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Section 1: 8-K (8-K)

Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
Form 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 11, 2019
Commerce Bancshares, Inc.
(Exact name of registrant as specified in its charter)
Missouri
 
0-2989
 
43-0889454
(State of Incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
1000 Walnut,
 
 
Kansas City, MO
 
64106
(Address of principal executive offices)
 
(Zip Code)
 
 
(816) 234-2000
 
 
 
(Registrant’s telephone number, including area code)
 
 
 
 
 
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
     o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
     o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
     o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
     o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

The information in this Current Report on Form 8-K, including the exhibit, is furnished pursuant to Item 2.02 and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section. Furthermore, the information in this Current Report on Form 8-K, including the exhibit, shall not be deemed to be incorporated by reference into the filings of Commerce Bancshares, Inc. under the Securities Act of 1933, as amended.

 






Item 2.02 Results of Operations and Financial Condition
A copy of the press release issued April 11, 2019 by Commerce Bancshares, Inc. announcing First Quarter 2019 earnings is furnished under Item 2.02 of this Current Report on Form 8-K as Exhibit 99.1.
All information included in this Current Report on Form 8-K is available on the Company’s Internet site at http://www.commercebank.com.

Item 9.01 Financial Statements and Exhibits

Exhibits
99.1    Press release dated April 11, 2019


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
COMMERCE BANCSHARES, INC.
 
By:  
/s/ Jeffery D. Aberdeen  
 
 
Jeffery D. Aberdeen 
 
 
Controller
(Chief Accounting Officer) 
Date: April 11, 2019



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Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

Exhibit 99.1
397497804_commercebancshares914a01a05.jpg
CBSH
                   1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000
397497804_releaselogoa01a01a05.jpg
FOR IMMEDIATE RELEASE:
Thursday, April 11, 2019

COMMERCE BANCSHARES, INC. REPORTS
FIRST QUARTER EARNINGS PER SHARE OF $.85

Commerce Bancshares, Inc. announced earnings of $.85 per common share for the three months ended March 31, 2019, compared to $.88 per share in the same quarter last year and $.96 per share in the fourth quarter of 2018. Net income attributable to Commerce Bancshares, Inc. for the first quarter of 2019 amounted to $97.1 million, compared to $101.0 million in the first quarter of 2018 and $109.7 million in the prior quarter. For the current quarter, the return on average assets was 1.58%, the return on average common equity was 13.6% and the efficiency ratio was 58.8%.

In announcing these results, John Kemper, Chief Executive Officer, said, “While the U.S. economy remained solid and profits this quarter were strong at our Bank, we experienced only modest growth in average loans, driven mainly by the commercial category. Consumer lending was seasonally lower, especially in auto and consumer credit card loans. Net interest income declined compared to the prior quarter but included several non-recurring items recorded in the prior quarter. Adjusted for these items and income on our inflation bonds, our net yield on earning assets continued to grow, resulting from increased loan yields, while deposit costs grew modestly. Fee income totaled $121.2 million this quarter and reflected year-over-year growth in trust, cash sweep and mortgage banking revenue, but was partly offset by lower net bank card fees. The increase in non-interest expense compared to last year was mainly due to higher salaries and benefits, but included several non-recurring items and reflected a core growth rate of 3.2%."
    
Mr. Kemper continued, “This quarter net loan charge-offs totaled $11.7 million, compared to $12.1 million in the prior quarter and $10.4 million in the first quarter of 2018, as the overall credit environment remained favorable. The ratio of annualized net loan charge-offs to average loans was .34% in both the current and prior quarters and was .30% in the first quarter of last year. Net loan charge-offs on commercial loans declined $1.1 million from the previous quarter and remained low, while net loan charge-offs on personal banking loans increased $737 thousand to $11.3 million, mostly the result of higher consumer credit card losses. During the current quarter, the provision for loan losses exceeded net loan charge-offs by $750 thousand and totaled $12.5 million. The allowance for loan losses amounted to $160.7 million at March 31, 2019, or 1.14% of period end loans. Non-performing assets totaled $12.9 million this quarter and remained at very low levels."
    

(more)


Exhibit 99.1

Total assets at March 31, 2019 were $25.0 billion, total loans were $14.1 billion, and total deposits were $20.0 billion. During the quarter, the Company paid a common cash dividend of $.26 per share, representing a 16.1% increase over the rate paid in the fourth quarter of 2018, and paid a 6% cash dividend on its preferred stock. The Company purchased 647,054 of its common shares this quarter.

