COMMERCE BANCSHARES INC /MO/ - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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Exhibit 99.1



	CBSH
1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000

FOR IMMEDIATE RELEASE:

Wednesday, January 18, 2017

COMMERCE BANCSHARES, INC. ANNOUNCES FOURTH

QUARTER EARNINGS PER COMMON SHARE OF $.68

Commerce Bancshares, Inc. announced earnings of $.68 per common share for the three months ended December 31, 2016, compared to $.65 per share in the prior quarter and $.60 per share in the fourth quarter of 2015. Net income attributable to Commerce Bancshares, Inc. for the fourth quarter amounted to $71.6 million, compared to $68.5 million in the prior quarter and $63.7 million in the same quarter last year. For the quarter, the return on average assets was 1.14%, the return on average common equity was 11.5%, and the efficiency ratio was 61.8%.

For the year ended December 31, 2016, earnings per common share totaled $2.61 compared to $2.43 in 2015, or an increase of 7.4%. Net income attributable to Commerce Bancshares, Inc. amounted to $275.4 million for the year ended December 31, 2016, compared to $263.7 million in 2015. In 2016, the return on average assets was 1.12%, and the return on average common equity was 11.3%.

In announcing these results, David W. Kemper, Chairman and CEO, said, “Overall, Commerce saw strong performance in 2016, with loan growth of 8% and growth in earnings per share of 7%. Loan growth was solid this quarter, as average loans grew $231 million, or 7% annualized. This increase resulted from higher business real estate loan demand, coupled with good growth in residential mortgage and other consumer loans. Average deposits grew $388 million this quarter, or 8% annualized, reflecting expected seasonal growth. Net interest income increased 7% over the fourth quarter of 2015, reflecting growth in loan and investment securities interest income and stable funding costs, and we remain well positioned for improved margins, should interest rates rise in 2017. Non-interest income this quarter grew 3% compared to the same period last year on continued growth in trust, sweep, deposit and swap fees. Non-interest expense was flat with the prior quarter but was up 3% over the same period last year.”

Mr. Kemper added, “We continue to maintain strong capital and liquidity levels. Credit quality across our entire loan portfolio remains excellent, with low credit losses and delinquency rates and declining non-performing assets. Net loan charge-offs totaled $9.0 million this quarter, compared to $6.6 million in the previous quarter, with the increase largely due to lower commercial loan recoveries this quarter and slightly higher consumer net loan charge-offs. During the current quarter, the provision for loan losses totaled $10.4 million, or $1.4 million higher than net loan charge-offs. The allowance for loan losses increased to $155.9 million at December 31, 2016, or 1.16% of period end loans. Total non-performing assets decreased $1.9 million from the previous quarter to $14.6 million this quarter.”

(more)

Total assets at December 31, 2016 were $25.6 billion, total loans were $13.4 billion, and total deposits were $21.1 billion. During the quarter, the Company signed an agreement to purchase a new core deposit system from Temenos Group AG which is expected to be implemented in 2019. In the fourth quarter of 2016, the Company distributed a 5% stock dividend on its common stock. The Company also paid a cash dividend of $.214 per common share, as restated for the 5% stock dividend, and an annualized 6% cash dividend on its preferred stock this quarter.

Commerce Bancshares, Inc. is a registered bank holding company offering a full line of banking services, including investment management and securities brokerage. The Company currently operates in approximately 340 locations in Missouri, Illinois, Kansas, Oklahoma and Colorado. The Company also has operating subsidiaries involved in credit related insurance and private equity activities.

