an employer to
recognize the overfunded or underfunded status of a defined
benefit postretirement plan as an asset or liability in its
statement of financial position and to recognize changes in that
funded status in the year in which the changes occur through
comprehensive income. The Companys initial recognition at
December 31, 2006 of the funded status of its defined
benefit pension plan reduced its prepaid pension asset by
$17.5 million, reduced deferred tax liabilities by
$6.6 million, and reduced the equity component of
accumulated other comprehensive income by $10.9 million.
Beginning in 2008, the Statement also requires an employer to
measure plan assets and obligations as of the date of its fiscal
year end statement of financial position. The change in
measurement date is not expected to have a material effect on
the Companys consolidated financial statements.
In September 2006, the Emerging Issues Task Force (EITF) reached
a consensus on EITF Issue
06-4,
Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements. This EITF Issue addresses accounting for
separate agreements which split life insurance policy benefits
between an employer and employee. The Issue requires the
employer to recognize a liability for future benefits payable to
the employee based on the substantive agreement with the
employee, because the postretirement benefit obligation is not
effectively settled through the purchase of the insurance
policy. The EITF Issue was effective January 1, 2008, and
the Companys adoption on that date resulted in a reduction
to equity of $716 thousand.
In February 2007, the FASB issued Statement of Financial
Accounting Standards No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities
Including an amendment of FASB Statement No. 115.
This Statement permits entities to choose to measure many
financial instruments and certain other items at fair value, on
an
instrument-by-instrument
basis. Once an entity has elected to record eligible items at
fair value, the decision is irrevocable and the entity should
report unrealized gains and losses for which the fair value
option has been elected in earnings. The Statements
objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting
provisions. This Statement is expected to expand the use of fair
value measurement, which is consistent with the Boards
long-term measurement objectives for accounting for financial
instruments. The Statement may be applied to financial
instruments existing at the January 1, 2008 adoption date,
financial instruments recognized after the adoption date, and
upon certain other events. As of the adoption date and
subsequent to that date, the Company has chosen not to elect the
fair value option, but continues to consider future election and
the effect on its consolidated financial statements.
In November 2007, the Securities and Exchange Commission staff
issued Staff Accounting Bulletin No. 109
(SAB 109). SAB 109 provides revised guidance on the
valuation of written loan commitments accounted for at fair
value through earnings. Former guidance under SAB 105
indicated that the expected net future cash flows related to the
associated servicing of the loan should not be incorporated into
the measurement of the fair value of a derivative loan
commitment. The new guidance under SAB 109 requires these
cash flows to be included in the fair value measurement, and the
SAB requires this view to be applied on a prospective basis to
derivative loan commitments issued or modified in the first
quarter of 2008. The
48
Companys application of SAB 109 in 2008 did not have
a material effect on its consolidated financial statements.
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised), Business
Combinations. The Statement retains the fundamental
requirements in Statement 141 that the acquisition method of
accounting be used for business combinations, but broadens the
scope of Statement 141 and contains improvements to the
application of this method. The Statement requires an acquirer
to recognize the assets acquired, the liabilities assumed, and
any noncontrolling interest in the acquiree at the acquisition
date, measured at their fair values as of that date. Costs
incurred to effect the acquisition are to be recognized
separately from the acquisition. Assets and liabilities arising
from contractual contingencies must be measured at fair value as
of the acquisition date. Contingent consideration must also be
measured at fair value as of the acquisition date. The Statement
also changes the accounting for negative goodwill arising from a
bargain purchase, requiring recognition in earnings instead of
allocation to assets acquired. For business combinations
achieved in stages (step acquisitions), the assets and
liabilities must be recognized at the full amounts of their fair
values, while under former guidance the entity was acquired in a
series of purchases, with costs and fair values being identified
and measured at each step. The Statement applies to business
combinations occurring after January 1, 2009.
Also in December 2007, the FASB issued Statement of Financial
Accounting Standards No. 160, Noncontrolling
Interests in Consolidated Financial Statements an
amendment of ARB No. 51. The Statement clarifies that
a noncontrolling interest in a subsidiary is an ownership
interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. The Statement
establishes a single method of accounting for changes in a
parents ownership interest if the parent retains its
controlling interest, deeming these to be equity transactions.
Such changes include the parents purchases and sales of
ownership interests in its subsidiary and the subsidiarys
acquisition and issuance of its ownership interests. The
Statement also requires that a parent recognize a gain or loss
in net income when a subsidiary is deconsolidated. It changes
the way the consolidated income statement is presented,
requiring consolidated net income to be reported at amounts that
include the amounts attributable to both the parent and the
noncontrolling interest, and requires disclosure of these
amounts on the face of the consolidated statement of income. The
Statement is effective on January 1, 2009. The Company does
not expect adoption of the Statement to have a significant
effect on its consolidated financial statements.
Effects
of Inflation
The impact of inflation on financial institutions differs
significantly from that exerted on industrial entities.
Financial institutions are not heavily involved in large capital
expenditures used in the production, acquisition or sale of
products. Virtually all assets and liabilities of financial
institutions are monetary in nature and represent obligations to
pay or receive fixed and determinable amounts not affected by
future changes in prices. Changes in interest rates have a
significant effect on the earnings of financial institutions.
Higher interest rates generally follow the rising demand of
borrowers and the corresponding increased funding requirements
of financial institutions. Although interest rates are viewed as
the price of borrowing funds, the behavior of interest rates
differs significantly from the behavior of the prices of goods
and services. Prices of goods and services may be directly
related to that of other goods and services while the price of
borrowing relates more closely to the inflation rate in the
prices of those goods and services. As a result, when the rate
of inflation slows, interest rates tend to decline while
absolute prices for goods and services remain at higher levels.
Interest rates are also subject to restrictions imposed through
monetary policy, usury laws and other artificial constraints.
Corporate
Governance
The Company has adopted a number of corporate governance
measures. These include corporate governance guidelines, a code
of ethics that applies to its senior financial officers and the
charters for its audit committee, its committee on compensation
and human resources, and its committee on governance/directors.
This information is available on the Companys web site
www.commercebank.com under Investor Relations.
49
Forward-Looking
Statements
This report may contain forward-looking statements
that are subject to risks and uncertainties and include
information about possible or assumed future results of
operations. Many possible events or factors could affect the
future financial results and performance of the Company. This
could cause results or performance to differ materially from
those expressed in the forward-looking statements. Words such as
expects, anticipates,
believes, estimates, variations of such
words and other similar expressions are intended to identify
such forward-looking statements. These statements are not
guarantees of future performance and involve certain risks,
uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially
from what is expressed or forecasted in, or implied by, such
forward-looking statements. Readers should not rely solely on
the forward-looking statements and should consider all
uncertainties and risks discussed throughout this report.
Forward-looking statements speak only as of the date they are
made. The Company does not undertake to update forward-looking
statements to reflect circumstances or events that occur after
the date the forward-looking statements are made or to reflect
the occurrence of unanticipated events. Such possible events or
factors include: changes in economic conditions in the
Companys market area; changes in policies by regulatory
agencies, governmental legislation and regulation; fluctuations
in interest rates; changes in liquidity requirements; demand for
loans in the Companys market area; changes in accounting
and tax principles; estimates made on income taxes; and
competition with other entities that offer financial services.
50
SUMMARY
OF QUARTERLY STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
For the Quarter Ended
|
|
(In thousands, except per share data)
|
|
12/31/07
|
|
|
9/30/07
|
|
|
6/30/07
|
|
|
3/31/07
|
|
|
|
Interest income
|
|
$
|
236,752
|
|
|
$
|
238,274
|
|
|
$
|
232,808
|
|
|
$
|
228,267
|
|
Interest expense
|
|
|
(99,285
|
)
|
|
|
(103,012
|
)
|
|
|
(98,944
|
)
|
|
|
(96,788
|
)
|
|
|
Net interest income
|
|
|
137,467
|
|
|
|
135,262
|
|
|
|
133,864
|
|
|
|
131,479
|
|
Non-interest income
|
|
|
98,101
|
|
|
|
95,137
|
|
|
|
94,059
|
|
|
|
84,284
|
|
Investment securities gains (losses), net
|
|
|
3,270
|
|
|
|
1,562
|
|
|
|
(493
|
)
|
|
|
3,895
|
|
Salaries and employee benefits
|
|
|
(78,433
|
)
|
|
|
(77,312
|
)
|
|
|
(76,123
|
)
|
|
|
(76,900
|
)
|
Other expense
|
|
|
(84,464
|
)
|
|
|
(61,781
|
)
|
|
|
(60,226
|
)
|
|
|
(59,519
|
)
|
Provision for loan losses
|
|
|
(14,062
|
)
|
|
|
(11,455
|
)
|
|
|
(9,054
|
)
|
|
|
(8,161
|
)
|
|
|
Income before income taxes
|
|
|
61,879
|
|
|
|
81,413
|
|
|
|
82,027
|
|
|
|
75,078
|
|
Income taxes
|
|
|
(18,187
|
)
|
|
|
(25,515
|
)
|
|
|
(26,453
|
)
|
|
|
(23,582
|
)
|
|
|
Net income
|
|
$
|
43,692
|
|
|
$
|
55,898
|
|
|
$
|
55,574
|
|
|
$
|
51,496
|
|
|
|
Net income per share basic*
|
|
$
|
.61
|
|
|
$
|
.78
|
|
|
$
|
.76
|
|
|
$
|
.71
|
|
Net income per share diluted*
|
|
$
|
.60
|
|
|
$
|
.77
|
|
|
$
|
.75
|
|
|
$
|
.70
|
|
|
|
Weighted average shares basic*
|
|
|
71,681
|
|
|
|
71,919
|
|
|
|
72,750
|
|
|
|
73,112
|
|
Weighted average shares diluted*
|
|
|
72,482
|
|
|
|
72,707
|
|
|
|
73,570
|
|
|
|
74,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
For the Quarter Ended
|
|
(In thousands, except per share data)
|
|
12/31/06
|
|
|
9/30/06
|
|
|
6/30/06
|
|
|
3/31/06
|
|
|
|
Interest income
|
|
$
|
228,159
|
|
|
$
|
216,270
|
|
|
$
|
199,250
|
|
|
$
|
188,627
|
|
Interest expense
|
|
|
(93,927
|
)
|
|
|
(87,517
|
)
|
|
|
(72,771
|
)
|
|
|
(64,892
|
)
|
|
|
Net interest income
|
|
|
134,232
|
|
|
|
128,753
|
|
|
|
126,479
|
|
|
|
123,735
|
|
Non-interest income
|
|
|
90,030
|
|
|
|
87,332
|
|
|
|
88,179
|
|
|
|
87,045
|
|
Investment securities gains, net
|
|
|
24
|
|
|
|
3,324
|
|
|
|
3,284
|
|
|
|
2,403
|
|
Salaries and employee benefits
|
|
|
(73,140
|
)
|
|
|
(72,169
|
)
|
|
|
(71,239
|
)
|
|
|
(71,725
|
)
|
Other expense
|
|
|
(60,470
|
)
|
|
|
(60,135
|
)
|
|
|
(58,311
|
)
|
|
|
(58,236
|
)
|
Provision for loan losses
|
|
|
(7,970
|
)
|
|
|
(7,575
|
)
|
|
|
(5,672
|
)
|
|
|
(4,432
|
)
|
|
|
Income before income taxes
|
|
|
82,706
|
|
|
|
79,530
|
|
|
|
82,720
|
|
|
|
78,790
|
|
Income taxes
|
|
|
(25,689
|
)
|
|
|
(24,982
|
)
|
|
|
(27,387
|
)
|
|
|
(25,846
|
)
|
|
|
Net income
|
|
$
|
57,017
|
|
|
$
|
54,548
|
|
|
$
|
55,333
|
|
|
$
|
52,944
|
|
|
|
Net income per share basic*
|
|
$
|
.77
|
|
|
$
|
.74
|
|
|
$
|
.75
|
|
|
$
|
.72
|
|
Net income per share diluted*
|
|
$
|
.76
|
|
|
$
|
.73
|
|
|
$
|
.74
|
|
|
$
|
.71
|
|
|
|
Weighted average shares basic*
|
|
|
73,976
|
|
|
|
73,538
|
|
|
|
73,372
|
|
|
|
73,856
|
|
Weighted average shares diluted*
|
|
|
74,940
|
|
|
|
74,509
|
|
|
|
74,375
|
|
|
|
74,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005
|
|
For the Quarter Ended
|
|
(In thousands, except per share data)
|
|
12/31/05
|
|
|
9/30/05
|
|
|
6/30/05
|
|
|
3/31/05
|
|
|
|
Interest income
|
|
$
|
185,343
|
|
|
$
|
178,570
|
|
|
$
|
172,800
|
|
|
$
|
160,853
|
|
Interest expense
|
|
|
(58,337
|
)
|
|
|
(52,738
|
)
|
|
|
(45,413
|
)
|
|
|
(39,376
|
)
|
|
|
Net interest income
|
|
|
127,006
|
|
|
|
125,832
|
|
|
|
127,387
|
|
|
|
121,477
|
|
Non-interest income
|
|
|
87,544
|
|
|
|
86,606
|
|
|
|
83,608
|
|
|
|
77,079
|
|
Investment securities gains, net
|
|
|
1,089
|
|
|
|
289
|
|
|
|
1,372
|
|
|
|
3,612
|
|
Salaries and employee benefits
|
|
|
(68,730
|
)
|
|
|
(66,682
|
)
|
|
|
(67,585
|
)
|
|
|
(70,180
|
)
|
Other expense
|
|
|
(58,471
|
)
|
|
|
(55,705
|
)
|
|
|
(55,427
|
)
|
|
|
(53,742
|
)
|
Provision for loan losses
|
|
|
(11,980
|
)
|
|
|
(8,934
|
)
|
|
|
(5,503
|
)
|
|
|
(2,368
|
)
|
|
|
Income before income taxes
|
|
|
76,458
|
|
|
|
81,406
|
|
|
|
83,852
|
|
|
|
75,878
|
|
Income taxes
|
|
|
(20,216
|
)
|
|
|
(18,615
|
)
|
|
|
(29,484
|
)
|
|
|
(26,032
|
)
|
|
|
Net income
|
|
$
|
56,242
|
|
|
$
|
62,791
|
|
|
$
|
54,368
|
|
|
$
|
49,846
|
|
|
|
Net income per share basic*
|
|
$
|
.75
|
|
|
$
|
.82
|
|
|
$
|
.70
|
|
|
$
|
.64
|
|
Net income per share diluted*
|
|
$
|
.74
|
|
|
$
|
.81
|
|
|
$
|
.69
|
|
|
$
|
.63
|
|
|
|
Weighted average shares basic*
|
|
|
75,201
|
|
|
|
76,342
|
|
|
|
77,253
|
|
|
|
78,303
|
|
Weighted average shares diluted*
|
|
|
76,117
|
|
|
|
77,389
|
|
|
|
78,317
|
|
|
|
79,392
|
|
|
|
|
|
* |
Restated for the 5% stock dividend distributed in 2007.
|
51
AVERAGE
BALANCE SHEETS AVERAGE RATES AND YIELDS
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Years Ended December 31
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2007
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2006
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2005
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Average
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Average
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Average
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Interest
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Rates
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Interest
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Rates
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Interest
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Rates
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Average
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Income/
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Earned/
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Average
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Income/
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Earned/
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Average
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Income/
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Earned/
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(Dollars in thousands)
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Balance
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Expense
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Paid
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Balance
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Expense
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Paid
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Balance
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Expense
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Paid
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ASSETS
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Loans:(A)
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Business(B)
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$
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3,110,386
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$
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208,819
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6.71
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%
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$
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2,688,722
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$
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177,313
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6.59
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%
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$
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2,336,681
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$
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125,417
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5.37
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%
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Real estate construction
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671,986
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49,436
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7.36
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540,574
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40,477
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7.49
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480,864
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28,422
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5.91
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Real estate business
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2,204,041
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154,819
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7.02
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2,053,455
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140,659
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6.85
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1,794,269
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106,167
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5.92
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Real estate personal
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1,521,066
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90,537
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5.95
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1,415,321
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79,816
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5.64
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1,339,900
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71,222
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5.32
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Consumer
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1,558,302
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115,184
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7.39
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1,352,047
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95,074
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7.03
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1,242,163
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80,431
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6.48
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Home equity
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443,748
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33,526
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7.56
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445,376
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33,849
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7.60
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429,911
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26,463
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6.16
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Student(D)
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357,319
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17,050
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4.77
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Consumer credit card
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665,964
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84,856
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12.74
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595,252
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77,737
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13.06
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554,471
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66,552
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12.00
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Overdrafts
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13,823
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14,685
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13,995
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Total loans
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10,189,316
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737,177
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7.23
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9,105,432
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644,925
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7.08
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8,549,573
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521,724
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6.10
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Loans held for sale
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321,916
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21,940
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6.82
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315,950
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21,788
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6.90
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11,909
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657
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5.52
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Investment securities:
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U.S. government & federal agency
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410,170
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16,505
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4.02
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640,239
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22,817
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3.56
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1,066,304
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39,968
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3.75
