1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000
FOR IMMEDIATE RELEASE:
Wednesday, January 19, 2022
COMMERCE BANCSHARES, INC. REPORTS
FOURTH QUARTER EARNINGS PER SHARE OF $.94
Commerce Bancshares, Inc. announced earnings of $.94 per share for the three months ended December 31, 2021, compared to $1.05 per common share in the same quarter last year and $.99 per share in the third quarter of 2021. Net income attributable to Commerce Bancshares, Inc. (net income) for the fourth quarter of 2021 amounted to $114.9 million, compared to $129.9 million in the fourth quarter of 2020 and $122.6 million in the prior quarter.
In announcing these results, John Kemper, Chief Executive Officer, said, “Commerce had a strong quarter to close out 2021, reflecting a growing economy and a resilient customer base. Trust fees were up 16.5% over the fourth quarter of 2020, driven by rising market values, excellent customer attraction and retention, and the ongoing investments we’ve made in our wealth business. Corporate and retail spending levels continued to increase, amounting to growth of 12% in bank card transaction fees over the same period last year.
The growth in our fee-based businesses continues to provide strong revenue diversification. Non-interest income comprised 42% of total revenue in the fourth quarter. Compared to the previous quarter, we experienced higher loan demand, a reflection of accelerating business activity in our markets. We continue to be confident in our strong liquidity, capital levels, and credit quality, and we continue to invest in our excellent relationships with customers, teammates, shareholders, and regulators.”
Fourth Quarter 2021 Financial Highlights:
•Net interest income in the fourth quarter amounted to $207.7 million, a 3.0% decrease compared to the third quarter, partly due to a $5.3 million decrease in interest income from Paycheck Protection Program (PPP) loans. The net interest margin decreased 15 basis points from the prior quarter to 2.43%.
•Non-interest income totaled $147.7 million in the fourth quarter, an increase of $10.2 million compared to the prior quarter.
•Net investment securities losses of $9.7 million this quarter were driven mostly by net fair value losses of $6.5 million in the Company’s portfolio of private equity investments.
•Non-interest expense totaled $203.6 for the quarter, a decrease of $8.0 million compared to the previous quarter.
•Average loan balances totaled $15.1 billion, a decrease of $165.9 million, or 1.1%, from the prior quarter (average PPP loan balances declined $356.1 million). As of December 31, 2021, 93% of PPP loan balances have been forgiven.
1
•Total average available for sale debt securities increased 5.3%, or $726.3 million, over the previous quarter to $14.5 billion, at fair value. Purchases of securities during the quarter totaled $1.4 billion with a weighted average yield of approximately 1.27%.
•Compared to the previous quarter, average deposits grew $790.6 million, or 2.8%. The average rate paid on interest bearing deposits was 5 basis points this quarter.
•The ratio of annualized net loan charge-offs to average loans was .11% in the current quarter compared to .10% in the prior quarter. Net charge-offs on loans remained low.
•Non-accrual loans totaled $9.2 million compared to $10.4 million prior quarter. Non-accrual loans were .06% of total loans.
•At December 31, 2021, the allowance for credit losses on loans decreased to $150.0 million. The allowance for credit losses on loans to total loans was .99% at December 31, 2021.
•The Company purchased 696,367 shares of its common stock this quarter at an average price of $70.81.
•Total assets at December 31, 2021 were $36.7 billion, an increase of $2.2 billion, or 6.4%, from the prior quarter.
•For the quarter, the return on average assets was 1.28%, the return on average equity was 13.11% and the efficiency ratio was 57.3%.
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 and the supplementary Earnings Highlights presentation are available on the Company’s website at https://investor.commercebank.com/news-info/financial-news-releases/default.aspx.
* * * * * * * * * * * * * * *
For additional information, contact
Matt Burkemper, Investor Relations
(314) 746-7485
www.commercebank.com
matthew.burkemper@commercebank.com
2
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
FINANCIAL HIGHLIGHTS
For the Three Months Ended
For the Year Ended
(Unaudited) (Dollars in thousands, except per share data)
Dec. 31, 2021
Sep. 30, 2021
Dec. 31, 2020
Dec. 31, 2021
Dec. 31, 2020
FINANCIAL SUMMARY
Net interest income
$207,657
$214,037
$209,763
$835,424
$829,847
Non-interest income
147,699
137,506
135,117
560,393
505,867
Total revenue
355,356
351,543
344,880
1,395,817
1,335,714
Investment securities gains (losses), net
(9,706)
13,108
12,307
30,059
11,032
Provision for credit losses
(7,054)
(7,385)
(4,403)
(66,326)
137,190
Non-interest expense
203,582
211,620
196,310
805,901
768,378
Income before taxes
149,122
160,416
165,280
686,301
441,178
Income taxes
33,764
34,662
33,084
145,711
87,293
(Income) loss attributable to non-controlling interest
452
3,193
2,307
9,825
(172)
Net income attributable to Commerce Bancshares, Inc.
