- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-Q ------------ (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NO. 0-2989 COMMERCE BANCSHARES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MISSOURI 43-0889454 (STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.) 1000 WALNUT, KANSAS CITY, MO 64106 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) (816) 234-2000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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 August 4, 1998, the registrant had outstanding 57,843,281 shares of its $5 par value common stock, registrant's only class of common stock. - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PART I: FINANCIAL INFORMATION In the opinion of management, the consolidated financial statements of Commerce Bancshares, Inc. and Subsidiaries as of June 30, 1998 and December 31, 1997 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: 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 PART II: OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The annual meeting of shareholders of Commerce Bancshares, Inc. was held on April 15, 1998. Proxies for the meeting were solicited pursuant to Regulation 14 of the Securities Exchange Act of 1934, and there was no solicitation in opposition to management's nominees as listed in the proxy statement. The five nominees for the five directorships (constituting one-third of the Board of Directors) being elected at this meeting received the following votes: <TABLE> <CAPTION> VOTES NAME OF DIRECTOR VOTES FOR ABSTAIN ---------------- ---------- ------- <S> <C> <C> Fred L. Brown.......................................... 30,118,473 121,368 David W. Kemper........................................ 30,127,992 111,849 Benjamin F. Rassieur, III.............................. 30,129,196 110,645 Andrew C. Taylor....................................... 30,119,537 120,304 Robert H. West......................................... 30,128,200 111,641 </TABLE> ITEM 5. OTHER INFORMATION Pursuant to the By-Laws of the Corporation, in order for a stockholder to bring business before the Annual Meeting, timely notice in the form required by the By-Laws must be made. The stockholder must be a stockholder of record on the date the notice is given and on the record date for determination of stockholders entitled to vote at the Annual Meeting. To be timely, a stockholder's notice must be delivered or mailed to the Secretary at 1000 Walnut, PO Box 13686, 18th Floor, Kansas City, Missouri 64199-3686 not less than sixty days nor more than ninety days prior to the date of the Annual Meeting. The date of the next Annual Meeting is April 21, 1999. To be in proper written form the notice to the Secretary must set forth as to each matter the stockholder proposes to bring before the Annual Meeting (i) a brief description of the business and the reasons for conducting such business at the Annual Meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their name) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business, and (v) a representation that such stockholder intends to appear in person or by proxy at the Annual Meeting to bring such business before the meeting. 2
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (10) Material Contracts: (a) Commerce Bancshares, Inc. Executive Incentive Compensation Plan Amendment and Restatement of July 31, 1998 (27) Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended June 30, 1998. SIGNATURES 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. COMMERCE BANCSHARES, INC. By /s/ J. Daniel Stinnett __________________ J. Daniel Stinnett Vice President & Secretary Date: August 10, 1998 By /s/ Jeffery D. Aberdeen ____________________ Jeffery D. Aberdeen Controller (Chief Accounting Officer) Date: August 10, 1998 3
SCHEDULE 1 COMMERCE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> JUNE 30 December 31 1998 1997 ----------- ----------- (UNAUDITED) (IN THOUSANDS) <S> <C> <C> ASSETS Loans, net of unearned income........................ $ 6,608,331 $ 6,224,381 Allowance for loan losses............................ (112,990) (105,918) ----------- ----------- NET LOANS........................................ 6,495,341 6,118,463 ----------- ----------- Investment securities: Available for sale................................. 2,560,484 2,614,040 Trading account.................................... 20,232 6,477 Other non-marketable............................... 28,419 44,414 ----------- ----------- TOTAL INVESTMENT SECURITIES...................... 2,609,135 2,664,931 ----------- ----------- Federal funds sold and securities purchased under agreements to resell................................ 100,035 132,980 Cash and due from banks.............................. 676,878 978,239 Land, buildings and equipment, net................... 216,643 214,209 Goodwill and core deposit premium, net............... 80,786 85,377 Customers' acceptance liability...................... 599 900 Other assets......................................... 156,797 111,842 ----------- ----------- TOTAL ASSETS..................................... $10,336,214 $10,306,941 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing demand........................ $ 1,906,248 $ 2,124,828 Savings and interest bearing demand................ 4,333,145 4,209,141 Time open and C.D.'s of less than $100,000......... 2,190,439 2,150,719 Time open and C.D.'s of $100,000 and over.......... 247,774 215,890 ----------- ----------- TOTAL DEPOSITS................................... 8,677,606 8,700,578 Federal funds purchased and securities sold under agreements to repurchase............................ 513,461 512,558 Long-term debt and other borrowings.................. 3,887 7,207 Accrued interest, taxes and other liabilities........ 117,725 104,914 Acceptances outstanding.............................. 599 900 ----------- ----------- TOTAL LIABILITIES................................ 9,313,278 9,326,157 ----------- ----------- Stockholders' equity: Preferred stock, $1 par value. Authorized and unissued 2,000,000 shares.......... -- -- Common stock, $5 par value. Authorized 80,000,000 shares, issued 58,645,813 shares in 1998 and 58,285,813 shares in 1997..................... 293,229 291,429 Capital surplus.................................... 34,477 48,704 Retained earnings.................................. 689,080 626,387 Treasury stock of 580,463 shares in 1998 and 315,894 shares in 1997, at cost............... (27,945) (14,252) Unearned employee benefits......................... (1,000) (601) Unrealized securities gains, net................... 35,095 29,117 ----------- ----------- TOTAL STOCKHOLDERS' EQUITY....................... 1,022,936 980,784 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $10,336,214 $10,306,941 =========== =========== </TABLE> See accompanying notes to financial statements. 4