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State & municipal
obligations(B)
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594,154
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26,855
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4.52
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414,282
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18,546
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4.48
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137,007
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5,910
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4.31
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Mortgage and asset-backed securities
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2,120,521
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102,243
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4.82
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2,201,685
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96,270
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4.37
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2,812,757
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114,978
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|
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4.09
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Trading securities
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22,321
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1,057
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|
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4.73
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17,444
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|
|
762
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|
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4.37
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|
|
10,624
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|
422
|
|
|
|
3.98
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Other marketable
securities(B)
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|
129,622
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7,795
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|
|
|
6.01
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200,013
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|
|
11,248
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|
|
5.62
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216,984
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9,316
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4.29
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Non-marketable securities
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92,251
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5,417
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5.87
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85,211
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|
|
|
7,475
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|
|
8.77
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78,709
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4,617
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|
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5.87
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Total investment securities
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3,369,039
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|
|
159,872
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|
|
|
4.75
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|
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|
3,558,874
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|
|
|
157,118
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|
|
|
4.41
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|
4,322,385
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|
175,211
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|
|
|
4.05
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Federal funds sold and securities purchased under agreements to
resell
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|
527,304
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|
25,881
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|
|
|
4.91
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|
|
|
299,554
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|
|
|
15,637
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|
|
|
5.22
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|
|
|
116,553
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|
|
|
4,102
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|
|
|
3.52
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Total interest earning assets
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|
14,407,575
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|
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|
944,870
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|
|
|
6.56
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|
|
|
13,279,810
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|
|
|
839,468
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|
|
|
6.32
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|
|
|
13,000,420
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|
|
701,694
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|
|
|
5.40
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|
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Less allowance for loan losses
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|
(132,234
|
)
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|
|
|
|
|
|
|
|
|
|
(129,224
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)
|
|
|
|
|
|
|
|
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|
(129,272
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)
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|
|
|
|
|
|
|
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Unrealized gain (loss) on investment securities
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|
|
25,333
|
|
|
|
|
|
|
|
|
|
|
|
(9,443
|
)
|
|
|
|
|
|
|
|
|
|
|
22,607
|
|
|
|
|
|
|
|
|
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Cash and due from banks
|
|
|
463,970
|
|
|
|
|
|
|
|
|
|
|
|
470,826
|
|
|
|
|
|
|
|
|
|
|
|
508,389
|
|
|
|
|
|
|
|
|
|
Land, buildings and equipment net
|
|
|
400,161
|
|
|
|
|
|
|
|
|
|
|
|
376,375
|
|
|
|
|
|
|
|
|
|
|
|
369,471
|
|
|
|
|
|
|
|
|
|
Other assets
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|
|
315,522
|
|
|
|
|
|
|
|
|
|
|
|
250,260
|
|
|
|
|
|
|
|
|
|
|
|
201,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
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|
$
|
15,480,327
|
|
|
|
|
|
|
|
|
|
|
$
|
14,238,604
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|
|
|
|
|
|
|
|
|
|
$
|
13,973,444
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
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|
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|
LIABILITIES AND EQUITY
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|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Savings
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|
$
|
392,942
|
|
|
|
2,067
|
|
|
|
.53
|
|
|
$
|
393,870
|
|
|
|
2,204
|
|
|
|
.56
|
|
|
$
|
403,158
|
|
|
|
1,259
|
|
|
|
.31
|
|
Interest checking and money market
|
|
|
6,996,943
|
|
|
|
114,027
|
|
|
|
1.63
|
|
|
|
6,717,280
|
|
|
|
94,238
|
|
|
|
1.40
|
|
|
|
6,745,714
|
|
|
|
52,112
|
|
|
|
.77
|
|
Time open & C.D.s of less than $100,000
|
|
|
2,359,386
|
|
|
|
110,957
|
|
|
|
4.70
|
|
|
|
2,077,257
|
|
|
|
85,424
|
|
|
|
4.11
|
|
|
|
1,736,804
|
|
|
|
50,597
|
|
|
|
2.91
|
|
Time open & C.D.s of $100,000 and over
|
|
|
1,480,856
|
|
|
|
73,739
|
|
|
|
4.98
|
|
|
|
1,288,845
|
|
|
|
58,381
|
|
|
|
4.53
|
|
|
|
983,703
|
|
|
|
30,779
|
|
|
|
3.13
|
|
|
|
Total interest bearing deposits
|
|
|
11,230,127
|
|
|
|
300,790
|
|
|
|
2.68
|
|
|
|
10,477,252
|
|
|
|
240,247
|
|
|
|
2.29
|
|
|
|
9,869,379
|
|
|
|
134,747
|
|
|
|
1.37
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,696,613
|
|
|
|
83,464
|
|
|
|
4.92
|
|
|
|
1,455,544
|
|
|
|
70,154
|
|
|
|
4.82
|
|
|
|
1,609,868
|
|
|
|
48,776
|
|
|
|
3.03
|
|
Other
borrowings(C)
|
|
|
292,446
|
|
|
|
13,775
|
|
|
|
4.71
|
|
|
|
182,940
|
|
|
|
8,744
|
|
|
|
4.78
|
|
|
|
366,072
|
|
|
|
12,464
|
|
|
|
3.40
|
|
|
|
Total borrowings
|
|
|
1,989,059
|
|
|
|
97,239
|
|
|
|
4.89
|
|
|
|
1,638,484
|
|
|
|
78,898
|
|
|
|
4.82
|
|
|
|
1,975,940
|
|
|
|
61,240
|
|
|
|
3.10
|
|
|
|
Total interest bearing liabilities
|
|
|
13,219,186
|
|
|
|
398,029
|
|
|
|
3.01
|
%
|
|
|
12,115,736
|
|
|
|
319,145
|
|
|
|
2.63
|
%
|
|
|
11,845,319
|
|
|
|
195,987
|
|
|
|
1.65
|
%
|
|
|
Non-interest bearing demand deposits
|
|
|
647,888
|
|
|
|
|
|
|
|
|
|
|
|
642,545
|
|
|
|
|
|
|
|
|
|
|
|
655,729
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
136,850
|
|
|
|
|
|
|
|
|
|
|
|
102,668
|
|
|
|
|
|
|
|
|
|
|
|
93,708
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
1,476,403
|
|
|
|
|
|
|
|
|
|
|
|
1,377,655
|
|
|
|
|
|
|
|
|
|
|
|
1,378,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
15,480,327
|
|
|
|
|
|
|
|
|
|
|
$
|
14,238,604
|
|
|
|
|
|
|
|
|
|
|
$
|
13,973,444
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin (T/E)
|
|
|
|
|
|
$
|
546,841
|
|
|
|
|
|
|
|
|
|
|
$
|
520,323
|
|
|
|
|
|
|
|
|
|
|
$
|
505,707
|
|
|
|
|
|
|
|
Net yield on interest earning assets
|
|
|
|
|
|
|
|
|
|
|
3.80
|
%
|
|
|
|
|
|
|
|
|
|
|
3.92
|
%
|
|
|
|
|
|
|
|
|
|
|
3.89
|
%
|
|
|
Percentage increase (decrease) in net interest margin
(T/E) compared to the prior year
|
|
|
|
|
|
|
|
|
|
|
5.10
|
%
|
|
|
|
|
|
|
|
|
|
|
2.89
|
%
|
|
|
|
|
|
|
|
|
|
|
1.22
|
%
|
|
|
|
|
|
(A) |
|
Loans on non-accrual status are
included in the computation of average balances. Included in
interest income above are loan fees and late charges, net of
amortization of deferred loan origination fees and costs, which
are immaterial. Credit card income from merchant discounts and
net interchange fees are not included in loan income. |
(B) |
|
Interest income and yields are
presented on a fully-taxable equivalent basis using the Federal
statutory income tax rate. Business loan interest income
includes tax free loan income of $8,606,000 in 2007, $5,883,000
in 2006, $2,393,000 in 2005, $2,379,000 in 2004 and $2,466,000
in 2003, including tax equivalent adjustments of $2,191,000 in
2007, $1,596,000 in 2006, $1,097,000 in 2005, $819,000 in 2004
and $847,000 in 2003. State and municipal interest income
includes tax equivalent adjustments of $4,908,000 in |
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Average
|
|
|
Balance
|
|
|
|
|
Interest
|
|
|
Rates
|
|
|
|
|
|
Interest
|
|
|
Rates
|
|
|
|
|
|
Interest
|
|
|
Rates
|
|
|
Five Year
|
|
Average
|
|
|
Income/
|
|
|
Earned/
|
|
|
Average
|
|
|
Income/
|
|
|
Earned/
|
|
|
Average
|
|
|
Income/
|
|
|
Earned/
|
|
|
Compound
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
Balance
|
|
|
Expense
|
|
|
Paid
|
|
|
Growth Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,119,823
|
|
|
$
|
88,199
|
|
|
|
4.16
|
%
|
|
$
|
2,173,765
|
|
|
$
|
90,860
|
|
|
|
4.18
|
%
|
|
$
|
2,433,041
|
|
|
$
|
115,058
|
|
|
|
4.73
|
%
|
|
|
5.03
|
%
|
|
427,976
|
|
|
|
18,068
|
|
|
|
4.22
|
|
|
|
404,058
|
|
|
|
17,324
|
|
|
|
4.29
|
|
|
|
474,307
|
|
|
|
23,894
|
|
|
|
5.04
|
|
|
|
7.22
|
|
|
1,823,302
|
|
|
|
90,601
|
|
|
|
4.97
|
|
|
|
1,831,575
|
|
|
|
93,731
|
|
|
|
5.12
|
|
|
|
1,483,012
|
|
|
|
88,645
|
|
|
|
5.98
|
|
|
|
8.25
|
|
|
1,322,354
|
|
|
|
68,629
|
|
|
|
5.19
|
|
|
|
1,268,604
|
|
|
|
71,737
|
|
|
|
5.65
|
|
|
|
1,214,897
|
|
|
|
80,487
|
|
|
|
6.63
|
|
|
|
4.60
|
|
|
1,188,018
|
|
|
|
75,633
|
|
|
|
6.37
|
|
|
|
1,129,267
|
|
|
|
79,571
|
|
|
|
7.05
|
|
|
|
1,046,173
|
|
|
|
83,266
|
|
|
|
7.96
|
|
|
|
8.30
|
|
|
381,111
|
|
|
|
17,481
|
|
|
|
4.59
|
|
|
|
324,375
|
|
|
|
14,372
|
|
|
|
4.43
|
|
|
|
283,466
|
|
|
|
14,336
|
|
|
|
5.06
|
|
|
|
9.38
|
|
|
326,120
|
|
|
|
9,790
|
|
|
|
3.00
|
|
|
|
339,577
|
|
|
|
9,606
|
|
|
|
2.83
|
|
|
|
316,910
|
|
|
|
13,124
|
|
|
|
4.14
|
|
|
|
NM
|
|
|
515,585
|
|
|
|
57,112
|
|
|
|
11.08
|
|
|
|
490,534
|
|
|
|
55,310
|
|
|
|
11.28
|
|
|
|
463,474
|
|
|
|
52,337
|
|
|
|
11.29
|
|
|
|
7.52
|
|
|
13,319
|
|
|
|
|
|
|
|
|
|
|
|
11,631
|
|
|
|
|
|
|
|
|
|
|
|
14,150
|
|
|
|
|
|
|
|
|
|
|
|
(.47
|
)
|
|
|
|
8,117,608
|
|
|
|
425,513
|
|
|
|
5.24
|
|
|
|
7,973,386
|
|
|
|
432,511
|
|
|
|
5.42
|
|
|
|
7,729,430
|
|
|
|
471,147
|
|
|
|
6.10
|
|
|
|
5.68
|
|
|
|
|
12,505
|
|
|
|
644
|
|
|
|
5.15
|
|
|
|
36,073
|
|
|
|
1,831
|
|
|
|
5.08
|
|
|
|
32,312
|
|
|
|
1,895
|
|
|
|
5.87
|
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,721,301
|
|
|
|
67,988
|
|
|
|
3.95
|
|
|
|
1,543,269
|
|
|
|
67,236
|
|
|
|
4.36
|
|
|
|
1,233,040
|
|
|
|
57,159
|
|
|
|
4.64
|
|
|
|
(19.76
|
)
|
|
70,846
|
|
|
|
3,410
|
|
|
|
4.81
|
|
|
|
80,687
|
|
|
|
4,139
|
|
|
|
5.13
|
|
|
|
41,103
|
|
|
|
3,079
|
|
|
|
7.49
|
|
|
|
70.61
|
|
|
2,846,093
|
|
|
|
105,827
|
|
|
|
3.72
|
|
|
|
2,504,514
|
|
|
|
103,681
|
|
|
|
4.14
|
|
|
|
2,118,460
|
|
|
|
112,703
|
|
|
|
5.32
|
|
|
|
.02
|
|
|
14,250
|
|
|
|
498
|
|
|
|
3.50
|
|
|
|
17,003
|
|
|
|
662
|
|
|
|
3.90
|
|
|
|
10,931
|
|
|
|
532
|
|
|
|
4.86
|
|
|
|
15.35
|
|
|
163,843
|
|
|
|
3,747
|
|
|
|
2.29
|
|
|
|
220,499
|
|
|
|
4,603
|
|
|
|
2.09
|
|
|
|
124,648
|
|
|
|
4,258
|
|
|
|
3.42
|
|
|
|
.79
|
|
|
75,542
|
|
|
|
3,530
|
|
|
|
4.67
|
|
|
|
74,501
|
|
|
|
4,923
|
|
|
|
6.61
|
|
|
|
66,666
|
|
|
|
2,781
|
|
|
|
4.17
|
|
|
|
6.71
|
|
|
|
|
4,891,875
|
|
|
|
185,000
|
|
|
|
3.78
|
|
|
|
4,440,473
|
|
|
|
185,244
|
|
|
|
4.17
|
|
|
|
3,594,848
|
|
|
|
180,512
|
|
|
|
5.02
|
|
|
|
(1.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84,113
|
|
|
|
1,312
|
|
|
|
1.56
|
|
|
|
63,232
|
|
|
|
831
|
|
|
|
1.31
|
|
|
|
84,278
|
|
|
|
1,486
|
|
|
|
1.76
|
|
|
|
44.30
|
|
|
|
|
13,106,101
|
|
|
|
612,469
|
|
|
|
4.67
|
|
|
|
12,513,164
|
|
|
|
620,417
|
|
|
|
4.96
|
|
|
|
11,440,868
|
|
|
|
655,040
|
|
|
|
5.73
|
|
|
|
4.72
|
|
|
|
|
(132,554
|
)
|
|
|
|
|
|
|
|
|
|
|
(132,057
|
)
|
|
|
|
|
|
|
|
|
|
|
(129,960
|
)
|
|
|
|
|
|
|
|
|
|
|
.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,692
|
|
|
|
|
|
|
|
|
|
|
|
143,309
|
|
|
|
|
|
|
|
|
|
|
|
114,908
|
|
|
|
|
|
|
|
|
|
|
|
NM
|
|
|
553,074
|
|
|
|
|
|
|
|
|
|
|
|
513,733
|
|
|
|
|
|
|
|
|
|
|
|
511,798
|
|
|
|
|
|
|
|
|
|
|
|
(1.94
|
)
|
|
340,188
|
|
|
|
|
|
|
|
|
|
|
|
336,665
|
|
|
|
|
|
|
|
|
|
|
|
329,553
|
|
|
|
|
|
|
|
|
|
|
|
3.96
|
|
|
191,655
|
|
|
|
|
|
|
|
|
|
|
|
167,944
|
|
|
|
|
|
|
|
|
|
|
|
146,671
|
|
|
|
|
|
|
|
|
|
|
|
16.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,149,156
|
|
|
|
|
|
|
|
|
|
|
$
|
13,542,758
|
|
|
|
|
|
|
|
|
|
|
$
|
12,413,838
|
|
|
|
|
|
|
|
|
|
|
|
4.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
401,935
|
|
|
|
1,250
|
|
|
|
.31
|
|
|
$
|
380,323
|
|
|
|
1,351
|
|
|
|
.36
|
|
|
$
|
353,779
|
|
|
|
2,146
|
|
|
|
.61
|
|
|
|
2.12
|
|
|
6,171,456
|
|
|
|
26,707
|
|
|
|
.43
|
|
|
|
6,015,827
|
|
|
|
27,391
|
|
|
|
.46
|
|
|
|
5,762,465
|
|
|
|
43,101
|
|
|
|
.75
|
|
|
|
3.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,678,659
|
|
|
|
38,924
|
|
|
|
2.32
|
|
|
|
1,838,137
|
|
|
|
48,440
|
|
|
|
2.64
|
|
|
|
2,046,041
|
|
|
|
70,367
|
|
|
|
3.44
|
|
|
|
2.89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
788,800
|
|
|
|
14,912
|
|
|
|
1.89
|
|
|
|
699,241
|
|
|
|
14,278
|
|
|
|
2.04
|
|
|
|
651,336
|
|
|
|
18,252
|
|
|
|
2.80
|
|
|
|
17.85
|
|
|
|
|
9,040,850
|
|
|
|
81,793
|
|
|
|
.90
|
|
|
|
8,933,528
|
|
|
|
91,460
|
|
|
|
1.02
|
|
|
|
8,813,621
|
|
|
|
133,866
|
|
|
|
1.52
|
|
|
|
4.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,827,428
|
|
|
|
22,560
|
|
|
|
1.23
|
|
|
|
1,550,211
|
|
|
|
15,289
|
|
|
|
.99
|
|
|
|
771,646
|
|
|
|
9,853
|
|
|
|
1.28
|
|
|
|
17.07
|
|
|
419,215
|
|
|
|
8,519
|
|
|
|
2.03
|
|
|
|
395,026
|
|
|
|
8,269
|
|
|
|
2.09
|
|
|
|
371,902
|
|
|
|
9,363
|
|
|
|
2.52
|
|
|
|
(4.69
|
)
|
|
|
|
2,246,643
|
|
|
|
31,079
|
|
|
|
1.38
|
|
|
|
1,945,237
|
|
|
|
23,558
|
|
|
|
1.21
|
|
|
|
1,143,548
|
|
|
|
19,216
|
|
|
|
1.68
|
|
|
|
11.71
|
|
|
|
|
11,287,493
|
|
|
|
112,872
|
|
|
|
1.00
|
%
|
|
|
10,878,765
|
|
|
|
115,018
|
|
|
|
1.06
|
%
|
|
|
9,957,169
|
|
|
|
153,082
|
|
|
|
1.54
|
%
|
|
|
5.83
|
|
|
|
|
1,288,434
|
|
|
|
|
|
|
|
|
|
|
|
1,083,207
|
|
|
|
|
|
|
|
|
|
|
|
974,941
|
|
|
|
|
|
|
|
|
|
|
|
(7.85
|
)
|
|
123,048
|
|
|
|
|
|
|
|
|
|
|
|
133,813
|
|
|
|
|
|
|
|
|
|
|
|
120,143
|
|
|
|
|
|
|
|
|
|
|
|
2.64
|
|
|
1,450,181
|
|
|
|
|
|
|
|
|
|
|
|
1,446,973
|
|
|
|
|
|
|
|
|
|
|
|
1,361,585
|
|
|
|
|
|
|
|
|
|
|
|
1.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,149,156
|
|
|
|
|
|
|
|
|
|
|
$
|
13,542,758
|
|
|
|
|
|
|
|
|
|
|
$
|
12,413,838
|
|
|
|
|
|
|
|
|
|
|
|
4.51
|
%
|
|
|
|
|
|
|
$
|
499,597
|
|
|
|
|
|
|
|
|
|
|
$
|
505,399
|
|
|
|
|
|
|
|
|
|
|
$
|
501,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.81
|
%
|
|
|
|
|
|
|
|
|
|
|
4.04
|
%
|
|
|
|
|
|
|
|
|
|
|
4.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.15
|
)%
|
|
|
|
|
|
|
|
|
|
|
.69
|
%
|
|
|
|
|
|
|
|
|
|
|
6.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
2007, $3,698,000 in 2006,
$1,445,000 in 2005, $1,093,000 in 2004 and $1,301,000 in 2003.
Interest income on other marketable securities includes tax
equivalent adjustments of $1,670,000 in 2007, $1,868,000 in
2006, $1,586,000 in 2005, $467,000 in 2004 and $859,000 in
2003. |
(C) |
|
Interest expense of $38,000,
$123,000 and $113,000 which was capitalized on construction
projects in 2006, 2005 and 2004, respectively, is not deducted
from the interest expense shown above. |
(D) |
|
The Companys student loan
portfolio was classified as held for sale in the first quarter
of 2006 and, accordingly, is included in the held for sale
balances for 2006 and 2007. Refer to Note 3 to the
consolidated financial statements for additional information
about student loans. |
53
QUARTERLY
AVERAGE BALANCE SHEETS AVERAGE RATES AND
YIELDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
Fourth Quarter
|
|
|
Third Quarter
|
|
|
Second Quarter
|
|
|
First Quarter
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Rates
|
|
|
|
|
|
Rates
|
|
|
|
|
|
Rates
|
|
|
|
|
|
Rates
|
|
|
|
Average
|
|
|
Earned/
|
|
|
Average
|
|
|
Earned/
|
|
|
Average
|
|
|
Earned/
|
|
|
Average
|
|
|
Earned/
|
|
(Dollars in millions)
|
|
Balance
|
|
|
Paid
|
|
|
Balance
|
|
|
Paid
|
|
|
Balance
|
|
|
Paid
|
|
|
Balance
|
|
|
Paid
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business(A)
|
|
$
|
3,212
|
|
|
|
6.40
|
%
|
|
$
|
3,104
|
|
|
|
6.79
|
%
|
|
$
|
3,135
|
|
|
|
6.82
|
%
|
|
$
|
2,988
|
|
|
|
6.86
|
%
|
Real estate construction
|
|
|
678
|
|
|
|
7.03
|
|
|
|
705
|
|
|
|
7.47
|
|
|
|
658
|
|
|
|
7.31
|
|
|
|
647
|
|
|
|
7.63
|
|
Real estate business
|
|
|
2,223
|
|
|
|
6.91
|
|
|
|
2,220
|
|
|
|
7.09
|
|
|
|
2,225
|
|
|
|
7.06
|
|
|
|
2,147
|
|
|
|
7.04
|
|
Real estate personal
|
|
|
1,542
|
|
|
|
5.96
|
|
|
|
1,538
|
|
|
|
5.92
|
|
|
|
1,514
|
|
|
|
5.97
|
|
|
|
1,489
|
|
|
|
5.96
|
|
Consumer
|
|
|
1,643
|
|
|
|
7.49
|
|
|
|
1,606
|
|
|
|
7.45
|
|
|
|
1,519
|
|
|
|
7.34
|
|
|
|
1,464
|
|
|
|
7.27
|
|
Home equity
|
|
|
455
|
|
|
|
7.11
|
|
|
|
446
|
|
|
|
7.59
|
|
|
|
438
|
|
|
|
7.76
|
|
|
|
435
|
|
|
|
7.79
|
|
Consumer credit card
|
|
|
712
|
|
|
|
12.03
|
|
|
|
671
|
|
|
|
12.83
|
|
|
|
647
|
|
|
|
13.01
|
|
|
|
633
|
|
|
|
13.18
|
|
Overdrafts
|
|
|
17
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
Total loans
|
|
|
10,482
|
|
|
|
7.06
|
|
|
|
10,305
|
|
|
|
7.29
|
|
|
|
10,147
|
|
|
|
7.29
|
|
|
|
9,815
|
|
|
|
7.31
|
|
|
|
Loans held for sale
|
|
|
289
|
|
|
|
6.35
|
|
|
|
294
|
|
|
|
6.82
|
|
|
|
355
|
|
|
|
6.99
|
|
|
|
351
|
|
|
|
7.03
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government & federal agency
|
|
|
371
|
|
|
|
4.10
|
|
|
|
398
|
|
|
|
4.04
|
|
|
|
411
|
|
|
|
3.98
|
|
|
|
463
|
|
|
|
3.99
|
|
State & municipal
obligations(A)
|
|
|
575
|
|
|
|
4.42
|
|
|
|
595
|
|
|
|
4.43
|
|
|
|
600
|
|
|
|
4.59
|
|
|
|
607
|
|
|
|
4.63
|
|
Mortgage and asset-backed securities
|
|
|
2,253
|
|
|
|
4.97
|
|
|
|
2,095
|
|
|
|
4.79
|
|
|
|
2,014
|
|
|
|
4.71
|
|
|
|
2,119
|
|
|
|
4.81
|
|
Trading securities
|
|
|
30
|
|
|
|
4.49
|
|
|
|
16
|
|
|
|
5.32
|
|
|
|
24
|
|
|
|
4.76
|
|
|
|
18
|
|
|
|
4.59
|
|
Other marketable
securities(A)
|
|
|
111
|
|
|
|
5.90
|
|
|
|
134
|
|
|
|
6.42
|
|
|
|
132
|
|
|
|
5.66
|
|
|
|
141
|
|
|
|
6.05
|
|
Non-marketable securities
|
|
|
103
|
|
|
|
6.37
|
|
|
|
98
|
|
|
|
4.82
|
|
|
|
90
|
|
|
|
5.91
|
|
|
|
77
|
|
|
|
6.52
|
|
|
|
Total investment securities
|
|
|
3,443
|
|
|
|
4.85
|
|
|
|
3,336
|
|
|
|
4.71
|
|
|
|
3,271
|
|
|
|
4.67
|
|
|
|
3,425
|
|
|
|
4.75
|
|
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
538
|
|
|
|
4.27
|
|
|
|
512
|
|
|
|
4.92
|
|
|
|
504
|
|
|
|
5.19
|
|
|
|
556
|
|
|
|
5.27
|
|
|
|
Total interest earning assets
|
|
|
14,752
|
|
|
|
6.43
|
|
|
|
14,447
|
|
|
|
6.60
|
|
|
|
14,277
|
|
|
|
6.60
|
|
|
|
14,147
|
|
|
|
6.61
|
|
|
|
Less allowance for loan losses
|
|
|
(133
|
)
|
|
|
|
|
|
|
(133
|
)
|
|
|
|
|
|
|
(132
|
)
|
|
|
|
|
|
|
(131
|
)
|
|
|
|
|
Unrealized gain on investment securities
|
|
|
45
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
19
|
|
|
|
|
|
Cash and due from banks
|
|
|
472
|
|
|
|
|
|
|
|
472
|
|
|
|
|
|
|
|
451
|
|
|
|
|
|
|
|
461
|
|
|
|
|
|
Land, buildings and equipment net
|
|
|
410
|
|
|
|
|
|
|
|
404
|
|
|
|
|
|
|
|
396
|
|
|
|
|
|
|
|
391
|
|
|
|
|
|
Other assets
|
|
|
348
|
|
|
|
|
|
|
|
326
|
|
|
|
|
|
|
|
300
|
|
|
|
|
|
|
|
287
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
15,894
|
|
|
|
|
|
|
$
|
15,529
|
|
|
|
|
|
|
$
|
15,316
|
|
|
|
|
|
|
$
|
15,174
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
376
|
|
|
|
.46
|
|
|
$
|
392
|
|
|
|
.55
|
|
|
$
|
406
|
|
|
|
.55
|
|
|
$
|
397
|
|
|
|
.54
|
|
Interest checking and money market
|
|
|
7,072
|
|
|
|
1.52
|
|
|
|
7,026
|
|
|
|
1.73
|
|
|
|
7,006
|
|
|
|
1.67
|
|
|
|
6,882
|
|
|
|
1.60
|
|
Time open & C.D.s under $100,000
|
|
|
2,392
|
|
|
|
4.67
|
|
|
|
2,389
|
|
|
|
4.74
|
|
|
|
2,347
|
|
|
|
4.73
|
|
|
|
2,308
|
|
|
|
4.67
|
|
Time open & C.D.s $100,000 & over
|
|
|
1,499
|
|
|
|
4.88
|
|
|
|
1,486
|
|
|
|
5.02
|
|
|
|
1,562
|
|
|
|
5.03
|
|
|
|
1,375
|
|
|
|
4.99
|
|
|
|
Total interest bearing deposits
|
|
|
11,339
|
|
|
|
2.59
|
|
|
|
11,293
|
|
|
|
2.76
|
|
|
|
11,321
|
|
|
|
2.73
|
|
|
|
10,962
|
|
|
|
2.63
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,721
|
|
|
|
4.48
|
|
|
|
1,628
|
|
|
|
4.94
|
|
|
|
1,472
|
|
|
|
5.07
|
|
|
|
1,969
|
|
|
|
5.17
|
|
Other borrowings
|
|
|
492
|
|
|
|
4.63
|
|
|
|
346
|
|
|
|
4.83
|
|
|
|
276
|
|
|
|
4.76
|
|
|
|
51
|
|
|
|
4.42
|
|
|
|
Total borrowings
|
|
|
2,213
|
|
|
|
4.52
|
|
|
|
1,974
|
|
|
|
4.92
|
|
|
|
1,748
|
|
|
|
5.03
|
|
|
|
2,020
|
|
|
|
5.16
|
|
|
|
Total interest bearing liabilities
|
|
|
13,552
|
|
|
|
2.91
|
%
|
|
|
13,267
|
|
|
|
3.08
|
%
|
|
|
13,069
|
|
|
|
3.04
|
%
|
|
|
12,982
|
|
|
|
3.02
|
%
|
|
|
Non-interest bearing demand deposits
|
|
|
660
|
|
|
|
|
|
|
|
661
|
|
|
|
|
|
|
|
650
|
|
|
|
|
|
|
|
620
|
|
|
|
|
|
Other liabilities
|
|
|
169
|
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
123
|
|
|
|
|
|
|
|
122
|
|
|
|
|
|
Stockholders equity
|
|
|
1,513
|
|
|
|
|
|
|
|
1,469
|
|
|
|
|
|
|
|
1,474
|
|
|
|
|
|
|
|
1,450
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
15,894
|
|
|
|
|
|
|
$
|
15,529
|
|
|
|
|
|
|
$
|
15,316
|
|
|
|
|
|
|
$
|
15,174
|
|
|
|
|
|
|
|
Net interest margin (T/E)
|
|
$
|
140
|
|
|
|
|
|
|
$
|
137
|
|
|
|
|
|
|
$
|
136
|
|
|
|
|
|
|
$
|
134
|
|
|
|
|
|
|
|
Net yield on interest earning assets
|
|
|
|
|
|
|
3.76
|
%
|
|
|
|
|
|
|
3.77
|
%
|
|
|
|
|
|
|
3.82
|
%
|
|
|
|
|
|
|
3.83
|
%
|
|
|
(A) Includes tax equivalent
calculations.
