1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000
FOR IMMEDIATE RELEASE:
Tuesday, October 19, 2021
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
Exhibit 99.1
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.
* * * * * * * * * * * * * * *
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
Exhibit 99.1
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.
Exhibit 99.1
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.
Exhibit 99.1
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
Exhibit 99.1
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
Exhibit 99.1
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%.
Exhibit 99.1
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.
Exhibit 99.1
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
COMMERCE BANCSHARES, INC. Exhibit 99.1
Management Discussion of Third Quarter Results
September 30, 2021
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.
