Outstanding
Community
Reinvestment Act
rating for 25 years
Throughout our 156-year history, we have taken
care of business on behalf of our customers and
shareholders, even when it wasn’t business
as usual. 2021 brought new disruptions and
changes in the economy as well as in the
banking industry — creating both challenges
and opportunities for Commerce.
Our objective throughout 2021 was to build on
the momentum we’ve created by continuously
striving to
innovative
improve, delivering
solutions and collaborating as one team to
grow our relationships with customers. We’ve
made significant progress on a number of key
initiatives, and the compounding effects of
our efforts will yield benefits for many years to
come. The strength of our team and our ability
to communicate effectively, supported by a
best-in-class culture will allow our organization
to grow and thrive well into the future.
About the Cover
At Commerce, one of our top priorities is investing in
our team of diverse, high-performing talent. Our team
is the key to our success and the foundation to keep us
moving forward as an organization. Meet Nikki Storms,
a Senior Mentor in our University Academy Mentorship
program and recently named Senior Diversity, Equity
and Inclusion Strategy and Communications Lead, and
Jerrell Thomas, a Salesforce Analyst and co-chair of our
multicultural Employee Resource Group, VIBE. He was
inducted into the Regional Business Council’s 2021-2022
Young Professionals Network Leadership 100.
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
1
Financial Highlights
(In thousands, except per share data)
2017
2018
2019
2020
2021
OPERATING RESULTS
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains (losses), net
Non-interest expense
Net income attributable to Commerce Bancshares, Inc.
Net income available to common shareholders
Cash dividends on common stock
$
733,679 $
45,244
823,825 $
42,694
461,263
25,051
744,343
319,383
310,383
91,619
501,341
(488)
737,821
433,542
424,542
100,238
821,293 $
829,847
$
835,424
50,438
524,703
3,626
767,398
421,231
412,231
113,466
137,190
505,867
11,032
768,378
354,057
342,091
120,818
(66,326)
560,393
30,059
805,901
530,765
530,765
122,693
AT YEAR END
Total assets
Loans, including held for sale
Investment securities
Deposits
Equity
Non-accrual loans
Common shares outstanding1
$ 24,833,415 $ 25,463,842 $ 26,065,789 $
32,922,974
$
36,689,088
14,005,072
14,160,992
14,751,626
16,374,730
8,893,307
8,698,666
8,741,888
12,645,693
20,425,446
20,323,659
20,520,415
26,946,745
15,184,974
14,699,511
29,813,073
2,718,184
2,937,149
3,138,472
3,399,972
3,448,324
11,983
129,591
12,536
128,645
10,220
123,625
26,540
122,995
9,157
121,437
Tier I common risk-based capital ratio
12.65%
14.22%
13.93%
13.7 1 %
14.34 %
Tier I risk-based capital ratio
Total risk-based capital ratio
Tier I leverage ratio
Tangible common equity to tangible assets ratio
Efficiency ratio
OTHER FINANCIAL DATA (based on average balances)
Return on total assets
Return on common equity
Loans to deposits
Equity to total assets
Net yield on interest earning assets (T/E)
13.41
14.35
10.39
9.84
62.18
14.98
15.82
11.52
10.45
55.58
14.66
15.48
11.38
10.99
56.87
1.28%
1.76 %
1.67 %
12.46
66.18
10.53
3.19
16.16
69.27
11.24
3.53
14.06
71.54
12.20
3.48
13.7 1
14.82
9.45
9.92
57.19
1.20%
10.64
67.73
11.18
2.99
PER COMMON SHARE DATA
Net income - basic1
Net income - diluted1
Market price1
Book value1
Cash dividends1
Cash dividend payout ratio
$
2.39 $
3.27
$
3.25
$
2.77
$
2.38
45.94
19.86
0.705
29.52 %
3.26
48.69
21.71
0.773
23.61 %
3.25
61.62
24.22
0.898
27.52%
2.77
62.57
27.64
0.980
35.32%
1Restated for the 5% stock dividend distributed in December 2021
Return on Average Common Equity
Return on Average Assets
14.34
15.12
9.13
9.01
57.64
1.55 %
15.37
56.46
10.11
2.58
4.32
4.31
68.74
28.40
1.000
23.12 %
20.0%
15.0%
10.0%
5.0%
0.0%
2.0%
1.5%
1.0%
0.5%
0.0%
2012
2013
2014
2015
2016
2017
2018
2019
2020 2021
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Commerce
Peer Median
Large Bank Median
Commerce
Peer Median
Large Bank Median
Commerce 10-Year Average: 12.7% Peer 10-Year Average: 8.3%
Commerce 10-Year Average: 1.3% Peer 10-Year Average: 1.0%
Sources: S&P Global Market Intelligence, and company reports and filings as of December 31, 2021 unless noted
2
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
Letter to Our Shareholders
By most growth measures, the U.S. economy recovered from 2020’s pandemic-
induced recession by mid-year 2021 and continues forward with solid, though
sometimes uneven momentum. This forward progress has been spurred by
low interest rates, massive fiscal stimulus, rapid employment growth, pent-up
consumer savings, strong financial markets, and an ongoing vaccine distribution.
The U.S. stock market, as measured by the S&P 500, surged in the first half of 2021,
struggled in the third quarter as the Delta variant took hold, then rebounded to tally
a remarkable 29% gain for the full year. This accelerating growth coincided with
elevated inflation rates as pandemic-related supply chain disruptions and reduced
labor supply constricted economic capacity.
The banking industry was tested in unforeseen ways in 2021 yet emerged stronger
overall. The industry continues to face pressure due to consolidation, competitive
trends, evolving customer preferences, and the current interest rate environment.
At the same time, the outlook for banks looks constructive in the coming year with
the potential for industry loan growth, expectations of interest rate increases, and
continued high credit quality.
In 2021, Commerce Bancshares delivered another solid year of financial performance and continues to be well
positioned to build on this momentum. Our healthy balance sheet coupled with growth in our fee-based businesses
continues to provide strong revenue diversification. We are confident in our liquidity and capital levels, and credit
performance remains excellent, reflecting our disciplined approach to underwriting.
Consistent with our steady earnings, we returned capital to shareholders through increased dividends. In February
2022, we increased our quarterly common dividend 6% to $.265 per share, the 54th consecutive year of dividend
increases. Over the past 20 years, the annualized total return for shareholders has been more than 10%, significantly
outperforming the KBW Bank Index annualized return of 5%.
Looking ahead, we are committed to creating and sustaining superior long-term shareholder value. We continue to
build on the foundation that Commerce Bank has established over the past 156 years, making strategic investments
that will allow us to innovate, to improve, and to grow well into the future. I would like to thank our team members, our
customers and you — our shareholders — for your support. We look forward to working with you in the coming year.
Long-Term Shareholder Return
Cumulative Total Return Indexed, 12/31/2001 = $100
$800
$700
$600
$500
$400
$300
$200
$100
$0
2001
2006
2011
2016
2021
COMMERCE (CBSH)
NASDAQ BANK
KBW BANK
S&P
Source: Bloomberg as of December 31, 2021
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
3
Building Momentum:
Innovation. Improvement. Growth.
John W. Kemper
President and Chief Executive Officer
C O M M E R C E B A N C S H A R E S , I N C .
F E B R U A R Y 2 3 , 2 0 2 2
Dear Commerce Shareholders:
Having weathered the first year of the
pandemic, the economy continued to
rebound in 2021, fueled by sustained
government stimulus, accommodative
monetary policy, and pioneering
scientific advances that turned the
tide in the global health crisis. Strong
consumer demand, fueled in part by
continued government spending and
elevated levels of saving, have put
extraordinary pressure on fragile global
supply chains. Ongoing disruptions in
the labor force, marked by higher rates
of retirement and job mobility, have
created upward pressure on wages.
These factors have contributed to
inflation rates that the country has not
experienced in 40 years.
The macroeconomic environment
creates an uncertain and mixed outlook
for the banking industry. Prolonged low
interest rates over the past two years
have compressed net interest margins.
The banking system continues to have
extraordinary liquidity, and balance
sheets are consequently larger. Given
historically high deposit balances,
many consumers and businesses
have had limited borrowing needs.
While credit quality concerns have
diminished greatly in the last year, the
longer-term effects of the pandemic
response are still unknown. A steady
wave of traditional bank M&A activity
continues as banks seek scale and
efficiencies while struggling to find
sustainable revenue growth. Non-bank
and fintech competition continues to
drive innovation in financial services,
particularly in the consumer and small
business areas.
These changes and disruption in the
banking industry create both challenges
and opportunities for Commerce
Bancshares. Our core challenge is to
ensure that our value proposition to
customers remains relevant in a world
of rapid change. Our opportunity is
to leverage that change to make our
customers’ lives better, to prosper and
grow alongside them. As a safe and
steady bank with deep roots in the
communities we serve, we can also take
advantage of the disruption created by
bank consolidation to gain market share
and attract talented team members.
As these past two years have shown,
our Commerce team is well positioned
to accept challenges. The team remains
engaged, aligned and highly customer
focused. We continue to shape our
culture and to invest in the initiatives
that will drive our future success for
many years to come. I think you will
see in the report that follows that your
company stands ready to sustain the
impressive momentum that it has built
— to innovate, to improve, and to grow.
Our Results
The bank’s 2021 financial results were
fundamentally strong. Headline earnings
in the first half of the year were at
record levels, owing predominately to
the improving credit outlook and the
4
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
release of loan loss reserves. This was a marked reversal
of the previous year, when banks like Commerce set
aside historic reserves in anticipation of credit losses
that never materialized. Revenue and net income were
further buoyed by the economic impact of the Paycheck
Protection Program (PPP). In the second half of the year,
earnings approached more normalized levels as PPP
activity tapered off and reserve release slowed.
Even setting aside these extraordinary items,
Commerce’s financial performance was broadly positive.
Our balance sheet remains healthy and strong. We
experienced remarkable core deposit growth over the
course of the year, mirroring the increase in liquidity
in financial markets. Although loan demand has been
somewhat limited, our teams created growth in asset
categories like commercial and industrial (excluding PPP),
business real estate and private banking loans. Building
on the success we had in 2020, a cross-functional team
acted quickly to issue a second round of PPP loans in
early 2021, then turned its attention to the forgiveness
process. Over the course of the PPP program, Commerce
helped over 8,500 customers receive nearly $2 billion
in PPP funds. At year end, 93% of the loan balances had
been forgiven.
The credit quality of our loan
portfolio remains excellent,
and by some measures was
stronger in 2021 than before the
pandemic. We saw continued
robust contributions from our
fee-based businesses. Our
wealth management business
delivered another record
year, propelled by robust new sales activity, excellent
client retention and strong equity markets. Recovering
spending volumes positively impacted our consumer
credit card and commercial payments businesses,
creating significant growth compared to 2020. Expense
control was reasonably strong, notwithstanding the
investments that the company continues to make in core
systems and certain “blue chip” initiatives.
Commerce’s capital levels remain among the strongest
in the banking industry. The company returned $252
million in capital to our common shareholders in 2021,
including $123 million in cash dividends and $129 million
in common share repurchases. In February 2022, we
increased our common dividend 6% to $.265 per share,
the 54th consecutive year of such increases. The steady
shareholder return of Commerce stock, including
dividends, has outpaced the KBW Bank Index by an
annualized 5% over the last 20 years.
Altogether, the company earned $531 million in net
income. Financial performance, as measured by return on
average assets and return on average equity — 1.6% and
15.4%, respectively — was in the top quartile relative to
peer institutions.
Strong Foundation for Growth
Commerce has long operated from a strong foundation,
built on the steady execution of a unique super-
community bank model. This operating model combines
the best of small with the best of big, marrying
sophisticated solutions, capabilities and advice with
high-touch delivery in the context of deep relationships,
excellent customer service and bankers who are
empowered to take care of their customers
and communities.
Foundational to our success and the source of our
long-term competitive advantage is our culture — one
we’ve worked very hard to shape over time. We take
an intentional approach to introducing and reinforcing
culture at every level of the organization. The strength of
the Commerce franchise also depends on the diversity of
our loan portfolio and fee-based businesses, which gives
the bank earnings resiliency and excellent risk-adjusted
profitability. Our cultural alignment, strong balance
sheet and diversified revenue sources have proven to
be particularly valuable during this period of uncertainty
fueled by the pandemic.
Commerce has a long history of solid asset quality,
prudent expense management, and strong levels of
capital and liquidity, all of which positioned us well in
2021. Commerce is proud to be counted among the
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
5
safest banks in the world. In 2021, Moody’s reaffirmed our
bank’s financial strength by assigning Commerce an a1
baseline credit assessment. Commerce is one of only five
banks in the country and 19 banks in the world to hold a
credit rating at this level or better.
the progress made over the last year, we recognize there
is more to do. We will continue to build structure around
our ESG-focused initiatives and shape our roadmap to
help make our communities a better place to live
and work.
None of this would be possible without our talented
team members and their unwavering commitment to our
purpose and culture. Our results are a reflection of the
way this team works collaboratively, communicates, and
strives toward the shared goal of helping our customers
focus on what matters most.
Environmental, Social and Governance
As a socially responsible corporate citizen, Commerce
continuously seeks opportunities to make a difference.
We make ongoing investments in ideas,
programs and technology that serve
our customers, strengthen our
communities, and support a healthy
working environment. We have
a long history of embedding
these Environmental, Social and
Governance (ESG) principles
throughout the organization.
Our inaugural ESG Report,
published in 2021, provides a
useful inventory of our team’s
efforts in this space, detailing
initiatives related to community,
customer and team member
engagement, corporate governance,
and environmental sustainability. It captures
specific progress we have made in the past year as
well as data and metrics to help quantify the value of
our ESG initiatives.
Over the last year, we have made significant progress
in our ESG efforts, and I am proud to highlight a few
accomplishments. We formed an ESG Management
Committee and established board level oversight.
We created a Sustainability Task Force to support
efforts toward a sustainable future for our customers,
team members, communities and shareholders.
We strengthened ESG governance throughout the
organization and enhanced our disclosures and
reporting, including enhancements to our website to
reflect ESG messaging. While we are encouraged by
One year ago, we introduced a new “blue chip” initiative
centered on improving Diversity, Equity and Inclusion
(DEI) in and around Commerce. We have made great
strides to advance our efforts against each of the four
pillars of this initiative — our customers, our communities,
our suppliers and our internal workplace. We conducted
customer focus groups to understand the needs of
diverse segments, in particular women and people of
color. We hired a Community Outreach and Banking
Officer to coordinate our efforts to help unbanked and
underbanked community members gain access
to the banking system and capital. We
developed an internal database of
supplier diversity to ensure our
company spend is equitable. We
instituted town hall meetings
to provide updates on our
progress and share how we are
structuring our efforts within
each pillar and business line.
We launched a DEI Resource
Guide for leaders and created
a program, “My Commerce
Journey,” to highlight our diverse,
talented workforce. We strengthened
relationships in our communities, and
we continue to enhance our culture — one
where all team members can thrive and come to
work as their authentic selves.
At Commerce, we recognize that our workplace diversity
makes us a stronger company. To assist our team
members in finding a sustaining sense of community at
work, Commerce supports multiple voluntary, employee-
led resource groups (ERGs) including RISE (empowering
women), EMERGE (connecting young professionals), VIBE
(valuing multicultural perspectives), and PRIDE (engaging
the LGBTQIA+ community). Nearly 40% of team members
belong to an ERG, with 15% participating in more than
one group. These groups provide team members with
a voice, a sense of belonging and an opportunity to
help educate others. We recently introduced ELEVATE,
6
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
an ERG leadership skills growth series that focuses on
giving back to the leaders who invest time and energy
in our ERGs. We recognize that fostering an inclusive and
diverse workforce supports the engagement, innovation
and productivity that allows us to serve our customers
and communities, now and in the future.
Commerce’s culture emphasizes the need to build strong
relationships with our communities. We take care to
ensure our lending products and solutions meet the
needs of the community, and we offer affordable options
for homeownership through various customer programs.
We are proud of the “outstanding” Community
Reinvestment Act rating the company has consistently
received over the past 25 years for our efforts to support
low- and moderate-income communities. In addition
to the services we provide as bankers, we contribute
philanthropically through the Commerce Bancshares
Foundation and through the volunteerism that we
formally encourage through dedicated paid time off
for our team members. Our team members support
hundreds of nonprofits in our communities with their
time, expertise and financial resources.
Our Business Segments:
Growing Alongside Our Customers
Consumer Banking
The second year of the pandemic pushed Commerce to
embrace new ways of empowering our teams, engaging
with our customers, and investing in key areas for growth.
In a highly competitive market for talent, we leveraged
our teammates’ personal networks to attract great
people to Commerce. Once here, they were immersed
in personalized learning and development programs to
build skills and contribute to our team more quickly.
During 2021, we introduced a host of new solutions
and fulfillment enhancements to optimize the customer
experience. We expanded the Commerce Bank
CONNECT® mobile app experience to provide our
customers a way to make personal connections with our
bankers anytime and anywhere. The first such service
to be offered in our largest markets, CONNECT gives
customers a “banker in their pocket” to ask questions,
select services, complete routine banking needs,
and more.
Over the course of the year, we continued to invest in our
digital platforms, releasing 33 updates across online and
mobile banking and regularly delivering to our customers
new features and functionality. We added self-service
capabilities, including simplified password resets, an
enhanced account opening process for new customers,
and the ability to chat virtually through online banking
and the mobile app. Additionally, we implemented
appointment setting capabilities so customers can easily
schedule a convenient time to receive personalized
advice from our bankers.
Our relationships with consumer customers continue
to be strong. In 2021, we maintained a primary banking
relationship with more than 77% of our retail banking
customers. We deepened relationships across key
solutions, increased engagement through our various
channels, and exceeded our overall customer experience
goal. Our retail team is proud to have received the
award for Best Customer Service from Newsweek for the
second consecutive year as part of America’s Best Banks.
This is a testament to the best-in-class experience we
provide our customers, made all the more remarkable
against the backdrop of so much disruption in 2021. The
strength of our customer relationships leaves us well
positioned to grow in the years to come.
Commercial Banking and Commercial Payments
Our commercial banking and payments teams serve more
than 12,000 customers across the U.S., helping them
access the payments system, manage risk, fund growth,
improve cash flow and pursue new opportunities.
A core function of our commercial bank is to be a
provider of capital to our customers. The beginning of
2021 saw the reauthorization of the PPP program, and
Commerce responded by originating over 4,000 new
loans, totaling more than $400 million of capital injected
into small business balance sheets. Concurrently, our
teams worked diligently to facilitate applications for
forgiveness on the first round of PPP loans.
Surges in e-commerce and disruption in the supply chain
resulted in strong demand for construction loans to build
warehouse and distribution facilities. We worked with a
number of experienced and well-capitalized commercial
real estate developers to assist in meeting this demand,
financing nearly $1 billion in new construction in 2021.
Commercial line utilization was dampened by limited
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
7
inventories and very liquid customers, as evidenced by
an increase in average commercial deposits of 21%. We
anticipate growth in the future as companies rebuild
inventories to insulate against future disruptions.
Commercial loans were further bolstered by our loan
syndication capabilities. Our knowledgeable team
regularly leads multi-bank credits on behalf of our
customers. In 2021, the syndications team supported
credit commitments of nearly $1.5 billion, of which
Commerce provided over $600 million. We expect our
syndications business to grow in the future, alongside
increasing demand from customers.
Commerce continues to build expertise and business in
key industry verticals, particularly in healthcare under
the CommerceHealthcare® brand. In 2021, the Healthcare
Financial Management Association formally endorsed our
AP Card, RemitConnect® and Health Services Financing
solutions. This independent evaluation reinforces our
deep knowledge in helping providers navigate payment
automation from patients, insurers and suppliers alike.
More broadly, 2021 saw a significant rebound in
commercial payments volume as business activities
normalized and companies explored new ways to
enhance security and automate their revenue cycle
activities. Our CommercePayments® team is well
positioned to meet the changing needs of clients,
including the elimination of paper and manual processes,
plus other operating efficiencies spurred by distributed
back-office workforces. The foundation of prior
investments in digital technology enabled the efficient
onboarding of new customers as well as the timely
modernization of existing ones.
Expansion Market Loan Growth
5-year CAGR
10%
3%
Total Company
Expansion Markets
8
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
Building on our strengths in payments and industry-
specific knowledge, we drove significant growth in
our geographic expansion markets. In 2021, our teams
delivered a 6% increase in loans and 21% increase in fee
income, a reflection of the well-rounded commercial
relationships we are building in these markets. Over the
last 10 years, our compounded annual profit growth rate
in our expansion markets has been 19%.
Technology and innovation will continue to allow for
more intuitive and configurable platforms, reduced
operational costs, and expedited delivery of products
and services to the marketplace. In 2021, we released
over 40 enhancements across products like PreferPay®,
IntegratedPayables and Commerce Connections®. We
also rolled out a pilot of Visa B2B Connect, a unique
cross-border solution focused on fast and secure
corporate payments. With innovative offerings, deep
expertise and a growth mindset, our commercial team is
poised to build further momentum in years to come.
Wealth Management
Our wealth management business had another
record year in 2021. Our team onboarded new clients,
deepened existing relationships, and maintained superior
client retention. Through volatile markets over the last
couple of years, our clients stayed largely invested. Total
revenue grew 16% over 2020 to a record $285 million,
and pre-tax profit grew 22%.
Commerce Trust Company (CTC) provides robust
financial solutions across a broad spectrum of
investments, financial planning and banking. We continue
to distinguish ourselves by offering holistic advice and
specialized portfolio management. Our focus is to craft
and deliver an exceptional client experience, enabling
clients to identify and achieve their goals. This is a
business that requires deep investment and expertise,
but delivers excellent risk-adjusted profitability to
our shareholders.
Our clients are the focus of all we do at Commerce Trust
Company, and we spend decades building trusting
relationships with individuals, families and institutions.
In return, our clients turn to us for advice in both good
and uncertain times. Over the past year, we grew assets
under administration by $8 billion to an all-time high
of $69 billion. CTC is the 19th largest bank-managed
trust company in the country based on assets under
management as of September 30, 2021. Likewise, our
private banking business delivered excellent results as
average loans grew 13% to nearly $2 billion, and average
deposits grew 31% to almost $3 billion.
Trust Assets
Assets Under Administration
$ in billions
$69.3
$61.2
$56.7
2019
2020
2021
We continue to evaluate new wealth markets and
acquisitions where synergies exist for strategic growth.
In our existing wealth markets, 44% of our targeted
prospective wealth consumers already maintain a
banking relationship with Commerce. We are actively
engaging these customers with personalized content
and offers for financial planning and investment services.
These existing customers constitute the largest and most
immediate organic growth opportunity for our business.
In 2021, we worked to accelerate our investment in
digital capabilities to better support our clients, offering
a multitude of options for how and when they choose to
interact with us. We developed a new private banking
mobile platform with products to better serve our clients
and improve their experience.
As a testament to our success and client focus,
The Private Bank at Commerce Trust Company was
recognized by Global Finance as the 2021 Best U.S.
Regional Private Bank in the Midwest.
Continuous Improvement and Innovation
Central to the ability of any 156-year-old institution
to endure and thrive is the right cultural mindset.
Commerce’s culture emphasizes the importance
of continuous improvement and innovation. The
compounding effect of even modest improvement over
long periods of time can be enormously powerful. Done
correctly, these improvements sustain a profitable
enterprise that can invest in innovation.
Commerce delivered improvements, large and small, in
many ways over the course of 2021. Our team invested
heavily in digital delivery across all our businesses, and
consistently updated our products and customer portals,
working in agile fashion. We improved internal processes,
adopting tools to streamline and distribute work
among our team. Our ongoing investment in customer
relationship management tools has allowed our teams
to stay close to customers in a very challenging time,
communicating regularly and in targeted, meaningful
ways. While the future of on-site work remains unclear,
our teams continue to embrace hybrid ways of getting
work done, using communication tools and reconfiguring
physical workplaces to give more flexibility and to
improve collaboration. In many ways, collaboration has
actually improved in the last two years, despite obvious
impediments.
In addition to these incremental improvements, other
accomplishments were more pioneeringly innovative.
In early 2022, Commerce delivered on a multiyear
transformative project to replace the bank’s core banking
application. Arguably the largest technical project in our
company’s history, this new system from our partner,
Temenos, provides a flexible and scalable foundational
architecture that allows us to grow with our customers.
This is a tremendous accomplishment for our collective
team and an incredible example of collaboration, agility
and innovation. The new core solution can handle our
current technology and data needs and positions us to
support the new technologies of tomorrow. It will help
power greater insight into our customers, allow us to
bring new products to market more quickly, and position
Commerce for success well into the future.
None of these improvements are possible without a
team of diverse, high-performing talent. Some of our
most important initiatives are focused on helping our
team members grow their career at Commerce. We
have an enormously strong foundation on which to build.
In mid-2021, we announced our annual team member
engagement survey results. Our engagement and
enablement scores continue to be well above external
benchmarks, as defined by our survey administrator,
Korn Ferry. Digging into our survey results each year is an
opportunity to employ a growth mindset and challenge
ourselves to find ways to improve and to grow as a team
and culture.
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
9
Underscoring these efforts, Forbes named Commerce to
its 2021 list of America’s Best Mid-sized Employers for the
fourth consecutive year.
Highly Engaged and Enabled Teams
based on 2021 Team Member Survey by Korn Ferry
79%
79%
71%
70%
Engagement
Enablement
Commerce
U.S. High-Performing Norm
Looking Ahead:
Building on Our Momentum
Commerce delivered strong results in 2021, with financial
return metrics that rank in the top echelon of the banking
industry and of our peer set. Our team made significant
progress on a number of key initiatives while navigating
a pandemic and working in a hybrid fashion. We
successfully prepared for — and implemented — a new
core banking system that enhances our ability to offer
products to our customers and to innovate over time. We
invested in our team and found new ways to collaborate
on behalf of our customers.
Looking ahead, we are optimistic, but also mindful that
revenue growth in the short term could be elusive for
the industry. As PPP wanes, and if low rates persist, net
interest income will experience pressure. The country
continues to grapple with a challenging market for talent.
The financial services landscape is intensely competitive
and continues to evolve as more non-traditional banks
work to gain market share. Delivery models are changing
quickly, and this change is accelerating in line with
evolving customer expectations. As such, culture and
agility are critical for us to deliver superior service
and results.
Our fee-based businesses will continue to be important
as we focus on unlocking revenue and adding more
value to our customer relationships. We continue to
have bright growth prospects in payments and wealth
management, and we are making steady gains in some
geographic markets with very attractive demographics.
We remain encouraged by the resiliency of our
customers, our team members, and the communities
we serve. Our long-term success will depend on our
ability to adhere to and refine our operating model,
employ continuous improvement, and embrace a
growth mindset.
As we plan for the future, your company is poised to
build on its current momentum — to innovate, improve
and grow — to deliver additional value to our customers.
On behalf of the entire Commerce team, I thank you for
your continued support.
Growth in EPS and Stock Price
e
c
i
r
P
k
c
o
t
S
10
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
)
S
P
E
(
e
r
a
h
S
r
e
P
s
g
n
n
r
a
E
i
$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$0.00$10.00$20.00$30.00$40.00$50.00$60.00$70.00201220152013201420162021Stock Price Earnings Per Share (EPS)$4.502019201720182020
Performance Highlights
• Commerce reported earnings per share of $4.31, up
from $2.77 in 2020. Return on average assets totaled
1.55% in 2021, and return on average equity was 15.4%.
This compares favorably to the top 50 bank industry
median of 1.21% for return on average assets and 12.1%
for return on average common equity.
• Net income available to common shareholders totaled
$531 million in 2021 compared to $342 million in 2020.
• In 2021, Commerce paid a regular cash dividend
of $1.00 per share (restated) on common shares,
representing a 2% increase over 2020. In February
2022, we announced a 6% increase in our regular cash
dividend, marking the 54th consecutive year in which
regular cash dividends increased. Also in 2021, for the
28th year in a row, we paid a 5% stock dividend.
• Total shareholders’ equity was $3.4 billion, and our
Tier I common risk-based capital ratio remained strong,
ending 2021 at 14.3%.
Cash Dividends
per Common Share
$.98
$1.00
$.90
2019
2020
2021
Tier I Common
Risk-Based Capital Ratio
14.3%
11.6%
10.4%
• Period end construction loans grew $97 million, or 9%,
while consumer loans grew $82 million, or 4%, in 2021.
Commerce
Peer
Median
Large Bank
Median
• In 2021, Commerce originated $402 million of Paycheck
Protection Program (PPP) loans. Of the $1.9 billion in
total PPP loan balances we originated, 93% have been
forgiven as of December 31, 2021.
• Total deposits grew $2.9 billion, or 11%, compared to
2020, while the rate paid on interest bearing deposits
declined from .24% to .07%.
• Fee income grew $55 million, or 11%, compared to
2020, driven mostly by higher trust fees and bank card
transaction fees. Fee income comprised 40% of total
revenue in 2021.
• Fee income from our wealth management businesses
grew 13% over 2021 to $214 million. Commerce Trust
Company assets under administration totaled $69.3
billion.
• Net loan charge-offs totaled $19 million and were 47%
less than 2020. Net charge-offs totaled .12% of average
loans in 2021 and the non-accrual loans to total loans
ratio was .06% at December 31, 2021.
• Commerce Bank was recognized on Forbes’ America’s
Best Banks 2021 list — one of the most respected lists
in the industry — for the twelfth consecutive year.
Non-Interest Income
$ in millions
5-year CAGR = 4.6%
$560
$525
$461
2017
2019
2021
Total Deposits
$ in billions
5-year CAGR = 7.2%
$29.8
$20.4
$20.5
2017
2019
2021
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
11
Commerce by the Numbers
$29.8
BILLION
Total
Deposits
$15.2
BILLION
Total
Loans
12th
a1
Largest Commercial
Card Issuer2
Baseline Credit
Assessment3
156
4,567
Years in Business
Full-Time Equivalent
Employees
$36.7
BILLION
Total Assets
Ranked 38th
Among U.S. Banks
$42.9
BILLION
Trust Assets
Under Management
Ranked 19th
Among U.S. Banks1
$8.3
BILLION
Market
Capitalization
Ranked 22nd
Among U.S. Banks
F U L L - S E RV I C E B A N K I N G F O OT P R I N T
152 full-service branches and 333 ATMs
St. Louis • Kansas City
Springfield • Central Missouri
Central Illinois • Wichita
Tulsa • Oklahoma City • Denver
C O M M E R C I A L O F F I C E S
Cincinnati • Nashville • Dallas
Des Moines • Indianapolis
Grand Rapids • Houston
U. S . P R E S E N C E
Extended Commercial Market Area
Commercial Payments Services
Offered in 48 states across the U.S.
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
Sources: S&P Global Market Intelligence, and company reports and filings as of December 31, 2021
1 Regulated U.S. depositories, which includes commercial banks, bank holding companies and credit unions, as of September 30, 2021
2 Based on Top 50 U.S. Banks by asset size as of December 31, 2020 and Nilson Report rankings, May 2021
3 Commerce is 1 of 5 U.S. banks with an a1 or better Moody’s rating, “Moody’s U.S. Bank Rankings”, November 18, 2021
12
Community Advisors
Our Community Advisors help us understand the unique needs and challenges of our customers and communities. They
are business owners, educators, professionals and civic leaders who take on the challenges of their organizations and
communities every day. We’re continually impressed by their hard work and grateful to them for sharing their valuable
insights. It is because of our Community Advisors in each of our markets that we’re able to say “Challenge Accepted.®”
Missouri
CAPE GIRARDEAU
Nick Burger
Commerce Bank
Tim Coad
Coad Chevrolet and Coad Toyota
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Mike Kasten
Beef Alliance
Adam Kidd
Kidd’s Gas & Convenience Store
Frank Kinder
Retired
Steve Sowers
Commerce Bank
Susan Layton Tomlin
Layton & Southard, LLC
Allen Toole
Schaefer’s Electrical Enclosures
Ben Traxel
Tenmile Companies
CENTRAL MISSOURI
Dan Atwill
Boone County Commission
Dr. Holly Bondurant
Tiger Pediatrics
Brent Bradshaw
Orscheln Management Co.
Chad Bruns
Chad Bruns Farms
Philip Burger
Burgers’ Smokehouse
Brad Clay
Commerce Bank
Sarah Dubbert
Commerce Bank
Mark Fenner
Former Energy Industry CEO
Shayne W. Healea
Cornell Farrow Healea, LLC
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
George M. Huffman
Pearl Motor Company
Bart Jurgensmeyer
Jurgensmeyer Farms, Inc.
Rick Kruse
Retired, Boone National Savings &
Loan Association
Scott Milner
Retired, Milner Ford
Dr. Mike Lutz
Mike Lutz, DDS
Dr. Clifford J. Miller
Green Hills Veterinary Clinic
Robby Miller
Mexico Heating Company
Todd Norton
Commerce Bank
Robert K. Pugh
Retired, MBS Textbook Exchange
Gina Raines
Commerce Bank
Jim Rolls
Retired, Associated Electric Cooperative
Steve Sowers
Commerce Bank
David Townsend
Agents National Title Insurance Company
Andy Waters
AW Holdings, LLC
Larry Webber
Webber Pharmacy
Robin Wenneker
CPW Partnership
Dave Whelan
Commerce Bank
Dr. John S. Williams
Retired, Horton Animal Hospital
HANNIBAL
C. Todd Ahrens
Hannibal Regional Healthcare System
David M. Bleigh
Bleigh Construction Company
Bleigh Ready Mix Company
Jim Humphreys
Luck, Humphreys and Associates, CPA, PC
Darin D. Redd
Commerce Bank
Steve Sowers
Commerce Bank
HARRISONVILLE
Aaron Aurand
Crouch, Spangler & Douglas
Connie Aversman
Commerce Bank
Larry Dobson
Real Estate Investments
Mark Hense
Trinity Technical Group
Brent Probasco
Cass Regional Medical Center, Inc.
Aaron Rains
Commerce Bank
Laurence Smith
ReeceNichols Smith Realty
Dr. Larry Snider
Retired, Snider Optometry
Timothy Soulis
Golden Classics Jewelers
KANSAS CITY
Ali H. Armistead
Alaris Capital, LLC
Kevin G. Barth
Commerce Bancshares, Inc.
Commerce Bank
Rosana Privitera Biondo
Mark One Electric Co., Inc.
Clay C. Blair, III
Clay Blair Services Corp.
Timothy S. Dunn
J.E. Dunn Construction Co., Inc.
Jon D. Ellis
Paradise Park, Inc.
Stephen E. Gound
Labconco Corp.
Jonathan M. Kemper
Commerce Bancshares, Inc.
Commerce Bank
David F. Kiersznowski
DEMDACO
Michael P. McCoy
Intercontinental Engineering-
Manufacturing Corporation
Stephen G. Mos
Central States Beverage Company
Laura M. Perin
Labconco Corp.
Edward J. Reardon, II
Commerce Bank
Ora H. Reynolds
Hunt Midwest Enterprises, Inc.
Dr. Nelson R. Sabates
Sabates Eye Centers
Charles S. Sosland
Sosland Publishing Company
Thomas R. Willard
Commerce Trust Company
Tower Properties Company
POPLAR BLUFF
Edward L. Baker
Edward L. Baker Enterprises
Brad Chronister
Ten Mile Companies
Larry Greenwall
Greenwall Vending Co.
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Kenny Rowland
Commerce Bank
Steve Sowers
Commerce Bank
Gregory West
Mills Iron & Supply
ST. JOSEPH
Mark Barkman
Commerce Trust Company
Brett Carolus
Hillyard, Inc.
Brendon Clark
Commerce Bank
James H. Counts
Morton, Reed, Counts,
Briggs & Robb, LLC
Pat Dillon
Mosaic Life Care
Corky Marquart
Commerce Bank
Todd Meierhoffer
Meierhoffer Funeral Home & Crematory
Patrick Modlin
Room 108/Felix Street Gourmet
Dr. Scott Murphy
Murphy-Watson-Burr Eye Center
Edward J. Reardon, II
Commerce Bank
Matt Robertson
CliftonLarsonAllen LLP
Amy Ryan
Commerce Bank
Judy Sabbert
Retired, Mosaic Life Care Foundation
Rick Schultz
RS Electric
Bill Severn
NPG, Inc.
Heidi Walker
CBIZ Insurance Services
Julie Walker
Commerce Trust Company
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
13
ST. LOUIS METRO
Blackford F. Brauer
Hunter Engineering Company
Kyle Chapman
BW Forsyth Partners
Charles L. Drury, Jr.
Drury Hotels
Frederick D. Forshaw, Sr.
Forshaw of St. Louis
James G. Forsyth, III
Moto, Inc.
David S. Grossman
Private Investor
Tom Harmon
Commerce Bank
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
Kristin Humes
Tacony Corporation
Donald A. Jubel
Spartan Light Metal Products
David W. Kemper
Commerce Bancshares, Inc.
John W. Kemper
Commerce Bancshares, Inc.
Commerce Bank
Alois J. Koller, III
Koller Enterprises, Inc.
Kristopher G. Kosup
Buckeye International, Inc.
Alaina Maciá
MTM
Arteveld J. McCoy II
SAGES LLC
James B. Morgan
Subsurface Constructors, Inc.
Chrissy Nardini
American Metals Supply Co., Inc.
Victor L. Richey, Jr.
ESCO Technologies, Inc.
James E. Schiele
Consultant
Paul J. Shaughnessy
BSI Constructors, Inc.
Thomas H. Stillman
Summit Distributing
Christine Taylor
Enterprise Holdings, Inc.
Andrew Thome
J.W. Terrill
Gregory Twardowski
Private Investor
Kelvin R. Westbrook
KRW Advisors, LLC
ST. LOUIS METRO EAST
Hamilton Callison
Breakthru Beverage Group
Darren L. Clay
Clay Piping
Harlan Ferry, Jr.
Retired, Commerce Bank
Matthew Gomric
Commerce Bank
Jared Katt
Chelar Tool & Die, Inc.
Robert McClellan
Retired, Hortica
Charles R. Greene
American Sportsman Holdings Co.
James Rauckman
Rauckman High Voltage Sales, LLC
Bunch Greenwade
Rancher
Brian Sutton
Commerce Bank
Clive Veri
Commerce Bank
Dr. James T. Rosborg
McKendree University
Richard Sauget Jr.
Mayor of Sauget
Jack Schmitt
Jack Schmitt Family of Dealerships
Kurt Schroeder
Greensfelder, Hemker & Gale, P.C.
Joe Wiley
Quest Management Consultants
Dr. Charles J. Willey
Innovare Health Advocates
ST. LOUIS BUSINESS BANKING
Kevin Bray
St. Charles Community College
Richard K. Brunk
Attorney at Law
James N. Foster
McMahon Berger
Lou Helmsing
Craftsmen Trailer, LLC
J.L. (Juggie) Hinduja
Sinclair Industries, Inc.
Susan Kalist
Commerce Bank
Dr. Barbara Kavalier
St. Charles Community College
Greg Kendall
Commerce Bank
Stuart Krawll
Beam of St. Louis, Inc.
Patrick N. Lawlor
Lawlor Corporation
Scott Lively
CliftonLarsonAllen LLP
Stephen Mattis
Allied Industrial Equipment Corporation
Lisa D. McLaughlin
Reilly & McLaughlin
Peter J. Mihelich, Jr.
Goellner Promotions
McGraw Milhaven
KTRS
Duane A. Mueller
Cissell Mueller Construction Company
Elizabeth Powers
Powers Insurance
Dennis Scharf
Scharf Tax Services
William J. Zollmann, III
Attorney at Law
SPRINGFIELD
Christina Angle
The Erlen Group
Kimberly Chaffin
Hogan Land Title Company
Brian Esther
Commerce Bank
James P. Ferguson
Heart of America Beverage Co.
Robert A. Hammerschmidt, Jr.
Commerce Trust Company
Wendell L. Wilkinson
Retired, Commerce Bank
Dr. Hal L. Higdon
Ozarks Technical Community College
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
Craig Lehman
Shelter Insurance Agency
Sherry Lynch
Commerce Bank
Michael Meek
Investments
James F. Moore
Retired, American Products
Robert Moreland
More-Land Realty, LLC
David Murray
R.B. Murray Company
Douglas D. Neff
Commerce Bancshares, Inc.
Commerce Bank
Keith Noble
Commerce Bank
Richard Ollis
Ollis/Akers/Arney Insurance &
Business Advisors
Doug Russell
The Durham Company
Rusty Shadel
Shadel’s Colonial Chapel
David Waugh
Independent Stave Company
MOKAN
Donald Cupps
Ellis, Cupps & Cole
Adam Endicott
Unique Metal Fabrication, Inc.
Jay Hatfield
Jay Hatfield Chevrolet
Jerrod Hogan
Anderson Engineering
Wesley C. Houser
Retired, Commerce Bank
David C. Humphreys
TAMKO Building Products, Inc.
Phil Hutchens
Hutchens Construction
Don Kirk
H & K Camper Sales, Inc.
Barbara J. Majzoub
Yorktown Properties
Douglas D. Neff
Commerce Bancshares, Inc.
Commerce Bank
Eric Schnelle
S & H Farm Supply, Inc.
Steve W. Sloan
Midwest Minerals, Inc.
Kansas
BUTLER COUNTY (EL DORADO)
Vince Haines
Gravity :: Works Architecture
Ryan T. Murry
ICI
Marilyn B. Pauly
Retired, Commerce Bank
Jeremy Sundgren
Sundgren Realty, Inc.
Mark Utech
Commerce Bank
GARDEN CITY
Monte A. Cook
Commerce Bank
Richard Harp
Commerce Bank
Lee Reeve
Reeve Cattle Company
Patrick Rooney
Rooney Farms
Tamara Roth
Allred & Company, CPA’s, Inc.
Pat Sullivan
Retired, Sullivan Analytical Service, Inc.
HAYS
D.G. Bickle, Jr.
Warehouse, Inc.
Monte A. Cook
Commerce Bank
Brian Dewitt
Adams, Brown, Beran & Ball, CPAs
Stuart Lowry
Sunflower Electric Power Corporation
Marty Patterson
Rome Corporation
Shane Smith
Commerce Bank
Kevin Royer
Midland Marketing Coop
LAWRENCE
Rob Gillespie
Commerce Bank
Michele Hammann
SSC CPAs + Advisors
Mark Heider
Retired, Commerce Bank
Russ Johnson
LMH Health
Eugene W. Meyer
Executive in Residence
Masters HealthCare Administration,
KUMC
Allison Vance Moore
Colliers International
14
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
Ed Keller
Titan Properties
Teresa L. Knox
Hickory House Properties LLC
Ken Lackey
The NORDAM Group, Inc.
Tom E. Maxwell
Retired, Flintco, LLC
Sanjay Meshri
Meshri Holdings
John Neas
Neas Investments
Shannon O’Doherty
Commerce Bank
John Peters
Adwon Properties
Tracy A. Poole
FortySix Venture Capital LLC
Stephanie Regan
AAON, Inc.
Dr. Andy Revelis
Tulsa Pain Consultants
Daryl Woodard
SageNet
Colorado
DENVER
Robert L. Cohen
The IMA Financial Group, Inc.
Joseph Freund, Jr.
Running Creek Ranch
R. Allan Fries
i2 Construction, LLP
Darren Lemkau
Commerce Bank
James C. Lewien
Retired, Commerce Bank
Alek Orloff
Frontier Waste Solutions
David Schunk
Volunteers of America, Colorado Branch
Olivia Thompson
Retired, AlloSource
Jason Zickerman
The Alternative Board
Martin W. Moore
Advanco, Inc.
Kevin J. O’Malley
O’Malley Beverage of Kansas, Inc.
Edward J. Reardon, II
Commerce Bank
Dan C. Simons
The World Company
Michael Treanor
CT Design + Development
LEAVENWORTH
Arlen Briggs
Armed Forces Insurance Exchange
Jeffrey Chalabi
Central Bag Company
Mark Denney
J.F. Denney Plumbing & Heating
Jeremy Greenamyre
Greenamyre Rentals
Eric Hoins
Young Sign Company, Inc.
Matt Kaaz
Leavenworth Excavating & Equipment
Company, Inc.
Lawrence W. O’Donnell, Jr.
Lawrence W. O’Donnell, Jr., CPA
Chartered
Bill Petrie
Commerce Bank
Edward J. Reardon, II
Commerce Bank
MANHATTAN
Mark Bachamp
Olsson Associates
Linda Cook
Kansas State University
Monte A. Cook
Commerce Bank
Shawn Drew
Commerce Bank
Neal Helmick
Griffith Lumber Co.
Dr. David Pauls
Surgical Associates
WICHITA
Ray L. Connell
Connell & Connell
Monte A. Cook
Commerce Bank
Thomas E. Dondlinger
Dondlinger Construction
Craig Duerksen
Commerce Bank
Ronald W. Holt
Retired, Sedgwick County
Eric Ireland
Commerce Bank
Paul D. Jackson
Vantage Point Properties, Inc.
Kristi Krok
Commerce Bank
Brett Mattison
Decker & Mattison Co., Inc.
Marilyn B. Pauly
Retired, Commerce Bank
John Rolfe
Kansas Leadership Center
Barry L. Schwan
House of Schwan, Inc.
David White
Alloy Architecture
Illinois
BLOOMINGTON-NORMAL
Brent A. Eichelberger
Commerce Bank
Neil Finlen
Farnsworth Group, Inc.
Ron Greene
Afni, Inc.
Jared Hall
Keplr Vision Services
Mary Bennett Henrichs
Integrity Technology Solutions
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
Nick Kemp
Vogo Cabinets
William J. Phillips IV
Commerce Bank
Jay Reece
Jay D. Reece, P.C., Attorney at Law
Alan Sender
Retired, Chestnut Health Systems
CHAMPAIGN-URBANA
Mark Arends
Arends Hogan Walker, LLC
Matt Deering
Meyer Capel
Brent A. Eichelberger
Commerce Bank
Donna Greene
University of Illinois Foundation
Tim Harrington
Coldwell Banker Commercial
Devonshire Realty
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Kim Martin
Martin Hood, LLC
William J. Phillips IV
Commerce Bank
Jeff Troxell
Commerce Bank
PEORIA
Bruce L. Alkire
Coldwell Banker Commercial
Devonshire Realty
David W. Altorfer
United Facilities, Inc.
Royal J. Coulter
Coulter Companies, Inc.
Dr. Michael A. Cruz
OSF Healthcare System
Brent A. Eichelberger
Commerce Bank
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
John P. Kaiser
RSM US, LLP
Dr. James W. Maxey
OSF Orthopedics
Rebecca L. Rossman
Peoria Community Against Violence
Leanne Skuse
River City Construction, LLC
Jonathan A. Williams
Commerce Bank
Oklahoma
OKLAHOMA CITY
Gary Bridwell
Orange Power Group
Steve Brown
Red Rock Distributing Co.
Jim Cleaver
Midsouth Financial Company
Clay Cockrill
SiteAware
Sherry Dale
The Mettise Group
Mark Fischer
Fischer Investments
Zane Fleming
Eagle Drilling Fluids
Cody Law
Commerce Bank
Mike McDonald
Triad Energy
Shannon O’Doherty
Commerce Bank
Vince Orza
Retired, Family Broadcasting
Corporation
Kathy Potts
Rees Associates, Inc.
Ethan Slavin
Creek Commercial Realty
Jay Soulek
Northwest Crane Service
Joe Warren
Cimarron Production
TULSA
Jack Allen
HUB International Limited
R. Scott Case
Case & Associates, Inc.
Wade Edmundson
Retired, Commerce Bank
Dr. John R. Frame
Breast Health Specialists of Oklahoma
Gip Gibson
Commerce Bank
Kent J. Harrell
Harrell Energy
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
15
Officers
Directors
16
COMMERCE BANCSHARES, INC. | 2021 ANNUAL REPORT
*Audit and Risk Committee Member
Terry D. Bassham*Retired Chief Executive Officer and President Evergy, Inc.John R. Capps*Vice President Weiss ToyotaKaren L. Daniel*Retired Chief Financial Officer and Executive Director Black & VeatchEarl H. Devanny, IIIRetired Chief Executive Officer TractManager W. Thomas Grant, IIDirector SelectQuoteDavid W. KemperExecutive Chairman Commerce Bancshares, Inc.John W. KemperPresident and Chief Executive Officer Commerce Bancshares, Inc.Jonathan M. KemperChairman Emeritus Commerce Bank Kansas City RegionBenjamin F. Rassieur, III*President Paulo Products CompanyTodd R. Schnuck*Chairman of the Board and Chief Executive Officer Schnuck Markets, Inc.Andrew C. TaylorExecutive Chairman Enterprise Holdings, Inc.Kimberly G. Walker*Retired Chief Investment Officer Washington University in St. LouisDavid W. KemperExecutive Chairman John W. KemperPresident and Chief Executive OfficerCharles G. KimChief Financial Officer and Executive Vice PresidentKevin G. BarthExecutive Vice PresidentSara E. FosterExecutive Vice PresidentJohn K. HandyExecutive Vice PresidentRobert S. HolmesExecutive Vice PresidentDavid L. OrfChief Credit Officer and Executive Vice PresidentDerrick R. BrooksSenior Vice PresidentJeffrey M. BurikSenior Vice PresidentPatricia R. KellerhalsSenior Vice PresidentDouglas D. NeffSenior Vice PresidentPaula S. PetersenSenior Vice PresidentDavid L. RollerSenior Vice PresidentThomas J. NoackSecretary, General Counsel and Senior Vice PresidentB. Lynn TankesleyChief Risk Officer and Senior Vice President Paul A. SteinerControllerAaron C. MeinertAuditor UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑
☐
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________________________________________________
For the Fiscal Year Ended December 31, 2021
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________________________________________________
For the transition period from to
Commission File No. 001-36502
(Exact name of registrant as specified in its charter)
COMMERCE BANCSHARES, INC.
Missouri
(State of Incorporation)
43-0889454
(IRS Employer Identification No.)
1000 Walnut
Kansas City, MO
(Address of principal executive offices)
64106
(Zip Code)
Registrant's telephone number, including area code: (816) 234-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Trading symbol(s)
Name of exchange on which registered
$5 Par Value Common Stock
CBSH
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company"
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated Filer ¨ Non-accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☑
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of June 30, 2021, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $8,097,000,000.
As of February 17, 2022, there were 121,110,096 shares of Registrant’s $5 Par Value Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its 2022 annual meeting of shareholders, which will be filed within 120 days of December 31, 2021,
are incorporated by reference into Part III of this Report.
Commerce Bancshares, Inc.
Form 10-K
INDEX
PART I
Item 1.
Business
Item 1a.
