COMMERCE BANCSHARES, INC. INVESTOR UPDATE 4Th Quarter 2019 CAUTIONARY STATEMENT
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innovating for the future COMMERCE BANCSHARES, INC. INVESTOR UPDATE 4th Quarter 2019 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 2018 Annual Report on Form 10-K, 3RD Quarter 2019 Report on Form 10- Q and the Corporation’s Current Reports on Form 8-K. 2 2 COMMERCE BANCSHARES $26.1 $20.5 154 YEARS IN BUSINESS BILLION IN ASSETS BILLION IN TOTAL DEPOSITS 47TH LARGEST U.S. BANK BASED ON ASSET SIZE1 $14.8 BILLION IN TOTAL LOANS3 $7.6 BILLION IN MARKET CAPITALIZATION $9.1 TH BILLION IN COMMERCIAL 18 CARD VOLUME as of 12/31/19 LARGEST U.S. BANK BASED ON MARKET CAPITALIZATION1 14.1% FULL-SERVICE BANKING FOOTPRINT RETURN ON AVERAGE 164 full-service branches and 366 ATMs $56.7 COMMON EQUITY St. Louis ⬧ Kansas City ⬧ Springfield ⬧ Central Missouri BILLION IN as of YTD 12/31/19 Central Illinois ⬧ Wichita ⬧ Tulsa ⬧ Oklahoma City ⬧ Denver TRUST ASSETS COMMERCIAL OFFICES TH 7TH ⬧ ⬧ ⬧ ⬧ 18 Cincinnati Nashville Dallas Des Moines Indianapolis LARGEST AMONG U.S. YTD ROACE FOR THE TOP Grand Rapids ⬧ Houston 50 U.S. BANKS BASED ON BANK-MANAGED TRUST 1 2 ASSET SIZE U.S. PRESENCE COMPANIES BASED ON AUM Extended Commercial Market Area Commercial Payments Services BASELINE MOODY’S RANKS COMMERCE Offered in 48 states across the U.S. Source: 1S&P Global Market Intelligence, does not include asset management or specialty finance banks; company reports and CREDIT AMONG THE TOP 6 BANKS IN 2 3 4 4 filings; information as of 12/31/2019; S&P Global Market Intelligence as of 9/30/2019; Includes loans held for sale; Moody’s U.S. ASSESSMENT THE COUNTRY 3 Bank Ratings, November 8, 2019, Baseline credit assessment reflects a bank’s standalone credit strength. a1 SUPER-COMMUNITY BANK PLATFORM A consistent strategy with a long-term view Customer relationship-based: Community Bank Challenge Accepted.® Super-Regional Bank • • Award-winning High-performing teams Sophisticated payment customer service and engaged workforce system capabilities • • Focus on the full client Broad consumer relationship Long history of top quartile product offerings credit quality metrics • • Core values Private Banking; Trust; Capital Markets embraced by team Investment in distinctive, members • Shareholder driven and high-return businesses • strong financial Quickly adapt to performance customer needs Focus on operational • and changing efficiencies Competitive on unit preferences costs Disciplined approach to acquisitions 4 OUR STRONG CULTURE IS THE KEY DRIVER TO OUR LONG-TERM SUCCESS A culture At Commerce, our core values shape the way we live and work. formed 150+ years ago to • We have a long We make decisions today that will be a force for V sustain us well into the future. good in our term View region and • We see diversity and inclusion as an our industry We collaborate O imperative and seize opportunities to as One team build teams that reflect all sides of We act with an issue. I Integrity • We value integrity, we recognize our first duty is to conduct business in We are C Customer ways that merit trust and confidence, focused and that adhere to the highest standards of governance and ethics. We strive for E • We value relationships, our Excellence customers are our primary focus. 5 BEYOND FINANCIALS Supporting each other, our customers and our communities 1 2019 Engagement & Enablement 500 nonprofit organizations supported by Consistently Commerce team members through volunteer hours As a socially scoring above and in leadership roles by serving on boards the U.S. High 78% responsible ENGAGEMENT Performance corporate citizen, norms and the OUTSTANDING $22 million U.S. Financial “we continuously community Services norms seek opportunities of charitable reinvestment rating for engagement, 76% to make a investments advised enablement and from the Federal by Commerce Trust effectiveness ENABLEMENT difference. Reserve for more than Company2 20 years. A culture that celebrates ” inclusion and diversity New groups launched to support diversity at Commerce Commerce offers a variety of Internal resource groups, Focused on young Empowering women professionals mentoring programs and 1,200 members Nearly 600 members networking opportunities 100+ hours of LGBTQIA+ Multi-cultural community service 1The Korn Ferry Hay Group – 2019 survey results 2Includes investments on behalf of the Commerce Bancshares Foundation and private foundations that have engaged the bank as trustee. 