Chronicle Journal: Finance

Commerce Bancshares, Inc. Reports Fourth Quarter Earnings Per Share Of $1.11

Commerce Bancshares, Inc. announced earnings of $1.11 per share for the three months ended December 31, 2020, compared to $.88 per common share in the same quarter last year and $1.06 per common share in the prior quarter. Net income attributable to Commerce Bancshares, Inc. (net income) for the fourth quarter of 2020 amounted to $129.9 million, compared to $106.9 million in the fourth quarter of 2019 and $132.4 million in the prior quarter. For the quarter, the return on average assets was 1.63%, the return on average equity was 15.49%, and the efficiency ratio was 56.7%.

For the year ended December 31, 2020, earnings per common share totaled $2.91 compared to $3.41 in 2019. Net income attributable to Commerce Bancshares, Inc. amounted to $354.1 million in 2020 compared to $421.2 million last year. For the current year, the return on average assets was 1.20%, and the return on average common equity was 10.64%.

In announcing these results, John Kemper, Chief Executive Officer, said, “Commerce had a strong quarter to close out 2020. While economic uncertainty remains top of mind, overall economic conditions, most notably unemployment, continued to improve in the fourth quarter at a pace that exceeded economic forecasts. These factors, coupled with a forecast projecting an economic recovery, resulted in a decrease in the allowance for credit losses. Our portfolio of private equity investments saw unrealized gains recorded this quarter, partially offsetting unrealized losses recorded in the first half of 2020 and reflecting improvement in the overall economy. Although net interest margins continue to be pressured from a challenging interest rate environment, our fee-based businesses are rebounding from mid-year lows and provide us with a source of revenue diversification. Bank card and deposit account fees grew from last quarter with an increase in spending activity. Loan fees and sales, driven by our mortgage banking business, continued to be strong this quarter and increased 161 percent compared to the fourth quarter of 2019. Trust fees reached another record quarter, reflecting not only higher market values, but also the results of investments we’ve made across our wealth business. Non-interest expense grew .6% compared to the same quarter last year and remained well-controlled. Compared to the previous quarter, average deposits grew $843.3 million, or 3.4%, well surpassing our expectations. While deposit balances grew this quarter, loan demand was mixed. Average loan balances in construction, business real estate, and personal real estate grew, while lower demand for business loans kept total average loan balances relatively flat.”

Mr. Kemper continued, “This quarter, net loan charge-offs totaled $8.0 million, compared to $7.6 million in the prior quarter and $15.2 million in the fourth quarter of 2019. The ratio of annualized net loan charge-offs to average loans was .19% in the current quarter, .18% in the prior quarter and .42% in the fourth quarter of last year. Net loan charge-offs on commercial loans totaled $572 thousand this quarter compared to $194 thousand in the prior quarter. Non-performing assets decreased this quarter from $40.3 million to $26.6 million. At December 31, 2020, the allowance for credit losses on loans decreased to $220.8 million.”

Total assets at December 31, 2020 were $32.9 billion, total loans were $16.3 billion, and total deposits were $26.9 billion. During the fourth quarter of 2020, the Company distributed a 5% stock dividend on its common stock. The Company also paid a cash dividend of $.257 per share, as restated for the 5% stock dividend.

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, including management's discussion of fourth quarter results, is posted to the Company's web site at www.commercebank.com.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

FINANCIAL HIGHLIGHTS

For the Three Months Ended

For the Year Ended

(Unaudited)
(Dollars in thousands, except per share data)

December 31,
2020

September 30,
2020

December 31,
2019

December 31,
2020

December 31,
2019

FINANCIAL SUMMARY

Net interest income

$209,763

$215,962

$202,659

$829,847

$821,293

Non-interest income

135,117

129,572

143,461

505,867

524,703

Total revenue

344,880

345,534

346,120

1,335,714

1,345,996

Investment securities gains (losses), net

12,307

16,155

(248)

11,032

3,626

Provision for credit losses

(4,403)

3,101

15,206

137,190

50,438

Non-interest expense

196,310

190,858

195,174

768,378

767,398

Income before taxes

165,280

167,730

135,492

441,178

531,786

Income taxes

33,084

34,375

28,214

87,293

109,074

Non-controlling interest (income) expense

2,307

907

398

(172)

1,481

Net income attributable to Commerce Bancshares, Inc.

