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Commerce Bancshares, Inc. Reports First Quarter Earnings Per Share of $.85

KANSAS CITY, Mo.--(BUSINESS WIRE)--

Commerce Bancshares, Inc. (CBSH) announced earnings of $.85 per common share for the three months ended March 31, 2019, compared to $.88 per share in the same quarter last year and $.96 per share in the fourth quarter of 2018. Net income attributable to Commerce Bancshares, Inc. for the first quarter of 2019 amounted to $97.1 million, compared to $101.0 million in the first quarter of 2018 and $109.7 million in the prior quarter. For the current quarter, the return on average assets was 1.58%, the return on average common equity was 13.6% and the efficiency ratio was 58.8%.

In announcing these results, John Kemper, Chief Executive Officer, said, “While the U.S. economy remained solid and profits this quarter were strong at our Bank, we experienced only modest growth in average loans, driven mainly by the commercial category. Consumer lending was seasonally lower, especially in auto and consumer credit card loans. Net interest income declined compared to the prior quarter but included several non-recurring items recorded in the prior quarter. Adjusted for these items and income on our inflation bonds, our net yield on earning assets continued to grow, resulting from increased loan yields, while deposit costs grew modestly. Fee income totaled $121.2 million this quarter and reflected year-over-year growth in trust, cash sweep and mortgage banking revenue, but was partly offset by lower net bank card fees. The increase in non-interest expense compared to last year was mainly due to higher salaries and benefits, but included several non-recurring items and reflected a core growth rate of 3.2%."

Mr. Kemper continued, “This quarter net loan charge-offs totaled $11.7 million, compared to $12.1 million in the prior quarter and $10.4 million in the first quarter of 2018, as the overall credit environment remained favorable. The ratio of annualized net loan charge-offs to average loans was .34% in both the current and prior quarters and was .30% in the first quarter of last year. Net loan charge-offs on commercial loans declined $1.1 million from the previous quarter and remained low, while net loan charge-offs on personal banking loans increased $737 thousand to $11.3 million, mostly the result of higher consumer credit card losses. During the current quarter, the provision for loan losses exceeded net loan charge-offs by $750 thousand and totaled $12.5 million. The allowance for loan losses amounted to $160.7 million at March 31, 2019, or 1.14% of period end loans. Non-performing assets totaled $12.9 million this quarter and remained at very low levels."

Total assets at March 31, 2019 were $25.0 billion, total loans were $14.1 billion, and total deposits were $20.0 billion. During the quarter, the Company paid a common cash dividend of $.26 per share, representing a 16.1% increase over the rate paid in the fourth quarter of 2018, and paid a 6% cash dividend on its preferred stock. The Company purchased 647,054 of its common shares this quarter.

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 banking facilities in nine key markets including St. Louis, Kansas City, Springfield, Central Missouri, Central Illinois, Wichita, Tulsa, Oklahoma City and Denver. The Company also maintains commercial offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids.

This financial news release, including management's discussion of first 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

(Unaudited)
(Dollars in thousands, except per share data)

  March 31,
2019
    December 31,
2018
    March 31,
2018
FINANCIAL SUMMARY
Net interest income $203,488     $212,220     $192,892
Non-interest income 121,240       133,087       119,690  
Total revenue 324,728 345,307 312,582
Investment securities gains (losses), net (925 ) (7,129 ) 5,410
Provision for loan losses 12,463 12,256 10,396
Non-interest expense 191,425       188,625       182,277  
Income before taxes 119,915 137,297 125,319
Income taxes 22,860 26,537 23,258
Non-controlling interest expense (income) (83 )     1,108       1,077  
Net income attributable to Commerce Bancshares, Inc. 97,138 109,652 100,984
Preferred stock dividends 2,250       2,250       2,250  
Net income available to common shareholders $94,888       $107,402       $98,734  
Earnings per common share:
Net income — basic $.85 $.96 $.88
Net income — diluted $.85 $.96 $.88
Effective tax rate 19.05 % 19.49 % 18.72 %
Tax equivalent net interest income $207,104 $216,281 $196,638
Average total interest earning assets (1) $ 23,874,861 $ 23,974,108 $ 23,693,350
Diluted wtd. average shares outstanding   110,300,988       110,770,084       111,264,137  
 