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 first 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: [email protected]











Exhibit 99.1

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
FINANCIAL HIGHLIGHTS
 
 
For the Three Months Ended
(Unaudited) (Dollars in thousands, except per share data)
 
March 31,
2019
December 31,
2018
March 31,
2018
FINANCIAL SUMMARY
Net interest income
 

$203,488


$212,220


$192,892

Non-interest income
 
121,240

133,087

119,690

Total revenue
 
324,728

345,307

312,582

Investment securities gains (losses), net
 
(925
)
(7,129
)
5,410

Provision for loan losses
 
12,463

12,256

10,396

Non-interest expense
 
191,425

188,625

182,277

Income before taxes
 
119,915

137,297

125,319

Income taxes
 
22,860

26,537

23,258

Non-controlling interest expense (income)
 
(83
)
1,108

1,077

Net income attributable to Commerce Bancshares, Inc.
97,138

109,652

100,984

Preferred stock dividends
 
2,250

2,250

2,250

Net income available to common shareholders

$94,888


$107,402


$98,734

Earnings per common share:
 
 
 
 
Net income — basic
 

$.85


$.96


$.88

Net income — diluted
 

$.85


$.96


$.88

Effective tax rate
 
19.05
%
19.49
%
18.72
%
Tax equivalent net interest income
 

$207,104


$216,281


$196,638

Average total interest earning assets (1)
 
$
23,874,861

$
23,974,108

$
23,693,350

Diluted wtd. average shares outstanding
 
110,300,988

110,770,084

111,264,137

 
 
 
 
 
RATIOS
 
 
 
 
Average loans to deposits (2)
 
70.96
%
69.87
%
69.09
%
Return on total average assets
 
1.58

1.75

1.66

Return on average common equity (3)
 
13.64

15.85

15.58

Non-interest income to total revenue
 
37.34

38.54

38.29

Efficiency ratio (4)
 
58.76

54.53

58.21

Net yield on interest earning assets
 
3.52

3.58

3.37

 
 
 
 
 
EQUITY SUMMARY
 
 
 
 
Cash dividends per common share
 

$.260


$.224


$.224

Cash dividends on common stock
 

$28,858


$24,997


$25,106

Cash dividends on preferred stock
 

$2,250


$2,250


$2,250

Book value per common share (5)
 

$26.18


$25.13


$22.88

Market value per common share (5)
 

$58.06


$56.37


$57.06

High market value per common share
 

$64.02


$64.70


$58.93

Low market value per common share
 

$55.62


$53.40


$52.24

Common shares outstanding (5)
 
110,696,250

111,331,350

111,948,372

Tangible common equity to tangible assets (6)
 
11.06
%
10.45
%
9.88
%
Tier I leverage ratio
 
11.67
%
11.52
%
10.84
%
 
 
 
 
 
OTHER QTD INFORMATION
 
 
 
 
Number of bank/ATM locations
 
319

320

325

Full-time equivalent employees
 
4,841

4,795

4,799

(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).
All share and per share amounts have been restated to reflect the 5% stock dividend distributed in December 2018.



Exhibit 99.1

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
 
For the Three Months Ended
(Unaudited)
(In thousands, except per share data)
 
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
March 31,
2018
Interest income
 

$227,865


$232,832


$224,751


$225,623


$205,995

Interest expense
 
24,377

20,612

16,997

14,664

13,103

Net interest income
 
203,488

212,220

207,754

210,959

192,892

Provision for loan losses
 
12,463

12,256

9,999

10,043

10,396

Net interest income after provision for loan losses
191,025

199,964

197,755

200,916

182,496

NON-INTEREST INCOME
 
 
 
 
 
 
Bank card transaction fees
 
39,644

44,481

42,427

43,215

41,453

Trust fees
 
37,256

37,466

37,400

37,036

36,062

Deposit account charges and other fees
23,018

23,887

23,755

23,893

22,982

Capital market fees
 
1,879

1,843

1,595

1,992

2,291

Consumer brokerage services
 
3,747

4,184

3,884

3,971

3,768

Loan fees and sales
 
3,309

3,053

3,579

3,229

2,862

Other
 
12,387

18,173

11,074

11,514

10,272

Total non-interest income
 
121,240

133,087

123,714

124,850

119,690

INVESTMENT SECURITIES GAINS (LOSSES), NET
(925
)
(7,129
)
4,306

(3,075
)
5,410

NON-INTEREST EXPENSE
 
 
 
