1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000
FOR IMMEDIATE RELEASE:
Thursday, July 22, 2021
COMMERCE BANCSHARES, INC. REPORTS
SECOND QUARTER EARNINGS PER SHARE OF $1.38
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
Exhibit 99.1
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.
* * * * * * * * * * * * * * *
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 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.
Exhibit 99.1
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.
Exhibit 99.1
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
Exhibit 99.1
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
Exhibit 99.1
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%.
Exhibit 99.1
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.
Exhibit 99.1
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
COMMERCE BANCSHARES, INC. Exhibit 99.1
Management Discussion of Second Quarter Results
June 30, 2021
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.
