Commerce Bancshares, Inc. Reports Fourth Quarter Earnings Per Share of $.94

By: Commerce Bancshares, Inc. via Business Wire

January 19, 2022 at 06:00 AM EST

Commerce Bancshares, Inc. announced earnings of $.94 per share for the three months ended December 31, 2021, compared to $1.05 per common share in the same quarter last year and $.99 per share in the third quarter of 2021. Net income attributable to Commerce Bancshares, Inc. (net income) for the fourth quarter of 2021 amounted to $114.9 million, compared to $129.9 million in the fourth quarter of 2020 and $122.6 million in the prior quarter.

In announcing these results, John Kemper, Chief Executive Officer, said, “Commerce had a strong quarter to close out 2021, reflecting a growing economy and a resilient customer base. Trust fees were up 16.5% over the fourth quarter of 2020, driven by rising market values, excellent customer attraction and retention, and the ongoing investments we’ve made in our wealth business. Corporate and retail spending levels continued to increase, amounting to growth of 12% in bank card transaction fees over the same period last year.

The growth in our fee-based businesses continues to provide strong revenue diversification. Non-interest income comprised 42% of total revenue in the fourth quarter. Compared to the previous quarter, we experienced higher loan demand, a reflection of accelerating business activity in our markets. We continue to be confident in our strong liquidity, capital levels, and credit quality, and we continue to invest in our excellent relationships with customers, teammates, shareholders, and regulators.”

Fourth Quarter 2021 Financial Highlights:

Net interest income in the fourth quarter amounted to $207.7 million, a 3.0% decrease compared to the third quarter, partly due to a $5.3 million decrease in interest income from Paycheck Protection Program (PPP) loans. The net interest margin decreased 15 basis points from the prior quarter to 2.43%.

Non-interest income totaled $147.7 million in the fourth quarter, an increase of $10.2 million compared to the prior quarter.

Net investment securities losses of $9.7 million this quarter were driven mostly by net fair value losses of $6.5 million in the Company’s portfolio of private equity investments.

Non-interest expense totaled $203.6 for the quarter, a decrease of $8.0 million compared to the previous quarter.

Average loan balances totaled $15.1 billion, a decrease of $165.9 million, or 1.1%, from the prior quarter (average PPP loan balances declined $356.1 million). As of December 31, 2021, 93% of PPP loan balances have been forgiven.

Total average available for sale debt securities increased 5.3%, or $726.3 million, over the previous quarter to $14.5 billion, at fair value. Purchases of securities during the quarter totaled $1.4 billion with a weighted average yield of approximately 1.27%.

Compared to the previous quarter, average deposits grew $790.6 million, or 2.8%. The average rate paid on interest bearing deposits was 5 basis points this quarter.

The ratio of annualized net loan charge-offs to average loans was .11% in the current quarter compared to .10% in the prior quarter. Net charge-offs on loans remained low.

Non-accrual loans totaled $9.2 million compared to $10.4 million prior quarter. Non-accrual loans were .06% of total loans.

At December 31, 2021, the allowance for credit losses on loans decreased to $150.0 million. The allowance for credit losses on loans to total loans was .99% at December 31, 2021.

The Company purchased 696,367 shares of its common stock this quarter at an average price of $70.81.

Total assets at December 31, 2021 were $36.7 billion, an increase of $2.2 billion, or 6.4%, from the prior quarter.

For the quarter, the return on average assets was 1.28%, the return on average equity was 13.11% and the efficiency ratio was 57.3%.

Commerce Bancshares, Inc. is a regional bank holding company offering a full line of banking services, including payment solutions, investment management and securities brokerage. Commerce Bank, a subsidiary of Commerce Bancshares, Inc., leverages more than 150 years of proven strength and experience to help individuals and businesses solve financial challenges. In addition to offering payment solutions across the U.S., Commerce Bank currently operates full-service banking facilities across the Midwest including the St. Louis and Kansas City metropolitan areas, Springfield, Central Missouri, Central Illinois, Wichita, Tulsa, Oklahoma City, and Denver. It also maintains commercial offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids. Commerce delivers high-touch service and sophisticated financial solutions at regional branches, commercial offices, ATMs, online, mobile and through a 24/7 customer service line.

