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Commerce Bancshares, Inc. Reports First Quarter Earnings Per Share of $.97

Commerce Bancshares, Inc. announced earnings of $.97 per share for the three months ended March 31, 2022, compared to $1.06 per share in the same quarter last year and $.94 per share in the fourth quarter of 2021. Net income for the first quarter of 2022 amounted to $118.2 million, compared to $131.0 million in the first quarter of 2021 and $114.9 million in the prior quarter.

"Commerce had strong financial performance for the quarter, including an expanding net interest margin and increasing loan demand,” said John Kemper, Chief Executive Officer. “Loan demand increased across our commercial loan categories, reflecting higher seasonal business activity and good overall momentum in our markets."

“The increase in interest rates and the steepening of the yield curve provided opportunities to optimize the mix of earning assets on our balance sheet. While net interest income grew, non-interest income comprised 39% of total revenue, a reflection of our diversified business model."

First Quarter 2022 Financial Highlights:

  • Net interest income was $208.8 million, a slight increase over the prior quarter. Net interest margin increased 2 basis points to 2.45%.
  • Non-interest income totaled $131.8 million, a decrease of $15.9 million compared to the prior quarter.
  • Net investment securities gains of $7.2 million were driven by net fair value gains of $7.5 million in the Company’s portfolio of private equity investments.
  • Non-interest expense totaled $205.6 million, an increase of $2.1 million compared to the prior quarter.
  • Average loan balances totaled $15.2 billion, an increase of $130.1 million, or .9%, over the prior quarter (average Paycheck Protection Program (PPP) loan balances declined $132.0 million).
  • Total average available for sale debt securities increased 2.9%, or $418.0 million, over the prior quarter to $14.9 billion, at fair value. Purchases of securities during the quarter totaled $1.8 billion, with a weighted average yield of approximately 2.06%.
  • Compared to the prior quarter, average deposits grew $501.7 million, or 1.7%. The average rate paid on interest bearing deposits was 5 basis points.
  • The ratio of annualized net loan charge-offs to average loans was .12% compared to .11% in the prior quarter.
  • Non-accrual loans totaled $8.3 million compared to $9.2 million in the prior quarter. Non-accrual loans were .05% of total loans.
  • At March 31, 2022, the allowance for credit losses on loans decreased to $134.7 million. The allowance for credit losses on loans to total loans was .87% at March 31, 2022.
  • The Company purchased 795,387 shares of its common stock this quarter at an average price of $70.22.
  • Total assets at March 31, 2022 were $35.0 billion, a decrease of $1.7 billion, or 4.6%, from the prior quarter.
  • For the quarter, the return on average assets was 1.33%, the return on average equity was 14.41%, and the efficiency ratio was 60.3%.

Commerce Bancshares, Inc. is a regional bank holding company offering a full line of banking services, including payment solutions, investment management and securities brokerage. Commerce Bank, a subsidiary of Commerce Bancshares, Inc., 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

(Unaudited)

(Dollars in thousands, except per share data)

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

FINANCIAL SUMMARY

Net interest income

 

$208,786

 

$207,657

 

$205,748

 

Non-interest income

 

131,769

 

147,699

 

136,045

 

Total revenue

 

340,555

 

355,356

 

341,793

 

Investment securities gains (losses), net

 

7,163

 

(9,706

)

9,853

 

Provision for credit losses

 

(9,858

)

(7,054

)

(6,232

)

Non-interest expense

 

205,648

 

203,582

 

192,573

 

Income before taxes

 

151,928

 

149,122

 

165,305

 

Income taxes

 

31,902

 

33,764

 

32,076

 

Non-controlling interest expense

 

1,872

 

452

 

2,257

 

Net income attributable to Commerce Bancshares, Inc.

118,154

 

114,906

 

130,972

 

Earnings per common share:

 

 

 

 

Net income — basic

 

$0.97

 

$0.94

 

$1.06

 

Net income — diluted

 

$0.97

 

$0.94

 

$1.06

 

Effective tax rate

 

21.26

%

22.71

%

19.67

%

Tax equivalent net interest income

 

$211,393

 

$210,424

 

$208,774

 

Average total interest earning assets (1)

 

$ 34,937,086

 

$ 34,318,520

 

$ 31,278,721

 

Diluted wtd. average shares outstanding

 

120,616,095

 

121,221,482

 

122,402,075

 

 

 

 

 

 

RATIOS

 

 

 

 

Average loans to deposits (2)

 

51.90

%

52.36

%

61.79

%

Return on total average assets

 

1.33

 

1.28

 

1.63

 

Return on average equity (3)

