Commerce Bancshares, Inc. Reports First Quarter Earnings Per Share Of $.44

KANSAS CITY, Mo.--()--Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.44 per common share for the three months ended March 31, 2020, compared to $.81 per share in the same quarter last year and $.93 per share in the fourth quarter of 2019. Net income attributable to Commerce Bancshares, Inc. for the first quarter of 2020 amounted to $51.9 million, compared to $97.1 million in the first quarter of 2019 and $106.9 million in the prior quarter. For the current quarter, the return on average assets was .80%, the return on average common equity was 6.48% and the efficiency ratio was 59.2%.

In announcing these results, John Kemper, Chief Executive Officer, said, “While the U.S. economy entered this quarter on solid footing, it is currently in an unprecedented state of uncertainty amid the global COVID-19 pandemic. Commerce is committed to being there for our customers in this difficult time. As part of this commitment, we are suspending foreclosure proceedings, offering fee waivers and providing relief through loan modification programs. To ensure we are positioned to serve our customers, we have mobilized a significant team of internal resources, redeploying branch teams to assist in our customer care center. We have similarly cross-trained other personnel to provide our commercial customers access to much needed funding through the Small Business Administration’s new Paycheck Protection Program. As of April 17, when the initial CARES Act allocation from this program was exhausted, we assisted 4,529 customers in securing approximately $1.5 billion of funding, with a median loan size of $64 thousand. Our industry-leading capital levels and steadfast commitment to sound credit policy enables us to be a source of strength to our employees, customers and communities in this period of uncertainty.”

Mr. Kemper continued, “For Commerce, a fundamentally sound financial quarter was impacted by two significant charges, stemming primarily from COVID-19 and the resulting economic outlook. First, the provision for credit losses was increased to recognize expected future losses on loans and unfunded lending commitments. Second, we recognized unrealized losses on our portfolio of private equity investments through our quarterly valuation process. Compared to the prior quarter, we experienced robust growth in average loans, driven mainly by commercial and personal real estate loans, even as auto and consumer credit card lending were seasonally lower. Net interest margin declined 3 basis points this quarter, holding up well in a challenging interest rate environment. Fee income totaled $123.7 million this quarter and reflected growth over the first quarter of 2019 in trust, capital market, deposit account, and bank card fees.”

Mr. Kemper continued, "This quarter net loan charge-offs totaled $10.9 million, compared to $15.2 million in the prior quarter and $11.7 million in the first quarter of 2019. The ratio of annualized net loan charge-offs to average loans was .30% in the current quarter, .42% in the prior quarter and .34% in the first quarter of last year. Net loan charge-offs on commercial loans declined $3.5 million from the previous quarter and resulted in a net recovery this quarter, while net loan charge-offs on personal banking loans decreased $883 thousand to $11.3 million, mostly the result of lower consumer loan losses. Non-performing assets totaled $11.1 million this quarter and remained at very low levels.

"On January 1, 2020, Commerce adopted the CECL accounting standard. At that time, economic conditions were stable and the economic forecast supporting our CECL model reflected the prevailingly benign credit environment. The day one adoption reduced our allowance for credit losses on loans $21.0 million and increased our liability for unfunded commitments $16.1 million, resulting in a net increase to retained earnings of $3.8 million, after tax. By the end of the quarter, in light of the COVID-19 pandemic, the economic forecast used in our CECL model became significantly more pessimistic. As a result, the provision for credit losses for the first three months of 2020 totaled $58.0 million, which includes a provision for credit losses for loans and for unfunded loan commitments. The provision for credit losses on loans totaled $42.9 million and exceeded net loan charge-offs by $32.0 million, while the provision for credit losses for unfunded commitments totaled $15.1 million. The allowance for credit losses on loans amounted to $171.7 million at March 31, 2020, or 1.14% of period end loans, while the liability for unfunded commitments totaled $32.3 million at March 31, 2020.”

Total assets at March 31, 2020 were $26.8 billion, total loans were $15.1 billion, and total deposits were $20.8 billion. During the quarter, the Company paid a common cash dividend of $.27 per share, representing an 8.9% increase over the rate paid in the fourth quarter of 2019, and also paid an annualized 6% cash dividend on its preferred stock. The Company purchased 869,692 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 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,
2020

December 31,
2019

March 31,
2019

FINANCIAL SUMMARY

Net interest income

 

$201,065

 

$202,659

 

$203,488

 

Non-interest income

 

123,663

 

143,461

 

121,240

 

Total revenue

 

324,728

 

346,120

 

324,728

 

Investment securities losses, net

 

(13,301)

 

(248)

 

(925)

 

Provision for credit losses

 

57,953

 

15,206

 

12,463

 

Non-interest expense

 

193,698

 

195,174

 

191,425

 

Income before taxes

 

59,776

 

135,492

 

119,915

 

Income taxes

 

10,173

 

28,214

 

22,860

 

Non-controlling interest (income) expense

 

(2,254)

 

398

 

(83)

 

Net income attributable to Commerce Bancshares, Inc.

