Commerce Bancshares, Inc. Announces Third Quarter Earnings Per Share Of $.75

Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.75 per share for the three months ended September 30, 2012 compared to $.72 per share in the third quarter of 2011, or an increase of 4.2%. Net income for the third quarter amounted to $66.0 million compared to $65.4 million in the same quarter last year and $70.7 million in the prior quarter. For the quarter, the return on average assets totaled 1.28%, the return on average equity was 11.6% and the efficiency ratio was 60.0%.

For the nine months ended September 30, 2012, earnings per share totaled $2.29 compared to $2.13 in the first nine months of 2011, an increase of 7.5%. Net income amounted to $202.5 million for the first nine months of 2012 compared with $194.8 million for the same period last year, or an increase of $7.7 million. The return on average assets for the first nine months of 2012 was 1.32%, the return on average equity was 12.1% and the efficiency ratio was 59.1%.

In announcing these results, David W. Kemper, Chairman and CEO, said, “Although record low interest rates continued to pressure our net interest income, we were pleased to report solid quarterly earnings which benefited from loan growth, low credit losses and good expense management. Compared to the previous quarter, the decline in net interest income was partly due to non-recurring interest received last quarter and a reduction of $6.2 million in interest on our inflation-protected government securities. Also, while non-interest income continued to be affected by recent debit card interchange regulations, commercial card fees grew 21.8% compared to last year and remained strong, while trust fees also increased 7.1%. Non-interest expense was flat compared to the same quarter of last year. Average loans for the quarter grew $209.4 million, or 2.3%, this quarter compared to the previous quarter and resulted from growth in business, personal real estate loans and consumer loans. Average deposits declined by $111.7 million this quarter, or .7%.”

Mr. Kemper continued, “Net loan charge-offs for the current quarter totaled $9.1 million, compared to $8.2 million in the previous quarter and $14.9 million in the third quarter of 2011. The increase in net loan charge-offs this quarter resulted from several large commercial loan recoveries totaling $3.6 million which were recorded during the second quarter. Overall commercial and consumer loan charge-offs remained low this quarter. During the current quarter, the provision for loan losses totaled $5.6 million, or $3.5 million less than net loan charge-offs, reflecting improved credit trends in our loan portfolio. Our allowance for loan losses amounted to $175.0 million this quarter, representing 3.2 times our non-performing loans. Total non-performing assets also decreased $8.8 million from the previous quarter to $73.4 million this quarter.”

Total assets at September 30, 2012 were $20.9 billion, total loans were $9.6 billion, and total deposits were $16.8 billion. During the quarter the Company repurchased approximately 98,000 shares of Company stock at an average price per share of $39.66.

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)   6/30/2012   9/30/2012   9/30/2011
Non-Accrual Loans   $ 62,177   $ 55,201   $ 75,912
Foreclosed Real Estate   $ 20,095     $ 18,234     $ 23,813  
Total Non-Performing Assets   $ 82,272     $ 73,435     $ 99,725  
Non-Performing Assets to Loans   .88 %   .76 %   1.10 %
Non-Performing Assets to Total Assets   .40 %   .35 %   .48 %
Loans 90 Days & Over Past Due — Still Accruing   $ 11,297     $ 12,232    

$

20,104
 
 

This financial news release, including management's discussion of third 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 Nine Months Ended
(Unaudited)  

June 30,2012
 

September 30,2012
 

September 30,2011
 

September 30,2012
 

September 30,2011
FINANCIAL SUMMARY (In thousands, except per share data)  
Net interest income $ 165,105   $ 153,811   $ 158,630 $ 478,653 $ 484,313
Taxable equivalent net interest income 171,186 159,934 164,317 496,786 501,575
Non-interest income 100,816 100,922 101,632 296,321 298,882
Investment securities gains, net 1,336 3,180 2,587 8,556 5,870
Provision for loan losses 5,215 5,581 11,395 18,961 39,372
Non-interest expense 156,340 153,391 153,746 460,192 461,219

Net income attributable to Commerce Bancshares, Inc.
70,733 66,006 65,352 202,538 194,839
Cash dividends 20,216 20,165 19,526 60,819 59,636
Net total loan charge-offs (recoveries) 8,214 9,082 14,895 28,461 48,872
Business (3,600 ) 202 889 (3,288 ) 4,338
Real estate — construction and land 116 (102 ) 1,215 234 4,326
Real estate — business 1,839 (25 ) 1,429 3,309 2,832
Consumer credit card 5,930 6,277 7,103 18,380 24,631
Consumer 1,974 1,791 3,232 6,396 9,474
Revolving home equity 943 314 72 1,617 783
Real estate — personal 679 267 673 1,015 1,974
Overdraft 333 358 282 798 514
Per common share:
Net income — basic $ .80 $ .75 $ .72

