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Commerce Bancshares, Inc. Reports Second Quarter Earnings Per Share of $1.38

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KANSAS CITY, Mo., July 22, 2021--(BUSINESS WIRE)--Commerce Bancshares, Inc. announced earnings of $1.38 per share for the three months ended June 30, 2021, compared to $.32 per common share in the same quarter last year and $1.11 per share in the first quarter of 2021. Net income attributable to Commerce Bancshares, Inc. (net income) for the second quarter of 2021 amounted to $162.3 million, compared to $39.9 million in the second quarter of 2020 and $131.0 million in the prior quarter. For the quarter, the return on average assets was 1.93%, the return on average equity was 19.12% and the efficiency ratio was 56.9%.

For the six months ended June 30, 2021, earnings per common share totaled $2.49 compared to $.74 for the first six months of 2020. Net income attributable to Commerce Bancshares, Inc. amounted to $293.3 million for the six months ended June 30, 2021, compared to $91.7 million in the comparable period last year. For the year to date, the return on average assets was 1.78%, and the return on average common equity was 17.42%.

In making this announcement, John Kemper, Chief Executive Officer, said, "After more than a year of ups and downs brought on by the pandemic, the economy appears to be on increasingly firm footing. A strengthening economy further bolstered our credit metrics and led to a reduction in reserves for credit losses on loans and unfunded lending commitments, which resulted in substantially higher earnings this quarter. In addition, our portfolio of private equity investments continued to drive sizeable investment gains for the second consecutive quarter. Fee income was solid this quarter, including bank card fees, as corporate card income rebounded nicely and debit and credit card income exceeded their pre-pandemic levels. Trust fees continued to grow strongly this quarter, with trust assets under management now exceeding $40 billion. Non-interest expense increased compared to the same quarter last year, as salaries and benefits expense grew, deferred loan origination costs declined considerably, and marketing expense increased to support our strategic initiatives and to grow our customer base. Compared to the previous quarter, average deposits grew $1.2 billion, or 4.6%, while average loan balances declined $342.5 million, or 2.1% (average PPP loan balances declined $109.8 million). The pace of PPP loan forgiveness accelerated significantly in June 2021 and resulted in a reduction of $572.6 million in period end balances. Over two-thirds of our round one PPP loans have been forgiven as of June 30, 2021."

Mr. Kemper continued, "Credit performance was very strong in the second quarter. This quarter, net loan charge-offs totaled $699 thousand, compared to $10.0 million in the prior quarter and $8.4 million in the second quarter of 2020. The ratio of annualized net loan charge-offs to average loans was .02% in the current quarter, .25% in the prior quarter and .21% in the second quarter of last year. Net loan recoveries on commercial loans of $5.0 million were recorded this quarter, and net charge-offs on personal banking loans were significantly lower compared to the prior quarter. Non-performing assets decreased by half this quarter from $23.7 million to $11.4 million. At June 30, 2021, the allowance for credit losses on loans decreased to $172.4 million. Excluding Paycheck Protection Plan (PPP) loans, the allowance for credit losses on loans to total loans was 1.17% at June 30, 2021, down from a peak of 1.62% a year ago, but higher than .95% at the adoption of CECL on January 1, 2020."

Total assets at June 30, 2021 were $33.9 billion, total loans were $15.6 billion, and total deposits were $27.5 billion. During the quarter, the Company paid a cash dividend of $.263 per share, representing a 2.1% increase over the rate paid in the second quarter of 2020. The Company purchased 181,252 shares of its common stock this quarter.

Commerce Bancshares, Inc. is a regional bank holding company offering a full line of banking services, including payment solutions, investment management and securities brokerage. Commerce Bank, a subsidiary of Commerce Bancshares, Inc., leverages more than 150 years of proven strength and experience to help individuals and businesses solve financial challenges. In addition to offering payment solutions across the U.S., Commerce Bank currently operates full-service banking facilities across the Midwest including the St. Louis and Kansas City metropolitan areas, Springfield, Central Missouri, Central Illinois, Wichita, Tulsa, Oklahoma City, and Denver. It also maintains commercial offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids. Commerce delivers high-touch service and sophisticated financial solutions at regional branches, commercial offices, ATMs, online, mobile and through a 24/7 customer service line.

This financial news release and the supplementary Earnings Highlights presentation are available on the Company’s website at https://investor.commercebank.com/news-info/financial-news-releases/default.aspx.

