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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): July 16, 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))
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of class
Trading symbol(s)
Name of exchange on which registered
$5 Par Value Common Stock
CBSH
NASDAQ Global Select Market
Depositary Shares, each representing a 1/1000th interest in a share of 6.0% Series B Non-Cumulative Perpetual Preferred Stock
CBSHP
NASDAQ Global Select Market
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 July 16, 2019 by Commerce Bancshares, Inc. announcing Second 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 July 16, 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/ Paul A. Steiner  
 
 
Paul A. Steiner
 
 
Controller
(Chief Accounting Officer) 
Date: July 16, 2019



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

Exhibit 99.1
398758260_commercebancshares914a01a05.jpg
CBSH
                   1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000
398758260_releaselogoa01a01a05.jpg
FOR IMMEDIATE RELEASE:
Tuesday, July 16, 2019

COMMERCE BANCSHARES, INC. REPORTS
SECOND QUARTER EARNINGS PER SHARE OF $.96

Commerce Bancshares, Inc. announced earnings of $.96 per common share for the three months ended June 30, 2019, compared to $.96 per share in the same quarter last year and $.85 per share in the prior quarter. Net income attributable to Commerce Bancshares, Inc. for the second quarter of 2019 amounted to $108.0 million, compared to $110.3 million in the second quarter of 2018 and $97.1 million in the prior quarter. For the quarter, the return on average assets was 1.73%, the return on average common equity was 14.5% and the efficiency ratio was 55.9%.

For the six months ended June 30, 2019, earnings per common share totaled $1.81 compared to $1.84 for the first six months of 2018. Net income attributable to Commerce Bancshares, Inc. amounted to $205.1 million for the six months ended June 30, 2019 compared to $211.3 million in the comparable period last year. Year to date, the return on average assets was 1.66% and the return on average common equity was 14.1%.
    
In announcing these results, John Kemper, Chief Executive Officer, said, “We are pleased to report strong earnings this quarter, driven by the performance of our diversified, fee-based businesses, focus on credit quality, and prudent expense management. Fee income totaled $127.3 million this quarter and represented 38% of our total revenue. The growth in our fee-based businesses reflects our commitment to delivering innovative solutions and building well rounded banking relationships. Average loan growth was modest this quarter due to softening demand for consumer card and auto loans, offset by higher loan demand from commercial customers. We saw a surge in demand for residential mortgage loans this quarter, but we sell most of our production, which generates fee income instead of increasing our loan balances. Compared to the prior quarter, net interest income grew but included inflation income from our inflation-protected securities. Adjusted for this income, our net yield on earning assets decreased slightly, resulting mainly from a decline in commercial loan yields and slight growth in deposit costs, partly offset by increasing consumer loan yields. After significant margin growth beginning in 2017, the recent drop in forward rate expectations is putting downward pressure on net interest income and creating a significant headwind for banks like Commerce.”

Mr. Kemper continued, “This quarter net loan charge-offs totaled $11.3 million, compared to $11.7 million in the prior quarter and $10.0 million in the second quarter of 2018, as the overall credit environment remained favorable. In the current quarter, the ratio of annualized net loan charge-offs to average loans was .32%, compared to .34% in the previous quarter, and .29% in the second quarter of last year. Net loan charge-offs on commercial loans totaled $169 thousand this quarter and remained exceptionally low, while net loan charge-offs on personal banking loans decreased $182 thousand to $11.1 million. During the current quarter, the provision for loan losses exceeded net loan charge-offs


Exhibit 99.1

by $500 thousand and totaled $11.8 million. The allowance for loan losses amounted to $161.2 million at June 30, 2019, or 1.13% of period end loans. Non-performing assets totaled $12.0 million this quarter and remained at very low levels.”

Total assets at June 30, 2019 were $25.8 billion, total loans were $14.3 billion, and total deposits were $19.8 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 2018, and paid a 6% cash dividend on its preferred stock. The Company purchased 779,726 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 second quarter results, is posted to the Company's web site at www.commercebank.com.
* * * * * * * * * * * * * * *
For additional information, contact
Matthew Burkemper, Investor Relations
at 8000 Forsyth, Mailstop: CBIR-1
Clayton, MO 63105
or by telephone at (314) 746-7485
Web Site: http://www.commercebank.com
Email: [email protected]











Exhibit 99.1

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)
 
June 30,
2019
March 31,
2019
June 30,
2018
June 30,
2019
June 30,
2018
FINANCIAL SUMMARY
 