Risk Factors
Item 1b.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6.
RESERVED
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7a.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9a.
Controls and Procedures
Item 9b.
Other Information
Item 9c.
Disclosure regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
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Item 1. BUSINESS
General
PART I
Commerce Bancshares, Inc., a bank holding company as defined in the Bank Holding Company Act of 1956, as amended,
was incorporated under the laws of Missouri on August 4, 1966. Through a second tier wholly-owned bank holding company, it
owns all the outstanding capital stock of Commerce Bank (the “Bank”), which is headquartered in Missouri. The Bank engages
in general banking business, providing a broad range of retail, mortgage banking, corporate, investment, trust, and asset
management products and services to individuals and businesses. Commerce Bancshares, Inc. also owns, directly or through the
Bank, various non-banking subsidiaries. Their activities include private equity investment, securities brokerage, insurance
agency, specialty lending, and leasing activities. A list of Commerce Bancshares, Inc.'s subsidiaries is included as Exhibit 21.
Commerce Bancshares, Inc. and its subsidiaries (collectively, the "Company") is one of the nation’s top 50 bank holding
companies, based on asset size. At December 31, 2021, the Company had consolidated assets of $36.7 billion, loans of $15.2
billion, deposits of $29.8 billion, and equity of $3.4 billion. The Company's principal markets, which are served by 152 branch
facilities, are located throughout Missouri, Kansas, and central Illinois, as well as Tulsa and Oklahoma City, Oklahoma and
Denver, Colorado. Its two largest markets are St. Louis and Kansas City, which serve as central hubs for the Company. The
Company also has offices supporting its commercial customers in Dallas, Houston, Cincinnati, Nashville, Des Moines,
Indianapolis, and Grand Rapids, and operates a commercial payments business with sales representatives covering the
continental United States of America (“U.S.”).
The Company’s goal is to be the preferred provider of financial services in its communities, based on strong customer
relationships built through providing top quality service with a strong risk management culture, and employing a strong balance
sheet with strong capital levels. The Company operates under a super-community banking format which incorporates large
bank product offerings coupled with deep local market knowledge, augmented by experienced, centralized support in select,
critical areas. The Company’s focus on local markets is supported by an experienced team of bankers assigned to each market
coupled with industry specialists. The Company also uses regional advisory boards, comprised of local business persons,
professionals and other community representatives, who assist the Company in responding to local banking needs. In addition
to this local market, community-based focus, the Company offers sophisticated financial products usually only available at
much larger financial institutions.
The markets the Bank serves are mainly located in the lower Midwest, which provides natural sites for production and
distribution facilities and serve as transportation hubs. The economy has been well-diversified in these markets with many
major industries represented, including telecommunications, automobile, technology, financial services, aircraft and general
manufacturing, health care, numerous service industries, and food and agricultural production. The personal real estate lending
operations of the Bank are predominantly centered in its lower Midwestern markets.
From time to time, the Company evaluates the potential acquisition of various financial institutions. In addition, the
Company regularly considers the purchase and disposition of real estate assets and branch locations. The Company seeks
merger or acquisition partners that are culturally similar, have experienced management and either possess significant market
presence or have potential for improved profitability through financial management, economies of scale and expanded services.
The Company has not completed any bank acquisitions since 2013.
Employees and Human Capital
The Company employed 4,387 persons on a full-time basis and 150 persons on a part-time basis at December 31, 2021.
None of the Company's employees are represented by collective bargaining agreements.
Attracting and retaining talented team members is key to the Company’s ability to execute its strategy and compete
effectively. The Company values the unique combination of talents and experiences each team member contributes toward the
Company’s success and strives to offer rewards that meet team members’ individual, evolving needs. Well-being is much more
than a paycheck and that’s why the Company takes a comprehensive approach to Total Rewards, supporting team members’
physical well-being, financial well-being, and emotional well-being and career development. The Company’s financial well-
being program includes a company-matching 401(k) plan and health savings accounts, educational and adoption assistance
programs. Emotional well-being programs include paid time off, an employee assistance program (EAP) and company-paid
membership to Care.com. Physical well-being is supported by the Company’s health, dental, vision, life and various other
insurances, and a wellness program that incentivizes team members to live a healthy and balanced lifestyle. Career development
is also a key component of the Company’s Total Rewards, and the Company has a variety of programs to support team
members as they continue to grow within their current role or develop for their next role. Job shadowing, leadership
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development programs, Aspiring Managers program, Managing at Commerce, competency assessments and education
assistance are just a few of the ways the Company helps team members excel.
During 2021 the ongoing impacts of the pandemic continued to create challenges for our team members. The Company
continued focused efforts on providing team members support and resources to navigate the ever-changing environment.
Initiatives included routine communications providing relevant updates and information, resources for leaders to help keep their
teams engaged and connected, new resources for working parents, and access to emotional support resources. The Company
implemented a phased-in approach to returning to on-site work and created more flexible work categories for team members to
provide for ongoing flexibility.
The Company believes diversity, equity, and inclusion (DEI) builds stronger companies with better results. In 2021, the
Company’s efforts continued around a key initiative focusing on DEI through the lens of our workforce, our suppliers, our
community and our customers. Internal teams continue to iterate to build plans for growth in all four areas. The Company
continues to build a sense of belonging by engaging team members in a variety of Employee Resource Groups (ERGs) to
support its diverse workforce. RISE (empowering women), EMERGE (connecting young professionals), VIBE (valuing
multicultural perspectives), and PRIDE (engaging the LGBTQIA+ community) are important forums that provide team
members opportunities to connect, learn, and encourage diverse perspectives. All programs were moved to a virtual
environment to enable team members to continue to network and learn even in the environment brought on by the pandemic.
Other internal DEI efforts have included unconscious bias training, book clubs, listen, talk, and learn sessions, courageous
conversation training, mentoring programs, and review of talent at all levels of the organization. The Company’s longstanding
approach of “doing what’s right” continues to guide its focus on its team members and communities.
The Company’s robust listening strategy allows it to stay connected to the team member experience to understand the
evolving needs of its team members and to focus on what matters most to them. This strategy includes a balance of surveys,
focus groups, and one on one conversations to allow for two-way conversation and provides trends over time by key
demographics. The Company’s goal is to create a sense of belonging which it believes is connected to high levels of
engagement, enablement, retention, and results. The Company’s intentional strategy has allowed it to maintain levels of
engagement that have been recognized by its annual survey partner, Korn Ferry, for being “best-in-class" and to be recognized
by Forbes as one of the best mid-sized employers.
Competition
The Company operates in the highly competitive environment of financial services. The Company regularly faces
competition from banks, savings and loan associations, credit unions, brokerage companies, mortgage companies, insurance
companies, trust companies, credit card companies, private equity firms, leasing companies, securities brokers and dealers,
financial technology companies, e-commerce companies, mutual fund companies, and other companies providing financial
services. Some of these competitors are not subject to the same regulatory restrictions as domestic banks and bank holding
companies. Some other competitors are significantly larger than the Company, and therefore have greater economies of scale,
greater financial resources, higher lending limits, and may offer products and services that the Company does not provide. The
Company competes by providing a broad offering of products and services to support the needs of customers, matched with a
strong commitment to customer service. The Company also competes based on quality, innovation, convenience, reputation,
industry knowledge, and price. In its two largest markets, the Company has approximately 12% of the deposit market share in
Kansas City and approximately 8% of the deposit market share in St. Louis.
Operating Segments
The Company is managed in three operating segments: Commercial, Consumer, and Wealth. The Commercial segment
provides a full array of corporate lending, merchant and commercial bank card products, payment solutions, leasing, and
international services, as well as business and government deposit, investment, and cash management services. The Consumer
segment includes the retail branch network, consumer installment lending, personal mortgage banking, and consumer debit and
credit bank card activities. The Wealth segment provides traditional trust and estate planning services, brokerage services, and
advisory and discretionary investment portfolio management services to both personal and institutional corporate customers. In
2021, the Commercial, Consumer and Wealth segments contributed 53%, 23% and 23% of total segment pre-tax income,
respectively. See the section captioned "Operating Segments" in Item 7, Management's Discussion and Analysis, of this report
and Note 13 to the consolidated financial statements for additional discussion on operating segments.
Government Policies
The Company's operations are affected by federal and state legislative changes, by the U.S. government, and by policies of
various regulatory authorities, including those of the numerous states in which they operate. These include, for example, the
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statutory minimum legal lending rates, domestic monetary policies of the Board of Governors of the Federal Reserve System,
U.S. fiscal policy, international currency regulations and monetary policies, the U.S. Patriot Act, and capital adequacy and
liquidity constraints imposed by federal and state bank regulatory agencies.
Supervision and Regulation
The following information summarizes existing laws and regulations that materially affect the Company's operations. It
does not discuss all provisions of these laws and regulations, and it does not include all laws and regulations that affect the
Company presently or may affect the Company in the future.
General
The Company, as a bank holding company, is primarily regulated by the Board of Governors of the Federal Reserve System
under the Bank Holding Company Act of 1956, as amended (BHC Act). Under the BHC Act, the Federal Reserve Board’s prior
approval is required in any case in which the Company proposes to acquire all or substantially all the assets of any bank,
acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank, or merge or consolidate with
any other bank holding company. With certain exceptions, the BHC Act also prohibits the Company from acquiring direct or
indirect ownership or control of more than 5% of any class of voting shares of any non-banking company. Under the BHC Act,
the Company may not engage in any business other than managing and controlling banks or furnishing certain specified
services to subsidiaries, and may not acquire voting control of non-banking companies unless the Federal Reserve Board
determines such businesses and services to be closely related to banking. When reviewing bank acquisition applications for
approval, the Federal Reserve Board considers, among other things, the Bank’s record in meeting the credit needs of the
communities it serves in accordance with the Community Reinvestment Act of 1977, as amended (CRA). Under the terms of
the CRA, banks have a continuing obligation, consistent with safe and sound operation, to help meet the credit needs of their
communities, including providing credit to individuals residing in low- and moderate-income areas. The Bank has a current
CRA rating of “outstanding.”
The Company is required to file various reports and additional information with the Federal Reserve Board. The Federal
Reserve Board regularly performs examinations of the Company. The Bank is a state-chartered Federal Reserve member bank
and is subject to regulation, supervision and examination by the Federal Reserve Bank of Kansas City and the Missouri
Division of Finance. The Bank is also subject to regulation by the Federal Deposit Insurance Corporation (FDIC). In addition,
there are numerous other federal and state laws and regulations which control the activities of the Company, including
requirements and limitations relating to capital and reserve requirements, permissible investments and lines of business,
transactions with affiliates, loan limits, mergers and acquisitions, issuance of securities, dividend payments, and extensions of
credit. The Bank is subject to federal and state consumer protection laws, including laws designed to protect customers and
promote fair lending. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending
Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and their respective state law counterparts.
If the Company fails to comply with these or other applicable laws and regulations, it may be subject to civil monetary
penalties, imposition of cease and desist orders or other written directives, removal of management and, in certain
circumstances, criminal penalties. This regulatory framework is intended primarily for the protection of depositors and the
preservation of the federal deposit insurance funds. Statutory and regulatory controls increase a bank holding company’s cost of
doing business and limit the options of its management to employ assets and maximize income.
In addition to its regulatory powers, the Federal Reserve Bank affects the conditions under which the Company operates by
its influence over the national supply of bank credit. The Federal Reserve Board employs open market operations in U.S.
government securities and oversees changes in the discount rate on bank borrowings, changes in the federal funds rate on
overnight inter-bank borrowings, and changes in reserve requirements on bank deposits in implementing its monetary policy
objectives. These methods are used in varying combinations to influence the overall level of the interest rates charged on loans
and paid for deposits, the price of the dollar in foreign exchange markets, and the level of inflation. The monetary policies of
the Federal Reserve have a significant effect on the operating results of financial institutions, most notably on the interest rate
environment. In view of changing conditions in the national economy and in the money markets, as well as the effect of credit
policies of monetary and fiscal authorities, the Company makes no prediction as to possible future changes in interest rates,
deposit levels or loan demand, or their effect on the financial statements of the Company.
The financial industry operates under laws and regulations that are under regular review by various agencies and legislatures
and are subject to change. The Company currently operates as a bank holding company, as defined by the Gramm-Leach-Bliley
Financial Modernization Act of 1999 (GLB Act), and the Bank qualifies as a financial subsidiary under the GLB Act, which
allows it to engage in investment banking, insurance agency, brokerage, and underwriting activities that were not available to
banks prior to the GLB Act. The GLB Act also included privacy provisions that limit banks’ abilities to disclose non-public
information about customers to non-affiliated entities.
5
The Company must also comply with the requirements of the Bank Secrecy Act (BSA). The BSA is designed to help fight
drug trafficking, money laundering, and other crimes. Compliance is monitored by the Federal Reserve. The BSA was enacted
to prevent banks and other financial service providers from being used as intermediaries for, or to hide the transfer or deposit of
money derived from, criminal activity. Since its passage, the BSA has been amended several times. These amendments
include the Money Laundering Control Act of 1986 which made money laundering a criminal act, as well as the Money
Laundering Suppression Act of 1994 which required regulators to develop enhanced examination procedures and increased
examiner training to improve the identification of money laundering schemes in financial institutions.
The USA PATRIOT Act, established in 2001, substantially broadened the scope of U.S. anti-money laundering laws and
regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and
expanding the extra-territorial jurisdiction of the U.S. The regulations impose obligations on financial institutions to maintain
appropriate policies, procedures and controls to detect, prevent, and report money laundering and terrorist financing. The
regulations include significant penalties for non-compliance.
The Company is subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2011
(Dodd-Frank Act). Among its many provisions, the Dodd-Frank Act required stress-testing for certain financial services
companies and established a new council of “systemic risk” regulators. The Dodd-Frank Act also established the Consumer
Financial Protection Bureau (CFPB) which is authorized to supervise certain financial services companies and has
responsibility to implement, examine for compliance with, and enforce “Federal consumer financial law.” The Company is
subject to examinations by the CFPB. The Dodd-Frank Act, through Title VI, commonly known as the Volcker Rule, placed
trading restrictions on financial institutions and separated investment banking, private equity and proprietary trading (hedge
fund) sections of financial institutions from their consumer lending arms. The Volcker Rule also restricts financial institutions
from investing in and sponsoring certain types of investments.
In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was signed into law which provides a
number of limited amendments to the Dodd-Frank Act. Notable provisions of the legislation include: an increase in the asset
threshold from $50 billion to $250 billion, above which the Federal Reserve is required to apply enhanced prudential standards;
an exemption from the Volcker Rule for insured depository institutions with less than $10 billion in consolidated assets;
modifications to the Liquidity Coverage and Supplementary Leverage ratios; and the elimination of Dodd-Frank company-run
stress tests for banks and bank holding companies with less than $250 billion in assets. Most of these provisions affect
institutions larger than the Company, and the Company is not required to prepare stress testing as specified by the Dodd-Frank
Act.
Subsidiary Bank
Under Federal Reserve policy, the bank holding company, Commerce Bancshares, Inc. (the "Parent"), is expected to act as a
source of financial strength to its bank subsidiary and to commit resources to support it in circumstances when it might not
otherwise do so. In addition, loans by a bank holding company to any of its subsidiary banks are subordinate in right of
payment to deposits and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s
bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Deposit Insurance
Substantially all of the deposits held by the Bank are insured up to applicable limits (generally $250,000 per depositor for
each account ownership category) by the FDIC's Deposit Insurance Fund (DIF) and are subject to deposit insurance
assessments to maintain the DIF. In 2011, the FDIC released a final rule to implement provisions of the Dodd-Frank Act that
affected deposit insurance assessments. Among other things, the Dodd-Frank Act raised the minimum designated reserve ratio
from 1.15% to 1.35% of estimated insured deposits, removed the upper limit of the designated reserve ratio, required that the
designated reserve ratio reach 1.35% by September 30, 2020, and required the FDIC to offset the effect of increasing the
minimum designated reserve ratio on depository institutions with total assets of less than $10 billion. The Dodd-Frank Act
provided the FDIC flexibility in the implementation of the increase in the designated reserve ratio and also required that the
FDIC redefine the assessment base to average consolidated assets minus average tangible equity. For the year ended December
31, 2021, the Company's deposit insurance expense was $9.1 million.
Payment of Dividends
The Federal Reserve Board may prohibit the payment of cash dividends to shareholders by bank holding companies if their
actions constitute unsafe or unsound practices. The principal source of the Parent's cash revenues is cash dividends paid by the
Bank. The amount of dividends paid by the Bank in any calendar year is limited to the net profit of the current year combined
6
with the retained net profits of the preceding two years, and permission must be obtained from the Federal Reserve Board for
dividends exceeding these amounts. The payment of dividends by the Bank may also be affected by factors such as the
maintenance of adequate capital.
Capital Adequacy
The Company is required to comply with the capital adequacy standards established by the Federal Reserve, which are
based on the risk levels of assets and off-balance sheet financial instruments. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are also subject to judgments by regulators regarding
qualitative components, risk weightings, and other factors.
A comprehensive capital framework was established by the Basel Committee on Banking Supervision, which was effective
for large and internationally active U.S. banks and bank holding companies on January 1, 2015. A key goal of the Basel III
framework was to strengthen the capital resources of banking organizations during normal and challenging business
environments. Basel III increased minimum requirements for both the quantity and quality of capital held by banking
organizations. The rule includes a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% and a
common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The capital conservation buffer is intended
to absorb losses during periods of economic stress. Failure to maintain the buffer will result in constraints on dividends, stock
repurchases and executive compensation. The rule also adjusted the methodology for calculating risk-weighted assets to
enhance risk sensitivity. At December 31, 2021, the Company's capital ratios are well in excess of those minimum ratios
required by Basel III.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) requires each federal banking agency to take
prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall
below one or more prescribed minimum capital ratios. Pursuant to FDICIA, the FDIC promulgated regulations defining the
following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well-
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under the
prompt corrective action provisions of FDICIA, an insured depository institution generally will be classified as well-capitalized
(under the Basel III rules mentioned above) if it has a Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital ratio of
at least 6.5%, a total capital ratio of at least 10%, and a Tier 1 leverage ratio of at least 5%. An institution that, based upon its
capital levels, is classified as “well-capitalized,” “adequately capitalized,” or “undercapitalized,” may be treated as though it
were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing,
determines that an unsafe or unsound condition, or an unsafe or unsound practice warrants such treatment. At each successive
lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on
growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on
the acceptance of brokered deposits. Furthermore, if a bank is classified in one of the undercapitalized categories, it is required
to submit a capital restoration plan to the federal bank regulator, and the holding company must guarantee the performance of
that plan. The Bank has consistently maintained regulatory capital ratios above the “well-capitalized” standards.
Stress Testing
As required by the Dodd-Frank Act, the Company performed stress tests as specified by the Federal Reserve requirement
and published results beginning in 2014 through 2017. On May 24, 2018, the Economic Growth, Regulatory Relief, and
Consumer Protection Act was enacted, which eliminated the required stress testing under the Dodd-Frank Act for banks with
consolidated assets of less than $250 billion. The Company continues to perform periodic stress-testing based on its own
internal criteria.
Executive and Incentive Compensation
Guidelines adopted by federal banking agencies prohibit excessive compensation as an unsafe and unsound practice, and
describe compensation as "excessive" when the amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director or principal shareholder. The Federal Reserve Board has issued comprehensive
guidance on incentive compensation intended to ensure that the incentive compensation policies do not undermine safety and
soundness by encouraging excessive risk taking. This guidance covers all employees that have the ability to materially affect
the risk profile of an organization, either individually or as part of a group, based on key principles that (i) incentives do not
encourage risk-taking beyond the organization's ability to identify and manage risk, (ii) compensation arrangements are
compatible with effective internal controls and risk management, and (iii) compensation arrangements are supported by strong
corporate governance, including active and effective board oversight. Deficiencies in compensation practices may affect
7
supervisory ratings and enforcement actions may be taken if incentive compensation arrangements pose a risk to safety and
soundness.
Transactions with Affiliates
The Federal Reserve Board regulates transactions between the Bank and its subsidiaries. Generally, the Federal Reserve Act
and Regulation W, as amended by the Dodd-Frank Act, limit the Company’s banking subsidiary and its subsidiaries to lending
and other “covered transactions” with affiliates. The aggregate amount of covered transactions a banking subsidiary or its
subsidiaries may enter into with an affiliate may not exceed 10% of the capital stock and surplus of the banking subsidiary. The
aggregate amount of covered transactions with all affiliates may not exceed 20% of the capital stock and surplus of the banking
subsidiary.
Covered transactions with affiliates are also subject to collateralization requirements and must be conducted on arm’s length
terms. Covered transactions include (a) a loan or extension of credit by the banking subsidiary, including derivative contracts,
(b) a purchase of securities issued to a banking subsidiary, (c) a purchase of assets by the banking subsidiary unless otherwise
exempted by the Federal Reserve, (d) acceptance of securities issued by an affiliate to the banking subsidiary as collateral for a
loan, and (e) the issuance of a guarantee, acceptance or letter of credit by the banking subsidiary on behalf of an affiliate.
Certain transactions with the Company's directors, officers or controlling persons are also subject to conflicts of interest
regulations. Among other things, these regulations require that loans to such persons and their related interests be made on
terms substantially the same as for loans to unaffiliated individuals, and must not create an abnormal risk of repayment or other
unfavorable features for the financial institution. See Note 2 to the consolidated financial statements for additional information
on loans to related parties.
Available Information
The Company’s principal offices are located at 1000 Walnut Street, Kansas City, Missouri (telephone number
816-234-2000). The Company makes available free of charge, through its website at www.commercebank.com, reports filed
with the Securities and Exchange Commission as soon as reasonably practicable after the electronic filing. Additionally, a copy
of our electronically filed materials can be found at www.sec.gov. These filings include the annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports.
8
Item 1a. RISK FACTORS
Making or continuing an investment in securities issued by the Company, including its common stock, involves certain risks
that you should carefully consider. If any of the following risks actually occur, the Company's business, financial condition or
results of operations could be negatively affected, the market price for your securities could decline, and you could lose all or a
part of your investment. Further, to the extent that any of the information contained in this Annual Report on Form 10-K
constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important
factors that could cause the Company’s actual results to differ materially from those expressed in any forward-looking
statements made by or on behalf of Commerce Bancshares, Inc.
Market Risks
Difficult market conditions may affect the Company’s industry.
The concentration of the Company’s banking business in the United States particularly exposes it to downturns in the U.S.
economy. Almost two years into the COVID-19 pandemic, the uncertainty in the economic outlook as of December 31, 2021
continued to affect the Company's financial results and operations.
In particular, the Company may face the following risks in connection with market conditions:
•
•
•
•
•
In 2020, the U.S. economy entered a recession, driven by the onset of the COVID-19 pandemic and the mitigating
strategies implemented to attempt to prevent the transmission of COVID-19. The U.S. economy improved
significantly in 2021. However, the COVID-19 pandemic has not yet subsided and could continue to materially and
adversely impact the U.S. economy.
The U.S. economy is affected by global events and conditions, including the COVID-19 pandemic. Although the
Company does not directly hold foreign debt or have significant activities with foreign customers, the global economy,
the strength of the U.S. dollar, international trade conditions, and oil prices may ultimately affect interest rates,
business import/export activity, capital expenditures by businesses, and investor confidence. Unfavorable changes in
these factors may result in declines in consumer credit usage, adverse changes in payment patterns, reduced loan
demand, and higher loan delinquencies and default rates. These could impact the Company’s future credit losses and
provision for credit losses, as a significant part of the Company’s business includes consumer and credit card lending.
In addition to the COVID-19 slowdown noted above, further slowdowns in economic activity may cause additional
declines in financial services activity, including declines in bank card, corporate cash management and other fee
businesses, as well as the fees earned by the Company on such transactions.
The process used to estimate losses expected in the Company’s loan portfolio requires difficult, subjective, and
complex judgments, including consideration of economic conditions and how these economic predictions might impair
the ability of its borrowers to repay their loans. If an instance occurs that renders these predictions no longer capable of
accurate estimation, this may in turn impact the reliability of the process.
Competition in the industry could intensify as a result of the increasing consolidation of financial services companies
in connection with current market conditions, thereby reducing market prices for various products and services which
could in turn reduce the Company’s revenues.
The performance of the Company is dependent on the economic conditions of the markets in which the Company operates.
The Company’s success is heavily influenced by the general economic conditions of the specific markets in which it
operates. Unlike larger national or other regional banks that are more geographically diversified, the Company provides
financial services primarily throughout the states of Missouri, Kansas, central Illinois, Oklahoma, and Colorado. It also has a
growing presence in additional states through its commercial banking offices in: Texas, Iowa, Indiana, Michigan, Ohio, and
Tennessee. As the Company does not have a significant banking presence in other parts of the country, a prolonged economic
downturn in these markets could have a material adverse effect on the Company’s financial condition and results of operations.
The Company operates in a highly competitive industry and market area.
The Company operates in the financial services industry and has numerous competitors including other banks and insurance
companies, securities dealers, brokers, trust and investment companies, mortgage bankers, and financial technology companies.
Consolidation among financial service providers and new changes in technology, product offerings and regulation continue to
challenge the Company's marketplace position. As consolidation occurs, larger regional and national banks may enter the
Company's markets and add to existing competition. Large, national financial institutions have substantial capital, technology
and marketing resources. These new competitors may lower fees to grow market share, which could result in a loss of
customers and lower fee revenue for the Company. They may have greater access to capital at a lower cost than the Company,
9
and may have higher loan limits, both of which may adversely affect the Company’s ability to compete effectively. The
Company must continue to make investments in its products and delivery systems to stay competitive with the industry, or its
financial performance may suffer.
The soundness of other financial institutions could adversely affect the Company.
The Company’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial
soundness of other financial institution counterparties. Financial services institutions are interrelated because of trading,
clearing, counterparty or other relationships. The Company has exposure to many different industries and counterparties and
routinely executes transactions with counterparties in the financial industry, including brokers and dealers, commercial banks,
investment banks, mutual funds, and other institutional clients. Transactions with these institutions include overnight and term
borrowings, interest rate swap agreements, securities purchased and sold, short-term investments, and other such transactions.
Because of this exposure, defaults by, or rumors or questions about, one or more financial services institutions or the financial
services industry in general, could lead to market-wide liquidity problems and defaults by other institutions. Many of these
transactions expose the Company to credit risk in the event of default of its counterparty or client, while other transactions
expose the Company to liquidity risks should funding sources quickly disappear. In addition, the Company’s credit risk may be
exacerbated when the collateral held cannot be realized or is liquidated at prices not sufficient to recover the full amount of the
exposure due to the Company. Any such losses could materially and adversely affect results of operations.
Regulatory and Compliance Risks
The Company is subject to extensive government regulation and supervision.
As part of the financial services industry, the Company is subject to extensive federal and state regulation and supervision.
Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds, and the banking
system, not shareholders. These regulations affect the Company’s lending practices, capital structure, investment practices,
dividend policy, and growth, among other things. Congress and federal regulatory agencies continually review banking laws,
regulations, and policies for possible changes. Changes to statutes, regulations, or regulatory policies, including changes in
interpretation or implementation of statutes, regulations, or policies, could affect the Company in substantial and unpredictable
ways. Such changes could subject the Company to additional costs, limit the types of financial services and products it may
offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to
comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/or
reputation damage, which could have a material adverse effect on the Company’s business, financial condition, and results of
operations. While the Company has policies and procedures designed to prevent any such violations, there can be no assurance
that such violations will not occur.
Significant changes in federal monetary policy could materially affect the Company’s business.
The Federal Reserve System regulates the supply of money and credit in the United States. Its policies determine in large
part the cost of funds for lending and interest rates earned on loans and paid on borrowings and interest-bearing deposits.
Credit conditions are influenced by its open market operations in U.S. government securities, changes in the member bank
discount rate, and bank reserve requirements. Changes in Federal Reserve Board policies are beyond the Company’s control
and difficult to predict, and such changes may result in lower interest margins and a lack of demand for credit products.
Liquidity and Capital Risks
The Company is subject to both interest rate and liquidity risk.
With oversight from its Asset-Liability Management Committee, the Company devotes substantial resources to monitoring
its liquidity and interest rate risk on a monthly basis. The Company's net interest income is the largest source of overall revenue
to the Company, representing 60% of total revenue for the year ended December 31, 2021. The interest rate environment in
which the Company operates fluctuates in response to general economic conditions and policies of various governmental and
regulatory agencies, particularly the Federal Reserve Board, which regulates the supply of money and credit in the U.S.
Changes in monetary policy, including changes in interest rates, will influence loan originations, deposit generation, demand for
investments and revenues and costs for earning assets and liabilities, and could significantly impact the Company’s net interest
income.
As a result of the COVID-19 pandemic, the Federal Reserve Board lowered the benchmark interest rate to between zero and
0.25%. Future economic conditions or other factors could shift monetary policy resulting in increases or additional decreases in
the benchmark rate. Furthermore, changes in interest rates could result in unanticipated changes to customer deposit balances
and funding costs and affect the Company’s source of funds for future loan growth.
10
Commerce Bancshares, Inc. relies on dividends from its subsidiary bank for most of its revenue.
Commerce Bancshares, Inc. is a separate and distinct legal entity from its banking and other subsidiaries. It receives
substantially all of its revenue from dividends from its subsidiary bank. These dividends, which are limited by various federal
and state regulations, are the principal source of funds to pay dividends on its common stock and to meet its other cash needs.
In the event the subsidiary bank is unable to pay dividends, the Company may not be able to pay dividends or other obligations,
which would have a material adverse effect on the Company's financial condition and results of operations.
Operational Risks
The impact of the phase-out of LIBOR is uncertain.
In 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that LIBOR would likely be
discontinued at the end of 2021 as panel banks would no longer be required to submit estimates that are used to construct
LIBOR. U.S. regulatory authorities voiced similar support for phasing out LIBOR. On March 5, 2021, LIBOR’s regulator and
its administrator announced that the publication of certain LIBOR tenors will cease immediately after December 31, 2021 and
the remaining LIBOR tenors, including 1-month USD LIBOR, will cease immediately after June 30, 2023. The Alternative
Rates Reference Committee (the “ARRC”), a group of market participants convened by the Federal Reserve Board and the New
York Fed to help ensure a successful transition from LIBOR, identified the Secured Overnight Financing Rate (“SOFR”) as its
preferred alternative rate.
The Company established a LIBOR Transition Program, which is led by the LIBOR Transition Steering Committee
(Committee) whose purpose is to guide the overall transition process for the Company. The Committee is an internal, cross-
functional team with representatives from all relevant business lines, support functions and legal counsel. A LIBOR impact and
risk assessment has been performed, and the Company has developed and prioritized action items. All financial contracts that
reference LIBOR have been identified and are being monitored on an ongoing basis. The process of remediating these contracts
has started. LIBOR fallback language has been included in key loan provisions of new and renewed loans in preparation for the
transition from LIBOR. Changes to the Company's systems have been identified, and the process of installing and testing code
was started in the third quarter of 2021. The process of installing and testing code on impacted systems is expected to be
completed in 2022.
The Company has a significant number of loans, derivative contracts, and other financial instruments with attributes that are
either directly or indirectly dependent on LIBOR, mostly 1-month LIBOR. As of December 31, 2021, the Company had
approximately $1.9 billion of commercial loans, $1.4 billion of derivative contracts (notional value), and $840 million of
investment securities that are expected to mature after June 30, 2023. These amounts will decrease in future periods as the
Company works with customers to replace contracts that use LIBOR with alternative reference rates. The Company ceased
entering any new loan contracts that use USD LIBOR as a reference rate in December 2021. The impact of alternatives to
LIBOR on the valuations, pricing and operation of the Company's financial instruments is not yet known.
The Company may be adversely affected if the interest rates currently tied to LIBOR on the Company's loans, derivatives,
and other financial instruments are not able to be transitioned to an alternative rate. Furthermore, the Company may be faced
with disputes or litigation with customers regarding interpretation and enforcement of fallback language used in loan
agreements as the transition to a new benchmark rate continues to evolve.
The Company’s asset valuation may include methodologies, models, estimations and assumptions which are subject to differing
interpretations and could result in changes to asset valuations that may materially adversely affect its results of operations or
financial condition.
The Company uses estimates, assumptions, and judgments when certain financial assets and liabilities are measured and
reported at fair value. Assets and liabilities carried at fair value inherently result in greater financial statement volatility. Fair
values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market
prices and/or other observable inputs provided by independent third-party sources, when available. When such third-party
information is not available, fair value is estimated primarily by using cash flow and other financial modeling techniques
utilizing assumptions such as credit quality, liquidity, interest rates and other relevant inputs. Changes in underlying factors,
assumptions, or estimates in any of these areas could materially impact the Company’s future financial condition and results of
operations. Furthermore, if models used to calculate fair value of financial instruments are inadequate or inaccurate due to flaws
in their design or execution, upon sale, the Company may not realize the cash flows of a financial instrument as modeled and
could incur material, unexpected losses.
During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening credit
spreads or illiquidity, it may be difficult to value certain assets if trading becomes less frequent and/or market data becomes less
observable. There may be certain asset classes in active markets with significant observable data that become illiquid due to the
current financial environment. In such cases, certain asset valuations may require more subjectivity and management judgment.
11
As such, valuations may include inputs and assumptions that are less observable or require greater estimation. Further, rapidly
changing and unprecedented credit and equity market conditions could materially impact the valuation of assets as reported
within the Company’s consolidated financial statements, and the period-to-period changes in value could vary significantly.
Decreases in value may have a material adverse effect on results of operations or financial condition.
The Company’s operations rely on certain external vendors.
The Company relies on third-party vendors to provide products and services necessary to maintain day-to-day operations.
For example, the Company outsources a portion of its information systems, communication, data management, and transaction
processing to third parties. Accordingly, the Company is exposed to the risk that these vendors might not perform in accordance
with the contracted arrangements or service level agreements because of changes in the vendor’s organizational structure,
financial condition, support for existing products and services, or strategic focus. Such failure to perform could be disruptive to
the Company’s operations, which could have a materially adverse impact on its business, financial condition and results of
operations. These third parties are also sources of risk associated with operational errors, system interruptions or breaches and
unauthorized disclosure of confidential information. If the vendors encounter any of these issues, the Company could be
exposed to disruption of service, damage to reputation and litigation. Because the Company is an issuer of both debit and credit
cards, it is periodically exposed to losses related to security breaches which occur at retailers that are unaffiliated with the
Company (e.g., customer card data being compromised at retail stores). These losses include, but are not limited to, costs and
expenses for card reissuance as well as losses resulting from fraudulent card transactions.
The Company converted its core customer and deposit systems during 2022 and may encounter significant adverse
developments.
The Company replaced its core customer and deposit systems and other ancillary systems (collectively referred to as core
system) during the first quarter of 2022. The core system is used to track customer relationships and deposit accounts and is
integrated with channel applications that are used to service customer requests by bank personnel or directly by customers (such
as online banking and mobile applications). The new core system provides a platform based on current technology, enables the
Company to integrate other systems more efficiently, and is a significant improvement compared to the Company's previous
core system. The initial conversion was completed successfully, however, the Company may face operational risks in the
months following conversion, including disruptions to its technology systems, which may adversely impact customers. The
Company has plans, policies and procedures designed to prevent or limit the risks of a failure after the conversion of its core
system. However, there can be no assurance that any such adverse development will not occur or, if they do occur, that they
will be timely and adequately remediated. The ultimate impact of any adverse development could damage the Company's
reputation, result in a loss of customer business, subject the Company to regulatory scrutiny, or expose it to civil litigation and
possibly financial liability, any of which could have a material effect on the Company’s business, financial condition, and
results of operations.
Credit Risks
The allowance for credit losses may be insufficient or future credit losses could increase.
The allowance for credit losses on loans and the liability for unfunded lending commitments at December 31, 2021 reflect
management's estimate of credit losses expected in the loan portfolio, including unfunded lending commitments, as of the
balance sheet date. See Note 2 to the consolidated financial statements and the section captioned “Allowance for Credit Losses
on Loans and Liability for Unfunded Lending Commitments” in Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, of this report for further discussion related to the Company’s process for determining the
appropriate level of the allowance for credit losses on loans and the liability for unfunded lending commitments at December
31, 2021.
In 2016, the Financial Accounting Standards Board (FASB) issued a new accounting standard "Measurement of Credit
Losses on Financial Instruments" (ASU 2016-13), which became effective January 1, 2020 and was adopted by the Company at
that time. This new standard significantly altered the way the allowance for credit losses is determined and utilizes a life of
loan loss concept and required significant operational changes, especially in data collection and analysis. The level of the
allowance is based on management’s methodology that utilizes historical net charge-off rates, and adjusts for the impacts in the
reasonable and supportable forecast and other qualitative factors. Key assumptions include the application of historical loss
rates, prepayment speeds, forecast results of a reasonable and supportable period, the period to revert to historical loss rates, and
qualitative factors. The Company’s allowance level is subject to review by regulatory agencies, and that review could also
result in adjustments to the allowance for credit losses. Additionally, the Company's provision for credit losses may be more
volatile in the future under the new standard, due to macroeconomic variables that influence the Company's loss estimates, and
the volatility in credit losses may be material to the Company's earnings.
12
The Company’s investment portfolio values may be adversely impacted by deterioration in the credit quality of underlying
collateral within the various categories of investment securities it owns.
The Company generally invests in liquid, investment grade securities, however, these securities are subject to changes in
market value due to changing interest rates and implied credit spreads. While the Company maintains prudent risk management
practices over bonds issued by municipalities and other issuers, credit deterioration in these bonds could occur and result in
losses. Certain mortgage and asset-backed securities (which are collateralized by residential mortgages, credit cards,
automobiles, mobile homes or other assets) may decline in value due to actual or expected deterioration in the underlying
collateral. Under accounting rules, when an available for sale debt security is in an unrealized loss position, the entire loss in
fair value is required to be recognized in current earnings if the Company intends to sell the security or believes it is more likely
than not that the Company will be required to sell the security before the value recovers. Additionally, the current expected
credit loss model (CECL) implemented by the Company on January 1, 2020, requires that lifetime expected credit losses on
securities be recorded in current earnings. This could result in significant losses.
Strategic Risk
New lines of business or new products and services may subject the Company to additional risk.
From time to time, the Company may implement new lines of business or offer new products and services within existing
lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the
markets are not fully developed. In developing and marketing new lines of business and new products or services, the Company
may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and
new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such
as compliance with regulations, competitive alternatives and shifting market preferences may also impact the successful
implementation of a new line of business or a new product or service. Furthermore, any new line of business, or new product or
service, could have a significant impact on the effectiveness of the Company’s system of internal controls. Failure to
successfully manage these risks in the development and implementation of new lines of business and new products or services
could have a material adverse effect on the Company’s financial condition and results of operations.
General Risks
A successful cyber attack or other computer system breach could significantly harm the Company, its reputation and its
customers.
The Company relies heavily on communications and information systems to conduct its business, and as part of its business,
the Company maintains significant amounts of data about its customers and the products they use. Information security risks
continue to increase due to new technologies, the increasing use of the Internet and telecommunication technologies (including
mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized
crime, perpetrators of fraud, hackers, and others. The Company makes significant investments in various technology to identify
and prevent intrusions into its information system. The Company also has policies and procedures designed to prevent or limit
the effect of failure, interruption or security breach of its information systems, offers ongoing training to employees, hosts
tabletop exercises to test response readiness, and performs regular audits using both internal and outside resources. However,
there can be no assurance that any such failures, interruptions or security breaches will not occur, or if they do occur, that they
will be adequately addressed. In addition to unauthorized access, denial-of-service attacks or other operational disruptions
could overwhelm Company websites and prevent the Company from adequately serving customers. Should any of the
Company's systems become compromised or customer information be obtained by unauthorized parties, the reputation of the
Company could be damaged, relationships with existing customers may be impaired, and the Company could be subject to
lawsuits, all of which could result in lost business and have a material adverse effect on the Company’s business, financial
condition and results of operations.
The Company continually encounters technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services, including the entrance of financial technology companies offering new financial
service products. The Company regularly upgrades or replaces technological systems to increase efficiency, enhance product
and service capabilities, eliminate risks of end-of-lifecycle products, reduce costs, and better serve our customers. The
Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide
products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company’s
operations. Many of the Company’s competitors have substantially greater resources to invest in technological improvements.
The Company may encounter significant problems and may not be able to effectively implement new technology-driven
products and services and may not be successful in marketing the new products and services to its customers. These problems
might include significant time delays, cost overruns, loss of key people, and technological system failures. Failure to
13
successfully keep pace with technological change affecting the financial services industry or failure to successfully complete
the replacement of technological systems could have a material adverse effect on the Company’s business, financial condition
and results of operations.
The Company must attract and retain skilled employees.
The Company’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people
can be intense, and the Company spends considerable time and resources attracting, hiring, and retaining qualified people for its
various business lines and support units. Companies throughout the U.S. saw significant turnover during 2021, and the number
of candidates in the job market was generally much lower than the demand for talent. The unexpected loss of the services of
one or more of the Company’s key personnel could have a material adverse impact on the Company’s business because of their
skills, knowledge of the Company’s market, and years of industry experience, as well as the difficulty of promptly finding
qualified replacement personnel.
Public health threats or outbreaks of communicable diseases have adversely affected, and are expected to continue to adversely
effect, the Company's operations and financial results.
The Company may face risks related to public health threats or outbreaks of communicable diseases. A widespread
healthcare crisis, such as an outbreak of a communicable disease could adversely affect the global economy and the Company’s
financial performance. For example, the ongoing global COVID-19 pandemic has destabilized the financial markets in which
the Company operates and may continue to cause significant disruption in the global economies and financial markets,
including the Company's local markets. The Company is dependent upon the willingness and ability of its customers to conduct
banking and other financial transactions. In reaction to and as preventative measures to attempt to slow the spread of the
pandemic that began in 2020, government authorities in many states and municipalities implemented mandatory closures,
shelter-in-place orders, and social distancing protocols, including orders within many of the geographic areas that the Company
operates. Although the Company is considered an essential business, access to its branches and office locations were
previously and may again be restricted, for the safety of its employees and customers. Restricting customers' access to the
Company's physical business locations has limited some customers from transacting with the Company and lowered demand for
certain lending and other services offered by the Company and could continue to do so for an indefinite period of time.
Conversely, the ongoing COVID-19 pandemic has increased demand for certain other products and services, requiring the
Company to pivot its focus in certain strategic initiatives. The Company's ability to meet customer demand in this changing
environment could result in increased expenses, and this could have a material adverse effect on the Company’s results of
operations, financial condition, and liquidity. In particular, the continued spread of COVID-19 and efforts to contain the virus
could:
•
•
•
•
•
•
•
•
continue to impact customer demand of the Company’s lending and related services, leading to lower revenue;
cause the Company to experience an increase in costs as a result of the Company implementing operational changes to
accommodate its remote workforce;
cause delayed payments from customers and uncollectible accounts, defaults, foreclosures, and declining collateral
values, resulting in losses to the Company;
result in losses on the Company's investment portfolio, due to volatility in the markets and lower trading volume
driven by economic uncertainty;
cause market interest rates to continue to decline, which could adversely affect the Company's net interest income and
profitability;
cause the Company's credit losses to grow substantially;
impact availability of qualified personnel; and
cause other unpredictable events.
The situation surrounding the COVID-19 pandemic remains uncertain and the potential for a material impact on the
Company’s results of operations, financial condition, and liquidity increases the longer the virus impacts activity levels in the
United States and globally. The Company continues to adapt to the changing dynamics of the COVID-19 impacts to the
economy and the needs of its employees and customers. New information regarding the severity of the COVID-19 pandemic
and ongoing reactions to the pandemic by customers, vendors, and government authorities will continue to impact access to the
Company's business, as well as the economies and markets in which the Company operates. While the U.S. economy improved
significantly during 2021, the COVID-19 pandemic or fallout from economic and societal changes resulting from the pandemic
may cause prolonged global or national recessionary economic conditions, which could have a material adverse effect on the
Company's business, results of operations and financial condition. Beyond the current COVID-19 pandemic, the potential
14
impacts of epidemics, pandemics, or other outbreaks of an illness, disease, or virus could therefore materially and adversely
affect the Company's business, revenue, operations, financial condition, liquidity and cash flows.
Our business and financial results may be affected by societal and governmental responses to climate change and related
environmental issues.
The current and anticipated effects of climate change have raised concerns for the condition of the global environment.
These concerns have changed and will continue to change the behavior of consumers and businesses. Further, governments
have increased their attention on the issue of climate change. As a result, international agreements have been signed to attempt
to reduce global temperatures and federal and state legislative and regulatory initiatives have been proposed to seek to mitigate
the effects of climate change. The Company and its customers may need to respond to new laws and regulations as well as new
consumer and business preferences resulting from climate change concerns. These changes may result in cost increases, asset
value reductions, and operating process changes to the Company and its customers. The impact on our customers will likely
vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to
the Company could be a drop in demand for our products and services, particularly in certain industries. In addition, the
Company could experience reductions in creditworthiness on the part of some customers or in the value of assets securing
loans. The Company’s efforts to take these risks into account in making lending and other decisions, including by increasing
the Company’s business with climate-friendly companies, may not be effective in protecting the Company from the adverse
impact of new laws and regulations or changes in consumer or business behavior.
Item 1b. UNRESOLVED STAFF COMMENTS
None
Item 2. PROPERTIES
The main offices of the Company are located in Kansas City and St. Louis, Missouri. The Company owns its main offices
and leases unoccupied premises to the public. The larger office buildings include:
Building
1000 Walnut
Kansas City, MO
922 Walnut
Kansas City, MO
811 Main
Kansas City, MO
8000 Forsyth
Clayton, MO
Net rentable
square footage
% occupied in
total
% occupied by
Bank
391,000
94 %
52 %
256,000
237,000
178,000
95
100
100
91
100
100
The Company has an additional 152 branch locations in Missouri, Illinois, Kansas, Oklahoma and Colorado which are
owned or leased.
Item 3. LEGAL PROCEEDINGS
The information required by this item is set forth in Item 8 under Note 21, Commitments, Contingencies and
Guarantees on page 137.
Item 4. MINE SAFETY DISCLOSURES
Not applicable
Information about the Company's Executive Officers
The following are the executive officers of the Company as of February 23, 2022, each of whom is designated annually.
There are no arrangements or understandings between any of the persons so named and any other person pursuant to which
such person was designated an executive officer.
15
Name and Age
Kevin G. Barth, 61
Positions with Registrant
Executive Vice President of the Company since April 2005, and Community President and
Chief Executive Officer of Commerce Bank since October 1998. Senior Vice President of
the Company and Officer of Commerce Bank prior thereto.
Derrick R. Brooks, 45
Senior Vice President of the Company and Executive Vice President of Commerce Bank
since January 2021. Senior Vice President of Commerce Bank prior thereto.
Jeffrey M. Burik, 63
Sara E. Foster, 61
John K. Handy, 58
Robert S. Holmes, 58
Patricia R. Kellerhals, 64
David W. Kemper, 71
John W. Kemper, 44
Charles G. Kim, 61
Douglas D. Neff, 53
David L. Orf, 55
Paula S. Petersen, 55
Senior Vice President of the Company since February 2013. Executive Vice President of
Commerce Bank since November 2007.
Executive Vice President of the Company since February 2012 and Senior Vice President of
the Company prior thereto. Executive Vice President of Commerce Bank since January
2016 and Senior Vice President of Commerce Bank prior thereto.
Executive Vice President of the Company since January 2018 and Senior Vice President of
the Company prior thereto. Community President and Chief Executive Officer of
Commerce Bank since January 2018 and Senior Vice President of Commerce Bank prior
thereto.
Executive Vice President of the Company since April 2015, and Community President and
Chief Executive Officer of Commerce Bank since January 2016. Prior to his employment
with Commerce Bank in March 2015, he was employed at a Midwest regional bank where
he served as managing director and head of Regional Banking.
Senior Vice President of the Company since February 2016 and Vice President of the
Company prior thereto. Executive Vice President of Commerce Bank since 2005.
Executive Chairman of the Company and of the Board of Directors of the Company since
August 2018. Prior thereto, he was Chief Executive Officer of the Company and Chairman
of the Board of Directors of the Company. He was President of the Company from April
1982 until February 2013. He is the brother of Jonathan M. Kemper (a former Vice
Chairman of the Company), and father of John W. Kemper, President and Chief Executive
Officer of the Company.
Chief Executive Officer of the Company and Chairman and Chief Executive Officer of
Commerce Bank since August 2018. Prior thereto, he was Chief Operating Officer of the
Company. President of the Company since February 2013 and President of Commerce
Bank since March 2013. Member of Board of Directors since September 2015. He is the
son of David W. Kemper (Executive Chairman of the Company) and nephew of Jonathan
M. Kemper (a former Vice Chairman of the Company).
Chief Financial Officer of the Company since July 2009. Executive Vice President of the
Company since April 1995 and Executive Vice President of Commerce Bank since January
2004. Prior thereto, he was Senior Vice President of Commerce Bank.
Senior Vice President of the Company since January 2019 and Chairman and Chief
Executive Officer of Commerce Bank Southwest Region since 2013.
Executive Vice President of the Company since October 2020 and Chief Credit Officer of
the Company since January 2021. Executive Vice President of Commerce Bank since
January 2014 and Senior Vice President of Commerce Bank prior thereto.
Executive Vice President of the Company since January 2022 and Senior Vice President of
the Company prior thereto. Executive Vice President of Commerce Bank since March
2012.
David L. Roller, 51
Senior Vice President of the Company since July 2016 and Senior Vice President of
Commerce Bank since September 2010.
Paul A. Steiner, 50
Controller of the Company since April 2019. He is also Controller of the Company's
subsidiary bank, Commerce Bank. Assistant Controller and Director of Tax of the
Company prior thereto.
16
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Commerce Bancshares, Inc.
Common Stock Data
Commerce Bancshares, Inc. common shares are listed on the Nasdaq Global Select Market (NASDAQ) under the symbol
CBSH. The Company had 3,467 common shareholders of record as of December 31, 2021. Certain of the Company's shares
are held in "nominee" or "street" name and the number of beneficial owners of such shares is approximately 128,250.
Performance Graph
The following graph presents a comparison of Company (CBSH) performance to the indices named below. It assumes $100
invested on December 31, 2016 with dividends reinvested on a cumulative total shareholder return basis.