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

* * * * * * * * * * * * * * *

For additional information, contact

Jeffery Aberdeen, Controller

at 1000 Walnut Street, Suite 700

Kansas City, MO 64106

or by telephone at (816) 234-2081

Web Site: http://www.commercebank.com

Email: mymoney@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, 2016			September 30, 2016			December 31, 2015			December 31, 2016			December 31, 2015
FINANCIAL SUMMARY
Net interest income		$173,202			$171,243			$162,487			$680,049			$634,320
Non-interest income	119,479			119,319			116,042			474,392			448,139
Total revenue	292,681			290,562			278,529			1,154,441			1,082,459
Investment securities gains (losses), net	3,651			(1,965		)	(1,480		)	(53		)	6,320
Provision for loan losses	10,400			7,263			9,186			36,318			28,727
Non-interest expense	181,261			181,242			175,777			717,065			676,487
Income before taxes	104,671			100,092			92,086			401,005			383,565
Income taxes	32,297			30,942			27,661			124,151			116,590
Non-controlling interest expense (income)	795			605			715			1,463			3,245
Net income attributable to Commerce Bancshares, Inc.	71,579			68,545			63,710			275,391			263,730
Preferred stock dividends	2,250			2,250			2,250			9,000			9,000
Net income available to common shareholders		$69,329			$66,295			$61,460			$266,391			$254,730
Earnings per common share:
Net income — basic		$.68			$.65			$.60			$2.62			$2.44
Net income — diluted		$.68			$.65			$.60			$2.61			$2.43
Effective tax rate	31.09		%	31.10		%	30.27		%	31.07		%	30.66		%
Tax equivalent net interest income		$181,301			$179,115			$170,141			$711,433			$664,038
Average total interest earning assets ⁽¹⁾	$	23,775,165		$	23,150,832		$	22,948,756		$	23,378,121		$	22,621,052
Diluted wtd. average shares outstanding	100,558,345			100,452,911			101,310,405			100,498,696			103,192,753

RATIOS
Average loans to deposits ⁽²⁾	64.24		%	64.33		%	62.80		%	63.71		%	61.44		%
Return on total average assets	1.14			1.12			1.05			1.12			1.11
Return on average common equity ⁽³⁾	11.48			10.97			10.88			11.33			11.43
Non-interest income to total revenue	40.82			41.06			41.66			41.09			41.40
Efficiency ratio ⁽⁴⁾	61.82			62.25			62.97			61.98			62.34
Net yield on interest earning assets	3.03			3.08			2.94			3.04			2.94

EQUITY SUMMARY
Cash dividends per common share		$.214			$.214			$.204			$.857			$.816
Cash dividends on common stock		$21,776			$21,772			$20,920			$87,070			$84,961
Cash dividends on preferred stock		$2,250			$2,250			$2,250			$9,000			$9,000
Book value per common share ⁽⁵⁾		$23.22			$23.82			$21.77
Market value per common share ⁽⁵⁾		$57.81			$46.91			$40.51
High market value per common share		$59.22			$48.86			$44.86
Low market value per common share		$45.37			$43.56			$39.43
Common shares outstanding ⁽⁵⁾	101,460,962			101,420,849			102,087,300
Tangible common equity to tangible assets ⁽⁶⁾	8.66		%	9.22		%	8.48		%
Tier I leverage ratio	9.55		%	9.58		%	9.23		%

OTHER QTD INFORMATION
Number of bank/ATM locations	336			340			346
Full-time equivalent employees	4,784			4,778			4,770


(1)	Excludes allowance for loan losses and unrealized gains/(losses) on available for sale 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).

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, 2016			September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015			December 31, 2016			December 31, 2015
Interest income		$181,498			$179,361			$180,065			$172,128			$169,742			$713,052			$662,416
Interest expense	8,296			8,118			8,236			8,353			7,255			33,003			28,096
Net interest income	173,202			171,243			171,829			163,775			162,487			680,049			634,320
Provision for loan losses	10,400			7,263			9,216			9,439			9,186			36,318			28,727
Net interest income after provision for loan losses	162,802			163,980			162,613			154,336			153,301			643,731			605,593
NON-INTEREST INCOME
Bank card transaction fees	45,338			47,006			45,065			44,470			46,320			181,879			178,926
Trust fees	31,360			30,951			30,241			29,243			29,622			121,795			118,437
Deposit account charges and other fees	22,134			22,241			21,328			20,691			21,606			86,394			80,416
Capital market fees	2,679			2,751			2,500			2,725			3,116			10,655			11,476
Consumer brokerage services	3,409			3,375			3,491			3,509			3,254			13,784			13,784
Loan fees and sales	2,583			3,123			3,196			2,510			2,101			11,412			8,228
Other	11,976			9,872			10,749			15,876			10,023			48,473			36,872
Total non-interest income	119,479			119,319			116,570			119,024			116,042			474,392			448,139
INVESTMENT SECURITIES GAINS (LOSSES), NET	3,651			(1,965		)	(744		)	(995		)	(1,480		)	(53		)	6,320
NON-INTEREST EXPENSE
Salaries and employee benefits	108,639			107,004			104,808			106,859			102,098			427,310			400,701
Net occupancy	11,529			12,366			11,092			11,303			10,981			46,290			44,788
Equipment	4,884			4,842			4,781			4,634			4,915			19,141			19,086
Supplies and communication	5,645			5,968			5,693			6,829			6,554			24,135			22,970
Data processing and software	23,390			23,663			22,770			22,899			22,274			92,722			83,944
Marketing	3,431			4,399			4,389			3,813			3,539			16,032			16,107
Deposit insurance	3,443			3,576			3,143			3,165			3,145			13,327			12,146
Other	20,300			19,424			20,413			17,971			22,271			78,108			76,745
Total non-interest expense	181,261			181,242			177,089			177,473			175,777			717,065			676,487
Income before income taxes	104,671			100,092			101,350			94,892			92,086			401,005			383,565
Less income taxes	32,297			30,942			31,542			29,370			27,661			124,151			116,590
Net income	72,374			69,150			69,808			65,522			64,425			276,854			266,975
Less non-controlling interest expense (income)	795			605			(85		)	148			715			1,463			3,245
Net income attributable to Commerce Bancshares, Inc.	71,579			68,545			69,893			65,374			63,710			275,391			263,730
Less preferred stock dividends	2,250			2,250			2,250			2,250			2,250			9,000			9,000
Net income available to common shareholders		$69,329			$66,295			$67,643			$63,124			$61,460			$266,391			$254,730
Net income per common share — basic		$.68			$.65			$.67			$.62			$.60			$2.62			$2.44
Net income per common share — diluted		$.68			$.65			$.66			$.62			$.60			$2.61			$2.43