 
Net interest income
 

$211,634


$203,488


$210,959


$415,122


$403,851

Non-interest income
 
127,259

121,240

124,850

248,499

244,540

Total revenue
 
338,893

324,728

335,809

663,621

648,391

Investment securities gains (losses), net
 
(110
)
(925
)
(3,075
)
(1,035
)
2,335

Provision for loan losses
 
11,806

12,463

10,043

24,269

20,439

Non-interest expense
 
189,779

191,425

181,860

381,204

364,137

Income before taxes
 
137,198

119,915

140,831

257,113

266,150

Income taxes
 
28,899

22,860

29,507

51,759

52,765

Non-controlling interest expense (income)
 
328

(83
)
994

245

2,071

Net income attributable to Commerce Bancshares, Inc.
107,971

97,138

110,330

205,109

211,314

Preferred stock dividends
 
2,250

2,250

2,250

4,500

4,500

Net income available to common shareholders

$105,721


$94,888


$108,080


$200,609


$206,814

Earnings per common share:
 
 
 
 
 
 
Net income — basic
 

$.96


$.85


$.96


$1.81


$1.84

Net income — diluted
 

$.96


$.85


$.96


$1.81


$1.84

Effective tax rate
 
21.11
%
19.05
%
21.10
%
20.15
%
19.98
%
Tax equivalent net interest income
 

$215,203


$207,104


$215,775


$422,307


$412,413

Average total interest earning assets (1)
 
$
23,939,495

$
23,874,861

$
23,683,587

$
23,907,357

$
23,688,441

Diluted wtd. average shares outstanding
 
109,752,238

110,300,988

111,330,889

110,025,097

111,297,697

 
 
 
 
 
 
 
RATIOS
 
 
 
 
 
 
Average loans to deposits (2)
 
70.97
%
70.96
%
68.85
%
70.96
%
68.97
%
Return on total average assets
 
1.73

1.58

1.80

1.66

1.73

Return on average common equity (3)
 
14.46

13.64

16.78

14.06

16.19

Non-interest income to total revenue
 
37.55

37.34

37.18

37.45

37.71

Efficiency ratio (4)
 
55.88

58.76

54.06

57.29

56.06

Net yield on interest earning assets
 
3.61

3.52

3.65

3.56

3.51

 
 
 
 
 
 
 
EQUITY SUMMARY
 
 
 
 
 
 
Cash dividends per common share
 

$.260


$.260


$.224


$.520


$.448

Cash dividends on common stock
 

$28,682


$28,858


$25,096


$57,540


$50,202

Cash dividends on preferred stock
 

$2,250


$2,250


$2,250


$4,500


$4,500

Book value per common share (5)
 

$27.53


$26.18


$23.47

 
 
Market value per common share (5)
 

$59.66


$58.06


$61.63

 
 
High market value per common share
 

$61.96


$64.02


$64.21

 
 
Low market value per common share
 

$56.63


$55.62


$55.11

 
 
Common shares outstanding (5)
 
109,927,645

110,696,250

111,944,745

 
 
Tangible common equity to tangible assets (6)
 
11.25
%
11.06
%
10.18
%
 
 
Tier I leverage ratio
 
11.75
%
11.67
%
11.18
%
 
 
 
 
 
 
 
 
 
OTHER QTD INFORMATION
 
 
 
 
 
 
Number of bank/ATM locations
 
319

319

322

 
 
Full-time equivalent employees
 
4,857

4,841

4,797

 
 
(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
For the Six Months Ended
(Unaudited)
(In thousands, except per share data)
 
June 30,
2019
March 31,
2019
December 31,
2018
September 30,
2018
June 30,
2018
June 30,
2019
June 30,
2018
Interest income
 

$238,412


$227,865


$232,832


$224,751


$225,623


$466,277


$431,618

Interest expense
 
26,778

24,377

20,612

16,997

14,664

51,155

27,767

Net interest income
 
211,634

203,488

212,220

207,754

210,959

415,122

403,851

Provision for loan losses
 
11,806

12,463

12,256

9,999

10,043

24,269

20,439

Net interest income after provision for loan losses
199,828

191,025

199,964

197,755

200,916

390,853

383,412

NON-INTEREST INCOME
 
 
 
 
 
 
 
