Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.72 per share for the three months ended December 31, 2012 compared to $.66 per share in the fourth quarter of 2011, or an increase of 9.1%. Net income for the fourth quarter amounted to $66.8 million, compared to $61.5 million in the same quarter last year and $66.0 million in the prior quarter. For the quarter, the return on average assets totaled 1.25%, the return on average equity was 11.6% and the efficiency ratio was 59.6%.

For the year ended December 31, 2012, earnings per share totaled $2.90 compared to $2.69 in 2011, or an increase of 7.8%. Net income amounted to $269.3 million in 2012 compared to $256.3 million for the same period last year, or an increase of $13.0 million. In 2012, the return on average assets was 1.30%, the return on average equity was 12.0% and the efficiency ratio was 59.3%.

In making this announcement, David W. Kemper, Chairman and CEO, said, "We were pleased to report record earnings in 2012 of over $269 million, which represents an increase of 5%. Current quarter results compared to the previous quarter reflected growth in net interest income, low credit costs and solid growth in both trust and bankcard fees. Strong growth in deposits coupled with continued new loan volumes and higher interest on inflation-protected securities enabled our net interest income to increase this quarter. Non-interest income increased $2.4 million this quarter compared to the previous quarter, and was up 10% compared to last year as a result of growth in commercial card fees of 25% and double digit growth in credit card and trust fee income. Expense growth this quarter was mainly centered in salaries and technology costs where we continued to make investments in our fee businesses. Average loans grew $174.5 million, or 2%, this quarter over the previous quarter from growth in both consumer and commercial lending activities while average deposits increased $720.7 million, or 4%. Record earnings over the last two years have strengthened our capital and liquidity and allowed us to pay a special dividend in December of $1.50 per share in advance of the higher tax rates now in effect."

Further, Mr. Kemper noted, "Net loan charge-offs for the current quarter totaled $10.8 million, compared to $15.6 million in the fourth quarter of 2011 and $9.1 million in the previous quarter. Commercial net loan charge-offs increased $2.0 million this quarter compared to the previous quarter while consumer loan losses declined by 3% and totaled $8.8 million. During the current quarter, the provision for loan losses totaled $8.3 million, or $2.5 million less than net loan charge-offs, reflecting improved credit trends even as loan balances increased. Our allowance for loan losses amounted to $172.5 million this quarter, representing 3.4 times our non-performing loans. Total non-performing assets also decreased $8.6 million from the previous quarter to $64.9 million this quarter."

Total assets at December 31, 2012 were $22.2 billion, total loans were $9.8 billion, and total deposits were $18.3 billion. During the quarter, the Company issued a 5% stock dividend and paid both a regular cash dividend of $.23 per share and a special cash dividend of $1.50 per share. The Company also repurchased approximately 774,000 shares of its common stock at an average price per share of $37.93 (per share price of $36.12 as adjusted for the 5% stock dividend).

Commerce Bancshares, Inc. is a registered bank holding company offering a full line of banking services, including investment management and securities brokerage. The Company currently operates in approximately 360 locations in Missouri, Illinois, Kansas, Oklahoma and Colorado. The Company also has operating subsidiaries involved in mortgage banking, credit related insurance, and private equity activities.

Summary of Non-Performing Assets and Past Due Loans

             
(Dollars in thousands)   9/30/2012   12/31/2012   12/31/2011
Non-Accrual Loans   $ 55,201   $ 51,410   $ 75,482
Foreclosed Real Estate   $ 18,234     $ 13,453     $ 18,321  
Total Non-Performing Assets   $ 73,435     $ 64,863     $ 93,803  
Non-Performing Assets to Loans   .76

%

   .66

%

   1.02

%

Non-Performing Assets to Total Assets   .35

%

   .29

%

   .45

%

Loans 90 Days & Over Past Due -- Still Accruing   $ 12,232     $ 15,347     $

14,958

  
 

