Commerce Bancshares, Inc. Reports Record Second Quarter Earnings Per Share of $1.01

World News: . []

Commerce Bancshares, Inc. (NASDAQ: CBSH) announced record earnings of $1.01 per common share for the three months ended June 30, 2018 compared to $.71 per share in the same quarter last year and $.92 per share in the prior quarter. Net income attributable to Commerce Bancshares, Inc. for the second quarter amounted to $110.3 million, compared to $79.0 million in the second quarter of 2017 and $101.0 million in the prior quarter. For the quarter, the return on average assets was 1.80%, the return on average common equity was 16.8%, and the efficiency ratio was 54.1%.

For the six months ended June 30, 2018, earnings per common share totaled $1.93 compared to $1.36 for the first six months of 2017. Net income attributable to Commerce Bancshares, Inc. amounted to $211.3 million for the six months ended June 30, 2018 compared to $150.5 million in the comparable period last year, or an increase of 40.4%. Year to date, the return on average assets was 1.73% and the return on average common equity was 16.2%.

In making this announcement, David W. Kemper, Chairman and CEO, said, “We are pleased to report strong earnings growth this quarter as a result of an increase in top line revenue, along with stable expenses and low credit costs. Compared to the prior quarter, net interest income grew $18.1 million but included an equity dividend of $8.9 million this quarter, offset by a comparable securities loss. Excluding this item, our net interest margin grew 13 basis points this quarter to 3.50%, reflecting increased interest earned on our loan portfolio coupled with stable deposit costs. Compared to the same period last year, fee income grew 8.2%, driven mainly by increases in bank card, trust, swap and deposit fee income. While total average loan balances were flat with the prior quarter, we experienced growth in our commercial and industrial, construction, and mortgage loan portfolios. Our consumer auto loan portfolio declined mostly as a result of a sale of $25.9 million of auto loans to another financial institution this quarter.”

Mr. Kemper added, “The U.S. economy remains strong, and our credit environment continues to be very favorable. For the current quarter, net loan charge-offs totaled $10.0 million, compared to $10.4 million in the prior quarter and $10.8 million in the same quarter last year. The decline in net loan charge-offs was mainly the result of lower personal banking loan losses this quarter. The ratio of annualized net loan charge-offs to average loans was .29% this quarter compared to .30% last quarter. Non-performing assets declined this quarter to $10.5 million, while the provision for loan losses matched net loan charge-offs and the allowance for loan losses amounted to $159.5 million, or 1.14% of period end loans.”

Total assets at June 30, 2018 were $24.5 billion, total loans were $14.0 billion, and total deposits were $20.3 billion. During the quarter, the Company paid a common cash dividend of $.235 per share, representing a 9.8% increase over the rate paid in 2017, and also paid an annualized 6% cash dividend on its preferred stock.