 
Bank card transaction fees
 
42,646

39,644

44,481

42,427

43,215

82,290

84,668

Trust fees
 
38,375

37,256

37,466

37,400

37,036

75,631

73,098

Deposit account charges and other fees
23,959

23,018

23,887

23,755

23,893

46,977

46,875

Capital market fees
 
1,944

1,879

1,843

1,595

1,992

3,823

4,283

Consumer brokerage services
 
3,888

3,747

4,184

3,884

3,971

7,635

7,739

Loan fees and sales
 
4,238

3,309

3,053

3,579

3,229

7,547

6,091

Other
 
12,209

12,387

18,173

11,074

11,514

24,596

21,786

Total non-interest income
 
127,259

121,240

133,087

123,714

124,850

248,499

244,540

INVESTMENT SECURITIES GAINS (LOSSES), NET
(110
)
(925
)
(7,129
)
4,306

(3,075
)
(1,035
)
2,335

NON-INTEREST EXPENSE
 
 
 
 
 
 
 
 
Salaries and employee benefits
 
120,062

122,128

120,517

116,194

115,589

242,190

231,483

Net occupancy
 
11,145

11,501

11,711

11,631

11,118

22,646

22,702

Equipment
 
4,790

4,471

4,508

4,592

4,594

9,261

9,025

Supplies and communication
 
5,275

5,162

5,095

5,103

5,126

10,437

10,439

Data processing and software
 
23,248

22,260

22,216

22,056

21,016

45,508

41,706

Marketing
 
6,015

5,900

5,602

4,999

5,142

11,915

9,947

Deposit insurance
 
1,693

1,710

1,796

3,167

3,126

3,403

6,583

Community service
 
641

803

480

580

656

1,444

1,385

Other
 
16,910

17,490

16,700

16,737

15,493

34,400

30,867

Total non-interest expense
 
189,779

191,425

188,625

185,059

181,860

381,204

364,137

Income before income taxes
 
137,198

119,915

137,297

140,716

140,831

257,113

266,150

Less income taxes
 
28,899

22,860

26,537

26,647

29,507

51,759

52,765

Net income
 
108,299

97,055

110,760

114,069

111,324

205,354

213,385

Less non-controlling interest expense (income)
328

(83
)
1,108

1,493

994

245

2,071

Net income attributable to Commerce Bancshares, Inc.
107,971

97,138

109,652

112,576

110,330

205,109

211,314

Less preferred stock dividends
 
2,250

2,250

2,250

2,250

2,250

4,500

4,500

Net income available to common shareholders

$105,721


$94,888


$107,402


$110,326


$108,080


$200,609


$206,814

Net income per common share — basic

$.96


$.85


$.96


$.99


$.96


$1.81


$1.84

Net income per common share — diluted

$.96


$.85


$.96


$.98


$.96


$1.81


$1.84

 
 
 
 
 
 
 
 
 
OTHER INFORMATION
 
 
 
 
 
 
 
 
Return on total average assets
 
1.73
%
1.58
%
1.75
%
1.81
%
1.80
%
1.66
%
1.73
%
Return on average common equity (1)
14.46

13.64

15.85

16.43

16.78

14.06

16.19

Efficiency ratio (2)
 
55.88

58.76

54.53

55.73

54.06

57.29

56.06

Effective tax rate
 
21.11

19.05

19.49

19.14

21.10

20.15

19.98

Net yield on interest earning assets
3.61

3.52

3.58

3.52

3.65

3.56

3.51

Tax equivalent net interest income
 

$215,203


$207,104


$216,281


$211,368


$215,775


$422,307


$412,413

(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)
 
June 30,
2019
March 31,
2019
June 30,
2018
ASSETS
 
 
 
 
Loans
 
 
 
 
     Business
 
$
5,257,682

$
5,175,541

$
4,990,298

     Real estate — construction and land
 
909,784

925,269

967,151

     Real estate — business
 
2,867,831

2,859,614

2,727,580

     Real estate — personal
 
2,160,515

2,125,087

2,102,586

     Consumer
 
1,927,623

1,893,212

2,012,644

     Revolving home equity
 
357,406

364,010

374,557

     Consumer credit card
 
776,333

772,396

775,214

     Overdrafts
 
3,074

5,593

4,081

Total loans
 
14,260,248

14,120,722

13,954,111

Allowance for loan losses
 
(161,182
)
(160,682
)
(159,532
)
Net loans
 
14,099,066

13,960,040

13,794,579

Loans held for sale
 
20,067

20,085

20,352

Investment securities:
 
 
 
 
Available for sale debt securities
 
8,682,303

8,627,890

8,412,376

Trading debt securities
 
36,508

30,427

31,156

Equity securities
 
4,744

4,694

4,444

Other securities
 
130,038

129,504

112,309

Total investment securities
 
8,853,593

8,792,515

8,560,285

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

250

31,500

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

700,000

700,000

Interest earning deposits with banks
 
492,318

166,077

114,947

Cash and due from banks
 
456,192

428,018

386,339

Premises and equipment — net
 
363,554

362,679

331,782

Goodwill
 
138,921

138,921

138,921

Other intangible assets — net
 
8,763

8,511

8,083

Other assets
 
639,700

456,375

437,954

Total assets
 
$
25,772,174

$
25,033,471

$
24,524,742

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Deposits:
 
