Commerce Bancshares, Inc. Reports Third Quarter Earnings Per Share of $.98

KANSAS CITY, Mo.--()--Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.98 per common share for the three months ended September 30, 2019, compared to $.98 per share in the same quarter last year and $.96 per share in the prior quarter. Net income attributable to Commerce Bancshares, Inc. for the third quarter of 2019 amounted to $109.2 million, compared to $112.6 million in the third quarter of 2018 and $108.0 million in the prior quarter. For the quarter, the return on average assets was 1.72%, the return on average common equity was 14.2% and the efficiency ratio was 56.7%.

For the nine months ended September 30, 2019, earnings per common share totaled $2.79 compared to $2.82 for the first nine months of 2018. Net income attributable to Commerce Bancshares, Inc. amounted to $314.4 million for the nine months ended September 30, 2019 compared to $323.9 million in the comparable period last year. Year to date, the return on average assets was 1.68%, and the return on average common equity was 14.1%.

In announcing these results, John Kemper, Chief Executive Officer, said, “We are pleased to announce another quarter of strong operating results, driven by growth in our diversified, fee-based businesses. Fee income totaled $132.7 million this quarter and represented 39% of our total revenue. Compared to the same period last year, fee income grew 7.3%, driven mainly by increases in bank card, trust, and loan fees and sales. Average loan growth was stronger this quarter compared to the previous quarter mainly due to demand for business loans, primarily commercial and industrial loans. Also, we continued to see strong demand for residential mortgage loans this quarter, which resulted in higher average loan balances and higher fee income. Net interest income contracted in the third quarter of 2019 mostly due to lower inflation income from our inflation-protected securities and less interest on floating rate commercial loans that are indexed to LIBOR. Adjusted for inflation income, the net yield on interest earning assets decreased ten basis points. While the recent drop in interest rates has started to impact net interest income, the strength of our fee-based businesses, disciplined approach to credit, and focus on expense management are mitigating some of the adverse effects of the declining interest rate environment.”

Mr. Kemper continued, “This quarter net loan charge-offs totaled $11.5 million, compared to $11.3 million in the prior quarter and $9.8 million in the third quarter of 2018, as the overall credit environment remained favorable. The ratio of annualized net loan charge-offs to average loans was .32% in both the current and previous quarters and .28% in the third quarter of last year. Net loan charge-offs on commercial loans totaled $291 thousand this quarter and remained exceptionally low, while net loan charge-offs on personal banking loans increased slightly to $11.2 million. During the current quarter, the provision for loan losses totaled $11.0 million, or $500 thousand lower than net loan charge-offs. The allowance for loan losses amounted to $160.7 million at September 30, 2019, or 1.11% of period end loans. Non-performing assets totaled $12.2 million this quarter and remained at very low levels.”

Total assets at September 30, 2019 were $25.9 billion, total loans were $14.5 billion, and total deposits were $20.3 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 2,576,012 of its common shares this quarter.

Commerce Bancshares, Inc. is a regional bank holding company offering a full line of banking services, including payment solutions, investment management and securities brokerage. Commerce Bank, a subsidiary of Commerce Bancshares, Inc., leverages more than 150 years of proven strength and experience to help individuals and businesses solve financial challenges. In addition to offering payment solutions across the U.S., Commerce Bank currently operates full service banking facilities across the Midwest including the St. Louis and Kansas City metropolitan areas, Springfield, Central Missouri, Central Illinois, Wichita, Tulsa, Oklahoma City, and Denver. It also maintains commercial offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids. Commerce delivers high-touch service and sophisticated financial solutions at regional branches, commercial offices, ATMs, online, mobile and through a 24/7 customer service line.

This financial news release, including management's discussion of third 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 Nine Months Ended

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

 

September 30,
2019

June 30,
2019

September 30,
2018

September 30,
2019

September 30,
2018

FINANCIAL SUMMARY

 

 

Net interest income

 

$203,512

 

$211,634

 

$207,754

 

$618,634

 

$611,605

 

Non-interest income

 

132,743

 

127,259

 

123,714

 

381,242

 

368,254

 

Total revenue

 

336,255

 

338,893

 

331,468

 

999,876

 

979,859

 

Investment securities gains (losses), net

 

4,909

 

(110

)

4,306

 

3,874

 

6,641

 

Provision for loan losses

 

10,963

 

11,806

 

9,999

 

35,232

 

30,438

 

Non-interest expense

 

191,020

 

189,779

 

185,059

 

572,224

 

549,196

 

Income before taxes

 

139,181

 

137,198

 

140,716

 

396,294

 

406,866

 

Income taxes

 

29,101

 

28,899

 

26,647

 

80,860

 

79,412

 

Non-controlling interest expense

 

838

 

328

 

1,493

 

1,083

 

3,564

 

Net income attributable to Commerce Bancshares, Inc.

