Commerce Bancshares, Inc. Reports Third Quarter Earnings Per Share of $1.05

Commerce Bancshares, Inc. announced earnings of $1.05 per share for the three months ended September 30, 2021, compared to $1.06 per common share in the same quarter last year and $1.38 per share in the second quarter of 2021. Net income attributable to Commerce Bancshares, Inc. (net income) for the third quarter of 2021 amounted to $122.6 million, compared to $132.4 million in the third quarter of 2020 and $162.3 million in the prior quarter. For the quarter, the return on average assets was 1.40%, the return on average equity was 13.74% and the efficiency ratio was 59.9%.

For the nine months ended September 30, 2021, earnings per common share totaled $3.54 compared to $1.80 for the first nine months of 2020. Net income attributable to Commerce Bancshares, Inc. amounted to $415.9 million for the nine months ended September 30, 2021, compared to $224.2 million in the comparable period last year. Year to date, the return on average assets was 1.65%, and the return on average equity was 16.14%.

In announcing these results, John Kemper, Chief Executive Officer, said, “We are pleased to report solid earnings again this quarter, reflecting continued robust contributions from our fee-based businesses. Trust fees grew 20.1% compared to the same quarter last year and 5.8% compared to the prior quarter. Bank card and deposit account fees continued to rebound strongly from last year’s lows. Although loan demand has been somewhat limited, we did experience increases in construction and consumer loans this quarter and our Company remains well-positioned to benefit from a strengthening economy. Our portfolio of private equity investments also performed well, driving net investment securities gains of $13.1 million. Non-interest expense increased compared to the same quarter last year, as higher incentive compensation reflected our improved financial performance in 2021 and certain business expenses that declined precipitously during the pandemic are rebounding from lows set one year ago. Additionally, other expense was elevated during the quarter, reflecting non-recurring litigation settlement expenses. Compared to the previous quarter, average deposits grew $344.0 million, or 1.2%, while average loan balances declined $731.5 million, or 4.6% (average PPP loan balances declined $689.2 million). As of September 30, 2021, 84% percent of our PPP loan balances have been forgiven.”

Mr. Kemper continued, “Credit quality of the loan portfolio remains excellent. This quarter, net loan charge-offs totaled $3.7 million, compared to $699 thousand in the prior quarter and $7.6 million in the third quarter of 2020. The ratio of annualized net loan charge-offs to average loans was .10% in the current quarter, .02% in the prior quarter and .18% in the third quarter of last year. Net charge-offs on consumer card loans declined $2.2 million from the prior quarter, and net charge-offs on consumer loans remained low. Non-performing assets totaled $10.5 million and also remained at very low levels. At September 30, 2021, the allowance for credit losses on loans decreased to $162.8 million. Excluding Paycheck Protection Plan (PPP) loans, the allowance for credit losses on loans to total loans was 1.10% at September 30, 2021.”

Total assets at September 30, 2021 were $34.5 billion, total loans were $15.1 billion, and total deposits were $28.1 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 third quarter of 2020. The Company purchased 575,457 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 Nine Months Ended

(Unaudited)

(Dollars in thousands, except per share data)

 

September 30,

2021

June 30,

2021

September 30,

2020

September 30,

2021

September 30,

2020

FINANCIAL SUMMARY

 

 

Net interest income

 

$214,037

 

$207,982

 

$215,962

 

$627,767

 

$620,084

 

Non-interest income

 

137,506

 

139,143

 

129,572

 

412,694

 

370,750

 

Total revenue

 

351,543

 

347,125

 

345,534

 

1,040,461

 

990,834

 

Investment securities gains (losses), net

 

13,108

 

16,804

 

16,155

 

39,765

 

(1,275)

Provision for credit losses

 

(7,385)

(45,655)

3,101

 

(59,272)

141,593

 

Non-interest expense

 

211,620

 

198,126

 

190,858

 

602,319

 

572,068

 

Income before taxes

 

160,416

 

211,458

 

167,730

 

537,179

 

275,898

 

Income taxes

 

34,662

 

45,209

 

34,375

 

111,947

 

54,209

 

Non-controlling interest (income) expense

 

3,193

 

3,923

 

907

 

9,373

 

(2,479)

Net income attributable to Commerce Bancshares, Inc.