114,906
122,561
129,889
530,765
354,057
Preferred stock dividends
—
—
—
—
11,966
Net income available to common shareholders
$114,906
$122,561
$129,889
$530,765
$342,091
Earnings per common share:
Net income — basic
$0.94
$1.00
$1.05
$4.32
$2.77
Net income — diluted
$0.94
$0.99
$1.05
$4.31
$2.77
Effective tax rate
22.71
%
22.05
%
20.30
%
21.54
%
19.78
%
Tax equivalent net interest income
$210,424
$216,858
$213,017
$847,116
$842,790
Average total interest earning assets (1)
$
34,318,520
$
33,306,752
$
30,297,922
$
32,874,701
$
28,143,048
Diluted wtd. average shares outstanding
121,221,482
121,881,091
122,333,233
121,940,992
122,413,216
RATIOS
Average loans to deposits (2)
52.36
%
54.44
%
64.05
%
56.46
%
67.73
%
Return on total average assets
1.28
1.40
1.63
1.55
1.20
Return on average common equity (3)
13.11
13.74
15.49
15.37
10.64
Non-interest income to total revenue
41.56
39.11
39.18
40.15
37.87
Efficiency ratio (4)
57.29
59.95
56.68
57.64
57.19
Net yield on interest earning assets
2.43
2.58
2.80
2.58
2.99
EQUITY SUMMARY
Cash dividends per common share
$.250
$.250
$.245
$1.00
$.980
Cash dividends on common stock
$30,489
$30,645
$30,178
$122,693
$120,818
Cash dividends on preferred stock
$—
$—
$—
$—
$11,966
Book value per common share (5)
$28.40
$28.58
$27.64
Market value per common share (5)
$68.74
$66.36
$62.57
High market value per common share
$71.50
$72.08
$64.85
Low market value per common share
$64.85
$61.81
$49.62
Common shares outstanding (5)
121,436,734
122,148,786
122,995,353
Tangible common equity to tangible assets (6)
9.01
%
9.71
%
9.92
%
Tier I leverage ratio
9.13
%
9.31
%
9.45
%
OTHER QTD INFORMATION
Number of bank/ATM locations
287
292
306
Full-time equivalent employees
4,567
4,582
4,766
(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 2021.
3
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (In thousands, except per share data)
For the Three Months Ended
For the Year Ended
Dec. 31, 2021
Sep. 30, 2021
Jun. 30, 2021
Mar. 31, 2021
Dec. 31, 2020
Dec. 31, 2021
Dec. 31, 2020
Interest income
$210,479
$216,981
$211,133
$209,697
$214,726
$848,290
$872,648
Interest expense
2,822
2,944
3,151
3,949
4,963
12,866
42,801
Net interest income
207,657
214,037
207,982
205,748
209,763
835,424
829,847
Provision for credit losses
(7,054)
(7,385)
(45,655)
(6,232)
(4,403)
(66,326)
137,190
Net interest income after credit losses
214,711
221,422
253,637
211,980
214,166
901,750
692,657
NON-INTEREST INCOME
Bank card transaction fees
44,773
42,815
42,608
37,695
39,979
167,891
151,797
Trust fees
48,893
48,950
46,257
44,127
41,961
188,227
160,637
Deposit account charges and other fees
25,493
25,161
23,988
22,575
24,164
97,217
93,227
Capital market fees
3,841
3,794
3,327
4,981
3,826
15,943
14,582
Consumer brokerage services
4,878
4,900
4,503
4,081
3,996
18,362
15,095
Loan fees and sales
5,248
6,842
7,446
10,184
9,031
29,720
26,684
Other
14,573
5,044
11,014
12,402
12,160
43,033
43,845
Total non-interest income
147,699
137,506
139,143
136,045
135,117
560,393
505,867
INVESTMENT SECURITIES GAINS (LOSSES), NET
(9,706)
13,108
16,804
9,853
12,307
30,059
11,032
NON-INTEREST EXPENSE
Salaries and employee benefits
132,640
132,824
130,751
129,033
129,983
525,248
512,987
Net occupancy
12,308
12,329
11,527