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,
2021

March 31,
2021

June 30,
2020

June 30,
2021

June 30,
2020

FINANCIAL SUMMARY

Net interest income

$207,982

$205,748

$203,057

$413,730

$404,122

Non-interest income

139,143

136,045

117,515

275,188

241,178

Total revenue

347,125

341,793

320,572

688,918

645,300

Investment securities gains (losses), net

16,804

9,853

(4,129)

26,657

(17,430)

Provision for credit losses

(45,655)

(6,232)

80,539

(51,887)

138,492

Non-interest expense

198,126

192,573

187,512

390,699

381,210

Income before taxes

211,458

165,305

48,392

376,763

108,168

Income taxes

45,209

32,076

9,661

77,285

19,834

Non-controlling interest (income) expense

3,923

2,257

(1,132)

6,180

(3,386)

Net income attributable to Commerce Bancshares, Inc.

162,326

130,972

39,863

293,298

91,720

Preferred stock dividends

2,250

4,500

Net income available to common shareholders

$162,326

$130,972

$37,613

$293,298

$87,220

Earnings per common share:

Net income — basic

$1.38

$1.12

$.32

$2.50

$.74

Net income — diluted

$1.38

$1.11

$.32

$2.49

$.74

Effective tax rate

21.78

%

19.67

%

19.51

%

20.85

%

17.78

%

Tax equivalent net interest income

$211,060

$208,774

$206,253

$419,834

$410,655

Average total interest earning assets (1)

$32,556,658

$31,278,721

$28,193,312

$31,921,220

$26,442,163

Diluted wtd. average shares outstanding

116,450,430

116,573,405

116,441,701

116,511,578

116,693,218

RATIOS

Average loans to deposits (2)

57.78

%

61.79

%

69.22

%

59.73

%

70.78

%

Return on total average assets

1.93

1.63

.54

1.78

.66

Return on average common equity (3)

19.12

15.69

4.77

17.42

5.61

Non-interest income to total revenue

40.08

39.80

36.66

39.94

37.37

Efficiency ratio (4)

56.90

56.37

58.10

56.64

58.64

Net yield on interest earning assets

2.60

2.71

2.94

2.65

3.12

EQUITY SUMMARY

Cash dividends per common share

$.263

$.263

$.257

$.525

$.514

Cash dividends on common stock

$30,760

$30,799

$30,174

$61,559

$60,466

Cash dividends on preferred stock

$—

$—

$2,250

$—

$4,500

Book value per common share (5)

$29.89

$28.34

$27.44

Market value per common share (5)

$74.56

$76.61

$56.64

High market value per common share

$81.19

$83.06

$66.45

Low market value per common share

$70.69

$64.76

$45.77

Common shares outstanding (5)

116,893,573

117,077,276

117,109,981

Tangible common equity to tangible assets (6)

9.91

%

9.57

%

10.12

%

Tier I leverage ratio

9.36

%

9.38

%

9.88

%

OTHER QTD INFORMATION

Number of bank/ATM locations

295

298

312

Full-time equivalent employees

4,590

4,619

4,856

(1)

Excludes allowance for credit losses on loans 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 2020.

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,
2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

June 30,
2021

June 30,
2020

Interest income

$211,133

$209,697

$214,726

$223,114

$213,323

$420,830

$434,808

Interest expense

3,151

3,949

4,963

7,152

10,266

7,100

30,686

Net interest income

207,982

205,748

209,763

215,962

203,057

413,730

404,122

Provision for credit losses

(45,655)

(6,232)

(4,403)

3,101

80,539

(51,887)

138,492

Net interest income after credit losses

253,637

211,980

214,166

212,861

122,518

465,617

265,630

NON-INTEREST INCOME

Bank card transaction fees

42,608

37,695

39,979

37,873

33,745

80,303

73,945

Trust fees

46,257

44,127

41,961

40,769

37,942

90,384

77,907

Deposit account charges and other fees

23,988

22,575

24,164

23,107

22,279

46,563

45,956

Capital market fees

3,327

4,981

3,826

3,194

3,772

8,308

7,562

Consumer brokerage services

4,503

4,081

3,996

4,011

3,011

8,584

7,088

Loan fees and sales

7,446

10,184

9,031

9,769

4,649

17,630

7,884

Other

11,014

12,402

12,160

10,849

12,117

23,416

20,836

Total non-interest income

139,143

136,045

135,117

129,572

117,515

275,188

241,178

INVESTMENT SECURITIES GAINS (LOSSES), NET

16,804

9,853

12,307

16,155

(4,129)

