1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000
FOR IMMEDIATE RELEASE:
Thursday, July 21, 2022
COMMERCE BANCSHARES, INC. REPORTS
SECOND QUARTER EARNINGS PER SHARE OF $.96
Commerce Bancshares, Inc. announced earnings of $.96 per share for the three months ended June 30, 2022, compared to $1.32 per share in the same quarter last year and $.97 per share in the first quarter of 2022. Net income for the second quarter of 2022 amounted to $115.8 million, compared to $162.3 million in the second quarter of 2021 and $118.2 million in the prior quarter.
For the six months ended June 30, 2022, earnings per share totaled $1.93, compared to $2.38 for the first six months of 2021. Net income amounted to $233.9 million for the six months ended June 30, 2022, compared to $293.3 million in the comparable period last year. For the year to date, the return on average assets was 1.35%, and the return on average equity was 15.28%.
“Against the backdrop of an uncertain economy, we are pleased with our second quarter performance,” said John Kemper, Chief Executive Officer. “Consumer and commercial spending remain at healthy levels, despite supply chain impacts, inflation, and geopolitical challenges. Our balance sheet has been well-positioned for rising rates, which resulted in an expansion in net interest margin this quarter.”
“Capital levels and credit quality metrics remain very strong and we have ample liquidity to meet the increased loan demand across our markets.”
Second Quarter 2022 Financial Highlights:
•Net interest income was $232.4 million, a $23.6 million increase over the prior quarter. Net interest margin increased 34 basis points to 2.79%.
•Non-interest income totaled $139.4 million, an increase of $7.7 million compared to the prior quarter.
•Non-interest expense totaled $213.5 million, an increase of $7.9 million compared to the prior quarter.
•Average loan balances totaled $15.5 billion, an increase of $262.4 million, or 1.7%, from the prior quarter.
•Total average available for sale debt securities decreased 4.4%, or $654.6 million, over the prior quarter to $14.3 billion, at fair value. Purchases of securities during the quarter totaled $73.8 million, with a weighted average yield of approximately 3.03%.
•Compared to the prior quarter, average deposits declined $622.5 million, or 2.1%. The average rate paid on interest bearing deposits was 7 basis points.
1
Exhibit 99.1
•The ratio of annualized net loan charge-offs to average loans was .10% compared to .12% in the prior quarter.
•Non-accrual loans totaled $7.9 million compared to $8.3 million in the prior quarter. Non-accrual loans were .05% of total loans.
•At June 30, 2022, the allowance for credit losses on loans increased to $138.0 million and the ratio of allowance for credit losses on loans to total loans was .88%.
•The Company purchased 846,223 shares of its common stock this quarter at an average price of $67.77.
•Total assets at June 30, 2022 were $33.4 billion, a decrease of $1.6 billion, or 4.4%, from the prior quarter.
•For the quarter, the return on average assets was 1.36%, the return on average equity was 16.29%, and the efficiency ratio was 57.3%.
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 Six Months Ended
(Unaudited) (Dollars in thousands, except per share data)
Jun. 30, 2022
Mar. 31, 2022
Jun. 30, 2021
Jun. 30, 2022
Jun. 30, 2021
FINANCIAL SUMMARY
Net interest income
$232,385
$208,786
$207,982
$441,171
$413,730
Non-interest income
139,427
131,769
139,143
271,196
275,188
Total revenue
371,812
340,555
347,125
712,367
688,918
Investment securities gains
1,029
7,163
16,804
8,192
26,657
Provision for credit losses
7,162
(9,858)
(45,655)
(2,696)
(51,887)
Non-interest expense
213,505
205,648
198,126
419,153
390,699
Income before taxes
152,174
151,928
211,458
304,102
376,763
Income taxes
32,021
31,902
45,209
63,923
77,285
Non-controlling interest expense
4,359
1,872
3,923
6,231
6,180
Net income attributable to Commerce Bancshares, Inc.