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
Jeffery Aberdeen, Controller
at 1000 Walnut Street, Suite 700
Kansas City, MO 64106
or by telephone at (816) 234-2081
Web Site: http://www.commercebank.com
Email: mymoney@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,
2018
  March 31,
2018
  June 30,
2017
  June 30,
2018
  June 30,
2017
FINANCIAL SUMMARY
Net interest income $210,959 $192,892 $182,807 $403,851 $361,080
Non-interest income 124,850     119,690     115,380     244,540     224,993  
Total revenue 335,809 312,582 298,187 648,391 586,073
Investment securities gains (losses), net (3,075 ) 5,410 1,651 2,335 879
Provision for loan losses 10,043 10,396 10,758 20,439 21,886
Non-interest expense 181,860     182,277     176,890     364,137     356,267  
Income before taxes 140,831 125,319 112,190 266,150 208,799
Income taxes 29,507 23,258 33,201 52,765 58,108
Non-controlling interest expense 994     1,077     29     2,071     227  
Net income attributable to Commerce Bancshares, Inc. 110,330 100,984 78,960 211,314 150,464
Preferred stock dividends 2,250     2,250     2,250     4,500     4,500  
Net income available to common shareholders $108,080     $98,734     $76,710     $206,814     $145,964  
Earnings per common share:
Net income — basic $1.02 $.92 $.71 $1.94 $1.36
Net income — diluted $1.01 $.92 $.71 $1.93 $1.36
Effective tax rate 21.10 % 18.72 % 29.60 % 19.98 % 27.86 %
Tax equivalent net interest income $215,775 $196,638 $190,865 $412,413 $378,187
Average total interest earning assets (1) $ 23,683,587 $ 23,693,350 $ 24,035,661 $ 23,688,441 $ 24,143,944
Diluted wtd. average shares outstanding   106,029,417     105,965,845     105,943,427     105,997,807     105,874,808  
RATIOS
Average loans to deposits (2) 68.85 % 69.09 % 65.25 % 68.97 % 64.82 %
Return on total average assets 1.80 1.66 1.26 1.73 1.21
Return on average common equity (3) 16.78 15.58 12.48 16.19 12.12
Non-interest income to total revenue 37.18 38.29 38.69 37.71 38.39
Efficiency ratio (4) 54.06 58.21 59.21 56.06 60.67
Net yield on interest earning assets   3.65     3.37     3.18     3.51     3.16  
EQUITY SUMMARY
Cash dividends per common share $.235 $.235 $.214 $.470 $.429
Cash dividends on common stock $25,096 $25,106 $22,903 $50,202 $45,816
Cash dividends on preferred stock $2,250 $2,250 $2,250 $4,500     $4,500  
Book value per common share (5) $24.64 $24.02 $23.28
Market value per common share (5) $64.71 $59.91 $54.12
High market value per common share $67.42 $61.88 $55.18
Low market value per common share $57.87 $54.85 $49.54
Common shares outstanding (5) 106,614,043 106,617,497 106,697,257
Tangible common equity to tangible assets (6) 10.18 % 9.88 % 9.37 %
Tier I leverage ratio   11.18 %   10.83 %   9.87 %
OTHER QTD INFORMATION
Number of bank/ATM locations 322 325 334
Full-time equivalent employees   4,797     4,799     4,805  

(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).

 

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,
2018
  March 31,
2018
  December 31,
2017
  September 30,
2017
  June 30,
2017
  June 30,
2018
  June 30,
2017
Interest income $225,623   $205,995   $201,572   $194,244   $193,594 $431,618   $381,591
Interest expense 14,664     13,103     11,564     11,653     10,787     27,767     20,511  
Net interest income 210,959 192,892 190,008 182,591 182,807 403,851 361,080
Provision for loan losses 10,043     10,396     12,654     10,704     10,758     20,439     21,886  
Net interest income after provision for loan losses 200,916     182,496     177,354     171,887     172,049     383,412     339,194  
NON-INTEREST INCOME
Bank card transaction fees 43,215 41,453 42,888 39,166 37,295 84,668 73,046
Trust fees 37,036 36,062 35,405 34,620 33,120 73,098 65,134
Deposit account charges and other fees 23,893 22,982 22,598 22,659 22,861 46,875 44,803
Capital market fees 1,992 2,291 1,743 1,755 2,156 4,283 4,498
Consumer brokerage services 3,971 3,768 3,576 3,679 3,726 7,739 7,375
Loan fees and sales 3,229 2,862 3,099 3,590 4,091 6,091 7,259
Other 11,514     10,272     10,074     11,418     12,131     21,786     22,878  
Total non-interest income 124,850     119,690     119,383     116,887     115,380     244,540     224,993  
INVESTMENT SECURITIES GAINS (LOSSES), NET (3,075 ) 5,410 27,209 (3,037 ) 1,651 2,335 879
NON-INTEREST EXPENSE
Salaries and employee benefits 115,589 115,894 115,741 111,382 108,829 231,483 221,198
Net occupancy 11,118 11,584 11,280 11,459 11,430 22,702 22,873
Equipment 4,594 4,431 4,692 4,491 4,776 9,025 9,385
Supplies and communication 5,126 5,313 6,118 5,517 5,446 10,439 11,155
Data processing and software 21,016 20,690 21,090 19,968 20,035 41,706 39,940
Marketing 5,142 4,805 3,937 4,676 4,488 9,947 7,712
Deposit insurance 3,126 3,457 3,444 3,479 3,592 6,583 7,063
Community service 656 729 25,511 3,006 2,916 1,385 5,860
Other 15,493     15,374     17,046     15,239     15,378     30,867     31,081  
Total non-interest expense 181,860     182,277     208,859     179,217     176,890     364,137     356,267  
Income before income taxes 140,831 125,319 115,087 106,520 112,190 266,150 208,799
Less income taxes 29,507     23,258     20,104     32,294     33,201     52,765     58,108  
Net income 111,324 102,061 94,983 74,226 78,989 213,385 150,691
Less non-controlling interest expense (income) 994     1,077     628     (338 )   29     2,071     227  
Net income attributable to Commerce Bancshares, Inc. 110,330 100,984 94,355 74,564 78,960 211,314 150,464
Less preferred stock dividends 2,250     2,250     2,250     2,250     2,250     4,500     4,500  
Net income available to common shareholders $108,080     $98,734     $92,105     $72,314     $76,710     $206,814     $145,964  
Net income per common share — basic $1.02     $.92     $.86     $.68     $.71     $1.94     $1.36  
Net income per common share — diluted   $1.01     $.92     $.86     $.67     $.71     $1.93     $1.36  
OTHER INFORMATION
Return on total average assets 1.80 % 1.66 % 1.50 % 1.19 % 1.26 % 1.73 % 1.21 %
Return on average common equity (1) 16.78 15.58 14.17 11.35 12.48 16.19 12.12
Efficiency ratio (2) 54.06 58.21 67.40 59.73 59.21 56.06 60.67
Effective tax rate 21.10 18.72 17.56 30.22 29.60 19.98 27.86
Net yield on interest earning assets 3.65 3.37 3.29 3.17 3.18 3.51 3.16
Tax equivalent net interest income   $215,775     $196,638     $197,917     $190,497     $190,865     $412,413     $378,187  

