Business Wire | Oct 20, 2020 06:00AM EDT

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

Oct. 20, 2020

KANSAS CITY, Mo.--(BUSINESS WIRE)--Oct. 20, 2020--Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $1.11 per common share for the three months ended September 30, 2020, compared to $.93 per share in the same quarter last year and $.34 per share in the prior quarter. Net income attributable to Commerce Bancshares, Inc. (net income) for the third quarter of 2020 amounted to $132.4 million, compared to $109.2 million in the third quarter of 2019 and $39.9 million in the prior quarter. For the quarter, the return on average assets was 1.71%, the return on average common equity was 15.21% and the efficiency ratio was 55.0%.

For the nine months ended September 30, 2020, earnings per common share totaled $1.89 compared to $2.65 for the first nine months of 2019. Net income amounted to $224.2 million for the nine months ended September 30, 2020 compared to $314.4 million in the same period last year. Year to date, the return on average assets was 1.04% and the return on average common equity was 8.93%.

In announcing these results, John Kemper, Chief Executive Officer, said, "We are pleased to report a healthy rebound in earnings this quarter. Net income grew significantly compared to the second quarter, driven by low provision expense and by increases in net interest income, fee income, and investment securities gains. Compared to the prior quarter, net interest income grew $12.9 million supported by our larger balance sheet and historically low funding costs. Fee income from our bank card, trust and mortgage banking businesses rebounded nicely from the prior quarter. While our bank card fees have not yet fully recovered from the impact of COVID-19, trust and mortgage banking fees were at record levels. Prudent expense management remains in focus as we prepare for a prolonged low interest rate environment. We continued our efforts of providing relief to customers who have been impacted by COVID-19. Loans on active deferral declined significantly throughout the quarter. Fewer customers requested first-time relief, and just a small percentage of our customers required extensions of their initial relief requests. We remain cautiously optimistic about the recovery of the economy and are encouraged by the resiliency of our customers and communities."

Mr. Kemper continued, "Net loan charge-offs this quarter totaled $7.6 million, compared to $8.4 million in the prior quarter and $11.5 million in the third quarter of 2019. The ratio of annualized net loan charge-offs to average loans was .18% in the current quarter, .21% in the prior quarter and .32% in the third quarter of last year. Net loan charge-offs on commercial loans totaled $194 thousand this quarter compared to $3.2 million in the prior quarter. Net loan charge-offs on personal banking loans increased $2.2 million to $7.4 million. Non-performing assets increased this quarter from $23.1 million to $40.3 million. At September 30, 2020, the allowance for credit losses on loans decreased slightly to $236.4 million, partly due to an improved economic forecast utilized in our CECL model compared to the prior quarter."

Total assets at September 30, 2020 were $31.5 billion, total loans were $16.4 billion, and total deposits were $25.7 billion. During the quarter, the Company paid a common cash dividend of $.27 per share, representing an 8.9% increase over the rate paid in 2019, and also paid an annualized 6% cash dividend on its preferred stock. On September 1, 2020, the Company redeemed all outstanding shares of its preferred stock.

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 third 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 Nine Months Ended

(Unaudited)(Dollars in September 30, June 30, September 30, September 30, September 30,thousands, 2020 2020 2019 2020 2019except pershare data)

FINANCIAL SUMMARY

Net interest $215,962 $203,057 $203,512 $620,084 $618,634 income

Non-interest 129,572 117,515 132,743 370,750 381,242 income

Total revenue 345,534 320,572 336,255 990,834 999,876

Investmentsecurities 16,155 (4,129) 4,909 (1,275) 3,874 gains (losses),net

Provision for 3,101 80,539 10,963 141,593 35,232 credit losses

Non-interest 190,858 187,512 191,020 572,068 572,224 expense

Income before 167,730 48,392 139,181 275,898 396,294 taxes

Income taxes 34,375 9,661 29,101 54,209 80,860

Non-controllinginterest 907 (1,132) 838 (2,479) 1,083 (income)expense

Net incomeattributable to 132,448 39,863 109,242 224,168 314,351 CommerceBancshares, Inc.

Preferred stock 7,466 2,250 2,250 11,966 6,750 dividends

Net incomeavailable to $124,982 $37,613 $106,992 $212,202 $307,601 commonshareholders

Earnings per common share:

Net income - $1.12 $.34 $.93 $1.90 $2.65 basic

Net income - $1.11 $.34 $.93 $1.89 $2.65 diluted

Effective tax 20.61 % 19.51 % 21.04 % 19.47 % 20.46 %rate

Tax equivalentnet interest $219,118 $206,253 $206,958 $629,773 $629,265 income

Average totalinterest $ 29,352,970 $ 28,193,312 $ 23,947,084 $ 27,419,514 $ 23,920,745 earning assets^(1)

Diluted wtd.average shares 110,899,197 110,896,858 113,249,070 111,056,754 114,758,916 outstanding



RATIOS

Average loansto deposits ^ 66.23 % 69.22 % 72.48 % 69.12 % 71.47 %(2)

Return on total 1.71 .54 1.72 1.04 1.68 average assets

Return onaverage common 15.21 4.77 14.21 8.93 14.11 equity ^(3)

Non-interestincome to total 37.50 36.66 39.48 37.42 38.13 revenue

Efficiency 55.00 58.10 56.66 57.37 57.08 ratio ^(4)

Net yield oninterest 2.97 2.94 3.43 3.07 3.52 earning assets



EQUITY SUMMARY

Cash dividendsper common $.270 $.270 $.248 $.810 $.744 share

Cash dividends $30,174 $30,174 $27,993 $90,640 $85,533 on common stock

Cash dividendson preferred $7,466 $2,250 $2,250 $11,966 $6,750 stock ^(7)

Book value percommon share ^ $29.64 $28.81 $26.27 (5)

Market valueper common $56.29 $59.47 $57.76 share ^(5)

High marketvalue per $62.09 $69.77 $58.90 common share

Low marketvalue per $53.03 $48.06 $52.05 common share

Common sharesoutstanding ^ 111,532,580 111,533,315 112,732,983 (5)

Tangible commonequity to 10.11 % 10.12 % 10.95 % tangible assets^(6)

Tier I leverage 9.39 % 9.88 % 11.32 % ratio



OTHER QTD INFORMATION

Number of bank/ 308 312 316 ATM locations

Full-timeequivalent 4,825 4,856 4,873 employees

(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 2019.

(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.

