1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000
FOR IMMEDIATE RELEASE:
Tuesday, October 18, 2022
COMMERCE BANCSHARES, INC. REPORTS
THIRD QUARTER EARNINGS PER SHARE OF $1.02
Commerce Bancshares, Inc. announced earnings of $1.02 per share for the three months ended September 30, 2022, compared to $.99 per share in the same quarter last year and $.96 per share in the second quarter of 2022. Net income for the third quarter of 2022 amounted to $122.8 million, compared to $122.6 million in the third quarter of 2021 and $115.8 million in the prior quarter.
For the nine months ended September 30, 2022, earnings per share totaled $2.95, compared to $3.37 for the first nine months of 2021. Net income amounted to $356.8 million for the nine months ended September 30, 2022, compared to $415.9 million in the comparable period last year. For the current year to date, the return on average assets was 1.39%, and the return on average equity was 16.08%.
“Our third quarter results reflect the strengths of our balance sheet and diverse operating model,” said John Kemper. “Our variable rate earning assets and resilient core deposit base contributed to an expanding net interest margin and drove record quarterly net interest income. Additionally, our fee-based businesses contributed nearly 36% of total revenue.”
“In an increasingly uncertain economic environment, the bank remains well-positioned. Credit quality metrics and regulatory capital levels remain robust, and we are in a strong liquidity position to accommodate future loan growth.”
Third Quarter 2022 Financial Highlights:
•Net interest income was $246.4 million, a $14.0 million increase over the prior quarter. The net interest margin increased 22 basis points to 3.01%.
•Non-interest income totaled $138.5 million, a decrease of $913 thousand compared to the prior quarter.
•Non-interest expense totaled $212.9 million, a decrease of $621 thousand compared to the prior quarter.
•Average loan balances totaled $15.6 billion, an increase of $160.4 million, or 1.0%, over the prior quarter.
•Total average available for sale debt securities decreased 5.8%, or $826.7 million, from the prior quarter to $13.5 billion, at fair value. Purchases of securities during the quarter totaled $53.8 million, with a weighted average yield of approximately 4.52%.
1
Exhibit 99.1
•Average deposits declined $973.9 million, or 3.4% from the prior quarter. The average rate paid on interest bearing deposits was .21%.
•The ratio of annualized net loan charge-offs to average loans was .12% compared to .10% in the prior quarter.
•Non-accrual loans totaled $7.2 million compared to $7.9 million in the prior quarter. Non-accrual loans were .05% of total loans.
•The allowance for credit losses on loans increased $5.3 million during the third quarter to $143.4 million, and at September 30, 2022, the ratio of the allowance for credit losses on loans to total loans was .90% compared to .88% at June 30, 2022.
•The Company purchased 710,879 shares of its common stock this quarter at an average price of $70.50.
•Total assets at September 30, 2022 were $32.6 billion, a decrease of $832.8 million, or 2.5%, from the prior quarter.
•For the quarter, the return on average assets was 1.48%, the return on average equity was 17.84%, and the efficiency ratio was 55.2%.
Commerce Bancshares, Inc. is a regional bank holding company offering a full line of banking services through its subsidiaries, including payment solutions, investment management and securities brokerage. One of its subsidiaries, Commerce Bank, leverages more than 155 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
Exhibit 99.1
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)
Sep. 30, 2022
Jun. 30, 2022
Sep. 30, 2021
Sep. 30, 2022
Sep. 30, 2021
FINANCIAL SUMMARY
Net interest income
$246,373
$232,385
$214,037
$687,544
$627,767
Non-interest income
138,514
139,427
137,506
409,710
412,694
Total revenue
384,887
371,812
351,543
1,097,254
1,040,461
Investment securities gains
3,410
1,029
13,108
11,602
39,765
Provision for credit losses
15,290
7,162
(7,385)
12,594
(59,272)
Non-interest expense
212,884
213,505
211,620
632,037
602,319
Income before taxes
160,123
152,174
160,416
464,225
537,179
Income taxes
33,936
32,021
34,662
97,859
111,947
Non-controlling interest expense
3,364
4,359
3,193
9,595
9,373
Net income attributable to Commerce Bancshares, Inc.
