Commerce Bancshares - 10-Q quarterly report FY

 

 

 

 

 

(Mark One)

 

 

For the quarterly period ended September 30, 2001

 

 

 

For the transition period from                       to                      

 

 

Missouri		43-0889454
(State of Incorporation)		(IRS Employer Identification No.)

 

 

 

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

                              Yes          X                                                                                             No                  

 

          As of November 5, 2001, the registrant had outstanding 62,448,135 shares of its $5 par value common stock, registrant’s only class of common stock.

 

 

          In the opinion of management, the consolidated financial statements of Commerce Bancshares, Inc. and Subsidiaries as of September 30, 2001 and December 31, 2000 and the related notes include all material adjustments which were regularly recurring in nature and necessary for fair presentation of the financial condition and the results of operations for the periods shown.

 

          The consolidated financial statements of Commerce Bancshares, Inc. and Subsidiaries and management’s discussion and analysis of financial condition and results of operations are presented in the schedules as follows:

 

Schedule 1:		Consolidated Balance Sheets
Schedule 2:		Consolidated Statements of Income
Schedule 3:		Consolidated Statements of Changes in Stockholders’ Equity
Schedule 4:		Consolidated Statements of Cash Flows
Schedule 5:		Notes to Consolidated Financial Statements
Schedule 6:		Management’s Discussion and Analysis of Financial Condition and Results of Operations, including Quantitative and Qualitative Disclosures about Market Risk

 

 

 

          No reports on Form 8-K were filed during the quarter ended September 30, 2001.

 

 

          Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

2

 

 

 

		September 30 2001			December 31 2000
		(Unaudited)
		(In thousands)
ASSETS
Loans, net of unearned income		$   7,802,350			$   7,906,665
Allowance for loan losses		(130,964	)		(128,445	)
Net loans		7,671,386			7,778,220
Investment securities:
Available for sale		2,948,965			1,864,991
Trading		23,678			20,674
Non-marketable		53,081			55,238
Total investment securities		3,025,724			1,940,903
Federal funds sold and securities purchased under agreements to resell		244,025			241,835
Cash and due from banks		825,132			616,724
Land, buildings and equipment, net		300,617			257,629
Goodwill and core deposit premium, net		52,474			58,182
Other assets		196,540			221,624
Total assets		$12,315,898			$11,115,117
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing demand		$   1,309,271			$   1,564,907
Savings and interest bearing demand		5,529,229			5,049,729
Time open and C.D.’s of less than $100,000		2,318,929			2,081,057
Time open and C.D.’s of $100,000 and over		555,022			386,045
Total deposits		9,712,451			9,081,738
Federal funds purchased and securities sold under agreements to repurchase		723,959			543,874
Long-term debt and other borrowings		442,841			224,684
Accrued interest, taxes and other liabilities		174,262			121,066
Total liabilities		11,053,513			9,971,362
Stockholders’ equity:
Preferred stock, $1 par value.
Authorized and unissued 2,000,000 shares		—			—
Common stock, $5 par value.
Authorized 100,000,000 shares; issued 63,557,187 shares in 2001 and                         62,655,891 shares in 2000		317,786			313,279
Capital surplus		148,375			147,436
Retained earnings		781,255			671,147
Treasury stock of 935,225 shares in 2001 and 78,513 shares in 2000, at cost		(34,747	)		(2,895	)
Other		(1,892	)		(1,179	)
Accumulated other comprehensive income		51,608			15,967
Total stockholders’ equity		1,262,385			1,143,755
Total liabilities and stockholders’ equity		$12,315,898			$11,115,117

 

See accompanying notes to consolidated financial statements.  