12,021
11,570
48,185
46,645
Equipment
4,691
4,440
4,605
4,353
4,526
18,089
18,839
Supplies and communication
4,430
4,530
4,033
4,125
4,193
17,118
17,419
Data processing and software
25,777
25,598
24,954
25,463
24,323
101,792
95,325
Marketing
5,395
5,623
5,680
5,158
5,028
21,856
19,734
Other
18,341
26,276
16,576
12,420
16,687
73,613
57,429
Total non-interest expense
203,582
211,620
198,126
192,573
196,310
805,901
768,378
Income before income taxes
149,122
160,416
211,458
165,305
165,280
686,301
441,178
Less income taxes
33,764
34,662
45,209
32,076
33,084
145,711
87,293
Net income
115,358
125,754
166,249
133,229
132,196
540,590
353,885
Less (income) loss attributable to non-controlling interest
452
3,193
3,923
2,257
2,307
9,825
(172)
Net income attributable to Commerce Bancshares, Inc.
114,906
122,561
162,326
130,972
129,889
530,765
354,057
Less preferred stock dividends
—
—
—
—
—
—
11,966
Net income available to common shareholders
$114,906
$122,561
$162,326
$130,972
$129,889
$530,765
$342,091
Net income per common share — basic
$0.94
$1.00
$1.32
$1.06
$1.05
$4.32
$2.77
Net income per common share — diluted
$0.94
$0.99
$1.32
$1.06
$1.05
$4.31
$2.77
OTHER INFORMATION
Return on total average assets
1.28
%
1.40
%
1.93
%
1.63
%
1.63
%
1.55
%
1.20
%
Return on average common equity (1)
13.11
13.74
19.12
15.69
15.49
15.37
10.64
Efficiency ratio (2)
57.29
59.95
56.90
56.37
56.68
57.64
57.19
Effective tax rate
22.71
22.05
21.78
19.67
20.30
21.54
19.78
Net yield on interest earning assets
2.43
2.58
2.60
2.71
2.80
2.58
2.99
Tax equivalent net interest income
$210,424
$216,858
$211,060
$208,774
$213,017
$847,116
$842,790
(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.
4
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - PERIOD END
(Unaudited) (In thousands)
Dec. 31, 2021
Sep. 30, 2021
Dec. 31, 2020
ASSETS
Loans
Business
$
5,303,535
$
5,277,850
$
6,546,087
Real estate — construction and land
1,118,266
1,257,836
1,021,595
Real estate — business
3,058,837
2,937,852
3,026,117
Real estate — personal
2,805,401
2,769,292
2,820,030
Consumer
2,032,225
2,049,559
1,950,502
Revolving home equity
275,945
281,442
307,083
Consumer credit card
575,410
569,976
655,078
Overdrafts
6,740
4,583
3,149
Total loans
15,176,359
15,148,390
16,329,641
Allowance for credit losses on loans
(150,044)
(162,775)
(220,834)
Net loans
15,026,315
14,985,615
16,108,807
Loans held for sale
8,615
16,043
45,089
Investment securities:
Available for sale debt securities
14,450,027
14,165,656
12,449,264
Trading debt securities
46,235
40,114
35,321
Equity securities
9,202
9,174
4,363
Other securities
194,047
184,450
156,745
Total investment securities
14,699,511
14,399,394
12,645,693
Federal funds sold
2,800
—
—
Securities purchased under agreements to resell
1,625,000
1,750,000
850,000
Interest earning deposits with banks
3,971,217
1,888,545
1,747,363
Cash and due from banks
305,539
344,460
437,563
Premises and equipment — net
388,738
377,476
371,083
Goodwill
138,921
138,921
138,921
Other intangible assets — net
15,570
14,458
11,207
Other assets
506,862
582,631
567,248
Total assets
$
36,689,088
$
34,497,543
$
32,922,974
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing
$
11,772,374
$
11,622,855
$
10,497,598
