CBSH
$66.35
Commerce Bancshares
$.41
.62%
Earnings Details
3rd Quarter September 2018
Thursday, October 11, 2018 6:00:00 AM
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Summary

Commerce Bancshares Beats

Commerce Bancshares (CBSH) reported 3rd Quarter September 2018 earnings of $1.03 per share on revenue of $348.5 million. The consensus earnings estimate was $0.97 per share on revenue of $331.3 million. The Earnings Whisper number was $1.00 per share. Revenue grew 10.1% on a year-over-year basis.

Commerce Bancshares Inc is a bank holding company. The Company through its subsidiaries engages in banking business, providing a range of retail, corporate, investment, trust, and asset management products and services to individuals and businesses.

Results
Reported Earnings
$1.03
Earnings Whisper
$1.00
Consensus Estimate
$0.97
Reported Revenue
$348.5 Mil
Revenue Estimate
$331.3 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Commerce Bancshares, Inc. Reports Third Quarter Earnings Per Share of $1.03

KANSAS CITY, Mo.--(BUSINESS WIRE)-- Commerce Bancshares, Inc. (NASDAQ: CBSH) announced record earnings of $1.03 per common share for the three months ended September 30, 2018 compared to $.67 per share in the same quarter last year and $1.01 per share in the prior quarter. Net income attributable to Commerce Bancshares, Inc. for the third quarter of 2018 amounted to $112.6 million, compared to $74.6 million in the third quarter of 2017 and $110.3 million in the prior quarter. For the quarter, the return on average assets was 1.81%, the return on average common equity was 16.4%, and the efficiency ratio was 55.7%.

For the nine months ended September 30, 2018, earnings per common share totaled $2.96 compared to $2.03 for the first nine months of 2017. Net income attributable to Commerce Bancshares, Inc. amounted to $323.9 million for the nine months ended September 30, 2018 compared to $225.0 million in the comparable period last year, an increase of 43.9%. Year to date, the return on average assets was 1.76% and the return on average common equity was 16.3%.

In announcing these results, John W. Kemper, CEO, said, “We are pleased to report record earnings driven by a strong economy, higher interest rates and growth in our fee-based businesses. Net interest income grew $3.8 million this quarter, excluding non-recurring equity dividends received in both the current and prior quarters, as the yield on our loan portfolio grew 10 basis points while funding costs remained mostly stable. Compared to the same period last year, fee income grew 5.8%, driven mainly by increases in bank card, trust and deposit fee income. Although total average loan balances were flat with the prior quarter, we continued to see growth in our construction and personal real estate loan portfolios. Also, patient health care and consumer credit card balances showed solid growth this quarter. Average deposits declined $135.6 million this quarter, but our strong liquidity has allowed us to be strategic in managing our overall funding costs.”

Mr. Kemper added, “Credit quality remains very strong as net loan charge-offs remained low, non-accrual loans declined and overall delinquencies have improved. For the current quarter, net loan charge-offs totaled $9.8 million, compared to $10.0 million in the prior quarter and $10.7 million in the same quarter last year. The decline in net loan charge-offs was mainly the result of lower consumer credit card losses this quarter, compared to the previous quarter. The ratio of annualized net loan charge-offs to average loans was .28% this quarter compared to .29% last quarter. Non-performing assets declined this quarter to $9.6 million, while the provision for loan losses totaled $10.0 million and the allowance for loan losses amounted to $159.7 million, or 1.14% of period end loans.”

Total assets at September 30, 2018 were $25.1 billion, total loans were $14.0 billion, and total deposits were $20.1 billion. During the quarter, the Company paid a common cash dividend of $.235 per share, representing a 9.8% increase over the rate paid in 2017, and also paid an annualized 6% cash dividend on its preferred stock.

Commerce Bancshares, Inc. is a registered bank holding company offering a full line of banking services, including investment management and securities brokerage. The Company currently operates banking facilities in nine key markets including St. Louis, Kansas City, Springfield, Central Missouri, Central Illinois, Wichita, Tulsa, Oklahoma City and Denver. The Company also maintains commercial offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids.

This financial news release, including management's discussion of third quarter results, is posted to the Company's web site at www.commercebank.com.