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
Fourth Quarter
|
|
|
Third Quarter
|
|
|
Second Quarter
|
|
|
First Quarter
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Rates
|
|
|
|
|
|
Rates
|
|
|
|
|
|
Rates
|
|
|
|
|
|
Rates
|
|
|
|
Average
|
|
|
Earned/
|
|
|
Average
|
|
|
Earned/
|
|
|
Average
|
|
|
Earned/
|
|
|
Average
|
|
|
Earned/
|
|
(Dollars in millions)
|
|
Balance
|
|
|
Paid
|
|
|
Balance
|
|
|
Paid
|
|
|
Balance
|
|
|
Paid
|
|
|
Balance
|
|
|
Paid
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business(A)
|
|
$
|
2,806
|
|
|
|
6.82
|
%
|
|
$
|
2,709
|
|
|
|
6.81
|
%
|
|
$
|
2,694
|
|
|
|
6.48
|
%
|
|
$
|
2,543
|
|
|
|
6.23
|
%
|
Real estate construction
|
|
|
628
|
|
|
|
7.70
|
|
|
|
582
|
|
|
|
7.72
|
|
|
|
508
|
|
|
|
7.37
|
|
|
|
442
|
|
|
|
7.00
|
|
Real estate business
|
|
|
2,161
|
|
|
|
7.07
|
|
|
|
2,082
|
|
|
|
6.99
|
|
|
|
1,997
|
|
|
|
6.80
|
|
|
|
1,971
|
|
|
|
6.50
|
|
Real estate personal
|
|
|
1,490
|
|
|
|
5.76
|
|
|
|
1,451
|
|
|
|
5.60
|
|
|
|
1,366
|
|
|
|
5.63
|
|
|
|
1,352
|
|
|
|
5.56
|
|
Consumer
|
|
|
1,412
|
|
|
|
7.30
|
|
|
|
1,373
|
|
|
|
7.12
|
|
|
|
1,333
|
|
|
|
6.90
|
|
|
|
1,288
|
|
|
|
6.78
|
|
Home equity
|
|
|
443
|
|
|
|
7.84
|
|
|
|
445
|
|
|
|
7.79
|
|
|
|
446
|
|
|
|
7.54
|
|
|
|
447
|
|
|
|
7.22
|
|
Consumer credit card
|
|
|
612
|
|
|
|
13.16
|
|
|
|
607
|
|
|
|
13.09
|
|
|
|
585
|
|
|
|
12.93
|
|
|
|
578
|
|
|
|
13.04
|
|
Overdrafts
|
|
|
13
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
Total loans
|
|
|
9,565
|
|
|
|
7.28
|
|
|
|
9,263
|
|
|
|
7.21
|
|
|
|
8,941
|
|
|
|
7.00
|
|
|
|
8,641
|
|
|
|
6.80
|
|
|
|
Loans held for sale
|
|
|
315
|
|
|
|
6.97
|
|
|
|
290
|
|
|
|
7.48
|
|
|
|
293
|
|
|
|
7.54
|
|
|
|
366
|
|
|
|
5.83
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government & federal agency
|
|
|
492
|
|
|
|
3.66
|
|
|
|
592
|
|
|
|
3.58
|
|
|
|
697
|
|
|
|
3.47
|
|
|
|
784
|
|
|
|
3.58
|
|
State & municipal
obligations(A)
|
|
|
573
|
|
|
|
4.57
|
|
|
|
472
|
|
|
|
4.48
|
|
|
|
348
|
|
|
|
4.40
|
|
|
|
260
|
|
|
|
4.36
|
|
Mortgage and asset-backed securities
|
|
|
2,178
|
|
|
|
4.52
|
|
|
|
2,172
|
|
|
|
4.38
|
|
|
|
2,166
|
|
|
|
4.30
|
|
|
|
2,293
|
|
|
|
4.30
|
|
Trading securities
|
|
|
15
|
|
|
|
4.49
|
|
|
|
14
|
|
|
|
4.57
|
|
|
|
21
|
|
|
|
4.34
|
|
|
|
19
|
|
|
|
4.15
|
|
Other marketable
securities(A)
|
|
|
198
|
|
|
|
6.12
|
|
|
|
213
|
|
|
|
5.66
|
|
|
|
194
|
|
|
|
5.47
|
|
|
|
194
|
|
|
|
5.22
|
|
Non-marketable securities
|
|
|
84
|
|
|
|
14.86
|
|
|
|
86
|
|
|
|
6.51
|
|
|
|
87
|
|
|
|
6.88
|
|
|
|
84
|
|
|
|
6.90
|
|
|
|
Total investment securities
|
|
|
3,540
|
|
|
|
4.74
|
|
|
|
3,549
|
|
|
|
4.39
|
|
|
|
3,513
|
|
|
|
4.27
|
|
|
|
3,634
|
|
|
|
4.26
|
|
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
530
|
|
|
|
5.34
|
|
|
|
379
|
|
|
|
5.33
|
|
|
|
143
|
|
|
|
5.06
|
|
|
|
142
|
|
|
|
4.64
|
|
|
|
Total interest earning assets
|
|
|
13,950
|
|
|
|
6.56
|
|
|
|
13,481
|
|
|
|
6.42
|
|
|
|
12,890
|
|
|
|
6.25
|
|
|
|
12,783
|
|
|
|
6.03
|
|
|
|
Less allowance for loan losses
|
|
|
(131
|
)
|
|
|
|
|
|
|
(130
|
)
|
|
|
|
|
|
|
(128
|
)
|
|
|
|
|
|
|
(128
|
)
|
|
|
|
|
Unrealized gain (loss) on investment securities
|
|
|
9
|
|
|
|
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
Cash and due from banks
|
|
|
471
|
|
|
|
|
|
|
|
462
|
|
|
|
|
|
|
|
471
|
|
|
|
|
|
|
|
481
|
|
|
|
|
|
Land, buildings and equipment net
|
|
|
389
|
|
|
|
|
|
|
|
377
|
|
|
|
|
|
|
|
367
|
|
|
|
|
|
|
|
371
|
|
|
|
|
|
Other assets
|
|
|
312
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
221
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
15,000
|
|
|
|
|
|
|
$
|
14,432
|
|
|
|
|
|
|
$
|
13,800
|
|
|
|
|
|
|
$
|
13,706
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
|
|
$
|
401
|
|
|
|
.57
|
|
|
$
|
394
|
|
|
|
.57
|
|
|
$
|
397
|
|
|
|
.56
|
|
|
$
|
384
|
|
|
|
.54
|
|
Interest checking and money market
|
|
|
6,862
|
|
|
|
1.56
|
|
|
|
6,678
|
|
|
|
1.53
|
|
|
|
6,666
|
|
|
|
1.35
|
|
|
|
6,661
|
|
|
|
1.16
|
|
Time open & C.D.s under $100,000
|
|
|
2,293
|
|
|
|
4.50
|
|
|
|
2,156
|
|
|
|
4.28
|
|
|
|
1,974
|
|
|
|
3.95
|
|
|
|
1,881
|
|
|
|
3.61
|
|
Time open & C.D.s $100,000 & over
|
|
|
1,292
|
|
|
|
4.79
|
|
|
|
1,320
|
|
|
|
4.72
|
|
|
|
1,257
|
|
|
|
4.44
|
|
|
|
1,286
|
|
|
|
4.16
|
|
|
|
Total interest bearing deposits
|
|
|
10,848
|
|
|
|
2.53
|
|
|
|
10,548
|
|
|
|
2.45
|
|
|
|
10,294
|
|
|
|
2.20
|
|
|
|
10,212
|
|
|
|
1.97
|
|
|
|
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,793
|
|
|
|
5.15
|
|
|
|
1,581
|
|
|
|
5.09
|
|
|
|
1,214
|
|
|
|
4.63
|
|
|
|
1,227
|
|
|
|
4.16
|
|
Other borrowings
|
|
|
104
|
|
|
|
5.86
|
|
|
|
163
|
|
|
|
4.91
|
|
|
|
205
|
|
|
|
4.67
|
|
|
|
260
|
|
|
|
4.34
|
|
|
|
Total borrowings
|
|
|
1,897
|
|
|
|
5.19
|
|
|
|
1,744
|
|
|
|
5.07
|
|
|
|
1,419
|
|
|
|
4.64
|
|
|
|
1,487
|
|
|
|
4.19
|
|
|
|
Total interest bearing liabilities
|
|
|
12,745
|
|
|
|
2.92
|
%
|
|
|
12,292
|
|
|
|
2.83
|
%
|
|
|
11,713
|
|
|
|
2.49
|
%
|
|
|
11,699
|
|
|
|
2.25
|
%
|
|
|
Non-interest bearing demand deposits
|
|
|
664
|
|
|
|
|
|
|
|
644
|
|
|
|
|
|
|
|
664
|
|
|
|
|
|
|
|
598
|
|
|
|
|
|
Other liabilities
|
|
|
133
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
Stockholders equity
|
|
|
1,458
|
|
|
|
|
|
|
|
1,384
|
|
|
|
|
|
|
|
1,337
|
|
|
|
|
|
|
|
1,330
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
15,000
|
|
|
|
|
|
|
$
|
14,432
|
|
|
|
|
|
|
$
|
13,800
|
|
|
|
|
|
|
$
|
13,706
|
|
|
|
|
|
|
|
Net interest margin (T/E)
|
|
$
|
136
|
|
|
|
|
|
|
$
|
131
|
|
|
|
|
|
|
$
|
128
|
|
|
|
|
|
|
$
|
125
|
|
|
|
|
|
|
|
Net yield on interest earning assets
|
|
|
|
|
|
|
3.89
|
%
|
|
|
|
|
|
|
3.84
|
%
|
|
|
|
|
|
|
3.98
|
%
|
|
|
|
|
|
|
3.97
|
%
|
|
|
(A) Includes tax equivalent
calculations.
55
Item 7a.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The information required by this item is set forth on pages 41
through 44 of Managements Discussion and Analysis of
Consolidated Financial Condition and Results of Operations.
Item 8.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Commerce Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of
Commerce Bancshares, Inc. and subsidiaries (the Company) as of
December 31, 2007 and 2006, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the years in the three-year period ended
December 31, 2007. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Commerce Bancshares, Inc. and subsidiaries as of
December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2007, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated February 26, 2008
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
Kansas City, Missouri
February 26, 2008
56
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
10,605,368
|
|
|
$
|
9,681,520
|
|
Allowance for loan losses
|
|
|
(133,586
|
)
|
|
|
(131,730
|
)
|
|
|
Net loans
|
|
|
10,471,782
|
|
|
|
9,549,790
|
|
|
|
Loans held for sale
|
|
|
235,896
|
|
|
|
278,598
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
Available for sale ($524,399,000 and $526,430,000 pledged in
2007 and
|
|
|
|
|
|
|
|
|
2006, respectively, to secure structured repurchase agreements)
|
|
|
3,165,020
|
|
|
|
3,415,440
|
|
Trading
|
|
|
26,478
|
|
|
|
6,676
|
|
Non-marketable
|
|
|
105,517
|
|
|
|
74,207
|
|
|
|
Total investment securities
|
|
|
3,297,015
|
|
|
|
3,496,323
|
|
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
655,165
|
|
|
|
527,816
|
|
Cash and due from banks
|
|
|
673,081
|
|
|
|
626,500
|
|
Land, buildings and equipment net
|
|
|
406,249
|
|
|
|
386,095
|
|
Goodwill
|
|
|
124,570
|
|
|
|
97,643
|
|
Other intangible assets net
|
|
|
21,413
|
|
|
|
19,633
|
|
Other assets
|
|
|
319,660
|
|
|
|
247,951
|
|
|
|
Total assets
|
|
$
|
16,204,831
|
|
|
$
|
15,230,349
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non-interest bearing demand
|
|
$
|
1,413,849
|
|
|
$
|
1,312,400
|
|
Savings, interest checking and money market
|
|
|
7,155,366
|
|
|
|
6,879,047
|
|
Time open and C.D.s of less than $100,000
|
|
|
2,374,782
|
|
|
|
2,302,567
|
|
Time open and C.D.s of $100,000 and over
|
|
|
1,607,555
|
|
|
|
1,250,840
|
|
|
|
Total deposits
|
|
|
12,551,552
|
|
|
|
11,744,854
|
|
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,239,219
|
|
|
|
1,771,282
|
|
Other borrowings
|
|
|
583,639
|
|
|
|
53,934
|
|
Other liabilities
|
|
|
302,735
|
|
|
|
218,165
|
|
|
|
Total liabilities
|
|
|
14,677,145
|
|
|
|
13,788,235
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $1 par value
|
|
|
|
|
|
|
|
|
Authorized and unissued 2,000,000 shares
|
|
|
|
|
|
|
|
|
Common stock, $5 par value
|
|
|
|
|
|
|
|
|
Authorized 100,000,000 shares; issued
71,938,743 shares in 2007 and 70,465,922 shares in 2006
|
|
|
359,694
|
|
|
|
352,330
|
|
Capital surplus
|
|
|
475,220
|
|
|
|
427,421
|
|
Retained earnings
|
|
|
669,142
|
|
|
|
683,176
|
|
Treasury stock of 52,614 and 422,468 shares in 2007 and
2006, respectively, at cost
|
|
|
(2,477
|
)
|
|
|
(20,613
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
26,107
|
|
|
|
(200
|
)
|
|
|
Total stockholders equity
|
|
|
1,527,686
|
|
|
|
1,442,114
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
16,204,831
|
|
|
$
|
15,230,349
|
|
|
|
See accompanying notes to
consolidated financial statements.
57
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31
|
|
(In thousands, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans
|
|
$
|
734,986
|
|
|
$
|
643,329
|
|
|
$
|
520,626
|
|
Interest on loans held for sale
|
|
|
21,940
|
|
|
|
21,788
|
|
|
|
657
|
|
Interest on investment securities
|
|
|
153,294
|
|
|
|
151,552
|
|
|
|
172,181
|
|
Interest on federal funds sold and securities purchased under
agreements to resell
|
|
|
25,881
|
|
|
|
15,637
|
|
|
|
4,102
|
|
|
|
Total interest income
|
|
|
936,101
|
|
|
|
832,306
|
|
|
|
697,566
|
|
|
|
INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, interest checking and money market
|
|
|
116,094
|
|
|
|
96,442
|
|
|
|
53,371
|
|
Time open and C.D.s of less than $100,000
|
|
|
110,957
|
|
|
|
85,424
|
|
|
|
50,597
|
|
Time open and C.D.s of $100,000 and over
|
|
|
73,739
|
|
|
|
58,381
|
|
|
|
30,779
|
|
Interest on federal funds purchased and securities sold under
agreements to repurchase
|
|
|
83,464
|
|
|
|
70,154
|
|
|
|
48,776
|
|
Interest on other borrowings
|
|
|
13,775
|
|
|
|
8,706
|
|
|
|
12,341
|
|
|
|
Total interest expense
|
|
|
398,029
|
|
|
|
319,107
|
|
|
|
195,864
|
|
|
|
Net interest income
|
|
|
538,072
|
|
|
|
513,199
|
|
|
|
501,702
|
|
Provision for loan losses
|
|
|
42,732
|
|
|
|
25,649
|
|
|
|
28,785
|
|
|
|
Net interest income after provision for loan losses
|
|
|
495,340
|
|
|
|
487,550
|
|
|
|
472,917
|
|
|
|
NON-INTEREST INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit account charges and other fees
|
|
|
117,350
|
|
|
|
115,453
|
|
|
|
112,979
|
|
Bank card transaction fees
|
|
|
103,613
|
|
|
|
94,928
|
|
|
|
86,310
|
|
Trust fees
|
|
|
78,840
|
|
|
|
72,180
|
|
|
|
68,316
|
|
Consumer brokerage services
|
|
|
12,445
|
|
|
|
9,954
|
|
|
|
9,909
|
|
Trading account profits and commissions
|
|
|
8,647
|
|
|
|
8,132
|
|
|
|
9,650
|
|
Loan fees and sales
|
|
|
8,835
|
|
|
|
10,503
|
|
|
|
12,838
|
|
Other
|
|
|
41,851
|
|
|
|
41,436
|
|
|
|
34,835
|
|
|
|
Total non-interest income
|
|
|
371,581
|
|
|
|
352,586
|
|
|
|
334,837
|
|
|
|
INVESTMENT SECURITIES GAINS, NET
|
|
|
8,234
|
|
|
|
9,035
|
|
|
|
6,362
|
|
|
|
NON-INTEREST EXPENSE
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
308,768
|
|
|
|
288,273
|
|
|
|
273,177
|
|
Net occupancy
|
|
|
45,789
|
|
|
|
43,276
|
|
|
|
40,621
|
|
Equipment
|
|
|
24,121
|
|
|
|
25,665
|
|
|
|
23,201
|
|
Supplies and communication
|
|
|
34,162
|
|
|
|
32,670
|
|
|
|
33,342
|
|
Data processing and software
|
|
|
49,081
|
|
|
|
50,982
|
|
|
|
48,244
|
|
Marketing
|
|
|
18,199
|
|
|
|
17,317
|
|
|
|
17,294
|
|
Indemnification obligation
|
|
|
20,951
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
73,687
|
|
|
|
67,242
|
|
|
|
60,643
|
|
|
|
Total non-interest expense
|
|
|
574,758
|
|
|
|
525,425
|
|
|
|
496,522
|
|
|
|
Income before income taxes
|
|
|
300,397
|
|
|
|
323,746
|
|
|
|
317,594
|
|
Less income taxes
|
|
|
93,737
|
|
|
|
103,904
|
|
|
|
94,347
|
|
|
|
Net income
|
|
$
|
206,660
|
|
|
$
|
219,842
|
|
|
$
|
223,247
|
|
|
|
Net income per share basic
|
|
$
|
2.86
|
|
|
$
|
2.98
|
|
|
$
|
2.91
|
|
Net income per share diluted
|
|
$
|
2.82
|
|
|
$
|
2.94
|
|
|
$
|
2.87
|
|
|
|
See accompanying notes to
consolidated financial statements.
58
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
206,660
|
|
|
$
|
219,842
|
|
|
$
|
223,247
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
42,732
|
|
|
|
25,649
|
|
|
|
28,785
|
|
Provision for depreciation and amortization
|
|
|
52,469
|
|
|
|
48,436
|
|
|
|
42,318
|
|
Amortization of investment security premiums, net
|
|
|
7,398
|
|
|
|
12,318
|
|
|
|
16,730
|
|
Benefit for deferred income taxes
|
|
|
(11,227
|
)
|
|
|
(1,380
|
)
|
|
|
(1,757
|
)
|
Investment securities gains, net
|
|
|
(8,234
|
)
|
|
|
(9,035
|
)
|
|
|
(6,362
|
)
|
Net gains on sales of loans held for sale
|
|
|
(5,670
|
)
|
|
|
(7,259
|
)
|
|
|
(1,401
|
)
|
Proceeds from sales of loans held for sale
|
|
|
420,295
|
|
|
|
410,462
|
|
|
|
94,763
|
|
Originations of loans held for sale
|
|
|
(371,918
|
)
|
|
|
(344,243
|
)
|
|
|
(88,504
|
)
|
Net (increase) decrease in trading securities
|
|
|
(19,058
|
)
|
|
|
24,292
|
|
|
|
(15,536
|
)
|
Stock based compensation
|
|
|
6,263
|
|
|
|
4,786
|
|
|
|
6,628
|
|
(Increase) decrease in interest receivable
|
|
|
8,324
|
|
|
|
(11,051
|
)
|
|
|
676
|
|
Increase in interest payable
|
|
|
5,270
|
|
|
|
25,467
|
|
|
|
16,213
|
|
Increase in income taxes payable
|
|
|
7,743
|
|
|
|
14,576
|
|
|
|
22
|
|
Net tax benefit related to equity compensation plans
|
|
|
(2,283
|
)
|
|
|
(2,108
|
)
|
|
|
(4,288
|
)
|
Other changes, net
|
|
|
(3,062
|
)
|
|
|
(19,220
|
)
|
|
|
(21,770
|
)
|
|
|
Net cash provided by operating activities
|
|
|
335,702
|
|
|
|
391,532
|
|
|
|
289,764
|
|
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash and cash equivalents paid in acquisitions
|
|
|
(14,046
|
)
|
|
|
(8,498
|
)
|
|
|
|
|
Proceeds from sales of available for sale securities
|
|
|
239,541
|
|
|
|
170,421
|
|
|
|
1,816,865
|
|
Proceeds from maturities/pay downs of available for sale
securities
|
|
|
1,135,260
|
|
|
|
1,142,763
|
|
|
|
1,197,556
|
|
Purchases of available for sale securities
|
|
|
(1,095,686
|
)
|
|
|
(888,132
|
)
|
|
|
(2,012,483
|
)
|
Net increase in loans
|
|
|
(793,214
|
)
|
|
|
(764,519
|
)
|
|
|
(631,391
|
)
|
Purchases of land, buildings and equipment
|
|
|
(55,102
|
)
|
|
|
(44,951
|
)
|
|
|
(64,231
|
)
|
Sales of land, buildings and equipment
|
|
|
4,888
|
|
|
|
3,470
|
|
|
|
2,475
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(578,359
|
)
|
|
|
(389,446
|
)
|
|
|
308,791
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in non-interest bearing demand, savings,
interest checking and money market deposits
|
|
|
253,221
|
|
|
|
163,747
|
|
|
|
(139,593
|
)
|
Net increase in time open and C.D.s
|
|
|
379,002
|
|
|
|
340,559
|
|
|
|
543,130
|
|
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase
|
|
|
(542,992
|
)
|
|
|
417,441
|
|
|
|
(587,451
|
)
|
Repayment of long-term borrowings
|
|
|
(33,095
|
)
|
|
|
(252,320
|
)
|
|
|
(119,985
|
)
|
Additional long-term borrowings
|
|
|
542,000
|
|
|
|
|
|
|
|
|
|
Purchases of treasury stock
|
|
|
(128,578
|
)
|
|
|
(134,956
|
)
|
|
|
(234,501
|
)
|
Issuance of stock under stock purchase and equity compensation
plans
|
|
|
13,661
|
|
|
|
7,274
|
|
|
|
18,393
|
|
Net tax benefit related to equity compensation plans
|
|
|
2,283
|
|
|
|
2,108
|
|
|
|
4,288
|
|
Cash dividends paid on common stock
|
|
|
(68,915
|
)
|
|
|
(65,758
|
)
|
|
|
(63,421
|
)
|
|
|
Net cash provided by (used in) financing activities
|
|
|
416,587
|
|
|
|
478,095
|
|
|
|
(579,140
|
)
|
|
|
Increase in cash and cash equivalents
|
|
|
173,930
|
|
|
|
480,181
|
|
|
|
19,415
|
|
Cash and cash equivalents at beginning of year
|
|
|
1,154,316
|
|
|
|
674,135
|
|
|
|
654,720
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
1,328,246
|
|
|
$
|
1,154,316
|
|
|
$
|
674,135
|
|
|
|
See accompanying notes to
consolidated financial statements.
59
Commerce
Bancshares, Inc. and Subsidiaries
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Capital
|
|
|
Retained
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
|
|
(In thousands, except per share data)
|
|
Stock
|
|
|
Surplus
|
|
|
Earnings
|
|
|
Stock
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
Balance, December 31, 2004
|
|
$
|
347,049
|
|
|
$
|
388,614
|
|
|
$
|
703,293
|
|
|
$
|
(51,646
|
)
|
|
$
|
39,570
|
|
|
$
|
1,426,880
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
223,247
|
|
|
|
|
|
|
|
|
|
|
|
223,247
|
|
Change in unrealized gain (loss) on available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,453
|
)
|
|
|
(43,453
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
179,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(234,501
|
)
|
|
|
|
|
|
|
(234,501
|
)
|
Cash dividends paid ($.829 per share)
|
|
|
|
|
|
|
|
|
|
|
(63,421
|
)
|
|
|
|
|
|
|
|
|
|
|
(63,421
|
)
|
Net tax benefit related to equity compensation plans
|
|
|
|
|
|
|
4,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,288
|
|
Stock based compensation
|
|
|
|
|
|
|
6,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,628
|
|
Issuance under stock purchase and equity compensation plans, net
|
|
|
|
|
|
|
(18,656
|
)
|
|
|
|
|
|
|
37,049
|
|
|
|
|
|
|
|
18,393
|
|
5% stock dividend, net
|
|
|
|
|
|
|
7,678
|
|
|
|
(170,098
|
)
|
|
|
162,197
|
|
|
|
|
|
|
|
(223
|
)
|
|
|
Balance, December 31, 2005
|
|
|
347,049
|
|
|
|
388,552
|
|
|
|
693,021
|
|
|
|
(86,901
|
)
|
|
|
(3,883
|
)
|
|
|
1,337,838
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
219,842
|
|
|
|
|
|
|
|
|
|
|
|
219,842
|
|
Change in unrealized gain (loss) on available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,553
|
|
|
|
14,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(134,956
|
)
|
|
|
|
|
|
|
(134,956
|
)
|
Cash dividends paid ($.889 per share)
|
|
|
|
|
|
|
|
|
|
|
(65,758
|
)
|
|
|
|
|
|
|
|
|
|
|
(65,758
|
)
|
Net tax benefit related to equity compensation plans
|
|
|
|
|
|
|
2,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,108
|
|
Stock based compensation
|
|
|
|
|
|
|
4,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,786
|
|
Issuance under stock purchase and equity compensation plans, net
|
|
|
|
|
|
|
(9,830
|
)
|
|
|
|
|
|
|
17,104
|
|
|
|
|
|
|
|
7,274
|
|
Issuance in West Pointe Bancorp, Inc. acquisition
|
|
|
|
|
|
|
(1,268
|
)
|
|
|
|
|
|
|
68,752
|
|
|
|
|
|
|
|
67,484
|
|
5% stock dividend, net
|
|
|
5,281
|
|
|
|
43,073
|
|
|
|
(163,929
|
)
|
|
|
115,388
|
|
|
|
|
|
|
|
(187
|
)
|
Adoption of SFAS No. 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,870
|
)
|
|
|
(10,870
|
)
|
|
|
Balance, December 31, 2006
|
|
|
352,330
|
|
|
|
427,421
|
|
|
|
683,176
|
|
|
|
(20,613
|
)
|
|
|
(200
|
)
|
|
|
1,442,114
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
206,660
|
|
|
|
|
|
|
|
|
|
|
|
206,660
|
|
Change in unrealized gain (loss) on available for sale
securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,363
|
|
|
|
19,363
|
|
Change in pension plan loss, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,944
|
|
|
|
6,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232,967
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(128,578
|
)
|
|
|
|
|
|
|
(128,578
|
)
|
Cash dividends paid ($.952 per share)
|
|
|
|
|
|
|
|
|
|
|
(68,915
|
)
|
|
|
|
|
|
|
|
|
|
|
(68,915
|
)
|
Net tax benefit related to equity compensation plans
|
|
|
|
|
|
|
2,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,283
|
|
Stock based compensation
|
|
|
|
|
|
|
6,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,263
|
|
Issuance under stock purchase and equity compensation plans, net
|
|
|
144
|
|
|
|
(12,339
|
)
|
|
|
|
|
|
|
25,856
|
|
|
|
|
|
|
|
13,661
|
|
Issuance in South Tulsa Financial Corp. acquisition
|
|
|
|
|
|
|
(303
|
)
|
|
|
|
|
|
|
27,917
|
|
|
|
|
|
|
|
27,614
|
|
5% stock dividend, net
|
|
|
7,220
|
|
|
|
51,895
|
|
|
|
(152,225
|
)
|
|
|
92,941
|
|
|
|
|
|
|
|
(169
|
)
|
Adoption of FIN 48
|
|
|
|
|
|
|
|
|
|
|
446
|
|
|
|
|
|
|
|
|
|
|
|
446
|
|
|
|
Balance, December 31, 2007
|
|
$
|
359,694
|
|
|
$
|
475,220
|
|
|
$
|
669,142
|
|
|
$
|
(2,477
|
)
|
|
$
|
26,107
|
|
|
$
|
1,527,686
|
|
|
|
See accompanying notes to
consolidated financial statements.
60
Commerce
Bancshares, Inc. and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Summary
of Significant Accounting Policies
|
Nature of
Operations
Commerce Bancshares, Inc. (the Company) conducts its principal
activities through its banking and non-banking subsidiaries from
approximately 350 locations throughout Missouri, Illinois,
Kansas, Oklahoma and Colorado. Principal activities include
retail and commercial banking, investment management, securities
brokerage, mortgage banking, credit related insurance, venture
capital and real estate activities.
Basis of
Presentation
The Company follows accounting principles generally accepted in
the United States of America (GAAP) and reporting practices
applicable to the banking industry. The preparation of financial
statements under GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and notes. These estimates are based on information
available to management at the time the estimates are made.
While the consolidated financial statements reflect
managements best estimates and judgment, actual results
could differ from those estimates. The consolidated financial
statements include the accounts of the Company and its
majority-owned subsidiaries (after elimination of all material
intercompany balances and transactions). Certain amounts for
prior years have been reclassified to conform to the current
year presentation. Such reclassifications had no effect on net
income, assets or stockholders equity.