(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,
2018
  March 31,
2018
  June 30,
2017
ASSETS      
Loans
Business $ 4,990,298 $ 4,960,614 $ 4,852,408
Real estate — construction and land 967,151 932,058 848,152
Real estate — business 2,727,580 2,724,584 2,727,349
Real estate — personal 2,102,586 2,069,012 2,009,203
Consumer 2,012,644 2,069,235 2,038,514
Revolving home equity 374,557 382,825 403,387
Consumer credit card 775,214 752,651 740,865
Overdrafts 4,081     2,382     6,714  
Total loans 13,954,111     13,893,361     13,626,592  
Allowance for loan losses (159,532 )   (159,532 )   (157,832 )
Net loans 13,794,579     13,733,829     13,468,760  
Loans held for sale 20,352 16,435 22,002
Investment securities:
Available for sale debt securities 8,412,376 8,432,180 9,391,853
Trading debt securities 31,156 32,025 22,291
Equity securities 4,444 51,512 49,616
Other securities 112,309     108,320     100,620  
Total investment securities 8,560,285     8,624,037     9,564,380  
Federal funds sold and short-term securities purchased under agreements to resell 31,500 17,000 16,520
Long-term securities purchased under agreements to resell 700,000 700,000 625,000
Interest earning deposits with banks 114,947 134,697 80,860
Cash and due from banks 386,339 423,048 433,747
Land, buildings and equipment — net 331,782 332,253 334,586
Goodwill 138,921 138,921 138,921
Other intangible assets — net 8,083 7,893 7,002
Other assets 437,954     483,129     387,065  
Total assets $ 24,524,742     $ 24,611,242     $ 25,078,843  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing $ 6,876,756 $ 6,953,430 $ 7,314,506
Savings, interest checking and money market 11,761,832 11,828,138 11,427,615
Time open and C.D.’s of less than $100,000 603,629 615,401 679,668
Time open and C.D.’s of $100,000 and over 1,079,340     1,141,502     1,403,873  
Total deposits 20,321,557     20,538,471     20,825,662  
Federal funds purchased and securities sold under agreements to repurchase 1,166,759 1,132,329 1,256,444
Other borrowings 9,291 9,214 101,903
Other liabilities 255,752     225,500     266,627  
Total liabilities 21,753,359     21,905,514     22,450,636  
Stockholders’ equity:
Preferred stock 144,784 144,784 144,784
Common stock 535,407 535,407 510,015
Capital surplus 1,804,057 1,802,785 1,546,534
Retained earnings 408,374 325,390 390,853
Treasury stock (15,854 ) (15,681 ) (10,373 )
Accumulated other comprehensive income (loss) (108,781 )   (89,563 )   42,070  
Total stockholders’ equity 2,767,987 2,703,122 2,623,883
Non-controlling interest 3,396     2,606     4,324  
Total equity 2,771,383     2,705,728     2,628,207  
Total liabilities and equity   $ 24,524,742     $ 24,611,242     $ 25,078,843  
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS

(Unaudited)
(In thousands)

  For the Three Months Ended
 

June 30,
2018

 

March 31,
2018

 

December 31,
2017

 

September 30,
2017

 

June 30,
2017

ASSETS:        
Loans:
Business $ 4,962,171 $ 4,934,621 $ 4,818,419 $ 4,777,222 $ 4,827,439
Real estate — construction and land 971,854 951,930 948,043 887,596 862,479
Real estate — business 2,726,697 2,733,812 2,720,356 2,710,453 2,701,144
Real estate — personal 2,078,972 2,062,083 2,044,651 2,017,264 2,003,997
Consumer 2,025,585 2,072,168 2,100,762 2,070,398 1,997,761
Revolving home equity 378,366 392,727 394,231 395,212 399,730
Consumer credit card 754,199 757,692 756,544 739,692 731,471
Overdrafts 4,497     4,628     5,295     4,373     4,505  
Total loans 13,902,341     13,909,661     13,788,301     13,602,210     13,528,526  
Allowance for loan losses (158,664 )   (158,779 )   (157,026 )   (156,909 )   (157,003 )
Net loans 13,743,677     13,750,882     13,631,275     13,445,301     13,371,523  
Loans held for sale 22,202 19,115 18,158 21,227 18,341
Investment securities:
U.S. government and federal agency obligations 923,183 916,655 917,664 917,808 910,821
Government-sponsored enterprise obligations 354,156 405,681 452,104 456,668 450,362
State and municipal obligations 1,394,766 1,513,243 1,630,660 1,699,365 1,771,674
Mortgage-backed securities 4,067,152 3,925,904 3,949,933 3,718,697 3,708,124
Asset-backed securities 1,407,300 1,469,488 1,622,778 2,025,415 2,335,344
Other debt securities 340,246 341,821 351,177 322,231 320,869
Unrealized gain (loss) on debt securities (122,114 )   (43,238 )   36,875     73,291     57,547  
Total available for sale debt securities 8,364,689 8,529,554 8,961,191 9,213,475 9,554,741
Trading debt securities 26,101 21,966 20,401 21,149 21,062
Equity securities 47,179 50,507 82,416 51,204 53,162
Other securities 108,563     100,993     95,485     100,776     99,545  
Total investment securities 8,546,532     8,703,020     9,159,493     9,386,604     9,728,510  
Federal funds sold and short-term securities purchased under agreements to resell 36,791 44,339 27,017 23,807 13,115
Long-term securities purchased under agreements to resell 700,000 700,000 699,999 662,490 665,655
Interest earning deposits with banks 353,607 273,977 270,222 211,219 139,061
Other assets 1,119,454     1,145,200     1,157,289     1,122,230     1,106,528  
Total assets $ 24,522,263     $ 24,636,533     $ 24,963,453     $ 24,872,878     $ 25,042,733  
 
LIABILITIES AND EQUITY:
Non-interest bearing deposits $ 6,749,104 $ 6,824,700 $ 7,257,102 $ 7,135,703 $ 7,065,849
Savings 881,045 838,900 821,908 829,197 831,038
Interest checking and money market 10,850,123 10,737,829 10,416,221 10,387,212 10,667,042
Time open & C.D.’s of less than $100,000 609,011 625,319 644,951 667,710 688,047
Time open & C.D.’s of $100,000 and over 1,134,900     1,134,194     1,119,352     1,326,290     1,510,001  
Total deposits 20,224,183     20,160,942     20,259,534     20,346,112     20,761,977  
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase 1,339,278 1,560,573 1,625,828 1,500,987 1,363,031
Other borrowings 1,913     1,913     42,060     101,904     105,311  
Total borrowings 1,341,191 1,562,486 1,667,888 1,602,891 1,468,342
Other liabilities 229,080     198,398     312,172     251,714     203,139  
Total liabilities 21,794,454     21,921,826     22,239,594     22,200,717     22,433,458  
Equity 2,727,809     2,714,707     2,723,859     2,672,161     2,609,275  
Total liabilities and equity   $ 24,522,263     $ 24,636,533     $ 24,963,453     $ 24,872,878     $ 25,042,733  
 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE RATES


(Unaudited)