$
2.29 $ 2.14
Net income — diluted $ .80 $ .75 $ .72 $ 2.29 $ 2.13
Cash dividends $ .230 $ .230 $ .219 $ .690 $ .657
Diluted wtd. average shares o/s     87,672       87,192       89,737       87,804       90,724  
RATIOS
Average loans to deposits (1) 55.26 % 56.89 % 58.29 % 55.89 % 60.27 %
Return on total average assets 1.38 % 1.28 % 1.32 % 1.32 % 1.37 %
Return on total average equity 12.80 % 11.57 % 12.15 % 12.13 % 12.41 %
Non-interest income to revenue (2) 37.91 % 39.62 % 39.05 % 38.24 % 38.16 %
Efficiency ratio (3)     58.53 %     59.99 %     58.71 %     59.14 %     58.57 %
AT PERIOD END
Book value per share based on total equity $ 25.47 $ 26.33 $ 23.95
Market value per share $ 37.90 $ 40.33 $ 33.10

Allowance for loan losses as a percentage of loans
1.90 % 1.82 % 2.07 %
Tier I leverage ratio 9.73 % 10.00 % 9.74 %

Tangible common equity to assets ratio (4)
10.16 % 10.47 % 9.72 %
Common shares outstanding 87,588,533 87,608,391 88,924,563
Shareholders of record 4,184 4,146 4,224
Number of bank/ATM locations 361 362 363
Full-time equivalent employees     4,702       4,707       4,762  
OTHER QTD INFORMATION
High market value per share $ 41.00 $ 42.74 $ 41.90
Low market value per share   $ 36.17     $ 37.71     $ 31.65  

(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 30,2012
 

September 30,2012
 

September 30,2011
 

September 30,2012
 

September 30,2011
Interest income $ 174,624   $ 163,194   $ 170,835   $ 507,784   $ 524,748
Interest expense   9,519     9,383     12,205     29,131     40,435  
Net interest income 165,105 153,811 158,630 478,653 484,313
Provision for loan losses   5,215     5,581     11,395     18,961     39,372  
Net interest income after provision for loan losses   159,890     148,230     147,235     459,692     444,941  
NON-INTEREST INCOME
Bank card transaction fees 38,434 39,488 42,149 112,655 120,915
Trust fees 23,833 23,681 22,102 70,328 66,218
Deposit account charges and other fees 19,975 19,873 21,939 59,184 62,028
Capital market fees 5,010 5,110 5,556 16,991 15,255
Consumer brokerage services 2,576 2,441 2,333 7,543 7,876
Loan fees and sales 1,706 1,358 2,034 4,625 5,933
Other   9,282     8,971     5,519     24,995     20,657  
Total non-interest income   100,816     100,922     101,632     296,321     298,882  
INVESTMENT SECURITIES GAINS (LOSSES), NET
Impairment (losses) reversals on debt securities 3 5,989 (1,200 ) 11,579 2,986
Noncredit-related losses (reversals) on securities not expected to be sold   (353 )   (6,546 )   369     (12,806 )   (4,741 )
Net impairment losses (350 ) (557 ) (831 ) (1,227 ) (1,755 )
Realized gains on sales and fair value adjustments   1,686     3,737     3,418     9,783     7,625  
Investment securities gains, net   1,336     3,180     2,587     8,556     5,870  
NON-INTEREST EXPENSE
Salaries and employee benefits 87,511 89,292 85,700 266,346 257,315
Net occupancy 11,105 11,588 11,510 33,953 34,760
Equipment 4,999 4,976 5,390 15,164 16,669
Supplies and communication 5,667 5,400 5,674 16,680 16,898
Data processing and software 18,282 19,279 16,232 55,030 50,230
Marketing 4,469 4,100 4,545 12,391 13,298
Deposit insurance 2,618 2,608 2,772 7,746 10,443
Other   21,689     16,148     21,923     52,882     61,606  
Total non-interest expense   156,340     153,391     153,746     460,192     461,219  
Income before income taxes 105,702 98,941 97,708 304,377 288,474
Less income taxes   34,466     32,155     31,699     99,541     91,898  
Net income 71,236 66,786 66,009 204,836 196,576
Less non-controlling interest expense   503     780     657     2,298     1,737  
Net income attributable to Commerce Bancshares, Inc. $ 70,733   $ 66,006   $ 65,352   $ 202,538   $ 194,839  
Net income per common share — basic $ .80   $ .75