Commerce (CBSH)
$ 100.00 $ 103.03 $ 110.82 $ 142.63 $ 147.60 $ 164.62
NASDAQ OMX Global-Bank
100.00
118.39
98.98
135.78
118.40
162.58
S&P 500
100.00
121.82
116.47
153.14
181.21
201.40
2016
2017
2018
2019
2020
2021
The Company has a long history of paying dividends. 2021 marked the 53rd consecutive year of growth in our regular
common dividend, and the Company has also issued an annual 5% common stock dividend for the past 28 years. However,
payment of future dividends is within the discretion of the Board of Directors and will depend, among other factors, on
earnings, capital requirements, and the operating and financial condition of the Company. The Board of Directors makes the
dividend determination quarterly.
17
Five Year Cumulative Total ReturnCommerce (CBSH)NASDAQ OMX Global-BankS&P 500201620172018201920202021$50.00$100.00$150.00$200.00$250.00
The following table sets forth information about the Company’s purchases of its $5 par value common stock, its only class
of common stock registered pursuant to Section 12 of the Exchange Act, during the fourth quarter of 2021.
Period
October 1 - 31 2021
November 1 - 30 2021
December 1 - 31 2021
Total
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Program
Maximum
Number that May
Yet Be Purchased
Under the
Program
120,323
308,770
267,274
696,367
$71.22
$73.09
$67.99
$70.81
120,323
2,313,366
308,770
2,004,596
267,274
1,737,322
696,367
1,737,322
The Company’s stock purchases shown above were made under authorizations by the Board of Directors. Under the most
recent authorization in November 2019 of 5,000,000 shares, 1,737,322 shares remained available for purchase at December 31,
2021.
Item 6. RESERVED
18
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This report may contain “forward-looking statements” that are subject to risks and uncertainties and include information
about possible or assumed future results of operations. Many possible events or factors could affect the future financial results
and performance of Commerce Bancshares, Inc. and its subsidiaries (the "Company"). This could cause results or performance
to differ materially from those expressed in the forward-looking statements. Words such as “expects”, “anticipates”, “believes”,
“estimates”, variations of such words and other similar expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are
difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or
implied by, such forward-looking statements. Readers should not rely solely on the forward-looking statements and should
consider all uncertainties and risks discussed throughout this report. Forward-looking statements speak only as of the date they
are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur
after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. Such possible events
or factors include the risk factors identified in Item 1a Risk Factors and the following: changes in economic conditions in the
Company’s market area; changes in policies by regulatory agencies, governmental legislation and regulation; fluctuations in
interest rates; changes in liquidity requirements; demand for loans in the Company’s market area; changes in accounting and tax
principles; estimates made on income taxes; failure of litigation settlement agreements to become final in accordance with their
terms; and competition with other entities that offer financial services.
Overview
The Company operates as a super-community bank and offers a broad range of financial products to consumer and
commercial customers, delivered with a focus on high-quality, personalized service. The Company is headquartered in
Missouri, with its principal offices in Kansas City and St. Louis, Missouri. Customers are served from 287 locations in
Missouri, Kansas, Illinois, Oklahoma and Colorado and commercial offices throughout the nation's midsection. A variety of
delivery platforms are utilized, including an extensive network of branches and ATM machines, full-featured online banking, a
mobile application, and a centralized contact center.
The core of the Company’s competitive advantage is its focus on the local markets in which it operates, its offering of
competitive, sophisticated financial products, and its concentration on relationship banking and high-touch service. In order to
enhance shareholder value, the Company targets core revenue growth. To achieve this growth, the Company focuses on
strategies that will expand new and existing customer relationships, offer opportunities for controlled expansion in additional
markets, utilize improved technology, and enhance customer satisfaction.
Various indicators are used by management in evaluating the Company’s financial condition and operating performance.
Among these indicators are the following:
•
•
•
•
•
Net income and earnings per share — Net income attributable to Commerce Bancshares, Inc. was $530.8 million, an
increase of 49.9% compared to the previous year. The return on average assets was 1.55% in 2021, and the return on
average common equity was 15.37%. Diluted earnings per share increased 55.6% in 2021 compared to 2020.
Total revenue — Total revenue is comprised of net interest income and non-interest income. Total revenue in 2021
increased $60.1 million, or 4.5%, from 2020, as net interest income grew $5.6 million, and non-interest income grew
$54.5 million. Growth in net interest income resulted principally from a decrease in interest expense, while the
increase in non-interest income in 2021 was mainly due to growth in trust fees and bank card fees.
Non-interest expense — Total non-interest expense increased 4.9% this year compared to 2020, mainly due to higher
salaries and employee benefits expense, data processing and software expense and other non-interest expense.
Asset quality — Net loan charge-offs totaled $18.6 million in 2021, a decrease of $16.3 million from those recorded in
2020, and averaged .12% of loans compared to .22% in the previous year. Total non-performing assets, which include
non-accrual loans and foreclosed real estate, amounted to $9.3 million at December 31, 2021, compared to $26.6
million at December 31, 2020, and represented .06% of loans outstanding at December 31, 2021.
Shareholder return — During 2021, the Company paid cash dividends of $1.00 per share on its common stock,
representing an increase of 2.0% over the previous year. In 2021, the Company issued its 28th consecutive annual 5%
common stock dividend, and in February 2022, the Company's Board of Directors authorized an increase of 6.0% in
the common cash dividend. The Company purchased 1,807,257 shares in 2021. Total shareholder return, including
19
the change in stock price and dividend reinvestment, was 10.5%, 13.9%, and 9.9% over the past 5, 10, and 15 years,
respectively.
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related
notes. The historical trends reflected in the financial information presented below are not necessarily reflective of anticipated
future results.
Key Ratios
(Based on average balances)
Return on total assets
Return on common equity
Equity to total assets
Loans to deposits (1)
Non-interest bearing deposits to total deposits
Net yield on interest earning assets (tax equivalent basis)
(Based on end of period data)
Non-interest income to revenue (2)
Efficiency ratio (3)
Tier I common risk-based capital ratio
Tier I risk-based capital ratio
Total risk-based capital ratio
Tier I leverage ratio
Tangible common equity to tangible assets ratio (4)
Common cash dividend payout ratio
2021
2020
2019
2018
2017
1.55%
15.37
10.11
56.46
40.46
2.58
40.15
57.64
14.34
14.34
15.12
9.13
9.01
23.12
1.20%
10.64
11.18
67.73
37.83
2.99
37.87
57.19
13.71
13.71
14.82
9.45
9.92
35.32
1.67%
14.06
12.20
71.54
32.03
3.48
38.98
56.87
13.93
14.66
15.48
11.38
10.99
27.52
1.76%
16.16
11.24
69.27
33.43
3.53
37.83
55.58
14.22
14.98
15.82
11.52
10.45
23.61
1.28%
12.46
10.53
66.18
34.85
3.20
39.88
62.18
12.65
13.41
14.35
10.39
9.84
29.52
(1) Includes loans held for sale.
(2) Revenue includes net interest income and non-interest income.
(3) The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.
(4) The tangible common equity to tangible assets ratio is a measurement which management believes is a useful indicator of capital adequacy and utilization.
It provides a meaningful basis for period to period and company to company comparisons, and also assist regulators, investors and analysts in analyzing the
financial position of the Company. Tangible common equity and tangible assets are non-GAAP measures and should not be viewed as substitutes for, or
superior to, data prepared in accordance with GAAP.
The following table is a reconciliation of the GAAP financial measures of total equity and total assets to the non-GAAP
measures of total tangible common equity and total tangible assets.
(Dollars in thousands)
Total equity
Less non-controlling interest
Less preferred stock
Less goodwill
Less intangible assets*
2021
2020
2019
2018
2017
$ 3,448,324
$ 3,399,972
$ 3,138,472
$ 2,937,149
$ 2,718,184
11,026
—
138,921
4,604
2,925
—
138,921
4,958
3,788
144,784
138,921
1,785
5,851
144,784
138,921
2,316
1,624
144,784
138,921
2,965
Total tangible common equity (a)
$ 3,293,773
$ 3,253,168
$ 2,849,194
$ 2,645,277
$ 2,429,890
Total assets
Less goodwill
Less intangible assets*
Total tangible assets (b)
$ 36,689,088
$ 32,922,974
$ 26,065,789
$ 25,463,842
$ 24,833,415
138,921
4,604
138,921
4,958
138,921
1,785
138,921
2,316
138,921
2,965
$ 36,545,563
$ 32,779,095
$ 25,925,083
$ 25,322,605
$ 24,691,529
Tangible common equity to tangible assets ratio (a)/(b)
9.01%
9.92%
10.99%
10.45%
9.84%
* Intangible assets other than mortgage servicing rights.
20
Results of Operations
(Dollars in thousands)
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income taxes
Income (expense) attributable to non-
controlling interest
Net income attributable to Commerce
Bancshares, Inc.
Preferred stock dividends
Net income available to common
shareholders
N.M. - Not meaningful.
$ Change
% Change
2021
2020
2019
21-'20
20-'19
$ 835,424 $ 829,847 $ 821,293 $
(50,438)
(137,190)
524,703
505,867
3,626
11,032
(767,398)
(768,378)
(109,074)
(87,293)
66,326
560,393
30,059
(805,901)
(145,711)
5,577 $
(203,516)
54,526
19,027
37,523
58,418
8,554
86,752
(18,836)
7,406
980
(21,781)
21-'20
.7%
(148.3)
10.8
N.M.
4.9
66.9
20-'19
1.0%
172.0
(3.6)
N.M.
.1
(20.0)
(9,825)
172
(1,481)
9,997
(1,653)
N.M.
N.M.
530,765
—
354,057
(11,966)
421,231
(9,000)
176,708
(11,966)
(67,174)
(2,966)
49.9
(100.0)
(15.9)
33.0
$ 530,765 $ 342,091 $ 412,231 $ 188,674 $
(70,140)
55.2%
(17.0) %
Net income attributable to Commerce Bancshares, Inc. (net income) for 2021 was $530.8 million, an increase of
$176.7 million, or 49.9%, compared to $354.1 million in 2020. Diluted income per common share was $4.31 in 2021,
compared to $2.77 in 2020. The increase in net income resulted from a decrease of $203.5 million in the provision for credit
losses, as well as an increase of $54.5 million in non-interest income. These increases in net income were partly offset by
increases in non-interest expense and income tax expense of $37.5 million and $58.4 million, respectively. The return on
average assets was 1.55% in 2021 compared to 1.20% in 2020, and the return on average common equity was 15.37% in 2021
compared to 10.64% in 2020. At December 31, 2021, the ratio of tangible common equity to assets decreased to 9.01%,
compared to 9.92% at year end 2020.
During 2021, net interest income grew mainly due to a decrease of $29.9 million in interest expense on deposits and
borrowings, due to lower average rates paid, coupled with an increase of $19.5 million in interest income earned on investment
securities, mainly due to higher average balances. These increases in net interest income were partly offset by a decline of
$41.5 million in interest earned on loans, mainly due to lower rates earned. Total rates earned on average interest earning assets
fell 53 basis points this year, while funding costs for deposits and borrowings decreased 19 basis points. The provision for
credit losses decreased due to an improved credit outlook and the release of loan loss reserves provided for anticipated credit
losses in the prior year, which did not occur. Net loan charge-offs decreased $16.3 million in 2021 compared to 2020, mainly
due to lower credit card loan net charge-offs and net recoveries on business loans.
Non-interest income grew 10.8% in 2021, mainly due to growth in trust and net bank card fee income. Net gains on
investment securities in 2021 were comprised mainly of net fair value gains on the Company's private equity investment
portfolio, partly offset by net losses on bond sales. Non-interest expense increased $37.5 million in 2021 compared to 2020,
largely due to higher salaries and benefits expense and data processing and software expense, as well as lower deferred loan
origination costs and non-recurring litigation settlement costs recorded in the third quarter of 2021.
Net income for 2020 was $354.1 million, a decrease of $67.2 million, or 15.9%, compared to $421.2 million in 2019.
Diluted income per common share was $2.77 in 2020, compared to $3.25 in 2019. The decline in net income resulted from an
increase of $86.8 million in the provision for credit losses, as well as a decrease of $18.8 million in non-interest income. These
decreases to net income were partly offset by increases of $8.6 million in net interest income and $7.4 million in investment
securities gains, coupled with decreases of $21.8 million in income taxes and $1.7 million in non-controlling interest expense.
The return on average assets was 1.20% in 2020 compared to 1.67 in 2019, and the return on average common equity was
10.64% in 2020 compared to 14.06% in 2019. At December 31, 2020, the ratio of tangible common equity to assets decreased
to 9.92%, compared to 10.99% at year end 2019.
As compared to 2019, the growth in net interest income in 2020 resulted mainly from an increase of $24.7 million in interest
income on securities purchased under agreements to resell, mainly due to higher rates earned, coupled with a decrease of $60.6
million in interest expense on deposits and borrowings, due to lower rates paid. These increases in net interest income were
partly offset by declines in interest earned on loans and investment securities, resulting mainly from lower yields. Total rates
earned on average earning assets fell 76 basis points in 2020, while funding costs for deposits and borrowings decreased 41
basis points. The provision for credit losses totaled $137.2 million, reflecting an increase in the provision for credit losses on
the Company's loan portfolio and liability for unfunded loan commitments, resulting from deteriorating economic conditions
21
driven by the COVID-19 pandemic. Net loan charge-offs decreased $14.8 million in 2020 compared to 2019, mainly due to
lower credit card loan net charge-offs.
Non-interest income fell 3.6% in 2020, mainly due to a one-time gain of $11.5 million resulting from the sale of the
Company's corporate trust business in the fourth quarter of 2019, coupled with a decline in net bank card fees. Net investment
securities gains of $11.0 million were recorded in 2020 and were comprised mainly of net gains realized on sales of mortgage-
backed securities. Non-interest expense grew $980 thousand in 2020 compared to 2019, largely due to higher salaries and
benefits expense, mostly offset by higher deferred loan originations costs and lower supplies and communication expense and
travel and entertainments expense.
The Company distributed a 5% stock dividend for the 28th consecutive year on December 17, 2021. All per share and
average share data in this report has been restated for the 2021 stock dividend.
Critical Accounting Estimates and Related Policies
The Company's consolidated financial statements are prepared based on the application of certain accounting policies, the
most significant of which are described in Note 1 to the consolidated financial statements. Certain of these policies require
numerous estimates and strategic or economic assumptions that may prove inaccurate or be subject to variations which may
significantly affect the Company's reported results and financial position for the current period or future periods. The use of
estimates, assumptions, and judgments are necessary when financial assets and liabilities are required to be recorded at, or
adjusted to reflect, fair value. Current economic conditions may require the use of additional estimates, and some estimates
may be subject to a greater degree of uncertainty due to the current instability of the economy. The Company has identified
several policies as being critical because they require management to make particularly difficult, subjective and/or complex
judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be
reported under different conditions or using different assumptions. These estimates and related policies are the Company's
allowance for credit losses and fair value measurement policies.
Allowance for Credit Losses
The Company's Allowance for Credit Losses policies govern the processes and procedures used to estimate the collectability
of its loan portfolio and unfunded lending commitments, and the potential for credit losses in its available for sale investment
portfolio.
Allowance for Credit Losses – Loans and Unfunded Lending Commitments
The Company performs periodic and systematic detailed reviews of its loan portfolio and unfunded lending
commitments to assess overall collectability. The level of the allowance for credit losses on loans and unfunded lending
commitments reflects the Company's estimate of the losses expected in the loan portfolio and unfunded lending
commitments over the assets’ contractual term.
The allowance for credit loss is an estimate that is subject to uncertainty due to the various assumptions and judgements
used in the estimation process.
The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on
similar risk characteristics including borrower type, collateral type and expected credit loss patterns. Loans that do not share
similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis.
The allowance for credit losses is measured using an average historical loss model which incorporates relevant
information about past events (including historical credit loss experience on loans with similar risk characteristics), current
conditions, and an economic forecast that may affect the collectability of the remaining cash flows over the contractual term
of the loans. The calculated loss rate is increased or decreased to reflect expectations of future losses given a single path
economic forecast. These adjustments to the loss rate are based on results from various regression models projecting the
impact of the macroeconomic variables. The forecast is used for a reasonable and supportable period before reverting to
historical averages using a straight-line method.
Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or
macroeconomic forecast such as changes in portfolio composition, underwriting practices, or significant unique events or
conditions.
22
Adjustments to the allowance for credit losses are made by increases to or reductions in the provision for credit losses,
which are reflected in the consolidated statements of income.
Assumptions, Judgments, and Uncertainties: The uncertainty in the estimation of the allowance for credit losses is
created because key assumptions and judgements are applied throughout the process. Key assumptions include
segmentation of the portfolio into pools, calculations of life of a loan using a combination of contractual terms and expected
prepayment speeds and forecast of macroeconomic conditions. The Company utilizes a third-party macro-economic forecast
that continuously changes due to economic conditions and events. The single path economic forecast includes key
macroeconomic variables including GDP, disposable income, unemployment rate, various interest rates, consumer price
index (CPI) inflation rate, housing price index (HPI), commercial real estate price index (CREPI) and market volatility.
Each reporting period, the base macroeconomic forecast scenario is evaluated to ensure it is not inconsistent with
management’s expectations. Changes in the forecast cause fluctuations in the estimates of the allowance for credit losses on
loans and the liability for unfunded lending commitments. Potential changes in any one economic variable may or may not
affect the overall allowance because a variety of economic variables and inputs are considered in estimating the allowance,
and changes in those variables and inputs may not occur at the same rate, may not be consistent across product types and
may have offsetting impacts to other changing variables and inputs.
Data points such as loan mix, level of loan balances outstanding, portfolio performance, line utilization trends and risk
ratings change throughout the life of a portfolio which could cause changes to the expected credit losses.
Qualitative factors not included in historical information or macroeconomic forecast require significant judgement to
identify and determine how to apply to the estimate for credit losses. The qualitative factors continuously evolve in reaction
to other changing assumptions, data inputs and industry trends.
The Company uses its best judgment to assess the macroeconomic forecast, key assumptions and internal and external
data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments. These
estimates are subject to continuous refinement based on changes in the underlying external and internal data.
Impact if actual results differ from assumptions: The allowance for credit losses represents management’s best estimate
of expected current credit losses in the loan portfolio and within the Company’s unfunded lending commitments, but
changes in the inputs and assumptions described above could significantly impact the calculated estimated credit losses.
Therefore, actual credit losses may differ significantly from estimated results. Significant deterioration in circumstances
relating to loan quality and economic conditions could result in a requirement for additional allowance. Likewise, an upturn
in loan quality and improved economic conditions may allow a reduction in the required allowance. In either instance,
changes could have a significant impact on our financial condition and results of operations.
Allowance for Credit Losses - Available for Sale Debt Securities
The level of the allowance for credit losses on available for sale securities reflects the Company’s estimate of the losses
expected in the available for sale debt security portfolio. In order to estimate the allowance for credit losses on available for
sale debt securities, the Company performs quarterly reviews of its investment portfolio to identify securities in an
unrealized loss position. If the unrealized loss is not expected to be recovered, the Company performs further analyses to
determine whether any portion of the unrealized loss indicates that a credit loss exists.
Changes to the allowance for credit losses are made by changes to or reductions in the provision for credit losses, which
are reflected in the consolidated statements of income.
Assumptions, Judgments, and Uncertainties: The Company’s model for establishing its allowance for credit losses uses
cash flows projected to be received over the estimated life of the securities, discounted to present value, and compared to the
current amortized cost bases of the securities. Securities for which fair value is less than amortized cost are reviewed for
impairment. Special emphasis is placed on securities whose credit rating has fallen below Baa3 (Moody's) or BBB-
(Standard & Poor's), whose fair values have fallen more than 20% below purchase price, or who have been identified based
on management’s judgment. These securities are placed on a watch list and cash flow analyses are prepared on an
individual security basis. Credit impairment is determined using input factors such as contractual payments required,
expected delinquency rates, credit support from other tranches, prepayment speeds, collateral loss severity rates, and various
other information related to the underlying collateral.
Impact if actual results differ from assumptions: The allowance for credit losses represents management’s best estimate
of expected credit losses in the available for sale debt portfolio, but significant deterioration in interest rates and economic
23
conditions could result in a requirement for additional allowance. Likewise, an increase in interest rates and improved
economic conditions may allow a reduction in the required allowance. In either instance, anticipated changes could have a
significant impact on our financial condition and results of operations.
Fair Value Measurement
Investment securities, including available-for-sale debt, trading, equity and other securities, residential mortgage loans held
for sale, derivatives and deferred compensation plan assets and associated liabilities are recorded at fair value on a recurring
basis. Additionally, from time to time, other assets and liabilities may be recorded at fair value on a nonrecurring basis, such as
loan values that have been reduced based on the fair value of the underlying collateral, other real estate (primarily foreclosed
property), non-marketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments
typically involve write-downs of individual assets or application of lower of cost or fair value accounting.
Assumptions, Judgments, and Uncertainties: Fair value is an estimate of the exchange price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale)
between market participants at the measurement date and is based on the assumptions market participants would use when
pricing an asset or liability. Fair value measurement and disclosure guidance establishes a three-level hierarchy for disclosure of
assets and liabilities recorded at fair value.
Fair value is measured based on a variety of inputs. Fair value may be based on quoted market prices for identical assets or
liabilities traded in active markets (Level 1 valuations). If market prices are not available, quoted market prices for similar
instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-
based valuation techniques for which all significant assumptions are observable in the market are used (Level 2 valuations).
Where observable market data is not available, the valuation is generated from model-based techniques that use significant
assumptions not observable in the market (Level 3 valuations). Unobservable assumptions reflect the Company’s estimates for
assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include
discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that
are not directly comparable to the subject asset or liability.
The selection and weighting of the various fair value techniques may result in a fair value higher or lower than carrying
value. Considerable judgment may be involved in determining the amount that is most representative of fair value.
For assets and liabilities recorded at fair value, the Company looks to active and observable market data when developing
fair value measurements for those items where there is an active market. Certain assets and liabilities are not actively traded in
observable markets, and the Company must use alternative valuation techniques to derive an estimated fair value measurement.
In doing so, the Company may be required to make judgments about assumptions market participants would use in estimating
the fair value of the financial instrument. The assumptions used to determine fair value adjustments are regularly evaluated by
management for relevance under current facts and circumstances.
Changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced
liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming
unavailable. When market data is not available, the Company uses valuation techniques requiring more management judgment
to estimate the appropriate fair value.
Impairment analysis also relates to long-lived assets and core deposit and other intangible assets. An impairment loss is
recognized if the carrying amount of the asset is not likely to be recoverable and exceeds its fair value. In determining the fair
value, management uses models and applies the techniques and assumptions previously discussed.
At December 31, 2021, assets and liabilities measured using observable inputs that are classified as either Level 1 or Level 2
represented 98.9% and 99.2% of total assets and liabilities recorded at fair value, respectively. Valuations generated from
model-based techniques that use at least one significant assumption not observable in the market are considered Level 3, and
the Company's Level 3 assets totaled $150.2 million, or 1.0% of total assets recorded at fair value on a recurring basis. The fair
value hierarchy, the extent to which fair value is used to measure assets and liabilities, and the valuation methodologies and key
inputs used are discussed in Note 17 on Fair Value Measurements.
Impact if actual results differ from assumptions: Changes in fair value are recorded either in earnings or accumulated other
comprehensive income. Adjustments in the inputs and assumptions described above could significantly impact the fair values
of the Company’s assets and liabilities and have a significant impact on our financial condition and results of operations.
24
Net Interest Income
Net interest income, the largest source of revenue, results from the Company’s lending, investing, borrowing, and deposit
gathering activities. It is affected by both changes in the level of interest rates and changes in the amounts and mix of interest
earning assets and interest bearing liabilities. The following table summarizes the changes in net interest income on a fully
taxable equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related
to volumes and rates. Changes not solely due to volume or rate changes are allocated to rate.
(In thousands)
Interest income, fully taxable equivalent basis
Loans:
Business
Real estate - construction and land
Real estate - business
Real estate - personal
Consumer
Revolving home equity
Consumer credit card
Total interest on loans
Loans held for sale
Investment securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Mortgage-backed securities
Asset-backed securities
Other securities
Total interest on investment securities
Federal funds sold
Securities purchased under agreements to resell
Interest earning deposits with banks
Total interest income
Interest expense
Interest bearing deposits:
Savings
Interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Federal funds purchased
Securities purchased under agreements to resell
Other borrowings
Total interest expense
Net interest income, fully taxable equivalent basis
$
2021
Change due to
Average
Volume
Average
Rate
Total
2020
Change due to
Average
Volume
Average
Rate
Total
$
(16,872) $
7,585
1,744
6,459
1,859
(1,806)
(10,758)
(11,789)
96
7,591 $
(5,502)
(7,495)
(9,027)
(11,594)
(776)
(3,672)
(30,475)
(76)
(9,281) $
2,083
(5,751)
(2,568)
(9,735)
(2,582)
(14,430)
(42,264)
20
48,234 $
2,605
4,463
17,311
1,736
(1,199)
(11,772)
61,378
(144)
(54,293) $
(13,688)
(22,018)
(8,080)
(8,054)
(4,600)
(3,278)
(114,011)
(205)
336
(1,726)
12,259
24,048
27,557
7,760
70,234
4
20,355
2,610
81,510
15,183
(440)
(6,798)
(38,707)
(24,611)
4,128
(51,245)
(3)
(23,625)
(1,681)
(107,105)
15,519
(2,166)
5,461
(14,659)
2,946
11,888
18,989
1
(3,270)
929
(25,595)
(1,727)
(2,055)
10,728
30,634
2,591
2,855
43,026
(48)
2,342
16,944
123,498
(1,872)
844
(6,830)
(44,606)
(10,310)
(749)
(63,523)
(4)
22,407
(21,369)
(176,705)
294
2,697
(957)
(1,410)
(646)
1,366
(1,029)
315
81,195 $
(218)
(13,115)
(2,782)
(8,961)
(131)
(5,034)
5
(30,236)
(76,869) $
76
(10,418)
(3,739)
(10,371)
(777)
(3,668)
(1,024)
(29,921)
(193)
225
(25,253)
3,360
(1,157)
(314)
(13,380)
(617)
(1,926)
(2,612)
(22,845)
4,059
(1,729)
1,806
(66,483)
5,907
4,326 $ 117,591 $ (110,222) $
(6,059)
(11,083)
(17,555)
9,231
(6,318)
(5,799)
(15,050)
(52,633)
(349)
(3,599)
(1,211)
3,898
(13,972)
(7,719)
2,106
(20,497)
(52)
24,749
(4,425)
(53,207)
32
(21,893)
(1,471)
(13,997)
(4,538)
(18,786)
77
(60,576)
7,369
Net interest income totaled $835.4 million in 2021, increasing $5.6 million, or .7%, compared to $829.8 million in 2020.
On a tax equivalent (T/E) basis, net interest income totaled $847.1 million, and increased $4.3 million over 2020. This increase
was mainly due to a decline of $29.9 million in interest expense on deposits and borrowings, due to lower average rates paid,
coupled with an increase of $19.0 million in interest earned on investment securities, mainly due to higher average balances.
These increases to net interest income (T/E) were partly offset by lower interest earned on loans, which declined $42.3 million,
mainly due to lower rates earned. The net yield on earning assets (T/E) was 2.58% in 2021 compared with 2.99% in 2020.
25
During 2021, loan interest income (T/E) fell $42.3 million from 2020 mainly due to a decline in rates earned for most loan
categories and lower average business and consumer credit card loan balances. The average tax equivalent rate earned on the
loan portfolio decreased 21 basis points to 3.67% in 2021 compared to 3.88% in 2020. Average loan balances decreased $232.5
million, or 1.5%, this year. The decrease in consumer credit card loan interest income was the main driver of overall lower
interest income. Consumer credit card loan interest declined $14.4 million due to lower average balances of $91.4 million and a
decrease of 64 basis points in the average rate earned. Business loan interest income declined $9.3 million mainly due to a
decrease of $548.7 million in average balances, partly offset by a 13 basis point increase in the average rate earned. Average
balances of business loans included average balances of $854.1 million in Paycheck Protection Program (PPP) loans at
December 31, 2021, which was a decline of $204.9 million from balances of $1.1 billion at December 31, 2020. The average
rate earned on PPP loans increased 193 basis points to 4.81% in 2021 compared to 2.88% in 2020, partly offsetting the decline
in average balances. During 2021, the Company recognized $41.0 million in interest income on PPP loans. As of December
31, 2021, 93% of the PPP loans originated by the Company had been forgiven, and the Company expects almost all of the
remaining loans to be forgiven in 2022. Business real estate loan interest was lower by $5.8 million in 2021 compared to 2020
as a result of a decrease of 25 basis points in the average rate, partly offset by higher average balances of $46.9 million. Interest
on personal real estate loans decreased $2.6 million as the average rate earned declined 32 basis points, while average balances
increased $178.4 million. Interest on consumer loans declined $9.7 million from the prior year as the average rate earned
decreased 58 basis points, but was partly offset by growth in average balances of $42.4 million. These decreases to loan
interest income (T/E) were partly offset by an increase of $2.1 million in interest earned on construction and land loans. This
increase resulted from higher average balances of $187.7 million, partly offset by a 48 basis point decrease in the average rate
earned.
Tax equivalent interest income on total investment securities increased $19.0 million during 2021, as average balances grew
$3.2 billion, while the average rate earned decreased 38 basis points. The average rate on the total investment securities
portfolio was 1.81% in 2021 compared to 2.19% in 2020, while the average balance of the total investment securities portfolio
(excluding unrealized fair value adjustments on available for sale debt securities) was $13.5 billion in 2021 compared to an
average balance of $10.3 billion in 2020. The increase in interest income was mainly due to higher interest income earned on
U.S. government securities, state and municipal obligations, asset-backed securities and other securities. Interest earned on
U.S. government securities grew $15.5 million and was mainly impacted by growth of the same amount in inflation income on
treasury inflation-protected securities (TIPS). Average balances of U.S. government securities increased $15.1 million and the
average rated earned grew 191 basis points. The increase in interest earned on state and municipal obligations resulted mainly
from growth of $453.2 million in average balances, partly offset by a 33 basis point decrease in the average rate earned.
Interest on asset-backed securities increased $2.9 million mainly due to growth of $1.4 billion in the average balance, partly
offset by an 87 basis point decrease in the average rate earned. Other securities interest increased $11.9 million mainly due to
higher interest earned on equity securities, largely as a result of one-time dividend payments of $5.5 million received on private
equity portfolio investments in 2021. Partly offsetting these increases in interest income was a decline of $14.7 million in
interest income on mortgage-backed securities, due to a decrease of 56 basis points in the average rate earned, partly offset by
higher average balances of $1.3 billion.
Interest on securities purchased under resell agreements decreased $3.3 million compared to 2020 due to a decrease of 185
basis points in the average rate, partly offset by growth in balances of $425.8 million. Interest earned on deposits with banks
increased $929 thousand over 2020, mainly due to growth in average balances of $1.3 billion, partly offset by a seven basis
point decrease in the average rate earned.
During 2021, interest expense on deposits decreased $24.5 million from 2020 and resulted mainly from a 17 basis point
decrease in the overall average rate paid on deposits. Interest expense on interest checking and money market accounts
decreased $10.4 million mainly due to lower rates paid, which fell 10 basis points, but was partly offset by higher average
balances of $1.8 billion. Interest expense on certificates of deposit over $100,000 declined $10.4 million, mainly due to a 74
basis point decline in the average rate paid. The overall rate paid on total deposits decreased from .24% in 2020 to .07% in the
current year. Interest expense on borrowings decreased $5.5 million mainly due to lower rates paid on securities sold under
repurchase agreements, partly offset by higher average balances. The overall average rate incurred on all interest bearing
liabilities was .07% in 2021, compared to .26% in 2020.
During 2020, net interest income totaled $829.8 million, increasing $8.6 million, or 1.0%, compared to $821.3 million in
2019. On a tax equivalent (T/E) basis, net interest income totaled $842.8 million, and increased $7.4 million over 2019. This
increase was mainly due to a decline of $60.6 million in interest expense on deposits and borrowings, due to lower average
rates paid, as well as an increase of $24.7 million in interest earned on securities purchased under agreements to resell. These
increases to net interest income (T/E) were largely offset by lower interest earned on loans and investment securities, which
declined $52.6 million and $20.5 million, respectively, mainly due to lower rates earned. The net yield on earning assets (T/E)
was 2.99% in 2020 compared with 3.48% in 2019.
26
During 2020, loan interest income (T/E) fell $52.6 million from 2019 mainly due to lower rates earned, partly offset by
higher average balances for business, personal real estate, business real estate, consumer and construction and land loan
categories. The average tax equivalent rate earned on the loan portfolio decreased 83 basis points to 3.88% in 2020 compared
to 4.71% in 2019. The Federal Reserve lowered short-term interest rates during the first quarter of 2020, which impacted the
Company's interest income on loans, as many of its loans contain variable interest rate terms. Partly offsetting lower interest
rates were increases in average loan balances of $1.7 billion, or 11.8%, this year. The largest decrease in loan interest income
(T/E) occurred in business real estate loans, which was lower by $17.6 million as a result of a decline in the average rate earned
of 74 basis points, partly offset by growth of $100.1 million in average balances. Business loan interest income declined $6.1
million mainly due to an 81 basis point decrease in the average rate earned, partly offset by an increase of $1.2 billion in
average balances. Average balances of business loans included average balances of $1.1 billion in PPP loans at December 31,
2020. Interest income on consumer credit card loans declined $15.1 million as a result of a decreases in the average balance of
$96.0 million and the average rate of 49 basis points. Construction and land loan interest income decreased $11.1 million,
mainly due to a 143 basis point decrease in the average rate earned, partly offset by growth in average balances of $47.6
million. Interest on consumer loans declined $6.3 million from the prior year as the average rate earned decreased 41 basis
points, but was partly offset by growth in average balances of $36.3 million. These decreases to loan interest income (T/E)
were partly offset by an increase of $9.2 million in interest earned on personal real estate loans. This increase resulted from
higher average balances of $440.5 million, partly offset by a 31 basis point decrease in the average rate earned.
Tax equivalent interest income on total investment securities decreased $20.5 million during 2020, as the average rate
earned decreased 62 basis points, while average balances grew $1.5 billion. The average rate on the total investment securities
portfolio was 2.19% in 2020 compared to 2.81% in 2019, while the average balance of the total investment securities portfolio
(excluding unrealized fair value adjustments on available for sale debt securities) was $10.3 billion in 2020 compared to an
average balance of $8.7 billion in 2019. The decrease in interest income was mainly due to lower interest income earned on
mortgage-backed securities, asset-backed securities, U.S. government securities and government-sponsored enterprise (GSE)
obligations. Interest income on mortgage-backed securities decreased $14.0 million, due to a decrease of 77 basis points in the
average rate earned, partly offset by higher average balances of $1.1 billion. Interest on asset-backed securities decreased $7.7
million mainly due to a 70 basis point decrease in the average rate earned, partly offset by a $94.9 million increase in the
average balance. Interest earned on U.S. government securities fell $3.6 million and was mainly impacted by a decline of $3.0
million in inflation income on TIPS. Average balances of U.S. government securities declined $70.2 million and the average
rated earned decreased 24 basis points. Interest income on GSE's decreased $1.2 million, due to a decline in average balances
of $86.3 million, partly offset by an increase of 80 basis points in the average rate earned. Partly offsetting these decreases in
interest income was growth of $3.9 million and $1.8 million in interest earned on state and municipal obligations and other debt
securities, respectively. The growth in interest earned on state and municipal obligations resulted mainly from an increase of
$341.5 million in average balances, partly offset by a 44 basis point decrease in the average rate earned. Other debt securities
interest increased due to growth of $111.4 million in average balances, partly offset by a decline of 27 basis points in the
average rate earned.
Interest on securities purchased under resell agreements increased $24.7 million in 2020 due to an increase in the average
rate of 263 basis points, as these assets were structured with floor spreads to protect against falling interest rates. Of the $850.0
million in securities purchased under agreements to resell held by the Company throughout 2020, $450.0 million of those
agreements matured in 2021. Interest earned on deposits with banks fell $4.4 million from 2019, mainly due to a 192 basis
point decrease in the average rate earned, partly offset by an increase in average balances of $799.3 million.
During 2020, interest expense on deposits decreased $37.3 million from 2019 and resulted mainly from a 30 basis point
decrease in the overall average rate paid on deposits. Interest expense on interest checking and money market accounts
decreased $21.9 million due to lower rates paid, which fell 21 basis points, while interest expense on certificates of deposit over
$100,000 declined $14.0 million, mainly due to a 98 basis point decline in the average rate paid. The overall rate paid on total
deposits decreased from .54% in 2019 to .24% in 2020. Interest expense on borrowings decreased $23.4 million mainly due to
lower rates paid on federal funds purchased and customer repurchase agreements. The overall average rate incurred on all
interest bearing liabilities was .26% in 2020, compared to .67% in 2019.
27
Provision for Credit Losses
The provision for credit losses is comprised of provisions for credit losses on loans and for unfunded lending commitments
and is recorded to adjust the allowance for credit losses on loans and the liability for unfunded lending commitments to a level
deemed adequate by management based on the factors mentioned in the “Allowance for Credit Losses on Loans and Liability
for Unfunded Lending Commitments” section of this discussion. The provision for credit losses was a recovery of $66.3
million in 2021, which was a decrease of $203.5 million from the 2020 provision of $137.2 million.
The provision for credit losses on loans in 2021 was a recovery of $52.2 million, compared to a provision for credit losses
on loans of $116.1 million in 2020. The allowance for credit losses on loans totaled $150.0 million at December 31, 2021, a
decrease of $70.8 million compared to the prior year, and represented .99% of loans at year end 2021, compared to 1.35% at
December 31, 2020.
The provision for unfunded lending commitments was a recovery of $14.1 million during 2021, compared to a provision of
$21.1 million in 2020, and the liability for unfunded lending commitments was $24.2 million at December 31, 2021, compared
to $38.3 million at December 31, 2020.
Non-Interest Income
(Dollars in thousands)
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Capital market fees
Consumer brokerage services
Loan fees and sales
Other
Total non-interest income
Non-interest income as a % of total revenue*
Total revenue per full-time equivalent employee
$
$
$
2021
167,891
188,227
97,217
15,943
18,362
29,720
43,033
560,393
$
$
40.1%
305.6
$
* Total revenue is calculated as net interest income plus non-interest income.
2020
151,797 $
160,637
93,227
14,582
15,095
26,684
43,845
505,867 $
37.9%
280.3 $
2019
167,879
155,628
95,983
8,146
15,804
15,767
65,496
524,703
39.0%
277.1
% Change
21-'20
20-'19
10.6%
17.2
4.3
9.3
21.6
11.4
(1.9)
10.8%
(9.6%)
3.2
(2.9)
79.0
(4.5)
69.2
(33.1)
(3.6%)
Below is a summary of net bank card transaction fees for the years ended December 31, 2021, 2020 and 2019, respectively.
(Dollars in thousands)
Net debit card fees
Net credit card fees
Net merchant fees
Net corporate card fees
% Change
2021
2020
2019
21-'20
20-'19
$
41,010 $
37,644 $
15,144
20,036
91,701
13,393
18,386
82,374
40,025
14,177
19,289
94,388
8.9%
(5.9%)
13.1
9.0
11.3
(5.5)
(4.7)
(12.7)
Total bank card transaction fees
$
167,891 $
151,797 $
167,879
10.6%
(9.6%)
Non-interest income totaled $560.4 million, an increase of $54.5 million, or 10.8%, compared to $505.9 million in 2020.
Bank card fees increased $16.1 million, or 10.6%, over the prior year, due to increases in net corporate card fees of $9.3
million, net debit card fees of $3.4 million, net credit card fees of $1.8 million and net merchant fees of $1.7 million. The
growth in net corporate and credit card fees over the prior year was due to higher interchange income, partly offset by higher
rewards expense. Net debit card fees increased due to higher interchange income, partly offset by an increase in network
expense. Net merchant fees were up due to an increase in merchant discount fees, partly offset by higher rewards expense.
Trust fee income increased $27.6 million, or 17.2%, as a result of continued growth in private client trust fees (up 19.1%) and
higher institutional trust fees (up 11.0%). Private client trust fees comprised 78.4% of trust fee income in 2021. The market
value of total customer trust assets totaled $69.3 billion at year end 2021, which was an increase of 13.2% over year end 2020
balances. Deposit account fees increased $4.0 million, or 4.3%, mainly due to growth in corporate cash management fees and
overdraft and return item fees of $3.3 million and $1.2 million, respectively, partly offset by lower personal deposit account
service charge fees of $1.2 million. In 2021, corporate cash management fees comprised 51.5% of total deposit fees, while
overdraft fees comprised 24.8% of total deposit fees. Capital market fees grew $1.4 million, or 9.3%, compared to the prior
year, while revenue from consumer brokerage services increased $3.3 million, or 21.6%, due to growth in advisory and annuity
28
fees. Loan fees and sales increased $3.0 million, or 11.4%, mainly due to growth in mortgage banking revenue and loan
commitment fees. Mortgage banking revenue was stronger in the first half of 2021 than during the second half of the year. As
interest rates and competition for mortgage loans increased during 2021, loan fees and sales declined in the second half of 2021.
Other non-interest income decreased $812 thousand, or 1.9%, from the prior year mainly due to lower cash sweep commissions
of $7.9 million and a $2.2 million loss recorded on an equity method investment in 2021. These decreases were partly offset by
gains of $5.6 million recorded mainly on sales of branch properties during 2021 and increases in interest rate swap fees and
check sales and wire fees of $2.2 million and $1.0 million, respectively.
During 2020, non-interest income totaled $505.9 million, a decrease of $18.8 million, or 3.6%, compared to $524.7 million
in 2019. Bank card fees decreased $16.1 million, or 9.6%, from 2019, due to declines in net corporate card fees of $12.0
million, net debit card fees of $2.4 million, net merchant fees of $903 thousand and net credit card fees of $784 thousand. The
decline in net corporate card fees from 2019 was due to lower transaction volume, partly offset by lower network and rewards
expense. The decline in net credit and debit card fees was mainly due to lower interchange income. The decline in net credit
card fees was partly offset by lower rewards expense. Net merchant fees fell due to lower merchant discount fees, partly offset
by higher interchange income and lower network expense. Trust fee income increased $5.0 million, or 3.2%, as a result of
growth in private client trust fees (up 4.3%), which comprised 77.2% of trust fee income in 2020. The market value of total
customer trust assets totaled $61.2 billion at year end 2020, which was an increase of 7.9% over year end 2019 balances.
Deposit account fees decreased $2.8 million, or 2.9%, mainly due to a decline of $7.6 million in overdraft and return item fees,
partly offset by growth of $5.3 million in corporate cash management fees. In 2020, corporate cash management fees
comprised 50.2% of total deposit fees, while overdraft fees comprised 24.6% of total deposit fees. Capital market fees grew
$6.4 million, or 79.0%, compared to 2019, mostly due to higher sales volume, while consumer brokerage services fees fell $709
thousand, or 4.5%. Loan fees and sales increased $10.9 million, or 69.2%, mainly due to growth in mortgage banking revenue.
Mortgage banking revenue totaled $20.7 million in 2020 compared to $10.8 million in 2019 and increased as a result of higher
loan originations in 2020. Other non-interest income decreased $21.7 million, or 33.1%, mainly due to a one-time gain of $11.5
million resulting from the sale of the Company's corporate trust business in the fourth quarter of 2019. In addition, cash sweep
commissions and interest rate swap fees decreased $2.1 million and $4.4 million, respectively.
29
Investment Securities Gains (Losses), Net
(In thousands)
2021
2020
2019
Net gains (losses) on sales of available for sale debt securities
$
(3,284) $
21,096
$
Net gains on sales and fair value adjustments of equity securities
Net gains (losses) on sales and fair value adjustments of private equity investments
Other
187
33,156
—
39
(10,103)
—
Total investment securities gains, net
$
30,059
$
11,032
$
(214)
3,606
367
(133)
3,626
Net gains and losses on investment securities during 2021, 2020 and 2019 are shown in the table above. Included in these
amounts are gains and losses arising from sales of securities from the Company’s available for sale debt portfolio and gains and
losses relating to private equity investments, which are primarily held by the Parent’s majority-owned private equity subsidiary.
The gains and losses on private equity investments include fair value adjustments, in addition to gains and losses realized upon
disposition. The portions of private equity investment gains and losses that are attributable to minority interests are reported as
non-controlling interest in the consolidated statements of income, and resulted in expense of $6.5 million in 2021, compared to
income of $1.4 million in 2020 and expense of $348 thousand in 2019.
Net securities gains of $30.1 million were recorded in 2021, which included $1.5 million in net gains realized on sales of
private equity investments, net gains totaling $31.7 million of fair value adjustments on private equity investments, and $187
thousand of fair value adjustments on equity investments. These net gains were offset by losses of $3.3 million realized on
bond sales resulting from the Company's sale of approximately $73 million (book value) of bonds, mainly mortgage-backed
securities.
Net securities gains of $11.0 million were recorded in 2020, which included $21.1 million in net gains realized on bond
sales resulting from the Company's sale of approximately $602 million (book value) of bonds, mainly mortgage-backed
securities and municipal securities. These gains were offset by net losses totaling $10.1 million of fair value adjustments on
private equity investments.
Net securities gains of $3.6 million were recorded in 2019, which included $214 thousand in net losses realized on bond
sales resulting from the Company's sale of approximately $400 million (book value) of bonds, mainly municipal securities,
treasuries and asset-backed securities. Net securities gains also included $3.3 million in gains from sales of equity investments,
net gains of $344 thousand in fair value adjustments on equity investments, and a $1.1 million in gain from the sale of a private
equity investment. These gains were offset by net losses totaling $727 thousand of fair value adjustments on private equity
investments.
30
Non-Interest Expense
(Dollars in thousands)
Salaries
Employee benefits
Net occupancy
Equipment
Supplies and communication
Data processing and software
Marketing
Other
2021
2020
2019
21-'20
20-'19
$
447,238
$
436,087
$
416,869
2.6%
4.6%
% Change
78,010
48,185
18,089
17,118
101,792
21,856
73,613
76,900
46,645
18,839
17,419
95,325
19,734
57,429
76,058
47,157
19,061
20,394
92,899
21,914
73,046
1.4
3.3
(4.0)
(1.7)
6.8
10.8
28.2
1.1
(1.1)
(1.2)
(14.6)
2.6
(9.9)
(21.4)
Total non-interest expense
$
805,901
$
768,378
$
767,398
4.9%
.1%
Efficiency ratio
Salaries and benefits as a % of total non-interest
expense
Number of full-time equivalent employees
57.6%
57.2%
56.9%
65.2%
4,567
66.8%
4,766
64.2%
4,858
Non-interest expense was $805.9 million in 2021, an increase of $37.5 million, or 4.9%, over the previous year. Salaries
and benefits expense increased $12.3 million, or 2.4%, mainly due to higher incentive compensation and healthcare expense,
partly offset by lower salaries expense. Incentive compensation increased due to higher incentives in wealth and commercial,
while full-time and part-time salaries expense declined mainly due to lower retail banking salaries expense. Full-time
equivalent employees totaled 4,567 at December 31, 2021, reflecting a 4.2% decrease from 2020. Net occupancy expense
increased $1.5 million, or 3.3%, mainly due to lower external rent income. Equipment expense decreased $750 thousand, or
4.0%, mainly due to lower depreciation and equipment service expense, while supplies and communication expense decreased
$301 thousand, or 1.7%. Data processing and software expense increased $6.5 million, or 6.8%, primarily due to higher costs
for service providers, bank card processing fees and software expense, while marketing expense increased $2.1 million, or
10.8%. Other non-interest expense increased $16.2 million, or 28.2%, over the prior year mainly due to $8.2 million in non-
recurring litigation settlement costs recorded in the third quarter of 2021. In addition, deferred origination costs declined $3.5
million and deposit insurance expense increased $1.3 million. These increases were partly offset by a reduction in impairment
expense of $3.6 million on the Company's mortgage servicing rights.
In 2020, non-interest expense was $768.4 million in 2020, an increase of $980 thousand, or .1%, over 2019. Salaries and
benefits expense increased $20.1 million, or 4.1%, mainly due to higher costs for full-time salaries and incentive compensation.
Full-time salaries expense increased due to growth in commercial, information technology, wealth management and other
support unit salaries expense, while incentive compensation saw increases in mortgage, capital markets, and in association with
the origination of PPP loans. Full-time equivalent employees totaled 4,766 at December 31, 2020, reflecting a 1.9% decrease
from 2019. Occupancy expense decreased $512 thousand, or 1.1%, mainly due to lower utilities and outside services expense,
partly offset by higher building depreciation expense. Equipment expense decreased $222 thousand, or 1.2%, while supplies
and communication expense decreased $3.0 million, or 14.6%, as a result of lower supplies, postage and bank card issuance
fees. Data processing and software expense increased $2.4 million, or 2.6%, primarily due to higher costs for service providers
and software expense, partly offset by lower bank card processing fees, while marketing expense decreased $2.2 million, or
9.9%. Other non-interest expense decreased $15.6 million, or 21.4%, from 2019 mainly due to higher deferred origination costs
(up $3.7 million) and lower travel and entertainment (down $8.7 million) and education expense (down $1.2 million). These
decreases were partly offset by higher deposit insurance expense (up $1.2 million), as well as higher impairment expense (up
$1.8 million) and amortization (up $2.4 million) on the Company's mortgage servicing rights.
Income Taxes
Income tax expense was $145.7 million in 2021, compared to $87.3 million in 2020 and $109.1 million in 2019. The
effective tax rate, including the effect of non-controlling interest, was 21.5% in 2021 compared to 19.8% in 2020 and 20.6% in
2019. The increase in effective tax rate in 2021 compared to 2020 was primarily driven by higher net income before taxes.
Additional information about income tax expense is provided in Note 9 to the consolidated financial statements.
31
Financial Condition
Loan Portfolio Analysis
Classifications of consolidated loans by major category at December 31, 2021 and 2020 are shown in the table below. This
portfolio consists of loans which were acquired or originated with the intent of holding to their maturity. Loans held for sale
are separately discussed in a following section. A schedule of average balances invested in each loan category below is
disclosed within the Average Balance Sheets section of Management's Discussion and Analysis of Financial Condition and
Results of Operations below.
(In thousands)
Commercial:
Business
Real estate — construction and land
Real estate — business
Personal banking:
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Balance at December 31
2021
2020
$
5,303,535 $
1,118,266
3,058,837
2,805,401
2,032,225
275,945
575,410
6,740
6,546,087
1,021,595
3,026,117
2,820,030
1,950,502
307,083
655,078
3,149
$
15,176,359 $
16,329,641
The contractual maturities of the loan portfolio at December 31, 2021, and a breakdown of those loans between fixed rate
and floating rate loans are as follows.