SCHEDULE 2 COMMERCE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME <TABLE> <CAPTION> FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 ------------------- ------------------- 1998 1997 1998 1997 --------- --------- --------- --------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) <S> <C> <C> <C> <C> INTEREST INCOME Interest and fees on loans............ $ 137,740 $ 123,329 $ 272,060 $ 240,643 Interest on investment securities..... 39,553 41,775 78,741 82,496 Interest on federal funds sold and securities purchased under agreements to resell ........................... 2,858 3,235 6,903 8,012 --------- --------- --------- --------- TOTAL INTEREST INCOME............. 180,151 168,339 357,704 331,151 --------- --------- --------- --------- INTEREST EXPENSE Interest on deposits: Savings and interest bearing demand. 35,673 33,308 70,496 65,976 Time open and C.D.'s of less than $100,000........................... 29,507 29,129 58,486 57,340 Time open and C.D.'s of $100,000 and over............................... 3,356 2,722 6,462 5,354 Interest on federal funds purchased and securities sold under agreements to repurchase........................ 6,309 5,012 12,773 10,291 Interest on long-term debt and other borrowings........................... 110 224 217 459 --------- --------- --------- --------- TOTAL INTEREST EXPENSE............ 74,955 70,395 148,434 139,420 --------- --------- --------- --------- NET INTEREST INCOME............... 105,196 97,944 209,270 191,731 Provision for loan losses............. 11,410 7,293 22,126 14,831 --------- --------- --------- --------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES........ 93,786 90,651 187,144 176,900 --------- --------- --------- --------- NON-INTEREST INCOME Trust fees............................ 13,073 9,938 24,726 19,490 Deposit account charges and other fees................................. 15,718 14,643 30,107 27,943 Credit card transaction fees.......... 8,901 6,975 15,996 13,258 Trading account profits and commissions ......................... 1,827 1,721 4,108 3,587 Net gains on securities transactions.. 4,667 176 6,088 322 Other................................. 11,555 8,932 24,675 19,348 --------- --------- --------- --------- TOTAL NON-INTEREST INCOME......... 55,741 42,385 105,700 83,948 --------- --------- --------- --------- NON-INTEREST EXPENSE Salaries and employee benefits ....... 49,879 43,708 98,385 86,706 Net occupancy......................... 6,366 4,965 11,659 10,443 Equipment............................. 4,399 4,124 8,665 8,078 Supplies and communication............ 7,101 6,242 14,199 12,625 Data processing....................... 7,117 5,950 14,054 11,489 Marketing............................. 3,479 3,450 6,238 5,980 Goodwill and core deposit............. 2,295 2,415 4,591 4,829 Other................................. 12,698 13,039 25,964 25,857 --------- --------- --------- --------- TOTAL NON-INTEREST EXPENSE........ 93,334 83,893 183,755 166,007 --------- --------- --------- --------- Income before income taxes............ 56,193 49,143 109,089 94,841 Less income taxes..................... 18,699 16,810 37,112 33,109 --------- --------- --------- --------- NET INCOME........................ $ 37,494 $ 32,333 $ 71,977 $ 61,732 ========= ========= ========= ========= Net income per share--basic .......... $ .64 $ .55 $ 1.23 $ 1.05 ========= ========= ========= ========= Net income per share--diluted ........ $ .63 $ .54 $ 1.21 $ 1.04 ========= ========= ========= ========= Cash dividends per common share....... $ .145 $ .130 $ .290 $ .260 ========= ========= ========= ========= </TABLE> See accompanying notes to financial statements. 5
SCHEDULE 3 COMMERCE BANCSHARES, INC. AND SUBSIDIARIES STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY <TABLE> <CAPTION> NUMBER OF UNEARNED UNREALIZED SHARES COMMON CAPITAL RETAINED TREASURY EMPLOYEE SECURITIES ISSUED STOCK SURPLUS EARNINGS STOCK BENEFITS GAINS, NET TOTAL ---------- -------- -------- -------- -------- -------- ---------- ---------- (UNAUDITED) (DOLLARS IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> <C> <C> BALANCE JANUARY 1, 1998. 58,285,813 $291,429 $ 48,704 $626,387 $(14,252) $ (601) $29,117 $ 980,784 Net income............. 71,977 71,977 Change in unrealized securities gains, net. 5,839 5,839 Pooling acquisition.... 360,000 1,800 (11,346) 7,639 16,101 139 14,333 Purchase of treasury stock................. (36,834) (36,834) Sales under option and benefit plans......... (2,893) 6,512 3,619 Issuance of stock under restricted stock award plan.................. 12 528 (540) -- Restricted stock award amortization.......... 141 141 Cash dividends paid ($.290 per share)..... (16,923) (16,923) ---------- -------- -------- -------- -------- ------- ------- ---------- BALANCE JUNE 30, 1998... 58,645,813 $293,229 $ 34,477 $689,080 $(27,945) $(1,000) $35,095 $1,022,936 ========== ======== ======== ======== ======== ======= ======= ========== Balance January 1, 1997. 56,348,053 $281,740 $ 10,379 $621,689 $ (7,422) $ (340) $18,225 $ 924,271 Net income............. 61,732 61,732 Change in unrealized securities gains, net. (2,222) (2,222) Pooling acquisition.... (37,200) 17,612 42,352 22,764 Purchase of treasury stock................. (61,176) (61,176) Sales under option and benefit plans......... (182) 691 509 Issuance of stock under restricted stock award plan.................. 18 340 (358) -- Restricted stock award amortization.......... 83 83 Cash dividends paid ($.260 per share)..... (15,238) (15,238) ---------- -------- -------- -------- -------- ------- ------- ---------- Balance June 30, 1997... 56,348,053 $281,740 $(26,985) $685,795 $(25,215) $ (615) $16,003 $ 930,723 ========== ======== ======== ======== ======== ======= ======= ========== </TABLE> See accompanying notes to financial statements. 6
SCHEDULE 4 COMMERCE BANCSHARES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> FOR THE SIX MONTHS ENDED JUNE 30 -------------------- 1998 1997 --------- --------- (UNAUDITED) (IN THOUSANDS) <S> <C> <C> OPERATING ACTIVITIES: Net income.............................................. $ 71,977 $ 61,732 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses............................. 22,126 14,831 Provision for depreciation and amortization........... 16,171 14,931 Accretion of investment security discounts............ (2,340) (2,801) Amortization of investment security premiums.......... 4,235 4,893 Net gains on sales of investment securities (A)....... (6,088) (322) Net increase in trading account securities............ (11,682) (1,629) (Increase) decrease in interest receivable............ (2,006) 905 Decrease in interest payable.......................... (1,956) (1,817) Other changes, net.................................... (22,481) (39,335) --------- --------- Net cash provided by operating activities........... 67,956 51,388 --------- --------- INVESTING ACTIVITIES: Net cash received in acquisition........................ 