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

Commerce Bancshares, Inc. announced earnings of $1.11 per share for the three months ended December 31, 2020, compared to $.88 per common share in the same quarter last year and $1.06 per common share in the prior quarter. Net income attributable to Commerce Bancshares, Inc. (net income) for the fourth quarter of 2020 amounted to $129.9 million, compared to $106.9 million in the fourth quarter of 2019 and $132.4 million in the prior quarter. For the quarter, the return on average assets was 1.63%, the return on average equity was 15.49%, and the efficiency ratio was 56.7%.

For the year ended December 31, 2020, earnings per common share totaled $2.91 compared to $3.41 in 2019. Net income attributable to Commerce Bancshares, Inc. amounted to $354.1 million in 2020 compared to $421.2 million last year. For the current year, the return on average assets was 1.20%, and the return on average common equity was 10.64%.

In announcing these results, John Kemper, Chief Executive Officer, said, “Commerce had a strong quarter to close out 2020. While economic uncertainty remains top of mind, overall economic conditions, most notably unemployment, continued to improve in the fourth quarter at a pace that exceeded economic forecasts. These factors, coupled with a forecast projecting an economic recovery, resulted in a decrease in the allowance for credit losses. Our portfolio of private equity investments saw unrealized gains recorded this quarter, partially offsetting unrealized losses recorded in the first half of 2020 and reflecting improvement in the overall economy. Although net interest margins continue to be pressured from a challenging interest rate environment, our fee-based businesses are rebounding from mid-year lows and provide us with a source of revenue diversification. Bank card and deposit account fees grew from last quarter with an increase in spending activity. Loan fees and sales, driven by our mortgage banking business, continued to be strong this quarter and increased 161 percent compared to the fourth quarter of 2019. Trust fees reached another record quarter, reflecting not only higher market values, but also the results of investments we’ve made across our wealth business. Non-interest expense grew .6% compared to the same quarter last year and remained well-controlled. Compared to the previous quarter, average deposits grew $843.3 million, or 3.4%, well surpassing our expectations. While deposit balances grew this quarter, loan demand was mixed. Average loan balances in construction, business real estate, and personal real estate grew, while lower demand for business loans kept total average loan balances relatively flat.”

Mr. Kemper continued, “This quarter, net loan charge-offs totaled $8.0 million, compared to $7.6 million in the prior quarter and $15.2 million in the fourth quarter of 2019. The ratio of annualized net loan charge-offs to average loans was .19% in the current quarter, .18% in the prior quarter and .42% in the fourth quarter of last year. Net loan charge-offs on commercial loans totaled $572 thousand this quarter compared to $194 thousand in the prior quarter. Non-performing assets decreased this quarter from $40.3 million to $26.6 million. At December 31, 2020, the allowance for credit losses on loans decreased to $220.8 million.”

Total assets at December 31, 2020 were $32.9 billion, total loans were $16.3 billion, and total deposits were $26.9 billion. During the fourth quarter of 2020, the Company distributed a 5% stock dividend on its common stock. The Company also paid a cash dividend of $.257 per share, as restated for the 5% stock dividend.