OTHER INFORMATION
Return on total average assets	1.14		%	1.12		%	1.15		%	1.07		%	1.05		%	1.12		%	1.11		%
Return on average common equity ⁽¹⁾	11.48			10.97			11.69			11.20			10.88			11.33			11.43
Efficiency ratio ⁽²⁾	61.82			62.25			61.27			62.62			62.97			61.98			62.34
Effective tax rate	31.09			31.10			31.10			31.00			30.27			31.07			30.66
Net yield on interest earning assets	3.03			3.08			3.11			2.95			2.94			3.04			2.94
Tax equivalent net interest income		$181,301			$179,115			$179,592			$171,425			$170,141			$711,433			$664,038


(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, 2016			September 30, 2016			December 31, 2015
ASSETS
Loans
Business	$	4,776,365		$	4,770,883		$	4,397,893
Real estate — construction and land	791,236			800,545			624,070
Real estate — business	2,643,374			2,520,528			2,355,544
Real estate — personal	2,010,397			1,968,005			1,915,953
Consumer	1,990,801			1,972,969			1,924,365
Revolving home equity	413,634			417,591			432,981
Consumer credit card	776,465			760,022			779,744
Overdrafts	10,464			19,698			6,142
Total loans	13,412,736			13,230,241			12,436,692
Allowance for loan losses	(155,932		)	(154,532		)	(151,532		)
Net loans	13,256,804			13,075,709			12,285,160
Loans held for sale	14,456			9,511			7,607
Investment securities:
Available for sale	9,649,203			9,438,871			9,777,004
Trading	22,225			28,586			11,890
Non-marketable	99,558			108,224			112,786
Total investment securities	9,770,986			9,575,681			9,901,680
Federal funds sold and short-term securities purchased under agreements to resell	15,470			13,415			14,505
Long-term securities purchased under agreements to resell	725,000			725,000			875,000
Interest earning deposits with banks	272,275			56,767			23,803
Cash and due from banks	494,690			396,938			464,411
Land, buildings and equipment — net	337,705			339,196			352,581
Goodwill	138,921			138,921			138,921
Other intangible assets — net	6,709			6,621			6,669
Other assets	608,408			396,709			534,625
Total assets	$	25,641,424		$	24,734,468		$	24,604,962
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	7,429,398		$	7,130,415		$	7,146,398
Savings, interest checking and money market	11,430,789			11,023,526			10,834,746
Time open and C.D.’s of less than $100,000	713,075			732,575			785,191
Time open and C.D.’s of $100,000 and over	1,527,833			1,279,644			1,212,518
Total deposits	21,101,095			20,166,160			19,978,853
Federal funds purchased and securities sold under agreements to repurchase	1,723,905			1,489,891			1,963,552
Other borrowings	102,049			101,415			103,818
Other liabilities	213,243			416,189			191,321
Total liabilities	23,140,292			22,173,655			22,237,544
Stockholders’ equity:
Preferred stock	144,784			144,784			144,784
Common stock	510,015			489,862			489,862
Capital surplus	1,552,454			1,335,150			1,337,677
Retained earnings	292,849			515,081			383,313
Treasury stock	(15,294		)	(50,538		)	(26,116		)
Accumulated other comprehensive income	10,975			121,082			32,470
Total stockholders’ equity	2,495,783			2,555,421			2,361,990
Non-controlling interest	5,349			5,392			5,428
Total equity	2,501,132			2,560,813			2,367,418
Total liabilities and equity	$	25,641,424		$	24,734,468		$	24,604,962

