Capitalizing on Our
Position of Strength
PLAYING OFFENSE IN A CHALLENGING TIME
2020 Annual Report & Form 10-K
155
Years in Business
2020 was a year like no other. Seemingly
overnight, life changed in profound ways
and still has yet to return to “normal.” It was a
year that saw us constantly working to adapt
and respond, to keep our communities safe
and to help our customers as they grappled
with new financial challenges. Through it all,
Commerce has been here for our customers,
our communities and our team members.
Even when it’s not business as usual, we still
take care of business. We continue to build
on our strong cultural foundation — one that
sets us apart and allows us to play offense in
challenging times. Our strategic investments
in people, products and
technology
differentiate Commerce in a competitive
field and sustain our long-term growth. We
are in a position to leverage these strengths,
put distance between ourselves and the
competition, and bring more value to our
customers so they can focus on what matters
most.
About the Cover
Our aligned, engaged and agile team is the source
of our strength and the foundation of our long-term
success. In a trying year, the Commerce team forged
ahead to build innovative solutions, deepen existing
relationships and welcome new customers to the bank.
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
1
Financial Highlights
(In thousands, except per share data)
2016
2017
2018
2019
2020
OPERATING RESULTS
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains (losses), net
Non-interest expense
Net income attributable to Commerce Bancshares, Inc.
Net income available to common shareholders
Cash dividends on common stock
$
680,049 $
36,318
733,679 $
45,244
446,556
(53)
689,229
275,391
266,391
87,070
461,263
25,051
744,343
319,383
310,383
91,619
823,825 $
821,293
$
829,847
42,694
501,341
(488)
737,821
433,542
424,542
100,238
50,438
524,703
3,626
767,398
421,231
412,231
113,466
137,190
505,867
11,032
768,378
354,057
342,091
120,818
AT YEAR END
Total assets
Loans, including held for sale
Investment securities
Deposits
Equity
Non-performing assets
Common shares outstanding1
Tier I common risk-based capital ratio
Tier I risk-based capital ratio
Total risk-based capital ratio
Tier I leverage ratio
Tangible common equity to tangible assets ratio
Efficiency ratio
OTHER FINANCIAL DATA (based on average balances)
Return on total assets
Return on common equity
Loans to deposits
Equity to total assets
Net yield on interest earning assets (T/E)
PER COMMON SHARE DATA
Net income - basic1
Net income - diluted1
Market price1
Book value1
Cash dividends1
Cash dividend payout ratio
$ 25,641,424 $ 24,833,415 $ 25,463,842 $ 26,065,789
13,427,192
14,005,072
14,160,992
14,751,626
9,770,986
8,893,307
8,698,666
8,741,888
21,101,095
20,425,446
20,323,659
20,520,415
2,501,132
2,718,184
2,937,149
3,138,472
$ 32,922,974
16,374,730
12,645,693
26,946,745
3,399,972
14,649
123,326
12,664
123,420
11.62%
12.65%
12.38
13.32
9.55
8.66
61.04
13.41
14.35
10.39
9.84
62.18
13,949
122,519
14.22%
14.98
15.82
11.52
10.45
55.58
1 .1 2%
1.28%
1.76 %
11.33
63.71
10.16
3.04
12.46
66.18
10.53
3.19
16.16
69.27
11.24
3.53
$
2.16
$
2.51 $
3.44
$
2.15
47.56
19.11
0.705
32.69 %
2.50
48.24
20.85
0.740
29.52%
3.43
51.13
22.79
0.812
23.61 %
10,585
117,738
13.93%
14.66
15.48
11.38
10.99
56.87
1.67 %
14.06
71.54
12.20
3.48
3.42
3.41
64.70
25.43
0.943
27.52%
$
26,633
117,138
13.7 1 %
13.7 1
14.82
9.45
9.92
57.19
1.20%
10.64
67.73
11.18
2.99
2.91
2.91
65.70
29.03
1.029
35.32 %
1Restated for the 5% stock dividend distributed in December 2020
Return on Average Common Equity
Return on Average Assets
20.0%
15.0%
10.0%
5.0%
0.0%
2.0%
1.5%
1.0%
0.5%
0.0%
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Commerce
Peer Median
Large Bank Median
Commerce
Peer Median
Large Bank Median
Commerce 10-Year Average: 12.4% Peer 10-Year Average: 8.1%
Commerce 10-Year Average: 1.3% Peer 10-Year Average: 1.0%
Source: S&P Global Market Intelligence, rankings as of September 30, 2020 unless noted; company reports and filings as of December 31, 2020
2
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
Letter to Our Shareholders
The past year was unique in the long history of this country and of Commerce
Bank. The coronavirus pandemic produced a dramatic decline in economic activity
around the globe. GDP fell by a staggering 9% during the second quarter, the worst
decline on record, reflecting the deepest recession since the 1930s and producing,
briefly, all-time high levels of unemployment.
The ongoing recovery from this bottom in the second quarter has been aided in
remarkable ways by aggressive monetary and fiscal policy. The Federal Reserve
quickly slashed interest rates to zero and dramatically expanded its market
operations to provide extraordinary liquidity in the system. Congress passed the
largest stimulus package in our country’s history. With this came the launch of the
Small Business Administration’s Paycheck Protection Program, placing the banking
sector on the front lines of the economic recovery.
Facing a backdrop of volatility and uncertainty, banks have taken significant credit
reserves and steps to bolster capital and liquidity levels. They have also experienced
net interest margin compression from lower interest rates. As a result, earnings have
declined compared to last year, reflecting the challenges of the economy and some
of the ways banks will come under pressure in the coming quarters.
Despite these pressures, Commerce Bancshares delivered a year of solid performance and continues to be well-
positioned for success. Our diversified set of businesses provides the bank with a degree of earnings insulation in a
low-rate environment. We benefit from exceptional liquidity and strong capital levels, prudent credit underwriting
and a diversified loan portfolio.
Consistent with our steady earnings, we returned capital to shareholders through increased dividends. In
February 2021, we increased our quarterly common dividend 2% to $.26 per share, the 53rd consecutive year of
dividend increases. Over the past 20 years, the annualized total return for shareholders has been 10%, significantly
outperforming the KBW Bank Index return of 3%.
I am especially proud of our performance in these challenging times. We are committed to building on our position of
strength, serving our customers as the economy recovers and making the investments needed to sustain our health
in the years to come. I would like to thank our team members for their extraordinary commitment and collaboration
during one of the most challenging chapters of our bank’s history. And, as always, I extend my most sincere gratitude
to our customers and to you, our shareholders, for your steady confidence in this bank and this team.
Long-Term Shareholder Return
Cumulative Total Return Indexed, 12/31/2000 = $100
$700
$600
$500
$400
$300
$200
$100
$0
Over the
last 20 years
10%
Annualized
Shareholder
Return
2000
2005
2010
2015
2020
COMMERCE (CBSH)
NASDAQ BANK
KBW BANK
S&P
Source: Bloomberg as of December 31, 2020
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
3
Playing Offense in a
Challenging Time
John W. Kemper
President and Chief Executive Officer
C O M M E R C E B A N C S H A R E S , I N C .
F E B R U A R Y 2 4 , 2 0 2 1
Dear Commerce Shareholders:
Amidst a historic pandemic, the global
economy was tested in unprecedented
ways in 2020. The drop in economic
output was the most dramatic in U.S.
history, and while the economic recovery
has been strong, the situation remains
uncertain. The government response
at home and abroad has been similarly
exceptional, putting to work massive
amounts of fiscal stimulus to protect
households and businesses from the
worst-case outcomes. Central banks
responded in a complementary manner,
flooding markets with liquidity and
propping up dislocated asset prices.
Like the broader economy, the banking
industry experienced a roller-coaster
year. In the first and second quarters,
banks took historic provisions for loan
losses, anticipating that credit would
deteriorate alongside an economy that
was sharply contracting. Just as we
were transitioning to an unfamiliar and
distributed way of working, the industry
was called into action as part of the
federal fiscal stimulus program and
issued millions of loans under the Small
Business Administration’s (SBA) Paycheck
Protection Program (PPP).
Despite these challenging circumstances,
your company has managed to
thrive. We kept our branches open to
customers in ways that protected both
them and our teammates. We provided
payment relief programs to support our
consumer and business customers. We
increased the capacity of our Customer
Care Center while at the same time
transitioning seamlessly to a distributed
work environment. We increased
bandwidth in our digital channels to
accommodate surging demand. We
successfully delivered PPP loans to all of
our eligible customers who applied, and
also made loans to a number of long-
time prospects who were let down by
their existing banks. Through it all, we
were there for our customers, providing
support and advice when it mattered
most.
These exceptional efforts and results
were made possible by an aligned,
engaged and agile team. Our strong
culture allowed us to execute in 2020 and
despite the challenges, empowered us to
play offense, deepening our relationships
with existing customers and bringing
new ones into the bank.
Our Results
In an uncertain and challenging operating
environment, the bank’s 2020 financial
results were uneven, but fundamentally
strong. Earnings in the first half of
the year were off significantly, driven
predominantly by an increase in the
credit loss provision. Things rebounded
strongly in the second half of the year,
resulting in two quarters of record
earnings.
Looking through the volatility created
by loss reserve builds, Commerce
performed well, and our balance sheet
4
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
in 2020
Total Deposit
Growth
remains strong. Driven by
government and central
bank actions, the bank saw
unprecedented deposit
growth of $6.4 billion and
grew year-end loan balances
11%. Relative to our asset size
in the banking industry, Commerce processed about
two times our “pro-rata” share of total PPP dollars,
directing needed support to businesses impacted by
the pandemic. Wealth management and mortgage
banking had record years, reflecting not only strong
demand but also the investments in capacity that we
have made in recent years. Pandemic-driven spending
volumes impacted credit card and commercial
payments businesses, but volumes rebounded
toward more normalized levels in the second half of
the year. Expense control was strong in most areas,
notwithstanding the large investments the company
continues to make in core systems and strategic “blue
chip” initiatives.
Capital levels remain strong and continue to be
among the best in the banking industry. The
company returned $175 million in capital to our
common shareholders in 2020, including $121 million
in cash dividends and $54 million in common share
repurchases. We also redeemed all $150 million of our
preferred equity, which allowed us to calibrate our
overall capital levels while pausing common stock
repurchases during the pandemic. In February 2021, we
increased our common dividend 2% to $.26 per share,
the 53rd consecutive year of increases. This steady
shareholder return of Commerce stock, including
dividends, has outpaced the KBW Bank Index by an
annualized 7% over the last 20 years.
The company earned $342 million in net income
available to common shareholders. Financial
performance, as measured by return on average assets
and return on average common equity — 1.2% and
10.6%, respectively — was in the top quartile relative to
peer institutions.
Capitalizing on Our Position of Strength
Commerce has long operated from a position of
strength, built on the steady execution of a unique
super-community banking model. This operating
model combines the best of small with the best of
big, marrying sophisticated solutions, capabilities and
advice with high-touch delivery in the context of deep
relationships, excellent customer service and bankers
who are empowered to take care of their customers
and communities.
Non-Interest
Income
of Total Revenue
in 2020
38%
Our diversified revenue streams
differentiate us from our peer bank
competitors. Non-interest income
represented 38% of total revenue
in 2020, stemming from fee-based
businesses that provide excellent
risk-based returns. Commerce is known for strong
risk management practices and an emphasis on
sound credit underwriting. We have a history of
solid asset quality, prudent expense management
and strong levels of capital and liquidity. In 2020,
Moody’s reaffirmed the bank’s financial strength by
assigning Commerce an a1 baseline credit assessment.
Commerce is one of only six banks in the country to
maintain a credit rating at this level or higher.
Our strong culture underpins our long-term success;
it is a culture we are very proud of and work diligently
to shape. Amidst the peak uncertainty and disruption
of 2020, our annual team member engagement survey
was conducted by Korn Ferry in late spring. The results
were a record — by some margin — for both team
member engagement and enablement, which is a
testament to our strong teamwork and culture. In 2019,
we were recognized by Korn Ferry for being in the top
echelon of their employee engagement universe as
one of only four “Outstanding Employers” in the U.S.
with superior engagement and enablement. We have
built upon that mark and are now outpacing high-
performance norms in nearly every survey category.
These sources of strength are invaluable during these
challenging times. Our team has proven to be agile
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
5
and resilient as we continue to build innovative
solutions for our customers, positioning the bank
for long-term growth.
our team members opportunities to connect with
each other, learn about each other and encourage
diverse perspectives.
Highly Engaged and Enabled Teams
based on 2020 Team Member Survey by Korn Ferry
85%
83%
71%
70%
Engagement
Enablement
Commerce
U.S. High-Performing Norm
Environmental, Social and Governance
Our commitment to community extends well
beyond the financials. In 2020, Commerce formed
a cross-functional environmental, social and
governance (ESG) management committee and
engaged a third-party consultant as part of an
overall effort to enhance our ESG program and
reporting. In 2021, Commerce will publish our first
ESG report. This report will highlight the many
areas of Commerce we feel add long-term value
to our shareholders and will address the critical
initiatives that are important to all stakeholders in
helping to shape our success. We are excited to
share this report later this spring.
At Commerce, we believe ESG standards and our
business practices are fundamentally aligned with
our corporate core values. We believe diversity
and equity among our teammates leads to building
stronger teams and achieving higher levels of
collaboration and success. We have launched a
variety of Employee Resource Groups (ERG) in
recent years to support our diverse workforce.
RISE (empowering women), EMERGE (connecting
young professionals), VIBE (valuing multicultural
perspectives) and PRIDE (engaging the LGBTQIA+
community) are important forums that provide
Our Inclusion and Diversity leaders, in conjunction
with VIBE, have been sharing meaningful
information across the organization. The team
rolled out unconscious bias training, educational
resources and a series of “Listen, Talk, Learn”
sessions to encourage team members to share
their voices openly and candidly, or to listen and
learn from the experiences of others. We have
been able to learn and grow as an organization
because of the work of this team. We have
made great strides together, and we see the
opportunity to accelerate our progress further.
In 2020, we made a formal commitment to build
on this foundation and elevated Diversity, Equity
and Inclusion to corporate “blue chip” status.
This initiative will focus on four core pillars — our
customers, our communities, our people and our
vendors — to take action that can lead to tangible,
positive change across the company and in the
communities we serve.
Commerce’s culture reinforces the need to build
strong relationships with our communities. In
addition to the services we provide as bankers,
we contribute philanthropically through the
Commerce Bancshares Foundation and through
volunteerism that we formally encourage by
providing paid time off for our team members. Our
team members support hundreds of nonprofits
in our communities with their time, expertise and
financial resources. Additionally, we take care to
help ensure our lending products and solutions
meet the needs of the community, and we offer
affordable options for homeownership through
various customer programs. We are proud of the
“outstanding” Community Reinvestment Act rating
the company has received for more than 20 years
for our efforts to support low- and moderate-
income communities.
6
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
Our Business Segments — Focusing
on Our Customers and Positioning
for Growth
Consumer Banking
As in so many areas of our work, the COVID-19
pandemic pushed Commerce to embrace new ways
of engaging with our customers. In the consumer
banking segment, we acted quickly to help ensure
our customers received the financial support needed
during these difficult times. While our branches
remained fully operational in compliance with local
guidelines, many customers chose to engage with us
in alternative ways. Our Customer Care Center saw
call volumes increase as much as 33% over 2019, and
mobile deposit usage increased from 15% to 24% over
the course of 2020.
To provide our customers
a way to connect with
our bankers anytime and
anywhere, we launched the
Commerce Bank CONNECT™
mobile app experience.
The first such service to
be offered in our largest
markets, CONNECT gives customers a “banker in their
pocket” to ask questions, select services, complete
routine banking needs and more. Customers select a
banker of their choosing — by specialty, location or
skillset — and message them directly for personalized
solutions on their schedule.
To keep pace with the ever-changing digital
environment, we made several enhancements to our
offerings. These included self-service features such
as a streamlined online account opening process for
existing customers and a simplified password reset
process, as well as a new online banking feature
that improves the transaction search functionality.
Customers can also receive personalized loan offers
through online and mobile banking and chat virtually
with our mortgage team.
We expanded our CommercePremier Banking
program to engage additional customers with more
personalized relationship management. Across St.
Louis, Kansas City, Springfield, Central Missouri and
Illinois, Premier bankers are managing a portfolio of
16,000 households, representing nearly a third of the
company’s retail deposits.
To align with shifting customer preferences, we
continued our branch optimization efforts with a net
reduction of seven branch locations and 12 ATMs. We
introduced new staffing efficiencies and leadership
development programs for our branch teams and
implemented new support models for commercial
offices in Houston, Texas and Quincy, Illinois.
Backed by enhancements like these, Commerce
continues to show solid deposit growth at a funding
cost below peer benchmarks. On the whole, retail
relationships at Commerce are deep. In our most
recent measurement, 76% of our retail banking
customers consider us their primary bank. As a
testament to the best-in-class experience we provide
our customers, Newsweek recognized Commerce in
its inaugural America’s Best Banks 2021 list for Best
Customer Service.
Our long-term focus continues to be on making
investments in innovation while managing our
expenses appropriately. Looking ahead in 2021, we
will introduce a new liquidity solution, expand digital
solutions, invest in new experiences for our team and
amplify our marketing messages while aligning our
investments toward growth opportunities across the
footprint.
Commercial Banking and Commercial Payments
Our commercial banking and payments teams serve
more than 13,000 customers across the U.S., helping
them access the payments system, manage risk,
fund growth, improve cash flow and take on new
challenges, of which there were many in 2020.
Our teams spent thousands of hours in 2020
supporting customers through the SBA’s PPP lending
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
7
initiative. A team of 900+ from across the
bank came together to help more than 7,500
customers apply for and receive PPP funds. This
accomplishment came amidst a new and unfamiliar
pivot to remote working. The technology
that enabled the team to work so effectively
also opened doors to new and exciting ways
to engage customers through virtual events,
entertaining and networking. More broadly, it
enabled a new and highly effective model for sales
and service.
Encouraged by the steady growth in our expansion
markets, we deepened our investment in strategic
locations, high-performing talent and locally based
industry specialists. Our strategy in these markets
is centered around people — enabling highly
skilled bankers and product experts to support
customers and prospects. Our efforts have paid
dividends for the commercial bank through strong
earnings growth and successful diversification into
faster-growing markets. In the aggregate, these
expansion markets now represent 23% of total
commercial loans.
Expansion Market Loan Growth
5-year CAGR
13%
6%
Total Company
Expansion Markets
When COVID-19 struck, our CommercePayments™
team was prepared to serve as a trusted advisor
to our customers and prospects. Our payments
experts focused on how to assist with the
changing payments needs of clients, including the
elimination of paper and manual processes, plus
other operating efficiencies spurred by distributed
back-office workforces. The foundation of prior
investments in digital technology has enabled the
efficient onboarding of new customers as well as
the timely servicing of existing ones.
The CommerceHealthcare® team continued to
add value in an industry that was deeply affected
by the pandemic. The CommerceHealthcare®
strategy remains focused on helping healthcare
providers improve cash flow, reduce expenses and
enhance the patient experience. Because many of
our solutions allow providers to shift to a remote
workplace, create a touchless patient payment
experience, and generate efficiencies and cost
savings, the team is well-positioned to continue to
grow the CommerceHealthcare® presence across
the country.
Among the many technology investments in recent
years, perhaps the most impactful in 2020 was
the latest release of our customer relationship
management tool, Insight360, powered by
Salesforce. This release brought our commercial
banking and commercial payments teams together
on the same customer relationship management
platform for the first time. As we look to the
remainder of 2021, we expect this investment
will yield enhanced collaboration across teams,
increased productivity by individual team
members and an even more cohesive customer
experience.
Wealth Management
Despite the difficult economic environment, our
wealth management business had a record year in
2020, with pre-tax profit growth of 15% resulting
from new client acquisition, expanded business of
existing clients and higher market values. As the
17th largest bank-managed trust company in the
country, Commerce Trust Company now oversees
$61.2 billion in client assets under administration.
According to a recent WISE Gateway report,
Commerce Trust Company is growing revenue
8
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
at seven times that of industry wealth management
peers. This is driven by organic growth — particularly
new client acquisition — and excellent asset retention.
Underpinning this client retention are extremely high
client satisfaction levels which, despite the pandemic,
came in at 96% in 2020. Our private banking business
showed excellent results as loans grew 9% to $1.4
billion, while deposits grew 78% to $3.4 billion. In 2020,
Commerce Trust Company was recognized by Global
Finance as the Best U.S. Regional Private Bank in the
Midwest.
products and personalized services for high-net
worth clients. Insurance premium financing is just one
example of a highly specialized product that we added
to meet our clients’ complex financial needs. While
in-person interactions will remain a cornerstone of our
service model, further investments in digital tools are
planned to help facilitate virtual client performance
reviews and discovery sessions with prospects. We
are taking a proactive approach to developing and
recruiting top professionals for key positions, ensuring
continuity and strength in our teams for years to come.
Trust Assets
Assets Under Administration
$61.2
$56.7
$ in billions
$50.0
2018
2019
2020
We recently announced the rebranding of Commerce
Brokerage Services, Inc. to Commerce Financial
Advisors, which better reflects the holistic approach
Commerce takes in serving our clients and their
financial needs, including personalized retirement
planning, investment and insurance advice.
In 2020, we were able to leverage prior-year
investments to successfully integrate our systems,
sales and marketing activities into a unified platform.
This platform has empowered our team to more
effectively engage clients, identify opportunities and
prioritize outreach. We are confident this approach will
accelerate growth over time.
Building on these strong results, we continued to make
new investments in people, products and technology,
positioning us well for the future. During 2020, we
launched an initiative to transform our private banking
Strong Collaboration Across the Bank
In times like these, our culture is what positions us
for greater agility and collaboration and provides
the foundation for our success. We are better able
to respond to the needs of our teams and customers
because of this foundation. In a trying year, the
Commerce team formed new relationships and
strengthened bonds across the bank in ways that
seemed unimaginable only months ago.
Perhaps nowhere has this collaboration been clearer
than on a multiyear project to upgrade our core
deposit system, an effort that will come to fruition in
2021. This innovative, transformative project is arguably
the largest in our company’s history. Once completed,
it will provide a flexible and scalable foundational
architecture to allow us to grow well into the future.
Each year, Temenos, our software partner, recognizes
one customer who has demonstrated a continued
contribution to the advancement of new technology.
In 2020, Commerce received the Pioneer Award for
the innovative work on the bank’s core transformation
initiative.
Investments in our companywide customer relationship
management (CRM) platform paid dividends in 2020
as we successfully utilized our system for the SBA PPP
initiative. Ongoing CRM enhancements continue to
provide better visibility, improved data and reporting,
and increased communication and collaboration
among our bankers, allowing us to work together
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
9
seamlessly and with agility on behalf of our
customers.
Looking Ahead — Focusing on the
Long Term
Despite the challenging backdrop of 2020,
Commerce’s financial results were strong, and we
continued to operate effectively, delivering value
to our customers, and in turn, to our shareholders.
We made significant progress against a number of
key initiatives while working together in new ways.
As mentioned earlier, our team’s engagement
scores from last year were at an all-time high. We
are receiving similarly positive feedback from our
customers, gaining new relationships and playing
offense in growth areas like payments and wealth
management.
While we are optimistic about the days ahead, we
know 2021 will likely be another challenging year
in several regards. We expect the banking industry
to show higher credit losses and loan growth to
be muted. This period of very low interest rates
will continue to put pressure on margins and bank
earnings. Nonetheless, our credit losses were well-
contained during 2020, and we remain diligent in
optimizing our credit outcomes. Looking ahead,
we will continue to benefit from our diversified set
of revenue streams. While the economic outlook
has improved and vaccine distribution has created
a sense of hope, there is continued uncertainty
about the pace of the recovery and possible
long-term impacts. As such, culture and agility will
remain critical for us to deliver superior service
and results.
Our strong capital position and focus on
operational efficiency will enable us to continue
to grow our business and take advantage of
opportunities in the industry. Our longer-term
success depends on our ability to retain and
attract the best talent and to communicate
effectively across the organization, supported by
a best-in-class culture. As we look to the future,
our franchise is well-positioned to face challenges
with confidence, to execute against our long-term
strategies and to play offense in a challenging
time.
Growth in EPS and Stock Price
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t
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10
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
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e
P
s
g
n
n
r
a
E
i
$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$0.00$10.00$20.00$30.00$40.00$50.00$60.00$70.002016201120142012201320152018201720192020Stock Price Earnings Per Share (EPS)
Performance Highlights
• Commerce reported earnings per share of $2.91, down
from $3.41 in 2019. Return on average assets totaled
1.20% in 2020, and the return on common average equity
was 10.6%. This compares favorably to the top 50 bank
industry median of .74% for return on average assets and
6.3% for return on average common equity.
• Net income available to common shareholders totaled
$342 million in 2020 compared to $412 million in 2019,
reflecting an $81 million increase to the allowance for
credit losses on loans driven by the COVID-19 pandemic.
• In 2020, Commerce paid a regular cash dividend of $1.03
per share (restated) on common shares, representing a
9% increase over 2019. In February 2021, we announced
a 2% increase in our regular cash dividend, marking the
53rd consecutive year in which regular cash dividends
increased. Also in 2020, for the 27th year in a row, we
paid a 5% stock dividend.
• Total shareholders’ equity grew to $3.4 billion, and our
Tier I common risk-based capital ratio remained strong,
ending 2020 at 13.7%. Also during 2020, we redeemed all
$150 million of our 6.0% Series B preferred stock.
• Period end total loans grew $1.6 billion, or 11%, in 2020,
driven mostly by increases in business and personal real
estate loans, which grew 18% and 20%, respectively.
• Business loan growth was driven by our efforts to
help customers participate in the Small Business
Administration’s Paycheck Protection Program (PPP). In
2020, we originated $1.5 billion in loans for more than
7,500 customers, with a median loan size of $33 thousand.
• Total deposits grew $6.4 billion, or 31%, compared to
2019, significantly outpacing loan demand.
• Fee income from our wealth management businesses
grew 4% to $189 million. Commerce Trust Company
assets under administration now total $61.2 billion.
• Fee income from our mortgage business grew 91% to
$21 million. During 2020, we originated $1.4 billion in
mortgage loans.
• Net loan charge-offs totaled $35 million and were $15
million less than 2019. Net credit losses totaled .22% of
total loans and the non-performing assets to total loans
ratio was .16% at December 31, 2020.
• Commerce Bank was named among America’s Best Banks
2020 by Forbes and ranked in the top quartile of the 100
banks recognized.
Cash Dividends
per Common Share
$1.03
$.94
$.81
2018
2019
2020
Tier 1 Common
Risk-Based Capital Ratio
13.7%
11.2%
11.6%
Commerce
Peer
Median
Large Bank
Median
Total Loans
$ in billions
5-year CAGR = 5.6%
$16.4
$13.4
$14.2
2016
2018
2020
Total Deposits
$ in billions
5-year CAGR = 6.2%
$26.9
$21.1
$20.3
2016
2018
2020
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
11
Commerce by the Numbers
Total Assets
$32.9
BILLION
Market
Capitalization
$7.7
BILLION
Trust Assets
Under Management
$38.3
BILLION
Ranked
42nd
Among U.S.
Banks
Ranked
16th
Among U.S.
Banks
Ranked
17th
Among U.S.
Banks1
$26.9
Billion in Total Deposits
155
Years in Business
$16.4
Billion in Total Loans
12 th
Largest Commercial Card Issuer2
a1
Baseline Credit Assessment3
Commerce is 1 of 6 U.S. banks
with an a1 or better
Moody’s rating
4,766
Full-Time Equivalent
Employees
F U L L - S E RV I C E B A N K I N G F O OT P R I N T
157 full-service branches and 354 ATMs
St. Louis • Kansas City
Springfield • Central Missouri
Central Illinois • Wichita
Tulsa • Oklahoma City • Denver
C O M M E R C I A L O F F I C E S
Cincinnati • Nashville • Dallas
Des Moines • Indianapolis
Grand Rapids • Houston
U. S . P R E S E N C E
Extended Commercial Market Area
Commercial Payments Services
Offered in 48 states across the U.S.
1 Regulated U.S. depositories, which includes commercial banks, bank holding companies and credit unions
2 Based on Top 50 U.S. Banks by asset size as of 2019 and Nilson Report rankings
3 Moody’s U.S. Bank Rankings, November 17, 2020; Moody’s rating affirmed - December 22, 2020
12
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
Community Advisors
Our Community Advisors help us understand the unique needs and challenges of our customers and communities. They
are business owners, educators, professionals and civic leaders who take on the challenges of their organizations and
communities every day. We’re continually impressed by their hard work and grateful to them for sharing their valuable
insights. It is because of our Community Advisors in each of our markets that we’re able to say “Challenge Accepted.®”
Missouri
CAPE GIRARDEAU
Nick Burger
Commerce Bank
Tim Coad
Coad Chevrolet and Coad Toyota
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Mike Kasten
Beef Alliance
Adam Kidd
Kidd’s Gas & Convenience Store
Frank Kinder
Red Letter Communications, Inc.
Steve Sowers
Commerce Bank
Susan Layton Tomlin
Layton & Southard, LLC
Allen Toole
Schaefer’s Electrical Enclosures
Ben Traxel
Tenmile Companies
CENTRAL MISSOURI
Dan Atwill
Boone County Commission
Dr. Holly Bondurant
Tiger Pediatrics
Brent Bradshaw
Orscheln Management Co.
Philip Burger
Burgers’ Smokehouse
Brad Clay
Commerce Bank
Sarah Dubbert
Commerce Bank
Mark Fenner
Former Energy Industry CEO
Joe Hartman
Retired, Commerce Bank
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
George M. Huffman
Pearl Motor Company
Jack W. Knipp
Knipp Enterprises
Rick Kruse
Retired, Boone National Savings &
Loan Association
Dr. Mike Lutz
Mike Lutz, DDS
Dr. Clifford J. Miller
Green Hills Veterinary Clinic
Robby Miller
Mexico Heating Company
Todd Norton
Commerce Bank
Robert K. Pugh
Retired, MBS Textbook Exchange
Gina Raines
Commerce Bank
Jim Rolls
Retired, Associated Electric Cooperative
Steve Sowers
Commerce Bank
David Townsend
Agents National Title Insurance Company
Andy Waters
AW Holdings, LLC
Larry Webber
Webber Pharmacy
Robin Wenneker
CPW Partnership
Dave Whelan
Commerce Bank
Dr. John S. Williams
Retired, Horton Animal Hospital
HANNIBAL
C. Todd Ahrens
Hannibal Regional Healthcare System
David M. Bleigh
Bleigh Construction Company
Bleigh Ready Mix Company
Aaron Rains
Commerce Bank
Laurence Smith
ReeceNichols Smith Realty
Dr. Larry Snider
Retired, Snider Optometry
Timothy Soulis
Golden Classics Jewelers
KANSAS CITY
Ali H. Armistead
Alaris Capital, LLC
Kevin G. Barth
Commerce Bancshares, Inc.
Commerce Bank
Rosana Privitera Biondo
Mark One Electric Co., Inc.
Clay C. Blair, III
Clay Blair Services Corp.
Timothy S. Dunn
JE Dunn Construction Group, Inc.
Jon D. Ellis
Paradise Park, Inc.
Stephen E. Gound
Labconco Corp.
Jonathan M. Kemper
Commerce Bancshares, Inc.
Commerce Bank
David F. Kiersznowski
DEMDACO
Michael P. McCoy
Intercontinental Engineering-
Manufacturing Corporation
Jim Humphreys
Luck, Humphreys and Associates, CPA, PC
Stephen G. Mos
Central States Beverage Company
Darin D. Redd
Commerce Bank
Mike Scholes
Reliable Termite & Pest Control, Inc.
Steve Sowers
Commerce Bank
HARRISONVILLE
Aaron Aurand
Crouch, Spangler & Douglas
Connie Aversman
Commerce Bank
Larry Dobson
Real Estate Investments
Mark Hense
iFIL USA, LLC
Scott Milner
Retired, Milner Ford
Brent Probasco
Cass Regional Medical Center, Inc.
Edward J. Reardon, II
Commerce Bank
Ora H. Reynolds
Hunt Midwest Enterprises, Inc.
Dr. Nelson R. Sabates
Sabates Eye Centers
Charles S. Sosland
Sosland Publishing Company
Thomas R. Willard
Commerce Trust Company
Tower Properties Company
POPLAR BLUFF
Edward L. Baker
Edward L. Baker Enterprises
Larry Greenwall
Greenwall Vending Co.
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Kenny Rowland
Commerce Bank
Steve Sowers
Commerce Bank
Gregory West
Mills Iron & Supply
ST. JOSEPH
Mark Barkman
Commerce Trust Company
Brett Carolus
Hillyard, Inc.
Brendon Clark
Commerce Bank
James H. Counts
Morton, Reed, Counts, Briggs & Robb, LLC
Pat Dillon
Mosaic Life Care
Corky Marquart
Commerce Bank
Todd Meierhoffer
Meierhoffer Funeral Home & Crematory
Patrick Modlin
Room 108/Felix Street Gourmet
Dr. Scott Murphy
Murphy-Watson-Burr Eye Center
Edward J. Reardon, II
Commerce Bank
Matt Robertson
CliftonLarsonAllen LLP
Amy Ryan
Commerce Bank
Judy Sabbert
Retired, Heartland Foundation
Rick Schultz
RS Electric
Bill Severn
NPG, Inc.
Heidi Walker
CBIZ Insurance Services
Julie Walker
Commerce Trust Company
ST. LOUIS METRO
Blackford F. Brauer
Hunter Engineering Co.
Kyle Chapman
BW Forsyth Partners
Charles L. Drury, Jr.
Drury Hotels
Frederick D. Forshaw
Forshaw of St. Louis
James G. Forsyth, III
Moto, Inc.
David S. Grossman
Grossman Iron & Steel
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
13
Tom Harmon
Commerce Bank
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
Kristin Humes
Tacony Corporation
Donald A. Jubel
Spartan Light Metal Products
David W. Kemper
Commerce Bancshares, Inc.
John W. Kemper
Commerce Bancshares, Inc.
Commerce Bank
Alois J. Koller, III
Koller Enterprises, Inc.
Kristopher G. Kosup
Buckeye International, Inc.
James B. Morgan
Subsurface Constructors, Inc.
Chrissy Nardini
American Metal Supplies Co., Inc.
Victor L. Richey, Jr.
ESCO Technologies, Inc.
James E. Schiele
Consultant
Paul J. Shaughnessy
BSI Constructors, Inc.
Thomas H. Stillman
Summit Distributing
Christine Taylor
Enterprise Holdings, Inc.
Andrew Thome
J.W. Terrill
Gregory Twardowski
Investments
Kelvin R. Westbrook
KRW Advisors, LLC
ST. LOUIS METRO EAST
Hamilton Callison
Breakthru Beverage
Harlan Ferry, Jr.
Retired, Commerce Bank
Matthew Gomric
Commerce Bank
Jared Katt
Chelar Tool & Die, Inc.
Robert McClellan
Retired, Hortica
James Rauckman
Rauckman High Voltage Sales, LLC
Dr. James T. Rosborg
McKendree University
Richard Sauget Jr.
Mayor of Sauget
Jack Schmitt
Jack Schmitt Family of Dealerships
Kurt Schroeder
Greensfelder, Hemker & Gale, P.C.
Joe Wiley
Quest Management Consultants
Dr. Charles J. Willey
Innovare Health Advocates
ST. LOUIS BUSINESS BANKING
Richard K. Brunk
Attorney at Law
James N. Foster
McMahon Berger
J.L. (Juggie) Hinduja
Sinclair Industries, Inc.
Susan Kalist
Commerce Bank
Greg Kendall
Commerce Bank
Stuart Krawll
Beam of St. Louis, Inc.
Patrick N. Lawlor
Lawlor Corporation
Scott Lively
CliftonLarsonAllen LLP
Stephen Mattis
Allied Industrial Equipment Corporation
Lisa D. McLaughlin
Reilly & McLaughlin
McGraw Milhaven
KTRS
Elizabeth Powers
Powers Insurance
Dennis Scharf
Scharf Tax Services
ST. CHARLES COUNTY NORTH
Kevin Bray
Commerce Bank
Lou Helmsing
Craftsmen Trailer
Dr. Barbara Kavalier
St. Charles Community College
Susan Kalist
Commerce Bank
Greg Kendall
Commerce Bank
Dr. Art McCoy
Jennings School District
Peter J. Mihelich, Jr.
Goellner Promotions
Duane A. Mueller
Cissell Mueller Construction Company
Howard A. Nimmons, CPA, CFP
Nimmons Wealth Management
Tarlton J. Pitman
Pitman Funeral Home, Inc.
Lisle J. Wescott
SSM Health – St. Joseph Hospital
William J. Zollmann, III
Attorney at Law
SPRINGFIELD
Brian Esther
Commerce Bank
James P. Ferguson
Heart of America Beverage Co.
Charles R. Greene
American Sportsman Holdings Co.
Bunch Greenwade
Rancher
Robert A. Hammerschmidt, Jr.
Commerce Bank
Dr. Hal L. Higdon
Ozarks Technical Community College
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
Craig Lehman
Shelter Insurance Agency
Sherry Lynch
Commerce Bank
Michael Meek
Investments
Alvin D. Meeker
Retired, Commerce Bank
James F. Moore
Retired, American Products
Robert Moreland
More-Land Realty, LLC
David Murray
R.B. Murray Company
Douglas D. Neff
Commerce Bank
Keith Noble
Commerce Bank
Richard Ollis
Ollis/Akers/Arney Insurance &
Business Advisors
Doug Russell
The Durham Company
Rusty Shadel
Shadel’s Colonial Chapel
David Waugh
Independent Stave Company
MOKAN
Donald Cupps
Ellis, Cupps & Cole
Joe Dellasega
U.S. Awards
Adam Endicott
Unique Metal Fabrication, Inc.
Jay Hatfield
Jay Hatfield Chevrolet
Phil Hutchens
Hutchens Construction
Jerrod Hogan
Anderson Engineering
Wesley C. Houser
Retired, Commerce Bank
David C. Humphreys
TAMKO Building Products, Inc.
Don Kirk
H & K Camper Sales, Inc.
Barbara J. Majzoub
Yorktown Properties
Douglas D. Neff
Commerce Bank
Eric Schnelle
S & H Farm Supply, Inc.
Steve W. Sloan
Midwest Minerals, Inc.
Brian Sutton
Commerce Bank
Clive Veri
Commerce Bank
Wendell L. Wilkinson
Retired, Commerce Bank
Kansas
BUTLER COUNTY (EL DORADO)
Vince Haines
Gravity :: Works Architecture
Ryan T. Murry
ICI
Marilyn B. Pauly
Commerce Bank
Jeremy Sundgren
Sundgren Realty, Inc.
Mark Utech
Commerce Bank
GARDEN CITY
Monte A. Cook
Commerce Bank
Richard Harp
Commerce Bank
Lee Reeve
Reeve Cattle Company
Patrick Rooney
Rooney Farms
Tamara Roth
Allred & Company, CPA’s, Inc.
Pat Sullivan
Retired, Sullivan Analytical Service, Inc.
HAYS
D.G. Bickle, Jr.
Warehouse, Inc.
Monte A. Cook
Commerce Bank
Brian Dewitt
Adams, Brown, Beran & Ball, CPAs
Stuart Lowry
Sunflower Electric Power Corporation
Marty Patterson
Rome Corporation
Shane Smith
Commerce Bank
Kevin Royer
Midland Marketing Coop
LAWRENCE
Rob Gillespie
Commerce Bank
Michele Hammann
SS&C Solutions, Inc.
Mark Heider
Commerce Bank
Russ Johnson
LMH Health
Eugene W. Meyer
Executive in Residence
Masters HealthCare Administration, KUMC
Allison Vance Moore
Colliers International
Martin W. Moore
Advanco, Inc.
Kevin J. O’Malley
O’Malley Beverage of Kansas, Inc.
Edward J. Reardon, II
Commerce Bank
Dan C. Simons
The World Company
Michael Treanor
TreanorHL
14
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
Dr. Andy Revelis
Tulsa Pain Consultants
Daryl Woodard
SageNet
Colorado
DENVER
Robert L. Cohen
The IMA Financial Group, Inc.
Joseph Freund, Jr.
Running Creek Ranch
R. Allan Fries
i2 Construction, LLP
Darren Lemkau
Commerce Bank
James C. Lewien
Retired, Commerce Bank
Alek Orloff
Frontier Waste Solutions
David Schunk
Volunteers of America, Colorado Branch
Olivia Thompson
Retired, AlloSource
Jason Zickerman
The Alternative Board
LEAVENWORTH
Arlen Briggs
Armed Forces Insurance Exchange
Norman B. Dawson
Retired, Commerce Bancshares, Inc.
Mark Denney
J.F. Denney Plumbing & Heating
Jeremy Greenamyre
Greenamyre Rentals
Eric Hoins
Young Sign Company, Inc.
Matt Kaaz
Leavenworth Excavating & Equipment
Company, Inc.
Chris Klimek
Central Bag Company
Lawrence W. O’Donnell, Jr.
Lawrence W. O’Donnell, Jr., CPA Chartered
Bill Petrie
Commerce Bank
Edward J. Reardon, II
Commerce Bank
MANHATTAN
Mark Bachamp
Olsson Associates
Linda Cook
Kansas State University
Monte A. Cook
Commerce Bank
Shawn Drew
Commerce Bank
Neal Helmick
Griffith Lumber Co.
Dr. David Pauls
Surgical Associates
WICHITA
Ray L. Connell
Connell & Connell
Monte A. Cook
Commerce Bank
Thomas E. Dondlinger
Dondlinger Construction
Craig Duerksen
Commerce Bank
Ronald W. Holt
Retired, Sedgwick County
Eric Ireland
Commerce Bank
Paul D. Jackson
Vantage Point Properties, Inc.
Kristi Krok
Commerce Bank
Brett Mattison
Decker & Mattison Co., Inc.
Marilyn B. Pauly
Commerce Bank
John Rolfe
Kansas Leadership Center
Barry L. Schwan
House of Schwan, Inc.
David White
Alloy Architecture
Illinois
BLOOMINGTON-NORMAL
Brent A. Eichelberger
Commerce Bank
Neil Finlen
Farnsworth Group, Inc.
Ron Greene
Afni, Inc.
Jared Hall
Keplr Vision Services
Mary Bennett Henrichs
Integrity Technology Solutions
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
Colleen Kannaday
Carle BroMenn Medical Center
Nick Kemp
Vogo Cabinets
William Phillips
Commerce Bank
Jay Reece
Mueller, Reece & Hinch, LLC
Alan Sender
Retired, Chestnut Health Systems
CHAMPAIGN-URBANA
Mark Arends
Arends Hogan Walker, LLC
Matt Deering
Meyer Capel
Brent A. Eichelberger
Commerce Bank
Donna Greene
University of Illinois Foundation
Tim Harrington
Devonshire Group
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Kim Martin
Martin Hood, LLC
PEORIA
Bruce L. Alkire
Coldwell Banker Commercial
Devonshire Realty
David W. Altorfer
United Facilities, Inc.
Royal J. Coulter
Coulter Companies, Inc.
Dr. Michael A. Cruz
OSF Healthcare System
Brent A. Eichelberger
Commerce Bank
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
John P. Kaiser
RSM US, LLP
Dr. James W. Maxey
OSF Orthopaedics
Rebecca L. Rossman
Neighborhood House
Leanne Skuse
River City Construction, LLC
Jonathan A. Williams
Commerce Bank
Oklahoma
OKLAHOMA CITY
Gary Bridwell
Orange Power Group
Steve Brown
Red Rock Distributing Co.
Jim Cleaver
Midsouth Financial Company
Clay Cockrill
Manhattan Construction Company
Sherry Dale
The Mettise Group
Mark Fischer
Fischer Investments
Zane Fleming
Eagle Drilling Fluids
Mike McDonald
Triad Energy
Shannon O’Doherty
Commerce Bank
Vince Orza
Retired, Family Broadcasting Corporation
Kathy Potts
Rees Associates, Inc.
Joe Warren
Cimarron Production
TULSA
Jack Allen
HUB International Limited
Stephanie Cameron
AAON, Inc.
R. Scott Case
Case & Associates, Inc.
Wade Edmundson
Commerce Bank
Dr. John R. Frame
Breast Health Specialists of Oklahoma
Gip Gibson
Commerce Bank
Kent J. Harrell
Harrell Energy
Ed Keller
Titan Properties
Teresa L. Knox
Hickory House Properties LLC
Ken Lackey
The NORDAM Group, Inc.
Tom E. Maxwell
Retired, Flintco, LLC
Sanjay Meshri
Advanced Research Chemicals, Inc.
John Neas
Neas Investments
Shannon O’Doherty
Commerce Bank
John Peters
Adwon Properties
Tracy A. Poole
FortySix Venture Capital LLC
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
15
Officers
Directors
16
COMMERCE BANCSHARES, INC. | 2020 ANNUAL REPORT
Terry D. Bassham*Retired Chief Executive Officer and President Evergy, Inc.John R. Capps*Vice President Weiss ToyotaKaren L. Daniel*Retired Chief Financial Officer and Executive Director Black & VeatchEarl H. Devanny, IIIChief Executive Officer Tract Manager W. Thomas Grant, IIDirector SelectQuoteDavid W. KemperExecutive Chairman Commerce Bancshares, Inc.John W. KemperPresident and Chief Executive Officer Commerce Bancshares, Inc.Jonathan M. KemperChairman Emeritus Commerce Bank Kansas City RegionBenjamin F. Rassieur, III*President Paulo Products CompanyTodd R. Schnuck*Chairman of the Board and Chief Executive Officer Schnuck Markets, Inc.Andrew C. TaylorExecutive Chairman Enterprise Holdings, Inc.Kimberly G. Walker*Retired Chief Investment Officer Washington University in St. Louis*Audit and Risk Committee MemberDavid W. KemperExecutive Chairman John W. KemperPresident and Chief Executive OfficerCharles G. KimChief Financial Officer and Executive Vice PresidentKevin G. BarthExecutive Vice PresidentSara E. FosterExecutive Vice PresidentJohn K. HandyExecutive Vice PresidentRobert S. HolmesExecutive Vice PresidentDavid L. OrfChief Credit Officer and Executive Vice PresidentDerrick R. BrooksSenior Vice PresidentJeffrey M. BurikSenior Vice PresidentPatricia R. KellerhalsSenior Vice PresidentDouglas D. NeffSenior Vice PresidentPaula S. PetersenSenior Vice PresidentDavid L. RollerSenior Vice PresidentThomas J. NoackSecretary, General Counsel and Senior Vice PresidentB. Lynn TankesleyChief Risk Officer and Senior Vice President Paul A. SteinerControllerAaron C. MeinertAuditor (Mark One)
☑
☐
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________________________________________________
For the Fiscal Year Ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________________________________________________
For the transition period from to
Commission File No. 001-36502
COMMERCE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Missouri
(State of Incorporation)
43-0889454
(IRS Employer Identification No.)
1000 Walnut
Kansas City, MO
(Address of principal executive offices)
64106
(Zip Code)
Registrant's telephone number, including area code: (816) 234-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Trading symbol(s)
Name of exchange on which registered
$5 Par Value Common Stock
CBSH
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company"
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated Filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☑
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of June 30, 2020, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $6,146,000,000.
As of February 18, 2021, there were 117,078,437 shares of Registrant’s $5 Par Value Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its 2021 annual meeting of shareholders, which will be filed within 120 days of December 31, 2020,
are incorporated by reference into Part III of this Report.
Commerce Bancshares, Inc.
Form 10-K
INDEX
PART I
Item 1.
Business
Item 1a.
Risk Factors
Item 1b.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6.
Selected Financial Data
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7a.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9a.
Controls and Procedures
Item 9b.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
Page
3
9
15
15
15
15
17
18
18
63
63
137
137
139
139
139
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Item 1. BUSINESS
General
PART I
Commerce Bancshares, Inc., a bank holding company as defined in the Bank Holding Company Act of 1956, as amended,
was incorporated under the laws of Missouri on August 4, 1966. Through a second tier wholly-owned bank holding company, it
owns all the outstanding capital stock of Commerce Bank (the “Bank”), which is headquartered in Missouri. The Bank engages
in general banking business, providing a broad range of retail, mortgage banking, corporate, investment, trust, and asset
management products and services to individuals and businesses. Commerce Bancshares, Inc. also owns, directly or through the
Bank, various non-banking subsidiaries. Their activities include private equity investment, securities brokerage, insurance
agency, specialty lending, and leasing activities. A list of Commerce Bancshares, Inc.'s subsidiaries is included as Exhibit 21.
Commerce Bancshares, Inc. and its subsidiaries (collectively, the "Company") is one of the nation’s top 50 bank holding
companies, based on asset size. At December 31, 2020, the Company had consolidated assets of $32.9 billion, loans of $16.4
billion, deposits of $26.9 billion, and equity of $3.4 billion. The Company’s operations are consolidated for purposes of
preparing the Company’s consolidated financial statements. The Company's principal markets, which are served by 157 branch
facilities, are located throughout Missouri, Kansas, and central Illinois, as well as Tulsa and Oklahoma City, Oklahoma and
Denver, Colorado. Its two largest markets are St. Louis and Kansas City, which serve as central hubs for the Company. The
Company also has offices supporting its commercial customers in Dallas, Houston, Cincinnati, Nashville, Des Moines,
Indianapolis, and Grand Rapids, and operates a commercial payments business with sales representatives covering the
continental United States of America (“U.S.”).
The Company’s goal is to be the preferred provider of financial services in its communities, based on strong customer
relationships built through providing top quality service with a strong risk management culture, and employing a strong balance
sheet with strong capital levels. The Company operates under a super-community banking format which incorporates large
bank product offerings coupled with deep local market knowledge, augmented by experienced, centralized support in select,
critical areas. The Company’s focus on local markets is supported by an experienced team of bankers assigned to each market
coupled with industry specialists. The Company also uses regional advisory boards, comprised of local business persons,
professionals and other community representatives, who assist the Company in responding to local banking needs. In addition
to this local market, community-based focus, the Company offers sophisticated financial products usually only available at
much larger financial institutions.
The markets the Bank serves are mainly located in the lower Midwest, which provides natural sites for production and
distribution facilities and serve as transportation hubs. The economy has been well-diversified in these markets with many
major industries represented, including telecommunications, automobile, technology, financial services, aircraft and general
manufacturing, health care, numerous service industries, and food and agricultural production. The personal real estate lending
operations of the Bank are predominantly centered in its lower Midwestern markets.
From time to time, the Company evaluates the potential acquisition of various financial institutions. In addition, the
Company regularly considers the purchase and disposition of real estate assets and branch locations. The Company seeks
merger or acquisition partners that are culturally similar, have experienced management and either possess significant market
presence or have potential for improved profitability through financial management, economies of scale and expanded services.
The Company has not completed any bank acquisitions since 2013.
Employees and Human Capital
The Company employed 4,404 persons on a full-time basis and 184 persons on a part-time basis at December 31, 2020.
None of the Company's employees are represented by collective bargaining agreements.
Attracting and retaining talented team members is key to the Company’s ability to execute its strategy and compete
effectively. The Company values the unique combination of talents and experiences each team member contributes toward the
Company’s success and strives to offer rewards that meet team members’ individual, evolving needs. Well-being is much more
than a paycheck and that’s why the Company takes a comprehensive approach to Total Rewards, supporting team members’
physical well-being, financial well-being, and emotional well-being and career development. The Company’s financial well-
being program includes a company-matching 401(k) plan and health savings accounts, educational and adoption assistance
programs. Emotional well-being programs include paid time off, an employee assistance program (EAP) and company-paid
membership to Care.com. Physical well-being is supported by the Company’s health, dental, vision, life and various other
insurances, and a wellness program that incentivizes team members to live a healthy and balanced lifestyle. Career development
is also a key component of the Company’s Total Rewards, and the Company has a variety of programs to support team
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members as they continue to grow within their current role or develop for their next role. Job shadowing, leadership
development programs, Aspiring Managers program, Managing at Commerce, competency assessments and education
assistance are just a few of the ways the Company helps team members excel.
During 2020, the Coronavirus Disease 2019 (COVID-19) pandemic created new challenges for the Company and for its
team members. The Company focused efforts on providing team members support and resources to navigate the unprecedented
environment. Initiatives included daily communications providing relevant updates and information, resources for leaders to
help keep their teams engaged and connected, new resources for working parents, and access to emotional support resources.
The Company also provided premium pay to team members who were required to work onsite and 5 additional paid days off to
team members experiencing COVID-19 related issues.
The Company believes diversity, equity, and inclusion builds stronger companies with better results. In 2020, the Company
formalized and extended its commitment to focusing on diversity, equity, and inclusion (DEI) by elevating initiatives in this
area as strategic priorities, also known as “blue chips". The Company’s commitment to diversity, equity, and inclusion focuses
on four core pillars – people, customers, vendors, and community – while building on the foundation it has already established.
The Company has launched a variety of Employee Resource Groups (ERGs) to support its diverse workforce. RISE
(empowering women), EMERGE (connecting young professionals), VIBE (valuing multicultural perspectives), and PRIDE
(engaging the LGBTQIA+ community) are important forums that provide team members opportunities to connect, learn, and
encourage diverse perspectives. Other internal DEI efforts have included unconscious bias training, book clubs, listen, talk, and
learn sessions, courageous conversation training, mentoring programs, and review of talent at all levels of the organization. The
Company’s longstanding approach of “doing what’s right” continues to guide its focus on its team members and communities.
The Company’s robust listening strategy allows it to stay connected to the team member experience to understand the
evolving needs of its team members and to focus on what matters most to them. This strategy includes a balance of surveys,
focus groups, and one on one conversations to allow for two-way conversation and provides trends over time by key
demographics. The Company’s goal is to create a sense of belonging which it believes is connected to high levels of
engagement, enablement, retention, and results. The Company’s intentional strategy has allowed it to maintain levels of
engagement that have been recognized by its annual survey partner, Korn Ferry, for being “best-in-class”.
Competition
The Company operates in the highly competitive environment of financial services. The Company regularly faces
competition from banks, savings and loan associations, credit unions, brokerage companies, mortgage companies, insurance
companies, trust companies, credit card companies, private equity firms, leasing companies, securities brokers and dealers,
financial technology companies, e-commerce companies, mutual fund companies, and other companies providing financial
services. Some of these competitors are not subject to the same regulatory restrictions as domestic banks and bank holding
companies. Some other competitors are significantly larger than the Company, and therefore have greater economies of scale,
greater financial resources, higher lending limits, and may offer products and services that the Company does not provide. The
Company competes by providing a broad offering of products and services to support the needs of customers, matched with a
strong commitment to customer service. The Company also competes based on quality, innovation, convenience, reputation,
industry knowledge, and price. In its two largest markets, the Company has approximately 12% of the deposit market share in
Kansas City and approximately 8% of the deposit market share in St. Louis.
Operating Segments
The Company is managed in three operating segments: Commercial, Consumer, and Wealth. The Commercial segment
provides a full array of corporate lending, merchant and commercial bank card products, payment solutions, leasing, and
international services, as well as business and government deposit, investment, and cash management services. The Consumer
segment includes the retail branch network, consumer installment lending, personal mortgage banking, and consumer debit and
credit bank card activities. The Wealth segment provides traditional trust and estate planning services, brokerage services, and
advisory and discretionary investment portfolio management services to both personal and institutional corporate customers. In
2020, the Commercial, Consumer and Wealth segments contributed 52%, 25% and 22% of total segment pre-tax income,
respectively. See the section captioned "Operating Segments" in Item 7, Management's Discussion and Analysis, of this report
and Note 13 to the consolidated financial statements for additional discussion on operating segments.
Government Policies
The Company's operations are affected by federal and state legislative changes, by the United States government, and by
policies of various regulatory authorities, including those of the numerous states in which they operate. These include, for
example, the statutory minimum legal lending rates, domestic monetary policies of the Board of Governors of the Federal
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Reserve System, United States fiscal policy, international currency regulations and monetary policies, the U.S. Patriot Act, and
capital adequacy and liquidity constraints imposed by federal and state bank regulatory agencies.
Supervision and Regulation
The following information summarizes existing laws and regulations that materially affect the Company's operations. It
does not discuss all provisions of these laws and regulations, and it does not include all laws and regulations that affect the
Company presently or may affect the Company in the future.
General
The Company, as a bank holding company, is primarily regulated by the Board of Governors of the Federal Reserve System
under the Bank Holding Company Act of 1956, as amended (BHC Act). Under the BHC Act, the Federal Reserve Board’s prior
approval is required in any case in which the Company proposes to acquire all or substantially all the assets of any bank,
acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank, or merge or consolidate with
any other bank holding company. With certain exceptions, the BHC Act also prohibits the Company from acquiring direct or
indirect ownership or control of more than 5% of any class of voting shares of any non-banking company. Under the BHC Act,
the Company may not engage in any business other than managing and controlling banks or furnishing certain specified
services to subsidiaries, and may not acquire voting control of non-banking companies unless the Federal Reserve Board
determines such businesses and services to be closely related to banking. When reviewing bank acquisition applications for
approval, the Federal Reserve Board considers, among other things, the Bank’s record in meeting the credit needs of the
communities it serves in accordance with the Community Reinvestment Act of 1977, as amended (CRA). Under the terms of
the CRA, banks have a continuing obligation, consistent with safe and sound operation, to help meet the credit needs of their
communities, including providing credit to individuals residing in low- and moderate-income areas. The Bank has a current
CRA rating of “outstanding.”
