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Commerce Bancshares Inc. Reports Operating Results (10-K)

February 22, 2012 | About:

Commerce Bancshares Inc. (NASDAQ:CBSH) filed Annual Report for the period ended 2011-12-31.

Commerce Bancsh has a market cap of $3.52 billion; its shares were traded at around $38.73 with a P/E ratio of 13.9 and P/S ratio of 3.2. The dividend yield of Commerce Bancsh stocks is 2.3%. Commerce Bancsh had an annual average earning growth of 2.8% over the past 10 years.

Highlight of Business Operations:

During 2010, interest income on loans (tax equivalent) declined $48.0 million from 2009 due to lower average balances on most loan categories, coupled with lower rates earned on personal real estate and other personal banking loan products. The average tax equivalent rate earned on the loan portfolio was 5.28% compared to 5.27% in the previous year. Total average loan balances decreased $931.2 million, or 8.8%, reflecting declines of $346.8 million in business and business real estate loans, $182.6 million in construction loans, $109.2 million in personal real estate loans and $214.1 million in consumer loans. The decrease in business, business real estate and personal real estate loans was the result of loan principal pay downs and lower line of credit usage, which exceeded new loan origination due to lower demand. The decline in construction loans was mainly due to the weak housing economy and the Company's efforts to reduce this portfolio. In October 2010, the Company sold its entire held to maturity student loan portfolio, which totaled approximately $311.0 million, to another loan servicer. In the second half of 2010, the Company sold most of the student loans held for sale, which were federally guaranteed, and new regulations prohibit the Company from originating new federally guaranteed student loans in the future. Tax equivalent interest earned on investment securities decreased by $10.3 million, or 4.3%, due to lower rates earned, partly offset by higher average balances of securities. The average rate earned on the investment securities portfolio declined from 4.54% in 2009 to 3.40% in 2010, resulting in a decline in interest income of approximately $61.4 million due to lower rates. The average balances of mortgage and other asset-backed securities, U.S. government and federal agency securities, and state and municipal obligations increased $1.1 billion, $269.9 million and $93.1 million, respectively. Average tax equivalent rates earned on total interest earning assets in 2010 decreased to 4.38% compared to 4.85% in the previous year, or a decline of 47 basis points.

Non-interest income totaled $392.9 million, a decrease of $12.2 million, or 3.0%, compared to $405.1 million in 2010. Bank card fees increased $8.2 million, or 5.5%, over last year, primarily due to continued growth in transaction fees earned on corporate card and merchant activity, which grew by 19.7% and 5.4%, respectively. The growth in corporate card fees resulted from continued expansion in transaction volumes from existing customers and activity from new customers, while merchant sales volumes were strong. Debit card fees declined $3.1 million, or 5.4%, as a result of new regulations for pricing debit card transactions, which were effective October 1, 2011. These fees declined $7.1 million in the fourth quarter of 2011 compared to the previous quarter. Debit card fees totaled $53.9 million in 2011 and comprised 34.3% of total bank card fees, while corporate card fees totaled $57.8 million and comprised 36.8% of total fees. Trust fee income increased $7.4 million, or 9.1%, as a result of growth in personal and institutional trust fees. Trust revenue continues to be negatively affected by waived fees on certain low earning money market investment accounts. The market value of total customer trust assets (on which fees are charged) totaled $27.3 billion at year end 2011 and grew 8.9% over year end 2010. Deposit account fees decreased $10.0 million, or 10.8%, due mainly to lower overdraft fees resulting in part from new regulations in 2010. Overdraft fees comprised 49.5% of total deposit account fee income in 2011, down from 55.2% in 2010. Bond trading income decreased $1.3 million, or 5.9%, due to lower securities sales to correspondent banks and other commercial customers, while consumer brokerage services revenue increased by $828 thousand, or 9.0%, due to growth in advisory fees. Compared with last year, loan fees and sales declined $15.5 million due to a decline in gains on student loan sales, as the Company exited from the student loan origination business in 2010. Other income decreased $1.8 million largely due to higher write-downs in 2011 on various banking properties held for sale.