$115,794
$118,154
$162,326
$233,948
$293,298
Earnings per common share:
Net income — basic
$0.96
$0.97
$1.32
$1.93
$2.38
Net income — diluted
$0.96
$0.97
$1.32
$1.93
$2.38
Effective tax rate
21.66
%
21.26
%
21.78
%
21.46
%
20.85
%
Tax equivalent net interest income
$235,010
$211,393
$211,060
$446,403
$419,834
Average total interest earning assets (1)
$33,839,655
$34,937,086
$32,556,658
$
34,385,339
$
31,921,220
Diluted wtd. average shares outstanding
119,920,218
120,616,095
122,272,952
120,266,234
122,337,157
RATIOS
Average loans to deposits (2)
53.93
%
51.90
%
57.78
%
52.91
%
59.73
%
Return on total average assets
1.36
1.33
1.93
1.35
1.78
Return on average equity (3)
16.29
14.41
19.12
15.28
17.42
Non-interest income to total revenue
37.50
38.69
40.08
38.07
39.94
Efficiency ratio (4)
57.29
60.29
56.90
58.72
56.64
Net yield on interest earning assets
2.79
2.45
2.60
2.62
2.65
EQUITY SUMMARY
Cash dividends per share
$.265
$.265
$.250
$.530
$.500
Cash dividends on common stock
$31,935
$32,143
$30,760
$64,078
$61,559
Book value per share (5)
$22.29
$24.60
$28.47
Market value per share (5)
$65.65
$71.59
$71.01
High market value per share
$74.32
$74.72
$77.32
Low market value per share
$62.80
$66.28
$67.32
Common shares outstanding (5)
120,032,698
120,881,120
122,738,252
Tangible common equity to tangible assets (6)
7.56
%
8.09
%
9.91
%
Tier I leverage ratio
9.45
%
9.07
%
9.36
%
OTHER QTD INFORMATION
Number of bank/ATM locations
279
285
295
Full-time equivalent employees
4,579
4,563
4,590
(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 Six Months Ended
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Sep. 30, 2021
Jun. 30, 2021
Jun. 30, 2022
Jun. 30, 2021
Interest income
$238,154
$211,782
$210,479
$216,981
$211,133
$449,936
$420,830
Interest expense
5,769
2,996
2,822
2,944
3,151
8,765
7,100
Net interest income
232,385
208,786
207,657
214,037
207,982
441,171
413,730
Provision for credit losses
7,162
(9,858)
(7,054)
(7,385)
(45,655)
(2,696)
(51,887)
Net interest income after credit losses
225,223
218,644
214,711
221,422
253,637
443,867
465,617
NON-INTEREST INCOME
Bank card transaction fees
43,873
42,045
44,773
42,815
42,608
85,918
80,303
Trust fees
46,792
47,811
48,893
48,950
46,257
94,603
90,384
Deposit account charges and other fees
25,564
22,307
25,493
25,161
23,988
47,871
46,563
Capital market fees
3,327
4,125
3,841
3,794
3,327
7,452
8,308
Consumer brokerage services
5,068
4,446
4,878
4,900
4,503
9,514
8,584
Loan fees and sales
3,246
4,235
5,248
6,842
7,446
7,481
17,630
Other
11,557
6,800
14,573
5,044
11,014
18,357
23,416
Total non-interest income
139,427
131,769
147,699
137,506
139,143
271,196
275,188
INVESTMENT SECURITIES GAINS (LOSSES), NET
1,029
7,163
(9,706)
13,108
16,804
8,192
26,657
NON-INTEREST EXPENSE
Salaries and employee benefits
142,243
135,953
132,640
132,824
130,751
278,196
259,784
Net occupancy
12,503
12,296
12,308
12,329
11,527
24,799
23,548
Equipment
4,734
4,568
4,691
4,440
4,605
9,302
8,958
Supplies and communication
4,361
4,713
4,430
4,530
4,033
9,074
8,158
Data processing and software
27,635
27,016
25,777
25,598
24,954
54,651
50,417
Marketing
5,836
6,344
5,395
5,623
5,680
12,180
10,838
Other
16,193
14,758
18,341
26,276
16,576
30,951
28,996
Total non-interest expense
213,505
205,648
203,582
211,620
198,126
419,153
390,699
Income before income taxes
152,174
151,928
149,122
160,416
211,458
304,102
376,763
Less income taxes
32,021
31,902
33,764
34,662
45,209
63,923
77,285
Net income
120,153
120,026
115,358
125,754
166,249
240,179
299,478
Less non-controlling interest expense
4,359
1,872
452
3,193
3,923
6,231
6,180
Net income attributable to Commerce Bancshares, Inc.