4,044 7,103 Proceeds from sales of investment securities (A)........ 186,309 196,839 Proceeds from maturities of investment securities (A)... 535,052 432,138 Purchases of investment securities (A).................. (602,339) (562,363) Net decrease in federal funds sold and securities purchased under agreements to resell............................. 41,170 304,755 Net increase in loans................................... (340,125) (244,948) Purchases of premises and equipment..................... (12,515) (15,947) Sales of premises and equipment......................... 1,697 4,904 --------- --------- Net cash provided (used) by investing activities.... (186,707) 122,481 --------- --------- FINANCING ACTIVITIES: Net increase (decrease) in non-interest bearing demand, savings, and interest bearing demand deposits................... (140,572) 27,767 Net increase (decrease) in time open and C.D.'s......... 13,506 (10,138) Net decrease in federal funds purchased and securities sold under agreements to repurchase ........................ (913) (91,294) Repayment of long-term debt............................. (3,326) (3,844) Purchases of treasury stock............................. (35,977) (61,171) Exercise of stock options by employees.................. 1,595 412 Cash dividends paid on common stock..................... (16,923) (15,238) --------- --------- Net cash used by financing activities............... (182,610) (153,506) --------- --------- Increase (decrease) in cash and cash equivalents.... (301,361) 20,363 Cash and cash equivalents at beginning of year.......... 978,239 833,260 --------- --------- Cash and cash equivalents at June 30................ $ 676,878 $ 853,623 ========= ========= </TABLE> - -------- (A) Available for sale and other non-marketable securities, excluding trading account securities. Net cash payments of income taxes for the six month period were $34,842,000 in 1998 and $35,525,000 in 1997. Interest paid on deposits and borrowings for the six month period was $150,304,000 in 1998 and $141,130,000 in 1997. See accompanying notes to financial statements. 7
SCHEDULE 5 COMMERCE BANCSHARES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1998 (UNAUDITED) 1. PRINCIPLES OF CONSOLIDATION AND PRESENTATION 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 1997 data to conform to current year presentation. Results of operation for the six month period ended June 30, 1998 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 1997 Annual Report to stockholders to which reference is made. 2. ALLOWANCE FOR LOAN LOSSES The following is a summary of the allowance for loan losses. <TABLE> <CAPTION> FOR THE THREE FOR THE SIX MONTHS ENDED JUNE MONTHS ENDED JUNE 30 30 ----------------- ----------------- 1998 1997 1998 1997 -------- -------- -------- -------- (IN THOUSANDS) <S> <C> <C> <C> <C> Balance, beginning of period......... $108,569 $ 99,906 $105,918 $ 98,223 -------- -------- -------- -------- Additions: Provision for loan losses.......... 11,410 7,293 22,126 14,831 Allowance for loan losses of acquired banks.................... -- 3,321 964 3,321 -------- -------- -------- -------- Total additions.................. 11,410 10,614 23,090 18,152 -------- -------- -------- -------- Deductions: Loan losses........................ 9,965 8,962 20,956 16,930 Less recoveries on loans........... 2,976 2,172 4,938 4,285 -------- -------- -------- -------- Net loan losses.................. 6,989 6,790 16,018 12,645 -------- -------- -------- -------- Balance, June 30..................... $112,990 $103,730 $112,990 $103,730 ======== ======== ======== ======== </TABLE> At June 30, 1998, non-performing assets were $44,073,000, which was .67% of total loans and .43% of total assets. This balance consisted of $18,275,000 in loans not accruing interest, $23,784,000 in loans past due 90 days and still accruing interest, and $2,014,000 in foreclosed real estate. 8
3. INVESTMENT SECURITIES Investment securities, at fair value, consist of the following at June 30, 1998 and December 31, 1997. <TABLE> <CAPTION> JUNE 30 December 1998 31 1997 ---------- ---------- (IN THOUSANDS) <S> <C> <C> Available for sale: U.S. government and federal agency obligations.... $1,410,272 $1,461,593 State and municipal obligations................... 105,690 94,115 CMO's and asset-backed securities................. 881,338 837,056 Other debt securities............................. 118,285 173,972 Equity securities................................. 44,899 47,304 Trading account securities.......................... 20,232 6,477 Other non-marketable securities..................... 28,419 44,414 ---------- ---------- Total investment securities..................... $2,609,135 $2,664,931 ========== ========== </TABLE> 4. COMMON STOCK The shares used in the calculation of basic and diluted income per share are shown below. <TABLE> <CAPTION> FOR THE THREE FOR THE SIX MONTHS ENDED MONTHS ENDED JUNE 30 JUNE 30 ------------- ------------- 1998 1997 1998 1997 ------ ------ ------ ------ (IN THOUSANDS) <S> <C> <C> <C> <C> Weighted average common shares outstanding... 58,449 58,628 58,290 58,588 Stock options................................ 1,060 637 1,052 665 ------ ------ ------ ------ 59,509 59,265 59,342 59,253 ====== ====== ====== ====== </TABLE> On February 6, 1998, the Board of Directors declared a three for two stock split, effected in the form of a stock dividend, on the Company's $5 par common stock. Accordingly, the number of shares issued was increased from 39,097,209 to 58,645,813. All share and per share data in this report have been restated to reflect the stock split. 5. ACQUISITION ACTIVITY On March 1, 1998, the Company completed its acquisition of City National Bank of Pittsburg, Kansas, with assets of $120 million. The transaction was recorded as a pooling of interests. The acquisition did not have a material impact on the financial statements of the Company. Financial statements for prior periods have not been restated because such restated amounts do not differ materially from the Company's historical financial statements. The Company has signed definitive agreements to acquire the Kansas banks of Columbus State Bank, Fidelity State Bank in Garden City, and Heritage Bank of Olathe. These banks have combined assets of approximately $310 million and eleven locations. The mergers are expected to close before year-end 1998, subject to regulatory and shareholder approval. They are not expected to have a material impact on the Company's financial statements. 6. COMPREHENSIVE INCOME The Company adopted SFAS No. 130, "Reporting Comprehensive Income", in the first quarter of 1998. SFAS No. 130 requires the reporting of comprehensive income and its components. Comprehensive income is defined as the change in equity from transactions and other events and circumstances from non-owner sources, 9