(In thousands)
Commercial:
Business
Real estate — construction and land
Real estate — business
Personal banking:
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans with fixed rates
Loans with floating rates
Total loans
In
One Year
or Less
Principal Payments Due
After One
Year Through
Five Years
After Five
Years Through
Fifteen Years
After Fifteen
Years
Total
$
2,247,212 $
2,663,830 $
392,279 $
214 $
5,303,535
350,745
719,563
587,310
2,006,034
46,390
461,987
1,568
3,506
1,118,266
3,058,837
173,492
570,119
1,068,954
992,836
2,805,401
823,145
1,015,556
18,390
65,375
6,740
94,567
195,195
—
193,356
162,988
314,840
—
168
2,032,225
—
—
—
275,945
575,410
6,740
4,272,409 $
7,264,864 $
2,640,794 $
998,292 $
15,176,359
1,260,151 $
3,697,387 $
1,611,340 $
642,568 $
7,211,446
3,012,258
3,567,477
1,029,454
355,724
7,964,913
4,272,409 $
7,264,864 $
2,640,794 $
998,292 $
15,176,359
$
$
$
32
The following table shows loan balances at December 31, 2021, segregated between those with fixed interest rates and those
with variable rates that fluctuate with an index.
(In thousands)
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Fixed Rate
Loans
Variable Rate
Loans
Total
% Variable Rate
Loans
$
2,224,077 $
3,079,458 $
5,303,535
58.1%
48,877
1,069,389
1,118,266
1,343,996
1,714,841
3,058,837
2,059,999
1,496,644
745,402
2,805,401
535,581
2,032,225
1,492
29,621
6,740
274,453
545,789
—
275,945
575,410
6,740
95.6
56.1
26.6
26.4
99.5
94.9
—
$
7,211,446 $
7,964,913 $
15,176,359
52.5%
Total loans at December 31, 2021 were $15.2 billion, a decrease of $1.2 billion, or 7.1%, over balances at December 31,
2020. The decline in loans during 2021 occurred in the business, consumer credit card, revolving home equity and personal
real estate loan categories, while construction, consumer, business real estate and overdraft loan categories increased from the
prior year. Business loans decreased $1.2 billion, or 19.0%, mainly due to a $1.2 billion decline in PPP loan balances. As of
December 31, 2021, 93% of PPP loan balances have been forgiven. Excluding PPP loans, business loans increased $204.5
million, or 4.1%, over balances at December 31, 2020. Lease lending and tax-advantaged lending, included within Business
loans, declined during 2021, but these declines were partly offset by growth in commercial card lending. Construction loans
increased $96.7 million, or 9.5% mainly due to growth in commercial construction lending. Business real estate loans increased
$32.7 million, or 1.1%, due mainly to increases in multi-family, owner-occupied, and industrial lending, while hotel and senior
living lending declined. Personal real estate loans declined $14.6 million, or .5%. The Company sells certain long-term fixed
rate mortgage loans to the secondary market, and loan sales in 2021 totaled $547.1 million, compared to $275.1 million in
2020. Consumer loans increased $81.7 million, or 4.2%, mainly due to growth in private banking lending. Other vehicle and
equipment lending (mostly comprised of motorcycle loans) also increased, offset by declines in auto lending, fixed rate home
equity loans and continued run off of marine and recreational vehicle loan balances. Consumer credit card loans decreased
$79.7 million, or 12.2%, and revolving home equity loan balances declined $31.1 million, or 10.1%, compared to balances at
year end 2020.
The Company currently holds approximately 31% of its loan portfolio in the Kansas City market, 26% in the St. Louis
market, and 43% in other regional markets. The portfolio is diversified from a business and retail standpoint, with 62% in loans
to businesses and 38% in loans to consumers. The Company believes a diversified approach to loan portfolio management,
strong underwriting criteria and an aversion toward credit concentrations from an industry, geographic and product perspective,
have contributed to low levels of problem loans and credit losses on loans experienced over the last several years.
The Company participates in credits of large, publicly traded companies which are defined by regulation as shared national
credits, or SNCs. Regulations define SNCs as loans exceeding $100 million that are shared by three or more financial
institutions. The Company typically participates in these loans when business operations are maintained in the local
communities or regional markets and opportunities to provide other banking services are present. At December 31, 2021, the
balance of SNC loans totaled approximately $1.2 billion, with an additional $1.9 billion in unfunded commitments, compared
to a balance of $1.0 billion, with an additional $1.7 billion in unfunded commitments, at year end 2020.
Commercial Loans
Business
Total business loans amounted to $5.3 billion at December 31, 2021 and include loans used mainly to fund customer
accounts receivable, inventories, and capital expenditures. The business loan portfolio includes tax-advantaged loans and leases
which carry tax-free interest rates. These loans totaled $729.9 million at December 31, 2021, a decrease of $131.1 million, or
15.2%, from December 31, 2020 balances. In addition to tax-advantaged leases, the business loan portfolio also includes other
direct financing and sales type leases totaling $536.9 million at December 31, 2021, a decrease of $47.4 million, or 8.1%, from
December 31, 2020. These loans are used by commercial customers to finance capital purchases ranging from computer
equipment to office and transportation equipment. Additionally, the Company has outstanding oil and gas energy-related loans
totaling $260.6 million at December 31, 2021, which are further discussed within the Oil and Gas Energy Lending section of
33
the Risk Elements of Loan Portfolio section located within Management's Discussion and Analysis of Financial Condition and
Results of Operations. Also included in the business portfolio are corporate card loans, which totaled $346.9 million at
December 31, 2021 and are made in conjunction with the Company’s corporate card business for corporate trade purchases.
Corporate card loans are made to corporate, non-profit and government customers nationwide, but have very short-term
maturities, which limits credit risk.
Business loans, excluding corporate card loans, are made primarily to customers in the regional trade area of the Company,
generally the central Midwest, encompassing the states of Missouri, Kansas, Illinois, and nearby Midwestern markets, including
Iowa, Oklahoma, Colorado, Texas, Tennessee, Michigan, Indiana, and Ohio. This portfolio is diversified from an industry
standpoint and includes businesses engaged in manufacturing, wholesaling, retailing, agribusiness, insurance, financial services,
public utilities, health care, and other service businesses. Emphasis is upon middle-market and community businesses with
known local management and financial stability. Consistent with management’s strategy and emphasis upon relationship
banking, most borrowing customers also maintain deposit accounts and utilize other banking services. Net loan recoveries in
this category totaled $4.8 million in 2021 compared to net loan charge-offs of $3.7 million in 2020. Non-accrual business loans
were $7.3 million (.1% of business loans) at December 31, 2021 compared to $22.5 million at December 31, 2020.
Real Estate-Construction and Land
The portfolio of loans in this category amounted to $1.1 billion at December 31, 2021, an increase of $96.7 million, or 9.5%,
from the prior year and comprised 7.4% of the Company’s total loan portfolio. Commercial construction and land development
loans totaled $971.1 million, or 86.8% of total construction loans at December 31, 2021. These loans increased $103.6 million
from 2020 year end balances, driving the growth in the total construction portfolio. Commercial construction loans are made
during the construction phase for small and medium-sized office and medical buildings, manufacturing and warehouse
facilities, apartment complexes, shopping centers, hotels and motels, and other commercial properties. Commercial land
development loans relate to land owned or developed for use in conjunction with business properties. Residential construction
and land development loans at December 31, 2021 totaled $147.1 million, or 13.2% of total construction loans. A stable
construction market has contributed to low loss rates on these loans, with net loan charge-offs of nearly zero in both 2021 and
2020.
Real Estate-Business
Total business real estate loans were $3.1 billion at December 31, 2021 and comprised 20.2% of the Company’s total loan
portfolio. This category includes mortgage loans for small and medium-sized office and medical buildings, manufacturing and
warehouse facilities, distribution facilities, multi-family housing, farms, shopping centers, hotels and motels, churches, and
other commercial properties. The business real estate borrowers and/or properties are generally located in local and regional
markets where Commerce does business, and emphasis is placed on owner-occupied lending (38.9% of this portfolio), which
presents lower risk levels. Additional information about business real estate loans by borrower is disclosed within the Real
Estate - Business Loans section of the Risk Elements of Loan Portfolio section located within Management's Discussion and
Analysis of Financial Condition and Results of Operations. At December 31, 2021, balances of non-accrual loans amounted to
$214 thousand, less than .1% of business real estate loans, down from $2.2 million at year end 2020. The Company
experienced net loan recoveries of $64 thousand in 2021, compared to net loan recoveries of $47 thousand in 2020.
Personal Banking Loans
Real Estate-Personal
At December 31, 2021, there were $2.8 billion in outstanding personal real estate loans, which comprised 18.5% of the
Company’s total loan portfolio. The mortgage loans in this category are mainly for owner-occupied residential properties. The
Company originates both adjustable and fixed rate mortgage loans, and at December 31, 2021, 27% of the portfolio was
comprised of adjustable rate loans, while 73% was comprised of fixed rate loans. The Company does not purchase any loans
from outside parties or brokers and has never maintained no-document products.
The Company originates certain mortgage loans with the intent to sell to the secondary market, generally FNMA or FHLMC
conforming fixed rate loans. The remaining loans are originated with the intent to hold to maturity. Of the $1.3 billion of
mortgage loans originated in 2021, $547.1 million were sold to the secondary market. This compares to $1.5 billion of
mortgage loans originated and $275.1 million of loans sold to the secondary market in 2020. The increase in loan sales during
2021 compared to 2020 was partly due to the Company temporarily pausing loan sales for the second quarter of 2020.
The Company has experienced lower credit losses on loans in this category than many others in the industry and believes
this is partly because of its conservative underwriting culture and the fact that it does not purchase loans from brokers. Net loan
34
recoveries in 2021 totaled $98 thousand, and net loan recoveries were $291 thousand in 2020. Balances of non-accrual loans in
this category were $1.6 million at December 31, 2021, compared to $1.8 million at year end 2020.
Consumer
Consumer loans consist of private banking, automobile, motorcycle, marine, tractor/trailer, recreational vehicle (RV), fixed
rate home equity, patient health care financing and other types of consumer loans. These loans totaled $2.0 billion at
December 31, 2021. Approximately 42% of the consumer portfolio consists of automobile loans, 29% in private banking loans,
11% in fixed rate home equity loans, and 9% in healthcare financing loans. Total consumer loans increased $81.7 million at
year end 2021 compared to year end 2020. Growth of $109.6 million in private banking loans was supplemented by increases
in other executive lines of credit and motorcycle loans. These increases in consumer loan balances were partially offset by
declines of $24.5 million in automobile loans, $19.3 million in fixed rate home equity loans, $7.3 million in marine and RV
loans, and $1.5 million in patient healthcare financing. Net charge-offs on total consumer loans were $2.6 million in 2021,
compared to $4.4 million in 2020, averaging .13% and .23% of consumer loans in 2021 and 2020, respectively.
Revolving Home Equity
Revolving home equity loans, of which more than 99% are adjustable rate loans, totaled $275.9 million at year end 2021.
An additional $784.3 million was available in unused lines of credit, which can be drawn at the discretion of the borrower.
Home equity loans are secured mainly by second mortgages (and less frequently, first mortgages) on residential property of the
borrower. The underwriting terms for the home equity line product permit borrowing availability, in the aggregate, generally up
to 80% or 90% of the appraised value of the collateral property at the time of origination. Net loan charge-offs were nearly zero
in 2021, compared to net loan recoveries of $166 thousand in 2020.
Consumer Credit Card
Total consumer credit card loans amounted to $575.4 million at December 31, 2021 and comprised 3.8% of the Company’s
total loan portfolio. The credit card portfolio is concentrated within regional markets served by the Company. The Company
offers a variety of credit card products, including affinity cards, rewards cards, and standard and premium credit cards, and
emphasizes its credit card relationship product, Special Connections. Approximately 39% of the households that own a
Commerce credit card product also maintain a deposit relationship with the subsidiary bank. Approximately 95% of the
outstanding credit card loan balances had a floating interest rate at year end 2021, unchanged from year end 2020. Net charge-
offs amounted to $20.0 million in 2021, a decrease of $6.0 million from $26.0 million in 2020.
Loans Held for Sale
At December 31, 2021, loans held for sale were comprised of certain long-term fixed rate personal real estate loans and
loans extended to students while attending colleges and universities. The personal real estate loans are carried at fair value and
totaled $5.6 million at December 31, 2021. The student loans, carried at the lower of cost or fair value, totaled $3.0 million at
December 31, 2021. Both of these portfolios are further discussed in Note 2 to the consolidated financial statements.
35
Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments
To determine the amount of the allowance for credit losses on loans and the liability for unfunded lending commitments, the
Company has established a process which assesses the risks and losses expected in its portfolios. This process provides an
allowance based on estimates of allowances for pools of loans and unfunded lending commitments, as well as a second, smaller
component based on certain individually evaluated loans and unfunded lending commitments. The Company's policies and
processes for determining the allowance for credit losses on loans and the liability for unfunded lending commitments are
discussed in Note 1 to the consolidated financial statements and in the "Allowance for Credit Losses" discussion within Critical
Accounting Policies above.
Loans subject to individual evaluation generally consist of business, construction, business real estate and personal real
estate loans on non-accrual status. These non-accrual loans are evaluated individually for impairment based on factors such as
payment history, borrower financial condition and collateral. For collateral dependent loans, appraisals of collateral (including
exit costs) are normally obtained annually but discounted based on date last received and market conditions. From these
evaluations of expected cash flows and collateral values, specific allowances are determined.
Loans which are not individually evaluated are segregated by loan type and sub-type and are collectively evaluated. These
loans consist of commercial loans (business, construction and business real estate) which have been graded pass, special
mention, or substandard, and also include all personal banking loans except personal real estate loans on non-accrual status.
Collectively-evaluated loans include certain troubled debt restructurings with similar risk characteristics.
The allowance for credit losses on loans and the liability for unfunded lending commitments are estimates that require
significant judgment including projections of the macro-economic environment. The Company utilizes a third-party macro-
economic forecast that continuously changes due to economic conditions and events. These changes in the forecast cause
fluctuations in the allowance for credit losses on loans and the liability for unfunded lending commitments. The Company uses
its best judgment to assess the macro-economic forecast and internal loss data in estimating the allowance for credit losses on
loans and the liability for unfunded lending commitments. These estimates are subject to periodic refinement based on changes
in the underlying external and internal data.
The Company has internal credit administration and loan review staff that continuously review loan quality and report the
results of their reviews and examinations to the Company’s senior management and Board of Directors. Such reviews also
assist management in establishing the level of the allowance. The Company’s subsidiary bank continues to be subject to
examination by several regulatory agencies, and examinations are conducted throughout the year, targeting various segments of
the loan portfolio for review. Refer to Note 1 to the consolidated financial statements for additional discussion on the
allowance and charge-off policies.
At December 31, 2021, the allowance for credit losses on loans was $150.0 million, compared to $220.8 million at
December 31, 2020. The allowance for credit losses related to commercial loans decreased $23.8 million during 2021, due to
decreases in the allowance for business and construction loans of $19.7 million and $4.7 million, respectively. Compared to
December 31, 2020, the allowance for credit losses on consumer credit card, personal real estate, and consumer loans decreased
$38.5 million, $3.0 million, and $5.2 million, respectively. These large decreases resulted from an improved forecast utilized in
the Company’s estimate of future credit losses at December 31, 2021, coupled with lower than projected net loan charge-offs
during the year. The allowance for credit losses at December 31, 2020 included an uncertain economic projection defined by
high unemployment and other business and personal disruptions caused by COVID-19. Through various governmental stimulus
programs and improvements in the public health crisis due to the development and increasing availability of a COVID-19
vaccine, the projected net charge-offs were not realized and the economic forecast improved, thus allowing the release of the
allowance for credit losses during 2021. As a result, the provision for credit losses, which includes the provision for loans and
unfunded lending commitments, was a benefit of $66.3 million for the year, compared to a provision of $137.2 million in 2020.
See Note 2 to the consolidated financial statements for the various model assumptions utilized in the Company's CECL estimate
at December 31, 2021.
The percentage of allowance to loans decreased to .99% at December 31, 2021, compared to 1.35% at December 30, 2020.
The percentage of allowance to commercial portfolio loans decreased to 1.03% at December 31, 2021, compared to 1.15% at
December 30, 2020, and the percentage of allowance to personal banking loans decreased to .92% at December 31, 2021 from
1.73% at December 31, 2020. The allowance fell as a percentage of loans at December 31, 2021 because the economic forecast
utilized in the Company’s CECL model improved over the forecast utilized at December 31, 2020, and the net charge-offs
projected at December 31, 2020 did not come to fruition. Additionally, included within business loans at December 31, 2020
are approximately $1.4 billion PPP loans that are fully guaranteed by the government, and therefore, no allowance for credit
losses was estimated for these loans. At December 31, 2021, PPP loans outstanding were approximately $129.2 million.
36
Excluding the PPP loans, the allowance for credit losses on loans was 1.00% of loans at December 31, 2021 and 1.48% at
December 31, 2020. Most of the PPP loans originated by the Company during 2020 and 2021 have been forgiven, and the
Company expects nearly all of the remaining outstanding PPP loans to be forgiven during 2022.
Total loans delinquent 90 days or more and still accruing were $11.7 million at December 31, 2021, a decrease of $10.5
million compared to year end 2020. The decrease was mainly driven by decreases of $7.0 million in consumer credit card, $3.0
million in business, and $1.1 million in consumer loans delinquent 90 days or more, partly offset by an increase of $411
thousand in revolving home equity loan delinquencies. Non-accrual loans at December 31, 2021 were $9.2 million, a decrease
of $17.4 million over the prior year, mainly due to a decrease in business and business real-estate non-accrual loans of $15.2
million and $2.0 million, respectively. The allowance for credit losses as a percentage of non-accrual loans was 1,638.6% at
December 31, 2021, compared to 832.1% at December 31, 2020. The increase in the ratio of the allowance to non-accrual
loans was driven by the decrease in non-accrual loans outstanding. The 2021 year-end balance of non-accrual loans was
comprised of $7.3 million of business loans, $1.6 million of personal real estate loans, and $214 thousand of business real estate
loans.
Net loan charge-offs totaled $18.6 million in 2021, representing a $16.3 million decrease compared to net charge-offs of
$34.9 million in 2020. The decrease was largely due net recoveries of $4.8 million on business loans during 2021, compared to
net charge-offs of $3.7 million in the prior year, and lower net charge-offs in consumer credit card and consumer loans of $6.0
million and $1.9 million, respectively. Consumer credit card net charge-offs were 3.47% of average consumer credit card loans
in 2021, compared to 3.88% in 2020. Consumer credit card loan net charge-offs as a percentage of total net charge-offs
increased to 107.8% in 2021, compared to 74.5% in 2020. Consumer loan net charge-offs were .13% of average consumer
loans in 2021, compared to .23% in 2020, and represented 13.8% of total net loan charge-offs in 2021. The ratio of net charge-
offs to total average loans outstanding in 2021 was .12%, compared to .22% in 2020 and .35% in 2019.
At December 31, 2021, the liability for unfunded lending commitments was $24.2 million, a decrease of $14.1 million
compared to December 31, 2020. The decrease in the liability for unfunded lending commitments during 2021 was driven by
the improved economic forecast. The Company's unfunded lending commitments primarily relate to construction loans, and the
Company's estimate for credit losses in its unfunded lending commitments utilizes the same model and forecast as its estimate
for credit losses on loans. See Note 2 for further discussion of the model inputs utilized in the Company's estimate of credit
losses.
The Company considers the allowance for credit losses on loans and the liability for unfunded lending commitments
adequate to cover losses expected in the loan portfolio, including unfunded commitments, at December 31, 2021.
37
The schedules which follow summarize the relationship between loan balances and activity in the allowance for credit losses
on loans:
(Dollars in thousands)
Loans outstanding at end of year(A)
Average loans outstanding(A)
Allowance for credit losses:
Balance at end of prior year
Adoption of ASU 2016-13
Balance at beginning of year
Provision for credit losses on loans
Loans charged off:
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans charged off
Recoveries of loans previously charged off:
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total recoveries
Net loans charged off
Balance at end of year
Ratio of allowance to loans at end of year
Ratio of provision to average loans outstanding
Non-accrual loans
Ratio of non-accrual loans to total loans outstanding
Ratio of allowance for credit losses on loans to non-accrual loans
$
$
$
Years Ended December 31
2021
2020
2019
15,176,359
15,664,388
$
$
16,329,641
15,896,848
$
$
14,737,817
14,224,637
220,834
$
160,682
$
159,932
—
220,834
(52,223)
(21,039)
139,643
116,049
—
159,932
50,438
810
3
155
134
5,370
188
27,461
1,506
35,627
5,568
2
219
232
2,814
185
7,453
587
17,060
18,567
7,862
—
—
42
7,769
79
32,541
1,754
50,047
4,197
3
47
333
3,325
245
6,562
477
15,189
34,858
4,622
7
82
294
12,048
487
42,254
2,086
61,880
520
124
142
238
3,494
278
6,833
563
12,192
49,688
$
150,044
$
220,834
$
160,682
.99 %
-.33 %
1.35 %
.73 %
1.09 %
.35 %
$
9,157
$
26,540
$
10,220
.06 %
1,638.57
.16 %
832.08
.07 %
1,572.23
(A) Net of unearned income, before deducting allowance for credit losses on loans, excluding loans held for sale.
38
Ratio of net charge-offs (recoveries) to average loans outstanding, by loan category:
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Years Ended December 31
2021
2020
2019
(.08%)
.06%
—
—
—
.13
—
3.47
21.20
—
—
(.01)
.23
(.05)
3.88
38.11
.08%
(.01)
—
—
.44
.06
4.63
16.55
Ratio of total net charge-offs to total average loans outstanding
.12%
.22%
.35%
Average loans outstanding by loan class are listed on the Company's average balance sheet on page 62.
The following schedule provides a breakdown of the allowance for credit losses on loans (ACL) by loan category and the
percentage of each loan category to total loans outstanding at year end.
(Dollars in thousands)
2021
2020
Business
RE — construction and land
RE — business
RE — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total
Credit Loss
Allowance
Allocation
% of Loans
to Total
Loans
% of ACL to
Loan
Category
Credit Loss
Allowance
Allocation
% of Loans
to Total
Loans
% of ACL to
Loan
Category
$ 43,943
34.9 %
.83 % $
63,660
40.1 %
23,171
30,662
5,331
10,073
1,217
35,467
180
7.4
20.2
18.5
13.4
1.8
3.8
—
2.07
1.00
.19
.50
.44
6.16
2.67
27,836
30,053
8,304
15,244
1,475
74,001
261
6.3
18.5
17.3
11.9
1.9
4.0
—
.97 %
2.72
.99
.29
.78
.48
11.30
8.29
$ 150,044
100.0 %
.99 % $ 220,834
100.0 %
1.35 %
39
Risk Elements of the Loan Portfolio
Management reviews the loan portfolio continuously for evidence of problem loans. During the ordinary course of business,
management becomes aware of borrowers that may not be able to meet the contractual requirements of loan agreements. Such
loans are placed under close supervision with consideration given to placing the loan on non-accrual status, the need for an
additional allowance for credit loss, and (if appropriate) partial or full loan charge-off. Loans are placed on non-accrual status
when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. After a
loan is placed on non-accrual status, any interest previously accrued but not yet collected is reversed against current income.
Interest is included in income only as received and only after all previous loan charge-offs have been recovered, so long as
management is satisfied there is no impairment of collateral values. The loan is returned to accrual status only when the
borrower has brought all past due principal and interest payments current, and, in the opinion of management, the borrower has
demonstrated the ability to make future payments of principal and interest as scheduled. Loans that are 90 days past due as to
principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of
collection, or they are comprised of those personal banking loans that are exempt under regulatory rules from being classified as
non-accrual. Consumer installment loans and related accrued interest are normally charged down to the fair value of related
collateral (or are charged off in full if no collateral) once the loans are more than 120 days delinquent. Credit card loans and the
related accrued interest are charged off when the receivable is more than 180 days past due.
The following schedule shows non-performing assets and loans past due 90 days and still accruing interest.
(Dollars in thousands)
Total non-accrual loans
Real estate acquired in foreclosure
Total non-performing assets
Non-performing assets as a percentage of total loans
Non-performing assets as a percentage of total assets
Loans past due 90 days and still accruing interest
December 31
2021
$ 9,157
115
2020
$ 26,540
93
2019
$ 10,220
365
2018
$ 12,536
1,413
2017
$ 11,983
681
$ 9,272
$ 26,633
$ 10,585
$ 13,949
$ 12,664
.06 %
.03 %
.16 %
.08 %
.07 %
.04 %
.10 %
.05 %
.09 %
.05 %
$ 11,726
$ 22,190
$ 19,859
$ 16,658
$ 18,127
Non-accrual loans totaled $9.2 million at year end 2021, a decrease of $17.4 million from the balance at year end 2020. The
decrease from December 31, 2020 occurred mainly in business loans, which decreased $15.2 million, and business real estate
loans, which decreased $2.0 million. At December 31, 2021, non-accrual loans were comprised of business (79.9%), personal
real estate (17.8%), and business real estate (2.3%) loans. Foreclosed real estate totaled $115 thousand at December 31, 2021,
an increase of $22 thousand when compared to December 31, 2020. Total non-performing assets remain low compared to the
overall banking industry in 2021, with the non-performing assets to total loans ratio at .06% at December 31, 2021. Total loans
past due 90 days or more and still accruing interest were $11.7 million as of December 31, 2021, a decrease of $10.5 million
when compared to December 31, 2020. Balances by class for non-accrual loans and loans past due 90 days and still accruing
interest are shown in the "Delinquent and non-accrual loans" section of Note 2 to the consolidated financial statements.
In addition to the non-performing and past due loans mentioned above, the Company also has identified loans for which
management has concerns about the ability of the borrowers to meet existing repayment terms. They are classified as
substandard under the Company’s internal rating system. The loans are generally secured by either real estate or other borrower
assets, reducing the potential for loss should they become non-performing. Although these loans are generally identified as
potential problem loans, they may never become non-performing. Such loans totaled $278.7 million at December 31, 2021,
compared with $361.8 million at December 31, 2020, resulting in a decrease of $83.1 million or 23.0%. The decrease in
potential problem loans was largely driven by a $95.9 million decrease in business loans, partly offset by a $10.9 million and
$2.1 million increase in construction loans and business real estate loans, respectively.
(In thousands)
Potential problem loans:
Business
Real estate – construction and land
Real estate – business
Real estate – personal
Total potential problem loans
40
December 31
2021
2020
$
$
37,143 $
40,259
200,766
526
278,694 $
133,039
29,378
198,666
670
361,753
Loans with Special Risk Characteristics
Management relies primarily on an internal risk rating system, in addition to delinquency status, to assess risk in the loan
portfolio, and these statistics are presented in Note 2 to the consolidated financial statements. However, certain types of loans
are considered at a higher risk of loss due to their terms, location, or special conditions. Construction and land loans and
business real estate loans are subject to higher risk because of the impact that volatile interest rates and a changing economy can
have on real estate value, and because of the potential volatility of the real estate industry. Certain home equity loans have
contractual features that could increase credit exposure in a market of declining real estate prices, when interest rates are
steadily increasing, or when a geographic area experiences an economic downturn. For these home equity loans, higher risks
could exist when 1) loan terms require a minimum monthly payment that covers only interest, or 2) loan-to-collateral value
(LTV) ratios at origination are above 80%, with no private mortgage insurance. Information presented below for home equity
loans is based on LTV ratios which were calculated with valuations at loan origination date. The Company does not obtain
updated appraisals or valuations unless the loans become significantly delinquent or are in the process of being foreclosed upon.
For credit monitoring purposes, the Company analyzes delinquency information, current FICO scores, and line utilization. This
has remained an effective means of evaluating credit trends and identifying problem loans, partly because the Company offers
standard, conservative lending products.
Real Estate - Construction and Land Loans
The Company’s portfolio of construction and land loans, as shown in the table below, amounted to 7.4% of total loans
outstanding at December 31, 2021. The largest component of construction and land loans was commercial construction, which
increased $95.1 million during the year ended December 31, 2021. At December 31, 2021, multi-family residential construction
loans totaled approximately $155.9 million, or 16.9%, of the commercial construction loan portfolio.
(Dollars in thousands)
Commercial construction
Residential construction
Residential land and land development
Commercial land and land development
Total real estate – construction and
land loans
Real Estate – Business Loans
December 31,
2021
% of Total
% of Total
Loans
December 31,
2020
% of Total
% of Total
Loans
$
922,654
82.5 %
6.1 % $
827,546
81.0 %
5.1 %
96,618
50,513
48,481
8.6
4.6
4.3
.7
.3
.3
94,729
59,299
40,021
9.3
5.8
3.9
.6
.4
.2
$
1,118,266
100.0 %
7.4 % $
1,021,595
100.0 %
6.3 %
Total business real estate loans were $3.1 billion at December 31, 2021 and comprised 20.2% of the Company’s total loan
portfolio. These loans include properties such as manufacturing and warehouse buildings, distribution facilities, small office
and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties. Approximately 38.9%
of these loans were for owner-occupied real estate properties, which present lower risk profiles.
(Dollars in thousands)
Owner-occupied
Office
Multi-family
Retail
Hotels
Farm
Senior living
Industrial
Other
Total real estate - business
loans
December 31,
2021
% of Total
% of Total Loans
December 31,
2020
% of Total
% of Total Loans
$
1,188,469
38.9 %
7.8 % $
1,145,862
380,101
354,282
339,874
234,673
178,780
174,871
99,800
107,987
12.4
11.6
11.1
7.7
5.8
5.7
3.3
3.5
2.5
2.3
2.2
1.5
1.2
1.2
.7
.8
385,392
301,161
349,461
271,189
169,692
195,800
78,341
129,219
37.9 %
12.7
10.0
11.5
9.0
5.6
6.5
2.6
4.2
7.0 %
2.4
1.8
2.1
1.7
1.0
1.2
.5
.8
$
3,058,837
100.0 %
20.2 % $
3,026,117
100.0 %
18.5 %
41
Revolving Home Equity Loans
The Company has revolving home equity loans that are generally collateralized by residential real estate. Most of these
loans (92.6%) are written with terms requiring interest-only monthly payments. These loans are offered in three main product
lines: LTV up to 80%, 80% to 90%, and 90% to 100%. As shown in the following tables, the percentage of loans with LTV
ratios greater than 80% has remained a small segment of this portfolio, and delinquencies have been low and stable. The
weighted average FICO score for the total portfolio balance at December 31, 2021 was 792. At maturity, the accounts are re-
underwritten and if they qualify under the Company's credit, collateral and capacity policies, the borrower is given the option to
renew the line of credit or to convert the outstanding balance to an amortizing loan. If criteria are not met, amortization is
required, or the borrower may pay off the loan. Over the next three years, approximately 18.7% of the Company's current
outstanding balances are expected to mature. Of these balances, 85.9% have a FICO score above 700. The Company does not
expect a significant increase in losses as these loans mature, due to their high FICO scores, low LTVs, and low historical loss
levels.
(Dollars in thousands)
Loans with interest-only payments
Loans with LTV:
Between 80% and 90%
Over 90%
Over 80% LTV
Total loan portfolio from which above
loans were identified
Principal
Outstanding at
December 31,
2021
255,636
$
New Lines
Originated
*
During 2021
92.6 % $145,968
*
52.9 %
Unused Portion
of Available
Lines at
December 31,
2021
$760,706
Balances
Over 30 Days
Past Due
*
275.7 %
$1,344
*
.5 %
28,682
2,262
30,944
10.4
0.8
11.2
17,887
—
17,887
6.5
—
6.5
47,283
2,666
49,949
17.1
1.0
18.1
.1
222
— —
.1
222
275,945
154,000
784,262
* Percentage of total principal outstanding of $275.9 million at December 31, 2021.
(Dollars in thousands)
Loans with interest-only payments
Loans with LTV:
Between 80% and 90%
Over 90%
Over 80% LTV
Total loan portfolio from which above
loans were identified
Principal
Outstanding at
December 31,
2020
286,126
$
New Lines
Originated
*
During 2020
93.2 % $154,032
*
50.2 %
Unused Portion
of Available
Lines at
December 31,
2020
$752,180
Balances
Over 30 Days
Past Due
*
244.9 %
$1,046
*
.3 %
29,318
2,784
32,102
9.5
1.0
10.5
20,707
1,834
22,541
6.7
.6
7.3
47,588
2,895
50,483
15.5
0.9
16.4
403
—
403
.1
—
.1
307,083
161,260
773,462
* Percentage of total principal outstanding of $307.1 million at December 31, 2020.
Consumer Loans
The Company's consumer loans totaled $2.0 billion and comprised 13.4% of total loans outstanding at December 31, 2021.
Within the consumer loan portfolio are several direct and indirect product lines comprised mainly of loans secured by
automobiles, motorcycles, marine, and RVs. Auto loans comprised 42% of the consumer loan portfolio at December 31, 2021,
and outstanding balances in the auto loan portfolio were $855.4 million and $879.9 million at December 31, 2021 and 2020,
respectively. The balances over 30 days past due amounted to $9.0 million at December 31, 2021, compared to $9.2 million at
the end of 2020, and comprised 1.1% of the outstanding balances of these loans at December 31, 2021 compared to 1.0% at
December 31, 2020. For the year ended December 31, 2021, $400.8 million of new auto loans were originated, compared to
$399.3 million during 2020. At December 31, 2021, the automobile loan portfolio had a weighted average FICO score of 757,
and net charge-offs on auto loans were .13% of average auto loans at December 31, 2021.
The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling,
and these loans comprised 11% of the consumer loan portfolio at December 31, 2021. Losses on these loans have historically
been low, and the Company saw a net charge-off of $47 thousand in 2021. Private banking loans comprised 29% of the
consumer loan portfolio at December 31, 2021. The Company's private banking loans are generally well-collateralized and at
December 31, 2021 were secured primarily by assets held by the Company's trust department. The remaining portion of the
Company's consumer loan portfolio is comprised of health services financing, motorcycles, marine and RV loans. Net charge-
offs on private banking, health services financing, motorcycle and marine and RV loans totaled $1.4 million in 2021 and
were .16% of the average balances of these loans at December 31, 2021.
42
Consumer Credit Card Loans
The Company offers low introductory rates on selected consumer credit card products. Out of a portfolio at December 31,
2021 of $575.4 million in consumer credit card loans outstanding, approximately $87.9 million, or 15.3%, carried a low
promotional rate. Within the next six months, $34.9 million of these loans are scheduled to convert to the ongoing higher
contractual rate. To mitigate some of the risk involved with this credit card promotional feature, the Company performs credit
checks and detailed analysis of the customer borrowing profile before approving the loan application. Management believes
that the risks in the consumer loan portfolio are reasonable and the anticipated loss ratios are within acceptable parameters.
Oil and Gas Energy Lending
The Company's energy lending portfolio was comprised of lending to the petroleum and natural gas sectors and totaled
$260.6 million at December 31, 2021, an increase of $81.9 million from year end 2020, as shown in the table below.
(In thousands)
Extraction
Mid-stream shipping and storage
Downstream distribution and refining
Support activities
Total energy lending portfolio
December 31, 2021
$
184,840 $
36,850
24,915
14,039
260,644 $
$
December 31, 2020
Unfunded
commitments at
December 31, 2021
133,866 $
15,634
18,365
10,864
178,729 $
134,844
69,634
23,521
18,034
246,033
Information about the credit quality of the Company's energy lending portfolio as of December 31, 2021 and December 31,
2020 is provided in the table below.
(Dollars in thousands)
December 31, 2021
% of Energy
Lending
December 31, 2020
% of Energy
Lending
Pass
Special mention
Substandard
Non-accrual
Total
$
$
256,186
98.3 % $
126,380
70.7 %
1,999
—
2,459
.8
—
.9
17,978
31,676
2,695
10.1
17.7
1.5
260,644
100.0 % $
178,729
100.0 %
Energy lending balances classified as non-accrual represented .9% of total energy lending loan balances at December 31,
2021. There were no balances classified as substandard at December 31, 2021. The Company recorded $10 thousand of
recoveries on energy loans for the year ended December 31, 2021, compared to $15 thousand of net loan charge-offs on energy
loans for the year ended December 31, 2020.
Small Business Lending
During April 2020, in response to the COVID-19 crisis, the federal government created the Paycheck Protection Program,
sponsored by the Small Business Administration ("SBA"), under the Coronavirus Aid, Relief, and Economic Security Act
("CARES Act"). As a participating lender under the program, the Company funded $1.9 billion in loans for customers. From
the start of the PPP through December 31, 2021, the Company has recognized in income $57.2 million out of $60.4 million
total fees that it expects to earn from the program.
The Company understands that the loans are fully guaranteed by the SBA. Therefore, there was no increase in the allowance
for credit losses on loans related to these loans, as there is no expectation of credit loss. The maximum term of the originated
loans is five years, however, as of December 31, 2021, 93% of the PPP loans have been forgiven by the SBA. Almost all of the
remaining loans are expected to be forgiven during 2022.
43
Investment Securities Analysis
Investment securities are comprised of securities that are classified as available for sale, equity, trading or other. The largest
component, available for sale debt securities, increased 19.2% during 2021 to $14.4 billion (excluding unrealized gains/losses
in fair value) at year end 2021. During 2021, debt securities of $5.9 billion were purchased, which included $1.5 billion in
agency mortgage-backed securities, $2.4 billion in asset-backed securities, $286.7 million in state and municipal securities, and
$1.3 billion in non-agency mortgage-based securities. Total sales, maturities and pay downs of available for sale debt securities
were $3.5 billion during 2021. During 2022, maturities and pay downs of approximately $3.0 billion are expected to occur.
The Company's tax-exempt investment portfolio is primarily comprised of tax-exempt municipal bonds and certain equity
securities in its private equity investment portfolio. There were no significant changes to the Company's tax-exempt investment
portfolio during 2021. The average tax equivalent yield earned on total investment securities was 1.81% in 2021 and 2.19% in
2020.
At December 31, 2021, the fair value of available for sale securities was $14.5 billion, which included a net unrealized gain
in fair value of $30.9 million, compared to a net unrealized gain of $351.7 million at December 31, 2020. The overall
unrealized gain in fair value at December 31, 2021 included net gains of $45.2 million is U.S. government and federal agency
obligations and net gains of $24.6 million in state and municipal securities. These unrealized gains were partly offset by net
losses of $38.5 million in mortgage and asset-backed securities. As described in Note 1, the Company adopted ASU 2016-13,
Measurement of Credit Losses on Financial Instruments, on January 1, 2020, and the current expected credit loss model
(CECL) implemented by the Company requires that lifetime expected credit losses on securities be recorded in current earnings.
For the year ended December 31, 2021, the Company did not recognize a credit loss expense on any available for sale debt
securities.
Available for sale investment securities at year end for the past two years are shown below:
(In thousands)
Amortized Cost
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Total available for sale debt securities
Fair Value
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
December 31
2021
2020
$
1,035,477 $
50,773
775,592
50,803
2,072,210
1,968,006
5,698,088
6,557,098
1,383,037
358,074
3,546,024
1,853,791
633,524
534,169
$
14,419,133 $
12,097,533
$
1,080,720 $
51,755
838,059
54,485
2,096,827
2,045,099
5,683,000
6,712,085
1,366,477
361,074
3,539,219
1,882,243
632,029
556,219
Total available for sale debt securities
$
14,450,027 $
12,449,264
At December 31, 2021, the available for sale portfolio included $5.7 billion of agency mortgage-backed securities, which
are collateralized bonds issued by agencies including FNMA, GNMA, FHLMC, FHLB, Federal Farm Credit Banks and FDIC.
Non-agency mortgage-backed securities totaled $1.4 billion and included $329.3 million collateralized by commercial
mortgages and $1.0 billion collateralized by residential mortgages at December 31, 2021.
At December 31, 2021, U.S. government obligations included TIPS of $390.9 million, at fair value. Other debt securities
include corporate bonds, notes and commercial paper.
44
The types of securities held in the available for sale security portfolio at year end 2021 are presented in the table below.
Additional detail by maturity category is provided in Note 3 to the consolidated financial statements.
Available for sale debt securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
*Based on call provisions and estimated prepayment speeds.
December 31, 2021
Percent of Total
Debt Securities
Weighted
Average Yield
Estimated Average
Maturity*
7.5 %
1.34 %
2.6 years
0.4
14.4
39.3
9.5
24.5
4.4
2.32
1.97
1.94
1.84
1.05
1.97
15.0
6.6
5.2
3.7
2.5
5.6
Equity securities include common and preferred stock with readily determinable fair values that totaled $7.2 million at
December 31, 2021, compared to $3.0 million at December 31, 2020.
Other securities totaled $194.0 million at December 31, 2021 and $156.7 million at December 31, 2020. These include
Federal Reserve Bank stock and Federal Home Loan Bank (Des Moines) stock held by the bank subsidiary in accordance with
debt and regulatory requirements. These are restricted securities and are carried at cost. The Company's equity method
investments are carried at cost, adjusted to reflect the Company's portion of income, loss, or dividends of the investee. Also
included in other securities are private equity investments which are held by a subsidiary qualified as a Small Business
Investment Company. These investments are carried at estimated fair value, but are not readily marketable. While the nature of
these investments carries a higher degree of risk than the normal lending portfolio, this risk is mitigated by the overall size of
the investments and oversight provided by management, and management believes the potential for long-term gains in these
investments outweighs the potential risks.
Other securities at year end for the past two years are shown below:
(In thousands)
Federal Reserve Bank stock
Federal Home Loan Bank stock
Equity method investments
Private equity investments in debt securities
Private equity investments in equity securities
Total other securities
$
December 31
2021
2020
34,379 $
10,428
1,834
63,416
83,990
34,070
10,307
18,000
43,609
50,759
$
194,047 $
156,745
In addition to its holdings in the investment securities portfolio, the Company invests in securities purchased under
agreements to resell, which totaled $1.6 billion at December 31, 2021 and $850.0 million at December 31, 2020. These
investments mature in 2022 through 2023 and have fixed rates or variable rates that fluctuate with published indices. The
counterparties to these agreements are other financial institutions from whom the Company has accepted collateral of $1.7
billion in marketable investment securities at December 31, 2021. The average rate earned on these agreements during 2021
was 2.9%, compared to 4.7% in 2020.
The Company also holds offsetting repurchase and resale agreements totaling $400.0 million at December 31, 2021 and
$200.0 million at December 31, 2020, which are further discussed in Note 20 to the consolidated financial statements. These
agreements involve the exchange of collateral under simultaneous repurchase and resale agreements with the same financial
institution counterparty. These repurchase and resale agreements have been offset against each other in the balance sheet, as
permitted under current accounting guidance. The agreements mature in 2022 and earned an average of 30 basis points during
2021, compared to 41 basis points in 2020.
45
Deposits and Borrowings
Deposits, including both individual and corporate customers, are the primary funding source for the Bank and are acquired
from a broad base of local markets. Total period-end deposits were $29.8 billion at December 31, 2021, compared to $26.9
billion last year, reflecting an increase of $2.9 billion, or 10.6%.
Average deposits increased $4.3 billion, or 18.2%, in 2021 compared to 2020, resulting from increases in average demand
deposits, which increased $2.4 billion, primarily driven by higher balances in business demand deposits. Additionally, average
money market deposit account balances increased $1.8 billion in 2021, and savings account balances increased $327.1 million.
Partially offsetting these increases in deposit balances were declines in average certificates of deposit balances, which decreased
$221.0 million in 2021.
The following table shows year end deposit balances by type, as a percentage of total deposits.
Non-interest bearing
Savings, interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Total deposits
December 31
2021
2020
39.4 %
55.7
1.5
3.4
100.0 %
38.9 %
54.2
2.0
4.9
100.0 %
Core deposits, which include non-interest bearing, interest checking, savings, and money market deposits, supported 79%
and 77% of average earning assets in 2021 and 2020, respectively. Average balances by major deposit category for the last six
years are disclosed in the Average Balance Sheets section of Management's Discussion and Analysis of Financial Condition and
Results of Operations below. A maturity schedule of all certificates of deposits outstanding at December 31, 2021 is included
in Note 7 on Deposits in the consolidated financial statements.
Total uninsured deposits were calculated using the same methodology that the Company uses to determine uninsured
deposits for regulatory reporting and amounted to $14.6 billion and $12.7 billion at December 31, 2021 and December 31,
2020. The following table shows a detailed breakdown of the maturities of uninsured certificates of deposit at December 31,
2021. The Company calculated the uninsured deposits in the following table by aggregating all deposit balances by customer
and assuming federal deposit insurance would first apply to demand deposits, followed by savings deposits, and lastly to time
deposits (beginning with the earliest maturity deposits).
(In thousands)
Due in 3 months or less
Due in over 3 through 6 months
Due in over 6 through 12 months
Due in over 12 months
Total
Uninsured Certificates of Deposit
at December 31, 2021
$
$
411,628
150,443
186,730
170,521
919,322
The Company’s primary sources of overnight borrowings are federal funds purchased and securities sold under agreements
to repurchase (repurchase agreements). Balances in these accounts can fluctuate significantly on a day-to-day basis and
generally have one day maturities. Total balances of federal funds purchased and repurchase agreements outstanding at
December 31, 2021 were $3.0 billion, comprised of federal funds purchased of $43.4 million and repurchase agreements of
$3.0 billion. These balances increased $1.1 million and $923.5 million from the federal funds purchased and repurchase
agreements outstanding at December 31, 2020. On an average basis, these borrowings increased $368.4 million, or 18.7%,
during 2021, due to an increase of $470.9 million in repurchase agreements, partially offset by a decrease of $102.6 million in
federal funds purchased. The average rate paid on both federal funds purchased and repurchase agreements was .07% during
2021, compared to rates of .63% paid on federal funds purchased and .29% paid on repurchase agreements during 2020.
Historically, the majority of the Company’s long-term debt has been comprised of fixed rate advances from the FHLB.
There were no FHLB borrowings during 2021. In March 2020, the Company borrowed $750.0 million of short-term funds
from the FHLB, and all of those borrowings were repaid by the Company during the second quarter of 2020. The average rate
paid on FHLB advances was .82% during 2020.
46
Liquidity and Capital Resources
Liquidity Management
Liquidity is managed within the Company in order to satisfy cash flow requirements of deposit and borrowing customers
while at the same time meeting its own cash flow needs. The Company has taken numerous steps to address liquidity risk and
has developed a variety of liquidity sources which it believes will provide the necessary funds for future growth. The Company
manages its liquidity position through a variety of sources including:
• A portfolio of liquid assets including marketable investment securities and overnight investments,
• A large customer deposit base and limited exposure to large, volatile certificates of deposit,
• Lower long-term borrowings that might place demands on Company cash flow,
• Relatively low loan to deposit ratio promoting strong liquidity,
• Excellent debt ratings from both Standard & Poor’s and Moody’s national rating services, and
• Available borrowing capacity from outside sources.
The Company’s most liquid assets include available for sale debt securities, federal funds sold, balances at the Federal
Reserve Bank, and securities purchased under agreements to resell. At December 31, 2021 and 2020, such assets were as
follows:
(In thousands)
Available for sale debt securities
Federal funds sold
Securities purchased under agreements to resell
Balances at the Federal Reserve Bank
Total
2021
2020
$
14,450,027 $
12,449,264
2,800
—
1,625,000
850,000
3,971,217
20,049,044 $
1,747,363
15,046,627
$
There were $2.8 million federal funds sold at December 31, 2021, which are funds lent to the Company’s correspondent
bank customers with overnight maturities. Resale agreements, maturing through 2023, totaled $1.6 billion at December 31,
2021. Under these agreements, the Company lends funds to upstream financial institutions and holds marketable securities,
safe-kept by a third-party custodian, as collateral. This collateral totaled $1.7 billion in fair value at December 31, 2021.
Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity
purposes, totaled $4.0 billion at December 31, 2021. The fair value of the available for sale debt portfolio was $14.5 billion at
December 31, 2021 and included an unrealized net gain of $30.9 million. The total net unrealized gain included net gains of
$45.2 million on U.S. government and federal agency obligations and $24.6 million on state and municipal obligations. These
net gains were partially offset by net unrealized losses of $38.5 million on mortgage-backed and asset-backed securities.
Approximately $3.0 billion of the available for sale debt portfolio is expected to mature or pay down during 2022, and these
funds offer substantial resources to meet either new loan demand or help offset potential reductions in the Company’s deposit
funding base. The Company pledges portions of its investment securities portfolio to secure public fund deposits, securities
sold under agreements to repurchase, trust funds, letters of credit issued by the FHLB, and borrowing capacity at the Federal
Reserve Bank. At December 31, 2021 and 2020, total investment securities pledged for these purposes were as follows:
47
(In thousands)
Investment securities pledged for the purpose of securing:
Federal Reserve Bank borrowings
FHLB borrowings and letters of credit
Repurchase agreements *
Other deposits
Total pledged securities
Unpledged and available for pledging
Ineligible for pledging
2021
2020
$
17,465 $
3,218
40,792
5,376
3,475,589
2,322,941
2,897,576
2,438,628
6,393,848
4,807,737
6,913,721
6,310,907
1,142,458
1,330,620
Total available for sale debt securities, at fair value
$
14,450,027 $
12,449,264
* Includes securities pledged for collateral swaps, as discussed in Note 20 to the consolidated financial statements
The average loans to deposits ratio is a measure of a bank's liquidity, and the Company’s average loans to deposits ratio was
56.5% for the year ended December 31, 2021. Core customer deposits, defined as non-interest bearing, interest checking,
savings, and money market deposit accounts, totaled $28.4 billion and represented 95.2% of the Company’s total deposits at
December 31, 2021. These core deposits are normally less volatile, often with customer relationships tied to other products
offered by the Company promoting long lasting relationships and stable funding sources. Core deposits increased $3.3 billion
at year end 2021 compared to year end 2020, primarily due to increases in commercial and consumer deposits of $2.0 billion
and $1.4 billion, respectively. While the Company considers core consumer and wealth management deposits less volatile,
corporate deposits could decline if interest rates increase significantly, encouraging corporate customers to increase investing
activities, or if the economy declines and companies experience lower cash inflows, reducing deposit balances. If these
corporate deposits decline, the Company's funding needs can be met by liquidity supplied by investment security maturities and
pay downs expected to total $3.0 billion over the next year, as noted above. In addition, as shown in the table of collateral
available for future advances below, the Company has borrowing capacity of $2.6 billion through advances from the FHLB and
the Federal Reserve.
