Commerce Bancshares, Inc. Announces Third Quarter Earnings Per Share Of $.76

Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.76 per share for the three months ended September 30, 2011 compared to $.64 per share in the third quarter of 2010, or an increase of 18.8%. Net income for the third quarter amounted to $65.4 million compared to $55.9 million in the same quarter last year. For the quarter, the return on average assets totaled 1.32%, the return on average equity was 12.2% and the efficiency ratio was 58.7%.

For the nine months ended September 30, 2011, earnings per share totaled $2.24 compared to $1.82 for the first nine months of 2010, an increase of 23.1%. Net income amounted to $194.8 million for the first nine months of 2011 compared with $159.8 million for the same period last year, or an increase of $35.1 million. The return on average assets for the first nine months of 2011 was 1.37%.

In announcing these results, David W. Kemper, Chairman and CEO, said, “We are pleased to report a 16.9% increase in net income in the third quarter of 2011 compared with the same period last year. This growth in net income was primarily the result of a $10.4 million decline in our provision for loan losses coupled with flat expenses. Compared to the same period in the previous year, bankcard and trust fees grew 11.7% and 9.6%, respectively. Deposits increased to $16.0 billion this quarter, however, loan demand remained weak and, coupled with record low interest rates, interest margins were pressured.”

Further, Mr. Kemper noted, “Net loan charge-offs in the current quarter totaled $14.9 million, compared to $15.2 million in the previous quarter and $21.8 million in the third quarter of 2010. Bankcard net loan charge-offs declined to $7.1 million this quarter, or 3.8% of average bankcard loans, while commercial loan net charge-offs totaled only $3.5 million. As a result of this improved credit environment, our allowance for loan losses declined by $3.5 million during the current quarter to $188.0 million, and represents 2.5 times our non-performing loans. Total non-performing assets decreased this quarter to $99.7 million, but represents only 1.1% of our total loans. Our ratio of tangible common equity to assets was 9.7%, while our loans to deposits ratio totaled 58.3%, reflecting strong capital and liquidity positions.”

Total assets at September 30, 2011 were $20.6 billion, total loans were $9.1 billion, and total deposits were $16.0 billion.

Commerce Bancshares, Inc. is a registered bank holding company offering a full line of banking services, including investment management and securities brokerage. The Company currently operates in over 360 locations in Missouri, Illinois, Kansas, Oklahoma and Colorado. The Company also has operating subsidiaries involved in mortgage banking, credit related insurance, and private equity activities.

Summary of Non-Performing Assets and Past Due Loans
(Dollars in thousands)   6/30/2011   9/30/2011   9/30/2010
Non-Accrual Loans   $ 79,717   $ 75,912   $ 89,609
Foreclosed Real Estate   $ 23,551     $ 23,813     $ 12,539  
Total Non-Performing Assets   $ 103,268     $ 99,725     $ 102,148  
Non-Performing Assets to Loans   1.12 %   1.10 %   1.05 %
Non-Performing Assets to Total Assets   .53 %   .48 %   .54 %
Loans 90 Days & Over Past Due — Still Accruing   $ 23,598     $ 20,104     $ 42,723  
 

This financial news release, including management’s discussion of third quarter results, is posted to the Company’s website at www.commercebank.com .

For additional information, contact Jeffery Aberdeen, Controller at PO Box 419248, Kansas City, MO or by telephone at (816) 234-2081 Website: http://www.commercebank.com Email: mymoney@commercebank.com
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