The tangible common equity ratio is calculated as stockholders' equity reduced by preferred stock, goodwill and other intangible assets(6) (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).

For the period ended September 30, 2020, preferred stock dividends(7) 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% stockdividend distributed in December 2019.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended

For the Nine Months Ended

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

September 30,2020

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

September 30,2020

September 30, 2019

Interest income

$223,114

$213,323

$221,485

$226,665

$231,743

$657,922

$698,020

Interest expense

7,152

10,266

20,420

24,006

28,231

37,838

79,386

Net interest income

215,962

203,057

201,065

202,659

203,512

620,084

618,634

Provision for credit losses

3,101

80,539

57,953

15,206

10,963

141,593

35,232

Net interest income after credit losses

212,861

122,518

143,112

187,453

192,549

478,491

583,402

NON-INTEREST INCOME

Bank card transaction fees

37,873

33,745

40,200

41,079

44,510

111,818

126,800

Trust fees

40,769

37,942

39,965

40,405

39,592

118,676

115,223

Deposit account charges and other fees

23,107

22,279

23,677

24,974

24,032

69,063

71,009

Capital market fees

3,194

3,772

3,790

2,536

1,787

10,756

5,610

Consumer brokerage services

4,011

3,011

4,077

4,139

4,030

11,099

11,665

Loan fees and sales

9,769

4,649

3,235

3,465

4,755

17,653

12,302

Other

10,849

12,117

8,719

26,863

14,037

31,685

38,633

Total non-interest income

129,572

117,515

123,663

143,461

132,743

370,750

381,242

INVESTMENT SECURITIES GAINS (LOSSES), NET

16,155

(4,129)

(13,301)

(248)

4,909

(1,275)

3,874

NON-INTEREST EXPENSE

Salaries and employee benefits

127,308

126,759

128,937

126,901

123,836

383,004

366,026

Net occupancy

12,058

11,269

11,748

12,218

12,293

35,075

34,939

Equipment

4,737

4,755

4,821

4,859

4,941

14,313

14,202

Supplies and communication

4,141

4,427

4,658

4,851

5,106

13,226

15,543

Data processing and software

23,610

23,837

23,555

23,934

23,457

71,002

68,965

Marketing

4,926

3,801

5,979

3,951

6,048

14,706

17,963

Other

14,078

12,664

14,000

18,460

15,339

40,742

54,586

Total non-interest expense

190,858

187,512

193,698

195,174

191,020

572,068

572,224

Income before income taxes

167,730

48,392

59,776

135,492

139,181

275,898

396,294

Less income taxes

34,375

9,661

10,173

28,214

29,101

54,209

80,860

Net income

133,355

38,731

49,603

107,278

110,080

221,689

315,434

Less non-controlling interest expense (income)

907

(1,132)

(2,254)

398

838

(2,479)

1,083

Net income attributable to Commerce Bancshares, Inc.

132,448

39,863

51,857

106,880

109,242

224,168

314,351

Less preferred stock dividends

7,466

2,250

2,250

2,250

2,250

11,966

6,750

Net income available to common shareholders

$124,982

$37,613

$49,607

$104,630

$106,992

$212,202

$307,601

Net income per common share - basic

$1.12

$.34

$.44

$.94

$.93

$1.90

$2.65

Net income per common share - diluted

$1.11

$.34

$.44

$.93

$.93

$1.89

$2.65

OTHER INFORMATION

Return on total average assets

1.71

%

.54

%

.80

%

1.65

%

1.72

%

1.04

%

1.68

%

Return on average common equity (1)

15.21

4.77

6.48

13.90

14.21

8.93

14.11

Efficiency ratio (2)

55.00

58.10

59.17

56.29

56.66

57.37

57.08

Effective tax rate

20.61

19.51

16.40

20.88

21.04

19.47

20.46

Net yield on interest earning assets

2.97

2.94

3.33

3.36

3.43

3.07

3.52

Tax equivalent net interest income

$219,118

$206,253

$204,402

$206,156

$206,958

$629,773

$629,265

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Three Months Ended For the Nine Months Ended

(Unaudited)(In September June 30, March 31, December September September Septemberthousands, 30, 2020 2020 31, 30, 30, 30,except per 2020 2019 2019 2020 2019share data)

Interest $223,114 $213,323 $221,485 $226,665 $231,743 $657,922 $698,020 income

Interest 7,152 10,266 20,420 24,006 28,231 37,838 79,386 expense

Net interest 215,962 203,057 201,065 202,659 203,512 620,084 618,634 income

Provision for 3,101 80,539 57,953 15,206 10,963 141,593 35,232 credit losses

Net interestincome after 212,861 122,518 143,112 187,453 192,549 478,491 583,402 credit losses

NON-INTEREST INCOME

Bank cardtransaction 37,873 33,745 40,200 41,079 44,510 111,818 126,800 fees

Trust fees 40,769 37,942 39,965 40,405 39,592 118,676 115,223

Deposit accountcharges and 23,107 22,279 23,677 24,974 24,032 69,063 71,009 other fees

Capital 3,194 3,772 3,790 2,536 1,787 10,756 5,610 market fees

Consumerbrokerage 4,011 3,011 4,077 4,139 4,030 11,099 11,665 services

Loan fees and 9,769 4,649 3,235 3,465 4,755 17,653 12,302 sales

Other 10,849 12,117 8,719 26,863 14,037 31,685 38,633

Totalnon-interest 129,572 117,515 123,663 143,461 132,743 370,750 381,242 income

INVESTMENTSECURITIES 16,155 (4,129) (13,301) (248) 4,909 (1,275) 3,874 GAINS (LOSSES),NET

NON-INTEREST EXPENSE

Salaries andemployee 127,308 126,759 128,937 126,901 123,836 383,004 366,026 benefits

Net occupancy 12,058 11,269 11,748 12,218 12,293 35,075 34,939

Equipment 4,737 4,755 4,821 4,859 4,941 14,313 14,202

Supplies and 4,141 4,427 4,658 4,851 5,106 13,226 15,543 communication

Dataprocessing 23,610 23,837 23,555 23,934 23,457 71,002 68,965 and software

Marketing 4,926 3,801 5,979 3,951 6,048 14,706 17,963

Other 14,078 12,664 14,000 18,460 15,339 40,742 54,586

Totalnon-interest 190,858 187,512 193,698 195,174 191,020 572,068 572,224 expense

Income before 167,730 48,392 59,776 135,492 139,181 275,898 396,294 income taxes

Less income 34,375 9,661 10,173 28,214 29,101 54,209 80,860 taxes

Net income 133,355 38,731 49,603 107,278 110,080 221,689 315,434

Lessnon-controllinginterest 907 (1,132) (2,254) 398 838 (2,479) 1,083 expense(income)

Net incomeattributable toCommerce 132,448 39,863 51,857 106,880 109,242 224,168 314,351 Bancshares,Inc.