109,242

 

107,971

 

112,576

 

314,351

 

323,890

 

Preferred stock dividends

 

2,250

 

2,250

 

2,250

 

6,750

 

6,750

 

Net income available to common shareholders

$106,992

 

$105,721

 

$110,326

 

$307,601

 

$317,140

 

Earnings per common share:

 

 

 

 

 

 

Net income — basic

 

$.98

 

$.96

 

$.99

 

$2.79

 

$2.83

 

Net income — diluted

 

$.98

 

$.96

 

$.98

 

$2.79

 

$2.82

 

Effective tax rate

 

21.04

%

21.11

%

19.14

%

20.46

%

19.69

%

Tax equivalent net interest income

 

$206,958

 

$215,203

 

$211,368

 

$629,265

 

$623,781

 

Average total interest earning assets (1)

 

$23,947,084

 

$23,939,495

 

$23,826,980

 

$23,920,745

 

$23,735,128

 

Diluted wtd. average shares outstanding

 

107,856,257

 

109,752,238

 

111,260,224

 

109,294,206

 

111,285,069

 

 

 

 

 

 

 

 

RATIOS

 

 

 

 

 

 

Average loans to deposits (2)

 

72.48

%

70.97

%

69.28

%

71.47

%

69.07

%

Return on total average assets

 

1.72

 

1.73

 

1.81

 

1.68

 

1.76

 

Return on average common equity (3)

 

14.21

 

14.46

 

16.43

 

14.11

 

16.27

 

Non-interest income to total revenue

 

39.48

 

37.55

 

37.32

 

38.13

 

37.58

 

Efficiency ratio (4)

 

56.66

 

55.88

 

55.73

 

57.08

 

55.95

 

Net yield on interest earning assets

 

3.43

 

3.61

 

3.52

 

3.52

 

3.51

 

 

 

 

 

 

 

 

EQUITY SUMMARY

 

 

 

 

 

 

Cash dividends per common share

 

$.260

 

$.260

 

$.224

 

$.780

 

$.671

 

Cash dividends on common stock

 

$27,993

 

$28,682

 

$25,059

 

$85,533

 

$75,261

 

Cash dividends on preferred stock

 

$2,250

 

$2,250

 

$2,250

 

$6,750

 

$6,750

 

Book value per common share (5)

 

$27.58

 

$27.53

 

$23.84

 

 

 

Market value per common share (5)

 

$60.65

 

$59.66

 

$62.88

 

 

 

High market value per common share

 

$61.84

 

$61.96

 

$69.10

 

 

 

Low market value per common share

 

$54.65

 

$56.63

 

$61.26

 

 

 

Common shares outstanding (5)

 

107,364,746

 

109,927,645

 

111,691,094

 

 

 

Tangible common equity to tangible assets (6)

 

10.95

%

11.25

%

10.10

%

 

 

Tier I leverage ratio

 

11.32

%

11.75

%

11.38

%

 

 

 

 

 

 

 

 

 

OTHER QTD INFORMATION

 

 

 

 

 

 

Number of bank/ATM locations

 

316

 

319

 

322

 

 

 

Full-time equivalent employees

 

4,873

 

4,857

 

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 Nine Months Ended

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

 

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

 

September 30,
2019

September 30,
2018

Interest income

 

$231,743

 

$238,412

 

$227,865

 

$232,832

 

$224,751

 

$698,020

 

$656,369

 

Interest expense

 

28,231

 

26,778

 

24,377

 

20,612

 

16,997

 

79,386

 

44,764

 

Net interest income

 

203,512

 

211,634

 

203,488

 

212,220

 

207,754

 

618,634

 

611,605

 

Provision for loan losses

 

10,963

 

11,806

 

12,463

 

12,256

 

9,999

 

35,232

 

30,438

 

Net interest income after provision for loan losses

192,549

 

199,828

 

191,025

 

199,964

 

197,755

 

583,402

 

581,167

 

NON-INTEREST INCOME

 

 

 

 

 

 

 

 

Bank card transaction fees

 

44,510

 

42,646

 

39,644

 

44,481

 

42,427

 

126,800

 

127,095

 

Trust fees

 

39,592

 

38,375

 

37,256

 

37,466

 

37,400

 

115,223

 

110,498

 

Deposit account charges and other fees

24,032

 

23,959

 

23,018

 

23,887

 

23,755

 

71,009

 

70,630

 

Capital market fees

 

1,787

 

1,944

 

1,879

 

1,843

 

1,595

 

5,610

 

5,878

 

Consumer brokerage services

 

4,030

 

3,888

 

3,747

 

4,184

 

3,884

 

11,665

 

11,623

 

Loan fees and sales

 

4,755

 

4,238

 

3,309

 

3,053

 

3,579

 

12,302

 

9,670

 

Other

 

14,037

 

12,209

 

12,387

 

18,173

 

11,074

 

38,633

 

32,860

 

Total non-interest income

 

132,743

 

127,259

 

121,240

 

133,087

 

123,714

 

381,242

 

368,254

 

INVESTMENT SECURITIES GAINS (LOSSES), NET

4,909

 

(110

)

(925

)

(7,129

)

4,306

 

3,874

 

6,641

 

NON-INTEREST EXPENSE

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

123,836

 

120,062

 