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 securities. <TABLE> <CAPTION> FOR THE SIX FOR THE THREE MONTHS MONTHS ENDED ENDED JUNE 30 JUNE 30 ---------------------- --------------- 1998 1997 1998 1997 ---------- ---------- ------- ------- (IN THOUSANDS) <S> <C> <C> <C> <C> Net income....................... $ 37,494 $ 32,333 $71,977 $61,732 Change in unrealized gains (losses), net................... (8,901) 15,004 5,978 (2,222) ---------- ---------- ------- ------- Comprehensive income............. $ 28,593 $ 47,337 $77,955 $59,510 ========== ========== ======= ======= </TABLE> 10
SCHEDULE 6 COMMERCE BANCSHARES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS JUNE 30, 1998 (UNAUDITED) 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 1997 Annual Report on Form 10-K. Results of operations for the six month period ended June 30, 1998 are not necessarily indicative of results to be attained for any other period. In addition, this report contains certain forward-looking statements which are subject to risks and uncertainties, including changes in economic conditions in the Company's market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in the Company's market area and technology changes. These factors could cause actual results to differ materially from those reflected in such forward-looking statements. <TABLE> <CAPTION> THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 -------------- -------------- 1998 1997 1998 1997 ------ ------ ------ ------ <S> <C> <C> <C> <C> PER SHARE DATA Net income--basic......................... $ .64 $ .55 $ 1.23 $ 1.05 Net income--diluted....................... .63 .54 1.21 1.04 Cash dividends............................ .145 .130 .290 .260 Book value................................ 17.62 15.96 Market price.............................. 48.81 28.73 SELECTED RATIOS (Based on average balance sheets) Loans to deposits......................... 75.30% 69.79% 74.71% 69.27% Non-interest bearing deposits to total de- posits................................... 21.87 20.77 21.86 20.44 Equity to loans........................... 15.76 16.19 15.79 16.50 Equity to deposits........................ 11.86 11.30 11.80 11.43 Equity to total assets.................... 9.97 9.66 9.91 9.72 Return on total assets.................... 1.46 1.36 1.42 1.32 Return on realized stockholders' equity... 15.18 14.14 14.86 13.66 Return on total stockholders' equity...... 14.63 14.11 14.32 13.53 (Based on end-of-period data) Efficiency ratio.......................... 58.26 58.14 58.00 58.53 Tier I capital ratio...................... 12.28 12.81 Total capital ratio....................... 13.38 13.93 Leverage ratio............................ 8.94 8.84 </TABLE> SUMMARY Consolidated net income for the second quarter of 1998 was $37.5 million; a $5.2 million or 16.0% increase over the second quarter of 1997. Diluted earnings per share increased 16.7% to $.63 for the second quarter of 1998 compared to $.54 for the second quarter of 1997. The second quarter of 1998 was the Company's ninth consecutive quarter of double-digit growth in earnings per share. Return on average assets for the quarter was 1.46% compared to 1.36% last year. Return on average realized stockholders' equity for the second quarter was 15.18% compared to 14.14% last year. The Company's efficiency ratio was 58.26% for the second quarter of 1998. Consolidated net income for the first six months of 1998 was $72.0 million, a 16.6% increase over the first six months of 1997. Diluted earnings per share was $1.21 compared to $1.04 last year. Compared to last year, net interest income increased 9.1%, non-interest income increased 25.9%, and non-interest expense increased 10.7%. Year to date average loans have grown by 15.1%. A productive sales force has contributed measurably to revenue growth and has been rewarded with higher incentive compensation. 11
A three for two stock split in the form of a 50% stock dividend was distributed on March 30, 1998. All share and per share data in this report has been restated to reflect the stock split. The Company completed its acquisition of City National Bank of Pittsburg, Kansas on March 1, 1998. The bank has four locations and approximately $120 million in assets. The acquisition was accounted for as a pooling of interests, and stock valued at $34.3 million was exchanged in the transaction. The acquisition did not have a material impact on the financial statements of the Company. The Company has signed definitive agreements to acquire three Kansas banks: Columbus State Bank, Fidelity State Bank in Garden City, and Heritage Bank of Olathe. These banks have combined assets of approximately $310 million and eleven locations. Subject to regulatory and stockholder approvals, the transactions are expected to close before year-end. They are not expected to have a material impact on the financial statements of the Company. NET INTEREST INCOME 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. ANALYSIS OF CHANGES IN NET INTEREST INCOME <TABLE> <CAPTION> THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1998 VS. 1997 JUNE 30, 1998 VS. 1997 ------------------------- ------------------------- CHANGE DUE TO CHANGE DUE TO ---------------- ---------------- AVERAGE AVERAGE AVERAGE AVERAGE VOLUME RATE TOTAL VOLUME RATE TOTAL ------- ------- ------- ------- ------- ------- (IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> INTEREST INCOME, FULLY TAXABLE EQUIVALENT BASIS: Loans.................. $17,038 $(2,595) $14,443 $33,823 $(2,341) $31,482 Investment securities: U.S. government and federal agency securities.......... (3,307) (236) (3,543) (7,173) (38) (7,211) State and municipal obligations......... (3) (50) (53) (107) 29 (78) Other securities..... 1,428 (77) 1,351 3,407 73 3,480 Federal funds sold and securities purchased under agreements to resell................ (347) (30) (377) (1,270) 161 (1,109) ------- ------- ------- ------- ------- ------- Total interest income............ 14,809 (2,988) 11,821 28,680 (2,116) 26,564 ------- ------- ------- ------- ------- ------- INTEREST EXPENSE: Deposits: Savings.............. 95 (30) 65 221 (13) 208 Interest bearing demand.............. 2,055 245 2,300 5,371 (1,059) 4,312 Time open & C.D.'s of less than $100,000.. 335 43 378 991 155 1,146 Time open & C.D.'s of $100,000 and over... 545 89 634 937 171 1,108 Federal funds purchased and securities sold under agreements to repurchase............ 1,276 21 1,297 2,024 458 2,482 Long-term debt and other borrowings...... (119) 2 (117) (241) 6 (235) ------- ------- ------- ------- ------- ------- Total interest expense........... 4,187 370 4,557 9,303 (282) 9,021 ------- ------- ------- ------- ------- ------- NET INTEREST INCOME, FULLY TAXABLE EQUIVALENT BASIS................... $10,622 $(3,358) $ 7,264 $19,377 $(1,834) $17,543 ======= ======= ======= ======= ======= ======= </TABLE> 12