 

14.41

 

13.11

 

15.69

 

Non-interest income to total revenue

 

38.69

 

41.56

 

39.80

 

Efficiency ratio (4)

 

60.29

 

57.29

 

56.37

 

Net yield on interest earning assets

 

2.45

 

2.43

 

2.71

 

 

 

 

 

 

EQUITY SUMMARY

 

 

 

 

Cash dividends per share

 

$.265

 

$.250

 

$.250

 

Cash dividends on common stock

 

$32,143

 

$30,489

 

$30,799

 

Book value per share (5)

 

$24.60

 

$28.40

 

$26.99

 

Market value per share (5)

 

$71.59

 

$68.74

 

$72.96

 

High market value per share

 

$74.72

 

$71.50

 

$79.10

 

Low market value per share

 

$66.28

 

$64.85

 

$61.68

 

Common shares outstanding (5)

 

120,881,120

 

121,436,734

 

122,931,140

 

Tangible common equity to tangible assets (6)

 

8.09

%

9.01

%

9.57

%

Tier I leverage ratio

 

9.07

%

9.13

%

9.38

%

 

 

 

 

 

OTHER QTD INFORMATION

 

 

 

 

Number of bank/ATM locations

 

285

 

287

 

298

 

Full-time equivalent employees

 

4,563

 

4,567

 

4,619

 

(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

 

Mar. 31, 2022

Dec. 31, 2021

Sep. 30, 2021

Jun. 30, 2021

Mar. 31, 2021

Interest income

 

$211,782

 

$210,479

 

$216,981

 

$211,133

 

$209,697

 

Interest expense

 

2,996

 

2,822

 

2,944

 

3,151

 

3,949

 

Net interest income

 

208,786

 

207,657

 

214,037

 

207,982

 

205,748

 

Provision for credit losses

 

(9,858

)

(7,054

)

(7,385

)

(45,655

)

(6,232

)

Net interest income after credit losses

218,644

 

214,711

 

221,422

 

253,637

 

211,980

 

NON-INTEREST INCOME

 

 

 

 

 

 

Bank card transaction fees

 

42,045

 

44,773

 

42,815

 

42,608

 

37,695

 

Trust fees

 

47,811

 

48,893

 

48,950

 

46,257

 

44,127

 

Deposit account charges and other fees

22,307

 

25,493

 

25,161

 

23,988

 

22,575

 

Capital market fees

 

4,125

 

3,841

 

3,794

 

3,327

 

4,981

 

Consumer brokerage services

 

4,446

 

4,878

 

4,900

 

4,503

 

4,081

 

Loan fees and sales

 

4,235

 

5,248

 

6,842

 

7,446

 

10,184

 

Other

 

6,800

 

14,573

 

5,044

 

11,014

 

12,402

 

Total non-interest income

 

131,769

 

147,699

 

137,506

 

139,143

 

136,045

 

INVESTMENT SECURITIES GAINS (LOSSES), NET

7,163

 

(9,706

)

13,108

 

16,804

 

9,853

 

NON-INTEREST EXPENSE

 

 

 

 

 

 

Salaries and employee benefits

 

135,953

 

132,640

 

132,824

 

130,751

 

129,033

 

Net occupancy

 

12,296

 

12,308

 

12,329

 

11,527

 

12,021

 

Equipment

 

4,568

 

4,691

 

4,440

 

4,605

 

4,353

 

Supplies and communication

 

4,713

 

4,430

 

4,530

 

4,033

 

4,125

 

Data processing and software

 

27,016

 

25,777

 

25,598

 

24,954

 

25,463

 

Marketing

 

6,344

 

5,395

 

5,623

 

5,680

 

5,158

 

Other

 

14,758

 

18,341

 

26,276

 

16,576

 

12,420

 

Total non-interest expense

 

205,648

 

203,582

 

211,620

 

198,126

 

192,573

 

Income before income taxes

 

151,928

 

149,122

 

160,416

 

211,458

 

165,305

 

Less income taxes

 

31,902

 

33,764

 

34,662

 

45,209

 

32,076

 

Net income

 

120,026

 

115,358

 

125,754

 

166,249

 

133,229

 

Less non-controlling interest expense

1,872

 

452

 

3,193

 

3,923

 

2,257

 

Net income attributable to Commerce Bancshares, Inc.