122,128

 

120,517

 

116,194

 

366,026

 

347,677

 

Net occupancy

 

12,293

 

11,145

 

11,501

 

11,711

 

11,631

 

34,939

 

34,333

 

Equipment

 

4,941

 

4,790

 

4,471

 

4,508

 

4,592

 

14,202

 

13,617

 

Supplies and communication

 

5,106

 

5,275

 

5,162

 

5,095

 

5,103

 

15,543

 

15,542

 

Data processing and software

 

23,457

 

23,248

 

22,260

 

22,216

 

22,056

 

68,965

 

63,762

 

Marketing

 

6,048

 

6,015

 

5,900

 

5,602

 

4,999

 

17,963

 

14,946

 

Deposit insurance

 

1,621

 

1,693

 

1,710

 

1,796

 

3,167

 

5,024

 

9,750

 

Community service

 

564

 

641

 

803

 

480

 

580

 

2,008

 

1,965

 

Other

 

13,154

 

16,910

 

17,490

 

16,700

 

16,737

 

47,554

 

47,604

 

Total non-interest expense

 

191,020

 

189,779

 

191,425

 

188,625

 

185,059

 

572,224

 

549,196

 

Income before income taxes

 

139,181

 

137,198

 

119,915

 

137,297

 

140,716

 

396,294

 

406,866

 

Less income taxes

 

29,101

 

28,899

 

22,860

 

26,537

 

26,647

 

80,860

 

79,412

 

Net income

 

110,080

 

108,299

 

97,055

 

110,760

 

114,069

 

315,434

 

327,454

 

Less non-controlling interest expense (income)

838

 

328

 

(83

)

1,108

 

1,493

 

1,083

 

3,564

 

Net income attributable to Commerce Bancshares, Inc.

109,242

 

107,971

 

97,138

 

109,652

 

112,576

 

314,351

 

323,890

 

Less preferred stock dividends

 

2,250

 

2,250

 

2,250

 

2,250

 

2,250

 

6,750

 

6,750

 

Net income available to common shareholders

$106,992

 

$105,721

 

$94,888

 

$107,402

 

$110,326

 

$307,601

 

$317,140

 

Net income per common share — basic

$.98

 

$.96

 

$.85

 

$.96

 

$.99

 

$2.79

 

$2.83

 

Net income per common share — diluted

$.98

 

$.96

 

$.85

 

$.96

 

$.98

 

$2.79

 

$2.82

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

Return on total average assets

 

1.72

%

1.73

%

1.58

%

1.75

%

1.81

%

1.68

%

1.76

%

Return on average common equity (1)

14.21

 

14.46

 

13.64

 

15.85

 

16.43

 

14.11

 

16.27

 

Efficiency ratio (2)

 

56.66

 

55.88

 

58.76

 

54.53

 

55.73

 

57.08

 

55.95

 

Effective tax rate

 

21.04

 

21.11

 

19.05

 

19.49

 

19.14

 

20.46

 

19.69

 

Net yield on interest earning assets

3.43

 

3.61

 

3.52

 

3.58

 

3.52

 

3.52

 

3.51

 

Tax equivalent net interest income

 

$206,958

 

$215,203

 

$207,104

 

$216,281

 

$211,368

 

$629,265

 

$623,781

 

(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)

 

September 30,
2019

June 30,
2019

September 30,
2018

ASSETS

 

 

 

 

Loans

 

 

 

 

Business

 

$

5,393,268

 

$

5,257,682

 

$

4,966,722

 

Real estate — construction and land

 

932,737

 

909,784

 

999,691

 

Real estate — business

 

2,833,146

 

2,867,831

 

2,726,042

 

Real estate — personal

 

2,226,663

 

2,160,515

 

2,120,672

 

Consumer

 

1,953,690

 

1,927,623

 

1,967,465

 

Revolving home equity

 

349,111

 

357,406

 

375,322

 

Consumer credit card

 

766,743

 

776,333

 

788,111

 

Overdrafts

 

7,236

 

3,074

 

11,534

 

Total loans

 

14,462,594

 

14,260,248

 

13,955,559

 

Allowance for loan losses

 

(160,682

)

(161,182

)

(159,732

)

Net loans

 

14,301,912

 

14,099,066

 

13,795,827

 

Loans held for sale

 

20,064

 

20,067

 

16,890

 

Investment securities:

 

 

 

 

Available for sale debt securities

 

8,660,419

 

8,682,303

 

8,674,986

 

Trading debt securities

 

35,918

 

36,508

 

19,676

 

Equity securities

 

4,186

 

4,744

 

4,467

 

Other securities

 

147,211

 

130,038

 

127,120

 

Total investment securities

 

8,847,734

 

8,853,593

 

8,826,249

 

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

 

2,850

 

 

14,375

 

Long-term securities purchased under agreements to resell

 

850,000

 

700,000

 

700,000

 

Interest earning deposits with banks

 

344,129

 

492,318

 

334,752

 

Cash and due from banks

 

512,254

 

456,192

 

443,004

 

Premises and equipment — net

 

365,949

 

