Commerce Bancshares, Inc. Reports Second Quarter Earnings Per Share Of $.96

KANSAS CITY, Mo.--()--Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.96 per common share for the three months ended June 30, 2019, compared to $.96 per share in the same quarter last year and $.85 per share in the prior quarter. Net income attributable to Commerce Bancshares, Inc. for the second quarter of 2019 amounted to $108.0 million, compared to $110.3 million in the second quarter of 2018 and $97.1 million in the prior quarter. For the quarter, the return on average assets was 1.73%, the return on average common equity was 14.5% and the efficiency ratio was 55.9%.

For the six months ended June 30, 2019, earnings per common share totaled $1.81 compared to $1.84 for the first six months of 2018. Net income attributable to Commerce Bancshares, Inc. amounted to $205.1 million for the six months ended June 30, 2019 compared to $211.3 million in the comparable period last year. Year to date, the return on average assets was 1.66% and the return on average common equity was 14.1%.

In announcing these results, John Kemper, Chief Executive Officer, said, “We are pleased to report strong earnings this quarter, driven by the performance of our diversified, fee-based businesses, focus on credit quality, and prudent expense management. Fee income totaled $127.3 million this quarter and represented 38% of our total revenue. The growth in our fee-based businesses reflects our commitment to delivering innovative solutions and building well rounded banking relationships. Average loan growth was modest this quarter due to softening demand for consumer card and auto loans, offset by higher loan demand from commercial customers. We saw a surge in demand for residential mortgage loans this quarter, but we sell most of our production, which generates fee income instead of increasing our loan balances. Compared to the prior quarter, net interest income grew but included inflation income from our inflation-protected securities. Adjusted for this income, our net yield on earning assets decreased slightly, resulting mainly from a decline in commercial loan yields and slight growth in deposit costs, partly offset by increasing consumer loan yields. After significant margin growth beginning in 2017, the recent drop in forward rate expectations is putting downward pressure on net interest income and creating a significant headwind for banks like Commerce.”

Mr. Kemper continued, “This quarter net loan charge-offs totaled $11.3 million, compared to $11.7 million in the prior quarter and $10.0 million in the second quarter of 2018, as the overall credit environment remained favorable. In the current quarter, the ratio of annualized net loan charge-offs to average loans was .32%, compared to .34% in the previous quarter, and .29% in the second quarter of last year. Net loan charge-offs on commercial loans totaled $169 thousand this quarter and remained exceptionally low, while net loan charge-offs on personal banking loans decreased $182 thousand to $11.1 million. During the current quarter, the provision for loan losses exceeded net loan charge-offs by $500 thousand and totaled $11.8 million. The allowance for loan losses amounted to $161.2 million at June 30, 2019, or 1.13% of period end loans. Non-performing assets totaled $12.0 million this quarter and remained at very low levels.”

Total assets at June 30, 2019 were $25.8 billion, total loans were $14.3 billion, and total deposits were $19.8 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 2018, and paid a 6% cash dividend on its preferred stock. The Company purchased 779,726 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 second quarter results, is posted to the Company's web site at www.commercebank.com.

* * * * * * * * * * * * * * *
For additional information, contact
Matthew Burkemper, Investor Relations
at 8000 Forsyth, Mailstop: CBIR-1
Clayton, MO 63105
or by telephone at (314) 746-7485
Web Site: http://www.commercebank.com
Email: matthew.burkemper@commercebank.com

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

FINANCIAL HIGHLIGHTS

 

 

For the Three Months Ended

For the Six Months Ended

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

 

June 30,
2019

March 31,
2019

June 30,
2018

June 30,
2019

June 30,
2018

FINANCIAL SUMMARY

 

 

Net interest income

 

$

 

211,634

 

$

 

203,488

 

$

 

210,959

 

$

 

415,122

 

$

 

403,851

 

Non-interest income

 

 

127,259

 

 

121,240

 

 

124,850

 

 

248,499

 

 

244,540

 

Total revenue

 

 

338,893

 

 

324,728

 

 

335,809

 

 

663,621

 

 

648,391

 

Investment securities gains (losses), net

 

 

(110

)

 

(925

)

 

(3,075

)

 

(1,035

)

 

2,335

 

Provision for loan losses

 

 

11,806

 

 

12,463

 

 

10,043

 

 

24,269

 

 

20,439

 

Non-interest expense

 

 

189,779

 

 

191,425

 

 

181,860

 

 

381,204

 

 

364,137

 

Income before taxes

 

 

137,198

 

 

119,915

 

 

140,831

 

 

257,113

 

 

266,150

 

Income taxes

 

 

28,899

 

 

22,860

 

 

29,507

 

 

51,759

 

 

52,765

 

Non-controlling interest expense (income)

 

 

328

 

 

(83

)

 

994

 

 

245

 

 

2,071

 

Net income attributable to Commerce Bancshares, Inc.

