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Commerce Bancshares, Inc. Reports First Quarter Earnings Per Share of $1.11

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Commerce Bancshares, Inc. announced earnings of $1.11 per share for the three months ended March 31, 2021, compared to $.42 per common share in the same quarter last year and $1.11 per common share in the fourth quarter of 2020. Net income attributable to Commerce Bancshares, Inc. (net income) for the first quarter of 2021 amounted to $131.0 million, compared to $51.9 million in the first quarter of 2020 and $129.9 million in the prior quarter. For the quarter, the return on average assets was 1.63%, the return on average equity was 15.69% and the efficiency ratio was 56.4%.

In announcing these results, John Kemper, Chief Executive Officer, said, "This quarter we continued to see strong performance from our fee-based businesses, which are healthy and accounted for 40% of total revenue. Growth in non-interest income resulted from higher trust, mortgage banking and capital markets fees. Non-interest expense declined compared to the same quarter last year, as salaries and benefits expense was flat, while most other expense categories declined. Net income was also aided by the release of reserves for credit losses on loans. Continued economic recovery coupled with a more optimistic outlook resulted in a lower estimate of the allowance for credit losses and reduced our provision for credit losses this quarter. Net securities gains of $9.9 million were driven by an increase in the value of our portfolio of private equity investments. Compared to the previous quarter, average deposits grew $898.6 million, or 3.5%, while loan demand was mixed. Average loan balances in construction and personal real estate increased, but lower business, consumer, and consumer credit card balances kept total average loan balances relatively flat. While average business loan balances decreased $47.4 million this quarter, this includes a net decline of $102.3 million of PPP loan balances."

Mr. Kemper continued, "This quarter, net loan charge-offs totaled $10.0 million, compared to $8.0 million in the prior quarter and $10.9 million in the first quarter of 2020. The ratio of annualized net loan charge-offs to average loans was .25% in the current quarter, .19% in the prior quarter and .30% in the first quarter of last year. Net loan charge-offs on commercial loans totaled $17 thousand this quarter compared to $572 thousand in the prior quarter. Non-performing assets decreased this quarter from $26.6 million to $23.7 million. At March 31, 2021, the allowance for credit losses on loans decreased to $200.5 million."

Total assets at March 31, 2021 were $33.3 billion, total loans were $16.4 billion, and total deposits were $27.4 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 fourth quarter of 2020. The Company purchased 354,181 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, including management's discussion of first 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

(Unaudited)

(Dollars in thousands, except per share data)

March 31,

2021

December 31,

2020

March 31,

2020

FINANCIAL SUMMARY

Net interest income

$205,748

$209,763

$201,065

Non-interest income

136,045

135,117

123,663

Total revenue

341,793

344,880

324,728

Investment securities gains (losses), net

9,853

12,307

(13,301)

Provision for credit losses

(6,232)

(4,403)

57,953

Non-interest expense

192,573

196,310

193,698

Income before taxes

165,305

165,280

59,776

Income taxes

32,076

33,084

10,173

Non-controlling interest (income) expense

2,257

2,307

(2,254)

Net income attributable to Commerce Bancshares, Inc.

130,972

129,889

51,857

Preferred stock dividends

2,250

Net income available to common shareholders

$130,972

$129,889

$49,607

Earnings per common share:

Net income — basic

$1.12

$1.11

$.42

Net income — diluted

$1.11

$1.11

$.42

Effective tax rate

19.67

%

20.30

%

16.40

%

Tax equivalent net interest income

$208,774

$213,017

$204,402

Average total interest earning assets (1)

$

31,278,721

$

30,297,922

$

24,691,014

Diluted wtd. average shares outstanding

116,573,405

116,507,841

116,944,735

RATIOS

Average loans to deposits (2)

61.79

%

64.05

%

72.57

%

Return on total average assets

1.63

1.63

0.80

Return on average common equity (3)