363,554

 

331,869

 

Goodwill

 

138,921

 

138,921

 

138,921

 

Other intangible assets — net

 

9,139

 

8,763

 

8,470

 

Other assets

 

483,527

 

639,700

 

452,035

 

Total assets

 

$

25,876,479

 

$

25,772,174

 

$

25,062,392

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Deposits:

 

 

 

 

Non-interest bearing

 

$

6,816,527

 

$

6,274,838

 

$

6,728,605

 

Savings, interest checking and money market

 

11,424,404

 

11,452,849

 

11,733,057

 

Certificates of deposit of less than $100,000

 

627,630

 

613,505

 

585,765

 

Certificates of deposit of $100,000 and over

 

1,441,590

 

1,488,416

 

1,086,193

 

Total deposits

 

20,310,151

 

19,829,608

 

20,133,620

 

Federal funds purchased and securities sold under agreements to repurchase

 

1,641,274

 

2,394,294

 

1,862,117

 

Other borrowings

 

257,383

 

4,510

 

1,534

 

Other liabilities

 

561,657

 

372,399

 

257,311

 

Total liabilities

 

22,770,465

 

22,600,811

 

22,254,582

 

Stockholders’ equity:

 

 

 

 

Preferred stock

 

144,784

 

144,784

 

144,784

 

Common stock

 

559,432

 

559,432

 

535,407

 

Capital surplus

 

2,042,643

 

2,077,491

 

1,804,031

 

Retained earnings

 

463,231

 

384,232

 

493,641

 

Treasury stock

 

(251,663

)

(106,106

)

(33,174

)

Accumulated other comprehensive income (loss)

 

144,173

 

108,898

 

(141,596

)

Total stockholders’ equity

 

3,102,600

 

3,168,731

 

2,803,093

 

Non-controlling interest

 

3,414

 

2,632

 

4,717

 

Total equity

 

3,106,014

 

3,171,363

 

2,807,810

 

Total liabilities and equity

 

$

25,876,479

 

$

25,772,174

 

$

25,062,392

 

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

(Unaudited)
(In thousands)

For the Three Months Ended

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business

$

5,263,312

 

$

5,142,794

 

$

5,084,920

 

$

5,028,635

 

$

4,926,063

 

Real estate — construction and land

920,206

 

908,777

 

907,062

 

953,166

 

992,045

 

Real estate — business

2,883,379

 

2,868,503

 

2,864,177

 

2,757,595

 

2,732,968

 

Real estate — personal

2,175,156

 

2,135,048

 

2,119,365

 

2,122,357

 

2,110,945

 

Consumer

1,924,434

 

1,907,979

 

1,929,202

 

1,962,401

 

1,984,643

 

Revolving home equity

354,040

 

361,673

 

370,962

 

374,216

 

373,819

 

Consumer credit card

763,377

 

766,080

 

781,167

 

788,353

 

774,512

 

Overdrafts

9,240

 

4,889

 

4,205

 

5,277

 

4,704

 

Total loans

14,293,144

 

14,095,743

 

14,061,060

 

13,992,000

 

13,899,699

 

Allowance for loan losses

(160,387

)

(161,403

)

(159,275

)

(158,880

)

(158,840

)

Net loans

14,132,757

 

13,934,340

 

13,901,785

 

13,833,120

 

13,740,859

 

Loans held for sale

19,882

 

20,731

 

18,350

 

18,475

 

18,201

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

825,544

 

843,974

 

909,466

 

923,545

 

923,557

 

Government-sponsored enterprise obligations

181,929

 

199,506

 

199,480

 

214,913

 

261,938

 

State and municipal obligations

1,172,259

 

1,222,008

 

1,283,349

 

1,361,079

 

1,375,768

 

Mortgage-backed securities

4,712,508

 

4,614,703

 

4,360,428

 

4,379,805

 

4,434,119

 

Asset-backed securities

1,297,685

 

1,412,452

 

1,525,623

 

1,518,706

 

1,427,041

 

Other debt securities

334,218

 

331,459

 

335,612

 

339,841

 

339,952

 

Unrealized gain (loss) on debt securities

152,706

 

42,009

 

(48,925

)

(166,181

)

(119,319

)

Total available for sale debt securities

8,676,849

 

8,666,111

 

8,565,033

 

8,571,708

 

8,643,056

 

Trading debt securities

29,622

 

30,169

 

25,411

 

26,322

 

24,490

 

Equity securities

4,705

 

4,717

 

4,568

 

4,432

 

4,466

 

Other securities

134,896

 

130,433

 

130,057

 

127,634

 

120,206

 

Total investment securities

8,846,072

 

8,831,430

 

8,725,069

 

8,730,096

 

8,792,218

 

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

1,080

 

1,601

 

4,797

 

14,415

 

13,042

 

Long-term securities purchased under agreements to resell

713,030

 

700,000

 

700,000

 

699,999

 

685,869

 

Interest earning deposits with banks

226,582

 

331,999

 

316,660

 

352,942

 

298,632

 

Other assets

1,292,191

 