122,561

 

162,326

 

132,448

 

415,859

 

224,168

 

Preferred stock dividends

 

 

 

7,466

 

 

11,966

 

Net income available to common shareholders

$122,561

 

$162,326

 

$124,982

 

$415,859

 

$212,202

 

Earnings per common share:

 

 

 

 

 

 

Net income — basic

 

$1.05

 

$1.38

 

$1.06

 

$3.55

 

$1.80

 

Net income — diluted

 

$1.05

 

$1.38

 

$1.06

 

$3.54

 

$1.80

 

Effective tax rate

 

22.05

%

21.78

%

20.61

%

21.21

%

19.47

%

Tax equivalent net interest income

 

$216,858

 

$211,060

 

$219,118

 

$636,692

 

$629,773

 

Average total interest earning assets (1)

 

$

33,306,752

 

$

32,556,658

 

$

29,352,970

 

$

32,388,139

 

$

27,419,514

 

Diluted wtd. average shares outstanding

 

116,077,229

 

116,450,430

 

116,444,157

 

116,365,204

 

116,609,592

 

 

 

 

 

 

 

 

RATIOS

 

 

 

 

 

 

Average loans to deposits (2)

 

54.44

%

57.78

%

66.23

%

57.91

%

69.12

%

Return on total average assets

 

1.40

 

1.93

 

1.71

 

1.65

 

1.04

 

Return on average common equity (3)

 

13.74

 

19.12

 

15.21

 

16.14

 

8.93

 

Non-interest income to total revenue

 

39.11

 

40.08

 

37.50

 

39.66

 

37.42

 

Efficiency ratio (4)

 

59.95

 

56.90

 

55.00

 

57.76

 

57.37

 

Net yield on interest earning assets

 

2.58

 

2.60

 

2.97

 

2.63

 

3.07

 

 

 

 

 

 

 

 

EQUITY SUMMARY

 

 

 

 

 

 

Cash dividends per common share

 

$.263

 

$.263

 

$.257

 

$.788

 

$.771

 

Cash dividends on common stock

 

$30,645

 

$30,760

 

$30,174

 

$92,204

 

$90,640

 

Cash dividends on preferred stock

 

$—

 

$—

 

$7,466

 

$—

 

$11,966

 

Book value per common share (5)

 

$30.01

 

$29.89

 

$28.23

 

 

 

Market value per common share (5)

 

$69.68

 

$74.56

 

$53.61

 

 

 

High market value per common share

 

$75.68

 

$81.19

 

$59.13

 

 

 

Low market value per common share

 

$64.90

 

$70.69

 

$50.50

 

 

 

Common shares outstanding (5)

 

116,332,177

 

116,893,573

 

117,109,209

 

 

 

Tangible common equity to tangible assets (6)

 

9.71

%

9.91

%

10.11

%

 

 

Tier I leverage ratio

 

9.31

%

9.36

%

9.39

%

 

 

 

 

 

 

 

 

 

OTHER QTD INFORMATION

 

 

 

 

 

 

Number of bank/ATM locations

 

292

 

295

 

308

 

 

 

Full-time equivalent employees

 

4,582

 

4,590

 

4,825

 

 

 

(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 Nine Months Ended

(Unaudited)

(In thousands, except per share data)

 

September 30,

2021

June 30,

2021

March 31,

2021

December 31,

2020

September 30,

2020

September 30,

2021

September 30,

2020

Interest income

 

$216,981

 

$211,133

 

$209,697

 

$214,726

 

$223,114

 

$637,811

 

$657,922

 

Interest expense

 

2,944

 

3,151

 

3,949

 

4,963

 

7,152

 

10,044

 

37,838

 

Net interest income

 

214,037

 

207,982

 

205,748

 

209,763

 

215,962

 

627,767

 

620,084

 

Provision for credit losses

 

(7,385)

(45,655)

(6,232)

(4,403)

3,101

 

(59,272)

141,593

 

Net interest income after credit losses

221,422

 

253,637

 

211,980

 

214,166

 

212,861

 

687,039

 

478,491

 

NON-INTEREST INCOME

 

 

 

 

 

 

 

 

Bank card transaction fees

 

42,815

 

42,608

 

37,695

 

39,979

 

37,873

 

123,118

 

111,818

 

Trust fees

 

48,950

 

46,257

 

44,127

 

41,961

 

40,769

 

139,334

 

118,676

 

Deposit account charges and other fees

25,161

 

23,988

 

22,575

 

24,164

 

23,107

 

71,724

 

69,063

 

Capital market fees

 

3,794

 

3,327

 

4,981

 

3,826

 

3,194

 

12,102

 

10,756

 

Consumer brokerage services

 

4,900

 

4,503

 

4,081

 

3,996

 

4,011

 

13,484

 

11,099

 

Loan fees and sales

 

6,842

 

7,446

 

10,184

 

9,031

 

9,769

 

24,472

 

17,653

 

Other

 

5,044

 

11,014

 

12,402

 

12,160

 

10,849

 

28,460

 

31,685

 

Total non-interest income

 

137,506

 

139,143

 

136,045

 

135,117

 

129,572

 

412,694

 

370,750

 

INVESTMENT SECURITIES GAINS (LOSSES), NET

13,108

 

16,804

 

9,853

 

12,307

 

16,155

 

39,765

 

(1,275)

NON-INTEREST EXPENSE

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

132,824

 

130,751

 

129,033

 

129,983

 

127,308

 

392,608

 

383,004

 

Net occupancy

 

12,329

 

11,527

 

12,021

 

11,570

 

12,058

 

35,877

 

35,075

 

Equipment

 

4,440

 

4,605

 

4,353

 

4,526

 

4,737

 

13,398

 

14,313

 