$122,823
$115,794
$122,561
$356,771
$415,859
Earnings per common share:
Net income — basic
$1.03
$0.96
$1.00
$2.96
$3.38
Net income — diluted
$1.02
$0.96
$0.99
$2.95
$3.37
Effective tax rate
21.65
%
21.66
%
22.05
%
21.52
%
21.21
%
Fully-taxable equivalent net interest income
$248,737
$235,010
$216,858
$695,140
$636,692
Average total interest earning assets (1)
$32,807,393
$33,839,655
$33,306,752
$
33,853,577
$
32,388,139
Diluted wtd. average shares outstanding
119,158,652
119,920,218
121,881,091
119,892,983
122,183,464
RATIOS
Average loans to deposits (2)
56.40
%
53.93
%
54.44
%
54.05
%
57.91
%
Return on total average assets
1.48
1.36
1.40
1.39
1.65
Return on average equity (3)
17.84
16.29
13.74
16.08
16.14
Non-interest income to total revenue
35.99
37.50
39.11
37.34
39.66
Efficiency ratio (4)
55.19
57.29
59.95
57.48
57.76
Net yield on interest earning assets
3.01
2.79
2.58
2.75
2.63
EQUITY SUMMARY
Cash dividends per share
$.265
$.265
$.250
$.795
$.750
Cash dividends on common stock
$31,740
$31,935
$30,645
$95,818
$92,204
Book value per share (5)
$19.86
$22.29
$28.58
Market value per share (5)
$66.16
$65.65
$66.36
High market value per share
$73.97
$74.32
$72.08
Low market value per share
$64.20
$62.80
$61.81
Common shares outstanding (5)
119,361,141
120,032,698
122,148,786
Tangible common equity to tangible assets (6)
6.80
%
7.56
%
9.71
%
Tier I leverage ratio
9.87
%
9.45
%
9.31
%
OTHER QTD INFORMATION
Number of bank/ATM locations
277
279
292
Full-time equivalent employees
4,595
4,579
4,582
(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 attributable to Commerce Bancshares, Inc. divided by average total equity.
(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 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
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (In thousands, except per share data)
For the Three Months Ended
For the Nine Months Ended
Sep. 30, 2022
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Sep. 30, 2021
Sep. 30, 2022
Sep. 30, 2021
Interest income
$262,666
$238,154
$211,782
$210,479
$216,981
$712,602
$637,811
Interest expense
16,293
5,769
2,996
2,822
2,944
25,058
10,044
Net interest income
246,373
232,385
208,786
207,657
214,037
687,544
627,767
Provision for credit losses
15,290
7,162
(9,858)
(7,054)
(7,385)
12,594
(59,272)
Net interest income after credit losses
231,083
225,223
218,644
214,711
221,422
674,950
687,039
NON-INTEREST INCOME
Trust fees
45,406
46,792
47,811
48,893
48,950
140,009
139,334
Bank card transaction fees
45,638
43,873
42,045
44,773
42,815
131,556
123,118
Deposit account charges and other fees
24,521
25,564
22,307
25,493
25,161
72,392
71,724
Consumer brokerage services
5,085
5,068
4,446
4,878
4,900
14,599
13,484
Capital market fees
3,393
3,327
4,125
3,841
3,794
10,845
12,102
Loan fees and sales
3,094
3,246
4,235
5,248
6,842
10,575
24,472
Other
11,377
11,557
6,800
14,573
5,044
29,734
28,460
Total non-interest income
138,514
139,427
131,769
147,699
137,506
409,710
412,694
INVESTMENT SECURITIES GAINS (LOSSES), NET
3,410
1,029
7,163
(9,706)
13,108
11,602
39,765
NON-INTEREST EXPENSE
Salaries and employee benefits
137,393
142,243
135,953
132,640
132,824
415,589
392,608
Data processing and software
28,050
27,635
27,016
25,777
25,598
82,701
76,015
Net occupancy
12,544
12,503
12,296
12,308
12,329
37,343
35,877
Equipment
5,036
4,734
4,568
4,691
4,440
14,338
13,398
Supplies and communication
4,581
4,361
4,713
4,430
4,530
13,655
12,688
Marketing
6,228
5,836
6,344
5,395
5,623
18,408
16,461
Other
19,052
16,193
14,758
18,341
26,276
50,003
55,272
Total non-interest expense
212,884
213,505
205,648
203,582
211,620
632,037
602,319
Income before income taxes
160,123
152,174
151,928
149,122
160,416
464,225
537,179
Less income taxes
33,936
32,021
31,902
33,764
34,662
97,859
111,947
Net income
126,187
120,153
120,026
115,358
125,754
366,366
425,232
Less non-controlling interest expense
3,364
4,359
1,872
452
3,193
9,595
9,373
Net income attributable to Commerce Bancshares, Inc.