 
 
 
Salaries and employee benefits
 
122,128

120,517

116,194

115,589

115,894

Net occupancy
 
11,501

11,711

11,631

11,118

11,584

Equipment
 
4,471

4,508

4,592

4,594

4,431

Supplies and communication
 
5,162

5,095

5,103

5,126

5,313

Data processing and software
 
22,260

22,216

22,056

21,016

20,690

Marketing
 
5,900

5,602

4,999

5,142

4,805

Deposit insurance
 
1,710

1,796

3,167

3,126

3,457

Community service
 
803

480

580

656

729

Other
 
17,490

16,700

16,737

15,493

15,374

Total non-interest expense
 
191,425

188,625

185,059

181,860

182,277

Income before income taxes
 
119,915

137,297

140,716

140,831

125,319

Less income taxes
 
22,860

26,537

26,647

29,507

23,258

Net income
 
97,055

110,760

114,069

111,324

102,061

Less non-controlling interest expense (income)
(83
)
1,108

1,493

994

1,077

Net income attributable to Commerce Bancshares, Inc.
97,138

109,652

112,576

110,330

100,984

Less preferred stock dividends
 
2,250

2,250

2,250

2,250

2,250

Net income available to common shareholders

$94,888


$107,402


$110,326


$108,080


$98,734

Net income per common share — basic

$.85


$.96


$.99


$.96


$.88

Net income per common share — diluted

$.85


$.96


$.98


$.96


$.88

 
 
 
 
 
 
 
OTHER INFORMATION
 
 
 
 
 
 
Return on total average assets
 
1.58
%
1.75
%
1.81
%
1.80
%
1.66
%
Return on average common equity (1)
13.64

15.85

16.43

16.78

15.58

Efficiency ratio (2)
 
58.76

54.53

55.73

54.06

58.21

Effective tax rate
 
19.05

19.49

19.14

21.10

18.72

Net yield on interest earning assets
3.52

3.58

3.52

3.65

3.37

Tax equivalent net interest income
 

$207,104


$216,281


$211,368


$215,775


$196,638

(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.




Exhibit 99.1

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - PERIOD END
(Unaudited)
(In thousands)
 
March 31,
2019
December 31,
2018
March 31,
2018
ASSETS
 
 
 
 
Loans
 
 
 
 
     Business
 
$
5,175,541

$
5,106,427

$
4,960,614

     Real estate — construction and land
 
925,269

869,659

932,058

     Real estate — business
 
2,859,614

2,875,788

2,724,584

     Real estate — personal
 
2,125,087

2,127,083

2,069,012

     Consumer
 
1,893,212

1,955,572

2,069,235

     Revolving home equity
 
364,010

376,399

382,825

     Consumer credit card
 
772,396

814,134

752,651

     Overdrafts
 
5,593

15,236

2,382

Total loans
 
14,120,722

14,140,298

13,893,361

Allowance for loan losses
 
(160,682
)
(159,932
)
(159,532
)
Net loans
 
13,960,040

13,980,366

13,733,829

Loans held for sale
 
20,085

20,694

16,435

Investment securities:
 
 
 
 
Available for sale debt securities
 
8,627,890

8,538,041

8,432,180

Trading debt securities
 
30,427

27,059

32,025

Equity securities
 
4,694

4,409

51,512

Other securities
 
129,504

129,157

108,320

Total investment securities
 
8,792,515

8,698,666

8,624,037

Federal funds sold and short-term securities purchased under agreements to resell
 
250

3,320

17,000

Long-term securities purchased under agreements to resell
 
700,000

700,000

700,000

Interest earning deposits with banks
 
166,077

689,876

134,697

Cash and due from banks
 
428,018

507,892

423,048

Premises and equipment — net
 
362,679

333,119

332,253

Goodwill
 
138,921

138,921

138,921

Other intangible assets — net
 
8,511

8,794

7,893

Other assets
 
456,375

382,194

483,129

Total assets
 
$
25,033,471

$
25,463,842

$
24,611,242

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
Non-interest bearing
 
$
6,298,724

$
6,980,298

$
6,953,430

Savings, interest checking and money market
 
11,799,346

11,685,239

11,828,138

Certificates of deposit of less than $100,000
 
599,289

586,091

615,401

Certificates of deposit of $100,000 and over
 
1,276,994

1,072,031

1,141,502

Total deposits
 
19,974,353

20,323,659

20,538,471

Federal funds purchased and securities sold under agreements to repurchase
 
1,722,751

1,956,389

1,132,329

Other borrowings
 
2,022

8,702

9,214

Other liabilities
 
291,132

237,943

225,500

Total liabilities
 
21,990,258

22,526,693

21,905,514

Stockholders’ equity:
 
