1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000
FOR IMMEDIATE RELEASE:
Tuesday, October 20, 2020
COMMERCE BANCSHARES, INC. REPORTS
THIRD QUARTER EARNINGS PER SHARE OF $1.11
Commerce Bancshares, Inc. announced earnings of $1.11 per common share for the three months ended September 30, 2020, compared to $.93 per share in the same quarter last year and $.34 per share in the prior quarter. Net income attributable to Commerce Bancshares, Inc. (net income) for the third quarter of 2020 amounted to $132.4 million, compared to $109.2 million in the third quarter of 2019 and $39.9 million in the prior quarter. For the quarter, the return on average assets was 1.71%, the return on average common equity was 15.21% and the efficiency ratio was 55.0%.
For the nine months ended September 30, 2020, earnings per common share totaled $1.89 compared to $2.65 for the first nine months of 2019. Net income amounted to $224.2 million for the nine months ended September 30, 2020 compared to $314.4 million in the same period last year. Year to date, the return on average assets was 1.04% and the return on average common equity was 8.93%.
In announcing these results, John Kemper, Chief Executive Officer, said, “We are pleased to report a healthy rebound in earnings this quarter. Net income grew significantly compared to the second quarter, driven by low provision expense and by increases in net interest income, fee income, and investment securities gains. Compared to the prior quarter, net interest income grew $12.9 million supported by our larger balance sheet and historically low funding costs. Fee income from our bank card, trust and mortgage banking businesses rebounded nicely from the prior quarter. While our bank card fees have not yet fully recovered from the impact of COVID-19, trust and mortgage banking fees were at record levels. Prudent expense management remains in focus as we prepare for a prolonged low interest rate environment. We continued our efforts of providing relief to customers who have been impacted by COVID-19. Loans on active deferral declined significantly throughout the quarter. Fewer customers requested first-time relief, and just a small percentage of our customers required extensions of their initial relief requests. We remain cautiously optimistic about the recovery of the economy and are encouraged by the resiliency of our customers and communities.”
Mr. Kemper continued, “Net loan charge-offs this quarter totaled $7.6 million, compared to $8.4 million in the prior quarter and $11.5 million in the third quarter of 2019. The ratio of annualized net loan charge-offs to average loans was .18% in the current quarter, .21% in the prior quarter and .32% in the third quarter of last year. Net loan charge-offs on commercial loans totaled $194 thousand this quarter compared to $3.2 million in the prior quarter. Net loan charge-offs on personal banking loans increased $2.2 million to $7.4 million. Non-performing assets increased this quarter from $23.1 million to $40.3 million. At September 30, 2020, the allowance for credit losses on loans decreased slightly to $236.4 million, partly due to an improved economic forecast utilized in our CECL model compared to the prior quarter.”
Total assets at September 30, 2020 were $31.5 billion, total loans were $16.4 billion, and total deposits were $25.7 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 2019, and also paid an annualized 6% cash dividend on its preferred stock. On September 1, 2020, the Company redeemed all outstanding shares of its preferred stock.
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, 2020
June 30, 2020
September 30, 2019
September 30, 2020
September 30, 2019
FINANCIAL SUMMARY
Net interest income
$215,962
$203,057
$203,512
$620,084
$618,634
Non-interest income
129,572
117,515
132,743
370,750
381,242
Total revenue
345,534
320,572
336,255
990,834
999,876
Investment securities gains (losses), net
16,155
(4,129)
4,909
(1,275)
3,874
Provision for credit losses
3,101
80,539
10,963
141,593
35,232
Non-interest expense
190,858
187,512
191,020
572,068
572,224
Income before taxes
167,730
48,392
139,181
275,898
396,294
Income taxes
34,375
9,661
29,101
54,209
80,860
Non-controlling interest (income) expense
907
(1,132)
838
(2,479)
1,083
Net income attributable to Commerce Bancshares, Inc.