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

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

FINANCIAL HIGHLIGHTS

 
  For the Three Months Ended   For the Year Ended
(Unaudited)   September 30,
2012 		 

December 31,
2012

   December 31,
2011 		 

December 31,
2012

   December 31,
2011
FINANCIAL SUMMARY (In thousands, except per share data)
Net interest income $ 153,811   $ 161,253   $ 161,757 $ 639,906   $ 646,070
Taxable equivalent net interest income 159,934 168,428 167,940 665,214 669,515
Non-interest income 100,922 103,309 94,035 399,630 392,917
Investment securities gains (losses), net 3,180 (3,728 ) 4,942 4,828 10,812
Provision for loan losses 5,581 8,326 12,143 27,287 51,515
Non-interest expense 153,391 158,277 156,030 618,469 617,249
Net income attributable to Commerce Bancshares, Inc. 66,006 66,791 61,504 269,329 256,343
Cash dividends 20,165 150,789 19,504 211,608 79,140
Net total loan charge-offs (recoveries) 9,082 10,826 15,649 39,287 64,521
Business 202 791 650 (2,497 ) 4,988
Real estate -- construction and land (102 ) (517 ) 2,624 (283 ) 6,950
Real estate -- business (25 ) 1,799 731 5,108 3,563
Consumer credit card 6,277 6,095 6,986 24,475 31,617
Consumer 1,791 1,731 2,682 8,127 12,156
Revolving home equity 314 187 884 1,804 1,667
Real estate -- personal 267 411 798 1,426 2,772
Overdraft 358 329 294 1,127 808
Per common share:
Net income -- basic $ .71 $ .73 $ .66 $ 2.91 $ 2.70
Net income -- diluted $ .72 $ .72 $ .66 $ 2.90 $ 2.69
Cash dividends $ .219 $ 1.648 $ .209 $ 2.305 $ .834
Diluted wtd. average shares o/s     91,552       90,999       93,086       91,894       94,712  
RATIOS
Average loans to deposits (1) 56.89 % 55.53 % 56.01 % 55.80 % 59.15 %
Return on total average assets 1.28 % 1.25 % 1.19 % 1.30 % 1.32 %
Return on total average equity 11.57 % 11.62 % 11.39 % 12.00 % 12.15 %
Non-interest income to revenue (2) 39.62 % 39.05 % 36.76 % 38.44 % 37.82 %
Efficiency ratio (3)     59.99 %     59.62 %     60.71 %     59.26 %     59.10 %
AT PERIOD END
Book value per share based on total equity $ 25.08 $ 23.76 $ 23.24
Market value per share $ 38.41 $ 35.06 $ 36.30
Allowance for loan losses as a percentage of loans 1.82 % 1.75 % 2.01 %
Tier I leverage ratio 10.00 % 9.14 % 9.55 %
Tangible common equity to assets ratio (4) 10.47 % 9.25 % 9.91 %
Common shares outstanding 91,988,811 91,414,306 93,399,774
Shareholders of record 4,146 4,135 4,218
Number of bank/ATM locations 362 362 363
Full-time equivalent employees     4,707       4,708       4,745  
OTHER QTD INFORMATION
High market value per share $ 40.70 $ 38.70 $ 36.83
Low market value per share   $ 35.91     $ 34.69     $ 29.99  

(1)

  

Includes loans held for sale.

(2)

Revenue includes net interest income and non-interest income.

(3)

The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.

(4)

The tangible common equity ratio is calculated as stockholders' equity reduced by goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).

 
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 
  For the Three Months Ended   For the Year Ended
(Unaudited)

(In thousands, except per share data)