Lesspreferred 7,466 2,250 2,250 2,250 2,250 11,966 6,750 stockdividends

Net incomeavailable to $124,982 $37,613 $49,607 $104,630 $106,992 $212,202 $307,601 commonshareholders

Net income percommon share - $1.12 $.34 $.44 $.94 $.93 $1.90 $2.65 basic

Net income percommon share - $1.11 $.34 $.44 $.93 $.93 $1.89 $2.65 diluted



OTHER INFORMATION

Return ontotal average 1.71 % .54 % .80 % 1.65 % 1.72 % 1.04 % 1.68 %assets

Return onaverage common 15.21 4.77 6.48 13.90 14.21 8.93 14.11 equity ^(1)

Efficiency 55.00 58.10 59.17 56.29 56.66 57.37 57.08 ratio ^(2)

Effective tax 20.61 19.51 16.40 20.88 21.04 19.47 20.46 rate

Net yield oninterest 2.97 2.94 3.33 3.36 3.43 3.07 3.52 earning assets

Taxequivalent $219,118 $206,253 $204,402 $206,156 $206,958 $629,773 $629,265 net interestincome

(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.

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

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

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - PERIOD END

(Unaudited)(In thousands)

September 30,2020

June 30, 2020

September 30, 2019

ASSETS

Loans

Business

$

6,683,413

$

6,858,217

$

5,393,268

Real estate - construction and land

1,009,729

932,022

932,737

Real estate - business

2,993,192

2,941,163

2,833,146

Real estate - personal

2,753,867

2,690,542

2,226,663

Consumer

2,006,360

1,966,707

1,953,690

Revolving home equity

324,203

334,627

349,111

Consumer credit card

647,893

666,597

766,743

Overdrafts

2,270

5,179

7,236

Total loans

16,420,927

16,395,054

14,462,594

Allowance for credit losses on loans

(236,360)

(240,744)

(160,682)

Net loans

16,184,567

16,154,310

14,301,912

Loans held for sale

39,483

12,785

20,064

Investment securities:

Available for sale debt securities

11,539,061

10,317,427

8,660,419

Trading debt securities

25,805

28,813

35,918

Equity securities

4,203

4,128

4,186

Other securities

122,532

117,761

147,211

Total investment securities

11,691,601

10,468,129

8,847,734

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

2,275

-

2,850

Long-term securities purchased under agreements to resell

850,000

850,000

850,000

Interest earning deposits with banks

1,171,697

1,404,968

344,129

Cash and due from banks

357,616

391,268

512,254

Premises and equipment - net

377,853

368,565

365,949

Goodwill

138,921

138,921

138,921

Other intangible assets - net

7,183

7,179

9,139

Other assets

632,621

699,996

483,527

Total assets

$

31,453,817

$

30,496,121

$

25,876,479

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:

Non-interest bearing

$

10,727,827

$

9,700,261

$

6,816,527

Savings, interest checking and money market

12,983,505

12,792,993

11,424,404

Certificates of deposit of less than $100,000

556,870

590,635

627,630

Certificates of deposit of $100,000 and over

1,433,577

1,443,078

1,441,590

Total deposits

25,701,779

24,526,967

20,310,151

Federal funds purchased and securities sold under agreements to repurchase

1,653,064

1,740,438

1,641,274

Other borrowings

782

1,475

257,383

Other liabilities

791,928

869,072

561,657

Total liabilities

28,147,553

27,137,952

22,770,465

Stockholders' equity:

Preferred stock

-

144,784

144,784

Common stock

563,978

563,978

559,432

Capital surplus

2,140,410

2,136,874

2,042,643

Retained earnings

326,890

232,082

463,231

Treasury stock

(69,050)

(69,112)

(251,663)

Accumulated other comprehensive income

343,435

349,261

144,173

Total stockholders' equity

3,305,663

3,357,867

3,102,600

Non-controlling interest

601

302

3,414

Total equity

3,306,264

3,358,169

3,106,014

Total liabilities and equity

$

31,453,817

$

30,496,121

$

25,876,479

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - PERIOD END

(Unaudited) September 30, June 30, September 30,(In thousands) 2020 2020 2019

ASSETS

Loans

Business $ 6,683,413 $ 6,858,217 $ 5,393,268

Real estate - construction and 1,009,729 932,022 932,737 land

Real estate - business 2,993,192 2,941,163 2,833,146

Real estate - personal 2,753,867 2,690,542 2,226,663

Consumer 2,006,360 1,966,707 1,953,690

Revolving home equity 324,203 334,627 349,111

Consumer credit card 647,893 666,597 766,743

Overdrafts 2,270 5,179 7,236

Total loans 16,420,927 16,395,054 14,462,594

Allowance for credit losses on (236,360) (240,744) (160,682) loans

Net loans 16,184,567 16,154,310 14,301,912

Loans held for sale 39,483 12,785 20,064

Investment securities:

Available for sale debt 11,539,061 10,317,427 8,660,419 securities

Trading debt securities 25,805 28,813 35,918

Equity securities 4,203 4,128 4,186

Other securities 122,532 117,761 147,211

Total investment securities 11,691,601 10,468,129 8,847,734

Federal funds sold andshort-term securities purchased 2,275 - 2,850 under agreements to resell

Long-term securities purchased 850,000 850,000 850,000 under agreements to resell

Interest earning deposits with 1,171,697 1,404,968 344,129 banks

Cash and due from banks 357,616 391,268 512,254

Premises and equipment - net 377,853 368,565 365,949

Goodwill 138,921 138,921 138,921

Other intangible assets - net 7,183 7,179 9,139

Other assets 632,621 699,996 483,527

Total assets $ 31,453,817 $ 30,496,121 $ 25,876,479

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:

Non-interest bearing $ 10,727,827 $ 9,700,261 $ 6,816,527

Savings, interest checking and 12,983,505 12,792,993 11,424,404 money market

Certificates of deposit of less 556,870 590,635 627,630 than $100,000

Certificates of deposit of 1,433,577 1,443,078 1,441,590 $100,000 and over

Total deposits 25,701,779 24,526,967 20,310,151

Federal funds purchased andsecurities sold under agreements 1,653,064 1,740,438 1,641,274 to repurchase