 
$ .72   $ 2.29   $ 2.14  
Net income per common share — diluted   $ .80     $ .75     $ .72     $ 2.29     $ 2.13  
 
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
 

(Unaudited)(In thousands)
 

June 30,2012
 

September 30,2012
 

September 30,2011
ASSETS      
Loans $ 9,376,915 $ 9,638,645 $ 9,073,123
Allowance for loan losses   (178,533 )   (175,032 )   (188,038 )
Net loans   9,198,382     9,463,613     8,885,085  
Loans held for sale 8,874 8,741 39,576
Investment securities:
Available for sale 9,206,451 9,020,951 9,278,066
Trading 14,313 13,595 9,695
Non-marketable   116,190     117,540     111,808  
Total investment securities   9,336,954     9,152,086     9,399,569  
Short-term federal funds sold and securities purchased under agreements to resell 7,455 10,475 11,400
Long-term securities purchased under agreements to resell 850,000 850,000 850,000
Interest earning deposits with banks 92,544 132,144 133,419
Cash and due from banks 410,666 426,742 424,861
Land, buildings and equipment — net 350,897 350,040 368,965
Goodwill 125,585 125,585 125,585
Other intangible assets — net 6,381 5,804 8,452
Other assets   355,253     353,539     391,756  
Total assets $ 20,742,991   $ 20,878,769   $ 20,638,668  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing $ 5,637,373 $ 5,814,932 $ 5,003,587
Savings, interest checking and money market 8,983,090 9,025,688 8,416,839
Time open and C.D.’s of less than $100,000 1,113,824 1,094,215 1,204,896
Time open and C.D.’s of $100,000 and over   1,097,346     914,795     1,388,755  
Total deposits 16,831,633 16,849,630 16,014,077
Federal funds purchased and securities sold under agreements to repurchase 1,305,745 1,257,949 1,057,728
Other borrowings 111,292 103,744 111,869
Other liabilities   263,552     360,374     1,325,029  
Total liabilities   18,512,222     18,571,697     18,508,703  
Stockholders’ equity:
Preferred stock
Common stock 446,387 446,387 436,481
Capital surplus 1,033,523 1,033,515 980,176
Retained earnings 671,297 717,138 690,981
Treasury stock (61,388 ) (60,644 ) (96,205 )
Accumulated other comprehensive income   136,732     166,040     115,781  
Total stockholders’ equity 2,226,551 2,302,436 2,127,214
Non-controlling interest   4,218     4,636     2,751  
Total equity   2,230,769     2,307,072     2,129,965  
Total liabilities and equity   $ 20,742,991     $ 20,878,769     $ 20,638,668  
 
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
 

(Unaudited)(Dollars in thousands)
 