129,889

132,448

106,880

354,057

421,231

Preferred stock dividends

7,466

2,250

11,966

9,000

Net income available to common shareholders

$129,889

$124,982

$104,630

$342,091

$412,231

Earnings per common share:

Net income — basic

$1.11

$1.06

$.89

$2.91

$3.42

Net income — diluted

$1.11

$1.06

$.88

$2.91

$3.41

Effective tax rate

20.30

%

20.61

%

20.88

%

19.78

%

20.57

%

Tax equivalent net interest income

$213,017

$219,118

$206,156

$842,790

$835,421

Average total interest earning assets (1)

$

30,297,922

$

29,352,970

$

24,372,575

$

28,143,048

$

24,034,631

Diluted wtd. average shares outstanding

116,507,841

116,444,157

117,611,663

116,584,015

119,769,634

RATIOS

Average loans to deposits (2)

64.05

%

66.23

%

71.73

%

67.73

%

71.54

%

Return on total average assets

1.63

1.71

1.65

1.20

1.67

Return on average common equity (3)

15.49

15.21

13.90

10.64

14.06

Non-interest income to total revenue

39.18

37.50

41.45

37.87

38.98

Efficiency ratio (4)

56.68

55.00

56.29

57.19

56.87

Net yield on interest earning assets

2.80

2.97

3.36

2.99

3.48

EQUITY SUMMARY

Cash dividends per common share

$.257

$.257

$.236

$1.029

$.943

Cash dividends on common stock

$30,178

$30,174

$27,933

$120,818

$113,466

Cash dividends on preferred stock (7)

$—

$7,466

$2,250

$11,966

$9,000

Book value per common share (5)

$29.03

$28.23

$25.43

Market value per common share (5)

$65.70

$53.61

$64.70

High market value per common share

$68.09

$59.13

$65.38

Low market value per common share

$52.10

$50.50

$51.96

Common shares outstanding (5)

117,138,431

117,109,209

117,738,126

Tangible common equity to tangible assets (6)

9.92

%

10.11

%

10.99

%

Tier I leverage ratio

9.45

%

9.39

%

11.38

%

OTHER QTD INFORMATION

Number of bank/ATM locations

306

308

316

Full-time equivalent employees

4,766

4,825

4,858

(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).

(7) 

For the period ended September 30, 2020, preferred stock dividends includes $5.2 million related to the preferred stock redemption. The $5.2 million is the excess of the redemption costs over the book value of the preferred stock and is considered a dividend.

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 Year Ended

(Unaudited)
(In thousands, except per share data)

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

December 31,
2020

December 31,
2019

Interest income

$214,726

$223,114

$213,323

$221,485

$226,665

$872,648

$924,685

Interest expense

4,963

7,152

10,266

20,420

24,006

42,801

103,392

Net interest income

209,763

215,962

203,057

201,065

202,659

829,847

821,293

Provision for credit losses

(4,403

)

3,101

80,539

57,953

15,206

137,190

50,438

Net interest income after credit losses

214,166

212,861

122,518

143,112

187,453

692,657

770,855

NON-INTEREST INCOME

Bank card transaction fees

39,979

37,873

33,745

40,200

41,079

151,797

167,879

Trust fees

41,961

40,769

37,942

39,965

40,405

160,637

155,628

Deposit account charges and other fees

24,164

23,107

22,279

23,677

24,974

93,227

95,983

Capital market fees

3,826

3,194

3,772

3,790

2,536

14,582

8,146

Consumer brokerage services

3,996

4,011

3,011

4,077

4,139

15,095

15,804

Loan fees and sales

9,031

9,769

4,649

3,235

3,465

26,684

15,767

Other

12,160

10,849

12,117

8,719

26,863

43,845

65,496

Total non-interest income

135,117

129,572

117,515

123,663

143,461

505,867

524,703

INVESTMENT SECURITIES GAINS (LOSSES), NET

12,307

16,155

(4,129

)

(13,301

)

(248

)