   September 30,
2012 		 

December 31,
2012

   December 31,
2011 		 

December 31,
2012

   December 31,
2011
Interest income $ 163,194   $ 170,185   $ 173,223   $ 677,969   $ 697,971
Interest expense   9,383     8,932     11,466     38,063     51,901  
Net interest income 153,811 161,253 161,757 639,906 646,070
Provision for loan losses   5,581     8,326     12,143     27,287     51,515  
Net interest income after provision for loan losses   148,230     152,927     149,614     612,619     594,555  
NON-INTEREST INCOME
Bank card transaction fees 39,488 41,542 36,162 154,197 157,077
Trust fees 23,681 24,351 22,095 94,679 88,313
Deposit account charges and other fees 19,873 20,301 20,623 79,485 82,651
Capital market fees 5,110 4,075 4,591 21,066 19,846
Consumer brokerage services 2,441 2,619 2,142 10,162 10,018
Loan fees and sales 1,358 1,412 1,647 6,037 7,580
Other   8,971     9,009     6,775     34,004     27,432  
Total non-interest income   100,922     103,309     94,035     399,630     392,917  
INVESTMENT SECURITIES GAINS (LOSSES), NET
Impairment (losses) reversals on debt securities 5,989 (356 ) (796 ) 11,223 2,190
Noncredit-related losses (reversals) on securities not expected to be sold   (6,546 )   93     14     (12,713 )   (4,727 )
Net impairment losses (557 ) (263 ) (782 ) (1,490 ) (2,537 )
Realized gains (losses) on sales and fair value adjustments   3,737     (3,465 )   5,724     6,318     13,349  
Investment securities gains (losses), net   3,180     (3,728 )   4,942     4,828     10,812  
NON-INTEREST EXPENSE
Salaries and employee benefits 89,292 94,553 88,010 360,899 345,325
Net occupancy 11,588 11,581 11,674 45,534 46,434
Equipment 4,976 4,983 5,583 20,147 22,252
Supplies and communication 5,400 5,641 5,550 22,321 22,448
Data processing and software 19,279 18,768 17,873 73,798 68,103
Marketing 4,100 2,715 3,469 15,106 16,767
Deposit insurance 2,608 2,692 2,680 10,438 13,123
Debit overdraft litigation -- -- 7,400 -- 18,300
Other   16,148     17,344     13,791     70,226     64,497  
Total non-interest expense   153,391     158,277     156,030     618,469     617,249  
Income before income taxes 98,941 94,231 92,561 398,608 381,035
Less income taxes   32,155     27,628     29,514     127,169     121,412  
Net income 66,786 66,603 63,047 271,439 259,623
Less non-controlling interest expense (income)   780     (188 )   1,543     2,110     3,280  
Net income attributable to Commerce Bancshares, Inc. $ 66,006   $ 66,791   $ 61,504   $ 269,329   $ 256,343  
Net income per common share -- basic $ .71   $ .73   $ .66   $ 2.91   $ 2.70  
Net income per common share -- diluted   $ .72     $ .72     $ .66     $ 2.90     $ 2.69  
 
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 
(Unaudited)

(In thousands)

   September 30,
2012 		 

December 31,
2012

   December 31,
2011
ASSETS      
Loans $ 9,638,645 $ 9,831,384 $ 9,177,478
Allowance for loan losses   (175,032 )   (172,532 )   (184,532 )
Net loans   9,463,613     9,658,852     8,992,946  
Loans held for sale 8,741 8,827 31,076
Investment securities:
Available for sale 9,020,951 9,522,248 9,224,702
Trading 13,595 28,837 17,853
Non-marketable   117,540     118,650     115,832  
Total investment securities   9,152,086     9,669,735     9,358,387  
Short-term federal funds sold and securities purchased under agreements to resell 10,475 27,595 11,870
Long-term securities purchased under agreements to resell 850,000 1,200,000 850,000
Interest earning deposits with banks 132,144 179,164 39,853
Cash and due from banks 426,742 573,066 465,828
Land, buildings and equipment -- net 350,040 357,612 360,146
Goodwill 125,585 125,585 125,585
Other intangible assets -- net 5,804 5,300 7,714
Other assets   353,539     353,853     405,962  
Total assets $ 20,878,769   $ 22,159,589   $ 20,649,367  
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 5,814,932 $ 6,299,903 $ 5,377,549
Savings, interest checking and money market 9,025,688 9,817,943 8,933,941
Time open and C.D.'s of less than $100,000 1,094,215 1,074,618 1,166,104
Time open and C.D.'s of $100,000 and over   914,795     1,156,189     1,322,289  
Total deposits 16,849,630 18,348,653 16,799,883
Federal funds purchased and securities sold under agreements to repurchase 1,257,949 1,083,550 1,256,081
Other borrowings 103,744 103,710 111,817
Other liabilities   360,374     452,102     311,225  
Total liabilities   18,571,697     19,988,015     18,479,006  
Stockholders' equity:
Preferred stock -- -- --
Common stock 446,387 458,646 446,387
Capital surplus 1,033,515 1,102,507 1,042,065
Retained earnings 717,138 477,210 575,419
Treasury stock (60,644 ) (7,580 ) (8,362 )
Accumulated other comprehensive income   166,040     136,344     110,538  
Total stockholders' equity 2,302,436 2,167,127 2,166,047
Non-controlling interest   4,636     4,447     4,314  
Total equity   2,307,072     2,171,574     2,170,361  
Total liabilities and equity   $ 20,878,769     $ 22,159,589     $ 20,649,367  
 
