Business Wire | Jul 21, 2020 06:00AM EDT

Commerce Bancshares, Inc. Reports Second Quarter Earnings Per Share of $.34

Jul. 21, 2020

KANSAS CITY, Mo.--(BUSINESS WIRE)--Jul. 21, 2020--Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.34 per common share for the three months ended June 30, 2020, compared to $.91 per share in the same quarter last year and $.44 per share in the prior quarter. Net income attributable to Commerce Bancshares, Inc. for the second quarter of 2020 amounted to $39.9 million, compared to $108.0 million in the second quarter of 2019 and $51.9 million in the prior quarter. For the quarter, the return on average assets was .54%, the return on average common equity was 4.77% and the efficiency ratio was 58.1%.

For the six months ended June 30, 2020, earnings per common share totaled $.78 compared to $1.72 for the first six months of 2019. Net income attributable to Commerce Bancshares, Inc. amounted to $91.7 million for the six months ended June 30, 2020 compared to $205.1 million in the comparable period last year. Year to date, the return on average assets was .66% and the return on average common equity was 5.61%.

In announcing these results, John Kemper, Chief Executive Officer, said, "While uncertainty surrounding the U.S. economy continued throughout the second quarter, we are cautiously optimistic about its resilience and encouraged by the strength of our customers and communities. Businesses have begun to reopen and adapt to the evolving COVID-19 operating environment and customer spending is rebounding from its lows in the second quarter. Commerce has always been committed to standing by our customers in difficult times. As part of our commitment, we have suspended foreclosure proceedings, offered fee waivers, and mobilized many internal resources to provide our commercial customers access to funding through the Paycheck Protection Program (PPP). In addition to the pandemic, our country is grappling with new, jarring reminders of the work that needs to be done to create a more just and equitable society, with broadened access to the wealth-creating engine of our economy. Commerce is committed to doing its part to create the positive and enduring change that is needed. Our strong culture, industry-leading capital levels, and commitment to sound credit policy enable us to be a source of stability for our team members, customers and communities in this period of uncertainty."

Mr. Kemper continued, "While net income was lower this quarter, it was mainly impacted by additional reserves recorded for future loan losses. Excluding the provision for credit losses and securities losses, net income grew modestly over the first quarter. A slight increase in net interest income and lower expense more than offset the decline in fee income this quarter. Compared to the prior quarter, consumer and business spending declined significantly, which negatively impacted bank card revenue. The PPP loan program drove tremendous growth in business loans this quarter, overshadowing strong growth in personal real estate loans. We secured funding for 7,443 customers to receive $1.5 billion in PPP loans, with a median loan size of $34 thousand. The net interest margin declined 39 basis points this quarter, reflecting not only the significant decline in interest rates over the past quarter, but also the rapid growth in deposits during the current quarter, which substantially increased our low-yielding balances held at the Federal Reserve."

Mr. Kemper continued, "This quarter net loan charge-offs totaled $8.4 million, compared to $10.9 million in the prior quarter and $11.3 million in the second quarter of 2019. The ratio of annualized net loan charge-offs to average loans was .21% in the current quarter, .30% in the prior quarter and .32% in the second quarter of last year. Net loan charge-offs on commercial loans totaled $3.2 million this quarter. Net loan charge-offs on personal banking loans decreased $6.1 million to $5.2 million, mostly the result of new payment relief programs, which lowered consumer credit card loan net charge-offs noticeably this quarter. Further, while net charge-offs were mostly uneventful this quarter, the provision for credit losses exceeded net loan charge-offs by $72.1 million, as the economic forecast utilized in our CECL model deteriorated significantly from our expectation at the end of the first quarter, driving a second consecutive quarter of substantial increases to our reserves."

Total assets at June 30, 2020 were $30.5 billion, total loans were $16.4 billion, and total deposits were $24.5 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.

