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

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

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

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

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

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

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

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

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

FINANCIAL HIGHLIGHTS

 

 

 

For the Three Months Ended

For the Six Months Ended

(Unaudited)

(Dollars in thousands, except per share data)

 

June 30,
2021

March 31,
2021

June 30,
2020

June 30,
2021

June 30,
2020

FINANCIAL SUMMARY

 

 

Net interest income

 

$207,982

 

$205,748

 

$203,057

 

$413,730

 

$404,122

 

Non-interest income

 

139,143

 

136,045

 

117,515

 

275,188

 

241,178

 

Total revenue

 

347,125

 

341,793

 

320,572

 

688,918

 

645,300

 

Investment securities gains (losses), net

 

16,804

 

9,853

 

(4,129)

 

26,657

 

(17,430)

 

Provision for credit losses

 

(45,655)

 

(6,232)

 

80,539

 

(51,887)

 

138,492

 

Non-interest expense

 

198,126

 

192,573

 

187,512

 

390,699

 

381,210

 

Income before taxes

 

211,458

 

165,305

 

48,392

 

376,763

 

108,168

 

Income taxes

 

45,209

 

32,076

 

9,661

 

77,285

 

19,834

 

Non-controlling interest (income) expense

 

3,923

 

2,257

 

(1,132)

 

6,180

 

(3,386)

 

Net income attributable to Commerce Bancshares, Inc.

162,326

 

130,972

 

39,863

 

293,298

 

91,720

 

Preferred stock dividends

 

 

 

2,250

 

 

4,500

 

Net income available to common shareholders

$162,326

 

$130,972

 

$37,613

 

$293,298

 

$87,220

 

Earnings per common share:

 

 

 

 

 

 

Net income — basic

 

$1.38

 

$1.12

 

$.32

 

$2.50

 

$.74

 

Net income — diluted

 

$1.38

 

$1.11

 

$.32

 

$2.49

 

$.74

 

Effective tax rate

 

21.78

%

19.67

%

19.51

%

20.85

%

17.78

%

Tax equivalent net interest income

 

$211,060

 

$208,774

 

$206,253

 

$419,834

 

$410,655

 

Average total interest earning assets (1)

 

$32,556,658

 

$31,278,721

 

$28,193,312

 

$31,921,220

 

$26,442,163

 

Diluted wtd. average shares outstanding

 

116,450,430

 

116,573,405

 

116,441,701

 

116,511,578

 

116,693,218

 

 

RATIOS

 

 

 

 

 

 

Average loans to deposits (2)

 

57.78

%

61.79

%

69.22

%

59.73

%

70.78

%

Return on total average assets

 

1.93

 

1.63

 

.54

 

1.78

 

.66

 

Return on average common equity (3)

 

19.12

 

15.69

 

4.77

 

17.42

 

5.61

 

Non-interest income to total revenue

 

40.08

 

39.80

 

36.66

 

39.94

 

37.37

 

Efficiency ratio (4)

 

56.90

 

56.37

 

58.10

 

56.64

 

58.64

 

Net yield on interest earning assets

 

2.60

 

2.71

 

2.94

 

2.65

 

3.12

 

 

EQUITY SUMMARY

 

 

 

 

 

 

Cash dividends per common share

 

$.263

 

$.263

 

$.257

 

$.525

 

$.514

 

Cash dividends on common stock

 

$30,760

 

$30,799

 

$30,174

 

$61,559

 

$60,466

 

Cash dividends on preferred stock

 

$—

 

$—

 

$2,250

 

$—

 

$4,500

 

Book value per common share (5)

 

$29.89

 

$28.34

 

$27.44

 

 

 

Market value per common share (5)

 

$74.56

 

$76.61

 

$56.64

 

 

 

High market value per common share

 

$81.19

 

$83.06

 

$66.45

 

 

 

Low market value per common share

 

$70.69

 

$64.76

 

$45.77

 

 

 

Common shares outstanding (5)

 

116,893,573

 

117,077,276

 

117,109,981

 

 

 

Tangible common equity to tangible assets (6)

 

9.91

%

9.57

%

10.12

%

 

 

Tier I leverage ratio

 

9.36

%

9.38

%

9.88

%

 

 

 

OTHER QTD INFORMATION

 

 

 

 

 

 

Number of bank/ATM locations

 

295

 

298

 

312

 

 

 

Full-time equivalent employees

 

4,590

 

4,619

 

4,856

 

 

 

(1)

 

Excludes allowance for credit losses on loans and unrealized gains/(losses) on available for sale debt securities.