This financial news release and the supplementary Earnings Highlights presentation are available on the Company’s website at https://investor.commercebank.com/news-info/financial-news-releases/default.aspx.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

FINANCIAL HIGHLIGHTS

	For the Three Months Ended						For the Year Ended
(Unaudited) (Dollars in thousands, except per share data)	Dec. 31, 2021		Sep. 30, 2021		Dec. 31, 2020		Dec. 31, 2021		Dec. 31, 2020
FINANCIAL SUMMARY
Net interest income	$207,657		$214,037		$209,763		$835,424		$829,847
Non-interest income	147,699		137,506		135,117		560,393		505,867
Total revenue	355,356		351,543		344,880		1,395,817		1,335,714
Investment securities gains (losses), net	(9,706	)	13,108		12,307		30,059		11,032
Provision for credit losses	(7,054	)	(7,385	)	(4,403	)	(66,326	)	137,190
Non-interest expense	203,582		211,620		196,310		805,901		768,378
Income before taxes	149,122		160,416		165,280		686,301		441,178
Income taxes	33,764		34,662		33,084		145,711		87,293
(Income) loss attributable to non-controlling interest	452		3,193		2,307		9,825		(172	)
Net income attributable to Commerce Bancshares, Inc.	114,906		122,561		129,889		530,765		354,057
Preferred stock dividends	—		—		—		—		11,966
Net income available to common shareholders	$114,906		$122,561		$129,889		$530,765		$342,091
Earnings per common share:
Net income — basic	$0.94		$1.00		$1.05		$4.32		$2.77
Net income — diluted	$0.94		$0.99		$1.05		$4.31		$2.77
Effective tax rate	22.71	%	22.05	%	20.30	%	21.54	%	19.78	%
Tax equivalent net interest income	$210,424		$216,858		$213,017		$847,116		$842,790
Average total interest earning assets ⁽¹⁾	$ 34,318,520		$ 33,306,752		$ 30,297,922		$ 32,874,701		$ 28,143,048
Diluted wtd. average shares outstanding	121,221,482		121,881,091		122,333,233		121,940,992		122,413,216

RATIOS
Average loans to deposits ⁽²⁾	52.36	%	54.44	%	64.05	%	56.46	%	67.73	%
Return on total average assets	1.28		1.40		1.63		1.55		1.20
Return on average common equity ⁽³⁾	13.11		13.74		15.49		15.37		10.64
Non-interest income to total revenue	41.56		39.11		39.18		40.15		37.87
Efficiency ratio ⁽⁴⁾	57.29		59.95		56.68		57.64		57.19
Net yield on interest earning assets	2.43		2.58		2.80		2.58		2.99

EQUITY SUMMARY
Cash dividends per common share	$.250		$.250		$.245		$1.00		$.980
Cash dividends on common stock	$30,489		$30,645		$30,178		$122,693		$120,818
Cash dividends on preferred stock	$—		$—		$—		$—		$11,966
Book value per common share ⁽⁵⁾	$28.40		$28.58		$27.64
Market value per common share ⁽⁵⁾	$68.74		$66.36		$62.57
High market value per common share	$71.50		$72.08		$64.85
Low market value per common share	$64.85		$61.81		$49.62
Common shares outstanding ⁽⁵⁾	121,436,734		122,148,786		122,995,353
Tangible common equity to tangible assets ⁽⁶⁾	9.01	%	9.71	%	9.92	%
Tier I leverage ratio	9.13	%	9.31	%	9.45	%

OTHER QTD INFORMATION
Number of bank/ATM locations	287		292		306
Full-time equivalent employees	4,567		4,582		4,766

(1)	Excludes allowance for credit losses on loans and unrealized gains/(losses) on available for sale debt securities.
(2)	Includes loans held for sale.
(3)	Annualized net income available to common shareholders divided by average total equity less preferred stock.
(4)	The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.
(5)	As of period end.
(6)	The tangible common equity ratio is calculated as stockholders’ equity reduced by preferred stock, goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).