 
COMMERCE BANCSHARES, INC. and SUBSIDIARIES

FINANCIAL HIGHLIGHTS

 

    For the Three Months Ended     For the Nine Months Ended
(Unaudited) September 30,     June 30,     September 30, September 30,     September 30,
(Dollars in thousands, except per share data)     2018     2018     2017 2018     2017
FINANCIAL SUMMARY
Net interest income $207,754 $210,959 $182,591 $611,605 $543,671
Non-interest income 123,714       124,850       116,887   368,254       341,880  
Total revenue 331,468 335,809 299,478 979,859 885,551
Investment securities gains (losses), net 4,306 (3,075 ) (3,037 ) 6,641 (2,158 )
Provision for loan losses 9,999 10,043 10,704 30,438 32,590
Non-interest expense 185,059       181,860       179,217   549,196       535,484  
Income before taxes 140,716 140,831 106,520 406,866 315,319
Income taxes 26,647 29,507 32,294 79,412 90,402
Non-controlling interest expense (income) 1,493       994       (338 ) 3,564       (111 )
Net income attributable to Commerce Bancshares, Inc. 112,576 110,330 74,564 323,890 225,028
Preferred stock dividends 2,250       2,250       2,250   6,750       6,750  
Net income available to common shareholders $110,326       $108,080       $72,314   $317,140       $218,278  
Earnings per common share:
Net income — basic $1.03 $1.02 $.68 $2.97 $2.04
Net income — diluted $1.03 $1.01 $.67 $2.96

 

$2.03
Effective tax rate 19.14 % 21.10 % 30.22 % 19.69 % 28.66 %
Tax equivalent net interest income $211,368 $215,775 $190,497 $623,781 $568,684
Average total interest earning assets (1) $ 23,826,980 $ 23,683,587 $ 23,834,266 $ 23,735,128 $ 24,039,584
Diluted wtd. average shares outstanding     105,962,119       106,029,417       105,981,086   105,985,780       105,910,623  
 
RATIOS
Average loans to deposits (2) 69.28 % 68.85 % 66.96 % 69.07 % 65.53 %
Return on total average assets 1.81 1.80 1.19 1.76 1.20
Return on average common equity (3) 16.43 16.78 11.35 16.27 11.85
Non-interest income to total revenue 37.32 37.18 39.03 37.58 38.61
Efficiency ratio (4) 55.73 54.06 59.73 55.95 60.35
Net yield on interest earning assets     3.52       3.65       3.17   3.51       3.16  
 
EQUITY SUMMARY
Cash dividends per common share $.235 $.235 $.214 $.705 $.643
Cash dividends on common stock $25,059 $25,096 $22,906 $75,261 $68,722
Cash dividends on preferred stock $2,250 $2,250 $2,250 $6,750       $6,750  
Book value per common share (5) $25.03 $24.64 $23.99
Market value per common share (5) $66.02 $64.71 $55.02
High market value per common share $72.55 $67.42 $56.42
Low market value per common share $64.32 $57.87 $49.43
Common shares outstanding (5) 106,372,470 106,614,043 106,706,732
Tangible common equity to tangible assets (6) 10.10 % 10.18 % 9.72 %
Tier I leverage ratio     11.38 %     11.18 %     10.16 %
 
OTHER QTD INFORMATION
Number of bank/ATM locations 322 322 334
Full-time equivalent employees     4,797       4,797       4,811  

(1)

 

Excludes allowance for loan losses and unrealized gains/(losses) on available for sale debt securities.

(2)

Includes loans held for sale.

(3)

Annualized net income available to common shareholders divided by average total equity less preferred stock.

(4)

The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.

(5)

As of period end.

(6)

The tangible common equity ratio is calculated as stockholders’ equity reduced by preferred stock, goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).

 
 
COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

    For the Three Months Ended     For the Nine Months Ended
(Unaudited) September 30,     June 30,     March 31,     December 31,     September 30, September 30,     September 30,
(In thousands, except per share data)     2018     2018     2018     2017     2017 2018     2017
Interest income $224,751 $225,623 $205,995 $201,572 $194,244 $656,369 $575,835
Interest expense 16,997       14,664       13,103       11,564       11,653   44,764       32,164  
Net interest income 207,754 210,959 192,892 190,008 182,591 611,605 543,671
Provision for loan losses 9,999       10,043       10,396       12,654       10,704   30,438       32,590  
Net interest income after provision for loan losses 197,755       200,916       182,496       177,354       171,887   581,167       511,081  
NON-INTEREST INCOME
Bank card transaction fees 42,427 43,215 41,453 42,888 39,166 127,095 112,212
Trust fees 37,400 37,036 36,062 35,405 34,620 110,498 99,754
Deposit account charges and other fees 23,755 23,893 22,982 22,598 22,659 70,630 67,462
Capital market fees 1,595 1,992 2,291 1,743 1,755 5,878 6,253
Consumer brokerage services 3,884 3,971 3,768 3,576 3,679 11,623 11,054
Loan fees and sales 3,579 3,229 2,862 3,099 3,590 9,670 10,849
Other 11,074       11,514       10,272       10,074       11,418   32,860       34,296  
Total non-interest income 123,714       124,850       119,690       119,383       116,887   368,254       341,880  
INVESTMENT SECURITIES GAINS (LOSSES), NET 4,306 (3,075 ) 5,410 27,209 (3,037 ) 6,641 (2,158 )
NON-INTEREST EXPENSE
Salaries and employee benefits 116,194 115,589 115,894 115,741 111,382 347,677 332,580
Net occupancy 11,631 11,118 11,584 11,280 11,459 34,333 34,332
Equipment 4,592 4,594 4,431 4,692 4,491 13,617 13,876
Supplies and communication 5,103 5,126 5,313 6,118 5,517 15,542 16,672
Data processing and software 22,056 21,016 20,690 21,090 19,968 63,762 59,908
Marketing 4,999 5,142 4,805 3,937 4,676 14,946 12,388
Deposit insurance 3,167 3,126 3,457 3,444 3,479 9,750 10,542
Community service 580 656 729 25,511 3,006 1,965 8,866
Other 16,737       15,493       15,374       17,046       15,239   47,604       46,320  
Total non-interest expense 185,059       181,860       182,277       208,859       179,217   549,196       535,484  
Income before income taxes 140,716 140,831 125,319 115,087 106,520 406,866 315,319
Less income taxes 26,647       29,507       23,258       20,104       32,294   79,412       90,402  
Net income 114,069 111,324 102,061 94,983 74,226 327,454 224,917
Less non-controlling interest expense (income) 1,493       994       1,077       628       (338 ) 3,564       (111 )
Net income attributable to Commerce Bancshares, Inc. 112,576 110,330 100,984 94,355 74,564 323,890 225,028
Less preferred stock dividends 2,250       2,250       2,250       2,250       2,250   6,750       6,750  
Net income available to common shareholders $110,326       $108,080       $98,734       $92,105       $72,314   $317,140       $218,278  
Net income per common share — basic $1.03       $1.02       $.92       $.86       $.68   $2.97       $2.04  
Net income per common share — diluted     $1.03       $1.01       $.92       $.86       $.67   $2.96       $2.03  
 
OTHER INFORMATION
Return on total average assets 1.81 % 1.80 % 1.66 % 1.50 % 1.19 % 1.76 % 1.20 %
Return on average common equity (1) 16.43 16.78 15.58 14.17 11.35 16.27 11.85
Efficiency ratio (2) 55.73 54.06 58.21 67.40 59.73 55.95 60.35
Effective tax rate 19.14 21.10 18.72 17.56 30.22 19.69 28.66
Net yield on interest earning assets 3.52 3.65 3.37 3.29 3.17 3.51 3.16
Tax equivalent net interest income     $211,368       $215,775       $196,638       $197,917       $190,497   $623,781       $568,684  

(1)

 

Annualized net income available to common shareholders divided by average total equity less preferred stock.

(2)

The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.

 
 
COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - PERIOD END

 

(Unaudited)
(In thousands)

    September 30,
2018
    June 30,
2018
    September 30,
2017
ASSETS            
Loans
Business $ 4,966,722 $ 4,990,298 $ 4,834,037
Real estate — construction and land 999,691 967,151 921,609
Real estate — business 2,726,042 2,727,580 2,700,174
Real estate — personal 2,120,672 2,102,586 2,029,302
Consumer 1,967,465 2,012,644 2,113,438
Revolving home equity 375,322 374,557 391,308
Consumer credit card 788,111 775,214 752,379
Overdrafts 11,534       4,081       3,245  
Total loans 13,955,559       13,954,111       13,745,492  
Allowance for loan losses (159,732 )     (159,532 )     (157,832 )
Net loans 13,795,827       13,794,579       13,587,660  
Loans held for sale 16,890 20,352 17,337
Investment securities:
Available for sale debt securities 8,674,986 8,412,376 9,025,765
Trading debt securities 19,676 31,156 24,605
Equity securities 4,467 4,444 85,283
Other securities 127,120       112,309       97,507  
Total investment securities 8,826,249       8,560,285       9,233,160  
Federal funds sold and short-term securities purchased under agreements to resell 14,375 31,500 32,630
Long-term securities purchased under agreements to resell 700,000 700,000 700,000
Interest earning deposits with banks 334,752 114,947 105,422
Cash and due from banks 443,004 386,339 461,724
Land, buildings and equipment — net 331,869 331,782 335,348
Goodwill 138,921 138,921 138,921
Other intangible assets — net 8,470 8,083 7,388
Other assets 452,035       437,954       359,551  
Total assets $ 25,062,392       $ 24,524,742       $ 24,979,141  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing $ 6,728,605 $ 6,876,756 $ 7,536,127
Savings, interest checking and money market 11,733,057 11,761,832 11,091,200
Time open and C.D.’s of less than $100,000 585,765 603,629 657,891
Time open and C.D.’s of $100,000 and over 1,086,193       1,079,340       1,158,555  
Total deposits 20,133,620       20,321,557       20,443,773  
Federal funds purchased and securities sold under agreements to repurchase 1,862,117 1,166,759 1,408,984
Other borrowings 1,534 9,291 102,553
Other liabilities 257,311       255,752       319,354  
Total liabilities 22,254,582       21,753,359       22,274,664  
Stockholders’ equity:
Preferred stock 144,784 144,784 144,784
Common stock 535,407 535,407 510,015
Capital surplus 1,804,031 1,804,057 1,548,318
Retained earnings 493,641 408,374 440,261
Treasury stock (33,174 ) (15,854 ) (9,895 )
Accumulated other comprehensive income (loss) (141,596 )     (108,781 )     67,061  
Total stockholders’ equity 2,803,093 2,767,987 2,700,544
Non-controlling interest 4,717       3,396       3,933  
Total equity 2,807,810       2,771,383       2,704,477  
Total liabilities and equity     $ 25,062,392       $ 24,524,742       $ 24,979,141  
 