3  

 

 

 

		For the Three Months Ended September 30				For the Nine Months Ended September 30
		2001		2000		2001		2000
		(Unaudited)
		(In thousands, except per share data)
INTEREST INCOME
Interest and fees on loans		$143,447		$170,387		$461,415		$491,760
Interest on investment securities		34,798		32,186		96,264		103,327
Interest on federal funds sold and securities purchased under      agreements to resell		6,300		4,198		20,777		10,986
Total interest income		184,545		206,771		578,456		606,073
INTEREST EXPENSE
Interest on deposits:
Savings and interest bearing demand		22,875		38,453		86,046		111,053
Time open and C.D.’s of less than $100,000		30,495		28,736		93,959		82,124
Time open and C.D.’s of $100,000 and over		7,038		4,584		21,383		13,052
Interest on federal funds purchased and securities sold under      agreements to repurchase		4,585		12,235		16,813		35,593
Interest on long-term debt and other borrowings		3,538		2,079		9,696		3,364
Total interest expense		68,531		86,087		227,897		245,186
Net interest income		116,014		120,684		350,559		360,887
Provision for loan losses		8,317		8,216		25,839		27,092
Net interest income after provision for loan losses		107,697		112,468		324,720		333,795
NON-INTEREST INCOME
Trust fees		15,695		14,448		47,687		43,035
Deposit account charges and other fees		21,405		17,974		61,989		52,465
Credit card transaction fees		13,668		12,895		40,070		36,449
Trading account profits and commissions		3,871		1,798		11,301		6,508
Net gains on securities transactions		1,348		305		3,095		810
Other		13,547		16,762		42,932		45,702
Total non-interest income		69,534		64,182		207,074		184,969
NON-INTEREST EXPENSE
Salaries and employee benefits		59,415		55,107		176,100		164,933
Net occupancy		8,242		7,794		24,230		22,645
Equipment		5,461		5,438		16,616		15,875
Supplies and communication		8,353		8,660		24,963		25,319
Data processing		8,690		9,779		27,208		28,398
Marketing		3,460		2,888		9,848		9,357
Goodwill and core deposit amortization		1,931		1,984		5,708		6,057
Other		14,519		18,415		45,253		48,039
Total non-interest expense		110,071		110,065		329,926		320,623
Income before income taxes		67,160		66,585		201,868		198,141
Less income taxes		21,642		21,092		66,690		65,790
Net income		$   45,518		$   45,493		$135,178		$132,351
Net income per share—basic		$           .73		$           .72		$        2.15		$        2.06
Net income per share—diluted		$           .71		$           .71		$        2.12		$        2.04

 

See accompanying notes to consolidated financial statements.  

4  

 

 

 

		Number of Shares Issued		Common Stock				Capital Surplus			Retained Earnings					Treasury Stock					Other			Accumulated Other Comprehensive Income (Loss)					Total
		(Unaudited)
		(Dollars in thousands)
Balance January 1, 2001		62,655,891			$313,279			$147,436				$671,147					$  (2,895	)			$(1,179	)			$15,967				$1,143,755
Net income												135,178																	135,178
Change in unrealized gain (loss) on         available for sale securities																									35,558				35,558
Total comprehensive income																													170,736
Pooling acquisition		876,750			4,384			5,414				5,198													83				15,079
Purchase of treasury stock																	(44,636	)											(44,636	)
Issuance of stock under purchase,         option and benefit plans		2,982			15			(5,195	)								12,435												7,255
Issuance of stock under restricted         stock award plan		21,564			108			720									349				(1,177	)							—
Restricted stock award amortization																					464								464
Cash dividends paid ($.48 per share)												(30,268	)																(30,268	)
Balance September 30, 2001		63,557,187			$317,786			$148,375				$781,255					$(34,747	)			$(1,892	)			$51,608				$1,262,385
Balance January 1, 2000		62,428,078			$312,140			$129,173				$642,746					$  (2,089	)			$  (916	)			$ (1,222	)			$1,079,832
Net income												132,351																	132,351
Change in unrealized gain (loss) on         available for sale securities																									6,091				6,091
Total comprehensive income																													138,442
Purchase of treasury stock																	(71,983	)											(71,983	)
Issuance of stock under purchase,         option and benefit plans								(813	)								2,910												2,097
Issuance of stock under restricted         stock award plan								(27	)								538				(511	)							—
Restricted stock award amortization																					206								206
Cash dividends paid ($.443 per         share)												(28,372	)																(28,372	)
Balance September 30, 2000		62,428,078			$312,140			$128,333				$746,725					$(70,624	)			$(1,221	)			$  4,869				$1,120,222

 

See accompanying notes to consolidated financial statements.