1,251,555

 

1,197,261

 

1,158,816

 

1,147,250

 

Total assets

$

25,231,594

 

$

25,071,656

 

$

24,863,922

 

$

24,807,863

 

$

24,696,071

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Non-interest bearing deposits

$

6,290,036

 

$

6,335,620

 

$

6,324,738

 

$

6,666,715

 

$

6,677,665

 

Savings

924,581

 

929,974

 

896,378

 

870,844

 

877,347

 

Interest checking and money market

10,409,111

 

10,642,648

 

10,762,550

 

10,840,048

 

10,839,310

 

Certificates of deposit of less than $100,000

620,138

 

605,440

 

590,200

 

584,828

 

593,936

 

Certificates of deposit of $100,000 and over

1,503,805

 

1,378,402

 

1,267,517

 

1,090,546

 

1,100,299

 

Total deposits

19,747,671

 

19,892,084

 

19,841,383

 

20,052,981

 

20,088,557

 

Borrowings:

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

1,884,939

 

1,793,526

 

1,771,534

 

1,655,997

 

1,499,837

 

Other borrowings

77,248

 

1,318

 

1,248

 

1,335

 

1,833

 

Total borrowings

1,962,187

 

1,794,844

 

1,772,782

 

1,657,332

 

1,501,670

 

Other liabilities

390,560

 

307,433

 

284,018

 

264,449

 

296,884

 

Total liabilities

22,100,418

 

21,994,361

 

21,898,183

 

21,974,762

 

21,887,111

 

Equity

3,131,176

 

3,077,295

 

2,965,739

 

2,833,101

 

2,808,960

 

Total liabilities and equity

$

25,231,594

$

25,071,656

$

24,863,922

$

24,807,863

 

$

24,696,071

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

(Unaudited)

For the Three Months Ended

September 30,
2019

June 30,
2019

March 31,
2019

December 31,
2018

September 30,
2018

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business (1)

3.85

%

4.02

%

4.07

%

3.93

%

3.80

%

Real estate — construction and land

5.46

 

5.63

 

5.73

 

5.47

 

5.21

 

Real estate — business

4.42

 

4.60

 

4.61

 

4.53

 

4.35

 

Real estate — personal

3.91

 

3.97

 

4.00

 

3.87

 

3.83

 

Consumer

4.88

 

4.77

 

4.73

 

4.62

 

4.46

 

Revolving home equity

5.17

 

5.20

 

5.17

 

4.98

 

4.72

 

Consumer credit card

12.42

 

12.33

 

12.18

 

11.91

 

11.99

 

Overdrafts

 

 

 

 

Total loans

4.71

 

4.82

 

4.85

 

4.72

 

4.59

 

Loans held for sale

6.15

 

6.98

 

7.38

 

6.59

 

6.87

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

2.36

 

4.66

 

.78

 

1.90

 

2.23

 

Government-sponsored enterprise obligations

2.69

 

2.32

 

2.35

 

2.24

 

2.10

 

State and municipal obligations (1)

3.14

 

3.18

 

3.19

 

3.06

 

2.98

 

Mortgage-backed securities

2.61

 

2.70

 

2.76

 

2.75

 

2.65

 

Asset-backed securities

2.80

 

2.79

 

2.70

 

2.55

 

2.42

 

Other debt securities

2.63

 

2.68

 

2.69

 

2.60

 

2.59

 

Total available for sale debt securities

2.69

 

2.97

 

2.59

 

2.65

 

2.60

 

Trading debt securities (1)

2.91

 

3.14

 

3.24

 

3.21

 

3.13

 

Equity securities (1)

35.67

 

35.97

 

37.55

 

39.92

 

32.69

 

Other securities (1)

6.19

 

6.69

 

5.73

 

15.51

 

13.00

 

Total investment securities

2.76

 

3.04

 

2.66

 

2.86

 

2.76

 

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

2.57

 

2.76

 

2.79

 

2.56

 

2.10

 

Long-term securities purchased under agreements to resell

2.01

 

2.11

 

2.18

 

2.31

 

2.26

 

Interest earning deposits with banks

2.17

 

2.40

 

2.42

 

2.28

 

1.96

 

Total interest earning assets

3.90

 

4.05

 

3.93

 

3.92

 

3.80

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

Savings

.11

 

.11

 

.11

 

.11

 

.11

 

Interest checking and money market

.38

 

.38

 

.35

 

.30

 

.26

 

Certificates of deposit of less than $100,000

1.11

 

1.01

 

.87

 

.70

 

.56

 

Certificates of deposit of $100,000 and over

1.99

 

2.02

 

1.92

 

1.61

 

1.41

 

Total interest bearing deposits

.58

 

.55

 

.51

 

.41

 

.35

 

Borrowings:

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

1.74

 

1.80

 

1.72

 

1.60

 

1.33

 

Other borrowings

2.33

 

1.52

 

1.62

 

2.67

 

2.60

 

Total borrowings

1.76

 

1.80

 

1.72

 

1.60

 

1.33

 

Total interest bearing liabilities

.73

%

.70

%

.65

%

.54

%

.45

%

 