26,657

(17,430)

NON-INTEREST EXPENSE

Salaries and employee benefits

130,751

129,033

129,983

127,308

126,759

259,784

255,696

Net occupancy

11,527

12,021

11,570

12,058

11,269

23,548

23,017

Equipment

4,605

4,353

4,526

4,737

4,755

8,958

9,576

Supplies and communication

4,033

4,125

4,193

4,141

4,427

8,158

9,085

Data processing and software

24,954

25,463

24,323

23,610

23,837

50,417

47,392

Marketing

5,680

5,158

5,028

4,926

3,801

10,838

9,780

Other

16,576

12,420

16,687

14,078

12,664

28,996

26,664

...

Total non-interest expense

198,126

192,573

196,310

190,858

187,512

390,699

381,210

Income before income taxes

211,458

165,305

...

165,280

167,730

48,392

376,763

108,168

Less income taxes

45,209

32,076

33,084

34,375

9,661

77,285

19,834

Net income

166,249

133,229

132,196

133,355

38,731

299,478

88,334

Less non-controlling interest expense (income)

3,923

2,257

2,307

907

(1,132)

6,180

(3,386)

Net income attributable to Commerce Bancshares, Inc.

162,326

130,972

129,889

132,448

39,863

293,298

91,720

Less preferred stock dividends

7,466

2,250

4,500

Net income available to common shareholders

$162,326

$130,972

$129,889

$124,982

$37,613

$293,298

$87,220

Net income per common share — basic

$1.38

$1.12

$1.11

$1.06

$.32

$2.50

$.74

Net income per common share — diluted

$1.38

$1.11

$1.11

$1.06

$.32

$2.49

$.74

OTHER INFORMATION

Return on total average assets

1.93

%

1.63

%

1.63

%

1.71

%

.54

%

1.78

%

.66

%

Return on average common equity (1)

19.12

15.69

15.49

15.21

4.77

17.42

5.61

Efficiency ratio (2)

56.90

56.37

56.68

55.00

58.10

56.64

58.64

Effective tax rate

21.78

19.67

20.30

20.61

19.51

20.85

17.78

Net yield on interest earning assets

2.60

2.71

2.80

2.97

2.94

2.65

3.12

Tax equivalent net interest income

$211,060

$208,774

$213,017

$219,118

$206,253

$419,834

$410,655

(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.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - PERIOD END

(Unaudited)

(In thousands)

June 30,
2021

March 31,
2021

June 30,
2020

ASSETS

Loans

Business

$

5,803,760

$

6,624,209

$

6,858,217

Real estate — construction and land

1,103,661

1,073,036

932,022

Real estate — business

3,017,560

3,017,242

2,941,163

Real estate — personal

2,793,213

2,828,418

2,690,542

Consumer

2,049,166

1,966,833

1,966,707

Revolving home equity

283,568

285,261

334,627

Consumer credit card

586,358

593,833

666,597

Overdrafts

2,978

3,239

5,179

Total loans

15,640,264

16,392,071

16,395,054

Allowance for credit losses on loans

(172,395)

(200,527)

(240,744)

Net loans

15,467,869

16,191,544

16,154,310

Loans held for sale

23,697

38,076

12,785

Investment securities:

Available for sale debt securities

13,291,506

12,528,203

10,317,427

Trading debt securities

29,002

26,925

28,813

Equity securities

8,678

4,337

4,128

Other securities

176,439

155,913

117,761

Total investment securities

13,505,625

12,715,378

10,468,129

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

5,945

500

Long-term securities purchased under agreements to resell

1,300,000

850,000

850,000

Interest earning deposits with banks

2,161,644

2,017,128

1,404,968

Cash and due from banks

358,122

338,666

391,268

Premises and equipment — net

371,989

371,737

368,565

Goodwill

138,921

138,921

138,921

Other intangible assets — net

14,148

13,098

7,179

Other assets

508,202

594,738

699,996

Total assets

$

33,856,162

$

33,269,786

$

30,496,121

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:

Non-interest bearing

$

11,085,286

$

11,076,556

$

9,700,261

Savings, interest checking and money market

14,654,696

14,572,378

12,792,993

Certificates of deposit of less than $100,000

478,838

504,472

590,635

Certificates of deposit of $100,000 and over

1,267,417

1,267,219

1,443,078

Total deposits

27,486,237

27,420,625

24,526,967

Federal funds purchased and securities sold under agreements to repurchase

2,318,228

1,938,110

1,740,438

Other borrowings

2,194

3,791

1,475

Other liabilities

555,673

589,875

869,072

Total liabilities

30,362,332

29,952,401

27,137,952

Stockholders’ equity:

Preferred stock

144,784

Common stock

589,352

589,352

563,978

Capital surplus

2,424,157

2,420,393

2,136,874

Retained earnings

304,739

173,173

232,082

Treasury stock

(53,018)

(39,080)

(69,112)

Accumulated other comprehensive income

220,390

168,752

349,261

Total stockholders’ equity

3,485,620

3,312,590

3,357,867

Non-controlling interest

8,210

4,795

302

Total equity

3,493,830

3,317,385

3,358,169

Total liabilities and equity

$

33,856,162

$

33,269,786

$

30,496,121

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

(Unaudited)

(In thousands)

For the Three Months Ended

June 30,
2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

ASSETS:

Loans:

Business

$

6,211,610

$

6,532,921

$

6,580,300

$

6,709,200

$

6,760,827

Real estate — construction and land

1,088,433

1,091,969

1,032,891

974,346

895,648

Real estate — business

3,014,955

3,022,979

3,029,799

2,989,652

2,962,076

Real estate — personal

2,804,388

2,826,112

2,778,462

2,722,300

2,582,484

Consumer

2,004,625

1,947,322

1,981,033

1,992,314

1,944,265

Revolving home equity

287,031

299,371

316,895

329,361

343,210

Consumer credit card

575,725

608,747

638,161

646,185

663,911

Overdrafts

3,735

3,546

3,762

2,689

2,912

Total loans

15,990,502

16,332,967

16,361,303

16,366,047

16,155,333

Allowance for credit losses on loans

(200,801)

(220,512)

(235,484)

(240,286)

(171,616)

Net loans

15,789,701

16,112,455

16,125,819

16,125,761

15,983,717

Loans held for sale

23,389

35,814

30,577

24,728

6,363

Investment securities:

U.S. government and federal agency obligations

719,849

725,367

774,640

770,361

776,240

Government-sponsored enterprise obligations

50,793

50,801

69,133

102,749

114,518

State and municipal obligations

1,966,673

1,958,637

1,967,408

1,767,526

1,285,427

Mortgage-backed securities

6,685,407

6,998,521

6,646,345

6,259,926

5,325,720

Asset-backed securities

2,653,928

2,085,491

1,819,467

1,520,988

1,342,518

Other debt securities

605,772

570,115

533,646

514,166

406,665

Unrealized gain on debt securities

197,124

283,511

329,477

368,154

281,457

Total available for sale debt securities

12,879,546

12,672,443

12,140,116

11,303,870

9,532,545

Trading debt securities

34,955

32,320

28,040

27,267

31,981

Equity securities

4,914

4,321

4,221

4,193

4,137

Other securities

156,984

154,030

130,145

120,253

139,250

Total investment securities

13,076,399

12,863,114

12,302,522

11,455,583

9,707,913

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

1,338

7

355

337

92

Long-term securities purchased under agreements to resell

937,372

849,999

849,998

849,994

850,000

Interest earning deposits with banks

2,724,782

1,480,331

1,082,644

1,024,435

1,755,068

Other assets

1,258,989

1,308,105

1,291,907

1,389,683

1,461,528

Total assets

$

33,811,970

$

32,649,825

$

31,683,822

$

30,870,521

$

29,764,681

LIABILITIES AND EQUITY:

Non-interest bearing deposits

$

11,109,198

$

10,438,637

$

10,275,735

$

9,801,562

$

8,843,408

Savings

1,474,391

1,333,177

1,234,481

1,193,079

1,111,397

Interest checking and money market

13,283,481

12,970,629

12,198,928

11,731,494

11,441,694

Certificates of deposit of less than $100,000

491,446

516,728

542,212

573,207

605,136

Certificates of deposit of $100,000 and over

1,354,685

1,230,075

1,339,301

1,447,968

1,346,069

Total deposits

27,713,201

26,489,246

25,590,657

24,747,310

23,347,704

Borrowings:

Federal funds purchased and securities sold under agreements to repurchase

2,165,696

2,166,072

2,028,457

1,855,971

1,991,971

Other borrowings

978

831

1,013

1,225

345,162

Total borrowings

2,166,674

2,166,903

2,029,470

1,857,196

2,337,133

Other liabilities

527,401

608,212

727,569

899,890

763,524

Total liabilities

30,407,276

29,264,361

28,347,696

27,504,396

26,448,361

Equity

3,404,694

3,385,464

3,336,126

3,366,125

3,316,320

Total liabilities and equity

$

33,811,970

$

32,649,825

$

31,683,822

$

30,870,521

$

29,764,681

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

(Unaudited)

For the Three Months Ended

June 30,
2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

ASSETS:

Loans:

Business (1)

3.15

%

3.09

%

3.01

%

2.95

%

2.91

%

Real estate — construction and land

3.56

3.54

3.72

3.74

3.95

Real estate — business

3.49

3.52

3.51

3.53

3.71

Real estate — personal

3.31

3.40

3.44

3.56

3.69

Consumer

3.84

4.02

4.07

4.19

4.48

Revolving home equity

3.43

3.38

3.37

3.29

3.50

Consumer credit card

11.22

10.97

11.60

11.40

11.76

Overdrafts

Total loans

3.65

3.66

3.69

3.69

3.80

Loans held for sale

4.20

3.44

3.54

4.25

8.03

Investment securities:

U.S. government and federal agency obligations

5.52

2.54

2.63

3.71

.46

Government-sponsored enterprise obligations

2.33

2.36

2.23

2.17

3.51

State and municipal obligations (1)

2.41

2.46

2.44

2.53

2.97

Mortgage-backed securities

1.11

1.39

1.37

1.95

2.17

Asset-backed securities

1.25

1.39

1.59

1.90

2.25

Other debt securities

2.06

2.15

2.19

2.35

2.49

Total available for sale debt securities

1.64

1.67

1.70

2.18

2.18

Trading debt securities (1)

1.19

1.08

1.40

1.66

2.93

Equity securities (1)

43.10

49.56

50.71

47.15

48.42

Other securities (1)

11.90

5.26

10.03

6.74

4.36

Total investment securities

1.78

1.72

1.81

2.24

2.24

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

.60

1.12

Long-term securities purchased under agreements to resell

4.46

5.31

5.24

5.26

5.08

Interest earning deposits with banks

.11

.10

.10

.10

.10

Total interest earning assets

2.64

2.76

2.86

3.07

3.09

LIABILITIES AND EQUITY:

Interest bearing deposits:

Savings

.08

.08

.09

.09

.09

Interest checking and money market

.05

.06

.07

.10

.13

Certificates of deposit of less than $100,000

.27

.37

.51

.71

.93

Certificates of deposit of $100,000 and over

.20

.35

.47

.69

1.08

Total interest bearing deposits

.07

.09

.12

.18

.25

Borrowings:

Federal funds purchased and securities sold under agreements to repurchase

.06

.06

.06

.09

.12

Other borrowings

.82

.98

.82

Total borrowings

.06

.06

.06

.09

.22

Total interest bearing liabilities

.07

%

.09

%

.11

%

.17

%

.25

%

Net yield on interest earning assets

2.60

%

2.71

%

2.80

%

2.97

%

2.94

%

(1)

Stated on a tax equivalent basis using a federal income tax rate of 21%.

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,
2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

June 30,
2021

June 30,
2020

ALLOWANCE FOR CREDIT LOSSES ON LOANS

Balance at beginning of period

$

200,527

$

220,834

$

236,360

$

240,744

$

171,653

$

220,834

$

160,682

Adoption of ASU 2016-13

(21,039)

Provision for credit losses on loans

(27,433)

(10,355)

(7,510)

3,200

77,491

(37,788)

120,359

Net charge-offs (recoveries):

Commercial portfolio:

Business

(4,909)

(4)

581

208

3,249

(4,913)

2,876

Real estate — construction and land

1

(2)

(1)

1

Real estate — business

(85)

20

(7)

(13)

(6)

(65)

(27)

(4,994)

17

572

194

3,243

(4,977)

2,849

Personal banking portfolio:

Consumer credit card

5,155

8,981

5,975

7,263

3,584

14,136

12,741

Consumer

378

763

1,160

211

1,362

1,141

3,073

Overdraft

148

153

335

200

316

301

742

Real estate — personal

(16)

15

(18)

(198)

(71)