The Company is required to file various reports and additional information with the Federal Reserve Board. The Federal
Reserve Board regularly performs examinations of the Company. The Bank is a state-chartered Federal Reserve member bank
and is subject to regulation, supervision and examination by the Federal Reserve Bank of Kansas City and the Missouri
Division of Finance. The Bank is also subject to regulation by the Federal Deposit Insurance Corporation (FDIC). In addition,
there are numerous other federal and state laws and regulations which control the activities of the Company, including
requirements and limitations relating to capital and reserve requirements, permissible investments and lines of business,
transactions with affiliates, loan limits, mergers and acquisitions, issuance of securities, dividend payments, and extensions of
credit. The Bank is subject to federal and state consumer protection laws, including laws designed to protect customers and
promote fair lending. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending
Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and their respective state law counterparts.
If the Company fails to comply with these or other applicable laws and regulations, it may be subject to civil monetary
penalties, imposition of cease and desist orders or other written directives, removal of management and, in certain
circumstances, criminal penalties. This regulatory framework is intended primarily for the protection of depositors and the
preservation of the federal deposit insurance funds. Statutory and regulatory controls increase a bank holding company’s cost of
doing business and limit the options of its management to employ assets and maximize income.
In addition to its regulatory powers, the Federal Reserve Bank affects the conditions under which the Company operates by
its influence over the national supply of bank credit. The Federal Reserve Board employs open market operations in U.S.
government securities and oversees changes in the discount rate on bank borrowings, changes in the federal funds rate on
overnight inter-bank borrowings, and changes in reserve requirements on bank deposits in implementing its monetary policy
objectives. These methods are used in varying combinations to influence the overall level of the interest rates charged on loans
and paid for deposits, the price of the dollar in foreign exchange markets, and the level of inflation. The monetary policies of
the Federal Reserve have a significant effect on the operating results of financial institutions, most notably on the interest rate
environment. In view of changing conditions in the national economy and in the money markets, as well as the effect of credit
policies of monetary and fiscal authorities, the Company makes no prediction as to possible future changes in interest rates,
deposit levels or loan demand, or their effect on the financial statements of the Company.
The financial industry operates under laws and regulations that are under regular review by various agencies and legislatures
and are subject to change. The Company currently operates as a bank holding company, as defined by the Gramm-Leach-Bliley
Financial Modernization Act of 1999 (GLB Act), and the Bank qualifies as a financial subsidiary under the GLB Act, which
allows it to engage in investment banking, insurance agency, brokerage, and underwriting activities that were not available to
banks prior to the GLB Act. The GLB Act also included privacy provisions that limit banks’ abilities to disclose non-public
information about customers to non-affiliated entities.
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The Company must also comply with the requirements of the Bank Secrecy Act (BSA). The BSA is designed to help fight
drug trafficking, money laundering, and other crimes. Compliance is monitored by the Federal Reserve. The BSA was enacted
to prevent banks and other financial service providers from being used as intermediaries for, or to hide the transfer or deposit of
money derived from, criminal activity. Since its passage, the BSA has been amended several times. These amendments
include the Money Laundering Control Act of 1986 which made money laundering a criminal act, as well as the Money
Laundering Suppression Act of 1994 which required regulators to develop enhanced examination procedures and increased
examiner training to improve the identification of money laundering schemes in financial institutions.
The USA PATRIOT Act, established in 2001, substantially broadened the scope of U.S. anti-money laundering laws and
regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and
expanding the extra-territorial jurisdiction of the U.S. The regulations impose obligations on financial institutions to maintain
appropriate policies, procedures and controls to detect, prevent, and report money laundering and terrorist financing. The
regulations include significant penalties for non-compliance.
The Company is subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2011
(Dodd-Frank Act). Among its many provisions, the Dodd-Frank Act required stress-testing for certain financial services
companies and established a new council of “systemic risk” regulators. The Dodd-Frank Act also established the Consumer
Financial Protection Bureau (CFPB) which is authorized to supervise certain financial services companies and has
responsibility to implement, examine for compliance with, and enforce “Federal consumer financial law.” The Company is
subject to examinations by the CFPB. The Dodd-Frank Act, through Title VI, commonly known as the Volcker Rule, placed
trading restrictions on financial institutions and separated investment banking, private equity and proprietary trading (hedge
fund) sections of financial institutions from their consumer lending arms. The Volcker Rule also restricts financial institutions
from investing in and sponsoring certain types of investments.
In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was signed into law which provides a
number of limited amendments to the Dodd-Frank Act. Notable provisions of the legislation include: an increase in the asset
threshold from $50 billion to $250 billion, above which the Federal Reserve is required to apply enhanced prudential standards;
an exemption from the Volcker Rule for insured depository institutions with less than $10 billion in consolidated assets;
modifications to the Liquidity Coverage and Supplementary Leverage ratios; and the elimination of Dodd-Frank company-run
stress tests for banks and bank holding companies with less than $250 billion in assets. Most of these provisions affect
institutions larger than the Company, and the Company is not required to prepare stress testing as specified by the Dodd-Frank
Act.
Subsidiary Bank
Under Federal Reserve policy, the bank holding company, Commerce Bancshares, Inc. (the "Parent"), is expected to act as a
source of financial strength to its bank subsidiary and to commit resources to support it in circumstances when it might not
otherwise do so. In addition, loans by a bank holding company to any of its subsidiary banks are subordinate in right of
payment to deposits and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s
bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Deposit Insurance
Substantially all of the deposits held by the Bank are insured up to applicable limits (generally $250,000 per depositor for
each account ownership category) by the FDIC's Deposit Insurance Fund (DIF) and are subject to deposit insurance
assessments to maintain the DIF. In 2011, the FDIC released a final rule to implement provisions of the Dodd-Frank Act that
affected deposit insurance assessments. Among other things, the Dodd-Frank Act raised the minimum designated reserve ratio
from 1.15% to 1.35% of estimated insured deposits, removed the upper limit of the designated reserve ratio, required that the
designated reserve ratio reach 1.35% by September 30, 2020, and required the FDIC to offset the effect of increasing the
minimum designated reserve ratio on depository institutions with total assets of less than $10 billion. The Dodd-Frank Act
provided the FDIC flexibility in the implementation of the increase in the designated reserve ratio and also required that the
FDIC redefine the assessment base to average consolidated assets minus average tangible equity.
On June 30, 2016, the DIF rose above 1.15%, resulting in a reduction of the initial assessment rate for all banks and
implementing a 4.5 basis point surcharge on insured depository institutions with total consolidated assets of $10 billion or more.
Effective October 1, 2018, this surcharge was eliminated as the DIF reached its required level of 1.35% of estimated insured
deposits. This had the effect of reducing the Company’s insurance costs by $1.5 million in the fourth quarter of 2018. The
Company's deposit insurance expense was $7.8 million and $6.7 million in 2020 and 2019, respectively. The increase in the
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Company's 2020 deposit insurance expense was partly due to a higher assessment rate but was primarily driven by growth in
the Company's assessment base.
Payment of Dividends
The Federal Reserve Board may prohibit the payment of cash dividends to shareholders by bank holding companies if their
actions constitute unsafe or unsound practices. The principal source of the Parent's cash revenues is cash dividends paid by the
Bank. The amount of dividends paid by the Bank in any calendar year is limited to the net profit of the current year combined
with the retained net profits of the preceding two years, and permission must be obtained from the Federal Reserve Board for
dividends exceeding these amounts. The payment of dividends by the Bank may also be affected by factors such as the
maintenance of adequate capital.
Capital Adequacy
The Company is required to comply with the capital adequacy standards established by the Federal Reserve, which are
based on the risk levels of assets and off-balance sheet financial instruments. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are also subject to judgments by regulators regarding
qualitative components, risk weightings, and other factors.
A comprehensive capital framework was established by the Basel Committee on Banking Supervision, which was effective
for large and internationally active U.S. banks and bank holding companies on January 1, 2015. A key goal of the Basel III
framework was to strengthen the capital resources of banking organizations during normal and challenging business
environments. Basel III increased minimum requirements for both the quantity and quality of capital held by banking
organizations. The rule includes a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% and a
common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The capital conservation buffer is intended
to absorb losses during periods of economic stress. Failure to maintain the buffer will result in constraints on dividends, stock
repurchases and executive compensation. The rule also adjusted the methodology for calculating risk-weighted assets to
enhance risk sensitivity. At December 31, 2020, the Company's capital ratios are well in excess of those minimum ratios
required by Basel III.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) requires each federal banking agency to take
prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall
below one or more prescribed minimum capital ratios. Pursuant to FDICIA, the FDIC promulgated regulations defining the
following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well-
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under the
prompt corrective action provisions of FDICIA, an insured depository institution generally will be classified as well-capitalized
(under the Basel III rules mentioned above) if it has a Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital ratio of
at least 6.5%, a total capital ratio of at least 10%, and a Tier 1 leverage ratio of at least 5%. An institution that, based upon its
capital levels, is classified as “well-capitalized,” “adequately capitalized,” or “undercapitalized,” may be treated as though it
were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing,
determines that an unsafe or unsound condition, or an unsafe or unsound practice warrants such treatment. At each successive
lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on
growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on
the acceptance of brokered deposits. Furthermore, if a bank is classified in one of the undercapitalized categories, it is required
to submit a capital restoration plan to the federal bank regulator, and the holding company must guarantee the performance of
that plan. The Bank has consistently maintained regulatory capital ratios above the “well-capitalized” standards.
Stress Testing
As required by the Dodd-Frank Act, the Company performed stress tests as specified by the Federal Reserve requirement
and published results beginning in 2014 through 2017. On May 24, 2018, the Economic Growth, Regulatory Relief, and
Consumer Protection Act was enacted, which eliminated the required stress testing under the Dodd-Frank Act for banks with
consolidated assets of less than $250 billion. The Company continues to perform periodic stress-testing based on its own
internal criteria.
Executive and Incentive Compensation
Guidelines adopted by federal banking agencies prohibit excessive compensation as an unsafe and unsound practice, and
describe compensation as "excessive" when the amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director or principal shareholder. The Federal Reserve Board has issued comprehensive
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guidance on incentive compensation intended to ensure that the incentive compensation policies do not undermine safety and
soundness by encouraging excessive risk taking. This guidance covers all employees that have the ability to materially affect
the risk profile of an organization, either individually or as part of a group, based on key principles that (i) incentives do not
encourage risk-taking beyond the organization's ability to identify and manage risk, (ii) compensation arrangements are
compatible with effective internal controls and risk management, and (iii) compensation arrangements are supported by strong
corporate governance, including active and effective board oversight. Deficiencies in compensation practices may affect
supervisory ratings and enforcement actions may be taken if incentive compensation arrangements pose a risk to safety and
soundness.
Transactions with Affiliates
The Federal Reserve Board regulates transactions between the Bank and its subsidiaries. Generally, the Federal Reserve Act
and Regulation W, as amended by the Dodd-Frank Act, limit the Company’s banking subsidiary and its subsidiaries to lending
and other “covered transactions” with affiliates. The aggregate amount of covered transactions a banking subsidiary or its
subsidiaries may enter into with an affiliate may not exceed 10% of the capital stock and surplus of the banking subsidiary. The
aggregate amount of covered transactions with all affiliates may not exceed 20% of the capital stock and surplus of the banking
subsidiary.
Covered transactions with affiliates are also subject to collateralization requirements and must be conducted on arm’s length
terms. Covered transactions include (a) a loan or extension of credit by the banking subsidiary, including derivative contracts,
(b) a purchase of securities issued to a banking subsidiary, (c) a purchase of assets by the banking subsidiary unless otherwise
exempted by the Federal Reserve, (d) acceptance of securities issued by an affiliate to the banking subsidiary as collateral for a
loan, and (e) the issuance of a guarantee, acceptance or letter of credit by the banking subsidiary on behalf of an affiliate.
Certain transactions with the Company's directors, officers or controlling persons are also subject to conflicts of interest
regulations. Among other things, these regulations require that loans to such persons and their related interests be made on
terms substantially the same as for loans to unaffiliated individuals, and must not create an abnormal risk of repayment or other
unfavorable features for the financial institution. See Note 2 to the consolidated financial statements for additional information
on loans to related parties.
Available Information
The Company’s principal offices are located at 1000 Walnut Street, Kansas City, Missouri (telephone number
816-234-2000). The Company makes available free of charge, through its website at www.commercebank.com, reports filed
with the Securities and Exchange Commission as soon as reasonably practicable after the electronic filing. Additionally, a copy
of our electronically filed materials can be found at www.sec.gov. These filings include the annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports.
Statistical Disclosure
The information required by Securities Act Guide 3 — “Statistical Disclosure by Bank Holding Companies” is located on
the pages noted below.
I. Distribution of Assets, Liabilities and Stockholders’ Equity; Interest Rates and Interest
II.
III.
Differential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loan Portfolio
Types of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maturities and Sensitivities of Loans to Changes in Interest Rates . . . . . . . . . . . . . . . . . . . . . .
Risk Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IV.
Summary of Credit Loss Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
V. Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on Equity and Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VI.
Short-Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
VII.
Page
24, 58-61
42-44, 89-93
30
30-31
37-42
33-37
58, 98
19
99
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Item 1a. RISK FACTORS
Making or continuing an investment in securities issued by the Company, including its common stock, involves certain risks
that you should carefully consider. If any of the following risks actually occur, the Company's business, financial condition or
results of operations could be negatively affected, the market price for your securities could decline, and you could lose all or a
part of your investment. Further, to the extent that any of the information contained in this Annual Report on Form 10-K
constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important
factors that could cause the Company’s actual results to differ materially from those expressed in any forward-looking
statements made by or on behalf of Commerce Bancshares, Inc.
Market Risks
Difficult market conditions may affect the Company’s industry.
The concentration of the Company’s banking business in the United States particularly exposes it to downturns in the U.S.
economy. During 2020, the U.S. economy has suffered adverse economic conditions as a result of the COVID-19 pandemic.
Almost a year into the COVID-19 pandemic, the uncertainty in the economic outlook as of December 31, 2020 continued to
affect the Company's financial results and operations.
In particular, the Company may face the following risks in connection with market conditions:
•
•
•
•
•
In 2020, the U.S. economy entered a recession, which ended the longest expansion in its history. Brought on by the
COVID-19 pandemic late in the first quarter of 2020, the U.S. economy saw significant declines in employment and
production, which contributed to the start of the recession. Although the unemployment rate has decreased during
2020 to 6.7% in December 2020, from a high of nearly 15% in April 2020, it is still almost twice as high as the rate at
the end of 2019.
The U.S. economy is affected by global events and conditions, including the COVID-19 pandemic. Although the
Company does not directly hold foreign debt or have significant activities with foreign customers, the global economy,
the strength of the U.S. dollar, international trade conditions, and oil prices may ultimately affect interest rates,
business import/export activity, capital expenditures by businesses, and investor confidence. Unfavorable changes in
these factors may result in declines in consumer credit usage, adverse changes in payment patterns, reduced loan
demand, and higher loan delinquencies and default rates. These could impact the Company’s future credit losses and
provision for credit losses, as a significant part of the Company’s business includes consumer and credit card lending.
In addition to the COVID-19 slowdown noted above, further slowdowns in economic activity may cause additional
declines in financial services activity, including declines in bank card, corporate cash management and other fee
businesses, as well as the fees earned by the Company on such transactions.
The process used to estimate losses expected in the Company’s loan portfolio requires difficult, subjective, and
complex judgments, including consideration of economic conditions and how these economic predictions might impair
the ability of its borrowers to repay their loans. If an instance occurs that renders these predictions no longer capable of
accurate estimation, this may in turn impact the reliability of the process.
Competition in the industry could intensify as a result of the increasing consolidation of financial services companies
in connection with current market conditions, thereby reducing market prices for various products and services which
could in turn reduce the Company’s revenues.
The performance of the Company is dependent on the economic conditions of the markets in which the Company operates.
The Company’s success is heavily influenced by the general economic conditions of the specific markets in which it
operates. Unlike larger national or other regional banks that are more geographically diversified, the Company provides
financial services primarily throughout the states of Missouri, Kansas, central Illinois, Oklahoma, and Colorado. It also has a
growing presence in additional states through its commercial banking offices in: Texas, Iowa, Indiana, Michigan, Ohio, and
Tennessee. As the Company does not have a significant banking presence in other parts of the country, a prolonged economic
downturn in these markets could have a material adverse effect on the Company’s financial condition and results of operations.
The Company operates in a highly competitive industry and market area.
The Company operates in the financial services industry and has numerous competitors including other banks and insurance
companies, securities dealers, brokers, trust and investment companies, mortgage bankers, and financial technology companies.
Consolidation among financial service providers and new changes in technology, product offerings and regulation continue to
challenge the Company's marketplace position. As consolidation occurs, larger regional and national banks may enter the
Company's markets and add to existing competition. Large, national financial institutions have substantial capital, technology
and marketing resources. These new competitors may lower fees to grow market share, which could result in a loss of
9
customers and lower fee revenue for the Company. They may have greater access to capital at a lower cost than the Company,
and may have higher loan limits, both of which may adversely affect the Company’s ability to compete effectively. The
Company must continue to make investments in its products and delivery systems to stay competitive with the industry, or its
financial performance may suffer.
The soundness of other financial institutions could adversely affect the Company.
The Company’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial
soundness of other financial institution counterparties. Financial services institutions are interrelated because of trading,
clearing, counterparty or other relationships. The Company has exposure to many different industries and counterparties and
routinely executes transactions with counterparties in the financial industry, including brokers and dealers, commercial banks,
investment banks, mutual funds, and other institutional clients. Transactions with these institutions include overnight and term
borrowings, interest rate swap agreements, securities purchased and sold, short-term investments, and other such transactions.
Because of this exposure, defaults by, or rumors or questions about, one or more financial services institutions or the financial
services industry in general, could lead to market-wide liquidity problems and defaults by other institutions. Many of these
transactions expose the Company to credit risk in the event of default of its counterparty or client, while other transactions
expose the Company to liquidity risks should funding sources quickly disappear. In addition, the Company’s credit risk may be
exacerbated when the collateral held cannot be realized or is liquidated at prices not sufficient to recover the full amount of the
exposure due to the Company. Any such losses could materially and adversely affect results of operations.
Regulatory and Compliance Risks
The Company is subject to extensive government regulation and supervision.
As part of the financial services industry, the Company is subject to extensive federal and state regulation and supervision.
Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds, and the banking
system, not shareholders. These regulations affect the Company’s lending practices, capital structure, investment practices,
dividend policy, and growth, among other things. Congress and federal regulatory agencies continually review banking laws,
regulations, and policies for possible changes. Changes to statutes, regulations, or regulatory policies, including changes in
interpretation or implementation of statutes, regulations, or policies, could affect the Company in substantial and unpredictable
ways. Such changes could subject the Company to additional costs, limit the types of financial services and products it may
offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to
comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/or
reputation damage, which could have a material adverse effect on the Company’s business, financial condition, and results of
operations. While the Company has policies and procedures designed to prevent any such violations, there can be no assurance
that such violations will not occur.
Significant changes in federal monetary policy could materially affect the Company’s business.
The Federal Reserve System regulates the supply of money and credit in the United States. Its policies determine in large
part the cost of funds for lending and interest rates earned on loans and paid on borrowings and interest-bearing deposits.
Credit conditions are influenced by its open market operations in U.S. government securities, changes in the member bank
discount rate, and bank reserve requirements. Changes in Federal Reserve Board policies are beyond the Company’s control
and difficult to predict, and such changes may result in lower interest margins and a lack of demand for credit products.
Liquidity and Capital Risks
The Company is subject to both interest rate and liquidity risk.
With oversight from its Asset-Liability Management Committee, the Company devotes substantial resources to monitoring
its liquidity and interest rate risk on a monthly basis. The Company's net interest income is the largest source of overall revenue
to the Company, representing 62% of total revenue for the year ended December 31, 2020. The interest rate environment in
which the Company operates fluctuates in response to general economic conditions and policies of various governmental and
regulatory agencies, particularly the Federal Reserve Board, which regulates the supply of money and credit in the U.S.
Changes in monetary policy, including changes in interest rates, will influence loan originations, deposit generation, demand for
investments and revenues and costs for earning assets and liabilities, and could significantly impact the Company’s net interest
income.
As a result of the COVID-19 pandemic, the Federal Reserve Board lowered the benchmark interest rate to between zero and
0.25%. Future economic conditions or other factors could shift monetary policy resulting in increases or additional decreases in
the benchmark rate. Furthermore, changes in interest rates could result in unanticipated changes to customer deposit balances
and funding costs and affect the Company’s source of funds for future loan growth.
10
Commerce Bancshares, Inc. relies on dividends from its subsidiary bank for most of its revenue.
Commerce Bancshares, Inc. is a separate and distinct legal entity from its banking and other subsidiaries. It receives
substantially all of its revenue from dividends from its subsidiary bank. These dividends, which are limited by various federal
and state regulations, are the principal source of funds to pay dividends on its common stock and to meet its other cash needs.
In the event the subsidiary bank is unable to pay dividends, the Company may not be able to pay dividends or other obligations,
which would have a material adverse effect on the Company's financial condition and results of operations.
Operational Risks
The impact of the phase-out of LIBOR is uncertain.
In 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that LIBOR would likely be
discontinued at the end of 2021 as panel banks would no longer be required to submit estimates that are used to construct
LIBOR. U.S. regulatory authorities have voiced similar support for phasing out LIBOR. The Company has a significant
number of loans, derivative contracts, and other financial instruments with attributes that are either directly or indirectly
dependent on LIBOR. As of December 31, 2020, the Company had $2.4 billion of commercial loans, $1.4 billion of notional
value of derivative contracts, and $783.6 million of investment securities that mature after December 31, 2021. These amounts
will vary in future periods as current contracts payoff or terminate early and either new or replacement contracts use LIBOR or
an alternative reference rate. The impact of alternatives to LIBOR on the valuations, pricing and operation of the Company's
financial instruments is not yet known. The Company is coordinating with industry groups to identify an appropriate
replacement rate for contracts expiring after 2021, as well as preparing for this transition as it relates to new and existing
contracts and customers. The Company has established a LIBOR Transition Program, which is led by the LIBOR Transition
Steering Committee (Committee) whose purpose is to guide the overall transition process for the Company. The Committee is
an internal, cross-functional team with representatives from all relevant business lines, support functions and legal counsel. An
initial LIBOR impact and risk assessment has been performed, and the Company has developed and prioritized action items.
Changes to the Company's systems have been identified and the process of installing and testing code has started. All financial
contracts that reference LIBOR have been identified and are being monitored on an ongoing basis. Remediation of these
contracts is expected to be consistent with industry timing. LIBOR fallback language has been included in key loan provisions
of new and renewed loans in preparation for transition from LIBOR to the new benchmark rate when such transition occurs.
The Company may be adversely affected if the interest rates currently tied to LIBOR on the Company's loans, derivatives,
and other financial instruments are not able to be transitioned to an alternative rate. Furthermore, the Company may be faced
with disputes or litigation with counterparties regarding interpretation and enforcement of fallback language in new and
renewed loans as the transition to a new benchmark rate continues to evolve.
The Company’s asset valuation may include methodologies, models, estimations and assumptions which are subject to
differing interpretations and could result in changes to asset valuations that may materially adversely affect its results of
operations or financial condition.
The Company uses estimates, assumptions, and judgments when certain financial assets and liabilities are measured and
reported at fair value. Assets and liabilities carried at fair value inherently result in greater financial statement volatility. Fair
values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market
prices and/or other observable inputs provided by independent third-party sources, when available. When such third-party
information is not available, fair value is estimated primarily by using cash flow and other financial modeling techniques
utilizing assumptions such as credit quality, liquidity, interest rates and other relevant inputs. Changes in underlying factors,
assumptions, or estimates in any of these areas could materially impact the Company’s future financial condition and results of
operations. Furthermore, if models used to calculate fair value of financial instruments are inadequate or inaccurate due to flaws
in their design or execution, upon sale, the Company may not realize the cash flows of a financial instrument as modeled and
could incur material, unexpected losses.
During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening credit
spreads or illiquidity, it may be difficult to value certain assets if trading becomes less frequent and/or market data becomes less
observable. There may be certain asset classes in active markets with significant observable data that become illiquid due to the
current financial environment. In such cases, certain asset valuations may require more subjectivity and management judgment.
As such, valuations may include inputs and assumptions that are less observable or require greater estimation. Further, rapidly
changing and unprecedented credit and equity market conditions could materially impact the valuation of assets as reported
within the Company’s consolidated financial statements, and the period-to-period changes in value could vary significantly.
Decreases in value may have a material adverse effect on results of operations or financial condition.
11
The Company’s operations rely on certain external vendors.
The Company relies on third-party vendors to provide products and services necessary to maintain day-to-day operations.
For example, the Company outsources a portion of its information systems, communication, data management, and transaction
processing to third parties. Accordingly, the Company is exposed to the risk that these vendors might not perform in accordance
with the contracted arrangements or service level agreements because of changes in the vendor’s organizational structure,
financial condition, support for existing products and services, or strategic focus. Such failure to perform could be disruptive to
the Company’s operations, which could have a materially adverse impact on its business, financial condition and results of
operations. These third parties are also sources of risk associated with operational errors, system interruptions or breaches and
unauthorized disclosure of confidential information. If the vendors encounter any of these issues, the Company could be
exposed to disruption of service, damage to reputation and litigation. Because the Company is an issuer of both debit and credit
cards, it is periodically exposed to losses related to security breaches which occur at retailers that are unaffiliated with the
Company (e.g., customer card data being compromised at retail stores). These losses include, but are not limited to, costs and
expenses for card reissuance as well as losses resulting from fraudulent card transactions.
The Company plans to convert its core customer and deposit systems during 2021 and may encounter significant adverse
developments.
The Company plans to replace its core customer and deposit systems and other ancillary systems (collectively referred to as
core system). The core system is used to track customer relationships and deposit accounts. The core system is integrated with
channel applications that are used to service customer requests by bank personnel or directly by customers (such as online
banking and mobile applications). The new core system will provide a new platform based on current technology, will enable
the Company to integrate other systems more efficiently, and is a significant improvement compared to our current core system.
However, changing the core system will subject the Company to operational risks during and after the conversion, including
disruptions to its technology systems, which may adversely impact our customers. The Company has plans, policies and
procedures designed to prevent or limit the risks of a failure during or after the conversion of our core system. However, there
can be no assurance that any such adverse development will not occur or, if they do occur, that they will be timely and
adequately remediated. The ultimate impact of any adverse development could damage the Company's reputation, result in a
loss of customer business, subject the Company to regulatory scrutiny, or expose it to civil litigation and possibly financial
liability, any of which could have a material effect on the Company’s business, financial condition, and results of operations.
Credit Risks
The allowance for credit losses may be insufficient or future credit losses could increase.
The allowance for credit losses on loans and the liability for unfunded lending commitments at December 31, 2020 reflect
management's estimate of credit losses expected in the loan portfolio, including unfunded lending commitments, as of the
balance sheet date. See Note 2 to the consolidated financial statements and the section captioned “Allowance for Credit Losses
on Loans and Liability for Unfunded Lending Commitments” in Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, of this report for further discussion related to the Company’s process for determining the
appropriate level of the allowance for credit losses on loans and the liability for unfunded lending commitments at December
31, 2020.
In 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standard "Measurement of Credit
Losses on Financial Instruments" (ASU 2016-13), which became effective January 1, 2020 and was adopted by the Company at
that time. This new standard significantly altered the way the allowance for credit losses is determined. The new standard
utilizes a life of loan loss concept and required significant operational changes, especially in data collection and analysis. The
level of the allowance is based on management’s methodology that utilizes historical net charge-off rates, and adjusts for the
impacts in the reasonable and supportable forecast and other qualitative factors. Key assumptions include the application of
historical loss rates, prepayment speeds, forecast results of a reasonable and supportable period, the period to revert to historical
loss rates, and qualitative factors. As a result of COVID-19, the allowance for credit losses on loans and the liability for
unfunded lending commitments increased substantially during the year, which negatively affected the Company's results of
operations, as the U.S. economy suddenly and dramatically deteriorated. The Company’s allowance level is subject to review
by regulatory agencies, and that review could also result in adjustments to the allowance for credit losses. Additionally, the
Company's provision for credit losses may be more volatile in the future under the new standard, due to macroeconomic
variables that influence the Company's loss estimates, and the volatility in credit losses may be material to the Company's
earnings.
12
The Company’s investment portfolio values may be adversely impacted by deterioration in the credit quality of underlying
collateral within the various categories of investment securities it owns.
The Company generally invests in liquid, investment grade securities, however, these securities are subject to changes in
market value due to changing interest rates and implied credit spreads. While the Company maintains prudent risk management
practices over bonds issued by municipalities and other issuers, credit deterioration in these bonds could occur and result in
losses. Certain mortgage and asset-backed securities (which are collateralized by residential mortgages, credit cards,
automobiles, mobile homes or other assets) may decline in value due to actual or expected deterioration in the underlying
collateral. Under accounting rules, when an available for sale debt security is in an unrealized loss position, the entire loss in
fair value is required to be recognized in current earnings if the Company intends to sell the security or believes it is probable
that the Company will be required to sell the security before the value recovers. Additionally, the current expected credit loss
model (CECL) implemented by the Company on January 1, 2020, requires that lifetime expected credit losses on securities be
recorded in current earnings. This could result in significant losses.
Strategic Risk
New lines of business or new products and services may subject the Company to additional risk.
From time to time, the Company may implement new lines of business or offer new products and services within existing
lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the
markets are not fully developed. In developing and marketing new lines of business and new products or services, the Company
may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and
new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such
as compliance with regulations, competitive alternatives and shifting market preferences may also impact the successful
implementation of a new line of business or a new product or service. Furthermore, any new line of business, or new product or
service, could have a significant impact on the effectiveness of the Company’s system of internal controls. Failure to
successfully manage these risks in the development and implementation of new lines of business and new products or services
could have a material adverse effect on the Company’s financial condition and results of operations.
General Risks
A successful cyber attack or other computer system breach could significantly harm the Company, its reputation and its
customers.
The Company relies heavily on communications and information systems to conduct its business, and as part of its business,
the Company maintains significant amounts of data about its customers and the products they use. Information security risks
continue to increase due to new technologies, the increasing use of the Internet and telecommunication technologies (including
mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized
crime, perpetrators of fraud, hackers, and others. The Company makes significant investments in various technology to identify
and prevent intrusions into its information system. The Company also has policies and procedures designed to prevent or limit
the effect of failure, interruption or security breach of its information systems, offers ongoing training to employees, hosts
tabletop exercises to test response readiness, and performs regular audits using both internal and outside resources. However,
there can be no assurance that any such failures, interruptions or security breaches will not occur, or if they do occur, that they
will be adequately addressed. In addition to unauthorized access, denial-of-service attacks or other operational disruptions
could overwhelm Company websites and prevent the Company from adequately serving customers. Should any of the
Company's systems become compromised or customer information be obtained by unauthorized parties, the reputation of the
Company could be damaged, relationships with existing customers may be impaired, and the Company could be subject to
lawsuits, all of which could result in lost business and have a material adverse effect on the Company’s business, financial
condition and results of operations.
The Company continually encounters technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services, including the entrance of financial technology companies offering new financial
service products. The Company regularly upgrades or replaces technological systems to increase efficiency, enhance product
and service capabilities, eliminate risks of end-of-lifecycle products, reduce costs, and better serve our customers. The
Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide
products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company’s
operations. Many of the Company’s competitors have substantially greater resources to invest in technological improvements.
The Company may encounter significant problems and may not be able to effectively implement new technology-driven
products and services and may not be successful in marketing the new products and services to its customers. These problems
might include significant time delays, cost overruns, loss of key people, and technological system failures. Failure to
successfully keep pace with technological change affecting the financial services industry or failure to successfully complete
13
the replacement of technological systems could have a material adverse effect on the Company’s business, financial condition
and results of operations.
The Company must attract and retain skilled employees.
The Company’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people
can be intense, and the Company spends considerable time and resources attracting, hiring, and retaining qualified people for its
various business lines and support units. The unexpected loss of the services of one or more of the Company’s key personnel
could have a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market,
and years of industry experience, as well as the difficulty of promptly finding qualified replacement personnel.
Public health threats or outbreaks of communicable diseases have adversely affected, and are expected to continue to
adversely effect, the Company's operations and financial results.
The Company may face risks related to public health threats or outbreaks of communicable diseases. A widespread
healthcare crisis, such as an outbreak of a communicable disease could adversely affect the global economy and the Company’s
financial performance. For example, the ongoing global COVID-19 pandemic has destabilized the financial markets in which
the Company operates and likely will continue to cause significant disruption in the global economies and financial markets,
including the Company's local markets. The Company is dependent upon the willingness and ability of its customers to conduct
banking and other financial transactions. In reaction to and as preventative measure to attempt to slow the spread of the
pandemic, government authorities have in many states and municipalities implemented mandatory closures, shelter-in-place
orders, and social distancing protocols, including orders within many of the geographic areas that the Company operates.
Although the Company is considered an essential business, access to its branches and office locations have been restricted, for
the safety of its employees and customers. Limiting customers' access to the Company's physical business has prevented some
customers from transacting with the Company and lowered demand for lending and other services offered by the Company,
adversely affecting its cash flows, financial condition, results of operations, profitability and asset quality and could continue to
do so for an indefinite period of time. This could have a material adverse effect on the Company’s results of operations,
financial condition, and liquidity. In particular, the continued spread of COVID-19 and efforts to contain the virus could:
•continue to impact customer demand of the Company’s lending and related services, leading to lower revenue;
•cause the Company to experience an increase in costs as a result of the Company implementing operational changes to
accommodate its remote workforce;
•cause delayed payments from customers and uncollectible accounts, defaults, foreclosures, and declining collateral
values, resulting in losses to the Company;
•result in losses on the Company's investment portfolio, due to volatility in the markets and lower trading volume
driven by economic uncertainty;
•cause market interest rates to continue to decline, which could adversely affect the Company's net interest income and
profitability;
•cause the Company's credit losses to grow substantially;
•impact availability of qualified personnel; and
•cause other unpredictable events.
The situation surrounding COVID-19 remains uncertain and the potential for a material impact on the Company’s results of
operations, financial condition, and liquidity increases the longer the virus impacts activity levels in the United States and
globally. The ultimate extent of the impact on the Company's business, financial condition, liquidity, results of operations and
cash flows will depend on future developments, which are highly uncertain and cannot be predicted. The Company continues
to adapt to the changing dynamics of the COVID-19 impacts to the economy, needs of its employees and customers, and
authoritative measures mandated by federal, state, and local governments. However, there is no assurance that the Company's
business continuity and disaster recovery program can adequately mitigate the risks of such business disruptions and
interruptions. New information regarding the severity of the COVID-19 pandemic and ongoing reactions to the pandemic by
customers and government authorities will continue to impact access to the Company's business, as well as the economies and
markets in which the Company operates. The COVID-19 pandemic may cause prolonged global or national recessionary
economic conditions or longer lasting effects on economic conditions than currently exist, which could have a material adverse
effect on the Company's business, results of operations and financial condition. Beyond the current COVID-19 pandemic, the
potential impacts of epidemics, pandemics, or other outbreaks of an illness, disease, or virus could therefore materially and
adversely affect the Company's business, revenue, operations, financial condition, liquidity and cash flows.
14
Item 1b. UNRESOLVED STAFF COMMENTS
None
Item 2. PROPERTIES
The main offices of the Company are located in Kansas City and St. Louis, Missouri. The Company owns its main offices
and leases unoccupied premises to the public. The larger office buildings include:
Building
1000 Walnut
Kansas City, MO
922 Walnut
Kansas City, MO
811 Main
Kansas City, MO
8000 Forsyth
Clayton, MO
Net rentable
square footage
% occupied in
total
% occupied by
Bank
391,000
98 %
52 %
256,000
237,000
178,000
95
100
100
91
100
100
The Company has an additional 153 branch locations in Missouri, Illinois, Kansas, Oklahoma and Colorado which are
owned or leased.
Item 3. LEGAL PROCEEDINGS
The information required by this item is set forth in Item 8 under Note 21, Commitments, Contingencies and
Guarantees on page 133.
Item 4. MINE SAFETY DISCLOSURES
Not applicable
Information about the Company's Executive Officers
The following are the executive officers of the Company as of February 24, 2021, each of whom is designated annually.
There are no arrangements or understandings between any of the persons so named and any other person pursuant to which
such person was designated an executive officer.
15
Name and Age
Kevin G. Barth, 60
Positions with Registrant
Executive Vice President of the Company since April 2005, and Community President and
Chief Executive Officer of Commerce Bank since October 1998. Senior Vice President of
the Company and Officer of Commerce Bank prior thereto.
Derrick R. Brooks, 44
Senior Vice President of the Company and Executive Vice President of Commerce Bank
since January 2021. Senior Vice President of Commerce Bank prior thereto.
Jeffrey M. Burik, 62
Sara E. Foster, 60
John K. Handy, 57
Robert S. Holmes, 57
Patricia R. Kellerhals, 63
David W. Kemper, 70
John W. Kemper, 43
Charles G. Kim, 60
Douglas D. Neff, 52
David L. Orf, 54
Paula S. Petersen, 54
David L. Roller, 50
Paul A. Steiner, 49
Senior Vice President of the Company since February 2013. Executive Vice President of
Commerce Bank since November 2007.
Executive Vice President of the Company since February 2012 and Senior Vice President of
the Company prior thereto. Executive Vice President of Commerce Bank since January
2016 and Senior Vice President of Commerce Bank prior thereto.
Executive Vice President of the Company since January 2018 and Senior Vice President of
the Company prior thereto. Community President and Chief Executive Officer of
Commerce Bank since January 2018 and Senior Vice President of Commerce Bank prior
thereto.
Executive Vice President of the Company since April 2015, and Community President and
Chief Executive Officer of Commerce Bank since January 2016. Prior to his employment
with Commerce Bank in March 2015, he was employed at a Midwest regional bank where
he served as managing director and head of Regional Banking.
Senior Vice President of the Company since February 2016 and Vice President of the
Company prior thereto. Executive Vice President of Commerce Bank since 2005.
Executive Chairman of the Company and of the Board of Directors of the Company since
August 2018. Prior thereto, he was Chief Executive Officer of the Company and Chairman
of the Board of Directors of the Company. He was President of the Company from April
1982 until February 2013. He is the brother of Jonathan M. Kemper (a former Vice
Chairman of the Company), and father of John W. Kemper, President and Chief Executive
Officer of the Company.
Chief Executive Officer of the Company and Chairman and Chief Executive Officer of
Commerce Bank since August 2018. Prior thereto, he was Chief Operating Officer of the
Company. President of the Company since February 2013 and President of Commerce
Bank since March 2013. Member of Board of Directors since September 2015. He is the
son of David W. Kemper (Executive Chairman of the Company) and nephew of Jonathan
M. Kemper (a former Vice Chairman of the Company).
Chief Financial Officer of the Company since July 2009. Executive Vice President of the
Company since April 1995 and Executive Vice President of Commerce Bank since January
2004. Prior thereto, he was Senior Vice President of Commerce Bank.
Senior Vice President of the Company since January 2019 and Chairman and Chief
Executive Officer of Commerce Bank Southwest Region since 2013.
Executive Vice President of the Company since October 2020 and Chief Credit Officer of
the Company since January 2021. Executive Vice President of Commerce Bank since
January 2014 and Senior Vice President of Commerce Bank prior thereto.
Senior Vice President of the Company since July 2016 and Executive Vice President of
Commerce Bank since March 2012.
Senior Vice President of the Company since July 2016 and Senior Vice President of
Commerce Bank since September 2010.
Controller of the Company since April 2019. He is also Controller of the Company's
subsidiary bank, Commerce Bank. Assistant Controller and Director of Tax of the
Company prior thereto.
16
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Commerce Bancshares, Inc.
Common Stock Data
Commerce Bancshares, Inc. common shares are listed on the Nasdaq Global Select Market (NASDAQ) under the symbol
CBSH. The Company had 3,561 common shareholders of record as of December 31, 2020. Certain of the Company's shares
are held in "nominee" or "street" name and the number of beneficial owners of such shares is approximately 110,500.
Performance Graph
The following graph presents a comparison of Company (CBSH) performance to the indices named below. It assumes $100
invested on December 31, 2015 with dividends invested on a cumulative total shareholder return basis.
Commerce (CBSH)
100.00
145.31
149.71
161.03
207.25
214.48
NASDAQ OMX Global-Bank
100.00
126.54
149.82
125.25
171.82
149.83
S&P 500
100.00
111.92
136.34
130.35
171.39
202.81
2015
2016
2017
2018
2019
2020
The Company has a long history of paying dividends. 2020 marked the 52nd consecutive year of growth in our regular
common dividend, and the Company has also issued an annual 5% common stock dividend for the past 27 years. However,
payment of future dividends is within the discretion of the Board of Directors and will depend, among other factors, on
earnings, capital requirements, and the operating and financial condition of the Company. The Board of Directors makes the
dividend determination quarterly.
17
Five Year Cumulative Total ReturnCommerce (CBSH)NASDAQ OMX Global-BankS&P 500201520162017201820192020$100.00$150.00$200.00$250.00
The following table sets forth information about the Company’s purchases of its $5 par value common stock, its only class
of common stock registered pursuant to Section 12 of the Exchange Act, during the fourth quarter of 2020.
Period
October 1 - 31, 2020
November 1 - 30, 2020
December 1 - 31, 2020
Total
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Program
Maximum
Number that May
Yet Be Purchased
Under the
Program
773
4,650
537
5,960
$59.81
$69.15
$65.30
$67.59
773
3,549,766
4,650
3,545,116
537
3,544,579
5,960
3,544,579
The Company’s stock purchases shown above were made under authorizations by the Board of Directors. Under the most
recent authorization in November 2019 of 5,000,000 shares, 3,544,579 shares remained available for purchase at December 31,
2020.
Item 6. SELECTED FINANCIAL DATA
The required information is set forth below in Item 7.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This report may contain “forward-looking statements” that are subject to risks and uncertainties and include information
about possible or assumed future results of operations. Many possible events or factors could affect the future financial results
and performance of Commerce Bancshares, Inc. and its subsidiaries (the "Company"). This could cause results or performance
to differ materially from those expressed in the forward-looking statements. Words such as “expects”, “anticipates”, “believes”,
“estimates”, variations of such words and other similar expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or
implied by, such forward-looking statements. Readers should not rely solely on the forward-looking statements and should
consider all uncertainties and risks discussed throughout this report. Forward-looking statements speak only as of the date they
are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur
after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. Such possible events
or factors include the risk factors identified in Item 1a Risk Factors and the following: changes in economic conditions in the
Company’s market area; changes in policies by regulatory agencies, governmental legislation and regulation; fluctuations in
interest rates; changes in liquidity requirements; demand for loans in the Company’s market area; changes in accounting and tax
principles; estimates made on income taxes; failure of litigation settlement agreements to become final in accordance with their
terms; and competition with other entities that offer financial services.
Overview
The Company operates as a super-community bank and offers a broad range of financial products to consumer and
commercial customers, delivered with a focus on high-quality, personalized service. The Company is headquartered in
Missouri, with its principal offices in Kansas City and St. Louis, Missouri. Customers are served from 306 locations in
Missouri, Kansas, Illinois, Oklahoma and Colorado and commercial offices throughout the nation's midsection. A variety of
delivery platforms are utilized, including an extensive network of branches and ATM machines, full-featured online banking, a
mobile application, and a centralized contact center.
The core of the Company’s competitive advantage is its focus on the local markets in which it operates, its offering of
competitive, sophisticated financial products, and its concentration on relationship banking and high-touch service. In order to
enhance shareholder value, the Company targets core revenue growth. To achieve this growth, the Company focuses on
strategies that will expand new and existing customer relationships, offer opportunities for controlled expansion in additional
markets, utilize improved technology, and enhance customer satisfaction.
18
Various indicators are used by management in evaluating the Company’s financial condition and operating performance.
Among these indicators are the following:
•
•
•
•
•
Net income and earnings per share — Net income attributable to Commerce Bancshares, Inc. was $354.1 million, a
decrease of 15.9% compared to the previous year. The return on average assets was 1.20% in 2020, and the return on
average common equity was 10.64%. Diluted earnings per share decreased 14.7% in 2020 compared to 2019.
Total revenue — Total revenue is comprised of net interest income and non-interest income. Total revenue in 2020
decreased $10.3 million, or .8%, from 2019, as net interest income grew $8.6 million, while non-interest income fell
$18.8 million. Growth in net interest income resulted principally from a decrease in interest expense, while the decline
in non-interest income in 2020 was mainly due to a one-time gain of $11.5 million on the sale of our corporate trust
business in 2019.
Non-interest expense — Total non-interest expense increased .1% this year compared to 2019, mainly due to higher
salaries and employee benefits expense, partially offset by higher deferred loan origination costs and lower supplies
and communication and travel and entertainment expense.
Asset quality — Net loan charge-offs totaled $34.9 million in 2020, a decrease of $14.8 million from those recorded in
2019, and averaged .22% of loans compared to .35% in the previous year. Total non-performing assets, which include
non-accrual loans and foreclosed real estate, amounted to $26.6 million at December 31, 2020, compared to $10.6
million at December 31, 2019, and represented .16% of loans outstanding at December 31, 2020.
Shareholder return — During 2020, the Company paid cash dividends of $1.03 per share on its common stock,
representing an increase of 9.1% over the previous year. In 2020, the Company issued its 27th consecutive annual 5%
common stock dividend, and in February 2021, the Company's Board of Directors authorized an increase of 2.1% in
the common cash dividend. The Company purchased 886,379 shares of treasury stock, mostly in the first quarter of
2020. Total shareholder return, including the change in stock price and dividend reinvestment, was 16.5%, 13.0%, and
9.1% over the past 5, 10, and 15 years, respectively.
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related
notes. The historical trends reflected in the financial information presented below are not necessarily reflective of anticipated
future results.
Key Ratios
2020
2019
2018
2017
2016
1.12%
11.33
10.16
63.71
34.67
3.04
1.28%
12.46
10.53
66.18
34.85
3.20
1.76%
16.16
11.24
69.27
33.43
3.53
1.67%
14.06
12.20
71.54
32.03
3.48
1.20%
10.64
11.18
67.73
37.83
2.99
(Based on average balances)
Return on total assets
Return on common equity
Equity to total assets
Loans to deposits (1)
Non-interest bearing deposits to total deposits
Net yield on interest earning assets (tax equivalent basis)
(Based on end of period data)
Non-interest income to revenue (2)
Efficiency ratio (3)
Tier I common risk-based capital ratio
Tier I risk-based capital ratio
Total risk-based capital ratio
Tier I leverage ratio
Tangible common equity to tangible assets ratio (4)
Common cash dividend payout ratio
(1) Includes loans held for sale.
(2) Revenue includes net interest income and non-interest income.
(3) The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.
(4)The tangible common equity to tangible assets ratio is a measurement which management believes is a useful indicator of capital
adequacy and utilization. It provides a meaningful basis for period to period and company to company comparisons, and also assist
regulators, investors and analysts in analyzing the financial position of the Company. Tangible common equity and tangible assets are
non-GAAP measures and should not be viewed as substitutes for, or superior to, data prepared in accordance with GAAP.
37.83
55.58
14.22
14.98
15.82
11.52
10.45
23.61
38.98
56.87
13.93
14.66
15.48
11.38
10.99
27.52
39.88
62.18
12.65
13.41
14.35
10.39
9.84
29.52
41.09
61.04
11.62
12.38
13.32
9.55
8.66
32.69
37.87
57.19
13.71
13.71
14.82
9.45
9.92
35.32
19
The following table is a reconciliation of the GAAP financial measures of total equity and total assets to the non-GAAP
measures of total tangible common equity and total tangible assets.
(Dollars in thousands)
2020
2019
2018
2017
2016
Total equity
Less non-controlling interest
Less preferred stock
Less goodwill
Less intangible assets*
$ 3,399,972
$ 3,138,472
$ 2,937,149
$ 2,718,184
$ 2,501,132
2,925
—
138,921
4,958
3,788
144,784
138,921
1,785
5,851
144,784
138,921
2,316
1,624
144,784
138,921
2,965
5,349
144,784
138,921
3,841
Total tangible common equity (a)
$ 3,253,168
$ 2,849,194
$ 2,645,277
$ 2,429,890
$ 2,208,237
Total assets
Less goodwill
Less intangible assets*
Total tangible assets (b)
$ 32,922,974
$ 26,065,789
$ 25,463,842
$ 24,833,415
$ 25,641,424
138,921
4,958
138,921
1,785
138,921
2,316
138,921
2,965
138,921
3,841
$ 32,779,095
$ 25,925,083
$ 25,322,605
$ 24,691,529
$ 25,498,662
Tangible common equity to tangible assets ratio (a)/(b)
9.92%
10.99%
10.45%
9.84%
8.66%
* Intangible assets other than mortgage servicing rights.
Selected Financial Data
(In thousands, except per share data)
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains (losses), net
Non-interest expense
2020
2019
2018
2017
2016
$
829,847 $
137,190
505,867
11,032
768,378
821,293 $
50,438
524,703
3,626
767,398
823,825 $
42,694
501,341
(488)
737,821
733,679 $
45,244
461,263
25,051
744,343
680,049
36,318
446,556
(53)
689,229
Net income attributable to Commerce Bancshares, Inc.
Net income available to common shareholders
Net income per common share-basic*
Net income per common share-diluted*
Cash dividends on common stock
Cash dividends per common share*
Market price per common share*
Book value per common share*
Common shares outstanding*
Total assets
Loans, including held for sale
Investment securities
Deposits
Long-term debt
Equity
Non-performing assets
354,057
342,091
2.91
2.91
120,818
1.029
65.70
29.03
117,138
32,922,974
16,374,730
12,645,693
26,946,745
—
3,399,972
26,633
421,231
412,231
3.42
3.41
113,466
.943
64.70
25.43
117,738
26,065,789
14,751,626
8,741,888
20,520,415
—
3,138,472
10,585
433,542
424,542
3.44
3.43
100,238
.812
51.13
22.79
122,519
25,463,842
14,160,992
8,698,666
20,323,659
951
2,937,149
13,949
319,383
310,383
2.51
2.50
91,619
.740
48.24
20.85
123,420
24,833,415
14,005,072
8,893,307
20,425,446
1,758
2,718,184
12,664
275,391
266,391
2.16
2.15
87,070
.705
47.56
19.11
123,326
25,641,424
13,427,192
9,770,986
21,101,095
102,049
2,501,132
14,649
* Restated for the 5% stock dividend distributed in December 2020.
20
Results of Operations
(Dollars in thousands)
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains (losses), net
Non-interest expense
Income taxes
2020
2019
2018
'20-'19
'19-'18
'20-'19
'19-'18
$ Change
% Change
$ 829,847 $ 821,293 $ 823,825 $
(42,694)
501,341
(488)
(737,821)
(105,949)
(137,190)
505,867
11,032
(768,378)
(87,293)
(50,438)
524,703
3,626
(767,398)
(109,074)
8,554 $
86,752
(18,836)
7,406
980
(21,781)
(2,532)
7,744
23,362
4,114
29,577
3,125
1.0%
172.0
(3.6)
N.M.
.1
(20.0)
(.3%)
18.1
4.7
N.M.
4.0
2.9
Non-controlling interest income (expense)
Net income attributable to Commerce
Bancshares, Inc.
Preferred stock dividends
Net income available to common
shareholders
172
(1,481)
(4,672)
(1,653)
(3,191)
N.M.
(68.3)
354,057
(11,966)
421,231
(9,000)
433,542
(9,000)
(67,174)
2,966
(12,311)
—
(15.9)
33.0
(2.8)
N.M.
$ 342,091 $ 412,231 $ 424,542 $
(70,140) $
(12,311)
(17.0) %
(2.9) %
N.M. - Not meaningful.
Net income attributable to Commerce Bancshares, Inc. (net income) for 2020 was $354.1 million, a decrease of
$67.2 million, or 15.9%, compared to $421.2 million in 2019. Diluted income per common share was $2.91 in 2020, compared
to $3.41 in 2019. The decline in net income resulted from an increase of $86.8 million in the provision for credit losses, as well
as a decrease of $18.8 million in non-interest income. These decreases in net income were partly offset by increases of $8.6
million in net interest income and $7.4 million in investment securities gains, coupled with decreases of $21.8 million in
income taxes and $1.7 million in non-controlling interest expense. The return on average assets was 1.20% in 2020 compared
to 1.67% in 2019, and the return on average common equity was 10.64% in 2020 compared to 14.06% in 2019. At December
31, 2020, the ratio of tangible common equity to assets decreased to 9.92%, compared to 10.99% at year end 2019.
During 2020, net interest income grew mainly due to an increase of $24.7 million in interest income on long-term securities
purchased under agreements to resell, mainly due to higher rates earned, coupled with a decrease of $60.6 million in interest
expense on deposits and borrowings, due to lower rates paid. These increases in net interest income were partly offset by
declines in interest earned on loans and investment securities, resulting mainly from lower yields. Total rates earned on average
earning assets fell 76 basis points this year, while funding costs for deposits and borrowings decreased 41 basis points. The
provision for credit losses totaled $137.2 million, reflecting an increase in the provision for credit losses on the Company's loan
portfolio and liability for unfunded loan commitments, resulting from deteriorating economic conditions driven by the
COVID-19 pandemic. Net loan charge-offs decreased $14.8 million in 2020 compared to 2019, mainly due to lower credit card
net charge-offs.
Non-interest income fell 3.6% in 2020, mainly due to a one-time gain of $11.5 million resulting from the sale of the
Company's corporate trust business in the fourth quarter of 2019, coupled with a decline in bank card fees. Net investment
securities gains of $11.0 million were recorded in 2020 and were comprised mainly of net gains realized on sales of mortgage-
backed securities. Non-interest expense grew $980 thousand in 2020 compared to 2019, largely due to higher salaries and
benefits expense, mostly offset by higher deferred loan origination costs and lower supplies and communication and travel and
entertainment expense.
Net income for 2019 was $421.2 million, a decrease of $12.3 million, or 2.8%, compared to $433.5 million in 2018. Diluted
income per common share was $3.41 in 2019, compared to $3.43 in 2018. The decline in net income resulted from a decrease
of $2.5 million in net interest income, as well as increases of $29.6 million in non-interest expense, $7.7 million in the provision
for loan losses and $3.1 million in income taxes. These decreases in net income were partly offset by increases of $23.4 million
in non-interest income and $4.1 million in investment securities gains, coupled with a decrease of $3.2 million in non-
controlling interest expense. The return on average assets was 1.67% in 2019 compared to 1.76% in 2018, and the return on
average common equity was 14.06% in 2019 compared to 16.16% in 2018. At December 31, 2019, the ratio of tangible
common equity to assets increased to 10.99%, compared to 10.45% at year end 2018.
As compared to 2018, the decrease in net interest income in 2019 resulted mainly from increased rates on the Company’s
interest-bearing deposits and borrowings, coupled with lower average balances on investment securities. These declines in net
interest income were partially offset by growth in interest earned on loans as a result of higher loan yields and average balances.
Total rates earned on average earning assets grew 10 basis points in 2019, while funding costs for deposits and borrowings
increased 23 basis points. The provision for loan losses totaled $50.4 million, an increase of $7.7 million over the previous year
and exceeded net loan charge-offs by $750 thousand. Net loan charge-offs increased $7.4 million in 2019 compared to 2018,
21
mainly due to higher credit card and business loan net charge-offs. The increase in business loan net charge-offs was primarily
the result of a loan charge-off related to a single leasing customer.
Non-interest income grew 4.7% in 2019, mainly due to growth in trust fees, loan fees and sales, and gains on sales of assets.
Net investment securities gains of $3.6 million were recorded in 2019 and were mainly comprised of net gains realized on sales
of equity investments. Non-interest expense grew $29.6 million in 2019 compared to 2018, largely due to higher salaries and
benefits and data processing and software expense, which increased $24.7 million and $6.9 million, respectively.
The Company distributed a 5% stock dividend for the 27th consecutive year on December 18, 2020. All per share and
average share data in this report has been restated for the 2020 stock dividend.
Critical Accounting Policies
The Company's consolidated financial statements are prepared based on the application of certain accounting policies, the
most significant of which are described in Note 1 to the consolidated financial statements. Certain of these policies require
numerous estimates and strategic or economic assumptions that may prove inaccurate or be subject to variations which may
significantly affect the Company's reported results and financial position for the current period or future periods. The use of
estimates, assumptions, and judgments are necessary when financial assets and liabilities are required to be recorded at, or
adjusted to reflect, fair value. Current economic conditions may require the use of additional estimates, and some estimates
may be subject to a greater degree of uncertainty due to the current instability of the economy. The Company has identified
several policies as being critical because they require management to make particularly difficult, subjective and/or complex
judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be
reported under different conditions or using different assumptions. These policies relate to the allowance for credit losses and
fair value measurement.
Allowance for Credit Losses
The Company's Allowance for Credit Losses policy covers the collectability of its loan portfolio, the exposure of its
unfunded lending commitments, and the potential for credit losses in its available for sale investment portfolio. The Company
performs periodic and systematic detailed reviews of its loan portfolio and unfunded lending commitments to assess overall
collectability. The level of the allowance for credit losses on loans and unfunded lending commitments reflects the Company's
estimate of the losses expected in the loan portfolio and unfunded lending commitments at any point in time. While these
estimates are based on substantive methods for determining allowance requirements, actual outcomes may differ significantly
from estimated results, especially when determining allowances for business, construction and business real estate loans, as well
as for their related unfunded lending commitments. These loans and commitments are normally larger and more complex, and
their collection rates are harder to predict. Personal banking loans, including personal real estate, credit card and consumer
loans, are individually smaller and perform in a more homogenous manner, making loss estimates more predictable.