51,857

 

106,880

 

97,138

 

Preferred stock dividends

 

2,250

 

2,250

 

2,250

 

Net income available to common shareholders

$49,607

 

$104,630

 

$94,888

 

Earnings per common share:

 

 

 

 

Net income — basic

 

$.44

 

$.94

 

$.81

 

Net income — diluted

 

$.44

 

$.93

 

$.81

 

Effective tax rate

 

16.40

%

20.88

%

19.05

%

Tax equivalent net interest income

 

$204,402

 

$206,156

 

$207,104

 

Average total interest earning assets (1)

 

$

24,691,014

 

$

24,372,575

 

$

23,874,861

 

Diluted wtd. average shares outstanding

 

111,375,938

 

112,011,108

 

115,816,037

 

 

 

 

 

 

RATIOS

 

 

 

 

Average loans to deposits (2)

 

72.57

%

71.73

%

70.96

%

Return on total average assets

 

.80

 

1.65

 

1.58

 

Return on average common equity (3)

 

6.48

 

13.90

 

13.64

 

Non-interest income to total revenue

 

38.08

 

41.45

 

37.34

 

Efficiency ratio (4)

 

59.17

 

56.29

 

58.76

 

Net yield on interest earning assets

 

3.33

 

3.36

 

3.52

 

 

 

 

 

 

EQUITY SUMMARY

 

 

 

 

Cash dividends per common share

 

$.270

 

$.248

 

$.248

 

Cash dividends on common stock

 

$30,292

 

$27,933

 

$28,858

 

Cash dividends on preferred stock

 

$2,250

 

$2,250

 

$2,250

 

Book value per common share (5)

 

$27.86

 

$26.70

 

$24.94

 

Market value per common share (5)

 

$50.35

 

$67.94

 

$55.30

 

High market value per common share

 

$71.92

 

$68.65

 

$60.97

 

Low market value per common share

 

$45.51

 

$54.56

 

$52.97

 

Common shares outstanding (5)

 

111,535,295

 

112,131,549

 

116,231,063

 

Tangible common equity to tangible assets (6)

 

11.13

%

10.99

%

11.06

%

Tier I leverage ratio

 

11.13

%

11.38

%

11.67

%

 

 

 

 

 

OTHER QTD INFORMATION

 

 

 

 

Number of bank/ATM locations

 

317

 

316

 

319

 

Full-time equivalent employees

 

4,854

 

4,858

 

4,841

 

(1) Excludes allowance for credit losses on loans 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 2019.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

 

 

For the Three Months Ended

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

 

March 31,
2020

December 31,
2019

September 30,
2019

June 30,
2019

March 31,
2019

Interest income

 

$221,485

 

$226,665

 

$231,743

 

$238,412

 

$227,865

 

Interest expense

 

20,420

 

24,006

 

28,231

 

26,778

 

24,377

 

Net interest income

 

201,065

 

202,659

 

203,512

 

211,634

 

203,488

 

Provision for credit losses

 

57,953

 

15,206

 

10,963

 

11,806

 

12,463

 

Net interest income after credit losses

143,112

 

187,453

 

192,549

 

199,828

 

191,025

 

NON-INTEREST INCOME

 

 

 

 

 

 

Bank card transaction fees

 

40,200

 

41,079

 

44,510

 

42,646

 

39,644

 

Trust fees

 

39,965

 

40,405

 

39,592

 

38,375

 

37,256

 

Deposit account charges and other fees

23,677

 

24,974

 

24,032

 

23,959

 

23,018

 

Capital market fees

 

3,790

 

2,536

 

1,787

 

1,944

 

1,879

 

Consumer brokerage services

 

4,077

 

4,139

 

4,030

 

3,888

 

3,747

 

Loan fees and sales

 

3,235

 

3,465

 

4,755

 

4,238

 

3,309

 

Other

 

8,719

 

26,863

 

14,037

 

12,209

 

12,387

 

Total non-interest income

 

123,663

 

143,461

 

132,743

 

127,259

 

121,240

 

INVESTMENT SECURITIES GAINS (LOSSES), NET

(13,301)

 

(248)

 

4,909

 

(110)

 

(925)

 

NON-INTEREST EXPENSE

 

 

 

 

 

 

Salaries and employee benefits

 

128,937

 

126,901

 

123,836

 

120,062

 

122,128

 

Net occupancy

 

11,748

 

12,218

 

12,293

 

11,145

 

11,501

 

Equipment

 

4,821

 

4,859

 

4,941

 

4,790

 

4,471

 

Supplies and communication

 

4,658

 

4,851

 

5,106

 

5,275

 

5,162

 

Data processing and software

 

23,555

 

23,934

 

23,457

 

23,248

 

22,260

 

Marketing

 

5,979

 

3,951

 

6,048

 

6,015

 

5,900

 

Other

 

14,000

 

18,460

 

15,339

 

19,244

 

20,003

 

Total non-interest expense

 

193,698

 

195,174

 

191,020

 

189,779

 

191,425

 

Income before income taxes

 

59,776

 

135,492

 

139,181

 

137,198

 

119,915

 

Less income taxes

 

10,173

 

28,214

 

29,101

 

28,899

 

22,860

 

Net income

 

49,603

 

107,278

 

110,080

 

108,299

 

97,055

 

Less non-controlling interest expense (income)

(2,254)

 

398

 

838

 

328

 

(83)

 

Net income attributable to Commerce Bancshares, Inc.