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 second 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 Six Months Ended

(Unaudited)(Dollars in June 30, March 31, June 30, June 30, June 30,thousands, 2020 2020 2019 2020 2019except pershare data)

FINANCIAL SUMMARY

Net interest $203,057 $201,065 $211,634 $404,122 $415,122 income

Non-interest 117,515 123,663 127,259 241,178 248,499 income

Total revenue 320,572 324,728 338,893 645,300 663,621

Investmentsecurities (4,129) (13,301) (110) (17,430) (1,035) losses, net

Provision for 80,539 57,953 11,806 138,492 24,269 credit losses

Non-interest 187,512 193,698 189,779 381,210 381,204 expense

Income before 48,392 59,776 137,198 108,168 257,113 taxes

Income taxes 9,661 10,173 28,899 19,834 51,759

Non-controllinginterest (1,132) (2,254) 328 (3,386) 245 (income)expense

Net incomeattributable to 39,863 51,857 107,971 91,720 205,109 CommerceBancshares, Inc.

Preferred stock 2,250 2,250 2,250 4,500 4,500 dividends

Net incomeavailable to $37,613 $49,607 $105,721 $87,220 $200,609 commonshareholders

Earnings per common share:

Net income - $.34 $.44 $.91 $.78 $1.72 basic

Net income - $.34 $.44 $.91 $.78 $1.72 diluted

Effective tax 19.51 % 16.40 % 21.11 % 17.78 % 20.15 %rate

Tax equivalentnet interest $206,253 $204,402 $215,203 $410,655 $422,307 income

Average totalinterest $ 28,193,312 $ 24,691,014 $ 23,939,495 $26,442,163 $ 23,907,357 earning assets^(1)

Diluted wtd.average shares 110,896,858 111,375,938 115,239,850 111,136,398 115,526,352 outstanding

RATIOS

Average loansto deposits ^ 69.22 % 72.57 % 70.97 % 70.78 % 70.96 %(2)

Return on total .54 0.80 1.73 .66 1.66 average assets

Return onaverage common 4.77 6.48 14.46 5.61 14.06 equity ^(3)

Non-interestincome to total 36.66 38.08 37.55 37.37 37.45 revenue

Efficiency 58.10 59.17 55.88 58.64 57.29 ratio ^(4)

Net yield oninterest 2.94 3.33 3.61 3.12 3.56 earning assets

EQUITY SUMMARY

Cash dividendsper common $.270 $.270 $.248 $.540 $.496 share

Cash dividends $30,174 $30,292 $28,682 $60,466 $57,540 on common stock

Cash dividendson preferred $2,250 $2,250 $2,250 $4,500 $4,500 stock

Book value percommon share ^ $28.81 $27.86 $26.22 (5)

Market valueper common $59.47 $50.35 $56.82 share ^(5)

High marketvalue per $69.77 $71.92 $59.01 common share

Low marketvalue per $48.06 $45.51 $53.93 common share

Common sharesoutstanding ^ 111,533,315 111,535,295 115,424,027 (5)

Tangible commonequity to 10.12 % 11.13 % 11.25 % tangible assets^(6)

Tier I leverage 10.78 % 11.13 % 11.75 % ratio

OTHER QTD INFORMATION

Number of bank/ 312 317 319 ATM locations

Full-timeequivalent 4,856 4,854 4,857 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.

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).

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 Six Months Ended

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

Interest $213,323 $221,485 $226,665 $231,743 $238,412 $434,808 $466,277 income

Interest 10,266 20,420 24,006 28,231 26,778 30,686 51,155 expense

Net interest 203,057 201,065 202,659 203,512 211,634 404,122 415,122 income

Provision for 80,539 57,953 15,206 10,963 11,806 138,492 24,269 credit losses

Net interestincome after 122,518 143,112 187,453 192,549 199,828 265,630 390,853 credit losses

NON-INTEREST INCOME

Bank cardtransaction 33,745 40,200 41,079 44,510 42,646 73,945 82,290 fees

Trust fees 37,942 39,965 40,405 39,592 38,375 77,907 75,631

Deposit accountcharges and 22,279 23,677 24,974 24,032 23,959 45,956 46,977 other fees

Capital 3,772 3,790 2,536 1,787 1,944 7,562 3,823 market fees

Consumerbrokerage 3,011 4,077 4,139 4,030 3,888 7,088 7,635 services

Loan fees and 4,649 3,235 3,465 4,755 4,238 7,884 7,547 sales

Other 12,117 8,719 26,863 14,037 12,209 20,836 24,596

Totalnon-interest 117,515 123,663 143,461 132,743 127,259 241,178 248,499 income

INVESTMENTSECURITIES (4,129) (13,301) (248) 4,909 (110) (17,430) (1,035) GAINS (LOSSES),NET

NON-INTEREST EXPENSE

Salaries andemployee 126,759 128,937 126,901 123,836 120,062 255,696 242,190 benefits