132,448
39,863
109,242
224,168
314,351
Preferred stock dividends
7,466
2,250
2,250
11,966
6,750
Net income available to common shareholders
$124,982
$37,613
$106,992
$212,202
$307,601
Earnings per common share:
Net income — basic
$1.12
$.34
$.93
$1.90
$2.65
Net income — diluted
$1.11
$.34
$.93
$1.89
$2.65
Effective tax rate
20.61
%
19.51
%
21.04
%
19.47
%
20.46
%
Tax equivalent net interest income
$219,118
$206,253
$206,958
$629,773
$629,265
Average total interest earning assets (1)
$
29,352,970
$
28,193,312
$
23,947,084
$
27,419,514
$
23,920,745
Diluted wtd. average shares outstanding
110,899,197
110,896,858
113,249,070
111,056,754
114,758,916
RATIOS
Average loans to deposits (2)
66.23
%
69.22
%
72.48
%
69.12
%
71.47
%
Return on total average assets
1.71
.54
1.72
1.04
1.68
Return on average common equity (3)
15.21
4.77
14.21
8.93
14.11
Non-interest income to total revenue
37.50
36.66
39.48
37.42
38.13
Efficiency ratio (4)
55.00
58.10
56.66
57.37
57.08
Net yield on interest earning assets
2.97
2.94
3.43
3.07
3.52
EQUITY SUMMARY
Cash dividends per common share
$.270
$.270
$.248
$.810
$.744
Cash dividends on common stock
$30,174
$30,174
$27,993
$90,640
$85,533
Cash dividends on preferred stock (7)
$7,466
$2,250
$2,250
$11,966
$6,750
Book value per common share (5)
$29.64
$28.81
$26.27
Market value per common share (5)
$56.29
$59.47
$57.76
High market value per common share
$62.09
$69.77
$58.90
Low market value per common share
$53.03
$48.06
$52.05
Common shares outstanding (5)
111,532,580
111,533,315
112,732,983
Tangible common equity to tangible assets (6)
10.11
%
10.12
%
10.95
%
Tier I leverage ratio
9.39
%
9.88
%
11.32
%
OTHER QTD INFORMATION
Number of bank/ATM locations
308
312
316
Full-time equivalent employees
4,825
4,856
4,873
(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).
(7)For the period ended September 30, 2020, preferred stock dividends includes $5.2 million related to the preferred stock redemption. The $5.2 million is the excess of the redemption costs over the book value of the preferred stock and is considered a dividend.
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
For the Nine Months Ended
(Unaudited) (In thousands, except per share data)
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
September 30, 2020
September 30, 2019
Interest income
$223,114
$213,323
$221,485
$226,665
$231,743
$657,922
$698,020
Interest expense
7,152
10,266
20,420
24,006
28,231
37,838
79,386
Net interest income
215,962
203,057
201,065
202,659
203,512
620,084
618,634
Provision for credit losses
3,101
80,539
57,953
15,206
10,963
141,593
35,232
Net interest income after credit losses
212,861
122,518
143,112
187,453
192,549
478,491
583,402
NON-INTEREST INCOME
Bank card transaction fees
37,873
33,745
40,200
41,079
44,510
111,818
126,800
Trust fees
40,769
37,942
39,965
40,405
39,592
118,676
115,223
Deposit account charges and other fees
23,107
22,279
23,677
24,974
24,032
69,063
71,009
Capital market fees
3,194
3,772
3,790
2,536
1,787
10,756
5,610
Consumer brokerage services
4,011
3,011
4,077
4,139
4,030
11,099
11,665
Loan fees and sales
9,769
4,649
3,235
3,465
4,755
17,653
12,302
Other
10,849
12,117
8,719
26,863
14,037
31,685
38,633
Total non-interest income
129,572
117,515
123,663
143,461
132,743
370,750
381,242
INVESTMENT SECURITIES GAINS (LOSSES), NET
16,155
(4,129)
(13,301)
(248)
4,909
(1,275)
3,874
NON-INTEREST EXPENSE
Salaries and employee benefits
127,308
126,759
128,937
126,901
123,836
383,004
366,026
Net occupancy
12,058
11,269
11,748
12,218
12,293
35,075
34,939
Equipment
4,737
4,755
4,821
4,859
4,941
14,313
14,202
Supplies and communication
4,141
4,427
4,658
4,851
5,106
13,226
15,543
Data processing and software
23,610
23,837
23,555
23,934
23,457
71,002
68,965
Marketing
4,926
3,801
5,979
3,951
6,048
14,706
17,963
Other
14,078
12,664
14,000
18,460
15,339
40,742
54,586
Total non-interest expense
190,858
187,512
193,698
195,174
191,020
572,068
572,224
Income before income taxes
167,730
48,392
59,776
135,492
139,181
275,898
396,294
Less income taxes
34,375
9,661
10,173
28,214
29,101
54,209
80,860
Net income
133,355
38,731
49,603
107,278
110,080
221,689
315,434
Less non-controlling interest expense (income)
907
(1,132)
(2,254)
398
838
(2,479)
1,083
Net income attributable to Commerce Bancshares, Inc.