$122,823
$115,794
$118,154
$114,906
$122,561
$356,771
$415,859
Net income per common share — basic
$1.03
$0.96
$0.97
$0.94
$1.00
$2.96
$3.38
Net income per common share — diluted
$1.02
$0.96
$0.97
$0.94
$0.99
$2.95
$3.37
OTHER INFORMATION
Return on total average assets
1.48
%
1.36
%
1.33
%
1.28
%
1.40
%
1.39
%
1.65
%
Return on average equity (1)
17.84
16.29
14.41
13.11
13.74
16.08
16.14
Efficiency ratio (2)
55.19
57.29
60.29
57.29
59.95
57.48
57.76
Effective tax rate
21.65
21.66
21.26
22.71
22.05
21.52
21.21
Net yield on interest earning assets
3.01
2.79
2.45
2.43
2.58
2.75
2.63
Fully-taxable equivalent net interest income
$248,737
$235,010
$211,393
$210,424
$216,858
$695,140
$636,692
(1)Annualized net income attributable to Commerce Bancshares, Inc. divided by average total equity.
(2)The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.
4
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - PERIOD END
(Unaudited) (In thousands)
Sep. 30, 2022
Jun. 30, 2022
Sep. 30, 2021
ASSETS
Loans
Business
$
5,528,895
$
5,441,592
$
5,277,850
Real estate — construction and land
1,206,955
1,266,260
1,257,836
Real estate — business
3,331,627
3,215,578
2,937,852
Real estate — personal
2,862,519
2,836,835
2,769,292
Consumer
2,116,371
2,089,592
2,049,559
Revolving home equity
286,026
271,854
281,442
Consumer credit card
563,349
558,102
569,976
Overdrafts
3,216
6,814
4,583
Total loans
15,898,958
15,686,627
15,148,390
Allowance for credit losses on loans
(143,377)
(138,039)
(162,775)
Net loans
15,755,581
15,548,588
14,985,615
Loans held for sale
8,062
6,467
16,043
Investment securities:
Available for sale debt securities
12,632,510
13,700,308
14,165,656
Trading debt securities
39,222
34,195
40,114
Equity securities
8,954
8,546
9,174
Other securities
222,742
207,989
184,450
Total investment securities
12,903,428
13,951,038
14,399,394
Federal funds sold
14,020
26,000
—
Securities purchased under agreements to resell
1,275,000
1,450,000
1,750,000
Interest earning deposits with banks
642,943
684,994
1,888,545
Cash and due from banks
344,178
355,524
344,460
Premises and equipment — net
407,833
397,877
377,476
Goodwill
138,921
138,921
138,921
Other intangible assets — net
15,599
15,853
14,458
Other assets
1,097,031
860,108
582,631
Total assets
$
32,602,596
$
33,435,370
$
34,497,543
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing
$
10,468,591
$
11,102,585
$
11,622,855
Savings, interest checking and money market
16,014,487
16,063,064
14,907,654
Certificates of deposit of less than $100,000
391,145
404,096
452,432
Certificates of deposit of $100,000 and over
597,093
601,488
1,163,343
Total deposits
27,471,316
28,171,233
28,146,284
Federal funds purchased and securities sold under agreements to repurchase
2,314,590
2,234,296
2,253,753
Other borrowings
1,831
6,025
4,006
Other liabilities
443,752
348,503
602,279
Total liabilities
30,231,489
30,760,057
31,006,322
Stockholders’ equity:
Common stock
610,804
610,804
589,352
Capital surplus
2,683,631
2,682,161