5

 

 

 

		For the Nine Months Ended September 30
		2001			2000
		(Unaudited)
		(In thousands)
OPERATING ACTIVITIES:
Net income		$    135,178			$    132,351
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		25,839			27,092
Provision for depreciation and amortization		28,166			27,815
Accretion of investment security discounts		(1,193	)		(1,727	)
Amortization of investment security premiums		9,999			7,574
Net gains on sales of investment securities (A)		(3,095	)		(810	)
Net (increase) decrease in trading securities		(12,960	)		2,721
(Increase) decrease in interest receivable		5,350			(4,580	)
Increase (decrease) in interest payable		(2,102	)		4,992
Other changes, net		(13,822	)		(4,552	)
Net cash provided by operating activities		171,360			190,876
INVESTING ACTIVITIES:
Cash received in acquisition		15,035			—
Cash paid in sales of branches		—			(20,375	)
Proceeds from sales of investment securities (A)		325,141			197,854
Proceeds from maturities of investment securities (A)		1,326,297			1,096,695
Purchases of investment securities (A)		(2,627,730	)		(819,178	)
Net decrease in federal funds sold and securities
purchased under agreements to resell		11,435			43,352
Net (increase) decrease in loans		275,393			(357,277	)
Purchases of land, buildings and equipment		(58,752	)		(34,244	)
Sales of land, buildings and equipment		2,214			1,797
Net cash provided by (used in) investing activities		(730,967	)		108,624
FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing demand, savings,      and interest bearing demand deposits		206,170			(201,964	)
Net increase (decrease) in time open and C.D.’s		256,191			(26,531	)
Net increase (decrease) in federal funds purchased and securities sold under      agreements to repurchase		176,049			(224,671	)
Repayment of long-term debt		(50,691	)		(650	)
Additional borrowings		250,000			100,000
Purchases of treasury stock		(44,636	)		(71,983	)
Issuance of stock under purchase, option and benefit plans		5,200			1,807
Cash dividends paid on common stock		(30,268	)		(28,372	)
Net cash provided by (used in) financing activities		768,015			(452,364	)
Increase (decrease) in cash and cash equivalents		208,408			(152,864	)
Cash and cash equivalents at beginning of year		616,724			685,157
Cash and cash equivalents at September 30		$    825,132			$    532,293
(A) Available for sale and non-marketable securities
Net income tax payments		$       47,809			$       68,265
Interest paid on deposits and borrowings		$    229,999			$    240,525

 

See accompanying notes to consolidated financial statements.

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The accompanying consolidated financial statements include the accounts of Commerce Bancshares, Inc. and all majority-owned subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to 2000 data to conform to current year presentation. Results of operations for the three and nine month periods ended September 30, 2001, are not necessarily indicative of results to be attained for any other period.

 

The significant accounting policies followed in the preparation of the quarterly financial statements are the same as those disclosed in the 2000 Annual Report on Form 10-K, with the addition of the following Note 8, “Derivatives”.

 

 

Effective March 1, 2001, the Company acquired Centennial Bank in St. Ann, Missouri, with assets of $254 million, loans of $189 million, and deposits of $216 million. The Company issued 876,750 shares as consideration in the transaction. The acquisition was accounted for as a pooling of interests; however, the Company’s financial statements were not restated because restated amounts did not differ materially from historical results.