 
   

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

       
(Unaudited)

(In thousands)

For the Three Months Ended
   

September 30,
2018

   

June 30,
2018

   

March 31,
2018

   

December 31,
2017

   

September 30,
2017

ASSETS:                
Loans:
Business $ 4,926,063 $ 4,962,171 $ 4,934,621 $ 4,818,419 $ 4,777,222
Real estate — construction and land 992,045 971,854 951,930 948,043 887,596
Real estate — business 2,732,968 2,726,697 2,733,812 2,720,356 2,710,453
Real estate — personal 2,110,945 2,078,972 2,062,083 2,044,651 2,017,264
Consumer 1,984,643 2,025,585 2,072,168 2,100,762 2,070,398
Revolving home equity 373,819 378,366 392,727 394,231 395,212
Consumer credit card 774,512 754,199 757,692 756,544 739,692
Overdrafts 4,704       4,497       4,628       5,295       4,373  
Total loans 13,899,699       13,902,341       13,909,661       13,788,301       13,602,210  
Allowance for loan losses (158,840 )     (158,664 )     (158,779 )     (157,026 )     (156,909 )
Net loans 13,740,859       13,743,677       13,750,882       13,631,275       13,445,301  
Loans held for sale 18,201 22,202 19,115 18,158 21,227
Investment securities:
U.S. government and federal agency obligations 923,557 923,183 916,655 917,664 917,808
Government-sponsored enterprise obligations 261,938 354,156 405,681 452,104 456,668
State and municipal obligations 1,375,768 1,394,766 1,513,243 1,630,660 1,699,365
Mortgage-backed securities 4,434,119 4,067,152 3,925,904 3,949,933 3,718,697
Asset-backed securities 1,427,041 1,407,300 1,469,488 1,622,778 2,025,415
Other debt securities 339,952 340,246 341,821 351,177 322,231
Unrealized gain (loss) on debt securities (119,319 )     (122,114 )     (43,238 )     36,875       73,291  
Total available for sale debt securities 8,643,056 8,364,689 8,529,554 8,961,191 9,213,475
Trading debt securities 24,490 26,101 21,966 20,401 21,149
Equity securities 4,466 47,179 50,507 82,416 51,204
Other securities 120,206       108,563       100,993       95,485       100,776  
Total investment securities 8,792,218       8,546,532       8,703,020       9,159,493       9,386,604  
Federal funds sold and short-term securities purchased under agreements to resell 13,042 36,791 44,339 27,017 23,807
Long-term securities purchased under agreements to resell 685,869 700,000 700,000 699,999 662,490
Interest earning deposits with banks 298,632 353,607 273,977 270,222 211,219
Other assets 1,147,250       1,119,454       1,145,200       1,157,289       1,122,230  
Total assets $ 24,696,071       $ 24,522,263       $ 24,636,533       $ 24,963,453       $ 24,872,878  
 