FINANCIAL HIGHLIGHTS
  For the Three Months Ended   For the Nine Months Ended
(Unaudited)   June 30,2011   September 30, 2011   September 30,2010   September 30, 2011   September 30,2010
FINANCIAL SUMMARY (In thousands, except per share data)  
Net interest income $ 164,710   $ 158,630   $ 159,437 $ 484,313 $ 485,255
Taxable equivalent net interest income 170,779 164,317 164,773 501,575 500,133
Non-interest income 101,344 101,632 100,010 298,882 294,657
Investment securities gains (losses), net 1,956 2,587 16 5,870 (2,989 )
Provision for loan losses 12,188 11,395 21,844 39,372 78,353
Non-interest expense 153,513 153,746 155,586 461,219 467,103
Net income attributable to
Commerce Bancshares, Inc. 69,034 65,352 55,885 194,839 159,789
Cash dividends 20,056 19,526 19,621 59,636 58,836
Net total loan charge-offs 15,188 14,895 21,844 48,872 75,295
Business 1,439 889 582 4,338 3,072
Real estate — construction and land 1,125 1,215 1,971 4,326 13,417
Real estate — business 339 1,429 776 2,832 2,229
Consumer credit card 8,490 7,103 12,592 24,631 37,995
Consumer 2,229 3,232 4,914 9,474 15,184
Revolving home equity 344 72 276 783 1,506
Real estate — personal 1,027 673 379 1,974 1,095
Overdraft 195 282 354 514 797
Per common share:
Net income — basic $ .80 $ .76 $ .63 $ 2.25 $ 1.82
Net income — diluted $ .79 $ .76 $ .64 $ 2.24 $ 1.82
Cash dividends $ .230 $ .230 $ .224 $ .690 $ .671
Diluted wtd. average shares o/s   86,927     85,464     87,560     86,404     87,535  
RATIOS
Average loans to deposits (1) 60.17 % 58.29 % 68.88 % 60.27 % 71.88 %
Return on total average assets 1.47 % 1.32 % 1.19 % 1.37 % 1.17 %
Return on total average equity 13.12 % 12.15 % 10.98 % 12.41 % 10.85 %
Non-interest income to revenue (2) 38.09 % 39.05 % 38.55 % 38.16 % 37.78 %
Efficiency ratio (3)   57.40 %   58.71 %   59.58 %   58.57 %   59.49 %
AT PERIOD END
Book value per share based on total equity $ 24.55 $ 25.15 $ 23.37
Market value per share $ 43.00 $ 34.75 $ 35.80
Allowance for losses as a percentage
of loans 2.07 % 2.07 % 2.04 %
Tier I leverage ratio 10.32 % 9.74 % 9.93 %
Tangible common equity to assets ratio (4) 10.27 % 9.72 % 10.26 %
Common shares outstanding 86,840,077 84,690,060 87,578,505
Shareholders of record 4,253 4,224 4,311
Number of bank/ATM locations 364 363 369
Full-time equivalent employees   4,786     4,762     5,011  
OTHER QTD INFORMATION
High market value per share $ 43.90 $ 44.00 $ 38.42
Low market value per share   $ 40.05     $ 33.23     $ 33.43  
 

(1)
 

Includes loans held for sale.

(2)

Revenue includes net interest income and non-interest income.

(3)

The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.

(4)

The tangible common equity ratio is calculated as stockholders’ equity reduced by goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
  For the Three Months Ended     For the Nine Months Ended
(Unaudited)