2,427,544
Retained earnings
353,446
262,363
396,655
Treasury stock
(176,943)
(129,588)
(92,047)
Accumulated other comprehensive income
(1,119,344)
(766,894)
159,166
Total stockholders’ equity
2,351,594
2,658,846
3,480,670
Non-controlling interest
19,513
16,467
10,551
Total equity
2,371,107
2,675,313
3,491,221
Total liabilities and equity
$
32,602,596
$
33,435,370
$
34,497,543
5
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS
(Unaudited) (In thousands)
For the Three Months Ended
Sep. 30, 2022
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Sep. 30, 2021
ASSETS:
Loans:
Business
$
5,317,696
$
5,385,181
$
5,324,172
$
5,191,844
$
5,437,498
Real estate — construction and land
1,288,721
1,225,267
1,134,902
1,228,237
1,168,566
Real estate — business
3,258,128
3,163,508
3,095,068
3,003,459
2,982,847
Real estate — personal
2,844,376
2,825,578
2,808,980
2,785,095
2,775,638
Consumer
2,101,622
2,070,560
2,040,200
2,043,690
2,041,263
Revolving home equity
280,923
272,280
273,859
276,464
281,689
Consumer credit card
550,058
537,681
540,844
559,429
566,406
Overdrafts
4,438
5,524
5,178
4,926
5,110
Total loans
15,645,962
15,485,579
15,223,203
15,093,144
15,259,017
Allowance for credit losses on loans
(137,833)
(134,670)
(149,685)
(162,428)
(172,112)
Net loans
15,508,129
15,350,909
15,073,518
14,930,716
15,086,905
Loans held for sale
7,170
7,933
9,383
11,203
16,021
Investment securities:
U.S. government and federal agency obligations
1,113,442
1,119,305
1,103,749
1,009,025
727,566
Government-sponsored enterprise obligations
55,753
55,762
51,770
50,777
50,785
State and municipal obligations
2,052,908
2,126,380
2,077,600
2,095,517
2,039,942
Mortgage-backed securities
6,847,912
7,158,252
7,316,609
7,141,249
7,115,419
Asset-backed securities
3,870,953
4,038,113
3,933,061
3,514,541
3,028,076
Other debt securities
587,026
643,463
636,247
629,643
608,642
Unrealized gain (loss) on debt securities
(1,064,534)
(851,110)
(174,297)
86,020
230,058
Total available for sale debt securities
13,463,460
14,290,165
14,944,739
14,526,772
13,800,488
Trading debt securities
35,621
43,904
40,686
46,513
32,238
Equity securities
8,838
9,094
9,498
9,171
8,756
Other securities
208,708
195,090
192,311
190,346
183,397
Total investment securities
13,716,627
14,538,253
15,187,234
14,772,802
14,024,879
Federal funds sold
13,486
4,269
1,053
564
792
Securities purchased under agreements to resell
1,379,341
1,703,569
1,733,887
1,669,835
1,633,205
Interest earning deposits with banks
980,273
1,248,942
2,608,029
2,856,992
2,602,896
Other assets
1,256,498
1,238,493
1,304,400
1,288,323
1,261,277
Total assets
$
32,861,524
$
34,092,368
$
35,917,504
$
35,530,435
$
34,625,975
LIABILITIES AND EQUITY:
Non-interest bearing deposits
$
10,758,353
$
11,209,680
$
11,544,701
$
11,919,268
$
11,475,113
Savings
1,595,857
1,609,694
1,563,093
1,507,199
1,484,923
Interest checking and money market
14,423,713
14,847,306
14,949,727
13,873,985
13,343,180
Certificates of deposit of less than $100,000