 

 

 

 

 

Net yield on interest earning assets

3.43

%

3.61

%

3.52

%

3.58

%

3.52

%

(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 Nine Months Ended

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

 

September 30,
2019

 

June 30,
2019

 

March 31,
2019

 

December 31,
2018

 

September 30,
2018

 

September 30,
2019

 

September 30,
2018

ALLOWANCE FOR LOAN LOSSES

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

161,182

 

$

160,682

 

$

159,932

 

$

159,732

 

$

159,532

 

$

159,932

 

$

159,532

 

Provision for losses

 

10,963

 

11,806

 

12,463

 

12,256

 

9,999

 

35,232

 

30,438

 

Net charge-offs (recoveries):

 

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

 

Business

 

335

 

284

 

447

 

1,748

 

332

 

1,066

 

354

 

Real estate — construction and land

 

 

(101

)

(16

)

(183

)

(119

)

(117

)

(452

)

Real estate — business

 

(44

)

(14

)

(37

)

(91

)

(42

)

(95

)

(287

)

 

 

291

 

169

 

394

 

1,474

 

171

 

854

 

(385

)

Personal banking portfolio:

 

 

 

 

 

 

 

 

Consumer credit card

 

8,568

 

9,066

 

8,958

 

7,421

 

7,340

 

26,592

 

23,157

 

Consumer

 

2,069

 

1,723

 

1,924

 

2,805

 

2,091

 

5,716

 

6,481

 

Overdraft

 

446

 

253

 

317

 

500

 

351

 

1,016

 

1,121

 

Real estate — personal

 

(30

)

(21

)

101

 

(144

)

(153

)

50

 

(191

)

Revolving home equity

 

119

 

116

 

19

 

 

(1

)

254

 

55

 

 

 

11,172

 

11,137

 

11,319

 

10,582

 

9,628

 

33,628

 

30,623

 

Total net loan charge-offs

 

11,463

 

11,306

 

11,713

 

12,056

 

9,799

 

34,482

 

30,238

 

Balance at end of period

 

$

160,682

 

$

161,182

 

$

160,682

 

$

159,932

 

$

159,732

 

$

160,682

 

$

159,732

 

 

 

 

 

 

 

 

 

 

NET CHARGE-OFF RATIOS*

 

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

 

Business

 

.03

%

.02

%

.04

%

.14

%

.03

%

.03

%

.01

%

Real estate — construction and land

 

 

(.04

)

(.01

)

(.08

)

(.05

)

(.02

)

(.06

)

Real estate — business

 

(.01

)

 

(.01

)

(.01

)

(.01

)

 

(.01

)

 

 

.01

 

.01

 

.02

 

.07

 

.01

 

.01

 

(.01

)

Personal banking portfolio:

 

 

 

 

 

 

 

 

Consumer credit card

 

4.45

 

4.75

 

4.65

 

3.73

 

3.76

 

4.62

 

4.06

 

Consumer

 

.43

 

.36

 

.40

 

.57

 

.42

 

.40

 

.43

 

Overdraft

 

19.15

 

20.76

 

30.57

 

37.59

 

29.60

 

22.16

 

32.51

 

Real estate — personal

 

(.01

)

 

.02

 

(.03

)

(.03

)

 

(.01

)

Revolving home equity

 

.13

 

.13

 

.02

 

 

 

.09

 

.02

 

 

 

.85

 

.86

 

.88

 

.80

 

.73

 

.86

 

.78

 

Total

 

.32

%

.32

%

.34

%

.34

%

.28

%

.33

%

.29

%

 

 

 

 

 

 

 

 

 

CREDIT QUALITY RATIOS

 

 

 

 

 

 

 

 

Non-performing assets to total loans

 

.08

%

.08

%

.09

%

.10

%

.07

%

 

 

Non-performing assets to total assets

 

.05

 

.05

 

.05

 

.05

 

.04

 

 

 

Allowance for loan losses to total loans

 

1.11

 

1.13

 

1.14

 

1.13

 

1.14

 

 

 

 

 

 

 

 

 

 

 

 

NON-PERFORMING ASSETS

 

 

 

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

 

 

 

Business

 

$

7,753

 

$

8,428

 

$

8,569

 

$

8,985

 

$

5,131

 

 

 

Real estate — construction and land

 

3

 

3

 

4

 

4

 

4

 

 

 

Real estate — business

 

2,359

 

950

 

1,746

 

1,715

 

1,467

 

 

 

Real estate — personal

 

1,618

 

1,752

 

1,848

 

1,832

 

1,767

 

 

 

Total

 

11,733

 

11,133

 

12,167

 

12,536

 

8,369

 

 

 

Foreclosed real estate

 

502

 

897

 

737

 

1,413

 

1,181

 

 

 

Total non-performing assets

 

$

12,235

 

$

12,030

 

$

12,904

 

$

13,949

 

$

9,550

 

 

 

Loans past due 90 days and still accruing interest

$

16,308

 

$

16,532

 

$

16,655

 

$

16,658

 