Net interest income for the second quarter of 1998 was $105.2 million, a 7.4% increase over the second quarter of 1997, and for the first six months was $209.3 million, a 9.1% increase over last year. For the quarter, the net interest rate margin was 4.58% compared with 4.62% last year, while the six month margin was 4.62% in 1998 and 4.57% in 1997. Total interest income increased $11.8 million, or 7.0%, over the second quarter of 1997, mainly due to an increase of $850.0 million in average loan balances. Partially offsetting this increase was a decline of 25 basis points in average rates earned on loans and a decrease of $121.3 million in average balances of investment securities. The average tax equivalent yield on interest earning assets was 7.81% for the second quarter of 1998 compared to 7.90% last year. Compared to the first six months of 1997, total interest income increased $26.6 million, or 8.0%. Average loan balances increased $842.1 million, which contributed income of $33.8 million. This increase was partially offset by the effect of decreases in average loan rates and average balances of investment securities and short-term federal funds sold and resell agreements. Total interest expense (net of capitalized interest) increased $4.6 million, or 6.5%, compared to the second quarter of 1997 due mainly to growth in the Company's Premium Money Market deposit accounts and higher average borrowings of federal funds purchased and repurchase agreements. The average cost of funds was 4.13% for the second quarter of 1998 and 4.12% for the second quarter of 1997. Total interest expense increased $9.0 million, or 6.5%, in the first six months of 1998 compared to 1997. Higher average balances in the Premium Money Market deposit accounts were partially offset by lower rates paid on interest checking deposits. Higher average borrowings of federal funds purchased and repurchase agreements also contributed to the increase in expense. Average core deposits (deposits excluding short-term certificates of deposit over $100,000) for the first six months of 1998 increased 6.9% compared to the same period last year. Core deposits supported 92% of average earning assets in 1998. Summaries of average assets and liabilities and the corresponding average rates earned/paid appear on pages 18 and 19. RISK ELEMENTS OF LOAN PORTFOLIO Non-performing assets include impaired loans (non-accrual loans and loans 90 days delinquent and still accruing interest) and foreclosed real estate. Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment (generally, loans that are 90 days past due as to principal and/or interest payments). These loans were made primarily to borrowers in Missouri, Kansas and Illinois. The following table presents non-performing assets. <TABLE> <CAPTION> JUNE 30 December 31 1998 1997 ------- ----------- (IN THOUSANDS) <S> <C> <C> Non-accrual loans.................................... $18,275 $23,382 Past due 90 days and still accruing interest......... 23,784 24,383 ------- ------- Total impaired loans............................. 42,059 47,765 Foreclosed real estate............................... 2,014 994 ------- ------- Total non-performing assets...................... $44,073 $48,759 ======= ======= Non-performing assets to total loans................. .67% .78% Non-performing assets to total assets................ .43% .47% </TABLE> The level of non-performing assets decreased $4.7 million, or 9.6%, from year end 1997 totals. Most of the decrease occurred in the non-accrual loan category. Non-accrual loans at June 30, 1998 consisted mainly of construction and land development loans ($7.9 million), business loans ($5.2 million) and business real estate loans ($3.5 million). Loans which were 90 or more days past due and still accruing interest included credit card loans of $7.4 million and business loans of $8.6 million. 13
A subsidiary bank issues Visa and MasterCard credit cards, and credit card loans outstanding were $509.4 million at June 30, 1998. Because credit card loans traditionally have a higher than average ratio of net charge-offs to loans outstanding, management requires that a specific allowance for losses on credit card loans be maintained, which was $15.5 million, or 3.0% of credit card loans at June 30, 1998. The annualized charge-off ratio for credit card loans was 3.89% for the first six months of 1998 compared to 3.82% for the first six months of 1997. The risk presented by the above loans and foreclosed real estate is not considered by management to be materially adverse in relation to normal credit risks generally taken by lenders. PROVISION/ALLOWANCE FOR LOAN LOSSES <TABLE> <CAPTION> SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30 ----------------------------------------- --------------------- Mar. 31, 1998 JUNE 30, 1998 June 30, 1997 1998 1997 ------------- ------------- ------------- ------- ------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> Provision for loan loss- es..................... $10,716 $11,410 $7,293 $22,126 $14,831 Net charge-offs......... 9,029 6,989 6,790 16,018 12,645 Net annualized charge- offs as a percentage of average loans.......... .58% .43% .48% .50% .46% </TABLE> Management records the provision for loan losses, on an individual bank basis, in amounts that result in an allowance for loan losses sufficient to cover current net charge-offs and risks believed to be inherent in the loan portfolio of each bank. Management's evaluation includes such factors as past loan loss experience, current loan portfolio mix, evaluation of actual and potential losses in the loan portfolio, prevailing regional and national economic conditions that might have an impact on the portfolio, regular reviews and examinations of the loan portfolio conducted by internal loan reviewers supervised by Commerce Bancshares, Inc. (the Parent), and reviews and examinations by bank regulatory authorities. The allowance for loan losses as a percentage of loans outstanding was 1.71% at June 30, 1998, compared to 1.70% at year-end 1997 and 1.79% at June 30, 1997. The allowance at June 30, 1998 was 256% of non-performing assets. Management believes that the allowance for loan losses, which is a general reserve, is adequate to cover actual and potential losses in the loan portfolio under current conditions. Other than as previously noted, management is not aware of any significant risks in the current loan portfolio due to concentrations of loans within any particular industry, nor of any separate types of loans within a particular category of non-performing loans that are unusually significant as to possible loan losses when compared to the entire loan portfolio. NON-INTEREST INCOME <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 -------------------------- --------------------------- 1998 1997 % Change 1998 1997 % Change ------- ------- -------- -------- ------- -------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> Trust fees.............. $13,073 $ 9,938 31.5% $ 24,726 $19,490 26.9% Deposit account charges and other fees......... 15,718 14,643 7.3 30,107 27,943 7.7 Credit card transaction fees................... 8,901 6,975 27.6 15,996 13,258 20.7 Trading account profits and commissions........ 