Cash and
Cash Equivalents
In the accompanying consolidated statements of cash flows, cash
and cash equivalents include Cash and due from banks
and Federal funds sold and securities purchased under
agreements to resell as segregated in the accompanying
consolidated balance sheets.
Loans and
Related Earnings
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at
their outstanding principal balances, net of undisbursed loan
proceeds, the allowance for loan losses, and any deferred fees
and costs on originated loans. Origination fee income received
on loans and amounts representing the estimated direct costs of
origination are deferred and amortized to interest income over
the life of the loan using the interest method. Prepayment
premium or yield maintenance agreements are generally required
on all term commercial loans with fixed rate intervals of one
year or more, and corporate policy requires such language on all
term loans over $250,000 with greater than one year maturity.
Interest on loans is accrued based upon the principal amount
outstanding. Interest income is recognized primarily on the
level yield method. Loan and commitment fees on commercial and
consumer loans, net of costs, are deferred and recognized in
income over the term of the loan or commitment as an adjustment
of yield. Annual fees charged on credit card loans are
capitalized to principal and amortized over 12 months to
loan fees and sales in the accompanying consolidated income
statements. Other credit card fees, such as cash advance fees
and late payment fees, are recognized in income as an adjustment
of yield when charged to the cardholders account.
Loans, including those that are considered to be impaired, are
evaluated regularly by management. Business, lease, construction
and business real estate loans are placed on non-accrual status
when the collection of interest or principal is 90 days or
more past due, unless the loan is adequately secured and in the
process of collection. When a loan is placed on non-accrual
status, any interest previously accrued but not collected is
reversed against current income. Loans may be returned to
accrual status when all the principal and interest amounts
contractually due are brought current and future payments are
reasonably assured. Interest payments received on non-accrual
loans are generally applied to principal unless the remaining
61
principal balance has been determined to be fully collectible.
Consumer installment loans and related accrued interest are
normally charged down to the fair value of related collateral
(or are charged off in full if no collateral) once the loans are
more than 120 days delinquent. Credit card loans are
charged off against the allowance for loan losses when the
receivable is more than 180 days past due. The interest and
fee income previously capitalized but not collected on credit
card charge-offs is reversed against interest income.
Loans
Held for Sale
Loans held for sale include student loans and fixed rate
residential mortgage loans. These loans are typically classified
as held for sale upon origination based upon managements
intent to sell all the production of these loans. They are
carried at the lower of aggregate cost or fair value. Fair value
is determined based on prevailing market prices for loans with
similar characteristics or on sale contract prices. Declines in
fair value below cost are recognized in loan fees and sales.
Deferred fees and costs related to these loans are not amortized
but are recognized as part of the cost basis of the loan at the
time it is sold. Gains or losses on sales are recognized upon
delivery and included in loan fees and sales.
Allowance/Provision
for Loan Losses
The allowance for loan losses is maintained at a level believed
to be appropriate by management to provide for probable loan
losses inherent in the portfolio as of the balance sheet date,
including known or anticipated problem loans as well as for
loans which are not currently known to require specific
allowances. Managements judgment as to the amount of the
allowance is a result of the review of larger individual loans,
collateral values, the overall risk characteristics of the
portfolio, changes in the character or size of the portfolio,
the level of impaired and non-performing assets, historical
charge-off amounts, geographic location, prevailing economic
conditions and other relevant factors (including individual
valuations on nonperforming loans in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS)
No. 114, Accounting by Creditors for Impairment of a
Loan). Loans are considered impaired when it becomes
probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement.
Included in impaired loans are all non-accrual business, lease,
construction, and business real estate loans. Consumer, personal
real estate, home equity and credit card loans (collectively,
personal loans) are excluded from the definition of an impaired
loan. Once a loan has been identified as impaired, management
measures impairment in accordance with SFAS No. 114.
Impairment is measured as the present value of the expected
future cash flows at the loans initial effective interest
rate or the fair value of the collateral for
collateral-dependent loans. Personal loans are segregated by
loan type and by
sub-type,
and are evaluated on a group basis. Loans are charged off to the
extent they are deemed to be uncollectible, reducing the
allowance. Recoveries of loans previously charged off are added
to the allowance. The amount of the allowance for loan losses is
highly dependent on managements estimates of variables
affecting valuation, appraisals of collateral, evaluations of
performance and status, and the amount and timing of future cash
flows expected to be received on impaired loans. Such estimates,
appraisals, evaluations, and cash flows may be subject to
frequent adjustments due to changing economic prospects of
borrowers or properties. These estimates are reviewed
periodically and adjustments, if necessary, are recorded in the
provision for loan losses in the periods in which they become
known.
Operating,
Direct Financing and Sales Type Leases
The net investment in direct financing and sales type leases is
included in loans on the Companys consolidated balance
sheets, and consists of the present values of the sum of the
future minimum lease payments and estimated residual value of
the leased asset. Revenue consists of interest earned on the net
investment, and is recognized over the lease term as a constant
percentage return thereon. The net investment in operating
leases is included in other assets on the Companys
consolidated balance sheets. It is carried at cost, less the
amount depreciated to date. Depreciation is recognized, on the
straight-line basis, over the lease term to the estimated
residual value. Operating lease revenue consists of the
contractual lease payments and is recognized over the lease term
in other non-interest income. Estimated residual values are
established at lease inception utilizing contract terms, past
customer experience, and general market data and are reviewed,
and adjusted if necessary, on an annual basis.
62
Investments
in Debt and Equity Securities
The Company has classified the majority of its investment
portfolio as available for sale. From time to time, the Company
sells securities and utilizes the proceeds to reduce borrowings,
fund loan growth, or modify its interest rate profile.
Securities classified as available for sale are carried at fair
value in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. Their related unrealized gains and losses, net
of tax, are reported in accumulated other comprehensive income
(loss), a component of stockholders equity. Realized gains
and losses, including
other-than-temporary
declines in fair value, are calculated using the specific
identification method and are included in Investment
securities gains, net in the consolidated statements of
income. Premiums and discounts are amortized to interest income
over the estimated lives of the securities. Prepayment
experience is continually evaluated and a determination made
regarding the appropriate estimate of the future rate of
prepayment. When a change in a bonds estimated remaining
life is necessary, a corresponding adjustment is made in the
related amortization of premium or discount accretion.
Non-marketable securities include certain private equity and
venture capital investments, consisting of both debt and equity
instruments. These securities are carried at fair value in
accordance with the AICPA Audit Guide on investment companies,
with changes in fair value reported in current earnings. In the
absence of readily ascertainable market values, fair value is
determined based on observable market values or at estimated
fair values. Changes in fair value and gains and losses from
sales are included in Investment securities gains,
net. Other non-marketable securities acquired for debt and
regulatory purposes are accounted for at cost.
Trading account securities, which are bought and held
principally for the purpose of resale in the near term, are
carried at fair value. Gains and losses, both realized and
unrealized, are recorded in non-interest income.
Purchases and sales of securities are recognized on a trade date
basis. A receivable or payable is recognized for pending
transaction settlements.
Land,
Buildings and Equipment
Land is stated at cost, and buildings and equipment are stated
at cost, including capitalized interest when appropriate, less
accumulated depreciation. Depreciation is computed using
straight-line and accelerated methods. The Company generally
assigns depreciable lives of 30 years for buildings,
10 years for building improvements, and 3 to 8 years
for equipment. Leasehold improvements are amortized over the
shorter of their estimated useful lives or remaining lease
terms. Maintenance and repairs are charged to non-interest
expense as incurred.
Foreclosed
Assets
Foreclosed assets consist of property that has been repossessed.
Collateral obtained through foreclosure is comprised of
commercial and residential real estate and other non-real estate
property, including auto and marine vehicles. The assets are
initially recorded at the lower of the related loan balance or
fair value of the collateral less estimated selling costs, with
any valuation adjustments charged to the allowance for loan
losses. Fair values are estimated primarily based on appraisals
when available or quoted market prices of liquid assets. After
their initial recognition, foreclosed assets are valued at the
lower of the amount recorded at acquisition date or the current
fair value less estimated costs to sell, and any resulting
valuation adjustments, in addition to gains and losses realized
on sales and net operating expenses, are recorded in other
non-interest expense.
Intangible
Assets
Goodwill and intangible assets that have indefinite useful lives
are not amortized, but are tested annually for impairment.
Intangible assets that have finite useful lives, such as core
deposit intangibles and mortgage servicing rights, are amortized
over their estimated useful lives. Core deposit intangibles are
amortized over periods of 8 to 14 years, representing their
estimated lives, using accelerated methods.
63
Mortgage servicing rights are amortized in proportion to and
over the period of estimated net servicing income, considering
appropriate prepayment assumptions.
When facts and circumstances indicate potential impairment of
amortizable intangible assets, the Company evaluates the
recoverability of the asset carrying value, using estimates of
undiscounted future cash flows over the remaining asset life.
Any impairment loss is measured by the excess of carrying value
over fair value. Goodwill impairment tests are performed on an
annual basis or when events or circumstances dictate. In these
tests, the fair value of each reporting unit, or segment, is
compared to the carrying amount of that reporting unit in order
to determine if impairment is indicated. If so, the implied fair
value of the reporting units goodwill is compared to its
carrying amount and the impairment loss is measured by the
excess of the carrying value over fair value. There has been no
impairment resulting from goodwill impairment tests. However,
adverse changes in the economic environment, operations of the
reporting unit, or other factors could result in a decline in
the implied fair value.
Income
Taxes
The Company accounts for income taxes in accordance with
SFAS No. 109, Accounting for Income Taxes.
Amounts provided for income tax expense are based on income
reported for financial statement purposes and do not necessarily
represent amounts currently payable under tax laws. Deferred
income taxes are provided for temporary differences between the
financial reporting bases and income tax bases of the
Companys assets and liabilities, net operating losses, and
tax credit carryforwards. Deferred tax assets and liabilities
are measured using the enacted tax rates that are expected to
apply to taxable income when such assets and liabilities are
anticipated to be settled or realized. The effect on deferred
tax assets and liabilities of a change in tax rates is
recognized as tax expense or benefit in the period that includes
the enactment date of the change. In determining the amount of
deferred tax assets to recognize in the financial statements,
the Company evaluates the likelihood of realizing such benefits
in future periods. SFAS No. 109 requires a valuation
allowance if it is more likely than not that all or some portion
of the deferred tax asset will not be realized. The Company
recognizes interest and penalties related to income taxes within
income tax expense in the consolidated statements of income.
The Company and its eligible subsidiaries file a consolidated
federal income tax return. State and local income tax returns
are filed on a combined, consolidated or separate return basis
based upon each jurisdictions laws and regulations.
Effective January 1, 2007, the Company adopted the
provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, an Interpretation of FASB
Statement No. 109 (FIN 48). FIN 48
prescribes that the recognition threshold and measurement
attribute necessary for recognition in the financial statements
of a tax position taken, or expected to be taken, in a tax
return. Under FIN 48, an income tax position will be
recognized if it is more likely than not that it will be
sustained upon IRS examination, based upon its technical merits.
Once that status is met, the amount recorded is the largest
amount of benefit that is greater than 50 percent likely of
being realized upon ultimate settlement. As a result of the
Companys adoption of FIN 48, the beginning balance of
retained earnings as of January 1, 2007 increased by $446
thousand.
Derivatives
The Company is exposed to market risk, including changes in
interest rates and currency exchange rates. To manage the
volatility relating to these exposures, the Companys risk
management policies permit its use of derivative products. The
Company manages potential credit exposure through established
credit approvals, risk control limits and other monitoring
procedures. The Company uses derivatives on a limited basis
mainly to stabilize interest rate margins and hedge against
interest rate movements. The Company more often manages normal
asset and liability positions by altering the products it offers
and by selling portions of specific loan or investment
portfolios as necessary.
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, requires that all
derivative financial instruments be recorded on the balance
sheet at fair value, with the adjustment to fair
64
value recorded in current earnings. Derivatives that are part of
a qualifying hedging relationship under SFAS No. 133
can be designated, based on the exposure being hedged, as fair
value or cash flow hedges. Under the fair value hedging model,
gains or losses attributable to the change in fair value of the
derivative, as well as gains and losses attributable to the
change in fair value of the hedged item, are recognized in
current earnings. Under the cash flow hedging model, the
effective portion of the gain or loss related to the derivative
is recognized as a component of other comprehensive income. The
ineffective portion is recognized in current earnings.
The Company formally documents all hedging relationships between
hedging instruments and the hedged item, as well as its risk
management objective. At December 31, 2007, the Company had
two interest rate swaps designated as fair value hedges. The
Company performs quarterly assessments, using the regression
method, to determine whether the hedging relationship has been
highly effective in offsetting changes in fair values.
Derivative contracts are also offered to customers to assist in
hedging their risks of adverse changes in interest rates and
foreign exchange rates. The Company serves as an intermediary
between its customers and the markets. Each contract between the
Company and its customers is offset by a contract between the
Company and various counterparties. These contracts do not
qualify for hedge accounting. They are carried at fair value,
with changes in fair value recorded in other non-interest
income. Since each customer contract is paired with an
offsetting contract, there is no significant impact to net
income.
The Company enters into interest rate lock commitments on
mortgage loans, which are commitments to originate loans whereby
the interest rate on the loan is determined prior to funding.
The Company also has corresponding forward sales contracts
related to these interest rate lock commitments. Both the
mortgage loan commitments and the related sales contracts are
accounted for as derivatives and carried at fair value, with
changes in fair value recorded in loan fees and sales. Fair
values are based upon quoted prices and, in 2007 and prior
years, fair value measurements exclude the value of loan
servicing rights or other ancillary values. In accordance with
new accounting guidance effective in 2008, the value of loan
servicing rights will be incorporated into subsequent fair value
measurements for mortgage loan commitments.
Pension
Plan
The Companys pension plan is described in Note 10,
Employee Benefit Plans. In 2006, the Company adopted
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans,
and at December 31, 2006, adjusted its prepaid pension
asset to reflect the funded status of the pension plan. During
2008, the Company will also change the measurement date of its
plan assets and benefit obligations from September 30 to
December 31, as required by SFAS No. 158.
The measurement of the projected benefit obligation and pension
expense involve actuarial valuation methods and the use of
various actuarial and economic assumptions. The Company monitors
the assumptions and updates them periodically. Due to the
long-term nature of the pension plan obligation, actual results
may differ significantly from estimations. Such differences are
adjusted over time as the assumptions are replaced by facts and
values are recalculated.
Stock-Based
Compensation
The Companys stock-based employee compensation plan is
described in Note 11, Stock-Based Compensation and
Directors Stock Purchase Plan. In accordance with the provisions
of SFAS No. 123 (revised), Share-Based
Payment, the Company measures the cost of stock-based
compensation based on the grant-date fair value of the award,
recognizing the cost over the requisite service period. The fair
value of an award is estimated using the Black-Scholes
option-pricing model. The expense recognized is based on an
estimation of the number of awards for which the requisite
service is expected to be rendered, and is included in salaries
and employee benefits in the accompanying consolidated
statements of income.
65
Treasury
Stock
Purchases of the Companys common stock are recorded at
cost. Upon re-issuance for acquisitions, exercises of
stock-based awards or other corporate purposes, treasury stock
is reduced based upon the average cost basis of shares held.
Income
per Share
Basic income per share is computed using the weighted average
number of common shares outstanding during each year. Diluted
income per share includes the effect of all dilutive potential
common shares (primarily stock options, stock appreciation
rights and nonvested stock awards) outstanding during each year.
All per share data has been restated to reflect the 5% stock
dividend distributed in December 2007.
On July 1, 2007, the Company acquired Commerce Bank in
Denver, Colorado. Commerce Banks results of operations are
included in the Companys consolidated financial results
beginning on that date. In this transaction, the Company
acquired all of the outstanding stock of Commerce Bank for
$29.5 million in cash. The acquisition added
$123.9 million in assets (including $74.5 million in
loans), $72.2 million in deposits and the Companys
first location in Colorado. Intangible assets recognized as a
result of the transaction consisted of goodwill of
$15.1 million and core deposit premium of $4.9 million.
The Company acquired South Tulsa Financial Corporation (South
Tulsa) on April 1, 2007, and accordingly, South
Tulsas results of operations are included in the
Companys consolidated financial results beginning on that
date. In this transaction, the Company acquired all of the
outstanding stock of South Tulsa in exchange for shares of
Company stock valued at $27.6 million. The valuation of
Company stock was based on the average closing price of Company
stock during the measurement period of March 21 through
March 27. The Companys acquisition of South Tulsa
added $142.4 million in assets (including
$114.7 million in loans), $103.9 million in deposits
and two branch locations in Tulsa, Oklahoma. Intangible assets
recognized as a result of the transaction consisted of
approximately $10.6 million in goodwill and
$3.4 million in core deposit premium. Goodwill recognized
in this acquisition is not deductible for income tax purposes.
The fair value of core deposit premiums acquired in 2007 were
estimated by a third party using a net cost savings method. This
methodology calculates the present value of the estimated net
cost savings attributable to the core deposit base, relative to
alternative costs of funds and tax benefit, if applicable, over
the expected remaining economic life of the depositors. Based on
an estimation of the expected remaining economic life of the
depositors, the core deposit premiums are being amortized over a
14 year period, or a weighted average period of
4.5 years, using accelerated methods.
Historical pro forma information has not been presented for the
2007 acquisitions because the effects on the Companys
financial statements were not material. Loans with evidence of a
deterioration in credit quality, and acquired in these and the
2006 transactions mentioned below, were not material to the
consolidated financial statements of the Company. Accordingly,
the provisions of AICPA Statement of Position
03-3, which
require special accounting for such loans, were not applied.
During 2006, the Company acquired two banks. The first
acquisition was in July 2006, when the Company, through a bank
subsidiary (the Bank), acquired certain assets and assumed
certain liabilities of Boone National Savings and Loan
Association (Boone) through a purchase and assumption agreement
for cash of $19.1 million. Boone operated four branches in
central Missouri. The Bank acquired loans and deposits of
$126.4 million and $100.9 million, respectively, and
assumed debt of $26.7 million. Goodwill of
$15.6 million, core deposit premium of $2.6 million,
and $300 thousand of mortgage servicing rights were recorded as
a result of the transaction.
In September 2006, the Company acquired the outstanding stock of
West Pointe Bancorp, Inc. (West Pointe) in Belleville, Illinois,
which operated five branch locations in the greater
St. Louis area. The total purchase price of
$80.5 million consisted of cash of $13.1 million and
1.5 million shares of Company stock valued at
$67.5 million. The Companys acquisition of West
Pointe added $508.8 million in assets, with
66
$255.0 million in loans, and $381.8 million in
deposits. Intangible assets recognized as a result of the
transaction consisted of approximately $38.3 million of
goodwill, $14.9 million of core deposit premium, and $531
thousand of mortgage servicing rights.
West Pointes results of operations were included in the
Companys consolidated financial results beginning
September 1, 2006. The table below shows pro forma
consolidated financial results after combining West
Pointes operations with the Company for a full
12 months in 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2006
|
|
|
2005
|
|
|
|
|
Net interest income plus non-interest income
|
|
$
|
884,706
|
|
|
$
|
860,879
|
|
Net income
|
|
|
215,272
|
|
|
|
225,476
|
|
Net income per share basic
|
|
|
2.88
|
|
|
|
2.88
|
|
Net income per share diluted
|
|
|
2.84
|
|
|
|
2.84
|
|
|
|
|
|
|
|
*
|
All share and per share amounts in this note have been
restated for the 5% stock dividend distributed in 2007.
|
|
|
3.
|
Loans and
Allowance for Loan Losses
|
Major classifications within the Companys loan portfolio
at December 31, 2007 and 2006 are as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Business
|
|
$
|
3,257,047
|
|
|
$
|
2,860,692
|
|
Real estate construction
|
|
|
668,701
|
|
|
|
658,148
|
|
Real estate business
|
|
|
2,239,846
|
|
|
|
2,148,195
|
|
Real estate personal
|
|
|
1,540,289
|
|
|
|
1,478,669
|
|
Consumer
|
|
|
1,648,072
|
|
|
|
1,435,038
|
|
Home equity
|
|
|
460,200
|
|
|
|
441,851
|
|
Consumer credit card
|
|
|
780,227
|
|
|
|
648,326
|
|
Overdrafts
|
|
|
10,986
|
|
|
|
10,601
|
|
|
|
Total loans
|
|
$
|
10,605,368
|
|
|
$
|
9,681,520
|
|
|
|
Loans to directors and executive officers of the Parent and its
significant subsidiaries, and to their associates, are
summarized as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance at January 1, 2007
|
|
$
|
136,837
|
|
Additions
|
|
|
138,272
|
|
Amounts collected
|
|
|
(160,882
|
)
|
Amounts written off
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
114,227
|
|
|
|
Management believes all loans to directors and executive
officers have been made in the ordinary course of business with
normal credit terms, including interest rate and collateral
considerations, and do not represent more than a normal risk of
collection. There were no outstanding loans at December 31,
2007 to principal holders of the Companys common stock.
The Companys lending activity is generally centered in
Missouri, Illinois, Kansas and other nearby states including
Iowa, Oklahoma, Colorado, Indiana, and others. The Company
maintains a diversified portfolio with limited industry
concentrations of credit risk. Loans and loan commitments are
extended under the Companys normal credit standards,
controls, and monitoring features. Most loan commitments are
short and intermediate term in nature. Loan maturities, with the
exception of residential mortgages, generally do not exceed five
years. Collateral is commonly required and would include such
assets as marketable securities and cash equivalent assets,
accounts receivable and inventory, equipment, other forms of
personal property, and real estate. At December 31, 2007,
unfunded loan commitments totaled $8.0 billion (which
included $3.8 billion in unused approved lines of credit
related to credit card loan agreements) which could be drawn by
customers subject to certain review and terms of agreement. At
December 31, 2007, loans
67
of $1.5 billion were pledged at the Federal Home Loan Bank
(FHLB) by subsidiary banks as collateral for borrowings and
letters of credit obtained to secure public deposits. Additional
loans of $1.1 billion were pledged at the Federal Reserve
as collateral for discount window borrowings. There were no
discount window borrowings at December 31, 2007 or 2006.
The Company has a net investment in direct financing and sales
type leases of $276.1 million and $262.4 million at
December 31, 2007 and 2006, respectively, which is included
in business loans on the Companys consolidated balance
sheets. This investment includes deferred income of
$38.7 million and $37.4 million at December 31,
2007 and 2006, respectively. The net investment in operating
leases amounted to $16.6 million and $23.0 million at
December 31, 2007 and 2006, respectively, and is included
in other assets on the Companys consolidated balance
sheets.
A summary of the allowance for loan losses is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Balance, January 1
|
|
$
|
131,730
|
|
|
$
|
128,447
|
|
|
$
|
132,394
|
|
|
|
Additions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
42,732
|
|
|
|
25,649
|
|
|
|
28,785
|
|
Allowance of acquired banks
|
|
|
1,857
|
|
|
|
3,688
|
|
|
|
|
|
|
|
Total additions
|
|
|
44,589
|
|
|
|
29,337
|
|
|
|
28,785
|
|
|
|
Deductions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan losses
|
|
|
58,868
|
|
|
|
40,944
|
|
|
|
47,220
|
|
Less recoveries
|
|
|
16,135
|
|
|
|
14,890
|
|
|
|
14,488
|
|
|
|
Net loan losses
|
|
|
42,733
|
|
|
|
26,054
|
|
|
|
32,732
|
|
|
|
Balance, December 31
|
|
$
|
133,586
|
|
|
$
|
131,730
|
|
|
$
|
128,447
|
|
|
|
The Company had ceased recognition of interest income on loans
with a carrying value of $19.7 million and
$16.7 million at December 31, 2007 and 2006,
respectively. The interest income not recognized on these
non-accrual loans was $2.3 million, $1.4 million and
$1.0 million during 2007, 2006 and 2005, respectively.
Loans 90 days delinquent and still accruing interest
amounted to $20.9 million and $20.4 million at
December 31, 2007 and 2006, respectively.
The following table presents information on impaired loans at
December 31:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Impaired loans for which a related allowance has been provided
|
|
$
|
15,809
|
|
|
$
|
15,537
|
|
Impaired loans for which no related allowance has been provided
|
|
|
3,930
|
|
|
|
2,699
|
|
|
|
Total impaired loans
|
|
$
|
19,739
|
|
|
$
|
18,236
|
|
|
|
Allowance related to impaired loans
|
|
$
|
5,626
|
|
|
$
|
4,644
|
|
|
|
Impaired loans include loans on non-accrual status. Average
impaired loans were $23.8 million during 2007,
$15.3 million during 2006 and $18.7 million during
2005. No interest was recognized on these loans during their
period of impairment.
Loans classified as held for sale primarily consist of loans
originated to students while attending colleges and
universities. Such loans are normally sold in the secondary
market 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.
68
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Balance outstanding at end of year:
|
|
|
|
|
|
|
|
|
Student
|
|
$
|
229,017
|
|
|
$
|
263,786
|
|
Residential mortgage
|
|
|
6,879
|
|
|
|
14,812
|
|
|
|
Total loans held for sale balance
|
|
$
|
235,896
|
|
|
$
|
278,598
|
|
|
|
Net gains on sales:
|
|
|
|
|
|
|
|
|
Student
|
|
$
|
4,484
|
|
|
$
|
6,273
|
|
Residential mortgage
|
|
|
1,186
|
|
|
|
986
|
|
|
|
Total gains on sales of loans held for sale, net
|
|
$
|
5,670
|
|
|
$
|
7,259
|
|
|
|
A summary of the available for sale investment securities by
maturity groupings as of December 31, 2007 is shown below.