(In thousands, except per share data)
  June 30,2011     September 30, 2011     September 30,2010     September 30, 2011     September 30,2010
Interest income $ 178,087     $ 170,835     $ 178,916 $ 524,748     $ 552,042
Interest expense 13,377   12,205   19,479   40,435   66,787  
Net interest income 164,710 158,630 159,437 484,313 485,255
Provision for loan losses 12,188   11,395   21,844   39,372   78,353  
Net interest income after provision for loan losses 152,522   147,235   137,593   444,941   406,902  
NON-INTEREST INCOME
Bank card transaction fees 41,304 42,149 37,723 120,915 107,872
Trust fees 22,544 22,102 20,170 66,218 59,846
Deposit account charges and other fees 20,789 21,939 21,693 62,028 71,146
Bond trading income 4,979 5,556 5,133 15,255 15,524
Consumer brokerage services 2,880 2,333 2,390 7,876 6,879
Loan fees and sales 2,075 2,034 5,830 5,933 11,141
Other 6,773   5,519   7,071   20,657   22,249  
Total non-interest income 101,344   101,632   100,010   298,882   294,657  
INVESTMENT SECURITIES
GAINS (LOSSES), NET
Impairment (losses) reversals on debt securities (2,119 ) (1,200 ) 5,645 2,986 11,355
Noncredit-related losses (reversals) on
securities not expected to be sold 1,469   369   (7,690 ) (4,741 ) (15,533 )
Net impairment losses (650 ) (831 ) (2,045 ) (1,755 ) (4,178 )
Realized gains on sales and
fair value adjustments 2,606   3,418   2,061   7,625   1,189  
Investment securities gains (losses), net 1,956   2,587   16   5,870   (2,989 )
NON-INTEREST EXPENSE
Salaries and employee benefits 84,223 85,700 85,442 257,315 259,988
Net occupancy 11,213 11,510 12,086 34,760 35,697
Equipment 5,702 5,390 5,709 16,669 17,548
Supplies and communication 5,692 5,674 6,724 16,898 20,891
Data processing and software 17,531 16,232 16,833 50,230 50,936
Marketing 4,495 4,545 5,064 13,298 14,784
Deposit insurance 2,780 2,772 4,756 10,443 14,445
Indemnification obligation (1,359 ) (1,683 )
Other 21,877   21,923   18,972   62,965   54,497  
Total non-interest expense 153,513   153,746   155,586   461,219   467,103  
Income before income taxes 102,309 97,708 82,033 288,474 231,467
Less income taxes 32,692   31,699   26,012   91,898   71,817  
Net income 69,617 66,009 56,021 196,576 159,650
Less non-controlling interest expense (income)

583

 
657   136   1,737     (139 )
Net income attributable to
Commerce Bancshares, Inc. $ 69,034   $ 65,352   $ 55,885   $ 194,839   $ 159,789  
Net income per common share — basic $ .80   $ .76   $ .63   $ 2.25   $ 1.82  
Net income per common share — diluted   $ .79       $ .76       $ .64       $ 2.24       $ 1.82  
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited)

(In thousands)
  June 30,2011   September 30, 2011   September 30,2010
ASSETS      
Loans $ 9,237,078 $ 9,073,123 $ 9,706,265
Allowance for loan losses (191,538 ) (188,038 ) (197,538 )
Net loans 9,045,540   8,885,085   9,508,727  
Loans held for sale 42,359 39,576 248,108
Investment securities:
Available for sale 7,717,634 9,278,066 7,164,273
Trading 32,074 9,695 20,828
Non-marketable 109,867   111,808   110,487  
Total investment securities 7,859,575   9,399,569   7,295,588  
Short-term federal funds sold and securities purchased under agreements to resell 10,845 11,400 4,550
Long-term securities purchased under agreements to resell 850,000 850,000 350,000
Interest earning deposits with banks 535,696 133,419 4,047
Cash and due from banks 340,594 424,861 412,315
Land, buildings and equipment — net 374,732 368,965 387,792
Goodwill 125,585 125,585 125,585
Other intangible assets — net 9,394 8,452 11,285
Other assets 376,540   391,756   403,762  
Total assets $ 19,570,860   $ 20,638,668   $ 18,751,759  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing $ 4,834,750 $ 5,003,587 $ 4,170,224
Savings, interest checking and money market 8,139,989 8,416,839 7,294,794
Time open and C.D.’s of less than $100,000 1,273,961 1,204,896 1,607,664
Time open and C.D.’s of $100,000 and over 1,407,866   1,388,755   1,318,877  
Total deposits 15,656,566 16,014,077 14,391,559
Federal funds purchased and securities sold under agreements to repurchase 1,282,470 1,057,728 1,530,555
Other borrowings 111,929 111,869 337,863
Other liabilities 388,328   1,325,029   445,177  
Total liabilities 17,439,293   18,508,703   16,705,154  
Stockholders’ equity:
Preferred stock
Common stock 436,481 436,481 417,827
Capital surplus 979,247 980,176 865,246
Retained earnings 645,155 690,981 669,485
Treasury stock (14,515 ) (96,205 ) (2,323 )
Accumulated other comprehensive income 83,000   115,781   95,204  
Total stockholders’ equity 2,129,368 2,127,214 2,045,439
Non-controlling interest 2,199   2,751   1,166  
Total equity 2,131,567   2,129,965   2,046,605  
Total liabilities and equity   $ 19,570,860     $ 20,638,668     $ 18,751,759  
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
(Unaudited)