11,032

3,626

NON-INTEREST EXPENSE

Salaries and employee benefits

129,983

127,308

126,759

128,937

126,901

512,987

492,927

Net occupancy

11,570

12,058

11,269

11,748

12,218

46,645

47,157

Equipment

4,526

4,737

4,755

4,821

4,859

18,839

19,061

Supplies and communication

4,193

4,141

4,427

4,658

4,851

17,419

20,394

Data processing and software

24,323

23,610

23,837

23,555

23,934

95,325

92,899

Marketing

5,028

4,926

3,801

5,979

3,951

19,734

21,914

Other

16,687

14,078

12,664

14,000

18,460

57,429

73,046

Total non-interest expense

196,310

190,858

187,512

193,698

195,174

768,378

767,398

Income before income taxes

165,280

167,730

48,392

59,776

135,492

441,178

531,786

Less income taxes

33,084

34,375

9,661

10,173

28,214

87,293

109,074

Net income

132,196

133,355

38,731

49,603

107,278

353,885

422,712

Less non-controlling interest expense (income)

2,307

907

(1,132

)

(2,254

)

398

(172

)

1,481

Net income attributable to Commerce Bancshares, Inc.

129,889

132,448

39,863

51,857

106,880

354,057

421,231

Less preferred stock dividends

7,466

2,250

2,250

2,250

11,966

9,000

Net income available to common shareholders

$129,889

$124,982

$37,613

$49,607

$104,630

$342,091

$412,231

Net income per common share — basic

$1.11

$1.06

$.32

$.42

$.89

$2.91

$3.42

Net income per common share — diluted

$1.11

$1.06

$.32

$.42

$.88

$2.91

$3.41

OTHER INFORMATION

Return on total average assets

1.63

%

1.71

%

.54

%

.80

%

1.65

%

1.20

%

1.67

%

Return on average common equity (1)

15.49

15.21

4.77

6.48

13.90

10.64

14.06

Efficiency ratio (2)

56.68

55.00

58.10

59.17

56.29

57.19

56.87

Effective tax rate

20.30

20.61

19.51

16.40

20.88

19.78

20.57

Net yield on interest earning assets

2.80

2.97

2.94

3.33

3.36

2.99

3.48

Tax equivalent net interest income

$213,017

$219,118

$206,253

$204,402

$206,156

$842,790

$835,421

(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)

December 31,
2020

September 30,
2020

December 31,
2019

ASSETS

Loans

Business

$

6,546,087

$

6,683,413

$

5,565,449

Real estate — construction and land

1,021,595

1,009,729

899,377

Real estate — business

3,026,117

2,993,192

2,833,554

Real estate — personal

2,820,030

2,753,867

2,354,760

Consumer

1,950,502

2,006,360

1,964,145

Revolving home equity

307,083

324,203

349,251

Consumer credit card

655,078

647,893

764,977

Overdrafts

3,149

2,270

6,304

Total loans

16,329,641

16,420,927

14,737,817

Allowance for credit losses on loans

(220,834

)

(236,360

)

(160,682

)

Net loans

16,108,807

16,184,567

14,577,135

Loans held for sale

45,089

39,483

13,809

Investment securities:

Available for sale debt securities

12,449,264

11,539,061

8,571,626

Trading debt securities

35,321

25,805

28,161

Equity securities

4,363

4,203

4,209

Other securities

156,745

122,532

137,892

Total investment securities

12,645,693

11,691,601

8,741,888

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

2,275

Long-term securities purchased under agreements to resell

850,000

850,000

850,000

Interest earning deposits with banks

1,747,363

1,171,697

395,850

Cash and due from banks

437,563

357,616

491,615

Premises and equipment — net

371,083

377,853

370,637

Goodwill

138,921

138,921

138,921

Other intangible assets — net

11,207

7,183

9,534

Other assets

567,248

632,621

476,400

Total assets

$

32,922,974

$

31,453,817

$

26,065,789

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:

Non-interest bearing

$

10,497,598

$

10,727,827

$

6,890,687

Savings, interest checking and money market

14,604,456

12,983,505

11,621,716

Certificates of deposit of less than $100,000

529,802

556,870

626,157

Certificates of deposit of $100,000 and over

1,314,889

1,433,577

1,381,855

Total deposits

26,946,745

25,701,779

20,520,415

Federal funds purchased and securities sold under agreements to repurchase

2,098,383

1,653,064

1,850,772

Other borrowings

802

782

2,418

Other liabilities

477,072

791,928

553,712

Total liabilities

29,523,002

28,147,553

22,927,317

Stockholders’ equity:

Preferred stock

144,784

Common stock

589,352

563,978

563,978

Capital surplus

2,436,288

2,140,410

2,151,464

Retained earnings

73,000

326,890

201,562

Treasury stock

(32,970

)

(69,050

)

(37,548

)

Accumulated other comprehensive income

331,377

343,435

110,444

Total stockholders’ equity

3,397,047

3,305,663

3,134,684

Non-controlling interest

2,925

601

3,788

Total equity

3,399,972

3,306,264

3,138,472

Total liabilities and equity

$

32,922,974

$

31,453,817

$

26,065,789

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

(Unaudited)
(In thousands)

For the Three Months Ended

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

ASSETS:

Loans:

Business

$

6,580,300

$

6,709,200

$

6,760,827

$

5,493,657

$

5,362,020

Real estate — construction and land

1,032,891

974,346

895,648

924,086

901,367

Real estate — business

3,029,799

2,989,652

2,962,076

2,853,632

2,820,189

Real estate — personal

2,778,462

2,722,300

2,582,484

2,390,716

2,283,530

Consumer

1,981,033

1,992,314

1,944,265

1,950,491

1,961,631

Revolving home equity

316,895

329,361

343,210

350,256

347,527

Consumer credit card

638,161

646,185

663,911

727,569

749,056

Overdrafts

3,762

2,689

2,912

4,044

18,322

Total loans

16,361,303

16,366,047

16,155,333

14,694,451

14,443,642

Allowance for credit losses on loans

(235,484

)

(240,286

)

(171,616

)

(139,482

)

(159,776

)

Net loans

16,125,819

16,125,761

15,983,717

14,554,969

14,283,866

Loans held for sale

30,577

24,728

6,363

12,875

15,363

Investment securities:

U.S. government and federal agency obligations

774,640

770,361

776,240

802,556

826,702

Government-sponsored enterprise obligations

69,133

102,749

114,518

134,296

184,973

State and municipal obligations

1,967,408

1,767,526

1,285,427

1,222,595

1,207,584

Mortgage-backed securities

6,646,345

6,259,926

5,325,720

4,685,782

4,685,794

Asset-backed securities

1,819,467

1,520,988

1,342,518

1,182,556

1,258,297

Other debt securities

533,646

514,166

406,665

321,733

331,167

Unrealized gain on debt securities

329,477

368,154

281,457

191,275

149,591

Total available for sale debt securities

12,140,116

11,303,870

9,532,545

8,540,793

8,644,108

Trading debt securities

28,040

27,267

31,981

34,055

32,518

Equity securities

4,221

4,193

4,137

4,273

4,200

Other securities

130,145

120,253

139,250

144,096

141,501

Total investment securities

12,302,522

11,455,583

9,707,913

8,723,217

8,822,327

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

355

337

92

326

714

Long-term securities purchased under agreements to resell

849,998

849,994

850,000

850,000

849,986

Interest earning deposits with banks

1,082,644

1,024,435

1,755,068

601,420

390,134

Other assets

1,291,907

1,389,683

1,461,528

1,368,464

1,315,395

Total assets

$

31,683,822

$

30,870,521

$

29,764,681

$

26,111,271

$

25,677,785

LIABILITIES AND EQUITY:

Non-interest bearing deposits

$

10,275,735

$

9,801,562

$

8,843,408

$

6,615,108

$

6,552,862

Savings

1,234,481

1,193,079

1,111,397

952,709

924,282

Interest checking and money market

12,198,928

11,731,494

11,441,694

10,777,400

10,618,347

Certificates of deposit of less than $100,000

542,212

573,207

605,136

622,840

626,944

Certificates of deposit of $100,000 and over

1,339,301

1,447,968

1,346,069

1,299,443

1,434,309

Total deposits

25,590,657

24,747,310

23,347,704

20,267,500

20,156,744

Borrowings:

Federal funds purchased and securities sold under agreements to repurchase

2,028,457

1,855,971

1,991,971

1,990,051

1,836,982

Other borrowings

1,013

1,225

345,162

161,698

94,471

Total borrowings

2,029,470

1,857,196

2,337,133

2,151,749

1,931,453

Other liabilities

727,569

899,890

763,524

466,980

458,094

Total liabilities

28,347,696

27,504,396

26,448,361

22,886,229

22,546,291

Equity

3,336,126

3,366,125

3,316,320

3,225,042

3,131,494

Total liabilities and equity

$

31,683,822

$

30,870,521

$

29,764,681

$

26,111,271

$

25,677,785

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

(Unaudited)