RATIOS
Average loans to deposits (2) 70.96 % 69.87 % 69.09 %
Return on total average assets 1.58 1.75 1.66
Return on average common equity (3) 13.64 15.85 15.58
Non-interest income to total revenue 37.34 38.54 38.29
Efficiency ratio (4) 58.76 54.53 58.21
Net yield on interest earning assets   3.52       3.58       3.37  
 
EQUITY SUMMARY
Cash dividends per common share $.260 $.224 $.224
Cash dividends on common stock $28,858 $24,997 $25,106
Cash dividends on preferred stock $2,250 $2,250 $2,250
Book value per common share (5) $26.18 $25.13 $22.88
Market value per common share (5) $58.06 $56.37 $57.06
High market value per common share $64.02 $64.70 $58.93
Low market value per common share $55.62 $53.40 $52.24
Common shares outstanding (5) 110,696,250 111,331,350 111,948,372
Tangible common equity to tangible assets (6) 11.06 % 10.45 % 9.88 %
Tier I leverage ratio   11.67 %     11.52 %     10.84 %
 
OTHER QTD INFORMATION
Number of bank/ATM locations 319 320 325
Full-time equivalent employees   4,841       4,795       4,799  

(1)

 

Excludes allowance for loan losses and unrealized gains/(losses) on available for sale debt securities.

(2)

Includes loans held for sale.

(3)

Annualized net income available to common shareholders divided by average total equity less preferred stock.

(4)

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

(5)

As of period end.

(6)

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

All share and per share amounts have been restated to reflect the 5% stock dividend distributed in December 2018.

   

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 
For the Three Months Ended

(Unaudited)
(In thousands, except per share data)

    March 31,
2019
    December 31,
2018
    September 30,
2018
    June 30,
2018
    March 31,
2018
Interest income $ 227,865     $ 232,832     $ 224,751     $ 225,623     $ 205,995
Interest expense   24,377         20,612         16,997         14,664         13,103  
Net interest income 203,488 212,220 207,754 210,959 192,892
Provision for loan losses   12,463         12,256         9,999         10,043         10,396  
Net interest income after provision for loan losses 191,025         199,964         197,755         200,916         182,496  
NON-INTEREST INCOME
Bank card transaction fees 39,644 44,481 42,427 43,215 41,453
Trust fees 37,256 37,466 37,400 37,036 36,062
Deposit account charges and other fees 23,018 23,887 23,755 23,893 22,982
Capital market fees 1,879 1,843 1,595 1,992 2,291
Consumer brokerage services 3,747 4,184 3,884 3,971 3,768
Loan fees and sales 3,309 3,053 3,579 3,229 2,862
Other   12,387         18,173         11,074         11,514         10,272  
Total non-interest income   121,240         133,087         123,714         124,850         119,690  
INVESTMENT SECURITIES GAINS (LOSSES), NET (925 ) (7,129 ) 4,306 (3,075 ) 5,410
NON-INTEREST EXPENSE
Salaries and employee benefits 122,128 120,517 116,194 115,589 115,894
Net occupancy 11,501 11,711 11,631 11,118 11,584
Equipment 4,471 4,508 4,592 4,594 4,431
Supplies and communication 5,162 5,095 5,103 5,126 5,313
Data processing and software 22,260 22,216 22,056 21,016 20,690
Marketing 5,900 5,602 4,999 5,142 4,805
Deposit insurance 1,710 1,796 3,167 3,126 3,457
Community service 803 480 580 656 729
Other   17,490         16,700         16,737         15,493         15,374  
Total non-interest expense   191,425         188,625         185,059         181,860         182,277  
Income before income taxes 119,915 137,297 140,716 140,831 125,319
Less income taxes   22,860         26,537         26,647         29,507         23,258  
Net income 97,055         110,760         114,069         111,324         102,061  
Less non-controlling interest expense (income)   (83 )       1,108         1,493         994         1,077  
Net income attributable to Commerce Bancshares, Inc. 97,138 109,652 112,576 110,330 100,984
Less preferred stock dividends   2,250         2,250         2,250         2,250         2,250  
Net income available to common shareholders $ 94,888       $ 107,402       $ 110,326       $ 108,080       $ 98,734  
Net income per common share — basic $ .85       $ .96       $ .99       $ .96       $ .88  
Net income per common share — diluted     $ .85       $ .96       $ .98       $ .96       $ .88  
 