Savings, interest checking and money market
16,598,085
14,907,654
14,604,456
Certificates of deposit of less than $100,000
435,960
452,432
529,802
Certificates of deposit of $100,000 and over
1,006,654
1,163,343
1,314,889
Total deposits
29,813,073
28,146,284
26,946,745
Federal funds purchased and securities sold under agreements to repurchase
3,022,967
2,253,753
2,098,383
Other borrowings
12,560
4,006
802
Other liabilities
392,164
602,279
477,072
Total liabilities
33,240,764
31,006,322
29,523,002
Stockholders’ equity:
Common stock
610,804
589,352
589,352
Capital surplus
2,689,894
2,427,544
2,436,288
Retained earnings
92,493
396,655
73,000
Treasury stock
(32,973)
(92,047)
(32,970)
Accumulated other comprehensive income
77,080
159,166
331,377
Total stockholders’ equity
3,437,298
3,480,670
3,397,047
Non-controlling interest
11,026
10,551
2,925
Total equity
3,448,324
3,491,221
3,399,972
Total liabilities and equity
$
36,689,088
$
34,497,543
$
32,922,974
5
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS
(Unaudited) (In thousands)
For the Three Months Ended
Dec. 31, 2021
Sep. 30, 2021
Jun. 30, 2021
Mar. 31, 2021
Dec. 31, 2020
ASSETS:
Loans:
Business
$
5,191,844
$
5,437,498
$
6,211,610
$
6,532,921
$
6,580,300
Real estate — construction and land
1,228,237
1,168,566
1,088,433
1,091,969
1,032,891
Real estate — business
3,003,459
2,982,847
3,014,955
3,022,979
3,029,799
Real estate — personal
2,785,095
2,775,638
2,804,388
2,826,112
2,778,462
Consumer
2,043,690
2,041,263
2,004,625
1,947,322
1,981,033
Revolving home equity
276,464
281,689
287,031
299,371
316,895
Consumer credit card
559,429
566,406
575,725
608,747
638,161
Overdrafts
4,926
5,110
3,735
3,546
3,762
Total loans
15,093,144
15,259,017
15,990,502
16,332,967
16,361,303
Allowance for credit losses on loans
(162,428)
(172,112)
(200,801)
(220,512)
(235,484)
Net loans
14,930,716
15,086,905
15,789,701
16,112,455
16,125,819
Loans held for sale
11,203
16,021
23,389
35,814
30,577
Investment securities:
U.S. government and federal agency obligations
1,009,025
727,566
719,849
725,367
774,640
Government-sponsored enterprise obligations
50,777
50,785
50,793
50,801
69,133
State and municipal obligations
2,095,517
2,039,942
1,966,673
1,958,637
1,967,408
Mortgage-backed securities
7,141,249
7,115,419
6,685,407
6,998,521
6,646,345
Asset-backed securities
3,514,541
3,028,076
2,653,928
2,085,491
1,819,467
Other debt securities
629,643
608,642
605,772
570,115
533,646
Unrealized gain on debt securities
86,020
230,058
197,124
283,511
329,477
Total available for sale debt securities
14,526,772
13,800,488
12,879,546
12,672,443
12,140,116
Trading debt securities
46,513
32,238
34,955
32,320
28,040
Equity securities
9,171
8,756
4,914
4,321
4,221
Other securities
190,346
183,397
156,984
154,030
130,145
Total investment securities
14,772,802
14,024,879
13,076,399
12,863,114
12,302,522
Federal funds sold
564
792
1,338
7
355
Securities purchased under agreements to resell
1,669,835
1,633,205
937,372
849,999
849,998
Interest earning deposits with banks
2,856,992
2,602,896
2,724,782
1,480,331
1,082,644
Other assets
1,288,323
1,261,277
1,258,989
1,308,105
1,291,907
Total assets
$
35,530,435
$
34,625,975
$
33,811,970
$
32,649,825
$
31,683,822
LIABILITIES AND EQUITY:
Non-interest bearing deposits