 
 
 
Preferred stock
 
144,784

144,784

144,784

Common stock
 
559,432

559,432

535,407

Capital surplus
 
2,074,912

2,084,824

1,802,785

Retained earnings
 
307,193

241,163

325,390

Treasury stock
 
(60,547
)
(34,236
)
(15,681
)
Accumulated other comprehensive income (loss)
 
11,981

(64,669
)
(89,563
)
Total stockholders’ equity
 
3,037,755

2,931,298

2,703,122

Non-controlling interest
 
5,458

5,851

2,606

Total equity
 
3,043,213

2,937,149

2,705,728

Total liabilities and equity
 
$
25,033,471

$
25,463,842

$
24,611,242




Exhibit 99.1

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS
(Unaudited)
(In thousands)
For the Three Months Ended
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
ASSETS:
 
 
 
 
 
Loans:
 
 
 
 
 
Business
$
5,084,920

$
5,028,635

$
4,926,063

$
4,962,171

$
4,934,621

Real estate — construction and land
907,062

953,166

992,045

971,854

951,930

Real estate — business
2,864,177

2,757,595

2,732,968

2,726,697

2,733,812

Real estate — personal
2,119,365

2,122,357

2,110,945

2,078,972

2,062,083

Consumer
1,929,202

1,962,401

1,984,643

2,025,585

2,072,168

Revolving home equity
370,962

374,216

373,819

378,366

392,727

Consumer credit card
781,167

788,353

774,512

754,199

757,692

Overdrafts
4,205

5,277

4,704

4,497

4,628

Total loans 
14,061,060

13,992,000

13,899,699

13,902,341

13,909,661

Allowance for loan losses
(159,275
)
(158,880
)
(158,840
)
(158,664
)
(158,779
)
Net loans
13,901,785

13,833,120

13,740,859

13,743,677

13,750,882

Loans held for sale
18,350

18,475

18,201

22,202

19,115

Investment securities:
 
 
 
 
 
U.S. government and federal agency obligations
909,466

923,545

923,557

923,183

916,655

Government-sponsored enterprise obligations
199,480

214,913

261,938

354,156

405,681

State and municipal obligations
1,283,349

1,361,079

1,375,768

1,394,766

1,513,243

Mortgage-backed securities
4,360,428

4,379,805

4,434,119

4,067,152

3,925,904

Asset-backed securities
1,525,623

1,518,706

1,427,041

1,407,300

1,469,488

Other debt securities 
335,612

339,841

339,952

340,246

341,821

Unrealized loss on debt securities
(48,925
)
(166,181
)
(119,319
)
(122,114
)
(43,238
)
Total available for sale debt securities
8,565,033

8,571,708

8,643,056

8,364,689

8,529,554

Trading debt securities 
25,411

26,322

24,490

26,101

21,966

Equity securities
4,568

4,432

4,466

47,179

50,507

Other securities
130,057

127,634

120,206

108,563

100,993

Total investment securities
8,725,069

8,730,096

8,792,218

8,546,532

8,703,020

Federal funds sold and short-term securities purchased under agreements to resell
4,797

14,415

13,042

36,791

44,339

Long-term securities purchased under agreements to resell
700,000

699,999

685,869

700,000

700,000

Interest earning deposits with banks
316,660

352,942

298,632

353,607

273,977

Other assets
1,197,261

1,158,816

1,147,250

1,119,454

1,145,200

Total assets
$
24,863,922

$
24,807,863

$
24,696,071

$
24,522,263

$
24,636,533


 
 
 
 
 
LIABILITIES AND EQUITY:
 
 
 
 
 