 
 
 
Non-interest bearing
 
$
6,274,838

$
6,298,724

$
6,876,756

Savings, interest checking and money market
 
11,452,849

11,799,346

11,761,832

Certificates of deposit of less than $100,000
 
613,505

599,289

603,629

Certificates of deposit of $100,000 and over
 
1,488,416

1,276,994

1,079,340

Total deposits
 
19,829,608

19,974,353

20,321,557

Federal funds purchased and securities sold under agreements to repurchase
 
2,394,294

1,722,751

1,166,759

Other borrowings
 
4,510

2,022

9,291

Other liabilities
 
372,399

291,132

255,752

Total liabilities
 
22,600,811

21,990,258

21,753,359

Stockholders’ equity:
 
 
 
 
Preferred stock
 
144,784

144,784

144,784

Common stock
 
559,432

559,432

535,407

Capital surplus
 
2,077,491

2,074,912

1,804,057

Retained earnings
 
384,232

307,193

408,374

Treasury stock
 
(106,106
)
(60,547
)
(15,854
)
Accumulated other comprehensive income (loss)
 
108,898

11,981

(108,781
)
Total stockholders’ equity
 
3,168,731

3,037,755

2,767,987

Non-controlling interest
 
2,632

5,458

3,396

Total equity
 
3,171,363

3,043,213

2,771,383

Total liabilities and equity
 
$
25,772,174

$
25,033,471

$
24,524,742




Exhibit 99.1

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS
(Unaudited)
(In thousands)
For the Three Months Ended
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
ASSETS:
 
 
 
 
 
Loans:
 
 
 
 
 
Business
$
5,142,794

$
5,084,920

$
5,028,635

$
4,926,063

$
4,962,171

Real estate — construction and land
908,777

907,062

953,166

992,045

971,854

Real estate — business
2,868,503

2,864,177

2,757,595

2,732,968

2,726,697

Real estate — personal
2,135,048

2,119,365

2,122,357

2,110,945

2,078,972

Consumer
1,907,979

1,929,202

1,962,401

1,984,643

2,025,585

Revolving home equity
361,673

370,962

374,216

373,819

378,366

Consumer credit card
766,080

781,167

788,353

774,512

754,199

Overdrafts
4,889

4,205

5,277

4,704

4,497

Total loans 
14,095,743

14,061,060

13,992,000

13,899,699

13,902,341

Allowance for loan losses
(161,403
)
(159,275
)
(158,880
)
(158,840
)
(158,664
)
Net loans
13,934,340

13,901,785

13,833,120

13,740,859

13,743,677

Loans held for sale
20,731

18,350

18,475

18,201

22,202

Investment securities:
 
 
 
 
 
U.S. government and federal agency obligations
843,974

909,466

923,545

923,557

923,183

Government-sponsored enterprise obligations
199,506

199,480

214,913

261,938

354,156

State and municipal obligations
1,222,008

1,283,349

1,361,079

1,375,768

1,394,766

Mortgage-backed securities
4,614,703

4,360,428

4,379,805

4,434,119

4,067,152

Asset-backed securities
1,412,452

1,525,623

1,518,706

1,427,041

1,407,300

Other debt securities 
331,459

335,612

339,841

339,952

340,246

Unrealized gain (loss) on debt securities
42,009

(48,925
)
(166,181
)
(119,319
)
(122,114
)
Total available for sale debt securities
8,666,111

8,565,033

8,571,708

8,643,056

8,364,689

Trading debt securities 
30,169

25,411

26,322

24,490

26,101

Equity securities
4,717

4,568

4,432

4,466

47,179

Other securities
130,433

130,057

127,634

120,206

108,563

Total investment securities
8,831,430

8,725,069

8,730,096

8,792,218

8,546,532

Federal funds sold and short-term securities purchased under agreements to resell
1,601

4,797

14,415

13,042

36,791

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

700,000

699,999

685,869

700,000

Interest earning deposits with banks
331,999

316,660

352,942

298,632

353,607

Other assets
1,251,555

1,197,261

1,158,816

1,147,250

1,119,454

Total assets
$
25,071,656

$
24,863,922

$
24,807,863

$
24,696,071

$
24,522,263


 
 
 
 
 
LIABILITIES AND EQUITY:
 
 
 
 
 