For the Three Months Ended

June 30, 2012
  September 30, 2012 September 30, 2011

AverageBalance
 

Avg. RatesEarned/Paid

AverageBalance
 

Avg. RatesEarned/Paid

AverageBalance
 

Avg. RatesEarned/Paid
ASSETS:      
Loans:
Business (A) $ 2,895,167 3.58 % $ 3,018,475 3.39 % $ 2,815,064 3.56 %
Real estate — construction and land 360,000 4.24 339,908 4.30 412,490 4.42
Real estate — business 2,205,561 4.71 2,182,584 4.39 2,123,034 4.74
Real estate — personal 1,475,930 4.46 1,523,148 4.31 1,430,014 4.75
Consumer 1,134,838 5.73 1,205,318 5.54 1,104,684 6.20
Revolving home equity 449,416 4.17 444,076 4.17 466,503 4.27
Consumer credit card 712,708 11.87 730,104 11.83 735,179 11.59
Overdrafts 5,663       5,353       6,936      
Total loans (B) 9,239,283     4.95   9,448,966     4.76   9,093,904     5.07  
Loans held for sale 9,053 3.91 8,753 3.86 41,677 2.57
Investment securities:
U.S. government and federal agency obligations 330,648 7.58 329,172 (.07 ) (C) 327,916 3.40
Government-sponsored enterprise obligations 265,620 2.06 276,505 1.65 262,087 2.92
State and municipal obligations (A) 1,322,987 4.03 1,387,624 3.89 1,185,263 4.20
Mortgage-backed securities 4,010,276 2.89 3,766,602 2.62 3,764,822 2.95
Asset-backed securities 2,900,122 1.13 2,878,941 1.10 2,403,062 1.15
Other marketable securities (A) 135,930     4.92   121,596     4.50   172,588     4.27  
Total available for sale securities (B) 8,965,583 2.67 8,760,440 2.21 8,115,738 2.64
Trading securities (A) 22,748 2.65 24,337 2.34 20,770 2.52
Non-marketable securities (A) 122,651     8.60   117,210     7.54   110,585     6.59  
Total investment securities 9,110,982     2.75   8,901,987     2.29   8,247,093     2.69  
Short-term federal funds sold and securities purchased under agreements to resell 22,139 .53 19,400 .49 10,927 .47
Long-term securities purchased under agreements to resell 850,000 2.17 847,829 2.31 850,000 1.83
Interest earning deposits with banks 163,075   .28   81,139   .20   326,302   .26  
Total interest earning assets 19,394,532 3.75   19,308,074 3.49   18,569,903 3.77  
Non-interest earning assets (B) 1,154,720   1,209,295   1,094,161  
Total assets $ 20,549,252   $ 20,517,369   $ 19,664,064  
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings $ 584,196 .12 $ 581,819 .15 $ 534,295 .19
Interest checking and money market 8,369,306 .21 8,401,165 .21 7,756,104 .32
Time open & C.D.’s of less than $100,000 1,128,716 .71 1,101,399 .70 1,231,280 .78
Time open & C.D.’s of $100,000 and over 1,250,164     .59   1,004,708     .69   1,372,842     .62  
Total interest bearing deposits 11,332,382     .30   11,089,091     .30   10,894,521     .40  
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase 1,109,693 .06 1,217,036 .07 1,016,623 .11
Other borrowings 111,336     3.16   108,819     3.11   111,930     3.28  
Total borrowings 1,221,029     .35   1,325,855     .32   1,128,553     .43  
Total interest bearing liabilities 12,553,411 .30 % 12,414,946 .30 % 12,023,074 .40 %
Non-interest bearing deposits 5,404,687 5,536,274 4,778,780
Other liabilities 367,763 296,178 728,974
Equity 2,223,391   2,269,971   2,133,236  
Total liabilities and equity $ 20,549,252   $ 20,517,369   $ 19,664,064  
Net interest income (T/E) $ 171,186   $ 159,934   $ 164,317  
Net yield on interest earning assets       3.55 %       3.30 %       3.51 %

(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.

(C)

Includes ($1.4 million) in inflation income on U.S. Treasury inflation-protected securities in the third quarter of 2012.
 

COMMERCE BANCSHARES, INC.

Management Discussion of Third Quarter Results

September 30, 2012
 

For the quarter ended September 30, 2012, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $66.0 million, an increase of $654 thousand over the same quarter last year, and a decrease of $4.7 million compared to the previous quarter. The decrease in net income from the previous quarter resulted mainly from non-recurring interest income of $2.4 million reported in the 2 nd quarter of 2012 coupled with a $6.2 million decline in interest income on the Company's holdings of inflation-protected securities. For the current quarter, the return on average assets was 1.28%, the return on average equity was 11.57%, and the efficiency ratio was 59.99%.

Compared to the same quarter last year, net interest income (tax equivalent) decreased by $4.4 million to $159.9 million, while non-interest income increased slightly to $100.9 million. Securities gains from private equity activities totaled $3.7 million in the 3 rd quarter of 2012, compared to $3.4 million in the same period last year and $1.7 million in the prior quarter. Non-interest expense for the current quarter totaled $153.4 million, a decrease of $355 thousand from the same period last year. The provision for loan losses totaled $5.6 million, representing a decline of $5.8 million from the amount recorded in the same quarter last year.

Balance Sheet Review

During the 3 rd quarter of 2012, average loans, including loans held for sale, increased $209.4 million compared to the previous quarter and increased $322.1 million, or 3.5%, compared to the same period last year. The increase in average loans over the previous quarter resulted from growth in business (up $123.3 million), personal real estate (up $47.2 million) and consumer loans (up $70.5 million, mainly in automobile and fixed rate home equity loans). Consumer credit card loans also increased on average by $17.4 million. Wholesale auto floor plan, lease and tax-free loans all contributed to the growth in business loans. Demand for consumer automobile lending remained solid as average outstanding balances grew by $71.1 million. Marine and RV loans, included in the consumer loan portfolio, continued to run off this quarter by $24.4 million, while construction loans declined by $20.1 million and business real estate loans declined by $23.0 million.