The weighted average yield for each range of maturities was
calculated using the yield on each security within that range
weighted by the amortized cost of each security at
December 31, 2007. Yields on tax exempt securities have not
been adjusted for tax exempt status. The investment portfolio
includes fixed and floating-rate mortgage-related securities,
predominantly underwritten to the standards of and guaranteed by
the government-sponsored agencies of FHLMC, FNMA and GNMA. These
securities differ from traditional debt securities primarily in
that they have uncertain maturity dates and are priced based on
estimated prepayment rates on the underlying mortgages. Also
included are certain other asset-backed securities (primarily
credit card, automobile and commercial loan backed securities).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Amortized
|
|
|
|
|
|
Average
|
|
(Dollars in thousands)
|
|
Cost
|
|
|
Fair Value
|
|
|
Yield
|
|
|
|
|
U.S. government and federal agency obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
$
|
499
|
|
|
$
|
500
|
|
|
|
4.82
|
%
|
After 1 but within 5 years
|
|
|
5,973
|
|
|
|
6,617
|
|
|
|
5.74
|
|
|
|
Total U.S. government and federal agency obligations
|
|
|
6,472
|
|
|
|
7,117
|
|
|
|
5.66
|
|
|
|
Government-sponsored enterprise obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
234,210
|
|
|
|
233,810
|
|
|
|
3.96
|
|
After 1 but within 5 years
|
|
|
118,436
|
|
|
|
119,390
|
|
|
|
4.06
|
|
|
|
Total government-sponsored enterprise obligations
|
|
|
352,646
|
|
|
|
353,200
|
|
|
|
4.00
|
|
|
|
State and municipal obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
33,025
|
|
|
|
33,086
|
|
|
|
3.50
|
|
After 1 but within 5 years
|
|
|
399,017
|
|
|
|
402,942
|
|
|
|
3.68
|
|
After 5 but within 10 years
|
|
|
31,996
|
|
|
|
32,550
|
|
|
|
3.92
|
|
After 10 years
|
|
|
34,590
|
|
|
|
34,785
|
|
|
|
4.22
|
|
|
|
Total state and municipal obligations
|
|
|
498,628
|
|
|
|
503,363
|
|
|
|
3.72
|
|
|
|
Mortgage and asset-backed securities
|
|
|
2,147,354
|
|
|
|
2,140,485
|
|
|
|
4.97
|
|
|
|
Other debt securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
|
21,397
|
|
|
|
21,327
|
|
|
|
|
|
|
|
Total other debt securities
|
|
|
21,397
|
|
|
|
21,327
|
|
|
|
|
|
|
|
Equity securities
|
|
|
90,083
|
|
|
|
139,528
|
|
|
|
|
|
|
|
Total available for sale investment securities
|
|
$
|
3,116,580
|
|
|
$
|
3,165,020
|
|
|
|
|
|
|
|
69
The unrealized gains and losses by type are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
(In thousands)
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
6,472
|
|
|
$
|
645
|
|
|
$
|
|
|
|
$
|
7,117
|
|
Government-sponsored enterprise obligations
|
|
|
352,646
|
|
|
|
1,171
|
|
|
|
(617
|
)
|
|
|
353,200
|
|
State and municipal obligations
|
|
|
498,628
|
|
|
|
4,988
|
|
|
|
(253
|
)
|
|
|
503,363
|
|
Mortgage and asset-backed securities
|
|
|
2,147,354
|
|
|
|
9,007
|
|
|
|
(15,876
|
)
|
|
|
2,140,485
|
|
Other debt securities
|
|
|
21,397
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
21,327
|
|
Equity securities
|
|
|
90,083
|
|
|
|
52,697
|
|
|
|
(3,252
|
)
|
|
|
139,528
|
|
|
|
Total
|
|
$
|
3,116,580
|
|
|
$
|
68,508
|
|
|
$
|
(20,068
|
)
|
|
$
|
3,165,020
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
9,258
|
|
|
$
|
430
|
|
|
$
|
(37
|
)
|
|
$
|
9,651
|
|
Government-sponsored enterprise obligations
|
|
|
471,085
|
|
|
|
123
|
|
|
|
(6,641
|
)
|
|
|
464,567
|
|
State and municipal obligations
|
|
|
593,816
|
|
|
|
3,267
|
|
|
|
(2,259
|
)
|
|
|
594,824
|
|
Mortgage and asset-backed securities
|
|
|
2,167,855
|
|
|
|
2,334
|
|
|
|
(33,281
|
)
|
|
|
2,136,908
|
|
Other debt securities
|
|
|
36,528
|
|
|
|
4
|
|
|
|
(523
|
)
|
|
|
36,009
|
|
Equity securities
|
|
|
119,723
|
|
|
|
53,758
|
|
|
|
|
|
|
|
173,481
|
|
|
|
Total
|
|
$
|
3,398,265
|
|
|
$
|
59,916
|
|
|
$
|
(42,741
|
)
|
|
$
|
3,415,440
|
|
|
|
The table above shows that some of the securities in the
portfolio were temporarily impaired as of December 31, 2007
and 2006. This temporary impairment represents the estimated
amount of loss that would be realized if the securities were
sold at the valuation date. Most of the impairment relates to
debt securities and occurs as a result of changes in overall
bond yields between the date the bond was acquired and the
valuation date. Securities which were temporarily impaired at
December 31, 2007 and 2006 are shown below, along with the
length of the impairment period. Out of the total available for
sale portfolio, consisting of over 900 individual securities at
December 31, 2007, 192 securities were temporarily impaired
for 12 months or longer. The majority of these unrealized
losses occurred in collateralized mortgage obligations
(CMOs), most of which were purchased during 2003 through
2005 at interest rates below market rates at December 31,
2007. The Company does not own any CMOs or other
mortgage-backed securities with subprime loan exposure.
Management has considered various factors in its impairment
evaluation, including issuer financial condition, agency rating,
payment prospects, and general industry condition. Management
has the intent and ability to hold these securities until their
maturity and does not believe that any individual unrealized
loss as of December 31, 2007 represents an
other-than-temporary
impairment.
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprise obligations
|
|
$
|
15,236
|
|
|
$
|
6
|
|
|
$
|
191,086
|
|
|
$
|
611
|
|
|
$
|
206,322
|
|
|
$
|
617
|
|
State and municipal obligations
|
|
|
10,516
|
|
|
|
49
|
|
|
|
39,994
|
|
|
|
204
|
|
|
|
50,510
|
|
|
|
253
|
|
Mortgage and asset-backed securities
|
|
|
346,386
|
|
|
|
4,170
|
|
|
|
870,540
|
|
|
|
11,706
|
|
|
|
1,216,926
|
|
|
|
15,876
|
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
21,327
|
|
|
|
70
|
|
|
|
21,327
|
|
|
|
70
|
|
|
|
Subtotal, debt securities
|
|
|
372,138
|
|
|
|
4,225
|
|
|
|
1,122,947
|
|
|
|
12,591
|
|
|
|
1,495,085
|
|
|
|
16,816
|
|
|
|
Equity securities
|
|
|
19,388
|
|
|
|
3,252
|
|
|
|
|
|
|
|
|
|
|
|
19,388
|
|
|
|
3,252
|
|
|
|
Total temporarily impaired securities
|
|
$
|
391,526
|
|
|
$
|
7,477
|
|
|
$
|
1,122,947
|
|
|
$
|
12,591
|
|
|
$
|
1,514,473
|
|
|
$
|
20,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and federal agency obligations
|
|
$
|
500
|
|
|
$
|
35
|
|
|
$
|
197
|
|
|
$
|
2
|
|
|
$
|
697
|
|
|
$
|
37
|
|
Government-sponsored enterprise obligations
|
|
|
|
|
|
|
|
|
|
|
422,466
|
|
|
|
6,641
|
|
|
|
422,466
|
|
|
|
6,641
|
|
State and municipal obligations
|
|
|
123,791
|
|
|
|
257
|
|
|
|
178,542
|
|
|
|
2,002
|
|
|
|
302,333
|
|
|
|
2,259
|
|
Mortgage and asset-backed securities
|
|
|
301,756
|
|
|
|
2,841
|
|
|
|
1,467,216
|
|
|
|
30,440
|
|
|
|
1,768,972
|
|
|
|
33,281
|
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
32,395
|
|
|
|
523
|
|
|
|
32,395
|
|
|
|
523
|
|
|
|
Total temporarily impaired securities
|
|
$
|
426,047
|
|
|
$
|
3,133
|
|
|
$
|
2,100,816
|
|
|
$
|
39,608
|
|
|
$
|
2,526,863
|
|
|
$
|
42,741
|
|
|
|
In addition to the available for sale portfolio, investment
securities held by the Company include certain securities which
are not readily marketable, and are classified as non-marketable
on the Companys consolidated balance sheets. These
securities totaled $105.5 million and $74.2 million at
December 31, 2007 and 2006, respectively. This category
includes holdings of Federal Reserve Bank (FRB) stock and
Federal Home Loan Bank of Des Moines (FHLB) stock which are
required to be held for regulatory purposes and for borrowing
availability, and are carried at cost. Investment in FRB stock
is based on the capital structure of the bank, and investment in
FHLB stock is tied to the level of borrowings from the FHLB. At
December 31, 2007, investment in FRB stock totaled
$23.5 million and investment in FHLB stock totaled
$36.7 million. The remainder of the securities in the
non-marketable category are comprised of investments in venture
capital and private equity concerns. In the absence of readily
ascertainable market values, these securities are carried at
estimated fair value.
71
The following table presents proceeds from sales of securities
and the components of net securities gains and losses, including
fair value adjustments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Proceeds from sales
|
|
$
|
239,541
|
|
|
$
|
170,421
|
|
|
$
|
1,816,865
|
|
|
|
Gains
|
|
$
|
13,688
|
|
|
$
|
13,086
|
|
|
$
|
29,750
|
|
Losses
|
|
|
5,454
|
|
|
|
4,051
|
|
|
|
23,388
|
|
|
|
Net gains
|
|
$
|
8,234
|
|
|
$
|
9,035
|
|
|
$
|
6,362
|
|
|
|
Investment securities with a fair value of $2.0 billion and
$2.1 billion were pledged at December 31, 2007 and
2006, respectively, to secure public deposits, securities sold
under repurchase agreements, trust funds, and borrowings at the
Federal Reserve discount window. Securities pledged under
agreements pursuant to which the collateral may be sold or
re-pledged by the secured parties approximated
$524.4 million, while securities pledged under agreements
pursuant to which the secured parties may not sell or re-pledge
the collateral approximated $1.5 billion at
December 31, 2007. Except for obligations of various
government-sponsored enterprises such as FNMA, FHLB and FHLMC,
no investment in a single issuer exceeds 10% of
stockholders equity.
|
|
5.
|
Land,
Buildings and Equipment
|
Land, buildings and equipment consist of the following at
December 31, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Land
|
|
$
|
94,056
|
|
|
$
|
86,471
|
|
Buildings and improvements
|
|
|
476,897
|
|
|
|
458,974
|
|
Equipment
|
|
|
218,896
|
|
|
|
214,114
|
|
|
|
Total
|
|
|
789,849
|
|
|
|
759,559
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
383,600
|
|
|
|
373,464
|
|
|
|
Net land, buildings and equipment
|
|
$
|
406,249
|
|
|
$
|
386,095
|
|
|
|
Depreciation expense of $35.7 million, $35.4 million
and $32.0 million for 2007, 2006 and 2005, respectively,
was included in occupancy expense and equipment expense in the
consolidated income statements. Repairs and maintenance expense
of $18.5 million, $18.0 million and $18.7 million
for 2007, 2006 and 2005, respectively, was included in occupancy
expense and equipment expense. No interest expense was
capitalized on construction projects in 2007, as compared to $38
thousand and $123 thousand in 2006 and 2005, respectively.
|
|
6.
|
Goodwill
and Other Intangible Assets
|
Goodwill and other intangible assets are summarized in the
following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
|
|
(In thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
Amortizable intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit premium
|
|
$
|
25,720
|
|
|
$
|
(5,182
|
)
|
|
$
|
20,538
|
|
|
$
|
19,920
|
|
|
$
|
(1,093
|
)
|
|
$
|
18,827
|
|
Mortgage servicing rights
|
|
|
1,556
|
|
|
|
(681
|
)
|
|
|
875
|
|
|
|
1,338
|
|
|
|
(532
|
)
|
|
|
806
|
|
|
|
Total amortizable intangible assets
|
|
|
27,276
|
|
|
|
(5,863
|
)
|
|
|
21,413
|
|
|
|
21,258
|
|
|
|
(1,625
|
)
|
|
|
19,633
|
|
|
|
Goodwill
|
|
|
124,570
|
|
|
|
|
|
|
|
124,570
|
|
|
|
97,643
|
|
|
|
|
|
|
|
97,643
|
|
|
|
Total intangible assets
|
|
$
|
151,846
|
|
|
$
|
(5,863
|
)
|
|
$
|
145,983
|
|
|
$
|
118,901
|
|
|
$
|
(1,625
|
)
|
|
$
|
117,276
|
|
|
|
72
As a result of routine annual assessments, no impairment of
intangible assets was recorded in 2007, 2006 or 2005.
Changes in the carrying amount of goodwill by operating segment
for the years ended December 31, 2006 and 2007 are shown in
the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
|
|
|
|
|
|
|
Consumer
|
|
|
Commercial
|
|
|
Management
|
|
|
Total
|
|
(In thousands)
|
|
Segment
|
|
|
Segment
|
|
|
Segment
|
|
|
Goodwill
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
33,540
|
|
|
$
|
14,236
|
|
|
$
|
746
|
|
|
$
|
48,522
|
|
2006 acquisitions
|
|
|
25,339
|
|
|
|
27,303
|
|
|
|
|
|
|
|
52,642
|
|
Adjustments to prior year acquisitions
|
|
|
|
|
|
|
(3,521
|
)
|
|
|
|
|
|
|
(3,521
|
)
|
|
|
Balance at December 31, 2006
|
|
|
58,879
|
|
|
|
38,018
|
|
|
|
746
|
|
|
|
97,643
|
|
2007 acquisitions
|
|
|
8,042
|
|
|
|
17,646
|
|
|
|
|
|
|
|
25,688
|
|
Adjustments to prior year acquisitions
|
|
|
732
|
|
|
|
507
|
|
|
|
|
|
|
|
1,239
|
|
|
|
Balance at December 31, 2007
|
|
$
|
67,653
|
|
|
$
|
56,171
|
|
|
$
|
746
|
|
|
$
|
124,570
|
|
|
|
Changes in the net carrying amount of other intangible assets
for the years ended December 31, 2006 and 2007 are shown in
the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
Core
|
|
|
Mortgage
|
|
|
|
Deposit
|
|
|
Servicing
|
|
(In thousands)
|
|
Premium
|
|
|
Rights
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
|
|
|
$
|
47
|
|
2006 acquisitions
|
|
|
19,920
|
|
|
|
831
|
|
Amortization
|
|
|
(1,093
|
)
|
|
|
(72
|
)
|
|
|
Balance at December 31, 2006
|
|
|
18,827
|
|
|
|
806
|
|
2007 acquisitions
|
|
|
8,290
|
|
|
|
|
|
Originations
|
|
|
|
|
|
|
218
|
|
Adjustments to prior year acquisitions
|
|
|
(2,490
|
)
|
|
|
|
|
Amortization
|
|
|
(4,089
|
)
|
|
|
(149
|
)
|
|
|
Balance at December 31, 2007
|
|
$
|
20,538
|
|
|
$
|
875
|
|
|
|
Aggregate amortization expense on intangible assets for the
years ended December 31, 2007, 2006 and 2005 was
$4.2 million, $1.2 million and $455 thousand,
respectively. The following table shows the estimated future
amortization expense based on existing asset balances and the
interest rate environment as of December 31, 2007. 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)
|
|
|
|
|
|
|
2008
|
|
$
|
4,346
|
|
2009
|
|
|
3,834
|
|
2010
|
|
|
3,317
|
|
2011
|
|
|
2,805
|
|
2012
|
|
|
2,285
|
|
|
|
73
At December 31, 2007, the scheduled maturities of total
time open and certificates of deposit were as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Due in 2008
|
|
$
|
3,673,515
|
|
Due in 2009
|
|
|
197,867
|
|
Due in 2010
|
|
|
62,541
|
|
Due in 2011
|
|
|
25,770
|
|
Due in 2012
|
|
|
22,248
|
|
Thereafter
|
|
|
396
|
|
|
|
Total
|
|
$
|
3,982,337
|
|
|
|
At December 31, 2007, the scheduled maturities of time open
and certificates of deposit over $100,000 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
|
|
|
|
|
|
|
|
|
|
Deposit over
|
|
|
Other Time Deposits
|
|
|
|
|
(In thousands)
|
|
$100,000
|
|
|
over $100,000
|
|
|
Total
|
|
|
|
|
Due in 3 months or less
|
|
$
|
717,140
|
|
|
$
|
6,407
|
|
|
$
|
723,547
|
|
Due in over 3 through 6 months
|
|
|
291,681
|
|
|
|
7,125
|
|
|
|
298,806
|
|
Due in over 6 through 12 months
|
|
|
514,208
|
|
|
|
15,172
|
|
|
|
529,380
|
|
Due in over 12 months
|
|
|
38,998
|
|
|
|
16,824
|
|
|
|
55,822
|
|
|
|
Total
|
|
$
|
1,562,027
|
|
|
$
|
45,528
|
|
|
$
|
1,607,555
|
|
|
|
Regulations of the Federal Reserve System require reserves to be
maintained by all banking institutions according to the types
and amounts of certain deposit liabilities. Reserves refer to
non-earning cash held at the Federal Reserve Bank. The minimum
reserve requirements for the subsidiary banks at
December 31, 2007 totaled $80.0 million.
74
Borrowings of the Company primarily consist of federal funds
purchased and securities sold under agreements to repurchase
(repurchase agreements), which generally mature within
90 days. The following table presents balance and interest
rate information on these borrowings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
Year End
|
|
|
Average
|
|
|
Average
|
|
|
Outstanding
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Balance
|
|
|
at any
|
|
|
Balance at
|
|
(Dollars in thousands)
|
|
Rate
|
|
|
Rate
|
|
|
Outstanding
|
|
|
Month End
|
|
|
December 31
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and short-term repurchase agreements
|
|
|
2.8
|
%
|
|
|
4.7
|
%
|
|
$
|
1,196,612
|
|
|
$
|
1,800,505
|
|
|
$
|
739,219
|
|
Long-term repurchase agreements
|
|
|
5.0
|
|
|
|
5.5
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total federal funds purchased and repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,239,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and short-term repurchase agreements
|
|
|
4.8
|
|
|
|
4.7
|
|
|
|
1,256,914
|
|
|
|
1,586,511
|
|
|
|
1,271,282
|
|
Long-term repurchase agreements
|
|
|
5.5
|
|
|
|
5.6
|
|
|
|
198,630
|
|
|
|
500,000
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total federal funds purchased and repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,771,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal funds purchased and repurchase agreements
|
|
|
3.8
|
|
|
|
3.0
|
|
|
|
1,609,868
|
|
|
|
2,020,498
|
|
|
|
1,326,427
|
|
|
|
Total securities sold under agreements to repurchase at
December 31, 2007 were comprised of non-insured customer
funds totaling $613.1 million and structured repurchase
agreements of $500.0 million. The structured repurchase
agreements mature in 2010 and have a LIBOR-based floating
interest rate and an embedded floor. All securities sold under
agreements to repurchase are secured by a portion of the
Companys investment portfolio.
Other borrowings of the Company consisted of the following at
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year End
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
Weighted
|
|
|
Year End
|
|
(Dollars in thousands)
|
|
Borrower
|
|
Date
|
|
|
Rate
|
|
|
Balance
|
|
|
|
|
FHLB advances
|
|
Subsidiary bank
|
|
|
2008
|
|
|
|
4.1
|
%
|
|
$
|
10,571
|
|
|
|
|
|
|
2009
|
|
|
|
4.3
|
|
|
|
76,140
|
|
|
|
|
|
|
2010
|
|
|
|
4.8
|
|
|
|
302,770
|
|
|
|
|
|
|
2011-16
|
|
|
|
5.2
|
|
|
|
71,994
|
|
|
|
|
|
|
2017
|
|
|
|
3.5
|
|
|
|
100,000
|
|
Subordinated debentures
|
|
Subsidiary holding company
|
|
|
2030
|
|
|
|
10.9
|
|
|
|
4,000
|
|
|
|
|
|
|
2034
|
|
|
|
7.2
|
|
|
|
10,310
|
|
Non-recourse lease financing notes
|
|
Bank leasing subsidiary
|
|
|
2008
|
|
|
|
6.0
|
|
|
|
32
|
|
|
|
|
|
|
2011
|
|
|
|
6.3
|
|
|
|
304
|
|
Structured note payable
|
|
Venture capital subsidiary
|
|
|
2012
|
|
|
|
0.0
|
|
|
|
7,515
|
|
Other
|
|
Subsidiary bank
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
583,639
|
|
|
|
Banking subsidiaries of the Company are members of the FHLB and
have access to term financing from the FHLB. These borrowings
are secured under a blanket collateral agreement including
primarily residential mortgages as well as all unencumbered
assets and stock of the respective borrowing bank. Total
outstanding advances at December 31, 2007 were
$561.5 million. Nearly all of the outstanding advances have
fixed interest rates and contain prepayment penalties. The
outstanding balance contains $300.0 million
75
which the FHLB may call for early payment within the next two
years. The FHLB has issued letters of credit, totaling
$525.3 million at December 31, 2007, to secure the
Companys obligations to depositors of public funds.
In certain acquisition transactions, the Company has assumed
subordinated debentures which were issued by acquired bank
holding companies to wholly owned grantor trusts. The trusts
were formed to issue preferred securities representing undivided
beneficial interests in the assets of the trusts and to invest
the gross proceeds of such preferred securities in the
debentures. While the trusts are accounted for as unconsolidated
equity investments, the preferred securities issued by the
trusts qualify as Tier 1 Capital for regulatory purposes.
The debentures include $10.3 million of variable rate debt
which may be redeemed beginning in 2009, and $4.0 million
of fixed rate debt which may be redeemed beginning in 2010.
Specified amounts of the Companys lease receivables and
underlying equipment in leasing transactions serve as collateral
for non-recourse lease financing notes from other financial
institutions, which totaled $336 thousand at December 31,
2007. In the event of a default by a lessee, the other financial
institution has a first lien on the underlying lease equipment
and chattel paper, with no further recourse against the Company.
Other long-term debt includes funds borrowed from third-party
insurance companies by a venture capital subsidiary, a Missouri
Certified Capital Company, to support its investment activities.
Because the insurance companies receive tax credits, the
borrowings do not bear interest. This debt is secured by assets
of the subsidiary and guaranteed by the Parent, evidenced by
letters of credit from an affiliate bank.
Cash payments for interest on deposits and borrowings during
2007, 2006 and 2005 on a consolidated basis amounted to
$393.1 million, $294.6 million and
$179.7 million, respectively.
The components of income tax expense (benefit) from operations
for the years ended December 31, 2007, 2006 and 2005 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Current
|
|
|
Deferred
|
|
|
Total
|
|
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
102,666
|
|
|
$
|
(9,866
|
)
|
|
$
|
92,800
|
|
State and local
|
|
|
2,298
|
|
|
|
(1,361
|
)
|
|
|
937
|
|
|
|
|
|
$
|
104,964
|
|
|
$
|
(11,227
|
)
|
|
$
|
93,737
|
|
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
104,730
|
|
|
$
|
(1,394
|
)
|
|
$
|
103,336
|
|
State and local
|
|
|
554
|
|
|
|
14
|
|
|
|
568
|
|
|
|
|
|
$
|
105,284
|
|
|
$
|
(1,380
|
)
|
|
$
|
103,904
|
|
|
|
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
90,240
|
|
|
$
|
(2,517
|
)
|
|
$
|
87,723
|
|
State and local
|
|
|
5,864
|
|
|
|
760
|
|
|
|
6,624
|
|
|
|
|
|
$
|
96,104
|
|
|
$
|
(1,757
|
)
|
|
$
|
94,347
|
|
|
|
The components of income tax expense (benefit) credited directly
to stockholders equity for the years ended
December 31, 2007, 2006 and 2005 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Unrealized gain (loss) on securities available for sale
|
|
$
|
11,902
|
|
|
$
|
8,885
|
|
|
$
|
(26,633
|
)
|
Compensation expense for tax purposes in excess of amounts
recognized for financial reporting purposes
|
|
|
(2,298
|
)
|
|
|
(2,108
|
)
|
|
|
(4,288
|
)
|
Accumulated pension (benefit) loss
|
|
|
4,256
|
|
|
|
(6,662
|
)
|
|
|
|
|
|
|
Income tax expense (benefit) allocated to
stockholders equity
|
|
$
|
13,860
|
|
|
$
|
115
|
|
|
$
|
(30,921
|
)
|
|
|
76
Significant components of the Companys deferred tax assets
and liabilities at December 31, 2007 and 2006 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006(1)
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Loans, principally due to allowance for loan losses
|
|
$
|
60,652
|
|
|
$
|
57,490
|
|
Accrued expenses
|
|
|
10,060
|
|
|
|
2,142
|
|
Equity-based compensation
|
|
|
11,058
|
|
|
|
10,208
|
|
Deferred compensation
|
|
|
4,464
|
|
|
|
3,706
|
|
Unearned fee income
|
|
|
1,310
|
|
|
|
1,121
|
|
Net operating loss carryforwards
|
|
|
803
|
|
|
|
1,010
|
|
Other
|
|
|
2,309
|
|
|
|
2,222
|
|
|
|
Total deferred tax assets
|
|
|
90,656
|
|
|
|
77,899
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Equipment lease financing
|
|
|
30,415
|
|
|
|
28,130
|
|
Unrealized gain on securities available for sale
|
|
|
18,407
|
|
|
|
6,505
|
|
Land, buildings and equipment
|
|
|
13,713
|
|
|
|
16,873
|
|
Pension benefit obligations
|
|
|
6,888
|
|
|
|
2,799
|
|
Intangibles
|
|
|
4,159
|
|
|
|
5,569
|
|
Prepaid expenses
|
|
|
3,194
|
|
|
|
2,122
|
|
Accretion on investment securities
|
|
|
2,115
|
|
|
|
1,517
|
|
Loan fees and expenses
|
|
|
2,105
|
|
|
|
1,920
|
|
Other
|
|
|
1,548
|
|
|
|
530
|
|
|
|
Total deferred tax liabilities
|
|
|
82,544
|
|
|
|
65,965
|
|
|
|
Net deferred tax asset
|
|
$
|
8,112
|
|
|
$
|
11,934
|
|
|
|
|
|
|
(1) |
|
Reclasses amongst the
significant components of the deferred tax assets and
liabilities at December 31, 2006 have occurred to conform
2006 to the current year presentation. |
The Company acquired a federal net operating loss (NOL)
carryforward of approximately $4.3 million in connection
with the 2003 acquisition of The Vaughn Group, Inc. The NOL
carryforward will begin to expire in 2020. At December 31,
2007, the tax benefit related to the remaining NOL carryforward
was $803 thousand. The Company also has a state tax credit
carryforward of $566 thousand as of December 31, 2007. The
tax credit carryforward, which is comprised of various Missouri
tax credits, is scheduled to expire in varying amounts between
2011 and 2017. Management believes it is more likely than not
that the results of future operations will generate sufficient
taxable income to realize the total deferred tax assets.