 

107,971

 

 

97,138

 

 

110,330

 

 

205,109

 

 

211,314

 

Preferred stock dividends

 

 

2,250

 

 

2,250

 

 

2,250

 

 

4,500

 

 

4,500

 

Net income available to common shareholders

$

 

105,721

 

$

 

94,888

 

$

 

108,080

 

$

 

200,609

 

$

 

206,814

 

Earnings per common share:

 

 

 

 

 

 

Net income — basic

 

$

 

.96

 

$

 

.85

 

$

 

.96

 

$

 

1.81

 

$

 

1.84

 

Net income — diluted

 

$

 

.96

 

$

 

.85

 

$

 

.96

 

$

 

1.81

 

$

 

1.84

 

Effective tax rate

 

 

21.11

%

 

19.05

%

 

21.10

%

 

20.15

%

 

19.98

%

Tax equivalent net interest income

 

$

 

215,203

 

$

 

207,104

 

$

 

215,775

 

$

 

422,307

 

$

 

412,413

 

Average total interest earning assets (1)

 

$

 

23,939,495

 

$

 

23,874,861

 

$

 

23,683,587

 

$

 

23,907,357

 

$

 

23,688,441

 

Diluted wtd. average shares outstanding

 

 

109,752,238

 

 

110,300,988

 

 

111,330,889

 

 

110,025,097

 

 

111,297,697

 

 

 

 

 

 

 

 

RATIOS

 

 

 

 

 

 

Average loans to deposits (2)

 

 

70.97

%

 

70.96

%

 

68.85

%

 

70.96

%

 

68.97

%

Return on total average assets

 

 

1.73

 

 

1.58

 

 

1.80

 

 

1.66

 

 

1.73

 

Return on average common equity (3)

 

 

14.46

 

 

13.64

 

 

16.78

 

 

14.06

 

 

16.19

 

Non-interest income to total revenue

 

 

37.55

 

 

37.34

 

 

37.18

 

 

37.45

 

 

37.71

 

Efficiency ratio (4)

 

 

55.88

 

 

58.76

 

 

54.06

 

 

57.29

 

 

56.06

 

Net yield on interest earning assets

 

 

3.61

 

 

3.52

 

 

3.65

 

 

3.56

 

 

3.51

 

 

 

 

 

 

 

 

EQUITY SUMMARY

 

 

 

 

 

 

Cash dividends per common share

 

$

 

.260

 

$

 

.260

 

$

 

.224

 

$

 

.520

 

$

 

.448

 

Cash dividends on common stock

 

$

 

28,682

 

$

 

28,858

 

$

 

25,096

 

$

 

57,540

 

$

 

50,202

 

Cash dividends on preferred stock

 

$

 

2,250

 

$

 

2,250

 

$

 

2,250

 

$

 

4,500

 

$

 

4,500

 

Book value per common share (5)

 

$

 

27.53

 

$

 

26.18

 

$

 

23.47

 

 

 

Market value per common share (5)

 

$

 

59.66

 

$

 

58.06

 

$

 

61.63

 

 

 

High market value per common share

 

$

 

61.96

 

$

 

64.02

 

$

 

64.21

 

 

 

Low market value per common share

 

$

 

56.63

 

$

 

55.62

 

$

 

55.11

 

 

 

Common shares outstanding (5)

 

 

109,927,645

 

 

110,696,250

 

 

111,944,745

 

 

 

Tangible common equity to tangible assets (6)

 

 

11.25

%

 

11.06

%

 

10.18

%

 

 

Tier I leverage ratio

 

 

11.75

%

 

11.67

%

 

11.18

%

 

 

 

 

 

 

 

 

 

OTHER QTD INFORMATION

 

 

 

 

 

 

Number of bank/ATM locations

 

 

319

 

 

319

 

 

322

 

 

 

Full-time equivalent employees

 

 

4,857

 

 

4,841

 

 

4,797

 

 

 

(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

For the Six Months Ended

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

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

June 30,
2018

June 30,
2019

June 30,
2018

Interest income

$

238,412

 

$

227,865

 

$

232,832

 

$

224,751

 

$

225,623

 

$

466,277

 

$

431,618

 

Interest expense

 

26,778

 

 

24,377

 

 

20,612

 

 

16,997

 

 

14,664

 

 

51,155

 

 

27,767

 

Net interest income

 

211,634

 

 

203,488

 

 

212,220

 

 

207,754

 

 

210,959

 

 

415,122

 

 

403,851

 

Provision for loan losses

 

11,806

 

 

12,463

 

 

12,256

 

 

9,999

 

 

10,043

 

 

24,269

 

 

20,439

 

Net interest income after provision for loan losses

 

199,828

 

 

191,025

 

 

199,964

 

 

197,755

 

 

200,916

 

 

390,853

 

 

383,412

 

NON-INTEREST INCOME

 

 

 

 

 

 

 

Bank card transaction fees

 

42,646

 

 

39,644

 

 

44,481

 

 

42,427

 

 

43,215

 

 

82,290

 

 

84,668

 

Trust fees

 

38,375

 

 

37,256

 

 

37,466

 

 

37,400

 

 

37,036

 

 

75,631

 

 

73,098

 

Deposit account charges and other fees

 

23,959

 

 

23,018

 

 

23,887

 

 

23,755

 

 

23,893

 

 

46,977

 

 

46,875

 

Capital market fees

 

1,944

 

 

1,879

 

 

1,843

 

 

1,595

 

 

1,992

 

 

3,823

 

 

4,283

 

Consumer brokerage services

 

3,888

 

 

3,747

 

 

4,184

 

 

3,884

 

 

3,971

 

 

7,635

 

 

7,739

 

Loan fees and sales

 

4,238

 

 

3,309

 

 

3,053

 

 

3,579

 

 

3,229

 

 

7,547

 

 

6,091

 

Other

 

12,209

 

 

12,387

 

 

18,173

 

 

11,074

 

 

11,514

 

 

24,596

 

 

21,786

 

Total non-interest income

 

127,259

 

 

121,240

 

 

133,087

 

 

123,714

 

 

124,850

 

 

248,499

 

 

244,540

 

INVESTMENT SECURITIES GAINS (LOSSES), NET

 

(110

)

 

(925

)

 

(7,129

)

 

4,306

 

 