118,154

 

114,906

 

122,561

 

162,326

 

130,972

 

Net income per common share — basic

$0.97

 

$0.94

 

$1.00

 

$1.32

 

$1.06

 

Net income per common share — diluted

$0.97

 

$0.94

 

$0.99

 

$1.32

 

$1.06

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

Return on total average assets

 

1.33

%

1.28

%

1.40

%

1.93

%

1.63

%

Return on average equity (1)

14.41

 

13.11

 

13.74

 

19.12

 

15.69

 

Efficiency ratio (2)

 

60.29

 

57.29

 

59.95

 

56.90

 

56.37

 

Effective tax rate

 

21.26

 

22.71

 

22.05

 

21.78

 

19.67

 

Net yield on interest earning assets

2.45

 

2.43

 

2.58

 

2.60

 

2.71

 

Tax equivalent net interest income

 

$211,393

 

$210,424

 

$216,858

 

$211,060

 

$208,774

 

(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)

 

Mar. 31, 2022

Dec. 31, 2021

Mar. 31, 2021

ASSETS

 

 

 

 

Loans

 

 

 

 

Business

 

$ 5,508,508

 

$ 5,303,535

 

$ 6,624,209

 

Real estate — construction and land

 

1,144,411

 

1,118,266

 

1,073,036

 

Real estate — business

 

3,109,668

 

3,058,837

 

3,017,242

 

Real estate — personal

 

2,820,076

 

2,805,401

 

2,828,418

 

Consumer

 

2,053,160

 

2,032,225

 

1,966,833

 

Revolving home equity

 

264,401

 

275,945

 

285,261

 

Consumer credit card

 

544,579

 

575,410

 

593,833

 

Overdrafts

 

14,211

 

6,740

 

3,239

 

Total loans

 

15,459,014

 

15,176,359

 

16,392,071

 

Allowance for credit losses on loans

 

(134,710

)

(150,044

)

(200,527

)

Net loans

 

15,324,304

 

15,026,315

 

16,191,544

 

Loans held for sale

 

8,908

 

8,615

 

38,076

 

Investment securities:

 

 

 

 

Available for sale debt securities

 

14,780,494

 

14,450,027

 

12,528,203

 

Trading debt securities

 

31,380

 

46,235

 

26,925

 

Equity securities

 

9,284

 

9,202

 

4,337

 

Other securities

 

199,576

 

194,047

 

155,913

 

Total investment securities

 

15,020,734

 

14,699,511

 

12,715,378

 

Federal funds sold

 

 

2,800

 

500

 

Securities purchased under agreements to resell

 

1,825,000

 

1,625,000

 

850,000

 

Interest earning deposits with banks

 

1,260,813

 

3,971,217

 

2,017,128

 

Cash and due from banks

 

326,549

 

305,539

 

338,666

 

Premises and equipment — net

 

394,028

 

388,738

 

371,737

 

Goodwill

 

138,921

 

138,921

 

138,921

 

Other intangible assets — net

 

15,885

 

15,570

 

13,098

 

Other assets

 

671,651

 

506,862

 

594,738

 

Total assets

 

$ 34,986,793

 

$ 36,689,088

 

$ 33,269,786

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Deposits:

 

 

 

 

Non-interest bearing

 

$ 11,428,372

 

$ 11,772,374

 

$ 11,076,556

 

Savings, interest checking and money market

 

16,751,632

 

16,598,085

 

14,572,378

 

Certificates of deposit of less than $100,000

 

422,992

 

435,960

 

504,472

 

Certificates of deposit of $100,000 and over

 

716,345

 

1,006,654

 

1,267,219

 

Total deposits

 

29,319,341

 

29,813,073

 

27,420,625

 

Federal funds purchased and securities sold under agreements to repurchase

 

2,317,461

 

3,022,967

 

1,938,110

 

Other borrowings

 

9,057

 

12,560

 

3,791

 

Other liabilities

 

367,532

 

392,164

 

589,875

 

Total liabilities

 

32,013,391

 

33,240,764

 

29,952,401

 

Stockholders’ equity:

 

 

 

 

Common stock

 

610,804

 

610,804

 

589,352

 

Capital surplus

 

2,678,025

 

2,689,894

 

2,420,393

 

Retained earnings

 

178,504

 

92,493

 

173,173

 

Treasury stock

 

(72,293

)

(32,973

)

(39,080

)

Accumulated other comprehensive income

 

(434,400

)

77,080

 

168,752

 

Total stockholders’ equity

 

2,960,640

 

3,437,298

 

3,312,590

 

Non-controlling interest

 

12,762

 

11,026

 

4,795

 

Total equity

 

2,973,402

 

3,448,324

 

3,317,385

 

Total liabilities and equity

 

$ 34,986,793

 

$ 36,689,088

 

$ 33,269,786

 

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

 

(Unaudited)

(In thousands)