A reconciliation between the expected federal income tax expense
using the federal statutory tax rate of 35 percent to the
Companys actual income tax expense for 2007, 2006 and 2005
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Computed expected tax expense
|
|
$
|
105,139
|
|
|
$
|
113,311
|
|
|
$
|
111,158
|
|
Increase (decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax-exempt interest, net of cost to carry
|
|
|
(9,238
|
)
|
|
|
(6,264
|
)
|
|
|
(2,116
|
)
|
Tax deductible dividends on allocated shares held by the
Companys ESOP
|
|
|
(1,079
|
)
|
|
|
(1,068
|
)
|
|
|
(1,035
|
)
|
State and local income taxes, net of federal tax benefit
|
|
|
609
|
|
|
|
369
|
|
|
|
4,305
|
|
Corporate reorganization activities
|
|
|
|
|
|
|
|
|
|
|
(13,705
|
)
|
Other
|
|
|
(1,694
|
)
|
|
|
(2,444
|
)
|
|
|
(4,260
|
)
|
|
|
Total income tax expense
|
|
$
|
93,737
|
|
|
$
|
103,904
|
|
|
$
|
94,347
|
|
|
|
Cash payments of income taxes, net of refunds, amounted to
$95.4 million, $97.3 million and $96.7 million on
a consolidated basis during 2007, 2006 and 2005, respectively.
The Parent had net receipts of $6.2 million,
$5.7 million and $9.7 million during 2007, 2006 and
2005, respectively, from tax benefits.
77
Effective January 1, 2007, the Company adopted FIN 48.
FIN 48 requires a company to evaluate whether a tax
position taken by the company will more likely than
not be sustained upon examination by the appropriate
taxing authority. It also provides guidance on how a company
should measure the amount of benefit that the company is to
recognize in its financial statements. As a result of the
implementation of FIN 48, the Company recorded a $446
thousand decrease to the liability for unrecognized tax benefits
which was accounted for as an increase to the January 1,
2007 balance of retained earnings. As of January 1, 2007,
the total gross amount of unrecognized tax benefits was
$2.4 million and the total amount of unrecognized tax
benefits that would impact the effective tax rate, if
recognized, was $2.0 million.
It is the Companys policy to recognize interest and
penalties related to income tax matters in income tax expense.
Interest and penalties recorded in income tax expense,
classified as a component of income tax expense, was $122
thousand for the year ended December 31, 2007. Accrued
interest and penalties was $442 thousand and $564 thousand as of
January 1, 2007 and December 31, 2007, respectively.
As of December 31, 2007, the gross amount of unrecognized
tax benefits was $3.3 million and the total amount of
unrecognized tax benefits that would impact the effective tax
rate, if recognized, was $2.5 million. While it is expected
that the amount of unrecognized tax benefits will change in the
next twelve months, the Company does not expect this change to
have a material impact on the results of operations or the
financial position of the Company.
The Company and its subsidiaries are subject to
U.S. federal income tax as well as income tax of multiple
state and local jurisdictions. Tax years 2004 through 2007
remain open to examination for U.S. federal income tax and
tax years 2004 through 2007 remain open to examination by
significant state tax jurisdictions.
The activity in the accrued liability for unrecognized tax
benefits for year ended December 31, 2007 was as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Unrecognized tax benefits as of January 1, 2007
|
|
$
|
2,476
|
|
Gross increases tax positions in prior period
|
|
|
512
|
|
Gross decreases tax positions in prior period
|
|
|
(153
|
)
|
Gross increases current-period tax positions
|
|
|
551
|
|
Settlements
|
|
|
(30
|
)
|
Lapse of statute of limitations
|
|
|
(98
|
)
|
|
|
Unrecognized tax benefits as of December 31, 2007
|
|
$
|
3,258
|
|
|
|
|
|
10.
|
Employee
Benefit Plans
|
Employee benefits charged to operating expenses are summarized
in the table below. Substantially all of the Companys
employees are covered by a defined contribution (401K) plan,
under which the Company makes matching contributions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Payroll taxes
|
|
$
|
19,386
|
|
|
$
|
18,078
|
|
|
$
|
16,962
|
|
Medical plans
|
|
|
13,583
|
|
|
|
15,868
|
|
|
|
12,287
|
|
401K plan
|
|
|
8,839
|
|
|
|
8,046
|
|
|
|
7,647
|
|
Pension plans
|
|
|
(763
|
)
|
|
|
(382
|
)
|
|
|
146
|
|
Other
|
|
|
2,345
|
|
|
|
1,775
|
|
|
|
1,695
|
|
|
|
Total employee benefits
|
|
$
|
43,390
|
|
|
$
|
43,385
|
|
|
$
|
38,737
|
|
|
|
A majority of the Companys current employees are covered
by a noncontributory defined benefit pension plan, however,
participation in the pension plan is not available to employees
hired after June 30, 2003. Participants are fully vested
after five years of service and benefits are based on years of
participation and average annualized earnings. Certain key
executives also participate in a supplemental executive
retirement
78
plan (the CERP) that the Company funds only as retirement
benefits are disbursed. The CERP carries no segregated assets.
Effective January 1, 2005 substantially all benefits
accrued under the pension plan were frozen. Certain annual
salary credits to pension accounts were discontinued, however,
the accounts continue to accrue interest at a stated annual
rate. Enhancements were then made to the 401K plan, which have
increased employer contributions to the 401K plan. Enhancements
were also made to the CERP, providing credits based on
hypothetical contributions in excess of those permitted under
the 401K plan.
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans,
was adopted on December 31, 2006. It required an employer
to recognize the funded status of a defined benefit
postretirement plan as an asset or liability in its balance
sheet and to recognize changes in that funded status in the year
in which the changes occur through comprehensive income.
Accordingly, at December 31, 2006 the Company adjusted its
balance sheet to reflect this funded status, reducing
accumulated other comprehensive income by $17.5 million on
a pre-tax basis. Beginning in 2008, SFAS No. 158
requires measurement of plan assets and benefit obligations as
of fiscal year end. For 2007 and prior, the Companys
measurement date is September 30.
Under the Companys funding policy for the defined benefit
pension plan, contributions are made to a trust as necessary to
provide for current service and for any unfunded accrued
actuarial liabilities over a reasonable period. To the extent
that these requirements are fully covered by assets in the
trust, a contribution might not be made in a particular year.
The Company made no contributions to the defined benefit pension
plan in 2007, and the minimum required contribution for 2008 is
expected to be zero. The Company does not expect to make any
further contributions other than the necessary funding
contributions to the CERP. Contributions to the CERP were
$10,000, $8,000 and $8,000 during fiscal 2007, 2006 and 2005,
respectively.
Benefit obligations of the CERP at the September 30 valuation
date are shown in the table immediately below. In all other
tables presented, the pension plan and the CERP are presented on
a combined basis, even though the CERP is unfunded. Although the
CERP is unfunded, the foregoing description and the following
tables describe payments under the CERP as
contributions.
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Projected benefit obligation
|
|
$
|
1,735
|
|
|
$
|
1,484
|
|
Accumulated benefit obligation
|
|
$
|
1,735
|
|
|
$
|
1,484
|
|
|
|
The following items are components of the net pension cost for
the years ended December 31, 2007, 2006 and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Service cost-benefits earned during the year
|
|
$
|
1,053
|
|
|
$
|
997
|
|
|
$
|
1,011
|
|
Interest cost on projected benefit obligation
|
|
|
5,033
|
|
|
|
4,718
|
|
|
|
4,693
|
|
Expected return on plan assets
|
|
|
(7,568
|
)
|
|
|
(7,199
|
)
|
|
|
(6,816
|
)
|
Amortization of unrecognized net loss
|
|
|
719
|
|
|
|
1,102
|
|
|
|
1,258
|
|
|
|
Net periodic pension cost (income)
|
|
$
|
(763
|
)
|
|
$
|
(382
|
)
|
|
$
|
146
|
|
|
|
79
The following table sets forth the pension plans funded
status, using valuation dates of September 30, 2007 and
2006.
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Change in projected benefit obligation
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at prior valuation date
|
|
$
|
90,701
|
|
|
$
|
87,927
|
|
Service cost
|
|
|
1,053
|
|
|
|
997
|
|
Interest cost
|
|
|
5,033
|
|
|
|
4,718
|
|
Benefits paid
|
|
|
(5,229
|
)
|
|
|
(4,508
|
)
|
Actuarial (gain) loss
|
|
|
(5,292
|
)
|
|
|
1,567
|
|
|
|
Projected benefit obligation at valuation date
|
|
|
86,266
|
|
|
|
90,701
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at prior valuation date
|
|
|
97,215
|
|
|
|
92,430
|
|
Actual return (loss) on plan assets
|
|
|
12,758
|
|
|
|
9,285
|
|
Employer contributions
|
|
|
10
|
|
|
|
8
|
|
Benefits paid
|
|
|
(5,229
|
)
|
|
|
(4,508
|
)
|
|
|
Fair value of plan assets at valuation date
|
|
|
104,754
|
|
|
|
97,215
|
|
|
|
Funded status and net amount recognized at valuation date
|
|
$
|
18,488
|
|
|
$
|
6,514
|
|
|
|
Employer contributions made after the September 30 valuation
date but before the December 31 fiscal year end amounted to
$3,000 in 2007 and $2,000 in 2006. Amounts recognized on the
December 31 balance sheets are as follows:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Prepaid pension cost
|
|
$
|
20,223
|
|
|
$
|
7,998
|
|
Accrued benefit liability
|
|
|
(1,732
|
)
|
|
|
(1,482
|
)
|
|
|
Net amount recognized at December 31
|
|
$
|
18,491
|
|
|
$
|
6,516
|
|
|
|
The accumulated benefit obligation, which represents the
liability of a plan assuming its immediate termination, was
$86.3 million and $90.7 million for both plans on
September 30, 2007 and 2006, respectively.
Amounts not yet reflected in net periodic benefit cost and
included in accumulated other comprehensive income (loss) at
December 31, 2007 and 2006 are shown below, including
amounts recognized in other comprehensive income during the
periods. All amounts are shown on a pre-tax basis.
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Prior service credit (cost)
|
|
$
|
|
|
|
$
|
|
|
Accumulated loss
|
|
|
(6,332
|
)
|
|
|
(17,532
|
)
|
|
|
Accumulated other comprehensive loss
|
|
|
(6,332
|
)
|
|
|
(17,532
|
)
|
Cumulative employer contributions in excess of net periodic
benefit cost
|
|
|
24,823
|
|
|
|
24,048
|
|
|
|
Net amount recognized on the December 31 balance sheet
|
|
$
|
18,491
|
|
|
$
|
6,516
|
|
|
|
Net gain arising during period
|
|
$
|
10,481
|
|
|
$
|
|
|
Amortization of net loss
|
|
|
719
|
|
|
|
|
|
|
|
Total recognized in other comprehensive income
|
|
$
|
11,200
|
|
|
$
|
|
|
|
|
Total income recognized in net periodic pension cost and
other comprehensive income
|
|
$
|
11,963
|
|
|
$
|
382
|
|
|
|
80
The estimated net loss to be amortized from accumulated other
comprehensive income into net periodic pension cost in 2008 is
zero.
The following assumptions, on a weighted average basis, were
used in accounting for the plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Determination of benefit obligation at year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
5.75
|
%
|
|
|
5.50
|
%
|
Assumed credit on cash balance accounts
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
Determination of net periodic benefit cost for year ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.75
|
%
|
|
|
5.50
|
%
|
|
|
5.75
|
%
|
Rate of increase in future compensation levels
|
|
|
NA
|
|
|
|
NA
|
|
|
|
5.20
|
%
|
Long-term rate of return on assets
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
Assumed credit on cash balance accounts
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
|
|
The weighted average asset allocations as of September 30 by
asset category were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Equity securities
|
|
|
65
|
%
|
|
|
62
|
%
|
Debt securities
|
|
|
33
|
%
|
|
|
34
|
%
|
Money market
|
|
|
2
|
%
|
|
|
4
|
%
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
The investment policy of the pension plan is designed for growth
in value within limits designed to safeguard against significant
losses within the portfolio. The current long-term investment
mix target for the plan is 60% equity securities and 40% fixed
income; equities may range 15% above or below the 60% target.
There are guidelines regarding the type of investments held that
may change from time to time, currently including items such as
holding bonds rated investment grade or better, and prohibiting
investment in Company stock. The plan does not utilize
derivatives, although some investment fund managers employ
currency hedging strategies that involve derivatives.
The selection of a discount rate was based on a review of
various bond indices. These portfolios are comprised of high
quality fixed-income instruments whose cash flows match the
future estimated benefit payments under the plan. The selection
process also considers the results of actuarial modeling tools
and assumptions.
The assumed overall expected long-term rate of return on pension
plan assets used in calculating 2007 pension plan expense was
8%. Determination of the plans rate of return is based
upon historical returns for equities and fixed income indexes.
The average
10-year
rolling return for an asset mix comparable to the Companys
pension plan is 6.6%. The rate of return on the plan assets was
12.9% in 2007 and 15.2% in 2006. The rate used in plan
calculations may be adjusted by management for current trends in
the economic environment. As shown above, with a target of over
half of the plans investment to be in equities, the actual
return for any one plan year may fluctuate significantly with
changes in the stock market.
The following future benefit payments are expected to be paid:
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
2008
|
|
$
|
5,075
|
|
2009
|
|
|
5,232
|
|
2010
|
|
|
5,362
|
|
2011
|
|
|
5,558
|
|
2012
|
|
|
5,724
|
|
2013-2017
|
|
|
30,364
|
|
|
|
81
|
|
11.
|
Stock-Based
Compensation and Directors Stock Purchase Plan*
|
The Companys stock-based compensation is provided under a
stockholder-approved plan which allows for issuance of various
types of awards, including stock options, stock appreciation
rights, restricted stock and restricted stock units, performance
awards and stock-based awards. At December 31, 2007,
3,542,880 shares remained available for issuance under the
plan. The stock-based compensation expense that was charged
against income was $6.3 million, $4.8 million and
$6.6 million for the years ended December 31, 2007,
2006 and 2005, respectively. The total income tax benefit
recognized in the income statement for share-based compensation
arrangements was $2.3 million, $1.8 million and
$2.5 million for the years ended December 31, 2007,
2006 and 2005, respectively. The increase in stock-based
compensation in 2007 compared to the previous year resulted from
additional stock awards granted in connection with bank
acquisitions and the initial effect in 2006 of the accounting
requirement for forfeitures of SFAS No. 123 (revised),
Share-Based Payment, which is discussed below.
In determining compensation cost, the Black-Scholes
option-pricing model is used to estimate the fair value of
options and stock appreciation rights (SARs) on date of grant.
The Black-Scholes model is a closed-end model that uses the
assumptions in the following table. Expected volatility is based
on historical volatility of the Companys stock. The
Company uses historical exercise behavior and other factors to
estimate the expected term of the options and SARs, which
represents the period of time that the options and SARs granted
are expected to be outstanding. The risk-free rate for the
expected term is based on the U.S. Treasury zero coupon
spot rates in effect at the time of grant.
Below are the fair values of SARs and stock options granted,
using the Black-Scholes option-pricing model, including the
model assumptions for those grants. SARs and stock options were
granted with exercise prices equal to the market price of the
Companys stock at the date of grant and have
10-year
contractual terms. SARs, which were granted in 2007 and 2006,
vest on a graded basis over 4 years of continuous service.
All SARs must be settled in stock under provisions of the plan.
Stock options, which were granted in 2005 and previous years,
vest on a graded basis over 3 years of continuous service.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Weighted per share average fair value at grant date
|
|
$
|
11.96
|
|
|
$
|
12.77
|
|
|
$
|
10.79
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
1.9
|
%
|
|
|
1.7
|
%
|
|
|
2.0
|
%
|
Volatility
|
|
|
19.9
|
%
|
|
|
21.1
|
%
|
|
|
23.4
|
%
|
Risk-free interest rate
|
|
|
4.6
|
%
|
|
|
4.6
|
%
|
|
|
4.2
|
%
|
Expected term
|
|
|
7.4 years
|
|
|
|
7.4 years
|
|
|
|
7.1 years
|
|
|
|
A summary of option activity during 2007 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, 2007
|
|
|
3,385,503
|
|
|
$
|
31.57
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(2,924
|
)
|
|
|
41.11
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(525
|
)
|
|
|
41.08
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(517,639
|
)
|
|
|
26.87
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
2,864,415
|
|
|
$
|
32.40
|
|
|
|
4.5 years
|
|
|
$
|
35,685
|
|
Exercisable at December 31, 2007
|
|
|
2,740,106
|
|
|
$
|
32.02
|
|
|
|
4.4 years
|
|
|
$
|
35,196
|
|
Vested and expected to vest at December 31, 2007
|
|
|
2,861,965
|
|
|
$
|
32.39
|
|
|
|
4.5 years
|
|
|
$
|
35,676
|
|
|
|
82
A summary of SAR activity during 2007 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, 2007
|
|
|
500,791
|
|
|
$
|
46.94
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
498,371
|
|
|
|
47.14
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(17,639
|
)
|
|
|
46.81
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(2,460
|
)
|
|
|
46.78
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
979,063
|
|
|
$
|
47.05
|
|
|
|
8.6 years
|
|
|
$
|
|
|
Exercisable at December 31, 2007
|
|
|
122,380
|
|
|
$
|
46.95
|
|
|
|
8.1 years
|
|
|
$
|
|
|
Vested and expected to vest at December 31, 2007
|
|
|
891,044
|
|
|
$
|
47.04
|
|
|
|
8.6 years
|
|
|
$
|
|
|
|
|
Additional information about stock options exercised is
presented below. No SARs have been exercised.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Intrinsic value of options exercised
|
|
$
|
9,808
|
|
|
$
|
8,645
|
|
|
$
|
19,191
|
|
Cash received from options exercised
|
|
$
|
12,919
|
|
|
$
|
6,548
|
|
|
$
|
17,693
|
|
Tax benefit realized from options exercised
|
|
$
|
2,098
|
|
|
$
|
1,818
|
|
|
$
|
4,288
|
|
|
|
Nonvested stock is awarded to key employees, by action of the
Board of Directors. These awards generally vest after
5 years of continued employment, but vesting terms may vary
according to the specifics of the individual grant agreement.
There are restrictions as to transferability, sale, pledging, or
assigning, among others, prior to the end of the 5 year
vesting period. Dividend and voting rights are conferred upon
grant. A summary of the status of the Companys nonvested
share awards as of December 31, 2007 and changes during the
year then ended is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
Nonvested at January 1, 2007
|
|
|
175,882
|
|
|
$
|
39.15
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
78,008
|
|
|
|
45.48
|
|
Vested
|
|
|
(22,510
|
)
|
|
|
31.79
|
|
Forfeited
|
|
|
(5,256
|
)
|
|
|
40.22
|
|
|
|
Nonvested at December 31, 2007
|
|
|
226,124
|
|
|
$
|
42.04
|
|
|
|
The total fair value (at vest date) of shares vested during
2007, 2006 and 2005 was $1.0 million, $1.6 million and
$1.3 million, respectively.
As of December 31, 2007, there was $12.1 million of
unrecognized compensation cost (net of estimated forfeitures)
related to unvested options, SARs and stock awards. That cost is
expected to be recognized over a weighted average period of
2.6 years.
The Company adopted SFAS No. 123 (revised) on
January 1, 2006. As a result of adoption, the Company
recorded a reduction of $543 thousand in stock-based
compensation expense in the first quarter of 2006. This
adjustment resulted from a change by the Company from its former
policy of recognizing the effect of forfeitures only as they
occurred to the Statements requirement to estimate the
number of outstanding instruments for which the requisite
service is not expected to be rendered. The adjustment was not
considered to be material to the Companys financial
statements and, accordingly, was not presented separately as the
cumulative effect of a change in accounting principle in the
accompanying 2006 consolidated income statement.
83
A portion of shares repurchased under the Companys stock
repurchase program during the next twelve months will be used to
satisfy share option exercises, which are expected to range from
500,000 to 600,000 shares.
The Company has a directors stock purchase plan whereby outside
directors of the Company and its subsidiaries may elect to use
their directors fees to purchase Company stock at market
value each month end. Remaining shares available for issuance
under this plan were 110,961 at December 31, 2007. In 2007,
16,483 shares were purchased at an average price of $45.01
and in 2006, 15,720 shares were purchased at an average
price of $46.18.
|
|
* |
All share and per share amounts in this note have been
restated for the 5% stock dividend distributed in 2007.
|
Comprehensive income is the total of net income and all other
non-owner changes in equity. Items recognized under accounting
standards as components of comprehensive income are displayed in
the consolidated statements of stockholders equity, and
additional information is presented below about the
Companys two components of other comprehensive income. The
first component is the unrealized holding gains and losses on
available for sale securities. In the calculation of other
comprehensive income, certain reclassification adjustments are
made to avoid double counting items 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.
The reclassification amounts and the related income tax expense
or benefit for the three years ended December 31 are shown in
the table below. The second component results from the
Companys adoption of SFAS 158 on December 31,
2006, as mentioned in Note 10. Adjustments to other
comprehensive income are required to recognize pension gains or
losses that arise during the period but are not recognized as
components of net periodic benefit cost, and also to recognize
corresponding adjustments in other comprehensive income when
these gains and losses are subsequently amortized to net
periodic benefit cost.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Unrealized holding gains (losses) on securities
|
|
$
|
34,192
|
|
|
$
|
21,344
|
|
|
$
|
(65,006
|
)
|
Tax (expense) benefit on unrealized gains/losses
|
|
|
(13,025
|
)
|
|
|
(8,089
|
)
|
|
|
24,652
|
|
Reclassification adjustment for (gains) losses realized and
included in net income
|
|
|
(2,927
|
)
|
|
|
2,094
|
|
|
|
(5,080
|
)
|
Reclassification adjustment for tax expense (benefit) on
realized gains/losses
|
|
|
1,123
|
|
|
|
(796
|
)
|
|
|
1,981
|
|
|
|
Net unrealized gains (losses) on securities
|
|
|
19,363
|
|
|
|
14,553
|
|
|
|
(43,453
|
)
|
|
|
Amortization of pension loss
|
|
|
719
|
|
|
|
|
|
|
|
|
|
Net gain arising during period
|
|
|
10,481
|
|
|
|
|
|
|
|
|
|
Tax expense on change in pension loss
|
|
|
(4,256
|
)
|
|
|
|
|
|
|
|
|
|
|
Change in pension loss
|
|
|
6,944
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
$
|
26,307
|
|
|
$
|
14,553
|
|
|
$
|
(43,453
|
)
|
|
|
84
The end of period components of accumulated other comprehensive
income (loss) are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Unrealized
|
|
|
|
|
|
Other
|
|
|
|
Gains (Losses)
|
|
|
Pension
|
|
|
Comprehensive
|
|
(In thousands)
|
|
on Securities
|
|
|
Loss
|
|
|
Income (Loss)
|
|
|
|
|
Balance at December 31, 2005
|
|
$
|
(3,883
|
)
|
|
$
|
|
|
|
$
|
(3,883
|
)
|
Current period other comprehensive income
|
|
|
14,553
|
|
|
|
|
|
|
|
14,553
|
|
Adjustment to initially apply
|
|
|
|
|
|
|
|
|
|
|
|
|
SFAS No. 158
|
|
|
|
|
|
|
(10,870
|
)
|
|
|
(10,870
|
)
|
|
|
Balance at December 31, 2006
|
|
|
10,670
|
|
|
|
(10,870
|
)
|
|
|
(200
|
)
|
Current period other comprehensive income
|
|
|
19,363
|
|
|
|
6,944
|
|
|
|
26,307
|
|
|
|
Balance at December 31, 2007
|
|
$
|
30,033
|
|
|
$
|
(3,926
|
)
|
|
$
|
26,107
|
|
|
|
The Company segregates financial information for use in
assessing its performance and allocating resources among three
operating segments. The Consumer segment includes the retail
branch network, consumer finance, bankcard, student loans and
discount brokerage services. The Commercial segment provides
corporate lending, leasing, and international services, as well
as business, government deposit and cash management services.