51,857

 

106,880

 

109,242

 

107,971

 

97,138

 

Less preferred stock dividends

 

2,250

 

2,250

 

2,250

 

2,250

 

2,250

 

Net income available to common shareholders

$49,607

 

$104,630

 

$106,992

 

$105,721

 

$94,888

 

Net income per common share — basic

$.44

 

$.94

 

$.93

 

$.91

 

$.81

 

Net income per common share — diluted

$.44

 

$.93

 

$.93

 

$.91

 

$.81

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

Return on total average assets

 

.80

%

1.65

%

1.72

%

1.73

%

1.58

%

Return on average common equity (1)

6.48

 

13.90

 

14.21

 

14.46

 

13.64

 

Efficiency ratio (2)

 

59.17

 

56.29

 

56.66

 

55.88

 

58.76

 

Effective tax rate

 

16.40

 

20.88

 

21.04

 

21.11

 

19.05

 

Net yield on interest earning assets

3.33

 

3.36

 

3.43

 

3.61

 

3.52

 

Tax equivalent net interest income

 

$204,402

 

$206,156

 

$206,958

 

$215,203

 

$207,104

 

(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,
2020

December 31,
2019

March 31,
2019

ASSETS

 

 

 

 

Loans

 

 

 

 

Business

 

$

5,773,865

 

$

5,565,449

 

$

5,175,541

 

Real estate — construction and land

 

873,402

 

899,377

 

925,269

 

Real estate — business

 

2,960,308

 

2,833,554

 

2,859,614

 

Real estate — personal

 

2,464,819

 

2,354,760

 

2,125,087

 

Consumer

 

1,941,787

 

1,964,145

 

1,893,212

 

Revolving home equity

 

349,735

 

349,251

 

364,010

 

Consumer credit card

 

706,753

 

764,977

 

772,396

 

Overdrafts

 

3,143

 

6,304

 

5,593

 

Total loans

 

15,073,812

 

14,737,817

 

14,120,722

 

Allowance for credit losses on loans

 

(171,653)

 

(160,682)

 

(160,682)

 

Net loans

 

14,902,159

 

14,577,135

 

13,960,040

 

Loans held for sale

 

6,214

 

13,809

 

20,085

 

Investment securities:

 

 

 

 

Available for sale debt securities

 

8,678,586

 

8,571,626

 

8,627,890

 

Trading debt securities

 

24,291

 

28,161

 

30,427

 

Equity securities

 

4,038

 

4,209

 

4,694

 

Other securities

 

155,074

 

137,892

 

129,504

 

Total investment securities

 

8,861,989

 

8,741,888

 

8,792,515

 

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

 

400

 

 

250

 

Long-term securities purchased under agreements to resell

 

850,000

 

850,000

 

700,000

 

Interest earning deposits with banks

 

474,156

 

395,850

 

166,077

 

Cash and due from banks

 

401,185

 

491,615

 

428,018

 

Premises and equipment — net

 

369,745

 

370,637

 

362,679

 

Goodwill

 

138,921

 

138,921

 

138,921

 

Other intangible assets — net

 

8,433

 

9,534

 

8,511

 

Other assets

 

779,815

 

476,400

 

456,375

 

Total assets

 

$

26,793,017

 

$

26,065,789

 

$

25,033,471

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Deposits:

 

 

 

 

Non-interest bearing

 

$

6,952,236

 

$

6,890,687

 

$

6,298,724

 

Savings, interest checking and money market

 

12,049,279

 

11,621,716

 

11,799,346

 

Certificates of deposit of less than $100,000

 

619,758

 

626,157

 

599,289

 

Certificates of deposit of $100,000 and over

 

1,154,590

 

1,381,855

 

1,276,994

 

Total deposits

 

20,775,863

 

20,520,415

 

19,974,353

 

Federal funds purchased and securities sold under agreements to repurchase

 

1,428,013

 

1,850,772

 

1,722,751

 

Other borrowings

 

756,461

 

2,418

 

2,022

 

Other liabilities

 

580,216

 

553,712

 

291,132

 

Total liabilities

 

23,540,553

 

22,927,317

 

21,990,258

 

Stockholders’ equity:

 

 

 

 

Preferred stock

 

144,784

 

144,784

 

144,784

 

Common stock

 

563,978

 

563,978

 