OTHER INFORMATION
Return on total average assets 1.58 % 1.75 % 1.81 % 1.80 % 1.66 %
Return on average common equity (1) 13.64 15.85 16.43 16.78 15.58
Efficiency ratio (2) 58.76 54.53 55.73 54.06 58.21
Effective tax rate 19.05 19.49 19.14 21.10 18.72
Net yield on interest earning assets 3.52 3.58 3.52 3.65 3.37
Tax equivalent net interest income     $ 207,104       $ 216,281       $ 211,368       $ 215,775       $ 196,638  

(1)

 

Annualized net income available to common shareholders divided by average total equity less preferred stock.

(2)

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

 
         

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - PERIOD END

 

(Unaudited)
(In thousands)

  March 31,
2019
    December 31,
2018
    March 31,
2018
ASSETS
Loans
Business $ 5,175,541 $ 5,106,427 $ 4,960,614
Real estate — construction and land 925,269 869,659 932,058
Real estate — business 2,859,614 2,875,788 2,724,584
Real estate — personal 2,125,087 2,127,083 2,069,012
Consumer 1,893,212 1,955,572 2,069,235
Revolving home equity 364,010 376,399 382,825
Consumer credit card 772,396 814,134 752,651
Overdrafts 5,593       15,236       2,382  
Total loans 14,120,722       14,140,298       13,893,361  
Allowance for loan losses (160,682 )     (159,932 )     (159,532 )
Net loans 13,960,040       13,980,366       13,733,829  
Loans held for sale 20,085 20,694 16,435
Investment securities:
Available for sale debt securities 8,627,890 8,538,041 8,432,180
Trading debt securities 30,427 27,059 32,025
Equity securities 4,694 4,409 51,512
Other securities 129,504       129,157       108,320  
Total investment securities 8,792,515       8,698,666       8,624,037  
Federal funds sold and short-term securities purchased under agreements to resell 250 3,320 17,000
Long-term securities purchased under agreements to resell 700,000 700,000 700,000
Interest earning deposits with banks 166,077 689,876 134,697
Cash and due from banks 428,018 507,892 423,048
Premises and equipment — net 362,679 333,119 332,253
Goodwill 138,921 138,921 138,921
Other intangible assets — net 8,511 8,794 7,893
Other assets 456,375       382,194       483,129  
Total assets $ 25,033,471       $ 25,463,842       $ 24,611,242  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing $ 6,298,724 $ 6,980,298 $ 6,953,430
Savings, interest checking and money market 11,799,346 11,685,239 11,828,138
Certificates of deposit of less than $100,000 599,289 586,091 615,401
Certificates of deposit of $100,000 and over 1,276,994       1,072,031       1,141,502  
Total deposits 19,974,353       20,323,659       20,538,471  
Federal funds purchased and securities sold under agreements to repurchase 1,722,751 1,956,389 1,132,329
Other borrowings 2,022 8,702 9,214
Other liabilities 291,132       237,943       225,500  
Total liabilities 21,990,258       22,526,693       21,905,514  
Stockholders’ equity:
Preferred stock 144,784 144,784 144,784
Common stock 559,432 559,432 535,407
Capital surplus 2,074,912 2,084,824 1,802,785
Retained earnings 307,193 241,163 325,390
Treasury stock (60,547 ) (34,236 ) (15,681 )
Accumulated other comprehensive income (loss) 11,981       (64,669 )     (89,563 )
Total stockholders’ equity 3,037,755 2,931,298 2,703,122
Non-controlling interest 5,458       5,851       2,606  
Total equity 3,043,213       2,937,149       2,705,728  
Total liabilities and equity   $ 25,033,471       $ 25,463,842       $ 24,611,242  
 