For the Three Months Ended

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

ASSETS:

Loans:

Business (1)

3.01

%

2.95

%

2.91

%

3.50

%

3.59

%

Real estate — construction and land

3.72

3.74

3.95

4.78

5.05

Real estate — business

3.51

3.53

3.71

4.16

4.22

Real estate — personal

3.44

3.56

3.69

3.83

3.85

Consumer

4.07

4.19

4.48

4.78

4.76

Revolving home equity

3.37

3.29

3.50

4.61

4.76

Consumer credit card

11.60

11.40

11.76

12.26

12.11

Overdrafts

Total loans

3.69

3.69

3.80

4.39

4.47

Loans held for sale

3.54

4.25

8.03

6.15

5.32

Investment securities:

U.S. government and federal agency obligations

2.63

3.71

.46

2.09

2.16

Government-sponsored enterprise obligations

2.23

2.17

3.51

4.19

2.17

State and municipal obligations (1)

2.44

2.53

2.97

3.11

3.05

Mortgage-backed securities

1.37

1.95

2.17

2.37

2.72

Asset-backed securities

1.59

1.90

2.25

2.63

2.62

Other debt securities

2.19

2.35

2.49

2.94

2.82

Total available for sale debt securities

1.70

2.18

2.18

2.54

2.69

Trading debt securities (1)

1.40

1.66

2.93

2.52

2.81

Equity securities (1)

50.71

47.15

48.42

46.78

49.40

Other securities (1)

10.03

6.74

4.36

5.31

6.58

Total investment securities

1.81

2.24

2.24

2.61

2.78

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

1.12

2.47

2.22

Long-term securities purchased under agreements to resell

5.24

5.26

5.08

3.53

2.26

Interest earning deposits with banks

.10

.10

.10

.86

1.61

Total interest earning assets

2.86

3.07

3.09

3.66

3.75

LIABILITIES AND EQUITY:

Interest bearing deposits:

Savings

.09

.09

.09

.11

.11

Interest checking and money market

.07

.10

.13

.30

.35

Certificates of deposit of less than $100,000

.51

.71

.93

1.15

1.16

Certificates of deposit of $100,000 and over

.47

.69

1.08

1.62

1.79

Total interest bearing deposits

.12

.18

.25

.45

.52

Borrowings:

Federal funds purchased and securities sold under agreements to repurchase

.06

.09

.12

.96

1.20

Other borrowings

.82

.82

2.05

Total borrowings

.06

.09

.22

.95

1.25

Total interest bearing liabilities

.11

%

.17

%

.25

%

.52

%

.61

%

Net yield on interest earning assets

2.80

%

2.97

%

2.94

%

3.33

%

3.36

%

(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 Year Ended

(Unaudited)
(In thousands, except per share data)

December 31,
2020

September 30,
2020

June 30,
2020

March 31,
2020

December 31,
2019

December 31,
2020

December 31,
2019

ALLOWANCE FOR CREDIT LOSSES ON LOANS

Balance at beginning of period

$

236,360

$

240,744

$

171,653

$

160,682

$

160,682

$

160,682

$

159,932

Adoption of ASU 2016-13

(21,039

)

(21,039

)

Provision for credit losses on loans

(7,510

)

3,200

77,491

42,868

15,206

116,049

50,438

Net charge-offs (recoveries):

Commercial portfolio:

Business

581

208

3,249

(373

)

3,036

3,665

4,102

Real estate — construction and land

(2

)

(1

)

(3

)

(117

)

Real estate — business

(7

)

(13

)

(6

)

(21

)

35

(47

)

(60

)

572

194

3,243

(394

)

3,071

3,615

3,925

Personal banking portfolio:

Consumer credit card

5,975

7,263

3,584

9,157

8,829

25,979

35,421

Consumer

1,160

211

1,362

1,711

2,838

4,444

8,554

Overdraft

335

200

316

426

507

1,277

1,523

Real estate — personal

(18

)

(198

)

(71

)

(4

)