(Dollars in thousands)
  For the Three Months Ended
June 30, 2011   September 30, 2011   September 30, 2010
Average Balance   Avg. Rates Earned/Paid Average Balance   Avg. Rates Earned/Paid Average Balance   Avg. Rates Earned/Paid
ASSETS:      
Loans:
Business (A) $ 2,959,012 3.64 % $ 2,815,064 3.56 % $ 2,917,798 3.82 %
Real estate — construction and land 429,649 4.51 412,490 4.42 530,472 4.00
Real estate — business 2,100,726 4.94 2,123,034 4.74 1,998,500 5.10
Real estate — personal 1,440,747 4.87 1,430,014 4.75 1,450,898 5.13
Consumer 1,112,315 6.32 1,104,684 6.20 1,234,138 6.65
Revolving home equity 468,380 4.24 466,503 4.27 485,034 4.32
Student 315,150 2.40
Consumer credit card 743,317 11.13 735,179 11.59 762,987 11.29
Overdrafts 6,654       6,936       6,667      
Total loans (B) 9,260,800     5.12   9,093,904     5.07   9,701,644     5.21  
Loans held for sale 52,390 2.37 41,677 2.57 305,013 1.78
Investment securities:
U.S. government & federal agency 576,693 6.67 590,003 3.19 672,447 1.44
State & municipal obligations (A) 1,160,164 4.75 1,185,263 4.20 982,137 4.53
Mortgage and asset-backed securities 5,460,506 2.61 6,167,884 2.24 5,100,958 2.77
Other marketable securities (A) 172,754     4.18   172,588     4.27   182,966     5.18  
Total available for sale securities (B) 7,370,117 3.30 8,115,738 2.64 6,938,508 2.95
Trading securities (A) 20,456 2.78 20,770 2.52 22,525 2.87
Non-marketable securities (A) 105,015     6.24   110,585     6.59   109,215     9.43  
Total investment securities 7,495,588     3.34   8,247,093     2.69   7,070,248     3.05  
Short-term federal funds sold and securities
purchased under agreements to resell 16,513 .53 10,927 .47 6,903 .69
Long-term securities purchased
under agreements to resell 803,846 1.58 850,000 1.83 199,302 1.72
Interest earning deposits with banks 179,763     .25   326,302     .26   170,504     .25  
Total interest earning assets 17,808,900   4.15   18,569,903   3.77   17,453,614   4.19  
Non-interest earning assets (B) 1,054,328   1,094,161   1,167,692  
Total assets $ 18,863,228   $ 19,664,064   $ 18,621,306  
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings $ 537,364 .14 $ 534,295 .19 $ 481,997 .16
Interest checking and money market 7,580,895 .33 7,756,104 .32 6,793,839 .41
Time open & C.D.’s of less than $100,000 1,324,192 .90 1,231,280 .78 1,642,200 1.32
Time open & C.D.’s of $100,000 and over 1,466,214     .67   1,372,842     .62   1,417,162     .97  
Total interest bearing deposits 10,908,665     .43   10,894,521     .40   10,335,198     .62  
Borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 952,032 .29 1,016,623 .11 1,023,961 .23
Other borrowings 112,099     3.29   111,930     3.28   350,328     3.09  
Total borrowings 1,064,131     .61   1,128,553     .43   1,374,289     .96  
Total interest bearing liabilities 11,972,796   .45 % 12,023,074   .40 % 11,709,487   .66 %
Non-interest bearing deposits 4,570,721 4,778,780 4,192,026
Other liabilities 208,606 728,974 700,754
Equity 2,111,105   2,133,236   2,019,039  
Total liabilities and equity $ 18,863,228   $ 19,664,064   $ 18,621,306  
Net interest income (T/E) $ 170,779   $ 164,317   $ 164,773  
Net yield on interest earning assets       3.85 %       3.51 %       3.75 %
 

(A)
 

Stated on a tax equivalent basis using a federal income tax rate of 35%.