$115,794
$118,154
$114,906
$122,561
$162,326
$233,948
$293,298
Net income per common share — basic
$0.96
$0.97
$0.94
$1.00
$1.32
$1.93
$2.38
Net income per common share — diluted
$0.96
$0.97
$0.94
$0.99
$1.32
$1.93
$2.38
OTHER INFORMATION
Return on total average assets
1.36
%
1.33
%
1.28
%
1.40
%
1.93
%
1.35
%
1.78
%
Return on average equity (1)
16.29
14.41
13.11
13.74
19.12
15.28
17.42
Efficiency ratio (2)
57.29
60.29
57.29
59.95
56.90
58.72
56.64
Effective tax rate
21.66
21.26
22.71
22.05
21.78
21.46
20.85
Net yield on interest earning assets
2.79
2.45
2.43
2.58
2.60
2.62
2.65
Tax equivalent net interest income
$235,010
$211,393
$210,424
$216,858
$211,060
$446,403
$419,834
(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)
Jun. 30, 2022
Mar. 31, 2022
Jun. 30, 2021
ASSETS
Loans
Business
$
5,441,592
$
5,508,508
$
5,803,760
Real estate — construction and land
1,266,260
1,144,411
1,103,661
Real estate — business
3,215,578
3,109,668
3,017,560
Real estate — personal
2,836,835
2,820,076
2,793,213
Consumer
2,089,592
2,053,160
2,049,166
Revolving home equity
271,854
264,401
283,568
Consumer credit card
558,102
544,579
586,358
Overdrafts
6,814
14,211
2,978
Total loans
15,686,627
15,459,014
15,640,264
Allowance for credit losses on loans
(138,039)
(134,710)
(172,395)
Net loans
15,548,588
15,324,304
15,467,869
Loans held for sale
6,467
8,908
23,697
Investment securities:
Available for sale debt securities
13,700,308
14,780,494
13,291,506
Trading debt securities
34,195
31,380
29,002
Equity securities
8,546
9,284
8,678
Other securities
207,989
199,576
176,439
Total investment securities
13,951,038
15,020,734
13,505,625
Federal funds sold
26,000
—
5,945
Securities purchased under agreements to resell
1,450,000
1,825,000
1,300,000
Interest earning deposits with banks
684,994
1,260,813
2,161,644
Cash and due from banks
355,524
326,549
358,122
Premises and equipment — net
397,877
394,028
371,989
Goodwill
138,921
138,921
138,921
Other intangible assets — net
15,853
15,885
14,148
Other assets
860,108
671,651
508,202
Total assets
$
33,435,370
$
34,986,793
$
33,856,162
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing
$
11,102,585
$
11,428,372
$
11,085,286
Savings, interest checking and money market
16,063,064
16,751,632
14,654,696
Certificates of deposit of less than $100,000
404,096
422,992
478,838
Certificates of deposit of $100,000 and over
601,488
716,345
1,267,417
Total deposits
28,171,233
29,319,341
27,486,237
Federal funds purchased and securities sold under agreements to repurchase
2,234,296
2,317,461
2,318,228
Other borrowings
6,025
9,057
2,194
Other liabilities
348,503
367,532
555,673
Total liabilities
30,760,057
32,013,391
30,362,332
Stockholders’ equity:
Common stock
610,804
610,804
589,352
Capital surplus
2,682,161
2,678,025
2,424,157
Retained earnings
262,363
178,504
304,739
Treasury stock
(129,588)
(72,293)
(53,018)
Accumulated other comprehensive income
(766,894)
(434,400)
220,390
Total stockholders’ equity
2,658,846
2,960,640
3,485,620
Non-controlling interest
16,467
12,762
8,210
Total equity
2,675,313
2,973,402
3,493,830
Total liabilities and equity
$
33,435,370
$
34,986,793
$
33,856,162
5