Non-interest bearing deposits
$
6,335,620

$
6,324,738

$
6,666,715

$
6,677,665

$
6,749,104

Savings
929,974

896,378

870,844

877,347

881,045

Interest checking and money market
10,642,648

10,762,550

10,840,048

10,839,310

10,850,123

Certificates of deposit of less than $100,000
605,440

590,200

584,828

593,936

609,011

Certificates of deposit of $100,000 and over
1,378,402

1,267,517

1,090,546

1,100,299

1,134,900

Total deposits
19,892,084

19,841,383

20,052,981

20,088,557

20,224,183

Borrowings:
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
1,793,526

1,771,534

1,655,997

1,499,837

1,339,278

Other borrowings
1,318

1,248

1,335

1,833

1,913

Total borrowings
1,794,844

1,772,782

1,657,332

1,501,670

1,341,191

Other liabilities
307,433

284,018

264,449

296,884

229,080

Total liabilities
21,994,361

21,898,183

21,974,762

21,887,111

21,794,454

Equity
3,077,295

2,965,739

2,833,101

2,808,960

2,727,809

Total liabilities and equity
$
25,071,656

$
24,863,922

$
24,807,863

$
24,696,071

$
24,522,263




Exhibit 99.1

COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE RATES
(Unaudited)
For the Three Months Ended
 
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
 
ASSETS:
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
Business (1)
4.02
%
4.07
%
3.93
%
3.80
%
3.69
%
 
Real estate — construction and land
5.63

5.73

5.47

5.21

5.06

 
Real estate — business
4.60

4.61

4.53

4.35

4.22

 
Real estate — personal
3.97

4.00

3.87

3.83

3.84

 
Consumer
4.77

4.73

4.62

4.46

4.39

 
Revolving home equity
5.20

5.17

4.98

4.72

4.51

 
Consumer credit card
12.33

12.18

11.91

11.99

12.05

 
Overdrafts





 
Total loans
4.82

4.85

4.72

4.59

4.49

 
Loans held for sale
6.98

7.38

6.59

6.87

6.72

 
Investment securities:
 
 
 
 
 
 
U.S. government and federal agency obligations
4.66

.78

1.90

2.23

3.18

 
Government-sponsored enterprise obligations
2.32

2.35

2.24

2.10

1.88

 
State and municipal obligations (1)
3.18

3.19

3.06

2.98

3.06

 
Mortgage-backed securities
2.70

2.76

2.75

2.65

2.60

 
Asset-backed securities
2.79

2.70

2.55

2.42

2.32

 
Other debt securities
2.68

2.69

2.60

2.59

2.63

 
Total available for sale debt securities
2.97

2.59

2.65

2.60

2.66

 
Trading debt securities (1)
3.14

3.24

3.21

3.13

3.15

 
Equity securities (1)
35.97

37.55

39.92

32.69

89.68

 
Other securities (1)
6.69

5.73

15.51

13.00

6.68

 
Total investment securities
3.04

2.66

2.86

2.76

3.19

 
Federal funds sold and short-term securities purchased under agreements to resell
2.76

2.79

2.56

2.10

1.93

 
Long-term securities purchased under agreements to resell
2.11

2.18

2.31

2.26

2.17

 
Interest earning deposits with banks
2.40

2.42

2.28

1.96

1.80

 
Total interest earning assets
4.05

3.93

3.92

3.80

3.90

 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY:
 
 
 
 
 
 
Interest bearing deposits:
 
 
 
 
 
 
Savings
.11

.11

.11

.11

.11

 
Interest checking and money market
.38

.35

.30

.26

.23

 
Certificates of deposit of less than $100,000
1.01

.87

.70

.56

.46

 
Certificates of deposit of $100,000 and over
2.02

1.92

1.61

1.41

1.23

 
Total interest bearing deposits
.55

.51

.41

.35

.32

 
Borrowings:
 
 
 
 
 
 
Federal funds purchased and securities sold under agreements to repurchase
1.80

1.72

1.60

1.33

1.18

 
Other borrowings
1.52

1.62

2.67

2.60

2.52

 
Total borrowings
1.80

1.72

1.60

1.33

1.19

 
Total interest bearing liabilities
.70
%
.65
%
.54
%
.45
%
.40
%
 
 
 
 
 
 
 
 
Net yield on interest earning assets
3.61
%
3.52
%
3.58
%
3.52
%
3.65
%
 
(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
For the Six Months Ended
(Unaudited) (In thousands, except per share data)
 
June 30, 2019
March 31, 2019
December 31, 2018
September 30, 2018
June 30, 2018
June 30, 2019
June 30, 2018
ALLOWANCE FOR LOAN LOSSES
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
160,682