15.69

15.49

6.48

Non-interest income to total revenue

39.80

39.18

38.08

Efficiency ratio (4)

56.37

56.68

59.17

Net yield on interest earning assets

2.71

2.80

3.33

EQUITY SUMMARY

Cash dividends per common share

$.263

$.257

$.257

Cash dividends on common stock

$30,799

$30,178

$30,292

Cash dividends on preferred stock

$—

$—

$2,250

Book value per common share (5)

$28.34

$29.03

$26.54

Market value per common share (5)

$76.61

$65.70

$47.95

High market value per common share

$83.06

$68.09

$68.50

Low market value per common share

$64.76

$52.10

$43.34

Common shares outstanding (5)

117,077,276

117,138,431

117,112,060

Tangible common equity to tangible assets (6)

9.57

%

9.92

%

11.13

%

Tier I leverage ratio

9.38

%

9.45

%

11.13

%

OTHER QTD INFORMATION

Number of bank/ATM locations

298

306

317

Full-time equivalent employees

4,619

4,766

4,854

(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

(Unaudited)

(In thousands, except per share data)

March 31,

2021

December 31,

2020

September 30,

2020

June 30,

2020

March 31,

2020

Interest income

$209,697

$214,726

$223,114

$213,323

$221,485

Interest expense

3,949

4,963

7,152

10,266

20,420

Net interest income

205,748

209,763

215,962

203,057

201,065

Provision for credit losses

(6,232)

(4,403)

3,101

80,539

57,953

Net interest income after credit losses

211,980

214,166

212,861

122,518

143,112

NON-INTEREST INCOME

Bank card transaction fees

37,695

39,979

37,873

33,745

40,200

Trust fees

44,127

41,961

40,769

37,942

39,965

Deposit account charges and other fees

22,575

24,164

23,107

22,279

23,677

Capital market fees

4,981

3,826

3,194

3,772

3,790

Consumer brokerage services

4,081

3,996

4,011

3,011

4,077

Loan fees and sales

10,184

9,031

9,769

4,649

3,235

Other

12,402

12,160

10,849

12,117

8,719

Total non-interest income

136,045

135,117

129,572

117,515

123,663

INVESTMENT SECURITIES GAINS (LOSSES), NET

9,853

12,307

16,155

(4,129)

(13,301)

NON-INTEREST EXPENSE

Salaries and employee benefits

129,033

129,983

127,308

126,759

128,937

Net occupancy

12,021

11,570

12,058

11,269

11,748

Equipment

4,353

4,526

4,737

4,755

4,821

Supplies and communication

4,125

4,193

4,141

4,427

4,658

Data processing and software

25,463

24,323

23,610

23,837

23,555

Marketing

5,158

5,028

4,926

3,801

5,979

Other

12,420

16,687

14,078

12,664

14,000

Total non-interest expense

192,573

196,310

190,858

187,512

193,698

Income before income taxes

165,305

165,280

167,730

48,392

59,776

Less income taxes

32,076

33,084

34,375

9,661

10,173

Net income

133,229

132,196

133,355

38,731

49,603

Less non-controlling interest expense (income)

2,257

2,307

907

(1,132)

(2,254)

Net income attributable to Commerce Bancshares, Inc.

130,972

129,889

132,448

39,863

51,857

Less preferred stock dividends

7,466

2,250

2,250

Net income available to common shareholders

$130,972

$129,889

$124,982

$37,613

$49,607

Net income per common share — basic

$1.12

$1.11

$1.06

$.32

$.42

Net income per common share — diluted

$1.11

$1.11

$1.06

$.32

$.42

OTHER INFORMATION

Return on total average assets

1.63

%

1.63

%

1.71

%

.54

%

.80

%

Return on average common equity (1)

15.69

15.49

15.21

4.77

6.48

Efficiency ratio (2)