(1)

(75)

Revolving home equity

28

23

(8)

(86)

(34)

51

(72)

5,693

9,935

7,444

7,390

5,157

15,628

16,409

Total net loan charge-offs

699

9,952

8,016

7,584

8,400

10,651

19,258

Balance at end of period

$

172,395

$

200,527

$

220,834

$

236,360

$

240,744

$

172,395

$

240,744

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

$

24,208

$

42,430

$

38,307

$

35,200

$

35,299

NET CHARGE-OFF RATIOS (1)

Commercial portfolio:

Business

(.32

%)

%

.04

%

.01

%

.19

%

(.16

%)

.09

%

Real estate — construction and land

Real estate — business

(.01)

(.19)

.02

.01

.12

(.10)

.06

Personal banking portfolio:

Consumer credit card

3.59

5.98

3.72

4.47

2.17

4.81

3.68

Consumer

.08

.16

.23

.04

.28

.12

.32

Overdraft

15.89

17.50

35.43

29.59

43.65

16.67

42.90

Real estate — personal

(.03)

(.01)

(.01)

Revolving home equity

.04

.03

(.01)

(.10)

(.04)

.04

(.04)

.40

.71

.52

.52

.37

.55

.60

Total

.02

%

.25

%

.19

%

.18

%

.21

%

.13

%

.25

%

CREDIT QUALITY RATIOS

Non-performing assets to total loans

.07

%

.14

%

.16

%

.25

%

.14

%

Non-performing assets to total assets

.03

.07

.08

.13

.08

Allowance for credit losses on loans to total loans(2)

1.10

1.22

1.35

1.44

1.47

NON-PERFORMING ASSETS

Non-accrual loans:

Business

$

8,839

$

20,215

$

22,524

$

37,295

$

19,034

Real estate — construction and land

1

1

Real estate — business

655

1,572

2,230

1,063

1,921

Real estate — personal

1,672

1,719

1,786

1,911

1,679

Total

11,166

23,506

26,540

40,270

22,635

Foreclosed real estate

229

208

93

57

422

Total non-performing assets

$

11,395

$

23,714

$

26,633

$

40,327

$

23,057

Loans past due 90 days and still accruing interest

$

12,338

$

21,512

$

22,190

$

14,436

$

24,583

(1)

As a percentage of average loans (excluding loans held for sale).

(2)

Excluding PPP loans, the allowance for credit losses on loans to total loans was 1.17% and 1.34% as of June 30, 2021 and March 31, 2021, respectively.

COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2021

For the quarter ended June 30, 2021, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $162.3 million, compared to $131.0 million in the previous quarter and $39.9 million in the same quarter last year. The increase in net income over the previous quarter was primarily the result of a significant decrease in the provision for credit losses and higher net gains on investments, partly offset by higher non-interest expense and higher income tax expense. Compared to the prior quarter, the provision for credit losses declined due to a decrease in the estimate of the allowance for credit losses on loans and unfunded lending commitments and lower net loan charge-offs. While net interest income increased slightly this quarter, the net yield on interest earnings assets declined 11 basis points to 2.60%. Average loans declined $342.5 million compared to the previous quarter, while average available for sale debt securities grew $207.1 million, and average deposits increased $1.2 billion. For the quarter, the return on average assets was 1.93%, the return on average common equity was 19.12%, and the efficiency ratio was 56.9%.

Balance Sheet Review

During the 2nd quarter of 2021, average loans totaled $16.0 billion, or a decrease of $342.5 million over the prior quarter, and declined $164.8 million, or 1.0%, from the same quarter last year. Period end loans decreased $751.8 million compared to the prior quarter. Compared to the previous quarter, average balances of business, personal real estate, and consumer card loans declined $321.3 million (includes a decline of $109.8 million in Paycheck Protection Program loan balances), $21.7 million, and $33.0 million, respectively. This decline was partially offset by growth in consumer loans of $57.3 million. The period end balance of Paycheck Protection Program (PPP) loans decreased $572.6 million during the 2nd quarter of 2021 and totaled $854.3 million at June 30, 2021. The decrease in actual PPP loan balances during the 2nd quarter of 2021 reflected a decline of $639.5 million in round one loan balances, partly offset by a $67.0 million increase in loan balances from round two. Total loan originations from PPP round two were $402.1 million. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $164.6 million, compared to $177.8 million in the prior quarter.