(2)

 

Includes loans held for sale.

(3)

 

Annualized net income available to common shareholders divided by average total equity less preferred stock.

(4)

 

The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.

(5)

 

As of period end.

(6)

 

The tangible common equity ratio is calculated as stockholders’ equity reduced by preferred stock, goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).

All share and per share amounts have been restated to reflect the 5% stock dividend distributed in December 2020.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

 

 

For the Three Months Ended

For the Six Months Ended

(Unaudited)

(In thousands, except per share data)

 

June 30,
2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

June 30,
2021

June 30,
2020

Interest income

 

$211,133

 

$209,697

 

$214,726

 

$223,114

 

$213,323

 

$420,830

 

$434,808

 

Interest expense

 

3,151

 

3,949

 

4,963

 

7,152

 

10,266

 

7,100

 

30,686

 

Net interest income

 

207,982

 

205,748

 

209,763

 

215,962

 

203,057

 

413,730

 

404,122

 

Provision for credit losses

 

(45,655)

 

(6,232)

 

(4,403)

 

3,101

 

80,539

 

(51,887)

 

138,492

 

Net interest income after credit losses

253,637

 

211,980

 

214,166

 

212,861

 

122,518

 

465,617

 

265,630

 

NON-INTEREST INCOME

 

 

 

 

 

 

 

 

Bank card transaction fees

 

42,608

 

37,695

 

39,979

 

37,873

 

33,745

 

80,303

 

73,945

 

Trust fees

 

46,257

 

44,127

 

41,961

 

40,769

 

37,942

 

90,384

 

77,907

 

Deposit account charges and other fees

23,988

 

22,575

 

24,164

 

23,107

 

22,279

 

46,563

 

45,956

 

Capital market fees

 

3,327

 

4,981

 

3,826

 

3,194

 

3,772

 

8,308

 

7,562

 

Consumer brokerage services

 

4,503

 

4,081

 

3,996

 

4,011

 

3,011

 

8,584

 

7,088

 

Loan fees and sales

 

7,446

 

10,184

 

9,031

 

9,769

 

4,649

 

17,630

 

7,884

 

Other

 

11,014

 

12,402

 

12,160

 

10,849

 

12,117

 

23,416

 

20,836

 

Total non-interest income

 

139,143

 

136,045

 

135,117

 

129,572

 

117,515

 

275,188

 

241,178

 

INVESTMENT SECURITIES GAINS (LOSSES), NET

16,804

 

9,853

 

12,307

 

16,155

 

(4,129)

 

26,657

 

(17,430)

 

NON-INTEREST EXPENSE

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

130,751

 

129,033

 

129,983

 

127,308

 

126,759

 

259,784

 

255,696

 

Net occupancy

 

11,527

 

12,021

 

11,570

 

12,058

 

11,269

 

23,548

 

23,017

 

Equipment

 

4,605

 

4,353

 

4,526

 

4,737

 

4,755

 

8,958

 

9,576

 

Supplies and communication

 

4,033

 

4,125

 

4,193

 

4,141

 

4,427

 

8,158

 

9,085

 

Data processing and software

 

24,954

 

25,463

 

24,323

 

23,610

 

23,837

 

50,417

 

47,392

 

Marketing

 

5,680

 

5,158

 

5,028

 

4,926

 

3,801

 

10,838

 

9,780

 

Other

 

16,576

 

12,420

 

16,687

 

14,078

 

12,664

 

28,996

 

26,664

 

Total non-interest expense

 

198,126

 

192,573

 

196,310

 

190,858

 

