Commerce Bancshares, Inc. Announces Record Second Quarter Earnings Per Share Of $.84

Commerce Bancshares, Inc. (NASDAQ: CBSH) announced record earnings of $.84 per share for the three months ended June 30, 2012 compared to $.75 per share in the second quarter of 2011, or an increase of 12.0%. Net income for the second quarter amounted to $74.3 million compared to $69.0 million in the same quarter last year. For the quarter, the return on average assets totaled 1.45%, the return on average equity was 13.4% and the efficiency ratio was 56.4%.

For the six months ended June 30, 2012, earnings per share totaled $1.58 compared to $1.41 in the first six months of 2011, an increase of 12.1%. Net income amounted to $140.1 million for the first six months of 2012 compared with $129.5 million for the same period last year, or an increase of $10.6 million. The return on average assets for the first six months of 2012 was 1.37%.

In making this announcement, David W. Kemper, Chairman and CEO, said, “We were pleased to report record second quarter earnings which, compared to the previous quarter, was driven by 4.6% growth in top line revenue, continued improving credit quality, and solid expense control. Net interest income grew by $5.4 million over the previous quarter and our margin improved to 3.55%, while non-interest income grew by 6.6% due to solid results from our trust and corporate card businesses. Non-interest expense was up only slightly over the previous quarter, but down 1.9% from the previous year as we continue to emphasize efficiencies within our organization. Period end loans grew $128.1 million, or 1.4%, this quarter compared to the previous quarter and resulted from growth of $165.1 million in business, personal real estate loans and consumer loans. Period end deposits also grew by $59.9 million this quarter, or .4%.”

Mr. Kemper continued, “Net loan charge-offs for the current quarter totaled $8.2 million, compared to $11.2 million in the previous quarter and $15.2 million in the second quarter of 2011. The lower net loan charge-offs resulted from several large commercial loan recoveries totaling $3.6 million during the quarter and lower credit card losses, but offset by slightly higher real estate-related loan losses. During the current quarter, the provision for loan losses totaled $5.2 million, or $3.0 million less than net loan charge-offs, reflecting continued improving credit trends in much of our loan portfolio. Our allowance for loan losses amounted to $178.5 million this quarter, representing 2.9 times our non-performing loans. Total non-performing assets decreased $5.2 million to $82.3 million this quarter. During the quarter we repurchased approximately 1,033,000 shares of Company stock at an average price per share of $38.76.”

Total assets at June 30, 2012 were $20.7 billion, total loans were $9.4 billion, and total deposits were $16.8 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 approximately 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)   3/31/2012   6/30/2012   6/30/2011
Non-Accrual Loans   $ 68,875   $ 62,177   $ 79,717
Foreclosed Real Estate   $ 18,585     $ 20,095     $ 23,551  
Total Non-Performing Assets   $ 87,460     $ 82,272     $ 103,268  
Non-Performing Assets to Loans   .95 %   .88 %   1.12 %
Non-Performing Assets to Total Assets   .43 %   .40 %   .53 %
Loans 90 Days & Over Past Due — Still Accruing   $ 16,428     $ 11,297     $ 23,598  

This financial news release, including management's discussion of second quarter results, is posted to the Company's web site at www.commercebank.com .
     