For the Three Months Ended

Mar. 31, 2022

Dec. 31, 2021

Sep. 30, 2021

Jun. 30, 2021

Mar. 31, 2021

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business

$ 5,324,172

 

$ 5,191,844

 

$ 5,437,498

 

$ 6,211,610

 

$ 6,532,921

 

Real estate — construction and land

1,134,902

 

1,228,237

 

1,168,566

 

1,088,433

 

1,091,969

 

Real estate — business

3,095,068

 

3,003,459

 

2,982,847

 

3,014,955

 

3,022,979

 

Real estate — personal

2,808,980

 

2,785,095

 

2,775,638

 

2,804,388

 

2,826,112

 

Consumer

2,040,200

 

2,043,690

 

2,041,263

 

2,004,625

 

1,947,322

 

Revolving home equity

273,859

 

276,464

 

281,689

 

287,031

 

299,371

 

Consumer credit card

540,844

 

559,429

 

566,406

 

575,725

 

608,747

 

Overdrafts

5,178

 

4,926

 

5,110

 

3,735

 

3,546

 

Total loans

15,223,203

 

15,093,144

 

15,259,017

 

15,990,502

 

16,332,967

 

Allowance for credit losses on loans

(149,685

)

(162,428

)

(172,112

)

(200,801

)

(220,512

)

Net loans

15,073,518

 

14,930,716

 

15,086,905

 

15,789,701

 

16,112,455

 

Loans held for sale

9,383

 

11,203

 

16,021

 

23,389

 

35,814

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

1,103,749

 

1,009,025

 

727,566

 

719,849

 

725,367

 

Government-sponsored enterprise obligations

51,770

 

50,777

 

50,785

 

50,793

 

50,801

 

State and municipal obligations

2,077,600

 

2,095,517

 

2,039,942

 

1,966,673

 

1,958,637

 

Mortgage-backed securities

7,316,609

 

7,141,249

 

7,115,419

 

6,685,407

 

6,998,521

 

Asset-backed securities

3,933,061

 

3,514,541

 

3,028,076

 

2,653,928

 

2,085,491

 

Other debt securities

636,247

 

629,643

 

608,642

 

605,772

 

570,115

 

Unrealized gain on debt securities

(174,297

)

86,020

 

230,058

 

197,124

 

283,511

 

Total available for sale debt securities

14,944,739

 

14,526,772

 

13,800,488

 

12,879,546

 

12,672,443

 

Trading debt securities

40,686

 

46,513

 

32,238

 

34,955

 

32,320

 

Equity securities

9,498

 

9,171

 

8,756

 

4,914

 

4,321

 

Other securities

192,311

 

190,346

 

183,397

 

156,984

 

154,030

 

Total investment securities

15,187,234

 

14,772,802

 

14,024,879

 

13,076,399

 

12,863,114

 

Federal funds sold

1,053

 

564

 

792

 

1,338

 

7

 

Securities purchased under agreements to resell

1,733,887

 

1,669,835

 

1,633,205

 

937,372

 

849,999

 

Interest earning deposits with banks

2,608,029

 

2,856,992

 

2,602,896

 

2,724,782

 

1,480,331

 

Other assets

1,304,400

 

1,288,323

 

1,261,277

 

1,258,989

 

1,308,105

 

Total assets

$ 35,917,504

 

$ 35,530,435

 

$ 34,625,975

 

$ 33,811,970

 

$ 32,649,825

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Non-interest bearing deposits

$ 11,544,701

 

$ 11,919,268

 

$ 11,475,113

 

$ 11,109,198

 

$ 10,438,637

 

Savings

1,563,093

 

1,507,199

 

1,484,923

 

1,474,391

 

1,333,177

 

Interest checking and money market

14,949,727

 

13,873,985

 

13,343,180

 

13,283,481

 

12,970,629

 

Certificates of deposit of less than $100,000

429,852

 

441,920

 

464,367

 

491,446

 

516,728

 

Certificates of deposit of $100,000 and over

862,232

 

1,105,480

 

1,289,665

 

1,354,685

 

1,230,075

 

Total deposits

29,349,605

 

28,847,852

 

28,057,248

 

27,713,201

 

26,489,246

 

Borrowings:

 

 

 

 

 

Federal funds purchased

23,356

 

20,848

 

13,606

 

23,291

 

37,034

 

Securities sold under agreements to repurchase

2,712,468

 

2,620,348

 

2,347,270

 

2,142,405

 

2,129,038

 

Other borrowings

768

 

1,078

 

347

 

978

 

831

 

Total borrowings

2,736,592

 