Additionally, the allowance for credit losses requires the calculation of expected lifetime credit losses utilizing a forward-
looking forecast of macroeconomic conditions, which may differ significantly from actual results. Further discussion of the
methodology used in establishing the allowance is provided in the Allowance for Credit Losses on Loans and Liability for
Unfunded Lending Commitments section of Item 7 and in Note 1 to the consolidated financial statements.
The level of the allowance for credit losses on available for sale securities reflects the Company’s estimate of the losses
expected in the available for sale debt security portfolio. In order to estimate the allowance for credit losses on available for
sale debt securities, the Company performs quarterly reviews of its investment portfolio to identify securities in an unrealized
loss position. If the unrealized loss is not expected to be recovered, the Company performs further analyses to determine
whether any portion of the unrealized loss indicates that a credit loss exists. Further discussion of the methodology used in
establishing the allowance for credit losses on available for sale securities is provided in Note 1 to the consolidated financial
statements.
Fair Value Measurement
Investment securities, including available-for-sale, trading, equity and other securities, residential mortgage loans held for
sale, derivatives and deferred compensation plan assets and associated liabilities are recorded at fair value on a recurring basis.
Additionally, from time to time, other assets and liabilities may be recorded at fair value on a nonrecurring basis, such as loan
values that have been reduced based on the fair value of the underlying collateral, other real estate (primarily foreclosed
property), non-marketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments
typically involve write-downs of individual assets or application of lower of cost or fair value accounting.
22
Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the
measurement date and is based on the assumptions market participants would use when pricing an asset or liability. Fair value
measurement and disclosure guidance establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair
value. The fair value hierarchy, the extent to which fair value is used to measure assets and liabilities and the valuation
methodologies and key inputs used are discussed in Note 17 on Fair Value Measurements.
At December 31, 2020, assets and liabilities measured using observable inputs that are classified as either Level 1 or Level 2
represented 99.2% and 98.2% of total assets and liabilities recorded at fair value, respectively. Valuations generated from
model-based techniques that use at least one significant assumption not observable in the market are considered Level 3, and
the Company's Level 3 assets totaled $105.8 million, or 0.8% of total assets recorded at fair value on a recurring basis.
Unobservable assumptions reflect estimates of assumptions market participants would use in pricing the asset or liability. Fair
value measurements for assets and liabilities where limited or no observable market data exists often involves significant
judgments about assumptions, such as determining an appropriate discount rate that factors in both liquidity and risk premiums,
and in many cases may not reflect amounts exchanged in a current sale of the financial instrument. In addition, changes in
market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital
markets or changes in secondary market activities could result in observable market inputs becoming unavailable. Therefore,
when market data is not available, the Company would use valuation techniques requiring more management judgment to
estimate the appropriate fair value.
23
Net Interest Income
Net interest income, the largest source of revenue, results from the Company’s lending, investing, borrowing, and deposit
gathering activities. It is affected by both changes in the level of interest rates and changes in the amounts and mix of interest
earning assets and interest bearing liabilities. The following table summarizes the changes in net interest income on a fully
taxable equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related
to volumes and rates. Changes not solely due to volume or rate changes are allocated to rate.
(In thousands)
Interest income, fully taxable equivalent basis
Loans:
Business
Real estate- construction and land
Real estate - business
Real estate - personal
Consumer
Revolving home equity
Consumer credit card
Total interest on loans
Loans held for sale
Investment securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Mortgage-backed securities
Asset-backed securities
Other securities
Total interest on investment securities
Federal funds sold and short-term securities purchased
under agreements to resell
Long-term securities purchased under agreements to
resell
Interest earning deposits with banks
Total interest income
Interest expense
Interest bearing deposits:
Savings
Interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Federal funds purchased and securities sold under
agreements to repurchase
Other borrowings
Total interest expense
Net interest income, fully taxable equivalent basis
2020
Change due to
Average
Volume
Average
Rate
Total
2019
Change due to
Average
Volume
Average
Rate
Total
$
48,234 $
2,605
4,463
17,311
1,736
(1,199)
(11,772)
61,378
(144)
(54,293) $
(13,688)
(22,018)
(8,080)
(8,054)
(4,600)
(3,278)
(114,011)
(205)
(6,059) $
(11,083)
(17,555)
9,231
(6,318)
(5,799)
(15,050)
(52,633)
(349)
(1,727)
(2,055)
10,728
30,634
2,591
2,855
43,026
(1,872)
844
(6,830)
(44,606)
(10,310)
(749)
(63,523)
(3,599)
(1,211)
3,898
(13,972)
(7,719)
2,106
(20,497)
9,730 $
(2,961)
5,199
3,261
(3,541)
(979)
(475)
10,234
(33)
(1,667)
(2,319)
(5,766)
10,400
(1,953)
(7,684)
(8,989)
7,741 $
3,223
4,920
1,978
6,881
1,670
1,960
28,373
(56)
915
778
1,261
1,720
5,208
(6,054)
3,828
17,471
262
10,119
5,239
3,340
691
1,485
38,607
(89)
(752)
(1,541)
(4,505)
12,120
3,255
(13,738)
(5,161)
(48)
(4)
(52)
(480)
16
(464)
2,342
16,944
123,498
22,407
(21,369)
(176,705)
24,749
(4,425)
(53,207)
1,018
(71)
1,679
(1,001)
536
31,696
17
465
33,375
225
3,360
(314)
(617)
(193)
(25,253)
(1,157)
(13,380)
32
(21,893)
(1,471)
(13,997)
57
(369)
(16)
4,336
(9)
12,230
3,169
7,951
1,447
1,806
5,907
(24,771)
(1,729)
(66,483)
$ 117,591 $ (110,222) $
(23,324)
77
(60,576)
7,369 $
4,985
920
9,913
(8,234) $
4,775
(13)
28,103
3,593 $
48
11,861
3,153
12,287
9,760
907
38,016
(4,641)
Net interest income totaled $829.8 million in 2020, increasing $8.6 million, or 1.0%, compared to $821.3 million in 2019.
On a tax equivalent (T/E) basis, net interest income totaled $842.8 million, and increased $7.4 million over 2019. This increase
was mainly due to a decline of $60.6 million in interest expense on deposits and borrowings, due to lower average rates paid, as
well as an increase of $24.7 million in interest earned on long-term securities purchased under agreements to resell. These
increases to net interest income (T/E) were largely offset by lower interest earned on loans and investment securities, which
declined $52.6 million and $20.5 million, respectively, mainly due to lower rates earned. The net yield on earning assets (T/E)
was 2.99% in 2020 compared with 3.48% in 2019.
24
During 2020, loan interest income (T/E) fell $52.6 million from 2019 mainly due to lower rates earned, partly offset by
higher average balances for business, personal real estate, business real estate, consumer and construction and land loan
categories. The average tax equivalent rate earned on the loan portfolio decreased 83 basis points to 3.88% in 2020 compared
to 4.71% in 2019. The Federal Reserve lowered short-term interest rates during the first quarter of 2020, which impacted the
Company's interest income on loans, as many of its loans contain variable interest rate terms. Partly offsetting lower interest
rates were increases in average loan balances of $1.7 billion, or 11.8%, this year. The largest decrease in loan interest income
(T/E) occurred in business real estate loans, which was lower by $17.6 million as a result of a decline in the average rate earned
of 74 basis points, partly offset by growth of $100.1 million in average balances. Business loan interest income declined $6.1
million mainly due to an 81 basis point decrease in the average rate earned, partly offset by an increase of $1.2 billion in
average balances. Average balances of business real estate loans included average balances of $1.1 billion in Paycheck
Protection Program (PPP) loans at December 31, 2020. Interest income on consumer credit card loans declined $15.1 million
as a result of a decreases in the average balance of $96.0 million and the average rate of 49 basis points. Construction and land
loan interest income decreased $11.1 million, mainly due to a 143 basis point decrease in the average rate earned, partly offset
by growth in average balances of $47.6 million. Interest on consumer loans declined $6.3 million from the prior year as the
average rate earned decreased 41 basis points, but was partly offset by growth in average balances of $36.3 million. These
decreases to loan interest income (T/E) were partly offset by an increase of $9.2 million in interest earned on personal real
estate loans. This increase resulted from higher average balances of $440.5 million, partly offset by a 31 basis point decrease in
the average rate earned.
Tax equivalent interest income on total investment securities decreased $20.5 million during 2020, as the average rate
earned decreased 62 basis points, while average balances grew $1.5 billion. The average rate on the total investment securities
portfolio was 2.19% in 2020 compared to 2.81% in 2019, while the average balance of the total investment securities portfolio
(excluding unrealized fair value adjustments on available for sale debt securities) was $10.3 billion in 2020 compared to an
average balance of $8.7 billion in 2019. The decrease in interest income was mainly due to lower interest income earned on
mortgage-backed securities, asset-backed securities, U.S. government securities and government-sponsored enterprise (GSE)
obligations. Interest income on mortgage-backed securities decreased $14.0 million, due to a decrease of 77 basis points in the
average rate earned, partly offset by higher average balances of $1.1 billion. Interest on asset-backed securities decreased $7.7
million mainly due to a 70 basis point decrease in the average rate earned, partly offset by a $94.9 million increase in the
average balance. Interest earned on U.S. government securities fell $3.6 million and was mainly impacted by a decline of $3.0
million in inflation income on treasury inflation-protected securities (TIPS). Average balances of U.S. government securities
declined $70.2 million and the average rated earned decreased 24 basis points. Interest income on GSE's decreased $1.2
million, due to a decline in average balances of $86.3 million, partly offset by an increase of 80 basis points in the average rate
earned. Partly offsetting these decreases in interest income was growth of $3.9 million and $1.8 million in interest earned on
state and municipal obligations and other debt securities, respectively. The growth in interest earned on state and municipal
obligations resulted mainly from an increase of $341.5 million in average balances, partly offset a 44 basis point decrease in the
average rate earned. Other debt securities interest increased due to growth of $111.4 million in average balances, partly offset
by a decline of 27 basis points in the average rate earned.
Interest on long-term securities purchased under resell agreements increased $24.7 million compared to 2019 due to an
increase in the average rate of 263 basis points, as these assets were structured with floor spreads to protect against falling
interest rates. Of the $850.0 million in securities purchased under agreements to resell held by the Company throughout 2020,
$450.0 million and $325.0 million of those agreements will mature throughout 2021 and 2022, respectively. Interest earned on
deposits with banks fell $4.4 million from 2019, mainly due to a 192 basis point decrease in the average rate earned, partly
offset by an increase in average balances of $799.3 million.
During 2020, interest expense on deposits decreased $37.3 million from 2019 and resulted mainly from a 30 basis point
decrease in the overall average rate paid on deposits. Interest expense on interest checking and money market accounts
decreased $21.9 million due to lower rates paid, which fell 21 basis points, while interest expense on certificates of deposit over
$100,000 declined $14.0 million, mainly due to a 98 basis point decline in the average rate paid. The overall rate paid on total
deposits decreased from .54% in 2019 to .24% in the current year. Interest expense on borrowings decreased $23.4 million
mainly due to lower rates paid on federal funds purchased and customer repurchase agreements. The overall average rate
incurred on all interest bearing liabilities was .26% in 2020, compared to .67% in 2019.
Net interest income totaled $821.3 million in 2019, decreasing $2.5 million compared to $823.8 million in 2018. On a tax
equivalent (T/E) basis, net interest income totaled $835.4 million, and decreased $4.6 million from 2018. This decrease
included combined growth of $38.0 million in interest expense on deposits and borrowings, due to higher average rates paid
and higher average balances. In addition, interest earned on investment securities decreased $5.2 million, mainly due to lower
average balances, while loan interest income (T/E) grew $38.6 million due to higher rates earned and higher average balances.
The net yield on earning assets (T/E) was 3.48% in 2019 compared with 3.53% in 2018.
25
During 2019, loan interest income (T/E) grew $38.6 million over 2018 mainly due to higher rates earned coupled with
increased average balances for business, business real estate and personal real estate loan categories. The average tax
equivalent rate earned on the loan portfolio increased 18 basis points to 4.71% in 2019 compared to 4.53% in 2018. In addition,
average loan balances increased 2.1%, or $298.6 million, in 2019. Increased interest of $17.5 million earned on business loans
was the main driver of overall higher loan interest income, due to growth of $251.1 million in average business loan balances
and a 16 basis point increase in the average rate. While higher rates also contributed to the increase in interest income, rates
were impacted by actions taken by the Federal Reserve during the second half of 2019 to lower interest rates. Business real
estate interest was higher by $10.1 million as a result of an increase in average balances of $121.2 million, along with an
increase in the average rate of 17 basis points. Personal real estate loan interest income increased $5.2 million and resulted from
growth in average balances of $84.9 million and a nine basis point increase in the average rate earned. Interest on consumer
loans increased $3.3 million as the average rate grew 36 basis points, but was partly offset by a decline in average balances of
$79.9 million, or 4.0%. Interest on consumer credit card loans grew $1.5 million over 2018 as the average rate earned increased
26 basis points, while average balances declined $4.0 million.
Tax equivalent interest income on total investment securities decreased $5.2 million during 2019, as average balances
declined $74.4 million and the average rate earned decreased three basis points. The average rate on the total investment
portfolio was 2.81% in 2019 compared to 2.84% in 2018, while the average balance of the total investment securities portfolio
(excluding unrealized fair value adjustments on available for sale debt securities) was $8.7 billion in 2019 compared to an
average balance of $8.8 billion in 2018. The decrease in interest income was mainly due to lower interest and dividend income
earned on equity and other securities, coupled with decreases in interest earned on state and municipal obligations, GSE's and
U.S. government securities. Interest income on equity securities decreased $10.0 million, due to the receipt of $8.9 million in
dividend income in the second quarter of 2018, which was related to a liquidated equity security that was carried at fair value.
Interest on other securities decreased $3.9 million mainly due to receipts of non-recurring equity investment dividends in 2018,
but was partly offset by higher average balances. Interest income on state and municipal obligations decreased $4.5 million,
due to lower average balances of $189.7 million, partly offset by an increase of 10 basis points in the average rate earned.
Interest income on GSE's decreased $1.5 million, due to a decline in average balances of $117.1 million, partly offset by an
increase of 40 basis points in the average rate earned. Interest earned on U.S. government securities fell $752 thousand and was
mainly impacted by a decline of $3.0 million in inflation income on TIPS. In addition, average balances declined $70.6
million, while the average rate earned increased 10 basis points. Partly offsetting these decreases in interest income was growth
of $12.1 million and $3.3 million in interest earned on mortgage-backed and asset-backed securities, respectively. The growth
in mortgage-backed interest resulted mainly from an increase of $391.0 million in average balances, coupled with a three basis
point increase in the average rate earned. Asset-backed securities interest increased due to growth of 38 basis points in the
average rate earned, partly offset by a decline of $83.1 million in average balances.
During 2019, interest expense on deposits increased $27.3 million over 2018 and resulted mainly from a 20 basis point
increase in the overall average rate paid on deposits. Interest expense on interest checking and money market accounts
increased $11.9 million due to higher rates paid, which rose 11 basis points. The growth in interest expense on certificates of
deposit was due to both higher rates paid on all certificates of deposit and higher average balances in certificates of deposit over
$100,000, which grew $281.9 million, or 25.3%. The overall rate paid on total deposits increased from .34% in 2018 to .54% in
2019. Interest expense on borrowings increased $10.7 million due to both higher rates paid and higher average balances of
federal funds purchased and customer repurchase agreements. The overall average rate incurred on all interest bearing
liabilities was .67% in 2019, compared to .44% in 2018.
Provision for Credit Losses
The provision for credit losses is recorded to bring the allowance for credit losses on loans and the liability for unfunded
lending commitments to a level deemed adequate by management based on the factors mentioned in the “Allowance for Credit
Losses on Loans and Liability for Unfunded Lending Commitments” section of this discussion. The provision for credit losses
totaled $137.2 million in 2020, an increase of $86.8 million from the 2019 provision of $50.4 million. In 2019, the provision
for credit losses on loans exceeded net loan charge-offs by $750 thousand, increasing the allowance for credit losses on loans
by the same amount, whereas the 2020 provision for credit losses on loans was $81.2 million greater than net loan charge-offs
for the year. In 2020, the provision for credit losses on unfunded lending commitments totaled $21.1 million.
Net loan charge-offs for the year totaled $34.9 million and decreased $14.8 million compared to $49.7 million in 2019. The
decrease in net loan charge-offs from the previous year was mainly the result of lower net charge-offs on credit card loans and
consumer loans, which decreased $9.4 million and $4.1 million, respectively. In addition, business loan net charge-offs
decreased $437 thousand, while revolving home equity loan and personal real estate loan net recoveries increased $375
thousand and $347 thousand, respectively. The allowance for credit losses on loans totaled $220.8 million at December 31,
2020, an increase of $60.2 million compared to the prior year, and represented 1.35% of loans at year end 2020, compared to
1.09% at December 31, 2019. The liability for unfunded lending commitments totaled $38.3 million at December 31, 2020.
26
Non-Interest Income
(Dollars in thousands)
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Capital market fees
Consumer brokerage services
Loan fees and sales
Other
Total non-interest income
Non-interest income as a % of total revenue*
Total revenue per full-time equivalent employee
$
$
$
2020
151,797
160,637
93,227
14,582
15,095
26,684
43,845
505,867
$
$
37.9%
280.3
$
2019
167,879 $
155,628
95,983
8,146
15,804
15,767
65,496
524,703 $
39.0%
277.1 $
2018
171,576
147,964
94,517
7,721
15,807
12,723
51,033
501,341
37.8%
276.4
* Total revenue is calculated as net interest income plus non-interest income.
% Change
'20-'19
'19-'18
(9.6%)
3.2
(2.9)
79.0
(4.5)
69.2
(33.1)
(3.6%)
(2.2%)
5.2
1.6
5.5
—
23.9
28.3
4.7%
Below is a summary of net bank card transaction fees for the years ended December 31, 2020, 2019 and 2018, respectively.
(Dollars in thousands)
Net debit card fees
Net credit card fees
Net merchant fees
Net corporate card fees
2020
2019
2018
'20-'19
'19-'18
% Change
$
37,644 $
40,025 $
13,393
18,386
82,374
14,177
19,289
94,388
39,738
12,965
19,233
99,640
(5.9%)
(5.5)
(4.7)
(12.7)
.7%
9.3
.3
(5.3)
(2.2%)
Total bank card transaction fees
$
151,797 $
167,879 $
171,576
(9.6%)
Non-interest income totaled $505.9 million, a decrease of $18.8 million, or 3.6%, compared to $524.7 million in 2019.
Bank card fees decreased $16.1 million, or 9.6%, from the prior year, due to declines in net corporate card fees of $12.0
million, net debit card fees of $2.4 million, net merchant fees of $903 thousand and net credit card fees of $784 thousand. The
decline in net corporate card fees from the prior year was due to lower transaction volume, partly offset by lower network and
rewards expense. The decline in net credit and debit card fees was mainly due to lower interchange income. The decline in net
credit card fees was partly offset by lower rewards expense. Net merchant fees fell due to lower merchant discount fees, partly
offset by higher interchange income and lower network expense. Trust fee income increased $5.0 million, or 3.2%, as a result
of continued growth in private client trust fees (up 4.3%), which comprised 77.2% of trust fee income in 2020. The market
value of total customer trust assets totaled $61.2 billion at year end 2020, which was an increase of 7.9% over year end 2019
balances. Deposit account fees decreased $2.8 million, or 2.9%, mainly due to a decline of $7.6 million in overdraft and return
item fees, partly offset by growth of $5.3 million in corporate cash management fees. In 2020, corporate cash management fees
comprised 50.2% of total deposit fees, while overdraft fees comprised 24.6% of total deposit fees. Capital market fees grew
$6.4 million, or 79.0%, compared to the prior year, mostly due to higher sales volume, while consumer brokerage services fell
$709 thousand, or 4.5%. Loan fees and sales increased $10.9 million, or 69.2%, mainly due to growth in mortgage banking
revenue. Mortgage banking revenue totaled $20.7 million in 2020 compared to $10.8 million in 2019 and increased as a result
of higher loan originations in 2020. Other non-interest income decreased $21.7 million, or 33.1%, mainly due to a one-time
gain of $11.5 million resulting from the sale of the Company's corporate trust business in the fourth quarter of 2019. In
addition, cash sweep commissions and interest rate swap fees decreased $2.1 million and $4.4 million, respectively.
During 2019, non-interest income increased $23.4 million, or 4.7%, to $524.7 million compared to $501.3 million in 2018.
Bank card fees decreased $3.7 million, or 2.2%, from 2018. This decrease included a decline in net corporate card fees of $5.3
million, partly offset by growth in net credit card fees of $1.2 million and net debit card fees of $287 thousand. Trust fee
income increased $7.7 million, or 5.2%, as a result of growth in private client trust fees (up 6.5%), which comprised 76.4% of
trust fee income in 2019. The market value of total customer trust assets totaled $56.7 billion at year end 2019, which was an
increase of 13.3% over year end 2018 balances. Deposit account fees increased $1.5 million, or 1.6%, mainly due to growth of
$3.0 million in corporate cash management fees. This increase was partly offset by declines of $872 thousand in overdraft and
return item fees and $636 thousand in deposit account service charges. Capital market fees grew $425 thousand, or 5.5%,
compared to the prior year, while loan fees and sales increased $3.0 million, or 23.9%, mainly due to growth in mortgage
banking revenue as a result of higher loan originations in 2019. Other non-interest income increased $14.5 million, or 28.3%,
mainly due to the one-time gain of $11.5 million, mentioned above. In addition, cash sweep commissions increased $2.7
million and higher gains of $2.4 million were recorded on sales of leased assets to customers upon lease termination. These
increases were partly offset by gains of $6.6 million recorded on the sales of branch properties in 2018.
27
Investment Securities Gains (Losses), Net
(In thousands)
2020
2019
2018
Net gains (losses) on sales of available for sale debt securities
$
21,096
$
(214) $
Net gains on sales and fair value adjustments of equity securities
Adjustment for dividend income on a liquidated equity investment
Net gains (losses) on sales and fair value adjustments of private equity investments
Other
39
—
(10,103)
—
3,606
—
367
(133)
Total investment securities gains (losses), net
$
11,032
$
3,626
$
(9,653)
4,301
(8,917)
13,849
(68)
(488)
Net gains and losses on investment securities during 2020, 2019 and 2018 are shown in the table above. Included in these
amounts are gains and losses arising from sales of securities from the Company’s available for sale debt portfolio and gains and
losses relating to private equity investments, which are primarily held by the Parent’s majority-owned private equity subsidiary.
The gains and losses on private equity investments include fair value adjustments, in addition to gains and losses realized upon
disposition. The portions of private equity investment gains and losses that are attributable to minority interests are reported as
non-controlling interest in the consolidated statements of income, and resulted in income of $1.4 million in 2020, compared to
expense of $348 thousand in 2019 and expense of $2.8 million in 2018.
Net securities gains of $11.0 million were recorded in 2020, which included $21.1 million in net gains realized on bond
sales resulting from the Company's sale of approximately $602 million (book value) of bonds, mainly mortgage-backed
securities and municipal securities. These gains were offset by net losses totaling $10.1 million of fair value adjustments on
private equity investments, in addition to net gains totaling $37 thousand of fair value adjustments on equity investments.
Net securities gains of $3.6 million were recorded in 2019, which included $214 thousand in net losses realized on bond
sales resulting from the Company's sale of approximately $400 million (book value) of bonds, mainly municipal securities,
treasuries and asset-backed securities. Net securities gains also included $3.3 million in gains from sales of equity investments,
net gains of $344 thousand in fair value adjustments on equity investments, and a $1.1 million in gain from the sale of a private
equity investment. These gains were offset by net losses totaling $727 thousand of fair value adjustments on private equity
investments.
Net securities losses of $488 thousand were recorded in 2018, which included $9.7 million in net losses realized on bond
sales resulting from the Company's sale of approximately $680 million (book value) of bonds, mainly mortgage and asset-
backed securities. Net securities losses also included $8.9 million in losses related to an adjustment for dividend income on a
liquidated investment. These losses were offset by net gains totaling $13.8 million of fair value adjustments on private equity
investments, in addition to fair value adjustments and net gains realized on sales of equity investments.
Non-Interest Expense
(Dollars in thousands)
Salaries
Employee benefits
Net occupancy
Equipment
Supplies and communication
Data processing and software
Marketing
Other
2020
2019
2018
'20-'19
'19-'18
% Change
$
436,087
$
416,869
$
396,897
4.6%
76,900
46,645
18,839
17,419
95,325
19,734
57,429
76,058
47,157
19,061
20,394
92,899
21,914
73,046
71,297
46,044
18,125
20,637
85,978
20,548
78,295
1.1
(1.1)
(1.2)
(14.6)
2.6
(9.9)
(21.4)
5.0%
6.7
2.4
5.2
(1.2)
8.0
6.6
(6.7)
4.0%
Total non-interest expense
$
768,378
$
767,398
$
737,821
0.1%
Efficiency ratio
Salaries and benefits as a % of total non-interest
expense
Number of full-time equivalent employees
57.2%
56.9%
55.6%
66.8%
4,766
64.2%
4,858
63.5%
4,795
Non-interest expense was $768.4 million in 2020, an increase of $980 thousand, or .1%, over the previous year. Salaries
and benefits expense increased $20.1 million, or 4.1%, mainly due to higher costs for full-time salaries and incentive
compensation. Full-time salaries expense increased due to growth in commercial, information technology, wealth management
28
and other support unit salaries expense, while incentive compensation saw increases in mortgage, capital markets, and in
association with the origination of PPP loans. Full-time equivalent employees totaled 4,766 at December 31, 2020, reflecting a
1.9% decrease from 2019. Occupancy expense decreased $512 thousand, or 1.1%, mainly due to lower utilities and outside
services expense, partly offset by higher building depreciation expense. Equipment expense decreased $222 thousand, or 1.2%,
while supplies and communication expense decreased $3.0 million, or 14.6%, as a result of lower supplies, postage and bank
card issuance fees. Data processing and software expense increased $2.4 million, or 2.6%, primarily due to higher costs for
service providers and software expense, partly offset by lower bank card processing fees, while marketing expense decreased
$2.2 million, or 9.9%. Other non-interest expense decreased $15.6 million, or 21.4%, from the prior year mainly due to higher
deferred origination costs (up $3.7 million) and lower travel and entertainment (down $8.7 million) and education expense
(down $1.2 million). These decreases were partly offset by higher deposit insurance expense (up $1.2 million), as well as
higher impairment expense (up $1.8 million) and amortization (up $2.4 million) on the Company's mortgage servicing rights.
In 2019, non-interest expense was $767.4 million in 2019, an increase of $29.6 million, or 4.0%, over 2018. Salaries and
benefits expense increased $24.7 million, or 5.3%, mainly due to higher full-time salaries and medical expense. Full-time
salaries expense increased due to growth in consumer, commercial, information technology and other support unit salaries
expense. Full-time equivalent employees totaled 4,858 at December 31, 2019, reflecting a 1.3% increase over 2018.
Occupancy expense increased $1.1 million, or 2.4%, mainly due to higher real estate taxes and building depreciation expense,
partly offset by a decline in utilities expense. Equipment expense increased $936 thousand, or 5.2%, due to higher equipment
depreciation expense. Data processing and software expense increased $6.9 million, or 8.0%, primarily due to higher costs for
service providers and higher bank card processing expense. Marketing expense increased $1.4 million, or 6.6%, due to
increased marketing efforts to support consumer and healthcare banking initiatives, partly offset by bank card marketing
initiatives in 2018. Other expense declined $5.2 million, or 6.7%, from 2018 mainly due to lower deposit insurance expense as
a result of reduced FDIC insurance rates.
Income Taxes
Income tax expense was $87.3 million in 2020, compared to $109.1 million in 2019 and $105.9 million in 2018. The
effective tax rate, including the effect of non-controlling interest, was 19.8% in 2020 compared to 20.6% in 2019 and 19.6% in
2018. The decrease in effective tax rate in 2020 compared to 2019 was primarily driven by lower state and local income taxes.
Additional information about income tax expense is provided in Note 9 to the consolidated financial statements.
29
Financial Condition
Loan Portfolio Analysis
Classifications of consolidated loans by major category at December 31 for each of the past five years are shown in the table
below. This portfolio consists of loans which were acquired or originated with the intent of holding to their maturity. Loans
held for sale are separately discussed in a following section. A schedule of average balances invested in each loan category
below is disclosed within the Average Balance Sheets section of Management's Discussion and Analysis of Financial Condition
and Results of Operations below.
(In thousands)
Commercial:
Business
2020
2019
2018
2017
2016
Balance at December 31
$
6,546,087 $
5,565,449 $
5,106,427 $
4,958,554 $
4,776,365
Real estate — construction and land
1,021,595
899,377
869,659
968,820
791,236
Real estate — business
Personal banking:
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
3,026,117
2,833,554
2,875,788
2,697,452
2,643,374
2,820,030
2,354,760
2,127,083
2,062,787
2,010,397
1,950,502
1,964,145
1,955,572
2,104,487
1,990,801
307,083
655,078
3,149
349,251
764,977
6,304
376,399
814,134
15,236
400,587
783,864
7,123
413,634
776,465
10,464
$
16,329,641 $
14,737,817 $
14,140,298 $
13,983,674 $
13,412,736
The contractual maturities of business and real estate loan categories at December 31, 2020, and a breakdown of those loans
between fixed rate and floating rate loans are as follows.
(In thousands)
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Principal Payments Due
In
One Year
or Less
After One
Year Through
Five Years
After
Five
Years
Total
$ 3,034,763
$ 3,087,617
$
423,707
$ 6,546,087
571,846
696,281
185,038
428,940
1,789,893
20,809
539,943
603,972
2,031,020
1,021,595
3,026,117
2,820,030
Total business and real estate loans
$ 4,487,928
$ 5,910,422
$ 3,015,479
$ 13,413,829
Business and real estate loans:
Loans with fixed rates
Loans with floating rates
Total business and real estate loans
32.0 %
68.0 %
100.0 %
58.6 %
41.4 %
100.0 %
66.1 %
33.9 %
100.0 %
51.4 %
48.6 %
100.0 %
30
The following table shows loan balances at December 31, 2020, segregated between those with fixed interest rates and those
with variable rates that fluctuate with an index.
(In thousands)
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Fixed Rate
Loans
Variable Rate
Loans
Total
% Variable Rate
Loans
$
3,445,886 $
3,100,201 $
6,546,087
47.4%
27,673
993,922
1,021,595
1,366,653
1,659,464
3,026,117
2,053,807
1,282,923
766,223
2,820,030
667,579
1,950,502
3,693
33,585
3,149
303,390
621,493
—
307,083
655,078
3,149
97.3
54.8
27.2
34.2
98.8
94.9
—
$
8,217,369 $
8,112,272 $
16,329,641
49.7%
Total loans at December 31, 2020 were $16.3 billion, an increase of $1.6 billion, or 10.8%, over balances at December 31,
2019. The growth in loans during 2020 occurred in the business, construction, business real estate and personal real estate loan
categories, while consumer, consumer credit card, revolving home equity and overdraft loan categories declined from the prior
year. Business loans increased $980.6 million, or 17.6%, reflecting growth in commercial and industrial loans and commercial
card, while lease lending and tax-advantaged lending remained mostly flat. The Company funded $1.5 billion of PPP loans
during 2020, all of which were fixed rate loans carrying a 1% interest rate. For these loans, the Company collected fees paid by
the SBA totaling $41.0 million, of which $21.4 million were recognized in net interest income during 2020. Construction loans
increased $122.2 million, or 13.6% mainly due to growth in commercial construction lending. Business real estate loans
increased $192.6 million, or 6.8%, due mainly to increases in owner-occupied and office lending. Business real estate hotel,
senior living, and industrial lending also grew this year, while retail lending declined. Personal real estate loans increased
$465.3 million, or 19.8%, due to continued strong demand for residential mortgage loans. The Company sells certain long-term
fixed rate mortgage loans to the secondary market, and loan sales in 2020 totaled $275.1 million, compared to $239.0 million in
2019. Consumer loans decreased $13.6 million, or .7%, due to decreases in auto lending, fixed rate home equity loans, and
health service financing lending, along with continued run off of marine and recreational vehicle loan balances. These
decreases were partly offset by an increase in private banking loans. Consumer credit card loans decreased $109.9 million, or
14.4% and revolving home equity loan balances declined $42.2 million, or 12.1%, compared to balances at year end 2019.
The Company currently holds approximately 29% of its loan portfolio in the Kansas City market, 29% in the St. Louis
market, and 42% in other regional markets. The portfolio is diversified from a business and retail standpoint, with 65% in loans
to businesses and 35% in loans to consumers. The Company believes a diversified approach to loan portfolio management,
strong underwriting criteria and an aversion toward credit concentrations, from an industry, geographic and product perspective,
have contributed to low levels of problem loans and credit losses on loans experienced over the last several years.
The Company participates in credits of large, publicly traded companies which are defined by regulation as shared national
credits, or SNCs. Regulations define SNCs as loans exceeding $100 million that are shared by three or more financial
institutions. The Company typically participates in these loans when business operations are maintained in the local
communities or regional markets and opportunities to provide other banking services are present. At December 31, 2020, the
balance of SNC loans totaled approximately $1.0 billion, with an additional $1.7 billion in unfunded commitments, compared
to a balance of $1.1 billion, with an additional $1.4 billion in unfunded commitments, at year end 2019.
Commercial Loans
Business
Total business loans amounted to $6.5 billion at December 31, 2020 and include loans used mainly to fund customer
accounts receivable, inventories, and capital expenditures. The business loan portfolio includes tax-advantaged loans and leases
which carry tax free interest rates. These loans totaled $861.0 million at December 31, 2020, an increase of $2.9 million,
or .3%, from December 31, 2019 balances. The business loan portfolio also includes direct financing and sales type leases
totaling $584.3 million, which are used by commercial customers to finance capital purchases ranging from computer
equipment to office and transportation equipment. These lease-related loans were flat compared to 2019. Additionally, the
Company has outstanding oil and gas energy-related loans totaling $178.7 million at December 31, 2020, which are further
discussed within the Oil and Gas Energy Lending section of the Risk Elements of Loan Portfolio section located within
Management's Discussion and Analysis of Financial Condition and Results of Operations. Also included in the business
31
portfolio are corporate card loans, which totaled $333.2 million at December 31, 2020 and are made in conjunction with the
Company’s corporate card business for corporate trade purchases. Corporate card loans are made to corporate, non-profit and
government customers nationwide, but have very short-term maturities, which limits credit risk.
Business loans, excluding corporate card loans, are made primarily to customers in the regional trade area of the Company,
generally the central Midwest, encompassing the states of Missouri, Kansas, Illinois, and nearby Midwestern markets, including
Iowa, Oklahoma, Colorado, Texas, Tennessee, Michigan, Indiana, and Ohio. This portfolio is diversified from an industry
standpoint and includes businesses engaged in manufacturing, wholesaling, retailing, agribusiness, insurance, financial services,
public utilities, health care, and other service businesses. Emphasis is upon middle-market and community businesses with
known local management and financial stability. Consistent with management’s strategy and emphasis upon relationship
banking, most borrowing customers also maintain deposit accounts and utilize other banking services. Net loan charge-offs in
this category totaled $3.7 million in 2020 compared to net loan charge-offs of $4.1 million recorded in 2019. Non-accrual
business loans were $22.5 million (.3% of business loans) at December 31, 2020 compared to $7.5 million at December 31,
2019.
Real Estate-Construction and Land
The portfolio of loans in this category amounted to $1.0 billion at December 31, 2020, which was an increase of $122.2
million, or 13.6%, from the prior year and comprised 6.3% of the Company’s total loan portfolio. Commercial construction and
land development loans totaled $867.6 million, or 84.9% of total construction loans at December 31, 2020. These loans
increased $162.5 million from 2019 year end balances, driving the growth in the total construction portfolio. Commercial
construction loans are made during the construction phase for small and medium-sized office and medical buildings,
manufacturing and warehouse facilities, apartment complexes, shopping centers, hotels and motels, and other commercial
properties. Commercial land development loans relate to land owned or developed for use in conjunction with business
properties. Residential construction and land development loans at December 31, 2020 totaled $154.0 million, or 15.1% of total
construction loans. A stable construction market has contributed to low loss rates on these loans, with net loan recoveries of $3
thousand and $117 thousand recorded in 2020 and 2019, respectively.
Real Estate-Business
Total business real estate loans were $3.0 billion at December 31, 2020 and comprised 18.5% of the Company’s total loan
portfolio. This category includes mortgage loans for small and medium-sized office and medical buildings, manufacturing and
warehouse facilities, distribution facilities, multi-family housing, farms, shopping centers, hotels and motels, churches, and
other commercial properties. The business real estate borrowers and/or properties are generally located in local and regional
markets where Commerce does business, and emphasis is placed on owner-occupied lending (37.9% of this portfolio), which
presents lower risk levels. Additional information about business real estate loans by borrower is disclosed within the Real
Estate - Business Loans section of the Risk Elements of Loan Portfolio section located within Management's Discussion and
Analysis of Financial Condition and Results of Operations. At December 31, 2020, balances of non-accrual loans amounted to
$2.2 million, up from $1.0 million at year end 2019, but less than .1% of business real estate loans at year end 2020. The
Company experienced net loan recoveries of $47 thousand in 2020, compared to net loan recoveries of $60 thousand in 2019.
Personal Banking Loans
Real Estate-Personal
At December 31, 2020, there were $2.8 billion in outstanding personal real estate loans, which comprised 17.3% of the
Company’s total loan portfolio. The mortgage loans in this category are mainly for owner-occupied residential properties. The
Company originates both adjustable and fixed rate mortgage loans, and at December 31, 2020, 27% of the portfolio was
comprised of adjustable rate loans, while 73% was comprised of fixed rate loans. The Company does not purchase any loans
from outside parties or brokers, and has never maintained no-document products. Levels of mortgage loan origination activity
increased in 2020, with originations of $1.5 billion in 2020 compared to $871.6 million in 2019. Net loans retained by the
Company increased $465.3 million, driven by growth in new loan production aided by the lower interest rate environment.
Loans sold to the secondary market increased $36.1 million. The loan sales were made under an initiative to originate and sell
certain long term fixed rate loans, resulting in sales of $275.1 million in 2020 compared to $239.0 million in 2019. The
Company has experienced lower credit losses on loans in this category than many others in the industry and believes this is
partly because of its conservative underwriting culture and the fact that it does not purchase loans from brokers. Net loan
recoveries in 2020 totaled $291 thousand, and net loan charge-offs were $56 thousand in 2019. Balances of non-accrual loans
in this category were $1.8 million at December 31, 2020, compared to $1.7 million at year end 2019.
32
Consumer
Consumer loans consist of private banking, automobile, motorcycle, marine, tractor/trailer, recreational vehicle (RV), fixed
rate home equity, patient health care financing and other types of consumer loans. These loans totaled $2.0 billion at year end
2020. Approximately 45% of the consumer portfolio consists of automobile loans, 24% in private banking loans, 13% in fixed
rate home equity loans, 10% in healthcare financing loans, 3% in motorcycle loans, and 1% in marine and RV loans. Total
consumer loans decreased $13.6 million at year end 2020 compared to year end 2019. Growth of $65.3 million in private
banking loans was offset by declines of $28.3 million in automobile loans, $21.7 million in fixed rate home equity loans, $11.1
million in patient healthcare financing, $10.3 million in marine and RV loans, and $4.3 million in motorcycle loans. Net
charge-offs on total consumer loans were $4.4 million in 2020, compared to $8.6 million in 2019, averaging .23% and .44% of
consumer loans in 2020 and 2019, respectively.
Revolving Home Equity
Revolving home equity loans, of which 99% are adjustable rate loans, totaled $307.1 million at year end 2020. An
additional $773.5 million was available in unused lines of credit, which can be drawn at the discretion of the borrower. Home
equity loans are secured mainly by second mortgages (and less frequently, first mortgages) on residential property of the
borrower. The underwriting terms for the home equity line product permit borrowing availability, in the aggregate, generally up
to 80% or 90% of the appraised value of the collateral property at the time of origination. Net recoveries totaled $166 thousand
in 2020, compared to net charge-offs of $209 thousand in 2019.
Consumer Credit Card
Total consumer credit card loans amounted to $655.1 million at December 31, 2020 and comprised 4.0% of the Company’s
total loan portfolio. The credit card portfolio is concentrated within regional markets served by the Company. The Company
offers a variety of credit card products, including affinity cards, rewards cards, and standard and premium credit cards, and
emphasizes its credit card relationship product, Special Connections. Approximately 40% of the households that own a
Commerce credit card product also maintain a deposit relationship with the subsidiary bank. At December 31, 2020,
approximately 95% of the outstanding credit card loan balances had a floating interest rate, compared to 93% in the prior year.
Net charge-offs amounted to $26.0 million in 2020, a decrease of $9.4 million from $35.4 million in 2019.
Loans Held for Sale
At December 31, 2020, loans held for sale were comprised of certain long-term fixed rate personal real estate loans and
loans extended to students while attending colleges and universities. The personal real estate loans are carried at fair value and
totaled $39.4 million at December 31, 2020. The student loans, carried at the lower of cost or fair value, totaled $5.7 million at
December 31, 2020. Both of these portfolios are further discussed in Note 2 to the consolidated financial statements.
Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments
The Company has an established process to determine the amount of the allowance for credit losses on loans and the liability
for unfunded lending commitments, which assesses the risks and losses expected in its portfolios. This process provides an
allowance based on estimates of allowances for pools of loans and unfunded lending commitments, as well as a second, smaller
component based on certain individually evaluated loans and unfunded lending commitments. The Company's policies and
processes for determining the allowance for credit losses on loans and the liability for unfunded lending commitments are
discussed in Note 1 to the consolidated financial statements and in the "Allowance for Credit Losses" discussion within Critical
Accounting Policies above.
Loans subject to individual evaluation generally consist of business, construction, business real estate and personal real
estate loans on non-accrual status. These non-accrual loans are evaluated individually for impairment based on factors such as
payment history, borrower financial condition and collateral. For collateral dependent loans, appraisals of collateral (including
exit costs) are normally obtained annually but discounted based on date last received and market conditions. From these
evaluations of expected cash flows and collateral values, specific allowances are determined.
Loans which are not individually evaluated are segregated by loan type and sub-type and are collectively evaluated. These
loans consist of commercial loans (business, construction and business real estate) which have been graded pass, special
mention, or substandard, and also include all personal banking loans except personal real estate loans on non-accrual status.
Collectively-evaluated loans include certain troubled debt restructurings with similar risk characteristics.
The Company adopted ASU 2016-13, known as the current expected credit loss (CECL) model, on January 1, 2020. Upon
adoption, the allowance for credit losses on loans was reduced $21.0 million and the liability for unfunded lending
33
commitments increased $16.1 million. The decrease in the allowance for credit losses on loans at the time of adoption was
significantly influenced by the forecasted economic environment used in the estimation process as required by CECL, which
was characterized by low unemployment. As the estimation model for credit losses on lending commitments became governed
by CECL, the Company increased the related liability for unfunded lending commitments (mostly related to construction
lending), as the Company expected to fully fund the commitments under these contracts.
The table below shows the composition of the allowance by loan class at December 31, 2019, January 1, 2020 (at the
adoption of CECL), and December 31, 2020.
$
(Dollars in thousands)
Commercial:
Business
RE - construction and land
RE - business
Personal Banking:
RE - personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total
$
December 31, 2019
January 1, 2020 (Implementation)
December 31, 2020
Allowance for
Loan Losses
ALL as a % of
Loans
Allowance for
Credit Losses
ACL as a % of
Loans
Allowance for
Credit Losses
ACL as a % of
Loans
44,268
21,589
25,903
91,760
3,125
15,932
638
47,997
1,230
68,922
160,682
.80% $
2.40
.91
.99
.13
.81
.18
6.27
19.51
1.27
1.09% $
37,940
9,204
14,905
62,049
4,855
14,518
1,624
56,495
102
77,594
139,643
.68% $
1.02
.53
.67
.21
.74
.46
7.39
1.62
1.43
.95% $
63,660
27,836
30,053
121,549
8,304
15,244
1,475
74,001
261
99,285
220,834
.97%
2.72
.99
1.15
.29
.78
.48
11.30
8.29
1.73
1.35%
The allowance for credit losses on loans and the liability for unfunded lending commitments are estimates that require
significant judgment including projections of the macro-economic environment. The Company utilizes a third-party macro-
economic forecast that continuously changes due to economic conditions and events. These changes in the forecast cause
fluctuations in the allowance for credit losses on loans and the liability for unfunded lending commitments. The Company used
its best judgment to assess the macro-economic forecast and internal loss data in estimating the allowance for credit losses on
loans and the liability for unfunded lending commitments. These estimates are subject to periodic refinement based on changes
in the underlying external and internal data. Events such as government-required business lock downs, trends in infection and
mortality rates, government stimulus payments, and widespread vaccinations could significantly modify the economic
projections used in the forecast to estimate the allowance for credit losses on loans and the liability for unfunded lending
commitments.
The Company has internal credit administration and loan review staff that continuously review loan quality and report the
results of their reviews and examinations to the Company’s senior management and Board of Directors. Such reviews also
assist management in establishing the level of the allowance. The Company’s subsidiary bank continues to be subject to
examination by several regulatory agencies, and examinations are conducted throughout the year, targeting various segments of
the loan portfolio for review. Refer to Note 1 to the consolidated financial statements for additional discussion on the
allowance and charge-off policies.
At December 31, 2020, the allowance for credit losses on loans was $220.8 million, compared to $139.6 million at January
1, 2020, the adoption of CECL. The allowance for credit losses related to commercial loans increased $59.5 million, due to
increases in the allowance on business, construction and business real estate loans of $25.7 million, $18.6 million, and $15.1
million, respectively. Compared to January 1, 2020, the allowance for credit losses on consumer credit card, personal real
estate, and consumer loans increased $17.5 million, $3.4 million, and $726 thousand, respectively. These large increases
resulted from the sudden entrance into a sharp recession brought on by an unprecedented pandemic. The economic outlook
shifted from a stable economy with low unemployment at January 1, 2020 to an uncertain economic projection at December 31,
2020, defined by higher unemployment and other business and personal disruptions caused by COVID-19. Given the
significant uncertainty of the economic projections of a pandemic-induced recession, the credit loss estimate utilized in the
Company's CECL model uses a short reasonable and supportable forecasted period. As businesses navigate through the current
recession, key assumptions utilized in the Company's CECL model may be modified. Traditional credit quality indicators, such
as net charge-off experience, greater than 90 days delinquent statistics and decreases in the internal risk rating to special
mention or substandard ratings, are lagging credit quality indicators and do not yet reflect the expected impacts of the crisis, as
34
changes in these indicators may be delayed by the Company's offering of certain assistance programs to impacted customers as
allowed by various regulations and as customers are able to participate in various governmental support programs. See Note 2
for further discussion of the credit quality indicators, and refer to Risk Elements of the Loan Portfolio, Loans with Special Risk
Characteristics for further information about the assistance programs offered by the Company to its customers. See Note 2 to
the consolidated financial statements for the various model assumptions utilized in the Company's CECL estimate at
December 31, 2020.
The percentage of allowance to loans increased to 1.35% at December 31, 2020, compared to .95% at the implementation of
CECL, for the reasons described above. Included within business loans at December 31, 2020 are approximately $1.4 billion
PPP loans that are fully guaranteed by the government, and therefore, no allowance for credit losses was estimated for these
loans. Excluding the PPP loans, the allowance for credit losses on loans was 1.48% of loans at December 31, 2020.
Total loans delinquent 90 days or more and still accruing were $22.2 million at December 31, 2020, an increase of $2.3
million compared to year end 2019. The increase was mainly driven by increases of $2.7 million in business, $1.1 million in
personal real estate, and $1.3 million in consumer loans delinquent 90 days or more, partly offset by a decrease of $3.5 million
in construction loan delinquencies. Non-accrual loans at December 31, 2020 were $26.5 million, an increase of $16.3 million
over the prior year, mainly due to an increase in business and business real-estate non-accrual loans of $15.0 million and $1.2
million, respectively. The 2020 year end balance of non-accrual loans was comprised of $22.5 million of business loans, $2.2
million of business real estate loans and $1.8 million of personal real estate loans.
Net loan charge-offs totaled $34.9 million in 2020, representing a $14.8 million decrease compared to net charge-offs of
$49.7 million in 2019. The decrease was largely due to lower credit card loan and consumer loan net charge-offs of $9.4
million and $4.1 million, respectively. In addition, business loan net charge-offs decreased $437 thousand, while revolving
home equity loan and personal real estate loan net recoveries increased $375 thousand and $347 thousand, respectively. The
decreases in net charge-offs on consumer credit card, consumer and business loans were primarily the result of various
COVID-19 relief programs that allowed customers to defer loan payments without advancing in past due or charge-off status.
Many of these customers have resumed to normal scheduled payments. See Risk Elements of the Loan Portfolio, Loans with
Special Characteristics for further information. Consumer credit card net charge-offs were 3.88% of average consumer credit
card loans in 2020 compared to 4.63% in 2019. Consumer credit card loan net charge-offs as a percentage of total net charge-
offs increased to 74.5% in 2020 compared to 71.3% in 2019. Consumer loan net charge-offs were .23% of average consumer
loans in 2020, compared to .44% in 2019, and represented 12.7% of total net loan charge-offs in 2020. The ratio of net charge-
offs to total average loans outstanding in 2020 was .22%, compared to .35% in 2019 and .30% in 2018.
As noted above, on January 1, 2020, the estimation model for credit losses on lending commitments became governed by
CECL, and at adoption, the Company increased the related liability for unfunded lending commitments by $16.1 million to
$17.2 million. At December 31, 2020, the liability for unfunded lending commitments was $38.3 million, an increase of $21.1
million compared to January 1, 2020. The Company's unfunded lending commitments primarily relate to construction loans.
The increase in the liability for unfunded lending commitments during 2020 was driven by the impact of the pandemic-driven
recession on the economy. The Company's estimate for credit losses in its unfunded lending commitments utilizes the same
model and forecast as its estimate for credit losses on loans. See Note 2 for further discussion of the model inputs utilized in
the Company's estimate of credit losses.
The provision for credit losses, which includes the provision for loans and unfunded lending commitments, was $137.2
million in 2020, compared to $50.4 million in 2019 and $42.7 million in 2018.
The Company considers the allowance for credit losses on loans and the liability for unfunded lending commitments
adequate to cover losses expected in the loan portfolio, including unfunded commitments, at December 31, 2020.
35
The schedules which follow summarize the relationship between loan balances and activity in the allowance for credit losses
on loans:
(Dollars in thousands)
Loans outstanding at end of year(A)
Average loans outstanding(A)
Allowance for credit losses:
Balance at end of prior year
Adoption of ASU 2016-13
Balance at beginning of year
Provision for credit losses on loans
Loans charged off:
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans charged off
Recoveries of loans previously charged off:
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total recoveries
Net loans charged off
Balance at end of year
$
$
$
Years Ended December 31
2020
2019
2018
2017
2016
16,329,641
15,896,848
$
$
14,737,817
14,224,637
$
$
14,140,298
13,926,079
$
$
13,983,674
13,611,699
$
$
13,412,736
12,927,778
160,682
$
159,932
$
159,532
$
155,932
$
151,532
(21,039)
139,643
116,049
—
159,932
50,438
—
159,532
42,694
—
155,932
45,244
—
151,532
36,318
7,862
—
—
42
7,769
79
32,541
1,754
50,047
4,197
3
47
333
3,325
245
6,562
477
15,189
34,858
4,622
7
82
294
12,048
487
42,254
2,086
61,880
520
124
142
238
3,494
278
6,833
563
12,192
49,688
3,144
—
20
176
12,897
357
36,931
2,296
55,821
1,042
635
398
511
3,611
302
6,353
675
13,527
42,294
2,410
1
127
417
13,415
488
36,114
2,207
55,179
1,032
1,192
330
722
3,436
303
5,861
659
13,535
41,644
2,549
515
194
556
12,711
860
31,616
1,977
50,978
1,933
4,227
1,475
562
3,664
375
6,186
638
19,060
31,918
$
220,834
$
160,682
$
159,932
$
159,532
$
155,932
Ratio of allowance to loans at end of year
Ratio of provision to average loans outstanding
1.35 %
.73 %
1.09 %
.35 %
1.13 %
.31 %
1.14 %
.33 %
1.16%
0.28%
(A) Net of unearned income, before deducting allowance for credit losses on loans, excluding loans held for sale.
Ratio of net charge-offs (recoveries) to average loans outstanding, by loan
category:
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Years Ended December 31
2020
2019
2018
2017
2016
.06%
—
—
(.01)
.23
(.05)
3.88
38.11
.08%
(.01)
—
—
.44
.06
4.63
16.55
.04%
.03%
(.07)
(.01)
(.02)
.46
.01
3.98
33.93
(.14)
(.01)
(.02)
.49
.05
4.07
33.71
.01%
(.48)
(.05)
—
.46
.12
3.39
28.42
Ratio of total net charge-offs to total average loans outstanding
.22%
.35%
.30%
.31%
.25%
36
The following schedule provides a breakdown of the allowance for credit losses on loans by loan category and the
percentage of each loan category to total loans outstanding at year end.
(Dollars in thousands)
2020
2019
2018
2017
2016
Business
RE — construction and
land
RE — business
RE — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total
Credit Loss
Allowance
Allocation
% of Loans
to Total
Loans
Credit Loss
Allowance
Allocation
% of Loans
to Total
Loans
Credit Loss
Allowance
Allocation
% of Loans
to Total
Loans
Credit Loss
Allowance
Allocation
% of Loans
to Total
Loans
Credit Loss
Allowance
Allocation
% of Loans
to Total
Loans
$ 63,660
40.1 % $
44,268
37.8 % $
42,890
36.1 % $ 44,462
35.4 % $
43,910
35.6 %
27,836
30,053
8,304
15,244
1,475
74,001
261
6.3
18.5
17.3
11.9
1.9
4.0
—
21,589
25,903
3,125
15,932
638
47,997
1,230
6.1
19.2
16.0
13.3
2.4
5.2
—
22,515
27,717
3,250
18,007
825
43,755
973
6.2
20.3
15.0
13.8
2.7
5.8
.1
24,432
24,810
4,201
19,509
1,189
40,052
877
6.9
19.3
14.8
15.0
2.9
5.6
.1
21,841
25,610
4,110
18,935
1,164
39,530
832
5.9
19.7
15.0
14.8
3.1
5.8
.1
$ 220,834
100.0 % $ 160,682
100.0 % $ 159,932
100.0 % $ 159,532
100.0 % $ 155,932
100.0 %
Risk Elements of Loan Portfolio
Management reviews the loan portfolio continuously for evidence of problem loans. During the ordinary course of business,
management becomes aware of borrowers that may not be able to meet the contractual requirements of loan agreements. Such
loans are placed under close supervision with consideration given to placing the loan on non-accrual status, the need for an
additional allowance for credit loss, and (if appropriate) partial or full loan charge-off. Loans are placed on non-accrual status
when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. After a
loan is placed on non-accrual status, any interest previously accrued but not yet collected is reversed against current income.
Interest is included in income only as received and only after all previous loan charge-offs have been recovered, so long as
management is satisfied there is no impairment of collateral values. The loan is returned to accrual status only when the
borrower has brought all past due principal and interest payments current, and, in the opinion of management, the borrower has
demonstrated the ability to make future payments of principal and interest as scheduled. Loans that are 90 days past due as to
principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of
collection, or they are comprised of those personal banking loans that are exempt under regulatory rules from being classified as
non-accrual. Consumer installment loans and related accrued interest are normally charged down to the fair value of related
collateral (or are charged off in full if no collateral) once the loans are more than 120 days delinquent. Credit card loans and the
related accrued interest are charged off when the receivable is more than 180 days past due. During 2020, Section 4013 of the
Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law and provided financial institutions
the option to suspend the requirement to categorize certain modifications related to the COVID-19 pandemic as troubled debt
restructurings. The 2021 Consolidated Appropriations Act signed on December 27, 2020 extends this temporary suspension
through January 1, 2022. The Company follows the guidance under the CARES Act when determining if a customer’s
modification is subject to troubled debt restructuring classification. Refer to Note 2 for additional information.
The following schedule shows non-performing assets and loans past due 90 days and still accruing interest.
(Dollars in thousands)
Total non-accrual loans
Real estate acquired in foreclosure
Total non-performing assets
Non-performing assets as a percentage of total loans
Non-performing assets as a percentage of total assets
Loans past due 90 days and still accruing interest
December 31
2020
$ 26,540
93
2019
$ 10,220
365
2018
$ 12,536
1,413
2017
$ 11,983
681
2016
$ 14,283
366
$ 26,633
$ 10,585
$ 13,949
$ 12,664
$ 14,649
.16 %
.08 %
.07 %
.04 %
.10 %
.05 %
.09 %
.05 %
.11 %
.06 %
$ 22,190
$ 19,859
$ 16,658
$ 18,127
$ 16,396
The table below shows the effect on interest income in 2020 of loans on non-accrual status at year end.
(In thousands)
Gross amount of interest that would have been recorded at original rate
Interest that was reflected in income
Interest income not recognized
$
$
1,820
522
1,298
Non-accrual loans totaled $26.5 million at year end 2020, an increase of $16.3 million from the balance at year end 2019.