559,432

 

Capital surplus

 

2,133,623

 

2,151,464

 

2,074,912

 

Retained earnings

 

224,643

 

201,562

 

307,193

 

Treasury stock

 

(69,149)

 

(37,548)

 

(60,547)

 

Accumulated other comprehensive income

 

253,136

 

110,444

 

11,981

 

Total stockholders’ equity

 

3,251,015

 

3,134,684

 

3,037,755

 

Non-controlling interest

 

1,449

 

3,788

 

5,458

 

Total equity

 

3,252,464

 

3,138,472

 

3,043,213

 

Total liabilities and equity

 

$

26,793,017

 

$

26,065,789

 

$

25,033,471

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

 

(Unaudited)
(In thousands)

For the Three Months Ended

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business

$

5,493,657

 

$

5,362,020

 

$

5,263,312

 

$

5,142,794

 

$

5,084,920

 

Real estate — construction and land

924,086

 

901,367

 

920,206

 

908,777

 

907,062

 

Real estate — business

2,853,632

 

2,820,189

 

2,883,379

 

2,868,503

 

2,864,177

 

Real estate — personal

2,390,716

 

2,283,530

 

2,175,156

 

2,135,048

 

2,119,365

 

Consumer

1,950,491

 

1,961,631

 

1,924,434

 

1,907,979

 

1,929,202

 

Revolving home equity

350,256

 

347,527

 

354,040

 

361,673

 

370,962

 

Consumer credit card

727,569

 

749,056

 

763,377

 

766,080

 

781,167

 

Overdrafts

4,044

 

18,322

 

9,240

 

4,889

 

4,205

 

Total loans

14,694,451

 

14,443,642

 

14,293,144

 

14,095,743

 

14,061,060

 

Allowance for credit losses on loans

(139,482)

 

(159,776)

 

(160,387)

 

(161,403)

 

(159,275)

 

Net loans

14,554,969

 

14,283,866

 

14,132,757

 

13,934,340

 

13,901,785

 

Loans held for sale

12,875

 

15,363

 

19,882

 

20,731

 

18,350

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

802,556

 

826,702

 

825,544

 

843,974

 

909,466

 

Government-sponsored enterprise obligations

134,296

 

184,973

 

181,929

 

199,506

 

199,480

 

State and municipal obligations

1,222,595

 

1,207,584

 

1,172,259

 

1,222,008

 

1,283,349

 

Mortgage-backed securities

4,685,782

 

4,685,794

 

4,712,508

 

4,614,703

 

4,360,428

 

Asset-backed securities

1,182,556

 

1,258,297

 

1,297,685

 

1,412,452

 

1,525,623

 

Other debt securities

321,733

 

331,167

 

334,218

 

331,459

 

335,612

 

Unrealized gain (loss) on debt securities

191,275

 

149,591

 

152,706

 

42,009

 

(48,925)

 

Total available for sale debt securities

8,540,793

 

8,644,108

 

8,676,849

 

8,666,111

 

8,565,033

 

Trading debt securities

34,055

 

32,518

 

29,622

 

30,169

 

25,411

 

Equity securities

4,273

 

4,200

 

4,705

 

4,717

 

4,568

 

Other securities

144,096

 

141,501

 

134,896

 

130,433

 

130,057

 

Total investment securities

8,723,217

 

8,822,327

 

8,846,072

 

8,831,430

 

8,725,069

 

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

326

 

714

 

1,080

 

1,601

 

4,797

 

Long-term securities purchased under agreements to resell

850,000

 

849,986

 

713,030

 

700,000

 

700,000

 

Interest earning deposits with banks

601,420

 

390,134

 

226,582

 

331,999

 

316,660

 

Other assets

1,368,464

 

1,315,395

 

1,292,191

 

1,251,555

 

1,197,261

 

Total assets

$

26,111,271

 

$

25,677,785

 

$

25,231,594

 

$

25,071,656

 

$

24,863,922

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Non-interest bearing deposits

$

6,615,108

 

$

6,552,862

 

$

6,290,036

 

$

6,335,620

 

$

6,324,738

 

Savings

952,709

 

924,282

 

924,581

 

929,974

 

896,378

 

Interest checking and money market

10,777,400

 

10,618,347

 

10,409,111

 

10,642,648

 

10,762,550

 

Certificates of deposit of less than $100,000

622,840

 

626,944

 

620,138

 

605,440

 

590,200

 

Certificates of deposit of $100,000 and over

1,299,443

 

1,434,309

 

1,503,805

 

1,378,402

 

1,267,517

 

Total deposits

20,267,500

 

20,156,744

 

19,747,671

 

19,892,084

 

19,841,383

 

Borrowings:

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

1,990,051

 

1,836,982

 

1,884,939

 

1,793,526

 

1,771,534

 

Other borrowings

161,698

 

94,471

 

77,248

 

1,318

 

1,248

 

Total borrowings

2,151,749

 