$
11,919,268
$
11,475,113
$
11,109,198
$
10,438,637
$
10,275,735
Savings
1,507,199
1,484,923
1,474,391
1,333,177
1,234,481
Interest checking and money market
13,873,985
13,343,180
13,283,481
12,970,629
12,198,928
Certificates of deposit of less than $100,000
441,920
464,367
491,446
516,728
542,212
Certificates of deposit of $100,000 and over
1,105,480
1,289,665
1,354,685
1,230,075
1,339,301
Total deposits
28,847,852
28,057,248
27,713,201
26,489,246
25,590,657
Borrowings:
Federal funds purchased
20,848
13,606
23,291
37,034
48,412
Securities sold under agreements to repurchase
2,620,348
2,347,270
2,142,405
2,129,038
1,980,045
Other borrowings
1,078
347
978
831
1,013
Total borrowings
2,642,274
2,361,223
2,166,674
2,166,903
2,029,470
Other liabilities
562,102
667,786
527,401
608,212
727,569
Total liabilities
32,052,228
31,086,257
30,407,276
29,264,361
28,347,696
Equity
3,478,207
3,539,718
3,404,694
3,385,464
3,336,126
Total liabilities and equity
$
35,530,435
$
34,625,975
$
33,811,970
$
32,649,825
$
31,683,822
6
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE RATES
(Unaudited)
For the Three Months Ended
Dec. 31, 2021
Sep. 30, 2021
Jun. 30, 2021
Mar. 31, 2021
Dec. 31, 2020
ASSETS:
Loans:
Business (1)
3.16
%
3.43
%
3.15
%
3.09
%
3.01
%
Real estate — construction and land
3.61
3.51
3.56
3.54
3.72
Real estate — business
3.41
3.46
3.49
3.52
3.51
Real estate — personal
3.21
3.27
3.31
3.40
3.44
Consumer
3.65
3.71
3.84
4.02
4.07
Revolving home equity
3.47
3.46
3.43
3.38
3.37
Consumer credit card
11.06
11.29
11.22
10.97
11.60
Overdrafts
—
—
—
—
—
Total loans
3.62
3.74
3.65
3.66
3.69
Loans held for sale
5.10
4.63
4.20
3.44
3.54
Investment securities:
U.S. government and federal agency obligations
3.11
5.74
5.52
2.54
2.63
Government-sponsored enterprise obligations
2.30
2.30
2.33
2.36
2.23
State and municipal obligations (1)
2.26
2.35
2.41
2.46
2.44
Mortgage-backed securities
1.40
1.53
1.11
1.39
1.37
Asset-backed securities
1.03
1.08
1.25
1.39
1.59
Other debt securities
2.07
2.04
2.06
2.15
2.19
Total available for sale debt securities
1.59
1.80
1.64
1.67
1.70
Trading debt securities (1)
1.54
1.01
1.19
1.08
1.40
Equity securities (1)
27.64
23.92
43.10
49.56
50.71
Other securities (1)
18.39
7.46
11.90
5.26
10.03
Total investment securities
1.82
1.89
1.78
1.72
1.81
Federal funds sold
.70
.50
.60
—
1.12
Securities purchased under agreements to resell
1.62
2.19
4.46
5.31
5.24
Interest earning deposits with banks
.15
.15
.11
.10
.10
Total interest earning assets
2.47
2.62
2.64
2.76
2.86
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings
.08
.08
.08
.08
.09
Interest checking and money market
.04
.05
.05
.06
.07
Certificates of deposit of less than $100,000
.14
.18
.27
.37
.51
Certificates of deposit of $100,000 and over
.14
.14
.20
.35
.47
Total interest bearing deposits
.05
.06
.07
.09
.12
Borrowings:
Federal funds purchased
.11
.10
.05
.05
.07
Securities sold under agreements to repurchase
.08
.08
.06
.06
.06
Other borrowings
—
1.14
.82
.98
—
Total borrowings
.08
.08
.06
.06
.06
Total interest bearing liabilities
.06
%
.06
%
.07
%
.09
%
.11
%
Net yield on interest earning assets
2.43
%
2.58
%
2.60
%
2.71
%
2.80
%
(1) Stated on a tax equivalent basis using a federal income tax rate of 21%.