During 2010, non-interest income increased $8.9 million, or 2.2%, over 2009 to $405.1 million. Bank card fees increased $26.8 million, or 21.9%, due to growth of 50.2%, 13.2%, and 15.6% in corporate card, debit card and merchant transactions, respectively. Trust fee income increased $4.1 million, or 5.4%, as a result of growth in personal and institutional trust fees, partly offset by lower corporate fees. While most of the growth in trust fees came from private client business, fees from institutional trust services also grew $1.5 million, or 10.2%, in 2010. The market value of total customer trust assets totaled $25.1 billion at year end 2010 and grew 13.5% over year end 2009. Deposit account fees declined $13.7 million, or 12.9%, from the prior year as a result of a $13.6 million decline in overdraft fee revenue due to the regulations mentioned above. Also, corporate cash management fees, which comprised 35.7% of total deposit account fees in 2010, declined 1.9% as compared to 2009, due to lower sales/activity. Bond trading income declined $1.3 million, or 5.9%, due to lower sales volume, while consumer brokerage services revenue declined $1.6 million, or 15.2%, mainly due to lower fees earned on mutual fund sales. Loan fees and sales increased by $1.8 million over 2009. This increase included a $6.9 million gain recorded on the sale of the Company s held to maturity portfolio of student loans in late 2010, partly offset by a $5.3 million decline in gains on sales of loans held for sale and adjustments to related impairment reserves. Other non-interest income decreased by $7.2 million partly due to impairment charges of $2.0 million on certain bank premises, coupled with other fixed asset retirements. Also included were declines in cash sweep commissions and equipment rental income, partially offset by higher fees on letters of credit and foreign exchange transactions.

In 2010, non-interest expense was $631.1 million, an increase of $9.4 million, or 1.5%, over the previous year. Non-interest expense included a debt pre-payment penalty of $11.8 million in 2010, in addition to reductions in the Visa indemnification obligation of $4.4 million and $2.5 million in 2010 and 2009, respectively. Excluding these items, non-interest expense would have amounted to $623.8 million in 2010, a decrease of $478 thousand from the prior year. Salaries and benefits grew $771 thousand, or .2%, in 2010 compared to 2009 mainly as a result of higher costs for incentives and 401K plan contributions, offset by lower costs for base salaries, pension and medical plans. Occupancy costs increased $1.1 million, or 2.3%, primarily resulting from higher real estate taxes and utilities expense. Equipment costs decreased $2.1 million in 2010 as compared to 2009 mainly due to lower depreciation on data processing equipment. Supplies and communication expense declined $5.0 million, or 15.7%, which reflected certain initiatives to reduce paper supplies, customer checks and courier costs. Data processing and software costs grew $6.1 million, primarily due to higher bank card processing costs, which increased in proportion to the growth in bank card revenues. Deposit insurance decreased $8.1 million in 2010 compared to 2009, mainly due to a special assessment levied by the FDIC in 2009 which did not reoccur in 2010. Other non-interest expense increased $6.9 million and included higher foreclosed property expense of $6.3 million, which increased due to higher write-downs to fair value and additional holding costs. Also included were higher costs for professional services, partially offset by lower operating losses.

The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management services, brokerage services, and includes Private Banking accounts. At December 31, 2011, the Trust group managed investments with a market value of $14.9 billion and administered an additional $12.4 billion in non-managed assets. It also provides investment management services to The Commerce Funds, a series of mutual funds with $1.7 billion in total assets at December 31, 2011. Wealth segment pre-tax profitability for 2011 was $50.9 million compared to $44.3 million in 2010, an increase of $6.6 million, or 14.8%. Net interest income increased $874 thousand, or 2.3%, and was impacted by a $2.2 million increase in assigned net funding credits and a $1.4 million decline in deposit interest expense, offset by a $2.7 million decrease in loan interest income. Non-interest income increased $8.1 million, or 8.6%, over the prior year due to higher trust and brokerage fees. Non-interest expense increased $3.0 million, or 3.4%, mainly due to higher salary expense and fraud losses. Average assets decreased $1.5 million during 2011 mainly due to lower cash balances and overnight investments, partly offset by loan growth. Average deposits increased $203.1 million, or 15.3%, during 2011 due to growth in money market deposit accounts and long-term certificates of deposit.

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About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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