Net occupancy 11,269 11,748 12,218 12,293 11,145 23,017 22,646

Equipment 4,755 4,821 4,859 4,941 4,790 9,576 9,261

Supplies and 4,427 4,658 4,851 5,106 5,275 9,085 10,437 communication

Dataprocessing 23,837 23,555 23,934 23,457 23,248 47,392 45,508 and software

Marketing 3,801 5,979 3,951 6,048 6,015 9,780 11,915

Other 12,664 14,000 18,460 15,339 19,244 26,664 39,247

Totalnon-interest 187,512 193,698 195,174 191,020 189,779 381,210 381,204 expense

Income before 48,392 59,776 135,492 139,181 137,198 108,168 257,113 income taxes

Less income 9,661 10,173 28,214 29,101 28,899 19,834 51,759 taxes

Net income 38,731 49,603 107,278 110,080 108,299 88,334 205,354

Lessnon-controllinginterest (1,132) (2,254) 398 838 328 (3,386) 245 expense(income)

Net incomeattributable toCommerce 39,863 51,857 106,880 109,242 107,971 91,720 205,109 Bancshares,Inc.

Lesspreferred 2,250 2,250 2,250 2,250 2,250 4,500 4,500 stockdividends

Net incomeavailable to $37,613 $49,607 $104,630 $106,992 $105,721 $87,220 $200,609 commonshareholders

Net income percommon share - $.34 $.44 $.94 $.93 $.91 $.78 $1.72 basic

Net income percommon share - $.34 $.44 $.93 $.93 $.91 $.78 $1.72 diluted

OTHER INFORMATION

Return ontotal average .54 % .80 % 1.65 % 1.72 % 1.73 % .66 % 1.66 %assets

Return onaverage common 4.77 6.48 13.90 14.21 14.46 5.61 14.06 equity ^(1)

Efficiency 58.10 59.17 56.29 56.66 55.88 58.64 57.29 ratio ^(2)

Effective tax 19.51 16.40 20.88 21.04 21.11 17.78 20.15 rate

Net yield oninterest 2.94 3.33 3.36 3.43 3.61 3.12 3.56 earning assets

Taxequivalent $206,253 $204,402 $206,156 $206,958 $215,203 $410,655 $422,307 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.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - PERIOD END

(Unaudited) June 30, March 31, June 30,(In thousands) 2020 2020 2019

ASSETS

Loans

Business $ 6,858,217 $ 5,773,865 $ 5,257,682

Real estate - construction and 932,022 873,402 909,784 land

Real estate - business 2,941,163 2,960,308 2,867,831

Real estate - personal 2,690,542 2,464,819 2,160,515

Consumer 1,966,707 1,941,787 1,927,623

Revolving home equity 334,627 349,735 357,406

Consumer credit card 666,597 706,753 776,333

Overdrafts 5,179 3,143 3,074

Total loans 16,395,054 15,073,812 14,260,248

Allowance for credit losses on (240,744) (171,653) (161,182) loans

Net loans 16,154,310 14,902,159 14,099,066

Loans held for sale 12,785 6,214 20,067

Investment securities:

Available for sale debt 10,317,427 8,678,586 8,682,303 securities

Trading debt securities 28,813 24,291 36,508

Equity securities 4,128 4,038 4,744

Other securities 117,761 155,074 130,038

Total investment securities 10,468,129 8,861,989 8,853,593

Federal funds sold andshort-term securities purchased - 400 - under agreements to resell

Long-term securities purchased 850,000 850,000 700,000 under agreements to resell

Interest earning deposits with 1,404,968 474,156 492,318 banks

Cash and due from banks 391,268 401,185 456,192

Premises and equipment - net 368,565 369,745 363,554

Goodwill 138,921 138,921 138,921

Other intangible assets - net 7,179 8,433 8,763

Other assets 699,996 779,815 639,700

Total assets $ 30,496,121 $ 26,793,017 $ 25,772,174

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:

Non-interest bearing $ 9,700,261 $ 6,952,236 $ 6,274,838

Savings, interest checking and 12,792,993 12,049,279 11,452,849 money market

Certificates of deposit of less 590,635 619,758 613,505 than $100,000

Certificates of deposit of 1,443,078 1,154,590 1,488,416 $100,000 and over

Total deposits 24,526,967 20,775,863 19,829,608

Federal funds purchased andsecurities sold under agreements 1,740,438 1,428,013 2,394,294 to repurchase

Other borrowings 1,475 756,461 4,510

Other liabilities 869,072 580,216 372,399

Total liabilities 27,137,952 23,540,553 22,600,811

Stockholders' equity:

Preferred stock 144,784 144,784 144,784

Common stock 563,978 563,978 559,432

Capital surplus 2,136,874 2,133,623 2,077,491

Retained earnings 232,082 224,643 384,232

Treasury stock (69,112) (69,149) (106,106)

Accumulated other comprehensive 349,261 253,136 108,898 income

Total stockholders' equity 3,357,867 3,251,015 3,168,731

Non-controlling interest 302 1,449 2,632

Total equity 3,358,169 3,252,464 3,171,363

Total liabilities and equity $ 30,496,121 $ 26,793,017 $ 25,772,174

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

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

ASSETS:

Loans:

Business $ 6,760,827 $ 5,493,657 $ 5,362,020 $ 5,263,312 $ 5,142,794

Real estate -construction and 895,648 924,086 901,367 920,206 908,777 land

Real estate - 2,962,076 2,853,632 2,820,189 2,883,379 2,868,503 business

Real estate - 2,582,484 2,390,716 2,283,530 2,175,156 2,135,048 personal

Consumer 1,944,265 1,950,491 1,961,631 1,924,434 1,907,979

Revolving home 343,210 350,256 347,527 354,040 361,673 equity

Consumer credit card 663,911 727,569 749,056 763,377 766,080

Overdrafts 2,912 4,044 18,322 9,240 4,889

Total loans^ 16,155,333 14,694,451 14,443,642 14,293,144 14,095,743

Allowance for credit (171,616) (139,482) (159,776) (160,387) (161,403) losses on loans

Net loans 15,983,717 14,554,969 14,283,866 14,132,757 13,934,340

Loans held for sale 6,363 12,875 15,363 19,882 20,731

Investment securities:

U.S. government andfederal agency 776,240 802,556 826,702 825,544 843,974 obligations

Government-sponsoredenterprise 114,518 134,296 184,973 181,929 199,506 obligations

State and municipal 1,285,427 1,222,595 1,207,584 1,172,259 1,222,008 obligations

Mortgage-backed 5,325,720 4,685,782 4,685,794 4,712,508 4,614,703 securities

Asset-backed 1,342,518 1,182,556 1,258,297 1,297,685 1,412,452 securities

Other debt 406,665 321,733 331,167 334,218 331,459 securities^

Unrealized gain(loss) on debt 281,457 191,275 149,591 152,706 42,009 securities

Total available for 9,532,545 8,540,793 8,644,108 8,676,849 8,666,111 sale debt securities

Trading debt 31,981 34,055 32,518 29,622 30,169 securities^

Equity securities 4,137 4,273 4,200 4,705 4,717

Other securities 139,250 144,096 141,501 134,896 130,433

Total investment 9,707,913 8,723,217 8,822,327 8,846,072 8,831,430 securities

Federal funds soldand short-termsecurities purchased 92 326 714 1,080 1,601 under agreements toresell

Long-term securitiespurchased under 850,000 850,000 849,986 713,030 700,000 agreements to resell

Interest earning 1,755,068 601,420 390,134 226,582 331,999 deposits with banks

Other assets 1,461,528 1,368,464 1,315,395 1,292,191 1,251,555

Total assets $ 29,764,681 $ 26,111,271 $ 25,677,785 $ 25,231,594 $ 25,071,656



LIABILITIES AND EQUITY:

Non-interest bearing $ 8,843,408 $ 6,615,108 $ 6,552,862 $ 6,290,036 $ 6,335,620 deposits

Savings 1,111,397 952,709 924,282 924,581 929,974

Interest checking 11,441,694 10,777,400 10,618,347 10,409,111 10,642,648 and money market

Certificates ofdeposit of less than 605,136 622,840 626,944 620,138 605,440 $100,000

Certificates ofdeposit of $100,000 1,346,069 1,299,443 1,434,309 1,503,805 1,378,402 and over