$
159,932

$
159,732

$
159,532

$
159,532

$
159,932

$
159,532

     Provision for losses
 
11,806

12,463

12,256

9,999

10,043

24,269

20,439

     Net charge-offs (recoveries):
 
 
 
 
 
 
 
 
        Commercial portfolio:
 
 
 
 
 
 
 
 
     Business
 
284

447

1,748

332

36

731

22

     Real estate — construction and land
 
(101
)
(16
)
(183
)
(119
)
(297
)
(117
)
(333
)
     Real estate — business
 
(14
)
(37
)
(91
)
(42
)
(40
)
(51
)
(245
)
 
 
169

394

1,474

171

(301
)
563

(556
)
        Personal banking portfolio:
 
 
 
 
 
 
 
 
     Consumer credit card
 
9,066

8,958

7,421

7,340

8,251

18,024

15,817

     Consumer
 
1,723

1,924

2,805

2,091

1,862

3,647

4,390

     Overdraft
 
253

317

500

351

326

570

770

     Real estate — personal
 
(21
)
101

(144
)
(153
)
(95
)
80

(38
)
     Revolving home equity
 
116

19


(1
)

135

56

 
 
11,137

11,319

10,582

9,628

10,344

22,456

20,995

     Total net loan charge-offs
 
11,306

11,713

12,056

9,799

10,043

23,019

20,439

Balance at end of period
 
$
161,182

$
160,682

$
159,932

$
159,732

$
159,532

$
161,182

$
159,532

 
 
 
 
 
 
 
 
 
NET CHARGE-OFF RATIOS*
 
 
 
 
 
 
 
 
Commercial portfolio:
 
 
 
 
 
 
 
 
     Business
 
.02
 %
.04
 %
.14
 %
.03
 %
 %
.03
 %
 %
     Real estate — construction and land
 
(.04
)
(.01
)
(.08
)
(.05
)
(.12
)
(.03
)
(.07
)
     Real estate — business
 

(.01
)
(.01
)
(.01
)
(.01
)

(.02
)
 
 
.01

.02

.07

.01

(.01
)
.01

(.01
)
Personal banking portfolio:
 
 
 
 
 
 
 
 
     Consumer credit card
 
4.75

4.65

3.73

3.76

4.39

4.70

4.22

     Consumer
 
.36

.40

.57

.42

.37

.38

.43

     Overdraft
 
20.76

30.57

37.59

29.60

29.08

25.27

34.04

     Real estate — personal
 

.02

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


     Revolving home equity
 
.13

.02




.07

.03

 
 
.86

.88

.80

.73

.79

.87

.80

Total
 
.32
 %
.34
 %
.34
 %
.28
 %
.29
 %
.33
 %
.30
 %
 
 
 
 
 
 
 
 
 
CREDIT QUALITY RATIOS
 
 
 
 
 
 
 
 
Non-performing assets to total loans
 
.08
 %
.09
 %
.10
 %
.07
 %
.08
 %
 
 
Non-performing assets to total assets
 
.05

.05

.05

.04

.04

 
 
Allowance for loan losses to total loans
 
1.13

1.14

1.13

1.14

1.14

 
 
 
 
 
 
 
 
 
 
 
NON-PERFORMING ASSETS
 
 
 
 
 
 
 
 
  Non-accrual loans:
 
 
 
 
 
 
 
 
     Business
 
$
8,428

$
8,569

$
8,985

$
5,131

$
5,114

 
 
     Real estate — construction and land
 
3

4

4

4

5

 
 
     Real estate — business
 
950

1,746

1,715

1,467

2,465

 
 
     Real estate — personal
 
1,752

1,848

1,832

1,767

1,888

 
 
   Total
 
11,133

12,167

12,536

8,369

9,472

 
 
  Foreclosed real estate
 
897

737

1,413

1,181

1,039

 
 
Total non-performing assets
 
$
12,030

$
12,904

$
13,949

$
9,550

$
10,511

 
 
Loans past due 90 days and still accruing interest
$
16,532

$
16,655

$
16,658

$
13,991

$
13,453

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



Exhibit 99.1
COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2019

For the quarter ended June 30, 2019, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $108.0 million, compared to $97.1 million in the previous quarter and $110.3 million in the same quarter last year. The increase in net income over the previous quarter was primarily the result of higher net interest income and non-interest income coupled with lower non-interest expense. Excluding inflation income on the Company’s inflation protected securities (TIPs), the net interest margin declined five basis points to 3.50%, mainly due to a modest increase in deposit costs, while interest earning asset balances and rates were mostly flat. Non-interest income increased $6.0 million over the previous quarter. Average loans increased $37.1 million over the previous quarter, while average deposits increased $50.7 million. For the quarter, the return on average assets was 1.73%, the return on average common equity was 14.5%, and the efficiency ratio was 55.9%.