56.37

56.68

55.00

58.10

59.17

Effective tax rate

19.67

20.30

20.61

19.51

16.40

Net yield on interest earning assets

2.71

2.80

2.97

2.94

3.33

Tax equivalent net interest income

$208,774

$213,017

$219,118

$206,253

$204,402

(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)

March 31,

2021

December 31,

2020

March 31,

2020

ASSETS

Loans

Business

$

6,624,209

$

6,546,087

$

5,773,865

Real estate — construction and land

1,073,036

1,021,595

873,402

Real estate — business

3,017,242

3,026,117

2,960,308

Real estate — personal

2,828,418

2,820,030

2,464,819

Consumer

1,966,833

1,950,502

1,941,787

Revolving home equity

285,261

307,083

349,735

Consumer credit card

593,833

655,078

706,753

Overdrafts

3,239

3,149

3,143

Total loans

16,392,071

16,329,641

15,073,812

Allowance for credit losses on loans

(200,527)

(220,834)

(171,653)

Net loans

16,191,544

16,108,807

14,902,159

Loans held for sale

38,076

45,089

6,214

Investment securities:

Available for sale debt securities

12,528,203

12,449,264

8,678,586

Trading debt securities

26,925

35,321

24,291

Equity securities

4,337

4,363

4,038

Other securities

155,913

156,745

155,074

Total investment securities

12,715,378

12,645,693

8,861,989

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

500

400

Long-term securities purchased under agreements to resell

850,000

850,000

850,000

Interest earning deposits with banks

2,017,128

1,747,363

474,156

Cash and due from banks

338,666

437,563

401,185

Premises and equipment — net

371,737

371,083

369,745

Goodwill

138,921

138,921

138,921

Other intangible assets — net

13,098

11,207

8,433

Other assets

594,738

567,248

779,815

Total assets

$

33,269,786

$

32,922,974

$

26,793,017

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:

Non-interest bearing

$

11,076,556

$

10,497,598

$

6,952,236

Savings, interest checking and money market

14,572,378

14,604,456

12,049,279

Certificates of deposit of less than $100,000

504,472

529,802

619,758

Certificates of deposit of $100,000 and over

1,267,219

1,314,889

1,154,590

Total deposits

27,420,625

26,946,745

20,775,863

Federal funds purchased and securities sold under agreements to repurchase

1,938,110

2,098,383

1,428,013

Other borrowings

3,791

802

756,461

Other liabilities

589,875

477,072

580,216

Total liabilities

29,952,401

29,523,002

23,540,553

Stockholders’ equity:

Preferred stock

144,784

Common stock

589,352

589,352

563,978

Capital surplus

2,420,393

2,436,288

2,133,623

Retained earnings

173,173

73,000

224,643

Treasury stock

(39,080)

(32,970)

(69,149)

Accumulated other comprehensive income

168,752

331,377

253,136

Total stockholders’ equity

3,312,590

3,397,047

3,251,015

Non-controlling interest

4,795

2,925

1,449

Total equity

3,317,385

3,399,972

3,252,464

Total liabilities and equity

$

33,269,786

$

32,922,974

$

26,793,017

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

(Unaudited)

(In thousands)

For the Three Months Ended

March 31,

2021

December 31,

2020

September 30,

2020

June 30,

2020

March 31,

2020

ASSETS:

Loans:

Business

$

6,532,921

$

6,580,300

$

6,709,200

$

6,760,827

$

5,493,657

Real estate — construction and land

1,091,969

1,032,891

974,346

895,648

924,086

Real estate — business

3,022,979

3,029,799

2,989,652

2,962,076

2,853,632

Real estate — personal

2,826,112

2,778,462

2,722,300

2,582,484

2,390,716

Consumer

1,947,322

1,981,033

1,992,314

1,944,265

1,950,491

Revolving home equity

299,371

316,895

329,361

343,210

350,256

Consumer credit card

608,747

638,161

646,185

663,911

727,569

Overdrafts

3,546

3,762

2,689

2,912

4,044

Total loans

16,332,967

16,361,303

16,366,047

16,155,333

14,694,451

Allowance for credit losses on loans

(220,512)