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS



(Unaudited) (In thousands)	For the Three Months Ended
	December 31, 2016			September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015
ASSETS:
Loans:
Business	$	4,731,405		$	4,694,340		$	4,691,476		$	4,491,556		$	4,351,756
Real estate — construction and land	821,048			821,422			789,329			682,557			584,185
Real estate — business	2,559,028			2,432,325			2,389,170			2,382,094			2,320,439
Real estate — personal	1,985,606			1,943,951			1,905,968			1,909,532			1,916,219
Consumer	1,978,154			1,947,956			1,927,925			1,934,577			1,908,540
Revolving home equity	415,429			411,832			413,198			429,682			429,582
Consumer credit card	757,618			750,412			738,130			752,098			756,743
Overdrafts	5,501			4,652			3,916			4,772			6,303
Total loans	13,253,789			13,006,890			12,859,112			12,586,868			12,273,767
Allowance for loan losses	(154,040		)	(153,517		)	(151,622		)	(151,308		)	(150,856		)
Net loans	13,099,749			12,853,373			12,707,490			12,435,560			12,122,911
Loans held for sale	10,765			26,597			56,272			9,360			6,118
Investment securities:
U.S. government and federal agency obligations	811,524			726,469			698,374			703,212			580,816
Government-sponsored enterprise obligations	445,544			481,573			666,354			776,488			824,066
State and municipal obligations	1,784,407			1,747,794			1,763,849			1,718,587			1,779,704
Mortgage-backed securities	3,656,695			3,366,292			3,394,466			3,424,716			3,335,627
Asset-backed securities	2,417,367			2,340,783			2,377,708			2,537,472			2,574,426
Other marketable securities	333,236			334,747			337,572			342,382			337,340
Unrealized gain on investment securities	155,818			235,169			191,565			149,319			130,231
Total available for sale securities	9,604,591			9,232,827			9,429,888			9,652,176			9,562,210
Trading securities	21,717			18,433			20,540			18,190			23,217
Non-marketable securities	105,420			113,954			116,103			127,769			114,321
Total investment securities	9,731,728			9,365,214			9,566,531			9,798,135			9,699,748
Federal funds sold and short-term securities purchased under agreements to resell	8,336			13,054			11,916			17,378			18,694
Long-term securities purchased under agreements to resell	724,998			766,302			824,999			850,275			902,174
Interest earning deposits with banks	201,367			207,944			125,024			219,636			178,486
Other assets	1,153,982			1,151,549			1,113,214			1,172,916			1,119,602
Total assets	$	24,930,925		$	24,384,033		$	24,405,446		$	24,503,260		$	24,047,733

LIABILITIES AND EQUITY:
Non-interest bearing deposits	$	7,307,407		$	7,096,218		$	6,885,889		$	6,905,673		$	6,995,666
Savings	773,304			778,663			787,478			761,020			736,824
Interest checking and money market	10,512,268			10,210,744			10,287,923			10,128,543			9,805,457
Time open & C.D.’s of less than $100,000	722,775			740,729			758,703			775,221			796,639
Time open & C.D.’s of $100,000 and over	1,333,764			1,435,001			1,635,892			1,483,700			1,219,803
Total deposits	20,649,518			20,261,355			20,355,885			20,054,157			19,554,389
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase	1,284,916			1,163,728			1,211,892			1,404,754			1,707,430
Other borrowings	101,412			102,769			104,649			377,711			103,819
Total borrowings	1,386,328			1,266,497			1,316,541			1,782,465			1,811,249
Other liabilities	346,900			306,306			260,179			254,437			295,718
Total liabilities	22,382,746			21,834,158			21,932,605			22,091,059			21,661,356
Equity	2,548,179			2,549,875			2,472,841			2,412,201			2,386,377
Total liabilities and equity	$	24,930,925		$	24,384,033		$	24,405,446		$	24,503,260		$	24,047,733