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS -- AVERAGE RATES AND YIELDS

 
(Unaudited)

(Dollars in thousands)

   For the Three Months Ended
September 30, 2012 December 31, 2012   December 31, 2011

Average
Balance

 

Avg. Rates
Earned/Paid

Average
Balance

  

Avg. Rates
Earned/Paid

Average
Balance

 

Avg. Rates
Earned/Paid

ASSETS:      
Loans:
Business (A) $ 3,018,475 3.39 % $ 3,041,700 3.29 % $ 2,819,598 3.53 %
Real estate -- construction and land 339,908 4.30 345,608 4.11 386,738 4.52
Real estate -- business 2,182,584 4.39 2,200,088 4.33 2,162,052 4.67
Real estate -- personal 1,523,148 4.31 1,571,860 4.15 1,421,296 4.64
Consumer 1,205,318 5.54 1,272,831 5.35 1,111,299 6.08
Revolving home equity 444,076 4.17 436,671 4.13 464,694 4.24
Consumer credit card 730,104 11.83 748,754 11.42 733,712 11.62
Overdrafts   5,353     --     5,908     --     7,101     --  
Total loans (B)   9,448,966     4.76     9,623,420     4.64     9,106,490     5.01  
Loans held for sale 8,753 3.86 8,818 3.74 36,987 2.55
Investment securities:
U.S. government and federal agency obligations 329,172 (.07

)

(C) 341,537 5.11 328,641 2.49
Government-sponsored enterprise obligations 276,505 1.65 400,387 1.72 305,003 1.93
State and municipal obligations (A) 1,387,624 3.89 1,531,754 3.67 1,239,330 4.16
Mortgage-backed securities 3,766,602 2.62 3,447,995 2.79 4,453,362 2.71
Asset-backed securities 2,878,941 1.10 3,157,988 .99 2,645,538 1.12
Other marketable securities (A)   121,596     4.50     138,066     5.35     164,545     5.39  
Total available for sale securities (B) 8,760,440 2.21 9,017,727 2.39 9,136,419 2.46
Trading securities (A) 24,337 2.34 20,771 2.01 19,785 2.87
Non-marketable securities (A)   117,210     7.54     118,802     17.51     110,486     10.81  
Total investment securities   8,901,987     2.29     9,157,300     2.59     9,266,690     2.56  
Short-term federal funds sold and securities purchased under agreements to resell 19,400 .49 10,371 .46 10,162 .39
Long-term securities purchased under agreements to resell 847,829 2.31 1,021,741 2.10 850,000 1.97
Interest earning deposits with banks   81,139   .20     208,930   .25     122,953     .25  
Total interest earning assets 19,308,074 3.49   20,030,580 3.52   19,393,282 3.67  
Non-interest earning assets (B)   1,209,295     1,234,609     1,121,569  
Total assets $ 20,517,369   $ 21,265,189   $ 20,514,851  
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings $ 581,819 .15 $ 581,174 .13 $ 529,027 .17
Interest checking and money market 8,401,165 .21 8,638,073 .19 8,068,003 .29
Time open & C.D.'s of less than $100,000 1,101,399 .70 1,083,492 .68 1,186,324 .75
Time open & C.D.'s of $100,000 and over   1,004,708     .69     1,030,184     .65     1,367,472     .59  
Total interest bearing deposits   11,089,091     .30     11,332,923     .28     11,150,826     .37  
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase 1,217,036 .07 1,130,210 .07 1,147,421 .05
Other borrowings   108,819     3.11     103,766     3.25     112,024     3.26  
Total borrowings   1,325,855     .32     1,233,976     .33     1,259,445     .33  
Total interest bearing liabilities 12,414,946 .30