 

 

The following is a summary of the allowance for loan losses.

 

		For the Three Months Ended September 30				For the Nine Months Ended September 30
		2001		2000		2001		2000
		(In thousands)
Balance, beginning of period		$131,109		$127,024		$128,445		$123,042
Additions:
Allowance for loan losses of acquired bank		—		—		2,519		—
Provision for loan losses		8,317		8,216		25,839		27,092
Total additions		8,317		8,216		28,358		27,092
Deductions:
Loan losses		11,850		10,041		36,343		30,285
Less recoveries on loans		3,388		3,256		10,504		8,606
Net loan losses		8,462		6,785		25,839		21,679
Balance, September 30		$130,964		$128,455		$130,964		$128,455

 

At September 30, 2001, non-performing assets were $24,662,000, consisting of $22,556,000 in non-accrual loans and $2,106,000 in foreclosed real estate. Non-performing assets were .32% of total loans and .20% of total assets. Non-performing assets were $21,324,000 at December 31, 2000. Loans which were past due 90 days or more and still accruing interest amounted to $23,182,000 at September 30, 2001, compared to $26,670,000 at December 31, 2000.

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Investment securities, at fair value, consist of the following at September 30, 2001 and December 31, 2000.

 

		September 30 2001		December 31 2000
		(In thousands)
Available for sale:
U.S. government and federal agency obligations		$1,020,867		$    749,620
State and municipal obligations		55,376		62,734
CMO’s and asset-backed securities		1,676,025		908,220
Other debt securities		152,356		99,731
Equity securities		44,341		44,686
Trading		23,678		20,674
Non-marketable		53,081		55,238
Total investment securities		$3,025,724		$1,940,903

 

 

The shares used in the calculation of basic and diluted income per share are shown below.

 

		For the Three Months Ended September 30				For the Nine Months Ended September 30
		2001		2000		2001		2000
		(In thousands)
Weighted average common shares outstanding		62,795		63,458		62,906		64,293
Stock options		743		779		764		694
		63,538		64,237		63,670		64,987

 

 

Comprehensive income is defined as the change in equity from transactions and other events and circumstances from non-owner sources, and excludes investments by and distributions to owners. Comprehensive income includes net income and other items of comprehensive income meeting the above criteria. The Company’s only component of other comprehensive income is the unrealized holding gains and losses on available for sale investment securities.

 

		For the Three Months Ended September 30					For the Nine Months Ended September 30
		2001			2000		2001			2000
		(In thousands)
Unrealized holding gains		$36,456			$17,780		$64,253			$6,845
Reclassification adjustment for (gains) losses included in net      income		(2,089	)		3,072		(6,909	)		2,814
Net unrealized gains on securities		34,367			20,852		57,344			9,659
Income tax expense		13,059			7,924		21,786			3,568
Other comprehensive income		$21,308			$12,928		$35,558			$6,091

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Management has established three operating segments within the Company. The Consumer segment includes the retail branch network, consumer finance, bankcard, student loans and discount brokerage services. The Commercial segment provides corporate lending, leasing, and international services, as well as business, government deposit and cash management services. The Money Management segment provides traditional trust and estate tax planning services, and advisory and discretionary investment management services.

 

The following table presents selected financial information by segment and reconciliations of combined segment totals to consolidated totals. There were no material intersegment revenues between the three segments.

 

