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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.
  • 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.

 

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.

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.
 

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

 

 

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

 

 

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%.
 

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).
 

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 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 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.

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