Supplies and communication

 

4,530

 

4,033

 

4,125

 

4,193

 

4,141

 

12,688

 

13,226

 

Data processing and software

 

25,598

 

24,954

 

25,463

 

24,323

 

23,610

 

76,015

 

71,002

 

Marketing

 

5,623

 

5,680

 

5,158

 

5,028

 

4,926

 

16,461

 

14,706

 

Other

 

26,276

 

16,576

 

12,420

 

16,687

 

14,078

 

55,272

 

40,742

 

Total non-interest expense

 

211,620

 

198,126

 

192,573

 

196,310

 

190,858

 

602,319

 

572,068

 

Income before income taxes

 

160,416

 

211,458

 

165,305

 

165,280

 

167,730

 

537,179

 

275,898

 

Less income taxes

 

34,662

 

45,209

 

32,076

 

33,084

 

34,375

 

111,947

 

54,209

 

Net income

 

125,754

 

166,249

 

133,229

 

132,196

 

133,355

 

425,232

 

221,689

 

Less non-controlling interest expense (income)

3,193

 

3,923

 

2,257

 

2,307

 

907

 

9,373

 

(2,479)

Net income attributable to Commerce Bancshares, Inc.

122,561

 

162,326

 

130,972

 

129,889

 

132,448

 

415,859

 

224,168

 

Less preferred stock dividends

 

 

 

 

 

7,466

 

 

11,966

 

Net income available to common shareholders

$122,561

 

$162,326

 

$130,972

 

$129,889

 

$124,982

 

$415,859

 

$212,202

 

Net income per common share — basic

$1.05

 

$1.38

 

$1.12

 

$1.11

 

$1.06

 

$3.55

 

$1.80

 

Net income per common share — diluted

$1.05

 

$1.38

 

$1.11

 

$1.11

 

$1.06

 

$3.54

 

$1.80

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

Return on total average assets

 

1.40

%

1.93

%

1.63

%

1.63

%

1.71

%

1.65

%

1.04

%

Return on average common equity (1)

13.74

 

19.12

 

15.69

 

15.49

 

15.21

 

16.14

 

8.93

 

Efficiency ratio (2)

 

59.95

 

56.90

 

56.37

 

56.68

 

55.00

 

57.76

 

57.37

 

Effective tax rate

 

22.05

 

21.78

 

19.67

 

20.30

 

20.61

 

21.21

 

19.47

 

Net yield on interest earning assets

2.58

 

2.60

 

2.71

 

2.80

 

2.97

 

2.63

 

3.07

 

Tax equivalent net interest income

 

$216,858

 

$211,060

 

$208,774

 

$213,017

 

$219,118

 

$636,692

 

$629,773

 

(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)

 

September 30,

2021

June 30,

2021

September 30,

2020

ASSETS

 

 

 

 

Loans

 

 

 

 

Business

 

$

5,277,850

 

$

5,803,760

 

$

6,683,413

 

Real estate — construction and land

 

1,257,836

 

1,103,661

 

1,009,729

 

Real estate — business

 

2,937,852

 

3,017,560

 

2,993,192

 

Real estate — personal

 

2,769,292

 

2,793,213

 

2,753,867

 

Consumer

 

2,049,559

 

2,049,166

 

2,006,360

 

Revolving home equity

 

281,442

 

283,568

 

324,203

 

Consumer credit card

 

569,976

 

586,358

 

647,893

 

Overdrafts

 

4,583

 

2,978

 

2,270

 

Total loans

 

15,148,390

 

15,640,264

 

16,420,927

 

Allowance for credit losses on loans

 

(162,775)

 

(172,395)

 

(236,360)

 

Net loans

 

14,985,615

 

15,467,869

 

16,184,567

 

Loans held for sale

 

16,043

 

23,697

 

39,483

 

Investment securities:

 

 

 

 

Available for sale debt securities

 

14,165,656

 

13,291,506

 

11,539,061

 

Trading debt securities

 

40,114

 

29,002

 

25,805

 

Equity securities

 

9,174

 

8,678

 

4,203

 

Other securities

 

184,450

 

176,439

 

122,532

 

Total investment securities

 

14,399,394

 

13,505,625

 

11,691,601

 

Federal funds sold

 

 

5,945

 

2,275

 

Securities purchased under agreements to resell

 

1,750,000

 

1,300,000

 

850,000

 

Interest earning deposits with banks

 

1,888,545

 

2,161,644

 

1,171,697

 

Cash and due from banks

 

344,460

 

358,122

 

357,616

 

Premises and equipment — net

 

377,476

 

371,989

 

377,853

 

Goodwill

 

138,921

 

138,921

 

138,921

 

Other intangible assets — net

 

14,458

 

14,148

 

7,183

 

Other assets

 

582,631

 

508,202

 

632,621

 

Total assets

 

$

34,497,543

 

$

33,856,162

 

$

31,453,817

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Deposits:

 

 

 

 

Non-interest bearing

 

$

11,622,855

 

$

11,085,286

 