Total deposits 23,347,704 20,267,500 20,156,744 19,747,671 19,892,084

Borrowings:

Federal fundspurchased andsecurities sold 1,991,971 1,990,051 1,836,982 1,884,939 1,793,526 under agreements torepurchase

Other borrowings 345,162 161,698 94,471 77,248 1,318

Total borrowings 2,337,133 2,151,749 1,931,453 1,962,187 1,794,844

Other liabilities 763,524 466,980 458,094 390,560 307,433

Total liabilities 26,448,361 22,886,229 22,546,291 22,100,418 21,994,361

Equity 3,316,320 3,225,042 3,131,494 3,131,176 3,077,295

Total liabilities $ 29,764,681 $ 26,111,271 $ 25,677,785 $ 25,231,594 $ 25,071,656 and equity

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

For the Three Months Ended

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

ASSETS:

Loans:

Business^ (1) 2.91 % 3.50 % 3.59 % 3.85 % 4.02 %

Real estate - construction and 3.95 4.78 5.05 5.46 5.63 land

Real estate - business 3.71 4.16 4.22 4.42 4.60

Real estate - personal 3.69 3.83 3.85 3.91 3.97

Consumer 4.48 4.78 4.76 4.88 4.77

Revolving home equity 3.50 4.61 4.76 5.17 5.20

Consumer credit card 11.76 12.26 12.11 12.42 12.33

Overdrafts - - - - -

Total loans 3.80 4.39 4.47 4.71 4.82

Loans held for sale 8.03 6.15 5.32 6.15 6.98

Investment securities:

U.S. government and federal agency .46 2.09 2.16 2.36 4.66 obligations

Government-sponsored enterprise 3.51 4.19 2.17 2.69 2.32 obligations

State and municipal obligations^ 2.97 3.11 3.05 3.14 3.18 (1)

Mortgage-backed securities 2.17 2.37 2.72 2.61 2.70

Asset-backed securities 2.25 2.63 2.62 2.80 2.79

Other debt securities 2.49 2.94 2.82 2.63 2.68

Total available for sale debt 2.18 2.54 2.69 2.69 2.97 securities

Trading debt securities^ (1) 2.93 2.52 2.81 2.91 3.14

Equity securities ^(1) 48.42 46.78 49.40 35.67 35.97

Other securities ^(1) 4.36 5.31 6.58 6.19 6.69

Total investment securities 2.24 2.61 2.78 2.76 3.04

Federal funds sold and short-termsecurities purchased under - 2.47 2.22 2.57 2.76 agreements to resell

Long-term securities purchased 5.08 3.53 2.26 2.01 2.11 under agreements to resell

Interest earning deposits with .10 .86 1.61 2.17 2.40 banks

Total interest earning assets 3.09 3.66 3.75 3.90 4.05



LIABILITIES AND EQUITY:

Interest bearing deposits:

Savings .09 .11 .11 .11 .11

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

Certificates of deposit of less .93 1.15 1.16 1.11 1.01 than $100,000

Certificates of deposit of 1.08 1.62 1.79 1.99 2.02 $100,000 and over

Total interest bearing deposits .25 .45 .52 .58 .55

Borrowings:

Federal funds purchased andsecurities sold under agreements .12 .96 1.20 1.74 1.80 to repurchase

Other borrowings .82 .82 2.05 2.33 1.52

Total borrowings .22 .95 1.25 1.76 1.80

Total interest bearing liabilities .25 % .52 % .61 % .73 % .70 %



Net yield on interest earning 2.94 % 3.33 % 3.36 % 3.43 % 3.61 % assets

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

ALLOWANCE FORCREDIT LOSSES ON LOANS

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

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

Provision forcredit losses 77,491 42,868 15,206 10,963 11,806 120,359 24,269 on loans

Netcharge-offs (recoveries):

Commercial portfolio:

Business 3,249 (373) 3,036 335 284 2,876 731

Real estate -construction - - - - (101) - (117) and land

Real estate - (6) (21) 35 (44) (14) (27) (51) business

3,243 (394) 3,071 291 169 2,849 563

Personalbanking portfolio:

Consumer 3,584 9,157 8,829 8,568 9,066 12,741 18,024 credit card

Consumer 1,362 1,711 2,838 2,069 1,723 3,073 3,647

Overdraft 316 426 507 446 253 742 570

Real estate - (71) (4) 6 (30) (21) (75) 80 personal

Revolving home (34) (38) (45) 119 116 (72) 135 equity

5,157 11,252 12,135 11,172 11,137 16,409 22,456

Total net loan 8,400 10,858 15,206 11,463 11,306 19,258 23,019 charge-offs

Balance at end $ 240,744 $ 171,653 $ 160,682 $ 160,682 $ 161,182 $ 240,744 $ 161,182 of period

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



NET CHARGE-OFF RATIOS ^(1)

Commercial portfolio:

Business .19 % (.03 %) .22 % .03 % .02 % .09 % .03 %

Real estate -construction - - - - (.04) - (.03) and land

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

.12 (.02) .13 .01 .01 .06 .01

Personalbanking portfolio:

Consumer 2.17 5.06 4.68 4.45 4.75 3.68 4.70 credit card

Consumer .28 .35 .57 .43 .36 .32 .38

Overdraft 43.65 42.37 10.98 19.15 20.76 42.90 25.27

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

Revolving home (.04) (.04) (.05) .13 .13 (.04) .07 equity

.37 .83 .90 .85 .86 .60 .87

Total .21 % .30 % .42 % .32 % .32 % .25 % .33 %



CREDIT QUALITY RATIOS

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

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

Allowance forcredit losseson loans to 1.47 1.14 1.09 1.11 1.13 total loans ^(2)



NON-PERFORMING ASSETS

Non-accrual loans:

Business $ 19,034 $ 7,356 $ 7,489 $ 7,753 $ 8,428

Real estate -construction 1 2 2 3 3 and land

Real estate - 1,921 1,532 1,030 2,359 950 business

Real estate - 1,679 1,743 1,699 1,618 1,752 personal

Total 22,635 10,633 10,220 11,733 11,133

Foreclosed 422 422 365 502 897 real estate

Totalnon-performing $ 23,057 $ 11,055 $ 10,585 $ 12,235 $ 12,030 assets

Loans past due90 days and $ 24,583 $ 16,520 $ 19,859 $ 16,308 $ 16,532 still accruinginterest

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

(2) Excluding PPP loans, Allowance for credit losses on loans to total loans was 1.62% as of June 30, 2020.

COMMERCE BANCSHARES, INC. Management Discussion of Second Quarter Results June 30, 2020

For the quarter ended June 30, 2020, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $39.9 million, compared to $51.9 million in the previous quarter and $108.0 million in the same quarter last year. The decrease in net income from the previous quarter was primarily the result of an increase in the provision for credit losses. Non-interest income was lower this quarter than in the prior quarter, but non-interest expense also declined by a similar amount. Securities losses decreased this quarter mostly due to lower fair value adjustments on the Company's private equity investment portfolio. While net interest income increased this quarter, the net interest margin decreased as the contraction of average rates on loans and investment securities was only modestly offset by the declining rate paid on interest bearing liabilities and growth in interest earning assets. Average loans increased $1.5 billion over the previous quarter, while average deposits increased $3.1 billion. For the quarter, the return on average assets was .54%, the return on average common equity was 4.77%, and the efficiency ratio was 58.1%.

Balance Sheet Review

During the 2nd quarter of 2020, average loans totaled $16.2 billion, and increased $1.5 billion over the prior quarter, and grew $2.1 billion, or 14.6%, over the same quarter last year. Period-end loans grew $1.3 billion over the prior quarter and $2.1 billion over June 30, 2019. Compared to the previous quarter, average loan growth was primarily driven by increases in business, personal real estate, and business real estate loans of $1.3 billion, $191.8 million, and $108.4 million, respectively. This growth was partly offset by a decline in consumer credit card loans of $63.7 million. Growth in business loans was the result of demand for Paycheck Protection Plan (PPP) loans, while personal real estate loan balances grew due to a higher portion of loans originated being retained rather than sold during the 2nd quarter of 2020 compared to the previous quarter. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $832 thousand, compared to $39.3 million in the prior quarter, as late in the current quarter the Company resumed selling loans in the secondary market after temporarily pausing sales in the prior quarter.