(In thousands)
Core deposit base:
Non-interest bearing
Interest checking
Savings and money market
Total
2021
2020
$
11,772,374 $
10,497,598
3,227,822
2,402,272
13,370,263
12,202,184
$
28,370,459 $
25,102,054
Certificates of deposit of $100,000 or greater totaled $1.0 billion at December 31, 2021. These deposits are normally
considered more volatile and higher costing, and comprised 3.4% of total deposits at December 31, 2021.
Other important components of liquidity are the level of borrowings from third party sources and the availability of future
credit. The Company’s outside borrowings are mainly comprised of federal funds purchased and repurchase agreements, as
follows:
(In thousands)
Borrowings:
Federal funds purchased
Securities sold under agreements to repurchase
Other debt
Total
2021
2020
$
43,385 $
2,979,582
12,560
42,270
2,056,113
802
$
3,035,527 $
2,099,185
Federal funds purchased, which totaled $43.4 million at December 31, 2021, are unsecured overnight borrowings obtained
mainly from upstream correspondent banks with which the Company maintains approved lines of credit. Retail repurchase
agreements are offered to customers wishing to earn interest in highly liquid balances and are used by the Company as a
funding source considered to be stable, but short-term in nature. Repurchase agreements are collateralized by securities in the
Company’s investment portfolio. Total repurchase agreements at December 31, 2021 were comprised of non-insured customer
funds totaling $3.0 billion, and securities pledged for these retail agreements totaled $3.1 billion.
48
The Company pledges certain assets, including loans and investment securities to both the Federal Reserve Bank and the
FHLB as security to establish lines of credit and borrow from these entities. Based on the amount and type of collateral
pledged, the FHLB establishes a collateral value from which the Company may draw advances against the collateral.
Additionally, this collateral is used to enable the FHLB to issue letters of credit in favor of public fund depositors of the
Company. The Federal Reserve Bank also establishes a collateral value of assets pledged and permits borrowings from the
discount window. The following table reflects the collateral value of assets pledged, borrowings, and letters of credit
outstanding, in addition to the estimated future funding capacity available to the Company at December 31, 2021.
(In thousands)
Total collateral value pledged
Letters of credit issued
Available for future advances
December 31, 2021
FHLB
Federal Reserve
Total
$
$
2,000,941 $
1,033,648 $
3,034,589
(427,705)
—
(427,705)
1,573,236 $
1,033,648 $
2,606,884
The Company receives outside ratings from both Standard & Poor’s and Moody’s on both the consolidated company and its
subsidiary bank, Commerce Bank. These ratings are as follows:
Commerce Bancshares, Inc.
Issuer rating
Rating outlook
Commerce Bank
Issuer rating
Baseline credit assessment
Short-term rating
Rating outlook
Standard & Poor’s
Moody’s
A-
Stable
A
A-1
Stable
A2
a1
P-1
Stable
The Company considers these ratings to be indications of a sound capital base and strong liquidity and believes that these
ratings would help ensure the ready marketability of its commercial paper, should the need arise. No commercial paper has been
outstanding during the past ten years. The Company has no subordinated or hybrid debt instruments which would affect future
borrowing capacity. Because of its lack of significant long-term debt, the Company believes that, through its Capital Markets
Group or in other public debt markets, it could generate additional liquidity from sources such as jumbo certificates of deposit,
privately-placed corporate notes or other forms of debt.
The cash flows from the operating, investing and financing activities of the Company resulted in a net increase in cash, cash
equivalents and restricted cash of $2.1 billion in 2021, as reported in the consolidated statements of cash flows. Operating
activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of $597.7 million and has
historically been a stable source of funds. Investing activities used cash of $2.1 billion. Purchases (net of sales and maturities
proceeds) of investment securities used cash of $2.4 billion, securities purchased under agreements to resell used cash of $900.0
million, and a net decrease in the loan portfolio provided cash of $1.1 billion. Investing activities are somewhat unique to
financial institutions in that, while large sums of cash flow are normally used to fund growth in investment securities, loans, or
other bank assets, they are normally dependent on the financing activities described below.
During 2021, financing activities provided cash of $3.6 billion. This increase in cash was largely driven by growth in
deposits, which provided cash of $2.9 billion. Federal funds purchases and short-term securities sold under agreements to
repurchase provided cash in the amount of $924.6 million. The Company paid cash dividends of $122.7 million on common
stock, and treasury stock purchases used cash of $129.4 million during 2021. Future short-term liquidity needs for daily
operations are not expected to vary significantly, and the Company believes it maintains adequate liquidity to meet these cash
flows.
49
Cash outflows resulting from the Company’s transactions in its common and preferred stock were as follows:
(In millions)
Purchases of treasury stock
Accelerated share repurchase agreements
Common cash dividends paid
Preferred stock redemption*
Preferred cash dividends paid
Cash used
$
2021
2020
2019
129.4 $
—
122.7
—
—
54.2 $
—
120.8
150.0
6.8
134.9
150.0
113.5
—
9.0
$
252.1 $
331.8 $
407.4
*The period ended December 31, 2020 includes $5.2 million of excess redemption costs over the book value of the preferred stock. This excess payment
considered a dividend.
The Parent faces unique liquidity constraints due to legal limitations on its ability to borrow funds from its bank subsidiary.
The Parent obtains funding to meet its obligations from two main sources: dividends received from bank and non-bank
subsidiaries (within regulatory limitations) and management fees charged to subsidiaries as reimbursement for services
provided by the Parent, as presented below:
(In millions)
Dividends received from subsidiaries
Management fees
Total
2021
2020
2019
$
$
340.0 $
36.3
376.3 $
210.0 $
33.5
243.5 $
500.0
36.8
536.8
These sources of funds are used mainly to pay cash dividends on outstanding stock, pay general operating expenses, and
purchase treasury stock. At December 31, 2021, the Parent’s investment securities totaled $12.8 million at fair value,
consisting mainly of corporate bonds and preferred stock. To support its various funding commitments, the Parent maintains a
$20.0 million line of credit with its subsidiary bank. There were no borrowings outstanding under the line during 2021 or 2020.
Company senior management is responsible for measuring and monitoring the liquidity profile of the organization with
oversight by the Company’s Asset/Liability Committee. This is done through a series of controls, including a written
Contingency Funding Policy and risk monitoring procedures, which include daily, weekly and monthly reporting. In addition,
the Company prepares forecasts to project changes in the balance sheet affecting liquidity and to allow the Company to better
plan for forecasted changes.
Material Cash Requirements, Contractual Obligations, Commitments, and Off-Balance Sheet Arrangements
The Company's material cash requirements include commitments for contractual obligations (both short-term and long-
term), commitments to extend credit, and off-balance sheet arrangements. The Company's material cash requirements for the
next 12 months are primarily to fund loan growth. Additionally, the Company will utilize cash to fund deposit maturities and
withdrawals that may occur in the next 12 months. Other contractual obligations, purchase commitments, lease obligations, and
unfunded commitments may require cash payments by the Company within the next 12 months, and these, along with longer-
term obligations, are discussed below.
A table summarizing contractual cash obligations of the Company at December 31, 2021, and the expected timing of these
payments follows:
(In thousands)
Operating lease obligations
Purchase obligations
Certificates of Deposit*
Total
*Includes principal payments only.
In One Year or
Less
Payments Due by Period
After One Year
Through Three
Years
After Three Years
Through Five
Years
After Five Years
Total
$
6,009 $
319,168
1,138,020
9,317 $
321,625
236,411
4,275 $
90,368
68,176
13,727 $
74,101
7
33,328
805,262
1,442,614
$
1,463,197 $
567,353 $
162,819 $
87,835 $
2,281,204
In the normal course of business, various commitments and contingent liabilities arise that are not required to be recorded on
the balance sheet. The most significant of these are loan commitments totaling $13.3 billion (including approximately $5.0
50
billion in unused, approved credit card lines) and the contractual amount of standby letters of credit totaling $418.3 million at
December 31, 2021. As many commitments expire unused or only partially used, these totals do not necessarily reflect future
cash requirements. Management does not anticipate any material losses arising from commitments or contingent liabilities and
believes there are no material commitments to extend credit that represent risks of an unusual nature.
The Company funds a defined benefit pension plan for a portion of its employees. Under the funding policy for the plan,
contributions are made as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a
reasonable period. No contributions to the defined benefit plan were made in 2021, 2020 or 2019, and the Company is not
required nor does it expect to make a contribution in 2022.
The Company has investments in low-income housing partnerships generally within the areas it serves. These partnerships
supply funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the
population with lower family income. If these developments successfully attract a specified percentage of residents falling in
that lower income range, federal (and sometimes state) income tax credits are made available to the partners. The tax credits are
normally recognized over ten years, and they play an important part in the anticipated yield from these investments. In order to
continue receiving the tax credits each year over the life of the partnership, the low-income residency targets must be
maintained. Under the terms of the partnership agreements, the Company has a commitment to fund a specified amount that
will be due in installments over the life of the agreements, which ranges from 3 to 17 years. At December 31, 2021, the
investments totaled $60.0 million and are recorded as other assets in the Company’s consolidated balance sheet. Unfunded
commitments, which are recorded as liabilities, amounted to $40.6 million at December 31, 2021.
During the third quarter of 2020, the Company signed a $106.7 million agreement with U.S. Capital Development to
develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri. As of December 31,
2021, the Company has made payments totaling $55.2 million. While the Company intends to occupy a portion of the office
building for executive offices, a 15 year lease has been signed by an anchor tenant to lease approximately 50% of the office
building.
The Company regularly purchases various state tax credits arising from third-party property redevelopment. These credits
are either resold to third parties for a profit or retained for use by the Company. During 2021, purchases and sales of tax credits
amounted to $113.5 million and $108.1 million, respectively. Income from the sales of tax credits were $4.5 million, $4.2
million and $3.5 million in 2021, 2020 and 2019, respectively. At December 31, 2021, the Company had outstanding purchase
commitments totaling $186.0 million that it expects to fund in 2022. These commitments, along with the commitments for the
next five years, are included in the table above.
The Company’s sound equity base, along with its long-term low debt level, common and preferred stock availability, and
excellent debt ratings, provide several alternatives for future financing. Future acquisitions may utilize partial funding through
one or more of these options. Through the various sources of liquidity described above, the Corporation maintains a liquidity
position that it believes will adequately satisfy its financial obligations. The Company is not aware of any trends, events, or
commitments that are reasonably likely to increase or decrease its liquidity in a material way.
51
Capital Management
Under Basel III capital guidelines, at December 31, 2021 and 2020, the Company met all capital adequacy requirements and
had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table.
(Dollars in thousands)
Risk-adjusted assets
Tier I common risk-based capital
Tier I risk-based capital
Total risk-based capital
2021
2020
$ 22,483,748
$ 21,516,461
3,225,044
3,225,044
3,399,880
2,950,926
2,950,926
3,189,432
Minimum Ratios
under Capital
Adequacy
Guidelines
Minimum Ratios
for Well-
Capitalized
Banks*
Tier I common risk-based capital ratio
14.34 %
13.71 %
7.00 %
6.50 %
Tier I risk-based capital ratio
Total risk-based capital ratio
Tier I leverage ratio
Tangible common equity to tangible assets
Dividend payout ratio
* Under Prompt Corrective Action requirements
14.34
15.12
9.13
9.01
23.12
13.71
14.82
9.45
9.92
35.32
8.50
10.50
4.00
8.00
10.00
5.00
The Company is subject to a 2.5% capital conservation buffer, which is an amount above the minimum ratios under capital
adequacy guidelines, and is required under Basel III. The capital conservation buffer is intended to absorb losses during
periods of economic stress. Failure to maintain the buffer will result in constraints on dividends, share repurchases, and
executive compensation.
In the first quarter of 2020, the interim final rule of the Federal Reserve Bank and other U.S. banking agencies became
effective, providing banks that adopted CECL (ASU 2016-13) during the 2020 calendar year the option to delay recognizing the
estimated impact on regulatory capital until after a two year deferral period, followed by a three year transition period. In
connection with the adoption of CECL on January 1, 2020, the Company has elected to utilize this option. As a result, the two
year deferral period for the Company extends through December 31, 2021. Beginning on January 1, 2022, the Company will be
required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in
at the beginning of each subsequent year until fully phased in by the first quarter of 2025.
The Company maintains a treasury stock buyback program under authorizations by its Board of Directors and periodically
purchases stock in the open market. During 2020, the Company purchased 886 thousand shares, and during 2021 the Company
purchased 1.8 million shares. There were no shares purchased under an accelerated share repurchase (ASR) agreement in 2021
or 2020. The ASR agreement is further discussed in Note 14 to the consolidated financial statements. At December 31, 2021,
1.7 million shares remained available for purchase under the current Board authorization.
The Company’s common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain
adequate capital levels and alternative investment options. Per share cash dividends paid by the Company increased 2.0% in
2021 compared with 2020, and the Company increased its first quarter 2022 cash dividend 6.0%, making 2022 the Company's
54th consecutive year of regular cash dividend increases. The Company also distributed its 28th consecutive annual 5% stock
dividend in December 2021.
On September 1, 2020, the Company redeemed all 6,000 outstanding shares of its 6.00% Series B Non-Cumulative
Perpetual Preferred Stock and the corresponding depositary shares representing fractional interests in the Series B Preferred
Stock at a redemption price of $25 per depositary share (equivalent to $1,000 per share of preferred stock). Regular dividends
on the outstanding shares of the Series B Preferred Stock were paid separately on September 1, 2020 to holders of record as of
the close of business on August 14, 2020, in the customary manner. On and after September 1, 2020, all dividends on the shares
of Series B Preferred Stock ceased to accrue.
52
Interest Rate Sensitivity
The Company’s Asset/Liability Management Committee (ALCO) measures and manages the Company’s interest rate risk
on a monthly basis to identify trends and establish strategies to maintain stability in net interest income throughout various rate
environments. Analytical modeling techniques provide management insight into the Company’s exposure to changing rates.
These techniques include net interest income simulations and market value analysis. Management has set guidelines specifying
acceptable limits within which net interest income and market value may change under various rate change scenarios. These
measurement tools indicate that the Company is currently within acceptable risk guidelines as set by management.
The Company’s main interest rate measurement tool, income simulation, projects net interest income under various rate
change scenarios in order to quantify the magnitude and timing of potential rate-related changes. Income simulations are able to
capture option risks within the balance sheet where expected cash flows may be altered under various rate environments.
Modeled rate movements include “shocks, ramps and twists.” Shocks are intended to capture interest rate risk under extreme
conditions by immediately shifting rates up and down, while ramps measure the impact of gradual changes and twists measure
yield curve risk. The size of the balance sheet is assumed to remain constant so that results are not influenced by growth
predictions.
The Company also employs a sophisticated simulation technique known as a stochastic income simulation. This technique
allows management to see a range of results from hundreds of income simulations. The stochastic simulation creates a vector of
potential rate paths around the market’s best guess (forward rates) concerning the future path of interest rates and allows rates to
randomly follow paths throughout the vector. This allows for the modeling of non-biased rate forecasts around the market
consensus. Results give management insight into a likely range of rate-related risk as well as worst and best-case rate scenarios.
Additionally, the Company uses market value analyses to help identify longer-term risks that may reside on the balance
sheet. This is considered a secondary risk measurement tool by management. The Company measures the market value of
equity as the net present value of all asset and liability cash flows discounted along the current swap curve plus appropriate
market risk spreads. It is the change in the market value of equity under different rate environments, or effective duration, that
gives insight into the magnitude of risk to future earnings due to rate changes. Market value analyses also help management
understand the price sensitivity of non-marketable bank products under different rate environments.
The tables below show the effects of gradual shifts in interest rates over a twelve month period on the Company’s net
interest income versus the Company's net interest income in a flat rate scenario. Simulation A presents three rising rate
scenarios and in each scenario, rates are assumed to change evenly over 12 months. In these scenarios, the balance sheet
remains flat.
The sensitivity of deposit balances to changes in rates is particularly difficult to estimate in exceptionally low rate
environments. Since the future effects of changes in rates on deposit balances cannot be known with certainty, the Company
conservatively models alternate scenarios with greater deposit attrition as rates rise. Simulation B illustrates results from these
higher attrition scenarios to provide added perspective on potential effects of higher rates.
The Company utilizes these simulations both for monitoring interest rate risk and for liquidity planning purposes. While the
future effects of rising rates on deposit balances cannot be known, the Company maintains a practice of running multiple rate
scenarios to better understand interest rate risk and its effect on the Company’s performance.
Simulation A
December 31, 2021
September 30, 2021
(Dollars in millions)
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition
300 basis points rising
$
105.2
14.44 % $
200 basis points rising
100 basis points rising
76.0
39.5
10.44
5.42
—
—
—
$
101.1
13.87 % $
73.1
37.7
10.02
5.17
—
—
—
Under Simulation A, in the three rising rate scenarios, interest rate risk is slightly more asset sensitive than the previous
quarter, which resulted mainly from an increase in interest earning deposits with the Federal Reserve. Deposit attrition was
removed from the simulation in both the current and previous quarters. The Company did not model a 100 basis point falling
scenario due to the already low interest rate environment.
53
Simulation B
December 31, 2021
September 30, 2021
(Dollars in millions)
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition
300 basis points rising
$
200 basis points rising
100 basis points rising
60.8
51.8
33.5
8.35 % $
(1,611.1)
$
7.11
4.59
(950.7)
(263.6)
67.6
54.8
33.2
9.27 % $
(1,430.9)
7.51
4.55
(849.1)
(237.5)
In Simulation B, the assumed higher levels of deposit attrition were modeled to capture the results of a shrinking balance
sheet. Under this Simulation, in the three rising rate scenarios, interest rate risk is slightly less asset sensitive than the previous
quarter, which primarily resulted from an increase in surge deposits.
Projecting deposit activity in a historically low interest rate environment is difficult, and the Company cannot predict how
deposits will react to shifting rates. The comparison provided above provides insight into potential effects of changes in rates
and deposit levels on net interest income. The Company believes that its approach to interest rate risk has appropriately
considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of interest rate
risk.
54
Derivative Financial Instruments
The Company maintains an overall interest rate risk management strategy that permits the use of derivative instruments to
modify exposure to interest rate risk. Such instruments include interest rate swaps, interest rate floors, interest rate caps, credit
risk participation agreements, mortgage loan commitments, forward sale contracts, and forward to-be-announced (TBA)
contracts. The Company’s interest rate risk management strategy includes the ability to modify the re-pricing characteristics of
certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin and cash flows.
In addition to using derivatives to manage interest rate risk, the Company enters into foreign exchange derivative
instruments as an accommodation to customers and offsets the related foreign exchange risk by entering into offsetting third-
party forward contracts with approved, reputable counterparties. This trading activity is managed within a policy of specific
controls and limits.
In all of these contracts, the Company is exposed to credit risk in the event of nonperformance by counterparties, who may
be bank customers or other financial institutions. The Company controls the credit risk of its financial contracts through credit
approvals, limits and monitoring procedures. Because the Company generally only enters into transactions with high quality
counterparties, there have been no losses associated with counterparty nonperformance on derivative financial instruments.
The following table summarizes the notional amounts and estimated fair values of the Company’s derivative instruments at
December 31, 2021 and 2020. Notional amount, along with the other terms of the derivative, is used to determine the amounts
to be exchanged between the counterparties. Because the notional amount does not represent amounts exchanged by the parties,
it is not a measure of loss exposure related to the use of derivatives nor of exposure to liquidity risk. All of these derivative
instruments utilized by the Company are further discussed in Note 19 on Derivative Instruments.
(In thousands)
Interest rate swaps
Interest rate caps
Credit risk participation
agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale
contracts
2021
2020
Notional
Amount
Positive Fair
Value
Negative Fair
Value
Notional
Amount
Positive Fair
Value
Negative Fair
Value
$ 2,229,419
$
40,752
$
(11,606)
$ 2,367,017
$
86,389
$
(17,199)
152,058
485,633
5,119
21,787
1,165
147
84
77
764
5
(147)
(277)
(45)
—
(1)
(25)
(12,101)
103,028
381,170
7,431
67,543
—
89,000
$ 3,015,189
$
1
216
57
3,226
—
—
89,889
(1)
(701)
(103)
—
—
(671)
(18,675)
$
Forward TBA contracts
Total at December 31
21,000
$ 2,916,181
$
13
41,842
$
Operating Segments
The Company segregates financial information for use in assessing its performance and allocating resources among three
operating segments. The results are determined based on the Company’s management accounting process, which assigns
balance sheet and income statement items to each responsible segment. These segments are defined by customer base and
product type. The management process measures the performance of the operating segments based on the management structure
of the Company and is not necessarily comparable with similar information for any other financial institution. Each segment is
managed by executives who, in conjunction with the Chief Executive Officer, make strategic business decisions regarding that
segment. The three reportable operating segments are Consumer, Commercial, and Wealth. Additional information is presented
in Note 13 on Segments in the consolidated financial statements.
The Company uses a funds transfer pricing method to value funds used (e.g., loans, fixed assets, cash, etc.) and funds
provided (deposits, borrowings, and equity) by the business segments and their components. This process assigns a specific
value to each new source or use of funds with a maturity, based on current swap rates, thus determining an interest spread at the
time of the transaction. Non-maturity assets and liabilities are valued using weighted average pools. The funds transfer pricing
process attempts to remove interest rate risk from valuation, allowing management to compare profitability under various rate
environments. The Company also assigns loan charge-offs and recoveries (labeled in the table below as “provision for credit
losses”) directly to each operating segment instead of allocating an estimated credit loss provision. The operating segments also
include a number of allocations of income and expense from various support and overhead centers within the Company.
55
The table below is a summary of segment pre-tax income results for the past three years.
(Dollars in thousands)
Consumer
Commercial
Wealth
Segment Totals
Other/
Elimination
Consolidated
Totals
Year ended December 31, 2021:
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains, net
$ 319,439
$ 453,692
$
71,522
$ 844,653
$
(9,229)
$ 835,424
(23,249)
147,273
—
4,845
211,048
—
(52)
213,617
—
(18,456)
571,938
—
84,782
(11,545)
30,059
66,326
560,393
30,059
Non-interest expense
(293,504)
(329,313)
(136,356)
(759,173)
(46,728)
(805,901)
Income before income taxes
$ 149,959
$ 340,272
$ 148,731
$ 638,962
$
47,339
$ 686,301
Year ended December 31, 2020:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
$ 321,036
$ 414,724
$
57,925
$ 793,685
$
36,162
$ 829,847
(31,220)
148,586
—
(3,724)
12
(34,932)
(102,258)
(137,190)
194,505
188,942
532,033
—
—
—
(26,166)
11,032
505,867
11,032
Non-interest expense
(297,790)
(316,004)
(124,964)
(738,758)
(29,620)
(768,378)
Income before income taxes
$ 140,612
$ 289,501
$ 121,915
$ 552,028
$ (110,850)
$ 441,178
2021 vs 2020
Increase in income before income
taxes:
Amount
Percent
$
9,347
$
50,771
$
26,816
$
86,934
$ 158,189
$ 245,123
6.6%
17.5%
22.0%
15.7%
142.7%
55.6%
Year ended December 31, 2019:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
$ 315,778
$ 343,233
$
47,863
$ 706,874
$ 114,419
$ 821,293
(44,987)
135,257
—
(4,204)
(174)
203,952
180,836
—
—
(49,365)
520,045
—
(1,073)
4,658
3,626
(50,438)
524,703
3,626
Non-interest expense
(297,530)
(309,163)
(122,784)
(729,477)
(37,921)
(767,398)
Income before income taxes
$ 108,518
$ 233,818
$ 105,741
$ 448,077
$
83,709
$ 531,786
2020 vs 2019
Increase (decrease) in income before
income taxes:
Amount
Percent
Consumer
$
32,094
$
55,683
$
16,174
$ 103,951
$ (194,559)
$
(90,608)
29.6%
23.8%
15.3%
23.2%
(232.4%)
(17.0%)
The Consumer segment includes consumer deposits, consumer finance, and consumer debit and credit cards. During 2021,
income before income taxes for the Consumer segment increased $9.3 million, or 6.6%, compared to 2020. This increase was
due to a decrease in non-interest expense of $4.3 million, or 1.4%, and a decrease in the provision for credit losses of $8.0
million. These increases to income were partly offset by a $1.6 million, or .5%, decrease in net interest income and a $1.3
million, or .9%, decrease to non-interest income. Net interest income decreased due to a $21.9 million decline in loan interest
income, partly offset by a $9.1 million increase in net allocated funding credits assigned to the Consumer segment's loan and
deposit portfolios, and lower deposit interest expense of $11.2 million. Non-interest income decreased mainly due to a decline
in mortgage banking revenue, partly offset by growth in net credit and debit card fees (mainly higher interchange fees, partly
offset by higher credit card rewards expense) and check sales and wire fees. Non-interest expense decreased from the prior year
mainly due to lower salaries and benefits expense, occupancy expense, allocated servicing costs for mortgage operations and a
reduction in impairment expense on mortgage servicing rights. These decreases were partly offset by higher marketing expense
and higher allocated costs for information technology. The provision for credit losses totaled $23.2 million, an $8.0 million
decrease from the prior year, which resulted mainly from lower net charge-offs on consumer credit card and consumer loans.
Total average loans in this segment decreased $178.3 million, or 8.5%, in 2021 compared to 2020 mainly due to declines in
consumer credit card, auto and fixed and revolving home equity loans. Average deposits increased $1.6 billion, or 13.8%, over
the prior year, resulting from growth in personal demand, savings and interest checking and money market deposit accounts.
56
During 2020, income before income taxes for the Consumer segment increased $32.1 million, or 29.6%, compared to 2019.
This increase was due to growth of $5.3 million, or 1.7% in net interest income, non interest income of $13.3 million, or 9.9%,
and a decrease to the provision for credit losses of $13.8 million. Net interest income increased due to an $18.0 million
increase in net allocated funding credits and lower deposit interest expense of $7.3 million, partly offset by a decrease in
interest income on loans of $20.1 million. Non-interest income increased mainly due to growth in mortgage banking revenue,
partly offset by declines in deposit fees (mainly overdraft and return item fees) and net credit and debit card fees (mainly lower
interchange fees, partly offset by lower rewards expense). These increases to income were partly offset by growth of $260
thousand, or .1%, in non-interest expense. Non-interest expense increased over 2019 due to higher incentive compensation
expense, allocated teller servicing costs, intangible asset amortization and an impairment on mortgage servicing rights. These
increases were partly offset by lower supplies and communication expense, marketing expense, and bank card processing fees.
The provision for credit losses totaled $31.2 million, a $13.8 million decrease from 2019, which resulted mainly from lower net
charge-offs on consumer credit card and consumer loans. Total average loans in this segment decreased $139.3 million, or
6.2%, in 2020 compared to 2019 mainly due to declines in consumer credit card and fixed and revolving home equity loans.
Average deposits increased $1.0 billion over 2019, resulting from growth in personal demand, savings, interest checking and
money market deposit accounts.
Commercial
The Commercial segment provides lending (including the Small Business Banking product line within the branch network),
leasing, international services, and business, government deposit, and related commercial cash management services, as well as
merchant and commercial bank card products. The segment includes the Capital Markets Group, which sells fixed-income
securities to correspondent banks, corporations, public institutions, municipalities, and individuals and also provides securities
safekeeping and bond accounting services. Pre-tax income for 2021 increased $50.8 million, or 17.5%, compared to 2020,
mainly due to increases in net interest income and non-interest income and a decline in the provision for credit losses, partly
offset by an increase in non-interest expense. Net interest income increased $39.0 million, or 9.4%, due to higher net allocated
funding credits of $56.9 million and lower interest expense of $12.9 million on deposits and customer repurchase agreements,
partly offset by a decrease of $30.9 million in loan interest income. The provision for credit losses decreased $8.6 million due
to recoveries recorded on business loans in the current year compared to net charge-offs recorded in the prior year. Non-
interest income increased $16.5 million, or 8.5%, over 2020 due to higher net bank card fees (mainly corporate card and
merchant fees), deposit account fees (mainly corporate cash management fees), and higher interest rate swap fees. These
increases were partly offset by lower cash sweep commissions. Non-interest expense increased $13.3 million, or 4.2%, during
2021, mainly due to higher salaries and benefits expense (mainly incentive compensation), data processing and software
expense, allocated support costs for information technology and commercial banking, and lower deferred origination costs.
These increases were partly offset by lower allocated service costs (mainly lockbox). Average segment loans decreased $327.8
million, or 3.1%, compared to 2020, with the decline occurring in business loans (mainly PPP loans), partly offset by an
increase in construction loans. Average deposits increased $2.1 billion, or 20.7%, mainly due to growth in business demand
deposits.
Pre-tax income for 2020 increased $55.7 million, or 23.8%, compared to 2019, mainly due to an increase in net interest
income, partly offset by a decrease in non-interest income and an increase in non-interest expense. Net interest income
increased $71.5 million, or 20.8%, due to growth of $75.7 million in net allocated funding credits and lower interest expense of
$46.2 million on deposits and customer repurchase agreements, partly offset by a decrease of $50.4 million in loan interest
income. The provision for credit losses decreased $480 thousand from 2019 due to lower lease loan net charge-offs, partly
offset by higher business loan net charge-offs. Non-interest income decreased $9.4 million, or 4.6%, from 2019 due to lower
net corporate card fees (driven by lower transaction volume), lower swap fees and lower gains on sales of leased assets. These
decreases were partly offset by higher deposit account fees (mainly corporate cash management) and capital market fees. Non-
interest expense increased $6.8 million, or 2.2%, during 2020, mainly due to higher salaries and incentive compensation
expense and allocated service and support costs (mainly information technology and commercial loan servicing). These
increases were partly offset by decreases in travel and entertainment expense and allocated teller services costs, as well as
higher deferred origination costs. Average segment loans increased $1.3 billion, or 14.2%, compared to 2019, with growth
occurring in business (mainly PPP loans) and business real estate loans. Average deposits increased $2.1 billion, or 26.6%,
mainly due to growth in business demand accounts.
Wealth
The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management
services, brokerage services, and includes Private Banking accounts. At December 31, 2021, the Trust group managed
investments with a market value of $42.9 billion and administered an additional $26.4 billion in non-managed assets. It also
provides investment management services to The Commerce Funds, a series of mutual funds with $3.2 billion in total assets at
December 31, 2021. In 2021, pre-tax income for the Wealth segment was $148.7 million, compared to $121.9 million in 2020,
57
an increase of $26.8 million, or 22.0%. Net interest income increased $13.6 million, or 23.5%, due to an $11.0 million increase
in net allocated funding credits and lower deposit interest expense of $4.0 million, slightly offset by a decline in loan interest
income of $1.3 million. Non-interest income increased $24.7 million, or 13.1%, over the prior year largely due to higher
private client and institutional trust fees and brokerage fees, partly offset by lower cash sweep commissions. Non-interest
expense increased $11.4 million, or 9.1%, resulting from higher salaries expense (mainly incentive compensation) and higher
allocated support costs for information technology. The provision for credit losses increased $64 thousand, mainly due to
higher net charge-offs on revolving home equity loans. Average assets increased $178.3 million, or 12.7%, during 2021 mainly
due to higher personal real estate and consumer loan balances. Average deposits increased $694.7 million, or 30.6%, due to
growth in business demand and interest checking and money market account deposit balances.
In 2020, pre-tax income for the Wealth segment was $121.9 million, compared to $105.7 million in 2019, an increase of
$16.2 million, or 15.3%. Net interest income increased $10.1 million, or 21.0%, due to a $14.4 million increase in net allocated
funding credits and lower deposit interest expense of $2.8 million, partly offset by a decline in loan interest income of $7.2
million. Non-interest income increased $8.1 million, or 4.5%, over the prior year largely due to higher private client and
institutional trust fees and mortgage banking revenue. Non-interest expense increased $2.2 million, or 1.8%, resulting from
higher salaries expense and higher allocated service and support costs (mainly mortgage loan processing and information
technology), partly offset by lower costs for travel and entertainment. The provision for credit losses decreased $186 thousand,
mainly due to net recoveries on revolving home equity loans. Average assets increased $118.0 million, or 9.2%, during 2020
mainly due to growth in personal real estate and consumer loan balances. Average deposits increased $438.7 million, or 23.9%,
due to growth in interest checking and money market account balances.
The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination”
column include activity not related to the segments, such as certain administrative functions, the investment securities portfolio,
and the effect of certain expense allocations to the segments. In accordance with the Company's transfer pricing procedures, the
difference between the total provision and total net charge-offs/recoveries is not allocated to a business segment and is included
in this category. In 2021, the pre-tax net income in this category was $47.3 million, compared to a net loss of $110.9 million in
2020. This increase was due to higher non-interest income of $14.6 million, partly offset by a decrease in net interest income of
$45.4 million, and an increase in non-interest expense of $17.1 million. Unallocated securities gains were $30.1 million in
2021, compared to securities gains of $11.0 million in 2020. Also, the unallocated provision for credit losses decreased $187.0
million, primarily driven by a decrease in the allowance for credit losses on loans and the liability for unfunded lending
commitments, which are not allocated to segments for management reporting purposes. Net charge-off are allocated to
segments when incurred for management reporting purposes. For the year ended December 31, 2021, the Company's provision
for credit losses on unfunded lending commitments, which is not allocated to the segments for management reporting, was a
benefit of $14.1 million. Additionally, the provision for credit losses on loans was $70.8 million lower than net charge-offs, as
the provision was a benefit in 2021, while the provision was $81.2 million in excess of net charge-offs in 2020.
58
Impact of Recently Issued Accounting Standards
Financial Instruments ASU 2016-13, "Measurement of Credit Losses on Financial Instruments", known as the CECL
model, was issued in June 2016, and has been followed by additional clarifying guidance on specified implementation issues.
This new standard is effective for fiscal years beginning after December 15, 2019 and was adopted by the Company on January
1, 2020 using the modified retrospective method.
CECL requires the calculation of expected lifetime credit losses and is applied to financial assets measured at amortized
cost, including loans and held-to-maturity securities as well as certain unfunded lending commitments such as loan
commitments. The standard also changes the impairment model of available for sale debt securities.
The allowance for loan losses under the previously required incurred loss model is different under the requirements of the
CECL model. At adoption, a cumulative-effect adjustment for the change in the allowance for credit losses increased retained
earnings by $3.8 million. The cumulative-effect adjustment to retained earnings, net of taxes, was comprised of the impact to
the allowance for credit losses on outstanding loans and the impact to the liability for unfunded lending commitments. There
was no implementation impact on held-to-maturity debt securities as the Company does not hold any held-to-maturity debt
securities.
CECL does not require the use of a specific loss estimation method for purposes of determining the allowance for credit
losses. The Company selected a methodology that uses historical net charge-off rates, adjusted by the impacts of a reasonable
and supportable forecast and the impacts of other qualitative factors to determine the expected credit losses. Key assumptions
include the application of historical loss rates, prepayment speeds, forecast results of a reasonable and supportable period, the
period to revert to historical loss rates, and qualitative factors. The forecast is determined using projections of certain
macroeconomic variables, such as, unemployment rate, prime rate, BBB corporate yield, and house price index. The model
design and methodology requires management judgment.
Upon adoption of CECL, the allowance for credit losses on the commercial portfolio decreased due to the relatively short
contractual lives of the commercial loan portfolios coupled with an economic forecast predicting stable macroeconomic factors.
The allowance for credit losses on the personal banking portfolio increased upon adoption of CECL, due to the relatively longer
contractual lives of certain portfolios, primarily those collateralized with personal real estate. Because the commercial loan
portfolio represented 63% of total loans at December 31, 2019, the change in its allowance for credit losses had a more
significant impact on the total allowance for credit losses, and resulted in a net reduction in the allowance for credit losses. As a
result, the Company's allowance for loan losses to total loans ratio declined from 1.09% at December 31, 2019, to .95% at the
time of the Company's adoption of CECL. Offsetting the overall reduction in the allowance for credit losses for outstanding
loans was an increase in the liability for unfunded lending commitments, as the loss estimation was required to be expanded
over the contractual commitment period. Further discussion of the accounting impact of the Company's adoption is included in
Note 1 to the consolidated financial statements.
Additionally, the Company elected to phase the estimated impact of CECL into regulatory capital in accordance with the
interim final rule of the Federal Reserve Bank and other U.S. banking agencies. Further discussion of the impact of this
election is discussed above in Capital Management within Liquidity and Capital Resources.
Intangible Assets The FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment", in January 2017.
Under current guidance, a goodwill impairment loss is measured by comparing the implied fair value of a reporting unit's
goodwill with the carrying amount of that goodwill by following procedures that would be required in determining the fair
value of assets acquired and liabilities assumed in a business combination. Under the new amendments, the goodwill
impairment test compares the fair value of a reporting unit with its carrying amount and an impairment charge is measured as
the amount by which the carrying amount exceeds the reporting unit's fair value. The amendments were effective for
impairment tests beginning January 1, 2020, and the Company adopted them on that date. The adoption did not have a
significant effect on the Company's consolidated financial statements.
Financial Instruments The FASB issued ASU 2018-13, "Changes to the Disclosure Requirements of Fair Value
Measurement", in August 2018. The amendments in the ASU eliminate or modify certain disclosure requirements for fair value
measurements in Topic 820, Fair Value Measurement. In addition, the amendments in the ASU also require the addition of
new disclosure requirements on fair value measurement, including the disclosure of changes in unrealized gains and losses for
the period included in AOCI for recurring Level 3 fair value measurements and the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value measurements. The guidance was effective January 1, 2020, and the
Company adopted the new guidance on that date. The adoption did not have a significant effect on the Company's consolidated
financial statements.
59
Retirement Benefits The FASB issued ASU 2018-14, "Compensation - Retirement Benefits-Defined Benefit Plans-
General (Subtopic 715-20)", in August 2018. The amendments in the ASU eliminate disclosures that are no longer considered
cost beneficial and clarify specific requirements of disclosures. In addition, the amendments in the ASU also add new
disclosures, including the explanation of the reasons for significant gains and losses related to changes in the benefit obligation
for the period. The amendments were effective January 1, 2020, and the Company adopted them on that date. The adoption did
not have a significant effect on the Company's consolidated financial statements.
Intangible Assets The FASB issued ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract", in August 2018. Under current guidance, the accounting for
implementation costs of a hosting arrangement that is a service contract is not specifically addressed. Under the new
amendments, the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract
are aligned with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software or
hosting arrangements that include an internal-use software license. The guidance was effective January 1, 2020, and the
Company adopted it on that date. The adoption did not have a significant effect on the Company's consolidated financial
statements.
Income Taxes The FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes", in December 2019. The
amendments in the ASU eliminate certain exceptions under current guidance for investments, intraperiod allocations, and the
methodology for calculating interim income tax. In addition, the amendments also add new guidance to simplify accounting for
income taxes. The amendments were effective January 1, 2021, and the Company adopted them on that date. The adoption did
not have a significant effect on the Company's consolidated financial statements.
Investment Securities The FASB issued ASU 2020-08, "Codification Improvements to Subtopic 310-20, Receivables -
Nonrefundable Fees and Other Costs", in October 2020. The amendments in the ASU clarify that for each reporting period an
entity should evaluate whether a callable debt security that has multiple call dates may consider estimates of future principal
prepayments when applying the interest method. The guidance was effective January 1, 2021, and the Company adopted it on
that date. The adoption did not have a significant effect on the Company's consolidated financial statements.
Reference Rate Reform The FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects
of Reference Rate Reform on Financial Reporting", in March 2020, and has been followed by additional clarifying guidance
related to derivatives that are modified as a result of reference rate reform. The new guidance provides optional expedients and
exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if
they reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Further, the
guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is
modified as a result of reference rate reform. The expedients and exceptions provided by the new guidance do not apply to
contract modifications made and hedging relationships entered into or evaluated for effectiveness after December 31, 2022,
except for certain hedging relationships existing as of December 31, 2022. In December 2021, the FASB voted to propose
extending the sunset date under Topic 848 from December 31, 2022 to December 31, 2024. The change is to align the
temporary accounting relief guidance with the expected cessation date of LIBOR, which was postponed by administrators
earlier this year to June 2023, a year after the current sunset date of ASU 2020-04.
In order to assess the impact of transition and ensure a successful transition process, the Company established a LIBOR
Transition Program led by the LIBOR Transition Steering Committee (the Committee), which is an internal, cross-functional
team with representatives from all relevant business lines, support functions and legal counsel. A LIBOR impact and risk
assessment has been performed, and the Committee has developed and prioritized action items. All financial contracts that
reference LIBOR have been identified and are being monitored on an ongoing basis. The process of remediating these contracts
has started, and LIBOR fallback language has been included in key loan provisions of new and renewed loans in preparation for
transition from LIBOR. Additionally, changes to the Company's systems have been identified, and the process of installing and
testing code was started in the third quarter of 2021. The installation and testing process is expected to be completed in 2022.
Corporate Governance
The Company has adopted a number of corporate governance measures. These include corporate governance guidelines, a
code of ethics that applies to its senior financial officers and the charters for its audit and risk committee, its committee on
compensation and human resources, and its committee on governance/directors. This information is available on the
Company’s website www.commercebank.com under "Social Responsibility".
60
SUMMARY OF QUARTERLY STATEMENTS OF INCOME
Year ended December 31, 2021
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Non-interest income
Investment securities gains (losses), net
Salaries and employee benefits
Other expense
Provision for credit losses
Income before income taxes
Income taxes
Non-controlling interest
Net income attributable to Commerce Bancshares, Inc.
Net income per common share — basic*
Net income per common share — diluted*
Weighted average shares — basic*
Weighted average shares — diluted*
Year ended December 31, 2020
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Non-interest income
Investment securities gains (losses), net
Salaries and employee benefits
Other expense
Provision for credit losses
Income before income taxes
Income taxes
Non-controlling interest
Net income attributable to Commerce Bancshares, Inc.
Net income per common share — basic*
Net income per common share — diluted*
Weighted average shares — basic*
Weighted average shares — diluted*
Year ended December 31, 2019
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Non-interest income
Investment securities gains (losses), net
Salaries and employee benefits
Other expense
Provision for credit losses
Income before income taxes
Income taxes
Non-controlling interest
Net income attributable to Commerce Bancshares, Inc.
Net income per common share — basic*
Net income per common share — diluted*
Weighted average shares — basic*
Weighted average shares — diluted*
* Restated for the 5% stock dividend distributed in 2021.
12/31/2021
9/30/2021
6/30/2021
3/31/2021
For the Quarter Ended
$
210,479 $
216,981 $
211,133 $
(2,822)
(2,944)
(3,151)
207,657
147,699
(9,706)
(132,640)
(70,942)
7,054
149,122
(33,764)
(452)
214,037
137,506
13,108
(132,824)
(78,796)
7,385
160,416
(34,662)
(3,193)
207,982
139,143
16,804
(130,751)
(67,375)
45,655
211,458
(45,209)
(3,923)
$
$
$
114,906 $
122,561 $
162,326 $
.94 $
.94 $
120,964
121,221
1.00 $
.99 $
121,628
121,881
1.32 $
1.32 $
121,971
122,273
209,697
(3,949)
205,748
136,045
9,853
(129,033)
(63,540)
6,232
165,305
(32,076)
(2,257)
130,972
1.06
1.06
122,073
122,402
12/31/2020
9/30/2020
6/30/2020
3/31/2020
For the Quarter Ended
$
214,726 $
223,114 $
(4,963)
(7,152)
209,763
135,117
12,307
(129,983)
(66,327)
4,403
165,280
(33,084)
(2,307)
215,962
129,572
16,155
(127,308)
(63,550)
(3,101)
167,730
(34,375)
(907)
213,323 $
(10,266)
203,057
117,515
(4,129)
(126,759)
(60,753)
(80,539)
48,392
(9,661)
1,132
129,889 $
132,448 $
39,863 $
1.05 $
1.05 $
122,081
122,333
1.01 $
1.01 $
122,069
122,266
.31 $
.31 $
122,054
122,264
For the Quarter Ended
221,485
(20,420)
201,065
123,663
(13,301)
(128,937)
(64,761)
(57,953)
59,776
(10,173)
2,254
51,857
.40
.40
122,508
122,792
12/31/2019
9/30/2019
6/30/2019
3/31/2019
226,665 $
(24,006)
202,659
143,461
(248)
231,743 $
(28,231)
203,512
132,743
4,909
238,412 $
(26,778)
211,634
127,259
(110)
227,865
(24,377)
203,488
121,240
(925)
(126,901)
(123,836)
(120,062)
(122,128)
(68,273)
(15,206)
135,492
(28,214)
(398)
106,880 $
.84 $
.84 $
123,183
123,492
(67,184)
(10,963)
139,181
(29,101)
(838)
109,242 $
.85 $
.85 $
124,563
124,857
(69,717)
(11,806)
137,198
(28,899)
(328)
107,971 $
.82 $
.82 $
126,744
127,052
(69,297)
(12,463)
119,915
(22,860)
83
97,138
.74
.74
127,351
127,687
$
$
$
$
$
$
$
61
AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
2021
Interest
Income/
Expense
Average
Balance
Average
Rates
Earned/Paid
Average
Balance
2020
Interest
Income/
Expense
Average
Rates
Earned/Paid
Average
Balance
2019
Interest
Income/
Expense
Average
Rates
Earned/Paid
Years Ended December 31
(Dollars in thousands)
ASSETS
Loans:(A)
Business(B)
Real estate – construction and land
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities:
U.S. government & federal agency obligations
Government-sponsored enterprise obligations
State & municipal obligations(B)
Mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities(B)
Equity securities(B)
Other securities(B)
Total investment securities
Federal funds sold
Securities purchased under agreements to resell
Interest earning deposits with banks
Total interest earning assets
Allowance for credit losses on loans
Unrealized gain (loss) on debt securities
Cash and due from banks
Premises and equipment - net
Other assets
Total assets
LIABILITIES AND EQUITY
Interest bearing deposits:
Savings
Interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Total interest bearing deposits
Borrowings:
Federal funds purchased
Securities sold under agreements to repurchase
Other borrowings(C)
Total borrowings
Total interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Equity
Total liabilities and equity
Net interest margin (T/E)
$ 5,838,682 $ 186,968
40,702
1,144,741
104,329
3,005,943
92,267
2,797,635
76,361
2,009,577
9,823
286,064
64,274
577,411
—
4,335
574,724
15,664,388
880
21,524
3.20% $ 6,387,410 $ 196,249
38,619
3.56
956,999
110,080
2,959,068
3.47
94,835
2,619,211
3.30
86,096
1,967,133
3.80
12,405
334,866
3.43
78,704
668,810
11.13
—
3,351
—
616,988
15,896,848
3.67
860
18,685
4.09
3.07% $ 5,214,158 $ 202,308
49,702
909,367
4.04
127,635
2,859,008
3.72
85,604
2,178,716
3.62
92,414
1,930,883
4.38
18,204
358,474
3.70
93,754
764,828
11.77
—
9,203
—
669,621
14,224,637
3.88
1,209
18,577
4.60
32,888
1,180
47,721
95,175
32,705
12,556
452
2,223
18,924
243,824
4
37,377
3,202
860,011
4.13
2.32
2.37
1.36
1.16
2.08
1.24
32.65
11.05
1.81
.59
2.93
.13
2.62
1,129
6,380
1,158
2,577
11,244
17
1,629
5
1,651
12,895
.08
.05
.24
.21
.07
.07
.07
.62
.07
.07%
796,043
50,789
2,015,635
6,985,897
2,824,993
603,720
36,534
6,809
171,322
13,491,742
677
1,275,837
2,420,533
32,874,701
(188,758)
198,722
339,431
408,537
531,102
$ 34,163,735
$ 1,450,495
13,370,226
478,371
1,244,757
16,543,849
23,623
2,311,214
808
2,335,645
18,879,494
11,240,267
591,459
3,452,515
$ 34,163,735
17,369
3,346
42,260
109,834
29,759
10,846
659
2,030
8,732
224,835
3
40,647
2,273
885,606
2.22
3.18
2.70
1.92
2.03
2.44
2.17
48.26
6.55
2.19
1.08
4.78
.20
3.15
1,053
16,798
4,897
12,948
35,696
794
5,297
1,029
7,120
42,816
.09
.15
.84
.95
.24
.63
.29
.81
.34
.26%
780,903
105,069
1,562,415
5,733,398
1,467,496
444,489
30,321
4,206
133,391
10,261,688
278
849,998
1,115,551
28,143,048
(196,942)
292,898
343,516
399,228
634,949
$ 29,616,697
$ 1,123,413
11,539,717
585,695
1,358,389
14,607,214
126,203
1,840,276
126,585
2,093,064
16,700,278
8,890,263
715,033
3,311,123
$ 29,616,697
20,968
4,557
38,362
123,806
37,478
9,017
886
1,792
8,466
245,332
55
15,898
6,698
938,813
1,021
38,691
6,368
26,945
73,025
5,332
24,083
952
30,367
103,392
851,124
191,406
1,220,958
4,594,576
1,372,574
333,105
29,450
4,547
134,255
8,731,995
2,034
741,089
316,299
24,034,631
(160,212)
74,605
370,709
380,350
513,442
$ 25,213,525
918,896
$
10,607,224
610,807
1,396,760
13,533,687
247,126
1,574,972
43,919
1,866,017
15,399,704
6,376,204
360,587
3,077,030
$ 25,213,525
$ 847,116
$ 842,790
$ 835,421
3.88%
5.47
4.46
3.93
4.79
5.08
12.26
—
4.71
6.51
2.46
2.38
3.14
2.69
2.73
2.71
3.01
39.41
6.31
2.81
2.70
2.15
2.12
3.91
.11
.36
1.04
1.93
.54
2.16
1.53
2.17
1.63
.67%
3.48%
(.55%)
Net yield on interest earning assets
Percentage increase (decrease) in net interest margin
(T/E) compared to the prior year
2.58%
.51%
2.99%
.88%
(A) Loans on non-accrual status are included in the computation of average balances. Included in interest income above are loan fees and late charges, net of
amortization of deferred loan origination fees and costs, which are immaterial. Credit card income from merchant discounts and net interchange fees are not
included in loan income.E — A
VERAGE RATES AND
62
2018
Interest
Income/
Expense
Average
Balance
Average
Rates
Earned/Paid
Average
Balance
2017
Interest
Income/
Expense
Average
Rates
Earned/Paid
Average
Balance
2016
Interest
Income/
Expense
Average
Rates
Earned/Paid
Average Balance Five Year
Compound Growth Rate
Years Ended December 31
184,837
49,440
117,516
80,365
89,074
17,513
92,269
—
631,014
1,298
21,720
6,098
42,867
111,686
34,223
8,912
759
11,816
12,412
250,493
519
15,881
6,233
905,438
973
26,830
3,215
14,658
45,676
1,582
18,073
45
19,700
65,376
$ 4,963,029 $
967,320
2,737,820
2,093,802
2,010,826
379,715
768,789
4,778
13,926,079
19,493
921,759
308,520
1,410,700
4,203,625
1,455,690
340,458
24,731
26,459
114,438
8,806,380
27,026
696,438
319,948
23,795,364
(158,791)
(113,068)
360,732
343,636
438,362
$ 24,666,235
867,150
$
10,817,169
603,137
1,114,825
13,402,281
82,179
1,431,965
1,747
1,515,891
14,918,172
6,728,971
247,520
2,771,572
$ 24,666,235
3.72%
5.11
4.29
3.84
4.43
4.61
12.00
—
4.53
6.66
2.36
1.98
3.04
2.66
2.35
2.62
3.07
44.66
10.85
2.84
1.92
2.28
1.95
3.81
.11
.25
.53
1.31
.34
1.93
1.26
2.58
1.30
.44%
154,681
37,315
102,009
75,267
81,065
15,516
88,329
—
554,182
1,000
19,697
7,321
62,073
89,623
36,757
8,410
583
2,283
10,507
237,254
230
15,440
2,223
810,329
981
16,328
2,645
10,859
30,813
1,600
8,229
3,086
12,915
43,728
$ 4,832,045 $
881,879
2,694,620
2,019,674
2,036,393
398,611
743,885
4,592
13,611,699
17,452
914,961
452,422
1,720,723
3,784,602
2,083,611
330,365
21,929
60,772
98,564
9,467,949
18,518
688,147
207,269
24,011,034
(156,572)
45,760
361,414
345,639
424,333
$ 25,031,608
819,558
$
10,517,741
676,272
1,404,960
13,418,531
164,156
1,298,231
87,696
1,550,083
14,968,614
7,176,255
250,510
2,636,229
$ 25,031,608
3.20%
4.23
3.79
3.73
3.98
3.89
11.87
—
4.07
5.73
2.15
1.62
3.61
2.37
1.76
2.55
2.66
3.76
10.66
2.51
1.24
2.24
1.07
3.37
.12
.16
.39
.77
.23
.97
.63
3.52
.83
.29%
134,438
27,452
89,305
72,417
75,076
14,797
86,008
—
499,493
1,317
15,628
13,173
63,261
82,888
35,346
8,382
489
2,208
7,656
229,031
78
13,544
973
744,436
923
13,443
2,809
8,545
25,720
639
2,676
3,968
7,283
33,003
$ 4,652,526 $
778,822
2,440,955
1,936,420
1,947,240
417,514
749,589
4,712
12,927,778
25,710
735,081
591,785
1,753,727
3,460,821
2,418,118
331,289
19,722
47,763
112,888
9,471,194
12,660
791,392
188,581
23,417,315
(152,628)
143,842
381,822
350,443
415,677
$ 24,556,471
775,121
$
10,285,288
749,261
1,471,610
13,281,280
169,711
1,096,382
171,255
1,437,348
14,718,628
7,049,633
292,145
2,496,065
$ 24,556,471
$
840,062
$
766,601
$
711,433
YI
3.53%
9.58%
3.19%
7.75%
2.89%
3.52
3.66
3.74
3.86
3.54
11.47
—
3.86
5.12
2.13
2.23
3.61
2.40
1.46
2.53
2.48
4.62
6.78
2.42
.62
1.71
.52
3.18
.12
.13
.37
.58
.19
.38
.24
2.32
.51
.22%
3.04%
7.14%
4.65%
8.01
4.25
7.64
.63
(7.28)
(5.09)
(1.65)
3.91
(3.49)
1.61
(38.80)
2.82
15.08
3.16
12.75
13.12
(32.27)
8.70
7.33
(44.33)
10.02
66.60
7.02
4.34
6.68
(2.33)
3.12
5.02
6.83
13.35
5.39
(8.58)
(3.29)
4.49
(32.59)
16.08
(65.74)
10.20
5.11
9.78
15.15
6.70
6.83%
(B) Interest income and yields are presented on a fully-taxable equivalent basis using a federal income tax rate of 21% in 2021, 2020, 2019 and 2018, and 35%
in prior periods. Loan interest income includes tax free loan income (categorized as business loan income) which includes tax equivalent adjustments of
$4,176,000 in 2021, $4,916,000 in 2020, $6,282,000 in 2019, $5,931,000 in 2018, $10,357,000 in 2017 and $9,537,000 in 2016. Investment securities
interest income includes tax equivalent adjustments of $7,546,000 in 2021, $8,042,000 in 2020, $7,845,000 in 2019, $10,306,000 in 2018, $22,565,000 in
2017 and $21,847,000 in 2016. These adjustments relate to state and municipal obligations, trading securities, equity securities, and other securities.