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

 

(Unaudited)
(In thousands)

For the Three Months Ended
 

March 31,
2019

   

December 31,
2018

   

September 30,
2018

   

June 30,
2018

   

March 31,
2018

ASSETS:                
Loans:
Business $ 5,084,920 $ 5,028,635 $ 4,926,063 $ 4,962,171 $ 4,934,621
Real estate — construction and land 907,062 953,166 992,045 971,854 951,930
Real estate — business 2,864,177 2,757,595 2,732,968 2,726,697 2,733,812
Real estate — personal 2,119,365 2,122,357 2,110,945 2,078,972 2,062,083
Consumer 1,929,202 1,962,401 1,984,643 2,025,585 2,072,168
Revolving home equity 370,962 374,216 373,819 378,366 392,727
Consumer credit card 781,167 788,353 774,512 754,199 757,692
Overdrafts 4,205       5,277       4,704       4,497       4,628  
Total loans 14,061,060       13,992,000       13,899,699       13,902,341       13,909,661  
Allowance for loan losses (159,275 )     (158,880 )     (158,840 )     (158,664 )     (158,779 )
Net loans 13,901,785       13,833,120       13,740,859       13,743,677       13,750,882  
Loans held for sale 18,350 18,475 18,201 22,202 19,115
Investment securities:
U.S. government and federal agency obligations 909,466 923,545 923,557 923,183 916,655
Government-sponsored enterprise obligations 199,480 214,913 261,938 354,156 405,681
State and municipal obligations 1,283,349 1,361,079 1,375,768 1,394,766 1,513,243
Mortgage-backed securities 4,360,428 4,379,805 4,434,119 4,067,152 3,925,904
Asset-backed securities 1,525,623 1,518,706 1,427,041 1,407,300 1,469,488
Other debt securities 335,612 339,841 339,952 340,246 341,821
Unrealized loss on debt securities (48,925 )     (166,181 )     (119,319 )     (122,114 )     (43,238 )
Total available for sale debt securities 8,565,033 8,571,708 8,643,056 8,364,689 8,529,554
Trading debt securities 25,411 26,322 24,490 26,101 21,966
Equity securities 4,568 4,432 4,466 47,179 50,507
Other securities 130,057       127,634       120,206       108,563       100,993  
Total investment securities 8,725,069       8,730,096       8,792,218       8,546,532       8,703,020  
Federal funds sold and short-term securities purchased under agreements to resell 4,797 14,415 13,042 36,791 44,339
Long-term securities purchased under agreements to resell 700,000 699,999 685,869 700,000 700,000
Interest earning deposits with banks 316,660 352,942 298,632 353,607 273,977
Other assets 1,197,261       1,158,816       1,147,250       1,119,454       1,145,200  
Total assets $ 24,863,922       $ 24,807,863       $ 24,696,071       $ 24,522,263       $ 24,636,533  
 
LIABILITIES AND EQUITY:
Non-interest bearing deposits $ 6,324,738 $ 6,666,715 $ 6,677,665 $ 6,749,104 $ 6,824,700
Savings 896,378 870,844 877,347 881,045 838,900
Interest checking and money market 10,762,550 10,840,048 10,839,310 10,850,123 10,737,829
Certificates of deposit of less than $100,000 590,200 584,828 593,936 609,011 625,319
Certificates of deposit of $100,000 and over 1,267,517       1,090,546       1,100,299       1,134,900       1,134,194  
Total deposits 19,841,383       20,052,981       20,088,557       20,224,183       20,160,942  
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase 1,771,534 1,655,997 1,499,837 1,339,278 1,560,573
Other borrowings 1,248       1,335       1,833       1,913       1,913  
Total borrowings 1,772,782 1,657,332 1,501,670 1,341,191 1,562,486
Other liabilities 284,018       264,449       296,884       229,080       198,398  
Total liabilities 21,898,183       21,974,762       21,887,111       21,794,454       21,921,826  
Equity 2,965,739       2,833,101       2,808,960       2,727,809       2,714,707  
Total liabilities and equity   $ 24,863,922       $ 24,807,863       $ 24,696,071       $ 24,522,263       $ 24,636,533  
 