132,448
39,863
51,857
106,880
109,242
224,168
314,351
Less preferred stock dividends
7,466
2,250
2,250
2,250
2,250
11,966
6,750
Net income available to common shareholders
$124,982
$37,613
$49,607
$104,630
$106,992
$212,202
$307,601
Net income per common share — basic
$1.12
$.34
$.44
$.94
$.93
$1.90
$2.65
Net income per common share — diluted
$1.11
$.34
$.44
$.93
$.93
$1.89
$2.65
OTHER INFORMATION
Return on total average assets
1.71
%
.54
%
.80
%
1.65
%
1.72
%
1.04
%
1.68
%
Return on average common equity (1)
15.21
4.77
6.48
13.90
14.21
8.93
14.11
Efficiency ratio (2)
55.00
58.10
59.17
56.29
56.66
57.37
57.08
Effective tax rate
20.61
19.51
16.40
20.88
21.04
19.47
20.46
Net yield on interest earning assets
2.97
2.94
3.33
3.36
3.43
3.07
3.52
Tax equivalent net interest income
$219,118
$206,253
$204,402
$206,156
$206,958
$629,773
$629,265
(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, 2020
June 30, 2020
September 30, 2019
ASSETS
Loans
Business
$
6,683,413
$
6,858,217
$
5,393,268
Real estate — construction and land
1,009,729
932,022
932,737
Real estate — business
2,993,192
2,941,163
2,833,146
Real estate — personal
2,753,867
2,690,542
2,226,663
Consumer
2,006,360
1,966,707
1,953,690
Revolving home equity
324,203
334,627
349,111
Consumer credit card
647,893
666,597
766,743
Overdrafts
2,270
5,179
7,236
Total loans
16,420,927
16,395,054
14,462,594
Allowance for credit losses on loans
(236,360)
(240,744)
(160,682)
Net loans
16,184,567
16,154,310
14,301,912
Loans held for sale
39,483
12,785
20,064
Investment securities:
Available for sale debt securities
11,539,061
10,317,427
8,660,419
Trading debt securities
25,805
28,813
35,918
Equity securities
4,203
4,128
4,186
Other securities
122,532
117,761
147,211
Total investment securities
11,691,601
10,468,129
8,847,734
Federal funds sold and short-term securities purchased under agreements to resell
2,275
—
2,850
Long-term securities purchased under agreements to resell
850,000
850,000
850,000
Interest earning deposits with banks
1,171,697
1,404,968
344,129
Cash and due from banks
357,616
391,268
512,254
Premises and equipment — net
377,853
368,565
365,949
Goodwill
138,921
138,921
138,921
Other intangible assets — net
7,183
7,179
9,139
Other assets
632,621
699,996
483,527
Total assets
$
31,453,817
$
30,496,121
$
25,876,479
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing
$
10,727,827
$
9,700,261
$
6,816,527
Savings, interest checking and money market
12,983,505
12,792,993
11,424,404
Certificates of deposit of less than $100,000
556,870
590,635
627,630
Certificates of deposit of $100,000 and over
1,433,577
1,443,078
1,441,590
Total deposits
25,701,779
24,526,967
20,310,151
Federal funds purchased and securities sold under agreements to repurchase
1,653,064
1,740,438
1,641,274
Other borrowings
782
1,475
257,383
Other liabilities
791,928
869,072
561,657
Total liabilities
28,147,553
27,137,952
22,770,465
Stockholders’ equity:
Preferred stock
—
144,784
144,784
Common stock
563,978
563,978
559,432
Capital surplus
2,140,410
2,136,874
2,042,643
Retained earnings
326,890
232,082
463,231
Treasury stock
(69,050)
(69,112)
(251,663)
Accumulated other comprehensive income
343,435
349,261
144,173
Total stockholders’ equity
3,305,663
3,357,867
3,102,600
Non-controlling interest
601
302
3,414
Total equity
3,306,264
3,358,169
3,106,014
Total liabilities and equity
$
31,453,817
$
30,496,121
$
25,876,479
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS
(Unaudited) (In thousands)
For the Three Months Ended
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
ASSETS:
Loans:
Business
$
6,709,200
$