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

This financial news release, including management's discussion of fourth quarter results, is posted to the Company's web site at www.commercebank.com.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES FINANCIAL HIGHLIGHTS
		For the Three Months Ended									For the Year Ended
(Unaudited) (Dollars in thousands, except per share data)		December 31, 2020			September 30, 2020			December 31, 2019			December 31, 2020			December 31, 2019
FINANCIAL SUMMARY
Net interest income		$209,763			$215,962			$202,659			$829,847			$821,293
Non-interest income		135,117			129,572			143,461			505,867			524,703
Total revenue		344,880			345,534			346,120			1,335,714			1,345,996
Investment securities gains (losses), net		12,307			16,155			(248)			11,032			3,626
Provision for credit losses		(4,403)			3,101			15,206			137,190			50,438
Non-interest expense		196,310			190,858			195,174			768,378			767,398
Income before taxes		165,280			167,730			135,492			441,178			531,786
Income taxes		33,084			34,375			28,214			87,293			109,074
Non-controlling interest (income) expense		2,307			907			398			(172)			1,481
Net income attributable to Commerce Bancshares, Inc.		129,889			132,448			106,880			354,057			421,231
Preferred stock dividends		—			7,466			2,250			11,966			9,000
Net income available to common shareholders		$129,889			$124,982			$104,630			$342,091			$412,231
Earnings per common share:
Net income — basic		$1.11			$1.06			$.89			$2.91			$3.42
Net income — diluted		$1.11			$1.06			$.88			$2.91			$3.41
Effective tax rate		20.30		%	20.61		%	20.88		%	19.78		%	20.57		%
Tax equivalent net interest income		$213,017			$219,118			$206,156			$842,790			$835,421
Average total interest earning assets (1)		$	30,297,922		$	29,352,970		$	24,372,575		$	28,143,048		$	24,034,631
Diluted wtd. average shares outstanding		116,507,841			116,444,157			117,611,663			116,584,015			119,769,634
RATIOS
Average loans to deposits (2)		64.05		%	66.23		%	71.73		%	67.73		%	71.54		%
Return on total average assets		1.63			1.71			1.65			1.20			1.67
Return on average common equity (3)		15.49			15.21			13.90			10.64			14.06
Non-interest income to total revenue		39.18			37.50			41.45			37.87			38.98
Efficiency ratio (4)		56.68			55.00			56.29			57.19			56.87
Net yield on interest earning assets		2.80			2.97			3.36			2.99			3.48
EQUITY SUMMARY
Cash dividends per common share		$.257			$.257			$.236			$1.029			$.943
Cash dividends on common stock		$30,178			$30,174			$27,933			$120,818			$113,466
Cash dividends on preferred stock (7)		$—			$7,466			$2,250			$11,966			$9,000
Book value per common share (5)		$29.03			$28.23			$25.43
Market value per common share (5)		$65.70			$53.61			$64.70
High market value per common share		$68.09			$59.13			$65.38
Low market value per common share		$52.10			$50.50			$51.96
Common shares outstanding (5)		117,138,431			117,109,209			117,738,126
Tangible common equity to tangible assets (6)		9.92		%	10.11		%	10.99		%
Tier I leverage ratio		9.45		%	9.39		%	11.38		%
OTHER QTD INFORMATION
Number of bank/ATM locations		306			308			316
Full-time equivalent employees		4,766			4,825			4,858

(1)	Excludes allowance for credit losses on loans and unrealized gains/(losses) on available for sale debt securities.
(2)	Includes loans held for sale.
(3)	Annualized net income available to common shareholders divided by average total equity less preferred stock.
(4)	The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.
(5)	As of period end.
(6)	The tangible common equity ratio is calculated as stockholders’ equity reduced by preferred stock, goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).
(7)	For the period ended September 30, 2020, preferred stock dividends includes $5.2 million related to the preferred stock redemption. The $5.2 million is the excess of the redemption costs over the book value of the preferred stock and is considered a dividend.
All share and per share amounts have been restated to reflect the 5% stock dividend distributed in December 2020.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
		For the Three Months Ended														For the Year Ended
(Unaudited) (In thousands, except per share data)		December 31, 2020			September 30, 2020		June 30, 2020			March 31, 2020			December 31, 2019			December 31, 2020			December 31, 2019
Interest income		$214,726			$223,114		$213,323			$221,485			$226,665			$872,648			$924,685
Interest expense		4,963			7,152		10,266			20,420			24,006			42,801			103,392
Net interest income		209,763			215,962		203,057			201,065			202,659			829,847			821,293
Provision for credit losses		(4,403	)		3,101		80,539			57,953			15,206			137,190			50,438
Net interest income after credit losses		214,166			212,861		122,518			143,112			187,453			692,657			770,855
NON-INTEREST INCOME
Bank card transaction fees		39,979			37,873		33,745			40,200			41,079			151,797			167,879
Trust fees		41,961			40,769		37,942			39,965			40,405			160,637			155,628
Deposit account charges and other fees		24,164			23,107		22,279			23,677			24,974			93,227			95,983
Capital market fees		3,826			3,194		3,772			3,790			2,536			14,582			8,146
Consumer brokerage services		3,996			4,011		3,011			4,077			4,139			15,095			15,804
Loan fees and sales		9,031			9,769		4,649			3,235			3,465			26,684			15,767
Other		12,160			10,849		12,117			8,719			26,863			43,845			65,496
Total non-interest income		135,117			129,572		117,515			123,663			143,461			505,867			524,703
INVESTMENT SECURITIES GAINS (LOSSES), NET		12,307			16,155		(4,129	)		(13,301	)		(248	)		11,032			3,626
NON-INTEREST EXPENSE
Salaries and employee benefits		129,983			127,308		126,759			128,937			126,901			512,987			492,927
Net occupancy		11,570			12,058		11,269			11,748			12,218			46,645			47,157
Equipment		4,526			4,737		4,755			4,821			4,859			18,839			19,061
Supplies and communication		4,193			4,141		4,427			4,658			4,851			17,419			20,394
Data processing and software		24,323			23,610		23,837			23,555			23,934			95,325			92,899
Marketing		5,028			4,926		3,801			5,979			3,951			19,734			21,914
Other		16,687			14,078		12,664			14,000			18,460			57,429			73,046
Total non-interest expense		196,310			190,858		187,512			193,698			195,174			768,378			767,398
Income before income taxes		165,280			167,730		48,392			59,776			135,492			441,178			531,786
Less income taxes		33,084			34,375		9,661			10,173			28,214			87,293			109,074
Net income		132,196			133,355		38,731			49,603			107,278			353,885			422,712
Less non-controlling interest expense (income)		2,307			907		(1,132	)		(2,254	)		398			(172	)		1,481
Net income attributable to Commerce Bancshares, Inc.		129,889			132,448		39,863			51,857			106,880			354,057			421,231
Less preferred stock dividends		—			7,466		2,250			2,250			2,250			11,966			9,000
Net income available to common shareholders		$129,889			$124,982		$37,613			$49,607			$104,630			$342,091			$412,231
Net income per common share — basic		$1.11			$1.06		$.32			$.42			$.89			$2.91			$3.42
Net income per common share — diluted		$1.11			$1.06		$.32			$.42			$.88			$2.91			$3.41
OTHER INFORMATION
Return on total average assets		1.63		%	1.71	%	.54	%		.80	%		1.65	%		1.20	%		1.67	%
Return on average common equity (1)		15.49			15.21		4.77			6.48			13.90			10.64			14.06
Efficiency ratio (2)		56.68			55.00		58.10			59.17			56.29			57.19			56.87
Effective tax rate		20.30			20.61		19.51			16.40			20.88			19.78			20.57
Net yield on interest earning assets		2.80			2.97		2.94			3.33			3.36			2.99			3.48
Tax equivalent net interest income		$213,017			$219,118		$206,253			$204,402			$206,156			$842,790			$835,421