Other borrowings 782 1,475 257,383

Other liabilities 791,928 869,072 561,657

Total liabilities 28,147,553 27,137,952 22,770,465

Stockholders' equity:

Preferred stock - 144,784 144,784

Common stock 563,978 563,978 559,432

Capital surplus 2,140,410 2,136,874 2,042,643

Retained earnings 326,890 232,082 463,231

Treasury stock (69,050) (69,112) (251,663)

Accumulated other comprehensive 343,435 349,261 144,173 income

Total stockholders' equity 3,305,663 3,357,867 3,102,600

Non-controlling interest 601 302 3,414

Total equity 3,306,264 3,358,169 3,106,014

Total liabilities and equity $ 31,453,817 $ 30,496,121 $ 25,876,479

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

(Unaudited)(In thousands)

For the Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

ASSETS:

Loans:

Business

$

6,709,200

$

6,760,827

$

5,493,657

$

5,362,020

$

5,263,312

Real estate - construction and land

974,346

895,648

924,086

901,367

920,206

Real estate - business

2,989,652

2,962,076

2,853,632

2,820,189

2,883,379

Real estate - personal

2,722,300

2,582,484

2,390,716

2,283,530

2,175,156

Consumer

1,992,314

1,944,265

1,950,491

1,961,631

1,924,434

Revolving home equity

329,361

343,210

350,256

347,527

354,040

Consumer credit card

646,185

663,911

727,569

749,056

763,377

Overdrafts

2,689

2,912

4,044

18,322

9,240

Total loans

16,366,047

16,155,333

14,694,451

14,443,642

14,293,144

Allowance for credit losses on loans

(240,286)

(171,616)

(139,482)

(159,776)

(160,387)

Net loans

16,125,761

15,983,717

14,554,969

14,283,866

14,132,757

Loans held for sale

24,728

6,363

12,875

15,363

19,882

Investment securities:

U.S. government and federal agency obligations

770,361

776,240

802,556

826,702

825,544

Government-sponsored enterprise obligations

102,749

114,518

134,296

184,973

181,929

State and municipal obligations

1,767,526

1,285,427

1,222,595

1,207,584

1,172,259

Mortgage-backed securities

6,259,926

5,325,720

4,685,782

4,685,794

4,712,508

Asset-backed securities

1,520,988

1,342,518

1,182,556

1,258,297

1,297,685

Other debt securities

514,166

406,665

321,733

331,167

334,218

Unrealized gain (loss) on debt securities

368,154

281,457

191,275

149,591

152,706

Total available for sale debt securities

11,303,870

9,532,545

8,540,793

8,644,108

8,676,849

Trading debt securities

27,267

31,981

34,055

32,518

29,622

Equity securities

4,193

4,137

4,273

4,200

4,705

Other securities

120,253

139,250

144,096

141,501

134,896

Total investment securities

11,455,583

9,707,913

8,723,217

8,822,327

8,846,072

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

337

92

326

714

1,080

Long-term securities purchased under agreements to resell

849,994

850,000

850,000

849,986

713,030

Interest earning deposits with banks

1,024,435

1,755,068

601,420

390,134

226,582

Other assets

1,389,683

1,461,528

1,368,464

1,315,395

1,292,191

Total assets

$

30,870,521

$

29,764,681

$

26,111,271

$

25,677,785

$

25,231,594

LIABILITIES AND EQUITY:

Non-interest bearing deposits

$

9,801,562

$

8,843,408

$

6,615,108

$

6,552,862

$

6,290,036

Savings

1,193,079

1,111,397

952,709

924,282

924,581

Interest checking and money market

11,731,494

11,441,694

10,777,400

10,618,347

10,409,111

Certificates of deposit of less than $100,000

573,207

605,136

622,840

626,944

620,138

Certificates of deposit of $100,000 and over

1,447,968

1,346,069

1,299,443

1,434,309

1,503,805

Total deposits

24,747,310

23,347,704

20,267,500

20,156,744

19,747,671

Borrowings:

Federal funds purchased and securities sold under agreements to repurchase

1,855,971

1,991,971

1,990,051

1,836,982

1,884,939

Other borrowings

1,225

345,162

161,698

94,471

77,248

Total borrowings

1,857,196

2,337,133

2,151,749

1,931,453

1,962,187

Other liabilities

899,890

763,524

466,980

458,094

390,560

Total liabilities

27,504,396

26,448,361

22,886,229

22,546,291

22,100,418

Equity

3,366,125

3,316,320

3,225,042

3,131,494

3,131,176

Total liabilities and equity

$

30,870,521

$

29,764,681

$

26,111,271

$

25,677,785

$

25,231,594

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

For the Three Months Ended(Unaudited)(In thousands) September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019

ASSETS:

Loans:

Business $ 6,709,200 $ 6,760,827 $ 5,493,657 $ 5,362,020 $ 5,263,312

Real estate -construction and 974,346 895,648 924,086 901,367 920,206 land

Real estate - 2,989,652 2,962,076 2,853,632 2,820,189 2,883,379 business

Real estate - 2,722,300 2,582,484 2,390,716 2,283,530 2,175,156 personal

Consumer 1,992,314 1,944,265 1,950,491 1,961,631 1,924,434

Revolving home 329,361 343,210 350,256 347,527 354,040 equity

Consumer credit card 646,185 663,911 727,569 749,056 763,377

Overdrafts 2,689 2,912 4,044 18,322 9,240

Total loans^ 16,366,047 16,155,333 14,694,451 14,443,642 14,293,144

Allowance for credit (240,286) (171,616) (139,482) (159,776) (160,387) losses on loans

Net loans 16,125,761 15,983,717 14,554,969 14,283,866 14,132,757

Loans held for sale 24,728 6,363 12,875 15,363 19,882

Investment securities:

U.S. government andfederal agency 770,361 776,240 802,556 826,702 825,544 obligations

Government-sponsoredenterprise 102,749 114,518 134,296 184,973 181,929 obligations

State and municipal 1,767,526 1,285,427 1,222,595 1,207,584 1,172,259 obligations

Mortgage-backed 6,259,926 5,325,720 4,685,782 4,685,794 4,712,508 securities

Asset-backed 1,520,988 1,342,518 1,182,556 1,258,297 1,297,685 securities

Other debt 514,166 406,665 321,733 331,167 334,218 securities^

Unrealized gain(loss) on debt 368,154 281,457 191,275 149,591 152,706 securities

Total available for 11,303,870 9,532,545 8,540,793 8,644,108 8,676,849 sale debt securities