6,760,827
$
5,493,657
$
5,362,020
$
5,263,312
Real estate — construction and land
974,346
895,648
924,086
901,367
920,206
Real estate — business
2,989,652
2,962,076
2,853,632
2,820,189
2,883,379
Real estate — personal
2,722,300
2,582,484
2,390,716
2,283,530
2,175,156
Consumer
1,992,314
1,944,265
1,950,491
1,961,631
1,924,434
Revolving home equity
329,361
343,210
350,256
347,527
354,040
Consumer credit card
646,185
663,911
727,569
749,056
763,377
Overdrafts
2,689
2,912
4,044
18,322
9,240
Total loans
16,366,047
16,155,333
14,694,451
14,443,642
14,293,144
Allowance for credit losses on loans
(240,286)
(171,616)
(139,482)
(159,776)
(160,387)
Net loans
16,125,761
15,983,717
14,554,969
14,283,866
14,132,757
Loans held for sale
24,728
6,363
12,875
15,363
19,882
Investment securities:
U.S. government and federal agency obligations
770,361
776,240
802,556
826,702
825,544
Government-sponsored enterprise obligations
102,749
114,518
134,296
184,973
181,929
State and municipal obligations
1,767,526
1,285,427
1,222,595
1,207,584
1,172,259
Mortgage-backed securities
6,259,926
5,325,720
4,685,782
4,685,794
4,712,508
Asset-backed securities
1,520,988
1,342,518
1,182,556
1,258,297
1,297,685
Other debt securities
514,166
406,665
321,733
331,167
334,218
Unrealized gain (loss) on debt securities
368,154
281,457
191,275
149,591
152,706
Total available for sale debt securities
11,303,870
9,532,545
8,540,793
8,644,108
8,676,849
Trading debt securities
27,267
31,981
34,055
32,518
29,622
Equity securities
4,193
4,137
4,273
4,200
4,705
Other securities
120,253
139,250
144,096
141,501
134,896
Total investment securities
11,455,583
9,707,913
8,723,217
8,822,327
8,846,072
Federal funds sold and short-term securities purchased under agreements to resell
337
92
326
714
1,080
Long-term securities purchased under agreements to resell
849,994
850,000
850,000
849,986
713,030
Interest earning deposits with banks
1,024,435
1,755,068
601,420
390,134
226,582
Other assets
1,389,683
1,461,528
1,368,464
1,315,395
1,292,191
Total assets
$
30,870,521
$
29,764,681
$
26,111,271
$
25,677,785
$
25,231,594
LIABILITIES AND EQUITY:
Non-interest bearing deposits
$
9,801,562
$
8,843,408
$
6,615,108
$
6,552,862
$
6,290,036
Savings
1,193,079
1,111,397
952,709
924,282
924,581
Interest checking and money market
11,731,494
11,441,694
10,777,400
10,618,347
10,409,111
Certificates of deposit of less than $100,000
573,207
605,136
622,840
626,944
620,138
Certificates of deposit of $100,000 and over
1,447,968
1,346,069
1,299,443
1,434,309
1,503,805
Total deposits
24,747,310
23,347,704
20,267,500
20,156,744
19,747,671
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase
1,855,971
1,991,971
1,990,051
1,836,982
1,884,939
Other borrowings
1,225
345,162
161,698
94,471
77,248
Total borrowings
1,857,196
2,337,133
2,151,749
1,931,453
1,962,187
Other liabilities
899,890
763,524
466,980
458,094
390,560
Total liabilities
27,504,396
26,448,361
22,886,229
22,546,291
22,100,418
Equity
3,366,125
3,316,320
3,225,042
3,131,494
3,131,176
Total liabilities and equity
$
30,870,521
$
29,764,681
$
26,111,271
$
25,677,785
$
25,231,594
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE RATES
(Unaudited)
For the Three Months Ended
September 30, 2020
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
ASSETS:
Loans:
Business(1)
2.95
%
2.91
%
3.50
%
3.59
%
3.85
%
Real estate — construction and land
3.74
3.95
4.78
5.05
5.46
Real estate — business
3.53
3.71
4.16
4.22
4.42
Real estate — personal
3.56
3.69
3.83
3.85
3.91
Consumer
4.19
4.48
4.78
4.76
4.88
Revolving home equity
3.29
3.50
4.61
4.76
5.17
Consumer credit card
11.40