LIABILITIES AND EQUITY:
Non-interest bearing deposits $ 6,677,665 $ 6,749,104 $ 6,824,700 $ 7,257,102 $ 7,135,703
Savings 877,347 881,045 838,900 821,908 829,197
Interest checking and money market 10,839,310 10,850,123 10,737,829 10,416,221 10,387,212
Time open & C.D.’s of less than $100,000 593,936 609,011 625,319 644,951 667,710
Time open & C.D.’s of $100,000 and over 1,100,299       1,134,900       1,134,194       1,119,352       1,326,290  
Total deposits 20,088,557       20,224,183       20,160,942       20,259,534       20,346,112  
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase 1,499,837 1,339,278 1,560,573 1,625,828 1,500,987
Other borrowings 1,833       1,913       1,913       42,060       101,904  
Total borrowings 1,501,670 1,341,191 1,562,486 1,667,888 1,602,891
Other liabilities 296,884       229,080       198,398       312,172       251,714  
Total liabilities 21,887,111       21,794,454       21,921,826       22,239,594       22,200,717  
Equity 2,808,960       2,727,809       2,714,707       2,723,859       2,672,161  
Total liabilities and equity     $ 24,696,071       $ 24,522,263       $ 24,636,533       $ 24,963,453       $ 24,872,878  
 
   

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

       
(Unaudited) For the Three Months Ended
   

September 30,
2018

   

June 30,
2018

   

March 31,
2018

   

December 31,
2017

   

September 30,
2017

ASSETS:                
Loans:
Business (1) 3.80 % 3.69 % 3.48 % 3.32 % 3.25 %
Real estate — construction and land 5.21 5.06 4.69 4.41 4.31
Real estate — business 4.35 4.22 4.06 3.90 3.85
Real estate — personal 3.83 3.84 3.80 3.72 3.72
Consumer 4.46 4.39 4.25 4.07 4.02
Revolving home equity 4.72 4.51 4.25 4.06 4.03
Consumer credit card 11.99 12.05 12.06 11.90 12.03
Overdrafts                          
Total loans 4.59       4.49       4.33       4.18       4.13  
Loans held for sale 6.87 6.72 6.45 5.55 5.36
Investment securities:
U.S. government and federal agency obligations 2.23 3.18 2.12 2.60 1.40
Government-sponsored enterprise obligations 2.10 1.88 1.84 1.69 1.61
State and municipal obligations (1) 2.98 3.06 3.06 3.60 3.57
Mortgage-backed securities 2.65 2.60 2.62 2.38 2.36
Asset-backed securities 2.42 2.32 2.11 1.94 1.82
Other debt securities 2.59       2.63       2.65       2.56       2.51  
Total available for sale debt securities 2.60 2.66 2.52 2.52 2.34
Trading debt securities (1) 3.13 3.15 2.73 2.63 2.51
Equity securities (1) 32.69 89.68 3.64 3.30 4.02
Other securities (1) 13.00       6.68       6.73       6.67       5.39  
Total investment securities 2.76       3.19       2.58       2.58       2.37  
Federal funds sold and short-term securities purchased under agreements to resell 2.10 1.93 1.65 1.35 1.30
Long-term securities purchased under agreements to resell 2.26 2.17 2.38 2.36 2.28
Interest earning deposits with banks 1.96       1.80       1.69       1.18       1.24  
Total interest earning assets 3.80       3.90       3.59       3.48       3.36  
 
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings .11 .11 .12 .12 .12
Interest checking and money market .26 .23 .20 .17 .16
Time open & C.D.’s of less than $100,000 .56 .46 .43 .40 .40
Time open & C.D.’s of $100,000 and over 1.41       1.23       1.02       .88       .83  
Total interest bearing deposits .35       .32       .28       .24       .24  
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase 1.33 1.18 1.04 .83 .75
Other borrowings 2.60       2.52       2.54       3.59       3.53  
Total borrowings 1.33       1.19       1.04       .90       .93  
Total interest bearing liabilities .45 %     .40 %     .36 %     .31 %     .31 %
 
Net yield on interest earning assets     3.52 %     3.65 %     3.37 %     3.29 %     3.17 %

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

 
 
COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CREDIT QUALITY

                                           
  For the Three Months Ended     For the Nine Months Ended
(Unaudited) (In thousands, except per share data)    

September 30,
2018

   

June 30,
2018

   

March 31,
2018

   

December 31,
2017

   

September 30,
2017

September 30,
2018

   