		Consumer				Commercial					Money Management					Segment Totals				Other/ Elimination					Consolidated Totals
		(In thousands)
Nine Months Ended September 30, 2001
Net interest income after loan loss expense			$  13,432				$223,904					$  (9,395	)				$227,941				$   96,779					$324,720
Cost of funds allocation			201,523				(103,039	)				15,028					113,512				(113,512	)				—
Non-interest income			108,498				26,736					61,970					197,204				9,870					207,074
Total net revenue			323,453				147,601					67,603					538,657				(6,863	)				531,794
Non-interest expense			200,594				68,839					43,076					312,509				17,417					329,926
Income before income taxes			$122,859				$   78,762					$24,527					$226,148				$  (24,280	)				$201,868
Nine Months Ended September 30, 2000
Net interest income after loan loss expense			$  17,788				$246,482					$(10,587	)				$253,683				$   80,112					$333,795
Cost of funds allocation			174,595				(118,520	)				14,875					70,950				(70,950	)				—
Non-interest income			101,854				21,111					53,382					176,347				8,622					184,969
Total net revenue			294,237				149,073					57,670					500,980				17,784					518,764
Non-interest expense			189,884				63,267					41,259					294,410				26,213					320,623
Income before income taxes			$104,353				$   85,806					$16,411					$206,570				$    (8,429	)				$198,141
Three Months Ended September 30, 2001
Net interest income after loan loss expense			$    6,811				$   68,746					$  (2,748	)				$  72,809				$   34,888					$107,697
Cost of funds allocation			70,794				(27,688	)				4,622					47,728				(47,728	)				—
Non-interest income			36,793				10,145					20,544					67,482				2,052					69,534
Total net revenue			114,398				51,203					22,418					188,019				(10,788	)				177,231
Non-interest expense			67,438				22,346					14,225					104,009				6,062					110,071
Income before income taxes			$  46,960				$   28,857					$   8,193					$  84,010				$  (16,850	)				$  67,160
Three Months Ended September 30, 2000
Net interest income after loan loss expense			$    5,865				$   85,659					$  (3,601	)				$  87,923				$   24,545					$112,468
Cost of funds allocation			58,614				(41,885	)				4,719					21,448				(21,448	)				—
Non-interest income			35,360				6,981					17,415					59,756				4,426					64,182
Total net revenue			99,839				50,755					18,533					169,127				7,523					176,650
Non-interest expense			63,992				20,970					13,674					98,636				11,429					110,065
Income before income taxes			$  35,847				$   29,785					$   4,859					$  70,491				$    (3,906	)				$  66,585

 

The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination” column include activity not related to the segments, such as that relating to administrative functions, and the effect of certain expense allocations to the segments.

9

 

 

Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and its amendments were adopted by the Company on January 1, 2001. SFAS No. 133 established accounting and reporting standards for derivative instruments and hedging activities. All derivatives must be recognized on the balance sheet at fair value, with the adjustment to fair value recorded in current earnings. For derivatives qualifying as hedges, changes in the fair value of the derivative will be either offset against the changes in fair value of the hedged item through current earnings, or recognized in other comprehensive income until the hedged item is recognized in current earnings based on the nature of the hedge. The ineffective portion of the derivative’s change in fair value will be immediately recognized in current earnings.

 

The SFAS 133 transition adjustment increased 2001 net income by $8,670. Because of its immateriality, the adjustment is not presented separately in the income statement. The Company’s usage of derivative instruments is discussed below.

 

The Company’s primary risk associated with its lending activity is interest rate risk. Interest rates contain an ever-present volatility, as they are affected by the public’s perception of the economy’s health at any one point in time, as well as by specific actions of the Federal Reserve. These fluctuations can either compress or enhance fixed rate interest margins depending on the liability structure of the funding organization. The Company’s balance sheet is somewhat asset sensitive. Over the longer term, rising interest rates have a negative effect on interest margins as funding sources become more expensive relative to these fixed rate loans that do not reprice as quickly with the change in interest rates. However, in order to maintain its competitive advantage, in certain circumstances the Company offers fixed rate commercial financing whose term extends beyond its traditional three to five year parameter. This exposes the Company to the risk that the fair value of the fixed rate loan may fall if market interest rates increase. To reduce this exposure for certain specified loans, the Company enters into interest rate swaps, paying interest based on a fixed rate in exchange for interest based on a variable rate. At September 30, 2001, the Company had three swaps which were designated as fair value hedges.