11.76
12.26
12.11
12.42
Overdrafts
—
—
—
—
—
Total loans
3.69
3.80
4.39
4.47
4.71
Loans held for sale
4.25
8.03
6.15
5.32
6.15
Investment securities:
U.S. government and federal agency obligations
3.71
.46
2.09
2.16
2.36
Government-sponsored enterprise obligations
2.17
3.51
4.19
2.17
2.69
State and municipal obligations(1)
2.53
2.97
3.11
3.05
3.14
Mortgage-backed securities
1.95
2.17
2.37
2.72
2.61
Asset-backed securities
1.90
2.25
2.63
2.62
2.80
Other debt securities
2.35
2.49
2.94
2.82
2.63
Total available for sale debt securities
2.18
2.18
2.54
2.69
2.69
Trading debt securities(1)
1.66
2.93
2.52
2.81
2.91
Equity securities (1)
47.15
48.42
46.78
49.40
35.67
Other securities (1)
6.74
4.36
5.31
6.58
6.19
Total investment securities
2.24
2.24
2.61
2.78
2.76
Federal funds sold and short-term securities purchased under agreements to resell
—
—
2.47
2.22
2.57
Long-term securities purchased under agreements to resell
5.26
5.08
3.53
2.26
2.01
Interest earning deposits with banks
.10
.10
.86
1.61
2.17
Total interest earning assets
3.07
3.09
3.66
3.75
3.90
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings
.09
.09
.11
.11
.11
Interest checking and money market
.10
.13
.30
.35
.38
Certificates of deposit of less than $100,000
.71
.93
1.15
1.16
1.11
Certificates of deposit of $100,000 and over
.69
1.08
1.62
1.79
1.99
Total interest bearing deposits
.18
.25
.45
.52
.58
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase
.09
.12
.96
1.20
1.74
Other borrowings
—
.82
.82
2.05
2.33
Total borrowings
.09
.22
.95
1.25
1.76
Total interest bearing liabilities
.17
%
.25
%
.52
%
.61
%
.73
%
Net yield on interest earning assets
2.97
%
2.94
%
3.33
%
3.36
%
3.43
%
(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, 2020
June 30, 2020
March 31, 2020
December 31, 2019
September 30, 2019
September 30, 2020
September 30, 2019
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period
$
240,744
$
171,653
$
160,682
$
160,682
$
161,182
$
160,682
$
159,932
Adoption of ASU 2016-13
—
—
(21,039)
—
—
(21,039)
—
Provision for credit losses on loans
3,200
77,491
42,868
15,206
10,963
123,559
35,232
Net charge-offs (recoveries):
Commercial portfolio:
Business
208
3,249
(373)
3,036
335
3,084
1,066
Real estate — construction and land
(1)
—
—
—
—
(1)
(117)
Real estate — business
(13)
(6)
(21)
35
(44)
(40)
(95)
194
3,243
(394)
3,071
291
3,043
854
Personal banking portfolio:
Consumer credit card
7,263
3,584
9,157
8,829
8,568
20,004
26,592
Consumer
211
1,362
1,711
2,838
2,069
3,284
5,716
Overdraft
200
316
426
507
446
942
1,016
Real estate — personal
(198)
(71)
(4)
6
(30)
(273)
50
Revolving home equity
(86)
(34)
(38)
(45)
119
(158)
254
7,390
5,157
11,252
12,135
11,172
23,799
33,628
Total net loan charge-offs
7,584
8,400
10,858
15,206
11,463
26,842
34,482
Balance at end of period
$
236,360
$
240,744
$
171,653
$
160,682
$
160,682
$
236,360
$
160,682
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
$
35,200
$
35,299
$
32,250
$
1,075
$
1,075
NET CHARGE-OFF RATIOS (1)
Commercial portfolio:
Business
.01
%
.19
%
(.03
%)
.22
%
.03
%
.07
%
.03
%
Real estate — construction and land
—
—
—
—
—
—
(.02)
Real estate — business
—
—
—
—
(.01)
—
—
.01
.12
(.02)
.13
.01
.04
.01
Personal banking portfolio:
Consumer credit card
4.47
2.17
5.06
4.68
4.45
3.93
4.62
Consumer
.04
.28
.35
.57
.43
.22
.40
Overdraft
29.59
43.65
42.37
10.98
19.15
39.16
22.16
Real estate — personal
(.03)
(.01)
—
—
(.01)
(.01)
—
Revolving home equity
(.10)
(.04)
(.04)
(.05)
.13
(.06)
.09
.52
.37
.83
.90
.85
.57
.86
Total
.18
%
.21
%
.30
%
.42
%
.32
%
.23
%
.33
%
CREDIT QUALITY RATIOS
Non-performing assets to total loans
