-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CQRqcxknXRzQQA24Iq10775sLngbzDoXmk1LAgeXyIasxqXm8GGcmFAONYSgIna9 qHNX5FD95naSqh0vq/WWqA== 0000022356-97-000003.txt : 19970314 0000022356-97-000003.hdr.sgml : 19970314 ACCESSION NUMBER: 0000022356-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970313 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMERCE BANCSHARES INC /MO/ CENTRAL INDEX KEY: 0000022356 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 430889454 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02989 FILM NUMBER: 97555880 BUSINESS ADDRESS: STREET 1: 1000 WALNUT CITY: KANSAS CITY STATE: MO ZIP: 64106 BUSINESS PHONE: 8162342000 MAIL ADDRESS: STREET 1: P O BOX 13686 CITY: KANSAS CITY STATE: MO ZIP: 64199 10-K 1 12/31/96 FORM 10-K - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 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) Registrant's telephone number, including area code: (816) 234-2000 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: $5 PAR VALUE COMMON STOCK ------------------------- (Title of Class) 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 ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ---- As of February 18, 1997, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $1,589,000,000. As of February 18, 1997, there were 37,009,571 shares of Registrant's $5 Par Value Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE - ------------------------------------------------------------------------------- The Annual Report to Shareholders for the fiscal year ended December 31, 1996 is incorporated in Part I, Part II, and Part IV of the Form 10-K. Portions of the definitive proxy statement with respect to the annual meeting of shareholders to be held on April 16, 1997, are incorporated in Part III. - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS Commerce Bancshares, Inc. (the "Company"), a bank holding company as defined in the Bank Holding Company Act of 1956, as amended, was incorporated under the laws of Missouri on August 4, 1966. The Company presently owns or controls substantially all of the outstanding capital stock of two national banking associations located in Missouri, one national banking association located in Illinois, two national banking associations in Kansas, and a credit card bank which is located in Nebraska and is limited in its activities to the issuance of credit cards. The Company also owns directly several non-banking subsidiaries which are engaged in owning real estate and leasing the same to the Company's banking subsidiaries, underwriting credit life and credit accident and health insurance, selling property and casualty insurance (all such insurance relating to extensions of credit made by the banking subsidiaries), providing venture capital through both a small business investment corporation as well as a venture capital limited partnership, (in which the Company has a 50% interest and which is managed by the Company), and mortgage banking. The Company also owns second tier holding companies which are the direct owners of several of the above mentioned banks. The results of operations of each of the non-banking subsidiaries of the Company are insignificant and do not materially affect the results of operation of the Company. As reflected on pages 27 through 29 of the 1996 Annual Report to Shareholders, the loan portfolio of the Company is well diversified. It does, however, contain certain risks as discussed on page 30. The Company is operating in a multi-state environment that consists of a profitable blend of commercial, real estate, and consumer lending activities. The Company is the third largest bank holding company in Missouri in terms of deposit market share. The banking subsidiaries of the Company which are located in Missouri regional markets (which comprise approximately 81% of the banking assets of the Company) compete with approximately 500 Missouri banks together with savings and loans and other financial institutions. The Illinois and Kansas subsidiary banks encounter the same or similar competition in their markets where over 900 Illinois banks and over 500 Kansas banks operate. In addition, the three states are served by numerous savings associations, credit unions, finance companies, and other financial intermediaries offering similar products to the customer base. Missouri, being centrally located in the United States, provides a natural site for production and distribution facilities and also serves as a transportation hub. The economy is well-diversified with many major industries represented, such as automobile manufacturing, aircraft manufacturing, food production and agricultural production together with related industries. Missouri has a relatively balanced real estate market and the Missouri unemployment rate is generally at or below the national average. There are no significant economic problems in general for the communities served by the Company. The adjacent states of Kansas and Illinois share many of the same characteristics in the communities being served and their local economies are generally stable and not abnormally weakened by the national economy. In the banking industry, Missouri is unique with two Federal Reserve Banks, located in St. Louis and Kansas City, which results in operating efficiencies for the subsidiary banks and their customers. In addition, the banking subsidiary in Illinois is a member of the Federal Reserve Bank of Chicago which provides additional flexibility to the operations area. The banking subsidiaries compete with other financial institutions engaged in the business of making loans or accepting deposit accounts, such as savings and loan associations, insurance companies, small loan companies, credit unions, finance companies, and other banking intermediaries, some or all of which may be located in the communities where the Company's banking subsidiaries are located. Such competition is based primarily on rates and quality of service provided. The Company, as a bank holding company, is primarily regulated by the Board of Governors of the Federal Reserve System. The subsidiary banks of the Company are all national banking associations and as such are primarily regulated by the Comptroller of the Currency. 2 During 1996, the Company merged several bank charters in an effort to improve customer service and minimize operating overhead. Commerce Bank (Bloomington, IL) was merged into Commerce Bank, N.A. (Peoria, IL). Commerce Bank of Barry County, N.A., Commerce Bank of Joplin, N.A., Commerce Bank of Lebanon, N.A., Commerce Bank of St. Joseph, N.A., Commerce Bank, N.A. (Springfield, MO), Commerce Bank, N.A. (Columbia, MO) and Commerce Bank (Lawrence, KS) were merged into Commerce Bank, N.A. (Kansas City, MO). Commerce Bank, N.A. (Manhattan, KS) was also merged into Commerce Bank, N.A. (Kansas City, MO). Commerce Bank, N.A. (Clayton, MO) was merged into Commerce Bank of Hannibal, N.A. and the main location of the surviving bank was changed to Clayton, MO. Additional mergers of banks owned by the Company are expected. The Company and its subsidiaries employed 4,277 persons on a full-time basis and 716 persons on a part-time basis at December 31, 1996. The information required under the caption "Statistical Disclosure by Bank Holding Companies" is included in the "Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations" and the "Notes to Financial Statements" sections of the 1996 Annual Report to Shareholders as indicated below and is hereby incorporated by reference. The following schedule reflects the page number of the Annual Report where the various captioned information is shown.
ANNUAL REPORT PAGE ------------- I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates and Interest Differential 22, 36-39 II. Investment Portfolio 31, 46-47 III. Loan Portfolio Types of Loans 27 Maturities and Sensitivities of Loans to Changes in Interest Rates 27 Risk Elements 30 IV. Summary of Loan Loss Experience 23-25 V. Deposits 34, 36-37 VI. Return on Equity and Assets 20 VII. Short-Term Borrowings 47
3 ITEM 2. PROPERTIES The larger banking subsidiaries maintain their main offices in various buildings listed below. These are owned by the banking subsidiary or its subsidiary. The banks lease unoccupied premises to the public. The buildings are located in the downtown areas of the cities they serve.
% % NET RENTABLE OCCUPIED OCCUPIED BUILDING SQUARE FOOTAGE IN TOTAL BY BANK - -------- -------------- -------- -------- 922 Walnut Kansas City, MO................................ 205,000 89% 54% 1000 Walnut Kansas City, MO................................ 384,000 97 32 720 Main Kansas City, MO................................ 180,000 100 85 8000 Forsyth Clayton, MO.................................... 197,000 97 87 416 Main Peoria, IL..................................... 224,000 87 32 150 N. Main Wichita, KS.................................... 191,000 96 68
The main offices of the other subsidiary banks and branch locations are owned by the respective bank with the exception of Commerce Bank of Omaha, N.A., which leases its main office. Additionally, a number of branch locations are located in leased premises, including retail, convenience and grocery stores. ITEM 3. LEGAL PROCEEDINGS The information required by this item is set forth under the caption "Commitments and Contingencies" on page 54 of the Annual Report to Shareholders for the fiscal year ended December 31, 1996, and is hereby incorporated be reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of 1996 to a vote of security holders through the solicitation of proxies or otherwise. EXECUTIVE OFFICERS OF THE REGISTRANT The following are the executive officers of the Company, each of whom is elected annually, and there are no arrangements or understandings between any of the persons so named and any other person pursuant to which such person was elected as an executive officer. NAME AND AGE POSITIONS WITH REGISTRANT Jeffery D. Aberdeen, 43 Controller of the Company since December, 1995. Assistant Controller of the Company and Controller of Commerce Bank, N.A. (Kansas City, MO), a subsidiary of the Company, prior thereto. Andrew F. Anderson, 45 Chairman of the Board, President and Chief Executive Officer of Commerce Bank, N.A. (Peoria, IL), a subsidiary of the Company, since August, 1995. President and Chief Executive Officer of The Peoples Bank of Bloomington, IL prior thereto. 4 NAME AND AGE POSITIONS WITH REGISTRANT John O. Brown, 63 Vice Chairman of the Company and Commerce Bank, N.A. (Kansas City, MO) since February, 1995. Chairman of the Board of Commerce Bank, N.A. (Kansas City, MO) prior thereto. Kenneth L. Carter, 54 Executive Vice President of Commerce Bank, N.A. (Kansas City, MO) since July, 1996. President and Chief Executive Officer of Commerce Bank, N.A. (Springfield, MO), a former subsidiary of the Company, prior thereto. A. Bayard Clark, 51 Chief Financial Officer, Executive Vice President and Treasurer of the Company since December, 1995. Executive Vice President of the Company prior thereto. David W. Kemper, 46 Chairman of the Board of Directors of the Company since November, 1991, Chief Executive Officer of the Company since June, 1986, and President of the Company since April, 1982. Chairman of the Board and Chief Executive Officer of Commerce Bank, N.A. (Clayton, MO), a subsidiary of the Company, since January, 1985. He is the son of James M. Kemper, Jr. (a Director and former Chairman of the Board of the Company) and the brother of Jonathan M. Kemper, Vice Chairman of the Company. Jonathan M. Kemper, 43 Vice Chairman of the Company since November, 1991. Chairman of the Board and Chief Executive Officer since February, 1995 and President since July, 1996 of Commerce Bank, N.A. (Kansas City, MO). President and Chief Executive Officer of Commerce Bank, N.A. (Kansas City, MO) prior thereto. He is the son of James M. Kemper, Jr. (a Director and former Chairman of the Board of the Company) and the brother of David W. Kemper, Chairman, President, and Chief Executive Officer of the Company. Charles G. Kim, 36 Executive Vice President of the Company since April, 1995. Prior thereto, he was Senior Vice President of Commerce Bank, N.A. (Clayton, MO) from April, 1993. Vice President of Commerce Bank, N.A. (Clayton, MO) prior thereto. David D. Kling, 50 Executive Vice President of the Company since October, 1989. Seth M. Leadbeater, 46 President of Commerce Bank, N.A. (Clayton, MO) since October, 1992. Prior thereto, he was Executive Vice President of Commerce Bank, N.A. (Clayton, MO) from April, 1991. Executive Vice President of Commerce Bank, N.A. (Kansas City, MO) prior thereto. Peter F. Mackie, 56 Vice President of the Company and Executive Vice President of Commerce Bank, N.A. (Clayton, MO). Robert C. Matthews, Jr., 49 Executive Vice President of the Company since December, 1989. Michael J. Petrie, 40 Senior Vice President of the Company since April, 1995. Prior thereto, he was Vice President of the Company from April, 1993. Prior thereto, he was Vice President of Commerce Bank, N.A. (Kansas City, MO). William A. Sullins, Jr., 58 Vice Chairman of the Company since August, 1992. Vice Chairman of Commerce Bank, N.A. (Clayton, MO) prior thereto. 5 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS The information required by this item is set forth on page 19 of the Annual Report to Shareholders for the fiscal year ended December 31, 1996, and is hereby incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA The information required by this item is set forth on page 20 of the Annual Report to Shareholders for the fiscal year ended December 31, 1996, and is hereby incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item is set forth on pages 20 through 39 of the Annual Report to Shareholders for the fiscal year ended December 31, 1996, and is hereby incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is set forth on pages 40 through 58 of the Annual Report to Shareholders for the fiscal year ended December 31, 1996, and is hereby incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by Item 401 and 405 of Regulation S-K regarding executive officers is included in Part I--Item 4 of this Form 10-K under the caption "Executive Officers of the Registrant" and the caption "Election of Directors" in the definitive proxy statement, which is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 402 of Regulation S-K regarding executive compensation is included under the captions "Executive Compensation", "Retirement Benefits", "Compensation Committee Report on Executive Compensation", and "Compensation Committee Interlocks and Insider Participation" in the definitive proxy statement, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 403 of Regulation S-K is covered under the caption "Voting Securities and Ownership Thereof by Certain Beneficial Owners and Management" in the definitive proxy statement, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 404 of Regulation S-K is covered under the caption "Election of Directors" in the definitive proxy statement, which is incorporated herein by reference. 6 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: (1) Financial Statements--The Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Cash Flows, Statements of Stockholders' Equity, Notes to Financial Statements and Summary of Quarterly Statements of Income (2) Financial Statement Schedules--All schedules are omitted as such information is inapplicable or is included in the financial statements. (3) Exhibits: 3--Articles of Incorporation and By-Laws: (a) Restated Articles of Incorporation, as amended, were filed in quarterly report on Form 10-Q dated August 9, 1996, and the same are hereby incorporated by reference. (b) Restated By-Laws were filed in quarterly report on Form 10-Q dated August 9, 1996, and the same are hereby incorporated by reference. 4--Instruments defining the rights of security holders, including indentures: (a) Pursuant to paragraph 4(iii) of Item 601 Regulation S-K, Registrant will furnish to the Commission upon request copies of long-term debt instruments. (b) Shareholder Rights Plan contained in an Amended and Restated Rights Agreement was filed on Form 8-A12G/A dated June 7, 1996, and the same is hereby incorporated by reference. (c) Form of Rights Certificate and Election to Exercise was filed on Form 8-A12G/A dated June 7, 1996, and the same is hereby incorporated by reference. (d) Form of Certificate of Designation of Preferred Stock was filed on Form 8-A12G/A dated June 7, 1996, and the same is hereby incorporated by reference. 10--Material Contracts: (a) Commerce Bancshares, Inc. Executive Incentive Compensation Plan amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. (b) Commerce Bancshares, Inc. Incentive Stock Option Plan amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. (c) Commerce Bancshares, Inc. 1987 Non-Qualified Stock Option Plan amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. (d) Commerce Bancshares, Inc. Stock Purchase Plan for Non-Employee Directors amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. (e) Copy of Security Agreement with respect to Directors and Officers Liability was filed in quarterly report on Form 10-Q dated July 30, 1986, and the same is hereby incorporated by reference. (f) Copy of Supplemental Retirement Income Plan established by Commerce Bancshares, Inc. for James M. Kemper, Jr. was filed in annual report on Form 10-K dated March 6, 1992, and the same is hereby incorporated by reference. (g) Copy of Agreement between Commerce Bancshares, Inc. and James M. Kemper, Jr. relating to the provision of consulting and other services by James M. Kemper, Jr. for Commerce Bancshares, Inc. was filed in annual report on Form 10-K dated March 6, 1992, and the same is hereby incorporated by reference. The Agreement terminated on September 30, 1996. 7 (h) Commerce Bancshares, Inc. 1996 Incentive Stock Option Plan amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. (i) Commerce Executive Retirement Plan was filed in annual report on Form 10-K dated March 8, 1996, and the same is hereby incorporated by reference. (j) Commerce Bancshares, Inc. Restricted Stock Plan amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. (k) Form of Severance Agreement between Commerce Bancshares, Inc. and certain of its executive officers entered into as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. 13--Annual Report to Security Holders 21--Subsidiaries of the Registrant 23--Independent Accountants' Consent 24--Powers of Attorney (in the following form): POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby appoint J. Daniel Stinnett and Jeffery D. Aberdeen, or either of them, attorney for the undersigned to sign the Annual Report on Form 10-K of Commerce Bancshares, Inc., for the fiscal year ended December 31, 1996, together with any and all amendments which might be required from time to time with respect thereto, to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, with respect to Commerce Bancshares, Inc., with full power and authority in either of said attorneys to do and perform in the name of and on behalf of the undersigned every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person. IN WITNESS WHEREOF, the undersigned have executed these presents this 7th day of February, 1997. Signed by the following directors: Messrs. Giorgio Balzer; Fred L. Brown; James B. Hebenstreit; David W. Kemper; James M. Kemper, Jr.; Terry O. Meek; and Robert H. West. IN WITNESS WHEREOF, the undersigned has executed these presents this 11th day of February, 1997. Signed by the following director: Mr. Jonathan M. Kemper. 27--Financial Data Schedule (filed only with electronic transmission) (b) Reports on Form 8-K: No report on Form 8-K was filed during the last quarter of 1996. 8 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 this 11th day of March, 1997. COMMERCE BANCSHARES, INC. By: /s/J. Daniel Stinnett ---------------------------- J. Daniel Stinnett Vice President and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 11th day of March, 1997. /s/Jeffery D. Aberdeen ---------------------------- Jeffery D. Aberdeen Controller (Chief Accounting Officer) /s/A. Bayard Clark ---------------------------- A. Bayard Clark Chief Financial Officer David W. Kemper ) (Chief Executive Officer) ) Giorgio Balzer ) Fred L. Brown ) James B. Hebenstreit ) A majority of the James M. Kemper, Jr. ) Board of Directors* Jonathan M. Kemper ) Terry O. Meek ) Robert H. West ) - -------- *David W. Kemper, Director and Chief Executive Officer, and the other Directors of Registrant listed, executed a power of attorney authorizing J. Daniel Stinnett, their attorney-in-fact, to sign this report on their behalf. /s/J. Daniel Stinnett -------------------------------- J. Daniel Stinnett, Attorney-in- Fact 9 INDEX TO EXHIBITS 3 - Articles of Incorporation and By-Laws (a) Restated Articles of Incorporation, as amended, were filed in quarterly report on Form 10-Q dated August 9, 1996, and the same are hereby incorporated by reference. (b) Restated By-Laws were filed in quarterly report on Form 10-Q dated August 9, 1996, and the same are hereby incorporated by reference. 4 - Instruments defining the rights of security holders, including indentures (a) Pursuant to paragraph 4(iii) of Item 601 Regulation S-K, Registrant will furnish to the Commission upon request copies of long-term debt instruments. (b) Shareholder Rights Plan contained in an Amended and Restated Rights Agreement was filed on Form 8-A12G/A dated June 7, 1996, and the same in hereby incorporated by reference. (c) Form of Rights Certificate and Election to Exercise was filed on Form 8-A12G/A dated June 7, 1996, and the same is hereby incorporated by reference. (d) Form of Certificate of Designation of Preferred Stock was filed on Form 8-A12G/A dated June 7, 1996, and the same is hereby incorporated by reference. 10 - Material Contracts (a) Commerce Bancshares, Inc. Executive Incentive Compensation Plan amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. (b) Commerce Bancshares, Inc. Incentive Stock Option Plan amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. (c) Commerce Bancshares, Inc. 1987 Non-Qualified Stock Option Plan amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. (d) Commerce Bancshares, Inc. Stock Purchase Plan for Non-Employee Directors amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated Novebmer 8, 1996, and the same is hereby incorporated by reference. (e) Copy of Security Agreement with respect to Directors and Officers Liability was filed in quarterly report on Form 10-Q dated July 30, 1986, and the same is hereby incorporated by reference. (f) Copy of Supplemental Retirement Income Plan established by Commerce Bancshares, Inc. for James M. Kemper, Jr. was filed in annual report on Form 10-K dated March 6, 1992, and the same is hereby incorporated by reference. (g) Copy of Agreement between Commerce Bancshares, Inc. and James M. Kemper, Jr. relating to the provision of consulting and other services by James M. Kemper, Jr. for Commerce Bancshares, Inc. was filed in annual report on Form 10-K dated March 6, 1992, and the same is hereby incorporated by reference. The Agreement terminated on September 30, 1996. (h) Commerce Bancshares, Inc. 1996 Incentive Stock Option Plan amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. (i) Commerce Executive Retirement Plan was filed in annual report on Form 10-K dated March 8, 1996, and the same is hereby incorporated by reference. (j) Commerce Bancshares, Inc. Restricted Stock Plan amended and restated as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. (k) Form of Severance Agreement between Commerce Bancshares, Inc. and certain of its executive officers entered into as of October 4, 1996 was filed in quarterly report on Form 10-Q dated November 8, 1996, and the same is hereby incorporated by reference. 13 - Annual Report to Security Holders 21 - Subsidiaries of the Registrant 23 - Independent Accountants' Consent 24 - Powers of Attorney 27 - Financial Data Schedule EX-13 2 12/31/96 ANNUAL REPORT TO SHAREHOLDERS Exhibit 13 At the foundation of Commerce Bancshares, Inc. is innovation and the ability to evolve with our customers. From our inception, we've built a banking franchise that balances technology with customer convenience, delivering sophisticated financial sevices to our customers in the Midwest. We will follow this approach as we move into the next century of banking. CONTENTS ANNUAL MEETING Chairman's Letter Page 2 The annual meeting of Shareholders will be held Wednesday, April 16, 1997 at 10:00 a.m. in the 18th Floor Management Report Page 6 Board Room, Commerce Bank Building, 1000 Walnut, Kansas City, Missouri. Management's Discussion and Analysis of Consolidated TRANSFER AGENT, REGISTRAR AND Financial Condition and DIVIDENT DISBURSING AGENT Results of Operations Page 20 First Chicago Trust Company of New York, P.O. Box 2500, Jersey City, New Jersey 07303-2500, 800-446-2617. Financial Statements of Commerce Bancshares, Inc. and Subsidiaries Page 40 NOTICE Shareholders, analysts or potential investors desiring additional Notes to Financial information may make their requests Statements Page 44 in writing to Mr. Jeffery D. Aberdeen, Controller, at the address of the Company. Independent Auditors' Report Page 57 Directors and Officers Inside Back Cover DIVIDENT REINVESTMENT PROGRAM We are pleased to announce that Commerce Brokerage Services, Inc.*, now offers Equity Divident Reinvestment for securities held within a Commerce brokerage account. Our brokerage customers may elect this option for approximately 6,200 individual securities, including the common stock of Commerce Bancshares, Inc. For information, please contact any of our Regional Investment Specialists or one of our main brokerage offices. St. Louis 314-746-8777 Kansas City 816-234-2416 800-356-1606 800-772-SAVE * An affiliate of Commerce Bancshares, Inc. and a registered broker-dealer. FINANCIAL HIGHLIGHTS (This page not included in the EDGARized exhibit.) 1 CHAIRMAN'S LETTER (This section not included in the EDGARized exhibit.) 2 - 5 MANAGEMENT REPORT (This section not included in the EDGARized exhibit.) 6 - 18
Commerce Bancshares, Inc. CONTENTS Pages ----- Common Stock Data Below Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations 20 through 39 Consolidated Financial Statements: Balance Sheets 40 Statements of Income 41 Statements of Cash Flows 42 Statements of Stockholders' Equity 43 Notes to Financial Statements 44 through 56 Independent Auditors' Report 57 Statement of Management's Responsibility 57 Summary of Quarterly Statements of Income 58
- -------------------------------------------------------------------------------- COMMON STOCK DATA Commerce Bancshares, Inc. (Parent) The following table sets forth the high and low prices for the Company's common stock (CBSH) and cash dividends paid for the periods indicated (restated for the 1996 stock dividend).