(B)

The allowance for loan losses and unrealized gains/(losses) on available for sale securities are included in non-interest earning assets.
 

COMMERCE BANCSHARES, INC. Management Discussion of Third Quarter Results September 30, 2011

For the quarter ended September 30, 2011, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $65.4 million, an increase of $9.5 million over the same quarter last year, and a decrease of $3.7 million compared to the previous quarter. For the current quarter, the return on average assets was 1.32%, the return on average equity was 12.2%, and the efficiency ratio was 58.7%. Compared to the same quarter last year, net interest income (tax equivalent) decreased by $456 thousand to $164.3 million, while non-interest income increased to $101.6 million. Non-interest expense for the current quarter totaled $153.7 million, a decrease of $1.8 million from the same period last year. The provision for loan losses totaled $11.4 million, representing a decline of $10.4 million from the amount recorded in the same quarter last year.

Balance Sheet Review

During the 3 rd quarter of 2011, average loans, including loans held for sale, decreased $177.6 million, or 1.9%, compared to the previous quarter. Also, these same loans decreased $871.1 million, or 8.7%, this quarter compared to the same period last year, primarily due to a decline in average student loans of $573.8 million, as most of these loans were sold in 2010. The decrease in average loans compared to the previous quarter was mainly due to a decline in average business loans of $143.9 million. Construction, personal real estate, consumer and consumer credit card loans also declined this quarter. Business real estate loans, however, grew by $22.3 million. Part of the decline in business loans was seasonal line usage in the quarter, although several larger new loans, totaling over $68 million, were recorded at the end of the quarter. Nevertheless, usage on business lines of credit continues at low levels. The decline in consumer loans resulted from the Company's decision to exit the marine/RV loan origination business, while demand for personal real estate and construction loans continues to be affected by housing industry weakness.

Total available for sale investment securities (excluding fair value adjustments) averaged $8.1 billion this quarter, up $745.6 million compared to the previous quarter. The increase was mainly the result of purchases of agency mortgage-backed, other asset-backed and municipal securities totaling $1.5 billion, $417.7 million and $118.3 million, respectively, in the 3 rd quarter. Maturities and pay-downs totaled $566.6 million this quarter. Included in these purchases were approximately $1.3 billion of agency mortgage- backed securities with forward settlement dates, of which approximately $1.0 billion will settle in the 4 th quarter of 2011. Since interest does not accrue on these bonds until the actual settlement date, the effect of these forward purchases was to increase quarterly average earning assets by $284.0 million and reduce interest income by $1.5 million compared to estimated normal settlement. Because the market awards a lower price to forward settled securities, the Company will earn approximately 14 basis points more on these securities over their estimated lives. At September 30, 2011, the duration of the investment portfolio was 2.2 years, and maturities of approximately $1.5 billion are expected to occur during the next 12 months.

Total average deposits increased $193.9 million, or 1.3%, during the 3 rd quarter of 2011 compared to the previous quarter. This increase in average deposits resulted mainly from growth in non-interest bearing and money market deposit balances of $208.1 million and $208.4 million, respectively, however interest checking and certificates of deposit (CD) balances declined $33.2 million and $186.3 million, respectively. The average loans to deposits ratio in the current quarter was 58.3%, compared to 60.2% in the previous quarter.

Certain non-interest bearing deposit accounts, which were previously included in interest bearing money market deposit totals, were reclassified to non-interest bearing deposits effective January 1, 2011. All prior periods have been revised to reflect this reclassification. The effect of this reclassification for the quarter ended September 30, 2010 was to increase average non-interest bearing deposits by $3.2 billion.