All share and per share amounts have been restated to reflect the 5% stock dividend distributed in December 2021.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited) (In thousands, except per share data)	For the Three Months Ended										For the Year Ended
(Unaudited) (In thousands, except per share data)	Dec. 31, 2021		Sep. 30, 2021		Jun. 30, 2021		Mar. 31, 2021		Dec. 31, 2020		Dec. 31, 2021		Dec. 31, 2020
Interest income	$210,479		$216,981		$211,133		$209,697		$214,726		$848,290		$872,648
Interest expense	2,822		2,944		3,151		3,949		4,963		12,866		42,801
Net interest income	207,657		214,037		207,982		205,748		209,763		835,424		829,847
Provision for credit losses	(7,054	)	(7,385	)	(45,655	)	(6,232	)	(4,403	)	(66,326	)	137,190
Net interest income after credit losses	214,711		221,422		253,637		211,980		214,166		901,750		692,657
NON-INTEREST INCOME
Bank card transaction fees	44,773		42,815		42,608		37,695		39,979		167,891		151,797
Trust fees	48,893		48,950		46,257		44,127		41,961		188,227		160,637
Deposit account charges and other fees	25,493		25,161		23,988		22,575		24,164		97,217		93,227
Capital market fees	3,841		3,794		3,327		4,981		3,826		15,943		14,582
Consumer brokerage services	4,878		4,900		4,503		4,081		3,996		18,362		15,095
Loan fees and sales	5,248		6,842		7,446		10,184		9,031		29,720		26,684
Other	14,573		5,044		11,014		12,402		12,160		43,033		43,845
Total non-interest income	147,699		137,506		139,143		136,045		135,117		560,393		505,867
INVESTMENT SECURITIES GAINS (LOSSES), NET	(9,706	)	13,108		16,804		9,853		12,307		30,059		11,032
NON-INTEREST EXPENSE
Salaries and employee benefits	132,640		132,824		130,751		129,033		129,983		525,248		512,987
Net occupancy	12,308		12,329		11,527		12,021		11,570		48,185		46,645
Equipment	4,691		4,440		4,605		4,353		4,526		18,089		18,839
Supplies and communication	4,430		4,530		4,033		4,125		4,193		17,118		17,419
Data processing and software	25,777		25,598		24,954		25,463		24,323		101,792		95,325
Marketing	5,395		5,623		5,680		5,158		5,028		21,856		19,734
Other	18,341		26,276		16,576		12,420		16,687		73,613		57,429
Total non-interest expense	203,582		211,620		198,126		192,573		196,310		805,901		768,378
Income before income taxes	149,122		160,416		211,458		165,305		165,280		686,301		441,178
Less income taxes	33,764		34,662		45,209		32,076		33,084		145,711		87,293
Net income	115,358		125,754		166,249		133,229		132,196		540,590		353,885
Less (income) loss attributable to non-controlling interest	452		3,193		3,923		2,257		2,307		9,825		(172	)
Net income attributable to Commerce Bancshares, Inc.	114,906		122,561		162,326		130,972		129,889		530,765		354,057
Less preferred stock dividends	—		—		—		—		—		—		11,966
Net income available to common shareholders	$114,906		$122,561		$162,326		$130,972		$129,889		$530,765		$342,091
Net income per common share — basic	$0.94		$1.00		$1.32		$1.06		$1.05		$4.32		$2.77
Net income per common share — diluted	$0.94		$0.99		$1.32		$1.06		$1.05		$4.31		$2.77

OTHER INFORMATION
Return on total average assets	1.28	%	1.40	%	1.93	%	1.63	%	1.63	%	1.55	%	1.20	%
Return on average common equity ⁽¹⁾	13.11		13.74		19.12		15.69		15.49		15.37		10.64
Efficiency ratio ⁽²⁾	57.29		59.95		56.90		56.37		56.68		57.64		57.19
Effective tax rate	22.71		22.05		21.78		19.67		20.30		21.54		19.78
Net yield on interest earning assets	2.43		2.58		2.60		2.71		2.80		2.58		2.99
Tax equivalent net interest income	$210,424		$216,858		$211,060		$208,774		$213,017		$847,116		$842,790

(1)	Annualized net income available to common shareholders divided by average total equity less preferred stock.
(2)	The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - PERIOD END

