Exhibit 99.1
CBSH | |
1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000 | |
FOR IMMEDIATE RELEASE:
Thursday, October 11, 2018
COMMERCE BANCSHARES, INC. REPORTS
THIRD QUARTER EARNINGS PER SHARE OF $1.03
Commerce Bancshares, Inc. 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.”
(more)
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.
* * * * * * * * * * * * * * *
For additional information, contact
Jeffery Aberdeen, Controller
at 1000 Walnut Street, Suite 700
Kansas City, MO 64106
or by telephone at (816) 234-2081
Web Site: http://www.commercebank.com
Email: mymoney@commercebank.com
2
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
FINANCIAL HIGHLIGHTS
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
(Unaudited) (Dollars in thousands, except per share data) | September 30, 2018 | June 30, 2018 | September 30, 2017 | September 30, 2018 | September 30, 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). |
3
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||
(Unaudited) (In thousands, except per share data) | September 30, 2018 | June 30, 2018 | March 31, 2018 | December 31, 2017 | September 30, 2017 | September 30, 2018 | September 30, 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. |
4
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 |
5
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 |
6
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.
7
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 |
8
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,
9
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2018
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.
10