(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)		December 31, 2020				September 30, 2020				December 31, 2019
ASSETS
Loans
Business		$	6,546,087			$	6,683,413			$	5,565,449
Real estate — construction and land		1,021,595				1,009,729				899,377
Real estate — business		3,026,117				2,993,192				2,833,554
Real estate — personal		2,820,030				2,753,867				2,354,760
Consumer		1,950,502				2,006,360				1,964,145
Revolving home equity		307,083				324,203				349,251
Consumer credit card		655,078				647,893				764,977
Overdrafts		3,149				2,270				6,304
Total loans		16,329,641				16,420,927				14,737,817
Allowance for credit losses on loans		(220,834		)		(236,360		)		(160,682		)
Net loans		16,108,807				16,184,567				14,577,135
Loans held for sale		45,089				39,483				13,809
Investment securities:
Available for sale debt securities		12,449,264				11,539,061				8,571,626
Trading debt securities		35,321				25,805				28,161
Equity securities		4,363				4,203				4,209
Other securities		156,745				122,532				137,892
Total investment securities		12,645,693				11,691,601				8,741,888
Federal funds sold and short-term securities purchased under agreements to resell		—				2,275				—
Long-term securities purchased under agreements to resell		850,000				850,000				850,000
Interest earning deposits with banks		1,747,363				1,171,697				395,850
Cash and due from banks		437,563				357,616				491,615
Premises and equipment — net		371,083				377,853				370,637
Goodwill		138,921				138,921				138,921
Other intangible assets — net		11,207				7,183				9,534
Other assets		567,248				632,621				476,400
Total assets		$	32,922,974			$	31,453,817			$	26,065,789
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing		$	10,497,598			$	10,727,827			$	6,890,687
Savings, interest checking and money market		14,604,456				12,983,505				11,621,716
Certificates of deposit of less than $100,000		529,802				556,870				626,157
Certificates of deposit of $100,000 and over		1,314,889				1,433,577				1,381,855
Total deposits		26,946,745				25,701,779				20,520,415
Federal funds purchased and securities sold under agreements to repurchase		2,098,383				1,653,064				1,850,772
Other borrowings		802				782				2,418
Other liabilities		477,072				791,928				553,712
Total liabilities		29,523,002				28,147,553				22,927,317
Stockholders’ equity:
Preferred stock		—				—				144,784
Common stock		589,352				563,978				563,978
Capital surplus		2,436,288				2,140,410				2,151,464
Retained earnings		73,000				326,890				201,562
Treasury stock		(32,970		)		(69,050		)		(37,548		)
Accumulated other comprehensive income		331,377				343,435				110,444
Total stockholders’ equity		3,397,047				3,305,663				3,134,684
Non-controlling interest		2,925				601				3,788
Total equity		3,399,972				3,306,264				3,138,472
Total liabilities and equity		$	32,922,974			$	31,453,817			$	26,065,789