Cash 1996 High Low Dividends - -------------------------------------------------------------------------------- First Quarter $36.55 $33.10 $.181 Second Quarter 35.12 32.50 .181 Third Quarter 38.57 31.67 .181 Fourth Quarter 49.50 36.79 .181 1995 - -------------------------------------------------------------------------------- First Quarter $27.89 $24.49 $.163 Second Quarter 29.25 27.44 .163 Third Quarter 36.17 27.44 .163 Fourth Quarter 36.43 33.79 .163 1994 - -------------------------------------------------------------------------------- First Quarter $28.29 $24.19 $.129 Second Quarter 28.18 25.27 .147 Third Quarter 28.94 25.48 .147 Fourth Quarter 27.86 24.49 .147
Commerce Bancshares, Inc. common shares are publicly traded in the over-the- counter market on the NASDAQ National Market System. Prices reflected in the table above are last-sale prices and represent actual transactions. The Company had 5,733 shareholders of record as of December 31, 1996. 19 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes. The historical trends reflected in the restated financial information presented below are not reflective of anticipated future results.
KEY RATIOS - ---------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- (Based on average balance sheets): Return on total assets 1.28% 1.21% 1.21% 1.14% 1.04% Return on stockholders' equity 13.40 12.72 13.05 12.99 12.88 Efficiency ratio 60.96 62.60 65.10 64.58 65.35 Loans to deposits 67.07 68.28 61.07 58.08 57.71 Net yield on interest earning assets (on a tax equivalent basis) 4.40 4.50 4.46 4.22 4.06 Non-interest bearing deposits to total deposits 19.65 19.81 19.60 19.72 18.63 Equity to total assets 9.53 9.48 9.30 8.75 8.04 Cash dividend payout ratio 23.28 24.07 22.07 21.28 21.58 ================================================================================================================================== SELECTED FINANCIAL DATA - ---------------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income $ 365,743 $ 355,745 $ 314,617 $ 284,524 $ 247,708 Provision for loan losses 24,522 14,629 5,845 11,381 19,146 Non-interest income 159,162 133,150 121,028 121,423 108,607 Non-interest expense 317,954 305,484 282,078 257,316 225,456 Net income 119,512 107,640 96,111 86,894 71,655 Net income per common and common equivalent share* 3.11 2.71 2.59 2.37 2.11 Total assets 9,698,186 9,573,951 8,035,574 8,047,413 7,541,613 Loans 5,472,342 5,317,813 4,432,662 4,024,075 3,687,415 Investment securities 2,721,515 2,594,753 2,645,420 2,805,630 2,456,795 Deposits 8,166,429 8,193,092 6,990,430 6,839,470 6,458,651 Long-term debt 14,120 14,562 6,487 6,894 7,267 Stockholders' equity 924,271 883,783 728,198 712,620 603,718 Cash dividends per common share* .724 .653 .570 .504 .455 ================================================================================================================================== * Restated for 5% stock dividend distributed in December 1996 RESULTS OF OPERATIONS - ---------------------------------------------------------------------------------------------------------------------------------- $ Change % Change (Dollars in thousands) '96-'95 '95-'94 '96-'95 '95-'94 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest income $ 9,998 $41,128 2.8% 13.1% Provision for loan losses 9,893 8,784 67.6 150.3 Non-interest income 26,012 12,122 19.5 10.0 Non-interest expense 12,470 23,406 4.1 8.3 Income taxes 1,775 9,531 2.9 18.5 - ----------------------------------------------------------------------------------------------------------------------------------- Net income $11,872 $11,529 11.0% 12.0% ===================================================================================================================================
Consolidated net income for 1996 was $119.5 million, an 11.0% increase over 1995 net income. Earnings per share increased 14.8% to $3.11 in 1996 compared to 1995. These earnings occurred mainly as a result of modest growth in net interest income, significant growth in non-interest income and control over non- interest expenses, partially offset by a significantly higher provision for loan losses. The increase in non-interest income was due mainly to increases in fees from deposit accounts, credit cards and trust services, combined with gains on investment securities. The change in non-interest expense includes a decrease of $6.7 million in federal deposit insurance expense, coupled with relatively flat costs for marketing and data processing. The return on total assets increased to 1.28% in 1996 compared to 1.21% in 1995, and return on stockholders' equity increased to 13.40% in 1996 compared to 12.72% in 1995. 20 Net income was $107.6 million in 1995 compared to $96.1 million in 1994. The $11.5 million increase over 1994 includes the effects of four acquisitions completed in 1995, which contributed $6.4 million after tax to net income, and a $6.5 million decrease in federal deposit insurance expense. During the past year, Commerce Bancshares, Inc. and its subsidiaries (the Company) was focused on improving internal efficiency and profitability. Fee income opportunities were reviewed and new revenues were obtained, especially in the deposit account fee area. Also, through a series of internal mergers, the number of bank charters was reduced from 16 at year end 1995 to 6 at year end 1996. As a result, a number of back office operations were centralized and tasks eliminated. These mergers enable the Company to reduce overhead costs while expanding services to a larger customer base. Additionally, customers will gain access to additional banking facilities in portions of Kansas, Missouri and Illinois. The Company sold branches in Illinois and Missouri in 1996 as part of a continuing effort to evaluate retail delivery services. These sales did not have a material effect on the financial statements of the Company. The Company continues to evaluate growth opportunities and customer needs, opening 4 full- service facilities in 1996 and early 1997. The Company has signed a definitive agreement to merge with Shawnee Bank Shares, Inc., a one-bank holding company in the metropolitan Kansas City area with three locations and $205 million in assets. The merger is expected to be completed in the second quarter of 1997. In 1995, banks with assets of $1.2 billion were acquired at a cost of $12.0 million in treasury stock, $75.7 million in newly issued common stock and $94.1 million in cash. Banks with assets totaling $376 million were acquired in 1994, requiring treasury stock of $44.5 million, newly issued common stock of $3.5 million and $2.7 million in cash. Certain of these transactions have been recorded using the pooling of interests method of accounting. However, prior year financial results have not been restated for these poolings because those restated amounts do not differ materially from the Company's historical operating results. The Board of Directors declared the third annual consecutive 5% stock dividend on October 4, 1996. Certificates evidencing the dividend were distributed to stockholders on December 13, 1996. All per share and average share data in this report has been restated to reflect the 1996 stock dividend. NET INTEREST INCOME Net interest income, the Company's primary earnings source, is the difference between interest income generated by earning assets and the expense paid on interest bearing liabilities. 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. 21 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Cont.)
- ------------------------------------------------------------------------------------------------------------------------------ 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ Change due to Change due to Average Average Average Average (In thousands) Volume Rate Total Volume Rate Total - ------------------------------------------------------------------------------------------------------------------------------ INTEREST INCOME, FULLY TAXABLE EQUIVALENT BASIS Loan $18,857 $(15,762) $ 3,095 $ 76,193 $50,198 $126,391 Investment securities: U.S. government & federal agency securities 3,553 (318) 3,235 (21,642) 5,519 (16,123) State & municipal securities (632) 115 (517) 5,833 195 6,028 Other securities (4,656) 2,022 (2,634) 7,923 1,927 9,850 Federal funds sold and securities purchased under agreements to resell 15,362 (2,103) 13,259 2,981 3,637 6,618 - ------------------------------------------------------------------------------------------------------------------------------ Total interest income 32,484 (16,046) 16,438 71,288 61,476 132,764 - ------------------------------------------------------------------------------------------------------------------------------ INTEREST EXPENSE Savings (332) (457) (789) 944 392 1,336 Interest bearing demand 17,014 (8,376) 8,638 2,791 25,901 28,692 Time open & C.D.'s of less than $100,000 (353) 1,452 1,099 15,928 24,455 40,383 Time open & C.D.'s of $100,000 and over 555 (379) 176 2,231 2,986 5,217 Federal funds purchased and securities sold under agreements to repurchase 24 (2,389) (2,365) 5,485 7,923 13,408 Long-term debt and other borrowings (106) 14 (92) 689 (85) 604 - ------------------------------------------------------------------------------------------------------------------------------ Total interest expense 16,802 (10,135) 6,667 28,068 61,572 89,640 - ------------------------------------------------------------------------------------------------------------------------------ Net interest income, fully taxable equivalent basis $15,682 $ (5,911) $ 9,771 $ 43,220 $ (96) $ 43,124 ==============================================================================================================================
Net interest income was $365.7 million in 1996, $355.7 million in 1995 and $314.6 million in 1994. This represents an increase in 1996 of $10.0 million or 2.8% and an increase in 1995 of $41.1 million or 13.1%. The net yield on earning assets was 4.40% in 1996, 4.50% in 1995 and 4.46% in 1994. The decrease in the net yield on earning assets of 10 basis points in 1996 was due mainly to a reduction of 19 basis points in rates earned on average interest earning assets coupled with a 10 basis point decline in rates paid on average interest bearing liabilities. The overall increase in net interest income of $10.0 million was the result of volume increases in average deposits which also funded average loan growth of $160.0 million. Average interest earning assets were $8.41 billion, $8.01 billion and $7.12 billion in 1996, 1995 and 1994 respectively; while average interest earning liabilities were $6.84 billion, $6.52 billion and $5.80 billion in 1996, 1995 and 1994 respectively. Tax equivalent interest income was $652.5 million in 1996, $636.0 million in 1995 and $503.3 million in 1994; and represents an increase of $16.4 million or 2.6% in 1996 and an increase of $132.8 million or 26.4% in 1995. The increased interest income in 1996 was due mainly to growth in average loans of $160.0 million, mostly in the personal lending areas, offset by a decrease in average loan yields of 21 basis points. Also federal funds sold balances increased by an average of $213.3 million which provided additional interest earnings even though rates on federal funds were down 46 basis points. Average balances of investment securities in 1996 were only slightly lower than the previous year. Loans represented 63% of average interest earning assets in 1996, investment securities represented 31% and short-term federal funds sold and securities purchased under agreement to resell represented 6%. The increase in interest income in 1995 was due to both increases in average yields on interest earning assets of 87 basis points during the year coupled with an increase in average interest earning assets of $895.4 million, of which $731.3 million was due to bank acquisitions in 1995 and 1994. Total interest expense was $281.9 million in 1996, $275.3 million in 1995 and $185.7 million in 1994, and represents an increase of $6.6 million or 2.4% in 1996 and an increase of $89.6 million or 48.3% in 1995. 22 The increase in 1996 was due mainly to an increase in average interest bearing deposits of $312.9 million but offset by a 6 basis point decline in rates paid on deposits. The increase in interest bearing deposits occurred mainly in the Company's Premium Money Market accounts which grew by an average of $388.9 million in conjunction with growth in other money market accounts and virtually no growth in certificates of deposit. This growth was offset by a decline in interest checking accounts which decreased by an average of $239.3 million. Premium and other money market, interest checking, savings and certificates of deposit represented 41%, 16%, 5% and 38%, respectively, of total average interest bearing deposits. The increase in interest expense in 1995 was mainly due to an increase in average rates paid on deposits of 95 basis points combined with an increase in average interest bearing liabilities as a result of bank acquisitions during 1995 and 1994. These acquisitions increased average interest bearing deposits by $678.7 million. Interest on other interest bearing liabilities in 1996 declined by $2.5 million mainly as a result of decreases in average rates paid on federal funds purchased and securities sold under agreements to repurchase. In 1995 interest on other interest bearing liabilities increased by $14.0 million mainly as a result of higher average rates paid on federal funds purchased and securities sold under agreements to repurchase. PROVISION AND ALLOWANCE FOR LOAN LOSSES Management records the provision for loan losses, on an individual bank basis, in amounts sufficient to result in an allowance for loan losses that will cover current net charge-offs and risks believed to be inherent in the loan portfolio of each bank. Amounts thus charged against current income are based on 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 balance in the allowance for loan losses is reduced when a loan or part thereof is considered by management to be uncollectible. Recoveries on loans previously charged off are added back to the allowance. During periods of growth in the loan portfolio, a portion of the provision may be taken to reflect management's desire to maintain a satisfactory allowance to protect the Company from those losses which occur as a natural part of doing business. As with any financial institution, weak economic conditions, higher inflation, interest rates, or unemployment may lead to increased losses in the loan portfolio. Conversely, improvements in economic conditions tend to reduce the amounts charged against the allowance. Management has established various controls in order to limit future losses at the lending affiliates, such as: 1) a "watch list" of possible problem loans, 2) specific loan retention limits in relation to the size of each affiliate and market, 3) documented policies concerning loan administration (loan file documentation, disclosures, approvals, etc.) and 4) a loan review staff employed by the Parent which travels to subsidiary banks to audit for adherence to established Company controls and to review the quality and anticipated collectibility of the portfolio. Management determines which loans are possibly uncollectible or represent a greater risk of loss and makes additional provision to expense, if necessary, to maintain the allowance at a satisfactory level on an individual bank basis. The allowance for loan losses at December 31, 1996, was 1.79% of loans outstanding compared to 1.85% at year end 1995. The allowance for loan losses at year end covered non-performing assets (defined as non-accrual loans, loans 90 days delinquent and still accruing interest, and foreclosed real estate) by 246%. Net charge-offs totaled $24.8 million in 1996 compared to $16.2 million in 1995. The increase in net charge-offs in 1996 compared to 1995 was mainly attributable to higher credit losses in the credit card and personal banking loan categories. The provision for loan losses was $24.5 million, approximately equal to 1996 net charge-offs, compared to a provision of $14.6 million in 1995 and $5.8 million in 1994. 23 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations (CONT.) A subsidiary bank is an issuer of Visa and MasterCard credit cards. Credit card loans outstanding at year end 1996 amounted to $563.3 million, or 10.3% of total loans. The percentage of consumer loans outstanding which are generated through credit revolving balances and cash advances is significantly higher for Commerce than it is for a banking group that does not issue credit cards. Because credit card loans traditionally have a higher than average ratio of net charge-offs to loans outstanding when compared with other portfolio segments, management requires that a separate allowance for loan losses on credit card loans be maintained which, on a consolidated basis, was $15.9 million or 2.82% of credit card loans outstanding at December 31, 1996. Net charge-offs amounted to 2.92% of average credit card loans for 1996 compared to 2.30% in 1995. During 1996, the banking industry has experienced increasing credit losses on these loans primarily due to high levels of consumer installment and revolving debt, rising delinquency, and decade-high levels of personal bankruptcies. Net charge-offs at major banks this year have ranged generally from 3.5% to over 6% of credit card loans. The Company has also experienced an increase in losses on credit card loans due to these same factors. However, its net charge-off experience has been significantly lower than industry averages. Other than as previously noted, management is not aware of any significant risks in the current loan portfolio mix that would result from concentrations of loans within any particular market, industry, or portfolio segment. Other than for the credit card risk mentioned above, management does not allocate the allowance for loan losses. It is deemed to be a general reserve available for all types of loan losses. The allowance at year end 1996 represented a 3.95 multiple of net loan losses for the year just ended. Based on current economic conditions, management considers the December 31, 1996 allowance adequate to cover the possible risk of loss in the loan portfolio at the present time. Various appraisals and estimates of current value influence the calculation of the required allowance at any point in time. If economic conditions in the region deteriorate significantly, it is possible that additional assets would be classified as non-performing, and accordingly, additional provision for possible losses would be required. Such an event and its duration cannot be predicted at this time. 24 The schedule which follows summarizes the relationship between loan balances and activity in the allowance for loan losses account:
Years Ended December 31 - -------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- Net loans outstanding at end of period (A) $5,472,342 $5,317,813 $4,432,662 $4,024,075 $3,687,415 - -------------------------------------------------------------------------------------------------------------------------------- Average loans outstanding (A) $5,321,584 $5,161,552 $4,180,065 $3,835,834 $3,474,285 - -------------------------------------------------------------------------------------------------------------------------------- Allowance for loan losses: Balance at beginning of period $ 98,537 $ 87,179 $ 85,830 $ 77,149 $ 61,676 - -------------------------------------------------------------------------------------------------------------------------------- Additions to allowance through charges to expense 24,522 14,629 5,845 11,381 19,146 - -------------------------------------------------------------------------------------------------------------------------------- Allowances of acquired banks - 12,932 2,953 3,661 4,507 - -------------------------------------------------------------------------------------------------------------------------------- Recovery of loans previously charged off: Business 1,739 1,632 2,540 3,690 1,841 Construction - - 3 508 52 Business real estate 416 542 663 562 2,584 Personal real estate 123 99 226 141 162 Personal banking 2,628 2,633 2,259 2,528 2,193 Credit card 2,172 2,163 2,015 1,947 1,771 - -------------------------------------------------------------------------------------------------------------------------------- Total recoveries 7,078 7,069 7,706 9,376 8,603 - -------------------------------------------------------------------------------------------------------------------------------- Loans charged off: Business 4,912 3,422 2,511 3,858 4,258 Construction - - - 12 31 Business real estate 205 391 1,243 418 1,538 Personal real estate 341 208 196 395 351 Personal banking 9,327 7,413 3,442 3,897 3,302 Credit card 17,129 11,838 7,763 7,157 7,303 - -------------------------------------------------------------------------------------------------------------------------------- Total loans charged off 31,914 23,272 15,155 15,737 16,783 - -------------------------------------------------------------------------------------------------------------------------------- Net loans charged off 24,836 16,203 7,449 6,361 8,180 - -------------------------------------------------------------------------------------------------------------------------------- Balance at end of period $ 98,223 $ 98,537 $ 87,179 $ 85,830 $ 77,149 - -------------------------------------------------------------------------------------------------------------------------------- Ratio of net charge-offs to average loans outstanding .47% .31% .18% .17% .24% Ratio of allowance to loans at end of period 1.79% 1.85% 1.97% 2.13% 2.09% Ratio of provision to average loans outstanding .46% .28% .14% .30% .55% - -------------------------------------------------------------------------------------------------------------------------------- (A) Net of unearned income; before deducting allowance for loan losses. NON-INTEREST INCOME - -------------------------------------------------------------------------------------------------------------------------------- % change (Dollars in thousands) 1996 1995 199 4 '96-'95 '95-'94 - -------------------------------------------------------------------------------------------------------------------------------- Trust fees $ 36,622 $ 33,454 $ 28,180 9.5% 18.7% Deposit account charges and other fees 54,506 44,658 39,971 22.1 11.7 Credit card transaction fees 26,586 23,341 19,318 13.9 20.8 Trading account profits and commissions 5,982 5,158 4,903 16.0 5.2 Net gains on securities transactions 3,293 897 2,354 267.1 (61.9) Other 32,173 25,642 26,302 25.5 (2.5) - -------------------------------------------------------------------------------------------------------------------------------- Total non-interest income $ 159,162 $ 133,150 $ 121,028 19.5% 10.0% - -------------------------------------------------------------------------------------------------------------------------------- As a % of operating income (net interest income plus non-interest income) 30.3% 27.2% 27.8% Operating income per full-time equivalent employee $ 108.1 $ 100.0 $ 94.2 - --------------------------------------------------------------------------------------------------------------------------------
25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT.) Non-interest income totaled $159.2 million in 1996, $133.2 million in 1995 and $121.0 million in 1994. The increase of $9.8 million in deposit account charges and other fees in 1996 compared to 1995 was partially due to fee restructuring and added cash management fees. Trust fees increased $3.2 million, or 9.5%, in 1996 compared to 1995, and was reflective of increased new business coupled with improvement in market value of assets upon which some fees are based. The increase in credit card fees was reflective of increased merchant and cardholder sales upon which transaction fee income is based. Included in the other income category were gains on sales of branches and fixed assets which totaled $3.1 million more than in the previous year. Other income includes various types of fee income, such as letter of credit fees, loan servicing fees, annuity and mutual fund fees and other brokerage-related commissions. In 1995 compared to 1994, trust fees increased $5.3 million, deposit account charges and other fees increased $4.7 million and credit card transaction fees increased $4.0 million. Net gains on securities transactions included net gains by bank subsidiaries of $2.2 million, $480 thousand and $1.4 million in 1996, 1995 and 1994, respectively, with the remainder attributable to sales of equity securities by the Parent and a venture capital subsidiary.