The increase from December 31, 2019 occurred mainly in business loans, which increased $15.0 million, and business real
37
estate loans, which increased $1.2 million. At December 31, 2020, non-accrual loans were comprised of business (84.9%),
business real estate (8.4%), and personal real estate (6.7%) loans. Foreclosed real estate totaled $93 thousand at December 31,
2020, a decrease of $272 thousand when compared to December 31, 2019. Total non-performing assets remain low compared
to the overall banking industry in 2020, with the non-performing assets to total loans ratio at .08% at December 31, 2020. Total
loans past due 90 days or more and still accruing interest were $22.2 million as of December 31, 2020, an increase of $2.3
million when compared to December 31, 2019. Balances by class for non-accrual loans and loans past due 90 days and still
accruing interest are shown in the "Delinquent and non-accrual loans" section of Note 2 to the consolidated financial
statements.
In addition to the non-performing and past due loans mentioned above, the Company also has identified loans for which
management has concerns about the ability of the borrowers to meet existing repayment terms. They are classified as
substandard under the Company’s internal rating system. The loans are generally secured by either real estate or other borrower
assets, reducing the potential for loss should they become non-performing. Although these loans are generally identified as
potential problem loans, they may never become non-performing. Such loans totaled $361.8 million at December 31, 2020,
compared with $164.8 million at December 31, 2019, resulting in an increase of $197.0 million or 119.6%. The increase in
potential problem loans was largely driven by a $118.6 million increase in business real estate loans, a $49.1 million increase in
business loans, and a $28.9 million increase in construction loans.
(In thousands)
Potential problem loans:
Business
Real estate – construction and land
Real estate – business
Real estate – personal
Total potential problem loans
December 31
2020
2019
$
$
133,039 $
29,378
198,666
670
361,753 $
83,943
470
80,071
283
164,767
At December 31, 2020, the Company had $140.6 million of loans whose terms have been modified or restructured, meeting
the definition of a troubled debt restructuring. These loans have been extended to borrowers who are experiencing financial
difficulty and who have been granted a concession, as defined by accounting guidance, and are further discussed in the
"Troubled debt restructurings" section in Note 2 to the consolidated financial statements. This balance includes certain
commercial loans totaling $117.7 million, which are classified as substandard and included in the table above because of this
classification.
Loans with Special Risk Characteristics
Management relies primarily on an internal risk rating system, in addition to delinquency status, to assess risk in the loan
portfolio, and these statistics are presented in Note 2 to the consolidated financial statements. However, certain types of loans
are considered at high risk of loss due to their terms, location, or special conditions. Construction and land loans and business
real estate loans are subject to higher risk because of the impact that volatile interest rates and a changing economy can have on
real estate value, and because of the potential volatility of the real estate industry. Certain home equity loans have contractual
features that could increase credit exposure in a market of declining real estate prices, when interest rates are steadily
increasing, or when a geographic area experiences an economic downturn. For these home equity loans, higher risks could exist
when 1) loan terms require a minimum monthly payment that covers only interest, or 2) loan-to-collateral value (LTV) ratios at
origination are above 80%, with no private mortgage insurance. Information presented below for home equity loans is based on
LTV ratios which were calculated with valuations at loan origination date. The Company does not attempt to obtain updated
appraisals or valuations unless the loans become significantly delinquent or are in the process of being foreclosed upon. For
credit monitoring purposes, the Company analyzes delinquency information, current FICO scores, and line utilization. This has
remained an effective means of evaluating credit trends and identifying problem loans, partly because the Company offers
standard, conservative lending products.
38
Real Estate - Construction and Land Loans
The Company’s portfolio of construction and land loans, as shown in the table below, amounted to 6.3% of total loans
outstanding at December 31, 2020. The largest component of construction and land loans was commercial construction, which
increased $157.0 million during the year ended December 31, 2020. At December 31, 2020, multi-family residential
construction loans totaled approximately $238.0 million, or 28.8%, of the commercial construction loan portfolio.
(Dollars in thousands)
December 31,
2020
Commercial construction
$
Residential construction
Residential land
and land development
Commercial land
and land development
Total real estate –
construction and land loans
Real Estate – Business Loans
% of Total
% of Total Loans
81.0 %
5.1 % $
9.3
5.8
3.9
.6
.4
.2
December 31,
2019
% of Total
% of Total Loans
670,590
128,575
65,687
34,525
74.6 %
14.3
7.3
3.8
4.6 %
.9
.4
.2
827,546
94,729
59,299
40,021
$
1,021,595
100.0 %
6.3 % $
899,377
100.0 %
6.1 %
Total business real estate loans were $3.0 billion at December 31, 2020 and comprised 18.5% of the Company’s total loan
portfolio. These loans include properties such as manufacturing and warehouse buildings, distribution facilities, small office
and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties. Approximately 37.9%
of these loans were for owner-occupied real estate properties, which present lower risk profiles.
(Dollars in thousands)
Owner-occupied
Office
Retail
Multi-family
Hotels
Senior living
Farm
Industrial
Other
Total real estate - business
loans
December 31,
2020
% of Total
% of Total Loans
December 31,
2019
% of Total
% of Total Loans
$
1,145,862
37.9 %
7.0 % $
1,048,716
385,392
349,461
301,161
271,189
195,800
169,692
78,341
129,219
12.7
11.5
10.0
9.0
6.5
5.6
2.6
4.2
2.4
2.1
1.8
1.7
1.2
1.0
.5
.8
297,278
383,234
306,577
210,557
164,000
177,669
108,285
137,238
37.0 %
10.5
13.5
10.8
7.4
5.8
6.3
3.8
4.9
7.1 %
2.0
2.6
2.1
1.4
1.1
1.2
.7
1.0
$
3,026,117
100.0 %
18.5 % $
2,833,554
100.0 %
19.2 %
Revolving Home Equity Loans
The Company has revolving home equity loans that are generally collateralized by residential real estate. Most of these
loans (93.2%) are written with terms requiring interest-only monthly payments. These loans are offered in three main product
lines: LTV up to 80%, 80% to 90%, and 90% to 100%. As shown in the following tables, the percentage of loans with LTV
ratios greater than 80% has remained a small segment of this portfolio, and delinquencies have been low and stable. The
weighted average FICO score for the total portfolio balance at December 31, 2020 was 793. At maturity, the accounts are re-
underwritten and if they qualify under the Company's credit, collateral and capacity policies, the borrower is given the option to
renew the line of credit or to convert the outstanding balance to an amortizing loan. If criteria are not met, amortization is
required, or the borrower may pay off the loan. Over the next three years, approximately 15.9% of the Company's current
outstanding balances are expected to mature. Of these balances, 90.1% have a FICO score above 700. The Company does not
expect a significant increase in losses as these loans mature, due to their high FICO scores, low LTVs, and low historical loss
levels.
39
(Dollars in thousands)
Loans with interest-only payments
Loans with LTV:
Between 80% and 90%
Over 90%
Over 80% LTV
Total loan portfolio from which above
loans were identified
Principal
Outstanding at
December 31,
2020
286,126
$
New Lines
Originated
During 2020
*
93.2 % $154,032
*
50.2 %
Unused Portion
of Available
Lines at
December 31,
2020
$752,180
Balances
Over 30 Days
Past Due
*
244.9 %
$1,046
*
.3 %
29,318
2,784
32,102
9.5
1.0
10.5
20,707
1,834
22,541
6.7
.6
7.3
47,588
2,895
50,483
15.5
0.9
16.4
403
.1
— —
.1
403
307,083
161,260
773,462
* Percentage of total principal outstanding of $307.1 million at December 31, 2020.
(Dollars in thousands)
Loans with interest-only payments
Loans with LTV:
Between 80% and 90%
Over 90%
Over 80% LTV
Total loan portfolio from which above
loans were identified
Principal
Outstanding at
December 31,
2019
321,126
$
New Lines
Originated
*
During 2019
91.9 % $173,969
*
49.8 %
Unused Portion
of Available
Lines at
December 31,
2019
$725,187
Balances
Over 30 Days
Past Due
*
207.6 %
$1,422
*
.4 %
37,347
3,775
41,122
10.7
1.1
11.8
22,603
1,643
24,246
6.5
.4
6.9
43,313
4,969
48,282
12.4
1.4
13.8
213
23
236
.1
—
.1
349,251
184,085
751,283
* Percentage of total principal outstanding of $349.3 million at December 31, 2019.
Consumer Loans
Within the consumer loan portfolio are several direct and indirect product lines comprised mainly of loans secured by
automobiles, motorcycles, marine, and RVs. Auto loans comprised 45% of the consumer loan portfolio at December 31, 2020,
and outstanding balances in the auto loan portfolio were $879.9 million and $908.3 million at December 31, 2020 and 2019,
respectively. The balances over 30 days past due amounted to $9.2 million at December 31, 2020, compared to $13.2 million at
the end of 2019, and comprised 1.0% of the outstanding balances of these loans at December 31, 2020 compared to 1.5% at
December 31, 2019. For the year ended December 31, 2020, $399.3 million of new auto loans were originated, compared to
$414.9 million during 2019. At December 31, 2020, the automobile loan portfolio had a weighted average FICO score of 758,
and net charge-offs on auto loans were .32% of average auto loans at December 31, 2020.
The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling,
and these loans comprised 13% of the consumer loan portfolio at December 31, 2020. Losses on these loans have historically
been low, and the Company saw recoveries of $70 thousand in 2020. Private banking loans comprised 24% of the consumer
loan portfolio at December 31, 2020. The Company's private banking loans are generally well-collateralized and at
December 31, 2020 were secured primarily by assets held by the Company's trust department. The remaining portion of the
Company's consumer loan portfolio is comprised of health services financing, motorcycles, marine and RV loans. Net charge-
offs on private banking, health services financing, motorcycle and marine and RV loans totaled $1.6 million in 2020 and
were .20% of the average balances of these loans at December 31, 2020.
Consumer Credit Card Loans
The Company offers low introductory rates on selected consumer credit card products. Out of a portfolio at December 31,
2020 of $655.1 million in consumer credit card loans outstanding, approximately $106.6 million, or 16.3%, carried a low
promotional rate. Within the next six months, $36.9 million of these loans are scheduled to convert to the ongoing higher
contractual rate. To mitigate some of the risk involved with this credit card promotional feature, the Company performs credit
checks and detailed analysis of the customer borrowing profile before approving the loan application. Management believes
that the risks in the consumer loan portfolio are reasonable and the anticipated loss ratios are within acceptable parameters.
40
Oil and Gas Energy Lending
The Company's energy lending portfolio was comprised of lending to the petroleum and natural gas sectors and totaled
$178.7 million at December 31, 2020, a decrease of $18.7 million from year end 2019, as shown in the table below.
(In thousands)
Extraction
Downstream distribution and refining
Mid-stream shipping and storage
Support activities
Total energy lending portfolio
$
December 31,
2020
133,866 $
18,365
15,634
10,864
178,729 $
December 31,
2019
177,903
7,168
4,763
7,598
197,432
$
Unfunded
commitments at
December 31, 2020
43,507
$
24,263
81,851
11,907
161,528
$
Information about the credit quality of the Company's energy lending portfolio as of December 31, 2020 and December 31,
2019 is provided in the table below.
(Dollars in thousands)
December 31, 2020
% of Energy
Lending
December 31, 2019
% of Energy
Lending
Pass
Special mention
Substandard
Non-accrual
Total
$
$
126,380
70.7 % $
170,938
86.6 %
17,978
31,676
2,695
10.1
17.7
1.5
6,961
16,600
2,933
3.5
8.4
1.5
178,729
100.0 % $
197,432
100.0 %
Energy lending balances classified as substandard and non-accrual represented 17.7% and 1.5% respectively, of total energy
lending loan balances at December 31, 2020. The Company recorded $15 thousand of net loan charge-offs on energy loans for
the year ended December 31, 2020. There were no net loan charge-offs on energy loans for the year ended December 31, 2019.
Pandemic-Sensitive Industry Lending
As a result of the ongoing COVID-19 global pandemic, the U.S. economy is currently in an unprecedented state of
uncertainty. While nearly every industry has been impacted to some degree by business disruptions, the Company identified
the following industries and lending exposures, excluding PPP loans, within its loan portfolio at December 31, 2020 and
December 31, 2019.
(In thousands)
Hospitals
Multifamily and student housing
Commercial real estate - retail
Senior living
Hotels
Energy
Retail stores
Restaurants
Total
December 31, 2020
% of Loan Portfolio at
December 31, 2020
December 31, 2019
Unfunded
commitments at
December 31, 2020
$
729,184
550,345
386,939
310,771
302,606
172,533
111,126
67,247
4.9 % $
678,466 $
1,723,537
3.7
2.6
2.1
2.0
1.1
.7
.4
528,280
405,795
301,441
256,512
198,162
147,223
82,398
301,464
18,148
81,866
31,892
161,528
176,298
21,807
$
2,630,751
17.5 % $
2,598,277 $
2,516,540
41
Due to the significant deterioration of the U.S. economy resulting from the COVID-19 pandemic, the Company saw an
increase in loan payment deferral requests through the end of the second quarter of 2020. Loans on active deferral decreased
significantly in the second half of the year. A summary of loan balances related to active loan payment deferral requests as of
December 31, 2020 are shown in the table below.
(Dollars in thousands)
Commercial (2)
Real estate - personal
Consumer credit card
Consumer
Total
Number of
Payment Deferral
Requests (1)
Loan Balance Outstanding
at December 31, 2020
% of Loan Class - based
on December 31, 2020
Loan Balance
8 $
86 $
93 $
609 $
796 $
56,597
18,098
610
8,414
83,719
.5 %
.6 %
.1 %
.4 %
.5 %
(1) Excludes deferrals offered through the Company's skip pay program.
(2) Excludes commercial card payment deferral requests.
Active payment deferral requests on commercial loans as of December 31, 2020, categorized by industry, are listed below:
(Dollars in thousands)
Credit intermediation
Nursing and residential care facilities
Building materials
Real estate developer/owner
Animal production
Social assistance
Restaurants and dining
Total (1)
Number of
Payment Deferral
Requests
Loan Balance Outstanding
at December 31, 2020
1 $
1
1
2
1
1
1
8 $
40,789
15,130
309
301
31
21
16
56,597
(1) As of January 25, 2021, $55.9 million of commercial requests have been deferred more than 90 days.
Small Business Lending
During April 2020, in response to the COVID-19 crisis, the federal government created the Paycheck Protection Program,
sponsored by the Small Business Administration ("SBA"), under the CARES Act. As a participating lender under the program,
the Company funded loans of $1.5 billion for 7,618 customers, with a median loan size of $33 thousand. The Company
understands that the loans are fully guaranteed by the SBA. Therefore, there was no increase in the allowance for credit losses
on loans related to these loans as there is no expectation of credit loss. The maximum term of the loans range from two to five
years, however, the Company believes that the majority of the loan balances are expected to be forgiven by the SBA. The
process of loan forgiveness began during the third quarter of 2020, and the Company believes the majority of loan balances will
be forgiven in 2021.
Investment Securities Analysis
Investment securities are comprised of securities that are classified as available for sale, equity, trading or other. The largest
component, available for sale debt securities, increased 43.4% during 2020 to $12.1 billion (excluding unrealized gains/losses
in fair value) at year end 2020. During 2020, debt securities of $7.0 billion were purchased, which included $4.5 billion in
agency mortgage-backed securities, $997.7 million in asset-backed securities, $894.0 million in state and municipal securities,
$300.8 million in non-agency mortgage-based securities, and $275.5 million in other debt securities. Total sales, maturities and
pay downs were $3.3 billion during 2020. During 2021, maturities and pay downs of approximately $2.0 billion are expected to
occur. The average tax equivalent yield earned on total investment securities was 2.19% in 2020 and 2.81% in 2019.
At December 31, 2020, the fair value of available for sale securities was $12.4 billion, which included a net unrealized gain
in fair value of $351.7 million, compared to a net unrealized gain of $136.1 million at December 31, 2019. The overall
unrealized gain in fair value at December 31, 2020 included net gains of $77.1 million in state and municipal securities and net
gains of $186.4 million in mortgage and asset-backed securities. The portfolio also included unrealized net gains of $62.5
million and $22.1 million on U.S. government and federal agency obligations and other debt securities, respectively. As
described in Note 1, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, on January
1, 2020, and the current expected credit loss model (CECL) implemented by the Company requires that lifetime expected credit
42
losses on securities be recorded in current earnings. For the year ended December 31, 2020, the Company did not recognize a
credit loss expense on any available for sale debt securities.
Available for sale investment securities at year end for the past two years are shown below:
(In thousands)
Amortized Cost
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Total available for sale debt securities
Fair Value
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
December 31
2020
2019
$
775,592 $
50,803
827,861
138,734
1,968,006
1,225,532
6,557,098
3,893,247
358,074
796,451
1,853,791
1,228,151
534,169
325,555
$
12,097,533 $
8,435,531
$
838,059 $
54,485
851,776
139,277
2,045,099
1,267,927
6,712,085
3,937,964
361,074
809,782
1,882,243
1,233,489
556,219
331,411
Total available for sale debt securities
$
12,449,264 $
8,571,626
At December 31, 2020, the available for sale portfolio included $6.7 billion of agency mortgage-backed securities, which
are collateralized bonds issued by agencies including FNMA, GNMA, FHLMC, FHLB, Federal Farm Credit Banks and FDIC.
Non-agency mortgage-backed securities totaled $361.1 million and included $64.4 million collateralized by commercial
mortgages and $296.5 million collateralized by residential mortgages at December 31, 2020.
At December 31, 2020, U.S. government obligations included TIPS of $434.6 million, at fair value. Other debt securities
include corporate bonds, notes and commercial paper.
The types of securities held in the available for sale security portfolio at year end 2020 are presented in the table below.
Additional detail by maturity category is provided in Note 3 to the consolidated financial statements.
Available for sale debt securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
*Based on call provisions and estimated prepayment speeds.
December 31, 2020
Percent of
Total Debt
Securities
Weighted
Average
Yield
Estimated
Average
Maturity*
6.7 %
1.66 %
3.5 years
0.4
16.5
53.9
2.9
15.1
4.5
2.32
10.3
2.06
2.00
2.39
1.53
2.21
6.4
4.1
2.9
2.7
5.6
Equity securities include common and preferred stock with readily determinable fair values that totaled $3.0 million at
December 31, 2020, compared to $2.9 million at December 31, 2019.
43
Other securities totaled $156.7 million at December 31, 2020 and $137.9 million at December 31, 2019. These include
Federal Reserve Bank stock and Federal Home Loan Bank (Des Moines) stock held by the bank subsidiary in accordance with
debt and regulatory requirements. These are restricted securities and are carried at cost. The Company's equity method
investments are carried at cost, adjusted to reflect the Company's portion of income, loss, or dividends of the investee. Also
included in other securities are private equity investments which are held by a subsidiary qualified as a Small Business
Investment Company. These investments are carried at estimated fair value, but are not readily marketable. While the nature of
these investments carries a higher degree of risk than the normal lending portfolio, this risk is mitigated by the overall size of
the investments and oversight provided by management, and management believes the potential for long-term gains in these
investments outweighs the potential risks.
Other securities at year end for the past two years are shown below:
(In thousands)
Federal Reserve Bank stock
Federal Home Loan Bank stock
Equity method investments
Private equity investments in debt securities
Private equity investments in equity securities
Total other securities
$
December 31
2020
2019
34,070 $
10,307
18,000
43,609
50,759
33,770
10,000
—
44,635
49,487
$
156,745 $
137,892
In addition to its holdings in the investment securities portfolio, the Company invests in long-term securities purchased
under agreements to resell, which totaled $850.0 million at both December 31, 2020 and December 31, 2019. These
investments mature in 2021 through 2023 and have fixed rates or variable rates that fluctuate with published indices. The
counterparties to these agreements are other financial institutions from whom the Company has accepted collateral of $899.1
million in marketable investment securities at December 31, 2020. The average rate earned on these agreements during 2020
was 4.7%, compared to 2.0% in 2019.
The Company also holds offsetting repurchase and resale agreements totaling $200.0 million at December 31, 2020 and
December 31, 2019, which are further discussed in Note 20 to the consolidated financial statements. These agreements involve
the exchange of collateral under simultaneous repurchase and resale agreements with the same financial institution
counterparty. These repurchase and resale agreements have been offset against each other in the balance sheet, as permitted
under current accounting guidance. The agreements mature in 2021 and earned an average of 41 basis points during 2020,
compared to 45 basis points in 2019.
Deposits and Borrowings
Deposits, including both individual and corporate customers, are the primary funding source for the Bank and are acquired
from a broad base of local markets. Total period-end deposits were $26.9 billion at December 31, 2020, compared to $20.5
billion last year, reflecting an increase of $6.4 billion, or 31.3%.
Average deposits increased $3.6 billion, or 18.0%, in 2020 compared to 2019, resulting from increases in average demand
deposits, which increased $2.5 billion, primarily driven by higher balances in business demand deposits. Additionally, average
money market deposit account balances increased $985.8 million in 2020 and savings account balances increased $204.5
million. Partially offsetting these increases in deposit balances were declines in average certificates of deposit balances, which
decreased $63.5 million in 2020.
The following table shows year end deposit balances by type, as a percentage of total deposits.
Non-interest bearing
Savings, interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Total deposits
December 31
2020
2019
38.9 %
54.2
2.0
4.9
100.0 %
33.6 %
56.6
3.1
6.7
100.0 %
Core deposits, which include non-interest bearing, interest checking, savings, and money market deposits, supported 77%
and 75% of average earning assets in 2020 and 2019, respectively. Average balances by major deposit category for the last six
44
years are disclosed in the Average Balance Sheets section of Management's Discussion and Analysis of Financial Condition and
Results of Operations below. A maturity schedule of certificates of deposits outstanding at December 31, 2020 is included in
Note 7 on Deposits in the consolidated financial statements.
The Company’s primary sources of overnight borrowings are federal funds purchased and securities sold under agreements
to repurchase (repurchase agreements). Balances in these accounts can fluctuate significantly on a day-to-day basis and
generally have one day maturities. Total balances of federal funds purchased and repurchase agreements outstanding at
December 31, 2020 were $2.1 billion, a $247.6 million increase from the $1.9 billion balance outstanding at year end 2019. On
an average basis, these borrowings increased $144.4 million, or 7.9%, during 2020, due to an increase of $265.3 million in
repurchase agreements, partially offset by a decrease of $120.9 million in federal funds purchased. The average rate paid on
total federal funds purchased and repurchase agreements was .31% during 2020 and 1.61% during 2019.
Historically, the majority of the Company’s long-term debt has been comprised of fixed rate advances from the FHLB. In
March 2020, the Company borrowed $750.0 million of short-term funds from the FHLB, and all of those borrowings were
repaid by the Company during the second quarter of 2020. During 2019, $250.0 million of advances were taken and
subsequently repaid by the Company in October 2019. The average rate paid on FHLB advances was .82% and 2.19% during
2020 and 2019, respectively.
Liquidity and Capital Resources
Liquidity Management
Liquidity is managed within the Company in order to satisfy cash flow requirements of deposit and borrowing customers
while at the same time meeting its own cash flow needs. The Company has taken numerous steps to address liquidity risk and
has developed a variety of liquidity sources which it believes will provide the necessary funds for future growth. The Company
manages its liquidity position through a variety of sources including:
• A portfolio of liquid assets including marketable investment securities and overnight investments,
• A large customer deposit base and limited exposure to large, volatile certificates of deposit,
• Lower long-term borrowings that might place demands on Company cash flow,
• Relatively low loan to deposit ratio promoting strong liquidity,
• Excellent debt ratings from both Standard & Poor’s and Moody’s national rating services, and
• Available borrowing capacity from outside sources.
The Company’s most liquid assets include available for sale debt securities, federal funds sold, balances at the Federal
Reserve Bank, and securities purchased under agreements to resell. At December 31, 2020 and 2019, such assets were as
follows:
(In thousands)
Available for sale debt securities
Long-term securities purchased under agreements to resell
Balances at the Federal Reserve Bank
Total
2020
2019
$
12,449,264 $
8,571,626
850,000
850,000
1,747,363
15,046,627 $
$
395,850
9,817,476
There were no federal funds sold at December 31, 2020, which are funds lent to the Company’s correspondent bank
customers with overnight maturities. At December 31, 2020, the Company had lent funds totaling $850.0 million under long-
term resale agreements to other large financial institutions and $450.0 million, $325.0 million, and $75.0 million of these
agreements mature in years 2021, 2022, and 2023, respectively. Under these agreements, the Company holds marketable
securities, safekept by a third-party custodian, as collateral. This collateral totaled $899.1 million in fair value at December 31,
2020. Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity
purposes, totaled $1.7 billion at December 31, 2020. The Company’s available for sale investment portfolio includes scheduled
maturities and expected pay downs of approximately $2.0 billion during 2021, and these funds offer substantial resources to
meet either new loan demand or help offset reductions in the Company’s deposit funding base. The Company pledges portions
of its investment securities portfolio to secure public fund deposits, repurchase agreements, trust funds, letters of credit issued
by the FHLB, and borrowing capacity at the Federal Reserve Bank.
45
At December 31, 2020 and 2019, total investment securities pledged for these purposes were as follows:
(In thousands)
2020
2019
Investment securities pledged for the purpose of securing:
Federal Reserve Bank borrowings
FHLB borrowings and letters of credit
Repurchase agreements *
Other deposits
Total pledged securities
Unpledged and available for pledging
Ineligible for pledging
$
40,792 $
5,376
48,304
7,637
2,322,941
2,083,716
2,438,628
2,149,575
4,807,737
4,289,232
6,310,907
3,029,268
1,330,620
1,253,126
Total available for sale debt securities, at fair value
$
12,449,264 $
8,571,626
* Includes securities pledged for collateral swaps, as discussed in Note 20 to the consolidated financial statements
The average loans to deposits ratio is a measure of a bank's liquidity, and the Company’s average loans to deposits ratio was
67.7% for the year ended December 31, 2020. Core customer deposits, defined as non-interest bearing, interest checking,
savings, and money market deposit accounts, totaled $25.1 billion and represented 93.2% of the Company’s total deposits at
December 31, 2020. These core deposits are normally less volatile, often with customer relationships tied to other products
offered by the Company promoting long lasting relationships and stable funding sources. Core deposits increased $6.6 billion
at year end 2020 compared to year end 2019, with increases in commercial, consumer, and wealth management deposits of $3.1
billion, $2.0 billion, and $1.5 billion, respectively. While the Company considers core consumer and wealth management
deposits less volatile, corporate deposits could decline if interest rates increase significantly, encouraging corporate customers
to increase investing activities, or if the economy declines and companies experience lower cash inflows, reducing deposit
balances. If these corporate deposits decline, the Company's funding needs can be met by liquidity supplied by investment
security maturities and pay downs expected to total $2.0 billion over the next year, as noted above. In addition, as shown in the
table of collateral available for future advances below, the Company has borrowing capacity of $3.2 billion through advances
from the FHLB and the Federal Reserve.
(In thousands)
Core deposit base:
Non-interest bearing
Interest checking
Savings and money market
Total
2020
2019
$
10,497,598 $
6,890,687
2,402,272
2,130,591
12,202,184
9,491,125
$
25,102,054 $
18,512,403
Certificates of deposit of $100,000 or greater totaled $1.3 billion at December 31, 2020. These deposits are normally
considered more volatile and higher costing, and comprised 4.9% of total deposits at December 31, 2020.
Other important components of liquidity are the level of borrowings from third party sources and the availability of future
credit. The Company’s outside borrowings are mainly comprised of federal funds purchased, and repurchase agreements, as
follows:
(In thousands)
Borrowings:
Federal funds purchased
Securities sold under agreements to repurchase
Other debt
42,270 $
2,056,113
802
20,035
1,830,737
2,418
2019
2020
$
Total
$
2,099,185 $
1,853,190
Federal funds purchased, which totaled $42.3 million at December 31, 2020, are unsecured overnight borrowings obtained
mainly from upstream correspondent banks with which the Company maintains approved lines of credit. Retail repurchase
agreements are offered to customers wishing to earn interest in highly liquid balances and are used by the Company as a
funding source considered to be stable, but short-term in nature. Repurchase agreements are collateralized by securities in the
Company’s investment portfolio. Total repurchase agreements at December 31, 2020 were comprised of non-insured customer
funds totaling $2.1 billion, and securities pledged for these retail agreements totaled $2.1 billion.
46
The Company pledges certain assets, including loans and investment securities to both the Federal Reserve Bank and the
FHLB as security to establish lines of credit and borrow from these entities. Based on the amount and type of collateral
pledged, the FHLB establishes a collateral value from which the Company may draw advances against the collateral.
Additionally, this collateral is used to enable the FHLB to issue letters of credit in favor of public fund depositors of the
Company. The Federal Reserve Bank also establishes a collateral value of assets pledged and permits borrowings from the
discount window. The following table reflects the collateral value of assets pledged, borrowings, and letters of credit
outstanding, in addition to the estimated future funding capacity available to the Company at December 31, 2020.
(In thousands)
Total collateral value pledged
Letters of credit issued
Available for future advances
December 31, 2020
FHLB
Federal Reserve
Total
$
$
2,343,020 $
1,163,354 $
3,506,374
(325,490)
—
(325,490)
2,017,530 $
1,163,354 $
3,180,884
The Company receives outside ratings from both Standard & Poor’s and Moody’s on both the consolidated company and its
subsidiary bank, Commerce Bank. These ratings are as follows:
Commerce Bancshares, Inc.
Issuer rating
Rating outlook
Commerce Bank
Issuer rating
Baseline credit assessment
Short-term rating
Rating outlook
Standard & Poor’s
Moody’s
A-
Stable
A
A-1
Stable
A2
a1
P-1
Stable
The Company considers these ratings to be indications of a sound capital base and strong liquidity and believes that these
ratings would help ensure the ready marketability of its commercial paper, should the need arise. No commercial paper has been
outstanding during the past ten years. The Company has no subordinated or hybrid debt instruments which would affect future
borrowing capacity. Because of its lack of significant long-term debt, the Company believes that, through its Capital Markets
Group or in other public debt markets, it could generate additional liquidity from sources such as jumbo certificates of deposit,
privately-placed corporate notes or other forms of debt.
The cash flows from the operating, investing and financing activities of the Company resulted in a net increase in cash, cash
equivalents and restricted cash of $1.3 billion in 2020, as reported in the consolidated statements of cash flows. Operating
activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of $624.0 million and has
historically been a stable source of funds. Investing activities used cash of $5.4 billion, mainly from an increase in the
investment securities portfolio as well as an increase in the loan portfolio. Purchases (net of sales and maturities proceeds) of
investment securities used cash of $3.7 billion, and growth in the loan portfolio used cash of $1.6 billion. Investing activities
are somewhat unique to financial institutions in that, while large sums of cash flow are normally used to fund growth in
investment securities, loans, or other bank assets, they are normally dependent on the financing activities described below.
During 2020, financing activities provided cash of $6.1 billion. This increase in cash was largely driven by growth in
deposits, which provided cash of $6.2 billion. Federal funds purchases and short-term securities sold under agreements to
repurchase provided cash in the amount of $247.6 million. The Company paid cash dividends of $127.6 million on common
and preferred stock. Treasury stock purchases used cash of $54.2 million during 2020, and the Company used cash of $150.0
million to redeem its preferred stock. Future short-term liquidity needs for daily operations are not expected to vary
significantly, and the Company believes it maintains adequate liquidity to meet these cash flows. The Company’s sound equity
base, along with its long-term low debt level, common and preferred stock availability, and excellent debt ratings, provide
several alternatives for future financing. Future acquisitions may utilize partial funding through one or more of these options.
47
Cash outflows resulting from the Company’s transactions in its common and preferred stock were as follows:
(In millions)
Purchases of treasury stock
Accelerated share repurchase agreements
Common cash dividends paid
Preferred stock redemption*
Preferred cash dividends paid
Cash used
2020
2019
2018
$
54.2 $
—
120.8
150.0
6.8
134.9 $
150.0
113.5
—
9.0
75.2
—
100.2
—
9.0
$
331.8 $
407.4 $
184.4
*The period ended December 31, 2020 includes $5.2 million of excess redemption costs over the book value of the preferred stock. This
excess payment considered a dividend.
The Parent faces unique liquidity constraints due to legal limitations on its ability to borrow funds from its bank subsidiary.
The Parent obtains funding to meet its obligations from two main sources: dividends received from bank and non-bank
subsidiaries (within regulatory limitations) and management fees charged to subsidiaries as reimbursement for services
provided by the Parent, as presented below:
(In millions)
Dividends received from subsidiaries
Management fees
Total
2020
2019
2018
$
$
210.0 $
33.5
243.5 $
500.0 $
36.8
536.8 $
200.0
37.7
237.7
These sources of funds are used mainly to pay cash dividends on outstanding stock, pay general operating expenses, and
purchase treasury stock. At December 31, 2020, the Parent’s investment securities totaled $7.9 million at fair value, consisting
mainly of corporate bonds and preferred stock. To support its various funding commitments, the Parent maintains a $20.0
million line of credit with its subsidiary bank. There were no borrowings outstanding under the line during 2020 or 2019.
Company senior management is responsible for measuring and monitoring the liquidity profile of the organization with
oversight by the Company’s Asset/Liability Committee. This is done through a series of controls, including a written
Contingency Funding Policy and risk monitoring procedures, which include daily, weekly and monthly reporting. In addition,
the Company prepares forecasts to project changes in the balance sheet affecting liquidity and to allow the Company to better
plan for forecasted changes.
Capital Management
Under Basel III capital guidelines, at December 31, 2020 and 2019, the Company met all capital adequacy requirements and
had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table.
(Dollars in thousands)
Risk-adjusted assets
Tier I common risk-based capital
Tier I risk-based capital
Total risk-based capital
2020
2019
$ 21,516,461
$ 19,713,813
2,950,926
2,950,926
3,189,432
2,745,538
2,890,322
3,052,079
Minimum Ratios
under Capital
Adequacy
Guidelines
Minimum Ratios
for Well-
Capitalized
Banks*
Tier I common risk-based capital ratio
13.71 %
13.93 %
7.00 %
6.50 %
Tier I risk-based capital ratio
Total risk-based capital ratio
Tier I leverage ratio
Tangible common equity to tangible assets
Dividend payout ratio
* Under Prompt Corrective Action requirements
13.71
14.82
9.45
9.92
35.32
14.66
15.48
11.38
10.99
27.52
8.50
10.50
4.00
8.00
10.00
5.00
The Company is subject to a 2.5% capital conservation buffer, which is an amount above the minimum ratios under capital
adequacy guidelines, and is required under Basel III. The capital conservation buffer is intended to absorb losses during
48
periods of economic stress. Failure to maintain the buffer will result in constraints on dividends, share repurchases, and
executive compensation.
In the first quarter of 2020, the interim final rule of the Federal Reserve Bank and other U.S. banking agencies became
effective, providing banks that adopted CECL (ASU 2016-13) during the 2020 calendar year the option to delay recognizing the
estimated impact on regulatory capital until after a two year deferral period, followed by a three year transition period. In
connection with the adoption of CECL on January 1, 2020, the Company has elected to utilize this option. As a result, the two
year deferral period for the Company extends through December 31, 2021. Beginning on January 1, 2022, the Company will be
required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in
at the beginning of each subsequent year until fully phased in by the first quarter of 2025.
The Company maintains a treasury stock buyback program under authorizations by its Board of Directors and periodically
purchases stock in the open market. During 2019, the Company purchased 4.7 million shares, including 2.4 million shares
purchased under an accelerated share repurchase (ASR) agreement. The ASR agreement is further discussed in Note 14 to the
consolidated financial statements. During 2020, the Company purchased 886 thousand shares. At December 31, 2020, 3.5
million shares remained available for purchase under the current Board authorization.
The Company’s common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain
adequate capital levels and alternative investment options. Per share cash dividends paid by the Company increased 9.1% in
2020 compared with 2019, and the Company increased its first quarter 2021 cash dividend 2.1%, making 2021 the Company's
53rd consecutive year of regular cash dividend increases. The Company also distributed its 27th consecutive annual 5% stock
dividend in December 2020.
On September 1, 2020, the Company redeemed all 6,000 outstanding shares of its 6.00% Series B Non-Cumulative
Perpetual Preferred Stock and the corresponding depositary shares representing fractional interests in the Series B Preferred
Stock at a redemption price of $25 per depositary share (equivalent to $1,000 per share of preferred stock). Regular dividends
on the outstanding shares of the Series B Preferred Stock were paid separately on September 1, 2020 to holders of record as of
the close of business on August 14, 2020, in the customary manner. On and after September 1, 2020, all dividends on the shares
of Series B Preferred Stock ceased to accrue.
Commitments, Contractual Obligations, and Off-Balance Sheet Arrangements
In the normal course of business, various commitments and contingent liabilities arise that are not required to be recorded on
the balance sheet. The most significant of these are loan commitments totaling $13.0 billion (including approximately $5.0
billion in unused, approved credit card lines) and the contractual amount of standby letters of credit totaling $357.1 million at
December 31, 2020. As many commitments expire unused or only partially used, these totals do not necessarily reflect future
cash requirements. Management does not anticipate any material losses arising from commitments or contingent liabilities and
believes there are no material commitments to extend credit that represent risks of an unusual nature.
A table summarizing contractual cash obligations of the Company at December 31, 2020 and the expected timing of these
payments follows:
(In thousands)
Operating lease obligations*
Purchase obligations
Certificates of Deposit**
Total
In One Year or
Less
Payments Due by Period
After One Year
Through Three
Years
After Three Years
Through Five
Years
After Five Years
Total
$
6,406 $
263,553
1,627,852
10,737 $
390,802
193,342
$
1,897,811 $
594,881 $
6,206 $
69,117
23,440
98,763 $
15,538 $
74,734
57
38,887
798,206
1,844,691
90,329 $
2,681,784
* Includes operating leases signed but not yet commenced.
** Includes principal payments only.
The Company funds a defined benefit pension plan for a portion of its employees. Under the funding policy for the plan,
contributions are made as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a
reasonable period. No contributions to the defined benefit plan were made in 2020, 2019 or 2018, and the Company is not
required nor does it expect to make a contribution in 2021.
The Company has investments in low-income housing partnerships generally within the areas it serves. These partnerships
supply funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the
49
population with lower family income. If these developments successfully attract a specified percentage of residents falling in
that lower income range, federal (and sometimes state) income tax credits are made available to the partners. The tax credits are
normally recognized over ten years, and they play an important part in the anticipated yield from these investments. In order to
continue receiving the tax credits each year over the life of the partnership, the low-income residency targets must be
maintained. Under the terms of the partnership agreements, the Company has a commitment to fund a specified amount that
will be due in installments over the life of the agreements, which ranges from 3 to 17 years. At December 31, 2020, the
investments totaled $47.6 million and are recorded as other assets in the Company’s consolidated balance sheet. Unfunded
commitments, which are recorded as liabilities, amounted to $29.3 million at December 31, 2020.
During the third quarter of 2020, the Company signed a $106.6 million agreement with U.S. Capital Development to
develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri. While the Company
intends to occupy a portion of the office building for executive offices, a 15 year lease agreement has been signed by an anchor
tenant to lease approximately 40% of the office building. The commitments related to the construction of the commercial office
building are included in the table above.
The Company regularly purchases various state tax credits arising from third-party property redevelopment. These credits
are either resold to third parties or retained for use by the Company. During 2020, purchases and sales of tax credits amounted
to $151.2 million and $131.4 million, respectively. Fees from the sales of tax credits were $4.2 million, $3.5 million and $4.9
million in 2020, 2019 and 2018, respectively. At December 31, 2020, the Company had outstanding purchase commitments
totaling $141.3 million that it expects to fund in 2021. These commitments, along with the commitments for the next five
years, are included in the table above.
Interest Rate Sensitivity
The Company’s Asset/Liability Management Committee (ALCO) measures and manages the Company’s interest rate risk
on a monthly basis to identify trends and establish strategies to maintain stability in net interest income throughout various rate
environments. Analytical modeling techniques provide management insight into the Company’s exposure to changing rates.
These techniques include net interest income simulations and market value analysis. Management has set guidelines specifying
acceptable limits within which net interest income and market value may change under various rate change scenarios. These
measurement tools indicate that the Company is currently within acceptable risk guidelines as set by management.
The Company’s main interest rate measurement tool, income simulation, projects net interest income under various rate
change scenarios in order to quantify the magnitude and timing of potential rate-related changes. Income simulations are able to
capture option risks within the balance sheet where expected cash flows may be altered under various rate environments.
Modeled rate movements include “shocks, ramps and twists.” Shocks are intended to capture interest rate risk under extreme
conditions by immediately shifting rates up and down, while ramps measure the impact of gradual changes and twists measure
yield curve risk. The size of the balance sheet is assumed to remain constant so that results are not influenced by growth
predictions.
The Company also employs a sophisticated simulation technique known as a stochastic income simulation. This technique
allows management to see a range of results from hundreds of income simulations. The stochastic simulation creates a vector of
potential rate paths around the market’s best guess (forward rates) concerning the future path of interest rates and allows rates to
randomly follow paths throughout the vector. This allows for the modeling of non-biased rate forecasts around the market
consensus. Results give management insight into a likely range of rate-related risk as well as worst and best-case rate scenarios.
Additionally, the Company uses market value analyses to help identify longer-term risks that may reside on the balance
sheet. This is considered a secondary risk measurement tool by management. The Company measures the market value of
equity as the net present value of all asset and liability cash flows discounted along the current swap curve plus appropriate
market risk spreads. It is the change in the market value of equity under different rate environments, or effective duration, that
gives insight into the magnitude of risk to future earnings due to rate changes. Market value analyses also help management
understand the price sensitivity of non-marketable bank products under different rate environments.
The tables below show the effects of gradual shifts in interest rates over a twelve month period on the Company’s net
interest income versus the Company's net interest income in a flat rate scenario. Simulation A presents three rising rate
scenarios and in each scenario, rates are assumed to change evenly over 12 months. In these scenarios, the balance sheet
remains flat with the exception of deposit balances, which may fluctuate based on changes in rates. For instance, the Company
may experience deposit disintermediation if the spread between market rates and bank deposit rates widens as rates rise.
50
The sensitivity of deposit balances to changes in rates is particularly difficult to estimate in exceptionally low rate
environments. Since the future effects of changes in rates on deposit balances cannot be known with certainty, the Company
conservatively models alternate scenarios with greater deposit attrition as rates rise. Simulation B illustrates results from these
higher attrition scenarios to provide added perspective on potential effects of higher rates.
The Company utilizes these simulations both for monitoring interest rate risk and for liquidity planning purposes. While the
future effects of rising rates on deposit balances cannot be known, the Company maintains a practice of running multiple rate
scenarios to better understand interest rate risk and its effect on the Company’s performance.
Simulation A
December 31, 2020
September 30, 2020
(Dollars in millions)
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition
300 basis points rising
$
200 basis points rising
100 basis points rising
85.4
69.5
38.9
11.47 % $
(560.6)
$
9.33
5.23
(392.5)
(204.7)
53.8
47.3
29.3
7.03 % $
6.18
3.83
(513.5)
(360.4)
(188.4)
Simulation B
December 31, 2020
September 30, 2020
(Dollars in millions)
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition
300 basis points rising
$
200 basis points rising
100 basis points rising
57.5
45.3
18.9
7.73 % $
(1,940.3)
$
6.09
2.54
(1,782.8)
(1,614.7)
39.4
34.6
18.6
5.15 % $
(1,214.8)
4.53
2.44
(1,069.6)
(911.8)
Under Simulation A, in the three rising rate scenarios, interest income increases more quickly than funding costs. The
increase is predominately due to interest earning deposits with the Federal Reserve and variable rate loan rates repricing up with
market rates, while deposit rates only partially reprice higher. Higher deposits and balances at the Federal Reserve during the
current quarter resulted in improved rising rate scenarios. PPP loans were not included in the simulation and contributed to
higher deposit balances at the Federal Reserve. The Company did not model a 100 basis point falling scenario due to the
already low interest rate environment.
In Simulation B, the assumed higher levels of deposit attrition were modeled to capture the results of a shrinking balance
sheet.
Projecting deposit activity in a historically low interest rate environment is difficult, and the Company cannot predict how
deposits will react to shifting rates. The comparison provided above provides insight into potential effects of changes in rates
and deposit levels on net interest income. The Company believes that its approach to interest rate risk has appropriately
considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of interest rate
risk.
Derivative Financial Instruments
The Company maintains an overall interest rate risk management strategy that permits the use of derivative instruments to
modify exposure to interest rate risk. Such instruments include interest rate swaps, interest rate floors, interest rate caps, credit
risk participation agreements, foreign exchange contracts, mortgage loan commitments, forward sale contracts, and forward to-
be-announced (TBA) contracts. The Company’s interest rate risk management strategy includes the ability to modify the re-
pricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest
margin and cash flows. All of these derivative instruments utilized by the Company are further discussed in Note 19 on
Derivative Instruments.
In all of these contracts, the Company is exposed to credit risk in the event of nonperformance by counterparties, who may
be bank customers or other financial institutions. The Company controls the credit risk of its financial contracts through credit
approvals, limits and monitoring procedures. Because the Company generally enters into transactions only with high quality
counterparties, there have been no losses associated with counterparty nonperformance on derivative financial instruments.
51
The following table summarizes the notional amounts and estimated fair values of the Company’s derivative instruments at
December 31, 2020 and 2019. Notional amount, along with the other terms of the derivative, is used to determine the amounts
to be exchanged between the counterparties. Because the notional amount does not represent amounts exchanged by the parties,
it is not a measure of loss exposure related to the use of derivatives nor of exposure to liquidity risk.
2020
2019
Notional
Amount
Positive Fair
Value
Negative Fair
Value
Notional
Amount
Positive Fair
Value
Negative Fair
Value
$ 2,367,017
$
86,389
$
(17,199)
$ 2,606,181
$
37,774
$
(9,916)
(In thousands)
Interest rate swaps
Interest rate floors
Interest rate caps
Credit risk participation
agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale
contracts
—
103,028
381,170
7,431
67,543
—
Forward TBA contracts
Total at December 31
89,000
$ 3,015,189
$
Operating Segments
—
1
216
57
3,226
—
—
89,889
—
(1)
(701)
(103)
—
—
1,500,000
59,316
316,225
10,936
13,755
1,943
67,192
4
140
97
459
6
—
(4)
(230)
(32)
—
(2)
(671)
(18,675)
$
17,500
$ 4,525,856
2
105,674
$
$
(35)
(10,219)
The Company segregates financial information for use in assessing its performance and allocating resources among three
operating segments. The results are determined based on the Company’s management accounting process, which assigns
balance sheet and income statement items to each responsible segment. These segments are defined by customer base and
product type. The management process measures the performance of the operating segments based on the management structure
of the Company and is not necessarily comparable with similar information for any other financial institution. Each segment is
managed by executives who, in conjunction with the Chief Executive Officer, make strategic business decisions regarding that
segment. The three reportable operating segments are Consumer, Commercial, and Wealth. Additional information is presented
in Note 13 on Segments in the consolidated financial statements.
The Company uses a funds transfer pricing method to value funds used (e.g., loans, fixed assets, cash, etc.) and funds
provided (deposits, borrowings, and equity) by the business segments and their components. This process assigns a specific
value to each new source or use of funds with a maturity, based on current swap rates, thus determining an interest spread at the
time of the transaction. Non-maturity assets and liabilities are valued using weighted average pools. The funds transfer pricing
process attempts to remove interest rate risk from valuation, allowing management to compare profitability under various rate
environments. The Company also assigns loan charge-offs and recoveries (labeled in the table below as “provision for credit
losses”) directly to each operating segment instead of allocating an estimated credit loss provision. The operating segments also
include a number of allocations of income and expense from various support and overhead centers within the Company.
52
The table below is a summary of segment pre-tax income results for the past three years.
(Dollars in thousands)
Consumer
Commercial
Wealth
Segment Totals
Other/
Elimination
Consolidated
Totals
Year ended December 31, 2020:
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains, net
$ 321,040
$ 414,724
$
57,925
$ 793,689
$
36,158
$ 829,847
(31,220)
148,568
—
(3,724)
12
(34,932)
(102,258)
(137,190)
194,517
188,948
532,033
—
—
—
(26,166)
11,032
505,867
11,032
Non-interest expense
(297,724)
(316,074)
(124,964)
(738,762)
(29,616)
(768,378)
Income before income taxes
$ 140,664
$ 289,443
$ 121,921
$ 552,028
$
(110,850) $ 441,178
Year ended December 31, 2019:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
$ 315,782
$ 343,233
$
47,863
$ 706,878
$
114,415
$ 821,293
(44,987)
135,257
—
(4,204)
(174)
203,952
180,836
—
—
(49,365)
520,045
—
(1,073)
4,658
3,626
(50,438)
524,703
3,626
Non-interest expense
(297,398)
(309,163)
(122,784)
(729,345)
(38,053)
(767,398)
Income before income taxes
$ 108,654
$ 233,818
$ 105,741
$ 448,213
$
83,573
$ 531,786
2020 vs 2019
Increase (decrease) in income before
income taxes:
Amount
Percent
$
32,010
$
55,625
$
16,180
$ 103,815
$
(194,423) $
(90,608)
29.5%
23.8%
15.3%
23.2%
N.M.
(17.0%)
Year ended December 31, 2018:
Net interest income
Provision for loan losses
Non-interest income
Investment securities losses, net
$ 294,798
$ 344,972
$
46,990
$ 686,760
$
137,065
$ 823,825
(40,571)
126,253
—
(1,134)
32
202,527
169,844
—
—
(41,673)
498,624
—
(1,021)
2,717
(488)
(42,694)
501,341
(488)
Non-interest expense
(286,181)
(297,847)
(122,247)
(706,275)
(31,546)
(737,821)
Income before income taxes
$
94,299
$ 248,518
$
94,619
$ 437,436
$
106,727
$ 544,163
2019 vs 2018
Increase (decrease) in income before
income taxes:
Amount
Percent
Consumer
$
14,355
$
(14,700)
$
11,122
$
10,777
$
(23,154) $
(12,377)
15.2%
(5.9%)
11.8%
2.5%
(21.7%)
(2.3%)
The Consumer segment includes consumer deposits, consumer finance, and consumer debit and credit cards. During 2020,
income before income taxes for the Consumer segment increased $32.0 million, or 29.5%, compared to 2019. This increase
was due to growth of $5.3 million, or 1.7%, in net interest income, $13.3 million, or 9.8%, in non-interest income, and a
decrease to the provision for credit losses of $13.8 million. Net interest income increased due to an $18.0 million increase in
net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios and lower deposit interest expense
of $7.3 million, partly offset by a decrease in interest income on loans of $20.1 million. Non-interest income increased mainly
due to growth in mortgage banking revenue, partly offset by declines in deposit fees (mainly overdraft and return item fees) and
net credit and debit card fees (mainly lower interchange fees, partly offset by lower rewards expense). These increases to
income were partly offset by growth of $326 thousand, or .1%, in non-interest expense. Non-interest expense increased over
the prior year due to higher incentive compensation expense, allocated teller servicing costs, intangible asset amortization and
an impairment on mortgage servicing rights. These increases were partly offset by lower supplies and communication expense,
marketing expense, and bank card processing fees. The provision for credit losses totaled $31.2 million, a $13.8 million
decrease from the prior year, which resulted mainly from lower net charge-offs on consumer credit card and consumer loans.
Total average loans in this segment decreased $139.3 million, or 6.2%, in 2020 compared to 2019 mainly due to declines in
consumer credit card and fixed and revolving home equity loans. Average deposits increased $1.0 billion over the prior year,
resulting from growth in personal demand, savings, interest checking and money market deposit accounts.
53
During 2019, income before income taxes for the Consumer segment increased $14.4 million, or 15.2%, compared to 2018.
This increase was due to growth of $21.0 million, or 7.1%, in net interest income and an increase in non-interest income of $9.0
million, or 7.1%. Net interest income increased due to a $27.8 million increase in net allocated funding credits and growth of
$3.4 million in loan interest income, partly offset by an increase of $10.1 million in deposit interest expense. Non-interest
income increased mainly due to growth in mortgage banking revenue and net credit card fees, (mainly higher interchange fees
and lower rewards expense), partly offset by a decline in deposit fees (mainly overdraft and return item fees and deposit account
service fees). These increases to income were partly offset by growth of $11.2 million, or 3.9%, in non-interest expense. Non-
interest expense increased over 2018 due to higher salaries and benefits expense, data processing and software expense and
allocated servicing and support costs (mainly teller services, online banking, installment loan and management fees). The
provision for loan losses totaled $45.0 million, a $4.4 million increase over 2018, which was mainly due to higher net charge-
offs on consumer credit card loans. Total average loans in this segment decreased $107.1 million, or 4.6%, in 2019 compared to
2018 mainly due to a decline in auto and other consumer loans. Average deposits increased $25.8 million over 2018, resulting
from growth in interest checking, savings, and certificate of deposit balances, partly offset by a decline in money market deposit
accounts.
Commercial
The Commercial segment provides corporate lending (including the Small Business Banking product line within the branch
network), leasing, international services, and business, government deposit, and related commercial cash management services,
as well as merchant and commercial bank card products. The segment includes the Capital Markets Group, which sells fixed-
income securities to correspondent banks, corporations, public institutions, municipalities, and individuals and also provides
securities safekeeping and bond accounting services. Pre-tax income for 2020 increased $55.6 million, or 23.8%, compared to
2019, mainly due to an increase in net interest income, partly offset by a decrease in non-interest income and an increase non-
interest expense. Net interest income increased $71.5 million, or 20.8%, due to growth of $75.7 million in net allocated funding
credits and lower interest expense of $46.2 million on deposits and customer repurchase agreements, partly offset by a decrease
of $50.3 million in loan interest income. The provision for credit losses decreased $480 thousand from the prior year due to
lower lease loan net charge-offs. Non-interest income decreased $9.4 million, or 4.6%, from 2019 due to lower net corporate
card fees (driven by lower transaction volume), lower swap fees and lower gains on sales of leased assets. These decreases
were partly offset by higher deposit account fees (mainly corporate cash management) and capital market fees. Non-interest
expense increased $6.9 million, or 2.2%, during 2020, mainly due to higher salaries and incentive compensation expense and
allocated service and support costs (mainly information technology and commercial loan servicing). These increases were
partly offset by decreases in travel and entertainment expense and allocated teller services costs, as well as higher deferred
origination costs. Average segment loans increased $1.3 billion, or 14.2%, compared to 2019, with growth occurring in
business (mainly PPP loans) and business real estate loans. Average deposits increased $2.1 billion, or 26.6%, mainly due to
growth in business demand accounts.
Pre-tax income for 2019 decreased $14.7 million, or 5.9%, compared to 2018, mainly due to an increase in non-interest
expense. A decline in net interest income and an increase in the provision for loan losses further decreased pre-tax net income
compared to 2018. Net interest income decreased $1.7 million, or .5%, due to a decline of $12.7 million in net allocated
funding credits and higher interest expense of $18.4 million on deposits and customer repurchase agreements, partly offset by
an increase of $29.3 million in loan interest income. The provision for loan losses increased $3.1 million over 2018, due to
higher business loan net charge-offs (related to a charge-off on a single lease loan). Non-interest income increased $1.4
million, or .7%, over 2018 due to higher deposit account fees (mainly corporate cash management), cash sweep commissions,
and gains on sales of leased assets to customers upon lease termination. These increases were partly offset by lower net
corporate card fees (driven by lower interchange income and higher network and rewards expense) and lower tax credit sales
fees. Non-interest expense increased $11.3 million, or 3.8%, during 2019, mainly due to increases in salaries expense and
allocated support costs (mainly information technology, marketing and commercial sales and product support). These increases
were partly offset by lower deposit insurance expense and allocated servicing costs (mainly teller services and deposit
operations). Average segment loans increased $310.9 million, or 3.5%, compared to 2018, with growth occurring in business
and business real estate loans. Average deposits decreased $180.9 million, or 2.3%, due to declines in business demand and
money market deposit accounts, partly offset by growth in certificate of deposit balances.
Wealth
The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management
services, brokerage services, and includes Private Banking accounts. At December 31, 2020, the Trust group managed
investments with a market value of $38.3 billion and administered an additional $22.9 billion in non-managed assets. It also
provides investment management services to The Commerce Funds, a series of mutual funds with $3.2 billion in total assets at
December 31, 2020. In 2020, pre-tax income for the Wealth segment was $121.9 million, compared to $105.7 million in 2019,
an increase of $16.2 million, or 15.3%. Net interest income increased $10.1 million, or 21.0%, due to a $14.4 million increase
54
in net allocated funding credits and lower deposit interest expense of $2.8 million, partly offset by a decline in loan interest
income of $7.2 million. Non-interest income increased $8.1 million, or 4.5%, over the prior year largely due to higher private
client and institutional trust fees and mortgage banking revenue. Non-interest expense increased $2.2 million, or 1.8%,
resulting from higher salaries expense and higher allocated service and support costs (mainly mortgage loan processing and
information technology), partly offset by lower costs for travel and entertainment. The provision for credit losses decreased
$186 thousand, mainly due to net recoveries on revolving home equity loans. Average assets increased $118.0 million, or
9.2%, during 2020 mainly due to growth in personal real estate and consumer loan balances. Average deposits increased
$438.7 million, or 23.9%, due to growth in interest checking and money market account balances.
In 2019, pre-tax income for the Wealth segment was $105.7 million, compared to $94.6 million in 2018, an increase of
$11.1 million, or 11.8%. Net interest income increased $873 thousand, or 1.9%, due to a $4.3 million increase in loan interest
income and a $1.5 million increase in net allocated funding credits, partly offset by higher interest expense of $4.9 million.
Non-interest income increased $11.0 million, or 6.5%, over 2018 largely due to higher private client fund trust fees and cash
sweep commissions. Non-interest expense increased $537 thousand, or .4%, resulting from higher salaries and benefits expense
and higher allocated costs for information technology. The provision for loan losses increased $206 thousand, mainly due to
higher revolving home equity loan net charge-offs. Average assets increased $45.1 million, or 3.6%, during 2019 mainly due to
growth in personal real estate and consumer loan balances. Average deposits decreased $39.2 million, or 2.1%, due to declines
in interest checking account balances, partially offset by higher balances of demand deposits.