  For the Three Months Ended
 

June 30,
2018

 

March 31,
2018

 

December 31,
2017

 

September 30,
2017

 

June 30,

2017

ASSETS:        
Loans:
Business (1) 3.69 % 3.48 % 3.32 % 3.25 % 3.21 %
Real estate — construction and land 5.06 4.69 4.41 4.31 4.30
Real estate — business 4.22 4.06 3.90 3.85 3.74
Real estate — personal 3.84 3.80 3.72 3.72 3.72
Consumer 4.39 4.25 4.07 4.02 3.94
Revolving home equity 4.51 4.25 4.06 4.03 3.84
Consumer credit card 12.05 12.06 11.90 12.03 11.90
Overdrafts                  
Total loans 4.49     4.33     4.18     4.13     4.06  
Loans held for sale 6.72 6.45 5.55 5.36 5.75
Investment securities:
U.S. government and federal agency obligations 3.18 2.12 2.60 1.40 2.52
Government-sponsored enterprise obligations 1.88 1.84 1.69 1.61 1.59
State and municipal obligations (1) 3.06 3.06 3.60 3.57 3.61
Mortgage-backed securities 2.60 2.62 2.38 2.36 2.35
Asset-backed securities 2.32 2.11 1.94 1.82 1.72
Other debt securities 2.63     2.65     2.56     2.51     2.54  
Total available for sale debt securities 2.66 2.52 2.52 2.34 2.42
Trading debt securities (1) 3.15 2.73 2.63 2.51 2.70
Equity securities (1) 89.68 3.64 3.30 4.02 3.97
Other securities (1) 6.68     6.73     6.67     5.39     10.50  

Total investment securities

3.19     2.58     2.58     2.37     2.50  
Federal funds sold and short-term securities purchased under agreements to resell 1.93 1.65 1.35 1.30 1.13
Long-term securities purchased under agreements to resell 2.17 2.38 2.36 2.28 2.22
Interest earning deposits with banks 1.80     1.69     1.18     1.24     1.04  
Total interest earning assets 3.90     3.59     3.48     3.36     3.36  
 
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings .11 .12 .12 .12 .12
Interest checking and money market .23 .20 .17 .16 .15
Time open & C.D.’s of less than $100,000 .46 .43 .40 .40 .39
Time open & C.D.’s of $100,000 and over 1.23     1.02     .88     .83     .75  
Total interest bearing deposits .32     .28     .24     .24     .23  
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase 1.18 1.04 .83 .75 .60
Other borrowings 2.52     2.54     3.59     3.53     3.47  
Total borrowings 1.19     1.04     .90     .93     .81  
Total interest bearing liabilities .40 %   .36 %   .31 %   .31 %   .29 %
 
Net yield on interest earning assets   3.65 %   3.37 %   3.29 %   3.17 %   3.18 %

(1)

 

Stated on a tax equivalent basis using a federal income tax rate of 21% in 2018 and 35% in prior periods.

 
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,
2018

 

March 31,
2018

 

December 31,
2017

 

September 30,
2017

 

June 30,
2017

 

June 30,
2018

 

June 30,
2017

ALLOWANCE FOR LOAN LOSSES          
Balance at beginning of period $ 159,532 $   159,532 $   157,832 $   157,832 $   157,832 $   159,532 $   155,932
Provision for losses 10,043 10,396 12,654 10,704 10,758 20,439 21,886
Net charge-offs (recoveries):
Commercial portfolio:
Business 36 (14 ) 768 195 318 22 415
Real estate — construction and land (297 ) (36 ) (87 ) (362 ) (207 ) (333 ) (742 )
Real estate — business (40 )   (205 )   (48 )   (106 )   (10 )   (245 )   (49 )
(301 )   (255 )   633     (273 )   101     (556 )   (376 )
Personal banking portfolio:
Consumer credit card 8,251 7,566 7,724 7,631 7,750 15,817 14,898
Consumer 1,862 2,528 2,184 3,057 2,642 4,390 4,738
Overdraft 326 444 376 445 292 770 727
Real estate — personal (95 ) 57 (56 ) (137 ) (131 ) (38 ) (112 )
Revolving home equity     56     93     (19 )   104     56     111  
10,344     10,651     10,321     10,977     10,657     20,995     20,362  
Total net loan charge-offs 10,043     10,396     10,954     10,704     10,758     20,439     19,986  
Balance at end of period   $ 159,532     $   159,532     $   159,532     $   157,832     $   157,832     $   159,532     $   157,832  
NET CHARGE-OFF RATIOS*
Commercial portfolio:
Business % % .06 % .02 % .03 % % .02 %
Real estate — construction and land (.12 ) (.02 ) (.04 ) (.16 ) (.10 ) (.07 ) (.18 )
Real estate — business (.01 )   (.03 )   (.01 )   (.02 )       (.02 )    
(.01 )   (.01 )   .03     (.01 )       (.01 )   (.01 )
Personal banking portfolio:
Consumer credit card 4.39 4.05 4.05 4.09 4.25 4.22 4.06
Consumer .37 .49 .41 .59 .53 .43 .48
Overdraft 29.08 38.91 28.17 40.37 26.00 34.04 33.73
Real estate — personal (.02 ) .01 (.01 )