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS
(Unaudited) (In thousands)
For the Three Months Ended
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Sep. 30, 2021
Jun. 30, 2021
ASSETS:
Loans:
Business
$
5,385,181
$
5,324,172
$
5,191,844
$
5,437,498
$
6,211,610
Real estate — construction and land
1,225,267
1,134,902
1,228,237
1,168,566
1,088,433
Real estate — business
3,163,508
3,095,068
3,003,459
2,982,847
3,014,955
Real estate — personal
2,825,578
2,808,980
2,785,095
2,775,638
2,804,388
Consumer
2,070,560
2,040,200
2,043,690
2,041,263
2,004,625
Revolving home equity
272,280
273,859
276,464
281,689
287,031
Consumer credit card
537,681
540,844
559,429
566,406
575,725
Overdrafts
5,524
5,178
4,926
5,110
3,735
Total loans
15,485,579
15,223,203
15,093,144
15,259,017
15,990,502
Allowance for credit losses on loans
(134,670)
(149,685)
(162,428)
(172,112)
(200,801)
Net loans
15,350,909
15,073,518
14,930,716
15,086,905
15,789,701
Loans held for sale
7,933
9,383
11,203
16,021
23,389
Investment securities:
U.S. government and federal agency obligations
1,119,305
1,103,749
1,009,025
727,566
719,849
Government-sponsored enterprise obligations
55,762
51,770
50,777
50,785
50,793
State and municipal obligations
2,126,380
2,077,600
2,095,517
2,039,942
1,966,673
Mortgage-backed securities
7,158,252
7,316,609
7,141,249
7,115,419
6,685,407
Asset-backed securities
4,038,113
3,933,061
3,514,541
3,028,076
2,653,928
Other debt securities
643,463
636,247
629,643
608,642
605,772
Unrealized gain (loss) on debt securities
(851,110)
(174,297)
86,020
230,058
197,124
Total available for sale debt securities
14,290,165
14,944,739
14,526,772
13,800,488
12,879,546
Trading debt securities
43,904
40,686
46,513
32,238
34,955
Equity securities
9,094
9,498
9,171
8,756
4,914
Other securities
195,090
192,311
190,346
183,397
156,984
Total investment securities
14,538,253
15,187,234
14,772,802
14,024,879
13,076,399
Federal funds sold
4,269
1,053
564
792
1,338
Securities purchased under agreements to resell
1,703,569
1,733,887
1,669,835
1,633,205
937,372
Interest earning deposits with banks
1,248,942
2,608,029
2,856,992
2,602,896
2,724,782
Other assets
1,238,493
1,304,400
1,288,323
1,261,277
1,258,989
Total assets
$
34,092,368
$
35,917,504
$
35,530,435
$
34,625,975
$
33,811,970
LIABILITIES AND EQUITY:
Non-interest bearing deposits
$
11,209,680
$
11,544,701
$
11,919,268
$
11,475,113
$
11,109,198
Savings
1,609,694
1,563,093
1,507,199
1,484,923
1,474,391
Interest checking and money market
14,847,306
14,949,727
13,873,985
13,343,180
13,283,481
Certificates of deposit of less than $100,000
411,655
429,852
441,920
464,367
491,446
Certificates of deposit of $100,000 and over
648,728
862,232
1,105,480
1,289,665
1,354,685
Total deposits
28,727,063
29,349,605
28,847,852
28,057,248
27,713,201
Borrowings:
Federal funds purchased
113,128
23,356
20,848
13,606
23,292
Securities sold under agreements to repurchase
2,258,184
2,712,468
2,620,348
2,347,270
2,142,404
Other borrowings
2,029
768
1,078
347
978
Total borrowings
2,373,341
2,736,592
2,642,274
2,361,223
2,166,674
Other liabilities
139,986
505,644
562,102
667,786
527,401
Total liabilities
31,240,390
32,591,841