Total average available for sale debt securities increased $207.1 million over the previous quarter to $12.9 billion, at fair value. The increase in investment securities was mainly the result of growth in asset-backed securities, partly offset by lower mortgage-backed securities. During the current quarter, purchases of securities totaled $1.5 billion with a weighted average yield of approximately 1.17%. Maturities and pay downs were $808.1 million, and there were no sales during the quarter. At June 30, 2021, the duration of the investment portfolio was 3.4 years, and maturities and pay downs of approximately $2.6 billion are expected to occur during the next 12 months.

Total average deposits increased $1.2 billion this quarter compared to the previous quarter. The increase in deposits mostly resulted from growth in demand deposits of $670.6 million. Interest checking and money market deposits, savings deposits, and certificates of deposit also grew $312.9 million, $141.2 million, $99.3 million over the prior quarter, respectively. Compared to the previous quarter, total average consumer and commercial deposits grew $653.4 million and $621.2 million, respectively. The average loans to deposits ratio was 57.8% in the current quarter and 61.8% in the prior quarter. The Company’s average borrowings, which include customer repurchase agreements, were $2.2 billion in both the 1st and 2nd quarters of 2021.

Net Interest Income

Net interest income in the 2nd quarter of 2021 amounted to $208.0 million, an increase of $2.2 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter increased $2.3 million over the previous quarter to $211.1 million. The increase in net interest income was mainly due to higher income earned on investment securities, partly offset by lower interest on loans and long-term securities purchased under agreements to resell. The net yield on earning assets (tax equivalent) decreased to 2.60%, compared to 2.71% in the prior quarter, mostly as a result of larger average balances on deposit at the Federal Reserve.

Compared to the previous quarter, interest income on loans (tax equivalent) decreased $1.8 million, mostly as a result of lower average balances of business and consumer credit card loans. The impact of these decreases was partially offset by higher yields on business and consumer credit card loans. The increase in the yield on business loans was driven primarily by an increase in the yield on PPP loans, which grew to 3.77% this quarter. Excluding PPP loans, the yield on business loans was 3.00% in the 2nd quarter of 2021. The average tax-equivalent yield on the loan portfolio declined one basis point to 3.65% this quarter.

Interest income on investment securities (tax equivalent) increased $3.7 million over the previous quarter, due to higher rates earned and higher average balances. Interest income earned on U.S. government and federal agency securities increased, as inflation income from Treasury inflation-protected securities inflation income increased $5.3 million this quarter to $6.8 million. At June 30, 2021, the Company recorded a $1.9 million adjustment to premium amortization, which decreased interest income this quarter to reflect an acceleration in forward prepayment speed estimates on mortgage-backed securities due to falling interest rates during the quarter. The yield on total investment securities was 1.78% in the current quarter, compared to 1.72% in the previous quarter.

The average rate paid on interest bearing deposits totaled .07% in the 2nd quarter of 2021, compared .09% in the prior quarter. Interest expense on deposits decreased $806 thousand this quarter compared to the previous quarter mainly due to lower rates paid on money market and certificate of deposit accounts, partly offset by higher average interest bearing deposit balances. The overall rate paid on interest bearing liabilities was .07% in the current quarter, compared to .09% in the prior quarter.

Non-Interest Income

In the 2nd quarter of 2021, total non-interest income amounted to $139.1 million, an increase of $21.6 million, or 18.4%, compared to the same period last year and increased $3.1 million compared to the prior quarter. The increase in non-interest income over the same period last year was mainly due to growth in bank card fees, trust fees, and loan fees and sales, partially offset by lower cash sweep fees.

Total net bank card fees in the current quarter increased $8.9 million, or 26.3%, over the same period last year, and increased $4.9 million, or 13.0%, compared to the prior quarter. Net corporate card fees increased $5.3 million, or 29.8%, over the same quarter of last year mainly due to higher interchange fee income, partly offset by higher rewards expense. Net debit card fees increased $1.7 million, or 19.1%, mainly due to higher interchange fees. Net merchant income increased $669 thousand, or 15.8%, and net credit card fees increased $1.2 million, or 41.4%. Total net bank card fees this quarter were comprised of fees on corporate card ($23.1 million), debit card ($10.5 million), merchant ($4.9 million) and credit card ($4.1 million) transactions.