(235,484)

(240,286)

(171,616)

(139,482)

Net loans

16,112,455

16,125,819

16,125,761

15,983,717

14,554,969

Loans held for sale

35,814

30,577

24,728

6,363

12,875

Investment securities:

U.S. government and federal agency obligations

725,367

774,640

770,361

776,240

802,556

Government-sponsored enterprise obligations

50,801

69,133

102,749

114,518

134,296

State and municipal obligations

1,958,637

1,967,408

1,767,526

1,285,427

1,222,595

Mortgage-backed securities

6,998,521

6,646,345

6,259,926

5,325,720

4,685,782

Asset-backed securities

2,085,491

1,819,467

1,520,988

1,342,518

1,182,556

Other debt securities

570,115

533,646

514,166

406,665

321,733

Unrealized gain on debt securities

283,511

329,477

368,154

281,457

191,275

...

Total available for sale debt securities

12,672,443

12,140,116

11,303,870

9,532,545

8,540,793

Trading debt securities

32,320

28,040

27,267

31,981

34,055

Equity securities

4,321

...

4,221

4,193

4,137

4,273

Other securities

154,030

130,145

120,253

139,250

144,096

Total investment securities

12,863,114

12,302,522

11,455,583

9,707,913

8,723,217

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

7

355

337

92

326

Long-term securities purchased under agreements to resell

849,999

849,998

849,994

850,000

850,000

Interest earning deposits with banks

1,480,331

1,082,644

1,024,435

1,755,068

601,420

Other assets

1,308,105

1,291,907

1,389,683

1,461,528

1,368,464

Total assets

$

32,649,825

$

31,683,822

$

30,870,521

$

29,764,681

$

26,111,271

LIABILITIES AND EQUITY:

Non-interest bearing deposits

$

10,438,637

$

10,275,735

$

9,801,562

$

8,843,408

$

6,615,108

Savings

1,333,177

1,234,481

1,193,079

1,111,397

952,709

Interest checking and money market

12,970,629

12,198,928

11,731,494

11,441,694

10,777,400

Certificates of deposit of less than $100,000

516,728

542,212

573,207

605,136

622,840

Certificates of deposit of $100,000 and over

1,230,075

1,339,301

1,447,968

1,346,069

1,299,443

Total deposits

26,489,246

25,590,657

24,747,310

23,347,704

20,267,500

Borrowings:

Federal funds purchased and securities sold under agreements to repurchase

2,166,072

2,028,457

1,855,971

1,991,971

1,990,051

Other borrowings

831

1,013

1,225

345,162

161,698

Total borrowings

2,166,903

2,029,470

1,857,196

2,337,133

2,151,749

Other liabilities

608,212

727,569

899,890

763,524

466,980

Total liabilities

29,264,361

28,347,696

27,504,396

26,448,361

22,886,229

Equity

3,385,464

3,336,126

3,366,125

3,316,320

3,225,042

Total liabilities and equity

$

32,649,825

$

31,683,822

$

30,870,521

$

29,764,681

$

26,111,271

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

(Unaudited)

For the Three Months Ended

March 31,

2021

December 31,

2020

September 30,

2020

June 30,

2020

March 31,

2020

ASSETS:

Loans:

Business (1)

3.09

%

3.01

%

2.95

%

2.91

%

3.50

%

Real estate — construction and land

3.54

3.72

3.74

3.95

4.78

Real estate — business

3.52

3.51

3.53

3.71

4.16

Real estate — personal

3.40

3.44

3.56

3.69

3.83

Consumer

4.02

4.07

4.19

4.48

4.78

Revolving home equity

3.38

3.37

3.29

3.50

4.61

Consumer credit card

10.97

11.60

11.40

11.76

12.26

Overdrafts

Total loans

3.66

3.69

3.69

3.80

4.39

Loans held for sale

3.44

3.54

4.25

8.03

6.15

Investment securities:

U.S. government and federal agency obligations

2.54

2.63

3.71

.46

2.09

Government-sponsored enterprise obligations

2.36

2.23

2.17

3.51

4.19

State and municipal obligations (1)

2.46

2.44

2.53

2.97

3.11

Mortgage-backed securities

1.39

1.37

1.95

2.17

2.37

Asset-backed securities

1.39

1.59

1.90

2.25

2.63

Other debt securities

2.15

2.19

2.35

2.49

2.94

Total available for sale debt securities

1.67

1.70

2.18

2.18

2.54

Trading debt securities (1)

1.08

1.40

1.66

2.93

2.52

Equity securities (1)

49.56

50.71

47.15

48.42

46.78

Other securities (1)

5.26

10.03

6.74

4.36

5.31

Total investment securities

1.72

1.81

2.24

2.24

2.61

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

1.12

2.47

Long-term securities purchased under agreements to resell

5.31

5.24

5.26

5.08

3.53

Interest earning deposits with banks

.10

.10

.10

.10

.86

Total interest earning assets

2.76

2.86

3.07

3.09

3.66

LIABILITIES AND EQUITY:

Interest bearing deposits:

Savings

.08

.09

.09

.09

.11

Interest checking and money market

.06

.07

.10

.13

.30

Certificates of deposit of less than $100,000

.37

.51

.71

.93

1.15

Certificates of deposit of $100,000 and over

.35

.47

.69

1.08

1.62

Total interest bearing deposits

.09

.12

.18

.25

.45

Borrowings:

Federal funds purchased and securities sold under agreements to repurchase

.06

.06

.09

.12

.96

Other borrowings

.98

.82

.82

Total borrowings

.06

.06

.09

.22

.95

Total interest bearing liabilities

.09

%

.11

%

.17

%

.25

%

.52

%

Net yield on interest earning assets

2.71

%

2.80

%

2.97

%

2.94

%

3.33

%

(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

(Unaudited)

(In thousands, except per share data)

March 31,

2021

December 31,

2020

September 30,

2020

June 30,

2020

March 31,

2020

ALLOWANCE FOR CREDIT LOSSES ON LOANS

Balance at beginning of period

$

220,834

$

236,360

$

240,744

$

171,653

$

160,682

Adoption of ASU 2016-13

(21,039)

Provision for credit losses on loans

(10,355)

(7,510)

3,200

77,491

42,868

Net charge-offs (recoveries):

Commercial portfolio:

Business

(4)

581

208

3,249

(373)

Real estate — construction and land

1

(2)

(1)

Real estate — business

20

(7)

(13)

(6)

(21)

17

572

194

3,243

(394)

Personal banking portfolio:

Consumer credit card

8,981

5,975

7,263

3,584

9,157

Consumer

763

1,160

211

1,362

1,711

Overdraft

153

335

200

316

426

Real estate — personal

15

(18)

(198)

(71)

(4)

Revolving home equity

23

(8)

(86)

(34)

(38)

9,935

7,444

7,390

5,157

11,252

Total net loan charge-offs

9,952

8,016

7,584

8,400

10,858

Balance at end of period

$

200,527

$

220,834

$

236,360

$

240,744

$

171,653

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

$

42,430

$

38,307

$

35,200

$

35,299

$

32,250

NET CHARGE-OFF RATIOS (1)

Commercial portfolio:

Business

%

.04

%

.01

%

.19

%

(.03

%)

Real estate — construction and land

Real estate — business

.02

.01

.12

(.02)

Personal banking portfolio:

Consumer credit card

5.98

3.72

4.47

2.17

5.06

Consumer

.16

.23

.04

.28

.35

Overdraft

17.50

35.43

29.59

43.65

42.37

Real estate — personal

(.03)