(3,075

)

 

(1,035

)

 

2,335

 

NON-INTEREST EXPENSE

 

 

 

 

 

 

 

Salaries and employee benefits

 

120,062

 

 

122,128

 

 

120,517

 

 

116,194

 

 

115,589

 

 

242,190

 

 

231,483

 

Net occupancy

 

11,145

 

 

11,501

 

 

11,711

 

 

11,631

 

 

11,118

 

 

22,646

 

 

22,702

 

Equipment

 

4,790

 

 

4,471

 

 

4,508

 

 

4,592

 

 

4,594

 

 

9,261

 

 

9,025

 

Supplies and communication

 

5,275

 

 

5,162

 

 

5,095

 

 

5,103

 

 

5,126

 

 

10,437

 

 

10,439

 

Data processing and software

 

23,248

 

 

22,260

 

 

22,216

 

 

22,056

 

 

21,016

 

 

45,508

 

 

41,706

 

Marketing

 

6,015

 

 

5,900

 

 

5,602

 

 

4,999

 

 

5,142

 

 

11,915

 

 

9,947

 

Deposit insurance

 

1,693

 

 

1,710

 

 

1,796

 

 

3,167

 

 

3,126

 

 

3,403

 

 

6,583

 

Community service

 

641

 

 

803

 

 

480

 

 

580

 

 

656

 

 

1,444

 

 

1,385

 

Other

 

16,910

 

 

17,490

 

 

16,700

 

 

16,737

 

 

15,493

 

 

34,400

 

 

30,867

 

Total non-interest expense

 

189,779

 

 

191,425

 

 

188,625

 

 

185,059

 

 

181,860

 

 

381,204

 

 

364,137

 

Income before income taxes

 

137,198

 

 

119,915

 

 

137,297

 

 

140,716

 

 

140,831

 

 

257,113

 

 

266,150

 

Less income taxes

 

28,899

 

 

22,860

 

 

26,537

 

 

26,647

 

 

29,507

 

 

51,759

 

 

52,765

 

Net income

 

108,299

 

 

97,055

 

 

110,760

 

 

114,069

 

 

111,324

 

 

205,354

 

 

213,385

 

Less non-controlling interest expense (income)

 

328

 

 

(83

)

 

1,108

 

 

1,493

 

 

994

 

 

245

 

 

2,071

 

Net income attributable to Commerce Bancshares, Inc.

 

107,971

 

 

97,138

 

 

109,652

 

 

112,576

 

 

110,330

 

 

205,109

 

 

211,314

 

Less preferred stock dividends

 

2,250

 

 

2,250

 

 

2,250

 

 

2,250

 

 

2,250

 

 

4,500

 

 

4,500

 

Net income available to common shareholders

$

105,721

 

$

94,888

 

$

107,402

 

$

110,326

 

$

108,080

 

$

200,609

 

$

206,814

 

Net income per common share — basic

$

.96

 

$

.85

 

$

.96

 

$

.99

 

$

.96

 

$

1.81

 

$

1.84

 

Net income per common share — diluted

$

.96

 

$

.85

 

$

.96

 

$

.98

 

$

.96

 

$

1.81

 

$

1.84

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

Return on total average assets

 

1.73

%

 

1.58

%

 

1.75

%

 

1.81

%

 

1.80

%

 

1.66

%

 

1.73

%

Return on average common equity (1)

 

14.46

 

 

13.64

 

 

15.85

 

 

16.43

 

 

16.78

 

 

14.06

 

 

16.19

 

Efficiency ratio (2)

 

55.88

 

 

58.76

 

 

54.53

 

 

55.73

 

 

54.06

 

 

57.29

 

 

56.06

 

Effective tax rate

 

21.11

 

 

19.05

 

 

19.49

 

 

19.14

 

 

21.10

 

 

20.15

 

 

19.98

 

Net yield on interest earning assets

 

3.61

 

 

3.52

 

 

3.58

 

 

3.52

 

 

3.65

 

 

3.56

 

 

3.51

 

Tax equivalent net interest income

$

215,203

 

$

207,104

 

$

216,281

 

$

211,368

 

$

215,775

 

$

422,307

 

$

412,413

 

(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)

 

June 30,
2019

March 31,
2019

June 30,
2018

ASSETS

 

 

 

 

Loans

 

 

 

 

Business

 

$

 

5,257,682

 

$

 

5,175,541

 

$

 

4,990,298

 

Real estate — construction and land

 

 

909,784

 

 

925,269

 

 

967,151

 

Real estate — business

 

 

2,867,831

 

 

2,859,614

 

 

2,727,580

 

Real estate — personal

 

 

2,160,515

 

 

2,125,087

 

 

2,102,586

 

Consumer

 

 

1,927,623

 

 

1,893,212

 

 

2,012,644

 

Revolving home equity

 

 

357,406

 

 

364,010

 

 

374,557

 

Consumer credit card

 

 

776,333

 

 

772,396

 

 

775,214

 

Overdrafts

 

 

3,074

 

 

5,593

 

 

4,081

 

Total loans

 

 

14,260,248

 

 

14,120,722

 

 

13,954,111

 

Allowance for loan losses

 

 

(161,182

)

 

(160,682

)

 

(159,532

)

Net loans

 

 

14,099,066

 

 

13,960,040

 

 

13,794,579

 

Loans held for sale

 

 

20,067

 

 

20,085

 

 

20,352

 

Investment securities:

 

 

 

 

Available for sale debt securities

 

 

8,682,303

 

 

8,627,890

 

 

8,412,376

 

Trading debt securities

 

 

36,508

 

 