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES



(Unaudited)	For the Three Months Ended
(Unaudited)	December 31, 2016		September 30, 2016		June 30, 2016		March 31, 2016		December 31, 2015
ASSETS:
Loans:
Business⁽¹⁾	2.91	%	2.87	%	2.90	%	2.87	%	2.78	%
Real estate — construction and land	3.64		3.48		3.46		3.51		3.41
Real estate — business	3.61		3.63		3.69		3.70		3.68
Real estate — personal	3.69		3.73		3.76		3.77		3.76
Consumer	3.85		3.91		3.80		3.87		3.91
Revolving home equity	3.50		3.56		3.59		3.52		3.44
Consumer credit card	11.38		11.56		11.54		11.42		11.23
Overdrafts	—		—		—		—		—
Total loans	3.85		3.86		3.86		3.89		3.85
Loans held for sale	5.77		5.00		4.95		5.80		5.40
Investment securities:
U.S. government and federal agency obligations	2.18		2.43		3.48		.40		.17
Government-sponsored enterprise obligations	1.54		2.24		3.03		1.93		1.89
State and municipal obligations⁽¹⁾	3.57		3.60		3.60		3.66		3.64
Mortgage-backed securities	2.40		2.38		2.36		2.45		2.54
Asset-backed securities	1.52		1.48		1.45		1.39		1.25
Other marketable securities⁽¹⁾	2.95		2.74		2.77		2.79		2.83
Total available for sale securities	2.36		2.39		2.51		2.20		2.20
Trading securities⁽¹⁾	2.40		2.42		2.27		2.87		2.65
Non-marketable securities ⁽¹⁾	5.42		10.24		8.03		6.54		8.19
Total investment securities	2.39		2.49		2.58		2.26		2.27
Federal funds sold and short-term securities purchased under agreements to resell	.72		.61		.64		.56		.32
Long-term securities purchased under agreements to resell	1.86		1.73		1.64		1.64		1.40
Interest earning deposits with banks	.56		.51		.49		.49		.28
Total interest earning assets	3.17		3.22		3.25		3.10		3.07

LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	.12		.12		.11		.12		.12
Interest checking and money market	.13		.13		.13		.13		.13
Time open & C.D.’s of less than $100,000	.37		.37		.38		.38		.37
Time open & C.D.’s of $100,000 and over	.60		.61		.58		.54		.51
Total interest bearing deposits	.19		.20		.20		.19		.18
Borrowings:
Federal funds purchased and securities sold under agreements to repurchase	.30		.25		.24		.25		.14
Other borrowings	3.54		3.51		3.49		1.33		3.47
Total borrowings	.54		.51		.50		.48		.33
Total interest bearing liabilities	.22	%	.22	%	.22	%	.23	%	.20	%

Net yield on interest earning assets	3.03	%	3.08	%	3.11	%	2.95	%	2.94	%

(1) Stated on a tax equivalent basis using a federal income tax rate of 35%.



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, 2016			September 30, 2016			June 30, 2016			March 31, 2016			December 31, 2015			December 31, 2016			December 31, 2015
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of period	$	154,532		$	153,832		$	152,132		$	151,532		$	151,532		$	151,532		$	156,532
Provision for losses	10,400			7,263			9,216			9,439			9,186			36,318			28,727
Net charge-offs (recoveries):
Commercial portfolio:
Business	268			(50		)	(65		)	463			(133		)	616			(388		)
Real estate — construction and land	(882		)	(2,312		)	(507		)	(11		)	60			(3,712		)	(1,262		)
Real estate — business	97			(106		)	(1,030		)	(242		)	(626		)	(1,281		)	(133		)
	(517		)	(2,468		)	(1,602		)	210			(699		)	(4,377		)	(1,783		)
Personal banking portfolio:
Consumer credit card	6,506			6,356			6,650			5,918			6,479			25,430			25,039
Consumer	2,427			2,240			1,781			2,599			2,251			9,047			8,278
Overdraft	379			434			307			219			487			1,339			1,350
Real estate — personal	(38		)	(78		)	305			(195		)	458			(6		)	441
Revolving home equity	243			79			75			88			210			485			402
	9,517			9,031			9,118			8,629			9,885			36,295			35,510
Total net loan charge-offs	9,000			6,563			7,516			8,839			9,186			31,918			33,727
Balance at end of period	$	155,932		$	154,532		$	153,832		$	152,132		$	151,532		$	155,932		$	151,532