2,642,274

 

2,361,223

 

2,166,674

 

2,166,903

 

Other liabilities

505,644

 

562,102

 

667,786

 

527,401

 

608,212

 

Total liabilities

32,591,841

 

32,052,228

 

31,086,257

 

30,407,276

 

29,264,361

 

Equity

3,325,663

 

3,478,207

 

3,539,718

 

3,404,694

 

3,385,464

 

Total liabilities and equity

$ 35,917,504

 

$ 35,530,435

 

$ 34,625,975

 

$ 33,811,970

 

$ 32,649,825

 

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

 

(Unaudited)

For the Three Months Ended

Mar. 31, 2022

Dec. 31, 2021

Sep. 30, 2021

Jun. 30, 2021

Mar. 31, 2021

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business (1)

2.93

%

3.16

%

3.43

%

3.15

%

3.09

%

Real estate — construction and land

3.76

 

3.61

 

3.51

 

3.56

 

3.54

 

Real estate — business

3.38

 

3.41

 

3.46

 

3.49

 

3.52

 

Real estate — personal

3.28

 

3.21

 

3.27

 

3.31

 

3.40

 

Consumer

3.59

 

3.65

 

3.71

 

3.84

 

4.02

 

Revolving home equity

3.48

 

3.47

 

3.46

 

3.43

 

3.38

 

Consumer credit card

11.35

 

11.06

 

11.29

 

11.22

 

10.97

 

Overdrafts

 

 

 

 

 

Total loans

3.54

 

3.62

 

3.74

 

3.65

 

3.66

 

Loans held for sale

6.48

 

5.10

 

4.63

 

4.20

 

3.44

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

3.42

 

3.11

 

5.74

 

5.52

 

2.54

 

Government-sponsored enterprise obligations

2.33

 

2.30

 

2.30

 

2.33

 

2.36

 

State and municipal obligations (1)

2.29

 

2.26

 

2.35

 

2.41

 

2.46

 

Mortgage-backed securities

1.98

 

1.40

 

1.53

 

1.11

 

1.39

 

Asset-backed securities

1.13

 

1.03

 

1.08

 

1.25

 

1.39

 

Other debt securities

2.00

 

2.07

 

2.04

 

2.06

 

2.15

 

Total available for sale debt securities

1.91

 

1.59

 

1.80

 

1.64

 

1.67

 

Trading debt securities (1)

1.84

 

1.54

 

1.01

 

1.19

 

1.08

 

Equity securities (1)

26.00

 

27.64

 

23.92

 

43.10

 

49.56

 

Other securities (1)

5.91

 

18.39

 

7.46

 

11.90

 

5.26

 

Total investment securities

1.97

 

1.82

 

1.89

 

1.78

 

1.72

 

Federal funds sold

.39

 

.70

 

.50

 

.60

 

 

Securities purchased under agreements to resell

1.24

 

1.62

 

2.19

 

4.46

 

5.31

 

Interest earning deposits with banks

.18

 

.15

 

.15

 

.11

 

.10

 

Total interest earning assets

2.49

 

2.47

 

2.62

 

2.64

 

2.76

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

Savings

.05

 

.08

 

.08

 

.08

 

.08

 

Interest checking and money market

.04

 

.04

 

.05

 

.05

 

.06

 

Certificates of deposit of less than $100,000

.13

 

.14

 

.18

 

.27

 

.37

 

Certificates of deposit of $100,000 and over

.20

 

.14

 

.14

 

.20

 

.35

 

Total interest bearing deposits

.05

 

.05

 

.06

 

.07

 

.09

 

Borrowings:

 

 

 

 

 

Federal funds purchased

.12

 

.11

 

.10

 

.05

 

.05

 

Securities sold under agreements to repurchase

.10

 

.08

 

.08

 

.06

 

.06

 

Other borrowings

.53

 

 

1.14

 

.82

 

.98

 

Total borrowings

.10

 

.08

 

.08

 

.06

 

.06

 

Total interest bearing liabilities

.06

%

.06

%

.06

%

.07

%

.09

%

 

 

 

 

 

 

Net yield on interest earning assets

2.45

%

2.43

%

2.58

%

2.60

%

2.71

%

(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

(Unaudited)

(In thousands, except ratios)

 

Mar. 31, 2022

Dec. 31, 2021

Sep. 30, 2021

Jun. 30, 2021

Mar. 31, 2021

ALLOWANCE FOR CREDIT LOSSES ON LOANS

 

 

 

 

 

 

Balance at beginning of period

 

$150,044

 

$162,775

 

$172,395

 

$200,527

 