7
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CREDIT QUALITY
For the Three Months Ended
For the Year Ended
(Unaudited) (In thousands, except per share data)
Dec. 31, 2021
Sep. 30, 2021
Jun. 30, 2021
Mar. 31, 2021
Dec. 31, 2020
Dec. 31, 2021
Dec. 31, 2020
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period
$162,775
$172,395
$200,527
$220,834
$236,360
$220,834
$160,682
Adoption of ASU 2016-13
—
—
—
—
—
—
(21,039)
Provision for credit losses on loans
(8,474)
(5,961)
(27,433)
(10,355)
(7,510)
(52,223)
116,049
Net charge-offs (recoveries):
Commercial portfolio:
Business
90
65
(4,909)
(4)
581
(4,758)
3,665
Real estate — construction and land
—
—
—
1
(2)
1
(3)
Real estate — business
6
(5)
(85)
20
(7)
(64)
(47)
96
60
(4,994)
17
572
(4,821)
3,615
Personal banking portfolio:
Consumer credit card
2,964
2,908
5,155
8,981
5,975
20,008
25,979
Consumer
919
496
378
763
1,160
2,556
4,444
Overdraft
375
243
148
153
335
919
1,277
Real estate — personal
(71)
(26)
(16)
15
(18)
(98)
(291)
Revolving home equity
(26)
(22)
28
23
(8)
3
(166)
4,161
3,599
5,693
9,935
7,444
23,388
31,243
Total net loan charge-offs
4,257
3,659
699
9,952
8,016
18,567
34,858
Balance at end of period
$150,044
$162,775
$172,395
$200,527
$220,834
$150,044
$220,834
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
$24,204
$22,784
$24,208
$42,430
$38,307
NET CHARGE-OFF RATIOS (1)
Commercial portfolio:
Business
.01
%
—
%
(.32
%)
—
%
.04
%
(.08
%)
.06
%
Real estate — construction and land
—
—
—
—
—
—
—
Real estate — business
—
—
(.01)
—
—
—
—
—
—
(.19)
—
.02
(.05)
.04
Personal banking portfolio:
Consumer credit card
2.10
2.04
3.59
5.98
3.72
3.47
3.88
Consumer
.18
.10
.08
.16
.23
.13
.23
Overdraft
30.20
18.87
15.89
17.50
35.43
21.20
38.11
Real estate — personal
(.01)
—
—
—
—
—
(.01)
Revolving home equity
(.04)
(.03)
.04
.03
(.01)
—
(.05)
.29
.25
.40
.71
.52
.41
.56
Total
.11
%
.10
%
.02
%
.25
%
.19
%
.12
%
.22
%
CREDIT QUALITY RATIOS
Non-accrual loans to total loans
.06
%
.07
%
.07
%
.14
%
.16
%
Allowance for credit losses on loans to total loans(2)
.99
1.07
1.10
1.22
1.35
NON-ACCRUAL AND PAST DUE LOANS
Non-accrual loans:
Business
$7,312
$8,293
$8,839
$20,215
$22,524
Real estate — construction and land
—
—
—
—
—
Real estate — business
214
577
655
1,572
2,230
Real estate — personal
1,631
1,551
1,672
1,719
1,786
Total
9,157
10,421
11,166
23,506
26,540
Loans past due 90 days and still accruing interest
$11,726
$10,496
$12,338
$21,512
$22,190
(1) Net charge-offs are annualized and calculated 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 1.00% and 1.10% as of December 31, 2021 and September 30, 2021, respectively.
8
COMMERCE BANCSHARES, INC.
Management Discussion of Fourth Quarter Results
December 31, 2021
For the quarter ended December 31, 2021, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $114.9 million, compared to $122.6 million in the previous quarter and $129.9 million in the same quarter last year. The decrease in net income compared to the previous quarter was primarily the result of net investment securities losses recorded this quarter compared to net gains recorded in the prior quarter and lower net interest income, partly offset by higher non-interest income and lower non-interest expense. The net yield on interest earning assets declined 15 basis points to 2.43%. Average loans declined $165.9 million compared to the previous quarter, while average available for sale debt securities grew $726.3 million, and average deposits increased $790.6 million. For the quarter, the return on average assets was 1.28%, the return on average equity was 13.11%, and the efficiency ratio was 57.3%.
Balance Sheet Review
During the 4th quarter of 2021, average loans totaled $15.1 billion, a decrease of $165.9 million from the prior quarter, and declined $1.3 billion, or 7.8%, from the same quarter last year. Compared to the previous quarter, average balances of business loans declined $245.7 million (includes a decline of $356.1 million in Paycheck Protection Program (PPP) loan balances). This decline was partially offset by growth in construction and business real estate loans of $59.7 million and $20.6 million, respectively. While period end loans only increased $28.0 million compared to the prior quarter, PPP loan balances decreased $178.8 million this quarter and totaled $129.2 million at December 31, 2021. Excluding PPP loans, period end business loans increased $204.5 million. As of December 31, 2021, 99% of round 1 and 73% of round 2 PPP loan balances have been forgiven. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $85.3 million, compared to $119.3 million in the prior quarter.