$

13,991

 

 

 

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

COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2019

For the quarter ended September 30, 2019, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $109.2 million, compared to $108.0 million in the previous quarter and $112.6 million in the same quarter last year. The increase in net income over the previous quarter was primarily the result of higher non-interest income and gains on investment securities, partly offset by lower net interest income. Non-interest income increased $5.5 million and securities gains increased $5.0 million over the previous quarter. Excluding inflation income on inflation protected securities (TIPs), the net interest margin declined ten basis points to 3.40%, mainly due to lower rates on interest earning assets. Average loans increased $196.6 million over the previous quarter, while average deposits decreased $144.4 million. For the quarter, the return on average assets was 1.72%, the return on average common equity was 14.2%, and the efficiency ratio was 56.7%.

Balance Sheet Review

During the 3rd quarter of 2019, average loans totaled $14.3 billion, or an increase of $196.6 million over the prior quarter, and grew $395.1 million, or 2.8%, over the same quarter last year. Period-end loans grew $202.3 million over the prior quarter and $510.2 million over September 30, 2018. Compared to the previous quarter, average business loans grew $120.5 million, and average personal real estate loans grew $40.1 million. Average consumer, business real estate, and construction loans also grew this quarter (growth of $16.5 million, $14.9 million, and $11.4 million, respectively). This growth was partly offset by declines in average revolving home equity and consumer credit card lending activities. Growth in business loans was the result of increased commercial and industrial lending activities. Personal real estate loans grew on higher loan originations during the 3rd quarter of 2019 compared to the previous quarter. Growth in average consumer loans was driven by higher demand for auto, health services financing, and other consumer lending, but was partially offset by lower marine/RV, fixed home equity and other vehicle and equipment lending. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $71.5 million, compared to $60.4 million in the prior quarter.

Total average available for sale debt securities increased $10.7 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, state and municipal securities, U.S. government and federal agency obligations, and government-sponsored enterprise obligations. Additionally, the average balance of unrealized gains on available for sale debt securities increased $110.7 million during the current quarter. Purchases of securities during the quarter totaled $354.8 million, and sales, maturities and pay downs were $396.7 million. At September 30, 2019, the duration of the investment portfolio was 2.6 years, and maturities and pay downs of approximately $1.3 billion are expected to occur during the next 12 months.

Total average deposits decreased $144.4 million this quarter compared to the previous quarter. The decrease in average deposits resulted from declines in interest checking and money market deposits ($233.5 million) and trust demand deposits ($102.0 million). These decreases were partially offset by increases in certificates of deposit ($140.1 million) and other demand deposits ($56.4 million), respectively. Compared to the previous quarter, total average consumer and wealth deposits (including private banking) declined $106.3 million and $154.8 million, respectively, while average commercial deposits increased $96.0 million this quarter. The average loans to deposits ratio was 72.5% in the current quarter and 71.0% in the prior quarter. The Company’s average borrowings, which includes customer repurchase agreements, were $2.0 billion in the 3rd quarter of 2019 and $1.8 billion in the prior quarter.

Net Interest Income

Net interest income in the 3rd quarter of 2019 amounted to $203.5 million compared to $211.6 million in the previous quarter, a decrease of $8.1 million. On a tax equivalent basis, net interest income for the current quarter decreased $8.2 million from the previous quarter to $207.0 million. The decline in net interest income was mainly due to a $4.8 million decrease this quarter in inflation income on TIPs. Excluding changes in TIPs, net interest income decreased $3.5 million, while the adjusted net yield on earning assets (tax equivalent) decreased to 3.40%, compared to 3.50% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) increased $216 thousand, mostly as a result of higher loan balances and yields on consumer loans, combined with higher yields on consumer credit card loans. Growth in average commercial loan balances also contributed to increases in net interest income, but the increase was offset by lower yields on those loans. The average tax-equivalent yield on the loan portfolio declined 11 basis points this quarter to 4.71%, compared to 4.82% in the previous quarter, as yields on commercial loans contracted, more than offsetting yield growth on consumer and consumer credit card loans.

Interest income on investment securities (tax equivalent) decreased $6.1 million from the previous quarter, mainly due to the lower inflation income on TIPs, as noted above. The yield on total investment securities was 2.76% in the current quarter, down from 3.04% in the previous quarter.

Interest costs on deposits totaled 58 basis points in the 3rd quarter of 2019, compared to 55 basis points in the prior quarter. Interest expense on deposits increased $789 thousand this quarter compared to the previous quarter mainly due to higher balances of certificates of deposit (CD), mainly in jumbo CD balances. Borrowing costs increased $664 thousand this quarter due to higher balances of federal funds purchased and higher balances and rates on Federal Home Loan Bank borrowings. The overall rate paid on interest bearing liabilities was .73% in the current quarter, compared to .70% in the prior quarter.

Non-Interest Income

In the 3rd quarter of 2019, total non-interest income amounted to $132.7 million, an increase of $9.0 million, or 7.3%, compared to the same period last year and increased $5.5 million, or 4.3%, compared to the prior quarter. The increase in non-interest income over the same period last year was mainly due to growth in net bank card, trust, loan fees and sales, and swap fees, coupled with gains on sales of assets.