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

FINANCIAL HIGHLIGHTS
 
For the Three Months Ended For the Six Months Ended
(Unaudited)     March 31,2012   June 30, 2012   June 30,2011   June 30, 2012   June 30,2011
FINANCIAL SUMMARY (In thousands, except per share data)  
Net interest income $ 159,737   $ 165,105   $ 164,710 $ 324,842 $ 325,683
Taxable equivalent net interest income 165,666 171,186 170,779 336,852 337,258
Non-interest income 94,583 100,816 101,344 195,399 197,250
Investment securities gains, net 4,040 1,336 1,956 5,376 3,283
Provision for loan losses 8,165 5,215 12,188 13,380 27,977
Non-interest expense 150,461 150,650 153,513 301,111 307,473
Net income attributable to Commerce Bancshares, Inc. 65,799 74,263 69,034 140,062 129,487
Cash dividends 20,438 20,216 20,056 40,654 40,110
Net total loan charge-offs (recoveries) 11,165 8,214 15,188 19,379 33,977
Business 110 (3,600 ) 1,439 (3,490 ) 3,449
Real estate — construction and land 220 116 1,125 336 3,111
Real estate — business 1,495 1,839 339 3,334 1,403
Consumer credit card 6,173 5,930 8,490 12,103 17,528
Consumer 2,631 1,974 2,229 4,605 6,242
Revolving home equity 360 943 344 1,303 711
Real estate — personal 69 679 1,027 748 1,301
Overdraft 107 333 195 440 232
Per common share:
Net income — basic $ .74 $ .84 $ .76 $ 1.58 $ 1.42
Net income — diluted $ .74 $ .84 $ .75 $ 1.58 $ 1.41
Cash dividends $ .230 $ .230 $ .219 $ .460 $ .438
Diluted wtd. average shares o/s     88,556     87,672     91,274     88,114     91,226  
RATIOS
Average loans to deposits (1) 55.53 % 55.26 % 60.17 % 55.39 % 61.30 %
Return on total average assets 1.29 % 1.45 % 1.47 % 1.37 % 1.40 %
Return on total average equity 12.04 % 13.43 % 13.12 % 12.74 % 12.54 %
Non-interest income to revenue (2) 37.19 % 37.91 % 38.09 % 37.56 % 37.72 %
Efficiency ratio (3)     58.91 %   56.39 %   57.40 %   57.62 %   58.50 %
AT PERIOD END
Book value per share based on total equity $ 24.83 $ 25.51 $ 23.38
Market value per share $ 40.52 $ 37.90 $ 40.95

Allowance for loan losses as

  a percentage of loans
1.96 % 1.90 % 2.07 %
Tier I leverage ratio 9.70 % 9.75 % 10.32 %
Tangible common equity to assets ratio (4) 10.12 % 10.18 % 10.27 %
Common shares outstanding 88,583,809 87,588,533 91,182,081
Shareholders of record 4,213 4,184 4,253
Number of bank/ATM locations 360 361 364
Full-time equivalent employees     4,713     4,702     4,786  
OTHER QTD INFORMATION
High market value per share $ 41.28 $ 41.00 $ 41.81
Low market value per share     $ 37.57     $ 36.17     $ 38.14  
 
(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 Six Months Ended
(Unaudited)

(In thousands, except per share data)
    March 31,2012     June 30, 2012     June 30,2011     June 30, 2012     June 30,2011
Interest income $ 169,966     $ 174,624     $ 178,087 $ 344,590     $ 353,913
Interest expense 10,229       9,519       13,377       19,748       28,230  
Net interest income 159,737 165,105 164,710 324,842 325,683
Provision for loan losses 8,165       5,215       12,188       13,380       27,977  
Net interest income after provision for loan losses 151,572       159,890       152,522       311,462       297,706  
NON-INTEREST INCOME
Bank card transaction fees 34,733 38,434 41,304 73,167 78,766
Trust fees 22,814 23,833 22,544 46,647 44,116
Deposit account charges and other fees 19,336 19,975 20,789 39,311 40,089
Capital market fees 6,871 5,010 4,979 11,881 9,699
Consumer brokerage services 2,526 2,576 2,880 5,102 5,543
Loan fees and sales 1,561 1,706 2,075 3,267 3,899
Other 6,742       9,282       6,773       16,024       15,138  
Total non-interest income 94,583       100,816       101,344       195,399       197,250  
INVESTMENT SECURITIES GAINS (LOSSES), NET
Impairment (losses) reversals on debt securities 5,587 3 (2,119 ) 5,590 4,186

Noncredit-related losses (reversals) on securities  not expected to be sold
(5,907 )     (353 )     1,469       (6,260 )     (5,110 )
Net impairment losses (320 ) (350 ) (650 ) (670 ) (924 )

Realized gains on sales and fair value  adjustments
4,360       1,686       2,606       6,046       4,207  
Investment securities gains, net 4,040       1,336       1,956       5,376       3,283  
NON-INTEREST EXPENSE
Salaries and employee benefits 89,543 87,511 84,223 177,054 171,615
Net occupancy 11,260 11,105 11,213 22,365 23,250
Equipment 5,189 4,999 5,702 10,188 11,279
Supplies and communication 5,613 5,667 5,692 11,280 11,224
Data processing and software 17,469 18,282 17,531 35,751 33,998
Marketing 3,822 4,469 4,495 8,291 8,753
Deposit insurance 2,520 2,618 2,780 5,138 7,671
Indemnification obligation (1,359 )
Other 15,045       15,999       21,877       31,044       41,042  
Total non-interest expense 150,461       150,650       153,513       301,111       307,473  
Income before income taxes 99,734 111,392 102,309 211,126 190,766
Less income taxes 32,920       36,626       32,692       69,546       60,199  
Net income 66,814 74,766 69,617 141,580 130,567
Less non-controlling interest expense 1,015       503       583       1,518       1,080  