Total available for sale investment securities (excluding fair value adjustments) averaged $8.8 billion this quarter, down $205.1 million when compared to the previous quarter. Purchases of new securities, totaling $636.4 million in the 3 rd quarter of 2012, were offset by maturities and pay downs of $849.7 million. At September 30, 2012, the duration of the investment portfolio was 2.0 years, and maturities and pay downs of approximately $2.1 billion are expected to occur during the next 12 months.

Total average deposits decreased $111.7 million, or .7%, during the 3 rd quarter of 2012 compared to the previous quarter. This decrease in average deposits resulted mainly from a decline in certificates of deposit (CD) of $272.8 million, but was partly offset by growth in business demand (increase of $189.4 million), money market (increase of $21.8 million) and interest checking accounts (increase of $10.1 million). The majority of the decline in average CD balances was in short-term jumbo CD's, which are not considered core deposits. The average loans to deposits ratio in the current quarter was 56.9%, compared to 55.3% in the previous quarter.

During the current quarter, the Company's average borrowings increased $104.8 million compared to the previous quarter, mainly due to higher federal funds purchased and customer repurchase agreement balances.

Net Interest Income

Net interest income (tax equivalent) in the 3 rd quarter of 2012 amounted to $159.9 million compared with $171.2 million in the previous quarter, or a decrease of $11.3 million. Net interest income this quarter decreased $4.4 million compared to the 3 rd quarter of last year. During the 3 rd quarter of 2012, the net yield on earning assets (tax equivalent) was 3.30%, compared with 3.55% in the previous quarter and 3.51% in the same period last year.

The decrease in net interest income (tax equivalent) in the 3 rd quarter of 2012 compared to the previous quarter, which amounted to $11.3 million, was mainly due to a decrease in inflation interest of $6.2 million on the Company's inflation-protected securities (TIPs). The lower inflation interest was directly related to the lower Consumer Price Indices published this quarter, on which this interest is based. Also, the Company received interest in the 2 nd quarter totaling $2.4 million from several non-performing commercial loans and the early pay off of a commercial real estate loan which did not re-occur in the current quarter. Excluding the effects of the inflation income on the TIPs and the non-recurring interest mentioned above, the net yield on earning assets in the 2 nd quarter would have been 3.40% (tax-equivalent) and would compare more directly to the net yield of 3.30% reported in the current quarter.

Compared to the previous quarter, interest on loans declined by $550 thousand (tax-equivalent) due mainly to lower rates earned on most commercial loan types but offset by higher average balances on business, consumer, consumer credit card, and personal real estate loans. Interest on investment securities declined $11.1 million (tax-equivalent) this quarter, partly due to the effects of the TIPs mentioned above of $6.2 million coupled with lower rates on most security types and lower balances of mortgage-backed securities. The effects on premium amortization on mortgage and asset-backed securities due to change in pre-payment speeds this quarter was not significant.

Interest expense on deposits declined $155 thousand in the 3 rd quarter of 2012 compared with the previous quarter mainly due to a decrease in average CD balances, which reduced interest expense by approximately $205 thousand. Overall rates paid on total interest bearing deposits totaled .30% and was unchanged from the previous quarter. Interest expense on borrowings increased slightly this quarter, due mainly to higher average balances of federal funds purchased.

Non-Interest Income

In the 3 rd quarter of 2012, total non-interest income amounted to $100.9 million, a decrease of $710 thousand when compared to $101.6 million in the same period last year. Also, current quarter non-interest income increased slightly when compared to $100.8 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 of $6.8 million, coupled with lower overdraft fees, but offset by higher corporate card and trust fees.

Total bank card fees in the current quarter declined $2.7 million, or 6.3%, from the same period last year as a result of a 43.8% decline in debit card interchange fees noted above (effect of new regulations in the 4 th quarter of 2011) but was partly offset by growth in corporate card fees of $3.3 million, or 21.8%. Corporate card and debit card fees for the current quarter totaled $18.5 million and $8.7 million, respectively. Merchant fees grew by 8.1%, totaling $6.5 million for the quarter, while credit card fees grew 6.2% and totaled 5.8 million.