$

10,727,827

 

Savings, interest checking and money market

 

14,907,654

 

14,654,696

 

12,983,505

 

Certificates of deposit of less than $100,000

 

452,432

 

478,838

 

556,870

 

Certificates of deposit of $100,000 and over

 

1,163,343

 

1,267,417

 

1,433,577

 

Total deposits

 

28,146,284

 

27,486,237

 

25,701,779

 

Federal funds purchased and securities sold under agreements to repurchase

 

2,253,753

 

2,318,228

 

1,653,064

 

Other borrowings

 

4,006

 

2,194

 

782

 

Other liabilities

 

602,279

 

555,673

 

791,928

 

Total liabilities

 

31,006,322

 

30,362,332

 

28,147,553

 

Stockholders’ equity:

 

 

 

 

Common stock

 

589,352

 

589,352

 

563,978

 

Capital surplus

 

2,427,544

 

2,424,157

 

2,140,410

 

Retained earnings

 

396,655

 

304,739

 

326,890

 

Treasury stock

 

(92,047)

 

(53,018)

 

(69,050)

 

Accumulated other comprehensive income

 

159,166

 

220,390

 

343,435

 

Total stockholders’ equity

 

3,480,670

 

3,485,620

 

3,305,663

 

Non-controlling interest

 

10,551

 

8,210

 

601

 

Total equity

 

3,491,221

 

3,493,830

 

3,306,264

 

Total liabilities and equity

 

$

34,497,543

 

$

33,856,162

 

$

31,453,817

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

(Unaudited)

(In thousands)

For the Three Months Ended

September 30,

2021

June 30,

2021

March 31,

2021

December 31,

2020

September 30,

2020

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business

$

5,437,498

 

 

$

6,211,610

 

 

$

6,532,921

 

 

$

6,580,300

 

 

$

6,709,200

 

 

Real estate — construction and land

1,168,566

 

 

1,088,433

 

 

1,091,969

 

 

1,032,891

 

 

974,346

 

 

Real estate — business

2,982,847

 

 

3,014,955

 

 

3,022,979

 

 

3,029,799

 

 

2,989,652

 

 

Real estate — personal

2,775,638

 

 

2,804,388

 

 

2,826,112

 

 

2,778,462

 

 

2,722,300

 

 

Consumer

2,041,263

 

 

2,004,625

 

 

1,947,322

 

 

1,981,033

 

 

1,992,314

 

 

Revolving home equity

281,689

 

 

287,031

 

 

299,371

 

 

316,895

 

 

329,361

 

 

Consumer credit card

566,406

 

 

575,725

 

 

608,747

 

 

638,161

 

 

646,185

 

 

Overdrafts

5,110

 

 

3,735

 

 

3,546

 

 

3,762

 

 

2,689

 

 

Total loans

15,259,017

 

 

15,990,502

 

 

16,332,967

 

 

16,361,303

 

 

16,366,047

 

 

Allowance for credit losses on loans

(172,112)

 

(200,801)

 

(220,512)

 

(235,484)

 

(240,286)

 

Net loans

15,086,905

 

 

15,789,701

 

 

16,112,455

 

 

16,125,819

 

 

16,125,761

 

 

Loans held for sale

16,021

 

 

23,389

 

 

35,814

 

 

30,577

 

 

24,728

 

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

727,566

 

 

719,849

 

 

725,367

 

 

774,640

 

 

770,361

 

 

Government-sponsored enterprise obligations

50,785

 

 

50,793

 

 

50,801

 

 

69,133

 

 

102,749

 

 

State and municipal obligations

2,039,942

 

 

1,966,673

 

 

1,958,637

 

 

1,967,408

 

 

1,767,526

 

 

Mortgage-backed securities

7,115,419

 

 

6,685,407

 

 

6,998,521

 

 

6,646,345

 

 

6,259,926

 

 

Asset-backed securities

3,028,076

 

 

2,653,928

 

 

2,085,491

 

 

1,819,467

 

 

1,520,988

 

 

Other debt securities

608,642

 

 

605,772

 

 

570,115

 

 

533,646

 

 

514,166

 

 

Unrealized gain on debt securities

230,058

 

 

197,124

 

 

283,511

 

 

329,477

 

 

368,154

 

 

Total available for sale debt securities

13,800,488

 

 

12,879,546

 

 

12,672,443

 

 

12,140,116

 

 

11,303,870

 

 

Trading debt securities

32,238

 

 

34,955

 

 

32,320

 

 

28,040

 

 

27,267

 

 

Equity securities

8,756

 

 

4,914

 

 

4,321

 

 

4,221

 

 

4,193

 

 

Other securities

183,397

 

 

156,984

 

 

154,030

 

 

130,145

 

 

120,253

 

 

Total investment securities

14,024,879

 

 

13,076,399

 

 

12,863,114

 

 

12,302,522

 

 

11,455,583

 

 

Federal funds sold

792

 

 

1,338

 

 

7

 

 

355

 

 

337

 

 