(.03

)

(.03 ) (.01 )
Revolving home equity     .06     .09    

(.02

)

 

.10

    .03     .06  
.79     .82     .77     .83     .83     .80     .80  
Total   .29 %   .30 %   .32 %   .31 %   .32 %   .30 %   .30 %
CREDIT QUALITY RATIOS
Non-performing assets to total loans .08 % .08 % .09 % .11 % .10 %
Non-performing assets to total assets .04 .05 .05 .06 .06
Allowance for loan losses to total loans   1.14     1.15     1.14     1.15     1.16  
NON-PERFORMING ASSETS
Non-accrual loans:
Business $ 5,114 $ 5,557 $ 5,947 $ 6,821 $ 6,330
Real estate — construction and land 5 5 5 533 544
Real estate — business 2,465 2,546 2,736 2,346 1,833
Real estate — personal 1,888 2,169 2,461 2,863 3,504
Consumer         834     1,077     1,151  
Total 9,472     10,277     11,983     13,640     13,362  
Foreclosed real estate 1,039     1,300     681     1,063     515  
Total non-performing assets $ 10,511     $   11,577     $   12,664     $   14,703     $   13,877  
Loans past due 90 days and still accruing interest   $ 13,453     $   14,928     $   18,127     $   16,464     $   14,630  

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

 

COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2018

For the quarter ended June 30, 2018, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $110.3 million, compared to $101.0 million in the previous quarter and $79.0 million in the same quarter last year. The increase in net income over the previous quarter was the result of 9.4% growth in net interest income and 4.3% growth in non-interest income. Non-interest expense declined $417 thousand, and the provision for loan losses also declined. Dividend income of $8.9 million was received on an equity investment that was liquidated, increasing net interest income this quarter. This income was offset by securities losses of a comparable amount resulting from the same transaction. Excluding the above dividend, the net interest margin increased 13 basis points this quarter to 3.50%. Quarterly average loans decreased slightly this quarter from the previous quarter, while average deposits increased $63.2 million. For the quarter, the return on average assets was 1.80%, the return on average common equity was 16.8%, and the efficiency ratio was 54.1%.

Balance Sheet Review

During the 2nd quarter of 2018, average loans totaled $13.9 billion, approximately the same as in the prior quarter, and grew $377.7 million, or 2.8%, over the same period last year. Compared to the previous quarter, average business and construction loans grew $27.6 million and $19.9 million, respectively. Personal real estate loans increased $16.9 million, while consumer loans declined $46.6 million this quarter. Within business loans, commercial and industrial loans grew $35.6 million but were offset by a decline in tax-free lending of $14.3 million and a slight decline in leasing activities. The growth in construction loans resulted from an increase in advances and new loans this quarter, offset by several larger loan paydowns. Customer demand for adjustable rate personal real estate loans retained by the Company resulted in the increase noted above. During the quarter, auto loans totaling $25.9 million were sold to another financial institution, which was a main factor in lower overall consumer loan totals. Also, home equity and marine/RV lending declined this quarter, but patient health care loans continued to increase and totaled $161.8 million at June 30, 2018. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $39.9 million, compared to $47.8 million in the prior quarter.