Trading debt 27,267 31,981 34,055 32,518 29,622 securities^

Equity securities 4,193 4,137 4,273 4,200 4,705

Other securities 120,253 139,250 144,096 141,501 134,896

Total investment 11,455,583 9,707,913 8,723,217 8,822,327 8,846,072 securities

Federal funds soldand short-termsecurities purchased 337 92 326 714 1,080 under agreements toresell

Long-term securitiespurchased under 849,994 850,000 850,000 849,986 713,030 agreements to resell

Interest earning 1,024,435 1,755,068 601,420 390,134 226,582 deposits with banks

Other assets 1,389,683 1,461,528 1,368,464 1,315,395 1,292,191

Total assets $ 30,870,521 $ 29,764,681 $ 26,111,271 $ 25,677,785 $ 25,231,594



LIABILITIES AND EQUITY:

Non-interest bearing $ 9,801,562 $ 8,843,408 $ 6,615,108 $ 6,552,862 $ 6,290,036 deposits

Savings 1,193,079 1,111,397 952,709 924,282 924,581

Interest checking 11,731,494 11,441,694 10,777,400 10,618,347 10,409,111 and money market

Certificates ofdeposit of less than 573,207 605,136 622,840 626,944 620,138 $100,000

Certificates ofdeposit of $100,000 1,447,968 1,346,069 1,299,443 1,434,309 1,503,805 and over

Total deposits 24,747,310 23,347,704 20,267,500 20,156,744 19,747,671

Borrowings:

Federal fundspurchased andsecurities sold 1,855,971 1,991,971 1,990,051 1,836,982 1,884,939 under agreements torepurchase

Other borrowings 1,225 345,162 161,698 94,471 77,248

Total borrowings 1,857,196 2,337,133 2,151,749 1,931,453 1,962,187

Other liabilities 899,890 763,524 466,980 458,094 390,560

Total liabilities 27,504,396 26,448,361 22,886,229 22,546,291 22,100,418

Equity 3,366,125 3,316,320 3,225,042 3,131,494 3,131,176

Total liabilities $ 30,870,521 $ 29,764,681 $ 26,111,271 $ 25,677,785 $ 25,231,594 and equity

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

(Unaudited)

For the Three Months Ended

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

ASSETS:

Loans:

Business(1)

2.95

%

2.91

%

3.50

%

3.59

%

3.85

%

Real estate - construction and land

3.74

3.95

4.78

5.05

5.46

Real estate - business

3.53

3.71

4.16

4.22

4.42

Real estate - personal

3.56

3.69

3.83

3.85

3.91

Consumer

4.19

4.48

4.78

4.76

4.88

Revolving home equity

3.29

3.50

4.61

4.76

5.17

Consumer credit card

11.40

11.76

12.26

12.11

12.42

Overdrafts

-

-

-

-

-

Total loans

3.69

3.80

4.39

4.47

4.71

Loans held for sale

4.25

8.03

6.15

5.32

6.15

Investment securities:

U.S. government and federal agency obligations

3.71

.46

2.09

2.16

2.36

Government-sponsored enterprise obligations

2.17

3.51

4.19

2.17

2.69

State and municipal obligations(1)

2.53

2.97

3.11

3.05

3.14

Mortgage-backed securities

1.95

2.17

2.37

2.72

2.61

Asset-backed securities

1.90

2.25

2.63

2.62

2.80

Other debt securities

2.35

2.49

2.94

2.82

2.63

Total available for sale debt securities

2.18

2.18

2.54

2.69

2.69

Trading debt securities(1)

1.66

2.93

2.52

2.81

2.91

Equity securities (1)

47.15

48.42

46.78

49.40

35.67

Other securities (1)

6.74

4.36

5.31

6.58

6.19

Total investment securities

2.24

2.24

2.61

2.78

2.76

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

-

-

2.47

2.22

2.57

Long-term securities purchased under agreements to resell

5.26

5.08

3.53

2.26

2.01

Interest earning deposits with banks

.10

.10

.86

1.61

2.17

Total interest earning assets

3.07

3.09

3.66

3.75

3.90

LIABILITIES AND EQUITY:

Interest bearing deposits:

Savings

.09

.09

.11

.11

.11

Interest checking and money market

.10

.13

.30

.35

.38

Certificates of deposit of less than $100,000

.71

.93

1.15

1.16

1.11

Certificates of deposit of $100,000 and over

.69

1.08

1.62

1.79

1.99

Total interest bearing deposits

.18

.25

.45

.52

.58

Borrowings:

Federal funds purchased and securities sold under agreements to repurchase

.09

.12

.96

1.20

1.74

Other borrowings

-

.82

.82

2.05

2.33

Total borrowings

.09

.22

.95

1.25

1.76

Total interest bearing liabilities

.17

%

.25

%

.52

%

.61

%

.73

%

Net yield on interest earning assets

2.97

%

2.94

%

3.33

%

3.36

%

3.43

%

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

For the Three Months Ended

(Unaudited) September June March December September 30, 30, 31, 31, 30, 2020 2020 2020 2019 2019

ASSETS:

Loans:

Business^ (1) 2.95 % 2.91 % 3.50 % 3.59 % 3.85 %

Real estate - construction and 3.74 3.95 4.78 5.05 5.46 land

Real estate - business 3.53 3.71 4.16 4.22 4.42

Real estate - personal 3.56 3.69 3.83 3.85 3.91

Consumer 4.19 4.48 4.78 4.76 4.88

Revolving home equity 3.29 3.50 4.61 4.76 5.17

Consumer credit card 11.40 11.76 12.26 12.11 12.42

Overdrafts - - - - -

Total loans 3.69 3.80 4.39 4.47 4.71

Loans held for sale 4.25 8.03 6.15 5.32 6.15

Investment securities:

U.S. government and federal 3.71 .46 2.09 2.16 2.36 agency obligations

Government-sponsored enterprise 2.17 3.51 4.19 2.17 2.69 obligations

State and municipal obligations^ 2.53 2.97 3.11 3.05 3.14 (1)