Securities purchased under agreements to resell

1,633,205

 

 

937,372

 

 

849,999

 

 

849,998

 

 

849,994

 

 

Interest earning deposits with banks

2,602,896

 

 

2,724,782

 

 

1,480,331

 

 

1,082,644

 

 

1,024,435

 

 

Other assets

1,261,277

 

 

1,258,989

 

 

1,308,105

 

 

1,291,907

 

 

1,389,683

 

 

Total assets

$

34,625,975

 

 

$

33,811,970

 

 

$

32,649,825

 

 

$

31,683,822

 

 

$

30,870,521

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Non-interest bearing deposits

$

11,475,113

 

 

$

11,109,198

 

 

$

10,438,637

 

 

$

10,275,735

 

 

$

9,801,562

 

 

Savings

1,484,923

 

 

1,474,391

 

 

1,333,177

 

 

1,234,481

 

 

1,193,079

 

 

Interest checking and money market

13,343,180

 

 

13,283,481

 

 

12,970,629

 

 

12,198,928

 

 

11,731,494

 

 

Certificates of deposit of less than $100,000

464,367

 

 

491,446

 

 

516,728

 

 

542,212

 

 

573,207

 

 

Certificates of deposit of $100,000 and over

1,289,665

 

 

1,354,685

 

 

1,230,075

 

 

1,339,301

 

 

1,447,968

 

 

Total deposits

28,057,248

 

 

27,713,201

 

 

26,489,246

 

 

25,590,657

 

 

24,747,310

 

 

Borrowings:

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

2,360,876

 

 

2,165,696

 

 

2,166,072

 

 

2,028,457

 

 

1,855,971

 

 

Other borrowings

347

 

 

978

 

 

831

 

 

1,013

 

 

1,225

 

 

Total borrowings

2,361,223

 

 

2,166,674

 

 

2,166,903

 

 

2,029,470

 

 

1,857,196

 

 

Other liabilities

667,786

 

 

527,401

 

 

608,212

 

 

727,569

 

 

899,890

 

 

Total liabilities

31,086,257

 

 

30,407,276

 

 

29,264,361

 

 

28,347,696

 

 

27,504,396

 

 

Equity

3,539,718

 

 

3,404,694

 

 

3,385,464

 

 

3,336,126

 

 

3,366,125

 

 

Total liabilities and equity

$

34,625,975

 

 

$

33,811,970

 

 

$

32,649,825

 

 

$

31,683,822

 

 

$

30,870,521

 

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

(Unaudited)

For the Three Months Ended

September 30,

2021

June 30,

2021

March 31,

2021

December 31,

2020

September 30,

2020

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business (1)

3.43

%

3.15

%

3.09

%

3.01

%

2.95

%

Real estate — construction and land

3.51

 

3.56

 

3.54

 

3.72

 

3.74

 

Real estate — business

3.46

 

3.49

 

3.52

 

3.51

 

3.53

 

Real estate — personal

3.27

 

3.31

 

3.40

 

3.44

 

3.56

 

Consumer

3.71

 

3.84

 

4.02

 

4.07

 

4.19

 

Revolving home equity

3.46

 

3.43

 

3.38

 

3.37

 

3.29

 

Consumer credit card

11.29

 

11.22

 

10.97

 

11.60

 

11.40

 

Overdrafts

 

 

 

 

 

Total loans

3.74

 

3.65

 

3.66

 

3.69

 

3.69

 

Loans held for sale

4.63

 

4.20

 

3.44

 

3.54

 

4.25

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

5.74

 

5.52

 

2.54

 

2.63

 

3.71

 

Government-sponsored enterprise obligations

2.30

 

2.33

 

2.36

 

2.23

 

2.17

 

State and municipal obligations (1)

2.35

 

2.41

 

2.46

 

2.44

 

2.53

 

Mortgage-backed securities

1.53

 

1.11

 

1.39

 

1.37

 

1.95

 

Asset-backed securities

1.08

 

1.25

 

1.39

 

1.59

 

1.90

 

Other debt securities

2.04

 

2.06

 

2.15

 

2.19

 

2.35

 

Total available for sale debt securities

1.80

 

1.64

 

1.67

 

1.70

 

2.18

 

Trading debt securities (1)

1.01

 

1.19

 

1.08

 

1.40

 

1.66

 

Equity securities (1)

23.92

 

43.10

 

49.56

 

50.71

 

47.15

 

Other securities (1)

7.46

 

11.90

 

5.26

 

10.03

 

6.74

 

Total investment securities

1.89

 

1.78

 

1.72

 

1.81

 

2.24

 

Federal funds sold

.50

 

.60

 

 

1.12

 

 

Securities purchased under agreements to resell

2.19

 

4.46

 

5.31

 

5.24

 

5.26

 

Interest earning deposits with banks

.15

 

.11

 

.10

 

.10

 

.10

 

Total interest earning assets

2.62

 

2.64

 

2.76

 

2.86

 

3.07

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

Savings

.08

 

.08

 

.08

 