397,071
411,655
429,852
441,920
464,367
Certificates of deposit of $100,000 and over
578,158
648,728
862,232
1,105,480
1,289,665
Total deposits
27,753,152
28,727,063
29,349,605
28,847,852
28,057,248
Borrowings:
Federal funds purchased
51,929
113,128
23,356
20,848
13,606
Securities sold under agreements to repurchase
2,199,866
2,258,184
2,712,468
2,620,348
2,347,270
Other borrowings
2,010
2,029
768
1,078
347
Total borrowings
2,253,805
2,373,341
2,736,592
2,642,274
2,361,223
Other liabilities
123,691
139,986
505,644
562,102
667,786
Total liabilities
30,130,648
31,240,390
32,591,841
32,052,228
31,086,257
Equity
2,730,876
2,851,978
3,325,663
3,478,207
3,539,718
Total liabilities and equity
$
32,861,524
$
34,092,368
$
35,917,504
$
35,530,435
$
34,625,975
6
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE RATES
(Unaudited)
For the Three Months Ended
Sep. 30, 2022
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Sep. 30, 2021
ASSETS:
Loans:
Business (1)
3.94
%
3.16
%
2.93
%
3.16
%
3.43
%
Real estate — construction and land
5.27
4.09
3.76
3.61
3.51
Real estate — business
4.40
3.70
3.38
3.41
3.46
Real estate — personal
3.36
3.27
3.28
3.21
3.27
Consumer
4.17
3.62
3.59
3.65
3.71
Revolving home equity
4.82
3.69
3.48
3.47
3.46
Consumer credit card
12.05
11.32
11.35
11.06
11.29
Overdrafts
—
—
—
—
—
Total loans
4.37
3.72
3.54
3.62
3.74
Loans held for sale
8.80
8.14
6.48
5.10
4.63
Investment securities:
U.S. government and federal agency obligations
4.51
4.93
3.42
3.11
5.74
Government-sponsored enterprise obligations
2.36
2.39
2.33
2.30
2.30
State and municipal obligations (1)
2.27
2.30
2.29
2.26
2.35
Mortgage-backed securities
1.93
1.99
1.98
1.40
1.53
Asset-backed securities
1.62
1.35
1.13
1.03
1.08
Other debt securities
1.93
1.97
2.00
2.07
2.04
Total available for sale debt securities
2.09
2.08
1.91
1.59
1.80
Trading debt securities (1)
2.74
2.46
1.84
1.54
1.01
Equity securities (1)
27.11
26.90
26.00
27.64
23.92
Other securities (1)
7.09
22.38
5.91
18.39
7.46
Total investment securities
2.18
2.36
1.97
1.82
1.89
Federal funds sold
2.77
1.79
.39
.70
.50
Securities purchased under agreements to resell
1.72
1.03
1.24
1.62
2.19
Interest earning deposits with banks
2.25
.78
.18
.15
.15
Total interest earning assets
3.21
2.86
2.49
2.47
2.62
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings
.04
.04
.05
.08
.08
Interest checking and money market
.20
.06
.04
.04
.05
Certificates of deposit of less than $100,000
.41
.20
.13
.14
.18
Certificates of deposit of $100,000 and over
.60
.29
.20
.14
.14
Total interest bearing deposits
.21
.07
.05
.05
.06
Borrowings:
Federal funds purchased
2.41
.79
.12
.11
.10
Securities sold under agreements to repurchase
1.37
.48
.10
.08
.08
Other borrowings
1.78
2.37
.53
—
1.14
Total borrowings
1.39
.50
.10
.08
.08
Total interest bearing liabilities
.34
%
.12
%
.06
%
.06
%
.06
%
Net yield on interest earning assets
3.01
%
2.79
%
2.45
%
2.43
%
2.58
%
(1) Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.