NON-INTEREST EXPENSE - ---------------------------------------------------------------------------------------- % change (Dollars in thousands) 1996 1995 1994 '96-'95 '95-'94 - ---------------------------------------------------------------------------------------- Salaries $141,328 $136,646 $123,979 3.4% 10.2% Employee benefits 23,963 21,207 20,036 13.0 5.8 Net occupancy 21,456 20,294 18,017 5.7 12.6 Equipment 15,185 14,256 13,159 6.5 8.3 Supplies and communication 24,697 24,139 19,633 2.3 23.0 Data processing 20,778 20,997 16,837 (1.0) 24.7 Federal deposit insurance 2,124 8,807 15,349 (75.9) (42.6) Marketing 11,698 11,611 10,833 .7 7.2 Goodwill and core deposit premium amortization 11,448 11,094 5,472 3.2 102.7 Foreclosed property expense, net 2,406 164 1,138 NM (85.6) Charitable contributions 1,821 1,265 4,294 44.0 (70.5) Other 41,050 35,004 33,331 17.3 5.0 - ---------------------------------------------------------------------------------------- TOTAL NON-INTEREST EXPENSE $317,954 $305,484 $282,078 4.1% 8.3% - ---------------------------------------------------------------------------------------- Efficiency ratio (non-interest expense as a % of operating income excluding net gains on securities transactions) 61.0% 62.6% 65.1% Salaries and benefits as a % of total non-interest expense 52.0% 51.7% 51.1% Number of full-time equivalent employees 4,854 4,890 4,626 ========================================================================================
Non-interest expense totaled $318.0 million in 1996, $305.5 million in 1995 and $282.1 million in 1994. In 1996 compared to 1995, salaries increased $4.7 million, or 3.4%, and reflects an overall reduction in full-time equivalent employees as a result of a number of initiatives to centralize operations. Employee benefits increased $2.8 million, or 13.0%, mainly due to added health insurance costs. Federal deposit insurance expense decreased $6.7 million due to a decrease in the assessment rate which began in mid 1995. Included in 1996 federal deposit insurance expense was a $1.3 million one-time charge in connection with the recapitalization of the Savings Association Insurance Fund. The $23.4 million increase in non-interest expense in 1995 over 1994 was mainly due to a $13.8 million increase in salaries and employee benefits. Goodwill and core deposit premium amortization increased $5.6 million due to purchase accounting adjustments relating to 1995 bank acquisitions. Partially offsetting these increases was a $6.5 million decrease in federal deposit insurance expense due to decreased rates and a $3.0 million decrease in charitable contributions. 26 INCOME TAXES Income tax expense was $62.9 million, $61.1 million and $51.6 million in 1996, 1995 and 1994, respectively. The effective tax rate on income from operations was 34.5%, 36.2% and 34.9% in 1996, 1995 and 1994, respectively. The difference between these effective tax rates and the statutory rate of 35% was mainly due to state and local income taxes and non-deductible goodwill amortization, offset by tax exempt interest income on state and political subdivision securities. The 1996 effective tax rate was reduced by lower state income taxes and the contribution of an appreciated asset. The 1994 effective tax rate was also reduced by certain non-recurring state tax credits and the contribution of an appreciated asset. FINANCIAL CONDITION LOAN PORTFOLIO ANALYSIS A breakdown of average balances invested in each category of loans appears on page 36. Classifications of consolidated loans by major category at December 31 for each of the past five years are as follows:
Balance at December 31 - ------------------------------------------------------------------------------------------------- (In thousands) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------- Business $1,700,678 $1,716,080 $1,393,979 $1,380,452 $1,221,525 Real estate - construction 182,474 168,031 127,948 90,102 123,955 Real estate - business 758,650 695,558 586,769 533,467 453,226 Real estate - personal 1,010,572 983,249 813,134 734,771 666,074 Personal banking 1,256,684 1,258,809 1,120,366 917,683 885,998 Credit card 563,284 496,086 390,466 367,600 336,637 - ------------------------------------------------------------------------------------------------- Total loans, net of unearned income $5,472,342 $5,317,813 $4,432,662 $4,024,075 $3,687,415 - -------------------------------------------------------------------------------------------------
The contractual maturities of loan categories at December 31, 1996, and a breakdown of those loans between predetermined rate and floating rate loans are as follows:
Principal Payments Due - ------------------------------------------------------------------------------------------------------------------------------------ In After One After (In thousands) One Year Year Through Five or Less Five Years Years Total - ------------------------------------------------------------------------------------------------------------------------------------ Business $1,104,029 $ 556,292 $ 40,357 $1,700,678 Real estate - construction 101,063 59,458 21,953 182,474 Real estate - business 252,388 433,957 72,305 758,650 Real estate - personal 99,208 215,788 695,576 1,010,572 - ------------------------------------------------------------------------------------------------------------------------------------ Total $1,556,688 $1,265,495 $ 830,191 $3,652,374 - ------------------------------------------------------------------------------------------------------------------------------------ Personal banking (1) 1,256,684 Credit card (2) 563,284 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans, net of unearned income $5,472,342 - ------------------------------------------------------------------------------------------------------------------------------------ Loans with predetermined rate $ 685,646 $ 572,829 $ 209,103 $1,467,578 Loans with floating rate 871,042 692,666 621,088 2,184,796 - ------------------------------------------------------------------------------------------------------------------------------------ Total $1,556,688 $1,265,495 $ 830,191 $3,652,374 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Personal banking loans with floating rate totaled $484,960,000. (2) Credit card loans with floating rate totaled $466,107,000. Average loans outstanding to total deposits was 67.1% in 1996 compared to 68.3% in 1995. Loans constituted 63.9% of total earning assets at December 31, 1996. While it is management's goal to deploy a larger portion of deposits in higher yielding loan assets, this strategy is tempered in the current economic and competitive environment. Modest economic growth and business loan demand in recent years, coupled with improved earnings and capitalization of the banking industry, has led to intense competition for loan assets. Consolidations within the banking industry, coupled with excess lending capacity and the demand for greater earnings, continue to encourage less stringent underwriting standards, lower interest rate spreads and longer term fixed rate pricing options, and more liberal offering terms and conditions. Given 27 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations (CONT.) management's longer term commitment to asset quality and its strategy to minimize the impact of changes in interest rate levels on net interest income, the loan portfolio has exhibited a modest level of internal growth in 1996. The Company currently generates approximately 31.8% of its loan portfolio in the St. Louis regional market and 22.3% in the Kansas City regional market. The portfolio is diversified from a commercial and retail standpoint, with 48.3% in loans to business and 51.7% in loans to individual consumers. Such a balanced approach to loan portfolio management and an aversion toward credit concentrations, from an industry, geographic and product perspective, have enabled the Company to avoid problem loan levels and loan losses that characterized the banking industry in the early 1990s.
Loans by type as a percentage of total loans: - ------------------------------------------------ December 31 1996 1995 - ------------------------------------------------ Business 31.1% 32.3% Real estate - construction 3.3 3.1 Real estate - business 13.9 13.1 Real estate - personal 18.4 18.5 Personal banking 23.0 23.7 Credit card 10.3 9.3 - ------------------------------------------------ Total loan 100.0% 100.0% - ------------------------------------------------
Business Loans This group of loans, totaling $1.70 billion, is comprised primarily of loans to customers in the regional trade area of the bank subsidiaries in the central Midwest, encompassing the states of Missouri, Kansas, Illinois and adjacent Midwestern markets. The bank subsidiaries generally do not participate in credits of large, publicly traded companies unless operations are maintained in the local communities or regional markets. The portfolio is diversified from an industry standpoint and includes businesses engaged in manufacturing, wholesaling, retailing, agribusiness, insurance, financial services, public utilities, and other service businesses. Emphasis is upon middle-market and community businesses with known local management and financial stability. Consistent with management's strategy and emphasis upon relationship banking, most borrowing customers also maintain deposit accounts and utilize other banking services. There were net loan charge-offs in this category, as shown on page 25, of $3.2 million in 1996 compared to $1.8 million in 1995. Continued growth in business loans will be based upon strong solicitation efforts in a highly competitive market environment for quality loans. Asset quality is, in part, a function of management's consistent application of conservative underwriting standards. Therefore, portfolio growth in 1997 is dependent upon the strength of the economy, the actions of the Federal Reserve with regard to targets for economic growth and inflationary tendencies, and the competitive environment as previously described. On the basis of average balances, business loans for 1996 decreased 2.0% from 1995 levels, which increased 22.4% over 1994 levels. A portion of the growth in 1995 was attributable to bank acquisitions in Illinois and Kansas. Non-accrual business loans decreased to $7.0 million (.4% of business loans) at December 31, 1996, from $9.9 million (.6% of business loans) at December 31, 1995. Real Estate -- Construction The portfolio of loans in this category amounted to $182.5 million at December 31, 1996, compared to $168.0 million at year end 1995. Non-accrual loans in this category were $552 thousand at year end 1996 compared to $304 thousand at year end 1995. Management continues to maintain relatively low exposure in this category. The portfolio consists of residential construction, commercial construction, and land development loans, predominantly in the local markets of the Company's banking subsidiaries. Commercial construction loans are for small and medium-sized office and medical buildings, manufacturing and warehouse facilities, strip shopping centers, and other commercial properties. Exposure to larger speculative office and rental space is minimal. Residential construction and land development loans are primarily located in the Kansas City and St. Louis metropolitan areas. The Company experienced no loan losses in this category during 1996 and 1995. Management is not aware of any significant adverse exposure in this category. 28 Real Estate -- Business This category includes mortgage loans secured by commercial properties which are primarily located in the local and regional trade territories of the customers of the affiliate banks. At December 31, 1996, there were $758.7 million in balances outstanding secured by commercial properties. Non-accrual balances have increased at December 31, 1996 to $4.4 million, or .6% of the loans in this category, compared to $3.4 million at year end 1995. The Company experienced net recoveries of $211 thousand in 1996 and $151 thousand in 1995. The economic conditions in local markets are generally strong, positively impacting debt service capabilities and collateral values for both owner-occupied and investment real estate. Significant deterioration is not anticipated in 1997, provided that the economy performs at or near the Federal Reserve's target level for growth of 2.5%. Real Estate -- Personal The mortgage loans in this category are extended, predominantly, for owner- occupied residential properties. At December 31, 1996, there were $1.01 billion in loans outstanding. The Company has not experienced significant problem credits in this category recently as there were net charge-offs of $218 thousand in 1996 compared to $109 thousand in 1995. The non-accrual balances of loans in this category were $1.9 million at December 31, 1996, or .2% of the category, compared with $2.4 million at December 31, 1995. The five year history of net charge-offs on the real estate-personal loan category reflects nominal losses and credit quality is considered to be above average. Personal Banking This consumer loan portfolio consists of both secured and unsecured loans to individuals for various personal reasons such as automobile financing, securities purchases, home improvements, recreational and educational purposes. This category also includes $157.7 million of home equity loan balances at December 31, 1996, with an additional $275.3 million in unused lines of credit that can be drawn at the discretion of the borrower. These home equity lines are secured by first or second mortgages on residential property of the borrower. The underwriting terms for the home equity line product permit borrowing availability, in the aggregate, up to 80% of the appraised value of the collateral property. Given reasonably stable real estate values over time, the collateral margin improves with the regular amortization of prior mortgage loans. Approximately 39% of the loans in the personal banking category are extended on a floating interest rate basis. Total average loan balances for 1996 and 1995 were $1.26 billion. Net charge-offs were $6.7 million in 1996 compared to $4.8 million in 1995. The majority of personal banking loan losses were related to indirect paper purchases, generally secured by automobiles. Credit Card The credit card portfolio is concentrated within our regional market. Approximately 55.6% of the households in Missouri that own a Commerce Special Connections credit card product also maintain a deposit relationship with a subsidiary bank. Net charge-offs amounted to $15.0 million in 1996, which was a $5.3 million increase over 1995. Such losses were attributable to higher delinquencies and bankruptcies and were noted as part of national trends throughout the industry. The net charge-off ratios of 2.9% in 1996 and 2.3% in 1995 are well below national averages. The net charge-off ratio increased to 3.3% for the fourth quarter of 1996. The average balance in credit card loans for 1996 was $511.4 million compared to $420.0 million in 1995. Approximately 83% of the outstanding credit card loans have a floating interest rate. The Company has a variety of credit card products, all of which offer ATM access to either advances against the credit card account or transactions against related deposit accounts. Continued growth is anticipated through targeted marketing and product design to segmented groups. During 1997, a number of new products will continue to be introduced or extended to affiliate bank markets to fill in product line gaps for consumers, along with products aimed at the corporate and small business markets. The Company refrains from national pre-approved mailing techniques which have caused some of the credit card problems experienced by other 29 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations (CONT.) banking companies. Current delinquency ratios are in line with past charge-off results. Significant changes in loss trends, when compared with the fourth quarter 1996 results and with the results of other industry providers, are not anticipated by management. RISK ELEMENTS OF LOAN PORTFOLIO Management reviews the loan portfolio continuously for evidence of problem loans. During the ordinary course of business, management becomes aware of borrowers that may not be able to meet the contractual requirements of loan agreements. Such loans are placed under close supervision with consideration given to placing the loan on non-accrual status, the need for additional allowance for loan loss, and (if appropriate) partial or full charge-off. Those loans on which 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) are placed on non-accrual status. After a loan is placed on non-accrual status, any interest previously accrued but not yet collected is reversed against current income. Interest is included in income subsequent to the date the loan is placed on non-accrual status only as interest is received and so long as management is satisfied there is no impairment of collateral values. The loan is returned to accrual status only when the borrower has brought all past due principal and interest payments current and, in the opinion of management, the borrower has demonstrated the ability to make future payments of principal and interest as scheduled. A schedule of non-performing assets according to risk category follows:
December 31 - ---------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- Non-accrual $13,945 $16,234 $11,385 $14,328 $19,370 Past due 90 days and still accruing interest 24,806 15,690 13,090 7,289 8,293 - ---------------------------------------------------------------------------------------------------------------------------------- Total impaired loans 38,751 31,924 24,475 21,617 27,663 Real estate acquired in foreclosure 1,136 1,955 7,290 10,057 12,366 - ---------------------------------------------------------------------------------------------------------------------------------- Total non-performing assets $39,887 $33,879 $31,765 $31,674 $40,029 - ---------------------------------------------------------------------------------------------------------------------------------- Non-performing assets as a percentage of total loans .73% .64% .72% .79% 1.09% - ---------------------------------------------------------------------------------------------------------------------------------- Non-performing assets as a percentage of total assets .41% .35% .40% .39% .53% - ---------------------------------------------------------------------------------------------------------------------------------- The effect of non-accruing loans on interest income for 1996 is presented below: (In thousands) - ------------------------------------------------------------------------------------------ Gross amount of interest that would have been recorded at original rate $ 2,178 Interest that was reflected in income 561 - ------------------------------------------------------------------------------------------ Interest income not recognized $ 1,617 - ------------------------------------------------------------------------------------------
Loans past due 90 days and still accruing interest increased $9.1 million at December 31, 1996 compared to December 31, 1995. Approximately 50% of this increase was related to the credit card portfolio, discussed above. At December 31, 1996, the Company's mortgage banking subsidiary held residential real estate loans of approximately $16.8 million at lower of cost or market, which are to be resold to secondary markets within approximately three months. The Parent and a venture capital subsidiary had debt and equity investments with a carrying value of $4.9 million in 13 companies or partnerships at December 31, 1996. A $30 million limited partnership venture fund was organized by the Company in 1993 with 49% outside participation, which is managed by a subsidiary. The Company's investment in this partnership was approximately $7.2 million at December 31, 1996. Management believes the potential for long-term gains in this type of investment activity outweighs the potential risk of losses. There were no loan concentrations of multiple borrowers in similar activities at December 31, 1996 which exceeded 5% of total loans. The Company's aggregate legal lending limit to any single or related borrowing entities is in excess of $100 million. The largest exposures generally do not exceed $50 million. 30 INVESTMENT SECURITIES PORTFOLIO ANALYSIS At December 31, 1996, available for sale securities totaled $2.67 billion, which included a net unrealized gain in fair value of $29.5 million. The amount of the related after tax unrealized gain reported in stockholders' equity was $18.2 million. Non-marketable equity securities, which are carried at cost (less allowances for other than temporary declines in value) are generally held by the Parent and non-banking subsidiaries due to regulatory restrictions, except for Federal Reserve Bank stock held by banking subsidiaries. The average balances of investment securities (excluding the unrealized gain/loss) were $2.63 billion in 1996 compared to $2.65 billion in 1995 and $2.80 billion in 1994. The average tax equivalent yield was 6.28% in 1996, 6.23% in 1995 and 5.88% in 1994. There was little change in tax equivalent interest income earned on investment securities in 1996 compared to 1995 and 1994. Tax equivalent interest income increased slightly in 1996 compared to 1995, mainly due to a $57.6 million increase in the average balances invested in U.S. government and federal agency securities, partially offset by a $66.4 million decrease in investments in CMO's and asset-backed securities. Tax equivalent interest income decreased $245 thousand in 1995 compared to 1994, mainly due to a decrease of $370.6 million in average balances invested in U.S. government and agency securities, partially offset by increases in average balances invested in CMO's and asset-backed securities and state and municipal obligations, and an increase of 33 basis points earned on U.S. government and federal agency securities. The 1996 fair values below include gross unrealized gains of $41.1 million which are partially offset by gross unrealized losses of $11.6 million. Included are net unrealized gains of $14.6 million on the investment portfolio of the Parent, which consists primarily of equity securities, with gross unrealized gains of $15.1 million partially offset by gross unrealized losses of $590 thousand. Investment securities (excluding trading securities) at year end for the past two years are shown as follows:
December 31 - ----------------------------------------------------------- (In thousands) 1996 1995 - ----------------------------------------------------------- Amortized Cost: U.S. government and federal agency obligations $1,705,869 $1,684,679 State and municipal obligations 98,886 124,352 CMO's and asset-backed securities 705,848 666,334 Other debt securities 108,453 11,011 Equity securities 61,693 55,599 - ----------------------------------------------------------- Total $2,680,749 $2,541,975 - ----------------------------------------------------------- Fair Value: U.S. government and federal agency obligations $1,717,945 $1,707,111 State and municipal obligations 101,293 128,043 CMO's and asset-backed securities 703,515 670,522 Other debt securities 108,442 10,982 Equity securities 79,055 68,726 - ----------------------------------------------------------- Total $2,710,250 $2,585,384 - -----------------------------------------------------------