Trust fees for the quarter increased 7.1% compared to the same period last year, resulting mainly from growth in personal, institutional and corporate trust fees. Deposit account fees declined $2.1 million, or 9.4%, compared to last year as overdraft fees declined by $2.9 million, but were offset by growth in various other deposit fees of $759 thousand, or 29.2%. Other non-interest income in the current quarter increased $3.5 million compared to the same period last year, partly due to higher fees on leasing and international activities and sales of state tax credits to customers. Also, in the third quarter of 2011 the Company wrote down the value of certain banking properties held for sale by $1.7 million.

Investment Securities Gains and Losses

Net securities gains (which related mostly to private equity activities) amounted to $3.2 million in the 3 rd quarter of 2012, compared to net gains of $1.3 million in the previous quarter and net gains of $2.6 million in the same quarter last year. The current quarter included a gain of $3.7 million related to fair value adjustments and sales of the Company's private equity investments. Minority interest expense related to these gains totaled $525 thousand and is included in non-controlling interest expense. Year to date net gains and fair value adjustments on private equity investments totaled $9.4 million in 2012 compared with $7.4 million in 2011.

Also during the current quarter, the Company recorded credit-related impairment losses of $557 thousand on certain non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired, compared to losses of $350 thousand in the previous quarter and $831 thousand in the same quarter last year. The cumulative credit-related impairment on these bonds totaled $11.1 million at quarter end. At September 30, 2012, the fair value of non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired totaled $108.1 million, compared to $134.7 million at September 30, 2011.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $153.4 million, a decrease of $355 thousand from the same quarter last year and a decrease of $2.9 million compared to the previous quarter. Compared to the 3 rd quarter of last year, salaries and benefits expense increased $3.6 million, or 4.2%, mainly due to an increase in salary costs of $1.7 million, or 2.3%, coupled with an increase in medical costs which grew by $1.1 million. Full-time equivalent employees totaled 4,707 and 4,762 at September 30, 2012 and 2011, respectively.

Compared to the 3 rd quarter of last year, occupancy, supplies and equipment expense declined $610 thousand on a combined basis mainly due to lower depreciation, postage and communication costs. Data processing and software costs grew by $3.0 million, or 18.8%, mainly due to $2.5 million in higher bank card-related costs. Other non-interest expense in the 3 rd quarter of 2011 included an expense accrual of $5.9 million related to a loss contingency for litigation that was ultimately resolved later in 2011, while other expense in the prior quarter included a charge of $5.7 million related to certain VISA U.S.A., Inc. litigation costs.

Income Taxes

The effective tax rate for the Company was 32.8% in the current quarter, compared with 32.8% in the previous quarter and 32.7% in the 3 rd quarter of 2011.

Credit Quality

Net loan charge-offs in the 3 rd quarter of 2012 amounted to $9.1 million, compared with $8.2 million in the prior quarter and $14.9 million in the 3 rd quarter of last year. Net loan charge-offs in the 2 nd quarter of 2012 included several large commercial loan recoveries totaling $3.6 million and reduced overall net loan losses in that quarter. The ratio of annualized net loan charge-offs to total average loans was .38% in the current quarter compared to .36% in the previous quarter.

For the 3 rd quarter of 2012, annualized net loan charge-offs on average consumer credit card loans amounted to 3.42%, compared with 3.35% in the previous quarter and 3.83% in the same period last year. Consumer loan net charge-offs for the quarter amounted to .59% of average consumer loans, compared to .70% in the previous quarter and 1.16% in the same quarter last year. The provision for loan losses for the current quarter totaled $5.6 million, an increase of $366 thousand over the previous quarter and $5.8 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 due to improved credit trends in the loan portfolio, thereby reducing the allowance for loan losses to $175.0 million. At September 30, 2012 the allowance was 1.82% of total loans, excluding loans held for sale, and was 317% of total non-accrual loans.

At September 30, 2012, total non-performing assets amounted to $73.4 million, a decrease of $8.8 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($55.2 million) and foreclosed real estate ($18.2 million). At September 30, 2012, the balance of non-accrual loans, which represented .57% of loans outstanding, included business real estate loans of $18.4 million, construction and land loans of $15.4 million and business loans of $14.1 million. Loans more than 90 days past due and still accruing interest totaled $12.2 million at September 30, 2012.

Other

During the quarter ended September 30, 2012, the Company purchased approximately 98,000 shares of treasury stock at an average cost of $39.66.

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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