COMMERCE BANCSHARES, INC.
EARNINGS HIGHLIGHTS
4th Quarter 2020
CAUTIONARY STATEMENT
A number of statements we will be making in our presentation and in the accompanying slides are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements of the Corporation's plans, goals, objectives, expectations, projections, estimates and intentions. These forward- looking statements involve significant risks and uncertainties and are subject to change based on various factors (some of which are beyond the Corporation's control). Factors that could cause the Corporation's actual results to differ materially from such forward- looking statements made herein or by management of the Corporation are set forth in the Corporation's 2019 Annual Report on Form 10-K, 3RD Quarter 2020 Report on Form 10-Q and the Corporation's Current Reports on Form 8-K.
2
4Q2020 EARNINGS HIGHLIGHTS
Highlights
PPNR1
$148.6 million
Allowance for Credit
Losses on Loans
$15.5 million decrease
Income Available to Common
$129.9 million
EPS
$1.11
ROAA
1.63%
ROACE
15.49%
Deposit Growth3
Well-positioned in a challenging environment
- Allowance for credit losses on loans to total loans decreased to 1.35%
- Decreased to 1.48% excluding Paycheck Protection Program ("PPP") loans.
- Net charge-offs to total loans of .19% and Non-performing assets to total loans of .16%.
- Loans on deferral of .6% of total loans.
- Non-interestincome to total revenue of 39.2%.
- Non-interestincome up 4.3% over Q3.
- QTD average loans flat to Q3 at $16.4B.
- QTD average deposits increased by $843MM in Q4 compared to Q3.
- Tangible common equity to tangible assets of 9.92%.
- Net interest margin decreased 17 bps from Q3 to 2.80% (8 bps excluding adjustments4).
- Wealth management client assets increased in Q4 by 11.9% to $61.2MM.
$1.2 billion
- See the non-GAAP reconciliation on page 13; 2 Compared to 3Q2020; 3 Compared to 3Q2020, based on period-end balances;
- Adjustments include a -$3.5 million adjustment to premium amortization on mortgage-backed securities for prepayment
speed changes and a -$2.1 million decrease in inflation income on our Treasury inflation-protected securities. | 3 |
BALANCE SHEET HIGHLIGHTS
Average Balances | 4Q20 | Change vs. | |||||||
$ in millions | 3Q20 | 4Q19 | Highlights | ||||||
• Linked quarter reflects lower business | |||||||||
loans offset by higher construction and | |||||||||
Commercial1 | $10,643.0 | $(30.2) | $1,559.4 | business real estate | |||||
• YoY reflects PPP | |||||||||
• Linked quarter reflects higher personal | |||||||||
Consumer | 5,718.3 | 25.5 | 358.2 | real estate partially offset by lower auto, | |||||
credit card, home equity | |||||||||
Total Loans | $16,361.3 | $(4.7) | $1,917.6 | ||||||
Investment Securities | $12,302.5 | $846.9 | $3,480.2 | • Reflects net purchase activity | |||||
Interest Earning Deposits with Banks | $1,082.6 | $58.2 | $692.5 | • Reflects liquidity from deposit growth | |||||
Deposits | $25,590.7 | $843.3 | $5,433.9 | • 3.4% quarterly growth, 27% annual | |||||
growth | |||||||||
Equity | $3,336.1 | $(30.0) | $204.6 | • Linked quarter reflects Q3 redemption of | |||||
preferred stock | |||||||||
Book Value per Common Share2 | $29.03 | $0.80 | $3.60 | • 2.8% quarterly growth, 14.2% annual | |||||
growth |
- PPP average balances were $1,476.2 million and $1,505.7 million as of December 31, 2020 and September 30, 2020, respectively
- For the quarters ended December 31, 2020
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BALANCE SHEET
Loans
QTD Average Balances $ billions
+13%
$14.5 | $16.3 | $16.3 | |||||||||||
$5.7 | $5.7 | ||||||||||||
$5.4 | 4.47% | ||||||||||||
3.69% | 3.69% | ||||||||||||
$9.1 | $10.6 | $10.6 | |||||||||||
4Q19 | 3Q20 | 4Q20 | |||||||||||
Consumer Loans | Loan Yield | ||||||||||||
Commercial Loans | |||||||||||||
Deposits
QTD Average Balances
$ billions
+27% | $25.6 | |||||
$24.7 | ||||||
$20.2 | $9.8 | $10.3 | ||||
$6.6
$13.6 | $14.9 | $15.3 | |||||||||||
0.52% | 0.18% | 0.12% | |||||||||||
4Q19 | 3Q20 | 4Q20 | |||||||||||
Non-Interest Bearing | Interest Bearing Deposit Yield | ||||||||||||
Interest Bearing Deposit | |||||||||||||
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INCOME STATEMENT HIGHLIGHTS
Change vs.