Net income attributable to Commerce  Bancshares, Inc.
$ 65,799       $ 74,263       $ 69,034       $ 140,062       $ 129,487  
Net income per common share — basic $ .74       $ .84       $ .76       $ 1.58       $ 1.42  
Net income per common share — diluted     $ .74       $ .84       $ .75       $ 1.58       $ 1.41  
 
           

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
 
(Unaudited)

(In thousands)
    March 31,2012     June 30, 2012     June 30,2011
ASSETS
Loans $ 9,247,971 $ 9,376,915 $ 9,237,078
Allowance for loan losses (181,532 )     (178,533 )     (191,538 )
Net loans 9,066,439       9,198,382       9,045,540  
Loans held for sale 9,673 8,874 42,359
Investment securities:
Available for sale 9,120,399 9,206,451 7,717,634
Trading 34,178 14,313 32,074
Non-marketable 120,734       116,190       109,867  
Total investment securities 9,275,311       9,336,954       7,859,575  
Short-term federal funds sold and securities purchased under agreements to resell 40,925 7,455 10,845
Long-term securities purchased under agreements to resell 850,000 850,000 850,000
Interest earning deposits with banks 12,038 92,544 535,696
Cash and due from banks 381,462 410,666 340,594
Land, buildings and equipment — net 353,866 350,897 374,732
Goodwill 125,585 125,585 125,585
Other intangible assets — net 7,070 6,381 9,394
Other assets 404,548       355,253       376,540  
Total assets $ 20,526,917       $ 20,742,991       $ 19,570,860  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing $ 5,209,381 $ 5,637,373 $ 4,834,750
Savings, interest checking and money market 9,038,283 8,983,090 8,139,989
Time open and C.D.’s of less than $100,000 1,143,687 1,113,824 1,273,961
Time open and C.D.’s of $100,000 and over 1,380,409       1,097,346       1,407,866  
Total deposits 16,771,760 16,831,633 15,656,566
Federal funds purchased and securities sold under agreements to repurchase 1,122,988 1,305,745 1,282,470
Other borrowings 111,520 111,292 111,929
Other liabilities 321,443       260,022       388,328  
Total liabilities 18,327,711       18,508,692       17,439,293  
Stockholders’ equity:
Preferred stock
Common stock 446,387 446,387 436,481
Capital surplus 1,032,985 1,033,523 979,247
Retained earnings 620,780 674,827 645,155
Treasury stock (22,872 ) (61,388 ) (14,515 )
Accumulated other comprehensive income 118,056       136,732       83,000  
Total stockholders’ equity 2,195,336 2,230,081 2,129,368
Non-controlling interest 3,870       4,218       2,199  
Total equity 2,199,206       2,234,299       2,131,567  
Total liabilities and equity     $ 20,526,917       $ 20,742,991       $ 19,570,860  
 
   

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
 
(Unaudited)

(Dollars in thousands)
For the Three Months Ended
March 31, 2012     June 30, 2012     June 30, 2011
Average Balance     Avg. Rates Earned/Paid Average Balance     Avg. Rates Earned/Paid Average Balance     Avg. Rates Earned/Paid
ASSETS:
Loans:
Business (A) $ 2,893,973 3.52 % $ 2,895,167 3.58 % $ 2,959,012 3.64 %
Real estate — construction and land 380,484 4.34 360,000 4.24 429,649 4.51
Real estate — business 2,184,893 4.57 2,205,561 4.71 2,100,726 4.94
Real estate — personal 1,441,520 4.58 1,475,930 4.46 1,440,747 4.87
Consumer 1,107,878 5.93 1,134,838 5.73 1,112,315 6.32
Revolving home equity 454,782 4.18 449,416 4.17 468,380 4.24
Consumer credit card 731,030 11.78 712,708 11.87 743,317 11.13
Overdrafts 7,587     5,663     6,654    
Total loans (B) 9,202,147   4.95   9,239,283   4.95   9,260,800   5.12  
Loans held for sale 12,147 3.48 9,053 3.91 52,390 2.37
Investment securities:

U.S. government and federalagency obligations
328,106 2.08 330,648 7.58 341,725 9.72
Government-sponsored enterprise obligations 283,494 2.01 265,620 2.06 234,968 2.23
State and municipal obligations (A) 1,263,303 4.17 1,322,987 4.03 1,160,164 4.75
Mortgage-backed securities 4,190,982 2.85 4,010,276 2.89 3,057,929 3.63
Asset-backed securities 2,761,896 1.16 2,900,122 1.13 2,402,577 1.31
Other marketable securities (A) 162,616   4.11   135,930   4.92   172,754   4.18  
Total available for sale securities (B) 8,990,397 2.48 8,965,583 2.67 7,370,117 3.30
Trading securities (A) 32,628 2.95 22,748 2.65 20,456 2.78
Non-marketable securities (A) 116,873   8.55   122,651   8.60   105,015   6.24  
Total investment securities 9,139,898   2.56   9,110,982   2.75   7,495,588   3.34  

Short-term federal funds sold andsecurities purchased underagreements to resell
13,695 .50 22,139 .53 16,513 .53

Long-term securities purchasedunder agreements to resell
850,000 2.02 850,000 2.17 803,846 1.58
Interest earning deposits with banks 87,919   .25   163,075   .28   179,763   .25  
Total interest earning assets 19,305,806 3.66   19,394,532 3.75   17,808,900

 
4.15  
Non-interest earning assets (B) 1,160,906   1,154,720   1,054,328  
Total assets $ 20,466,712   $ 20,549,252   $ 18,863,228  
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings $ 549,998 .15 $ 584,196 .12 $ 537,364 .14
Interest checking and money market 8,311,734 .24 8,369,306 .21 7,580,895 .33
Time open & C.D.’s of less than $100,000 1,155,882 .73 1,128,716 .71 1,324,192 .90

Time open & C.D.’s of $100,000 and over
1,444,252   .53   1,250,164   .59   1,466,214   .67  
Total interest bearing deposits 11,461,866   .32   11,332,382   .30   10,908,665   .43  
Borrowings:

Federal funds purchased andsecurities sold underagreements to repurchase
1,287,245 .07 1,109,693 .06 952,032 .29
Other borrowings 111,800   3.26   111,336   3.16   112,099   3.29  
Total borrowings 1,399,045   .33   1,221,029   .35   1,064,131   .61  
Total interest bearing liabilities 12,860,911 .32 % 12,553,411 .30 % 11,972,796 .45 %
Non-interest bearing deposits 5,132,305 5,404,687 4,570,721
Other liabilities 275,349 367,763 208,606
Equity 2,198,147   2,223,391   2,111,105  
Total liabilities and equity $ 20,466,712   $ 20,549,252   $ 18,863,228  
Net interest income (T/E) $ 165,666   $ 171,186   $ 170,779  
Net yield on interest earning assets           3.45 %           3.55 %           3.85 %
 
(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 Second Quarter Results June 30, 2012

For the quarter ended June 30, 2012, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $74.3 million, an increase of $5.2 million, or 7.6%, over the same quarter last year, and an increase of $8.5 million compared to the previous quarter. During the current quarter, the Company recorded loan recoveries totaling $3.6 million (effectively reducing the provision for loan losses) and recorded interest income of $1.3 million on two non-performing commercial loans. The Company also received interest income of $1.1 million on the early pay-off of a commercial real estate loan. The after-tax effect of these items increased net income for the quarter by approximately $3.8 million, or $.04 per share. For the current quarter, the return on average assets was 1.45%, the return on average equity was 13.4%, and the efficiency ratio was 56.4%.

Compared to the same quarter last year, net interest income (tax equivalent) increased by $407 thousand to $171.2 million, while non-interest income decreased slightly to $100.8 million. Investment securities gains this quarter totaled $1.3 million, compared to gains of $2.0 million in the same period last year, with virtually all of these gains due to fair value adjustments and sales of the Company's private equity investments. Non-interest expense for the current quarter totaled $150.7 million, a decrease of $2.9 million from the same period last year. The provision for loan losses totaled $5.2 million, representing a decline of $7.0 million from the amount recorded in the same quarter last year.