A summary of maturities by category of investment securities and the weighted average yield for each range of maturities as of December 31, 1996, is presented in the financial statements note on Investment Securities. U.S. government and federal agency securities comprise 63% of the investment portfolio at December 31, 1996, with a weighted average yield of 6.20% and an estimated average maturity of 2.6 years; CMO's and asset-backed securities comprise 26% with a weighted average yield of 6.22% and an estimated average maturity of 3.9 years. Other debt and equity securities above include Federal Reserve Bank stock and other bonds, notes, corporate stock (held primarily by non-banking entities) and debentures. The tax equivalent yield on these securities in 1996 computed on average balances invested was approximately 6.89%. DEPOSITS AND BORROWINGS Deposits are the primary funding source for the Company's banks, and are acquired from a broad base of local markets, including both individual and corporate customers. Total deposits have remained largely unchanged, totaling $8.17 billion at year end 1996 and $8.19 billion at year end 1995. At year end 31 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations (CONT.) 1996, 22% of total deposits were in non-interest bearing demand, 49% in savings and interest bearing demand and 26% in time open and C.D.'s under $100,000. At year end 1995, total deposits were comprised of 22% in non-interest bearing demand, 48% in savings and interest bearing demand and 28% in time open and C.D.'s under $100,000. Core deposits (defined as all non-interest and interest bearing deposits, excluding short-term C.D.'s of $100,000 and over) supported 93% of average earning assets in 1996 and 1995. Average balances by major deposit category for the last six years appear on pages 36 and 37. The maturity schedule of time deposits of $100,000 and over outstanding at December 31, 1996, appears in the financial statements note on Fair Value of Financial Instruments. Short-term borrowings consist mainly of federal funds purchased, securities sold under agreements to repurchase, and treasury tax and loan accounts. These amounted to $526.8 million at year end 1996 and $362.9 million at year end 1995, which was an increase of $163.9 million. This increase was the result of growth in federal funds purchased and securities sold under agreements to repurchase. The Company's long-term debt, which was approximately $14 million at year end 1996 and 1995, consists mainly of mortgages and borrowings from the Federal Home Loan Bank. LIQUIDITY AND CAPITAL RESOURCES The liquid assets of the Parent consist primarily of available for sale securities, which include readily marketable equity securities and commercial paper, and securities purchased under agreements to resell. Total investment securities and repurchase agreements were $94.4 million at cost and $108.9 million at fair value at December 31, 1996 ($10.0 million of which is pledged under a self-insured officer and director liability program) compared to $79.1 million at cost and $90.1 million at fair value at December 31, 1995. Total liabilities of the Parent at December 31, 1996 decreased to $12.6 million compared to $44.3 million at December 31, 1995 mainly because of a $31.0 million liability recorded at year end 1995 for a significant treasury stock purchase settling in 1996. The Parent had no third-party short-term borrowings or long- term debt at December 31, 1996. Primary sources of funds for the Parent are dividends and management fees from its subsidiary banks, which were $120.3 million and $14.0 million, respectively, in 1996. The Parent also collected $21.6 million from subsidiary banks to reimburse data processing costs paid by the Parent. The subsidiary banks may distribute dividends without prior regulatory approval that do not exceed the sum of net income for the current year and retained net income for the preceding two years, subject to maintenance of minimum capital requirements. 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. No commercial paper was outstanding during the past three years. The Company is also rated A by Thomson BankWatch with a corresponding short-term rating of TBW-1. This credit availability, along with available secured short-term borrowings from affiliate banks, should provide adequate funds to meet any outstanding or future commitments of the Parent. Management is not aware of any factors that would cause these ratings to be adversely impacted. The liquid assets held by bank subsidiaries include available for sale securities, which consist mainly of investments in U.S. government and federal agency securities and mortgage-backed securities. The available for sale bank portfolio totaled $2.57 billion at December 31, 1996, including an unrealized net gain of $12.0 million. The Company (on a consolidated basis) continues to maintain a sound equity to asset ratio of 9.53%, based on 1996 average balances. At December 31, 1996, the Company and each of its banking subsidiaries met minimum risk based capital requirements. Consolidated Tier I and Total capital ratios were 13.06% and 14.20%, respectively, and the leverage ratio was 8.84%. The cash flows from the operating, investing and financing activities of the Company resulted in a net increase in cash and due from banks of $58.4 million in 1996. The cash generated by operating 32 activities, which amounted to $214.7 million in 1996, provides a high degree of liquidity. Most of the Company's investing activities arise from customer lending and the investment of funds in available for sale securities and short- term federal funds sold and repurchase agreements. The net cash required by investing activities was $242.3 million in 1996. The liquidity needs arising from these activities are largely satisfied by maturities of the same in addition to a major financing item, the customer deposit base, and short-term borrowings of federal funds purchased. Future short-term liquidity needs for daily operations are not expected to vary significantly and the Company maintains adequate liquidity to meet that cash flow. The Company's sound equity base, along with its low debt level, common and preferred stock availability, and excellent debt ratings, provide several alternatives for future financing. Future acquisitions may utilize partial funding through one or more of these options. Cash and stock requirements for acquisitions, funding of various employee benefit programs and dividends were as follows:
- ------------------------------------------------------------- (In thousands) 1996 1995 1994 - ------------------------------------------------------------- Cash used in acquisitions $ -- $94.1 $ 2.7 Acquisition-related issuance of treasury stock -- 12.0 44.5 Acquisition-related issuance of new stock -- 75.7 3.5 Other purchases of treasury stock 78.4 40.0 52.8 Exercise of stock options, sales to affiliate non-employee directors and restricted stock awards (4.0) (4.1) (8.2) Cash dividends 27.5 26.0 21.1 - -------------------------------------------------------------
In February 1996, the Board of Directors authorized the Company to purchase up to 2,000,000 shares of common stock, in either the open market or privately negotiated transactions, to be used for employee benefit programs and stock dividends. At December 31, 1996, the Company had acquired approximately 1,288,000 shares under the 1996 authorization. Various commitments and contingent liabilities arise in the normal course of business which are properly not recorded on the balance sheet. The most significant of these are loan commitments totaling $2.07 billion (excluding approximately $1.97 billion in unused approved lines of credit related to credit card loan agreements) and standby letters of credit, net of participations to non-affiliated companies, totaling $145.4 million at December 31, 1996. The Company has various other financial instruments with off-balance-sheet risk, such as commercial letters of credit, foreign exchange contracts to purchase and sell foreign currency, and interest rate swap agreements. Management does not anticipate any material losses arising from commitments and contingent liabilities and believes there are no material commitments to extend credit that represent risks of an unusual nature. INTEREST RATE SENSITIVITY The Company's Asset/Liability Management Committee monitors the interest rate sensitivity of the Company's balance sheet on a monthly basis. The Company's policy is to minimize the impact of changing rates on net interest income by maintaining a reasonable balance of rate sensitive assets and liabilities. The Company continually reviews the repricing characteristics of its assets and liabilities and the rates paid and charged for deposits and loans. Deposit rates are reviewed at least weekly and loan rates are monitored closely, particularly on larger commercial relationships. Interest rate risk is evaluated using various tools, including interest sensitivity analysis and simulation techniques. The following schedule presents the Company's interest sensitivity analysis as of December 31, 1996 and identifies the repricing characteristics of the balance sheet and resulting difference between assets and liabilities repricing within selected time intervals. In this analysis the interest sensitivity position is balanced when an equal amount of assets and liabilities reprice during a given time interval. Excess assets or liabilities repricing in a given time period result in the "Interest sensitivity GAP" shown in the schedule below. A positive gap indicates that more assets than liabilities will reprice in a given time period, while a negative gap indicates that more liabilities will reprice. 33 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations (CONT.) The schedule indicates that the Company is liability sensitive in time intervals of less than one year and means that interest bearing liabilities can reprice faster than earning assets. This is supported by the fact that 71% of the Company's deposits are of the non-maturity type. This would indicate that the net interest margin should improve when interest rates decline and decline when interest rates increase. While this interest sensitivity analysis is a widely used measure of interest rate risk, it provides an incomplete picture of the sensitivity position of the Company and should be used only in conjunction with other factors of financial performance. In addition to changes in market interest rates, the Company's net interest margin is also impacted by changes in funding demands. When these demands increase, deposit rates can also increase, and in a declining interest rate environment, the result could be a decrease in the net interest margin. In the same way, it is possible for the net interest margin to increase in a rising interest rate environment, which could happen if funding demands are low and allow a slower increase in the rates paid on deposits. Accordingly, even though the interest sensitivity analysis may be used as an indication of interest margin direction and interest rate risk, it does not factor in all the variables necessary to evaluate true interest rate risk. For these reasons, the Company also evaluates its interest rate risk position using simulation models and other evaluation tools to monitor and manage its balance sheet and related earnings potential. Such simulation models are prepared regularly during the year using differing interest rate projections to better understand the operating environment. The Company purchases outside interest rate projections from a national vendor for use in these simulation models. The Company has set policy limits of interest rate risk to be assumed in the normal course of business and continually monitors such limits based on simulation models. The Company has been successful in meeting the interest rate sensitivity objectives set forth in its policy and has been well within the policy limits all year. The Company does not use any off-balance-sheet derivative products to a significant degree, but rather uses traditional methods of managing its assets and liabilities while maintaining its normal high credit standards. Management believes the Company is appropriately positioned for future interest rate movements. The following is an analysis of sensitivity gaps of interest earning assets and interest bearing liabilities:
REPRICING AND INTEREST RATE SENSITIVITY ANALYSIS December 31, 1996 1-3 4-6 7-12 2-5 Over 5 (In thousands) Months Months Months Years Years Total - -------------------------------------------------------------------------------------------------------------------- Interest earning assets: Loans, net of unearned income............. $ 2,660,193 $ 209,529 $1,015,988 $1,355,586 $231,046 $5,472,342 Investment securities..................... 152,247 11,211 227,531 2,151,343 179,183 2,721,515 Federal funds sold and securities purchased under agreements to resell....... 368,690 -- -- -- -- 368,690 - -------------------------------------------------------------------------------------------------------------------- Total interest earning assets.............. 3,181,130 220,740 1,243,519 3,506,929 410,229 8,562,547 - -------------------------------------------------------------------------------------------------------------------- Interest bearing liabilities: Time open & C.D.'s of less than $100,000.. 519,036 443,107 558,164 600,414 17,485 2,138,206 Time open & C.D.'s of $100,000 & over..... 65,573 42,924 54,469 42,642 555 206,163 Savings and interest bearing demand....... 4,021,376 -- -- -- -- 4,021,376 Federal funds purchased and securities sold under agreements to repurchase........ 526,807 -- -- -- -- 526,807 Long-term debt and other borrowings....... 91 3,294 3,155 4,943 2,637 14,120 - -------------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities......... 5,132,883 489,325 615,788 647,999 20,677 6,906,672 - -------------------------------------------------------------------------------------------------------------------- Interest sensitivity GAP................... $(1,951,753) $(268,585) $ 627,731 $2,858,930 $389,552 $1,655,875 ====================================================================================================================
34 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS The Company adopted three new Statements of Financial Accounting Standards (SFAS) in 1996: SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets"; SFAS No. 122, "Accounting for Mortgage Servicing Rights"; and SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles held by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS No. 122 requires that both purchased and internally originated mortgage servicing rights be capitalized and amortized to income over the estimated servicing period. The impact of adopting these two pronouncements was immaterial to the consolidated financial statements. The Company decided not to adopt the optional accounting treatment outlined by SFAS No. 123 for stock-based compensation awards. Accordingly, the Company will continue to account for stock compensation awards under the guidelines of Accounting Principles Board Opinion No. 25. The Company has disclosed, in the notes to the consolidated financial statements, the pro forma net income and net income per share as if the optional accounting treatment under SFAS No. 123 was adopted. EFFECTS OF INFLATION The impact of inflation on financial institutions differs significantly from that exerted on industrial entities. Financial institutions are not heavily involved in large capital expenditures used in the production, acquisition or sale of products. Virtually all assets and liabilities of financial institutions are monetary in nature and represent obligations to pay or receive fixed and determinable amounts not affected by future changes in prices. Changes in interest rates have a significant effect on the earnings of financial institutions. Higher interest rates generally follow the rising demand of borrowers and the corresponding increased funding requirements of financial institutions. Although interest rates are viewed as the price of borrowing funds, the behavior of interest rates differs significantly from the behavior of the prices of goods and services. Prices of goods and services may be directly related to that of other goods and services while the price of borrowing relates more closely to the inflation rate in the prices of those goods and services. As a result, when the rate of inflation slows, interest rates tend to decline while absolute prices for goods and services remain at higher levels. Interest rates are also subject to restrictions imposed through monetary policy, usury laws and other artificial constraints. The rate of inflation has been relatively low over the past few years. 35 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Cont.) AVERAGE BALANCE SHEETS--AVERAGE RATES AND YIELDS
Years Ended December 31 - ------------------------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Average Average Average Interest Rates Interest Rates Interest Rates (Dollars in thousands) Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid Balance Expense Paid - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Loans: (A) Business (B) $1,670,328 $131,652 7.88% $1,703,933 $141,872 8.33% $1,392,650 $ 99,111 7.12% Construction and development 168,220 14,670 8.72 130,346 12,227 9.38 115,628 9,372 8.11 Real estate -- business 719,377 61,845 8.60 693,539 61,958 8.93 538,793 43,256 8.03 Real estate -- personal 990,069 77,568 7.83 954,956 74,571 7.81 759,338 53,473 7.04 Personal banking 1,262,166 109,065 8.64 1,258,729 110,202 8.76 1,013,462 80,513 7.94 Credit card 511,424 67,493 13.20 420,049 58,368 13.90 360,194 47,082 13.07 - ------------------------------------------------------------------------------------------------------------------------------------ Total loans 5,321,584 462,293 8.69 5,161,552 459,198 8.90 4,180,065 332,807 7.96 - ------------------------------------------------------------------------------------------------------------------------------------ Investment securities: U.S. government & federal agency 1,763,146 108,451 6.15 1,705,562 105,216 6.17 2,076,150 121,339 5.84 State & municipal obligations (B) 115,021 9,060 7.88 123,152 9,577 7.78 46,602 3,549 7.62 CMO's and asset-backed securities 653,301 40,913 6.26 719,747 44,928 6.24 586,935 35,132 5.99 Trading account securities 6,500 345 5.30 3,975 240 6.03 4,168 159 3.82 Other marketable securities (B) 51,320 3,529 6.88 66,368 4,110 6.19 69,870 4,191 6.00 Other non-marketable securities 36,820 2,542 6.90 26,407 685 2.59 20,424 631 3.09 - ------------------------------------------------------------------------------------------------------------------------------------ Total investment securities 2,626,108 164,840 6.28 2,645,211 164,756 6.23 2,804,149 165,001 5.88 - ------------------------------------------------------------------------------------------------------------------------------------ Federal funds sold and securities purchased under agreements to resell 467,103 25,334 5.42 205,547 12,075 5.87 132,672 5,457 4.11 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest earning assets 8,414,795 652,467 7.75 8,012,310 636,029 7.94 7,116,886 503,265 7.07 - ------------------------------------------------------------------------------------------------------------------------------------ Less allowance for loan losses (98,312) (95,884) (86,664) Unrealized gain (loss) on investment securities 21,675 (13,983) (15,424) Cash and due from banks 623,523 607,656 555,171 Land, buildings and equipment -- net 208,967 205,702 194,159 Other assets 194,278 209,168 149,568 - ------------------------------------------ ---------- ---------- Total assets $9,364,926 $8,924,969 $7,913,696 ========================================== ========== ========== LIABILITIES AND EQUITY Interest bearing deposits: Savings $ 299,018 7,165 2.40 $ 312,049 7,954 2.55 $ 273,032 6,618 2.42 Interest bearing demand 3,656,476 121,367 3.32 3,329,272 112,729 3.39 3,247,965 84,037 2.59 Time open & C.D.'s of less than $100,000 2,195,628 119,366 5.44 2,206,655 118,267 5.36 1,826,661 77,884 4.26 Time open & C.D.'s of $100,000 and over 223,723 11,606 5.19 213,950 11,430 5.34 155,813 6,213 3.99 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest bearing deposits 6,374,845 259,504 4.07 6,061,926 250,380 4.13 5,503,471 174,752 3.18 - ------------------------------------------------------------------------------------------------------------------------------------ Borrowings: Federal funds purchased and securities sold under agreements to repurchase 449,831 21,427 4.76 442,413 23,792 5.38 287,642 10,384 3.61 Long-term debt and other borrowings (C) 14,690 1,054 7.17 16,195 1,146 7.08 7,129 542 7.60 - ------------------------------------------------------------------------------------------------------------------------------------ Total borrowings 464,521 22,481 4.84 458,608 24,938 5.44 294,771 10,926 3.71 - ------------------------------------------------------------------------------------------------------------------------------------ Total interest bearing liabilities 6,839,366 281,985 4.12% 6,520,534 275,318 4.22% 5,798,242 185,678 3.20% - ------------------------------------------------------------------------------------------------------------------------------------ Non-interest bearing demand deposits 1,559,157 1,497,474 1,341,721 Other liabilities 74,374 60,527 37,515 Stockholders' equity 892,029 846,434 736,218 - ------------------------------------------ ---------- ---------- Total liabilities and equity $9,364,926 $8,924,969 $7,913,696 ==================================================================================================================================== Net interest margin (T/E) $370,482 $360,711 $317,587 ==================================================================================================================================== Net yield on interest earning assets 4.40% 4.50% 4.46% ==================================================================================================================================== Percentage increase in net interest margin (T/E) over the prior year 2.71% 13.58% 10.52% ====================================================================================================================================
(A) Loans on non-accrual status are included in the computation of average balances. Included in interest income above are loan fees and late charges, net of amortization of deferred loan origination costs, which are immaterial. Credit card income from merchant discounts and net interchange fees are not included in loan income. (B) Interest income and yields are presented on a fully-taxable equivalent basis using the Federal statutory income tax rate. Business loan interest income includes tax free loan income of $3,934,000 in 1996, $4,259,000 in 1995, $3,916,000 in 1994, $4,281,000 in 1993 and $4,722,000 in 1992, including tax equivalent adjustments of $1,323,000 in 1996, $1,438,000 36