.09

 

.09

 

Interest checking and money market

.05

 

.05

 

.06

 

.07

 

.10

 

Certificates of deposit of less than $100,000

.18

 

.27

 

.37

 

.51

 

.71

 

Certificates of deposit of $100,000 and over

.14

 

.20

 

.35

 

.47

 

.69

 

Total interest bearing deposits

.06

 

.07

 

.09

 

.12

 

.18

 

Borrowings:

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

.08

 

.06

 

.06

 

.06

 

.09

 

Other borrowings

1.14

 

.82

 

.98

 

 

 

Total borrowings

.08

 

.06

 

.06

 

.06

 

.09

 

Total interest bearing liabilities

.06

%

.07

%

.09

%

.11

%

.17

%

 

 

 

 

 

 

Net yield on interest earning assets

2.58

%

2.60

%

2.71

%

2.80

%

2.97

%

(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 Nine Months Ended

(Unaudited)

(In thousands, except per share data)

 

September 30,

2021

June 30,

2021

March 31,

2021

December 31,

2020

September 30,

2020

September 30,

2021

September 30,

2020

ALLOWANCE FOR CREDIT LOSSES ON LOANS

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$172,395

 

$200,527

 

$220,834

 

$236,360

 

$240,744

 

$220,834

 

$160,682

 

Adoption of ASU 2016-13

 

 

 

 

 

 

 

(21,039)

Provision for credit losses on loans

 

(5,961)

(27,433)

(10,355)

(7,510)

3,200

 

(43,749)

123,559

 

Net charge-offs (recoveries):

 

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

 

Business

 

65

 

(4,909)

(4)

581

 

208

 

(4,848)

3,084

 

Real estate — construction and land

 

 

 

1

 

(2)

(1)

1

 

(1)

Real estate — business

 

(5

)

(85)

20

 

(7)

(13)

(70)

(40)

 

 

60

 

(4,994)

17

 

572

 

194

 

(4,917)

3,043

 

Personal banking portfolio:

 

 

 

 

 

 

 

 

Consumer credit card

 

2,908

 

5,155

 

8,981

 

5,975

 

7,263

 

17,044

 

20,004

 

Consumer

 

496

 

378

 

763

 

1,160

 

211

 

1,637

 

3,284

 

Overdraft

 

243

 

148

 

153

 

335

 

200

 

544

 

942

 

Real estate — personal

 

(26)

(16)

15

 

(18)

(198)

(27)

(273)

Revolving home equity

 

(22)

28

 

23

 

(8)

(86)

29

 

(158)

 

 

3,599

 

5,693

 

9,935

 

7,444

 

7,390

 

19,227

 

23,799

 

Total net loan charge-offs

 

3,659

 

699

 

9,952

 

8,016

 

7,584

 

14,310

 

26,842

 

Balance at end of period

 

$162,775

 

$172,395

 

$200,527

 

$220,834

 

$236,360

 

$162,775

 

$236,360

 

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

 

$22,784

 

$24,208

 

$42,430

 

$38,307

 

$35,200

 

 

 

 

 

 

 

 

 

 

 

 

NET CHARGE-OFF RATIOS (1)

 

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

 

Business

 

%

(.32%)

%

.04

%

.01

%

(.11%)

.07

%

Real estate — construction and land

 

 

 

 

 

 

 

 

Real estate — business

 

 

(.01)

 

 

 

 

 

 

 

 

(.19)

 

.02

 

.01

 

(.06)

.04

 

Personal banking portfolio:

 

 

 

 

 

 

 

 

Consumer credit card

 

2.04

 

3.59

 

5.98

 

3.72

 

4.47

 

3.91

 

3.93

 

Consumer

 

.10

 

.08

 

.16

 

.23

 

.04

 

.11

 

.22

 

Overdraft

 

18.87

 

15.89

 

17.50

 

35.43

 

29.59

 

17.59

 

39.16

 

Real estate — personal

 

 

 

 

 

(.03)

 

(.01)

Revolving home equity

 

(.03)

.04

 

.03

 

(.01)

(.10)

.01

 

(.06)

 

 

.25

 

.40

 

.71

 

.52

 

.52

 

.45

 

.57

 

Total

 

.10

%

.02

%

.25

%

.19

%

.18

%

.12

%

.23

%

 

 

 

 

 

 

 

 

 

CREDIT QUALITY RATIOS

 

 

 

 

 

 

 

 

Non-performing assets to total loans

 

.07

%

.07

%

.14

%

.16

%

.25

%

 

 

Non-performing assets to total assets

 

.03

 

.03

 

.07

 

.08

 

.13

 

 

 

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

 

1.07

 

1.10

 

1.22

 

1.35

 

1.44

 

 

 

 

 

 

 

 

 

 

 

 

NON-PERFORMING ASSETS

 

 

 

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

 

 

 

Business

 

$8,293

 

$8,839

 

$20,215

 

$22,524

 

$37,295

 

 

 

Real estate — construction and land

 

 

 

 

 

1

 