30,427

 

 

31,156

 

Equity securities

 

 

4,744

 

 

4,694

 

 

4,444

 

Other securities

 

 

130,038

 

 

129,504

 

 

112,309

 

Total investment securities

 

 

8,853,593

 

 

8,792,515

 

 

8,560,285

 

Federal funds sold and short-term securities purchased under agreements to resell

 

 

 

250

 

 

31,500

 

Long-term securities purchased under agreements to resell

 

 

700,000

 

 

700,000

 

 

700,000

 

Interest earning deposits with banks

 

 

492,318

 

 

166,077

 

 

114,947

 

Cash and due from banks

 

 

456,192

 

 

428,018

 

 

386,339

 

Premises and equipment — net

 

 

363,554

 

 

362,679

 

 

331,782

 

Goodwill

 

 

138,921

 

 

138,921

 

 

138,921

 

Other intangible assets — net

 

 

8,763

 

 

8,511

 

 

8,083

 

Other assets

 

 

639,700

 

 

456,375

 

 

437,954

 

Total assets

 

$

 

25,772,174

 

$

 

25,033,471

 

$

 

24,524,742

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Deposits:

 

 

 

 

Non-interest bearing

 

$

 

6,274,838

 

$

 

6,298,724

 

$

 

6,876,756

 

Savings, interest checking and money market

 

 

11,452,849

 

 

11,799,346

 

 

11,761,832

 

Certificates of deposit of less than $100,000

 

 

613,505

 

 

599,289

 

 

603,629

 

Certificates of deposit of $100,000 and over

 

 

1,488,416

 

 

1,276,994

 

 

1,079,340

 

Total deposits

 

 

19,829,608

 

 

19,974,353

 

 

20,321,557

 

Federal funds purchased and securities sold under agreements to repurchase

 

 

2,394,294

 

 

1,722,751

 

 

1,166,759

 

Other borrowings

 

 

4,510

 

 

2,022

 

 

9,291

 

Other liabilities

 

 

372,399

 

 

291,132

 

 

255,752

 

Total liabilities

 

 

22,600,811

 

 

21,990,258

 

 

21,753,359

 

Stockholders’ equity:

 

 

 

 

Preferred stock

 

 

144,784

 

 

144,784

 

 

144,784

 

Common stock

 

 

559,432

 

 

559,432

 

 

535,407

 

Capital surplus

 

 

2,077,491

 

 

2,074,912

 

 

1,804,057

 

Retained earnings

 

 

384,232

 

 

307,193

 

 

408,374

 

Treasury stock

 

 

(106,106

)

 

(60,547

)

 

(15,854

)

Accumulated other comprehensive income (loss)

 

 

108,898

 

 

11,981

 

 

(108,781

)

Total stockholders’ equity

 

 

3,168,731

 

 

3,037,755

 

 

2,767,987

 

Non-controlling interest

 

 

2,632

 

 

5,458

 

 

3,396

 

Total equity

 

 

3,171,363

 

 

3,043,213

 

 

2,771,383

 

Total liabilities and equity

 

$

 

25,772,174

 

$

 

25,033,471

 

$

 

24,524,742

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

(Unaudited)
(In thousands)

For the Three Months Ended

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

June 30,
2018

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business

$

 

5,142,794

 

$

 

5,084,920

 

$

 

5,028,635

 

$

 

4,926,063

 

$

 

4,962,171

 

Real estate — construction and land

 

908,777

 

 

907,062

 

 

953,166

 

 

992,045

 

 

971,854

 

Real estate — business

 

2,868,503

 

 

2,864,177

 

 

2,757,595

 

 

2,732,968

 

 

2,726,697

 

Real estate — personal

 

2,135,048

 

 

2,119,365

 

 

2,122,357

 

 

2,110,945

 

 

2,078,972

 

Consumer

 

1,907,979

 

 

1,929,202

 

 

1,962,401

 

 

1,984,643

 

 

2,025,585

 

Revolving home equity

 

361,673

 

 

370,962

 

 

374,216

 

 

373,819

 

 

378,366

 

Consumer credit card

 

766,080

 

 

781,167

 

 

788,353

 

 

774,512

 

 

754,199

 

Overdrafts

 

4,889

 

 

4,205

 

 

5,277

 

 

4,704

 

 

4,497

 

Total loans

 

14,095,743

 

 

14,061,060

 

 

13,992,000

 

 

13,899,699

 

 

13,902,341

 

Allowance for loan losses

 

(161,403

)

 

(159,275

)

 

(158,880

)

 

(158,840

)

 

(158,664

)

Net loans

 

13,934,340

 

 

13,901,785

 

 

13,833,120

 

 

13,740,859

 

 

13,743,677

 

Loans held for sale

 

20,731

 

 

18,350

 

 

18,475

 

 

18,201

 

 

22,202

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

 

843,974

 

 

909,466

 

 

923,545

 

 

923,557

 

 

923,183

 

Government-sponsored enterprise obligations

 

199,506

 

 

199,480

 

 

214,913

 

 

261,938

 

 

354,156

 

State and municipal obligations

 

1,222,008

 

 

1,283,349

 

 

1,361,079

 

 

1,375,768

 

 

1,394,766

 

Mortgage-backed securities

 

4,614,703

 

 

4,360,428

 

 

4,379,805

 

 

4,434,119

 

 

4,067,152

 

Asset-backed securities

 

1,412,452

 

 

1,525,623

 

 

1,518,706

 

 

1,427,041

 

 

1,407,300

 

Other debt securities

 

331,459

 

 

335,612

 

 

339,841

 

 