.25
%
.14
%
.07
%
.07
%
.08
%
Non-performing assets to total assets
.13
.08
.04
.04
.05
Allowance for credit losses on loans to total loans(2)
1.44
1.47
1.14
1.09
1.11
NON-PERFORMING ASSETS
Non-accrual loans:
Business
$
37,295
$
19,034
$
7,356
$
7,489
$
7,753
Real estate — construction and land
1
1
2
2
3
Real estate — business
1,063
1,921
1,532
1,030
2,359
Real estate — personal
1,911
1,679
1,743
1,699
1,618
Total
40,270
22,635
10,633
10,220
11,733
Foreclosed real estate
57
422
422
365
502
Total non-performing assets
$
40,327
$
23,057
$
11,055
$
10,585
$
12,235
Loans past due 90 days and still accruing interest
$
14,436
$
24,583
$
16,520
$
19,859
$
16,308
(1) As a percentage of average loans (excluding loans held for sale).
(2) Excluding PPP loans, the allowance for credit losses on loans to total loans was 1.59% and 1.62% as of September 30, 2020 and June 30, 2020, respectively.
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2020
For the quarter ended September 30, 2020, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $132.4 million, compared to $39.9 million in the previous quarter and $109.2 million in the same quarter last year. The increase in net income over the previous quarter was primarily the result of a significant decrease in the provision for credit losses, coupled with higher net securities gains, net interest income and non-interest income, partly offset by higher income taxes. The economic forecast used to estimate the allowance for credit losses in September was slightly more optimistic than the forecast utilized in June, which resulted in no additional increase to the allowance for credit losses as of September 30, 2020, and significantly decreased the provision for credit losses this quarter, compared to the prior quarter. Net interest income increased this quarter and the net interest margin increased three basis points, partly due to an increase of $6.3 million in inflation income on our Treasury inflation-protected securities (TIPs). Excluding TIPs inflation income, the net yield on interest earning assets declined five basis points. Average loans increased $210.7 million over the previous quarter, while average available for sale investment securities grew $1.8 billion, and average deposits increased $1.4 billion. For the quarter, the return on average assets was 1.71%, the return on average common equity was 15.21%, and the efficiency ratio was 55.0%.
Balance Sheet Review
During the 3rd quarter of 2020, average loans totaled $16.4 billion, and increased $210.7 million over the prior quarter, and grew $2.1 billion, or 14.5%, over the same quarter last year. Period end loans grew $25.9 million over the prior quarter and $2.0 billion over September 30, 2019. Compared to the previous quarter, average loan growth was primarily driven by increases in personal real estate, construction and land, and consumer loans of $139.8 million, $78.7 million, and $48.0 million, respectively. This growth was partly offset by a decline in business loans of $51.6 million. The period-end balance of Paycheck Protection Loans (PPP) loans (included in business loans) was approximately $1.5 billion at both September 30, 2020 and June 30, 2020, but the average PPP loan balance at September 30, 2020 increased $261.6 million compared to the prior quarter. Growth in personal real estate loan balances was due to a continuation of strong demand for residential mortgage loans in this low interest rate environment. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $98.9 million, compared to $832 thousand in the prior quarter.