 

 

Real estate — business

 

577

 

655

 

1,572

 

2,230

 

1,063

 

 

 

Real estate — personal

 

1,551

 

1,672

 

1,719

 

1,786

 

1,911

 

 

 

Total

 

10,421

 

11,166

 

23,506

 

26,540

 

40,270

 

 

 

Foreclosed real estate

 

115

 

229

 

208

 

93

 

57

 

 

 

Total non-performing assets

 

$10,536

 

$11,395

 

$23,714

 

$26,633

 

$40,327

 

 

 

Loans past due 90 days and still accruing interest

$10,496

 

$12,338

 

$21,512

 

$22,190

 

$14,436

 

 

 

(1)

Net charge-offs are annualized and calculated 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 1.10% and 1.17% as of September 30, 2021 and June 30, 2021, respectively.

COMMERCE BANCSHARES, INC.

Management Discussion of Third Quarter Results

September 30, 2021

For the quarter ended September 30, 2021, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $122.6 million, compared to $162.3 million in the previous quarter and $132.4 million in the same quarter last year. The decrease in net income compared to the previous quarter was primarily the result of an increase in the provision for credit losses, higher non-interest expense, and lower investment securities gains, partly offset by higher net interest income and lower income tax expense. Compared to the prior quarter, the provision for credit losses increased due to a smaller decrease in the estimate of the allowance for credit losses on loans and unfunded lending commitments and higher net loan charge-offs. The net yield on interest earning assets declined two basis points to 2.58%. Average loans declined $731.5 million compared to the previous quarter, while average available for sale debt securities grew $920.9 million, and average deposits increased $344.0 million. For the quarter, the return on average assets was 1.40%, the return on average common equity was 13.74%, and the efficiency ratio was 59.9%.

Balance Sheet Review

During the 3rd quarter of 2021, average loans totaled $15.3 billion, a decrease of $731.5 million from the prior quarter, and declined $1.1 billion, or 6.8%, from the same quarter last year. Period end loans decreased $491.9 million compared to the prior quarter. Compared to the previous quarter, average balances of business, business real estate and personal real estate loans declined $774.1 million (includes a decline of $689.2 million in Paycheck Protection Program (PPP) loan balances), $32.1 million and $28.7 million, respectively. This decline was partially offset by growth in construction and consumer loans of $80.1 million and $36.6 million, respectively. The period end balance of PPP loans decreased $546.4 million during the 3rd quarter of 2021 and totaled $307.9 million at September 30, 2021. As of September 30, 2021, 97% of round 1 and 35% of round 2 PPP loan balances have been forgiven. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $119.3 million, compared to $164.6 million in the prior quarter.

Total average available for sale debt securities increased $920.9 million over the previous quarter to $13.8 billion, at fair value. The increase in investment securities was mainly the result of growth in mortgage-backed and asset-backed securities. During the current quarter, purchases of securities totaled $1.8 billion with a weighted average yield of approximately 1.20%. Maturities and pay downs were $817.2 million, and there were no sales during the quarter. At September 30, 2021, the duration of the investment portfolio was 3.5 years, and maturities and pay downs of approximately $2.8 billion are expected to occur during the next 12 months.

Total average deposits increased $344.0 million this quarter compared to the previous quarter. The increase in deposits mostly resulted from growth in demand deposits of $365.9 million. Additionally, interest checking and money market deposits grew $59.7 million, while certificate of deposit balances declined $92.1 million. Compared to the previous quarter, total average commercial deposits grew $360.1 million. The average loans to deposits ratio was 54.4% in the current quarter and 57.8% in the prior quarter. The Company’s average borrowings, which include customer repurchase agreements, were $2.4 billion in the 3rd quarter of 2021 and $2.2 billion in the prior quarter.

Net Interest Income

Net interest income in the 3rd quarter of 2021 amounted to $214.0 million, an increase of $6.1 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter increased $5.8 million over the previous quarter to $216.9 million. The increase in net interest income was mainly due to higher income earned on investment securities, partly offset by lower interest earned on loans and securities purchased under agreements to resell. The net yield on earning assets (tax equivalent) decreased to 2.58%, compared to 2.60% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) decreased $1.7 million. This decrease was mostly a result of lower average business loan balances, partially offset by higher yields on business loans and higher average construction loan balances. The increase in the yield on business loans was driven primarily by an increase in the yield on PPP loans, which grew to 7.73% this quarter. Excluding PPP loans, the yield on business loans was 2.92% in the 3rd quarter of 2021 compared to 3.00% in the prior quarter. The average tax-equivalent yield on the loan portfolio increased nine basis points to 3.74% this quarter.

Interest income on investment securities (tax equivalent) increased $8.6 million over the previous quarter, due to both higher rates earned and average balances. Interest income earned on U.S. government and federal agency securities increased modestly, as inflation income from Treasury inflation-protected securities inflation income increased $591 thousand this quarter to $7.4 million. At September 30, 2021, the Company recorded a $5.0 million adjustment to premium amortization, which increased interest income this quarter to reflect moderately slower forward prepayment speed estimates on mortgage-backed securities. The yield on total investment securities was 1.89% in the current quarter, compared to 1.78% in the previous quarter.