Balance Sheet Review

During the 2 nd quarter of 2012, average loans, including loans held for sale, increased $34.0 million compared to the previous quarter but decreased $64.9 million, or .7%, compared to the same period last year. Period end loans, however, increased $128.1 million and reflected additional growth towards the end of the quarter. On a period end basis, the increase in loans resulted from growth in business (up $72.8 million), personal real estate (up $42.7 million) and other consumer loans (mainly auto loans - up $56.9 million). Wholesale auto floor plan and tax-free loans contributed to the growth in business loans. Demand for automobile lending remained solid. Marine and RV loans, included in the consumer loan portfolio, continued to run off this quarter by approximately $25.4 million, while construction loans declined by $30.6 million.

Total available for sale investment securities (excluding fair value adjustments) averaged $9.0 billion this quarter, down slightly when compared to the previous quarter. Purchases of new securities, totaling $900.7 million in the 2 nd quarter of 2012, were offset by maturities and pay downs of $832.5 million. At June 30, 2012, the duration of the investment portfolio was 2.0 years, and maturities of approximately $1.6 billion are expected to occur during the next 12 months.

Total average deposits increased $142.9 million, or .9%, during the 2 nd quarter of 2012 compared to the previous quarter. This increase in average deposits resulted mainly from growth of $366.8 million in demand, savings, business money market and interest checking accounts, which was partly offset by a decline in certificates of deposit (CD) average balances of $221.3 million. Period end deposit balances increased $59.9 million over the previous quarter. The average loans to deposits ratio in the current quarter was 55.3%, compared to 55.5% in the previous quarter.

During the current quarter, the Company's average borrowings decreased $178.0 million compared to the previous quarter. This decrease was mainly due to a decline in customer repurchase agreement balances and federal funds purchased.

Net Interest Income

Net interest income (tax equivalent) in the 2 nd quarter of 2012 amounted to $171.2 million compared with $165.7 million in the previous quarter, or an increase of $5.5 million. Net interest income this quarter increased $407 thousand compared to the 2 nd quarter of last year. During the 2 nd quarter of 2012, the net yield on earning assets (tax equivalent) was 3.55%, compared with 3.45% in the previous quarter and 3.85% in the same period last year.

The increase in net interest income (tax equivalent) in the 2 nd quarter of 2012 over the previous quarter was mainly due to an increase in inflation income of $4.4 million on the Company's inflation protected securities (TIPs), which increased the yield on the overall securities portfolio by 20 basis points to 2.75%. Interest income (tax equivalent) on the total securities portfolio increased $4.0 million compared to the previous quarter, mainly due to the higher TIPs income. Additionally, the Company received interest income of $2.4 million on the pay-off of two commercial loans mentioned above. Excluding these large interest payments, interest income on loans would have declined by $1.9 million while the yield on total loans would have amounted to 4.84%.

Interest expense on deposits declined $632 million in the 2 nd quarter of 2012 compared with the previous quarter mainly due to lower rates paid on money market and CD accounts. Overall rates paid on total interest-bearing deposits declined 2 basis points to .30% this quarter. Interest expense on borrowings decreased slightly this quarter, due mainly to lower average balances and rates paid on repurchase agreements.

In the 2 nd quarter of 2012, the tax equivalent yield on interest earning assets increased 9 basis points to 3.75%, while the overall cost of interest bearing liabilities decreased 2 basis points to .30%.

Non-Interest Income

For the 2 nd quarter of 2012, total non-interest income amounted to $100.8 million, a decrease of $528 thousand when compared to $101.3 million in the same period last year. Also, current quarter non-interest income increased $6.2 million when compared to $94.6 million recorded in the previous quarter. The decrease in non-interest income from the same period last year was mainly due to a decline in debit card interchange fees this quarter of $7.0 million, but was offset mainly by an increase in corporate card and trust fees.

Bank card fees in the current quarter declined $2.9 million, or 6.9%, from the same period last year as a result of a 44.5% decline in debit card interchange fees noted above (effect of new regulations in 2011) but was partly offset by growth in corporate card fees of $3.6 million, or 25.5%. Corporate card and debit card fees for the current quarter totaled $17.7 million and $8.7 million, respectively. Merchant fees grew by 6.1% and totaled $6.4 million for the quarter.