COMMERCE BANCSHARES, INC. and SUBSIDIARIES AVERAGE BALANCE SHEETS
(Unaudited) (In thousands)	For the Three Months Ended
	December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019
ASSETS:
Loans:
Business	$	6,580,300			$	6,709,200			$	6,760,827			$	5,493,657			$	5,362,020
Real estate — construction and land	1,032,891				974,346				895,648				924,086				901,367
Real estate — business	3,029,799				2,989,652				2,962,076				2,853,632				2,820,189
Real estate — personal	2,778,462				2,722,300				2,582,484				2,390,716				2,283,530
Consumer	1,981,033				1,992,314				1,944,265				1,950,491				1,961,631
Revolving home equity	316,895				329,361				343,210				350,256				347,527
Consumer credit card	638,161				646,185				663,911				727,569				749,056
Overdrafts	3,762				2,689				2,912				4,044				18,322
Total loans	16,361,303				16,366,047				16,155,333				14,694,451				14,443,642
Allowance for credit losses on loans	(235,484		)		(240,286		)		(171,616		)		(139,482		)		(159,776		)
Net loans	16,125,819				16,125,761				15,983,717				14,554,969				14,283,866
Loans held for sale	30,577				24,728				6,363				12,875				15,363
Investment securities:
U.S. government and federal agency obligations	774,640				770,361				776,240				802,556				826,702
Government-sponsored enterprise obligations	69,133				102,749				114,518				134,296				184,973
State and municipal obligations	1,967,408				1,767,526				1,285,427				1,222,595				1,207,584
Mortgage-backed securities	6,646,345				6,259,926				5,325,720				4,685,782				4,685,794
Asset-backed securities	1,819,467				1,520,988				1,342,518				1,182,556				1,258,297
Other debt securities	533,646				514,166				406,665				321,733				331,167
Unrealized gain on debt securities	329,477				368,154				281,457				191,275				149,591
Total available for sale debt securities	12,140,116				11,303,870				9,532,545				8,540,793				8,644,108
Trading debt securities	28,040				27,267				31,981				34,055				32,518
Equity securities	4,221				4,193				4,137				4,273				4,200
Other securities	130,145				120,253				139,250				144,096				141,501
Total investment securities	12,302,522				11,455,583				9,707,913				8,723,217				8,822,327
Federal funds sold and short-term securities purchased under agreements to resell	355				337				92				326				714
Long-term securities purchased under agreements to resell	849,998				849,994				850,000				850,000				849,986
Interest earning deposits with banks	1,082,644				1,024,435				1,755,068				601,420				390,134
Other assets	1,291,907				1,389,683				1,461,528				1,368,464				1,315,395
Total assets	$	31,683,822			$	30,870,521			$	29,764,681			$	26,111,271			$	25,677,785
LIABILITIES AND EQUITY:
Non-interest bearing deposits	$	10,275,735			$	9,801,562			$	8,843,408			$	6,615,108			$	6,552,862
Savings	1,234,481				1,193,079				1,111,397				952,709				924,282
Interest checking and money market	12,198,928				11,731,494				11,441,694				10,777,400				10,618,347
Certificates of deposit of less than $100,000	542,212				573,207				605,136				622,840				626,944
Certificates of deposit of $100,000 and over	1,339,301				1,447,968				1,346,069				1,299,443				1,434,309
Total deposits	25,590,657				24,747,310				23,347,704				20,267,500				20,156,744
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase	2,028,457				1,855,971				1,991,971				1,990,051				1,836,982
Other borrowings	1,013				1,225				345,162				161,698				94,471
Total borrowings	2,029,470				1,857,196				2,337,133				2,151,749				1,931,453
Other liabilities	727,569				899,890				763,524				466,980				458,094
Total liabilities	28,347,696				27,504,396				26,448,361				22,886,229				22,546,291
Equity	3,336,126				3,366,125				3,316,320				3,225,042				3,131,494
Total liabilities and equity	$	31,683,822			$	30,870,521			$	29,764,681			$	26,111,271			$	25,677,785