(Unaudited) (In thousands)	Dec. 31, 2021		Sep. 30, 2021		Dec. 31, 2020
ASSETS
Loans
Business	$ 5,303,535		$ 5,277,850		$ 6,546,087
Real estate — construction and land	1,118,266		1,257,836		1,021,595
Real estate — business	3,058,837		2,937,852		3,026,117
Real estate — personal	2,805,401		2,769,292		2,820,030
Consumer	2,032,225		2,049,559		1,950,502
Revolving home equity	275,945		281,442		307,083
Consumer credit card	575,410		569,976		655,078
Overdrafts	6,740		4,583		3,149
Total loans	15,176,359		15,148,390		16,329,641
Allowance for credit losses on loans	(150,044	)	(162,775	)	(220,834	)
Net loans	15,026,315		14,985,615		16,108,807
Loans held for sale	8,615		16,043		45,089
Investment securities:
Available for sale debt securities	14,450,027		14,165,656		12,449,264
Trading debt securities	46,235		40,114		35,321
Equity securities	9,202		9,174		4,363
Other securities	194,047		184,450		156,745
Total investment securities	14,699,511		14,399,394		12,645,693
Federal funds sold	2,800		—		—
Securities purchased under agreements to resell	1,625,000		1,750,000		850,000
Interest earning deposits with banks	3,971,217		1,888,545		1,747,363
Cash and due from banks	305,539		344,460		437,563
Premises and equipment — net	388,738		377,476		371,083
Goodwill	138,921		138,921		138,921
Other intangible assets — net	15,570		14,458		11,207
Other assets	506,862		582,631		567,248
Total assets	$ 36,689,088		$ 34,497,543		$ 32,922,974
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$ 11,772,374		$ 11,622,855		$ 10,497,598
Savings, interest checking and money market	16,598,085		14,907,654		14,604,456
Certificates of deposit of less than $100,000	435,960		452,432		529,802
Certificates of deposit of $100,000 and over	1,006,654		1,163,343		1,314,889
Total deposits	29,813,073		28,146,284		26,946,745
Federal funds purchased and securities sold under agreements to repurchase	3,022,967		2,253,753		2,098,383
Other borrowings	12,560		4,006		802
Other liabilities	392,164		602,279		477,072
Total liabilities	33,240,764		31,006,322		29,523,002
Stockholders’ equity:
Common stock	610,804		589,352		589,352
Capital surplus	2,689,894		2,427,544		2,436,288
Retained earnings	92,493		396,655		73,000
Treasury stock	(32,973	)	(92,047	)	(32,970	)
Accumulated other comprehensive income	77,080		159,166		331,377
Total stockholders’ equity	3,437,298		3,480,670		3,397,047
Non-controlling interest	11,026		10,551		2,925
Total equity	3,448,324		3,491,221		3,399,972
Total liabilities and equity	$ 36,689,088		$ 34,497,543		$ 32,922,974

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

(Unaudited) (In thousands)	For the Three Months Ended
(Unaudited) (In thousands)	Dec. 31, 2021		Sep. 30, 2021		Jun. 30, 2021		Mar. 31, 2021		Dec. 31, 2020
ASSETS:
Loans:
Business	$ 5,191,844		$ 5,437,498		$ 6,211,610		$ 6,532,921		$ 6,580,300
Real estate — construction and land	1,228,237		1,168,566		1,088,433		1,091,969		1,032,891
Real estate — business	3,003,459		2,982,847		3,014,955		3,022,979		3,029,799
Real estate — personal	2,785,095		2,775,638		2,804,388		2,826,112		2,778,462
Consumer	2,043,690		2,041,263		2,004,625		1,947,322		1,981,033
Revolving home equity	276,464		281,689		287,031		299,371		316,895
Consumer credit card	559,429		566,406		575,725		608,747		638,161
Overdrafts	4,926		5,110		3,735		3,546		3,762
Total loans	15,093,144		15,259,017		15,990,502		16,332,967		16,361,303
Allowance for credit losses on loans	(162,428	)	(172,112	)	(200,801	)	(220,512	)	(235,484	)
Net loans	14,930,716		15,086,905		15,789,701		16,112,455		16,125,819
Loans held for sale	11,203		16,021		23,389		35,814		30,577
Investment securities:
U.S. government and federal agency obligations	1,009,025		727,566		719,849		725,367		774,640
Government-sponsored enterprise obligations	50,777		50,785		50,793		50,801		69,133
State and municipal obligations	2,095,517		2,039,942		1,966,673		1,958,637		1,967,408
Mortgage-backed securities	7,141,249		7,115,419		6,685,407		6,998,521		6,646,345
Asset-backed securities	3,514,541		3,028,076		2,653,928		2,085,491		1,819,467
Other debt securities	629,643		608,642		605,772		570,115		533,646
Unrealized gain on debt securities	86,020		230,058		197,124		283,511		329,477
Total available for sale debt securities	14,526,772		13,800,488		12,879,546		12,672,443		12,140,116
Trading debt securities	46,513		32,238		34,955		32,320		28,040
Equity securities	9,171		8,756		4,914		4,321		4,221
Other securities	190,346		183,397		156,984		154,030		130,145
Total investment securities	14,772,802		14,024,879		13,076,399		12,863,114		12,302,522
Federal funds sold	564		792		1,338		7		355
Securities purchased under agreements to resell	1,669,835		1,633,205		937,372		849,999		849,998
Interest earning deposits with banks	2,856,992		2,602,896		2,724,782		1,480,331		1,082,644
Other assets	1,288,323		1,261,277		1,258,989		1,308,105		1,291,907
Total assets	$ 35,530,435		$ 34,625,975		$ 33,811,970		$ 32,649,825		$ 31,683,822