 

The Company’s mortgage banking operation makes commitments to extend fixed rate loans secured by 1-4 family residential properties, which are considered to be derivative instruments. These commitments have an average term of 60 to 90 days. The Company’s general practice is to sell such loans in the secondary market. During the term of the loan commitment, the value of the loan commitment, which includes mortgage servicing rights, changes in inverse proportion to changes in market interest rates. The Company obtains forward sale contracts with investors in the secondary market in order to manage these risk positions. Most of the contracts are matched to a specific loan on a “best efforts” basis, in which the Company is obligated to deliver the loan only if the loan closes. Hedge accounting has not been applied to these activities.

 

The Company’s foreign exchange activity involves the purchase and sale of forward foreign exchange contracts, which are commitments to purchase or deliver a specified amount of foreign currency at a specific future date. This activity enables customers involved in international business to hedge their exposure to foreign currency exchange rate fluctuations. The Company minimizes its related exposure arising from these customer transactions with offsetting contracts for the same currency and time frame. In addition, the Company uses foreign exchange contracts, to a limited extent, for trading purposes, including taking proprietary positions. Risk arises from changes in the currency exchange rate and from the potential for counterparty nonperformance. These risks are controlled by adherence to a foreign exchange trading policy which contains control limits on currency amounts, open positions, maturities and losses, and procedures for approvals, record-keeping, monitoring and reporting. Hedge accounting has not been applied to these foreign exchange activities.

10

 

 

 

 

          The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Company’s 2000 Annual Report on Form 10-K. Results of operations for the three and nine month periods ended September 30, 2001, are not necessarily indicative of results to be attained for any other period.

 

		Three Months Ended September 30						Nine Months Ended September 30
		2001			2000			2001			2000
Per Share Data
Net income—basic		$     .73			$     .72			$   2.15			$   2.06
Net income—diluted		.71			.71			2.12			2.04
Cash dividends		.160			.148			.480			.443
Book value								20.18			17.73
Market price								37.62			35.06
Selected Ratios
(Based on average balance sheets)
Loans to deposits		81.18	%		88.45	%		83.66	%		86.55	%
Non-interest bearing deposits to total deposits		9.57			14.82			12.25			14.93
Equity to loans		15.90			14.08			15.34			14.05
Equity to deposits		12.90			12.46			12.83			12.16
Equity to total assets		10.38			10.05			10.40			9.87
Return on total assets		1.52			1.65			1.56			1.60
Return on realized stockholders’ equity		15.03			16.35			15.36			16.11
Return on total stockholders’ equity		14.64			16.42			15.02			16.19
(Based on end-of-period data)
Efficiency ratio		58.71			58.56			58.47			57.71
Tier I capital ratio								12.56			12.17
Total capital ratio								13.92			13.47
Leverage ratio								9.85			9.68

 

 

		Three Months Ended September 30											Nine Months Ended September 30
		2001			2000			% Change					2001			2000			% Change
		(Dollars in thousands)
Net interest income		$116,014			$120,684				(3.9	)%			$350,559			$360,887				(2.9	)%
Provision for loan losses		(8,317	)		(8,216	)			1.2				(25,839	)		(27,092	)			(4.6	)
Non-interest income		69,534			64,182				8.3				207,074			184,969				12.0
Non-interest expense		(110,071	)		(110,065	)			—				(329,926	)		(320,623	)			2.9
Income taxes		(21,642	)		(21,092	)			2.6				(66,690	)		(65,790	)			1.4
Net income		$   45,518			$   45,493				.1	%			$135,178			$132,351				2.1	%

11

 

          Consolidated net income for the third quarter of 2001 was $45.5 million and diluted earnings per share was $.71, which compares to similar amounts for the third quarter of 2000. While net interest income declined from amounts recorded in the third quarter of last year as a result of the rapid fall in short-term interest rates and a slight decline in average loans, the decline was offset by growth in non-interest revenues, stable credit costs, and only slightly higher non-interest expense. Return on average assets for the quarter was 1.52%, compared to 1.65% last year. Return on average realized stockholders’ equity for the third quarter was 15.03% compared to 16.35% in the previous year. The Company’s efficiency ratio, a measure of expense efficiency in generating income, was 58.71% for the third quarter of 2001 compared to 58.56% for the third quarter of 2000.