Total average available for sale debt securities increased $991.8 million over the previous quarter to $9.5 billion, at fair value. The increase in investment securities was mainly the result of growth in mortgage-backed and asset-backed securities. Purchases of securities during the quarter totaled $2.3 billion, and sales, maturities and pay downs were $733.1 million. At June 30, 2020, the duration of the investment portfolio was 2.8 years, and maturities and pay downs of approximately $1.6 billion are expected to occur during the next 12 months.

Total average deposits increased $3.1 billion this quarter compared to the previous quarter. The increase in deposits resulted from growth in demand ($2.2 billion), interest checking and money market ($664.3 million), savings deposits ($158.7 million), and certificates of deposit ($28.9 million). Compared to the previous quarter, total average commercial, consumer and wealth deposits (including private banking) grew $2.0 billion, $975.6 million and $161.3 million, respectively. The average loans to deposits ratio was 69.2% in the current quarter and 72.6% in the prior quarter. The Company's average borrowings, which includes customer repurchase agreements, were $2.3 billion in the 2nd quarter of 2020 and $2.2 billion in the prior quarter.

Net Interest Income

Net interest income in the 2nd quarter of 2020 amounted to $203.1 million, an increase of $2.0 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter increased $1.9 million over the previous quarter to $206.3 million. The increase in net interest income was mainly due to lower interest expense on interest bearing liabilities, partly offset by lower income on interest earnings assets. The Company recorded a $1.5 million adjustment to premium amortization on mortgage-backed securities for prepayment speed changes, which lowered interest income this quarter. The net yield on earning assets (tax equivalent) decreased to 2.94%, compared to 3.33% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) decreased $7.8 million, mostly as a result of lower yields on loans, mainly business and business real estate loans and lower average balances of consumer credit card loans. Growth in average business, personal real estate, and business real estate loan balances increased net interest income and partially offset the impact of lower yields. The average tax-equivalent yield on the loan portfolio declined to 3.80%, compared to 4.39% in the previous quarter.

Interest income on investment securities (tax equivalent) decreased $2.9 million from the previous quarter, mainly due to lower interest income earned on U.S. government and federal agency securities as inflation income on treasury inflation-protected securities declined $3.3 million this quarter. An increase in interest income from higher average balances of mortgage-backed securities was partly offset by the $1.5 million premium amortization adjustment, as noted above. The yield on total investment securities was 2.24% in the current quarter, down from 2.61% in the previous quarter.

Interest costs on deposits totaled 25 basis points in the 2nd quarter of 2020, compared to 45 basis points in the prior quarter. Interest expense on deposits decreased $6.3 million this quarter compared to the previous quarter mainly due to lower rates paid on all deposit categories. Borrowing costs decreased $3.8 million this quarter due to lower rates paid on borrowings, especially securities sold under agreements to repurchase, partially offset by higher average Federal Home Loan Bank borrowings, which were paid off as of June 30, 2020. The overall rate paid on interest bearing liabilities was .25% in the current quarter, compared to .52% in the prior quarter.

Non-Interest Income

In the 2nd quarter of 2020, total non-interest income amounted to $117.5 million, a decrease of $9.7 million, or 7.7%, compared to the same period last year and decreased $6.1 million, or 5.0%, compared to the prior quarter. The decrease in non-interest income from the same period last year was mainly due to lower bank card, deposit account, and consumer brokerage service fees, partly offset by growth in capital market fees.

Total net bank card fees in the current quarter decreased $8.9 million, or 20.9%, from the same period last year, and decreased $6.5 million, or 16.1%, compared to the prior quarter. Net corporate card fees decreased $5.8 million from the same quarter of last year mainly due to lower transaction volume. Net debit card fees decreased $1.2 million, or 11.7%, mainly due to lower interchange income. Net merchant income declined $1.0 million, or 19.5%, and net credit card fees decreased $965 thousand, or 24.9%, due to lower fee income. Total net bank card fees this quarter were comprised of fees on corporate card ($17.8 million), debit card ($8.8 million), merchant ($4.2 million) and credit card ($2.9 million) transactions.

In the current quarter, trust fees decreased $433 thousand, or 1.1%, from the same period last year, resulting from lower corporate and institutional trust revenue, partially offset by higher private client fee income. Compared to the same period last year, deposit account fees decreased $1.7 million, or 7.0%, mainly due to lower overdraft and return item fees, partly offset by an increase in corporate cash management fees. Additionally, capital market fees grew $1.8 million, or 94.0%, while consumer brokerage service fees decreased $877 thousand, or 22.6%, from amounts recorded in the same quarter last year.