339,952

 

 

340,246

 

Unrealized gain (loss) on debt securities

 

42,009

 

 

(48,925

)

 

(166,181

)

 

(119,319

)

 

(122,114

)

Total available for sale debt securities

 

8,666,111

 

 

8,565,033

 

 

8,571,708

 

 

8,643,056

 

 

8,364,689

 

Trading debt securities

 

30,169

 

 

25,411

 

 

26,322

 

 

24,490

 

 

26,101

 

Equity securities

 

4,717

 

 

4,568

 

 

4,432

 

 

4,466

 

 

47,179

 

Other securities

 

130,433

 

 

130,057

 

 

127,634

 

 

120,206

 

 

108,563

 

Total investment securities

 

8,831,430

 

 

8,725,069

 

 

8,730,096

 

 

8,792,218

 

 

8,546,532

 

Federal funds sold and short-term securities purchased under agreements to resell

 

1,601

 

 

4,797

 

 

14,415

 

 

13,042

 

 

36,791

 

Long-term securities purchased under agreements to resell

 

700,000

 

 

700,000

 

 

699,999

 

 

685,869

 

 

700,000

 

Interest earning deposits with banks

 

331,999

 

 

316,660

 

 

352,942

 

 

298,632

 

 

353,607

 

Other assets

 

1,251,555

 

 

1,197,261

 

 

1,158,816

 

 

1,147,250

 

 

1,119,454

 

Total assets

$

 

25,071,656

 

$

 

24,863,922

 

$

 

24,807,863

 

$

 

24,696,071

 

$

 

24,522,263

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Non-interest bearing deposits

$

 

6,335,620

 

$

 

6,324,738

 

$

 

6,666,715

 

$

 

6,677,665

 

$

 

6,749,104

 

Savings

 

929,974

 

 

896,378

 

 

870,844

 

 

877,347

 

 

881,045

 

Interest checking and money market

 

10,642,648

 

 

10,762,550

 

 

10,840,048

 

 

10,839,310

 

 

10,850,123

 

Certificates of deposit of less than $100,000

 

605,440

 

 

590,200

 

 

584,828

 

 

593,936

 

 

609,011

 

Certificates of deposit of $100,000 and over

 

1,378,402

 

 

1,267,517

 

 

1,090,546

 

 

1,100,299

 

 

1,134,900

 

Total deposits

 

19,892,084

 

 

19,841,383

 

 

20,052,981

 

 

20,088,557

 

 

20,224,183

 

Borrowings:

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

 

1,793,526

 

 

1,771,534

 

 

1,655,997

 

 

1,499,837

 

 

1,339,278

 

Other borrowings

 

1,318

 

 

1,248

 

 

1,335

 

 

1,833

 

 

1,913

 

Total borrowings

 

1,794,844

 

 

1,772,782

 

 

1,657,332

 

 

1,501,670

 

 

1,341,191

 

Other liabilities

 

307,433

 

 

284,018

 

 

264,449

 

 

296,884

 

 

229,080

 

Total liabilities

 

21,994,361

 

 

21,898,183

 

 

21,974,762

 

 

21,887,111

 

 

21,794,454

 

Equity

 

3,077,295

 

 

2,965,739

 

 

2,833,101

 

 

2,808,960

 

 

2,727,809

 

Total liabilities and equity

$

 

25,071,656

 

$

 

24,863,922

 

$

 

24,807,863

 

$

 

24,696,071

 

$

 

24,522,263

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

(Unaudited)

For the Three Months Ended

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

June 30,
2018

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business (1)

4.02

%

4.07

%

3.93

%

3.80

%

3.69

%

Real estate — construction and land

5.63

 

5.73

 

5.47

 

5.21

 

5.06

 

Real estate — business

4.60

 

4.61

 

4.53

 

4.35

 

4.22

 

Real estate — personal

3.97

 

4.00

 

3.87

 

3.83

 

3.84

 

Consumer

4.77

 

4.73

 

4.62

 

4.46

 

4.39

 

Revolving home equity

5.20

 

5.17

 

4.98

 

4.72

 

4.51

 

Consumer credit card

12.33

 

12.18

 

11.91

 

11.99

 

12.05

 

Overdrafts

 

 

 

 

 

Total loans

4.82

 

4.85

 

4.72

 

4.59

 

4.49

 

Loans held for sale

6.98

 

7.38

 

6.59

 

6.87

 

6.72

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

4.66

 

.78

 

1.90

 

2.23

 

3.18

 

Government-sponsored enterprise obligations

2.32

 

2.35

 

2.24

 

2.10

 

1.88

 

State and municipal obligations (1)

3.18

 

3.19

 

3.06

 

2.98

 

3.06

 

Mortgage-backed securities

2.70

 

2.76

 

2.75

 

2.65

 

2.60

 

Asset-backed securities

2.79

 

2.70

 

2.55

 

2.42

 

2.32

 

Other debt securities

2.68

 

2.69

 

2.60

 

2.59

 

2.63

 

Total available for sale debt securities

2.97

 

2.59

 

2.65

 

2.60

 

2.66

 

Trading debt securities (1)

3.14

 

3.24

 

3.21

 

3.13

 

3.15

 

Equity securities (1)

35.97

 

37.55

 

39.92

 

32.69

 

89.68

 

Other securities (1)

6.69

 

5.73

 

15.51

 

13.00

 

6.68

 

Total investment securities

3.04

 

2.66

 

2.86

 

2.76

 

3.19

 

Federal funds sold and short-term securities purchased under agreements to resell

2.76

 

2.79

 

2.56

 

2.10

 