(.01)

Revolving home equity

.03

(.01)

(.10)

(.04)

(.04)

.71

.52

.52

.37

.83

Total

.25

%

.19

%

.18

%

.21

%

.30

%

CREDIT QUALITY RATIOS

Non-performing assets to total loans

.14

%

.16

%

.25

%

.14

%

.07

%

Non-performing assets to total assets

.07

.08

.13

.08

.04

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

1.22

1.35

1.44

1.47

1.14

NON-PERFORMING ASSETS

Non-accrual loans:

Business

$

20,215

$

22,524

$

37,295

$

19,034

$

7,356

Real estate — construction and land

1

1

2

Real estate — business

1,572

2,230

1,063

1,921

1,532

Real estate — personal

1,719

1,786

1,911

1,679

1,743

Total

23,506

26,540

40,270

22,635

10,633

Foreclosed real estate

208

93

57

422

422

Total non-performing assets

$

23,714

$

26,633

$

40,327

$

23,057

$

11,055

Loans past due 90 days and still accruing interest

$

21,512

$

22,190

$

14,436

$

24,583

$

16,520

(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 1.34% and 1.48% as of March 31, 2021 and December 31, 2020, respectively.

COMMERCE BANCSHARES, INC.
Management Discussion of First Quarter Results
March 31, 2021

For the quarter ended March 31, 2021, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $131.0 million, compared to $129.9 million in the previous quarter and $51.9 million in the same quarter last year. The increase in net income over the previous quarter was primarily the result of higher non-interest income, lower non-interest expense, and a decrease in the provision for credit losses, partly offset by lower net interest income and net securities gains. The provision for credit losses declined this quarter, compared to the prior quarter, due to a decrease in the estimate of the allowance for credit losses on loans. Net interest income decreased this quarter mostly due to lower interest earned on loans. The net yield on interest earning assets declined nine basis points. Average loans were slightly lower compared to the previous quarter, while average available for sale debt securities grew $532.3 million, and average deposits increased $898.6 million. For the quarter, the return on average assets was 1.63%, the return on average common equity was 15.69%, and the efficiency ratio was 56.4%.

Balance Sheet Review

During the 1st quarter of 2021, average loans totaled $16.3 billion, decreased $28.3 million from the prior quarter, and increased $1.6 billion, or 11.2%, over the same quarter last year. Period end loans increased $62.4 million compared to the prior quarter. Compared to the previous quarter, average balances of construction and land and personal real estate loans grew $59.1 million and $47.7 million, respectively. This growth was mostly offset by declines in business, consumer, consumer credit card, and revolving home equity loans of $47.4 million, $33.7 million, $29.4 million, and $17.5 million, respectively. The period end balance of Paycheck Protection Program (PPP) loans (included in business loans) increased $66.7 million during the 1st quarter and totaled $1.4 billion at March 31, 2021. This growth reflected $331.4 million of loan balances originated this quarter (round 2), partly offset by a decline of $264.7 million in loan balances from year end (round 1). Average PPP loan balances declined $102.3 million compared to the prior quarter. Growth in personal real estate loan balances was due to continued strong demand for residential mortgage loans this quarter. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $177.8 million, compared to $136.0 million in the prior quarter.

Total average available for sale debt securities increased $532.3 million over the previous quarter to $12.7 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 $1.3 billion with a weighted average yield of approximately .93%. Maturities and pay downs were $939.6 million. At March 31, 2021, the duration of the investment portfolio was 3.9 years, and maturities and pay downs of approximately $2.3 billion are expected to occur during the next 12 months.