$ in millions | ||||||||||
4Q20 | 3Q20 | 4Q19 | Highlights | |||||||
Net Interest Income | $209.8 | $(6.2) | $7.1 | • Linked quarter (LQ) decline due to lower | ||||||
earning asset yields partially offset by lower | ||||||||||
deposit costs and larger balance sheet. | ||||||||||
• LQ increase in bank card, trust fees and | ||||||||||
Non-Interest Income | $135.1 | $5.5 | $(8.3) | mortgage loan sales. | ||||||
• Excluding the one-time gain of the corporate | ||||||||||
trust business sale in Q419, non-interest income | ||||||||||
grew $3.1MM, or 2.4%. | ||||||||||
Non-Interest Expense | $196.3 | $5.5 | $1.1 | • Increase of 2.9% over LQ, .6% over prior year. | ||||||
• LQ increase due to higher incentive | ||||||||||
compensation. | ||||||||||
Pre-Tax,Pre-Provision Net Revenue1 | $148.6 | $(6.1) | $(2.4) | |||||||
Investment Securities Gains | $12.3 | $(3.8) | $12.6 | • Q4 fair value gains on private equity portfolio | ||||||
(Losses), Net | and MBS sale gains. | |||||||||
Provision for Credit Losses | $(4.4) | $(7.5) | $(19.6) | • Declines primarily driven by improvement in | ||||||
economic forecast | ||||||||||
Net-Income Available to Common | $129.9 | $4.9 | $25.3 | |||||||
Shareholders | ||||||||||
4Q20 | 3Q20 | 4Q19 | ||||||||
Net Income per Common Share - | $1.11 | $1.06 | $.88 | |||||||
Diluted | ||||||||||
Efficiency Ratio | 56.68% | 55.00% | 56.29% | • Continued expense discipline | ||||||
Net Yield on Interest Earning Assets | 2.80% | 2.97% | 3.36% | • Lower earning asset yields partially offset by | ||||||
lower deposit costs. | ||||||||||
1 See the non-GAAP reconciliation on page 13 | 6 |
PRE-TAX,PRE-PROVISION NET REVENUE (PPNR)
Net Interest Income (+) Non-Interest Income (+)
Non-Interest Expense (-)
Pre-Tax,Pre-Provision Net Revenue (=)
$346 | |
$203 | $195 |
$151 | |
$143 | |
4Q2019 |
$346 | |
$216 | $191 |
$155 | |
$130 | |
3Q2020 |
$345 | |||
4Q2020 | |||
$210 | $196 | Comparison | |
vs. 4Q2019 | -1.6% | ||
vs. 3Q2020 | -3.9% | ||
$149 | |||
$135 | |||
4Q2020 |
See the non-GAAP reconciliation on page 13 | 7 |
SOUND CAPITAL AND LIQUIDITY POSITION
Total Risk-Based Capital Ratio1 | Loan to Deposit Ratio | ||||||||||
SFNC | Peer Median: 14.1% | 15.8% | Large, stable deposit base and low | ||||||||
OZK | 15.3% | loan to deposit ratio | |||||||||
UBSI | 15.1% | ||||||||||
Core Deposits | 64%Commerce | Average Loan | 3to | ||||||||
UMPQ | 15.0% | ||||||||||
CFR | 14.7% | $25.1 | Deposit Ratio | ||||||||
CBSH | 14.6% | 90% | Average Loan to | ||||||||
PB | 14.3% | Billion2 | Deposit Ratio1 | ||||||||
PNFP | 14.2% | Peer Average | |||||||||
BXS | 14.2% | Total Deposits | |||||||||
UMBF | 14.2% | ||||||||||
BOKF | 14.1% | ||||||||||
FULT | 13.8% | Core Deposits | |||||||||
ASB | 13.8% | - Non-Interest | |||||||||
FCNC.A | 13.7% | Certificates of 7% | Bearing | ||||||||
WBS | 13.5% | 93% - Interest Checking | |||||||||
HWC | 12.9% | Deposit | - Savings and | ||||||||