In the current quarter, trust fees increased $8.3 million, or 21.9%, over the same period last year, resulting mostly from higher private client fee income. Compared to the same period last year, deposit account fees increased $1.7 million, or 7.7%, mainly due to higher overdraft and return item fees, coupled with an increase in corporate cash management fees. Additionally, loan fees and sales, mostly mortgage banking revenue, grew $2.8 million, or 60.2%, over amounts recorded in the same quarter last year. Consumer brokerage fees increased $1.5 million, or 49.6%, compared to the same quarter last year, mainly due to growth in annuity and advisory fees.

Other non-interest income decreased from the same period last year mainly due to lower sweep fees of $2.8 million, partly offset by higher check sales and wire fees. For the 2nd quarter of 2021, non-interest income comprised 40.1% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded investment net gains of $16.8 million in the current quarter, compared to net gains of $9.9 million in the prior quarter and net losses of $4.1 million in the 2nd quarter of 2020. Net gains on investments in the current quarter primarily resulted from unrealized fair value gains of $16.7 million in the Company’s private equity investment portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $198.1 million, compared to $187.5 million in the same period last year and $192.6 million in the prior quarter. The increase in non-interest expense compared to the same period last year and the prior quarter was mainly due to lower deferred loan origination costs, higher salaries and benefits expense and higher marketing expense.

Compared to the 2nd quarter of last year, salaries and employee benefits expense increased $4.0 million, mostly due to higher medical expense of $3.5 million and higher incentive compensation of $4.0 million. These increases were partly offset by declines in full and part-time salaries, overtime pay, payroll taxes and other benefits expense. Full-time equivalent employees totaled 4,590 and 4,856 at June 30, 2021 and 2020, respectively.

Marketing and data processing and software expense increased $1.9 million and $1.1 million, respectively. Other non-interest expense increased mainly due to a $4.0 million decrease in deferred loan origination costs. Additionally, insurance expense and travel and entertainment expense increased $514 thousand and $476 thousand, respectively. These increases were partially offset by a $1.0 million reduction in impairment expense on mortgage servicing rights.

Income Taxes

The effective tax rate for the Company was 21.8% in the current quarter, 19.7% in the previous quarter, and 19.5% in the 2nd quarter of 2020. The increase in the effective tax rate in the current quarter compared to the prior quarter and the same quarter last year is mostly due to the mix of taxable and non-taxable income and expenses.

Credit Quality

Net loan charge-offs in the 2nd quarter of 2021 amounted to $699 thousand, compared to $10.0 million in the prior quarter and $8.4 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .02% in the current quarter, .25% in the previous quarter, and .21% in the 2nd quarter of last year. Net loan recoveries on commercial loans totaled $5.0 million mostly due to recoveries on two business loans in the current quarter. Net loan charge-offs on personal banking loans decreased $4.2 million to $5.7 million.

In the 2nd quarter of 2021, annualized net loan charge-offs on average consumer credit card loans were 3.59%, compared to 5.98% in the previous quarter, and 2.17% in the same quarter last year. Consumer loan net charge-offs were .08% of average consumer loans in the current quarter, .16% in the prior quarter and .28% in the same quarter last year.

Actual economic data for the 2nd quarter of 2021 and the economic forecast used to estimate the allowance for credit losses in June 2021 showed improving economic conditions compared to the forecast utilized in March 2021. This improvement resulted in a significant decrease in the allowance for credit losses as of June 30, 2021 and reduced the provision for credit losses this quarter compared to the prior quarter. At June 30, 2021, the allowance for credit losses on loans totaled $172.4 million, or 1.10% of total loans and 1.17% of total loans excluding PPP loans. Additionally, the liability for unfunded lending commitments at June 30, 2021 was $24.2 million, a decrease of $18.2 million from the liability at March 31, 2021.

At June 30, 2021, total non-performing assets amounted to $11.4 million, a decrease of $12.3 million from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($11.2 million and $229 thousand, respectively). At June 30, 2021, the balance of non-accrual loans, which represented .07% of loans outstanding, included business loans of $8.8 million, personal real estate loans of $1.7 million, and business real estate loans of $655 thousand. Loans more than 90 days past due and still accruing interest totaled $12.3 million at June 30, 2021.

Other

During the 2nd quarter of 2021, the Company paid a cash dividend of $.263 per common share, representing a 2.1% increase over the same period last year. The Company purchased 181,252 shares of treasury stock during the current quarter at an average price of $77.05.

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20210722005252/en/

Contacts

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: matthew.burkemper@commercebank.com