$220,834

 

Adoption of ASU 2016-13

 

 

 

 

 

 

Provision for credit losses on loans

 

(10,686

)

(8,474

)

(5,961

)

(27,433

)

(10,355

)

Net charge-offs (recoveries):

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

Business

 

77

 

90

 

65

 

(4,909

)

(4

)

Real estate — construction and land

 

 

 

 

 

1

 

Real estate — business

 

(7

)

6

 

(5

)

(85

)

20

 

 

 

70

 

96

 

60

 

(4,994

)

17

 

Personal banking portfolio:

 

 

 

 

 

 

Consumer credit card

 

3,372

 

2,964

 

2,908

 

5,155

 

8,981

 

Consumer

 

808

 

919

 

496

 

378

 

763

 

Overdraft

 

358

 

375

 

243

 

148

 

153

 

Real estate — personal

 

22

 

(71

)

(26

)

(16

)

15

 

Revolving home equity

 

18

 

(26

)

(22

)

28

 

23

 

 

 

4,578

 

4,161

 

3,599

 

5,693

 

9,935

 

Total net loan charge-offs

 

4,648

 

4,257

 

3,659

 

699

 

9,952

 

Balance at end of period

 

$134,710

 

$150,044

 

$162,775

 

$172,395

 

$200,527

 

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

 

$25,032

 

$24,204

 

$22,784

 

$24,208

 

$42,430

 

 

 

 

 

 

 

 

NET CHARGE-OFF RATIOS (1)

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

Business

 

.01

%

.01

%

%

(.32

%)

%

Real estate — construction and land

 

 

 

 

 

 

Real estate — business

 

 

 

 

(.01

)

 

 

 

 

 

 

(.19

)

 

Personal banking portfolio:

 

 

 

 

 

 

Consumer credit card

 

2.53

 

2.10

 

2.04

 

3.59

 

5.98

 

Consumer

 

.16

 

.18

 

.10

 

.08

 

.16

 

Overdraft

 

28.04

 

30.20

 

18.87

 

15.89

 

17.50

 

Real estate — personal

 

 

(.01

)

 

 

 

Revolving home equity

 

.03

 

(.04

)

(.03

)

.04

 

.03

 

 

 

.33

 

.29

 

.25

 

.40

 

.71

 

Total

 

.12

%

.11

%

.10

%

.02

%

.25

%

 

 

 

 

 

 

 

CREDIT QUALITY RATIOS

 

 

 

 

 

 

Non-accrual loans to total loans

 

.05

%

.06

%

.07

%

.07

%

.14

%

Allowance for credit losses on loans to total loans(2)

 

.87

 

.99

 

1.07

 

1.10

 

1.22

 

 

 

 

 

 

 

 

NON-ACCRUAL AND PAST DUE LOANS

 

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

 

Business

 

$6,756

 

$7,312

 

$8,293

 

$8,839

 

$20,215

 

Real estate — construction and land

 

 

 

 

 

 

Real estate — business

 

190

 

214

 

577

 

655

 

1,572

 

Real estate — personal

 

1,389

 

1,631

 

1,551

 

1,672

 

1,719

 

Total

 

8,335

 

9,157

 

10,421

 

11,166

 

23,506

 

Loans past due 90 days and still accruing interest

$10,670

 

$11,726

 

$10,496

 

$12,338

 

$21,512

 

(1)

Net charge-offs are annualized and calculated as a percentage of average loans (excluding loans held for sale).

(2)

Excluding PPP loans, the allowance for credit losses on loans to total loans was .87% and 1.00% as of March 31, 2022 and December 31, 2021, respectively.

COMMERCE BANCSHARES, INC.

Management Discussion of First Quarter Results

March 31, 2022

For the quarter ended March 31, 2022, net income amounted to $118.2 million, compared to $114.9 million in the previous quarter and $131.0 million in the same quarter last year. The increase in net income compared to the previous quarter was primarily the result of net investment securities gains recorded this quarter compared to net losses recorded in the prior quarter, mostly offset by lower non-interest income. The net yield on interest earning assets grew two basis points to 2.45%. Average loans grew $130.1 million compared to the previous quarter, while average available for sale debt securities grew $418.0 million, and average deposits increased $501.7 million. For the quarter, the return on average assets was 1.33%, the return on average equity was 14.41%, and the efficiency ratio was 60.3%.