32,052,228
31,086,257
30,407,276
Equity
2,851,978
3,325,663
3,478,207
3,539,718
3,404,694
Total liabilities and equity
$
34,092,368
$
35,917,504
$
35,530,435
$
34,625,975
$
33,811,970
6
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE RATES
(Unaudited)
For the Three Months Ended
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Sep. 30, 2021
Jun. 30, 2021
ASSETS:
Loans:
Business (1)
3.16
%
2.93
%
3.16
%
3.43
%
3.15
%
Real estate — construction and land
4.09
3.76
3.61
3.51
3.56
Real estate — business
3.70
3.38
3.41
3.46
3.49
Real estate — personal
3.27
3.28
3.21
3.27
3.31
Consumer
3.62
3.59
3.65
3.71
3.84
Revolving home equity
3.69
3.48
3.47
3.46
3.43
Consumer credit card
11.32
11.35
11.06
11.29
11.22
Overdrafts
—
—
—
—
—
Total loans
3.72
3.54
3.62
3.74
3.65
Loans held for sale
8.14
6.48
5.10
4.63
4.20
Investment securities:
U.S. government and federal agency obligations
4.93
3.42
3.11
5.74
5.52
Government-sponsored enterprise obligations
2.39
2.33
2.30
2.30
2.33
State and municipal obligations (1)
2.30
2.29
2.26
2.35
2.41
Mortgage-backed securities
1.99
1.98
1.40
1.53
1.11
Asset-backed securities
1.35
1.13
1.03
1.08
1.25
Other debt securities
1.97
2.00
2.07
2.04
2.06
Total available for sale debt securities
2.08
1.91
1.59
1.80
1.64
Trading debt securities (1)
2.46
1.84
1.54
1.01
1.19
Equity securities (1)
26.90
26.00
27.64
23.92
43.10
Other securities (1)
22.38
5.91
18.39
7.46
11.90
Total investment securities
2.36
1.97
1.82
1.89
1.78
Federal funds sold
1.79
.39
.70
.50
.60
Securities purchased under agreements to resell
1.03
1.24
1.62
2.19
4.46
Interest earning deposits with banks
.78
.18
.15
.15
.11
Total interest earning assets
2.86
2.49
2.47
2.62
2.64
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings
.04
.05
.08
.08
.08
Interest checking and money market
.06
.04
.04
.05
.05
Certificates of deposit of less than $100,000
.20
.13
.14
.18
.27
Certificates of deposit of $100,000 and over
.29
.20
.14
.14
.20
Total interest bearing deposits
.07
.05
.05
.06
.07
Borrowings:
Federal funds purchased
.79
.12
.11
.10
.05
Securities sold under agreements to repurchase
.48
.10
.08
.08
.06
Other borrowings
2.37
.53
—
1.14
.82
Total borrowings
.50
.10
.08
.08
.06
Total interest bearing liabilities
.12
%
.06
%
.06
%
.06
%
.07
%
Net yield on interest earning assets
2.79
%
2.45
%
2.43
%
2.58
%
2.60
%
(1) Stated on a tax 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 Six Months Ended
(Unaudited) (In thousands, except ratios)
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Sep. 30, 2021
Jun. 30, 2021
Jun. 30, 2022
Jun. 30, 2021
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period
$134,710
$150,044
$162,775
$172,395
$200,527
$150,044
$220,834
Provision for credit losses on loans
7,287
(10,686)
(8,474)
(5,961)
(27,433)
(3,399)
(37,788)
Net charge-offs (recoveries):
Commercial portfolio:
Business
19
77
90
65
(4,909)
96
(4,913)
Real estate — construction and land
—
—
—
—
—
—
1
Real estate — business
(1)
(7)
6
(5)
(85)
(8)
(65)
18
70
96
60
(4,994)
88
(4,977)
Personal banking portfolio:
Consumer credit card
2,937
3,372
2,964
2,908
5,155
6,309
14,136
Consumer
633
808
919
496
378
1,441
1,141
Overdraft
425