Years Ended December 31 - ---------------------------------------------------------------------------------------------------------------- 1993 1992 - ---------------------------------------------------------------------------------------------------------------- Average Average Interest Rates Interest Rates (Dollars in thousands) Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid - -------------------------------------------------------------------------------------------------------------- ASSETS Loans: (A) Business (B) $1,281,458 $ 81,416 6.35% $1,160,801 $ 78,418 6.76% Construction and development 102,825 7,746 7.53 115,019 8,692 7.56 Real estate -- business 493,503 37,505 7.60 401,444 33,219 8.27 Real estate -- personal 716,273 53,428 7.46 624,071 54,124 8.67 Personal banking 920,157 75,080 8.16 876,678 77,931 8.89 Credit card 321,618 44,141 13.72 296,272 44,726 15.10 - -------------------------------------------------------------------------------------------------------------- Total loans 3,835,834 299,316 7.80 3,474,285 297,110 8.55 - -------------------------------------------------------------------------------------------------------------- Investment securities: U.S. government & federal agency 2,497,041 143,395 5.74 2,094,399 130,918 6.25 State & municipal obligations (B) 41,141 3,181 7.73 26,566 2,246 8.45 CMO's and asset-backed securities 60,425 3,552 5.88 - - - Trading account securities 4,731 220 4.66 7,420 477 6.43 Other marketable securities (B) 70,837 3,933 5.55 122,476 6,069 4.96 Other non-marketable securities 21,024 924 4.39 17,996 959 5.33 - -------------------------------------------------------------------------------------------------------------- Total investment securities 2,695,199 155,205 5.76 2,268,857 140,669 6.20 - -------------------------------------------------------------------------------------------------------------- Federal funds sold and securities purchased under agreements to resell 282,625 8,735 3.09 422,732 15,379 3.64 - -------------------------------------------------------------------------------------------------------------- Total interest earning assets 6,813,658 463,256 6.80 6,165,874 453,158 7.35 - -------------------------------------------------------------------------------------------------------------- Less allowance for loan losses (83,767) (68,344) Unrealized gain (loss) on - - investment securities Cash and due from banks 573,494 508,594 Land, buildings and equipment -- net 196,809 183,109 Other assets 149,909 132,021 - -------------------------------------------------------------------------------------------------------------- Total assets $7,650,103 $6,921,254 ============================================================================================================== LIABILITIES AND EQUITY Interest bearing deposits: Savings $ 248,681 6,012 2.42 $ 188,332 5,979 3.17 Interest bearing demand 3,124,098 78,995 2.53 2,788,635 88,330 3.17 Time open & C.D.'s of less than $100,000 1,790,418 77,165 4.31 1,786,175 93,752 5.25 Time open & C.D.'s of $100,000 and over 138,271 5,038 3.64 135,805 5,826 4.29 - -------------------------------------------------------------------------------------------------------------- Total interest bearing deposits 5,301,468 167,210 3.15 4,898,947 193,887 3.96 - -------------------------------------------------------------------------------------------------------------- Borrowings: Federal funds purchased and securities sold under agreements to repurchase 318,951 8,141 2.55 271,181 8,071 2.98 Long-term debt and other borrowings (C) 7,118 554 7.79 12,566 1,021 8.13 - -------------------------------------------------------------------------------------------------------------- Total borrowings 326,069 8,695 2.67 283,747 9,092 3.20 - -------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities 5,627,537 175,905 3.13% 5,182,694 202,979 3.92% - -------------------------------------------------------------------------------------------------------------- Non-interest bearing demand deposits 1,302,634 1,121,481 Other liabilities 50,902 60,619 Stockholders' equity 669,030 556,460 - -------------------------------------------------------------------------------------------------------------- Total liabilities and equity $7,650,103 $6,921,254 ============================================================================================================== Net interest margin (T/E) $ 287,351 $250,179 ============================================================================================================== Net yield on interest earning assets 4.22% 4.06% ============================================================================================================== Percentage increase in net interest margin (T/E) over the prior year 14.86% 11.12% ==============================================================================================================
- ----------------------------------------------------------------------- 1991 - ----------------------------------------------------------------------- Average Average Balance Interest Rates Five Year (Dollars in thousands) Average Income/ Earned/ Compound Balance Expense Paid Growth Rate - ------------------------------------------------------------------------------------------ ASSETS Loans: (A) Business (B) $1,056,376 $ 92,112 8.72% 9.60% Construction and development 108,478 10,202 9.40 9.17 Real estate -- business 390,611 38,190 9.78 12.99 Real estate -- personal 570,654 56,996 9.99 11.65 Personal banking 869,369 89,039 10.24 7.74 Credit card 263,731 43,288 16.41 14.16 - ------------------------------------------------------------------------------------------ Total loans 3,259,219 329,827 10.12 10.30 - ------------------------------------------------------------------------------------------ Investment securities: U.S. government & federal agency 1,654,517 131,738 7.96 1.28 State & municipal obligations (B) 13,395 1,702 12.71 53.73 CMO's and asset-backed securities - - - NA Trading account securities 5,433 357 6.57 3.65 Other marketable securities (B) 294,895 18,784 6.37 (29.51) Other non-marketable securities 16,647 611 3.67 17.21 - ------------------------------------------------------------------------------------------ Total investment securities 1,984,887 153,192 7.72 5.76 - ------------------------------------------------------------------------------------------ Federal funds sold and securities purchased under agreements to resell 489,869 28,434 5.80 (.95) - ------------------------------------------------------------------------------------------ Total interest earning assets 5,733,975 511,453 8.92 7.97 - ------------------------------------------------------------------------------------------ Less allowance for loan losses (59,441) 10.59 Unrealized gain (loss) on - NA investment securities Cash and due from banks 447,756 6.85 Land, buildings and equipment -- net 177,984 3.26 Other assets 117,905 10.50 - ------------------------------------------------------------------------------------------ Total assets $6,418,179 7.85% ========================================================================================== LIABILITIES AND EQUITY Interest bearing deposits: Savings $ 148,972 7,260 4.87 14.95% Interest bearing demand 2,379,299 120,358 5.06 8.97 Time open & C.D.'s of less than $100,000 1,840,020 127,949 6.95 3.60 Time open & C.D.'s of $100,000 and over 198,130 12,212 6.16 2.46 - ------------------------------------------------------------------------------------------ Total interest bearing deposits 4,566,421 267,779 5.86 6.90 - ------------------------------------------------------------------------------------------ Borrowings: Federal funds purchased and securities sold under agreements to repurchase 293,986 15,016 5.11 8.88 Long-term debt and other borrowings (C) 38,711 3,522 9.10 (17.62) - ------------------------------------------------------------------------------------------ Total borrowings 332,697 18,538 5.57 6.90 - ------------------------------------------------------------------------------------------ Total interest bearing liabilities 4,899,118 286,317 5.84% 6.90 - ------------------------------------------------------------------------------------------ Non-interest bearing demand deposits 968,123 10.00 Other liabilities 69,951 1.23 Stockholders' equity 480,987 13.15 - ------------------------------------------------------------------------------------------ Total liabilities and equity $6,418,179 7.85% ========================================================================================== Net interest margin (T/E) $225,136 ========================================================================================== Net yield on interest earning assets 3.93% ========================================================================================== Percentage increase in net interest margin (T/E) over the prior year 4.74% ==========================================================================================
in 1995, $1,378,000 in 1994, $1,517,000 in 1993 and $1,644,000 in 1992. State and municipal interest income includes tax equivalent adjustments of $2,956,000 in 1996, $3,075,000 in 1995, $1,097,000 in 1994, $944,000 in 1993 and $641,000 in 1992. Interest income on other marketable securities includes tax equivalent adjustments of $585,000 in 1996, $513,000 in 1995, $509,000 in 1994, $382,000 in 1993 and $252,000 in 1992. (C) Interest expense of $125,000, $60,000, $14,000, $17,000 and $66,000 which was capitalized on construction projects in 1996, 1995, 1994, 1993 and 1992, respectively, is not deducted from the interest expense shown above. 37 Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations (Cont.) QUARTERLY AVERAGE BALANCE SHEETS--AVERAGE RATES AND YIELDS
Year Ended December 31, 1996 - ---------------------------------------------------------------------------------------------------------------------- Fourth Quarter Third Quarter Second Quarter First Quarter - ---------------------------------------------------------------------------------------------------------------------- Average Average Average Average Rates Rates Rates Rates (Dollars in millions) Average Earned/ Average Earned/ Average Earned/ Average Earned/ Balance Paid Balance Paid Balance Paid Balance Paid - ---------------------------------------------------------------------------------------------------------------------- ASSETS Loans: Business (A) $1,644 7.82% $1,670 7.89% $1,686 7.84% $1,682 7.97% Construction and development 168 8.64 164 8.63 169 8.71 171 8.89 Real estate -- business 750 8.53 723 8.58 703 8.65 701 8.63 Real estate -- personal 1,003 7.77 985 7.73 991 7.83 981 8.01 Personal banking 1,287 8.53 1,244 8.61 1,254 8.69 1,265 8.74 Credit card 531 13.12 517 13.10 503 12.99 494 13.60 - ---------------------------------------------------------------------------------------------------------------------- Total loans 5,383 8.63 5,303 8.66 5,306 8.66 5,294 8.80 - ---------------------------------------------------------------------------------------------------------------------- Investment securities: U.S. government & federal agency 1,753 6.18 1,796 6.13 1,789 6.14 1,714 6.16 State & municipal obligations (A) 107 7.91 115 7.72 118 8.02 120 7.87 CMO's and asset-backed securities 669 6.22 664 6.21 633 6.32 648 6.31 Trading account securities 8 7.16 4 .77 8 5.78 7 5.09 Other marketable securities (A) 69 7.34 53 6.35 45 6.47 37 7.27 Other non-marketable securities 40 16.95 39 5.95 34 2.05 34 .95 - ---------------------------------------------------------------------------------------------------------------------- Total investment securities 2,646 6.46 2,671 6.21 2,627 6.22 2,560 6.22 - ---------------------------------------------------------------------------------------------------------------------- Federal funds sold and securities purchased under agreements to resell 451 5.42 386 5.41 454 5.38 579 5.47 - ---------------------------------------------------------------------------------------------------------------------- Total interest earning assets 8,480 7.78 8,360 7.73 8,387 7.72 8,433 7.79 - ---------------------------------------------------------------------------------------------------------------------- Less allowance for loan losses (98) (98) (99) (98) Unrealized gain on investment securities 20 - 14 52 Cash and due from banks 597 624 616 657 Land, buildings and equipment -- net 209 208 208 210 Other assets 184 189 197 208 - ---------------------------------------------------------------------------------------------------------------------- Total assets $9,392 $9,283 $9,323 $9,462 ====================================================================================================================== LIABILITIES AND EQUITY Interest bearing deposits: Savings $ 288 2.41 $ 296 2.41 $ 306 2.35 $ 306 2.41 Interest bearing demand 3,673 3.32 3,651 3.29 3,665 3.30 3,638 3.37 Time open & C.D.'s under $100,000 2,150 5.38 2,174 5.38 2,213 5.39 2,246 5.58 Time open & C.D.'s $100,000 & over 208 5.19 220 5.14 234 5.13 232 5.30 - ---------------------------------------------------------------------------------------------------------------------- Total interest bearing deposits 6,319 4.04 6,341 4.03 6,418 4.04 6,422 4.17 - ---------------------------------------------------------------------------------------------------------------------- Borrowings: Federal funds purchased and securities sold under agreements to repurchase 464 4.70 425 4.78 429 4.75 481 4.83 Long-term debt and other borrowings 15 7.21 15 7.16 15 7.32 15 7.02 - ---------------------------------------------------------------------------------------------------------------------- Total borrowings 479 4.77 440 4.86 444 4.83 496 4.90 - ---------------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities 6,798 4.09% 6,781 4.09% 6,862 4.09% 6,918 4.22% - ---------------------------------------------------------------------------------------------------------------------- Non-interest bearing demand deposits 1,626 1,556 1,507 1,546 Other liabilities 64 66 71 96 Stockholders' equity 904 880 883 902 - ---------------------------------------------------------------------------------------------------------------------- Total liabilities and equity $9,392 $9,283 $9,323 $9,462 ====================================================================================================================== Net interest margin (T/E) $ 96 $ 92 $ 91 $ 91 ====================================================================================================================== Net yield on interest earning assets 4.50% 4.41% 4.37% 4.33% ====================================================================================================================== (A) Includes tax equivalent calculations
38
Year Ended December 31, 1995 - ------------------------------------------------------------------------------------------------------------------------------- Fourth Quarter Third Quarter Second Quarter First Quarter - ------------------------------------------------------------------------------------------------------------------------------- Average Average Average Average Rates Rates Rates Rates (Dollars in millions) Average Earned/ Average Earned/ Average Earned/ Average Earned/ Balance Paid Balance Paid Balance Paid Balance Paid - ------------------------------------------------------------------------------------------------------------------------------- ASSETS Loans: Business (A) $1,761 8.24% $1,802 8.24% $1,765 8.50% $1,485 8.32% Construction and development 139 9.19 129 9.23 125 9.48 130 9.64 Real estate -- business 713 8.84 728 8.83 716 9.14 615 8.91 Real estate -- personal 990 7.93 996 7.94 984 7.76 848 7.57 Personal banking 1,306 8.82 1,312 8.86 1,282 8.78 1,132 8.52 Credit card 457 13.77 426 13.99 405 14.19 390 13.64 - ------------------------------------------------------------------------------------------------------------------------------- Total loans 5,366 8.90 5,393 8.89 5,277 8.98 4,600 8.80 - ------------------------------------------------------------------------------------------------------------------------------- Investment securities: U.S. government & federal agency 1,669 6.17 1,632 6.20 1,722 6.19 1,803 6.12 State & municipal obligations (A) 133 8.00 144 7.77 141 7.94 73 7.07 CMO's and asset-backed securities 681 6.22 689 6.14 761 6.27 749 6.33 Trading account securities 5 5.83 4 5.49 3 7.45 3 5.65 Other marketable securities (A) 46 6.76 55 5.79 75 6.00 89 6.31 Other non-marketable securities 33 1.39 26 4.15 25 3.00 22 2.08 - ------------------------------------------------------------------------------------------------------------------------------- Total investment securities 2,567 6.23 2,550 6.24 2,727 6.27 2,739 6.18 - ------------------------------------------------------------------------------------------------------------------------------- Federal funds sold and securities purchased under agreements to resell 366 5.81 301 5.80 86 6.20 65 6.14 - ------------------------------------------------------------------------------------------------------------------------------- Total interest earning assets 8,299 7.94 8,244 7.96 8,090 8.04 7,404 7.80 - ------------------------------------------------------------------------------------------------------------------------------- Less allowance for loan losses (98) (98) (98) (88) Unrealized gain (loss) on investment securities 28 17 (19) (84) Cash and due from banks 645 640 589 555 Land, buildings and equipment -- net 210 210 209 194 Other assets 224 224 221 166 - ------------------------------------------------------------------------------------------------------------------------------- Total assets $9,308 $9,237 $8,992 $8,147 ================================================================================================================================ LIABILITIES AND EQUITY Interest bearing deposits: Savings $ 312 2.52 $ 323 2.54 $ 330 2.56 $ 283 2.58 Interest bearing demand 3,505 3.47 3,403 3.48 3,289 3.38 3,115 3.20 Time open & C.D.'s under $100,000 2,261 5.59 2,302 5.53 2,267 5.34 1,993 4.92 Time open & C.D.'s $100,000 & over 230 5.47 224 5.53 217 5.44 184 4.84 - ------------------------------------------------------------------------------------------------------------------------------- Total interest bearing deposits 6,308 4.25 6,252 4.26 6,103 4.13 5,575 3.84 - ------------------------------------------------------------------------------------------------------------------------------- Borrowings: Federal funds purchased and securities sold under agreements to repurchase 430 5.30 461 5.37 475 5.52 403 5.30 Long-term debt and other borrowings 15 7.41 16 7.27 18 7.42 16 6.14 - ------------------------------------------------------------------------------------------------------------------------------- Total borrowings 445 5.37 477 5.43 493 5.59 419 5.34 - ------------------------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities 6,753 4.33% 6,729 4.34% 6,596 4.24% 5,994 3.95% - ------------------------------------------------------------------------------------------------------------------------------- Non-interest bearing demand deposits 1,569 1,559 1,494 1,365 Other liabilities 93 66 54 29 Stockholders' equity 893 883 848 759 - ------------------------------------------------------------------------------------------------------------------------------- Total liabilities and equity $9,308 $9,237 $8,992 $8,147 =============================================================================================================================== Net interest margin (T/E) $ 93 $ 92 $ 92 $ 84 =============================================================================================================================== Net yield on interest earning assets 4.42% 4.42% 4.58% 4.61% ===============================================================================================================================
(A) Includes tax equivalent calculations. 39 CONSOLIDATED BALANCE SHEETS Commerce Bancshares, Inc. and Subsidiaries
December 31 - ------------------------------------------------------------------------------ (In thousands) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ ASSETS Loans, net of unearned income $5,472,342 $5,317,813 Allowance for loan losses (98,223) (98,537) - ------------------------------------------------------------------------------ Net loans 5,374,119 5,219,276 - ------------------------------------------------------------------------------ Investment securities: Available for sale 2,670,420 2,552,264 Trading account 11,265 9,369 Other non-marketable 39,830 33,120 - ------------------------------------------------------------------------------ Total investment securities 2,721,515 2,594,753 - ------------------------------------------------------------------------------ Federal funds sold and securities purchased under agreements to resell 368,690 523,302 Cash and due from banks 833,260 774,852 Land, buildings and equipment -- net 209,777 210,033 Goodwill and core deposit premium -- net 87,928 101,184 Customers' acceptance liability 1,259 9,435 Other assets 101,638 141,116 - ------------------------------------------------------------------------------ Total assets $9,698,186 $9,573,951 ============================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing demand $1,800,684 $1,828,950 Savings and interest bearing demand 4,021,376 3,891,801 Time open and C.D.'s of less than $100,000 2,138,206 2,253,390 Time open and C.D.'s of $100,000 and over 206,163 218,951 - ------------------------------------------------------------------------------ Total deposits 8,166,429 8,193,092 - ------------------------------------------------------------------------------ Federal funds purchased and securities sold under agreements to repurchase 526,807 362,903 Long-term debt and other borrowings 14,120 14,562 Other liabilities 65,300 110,176 Acceptances outstanding 1,259 9,435 - ------------------------------------------------------------------------------ Total liabilities 8,773,915 8,690,168 - ------------------------------------------------------------------------------ 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 37,565,369 shares in 1996 and 1995 187,827 187,827 Capital surplus 104,292 84,415 Retained earnings 621,689 618,388 Treasury stock of 187,977 shares in 1996 and 861,951 shares in 1995, at cost (7,422) (32,980) Unearned employee benefits (340) (716) Unrealized securities gain -- net of tax 18,225 26,849 - ------------------------------------------------------------------------------ Total stockholders' equity 924,271 883,783 - ------------------------------------------------------------------------------ Total liabilities and stockholders' equity $9,698,186 $9,573,951 ============================================================================== See accompanying notes to financial statements
40
CONSOLIDATED STATEMENTS OF INCOME Commerce Bancshares, Inc. and Subsidiaries For the Years Ended December 31 - ----------------------------------------------------------------------------------------------------------------------------------- (In thousands, except per share data) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- INTEREST INCOME Interest and fees on loans $460,970 $457,760 $331,429 Interest on investment securities 161,299 161,168 163,395 Interest on federal funds sold and securities purchased under agreements to resell 25,334 12,075 5,457 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest income 647,603 631,003 500,281 - ----------------------------------------------------------------------------------------------------------------------------------- INTEREST EXPENSE Interest on deposits: Savings and interest bearing demand 128,532 120,683 90,655 Time open and C.D.'s of less than $100,000 119,366 118,267 77,884 Time open and C.D.'s of $100,000 and over 11,606 11,430 6,213 Interest on federal funds purchased and securities sold under agreements to repurchase 21,427 23,792 10,384 Interest on long-term debt and other borrowings 929 1,086 528 - ----------------------------------------------------------------------------------------------------------------------------------- Total interest expense 281,860 275,258 185,664 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income 365,743 355,745 314,617 - ----------------------------------------------------------------------------------------------------------------------------------- Provision for loan losses 24,522 14,629 5,845 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 341,221 341,116 308,772 - ----------------------------------------------------------------------------------------------------------------------------------- NON-INTEREST INCOME Trust fees 36,622 33,454 28,180 Deposit account charges and other fees 54,506 44,658 39,971 Credit card transaction fees 26,586 23,341 19,318 Trading account profits and commissions 5,982 5,158 4,903 Net gains on securities transactions 3,293 897 2,354 Other 32,173 25,642 26,302 - ----------------------------------------------------------------------------------------------------------------------------------- Total non-interest income 159,162 133,150 121,028 - ----------------------------------------------------------------------------------------------------------------------------------- NON-INTEREST EXPENSE Salaries and employee benefits 165,291 157,853 144,015 Net occupancy 21,456 20,294 18,017 Equipment 15,185 14,256 13,159 Supplies and communication 24,697 24,139 19,633 Data processing 20,778 20,997 16,837 Federal deposit insurance 2,124 8,807 15,349 Marketing 11,698 11,611 10,833 Other 56,725 47,527 44,235 - ----------------------------------------------------------------------------------------------------------------------------------- Total non-interest expense 317,954 305,484 282,078 - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 182,429 168,782 147,722 Less income taxes 62,917 61,142 51,611 - ----------------------------------------------------------------------------------------------------------------------------------- Net income $119,512 $107,640 $ 96,111 - ----------------------------------------------------------------------------------------------------------------------------------- Net income per common and common equivalent share $ 3.11 $ 2.71 $ 2.59 - ----------------------------------------------------------------------------------------------------------------------------------- Weighted average common and common equivalent shares outstanding 38,450 39,693 37,167 Cash dividends per common share $ .724 $ .653 $ .570 - ----------------------------------------------------------------------------------------------------------------------------------- See accompanying notes to financial statements.
