FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR - PDF document

Toggle SGML Header (+) Section 1: 10-Q (10-Q) Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) � QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 _________________________________________________________ For the quarterly period ended June 30, 2017 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. 0-2989 COMMERCE BANCSHARES, INC. (Exact name of registrant as specified in its charter) Missouri 43-0889454 (State of Incorporation) (IRS Employer Identification No.) 1000 Walnut, Kansas City, MO 64106 (Address of principal executive offices) (Zip Code) (816) 234-2000 (Registrant’s telephone number, including area code) 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 � No � Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes � 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 � 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes � No � As of August 1, 2017, the registrant had outstanding 101,625,940 shares of its $5 par value common stock, registrant’s only class of common stock.

Commerce Bancshares, Inc. and Subsidiaries Form 10-Q Page INDEX Part I Financial Information Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2017 (unaudited) and December 31, 2016 3 Consolidated Statements of Income for the Three and Six Months Ended June 30, 2017 and 2016 (unaudited) 4 Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016 (unaudited) 5 Consolidated Statements of Changes in Equity for the Six Months Ended June 30, 2017 and 2016 (unaudited) 6 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 (unaudited) 7 Notes to Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 36 Item 3. Quantitative and Qualitative Disclosures about Market Risk 59 Item 4. Controls and Procedures 60 Part II Other Information Item 1. Legal Proceedings 61 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 61 Item 6. Exhibits 61 Signatures 62 Index to Exhibits 63 2

Table of Contents PART I: FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS June 30, 2017 December 31, 2016 (Unaudited) (In thousands) ASSETS Loans $ 13,626,592 $ 13,412,736 Allowance for loan losses (157,832) (155,932) Net loans 13,468,760 13,256,804 Loans held for sale (including $14,118,000 and $9,263,000 of residential mortgage loans carried at fair value at June 30, 2017 and December 31, 2016, respectively) 22,002 14,456 Investment securities: Available for sale ($719,820,000 and $568,553,000 pledged at June 30, 2017 and December 31, 2016, respectively, to secure swap and repurchase agreements) 9,439,701 9,649,203 Trading 22,291 22,225 Non-marketable 102,388 99,558 Total investment securities 9,564,380 9,770,986 Federal funds sold and short-term securities purchased under agreements to resell 16,520 15,470 Long-term securities purchased under agreements to resell 625,000 725,000 Interest earning deposits with banks 80,860 272,275 Cash and due from banks 433,747 494,690 Land, buildings and equipment, net 334,586 337,705 Goodwill 138,921 138,921 Other intangible assets, net 7,002 6,709 Other assets 387,065 608,408 Total assets $ 25,078,843 $ 25,641,424 LIABILITIES AND EQUITY Deposits: Non-interest bearing $ 7,314,506 $ 7,429,398 Savings, interest checking and money market 11,427,615 11,430,789 Time open and C.D.'s of less than $100,000 679,668 713,075 Time open and C.D.'s of $100,000 and over 1,403,873 1,527,833 Total deposits 20,825,662 21,101,095 Federal funds purchased and securities sold under agreements to repurchase 1,256,444 1,723,905 Other borrowings 101,903 102,049 Other liabilities 266,627 213,243 Total liabilities 22,450,636 23,140,292 Commerce Bancshares, Inc. stockholders’ equity: Preferred stock, $1 par value Authorized 2,000,000 shares; issued 6,000 shares 144,784 144,784 Common stock, $5 par value Authorized 120,000,000 shares; issued 102,003,046 shares 510,015 510,015 Capital surplus 1,546,534 1,552,454 Retained earnings 390,853 292,849 Treasury stock of 207,294 shares at June 30, 2017 and 364,711 shares at December 31, 2016, at cost (10,373) (15,294) Accumulated other comprehensive income 42,070 10,975 Total Commerce Bancshares, Inc. stockholders' equity 2,623,883 2,495,783 Non-controlling interest 4,324 5,349 Total equity 2,628,207 2,501,132 Total liabilities and equity $ 25,078,843 $ 25,641,424 See accompanying notes to consolidated financial statements. 3

Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended June 30 For the Six Months Ended June 30 (In thousands, except per share data) 2017 2016 2017 2016 (Unaudited) INTEREST INCOME Interest and fees on loans $ 134,273 $ 121,151 $ 262,596 $ 240,484 Interest and fees on loans held for sale 263 692 459 827 Interest on investment securities 54,975 54,698 110,240 103,589 Interest on federal funds sold and short-term securities purchased under agreements to resell 37 19 60 43 Interest on long-term securities purchased under agreements to resell 3,684 3,354 7,477 6,829 Interest on deposits with banks 362 151 759 421 Total interest income 193,594 180,065 381,591 352,193 INTEREST EXPENSE Interest on deposits: Savings, interest checking and money market 4,342 3,548 8,232 7,032 Time open and C.D.'s of less than $100,000 674 709 1,318 1,451 Time open and C.D.'s of $100,000 and over 2,822 2,347 5,585 4,333 Interest on federal funds purchased and securities sold under agreements to repurchase 2,038 725 3,577 1,613 Interest on other borrowings 911 907 1,799 2,160 Total interest expense 10,787 8,236 20,511 16,589 Net interest income 182,807 171,829 361,080 335,604 Provision for loan losses 10,758 9,216 21,886 18,655 Net interest income after provision for loan losses 172,049 162,613 339,194 316,949 NON-INTEREST INCOME Bank card transaction fees 44,999 45,065 88,203 89,535 Trust fees 33,120 30,241 65,134 59,484 Deposit account charges and other fees 22,861 21,328 44,803 42,019 Capital market fees 2,156 2,500 4,498 5,225 Consumer brokerage services 3,726 3,491 7,375 7,000 Loan fees and sales 4,091 3,196 7,259 5,706 Other 12,131 10,749 22,878 26,625 Total non-interest income 123,084 116,570 240,150 235,594 INVESTMENT SECURITIES GAINS (LOSSES), NET 1,651 (744) 879 (1,739) NON-INTEREST EXPENSE Salaries and employee benefits 108,829 104,808 221,198 211,667 Net occupancy 11,430 11,092 22,873 22,395 Equipment 4,776 4,781 9,385 9,415 Supplies and communication 5,446 5,693 11,155 12,522 Data processing and software 23,356 22,770 46,453 45,669 Marketing 4,488 4,389 7,712 8,202 Deposit insurance 3,592 3,143 7,063 6,308 Other 22,677 20,413 45,585 38,384 Total non-interest expense 184,594 177,089 371,424 354,562 Income before income taxes 112,190 101,350 208,799 196,242 Less income taxes 33,201 31,542 58,108 60,912 Net income 78,989 69,808 150,691 135,330 Less non-controlling interest expense (income) 29 (85) 227 63 Net income attributable to Commerce Bancshares, Inc. 78,960 69,893 150,464 135,267 Less preferred stock dividends 2,250 2,250 4,500 4,500 Net income available to common shareholders $ 76,710 $ 67,643 $ 145,964 $ 130,767 Net income per common share — basic $ .75 $ .67 $ 1.43 $ 1.29 Net income per common share — diluted $ .75 $ .66 $ 1.43 $ 1.28 See accompanying notes to consolidated financial statements. 4