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

 
(Unaudited) For the Three Months Ended
 

March 31,
2019

   

December 31,
2018

   

September 30,
2018

   

June 30,
2018

   

March 31,
2018

ASSETS:                
Loans:
Business (1) 4.07 % 3.93 % 3.80 % 3.69 % 3.48 %
Real estate — construction and land 5.73 5.47 5.21 5.06 4.69
Real estate — business 4.61 4.53 4.35 4.22 4.06
Real estate — personal 4.00 3.87 3.83 3.84 3.80
Consumer 4.73 4.62 4.46 4.39 4.25
Revolving home equity 5.17 4.98 4.72 4.51 4.25
Consumer credit card 12.18 11.91 11.99 12.05 12.06
Overdrafts                          
Total loans 4.85       4.72       4.59       4.49       4.33  
Loans held for sale 7.38 6.59 6.87 6.72 6.45
Investment securities:
U.S. government and federal agency obligations .78 1.90 2.23 3.18 2.12
Government-sponsored enterprise obligations 2.35 2.24 2.10 1.88 1.84
State and municipal obligations (1) 3.19 3.06 2.98 3.06 3.06
Mortgage-backed securities 2.76 2.75 2.65 2.60 2.62
Asset-backed securities 2.70 2.55 2.42 2.32 2.11
Other debt securities 2.69       2.60       2.59       2.63       2.65  
Total available for sale debt securities 2.59 2.65 2.60 2.66 2.52
Trading debt securities (1) 3.24 3.21 3.13 3.15 2.73
Equity securities (1) 37.55 39.92 32.69 89.68 3.64
Other securities (1) 5.73       15.51       13.00       6.68       6.73  
Total investment securities 2.66       2.86       2.76       3.19       2.58  
Federal funds sold and short-term securities purchased under agreements to resell 2.79 2.56 2.10 1.93 1.65
Long-term securities purchased under agreements to resell 2.18 2.31 2.26 2.17 2.38
Interest earning deposits with banks 2.42       2.28       1.96       1.80       1.69  
Total interest earning assets 3.93       3.92       3.80       3.90       3.59  
 
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings .11 .11 .11 .11 .12
Interest checking and money market .35 .30 .26 .23 .20
Certificates of deposit of less than $100,000 .87 .70 .56 .46 .43
Certificates of deposit of $100,000 and over 1.92       1.61       1.41       1.23       1.02  
Total interest bearing deposits .51       .41       .35       .32       .28  
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase 1.72 1.60 1.33 1.18 1.04
Other borrowings 1.62       2.67       2.60       2.52       2.54  
Total borrowings 1.72       1.60       1.33       1.19       1.04  
Total interest bearing liabilities .65 %     .54 %     .45 %     .40 %     .36 %
 
Net yield on interest earning assets   3.52 %     3.58 %     3.52 %     3.65 %     3.37 %

(1) Stated on a tax equivalent basis using a federal income tax rate of 21%.

 
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CREDIT QUALITY
                               
      For the Three Months Ended

(Unaudited)
(In thousands, except per share data)

   

March 31,
2019

   

December 31,
2018

   

September 30,
2018

   

June 30,
2018

   

March 31,
2018

ALLOWANCE FOR LOAN LOSSES                    
Balance at beginning of period $ 159,932 $ 159,732 $ 159,532 $ 159,532 $ 159,532
Provision for losses 12,463 12,256 9,999 10,043 10,396
Net charge-offs (recoveries):
Commercial portfolio:
Business 447 1,748 332 36 (14 )
Real estate — construction and land (16 ) (183 ) (119 ) (297 ) (36 )
Real estate — business (37 )     (91 )     (42 )     (40 )     (205 )
394       1,474       171       (301 )     (255 )
Personal banking portfolio:
Consumer credit card 8,958 7,421 7,340 8,251 7,566
Consumer 1,924 2,805 2,091 1,862 2,528
Overdraft 317 500 351 326 444
Real estate — personal 101 (144 ) (153 ) (95 ) 57
Revolving home equity 19             (1 )           56  
11,319       10,582       9,628       10,344       10,651  
Total net loan charge-offs 11,713       12,056       9,799       10,043       10,396  
Balance at end of period     $ 160,682       $ 159,932       $ 159,732       $ 159,532       $ 159,532  
 