7
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CREDIT QUALITY
For the Three Months Ended
For the Nine Months Ended
(Unaudited) (In thousands, except ratios)
Sep. 30, 2022
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Sep. 30, 2021
Sep. 30, 2022
Sep. 30, 2021
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period
$138,039
$134,710
$150,044
$162,775
$172,395
$150,044
$220,834
Provision for credit losses on loans
10,150
7,287
(10,686)
(8,474)
(5,961)
6,751
(43,749)
Net charge-offs (recoveries):
Commercial portfolio:
Business
461
19
77
90
65
557
(4,848)
Real estate — construction and land
—
—
—
—
—
—
1
Real estate — business
(8)
(1)
(7)
6
(5)
(16)
(70)
453
18
70
96
60
541
(4,917)
Personal banking portfolio:
Consumer credit card
2,882
2,937
3,372
2,964
2,908
9,191
17,044
Consumer
827
633
808
919
496
2,268
1,637
Overdraft
703
425
358
375
243
1,486
544
Real estate — personal
(15)
(41)
22
(71)
(26)
(34)
(27)
Revolving home equity
(38)
(14)
18
(26)
(22)
(34)
29
4,359
3,940
4,578
4,161
3,599
12,877
19,227
Total net loan charge-offs
4,812
3,958
4,648
4,257
3,659
13,418
14,310
Balance at end of period
$143,377
$138,039
$134,710
$150,044
$162,775
$143,377
$162,775
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
$30,047
$24,907
$25,032
$24,204
$22,784
NET CHARGE-OFF RATIOS (1)
Commercial portfolio:
Business
.03
%
—
%
.01
%
.01
%
—
%
.01
%
(.11
%)
Real estate — construction and land
—
—
—
—
—
—
—
Real estate — business
—
—
—
—
—
—
—
.02
—
—
—
—
.01
(.06)
Personal banking portfolio:
Consumer credit card
2.08
2.19
2.53
2.10
2.04
2.26
3.91
Consumer
.16
.12
.16
.18
.10
.15
.11
Overdraft
62.85
30.86
28.04
30.20
18.87
39.39
17.59
Real estate — personal
—
(.01)
—
(.01)
—
—
—
Revolving home equity
(.05)
(.02)
.03
(.04)
(.03)
(.02)
.01
.30
.28
.33
.29
.25
.30
.45
Total
.12
%
.10
%
.12
%
.11
%
.10
%
.12
%
.12
%
CREDIT QUALITY RATIOS
Non-accrual loans to total loans
.05
%
.05
%
.05
%
.06
%
.07
%
Allowance for credit losses on loans to total loans
.90
.88
.87
.99
1.07
NON-ACCRUAL AND PAST DUE LOANS
Non-accrual loans:
Business
$5,645
$6,314
$6,756
$7,312
$8,293
Real estate — construction and land
—
—
—
—
—
Real estate — business
149
167
190
214
577
Real estate — personal
1,390
1,436
1,389
1,631
1,551
Total
7,184
7,917
8,335
9,157
10,421
Loans past due 90 days and still accruing interest
$12,538
$11,909
$10,670
$11,726
$10,496
(1) Net charge-offs are annualized and calculated as a percentage of average loans (excluding loans held for sale).
8
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2022
For the quarter ended September 30, 2022, net income amounted to $122.8 million, compared to $115.8 million in the previous quarter and $122.6 million in the same quarter last year. The increase in net income compared to the previous quarter was primarily the result of an increase in net interest income, partly offset by an increase in the provision for credit losses. The net yield on interest earning assets grew 22 basis points to 3.01%. Average loans grew $160.4 million compared to the previous quarter, while average available for sale debt securities and average deposits declined $826.7 million and $973.9 million, respectively. For the quarter, the return on average assets was 1.48%, the return on average equity was 17.84%, and the efficiency ratio was 55.2%.
Balance Sheet Review
During the 3rd quarter of 2022, average loans totaled $15.6 billion, an increase of $160.4 million over the prior quarter, and $386.9 million, or 2.5%, over the same quarter last year. Compared to the previous quarter, average balances of business real estate, construction, and consumer loans grew $94.6 million, $63.5 million, and $31.1 million, respectively, while business loans declined $67.5 million. Period end loans increased $212.3 million compared to the prior quarter. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $16.7 million, compared to $36.6 million in the prior quarter.