Balance Sheet Review
During the 2nd quarter of 2019, average loans totaled $14.1 billion, or an increase of $37.1 million over the prior quarter, and grew $191.9 million, or 1.4%, over the same quarter last year. Period-end loans grew $139.5 million over the prior quarter. Compared to the previous quarter, average business loans grew $57.9 million, and average personal real estate loans grew $15.7 million. This growth was partly offset by declines in average consumer (decline of $21.2 million) and consumer credit card (decline of $15.1 million) lending activities. Growth in business loans was the result of increased commercial and industrial, commercial credit card, and tax-free lending activities. Personal real estate loans grew on higher loan originations during the 2nd quarter of 2019 compared to the previous quarter. The decline in consumer loans resulted from lower auto, marine/RV, and fixed home equity lending. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $60.4 million, compared to $45.6 million in the prior quarter.

Total average available for sale debt securities increased $101.1 million over the previous quarter to $8.7 billion, at fair value. The increase in investment securities was mainly the result of growth in average mortgage-backed securities, partially offset by declines in average asset-backed, U.S. government and federal agency obligations, and state and municipal securities. Purchases of securities during the quarter totaled $511.8 million, and sales, maturities and pay downs were $556.8 million. At June 30, 2019, the duration of the investment portfolio was 2.8 years, and maturities and pay downs of approximately $1.2 billion are expected to occur during the next 12 months.

Total average deposits increased $50.7 million this quarter compared to the previous quarter. The increase in average deposits resulted from growth in certificates of deposit ($126.1 million), trust demand deposits ($97.2 million) and savings deposits ($33.6 million). These increases were mostly offset by declines of $119.9 million and $115.1 million in interest checking and money market and business demand average deposits, respectively. Compared to the previous quarter, total average consumer and wealth deposits (including private banking) increased $122.4 million and $77.9 million, respectively, while average commercial deposits declined $154.0 million this quarter. The average loans to deposits ratio was 71.0% in both the current and prior quarters. The Company’s average borrowings, which includes customer repurchase agreements, were $1.8 billion in the 2nd quarter of 2019, unchanged from the prior quarter’s balance.
 
Net Interest Income
Net interest income in the 2nd quarter of 2019 amounted to $211.6 million compared to $203.5 million in the previous quarter, an increase of $8.1 million. On a tax equivalent basis, net interest income for the current quarter increased $8.1 million over the previous quarter to $215.2 million. The growth in net interest income was mostly due to an $8.5 million increase this quarter in inflation income on the Company’s TIPs but was partially offset by a $1.1 million premium amortization expense adjustment on accelerating prepayment speeds for mortgage-backed and asset-backed securities. Excluding these items, net interest income increased $819 thousand, while the adjusted net yield on earning assets (tax equivalent) decreased to 3.52%, compared to 3.55% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) increased $1.3 million mostly as a result of higher loan yields on personal banking loans, combined with higher balances of business loans. The average tax-equivalent yield on the loan portfolio declined three basis points this quarter to 4.82%, compared to 4.85% in the previous quarter, as yields on commercial loans contracted slightly, offsetting yield growth on personal banking loans.

Interest income on investment securities (tax equivalent) increased $9.2 million over the previous quarter, mainly due to the higher inflation income on TIPs, as noted above. An increase in the Consumer Price Index this quarter resulted in inflation income of $6.5 million. The yield on total investment securities was 3.04% in the current quarter, up from 2.66% in the previous quarter.

Interest costs on deposits totaled 55 basis points in the 2nd quarter of 2019, compared to 51 basis points in the prior quarter. Interest expense on deposits increased $1.9 million this quarter compared to the previous quarter mainly due to higher rates on money market accounts and certificates of deposit (CD), coupled with growth in jumbo CD balances. Borrowing costs increased $548 thousand this quarter mainly due to higher balances of federal funds purchased. In the current quarter, the overall rate paid on interest bearing liabilities was .70%, compared to .65% in the prior quarter.

Non-Interest Income
In the 2nd quarter of 2019, total non-interest income amounted to $127.3 million, an increase of $2.4 million, or 1.9%, compared to the same period last year and increased $6.0 million, or 5.0%, compared to the prior quarter. 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, coupled with gains on sales of assets. These increases to income were partly offset by lower swap, international, and net bank card fees.