September 30,
2017

ALLOWANCE FOR LOAN LOSSES                    
Balance at beginning of period $ 159,532 $ 159,532 $ 159,532 $ 157,832 $ 157,832 $ 159,532 $ 155,932
Provision for losses 9,999 10,043 10,396 12,654 10,704 30,438 32,590
Net charge-offs (recoveries):
Commercial portfolio:
Business 332 36 (14 ) 768 195 354 610
Real estate — construction and land (119 ) (297 ) (36 ) (87 ) (362 ) (452 ) (1,104 )
Real estate — business (42 )     (40 )     (205 )     (48 )     (106 ) (287 )     (155 )
171       (301 )     (255 )     633       (273 ) (385 )     (649 )
Personal banking portfolio:
Consumer credit card 7,340 8,251 7,566 7,724 7,631 23,157 22,529
Consumer 2,091 1,862 2,528 2,184 3,057 6,481 7,795
Overdraft 351 326 444 376 445 1,121 1,172
Real estate — personal (153 ) (95 ) 57 (56 ) (137 ) (191 ) (249 )
Revolving home equity (1 )           56       93       (19 ) 55       92  
9,628       10,344       10,651       10,321       10,977   30,623       31,339  
Total net loan charge-offs 9,799       10,043       10,396       10,954       10,704   30,238       30,690  
Balance at end of period     $ 159,732       $ 159,532       $ 159,532       $ 159,532       $ 157,832   $ 159,732       $ 157,832  
 
NET CHARGE-OFF RATIOS*
Commercial portfolio:
Business .03 % % % .06 % .02 % .01 % .02 %
Real estate — construction and land (.05 ) (.12 ) (.02 ) (.04 ) (.16 ) (.06 ) (.17 )
Real estate — business (.01 )     (.01 )     (.03 )     (.01 )     (.02 ) (.01 )     (.01 )
.01       (.01 )     (.01 )     .03       (.01 ) (.01 )     (.01 )
Personal banking portfolio:
Consumer credit card 3.76 4.39 4.05 4.05 4.09 4.06 4.07
Consumer .42 .37 .49 .41 .59 .43 .52
Overdraft 29.60 29.08 38.91 28.17 40.37 32.51 35.98
Real estate — personal (.03 ) (.02 ) .01 (.01 ) (.03 ) (.01 ) (.02 )
Revolving home equity             .06       .09       (.02 ) .02       .03  
.73       .79       .82       .77       .83   .78       .81  
Total     .28 %     .29 %     .30 %     .32 %     .31 % .29 %     .30 %
 
CREDIT QUALITY RATIOS
Non-performing assets to total loans .07 % .08 % .08 % .09 % .11 %
Non-performing assets to total assets .04 .04 .05 .05 .06
Allowance for loan losses to total loans     1.14       1.14       1.15       1.14       1.15  
 
NON-PERFORMING ASSETS
Non-accrual loans:
Business $ 5,131 $ 5,114 $ 5,557 $ 5,947 $ 6,821
Real estate — construction and land 4 5 5 5 533
Real estate — business 1,467 2,465 2,546 2,736 2,346
Real estate — personal 1,767 1,888 2,169 2,461 2,863
Consumer                   834       1,077  
Total 8,369       9,472       10,277       11,983       13,640  
Foreclosed real estate 1,181       1,039       1,300       681       1,063  
Total non-performing assets $ 9,550       $ 10,511       $ 11,577       $ 12,664       $ 14,703  
Loans past due 90 days and still accruing interest     $ 13,991       $ 13,453       $ 14,928       $ 18,127       $ 16,464  

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

 

COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2018

For the quarter ended September 30, 2018, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $112.6 million, compared to $110.3 million in the previous quarter and $74.6 million in the same quarter last year. In the 2nd quarter of 2018, dividend income of $8.9 million was recorded in interest income on an equity investment but was offset by securities losses of a comparable amount resulting from the same transaction. In the 3rd quarter of 2018, a discrete equity investment dividend of $2.0 million was recorded in interest income. Excluding these items, net interest income grew $3.8 million this quarter resulting from higher loan rates and stable funding costs. Non-interest income declined $1.1 million compared to the prior quarter mainly on lower swap, capital market fees, debit and credit card fees. Also, non-interest expense increased $3.2 million this quarter due to higher salaries and data processing costs. Quarterly average loans decreased $6.6 million this quarter from the previous quarter, while average deposits decreased $135.6 million. For the quarter, the return on average assets was 1.81%, the return on average common equity was 16.4%, and the efficiency ratio was 55.7%.

Balance Sheet Review

During the 3rd quarter of 2018, average loans totaled $13.9 billion, slightly lower than in the prior quarter, and grew $294.5 million, or 2.2%, over the same period last year. Compared to the previous quarter, average construction, personal real estate and consumer card loans grew $20.2 million, $32.0 million and $20.3 million, respectively. However, this growth was offset by a decline in business (decline of $36.1 million) and auto lending (decline of $28.8 million) activities. Increased advances on construction loans continued this quarter, and several large business real estate loans were originated. Also, new loan originations for personal real estate loans were seasonally higher than in the 2nd quarter. However, several larger loan payoffs on business and construction loans offset much of the new commercial loan originations this quarter. The growth in consumer card balances was mainly due to increased spending by existing customers coupled with new account activity. In addition to the decline in automobile lending, marine/RV loans continued to decline as planned, but the decline was partly offset by growth in patient healthcare loans which grew $11.8 million to $165.0 million. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $56.1 million, compared to $39.9 million in the prior quarter.