Total average available for sale debt securities decreased $826.7 million compared to the previous quarter to $13.5 billion, at fair value. The decrease in investment securities was mainly the result of lower balances of mortgage-backed and other asset-backed securities. During the current quarter, purchases of securities totaled $53.8 million with a weighted average yield of approximately 4.52%. Sales, maturities and pay downs were $658.2 million. At September 30, 2022, the duration of the investment portfolio was 3.9 years, and maturities and pay downs of approximately $2.4 billion are expected to occur during the next 12 months.
Total average deposits decreased $973.9 million this quarter compared to the previous quarter. The decrease in deposits mostly resulted from lower demand deposits and interest checking and money market deposits of $451.3 million and $423.6 million, respectively. Compared to the previous quarter, total average commercial, wealth, and consumer deposits declined $353.4 million, $327.3 million, and $291.1 million, respectively. The average loans to deposits ratio was 56.4% in the current quarter and 53.9% in the prior quarter. The Company’s average borrowings, which include customer repurchase agreements, were $2.3 billion in the 3rd quarter of 2022 and $2.4 billion in the prior quarter.
Net Interest Income
Net interest income in the 3rd quarter of 2022 amounted to $246.4 million, an increase of $14.0 million compared to the previous quarter. On a fully taxable-equivalent (FTE) basis, net interest income for the current quarter increased $13.7 million over the previous quarter to $248.7 million. The increase in net interest income was due to higher interest earned on loans, partly offset by lower interest earned on investment securities and higher interest expense. The net yield (FTE) on earning assets increased to 3.01%, compared to 2.79% in the prior quarter.
Compared to the previous quarter, interest income on loans (FTE) increased $28.9 million, mostly due to higher average rates on business, business real estate, construction, and consumer loans. The average yield (FTE) on the loan portfolio increased 65 basis points to 4.37% this quarter.
Interest income on investment securities (FTE) decreased $9.1 million compared to the prior quarter, due to lower rates earned, coupled with lower average balances. Interest income earned on U.S. government and federal agency securities decreased due to lower rates earned, which included the impact of $1.0 million in lower inflation income from Treasury inflation-protected securities this quarter. Additionally, $6.5 million of non-accrual interest was received on the sale of a private equity investment last quarter. At September 30, 2022, the Company recorded a $1.5 million adjustment to premium amortization, which increased interest income to reflect slower forward prepayment speed estimates on mortgage-backed securities, but it was less than the $5.0 million adjustment recorded in the prior quarter. The average yield (FTE) on total investment securities was 2.18% in the current quarter, compared to 2.36% in the previous quarter.
The average rate paid on interest bearing deposits totaled .21% in the current quarter compared to .07% in the prior quarter. Interest expense on deposits increased $5.9 million this quarter compared to the previous quarter, while interest expense on securities sold under agreements to repurchase increased $4.9 million, due to an 89 basis point increase in the average rate paid. The overall rate paid on interest bearing liabilities was .34% in the current quarter compared to .12% in the prior quarter.
Non-Interest Income
In the 3rd quarter of 2022, total non-interest income amounted to $138.5 million, an increase of $1.0 million compared to the same period last year and decreased $913 thousand compared to the prior quarter. The increase in non-interest income compared to the same period last year was mainly due to sweep and bank card fees, mostly offset by lower loan fees and sales and trust fees. The decrease in non-interest income compared to the prior quarter was mainly due to lower trust and
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2022
deposit account fees, and income of $2.2 million recorded last quarter from a life insurance death benefit. These decreases were mostly offset by higher bank card and sweep fees.
Total net bank card fees in the current quarter increased $2.8 million, or 6.6%, over the same period last year, and increased $1.8 million compared to the prior quarter. Net corporate card fees increased $3.0 million, or 12.6%, 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 $106 thousand, or 1.0%, and net merchant fees increased $30 thousand, or .6%, while net credit card fees decreased $266 thousand, or 6.9%. Total net bank card fees this quarter were comprised of fees on corporate card ($26.3 million), debit card ($10.5 million), merchant ($5.2 million) and credit card ($3.6 million) transactions.