Balance Sheet Review

During the 1st quarter of 2022, average loans totaled $15.2 billion, an increase of $130.1 million over the prior quarter, and declined $1.1 billion, or 6.8%, from the same quarter last year. Compared to the previous quarter, average balances of business loans grew $132.3 million (includes a decline of $132.0 million in Paycheck Protection Program (PPP) average loan balances). Average business real estate loan balances grew $91.6 million, while construction loan balances declined $93.3 million. Period end loans increased $282.7 million compared to the prior quarter, including PPP loan balances that decreased $75.7 million this quarter and totaled $53.4 million at March 31, 2022. Excluding PPP loans, period end business loans increased $280.7 million. As of March 31, 2022, 97% of PPP loan balances have been forgiven. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $55.6 million, compared to $119.3 million in the prior quarter.

Total average available for sale debt securities increased $418.0 million over the previous quarter to $14.9 billion, at fair value. The increase in investment securities was mainly the result of growth in asset-backed securities. During the current quarter, purchases of securities totaled $1.8 billion with a weighted average yield of approximately 2.06%. Maturities and pay downs were $806.5 million. At March 31, 2022, the duration of the investment portfolio was 3.6 years, and maturities and pay downs of approximately $3.1 billion are expected to occur during the next 12 months.

Total average deposits increased $501.7 million this quarter compared to the previous quarter. The increase in deposits mostly resulted from growth in interest checking and money market deposits of $1.1 billion, partially offset by lower demand deposits and certificates of deposit of $374.6 million and $255.3 million, respectively. Compared to the previous quarter, total average consumer and wealth deposits grew $290.2 million and $213.6 million, respectively. The average loans to deposits ratio was 51.9% in the current quarter and 52.4% in the prior quarter. The Company’s average borrowings, which include customer repurchase agreements, were $2.7 billion in the 1st quarter of 2022 and $2.6 billion in the prior quarter.

Net Interest Income

Net interest income in the 1st quarter of 2022 amounted to $208.8 million, an increase of $1.1 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter increased $969 thousand compared to the previous quarter to $211.4 million. The increase in net interest income was mainly due to higher income earned on investment securities, partially offset by lower income earned on loans and securities purchased under agreements to resell. The net yield on earning assets (tax equivalent) increased to 2.45%, compared to 2.43% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) decreased $4.8 million, mostly due to $4.0 million of lower income recognized from PPP loans this quarter, partly offset by higher average loan balances. Interest on construction and consumer card loans declined mostly due to lower average loan balances, while consumer banking loans declined mostly due to lower average rates. The yield on PPP loans decreased from 10.80% to 9.36% this quarter. Excluding PPP loans, the yield on business loans was 2.82% in the 1st quarter of 2022 compared to 2.83% in the prior quarter. The average tax-equivalent yield on the loan portfolio decreased six basis points to 3.54% this quarter.

Interest income on investment securities (tax equivalent) increased $7.4 million compared to the prior quarter, due to higher rates earned coupled with higher average balances. At March 31, 2022, the Company recorded a $7.5 million adjustment to premium amortization compared to a $2.6 million adjustment in the prior quarter, which increased interest income to reflect considerably slower forward prepayment speed estimates on mortgage-backed securities. Interest income earned on U.S. government and federal agency securities increased due to higher average balances and rates earned, including the impact of $1.4 million in higher inflation income from Treasury inflation-protected securities. These increases were partly offset by $5.5 million in dividends received from private equity portfolio investments last quarter that did not reoccur. The yield on total investment securities was 1.97% in the current quarter, compared to 1.82% in the previous quarter.

The average rate paid on interest bearing deposits totaled .05% in both the current and prior quarters. Interest expense on deposits increased $25 thousand this quarter compared to the previous quarter. The overall rate paid on interest bearing liabilities was .06% in both the current and prior quarters.

Non-Interest Income

In the 1st quarter of 2022, total non-interest income amounted to $131.8 million, a decrease of $4.3 million, or 3.1%, compared to the same period last year and decreased $15.9 million compared to the prior quarter. The decrease in non-interest income compared to the same period last year was mainly due to lower loan fees and sales and less income from branch sales, partly offset by higher bank card and trust fee income. The decrease in non-interest income compared to the prior quarter was mainly due to lower income from branch sales, deposit account, trust and bank card fees.

Total net bank card fees in the current quarter increased $4.4 million, or 11.5%, over the same period last year, and decreased $2.7 million compared to the prior quarter. Net corporate card fees increased $3.5 million, or 17.2%, 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 $185 thousand, or 2.0%, mainly due to higher interchange fees. Net merchant income increased $366 thousand, or 7.9%, and net credit card fees increased $300 thousand, or 8.8%. Total net bank card fees this quarter were comprised of fees on corporate card ($23.8 million), debit card ($9.6 million), merchant ($5.0 million) and credit card ($3.7 million) transactions.