41
CONSOLIDATED STATEMENTS OF CASH FLOWS Commerce Bancshares, Inc. and Subsidiaries For the Years Ended December 31 - ------------------------------------------------------------------------------------------------ (In thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income $ 119,512 $ 107,640 $ 96,111 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 24,522 14,629 5,845 Provision for depreciation and amortization 31,134 31,173 25,741 Accretion of investment security discounts (5,630) (5,656) (1,704) Amortization of investment security premiums 20,194 24,596 32,057 Provision for deferred income taxes 3,303 3,549 (6,651) Net gains on securities transactions (3,293) (897) (2,354) Net (increase) decrease in trading account securities (1,230) (4,859) 2,182 (Increase) decrease in interest receivable 10,190 19 (10,309) Increase (decrease) in interest payable (1,214) 10,863 5,033 Other changes, net 17,194 14,204 (9,203) - ------------------------------------------------------------------------------------------------ Net cash provided by operating activities 214,682 195,261 136,748 - ------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Net cash received (paid) in acquisitions -- (33,226) 13,031 Cash paid in sales of branches (38,134) -- -- Proceeds from sales of available for sale securities 704,120 917,063 808,253 Proceeds from maturities of available for sale securities 496,928 535,722 230,303 Purchases of available for sale securities (1,351,654) (930,080) (821,250) Net (increase) decrease in federal funds sold and securities purchased under agreements to resell 154,612 (424,202) 299,393 Net increase in loans (188,731) (222,684) (278,953) Purchases of premises and equipment (26,436) (25,798) (19,057) Sales of premises and equipment 7,000 8,673 8,789 - ------------------------------------------------------------------------------------------------ Net cash provided (used) by investing activities (242,295) (174,532) 240,509 - ------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Net increase (decrease) in non-interest bearing demand, savings and interest bearing demand deposits 131,861 265,672 (252,099) Net increase (decrease) in time open and C.D.'s (107,418) 53,208 91,804 Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 163,904 (59,843) (119,777) Repayment of long-term debt (495) (8,805) (438) Purchases of treasury stock (78,408) (40,024) (52,755) Issuance under stock purchase, option and benefit plans 4,039 4,149 8,152 Cash dividends paid on common stock (27,462) (26,039) (21,124) - ------------------------------------------------------------------------------------------------ Net cash provided (used) by financing activities 86,021 188,318 (346,237) - ------------------------------------------------------------------------------------------------ Increase in cash and cash equivalents 58,408 209,047 31,020 Cash and cash equivalents at beginning of year 774,852 565,805 534,785 - ------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 833,260 $ 774,852 $ 565,805 ================================================================================================
See accompanying notes to financial statements. 42 STATEMENTS OF STOCKHOLDERS' EQUITY Commerce Bancshares, Inc. and Subsidiaries
Unearned Net Common Capital Retained Treasury Employee Unrealized (In thousands) Stock Surplus Earnings Stock Benefits Gain (Loss) Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1993 $161,192 $ 17,051 $545,424 $ (8,982) $(2,065) $ - $712,620 - ---------------------------------------------------------------------------------------------------------------------------------- Net income 96,111 96,111 1/1/94 adoption of SFAS 115 -- net unrealized gain on available for sale securities 47,116 47,116 Change in unrealized gain (loss) on available for sale securities (107,232) (107,232) Purchase of treasury stock (52,793) (52,793) Cash dividends paid ($.570 per share) (21,124) (21,124) Issuance under stock purchase, option, award and benefit plans, net (1,023) 9,420 20 8,417 Purchase acquisitions 571 2,519 40,207 43,297 5% stock dividend 8,088 35,992 (44,080) - ESOP benefit earned 36 1,750 1,786 - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1994 169,851 54,575 576,331 (12,148) (295) (60,116) 728,198 - ---------------------------------------------------------------------------------------------------------------------------------- Net income 107,640 107,640 Change in unrealized gain (loss) on available for sale securities 86,927 86,927 Purchase of treasury stock (71,368) 33 (71,335) Cash dividends paid ($.653 per share) (26,039) (26,039) Issuance under stock purchase, option and award plans, net (2,797) 8,241 (454) 4,990 Purchase acquisitions (435) 5,315 4,880 Pooling acquisition, net 13,371 (4,872) 32,360 7,625 38 48,522 5% stock dividend, net 4,605 37,944 (71,904) 29,355 - - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1995 187,827 84,415 618,388 (32,980) (716) 26,849 883,783 - ---------------------------------------------------------------------------------------------------------------------------------- Net income 119,512 119,512 Change in unrealized gain (loss) on available for sale securities (8,624) (8,624) Purchase of treasury stock (47,844) 24 (47,820) Cash dividends paid ($.724 per share) (27,462) (27,462) Issuance under stock purchase, option and award plans, net (3,217) 7,747 352 4,882 5% stock dividend, net 23,094 (88,749) 65,655 - - ---------------------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1996 $187,827 $104,292 $621,689 $ (7,422) $ (340) $ 18,225 $924,271 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements. 43 Notes to Financial Statements Commerce Bancshares, Inc. and Subsidiaries SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Company follows generally accepted accounting principles (GAAP) and reporting practices applicable to the banking industry. The preparation of financial statements under GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. While the financial statements reflect management's best estimates and judgment, actual results could differ from those estimates. The consolidated financial statements include the accounts of the Company and its substantially wholly-owned subsidiaries (after elimination of all material intercompany balances and transactions). Certain amounts for prior years have been reclassified to conform to the current year presentation. ACQUISITIONS/INTANGIBLE ASSETS The Company amortizes the cost in excess of the fair value of net assets acquired in purchase business combinations (goodwill) using the straight-line method over periods of 15-20 years. When facts and circumstances indicate potential impairment, the Company evaluates the recoverability of asset carrying values, including goodwill, using estimates of undiscounted future cash flows over remaining asset lives. Any impairment loss is measured by the excess of carrying values over fair values. Core deposit intangibles are amortized over a maximum of 10 years using accelerated methods. Results of operations of companies acquired in purchase business combinations are included from the date of acquisition. LOANS Interest on loans is accrued based upon the principal amount outstanding. The accrual of interest on loans is discontinued when, in management's judgment, the collectibility of interest or principal in the normal course of business is doubtful. Loan and commitment fees are deferred and recognized as income over the life of the loan or commitment as an adjustment of yield. ALLOWANCE/PROVISION FOR LOAN LOSSES The provision for loan losses is based upon management's estimate of the amount required to maintain an adequate allowance for losses, reflective of the risks in the loan portfolio. This estimate is based upon reviews of the portfolio, past loan loss experience, current economic conditions and such other factors, which in management's judgment, deserve current recognition. Impaired loans include all non-accrual loans and loans 90 days delinquent and still accruing interest. INVESTMENTS IN DEBT AND EQUITY SECURITIES Securities classified as available for sale are carried at fair value, with unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Premiums and discounts are amortized to interest income over the estimated lives of the securities. Gains and losses are calculated using the specific identification method. Trading account securities are carried at fair value with unrealized gains and losses recorded as non-interest income. Investments in equity securities without readily determinable fair values are stated at cost, less allowances for other than temporary declines in value. PROPERTY AND EQUIPMENT Land is stated at cost, and buildings and equipment are stated at cost less accumulated depreciation. Depreciation is computed using straight-line and accelerated methods. Maintenance and repairs are charged to expense as incurred. INCOME TAXES The Company and its eligible subsidiaries file consolidated income tax returns. Deferred income taxes are provided on temporary differences between the financial reporting bases and income tax bases of the Company's assets and liabilities. TREASURY STOCK Purchases of the Company's common stock are recorded at cost. Upon reissuance, treasury stock is reduced based upon the average cost basis of shares held. 44 INCOME PER SHARE Income per share data is based on the weighted average number of common shares and common equivalent shares outstanding during each year. All per share data has been restated to reflect the 5% stock dividend distributed on December 13, 1996. ACQUISITIONS The Company has signed a definitive agreement to merge with Shawnee Bank Shares, Inc., a one-bank holding company in the metropolitan Kansas City area with assets of $205 million. The merger will be recorded as a stock transaction accounted for as a pooling of interests. Completion of this acquisition is anticipated during the second quarter of 1997; it is not expected to have a material impact on the financial statements of the Company. During 1995, the Company acquired four banks with an aggregate purchase price of $181.8 million. Three of the acquisitions were accounted for under the purchase method of accounting and one was accounted for as a pooling of interests. The Company issued common stock valued at $82.8 million in its acquisition of The Peoples Bank of Bloomington, Illinois, in March 1995 in a transaction recorded under the pooling of interests method of accounting. The Peoples Bank had assets of $444 million at the date of acquisition. Union National Bank of Wichita, Kansas, was acquired for cash of $86.7 million in April 1995 in a transaction accounted for under the purchase method of accounting. Union National Bank had assets of $673 million at the acquisition date. In March and May 1995, the Company acquired the Cotton Exchange Bank in Kennett, Missouri, and the Chillicothe State Bank in Chillicothe, Illinois. Aggregate consideration paid in these two transactions, which were accounted for using the purchase method, consisted of cash of $7.4 million and treasury stock valued at $4.9 million. Total goodwill and core deposit intangible assets recorded by the Company in connection with the three purchase acquisitions was $64.9 million. During 1994, the Company acquired five banks in transactions which were all accounted for as purchases. The aggregate purchase price of these acquisitions was $50.7 million, and included treasury stock valued at $44.5 million, new common stock valued at $3.5 million, and $2.7 million of cash. Total assets of acquired banks aggregated $376 million. Goodwill and core deposit intangible assets recorded as a result of these acquisitions was $11.6 million. Financial statements for periods prior to the consummation of acquisitions accounted for as poolings have not been restated because such restated amounts do not differ materially from the Company's historical financial statements. The following schedule summarizes pro forma consolidated financial data as if the 1994 and 1995 acquisitions had been consummated on January 1, 1994:
(In thousands, except per share data) 1995 1994 - -------------------------------------------------------------------------------- Net interest income plus non-interest income $497,653 $497,697 Net income 103,909 101,737 Net income per share 2.58 2.46 ================================================================================
LOANS AND ALLOWANCE FOR LOSSES Major classifications of loans at December 31, 1996 and 1995 are as follows:
- -------------------------------------------------------------------------------- (In thousands) 1996 1995 - -------------------------------------------------------------------------------- Business $1,700,678 $1,716,080 Real estate -- construction 182,474 168,031 Real estate -- business 758,650 695,558 Real estate -- personal 1,010,572 983,249 Personal banking 1,256,684 1,258,809 Credit card 563,284 496,086 - -------------------------------------------------------------------------------- Total loans $5,472,342 $5,317,813 ================================================================================
Loans to directors and executive officers of the Parent and its significant subsidiaries and to their associates are summarized as follows:
(In thousands) - -------------------------------------------------------------------------------- Balance at January 1, 1996 $ 152,246 - -------------------------------------------------------------------------------- Additions 199,261 Amounts collected 177,753 Amounts written off - - -------------------------------------------------------------------------------- Balance at December 31, 1996 $ 173,754 - --------------------------------------------------------------------------------
Management believes all loans to directors and executive officers have been made in the ordinary course of business with normal credit terms, including interest rate and collateralization, and do not represent more than a normal risk of collection. There were no 45 outstanding loans at December 31, 1996, to principal holders of the Company's common stock. The Company's lending activity is generally centered in Missouri and its contiguous states. The Company maintains a diversified portfolio with no significant industry concentrations of credit risk. Loans and loan commitments are extended under the Company's normal credit standards, controls, and monitoring features. Most credit commitments are short term in nature, and maturities generally do not exceed five years. Credit terms typically provide for floating rates of interest, and fixed rates are generally not set for more than three to five years. Collateral is commonly required and would include such assets as marketable securities and cash equivalent assets, accounts receivable and inventory, equipment, other forms of personal property, and real estate. At December 31, 1996, unfunded loan commitments totaled $2,073,614,000 (excluding $1,967,388,000 in unused approved lines of credit related to credit card loan agreements) which could be drawn by customers subject to certain review and terms of agreement. A summary of the allowance for loan losses is as follows:
Years Ended December 31 - ------------------------------------------------------- (In thousands) 1996 1995 1994 - ------------------------------------------------------- Balance, January 1 $98,537 $87,179 $85,830 - ------------------------------------------------------- Additions: Provision for loan losses 24,522 14,629 5,845 Allowances of acquired banks - 12,932 2,953 - ------------------------------------------------------- Total additions 24,522 27,561 8,798 - ------------------------------------------------------- Deductions: Loan losses 31,914 23,272 15,155 Less recoveries 7,078 7,069 7,706 - ------------------------------------------------------- Net loan losses 24,836 16,203 7,449 ======================================================= Balance, December 31 $98,223 $98,537 $87,179 =======================================================
Impaired loans include all non-accrual loans and loans 90 days delinquent and still accruing interest. The net amount of interest income recorded on such loans during their impairment period was not significant. The Company ceased recognition of interest income on loans with a book value of $13,945,000 and $16,234,000 at December 31, 1996 and 1995, respectively. The interest income not recognized on non-accrual loans was $1,617,000, $1,868,000 and $2,051,000 during 1996, 1995 and 1994, respectively. Loans 90 days delinquent and still accruing interest amounted to $24,806,000 and $15,690,000 at December 31, 1996 and 1995, respectively. Real estate and other assets acquired in foreclosure amounted to approximately $2,600,000 and $3,900,000 at December 31, 1996 and 1995, respectively. INVESTMENT SECURITIES A summary of the available for sale investment securities by maturity groupings as of December 31, 1996 follows below. The weighted average yield for each range of maturities was calculated using the yield on each security within that range weighted by the amortized cost of each security at December 31, 1996. Yields on tax exempt securities have not been adjusted for tax exempt status.