LIABILITIES AND EQUITY:
Non-interest bearing deposits	$ 11,919,268		$ 11,475,113		$ 11,109,198		$ 10,438,637		$ 10,275,735
Savings	1,507,199		1,484,923		1,474,391		1,333,177		1,234,481
Interest checking and money market	13,873,985		13,343,180		13,283,481		12,970,629		12,198,928
Certificates of deposit of less than $100,000	441,920		464,367		491,446		516,728		542,212
Certificates of deposit of $100,000 and over	1,105,480		1,289,665		1,354,685		1,230,075		1,339,301
Total deposits	28,847,852		28,057,248		27,713,201		26,489,246		25,590,657
Borrowings:
Federal funds purchased	20,848		13,606		23,291		37,034		48,412
Securities sold under agreements to repurchase	2,620,348		2,347,270		2,142,405		2,129,038		1,980,045
Other borrowings	1,078		347		978		831		1,013
Total borrowings	2,642,274		2,361,223		2,166,674		2,166,903		2,029,470
Other liabilities	562,102		667,786		527,401		608,212		727,569
Total liabilities	32,052,228		31,086,257		30,407,276		29,264,361		28,347,696
Equity	3,478,207		3,539,718		3,404,694		3,385,464		3,336,126
Total liabilities and equity	$ 35,530,435		$ 34,625,975		$ 33,811,970		$ 32,649,825		$ 31,683,822

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

(Unaudited)	For the Three Months Ended
(Unaudited)	Dec. 31, 2021		Sep. 30, 2021		Jun. 30, 2021		Mar. 31, 2021		Dec. 31, 2020
ASSETS:
Loans:
Business⁽¹⁾	3.16	%	3.43	%	3.15	%	3.09	%	3.01	%
Real estate — construction and land	3.61		3.51		3.56		3.54		3.72
Real estate — business	3.41		3.46		3.49		3.52		3.51
Real estate — personal	3.21		3.27		3.31		3.40		3.44
Consumer	3.65		3.71		3.84		4.02		4.07
Revolving home equity	3.47		3.46		3.43		3.38		3.37
Consumer credit card	11.06		11.29		11.22		10.97		11.60
Overdrafts	—		—		—		—		—
Total loans	3.62		3.74		3.65		3.66		3.69
Loans held for sale	5.10		4.63		4.20		3.44		3.54
Investment securities:
U.S. government and federal agency obligations	3.11		5.74		5.52		2.54		2.63
Government-sponsored enterprise obligations	2.30		2.30		2.33		2.36		2.23
State and municipal obligations⁽¹⁾	2.26		2.35		2.41		2.46		2.44
Mortgage-backed securities	1.40		1.53		1.11		1.39		1.37
Asset-backed securities	1.03		1.08		1.25		1.39		1.59
Other debt securities	2.07		2.04		2.06		2.15		2.19
Total available for sale debt securities	1.59		1.80		1.64		1.67		1.70
Trading debt securities⁽¹⁾	1.54		1.01		1.19		1.08		1.40
Equity securities ⁽¹⁾	27.64		23.92		43.10		49.56		50.71
Other securities ⁽¹⁾	18.39		7.46		11.90		5.26		10.03
Total investment securities	1.82		1.89		1.78		1.72		1.81
Federal funds sold	.70		.50		.60		—		1.12
Securities purchased under agreements to resell	1.62		2.19		4.46		5.31		5.24
Interest earning deposits with banks	.15		.15		.11		.10		.10
Total interest earning assets	2.47		2.62		2.64		2.76		2.86

LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	.08		.08		.08		.08		.09
Interest checking and money market	.04		.05		.05		.06		.07
Certificates of deposit of less than $100,000	.14		.18		.27		.37		.51
Certificates of deposit of $100,000 and over	.14		.14		.20		.35		.47
Total interest bearing deposits	.05		.06		.07		.09		.12
Borrowings:
Federal funds purchased	.11		.10		.05		.05		.07
Securities sold under agreements to repurchase	.08		.08		.06		.06		.06
Other borrowings	—		1.14		.82		.98		—
Total borrowings	.08		.08		.06		.06		.06
Total interest bearing liabilities	.06	%	.06	%	.07	%	.09	%	.11	%

Net yield on interest earning assets	2.43	%	2.58	%	2.60	%	2.71	%	2.80	%

(1)