WTFC | 12.9% | Money Market | |||||||||
ONB | 12.8% | ||||||||||
VLY | 12.4% | ||||||||||
FNB | 12.2% |
1S&P Global Market Intelligence, Information as of September 30, 2020 | |
2Period-end balances, as of December 31, 2020 | 8 |
3Includes loans held for sale, for the quarter ended December 31, 2020 |
MAINTAINING STRONG CREDIT QUALITY
Net Loan Charge-Offs (NCOs)
$ in millions
$15.2
$10.4
$8.3 | $7.6 | $8.0 |
.42% | .18% | .18% | .18% | .19% |
4Q193Q204Q20
Allowance for Credit | ||||
Losses on Loans (ACL) | ||||
$ in millions | ||||
$236.4 | $301.8 | |||
$220.8 | ||||
$160.7 | ||||
$143.0 | 1.44% | 1.42% | 1.35% | |
1.09% | .73% | |||
4Q193Q204Q20
NCOs- CBSH | NCO/Average Loans1 | - CBSH | ACL - CBSH | ACL / Total Loans - CBSH | |||
NCOs - Peer Average | NCO/Average Loans1 | - Peer Average | ACL - Peer Average | ACL / Total Loans - Peer Average | |||
Non-Performing Loans (NPLs) | Allowance for Credit Losses on Loans (ACL) to NPLs |
$ in millions | 15.7x | ||||
.71% | |||||
.65% | |||||
$150.7 | |||||
$121.1 | |||||
8.3x | |||||
.25% | |||||
.07% | .16% | 5.9x | |||
$40.3 | |||||
$26.5 | 2.7x | ||||
$10.2 | 1.5x | ||||
4Q19 | 3Q20 | 4Q20 | 4Q19 | 3Q20 | 4Q20 | |||||||||
NPLs - CBSH | NPLs / Total Loans - CBSH | ACL / NPLs - CBSH | ACL / NPLs - Peer Average | |||||||||||
NPLs - Peer Average | NPLs / Total Loans - Peer Average | |||||||||||||
Percentages are illustrative and not to scale; Peer Banks include: ASB, BOKF, BXS CFR, FCNC.A, FNB, FULT, HWC, ONB, OZK, PB, PNFP, SFNC, UBSI, UMBF, UMPQ, VLY, WBS, WTFC | 9 |
1As a percentage of average loans (excluding loans held for sale) |
IMPACT OF CECL: ALLOCATION OF ALLOWANCE
CECL allowances reflect the economic and market outlook due to COVID-19
December 31, 2019 | September 30, 2020 | December 31, 2020 | |||||||
Incurred Model | CECL Model | CECL Model | |||||||
Allowance | % of | Allowance | % of | Allowance | % of | ||||
for Credit | for Credit | ||||||||
$ in millions | for Loan | Outstanding | Losses | Outstanding | Losses | Outstanding | |||
Losses | Loans | (ACL) | Loans | (ACL) | Loans | ||||
Business | $ | 44.3 | .80% | $ 78.7 | 1.18% | $ | 63.7 | .97% | |
Bus R/E | 25.9 | .91% | 31.3 | 1.05% | 30.1 | .99% | |||
Construction | 21.6 | 2.40% | 18.4 | 1.83% | 27.7 | 2.72% | |||
Commercial total | $ | 91.8 | .99% | $ | 128.4 | 1.20% | $ | 121.5 | 1.15% |
Consumer | 15.9 | .81% | 18.2 | .90% | 15.2 | .78% | |||
Consumer CC | 48.0 | 6.27% | 79.2 | 12.23% | 74.0 | 11.30% | |||
Personal R/E | 3.1 | .13% | 8.7 | .32% | 8.3 | .29% | |||
Revolving H/E | .6 | .18% | 1.8 | .55% | 1.5 | .48% | |||
Overdrafts | 1.2 | 19.51% | .1 | 2.56% | .3 | 8.29% | |||
Consumer total | $ | 68.9 | 1.27% | $ | 108.0 | 1.88% | $ | 99.3 | 1.73% |
Allowance for credit losses on loans | $ | 160.7 | 1.09% | $ | 236.4 | 1.44% | $ 220.8 | 1.35% | |
Liability for unfunded lending | 1.1 | 35.2 | 38.3 | ||||||
commitments | |||||||||