The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination”
column include activity not related to the segments, such as certain administrative functions, the investment securities portfolio,
and the effect of certain expense allocations to the segments. In accordance with the Company's transfer pricing procedures, the
difference between the total provision and total net charge-offs/recoveries is not allocated to a business segment and is included
in this category. In 2020, the pre-tax net loss in this category was $110.9 million, compared to net income of $83.6 million in
2019. This decrease was due to lower net interest income of $78.3 million and lower non-interest income of $30.8 million,
partly offset by a decrease in non-interest expense of $8.4 million. Unallocated securities gains were $11.0 million in 2020,
compared to securities gains of $3.6 million in 2019. Also, the unallocated provision for credit losses increased $101.2 million,
primarily driven by an increase in the allowance for credit losses on loans and the liability for unfunded lending commitments,
which are not allocated to segments for management reporting purposes. Net charge-off are allocated to segments when
incurred for management reporting purposes. For the year ended December 31, 2020, the Company's provision for credit losses
on unfunded lending commitments was $21.1 million. Additionally, the provision for credit losses on loans was $81.2 million
in excess of net charge-offs in 2020, while the provision was $750 thousand in excess of net charge-offs in 2019.
Impact of Recently Issued Accounting Standards
Financial Instruments ASU 2016-13, "Measurement of Credit Losses on Financial Instruments", known as the CECL
model, was issued in June 2016, and has been followed by additional clarifying guidance on specified implementation issues.
This new standard is effective for fiscal years beginning after December 15, 2019 and was adopted by the Company on January
1, 2020 using the modified retrospective method.
This new measurement approach requires the calculation of expected lifetime credit losses and is applied to financial assets
measured at amortized cost, including loans and held-to-maturity securities as well as certain unfunded lending commitments
such as loan commitments. The standard also changes the impairment model of available for sale debt securities.
The allowance for loan losses under the previously required incurred loss model that is reported on the Company's
consolidated balance sheet is different under the requirements of the CECL model. At adoption, a cumulative-effect adjustment
for the change in the allowance for credit losses increased retained earnings by $3.8 million. The cumulative-effect adjustment
to retained earnings, net of taxes, was comprised of the impact to the allowance for credit losses on outstanding loans and the
impact to the liability for unfunded lending commitments. There is no implementation impact on held-to-maturity debt
securities as the Company does not hold any held-to-maturity debt securities.
The new accounting standard does not require the use of a specific loss estimation method for purposes of determining the
allowance for credit losses. The Company selected a methodology that uses historical net charge-off rates, adjusted by the
impacts of a reasonable and supportable forecast and the impacts of other qualitative factors to determine the expected credit
losses. Key assumptions include the application of historical loss rates, prepayment speeds, forecast results of a reasonable and
supportable period, the period to revert to historical loss rates, and qualitative factors. The forecast is determined using
projections of certain macroeconomic variables, such as, unemployment rate, prime rate, BBB corporate yield, and house price
index. The model design and methodology requires management judgment.
55
The allowance for credit losses on the commercial portfolio decreased due to the relatively short contractual lives of the
commercial loan portfolios coupled with an economic forecast predicting stable macroeconomic factors similar to the current
environment at adoption. The allowance for credit losses on the personal banking portfolio increased due to the relatively
longer contractual lives of certain portfolios, primarily those collateralized with personal real estate. Because the commercial
loan portfolio represented 63% of total loans at December 31, 2019, the change in its allowance for credit losses had a more
significant impact on the total allowance for credit losses, and resulted in a net reduction in the allowance for credit losses. The
Company's allowance for loan losses to total loans ratio declined from 1.09% at December 31, 2019, to .95% at adoption.
Offsetting the overall reduction in the allowance for credit losses for outstanding loans was an increase in the liability for
unfunded lending commitments. The liability increased as the loss estimation was required to be expanded over the contractual
commitment period. The adoption also resulted in an immaterial adjustment to retained earnings at January 1, 2020. Further
discussion of the accounting impact of the Company's adoption is included in Note 1 to the consolidated financial statements.
Additionally, the Company elected to phase the estimated impact of CECL into regulatory capital in accordance with the
interim final rule of the Federal Reserve Bank and other U.S. banking agencies. Further discussion of the impact of this
election is discussed above in Capital Management within Liquidity and Capital Resources.
Intangible Assets The FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment", in January 2017.
Under current guidance, a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit's
goodwill with the carrying amount of that goodwill by following procedures that would be required in determining the fair
value of assets acquired and liabilities assumed in a business combination. Under the new amendments, the goodwill
impairment test compares the fair value of a reporting unit with its carrying amount and an impairment charge is measured as
the amount by which the carrying amount exceeds the reporting unit's fair value. The amendments were effective for
impairment tests beginning January 1, 2020, and the Company adopted them on that date. The adoption did not have a
significant effect on the Company's consolidated financial statements.
Financial Instruments The FASB issued ASU 2018-13, "Changes to the Disclosure Requirements of Fair Value
Measurement", in August 2018. The amendments in the ASU eliminate or modify certain disclosure requirements for fair value
measurements in Topic 820, Fair Value Measurement. In addition, the amendments in the ASU also require the addition of
new disclosure requirements on fair value measurement, including the disclosure of changes in unrealized gains and losses for
the period included in AOCI for recurring Level 3 fair value measurements and the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value measurements. The guidance was effective January 1, 2020, and the
Company adopted the new guidance on that date. The adoption did not have a significant effect on the Company's consolidated
financial statements.
Retirement Benefits The FASB issued ASU 2018-14, "Compensation - Retirement Benefits-Defined Benefit Plans-
General (Subtopic 715-20)", in August 2018. The amendments in the ASU eliminate disclosures that are no longer considered
cost beneficial and clarify specific requirements of disclosures. In addition, the amendments in the ASU also add new
disclosures, including the explanation of the reasons for significant gains and losses related to changes in the benefit obligation
for the period. The amendments were effective January 1, 2020, and the Company adopted them on that date. The adoption did
not have a significant effect on the Company's consolidated financial statements.
Intangible Assets The FASB issued ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract", in August 2018. Under current guidance, the accounting for
implementation costs of a hosting arrangement that is a service contract is not specifically addressed. Under the new
amendments, the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract
are aligned with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software or
hosting arrangements that include an internal-use software license. The guidance was effective January 1, 2020, and the
Company adopted it on that date. The adoption did not have a significant effect on the Company's consolidated financial
statements.
Income Taxes The FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes", in December 2019. The
amendments in the ASU eliminate certain exceptions under current guidance for investments, intraperiod allocations, and the
methodology for calculating interim income tax. In addition, the amendments also add new guidance to simplify accounting for
income taxes. The amendments were effective January 1, 2021, and the Company adopted them on that date. The adoption did
not have a significant effect on the Company's consolidated financial statements.
Investment Securities The FASB issued ASU 2020-08, "Codification Improvements to Subtopic 310-20, Receivables -
Nonrefundable Fees and Other Costs", in October 2020. The amendments in the ASU clarify that for each reporting period an
entity should evaluate whether a callable debt security that has multiple call dates may consider estimates of future principal
56
prepayments when applying the interest method. The guidance was effective January 1, 2021, and the Company adopted it on
that date. The adoption did not have a significant effect on the Company's consolidated financial statements.
Reference Rate Reform The FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects
of Reference Rate Reform on Financial Reporting", in March 2020, and has been followed by additional clarifying guidance
related to derivatives that are modified as a result of reference rate reform. The new guidance provides optional expedients and
exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if
they reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Further, the
guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is
modified as a result of reference rate reform. The expedients and exceptions provided by the new guidance do not apply to
contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for certain
hedging relationships existing as of December 31, 2022. The Company has established a LIBOR Transition Program, which is
led by the LIBOR Transition Steering Committee (Committee) whose purpose is to guide the overall transition process for the
Company. The Committee is an internal, cross-functional team with representatives from all relevant business lines, support
functions and legal counsel. An initial LIBOR impact and risk assessment has been performed, and the Committee has
developed and prioritized action items. Changes to the Company's systems have been identified and the process of installing
and testing code has started. All financial contracts that reference LIBOR have been identified and are being monitored on an
ongoing basis. Remediation of these contracts is expected to be consistent with industry timing. LIBOR fallback language has
been included in key loan provisions of new and renewed loans in preparation for transition from LIBOR to the new benchmark
rate when such transition occurs.
Corporate Governance
The Company has adopted a number of corporate governance measures. These include corporate governance guidelines, a
code of ethics that applies to its senior financial officers and the charters for its audit and risk committee, its committee on
compensation and human resources, and its committee on governance/directors. This information is available on the
Company’s website www.commercebank.com under "Social Responsibility".
57
AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
Total investment securities
10,261,688
224,835
Federal funds sold and short-term securities purchased
under agreements to resell
278
3
Long-term securities purchased under agreements to resell
849,998
40,647
Interest earning deposits with banks
1,115,551
2,273
Total interest earning assets
28,143,048
885,606
3.15
24,034,631
938,813
(Dollars in thousands)
ASSETS
Loans:(A)
Business(B)
Real estate – construction and land
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities:
U.S. government & federal agency obligations
Government-sponsored enterprise obligations
State & municipal obligations(B)
Mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities(B)
Equity securities(B)
Other securities(B)
Allowance for credit losses on loans
Unrealized gain (loss) on debt securities
Cash and due from banks
Premises and equipment - net
Other assets
Total assets
LIABILITIES AND EQUITY
Interest bearing deposits:
Savings
Interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Total interest bearing deposits
Borrowings:
Federal funds purchased and securities sold under
agreements to repurchase
Other borrowings(C)
Total borrowings
Total interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Equity
Total liabilities and equity
Net interest margin (T/E)
Net yield on interest earning assets
Percentage increase (decrease) in net interest margin
(T/E) compared to the prior year
2020
Interest
Income/
Expense
Average
Balance
Average
Rates
Earned/Paid
Average
Balance
2019
Interest
Income/
Expense
Average
Rates
Earned/Paid
Average
Balance
2018
Interest
Income/
Expense
Average
Rates
Earned/Paid
Years Ended December 31
$ 6,387,410 $ 196,249
3.07% $ 5,214,158 $ 202,308
3.88% $ 4,963,029 $ 184,837
3.72%
956,999
38,619
2,959,068
110,080
2,619,211
1,967,133
334,866
668,810
3,351
94,835
86,096
12,405
78,704
—
15,896,848
616,988
18,685
860
780,903
17,369
105,069
3,346
1,562,415
42,260
5,733,398
109,834
1,467,496
444,489
30,321
4,206
133,391
29,759
10,846
659
2,030
8,732
4.04
3.72
3.62
4.38
3.70
909,367
49,702
2,859,008
127,635
2,178,716
1,930,883
358,474
85,604
92,414
18,204
5.47
4.46
3.93
4.79
5.08
11.77
764,828
93,754
12.26
—
3.88
4.60
2.22
3.18
2.70
1.92
2.03
2.44
2.17
48.26
6.55
2.19
1.08
4.78
.20
9,203
—
14,224,637
669,621
18,577
1,209
851,124
20,968
191,406
4,557
1,220,958
38,362
4,594,576
123,806
1,372,574
37,478
333,105
9,017
29,450
4,547
134,255
886
1,792
8,466
8,731,995
245,332
2,034
55
741,089
15,898
316,299
6,698
—
4.71
6.51
2.46
2.38
3.14
2.69
2.73
2.71
3.01
39.41
6.31
2.81
2.70
2.15
2.12
3.91
(196,942)
292,898
343,516
399,228
634,949
(160,212)
74,605
370,709
380,350
513,442
967,320
49,440
2,737,820
117,516
2,093,802
2,010,826
379,715
768,789
4,778
80,365
89,074
17,513
92,269
—
13,926,079
631,014
19,493
1,298
921,759
21,720
308,520
6,098
1,410,700
42,867
4,203,625
111,686
1,455,690
34,223
340,458
8,912
24,731
26,459
114,438
759
11,816
12,412
8,806,380
250,493
27,026
519
696,438
15,881
319,948
6,233
23,795,364
905,438
5.11
4.29
3.84
4.43
4.61
12.00
—
4.53
6.66
2.36
1.98
3.04
2.66
2.35
2.62
3.07
44.66
10.85
2.84
1.92
2.28
1.95
3.81
(158,791)
(113,068)
360,732
343,636
438,362
$ 29,616,697
$ 25,213,525
$ 24,666,235
$ 1,123,413
1,053
11,539,717
16,798
585,695
1,358,389
14,607,214
4,897
12,948
35,696
1,966,479
126,585
2,093,064
6,091
1,029
7,120
.09
.15
.84
.95
.24
.31
.81
.34
$
918,896
1,021
10,607,224
38,691
610,807
1,396,760
13,533,687
6,368
26,945
73,025
.11
.36
1.04
1.93
$
867,150
973
10,817,169
26,830
603,137
1,114,825
.54
13,402,281
3,215
14,658
45,676
1,822,098
29,415
43,919
952
1,866,017
30,367
1.61
2.17
1.63
1,747
1,515,891
1,514,144
19,655
45
19,700
65,376
16,700,278
42,816
.26%
15,399,704
103,392
.67%
14,918,172
8,890,263
715,033
3,311,123
$ 29,616,697
6,376,204
360,587
3,077,030
$ 25,213,525
6,728,971
247,520
2,771,572
$ 24,666,235
$ 842,790
$ 835,421
$ 840,062
2.99%
.88%
3.48%
(.55%)
.11
.25
.53
1.31
.34
1.30
2.58
1.30
.44%
3.53%
9.58%
(A) Loans on non-accrual status are included in the computation of average balances. Included in interest income above are loan fees and late charges, net of
amortization of deferred loan origination fees and costs, which are immaterial. Credit card income from merchant discounts and net interchange fees are not
included in loan income.E SHEETS — AVERAGE RATES AND YIELDS
58
2017
Years Ended December 31
2016
2015
Average
Balance
Interest Income/
Expense
Average Rates
Earned/Paid
Average
Balance
Interest Income/
Expense
Average Rates
Earned/Paid
Average
Balance
Interest Income/
Expense
Average Rates
Earned/Paid
Average Balance Five
Year Compound
Growth Rate
$ 4,832,045 $
881,879
2,694,620
2,019,674
2,036,393
398,611
743,885
4,592
13,611,699
17,452
154,681
37,315
102,009
75,267
81,065
15,516
88,329
—
554,182
1,000
914,961
19,697
452,422
1,720,723
3,784,602
2,083,611
330,365
21,929
60,772
98,564
9,467,949
7,321
62,073
89,623
36,757
8,410
583
2,283
10,507
237,254
18,518
230
15,440
2,223
810,329
688,147
207,269
24,011,034
(156,572)
45,760
361,414
345,639
424,333
$ 25,031,608
3.20%
4.23
3.79
3.73
3.98
3.89
11.87
—
4.07
5.73
$ 4,652,526 $
778,822
2,440,955
1,936,420
1,947,240
417,514
749,589
4,712
12,927,778
25,710
134,438
27,452
89,305
72,417
75,076
14,797
86,008
—
499,493
1,317
2.15
1.62
3.61
2.37
1.76
2.55
2.66
3.76
10.66
2.51
1.24
2.24
1.07
3.37
735,081
15,628
591,785
1,753,727
3,460,821
2,418,118
331,289
19,722
47,763
112,888
9,471,194
13,173
63,261
82,888
35,346
8,382
489
2,208
7,656
229,031
12,660
78
13,544
973
744,436
791,392
188,581
23,417,315
(152,628)
143,842
381,822
350,443
415,677
$ 24,556,471
2.89%
3.52
3.66
3.74
3.86
3.54
11.47
—
3.86
5.12
2.13
2.23
3.61
2.40
1.46
2.53
2.48
4.62
6.78
2.42
.62
1.71
.52
3.18
$ 4,186,101 $
477,320
2,293,839
1,899,234
1,829,830
431,033
746,503
5,416
11,869,276
4,115
116,455
17,075
85,751
71,666
72,625
15,262
86,162
—
464,996
191
466,135
5,180
938,589
1,786,235
3,164,447
2,773,069
255,558
20,517
45,200
108,061
9,557,811
17,319
63,054
80,936
29,558
6,191
562
1,805
8,582
213,187
16,184
60
13,172
528
692,134
1,002,053
206,115
22,655,554
(152,690)
112,352
378,803
359,773
383,810
$ 23,737,602
$
819,558
10,517,741
981
16,328
676,272
2,645
1,404,960
13,418,531
10,859
30,813
.12
.16
.39
.77
.23
$
775,121
10,285,288
923
13,443
749,261
2,809
1,471,610
13,281,280
8,545
25,720
.12
.13
.37
.58
.19
$
729,311
9,752,794
876
12,498
832,343
3,236
1,224,402
12,538,850
6,051
22,661
2.78%
3.58
3.74
3.77
3.97
3.54
11.54
—
3.92
4.64
1.11
1.85
3.53
2.56
1.07
2.42
2.74
3.99
7.94
2.23
.37
1.31
.26
3.06
.12
.13
.39
.49
.18
1,462,387
87,696
1,550,083
14,968,614
7,176,255
250,510
2,636,229
$ 25,031,608
9,829
3,086
12,915
43,728
.67
3.52
.83
.29%
1,266,093
171,255
1,437,348
14,718,628
7,049,633
292,145
2,496,065
$ 24,556,471
3,315
3,968
7,283
33,003
.26
2.32
.51
.22%
1,654,860
103,884
1,758,744
14,297,594
6,786,741
280,231
2,373,036
$ 23,737,602
1,861
3,574
5,435
28,096
.11
3.44
.31
.20%
$
766,601
$
711,433
$
664,038
3.19%
7.75%
3.04%
7.14%
2.93%
2.38%
8.82%
14.93
5.22
6.64
1.46
(4.92)
(2.17)
(9.16)
6.02
35.34
10.87
(35.46)
(2.64)
12.62
(11.95)
11.71
8.12
(37.81)
4.30
1.43
(55.64)
(3.24)
40.18
4.43
5.22
21.12
(1.94)
2.10
10.59
4.52
9.02
3.42
(6.79)
2.10
3.10
3.51
4.03
3.54
3.16
5.55
20.60
6.89
4.52%
(B)
Interest income and yields are presented on a fully-taxable equivalent basis using a federal income tax rate of 21% in 2020, 2019 and 2018, and 35% in prior
periods. Loan interest income includes tax free loan income (categorized as business loan income) which includes tax equivalent adjustments of $4,916,000 in
2020, $6,282,000 in 2019, $5,931,000 in 2018, $10,357,000 in 2017, $9,537,000 in 2016 and $8,332,000 in 2015. Investment securities interest income
includes tax equivalent adjustments of $8,042,000 in 2020, $7,845,000 in 2019, $10,306,000 in 2018, $22,565,000 in 2017, $21,847,000 in 2016 and
$21,386,000 in 2015. These adjustments relate to state and municipal obligations, trading securities, equity securities, and other securities.
(C)
Interest expense of $14,000, which was capitalized on construction projects in 2020, is not deducted from the interest expense shown above.
59
QUARTERLY AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Year ended December 31, 2020
(Dollars in millions)
ASSETS
Loans:
Business(A)
Real estate – construction and land
$
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities:
U.S. government & federal agency
obligations
Government-sponsored enterprise
obligations
State & municipal obligations(A)
Mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities(A)
Equity securities(A)
Other securities(A)
Total investment securities
Federal funds sold and short-term
securities purchased under agreements
to resell
Long-term securities purchased under
agreements to resell
Interest earning deposits with banks
Total interest earning assets
Allowance for credit losses on loans
Unrealized gain on debt securities
Cash and due from banks
Premises and equipment – net
Other assets
Total assets
6,580
1,033
3,030
2,778
1,981
317
638
4
16,361
31
775
69
1,967
6,646
1,820
534
28
4
130
11,973
—
850
1,083
30,298
(235)
329
320
406
566
3.01% $
3.72
3.51
3.44
4.07
3.37
11.60
—
3.69
3.54
2.63
2.23
2.44
1.37
1.59
2.19
1.40
50.71
10.03
1.81
1.12
5.24
.10
2.86
6,710
974
2,990
2,722
1,992
329
646
3
16,366
25
770
103
1,768
6,260
1,521
514
27
4
120
11,087
—
850
1,025
29,353
(240)
368
326
404
660
2.95% $
3.74
3.53
3.56
4.19
3.29
11.40
—
3.69
4.25
3.71
2.17
2.53
1.95
1.90
2.35
1.66
47.15
6.74
2.24
—
5.26
.10
3.07
6,761
896
2,962
2,582
1,944
343
664
3
16,155
6
776
115
1,285
5,326
1,343
407
32
4
139
9,427
—
850
1,755
28,193
(172)
281
358
395
710
2.91% $
3.95
3.71
3.69
4.48
3.50
11.76
—
3.80
8.03
.46
3.51
2.97
2.17
2.25
2.49
2.93
48.42
4.36
2.24
—
5.08
.10
3.09
5,493
924
2,854
2,391
1,950
350
728
4
14,694
13
803
134
1,223
4,686
1,183
322
34
4
144
8,533
—
850
601
24,691
(139)
191
370
392
606
$
31,684
$
30,871
$
29,765
$
26,111
LIABILITIES AND EQUITY
Interest bearing deposits:
Savings
$
Interest checking and money market
Certificates of deposit under $100,000
Certificates of deposit $100,000 & over
Total interest bearing deposits
Borrowings:
Federal funds purchased and securities
sold under agreements to repurchase
Other borrowings
Total borrowings
Total interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Equity
Total liabilities and equity
Net interest margin (T/E)
$
$
1,234
12,200
542
1,339
15,315
2,028
1
2,029
17,344
10,276
728
3,336
31,684
213
.09
.07
.51
.47
.12
.06
—
.06
.11%
$
$
$
1,193
11,732
573
1,448
14,946
1,856
1
1,857
16,803
9,802
900
3,366
30,871
219
.09
.10
.71
.69
.18
.09
—
.09
.17%
$
$
$
1,111
11,442
605
1,346
14,504
1,992
345
2,337
16,841
8,843
765
3,316
29,765
206
.09
.13
.93
1.08
.25
.12
.82
.22
.25%
$
$
$
953
10,777
623
1,299
13,652
1,990
162
2,152
15,804
6,615
467
3,225
26,111
204
Net yield on interest earning assets
2.80%
2.97%
2.94%
3.33%
(A) Includes tax equivalent calculations.
60
3.50%
4.78
4.16
3.83
4.78
4.61
12.26
—
4.39
6.15
2.09
4.19
3.11
2.37
2.63
2.94
2.52
46.78
5.31
2.61
2.47
3.53
.86
3.66
.11
.30
1.15
1.62
.45
.96
.82
.95
.52%
QUARTERLY AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Year ended December 31, 2019
(Dollars in millions)
ASSETS
Loans:
Business(A)
Real estate – construction and land
$
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities:
U.S. government & federal agency
obligations
Government-sponsored enterprise
obligations
State & municipal obligations(A)
Mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities(A)
Equity securities(A)
Other securities(A)
Total investment securities
Federal funds sold and short-term
securities purchased under agreements to
resell
Long-term securities purchased under
agreements to resell
Interest earning deposits with banks
Total interest earning assets
Allowance for credit losses on loans
Unrealized gain (loss) on debt securities
Cash and due from banks
Premises and equipment – net
Other assets
Total assets
5,362
901
2,820
2,284
1,962
348
749
18
14,444
15
826
185
1,208
4,686
1,258
331
33
4
142
8,673
1
850
390
24,373
(160)
150
379
387
549
3.59% $
5.05
4.22
3.85
4.76
4.76
12.11
—
4.47
5.32
2.16
2.17
3.05
2.72
2.62
2.82
2.81
49.40
6.58
2.78
2.22
2.26
1.61
3.75
5,265
920
2,883
2,175
1,924
354
763
9
14,293
20
824
182
1,172
4,713
1,298
334
30
5
135
8,693
1
713
227
23,947
(160)
153
367
380
545
3.85% $
5.46
4.42
3.91
4.88
5.17
12.42
—
4.71
6.15
2.36
2.69
3.14
2.61
2.80
2.63
2.91
35.67
6.19
2.76
2.57
2.01
2.17
3.90
5,142
909
2,869
2,135
1,908
362
766
5
14,096
21
844
200
1,222
4,615
1,412
331
30
5
130
8,789
2
700
332
23,940
(161)
42
369
378
504
4.02% $
5.63
4.60
3.97
4.77
5.20
12.33
—
4.82
6.98
4.66
2.32
3.18
2.70
2.79
2.68
3.14
35.97
6.69
3.04
2.76
2.11
2.40
4.05
5,086
907
2,864
2,119
1,929
371
781
4
14,061
18
910
199
1,283
4,360
1,526
336
25
5
130
8,774
5
700
317
23,875
(159)
(49)
367
376
454
$
25,678
$
25,232
$
25,072
$
24,864
LIABILITIES AND EQUITY
Interest bearing deposits:
Savings
$
Interest checking and money market
Certificates of deposit under $100,000
Certificates of deposit $100,000 & over
Total interest bearing deposits
Borrowings:
Federal funds purchased and securities
sold under agreements to repurchase
Other borrowings
Total borrowings
Total interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Equity
Total liabilities and equity
Net interest margin (T/E)
$
$
924
10,619
627
1,434
13,604
1,837
94
1,931
15,535
6,553
459
3,131
25,678
206
.11
.35
1.16
1.79
.52
1.20
2.05
1.25
.61%
$
$
$
925
10,409
620
1,504
13,458
1,885
77
1,962
15,420
6,290
391
3,131
25,232
207
.11
.38
1.11
1.99
.58
1.74
2.33
1.76
.73%
$
$
$
930
10,643
605
1,378
13,556
1,794
2
1,796
15,352
6,336
307
3,077
25,072
215
.11
.38
1.01
2.02
.55
1.80
1.52
1.80
.70%
$
$
$
896
10,763
590
1,268
13,517
1,772
1
1,773
15,290
6,325
283
2,966
24,864
207
Net yield on interest earning assets
3.36%
3.43%
3.61%
3.52%
(A) Includes tax equivalent calculations.
61
4.07%
5.73
4.61
4.00
4.73
5.17
12.18
—
4.85
7.38
.78
2.35
3.19
2.76
2.70
2.69
3.24
37.55
5.73
2.66
2.79
2.18
2.42
3.93
.11
.35
.87
1.92
.51
1.72
1.62
1.72
.65%
SUMMARY OF QUARTERLY STATEMENTS OF INCOME
Year ended December 31, 2020
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Non-interest income
Investment securities gains (losses), net
Salaries and employee benefits
Other expense
Provision for credit losses
Income before income taxes
Income taxes
Non-controlling interest
Net income attributable to Commerce Bancshares, Inc.
Net income per common share — basic*
Net income per common share — diluted*
Weighted average shares — basic*
Weighted average shares — diluted*
Year ended December 31, 2019
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Non-interest income
Investment securities gains (losses), net
Salaries and employee benefits
Other expense
Provision for credit losses
Income before income taxes
Income taxes
Non-controlling interest
Net income attributable to Commerce Bancshares, Inc.
Net income per common share — basic*
Net income per common share — diluted*
Weighted average shares — basic*
Weighted average shares — diluted*
Year ended December 31, 2018
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Non-interest income
Investment securities gains (losses), net
Salaries and employee benefits
Other expense
Provision for credit losses
Income before income taxes
Income taxes
Non-controlling interest
Net income attributable to Commerce Bancshares, Inc.
Net income per common share — basic*
Net income per common share — diluted*
Weighted average shares — basic*
Weighted average shares — diluted*
* Restated for the 5% stock dividend distributed in 2020.
12/31/2020
9/30/2020
6/30/2020
3/31/2020
For the Quarter Ended
$
214,726 $
223,114 $
(4,963)
(7,152)
209,763
135,117
12,307
(129,983)
(66,327)
4,403
165,280
(33,084)
(2,307)
215,962
129,572
16,155
(127,308)
(63,550)
(3,101)
167,730
(34,375)
(907)
213,323 $
(10,266)
203,057
117,515
(4,129)
(126,759)
(60,753)
(80,539)
48,392
(9,661)
1,132
129,889 $
132,448 $
39,863 $
1.11 $
1.11 $
116,267
116,508
1.06 $
1.06 $
116,256
116,444
.32 $
.32 $
116,242
116,442
221,485
(20,420)
201,065
123,663
(13,301)
(128,937)
(64,761)
(57,953)
59,776
(10,173)
2,254
51,857
.42
.42
116,674
116,945
12/31/2019
9/30/2019
6/30/2019
3/31/2019
For the Quarter Ended
226,665 $
(24,006)
202,659
143,461
(248)
231,743 $
(28,231)
203,512
132,743
4,909
238,412 $
(26,778)
211,634
127,259
(110)
227,865
(24,377)
203,488
121,240
(925)
(126,901)
(123,836)
(120,062)
(122,128)
(68,273)
(15,206)
135,492
(28,214)
(398)
(67,184)
(10,963)
139,181
(29,101)
(838)
(69,717)
(11,806)
137,198
(28,899)
(328)
106,880 $
109,242 $
107,971 $
.89 $
.88 $
117,317
117,612
.89 $
.89 $
118,631
118,912
.87 $
.87 $
120,709
121,002
(69,297)
(12,463)
119,915
(22,860)
83
97,138
.77
.77
121,287
121,607
12/31/2018
9/30/2018
6/30/2018
3/31/2018
For the Quarter Ended
232,832 $
(20,612)
212,220
133,087
(7,129)
(120,517)
(68,108)
(12,256)
137,297
(26,537)
(1,108)
109,652 $
.87 $
.87 $
121,800
122,124
224,751 $
(16,997)
207,754
123,714
4,306
(116,194)
(68,865)
(9,999)
140,716
(26,647)
(1,493)
112,576 $
.90 $
.89 $
122,255
122,664
225,623 $
(14,664)
210,959
124,850
(3,075)
(115,589)
(66,271)
(10,043)
140,831
(29,507)
(994)
110,330 $
.87 $
.87 $
122,345
122,742
205,995
(13,103)
192,892
119,690
5,410
(115,894)
(66,383)
(10,396)
125,319
(23,258)
(1,077)
100,984
.80
.80
122,285
122,669
$
$
$
$
$
$
$
$
$
$
$
62
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is disclosed within the Interest Rate Sensitivity section of Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Commerce Bancshares, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Commerce Bancshares, Inc. and subsidiaries (the Company)
as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in equity,
and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 24, 2021 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the
recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU 2016-13 Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and its related amendments.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws, the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
63
Assessment of the allowance for loan losses related to loans collectively evaluated for impairment
As discussed in Note 1 to the consolidated financial statements, the Company adopted ASU No. 2016-13, Financial
Instruments – Credit Losses (ASC Topic 326) as of January 1, 2020. The total allowance for credit losses as of January 1,
2020 was $139.6 million, of which $139.2 million related to the allowance for credit losses on loans and leases evaluated
on a collective basis (the January 1, 2020 collective ACL). As discussed in Notes 1 and 2 to the consolidated financial
statements, the allowance for credit losses related to loans evaluated on a collective basis (the December 31, 2020
collective ACL) was $216.7 million of a total allowance for credit losses of $220.8 million as of December 31, 2020. The
allowance for credit losses on loans and leases is measured on a collective (pool) basis whereas loans are aggregated into
pools based on similar risk characteristics. The Company estimates the collective ACL utilizing average historical loss
rates, calculated using historical net charge-offs and outstanding loan balances during a lookback period for each pool. In
certain loan pools, if the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate
is augmented by industry and peer data. The calculated average net charge-off rate is then adjusted for current conditions
and reasonable and supportable forecasts (forecast adjusted loss rate). These adjustments increase or decrease the average
historical loss rate to reflect expectations of future losses given a single path economic forecast of key macroeconomic
variables. The adjustments are based on results from various regression models projecting the impact of the
macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting back
to historical averages using a straight-line method. The forecast adjusted loss rate is applied to the amortized cost of loans
over the remaining contractual lives, adjusted for expected prepayments. The allowance is further adjusted for certain
qualitative factors not included in historical loss rates or the macroeconomic forecast, which include changes in portfolio
composition and characteristics, underwriting practices, watchlist trends, or significant unique events or conditions.
We identified the assessment of the January 1, 2020 collective ACL and the December 31, 2020 collective ACL as a
critical audit matter. A high degree of audit effort, including specialized skills and knowledge, and subjective and complex
auditor judgment was involved in the assessment due to significant measurement uncertainty. Specifically, this assessment
encompassed the evaluation of the conceptual soundness of the average historical loss model used to estimate the collective
ACL, including the following key factors and assumptions (1) historical losses, (2) prepayment assumptions and the
reasonable and supportable forecast period, and (3) the development and evaluation of qualitative adjustments. In addition,
auditor judgment was required to evaluate the sufficiency of audit evidence obtained.
The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL
estimates, including controls over the (1) development and approval of the collective ACL methodology, (2) validation of
the collective ACL methodology and model, (3) identification and determination of the key factors and assumptions used to
estimate the collective ACL, (4) development of qualitative adjustments, and (5) analysis of the collective ACL results,
trends, and ratios. We evaluated the Company’s process to develop the collective ACL estimates by testing certain sources
of data, factors, and assumptions, and considered the relevance and reliability of such data, factors, and assumptions. We
evaluated whether the historical losses in the Company’s portfolio are representative of the credit characteristics of the
current portfolio. We involved credit risk professionals with specialized skills and knowledge, who assisted in:
•
•
•
•
evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting
principles,
evaluating the collective ACL methodology and model for conceptual soundness by inspecting the methodology and
model documentation to determine whether the methodology and model are suitable for intended use
testing the historical losses period and the reasonable and supportable forecast period by comparing it to the
Company’s business environment and relevant industry practices
evaluating the methodology used to develop the qualitative factors and the effect of those factors on the collective
ACL compared with changes in the nature and volume of the entity’s financial assets and identified limitations of the
underlying quantitative model.
We assessed the sufficiency of the audit evidence obtained related to the Company’s January 1, 2020 and December 31, 2020
collective ACL by evaluating the cumulative results of the audit procedures, qualitative aspects of the Company’s accounting
practices and potential bias in the accounting estimates.
We have served as the Company’s auditor since 1971.
Kansas City, Missouri
February 24, 2021
64
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
Loans
Allowance for credit losses on loans
Net loans
December 31
2020
2019
(In thousands)
$
16,329,641 $
(220,834)
16,108,807
14,737,817
(160,682)
14,577,135
Loans held for sale (including $39,396,000 and $9,181,000 of residential mortgage loans carried at fair
value at December 31, 2020 and 2019, respectively)
45,089
13,809
Investment securities:
Available for sale debt, at fair value (amortized cost of $12,097,533,000 and allowance for credit
losses of $— at December 31, 2020)
Trading debt
Equity
Other
Total investment securities
Long-term securities purchased under agreements to resell
Interest earning deposits with banks
Cash and due from banks
Premises and equipment – net
Goodwill
Other intangible assets – net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing
Savings, interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Total deposits
Federal funds purchased and securities sold under agreements to repurchase
Other borrowings
Other liabilities
Total liabilities
Commerce Bancshares, Inc. stockholders’ equity:
Preferred stock, $1 par value
Authorized 2,000,000 shares; issued none at December 31, 2020 and 6,000 shares at December 31,
2019
Common stock, $5 par value
Authorized 140,000,000; issued 117,870,372 shares at December 31, 2020 and 112,795,605 shares
at December 31, 2019
Capital surplus
Retained earnings
Treasury stock of 497,413 shares at December 31, 2020
and 445,952 shares at December 31, 2019, at cost
Accumulated other comprehensive income
Total Commerce Bancshares, Inc. stockholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
12,449,264
35,321
4,363
156,745
12,645,693
850,000
1,747,363
437,563
371,083
138,921
11,207
567,248
32,922,974 $
8,571,626
28,161
4,209
137,892
8,741,888
850,000
395,850
491,615
370,637
138,921
9,534
476,400
26,065,789
10,497,598 $
14,604,456
529,802
1,314,889
26,946,745
2,098,383
802
477,072
29,523,002
6,890,687
11,621,716
626,157
1,381,855
20,520,415
1,850,772
2,418
553,712
22,927,317
$
$
—
144,784
589,352
563,978
2,436,288
2,151,464
73,000
201,562
(32,970)
331,377
(37,548)
110,444
3,397,047
3,134,684
2,925
3,788
3,399,972
3,138,472
$
32,922,974 $
26,065,789
65
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
INTEREST INCOME
Interest and fees on loans
Interest on loans held for sale
Interest on investment securities
Interest on federal funds sold and short-term securities purchased under agreements
to resell
Interest on long-term securities purchased under agreements to resell
Interest on deposits with banks
Total interest income
INTEREST EXPENSE
Interest on deposits:
Savings, interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Interest on federal funds purchased and securities sold under agreements to
repurchase
Interest on other borrowings
Total interest expense
Net interest income
Provision for credit losses
Net interest income after credit losses
NON-INTEREST INCOME
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Capital market fees
Consumer brokerage services
Loan fees and sales
Other
Total non-interest income
INVESTMENT SECURITIES GAINS (LOSSES), NET
NON-INTEREST EXPENSE
Salaries and employee benefits
Net occupancy
Equipment
Supplies and communication
Data processing and software
Marketing
Other
Total non-interest expense
Income before income taxes
Less income taxes
Net income
Less non-controlling interest expense (income)
Net income attributable to Commerce Bancshares, Inc.
Less preferred stock dividends
Net income available to common shareholders
Net income per common share - basic
Net income per common share - diluted
See accompanying notes to consolidated financial statements.
66
For the Years Ended December 31
2019
2018
2020
$
612,072 $
860
216,793
663,338 $
1,209
237,487
3
40,647
2,273
872,648
17,851
4,897
12,948
6,091
1,014
42,801
829,847
137,190
692,657
151,797
160,637
93,227
14,582
15,095
26,684
43,845
505,867
11,032
512,987
46,645
18,839
17,419
95,325
19,734
57,429
768,378
441,178
87,293
353,885
(172)
354,057
11,966
342,091 $
2.91 $
2.91 $
55
15,898
6,698
924,685
39,712
6,368
26,945
29,415
952
103,392
821,293
50,438
770,855
167,879
155,628
95,983
8,146
15,804
15,767
65,496
524,703
3,626
492,927
47,157
19,061
20,394
92,899
21,914
73,046
767,398
531,786
109,074
422,712
1,481
421,231
9,000
412,231 $
3.42 $
3.41 $
$
$
$
625,083
1,298
240,187
519
15,881
6,233
889,201
27,803
3,215
14,658
19,655
45
65,376
823,825
42,694
781,131
171,576
147,964
94,517
7,721
15,807
12,723
51,033
501,341
(488)
468,194
46,044
18,125
20,637
85,978
20,548
78,295
737,821
544,163
105,949
438,214
4,672
433,542
9,000
424,542
3.44
3.43
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss):
Net unrealized losses on securities for which a portion of an other-
than-temporary impairment has been recorded in earnings
Net unrealized gains (losses) on other securities
Change in pension loss
Unrealized gains on cash flow hedge derivatives
Other comprehensive income (loss)
Comprehensive income
Less non-controlling interest expense (income)
For the Years Ended December 31
2020
2019
2018
$
353,885 $
422,712 $
438,214
—
161,728
(3,178)
62,383
220,933
574,818
(172)
(632)
151,122
1,167
23,456
175,113
597,825
1,481
(277)
(55,631)
664
6,855
(48,389)
389,825
4,672
385,153
Comprehensive income attributable to Commerce Bancshares, Inc.
$
574,990 $
596,344 $
See accompanying notes to consolidated financial statements.
67
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Commerce Bancshares, Inc. Shareholders
(In thousands, except per share data)
Preferred
Stock
Common
Stock
Capital
Surplus
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Non-
Controlling
Interest
Total
Balance at December 31, 2017
$ 144,784 $ 535,407 $ 1,815,360 $ 221,374 $
(14,473) $
14,108 $
1,624 $ 2,718,184
Adoption of ASU 2018-02
Adoption of ASU 2016-01
Balance December 31, 2017, adjusted
144,784
535,407
1,815,360
2,932
(33,320)
—
—
(14,473)
(16,280)
1,624
2,718,184
4,672
438,214
(48,389)
(48,389)
(445)
(445)
Net income
Other comprehensive loss
Distributions to non-controlling interest
Purchases of treasury stock
Cash dividends paid on common stock
($.812 per share)
Cash dividends paid on preferred stock
($1.500 per depositary share)
Stock-based compensation
Issuance under stock purchase and equity
compensation plans
5% stock dividend, net
Balance at December 31, 2018
Net income
Other comprehensive income
Distributions to non-controlling interest
Purchases of treasury stock
Accelerated share repurchase agreement
Cash dividends paid on common stock
($.943 per share)
Cash dividends paid on preferred stock
($1.500 per depositary share)
Stock-based compensation
Issuance under stock purchase and equity
compensation plans
5% stock dividend, net
(2,932)
33,320
251,762
433,542
(100,238)
(9,000)
(75,231)
23,424
12,841
(21,632)
144,784
24,025
559,432
278,255
2,084,824
(334,903)
241,163
32,044
(34,236)
421,231
(113,466)
(9,000)
(134,904)
(150,000)
13,854
(19,293)
20,644
4,546
72,079
(338,366)
260,948
(75,231)
(100,238)
(9,000)
12,841
1,792
(64,669)
175,113
5,851
1,481
(579)
2,937,149
422,712
175,113
(3,544)
(3,544)
(134,904)
(150,000)
(113,466)
(9,000)
13,854
1,351
(793)
Balance at December 31, 2019
144,784
563,978
2,151,464
201,562
(37,548)
110,444
3,788
3,138,472
Adoption of ASU 2016-13
Balance December 31, 2019, adjusted
144,784
563,978
2,151,464
Net income
Other comprehensive income
Distributions to non-controlling interest
Purchases of treasury stock
Redemption of preferred stock
Cash dividends paid on common stock
($1.029 per share)
Cash dividends paid on preferred stock
($1.125 per depositary share)
Stock-based compensation
Issuance under stock purchase and equity
compensation plans
5% stock dividend, net
(144,784)
(37,548)
110,444
220,933
(54,163)
3,766
205,328
354,057
(5,216)
(120,818)
(6,750)
3,788
(172)
3,766
3,142,238
353,885
220,933
(691)
(691)
(54,163)
(150,000)
(120,818)
(6,750)
14,915
1,309
(886)
14,915
(24,271)
25,374
294,180
(353,601)
25,580
33,161
Balance at December 31, 2020
$
— $ 589,352 $ 2,436,288 $
73,000 $
(32,970) $
331,377 $
2,925 $ 3,399,972
See accompanying notes to consolidated financial statements.
68
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Provision for depreciation and amortization
Amortization of investment security premiums, net
Deferred income tax (benefit) expense
Investment securities (gains) losses, net (A)
Net gains on sales of loans held for sale
Proceeds from sales of loans held for sale
Originations of loans held for sale
Net (increase) decrease in trading securities, excluding unsettled transactions
Stock-based compensation
(Increase) decrease in interest receivable
Increase (decrease) in interest payable
Increase in income taxes payable
Gain on sale of Corporate Trust business
Proceeds from terminated interest rate floors
Other changes, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Proceeds from sales of investment securities (A)
Proceeds from maturities/pay downs of investment securities (A)
Purchases of investment securities (A)
Net increase in loans
Long-term securities purchased under agreements to resell
Repayments of long-term securities purchased under agreements to resell
Purchases of premises and equipment
Sales of premises and equipment
Net cash used in investing activities
FINANCING ACTIVITIES
Net increase in non-interest bearing, savings, interest checking and money market deposits
Net increase (decrease) in certificates of deposit
Net increase (decrease) in federal funds purchased and short-term securities sold under agreements to
repurchase
Net increase (decrease) in other borrowings
Preferred stock redemption
Purchases of treasury stock
Accelerated share repurchase agreement
Issuance of stock under equity compensation plans
Cash dividends paid on common stock
Cash dividends paid on preferred stock
Net cash provided by (used in) financing activities
Increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Income tax payments, net
Interest paid on deposits and borrowings
Loans transferred to foreclosed real estate
(A) Available for sale debt securities, equity securities, and other securities.
See accompanying notes to consolidated financial statements.
69
For the Years Ended December 31
2020
2019
2018
$
353,885 $
422,712 $
438,214
137,190
43,769
59,863
(19,540)
(11,032)
(16,406)
297,267
50,438
41,145
27,631
14,195
(3,626)
(10,127)
259,153
42,694
38,679
26,224
5,336
488
(6,370)
208,431
(313,329)
(244,976)
(203,775)
(770)
14,915
(13,399)
(9,444)
12,345
—
156,740
3,863
13,854
3,316
5,586
14,465
(11,472)
—
(68,062)
(73,363)
623,992
512,794
(14,277)
12,841
(4,258)
2,137
12,288
—
—
(5,992)
552,660
602,477
413,203
708,864
2,673,510
1,558,244
1,510,985
(6,991,460)
(1,863,180)
(2,090,333)
(1,643,775)
—
—
(647,890)
(150,000)
—
(33,134)
(42,575)
1,878
2,033
(5,390,504)
(730,165)
(200,673)
(100,000)
100,000
(33,294)
13,427
(91,024)
6,316,100
(163,321)
85,438
349,890
60,278
(108,742)
247,611
(105,617)
449,251
(1,616)
(150,000)
(54,163)
—
(11)
(6,394)
—
(134,904)
(150,000)
(8)
6,944
—
(75,231)
—
(10)
(120,818)
(113,466)
(100,238)
(6,750)
6,067,032
1,300,520
(9,000)
(84,061)
(301,432)
907,808
1,209,240
(9,000)
223,252
684,888
524,352
$
$
2,208,328 $
907,808 $
1,209,240
90,066 $
76,168 $
52,245
93
97,806
581
84,172
63,239
1,551
Commerce Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
Commerce Bancshares, Inc. and its subsidiaries (the Company) conducts its principal activities from approximately 300
branch and ATM locations throughout Missouri, Kansas, Illinois, Oklahoma and Colorado. Principal activities include retail
and commercial banking, investment management, securities brokerage, mortgage banking, trust, and private banking services.
The Company also maintains commercial banking offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis,
and Grand Rapids and operates a commercial payments business with sales representatives covering the continental U.S.
Basis of Presentation
The Company follows accounting principles generally accepted in the United States of America (GAAP) and reporting
practices applicable to the banking industry. The preparation of financial statements under GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and notes. These estimates are based on
information available to management at the time the estimates are made. While the consolidated financial statements reflect
management’s best estimates and judgments, actual results could differ from those estimates. The consolidated financial
statements include the accounts of the Company and its majority-owned subsidiaries (after elimination of all material
intercompany balances and transactions). Certain prior year amounts have been reclassified to conform to the current year
presentation. Such reclassifications had no effect on net income or total assets. Management has evaluated subsequent events
for potential recognition or disclosure through the date these consolidated financial statements were issued.
The Company, in the normal course of business, engages in a variety of activities that involve variable interest entities
(VIEs). A VIE is a legal entity that lacks equity investors or whose equity investors do not have a controlling financial interest
in the entity through their equity investments. However, an enterprise is deemed to have a controlling financial interest and is
the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the
VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be
significant to the VIE. An enterprise that is the primary beneficiary must consolidate the VIE. The Company’s interests in
VIEs are evaluated to determine if the Company is the primary beneficiary both at inception and when there is a change in
circumstances that requires a reconsideration.
The Company is considered to be the primary beneficiary in a rabbi trust related to a deferred compensation plan offered to
certain employees. The assets and liabilities of this trust, which are included in the accompanying consolidated balance sheets,
are not significant. The Company also has variable interests in certain entities in which it is not the primary beneficiary. These
entities are not consolidated. These interests include certain investments in entities accounted for using the equity method of
accounting, as well as affordable housing limited partnership interests, holdings in its investment portfolio of various asset and
mortgage-backed bonds that are issued by securitization trusts, and managed discretionary trust assets that are not included in
the accompanying consolidated balance sheets.
The Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, and its related amendments on January 1, 2020. Further discussion of the impact of adoption is included
below, as well as in Note 2, Loans and Allowance for Credit Losses, and Note 3, Investment Securities. Known as the current
expected credit loss (CECL), the standard replaced the incurred loss methodology. The new measurement approach requires
the calculation of expected lifetime credit losses and is applied to financial assets measured at amortized cost, including loans
and held-to-maturity securities, as well as certain off-balance sheet credit exposures such as unfunded lending commitments.
The standard also changed the impairment model of available for sale debt securities. Also see "Allowance for Credit Losses
on Loans", "Liability for Unfunded Lending Commitments" and "Allowance for Credit Losses on Available for Sale Debt
Securities" within Note 1 below.
The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost
and for unfunded lending commitments. Results for reporting periods beginning on or after January 1, 2020 are presented
under CECL, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The
Company recorded a net increase to retained earnings of $3.8 million as of January 1, 2020 for the cumulative effect of
adopting CECL. The transition adjustment included a decrease to the allowance for credit losses of $29.7 million related to the
commercial loan portfolio, an increase to the allowance for credit losses of $8.7 million related to the personal banking loan
portfolio, an increase to the liability for unfunded commitments of $16.1 million, and a tax impact of $1.2 million.
70
The table below illustrates the adoption impact of ASU 2016-13 on the Company's allowance for credit losses.
December 31, 2019
Allowance for loan losses
ending balance
January 1, 2020
CECL Adjustment
Allowance for credit losses
beginning balance
(In thousands)
Commercial:
Business
Real estate - construction and land
Real estate - business
Total Commercial:
Personal Banking:
Real estate - personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total Personal Banking:
Allowance for credit losses on loans
Liability for unfunded lending commitments
$
44,268 $
(6,328) $
21,589
25,903
91,760
3,125
15,932
638
47,997
1,230
68,922
160,682
1,075
(12,385)
(10,998)
(29,711)
1,730
(1,414)
986
8,498
(1,128)
8,672
(21,039)
16,090
37,940
9,204
14,905
62,049
4,855
14,518
1,624
56,495
102
77,594
139,643
17,165
156,808
Total allowance for credit losses
$
161,757 $
(4,949) $
Cash, Cash Equivalents and Restricted Cash
In the accompanying consolidated statements of cash flows, cash and cash equivalents include “Cash and due from banks”,
“Federal funds sold and short-term securities purchased under agreements to resell”, and “Interest earning deposits with banks”
as segregated in the accompanying consolidated balance sheets. Restricted cash is comprised of cash collateral on deposit with
another financial institution to secure interest rate swap transactions. Restricted cash is included in other assets in the
consolidated balance sheets and totaled $23.4 million and $20.3 million at December 31, 2020 and 2019, respectively.
During the year, the Federal Reserve System, which historically required the Bank to maintain cash balances at the Federal
Reserve Bank, reduced the reserve requirement ratios to zero percent effective March 26, 2020. Other interest earning cash
balances held at the Federal Reserve Bank totaled $1.7 billion at December 31, 2020.
Loans and Related Earnings
The Company's portfolio of held-for-investment loans includes a net investment in direct financing and sales type leases to
commercial and industrial and tax-exempt entities, and collectively, the Company's portfolio of loans and leases is referred to as
its "loan portfolio" or "loans". Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or pay-off are reported at amortized cost, excluding accrued interest receivable. Amortized cost is the outstanding
principal balance, net of any deferred fees and costs on originated loans. Origination fee income received on loans and amounts
representing the estimated direct costs of origination are deferred and amortized to interest income over the life of the loan
using the interest method. Loans are presented net of the allowance for credit losses on loans.
Interest on loans is accrued based upon the principal amount outstanding. The Company has elected the practical expedient
to exclude all accrued interest receivable from all required disclosures of amortized cost. Additionally, an election was made
not to measure an allowance for credit losses for accrued interest receivables. The Company has also made the election that all
interest accrued but ultimately not received is reversed against interest income.
Loan and commitment fees, net of costs, are deferred and recognized in income over the term of the loan or commitment as
an adjustment of yield. Annual fees charged on credit card loans are capitalized to principal and amortized over 12 months to
loan fees and sales. Other credit card fees, such as cash advance fees and late payment fees, are recognized in income as an
adjustment of yield when charged to the cardholder’s account.
Past Due Loans
Management reports loans as past due on the day following the contractual repayment date if payment was not received by
end of the business day. Loans, or portions of loans, are charged off to the extent deemed uncollectible. Loan charge-offs
reduce the allowance for credit losses on loans, and recoveries of loans previously charged off are added back to the allowance.
71
Business, business real estate, construction and land real estate, and personal real estate loans are generally charged down to
estimated collectible balances when they are placed on non-accrual status. Consumer loans and related accrued interest are
normally charged down to the fair value of related collateral (or are charged off in full if not collateralized) once the loans are
more than 120 to 180 days delinquent, depending on the type of loan. Revolving home equity loans are charged down to the
fair value of the related collateral once the loans are more than 180 days past due. Credit card loans are charged off against the
allowance for credit losses when the receivable is more than 180 days past due.
Non-Accrual Loans
Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable
and agreed upon terms of repayment. Business, construction real estate, business real estate, and personal real estate loans that
are contractually 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are
both well-secured and in the process of collection. Consumer, revolving home equity and credit card loans are exempt under
regulatory rules from being classified as non-accrual. When a loan is placed on non-accrual status, any interest previously
accrued but not collected is reversed against current income, and the loan is charged off to the extent uncollectible. Principal
and interest payments received on non-accrual loans are generally applied to principal. Interest is included in income only after
all previous loan charge-offs have been recovered and is recorded only as received. The loan is returned to accrual status only
when the borrower has brought all past due principal and interest payments current, and, in the opinion of management, the
borrower has demonstrated the ability to make future payments of principal and interest as scheduled. A six month history of
sustained payment performance is generally required before reinstatement of accrual status.
Troubled Debt Restructurings
A loan is accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the
borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider. A troubled debt
restructuring typically involves (1) modification of terms such as a reduction of the stated interest rate, loan principal, or
accrued interest, (2) a loan renewal at a stated interest rate lower than the current market rate for a new loan with similar risk, or
(3) debt that was not reaffirmed in bankruptcy. Business, business real estate, construction and land real estate and personal
real estate troubled debt restructurings with impairment charges are placed on non-accrual status. The Company measures the
impairment loss of a troubled debt restructuring at the time of modification based on the present value of expected future cash
flows. Subsequent to modification, troubled debt restructurings are subject to the Company’s allowance for credit loss model,
which is discussed below and in Note 2, Loans and Allowance for Credit Losses. Troubled debt restructurings that are
performing under their contractual terms continue to accrue interest, which is recognized in current earnings.
The Company follows the guidance under Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act
("CARES Act"), which was signed into law on March 27, 2020 and provided financial institutions the option to suspend the
requirement to categorize certain modifications related to the global Coronavirus Disease 2019 (COVID-19) pandemic as
troubled debt restructurings. The 2021 Consolidated Appropriations Act signed December 27, 2020 extends this temporary
suspension through January 1, 2022. Refer to Note 2 for additional information.
Loans Held For Sale
Loans held for sale include student loans and certain fixed rate residential mortgage loans. These loans are typically
classified as held for sale upon origination based upon management's intent to sell the production of these loans. The student
loans are carried at the lower of aggregate cost or fair value, and their fair value is determined based on sale contract prices.
The mortgage loans are carried at fair value under the elected fair value option. Their fair value is based on secondary market
prices for loans with similar characteristics, including an adjustment for embedded servicing value. Changes in fair value and
gains and losses on sales are included in loan fees and sales. Deferred fees and costs related to these loans are not amortized but
are recognized as part of the cost basis of the loan at the time it is sold. Interest income related to loans held for sale is accrued
based on the principal amount outstanding and the loan's contractual interest rate.
Occasionally, other types of loans may be classified as held for sale in order to manage credit concentration. These loans
are carried at the lower of cost or fair value with gains and losses on sales recognized in loan fees and sales.
Allowance for Credit Losses on Loans
The allowance for credit losses on loans is a valuation amount that is deducted from the amortized cost basis of loans not
held at fair value to present the net amount expected to be collected over the contractual term of the loans. The allowance for
credit losses on loans is measured using relevant information about past events, including historical credit loss experience on
loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability
of the remaining cash flows over the contractual term of the loans. An allowance will be created upon origination or acquisition
72
of a loan and is updated at subsequent reporting dates. The methodology is applied consistently for each reporting period and
reflects management’s current expectations of credit losses. Changes to the allowance for credit losses on loans resulting from
periodic evaluations are recorded through increases or decreases to the credit loss expense for loans, which is recorded in
provision for credit losses on the consolidated statements of income. Loans that are deemed to be uncollectible are charged off
against the related allowance for credit losses on loans.
The allowance for credit losses on loans is measured on a collective (pool) basis. Loans are aggregated into pools based on
similar risk characteristics including borrower type, collateral type and expected credit loss patterns. The allowance for credit
losses on a troubled debt restructuring which continues to accrue interest is also measured on a collective basis. Loans that do
not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis. The
allowance related to these large non-accrual loans is measured using the fair value of the collateral (less selling cost, if
applicable) as most of these loans are collateral dependent and the borrower is facing financial difficulty.
As noted above, the allowance for credit losses on loans does not include an allowance for accrued interest.
Liability for Unfunded Lending Commitments
The Company’s unfunded lending commitments are primarily unfunded loan commitments and letters of credit. Expected
credit losses for these unfunded lending commitments are calculated over the contractual period during which the Company is
exposed to the credit risk. The methodology used to measure credit losses for unfunded lending commitments is the same as
the methodology used for loans, however, the estimate of credit risk for unfunded lending commitments takes into
consideration the likelihood that funding will occur. The liability for unfunded lending commitments excludes any exposures
that are unconditionally cancellable by the Company. The loss estimate is recorded within other liabilities on the consolidated
balance sheet. Changes to the liability for unfunded lending commitments are recorded through increases or decreases to the
provision for credit losses on the consolidated statements of income.