(C) Interest expense of $29,000 and $14,000, which was capitalized on construction projects in 2021 and 2020, respectively, is not deducted from the interest
expense shown above.
63
QUARTERLY AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Year ended December 31, 2021
(Dollars in millions)
ASSETS
Loans:
Business(A)
Real estate – construction and land
$
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities:
U.S. government & federal agency
obligations
Government-sponsored enterprise
obligations
State & municipal obligations(A)
Mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities(A)
Equity securities(A)
Other securities(A)
Total investment securities
Federal funds sold
Securities purchased under agreements
to resell
Interest earning deposits with banks
Total interest earning assets
Allowance for credit losses on loans
Unrealized gain on debt securities
Cash and due from banks
Premises and equipment – net
Other assets
Total assets
5,193
1,228
3,003
2,785
2,044
276
559
5
15,093
11
1,009
51
2,096
7,141
3,515
630
46
9
190
14,687
1
1,670
2,857
34,319
(162)
86
345
420
522
3.16% $
3.61
3.41
3.21
3.65
3.47
11.06
—
3.62
5.10
3.11
2.30
2.26
1.40
1.03
2.07
1.54
27.64
18.39
1.82
.70
1.62
.15
2.47
5,437
1,169
2,983
2,776
2,041
282
566
5
15,259
16
728
51
2,040
7,115
3,028
609
32
9
183
13,795
1
1,633
2,603
33,307
(172)
230
329
409
523
3.43% $
3.51
3.46
3.27
3.71
3.46
11.29
—
3.74
4.63
5.74
2.30
2.35
1.53
1.08
2.04
1.01
23.92
7.46
1.89
.50
2.19
.15
2.62
6,212
1,088
3,015
2,804
2,005
287
576
4
15,991
23
720
51
1,967
6,685
2,654
606
35
5
157
12,880
1
937
2,725
32,557
(201)
197
329
404
526
3.15% $
3.56
3.49
3.31
3.84
3.43
11.22
—
3.65
4.20
5.52
2.33
2.41
1.11
1.25
2.06
1.19
43.10
11.90
1.78
.60
4.46
.11
2.64
6,533
1,092
3,023
2,826
1,947
299
609
4
16,333
36
725
51
1,959
6,999
2,086
570
32
4
154
12,580
—
850
1,480
31,279
(221)
284
355
401
552
$
35,530
$
34,626
$
33,812
$
32,650
LIABILITIES AND EQUITY
Interest bearing deposits:
Savings
$
Interest checking and money market
Certificates of deposit under $100,000
Certificates of deposit $100,000 & over
Total interest bearing deposits
Borrowings:
Federal funds purchased
Securities sold under agreements to
repurchase
Other borrowings
Total borrowings
Total interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Equity
Total liabilities and equity
Net interest margin (T/E)
$
$
1,507
13,875
442
1,105
16,929
21
2,620
1
2,642
19,571
11,919
562
3,478
35,530
210
.08
.04
.14
.14
.05
.11
.08
—
.08
.06%
$
$
$
1,485
13,343
464
1,290
16,582
14
2,347
—
2,361
18,943
11,475
668
3,540
34,626
217
.08
.05
.18
.14
.06
.10
.08
1.14
.08
.06%
$
$
$
1,474
13,284
491
1,355
16,604
23
2,143
1
2,167
18,771
11,109
527
3,405
33,812
211
.08
.05
.27
.20
.07
.05
.06
.82
.06
.07%
$
$
$
1,333
12,971
517
1,230
16,051
37
2,129
1
2,167
18,218
10,439
608
3,385
32,650
209
Net yield on interest earning assets
2.43%
2.58%
2.60%
2.71%
(A)
Includes tax equivalent calculations.
64
3.09%
3.54
3.52
3.40
4.02
3.38
10.97
—
3.66
3.44
2.54
2.36
2.46
1.39
1.39
2.15
1.08
49.56
5.26
1.72
—
5.31
.10
2.76
.08
.06
.37
.35
.09
.05
.06
.98
.06
.09%
— AVERAGE RATES AND YIELDS
Year ended December 31, 2020
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
6,580
1,033
3,030
2,778
1,981
317
638
4
16,361
31
775
69
1,967
6,646
1,820
534
28
4
130
11,973
—
850
1,083
30,298
(235)
329
320
406
566
3.01% $
3.72
3.51
3.44
4.07
3.37
11.60
—
3.69
3.54
2.63
2.23
2.44
1.37
1.59
2.19
1.40
50.71
10.03
1.81
1.12
5.24
.10
2.86
6,710
974
2,990
2,722
1,992
329
646
3
16,366
25
770
103
1,768
6,260
1,521
514
27
4
120
11,087
—
850
1,025
29,353
(240)
368
326
404
660
2.95% $
3.74
3.53
3.56
4.19
3.29
11.40
—
3.69
4.25
3.71
2.17
2.53
1.95
1.90
2.35
1.66
47.15
6.74
2.24
—
5.26
.10
3.07
6,761
896
2,962
2,582
1,944
343
664
3
16,155
6
776
115
1,285
5,326
1,343
407
32
4
139
9,427
—
850
1,755
28,193
(172)
281
358
395
710
2.91% $
3.95
3.71
3.69
4.48
3.50
11.76
—
3.80
8.03
.46
3.51
2.97
2.17
2.25
2.49
2.93
48.42
4.36
2.24
—
5.08
.10
3.09
5,493
924
2,854
2,391
1,950
350
728
4
14,694
13
803
134
1,223
4,686
1,183
322
34
4
144
8,533
—
850
601
24,691
(139)
191
370
392
606
3.50%
4.78
4.16
3.83
4.78
4.61
12.26
—
4.39
6.15
2.09
4.19
3.11
2.37
2.63
2.94
2.52
46.78
5.31
2.61
2.47
3.53
.86
3.66
(Dollars in millions)
ASSETS
Loans:
Business(A)
Real estate – construction and land
$
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities:
U.S. government & federal agency
obligations
Government-sponsored enterprise
obligations
State & municipal obligations(A)
Mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities(A)
Equity securities(A)
Other securities(A)
Total investment securities
Federal funds sold
Securities purchased under agreements to
resell
Interest earning deposits with banks
Total interest earning assets
Allowance for credit losses on loans
Unrealized gain (loss) on debt securities
Cash and due from banks
Premises and equipment – net
Other assets
Total assets
$
31,684
$
30,871
$
29,765
$
26,111
LIABILITIES AND EQUITY
Interest bearing deposits:
Savings
$
Interest checking and money market
Certificates of deposit under $100,000
Certificates of deposit $100,000 & over
Total interest bearing deposits
Borrowings:
Federal funds purchased
Securities sold under agreements to
repurchase
Other borrowings
Total borrowings
Total interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Equity
Total liabilities and equity
Net interest margin (T/E)
$
$
1,234
12,200
542
1,339
15,315
48
1,980
1
2,029
17,344
10,276
728
3,336
31,684
213
.09
.07
.51
.47
.12
.07
.06
—
.06
.11%
$
$
$
1,193
11,732
573
1,448
14,946
26
1,830
1
1,857
16,803
9,802
900
3,366
30,871
219
.09
.10
.71
.69
.18
.01
.09
—
.09
.17%
$
$
$
1,111
11,442
605
1,346
14,504
223
1,769
345
2,337
16,841
8,843
765
3,316
29,765
206
$
.09
.13
.93
1.08
.25
953
10,777
623
1,299
13,652
.11
.30
1.15
1.62
.45
.04
.13
.82
.22
.25%
209
1.46
.91
.82
.95
.52%
1,781
162
2,152
15,804
6,615
467
3,225
26,111
204
$
$
Net yield on interest earning assets
2.80%
2.97%
2.94%
3.33%
(A)
Includes tax equivalent calculations.
65
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is disclosed within the Interest Rate Sensitivity section of Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Commerce Bancshares, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Commerce Bancshares, Inc. and subsidiaries (the Company)
as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in equity,
and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2021, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 23, 2022 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the
recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU 2016-13 Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and its related amendments.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
66
Assessment of the allowance for loan losses related to loans collectively evaluated for impairment
As discussed in Notes 1 and 2 to the consolidated financial statements, the allowance for credit losses related to loans
evaluated on a collective basis (the December 31, 2021 collective ACL) was $149.9 million of a total allowance for credit
losses of $150.0 million as December 31, 2021. The allowance for credit losses on loans and leases is measured on a
collective (pool) basis whereas loans are aggregated into pools based on similar risk characteristics. The Company
estimates the collective ACL utilizing average historical loss rates, calculated using historical net charge-offs and
outstanding loan balances during a lookback period for each pool. In certain loan pools, if the Company’s own historical
loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data. The
calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts
(forecast adjusted loss rate). These adjustments increase or decrease the average historical loss rate to reflect expectations
of future losses given a single path economic forecast of key macroeconomic variables. The adjustments are based on
results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is
used for a reasonable and supportable period before reverting back to historical averages using a straight-line method. The
forecast adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for
expected prepayments. The allowance is further adjusted for certain qualitative factors not included in historical loss rates
or the macroeconomic forecast, which include changes in portfolio composition and characteristics, underwriting practices,
watchlist trends, or significant unique events or conditions.
We identified the assessment of the December 31, 2021 collective ACL as a critical audit matter. A high degree of audit
effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the
assessment due to significant measurement uncertainty. Specifically, this assessment encompassed the evaluation of the
conceptual soundness of the average historical loss model used to estimate the collective ACL, including the following key
factors and assumptions (1) historical losses, (2) the reasonable and supportable forecast period, and (3) the development
and evaluation of qualitative adjustments. In addition, auditor judgment was required to evaluate the sufficiency of audit
evidence obtained.
The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL
estimates, including controls over the (1) development and approval of the collective ACL methodology, (2) validation of
the collective ACL methodology and model, (3) identification and determination of the key factors and assumptions used to
estimate the collective ACL, (4) development of qualitative adjustments, and (5) analysis of the collective ACL results,
trends, and ratios. We evaluated the Company’s process to develop the collective ACL estimates by testing certain sources
of data, factors, and assumptions, and considered the relevance and reliability of such data, factors, and assumptions. We
evaluated whether the historical losses in the Company’s portfolio are representative of the credit characteristics of the
current portfolio. We involved credit risk professionals with specialized skills and knowledge, who assisted in:
• evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting
principles,
• evaluating the collective ACL methodology and model for conceptual soundness by inspecting the methodology and
model documentation to determine whether the methodology and model are suitable for intended use
• testing the historical losses period and the reasonable and supportable forecast period by comparing them to the
Company’s business environment and relevant industry practices
• evaluating the methodology used to develop the qualitative factors and the effect of those factors on the collective ACL
compared with changes in the nature and volume of the entity’s financial assets and identified limitations of the
underlying quantitative model.
We assessed the sufficiency of the audit evidence obtained related to the Company’s December 31, 2021 collective ACL
by evaluating the cumulative results of the audit procedures, qualitative aspects of the Company’s accounting practices and
potential bias in the accounting estimates.
We have served as the Company’s auditor since 1971.
Kansas City, Missouri
February 23, 2022
67
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
Loans
Allowance for credit losses on loans
Net loans
December 31
2021
2020
(In thousands)
$
15,176,359 $
(150,044)
15,026,315
16,329,641
(220,834)
16,108,807
Loans held for sale (including $5,570,000 and $39,396,000 of residential mortgage loans carried at fair
value at December 31, 2021 and 2020, respectively)
8,615
45,089
Investment securities:
Available for sale debt, at fair value (amortized cost of $14,419,133,000 and $12,097,533,000 at
December 31, 2021 and 2020, respectively, and allowance for credit losses of $— at both
December 31, 2021 and 2020)
Trading debt
Equity
Other
Total investment securities
Federal funds sold
Securities purchased under agreements to resell
Interest earning deposits with banks
Cash and due from banks
Premises and equipment – net
Goodwill
Other intangible assets – net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing
Savings, interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Total deposits
Federal funds purchased and securities sold under agreements to repurchase
Other borrowings
Other liabilities
Total liabilities
Commerce Bancshares, Inc. stockholders’ equity:
Common stock, $5 par value
Authorized 140,000,000; issued 122,160,705 shares at December 31, 2021 and 117,870,372 shares
at December 31, 2020
Capital surplus
Retained earnings
Treasury stock of 476,392 shares at December 31, 2021
and 497,413 shares at December 31, 2020, at cost
Accumulated other comprehensive income
Total Commerce Bancshares, Inc. stockholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
68
14,450,027
46,235
9,202
194,047
14,699,511
2,800
1,625,000
3,971,217
305,539
388,738
138,921
15,570
506,862
36,689,088 $
12,449,264
35,321
4,363
156,745
12,645,693
—
850,000
1,747,363
437,563
371,083
138,921
11,207
567,248
32,922,974
11,772,374 $
16,598,085
435,960
1,006,654
29,813,073
3,022,967
12,560
392,164
33,240,764
10,497,598
14,604,456
529,802
1,314,889
26,946,745
2,098,383
802
477,072
29,523,002
$
$
610,804
589,352
2,689,894
2,436,288
92,493
73,000
(32,973)
77,080
(32,970)
331,377
3,437,298
3,397,047
11,026
2,925
3,448,324
3,399,972
$
36,689,088 $
32,922,974
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
INTEREST INCOME
Interest and fees on loans
Interest on loans held for sale
Interest on investment securities
Interest on federal funds sold
Interest on securities purchased under agreements to resell
Interest on deposits with banks
Total interest income
INTEREST EXPENSE
Interest on deposits:
Savings, interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Interest on federal funds purchased and securities sold under agreements to repurchase
Interest on other borrowings
Total interest expense
Net interest income
Provision for credit losses
Net interest income after credit losses
NON-INTEREST INCOME
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Capital market fees
Consumer brokerage services
Loan fees and sales
Other
Total non-interest income
INVESTMENT SECURITIES GAINS, NET
NON-INTEREST EXPENSE
Salaries and employee benefits
Net occupancy
Equipment
Supplies and communication
Data processing and software
Marketing
Other
Total non-interest expense
Income before income taxes
Less income taxes
Net income
Less non-controlling interest expense (income)
Net income attributable to Commerce Bancshares, Inc.
Less preferred stock dividends
Net income available to common shareholders
Net income per common share - basic
Net income per common share - diluted
See accompanying notes to consolidated financial statements.
For the Years Ended December 31
2021
2020
2019
$
$
$
$
570,549 $
880
236,278
4
37,377
3,202
848,290
7,509
1,158
2,577
1,646
(24)
12,866
835,424
(66,326)
901,750
167,891
188,227
97,217
15,943
18,362
29,720
43,033
560,393
30,059
525,248
48,185
18,089
17,118
101,792
21,856
73,613
805,901
686,301
145,711
540,590
9,825
530,765
—
530,765 $
4.32 $
4.31 $
612,072 $
860
216,793
3
40,647
2,273
872,648
17,851
4,897
12,948
6,091
1,014
42,801
829,847
137,190
692,657
151,797
160,637
93,227
14,582
15,095
26,684
43,845
505,867
11,032
512,987
46,645
18,839
17,419
95,325
19,734
57,429
768,378
441,178
87,293
353,885
(172)
354,057
11,966
342,091 $
2.77 $
2.77 $
663,338
1,209
237,487
55
15,898
6,698
924,685
39,712
6,368
26,945
29,415
952
103,392
821,293
50,438
770,855
167,879
155,628
95,983
8,146
15,804
15,767
65,496
524,703
3,626
492,927
47,157
19,061
20,394
92,899
21,914
73,046
767,398
531,786
109,074
422,712
1,481
421,231
9,000
412,231
3.25
3.25
69
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss):
Net unrealized losses on securities for which a portion of an other-
than-temporary impairment has been recorded in earnings
Net unrealized gains (losses) on other securities
Change in pension loss
Unrealized gains (losses) on cash flow hedge derivatives
Other comprehensive income (loss)
Comprehensive income
Less non-controlling interest (income) loss
For the Years Ended December 31
2021
2020
2019
$
540,590 $
353,885 $
422,712
—
(240,627)
4,450
(18,120)
(254,297)
286,293
9,825
—
161,728
(3,178)
62,383
220,933
574,818
(172)
(632)
151,122
1,167
23,456
175,113
597,825
1,481
596,344
Comprehensive income attributable to Commerce Bancshares, Inc.
$
276,468 $
574,990 $
See accompanying notes to consolidated financial statements.
70
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands, except per share data)
Preferred
Stock
Common
Stock
Capital
Surplus
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Non-
Controlling
Interest
Total
Balance at December 31, 2018
$ 144,784 $ 559,432 $ 2,084,824 $ 241,163 $
(34,236) $
(64,669) $
5,851 $ 2,937,149
Commerce Bancshares, Inc. Shareholders
Net income
Other comprehensive loss
Distributions to non-controlling interest
Purchases of treasury stock
Accelerated share repurchase agreements
Cash dividends paid on common stock
($.898 per share)
Cash dividends paid on preferred stock
($1.500 per depositary share)
Stock-based compensation
Issuance under stock purchase and equity
compensation plans
5% stock dividend, net
Balance at December 31, 2019
Adoption of ASU 2016-13
421,231
(113,466)
(9,000)
(134,904)
(150,000)
13,854
(19,293)
20,644
175,113
1,481
422,712
175,113
(3,544)
(3,544)
(134,904)
(150,000)
(113,466)
(9,000)
13,854
1,351
(793)
3,138,472
3,766
144,784
4,546
563,978
72,079
2,151,464
(338,366)
201,562
260,948
(37,548)
110,444
3,788
3,766
205,328
354,057
Adjusted Balance December 31, 2019
144,784
563,978
2,151,464
Net income
Other comprehensive income
Distributions to non-controlling interest
(37,548)
110,444
3,788
3,142,238
(172)
353,885
220,933
220,933
(691)
(691)
Redemption of preferred stock
(144,784)
(5,216)
Purchases of treasury stock
Cash dividends paid on common stock
($.980 per share)
Cash dividends paid on preferred stock
($1.125 per depositary share)
Stock-based compensation
Issuance under stock purchase and equity
compensation plans
5% stock dividend, net
(120,818)
(6,750)
14,915
(24,271)
25,374
294,180
(353,601)
(54,163)
25,580
33,161
(150,000)
(54,163)
(120,818)
(6,750)
14,915
1,309
(886)
Balance at December 31, 2020
—
589,352
2,436,288
73,000
(32,970)
331,377
2,925
3,399,972
Net income
Other comprehensive income
Distributions to non-controlling interest
Purchases of treasury stock
Sale of non-controlling interest of subsidiary
Cash dividends paid on common stock
($1.000 per share)
Stock-based compensation
Issuance under stock purchase and equity
compensation plans
5% stock dividend, net
530,765
9,825
540,590
(254,297)
(254,297)
659
15,415
(21,799)
(122,693)
(129,361)
22,710
21,452
259,331
(388,579)
106,648
(1,065)
(1,065)
(129,361)
(659)
—
(122,693)
15,415
911
(1,148)
Balance at December 31, 2021
$
— $ 610,804 $ 2,689,894 $
92,493 $
(32,973) $
77,080 $ 11,026 $ 3,448,324
See accompanying notes to consolidated financial statements.
71
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Provision for depreciation and amortization
Amortization of investment security premiums, net
Deferred income tax (benefit) expense
Investment securities gains, net (A)
Net gains on sales of loans held for sale
Proceeds from sales of loans held for sale
Originations of loans held for sale
Net (increase) decrease in trading securities, excluding unsettled transactions
Stock-based compensation
(Increase) decrease in interest receivable
Increase (decrease) in interest payable
Increase (decrease) in income taxes payable
Gain on sale of Corporate Trust business
Proceeds from terminated interest rate floors
Other changes, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Distributions received from equity-method investment
Proceeds from sales of investment securities (A)
Proceeds from maturities/pay downs of investment securities (A)
Purchases of investment securities (A)
Net (increase) decrease in loans
Securities purchased under agreements to resell
Repayments of securities purchased under agreements to resell
Purchases of premises and equipment
Sales of premises and equipment
Net cash used in investing activities
FINANCING ACTIVITIES
Net increase in non-interest bearing, savings, interest checking and money market deposits
Net increase (decrease) in certificates of deposit
Net increase (decrease) in federal funds purchased and short-term securities sold under agreements to
repurchase
Net increase (decrease) in other borrowings
Preferred stock redemption
Purchases of treasury stock
Accelerated share repurchase agreement
Issuance of stock under equity compensation plans
Cash dividends paid on common stock
Cash dividends paid on preferred stock
Net cash provided by (used in) financing activities
Increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Income tax payments, net
Interest paid on deposits and borrowings
Loans transferred to foreclosed real estate
(A) Available for sale debt securities, equity securities, and other securities.
See accompanying notes to consolidated financial statements.
72
For the Years Ended December 31
2021
2020
2019
$
540,590 $
353,885 $
422,712
(66,326)
137,190
44,866
66,934
25,613
(30,059)
(22,641)
576,864
43,769
59,863
(19,540)
(11,032)
(16,406)
297,267
50,438
41,145
27,631
14,195
(3,626)
(10,127)
259,153
(524,597)
(313,329)
(244,976)
(29,885)
15,415
19,788
(3,179)
(5,175)
—
—
(770)
14,915
(13,399)
(9,444)
12,345
3,863
13,854
3,316
5,586
14,465
—
(11,472)
156,740
(10,486)
(68,062)
597,722
623,992
—
(73,363)
512,794
13,540
80,811
—
—
602,477
413,203
3,459,106
2,673,510
1,558,244
(5,947,891)
(6,991,460)
(1,863,180)
1,134,533
(1,643,775)
(900,000)
125,000
—
—
(647,890)
(150,000)
—
(56,716)
(33,134)
(42,575)
8,859
1,878
2,033
(2,082,758)
(5,390,504)
(730,165)
3,291,466
6,316,100
(402,077)
(163,321)
85,438
349,890
924,584
11,758
—
(129,361)
—
(15)
247,611
(105,617)
(1,616)
(150,000)
(54,163)
—
(11)
(6,394)
—
(134,904)
(150,000)
(8)
(122,693)
(120,818)
(113,466)
—
(6,750)
6,067,032
1,300,520
(9,000)
(84,061)
(301,432)
907,808
1,209,240
3,573,662
2,088,626
2,208,328
$
$
4,296,954 $
119,665 $
2,208,328 $
90,066 $
16,045
182
52,245
93
907,808
76,168
97,806
581
Commerce Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
Commerce Bancshares, Inc. and its subsidiaries (the Company) conducts its principal activities from approximately 287
branch and ATM locations throughout Missouri, Kansas, Illinois, Oklahoma and Colorado. Principal activities include retail
and commercial banking, investment management, securities brokerage, mortgage banking, trust, and private banking services.
The Company also maintains commercial banking offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis,
and Grand Rapids and operates a commercial payments business with sales representatives covering the continental U.S.
Basis of Presentation, Use of Estimates, and Subsequent Events
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All material
inter-company transactions have been eliminated through consolidation. Certain prior year amounts have been reclassified to
conform to the current year presentation. Such reclassifications had no effect on net income or total assets.
The Company follows accounting principles generally accepted in the United States of America (GAAP) and reporting
practices applicable to the banking industry. The preparation of financial statements under GAAP requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. These estimates
are based on information available to management at the time the estimates are made. While the consolidated financial
statements reflect management’s best estimates and judgments, actual results could differ from those estimates.
Management has evaluated subsequent events for potential recognition or disclosure through the date these consolidated
financial statements were issued.
The Company, in the normal course of business, engages in a variety of activities that involve variable interest entities
(VIEs). A VIE is a legal entity that lacks equity investors or whose equity investors do not have a controlling financial interest
in the entity through their equity investments. However, an enterprise is deemed to have a controlling financial interest and is
the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the
VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be
significant to the VIE. An enterprise that is the primary beneficiary must consolidate the VIE. The Company’s interests in
VIEs are evaluated to determine if the Company is the primary beneficiary both at inception and when there is a change in
circumstances that requires a reconsideration.
The Company is considered to be the primary beneficiary in a rabbi trust related to a deferred compensation plan offered to
certain employees. The assets and liabilities of this trust, which are included in the accompanying consolidated balance sheets,
are not significant. The Company also has variable interests in certain entities in which it is not the primary beneficiary. These
entities are not consolidated. These interests include certain investments in entities accounted for using the equity method of
accounting, as well as affordable housing limited partnership interests, holdings in its investment portfolio of various asset and
mortgage-backed bonds that are issued by securitization trusts, and managed discretionary trust assets that are not included in
the accompanying consolidated balance sheets.
Adoption of ASU 2016-13
The Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, and its related amendments on January 1, 2020. Further discussion of the impact of adoption is included
below, as well as in Note 2, Loans and Allowance for Credit Losses, and Note 3, Investment Securities. Known as the current
expected credit loss (CECL), the standard replaced the incurred loss methodology. The new measurement approach requires
the calculation of expected lifetime credit losses and is applied to financial assets measured at amortized cost, including loans
and held-to-maturity securities, as well as certain off-balance sheet credit exposures such as unfunded lending commitments.
The standard also changed the impairment model of available for sale debt securities. Also see "Allowance for Credit Losses
on Loans", "Liability for Unfunded Lending Commitments" and "Allowance for Credit Losses on Available for Sale Debt
Securities" within Note 1 below.
The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost
and for unfunded lending commitments. Results for reporting periods beginning on or after January 1, 2020 are presented
under CECL, while prior period amounts continue to be reported in accordance with previously applicable GAAP. The
73
Company recorded a net increase to retained earnings of $3.8 million as of January 1, 2020 for the cumulative effect of
adopting CECL. The transition adjustment included a decrease to the allowance for credit losses of $29.7 million related to the
commercial loan portfolio, an increase to the allowance for credit losses of $8.7 million related to the personal banking loan
portfolio, an increase to the liability for unfunded commitments of $16.1 million, and a tax impact of $1.2 million.
The table below illustrates the adoption impact of ASU 2016-13 on the Company's allowance for credit losses.
December 31, 2019
Allowance for loan losses
ending balance
January 1, 2020
CECL Adjustment
Allowance for credit losses
beginning balance
(In thousands)
Commercial:
Business
Real estate - construction and land
Real estate - business
Total Commercial:
Personal Banking:
Real estate - personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total Personal Banking:
Allowance for credit losses on loans
Liability for unfunded lending commitments
$
44,268 $
(6,328) $
21,589
25,903
91,760
3,125
15,932
638
47,997
1,230
68,922
160,682
1,075
(12,385)
(10,998)
(29,711)
1,730
(1,414)
986
8,498
(1,128)
8,672
(21,039)
16,090
37,940
9,204
14,905
62,049
4,855
14,518
1,624
56,495
102
77,594
139,643
17,165
156,808
Total allowance for credit losses
$
161,757 $
(4,949) $
Cash, Cash Equivalents and Restricted Cash
In the accompanying consolidated statements of cash flows, cash and cash equivalents include “Cash and due from banks”,
“Federal funds sold and short-term securities purchased under agreements to resell”, and “Interest earning deposits with banks”
as segregated in the accompanying consolidated balance sheets. Restricted cash is comprised of cash collateral on deposit with
another financial institution to secure interest rate swap transactions. Restricted cash is included in other assets in the
consolidated balance sheets and totaled $17.4 million and $23.4 million at December 31, 2021 and 2020, respectively.
During 2020, the Federal Reserve System, which historically required the Bank to maintain cash balances at the Federal
Reserve Bank, reduced the reserve requirement ratios to zero percent effective March 26, 2020. Other interest earning cash
balances held at the Federal Reserve Bank totaled $4.0 billion at December 31, 2021.
Loans and Related Earnings
The Company's portfolio of held-for-investment loans includes a net investment in direct financing and sales type leases to
commercial and industrial and tax-exempt entities, and collectively, the Company's portfolio of loans and leases is referred to as
its "loan portfolio" or "loans". Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or pay-off are reported at amortized cost, excluding accrued interest receivable. Amortized cost is the outstanding
principal balance, net of any deferred fees and costs on originated loans. Origination fee income received on loans and amounts
representing the estimated direct costs of origination are deferred and amortized to interest income over the life of the loan
using the interest method.
Interest on loans is accrued based upon the principal amount outstanding. The Company has elected the practical expedient
to exclude all accrued interest receivable from all required disclosures of amortized cost. Additionally, an election was made
not to measure an allowance for credit losses for accrued interest receivables. The Company has also made the election that all
interest accrued but ultimately not received is reversed against interest income.
Loan and commitment fees, net of costs, are deferred and recognized in interest income over the term of the loan or
commitment as an adjustment of yield. Annual fees charged on credit card loans are capitalized to principal and amortized over
74
12 months to loan fees and sales. Other credit card fees, such as cash advance fees and late payment fees, are recognized in
income as an adjustment of yield when charged to the cardholder’s account.
Past Due Loans
Management reports loans as past due on the day following the contractual repayment date if payment was not received by
end of the business day. Loans, or portions of loans, are charged off to the extent deemed uncollectible. Loan charge-offs
reduce the allowance for credit losses on loans, and recoveries of loans previously charged off are added back to the allowance.
Business, business real estate, construction and land real estate, and personal real estate loans are generally charged down to
estimated collectible balances when they are placed on non-accrual status. Consumer loans and related accrued interest are
normally charged down to the fair value of related collateral (or are charged off in full if not collateralized) once the loans are
more than 120 to 180 days delinquent, depending on the type of loan. Revolving home equity loans are charged down to the
fair value of the related collateral once the loans are more than 180 days past due. Credit card loans are charged off against the
allowance for credit losses when the receivable is more than 180 days past due.
Non-Accrual Loans
Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable
and agreed upon terms of repayment. Business, construction real estate, business real estate, and personal real estate loans that
are contractually 90 days past due as to principal and/or interest payments are generally placed on non-accrual status, unless
they are both well-secured and in the process of collection. Consumer, revolving home equity and credit card loans are exempt
under regulatory rules from being classified as non-accrual. When a loan is placed on non-accrual status, any interest
previously accrued but not collected is reversed against current interest income, and the loan is charged off to the extent
uncollectible. Principal and interest payments received on non-accrual loans are generally applied to principal. Interest is
included in income only after all previous loan charge-offs have been recovered and is recorded only as received. The loan is
returned to accrual status only when the borrower has brought all past due principal and interest payments current, and, in the
opinion of management, the borrower has demonstrated the ability to make future payments of principal and interest as
scheduled. A six month history of sustained payment performance is generally required before reinstatement of accrual status.
Troubled Debt Restructurings
A loan is accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the
borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider. A troubled debt
restructuring typically involves (1) modification of terms such as a reduction of the stated interest rate, loan principal, or
accrued interest, (2) a loan renewal at a stated interest rate lower than the current market rate for a new loan with similar risk, or
(3) debt that was not reaffirmed in bankruptcy. Business, business real estate, construction and land real estate and personal
real estate troubled debt restructurings with impairment charges are placed on non-accrual status. The Company measures the
impairment loss of a troubled debt restructuring at the time of modification based on the present value of expected future cash
flows. Subsequent to modification, troubled debt restructurings are subject to the Company’s allowance for credit loss model,
which is discussed below and in Note 2, Loans and Allowance for Credit Losses. Troubled debt restructurings that are
performing under their contractual terms continue to accrue interest, which is recognized in current earnings.
Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was signed into law on
March 27, 2020, provided financial institutions an option to suspend the requirement to categorize certain loan modifications
related to the global Coronavirus Disease 2019 (COVID-19) pandemic as troubled debt restructurings. The 2021 Consolidated
Appropriations Act signed on December 27, 2020 extends this temporary suspension through January 1, 2022. The Company
elected such option from March 27, 2020 through December 31, 2021. Refer to Note 2 for additional information.
Loans Held For Sale
Loans held for sale include student loans and certain fixed rate residential mortgage loans. These loans are typically
classified as held for sale upon origination based upon management's intent to sell the production of these loans. The student
loans are carried at the lower of aggregate cost or fair value, and their fair value is determined based on sale contract prices.
The mortgage loans are carried at fair value under the elected fair value option. Their fair value is based on secondary market
prices for loans with similar characteristics, including an adjustment for embedded servicing value. Changes in fair value and
gains and losses on sales are included in loan fees and sales. Deferred fees and costs related to these loans are not amortized but
are recognized as part of the cost basis of the loan at the time it is sold. Interest income related to loans held for sale is accrued
based on the principal amount outstanding and the loan's contractual interest rate.
Occasionally, other types of loans may be classified as held for sale in order to manage credit concentration. These loans
are carried at the lower of cost or fair value with gains and losses on sales recognized in loan fees and sales.
75
Allowance for Credit Losses on Loans
The allowance for credit losses on loans is a valuation amount that is deducted from the amortized cost basis of loans not
held at fair value to present the net amount expected to be collected over the contractual term of the loans. The allowance for
credit losses on loans is measured using relevant information about past events, including historical credit loss experience on
loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability
of the remaining cash flows over the contractual term of the loans. An allowance will be created upon origination or acquisition
of a loan and is updated at subsequent reporting dates. The methodology is applied consistently for each reporting period and
reflects management’s current expectations of credit losses. Changes to the allowance for credit losses on loans resulting from
periodic evaluations are recorded through increases or decreases to the credit loss expense for loans, which is recorded in
provision for credit losses on the consolidated statements of income. Loans that are deemed to be uncollectible are charged off
against the related allowance for credit losses on loans.
The allowance for credit losses on loans is measured on a collective (pool) basis. Loans are aggregated into pools based on
similar risk characteristics including borrower type, collateral type and expected credit loss patterns. The allowance for credit
losses on a troubled debt restructuring which continues to accrue interest is also measured on a collective basis. Loans that do
not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis. The
allowance related to these large non-accrual loans is measured using the fair value of the collateral (less selling cost, if
applicable) as most of these loans are collateral dependent and the borrower is facing financial difficulty.
As noted above, the allowance for credit losses on loans does not include an allowance for accrued interest.
Liability for Unfunded Lending Commitments
The Company’s unfunded lending commitments are primarily unfunded loan commitments and letters of credit. Expected
credit losses for these unfunded lending commitments are calculated over the contractual period during which the Company is
exposed to the credit risk. The methodology used to measure credit losses for unfunded lending commitments is the same as
the methodology used for loans, however, the estimate of credit risk for unfunded lending commitments takes into
consideration the likelihood that funding will occur. The liability for unfunded lending commitments excludes any exposures
that are unconditionally cancellable by the Company. The loss estimate is recorded within other liabilities on the consolidated
balance sheet. Changes to the liability for unfunded lending commitments are recorded through increases or decreases to the
provision for credit losses on the consolidated statements of income.
Direct Financing and Sales Type Leases
The net investment in direct financing and sales type leases is included in loans on the Company’s consolidated balance
sheets and consists of the present values of the sum of the future minimum lease payments and estimated residual value of the
leased asset. Revenue consists of interest earned on the net investment and is recognized over the lease term as a constant
percentage return thereon.
Investments in Debt and Equity Securities
The majority of the Company's investment portfolio is comprised of debt securities that are classified as available for sale.
From time to time, the Company sells securities and utilizes the proceeds to reduce borrowings, fund loan growth, or modify its
interest rate profile. Securities classified as available for sale are carried at fair value. Changes in fair value are reported in
other comprehensive income (loss), a component of stockholders’ equity. Securities are periodically evaluated for credit losses
in accordance with the guidance provided in Accounting Standards Codification (ASC) 326. Further discussion of this
evaluation is provided in "Allowance for Credit Losses on Available for Sale Debt Securities" below. Gains and losses realized
upon sales of securities are calculated using the specific identification method and are included in investment securities gains
(losses), net, in the consolidated statements of income. Purchase premiums and discounts are amortized to interest income
using a level yield method over the estimated lives of the securities. For certain callable debt securities purchased at a
premium, the amortization is recorded to the earliest call date. For mortgage and asset-backed securities, prepayment
experience is evaluated quarterly to determine if a change in a bond's estimated remaining life is necessary. A corresponding
adjustment is then made in the related amortization of premium or discount accretion.
Accrued interest receivable on available for sale debt securities is reported in other assets on the consolidated balance sheet.
The Company has elected the practical expedient to exclude the accrued interest from all required disclosures of amortized cost
of debt securities. Additionally, an election was made not to measure an allowance for credit losses for accrued interest
receivables. Interest accrued but not received is reversed against interest income.
76
Equity securities include common and preferred stock and are carried at fair value. Certain equity securities do not have
readily determinable fair values. The Company has elected under ASU 2016-01 to measure these equity securities without a
readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes
for the identical or similar investment of the same issuer. The Company has not recorded any impairment or other adjustments
to the carrying amount of these equity securities without readily determinable fair values.
Other securities include the Company's investments in Federal Reserve Bank stock and Federal Home Loan Bank stock,
equity method investments, and private equity investments. Federal Reserve Bank stock and Federal Home Loan Bank stock
are held for debt and regulatory purposes, are carried at cost and are periodically evaluated for impairment. The Company's
equity method investments are carried at cost, adjusted to reflect the Company's portion of income, loss, or dividends of the
investee. The Company's private equity investments in portfolio concerns, consisting of both debt and equity instruments, are
held by the Company’s private equity subsidiary, which is a small business investment company licensed by the Small Business
Administration. The Company's private equity investments are carried at fair value in accordance with investment company
accounting guidance (ASC 946-10-15), with changes in fair value reported in current income. In the absence of readily
ascertainable market values, fair value is estimated using internally developed methods. Changes in fair value which are
recognized in current income and gains and losses from sales are included in investment securities gains (losses), net, in the
consolidated statements of income.
Trading account securities, which are debt securities bought and held principally for the purpose of resale in the near term,
are carried at fair value. Gains and losses, both realized and unrealized, are recorded in non-interest income.
Purchases and sales of securities are recognized on a trade date basis. A receivable or payable is recognized for transaction
pending settlements.
Allowance for Credit Losses on Available for Sale Debt Securities
For available for sale debt securities in an unrealized loss position, the entire loss in fair value is required to be recognized in
current earnings if the Company intends to sell the securities or believes it more likely than not that it will be required to sell the
security before the anticipated recovery. If neither condition is met, and the Company does not expect to recover the amortized
cost basis, the Company determines whether the decline in fair value resulted from credit losses or other factors. If the
assessment indicates that a credit loss exists, the present value of cash flows expected to be collected is compared to the
amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost
basis, a credit loss has occurred, and an allowance for credit losses is recorded. The allowance for credit losses is limited by the
amount that the fair value is less than the amortized cost basis. Any impairment not recorded through the provision for credit
losses is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses on the consolidated
statements of income. Losses are charged against the allowance for credit losses on securities when management believes the
uncollectibility of an available for sale security is confirmed or when either of the conditions regarding intent or requirement to
sell is met.
Accrued interest receivable on available for sale debt securities is excluded from the estimate of credit losses.
Securities Purchased under Agreements to Resell and Securities Sold under Agreements to Repurchase
Securities purchased under agreements to resell and securities sold under agreements to repurchase are treated as
collateralized financing transactions, not as purchases and sales of the underlying securities. The agreements are recorded at the
amount of cash advanced or received.
The Company periodically enters into securities purchased under agreements to resell with large financial institutions.
Securities pledged by the counterparties to secure these agreements are delivered to a third party custodian.
Securities sold under agreements to repurchase are a source of funding to the Company and are offered to cash management
customers as an automated, collateralized investment account. From time to time, securities sold may also be used by the Bank
to obtain additional borrowed funds at favorable rates. These borrowings are secured by a portion of the Company's investment
security portfolio and delivered either to the dealer custody account at the Federal Reserve Bank or to the applicable
counterparty.
The fair value of collateral either received from or provided to a counterparty is monitored daily, and additional collateral is
obtained, returned, or provided by the Company in order to maintain full collateralization for these transactions.
77
As permitted by current accounting guidance, the Company offsets certain securities purchased under agreements to resell
against securities sold under agreements to repurchase in its balance sheet presentation. These agreements are further discussed
in Note 20, Resale and Repurchase Agreements.
Premises and Equipment
Land is stated at cost, and buildings and equipment are stated at cost, including capitalized interest when appropriate, less
accumulated depreciation. Depreciation is computed using a straight-line method, utilizing estimated useful lives; generally 30
years for buildings, 10 years for building improvements, and 3 to 10 years for equipment. Leasehold improvements are
amortized over the shorter of 10 years or the remaining lease term. Maintenance and repairs are charged to non-interest expense
as incurred.
Premises and equipment also includes the Company's right-of-use leased assets, which is mainly comprised of operating
leases for branches, office space, ATM locations, and certain equipment.
Foreclosed Assets
Foreclosed assets consist of property that has been repossessed and is comprised of commercial and residential real estate
and other non-real estate property, including auto and recreational and marine vehicles. The assets are initially recorded at fair
value less estimated selling costs, establishing a new cost basis. Initial valuation adjustments are charged to the allowance for
credit losses. Fair values are estimated primarily based on appraisals, third-party price opinions, or internally developed pricing
models. After initial recognition, fair value estimates are updated periodically. Declines in fair value below cost are recognized
through valuation allowances which may be reversed when supported by future increases in fair value. These valuation
adjustments, in addition to gains and losses realized on sales and net operating expenses, are recorded in other non-interest
expense. Foreclosed assets are included in other assets on the consolidated balance sheets.
Goodwill and Intangible Assets
Goodwill and intangible assets that have indefinite useful lives, such as property easement intangible assets, are not
amortized but are assessed for impairment on an annual basis or more frequently in certain circumstances. When testing for
goodwill impairment, the Company may initially perform a qualitative assessment. Based on the results of this qualitative
assessment, if the Company concludes it is more likely than not that a reporting unit's fair value is less than its carrying amount,
a quantitative analysis is performed. Quantitative valuation methodologies include a combination of formulas using current
market multiples, based on recent sales of financial institutions within the Company's geographic marketplace. If the fair value
of a reporting unit is less than the carrying amount, an impairment has occurred and is measured as the amount by which the
carrying amount exceeds the reporting unit's fair value. The Company has not recorded impairment resulting from goodwill
impairment tests. However, adverse changes in the economic environment, operations of the reporting unit, or other factors
could result in a decline in fair value.
Intangible assets that have finite useful lives, such as core deposit intangibles and mortgage servicing rights, are amortized
over their estimated useful lives. Core deposit intangibles are generally amortized over periods of 8 to 14 years, representing
their estimated lives, using accelerated methods. Mortgage servicing rights are amortized in proportion to and over the period of
estimated net servicing income, considering appropriate prepayment assumptions. Core deposit intangibles are reviewed for
impairment whenever events or changes in circumstances indicate their carrying amount may not be recoverable. Impairment is
indicated if the sum of the undiscounted estimated future net cash flows is less than the carrying value of the intangible asset.
Mortgage servicing rights, while initially recorded at fair value, are subsequently amortized and carried at the lower of the
initial capitalized amount (net of accumulated amortization), or estimated fair value. The Company evaluates its mortgage
servicing rights for impairment on a quarterly basis, using estimated prepayment speeds of the underlying mortgage loans
serviced and stratifications based on the risk characteristics of the underlying loans. A valuation allowance has been established,
through a charge to earnings, to the extent the amortized cost exceeds the estimated fair value. However, the Company has not
recorded other-than-temporary impairment losses on its intangible assets.
78
Income Taxes
Amounts provided for income tax expense are based on income reported for financial statement purposes and do not
necessarily represent amounts currently payable under tax laws. Deferred income taxes are provided for temporary differences
between the financial reporting bases and income tax bases of the Company’s assets and liabilities, net operating losses, and tax
credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply to
taxable income when such assets and liabilities are anticipated to be settled or realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized as tax expense or benefit in the period that includes the enactment date of the
change. In determining the amount of deferred tax assets to recognize in the financial statements, the Company evaluates the
likelihood of realizing such benefits in future periods. A valuation allowance is established if it is more likely than not that all
or some portion of the deferred tax asset will not be realized. The Company recognizes interest and penalties related to income
taxes within income tax expense in the consolidated statements of income.
The Company and its eligible subsidiaries file a consolidated federal income tax return. State and local income tax returns
are filed on a combined, consolidated or separate return basis based upon each jurisdiction’s laws and regulations.
Additional information about current and deferred income taxes is provided in Note 9, Income Taxes.
Non-Interest Income
Non-interest income is mainly comprised of revenue from contracts with customers. For that revenue (excluding certain
revenue associated with financial instruments, derivative and hedging instruments, guarantees, lease contracts, transferring and
servicing of financial assets, and other specific revenue transactions), the Company applies the following five-step approach
when recognizing revenue: (i) identify the contract with the customer, (ii) identify the performance obligations, (iii) determine
the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as)
the performance obligation is satisfied. The Company’s contracts with customers are generally short term in nature, with a
duration of one year or less, and most contracts are cancellable by either the Company or its customer without penalty.
Performance obligations for customer contracts are generally satisfied at a single point in time, typically when the transaction is
complete and the customer has received the goods or service, or over time. For performance obligations satisfied over time, the
Company recognizes the value of the goods or services transferred to the customer when the performance obligations have been
transferred and received by the customer. Payments for satisfied performance obligations are typically due when or as the
goods or services are completed, or shortly thereafter, which usually occurs within a single financial reporting period.
In situations where payment is made before the performance obligation is satisfied, the fees are deferred until the
performance obligations pertaining to those goods or services are completed. In cases where payment has not been received
despite satisfaction of its performance obligations, the Company accrues an estimate of the amount due in the period that the
performance obligations have been satisfied. For contracts with variable components, the Company only recognizes revenue to
the extent that it is probable that the cumulative amount recognized will not be subject to a significant reversal in future periods.
Generally, the Company’s contracts do not include terms that require significant judgment to determine whether a variable
component is included within the transaction price. The Company generally acts in a principal capacity, on its own behalf, in
most of its contracts with customers. For these transactions, revenue and the related costs to provide the goods or services are
presented on a gross basis in the financial statements. In some cases, the Company acts in an agent capacity, deriving revenue
through assisting third parties in transactions with the Company’s customers. In such transactions, revenue and the related costs
to provide services is presented on a net basis in the financial statements. These transactions primarily relate to fees earned
from bank card and related network and rewards costs and the sales of annuities and certain limited insurance products.