Total average available for sale debt securities increased $1.8 billion over the previous quarter to $11.3 billion, at fair value. The increase in investment securities was mainly the result of growth in mortgage-backed and state and municipal securities. During the quarter, purchases of securities totaled $2.3 billion with a weighted average yield of approximately 1.42%. Sales, maturities and pay downs were $1.0 billion. At September 30, 2020, the duration of the investment portfolio was 3.4 years, and maturities and pay downs of approximately $1.7 billion are expected to occur during the next 12 months.
Total average deposits increased $1.4 billion this quarter compared to the previous quarter. The increase in deposits resulted from growth in demand ($958.2 million), interest checking and money market ($289.8 million), savings deposits ($81.7 million), and certificates of deposit ($70.0 million). Compared to the previous quarter, total average commercial, consumer and wealth deposits (including private banking) grew $840.8 million, $237.5 million and $286.1 million, respectively.
The average loans to deposits ratio was 66.2% in the current quarter and 69.2% in the prior quarter. The Company’s average borrowings, which includes customer repurchase agreements, were $1.9 billion in the 3rd quarter of 2020 and $2.3 billion in the prior quarter.
Net Interest Income
Net interest income in the 3rd quarter of 2020 amounted to $216.0 million, an increase of $12.9 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter increased $12.9 million over the previous quarter to $219.1 million. The increase in net interest income was mainly due to higher income on interest earning assets, supplemented by lower interest expense on interest bearing liabilities. The Company recorded a $1.0 million adjustment to premium amortization on mortgage-backed securities for prepayment speed changes, which increased interest income this quarter. The net yield on earning assets (tax equivalent) increased to 2.97%, compared to 2.94% in the prior quarter.
Compared to the previous quarter, interest income on loans (tax equivalent) decreased $794 thousand, mostly as a result of lower yields on loans, mainly business real estate and consumer banking loans, and lower average balances of consumer credit card loans. Growth in average personal real estate, construction and consumer loan balances and higher yields on business loans increased net interest income and partially offset the impact of lower yields. The average tax-equivalent yield on the loan portfolio declined to 3.69%, compared to 3.80% in the previous quarter.
Interest income on investment securities (tax equivalent) increased $10.1 million over the previous quarter, mainly due to higher average balances. Decreasing rates on the investment securities portfolio were entirely offset by higher interest income earned on U.S. government and federal agency securities as TIPs inflation income grew $6.3 million this quarter. The yield on total investment securities was 2.24% in both the current and previous quarters.
Interest costs on deposits totaled 18 basis points in the 3rd quarter of 2020, compared to 25 basis points in the prior quarter. Interest expense on deposits decreased $2.2 million this quarter compared to the previous quarter mainly due to lower rates paid on all deposit categories. Borrowing costs decreased $880 thousand this quarter due to lower average balances of Federal Home Loan Bank borrowings and lower rates paid on borrowings, mainly securities sold under agreements to repurchase. The overall rate paid on interest bearing liabilities was .17% in the current quarter, compared to .25% in the prior quarter.
Non-Interest Income
In the 3rd quarter of 2020, total non-interest income amounted to $129.6 million, a decrease of $3.2 million, or 2.4%, compared to the same period last year and increased $12.1 million, or 10.3%, compared to the prior quarter. The decrease in non-interest income from the same period last year was mainly due to lower bank card fees, partly offset by growth in loan fees and sales.
Total net bank card fees in the current quarter decreased $6.6 million, or 14.9%, from the same period last year, and increased $4.1 million, or 12.2%, compared to the prior quarter. Net corporate card fees decreased $5.6 million from the same quarter of last year mainly due to lower transaction volume. Net debit card fees decreased $769 thousand, or 7.3%, mainly due to lower
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2020
interchange income. Net merchant income increased $56 thousand, or 1.2%, while net credit card fees decreased $283 thousand, or 7.8%, due to lower fee income, partly offset by lower rewards expense. Total net bank card fees this quarter were comprised of fees on corporate card ($20.2 million), debit card ($9.7 million), merchant ($4.6 million) and credit card ($3.4 million) transactions.