Total average deposits increased $898.6 million this quarter compared to the previous quarter. The increase in deposits resulted from growth in interest checking and money market ($771.7 million), and savings deposits ($98.7 million), partly offset by a decline in certificates of deposit ($134.7 million). Average demand deposits also increased $162.9 million over the previous quarter. Compared to the previous quarter, total average consumer and wealth deposits (including private banking) grew $570.2 million and $305.2 million, respectively, while average commercial deposits declined $49.2 million. The average loans to deposits ratio was 61.8% in the current quarter and 64.1% in the prior quarter. The Company’s average borrowings, which includes customer repurchase agreements, were $2.2 billion in the 1st quarter of 2021 and $2.0 billion in the prior quarter.

Net Interest Income

Net interest income in the 1st quarter of 2021 amounted to $205.7 million, a decrease of $4.0 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter decreased $4.2 million from the previous quarter to $208.8 million. The decrease in net interest income was mainly due to lower income earned on loans. The net yield on earning assets (tax equivalent) decreased to 2.71%, compared to 2.80% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) decreased $4.3 million, mostly as a result of lower yields on loans, mainly consumer credit card, personal real estate, construction and land, and consumer loans, coupled with a decline in consumer credit card average loan balances. Partially offsetting these decreases was growth in interest income due to higher average construction and land and personal real estate loan balances and higher yields on business loans. The decline in the consumer credit card yield was partially due to the reversal of interest on delinquent loans that exited the Company’s skip pay program last summer and were charged off this quarter. The average tax-equivalent yield on the loan portfolio declined three basis points to 3.66% this quarter.

Interest income on investment securities (tax equivalent) decreased $1.0 million from the previous quarter, due to lower rates earned, partly offset by higher average balances. At March 31, 2021, the Company recorded a $4.1 million adjustment to premium amortization, which increased interest income this quarter to reflect a slowdown in forward prepayment speed estimates on mortgage-backed securities due to rising interest rates during the quarter. This adjustment mostly offset higher premium amortization recorded on these securities during the quarter due to the recent surge in mortgage refinancing. Interest income earned on U.S. government and federal agency securities decreased, as Treasury inflation-protected securities inflation income declined $426 thousand this quarter to $1.5 million. The yield on total investment securities was 1.72% in the current quarter, compared to 1.81% in the previous quarter.

The average rate paid on deposits totaled nine basis points in the 1st quarter of 2021, compared to 12 basis points in the prior quarter. Interest expense on deposits decreased $1.0 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 .09% in the current quarter, compared to .11% in the prior quarter.

Non-Interest Income

In the 1st quarter of 2021, total non-interest income amounted to $136.0 million, an increase of $12.4 million, or 10.0%, compared to the same period last year and increased $928 thousand compared to the prior quarter. The increase in non-interest income over the same period last year was mainly due to growth in loan fees and sales, capital market fees, and trust fees.

Total net bank card fees in the current quarter decreased $2.5 million, or 6.2%, from the same period last year, and decreased $2.3 million, or 5.7%, compared to the prior quarter. Net corporate card fees decreased $2.7 million, or 11.8%, from the same quarter of last year mainly due to lower fee income, partly offset by lower rewards expense. Net debit card fees increased $45 thousand, or 0.5%. Net merchant income increased $226 thousand, or 5.1%, while net credit card fees decreased $66 thousand, or 1.9%. Total net bank card fees this quarter were comprised of fees on corporate card ($20.3 million), debit card ($9.4 million), merchant ($4.6 million) and credit card ($3.4 million) transactions.

In the current quarter, trust fees increased $4.2 million, or 10.4%, 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 $1.1 million, or 4.7%, mainly due to lower overdraft and return item fees, partly offset by an increase in corporate cash management fees. Additionally, capital market fees grew $1.2 million, or 31.4%, while loan fees and sales, mostly mortgage banking revenue, grew $6.9 million, or 214.8%, over amounts recorded in the same quarter last year.