1.93

 

Long-term securities purchased under agreements to resell

2.11

 

2.18

 

2.31

 

2.26

 

2.17

 

Interest earning deposits with banks

2.40

 

2.42

 

2.28

 

1.96

 

1.80

 

Total interest earning assets

4.05

 

3.93

 

3.92

 

3.80

 

3.90

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

Savings

.11

 

.11

 

.11

 

.11

 

.11

 

Interest checking and money market

.38

 

.35

 

.30

 

.26

 

.23

 

Certificates of deposit of less than $100,000

1.01

 

.87

 

.70

 

.56

 

.46

 

Certificates of deposit of $100,000 and over

2.02

 

1.92

 

1.61

 

1.41

 

1.23

 

Total interest bearing deposits

.55

 

.51

 

.41

 

.35

 

.32

 

Borrowings:

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

1.80

 

1.72

 

1.60

 

1.33

 

1.18

 

Other borrowings

1.52

 

1.62

 

2.67

 

2.60

 

2.52

 

Total borrowings

1.80

 

1.72

 

1.60

 

1.33

 

1.19

 

Total interest bearing liabilities

.70

%

.65

%

.54

%

.45

%

.40

%

 

 

 

 

 

 

Net yield on interest earning assets

3.61

%

3.52

%

3.58

%

3.52

%

3.65

%

(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

For the Six Months Ended

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

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

June 30,
2018

June 30,
2019

June 30,
2018

ALLOWANCE FOR LOAN LOSSES

 

 

 

 

 

 

 

Balance at beginning of period

$

 

160,682

 

$

 

159,932

 

$

 

159,732

 

$

 

159,532

 

$

 

159,532

 

$

 

159,932

 

$

 

159,532

 

Provision for losses

 

11,806

 

 

12,463

 

 

12,256

 

 

9,999

 

 

10,043

 

 

24,269

 

 

20,439

 

Net charge-offs (recoveries):

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

Business

 

284

 

 

447

 

 

1,748

 

 

332

 

 

36

 

 

731

 

 

22

 

Real estate — construction and land

 

(101

)

 

(16

)

 

(183

)

 

(119

)

 

(297

)

 

(117

)

 

(333

)

Real estate — business

 

(14

)

 

(37

)

 

(91

)

 

(42

)

 

(40

)

 

(51

)

 

(245

)

 

 

169

 

 

394

 

 

1,474

 

 

171

 

 

(301

)

 

563

 

 

(556

)

Personal banking portfolio:

 

 

 

 

 

 

 

Consumer credit card

 

9,066

 

 

8,958

 

 

7,421

 

 

7,340

 

 

8,251

 

 

18,024

 

 

15,817

 

Consumer

 

1,723

 

 

1,924

 

 

2,805

 

 

2,091

 

 

1,862

 

 

3,647

 

 

4,390

 

Overdraft

 

253

 

 

317

 

 

500

 

 

351

 

 

326

 

 

570

 

 

770

 

Real estate — personal

 

(21

)

 

101

 

 

(144

)

 

(153

)

 

(95

)

 

80

 

 

(38

)

Revolving home equity

 

116

 

 

19

 

 

 

(1

)

 

 

135

 

 

56

 

 

 

11,137

 

 

11,319

 

 

10,582

 

 

9,628

 

 

10,344

 

 

22,456

 

 

20,995

 

Total net loan charge-offs

 

11,306

 

 

11,713

 

 

12,056

 

 

9,799

 

 

10,043

 

 

23,019

 

 

20,439

 

Balance at end of period

$

 

161,182

 

$

 

160,682

 

$

 

159,932

 

$

 

159,732

 

$

 

159,532

 

$

 

161,182

 

$

 

159,532

 

 

 

 

 

 

 

 

 

NET CHARGE-OFF RATIOS*

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

Business

 

.02

%

 

.04

%

 

.14

%

 

.03

%

%

 

.03

%

%

Real estate — construction and land

 

(.04

)

 

(.01

)

 

(.08

)

 

(.05

)

 

(.12

)

 

(.03

)

 

(.07

)

Real estate — business

 

 

(.01

)

 

(.01

)

 

(.01

)

 

(.01

)

 

 

(.02

)

 

 

.01

 

 

.02

 

 

.07

 

 

.01

 

 

(.01

)

 

.01

 

 

(.01

)

Personal banking portfolio:

 

 

 

 

 

 

 

Consumer credit card

 

4.75

 

 

4.65

 

 

3.73

 

 

3.76

 

 

4.39

 

 

4.70

 

 

4.22

 

Consumer

 

.36

 

 

.40

 

 

.57

 

 

.42

 

 

.37

 

 

.38

 

 

.43

 

Overdraft

 

20.76

 

 

30.57

 

 

37.59

 

 

29.60

 

 

29.08

 

 

25.27

 

 

34.04

 

Real estate — personal

 

 

.02

 

 

(.03

)

 

(.03

)

 

(.02

)

 

.01

 

 

Revolving home equity

 

.13

 

 

.02

 

 

 

 

 

.07

 

 

.03

 

 

 

.86

 

 

.88

 

 

.80

 

 

.73

 

 

.79

 

 

.87

 

 

.80

 

Total

 

.32

%

 

.34

%

 

.34

%

 

.28

%

 

.29

%

 

.33

%

 

.30

%

 

 

 

 

 

 

 

 

CREDIT QUALITY RATIOS

 

 

 

 

 

 

 

Non-performing assets to total loans

 

.08

%

 

.09

%

 

.10

%

 

.07

%

 

.08

%

 

 

Non-performing assets to total assets

 