During the current quarter, the Company's average borrowings increased $64.4 million compared to the previous quarter. This increase was mainly due to an increase in the average balance of customer repurchase agreements.

Net Interest Income

Net interest income (tax equivalent) in the 3 rd quarter of 2011 amounted to $164.3 million, compared with $170.8 million in the previous quarter, or a decrease of $6.5 million. Net interest income this quarter was also down $456 thousand compared to the 3 rd quarter of last year. During the 3 rd quarter of 2011, the net yield on earning assets (tax equivalent) was 3.51%, compared with 3.85% in the previous quarter and 3.75% in the same period last year.

The decrease in net interest income (tax equivalent) in the 3 rd quarter of 2011 from the previous quarter was partly due to lower inflation income received on the Company's inflation protected securities (TIPS), partly offset by slightly lower rates on various interest bearing deposits. Interest on loans, including held for sale loans, declined $2.1 million (tax equivalent), mainly due to lower average balances and rates earned on most lending products. Interest income on investment securities decreased when compared to the previous quarter by $6.4 million (tax equivalent) as a result of a decline of $5.4 million in inflation income earned on TIPS. This had the impact of reducing the net interest margin by 12 basis points this quarter. Also, as previously mentioned, the effect of the forward settled securities was to reduce the Company's net interest margin in the 3 rd quarter by 8 basis points as a result of lower interest in the quarter coupled with higher average securities balances for which interest was not accrued. Since these securities were purchased at higher rates than under normal settlement transactions, the effect of lower interest earned in the 3 rd quarter will be offset by higher earnings over the lives of the securities in future quarters.

Interest expense on deposits declined $783 thousand in the 3 rd quarter of 2011 compared with the previous quarter as a result of continued low rates paid on money market and CD accounts. Overall rates paid on total interest bearing deposits declined 3 basis points to .40% this quarter. Interest expense on borrowings decreased by $389 thousand, due mainly to lower average rates paid on repurchase agreement balances.

The tax equivalent yield on interest earning assets in the 3 rd quarter of 2011 was 3.77%, a decline of 38 basis points from the 2 nd quarter of 2011, while the overall cost of interest bearing liabilities decreased 5 basis points to .40%.

Non-Interest Income

For the 3 rd quarter of 2011, total non-interest income amounted to $101.6 million, an increase of $1.6 million compared to $100.0 million in the same period last year. Also, current quarter non-interest income increased $288 thousand compared to $101.3 million recorded in the previous quarter.

Bank card fees in the current quarter increased 11.7% over the 3 rd quarter of last year due to growth in fees earned on corporate card (growth of 21.8%), debit card (growth of 6.6%) and merchant (growth of 12.3%) transactions. This quarter, corporate card and debit card fees, which totaled $15.2 million and $15.5 million, respectively, saw continued expansion in transaction volumes, while merchant sales volumes also continued to be strong. As a result of new Federal Reserve regulations for pricing debit card transactions, which were effective October 1, 2011, the Company estimates that debit card revenues will decline approximately $7.0 million in the 4 th quarter of 2011.

Trust fees for the quarter increased 9.6% compared to the same period last year and mainly resulted from 10.7% growth in personal trust fees. Trust fees continue to be negatively affected by low interest rates on money market investments held in trust accounts. Deposit account fees increased 1.1% compared to the 3 rd quarter of 2010, but increased $1.2 million, or 5.5%, compared to the previous quarter. Compared to the same period last year, this increase was due to higher overdraft fees, which grew by $404 thousand, or 3.6%, but was offset by lower corporate cash management fees which declined $454 thousand. Bond trading income for the current quarter totaled $5.6 million, an increase of 8.2% over the same period last year on higher securities sales to correspondent banks. Other non-interest income included write downs totaling $1.7 million on various banking properties currently held for sale.