Non-interest bearing deposits
$
6,324,738

$
6,666,715

$
6,677,665

$
6,749,104

$
6,824,700

Savings
896,378

870,844

877,347

881,045

838,900

Interest checking and money market
10,762,550

10,840,048

10,839,310

10,850,123

10,737,829

Certificates of deposit of less than $100,000
590,200

584,828

593,936

609,011

625,319

Certificates of deposit of $100,000 and over
1,267,517

1,090,546

1,100,299

1,134,900

1,134,194

Total deposits
19,841,383

20,052,981

20,088,557

20,224,183

20,160,942

Borrowings:
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
1,771,534

1,655,997

1,499,837

1,339,278

1,560,573

Other borrowings
1,248

1,335

1,833

1,913

1,913

Total borrowings
1,772,782

1,657,332

1,501,670

1,341,191

1,562,486

Other liabilities
284,018

264,449

296,884

229,080

198,398

Total liabilities
21,898,183

21,974,762

21,887,111

21,794,454

21,921,826

Equity
2,965,739

2,833,101

2,808,960

2,727,809

2,714,707

Total liabilities and equity
$
24,863,922

$
24,807,863

$
24,696,071

$
24,522,263

$
24,636,533




Exhibit 99.1

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE RATES
(Unaudited)
For the Three Months Ended
 
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
 
ASSETS:
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
Business (1)
4.07
%
3.93
%
3.80
%
3.69
%
3.48
%
 
Real estate — construction and land
5.73

5.47

5.21

5.06

4.69

 
Real estate — business
4.61

4.53

4.35

4.22

4.06

 
Real estate — personal
4.00

3.87

3.83

3.84

3.80

 
Consumer
4.73

4.62

4.46

4.39

4.25

 
Revolving home equity
5.17

4.98

4.72

4.51

4.25

 
Consumer credit card
12.18

11.91

11.99

12.05

12.06

 
Overdrafts





 
Total loans
4.85

4.72

4.59

4.49

4.33

 
Loans held for sale
7.38

6.59

6.87

6.72

6.45

 
Investment securities:
 
 
 
 
 
 
U.S. government and federal agency obligations
.78

1.90

2.23

3.18

2.12

 
Government-sponsored enterprise obligations
2.35

2.24

2.10

1.88

1.84

 
State and municipal obligations (1)
3.19

3.06

2.98

3.06

3.06

 
Mortgage-backed securities
2.76

2.75

2.65

2.60

2.62

 
Asset-backed securities
2.70

2.55

2.42

2.32

2.11

 
Other debt securities
2.69

2.60

2.59

2.63

2.65

 
Total available for sale debt securities
2.59

2.65

2.60

2.66

2.52

 
Trading debt securities (1)
3.24

3.21

3.13

3.15

2.73

 
Equity securities (1)
37.55

39.92

32.69

89.68

3.64

 
Other securities (1)
5.73

15.51

13.00

6.68

6.73

 
Total investment securities
2.66

2.86

2.76

3.19

2.58

 
Federal funds sold and short-term securities purchased under agreements to resell
2.79

2.56

2.10

1.93

1.65

 
Long-term securities purchased under agreements to resell
2.18

2.31

2.26

2.17

2.38

 
Interest earning deposits with banks
2.42

2.28

1.96

1.80

1.69

 
Total interest earning assets
3.93

3.92

3.80

3.90

3.59

 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY:
 
 
 
 
 
 
Interest bearing deposits:
 
 
 
 
 
 
Savings
.11

.11

.11

.11

.12

 
Interest checking and money market
.35

.30

.26

.23

.20

 
Certificates of deposit of less than $100,000
.87

.70

.56

.46

.43

 
Certificates of deposit of $100,000 and over
1.92

1.61

1.41

1.23

1.02

 
Total interest bearing deposits
.51

.41

.35

.32

.28

 
Borrowings:
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
1.72

1.60

1.33

1.18

1.04

 
Other borrowings
1.62

2.67

2.60

2.52

2.54

 
Total borrowings
1.72

1.60

1.33

1.19

1.04

 
Total interest bearing liabilities
.65
%
.54
%
.45
%
.40
%
.36
%
 
 
 
 
 
 
 
 
Net yield on interest earning assets
3.52
%
3.58
%
3.52
%
3.65
%
3.37
%
 
(1) Stated on a tax equivalent basis using a federal income tax rate of 21%.










Exhibit 99.1

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CREDIT QUALITY
 
 
 
 
 
 
 
For the Three Months Ended
(Unaudited) (In thousands, except per share data)
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
March 31, 2018
ALLOWANCE FOR LOAN LOSSES
 
 
 
 
 
Balance at beginning of period
$
159,932

$
159,732

$
159,532

$
159,532

$
159,532

     Provision for losses
12,463

12,256

9,999

10,043

10,396

     Net charge-offs (recoveries):
 
 
 
 
 
        Commercial portfolio:
 
 
 
 
 
     Business
447

1,748

332

36

(14
)
     Real estate — construction and land
(16
)
(183
)
(119
)
(297
)
(36
)
     Real estate — business
(37
)
(91
)
(42
)
(40
)
(205
)
 