.05

 

 

.05

 

 

.05

 

 

.04

 

 

.04

 

 

 

Allowance for loan losses to total loans

 

1.13

 

 

1.14

 

 

1.13

 

 

1.14

 

 

1.14

 

 

 

 

 

 

 

 

 

 

 

NON-PERFORMING ASSETS

 

 

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

 

 

Business

$

 

8,428

 

$

 

8,569

 

$

 

8,985

 

$

 

5,131

 

$

 

5,114

 

 

 

Real estate — construction and land

 

3

 

 

4

 

 

4

 

 

4

 

 

5

 

 

 

Real estate — business

 

950

 

 

1,746

 

 

1,715

 

 

1,467

 

 

2,465

 

 

 

Real estate — personal

 

1,752

 

 

1,848

 

 

1,832

 

 

1,767

 

 

1,888

 

 

 

Total

 

11,133

 

 

12,167

 

 

12,536

 

 

8,369

 

 

9,472

 

 

 

Foreclosed real estate

 

897

 

 

737

 

 

1,413

 

 

1,181

 

 

1,039

 

 

 

Total non-performing assets

$

 

12,030

 

$

 

12,904

 

$

 

13,949

 

$

 

9,550

 

$

 

10,511

 

 

 

Loans past due 90 days and still accruing interest

$

 

16,532

 

$

 

16,655

 

$

 

16,658

 

$

 

13,991

 

$

 

13,453

 

 

 

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

COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2019

For the quarter ended June 30, 2019, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $108.0 million, compared to $97.1 million in the previous quarter and $110.3 million in the same quarter last year. The increase in net income over the previous quarter was primarily the result of higher net interest income and non-interest income coupled with lower non-interest expense. Excluding inflation income on the Company’s inflation protected securities (TIPs), the net interest margin declined five basis points to 3.50%, mainly due to a modest increase in deposit costs, while interest earning asset balances and rates were mostly flat. Non-interest income increased $6.0 million over the previous quarter. Average loans increased $37.1 million over the previous quarter, while average deposits increased $50.7 million. For the quarter, the return on average assets was 1.73%, the return on average common equity was 14.5%, and the efficiency ratio was 55.9%.

Balance Sheet Review

During the 2nd quarter of 2019, average loans totaled $14.1 billion, or an increase of $37.1 million over the prior quarter, and grew $191.9 million, or 1.4%, over the same quarter last year. Period-end loans grew $139.5 million over the prior quarter. Compared to the previous quarter, average business loans grew $57.9 million, and average personal real estate loans grew $15.7 million. This growth was partly offset by declines in average consumer (decline of $21.2 million) and consumer credit card (decline of $15.1 million) lending activities. Growth in business loans was the result of increased commercial and industrial, commercial credit card, and tax-free lending activities. Personal real estate loans grew on higher loan originations during the 2nd quarter of 2019 compared to the previous quarter. The decline in consumer loans resulted from lower auto, marine/RV, and fixed home equity lending. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $60.4 million, compared to $45.6 million in the prior quarter.

Total average available for sale debt securities increased $101.1 million over the previous quarter to $8.7 billion, at fair value. The increase in investment securities was mainly the result of growth in average mortgage-backed securities, partially offset by declines in average asset-backed, U.S. government and federal agency obligations, and state and municipal securities. Purchases of securities during the quarter totaled $511.8 million, and sales, maturities and pay downs were $556.8 million. At June 30, 2019, the duration of the investment portfolio was 2.8 years, and maturities and pay downs of approximately $1.2 billion are expected to occur during the next 12 months.

Total average deposits increased $50.7 million this quarter compared to the previous quarter. The increase in average deposits resulted from growth in certificates of deposit ($126.1 million), trust demand deposits ($97.2 million) and savings deposits ($33.6 million). These increases were mostly offset by declines of $119.9 million and $115.1 million in interest checking and money market and business demand average deposits, respectively. Compared to the previous quarter, total average consumer and wealth deposits (including private banking) increased $122.4 million and $77.9 million, respectively, while average commercial deposits declined $154.0 million this quarter. The average loans to deposits ratio was 71.0% in both the current and prior quarters. The Company’s average borrowings, which includes customer repurchase agreements, were $1.8 billion in the 2nd quarter of 2019, unchanged from the prior quarter’s balance.

Net Interest Income

Net interest income in the 2nd quarter of 2019 amounted to $211.6 million compared to $203.5 million in the previous quarter, an increase of $8.1 million. On a tax equivalent basis, net interest income for the current quarter increased $8.1 million over the previous quarter to $215.2 million. The growth in net interest income was mostly due to an $8.5 million increase this quarter in inflation income on the Company’s TIPs but was partially offset by a $1.1 million premium amortization expense adjustment on accelerating prepayment speeds for mortgage-backed and asset-backed securities. Excluding these items, net interest income increased $819 thousand, while the adjusted net yield on earning assets (tax equivalent) decreased to 3.52%, compared to 3.55% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) increased $1.3 million mostly as a result of higher loan yields on personal banking loans, combined with higher balances of business loans. The average tax-equivalent yield on the loan portfolio declined three basis points this quarter to 4.82%, compared to 4.85% in the previous quarter, as yields on commercial loans contracted slightly, offsetting yield growth on personal banking loans.

Interest income on investment securities (tax equivalent) increased $9.2 million over the previous quarter, mainly due to the higher inflation income on TIPs, as noted above. An increase in the Consumer Price Index this quarter resulted in inflation income of $6.5 million. The yield on total investment securities was 3.04% in the current quarter, up from 2.66% in the previous quarter.