Total allowance for credit losses | $ | 161.8 | $ 271.6 | $ | 259.1 |
Methodology and Variables
- CECL model utilizes 3rd party baseline forecast
- Key variables include: GDP, disposable income, unemployment rate, various interest rates, CPI inflation rate, HPI, CREPI and market volatility
* Note: The Liability for unfunded lending commitments is included in Other liabilities on the consolidated balance sheets. | 10 |
PROVIDING RELIEF TO OUR CUSTOMERS
Active deferral exposure reduced as pandemic continues
Payment Relief Requests
Active deferrals1 | Active deferrals1 | |||||
as of September 30, 2020 | as of December 31, 2020 | |||||
Number | % of Portfolio | Total | Number | % of Portfolio | Total | |
Loan Type | of | Amount of | of | Amount of | ||
(by $ amount) | (by $ amount) | |||||
Requests | Requests | Requests | Requests | |||
Commercial | 11 | .5% | $48MM | 8 | .6% | $57MM |
Mortgage | 111 | 1.0% | $25MM | 86 | .7% | $18MM |
Consumer Card | 73 | .1% | $0.5MM | 93 | .1% | $0.6MM |
Installment | 553 | .8% | $11MM | 500 | .6% | $8MM |
Med/HSF2 | 76 | .1% | $0.2MM | 109 | .1% | $0.3MM |
TOTAL | 824 | .6% | $85MM | 796 | .6% | $84MM |
1Deferrals are defined as modifications, payment deferrals, forbearance agreements, or change in terms, % of Portfolio calculated on Total Loans (excluding PPP loans); 2 No direct consumer credit exposure
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LOAN PORTFOLIO: LIMITED EXPOSURE TO PANDEMIC-SENSITIVE INDUSTRIES
While we expect nearly every industry to be impacted to some degree by Coronavirus-related disruptions, we have identified eight industries that will be most impacted.
Loan Portfolio
Outstandings
Highest
Impacted
$ in | $ in | % of | |
Highest Impacted | Loan | ||
millions | millions | Portfolio | |
Industries | 9/30 | 12/31 | 12/31 |
Hospitals | $758 | $729 | 4.9% |
All
Other
Loans
18% Industries
82%
Multifamily / Student Housing | 608 | 550 | 3.7% |
CRE Retail | 389 | 387 | 2.6% |
Senior Living | 310 | 311 | 2.1% |
Hotels | 291 | 303 | 2.0% |
Energy | 150 | 173 | 1.1% |
Retail Stores | 141 | 111 | .7% |
Restaurants | 67 | 67 | .4% |
Total | $2,714 | $2,631 | 17.5% |
Industry breakdowns represent outstanding balances, excluding PPP loans, as of December 31, 2020, segmented by NAICS codes | 12 |
NON-GAAP RECONCILIATIONS
Pre-tax,Pre-provision Net Revenue
For The Three Months Ended | |||||||
(DOLLARS IN THOUSANDS) | Dec. 31, 2020 | Sept. 30, 2020 | Dec. 31, 2019 | ||||
A | Net Interest Income | $ | 209,763 | $ | 215,962 | $ | 202,659 |
B | Non-Interest Income | $ | 135,117 | $ | 129,572 | $ | 143,461 |
C | Non-Interest Expense | $ | 196,310 | $ | 190,858 | $ | 195,174 |
Pre-Provision Net Revenue (A+B-C) | $ | 148,570 | $ | 154,676 | $ | 150,946 | |
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Disclaimer
Commerce Bancshares Inc. published this content on 20 January 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 January 2021 12:07:01 UTC