(This post is a reprint of one of the nine sections that make up the recently released Singular Diligence issue on Commerce Bancshares.)
Commerce has been controlled by the same family – the Kemper family – for over 100 years. In the 113 years since the Panic of 1903, Commerce has survived several financial crises. In 2008, it did not accept TARP money from the U.S. government. Commerce’s net charge off rate peaked at just 1.31% in 2009. Even in that crisis year, loan losses at Commerce were quite low (well less than half a percentage point) in all areas except credit cards, real estate construction, and consumer credit. These 3 areas are high risk loan categories. Right now, about 13% of Commerce’s total loans are in areas Quan and I consider high risk. Credit cards are 7% of total loans, real estate construction (and land) is 4% of total loans, and boat and recreational vehicle loans are 2% of total loans. So, 13% of Commerce’s loans are in areas that would be severely stressed by a financial crisis like the one seen in 2008. The next financial crisis probably won’t look like the last one though. They never do. So, it doesn’t make sense to focus too much on loans that go bad with the housing market and household finances. Just know that about 87% of Commerce’s total loan portfolio is in fairly safe and traditional types of lending. None of these types of loans had charge-off rates above 0.41% in 2009. Those are very low charge-off rates. So, any risk to the durability of Commerce comes from the other 13% of loans that are in credit cards, real estate construction, and marine and RV lending.
Overall, Commerce makes all types of loans. Consumer and mortgage loans are 41% of total loans. Real estate is 47% of total loans. Real estate is diversified among: business real estate (20% of total loans), personal real estate (16%), home equity (7%), and construction (4%). There are many ways to break down a bank’s loan portfolio. In Commerce’s case we can look at some big and fairly traditional forms of lending and see what they add up to. Business loans (non-real estate – so commercial loans) are 35% of all loans. Business mortgages are 20%. Personal mortgages are 16%. So, right there, you have 71% of loans from those 3 categories. These loans are very typical of what banks we’ve talked about before make. Then, we get down to some categories of loans that Commerce makes which are less important at other banks – or even non-existent. We have 8.5% car and motorcycle loans, plus 1.3% RV loans, plus 0.4% boat loans equals 10.2% vehicle loans of some kind. We have 7% credit card loans. And we have 6.6% home equity loans. Home equity loans are fairly common at other banks. Auto loans and credit card loans are often a lot smaller at the banks we’ve talked about then at Commerce though.
Commerce’s …Read more