1,931,453

 

1,962,187

 

1,794,844

 

1,772,782

 

Other liabilities

466,980

 

458,094

 

390,560

 

307,433

 

284,018

 

Total liabilities

22,886,229

 

22,546,291

 

22,100,418

 

21,994,361

 

21,898,183

 

Equity

3,225,042

 

3,131,494

 

3,131,176

 

3,077,295

 

2,965,739

 

Total liabilities and equity

$

26,111,271

 

$

25,677,785

 

$

25,231,594

 

$

25,071,656

 

$

24,863,922

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

 

AVERAGE RATES

 
   

(Unaudited)

For the Three Months Ended

 

 

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

 

ASSETS:

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

Business (1)

3.50

%

3.59

%

3.85

%

4.02

%

4.07

%

 

Real estate — construction and land

4.78

 

5.05

 

5.46

 

5.63

 

5.73

 

 

Real estate — business

4.16

 

4.22

 

4.42

 

4.60

 

4.61

 

 

Real estate — personal

3.83

 

3.85

 

3.91

 

3.97

 

4.00

 

 

Consumer

4.78

 

4.76

 

4.88

 

4.77

 

4.73

 

 

Revolving home equity

4.61

 

4.76

 

5.17

 

5.20

 

5.17

 

 

Consumer credit card

12.26

 

12.11

 

12.42

 

12.33

 

12.18

 

 

Overdrafts

 

 

 

 

 

 

Total loans

4.39

 

4.47

 

4.71

 

4.82

 

4.85

 

 

Loans held for sale

6.15

 

5.32

 

6.15

 

6.98

 

7.38

 

 

Investment securities:

 

 

 

 

 

 

 

U.S. government and federal agency obligations

2.09

 

2.16

 

2.36

 

4.66

 

.78

 

 

Government-sponsored enterprise obligations

4.19

 

2.17

 

2.69

 

2.32

 

2.35

 

 

State and municipal obligations (1)

3.11

 

3.05

 

3.14

 

3.18

 

3.19

 

 

Mortgage-backed securities

2.37

 

2.72

 

2.61

 

2.70

 

2.76

 

 

Asset-backed securities

2.63

 

2.62

 

2.80

 

2.79

 

2.70

 

 

Other debt securities

2.94

 

2.82

 

2.63

 

2.68

 

2.69

 

 

Total available for sale debt securities

2.54

 

2.69

 

2.69

 

2.97

 

2.59

 

 

Trading debt securities (1)

2.52

 

2.81

 

2.91

 

3.14

 

3.24

 

 

Equity securities (1)

46.78

 

49.40

 

35.67

 

35.97

 

37.55

 

 

Other securities (1)

5.31

 

6.58

 

6.19

 

6.69

 

5.73

 

 

Total investment securities

2.61

 

2.78

 

2.76

 

3.04

 

2.66

 

 

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

2.47

 

2.22

 

2.57

 

2.76

 

2.79

 

 

Long-term securities purchased under agreements to resell

3.53

 

2.26

 

2.01

 

2.11

 

2.18

 

 

Interest earning deposits with banks

.86

 

1.61

 

2.17

 

2.40

 

2.42

 

 

Total interest earning assets

3.66

 

3.75

 

3.90

 

4.05

 

3.93

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

 

Savings

.11

 

.11

 

.11

 

.11

 

.11

 

 

Interest checking and money market

.30

 

.35

 

.38

 

.38

 

.35

 

 

Certificates of deposit of less than $100,000

1.15

 

1.16

 

1.11

 

1.01

 

.87

 

 

Certificates of deposit of $100,000 and over

1.62

 

1.79

 

1.99

 

2.02

 

1.92

 

 

Total interest bearing deposits

.45

 

.52

 

.58

 

.55

 

.51

 

 

Borrowings:

 

 

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

.96

 

1.20

 

1.74

 

1.80

 

1.72

 

 

Other borrowings

.82

 

2.05

 

2.33

 

1.52

 

1.62

 

 

Total borrowings

.95

 

1.25

 

1.76

 

1.80

 

1.72

 

 

Total interest bearing liabilities

.52

%

.61

%

.73

%

.70

%

.65

%

 

 

 

 

 

 

 

 

 

Net yield on interest earning assets

3.33

%

3.36

%

3.43

%

3.61

%

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

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

 

March 31, 2020

December 31, 2019

September 30, 2019

June 30, 2019

March 31, 2019

ALLOWANCE FOR CREDIT LOSSES ON LOANS

 

 

 

 

 

 

Balance at beginning of period

 

$

160,682

 

$

160,682

 

$

161,182

 

$

160,682

 

$

159,932

 

Adoption of ASU 2016-13

 

(21,039)

 

 

 

 

 

Provision for credit losses on loans

 

42,868

 

15,206

 

10,963

 

11,806

 

12,463

 

Net charge-offs (recoveries):

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

Business

 

(373)

 

3,036

 

335

 