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

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CREDIT QUALITY

	For the Three Months Ended										For the Year Ended
(Unaudited) (In thousands, except per share data)	Dec. 31, 2021		Sep. 30, 2021		Jun. 30, 2021		Mar. 31, 2021		Dec. 31, 2020		Dec. 31, 2021		Dec. 31, 2020
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period	$162,775		$172,395		$200,527		$220,834		$236,360		$220,834		$160,682
Adoption of ASU 2016-13	—		—		—		—		—		—		(21,039	)
Provision for credit losses on loans	(8,474	)	(5,961	)	(27,433	)	(10,355	)	(7,510	)	(52,223	)	116,049
Net charge-offs (recoveries):
Commercial portfolio:
Business	90		65		(4,909	)	(4	)	581		(4,758	)	3,665
Real estate — construction and land	—		—		—		1		(2	)	1		(3	)
Real estate — business	6		(5	)	(85	)	20		(7	)	(64	)	(47	)
	96		60		(4,994	)	17		572		(4,821	)	3,615
Personal banking portfolio:
Consumer credit card	2,964		2,908		5,155		8,981		5,975		20,008		25,979
Consumer	919		496		378		763		1,160		2,556		4,444
Overdraft	375		243		148		153		335		919		1,277
Real estate — personal	(71	)	(26	)	(16	)	15		(18	)	(98	)	(291	)
Revolving home equity	(26	)	(22	)	28		23		(8	)	3		(166	)
	4,161		3,599		5,693		9,935		7,444		23,388		31,243
Total net loan charge-offs	4,257		3,659		699		9,952		8,016		18,567		34,858
Balance at end of period	$150,044		$162,775		$172,395		$200,527		$220,834		$150,044		$220,834
LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$24,204		$22,784		$24,208		$42,430		$38,307

NET CHARGE-OFF RATIOS ⁽¹⁾
Commercial portfolio:
Business	.01	%	—	%	(.32	%)	—	%	.04	%	(.08	%)	.06	%
Real estate — construction and land	—		—		—		—		—		—		—
Real estate — business	—		—		(.01	)	—		—		—		—
	—		—		(.19	)	—		.02		(.05	)	.04
Personal banking portfolio:
Consumer credit card	2.10		2.04		3.59		5.98		3.72		3.47		3.88
Consumer	.18		.10		.08		.16		.23		.13		.23
Overdraft	30.20		18.87		15.89		17.50		35.43		21.20		38.11
Real estate — personal	(.01	)	—		—		—		—		—		(.01	)
Revolving home equity	(.04	)	(.03	)	.04		.03		(.01	)	—		(.05	)
	.29		.25		.40		.71		.52		.41		.56
Total	.11	%	.10	%	.02	%	.25	%	.19	%	.12	%	.22	%

CREDIT QUALITY RATIOS
Non-accrual loans to total loans	.06	%	.07	%	.07	%	.14	%	.16	%
Allowance for credit losses on loans to total loans⁽²⁾	.99		1.07		1.10		1.22		1.35

NON-ACCRUAL AND PAST DUE LOANS
Non-accrual loans:
Business	$7,312		$8,293		$8,839		$20,215		$22,524
Real estate — construction and land	—		—		—		—		—
Real estate — business	214		577		655		1,572		2,230
Real estate — personal	1,631		1,551		1,672		1,719		1,786
Total	9,157		10,421		11,166		23,506		26,540
Loans past due 90 days and still accruing interest	$11,726		$10,496		$12,338		$21,512		$22,190

(1)	Net charge-offs are annualized and calculated as a percentage of average loans (excluding loans held for sale).
(2)	Excluding PPP loans, the allowance for credit losses on loans to total loans was 1.00% and 1.10% as of December 31, 2021 and September 30, 2021, respectively.

COMMERCE BANCSHARES, INC.

Management Discussion of Fourth Quarter Results

December 31, 2021

For the quarter ended December 31, 2021, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $114.9 million, compared to $122.6 million in the previous quarter and $129.9 million in the same quarter last year. The decrease in net income compared to the previous quarter was primarily the result of net investment securities losses recorded this quarter compared to net gains recorded in the prior quarter and lower net interest income, partly offset by higher non-interest income and lower non-interest expense. The net yield on interest earning assets declined 15 basis points to 2.43%. Average loans declined $165.9 million compared to the previous quarter, while average available for sale debt securities grew $726.3 million, and average deposits increased $790.6 million. For the quarter, the return on average assets was 1.28%, the return on average equity was 13.11%, and the efficiency ratio was 57.3%.