The Money Management segment provides traditional trust and
estate tax planning services, and advisory and discretionary
investment management services. The Money Management segment
also includes the Capital Markets Group, which sells
fixed-income securities and provides investment safekeeping and
bond accounting services.
The Companys business line reporting system derives
segment information 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. Income and expense that directly
relate to segment operations are recorded in the segment when
incurred. Expenses that indirectly support the segments are
allocated based on the most appropriate method available.
The Companys reportable segments are strategic lines of
business that offer different products and services. They are
managed separately because each line services a specific
customer need, requiring different performance measurement
analyses and marketing strategies. The performance measurement
of the 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.
The following tables present selected financial information by
segment and reconciliations of combined segment totals to
consolidated totals. There were no material intersegment
revenues between the three segments. Management periodically
makes changes to methods of assigning costs and income to its
business
85
segments to better reflect operating results. If appropriate,
these changes are reflected in prior year information presented
below.
Segment
Income Statement Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
|
|
|
Segment
|
|
|
Other/
|
|
|
Consolidated
|
|
(In thousands)
|
|
Consumer
|
|
|
Commercial
|
|
|
Management
|
|
|
Totals
|
|
|
Elimination
|
|
|
Totals
|
|
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
393,693
|
|
|
$
|
222,708
|
|
|
$
|
10,239
|
|
|
$
|
626,640
|
|
|
$
|
(88,568
|
)
|
|
$
|
538,072
|
|
Provision for loan losses
|
|
|
34,791
|
|
|
|
8,218
|
|
|
|
|
|
|
|
43,009
|
|
|
|
(277
|
)
|
|
|
42,732
|
|
Non-interest income
|
|
|
187,381
|
|
|
|
85,358
|
|
|
|
92,628
|
|
|
|
365,367
|
|
|
|
6,214
|
|
|
|
371,581
|
|
Investment securities gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,234
|
|
|
|
8,234
|
|
Non-interest expense
|
|
|
307,284
|
|
|
|
159,113
|
|
|
|
65,723
|
|
|
|
532,120
|
|
|
|
42,638
|
|
|
|
574,758
|
|
|
|
Income before income taxes
|
|
$
|
238,999
|
|
|
$
|
140,735
|
|
|
$
|
37,144
|
|
|
$
|
416,878
|
|
|
$
|
(116,481
|
)
|
|
$
|
300,397
|
|
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
375,620
|
|
|
$
|
212,606
|
|
|
$
|
9,693
|
|
|
$
|
597,919
|
|
|
$
|
(84,720
|
)
|
|
$
|
513,199
|
|
Provision for loan losses
|
|
|
26,392
|
|
|
|
(313
|
)
|
|
|
|
|
|
|
26,079
|
|
|
|
(430
|
)
|
|
|
25,649
|
|
Non-interest income
|
|
|
179,930
|
|
|
|
79,656
|
|
|
|
85,235
|
|
|
|
344,821
|
|
|
|
7,765
|
|
|
|
352,586
|
|
Investment securities gains, net
|
|
|
2,839
|
|
|
|
|
|
|
|
|
|
|
|
2,839
|
|
|
|
6,196
|
|
|
|
9,035
|
|
Non-interest expense
|
|
|
287,507
|
|
|
|
144,950
|
|
|
|
60,388
|
|
|
|
492,845
|
|
|
|
32,580
|
|
|
|
525,425
|
|
|
|
Income before income taxes
|
|
$
|
244,490
|
|
|
$
|
147,625
|
|
|
$
|
34,540
|
|
|
$
|
426,655
|
|
|
$
|
(102,909
|
)
|
|
$
|
323,746
|
|
|
|
Year ended December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
332,700
|
|
|
$
|
194,538
|
|
|
$
|
8,059
|
|
|
$
|
535,297
|
|
|
$
|
(33,595
|
)
|
|
$
|
501,702
|
|
Provision for loan losses
|
|
|
34,814
|
|
|
|
(2,280
|
)
|
|
|
|
|
|
|
32,534
|
|
|
|
(3,749
|
)
|
|
|
28,785
|
|
Non-interest income
|
|
|
173,560
|
|
|
|
73,487
|
|
|
|
82,494
|
|
|
|
329,541
|
|
|
|
5,296
|
|
|
|
334,837
|
|
Investment securities gains, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,362
|
|
|
|
6,362
|
|
Non-interest expense
|
|
|
278,193
|
|
|
|
136,368
|
|
|
|
58,837
|
|
|
|
473,398
|
|
|
|
23,124
|
|
|
|
496,522
|
|
|
|
Income before income taxes
|
|
$
|
193,253
|
|
|
$
|
133,937
|
|
|
$
|
31,716
|
|
|
$
|
358,906
|
|
|
$
|
(41,312
|
)
|
|
$
|
317,594
|
|
|
|
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. Also included in this category is
the difference between loan charge-offs and recoveries assigned
directly to the segments and the provision for loan loss
expense. During 2007, the pre-tax profitability in the
Other/Elimination column decreased
$13.6 million compared to 2006. This occurred partly
because of a $21.0 million litigation expense provision,
which is further discussed in Note 18, which was not
allocated to a segment. The pre-tax profitability in the same
column decreased $61.6 million in 2006 compared to 2005,
mainly due to LIBOR based cost of funds charges that rose faster
during 2006 than the investment securities yields.
86
Segment
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
|
|
|
Segment
|
|
|
Other/
|
|
|
Consolidated
|
|
(In thousands)
|
|
Consumer
|
|
|
Commercial
|
|
|
Management
|
|
|
Totals
|
|
|
Elimination
|
|
|
Totals
|
|
|
|
|
Average balances for 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
4,599,697
|
|
|
$
|
6,172,816
|
|
|
$
|
384,245
|
|
|
$
|
11,156,758
|
|
|
$
|
4,323,569
|
|
|
$
|
15,480,327
|
|
Loans, including held for sale
|
|
|
4,436,507
|
|
|
|
6,056,424
|
|
|
|
43
|
|
|
|
10,492,974
|
|
|
|
18,258
|
|
|
|
10,511,232
|
|
Goodwill and other intangible assets
|
|
|
80,043
|
|
|
|
54,655
|
|
|
|
746
|
|
|
|
135,444
|
|
|
|
|
|
|
|
135,444
|
|
Deposits
|
|
|
8,906,655
|
|
|
|
2,446,222
|
|
|
|
493,273
|
|
|
|
11,846,150
|
|
|
|
31,865
|
|
|
|
11,878,015
|
|
|
|
Average balances for 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
4,162,398
|
|
|
$
|
5,396,072
|
|
|
$
|
236,200
|
|
|
$
|
9,794,670
|
|
|
$
|
4,443,934
|
|
|
$
|
14,238,604
|
|
Loans, including held for sale
|
|
|
4,043,128
|
|
|
|
5,308,467
|
|
|
|
17
|
|
|
|
9,351,612
|
|
|
|
69,770
|
|
|
|
9,421,382
|
|
Goodwill and other intangible assets
|
|
|
47,023
|
|
|
|
24,270
|
|
|
|
746
|
|
|
|
72,039
|
|
|
|
|
|
|
|
72,039
|
|
Deposits
|
|
|
8,112,122
|
|
|
|
2,405,136
|
|
|
|
478,448
|
|
|
|
10,995,706
|
|
|
|
124,091
|
|
|
|
11,119,797
|
|
|
|
The above segment balances include only those items directly
associated with the segment. The Other/Elimination
column includes unallocated bank balances not associated with a
segment (such as investment securities and federal funds sold),
balances relating to certain other administrative and corporate
functions, and eliminations between segment and non-segment
balances. This column also includes the resulting effect of
allocating such items as float, deposit reserve and capital for
the purpose of computing the cost or credit for funds
used/provided.
The Company uses a funds transfer pricing method to value funds
used (e.g., loans, fixed assets, cash, etc.) and funds provided
(deposits, borrowings, and equity) by the business segments and
their components. This process assigns a specific value to each
new source or use of funds with a maturity, based on current
LIBOR interest rates, thus determining an interest spread at the
time of the transaction. Non-maturity assets and liabilities are
assigned to LIBOR based funding pools. This provides an accurate
means of valuing fund sources and uses in a varying interest
rate environment.
On December 13, 2007, the Company distributed a 5% stock
dividend on its $5 par common stock for the fourteenth
consecutive year. All per share data in this report has been
restated to reflect the stock dividend.
Basic income per share is computed by dividing income available
to common shareholders by the weighted average number of common
shares outstanding during the year. Diluted income per share
gives
87
effect to all dilutive potential common shares that were
outstanding during the year. The calculations of basic and
diluted income per share, which have been restated for all stock
dividends, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
206,660
|
|
|
$
|
219,842
|
|
|
$
|
223,247
|
|
|
|
Weighted average basic common shares outstanding
|
|
|
72,360
|
|
|
|
73,686
|
|
|
|
76,765
|
|
Basic earnings per share
|
|
$
|
2.86
|
|
|
$
|
2.98
|
|
|
$
|
2.91
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders
|
|
$
|
206,660
|
|
|
$
|
219,842
|
|
|
$
|
223,247
|
|
|
|
Weighted average common shares outstanding
|
|
|
72,360
|
|
|
|
73,686
|
|
|
|
76,765
|
|
Net effect of nonvested stock and the assumed exercise of
stock-based awards based on the treasury stock
method using the average market price for the respective periods
|
|
|
829
|
|
|
|
992
|
|
|
|
1,029
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
73,189
|
|
|
|
74,678
|
|
|
|
77,794
|
|
|
|
Diluted earnings per share
|
|
$
|
2.82
|
|
|
$
|
2.94
|
|
|
$
|
2.87
|
|
|
|
The table below shows activity in the outstanding shares of the
Companys common stock during 2007. Shares in the table
below are presented on an historical basis and have not been
restated for the 5% stock dividend in 2007.
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
Shares outstanding at January 1, 2007
|
|
|
69,953
|
|
Issuance of stock:
|
|
|
|
|
Acquisition of South Tulsa Financial Corporation
|
|
|
562
|
|
Sales and awards under employee and director plans
|
|
|
562
|
|
5% stock dividend
|
|
|
3,417
|
|
Purchases of treasury stock
|
|
|
(2,699
|
)
|
Other
|
|
|
1
|
|
|
|
Shares outstanding at December 31, 2007
|
|
|
71,796
|
|
|
|
The Company maintains a treasury stock buyback program
authorized by its Board of Directors. At December 31, 2007,
1,529,003 shares were available for purchase under the
current Board authorization. In February 2008, the Board
authorized the purchase of additional shares, bringing the total
authorization to 3,000,000 shares. The Company has
routinely used these reacquired shares to fund stock
compensation programs and annual stock dividends.
|
|
15.
|
Regulatory
Capital Requirements
|
The Company is subject to various regulatory capital
requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate
certain mandatory and additional discretionary actions by
regulators that could have a direct material effect on the
Companys financial statements. The regulations require the
Company to meet specific capital adequacy guidelines that
involve quantitative measures of the Companys assets,
liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Companys
capital classification is also subject to qualitative judgments
by the regulators about components, risk weightings and other
factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Company and its banking
subsidiaries to maintain minimum amounts and ratios of
Tier I capital to total average assets (leverage ratio),
and minimum ratios of Tier I and Total capital to
risk-weighted assets (as defined). To meet minimum, adequately
capitalized regulatory requirements, an institution must
maintain a Tier I capital ratio of 4.00%, a Total capital
ratio of 8.00% and a leverage ratio of 4.00%. The minimum
required ratios for
88
well-capitalized banks (under prompt corrective action
provisions) are 6.00% for Tier I capital, 10.00% for Total
capital and 5.00% for the leverage ratio.
The following tables show the capital amounts and ratios for the
Company (on a consolidated basis) and its full-service banking
subsidiaries, together with the minimum and well-capitalized
capital requirements, at the last two year ends.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Well-Capitalized
|
|
|
|
Actual
|
|
|
Capital Requirement
|
|
|
Capital Requirement
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce Bancshares, Inc. (consolidated)
|
|
$
|
1,532,189
|
|
|
|
11.49
|
%
|
|
$
|
1,066,477
|
|
|
|
8.00
|
%
|
|
|
N.A.
|
|
|
|
N.A.
|
|
Commerce Bank, N.A. (Missouri)
|
|
|
1,270,953
|
|
|
|
10.29
|
|
|
|
987,925
|
|
|
|
8.00
|
|
|
$
|
1,234,906
|
|
|
|
10.00
|
%
|
Commerce Bank, N.A. (Kansas)
|
|
|
96,878
|
|
|
|
12.15
|
|
|
|
63,770
|
|
|
|
8.00
|
|
|
|
79,712
|
|
|
|
10.00
|
|
|
|
Tier I Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce Bancshares, Inc. (consolidated)
|
|
$
|
1,375,035
|
|
|
|
10.31
|
%
|
|
$
|
533,239
|
|
|
|
4.00
|
%
|
|
|
N.A.
|
|
|
|
N.A.
|
|
Commerce Bank, N.A. (Missouri)
|
|
|
1,146,752
|
|
|
|
9.29
|
|
|
|
493,963
|
|
|
|
4.00
|
|
|
$
|
740,944
|
|
|
|
6.00
|
%
|
Commerce Bank, N.A. (Kansas)
|
|
|
86,912
|
|
|
|
10.90
|
|
|
|
31,885
|
|
|
|
4.00
|
|
|
|
47,827
|
|
|
|
6.00
|
|
|
|
Tier I Capital (to adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
quarterly average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Leverage Ratio)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce Bancshares, Inc. (consolidated)
|
|
$
|
1,375,035
|
|
|
|
8.76
|
%
|
|
$
|
627,858
|
|
|
|
4.00
|
%
|
|
|
N.A.
|
|
|
|
N.A.
|
|
Commerce Bank, N.A. (Missouri)
|
|
|
1,146,752
|
|
|
|
7.96
|
|
|
|
576,509
|
|
|
|
4.00
|
|
|
$
|
720,637
|
|
|
|
5.00
|
%
|
Commerce Bank, N.A. (Kansas)
|
|
|
86,912
|
|
|
|
6.98
|
|
|
|
49,771
|
|
|
|
4.00
|
|
|
|
62,214
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
|
Well-Capitalized
|
|
|
|
Actual
|
|
|
Capital Requirement
|
|
|
Capital Requirement
|
|
(Dollars in thousands)
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce Bancshares, Inc. (consolidated)
|
|
$
|
1,502,386
|
|
|
|
12.56
|
%
|
|
$
|
956,782
|
|
|
|
8.00
|
%
|
|
|
N.A.
|
|
|
|
N.A.
|
|
Commerce Bank, N.A. (Missouri)
|
|
|
1,153,415
|
|
|
|
10.42
|
|
|
|
885,800
|
|
|
|
8.00
|
|
|
$
|
1,107,250
|
|
|
|
10.00
|
%
|
Commerce Bank, N.A. (Kansas)
|
|
|
109,988
|
|
|
|
16.04
|
|
|
|
54,873
|
|
|
|
8.00
|
|
|
|
68,591
|
|
|
|
10.00
|
|
|
|
Tier I Capital (to risk-weighted assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce Bancshares, Inc. (consolidated)
|
|
$
|
1,345,378
|
|
|
|
11.25
|
%
|
|
$
|
478,391
|
|
|
|
4.00
|
%
|
|
|
N.A.
|
|
|
|
N.A.
|
|
Commerce Bank, N.A. (Missouri)
|
|
|
1,031,282
|
|
|
|
9.31
|
|
|
|
442,900
|
|
|
|
4.00
|
|
|
$
|
664,350
|
|
|
|
6.00
|
%
|
Commerce Bank, N.A. (Kansas)
|
|
|
101,395
|
|
|
|
14.78
|
|
|
|
27,436
|
|
|
|
4.00
|
|
|
|
41,155
|
|
|
|
6.00
|
|
|
|
Tier I Capital (to adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
quarterly average assets):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Leverage Ratio)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commerce Bancshares, Inc. (consolidated)
|
|
$
|
1,345,378
|
|
|
|
9.05
|
%
|
|
$
|
594,778
|
|
|
|
4.00
|
%
|
|
|
N.A.
|
|
|
|
N.A.
|
|
Commerce Bank, N.A. (Missouri)
|
|
|
1,031,282
|
|
|
|
7.58
|
|
|
|
544,206
|
|
|
|
4.00
|
|
|
$
|
680,258
|
|
|
|
5.00
|
%
|
Commerce Bank, N.A. (Kansas)
|
|
|
101,395
|
|
|
|
8.32
|
|
|
|
48,733
|
|
|
|
4.00
|
|
|
|
60,916
|
|
|
|
5.00
|
|
|
|
At December 31, 2007, the Company met all capital
requirements to which it is subject and all of its banking
subsidiaries exceeded the regulatory definition of
well-capitalized.
|
|
16.
|
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.
89
Loans
Fair values are estimated for various groups of loans segregated
by 1) type of loan, 2) fixed/adjustable interest terms
and 3) performing/non-performing status. The fair value of
performing loans is calculated by discounting all simulated cash
flows. Cash flows include all principal and interest to be
received, taking embedded optionality such as the
customers right to prepay into account. Discount rates are
computed for each loan category using implied forward market
rates adjusted to recognize each loans approximate credit
risk. Fair value of impaired loans approximates their carrying
value because such loans are recorded at the appraised or
estimated recoverable value of the collateral or the underlying
cash flow.
Investment
Securities
The fair values of the debt and equity instruments in the
available for sale and trading sections of the investment
security portfolio are estimated based on prices obtained from
financial publications, pricing vendors, or bid quotations
received from securities dealers. Fair values are estimated for
those investments for which a market source is not readily
available.
A schedule of investment securities by category and maturity is
provided in Note 4 on Investment Securities. Fair value
estimates are based on the value of one unit without regard to
any premium or discount that may result from concentrations of
ownership, possible tax ramifications or estimated transaction
costs.
Federal
Funds Sold and Securities Purchased under Agreements to Resell
and Cash and Due From Banks
The carrying amounts of federal funds sold and securities
purchased under agreements to resell 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
The fair value of derivative financial instruments is based on
the estimated amounts that the Company would receive or pay to
terminate the contracts at the reporting date (i.e.,
mark-to-market
value). Fair values are based on dealer quotes 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 federal funds purchased and securities sold
under agreements to repurchase which mature or reprice within
90 days approximates their carrying value. The fair value
of long-term debt is estimated by discounting contractual
maturities using an estimate of the current market rate for
similar instruments.
90
The estimated fair values of the Companys financial
instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
(In thousands)
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
Financial Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, including held for sale
|
|
$
|
10,841,264
|
|
|
$
|
11,050,499
|
|
|
$
|
9,960,118
|
|
|
$
|
10,036,534
|
|
Available for sale investment securities
|
|
|
3,165,020
|
|
|
|
3,165,020
|
|
|
|
3,415,440
|
|
|
|
3,415,440
|
|
Trading securities
|
|
|
26,478
|
|
|
|
26,478
|
|
|
|
6,676
|
|
|
|
6,676
|
|
Non-marketable securities
|
|
|
105,517
|
|
|
|
105,517
|
|
|
|
74,207
|
|
|
|
74,207
|
|
Federal funds sold and securities purchased under agreements to
resell
|
|
|
655,165
|
|
|
|
655,165
|
|
|
|
527,816
|
|
|
|
527,816
|
|
Accrued interest receivable
|
|
|
72,541
|
|
|
|
72,541
|
|
|
|
79,565
|
|
|
|
79,565
|
|
Derivative instruments
|
|
|
4,923
|
|
|
|
4,923
|
|
|
|
1,300
|
|
|
|
1,300
|
|
Cash and due from banks
|
|
|
673,081
|
|
|
|
673,081
|
|
|
|
626,500
|
|
|
|
626,500
|
|
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand deposits
|
|
$
|
1,413,849
|
|
|
$
|
1,413,849
|
|
|
$
|
1,312,400
|
|
|
$
|
1,312,400
|
|
Savings, interest checking and money market deposits
|
|
|
7,155,366
|
|
|
|
7,155,366
|
|
|
|
6,879,047
|
|
|
|
6,879,047
|
|
Time open and C.D.s
|
|
|
3,982,337
|
|
|
|
4,045,203
|
|
|
|
3,553,407
|
|
|
|
3,589,259
|
|
Federal funds purchased and securities sold under agreements to
repurchase
|
|
|
1,239,219
|
|
|
|
1,230,282
|
|
|
|
1,771,282
|
|
|
|
1,771,282
|
|
Other borrowings
|
|
|
583,639
|
|
|
|
602,325
|
|
|
|
53,934
|
|
|
|
58,338
|
|
Accrued interest payable
|
|
|
69,088
|
|
|
|
69,088
|
|
|
|
63,593
|
|
|
|
63,593
|
|
Derivative instruments
|
|
|
6,709
|
|
|
|
6,709
|
|
|
|
2,106
|
|
|
|
2,106
|
|
|
|
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.
These instruments are also referenced in Note 18 on
Commitments, Contingencies and Guarantees.
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.
|
|
17.
|
Derivative
Instruments
|
One of the Companys primary risks associated with its
lending activity is interest rate risk. Interest rates contain
an ever-present volatility, as they are affected by the
markets perception of the economys health at any one
point in time, as well as by specific actions of the Federal
Reserve. These fluctuations can either compress or enhance fixed
rate interest margins depending on the liability structure of
the funding organization. Over the longer term, rising interest
rates may have a negative effect on interest margins as funding
sources become more expensive relative to any fixed rate loans
that do not re-price as quickly with the change in interest
rates. However, in order to maintain its competitive advantage,
in certain circumstances the Company offers fixed rate
commercial financing whose term extends beyond its traditional
three to five year parameter. This exposes the Company to the
risk that the fair value of the fixed rate loan may fall if
market interest rates increase. To reduce this exposure for
certain specified loans, the Company may enter into interest
rate swaps, paying interest based on a fixed rate in exchange
for interest based on a variable
91
rate. At December 31, 2007, the Company had two swaps, with
a notional amount totaling $13.4 million, which have been
designated as fair value hedges. The amount of hedge
ineffectiveness on these swaps is recorded in interest income in
the accompanying consolidated income statements. The Company
also sells swaps to its borrowers to accommodate their interest
rate risk profiles, and enters into identical dealer swaps with
offsetting pay/receive terms. The notional amount of these types
of swaps at December 31, 2007 was $295.0 million. The
changes in the fair values of these swaps were recorded in other
non-interest income.
The Companys mortgage banking operation makes commitments
to extend fixed rate loans secured by 1-4 family residential
properties, which are considered to be derivative instruments.
These commitments are recognized on the balance sheet at fair
value from their inception through their expiration or funding,
and have an average term of 60 to 90 days. The
Companys general practice is to sell such loans in the
secondary market. The Company obtains forward sale contracts
with investors in the secondary market in order to manage these
risk positions. Most of the contracts are matched to a specific
loan on a best efforts basis, in which the Company
is obligated to deliver the loan only if the loan closes. The
sale contracts are also accounted for as derivatives. Hedge
accounting has not been applied to these activities. The
unrealized gains and losses resulting from recording both the
loan commitments and the sale contracts at fair value were
included in loan fees and sales in the Companys
consolidated income statements.
The Companys foreign exchange activity involves the
purchase and sale of forward foreign exchange contracts, which
are commitments to purchase or deliver a specified amount of
foreign currency at a specific future date. This activity
enables customers involved in international business to hedge
their exposure to foreign currency exchange rate fluctuations.
The Company minimizes its related exposure arising from these
customer transactions with offsetting contracts for the same
currency and time frame. In addition, the Company uses foreign
exchange contracts, to a limited extent, for trading purposes,
including taking proprietary positions. Risk arises from changes
in the currency exchange rate and from the potential for
counterparty nonperformance. These risks are controlled by
adherence to a foreign exchange trading policy which contains
control limits on currency amounts, open positions, maturities
and losses, and procedures for approvals, record-keeping,
monitoring and reporting. Hedge accounting has not been applied
to these foreign exchange activities. The changes in fair value
of the foreign exchange derivative instruments were recorded in
other non-interest income.
At December 31, 2007, the total notional amount of
derivatives held by the Company amounted to $371.2 million.