284

 

447

 

Real estate — construction and land

 

 

 

 

(101)

 

(16)

 

Real estate — business

 

(21)

 

35

 

(44)

 

(14)

 

(37)

 

 

 

(394)

 

3,071

 

291

 

169

 

394

 

Personal banking portfolio:

 

 

 

 

 

 

Consumer credit card

 

9,157

 

8,829

 

8,568

 

9,066

 

8,958

 

Consumer

 

1,711

 

2,838

 

2,069

 

1,723

 

1,924

 

Overdraft

 

426

 

507

 

446

 

253

 

317

 

Real estate — personal

 

(4)

 

6

 

(30)

 

(21)

 

101

 

Revolving home equity

 

(38)

 

(45)

 

119

 

116

 

19

 

 

 

11,252

 

12,135

 

11,172

 

11,137

 

11,319

 

Total net loan charge-offs

 

10,858

 

15,206

 

11,463

 

11,306

 

11,713

 

Balance at end of period

 

$

171,653

 

$

160,682

 

$

160,682

 

$

161,182

 

$

160,682

 

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

 

$

32,251

 

$

1,075

 

$

1,075

 

$

1,075

 

$

1,075

 

 

 

 

 

 

 

 

NET CHARGE-OFF RATIOS*

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

Business

 

(.03)

%

.22

%

.03

%

.02

%

.04

%

Real estate — construction and land

 

 

 

 

(.04)

 

(.01)

 

Real estate — business

 

 

 

(.01)

 

 

(.01)

 

 

 

(.02)

 

.13

 

.01

 

.01

 

.02

 

Personal banking portfolio:

 

 

 

 

 

 

Consumer credit card

 

5.06

 

4.68

 

4.45

 

4.75

 

4.65

 

Consumer

 

.35

 

.57

 

.43

 

.36

 

.40

 

Overdraft

 

42.37

 

10.98

 

19.15

 

20.76

 

30.57

 

Real estate — personal

 

 

 

(.01)

 

 

.02

 

Revolving home equity

 

(.04)

 

(.05)

 

.13

 

.13

 

.02

 

 

 

.83

 

.90

 

.85

 

.86

 

.88

 

Total

 

.30

%

.42

%

.32

%

.32

%

.34

%

 

 

 

 

 

 

 

CREDIT QUALITY RATIOS

 

 

 

 

 

 

Non-performing assets to total loans

 

.07

%

.07

%

.08

%

.08

%

.09

%

Non-performing assets to total assets

 

.04

 

.04

 

.05

 

.05

 

.05

 

Allowance for credit losses on loans to total loans

 

1.14

 

1.09

 

1.11

 

1.13

 

1.14

 

 

 

 

 

 

 

 

NON-PERFORMING ASSETS

 

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

 

Business

 

$

7,356

 

$

7,489

 

$

7,753

 

$

8,428

 

$

8,569

 

Real estate — construction and land

 

2

 

2

 

3

 

3

 

4

 

Real estate — business

 

1,532

 

1,030

 

2,359

 

950

 

1,746

 

Real estate — personal

 

1,743

 

1,699

 

1,618

 

1,752

 

1,848

 

Total

 

10,633

 

10,220

 

11,733

 

11,133

 

12,167

 

Foreclosed real estate

 

422

 

365

 

502

 

897

 

737

 

Total non-performing assets

 

$

11,055

 

$

10,585

 

$

12,235

 

$

12,030

 

$

12,904

 

Loans past due 90 days and still accruing interest

$

16,520

 

$

19,859

 

$

16,308

 

$

16,532

 

$

16,655

 

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

For the quarter ended March 31, 2020, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $51.9 million, compared to $106.9 million in the previous quarter and $97.1 million in the same quarter last year. The decrease in net income from the previous quarter was primarily the result of an increase in provision for credit losses and unrealized securities losses in the Company’s private equity investment portfolio. Non-interest income was also lower this quarter than in the prior quarter, however, the decrease was primarily due to a gain realized on the sale of the Company’s corporate trust business in the prior quarter. Net interest margin declined slightly, as lower interest earned on loans and investment securities was offset by declining interest expense on deposits. Average loans increased $248.3 million over the previous quarter, while average deposits increased $110.8 million. For the quarter, the return on average assets was .80%, the return on average common equity was 6.48%, and the efficiency ratio was 59.17%.

Balance Sheet Review

During the 1st quarter of 2020, average loans totaled $14.7 billion, an increase of $248.3 million over the prior quarter, and increased $627.9 million, or 4.46%, over the same quarter last year. Period-end loans grew $328.4 million over the prior quarter and $939.2 million over March 31, 2019. Compared to the previous quarter, average loan growth was primarily driven by increases in business loans and personal real estate loans of $131.6 million and $107.2 million, respectively. Additionally, business real estate and construction loans grew $33.4 million and $22.7 million this quarter, respectively. This growth was partly offset by a decline in consumer card loans of $21.5 million. Consumer loans saw higher demand for health services financing, but that growth was offset by lower auto loans and other consumer lending. Growth in business loans was the result of increased commercial and industrial lending, while personal real estate loan balances grew due to a higher portion of loans originated being retained rather than sold during the 1st quarter of 2020 compared to the previous quarter. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $39.3 million, compared to $61.5 million in the prior quarter.