6

(291

)

56

Revolving home equity

(8

)

(86

)

(34

)

(38

)

(45

)

(166

)

209

7,444

7,390

5,157

11,252

12,135

31,243

45,763

Total net loan charge-offs

8,016

7,584

8,400

10,858

15,206

34,858

49,688

Balance at end of period

$

220,834

$

236,360

$

240,744

$

171,653

$

160,682

$

220,834

$

160,682

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

$

38,307

$

35,200

$

35,299

$

32,250

$

1,075

NET CHARGE-OFF RATIOS (1)

Commercial portfolio:

Business

.04

%

.01

%

.19

%

(.03

%)

.22

%

.06

%

.08

%

Real estate — construction and land

(.01

)

Real estate — business

.02

.01

.12

(.02

)

.13

.04

.04

Personal banking portfolio:

Consumer credit card

3.72

4.47

2.17

5.06

4.68

3.88

4.63

Consumer

.23

.04

.28

.35

.57

.23

.44

Overdraft

35.43

29.59

43.65

42.37

10.98

38.11

16.55

Real estate — personal

(.03

)

(.01

)

(.01

)

Revolving home equity

(.01

)

(.10

)

(.04

)

(.04

)

(.05

)

(.05

)

.06

.52

.52

.37

.83

.90

.56

.87

Total

.19

%

.18

%

.21

%

.30

%

.42

%

.22

%

.35

%

CREDIT QUALITY RATIOS

Non-performing assets to total loans

.16

%

.25

%

.14

%

.07

%

.07

%

Non-performing assets to total assets

.08

.13

.08

.04

.04

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

1.35

1.44

1.47

1.14

1.09

NON-PERFORMING ASSETS

Non-accrual loans:

Business

$

22,524

$

37,295

$

19,034

$

7,356

$

7,489

Real estate — construction and land

1

1

2

2

Real estate — business

2,230

1,063

1,921

1,532

1,030

Real estate — personal

1,786

1,911

1,679

1,743

1,699

Total

26,540

40,270

22,635

10,633

10,220

Foreclosed real estate

93

57

422

422

365

Total non-performing assets

$

26,633

$

40,327

$

23,057

$

11,055

$

10,585

Loans past due 90 days and still accruing interest

$

22,190

$

14,436

$

24,583

$

16,520

$

19,859

(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 1.48% and 1.59% as of December 31, 2020 and September 30, 2020, respectively.

COMMERCE BANCSHARES, INC.
Management Discussion of Fourth Quarter Results
December 31, 2020

For the quarter ended December 31, 2020, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $129.9 million, compared to $132.4 million in the previous quarter and $106.9 million in the same quarter last year. The decrease in net income over the previous quarter was primarily the result of lower net interest income and net securities gains and higher non-interest expense, partly offset by a decrease in the provision for credit losses and higher non-interest income. The provision for credit losses decreased this quarter, compared to the prior quarter, due to a decrease in the estimate of the allowance for credit losses. Net interest income decreased $6.2 million this quarter mostly due to lower interest earned on the available for sale debt securities portfolio, including a $3.5 million adjustment to premium amortization on mortgage-backed securities for prepayment speed changes and a $2.1 million decrease in inflation income on our Treasury inflation-protected securities (TIPs). Excluding the premium amortization adjustment and TIPs inflation income, the net yield on interest earnings assets declined eight basis points. Average loans were flat compared to the previous quarter, while average available for sale debt securities grew $836.2 million, and average deposits increased $843.3 million. For the quarter, the return on average assets was 1.63%, the return on average common equity was 15.49%, and the efficiency ratio was 56.7%.

Balance Sheet Review

During the 4th quarter of 2020, average loans totaled $16.4 billion, and decreased $4.7 million from the prior quarter, and grew $1.9 billion, or 13.3%, over the same quarter last year. Period end loans declined $91.3 million compared to the prior quarter and grew $1.6 billion compared to December 31, 2019. Compared to the previous quarter, average balances of construction and land, personal real estate, and business real estate loans grew $58.5 million, $56.2 million, and $40.1 million, respectively. This growth was mostly offset by a decline in business loans of $128.9 million. The period end balance of Paycheck Protection Program (PPP) loans (included in business loans) declined $147.4 million during the 4th quarter and totaled $1.4 billion at December 31, 2020. Growth in personal real estate loan balances was due to continued strong demand for residential mortgage loans in this low interest rate environment. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $136.0 million, compared to $98.9 million in the prior quarter.