Other non-interest income increased in the 2nd quarter of 2020 compared to the previous quarter mainly due to fair value adjustments to the Company's deferred compensation plan assets that are held in a trust and are recorded as both an asset and a liability. Fair value equity adjustments on these assets affecting both other income and other expense increased $4.7 million over the previous quarter. For the 2nd quarter of 2020, non-interest income comprised 36.7% of the Company's total revenue.

Investment Securities Gains and Losses

The Company recorded net securities losses of $4.1 million in the current quarter, compared to losses of $13.3 million in the prior quarter and losses of $110 thousand in the 2nd quarter of 2019. Net securities losses in the current quarter primarily resulted from unrealized losses of $7.5 million in the Company's private equity investment portfolio, as the economic conditions resulting from the COVID-19 pandemic continued to negatively impact investment valuations. The current quarter's unrealized losses were partially offset by gains on sales of available for sale securities.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $187.5 million, compared to $189.8 million in the same period last year and $193.7 million in the prior quarter. The decrease in non-interest expense compared to the same period last year was mainly due to lower marketing and other non-interest expense. These decreases were partially offset by higher salaries and employee benefits expense.

Compared to the 2nd quarter of last year, salaries and employee benefits expense increased $6.7 million, or 5.6%, driven mainly by growth in full-time salary costs and higher incentive compensation expense. Full-time equivalent employees totaled 4,856 and 4,857 at June 30, 2020 and 2019, respectively.

For the current quarter compared to the same quarter of last year, marketing expense decreased $2.2 million, or 36.8%. Other non-interest expense decreased mainly due to higher deferred loan origination costs and lower travel and entertainment expense. These decreases to expense were partly offset by a $1.6 million increase in the Company's deferred compensation liability, and a $795 thousand impairment on the Company's mortgage servicing rights during the 2nd quarter of 2020. Supplies and communication expense decreased $848 thousand due to lower supplies, postage and bank card issuance expense.

Income Taxes

The effective tax rate for the Company was 19.5% in the current quarter, 16.4% in the previous quarter, and 21.1% in the 2nd quarter of 2019.

Credit Quality

Net loan charge-offs in the 2nd quarter of 2020 amounted to $8.4 million, compared to $10.9 million in the prior quarter and $11.3 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .21% in the current quarter, .30% in the previous quarter, and .32% in the 2nd quarter of last year. Compared to the prior quarter, net loan charge-offs on commercial loans increased $3.6 million to $3.2 million, while net loan charge-offs on personal banking loans decreased $6.1 million to $5.2 million.

In the 2nd quarter of 2020, annualized net loan charge-offs on average consumer credit card loans were 2.17%, compared to 5.06% in the previous quarter, and 4.75% in the same quarter last year. The reduction in net charge-offs during the 2nd quarter was mainly the result of a relief program that allowed consumer credit card customers to skip payments for up to two months. Consumer loan net charge-offs were .28% of average consumer loans in the current quarter, .35% in the prior quarter and .36% in the same quarter last year.

This quarter, the provision for credit losses on loans totaled $77.5 million and was $69.1 million higher than net loan charge-offs. The increase in the provision for credit losses on loans was driven by a significant deterioration of the economic forecast used in our CECL model as of June 30, 2020 due to the COVID-19 pandemic. At June 30, 2020, the allowance for credit losses on loans totaled $240.7 million, or 1.47% of total loans and 1.62% of total loans, excluding PPP loans. Additionally, the provision for credit losses on unfunded lending commitments increased $3.0 million. The liability for unfunded lending commitments at June 30, 2020 was $35.3 million.

At June 30, 2020, total non-performing assets amounted to $23.1 million, an increase of $12.2 million over the previous quarter, which was mostly related to a single energy loan. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($22.6 million and $422 thousand, respectively). At June 30, 2020, the balance of non-accrual loans, which represented .14% of loans outstanding, included business loans of $19.0 million, business real estate loans of $1.9 million, and personal real estate loans of $1.7 million. Loans more than 90 days past due and still accruing interest totaled $24.6 million at June 30, 2020.

Other

During the 2nd 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.

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