NET CHARGE-OFF RATIOS*
Commercial portfolio:
Business	.02		%	—		%	(.01		)%	.04		%	(.01		)%	.01		%	(.01		)%
Real estate — construction and land	(.43		)	(1.12		)	(.26		)	(.01		)	.04			(.48		)	(.26		)
Real estate — business	.02			(.02		)	(.17		)	(.04		)	(.11		)	(.05		)	(.01		)
	(.03		)	(.12		)	(.08		)	.01			(.04		)	(.06		)	(.03		)
Personal banking portfolio:
Consumer credit card	3.42			3.37			3.62			3.16			3.40			3.39			3.35
Consumer	.49			.46			.37			.54			.47			.46			.45
Overdraft	27.41			37.11			31.53			18.46			30.65			28.42			24.93
Real estate — personal	(.01		)	(.02		)	.06			(.04		)	.09			—			.02
Revolving home equity	.23			.08			.07			.08			.19			.12			.09
	.74			.71			.74			.69			.78			.72			.72
Total	.27		%	.20		%	.24		%	.28		%	.30		%	.25		%	.28		%

CREDIT QUALITY RATIOS
Non-performing assets to total loans	.11		%	.13		%	.20		%	.25		%	.24		%
Non-performing assets to total assets	.06			.07			.11			.13			.12
Allowance for loan losses to total loans	1.16			1.17			1.18			1.20			1.22

NON-PERFORMING ASSETS
Non-accrual loans:
Business	$	8,682		$	8,758		$	12,716		$	16,098		$	10,874
Real estate — construction and land	564			1,310			2,170			2,710			3,090
Real estate — business	1,634			1,920			5,236			6,234			7,863
Real estate — personal	3,403			3,634			4,293			4,205			4,425
Revolving home equity	—			23			109			120			323
Total	14,283			15,645			24,524			29,367			26,575
Foreclosed real estate	366			950			1,609			1,997			2,819
Total non-performing assets	$	14,649		$	16,595		$	26,133		$	31,364		$	29,394

Loans past due 90 days and still accruing interest	$	16,396		$	16,916		$	15,892		$	15,360		$	16,467

*as a percentage of average loans (excluding loans held for sale)

COMMERCE BANCSHARES, INC.

Management Discussion of Fourth Quarter Results

December 31, 2016

For the quarter ended December 31, 2016, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $71.6 million, compared to $68.5 million in the previous quarter and $63.7 million in the same quarter last year. The increase in net income over the previous quarter resulted mainly from an increase in net interest income of $2.0 million and an increase in net securities gains of $5.6 million. The provision for loan losses increased $3.1 million over the prior quarter. The allowance for loan losses increased $1.4 million this quarter, and net loan charge-offs increased mostly due to a decline in commercial loan recoveries this quarter. Non-interest expense this quarter was nearly unchanged from the prior quarter. For the current quarter, the return on total average assets was 1.14%, the return on average common equity was 11.5%, and the efficiency ratio was 61.8%.

Balance Sheet Review

During the 4^th quarter of 2016, average total loans increased $231.1 million, or 7.1% annualized, compared to the previous quarter, and increased $984.7 million, or 8.0%, over the same period last year. Compared to the previous quarter, the increase in average loans resulted mainly from growth in business real estate (up $126.7 million), personal real estate (up $41.7 million), business (up $37.1 million), and consumer (up $30.2 million) loans. Included in the quarter were loan pay-offs of $162.8 million, which were primarily pay-offs of construction loans. Demand was stronger for business real estate loans, and the Company originated a number of larger business real estate loans this quarter. Growth in business loans was driven by higher demand for lease, tax-free and commercial and industrial loans, while consumer loan growth mainly resulted from new private banking loan originations. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $41.7 million compared to $43.4 million in the prior quarter. Additionally, personal real estate loan originations continued to be strong this quarter, especially for 15 year fixed rate loans, which the Company did not sell into the secondary market.

During the 4^th quarter of 2016, total average available for sale investment securities increased $371.8 million to $9.6 billion, at fair value. The growth in investment securities was funded by deposit growth as noted below. Purchases of new securities totaled $773.4 million in the 4^th quarter of 2016 and were offset by sales, maturities and pay downs of $377.4 million. Average mortgage -backed securities increased $290.4 million this quarter while other asset-backed securities grew $76.6 million. At December 31, 2016, the duration of the investment portfolio was 2.9 years, and maturities and pay downs of approximately $1.7 billion are expected to occur during the next 12 months.