Total average available for sale debt securities decreased $103.3 million from the previous quarter to $8.5 billion, at fair value. The decrease in investment securities was mainly the result of declines in asset-backed, U.S. government and federal agency, and government-sponsored enterprise obligation securities. Purchases of securities during the quarter totaled $648.9 million, and sales, maturities and pay downs were $636.5 million. At March 31, 2020, the duration of the investment portfolio was 2.6 years, and maturities and pay downs of approximately $1.4 billion are expected to occur during the next 12 months.

Total average deposits increased $110.8 million this quarter compared to the previous quarter. The increase in deposits resulted from growth in interest checking and money market deposits ($159.1 million), demand deposits ($62.2 million), and savings deposits ($28.4 million). These increases were partially offset by declines in certificates of deposit ($139.0 million). Compared to the previous quarter, total average consumer and wealth deposits (including private banking) grew $141.0 million and $64.1 million, respectively, while average commercial deposits decreased $159.4 million this quarter. The average loans to deposits ratio was 72.6% in the current quarter and 71.7% in the prior quarter. The Company’s average borrowings, which includes customer repurchase agreements, were $2.2 billion in the 1st quarter of 2020 and $1.9 billion in the prior quarter.

Net Interest Income

Net interest income in the 1st quarter of 2020 amounted to $201.1 million, a decrease of $1.6 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter decreased $1.8 million from the previous quarter to $204.4 million. The decline in net interest income was mainly due to a $2.2 million adjustment this quarter to premium amortization on mortgage-backed securities for prepayment speed changes. The net yield on earning assets (tax equivalent) decreased to 3.33%, compared to 3.36% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) decreased $2.3 million, mostly as a result of lower yields on loans, particularly commercial loans. Growth in average business and personal real estate loan balances increased net interest income and helped to partially offset the impact of lower yields. The average tax-equivalent yield on the loan portfolio declined eight basis points this quarter to 4.39%, compared to 4.47% in the previous quarter.

Interest income on investment securities (tax equivalent) decreased $5.4 million from the previous quarter, mainly due to lower interest income earned on mortgage-backed securities due to the $2.2 million premium amortization adjustment, as noted above. The decrease was partially offset by $2.6 million of higher interest income on our long-term securities purchased under agreements to resell. These assets were structured with embedded and leveraged interest rate floor spreads to hedge against falling rates. Also, inflation income on inflation protected securities declined $333 thousand this quarter. The yield on total investment securities was 2.61% in the current quarter, down from 2.78% in the previous quarter.

Interest costs on deposits totaled 45 basis points in the 1st quarter of 2020, compared to 52 basis points in the prior quarter. Interest expense on deposits decreased $2.6 million this quarter compared to the previous quarter mainly due to lower rates on all deposit categories, as well as lower balances of jumbo certificates of deposit. Borrowing costs decreased $964 thousand this quarter due to lower rates paid on borrowings, especially securities sold under agreements to repurchase, partially offset by higher balances of those agreements and of Federal Home Loan Bank borrowings. The overall rate paid on interest bearing liabilities was .52% in the current quarter, compared to .61% in the prior quarter.

Non-Interest Income

In the 1st quarter of 2020, total non-interest income amounted to $123.7 million, an increase of $2.4 million, or 2.0%, compared to the same period last year and decreased $19.8 million, or 13.8%, compared to the prior quarter. The increase in non-interest income over the same period last year was mainly due to growth in trust, capital market, deposit account, and net bank card fees.

Total net bank card fees in the current quarter increased $556 thousand, or 1.4%, over the same period last year, and decreased $879 thousand, or 2.1%, compared to the prior quarter. Net corporate card fees increased $154 thousand over the same quarter last year mainly due to lower rewards expense. Net debit card fees increased $191 thousand, or 2.1%, due to higher interchange income. Net merchant income declined $119 thousand, or 2.6%, mainly due to higher network expense, while net credit card fees increased $330 thousand, or 10.5% on lower rewards expense. Total net bank card fees this quarter were comprised of fees on corporate card ($23.0 million), debit card ($9.3 million), merchant ($4.4 million) and credit card ($3.5 million) transactions.

In the current quarter, trust fees increased $2.7 million, or 7.3%, 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 $659 thousand, or 2.9%, due to growth in corporate cash management and deposit account fees. Additionally, capital market fees grew $1.9 million, or 101.7%, cash sweep fees grew $329 thousand, or 9.6%, and consumer brokerage service fees increased $330 thousand, or 8.8%, over amounts recorded in the same quarter last year.