Derivatives
Most of the Company's derivative contracts are accounted for as free-standing instruments. These instruments are carried at
fair value, and changes in fair value are recognized in current earnings. They include interest rate swaps and caps, which are
offered to customers to assist in managing their risks of adverse changes in interest rates. Each contract between the Company
and a customer is offset by a contract between the Company and an institutional counterparty, thus minimizing the Company's
exposure to rate changes. The Company also enters into certain contracts, known as credit risk participation agreements, to buy
or sell credit protection on specific interest rate swaps. It also purchases and sells forward foreign exchange contracts, either in
connection with customer transactions, or for its own trading purposes. Additionally, the Company originates and sells certain
personal real estate mortgages. Derivative instruments under this program include mortgage loan commitments, forward loan
sale contracts, and forward contracts to sell certain to-be-announced (TBA) securities.
The Company's interest rate risk management policy permits the use of hedge accounting for derivatives. The Company
monetized its interest rate floors that had previously been designated and qualified as cash flow hedges. The resulting
79
unrealized gain is initially recorded in accumulated other comprehensive income and reclassified into interest and fees on loans
in the accompanying consolidated income statements as the underlying forecasted transactions impact earnings through the
original maturity dates of the monetized interest rate floors.
The Company has master netting arrangements with various counterparties but does not offset derivative assets and
liabilities under these arrangements in its consolidated balance sheets. However, interest rate swaps that are executed under
central clearing requirements are presented net of variation margin as mandated by the statutory terms of the Company's
contract with its clearing counterparty.
Additional information about derivatives held by the Company and valuation methods employed is provided in Note 17,
Fair Value Measurements and Note 19, Derivative Instruments.
Pension Plan
The Company’s pension plan is described in Note 10, Employee Benefit Plans. In accordance with ASU 2017-07, the
Company has reported the service cost component of net periodic pension cost in salaries and employee benefits in the
accompanying consolidated statements of income, while the other components are reported in other non-interest expense. The
funded status of the plan is recognized as an other asset or other liability in the consolidated balance sheets, and changes in that
funded status are recognized in the year in which the changes occur through other comprehensive income. Plan assets and
benefit obligations are measured as of the fiscal year end of the plan. The measurement of the projected benefit obligation and
pension expense involve actuarial valuation methods and the use of various actuarial and economic assumptions. The Company
monitors the assumptions and updates them periodically. Due to the long-term nature of the pension plan obligation, actual
results may differ significantly from estimations. Such differences are adjusted over time as the assumptions are replaced by
facts and values are recalculated.
Stock-Based Compensation
The Company’s stock-based compensation plan is described in Note 11, Stock-Based Compensation and Directors Stock
Purchase Plan. In accordance with the requirements of ASC 718-10-30-3 and 35-2, the Company measures the cost of stock-
based compensation based on the grant-date fair value of the award, recognizing the cost over the requisite service period,
which is generally the vesting period. The fair value of stock appreciation rights is estimated using the Black-Scholes option-
pricing model while the fair value of a nonvested stock award is the common stock (CBSH) market price. The expense
recognized for stock-based compensation is included in salaries and benefits in the accompanying consolidated statements of
income. The Company recognizes forfeitures as a reduction to expense only when they have occurred.
Treasury Stock
Purchases of the Company’s common stock are recorded at cost. Upon re-issuance for acquisitions, exercises of stock-based
awards or other corporate purposes, treasury stock is reduced based upon the average cost basis of shares held.
Income per Share
Basic income per share is computed using the weighted average number of common shares outstanding during each year.
Diluted income per share includes the effect of all dilutive potential common shares (primarily stock appreciation rights)
outstanding during each year. The Company applies the two-class method of computing income per share. The two-class
method is an earnings allocation formula that determines income per share for common stock and for participating securities,
according to dividends declared and participation rights in undistributed earnings. The Company’s nonvested stock awards are
considered to be a class of participating security. All per share data has been restated to reflect the 5% stock dividend
distributed in December 2021.
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2. Loans and Allowance for Credit Losses
Major classifications within the Company’s held for investment loan portfolio at December 31, 2021 and 2020 are as
follows:
(In thousands)
Commercial:
Business
Real estate — construction and land
Real estate — business
Personal Banking:
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans (1)
2021
2020
$
5,303,535 $
6,546,087
1,118,266
1,021,595
3,058,837
3,026,117
2,805,401
2,820,030
2,032,225
1,950,502
275,945
575,410
6,740
307,083
655,078
3,149
$
15,176,359 $
16,329,641
(1) Accrued interest receivable totaled $25.9 million at December 31, 2021 and was included within other assets on the consolidated balance sheet. For the
year ended December 31, 2021, the Company wrote-off accrued interest by reversing interest income of $212 thousand and $4.7 million in the Commercial and
Personal Banking portfolios, respectively.
Loans to directors and executive officers of the Parent and the Bank, and to their affiliates, are summarized as follows:
(In thousands)
Balance at January 1, 2021
Additions
Amounts collected
Amounts written off
Balance, December 31, 2021
$
35,342
68,365
(63,287)
—
$
40,420
Management believes all loans to directors and executive officers have been made in the ordinary course of business with
normal credit terms, including interest rate and collateral considerations, and do not represent more than a normal risk of
collection. The activity in the table above includes draws and repayments on several lines of credit with business entities. There
were no outstanding loans at December 31, 2021 to principal holders (over 10% ownership) of the Company’s common stock.
The Company’s lending activity is generally centered in Missouri, Kansas, Illinois and other nearby states including
Oklahoma, Colorado, Iowa, Ohio, and Texas. The Company maintains a diversified portfolio with limited industry
concentrations of credit risk. Loans and loan commitments are extended under the Company’s normal credit standards, controls,
and monitoring procedures. Most loan commitments are short or intermediate term in nature. Commercial loan maturities
generally range from one to seven years. Collateral is commonly required and would include such assets as marketable
securities, cash equivalent assets, accounts receivable, inventory, equipment, other forms of personal property, and real estate.
At December 31, 2021, unfunded loan commitments totaled $13.3 billion (which included $5.0 billion in unused approved lines
of credit related to credit card loan agreements) which could be drawn by customers subject to certain review and terms of
agreement. At December 31, 2021, loans totaling $3.3 billion were pledged at the FHLB as collateral for borrowings and letters
of credit obtained to secure public deposits. Additional loans of $1.3 billion were pledged at the Federal Reserve Bank as
collateral for discount window borrowings.
The Company has a net investment in direct financing and sales type leases to commercial and industrial and tax-exempt
entities of $725.6 million and $797.4 million at December 31, 2021 and 2020, respectively, which is included in business loans
on the Company’s consolidated balance sheets. This investment includes deferred income of $55.0 million and $66.3 million at
December 31, 2021 and 2020, respectively. The net investment in operating leases amounted to $27.0 million and $13.7
million at December 31, 2021 and 2020, respectively, and is included in other assets on the Company’s consolidated balance
sheets.
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Allowance for credit losses
The allowance for credit losses is measured using an average historical loss model which incorporates relevant information
about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and
reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the
loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on
similar risk characteristics including borrower type, collateral type and expected credit loss patterns. Loans that do not share
similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis.
For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the
Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and
outstanding loan balances during a lookback period. Lookback periods can be different based on the individual pool and
represent management’s credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if
the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry
and peer data. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable
forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given a
single path economic forecast of key macroeconomic variables including GDP, disposable income, unemployment rate, various
interest rates, consumer price index (CPI) inflation rate, housing price index (HPI), commercial real estate price index (CREPI)
and market volatility. The adjustments are based on results from various regression models projecting the impact of the
macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting back to
historical averages using a straight-line method. The forecast adjusted loss rate is applied to the amortized cost of loans over
the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions (except
for contractual extensions at the option of the customer), renewals and modifications unless there is a reasonable expectation
that a troubled debt restructuring will be executed. Credit cards and certain similar consumer lines of credit do not have stated
maturities and therefore, for these loan classes, remaining contractual lives are determined by estimating future cash flows
expected to be received from customers until payments have been fully allocated to outstanding balances. Additionally, the
allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecast
such as changes in portfolio composition, underwriting practices, or significant unique events or conditions.
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Key assumptions in the Company’s allowance for credit loss model include the economic forecast, the reasonable and
supportable period, forecasted macro-economic variables, prepayment assumptions and qualitative factors applied for portfolio
composition changes, underwriting practices, or significant unique events or conditions. The assumptions utilized in estimating
the Company’s allowance for credit losses at December 31, 2021 and 2020 are discussed below.
Key Assumption
Overall economic
forecast
Reasonable and
supportable period and
related reversion period
Forecasted macro-
economic variables
December 31, 2021
December 31, 2020
•
•
•
•
•
•
•
•
•
•
Continued recovery from the Global
Coronavirus Recession (GCR)
Assumes improving health conditions
Assumes gradual easing of supply
constraints
Continued uncertainty regarding the health
crisis
Uncertainty regarding rising inflation
One year for both commercial and
personal banking loans
Reversion to historical average loss rates
within two quarters using a straight-line
method
Unemployment rate ranging from 4.1% to
3.7% during the supportable forecast
period
Real GDP growth ranges from 5.0% to
3.4%
Prime rate of 3.25% through the second
quarter of 2022, increasing to 3.5% by the
end of 2022
•
•
•
•
•
•
•
•
•
The recovery from the Global Coronavirus
Recession (GCR) continues to be gradual
throughout 2021 and 2022
Assumes no additional systemic lockdown
measures
Considers government stimulus in the
beginning of 2021
Continued uncertainty regarding the health
crisis
Two years for both commercial and
personal banking loans
Reversion to historical average loss rates
within two quarters using a straight-line
method
Unemployment rate ranging from 6.5% to
5.2% during the supportable forecast
period
Real GDP growth ranges from 3.7% to
2.2%
Prime rate of 3.25%
Prepayment assumptions Commercial loans
•
5% for most loan pools
Personal banking loans
Commercial loans
•
5% for most loan pools
Personal banking loans
•
•
Ranging from 28.0% to 16.5% for most
loan pools
64.1% for consumer credit cards
•
•
Ranging from 23.3% to 23.1% for most
loan pools
58.0% for consumer credit cards
Qualitative factors
Added net reserves using qualitative processes
related to:
•
Added net reserves using qualitative processes
related to:
•
Loans originated in our expansion markets,
loans that are designated as shared national
credits, and certain portfolios sensitive to
pandemic economic uncertainties
Changes in the composition of the loan
portfolios
Loans downgraded to special mention,
substandard, or non-accrual status
•
•
Loans originated in our expansion markets,
loans that are designated as shared national
credits, and certain portfolios considered to
be COVID-19 impacted
Changes in the composition of the loan
portfolios
Loans downgraded to special mention,
substandard, or non-accrual status
•
•
The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans,
however, the liability for unfunded lending commitments incorporates an assumption for the portion of unfunded commitments
that are expected to be funded.
Sensitivity in the Allowance for Credit Loss model
The allowance for credit losses is an estimate that requires significant judgment including projections of the macro-
economic environment. The forecasted macro-economic environment continuously changes which can cause fluctuations in
estimated expected credit losses.
The current forecast used in the model projects a continued recovery of the COVID pandemic-induced recession. This
pandemic is unprecedented and information that could be used in the estimation of the allowance for credit losses changes
frequently. Trends in health conditions, vaccine distribution, and supply constraints could significantly impact economic
projections used in the estimation of the allowance for credit losses and liability for unfunded lending commitments.
83
A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments
during the years ended December 31, 2021 and 2020 follows:
(In thousands)
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance December 31, 2020
Provision for credit losses on loans
Deductions:
Loans charged off
Less recoveries on loans
Net loan charge-offs (recoveries)
Balance December 31, 2021
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance December 31, 2020
Provision for credit losses on unfunded lending commitments
Balance December 31, 2021
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR
UNFUNDED LENDING COMMITMENTS
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance December 31, 2019
Adoption of ASU 2016-13
Balance at December 31, 2019, adjusted
Provision for credit losses on loans
Deductions:
Loans charged off
Less recoveries on loans
Net loan charge-offs
Balance December 31, 2020
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance December 31, 2019
Adoption of ASU 2016-13
Balance at December 31, 2019, adjusted
Provision for credit losses on unfunded lending commitments
Balance December 31, 2020
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND UNFUNDED LENDING
COMMITMENTS
For the Year Ended December 31
Commercial
Personal
Banking
Total
$
121,549 $
99,285 $
220,834
(28,594)
(23,629)
(52,223)
968
5,789
(4,821)
34,659
11,271
23,388
35,627
17,060
18,567
97,776 $
52,268 $
150,044
37,259 $
1,048 $
38,307
(13,988)
(115)
(14,103)
23,271 $
933 $
24,204
121,047 $
53,201 $
174,248
$
$
$
$
$
91,760 $
68,922 $
160,682
(29,711)
8,672
(21,039)
62,049
63,115
77,594
139,643
52,934
116,049
7,862
4,247
3,615
42,185
10,942
31,243
50,047
15,189
34,858
$
121,549 $
99,285 $
220,834
$
399 $
676 $
1,075
16,057
16,456
20,803
33
709
339
16,090
17,165
21,142
37,259 $
1,048 $
38,307
158,808 $
100,333 $
259,141
$
$
84
Allowance for loan losses
In the table below is a summary of the activity in the allowance for loan losses during 2019, calculated in accordance with
the incurred loss methodology applicable to the Company prior to its adoption of CECL on January 1, 2020. The allowance for
loan losses under the incurred loss method estimated probable loan losses inherent in the portfolio as of the balance sheet date,
and using this methodology, groups of similar loans were evaluated collectively for impairment and certain specific loans were
evaluated for impairment individually. The Company’s estimate of the allowance under the incurred loss method was based on
various judgments and assumptions made by management and was influenced by several qualitative factors which included
historical loan loss experience by loan type, loss emergence periods, trends in delinquencies, collateral valuation, current
regional and national economic factors, current loan portfolio composition and characteristics, portfolio risk ratings, and levels
of non-performing assets.
(In thousands)
Balance at December 31, 2018
Provision for loan losses
Deductions:
Loans charged off
Less recoveries
Net loans charged off
Balance at December 31, 2019
Commercial
Personal
Banking
Total
$
92,869 $
67,063 $
159,932
2,816
47,622
50,438
4,711
786
3,925
57,169
11,406
45,763
61,880
12,192
49,688
91,760
68,922
160,682
85
Delinquent and non-accrual loans
The Company considers loans past due on the day following the contractual repayment date, if the contractual repayment
was not received by the Company as of the end of the business day. The following table provides aging information on the
Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at December 31, 2021 and
2020.
(In thousands)
December 31, 2021
Commercial:
Business
Real estate – construction and land
Real estate – business
Personal Banking:
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total
December 31, 2020
Commercial:
Business
Real estate – construction and land
Real estate – business
Personal Banking:
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total
Current or Less
Than 30 Days
Past Due
30 – 89 Days
Past Due
90 Days Past Due
and Still Accruing
Non-accrual
Total
$
5,292,125 $
3,621 $
477 $
7,312 $
5,303,535
1,117,434
3,058,566
2,796,662
2,005,556
274,372
565,335
6,425
832
57
4,125
24,458
772
4,821
315
—
—
2,983
2,211
801
5,254
—
—
214
1,118,266
3,058,837
1,631
2,805,401
—
—
—
—
2,032,225
275,945
575,410
6,740
$
15,116,475 $
39,001 $
11,726 $
9,157 $
15,176,359
$
6,517,838 $
2,252 $
3,473 $
22,524 $
6,546,087
1,021,592
3,016,215
2,808,886
1,921,822
305,037
635,770
2,896
—
7,666
6,521
25,417
1,656
7,090
253
3
6
—
1,021,595
2,230
3,026,117
2,837
3,263
390
12,218
—
1,786
2,820,030
—
—
—
—
1,950,502
307,083
655,078
3,149
$
16,230,056 $
50,855 $
22,190 $
26,540 $
16,329,641
At December 31, 2021, the Company had $5.3 million of non-accrual business loans that had no allowance for credit loss.
The Company did not record any interest income on non-accrual loans during the year ended December 31, 2021.
Credit quality indicators
The following table provides information about the credit quality of the Commercial loan portfolio. The Company utilizes
an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the
expectation of debt repayment based on borrower specific information, including but not limited to, current financial
information, historical payment experience, industry information, collateral levels and collateral types. The “pass” category
consists of a range of loan grades that reflect increasing, though still acceptable, risk. A loan is assigned the risk rating at
origination and then monitored throughout the contractual term for possible risk rating changes. Movement of risk through the
various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention”
rating is applied to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions
that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial
flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for
improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined
weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans
are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon
terms of repayment.
86
All loans are analyzed for risk rating updates annually. For larger loans, rating assessments may be more frequent if
relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans
are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past
due related to credit issues. Loans rated Special Mention, Substandard or Non-accrual are subject to quarterly review and
monitoring processes. In addition to the regular monitoring performed by the lending personnel and credit committees, loans
are subject to review by a credit review department which verifies the appropriateness of the risk ratings for the loans chosen as
part of its risk-based review plan.
The risk category of loans in the Commercial portfolio as of December 31, 2021 and 2020 are as follows:
(In thousands)
December 31, 2021
Business
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Business:
Real estate-construction
Risk Rating:
Pass
Special mention
Substandard
Total Real estate-
construction:
Real estate- business
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Real-estate business:
Commercial loans
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Commercial loans:
Term Loans Amortized Cost Basis by Origination Year
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
$ 1,473,869 $ 704,157 $ 554,759 $ 248,739 $ 159,238 $ 270,454 $ 1,795,073 $ 5,206,289
52,804
37,130
7,312
$ 1,476,920 $ 705,474 $ 581,191 $ 267,274 $ 160,729 $ 289,793 $ 1,822,154 $ 5,303,535
3,232
10,775
5,332
12,050
4,936
1,549
16,545
10,536
—
17,576
8,855
1
126
1,191
—
1,785
836
430
1,490
1
—
$ 598,734 $ 346,507 $
—
11,620
44,649
485
66,985 $
—
—
2,110 $
985
14,896
2,655 $
—
13,158
2,252 $
—
—
13,230 $ 1,032,473
45,634
40,159
—
—
$ 643,868 $ 358,127 $
66,985 $
17,991 $
15,813 $
2,252 $
13,230 $ 1,118,266
$ 775,561 $ 712,173 $ 551,697 $ 230,138 $ 170,888 $ 254,489 $
2,103
45,265
25
$ 796,651 $ 805,434 $ 575,127 $ 270,229 $ 231,890 $ 301,882 $
37,576
2,326
189
30,322
62,939
—
4,011
17,079
—
10,500
12,930
—
2,068
58,934
—
76,641 $ 2,771,587
86,581
200,455
214
77,624 $ 3,058,837
1
982
—
$ 2,848,164 $ 1,762,837 $ 1,173,441 $ 480,987 $ 332,781 $ 527,195 $ 1,884,944 $ 9,010,349
185,019
277,744
7,526
$ 2,917,439 $ 1,869,035 $ 1,223,303 $ 555,494 $ 408,432 $ 593,927 $ 1,913,008 $ 9,480,638
50,611
22,158
1,738
5,335
56,040
5,357
16,546
11,518
—
28,076
21,785
1
50,445
18,400
430
30,448
75,750
—
3,558
72,093
—
87
(In thousands)
December 31, 2020
Business
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Business:
Real estate-construction
Risk Rating:
Pass
Special mention
Substandard
Total Real estate-
construction:
Real estate- business
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Real-estate business:
Commercial loans
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Commercial loans:
Term Loans Amortized Cost Basis by Origination Year
2020
2019
2018
2017
2016
Prior
Revolving
Loans
Amortized
Cost Basis
Total
$ 2,472,419 $ 966,068 $ 438,557 $ 329,207 $ 163,357 $ 281,604 $ 1,619,680 $ 6,270,892
119,745
132,926
22,524
$ 2,530,896 $ 1,014,800 $ 463,062 $ 334,054 $ 172,528 $ 300,317 $ 1,730,430 $ 6,546,087
41,749
68,976
25
14,102
5,076
5,327
28,612
17,246
12,619
26,746
21,985
1
1,664
13,390
3,659
1,781
2,675
391
5,091
3,578
502
$ 483,302 $ 330,480 $
—
—
29,692
1,154
56,747 $
1,022
14,989
3,021 $
34,532
13,182
24,426 $
—
—
1,692 $
—
—
27,356 $
—
—
927,024
65,246
29,325
$ 514,148 $ 330,480 $
72,758 $
50,735 $
24,426 $
1,692 $
27,356 $ 1,021,595
$ 890,740 $ 666,399 $ 336,850 $ 241,656 $ 313,691 $ 199,534 $
1,309
45,014
84
$ 947,036 $ 689,358 $ 391,971 $ 329,688 $ 348,733 $ 245,941 $
6,597
81,435
—
21,734
1,037
188
8,936
46,882
478
49,580
4,061
1,480
17,504
17,538
—
67,796 $ 2,716,666
108,662
3,002
198,559
2,592
2,230
—
73,390 $ 3,026,117
$ 3,846,461 $ 1,962,947 $ 832,154 $ 573,884 $ 501,474 $ 482,830 $ 1,714,832 $ 9,914,582
293,653
360,810
24,754
$ 3,992,080 $ 2,034,638 $ 927,791 $ 714,477 $ 545,687 $ 547,950 $ 1,831,176 $ 10,593,799
42,910
97,292
391
67,240
65,282
13,097
22,595
21,116
502
64,704
24,126
6,807
2,973
58,404
3,743
44,751
71,568
25
48,480
23,022
189
88
The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information
is provided as of December 31, 2021 and 2020 below:
(In thousands)
December 31, 2021
Real estate-personal
Current to 90 days past due
Over 90 days past due
Non-accrual
Total Real estate-personal:
Consumer
Current to 90 days past due
Over 90 days past due
Total Consumer:
Revolving home equity
Current to 90 days past due
Over 90 days past due
Total Revolving home equity:
Consumer credit card
Current to 90 days past due
Over 90 days past due
Total Consumer credit card:
Overdrafts
Current to 90 days past due
Total Overdrafts:
Personal banking loans
Current to 90 days past due
Over 90 days past due
Non-accrual
Total Personal banking loans:
Term Loans Amortized Cost Basis by Origination Year
2021
2020
2019
2018
2017
Prior
$ 690,058 $ 888,631 $ 354,292 $ 157,485 $ 149,391 $ 551,460 $
1,181
1,156
$ 690,306 $ 889,781 $ 354,841 $ 157,718 $ 149,488 $ 553,797 $
1,150
—
298
251
133
115
124
109
97
—
$ 571,455 $ 348,774 $ 192,076 $ 79,887 $ 47,401 $ 78,088 $
351
$ 571,738 $ 349,109 $ 192,333 $ 80,137 $ 47,475 $ 78,439 $
250
283
335
257
74
$
$
$
$
$
$
— $
—
— $
— $
—
— $
6,740 $
6,740 $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
Revolving
Loans
Amortized
Cost Basis
Total
9,470 $ 2,800,787
2,983
1,631
9,470 $ 2,805,401
—
—
712,333 $ 2,030,014
2,211
712,994 $ 2,032,225
661
275,144 $ 275,144
801
275,945 $ 275,945
801
570,156 $ 570,156
5,254
575,410 $ 575,410
5,254
— $
— $
6,740
6,740
$ 1,268,253 $ 1,237,405 $ 546,368 $ 237,372 $ 196,792 $ 629,548 $ 1,567,103 $ 5,682,841
11,249
1,631
$ 1,268,784 $ 1,238,890 $ 547,174 $ 237,855 $ 196,963 $ 632,236 $ 1,573,819 $ 5,695,721
1,485
—
6,716
—
1,532
1,156
374
109
416
115
171
—
555
251
89
Term Loans Amortized Cost Basis by Origination Year
2020
2019
2018
2017
2016
Prior
$ 1,123,918 $ 488,379 $ 218,390 $ 201,971 $ 227,265 $ 544,008 $
848
1,340
$ 1,124,481 $ 488,945 $ 218,787 $ 202,427 $ 227,718 $ 546,196 $
388
65
411
45
534
29
281
116
375
191
$ 536,799 $ 337,431 $ 161,337 $ 115,886 $ 75,769 $ 86,831 $
397
$ 537,011 $ 337,789 $ 161,665 $ 116,106 $ 75,943 $ 87,228 $
358
220
174
328
212
$
$
$
$
$
$
— $
—
— $
— $
—
— $
3,149 $
3,149 $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
Revolving
Loans
Amortized
Cost Basis
Total
11,476 $ 2,815,407
2,837
1,786
11,476 $ 2,820,030
—
—
633,186 $ 1,947,239
3,263
634,760 $ 1,950,502
1,574
306,693 $ 306,693
390
307,083 $ 307,083
390
642,860 $ 642,860
12,218
12,218
655,078 $ 655,078
— $
— $
3,149
3,149
$ 1,663,866 $ 825,810 $ 379,727 $ 317,857 $ 303,034 $ 630,839 $ 1,594,215 $ 5,715,348
18,708
1,786
$ 1,664,641 $ 826,734 $ 380,452 $ 318,533 $ 303,661 $ 633,424 $ 1,608,397 $ 5,735,842
14,182
—
1,245
1,340
631
45
562
65
609
116
746
29
733
191
(In thousands)
December 31, 2020
Real estate-personal
Current to 90 days past due
Over 90 days past due
Non-accrual
Total Real estate-personal:
Consumer
Current to 90 days past due
Over 90 days past due
Total Consumer:
Revolving home equity
Current to 90 days past due
Over 90 days past due
Total Revolving home equity:
Consumer credit card
Current to 90 days past due
Over 90 days past due
Total Consumer credit card:
Overdrafts
Current to 90 days past due
Total Overdrafts:
Personal banking loans
Current to 90 days past due
Over 90 days past due
Non-accrual
Total Personal banking loans:
Collateral-dependent loans
The Company's collateral-dependent loans are comprised of large loans on non-accrual status. The Company requires that
collateral-dependent loans are either over-collateralized or carry collateral equal to the amortized cost of the loan. The
following table presents the amortized cost basis of collateral-dependent loans as of December 31, 2021.
(In thousands)
Commercial:
Business
Total
Business Assets
Oil & Gas
Assets
Total
$
$
1,604 $
1,604 $
2,459 $
2,459 $
4,063
4,063
Other Personal Banking loan information
As noted above, the credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and
this information is provided in the table in the above section on "Credit quality indicators." In addition, FICO scores are
obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit
score designed to measure the risk of default by taking into account various factors from a borrower's financial history and is
considered supplementary information utilized by the Company, as management does not consider this information in
evaluating the allowance for credit losses on loans. The Bank normally obtains a FICO score at the loan's origination and
renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain personal real estate
loans for which FICO scores are not obtained because the loans generally pertain to commercial customer activities and are
often underwritten with other collateral considerations. These loans totaled $185.6 million at December 31, 2021 and $191.1
million at December 31, 2020. The table also excludes consumer loans related to the Company's patient healthcare loan
program, which totaled $186.6 million at December 31, 2021 and $188.1 million at December 31, 2020. As the healthcare
loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and
consumer loans excluded below totaled less than 7% of the Personal Banking portfolio. For the remainder of loans in the
90
Personal Banking portfolio, the table below shows the percentage of balances outstanding at December 31, 2021 and 2020 by
FICO score.
December 31, 2021
FICO score:
Under 600
600 – 659
660 – 719
720 – 779
780 and over
Total
December 31, 2020
FICO score:
Under 600
600 – 659
660 – 719
720 – 779
780 and over
Total
Personal Banking Loans
% of Loan Category
Real Estate -
Personal
Consumer
Revolving Home
Equity
Consumer Credit
Card
1.0 %
1.9 %
0.9 %
3.4 %
2.4
7.4
25.2
64.0
3.9
13.8
25.3
55.1
2.6
9.4
20.4
66.7
11.3
29.9
28.2
27.2
100.0 %
100.0 %
100.0 %
100.0 %
0.8 %
2.3 %
1.3 %
5.0 %
1.9
8.8
24.5
64.0
4.2
14.1
23.9
55.5
2.4
8.6
22.2
65.5
12.3
31.2
28.0
23.5
100.0 %
100.0 %
100.0 %
100.0 %
Troubled debt restructurings
Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a
concession. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due
under the contractual terms will be collected. Commercial performing restructured loans are primarily comprised of certain
business, construction and business real estate loans classified as substandard, but renewed at rates judged to be non-market.
These loans are performing in accordance with their modified terms, and because the Company believes it probable that all
amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an
accrual basis. Troubled debt restructurings also include certain credit card and other small consumer loans under various debt
management and assistance programs. Modifications to these loans generally involve removing the available line of credit,
placing loans on amortizing status, and lowering the contractual interest rate. Certain personal real estate, revolving home
equity, and consumer loans were classified as consumer bankruptcy troubled debt restructurings because they were not
reaffirmed by the borrower in bankruptcy proceedings. Interest on these loans is being recognized on an accrual basis, as the
borrowers are continuing to make payments. Other consumer loans classified as troubled debt restructurings consist of various
other workout arrangements with consumer customers.
Section 4013 of the CARES Act was signed into law on March 27, 2020, and includes a provision that short-term
modifications are not troubled debt restructurings, if made on a good-faith basis in response to COVID-19 to borrowers who
were current prior to December 31, 2019. The Company elected such option under the CARES Act when determining if a
customer’s modification is subject to troubled debt restructuring classification. If it is deemed the modification is not short-
term, not COVID-19 related or the customer does not meet the criteria under the guidance to be scoped out of troubled debt
restructuring classification, the Company will evaluate the loan modifications under its existing framework and account for the
modification as a troubled debt restructuring.
The initial guidance issued under the CARES Act was due to expire on December 31, 2020. During January 2021, the
Consolidated Appropriations Act, 2021 was enacted and extended relief offered under the CARES Act related to the accounting
and disclosure requirements for troubled debt restructurings as a result of COVID-19. The Company elected to extend its
application of this guidance through December 31, 2021.
91
The table below shows the balances of troubled debt restructurings by accrual status at December 31, 2021 and 2020.
(In thousands)
Accruing loans:
Commercial
Assistance programs
Other consumer
Non-accrual loans
Total troubled debt restructurings
December 31
2021
2020
$
46,867 $
117,740
6,146
4,787
7,087
7,804
5,194
9,889
$
64,887 $
140,627
The table below shows the balance of troubled debt restructurings by loan classification at December 31, 2021, in addition
to the outstanding balances of these restructured loans which the Company considers to have been in default at any time during
the past twelve months. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as
to interest or principal.
(In thousands)
Commercial:
Business
Real estate – construction and land
Real estate – business
Personal Banking:
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
December 31, 2021
Balance 90 days past
due at any time
during previous 12
months
$
14,753 $
10,296
27,626
3,419
2,731
22
6,040
—
—
—
682
171
—
605
Total troubled debt restructurings
$
64,887 $
1,458
For those loans on non-accrual status also classified as restructured, the modification did not create any further financial
effect on the Company as those loans were already recorded at net realizable value. For those performing commercial loans
classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no
financial impact to the Company as a result of modification to these loans. However, the effects of modifications to loans under
various debt management and assistance programs were estimated to decrease interest income by approximately $784 thousand
on an annual, pre-tax basis, compared to amounts contractually owed. Performing consumer loans where the debt was not
reaffirmed in bankruptcy did not result in a concession, as no changes to loan terms occurred in that process. Other
modifications to consumer loans mainly involve extensions and other small modifications that did not include the forgiveness
of principal or interest.
The allowance for credit losses related to troubled debt restructurings on non-accrual status is determined by individual
evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as
troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which
management expects to collect under contractual terms. Performing commercial loans having no other concessions granted
other than being renewed at non-market interest rates are judged to have similar risk characteristics as non-troubled debt
commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and
current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the
borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future
limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics
as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical
experience and current economic factors.
92
If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for credit losses continues to be
based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If an accruing, troubled
debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for credit
losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begin.
The Company had no commitments at December 31, 2021 to lend additional funds to borrowers with restructured loans,
compared to commitments of $10.7 million at December 31, 2020.
Loans held for sale
The Company designates certain long-term fixed rate personal real estate loans as held for sale, and the Company has
elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the
related economic hedges discussed in Note 19. The loans are primarily sold to FNMA and FHLMC. At December 31, 2021,
the fair value of these loans was $5.6 million, and the unpaid principal balance was $5.4 million.
The Company also designates certain student loan originations as held for sale. The borrowers are credit-worthy students
who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company
maintains contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are
carried at lower of cost or fair value, which at December 31, 2021 totaled $3.0 million.
At December 31, 2021, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing.
Foreclosed real estate/repossessed assets
The Company’s holdings of foreclosed real estate totaled $115 thousand and $93 thousand at December 31, 2021 and 2020,
respectively. Personal property acquired in repossession, generally autos, marine and recreational vehicles (RV), totaled $1.1
million and $1.4 million at December 31, 2021 and 2020, respectively. Upon acquisition, these assets are recorded at fair value
less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower
of this cost basis or fair value less estimated selling costs.
3. Investment Securities
Investment securities consisted of the following at December 31, 2021 and 2020:
(In thousands)
Available for sale debt securities
Trading debt securities
Equity securities:
Readily determinable fair value
No readily determinable fair value
Other:
Federal Reserve Bank stock
Federal Home Loan Bank stock
Equity method investments
Private equity investments
Total investment securities (1)
$
2021
14,450,027 $
46,235
2020
12,449,264
35,321
7,153
2,049
2,966
1,397
34,379
10,428
1,834
147,406
14,699,511 $
34,070
10,307
18,000
94,368
12,645,693
$
(1) Accrued interest receivable totaled $39.5 million and $41.5 million at December 31, 2021 and December 31, 2020, respectively, and was included within
other assets on the consolidated balance sheet.
The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if
any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer.
This portfolio includes the Company's holdings of Visa Class B shares, which have a carrying value of zero, as there have not
been observable price changes in orderly transactions for identical or similar investments of the same issuer. During the year-
ended December 31, 2021, the Company did not record any impairment or other adjustments to the carrying amount of its
portfolio of equity securities with no readily determinable fair value.
Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, equity
method investments, and investments in portfolio concerns held by the Company's private equity subsidiary. FRB stock and
FHLB stock are held for debt and regulatory purposes. Investment in FRB stock is based on the capital structure of the
investing bank, and investment in FHLB stock is tied to the level of borrowings from the FHLB. These holdings are carried at
93
cost. Additionally, the Company's equity method investments are carried at cost, adjusted to reflect the Company's portion of
income, loss, or dividends of the investee. These adjustments are included in non-interest income on the Company's
consolidated statements of income. The private equity investments are carried at estimated fair value.
The majority of the Company’s investment portfolio is comprised of available for sale debt securities, which are carried at
fair value with changes in fair value reported in other comprehensive income (OCI). A summary of the available for sale debt
securities by maturity groupings as of December 31, 2021 is shown in the following table. The weighted average yield for each
range of maturities was calculated using the yield on each security within that range weighted by the amortized cost of each
security at December 31, 2021. Yields on tax exempt securities have not been adjusted for tax exempt status. The investment
portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and GNMA,
in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and
residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit
cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in
that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral.
Total U.S. government and federal agency obligations
1,035,477
1,080,720
(Dollars in thousands)
U.S. government and federal agency obligations:
Within 1 year
After 1 but within 5 years
After 5 but within 10 years
Government-sponsored enterprise obligations:
After 10 years
Total government-sponsored enterprise obligations
State and municipal obligations:
Within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years
Total state and municipal obligations
Mortgage and asset-backed securities:
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities:
Within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years
Total other debt securities
Amortized Cost
Fair Value
Weighted
Average Yield
$
137,340 $
698,147
199,990
139,354
715,106
226,260
2.24 *%
1.35 *
.70 *
1.34 *
2.32
2.32
2.34
2.11
1.79
1.88
1.97
1.94
1.84
1.05
1.63
2.68
1.87
1.74
1.89
50,773
50,773
51,755
51,755
164,524
763,794
773,513
370,379
166,146
786,416
780,313
363,952
2,072,210
2,096,827
5,698,088
5,683,000
1,383,037
1,366,477
3,546,024
3,539,219
10,627,149
10,588,696
126,406
191,083
306,775
9,260
127,604
193,429
301,854
9,142
633,524
632,029
1.97 %
Total available for sale debt securities
$
14,419,133 $
14,450,027
* Rate does not reflect inflation adjustment on inflation-protected securities
Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which
totaled $390.9 million, at fair value, at December 31, 2021. Interest paid on these securities increases with inflation and
decreases with deflation, as measured by the Consumer Price Index. At maturity, the principal paid is the greater of an
inflation-adjusted principal or the original principal.
94
Allowance for credit losses on available for sale debt securities
As described in Note 1, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, on
January 1, 2020. The adoption of ASU 2016-13 had no impact to the Company's available for sale securities reported in its
consolidated financial statements at January 1, 2020. For the year ended December 31, 2021, the Company did not recognize a
credit loss expense on any available for sale debt securities.
The Company’s model for establishing its allowance for credit losses uses cash flows projected to be received over the
estimated life of the securities, discounted to present value, and compared to the current amortized cost bases of the securities.
Securities for which fair value is less than amortized cost are reviewed for impairment. Special emphasis is placed on securities
whose credit rating has fallen below Baa3 (Moody's) or BBB- (Standard & Poor's), whose fair values have fallen more than
20% below purchase price, or who have been identified based on management’s judgment. These securities are placed on a
watch list and cash flow analyses are prepared on an individual security basis. Credit impairment is determined using input
factors such as cash flow projections, contractual payments required, expected delinquency rates, credit support from other
tranches, prepayment speeds, collateral loss severity rates (including loan to values), and various other information related to
the underlying collateral. At December 31, 2021, the fair value of securities on this watch list was $13.4 million compared to
$31.0 million at December 31, 2020.
Significant inputs to the cash flow model used at December 31, 2021 to quantify credit losses were primarily credit support
agreements, as the securities on the Company's watch list at December 31, 2021 were securities backed by government-
guaranteed student loans and are expected to perform as contractually required. As of December 31, 2021, the Company did
not identify any securities for which a credit loss exists.
95
The table below summarizes debt securities available for sale in an unrealized loss position, aggregated by length of loss
period, for which an allowance for credit losses has not been recorded at December 31, 2021 and 2020. Unrealized losses on
these available for sale securities have not been recognized into income because after review, the securities were deemed not to
be impaired. The unrealized losses on these securities are primarily attributable to changes in interest rates and current market
conditions. Additionally, management does not intend to sell the securities, and it is more likely than not that management will
not be required to sell the securities prior to their anticipated recovery.
(In thousands)
December 31, 2021
Less than 12 months
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. government and federal agency obligations
$ 296,492 $
2,241 $
— $
— $ 296,492 $
2,241
Government-sponsored enterprise obligations
State and municipal obligations
Mortgage and asset-backed securities:
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities
Total
December 31, 2020
—
—
876,691
15,874
18,899
32,684
919
1,049
18,899
919
909,375
16,923
3,333,691
1,285,611
2,518,935
7,138,237
270,409
59,044
17,222
19,201
95,467
5,098
265,835
8,720
3,599,526
1,948
87,893
19
1,287,559
525
2,606,828
67,764
17,241
19,726
355,676
9,264
7,493,913
104,731
58,574
3,017
328,983
8,115
$ 8,581,829 $ 118,680 $ 465,833 $
14,249 $ 9,047,662 $ 132,929
Government-sponsored enterprise obligations
$
19,720 $
98 $
State and municipal obligations
45,622
230
Mortgage and asset-backed securities:
Agency mortgage-backed securities
470,373
2,802
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities
Total
112,861
21,360
604,594
24,522
380
56
3,238
175
— $
—
—
—
253,734
253,734
—
— $
19,720 $
—
—
—
2,617
2,617
—
45,622
470,373
112,861
275,094
858,328
24,522
98
230
2,802
380
2,673
5,855
175
$ 694,458 $
3,741 $ 253,734 $
2,617 $ 948,192 $
6,358
The entire available for sale debt securities portfolio included $9.0 billion of securities that were in a loss position at
December 31, 2021, compared to $948.2 million at December 31, 2020. The total amount of unrealized loss on these securities
was $132.9 million at December 31, 2021, an increase of $126.6 million compared to the unrealized loss at December 31, 2020.
Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt
securities" section above.
96
For debt securities classified as available for sale, the following table shows the amortized cost, fair value, and allowance for
credit losses of securities available for sale at December 31, 2021 and 2020 and the corresponding amounts of gross unrealized
gains and losses (pre-tax) in AOCI, by security type.
(In thousands)
December 31, 2021
Amortized Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Allowance for
Credit Losses
Fair Value
U.S. government and federal agency obligations
$
1,035,477 $
47,484 $
(2,241) $
— $
1,080,720
Government-sponsored enterprise obligations
State and municipal obligations
Mortgage and asset-backed securities:
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities
Total
December 31, 2020
50,773
2,072,210
5,698,088
1,383,037
3,546,024
10,627,149
633,524
1,901
41,540
52,676
681
12,921
66,278
6,620
(919)
(16,923)
(67,764)
(17,241)
(19,726)
(104,731)
(8,115)
—
—
—
—
—
—
—
51,755
2,096,827
5,683,000
1,366,477
3,539,219
10,588,696
632,029
$
14,419,133 $
163,823 $
(132,929) $
— $
14,450,027
U.S. government and federal agency obligations
$
775,592 $
62,467 $
Government-sponsored enterprise obligations
State and municipal obligations
Mortgage and asset-backed securities:
50,803
1,968,006
3,780
77,323
Agency mortgage-backed securities
6,557,098
157,789
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities
Total
358,074
1,853,791
8,768,963
534,169
3,380
31,125
192,294
22,225
— $
(98)
(230)
(2,802)
(380)
(2,673)
(5,855)
(175)
— $
—
—
838,059
54,485
2,045,099
—
—
—
—
—
6,712,085
361,074
1,882,243
8,955,402
556,219
$
12,097,533 $
358,089 $
(6,358) $
— $
12,449,264
97
The following table presents proceeds from sales of securities and the components of investment securities gains and losses
which have been recognized in earnings.
(In thousands)
Proceeds from sales of securities:
Available for sale debt securities
Equity securities
Other
Total proceeds
Investment securities gains (losses), net:
Available for sale debt securities:
Gains realized on sales
Losses realized on sales
Other-than-temporary impairment recognized on debt securities
Equity securities:
Gains realized on sales
Fair value adjustments, net
Other:
Gains realized on sales
Losses realized on sales
Fair value adjustments, net
Total investment securities gains (losses), net
For the Year Ended December 31
2021
2020
2019
$ 69,809 $ 602,475 $ 402,103
3,856
7,244
$ 80,811 $ 602,477 $ 413,203
—
11,002
2
—
$
— $ 21,096 $
2,354
(3,284)
—
—
187
—
—
2
37
1,611
(159)
31,704
—
—
(10,103)
$ 30,059 $ 11,032 $
(2,568)
(133)
3,262
344
1,094
—
(727)
3,626
At December 31, 2021, securities totaling $6.4 billion in fair value were pledged to secure public fund deposits, securities
sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB, compared to $4.8 billion at
December 31, 2020. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the
secured parties approximated $214.6 million, while the remaining securities were pledged under agreements pursuant to which
the secured parties may not sell or re-pledge the collateral.
Except for obligations of various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in
a single issuer exceeds 10% of stockholders’ equity.
98
4. Premises and Equipment
Premises and equipment consist of the following at December 31, 2021 and 2020:
(In thousands)
Land
Buildings and improvements
Equipment
Right of use leased assets
Total
Less accumulated depreciation
Net premises and equipment
2021
2020
$
91,003 $
622,642
242,455
25,677
981,777
593,039
$
388,738 $
93,492
582,056
239,216
29,589
944,353
573,270
371,083
Depreciation expense of $31.9 million in 2021, $32.2 million in 2020 and $30.8 million in 2019, was included in occupancy
expense and equipment expense in the consolidated statements of income. Repairs and maintenance expense of $16.0 million,
$16.4 million and $17.8 million for 2021, 2020 and 2019, respectively, was included in occupancy expense and equipment
expense. Interest expense capitalized on constructions projects totaled $29 thousand and $14 thousand in 2021 and 2020,
respectively. There was no interest expense capitalized on constructions projects in 2019.
Right of use leased assets are comprised mainly of operating leases for branches, office space, ATM locations, and certain
equipment, as described in Note 6.
5. Goodwill and Other Intangible Assets
The following table presents information about the Company's intangible assets which have estimable useful lives.
(In thousands)
Amortizable intangible
assets:
Core deposit premium
Mortgage servicing rights
Total
December 31, 2021
December 31, 2020
Gross
Carrying
Amount
Accumulated
Amortization
Valuation
Allowance
Net
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Valuation
Allowance
Net
Amount
$ 31,270
20,870
$ 52,140
$
(30,266) $
(9,600)
$
(39,866) $
—
(304)
$ 1,004
10,966
(304) $ 11,970
$ 31,270
15,238
$
(29,912) $
(6,886)
$ 46,508
$
(36,798) $
—
(2,103)
$ 1,358
6,249
(2,103) $ 7,607
The carrying amount of goodwill and its allocation among segments at December 31, 2021 and 2020 is shown in the table
below. As a result of ongoing assessments, no impairment of goodwill was recorded in 2021, 2020 or 2019. Further, the
annual assessment of qualitative factors on January 1, 2022 revealed no likelihood of impairment as of that date.
(In thousands)
Consumer segment
Commercial segment
Wealth segment
Total goodwill
December 31,
2021
December 31,
2020
$
$
70,721 $
67,454
746
138,921 $
70,721
67,454
746
138,921
99
Changes in the net carrying amount of goodwill and other net intangible assets for the years ended December 31, 2021 and
2020 are shown in the following table. During the year ended December 31, 2020, the Company purchased an easement for
$3.6 million in connection with the Developer Services Agreement that was signed during the third quarter of 2020 to develop a
commercial office complex in Clayton, Missouri. The easement, which grants the Company access to all portions of the
parking facility and terrace garden, is perpetual and will be assessed for impairment at least annually, or whenever events or
circumstances indicate an impairment may have occurred. No impairment was identified at December 31, 2021.
(In thousands)
Balance at December 31, 2019
Originations, net of disposals
Amortization
Impairment
Balance at December 31, 2020
Originations, net of disposals
Amortization
Impairment recovery
Goodwill
Easement
Core Deposit
Premium
Mortgage
Servicing Rights
$
138,921 $
— $
1,785 $
—
—
—
3,600
—
—
—
(427)
—
138,921
3,600
1,358
—
—
—
—
—
—
—
(354)
—
7,749
2,296
(2,020)
(1,776)
6,249
5,632
(2,714)
1,799
10,966
Balance at December 31, 2021
$
138,921 $
3,600 $
1,004 $
Mortgage servicing rights (MSRs) are initially recorded at fair value and subsequently amortized over the period of
estimated servicing income. They are periodically reviewed for impairment at a tranche level, and if impairment is indicated,
recorded at fair value. Temporary impairment, including impairment recovery, is effected through a change in a valuation
allowance. At December 31, 2021, temporary impairment of $304 thousand had been recognized. The fair value of the MSRs
is based on the present value of expected future cash flows, as further discussed in Note 17 on Fair Value Measurements.
Aggregate amortization expense on intangible assets for the years ended December 31, 2021, 2020 and 2019 was $3.1
million, $2.4 million and $1.5 million, respectively. The following table shows the estimated future amortization expense based
on existing asset balances and the interest rate environment as of December 31, 2021. The Company’s actual amortization
expense in any given period may be different from the estimated amounts depending upon the acquisition of intangible assets,
changes in mortgage interest rates, prepayment rates and other market conditions.
(In thousands)
2022
2023
2024
2025
2026
$
1,946
1,639
1,377
1,152
955
6. Leases
The Company's leasing activities include leasing certain real estate and equipment, providing lease financing to commercial
customers, and leasing office space to third parties. The Company uses the FHLB fixed-advance rate at lease commencement
or at any subsequent remeasurement event date based on the remaining lease term to calculate the liability for each lease.
Lessee
The Company primarily has operating leases for branches, office space, ATM locations, and certain equipment. As of
December 31, 2021, the right-of-use asset for operating leases, reported within premises and equipment, net, and lease liability,
reported within other liabilities, recognized on the Company's consolidated balance sheets totaled $25.2 million and $27.2
million, respectively, compared to right-of-use assets of $28.3 million and lease liability of $29.2 million at December 31, 2020.
Total lease cost for the year ended December 31, 2021 was $7.7 million, compared to $7.4 million for the year ended
December 31, 2020. For leases with a term of 12 months or less, an election was made not to recognize lease assets and lease
liabilities for all asset classes, and to recognize lease expense for these leases on a straight-line basis over the lease term. The
Company's leases have remaining terms of 1 month to 32 years, most of which contain renewal options. However, the renewal
options are generally not included in the leased asset or liability because the option exercises are uncertain.
100
The maturities of operating leases are included in the table below.
(in thousands)
2022
2023
2024
2025
2026
After 2026
Total lease payments
Less: Interest(1)
Present value of lease liabilities
(1) Calculated using the interest rate for each lease.
Operating
Leases
$
$
$
6,009
5,348
3,969
2,507
1,768
13,727
33,328
6,133
27,195
The following table presents the average lease term and discount rate of operating leases.
Weighted-average remaining lease term
Weighted-average discount rate
December 31, 2021
December 31, 2020
11.1 years
3.05 %
11.3 years
3.29 %
Supplemental cash flow information related to operating leases is included in the table below.
(in thousands)
Operating cash paid toward lease liabilities
Leased assets obtained in exchange for new lease liabilities
For the Year Ended
December 31
2021
2020
$
$
6,180
4,407
6,213
7,482
Lessor
The Company has net investments in direct financing and sales-type leases to commercial, industrial, and tax-exempt
entities. These leases are included within business loans on the Company's consolidated balance sheets. The Company
primarily leases various types of equipment, trucks and trailers, and office furniture and fixtures. Lease agreements may
include options for the lessee to renew or purchase the leased equipment at the end of the lease term. The Company has elected
to adopt the lease component expedient in which the lease and nonlease components are combined into the total lease
receivable. The Company also leases office space to third parties, and these leases are classified as operating leases. The leases
may include options to renew or to expand the leased space, and currently the leases have remaining terms of 1 month to 6
years.
The following table provides the components of lease income.
(in thousands)
Direct financing and sales-type leases
Operating leases(1)
Total lease income
For the Year Ended December 31
2021
2020
22,736
7,488
30,224 $
25,380
8,589
33,969
$
(1) Includes rent from Tower Properties, a related party, of $76 thousand for the years ended December 31, 2021 and 2020.