Total average deposits increased $388.2 million, or 1.9%, this quarter compared to the previous quarter. The increase in average deposits resulted mainly from growth in business demand deposits of $254.1 million, coupled with an increase in money market (increase of $258.0 million) and interest checking (increase of $43.5 million) accounts. Compared to the previous quarter, total average consumer, commercial and private banking deposits increased $104.4 million, $63.6 million, and $229.5 million, respectively. The average loans to deposits ratio was 64.2% in the current quarter and 64.3% in the prior quarter.

Compared to the previous quarter, the Company’s average borrowings increased $119.8 million to $1.4 billion in the current quarter, mostly due to higher federal funds purchased and repurchase agreement balances.

Net Interest Income

Net interest income (tax equivalent) in the 4^th quarter of 2016 amounted to $181.3 million, compared with $179.1 million in the previous quarter. Net interest income (tax equivalent) for the current quarter increased $11.2 million compared to the 4^th quarter of last year. During the 4^th quarter of 2016, the net yield on earning assets (tax equivalent) was 3.03%, compared with 3.08% in the previous quarter and 2.94% in the same period last year. The increase in net interest income (tax equivalent) in the current quarter compared to the prior quarter was due mainly to higher interest income on loans and investment securities of $2.3 million, partly offset by an increase in interest expense of $178 thousand.

Compared to the previous quarter, interest on loans (tax equivalent) increased $1.9 million, mainly as a result of higher average balances in business real estate, personal real estate, consumer and consumer credit card loans. Overall, the average yield on the loan portfolio declined slightly this quarter to 3.85%.

Interest on investment securities (tax equivalent) increased $419 thousand over the previous quarter. The current quarter included an adjustment of $1.8 million lowering premium amortization expense due to slowing prepayment speeds on mortgage-backed securities and was reflective of rising interest rates this quarter. Also, the prior quarter included one-time interest income of $938 thousand received on a private equity debt investment that did not reoccur this quarter. Interest on government-sponsored investment securities declined $983 thousand due to lower balances and rates, offset by increased interest income from mortgage-backed, asset-backed and municipal securities. Total inflation income on treasury inflation-protected securities (TIPS) for the quarter totaled $1.9 million compared to $2.2 million in the previous quarter. The yield on total investment securities was 2.39% in the current quarter compared to 2.49% in the prior quarter.

Interest expense on deposits decreased $72 thousand this quarter compared with the previous quarter due mainly to lower certificate of deposit balances. Borrowing costs increased $250 thousand this quarter compared to the prior quarter mostly due to higher rates paid on federal funds and repurchase agreements.

Non-Interest Income

In the 4^th quarter of 2016, total non-interest income amounted to $119.5 million, an increase of $3.4 million, or 3.0%, compared to the same period last year. Also, current quarter non-interest income was slightly higher when compared to amounts recorded in the previous quarter. The increase in non-interest income over the same period last year was mainly due to growth in trust and swap fee income which increased $1.7 million and $1.8 million, respectively, and was partly offset by lower bank card fees.

Total bank card fees in the current quarter declined $982 thousand, or 2.1%, from the same period last year. The decrease was mainly the result of a decline in commercial card fees of $866 thousand, coupled with lower merchant and credit card interchange fees. Debit card fees grew 1.6% this quarter over the 4^th quarter of last year. Total bank card fees this quarter were comprised of fees on corporate card ($21.8 million), debit card ($10.1 million), merchant ($7.0 million) and credit card ($6.5 million) transactions.

In the current quarter, trust fees increased $1.7 million, or 5.9%, over the same period last year, with growth coming mainly from private client customers. Compared to the same period last year,

COMMERCE BANCSHARES, INC.

Management Discussion of Fourth Quarter Results

December 31, 2016

deposit account fees increased $528 thousand, or 2.4%, as a result of growth in deposit account service fees of $409 thousand, or 8.2%, and higher corporate cash management fees.

Compared to the 4^th quarter of 2015, loan fees and sales grew $482 thousand, or 22.9%, this quarter due to higher mortgage banking revenue related to the Company’s fixed rate residential mortgage sale program. Included in other non-interest income are fees from sales of interest rate swaps and sweep fees, which increased $1.8 million and $949 thousand, respectively, over the same period last year. Fees from the sales of tax credits grew by $186 thousand this quarter. Non-interest income comprised 40.8% of the Company’s total revenue this quarter.