Balance Sheet Review

During the 4^th quarter of 2021, average loans totaled $15.1 billion, a decrease of $165.9 million from the prior quarter, and declined $1.3 billion, or 7.8%, from the same quarter last year. Compared to the previous quarter, average balances of business loans declined $245.7 million (includes a decline of $356.1 million in Paycheck Protection Program (PPP) loan balances). This decline was partially offset by growth in construction and business real estate loans of $59.7 million and $20.6 million, respectively. While period end loans only increased $28.0 million compared to the prior quarter, PPP loan balances decreased $178.8 million this quarter and totaled $129.2 million at December 31, 2021. Excluding PPP loans, period end business loans increased $204.5 million. As of December 31, 2021, 99% of round 1 and 73% of round 2 PPP loan balances have been forgiven. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $85.3 million, compared to $119.3 million in the prior quarter.

Total average available for sale debt securities increased $726.3 million over the previous quarter to $14.5 billion, at fair value. The increase in investment securities was mainly the result of growth in asset-backed and U.S. government securities. During the current quarter, purchases of securities totaled $1.4 billion with a weighted average yield of approximately 1.27%. Sales, maturities and pay downs were $956.5 million. At December 31, 2021, the duration of the investment portfolio was 3.2 years, and maturities and pay downs of approximately $3.0 billion are expected to occur during the next 12 months.

Total average deposits increased $790.6 million this quarter compared to the previous quarter. The increase in deposits mostly resulted from growth in interest checking and money market deposits and demand deposits of $530.8 million and $444.2 million, respectively. Certificate of deposit balances declined $206.6 million. Compared to the previous quarter, total average commercial and consumer deposits grew $612.1 million and $203.8 million, respectively. The average loans to deposits ratio was 52.4% in the current quarter and 54.4% in the prior quarter. The Company’s average borrowings, which include customer repurchase agreements, were $2.6 billion in the 4^th quarter of 2021 and $2.4 billion in the prior quarter.

Net Interest Income

Net interest income in the 4^th quarter of 2021 amounted to $207.7 million, a decrease of $6.4 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter decreased $6.4 million compared to the previous quarter to $210.4 million. The decrease in net interest income was mainly due to lower income earned on loans and securities purchased under agreements to resell, partially offset by higher income earned on investment securities. The net yield on earning assets (tax equivalent) decreased to 2.43%, compared to 2.58% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) decreased $6.1 million, mostly due to $5.3 million of lower income recognized from PPP loans this quarter. Interest on construction loans grew due to higher yields and average loan balances, but was offset by lower consumer card yields and average loan balances. The yield on PPP loans increased from 7.73% to 10.80% this quarter. Excluding PPP loans, the yield on business loans was 2.83% in the 4^th quarter of 2021 compared to 2.92% in the prior quarter. The average tax-equivalent yield on the loan portfolio decreased 12 basis points to 3.62% this quarter.

Interest income on investment securities (tax equivalent) increased $1.7 million compared to the prior quarter, due to higher average balances, partly offset by lower rates earned. Interest income earned on U.S. government and federal agency securities decreased, as lower average rates earned, including the impact of $2.9 million of lower inflation income from Treasury inflation-protected securities, more than offset higher average balances. This decrease was partly offset by $5.5 million in dividends received from private equity portfolio investments this quarter. At December 31, 2021, the Company recorded a $2.6 million adjustment to premium amortization, which increased interest income this quarter to reflect moderately slower forward prepayment speed estimates on mortgage-backed securities. The yield on total investment securities was 1.82% in the current quarter, compared to 1.89% in the previous quarter.

The average rate paid on interest bearing deposits totaled .05% in the 4^th quarter of 2021, compared .06% in the prior quarter. Interest expense on deposits decreased $172 thousand this quarter compared to the previous quarter mainly due to lower rates paid on money market accounts and certificate of deposit accounts. The overall rate paid on interest bearing liabilities was .06% in both the current and prior quarters.

Non-Interest Income

In the 4^th quarter of 2021, total non-interest income amounted to $147.7 million, an increase of $12.6 million, or 9.3%, compared to the same period last year and increased $10.2 million compared to the prior quarter. The increase in non-interest income over the same period last year was mainly due to growth in trust fees and bank card fees, partially offset by lower loan fees and sales.

Total net bank card fees in the current quarter increased $4.8 million, or 12.0%, over the same period last year, and increased $2.0 million compared to the prior quarter. Net corporate card fees increased $3.6 million, or 17.0%, over the same quarter of last year mainly due to higher interchange fee income, partly offset by higher rewards expense. Net debit card fees increased $955 thousand, or 9.8%, mainly due to higher interchange fees. Net merchant income increased $104 thousand, or 2.0%, and net credit card fees increased $111 thousand, or 3.0%. Total net bank card fees this quarter were comprised of fees on corporate card ($25.0 million), debit card ($10.7 million), merchant ($5.3 million) and credit card ($3.8 million) transactions.