NET CHARGE-OFF RATIOS*
Commercial portfolio:
Business .04 % .14 % .03 % % %
Real estate — construction and land (.01 ) (.08 ) (.05 ) (.12 ) (.02 )
Real estate — business (.01 )     (.01 )     (.01 )     (.01 )     (.03 )
.02       .07       .01       (.01 )     (.01 )
Personal banking portfolio:
Consumer credit card 4.65 3.73 3.76 4.39 4.05
Consumer .40 .57 .42 .37 .49
Overdraft 30.57 37.59 29.60 29.08 38.91
Real estate — personal .02 (.03 ) (.03 ) (.02 ) .01
Revolving home equity .02                         .06  
.88       .80       .73       .79       .82  
Total     .34 %     .34 %     .28 %     .29 %     .30 %
 
CREDIT QUALITY RATIOS
Non-performing assets to total loans .09 % .10 % .07 % .08 % .08 %
Non-performing assets to total assets .05 .05 .04 .04 .05
Allowance for loan losses to total loans     1.14       1.13       1.14       1.14       1.15  
 
NON-PERFORMING ASSETS
Non-accrual loans:
Business $ 8,569 $ 8,985 $ 5,131 $ 5,114 $ 5,557
Real estate — construction and land 4 4 4 5 5
Real estate — business 1,746 1,715 1,467 2,465 2,546
Real estate — personal 1,848       1,832       1,767       1,888       2,169  
Total 12,167       12,536       8,369       9,472       10,277  
Foreclosed real estate 737       1,413       1,181       1,039       1,300  
Total non-performing assets $ 12,904       $ 13,949       $ 9,550       $ 10,511       $ 11,577  
Loans past due 90 days and still accruing interest     $ 16,655       $ 16,658       $ 13,991       $ 13,453       $ 14,928  

*as a percentage of average loans (excluding loans held for sale)

For the quarter ended March 31, 2019, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $97.1 million, compared to $109.7 million in the previous quarter and $101.0 million in the same quarter last year. The decrease in net income from the previous quarter was the result of lower net interest income and non-interest income and higher non-interest expense, partly offset by lower securities losses. Excluding inflation income on the Company’s inflation protected securities (TIPs) and certain non-recurring interest income received last quarter, the net interest margin grew five basis points to 3.55%, mainly due to higher loan rates, while funding costs rose modestly. Non-interest income declined $11.8 million this quarter, but the prior quarter included net branch gains of $7.7 million. Average loans increased $68.9 million this quarter over the previous quarter, while average deposits decreased $211.6 million. For the quarter, the return on average assets was 1.58%, the return on average common equity was 13.6%, and the efficiency ratio was 58.8%.

Balance Sheet Review

During the 1st quarter of 2019, average loans totaled $14.1 billion, an increase of $68.9 million over the prior quarter, and grew $150.6 million, or 1.1%, over the same period last year. Period-end loans, however, declined slightly from the prior quarter. Compared to the previous quarter, average business real estate and business loans grew $106.6 million, and $56.3 million, respectively. This growth was partly offset by declines in average construction (decline of $46.1 million) and auto (decline of $24.3 million) lending activities. Growth in business loans was the result of increased leasing activities, new commercial and industrial lending and seasonal agribusiness borrowings, but other seasonal loan paydowns partly offset this growth. Business real estate loans continued to grow from new lending in a number of our markets. The decline in construction loans resulted mainly from paydowns on completed projects, partly offset by additional loan draws on existing projects. The decline in auto loans of $24.3 million mainly resulted from paydowns on existing loan balances, which exceeded new loan originations. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $45.6 million, compared to $49.7 million in the prior quarter.

