Commerce Bancshares, Inc. (Nasdaq: CBSH) Reports 1st Quarter Earnings Per Share of $.85

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Commerce Bancshares, Inc. (Nasdaq: CBSH) declared earnings of $.85 per common share for the 3 months finished March 31, 2K19, gap to $.88 per share in the similar quarter last year and $.96 per share in the 4th quarter of 2K18. Net income attributable to Commerce Bancshares, Inc. for the 1st quarter of 2K19 amounted to $97.1M, gap to $101.0M in the 1st quarter of 2K18 and $109.7M in the previous quarter. For the current quarter, the return on average assets was 1.58 percent, the return on average common equity was 13.6 percent and the efficiency ratio was 58.8 percent.

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 practiced only modest development 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 decreased gap to the previous quarter but included several non-recurring items recorded in the previous quarter.

Adjusted for these items and income on our inflation bonds, our net yield on earning assets continued to grow, resulting from raised loan yields, while deposit costs grew modestly. Fee income totaled $121.2M this quarter and reflected year-over-year development in trust, cash sweep, and mortgage banking revenue, but was partly offset by lower net bank card fees.

The raise in non-interest cost gap to last year was mainly because of higher salaries and benefits, but included several non-recurring items and reflected a core development rate of 3.2 percent.”

Mr. Kemper continued, “This quarter net loan charge-offs totaled $11.7M, gap to $12.1M in the previous quarter and $10.4M in the 1st quarter of 2K18, as the overall credit environment remained favorable. The ratio of annualized net loan charge-offs to average loans was .34 percent in both the current and previous quarters and was .30 percent in the 1st quarter of last year.

Net loan charge-offs on commercial loans decreased $1.1M from the previous quarter and remained low, while net loan charge-offs on personal banking loans raised $737 thousand to $11.3M, mostly the result of higher consumer credit card losses.

Throughout the current quarter, the provision for loan losses exceeded net loan charge-offs by $750 thousand and totaled $12.5M. The allowance for loan losses amounted to $160.7M at March 31, 2K19, or 1.14 percent of period-end loans. Non-performing assets totaled $12.9M this quarter and remained at very low levels.”

Total assets at March 31, 2K19 were $25.0B, total loans were $14.1B, and total deposits were $20.0B. Throughout the quarter, the Company paid a common cash dividend of $.26 per share, representing a 16.1 percent raise over the rate paid in the 4th quarter of 2K18, and paid a 6 percent 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, counting investment administration and securities brokerage. The Company presently operates banking facilities in nine key markets counting 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.

For the quarter finished March 31, 2K19, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $97.1M, gap to $109.7M in the previous quarter and $101.0M in the similar 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 cost, partly offset by lower securities losses.

Apart From 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 percent, mainly because of higher loan rates, while funding costs rose modestly. Non-interest income decreased $11.8M this quarter, but the previous quarter included net branch gains of $7.7M.

Average loans raised $68.9M this quarter over the previous quarter, while average deposits reduced $211.6M. For the quarter, the return on average assets was 1.58 percent, the return on average common equity was 13.6 percent, and the efficiency ratio was 58.8 percent.

Balance Sheet Review

Throughout the 1st quarter of 2K19, average loans totaled $14.1B, a boost of $68.9M over the previous quarter, and grew $150.6M, or 1.1 percent, over the similar period last year. Period-end loans, however, decreased slightly from the previous quarter. Gap to the previous quarter, average business real estate and business loans grew $106.6M, and $56.3M, respectively. This development was partly offset by declines in average construction (decline of $46.1M) and auto (decline of $24.3M) lending activities.

Development in business loans was the result of raised leasing activities, new commercial and industrial lending and seasonal agribusiness borrowings, but other seasonal loan paydowns partly offset this development. 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 accomplished projects, partly offset by additional loan draws on existing projects.

The decline in auto loans of $24.3M mainly resulted from paydowns on existing loan balances, which exceeded new loan originations. Throughout the current quarter, the Company sold certain fixed rate personal real estate loans totaling $45.6M, gap to $49.7M in the previous quarter.

Total average available for sale debt securities reduced $6.7M from the previous quarter to $8.6B, 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 throughout the quarter totaled $406.5M, and sales, maturities and pay downs were $404.6M. At March 31, 2K19, the duration of the investment portfolio was 2.9 years, and maturities and pay downs of about $1.0B are expected to occur throughout the next 12 months.

Total average deposits reduced $211.6M this quarter gap to the previous quarter. The decrease in average deposits resulted mainly from lower balances of business demand deposits (decline of $457.8M), and money market accounts (decline of $282.7M).

These declines were partly offset by raises in interest checking deposits, certificates of deposit, government demand deposits, personal demand deposits, and savings deposits of $205.2M, $182.3M, $64.1M, $55.0M, and $25.5M, respectively. Gap to the previous quarter, total average consumer and wealth (counting private banking) deposits raised $127.9M and $31.4M, respectively, while average commercial banking deposits decreased $274.1M.

The average loans to deposits ratio was 71.0 percent in the current quarter and 69.9 percent in the previous quarter. The Company’s average borrowings, which includes customer repurchase agreements, were $1.8B in the 1st quarter of 2K19, a boost of $115.5M over the previous quarter’s balance.

Net Interest Income

Net interest income in the 1st quarter of 2K19 amounted to $203.5M gap to $212.2M in the previous quarter, a decrease of $8.7M. On a tax equivalent basis, net interest income for the current quarter reduced $9.2M from the previous quarter to $207.1M.

The decline in net interest income was partly because of fewer days in the quarter but also included non-recurring dividends and interest of $3.1M from the Company’s private equity investments in the previous quarter. In Addition To, inflation income on the Company’s TIPs decreased $3.5M this quarter.

Apart From these items, net interest income decreased $2.4M and the adjusted net yield on earning assets (tax equivalent) raised to 3.55 percent, gap to 3.50 percent in the previous quarter.

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