In the current quarter, trust fees increased $3.7 million, or 8.3%, over the same period last year, resulting mostly from higher private client fee income. Compared to the same period last year, deposit account fees decreased $268 thousand, or 1.2%, mainly due to lower personal deposit account fees, partially offset by higher corporate cash management fees. Loan fees and sales, mostly mortgage banking revenue, declined $5.9 million, or 58.4%, compared to amounts recorded in the same quarter last year. Capital markets fees decreased $856 thousand, or 17.2%, while consumer brokerage fees increased $365 thousand, or 8.9%, compared to the same quarter last year.

Other non-interest income decreased from the same period last year mainly due to a $2.4 million gain on the sale of a branch location recorded last year compared to a $965 thousand write down on a branch location recorded this quarter. In addition, swap fees and cash sweep commissions declined $637 thousand and $403 thousand, respectively. Fair value adjustments on the Company’s deferred compensation plan assets, which are held in a trust and recorded as both an asset and liability, decreased $1.9 million from the same quarter last year, affecting both other income and other expense. For the 1st quarter of 2022, non-interest income comprised 38.7% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded investment net gains of $7.2 million in the current quarter, compared to net losses of $9.7 million in the prior quarter and net gains of $9.9 million in the 1st quarter of 2021. Net gains on investments in the current quarter primarily resulted from net fair value gains of $7.5 million in the Company’s private equity investment portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $205.6 million, compared to $192.6 million in the same period last year and $203.6 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to higher salaries and benefits expense, data processing and software expense, marketing expense, and travel and entertainment expense. The increase in non-interest expense compared to the prior quarter was mainly due to higher payroll taxes and 401(k) contributions expense, partly offset by fair value adjustments on the Company’s deferred compensation plan and lower salaries expense.

Compared to the 1st quarter of last year, salaries and employee benefits expense increased $6.9 million, mostly due to higher full-time salaries expense. Employee benefits expense also increased $2.5 million compared to the prior quarter. Full-time equivalent employees totaled 4,563 and 4,619 at March 31, 2022 and 2021, respectively.

Compared to the same period last year, data processing and software expense increased $1.6 million due to higher software amortization, bank card processing fees and increased costs for service providers this quarter. Marketing expense increased $1.2 million. Additionally, other non-interest expense increased $2.3 million, mainly due to an increase of $1.1 million in travel and entertainment expense and lower deferred origination costs of $1.1 million, partially offset by a $1.9 million deferred compensation adjustment previously mentioned.

Income Taxes

The effective tax rate for the Company was 21.3% in the current quarter, 22.7% in the previous quarter, and 19.7% in the 1st quarter of 2021. The effective tax rate in the first quarter of 2022 is higher than the first quarter of 2021 mostly due to the executive compensation limitation on equity-based compensation.

Credit Quality

Net loan charge-offs in the 1st quarter of 2022 amounted to $4.6 million, compared to $4.3 million in the prior quarter and $10.0 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .12% in the current quarter, .11% in the previous quarter, and .25% in the 1st quarter of last year. Net loan charge-offs on personal banking loans increased $417 thousand to $4.6 million.

In the 1st quarter of 2022, annualized net loan charge-offs on average consumer credit card loans were 2.53%, compared to 2.10% in the previous quarter, and 5.98% in the same quarter last year. Consumer loan net charge-offs were .16% of average consumer loans in the current quarter, .18% in the prior quarter and .16% in the same quarter last year.

During the 1st quarter of 2022, the economy continued to recover from the pandemic and the economic forecast utilized in the allowance for credit loss model also continued to improve. This improvement, coupled with other model inputs, resulted in a decrease in the allowance for credit losses as of March 31, 2022, primarily in the consumer credit card portfolio as consumer credit continued to prove resistant to pandemic related hardships. At March 31, 2022, the allowance for credit losses on loans totaled $134.7 million, or .87% of total loans. Additionally, the liability for unfunded lending commitments at March 31, 2022 was $25.0 million, an increase of $828 thousand compared to the liability at December 31, 2021.

At March 31, 2022, total non-accrual loans amounted to $8.3 million, a decrease of $822 thousand from the previous quarter. At March 31, 2022, the balance of non-accrual loans, which represented .05% of loans outstanding, included business loans of $6.8 million, personal real estate loans of $1.4 million, and business real estate loans of $190 thousand. Loans more than 90 days past due and still accruing interest totaled $10.7 million at March 31, 2022.

Other

During the 1st 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 795,387 shares of treasury stock during the current quarter at an average price of $70.22.

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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