During the 3rd quarter of 2018, total average available for sale debt securities increased $278.4 million from the previous quarter to $8.6 billion, at fair value. The increase in investment securities was mainly the result of growth in mortgage-backed securities, offset by lower average balances of municipal securities and government-sponsored obligations. Purchases of securities during the quarter totaled $720.4 million and were offset by sales, maturities and pay downs of $407.8 million. At September 30, 2018, the duration of the investment portfolio was 3.3 years, and maturities and pay downs of approximately $1.1 billion are expected to occur during the next 12 months.

Total average deposits decreased $135.6 million this quarter compared to the previous quarter. The decrease in average deposits resulted mainly from lower balances of personal and government demand (decline of $180.7 million), money market (decline of $116.9 million), and certificates of deposit (decline of $49.7 million). Business demand and interest checking accounts increased $101.9 million and $106.1 million, respectively, this quarter. Overall, compared to the previous quarter, total average consumer and private banking deposits decreased $197.2 million and $87.2 million, respectively, while average commercial banking deposits grew $151.5 million. The average loans to deposits ratio was 69.3% in the current quarter and 68.9% in the prior quarter. The Company’s average borrowings were $1.5 billion in the 3rd quarter of 2018, an increase of $160.5 million over the prior quarter’s balance.

Net Interest Income

Net interest income in the 3rd quarter of 2018 amounted to $207.8 million compared to $211.0 million in the previous quarter, a decline of $3.2 million. On a tax equivalent basis, net interest income for the current quarter declined $4.4 million from the previous quarter to $211.4 million. As noted previously, net interest income included a discrete equity dividend of $2.0 million in the current quarter and $8.9 million in the prior quarter on the Company’s private equity investments. Excluding these items, net interest income grew $3.8 million and the adjusted net yield on earning assets (tax equivalent) was 3.49%.

Compared to the previous quarter, interest income on loans (tax equivalent) increased $5.1 million as a result of higher overall loan yields coupled with growth in consumer card, construction and personal real estate loan balances. The average tax-equivalent yield on the loan portfolio increased 10 basis points this quarter to 4.59%, compared to 4.49% in the previous quarter.

Interest income on investment securities (tax equivalent) declined $7.0 million from the previous quarter, mainly due to the dividends received on the Company’s equity investments noted above. Also, inflation income on our TIPs securities declined $2.1 million to $2.5 million. The adjustment to premium amortization expense for slowing prepayment speeds on mortgage-backed and asset-backed securities increased interest income $729 thousand this quarter, due to an increasing interest rate environment. The yield on total investment securities was 2.76% in the current quarter and 3.19% in the previous quarter.

Interest costs on deposits remained low and totaled 35 basis points in the 3rd quarter of 2018, compared to 32 basis points in the prior quarter. Interest expense on deposits increased $1.3 million this quarter compared to the previous quarter mainly due to higher rates and balances on corporate interest checking and higher rates on corporate money market accounts and certificates of deposit. Borrowing costs increased $1.1 million this quarter mostly due to higher rates and balances of federal funds and customer repurchase agreements. The overall rate paid on interest bearing liabilities was .45% in the current quarter, compared to .40% in the prior quarter.

Non-Interest Income

In the 3rd quarter of 2018, total non-interest income amounted to $123.7 million, an increase of $6.8 million, or 5.8%, compared to the same period last year. Non-interest income earned in the current quarter decreased $1.1 million compared to the prior quarter. The increase in non-interest income over the same period last year was mainly due to growth in bank card, trust and deposit fee income.

Total bank card fees in the current quarter increased $3.3 million, or 8.3%, over the same period last year and declined slightly compared to the prior quarter. The growth compared to the 3rd quarter of 2017 resulted mainly from growth in corporate card interchange income. Corporate card net fees grew $3.2 million, or 14.7%, over the same quarter last year mainly due to growth in interchange income from customer spend, coupled with lower network expense, but higher rewards costs. Debit card net fees grew $683 thousand, or 7.4%, driven by both higher fees and lower network processing costs. Overall net merchant income increased $377 thousand, or 7.9%, mainly on lower processing costs, while net credit card fees declined $980 thousand on higher rewards costs. Total bank card fees this quarter were comprised of fees on corporate card ($24.8 million), debit card ($9.9 million), merchant ($5.2 million) and credit card ($2.6 million) transactions.