In the current quarter, trust fees increased $1.2 million, or 3.0%, over the same period last year, resulting from higher private client fee income. Compared to the same period last year, deposit account fees decreased $925 thousand, or 3.8%, mainly due to lower overdraft and return item fees, partly offset by an increase in corporate cash management fees. Additionally, capital market fees grew $1.4 million, or 78.7%, while loan fees and sales, mostly mortgage banking revenue, grew $5.0 million, or 105.4%, over amounts recorded in the same quarter last year.
Other non-interest income decreased in the 3rd quarter of 2020 compared to the previous quarter mainly due to lower cash sweep commissions, swap fees, and gains on sales of assets. These decreases were partly offset by increases in tax credit sales fees. For the 3rd quarter of 2020, non-interest income comprised 37.5% of the Company’s total revenue.
Investment Securities Gains and Losses
The Company recorded net securities gains of $16.2 million in the current quarter, compared to losses of $4.1 million in the prior quarter and gains of $4.9 million in the 3rd quarter of 2019. Net securities gains in the current quarter primarily resulted from gains of $13.4 million on the sales of mortgage-backed securities coupled with unrealized gains of $2.4 million in the Company’s private equity investment portfolio.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $190.9 million, compared to $191.0 million in the same period last year and $187.5 million in the prior quarter. The decrease in non-interest expense compared to the same period last year was mainly due to lower travel and entertainment, marketing, and supplies and communication expense. These decreases were partially offset by higher salaries and employee benefits expense.
Compared to the 3rd quarter of last year, salaries and employee benefits expense increased $3.5 million, or 2.8%, driven mainly by growth in full-time salary costs, incentive compensation expense, and medical costs. Full-time equivalent employees totaled 4,825 and 4,873 at September 30, 2020 and 2019, respectively.
For the current quarter compared to the same quarter of last year, marketing expense decreased $1.1 million, or 18.6%. Supplies and communication expense decreased $965 thousand due to lower supplies, postage and bank card issuance expense. Other non-interest expense decreased mainly due to a $2.9 million decrease in travel and entertainment expense. FDIC insurance expense, also within other non-interest expense, increased due to higher deposit balances during the current quarter than in the 3rd quarter of 2019.
Income Taxes
The effective tax rate for the Company was 20.6% in the current quarter, 19.5% in the previous quarter, and 21.0% in the 3rd quarter of 2019.
Credit Quality
Net loan charge-offs in the 3rd quarter of 2020 amounted to $7.6 million, compared to $8.4 million in the prior quarter and $11.5 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .18% in the current quarter, .21% in the previous quarter, and .32% in the 3rd quarter of last year. Compared to the prior quarter, net loan charge-offs on commercial loans decreased $3.0 million to $194 thousand, while net loan charge-offs on personal banking loans increased $2.2 million to $7.4 million.
In the 3rd quarter of 2020, annualized net loan charge-offs on average consumer credit card loans were 4.47%, compared to 2.17% in the previous quarter, and 4.45% in the same quarter last year. Consumer loan net charge-offs were .04% of average consumer loans in the current quarter, .28% in the prior quarter and .43% in the same quarter last year.
This quarter, the provision for credit losses on loans totaled $3.2 million and was $4.4 million lower than net loan charge-offs. At September 30, 2020, the allowance for credit losses on loans totaled $236.4 million, or 1.44% of total loans and 1.59% of total loans excluding PPP loans. Additionally, the liability for unfunded lending commitments at September 30, 2020 was $35.2 million.
At September 30, 2020, total non-performing assets amounted to $40.3 million, an increase of $17.3 million over the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($40.3 million and $57 thousand, respectively). At September 30, 2020, the balance of non-accrual loans, which represented .25% of loans outstanding, included business loans of $37.3 million, business real estate loans of $1.1 million, and personal real estate loans of $1.9 million. Loans more than 90 days past due and still accruing interest totaled $14.4 million at September 30, 2020.
Other
During the 3rd 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. On September 1, 2020, the Company redeemed all outstanding shares of its Series B preferred stock.
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.