Other non-interest income increased over the same period last year due to gains of $2.4 million recorded this quarter on the sale of a branch location and a $1.2 million increase in swap fees. Fair value adjustments on the Company’s deferred compensation plan assets, which are held in a trust and recorded as both an asset and liability, increased $3.4 million over the same quarter last year, affecting both other income and other expense. These increases were partially offset by a $2.8 million decline in cash sweep commissions. For the 1st quarter of 2021, non-interest income comprised 39.8% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded net securities gains of $9.9 million in the current quarter, compared to net gains of $12.3 million in the prior quarter and net losses of $13.3 million in the 1st quarter of 2020. Net securities gains in the current quarter primarily resulted from $8.4 million of unrealized gains in fair value and $1.5 million from the sale of an investment in the Company’s private equity investment portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $192.6 million, compared to $193.7 million in the same period last year and $196.3 million in the prior quarter. The decrease in non-interest expense compared to the same period last year was mainly due to lower other non-interest and marketing expense, partly offset by higher data processing and software expense.

Compared to the 1st quarter of last year, salaries and employee benefits expense was mostly flat, as a $3.6 million increase in incentive compensation was offset by decreases of $1.5 million and $1.8 million in full-time salaries and medical expense, respectively. Full-time equivalent employees totaled 4,619 and 4,854 at March 31, 2021 and 2020, respectively.

Marketing, equipment, and supplies and communication expense decreased $821 thousand, $468 thousand, and $533 thousand, respectively. These decreases were partly offset by a $1.9 million increase in data processing and software expense, which reflects continuing investment in technology.

Other non-interest expense decreased mainly due to a $2.0 million decrease in travel and entertainment expense, a $2.1 million reduction in impairment expense on mortgage servicing rights, and a $1.1 million increase in deferred loan origination costs. These decreases were partially offset by the $3.4 million deferred compensation adjustment mentioned above.

Income Taxes

The effective tax rate for the Company was 19.7% in the current quarter, 20.3% in the previous quarter, and 16.4% in the 1st quarter of 2020.

Credit Quality

Net loan charge-offs in the 1st quarter of 2021 amounted to $10.0 million, compared to $8.0 million in the prior quarter and $10.9 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .25% in the current quarter, .19% in the previous quarter, and .30% in the 1st quarter of last year. Compared to the prior quarter, net loan charge-offs on commercial loans decreased $555 thousand to $17 thousand, while net loan charge-offs on personal banking loans increased $2.5 million to $9.9 million.

In the 1st quarter of 2021, annualized net loan charge-offs on average consumer credit card loans were 5.98%, compared to 3.72% in the previous quarter, and 5.06% in the same quarter last year. Consumer loan net charge-offs were .16% of average consumer loans in the current quarter, .23% in the prior quarter and .35% in the same quarter last year. The elevated consumer credit card charge-off rate was mostly due to the migration of delinquent accounts that exited the Company’s skip pay program initiated last summer in response to the COVID-19 pandemic.

Actual economic data for the first quarter and the economic forecast used to estimate the allowance for credit losses in March 2021 showed improving economic conditions compared to the forecast utilized in December 2020. This improvement resulted in a decrease in the allowance for credit losses as of March 31, 2021, and also reduced the provision for credit losses this quarter compared to the prior quarter. At March 31, 2021, the allowance for credit losses on loans totaled $200.5 million, or 1.22% of total loans and 1.34% of total loans excluding PPP loans. Additionally, the liability for unfunded lending commitments at March 31, 2021 was $42.4 million, an increase of $4.1 million over the liability at December 31, 2020.

At March 31, 2021, total non-performing assets amounted to $23.7 million, a decrease of $2.9 million from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($23.5 million and $208 thousand, respectively). At March 31, 2021, the balance of non-accrual loans, which represented .14% of loans outstanding, included business loans of $20.5 million, business real estate loans of $1.6 million, and personal real estate loans of $1.7 million. Loans more than 90 days past due and still accruing interest totaled $21.5 million at March 31, 2021.

Other

During the 1st 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 354,181 shares of treasury stock during the current quarter at an average price of $73.19.

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/20210415005192/en/

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