Trust fees for the quarter increased 5.7% compared to the same period last year, resulting mainly from growth in both personal and institutional trust fees. Deposit account fees declined $814 thousand, or 3.9%, compared to last year as overdraft fees declined by $1.7 million, but were offset by growth in various other deposit fees of $892 thousand, or 38.5%. Capital market fees increased approximately 1% over the same period last year but were down $1.9 million compared to the previous quarter. Other non-interest income in the previous quarter included a $3.0 million fair value loss on an office building which is held for sale. The increase in other non-interest income over the same period in the previous year resulted from higher lease-related fees and growth in fees on sales of tax credits to customers in the current quarter.

Investment Securities Gains and Losses

Net securities gains amounted to $1.3 million in the 2 nd quarter of 2012, compared to net gains of $4.0 million in the previous quarter and net gains of $2.0 million in the same quarter last year. The current quarter included a gain of $1.7 million related to fair value adjustments and sales of the Company's private equity investments. Minority interest expense related to these gains totaled $347 thousand and is included in non-controlling interest expense.

Also during the current quarter, the Company recorded credit-related impairment losses of $350 thousand on certain non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired, compared to losses of $320 thousand in the previous quarter and $650 thousand in the same quarter last year. The cumulative credit-related impairment on these bonds totaled $10.5 million at quarter end. At June 30, 2012, the fair value of non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired totaled $109.9 million, compared to $146.9 million at June 30, 2011.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $150.7 million, a decrease of $2.9 million, or 1.9%, from the same quarter last year and a slight increase compared to the previous quarter. Compared to the 2 nd quarter of last year, salaries and benefits expense increased $3.3 million, or 3.9%, mainly due to an increase in salary costs of $2.0 million, or 2.7%, coupled with increases in medical and pension-related costs which grew by $1.0 million. Full-time equivalent employees totaled 4,702 and 4,786 at June 30, 2012 and 2011, respectively.

Compared to the 2 nd quarter of last year, occupancy and equipment expense declined $811 thousand on a combined basis mainly due to lower depreciation costs. Data processing and software costs grew by 4.3% mainly due to higher bank card-related costs (related to higher revenues) coupled with higher software costs. Other expense in the 2 nd quarter of 2011 included an expense accrual of $5.0 million related a loss contingency for litigation that was ultimately resolved later in 2011.

Income Taxes

The effective tax rate for the Company was 33.0% in the current quarter, compared with 33.3% in the previous quarter and 32.1% in the 2 nd quarter of 2011.

Credit Quality

Net loan charge-offs in the 2 nd quarter of 2012 amounted to $8.2 million, compared with $11.2 million in the prior quarter and $15.2 million in the 2 nd quarter of last year. The $3.0 million decline in net loan charge-offs in the 2 nd quarter of 2012 compared to the previous quarter was mainly the result of recoveries of $3.6 million received during the quarter on two non-performing commercial loans, coupled with lower net loan charge-offs on consumer and consumer credit card loans. The ratio of annualized net loan charge-offs to total average loans was .36% in the current quarter compared to .49% in the previous quarter.

For the 2 nd quarter of 2012, annualized net loan charge-offs on average consumer credit card loans amounted to 3.35%, compared with 3.40% in the previous quarter and 4.58% in the same period last year. Consumer loan net charge-offs for the quarter amounted to .70% of average consumer loans, compared to .96% in the previous quarter and .80% in the same quarter last year. The provision for loan losses for the current quarter totaled $5.2 million, a decrease of $3.0 million from the previous quarter and $7.0 million lower than in the same period last year. The current quarter provision for loan losses was $3.0 million less than net loan charge-offs for the current quarter, thereby reducing the allowance for loan losses to $178.5 million. At June 30, 2012 the allowance was 1.90% of total loans, excluding loans held for sale, and was 287% of total non-accrual loans.

At June 30, 2012, total non-performing assets amounted to $82.3 million, a decrease of $5.2 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($62.2 million) and foreclosed real estate ($20.1 million). At June 30, 2012, the balance of non-accrual loans, which represented .66% of loans outstanding, included business real estate loans of $21.6 million, construction and land loans of $18.2 million and business loans of $14.1 million. Loans more than 90 days past due and still accruing interest totaled $11.3 million at June 30, 2012.

Other

During the quarter ended June 30, 2012, the Company purchased 1,033,000 shares of treasury stock at an average cost of $38.76.

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 statement.

Copyright Business Wire 2010

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