Total average available for sale debt securities increased $836.2 million over the previous quarter to $12.1 billion, at fair value. The increase in investment securities was mainly the result of growth in mortgage-backed, asset-backed, and state and municipal securities. During the quarter, purchases of securities totaled $1.8 billion with a weighted average yield of approximately 1.27%. Sales, maturities and pay downs were $851.6 million. At December 31, 2020, the duration of the investment portfolio was 3.3 years, and maturities and pay downs of approximately $2.0 billion are expected to occur during the next 12 months.

Total average deposits increased $843.3 million this quarter compared to the previous quarter. The increase in deposits resulted from growth in demand ($474.2 million), interest checking and money market ($467.4 million), and savings deposits ($41.4 million), partly offset by a decline in certificates of deposit ($139.7 million). Compared to the previous quarter, total average commercial, consumer and wealth deposits (including private banking) grew $505.6 million, $138.4 million and $240.3 million, respectively. The average loans to deposits ratio was 64.1% in the current quarter and 66.2% in the prior quarter. The Company’s average borrowings, which includes customer repurchase agreements, were $2.0 billion in the 4th quarter of 2020 and $1.9 billion in the prior quarter.

Net Interest Income

Net interest income in the 4th quarter of 2020 amounted to $209.8 million, a decrease of $6.2 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter decreased $6.1 million from the previous quarter to $213.0 million. The decrease in net interest income was mainly due to lower income earned on investment securities, partially offset by lower interest expense on interest bearing deposits. The Company recorded a $3.5 million adjustment to premium amortization on mortgage-backed securities for prepayment speed changes, which lowered interest income this quarter. The net yield on earning assets (tax equivalent) decreased to 2.80%, compared to 2.97% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) decreased $248 thousand, mostly as a result of lower yields on loans, mainly personal real estate and consumer loans, coupled with a decline in business loan average balances. Growth in average construction and land and personal real estate loan balances and higher yields on business loans resulted in higher net interest income and partially offset the impact of lower yields. The average tax-equivalent yield on the loan portfolio was 3.69% in both the current and previous quarters.

Interest income on investment securities (tax equivalent) decreased $8.0 million from the previous quarter, due to lower rates partly offset by higher average balances. Interest income on mortgage-backed securities declined in part due to the aforementioned premium amortization adjustment, while interest income earned on U.S. government and federal agency securities decreased, as TIPs inflation income declined $2.1 million this quarter. The yield on total investment securities was 1.81% in the current quarter, compared to 2.24% in the previous quarter.

The average rate paid on deposits totaled 12 basis points in the 4th quarter of 2020, compared to 18 basis points in the prior quarter. Interest expense on deposits decreased $2.1 million this quarter compared to the previous quarter mainly due to lower rates paid on money market and certificate of deposit accounts. The overall rate paid on interest bearing liabilities was .11% in the current quarter, compared to .17% in the prior quarter.

Non-Interest Income

In the 4th quarter of 2020, total non-interest income amounted to $135.1 million, a decrease of $8.3 million, or 5.8%, compared to the same period last year and increased $5.5 million, or 4.3%, compared to the prior quarter. The decrease in non-interest income from the same period last year was mainly due to the sale of our corporate trust business in 2019, which resulted in a one-time gain of $11.5 million. This decrease was partly offset by growth in loan fees and sales, trust fees and capital market fees. Excluding the one-time gain from the sale of our corporate trust business, non-interest income this quarter grew $3.1 million or 2.4% compared to the same period last year.

Total net bank card fees in the current quarter decreased $1.1 million, or 2.7%, from the same period last year, and increased $2.1 million, or 5.6%, compared to the prior quarter. Net corporate card fees decreased $774 thousand, or 3.5%, from the same quarter of last year mainly due to lower transaction volume, partly offset by lower rewards expense. Net debit card fees decreased $639 thousand, or 6.1%, mainly due to lower interchange income and higher network expense. Net merchant income increased $181 thousand, or 3.6%, while net credit card fees increased $133 thousand, or 3.8%. Total net bank card fees this quarter were comprised of fees on corporate card ($21.3 million), debit card ($9.8 million), merchant ($5.2 million) and credit card ($3.6 million) transactions.