394

1,474

171

(301
)
(255
)
        Personal banking portfolio:
 
 
 
 
 
     Consumer credit card
8,958

7,421

7,340

8,251

7,566

     Consumer
1,924

2,805

2,091

1,862

2,528

     Overdraft
317

500

351

326

444

     Real estate — personal
101

(144
)
(153
)
(95
)
57

     Revolving home equity
19


(1
)

56

 
11,319

10,582

9,628

10,344

10,651

     Total net loan charge-offs
11,713

12,056

9,799

10,043

10,396

Balance at end of period
$
160,682

$
159,932

$
159,732

$
159,532

$
159,532

 
 
 
 
 
 
NET CHARGE-OFF RATIOS*
 
 
 
 
 
Commercial portfolio:
 
 
 
 
 
     Business
.04
 %
.14
 %
.03
 %
 %
 %
     Real estate — construction and land
(.01
)
(.08
)
(.05
)
(.12
)
(.02
)
     Real estate — business
(.01
)
(.01
)
(.01
)
(.01
)
(.03
)
 
.02

.07

.01

(.01
)
(.01
)
Personal banking portfolio:
 
 
 
 
 
     Consumer credit card
4.65

3.73

3.76

4.39

4.05

     Consumer
.40

.57

.42

.37

.49

     Overdraft
30.57

37.59

29.60

29.08

38.91

     Real estate — personal
.02

(.03
)
(.03
)
(.02
)
.01

     Revolving home equity
.02




.06

 
.88

.80

.73

.79

.82

Total
.34
 %
.34
 %
.28
 %
.29
 %
.30
 %
 
 
 
 
 
 
CREDIT QUALITY RATIOS
 
 
 
 
 
Non-performing assets to total loans
.09
 %
.10
 %
.07
 %
.08
 %
.08
 %
Non-performing assets to total assets
.05

.05

.04

.04

.05

Allowance for loan losses to total loans
1.14

1.13

1.14

1.14

1.15

 
 
 
 
 
 
NON-PERFORMING ASSETS
 
 
 
 
 
  Non-accrual loans:
 
 
 
 
 
     Business
$
8,569

$
8,985

$
5,131

$
5,114

$
5,557

     Real estate — construction and land
4

4

4

5

5

     Real estate — business
1,746

1,715

1,467

2,465

2,546

     Real estate — personal
1,848

1,832

1,767

1,888

2,169

   Total
12,167

12,536

8,369

9,472

10,277

  Foreclosed real estate
737

1,413

1,181

1,039

1,300

Total non-performing assets
$
12,904

$
13,949

$
9,550

$
10,511

$
11,577

Loans past due 90 days and still accruing interest
$
16,655

$
16,658

$
13,991

$
13,453

$
14,928

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




COMMERCE BANCSHARES, INC.
Management Discussion of First Quarter Results
March 31, 2019

For the quarter ended March 31, 2019, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $97.1 million, compared to $109.7 million in the previous quarter and $101.0 million in the same quarter last year. The decrease in net income from the previous quarter was the result of lower net interest income and non-interest income and higher non-interest expense, partly offset by lower securities losses. Excluding inflation income on the Company’s inflation protected securities (TIPs) and certain non-recurring interest income received last quarter, the net interest margin grew five basis points to 3.55%, mainly due to higher loan rates, while funding costs rose modestly. Non-interest income declined $11.8 million this quarter, but the prior quarter included net branch gains of $7.7 million. Average loans increased $68.9 million this quarter over the previous quarter, while average deposits decreased $211.6 million. For the quarter, the return on average assets was 1.58%, the return on average common equity was 13.6%, and the efficiency ratio was 58.8%.

Balance Sheet Review
During the 1st quarter of 2019, average loans totaled $14.1 billion, an increase of $68.9 million over the prior quarter, and grew $150.6 million, or 1.1%, over the same period last year. Period-end loans, however, declined slightly from the prior quarter. Compared to the previous quarter, average business real estate and business loans grew $106.6 million, and $56.3 million, respectively. This growth was partly offset by declines in average construction (decline of $46.1 million) and auto (decline of $24.3 million) lending activities. Growth in business loans was the result of increased leasing activities, new commercial and industrial lending and seasonal agribusiness borrowings, but other seasonal loan paydowns partly offset this growth. Business real estate loans continued to grow from new lending in a number of our markets. The decline in construction loans resulted mainly from paydowns on completed projects, partly offset by additional loan draws on existing projects. The decline in auto loans of $24.3 million mainly resulted from paydowns on existing loan balances, which exceeded new loan originations. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $45.6 million, compared to $49.7 million in the prior quarter.

