KANSAS CITY, Mo.--(BUSINESS WIRE)-- Commerce Bancshares, Inc. (NASDAQ: CBSH) 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.”

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, contactJeffery Aberdeen, Controllerat 1000 Walnut Street, Suite 700Kansas City, MO 64106or by telephone at (816) 234-2081Web Site: http://www.commercebank.comEmail: [email protected]

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
			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 ResultsDecember 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 4th 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 4th 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 4th 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 4th 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 4th quarter of last year. During the 4th 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 4th 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 4th 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, 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 4th 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 4th 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 4th 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 4th quarter of 2015.

Credit Quality

Net loan charge-offs in the 4th 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 4th quarter of last year. During the 4th 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 4th 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 4th 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 4th 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20170118005173/en/

Commerce Bancshares, Inc.

Jeffery Aberdeen, 816-234-2081

Controller

http://www.commercebank.com

[email protected]

Source: Commerce Bancshares, Inc.

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