Direct Financing and Sales Type Leases
The net investment in direct financing and sales type leases is included in loans on the Company’s consolidated balance
sheets and consists of the present values of the sum of the future minimum lease payments and estimated residual value of the
leased asset. Revenue consists of interest earned on the net investment and is recognized over the lease term as a constant
percentage return thereon.
Investments in Debt and Equity Securities
The majority of the Company's investment portfolio is comprised of debt securities that are classified as available for sale.
From time to time, the Company sells securities and utilizes the proceeds to reduce borrowings, fund loan growth, or modify its
interest rate profile. Securities classified as available for sale are carried at fair value. Changes in fair value are reported in
other comprehensive income (loss), a component of stockholders’ equity. Securities are periodically evaluated for credit losses
in accordance with the guidance provided in Accounting Standards Codification (ASC) 326. Further discussion of this
evaluation is provided in "Allowance for Credit Losses on Available for Sale Debt Securities" below. Gains and losses realized
upon sales of securities are calculated using the specific identification method and are included in investment securities gains
(losses), net, in the consolidated statements of income. Purchase premiums and discounts are amortized to interest income
using a level yield method over the estimated lives of the securities. For certain callable debt securities purchased at a
premium, the amortization is instead recorded to the earliest call date. For mortgage and asset-backed securities, prepayment
experience is evaluated quarterly to determine if a change in a bond's estimated remaining life is necessary. A corresponding
adjustment is then made in the related amortization of premium or discount accretion.
Accrued interest receivable on available for sale debt securities is reported in other assets on the consolidated balance sheet.
The Company has elected the practical expedient to exclude the accrued interest from all required disclosures of amortized cost.
Additionally, an election was made not to measure an allowance for credit losses for accrued interest receivables. Interest
accrued but not received is reversed against interest income.
Equity securities include common and preferred stock with readily determinable fair values. These are also carried at fair
value. Certain equity securities do not have readily determinable fair values. The Company has elected under ASU 2016-01 to
measure these equity securities without a readily determinable fair value at cost minus impairment, if any, plus or minus
changes resulting from observable price changes for the identical or similar investment of the same issuer. The Company has
not recorded any impairment or other adjustments to the carrying amount of these equity investments without readily
determinable fair values.
73
Other securities include Federal Reserve Bank stock and Federal Home Loan Bank stock, which are held for debt and
regulatory purposes. They are carried at cost and periodically evaluated for impairment. Also included are equity method
investments held by the Bank and investments in portfolio concerns, which consist of both debt and equity instruments, held by
the Company’s private equity subsidiary. The Company's equity method investments are carried at cost, adjusted to reflect the
Company's portion of income, loss, or dividends of the investee. The Company's private equity investments are carried at fair
value in accordance with ASC 946-10-15, with changes in fair value reported in current earnings. In the absence of readily
ascertainable market values, fair value is estimated using internally developed methods. Changes in fair value which are
recognized in current earnings and gains and losses from sales are included in investment securities gains (losses), net in the
consolidated statements of income.
Trading account securities, which are debt securities bought and held principally for the purpose of resale in the near term,
are carried at fair value. Gains and losses, both realized and unrealized, are recorded in non-interest income.
Purchases and sales of securities are recognized on a trade date basis. A receivable or payable is recognized for pending
transaction settlements.
Allowance for Credit Losses on Available for Sale Debt Securities
For available for sale debt securities in an unrealized loss position, the entire loss in fair value is required to be recognized in
current earnings if the Company intends to sell the securities or believes it more likely than not that it will be required to sell the
security before the anticipated recovery. If neither condition is met, and the Company does not expect to recover the amortized
cost basis, the Company determines whether the decline in fair value resulted from credit losses or other factors. If the
assessment indicates that a credit loss exists, the present value of cash flows expected to be collected is compared to the
amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost
basis, a credit loss has occurred, and an allowance for credit losses is recorded. The allowance for credit losses is limited by the
amount that the fair value is less than the amortized cost basis. Any impairment not recorded through the provision for credit
losses is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses on the consolidated
statements of income. Losses are charged against the allowance for credit losses on securities when management believes the
uncollectibility of an available for sale security is confirmed or when either of the conditions regarding intent or requirement to
sell is met.
Accrued interest receivable on available for sale debt securities is excluded from the estimate of credit losses.
Securities Purchased under Agreements to Resell and Securities Sold under Agreements to Repurchase
Securities purchased under agreements to resell and securities sold under agreements to repurchase are treated as
collateralized financing transactions, not as purchases and sales of the underlying securities. The agreements are recorded at the
amount of cash advanced or received.
The Company periodically enters into securities purchased under agreements to resell with large financial institutions.
Securities pledged by the counterparties to secure these agreements are delivered to a third party custodian.
Securities sold under agreements to repurchase are a source of funding to the Company and are offered to cash management
customers as an automated, collateralized investment account. From time to time, securities sold may also be used by the Bank
to obtain additional borrowed funds at favorable rates. These borrowings are secured by a portion of the Company's investment
security portfolio and delivered either to the dealer custody account at the Federal Reserve Bank or to the applicable
counterparty.
The fair value of collateral either received from or provided to a counterparty is monitored daily, and additional collateral is
obtained, returned, or provided by the Company in order to maintain full collateralization for these transactions.
As permitted by current accounting guidance, the Company offsets certain securities purchased under agreements to resell
against securities sold under agreements to repurchase in its balance sheet presentation. These agreements are further discussed
in Note 20, Resale and Repurchase Agreements.
74
Premises and Equipment
Land is stated at cost, and buildings and equipment are stated at cost, including capitalized interest when appropriate, less
accumulated depreciation. Depreciation is computed using a straight-line method, utilizing estimated useful lives; generally 30
years for buildings, 10 years for building improvements, and 3 to 10 years for equipment. Leasehold improvements are
amortized over the shorter of 10 years or the remaining lease term. Maintenance and repairs are charged to non-interest expense
as incurred.
Premises and equipment also includes the Company's right-of-use leased assets, which is mainly comprised of operating
leases for branches, office space, ATM locations, and certain equipment.
Foreclosed Assets
Foreclosed assets consist of property that has been repossessed and is comprised of commercial and residential real estate
and other non-real estate property, including auto and recreational and marine vehicles. The assets are initially recorded at fair
value less estimated selling costs, establishing a new cost basis. Initial valuation adjustments are charged to the allowance for
credit losses. Fair values are estimated primarily based on appraisals, third-party price opinions, or internally developed pricing
models. After initial recognition, fair value estimates are updated periodically. Declines in fair value below cost are recognized
through valuation allowances which may be reversed when supported by future increases in fair value. These valuation
adjustments, in addition to gains and losses realized on sales and net operating expenses, are recorded in other non-interest
expense.
Goodwill and Intangible Assets
Goodwill and intangible assets that have indefinite useful lives, such as property easement intangible assets, are not
amortized but are assessed for impairment on an annual basis or more frequently in certain circumstances. When testing for
goodwill impairment, the Company may initially perform a qualitative assessment. Based on the results of this qualitative
assessment, if the Company concludes it is more likely than not that a reporting unit's fair value is less than its carrying amount,
a quantitative analysis is performed. Quantitative valuation methodologies include a combination of formulas using current
market multiples, based on recent sales of financial institutions within the Company's geographic marketplace. If the fair value
of a reporting unit is less than the carrying amount, an impairment has occurred and is measured as the amount by which the
carrying amount exceeds the reporting unit's fair value. The Company has not recorded impairment resulting from goodwill
impairment tests. However, adverse changes in the economic environment, operations of the reporting unit, or other factors
could result in a decline in fair value.
Intangible assets that have finite useful lives, such as core deposit intangibles and mortgage servicing rights, are amortized
over their estimated useful lives. Core deposit intangibles are generally amortized over periods of 8 to 14 years, representing
their estimated lives, using accelerated methods. Mortgage servicing rights are amortized in proportion to and over the period of
estimated net servicing income, considering appropriate prepayment assumptions. Core deposit intangibles are reviewed for
impairment whenever events or changes in circumstances indicate their carrying amount may not be recoverable. Impairment is
indicated if the sum of the undiscounted estimated future net cash flows is less than the carrying value of the intangible asset.
Mortgage servicing rights, while initially recorded at fair value, are subsequently amortized and carried at the lower of the
initial capitalized amount (net of accumulated amortization), or estimated fair value. The Company evaluates its mortgage
servicing rights for impairment on a quarterly basis, using estimated prepayment speeds of the underlying mortgage loans
serviced and stratifications based on the risk characteristics of the underlying loans. A valuation allowance has been established,
through a charge to earnings, to the extent the amortized cost exceeds the estimated fair value. However, the Company has not
recorded other-than-temporary impairment losses on either of these types of intangible assets.
Income Taxes
Amounts provided for income tax expense are based on income reported for financial statement purposes and do not
necessarily represent amounts currently payable under tax laws. Deferred income taxes are provided for temporary differences
between the financial reporting bases and income tax bases of the Company’s assets and liabilities, net operating losses, and tax
credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply to
taxable income when such assets and liabilities are anticipated to be settled or realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized as tax expense or benefit in the period that includes the enactment date of the
change. In determining the amount of deferred tax assets to recognize in the financial statements, the Company evaluates the
likelihood of realizing such benefits in future periods. A valuation allowance is established if it is more likely than not that all
or some portion of the deferred tax asset will not be realized. The Company recognizes interest and penalties related to income
taxes within income tax expense in the consolidated statements of income.
75
The Company and its eligible subsidiaries file a consolidated federal income tax return. State and local income tax returns
are filed on a combined, consolidated or separate return basis based upon each jurisdiction’s laws and regulations.
Additional information about current and deferred income taxes is provided in Note 9, Income Taxes.
Non-Interest Income
Non-interest income is mainly comprised of revenue from contracts with customers. For that revenue (excluding certain
revenue associated with financial instruments, derivative and hedging instruments, guarantees, lease contracts, transferring and
servicing of financial assets, and other specific revenue transactions), the Company applies the following five-step approach
when recognizing revenue: (i) identify the contract with the customer, (ii) identify the performance obligations, (iii) determine
the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as)
the performance obligation is satisfied. The Company’s contracts with customers are generally short term in nature, with a
duration of one year or less, and most contracts are cancellable by either the Company or its customer without penalty.
Performance obligations for customer contracts are generally satisfied at a single point in time, typically when the transaction is
complete and the customer has received the goods or service, or over time. For performance obligations satisfied over time, the
Company recognizes the value of the goods or services transferred to the customer when the performance obligations have been
transferred and received by the customer. Payments for satisfied performance obligations are typically due when or as the
goods or services are completed, or shortly thereafter, which usually occurs within a single financial reporting period.
In situations where payment is made before the performance obligation is satisfied, the fees are deferred until the
performance obligations pertaining to those goods or services are completed. In cases where payment has not been received
despite satisfaction of its performance obligations, the Company accrues an estimate of the amount due in the period that the
performance obligations have been satisfied. For contracts with variable components, the Company only recognizes revenue to
the extent that it is probable that the cumulative amount recognized will not be subject to a significant reversal in future periods.
Generally, the Company’s contracts do not include terms that require significant judgment to determine whether a variable
component is included within the transaction price. The Company generally acts in a principal capacity, on its own behalf, in
most of its contracts with customers. For these transactions, revenue and the related costs to provide the goods or services are
presented on a gross basis in the financial statements. In some cases, the Company acts in an agent capacity, deriving revenue
through assisting third parties in transactions with the Company’s customers. In such transactions, revenue and the related costs
to provide services is presented on a net basis in the financial statements. These transactions primarily relate to fees earned
from bank card and related network and rewards costs and the sales of annuities and certain limited insurance products.
Derivatives
Most of the Company's derivative contracts are accounted for as free-standing instruments. These instruments are carried at
fair value, and changes in fair value are recognized in current earnings. They include interest rate swaps and caps, which are
offered to customers to assist in managing their risks of adverse changes in interest rates. Each contract between the Company
and a customer is offset by a contract between the Company and an institutional counterparty, thus minimizing the Company's
exposure to rate changes. The Company also enters into certain contracts, known as credit risk participation agreements, to buy
or sell credit protection on specific interest rate swaps. It also purchases and sells forward foreign exchange contracts, either in
connection with customer transactions, or for its own trading purposes. Additionally, the Company originates and sells certain
personal real estate mortgages. Derivative instruments under this program include mortgage loan commitments, forward loan
sale contracts, and forward contracts to sell certain to-be-announced (TBA) securities.
The Company's interest rate risk management policy permits the use of hedge accounting for derivatives. The Company
monetized its interest rate floors that had previously been designated and qualified as cash flow hedges. The resulting
unrealized gain is recorded in accumulated other comprehensive income and recognized in interest and fees on loans in the
accompanying income statements as the underlying forecasted transactions impact earnings through the original maturity dates
of the monetized interest rate floors.
The Company has master netting arrangements with various counterparties but does not offset derivative assets and
liabilities under these arrangements in its consolidated balance sheets. However, interest rate swaps that are executed under
central clearing requirements are presented net of variation margin as mandated by the statutory terms of the Company's
contract with its clearing counterparty.
Additional information about derivatives held by the Company and valuation methods employed is provided in Note 17,
Fair Value Measurements and Note 19, Derivative Instruments.
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Pension Plan
The Company’s pension plan is described in Note 10, Employee Benefit Plans. In accordance with ASU 2017-07, the
Company has reported the service cost component of net periodic pension cost in salaries and employee benefits in the
accompanying consolidated statements of income, while the other components are reported in other non-interest expense. The
funded status of the plan is recognized as an asset or liability in the consolidated balance sheets, and changes in that funded
status are recognized in the year in which the changes occur through other comprehensive income. Plan assets and benefit
obligations are measured as of the fiscal year end of the plan. The measurement of the projected benefit obligation and pension
expense involve actuarial valuation methods and the use of various actuarial and economic assumptions. The Company
monitors the assumptions and updates them periodically. Due to the long-term nature of the pension plan obligation, actual
results may differ significantly from estimations. Such differences are adjusted over time as the assumptions are replaced by
facts and values are recalculated.
Stock-Based Compensation
The Company’s stock-based employee compensation plan is described in Note 11, Stock-Based Compensation and
Directors Stock Purchase Plan. In accordance with the requirements of ASC 718-10-30-3 and 35-2, the Company measures the
cost of stock-based compensation based on the grant-date fair value of the award, recognizing the cost over the requisite service
period, which is generally the vesting period. The fair value of stock appreciation rights is estimated using the Black-Scholes
option-pricing model while the fair value of a nonvested stock award is the common stock (CBSH) market price. The expense
recognized for stock-based compensation is included in salaries and benefits in the accompanying consolidated statements of
income. The Company recognizes forfeitures as a reduction to expense only when they have occurred.
Treasury Stock
Purchases of the Company’s common stock are recorded at cost. Upon re-issuance for acquisitions, exercises of stock-based
awards or other corporate purposes, treasury stock is reduced based upon the average cost basis of shares held.
Income per Share
Basic income per share is computed using the weighted average number of common shares outstanding during each year.
Diluted income per share includes the effect of all dilutive potential common shares (primarily stock appreciation rights)
outstanding during each year. The Company applies the two-class method of computing income per share. The two-class
method is an earnings allocation formula that determines income per share for common stock and for participating securities,
according to dividends declared and participation rights in undistributed earnings. The Company’s nonvested stock awards are
considered to be a class of participating security. All per share data has been restated to reflect the 5% stock dividend
distributed in December 2020.
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2. Loans and Allowance for Credit Losses
Major classifications within the Company’s held for investment loan portfolio at December 31, 2020 and 2019 are as
follows:
(In thousands)
Commercial:
Business
Real estate — construction and land
Real estate — business
Personal Banking:
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans (1)
2020
2019
$
6,546,087 $
5,565,449
1,021,595
899,377
3,026,117
2,833,554
2,820,030
2,354,760
1,950,502
1,964,145
307,083
655,078
3,149
349,251
764,977
6,304
$
16,329,641 $
14,737,817
(1) Accrued interest receivable totaled $41.9 million at December 31, 2020 and was included within other assets on the consolidated balance
sheet. For the year ended December 31, 2020, the Company wrote-off accrued interest by reversing interest income of $329 thousand and
$5.7 million in the Commercial and Personal Banking portfolios, respectively.
Loans to directors and executive officers of the Parent and the Bank, and to their affiliates, are summarized as follows:
(In thousands)
Balance at January 1, 2020
Additions
Amounts collected
Amounts written off
Balance, December 31, 2020
$
56,595
102,182
(123,883)
—
$
34,894
Management believes all loans to directors and executive officers have been made in the ordinary course of business with
normal credit terms, including interest rate and collateral considerations, and do not represent more than a normal risk of
collection. The activity in the table above includes draws and repayments on several lines of credit with business entities. There
were no outstanding loans at December 31, 2020 to principal holders (over 10% ownership) of the Company’s common stock.
The Company’s lending activity is generally centered in Missouri, Kansas, Illinois and other nearby states including
Oklahoma, Colorado, Iowa, Ohio, Texas, and others. The Company maintains a diversified portfolio with limited industry
concentrations of credit risk. Loans and loan commitments are extended under the Company’s normal credit standards, controls,
and monitoring features. Most loan commitments are short or intermediate term in nature. Commercial loan maturities generally
range from one to seven years. Collateral is commonly required and would include such assets as marketable securities and cash
equivalent assets, accounts receivable and inventory, equipment, other forms of personal property, and real estate. At
December 31, 2020, unfunded loan commitments totaled $13.0 billion (which included $5.0 billion in unused approved lines of
credit related to credit card loan agreements) which could be drawn by customers subject to certain review and terms of
agreement. At December 31, 2020, loans totaling $3.9 billion were pledged at the FHLB as collateral for borrowings and letters
of credit obtained to secure public deposits. Additional loans of $1.5 billion were pledged at the Federal Reserve Bank as
collateral for discount window borrowings.
The Company has a net investment in direct financing and sales type leases to commercial and industrial and tax-exempt
entities of $797.4 million and $795.8 million at December 31, 2020 and 2019, respectively, which is included in business loans
on the Company’s consolidated balance sheets. This investment includes deferred income of $66.3 million and $71.8 million at
December 31, 2020 and 2019, respectively. The net investment in operating leases amounted to $13.7 million and $14.7
million at December 31, 2020 and 2019, respectively, and is included in other assets on the Company’s consolidated balance
sheets.
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Allowance for credit losses
The allowance for credit losses is measured using an average historical loss model which incorporates relevant information
about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and
reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the
loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on
similar risk characteristics including borrower type, collateral type and expected credit loss patterns. Loans that do not share
similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis.
For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the
Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and
outstanding loan balances during a lookback period. Lookback periods can be different based on the individual pool and
represent management’s credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if
the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry
and peer data. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable
forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given a
single path economic forecast of key macroeconomic variables including GDP, disposable income, unemployment rate, various
interest rates, CPI inflation rate, HPI, CREPI and market volatility. The adjustments are based on results from various
regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and
supportable period before reverting back to historical averages using a straight-line method. The forecast adjusted loss rate is
applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The contractual
term excludes expected extensions (except for contractual extensions at the option of the customer), renewals and modifications
unless there is a reasonable expectation that a troubled debt restructuring will be executed. Credit cards and certain similar
consumer lines of credit do not have stated maturities and therefore, for these loan classes, remaining contractual lives are
determined by estimating future cash flows expected to be received from customers until payments have been fully allocated to
outstanding balances. Additionally, the allowance for credit losses considers other qualitative factors not included in historical
loss rates or macroeconomic forecast such as changes in portfolio composition, underwriting practices, or significant unique
events or conditions.
79
Key model assumptions in the Company’s allowance for credit loss model include the economic forecast, the reasonable and
supportable period, prepayment assumptions and qualitative factors applied for portfolio composition changes, underwriting
practices, or significant unique events or conditions. The assumptions utilized in estimating the Company’s allowance for credit
losses at December 31, 2020 and January 1, 2020 are discussed below.
Key Assumption
Overall economic
forecast
Reasonable and
supportable period and
related reversion period
Forecasted macro-
economic variables
December 31, 2020
January 1, 2020 (implementation)
•
•
•
•
•
•
•
•
•
The recovery from the Global Coronavirus
Recession (GCR) continues to be gradual
throughout 2021 and 2022
Assumes no additional systemic lockdown
measures
Considers government stimulus in the
beginning of 2021
Continued uncertainty regarding the health
crisis
Two years for both commercial and personal
banking loans
Reversion to historical average loss rates within
two quarters using a straight-line method
Unemployment rate ranging from 6.5% to 5.2%
during the supportable forecast period
Real GDP growth ranges from 3.7% to 2.2%
Prime rate of 3.25%
Stable economic environment with slight positive
growth projections in overall economic indicators,
short-term and long-term, reflecting low
unemployment in a late-stage economic cycle.
•
•
•
•
•
•
•
One year for commercial loans
Two years for personal banking loans
Reversion to historical average loss rates
within two quarters using a straight-line
method
Unemployment rate ranging from 3.4% to
3.8% during the supportable forecast
period
Real GDP growth ranges from 1.2% to
1.8%
Prime rate ranges of 4.6% to 4.8%
See "Qualitative factors" below for
qualitative adjustments made to the
forecasted macro-economic variables
stated herein
Prepayment assumptions Commercial loans
•
5% for most loan pools
Personal banking loans
Commercial loans
•
5% for most loan pools
Personal banking loans
•
•
Ranging from 23.1% to 23.3% for most loan
pools
58.0% for consumer credit cards
•
•
Ranging from 14.9% to 25.6% for most
loan pools
57.2% for consumer credit cards
Qualitative factors
Added net reserves using qualitative processes related to:
•
•
•
Loans originated in our expansion markets,
loans that are designated as shared national
credits, and certain portfolios considered to be
COVID-19 impacted.
Changes in the composition of the loan
portfolios
Loans downgraded to special mention,
substandard, or non-accrual status
Added reserves using qualitative processes related
to:
•
•
•
Loans originated in our expansion markets
Loans that are designated as shared
national credits
Loans downgraded to special mention,
substandard, or non-accrual status
The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans,
however, the liability for unfunded lending commitments incorporates an assumption for the portion of unfunded commitments
that are expected to be funded.
Sensitivity in the Allowance for Credit Loss model
The allowance for credit losses is an estimate that requires significant judgment including projections of the macro-
economic environment. The forecasted macro-economic environment continuously changes which can cause fluctuations in
estimated expected losses.
The current forecast projects a recovery from the 2020 recession over the next two years. This pandemic is unprecedented
and information that could be used in the estimation of the allowance for credit losses changes frequently. Events such as the
timing of governmental required business lock downs or possible additional waves of infection could prolong and deepen the
projected recession.
80
A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments
during the year ended December 31, 2020 follows:
(In thousands)
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at December 31, 2019
Adoption of ASU 2016-13
Balance at December 31, 2019, adjusted
Provision for credit losses on loans
Deductions:
Loans charged off
Less recoveries on loans
Net loan charge-offs
Balance December 31, 2020
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance at December 31, 2019
Adoption of ASU 2016-13
Balance at December 31, 2019, adjusted
Provision for credit losses on unfunded lending commitments
Balance December 31, 2020
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR
UNFUNDED LENDING COMMITMENTS
Allowance for loan losses
For the Year Ended December 31
Commercial
Personal
Banking
Total
$
$
91,760 $
68,922 $
160,682
(29,711)
8,672
(21,039)
62,049 $
77,594 $
139,643
63,115
52,934
116,049
7,862
4,247
3,615
42,185
10,942
31,243
50,047
15,189
34,858
$
121,549 $
99,285 $
220,834
$
$
$
$
399 $
676 $
1,075
16,057
16,456 $
20,803
33
16,090
709 $
17,165
339
21,142
37,259 $
1,048 $
38,307
158,808 $
100,333 $
259,141
In the table below is a summary of the activity in the allowance for loan losses during the previous two years, calculated in
accordance with the incurred loss methodology applicable to the Company prior to its adoption of CECL on January 1, 2020.
The allowance for loan losses under the incurred loss method estimated probable loan losses inherent in the portfolio as of the
balance sheet date, and using this methodology, groups of similar loans were evaluated collectively for impairment and certain
specific loans were evaluated for impairment individually. The Company’s estimate of the allowance under the incurred loss
method was based on various judgments and assumptions made by management and was influenced by several qualitative
factors which included historical loan loss experience by loan type, loss emergence periods, trends in delinquencies, collateral
valuation, current regional and national economic factors, current loan portfolio composition and characteristics, portfolio risk
ratings, and levels of non-performing assets.
(In thousands)
Balance at December 31, 2017
Provision for loan losses
Deductions:
Loans charged off
Less recoveries
Net loans charged off
Balance at December 31, 2018
Provision for loan losses
Deductions:
Loans charged off
Less recoveries
Net loans charged off
Balance at December 31, 2019
Commercial
Personal
Banking
Total
$
93,704 $
65,828 $
159,532
254
42,440
42,694
3,164
2,075
1,089
52,657
11,452
41,205
55,821
13,527
42,294
92,869
67,063
159,932
2,816
47,622
50,438
4,711
786
3,925
57,169
11,406
45,763
61,880
12,192
49,688
91,760
68,922
160,682
81
Delinquent and non-accrual loans
The Company considers loans past due on the day following the contractual repayment date, if the contractual repayment
was not received by the Company as of the end of the business day. The following table provides aging information on the
Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at December 31, 2020 and
2019.
(In thousands)
December 31, 2020
Commercial:
Business
Real estate – construction and land
Real estate – business
Personal Banking:
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total
December 31, 2019
Commercial:
Business
Real estate – construction and land
Real estate – business
Personal Banking:
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total
Current or Less
Than 30 Days
Past Due
30 – 89 Days
Past Due
90 Days Past Due
and Still Accruing
Non-accrual
Total
$
6,517,838 $
2,252 $
3,473 $
22,524 $
6,546,087
1,021,592
3,016,215
2,808,886
1,921,822
305,037
635,770
2,896
—
7,666
6,521
25,417
1,656
7,090
253
3
6
—
1,021,595
2,230
3,026,117
2,837
3,263
390
12,218
—
1,786
2,820,030
—
—
—
—
1,950,502
307,083
655,078
3,149
$
16,230,056 $
50,855 $
22,190 $
26,540 $
16,329,641
$
5,545,104 $
12,064 $
792 $
7,489 $
5,565,449
882,826
2,830,494
2,345,243
1,928,082
347,258
742,659
5,972
13,046
2,030
6,129
34,053
1,743
10,703
332
3,503
—
1,689
2,010
250
11,615
—
2
899,377
1,030
2,833,554
1,699
2,354,760
—
—
—
—
1,964,145
349,251
764,977
6,304
$
14,627,638 $
80,100 $
19,859 $
10,220 $
14,737,817
At December 31, 2020, the Company had $9.4 million of non-accrual business loans that had no allowance for credit loss.
The Company did not record any interest income on non-accrual loans during the year ended December 31, 2020.
Credit quality indicators
The following table provides information about the credit quality of the Commercial loan portfolio. The Company utilizes
an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the
expectation of debt repayment based on borrower specific information including but not limited to current financial
information, historical payment experience, industry information, collateral levels and collateral types. The “pass” category
consists of a range of loan grades that reflect increasing, though still acceptable, risk. A loan is assigned the risk rating at
origination and then monitored throughout the contractual term for possible risk rating changes. Movement of risk through the
various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention”
rating is applied to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions
that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial
flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for
improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined
weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans
are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon
terms of repayment.
82
All loans are analyzed for risk rating updates annually. For larger loans, rating assessments may be more frequent if
relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans
are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past
due related to credit issues. Loans rated Special Mention, Substandard or Non-accrual are subject to quarterly review and
monitoring processes. In addition to the regular monitoring performed by the lending personnel and credit committees, loans
are subject to review by a credit review department which verifies the appropriateness of the risk ratings for the loans chosen as
part of its risk-based review plan.
The risk category of loans in the Commercial portfolio as of December 31, 2020 are as follows:
(In thousands)
Business
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Business:
Real estate-construction
Risk Rating:
Pass
Special mention
Substandard
Total Real estate-
construction:
Real estate- business
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Real-estate business:
Commercial loans
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Commercial loans:
Term Loans Amortized Cost Basis by Origination Year
2020
2019
2018
2017
2016
Prior
Revolving
Loans
Amortized
Cost Basis
Total
$ 2,472,419 $ 966,068 $ 438,557 $ 329,207 $ 163,357 $ 281,604 $ 1,619,680 $ 6,270,892
119,745
132,926
22,524
$ 2,530,896 $ 1,014,800 $ 463,062 $ 334,054 $ 172,528 $ 300,317 $ 1,730,430 $ 6,546,087
14,102
5,076
5,327
26,746
21,985
1
41,749
68,976
25
1,664
13,390
3,659
28,612
17,246
12,619
1,781
2,675
391
5,091
3,578
502
$ 483,302 $ 330,480 $
—
—
29,692
1,154
56,747 $
1,022
14,989
3,021 $
34,532
13,182
24,426 $
—
—
1,692 $
—
—
27,356 $
—
—
927,024
65,246
29,325
$ 514,148 $ 330,480 $
72,758 $
50,735 $
24,426 $
1,692 $
27,356 $ 1,021,595
$ 890,740 $ 666,399 $ 336,850 $ 241,656 $ 313,691 $ 199,534 $
1,309
45,014
84
$ 947,036 $ 689,358 $ 391,971 $ 329,688 $ 348,733 $ 245,941 $
6,597
81,435
—
8,936
46,882
478
17,504
17,538
—
21,734
1,037
188
49,580
4,061
1,480
67,796 $ 2,716,666
108,662
3,002
198,559
2,592
2,230
—
73,390 $ 3,026,117
$ 3,846,461 $ 1,962,947 $ 832,154 $ 573,884 $ 501,474 $ 482,830 $ 1,714,832 $ 9,914,582
293,653
360,810
24,754
$ 3,992,080 $ 2,034,638 $ 927,791 $ 714,477 $ 545,687 $ 547,950 $ 1,831,176 $ 10,593,799
42,910
97,292
391
22,595
21,116
502
48,480
23,022
189
64,704
24,126
6,807
2,973
58,404
3,743
44,751
71,568
25
67,240
65,282
13,097
Information about the credit quality of the Commercial loan portfolio as of December 31, 2019 follows:
(In thousands)
December 31, 2019
Pass
Special mention
Substandard
Non-accrual
Total
Commercial Loans
Business
Real Estate -
Construction
Real Estate -
Business
Total
$
5,393,928 $
856,364 $
2,659,827 $
8,910,119
80,089
83,943
7,489
42,541
470
2
92,626
80,071
1,030
215,256
164,484
8,521
$
5,565,449 $
899,377 $
2,833,554 $
9,298,380
83
The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information
is provided as of December 31, 2020 below:
Term Loans Amortized Cost Basis by Origination Year
2020
2019
2018
2017
2016
Prior
$ 1,123,918 $ 488,379 $ 218,390 $ 201,971 $ 227,265 $ 544,008 $
848
1,340
$ 1,124,481 $ 488,945 $ 218,787 $ 202,427 $ 227,718 $ 546,196 $
281
116
411
45
388
65
534
29
375
191
$ 536,799 $ 337,431 $ 161,337 $ 115,886 $ 75,769 $ 86,831 $
397
$ 537,011 $ 337,789 $ 161,665 $ 116,106 $ 75,943 $ 87,228 $
212
174
328
220
358
$
$
$
$
$
$
— $
—
— $
— $
—
— $
3,149 $
3,149 $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
Revolving
Loans
Amortized
Cost Basis
Total
11,476 $ 2,815,407
2,837
1,786
11,476 $ 2,820,030
—
—
633,186 $ 1,947,239
3,263
634,760 $ 1,950,502
1,574
306,693 $ 306,693
390
307,083 $ 307,083
390
642,860 $ 642,860
12,218
12,218
655,078 $ 655,078
— $
— $
3,149
3,149
$ 1,663,866 $ 825,810 $ 379,727 $ 317,857 $ 303,034 $ 630,839 $ 1,594,215 $ 5,715,348
18,708
1,786
$ 1,664,641 $ 826,734 $ 380,452 $ 318,533 $ 303,661 $ 633,424 $ 1,608,397 $ 5,735,842
14,182
—
1,245
1,340
733
191
562
65
746
29
631
45
609
116
(In thousands)
Real estate-personal
Current to 90 days past due
Over 90 days past due
Non-accrual
Total Real estate-personal:
Consumer
Current to 90 days past due
Over 90 days past due
Total Consumer:
Revolving home equity
Current to 90 days past due
Over 90 days past due
Total Revolving home equity:
Consumer credit card
Current to 90 days past due
Over 90 days past due
Total Consumer credit card:
Overdrafts
Current to 90 days past due
Total Overdrafts:
Personal banking loans
Current to 90 days past due
Over 90 days past due
Non-accrual
Total Personal banking loans:
Collateral-dependent loans
The Company's collateral-dependent loans are comprised of large loans on non-accrual status. The Company requires that
collateral-dependent loans are either over-collateralized or carry collateral equal to the amortized cost of the loan. The
following table presents the amortized cost basis of collateral-dependent loans as of December 31, 2020.
(In thousands)
Commercial:
Business
Real estate - business
Total
Business Assets
Future Revenue
Streams
Oil & Gas
Assets
Total
$
$
13,109 $
—
13,109 $
— $
986
986 $
2,695 $
—
2,695 $
15,804
986
16,790
Other Personal Banking loan information
As noted above, the credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and
this information is provided in the table in the above section on "Credit quality indicators." In addition, FICO scores are
obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit
score designed to measure the risk of default by taking into account various factors from a borrower's financial history and is
considered supplementary information utilized by the Company, as management does not consider this information in
evaluating the allowance for credit losses on loans. The bank normally obtains a FICO score at the loan's origination and
renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain personal real estate
loans for which FICO scores are not obtained because the loans generally pertain to commercial customer activities and are
often underwritten with other collateral considerations. These loans totaled $191.1 million at December 31, 2020 and $198.2
million at December 31, 2019. The table also excludes consumer loans related to the Company's patient healthcare loan
program, which totaled $188.1 million at December 31, 2020 and $199.2 million at December 31, 2019. As the healthcare
loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and
84
consumer loans excluded below totaled less than 7% of the Personal Banking portfolio. For the remainder of loans in the
Personal Banking portfolio, the table below shows the percentage of balances outstanding at December 31, 2020 and 2019 by
FICO score.
December 31, 2020
FICO score:
Under 600
600 – 659
660 – 719
720 – 779
780 and over
Total
December 31, 2019
FICO score:
Under 600
600 – 659
660 – 719
720 – 779
780 and over
Total
Personal Banking Loans
% of Loan Category
Real Estate -
Personal
Consumer
Revolving Home
Equity
Consumer Credit
Card
0.8 %
2.3 %
1.3 %
5.0 %
1.9
8.8
24.5
64.0
4.2
14.1
23.9
55.5
2.4
8.6
22.2
65.5
12.3
31.2
28.0
23.5
100.0 %
100.0 %
100.0 %
100.0 %
1.0 %
3.0 %
1.7 %
5.6 %
1.9
9.2
25.7
62.2
5.2
15.4
27.0
49.4
1.9
9.0
21.5
65.9
14.3
32.2
26.6
21.3
100.0 %
100.0 %
100.0 %
100.0 %
Troubled debt restructurings
Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a
concession. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due
under the contractual terms will be collected. Commercial performing restructured loans are primarily comprised of certain
business, construction and business real estate loans classified as substandard, but renewed at rates judged to be non-market.
These loans are performing in accordance with their modified terms, and because the Company believes it probable that all
amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an
accrual basis. Troubled debt restructurings also include certain credit card and other small consumer loans under various debt
management and assistance programs. Modifications to these loans generally involve removing the available line of credit,
placing loans on amortizing status, and lowering the contractual interest rate. Certain personal real estate, revolving home
equity, and consumer loans were classified as consumer bankruptcy troubled debt restructurings because they were not
reaffirmed by the borrower in bankruptcy proceedings. Interest on these loans is being recognized on an accrual basis, as the
borrowers are continuing to make payments. Other consumer loans classified as troubled debt restructurings consist of various
other workout arrangements with consumer customers.
Section 4013 of the CARES Act was signed into law on March 27, 2020, and includes a provision that short-term
modifications are not troubled debt restructurings, if made on a good-faith basis in response to COVID-19 to borrowers who
were current prior to December 31, 2019. The Company follows the guidance under the CARES Act when determining if a
customer’s modification is subject to troubled debt restructuring classification. If it is deemed the modification is not short-
term, not COVID-19 related or the customer does not meet the criteria under the guidance to be scoped out of troubled debt
restructuring classification, the Company will evaluate the loan modifications under its existing framework which requires
modifications that result in a concession to a borrower experiencing financial difficulty be accounted for as a troubled debt
restructuring.
The initial guidance issued under the CARES Act was due to expire on December 31, 2020. During January 2021, the
Consolidated Appropriations Act, 2021 was enacted and extended relief offered under the CARES Act related to the accounting
and disclosure requirements for troubled debt restructurings as a result of COVID-19. The Company elected to adopt the
extension of this guidance.
85
(In thousands)
Accruing loans:
Commercial
Assistance programs
Consumer bankruptcy
Other consumer
Non-accrual loans
Total troubled debt restructurings
December 31
2020
2019
$
117,740 $
55,934
7,804
2,841
2,353
9,889
8,365
3,592
3,621
7,938
$
140,627 $
79,450
The table below shows the balance of troubled debt restructurings by loan classification at December 31, 2020, in addition
to the outstanding balances of these restructured loans which the Company considers to have been in default at any time during
the past twelve months. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as
to interest or principal.
(In thousands)
Commercial:
Business
Real estate – construction and land
Real estate – business
Personal Banking:
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
December 31, 2020
Balance 90 days past
due at any time
during previous 12
months
$
71,088 $
40
55,306
3,222
3,365
28
7,578
664
—
—
242
242
—
721
Total troubled debt restructurings
$
140,627 $
1,869
For those loans on non-accrual status also classified as restructured, the modification did not create any further financial
effect on the Company as those loans were already recorded at net realizable value. For those performing commercial loans
classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no
financial impact to the Company as a result of modification to these loans. No financial impact resulted from those performing
loans where the debt was not reaffirmed in bankruptcy, as no changes to loan terms occurred in that process. However, the
effects of modifications to loans under various debt management and assistance programs were estimated to decrease interest
income by approximately $965 thousand on an annual, pre-tax basis, compared to amounts contractually owed. Other
modifications to consumer loans mainly involve extensions and other small modifications that did not include the forgiveness
of principal or interest.
The allowance for credit losses related to troubled debt restructurings on non-accrual status is determined by individual
evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as
troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which
management expects to collect under contractual terms. Performing commercial loans having no other concessions granted
other than being renewed at non-market interest rates are judged to have similar risk characteristics as non-troubled debt
commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and
current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the
borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future
limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics
as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical
experience and current economic factors.
If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for credit losses continues to be
based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If an accruing, troubled
86
debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for credit
losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begin.
The Company had commitments of $10.7 million at December 31, 2020 to lend additional funds to borrowers with
restructured loans, compared to $4.7 million at December 31, 2019.
Impaired loans
The following Impaired loans disclosures were superseded by ASC 2016-13.
The table below shows the Company’s balances of impaired loans at December 31, 2019. These loans consist of all loans
on non-accrual status and other restructured loans whose terms have been modified and classified as troubled debt
restructurings. These restructured loans are performing in accordance with their modified terms, and because the Company
believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is
being recognized on an accrual basis. They are discussed further in the "Troubled debt restructurings" section above.
(In thousands)
Non-accrual loans
Restructured loans (accruing)
Total impaired loans
Dec. 31, 2019
$
$
10,220
71,512
81,732
The following table shows the balance in the allowance for loan losses and the related loan balance at December 31, 2019
disaggregated on the basis of impairment methodology. Impaired loans evaluated under ASC 310-10-35 include loans on non-
accrual status which are individually evaluated for impairment and other impaired loans deemed to have similar risk
characteristics, which are collectively evaluated. All other loans are collectively evaluated for impairment under ASC 450-20.
(In thousands)
December 31, 2019
Commercial
Personal Banking
Total
Impaired Loans
All Other Loans
Allowance for
Loan Losses
Loans
Outstanding
Allowance for
Loan Losses
Loans
Outstanding
$
$
1,629 $
64,500
$
90,131 $ 9,233,880
1,117
17,232
67,805
5,422,205
2,746 $
81,732
$
157,936 $ 14,656,085
The following table provides additional information about impaired loans held by the Company at December 31, 2019,
segregated between loans for which an allowance for loan losses has been provided and loans for which no allowance has been
provided.
(In thousands)
December 31, 2019
With no related allowance recorded:
Business
With an allowance recorded:
Business
Real estate – construction and land
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Total
Recorded
Investment
Unpaid Principal
Balance
Related
Allowance
$
$
$
$
$
7,054 $
7,054 $
13,738 $
13,738 $
30,437 $
30,487 $
46
51
26,963
27,643
4,729
4,421
35
8,047
5,968
4,421
35
8,047
74,678 $
81,732 $
76,652 $
90,390 $
—
—
837
1
791
258
35
1
823
2,746
2,746
87
Total average impaired loans during 2019 are shown in the table below.
(In thousands)
Commercial
2019
Personal
Banking
Total
Average impaired loans:
Non-accrual loans
Restructured loans (accruing)
Total
$
$
9,892 $
2,031 $
49,544
15,667
59,436 $
17,698 $
11,923
65,211
77,134
The table below shows interest income recognized during the years ended December 31, 2019 and 2018 for impaired loans
held at the end of each respective period. This interest all relates to accruing restructured loans, as discussed in the "Troubled
debt restructurings" section above.
(In thousands)
Interest income recognized on impaired loans:
Business
Real estate – construction and land
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Total
Years Ended December 31
2019
2018
$
1,329 $
2,219
2
1,456
136
286
3
828
25
558
139
305
3
746
$
4,040 $
3,995
Loans held for sale
The Company designates certain long-term fixed rate personal real estate loans as held for sale, and the Company has
elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the
related economic hedges discussed in Note 19. The loans are primarily sold to FNMA and FHLMC. At December 31, 2020,
the fair value of these loans was $39.4 million, and the unpaid principal balance was $38.0 million.
The Company also designates certain student loan originations as held for sale. The borrowers are credit-worthy students
who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company
maintains contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are
carried at lower of cost or fair value, which at December 31, 2020 totaled $5.7 million.
At December 31, 2020, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing.
Foreclosed real estate/repossessed assets
The Company’s holdings of foreclosed real estate totaled $93 thousand and $365 thousand at December 31, 2020 and 2019,
respectively. Personal property acquired in repossession, generally autos and marine and recreational vehicles (RV), totaled
$1.4 million and $5.5 million at December 31, 2020 and 2019, respectively. Upon acquisition, these assets are recorded at fair
value less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the
lower of this cost basis or fair value less estimated selling costs.
88
3. Investment Securities
Investment securities, at fair value, consisted of the following at December 31, 2020 and 2019:
(In thousands)
Available for sale debt securities
Trading debt securities
Equity securities:
Readily determinable fair value
No readily determinable fair value
Other:
Federal Reserve Bank stock
Federal Home Loan Bank stock
Equity method investments
Private equity investments
Total investment securities (1)
2020
$ 12,449,264 $
35,321
2019
8,571,626
28,161
2,966
1,397
2,929
1,280
34,070
10,307
18,000
94,368
$ 12,645,693 $
33,770
10,000
—
94,122
8,741,888
(1) Accrued interest receivable totaled $41.5 million at December 31, 2020 and was included within other assets on the consolidated balance
sheet.
The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if
any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer.
This portfolio includes the Company's holdings of Visa Class B shares, which have a carrying value of zero, as there have not
been observable price changes in orderly transactions for identical or similar investments of the same issuer. During the year-
ended December 31, 2020, the Company did not record any impairment or other adjustments to the carrying amount of its
portfolio of equity securities with no readily determinable fair value.
Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, equity
method investments, and investments in portfolio concerns held by the Company's private equity subsidiary. FRB stock and
FHLB stock are held for debt and regulatory purposes. Investment in FRB stock is based on the capital structure of the
investing bank, and investment in FHLB stock is tied to the level of borrowings from the FHLB. These holdings are carried at
cost. The Company's equity method investments are carried at cost, adjusted to reflect the Company's portion of income, loss,
or dividends of the investee. The private equity investments, in the absence of readily ascertainable market values, are carried
at estimated fair value.
The majority of the Company’s investment portfolio is comprised of available for sale debt securities, which are carried at
fair value with changes in fair value reported in accumulated other comprehensive income (AOCI). A summary of the available
for sale debt securities by maturity groupings as of December 31, 2020 is shown in the following table. The weighted average
yield for each range of maturities was calculated using the yield on each security within that range weighted by the amortized
cost of each security at December 31, 2020. Yields on tax exempt securities have not been adjusted for tax exempt status. The
investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA,
and GNMA, in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by
commercial and residential mortgages. Also included are certain other asset-backed securities, which are primarily
collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt
securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the
underlying collateral.
89
(Dollars in thousands)
U.S. government and federal agency obligations:
Within 1 year
After 1 but within 5 years
After 5 but within 10 years
Total U.S. government and federal agency obligations
Government-sponsored enterprise obligations:
Within 1 year
After 10 years
Total government-sponsored enterprise obligations
State and municipal obligations:
Within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years
Total state and municipal obligations
Mortgage and asset-backed securities:
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities:
Within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years
Total other debt securities
Amortized Cost
Fair Value
Weighted
Average Yield
.90 *%
2.22 *
.65 *
1.66 *
2.15
2.39
2.32
2.35
2.20
2.01
1.84
2.06
2.00
2.39
1.53
1.92
$
59,627 $
490,333
225,632
775,592
14,993
35,810
50,803
34,694
865,165
595,510
472,637
59,641
521,540
256,878
838,059
14,916
39,569
54,485
34,866
901,201
627,063
481,969
1,968,006
2,045,099
6,557,098
6,712,085
358,074
361,074
1,853,791
1,882,243
8,768,963
8,955,402
8,041
254,173
240,759
31,196
534,169
8,118
265,486
250,036
32,579
556,219
Total available for sale debt securities
$
12,097,533 $
12,449,264
* Rate does not reflect inflation adjustment on inflation-protected securities
Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which
totaled $434.6 million, at fair value, at December 31, 2020. Interest paid on these securities increases with inflation and
decreases with deflation, as measured by the Consumer Price Index. At maturity, the principal paid is the greater of an
inflation-adjusted principal or the original principal.
Allowance for credit losses on available for sale debt securities
As described in Note 1, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, on
January 1, 2020. The adoption of ASU 2016-13 had no impact to the Company's available for sale securities reported in its
consolidated financial statements at January 1, 2020. For the year ended December 31, 2020, the Company did not recognize a
credit loss expense on any available for sale debt securities.
The Company’s model for establishing its allowance for credit losses uses cash flows projected to be received over the
estimated life of the securities, discounted to present value, and compared to the current amortized cost bases of the securities.
Securities for which fair value is less than amortized cost are reviewed for impairment. Special emphasis is placed on securities
whose credit rating has fallen below Baa3 (Moody's) or BBB- (Standard & Poor's), whose fair values have fallen more than
20% below purchase price, or who have been identified based on management’s judgment. These securities are placed on a
watch list and cash flow analyses are prepared on an individual security basis. Credit impairment is determined using input
factors such as cash flow projections, contractual payments required, expected delinquency rates, credit support from other
tranches, prepayment speeds, collateral loss severity rates (including loan to values), and various other information related to
90
the underlying collateral. At December 31, 2020, the fair value of securities on this watch list was $31.0 million compared to
$51.6 million at December 31, 2019.
Significant inputs to the cash flow model used at December 31, 2020 to quantify credit losses were primarily credit support
agreements, as the securities on the Company's watch list at December 31, 2020 were securities backed by government-
guaranteed student loans and are expected to perform as contractually required. As of December 31, 2020, the Company did
not identify any securities for which a credit loss exists.
The table below summarizes debt securities available for sale in an unrealized loss position, aggregated by length of
impairment period, for which an allowance for credit losses has not been recorded at December 31, 2020. Unrealized losses on
these available for sale securities have not been recognized into income because after review, the securities were deemed not to
be impaired. The unrealized losses on these securities are primarily attributable to changes in interest rates and current market
conditions. Additionally, management does not intend to sell the securities, and it is more likely than not that management will
not be required to sell the securities prior to their anticipated recovery.
(In thousands)
December 31, 2020
Less than 12 months
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Government-sponsored enterprise obligations
$
19,720 $
98 $
State and municipal obligations
Mortgage and asset-backed securities:
45,622
230
Agency mortgage-backed securities
470,373
2,802
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities
Total
112,861
21,360
604,594
24,522
380
56
3,238
175
— $
—
—
—
253,734
253,734
—
— $
19,720 $
—
—
—
2,617
2,617
—
45,622
470,373
112,861
275,094
858,328
24,522
98
230
2,802
380
2,673
5,855
175
$ 694,458 $
3,741 $ 253,734 $
2,617 $ 948,192 $
6,358
Debt securities available for sale in an unrealized loss position, aggregated by major security type and length of impairment
period, are as follows:
(In thousands)
December 31, 2019
Less than 12 months
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. government and federal agency obligations
$
31,787 $
21 $
25,405 $
21 $
57,192 $
Government-sponsored enterprise obligations
State and municipal obligations
Mortgage and asset-backed securities:
6,155
6,700
187
31
—
1,554
Agency mortgage-backed securities
652,352
5,306
147,653
Non-agency mortgage-backed securities
102,931
254
189,747
—
1
867
451
6,155
8,254
42
187
32
800,005
6,173
292,678
705
Asset-backed securities
330,876
Total mortgage and asset-backed securities
1,086,159
3,610
9,170
4
152,461
2,108
483,337
5,718
489,861
3,426
1,576,020
12,596
997
3
6,493
7
5,496
$ 1,136,297 $
9,413 $ 517,817 $
3,451 $ 1,654,114 $
12,864
Other debt securities
Total
The entire available for sale debt portfolio included $948.2 million of securities that were in a loss position at December 31,
2020, compared to $1.7 billion at December 31, 2019. The total amount of unrealized loss on these securities was $6.4 million
at December 31, 2020, a decrease of $6.5 million compared to the loss at December 31, 2019. Securities with significant
unrealized losses are discussed in the "Allowance for credit losses on available for sale debt securities" section above.
91
For debt securities classified as available for sale, the following table shows the amortized cost, fair value, and allowance for
credit losses of securities available for sale at December 31, 2020 and the corresponding amounts of gross unrealized gains and
losses (pre-tax) in AOCI, by security type.
(In thousands)
December 31, 2020
Amortized Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Allowance for
Credit Losses
Fair Value
U.S. government and federal agency obligations
$
775,592 $
62,467 $
Government-sponsored enterprise obligations
State and municipal obligations
Mortgage and asset-backed securities:
50,803
1,968,006
3,780
77,323
Agency mortgage-backed securities
6,557,098
157,789
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities
Total
358,074
1,853,791
8,768,963
534,169
3,380
31,125
192,294
22,225
— $
(98)
(230)
(2,802)
(380)
(2,673)
(5,855)
(175)
— $
—
—
838,059
54,485
2,045,099
—
—
—
—
—
6,712,085
361,074
1,882,243
8,955,402
556,219
$
12,097,533 $
358,089 $
(6,358) $
— $
12,449,264
For debt securities classified as available for sale, the following table shows the amortized cost and fair value of securities
available for sale at December 31, 2019 and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI,
by security type.
(In thousands)
December 31, 2019
Amortized Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
U.S. government and federal agency obligations
$
827,861 $
23,957 $
(42) $
851,776
Government-sponsored enterprise obligations
138,734
730
(187)
139,277
State and municipal obligations
Mortgage and asset-backed securities:
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities
Total
1,225,532
42,427
(32)
1,267,927
3,893,247
796,451
1,228,151
5,917,849
325,555
50,890
14,036
11,056
75,982
5,863
(6,173)
3,937,964
(705)
809,782
(5,718)
1,233,489
(12,596)
5,981,235
(7)
331,411
$
8,435,531 $
148,959 $
(12,864) $
8,571,626
92
The following table presents proceeds from sales of securities and the components of investment securities gains and losses
which have been recognized in earnings.
(In thousands)
Proceeds from sales of securities:
Available for sale debt securities
Equity securities
Other
Total proceeds
Investment securities gains (losses), net:
Available for sale debt securities:
Gains realized on sales
Losses realized on sales
Other-than-temporary impairment recognized on debt securities
Equity securities:
Gains realized on sales
Losses realized on sales
Fair value adjustments, net
Other:
Gains realized on sales
Fair value adjustments, net
Total investment securities gains (losses), net
For the Year Ended December 31
2020
2019
2018
$ 602,475 $ 402,103 $ 667,227
41,637
—
$ 602,477 $ 413,203 $ 708,864
3,856
7,244
2
—
$ 21,096 $
2,354 $
448
—
—
2
—
37
(2,568)
(10,101)
(133)
(68)
3,262
—
344
1,759
(8,917)
2,542
—
(10,103)
$ 11,032 $
1,094
(727)
3,626 $
—
13,849
(488)
Net gains and losses on investment securities for the year ended December 31, 2020 included net gains of $21.1 million
realized on sales of available for sale debt securities and net losses in fair value of $10.1 million on private equity investments
due to fair value adjustments.
At December 31, 2020 securities totaling $4.8 billion in fair value were pledged to secure public fund deposits, securities
sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB, compared to $4.3 billion at December
31, 2019. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties
approximated $214.2 million, while the remaining securities were pledged under agreements pursuant to which the secured
parties may not sell or re-pledge the collateral. Except for obligations of various government-sponsored enterprises such as
FNMA, FHLB and FHLMC, no investment in a single issuer exceeds 10% of stockholders’ equity.
93
4. Premises and Equipment
Premises and equipment consist of the following at December 31, 2020 and 2019:
(In thousands)
Land
Buildings and improvements
Equipment
Right of use leased assets
Total
Less accumulated depreciation
Net premises and equipment
2020
2019
$
93,492 $
582,056
239,216
29,589
944,353
573,270
$
371,083 $
91,678
566,177
237,047
28,195
923,097
552,460
370,637
Depreciation expense of $32.2 million in 2020, $30.8 million in 2019 and $28.6 million in 2018, was included in occupancy
expense and equipment expense in the consolidated statements of income. Repairs and maintenance expense of $16.4 million,
$17.8 million and $16.9 million for 2020, 2019 and 2018, respectively, was included in occupancy expense and equipment
expense. Interest expense capitalized on constructions projects totaled $14 thousand in 2020. There was no interest expense
capitalized on constructions projects in 2019 or 2018.
Right of use leased assets are comprised mainly of operating leases for branches, office space, ATM locations, and certain
equipment, as described in Note 6.
5. Goodwill and Other Intangible Assets
The following table presents information about the Company's intangible assets which have estimable useful lives.
(In thousands)
Amortizable intangible
assets:
Core deposit premium
Mortgage servicing rights
Total
December 31, 2020
December 31, 2019
Gross
Carrying
Amount
Accumulated
Amortization
Valuation
Allowance
Net
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Valuation
Allowance
Net
Amount
$ 31,270
15,238
$ 46,508
$
(29,912) $
(6,886)
$
(36,798) $
—
(2,103)
$ 1,358
6,249
(2,103) $ 7,607
$ 31,270
12,942
$
(29,485) $
(4,866)
$ 44,212
$
(34,351) $
—
(327)
$ 1,785
7,749
(327) $ 9,534
The carrying amount of goodwill and its allocation among segments at December 31, 2020 and 2019 is shown in the table
below. As a result of ongoing assessments, no impairment of goodwill was recorded in 2020, 2019 or 2018. Further, the
annual assessment of qualitative factors on January 1, 2021 revealed no likelihood of impairment as of that date.
(In thousands)
Consumer segment
Commercial segment
Wealth segment
Total goodwill
December 31,
2020
December 31,
2019
$
$
70,721 $
67,454
746
138,921 $
70,721
67,454
746
138,921
94
Changes in the net carrying amount of goodwill and other net intangible assets for the years ended December 31, 2020 and
2019 are shown in the following table. During the year ended December 31, 2020, the Company purchased an easement for
$3.6 million in connection with the Developer Services Agreement that was signed during the third quarter of 2020 to develop a
commercial office complex in Clayton, Missouri. The easement, which grants the Company access to all portions of the
parking facility and terrace garden, is perpetual and will be assessed for impairment at least annually, or whenever events or
circumstances indicate an impairment may have occurred.
(In thousands)
Balance at December 31, 2018
Originations
Amortization
Impairment
Balance at December 31, 2019
Originations
Amortization
Impairment
Goodwill
Easement
Core Deposit
Premium
Mortgage
Servicing Rights
$
138,921 $
— $
2,316 $
—
—
—
138,921
—
—
—
—
—
—
—
3,600
—
—
—
(531)
—
1,785
—
(427)
—
6,478
2,603
(1,005)
(327)
7,749
2,296
(2,020)
(1,776)
6,249
Balance at December 31, 2020
$
138,921 $
3,600 $
1,358 $
Mortgage servicing rights (MSRs) are initially recorded at fair value and subsequently amortized over the period of
estimated servicing income. They are periodically reviewed for impairment at a tranche level, and if impairment is indicated,
recorded at fair value. Temporary impairment, including impairment recovery, is effected through a change in a valuation
allowance. At December 31, 2020, temporary impairment of $2.1 million had been recognized. The fair value of the MSRs is
based on the present value of expected future cash flows, as further discussed in Note 17 on Fair Value Measurements.