Interest costs on deposits totaled 55 basis points in the 2nd quarter of 2019, compared to 51 basis points in the prior quarter. Interest expense on deposits increased $1.9 million this quarter compared to the previous quarter mainly due to higher rates on money market accounts and certificates of deposit (CD), coupled with growth in jumbo CD balances. Borrowing costs increased $548 thousand this quarter mainly due to higher balances of federal funds purchased. In the current quarter, the overall rate paid on interest bearing liabilities was .70%, compared to .65% in the prior quarter.

Non-Interest Income

In the 2nd quarter of 2019, total non-interest income amounted to $127.3 million, an increase of $2.4 million, or 1.9%, compared to the same period last year and increased $6.0 million, or 5.0%, compared to the prior quarter. 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, coupled with gains on sales of assets. These increases to income were partly offset by lower swap, international, and net bank card fees.

Total net bank card fees in the current quarter decreased $569 thousand, or 1.3%, from the same period last year, but increased $3.0 million, or 7.6%, compared to the prior quarter. Net corporate card fees declined $1.1 million, or 4.4%, from the same quarter last year mainly due to higher rewards and network expense. Net debit card fees declined $223 thousand, or 2.2%, due to higher network expense, partly offset by higher interchange income. Overall net merchant income increased $355 thousand, or 7.3%, due to higher interchange fees, partly offset by higher network expense, while net credit card fees increased $372 thousand, or 10.6% on higher interchange revenue. Total net bank card fees this quarter were comprised of fees on corporate card ($23.5 million), debit card ($10.0 million), merchant ($5.2 million) and credit card ($3.9 million) transactions.

In the current quarter, trust fees increased $1.3 million, or 3.6%, 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 2nd quarter of 2019, loan fees and sales increased $1.0 million, or 31.2%, over amounts recorded in the same quarter last year, mainly due to higher mortgage banking revenue. Cash sweep fees grew $556 thousand, or 24.4%, over the same period last year, while international fees declined $548 thousand. Swap fees declined $906 thousand compared to the same quarter last year as customer demand for this product has shifted due to expectations on future interest rates. Other non-interest income this quarter also included gains of $576 thousand on sales of leased assets to customers upon lease termination and sales of branch properties, compared to losses of $548 thousand on sales of branch properties and write downs on software costs in the 2nd quarter of 2018. Non-interest income comprised 37.6% of the Company’s total revenue this quarter.

Investment Securities Gains and Losses

The Company recorded net securities losses of $110 thousand in the current quarter, compared to losses of $925 thousand in the prior quarter and losses of $3.1 million in the 2nd quarter of 2018. Net securities losses in the current quarter resulted mainly from fair value net losses on the Company’s private equity investment portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $189.8 million, compared to $181.9 million in the same period last year and $191.4 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 and data processing costs, partly offset by lower deposit insurance expense.

Compared to the 2nd quarter of last year, salaries and benefits expense increased $4.5 million, or 3.9%, driven by growth in full-time salary costs. Full-time equivalent employees totaled 4,857 and 4,797 at June 30, 2019 and 2018, respectively.

Marketing costs increased $873 thousand mainly due to increased marketing efforts for consumer deposit customers and healthcare banking initiatives. Data processing costs increased $2.2 million due to higher costs for service providers and software expense as the Company continues its efforts to implement a new core deposit system and various other technology-based initiatives. However, deposit insurance expense declined $1.4 million due to reduced FDIC insurance rates. Other non-interest expense increased over the prior quarter mainly due to higher professional fees, travel and entertainment and foreclosed property expense.

Income Taxes

The effective tax rate for the Company was 21.1% in the current quarter, 19.1% in the previous quarter, and 21.1% in the 2nd quarter of 2018.

Credit Quality

Net loan charge-offs in the 2nd quarter of 2019 amounted to $11.3 million, compared to $11.7 million in the prior quarter and $10.0 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .32% in the current quarter, compared to .34% in the previous quarter and .29% in the 2nd quarter of last year. Compared to the prior quarter, net loan charge-offs on commercial loans declined $225 thousand to $169 thousand for the 2nd quarter of 2019, while net loan charge-offs on personal banking loans decreased $182 thousand to $11.1 million.

In the 2nd quarter of 2019, annualized net loan charge-offs on average consumer credit card loans were 4.75%, compared to 4.65% in the previous quarter, and 4.39% in the same quarter last year. Consumer loan net charge-offs were .36% of average consumer loans in the current quarter, .40% in the prior quarter and .37% in the same quarter last year. This quarter, the provision for loan losses totaled $11.8 million and exceeded net loan charge-offs by $500 thousand. At June 30, 2019, the allowance totaled $161.2 million, or 1.13% of total loans.

At June 30, 2019, total non-performing assets amounted to $12.0 million, a decrease of $874 thousand from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($11.1 million and $897 thousand, respectively). At June 30, 2019, the balance of non-accrual loans, which represented .08% of loans outstanding, included business loans of $8.4 million, business real estate loans of $950 thousand, and personal real estate loans of $1.8 million. Loans more than 90 days past due and still accruing interest totaled $16.5 million at June 30, 2019.

Other

During the 2nd 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 779,726 shares of treasury stock during the current quarter at an average price of $59.48.

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 statements.

Contacts

Matthew Burkemper, Investor Relations
(314) 746-7485
Web Site: http://www.commercebank.com
Email: matthew.burkemper@commercebank.com

Contacts

Matthew Burkemper, Investor Relations
(314) 746-7485
Web Site: http://www.commercebank.com
Email: matthew.burkemper@commercebank.com