187,512

 

390,699

 

381,210

 

Income before income taxes

 

211,458

 

165,305

 

165,280

 

167,730

 

48,392

 

376,763

 

108,168

 

Less income taxes

 

45,209

 

32,076

 

33,084

 

34,375

 

9,661

 

77,285

 

19,834

 

Net income

 

166,249

 

133,229

 

132,196

 

133,355

 

38,731

 

299,478

 

88,334

 

Less non-controlling interest expense (income)

3,923

 

2,257

 

2,307

 

907

 

(1,132)

 

6,180

 

(3,386)

 

Net income attributable to Commerce Bancshares, Inc.

162,326

 

130,972

 

129,889

 

132,448

 

39,863

 

293,298

 

91,720

 

Less preferred stock dividends

 

 

 

 

7,466

 

2,250

 

 

4,500

 

Net income available to common shareholders

$162,326

 

$130,972

 

$129,889

 

$124,982

 

$37,613

 

$293,298

 

$87,220

 

Net income per common share — basic

$1.38

 

$1.12

 

$1.11

 

$1.06

 

$.32

 

$2.50

 

$.74

 

Net income per common share — diluted

$1.38

 

$1.11

 

$1.11

 

$1.06

 

$.32

 

$2.49

 

$.74

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

Return on total average assets

 

1.93

%

1.63

%

1.63

%

1.71

%

.54

%

1.78

%

.66

%

Return on average common equity (1)

19.12

 

15.69

 

15.49

 

15.21

 

4.77

 

17.42

 

5.61

 

Efficiency ratio (2)

 

56.90

 

56.37

 

56.68

 

55.00

 

58.10

 

56.64

 

58.64

 

Effective tax rate

 

21.78

 

19.67

 

20.30

 

20.61

 

19.51

 

20.85

 

17.78

 

Net yield on interest earning assets

2.60

 

2.71

 

2.80

 

2.97

 

2.94

 

2.65

 

3.12

 

Tax equivalent net interest income

 

$211,060

 

$208,774

 

$213,017

 

$219,118

 

$206,253

 

$419,834

 

$410,655

 

(1)

Annualized net income available to common shareholders divided by average total equity less preferred stock.

(2)

The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - PERIOD END

 

(Unaudited)

(In thousands)

 

June 30,
2021

March 31,
2021

June 30,
2020

ASSETS

 

 

 

 

Loans

 

 

 

 

Business

 

$

5,803,760

 

$

6,624,209

 

$

6,858,217

 

Real estate — construction and land

 

1,103,661

 

1,073,036

 

932,022

 

Real estate — business

 

3,017,560

 

3,017,242

 

2,941,163

 

Real estate — personal

 

2,793,213

 

2,828,418

 

2,690,542

 

Consumer

 

2,049,166

 

1,966,833

 

1,966,707

 

Revolving home equity

 

283,568

 

285,261

 

334,627

 

Consumer credit card

 

586,358

 

593,833

 

666,597

 

Overdrafts

 

2,978

 

3,239

 

5,179

 

Total loans

 

15,640,264

 

16,392,071

 

16,395,054

 

Allowance for credit losses on loans

 

(172,395)

 

(200,527)

 

(240,744)

 

Net loans

 

15,467,869

 

16,191,544

 

16,154,310

 

Loans held for sale

 

23,697

 

38,076

 

12,785

 

Investment securities:

 

 

 

 

Available for sale debt securities

 

13,291,506

 

12,528,203

 

10,317,427

 

Trading debt securities

 

29,002

 

26,925

 

28,813

 

Equity securities

 

8,678

 

4,337

 

4,128

 

Other securities

 

176,439

 

155,913

 

117,761

 

Total investment securities

 

13,505,625

 

12,715,378

 

10,468,129

 

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

 

5,945

 

500

 

 

Long-term securities purchased under agreements to resell

 

1,300,000

 

850,000

 

850,000

 

Interest earning deposits with banks

 

2,161,644

 

2,017,128

 

1,404,968

 

Cash and due from banks

 

358,122

 

338,666

 