In the current quarter, trust fees decreased $3.5 million, or 7.2%, from the same period last year, resulting from lower private client fee income. Compared to the same period last year, deposit account fees decreased $640 thousand, or 2.5%, mainly due to lower overdraft and return item fees. Loan fees and sales, mostly mortgage banking revenue, declined $3.7 million, or 54.8%, compared to amounts recorded in the same quarter last year.
Other non-interest income increased over the same period last year primarily due to higher sweep fees of $3.4 million and a $2.0 million loss on an equity method investment recorded in the 3rd quarter of 2021. For the 3rd quarter of 2022, non-interest income comprised 36.0% of the Company’s total revenue.
Investment Securities Gains and Losses
The Company recorded net securities gains of $3.4 million in the current quarter, compared to gains of $1.0 million in the prior quarter and gains of $13.1 million in the 3rd quarter of 2021. Net securities gains in the current quarter primarily resulted from net fair value gains of $14.1 million in the Company’s private equity investment portfolio, mostly offset by a loss of $10.7 million on the sale of an available for sale security.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $212.9 million, compared to $211.6 million in the same period last year and $213.5 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, mostly offset by $8.2 million in litigation settlement costs recorded last year. The decrease in non-interest expense compared to the prior quarter was mainly due to lower salaries expense driven by an accrual of $5.4 million for special bonuses recorded last quarter, and higher other non-interest expense.
Compared to the 3rd quarter of last year, salaries and employee benefits expense increased $4.6 million, due to higher full-time salaries expense of $5.6 million, or 6.4%, partly offset by lower incentive compensation expense of $2.5 million. Full-time equivalent employees totaled 4,595 and 4,582 at September 30, 2022 and 2021, respectively.
Compared to the same period last year, data processing and software expense increased $2.5 million due to higher software amortization, bank card processing fees and increased costs for service providers this quarter. Marketing expense increased $605 thousand, while other non-interest expense decreased $7.2 million. This decrease was mainly due to $8.2 million in litigation settlement costs recorded last year, lower legal and professional fees of $1.1 million and higher deferred loan origination costs of $755 thousand. These decreases to expense were partly offset by increases in travel and entertainment expense and insurance expense of $1.5 million and $619 thousand, respectively.
Income Taxes
The effective tax rate for the Company was 21.6% in the current quarter, 21.7% in the previous quarter, and 22.0% in the 3rd quarter of 2021.
Credit Quality
Net loan charge-offs in the 3rd quarter of 2022 amounted to $4.8 million, compared to $4.0 million in the prior quarter and $3.7 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .12% in the current quarter, .10% in the previous quarter, and .10% in the 3rd quarter of last year. Net loan charge-offs on personal banking loans increased $419 thousand to $4.4 million.
In the 3rd quarter of 2022, annualized net loan charge-offs on average consumer credit card loans were 2.08%, compared to 2.19% in the previous quarter, and 2.04% in the same quarter last year. Consumer loan net charge-offs were .16% of average consumer loans in the current quarter, .12% in the prior quarter, and .10% in the same quarter last year.
At September 30, 2022, the allowance for credit losses on loans totaled $143.4 million, or .90% of total loans, and increased $5.3 million compared to the prior quarter. Additionally, the liability for unfunded lending commitments at September 30, 2022 was $30.0 million, an increase of $5.1 million compared to the liability at June 30, 2022.
At September 30, 2022, total non-accrual loans amounted to $7.2 million, a decrease of $733 thousand from the previous quarter. At September 30, 2022, the balance of non-accrual loans, which represented .05% of loans outstanding, included business loans of $5.6 million, personal real estate loans of $1.4 million, and business real estate loans of $149 thousand. Loans more than 90 days past due
10
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2022
and still accruing interest totaled $12.5 million at September 30, 2022.
Other
During the 3rd quarter of 2022, the Company paid a cash dividend of $.265 per common share, representing a 6.0% increase over the same period last year. The Company purchased 710,879 shares of treasury stock during the current quarter at an average price of $70.50.
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.