358
375
243
148
783
301
Real estate — personal
(41)
22
(71)
(26)
(16)
(19)
(1)
Revolving home equity
(14)
18
(26)
(22)
28
4
51
3,940
4,578
4,161
3,599
5,693
8,518
15,628
Total net loan charge-offs
3,958
4,648
4,257
3,659
699
8,606
10,651
Balance at end of period
$138,039
$134,710
$150,044
$162,775
$172,395
$138,039
$172,395
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
$24,907
$25,032
$24,204
$22,784
$24,208
NET CHARGE-OFF RATIOS (1)
Commercial portfolio:
Business
—
%
.01
%
.01
%
—
%
(.32
%)
—
%
(.16
%)
Real estate — construction and land
—
—
—
—
—
—
—
Real estate — business
—
—
—
—
(.01)
—
—
—
—
—
—
(.19)
—
(.10)
Personal banking portfolio:
Consumer credit card
2.19
2.53
2.10
2.04
3.59
2.36
4.81
Consumer
.12
.16
.18
.10
.08
.14
.12
Overdraft
30.86
28.04
30.20
18.87
15.89
29.50
16.67
Real estate — personal
(.01)
—
(.01)
—
—
—
—
Revolving home equity
(.02)
.03
(.04)
(.03)
.04
—
.04
.28
.33
.29
.25
.40
.30
.55
Total
.10
%
.12
%
.11
%
.10
%
.02
%
.11
%
.13
%
CREDIT QUALITY RATIOS
Non-accrual loans to total loans
.05
%
.05
%
.06
%
.07
%
.07
%
Allowance for credit losses on loans to total loans
.88
.87
.99
1.07
1.10
NON-ACCRUAL AND PAST DUE LOANS
Non-accrual loans:
Business
$6,314
$6,756
$7,312
$8,293
$8,839
Real estate — construction and land
—
—
—
—
—
Real estate — business
167
190
214
577
655
Real estate — personal
1,436
1,389
1,631
1,551
1,672
Total
7,917
8,335
9,157
10,421
11,166
Loans past due 90 days and still accruing interest
$11,909
$10,670
$11,726
$10,496
$12,338
(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 Second Quarter Results
June 30, 2022
For the quarter ended June 30, 2022, net income amounted to $115.8 million, compared to $118.2 million in the previous quarter and $162.3 million in the same quarter last year. The decrease in net income compared to the previous quarter was primarily the result of an increase in the provision for credit losses, higher non-interest expense and lower securities gains. These decreases to net income were partly offset by higher net interest income and non-interest income. The net yield on interest earning assets grew 34 basis points to 2.79%. Average loans grew $262.4 million compared to the previous quarter, while average available for sale debt securities and average deposits declined $654.6 million and $622.5 million, respectively. For the quarter, the return on average assets was 1.36%, the return on average equity was 16.29%, and the efficiency ratio was 57.3%.
Balance Sheet Review
During the 2nd quarter of 2022, average loans totaled $15.5 billion, an increase of $262.4 million over the prior quarter, and declined $504.9 million, or 3.2%, from the same quarter last year. Compared to the previous quarter, average balances of business loans grew $61.0 million (includes a decline of $45.1 million in Paycheck Protection Program (PPP) average loan balances). Average construction and business real estate loan balances grew $90.4 million and $68.4 million, respectively. Period end loans increased $227.6 million compared to the prior quarter. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $36.6 million, compared to $55.6 million in the prior quarter.