COMMERCE BANCSHARES, INC. and SUBSIDIARIES AVERAGE RATES
(Unaudited)	For the Three Months Ended
	December 31, 2020		September 30, 2020		June 30, 2020		March 31, 2020		December 31, 2019
ASSETS:
Loans:
Business (1)	3.01	%	2.95	%	2.91	%	3.50	%	3.59	%
Real estate — construction and land	3.72		3.74		3.95		4.78		5.05
Real estate — business	3.51		3.53		3.71		4.16		4.22
Real estate — personal	3.44		3.56		3.69		3.83		3.85
Consumer	4.07		4.19		4.48		4.78		4.76
Revolving home equity	3.37		3.29		3.50		4.61		4.76
Consumer credit card	11.60		11.40		11.76		12.26		12.11
Overdrafts	—		—		—		—		—
Total loans	3.69		3.69		3.80		4.39		4.47
Loans held for sale	3.54		4.25		8.03		6.15		5.32
Investment securities:
U.S. government and federal agency obligations	2.63		3.71		.46		2.09		2.16
Government-sponsored enterprise obligations	2.23		2.17		3.51		4.19		2.17
State and municipal obligations (1)	2.44		2.53		2.97		3.11		3.05
Mortgage-backed securities	1.37		1.95		2.17		2.37		2.72
Asset-backed securities	1.59		1.90		2.25		2.63		2.62
Other debt securities	2.19		2.35		2.49		2.94		2.82
Total available for sale debt securities	1.70		2.18		2.18		2.54		2.69
Trading debt securities (1)	1.40		1.66		2.93		2.52		2.81
Equity securities (1)	50.71		47.15		48.42		46.78		49.40
Other securities (1)	10.03		6.74		4.36		5.31		6.58
Total investment securities	1.81		2.24		2.24		2.61		2.78
Federal funds sold and short-term securities purchased under agreements to resell	1.12		—		—		2.47		2.22
Long-term securities purchased under agreements to resell	5.24		5.26		5.08		3.53		2.26
Interest earning deposits with banks	.10		.10		.10		.86		1.61
Total interest earning assets	2.86		3.07		3.09		3.66		3.75
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	.09		.09		.09		.11		.11
Interest checking and money market	.07		.10		.13		.30		.35
Certificates of deposit of less than $100,000	.51		.71		.93		1.15		1.16
Certificates of deposit of $100,000 and over	.47		.69		1.08		1.62		1.79
Total interest bearing deposits	.12		.18		.25		.45		.52
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase	.06		.09		.12		.96		1.20
Other borrowings	—		—		.82		.82		2.05
Total borrowings	.06		.09		.22		.95		1.25
Total interest bearing liabilities	.11	%	.17	%	.25	%	.52	%	.61	%
Net yield on interest earning assets	2.80	%	2.97	%	2.94	%	3.33	%	3.36	%