%

12,566,899 .28

%

 12,410,271 .37

%

Non-interest bearing deposits 5,536,274 6,013,165 5,173,106
Other liabilities 296,178 399,160 789,564
Equity   2,269,971     2,285,965     2,141,910  
Total liabilities and equity $ 20,517,369   $ 21,265,189   $ 20,514,851  
Net interest income (T/E) $ 159,934   $ 168,428   $ 167,940  
Net yield on interest earning assets       3.30

%

      3.35 %       3.44 %

(A)

  

Stated on a tax equivalent basis using a federal income tax rate of 35%.

(B)

The allowance for loan losses and unrealized gains/(losses) on available for sale securities are included in non-interest earning assets.

(C)

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

 

COMMERCE BANCSHARES, INC.

Management Discussion of Fourth Quarter Results

December 31, 2012

For the quarter ended December 31, 2012, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $66.8 million, an increase of $5.3 million over the same quarter last year, and an increase of $785 thousand compared to the previous quarter. The slight increase in net income over the previous quarter resulted mainly from higher net interest income and fees totaling a combined $9.8 million, but offset by a higher provision for loan losses of $2.7 million, net securities losses of $3.7 million and growth in non-interest expense of $4.9 million. For the current quarter, the return on average assets was 1.25%, the return on average equity was 11.62%, and the efficiency ratio was 59.62%.

Compared to the same quarter last year, net interest income (tax equivalent) increased by $488 thousand to $168.4 million, while non-interest income increased $9.3 million to $103.3 million. The securities losses this quarter resulted mainly from private equity activities and compared to net gains of $4.9 million in the 4th quarter of 2011. Non-interest expense for the current quarter totaled $158.3 million, a slight increase over the same period last year. The provision for loan losses totaled $8.3 million, representing a decrease of $3.8 million from the amount recorded in the same quarter last year.

Balance Sheet Review

During the 4th quarter of 2012, average loans, including loans held for sale, increased $174.5 million compared to the previous quarter and increased $488.8 million, or 5.3%, compared to the same period last year. The increase in average loans over the previous quarter resulted from increases in most lending categories including growth in business (up $23.2 million), business real estate and construction (up $23.2 million), personal real estate (up $48.7 million) and consumer loans (up $67.5 million, mainly in automobile and fixed rate home equity loans). Consumer credit card loans also increased on average by $18.7 million. Growth in business loans mainly resulted from higher leasing activities while demand for construction and business real estate loans improved this quarter with modest loan growth. Demand for consumer automobile lending remained strong as average outstanding balances grew by $91.5 million. However, marine and RV loans, included in the consumer loan portfolio, continued to run off this quarter by $21.0 million, while home equity lines of credit also declined by $7.4 million.

Total available for sale investment securities (excluding fair value adjustments) averaged $9.0 billion this quarter, up $257.3 million when compared to the previous quarter. Purchases of new securities, totaling $1.3 billion in the 4th quarter of 2012, were offset by maturities and pay downs of $734.9 million. At December 31, 2012, the duration of the investment portfolio was 2.4 years, and maturities and pay downs of approximately $2.2 billion are expected to occur during the next 12 months.

Total average deposits increased $720.7 million, or 4.3%, during the 4th quarter of 2012 compared to the previous quarter. This increase in average deposits resulted mainly from growth in business demand (increase of $429.3 million) and money market (increase of $222.6 million) accounts. Certificate of deposit (CD) accounts also increased slightly mainly from growth in short-term jumbo CD's. Overall, $411.9 million of the deposit growth this quarter came from commercial deposits while the remaining $308.8 million in deposit growth was mostly from private banking and retail banking customers. The average loans to deposits ratio in the current quarter was 55.5%, compared to 56.9% in the previous quarter.