In the current quarter, trust fees increased $6.9 million, or 16.5%, over the same period last year, resulting mostly from higher private client fee income. Compared to the same period last year, deposit account fees increased $1.3 million, or 5.5%, mainly due to higher overdraft and return item fees and corporate cash management fees. Loan fees and sales, mostly mortgage banking revenue, declined $3.8 million, or 41.9%, compared to amounts recorded in the same quarter last year. Consumer brokerage fees increased $882 thousand, or 22.1%, compared to the same quarter last year.

Other non-interest income increased over the same period last year mainly due to a $3.7 million gain on the sale of land recorded this quarter, $818 thousand of higher tax credit sales fees, and $774 thousand of higher swap fees, partially offset by lower cash sweep commissions of $710 thousand. For the 4^th quarter of 2021, non-interest income comprised 41.6% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded investment net losses of $9.7 million in the current quarter, compared to net gains of $13.1 million in the prior quarter and net gains of $12.3 million in the 4^th quarter of 2020. Net losses on investments in the current quarter primarily resulted from net fair value losses of $6.5 million in the Company’s private equity investment portfolio, in part due to $5.5 million in dividends paid by portfolio companies mentioned above, which reduced the fair value of the investments.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $203.6 million, compared to $196.3 million in the same period last year and $211.6 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to higher salaries expense, data processing and software expense, and travel and entertainment expense. The decrease in non-interest expense compared to the prior quarter was mainly due to litigation settlement expense in the prior quarter that did not reoccur.

Compared to the 4^th quarter of last year, salaries and employee benefits expense increased $2.7 million, mostly due to higher full-time salaries expense. Incentive compensation was also higher, while employee benefits expense was flat. Full-time equivalent employees totaled 4,567 and 4,766 at December 31, 2021 and 2020, respectively.

Compared to the same period last year, data processing and software expense increased $1.5 million due to higher bank card processing fees and increased costs for service providers this quarter. Additionally, other non-interest expense increased $1.7 million, mainly due to an increase of $1.3 million in travel and entertainment expense.

Income Taxes

The effective tax rate for the Company was 22.7% in the current quarter, 22.0% in the previous quarter, and 20.3% in the 4^th quarter of 2020.

Credit Quality

Net loan charge-offs in the 4^th quarter of 2021 amounted to $4.3 million, compared to $3.7 million in the prior quarter and $8.0 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .11% in the current quarter, .10% in the previous quarter, and .19% in the 4^th quarter of last year. Net loan charge-offs on personal banking loans increased $562 thousand to $4.2 million.

In the 4^th quarter of 2021, annualized net loan charge-offs on average consumer credit card loans were 2.10%, compared to 2.04% in the previous quarter, and 3.72% in the same quarter last year. Consumer loan net charge-offs were .18% of average consumer loans in the current quarter, .10% in the prior quarter and .23% in the same quarter last year.

During the 4^th quarter of 2021, the economy continued to recover from the pandemic and the economic forecast utilized in the allowance for credit loss model also continued to improve. This improvement, coupled with other model inputs, resulted in a decrease in the allowance for credit losses as of December 31, 2021. At December 31, 2021, the allowance for credit losses on loans totaled $150.0 million, or .99% of total loans and 1.00% of total loans excluding PPP loans. Additionally, the liability for unfunded lending commitments at December 31, 2021 was $24.2 million, an increase of $1.4 million over the liability at September 30, 2021.

At December 31, 2021, total non-accrual loans amounted to $9.2 million, a decrease of $1.3 million from the previous quarter. At December 31, 2021, the balance of non-accrual loans, which represented .06% of loans outstanding, included business loans of $7.3 million, personal real estate loans of $1.6 million, and business real estate loans of $214 thousand. Loans more than 90 days past due and still accruing interest totaled $11.7 million at December 31, 2021.

Other

During the 4^th quarter of 2021, the Company distributed a 5% stock dividend on its common stock and paid a cash dividend of $.25 per common share (as restated for the stock dividend), representing a 2.1% increase over the same period last year. The Company purchased 696,367 shares of treasury stock during the current quarter at an average price of $70.81.

Forward Looking Information

This information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions and other statements that are not historical facts. Such statements are based on current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.