Total net bank card fees in the current quarter decreased $569 thousand, or 1.3%, from the same period last year, but increased $3.0 million, or 7.6%, compared to the prior quarter. Net corporate card fees declined $1.1 million, or 4.4%, from the same quarter last year mainly due to higher rewards and network expense. Net debit card fees declined $223 thousand, or 2.2%, due to higher network expense, partly offset by higher interchange income. Overall net merchant income increased $355 thousand, or 7.3%, due to higher interchange fees, partly offset by higher network expense, while net credit card fees increased $372 thousand, or 10.6% on higher interchange revenue. Total net bank card fees this quarter were comprised of fees on corporate card ($23.5 million),



COMMERCE BANCSHARES, INC.                                Exhibit 99.1
Management Discussion of Second Quarter Results
June 30, 2019


debit card ($10.0 million), merchant ($5.2 million) and credit card ($3.9 million) transactions.

In the current quarter, trust fees increased $1.3 million, or 3.6%, 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 2nd quarter of 2019, loan fees and sales increased $1.0 million, or 31.2%, over amounts recorded in the same quarter last year, mainly due to higher mortgage banking revenue. Cash sweep fees grew $556 thousand, or 24.4%, over the same period last year, while international fees declined $548 thousand. Swap fees declined $906 thousand compared to the same quarter last year as customer demand for this product has shifted due to expectations on future interest rates. Other non-interest income this quarter also included gains of $576 thousand on sales of leased assets to customers upon lease termination and sales of branch properties, compared to losses of $548 thousand on sales of branch properties and write downs on software costs in the 2nd quarter of 2018. Non-interest income comprised 37.6% of the Company’s total revenue this quarter.

Investment Securities Gains and Losses
The Company recorded net securities losses of $110 thousand in the current quarter, compared to losses of $925 thousand in the prior quarter and losses of $3.1 million in the 2nd quarter of 2018. Net securities losses in the current quarter resulted mainly from fair value net losses on the Company’s private equity investment portfolio.

Non-Interest Expense
Non-interest expense for the current quarter amounted to $189.8 million, compared to $181.9 million in the same period last year and $191.4 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 and data processing costs, partly offset by lower deposit insurance expense.

Compared to the 2nd quarter of last year, salaries and benefits expense increased $4.5 million, or 3.9%, driven by growth in full-time salary costs. Full-time equivalent employees totaled 4,857 and 4,797 at June 30, 2019 and 2018, respectively.
  
Marketing costs increased $873 thousand mainly due to increased marketing efforts for consumer deposit customers and healthcare banking initiatives. Data processing costs increased $2.2 million due to higher costs for service providers and software expense as the Company continues its efforts to implement a new core deposit system and various other technology-based initiatives. However, deposit insurance expense declined $1.4 million due to reduced FDIC insurance rates. Other non-interest expense increased over the prior quarter mainly due to higher professional fees, travel and entertainment and foreclosed property expense.







 
Income Taxes
The effective tax rate for the Company was 21.1% in the current quarter, 19.1% in the previous quarter, and 21.1% in the 2nd quarter of 2018.

Credit Quality
Net loan charge-offs in the 2nd quarter of 2019 amounted to $11.3 million, compared to $11.7 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 .32% in the current quarter, compared to .34% in the previous quarter and .29% in the 2nd quarter of last year. Compared to the prior quarter, net loan charge-offs on commercial loans declined $225 thousand to $169 thousand for the 2nd quarter of 2019, while net loan charge-offs on personal banking loans decreased $182 thousand to $11.1 million.

In the 2nd quarter of 2019, annualized net loan charge-offs on average consumer credit card loans were 4.75%, compared to 4.65% in the previous quarter, and 4.39% in the same quarter last year. Consumer loan net charge-offs were .36% of average consumer loans in the current quarter, .40% in the prior quarter and .37% in the same quarter last year. This quarter, the provision for loan losses totaled $11.8 million and exceeded net loan charge-offs by $500 thousand. At June 30, 2019, the allowance totaled $161.2 million, or 1.13% of total loans.

At June 30, 2019, total non-performing assets amounted to $12.0 million, a decrease of $874 thousand from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($11.1 million and $897 thousand, respectively). At June 30, 2019, the balance of non-accrual loans, which represented .08% of loans outstanding, included business loans of $8.4 million, business real estate loans of $950 thousand, and personal real estate loans of $1.8 million. Loans more than 90 days past due and still accruing interest totaled $16.5 million at June 30, 2019.

Other
During the 2nd 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 779,726 shares of treasury stock during the current quarter at an average price of $59.48.

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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