1,827 1,721 6.2 4,108 3,587 14.5 Net gains on securities transactions........... 4,667 176 N/M 6,088 322 N/M Other................... 11,555 8,932 29.4 24,675 19,348 27.5 ------- ------- -------- ------- TOTAL NON-INTEREST INCOME............. $55,741 $42,385 31.5 $105,700 $83,948 25.9 ======= ======= ======== ======= As a % of operating income (net interest income plus non- interest income)....... 34.6% 30.2% 33.6% 30.5% ======= ======= ======== ======= </TABLE> Non-interest income rose 25.9% over the first six months of last year and 31.5% over the second quarter of last year. Trust fees increased $5.2 million over the six months of 1997 and $3.1 million over the second quarter of 1997, mainly due to account growth and increases in the value of assets managed. Increases in credit card 14
transaction fees were due to growth in merchant income and sales volumes. Sales of equity securities by the Parent and a venture capital subsidiary resulted in a substantial increase in securities gains over the prior periods. Other income increased $5.3 million over the first six months of 1997 and increased $2.6 million over the second quarter of 1997 due to increases in gains on loan sales and various types of fee income growth, including non- customer ATM fees, cash management income and brokerage related commissions and fees. NON-INTEREST EXPENSE <TABLE> <CAPTION> THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 ------------------------ -------------------------- 1998 1997 % Change 1998 1997 % Change ------- ------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> Salaries and employee benefits.................. $49,879 $43,708 14.1% $ 98,385 $ 86,706 13.5% Net occupancy.............. 6,366 4,965 28.2 11,659 10,443 11.6 Equipment.................. 4,399 4,124 6.7 8,665 8,078 7.3 Supplies and communication. 7,101 6,242 13.8 14,199 12,625 12.5 Data processing............ 7,117 5,950 19.6 14,054 11,489 22.3 Marketing.................. 3,479 3,450 .8 6,238 5,980 4.3 Goodwill and core deposit.. 2,295 2,415 (5.0) 4,591 4,829 (4.9) Other...................... 12,698 13,039 (2.6) 25,964 25,857 .4 ------- ------- -------- -------- TOTAL NON-INTEREST EXPENSE............... $93,334 $83,893 11.3 $183,755 $166,007 10.7 ======= ======= ======== ======== Full-time equivalent employees................. 5,169 4,957 4.3 5,153 4,906 5.0 ======= ======= ======== ======== </TABLE> Non-interest expense rose $17.7 million, or 10.7%, compared to the first six months of 1997 and increased $9.4 million, or 11.3%, compared to the second quarter of 1997. Salaries and employee benefits increased $11.7 million over the first six months of 1997 and increased $6.2 million over the second quarter of 1997. Incentive compensation on new business, additional employees and merit increases contributed to the salary increases. Net occupancy expense increased $1.2 million over the first six months of 1998 and increased $1.4 million over the second quarter of 1997, partially due to an accrual for departmental moving and expansion costs. Data processing expense increased $2.6 million and $1.2 million over the 1997 year and quarter to date periods, partly because of higher charges by information service providers. The efficiency ratio was 58.26% in the second quarter of 1998 compared to 58.14% in the second quarter of 1997 and 57.74% in the first quarter of 1998. A comprehensive plan to attain Year 2000 compliance has been developed and the process of analysis, testing, verification and implementation is underway for all major financial, operational and information systems. The Company expects to substantially complete programming changes and testing of internal mission critical systems by December 31, 1998 with implementation anticipated to occur by March 31, 1999. The associated costs, which are expensed as incurred, have not been material to date and are not expected to have a material impact on the Company's earnings in the future. These costs do not include computer equipment and software that is scheduled to be replaced in the normal course of business. Additionally, the Company continues to communicate with significant customers and vendors to determine their Year 2000 plans and target dates. The Company will monitor the progress of mission critical internal and external systems and services testing and implementation procedures and will implement contingency plans in the event that such procedures fail to achieve their objectives. There can be no assurance that any contingency plans will fully mitigate the effects of any such failure. The Company's estimate of Year 2000 project costs and the dates set forth above by which the Company expects to substantially complete mission critical system programming and testing and implementation are based on management's best current estimates, which were derived utilizing numerous assumptions about future events. There can be no guarantee that these estimates will be achieved, and actual results could differ materially from those anticipated. 15
INCOME TAXES The Company's income tax expense was $37.1 million for the first six months of 1998 and $33.1 for the same period in 1997, resulting in effective tax rates of 34.0% and 34.9%, respectively. The 1998 second quarter effective tax rate was 33.3% compared to 34.2% for the second quarter of 1997. The lower 1998 second quarter rate was partially due to the contribution of an appreciated equity security. LIQUIDITY AND CAPITAL RESOURCES The liquid assets of the Parent consist primarily of commercial paper, overnight repurchase agreements and equity securities, most of which are readily marketable. The fair value of these investments was $117.9 million at June 30, 1998 compared to $92.4 million at December 31, 1997. Included in the fair values were unrealized net gains of $25.7 million at June 30, 1998 and $20.7 million at December 31, 1997. The Parent's liabilities totaled $89.6 million at June 30, 1998, compared to $10.6 million at December 31, 1997. Liabilities at June 30, 1998 included $72.6 million advanced mainly from subsidiary bank holding companies in order to combine resources for short-term investment in liquid assets. The Parent had no short-term borrowings from affiliate banks or long-term debt during 1998. The Parent's commercial paper, which management believes is readily marketable, has a P1 rating from Moody's and an A1 rating from Standard & Poor's. The Company is also rated A by Thomson BankWatch with a corresponding short-term rating of TBW-1. This credit availability should provide adequate funds to meet any