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

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

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

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

Mr. Kemper continued, “Credit performance was very strong in the second quarter. This quarter, net loan charge-offs totaled $699 thousand, compared to $10.0 million in the prior quarter and $8.4 million in the second quarter of 2020. The ratio of annualized net loan charge-offs to average loans was .02% in the current quarter, .25% in the prior quarter and .21% in the second quarter of last year. Net loan recoveries on commercial loans of $5.0 million were recorded this quarter, and net charge-offs on personal banking loans were significantly lower compared to the 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/de ....

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 2^nd 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 2^nd quarter of 2021 and totaled $854.3 million at June 30, 2021. The decrease in actual PPP loan balances during the 2^nd 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 1^st and 2^nd quarters of 2021.

Net Interest Income

Net interest income in the 2^nd 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 2^nd 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 2^nd 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 2^nd 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 2^nd 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 2^nd 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 2^nd 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 2^nd 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 2^nd 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 2^nd 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 2^nd 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 2^nd 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 2^nd 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.

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