Aggregate amortization expense on intangible assets for the years ended December 31, 2020, 2019 and 2018 was $2.4
million, $1.5 million and $1.3 million, respectively. The following table shows the estimated future amortization expense based
on existing asset balances and the interest rate environment as of December 31, 2020. The Company’s actual amortization
expense in any given period may be different from the estimated amounts depending upon the acquisition of intangible assets,
changes in mortgage interest rates, prepayment rates and other market conditions.
(In thousands)
2021
2022
2023
2024
2025
$
1,445
1,145
930
755
613
6. Leases
The Company adopted ASU 2016-02, "Leases", and its related amendments on January 1, 2019 using a modified
retrospective approach. The Company's leasing activities include leasing certain real estate and equipment, providing lease
financing to commercial customers, and leasing office space to third parties. The Company adopted the package of practical
expedients permitted within the standard, along with the lease component expedient for all lease classes and the disclosure
expedient. The Company uses the FHLB fixed-advance rate at lease commencement or at any subsequent remeasurement event
date based on the remaining lease term to calculate the liability for each lease.
Lessee
The Company primarily has operating leases for branches, office space, ATM locations, and certain equipment. As of
December 31, 2020, the right-of-use asset for operating leases, reported within premises and equipment, net, and lease liability,
reported within other liabilities, recognized on the Company's consolidated balance sheets totaled $28.3 million and $29.2
million, respectively, compared to right-of-use assets of $26.3 million and lease liability of $27.0 million at December 31, 2019.
Total lease cost for the year ended December 31, 2020 was $7.4 million, compared to $7.3 million for the year ended December
31, 2019. For leases with a term of 12 months or less, an election was made not to recognize lease assets and lease liabilities
95
for all asset classes, and to recognize lease expense for these leases on a straight-line basis over the lease term. The Company's
leases have remaining terms of 1 month to 33 years, most of which contain renewal options. However, the renewal options are
generally not included in the leased asset or liability because the option exercises are uncertain.
The maturities of operating leases are included in the table below.
(in thousands)
2021
2022
2023
2024
2025
After 2025
Total lease payments
Less: Interest(2)
Present value of lease liabilities
Operating
Leases(1)
$
$
$
6,078
5,305
4,715
3,454
2,025
14,453
36,030
6,813
29,217
(1) Excludes $2.9 million of legally binding minimum lease payments for operating leases signed but not yet commenced.
(2) Calculated using the interest rate for each lease.
The following table presents the average lease term and discount rate of operating leases.
Weighted-average remaining lease term
Weighted-average discount rate
December 31, 2020
December 31, 2019
11.3 years
3.29 %
11.7 years
3.67 %
Supplemental cash flow information related to operating leases is included in the table below.
(in thousands)
Operating cash paid toward lease liabilities
Leased assets obtained in exchange for new lease liabilities
For the Year Ended
December 31
2020
2019
$
$
6,213
7,482
5,989
3,958
The Company adopted the lease standard using the effective date as the date of initial application as noted above, and as
required, the table below provides the disclosure for periods prior to adoption. Under ASC Topic 840, Leases, rent expense
amounted to $7.7 million in 2018. Future minimum lease payments as of December 31, 2018 are shown below, which include
leases that have not yet commenced.
(in thousands)
Year Ended December 31
2019
2020
2021
2022
2023
After
Total minimum lease payments
Total
5,763
4,817
4,055
3,598
3,273
15,161
36,667
$
$
Lessor
The Company has net investments in direct financing and sales-type leases to commercial, industrial, and tax-exempt
entities. These leases are included within business loans on the Company's consolidated balance sheets. The Company
primarily leases various types of equipment, trucks and trailers, and office furniture and fixtures. Lease agreements may
include options for the lessee to renew or purchase the leased equipment at the end of the lease term. The Company has elected
to adopt the lease component expedient in which the lease and nonlease components are combined into the total lease
receivable. The Company also leases office space to third parties, and these leases are classified as operating leases. The leases
may include options to renew or to expand the leased space, and currently the leases have remaining terms of 3 months to 7
years.
96
The following table provides the components of lease income.
(in thousands)
Direct financing and sales-type leases
Operating leases(1)
Total lease income
For the Year Ended December 31
2020
2019
25,380
8,589
33,969 $
24,062
7,951
32,013
$
(1) Includes rent from Tower Properties, a related party, of $76 thousand and $75 thousand for the year ended December 31, 2020
and 2019, respectively.
The following table presents the components of the net investments in direct financing and sales-type leases.
(in thousands)
Lease payment receivable
Unguaranteed residual assets
Total net investments in direct financing and sales-type leases
Deferred origination cost
Total net investment included within business loans
December 31, 2020
December 31, 2019
$
$
$
729,649 $
64,211
793,860 $
3,581
797,441 $
738,809
53,408
792,217
3,609
795,826
The maturities of lease receivables are included in the table below.
(in thousands)
2021
2022
2023
2024
2025
After 2025
Total lease receipts
Less: Net present value adjustment
Present value of lease receipts
Direct Financing
and Sale-Type
Leases
Operating
Leases
$
$
229,175 $
187,212
119,628
87,937
56,777
106,940
787,669 $
58,020
729,649
7,729 $
14,148
5,845
5,113
3,168
6,055
42,058 $
Total
236,904
201,360
125,473
93,050
59,945
112,995
829,727
97
7. Deposits
At December 31, 2020, the scheduled maturities of certificates of deposit were as follows:
(In thousands)
Due in 2021
Due in 2022
Due in 2023
Due in 2024
Due in 2025
Thereafter
Total
$ 1,627,852
168,882
24,460
9,008
14,432
57
$ 1,844,691
The following table shows a detailed breakdown of the maturities of certificates of deposit, by size category, at
December 31, 2020.
(In thousands)
Due in 3 months or less
Due in over 3 through 6 months
Due in over 6 through 12 months
Due in over 12 months
Certificates of
Deposit under
$100,000
Certificates of
Deposit over
$100,000
$
118,161 $
638,346 $
118,141
166,576
126,924
381,740
204,888
89,915
Total
756,507
499,881
371,464
216,839
Total
$
529,802 $
1,314,889 $
1,844,691
The aggregate amount of certificates of deposit that exceeded the $250,000 FDIC insurance limit totaled $1.0 billion at
December 31, 2020.
98
8. Borrowings
At December 31, 2020, the Company's borrowings primarily consisted of federal funds purchased and securities sold under
agreements to repurchase (repurchase agreements). The following table sets forth selected information for federal funds
purchased and repurchase agreements.
(Dollars in thousands)
Federal funds purchased and repurchase agreements:
2020
2019
2018
Year End
Weighted
Rate
Average
Weighted
Rate
Average Balance
Outstanding
Maximum
Outstanding at
any Month End
Balance at
December 31
.04 %
.3 % $
1,966,479 $
2,314,756 $
2,098,383
.8
.9
1.6
1.3
1,822,098
2,394,294
1,850,772
1,514,144
1,981,761
1,956,389
Federal funds purchased and repurchase agreements comprised the majority of the Company's short-term borrowings
(borrowings with an original maturity of less than one year) at December 31, 2020, and $2.1 billion of these borrowings were
repurchase agreements, which generally have one day maturities and are mainly comprised of non-insured customer funds
secured by a portion of the Company's investment portfolio. Additional information about the securities pledged for repurchase
agreements is provided in Note 20 on Resale and Repurchase Agreements.
The Bank is a member of the Des Moines FHLB and has access to term financing from the FHLB. These borrowings are
secured under a blanket collateral agreement including primarily residential mortgages as well as all unencumbered assets and
stock of the borrowing bank. At December 31, 2020, the Bank had no outstanding advances from the FHLB. The FHLB also
issues letters of credit to secure the Bank's obligations to certain depositors of public funds, which totaled $325.5 million at
December 31, 2020.
9. Income Taxes
The components of income tax expense from operations for the years ended December 31, 2020, 2019 and 2018 were as
follows:
(In thousands)
Year ended December 31, 2020:
U.S. federal
State and local
Total
Year ended December 31, 2019:
U.S. federal
State and local
Total
Year ended December 31, 2018:
U.S. federal
State and local
Total
Current
Deferred
Total
$
$
$
$
$
$
92,035 $
14,798
106,833 $
82,556 $
12,323
94,879 $
90,390 $
10,223
100,613 $
(14,055) $
(5,485)
(19,540) $
11,388 $
2,807
14,195 $
3,220 $
2,116
5,336 $
77,980
9,313
87,293
93,944
15,130
109,074
93,610
12,339
105,949
The components of income tax (benefit) expense recorded directly to stockholders’ equity for the years ended December 31,
2020, 2019 and 2018 were as follows:
(In thousands)
Unrealized gain (loss) on available for sale debt securities
Change in fair value on cash flow hedges
Accumulated pension (benefit) loss
Adoption of ASU 2016-13
Income tax (benefit) expense allocated to stockholders’ equity
2020
2019
2018
53,909 $
20,795
(1,059)
1,183 $
74,828 $
50,163 $
7,818
389
— $
58,370 $
(18,634)
2,286
222
—
(16,126)
$
$
$
99
Significant components of the Company’s deferred tax assets and liabilities at December 31, 2020 and 2019 were as
follows:
(In thousands)
Deferred tax assets:
Loans, principally due to allowance for credit losses
Equity-based compensation
Deferred compensation
Accrued Expenses
Unearned fee income
Other
Total deferred tax assets
Deferred tax liabilities:
Unrealized gain on securities available for sale
Equipment lease financing
Cash flow hedges
Land, buildings and equipment
Intangibles
Other
Total deferred tax liabilities
Net deferred tax liabilities
2020
2019
$
$
62,849 $
7,870
7,173
5,569
5,329
6,648
95,438
87,933
74,538
29,382
20,114
7,015
7,895
226,877
(131,439) $
39,387
7,554
6,662
4,013
5,053
4,057
66,726
34,024
68,814
9,015
17,202
6,491
7,331
142,877
(76,151)
Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to
realize the total deferred tax assets.
A reconciliation between the expected federal income tax expense using the federal statutory tax rate of 21%, and the
Company's actual income tax expense for 2020, 2019, and 2018 is provided below. The effective tax rate is calculated by
dividing income taxes by income before income taxes less the non-controlling interest expense.
(In thousands)
Computed “expected” tax expense
Increase (decrease) in income taxes resulting from:
Tax-exempt interest, net of cost to carry
State and local income taxes, net of federal tax benefit
Share-based award payments
Other
Total income tax expense
2020
2019
2018
$
92,683 $
111,364 $
113,293
(10,013)
(10,973)
(11,502)
7,357
(3,090)
356
11,953
(3,337)
67
9,748
(3,928)
(1,662)
$
87,293 $
109,074 $
105,949
The gross amount of unrecognized tax benefits was $1.3 million and $1.4 million at December 31, 2020 and 2019,
respectively, and the total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $1.1
million at both December 31, 2020 and 2019 . The activity in the accrued liability for unrecognized tax benefits for the years
ended December 31, 2020 and 2019 was as follows:
(In thousands)
2020
2019
Unrecognized tax benefits at beginning of year
$
1,372 $
1,257
Gross increases – tax positions in prior period
Gross decreases – tax positions in prior period
Gross increases – current-period tax positions
Lapse of statute of limitations
3
(51)
266
(259)
Unrecognized tax benefits at end of year
$
1,331 $
18
(4)
361
(260)
1,372
The Company and its subsidiaries are subject to income tax by federal, state and local government taxing authorities. Tax
years 2017 through 2020 remain open to examination for U.S. federal income tax and for major state taxing jurisdictions.
100
10. Employee Benefit Plans
Employee benefits charged to operating expenses are summarized in the table below. Substantially all of the Company’s
employees are covered by a defined contribution (401(k)) plan, under which the Company makes matching contributions.
(In thousands)
Payroll taxes
Medical plans
401(k) plan
Pension plans
Other
Total employee benefits
2020
2019
2018
$
$
27,664 $
30,002
16,834
410
1,990
76,900 $
26,959 $
29,635
15,810
605
3,049
76,058 $
25,712
27,030
14,986
651
2,918
71,297
A portion of the Company’s employees are covered by a noncontributory defined benefit pension plan, however,
participation in the pension plan is not available to employees hired after June 30, 2003. All participants are fully vested in their
benefit payable upon normal retirement date, which is based on years of participation and compensation. Since January 2011,
all benefits accrued under the pension plan have been frozen. However, the accounts continue to accrue interest at a stated
annual rate. Certain key executives also participate in a supplemental executive retirement plan (the CERP) that the Company
funds only as retirement benefits are disbursed. The CERP carries no segregated assets. The CERP continues to provide credits
based on hypothetical contributions in excess of those permitted under the 401(k) plan. In the tables presented below, the
pension plan and the CERP are presented on a combined basis.
Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to
satisfy the statutory minimum required contribution as defined by the Pension Protection Act, which is intended to provide for
current service accruals and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these
requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. No contributions to
the defined benefit plan were made in 2020, 2019 or 2018. The minimum required contribution for 2021 is expected to be zero.
The Company does not expect to make any further contributions in 2021 other than the necessary funding contributions to the
CERP. Contributions to the CERP were $80 thousand, $25 thousand and $24 thousand during 2020, 2019 and 2018,
respectively.
The following items are components of the net pension cost for the years ended December 31, 2020, 2019 and 2018.
(In thousands)
Service cost-benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of prior service cost
Amortization of unrecognized net loss
Net periodic pension cost
2020
2019
2018
$
410 $
607 $
3,282
(5,214)
(271)
2,138
4,198
(4,842)
(271)
2,288
$
345 $
1,980 $
651
3,756
(5,255)
(271)
2,267
1,148
101
The following table sets forth the pension plans’ funded status, using valuation dates of December 31, 2020 and 2019.
(In thousands)
Change in projected benefit obligation
Projected benefit obligation at prior valuation date
Service cost
Interest cost
Benefits paid
Actuarial (gain) loss
Projected benefit obligation at valuation date
Change in plan assets
Fair value of plan assets at prior valuation date
Actual return on plan assets
Employer contributions
Benefits paid
2020
2019
$
120,602 $
112,063
410
3,282
(6,765)
9,634
607
4,198
(7,016)
10,750
127,163
120,602
107,556
8,744
80
(6,765)
99,418
15,129
25
(7,016)
Fair value of plan assets at valuation date
Funded status and net amount recognized at valuation date
109,615
107,556
$
(17,548) $
(13,046)
The accumulated benefit obligation, which represents the liability of a plan using only benefits as of the measurement date,
was $127.2 million and $120.6 million for the combined plans on December 31, 2020 and 2019, respectively.
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) at
December 31, 2020 and 2019 are shown below, including amounts recognized in other comprehensive income during the
periods. All amounts are shown on a pre-tax basis.
(In thousands)
Prior service cost
Accumulated loss
Accumulated other comprehensive loss
Cumulative employer contributions in excess of net periodic benefit cost
2020
2019
$
994 $
(34,482)
(33,488)
15,940
1,265
(30,516)
(29,251)
16,205
Net amount recognized as an accrued benefit liability on the December 31 balance sheet
$
(17,548) $
(13,046)
Net loss arising during period
Amortization of net loss
Amortization of prior service cost
Total recognized in other comprehensive income
Total expense recognized in net periodic pension cost and other comprehensive income
(6,104)
2,138
(271)
(4,237) $
(4,582) $
(461)
2,288
(271)
1,556
(424)
$
$
The following assumptions, on a weighted average basis, were used in accounting for the plans.
Determination of benefit obligation at year end:
Effective discount rate for benefit obligations
Assumed credit on cash balance accounts
Determination of net periodic benefit cost for year ended:
Effective discount rate for benefit obligations
Effective rate for interest on benefit obligations
Long-term rate of return on assets
Assumed credit on cash balance accounts
2020
2019
2018
2.25 %
5.00 %
3.08 %
2.69 %
5.00 %
5.00 %
3.07 %
5.00 %
4.13 %
3.81 %
5.00 %
5.00 %
4.14 %
5.00 %
3.57 %
3.28 %
5.00 %
5.00 %
102
The following table shows the fair values of the Company’s pension plan assets by asset category at December 31, 2020 and
2019. Information about the valuation techniques and inputs used to measure fair value are provided in Note 17 on Fair Value
Measurements.
(In thousands)
December 31, 2020
Assets:
U.S. government obligations
Government-sponsored enterprise obligations (a)
State and municipal obligations
Agency mortgage-backed securities (b)
Non-agency mortgage-backed securities
Asset-backed securities
Corporate bonds (c)
Equity securities and mutual funds: (d)
Mutual funds
Common stocks
International developed markets funds
Emerging markets funds
Total
December 31, 2019
Assets:
U.S. government obligations
Government-sponsored enterprise obligations (a)
State and municipal obligations
Agency mortgage-backed securities (b)
Non-agency mortgage-backed securities
Asset-backed securities
Corporate bonds (c)
Equity securities and mutual funds: (d)
Mutual funds
Common stocks
International developed markets funds
Emerging markets funds
Total
Fair Value Measurements
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
Total Fair Value
$
5,306 $
5,306 $
— $
2,142
9,471
6,984
2,225
6,090
41,278
5,584
24,991
1,976
3,568
109,615 $
—
—
—
—
—
—
5,584
24,991
1,976
3,568
41,425 $
2,142
9,471
6,984
2,225
6,090
41,278
—
—
—
—
68,190 $
4,746 $
4,746 $
— $
1,302
8,612
8,892
3,919
5,093
39,663
6,315
22,552
4,674
1,788
107,556 $
—
—
—
—
—
—
6,315
22,552
4,674
1,788
40,075 $
1,302
8,612
8,892
3,919
5,093
39,663
—
—
—
—
67,481 $
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(a) This category represents bonds (excluding mortgage-backed securities) issued by agencies such as the Government National Mortgage
Association, the Federal Home Loan Mortgage Corp and the Federal National Mortgage Association.
(b) This category represents mortgage-backed securities issued by the agencies mentioned in (a).
(c) This category represents investment grade bonds issued in the U.S., primarily by domestic issuers, representing diverse industries.
(d) This category represents investments in individual common stocks and equity funds. These holdings are diversified, largely across the
technology services, electronic technology, financial services, healthcare, and consumer non-durables industries.
The investment policy of the pension plan is designed for growth in principal, within limits designed to safeguard against
significant losses within the portfolio. The policy sets guidelines, which may change from time to time, regarding the types and
percentages of investments held. Currently, the policy includes guidelines such as holding bonds rated investment grade or
better and prohibiting investment in Company stock. The plan does not utilize derivatives. Management believes there are no
significant concentrations of risk within the plan asset portfolio at December 31, 2020. Under the current policy, the long-term
investment target mix for the plan is 35% equity securities and 65% fixed income securities. The Company regularly reviews its
policies on investment mix and may make changes depending on economic conditions and perceived investment risk.
103
The assumed overall expected long-term rate of return on pension plan assets used in calculating 2020 pension plan expense
was 5.0%. Determination of the plan’s expected rate of return is based upon historical and anticipated returns of the asset
classes invested in by the pension plan and the allocation strategy currently in place among those classes. The rate used in plan
calculations may be adjusted by management for current trends in the economic environment. The 10-year annualized return for
the Company’s pension plan was 7.1%. During 2020, the plan’s assets gained 8.9% of their value, compared to a gain of 14.8%
in 2019. Returns for any plan year may be affected by changes in the stock market and interest rates. The Company expects to
incur pension expense of $439 thousand in 2021, compared to $345 thousand in 2020.
The pension benefit obligation increased from the prior year primarily due to a decrease in the discount rate from 3.07% to
2.25%, which increased the pension benefit liability by approximately $10.4 million. Additionally, the Company utilizes
mortality tables published by the Society of Actuaries to incorporate mortality assumptions into the measurement of the pension
benefit obligation. At December 31, 2020, the Company utilized an updated mortality projection scale, which decreased the
pension benefit obligation on that date by approximately $900 thousand.
The following future benefit payments are expected to be paid:
(In thousands)
2021
2022
2023
2024
2025
2026 - 2030
$
7,467
7,466
7,569
7,464
7,429
35,314
11. Stock-Based Compensation and Directors Stock Purchase Plan*
The Company’s stock-based compensation is provided under a stockholder-approved plan that allows for issuance of
various types of awards, including stock options, stock appreciation rights, restricted stock and restricted stock units,
performance awards and stock-based awards. During the past three years, stock-based compensation has been issued in the
form of nonvested restricted stock awards and stock appreciation rights. At December 31, 2020, 2,012,451 shares remained
available for issuance under the plan. The stock-based compensation expense that was charged against income was $14.9
million, $13.9 million and $12.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. The total
income tax benefit recognized in the income statement for share-based compensation arrangements was $3.0 million, $3.0
million and $3.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Nonvested Restricted Stock Awards
Nonvested stock is awarded to key employees by action of the Company's Compensation and Human Resources Committee
and Board of Directors. These awards generally vest after 4 to 7 years of continued employment, but vesting terms may vary
according to the specifics of the individual grant agreement. There are restrictions as to transferability, sale, pledging, or
assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant of
restricted stock awards. A summary of the status of the Company’s nonvested share awards as of December 31, 2020 and
changes during the year then ended is presented below.
Nonvested at January 1, 2020
Granted
Vested
Forfeited
Nonvested at December 31, 2020
Shares
Weighted
Average Grant
Date Fair Value
1,159,180 $
244,468
(292,100)
(11,682)
1,099,866 $
45.30
60.90
32.40
51.77
52.11
The total fair value (at vest date) of shares vested during 2020, 2019 and 2018 was $18.0 million, $19.9 million and $21.5
million, respectively.
104
Stock Appreciation Rights
Stock appreciation rights (SARs) are granted with exercise prices equal to the market price of the Company’s stock at the
date of grant. SARs generally vest ratably over 4 years of continuous service and have 10-year contractual terms. All SARs
must be settled in stock under provisions of the plan. A summary of SAR activity during 2020 is presented below.
(Dollars in thousands, except per share data)
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at January 1, 2020
Granted
Forfeited
Expired
Exercised
1,101,905 $
41.48
108,262
(7,717)
(576)
(195,978)
60.17
55.27
51.70
33.43
Outstanding at December 31, 2020
Exercisable at December 31, 2020
1,005,896 $
44.95
6.2 years $ 20,875
600,469 $
38.30
5.0 years $ 16,452
In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on
date of grant. The Black-Scholes model is a closed-end model that uses various assumptions as shown in the following table.
Expected volatility is based on historical volatility of the Company’s stock. The Company uses historical exercise behavior and
other factors to estimate the expected term of the SARs, which represents the period of time that the SARs granted are expected
to be outstanding. The risk-free rate for the expected term is based on the U.S. Treasury zero coupon spot rates in effect at the
time of grant. The per share average fair value and the model assumptions for SARs granted during the past three years are
shown in the table below.
Weighted per share average fair value at grant date
Assumptions:
Dividend yield
Volatility
Risk-free interest rate
Expected term
2020
$9.64
2019
$10.81
2018
$10.74
1.7 %
20.2 %
1.0 %
1.7 %
19.8 %
2.6 %
1.6 %
20.6 %
2.7 %
5.8 years
6.0 years
6.6 years
Additional information about stock options and SARs exercised is presented below.
(In thousands)
Intrinsic value of options and SARs exercised
Tax benefit realized from options and SARs exercised
2020
2019
2018
$
$
6,278 $
1,252 $
7,109 $
1,385 $
9,632
1,928
As of December 31, 2020, there was $28.1 million of unrecognized compensation cost related to unvested SARs and stock
awards. This cost is expected to be recognized over a weighted average period of approximately 2.9 years.
Directors Stock Purchase Plan
The Company has a directors stock purchase plan whereby outside directors of the Company and its subsidiaries may elect
to use their directors’ fees to purchase Company stock at market value each month end. Remaining shares available for issuance
under this plan were 13,470 at December 31, 2020. In 2020, 22,139 shares were purchased at an average price of $60.53, and in
2019, 22,625 shares were purchased at an average price of $58.27.
* All share and per share amounts in this note have been restated for the 5% common stock dividend distributed in 2020.
105
12. Accumulated Other Comprehensive Income
The table below shows the activity and accumulated balances for components of other comprehensive income. The largest
component is the unrealized holding gains and losses on available for sale debt securities. Another component is the
amortization from other comprehensive income of losses associated with pension benefits, which occurs as the losses are
included in current net periodic pension cost. The remaining component is gains in fair value on certain interest rate floors that
have been designated as cash flow hedging instruments. Information about unrealized gains and losses on securities can be
found in Note 3, and information about unrealized gains on cash flow hedge derivatives is located in Note 19.
The Company adopted ASU 2016-13 (CECL) on January 1, 2020, which changed the impairment model for available for
sale debt securities. The new standard requires an allowance for credit losses when the present value of the cash flows expected
to be collected is less than the security's amortized cost basis. See further discussion of the Company's CECL adoption in Note
1 and Note 3 to the consolidated financial statements. Further, the new standard superseded the guidance related to other-than-
temporary impairment (OTTI), including the requirement to separately disclose the unrealized gains and losses on securities
with OTTI. Prior to the Company's adoption of CECL, unrealized gains and losses on debt securities for which an OTTI has
been recorded in current earnings were shown separately below. As a result of adopting CECL, the table below will separately
disclose unrealized gains and losses on debt securities for which an allowance for credit losses has been recorded. During the
year ended December 31, 2020, there were no securities for which an allowance for credit losses was recorded.
(In thousands)
Balance January 1, 2020
Adoption of ASU 2016-13
Unrealized Gains (Losses)
on Securities (1)
OTTI
Other
Pension
Loss
Unrealized
Gains on Cash
Flow Hedge
Derivatives (2)
Total
Accumulated
Other
Comprehensive
Income (Loss)
$
3,264 $ 98,809 $ (21,940) $
30,311
$
110,444
(3,264)
3,264
—
—
—
Balance January 1, 2020, adjusted
$
— $ 102,073 $ (21,940) $
30,311
$
110,444
Other comprehensive income (loss) before reclassifications
—
236,733
(6,104)
93,497
324,126
(29,548)
294,578
(73,645)
220,933
331,377
(64,669)
227,325
6,158
233,483
(58,370)
175,113
$
$
62,383
92,694
6,855
27,481
3,793
31,274
(7,818)
23,456
Amounts reclassified from accumulated other comprehensive
income
Current period other comprehensive income (loss), before tax
Income tax (expense) benefit
Current period other comprehensive income (loss), net of tax
—
—
—
—
(21,096)
1,867
(10,319)
215,637
(4,237)
83,178
(53,909)
1,059
(20,795)
161,728
(3,178)
Balance December 31, 2020
Balance January 1, 2019
$
$
— $ 263,801 $ (25,118) $
3,861 $ (52,278) $ (23,107) $
Other comprehensive income (loss) before reclassifications
(975)
201,280
(461)
Amounts reclassified from accumulated other comprehensive
income
Current period other comprehensive income (loss), before tax
Income tax (expense) benefit
Current period other comprehensive income (loss), net of tax
Transfer of unrealized gain on securities for which impairment was
not previously recognized
133
215
(842)
201,495
210
(50,373)
(632)
151,122
2,017
1,556
(389)
1,167
35
(35)
—
—
—
Balance December 31, 2019
$
3,264 $ 98,809 $ (21,940) $
30,311
$
110,444
(1) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "investment
securities gains (losses), net" in the consolidated statements of income.
(2) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "interest and fees
on loans" in the consolidated statements of income.
106
13. Segments
The Company segregates financial information for use in assessing its performance and allocating resources among three
operating segments: Consumer, Commercial, and Wealth. The Consumer segment includes the consumer portion of the retail
branch network (loans, deposits and other personal banking services), indirect and other consumer financing, and consumer
debit and credit card loan and fee businesses. Residential mortgage origination, sales and servicing functions are included in
this consumer segment, but residential mortgage loans retained by the Company are not considered part of this segment. The
Commercial segment provides corporate lending (including the Small Business Banking product line within the branch
network), leasing, international services, and business, government deposit, and related commercial cash management services,
as well as merchant and commercial bank card products. The Commercial segment also includes the Capital Markets Group,
which sells fixed income securities and provides securities safekeeping and bond accounting services. The Wealth segment
provides traditional trust and estate planning, advisory and discretionary investment management, and brokerage services. This
segment also provides various loan and deposit related services to its private banking customers.
The Company’s business line reporting system derives segment information from the internal profitability reporting system
used by management to monitor and manage the financial performance of the Company. This information is based on internal
management accounting procedures and methods, which have been developed to reflect the underlying economics of the
businesses. These methodologies are applied in connection with funds transfer pricing and assignment of overhead costs
among segments. Funds transfer pricing was used in the determination of net interest income by assigning a standard cost
(credit) for funds used for (provided by) assets and liabilities based on their maturity, prepayment and/or repricing
characteristics. Income and expense that directly relate to segment operations are recorded in the segment when incurred.
Expenses that indirectly support the segments are allocated based on the most appropriate method available.
The Company uses a funds transfer pricing method to value funds used (e.g., loans, fixed assets, and cash) and funds
provided (e.g., deposits, borrowings, and equity) by the business segments and their components. This process assigns a
specific value to each new source or use of funds with a maturity, based on current swap rates, thus determining an interest
spread at the time of the transaction. Non-maturity assets and liabilities are valued using weighted average pools. The funds
transfer pricing process attempts to remove interest rate risk from valuation, allowing management to compare profitability
under various rate environments.
The following tables present selected financial information by segment and reconciliations of combined segment totals to
consolidated totals. There were no material intersegment revenues between the three segments. Management periodically
makes changes to methods of assigning costs and income to its business segments to better reflect operating results. If
appropriate, these changes are reflected in prior year information presented below.
Segment Income Statement Data
(In thousands)
Year ended December 31, 2020:
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income before income taxes
Year ended December 31, 2019:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income before income taxes
Year ended December 31, 2018:
Net interest income
Provision for loan losses
Non-interest income
Investment securities losses, net
Non-interest expense
Income before income taxes
Consumer
Commercial
Wealth
Segment Totals
Other/
Elimination
Consolidated
Totals
$
$
$
$
$
$
321,040 $
(31,220)
148,568
—
(297,724)
140,664 $
315,782 $
(44,987)
135,257
—
(297,398)
108,654 $
294,798 $
(40,571)
126,253
—
(286,181)
94,299 $
414,724 $
(3,724)
194,517
—
(316,074)
289,443 $
343,233 $
(4,204)
203,952
—
(309,163)
233,818 $
344,972 $
(1,134)
202,527
—
(297,847)
248,518 $
107
57,925 $
12
188,948
—
(124,964)
121,921 $
47,863 $
(174)
180,836
—
(122,784)
105,741 $
46,990 $
32
169,844
—
(122,247)
94,619 $
793,689 $
(34,932)
532,033
—
(738,762)
552,028 $
706,878 $
(49,365)
520,045
—
(729,345)
448,213 $
686,760 $
(41,673)
498,624
—
(706,275)
437,436 $
36,158 $
(102,258)
(26,166)
11,032
(29,616)
(110,850) $
114,415 $
(1,073)
4,658
3,626
(38,053)
83,573 $
137,065 $
(1,021)
2,717
(488)
(31,546)
106,727 $
829,847
(137,190)
505,867
11,032
(768,378)
441,178
821,293
(50,438)
524,703
3,626
(767,398)
531,786
823,825
(42,694)
501,341
(488)
(737,821)
544,163
The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination” column
include activity not related to the segments, such as that relating to administrative functions, the investment securities portfolio,
and the effect of certain expense allocations to the segments. The provision for credit losses in this category contains the
difference between net loan charge-offs assigned directly to the segments and the recorded provision for credit loss expense.
Included in this category’s net interest income are earnings of the investment portfolio, which are not allocated to a segment.
Segment Balance Sheet Data
(In thousands)
Average balances for 2020:
Assets
Loans, including held for sale
Goodwill and other intangible assets
Deposits
Average balances for 2019:
Assets
Loans, including held for sale
Goodwill and other intangible assets
Deposits
Consumer
Commercial
Wealth
Segment Totals
Other/
Elimination
Consolidated
Totals
$
$
2,238,473 $ 10,937,391 $
10,565,800
2,099,784
78,353
11,282,164
67,956
9,937,985
2,375,326 $
2,239,100
79,055
10,236,257
9,486,074 $
9,250,645
68,109
7,848,367
1,406,416 $ 14,582,280 $ 15,034,417 $ 29,616,697
15,915,533
1,395,766
147,370
746
23,497,477
2,271,166
14,061,350
147,055
23,491,315
1,854,183
315
6,162
1,288,387 $ 13,149,787 $ 12,063,738 $ 25,213,525
14,243,214
1,276,839
147,910
746
19,909,891
1,832,418
12,766,584
147,910
19,917,042
1,476,630
—
(7,151)
The above segment balances include only those items directly associated with the segment. The “Other/Elimination” column
includes unallocated bank balances not associated with a segment (such as investment securities and federal funds sold),
balances relating to certain other administrative and corporate functions, and eliminations between segment and non-segment
balances. This column also includes the resulting effect of allocating such items as float, deposit reserve and capital for the
purpose of computing the cost or credit for funds used/provided.
The Company’s reportable segments are strategic lines of business that offer different products and services. They are
managed separately because each line services a specific customer need, requiring different performance measurement analyses
and marketing strategies. The performance measurement of the segments is based on the management structure of the
Company and is not necessarily comparable with similar information for any other financial institution. The information is also
not necessarily indicative of the segments’ financial condition and results of operations if they were independent entities.
108
14. Common and Preferred Stock*
On December 18, 2020, the Company distributed a 5% stock dividend on its $5 par common stock for the 27th consecutive
year. All per common share data in this report has been restated to reflect the stock dividend.
The Company applies the two-class method of computing income per share, as nonvested share-based awards that pay
nonforfeitable common stock dividends are considered securities which participate in undistributed earnings with common
stock. The two-class method requires the calculation of separate income per share amounts for the nonvested share-based
awards and for common stock. Income per share attributable to common stock is shown in the following table. Nonvested
share-based awards are further discussed in Note 11, Stock-Based Compensation.
Basic income per share is based on the weighted average number of common shares outstanding during the year. Diluted
income per share gives effect to all dilutive potential common shares that were outstanding during the year. Presented below is
a summary of the components used to calculate basic and diluted income per common share, which have been restated for all
stock dividends.
(In thousands, except per share data)
Basic income per common share:
Net income attributable to Commerce Bancshares, Inc.
Less preferred stock dividends
Net income available to common shareholders
Less income allocated to nonvested restricted stock
Net income allocated to common stock
Weighted average common shares outstanding
Basic income per common share
Diluted income per common share:
Net income available to common shareholders
Less income allocated to nonvested restricted stock
Net income allocated to common stock
Weighted average common shares outstanding
Net effect of the assumed exercise of stock-based awards -- based on the treasury
stock method using the average market price for the respective periods
Weighted average diluted common shares outstanding
Diluted income per common share
2020
2019
2018
$
$
$
$
$
$
354,057 $
11,966
342,091
3,215
338,876 $
116,360
2.91 $
342,091 $
3,211
338,880 $
116,360
224
116,584
2.91 $
421,231 $
9,000
412,231
4,019
408,212 $
119,473
3.42 $
412,231 $
4,012
408,219 $
119,473
297
119,770
3.41 $
433,542
9,000
424,542
4,558
419,984
122,170
3.44
424,542
4,547
419,995
122,170
379
122,549
3.43
Unexercised stock appreciation rights of 302 thousand, 373 thousand and 246 thousand were excluded from the computation
of diluted income per share for the years ended December 31, 2020, 2019 and 2018, respectively, because their inclusion would
have been anti-dilutive.
On September 1, 2020, the Company redeemed all outstanding shares of its 6.00% Series B Non-Cumulative Perpetual
Preferred Stock, $1.00 par value per share, (Series B Preferred Stock) and the corresponding depositary shares representing
fractional interests in the Series B Preferred Stock (Series B Depositary Shares). The 6,000,000 depositary shares, each
representing a 1/1,000th interest in a share of Series B Preferred Stock, were redeemed simultaneously with the redemption of
the Series B Preferred Stock at a redemption price of $25 per depositary share. Regular dividends on the outstanding shares of
the Series B Preferred Stock were paid separately on September 1, 2020 to all holders of record as of August 14, 2020, in the
customary manner, and future dividends ceased to accrue. For the year ended December 31, 2020, preferred stock dividends
totaled $12.0 million, and included $5.2 million related to the preferred stock redemption, which is the excess of the redemption
costs over the book value of the preferred stock.
The Company entered into an accelerated share repurchase program in 2019 for $150.0 million. Final settlement of the
program occurred at the end of 2019, and a total of 2,432,336 shares of common stock were received by the Company under the
program. Shares purchased under this program were part of the Company's stock repurchase program, as authorized by its
Board of Directors The most recent authorization in November 2019 approved future purchases of 5,000,000 shares of the
Company's common stock. At December 31, 2020, 3,544,579 shares of common stock remained available for purchase under
the current authorization.
109
The table below shows activity in the outstanding shares of the Company’s common stock during the past three years.
Shares in the table below are presented on an historical basis and have not been restated for the annual 5% stock dividends.
(In thousands)
Shares outstanding at January 1
Issuance of stock:
Awards and sales under employee and director plans
5% stock dividend
Other purchases of treasury stock
Other
Shares outstanding at December 31
Years Ended December 31
2020
2019
2018
112,132
111,129
106,615
335
5,574
(887)
(16)
117,138
329
5,359
(4,670)
(15)
112,132
416
5,305
(1,194)
(13)
111,129
* Except as noted in the above table, all share and per share amounts in this note have been restated for the 5% common stock dividend
distributed in 2020.
110
15. Regulatory Capital Requirements
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and additional discretionary actions by regulators that could
have a direct material effect on the Company’s financial statements. The regulations require the Company to meet specific
capital adequacy guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The Company’s capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
The following tables show the capital amounts and ratios for the Company (on a consolidated basis) and the Bank, together
with the minimum capital adequacy and well-capitalized capital requirements, at the last two year ends.
(Dollars in thousands)
December 31, 2020
Total Capital (to risk-weighted assets):
Actual
Minimum Capital
Adequacy Requirement
Well-Capitalized Capital
Requirement
Amount
Ratio
Amount
Ratio
Amount
Ratio
Commerce Bancshares, Inc. (consolidated)
$ 3,189,432
14.82 % $ 1,721,317
8.00 %
N.A.
N.A.
Commerce Bank
2,844,675
13.30
1,710,778
8.00
$ 2,138,472
10.00 %
Tier I Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 2,950,926
13.71 % $ 1,290,988
6.00 %
N.A.
N.A.
Commerce Bank
2,606,169
12.19
1,283,083
6.00
$ 1,710,778
8.00 %
Tier I Common Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 2,950,926
13.71 % $ 968,241
4.50 %
N.A.
N.A.
Commerce Bank
2,606,169
12.19
962,312
4.50
$ 1,390,007
6.50 %
Tier I Capital (to adjusted quarterly average assets):
(Leverage Ratio)
Commerce Bancshares, Inc. (consolidated)
$ 2,950,926
9.45 % $ 1,249,584
4.00 %
N.A.
N.A.
Commerce Bank
December 31, 2019
Total Capital (to risk-weighted assets):
2,606,169
8.36
1,246,470
4.00
$ 1,558,087
5.00 %
Commerce Bancshares, Inc. (consolidated)
$ 3,052,079
15.48 % $ 1,577,105
8.00 %
N.A.
N.A.
Commerce Bank
2,583,676
13.19
1,566,866
8.00
$ 1,958,583
10.00 %
Tier I Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 2,890,322
14.66 % $ 1,182,829
6.00 %
N.A.
N.A.
Commerce Bank
2,421,919
12.37
1,175,150
6.00
$ 1,566,866
8.00 %
Tier I Common Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 2,745,538
13.93 % $ 887,122
4.50 %
N.A.
N.A.
Commerce Bank
2,421,919
12.37
881,362
4.50
$ 1,273,079
6.50 %
Tier I Capital (to adjusted quarterly average assets):
(Leverage Ratio)
Commerce Bancshares, Inc. (consolidated)
$ 2,890,322
11.38 % $ 1,015,771
4.00 %
N.A.
N.A.
Commerce Bank
2,421,919
9.57
1,012,232
4.00
$ 1,265,290
5.00 %
The minimum required ratios for well-capitalized banks (under prompt corrective action provisions) are 6.5% for Tier I
common capital, 8.0% for Tier I capital, 10.0% for Total capital and 5.0% for the leverage ratio.
At December 31, 2020 and 2019, the Company met all capital requirements to which it is subject, and the Bank’s capital
position exceeded the regulatory definition of well-capitalized.
111
16. Revenue from Contracts with Customers
The core principle of ASU 2014-09, "Revenue from Contracts with Customers," is that an entity should recognize revenue
to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. For the year ended December 31, 2020, approximately 62% of
the Company’s total revenue was comprised of net interest income, which is not within the scope of this guidance. Of the
remaining revenue, those items that were subject to this guidance mainly included fees for bank card, trust, deposit account
services and consumer brokerage services.
The following table disaggregates non-interest income subject to ASU 2014-09 by major product line.
(In thousands)
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Consumer brokerage services
Other non-interest income
Total non-interest income from contracts with
customers
Other non-interest income (1)
Total non-interest income
For the Years Ended December 31
2020
2019
2018
$
151,797 $
167,879 $
160,637
155,628
93,227
15,095
31,040
451,796
54,071
95,983
15,804
48,597
483,891
40,812
$
505,867 $
524,703 $
171,576
147,964
94,517
15,807
37,440
467,304
34,037
501,341
(1) This revenue is not within the scope of ASU 2014-09, and includes fees relating to capital market activities, loan fees and sales,
derivative instruments, standby letters of credit and various other transactions.
The following table presents the opening and closing receivable balances for the years ended December 31, 2020 and 2019
for the Company’s significant revenue categories subject to ASU 2014-09.
(In thousands)
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Consumer brokerage services
December 31,
2020
December 31,
2019
December 31,
2018
$
14,199 $
13,915 $
13,035
2,071
6,933
432
2,093
6,523
596
2,721
6,107
559
For these revenue categories, none of the transaction price has been allocated to performance obligations that are unsatisfied
as of the end of a reporting period. A description of these revenue categories follows.
112
Bank Card Transaction Fees
The following table presents the components of bank card fee income.
(In thousands)
Debit card:
Fee income
Expense for network charges
Net debit card fees
Credit card:
Fee income
Expense for network charges and rewards
Net credit card fees
Corporate card:
Fee income
Expense for network charges and rewards
Net corporate card fees
Merchant:
Fee income
Fees to cardholder banks
Expense for network charges
Net merchant fees
For the Years Ended December 31
2020
2019
2018
$
39,862 $
42,106 $
(2,218)
37,644
(2,081)
40,025
41,522
(1,784)
39,738
26,799
(13,834)
12,965
27,416
(13,239)
14,177
196,984
(102,596)
94,388
199,651
(100,011)
99,640
31,517
(8,779)
(3,449)
19,289
30,241
(7,831)
(3,177)
19,233
171,576
24,921
(11,528)
13,393
179,251
(96,877)
82,374
29,660
(8,115)
(3,159)
18,386
Total bank card transaction fees
$
151,797 $
167,879 $
The majority of debit and credit card fees are reported in the Consumer segment, while corporate card and merchant fees are
reported in the Commercial segment.
Debit and Credit Card Fees
The Company issues debit and credit cards to its retail and commercial banking customers who use the cards to purchase
goods and services from merchants through an electronic payment system. As a card issuer, the Company earns fees, including
interchange income, for processing the cardholder’s purchase transaction with a merchant through a settlement network.
Purchases are charged directly to a customer’s checking account (in the case of a debit card), or are posted to a customer’s
credit card account. The fees earned are established by the settlement network and are dependent on the type of transaction
processed but are typically based on a per unit charge. Interchange income, the largest component of debit and credit card fees,
is settled daily through the networks. The services provided to the cardholders include issuing and maintaining cards, settling
purchases with merchants, and maintaining memberships in various card networks to facilitate processing. These services are
considered one performance obligation, as one of the services would not be performed without the others. The performance
obligation is satisfied as services are rendered for each purchase transaction, and income is immediately recognized.
In order to participate in the settlement network process, the Company must pay various transaction-related costs,
established by the networks, including membership fees and a per unit charge for each transaction. These expenses are
recorded net of the card fees earned.
Consumer credit card products offer cardholders rewards that can be later redeemed for cash or goods or services to
encourage card usage. Reward programs must meet network requirements based on the type of card issued. The expense
associated with the rewards granted are recorded net of the credit card fees earned.
Commercial card products offer cash rewards to corporate cardholders to encourage card usage in facilitating corporate
payments. The Company pays cash rewards based on contractually agreed upon amounts, normally as a percent of each sales
transaction. The expense associated with the cash rewards program is recorded net of the corporate card fees earned.
113
Merchant Fees
The Company offers merchant processing services to its business customers to enable them to accept credit and debit card
payments. Merchant processing activities include gathering merchant sales information, authorizing sales transactions and
collecting the funds from card issuers using the networks. The merchant is charged a merchant discount fee for the services
based on agreed upon pricing between the merchant and the Company. Merchant fees are recorded net of outgoing interchange
costs paid to the card issuing banks and net of other network costs as shown in the table above.
Merchant services provided are considered one performance obligation, as one of the services would not be performed
without the others. The performance obligation is satisfied as services are rendered for each settlement transaction and income
is immediately recognized. Income earned from merchant fees settles with the customer according to terms negotiated in
individual customer contracts. The majority of customers settle with the Company at least monthly.
Trust Fees
The following table shows the components of revenue within trust fees, which are reported within the Wealth segment.
(In thousands)
Private client
Institutional
Other
Total trust fees
For the Years Ended December 31
2020
2019
2018
$
$
123,941 $
118,832 $
111,533
30,544
6,152
29,468
7,328
29,241
7,190
160,637 $
155,628 $
147,964
The Company provides trust and asset management services to both private client and institutional trust customers including
asset custody, investment advice, and reporting and administrative services. Other specialized services such as tax preparation,
financial planning, representation and other related services are provided as needed. Trust fees are generally earned monthly
and billed based on a rate multiplied by the fair value of the customer's trust assets. The majority of customer trust accounts are
billed monthly. However, some accounts are billed quarterly, and a small number of accounts are billed semi-annually or
annually, in accordance with agreements in place with the customer. The Company accrues trust fees monthly based on an
estimate of fees due and either directly charges the customer’s account the following month or invoices the customer for fees
due according to the billing schedule.
The Company maintains written product pricing information which is used to bill each trust customer based on the services
provided. Providing trust services is considered to be a single performance obligation that is satisfied on a monthly basis,
involving the monthly custody of customer assets, statement rendering, periodic investment advice where applicable, and other
specialized services as needed. As such, performance obligations are considered to be satisfied at the conclusion of each month
while trust fee income is also recorded monthly.
Deposit Account Charges and Other Fees
The following table shows the components of revenue within deposit account charges and other fees.
(In thousands)
Corporate cash management fees
Overdraft and return item fees
Other service charges on deposit accounts
Total deposit account charges and other fees
For the Years Ended December 31
2020
2019
2018
$
$
46,762 $
22,951
23,514
93,227 $
41,442 $
30,596
23,945
95,983 $
38,468
31,468
24,581
94,517
Approximately half of this revenue is reported in the Consumer segment, while the remainder is reported in the Commercial
segment.
The Company provides corporate cash management services to its business and non-profit customers to meet their various
transaction processing needs. Such services include deposit and check processing, lockbox, remote deposit, reconciliation,
online banking and other similar transaction processing services. The Company maintains unit prices for each type of service,
and the customer is billed based on transaction volumes processed monthly. The customer is usually billed either monthly or
quarterly, however, some customers may be billed semi-annually or annually. The customer may pay for the cash management
services provided either by paying in cash or using the value of deposit balances (formula provided to the customer) held at the
114
Company. The Company’s performance obligation for corporate cash management services is the processing of items over a
monthly term, and the obligations are satisfied at the conclusion of each month.
Overdraft fees are charged to customers when daily checks and other withdrawals to customers’ accounts exceed balances
on hand. Fees are based on a unit price multiplied by the number of items processed whose total amounts exceed the available
account balance. The daily overdraft charge is calculated and the fee is posted to the customer’s account each day. The
Company’s performance obligation for overdraft transactions is based on the daily transaction processed and the obligation is
satisfied as each day’s transaction processing is concluded.
Other deposit fees include numerous smaller fees such as monthly statement fees, foreign ATM processing fees,
identification restoration fees, and stop payment fees. Such fees are mostly billed to customers directly on their monthly
deposit account statements, or in the case of foreign ATM processing fees, the fee is charged to the customer on the day that
transactions are processed. Performance obligations for all of these various services are satisfied at the time that the service is
rendered.
Consumer Brokerage Services
The following shows the components of revenue within consumer brokerage services, and nearly all of this revenue is
reported in the Company's Wealth segment.
(In thousands)
Commission income
Managed account services
Total consumer brokerage services
For the Years Ended December 31
2020
2019
2018
$
$
8,002 $
7,093
15,095 $
9,071 $
6,733
15,804 $
8,956
6,851
15,807
Consumer brokerage services revenue is comprised of commissions received upon the execution of purchases and sales of
mutual fund shares and equity securities, in addition to sales of annuities and certain limited insurance products in an agency
capacity. Also, fees are earned on professionally managed advisory programs through arrangements with sub-advisors.
Payment from the customer is due upon settlement date for purchases and sales of securities, at the purchase date for annuities
and insurance products, and upon inception of the service period for advisory programs.
Most of the contracts (except advisory contracts) encompass two types of performance obligations. The first is an obligation
to provide account maintenance, record keeping and custodial services throughout the contract term. The second is the
obligation to provide trade execution services for the customers' purchases and sales of products mentioned above. The first
obligation is satisfied over time as the service period elapses, while the second type of obligation is satisfied upon the execution
of each purchase/sale transaction. Contracts for advisory services contain a single performance obligation comprised of
providing the management services and related reporting/administrative services over the contract term.
The transaction price of the contracts (except advisory contracts) is a commission charged at the time of trade execution.
The commission varies across different security types, insurance products and mutual funds. It is generally determined by
standardized price lists published by the Company and its mutual fund and insurance vendors. Because the transaction price
relates specifically to the trade execution, it has been allocated to that performance obligation and is recorded at the time of
execution. The fee for advisory services is charged to the customer in advance of the quarterly service period, based on the
account balance at the beginning of the period. Revenue is recognized ratably over the service period.
Other Non-Interest Income from Contracts with Customers
Other non-interest income from contracts with customers consists mainly of various customer deposit related fees such as
ATM fees and gains on sales of tax credits, foreclosed assets, and bank premises and equipment. Performance obligations for
these services consist mainly of the execution of transactions for sales of various properties or providing specific deposit related
transactions. Fees from these revenue sources are recognized when the performance obligation is completed, at which time
cash is received by the Company.
115
17. Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and
liabilities and to determine fair value disclosures. Various financial instruments such as available for sale debt securities, equity
securities, trading debt securities, certain investments relating to private equity activities, and derivatives are recorded at fair
value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets
and liabilities on a nonrecurring basis, such as mortgage servicing rights and certain other investment securities. These
nonrecurring fair value adjustments typically involve lower of cost or fair value accounting, or write-downs of individual assets.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various
valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation
hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to
the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
•
•
•
Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable
for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds).
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be
internally developed, using the Company’s best information and assumptions that a market participant would consider.
When determining the fair value measurements for assets and liabilities required or permitted to be recorded or disclosed at
fair value, the Company considers the principal or most advantageous market in which it would transact and considers
assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active
and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active
markets, the Company looks to observable market data for similar assets and liabilities. Nevertheless, certain assets and
liabilities are not actively traded in observable markets, and the Company must use alternative valuation techniques to derive an
estimated fair value measurement.
116
Instruments Measured at Fair Value on a Recurring Basis
The table below presents the carrying values of assets and liabilities measured at fair value on a recurring basis at December
31, 2020 and 2019. There were no transfers among levels during these years.
(In thousands)
December 31, 2020
Assets:
Residential mortgage loans held for sale
Available for sale debt securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities
Equity securities
Private equity investments
Derivatives *
Assets held in trust for deferred compensation plan
Total assets
Liabilities:
Derivatives *
Liabilities held in trust for deferred compensation plan
Total liabilities
December 31, 2019
Assets:
Residential mortgage loans held for sale
Available for sale debt securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities
Equity securities
Private equity investments
Derivatives *
Assets held in trust for deferred compensation plan
Total assets
Liabilities:
Derivatives *
Liabilities held in trust for deferred compensation plan
Total liabilities
* The fair value of each class of derivative is shown in Note 19.
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair Value
$
39,396 $
— $
39,396 $
—
838,059
54,485
2,045,099
6,712,085
361,074
1,882,243
556,219
35,321
2,966
94,368
89,889
19,278
12,730,482
838,059
—
—
—
—
—
—
—
2,966
—
—
19,278
860,303
—
54,485
2,037,131
6,712,085
361,074
1,882,243
556,219
35,321
—
—
86,447
—
11,764,401
18,675
19,278
37,953 $
—
19,278
19,278 $
17,974
—
17,974 $
—
—
7,968
—
—
—
—
—
—
94,368
3,442
—
105,778
701
—
701
9,181 $
— $
9,181 $
—
$
$
851,776
139,277
1,267,927
3,937,964
809,782
1,233,489
331,411
28,161
2,929
94,122
105,674
16,518
8,828,211
851,776
—
—
—
—
—
—
—
2,929
—
—
16,518
871,223
—
139,277
1,258,074
3,937,964
809,782
1,233,489
331,411
28,161
—
—
105,075
—
7,852,414
10,219
16,518
26,737 $
—
16,518
16,518 $
9,989
—
9,989 $
$
—
—
9,853
—
—
—
—
—
—
94,122
599
—
104,574
230
—
230
117
Valuation methods for instruments measured at fair value on a recurring basis
Following is a description of the Company’s valuation methodologies used for instruments measured at fair value on a
recurring basis:
Residential mortgage loans held for sale
The Company originates fixed rate, first lien residential mortgage loans that are intended for sale in the secondary market.
Fair value is based on quoted secondary market prices for loans with similar characteristics, which are adjusted to include the
embedded servicing value in the loans. This adjustment represents an unobservable input to the valuation but is not considered
significant given the relative insensitivity of the valuation to changes in this input. Accordingly, these loan measurements are
classified as Level 2.
Available for sale debt securities
For available for sale securities, changes in fair value are recorded in other comprehensive income. This portfolio comprises
the majority of the assets which the Company records at fair value. Most of the portfolio, which includes government-sponsored
enterprise, mortgage-backed and asset-backed securities, are priced utilizing industry-standard models that consider various
assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current
market and contractual prices for the underlying financial instruments, as well as other relevant economic measures.
Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported
by observable levels at which transactions are executed in the marketplace. These measurements are classified as Level 2 in the
fair value hierarchy. Where quoted prices are available in an active market, the measurements are classified as Level 1. Most
of the Level 1 measurements apply to U.S. Treasury obligations.
The fair values of Level 1 and 2 securities in the available for sale portfolio are prices provided by a third-party pricing
service. The prices provided by the third-party pricing service are based on observable market inputs, as described in the
sections below. On a quarterly basis, the Company compares a sample of these prices to other independent sources for the
same and similar securities. Variances are analyzed, and, if appropriate, additional research is conducted with the third-party
pricing service. Based on this research, the pricing service may affirm or revise its quoted price. No significant adjustments
have been made to the prices provided by the pricing service. The pricing service also provides documentation on an ongoing
basis that includes reference data, inputs and methodology by asset class, which is reviewed to ensure that security placement
within the fair value hierarchy is appropriate.
Valuation methods and inputs, by class of security:
•
U.S. government and federal agency obligations
U.S. treasury bills, bonds and notes, including inflation-protected securities, are valued using live data from active
market makers and inter-dealer brokers. Valuations for stripped coupon and principal issues are derived from yield
curves generated from various dealer contacts and live data sources.
•
•
Government-sponsored enterprise obligations
Government-sponsored enterprise obligations are evaluated using cash flow valuation models. Inputs used are live
market data, cash settlements, Treasury market yields, and floating rate indices such as LIBOR, CMT, and Prime.
State and municipal obligations, excluding auction rate securities
A yield curve is generated and applied to bond sectors, and individual bond valuations are extrapolated. Inputs used to
generate the yield curve are bellwether issue levels, established trading spreads between similar issuers or credits,
historical trading spreads over widely accepted market benchmarks, new issue scales, and verified bid information. Bid
information is verified by corroborating the data against external sources such as broker-dealers, trustees/paying agents,
issuers, or non-affiliated bondholders.
• Mortgage and asset-backed securities
Collateralized mortgage obligations and other asset-backed securities are valued at the tranche level. For each tranche
valuation, the process generates predicted cash flows for the tranche, applies a market based (or benchmark) yield/
spread for each tranche, and incorporates deal collateral performance and tranche level attributes to determine tranche-
specific spreads to adjust the benchmark yield. Tranche cash flows are generated from new deal files and prepayment/
default assumptions. Tranche spreads are based on tranche characteristics such as average life, type, volatility, ratings,
underlying collateral and performance, and prevailing market conditions. The appropriate tranche spread is applied to
the corresponding benchmark, and the resulting value is used to discount the cash flows to generate an evaluated price.
118
Valuation of agency pass-through securities, typically issued under GNMA, FNMA, FHLMC, and SBA programs, are
primarily derived from information from the to-be-announced (TBA) market. This market consists of generic mortgage
pools which have not been received for settlement. Snapshots of the TBA market, using live data feeds distributed by
multiple electronic platforms, are used in conjunction with other indices to compute a price based on discounted cash
flow models.