Total average available for sale debt securities decreased $6.7 million from the previous quarter to $8.6 billion, at fair value. The decrease in investment securities was mainly the result of lower municipal, mortgage-backed, U.S. government and federal agency, and government-sponsored enterprise obligation securities. Purchases of securities during the quarter totaled $406.5 million, and sales, maturities and pay downs were $404.6 million. At March 31, 2019, the duration of the investment portfolio was 2.9 years, and maturities and pay downs of approximately $1.0 billion are expected to occur during the next 12 months.

Total average deposits decreased $211.6 million this quarter compared to the previous quarter. The decrease in average deposits resulted mainly from lower balances of business demand deposits (decline of $457.8 million), and money market accounts (decline of $282.7 million). These declines were partly offset by increases in interest checking deposits, certificates of deposit, government demand deposits, personal demand deposits, and savings deposits of $205.2 million, $182.3 million, $64.1 million, $55.0 million, and $25.5 million, respectively. Compared to the previous quarter, total average consumer and wealth (including private banking) deposits increased $127.9 million and $31.4 million, respectively, while average commercial banking deposits declined $274.1
 
million. The average loans to deposits ratio was 71.0% in the current quarter and 69.9% in the prior quarter. The Company’s average borrowings, which includes customer repurchase agreements, were $1.8 billion in the 1st quarter of 2019, an increase of $115.5 million over the prior quarter’s balance.

Net Interest Income
Net interest income in the 1st quarter of 2019 amounted to $203.5 million compared to $212.2 million in the previous quarter, a decrease of $8.7 million. On a tax equivalent basis, net interest income for the current quarter decreased $9.2 million from the previous quarter to $207.1 million. The decline in net interest income was partly due to fewer days in the quarter but also included non-recurring dividends and interest of $3.1 million from the Company’s private equity investments in the prior quarter. Additionally, inflation income on the Company’s TIPs declined $3.5 million this quarter. Excluding these items, net interest income declined $2.4 million and the adjusted net yield on earning assets (tax equivalent) increased to 3.55%, compared to 3.50% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) increased $1.7 million as a result of higher overall loan yields coupled with growth in business real estate loan balances. The average tax-equivalent yield on the loan portfolio increased 13 basis points this quarter to 4.85%, compared to 4.72% in the previous quarter.

Interest income on investment securities (tax equivalent) decreased $6.6 million from the previous quarter, mainly due to the discrete interest and dividends received in the prior quarter, as noted above, coupled with lower inflation income on TIPs. A decline in the Consumer Price Index this quarter resulted in negative inflation income of $2.0 million. The adjustment to premium amortization on mortgage-backed securities for pre-payment speed changes was not material this quarter. The yield on total investment securities was 2.66% in the current quarter and 2.86% in the previous quarter.

Interest costs on deposits totaled 51 basis points in the 1st quarter of 2019, compared to 41 basis points in the prior quarter. Interest expense on deposits increased $2.9 million this quarter compared to the previous quarter mainly due to higher rates on money market and certificates of deposit (CD), coupled with growth in jumbo CD balances. Borrowing costs increased $829 thousand this quarter due to higher rates and balances of customer repurchase agreements. The overall rate paid on interest bearing liabilities was .65% in the current quarter, compared to .54% in the prior quarter.

Non-Interest Income
In the 1st quarter of 2019, total non-interest income amounted to $121.2 million, an increase of $1.6 million, or 1.3%, compared to the same period last year and decreased $11.8 million compared to the prior quarter. The prior quarter included net gains of $7.7 million from the disposition of several branch properties (included in other income). The increase in non-interest income over the same period last year was mainly due to growth in trust, cash sweep, and loan fee income, partly offset by lower net bank card fees.

Total net bank card fees in the current quarter decreased $1.8 million, or 4.4%, from the same period last year and decreased $4.8 million, or 10.9%, compared to the prior quarter. Net corporate card fees declined $1.3 million, or 5.4%, from the same



COMMERCE BANCSHARES, INC.
Management Discussion of First Quarter Results
March 31, 2019


quarter last year mainly due to higher rewards and network expense. Net debit card fees declined $261 thousand, or 2.8%, due to lower interchange income. Overall net merchant income declined $287 thousand due to lower interchange fees and higher network expense, while net credit card fees increased slightly on higher interchange revenue. Total net bank card fees this quarter were comprised of fees on corporate card ($22.9 million), debit card ($9.1 million), merchant ($4.5 million) and credit card ($3.2 million) transactions.