During the current quarter, the Company's average borrowings declined $91.9 million compared to the previous quarter, mainly due to lower federal funds purchased this quarter.

Net Interest Income

Net interest income (tax equivalent) in the 4th quarter of 2012 amounted to $168.4 million compared with $159.9 million in the previous quarter, or an increase of $8.5 million. Net interest income this quarter increased slightly compared to the 4th quarter of last year. During the 4th quarter of 2012, the net yield on earning assets (tax equivalent) was 3.35%, compared with 3.30% in the previous quarter and 3.44% in the same period last year.

The increase in net interest income (tax equivalent) in the 4th quarter of 2012 compared to the previous quarter was mainly due to an increase in inflation interest of $4.5 million on the Company's inflation-protected securities as a result of the higher Consumer Price Indices published this quarter, on which this interest is based. Inflation income totaled $3.1 million this quarter. Also, the Company received a special dividend on a private equity investment this quarter totaling $2.2 million; however, a related offsetting fair value adjustment of $1.4 million was recorded on the same investment in net securities losses.

Compared to the previous quarter, interest on loans declined $937 thousand (tax-equivalent) as a result of lower average rates of 12 basis points offset by higher balances. The average rate on investment securities increased 30 basis points to 2.59% partly due to the higher inflation and dividend income mentioned above coupled with higher overall average balances. Also, rates on mortgage-backed securities increased due to lower premium amortization (reduction in amortization expense of $1.7 million) as prepayment speeds slowed.

Interest expense on deposits declined $412 thousand in the 4th quarter of 2012 compared with the previous quarter as overall rates declined slightly. Interest expense on borrowings also declined slightly.

Non-Interest Income

In the 4th quarter of 2012, total non-interest income amounted to $103.3 million, an increase of $9.3 million, or 9.9%, compared to the same period last year. Also, current quarter non-interest income increased $2.4 million when compared to amounts recorded in the previous quarter. The increase in non-interest income over the same period last year was mainly due to an increase in bank card fees, coupled with growth in trust fees and higher tax credit fee income.

Total bank card fees in the current quarter increased $5.4 million, or 14.9%, over the same period last year as a result of a 25.3% increase in corporate card fees, which totaled $18.9 million this quarter. Merchant and credit card fees also grew by 7.8% and 10.3%, respectively, reflecting increased holiday sales volumes and a 5th billing weekend in December not present in 2011. Debit card fees grew by 5.3% and totaled $8.8 million this quarter.

Trust fees for the quarter increased 10.2% compared to the same period last year, resulting mainly from growth in private client (up 10.5%) and institutional (up 12.3%) trust fees. Deposit account fees declined $322 thousand, or 1.6%, compared to last year as overdraft fees declined by $1.1 million, but were offset by growth in various other deposit fees of $986 thousand, or 38.8%. Capital market fees declined $516 thousand with low interest rates reducing correspondent bank demand for bonds this quarter. Other non-interest income grew by $2.2 million this quarter compared to the same period last year partly due to higher fees on sales of tax credits, which grew by $577 thousand, and additional swap fee income of $225 thousand. Also, in the 4th quarter of 2011 the Company wrote down the value of certain banking properties held for sale by $874 thousand, which did not reoccur this quarter.

Investment Securities Gains and Losses

Net securities losses, related mostly to private equity fair value adjustments, amounted to $3.7 million in the 4th quarter of 2012, compared to net gains of $3.2 million in the previous quarter and net gains of $4.9 million in the same quarter last year. The current quarter included unrealized net losses of $3.9 million on these private equity investments, coupled with a reduction to minority interest expense related to these losses totaling $461 thousand which is included in non-controlling interest expense. Year to date net gains and fair value adjustments on private equity investments totaled $6.0 million in 2012 compared with $13.2 million in 2011.