•
Other debt securities
Other debt securities are valued using active markets and inter-dealer brokers as well as bullet spread scales and option
adjusted spreads. The spreads and models use yield curves, terms and conditions of the bonds, and any special features
(e.g., call or put options and redemption features).
The available for sale portfolio includes certain auction rate securities. Due to the illiquidity in the auction rate securities
market in recent years, the fair value of these securities cannot be based on observable market prices. The fair values of these
securities are estimated using a discounted cash flows analysis which is discussed more fully in the Level 3 Inputs section of
this note. Because many of the inputs significant to the measurement are not observable, these measurements are classified as
Level 3 measurements.
Equity securities with readily determinable fair values
Equity securities are priced using the market prices for each security from the major stock exchanges or other electronic
quotation systems. These are generally classified as Level 1 measurements. Stocks which trade infrequently are classified as
Level 2.
Trading debt securities
The securities in the Company’s trading portfolio are priced by averaging several broker quotes for similar instruments and
are classified as Level 2 measurements.
Private equity investments
These securities are held by the Company’s private equity subsidiary and are included in other investment securities in the
consolidated balance sheets. Due to the absence of quoted market prices, valuation of these nonpublic investments requires
significant management judgment. These fair value measurements, which are discussed in the Level 3 Inputs section of this
note, are classified as Level 3.
Derivatives
The Company’s derivative instruments include interest rate swaps and floors, foreign exchange forward contracts, and
certain credit risk guarantee agreements. When appropriate, the impact of credit standing as well as any potential credit
enhancements, such as collateral, has been considered in the fair value measurement.
•
Valuations for interest rate swaps are derived from a proprietary model whose significant inputs are readily observable
market parameters, primarily yield curves used to calculate current exposure. Counterparty credit risk is incorporated
into the model and calculated by applying a net credit spread over LIBOR to the swap's total expected exposure over
time. The net credit spread is comprised of spreads for both the Company and its counterparty, derived from probability
of default and other loss estimate information obtained from a third party credit data provider or from the Company's
Credit Department when not otherwise available. The credit risk component is not significant compared to the overall
fair value of the swaps. The results of the model are constantly validated through comparison to active trading in the
marketplace.
Parties to swaps requiring central clearing are required to post collateral (generally in the form of cash or marketable
securities) to an authorized clearing agency that holds and monitors the collateral. The Company's clearing counterparty
characterizes a component of this collateral, known as variation margin, as a legal settlement of the derivative contract
exposure, and as a result, the variation margin is considered in determining the fair value of the derivative.
Valuations for interest rate floors are also derived from a proprietary model whose significant inputs are readily
observable market parameters, primarily yield curves and volatility surfaces. The model uses market standard
methodology of discounting the future expected cash receipts that would occur if variable interest rates fall below the
strike rates of the floors. The model also incorporates credit valuation adjustments of both the Company's and the
counterparties' non-performance risk. The credit valuation adjustment component is not significant compared to the
overall fair value of the floors.
119
•
•
•
The fair value measurements of interest rate swaps and floors are classified as Level 2 due to the observable nature of
the significant inputs utilized.
Fair value measurements for foreign exchange contracts are derived from a model whose primary inputs are quotations
from global market makers and are classified as Level 2.
The Company’s contracts related to credit risk guarantees are valued under a proprietary model which uses
unobservable inputs and assumptions about the creditworthiness of the counterparty (generally a Bank customer).
Customer credit spreads, which are based on probability of default and other loss estimates, are calculated internally by
the Company's Credit Department, as mentioned above, and are based on the Company's internal risk rating for each
customer. Because these inputs are significant to the measurements, they are classified as Level 3.
Derivatives relating to residential mortgage loan sale activity include commitments to originate mortgage loans held for
sale, forward loan sale contracts, and forward commitments to sell TBA securities. The fair values of loan
commitments and sale contracts are estimated using quoted market prices for loans similar to the underlying loans in
these instruments. The valuations of loan commitments are further adjusted to include embedded servicing value and
the probability of funding. These assumptions are considered Level 3 inputs and are significant to the loan commitment
valuation; accordingly, the measurement of loan commitments is classified as Level 3. The fair value measurement of
TBA contracts is based on security prices published on trading platforms and is classified as Level 2.
Assets held in trust
Assets held in an outside trust for the Company’s deferred compensation plan consist of investments in mutual funds. The
fair value measurements are based on quoted prices in active markets and classified as Level 1. The Company has recorded an
asset representing the total investment amount. The Company has also recorded a corresponding liability, representing the
Company’s liability to the plan participants.
120
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:
(In thousands)
Year ended December 31, 2020:
Balance at January 1, 2020
Total gains or losses (realized/unrealized):
Included in earnings
Included in other comprehensive income
Investment securities called
Discount accretion
Purchases of private equity securities
Sale / pay down of private equity securities
Capitalized interest/dividends
Purchase of risk participation agreement
Sale of risk participation agreement
$
$
$
$
Balance at December 31, 2020
Total gains or losses for the year included in earnings attributable
to the change in unrealized gains or losses relating to assets still
held at December 31, 2020
Total gains or losses for the year included in other comprehensive
income attributable to the change in unrealized gains or losses
relating to assets still held at December 31, 2020
Year ended December 31, 2019:
Balance at January 1, 2019
Total gains or losses (realized/unrealized):
Included in earnings
Included in other comprehensive income
Investment securities called
Discount accretion
Purchases of private equity securities
Sale / pay down of private equity securities
Capitalized interest/dividends
Purchase of risk participation agreement
Sale of risk participation agreement
Balance at December 31, 2019
Total gains or losses for the year included in earnings attributable
to the change in unrealized gains or losses relating to assets still
held at December 31, 2019
$
$
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
State and
Municipal
Obligations
Private Equity
Investments
Derivatives
Total
$
9,853 $
94,122 $
369 $
104,344
—
(2)
(2,000)
117
—
—
—
—
—
(10,103)
3,181
—
—
—
10,684
(364)
29
—
—
—
—
—
—
—
—
—
(809)
(6,922)
(2)
(2,000)
117
10,684
(364)
29
—
(809)
7,968 $
94,368 $
2,741 $
105,077
— $
(10,083) $
3,611 $
(6,472)
44 $
— $
— $
44
14,158 $
85,659 $
490 $
100,307
—
246
(4,635)
84
—
—
—
—
—
9,853 $
(727)
—
—
—
15,706
(6,548)
32
—
—
94,122 $
(93)
—
—
—
—
—
—
439
(467)
369 $
(820)
246
(4,635)
84
15,706
(6,548)
32
439
(467)
104,344
— $
(2,177) $
457 $
(1,720)
Gains and losses on the Level 3 assets and liabilities in the table above are reported in the following income categories:
(In thousands)
Year ended December 31, 2020:
Total gains or losses included in earnings
Change in unrealized gains or losses relating to assets still held at
December 31, 2020
Year ended December 31, 2019:
Total gains or losses included in earnings
Change in unrealized gains or losses relating to assets still held at
December 31, 2019
Loan Fees and
Sales
Other Non-
Interest Income
Investment
Securities Gains
(Losses), Net
Total
2,768 $
413 $
(10,103) $
(6,922)
3,226 $
385 $
(10,083) $
(6,472)
(77) $
458 $
(16) $
(727) $
(820)
(1) $
(2,177) $
(1,720)
$
$
$
$
121
Level 3 Inputs
As shown above, the Company's significant Level 3 measurements which employ unobservable inputs that are readily
quantifiable pertain to auction rate securities (ARS) held by the Bank, investments in portfolio concerns held by the Company's
private equity subsidiary, and held for sale residential mortgage loan commitments. ARS are included in state and municipal
securities and totaled $8.0 million at December 31, 2020, while private equity investments, included in other securities, totaled
$94.4 million.
Information about these inputs is presented in the table and discussions below.
Quantitative Information about Level 3 Fair Value Measurements
Auction rate securities
Valuation Technique
Discounted cash flow
Unobservable Input
Estimated market recovery period
Estimated market rate
Private equity investments
Mortgage loan commitments
Market comparable companies EBITDA multiple
Discounted cash flow
Probability of funding
Embedded servicing value
* Unobservable inputs were weighted by the relative fair value of the instruments.
Weighted
Average*
5 years
1.5%
5.4
Range
5 years
1.7%
6.0
1.5% -
-
4.0
56.7% -
0.5% -
98.8% 85.7%
0.9%
1.0%
The fair values of ARS are estimated using a discounted cash flows analysis in which estimated cash flows are based on
mandatory interest rates paid under failing auctions and projected over an estimated market recovery period. Under normal
conditions, ARS traded in weekly auctions and were considered liquid investments. The Company's estimate of when these
auctions might resume is highly judgmental and subject to variation depending on current and projected market conditions. Few
auctions of these securities have been successful in recent years, and most secondary transactions have been privately arranged.
Estimated cash flows during the period over which the Company expects to hold the securities are discounted at an estimated
market rate. These securities are comprised of bonds issued by various states and municipalities for healthcare and student
lending purposes, and market rates are derived for each type. Market rates are calculated at each valuation date using a LIBOR
or Treasury based rate plus spreads representing adjustments for liquidity premium and nonperformance risk. The spreads are
developed internally by employees in the Company's bond department. An increase in the holding period alone would result in
a higher fair value measurement, while an increase in the estimated market rate (the discount rate) alone would result in a lower
fair value measurement. The valuation of the ARS portfolio is reviewed on a quarterly basis by the Company's chief
investment officers.
The fair values of the Company's private equity investments are based on a determination of fair value of the investee
company less preference payments assuming the sale of the investee company. Investee companies are normally non-public
entities. The fair value of the investee company is determined by reference to the investee's total earnings before interest,
depreciation/amortization, and income taxes (EBITDA) multiplied by an EBITDA factor. EBITDA is normally determined
based on a trailing prior period adjusted for specific factors including current economic outlook, investee management, and
specific unique circumstances such as sales order information, major customer status, regulatory changes, etc. The EBITDA
multiple is based on management's review of published trading multiples for recent private equity transactions and other
judgments and is derived for each individual investee. The fair value of the Company's investment is then calculated based on
its ownership percentage in the investee company. On a quarterly basis, these fair value analyses are reviewed by a valuation
committee consisting of investment managers and senior Company management.
The significant unobservable inputs used in the fair value measurement of the Company’s derivative commitments to
originate residential mortgage loans are the percentage of commitments that are actually funded and the mortgage servicing
value that is inherent in the underlying loan value. A significant increase in the rate of loans that fund would result in a larger
derivative asset or liability. A significant increase in the inherent mortgage servicing value would result in an increase in the
derivative asset or a reduction in the derivative liability. The probability of funding and the inherent mortgage servicing values
are directly impacted by changes in market rates and will generally move in the same direction as interest rates.
122
Instruments Measured at Fair Value on a Nonrecurring Basis
For assets measured at fair value on a nonrecurring basis during 2020 and 2019, and still held as of December 31, 2020 and
2019, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation
assumptions used to determine each adjustment, and the carrying value of the related individual assets or portfolios at
December 31, 2020 and 2019.
(In thousands)
Fair Value
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Gains
(Losses)
Balance at December 31, 2020
Collateral dependent loans
Mortgage servicing rights
Long-lived assets
Balance at December 31, 2019
Collateral dependent loans
Mortgage servicing rights
Long-lived assets
$
12,961 $
6,249
811
422 $
7,749
1,098
$
— $
—
—
— $
—
—
— $
—
—
— $
—
—
12,961 $
6,249
811
422 $
7,749
1,098
(7,763)
(1,776)
(9)
(263)
(327)
(362)
The Company's significant Level 3 measurements that are measured on a nonrecurring basis pertain to the Company's
mortgage servicing rights retained on certain fixed rate personal real estate loan originations. Mortgage servicing rights are
included in other assets on the consolidated balance sheet, and information about these inputs is presented in the table below.
Quantitative Information about Level 3 Fair Value Measurements
Valuation Technique
Unobservable Input
Range
Weighted
Average*
Mortgage servicing rights
Discounted cash flow
Discount rate
9.15 % -
9.27 %
9.23 %
Prepayment speeds (CPR)*
13.25 % -
14.85 %
14.58 %
Loan servicing costs - annually per loan
Performing loans
Delinquent loans
$
71
- $
72
$
72
$ 200
- $ 750
Loans in foreclosure
$ 1,000
*Ranges and weighted averages based on interest rate tranches.
The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are
updated periodically for changes in market conditions. Actual rates may differ from our estimates. Increases in prepayment
speed and discount rates negatively impact the fair value of our mortgage servicing rights.
Valuation methods for instruments measured at fair value on a nonrecurring basis
Following is a description of the Company’s valuation methodologies used for other financial and nonfinancial instruments
measured at fair value on a nonrecurring basis.
Collateral dependent loans
While the overall loan portfolio is not carried at fair value, the Company periodically records nonrecurring adjustments to
the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans.
Nonrecurring adjustments also include certain impairment amounts for collateral dependent loans when establishing the
allowance for credit losses on loans. Such amounts are generally based on the fair value of the underlying collateral supporting
the loan. In determining the value of real estate collateral, the Company relies on external and internal appraisals of property
values depending on the size and complexity of the real estate collateral. The Company maintains a staff of qualified appraisers
who also review third party appraisal reports for reasonableness. In the case of non-real estate collateral, reliance is placed on a
variety of sources, including external estimates of value and judgments based on the experience and expertise of internal
specialists. Values of all loan collateral are regularly reviewed by credit administration. Unobservable inputs to these
measurements, which include estimates and judgments often used in conjunction with appraisals, are not readily quantifiable.
123
These measurements are classified as Level 3. Nonrecurring adjustments to the carrying value of loans based on fair value
measurements at December 31, 2020 and 2019 are shown in the table above.
Mortgage servicing rights
The Company initially measures its mortgage servicing rights at fair value and amortizes them over the period of estimated
net servicing income. They are periodically assessed for impairment based on fair value at the reporting date. Mortgage
servicing rights do not trade in an active market with readily observable prices. Accordingly, the fair value is estimated based
on a valuation model which calculates the present value of estimated future net servicing income. The model incorporates
assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds,
market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees. The fair value
measurements are classified as Level 3.
Long-lived assets
When investments in branch facilities and various office buildings are determined to be impaired, their carrying values are
written down to estimated fair value, or estimated fair value less cost to sell if the property is held for sale. Fair value is
estimated in a process which considers current local commercial real estate market conditions and the judgment of the sales
agent and often involves obtaining third party appraisals from certified real estate appraisers. The carrying amounts of these
real estate holdings are regularly monitored by real estate professionals employed by the Company. These fair value
measurements are classified as Level 3. Unobservable inputs to these measurements, which include estimates and judgments
often used in conjunction with appraisals, are not readily quantifiable.
124
18. Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments held by the Company are set forth below. Fair
value estimates are made at a specific point in time based on relevant market information. They do not reflect any premium or
discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument.
Because no market exists for many of the Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve
uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The estimated fair values of the Company’s financial instruments and the classification of their fair value measurement
within the valuation hierarchy are as follows at December 31, 2020 and 2019:
Estimated Fair Value at December 31, 2020
Level 1
Level 2
Level 3
Total
$
— $
—
—
—
—
—
—
—
—
—
— $ 6,467,572 $ 6,467,572
995,873
995,873
—
3,016,576
3,016,576
—
2,830,521
2,830,521
—
1,953,217
1,953,217
—
304,434
304,434
—
576,320
576,320
—
—
3,068
3,068
— 16,147,581 16,147,581
45,089
—
146,713 12,626,296
894,338
894,338
1,747,363
—
437,563
—
89,889
3,442
19,278
—
$ 3,045,229 $ 11,770,094 $ 17,192,074 $ 32,007,397
45,089
841,025 11,638,558
—
—
—
86,447
—
—
1,747,363
437,563
—
19,278
$ 10,497,598 $
14,604,456
—
42,270
—
—
19,278
$ 25,163,602 $
— $
—
—
—
—
17,974
—
— $ 10,497,598
— 14,604,456
1,847,277
42,270
2,056,173
18,675
19,278
17,974 $ 3,904,151 $ 29,085,727
1,847,277
—
2,056,173
701
—
(In thousands)
Financial Assets
Loans:
Business
Real estate - construction and land
Real estate - business
Real estate - personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities
Securities purchased under agreements to resell
Interest earning deposits with banks
Cash and due from banks
Derivative instruments
Assets held in trust for deferred compensation plan
Total
Financial Liabilities
Non-interest bearing deposits
Savings, interest checking and money market deposits
Certificates of deposit
Federal funds purchased
Securities sold under agreements to repurchase
Derivative instruments
Liabilities held in trust for deferred compensation plan
Total
Carrying
Amount
$ 6,546,087
1,021,595
3,026,117
2,820,030
1,950,502
307,083
655,078
3,149
16,329,641
45,089
12,626,296
850,000
1,747,363
437,563
89,889
19,278
$ 32,145,119
$ 10,497,598
14,604,456
1,844,691
42,270
2,056,113
18,675
19,278
$ 29,083,081
125
Estimated Fair Value at December 31, 2019
Level 1
Level 2
Level 3
Total
$
— $
—
—
—
—
—
—
—
—
—
854,705
—
395,850
491,615
—
16,518
— $ 5,526,303 $ 5,526,303
898,152
898,152
—
2,849,213
2,849,213
—
2,333,002
2,333,002
—
1,938,505
1,938,505
—
344,424
344,424
—
708,209
708,209
—
—
4,478
4,478
— 14,602,286 14,602,286
13,809
—
8,740,608
147,745
869,592
869,592
395,850
—
491,615
—
105,674
599
16,518
—
$ 1,758,688 $ 7,857,042 $ 15,620,222 $ 25,235,952
13,809
7,738,158
—
—
—
105,075
—
$ 6,890,687 $
11,621,716
—
20,035
—
—
—
16,518
$ 18,548,956 $
— $
—
—
—
—
988
9,989
—
— $ 6,890,687
— 11,621,716
2,022,629
20,035
1,831,518
988
10,219
16,518
10,977 $ 3,854,377 $ 22,414,310
2,022,629
—
1,831,518
—
230
—
(In thousands)
Financial Assets
Loans:
Business
Real estate - construction and land
Real estate - business
Real estate - personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities
Securities purchased under agreements to resell
Interest earning deposits with banks
Cash and due from banks
Derivative instruments
Assets held in trust for deferred compensation plan
Total
Financial Liabilities
Non-interest bearing deposits
Savings, interest checking and money market deposits
Certificates of deposit
Federal funds purchased
Securities sold under agreements to repurchase
Other borrowings
Derivative instruments
Liabilities held in trust for deferred compensation plan
Total
Carrying
Amount
$ 5,565,449
899,377
2,833,554
2,354,760
1,964,145
349,251
764,977
6,304
14,737,817
13,809
8,740,608
850,000
395,850
491,615
105,674
16,518
$ 25,351,891
$ 6,890,687
11,621,716
2,008,012
20,035
1,830,737
988
10,219
16,518
$ 22,398,912
126
19. Derivative Instruments
The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts,
along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a
measure of loss exposure. With the exception of the interest rate floors (discussed below), the Company's derivative
instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings.
(In thousands)
Interest rate swaps
Interest rate floors
Interest rate caps
Credit risk participation agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale contracts
Forward TBA contracts
Total notional amount
December 31
2020
2019
$
2,367,017
$
2,606,181
—
1,500,000
103,028
381,170
7,431
67,543
—
89,000
59,316
316,225
10,936
13,755
1,943
17,500
$
3,015,189
$
4,525,856
The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to
modify their interest rate sensitivity. The customers are engaged in a variety of businesses, including real estate,
manufacturing, retail product distribution, education, and retirement communities. These customer swaps are offset by
matching contracts purchased by the Company from other financial dealer institutions. Contracts with dealers that require
central clearing are novated to a clearing agency who becomes the Company's counterparty. Because of the matching terms of
the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair
value subsequent to initial recognition have a minimal effect on earnings.
Many of the Company’s interest rate swap contracts with large financial institutions contain contingent features relating to
debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the
Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and
ongoing collateralization on interest rate swaps in net liability positions or instant settlement of the contracts. The Company
maintains debt ratings and capital well above these minimum requirements.
During the year ended December 31, 2020, the Company monetized three interest rate floors that were previously classified
as cash flow hedges with a combined notional balance of $1.5 billion and an asset fair value of $163.2 million. As of
December 31, 2020, the total unrealized gains on the monetized cash flow hedges remaining in AOCI was $123.6 million (pre-
tax). The unrealized gains will be reclassified into interest income as the underlying forecasted transactions impact earnings
through the original maturity dates of the hedged forecasted transactions, or approximately 6.0 years.
The Company also contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated
with certain interest rate swaps through risk participation agreements. The Company’s risks and responsibilities as guarantor
are further discussed in Note 21 on Commitments, Contingencies and Guarantees. In addition, the Company enters into foreign
exchange contracts, which are mainly comprised of contracts to purchase or deliver foreign currencies for customers at specific
future dates.
Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-
originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan
commitments and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to
sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed
securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are
settled in cash at the security settlement date.
127
The fair values of the Company’s derivative instruments, whose notional amounts are listed above, are shown in the table
below. Information about the valuation methods used to determine fair value is provided in Note 17 on Fair Value
Measurements.
The Company's policy is to present its derivative assets and derivative liabilities on a gross basis in its consolidated balance
sheets and these are reported in other assets and other liabilities. Certain collateral posted to and from the Company's clearing
counterparty has been offset against the fair values of cleared swaps, such that at December 31, 2020 in the table below, there
were no reductions to the positive fair values of cleared swaps and the negative fair values of cleared swaps were reduced by
$69.2 million. At December 31, 2019, the positive fair values of cleared swaps were reduced by $617 thousand and the
negative fair values of cleared swaps were reduced by $28.5 million.
(In thousands)
Derivatives designated as hedging instruments:
Interest rate floors
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments:
Interest rate swaps
Interest rate caps
Credit risk participation agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale contracts
Forward TBA contracts
Total derivatives not designated as hedging instruments
Total
Asset Derivatives
December 31
Liability Derivatives
December 31
2020
2019
2020
2019
Fair Value
Fair Value
$
$
$
$
$
$
—
—
86,389
1
216
57
3,226
—
—
67,192
67,192
37,774
4
140
97
459
6
2
$
$
$
$
$
$
—
—
(17,199)
(1)
(701)
(103)
—
—
(671)
—
—
(9,916)
(4)
(230)
(32)
—
(2)
(35)
$
$
89,889
89,889
$
$
38,482
105,674
$
$
(18,675)
(18,675)
$
$
(10,219)
(10,219)
128
The pre-tax effects of derivative instruments on the consolidated statements of income are shown in the tables below.
Amount of Gain or (Loss) Recognized
in OCI
Included
Component
Excluded
Component
Total
(In thousands)
For the Year Ended December 31, 2020
Derivatives in cash flow hedging relationships:
Location of Gain (Loss)
Reclassified from AOCI into
Income
(In thousands)
Amount of Gain (Loss) Reclassified
from AOCI into Income
Included
Component
Excluded
Component
Total
Interest rate floors
93,497 $ 120,140 $
93,497 $ 120,140 $
Total
For the Year Ended December 31, 2019
Derivatives in cash flow hedging relationships:
Interest rate floors
27,481 $
27,481 $
50,327 $
50,327 $
Total
For the Year Ended December 31, 2018
Derivatives in cash flow hedging relationships:
$
$
$
$
(26,643)
(26,643) Total
Interest and fees on loans
(22,846)
(22,846) Total
Interest and fees on loans
Interest rate floors
Total
$
$
8,381 $
8,381 $
— $
— $
8,381
8,381
Interest and fees on loans
Total
$
$
$
$
$
$
10,319 $
10,319 $
15,257 $
15,257 $
(4,938)
(4,938)
(3,793) $
(3,793) $
— $
— $
(3,793)
(3,793)
(760) $
(760) $
— $
— $
(760)
(760)
(In thousands)
Derivative instruments:
Interest rate swaps
Interest rate caps
Credit risk participation agreements
Foreign exchange contracts:
Mortgage loan commitments
Mortgage loan forward sale contracts
Forward TBA contracts
Total
Location of Gain or (Loss) Recognized
in Income on Derivative
Amount of Gain or (Loss) Recognized in Income
on Derivative
For the Years
Ended December 31
2020
2019
2018
Other non-interest income
$
Other non-interest income
Other non-interest income
Other non-interest income
Loan fees and sales
Loan fees and sales
Loan fees and sales
317
20
413
(111)
2,768
(4)
(1,440)
$
4,732
$
3,914
—
(16)
53
(77)
(3)
(837)
11
150
31
(45)
5
414
$
1,963
$
3,852
$
4,480
129
The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the
consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master
netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset.
Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable
securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after
netting is applied); thus amounts of excess collateral are not shown. Most of the derivatives in the following table were
transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.
While the Company is party to master netting arrangements with most of its swap derivative counterparties, the Company
does not offset derivative assets and liabilities under these arrangements on its consolidated balance sheet. Collateral
exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and
usually consist of marketable securities. By contract, these may be sold or re-pledged by the secured party until recalled at a
subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts
cash or securities to its clearing agent. Collateral positions are valued daily, and adjustments to amounts received and pledged
by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative
transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which
is not shown in the table below.
(In thousands)
December 31, 2020
Assets:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
Liabilities:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
December 31, 2019
Assets:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
Liabilities:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
Gross Amount
Recognized
Gross Amounts
Offset in the
Balance Sheet
Net Amounts
Presented in the
Balance Sheet
Gross Amounts Not Offset in the
Balance Sheet
Financial
Instruments
Available for
Offset
Collateral
Received/
Pledged
Net Amount
$
86,497 $
— $
86,497 $
(108) $
— $
86,389
3,392
$
89,889 $
—
— $
3,392
89,889
$
$
18,420 $
— $
18,420 $
(108) $
(16,738) $
1,574
255
18,675 $
—
— $
255
18,675
$
105,147 $
— $
105,147 $
(8,104) $
(59,525) $
37,518
527
—
527
$
105,674 $
— $
105,674
$
10,083 $
— $
10,083 $
(8,104) $
(437) $
1,542
136
$
10,219 $
—
— $
136
10,219
130
20. Resale and Repurchase Agreements
The following table shows the extent to which assets and liabilities relating to securities purchased under agreements to
resell (resale agreements) and securities sold under agreements to repurchase (repurchase agreements) have been offset in the
consolidated balance sheets, in addition to the extent to which they could potentially be offset. Also shown is collateral
received or pledged, which consists of marketable securities. The collateral amounts in the table are limited to the outstanding
balances of the related asset or liability (after netting is applied); thus amounts of excess collateral are not shown. The
agreements in the following table were transacted under master netting arrangements that contain a conditional right of offset,
such as close-out netting, upon default.
Resale and repurchase agreements are agreements to purchase/sell securities subject to an obligation to resell/repurchase the
same or similar securities. They are accounted for as collateralized financing transactions, not as sales and purchases of the
securities portfolio. The securities collateral accepted or pledged in resale and repurchase agreements with other financial
institutions also may be sold or re-pledged by the secured party, but is usually delivered to and held by third party trustees. The
Company generally retains custody of securities pledged for repurchase agreements with customers.
The Company is party to agreements commonly known as collateral swaps. These agreements involve the exchange of
collateral under simultaneous repurchase and resale agreements with the same financial institution counterparty. These
repurchase and resale agreements have the same principal amounts, inception dates, and maturity dates and have been offset
against each other in the consolidated balance sheets, as permitted under the netting provisions of ASC 210-20-45. The
collateral swaps totaled $200.0 million at December 31, 2020 and December 31, 2019. At December 31, 2020, the Company
had posted collateral of $206.9 million in marketable securities, consisting of agency mortgage-backed bonds, and had accepted
$209.0 million in agency mortgage-backed bonds.
(In thousands)
December 31, 2020
Total resale agreements, subject to
master netting arrangements
Total repurchase agreements, subject
to master netting arrangements
December 31, 2019
Total resale agreements, subject to
master netting arrangements
Total repurchase agreements, subject
to master netting arrangements
Gross Amount
Recognized
Gross Amounts
Offset in the
Balance Sheet
Net Amounts
Presented in the
Balance Sheet
Gross Amounts Not Offset in the
Balance Sheet
Financial
Instruments
Available for
Offset
Securities
Collateral
Received/
Pledged
Net Amount
$
1,050,000 $
(200,000) $
850,000 $
— $
(850,000) $
2,256,113
(200,000)
2,056,113
—
(2,056,113)
$
1,050,000 $
(200,000) $
850,000 $
— $
(850,000) $
2,030,737
(200,000)
1,830,737
—
(1,830,737)
—
—
—
—
131
The table below shows the remaining contractual maturities of repurchase agreements outstanding at December 31, 2020
and 2019, in addition to the various types of marketable securities that have been pledged by the Company as collateral for
these borrowings.
(In thousands)
December 31, 2020
Repurchase agreements, secured by:
U.S. government and federal agency obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Total repurchase agreements, gross amount recognized
December 31, 2019
Repurchase agreements, secured by:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Total repurchase agreements, gross amount recognized
Remaining Contractual Maturity of the Agreements
Overnight and
continuous
Up to 90 days
Greater than 90
days
Total
$
$
$
$
150,305 $
1,598,614
62,742
155,917
33,668
2,001,246 $
526,283 $
32,575
973,774
71,399
60,012
50,375
1,714,418 $
— $
34,018
—
—
—
34,018 $
— $
—
48,517
—
40,000
—
88,517 $
— $
220,849
—
—
—
220,849 $
— $
—
227,802
—
—
—
227,802 $
150,305
1,853,481
62,742
155,917
33,668
2,256,113
526,283
32,575
1,250,093
71,399
100,012
50,375
2,030,737
132
21. Commitments, Contingencies and Guarantees
The Company engages in various transactions and commitments with off-balance sheet risk in the normal course of business
to meet customer financing needs. The Company uses the same credit policies in making the commitments and conditional
obligations described below as it does for on-balance sheet instruments. The following table summarizes these commitments at
December 31:
(In thousands)
Commitments to extend credit:
Credit card
Other
Standby letters of credit, net of participations
Commercial letters of credit
2020
2019
$
4,972,104 $
5,063,166
8,033,222
6,123,264
357,087
3,117
377,338
7,050
Commitments to extend credit are legally binding agreements to lend to a borrower providing there are no violations of any
conditions established in the contract. As many of the commitments are expected to expire without being drawn upon, the total
commitment does not necessarily represent future cash requirements. Refer to Note 2 on Loans and Allowance for Credit
Losses for further discussion.
Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer. The majority
of commercial letters of credit issued are used to settle payments in international trade. Typically, letters of credit require
presentation of documents which describe the commercial transaction, evidence shipment, and transfer title.
The Company, as a provider of financial services, routinely issues financial guarantees in the form of financial and
performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to
guarantee the payment or performance obligation of a customer to a third party. While these represent a potential outlay by the
Company, a significant amount of the commitments may expire without being drawn upon. The Company has recourse against
the customer for any amount it is required to pay to a third party under a standby letter of credit. The letters of credit are subject
to the same credit policies, underwriting standards and approval process as loans made by the Company. Most of the standby
letters of credit are secured, and in the event of nonperformance by the customer, the Company has rights to the underlying
collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable
securities.
At December 31, 2020, the Company had recorded a liability in the amount of $3.3 million, representing the carrying value
of the guarantee obligations associated with the standby letters of credit. This amount will be accreted into income over the
remaining life of the respective commitments. Commitments outstanding under these letters of credit, which represent the
maximum potential future payments guaranteed by the Company, were $357.1 million at December 31, 2020.
The Company regularly purchases various state tax credits arising from third-party property redevelopment. These credits
are either resold to third parties or retained for use by the Company. During 2020, purchases and sales of tax credits amounted
to $151.2 million and $131.4 million, respectively. At December 31, 2020, the Company had outstanding purchase
commitments totaling $141.3 million that it expects to fund in 2021.
The Company periodically enters into risk participation agreements (RPAs) as a guarantor to other financial institutions, in
order to mitigate those institutions’ credit risk associated with interest rate swaps with third parties. The RPA stipulates that, in
the event of default by the third party on the interest rate swap, the Company will reimburse a portion of the loss borne by the
financial institution. These interest rate swaps are normally collateralized (generally with real property, inventories and
equipment) by the third party, which limits the credit risk associated with the Company’s RPAs. The third parties usually have
other borrowing relationships with the Company. The Company monitors overall borrower collateral, and at December 31,
2020, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair value throughout
their term, with all changes in fair value, including those due to a change in the third party’s creditworthiness, recorded in
current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 2 to 11 years. At
December 31, 2020, the fair value of the Company's guarantee liability RPAs was $701 thousand, and the notional amount of
the underlying swaps was $288.7 million. The maximum potential future payment guaranteed by the Company cannot be
readily estimated and is dependent upon the fair value of the interest rate swaps at the time of default.
During the third quarter of 2020, the Company signed a $106.6 million agreement with U.S. Capital Development to
develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri. While the Company
133
intends to occupy a portion of the office building for executive offices, a 15 year lease has been signed by an anchor tenant to
lease approximately 40% of the office building.
The Company has various legal proceedings pending at December 31, 2020, arising in the normal course of business. While
some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of
damages or are at very early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters
for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet
progressed to the point where a loss amount can be determined to be probable and estimable.
22. Related Parties
The Company’s Chief Executive Officer, its Executive Chairman, and its former Vice Chairman are directors of Tower
Properties Company (Tower) and, together with members of their immediate families, beneficially own approximately 67% of
the outstanding stock of Tower. At December 31, 2020, Tower owned 222,595 shares of Company stock. Tower is primarily
engaged in the business of owning, developing, leasing and managing real property.
Payments from the Company and its affiliates to Tower are summarized below. These payments, with the exception of
dividend payments, relate to property management services, including construction oversight, on three Company-owned office
buildings and related parking garages in downtown Kansas City.
(In thousands)
Leasing agent fees
Operation of parking garages
Building management fees
Property construction management fees
Project consulting fees
Dividends paid on Company stock held by Tower
Total
2020
2019
2018
$
— $
81
154 $
118
2,110
2,001
251
335
229
250
—
210
133
95
1,935
136
—
181
$
3,006 $
2,733 $
2,480
Tower has a $13.5 million line of credit with the Bank which is subject to normal credit terms and has a variable interest
rate. The line of credit is collateralized by Company stock and based on collateral value had a maximum borrowing amount of
approximately $11.7 million at December 31, 2020. There were no borrowings under this line during 2020, and no balance
outstanding at December 31, 2020. There were no borrowings during 2019 and 2018. There was no balance outstanding at
December 31, 2019 or 2018. Interest paid on borrowings during the last three years was not significant. Letters of credit may
be collateralized under this line of credit; however, there were no letters of credit outstanding during 2020, 2019 or 2018, and
thus, no fees were received during these periods. From time to time, the Bank extends additional credit to Tower for
construction and development projects. No construction loans were outstanding during 2020, 2019 and 2018.
Tower leases office space in the Kansas City bank headquarters building owned by the Company. Rent paid to the
Company totaled $87 thousand in 2020, $75 thousand in 2019, and $74 thousand in 2018, at $17.19, $17.00 and $16.69 per
square foot, respectively.
Directors of the Company and their beneficial interests have deposit accounts with the Bank and may be provided with cash
management and other banking services, including loans, in the ordinary course of business. Such loans were made on
substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions
with other unrelated persons and did not involve more than the normal risk of collectability.
As discussed in Note 21 on Commitments, Contingencies and Guarantees, the Company regularly purchases various state
tax credits arising from third-party property redevelopment and resells the credits to third parties. During 2020, the Company
sold state tax credits to its Executive Chairman, its former Vice Chairman, and its Chief Executive Officer in the amount of
$603 thousand, $551 thousand, and $223 thousand, respectively, for personal tax planning. During 2019, the Company sold
state tax credits to its Executive Chairman, its former Vice Chairman, its Chief Executive Officer, and its Chief Credit Officer
in the amount of $865 thousand, $663 thousand, $166 thousand, and $83 thousand respectively. During 2018, the Company
sold state tax credits to its Executive Chairman, its former Vice Chairman, and its Chief Executive Officer in the amount of
$831 thousand, $759 thousand, and $119 thousand, respectively. The terms of the sales and the amounts paid were the same as
the terms and amounts paid for similar tax credits by persons not related to the Company.
During the year ended December 31, 2020, the Company incurred project consulting fees of $335 thousand payable to
Tower Properties for services rendered on the Clayton building project.
134
23. Parent Company Condensed Financial Statements
Following are the condensed financial statements of Commerce Bancshares, Inc. (Parent only) for the periods indicated:
Condensed Balance Sheets
(In thousands)
Assets
Investment in consolidated subsidiaries:
Bank
Non-banks
Cash
Investment securities:
Available for sale debt
Equity
Note receivable due from bank subsidiary
Advances to subsidiaries, net of borrowings
Deferred tax assets
Other assets
Total assets
Liabilities and stockholders’ equity
Pension obligation
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statements of Income
(In thousands)
Income
Dividends received from consolidated bank subsidiary
Earnings of consolidated subsidiaries, net of dividends
Interest and dividends on investment securities
Management fees charged to subsidiaries
Investment securities gains (losses)
Net interest income on advances and note to subsidiaries
Other
Total income
Expense
Salaries and employee benefits
Professional fees
Data processing fees paid to affiliates
Other
Total expense
Income tax benefit
Net income
135
December 31
2020
2019
$
3,077,713 $
2,687,692
67,710
171,943
71,290
301,913
4,795
3,135
50,000
31,907
10,990
26,222
1,399
2,969
50,000
26,097
9,973
23,528
$
$
3,444,415 $
3,174,861
17,548 $
29,820
47,368
13,028
27,149
40,177
3,397,047
3,134,684
$
3,444,415 $
3,174,861
For the Years Ended December 31
2020
2019
2018
$
210,001 $
500,000 $
148,435
(79,641)
1,802
33,472
53
233
4,282
1,698
36,776
3,572
1,208
4,700
200,000
233,785
10,698
37,688
(4,581)
1,299
2,390
398,278
468,313
481,279
31,277
1,977
2,765
11,850
47,869
(3,648)
32,882
2,050
3,142
13,106
51,180
(4,098)
33,588
2,383
3,341
10,881
50,193
(2,456)
$
354,057 $
421,231 $
433,542
Condensed Statements of Cash Flows
(In thousands)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Earnings of consolidated subsidiaries, net of dividends
Other adjustments, net
Net cash provided by operating activities
Investing Activities
(Increase) decrease in investment in subsidiaries, net
Proceeds from sales of investment securities
Proceeds from maturities/pay downs of investment securities
Purchases of investment securities
Increase in advances to subsidiaries, net
Net purchases of building improvements and equipment
Net cash provided by (used in) investing activities
Financing Activities
Preferred stock redemption
Purchases of treasury stock
Accelerated share repurchase agreements
Issuance of stock under equity compensation plans
Cash dividends paid on common stock
Cash dividends paid on preferred stock
Net cash used in financing activities
Increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Income tax receipts, net
For the Years Ended December 31
2020
2019
2018
$
354,057 $
421,231 $
433,542
(148,435)
79,641
(233,785)
5,504
2,491
2,505
211,126
503,363
202,262
3
—
1,410
(4,863)
(5,810)
(94)
(9,354)
(12)
3,856
1,150
(63)
(6,230)
(235)
(1,534)
—
41,638
1,988
(125)
(5,296)
(133)
38,072
(150,000)
—
—
(54,163)
(134,904)
(75,231)
—
(11)
(150,000)
(8)
—
(10)
(120,818)
(113,466)
(100,238)
(6,750)
(9,000)
(9,000)
(331,742)
(407,378)
(184,479)
(129,970)
94,451
301,913
207,462
171,943 $
301,913 $
55,855
151,607
207,462
(3,663) $
(2,337) $
(1,965)
$
$
Dividends paid by the Parent to its shareholders were substantially provided from Bank dividends. The Bank may distribute
common dividends without prior regulatory approval, provided that the dividends do not exceed the sum of net income for the
current year and retained net income for the preceding two years, subject to maintenance of minimum capital requirements. The
Parent charges fees to its subsidiaries for management services provided, which are allocated to the subsidiaries based primarily
on total average assets. The Parent makes cash advances to its private equity subsidiary for general short-term cash flow
purposes. Advances may be made to the Parent by its subsidiary bank holding company for temporary investment of idle funds.
Interest on such advances is based on market rates.
In 2017, the Bank borrowed $50.0 million from the Parent as part of its strategy to manage FDIC insurance premiums. The
note has a rolling 13 month maturity, and the interest rate is a variable rate equal to the one year treasury rate.
For the past several years, the Parent has maintained a $20.0 million line of credit for general corporate purposes with the
Bank. The Parent has not borrowed under this line during the past three years.
At December 31, 2020, the fair value of the investment securities held by the Parent consisted of investments of $4.8 million
in corporate bonds and $2.8 million in preferred stock with readily determinable fair values, and $300 thousand in equity
securities that do not have readily determinable fair values.
136
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and financial disclosure.
Item 9a. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, our principal executive officer
and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the
period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control — Integrated Framework (2013), our management concluded that our
internal control over financial reporting was effective as of December 31, 2020.
The Company’s internal control over financial reporting as of December 31, 2020 has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report which follows.
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred that has materially affected, or is reasonably
likely to materially affect, such controls during the last quarter of the period covered by this report.
137
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Commerce Bancshares, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Commerce Bancshares, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated
statements of income, comprehensive income, changes in equity , and cash flows for each of the years in the three-year period
ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated
February 24, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws, the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Kansas City, Missouri
February 24, 2021
138
Item 9b. OTHER INFORMATION
None
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Items 401, 405 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K regarding executive officers,
directors, and corporate governance is included at the end of Part I of this Form 10-K under the caption “Information about the
Company's Executive Officers” and under the captions “Proposal One - Election of the 2024 Class of Directors”, “Delinquent
Section 16(a) Reports”, “Audit and Risk Committee Report”, “Committees of the Board" and "Shareholder Proposals and
Nominations" in the definitive proxy statement, which is incorporated herein by reference.
The Company’s senior financial officer code of ethics for the chief executive officer and senior financial officers of the
Company, including the chief financial officer, principal accounting officer or controller, or persons performing similar
functions, is available at www.commercebank.com. Amendments to, and waivers of, the code of ethics are posted on this
website.
Item 11. EXECUTIVE COMPENSATION
The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K regarding executive compensation is
included under the captions “Compensation Discussion and Analysis”, “Executive Compensation”, “Director Compensation”,
“Compensation and Human Resources Committee Report”, and “Compensation and Human Resources Committee Interlocks
and Insider Participation” in the definitive proxy statement, which is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Items 201(d) and 403 of Regulation S-K is included under the captions “Equity Compensation
Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in the definitive proxy statement,
which is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Items 404 and 407(a) of Regulation S-K is covered under the captions “Proposal One - Election
of the 2024 Class of Directors” and “Corporate Governance” in the definitive proxy statement, which is incorporated herein by
reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 9(e) of Schedule 14A is included under the captions “Pre-approval of Services by the
External Independent Registered Public Accounting Firm” and “Fees Paid to KPMG LLP” in the definitive proxy statement,
which is incorporated herein by reference.
139
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) The following documents are filed as a part of this report:
(1)
(2)
Financial Statements:
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of Quarterly Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statement Schedules:
All schedules are omitted as such information is inapplicable or is included in the financial
statements.
Page
65
66
67
68
69
70
62
(b) The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed
below.
3 —Articles of Incorporation and By-Laws:
(1) Restated Articles of Incorporation, as amended, were filed in quarterly report on Form 10-Q (Commission
file number 1-36502) dated May 7, 2019, and the same are hereby incorporated by reference.
(2) By-Laws, as amended, were filed in annual report on Form 10-K (Commission file number 1-36502) dated
February 25, 2020, and the same are hereby incorporated by reference.
(3) Termination of Certificate of Designation of 6.00% Series B Non-Cumulative Perpetual Preferred Stock of
Commerce Bancshares, Inc. was filed in current report on Form 8-K (Commission file number 0-2989) dated
September 1, 2020, and the same is hereby incorporated by reference.
4 — Instruments defining the rights of security holders, including indentures:
(1) Pursuant to paragraph (b)(4)(iii) of Item 601 Regulation S-K, Registrant will furnish to the Commission upon
request copies of long-term debt instruments.
(2) Description of Commerce Bancshares, Inc. registered securities was filed in annual report on Form 10-K
(Commission file number 1-36502) dated February 25, 2020, and the same is hereby incorporated by reference.
10 — Material Contracts (Except for the Development Services Agreement and associated Amendments to the Development
Service Agreement listed below, each of the following is a management contract or compensatory plan arrangement):
(1) Commerce Bancshares, Inc. Executive Incentive Compensation Plan amended and restated as of January 1,
2019, was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 21, 2019, and
the same is hereby incorporated by reference.
(2) Commerce Bancshares, Inc. Stock Purchase Plan for Non-Employee Directors amended and restated as of
April 17, 2013 was filed in current report on Form 8-K (Commission file number 0-2989) dated April 23, 2013,
and the same is hereby incorporated by reference.
(3) Commerce Executive Retirement Plan amended and restated as of January 28, 2011 was filed in annual report
on Form 10-K (Commission file number 0-2989) dated February 25, 2011, and the same is hereby incorporated
by reference.
(4) 2009 Form of Severance Agreement between Commerce Bancshares, Inc. and the persons listed at the end of
such agreement was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 24,
2015, and the same is hereby incorporated by reference.
(5) 2015 Form of Severance Agreement between Commerce Bancshares, Inc. and the persons listed at the end of
such agreement was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 24,
2015, and the same is hereby incorporated by reference.
140
(6) 2009 Form of Severance Agreement between Commerce Bancshares, Inc. and the persons listed at the end of
such agreement was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 21,
2019, and the same is hereby incorporated by reference.
(7) Trust Agreement for the Commerce Bancshares, Inc. Executive Incentive Compensation Plan amended and
restated as of January 1, 2001 was filed in quarterly report on Form 10-Q (Commission file number 0-2989)
dated May 8, 2001, and the same is hereby incorporated by reference.
(8) Commerce Bancshares, Inc. 2021 Compensatory Arrangements with CEO and Named Executive Officers
were filed in amended current report on Form 8-K (Commission file number 1-36502) dated February 8, 2021,
and the same is hereby incorporated by reference.
(9) Commerce Bancshares, Inc. Amended and Restated 2005 Equity Incentive Plan, amended and restated as of
April 17, 2013 (incorporated by reference to Exhibit 10(j) to Commerce Bancshares, Inc.'s Form 8-K dated April
23, 2013).
(9)(1) Amendment No. 1 dated November 12, 2018 to Commerce Bancshares, Inc. Amended and Restated 2005
Equity Incentive Plan, amended and restated as of April 17, 2013, was filed in annual report on Form 10-K
(Commission file number 1-36502) dated February 21, 2019.
(10) Commerce Bancshares, Inc. Stock Appreciation Rights Agreement and Commerce Bancshares, Inc.
Restricted Stock Award Agreement, pursuant to the 2005 Equity Incentive Plan, were filed in current report on
Form 8-K (Commission file number 0-2989) dated February 23, 2006, and the same are hereby incorporated by
reference.
(11) Commerce Bancshares, Inc. Stock Appreciation Rights Agreement, Commerce Bancshares, Inc. Restricted
Stock Award Agreements for Executive Officers, and Commerce Bancshares, Inc. Restricted Stock Award
Agreements for Employees other than Executive Officers, pursuant to the 2005 Equity Incentive Plan, were filed
in quarterly report on Form 10-Q (Commission file number 0-2989) dated May 6, 2013, and the same are hereby
incorporated by reference.
(12) Form of Notice of Grant of Award and Award Agreement for Restricted Stock for Executive Officers,
pursuant to the Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in quarterly report on Form
10-Q (Commission file number 0-2989) dated May 7, 2014, and the same is hereby incorporated by reference.
(13) Form of Notice of Grant of Award and Award Agreement for Restricted Stock for Employees other than
Executive Officers, pursuant to the Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in
quarterly report on Form 10-Q (Commission file number 0-2989) dated May 7, 2014, and the same is hereby
incorporated by reference.
(14) Form of Notice of Grant of Award and Award Agreement for Stock Appreciation Rights, pursuant to the
Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in quarterly report on Form 10-Q
(Commission file number 0-2989) dated May 7, 2014, and the same is hereby incorporated by reference.
(15) Form of Notice of Grant of Award and Award Agreement for Restricted Stock, pursuant to the Commerce
Bancshares, Inc. 2005 Equity Incentive Plan, was filed in annual report on Form 10-K (Commission file number
1-36502) dated February 21, 2019, and the same is hereby incorporated by reference.
(16) Development Services Agreement* was filed in quarterly report on Form 10-Q (Commission file number
1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(17) Amendment 1 to Development Services Agreement* was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(18) Amendment 2 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(19) Amendment 3 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(20) Amendment 4 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(21) Amendment 5 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(22) Amendment 6 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(23) Amendment 7 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
141
(24) Amendment 8 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(25) Amendment 9 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(26) Amendment 10 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(27) Amendment 11 to Development Services Agreement* was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
21 — Subsidiaries of the Registrant
23 — Consent of Independent Registered Public Accounting Firm
24 — Power of Attorney
31.1 — Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 — Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 — Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
101 — Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the
Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated
Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial
Statements, tagged as blocks of text and in detail. The instance document does not appear in the interactive data file because
its XBRL tags are embedded within the inline XBRL document.
104 — Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* In accordance with Item 601(a)(5) of Regulation S-K, certain schedules and exhibits to this exhibit have been omitted from
this filing. The Company will furnish a copy of any omitted schedule or exhibit to the Securities and Exchange Commission
or its staff upon request. In accordance with Item 601(b)(10)(iv) of Regulation S-K, certain portions of this exhibit have been
redacted because they are both (i) not material and (ii) would likely cause competitive harm to the Company if publicly
disclosed. The Company will provide an unredacted copy of the exhibit on a supplementary basis to the Securities and
Exchange Commission or its staff upon request.
Item 16. FORM 10-K SUMMARY
None.
142
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized this 24th day of February 2021.
SIGNATURES
COMMERCE BANCSHARES, INC.
By:
/s/ THOMAS J. NOACK
Thomas J. Noack
Senior Vice President & Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on the 24th day of February 2021.
By:
By:
By:
/s/ JOHN W. KEMPER
John W. Kemper
Chief Executive Officer
/s/ CHARLES G. KIM
Charles G. Kim
Chief Financial Officer
/s/ PAUL A. STEINER
Paul A. Steiner
Controller
(Chief Accounting Officer)
All the Directors on the Board of Directors*
David W. Kemper
Terry D. Bassham
John R. Capps
Earl H. Devanny, III
W. Thomas Grant, II
Karen L. Daniel
John W. Kemper
Jonathan M. Kemper
Benjamin F. Rassieur, III
Todd R. Schnuck
Andrew C. Taylor
Kimberly G. Walker
____________
* The Directors of Registrant listed executed a power of attorney authorizing Thomas J. Noack, their attorney-in-fact, to sign
this report on their behalf.
/s/ THOMAS J. NOACK
Thomas J. Noack
Attorney-in-Fact
By:
143
The consolidated subsidiaries of the Registrant at February 1, 2021 were as follows:
Exhibit 21
Name
CBI-Kansas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas
State or Other
Jurisdiction of
Incorporation
Commerce Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Commerce Brokerage Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Clayton Holdings, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Clayton Financial Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Clayton Realty Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Illinois Financial, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Illinois Realty, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Commerce Insurance Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Commerce Investment Advisors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CBI Equipment Finance, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CB Acquisition, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Tower Redevelopment Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CBI Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Arizona
CFB Partners, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
CFB Venture Fund I, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CFB Venture Fund, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Capital for Business, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Consent of Independent Registered Public Accounting Firm
Exhibit 23
The Board of Directors
Commerce Bancshares, Inc.:
We consent to the incorporation by reference in the Registration Statements No. 33-28294, No. 33-82692, No. 33-8075, No.
33-78344, No. 333-14651, No. 333-186867, No. 333-188374, and No. 333-214495 on Form S-8 and No. 333-140221 on Form
S-3ASR of Commerce Bancshares, Inc. of our reports dated February 24, 2021, with respect to the consolidated balance sheets
of Commerce Bancshares, Inc. as of December 31, 2020 and 2019, the related consolidated statements of income,
comprehensive income, changes in equity, and cash flows for each of the years in the three year period ended December 31,
2020, and the related notes (collectively, the consolidated financial statements), and the effectiveness of internal control over
financial reporting as of December 31, 2020, which reports appear in the December 31, 2020 annual report on Form 10-K of
Commerce Bancshares, Inc.
Our report refers to a change in accounting for recognition and measurement of credit losses as of January 1, 2020 due to the
adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, and its related amendments.
KPMG LLP
Kansas City, Missouri
February 24, 2021
POWER OF ATTORNEY
Exhibit 24
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby appoint Thomas J. Noack and Paul A. Steiner,
or either of them, attorney for the undersigned to sign the Annual Report on Form 10-K of Commerce Bancshares, Inc., for the
fiscal year ended December 31, 2020, together with any and all amendments which might be required from time to time with
respect thereto, to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, with
respect to Commerce Bancshares, Inc., with full power and authority in either of said attorneys to do and perform in the name
of and on behalf of the undersigned every act whatsoever necessary or desirable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned have executed these presents as of this 5th day of February, 2021.
/s/ TERRY D. BASSHAM
/s/ JOHN R. CAPPS
/s/ EARL H. DEVANNY, III
/s/ W. THOMAS GRANT, II
/s/ KAREN L. DANIEL
/s/ DAVID W. KEMPER
/s/ JOHN W. KEMPER
/s/ JONATHAN M. KEMPER
/s/ BENJAMIN F. RASSIEUR, III
/s/ TODD R. SCHNUCK
/s/ ANDREW C. TAYLOR
/s/ KIMBERLY G. WALKER
CERTIFICATION
Exhibit 31.1
I, John W. Kemper, certify that:
1. I have reviewed this annual report on Form 10-K of Commerce Bancshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
February 24, 2021
/s/ JOHN W. KEMPER
John W. Kemper
President and
Chief Executive Officer
CERTIFICATION
Exhibit 31.2
I, Charles G. Kim, certify that:
1. I have reviewed this annual report on Form 10-K of Commerce Bancshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
February 24, 2021
/s/ CHARLES G. KIM
Charles G. Kim
Executive Vice President and
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report of Commerce Bancshares, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, John W.
Kemper and Charles G. Kim, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, hereby
certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of our knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ JOHN W. KEMPER
John W. Kemper
Chief Executive Officer
/s/ CHARLES G. KIM
Charles G. Kim
Chief Financial Officer
February 24, 2021
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its staff upon request.
CORPOR ATE HEADQUARTERS
1000 Walnut
P.O. Box 419248
Kansas City, MO 64141-6248
816.234.2000
www.commercebank.com
TR ANSFER AGENT, REGISTR AR
AND DIVIDEND DISBURSING AGENT
Shareholder correspondence should be mailed to:
Computershare Trust Company, N.A.
P.O. Box 505000
Louisville, KY 40233
Overnight correspondence should be sent to:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Within USA Telephone: 800.317.4445
Outside USA Telephone: 781.575.2723
Hearing Impaired/TDD: 800.952.9245
Website: www.computershare.com/investor
Shareholder online inquiries:
https://www.us.computershare.com/investor/contact
STOCK EXCHANGE LISTING
Nasdaq
Common Stock Symbol: CBSH
ANNUAL MEETING
This year’s annual meeting will be a virtual meeting of
shareholders. The meeting will be held Wednesday, April
21, 2021 at 9:30 a.m., and you may attend via webcast.
Please note there will be no in-person meeting to attend.
INVESTOR INQUIRIES
Shareholders, analysts and investors seeking information
about the company should direct their inquiries to:
Matthew Burkemper
Senior Vice President, Commerce Bank
Corporate Development and Investor Relations
8000 Forsyth Boulevard
St. Louis, MO 63105
314.746.7485
Matthew.Burkemper@commercebank.com
SHAREHOLDERS MAY RECEIVE FUTURE ANNUAL REPORTS AND PROXY MATERIALS ONLINE
To receive materials electronically, rather than by mail, individuals who hold stock in their name may enroll for electronic
delivery at Computershare’s investor website: www.computershare.com/investor
• If you have already created a login ID and password at the above site, log in and follow the prompts to “Enroll in
Electronic Delivery.”
• If you have not created a login ID and password on the above site, choose “Create Login.” You will need the Social
Security number or tax ID number associated with your Commerce stock account to create the login. After you have
created your login, follow the prompts to “Enroll in Electronic Delivery.”
Please note:
• Your consent is entirely revocable.
• You can always vote your proxy on the internet whether or not you elect to receive your materials electronically.
Shareholders who hold their Commerce stock through a bank, broker or other holder of record should refer to the information
provided by that entity for instructions on how to elect to view future annual reports and proxy statements over the internet.
Employee PIP [401(k)] shareholders who have a company email address and online access will automatically be enrolled to
receive the Annual Report, Proxy Statement, and proxy card over the internet unless they choose to opt out by emailing the
Corporate Secretary at Thomas.Noack@commercebank.com.
C O M M E R C E B A N C S H A R E S , I N C .
1000 WALNUT
P.O. BOX 419248
KANSAS CITY, MO 64141-6248
Phone: (816) 234-2000
(800) 892-7100
Email: CBSHInvestorRelations@commercebank.com
Website: www.commercebank.com
An Equal Opportunity Employer
Copyright © 2021 Commerce Bancshares, Inc. All rights reserved.