The average rate paid on interest bearing deposits totaled .06% in the 3rd quarter of 2021, compared .07% in the prior quarter. Interest expense on deposits decreased $359 thousand this quarter compared to the previous quarter mainly due to lower rates paid on certificate of deposit accounts. The overall rate paid on interest bearing liabilities was .06% in the current quarter, compared to .07% in the prior quarter.

Non-Interest Income

In the 3rd quarter of 2021, total non-interest income amounted to $137.5 million, an increase of $7.9 million, or 6.1%, compared to the same period last year and decreased $1.6 million compared to the prior quarter. The increase in non-interest income over the same period last year was mainly due to growth in trust fees, bank card fees, and deposit account fees, partially offset by lower loan fees and sales.

Total net bank card fees in the current quarter increased $4.9 million, or 13.0%, over the same period last year, and increased $207 thousand compared to the prior quarter. Net corporate card fees increased $3.1 million, or 15.3%, 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 $681 thousand, or 7.0%, mainly due to higher interchange fees. Net merchant income increased $651 thousand, or 14.3%, and net credit card fees increased $504 thousand, or 15.0%. Total net bank card fees this quarter were comprised of fees on corporate card ($23.3 million), debit card ($10.4 million), merchant ($5.2 million) and credit card ($3.9 million) transactions.

In the current quarter, trust fees increased $8.2 million, or 20.1%, 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 $2.1 million, or 8.9%, mainly due to higher overdraft and return item fees and corporate cash management fees. Loan fees and sales, mostly mortgage banking revenue, declined $2.9 million, or 30.0%, over amounts recorded in the same quarter last year. Consumer brokerage fees increased $889 thousand, or 22.2%, 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 cash sweep commissions and tax credit sales fees of $1.6 million and $1.1 million, respectively. Additionally, a $2.0 million loss was recorded this quarter on an equity method investment. For the 3rd quarter of 2021, non-interest income comprised 39.1% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded investment net gains of $13.1 million in the current quarter, compared to net gains of $16.8 million in the prior quarter and net gains of $16.2 million in the 3rd quarter of 2020. Net gains on investments in the current quarter primarily resulted from unrealized fair value gains of $13.0 million in the Company’s private equity investment portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $211.6 million, compared to $190.9 million in the same period last year and $198.1 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 litigation settlement expense, higher salaries and benefits expense and data processing and software expense.

Compared to the 3rd quarter of last year, salaries and employee benefits expense increased $5.5 million, mostly due to higher incentive compensation. Full-time equivalent employees totaled 4,582 and 4,825 at September 30, 2021 and 2020, respectively.

Data processing and software expense increased $2.0 million due to higher bank card processing fees and increased costs for service providers. Other non-interest expense increased mainly due to $8.2 million in litigation settlement costs. Additionally, legal and professional fees and travel and entertainment expense increased $1.3 million and $1.1 million, respectively.

Income Taxes

The effective tax rate for the Company was 22.0% in the current quarter, 21.8% in the previous quarter, and 20.6% in the 3rd quarter of 2020.

Credit Quality

Net loan charge-offs in the 3rd quarter of 2021 amounted to $3.7 million, compared to $699 thousand in the prior quarter and $7.6 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .10% in the current quarter, .02% in the previous quarter, and .18% in the 3rd quarter of last year. Net loan charge-offs on personal banking loans decreased $2.1 million to $3.6 million.

In the 3rd quarter of 2021, annualized net loan charge-offs on average consumer credit card loans were 2.04%, compared to 3.59% in the previous quarter, and 4.47% in the same quarter last year. Consumer loan net charge-offs were .10% of average consumer loans in the current quarter, .08% in the prior quarter and .04% in the same quarter last year.

During the 3rd quarter of 2021, the economy continued to recover from the pandemic and the economic forecast utilized in the allowance for credit loss model continued to improve. This improvement, coupled with other model inputs, resulted in a decrease in the allowance for credit losses as of September 30, 2021. At September 30, 2021, the allowance for credit losses on loans totaled $162.8 million, or 1.07% of total loans and 1.10% of total loans excluding PPP loans. Additionally, the liability for unfunded lending commitments at September 30, 2021 was $22.8 million, a decrease of $1.4 million from the liability at June 30, 2021.

At September 30, 2021, total non-performing assets amounted to $10.5 million, a decrease of $859 thousand from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($10.4 million and $115 thousand, respectively). At September 30, 2021, the balance of non-accrual loans, which represented .07% of loans outstanding, included business loans of $8.3 million, personal real estate loans of $1.6 million, and business real estate loans of $577 thousand. Loans more than 90 days past due and still accruing interest totaled $10.5 million at September 30, 2021.

Other

During the 3rd 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 575,457 shares of treasury stock during the current quarter at an average price of $69.80.

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.

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