Investment Securities Gains and Losses

Net securities gains amounted to $2.6 million in the 3 rd quarter of 2011, compared to net gains of $2.0 million in the previous quarter and net gains of $16 thousand in the same quarter last year. During the current quarter, the Company recorded additional credit-related impairment losses of $831 thousand on certain non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired, compared to losses of $650 thousand in the previous quarter and $2.0 million in the same quarter last year. The cumulative credit-related impairment reserve on these bonds totaled $9.3 million at quarter end. At September 30, 2011, the par value of non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired totaled $153.2 million, compared to $197.5 million at September 30, 2010.

The current quarter also included a pre-tax gain of $3.4 million, which was primarily comprised of fair value adjustments on certain of the Company's private equity investments.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $153.7 million, a decrease of $1.8 million, or 1.2%, from the same quarter last year and an increase of $233 thousand compared to the previous quarter. During the current quarter, the Company accrued an additional $5.9 million related to potential loss contingencies for litigation and has accrued a total of $13.2 million for these contingencies. Compared to the 3 rd quarter of last year, salaries and benefits expense increased slightly, mainly due to higher incentives (increase of $1.5 million) offset by lower medical insurance costs, which declined by 18.5%. Full time equivalent employees totaled 4,762 and 5,011 at September 30, 2011 and 2010, respectively.

Compared to the 3 rd quarter of last year, supplies and communication costs declined 15.6% to $5.7 million, reflecting continued effects of reducing paper supplies, customer checks and telephone and network costs. FDIC insurance expense declined $2.0 million as a result of new assessment rules which became effective in the 2 nd quarter of 2011. Also, costs for foreclosed property declined $1.8 million, partly due to lower losses on fair value adjustments in 2011. Costs for occupancy, equipment, data processing and a number of other smaller expenses also declined from the previous year, as the Company continued its focus on expense discipline.

Income Taxes

The effective tax rate for the Company was 32.7% in the current quarter, compared with 32.1% in the previous quarter and 31.8% in the 3 rd quarter of 2010.

Credit Quality

Net loan charge-offs in the 3 rd quarter of 2011 amounted to $14.9 million, compared with $15.2 million in the prior quarter and $21.8 million in the 3 rd quarter of last year. The $293 thousand decrease in net loan charge-offs in the 3 rd quarter of 2011 compared to the previous quarter was mainly the result of lower consumer credit card, business and personal real estate loan losses, which decreased by $1.4 million, $550 thousand and $354 thousand, respectively, reflecting continued improved delinquency and loss rates. Consumer net loan charge-offs increased $1.0 million over the previous quarter, mainly the result of higher marine/RV loan losses. Additionally, business real estate net loan charge-offs increased $1.1 million. The ratio of annualized net loan charge-offs to total average loans was .65% in the current quarter and .66% in the previous quarter.

For the 3 rd quarter of 2011, annualized net charge-offs on average consumer credit card loans amounted to 3.83%, compared with 4.58% in the previous quarter and 6.55% in the same period last year. Consumer loan net charge-offs for the quarter amounted to 1.16% of average consumer loans, compared to .80% in the previous quarter and 1.58% in the same quarter last year. The provision for loan losses for the current quarter totaled $11.4 million, a decrease of $793 thousand from the previous quarter and $10.4 million lower than in the same period last year. The current quarter provision for loan losses was $3.5 million less than net loan charge-offs for the current quarter, thereby reducing the allowance for loan losses to $188.0 million. At September 30, 2011 this allowance was 2.07% of total loans, excluding loans held for sale, and was 248% of total non-accrual loans.

At September 30, 2011, total non-performing assets amounted to $99.7 million, a decrease of $3.5 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($75.9 million) and foreclosed real estate ($23.8 million). At September 30, 2011, the balance of non-accrual loans, which represented .8% of loans outstanding, included construction and land loans of $26.3 million, business loans of $26.3 million and business real estate loans of $15.9 million. Loans more than 90 days past due and still accruing interest totaled $20.1 million at September 30, 2011.

Other

During the quarter ended September 30, 2011, the Company purchased 2,175,885 shares of treasury stock at an average cost of $38.04.

Forward-Looking Information

This information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.

Copyright Business Wire 2010

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