391,268

 

Premises and equipment — net

 

371,989

 

371,737

 

368,565

 

Goodwill

 

138,921

 

138,921

 

138,921

 

Other intangible assets — net

 

14,148

 

13,098

 

7,179

 

Other assets

 

508,202

 

594,738

 

699,996

 

Total assets

 

$

33,856,162

 

$

33,269,786

 

$

30,496,121

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Deposits:

 

 

 

 

Non-interest bearing

 

$

11,085,286

 

$

11,076,556

 

$

9,700,261

 

Savings, interest checking and money market

 

14,654,696

 

14,572,378

 

12,792,993

 

Certificates of deposit of less than $100,000

 

478,838

 

504,472

 

590,635

 

Certificates of deposit of $100,000 and over

 

1,267,417

 

1,267,219

 

1,443,078

 

Total deposits

 

27,486,237

 

27,420,625

 

24,526,967

 

Federal funds purchased and securities sold under agreements to repurchase

 

2,318,228

 

1,938,110

 

1,740,438

 

Other borrowings

 

2,194

 

3,791

 

1,475

 

Other liabilities

 

555,673

 

589,875

 

869,072

 

Total liabilities

 

30,362,332

 

29,952,401

 

27,137,952

 

Stockholders’ equity:

 

 

 

 

Preferred stock

 

 

 

144,784

 

Common stock

 

589,352

 

589,352

 

563,978

 

Capital surplus

 

2,424,157

 

2,420,393

 

2,136,874

 

Retained earnings

 

304,739

 

173,173

 

232,082

 

Treasury stock

 

(53,018)

 

(39,080)

 

(69,112)

 

Accumulated other comprehensive income

 

220,390

 

168,752

 

349,261

 

Total stockholders’ equity

 

3,485,620

 

3,312,590

 

3,357,867

 

Non-controlling interest

 

8,210

 

4,795

 

302

 

Total equity

 

3,493,830

 

3,317,385

 

3,358,169

 

Total liabilities and equity

 

$

33,856,162

 

$

33,269,786

 

$

30,496,121

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

 

(Unaudited)

(In thousands)

For the Three Months Ended

June 30,
2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business

$

6,211,610

 

$

6,532,921

 

$

6,580,300

 

$

6,709,200

 

$

6,760,827

 

Real estate — construction and land

1,088,433

 

1,091,969

 

1,032,891

 

974,346

 

895,648

 

Real estate — business

3,014,955

 

3,022,979

 

3,029,799

 

2,989,652

 

2,962,076

 

Real estate — personal

2,804,388

 

2,826,112

 

2,778,462

 

2,722,300

 

2,582,484

 

Consumer

2,004,625

 

1,947,322

 

1,981,033

 

1,992,314

 

1,944,265

 

Revolving home equity

287,031

 

299,371

 

316,895

 

329,361

 

343,210

 

Consumer credit card

575,725

 

608,747

 

638,161

 

646,185

 

663,911

 

Overdrafts

3,735

 

3,546

 

3,762

 

2,689

 

2,912

 

Total loans

15,990,502

 

16,332,967

 

16,361,303

 

16,366,047

 

16,155,333

 

Allowance for credit losses on loans

(200,801)

 

(220,512)

 

(235,484)

 

(240,286)

 

(171,616)

 

Net loans

15,789,701

 

16,112,455

 

16,125,819

 

16,125,761

 

15,983,717

 

Loans held for sale

23,389

 

35,814

 

30,577

 

24,728

 

6,363

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

719,849

 

725,367

 

774,640

 

770,361

 

776,240

 

Government-sponsored enterprise obligations

50,793

 

50,801

 

69,133

 

102,749

 

114,518

 

State and municipal obligations

1,966,673

 

1,958,637

 

1,967,408

 

1,767,526

 

1,285,427

 

Mortgage-backed securities

6,685,407

 

6,998,521

 

6,646,345

 

6,259,926

 

5,325,720

 

Asset-backed securities

2,653,928

 

2,085,491

 

1,819,467

 

1,520,988

 