Derivatives with positive fair values of $4.9 million were
recorded in other assets and derivatives with negative fair
values of $6.7 million were recorded as other liabilities
at December 31, 2007. Changes in the fair values of the
derivative instruments and hedged loans, as shown in the table
below, were recognized in current earnings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
Unrealized gain (loss)
|
|
|
|
|
|
|
|
|
|
resulting from change in fair value
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Swaps/hedged loans
|
|
$
|
263
|
|
|
$
|
130
|
|
|
$
|
64
|
|
Credit risk participation agreements
|
|
|
14
|
|
|
|
|
|
|
|
|
|
Mortgage loan commitments
|
|
|
49
|
|
|
|
(53
|
)
|
|
|
23
|
|
Mortgage loan sale contracts
|
|
|
(54
|
)
|
|
|
56
|
|
|
|
(46
|
)
|
Foreign exchange contracts
|
|
|
(53
|
)
|
|
|
(73
|
)
|
|
|
84
|
|
|
|
Total
|
|
$
|
219
|
|
|
$
|
60
|
|
|
$
|
125
|
|
|
|
92
|
|
18.
|
Commitments,
Contingencies and Guarantees
|
The Company leases certain premises and equipment, all of which
were classified as operating leases. The rent expense under such
arrangements amounted to $5.9 million, $5.5 million
and $5.3 million in 2007, 2006 and 2005, respectively. A
summary of minimum lease commitments follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
Type of Property
|
|
|
|
|
|
|
Real
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
Property
|
|
|
Equipment
|
|
|
Total
|
|
|
|
|
2008
|
|
$
|
4,989
|
|
|
$
|
794
|
|
|
$
|
5,783
|
|
2009
|
|
|
4,562
|
|
|
|
573
|
|
|
|
5,135
|
|
2010
|
|
|
3,679
|
|
|
|
296
|
|
|
|
3,975
|
|
2011
|
|
|
2,944
|
|
|
|
77
|
|
|
|
3,021
|
|
2012
|
|
|
2,503
|
|
|
|
|
|
|
|
2,503
|
|
After
|
|
|
24,053
|
|
|
|
|
|
|
|
24,053
|
|
|
|
Total minimum lease payments
|
|
|
|
|
|
|
|
|
|
$
|
44,470
|
|
|
|
All leases expire prior to 2055. It is expected that in the
normal course of business, leases that expire will be renewed or
replaced by leases on other properties; thus, the future minimum
lease commitments are not expected to be less than the amounts
shown for 2008.
The Company engages in various transactions and commitments with
off-balance sheet risk in the normal course of business to meet
customer financing needs. The Company uses the same credit
policies in making the commitments and conditional obligations
described below as it does for on-balance sheet instruments. The
following table summarizes these commitments at December 31:
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Commitments to extend credit:
|
|
|
|
|
|
|
|
|
Credit card
|
|
$
|
3,807,846
|
|
|
$
|
3,701,433
|
|
Other
|
|
|
4,185,352
|
|
|
|
3,816,656
|
|
Standby letters of credit, net of participations
|
|
|
441,389
|
|
|
|
452,219
|
|
Commercial letters of credit
|
|
|
27,669
|
|
|
|
30,088
|
|
|
|
Commitments to extend credit are legally binding agreements to
lend to a borrower providing there are no violations of any
conditions established in the contract. As many of the
commitments are expected to expire without being drawn upon, the
total commitment does not necessarily represent future cash
requirements. Refer to Note 3 on Loans and Allowance for
Loan Losses for further discussion.
Commercial letters of credit act as a means of ensuring payment
to a seller upon shipment of goods to a buyer. Although
commercial letters of credit are used to effect payment for
domestic transactions, the majority are used to settle payments
in international trade. Typically, letters of credit require
presentation of documents which describe the commercial
transaction, evidence shipment, and transfer title.
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.
At December 31, 2007, the Company had recorded a liability
in the amount of $4.7 million, representing the carrying
value of the guarantee obligations associated with the standby
letters of credit. This amount will
93
be amortized into income over the life of the commitment. The
contract amount of these letters of credit, which represents the
maximum potential future payments guaranteed by the Company, was
$441.4 million at December 31, 2007.
The Company periodically purchases various state tax credits
arising from third-party property redevelopment. Most of the tax
credits are resold to third parties, although some may be
retained for use by the Company. During 2007, purchases and
sales of tax credits amounted to $38.7 million and
$40.5 million, respectively. At December 31, 2007, the
Company had outstanding purchase commitments totaling
$102.6 million. The commitments are expected to be funded
in 2008 through 2011.
In 2007, the Company entered into several risk participation
agreements (RPAs) with other financial institutions which
mitigate those institutions credit risk arising from
interest rate swaps with third parties. The RPA stipulates that,
in the event of default by the third party on the interest rate
swap, the Company will reimburse a portion of the loss borne by
the institution. The Companys exposure is based on
notional amounts totaling $25.4 million; however, these
contracts are all backed by collateral, thus mitigating the
overall risk. At inception of each contract, the Company
received a fee from the institution which was recorded as a
liability representing the fair value of the RPA. Any future
changes in fair value, including those due to a change in the
third partys creditworthiness, are recorded in current
earnings. At December 31, 2007 the total liability was $174
thousand. The maximum potential future payment guaranteed by the
Company cannot be readily estimated, but is dependent upon the
fair value of the interest rate swaps at the time of default. If
an event of default had occurred on all contracts at
December 31, 2007, the Company would have been required to
make payments of approximately $1.4 million.
The Company guarantees payments to holders of certain trust
preferred securities issued by two wholly owned grantor trusts
as discussed in Note 8 on Borrowings. Preferred securities
issued by Breckenridge Capital Trust I, amounting to
$4.0 million, are due in 2030 and may be redeemed beginning
in 2010. Securities issued by West Pointe Statutory
Trust I, amounting to $10.0 million, are due in 2034
and may be redeemed beginning in 2009. The maximum potential
future payments guaranteed by the Company, which includes future
interest and principal payments through maturity, was estimated
to be approximately $43.2 million at December 31,
2007. At December 31, 2007, the Company had a recorded
liability of $14.2 million in principal and accrued
interest to date, representing amounts owed to the security
holders.
During the fourth quarter of 2007, the Company recorded a
non-cash indemnification charge of $21.0 million related to
the Companys obligation to share certain estimated
litigation costs of Visa, Inc. (Visa). The charge was the result
of revisions in October 2007 to Visas by-laws affecting
all member banks, as part of an overall reorganization in which
the member banks indemnified Visa on certain covered litigation.
The expense charge relates to Visas American Express
litigation, which was settled by Visa in November 2007, and
other Visa litigation, including the Discover and other
interchange litigation, which has not yet been settled. As part
of the reorganization, Visa plans an initial public offering
early in 2008, and part of the proceeds from the offering
representing the member banks proportionate share will be
placed in escrow and used to fund the actual litigation
settlements when they occur. The Company currently anticipates
that its proportional share of the proceeds of the Visa initial
public offering will more than offset its liabilities related to
the Visa litigation.
In the normal course of business, the Company had certain
lawsuits pending at December 31, 2007. In the opinion of
management, after consultation with legal counsel, none of these
suits will have a significant effect on the financial condition
and results of operations of the Company.
The Companys Chief Executive Officer and its Vice Chairman
are directors of Tower Properties Company (Tower) and together
with members of their immediate families beneficially own
approximately 76% of the outstanding stock of Tower. At
December 31, 2007, Tower owned 166,156 shares of
Company stock. Tower is primarily engaged in the business of
owning, developing, leasing and managing real property. During
2006 and previous years, the Company and its affiliates occupied
various facilities in downtown Kansas City which were owned by
Tower. At December 31, 2006, all such premises had been
sold by Tower or
94
vacated by the Company, with the exception of several surface
parking lots which are used by employees of the Company.
Payments from the Company and its affiliates to Tower are
summarized below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Rent on leased properties
|
|
$
|
423
|
|
|
$
|
556
|
|
|
$
|
920
|
|
Leasing fees
|
|
|
19
|
|
|
|
72
|
|
|
|
104
|
|
Operation of parking garages
|
|
|
104
|
|
|
|
101
|
|
|
|
98
|
|
Building management fees
|
|
|
1,638
|
|
|
|
1,621
|
|
|
|
1,432
|
|
Property construction management fees
|
|
|
269
|
|
|
|
192
|
|
|
|
276
|
|
Dividends paid on Company stock held by Tower
|
|
|
158
|
|
|
|
148
|
|
|
|
138
|
|
|
|
Total
|
|
$
|
2,611
|
|
|
$
|
2,690
|
|
|
$
|
2,968
|
|
|
|
Tower has a $13.5 million line of credit with the
Companys Missouri bank (Bank) which is subject to normal
credit terms and has a variable interest rate. No loans were
outstanding during 2007 under this line of credit. At
December 31, 2005, the loan balance was $2.3 million,
which was repaid in 2006. Interest received by the Bank from
Tower under the line of credit was $49 thousand and $192
thousand in 2006 and 2005, respectively. Fees received for
letters of credit collateralized under the line of credit were
$35 thousand annually in 2007, 2006 and 2005. From time to time,
the Bank extends additional credit to Tower for construction and
development projects. No construction loans were outstanding
during 2007 or 2006. Interest received on such loans was $24
thousand in 2005.
In 2006, the Bank purchased two parking facilities in downtown
Kansas City from Tower for $2.4 million. These parking
facilities are adjacent to existing Company office buildings,
and are in the process of being renovated for future parking
expansion. In 2005, the Bank purchased a 12-story office
building and attached garage in downtown Kansas City from Tower
for $18.0 million. The purchase prices were based upon
independent outside appraisals and the transactions were
approved by the Companys Board of Directors and
independent Audit Committee.
Directors of the Company and their beneficial interests have
deposit accounts with the subsidiary banks of the Company and
may be provided with cash management and other banking services,
including loans, in the ordinary course of business. Such loans
were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for
comparable transactions with other persons, and did not involve
more than the normal risk of collectibility.
95
|
|
20.
|
Parent
Company Condensed Financial Statements
|
Following are the condensed financial statements of Commerce
Bancshares, Inc. (Parent only) for the periods indicated:
Condensed
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Investment in consolidated subsidiaries:
|
|
|
|
|
|
|
|
|
Banks
|
|
$
|
1,363,837
|
|
|
$
|
1,197,369
|
|
Non-banks
|
|
|
41,716
|
|
|
|
67,737
|
|
Cash
|
|
|
96
|
|
|
|
119
|
|
Investment securities:
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
121,520
|
|
|
|
166,239
|
|
Non-marketable
|
|
|
6,980
|
|
|
|
6,804
|
|
Prepaid pension cost
|
|
|
20,223
|
|
|
|
7,998
|
|
Income tax benefits
|
|
|
8,903
|
|
|
|
7,294
|
|
Other assets
|
|
|
13,538
|
|
|
|
11,918
|
|
|
|
Total assets
|
|
$
|
1,576,813
|
|
|
$
|
1,465,478
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
Borrowings from subsidiaries, net of receivables
|
|
$
|
15,708
|
|
|
$
|
11,005
|
|
Indemnification obligation
|
|
|
20,951
|
|
|
|
|
|
Other liabilities
|
|
|
12,468
|
|
|
|
12,359
|
|
|
|
Total liabilities
|
|
|
49,127
|
|
|
|
23,364
|
|
Stockholders equity
|
|
|
1,527,686
|
|
|
|
1,442,114
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,576,813
|
|
|
$
|
1,465,478
|
|
|
|
Condensed
Statements of Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends received from consolidated subsidiaries:
|
|
|
|
|
|
|
|
|
|
|
|
|
Banks
|
|
$
|
172,187
|
|
|
$
|
140,200
|
|
|
$
|
219,639
|
|
Non-banks
|
|
|
7,280
|
|
|
|
300
|
|
|
|
315
|
|
Earnings of consolidated subsidiaries, net of dividends
|
|
|
44,086
|
|
|
|
82,677
|
|
|
|
10,540
|
|
Interest and dividends on investment securities
|
|
|
4,524
|
|
|
|
7,764
|
|
|
|
6,451
|
|
Management fees charged subsidiaries
|
|
|
39,074
|
|
|
|
37,731
|
|
|
|
32,952
|
|
Investment securities gains (losses)
|
|
|
2,110
|
|
|
|
(149
|
)
|
|
|
(164
|
)
|
Other
|
|
|
1,913
|
|
|
|
3,179
|
|
|
|
1,534
|
|
|
|
Total income
|
|
|
271,174
|
|
|
|
271,702
|
|
|
|
271,267
|
|
|
|
Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
30,509
|
|
|
|
35,152
|
|
|
|
32,643
|
|
Professional fees
|
|
|
3,997
|
|
|
|
2,635
|
|
|
|
2,449
|
|
Data processing fees paid to affiliates
|
|
|
11,097
|
|
|
|
9,471
|
|
|
|
9,660
|
|
Indemnification obligation
|
|
|
20,951
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
11,182
|
|
|
|
10,784
|
|
|
|
10,601
|
|
|
|
Total expense
|
|
|
77,736
|
|
|
|
58,042
|
|
|
|
55,353
|
|
|
|
Income tax expense (benefit)
|
|
|
(13,222
|
)
|
|
|
(6,182
|
)
|
|
|
(7,333
|
)
|
|
|
Net income
|
|
$
|
206,660
|
|
|
$
|
219,842
|
|
|
$
|
223,247
|
|
|
|
96
Condensed
Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31
|
|
(In thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
206,660
|
|
|
$
|
219,842
|
|
|
$
|
223,247
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings of consolidated subsidiaries, net of dividends
|
|
|
(44,086
|
)
|
|
|
(82,677
|
)
|
|
|
(10,540
|
)
|
Other adjustments, net
|
|
|
11,619
|
|
|
|
2,808
|
|
|
|
4,995
|
|
|
|
Net cash provided by operating activities
|
|
|
174,193
|
|
|
|
139,973
|
|
|
|
217,702
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in investment in subsidiaries, net
|
|
|
(43,977
|
)
|
|
|
(17,822
|
)
|
|
|
(11,525
|
)
|
Proceeds from sales of investment securities
|
|
|
55,866
|
|
|
|
13,005
|
|
|
|
36
|
|
Proceeds from maturities of investment securities
|
|
|
62,256
|
|
|
|
90,594
|
|
|
|
173,938
|
|
Purchases of investment securities
|
|
|
(70,389
|
)
|
|
|
(41,828
|
)
|
|
|
(107,820
|
)
|
Net purchases of equipment
|
|
|
(1,691
|
)
|
|
|
(474
|
)
|
|
|
(485
|
)
|
|
|
Net cash provided by investing activities
|
|
|
2,065
|
|
|
|
43,475
|
|
|
|
54,144
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in borrowings from subsidiaries, net
|
|
|
5,268
|
|
|
|
7,977
|
|
|
|
3,395
|
|
Purchases of treasury stock
|
|
|
(128,578
|
)
|
|
|
(134,956
|
)
|
|
|
(234,501
|
)
|
Issuance under equity compensation plans
|
|
|
13,661
|
|
|
|
7,274
|
|
|
|
18,393
|
|
Net tax benefit related to equity compensation plans
|
|
|
2,283
|
|
|
|
2,108
|
|
|
|
4,288
|
|
Cash dividends paid on common stock
|
|
|
(68,915
|
)
|
|
|
(65,758
|
)
|
|
|
(63,421
|
)
|
|
|
Net cash used in financing activities
|
|
|
(176,281
|
)
|
|
|
(183,355
|
)
|
|
|
(271,846
|
)
|
|
|
Increase (decrease) in cash
|
|
|
(23
|
)
|
|
|
93
|
|
|
|
|
|
Cash at beginning of year
|
|
|
119
|
|
|
|
26
|
|
|
|
26
|
|
|
|
Cash at end of year
|
|
$
|
96
|
|
|
$
|
119
|
|
|
$
|
26
|
|
|
|
Dividends paid by the Parent were substantially provided from
subsidiary bank dividends. The subsidiary banks may distribute
dividends without prior regulatory approval that do not exceed
the sum of net income for the current year and retained net
income for the preceding two years, subject to maintenance of
minimum capital requirements. The Parent charges fees to its
subsidiaries for management services provided, which are
allocated to the subsidiaries based primarily on total average
assets. The Parent makes advances to non-banking subsidiaries
and subsidiary bank holding companies. Advances are made to the
Parent by subsidiary bank holding companies for investment in
temporary liquid securities. Interest on such advances is based
on market rates.
For the past several years, the Parent has maintained a
$20.0 million line of credit for general corporate purposes
with a subsidiary bank. The line of credit is secured by
marketable investment securities. At December 31, 2007, the
Parents outstanding borrowings under this line were
$10.0 million. The interest rate is the quoted Call Money
rate, which was 6.0% at December 31, 2007. During 2006 and
2005, the Parent had no borrowings from the subsidiary bank.
The Parent plans to fund an additional $13.3 million
relating to venture capital and private equity investments over
the next several years. The investments are made directly by the
Parent and through non-bank subsidiaries.
Available for sale investment securities held by the Parent
consist of short-term investments in mutual funds and marketable
common and preferred stock. The fair value of these securities
included an unrealized gain of $52.0 million at
December 31, 2007. The corresponding net of tax unrealized
gain included in stockholders equity was
$32.2 million. Also included in stockholders equity
was an unrealized net of tax loss
97
in fair value of investment securities held by subsidiaries,
which amounted to $2.2 million at December 31, 2007.
In the fourth quarter of 2007, the Parent recorded a liability
of $21.0 million related to its share of certain estimated
Visa litigation costs under an indemnification obligation to
Visa as discussed on page 94.
|
|
Item 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
|
There were no changes in or disagreements with accountants on
accounting and financial disclosure.
|
|
Item 9a.
|
CONTROLS
AND PROCEDURES
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934. Based on this
evaluation, our principal executive officer and our principal
financial officer concluded that our disclosure controls and
procedures were effective as of the end of the period covered by
this annual report.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal
Control Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of December 31, 2007.
The Companys internal control over financial reporting as
of December 31, 2007 has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in
their report which follows.
98
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Commerce Bancshares, Inc.:
We have audited Commerce Bancshares, Inc. and subsidiaries (the
Company) internal control over financial reporting as of
December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is responsible
for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
U.S. generally accepted accounting principles. A
companys internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with
U.S. generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Commerce Bancshares, Inc. and subsidiaries
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2007, based on
COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of
December 31, 2007 and 2006, and the related consolidated
statements of income, stockholders equity, and cash flows
for each of the years in the three-year period ended
December 31, 2007, and our report dated February 26,
2008 expressed an unqualified opinion on those consolidated
financial statements.
Kansas City, Missouri
February 26, 2008
99
|
|
Item 9b.
|
OTHER
INFORMATION
|
None
PART III
|
|
Item 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by Items 401, 405 and 407(c)(3),
(d)(4) and (d)(5) of
Regulation S-K
regarding executive officers is included in Part I under
the caption Executive Officers of the Registrant and
under the captions Election of Directors,
Section 16(a) Beneficial Ownership Reporting
Compliance, Audit Committee, Audit
Committee Report, and Committee on
Governance/Directors in the definitive proxy statement,
which is incorporated herein by reference.
The Companys financial officer code of ethics for the
chief executive officer and senior financial officers of the
Company is available at www.commercebank.com. Amendments to, and
waivers of, the code of ethics are posted on this website.
|
|
Item 11.
|
EXECUTIVE
COMPENSATION
|
The information required by Items 402 and 407(e)(4) and
(e)(5) of
Regulation S-K
regarding executive compensation is included under the captions
Executive Compensation, Retirement
Benefits, Compensation Committee Report on Executive
Compensation, and Compensation Committee Interlocks
and Insider Participation in the definitive proxy
statement, which is incorporated herein by reference.
|
|
Item 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by Items 201(d) and 403 of
Regulation S-K
is covered under the captions Equity Compensation
Plan and Voting Securities and Ownership Thereof by
Certain Beneficial Owners and Management in the definitive
proxy statement, which is incorporated herein by reference.
|
|
Item 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by Items 404 and 407(a) of
Regulation S-K
is covered under the captions Election of Directors
and Corporate Governance and Director Independence
in the definitive proxy statement, which is incorporated herein
by reference.
|
|
Item 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required is included under the caption
Approval of Independent Auditors in the definitive
proxy statement, which is incorporated herein by reference.
100
PART IV
|
|
Item 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) The following documents are filed as a part of this
report:
|
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
(1
|
)
|
|
Financial Statements:
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets
|
|
|
57
|
|
|
|
|
|
Consolidated Statements of Income
|
|
|
58
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
|
|
59
|
|
|
|
|
|
Consolidated Statements of Stockholders Equity
|
|
|
60
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
|
61
|
|
|
|
|
|
Summary of Quarterly Statements of Income
|
|
|
51
|
|
|
(2
|
)
|
|
Financial Statement Schedules:
|
|
|
|
|
|
|
|
|
All schedules are omitted as such information is inapplicable or
is included in the financial statements.
|
|
|
|
|
(b) The exhibits filed as part of this report and exhibits
incorporated herein by reference to other documents are listed
in the Index to Exhibits (pages
E-1 through
E-2).
101
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned
thereunto duly authorized this 26th day of February 2008.
Commerce Bancshares, Inc.
|
|
|
|
By:
|
/s/ J.
Daniel Stinnett
|
J. Daniel Stinnett
Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated on
the 26th day of February 2008.
A. Bayard Clark
Chief Financial Officer
|
|
|
|
By:
|
/s/ Jeffery
D. Aberdeen
|
Jeffery D. Aberdeen
Controller
(Chief Accounting Officer)
|
|
|
David W. Kemper
|
|
|
(Chief Executive Officer)
|
|
|
John R. Capps
|
|
|
W. Thomas Grant II
|
|
|
James B. Hebenstreit
|
|
|
Jonathan M. Kemper
|
|
A majority of the Board of
Directors*
|
Terry O. Meek
|
|
|
Benjamin F. Rassieur III
|
|
|
Dan C. Simons
|
|
|
Andrew C. Taylor
|
|
|
Kimberly G. Walker
|
|
|
Robert H. West
|
|
|
|
|
|
* |
|
David W. Kemper, Director and Chief Executive Officer, and the
other Directors of Registrant listed, executed a power of
attorney authorizing J. Daniel Stinnett, their
attorney-in-fact,
to sign this report on their behalf. |
|
|
|
|
By:
|
/s/ J.
Daniel Stinnett
|
J. Daniel Stinnett
Attorney-in-Fact
102
INDEX TO
EXHIBITS
3 Articles of Incorporation and By-Laws:
(a) Restated Articles of Incorporation, as amended, were
filed in quarterly report on Form
10-Q dated
August 10, 1999, and the same are hereby incorporated by
reference.
(b) Restated By-Laws, as amended, were filed in current
report on
Form 8-K
dated October 29, 2007, and the same are hereby
incorporated by reference.
4 Instruments defining the rights of security
holders, including indentures:
(a) Pursuant to paragraph (b)(4)(iii) of Item 601
Regulation S-K,
Registrant will furnish to the Commission upon request copies of
long-term debt instruments.
10 Material Contracts (Each of the following is a
management contract or compensatory plan arrangement):
(a) Commerce Bancshares, Inc. Executive Incentive
Compensation Plan amended and restated as of July 31, 1998
was filed in quarterly report on
Form 10-Q
dated May 10, 2002, and the same is hereby incorporated by
reference.
(b) Commerce Bancshares, Inc. 1987 Non-Qualified Stock
Option Plan amended and restated as of October 4, 1996 was
filed in quarterly report on
Form 10-Q
dated November 8, 1996, and the same is hereby incorporated
by reference.
(c) Commerce Bancshares, Inc. Stock Purchase Plan for
Non-Employee Directors amended and restated as of
October 4, 1996 was filed in quarterly report on
Form 10-Q
dated November 8, 1996, and the same is hereby incorporated
by reference.
(d) Commerce Bancshares, Inc. 1996 Incentive Stock Option
Plan amended and restated as of April 2001 was filed in
quarterly report on
Form 10-Q
dated May 8, 2001, and the same is hereby incorporated by
reference.
(e) Commerce Executive Retirement Plan amended and restated
as of January 1, 2005 was filed in current report on
Form 8-K
dated January 4, 2005, and the same is hereby incorporated
by reference.
(f) Commerce Bancshares, Inc. Restricted Stock Plan amended
and restated as of April 21, 2004 was filed in quarterly
report on
Form 10-Q
dated August 4, 2004, and the same is hereby incorporated
by reference.
(g) Form of Severance Agreement between Commerce
Bancshares, Inc. and certain of its executive officers entered
into as of October 4, 1996 was filed in quarterly report on
Form 10-Q
dated November 8, 1996, and the same is hereby incorporated
by reference.
(h) Trust Agreement for the Commerce Bancshares, Inc.
Executive Incentive Compensation Plan amended and restated as of
January 1, 2001 was filed in quarterly report on
Form 10-Q
dated May 8, 2001, and the same is hereby incorporated by
reference.
(i) Commerce Bancshares, Inc. 2008 Compensatory Arrangement
with CEO and Named Executive Officers was filed in current
report on
Form 8-K
dated February 5, 2008, and the same is hereby incorporated
by reference.
(j) Commerce Bancshares, Inc. 2005 Equity Incentive Plan
was filed in the Companys proxy statement dated
March 11, 2005, and the same is hereby incorporated by
reference.
(k) Commerce Bancshares, Inc. Notice of Grant of Stock
Options and Option Agreement was filed in quarterly report on
Form 10-Q
dated August 5, 2005, and the same is hereby incorporated
by reference.
(l) Commerce Bancshares, Inc. Restricted Stock Award
Agreement, pursuant to the Restricted Stock Plan, was filed in
quarterly report on
Form 10-Q
dated August 5, 2005, and the same is hereby incorporated
by reference.
E-1
(m) Commerce Bancshares, Inc. Stock Appreciation Rights
Agreement and Commerce Bancshares, Inc. Restricted Stock Award
Agreement, pursuant to the 2005 Equity Incentive Plan, were
filed in current report on
Form 8-K
dated February 23, 2006, and the same are hereby
incorporated by reference.
21 Subsidiaries of the Registrant
23 Consent of Independent Registered Public
Accounting Firm
24 Power of Attorney
31.1 Certification of CEO pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
31.2 Certification of CFO pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
32 Certifications of CEO and CFO pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
E-2