In the current quarter, trust fees increased $1.2 million, or 3.3%, over the same period last year, resulting from growth in private client fee income. Compared to the same period last year, deposit account fees increased slightly due to growth in corporate cash management fees, offset by lower overdraft and deposit account fees.

During the 1st quarter of 2019, cash sweep fees grew 59% over the same period last year to $3.4 million, while capital market fees declined $412 thousand. Loan fees and sales increased $447 thousand, or 15.6%, over amounts recorded in the same quarter last year, mainly due to higher mortgage banking revenue. The Company’s deferred compensation plan assets are held in a trust and are recorded as both an asset and a liability. Fair value equity adjustments on these assets affecting both other income and other expense increased $1.4 million over the same quarter last year and $2.7 million over the previous quarter. Non-interest income comprised 37.3% of the Company’s total revenue this quarter.

Investment Securities Gains and Losses
The Company recorded net securities losses of $925 thousand in the current quarter, compared to losses of $7.1 million in the prior quarter and gains of $5.4 million in the 1st quarter of 2018. Net securities losses in the current quarter resulted mainly from unrealized fair value losses of $1.8 million on the Company’s private equity investment portfolio, partly offset by net gains of $694 thousand from sales of investment securities with a book value of $150.1 million.

Non-Interest Expense
Non-interest expense for the current quarter amounted to $191.4 million, compared to $182.3 million in the same period last year and $188.6 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, but included several non-recurring items, and reflected a core growth rate of 3.2%.

Compared to the 1st quarter of last year, salaries and benefits expense increased $6.2 million, or 5.4%. Salaries expense grew $5.0 million, mostly due to higher full-time salary costs. Benefits expense increased $1.2 million, or 5.8%, due to higher medical expense. Full-time equivalent employees totaled 4,841 and 4,799 at March 31, 2019 and 2018, respectively.
  
Marketing costs increased $1.1 million mainly due to increased marketing efforts for consumer deposit customers and healthcare banking initiatives. Data processing costs increased $1.6 million due to higher costs for service providers and software expense. However, deposit insurance expense declined $1.7 million due to reduced FDIC insurance rates. Additionally, costs for occupancy, supplies and communication, loan collection, and repossessed property declined a combined $984 thousand this quarter compared to the same period last year.
 
Income Taxes
The effective tax rate for the Company was 19.1% in the current quarter, 19.5% in the previous quarter, and 18.7% in the 1st quarter of 2018.

Credit Quality
Net loan charge-offs in the 1st quarter of 2019 amounted to $11.7 million, compared to $12.1 million in the prior quarter and $10.4 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .34% in both the current quarter and the previous quarter, and .30% in the 1st quarter of last year. During the 1st quarter of 2019, net loan charge-offs on commercial loans declined $1.1 million to $394 thousand, while net loan charge-offs on personal banking loans increased $737 thousand over the previous quarter to $11.3 million, mainly due to higher consumer credit card net losses.

In the 1st quarter of 2019, annualized net loan charge-offs on average consumer credit card loans were 4.65%, compared to 3.73% in the previous quarter, and 4.05% in the same quarter last year. Consumer loan net charge-offs were .40% of average consumer loans in the current quarter, .57% in the prior quarter and .49% in the same quarter last year. This quarter, the provision for loan losses totaled $12.5 million and exceeded net loan charge-offs by $750 thousand. At March 31, 2019, the allowance totaled $160.7 million, or 1.14% of total loans.

At March 31, 2019, total non-performing assets amounted to $12.9 million, a decrease of $1.0 million from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($12.2 million and $737 thousand, respectively). At March 31, 2019, the balance of non-accrual loans, which represented .09% of loans outstanding, included business loans of $8.6 million, business real estate loans of $1.7 million, and personal real estate loans of $1.8 million. Loans more than 90 days past due and still accruing interest totaled $16.7 million at March 31, 2019.

Other
During the 1st quarter of 2019, the Company paid a cash dividend of $.26 per common share, representing a 16.1% increase over the same period last year. The Company also paid an annualized 6% cash dividend on its preferred stock. The Company purchased 647,054 shares of treasury stock during the current quarter at an average price of $61.35.

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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