Weighted Amortized Fair Average (Dollars in thousands) Cost Value Yield - ------------------------------------------------------------------ U.S. government and federal agency obligations: Within 1 year $ 240,885 $ 243,535 5.82% After 1 but within 5 years 1,463,188 1,472,575 6.26 After 5 but within 10 years 1,264 1,254 5.07 After 10 years 532 581 5.36 - ------------------------------------------------------------------ Total U.S. government and federal agency obligations 1,705,869 1,717,945 6.20 ================================================================== State and municipal obligations: Within 1 year 18,332 18,348 5.30 After 1 but within 5 years 54,927 56,367 5.38 After 5 but within 10 years 22,777 23,634 5.47 After 10 years 2,850 2,944 5.69 - ------------------------------------------------------------------ Total state and municipal obligations 98,886 101,293 5.39 ================================================================== CMO's and asset- backed securities 705,848 703,515 6.22 ================================================================== Other debt securities: Within 1 year 108,032 108,022 After 1 but within 5 years 412 411 After 10 years 9 9 - ------------------------------------------------------------------ Total other debt securities 108,453 108,442 ================================================================== Equity securities 21,863 39,225 ================================================================== Total available for sale investment securities $2,640,919 $2,670,420 ==================================================================
46 The unrealized gains and losses by type are as follows:
Gross Gross Amortized Unrealized Unrealized Fair (In thousands) Cost Gains Losses Value - ---------------------------------------------------------------------------------------------------------- December 31, 1996 U.S. government and federal agency obligations $1,705,869 $ 16,838 $ 4,762 $1,717,945 State and municipal obligations 98,886 2,478 71 101,293 CMO's and asset-backed securities 705,848 3,815 6,148 703,515 Other debt securities 108,453 - 11 108,442 Equity securities 21,863 17,952 590 39,225 - ---------------------------------------------------------------------------------------------------------- Total $2,640,919 $41,083 $ 11,582 $2,670,420 - ---------------------------------------------------------------------------------------------------------- December 31, 1995 U.S. government and federal agency obligations $1,684,679 $24,172 $ 1,740 $1,707,111 State and municipal obligations 124,352 3,735 44 128,043 CMO's and asset-backed securities 666,334 7,119 2,931 670,522 Other debt securities 11,011 5 34 10,982 Equity securities 22,479 14,901 1,774 35,606 - ---------------------------------------------------------------------------------------------------------- Total $2,508,855 $49,932 $ 6,523 $2,552,264 - ----------------------------------------------------------------------------------------------------------
The following table presents proceeds from sales of securities and the components of net securities gains. (In thousands) 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------- Proceeds from sales $704,120 $917,063 $808,253 - ----------------------------------------------------------------------------------------------------------- Realized gains $ 4,600 $ 3,188 $ 2,742 Realized losses 1,307 2,291 388 - ----------------------------------------------------------------------------------------------------------- Net realized gains $ 3,293 $ 897 $ 2,354 - -----------------------------------------------------------------------------------------------------------
Investment securities with a par value of $1,021,998,000 and $1,081,509,000 were pledged at December 31, 1996 and 1995, respectively, to secure public deposits and for other purposes as required by law. Except for U.S. government and federal agency obligations, no investment in a single issuer exceeds 10% of stockholders' equity. LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment consist of the following at December 31, 1996 and 1995: (In thousands) 1996 1995 - ---------------------------------------------------------------------------------------------------------- Land $ 51,676 $ 52,146 Buildings and improvements 247,949 244,413 Equipment 130,657 119,366 - ---------------------------------------------------------------------------------------------------------- Total 430,282 415,925 - ---------------------------------------------------------------------------------------------------------- Less accumulated depreciation and amortization 220,505 205,892 - ---------------------------------------------------------------------------------------------------------- Net land, buildings and equipment $209,777 $210,033 - ----------------------------------------------------------------------------------------------------------
Depreciation expense of $19,183,000, $19,578,000 and $18,243,000 for 1996, 1995 and 1994, respectively, was included in net occupancy expense, equipment expense and other expense in the Consolidated Statements of Income. Repairs and maintenance expense of $13,082,000, $11,182,000 and $9,945,000 for 1996, 1995 and 1994, respectively, was included in net occupancy expense, equipment expense and other expense. BORROWINGS Short-term borrowings of the Company consisted of federal funds purchased and securities sold under agreements to repurchase by subsidiary banks of the following:
(Dollars in thousands) 1996 1995 - --------------------------------------------------------------------------------------------------- Balance: Average $449,831 $ 42,413 Year end 526,807 362,903 Maximum month-end during year 526,807 589,270 - --------------------------------------------------------------------------------------------------- Interest rate: Average 4.8% 5.4% Year end 5.0% 4.8% - ---------------------------------------------------------------------------------------------------
Long-term debt of the Company was $14,120,000 at December 31, 1996, including $9,200,000 borrowed from the Federal Home Loan Bank by a subsidiary bank acquired in 1995. Such borrowings carry an average rate of 6.4%, and require payments of $6,200,000 and $3,000,000 in 1997 and 1998, respectively. None of the Company's borrowings have any related compensating balance requirements which restrict the usage of Company assets. However, regulations of the Federal Reserve System require reserves to be maintained by all banking institutions according to the types and amounts of certain deposit liabilities. These requirements restrict usage of a portion of the amounts shown as consolidated "Cash and due from banks" from everyday usage in operation of the banks. The minimum reserve requirements for the subsidiary banks at December 31, 1996 totaled $112,137,000. Cash payments for interest on deposits and borrowings during 1996, 1995 and 1994 on a consolidated basis amounted to $282,792,000, $264,503,000 and $180,645,000, respectively. 47 Notes to Financial Statements Commerce Bancshares, Inc. and Subsidiaries (CONT.) INCOME TAXES Total income taxes for 1996, 1995 and 1994 were allocated as shown in the following tables. Income tax expense from operations for the years ended December 31, 1996, 1995 and 1994 consists of:
(In thousands) Current Deferred Total - ------------------------------------------------------------ Year ended December 31, 1996: U.S. Federal $54,550 $ 3,303 $57,853 State and local 5,064 - 5,064 - ------------------------------------------------------------ $59,614 $ 3,303 $62,917 ============================================================ Year ended December 31, 1995: U.S. Federal $52,639 $ 3,549 $56,188 State and local 4,954 - 4,954 - ------------------------------------------------------------ $57,593 $ 3,549 $61,142 ============================================================ Year ended December 31, 1994: U.S. Federal $54,113 $(6,651) $47,462 State and local 4,149 - 4,149 - ------------------------------------------------------------ $58,262 $(6,651) $51,611 ============================================================
Income tax expense (benefits) allocated directly to stockholders' equity for the years ended December 31, 1996, 1995 and 1994 consists of:
(In thousands) 1996 1995 1994 - -------------------------------------------------------------------- Unrealized gain (loss) on securities available for sale $(5,284) $53,447 $(36,887) Compensation expense for tax purposes in excess of amounts recognized for financial reporting purposes (292) (324) (114) Deductible dividends paid on unallocated shares held by the ESOP - - (36) - -------------------------------------------------------------------- Income tax expense (benefits) allocated to stockholders' equity $(5,576) $53,123 $(37,037) ====================================================================
Actual income tax expense differs from the amounts computed by applying the U.S. Federal income tax rate of 35% as a result of the following:
(In thousands) 1996 1995 1994 - -------------------------------------------------------------- Computed "expected" tax expense $63,850 $59,073 $51,703 Increase (reduction) in income taxes resulting from: Amortization of goodwill 1,499 1,444 724 Tax exempt income (2,625) (2,829) (1,392) Tax deductible dividends on allocated shares held by the Company's ESOP (678) (665) (567) State and local income taxes, net of Federal income tax benefit 3,601 3,631 2,159 Other, net (2,730) 488 (1,016) - -------------------------------------------------------------- Total income tax expense $62,917 $61,142 $51,611 ==============================================================
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 are presented below:
(In thousands) 1996 1995 - ------------------------------------------------------------------ Deferred tax assets: Loans, principally due to allowance for loan losses $41,766 $41,956 Foreclosed property, due to writedowns for financial reporting purposes 283 629 Unearned fee income, due to earlier recognition for tax purposes 1,269 1,630 Deferred compensation, principally due to accrual for financial reporting purposes 1,269 930 Accrued expenses, principally due to accrual for financial reporting purposes 2,342 2,645 Net operating loss carryforwards of acquired companies 252 572 Other 449 503 - ----------------------------------------------------------------- Total gross deferred tax assets 47,630 48,865 - ----------------------------------------------------------------- Deferred tax liabilities: Investment securities, principally due to discount accretion 3,393 2,338 Capitalized interest 1,002 952 Unrealized gain on securities available for sale 11,276 16,560 Land, buildings and equipment, principally due to write-up in value in purchase accounting entries for financial reporting 22,249 19,426 Core deposit intangible, principally due to purchase accounting entries for financial reporting 8,100 9,979 Pension benefit obligation, due to recognition of the excess pension asset for financial reporting purposes 2,451 2,725 Other 5 4 - ----------------------------------------------------------------- Total gross deferred tax liabilities 48,476 51,984 - ----------------------------------------------------------------- Net deferred tax liability $ (846) $(3,119) =================================================================
Cash payments of income taxes, net of refunds and interest received, amounted to $64,860,000, $52,268,000 and $56,887,000 on a consolidated basis during 1996, 1995 and 1994, respectively. The Parent had net receipts of $1,644,000, $3,010,000, and $4,170,000 during 1996, 1995 and 1994, respectively, from tax benefits. EMPLOYEE BENEFIT PLANS Employee benefits charged to operating expenses aggregated $23,963,000, $21,207,000 and $20,036,000 for 1996, 1995 and 1994, respectively. Substantially all of the Company's employees are 48 covered by a noncontributory defined benefit pension plan. Participants are fully vested after five years of service and the benefits are based on years of participation and average annualized earnings. The Company's funding policy is to contribute funds to a trust as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these requirements are fully covered by assets in the trust, a contribution may not be made in a particular year. The following items are components of the net pension cost for the years ended December 31, 1996, 1995 and 1994:
(In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Service cost-benefits earned during the year $ 2,647 $ 2,311 $ 2,183 Interest cost on projected benefit obligation 3,343 3,152 3,080 Actual plan assets value (increase) decrease (5,578) (8,219) 1,287 Net amortization and deferral 429 3,695 (5,732) - -------------------------------------------------------------------------------- Net periodic pension cost $ 841 $ 939 $ 818 ================================================================================
The following table sets forth the pension plan's funded status, using a valuation date of September 30, 1996 and 1995:
(In thousands) 1996 1995 - -------------------------------------------------------------------------------- Actuarial present value of benefit obligation: Accumulated benefit obligation, including vested benefits of $41,693,000 in 1996 and $36,186,000 in 1995 $(42,635) $(36,495) Additional benefits based on estimated future salary levels (7,367) (11,499) - -------------------------------------------------------------------------------- Projected benefit obligation (50,002) (47,994) - -------------------------------------------------------------------------------- Plan assets at fair value 55,078 54,642 Plan assets in excess of projected benefit obligation 5,076 6,648 Unrecognized net loss from past experience different from that assumed and effects of change in assumptions 7,403 7,475 Prior service benefit not yet recognized in net pension cost (1,800) (1,965) Unrecognized net transition asset being recognized over 15 years (3,830) (4,468) - -------------------------------------------------------------------------------- Prepaid pension cost included in other assets $ 6,849 $ 7,690 ================================================================================
Assumptions used in computing the funded status were:
1996 1995 1994 - -------------------------------------------------------------------------------- Discount rate 7.25% 7.75% 7.00% Rate of increase in future compensation levels 5.00% 5.00% 5.00% Long-term rate of return on assets 8.50% 8.00% 8.00% ================================================================================
At December 31, 1996, approximately 87% of plan assets were invested in U.S. government bonds and corporate bonds and equities. In addition to the pension plan, substantially all of the Company's employees are covered by a contributory defined contribution plan, the Participating Investment Plan. Under the plan, the Company makes matching contributions, which aggregated $2,320,000 in 1996, $2,352,000 in 1995 and $838,000 in 1994. The Company formed an employee stock ownership plan (ESOP) in 1987 and borrowed funds from an unaffiliated lender to acquire shares for the ESOP. The final principal payment was made in December 1994 and the ESOP assets were merged into the Participating Investment Plan. The Company's contributions to the ESOP charged to salaries and benefits aggregated $368,000 and $1,359,000 in 1995 and 1994, respectively. No contribution was made to the ESOP in 1996. STOCK OPTION PLANS, RESTRICTED STOCK AWARDS AND DIRECTORS STOCK PURCHASE PLAN* The Company has reserved 5,595,187 shares of its common stock for issuance under various stock option plans offered to certain key employees of the Company and its subsidiaries. Options are granted, by action of the Board of Directors, to acquire stock at fair market value at the date of the grant, for a term of 5 to 10 years. At December 31, 1996, 2,940,891 shares remain available for option grants under these programs. The following table summarizes option activity over the last three years and current options outstanding. 49 NOTES TO FINANCIAL STATEMENTS COMMERCE BANCSHARES, INC. AND SUBSIDIARIES (CONT.)
Number of Option Price Shares Per Share - -------------------------------------------------------------------------------- Outstanding - December 31, 1993 962,592 $18.85 Granted 265,543 26.99 Canceled (5,613) 26.33 Exercised (142,882) 12.61 - -------------------------------------------------------------------------------- Outstanding - December 31, 1994 1,079,640 $21.64 Granted 310,144 26.39 Canceled (24,780) 27.02 Exercised (235,490) 15.43 - -------------------------------------------------------------------------------- Outstanding - December 31, 1995 1,129,514 $24.12 Granted 281,595 33.84 Canceled (18,645) 29.75 Exercised (181,350) 16.95 - -------------------------------------------------------------------------------- Outstanding - December 31, 1996 1,211,114 $27.37 ================================================================================
The options expire as follows: 206,284 in 2002; 221,348 in 2003; 234,589 in 2004; 275,775 in 2005 and 273,118 in 2006. Options outstanding at December 31, 1996 were exercisable at prices ranging from $20.16 to $33.93. The Company has a restricted stock award plan under which 173,643 shares of common stock are reserved at December 31, 1996. The plan allows for awards to key employees, by action of the Board of Directors, with restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the restriction period. The restriction period may not exceed 10 years. The Company issued awards totaling 7,716 shares in 1996, 23,029 shares in 1995 and 3,183 shares in 1994, resulting in deferred compensation amounts of $257,000, $632,000 and $86,000, respectively. Approximately $189,000, $178,000 and $106,000 was amortized to salaries expense in 1996, 1995 and 1994, respectively. Unamortized deferred compensation of $340,000, $716,000 and $295,000 has been recorded as a reduction of stockholders' equity at December 31, 1996, 1995 and 1994, respectively. The Company has a directors stock purchase plan whereby outside directors of the Company and its subsidiaries may elect to use their directors' fees to purchase Company stock at market value each month-end. Remaining shares reserved for this plan total 144,647 at December 31, 1996. In 1996, 23,591 shares were purchased at an average price of $36.29 and in 1995, 27,947 shares were purchased at an average price of $30.62. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock- based compensation plans other than for restricted stock and performance-based awards. Had compensation cost for the Company's other stock option plans been determined based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", the Company's net income and earnings per share would have been reduced by approximately $1,423,000, or $.04 per share in 1996 and $845,000, or $.02 per share in 1995. The fair value of the options granted during 1996 is estimated as $3,228,000 on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 2.0%, volatility of 24.0%, risk-free interest rate of 6.1%, and an expected life of 7.6 years. Pro forma net income reflects only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented above because compensation cost is reflected over the options' vesting period of 4 years and 3 years for the 1996 and 1995 options, respectively. Compensation cost for options granted prior to January 1, 1995 is not considered. *All share and per share amounts in this note have been restated for the 5% stock dividend distributed on the $5 par common stock in December 1996. COMMON STOCK Under a Rights Agreement dated August 23, 1988, as amended in the amended and restated rights agreement with Commerce Bank, N.A., as rights agent, dated as of July 19, 1996, certain rights have attached to the common stock. Under certain circumstances relating to the acquisition of, or tender offer for, a specified percentage of the Company's outstanding 50 common stock, holders of the common stock may exercise the rights and purchase shares of Series A Preferred Stock or, at a discount, common stock of the Company or an acquiring company. In February 1996, the Board of Directors authorized the Company to purchase up to 2,000,000 shares of common stock, in either the open market or privately negotiated transactions, in order to provide future funding for employee benefit programs and stock dividends. This action began after the completion of the stock repurchase program authorized in 1995. Approximately 1,288,000 shares have been acquired under the 1996 approval through December 31, 1996. On December 13, 1996, the Company distributed its third consecutive 5% stock dividend on the $5 par common stock. All per share data in this report has been restated to reflect the stock dividend. The table below is a summary of share activity in 1996.
Issued Treasury Shares Shares - --------------------------------------------------------------- December 31, 1995 37,565,369 861,951 Purchases of treasury stock - 1,313,761 Sales under employee and director plans - (204,994) 5% stock dividend - (1,782,741) - --------------------------------------------------------------- December 31, 1996 37,565,369 187,977 ===============================================================
REGULATORY CAPITAL REQUIREMENTS The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory actions by regulators that could have a direct material effect on the Company's financial statements. The regulations require the Company to meet specific capital adequacy guidelines that involve quantitative measures of the Company's assets, liabilities and certain off- balance-sheet items as calculated under regulatory accounting practices. The Company's capital classification is also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of Tier I capital to total average assets (leverage ratio), and minimum ratios of Tier I and Total capital to risk-weighted assets (as defined). The minimum required leverage ratio is 4%, the minimum Tier I capital ratio is 4%, and the minimum Total capital ratio is 8%. The Company's actual capital amounts and ratios at the last two year ends are as follows:
(In thousands) 1996 1995 - --------------------------------------------------------------- Risk-Weighted Assets $6,283,359 $6,045,112 Tier I Capital $ 820,609 $ 756,452 Total Capital $ 892,177 $ 829,784 Tier I Capital Ratio 13.06% 12.51% Total Capital Ratio 14.20% 13.73% Leverage Ratio 8.24% 8.27% - ---------------------------------------------------------------
Management believes that, at December 31, 1996, the Company meets all capital requirements to which it is subject. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments", requires disclosure of estimated fair values for financial instruments held by the Company. Fair value estimates, methods and assumptions are set forth below. LOANS Fair values are estimated for various groups of loans segregated by 1) type of loan, 2) fixed/adjustable interest terms and 3) performing/non-performing status. The fair value of performing loans, except student, home equity and credit card loans, is calculated by discounting scheduled cash flows through contractual maturity using market rates that reflect credit and interest rate risk. The cash flows through maturity for individual loans are aggregated for the Company's asset/liability analysis. Rate forecasts are purchased from an outside company specializing in rate forecasting. Discount rates are computed for each loan category using these rate forecasts adjusted by the Company's interest spread and other considerations management deems necessary. Student loans are valued under the Company's current contract with SALLIE MAE. Home equity loans reprice monthly and their fair value approximates carrying value. Fair value of non- accrual loans approximates their carrying value, because such loans are recorded at the appraised or estimated recoverable value of the collateral or the underlying cash flow. 51 Notes to Financial Statements Commerce Bancshares, Inc. and Subsidiaries (CONT.) Estimated fair value of credit card loans approximates the existing balances outstanding at year end because management believes the current credit card yield is equal to the current market rate for similar instruments. This estimate does not include the additional value that relates to future cash flows from new loans generated from existing card holders over the estimated life of the customer relationship. The "Carrying Amount" of loans in the schedule below excludes deferred or unamortized fees and costs related to the loan transaction. INVESTMENT SECURITIES The fair values of the debt and equity instruments in the available for sale and trading sections of the investment security portfolio are estimated based on prices published in financial newspapers or bid quotations received from securities dealers. The fair value of those equity investments for which a market source is not readily available is estimated at carrying value. A breakdown of investment securities by category and maturity is provided in the financial statements note on Investment Securities. Fair value estimates are based on the value of one unit without regard to any premium or discount that may result from concentrations of ownership, possible tax ramifications or estimated transaction costs. FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND CASH AND DUE FROM BANKS The carrying amounts of federal funds sold and securities purchased under agreements to resell and cash and due from banks approximate fair value. Federal funds sold and securities purchased under agreements to resell generally mature in 90 days or less and present little or no risk. DEPOSITS Statement 107 specifies that the fair value of deposits with no stated maturity is equal to the amount payable on demand. Such deposits include savings and interest and non-interest bearing demand deposits. The fair value of certificates of deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the three-month Treasury indices and yield curves supplied by an external company specializing in rate forecasting. Discount rates are computed for each deposit category using these rate forecasts adjusted by the Company's interest spread and other considerations management deems necessary. The fair value estimates do not include the benefit that results from the low- cost funding provided by the deposit liabilities compared to the cost of borrowing funds. BORROWINGS Federal funds purchased and securities sold under agreements to repurchase mature or reprice within 90 days; therefore, their fair value approximates carrying value. The fair value of long-term debt is estimated by discounting contractual maturities using an estimate of the current market rate for similar instruments. 52 The estimated fair values of the Company's financial instruments are as follows:
1996 1995 - ------------------------------------------------------------------------------------------------------------- (In thousands) Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value - ------------------------------------------------------------------------------------------------------------- FINANCIAL ASSETS Loans $5,454,627 $5,470,412 $5,304,975 $5,320,033 Available for sale investment securities 2,670,420 2,670,420 2,552,264 2,552,264 Trading account securities 11,265 11,265 9,369 9,369 Other non-marketable securities 39,830 39,830 33,120 33,120 Federal funds sold and securities purchased under agreements to resell 368,690 368,690 523,302 523,302 Cash and due from banks 833,260 833,260 774,852 774,852 - ------------------------------------------------------------------------------------------------------------- FINANCIAL LIABILITIES Non-interest bearing demand deposits $1,800,684 $1,800,684 $1,828,950 $1,828,950 Savings and interest bearing demand deposits 4,021,376 4,021,376 3,891,801 3,891,801 Time open and C.D.'s: Maturing in year 1 1,653,009 1,652,333 1,775,924 1,779,138 Maturing in year 2 387,005 385,191 324,239 326,457 Maturing in year 3 158,332 157,734 155,160 156,587 Maturing in year 4 92,995 93,603 120,396 122,758 Maturing in year 5 39,484 38,936 75,076 78,222 Maturing in over 5 years 13,544 13,452 21,546 22,635 Federal funds purchased and securities sold under agreements to repurchase 526,807 526,807 362,903 362,903 Long-term debt and other borrowings 14,120 14,802 14,562 15,533 - -------------------------------------------------------------------------------------------------------------
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS The fair value of letters of credit and commitments to extend credit is based on the fees currently charged to enter into similar agreements. The aggregate of these fees is not material. Foreign exchange contracts are generally executed at a customer's request and an offsetting contract is executed, eliminating the Company's exposure. Interest rate swap contracts are entered into by the Company to limit its interest rate risk. The fair value of these contracts is determined by contacting appropriate brokers for the current cost of selling, purchasing or closing out the various contracts. The fair values of the foreign exchange contracts and interest rate swaps are not material. These instruments are also referenced in either the financial statements notes on Financial Instruments with Off-Balance-Sheet Risk or Loans and Allowance for Losses. LIMITATIONS Fair value estimates are made at a specific point in time based on relevant market information. They do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for many of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties and cannot be determined with precision. Changes in assumptions could significantly affect the estimates. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The Company engages in various transactions with off-balance-sheet risk in the normal course of business to meet customer financing needs. The Company uses the same credit policies in making the commitments and conditional obligations described below as it does for on-balance-sheet instruments. Issuance of standby and 53 NOTES TO FINANCIAL STATEMENTS Commerce Bancshares, Inc. and Subsidiaries (CONT.) commercial letters of credit beneficially assist customers engaged in a wide range of commercial enterprise and international trade. Standby letters of credit serve as payment assurances to a third party in the event the bank's customer fails to perform its financial and/or contractual obligations. Most expire over the next 12 months and are secured by 1) a line of credit with, 2) a certificate of deposit held by, 3) marketable securities held by, or 4) a deed of trust held by a banking subsidiary. At December 31, 1996, standby letters of credit outstanding of the banking subsidiaries amounted to $145,376,000, net of $3,426,000 participated to non-affiliated companies. Commercial letters of credit generally finance the purchase of imported goods and provide a payment engagement against presentation of documents meeting the terms and conditions set forth in the letter of credit instrument. There were $37,022,000 outstanding commercial letters of credit at December 31, 1996. Transactions involving securities described as "when-issued" are treated as conditional transactions in a security authorized for issuance but not yet actually issued. Purchases and sales of when-issued securities for which settlement date has not occurred are not to be reflected in the financial statements until settlement date. At December 31, 1996, the Company had commitments to purchase and sell when-issued securities of $19,632,000 and $28,229,000, respectively. Losses arising from these transactions have not been and are not expected to be material. The Company enters into foreign exchange contracts to purchase and sell foreign currency. Most of the contracts offset each other and risk arises only if one of the contracts is not performed and the currency must be bought or sold at the prevailing market rate. The Company also enters into interest rate swap contracts to limit its interest rate risk. The notional value of these contracts was $102,399,000 at December 31, 1996. The current credit exposure (or replacement cost) across all off-balance-sheet derivative contracts covered by the risk-based capital standards was $2,713,000 at December 31, 1996. See financial statements note on Loans and Allowance for Losses for a discussion of unfunded loan commitments. COMMITMENTS AND CONTINGENCIES The Company leases certain premises and equipment, all of which were classified as operating leases. The rent expense under such arrangements amounted to $2,361,000, $2,079,000 and $1,619,000 in 1996, 1995 and 1994, respectively. A summary of minimum lease commitments follows:
(In thousands) Type of Property - --------------------------------------------------------------------- Real Total Years Ended December 31 Property Equipment Commitments - --------------------------------------------------------------------- 1997 $ 1,900 $286 $ 2,186 1998 1,824 137 1,961 1999 1,672 5 1,677 2000 1,513 5 1,518 2001 1,544 4 1,548 After 19,829 - 19,829 - --------------------------------------------------------------------- Total minimum lease payments $28,719 =====================================================================
All leases expire prior to 2055. It is expected that in the normal course of business, leases that expire will be renewed or replaced by leases on other properties; thus, the future minimum lease commitments will not be less than the amounts shown for 1997. The Company incurred expense of $9,505,000 in 1996, $8,648,000 in 1995 and $7,139,000 in 1994 under an agreement to outsource certain data processing services. Future payments will adjust for inflation and transaction volume. The Company owns approximately 51% interest in a venture capital partnership, with an original commitment to fund $15,456,000 over the ten-year life of the partnership. Contributions to the partnership were $3,030,000 in January 1997, $1,515,000 in 1996, $3,030,000 in 1995 and $1,515,000 in 1994. In the normal course of business, the Company had certain lawsuits pending at December 31, 1996. In the opinion of management, after consultation with legal counsel, none of these suits will have a significant effect on the financial condition and results of operations of the Company. 54 PARENT COMPANY CONDENSED FINANCIAL STATEMENTS Following are the condensed financial statements of Commerce Bancshares, Inc. (Parent only) for the periods indicated: CONDENSED BALANCE SHEETS
December 31 - ---------------------------------------------------------------------------------------------- (In thousands) 1996 1995 - ---------------------------------------------------------------------------------------------- ASSETS Investment in consolidated subsidiaries: Banks $783,014 $794,826 Non-banks 25,081 24,081 Receivables from subsidiaries, net of borrowings 8,042 8,498 Cash 121 396 Securities purchased under agreements to resell 7,338 42,168 Investment securities: Available for sale 90,845 39,872 Other non-marketable 10,728 8,019 Other assets 11,674 10,255 - ---------------------------------------------------------------------------------------------- Total assets $936,843 $928,115 ============================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable, accrued taxes and other liabilities $ 12,572 $ 44,332 - ---------------------------------------------------------------------------------------------- Total liabilities 12,572 44,332 - ---------------------------------------------------------------------------------------------- Stockholders' equity 924,271 883,783 - ---------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $936,843 $928,115 ============================================================================================== CONDENSED STATEMENTS OF INCOME For the Years Ended December 31 - ---------------------------------------------------------------------------------------------- (In thousands) 1996 1995 1994 - ---------------------------------------------------------------------------------------------- INCOME Dividends received: Bank subsidiaries $120,024 $124,129 $129,104 Non-bank subsidiaries 250 - 3,795 Earnings of consolidated subsidiaries, net of dividends (393) (13,057) (34,827) Interest on investment securities 3,886 2,992 1,871 Interest on securities purchased under agreements to resell 244 228 565 Management fees charged subsidiaries 13,951 13,024 12,867 Data processing fees charged subsidiaries 21,596 18,030 16,817 Net gains (losses) on securities transactions (507) 226 442 Other 69 201 23 - ---------------------------------------------------------------------------------------------- Total income 159,120 145,773 130,657 ============================================================================================== EXPENSE Salaries and employee benefits 21,981 19,992 19,118 Marketing 123 207 440 External data processing 9,041 8,658 7,143 Other 10,621 10,354 10,876 - ---------------------------------------------------------------------------------------------- Total expense 41,766 39,211 37,577 - ---------------------------------------------------------------------------------------------- Income tax expense (benefit) (2,158) (1,078) (3,031) - ---------------------------------------------------------------------------------------------- Net income $119,512 $107,640 $ 96,111 ==============================================================================================
55 Notes to Financial Statements (Cont.) Commerce Bancshares, Inc. and Subsidiaries CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended December 31 - -------------------------------------------------------------------------------------------------------------- (In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 119,512 $ 107,640 $ 96,111 Adjustments to reconcile net income to net cash provided by operating activities: Earnings of consolidated subsidiaries, net of dividends 393 13,057 34,827 Other adjustments, net (1,883) 3,521 1,441 - -------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 118,022 124,218 132,379 - -------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Cash paid in acquisitions - (94,102) - Increase in investment in subsidiaries, net (438) (4,283) (433) (Increase) decrease in receivables from subsidiaries, net of borrowings 456 (1,359) (6,753) Proceeds from sales of investment securities 627 12,943 3,634 Proceeds from maturities of investment securities 249,023 263,557 58,503 Purchases of investment securities (298,241) (271,748) (65,423) Net (increase) decrease in securities purchased under agreements to resell 34,830 34,504 (56,363) Net (purchases) sales of equipment (2,723) (1,513) 79 - -------------------------------------------------------------------------------------------------------------- Net cash used by investing activities (16,466) (62,001) (66,756) - -------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Purchases of treasury stock (78,408) (40,024) (52,755) Sales of treasury stock 4,039 4,149 8,152 Cash dividends paid on common stock (27,462) (26,039) (21,124) - -------------------------------------------------------------------------------------------------------------- Net cash used by financing activities (101,831) (61,914) (65,727) - -------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash (275) 303 (104) Cash at beginning of year 396 93 197 - -------------------------------------------------------------------------------------------------------------- Cash at end of year $ 121 $ 396 $ 93 ==============================================================================================================
Dividends paid by the Parent were substantially provided from subsidiary bank dividends. The subsidiary banks may distribute dividends without prior regulatory approval that do not exceed the sum of net income for the current year and retained net income for the preceding two years, subject to maintenance of minimum capital requirements. The Parent charges fees to its subsidiaries for management services provided, which are allocated to the subsidiaries based primarily on total average assets. The Parent also charges data processing fees, which are allocated to the subsidiaries based on transaction volume. The Parent makes advances to certain non-banking subsidiaries and subsidiary bank holding companies. Advances are made to the Parent by certain subsidiary bank holding companies for investment in temporary liquid securities. Interest on such advances is based on market rates. At December 31, 1996, the Parent had lines of credit for general corporate purposes of $20,000,000 with subsidiary banks. At December 31, 1996, the Parent had no borrowings from the subsidiary banks. Investment securities held by the Parent, which consist primarily of common stock and commercial paper, included an unrealized gain in fair value of $14,553,000 at December 31, 1996. The corresponding net of tax unrealized gain included in stockholders' equity was $9,074,000. Also included in stockholders' equity was the unrealized net of tax gain in fair value of investment securities held by subsidiaries, which amounted to $9,151,000 at December 31, 1996. Under a security agreement related to self-insurance for officer and director liability, $10,000,000 in market value of the Parent's investment securities were pledged at December 31, 1996. 56 Independent Auditors' Report The Board of Directors Commerce Bancshares, Inc.: We have audited the accompanying consolidated balance sheets of Commerce Bancshares, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Commerce Bancshares, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP January 31, 1997 Kansas City, Missouri - -------------------------------------------------------------------------------- Statement of Management's Responsibility Commerce Bancshares, Inc. and Subsidiaries FINANCIAL STATEMENTS Commerce Bancshares, Inc. is responsible for the preparation, integrity, and fair presentation of its published financial statements. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles and, as such, include amounts based on judgments and estimates of management. INTERNAL CONTROL STRUCTURE OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining an effective internal control structure over financial reporting. The system contains monitoring mechanisms, and actions are taken to correct deficiencies identified. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions over time, the effectiveness of an internal control system may vary. Management assessed its internal control structure over financial reporting as of December 31, 1996. This assessment was based on criteria for effective internal control over financial reporting described in "Internal Control- Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that Commerce Bank, N.A. (St. Louis), Commerce Bank, N.A. (Kansas City), Commerce Bank, N.A. (Wichita), and Commerce Bank, N.A. (Illinois) maintained an effective internal control structure over financial reporting as of December 31, 1996. COMPLIANCE WITH LAWS AND REGULATIONS Management is also responsible for compliance with the federal and state laws and regulations concerning dividend restrictions and federal laws and regulations concerning loans to insiders as designated by the FDIC as safety and soundness laws and regulations. Management assessed its compliance with the designated laws and regulations relating to safety and soundness. Based on this assessment, management believes that Commerce Bank, N.A. (St. Louis), Commerce Bank, N.A. (Kansas City), Commerce Bank, N.A. (Wichita), and Commerce Bank, N.A. (Illinois), subsidiary insured depository institutions of Commerce Bancshares, Inc., complied, in all significant respects, with the designated laws and regulations related to safety and soundness for the year ended December 31, 1996. 57 Notes to Financial Statements Commerce Bancshares, Inc. and Subsidiaries (CONT.) SUMMARY OF QUARTERLY STATEMENTS OF INCOME Years Ended December 31, 1996, 1995 and 1994
For the Quarter Ended - ------------------------------------------------------------------------------------------------------ (In thousands, except per share data) 12/31/96 9/30/96 6/30/96 3/31/96 - ------------------------------------------------------------------------------------------------------ Interest income $ 164,676 $161,147 $159,706 $162,074 Interest expense (69,891) (69,618) (69,791) (72,560) - ------------------------------------------------------------------------------------------------------ Net interest income 94,785 91,529 89,915 89,514 Non-interest income 43,257 40,449 38,660 36,796 Salaries and employee benefits (42,009) (40,971) (41,154) (41,157) Other expense (38,295) (39,106) (37,811) (37,451) Provision for loan losses (7,459) (6,082) (5,428) (5,553) - ------------------------------------------------------------------------------------------------------ Income before income taxes 50,279 45,819 44,182 42,149 Income taxes (17,823) (14,964) (15,264) (14,866) - ------------------------------------------------------------------------------------------------------ Net income $ 32,456 $ 30,855 $ 28,918 $ 27,283 - ------------------------------------------------------------------------------------------------------ Net income per common and common equivalent share* $ .85 $ .81 $ .75 $ .70 - ------------------------------------------------------------------------------------------------------ Weighted average common and common equivalent shares outstanding* 38,382 38,129 38,415 38,879 - ------------------------------------------------------------------------------------------------------ For the Quarter Ended - ------------------------------------------------------------------------------------------------------ (In thousands, except per share data) 12/31/95 9/30/95 6/30/95 3/31/95 - ------------------------------------------------------------------------------------------------------ Interest income $ 164,672 $164,091 $160,644 $141,596 Interest expense (73,603) (73,590) (69,756) (58,309) - ------------------------------------------------------------------------------------------------------ Net interest income 91,069 90,501 90,888 83,287 Non-interest income 36,469 34,194 31,899 30,588 Salaries and employee benefits (39,901) (41,156) (39,650) (37,146) Other expense (38,384) (35,849) (38,934) (34,464) Provision for loan losses (5,939) (3,927) (1,930) (2,833) - ------------------------------------------------------------------------------------------------------ Income before income taxes 43,314 43,763 42,273 39,432 Income taxes (15,066) (16,153) (15,514) (14,409) - ------------------------------------------------------------------------------------------------------ Net income $ 28,248 $ 27,610 $ 26,759 $ 25,023 - ------------------------------------------------------------------------------------------------------ Net income per common and common equivalent share* $ .71 $ .69 $ .66 $ .65 - ------------------------------------------------------------------------------------------------------ Weighted average common and common equivalent shares outstanding* 39,808 40,189 40,347 38,405 - ------------------------------------------------------------------------------------------------------ For the Quarter Ended - ------------------------------------------------------------------------------------------------------ (In thousands, except per share data) 12/31/94 9/30/94 6/30/94 3/31/94 - ------------------------------------------------------------------------------------------------------ Interest income $ 134,878 $127,860 $121,491 $116,052 Interest expense (52,400) (47,274) (43,731) (42,259) - ------------------------------------------------------------------------------------------------------ Net interest income 82,478 80,586 77,760 73,793 Non-interest income 30,431 30,101 32,550 27,946 Salaries and employee benefits (35,280) (35,489) (37,239) (36,007) Other expense (37,709) (34,498) (35,208) (30,648) Provision for loan losses (2,051) (276) (2,063) (1,455) - ------------------------------------------------------------------------------------------------------ Income before income taxes 37,869 40,424 35,800 33,629 Income taxes (13,597) (15,215) (11,216) (11,583) - ------------------------------------------------------------------------------------------------------ Net income $ 24,272 $ 25,209 $ 24,584 $ 22,046 - ------------------------------------------------------------------------------------------------------ Net income per common and common equivalent share* $ .65 $ .68 $ .66 $ .60 - ------------------------------------------------------------------------------------------------------ Weighted average common and common equivalent shares outstanding* 37,163 37,065 37,383 37,058 - ------------------------------------------------------------------------------------------------------ * Restated for stock dividend distributed December 1996
58 OFFICERS AND DIRECTORS (List not included in EDGARized exhibit.) Inside Back Cover EX-21 3 LIST OF CONSOLIDATED SUBSIDIARIES Exhibit 21 The consolidated subsidiaries of the Registrant at March 1, 1997, were as follows: State or Other Jurisdiction of Name Location Incorporation Commerce Bank, National Association Kansas City, MO United States CB Building Corp. Kansas City, MO Missouri Tower Redevelopment Corporation Kansas City, MO Missouri Twin City Development Company, Inc. Kansas City, KS Kansas Commerce Financial Corp. Clayton, MO Missouri Commerce Realty Corp. Clayton, MO Missouri Commerce Bank, National Association Clayton, MO United States County Realty Corp. Clayton, MO Missouri Commerce Brokerage Services, Inc. Clayton, MO Missouri Clayton Financial Corp. Clayton, MO Missouri Clayton Realty Corp. Clayton, MO Missouri Commerce Bank of Omaha, National Association Omaha, NE United States Commerce Bank, National Association Peoria, IL United States Commerce Bank, National Association Hays, KS United States Commerce Bank, National Association Wichita, KS United States Union Center, Inc. Wichita, KS Kansas 21st Street Redevelopment Company, L.C. Wichita, KS Kansas Mid-America Financial Corp. Kansas City, MO Missouri Delaware Redevelopment Corporation Kansas City, MO Missouri CBI Insurance Company Kansas City, MO Arizona Capital for Business, Inc. Kansas City, MO Missouri Commerce Property and Casualty Agency, Inc. Kansas City, MO Missouri Commerce Mortgage Corp. Kansas City, MO Missouri CFB Venture Fund I, Inc. Clayton, MO Missouri CFB Partners, Inc. Kansas City, MO Missouri CBI-Illinois, Inc. Kansas City, MO Delaware CBI-Kansas, Inc. Kansas City, MO Kansas CBI-Central Kansas, Inc. Kansas City, MO Kansas UBI Financial Services, Inc. Wichita, KS Kansas EX-23 4 ACCOUNTANTS' CONSENT Exhibit 23 INDEPENDENT ACCOUNTANTS' CONSENT The Board of Directors Commerce Bancshares, Inc.: We consent to incorporation by reference in Registration Statements No. 33- 28294, No. 33-82692, No. 33-8075, No. 33-78344, No. 33-61499, No. 33-61501 and No. 333-14651, each on Form S-8 of Commerce Bancshares, Inc. of our report dated January 31, 1997, relating to the consolidated balance sheets of Commerce Bancshares, Inc. and Subsidiaries as of December 31, 1996 and 1995 and the related statements of income, cash flows and stockholders' equity for each of the years in the three-year period ended December 31, 1996, which report appears in the December 31, 1996 annual report on Form 10-K of Commerce Bancshares, Inc. KPMG PEAT MARWICK LLP Kansas City, Missouri March 11, 1997 EX-24 5 POWERS OF ATTORNEY Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby appoint J. Daniel Stinnett and Jeffery D. Aberdeen, or either of them, attorney for the undersigned to sign the Annual Report on Form 10-K of Commerce Bancshares, Inc., for the fiscal year ended December 31, 1996, together with any and all amendments which might be required from time to time with respect thereto, to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, with respect to Commerce Bancshares, Inc., with full power and authority in either of said attorneys to do and perform in the name of and on behalf of the undersigned every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person. IN WITNESS WHEREOF, the undersigned have executed these presents this 7th day of February, 1997. s/ Giorgio Balzer s/ Fred L. Brown s/ James B. Hebenstreit s/ David W. Kemper s/ James M. Kemper, Jr. s/ Terry O. Meek s/ Robert H. West POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby appoint J. Daniel Stinnett and Jeffery D. Aberdeen, or either of them, attorney for the undersigned to sign the Annual Report on Form 10-K of Commerce Bancshares, Inc., for the fiscal year ended December 31, 1996, together with any and all amendments which might be required from time to time with respect thereto, to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, with respect to Commerce Bancshares, Inc., with full power and authority in either of said attorneys to do and perform in the name of and on behalf of the undersigned every act whatsoever necessary or desirable to be done in the premises as fully and to all intents and purposes as the undersigned might or could do in person. IN WITNESS WHEREOF, the undersigned has executed these presents this 11th day of February, 1997. s/ Jonathan M. Kemper EX-27 6 12/31/96 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from Commerce Bancshare, Inc. 12/31/96 Form 10-K and is qualified in its entirety by reference to such financial statements. 1000 YEAR DEC-31-1996 DEC-31-1996 833,260 0 368,690 11,265 2,670,420 0 0 5,472,342 98,223 9,698,186 8,166,429 526,807 66,559 14,120 0 0 187,827 736,444 9,698,186 460,970 160,954 25,334 647,603 259,504 281,860 365,743 24,522 3,293 317,954 182,429 119,512 0 0 119,512 3.11 0 4.40 13,945 24,806 0 0 98,537 31,914 7,078 98,223 98,223 0 0 Certificates of deposit of $297,000 are included in Investments- Held-For-Sale. Excludes non-marketable investment securiites of $39,830,000. Gross of allowance for loan losses. Excludes interest of $345,000 on trading account securities. A 5% stock dividend was distributed on December 13, 1996. Prior financial data schedules have not been restated. Yield is computed on a tax equivalent basis.
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