Total net bank card fees in the current quarter increased $2.1 million, or 4.9%, over the same period last year, and increased $1.9 million, or 4.4%, compared to the prior quarter. Net corporate card fees increased $1.1 million, or 4.6%, over the same quarter last year mainly due to lower rewards expense. Net debit card fees increased $573 thousand, or 5.8%, due to higher interchange income. Net merchant income declined $684 thousand, or 13.2%, mainly due to higher network expense, while net credit card fees increased $1.1 million, or 41.2% on lower rewards expense and higher interchange revenue. Total net bank card fees this quarter were comprised of fees on corporate card ($25.9 million), debit card ($10.5 million), merchant ($4.5 million) and credit card ($3.6 million) transactions.

In the current quarter, trust fees increased $2.2 million, or 5.9%, over the same period last year, resulting from continued growth in private client fee income. Compared to the same period last year, deposit account fees increased $277 thousand, or 1.2%, due to growth in corporate cash management fees, partially offset by lower overdraft and deposit account fees.

During the 3rd quarter of 2019, loan fees and sales increased $1.2 million, or 32.9%, over amounts recorded in the same quarter last year, mainly due to higher mortgage banking revenue. In addition, other non-interest income included growth of $871 thousand in swap fees and $954 thousand in gains on the sales of leased assets to customers upon lease termination. Non-interest income comprised 39.5% of the Company’s total revenue this quarter.

Investment Securities Gains and Losses

The Company recorded net securities gains of $4.9 million in the current quarter, compared to losses of $110 thousand in the prior quarter and gains of $4.3 million in the 3rd quarter of 2018. Net securities gains in the current quarter resulted mainly from proceeds received on an equity investment and unrealized fair value gains in the Company’s private equity investment portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $191.0 million, compared to $185.1 million in the same period last year and $189.8 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 employee benefits, data processing and software and marketing expense, partly offset by lower deposit insurance expense and other non-interest expense.

Compared to the 3rd quarter of last year, salaries and employee benefits expense increased $7.6 million, or 6.6%, driven mainly by growth in full-time salary costs and higher medical expense, partly offset by lower incentive compensation expense. Full-time equivalent employees totaled 4,873 and 4,797 at September 30, 2019 and 2018, respectively.

For the current quarter compared to the same quarter of last year, marketing costs increased $1.0 million mainly due to increased marketing efforts for consumer deposit customers and healthcare banking initiatives. Data processing and software expense increased $1.4 million due to higher costs for service providers and higher bank card processing expense. Occupancy expense also increased $662 thousand, while deposit insurance expense declined $1.5 million on reduced FDIC insurance rates. Other non-interest expense decreased from the 3rd quarter of 2018 partly due to lower professional fees and travel and entertainment expenses.

Income Taxes

The effective tax rate for the Company was 21.0% in the current quarter, 21.1% in the previous quarter, and 19.1% in the 3rd quarter of 2018.

Credit Quality

Net loan charge-offs in the 3rd quarter of 2019 amounted to $11.5 million, compared to $11.3 million in the prior quarter and $9.8 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .32% in both the current and previous quarters and .28% in the 3rd quarter of last year. Compared to prior quarter, net loan charge-offs on commercial loans increased $122 thousand to $291 thousand, while net loan charge-offs on personal banking loans increased $35 thousand to $11.2 million.

In the 3rd quarter of 2019, annualized net loan charge-offs on average consumer credit card loans were 4.45%, compared to 4.75% in the previous quarter, and 3.76% in the same quarter last year. Consumer loan net charge-offs were .43% of average consumer loans in the current quarter, .36% in the prior quarter and .42% in the same quarter last year. This quarter, the provision for loan losses totaled $11.0 million, or $500 thousand lower than net loan charge-offs. At September 30, 2019, the allowance totaled $160.7 million, or 1.11% of total loans.

At September 30, 2019, total non-performing assets amounted to $12.2 million, an increase of $205 thousand over the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($11.7 million and $502 thousand, respectively). At September 30, 2019, the balance of non-accrual loans, which represented .08% of loans outstanding, included business loans of $7.8 million, business real estate loans of $2.4 million, and personal real estate loans of $1.6 million. Loans more than 90 days past due and still accruing interest totaled $16.3 million at September 30, 2019.

Other

During the 3rd 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. On August 7, 2019, the Company entered into an accelerated share repurchase agreement (ASR) program. Under the terms of the ASR agreement, the Company paid $150.0 million in cash and received 1,994,327 shares of its common stock in treasury, representing a substantial majority of the shares expected to be delivered in the overall ASR program. The ASR is expected to be completed by the end of 2019, at which time any additional shares will be delivered to the Company. The total number of shares that the Company will receive and the total consideration per share paid ultimately will be determined based on the volume-weighted daily average price of its common stock during the repurchase program. The Company also purchased an additional 581,685 shares of treasury stock during the current quarter at an average price of $58.26.

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