Compared to the prior quarter, deposit account fees, bank card fees, and trust fees declined during the 1st quarter of 2020. Deposit account fees declined $1.3 million this quarter compared to the previous quarter due to lower corporate cash management and overdraft fees. Growth in capital market fees of $1.3 million partially offset these declines. Other non-interest income declined in the 1st quarter of 2020 mainly due to the sale of the Company’s corporate trust business in the prior quarter. Swap fees also declined $1.7 million in the current quarter compared to the prior quarter. Also, 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 decreased $3.8 million from the same quarter last year and $3.6 million from the previous quarter. For the 1st quarter of 2020, non-interest income comprised 38.1% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded net securities losses of $13.3 million in the current quarter, compared to losses of $248 thousand in the prior quarter and losses of $925 thousand in the 1st quarter of 2019. Net securities losses in the current quarter primarily resulted from unrealized losses in the Company’s private equity investment portfolio, as the economic conditions resulting from the COVID-19 pandemic negatively impacted investment valuations.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $193.7 million, compared to $191.4 million in the same period last year and $195.2 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 expense. Higher data processing and software expense also contributed to the increase. These increases in expense were partially offset by lower other non-interest expense.

Compared to the 1st quarter of last year, salaries and employee benefits expense increased $6.8 million, or 5.6%, driven mainly by growth in full-time salary costs and higher incentive compensation and retirement plan expense. Full-time equivalent employees totaled 4,854 and 4,841 at March 31, 2020 and 2019, respectively.

For the current quarter compared to the same quarter of last year, data processing and software expense increased $1.3 million due to higher costs for service providers. Supplies and communication expense decreased $504 thousand due to lower costs for debit and credit card reissuance and lower data network expense. Other non-interest expense decreased mostly due to lower operating losses, fees paid to outside service providers and travel and entertainment expenses, in addition to the decline in the Company’s deferred compensation liability, as mentioned previously. These decreases in expense were partially offset by a $1.1 million impairment on the Company’s mortgage servicing rights during the 1st quarter of 2020.

Income Taxes

The effective tax rate for the Company was 16.40% in the current quarter, 20.88% in the previous quarter, and 19.05% in the 1st quarter of 2019. The decrease in the effective tax rate in the current quarter compared to the prior quarter and the same quarter last year is mostly due to mix of taxable and non-taxable income and expenses.

Credit Quality

Net loan charge-offs in the 1st quarter of 2020 amounted to $10.9 million, compared to $15.2 million in the prior quarter and $11.7 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .30% in the current quarter, .42% in the previous quarter, and .34% in the 1st quarter of last year. Compared to prior quarter, net loan charge-offs on commercial loans decreased $3.5 million to net recoveries of $394 thousand, while net loan charge-offs on personal banking loans decreased $883 thousand to $11.3 million.

In the 1st quarter of 2020, annualized net loan charge-offs on average consumer credit card loans were 5.06%, compared to 4.68% in the previous quarter, and 4.65% in the same quarter last year. Consumer loan net charge-offs were .35% of average consumer loans in the current quarter, .57% in the prior quarter and .40% in the same quarter last year.

On January 1, 2020, the Company adopted ASU 2016-13, "Measurement of Credit Losses on Financial Instruments", known as the current expected credit loss (CECL) model. As a result of CECL, the Company's provision for loan losses is now included in provision for credit losses on the income statement. Additionally, the provision for credit losses includes a provision for expected credit losses on the Company's unfunded lending commitments and available for sale securities. Upon adoption of CECL, our allowance for credit losses was reduced $21.0 million and our liability for unfunded lending commitments increased $16.1 million, resulting in a net increase to retained earnings of $3.8 million, net of tax.

This quarter, provision for credit losses for loans totaled $42.9 million and was $32.0 million greater than net loan charge-offs. The increase in the provision for credit losses on loans was driven by a significant deterioration of the economic forecast used in our CECL model as of March 31, 2020 due to the COVID-19 pandemic. At March 31, 2020, the allowance for credit losses on loans totaled $171.7 million, or 1.14% of total loans. Additionally, the provision for credit losses on unfunded lending commitments totaled $15.1 million. The liability for unfunded lending commitments at March 31, 2020 was $32.3 million.

At March 31, 2020, total non-performing assets amounted to $11.1 million, an increase of $470 thousand over the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($10.6 million and $422 thousand, respectively). At March 31, 2020, the balance of non-accrual loans, which represented .07% of loans outstanding, included business loans of $7.4 million, business real estate loans of $1.5 million, and personal real estate loans of $1.7 million. Loans more than 90 days past due and still accruing interest totaled $16.5 million at March 31, 2020.

Other

During the 1st quarter of 2020, the Company paid a cash dividend of $.27 per common share, representing an 8.9% increase over the same period last year. The Company also paid an annualized 6% cash dividend on its preferred stock. The Company purchased 869,692 shares of treasury stock during the current quarter at an average price of $61.11.

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