Mortgage-backed securities 1.95 2.17 2.37 2.72 2.61

Asset-backed securities 1.90 2.25 2.63 2.62 2.80

Other debt securities 2.35 2.49 2.94 2.82 2.63

Total available for sale debt 2.18 2.18 2.54 2.69 2.69 securities

Trading debt securities^ (1) 1.66 2.93 2.52 2.81 2.91

Equity securities ^(1) 47.15 48.42 46.78 49.40 35.67

Other securities ^(1) 6.74 4.36 5.31 6.58 6.19

Total investment securities 2.24 2.24 2.61 2.78 2.76

Federal funds sold andshort-term securities purchased - - 2.47 2.22 2.57 under agreements to resell

Long-term securities purchased 5.26 5.08 3.53 2.26 2.01 under agreements to resell

Interest earning deposits with .10 .10 .86 1.61 2.17 banks

Total interest earning assets 3.07 3.09 3.66 3.75 3.90



LIABILITIES AND EQUITY:

Interest bearing deposits:

Savings .09 .09 .11 .11 .11

Interest checking and money .10 .13 .30 .35 .38 market

Certificates of deposit of less .71 .93 1.15 1.16 1.11 than $100,000

Certificates of deposit of .69 1.08 1.62 1.79 1.99 $100,000 and over

Total interest bearing deposits .18 .25 .45 .52 .58

Borrowings:

Federal funds purchased andsecurities sold under agreements .09 .12 .96 1.20 1.74 to repurchase

Other borrowings - .82 .82 2.05 2.33

Total borrowings .09 .22 .95 1.25 1.76

Total interest bearing .17 % .25 % .52 % .61 % .73 % liabilities



Net yield on interest earning 2.97 % 2.94 % 3.33 % 3.36 % 3.43 % assets

(1)

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

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

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CREDIT QUALITY

For the Three Months Ended

For the Nine Months Ended

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

September 30, 2020

June 30, 2020

March 31, 2020

December 31, 2019

September 30, 2019

September 30, 2020

September 30, 2019

ALLOWANCE FOR CREDIT LOSSES ON LOANS

Balance at beginning of period

$

240,744

$

171,653

$

160,682

$

160,682

$

161,182

$

160,682

$

159,932

Adoption of ASU 2016-13

-

-

(21,039)

-

-

(21,039)

-

Provision for credit losses on loans

3,200

77,491

42,868

15,206

10,963

123,559

35,232

Net charge-offs (recoveries):

Commercial portfolio:

Business

208

3,249

(373)

3,036

335

3,084

1,066

Real estate - construction and land

(1)

-

-

-

-

(1)

(117)

Real estate - business

(13)

(6)

(21)

35

(44)

(40)

(95)

194

3,243

(394)

3,071

291

3,043

854

Personal banking portfolio:

Consumer credit card

7,263

3,584

9,157

8,829

8,568

20,004

26,592

Consumer

211

1,362

1,711

2,838

2,069

3,284

5,716

Overdraft

200

316

426

507

446

942

1,016

Real estate - personal

(198)

(71)

(4)

6

(30)

(273)

50

Revolving home equity

(86)

(34)

(38)

(45)

119

(158)

254

7,390

5,157

11,252

12,135

11,172

23,799

33,628

Total net loan charge-offs

7,584

8,400

10,858

15,206

11,463

26,842

34,482

Balance at end of period

$

236,360

$

240,744

$

171,653

$

160,682

$

160,682

$

236,360

$

160,682

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

$

35,200

$

35,299

$

32,250

$

1,075

$

1,075

NET CHARGE-OFF RATIOS (1)

Commercial portfolio:

Business

.01

%

.19

%

(.03

%)

.22

%

.03

%

.07

%

.03

%

Real estate - construction and land

-

-

-

-

-

-

(.02)

Real estate - business

-

-

-

-

(.01)

-

-

.01

.12

(.02)

.13

.01

.04

.01

Personal banking portfolio:

Consumer credit card

4.47

2.17

5.06

4.68

4.45

3.93

4.62

Consumer

.04

.28

.35

.57

.43

.22

.40

Overdraft

29.59

43.65

42.37

10.98

19.15

39.16

22.16

Real estate - personal

(.03)

(.01)

-

-

(.01)

(.01)

-

Revolving home equity

(.10)

(.04)

(.04)

(.05)

.13

(.06)

.09

.52

.37

.83

.90

.85

.57

.86

Total

.18

%

.21

%

.30

%

.42

%

.32

%

.23

%

.33

%

CREDIT QUALITY RATIOS

Non-performing assets to total loans

.25

%

.14

%

.07

%

.07

%

.08

%

Non-performing assets to total assets

.13

.08

.04

.04

.05

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

1.44

1.47

1.14

1.09

1.11

NON-PERFORMING ASSETS

Non-accrual loans:

Business

$

37,295

$

19,034

$

7,356

$

7,489

$

7,753

Real estate - construction and land

1

1

2

2

3

Real estate - business

1,063

1,921

1,532

1,030

2,359

Real estate - personal

1,911

1,679

1,743

1,699

1,618

Total

40,270

22,635

10,633

10,220

11,733

Foreclosed real estate

57

422

422

365

502

Total non-performing assets

$

40,327

$

23,057

$

11,055

$

10,585

$

12,235

Loans past due 90 days and still accruing interest

$

14,436

$

24,583

$

16,520

$

19,859

$

16,308

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CREDIT QUALITY

For the Three Months Ended For the Nine Months Ended

(Unaudited) September December September September September(In thousands, 30, June 30, March 31, 31, 30, 30, 30,except per 2020 2020 2020 2019 2019 2020 2019share data)

ALLOWANCE FORCREDIT LOSSES ON LOANS

Balance atbeginning of $ 240,744 $ 171,653 $ 160,682 $ 160,682 $ 161,182 $ 160,682 $ 159,932 period

Adoption of - - (21,039) - - (21,039) - ASU 2016-13

Provision forcredit losses 3,200 77,491 42,868 15,206 10,963 123,559 35,232 on loans

Netcharge-offs (recoveries):

Commercial portfolio:

Business 208 3,249 (373) 3,036 335 3,084 1,066

Real estate -construction (1) - - - - (1) (117) and land

Real estate - (13) (6) (21) 35 (44) (40) (95) business

194 3,243 (394) 3,071 291 3,043 854

Personalbanking portfolio:

Consumer 7,263 3,584 9,157 8,829 8,568 20,004 26,592 credit card

Consumer 211 1,362 1,711 2,838 2,069 3,284 5,716

Overdraft 200 316 426 507 446 942 1,016

Real estate - (198) (71) (4) 6 (30) (273) 50 personal

Revolving home (86) (34) (38) (45) 119 (158) 254 equity

7,390 5,157 11,252 12,135 11,172 23,799 33,628

Total net loan 7,584 8,400 10,858 15,206 11,463 26,842 34,482 charge-offs

Balance at end $ 236,360 $ 240,744 $ 171,653 $ 160,682 $ 160,682 $ 236,360 $ 160,682 of period

LIABILITY FORUNFUNDED $ 35,200 $ 35,299 $ 32,250 $ 1,075 $ 1,075 LENDINGCOMMITMENTS



NET CHARGE-OFF RATIOS ^(1)

Commercial portfolio:

Business .01 % .19 % (.03 %) .22 % .03 % .07 % .03 %

Real estate -construction - - - - - - (.02) and land

Real estate - - - - - (.01) - - business

.01 .12 (.02) .13 .01 .04 .01

Personalbanking portfolio:

Consumer 4.47 2.17 5.06 4.68 4.45 3.93 4.62 credit card

Consumer .04 .28 .35 .57 .43 .22 .40

Overdraft 29.59 43.65 42.37 10.98 19.15 39.16 22.16

Real estate - (.03) (.01) - - (.01) (.01) - personal

Revolving home (.10) (.04) (.04) (.05) .13 (.06) .09 equity

.52 .37 .83 .90 .85 .57 .86

Total .18 % .21 % .30 % .42 % .32 % .23 % .33 %



CREDIT QUALITY RATIOS

Non-performingassets to .25 % .14 % .07 % .07 % .08 % total loans

Non-performingassets to .13 .08 .04 .04 .05 total assets

Allowance forcredit losseson loans to 1.44 1.47 1.14 1.09 1.11 total loans^(2)



NON-PERFORMING ASSETS

Non-accrual loans:

Business $ 37,295 $ 19,034 $ 7,356 $ 7,489 $ 7,753

Real estate -construction 1 1 2 2 3 and land

Real estate - 1,063 1,921 1,532 1,030 2,359 business

Real estate - 1,911 1,679 1,743 1,699 1,618 personal

Total 40,270 22,635 10,633 10,220 11,733

Foreclosed 57 422 422 365 502 real estate

Totalnon-performing $ 40,327 $ 23,057 $ 11,055 $ 10,585 $ 12,235 assets

Loans past due90 days and $ 14,436 $ 24,583 $ 16,520 $ 19,859 $ 16,308 still accruinginterest

(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 1.59% and 1.62% as of September 30, 2020 and June 30, 2020, respectively.

COMMERCE BANCSHARES, INC.

Management Discussion of Third Quarter Results

September 30, 2020

For the quarter ended September 30, 2020, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $132.4 million, compared to $39.9 million in the previous quarter and $109.2 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, coupled with higher net securities gains, net interest income and non-interest income, partly offset by higher income taxes. The economic forecast used to estimate the allowance for credit losses in September was slightly more optimistic than the forecast utilized in June, which resulted in no additional increase to the allowance for credit losses as of September 30, 2020, and significantly decreased the provision for credit losses this quarter, compared to the prior quarter. Net interest income increased this quarter and the net interest margin increased three basis points, partly due to an increase of $6.3 million in inflation income on our Treasury inflation-protected securities (TIPs). Excluding TIPs inflation income, the net yield on interest earning assets declined five basis points. Average loans increased $210.7 million over the previous quarter, while average available for sale investment securities grew $1.8 billion, and average deposits increased $1.4 billion. For the quarter, the return on average assets was 1.71%, the return on average common equity was 15.21%, and the efficiency ratio was 55.0%.

Balance Sheet Review

During the 3rd quarter of 2020, average loans totaled $16.4 billion, and increased $210.7 million over the prior quarter, and grew $2.1 billion, or 14.5%, over the same quarter last year. Period end loans grew $25.9 million over the prior quarter and $2.0 billion over September 30, 2019. Compared to the previous quarter, average loan growth was primarily driven by increases in personal real estate, construction and land, and consumer loans of $139.8 million, $78.7 million, and $48.0 million, respectively. This growth was partly offset by a decline in business loans of $51.6 million. The period-end balance of Paycheck Protection Loans (PPP) loans (included in business loans) was approximately $1.5 billion at both September 30, 2020 and June 30, 2020, but the average PPP loan balance at September 30, 2020 increased $261.6 million compared to the prior quarter. Growth in personal real estate loan balances was due to a continuation of 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 $98.9 million, compared to $832 thousand in the prior quarter.

Total average available for sale debt securities increased $1.8 billion over the previous quarter to $11.3 billion, at fair value. The increase in investment securities was mainly the result of growth in mortgage-backed and state and municipal securities. During the quarter, purchases of securities totaled $2.3 billion with a weighted average yield of approximately 1.42%. Sales, maturities and pay downs were $1.0 billion. At September 30, 2020, the duration of the investment portfolio was 3.4 years, and maturities and pay downs of approximately $1.7 billion are expected to occur during the next 12 months.

Total average deposits increased $1.4 billion this quarter compared to the previous quarter. The increase in deposits resulted from growth in demand ($958.2 million), interest checking and money market ($289.8 million), savings deposits ($81.7 million), and certificates of deposit ($70.0 million). Compared to the previous quarter, total average commercial, consumer and wealth deposits (including private banking) grew $840.8 million, $237.5 million and $286.1 million, respectively. The average loans to deposits ratio was 66.2% in the current quarter and 69.2% in the prior quarter. The Company's average borrowings, which includes customer repurchase agreements, were $1.9 billion in the 3rd quarter of 2020 and $2.3 billion in the prior quarter.

Net Interest Income

Net interest income in the 3rd quarter of 2020 amounted to $216.0 million, an increase of $12.9 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter increased $12.9 million over the previous quarter to $219.1 million. The increase in net interest income was mainly due to higher income on interest earning assets, supplemented by lower interest expense on interest bearing liabilities. The Company recorded a $1.0 million adjustment to premium amortization on mortgage-backed securities for prepayment speed changes, which increased interest income this quarter. The net yield on earning assets (tax equivalent) increased to 2.97%, compared to 2.94% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) decreased $794 thousand, mostly as a result of lower yields on loans, mainly business real estate and consumer banking loans, and lower average balances of consumer credit card loans. Growth in average personal real estate, construction and consumer loan balances and higher yields on business loans increased net interest income and partially offset the impact of lower yields. The average tax-equivalent yield on the loan portfolio declined to 3.69%, compared to 3.80% in the previous quarter.