6 RECENT RECOGNITION Commerce Bank was named The award publicly among America’s Best Banks 2019 recognizes by Forbes. We were a top-ranked employers that Missouri-based bank and ranked have achieved 17th in the nation overall. Since the best-in-class first list debuted, Commerce has levels of consistently ranked near the top engagement and enablement. Commerce ranks among an elite among the highest-performing class of 37 companies to have earned the distinction in both metrics. institutions. Commerce Bank was named a Top Commerce Bank was selected as Midsize Employer by Forbes for the third one of 20 best-in-class banks in consecutive year and ranked in the top Bank Director’s 2019 RankingBanking one-third among a selection of 500 study. We placed third overall in the employers. We placed 13th among all Midwest and ranked first in the banking and financial services Midwest for Best Branch Network companies and 7th among employers Strategy, Best Core Deposit Growth headquartered in Missouri. Strategy and Best Retail Strategy. Commerce Trust Company received Highly Commended Commerce Bank was named among status for Best Private Wealth Forbes’ first-ever ranking of Best Manager in client services with Employers for Women. Commerce assets over $5 billion. PAM was in the Top 10 for Banking and Awards recognize top investment Financial Services companies and professionals, wealth advisors, among the Top 5 employers legal firms, consultants and other headquartered in Missouri. key service providers operating within the private asset management industry. 7 FINANCIAL PERFORMANCE IN 2019 ROA ROE Fee Dividend income growth 16% 5% 1.67% 14.1% growth Net loan Net Growth in charge- interest 3.36% loans 4% .35% period end offs to margin loans Long-term performance remains strong 15-year TOTAL ANNUALIZED SHAREHOLDER RETURN @ 9.6% Vs KBW Bank Index of 3.1% 8 FINANCIAL PERFORMANCE VS. PRIOR YEAR Net Income Attributable to Earnings per Common Return on Total Assets CBI ($ in Millions) Share $434 $3.60 $3.58 $421 1.76% 1.67% $319 $2.62 1.28% YE 2017 YE 2018 YE 2019 YE 2017 YE 2018 YE 2019 YE 2017 YE 2018 YE 2019 Return on Average Common Period End Loans Period End Deposits Equity ($ in Billions) ($ in Billions) 16.2% $20,425 $20,324 $20,520 14.1% 12.5% $14,005 $14,161 $14,752 YE 2017 YE 2018 YE 2019 YE 2017 YE 2018 YE 2019 YE 2017 YE 2018 YE 2019 9 DRIVERS OF 4TH QUARTER 2019 EARNINGS Core NIM decreased 7 bps to 3.33% from 3.40% in Q3 2019, due to lower loan balances and yields on business real estate, Net Interest construction and consumer credit card loans combined with lower Margin yields on business loans. Higher volume in personal real estate and business loans partially offset the decrease. Deposit costs decreased 6 bps from the previous quarter. 7.8% fee income growth vs the same quarter in the prior year, Fee Income driven by the sale of our corporate trust business, growth in trust fees, deposit account fees, and interest rate swap fees, partly offset by lower net bank card fees. Non-Interest Expense was up 3.5% vs the same period last year, driven by increases in salaries and benefits, and data processing and Expense software costs, partly offset by lower marketing expenses. The overall credit environment remains favorable as annualized net Credit loan charge-offs remain low at .42% of total loans. 10 NET INTEREST INCOME: December 31, 2019 Quarterly Net Interest Income ⦁ Net interest income (tax equivalent) declined $220 (Tax Equivalent) 4.0% slightly from the prior quarter. – ⦁ $210 3.8% The YTD decline was mostly due to lower interest Net Yield Net on the investment securities portfolio, while $200 3.6% higher loan interest was mostly offset by $190 increased funding costs. 3.4% $180 ⦁ Excluding the impact of inflation income, the net $ in millions in $ $170 3.2% yield on interest earning assets declined 7 basis points from the previous quarter. Net interest income income interest Net $160 3.0% 4Q18 1Q19 2Q19 3Q19 4Q19 TIPs Interest - $ in 000s 2019 Net int inc 2018 Net int inc $8,000 258 Net Yield Adjusted Net Yield* 256 *Adjusted to exclude TIPs inflation income and non-recurring CFB dividends $6,000 254 in 4Q18 252 $4,000 250 CPI 248 - Tax equivalent - YTD 2018 2019 Change U $2,000 246 244 Interest income Interest Rates earned - assets 3.81% 3.91% 0.10% $0 242 240 Rates paid - liabilities 0.44% 0.67% 0.23% -$2,000 238 1Q17 1Q18 1Q19 2Q17 3Q17 4Q17 2Q18 3Q18 2Q19 3Q19 4Q18 Net yield - earning assets 3.53% 3.48% (0.05)% 4Q19 Normal int. Inflation inc. CPI-U 1111 NIM PROTECTION Hedge against lower interest rates by purchasing interest rate floor contracts and extending duration Floor Impact on Loan Yields Extending Duration Assumes Loans at LIBOR +200bps 8% In addition to the interest rate Unhedged Illustrative floors, Commerce has been 2.5% Floor (effective 6/1/2020) extending fixed-rate bond maturities.