Total average available for sale debt securities increased $726.3 million over the previous quarter to $14.5 billion, at fair value. The increase in investment securities was mainly the result of growth in asset-backed and U.S. government securities. During the current quarter, purchases of securities totaled $1.4 billion with a weighted average yield of approximately 1.27%. Sales, maturities and pay downs were $956.5 million. At December 31, 2021, the duration of the investment portfolio was 3.2 years, and maturities and pay downs of approximately $3.0 billion are expected to occur during the next 12 months.
Total average deposits increased $790.6 million this quarter compared to the previous quarter. The increase in deposits mostly resulted from growth in interest checking and money market deposits and demand deposits of $530.8 million and $444.2 million,
respectively. Certificate of deposit balances declined $206.6 million. Compared to the previous quarter, total average commercial and consumer deposits grew $612.1 million and $203.8 million, respectively. The average loans to deposits ratio was 52.4% in the current quarter and 54.4% in the prior quarter. The Company’s average borrowings, which include customer repurchase agreements, were $2.6 billion in the 4th quarter of 2021 and $2.4 billion in the prior quarter.
Net Interest Income
Net interest income in the 4th quarter of 2021 amounted to $207.7 million, a decrease of $6.4 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter decreased $6.4 million compared to the previous quarter to $210.4 million. The decrease in net interest income was mainly due to lower income earned on loans and securities purchased under agreements to resell, partially offset by higher income earned on investment securities. The net yield on earning assets (tax equivalent) decreased to 2.43%, compared to 2.58% in the prior quarter.
Compared to the previous quarter, interest income on loans (tax equivalent) decreased $6.1 million, mostly due to $5.3 million of lower income recognized from PPP loans this quarter. Interest on construction loans grew due to higher yields and average loan balances, but was offset by lower consumer card yields and average loan balances. The yield on PPP loans increased from 7.73% to 10.80% this quarter. Excluding PPP loans, the yield on business loans was 2.83% in the 4th quarter of 2021 compared to 2.92% in the prior quarter. The average tax-equivalent yield on the loan portfolio decreased 12 basis points to 3.62% this quarter.
Interest income on investment securities (tax equivalent) increased $1.7 million compared to the prior quarter, due to higher average balances, partly offset by lower rates earned. Interest income earned on U.S. government and federal agency securities decreased, as lower average rates earned, including the impact of $2.9 million of lower inflation income from Treasury inflation-protected securities, more than offset higher average balances. This decrease was partly offset by $5.5 million in dividends received from private equity portfolio investments this quarter. At December 31, 2021, the Company recorded a $2.6 million adjustment to premium amortization, which increased interest income this quarter to reflect moderately slower forward prepayment speed estimates on mortgage-backed securities. The yield on total investment securities was 1.82% in the current quarter, compared to 1.89% in the previous quarter.
The average rate paid on interest bearing deposits totaled .05% in the 4th quarter of 2021, compared .06% in the prior quarter. Interest expense on deposits decreased $172 thousand this quarter compared to
COMMERCE BANCSHARES, INC.
Management Discussion of Fourth Quarter Results
December 31, 2021
the previous quarter mainly due to lower rates paid on money market accounts and certificate of deposit accounts. The overall rate paid on interest bearing liabilities was .06% in both the current and prior quarters.
Non-Interest Income
In the 4th quarter of 2021, total non-interest income amounted to $147.7 million, an increase of $12.6 million, or 9.3%, compared to the same period last year and increased $10.2 million compared to the prior quarter. The increase in non-interest income over the same period last year was mainly due to growth in trust fees and bank card fees, partially offset by lower loan fees and sales.
Total net bank card fees in the current quarter increased $4.8 million, or 12.0%, over the same period last year, and increased $2.0 million compared to the prior quarter. Net corporate card fees increased $3.6 million, or 17.0%, over the same quarter of last year mainly due to higher interchange fee income, partly offset by higher rewards expense. Net debit card fees increased $955 thousand, or 9.8%, mainly due to higher interchange fees. Net merchant income increased $104 thousand, or 2.0%, and net credit card fees increased $111 thousand, or 3.0%. Total net bank card fees this quarter were comprised of fees on corporate card ($25.0 million), debit card ($10.7 million), merchant ($5.3 million) and credit card ($3.8 million) transactions.