During the 2nd quarter of 2018, total average available for sale debt securities decreased $164.9 million from the previous quarter to $8.4 billion, at fair value. The decline in investment securities was mainly the result of lower average balances of municipal securities, government-sponsored obligations, and asset-backed securities, partially offset by increases in the average balances of mortgage-backed securities. Purchases of securities during the quarter totaled $469.8 million and were offset by sales, maturities and pay downs of $459.0 million. At June 30, 2018, the duration of the investment portfolio was 3.2 years, and maturities and pay downs of approximately $1.2 billion are expected to occur during the next 12 months.

Total average deposits increased $63.2 million this quarter compared to the previous quarter. The increase in average deposits resulted mainly from growth in interest checking (increase of $113.1 million), savings (increase of $42.1 million), and personal demand (increase of $26.9 million). Business demand and government demand accounts declined $68.0 million and $44.2 million, respectively, this quarter. Compared to the previous quarter, total average consumer and private banking deposits increased $74.7 million and $9.0 million respectively, while commercial banking deposits declined by $32.6 million. The average loans to deposits ratio was 68.9% in the current quarter and 69.1% in the prior quarter. The Company’s average borrowings totaled $1.3 billion, a decline of $221.3 million from the prior quarter’s balance.

Net Interest Income

Net interest income in the 2nd quarter of 2018 amounted to $211.0 million compared to $192.9 million in the previous quarter, an increase of $18.1 million. On a tax equivalent basis, net interest income for the current quarter increased $19.1 million over the previous quarter to $215.8 million. As noted previously, net interest income this quarter included a dividend of $8.9 million representing dividend income on a liquidated equity security which was carried at fair value. Excluding this item, the current quarter net yield on earning assets (tax equivalent) was 3.50%, compared to 3.37% in the previous quarter and 3.18% in the same period last year. Excluding this item, the increase in net interest income resulted mainly from higher rates on loan balances coupled with relatively stable funding costs. Also, inflation income on the Company’s treasury inflation-protected securities (TIPS) increased $2.5 million this quarter compared to the previous quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) increased $7.2 million as a result of higher loan yields, especially on commercial loans. The average tax-equivalent yield on the loan portfolio increased 16 basis points this quarter to 4.49%, compared to 4.33% in the previous quarter.

Interest income on investment securities (tax equivalent) increased $13.4 million over the previous quarter, mainly due to the item mentioned above and higher TIPs inflation income. Also, the adjustment for premium amortization expense on slowing prepayment speeds for mortgage-backed and asset-backed securities increased interest income $1.5 million this quarter, due to a higher overall interest rate environment. The premium amortization adjustment for the prior quarter totaled $1.5 million. Inflation income on TIPS totaled $4.5 million in the current quarter and $2.0 million in the previous quarter. The yield on total investment securities was 3.19% in the current quarter and 2.58% in the previous quarter.

Interest costs on deposits remained low and totaled 32 basis points in the 2nd quarter of 2018, compared to 28 basis points in the prior quarter. Interest expense on deposits increased $1.6 million this quarter compared to the previous quarter due mainly to higher rates on corporate interest checking and money market accounts, and short-term jumbo certificates of deposit. Borrowing costs decreased slightly this quarter mostly due to lower average balances, offset by higher average rates paid on customer repurchase agreements. The overall rate paid on interest bearing liabilities was .40%, compared to .36% in the prior quarter.

Non-Interest Income

In the 2nd quarter of 2018, total non-interest income amounted to $124.9 million, an increase of $9.5 million, or 8.2%, compared to the same period last year. Also, current quarter non-interest income increased $5.2 million compared to the prior quarter. The increase in non-interest income over the same period last year was mainly due to growth in bank card, swap, trust and deposit fee income.

Total bank card fees in the current quarter increased $5.9 million, or 15.9%, over the same period last year and increased $1.8 million compared to the prior quarter. The growth compared to the 2nd quarter of 2017 resulted mainly from growth in net debit card income and corporate card interchange income. Corporate card net fees grew $4.7 million over the same quarter last year mainly due to growth in interchange income of 14.2%, coupled with lower network but higher rewards costs. Debit card net fees grew $1.8 million mostly because of lower network processing costs. Overall net merchant income was down 10.0% compared to the same quarter last year, but was up 2.1% compared to the prior quarter. Total bank card fees this quarter were comprised of fees on corporate card ($24.6 million), debit card ($10.2 million), merchant ($4.9 million) and credit card ($3.5 million) transactions.