(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)		December 31, 2020				September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				December 31, 2020				December 31, 2019
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period		$	236,360			$	240,744			$	171,653			$	160,682			$	160,682			$	160,682			$	159,932
Adoption of ASU 2016-13		—				—				—				(21,039		)		—				(21,039		)		—
Provision for credit losses on loans		(7,510		)		3,200				77,491				42,868				15,206				116,049				50,438
Net charge-offs (recoveries):
Commercial portfolio:
Business		581				208				3,249				(373		)		3,036				3,665				4,102
Real estate — construction and land		(2		)		(1		)		—				—				—				(3		)		(117		)
Real estate — business		(7		)		(13		)		(6		)		(21		)		35				(47		)		(60		)
		572				194				3,243				(394		)		3,071				3,615				3,925
Personal banking portfolio:
Consumer credit card		5,975				7,263				3,584				9,157				8,829				25,979				35,421
Consumer		1,160				211				1,362				1,711				2,838				4,444				8,554
Overdraft		335				200				316				426				507				1,277				1,523
Real estate — personal		(18		)		(198		)		(71		)		(4		)		6				(291		)		56
Revolving home equity		(8		)		(86		)		(34		)		(38		)		(45		)		(166		)		209
		7,444				7,390				5,157				11,252				12,135				31,243				45,763
Total net loan charge-offs		8,016				7,584				8,400				10,858				15,206				34,858				49,688
Balance at end of period		$	220,834			$	236,360			$	240,744			$	171,653			$	160,682			$	220,834			$	160,682
LIABILITY FOR UNFUNDED LENDING COMMITMENTS		$	38,307			$	35,200			$	35,299			$	32,250			$	1,075
NET CHARGE-OFF RATIOS (1)
Commercial portfolio:
Business		.04		%		.01		%		.19			%	(.03		%)		.22		%		.06		%		.08		%
Real estate — construction and land		—				—				—				—				—				—				(.01		)
Real estate — business		—				—				—				—				—				—				—
		.02				.01				.12				(.02		)		.13				.04				.04
Personal banking portfolio:
Consumer credit card		3.72				4.47				2.17				5.06				4.68				3.88				4.63
Consumer		.23				.04				.28				.35				.57				.23				.44
Overdraft		35.43				29.59				43.65				42.37				10.98				38.11				16.55
Real estate — personal		—				(.03		)		(.01		)		—				—				(.01		)		—
Revolving home equity		(.01		)		(.10		)		(.04		)		(.04		)		(.05		)		(.05		)		.06
		.52				.52				.37				.83				.90				.56				.87
Total		.19		%		.18		%		.21		%		.30		%		.42		%		.22		%		.35		%
CREDIT QUALITY RATIOS
Non-performing assets to total loans		.16		%		.25		%		.14		%		.07		%		.07		%
Non-performing assets to total assets		.08				.13				.08				.04				.04
Allowance for credit losses on loans to total loans(2)		1.35				1.44				1.47				1.14				1.09
NON-PERFORMING ASSETS
Non-accrual loans:
Business		$	22,524			$	37,295			$	19,034			$	7,356			$	7,489
Real estate — construction and land		—				1				1				2				2
Real estate — business		2,230				1,063				1,921				1,532				1,030
Real estate — personal		1,786				1,911				1,679				1,743				1,699
Total		26,540				40,270				22,635				10,633				10,220
Foreclosed real estate		93				57				422				422				365
Total non-performing assets		$	26,633			$	40,327			$	23,057			$	11,055			$	10,585
Loans past due 90 days and still accruing interest		$	22,190			$	14,436			$	24,583			$	16,520			$	19,859

(1)	As a percentage of average loans (excluding loans held for sale).
(2)	Excluding PPP loans, the allowance for credit losses on loans to total loans was 1.48% and 1.59% as of December 31, 2020 and September 30, 2020, respectively.

COMMERCE BANCSHARES, INC.
Management Discussion of Fourth Quarter Results
December 31, 2020

For the quarter ended December 31, 2020, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $129.9 million, compared to $132.4 million in the previous quarter and $106.9 million in the same quarter last year. The decrease in net income over the previous quarter was primarily the result of lower net interest income and net securities gains and higher non-interest expense, partly offset by a decrease in the provision for credit losses and higher non-interest income. The provision for credit losses decreased this quarter, compared to the prior quarter, due to a decrease in the estimate of the allowance for credit losses. Net interest income decreased $6.2 million this quarter mostly due to lower interest earned on the available for sale debt securities portfolio, including a $3.5 million adjustment to premium amortization on mortgage-backed securities for prepayment speed changes and a $2.1 million decrease in inflation income on our Treasury inflation-protected securities (TIPs). Excluding the premium amortization adjustment and TIPs inflation income, the net yield on interest earnings assets declined eight basis points. Average loans were flat compared to the previous quarter, while average available for sale debt securities grew $836.2 million, and average deposits increased $843.3 million. For the quarter, the return on average assets was 1.63%, the return on average common equity was 15.49%, and the efficiency ratio was 56.7%.

Balance Sheet Review

During the 4^th quarter of 2020, average loans totaled $16.4 billion, and decreased $4.7 million from the prior quarter, and grew $1.9 billion, or 13.3%, over the same quarter last year. Period end loans declined $91.3 million compared to the prior quarter and grew $1.6 billion compared to December 31, 2019. Compared to the previous quarter, average balances of construction and land, personal real estate, and business real estate loans grew $58.5 million, $56.2 million, and $40.1 million, respectively. This growth was mostly offset by a decline in business loans of $128.9 million. The period end balance of Paycheck Protection Program (PPP) loans (included in business loans) declined $147.4 million during the 4^th quarter and totaled $1.4 billion at December 31, 2020. Growth in personal real estate loan balances was due to continued strong demand for residential mortgage loans in this low interest rate environment. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $136.0 million, compared to $98.9 million in the prior quarter.