Interest income on investment securities (tax equivalent) increased $10.1 million over the previous quarter, mainly due to higher average balances. Decreasing rates on the investment securities portfolio were entirely offset by higher interest income earned on U.S. government and federal agency securities as TIPs inflation income grew $6.3 million this quarter. The yield on total investment securities was 2.24% in both the current and previous quarters.

Interest costs on deposits totaled 18 basis points in the 3rd quarter of 2020, compared to 25 basis points in the prior quarter. Interest expense on deposits decreased $2.2 million this quarter compared to the previous quarter mainly due to lower rates paid on all deposit categories. Borrowing costs decreased $880 thousand this quarter due to lower average balances of Federal Home Loan Bank borrowings and lower rates paid on borrowings, mainly securities sold under agreements to repurchase. The overall rate paid on interest bearing liabilities was .17% in the current quarter, compared to .25% in the prior quarter.

Non-Interest Income

In the 3rd quarter of 2020, total non-interest income amounted to $129.6 million, a decrease of $3.2 million, or 2.4%, compared to the same period last year and increased $12.1 million, or 10.3%, compared to the prior quarter. The decrease in non-interest income from the same period last year was mainly due to lower bank card fees, partly offset by growth in loan fees and sales.

Total net bank card fees in the current quarter decreased $6.6 million, or 14.9%, from the same period last year, and increased $4.1 million, or 12.2%, compared to the prior quarter. Net corporate card fees decreased $5.6 million from the same quarter of last year mainly due to lower transaction volume. Net debit card fees decreased $769 thousand, or 7.3%, mainly due to lower interchange income. Net merchant income increased $56 thousand, or 1.2%, while net credit card fees decreased $283 thousand, or 7.8%, due to lower fee income, partly offset by lower rewards expense. Total net bank card fees this quarter were comprised of fees on corporate card ($20.2 million), debit card ($9.7 million), merchant ($4.6 million) and credit card ($3.4 million) transactions.

In the current quarter, trust fees increased $1.2 million, or 3.0%, over the same period last year, resulting from higher private client fee income. Compared to the same period last year, deposit account fees decreased $925 thousand, or 3.8%, mainly due to lower overdraft and return item fees, partly offset by an increase in corporate cash management fees. Additionally, capital market fees grew $1.4 million, or 78.7%, while loan fees and sales, mostly mortgage banking revenue, grew $5.0 million, or 105.4%, over amounts recorded in the same quarter last year.

Other non-interest income decreased in the 3rd quarter of 2020 compared to the previous quarter mainly due to lower cash sweep commissions, swap fees, and gains on sales of assets. These decreases were partly offset by increases in tax credit sales fees. For the 3rd quarter of 2020, non-interest income comprised 37.5% of the Company's total revenue.

Investment Securities Gains and Losses

The Company recorded net securities gains of $16.2 million in the current quarter, compared to losses of $4.1 million in the prior quarter and gains of $4.9 million in the 3rd quarter of 2019. Net securities gains in the current quarter primarily resulted from gains of $13.4 million on the sales of mortgage-backed securities coupled with unrealized gains of $2.4 million in the Company's private equity investment portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $190.9 million, compared to $191.0 million in the same period last year and $187.5 million in the prior quarter. The decrease in non-interest expense compared to the same period last year was mainly due to lower travel and entertainment, marketing, and supplies and communication expense. These decreases were partially offset by higher salaries and employee benefits expense.

Compared to the 3rd quarter of last year, salaries and employee benefits expense increased $3.5 million, or 2.8%, driven mainly by growth in full-time salary costs, incentive compensation expense, and medical costs. Full-time equivalent employees totaled 4,825 and 4,873 at September 30, 2020 and 2019, respectively.

For the current quarter compared to the same quarter of last year, marketing expense decreased $1.1 million, or 18.6%. Supplies and communication expense decreased $965 thousand due to lower supplies, postage and bank card issuance expense. Other non-interest expense decreased mainly due to a $2.9 million decrease in travel and entertainment expense. FDIC insurance expense, also within other non-interest expense, increased due to higher deposit balances during the current quarter than in the 3rd quarter of 2019.

Income Taxes

The effective tax rate for the Company was 20.6% in the current quarter, 19.5% in the previous quarter, and 21.0% in the 3rd quarter of 2019.

Credit Quality

Net loan charge-offs in the 3rd quarter of 2020 amounted to $7.6 million, compared to $8.4 million in the prior quarter and $11.5 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .18% in the current quarter, .21% in the previous quarter, and .32% in the 3rd quarter of last year. Compared to the prior quarter, net loan charge-offs on commercial loans decreased $3.0 million to $194 thousand, while net loan charge-offs on personal banking loans increased $2.2 million to $7.4 million.

In the 3rd quarter of 2020, annualized net loan charge-offs on average consumer credit card loans were 4.47%, compared to 2.17% in the previous quarter, and 4.45% in the same quarter last year. Consumer loan net charge-offs were .04% of average consumer loans in the current quarter, .28% in the prior quarter and .43% in the same quarter last year.

This quarter, the provision for credit losses on loans totaled $3.2 million and was $4.4 million lower than net loan charge-offs. At September 30, 2020, the allowance for credit losses on loans totaled $236.4 million, or 1.44% of total loans and 1.59% of total loans excluding PPP loans. Additionally, the liability for unfunded lending commitments at September 30, 2020 was $35.2 million.

At September 30, 2020, total non-performing assets amounted to $40.3 million, an increase of $17.3 million over the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($40.3 million and $57 thousand, respectively). At September 30, 2020, the balance of non-accrual loans, which represented .25% of loans outstanding, included business loans of $37.3 million, business real estate loans of $1.1 million, and personal real estate loans of $1.9 million. Loans more than 90 days past due and still accruing interest totaled $14.4 million at September 30, 2020.

Other

During the 3rd quarter of 2020, the Company paid a cash dividend of $.27 per common share, representing an 8.9% increase over the same period last year. The Company also paid an annualized 6% cash dividend on its preferred stock. On September 1, 2020, the Company redeemed all outstanding shares of its Series B preferred stock.

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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CONTACT: Matthew Burkemper, Investor Relations 8000 Forsyth, Mailstop: CBIR-1 Clayton, MO 63105 Telephone: (314) 746-7485 Web Site: http://www.commercebank.com Email: matthew.burkemper@commercebank.com