Also during the current quarter, the Company recorded credit-related impairment losses of $263 thousand on certain non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired, compared to losses of $557 thousand in the previous quarter and $782 thousand in the same quarter last year. The cumulative credit-related impairment on these bonds totaled $11.3 million at quarter end. At December 31, 2012, the fair value of non-agency guaranteed mortgage-backed securities identified as other-than-temporarily impaired totaled $101.7 million, compared to $124.8 million at December 31, 2011.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $158.3 million, an increase of $2.2 million over the same quarter last year and an increase of $4.9 million compared to the previous quarter. Compared to the 4th quarter of last year, salaries and benefits expense increased $6.5 million, or 7.4%, mainly due to an increase in salary costs of $2.0 million, or 3.4%, coupled with higher incentives paid which included a $1.1 million increase due to timing changes on expense for several commercial card incentive plans. Nearly half of the increased salaries costs resulted from staff investments in the trust, commercial card and mortgage servicing areas. Medical costs also increased by $1.2 million, or 29.2%, this quarter compared to last year as self-insured claims increased. Full-time equivalent employees totaled 4,708 and 4,745 at December 31, 2012 and 2011, respectively.

Compared to the 4th quarter of last year, occupancy, equipment and marketing expense declined $1.4 million on a combined basis mainly due to lower depreciation and reductions in property repairs and marketing expenditures. Data processing and software costs grew by $895 thousand, or 5.0%. This growth included higher data processing and bank card-related costs, but was partly offset by the renegotiation of a new merchant processing contract, which reduced 4th quarter costs by $523 thousand. Other non-interest expense in the 4th quarter of 2011 included the reversal of a VISA indemnification obligation of $3.1 million (lowering expense) that did not reoccur in 2012.

Income Taxes

The effective tax rate for the Company was 29.3% in the current quarter, compared with 32.8% in the previous quarter and 32.4% in the 4th quarter of 2011. The lower rate in the current quarter resulted partly from tax benefits on the special dividend paid in the 4th quarter to the Company's employee stock ownership plan.

Credit Quality

Net loan charge-offs in the 4th quarter of 2012 amounted to $10.8 million, compared with $9.1 million in the prior quarter and $15.6 million in the 4th quarter of last year. The ratio of annualized net loan charge-offs to total average loans was .45% in the current quarter compared to .38% in the previous quarter.

For the 4th quarter of 2012, annualized net loan charge-offs on average consumer credit card loans amounted to 3.24%, compared with 3.42% in the previous quarter and 3.78% in the same period last year. Consumer loan net charge-offs for the quarter amounted to .54% of average consumer loans, compared to .59% in the previous quarter and .96% in the same quarter last year. The provision for loan losses for the current quarter totaled $8.3 million, an increase of $2.7 million over the previous quarter and $3.8 million lower than in the same period last year. The current quarter provision for loan losses was $2.5 million less than net loan charge-offs for the current quarter, as credit quality in the loan portfolio continued to improve. As a result, the allowance for loan losses was reduced to $172.5 million. At December 31, 2012 the allowance was 1.75% of total loans, excluding loans held for sale, and was 336% of total non-accrual loans.

At December 31, 2012, total non-performing assets amounted to $64.9 million, a decrease of $8.6 million from the previous quarter. Non-performing assets are comprised of non-accrual loans ($51.4 million) and foreclosed real estate ($13.5 million). At December 31, 2012, the balance of non-accrual loans, which represented .52% of loans outstanding, included business real estate loans of $17.3 million, construction and land loans of $13.7 million and business loans of $13.1 million. Loans more than 90 days past due and still accruing interest totaled $15.3 million at December 31, 2012.

Other

During the quarter ended December 31, 2012, the Company paid a 5% stock dividend and also paid a special cash dividend of $1.50 per share in addition to its normal cash dividend of $.23 per share. The Company also purchased approximately 774,000 shares of treasury stock at an average cost of $37.93 per share (per share price of $36.12 as adjusted for the 5% stock dividend).

Forward Looking Information

This information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statement.

Commerce Bancshares, Inc.
Jeffery Aberdeen, 816-234-2081
Controller
mymoney@commercebank.com
http://www.commercebank.com