Total average available for sale debt securities increased $836.2 million over the previous quarter to $12.1 billion, at fair value. The increase in investment securities was mainly the result of growth in mortgage-backed, asset-backed, and state and municipal securities. During the quarter, purchases of securities totaled $1.8 billion with a weighted average yield of approximately 1.27%. Sales, maturities and pay downs were $851.6 million. At December 31, 2020, the duration of the investment portfolio was 3.3 years, and maturities and pay downs of approximately $2.0 billion are expected to occur during the next 12 months.

Total average deposits increased $843.3 million this quarter compared to the previous quarter. The increase in deposits resulted from growth in demand ($474.2 million), interest checking and money market ($467.4 million), and savings deposits ($41.4 million), partly offset by a decline in certificates of deposit ($139.7 million). Compared to the previous quarter, total average commercial, consumer and wealth deposits (including private banking) grew $505.6 million, $138.4 million and $240.3 million, respectively. The average loans to deposits ratio was 64.1% in the current quarter and 66.2% in the prior quarter. The Company’s average borrowings, which includes customer repurchase agreements, were $2.0 billion in the 4^th quarter of 2020 and $1.9 billion in the prior quarter.

Net Interest Income

Net interest income in the 4^th quarter of 2020 amounted to $209.8 million, a decrease of $6.2 million compared to the previous quarter. On a tax equivalent basis, net interest income for the current quarter decreased $6.1 million from the previous quarter to $213.0 million. The decrease in net interest income was mainly due to lower income earned on investment securities, partially offset by lower interest expense on interest bearing deposits. The Company recorded a $3.5 million adjustment to premium amortization on mortgage-backed securities for prepayment speed changes, which lowered interest income this quarter. The net yield on earning assets (tax equivalent) decreased to 2.80%, compared to 2.97% in the prior quarter.

Compared to the previous quarter, interest income on loans (tax equivalent) decreased $248 thousand, mostly as a result of lower yields on loans, mainly personal real estate and consumer loans, coupled with a decline in business loan average balances. Growth in average construction and land and personal real estate loan balances and higher yields on business loans resulted in higher net interest income and partially offset the impact of lower yields. The average tax-equivalent yield on the loan portfolio was 3.69% in both the current and previous quarters.

Interest income on investment securities (tax equivalent) decreased $8.0 million from the previous quarter, due to lower rates partly offset by higher average balances. Interest income on mortgage-backed securities declined in part due to the aforementioned premium amortization adjustment, while interest income earned on U.S. government and federal agency securities decreased, as TIPs inflation income declined $2.1 million this quarter. The yield on total investment securities was 1.81% in the current quarter, compared to 2.24% in the previous quarter.

The average rate paid on deposits totaled 12 basis points in the 4^th quarter of 2020, compared to 18 basis points in the prior quarter. Interest expense on deposits decreased $2.1 million this quarter compared to the previous quarter mainly due to lower rates paid on money market and certificate of deposit accounts. The overall rate paid on interest bearing liabilities was .11% in the current quarter, compared to .17% in the prior quarter.

Non-Interest Income

In the 4^th quarter of 2020, total non-interest income amounted to $135.1 million, a decrease of $8.3 million, or 5.8%, compared to the same period last year and increased $5.5 million, or 4.3%, compared to the prior quarter. The decrease in non-interest income from the same period last year was mainly due to the sale of our corporate trust business in 2019, which resulted in a one-time gain of $11.5 million. This decrease was partly offset by growth in loan fees and sales, trust fees and capital market fees. Excluding the one-time gain from the sale of our corporate trust business, non-interest income this quarter grew $3.1 million or 2.4% compared to the same period last year.

Total net bank card fees in the current quarter decreased $1.1 million, or 2.7%, from the same period last year, and increased $2.1 million, or 5.6%, compared to the prior quarter. Net corporate card fees decreased $774 thousand, or 3.5%, from the same quarter of last year mainly due to lower transaction volume, partly offset by lower rewards expense. Net debit card fees decreased $639 thousand, or 6.1%, mainly due to lower interchange income and higher network expense. Net merchant income increased $181 thousand, or 3.6%, while net credit card fees increased $133 thousand, or 3.8%. Total net bank card fees this quarter were comprised of fees on corporate card ($21.3 million), debit card ($9.8 million), merchant ($5.2 million) and credit card ($3.6 million) transactions.