Total average available for sale debt securities decreased $6.7 million from the previous quarter to $8.6 billion, at fair value. The decrease in investment securities was mainly the result of lower municipal, mortgage-backed, U.S. government and federal agency, and government-sponsored enterprise obligation securities. Purchases of securities during the quarter totaled $406.5 million, and sales, maturities and pay downs were $404.6 million. At March 31, 2019, the duration of the investment portfolio was 2.9 years, and maturities and pay downs of approximately $1.0 billion are expected to occur during the next 12 months.

Total average deposits decreased $211.6 million this quarter compared to the previous quarter. The decrease in average deposits resulted mainly from lower balances of business demand deposits (decline of $457.8 million), and money market accounts (decline of $282.7 million). These declines were partly offset by increases in interest checking deposits, certificates of deposit, government demand deposits, personal demand deposits, and savings deposits of $205.2 million, $182.3 million, $64.1 million, $55.0 million, and $25.5 million, respectively. Compared to the previous quarter, total average consumer and wealth (including private banking) deposits increased $127.9 million and $31.4 million, respectively, while average commercial banking deposits declined $274.1 million. The average loans to deposits ratio was 71.0% in the current quarter and 69.9% in the prior quarter. The Company’s average borrowings, which includes customer repurchase agreements, were $1.8 billion in the 1st quarter of 2019, an increase of $115.5 million over the prior quarter’s balance.

Net Interest Income

Net interest income in the 1st quarter of 2019 amounted to $203.5 million compared to $212.2 million in the previous quarter, a decrease of $8.7 million. On a tax equivalent basis, net interest income for the current quarter decreased $9.2 million from the previous quarter to $207.1 million. The decline in net interest income was partly due to fewer days in the quarter but also included non-recurring dividends and interest of $3.1 million from the Company’s private equity investments in the prior quarter. Additionally, inflation income on the Company’s TIPs declined $3.5 million this quarter. Excluding these items, net interest income declined $2.4 million and the adjusted net yield on earning assets (tax equivalent) increased to 3.55%, compared to 3.50% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) increased $1.7 million as a result of higher overall loan yields coupled with growth in business real estate loan balances. The average tax-equivalent yield on the loan portfolio increased 13 basis points this quarter to 4.85%, compared to 4.72% in the previous quarter.

Interest income on investment securities (tax equivalent) decreased $6.6 million from the previous quarter, mainly due to the discrete interest and dividends received in the prior quarter, as noted above, coupled with lower inflation income on TIPs. A decline in the Consumer Price Index this quarter resulted in negative inflation income of $2.0 million. The adjustment to premium amortization on mortgage-backed securities for pre-payment speed changes was not material this quarter. The yield on total investment securities was 2.66% in the current quarter and 2.86% in the previous quarter.

Interest costs on deposits totaled 51 basis points in the 1st quarter of 2019, compared to 41 basis points in the prior quarter. Interest expense on deposits increased $2.9 million this quarter compared to the previous quarter mainly due to higher rates on money market and certificates of deposit (CD), coupled with growth in jumbo CD balances. Borrowing costs increased $829 thousand this quarter due to higher rates and balances of customer repurchase agreements. The overall rate paid on interest bearing liabilities was .65% in the current quarter, compared to .54% in the prior quarter.

Non-Interest Income

In the 1st quarter of 2019, total non-interest income amounted to $121.2 million, an increase of $1.6 million, or 1.3%, compared to the same period last year and decreased $11.8 million compared to the prior quarter. The prior quarter included net gains of $7.7 million from the disposition of several branch properties (included in other income). The increase in non-interest income over the same period last year was mainly due to growth in trust, cash sweep, and loan fee income, partly offset by lower net bank card fees.

Total net bank card fees in the current quarter decreased $1.8 million, or 4.4%, from the same period last year and decreased $4.8 million, or 10.9%, compared to the prior quarter. Net corporate card fees declined $1.3 million, or 5.4%, from the same quarter last year mainly due to higher rewards and network expense. Net debit card fees declined $261 thousand, or 2.8%, due to lower interchange income. Overall net merchant income declined $287 thousand due to lower interchange fees and higher network expense, while net credit card fees increased slightly on higher interchange revenue. Total net bank card fees this quarter were comprised of fees on corporate card ($22.9 million), debit card ($9.1 million), merchant ($4.5 million) and credit card ($3.2 million) transactions.