Total average available for sale debt securities decreased $654.6 million compared to the previous quarter to $14.3 billion, at fair value. The decrease in investment securities was mainly the result of lower balances of mortgage-backed securities. During the current quarter, purchases of securities totaled $73.8 million with a weighted average yield of approximately 3.03%. Sales, maturities and pay downs were $715.4 million. At June 30, 2022, the duration of the investment portfolio was 3.8 years, and maturities and pay downs of approximately $2.2 billion are expected to occur during the next 12 months.
Total average deposits decreased $622.5 million this quarter compared to the previous quarter. The decrease in deposits mostly resulted from lower demand deposits and certificates of deposits of $335.0 million, and $231.7 million, respectively. Compared to the previous quarter, total average commercial and wealth deposits declined $672.4 million and $256.2 million, respectively, while total average consumer deposits increased $307.5 million. The average loans to deposits ratio was 53.9% in the current quarter and 51.9% in the prior quarter. The Company’s average borrowings, which include customer repurchase agreements, were $2.4 billion
in the 2nd quarter of 2022 and $2.7 billion in the prior quarter.
Net Interest Income
Net interest income in the 2nd quarter of 2022 amounted to $232.4 million, an increase of $23.6 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter increased $23.6 million over the previous quarter to $235.0 million. The increase in net interest income was mainly due to higher income earned on investment securities and loans. The net yield on earning assets (tax equivalent) increased to 2.79%, compared to 2.45% in the prior quarter.
Compared to the previous quarter, interest income on loans (tax equivalent) increased $10.5 million, due to higher average rates this quarter. Interest on business, business real estate, and construction loans grew mostly due to higher average rates coupled with higher average loan balances. The average tax-equivalent yield on the loan portfolio increased 18 basis points to 3.72% this quarter.
Interest income on investment securities (tax equivalent) increased $15.6 million compared to the prior quarter, due to higher rates earned. Interest income earned on U.S. government and federal agency securities increased due to higher rates earned, which included the impact of $4.4 million in higher inflation income from Treasury inflation-protected securities. Additionally, $6.5 million of non-accrual interest was received on the sale of a private equity investment this quarter. At June 30, 2022, the Company recorded a $5.0 million adjustment to premium amortization, which increased interest income to reflect considerably slower forward prepayment speed estimates on mortgage-backed securities, but it was less than the $7.5 million adjustment recorded in the prior quarter. The yield on total investment securities was 2.36% in the current quarter, compared to 1.97% in the previous quarter.
The average rate paid on interest bearing deposits totaled .07% in the current quarter compared to .05% in the prior quarter. Interest expense on deposits increased $627 thousand this quarter compared to the previous quarter, while interest expense on securities sold under agreements to repurchase increased $2.0 million, due to a 38 basis point increase in the average rate paid. The overall rate paid on interest bearing liabilities was .12% in the current quarter compared to .06% in the prior quarter.
Non-Interest Income
In the 2nd quarter of 2022, total non-interest income amounted to $139.4 million, an increase of $284 thousand compared to the same period last year, and increased $7.7 million compared to the prior quarter. The increase in non-interest income compared to the same period last year was mainly
COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2022
due to higher deposit, bank card, and sweep fees, mostly offset by lower loan fees and sales and a fair value adjustment on the Company’s deferred compensation plan assets. The increase in non-interest income compared to the prior quarter was mainly due to higher deposit account, sweep, bank card, and other fees.
Total net bank card fees in the current quarter increased $1.3 million, or 3.0%, over the same period last year, and increased $1.8 million compared to the prior quarter. Net corporate card fees increased $1.6 million, or 6.9%, 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 $28 thousand, or .3% and net merchant fees increased $39 thousand, or .8%, while net credit card fees decreased $393 thousand, or 9.6%. Total net bank card fees this quarter were comprised of fees on corporate card ($24.7 million), debit card ($10.5 million), merchant ($4.9 million) and credit card ($3.7 million) transactions.
