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

Rhea-AI Summary

Commerce Bancshares, Inc. reported Q3 2021 earnings of $1.05 per share, a slight decline from $1.06 year-over-year and $1.38 in the previous quarter. The net income for the quarter stood at $122.6 million, down from $132.4 million in Q3 2020 and $162.3 million in Q2 2021. Notably, non-interest income grew by 6.1% to $137.5 million, driven by higher trust and bank card fees. However, average loans decreased by 4.6% to $15.3 billion.

The company declared a cash dividend of $.263 per share, marking a 2.1% increase.

Positive

• Non-interest income increased by 6.1% to $137.5 million.
• Trust fees grew 20.1% year-over-year.
• Cash dividend increased by 2.1% to $0.263 per share.
• Private equity investments generated $13.1 million in net gains.

Negative

• Earnings per share decreased from $1.38 in Q2 2021 to $1.05.
• Net income declined to $122.6 million from $162.3 million in Q2 2021.
• Average loans decreased by $731.5 million, or 4.6%.

KANSAS CITY, Mo.--(BUSINESS WIRE)-- 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 3^rd 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 3^rd 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 3^rd quarter of 2021 and $2.2 billion in the prior quarter.

Net Interest Income

Net interest income in the 3^rd 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 3^rd 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 3^rd 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 3^rd 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 3^rd 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 3^rd 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 3^rd 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 3^rd quarter of 2020.

Credit Quality

Net loan charge-offs in the 3^rd 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 3^rd quarter of last year. Net loan charge-offs on personal banking loans decreased $2.1 million to $3.6 million.

In the 3^rd 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 3^rd 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 3^rd 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211019005294/en/

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

Source: Commerce Bancshares, Inc.

FAQ

What were Commerce Bancshares' earnings for Q3 2021?

Commerce Bancshares reported earnings of $1.05 per share for Q3 2021.

How did net income change for Commerce Bancshares in Q3 2021?

Net income for Q3 2021 was $122.6 million, down from $162.3 million in the previous quarter.

What is the significance of the trust fees reported in Q3 2021?

Trust fees increased by 20.1% year-over-year, contributing positively to non-interest income.

What was the cash dividend declared by Commerce Bancshares in Q3 2021?

The company declared a cash dividend of $0.263 per share, a 2.1% increase from the previous year.

Did Commerce Bancshares experience a decline in loan balances in Q3 2021?

Yes, average loans decreased by 4.6% compared to the prior quarter.