In the current quarter, trust fees increased $1.2 million, or 3.3%, over the same period last year, resulting from growth in private client fee income. Compared to the same period last year, deposit account fees increased slightly due to growth in corporate cash management fees, offset by lower overdraft and deposit account fees.

During the 1st quarter of 2019, cash sweep fees grew 59% over the same period last year to $3.4 million, while capital market fees declined $412 thousand. Loan fees and sales increased $447 thousand, or 15.6%, over amounts recorded in the same quarter last year, mainly due to higher mortgage banking revenue. The Company’s deferred compensation plan assets are held in a trust and are recorded as both an asset and a liability. Fair value equity adjustments on these assets affecting both other income and other expense increased $1.4 million over the same quarter last year and $2.7 million over the previous quarter. Non-interest income comprised 37.3% of the Company’s total revenue this quarter.

Investment Securities Gains and Losses

The Company recorded net securities losses of $925 thousand in the current quarter, compared to losses of $7.1 million in the prior quarter and gains of $5.4 million in the 1st quarter of 2018. Net securities losses in the current quarter resulted mainly from unrealized fair value losses of $1.8 million on the Company’s private equity investment portfolio, partly offset by net gains of $694 thousand from sales of investment securities with a book value of $150.1 million.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $191.4 million, compared to $182.3 million in the same period last year and $188.6 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to higher salaries and benefits, but included several non-recurring items, and reflected a core growth rate of 3.2%.

Compared to the 1st quarter of last year, salaries and benefits expense increased $6.2 million, or 5.4%. Salaries expense grew $5.0 million, mostly due to higher full-time salary costs. Benefits expense increased $1.2 million, or 5.8%, due to higher medical expense. Full-time equivalent employees totaled 4,841 and 4,799 at March 31, 2019 and 2018, respectively.

Marketing costs increased $1.1 million mainly due to increased marketing efforts for consumer deposit customers and healthcare banking initiatives. Data processing costs increased $1.6 million due to higher costs for service providers and software expense. However, deposit insurance expense declined $1.7 million due to reduced FDIC insurance rates. Additionally, costs for occupancy, supplies and communication, loan collection, and repossessed property declined a combined $984 thousand this quarter compared to the same period last year.

Income Taxes

The effective tax rate for the Company was 19.1% in the current quarter, 19.5% in the previous quarter, and 18.7% in the 1st quarter of 2018.

Credit Quality

Net loan charge-offs in the 1st quarter of 2019 amounted to $11.7 million, compared to $12.1 million in the prior quarter and $10.4 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .34% in both the current quarter and the previous quarter, and .30% in the 1st quarter of last year. During the 1st quarter of 2019, net loan charge-offs on commercial loans declined $1.1 million to $394 thousand, while net loan charge-offs on personal banking loans increased $737 thousand over the previous quarter to $11.3 million, mainly due to higher consumer credit card net losses.

In the 1st quarter of 2019, annualized net loan charge-offs on average consumer credit card loans were 4.65%, compared to 3.73% in the previous quarter, and 4.05% in the same quarter last year. Consumer loan net charge-offs were .40% of average consumer loans in the current quarter, .57% in the prior quarter and .49% in the same quarter last year. This quarter, the provision for loan losses totaled $12.5 million and exceeded net loan charge-offs by $750 thousand. At March 31, 2019, the allowance totaled $160.7 million, or 1.14% of total loans.

At March 31, 2019, total non-performing assets amounted to $12.9 million, a decrease of $1.0 million from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($12.2 million and $737 thousand, respectively). At March 31, 2019, the balance of non-accrual loans, which represented .09% of loans outstanding, included business loans of $8.6 million, business real estate loans of $1.7 million, and personal real estate loans of $1.8 million. Loans more than 90 days past due and still accruing interest totaled $16.7 million at March 31, 2019.

Other

During the 1st quarter of 2019, the Company paid a cash dividend of $.26 per common share, representing a 16.1% increase over the same period last year. The Company also paid an annualized 6% cash dividend on its preferred stock. The Company purchased 647,054 shares of treasury stock during the current quarter at an average price of $61.35.

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

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