1,342,518

 

Other debt securities

605,772

 

570,115

 

533,646

 

514,166

 

406,665

 

Unrealized gain on debt securities

197,124

 

283,511

 

329,477

 

368,154

 

281,457

 

Total available for sale debt securities

12,879,546

 

12,672,443

 

12,140,116

 

11,303,870

 

9,532,545

 

Trading debt securities

34,955

 

32,320

 

28,040

 

27,267

 

31,981

 

Equity securities

4,914

 

4,321

 

4,221

 

4,193

 

4,137

 

Other securities

156,984

 

154,030

 

130,145

 

120,253

 

139,250

 

Total investment securities

13,076,399

 

12,863,114

 

12,302,522

 

11,455,583

 

9,707,913

 

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

1,338

 

7

 

355

 

337

 

92

 

Long-term securities purchased under agreements to resell

937,372

 

849,999

 

849,998

 

849,994

 

850,000

 

Interest earning deposits with banks

2,724,782

 

1,480,331

 

1,082,644

 

1,024,435

 

1,755,068

 

Other assets

1,258,989

 

1,308,105

 

1,291,907

 

1,389,683

 

1,461,528

 

Total assets

$

33,811,970

 

$

32,649,825

 

$

31,683,822

 

$

30,870,521

 

$

29,764,681

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Non-interest bearing deposits

$

11,109,198

 

$

10,438,637

 

$

10,275,735

 

$

9,801,562

 

$

8,843,408

 

Savings

1,474,391

 

1,333,177

 

1,234,481

 

1,193,079

 

1,111,397

 

Interest checking and money market

13,283,481

 

12,970,629

 

12,198,928

 

11,731,494

 

11,441,694

 

Certificates of deposit of less than $100,000

491,446

 

516,728

 

542,212

 

573,207

 

605,136

 

Certificates of deposit of $100,000 and over

1,354,685

 

1,230,075

 

1,339,301

 

1,447,968

 

1,346,069

 

Total deposits

27,713,201

 

26,489,246

 

25,590,657

 

24,747,310

 

23,347,704

 

Borrowings:

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

2,165,696

 

2,166,072

 

2,028,457

 

1,855,971

 

1,991,971

 

Other borrowings

978

 

831

 

1,013

 

1,225

 

345,162

 

Total borrowings

2,166,674

 

2,166,903

 

2,029,470

 

1,857,196

 

2,337,133

 

Other liabilities

527,401

 

608,212

 

727,569

 

899,890

 

763,524

 

Total liabilities

30,407,276

 

29,264,361

 

28,347,696

 

27,504,396

 

26,448,361

 

Equity

3,404,694

 

3,385,464

 

3,336,126

 

3,366,125

 

3,316,320

 

Total liabilities and equity

$

33,811,970

 

$

32,649,825

 

$

31,683,822

 

$

30,870,521

 

$

29,764,681

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

 

(Unaudited)

For the Three Months Ended

 

June 30,
2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

 

ASSETS:

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

Business (1)

3.15

%

3.09

%

3.01

%

2.95

%

2.91

%

 

Real estate — construction and land

3.56

 

3.54

 

3.72

 

3.74

 

3.95

 

 

Real estate — business

3.49

 

3.52

 

3.51

 

3.53

 

3.71

 

 

Real estate — personal

3.31

 

3.40

 

3.44

 

3.56

 

3.69

 

 

Consumer

3.84

 

4.02

 

4.07

 

4.19

 

4.48

 

 

Revolving home equity

3.43

 

3.38

 

3.37

 

3.29

 

3.50

 

 

Consumer credit card

11.22

 

10.97

 

11.60

 

11.40

 

11.76

 

 

Overdrafts

 

 

 

 

 

 

Total loans

3.65

 

3.66

 

3.69

 

3.69

 

3.80

 

 

Loans held for sale

4.20

 

3.44

 

3.54

 

4.25

 

8.03

 

 

Investment securities:

 

 

 

 

 

 

U.S. government and federal agency obligations

5.52

 

2.54

 

2.63

 