Investment Securities Gains and Losses

The Company recorded net securities gains of $3.7 million this quarter, compared with net losses of $2.0 million last quarter and net losses of $1.5 million in the same period last year. Net gains in the current quarter resulted primarily from realized gains and unrealized fair value adjustments on the Company’s private equity investment portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $181.3 million, which was virtually unchanged from the prior quarter. Compared to the same period last year, non-interest expense increased $5.5 million, or 3.1%. The increase over the same period in the previous year was mainly due to higher costs for salaries and benefits, occupancy, data processing costs, and professional fees, partially offset by lower supplies and communication expense.

Compared to the 4^th quarter of last year, salaries and benefits expense increased $6.5 million, or 6.4%. Growth in salaries expense of $6.0 million, or 6.9%, was mainly the result of higher full-time salaries and incentive compensation costs. Benefits expense increased $505 thousand, mainly due to higher 401(k) expense over the same period last year. Growth in total salaries expense compared to the previous year resulted mainly from increased staffing costs in commercial banking, commercial card, residential mortgage, trust, and other support units. Full-time equivalent employees totaled 4,784 and 4,770 at December 31, 2016 and 2015, respectively.

Compared to the 4^th quarter of last year, data processing and software costs and occupancy costs grew $1.1 million and $548 thousand, respectively, while costs for supplies and communication, equipment and marketing all declined. Higher occupancy costs were incurred this quarter compared to the same period last year, mainly due to demolition costs associated with a branch location which is currently being replaced. The increase in data processing and software expense was due to higher costs for commercial cash management software, online banking and other general information technology systems. The decrease in costs for supplies and communication was related mainly to the completion of the issuance of new chip cards in prior quarters, which has also helped to lower bank card fraud losses this year. Additionally this quarter, FDIC insurance costs increased $298 thousand compared to the same quarter last year due to higher deposit balances and insurance rates. The decline in other non-interest expense was the result of $1.6 million lower bank card fraud losses and a $729 thousand decline in other bank card costs this quarter, offset by higher professional fees.

Income Taxes

The effective tax rate for the Company was 31.1% in the current quarter, 31.1% in the previous quarter, and 30.3% in the 4^th quarter of 2015.

Credit Quality

Net loan charge-offs in the 4^th quarter of 2016 amounted to $9.0 million, compared to $6.6 million in the prior quarter and $9.2 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .27% in the current quarter compared to .20% in the previous quarter and .30% in the 4^th quarter of last year. During the 4^th quarter of 2016, the Company recorded net recoveries on commercial loans of $517 thousand, compared to net recoveries of $2.5 million in the prior quarter. Net loan charge-offs in the personal banking portfolio totaled $9.5 million in the current quarter and $9.0 million in the previous quarter.

In the 4^th quarter of 2016, annualized net loan charge-offs on average consumer credit card loans were 3.42%, compared with 3.37% in the previous quarter and 3.40% in the same period last year. Consumer loan net charge-offs were .49% of average consumer loans in the current quarter, .46% in the prior quarter and .47% in the same quarter last year. The provision for loan losses in the current quarter totaled $10.4 million, compared to $7.3 million in the prior quarter and $9.2 million in the 4^th quarter of last year. This quarter, the provision for loan losses exceeded net loan charge-offs by $1.4 million. At December 31, 2016, the allowance totaled $155.9 million, which was 1.16% of total loans.

At December 31, 2016, total non-performing assets amounted to $14.6 million, a decrease of $1.9 million from the previous quarter. Non-performing assets are comprised of non-accrual loans and foreclosed real estate ($14.3 million and $366 thousand, respectively, at December 31, 2016). At December 31, 2016, the balance of non-accrual loans, which represented .11% of loans outstanding, included business loans of $8.7 million, business real estate loans of $1.6 million, personal real estate loans of $3.4 million, and construction and land loans of $564 thousand. Loans more than 90 days past due and still accruing interest totaled $16.4 million at December 31, 2016.

Other

During the 4^th quarter of 2016, the Company distributed a 5% stock dividend on its common stock. This quarter the Company also paid a cash dividend of $.214 per common share, as restated for the 5% stock dividend, and an annualized 6% cash dividend on its preferred stock. During the quarter, the Company signed an agreement to purchase a new core deposit system from Temenos Group AG which is expected to be implemented in 2019.

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.

COMMERCE BANCSHARES INC /MO/ - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - January 18, 2017

Attached files

COMMERCE BANCSHARES INC /MO/ Reports