In the current quarter, trust fees increased $1.6 million, or 3.9%, over the same period last year, resulting mostly from higher private client fee income. Compared to the same period last year, deposit account fees decreased $810 thousand, or 3.2%, mainly due to lower overdraft and return item fees, partly offset by an increase in corporate cash management fees. Additionally, capital market fees grew $1.3 million, or 50.9%, while loan fees and sales, mostly mortgage banking revenue, grew $5.6 million, or 160.6%, over amounts recorded in the same quarter last year. Other non-interest income decreased from the same period last year due to the corporate trust sale gain mentioned previously and declines in cash sweep fees and swap fees of $2.0 million and $1.8 million, respectively. For the 4th quarter of 2020, non-interest income comprised 39.2% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded net securities gains of $12.3 million in the current quarter, compared to gains of $16.2 million in the prior quarter and losses of $248 thousand in the 4th quarter of 2019. Net securities gains in the current quarter primarily resulted from unrealized gains of $8.0 million in the Company’s private equity investment portfolio and gains of $4.1 million on the sales of mortgage-backed securities.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $196.3 million, compared to $195.2 million in the same period last year and $190.9 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to higher salaries and employee benefits and marketing expense, partially offset by lower other non-interest expense.

Compared to the 4th quarter of last year, salaries and employee benefits expense increased $3.1 million, or 2.4%, driven mainly by growth in incentive compensation expense, partially offset by lower benefits costs. Full-time equivalent employees totaled 4,766 and 4,858 at December 31, 2020 and 2019, respectively.

For the current quarter compared to the same quarter of last year, marketing expense increased $1.1 million. Net occupancy costs declined $648 thousand due to lower building maintenance and real estate taxes. Supplies and communication expense decreased $658 thousand due to lower supplies, postage and bank card issuance expense. Other non-interest expense decreased mainly due to a $2.3 million decrease in travel and entertainment expense.

Income Taxes

The effective tax rate for the Company was 20.3% in the current quarter, 20.6% in the previous quarter, and 20.9% in the 4th quarter of 2020.

Credit Quality

Net loan charge-offs in the 4th quarter of 2020 amounted to $8.0 million, compared to $7.6 million in the prior quarter and $15.2 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .19% in the current quarter, .18% in the previous quarter, and .42% in the 4th quarter of last year. Compared to the prior quarter, net loan charge-offs on commercial loans increased $378 thousand to $572 thousand, while net loan charge-offs on personal banking loans increased $54 thousand to $7.4 million.

In the 4th quarter of 2020, annualized net loan charge-offs on average consumer credit card loans were 3.72%, compared to 4.47% in the previous quarter, and 4.68% in the same quarter last year. Consumer loan net charge-offs were .23% of average consumer loans in the current quarter, .04% in the prior quarter and .57% in the same quarter last year.

This quarter, the provision for credit losses on loans decreased $10.7 million and was $15.5 million lower than net loan charge-offs. Actual fourth quarter economic data and the economic forecast used to estimate the allowance for credit losses in December showed improving economic conditions compared to the forecast utilized in September, which resulted in a decrease in the allowance for credit losses as of December 31, 2020, and also reduced the provision for credit losses this quarter, compared to the prior quarter. At December 31, 2020, the allowance for credit losses on loans totaled $220.8 million, or 1.35% of total loans and 1.48% of total loans excluding PPP loans. Additionally, the liability for unfunded lending commitments at December 31, 2020 was $38.3 million, an increase of $3.1 million over the liability at September 30, 2020.

At December 31, 2020, total non-performing assets amounted to $26.6 million, a decrease of $13.7 million from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($26.5 million and $93 thousand, respectively). At December 31, 2020, the balance of non-accrual loans, which represented .16% of loans outstanding, included business loans of $22.5 million, business real estate loans of $2.2 million, and personal real estate loans of $1.8 million. Loans more than 90 days past due and still accruing interest totaled $22.2 million at December 31, 2020.

Other

During the 4th quarter of 2020, the Company distributed a 5% stock dividend on its common stock and paid a cash dividend of $.257 per common share (as restated for the stock dividend), representing an 8.9% increase over the same period last year.

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.

Contacts:

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

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