In the current quarter, trust fees increased $1.6 million, or 3.9%, over the same period last year, resulting mostly from higher private client fee income. Compared to the same period last year, deposit account fees decreased $810 thousand, or 3.2%, mainly due to lower overdraft and return item fees, partly offset by an increase in corporate cash management fees. Additionally, capital market fees grew $1.3 million, or 50.9%, while loan fees and sales, mostly mortgage banking revenue, grew $5.6 million, or 160.6%, over amounts recorded in the same quarter last year. Other non-interest income decreased from the same period last year due to the corporate trust sale gain mentioned previously and declines in cash sweep fees and swap fees of $2.0 million and $1.8 million, respectively. For the 4^th quarter of 2020, non-interest income comprised 39.2% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded net securities gains of $12.3 million in the current quarter, compared to gains of $16.2 million in the prior quarter and losses of $248 thousand in the 4^th quarter of 2019. Net securities gains in the current quarter primarily resulted from unrealized gains of $8.0 million in the Company’s private equity investment portfolio and gains of $4.1 million on the sales of mortgage-backed securities.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $196.3 million, compared to $195.2 million in the same period last year and $190.9 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to higher salaries and employee benefits and marketing expense, partially offset by lower other non-interest expense.

Compared to the 4^th quarter of last year, salaries and employee benefits expense increased $3.1 million, or 2.4%, driven mainly by growth in incentive compensation expense, partially offset by lower benefits costs. Full-time equivalent employees totaled 4,766 and 4,858 at December 31, 2020 and 2019, respectively.

For the current quarter compared to the same quarter of last year, marketing expense increased $1.1 million. Net occupancy costs declined $648 thousand due to lower building maintenance and real estate taxes. Supplies and communication expense decreased $658 thousand due to lower supplies, postage and bank card issuance expense. Other non-interest expense decreased mainly due to a $2.3 million decrease in travel and entertainment expense.

Income Taxes

The effective tax rate for the Company was 20.3% in the current quarter, 20.6% in the previous quarter, and 20.9% in the 4^th quarter of 2020.

Credit Quality

Net loan charge-offs in the 4^th quarter of 2020 amounted to $8.0 million, compared to $7.6 million in the prior quarter and $15.2 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .19% in the current quarter, .18% in the previous quarter, and .42% in the 4^th quarter of last year. Compared to the prior quarter, net loan charge-offs on commercial loans increased $378 thousand to $572 thousand, while net loan charge-offs on personal banking loans increased $54 thousand to $7.4 million.

In the 4^th quarter of 2020, annualized net loan charge-offs on average consumer credit card loans were 3.72%, compared to 4.47% in the previous quarter, and 4.68% in the same quarter last year. Consumer loan net charge-offs were .23% of average consumer loans in the current quarter, .04% in the prior quarter and .57% in the same quarter last year.

This quarter, the provision for credit losses on loans decreased $10.7 million and was $15.5 million lower than net loan charge-offs. Actual fourth quarter economic data and the economic forecast used to estimate the allowance for credit losses in December showed improving economic conditions compared to the forecast utilized in September, which resulted in a decrease in the allowance for credit losses as of December 31, 2020, and also reduced the provision for credit losses this quarter, compared to the prior quarter. At December 31, 2020, the allowance for credit losses on loans totaled $220.8 million, or 1.35% of total loans and 1.48% of total loans excluding PPP loans. Additionally, the liability for unfunded lending commitments at December 31, 2020 was $38.3 million, an increase of $3.1 million over the liability at September 30, 2020.

At December 31, 2020, total non-performing assets amounted to $26.6 million, a decrease of $13.7 million from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($26.5 million and $93 thousand, respectively). At December 31, 2020, the balance of non-accrual loans, which represented .16% of loans outstanding, included business loans of $22.5 million, business real estate loans of $2.2 million, and personal real estate loans of $1.8 million. Loans more than 90 days past due and still accruing interest totaled $22.2 million at December 31, 2020.

Other

During the 4^th quarter of 2020, the Company distributed a 5% stock dividend on its common stock and paid a cash dividend of $.257 per common share (as restated for the stock dividend), representing an 8.9% increase over the same period last year.

Forward-Looking Information

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

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