 

          Consolidated net income for the first nine months of 2001 was $135.2 million, a 2.1% increase over the first nine months of 2000. Diluted earnings per share was $2.12 compared to $2.04 last year. Compared to last year, non-interest income grew 12.0% while non-interest expense grew only 2.9%. Net interest income decreased 2.9% from last year. The increase in non-interest income was the result of growth in deposit account fees, bond trading profits, and trust revenue. Non-interest expense increased mainly due to higher salary costs. The Company’s efficiency ratio for the first nine months of 2001 was 58.47% compared to 57.71% last year.

 

          Effective March 1, 2001, the Company completed its acquisition of Centennial Bank in St. Ann, Missouri, with assets of $254 million, loans of $189 million, and deposits of $216 million. The Company issued 876,750 shares of common stock as consideration in the transaction. The acquisition was accounted for as a pooling of interests; however, the Company’s financial statements were not restated because the restated amounts did not differ materially from the Company’s historical results.

 

          The Company sold various assets and liabilities of two bank branches during the first nine months of 2001, realizing net gains of $1.9 million. During the same period in the prior year, three bank branches were sold with net gains of $4.0 million.

 

 

          The following table summarizes the changes in net interest income on a fully tax equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates. Changes not solely due to volume or rate changes are allocated to rate. Management believes this allocation method, applied on a consistent basis, provides meaningful comparisons between the respective periods.

12

 

 

		Three Months Ended September 30, 2001 vs. 2000									Nine Months Ended September 30, 2001 vs. 2000
		Change due to						Total			Change due to						Total
		Average Volume			Average Rate						Average Volume			Average Rate
		(In thousands)
Interest income, fully taxable equivalent      basis:
Loans		$  (1,411	)		$(25,472	)		$(26,883	)		$   4,842			$(35,094	)		$(30,252	)
Investment securities:
U.S. government and federal                         agency securities		1,697			(2,307	)		(610	)		(5,096	)		(2,574	)		(7,670	)
State and municipal obligations		(316	)		24			(292	)		(931	)		(108	)		(1,039	)
CMO’s and asset-backed securities		4,175			(582	)		3,593			1,607			(591	)		1,016
Other securities		983			(1,165	)		(182	)		2,134			(1,916	)		218
Federal funds sold and securities                purchased under agreements to resell		7,668			(5,566	)		2,102			19,031			(9,240	)		9,791
Total interest income		12,796			(35,068	)		(22,272	)		21,587			(49,523	)		(27,936	)
Interest expense:
Deposits:
Savings		71			(714	)		(643	)		(2	)		(1,371	)		(1,373	)
Interest bearing demand		3,324			(18,259	)		(14,935	)		4,377			(28,011	)		(23,634	)
Time open & C.D.’s of less than                         $100,000		3,403			(1,644	)		1,759			7,074			4,761			11,835
Time open & C.D.’s of $100,000                         and over		2,910			(456	)		2,454			7,828			503			8,331
Federal funds purchased and securities                sold under agreements to repurchase		(2,904	)		(4,746	)		(7,650	)		(10,961	)		(7,819	)		(18,780	)
Long-term debt and other borrowings.		3,399			(1,756	)		1,643			8,169			(1,459	)		6,710
Total interest expense		10,203			(27,575	)		(17,372	)		16,485			(33,396	)		(16,911	)
Net interest income, fully taxable      equivalent basis		$   2,593			$   (7,493	)		$   (4,900	)		$   5,102			$(16,127	)		$(11,025	)