outstanding or future commitments of the Parent. The liquid assets held by bank subsidiaries include federal funds sold and securities purchased under agreements to resell and available for sale investment securities. These liquid assets had a fair value of $2.52 billion at June 30, 1998 and $2.66 billion at December 31, 1997. The available for sale bank portfolio included an unrealized net gain in fair value of $26.2 million at June 30, 1998 compared to an unrealized net gain of $20.0 million at December 31, 1997. U.S. government and federal agency securities comprised 58% and CMO's and asset-backed securities comprised 36% of the banking subsidiaries' available for sale portfolio at June 30, 1998. The estimated average maturity of the available for sale investment portfolio is 2.6 years at June 30, 1998 and December 31, 1997. In February 1998, the Board of Directors announced the approval of additional purchases of the Company's common stock, bringing the total purchase authorization to 3,000,000 shares. At June 30, 1998, the Company had acquired 531,240 shares under this authorization. The Company had an equity to asset ratio of 9.91% based on 1998 average balances. As shown in the following table, the Company's capital exceeded the minimum risk-based capital and leverage requirements of the regulatory agencies. <TABLE> <CAPTION> JUNE 30, 1998 December 31, 1997 ------------- ----------------- (DOLLARS IN THOUSANDS) <S> <C> <C> Risk-Adjusted Assets...................... $7,401,864 $7,178,225 Tier I Capital............................ 909,068 868,535 Total Capital............................. 990,702 949,291 Tier I Capital Ratio...................... 12.28% 12.10% Total Capital Ratio....................... 13.38% 13.22% Leverage Ratio............................ 8.94% 8.81% </TABLE> The Company's cash and cash equivalents (defined as "Cash and due from banks") were $676.9 million at June 30, 1998, a decrease of $301.4 million from December 31, 1997. Contributing to the net cash outflow were a $340.1 million increase in loans, net of repayments, treasury stock purchases of $36.0 million and a net decrease in deposits of $127.1 million. Partially offsetting these net outflows were $119.0 million in maturities and sales of investment securities, net of purchases, and $68.0 million generated from operating activities. Total assets increased $29.3 million over December 31, 1997. Loans increased $384.0 million, investment securities decreased $55.8 million, and core deposits decreased $33.7 million. 16
The Company has various commitments and contingent liabilities which are properly not reflected on the balance sheet. Loan commitments (excluding lines of credit related to credit card loan agreements) totaled approximately $2.60 billion, standby letters of credit totaled $170.0 million, and commercial letters of credit totaled $34.2 million at June 30, 1998. The Company has little risk exposure in off-balance-sheet derivative contracts. The notional value of these contracts (interest rate and foreign exchange rate contracts) was $356.5 million at June 30, 1998. The current credit exposure (or replacement cost) across all off-balance-sheet derivative contracts covered by the risk-based capital standards was $7.6 million at June 30, 1998. Management does not anticipate any material losses to arise from these contingent items and believes there are no material commitments to extend credit that represent risks of an unusual nature. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's assets and liabilities are principally financial in nature and the resulting net interest income thereon is subject to changes in market interest rates and the mix of various assets and liabilities. Interest rates in the financial markets affect the Company's decisions on pricing its assets and liabilities which impacts net interest income, a significant cash flow source for the Company. As a result a substantial portion of the Company's risk management activities relates to managing interest rate risk. The Company's Asset/Liability Management Committee monitors the interest rate sensitivity of the Company' balance sheet monthly using earnings simulation models and interest sensitivity GAP analysis. Using these tools, management attempts to optimize the asset/liability mix to minimize the impacts of significant rate movements within a broad range of interest rate scenarios. One set of simulation models is prepared to determine the impact on net interest income for the coming twelve months under several interest rate scenarios. One such scenario uses rates at June 30, 1998 and forecasted volumes for the twelve month projection. When this position is subjected to a graduated shift in interest rates of 100 basis points rising and 100 basis points falling, the annual impact to the Company's net interest income is as follows: <TABLE> <CAPTION> $ IN % OF NET SCENARIO MILLIONS INT. INCOME -------- -------- ----------- <S> <C> <C> 100 basis point rising............................... $2.9 .66% 100 basis point falling.............................. (7.4) (1.70) </TABLE> Currently the Company does not have significant risks related to foreign exchange, commodities or equity risk exposures. IMPACT OF ACCOUNTING STANDARDS In January 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 127, "Deferral of the Effective Date of Certain Provisions of FAS Statement 125". SFAS No. 125 provided consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The adoption of Statement No. 127 did not have a material effect on the Company's financial statements. 17
AVERAGE BALANCE SHEETS--AVERAGE RATES AND YIELDS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 <TABLE> <CAPTION> SIX MONTHS 1998 SIX MONTHS 1997 ------------------------------- ------------------------------ INTEREST AVG.RATES INTEREST AVG.RATES AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ BALANCE EXPENSE PAID BALANCE EXPENSE PAID ----------- -------- --------- ---------- -------- --------- (UNAUDITED) (DOLLARS IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> ASSETS: Loans: Business (A)........... $ 2,160,814 $ 84,327 7.87% $1,738,807 $ 68,488 7.94% Construction and development........... 237,979 9,916 8.40 211,723 9,022 8.59 Real estate--business.. 942,440 39,461 8.44 783,297 33,342 8.58 Real estate--personal.. 1,217,314 46,485 7.70 1,029,388 40,359 7.91 Personal banking....... 1,342,874 57,241 8.60 1,276,169 54,704 8.64 Credit card............ 515,377 35,188 13.77 535,319 35,221 13.27 ----------- -------- ----- ---------- -------- ----- Total loans.......... 6,416,798 272,618 8.57 5,574,703 241,136 8.72 ----------- -------- ----- ---------- -------- ----- Investment securities: U.S. government & federal agency........ 1,437,077 44,534 6.25 1,668,522 51,745 6.25 State & municipal obligations (A)....... 96,256 3,824 8.01 98,956 3,902 7.95 CMO's and asset-backed securities............ 