In the current quarter, trust fees increased $2.8 million, or 8.0%, over the same period last year, resulting from growth in both private client and institutional trust fee income. Compared to the same period last year, deposit account fees increased $1.1 million, or 4.8%, mainly due to growth in corporate cash management fees.

During the 3rd quarter of 2018, sweep fees totaled $2.3 million, an increase of $443 thousand over the same period last year, while brokerage fees grew 5.6%. Gains on sales of tax credits totaled $737 thousand, slightly higher than the 3rd quarter of 2017; however, capital market fees declined $160 thousand on lower sales of fixed income investments to clients. Non-interest income comprised 37.3% of the Company’s total revenue this quarter, which declined from the same quarter in the prior year but reflects continued growth in net interest income during the 3rd quarter of 2018.

Investment Securities Gains and Losses

The Company recorded net securities gains of $4.3 million in the current quarter, compared to net securities losses of $3.1 million in the prior quarter and $3.0 million in the 3rd quarter of 2017. Net securities gains this quarter mainly resulted from fair value adjustments of $4.3 million on the Company’s private equity portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $185.1 million, compared to $179.2 million in the same period last year and $181.9 million in the prior quarter. The increase in expense over the same period last year was mainly due to higher costs for salaries and benefits and data processing, partly offset by lower operating costs for supplies and communication, foreclosed property costs and community service expenses.

Compared to the 3rd quarter of last year, salaries and benefits expense increased $4.8 million, or 4.3%. Salaries expense grew $4.2 million, mainly due to higher full-time salary costs, while benefits expense increased 4.2%, mostly due to higher medical costs. Full-time equivalent employees totaled 4,797 and 4,811 at September 30, 2018 and 2017, respectively.

Data processing costs increased $2.1 million, or 10.5%, mainly due to higher processing and software costs, while costs for supplies and communication, deposit insurance, and foreclosed property costs declined $1.1 million this quarter compared to the same quarter last year. Marketing costs increased 6.9%, or $323 thousand, mainly due to new bank card initiatives which are being funded by reduced bank card network costs. Also, community service costs declined $2.4 million due to higher quarterly foundation contributions in the prior year than in the current year.

Income Taxes

The effective tax rate for the Company was 19.1% in the current quarter, 21.1% in the previous quarter, and 30.2% in the 3rd quarter of 2017. The lower tax rate in the current quarter was the result of new state tax law enacted in the 3rd quarter of 2018 coupled with adjustments relating to new federal tax rules in place at the beginning of 2018. These adjustments resulted in tax benefits of $2.4 million being recorded in the current quarter.

Credit Quality

Net loan charge-offs in the 3rd quarter of 2018 amounted to $9.8 million, compared to $10.0 million in the prior quarter and $10.7 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .28% in the current quarter, compared to .29% in the previous quarter and .31% in the 3rd quarter of last year. During the 3rd quarter of 2018, the Company recorded net loan charge-offs on commercial loans of $171 thousand, compared to net loan recoveries of $301 thousand in the prior quarter. Net loan charge-offs on personal banking loans totaled $9.6 million in the current quarter and $10.3 million in the previous quarter.

In the 3rd quarter of 2018, annualized net loan charge-offs on average consumer credit card loans were 3.76%, compared to 4.39% in the previous quarter, and 4.09% in the same quarter last year. Consumer loan net charge-offs were .42% of average consumer loans in the current quarter, .37% in the prior quarter and .59% in the same quarter last year. This quarter, the provision for loan losses totaled $10.0 million, slightly higher than net loan charge-offs, and at September 30, 2018, the allowance totaled $159.7 million, or 1.14% of total loans.

At September 30, 2018, total non-performing assets amounted to $9.6 million, a $961 thousand decrease from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($8.4 million and $1.2 million, respectively). At September 30, 2018, the balance of non-accrual loans, which represented .06% of loans outstanding, included business loans of $5.1 million, business real estate loans of $1.5 million, and personal real estate loans of $1.8 million. Loans more than 90 days past due and still accruing interest totaled $14.0 million at September 30, 2018.

Other

During the 3rd quarter of 2018, the Company paid a cash dividend of $.235 per common share, representing a 9.8% increase over the same period last year. The Company also paid an annualized 6% cash dividend on its preferred stock. The Company purchased 292,955 shares of treasury stock during the current quarter at an average price of $70.00.

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.

Commerce Bancshares, Inc.
Jeffery Aberdeen, 816-234-2081
Controller
mymoney@commercebank.com
http://www.commercebank.com

Source: Commerce Bancshares