In the current quarter, trust fees increased $535 thousand, or 1.2%, over the same period last year, resulting from higher private client fee income. Compared to the same period last year, deposit account fees increased $1.6 million, or 6.6%, mainly due to higher corporate cash management fees. Loan fees and sales, mostly mortgage banking revenue, declined $4.2 million, or 56.4%, compared to amounts recorded in the same quarter last year. Consumer brokerage fees increased $565 thousand, or 12.5%, compared to the same quarter last year.
Other non-interest income increased from the same period last year primarily due to higher sweep fees of $2.3 million and income of $2.2 million from a life insurance death benefit. These items were mostly offset by a $3.7 million decrease in fair value adjustment on the Company’s deferred compensation plan assets, which are held in a trust and recorded as both an asset and liability, affecting both other income and other expense. For the 2nd quarter of 2022, non-interest income comprised 37.5% of the Company’s total revenue.
Investment Securities Gains and Losses
The Company recorded net securities gains of $1.0 million in the current quarter, compared to gains of $7.2 million in the prior quarter and gains of $16.8 million in the 2nd quarter of 2021. Net securities gains in the current quarter primarily resulted from net fair value gains of $15.6 million in the Company’s private equity investment portfolio, mostly offset by losses of $9.6 million on sales of available for sale securities and a $4.3 million loss on the sale of an investment in the Company’s private equity portfolio. The Company received $6.5 million in nonaccrual interest, recorded in net interest income, upon the sale of the investment.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $213.5 million, compared to $198.1 million in the same period last year and $205.6 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 increase in non-interest expense compared to the prior quarter was mainly due to higher salaries expense, partially offset by lower benefits expense.
Compared to the 2nd quarter of last year, salaries and employee benefits expense increased $11.5 million, mostly due to higher full-time salaries expense, of $4.9 million and an accrual of $5.4 million for special bonuses to be paid to non-incentivized part-time and full-time employees in the 2nd half of 2022. Full-time equivalent employees totaled 4,579 and 4,590 at June 30, 2022 and 2021, respectively.
Compared to the same period last year, data processing and software expense increased $2.7 million due to higher software amortization, bank card processing fees and increased costs for service providers this quarter. Other non-interest expense decreased $383 thousand, mainly due to a decline of $3.7 million in the deferred compensation adjustment previously mentioned, mostly offset by increases in travel and entertainment expense, loan collection fees, and legal and professional fees of $1.3 million, $430 thousand, and $339 thousand, respectively.
Income Taxes
The effective tax rate for the Company was 21.7% in the current quarter, 21.3% in the previous quarter, and 21.8% in the 2nd quarter of 2021.
Credit Quality
Net loan charge-offs in the 2nd quarter of 2022 amounted to $4.0 million, compared to $4.6 million in the prior quarter and $699 thousand in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .10% in the current quarter, .12% in the previous quarter, and .02% in the 2nd quarter of last year. Net loan charge-offs on personal banking loans decreased $638 thousand to $3.9 million.
In the 2nd quarter of 2022, annualized net loan charge-offs on average consumer credit card loans were 2.19%, compared to 2.53% in the previous quarter, and 3.59% in the same quarter last year. Consumer loan net charge-offs were .12% of average consumer loans in the current quarter, .16% in the prior quarter, and .08% in the same quarter last year.
At June 30, 2022, the allowance for credit losses on loans totaled $138.0 million, or .88% of total loans. Additionally, the liability for unfunded lending commitments at June 30, 2022 was $24.9 million, a
10
COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2022
decrease of $125 thousand compared to the liability at March 31, 2022.
At June 30, 2022, total non-accrual loans amounted to $7.9 million, a decrease of $418 thousand from the previous quarter. At June 30, 2022, the balance of non-accrual loans, which represented .05% of loans outstanding, included business loans of $6.3 million, personal real estate loans of $1.4 million, and business real estate loans of $167 thousand. Loans more than 90 days past due and still accruing interest totaled $11.9 million at June 30, 2022.
Other
During the 2nd 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 846,223 shares of treasury stock during the current quarter at an average price of $67.77.
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.