860,762 27,153 6.36 746,287 23,444 6.34 Trading account securities............ 9,991 246 4.97 6,916 180 5.26 Other marketable securities (A)........ 118,564 3,546 6.03 115,947 3,481 6.05 Other non-marketable securities............ 31,363 926 5.95 43,147 1,286 6.01 ----------- -------- ----- ---------- -------- ----- Total investment securities.......... 2,554,013 80,229 6.33 2,679,775 84,038 6.32 ----------- -------- ----- ---------- -------- ----- Federal funds sold and securities purchased under agreements to resell................. 249,700 6,903 5.57 296,420 8,012 5.45 ----------- -------- ----- ---------- -------- ----- Total interest earning assets...... 9,220,511 359,750 7.87 8,550,898 333,186 7.86 -------- ----- -------- ----- Less allowance for loan losses................. (107,875) (99,950) Unrealized gain on investment securities.. 58,648 13,426 Cash and due from banks. 630,674 600,986 Land, buildings and equipment, net......... 216,204 212,013 Other assets............ 211,835 186,456 ----------- ---------- Total assets......... $10,229,997 $9,463,829 =========== ========== LIABILITIES AND EQUITY: Interest bearing deposits: Savings................ $ 314,378 3,757 2.41 $ 295,961 3,549 2.42 Interest bearing demand................ 3,985,321 66,739 3.38 3,758,152 62,427 3.35 Time open & C.D.'s of less than $100,000.... 2,174,831 58,486 5.42 2,144,880 57,340 5.39 Time open & C.D.'s of $100,000 and over..... 237,339 6,462 5.49 204,576 5,354 5.28 ----------- -------- ----- ---------- -------- ----- Total interest bearing deposits.... 6,711,869 135,444 4.07 6,403,569 128,670 4.05 ----------- -------- ----- ---------- -------- ----- Borrowings: Federal funds purchased and securities sold under agreements to repurchase............ 508,547 12,773 5.06 424,222 10,291 4.89 Long-term debt and other borrowings...... 6,678 249 7.53 13,299 484 7.33 ----------- -------- ----- ---------- -------- ----- Total borrowings..... 515,225 13,022 5.10 437,521 10,775 4.97 ----------- -------- ----- ---------- -------- ----- Total interest bearing liabilities. 7,227,094 148,466 4.14% 6,841,090 139,445 4.11% -------- ----- -------- ----- Non-interest bearing demand deposits........ 1,877,153 1,644,689 Other liabilities....... 112,467 58,092 Stockholders' equity.... 1,013,283 919,958 ----------- ---------- Total liabilities and equity.............. $10,229,997 $9,463,829 =========== ========== Net interest margin (T/E).................. $211,284 $193,741 ======== ======== Net yield on interest earning assets......... 4.62% 4.57% ===== ===== </TABLE> - -------- (A) Stated on a tax equivalent basis using a federal income tax rate of 35%. 18
AVERAGE BALANCE SHEETS--AVERAGE RATES AND YIELDS THREE MONTHS ENDED JUNE 30, 1998 AND 1997 <TABLE> <CAPTION> SECOND QUARTER 1998 SECOND QUARTER 1997 ------------------------------- ------------------------------ INTEREST AVG.RATES INTEREST AVG.RATES AVERAGE INCOME/ EARNED/ AVERAGE INCOME/ EARNED/ BALANCE EXPENSE PAID BALANCE EXPENSE PAID ----------- -------- --------- ---------- -------- --------- (UNAUDITED) (DOLLARS IN THOUSANDS) <S> <C> <C> <C> <C> <C> <C> ASSETS: Loans: Business (A)........... $ 2,232,693 $ 43,691 7.85% $1,778,888 $ 35,649 8.04% Construction and development........... 241,610 5,009 8.32 231,004 4,974 8.64 Real estate--business.. 948,825 19,876 8.40 802,726 17,258 8.62 Real estate--personal.. 1,250,376 23,591 7.57 1,049,905 20,718 7.91 Personal banking....... 1,345,300 28,870 8.61 1,286,797 27,731 8.64 Credit card............ 505,593 16,978 13.47 525,039 17,242 13.17 ----------- -------- ----- ---------- -------- ----- Total loans.......... 6,524,397 138,015 8.48 5,674,359 123,572 8.73 ----------- -------- ----- ---------- -------- ----- Investment securities: U.S. government & federal agency........ 1,439,511 22,206 6.19 1,651,765 25,749 6.25 State & municipal obligations (A)....... 100,163 1,966 7.87 100,318 2,019 8.07 CMO's and asset-backed securities............ 867,915 13,705 6.33 776,697 12,263 6.33 Trading account securities............ 11,325 118 6.00 7,445 112 6.03 Other marketable securities (A)........ 123,321 1,979 6.44 115,859 1,733 6.00 Other non-marketable securities............ 31,455 341 4.35 42,880 684 6.40 ----------- -------- ----- ---------- -------- ----- Total investment securities.......... 2,573,690 40,315 6.28 2,694,964 42,560 6.33 ----------- -------- ----- ---------- -------- ----- Federal funds sold and securities purchased under agreements to resell................. 206,497 2,858 5.55 231,329 3,235 5.61 ----------- -------- ----- ---------- -------- ----- Total interest earning assets...... 9,304,584 181,188 7.81 8,600,652 169,367 7.90 -------- ----- -------- ----- Less allowance for loan losses................. (109,973) (101,856) Unrealized gain on investment securities.. 60,349 3,149 Cash and due from banks. 624,396 606,699 Land, buildings and equipment, net......... 216,839 213,801 Other assets............ 215,009 190,743 ----------- ---------- Total assets......... $10,311,204 $9,513,188 =========== ========== LIABILITIES AND EQUITY: Interest bearing deposits: Savings................ $ 321,854 1,922 2.40 $ 306,157 1,857 2.43 Interest bearing demand................ 4,014,399 33,751 3.37 3,768,355 31,451 3.35 Time open & C.D.'s of less than $100,000.... 2,188,059 29,507 5.41 2,163,150 29,129 5.40 Time open & C.D.'s of $100,000 and over..... 245,489 3,356 5.48 204,539 2,722 5.34 ----------- -------- ----- ---------- -------- ----- Total interest bearing deposits.... 6,769,801 68,536 4.06 6,442,201 65,159 4.06 ----------- -------- ----- ---------- -------- ----- Borrowings: Federal funds purchased and securities sold under agreements to repurchase............ 502,729 6,309 5.03 400,799 5,012 5.02 Long-term debt and other borrowings...... 6,273 117 7.53 12,797 234 7.33 ----------- -------- ----- ---------- -------- ----- Total borrowings..... 509,002 6,426 5.06 413,596 5,246 5.09 ----------- -------- ----- ---------- -------- ----- Total interest bearing liabilities. 7,278,803 74,962 4.13% 6,855,797 70,405 4.12% -------- ----- -------- ----- Non-interest bearing demand deposits........ 1,894,598 1,688,916 Other liabilities....... 109,834 49,556 Stockholders' equity.... 1,027,969 918,919 ----------- ---------- Total liabilities and equity.............. $10,311,204 $9,513,188 =========== ========== Net interest margin (T/E).................. $106,226 $ 98,962 ======== ======== Net yield on interest earning assets......... 4.58% 4.62% ===== ===== </TABLE> - -------- (A) Stated on a tax equivalent basis using a federal income tax rate of 35%. 19
INDEX TO EXHIBITS 10(a) Commerce Bancshares, Inc. Executive Incentive Compensation Plan Amendment and Restatement of July 31, 1998 27.1 6/30/98 Financial Data Schedule 27.2 1997 Restated Financial Data Schedules 27.3 1996 Restated Financial Data Schedules 27.4 12/31/95 Restated Financial Data Schedule