3.71

 

.46

 

 

Government-sponsored enterprise obligations

2.33

 

2.36

 

2.23

 

2.17

 

3.51

 

 

State and municipal obligations (1)

2.41

 

2.46

 

2.44

 

2.53

 

2.97

 

 

Mortgage-backed securities

1.11

 

1.39

 

1.37

 

1.95

 

2.17

 

 

Asset-backed securities

1.25

 

1.39

 

1.59

 

1.90

 

2.25

 

 

Other debt securities

2.06

 

2.15

 

2.19

 

2.35

 

2.49

 

 

Total available for sale debt securities

1.64

 

1.67

 

1.70

 

2.18

 

2.18

 

 

Trading debt securities (1)

1.19

 

1.08

 

1.40

 

1.66

 

2.93

 

 

Equity securities (1)

43.10

 

49.56

 

50.71

 

47.15

 

48.42

 

 

Other securities (1)

11.90

 

5.26

 

10.03

 

6.74

 

4.36

 

 

Total investment securities

1.78

 

1.72

 

1.81

 

2.24

 

2.24

 

 

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

.60

 

 

1.12

 

 

 

 

Long-term securities purchased under agreements to resell

4.46

 

5.31

 

5.24

 

5.26

 

5.08

 

 

Interest earning deposits with banks

.11

 

.10

 

.10

 

.10

 

.10

 

 

Total interest earning assets

2.64

 

2.76

 

2.86

 

3.07

 

3.09

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

 

Savings

.08

 

.08

 

.09

 

.09

 

.09

 

 

Interest checking and money market

.05

 

.06

 

.07

 

.10

 

.13

 

 

Certificates of deposit of less than $100,000

.27

 

.37

 

.51

 

.71

 

.93

 

 

Certificates of deposit of $100,000 and over

.20

 

.35

 

.47

 

.69

 

1.08

 

 

Total interest bearing deposits

.07

 

.09

 

.12

 

.18

 

.25

 

 

Borrowings:

 

 

 

 

 

 

Federal funds purchased and securities sold under agreements to repurchase

.06

 

.06

 

.06

 

.09

 

.12

 

 

Other borrowings

.82

 

.98

 

 

 

.82

 

 

Total borrowings

.06

 

.06

 

.06

 

.09

 

.22

 

 

Total interest bearing liabilities

.07

%

.09

%

.11

%

.17

%

.25

%

 

 

 

 

 

 

 

 

Net yield on interest earning assets

2.60

%

2.71

%

2.80

%

2.97

%

2.94

%

 

(1)

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

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CREDIT QUALITY

 

 

 

For the Three Months Ended

For the Six Months Ended

(Unaudited)

(In thousands, except per share data)

 

June 30,
2021

March 31,
2021

December 31,
2020

September 30,
2020

June 30,
2020

June 30,
2021

June 30,
2020

ALLOWANCE FOR CREDIT LOSSES ON LOANS

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

200,527

 

$

220,834

 

$

236,360

 

$

240,744

 

$

171,653

 

$

220,834

 

$

160,682

 

Adoption of ASU 2016-13

 

 

 

 

 

 

 

(21,039)

 

Provision for credit losses on loans

 

(27,433)

 

(10,355)

 

(7,510)

 

3,200

 

77,491

 

(37,788)

 

120,359

 

Net charge-offs (recoveries):

 

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

 

Business

 

(4,909)

 

(4)

 

581

 

208

 

3,249

 

(4,913)

 

2,876

 

Real estate — construction and land

 

 

1

 

(2)

 

(1)

 

 

1

 

 

Real estate — business

 

(85)

 

20

 

(7)

 

(13)

 

(6)

 

(65)

 

(27)

 

 

 

(4,994)

 

17

 

572

 

194

 

3,243

 

(4,977)

 

2,849

 

Personal banking portfolio:

 

 

 

 

 

 

 

 

Consumer credit card

 

5,155

 

8,981

 

5,975

 

7,263

 

3,584

 

14,136

 

12,741

 

Consumer

 

378

 

763

 

1,160

 