In the current quarter, trust fees increased $3.9 million, or 11.8%, over the same period last year, resulting mainly from growth in both private client and institutional trust fee income. Compared to the same period last year, deposit account fees increased $1.0 million, or 4.5%, mainly due to growth in corporate cash management fees.

During the 2nd quarter of 2018, swap fees totaled $1.7 million, an increase of $1.3 million over the same period last year, while loan fees declined $862 thousand, mainly on lower gains on sales of residential mortgages. Gains on sales of tax credits were solid this quarter and totaled $1.0 million, which was $304 thousand higher than the same period last year. Non-interest income this quarter included $844 thousand of losses on sales of real estate and write downs on software costs, compared to gains of $1.7 million on the on sales of real estate and leased assets in the 2nd quarter of 2017. Non-interest income comprised 37.2% of the Company’s total revenue this quarter which was down from the same quarter in the prior year but reflects strong growth in net interest income during the second quarter of 2018.

Investment Securities Gains and Losses

The Company recorded net securities losses of $3.1 million in the current quarter and net securities gains of $5.4 million in the prior quarter.  Net securities losses this quarter included private equity fair value gains of $3.8 million offset by an adjustment of $8.9 million (increasing losses) to recognize dividend income on a liquidated equity investment mentioned above.  Also, other fair value adjustments on other equity securities totaled $1.8 million this quarter.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $181.9 million, compared to $176.9 million in the same period last year and $182.3 million in the prior quarter. The 2.8% increase in expense over the same period last year was mainly due to higher costs for salaries and benefits and data processing, partly offset by lower operating costs for occupancy, supplies and communication, and community service.

Compared to the 2nd quarter of last year, salaries and benefits expense increased $6.8 million, or 6.2%. Salaries expense grew $5.8 million, mainly due to higher full-time salary costs and growth in incentive compensation, while benefits expense grew 6.4% mostly due to higher medical costs. Full-time equivalent employees totaled 4,797 and 4,805 at June 30, 2018 and 2017, respectively.

Data processing costs increased $981 thousand, or 4.9%, mainly due to higher processing and software costs, while costs for occupancy, supplies and communication, equipment, and deposit insurance declined a total of $1.3 million this quarter compared to the same quarter last year. Marketing costs increased 14.6%, or $654 thousand, mainly due to new bank card initiatives which are being funded by reduced bank card network costs. Also, community service costs declined $2.3 million due to higher foundation contributions made last year.

Income Taxes

The effective tax rate for the Company was 21.1% in the current quarter, 18.7% in the previous quarter, and 29.6% in the 2nd quarter of 2017.

Credit Quality

Net loan charge-offs in the 2nd quarter of 2018 amounted to $10.0 million, compared to $10.4 million in the prior quarter and $10.8 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .29% in the current quarter, compared to .30% in the previous quarter and .32% in the 2nd quarter of last year. During the 2nd quarter of 2018, the Company recorded net loan recoveries on commercial loans of $301 thousand, compared to net loan recoveries of $255 thousand in the prior quarter. Net loan charge-offs on personal banking loans totaled $10.3 million in the current quarter and $10.7 million in the previous quarter.

In the 2nd quarter of 2018, annualized net loan charge-offs on average consumer credit card loans were 4.39%, compared to 4.05% in the previous quarter, and 4.25% in the same quarter last year. Consumer loan net charge-offs were .37% of average consumer loans in the current quarter, .49% in the prior quarter and .53% in the same quarter last year. This quarter, the provision for loan losses equaled net loan charge-offs, and at June 30, 2018, the allowance totaled $159.5 million, or 1.14% of total loans.

At June 30, 2018, total non-performing assets amounted to $10.5 million, a $1.1 million decrease from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($9.5 million and $1.0 million, respectively). At June 30, 2018, the balance of non-accrual loans, which represented .07% of loans outstanding, included business loans of $5.1 million, business real estate loans of $2.5 million, and personal real estate loans of $1.9 million. Loans more than 90 days past due and still accruing interest totaled $13.5 million at June 30, 2018.

Other

During the 2nd quarter of 2018, the Company paid a cash dividend of $.235 per common share, representing a 9.8% increase over the same period last year. The Company also paid an annualized 6% cash dividend on its preferred stock. The Company purchased 31,764 shares of treasury stock during the current quarter at an average price of $63.02.

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.

More news and information about Commerce Bancshares, Inc.

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Business Wire: 11:00 GMT Thursday 12th July 2018

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