In the current quarter, trust fees increased $6.9 million, or 16.5%, over the same period last year, resulting mostly from higher private client fee income. Compared to the same period last year, deposit account fees increased $1.3 million, or 5.5%, mainly due to higher overdraft and return item fees and corporate cash management fees. Loan fees and sales, mostly mortgage banking revenue, declined $3.8 million, or 41.9%, compared to amounts recorded in the same quarter last year. Consumer brokerage fees increased $882 thousand, or 22.1%, compared to the same quarter last year.
Other non-interest income increased over the same period last year mainly due to a $3.7 million gain on the sale of land recorded this quarter, $818 thousand of higher tax credit sales fees, and $774 thousand of higher swap fees, partially offset by lower cash sweep commissions of $710 thousand. For the 4th quarter of 2021, non-interest income comprised 41.6% of the Company’s total revenue.
Investment Securities Gains and Losses
The Company recorded investment net losses of $9.7 million in the current quarter, compared to net gains of $13.1 million in the prior quarter and net gains of $12.3 million in the 4th quarter of 2020. Net losses on investments in the current quarter primarily resulted from net fair value losses of $6.5 million in the Company’s private equity investment portfolio, in
part due to $5.5 million in dividends paid by portfolio companies mentioned above, which reduced the fair value of the investments.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $203.6 million, compared to $196.3 million in the same period last year and $211.6 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to higher salaries expense, data processing and software expense, and travel and entertainment expense. The decrease in non-interest expense compared to the prior quarter was mainly due to litigation settlement expense in the prior quarter that did not reoccur.
Compared to the 4th quarter of last year, salaries and employee benefits expense increased $2.7 million, mostly due to higher full-time salaries expense. Incentive compensation was also higher, while employee benefits expense was flat. Full-time equivalent employees totaled 4,567 and 4,766 at December 31, 2021 and 2020, respectively.
Compared to the same period last year, data processing and software expense increased $1.5 million due to higher bank card processing fees and increased costs for service providers this quarter. Additionally, other non-interest expense increased $1.7 million, mainly due to an increase of $1.3 million in travel and entertainment expense.
Income Taxes
The effective tax rate for the Company was 22.7% in the current quarter, 22.0% in the previous quarter, and 20.3% in the 4th quarter of 2020.
Credit Quality
Net loan charge-offs in the 4th quarter of 2021 amounted to $4.3 million, compared to $3.7 million in the prior quarter and $8.0 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .11% in the current quarter, .10% in the previous quarter, and .19% in the 4th quarter of last year. Net loan charge-offs on personal banking loans increased $562 thousand to $4.2 million.
In the 4th quarter of 2021, annualized net loan charge-offs on average consumer credit card loans were 2.10%, compared to 2.04% in the previous quarter, and 3.72% in the same quarter last year. Consumer loan net charge-offs were .18% of average consumer loans in the current quarter, .10% in the prior quarter and .23% in the same quarter last year.
During the 4th quarter of 2021, the economy continued to recover from the pandemic and the economic forecast utilized in the allowance for credit loss model also continued to improve. This improvement, coupled with other model inputs,
10
COMMERCE BANCSHARES, INC.
Management Discussion of Fourth Quarter Results
December 31, 2021
resulted in a decrease in the allowance for credit losses as of December 31, 2021. At December 31, 2021, the allowance for credit losses on loans totaled $150.0 million, or .99% of total loans and 1.00% of total loans excluding PPP loans. Additionally, the liability for unfunded lending commitments at December 31, 2021 was $24.2 million, an increase of $1.4 million over the liability at September 30, 2021.
At December 31, 2021, total non-accrual loans amounted to $9.2 million, a decrease of $1.3 million from the previous quarter. At December 31, 2021, the balance of non-accrual loans, which represented .06% of loans outstanding, included business loans of $7.3 million, personal real estate loans of $1.6 million, and business real estate loans of $214 thousand. Loans more than 90 days past due and still accruing interest totaled $11.7 million at December 31, 2021.
Other
During the 4th quarter of 2021, the Company distributed a 5% stock dividend on its common stock and paid a cash dividend of $.25 per common share (as restated for the stock dividend), representing a 2.1% increase over the same period last year. The Company purchased 696,367 shares of treasury stock during the current quarter at an average price of $70.81.
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.