211

 

1,362

 

1,141

 

3,073

 

Overdraft

 

148

 

153

 

335

 

200

 

316

 

301

 

742

 

Real estate — personal

 

(16)

 

15

 

(18)

 

(198)

 

(71)

 

(1)

 

(75)

 

Revolving home equity

 

28

 

23

 

(8)

 

(86)

 

(34)

 

51

 

(72)

 

 

 

5,693

 

9,935

 

7,444

 

7,390

 

5,157

 

15,628

 

16,409

 

Total net loan charge-offs

 

699

 

9,952

 

8,016

 

7,584

 

8,400

 

10,651

 

19,258

 

Balance at end of period

 

$

172,395

 

$

200,527

 

$

220,834

 

$

236,360

 

$

240,744

 

$

172,395

 

$

240,744

 

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

 

$

24,208

 

$

42,430

 

$

38,307

 

$

35,200

 

$

35,299

 

 

 

 

 

 

 

 

 

 

 

 

NET CHARGE-OFF RATIOS (1)

 

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

 

Business

 

(.32

%)

%

.04

%

.01

%

.19

%

(.16

%)

.09

%

Real estate — construction and land

 

 

 

 

 

 

 

 

Real estate — business

 

(.01)

 

 

 

 

 

 

 

 

 

(.19)

 

 

.02

 

.01

 

.12

 

(.10)

 

.06

 

Personal banking portfolio:

 

 

 

 

 

 

 

 

Consumer credit card

 

3.59

 

5.98

 

3.72

 

4.47

 

2.17

 

4.81

 

3.68

 

Consumer

 

.08

 

.16

 

.23

 

.04

 

.28

 

.12

 

.32

 

Overdraft

 

15.89

 

17.50

 

35.43

 

29.59

 

43.65

 

16.67

 

42.90

 

Real estate — personal

 

 

 

 

(.03)

 

(.01)

 

 

(.01)

 

Revolving home equity

 

.04

 

.03

 

(.01)

 

(.10)

 

(.04)

 

.04

 

(.04)

 

 

 

.40

 

.71

 

.52

 

.52

 

.37

 

.55

 

.60

 

Total

 

.02

%

.25

%

.19

%

.18

%

.21

%

.13

%

.25

%

 

 

 

 

 

 

 

 

 

CREDIT QUALITY RATIOS

 

 

 

 

 

 

 

 

Non-performing assets to total loans

 

.07

%

.14

%

.16

%

.25

%

.14

%

 

 

Non-performing assets to total assets

 

.03

 

.07

 

.08

 

.13

 

.08

 

 

 

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

 

1.10

 

1.22

 

1.35

 

1.44

 

1.47

 

 

 

 

 

 

 

 

 

 

 

 

NON-PERFORMING ASSETS

 

 

 

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

 

 

 

Business

 

$

8,839

 

$

20,215

 

$

22,524

 

$

37,295

 

$

19,034

 

 

 

Real estate — construction and land

 

 

 

 

1

 

1

 

 

 

Real estate — business

 

655

 

1,572

 

2,230

 

1,063

 

1,921

 

 

 

Real estate — personal

 

1,672

 

1,719

 

1,786

 

1,911

 

1,679

 

 

 

Total

 

11,166

 

23,506

 

26,540

 

40,270

 

22,635

 

 

 

Foreclosed real estate

 

229

 

208

 

93

 

57

 

422

 

 

 

Total non-performing assets

 

$

11,395

 

$

23,714

 

$

26,633

 

$

40,327

 

$

23,057

 

 

 

Loans past due 90 days and still accruing interest

$

12,338

 

$

21,512

 

$

22,190

 

$

14,436

 

$

24,583

 

 

 

(1)

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

(2)

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

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

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

Balance Sheet Review

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

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

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

Net Interest Income

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

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

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

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

Non-Interest Income

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

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

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

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

Investment Securities Gains and Losses

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

Non-Interest Expense

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

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

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

Income Taxes

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

Credit Quality

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

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

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

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

Other

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

Forward Looking Information

This information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.