101
The following table presents the components of the net investments in direct financing and sales-type leases.
(in thousands)
Lease payment receivable
Unguaranteed residual assets
Total net investments in direct financing and sales-type leases
Deferred origination cost
Total net investment included within business loans
December 31, 2021
December 31, 2020
$
$
$
655,885 $
66,638
722,523 $
3,035
725,558 $
729,649
64,211
793,860
3,581
797,441
The maturities of lease receivables are included in the table below.
(in thousands)
2022
2023
2024
2025
2026
After 2026
Total lease receipts
Less: Net present value adjustment
Present value of lease receipts
7. Deposits
Direct Financing and
Sale-Type Leases
Operating
Leases
Total
$
$
8,085 $
7,945
7,158
5,849
5,010
18,507
52,554 $
228,353
156,913
121,641
87,104
60,960
100,897
755,868
220,268 $
148,968
114,483
81,255
55,950
82,390
703,314 $
47,429
655,885
At December 31, 2021, the scheduled maturities of certificates of deposit were as follows:
(In thousands)
Due in 2022
Due in 2023
Due in 2024
Due in 2025
Due in 2026
Thereafter
Total
$ 1,138,020
201,488
34,923
38,499
29,677
7
$ 1,442,614
The aggregate amount of certificates of deposit that exceeded the $250,000 FDIC insurance limit totaled $810.4 million at
December 31, 2021.
102
8. Borrowings
At December 31, 2021, the Company's borrowings primarily consisted of federal funds purchased and securities sold under
agreements to repurchase (repurchase agreements). The following table sets forth selected information for federal funds
purchased and repurchase agreements.
(Dollars in thousands)
Federal funds purchased and repurchase agreements:
2021
2020
2019
Year End
Weighted
Rate
Average
Weighted
Rate
Average Balance
Outstanding
Maximum
Outstanding at
any Month End
Balance at
December 31
.06 %
.1 % $
2,334,837 $
3,022,967 $
3,022,967
.04
.8
.3
1.6
1,966,479
2,314,756
2,098,383
1,822,098
2,394,294
1,850,772
Federal funds purchased and repurchase agreements comprised the majority of the Company's short-term borrowings
(borrowings with an original maturity of less than one year at December 31, 2021), and $3.0 billion of these borrowings were
repurchase agreements, which generally have one day maturities and are mainly comprised of non-insured customer funds
secured by a portion of the Company's investment portfolio. Additional information about the securities pledged for repurchase
agreements and repurchase agreement maturity are provided in Note 20 on Resale and Repurchase Agreements.
The Bank is a member of the Des Moines FHLB and has access to term financing from the FHLB. These borrowings are
secured under a blanket collateral agreement including primarily residential mortgages as well as all unencumbered assets and
stock of the borrowing bank. At December 31, 2021, the Bank had no outstanding advances from the FHLB. The FHLB also
issues letters of credit to secure the Bank's obligations to certain depositors of public funds, which totaled $427.7 million at
December 31, 2021.
9. Income Taxes
The components of income tax expense from operations for the years ended December 31, 2021, 2020 and 2019 were as
follows:
(In thousands)
Year ended December 31, 2021:
U.S. federal
State and local
Total
Year ended December 31, 2020:
U.S. federal
State and local
Total
Year ended December 31, 2019:
U.S. federal
State and local
Total
Current
Deferred
Total
$
$
$
$
$
$
104,924 $
15,174
120,098 $
92,035 $
14,798
106,833 $
82,556 $
12,323
94,879 $
22,184 $
3,429
25,613 $
(14,055) $
(5,485)
(19,540) $
11,388 $
2,807
14,195 $
127,108
18,603
145,711
77,980
9,313
87,293
93,944
15,130
109,074
The components of income tax (benefit) expense recorded directly to stockholders’ equity for the years ended 2021, 2020
and 2019 were as follows:
(In thousands)
Unrealized gain (loss) on available for sale debt securities
Change in fair value on cash flow hedges
Accumulated pension (benefit) loss
Adoption of ASU 2016-13
Income tax (benefit) expense allocated to stockholders’ equity
2021
2020
2019
$
$
(80,211) $
(6,040)
1,484
—
(84,767) $
53,909 $
20,795
(1,059)
1,183
74,828 $
50,163
7,818
389
—
58,370
103
Significant components of the Company’s deferred tax assets and liabilities at December 31, 2021 and 2020 were as
follows:
(In thousands)
Deferred tax assets:
Loans, principally due to allowance for credit losses
Deferred compensation
Equity-based compensation
Accrued expenses
Unearned fee income
Other
Total deferred tax assets
Deferred tax liabilities:
Equipment lease financing
Cash flow hedges
Land, buildings, and equipment
Unrealized gain on available for sale debt securities
Intangible assets
Other
Total deferred tax liabilities
Net deferred tax liabilities
2021
2020
41,507 $
7,777
7,348
6,340
5,258
3,284
71,514
74,827
23,633
18,728
7,724
7,459
11,430
143,801
(72,287) $
62,849
7,173
7,870
5,569
5,329
6,648
95,438
74,538
29,382
20,114
87,933
7,015
7,895
226,877
(131,439)
$
$
Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to
realize the total deferred tax assets, therefore, no valuation allowance is needed for the deferred tax assets at year end.
A reconciliation between the expected federal income tax expense using the federal statutory tax rate of 21%, and the
Company's actual income tax expense for 2021, 2020, and 2019 is provided below. The effective tax rate is calculated by
dividing income taxes by income before income taxes less the non-controlling interest expense.
(In thousands)
Computed “expected” tax expense
Increase (decrease) in income taxes resulting from:
Tax-exempt interest, net of cost to carry
State and local income taxes, net of federal tax benefit
Share-based award payments
Other
Total income tax expense
2021
2020
2019
$
142,060 $
92,683 $
111,364
(9,002)
14,697
(2,941)
897
(10,013)
(10,973)
7,357
(3,090)
356
11,953
(3,337)
67
$
145,711 $
87,293 $
109,074
The gross amount of unrecognized tax benefits was $1.3 million at both December 31, 2021 and 2020, and the total amount
of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $1.0 million and $1.1 million at
December 31, 2021 and 2020, respectively. The activity in the accrued liability for unrecognized tax benefits for the years
ended December 31, 2021 and 2020 was as follows:
(In thousands)
2021
2020
Unrecognized tax benefits at beginning of year
$
1,331 $
1,372
Gross increases – tax positions in prior period
Gross decreases – tax positions in prior period
Gross increases – current-period tax positions
Lapse of statute of limitations
15
(8)
222
(284)
3
(51)
266
(259)
Unrecognized tax benefits at end of year
$
1,276 $
1,331
The Company and its subsidiaries are subject to income tax by federal, state and local government taxing authorities. Tax
years 2018 through 2021 remain open to examination for U.S. federal income tax and for major state taxing jurisdictions.
104
10. Employee Benefit Plans
Employee benefits charged to operating expenses are summarized in the table below. Substantially all of the Company’s
employees are covered by a defined contribution (401(k)) plan, under which the Company makes matching contributions.
(In thousands)
Payroll taxes
Medical plans
401(k) plan
Pension plans
Other
Total employee benefits
2021
2020
2019
$
$
28,084 $
31,131
17,237
388
1,170
78,010 $
27,664 $
30,002
16,834
410
1,990
76,900 $
26,959
29,635
15,810
605
3,049
76,058
A portion of the Company’s employees are covered by a noncontributory defined benefit pension plan, however,
participation in the pension plan is not available to employees hired after June 30, 2003. All participants are fully vested in their
benefit payable upon normal retirement date, which is based on years of participation and compensation. Since January 2011,
all benefits accrued under the pension plan have been frozen. However, the accounts continue to accrue interest at a stated
annual rate. Certain key executives also participate in a supplemental executive retirement plan (the CERP) that the Company
funds only as retirement benefits are disbursed. The CERP carries no segregated assets. The CERP continues to provide credits
based on hypothetical contributions in excess of those permitted under the 401(k) plan. In the tables presented below, the
pension plan and the CERP are presented on a combined basis.
Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to
satisfy the statutory minimum required contribution as defined by the Pension Protection Act, which is intended to provide for
current service accruals and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these
requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. No contributions to
the defined benefit plan were made in 2021, 2020 or 2019. The minimum required contribution for 2022 is expected to be zero.
The Company does not expect to make any further contributions in 2022 other than the necessary funding contributions to the
CERP. Contributions to the CERP were $14 thousand, $80 thousand and $25 thousand during 2021, 2020 and 2019,
respectively.
The following items are components of the net pension cost for the years ended December 31, 2021, 2020 and 2019.
(In thousands)
Service cost-benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of prior service cost
Amortization of unrecognized net loss
Net periodic pension cost
2021
2020
2019
$
388 $
410 $
2,169
(4,532)
(271)
2,578
3,282
(5,214)
(271)
2,138
$
332 $
345 $
607
4,198
(4,842)
(271)
2,288
1,980
105
The following table sets forth the pension plans’ funded status, using valuation dates of December 31, 2021 and 2020.
(In thousands)
Change in projected benefit obligation
Projected benefit obligation at prior valuation date
Service cost
Interest cost
Benefits paid
Actuarial (gain) loss
Projected benefit obligation at valuation date
Change in plan assets
Fair value of plan assets at prior valuation date
Actual return on plan assets
Employer contributions
Benefits paid
2021
2020
$
127,163 $
120,602
388
2,169
(6,735)
(1,247)
410
3,282
(6,765)
9,634
121,738
127,163
109,615
107,556
6,913
14
(6,735)
8,744
80
(6,765)
Fair value of plan assets at valuation date
Funded status and net amount recognized at valuation date
109,807
109,615
$
(11,931) $
(17,548)
The pension benefit obligation decreased from the prior year primarily due to an increase in the discount rate from 2.25% to
2.58%, which decreased the pension benefit liability by approximately $4.1 million. This decrease was partially offset by
updates to lump sum payment assumptions, which increased the pension obligation by approximately $1.0 million, and the
mortality scale. The Company utilizes mortality tables published by the Society of Actuaries to incorporate mortality
assumptions into the measurement of the pension benefit obligation. At December 31, 2021, the Company utilized an updated
mortality projection scale, which increased the pension benefit obligation on that date by approximately $300 thousand.
The accumulated benefit obligation, which represents the liability of a plan using only benefits as of the measurement date,
was $121.7 million and $127.2 million for the combined plans on December 31, 2021 and 2020, respectively.
106
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) at
December 31, 2021 and 2020 are shown below, including amounts recognized in other comprehensive income during the
periods. All amounts are shown on a pre-tax basis.
(In thousands)
Prior service cost
Accumulated loss
Accumulated other comprehensive loss
Cumulative employer contributions in excess of net periodic benefit cost
2021
2020
$
723 $
(28,277)
(27,554)
15,623
Net amount recognized as an accrued benefit liability on the December 31 balance sheet
$
(11,931) $
Net gain (loss) arising during period
Amortization of net loss
Amortization of prior service cost
Total recognized in other comprehensive income (loss)
Total income (expense) recognized in net periodic pension cost and other comprehensive income
3,627
2,578
(271)
5,934 $
5,602 $
$
$
The following assumptions, on a weighted average basis, were used in accounting for the plans.
994
(34,482)
(33,488)
15,940
(17,548)
(6,104)
2,138
(271)
(4,237)
(4,582)
Determination of benefit obligation at year end:
Effective discount rate for benefit obligations
Assumed credit on cash balance accounts
Determination of net periodic benefit cost for year ended:
Effective discount rate for benefit obligations
Effective rate for interest on benefit obligations
Long-term rate of return on assets
Assumed credit on cash balance accounts
2021
2020
2019
2.58 %
5.00 %
2.25 %
1.63 %
4.25 %
5.00 %
2.25 %
5.00 %
3.08 %
2.69 %
5.00 %
5.00 %
3.07 %
5.00 %
4.13 %
3.81 %
5.00 %
5.00 %
107
The following table shows the fair values of the Company’s pension plan assets by asset category at December 31, 2021 and
2020. Information about the valuation techniques and inputs used to measure fair value are provided in Note 17 on Fair Value
Measurements.
(In thousands)
December 31, 2021
Assets:
U.S. government obligations
Government-sponsored enterprise obligations (a)
State and municipal obligations
Agency mortgage-backed securities (b)
Non-agency mortgage-backed securities
Asset-backed securities
Corporate bonds (c)
Equity securities and mutual funds: (d)
Mutual funds
Common stocks
International developed markets funds
Emerging markets funds
Total
December 31, 2020
Assets:
U.S. government obligations
Government-sponsored enterprise obligations (a)
State and municipal obligations
Agency mortgage-backed securities (b)
Non-agency mortgage-backed securities
Asset-backed securities
Corporate bonds (c)
Equity securities and mutual funds: (d)
Mutual funds
Common stocks
International developed markets funds
Emerging markets funds
Total
Fair Value Measurements
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
Total Fair Value
$
6,824 $
6,824 $
— $
2,066
8,000
3,266
2,974
7,648
40,832
6,004
27,702
3,943
548
109,807 $
—
—
—
—
—
—
6,004
27,702
3,943
548
45,021 $
2,066
8,000
3,266
2,974
7,648
40,832
—
—
—
—
64,786 $
5,306 $
5,306 $
— $
2,142
9,471
6,984
2,225
6,090
41,278
5,584
24,991
1,976
3,568
109,615 $
—
—
—
—
—
—
5,584
24,991
1,976
3,568
41,425 $
2,142
9,471
6,984
2,225
6,090
41,278
—
—
—
—
68,190 $
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(a) This category represents bonds (excluding mortgage-backed securities) issued by agencies such as the Government National Mortgage Association, the
Federal Home Loan Mortgage Corp and the Federal National Mortgage Association.
(b) This category represents mortgage-backed securities issued by the agencies mentioned in (a).
(c) This category represents investment grade bonds issued in the U.S., primarily by domestic issuers, representing diverse industries.
(d) This category represents investments in individual common stocks and equity funds. These holdings are diversified, largely across the technology
services, financial services, electronic technology, healthcare, and process industries.
The investment policy of the pension plan is designed for growth in principal, within limits designed to safeguard against
significant losses within the portfolio. The policy sets guidelines, which may change from time to time, regarding the types and
percentages of investments held. Currently, the policy includes guidelines such as holding bonds rated investment grade or
better and prohibiting investment in Company stock. The plan does not utilize derivatives. Management believes there are no
significant concentrations of risk within the plan asset portfolio at December 31, 2021. Under the current policy, the long-term
investment target mix for the plan is 35% equity securities and 65% fixed income securities. The Company regularly reviews its
policies on investment mix and may make changes depending on economic conditions and perceived investment risk.
108
The assumed overall expected long-term rate of return on pension plan assets used in calculating 2021 pension plan expense
was 4.25%. Determination of the plan’s expected rate of return is based upon historical and anticipated returns of the asset
classes invested in by the pension plan and the allocation strategy currently in place among those classes. The rate used in plan
calculations may be adjusted by management for current trends in the economic environment. The 10-year annualized return for
the Company’s pension plan was 7.3%. During 2021, the plan’s assets gained 5.9% of their value, compared to a gain of 8.9%
in 2020. Returns for any plan year may be affected by changes in the stock market and interest rates. The Company expects to
incur pension expense of $405 thousand in 2022, compared to $332 thousand in 2021.
The following future benefit payments are expected to be paid:
(In thousands)
2022
2023
2024
2025
2026
2027 - 2031
$
7,545
7,656
7,550
7,502
7,441
34,922
11. Stock-Based Compensation and Directors Stock Purchase Plan*
The Company’s stock-based compensation is provided under a stockholder-approved plan that allows for issuance of
various types of awards, including stock options, stock appreciation rights, restricted stock and restricted stock units,
performance awards and stock-based awards. During the past three years, stock-based compensation has been issued in the
form of nonvested restricted stock awards and stock appreciation rights. At December 31, 2021, 1,839,368 shares remained
available for issuance under the plan. The stock-based compensation expense that was charged against income was $15.4
million, $14.9 million and $13.9 million for the years ended December 31, 2021, 2020 and 2019, respectively. The total
income tax benefit recognized in the income statement for share-based compensation arrangements was $2.7 million, $3.0
million and $3.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Nonvested Restricted Stock Awards
Nonvested stock is awarded to key employees by action of the Company's Compensation and Human Resources Committee
and Board of Directors. These awards generally vest after 4 to 7 years of continued employment, but vesting terms may vary
according to the specifics of the individual grant agreement. There are restrictions as to transferability, sale, pledging, or
assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant of
restricted stock awards. A summary of the status of the Company’s nonvested share awards as of December 31, 2021 and
changes during the year then ended is presented below.
Nonvested at January 1, 2021
Granted
Vested
Forfeited
Nonvested at December 31, 2021
Shares
Weighted
Average Grant
Date Fair Value
1,154,573 $
253,422
(258,136)
(29,368)
1,120,491 $
49.63
68.50
41.49
55.75
55.58
The total fair value (at vest date) of shares vested during 2021, 2020 and 2019 was $17.6 million, $18.0 million and $19.9
million, respectively.
109
Stock Appreciation Rights
Stock appreciation rights (SARs) are granted with exercise prices equal to the market price of the Company’s stock at the
date of grant. SARs generally vest ratably over 4 years of continuous service and have 10-year contractual terms. All SARs
must be settled in stock under provisions of the plan. A summary of SAR activity during 2021 is presented below.
(Dollars in thousands, except per share data)
Shares
Weighted
Average Exercise
Price
Weighted
Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
Outstanding at January 1, 2021
Granted
Forfeited
Expired
Exercised
Outstanding at December 31, 2021
Exercisable at December 31, 2021
1,055,767 $
75,943
(8,391)
(485)
(226,486)
896,348 $
582,072 $
42.81
69.44
56.80
55.35
37.73
46.21
40.18
5.7 years
4.7 years
$
$
20,327
16,624
In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on
date of grant. The Black-Scholes model is a closed-end model that uses various assumptions as shown in the following table.
Expected volatility is based on historical volatility of the Company’s stock. The Company uses historical exercise behavior and
other factors to estimate the expected term of the SARs, which represents the period of time that the SARs granted are expected
to be outstanding. The risk-free rate for the expected term is based on the U.S. Treasury zero coupon spot rates in effect at the
time of grant. The per share average fair value and the model assumptions for SARs granted during the past three years are
shown in the table below.
Weighted per share average fair value at grant date
Assumptions:
Dividend yield
Volatility
Risk-free interest rate
Expected term
Additional information about SARs exercised is presented below.
2021
$15.98
2020
$9.18
2019
$10.30
1.4 %
28.2 %
.7 %
1.7 %
20.2 %
1.0 %
1.7 %
19.8 %
2.6 %
5.7 years
5.8 years
6.0 years
(In thousands)
Intrinsic value of SARs exercised
Tax benefit realized SARs exercised
2021
2020
2019
$
$
7,664 $
1,488 $
6,278 $
1,252 $
7,109
1,385
As of December 31, 2021, there was $29.5 million of unrecognized compensation cost related to unvested SARs and stock
awards. This cost is expected to be recognized over a weighted average period of approximately 3 years.
Directors Stock Purchase Plan
The Company has a directors stock purchase plan whereby outside directors of the Company and its subsidiaries may elect
to use their directors’ fees to purchase Company stock at market value each month end. Remaining shares available for issuance
under this plan were 755 at December 31, 2021. During February 2022, shares authorized for issuance under the plan were
increased to 150,000. In 2021, 13,388 shares were purchased at an average price of $69.15, and in 2020, 22,904 shares were
purchased at an average price of $57.67.
* All share and per share amounts in this note have been restated for the 5% common stock dividend distributed in 2021.
110
12. Accumulated Other Comprehensive Income
The table below shows the activity and accumulated balances for components of other comprehensive income. The largest
component is the unrealized holding gains and losses on available for sale debt securities. Another component is the
amortization from other comprehensive income of losses associated with pension benefits, which occurs as the losses are
included in current net periodic pension cost. The remaining component is gains in fair value on certain interest rate floors that
have been designated as cash flow hedges. The interest rate floors were terminated during 2020, and the realized gains will be
amortized into interest income through the original maturity dates of the interest rate floors. Information about unrealized gains
and losses on securities can be found in Note 3, and information about unrealized gains on cash flow hedge derivatives is
located in Note 19. Information about unrealized gains and losses on pension plans can be found in Note 10.
The Company adopted ASU 2016-13 (CECL) on January 1, 2020, which changed the impairment model for available for
sale debt securities. CECL requires an allowance for credit losses when the present value of the cash flows expected to be
collected is less than the security's amortized cost basis and superseded the guidance related to other-than-temporary
impairment (OTTI), including the requirement to separately disclose the unrealized gains and losses on securities with OTTI.
Prior to the Company's adoption of CECL, unrealized gains and losses on debt securities for which an OTTI has been recorded
in current earnings were shown separately below. As a result of adopting CECL, the table below will separately disclose
unrealized gains and losses on debt securities for which an allowance for credit losses has been recorded. During the years
ended December 31, 2021 and 2020, there were no securities for which an allowance for credit losses was recorded.
(In thousands)
Balance January 1, 2021
Unrealized Gains (Losses)
on Securities (1)
OTTI
Other
Pension
Loss
Unrealized
Gains on Cash
Flow Hedge
Derivatives (2)
Total
Accumulated
Other
Comprehensive
Income (Loss)
$
— $ 263,801 $ (25,118) $
92,694
$
331,377
Other comprehensive income (loss) before reclassifications
—
(324,122)
3,627
—
(320,495)
Amounts reclassified from accumulated other comprehensive
income
Current period other comprehensive income (loss), before tax
Income tax (expense) benefit
Current period other comprehensive income (loss), net of tax
Balance December 31, 2021
Balance January 1, 2020
Adoption of ASU 2016-13
Balance January 1, 2020, adjusted
—
—
—
—
3,284
(320,838)
2,307
5,934
(24,160)
(24,160)
(18,569)
(339,064)
80,211
(1,484)
6,040
84,767
(240,627)
4,450
(18,120)
(254,297)
$
$
$
— $ 23,174 $ (20,668) $
3,264 $ 98,809 $ (21,940) $
74,574
30,311
$
$
77,080
110,444
(3,264)
3,264
—
—
—
— $ 102,073 $ (21,940) $
30,311
$
110,444
Other comprehensive income (loss) before reclassifications
—
236,733
(6,104)
93,497
324,126
Amounts reclassified from accumulated other comprehensive
income
Current period other comprehensive income (loss), before tax
Income tax (expense) benefit
Current period other comprehensive income (loss), net of tax
—
—
—
—
(21,096)
1,867
(10,319)
215,637
(4,237)
83,178
(53,909)
1,059
(20,795)
161,728
(3,178)
62,383
(29,548)
294,578
(73,645)
220,933
Balance December 31, 2020
$
— $ 263,801 $ (25,118) $
92,694
$
331,377
(1) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "investment securities gains (losses),
net" in the consolidated statements of income.
(2) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "interest and fees on loans" in the
consolidated statements of income.
111
13. Segments
The Company segregates financial information for use in assessing its performance and allocating resources among three
operating segments: Consumer, Commercial, and Wealth. The Consumer segment consists of various consumer loan and
deposit products offered through its retail branch network of approximately 150 locations. This segment also includes indirect
and other consumer loan financing businesses, along with debit and credit card loan and fee businesses. Residential mortgage
origination, sales and servicing functions are included in this Consumer segment, but residential mortgage loans retained by the
Company are not considered part of this segment and are instead included in the Other segment. The Commercial segment
provides corporate lending (including the Small Business Banking product line within the branch network), leasing, and
international services, along with business and governmental deposit products and commercial cash management services. This
segment also includes both merchant and commercial bank card products as well as the Capital Markets Group, which sells
fixed income securities and provides securities safekeeping and accounting services to its business and correspondent bank
customers. The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment
management, and brokerage services. This segment also provides various loan and deposit related services to its private
banking customers.
The Company’s business line reporting system derives segment information from the internal profitability reporting system
used by management to monitor and manage the financial performance of the Company. This information is based on internal
management accounting procedures and methods, which have been developed to reflect the underlying economics of the
businesses. These methodologies are applied in connection with funds transfer pricing and assignment of overhead costs
among segments. Funds transfer pricing was used in the determination of net interest income by assigning a standard cost
(credit) for funds used for (provided by) assets and liabilities based on their maturity, prepayment and/or repricing
characteristics. Income and expense that directly relate to segment operations are recorded in the segment when incurred.
Expenses that indirectly support the segments are allocated based on the most appropriate method available.
The Company uses a funds transfer pricing method to value funds used (e.g., loans, fixed assets, and cash) and funds
provided (e.g., deposits, borrowings, and equity) by the business segments and their components. This process assigns a
specific value to each new source or use of funds with a maturity, based on current swap rates, thus determining an interest
spread at the time of the transaction. Non-maturity assets and liabilities are valued using weighted average pools. The funds
transfer pricing process attempts to remove interest rate risk from valuation, allowing management to compare profitability
under various rate environments.
112
The following tables present selected financial information by segment and reconciliations of combined segment totals to
consolidated totals. There were no material intersegment revenues between the three segments. Management periodically
makes changes to methods of assigning costs and income to its business segments to better reflect operating results. If
appropriate, these changes are reflected in prior year information presented below.
Segment Income Statement Data
(In thousands)
Year ended December 31, 2021:
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income before income taxes
Year ended December 31, 2020:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income before income taxes
Year ended December 31, 2019:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income before income taxes
Consumer
Commercial
Wealth
Segment Totals
Other/
Elimination
Consolidated
Totals
$
$
$
$
$
$
319,439 $
(23,249)
147,273
—
(293,504)
149,959 $
321,036 $
(31,220)
148,586
—
(297,790)
140,612 $
315,778 $
(44,987)
135,257
—
(297,530)
108,518 $
453,692 $
4,845
211,048
—
(329,313)
340,272 $
414,724 $
(3,724)
194,505
—
(316,004)
289,501 $
343,233 $
(4,204)
203,952
—
(309,163)
233,818 $
71,522 $
(52)
213,617
—
(136,356)
148,731 $
57,925 $
12
188,942
—
(124,964)
121,915 $
47,863 $
(174)
180,836
—
(122,784)
105,741 $
844,653 $
(18,456)
571,938
—
(759,173)
638,962 $
793,685 $
(34,932)
532,033
—
(738,758)
552,028 $
706,874 $
(49,365)
520,045
—
(729,477)
448,077 $
(9,229) $
84,782
(11,545)
30,059
(46,728)
47,339 $
36,162 $
(102,258)
(26,166)
11,032
(29,620)
(110,850) $
114,419 $
(1,073)
4,658
3,626
(37,921)
83,709 $
835,424
66,326
560,393
30,059
(805,901)
686,301
829,847
(137,190)
505,867
11,032
(768,378)
441,178
821,293
(50,438)
524,703
3,626
(767,398)
531,786
The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination” column
include activity not related to the segments, such as that relating to administrative functions, the investment securities portfolio,
and the effect of certain expense allocations to the segments. The provision for credit losses in this category contains the
difference between net loan charge-offs assigned directly to the segments and the recorded provision for credit loss expense.
Included in this category’s net interest income are earnings of the investment portfolio, which are not allocated to a segment.
Segment Balance Sheet Data
(In thousands)
Average balances for 2021:
Assets
Loans, including held for sale
Goodwill and other intangible assets
Deposits
Average balances for 2020:
Assets
Loans, including held for sale
Goodwill and other intangible assets
Deposits
$
$
Consumer
Commercial
Wealth
Segment Totals
Other/
Elimination
Consolidated
Totals
2,064,375 $ 10,550,065 $
1,921,519
10,237,980
80,448
12,838,702
11,990,753
67,832
1,584,765 $ 14,199,205 $ 19,964,530 $ 34,163,735
15,685,911
1,575,058
149,026
746
27,784,116
2,965,818
13,734,557
149,026
27,795,273
1,951,354
—
(11,157)
2,238,607 $ 10,937,391 $
10,565,800
2,099,784
78,353
11,282,164
67,956
9,937,985
1,406,416 $ 14,582,414 $ 15,034,283 $ 29,616,697
15,915,533
1,395,766
147,370
746
23,497,477
2,271,166
14,061,350
147,055
23,491,315
1,854,183
315
6,162
The above segment balances include only those items directly associated with the segment. The “Other/Elimination” column
includes unallocated bank balances not associated with a segment (such as investment securities and federal funds sold),
balances relating to certain other administrative and corporate functions, and eliminations between segment and non-segment
balances. This column also includes the resulting effect of allocating such items as float, deposit reserve and capital for the
purpose of computing the cost or credit for funds used/provided.
113
The Company’s reportable segments are strategic lines of business that offer different products and services. They are
managed separately because each line services a specific customer need, requiring different performance measurement analyses
and marketing strategies. The performance measurement of the segments is based on the management structure of the
Company and is not necessarily comparable with similar information for any other financial institution. The information is also
not necessarily indicative of the segments’ financial condition and results of operations if they were independent entities.
14. Common and Preferred Stock*
On December 17, 2021, the Company distributed a 5% stock dividend on its $5 par common stock for the 28th consecutive
year. All per common share data in this report has been restated to reflect the stock dividend.
The Company applies the two-class method of computing income per share, as nonvested share-based awards that pay
nonforfeitable common stock dividends are considered securities which participate in undistributed earnings with common
stock. The two-class method requires the calculation of separate income per share amounts for the nonvested share-based
awards and for common stock. Income per share attributable to common stock is shown in the following table. Nonvested
share-based awards are further discussed in Note 11, Stock-Based Compensation.
Basic income per share is based on the weighted average number of common shares outstanding during the year. Diluted
income per share gives effect to all dilutive potential common shares that were outstanding during the year. Presented below is
a summary of the components used to calculate basic and diluted income per common share, which have been restated for all
stock dividends.
(In thousands, except per share data)
Basic income per common share:
Net income attributable to Commerce Bancshares, Inc.
Less preferred stock dividends
Net income available to common shareholders
Less income allocated to nonvested restricted stock
Net income allocated to common stock
Weighted average common shares outstanding
Basic income per common share
Diluted income per common share:
Net income available to common shareholders
Less income allocated to nonvested restricted stock
Net income allocated to common stock
Weighted average common shares outstanding
Net effect of the assumed exercise of stock-based awards - based on the treasury
stock method using the average market price for the respective periods
Weighted average diluted common shares outstanding
Diluted income per common share
2021
2020
2019
$
$
$
$
$
$
530,765 $
—
530,765
4,846
525,919 $
121,656
4.32 $
530,765 $
4,838
525,927 $
121,656
285
121,941
4.31 $
354,057 $
11,966
342,091
3,215
338,876 $
122,177
2.77 $
342,091 $
3,211
338,880 $
122,177
236
122,413
2.77 $
421,231
9,000
412,231
4,019
408,212
125,446
3.25
412,231
4,012
408,219
125,446
312
125,758
3.25
Unexercised stock appreciation rights of 88 thousand, 318 thousand and 392 thousand were excluded from the computation
of diluted income per share for the years ended December 31, 2021, 2020 and 2019, respectively, because their inclusion would
have been anti-dilutive.
On September 1, 2020, the Company redeemed all outstanding shares of its 6.00% Series B Non-Cumulative Perpetual
Preferred Stock, $1.00 par value per share, (Series B Preferred Stock) and the corresponding depositary shares representing
fractional interests in the Series B Preferred Stock (Series B Depositary Shares). The 6,000,000 depositary shares, each
representing a 1/1,000th interest in a share of Series B Preferred Stock, were redeemed simultaneously with the redemption of
the Series B Preferred Stock at a redemption price of $25 per depositary share. Regular dividends on the outstanding shares of
the Series B Preferred Stock were paid separately on September 1, 2020 to all holders of record as of August 14, 2020, in the
customary manner, and future dividends ceased to accrue. For the year ended December 31, 2020, preferred stock dividends
totaled $12.0 million, and included $5.2 million related to the preferred stock redemption, which is the excess of the redemption
costs over the book value of the preferred stock.
The Company entered into an accelerated share repurchase program in 2019 for $150.0 million. Final settlement of the
program occurred at the end of 2019, and a total of 2,432,336 shares of common stock were received by the Company under the
114
program. Shares purchased under this program were part of the Company's stock repurchase program, as authorized by its
Board of Directors. The most recent authorization in November 2019 approved future purchases of 5,000,000 shares of the
Company's common stock. At December 31, 2021, 1,737,322 shares of common stock remained available for purchase under
the current authorization.
The table below shows activity in the outstanding shares of the Company’s common stock during the past three years.
Shares in the table below are presented on an historical basis and have not been restated for the annual 5% stock dividends.
(In thousands)
Shares outstanding at January 1
Issuance of stock:
Awards and sales under employee and director plans
5% stock dividend
Other purchases of treasury stock
Other
Shares outstanding at December 31
Years Ended December 31
2021
2020
2019
117,138
112,132
111,129
328
5,790
(1,807)
(13)
121,436
335
5,574
(887)
(16)
117,138
329
5,359
(4,670)
(15)
112,132
* Except as noted in the above table, all share and per share amounts in this footnote have been restated for the 5% common
stock dividend distributed in 2021.
115
15. Regulatory Capital Requirements
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and additional discretionary actions by regulators that could
have a direct material effect on the Company’s financial statements. The regulations require the Company to meet specific
capital adequacy guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The Company’s capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
The following tables show the capital amounts and ratios for the Company (on a consolidated basis) and the Bank, together
with the minimum capital adequacy and well-capitalized capital requirements, at the last two year ends.
(Dollars in thousands)
December 31, 2021
Total Capital (to risk-weighted assets):
Actual
Minimum Capital
Adequacy Requirement
Well-Capitalized Capital
Requirement
Amount
Ratio
Amount
Ratio
Amount
Ratio
Commerce Bancshares, Inc. (consolidated)
$ 3,399,880
15.12%
$ 1,798,700
8.00%
N.A.
N.A.
Commerce Bank
2,939,345
13.19
1,783,288
8.00
$ 2,229,110
10.00%
Tier I Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 3,225,044
14.34%
$ 1,349,025
6.00%
N.A.
N.A.
Commerce Bank
2,764,509
12.40
1,337,466
6.00
$ 1,783,288
8.00%
Tier I Common Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 3,225,044
14.34%
$ 1,011,769
4.50%
N.A.
N.A.
Commerce Bank
2,764,509
12.40
1,003,100
4.50
$ 1,448,922
6.50%
Tier I Capital (to adjusted quarterly average assets):
(Leverage Ratio)
Commerce Bancshares, Inc. (consolidated)
$ 3,225,044
9.13%
$ 1,412,370
4.00%
N.A.
N.A.
Commerce Bank
December 31, 2020
Total Capital (to risk-weighted assets):
2,764,509
7.86
1,406,785
4.00
$ 1,758,482
5.00%
Commerce Bancshares, Inc. (consolidated)
$ 3,189,432
14.82%
$ 1,721,317
8.00%
N.A.
N.A.
Commerce Bank
2,844,675
13.30
1,710,778
8.00
$ 2,138,472
10.00%
Tier I Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 2,950,926
13.71%
$ 1,290,988
6.00%
N.A.
N.A.
Commerce Bank
2,606,169
12.19
1,283,083
6.00
$ 1,710,778
8.00%
Tier I Common Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 2,950,926
13.71%
$ 968,241
4.50%
N.A.
N.A.
Commerce Bank
2,606,169
12.19
962,312
4.50
$ 1,390,007
6.50%
Tier I Capital (to adjusted quarterly average assets):
(Leverage Ratio)
Commerce Bancshares, Inc. (consolidated)
$ 2,950,926
9.45%
$ 1,249,584
4.00%
N.A.
N.A.
Commerce Bank
2,606,169
8.36
1,246,470
4.00
$ 1,558,087
5.00%
The minimum required ratios for well-capitalized banks (under prompt corrective action provisions) are 6.5% for Tier I
common capital, 8.0% for Tier I capital, 10.0% for Total capital and 5.0% for the leverage ratio.
At December 31, 2021 and 2020, the Company met all capital requirements to which it is subject, and the Bank’s capital
position exceeded the regulatory definition of well-capitalized.
116
16. Revenue from Contracts with Customers
The core principle of ASU 2014-09 Revenue from Contracts with Customers is that an entity should recognize revenue to
reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. For the year ended December 31, 2021, approximately 60% of
the Company’s total revenue was comprised of net interest income, which is not within the scope of this guidance. Of the
remaining revenue, those items that were subject to this guidance mainly included fees for bank card, trust, deposit account
services and consumer brokerage services.
The following table disaggregates non-interest income subject to ASU 2014-09 by major product line.
(In thousands)
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Consumer brokerage services
Other non-interest income
Total non-interest income from contracts with customers
Other non-interest income (1)
Total non-interest income
For the Years Ended December 31
2021
2020
2019
167,891 $
188,227
97,217
18,362
27,223
498,920
61,473
560,393 $
151,797 $
160,637
93,227
15,095
31,040
451,796
54,071
505,867 $
167,879
155,628
95,983
15,804
48,597
483,891
40,812
524,703
$
$
(1) This revenue is not within the scope of ASU 2014-09, and includes fees relating to capital market activities, loan fees and sales, derivative instruments,
standby letters of credit and various other transactions.
The following table presents the opening and closing receivable balances for the years ended December 31, 2021 and 2020
for the Company’s significant revenue categories subject to ASU 2014-09.
(In thousands)
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Consumer brokerage services
December 31, 2021 December 31, 2020 December 31, 2019
$
16,424 $
14,199 $
13,915
2,222
6,702
391
2,071
6,933
432
2,093
6,523
596
For these revenue categories, none of the transaction price has been allocated to performance obligations that are unsatisfied
as of the end of a reporting period. A description of these revenue categories follows.
117
Bank Card Transaction Fees
The following table presents the components of bank card fee income.
(In thousands)
Debit card:
Fee income
Expense for network charges
Net debit card fees
Credit card:
Fee income
Expense for network charges and rewards
Net credit card fees
Corporate card:
Fee income
Expense for network charges and rewards
Net corporate card fees
Merchant:
Fee income
Fees to cardholder banks
Expense for network charges
Net merchant fees
For the Years Ended December 31
2021
2020
2019
$
44,170 $
39,862 $
(3,160)
41,010
(2,218)
37,644
29,214
(14,070)
15,144
197,483
(105,782)
91,701
33,019
(9,640)
(3,343)
20,036
24,921
(11,528)
13,393
179,251
(96,877)
82,374
29,660
(8,115)
(3,159)
18,386
42,106
(2,081)
40,025
27,416
(13,239)
14,177
196,984
(102,596)
94,388
31,517
(8,779)
(3,449)
19,289
167,879
Total bank card transaction fees
$
167,891 $
151,797 $
The majority of debit and credit card fees are reported in the Consumer segment, while corporate card and merchant fees are
reported in the Commercial segment.
Debit and Credit Card Fees
The Company issues debit and credit cards to its retail and commercial banking customers who use the cards to purchase
goods and services from merchants through an electronic payment system. As a card issuer, the Company earns fees, including
interchange income, for processing the cardholder’s purchase transaction with a merchant through a settlement network.
Purchases are charged directly to a customer’s checking account (in the case of a debit card), or are posted to a customer’s
credit card account. The fees earned are established by the settlement network and are dependent on the type of transaction
processed but are typically based on a per unit charge. Interchange income, the largest component of debit and credit card fees,
is settled daily through the networks. The services provided to the cardholders include issuing and maintaining cards, settling
purchases with merchants, and maintaining memberships in various card networks to facilitate processing. These services are
considered one performance obligation, as one of the services would not be performed without the others. The performance
obligation is satisfied as services are rendered for each purchase transaction, and income is immediately recognized.
In order to participate in the settlement network process, the Company must pay various transaction-related costs,
established by the networks, including membership fees and a per unit charge for each transaction. These expenses are
recorded net of the card fees earned.
Consumer credit card products offer cardholders rewards that can be later redeemed for cash, goods or services to encourage
card usage. Reward programs must meet network requirements based on the type of card issued. The expense associated with
the rewards granted are recorded net of the credit card fees earned.
Commercial card products offer cash rewards to corporate cardholders to encourage card usage in facilitating corporate
payments. The Company pays cash rewards based on contractually agreed upon amounts, normally as a percent of each sales
transaction. The expense associated with the cash rewards program is recorded net of the corporate card fees earned.
118
Merchant Fees
The Company offers merchant processing services to its business customers to enable them to accept credit and debit card
payments. Merchant processing activities include gathering merchant sales information, authorizing sales transactions and
collecting the funds from card issuers using the networks. The merchant is charged a merchant discount fee for the services
based on agreed upon pricing between the merchant and the Company. Merchant fees are recorded net of outgoing interchange
costs paid to the card issuing banks and net of other network costs as shown in the table above.
Merchant services provided are considered one performance obligation, as one of the services would not be performed
without the others. The performance obligation is satisfied as services are rendered for each settlement transaction and income
is immediately recognized. Income earned from merchant fees settles with the customer according to terms negotiated in
individual customer contracts. The majority of customers settle with the Company at least monthly.
Trust Fees
The following table shows the components of revenue within trust fees, which are reported within the Wealth segment.
(In thousands)
Private client
Institutional
Other
Total trust fees
For the Years Ended December 31
2021
2020
2019
$
$
147,653 $
123,941 $
118,832
33,890
6,684
30,544
6,152
29,468
7,328
188,227 $
160,637 $
155,628
The Company provides trust and asset management services to both private client and institutional trust customers including
asset custody, investment advice, and reporting and administrative services. Other specialized services such as tax preparation,
financial planning, representation and other related services are provided as needed. Trust fees are generally earned monthly
and billed based on a rate multiplied by the fair value of the customer's trust assets. The majority of customer trust accounts are
billed monthly. However, some accounts are billed quarterly, and a small number of accounts are billed semi-annually or
annually, in accordance with agreements in place with the customer. The Company accrues trust fees monthly based on an
estimate of fees due and either directly charges the customer’s account the following month or invoices the customer for fees
due according to the billing schedule.
The Company maintains written product pricing information which is used to bill each trust customer based on the services
provided. Providing trust services is considered to be a single performance obligation that is satisfied on a monthly basis,
involving the monthly custody of customer assets, statement rendering, periodic investment advice where applicable, and other
specialized services as needed. As such, performance obligations are considered to be satisfied at the conclusion of each month
while trust fee income is also recognized monthly.
Deposit Account Charges and Other Fees
The following table shows the components of revenue within deposit account charges and other fees.
(In thousands)
Corporate cash management fees
Overdraft and return item fees
Other service charges on deposit accounts
Total deposit account charges and other fees
For the Years Ended December 31
2021
2020
2019
$
$
50,051 $
24,157
23,009
97,217 $
46,762 $
22,951
23,514
93,227 $
41,442
30,596
23,945
95,983
Approximately half of this revenue is reported in the Consumer segment, while the remainder is reported in the Commercial
segment.
The Company provides corporate cash management services to its business and non-profit customers to meet their various
transaction processing needs. Such services include deposit and check processing, lockbox, remote deposit, reconciliation,
online banking and other similar transaction processing services. The Company maintains unit prices for each type of service,
and the customer is billed based on transaction volumes processed monthly. The customer is usually billed either monthly or
119
quarterly, however, some customers may be billed semi-annually or annually. The customer may pay for the cash management
services either by paying in cash or using the value of deposit balances (formula provided to the customer) held at the
Company. The Company’s performance obligation for corporate cash management services is the processing of items over a
monthly term, and the obligations are satisfied at the conclusion of each month.
Overdraft fees are charged to customers when daily checks and other withdrawals to customers’ accounts exceed balances
on hand. Fees are based on a unit price multiplied by the number of items processed whose total amounts exceed the available
account balance. The daily overdraft charge is calculated and the fee is posted to the customer’s account each day. The
Company’s performance obligation for overdraft transactions is based on the daily transaction processed and the obligation is
satisfied as each day’s transaction processing is concluded.
Other deposit fees include numerous smaller fees such as monthly statement fees, foreign ATM processing fees,
identification restoration fees, and stop payment fees. Such fees are mostly billed to customers directly on their monthly
deposit account statements, or in the case of foreign ATM processing fees, the fee is charged to the customer on the day that
transactions are processed. Performance obligations for all of these various services are satisfied at the time that the service is
rendered.
Consumer Brokerage Services
The following shows the components of revenue within consumer brokerage services, and nearly all of this revenue is
reported in the Company's Wealth segment.
(In thousands)
Commission income
Managed account services
Total consumer brokerage services
For the Years Ended December 31
2021
2020
2019
$
$
9,328 $
9,034
18,362 $
8,002 $
7,093
15,095 $
9,071
6,733
15,804
Consumer brokerage services revenue is comprised of commissions received upon the execution of purchases and sales of
mutual fund shares and equity securities, in addition to sales of annuities and certain limited insurance products in an agency
capacity. Also, fees are earned on professionally managed advisory programs through arrangements with sub-advisors.
Payment from the customer is due upon settlement date for purchases and sales of securities, at the purchase date for annuities
and insurance products, and upon inception of the service period for advisory programs.
Most of the contracts (except advisory contracts) encompass two types of performance obligations. The first is an obligation
to provide account maintenance, record keeping and custodial services throughout the contract term. The second is the
obligation to provide trade execution services for the customers' purchases and sales of products mentioned above. The first
obligation is satisfied over time as the service period elapses, while the second type of obligation is satisfied upon the execution
of each purchase/sale transaction. Contracts for advisory services contain a single performance obligation comprised of
providing the management services and related reporting/administrative services over the contract term.
The transaction price of the contracts (except advisory contracts) is a commission charged at the time of trade execution.
The commission varies across different security types, insurance products and mutual funds. It is generally determined by
standardized price lists published by the Company and its mutual fund and insurance vendors. Because the transaction price
relates specifically to the trade execution, it has been allocated to that performance obligation and is recorded at the time of
execution. The fee for advisory services is charged to the customer in advance of the quarterly service period, based on the
account balance at the beginning of the period. Revenue is recognized ratably over the service period.
Other Non-Interest Income from Contracts with Customers
Other non-interest income from contracts with customers consists mainly of various customer deposit related fees such as
ATM fees and gains on sales of tax credits, foreclosed assets, and bank premises and equipment. Performance obligations for
these services consist mainly of the execution of transactions for sales of various properties or providing specific deposit related
transactions. Fees from these revenue sources are recognized when the performance obligation is completed, at which time
cash is received by the Company.
120
17. Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and
liabilities and to determine fair value disclosures. Various financial instruments such as available for sale debt securities, equity
securities, trading debt securities, certain investments relating to private equity activities, and derivatives are recorded at fair
value on a recurring basis. Additionally, from time to time, the Company may be required to record other assets and liabilities
at fair value on a nonrecurring basis, such as mortgage servicing rights and certain other investment securities. These
nonrecurring fair value adjustments typically involve lower of cost or fair value accounting, or write-downs of individual assets.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various
valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation
hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to
the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
•
•
•
Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable
for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds).
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be
internally developed, using the Company’s best information and assumptions that a market participant would consider.
When determining the fair value measurements for assets and liabilities required or permitted to be recorded or disclosed at
fair value, the Company considers the principal or most advantageous market in which it would transact and considers
assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active
and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active
markets, the Company looks to observable market data for similar assets and liabilities. Nevertheless, certain assets and
liabilities are not actively traded in observable markets, and the Company must use alternative valuation techniques to derive an
estimated fair value measurement.
121
Instruments Measured at Fair Value on a Recurring Basis
The table below presents the carrying values of assets and liabilities measured at fair value on a recurring basis at December
31, 2021 and 2020. There were no transfers among levels during these years.
(In thousands)
December 31, 2021
Assets:
Residential mortgage loans held for sale
Available for sale debt securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities
Equity securities
Private equity investments
Derivatives *
Assets held in trust for deferred compensation plan
Total assets
Liabilities:
Derivatives *
Liabilities held in trust for deferred compensation plan
Total liabilities
December 31, 2020
Assets:
Residential mortgage loans held for sale
Available for sale debt securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities
Equity securities
Private equity investments
Derivatives *
Assets held in trust for deferred compensation plan
Total assets
Liabilities:
Derivatives *
Liabilities held in trust for deferred compensation plan
Total liabilities
*The fair value of each class of derivative is shown in Note 19.
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair Value
$
5,570 $
— $
5,570 $
—
1,080,720
51,755
2,096,827
5,683,000
1,366,477
3,539,219
632,029
46,235
7,153
147,406
41,842
21,794
14,720,027
1,080,720
—
—
—
—
—
—
—
7,153
—
—
21,794
1,109,667
—
51,755
2,094,843
5,683,000
1,366,477
3,539,219
632,029
46,235
—
—
40,994
—
13,460,122
12,101
21,794
33,895 $
—
21,794
21,794 $
11,824
—
11,824 $
—
—
1,984
—
—
—
—
—
—
147,406
848
—
150,238
277
—
277
39,396 $
— $
39,396 $
—
$
$
838,059
54,485
2,045,099
6,712,085
361,074
1,882,243
556,219
35,321
2,966
94,368
89,889
19,278
12,730,482
838,059
—
—
—
—
—
—
—
2,966
—
—
19,278
860,303
—
54,485
2,037,131
6,712,085
361,074
1,882,243
556,219
35,321
—
—
86,447
—
11,764,401
18,675
19,278
37,953 $
—
19,278
19,278 $
17,974
—
17,974 $
$
—
—
7,968
—
—
—
—
—
—
94,368
3,442
—
105,778
701
—
701
122
Valuation methods for instruments measured at fair value on a recurring basis
Following is a description of the Company’s valuation methodologies used for instruments measured at fair value on a
recurring basis:
Residential mortgage loans held for sale
The Company originates fixed rate, first lien residential mortgage loans that are intended for sale in the secondary market.
Fair value is based on quoted secondary market prices for loans with similar characteristics, which are adjusted to include the
embedded servicing value in the loans. This adjustment represents an unobservable input to the valuation but is not considered
significant given the relative insensitivity of the valuation to changes in this input. Accordingly, these loan measurements are
classified as Level 2.
Available for sale debt securities
For available for sale securities, changes in fair value are recorded in other comprehensive income. This portfolio comprises
the majority of the assets which the Company records at fair value. Most of the portfolio, which includes government-sponsored
enterprise, mortgage-backed and asset-backed securities, are priced utilizing industry-standard models that consider various
assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current
market and contractual prices for the underlying financial instruments, as well as other relevant economic measures.
Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported
by observable levels at which transactions are executed in the marketplace. These measurements are classified as Level 2 in the
fair value hierarchy. Where quoted prices are available in an active market, the measurements are classified as Level 1. Most
of the Level 1 measurements apply to U.S. Treasury obligations.
The fair values of Level 1 and 2 securities in the available for sale portfolio are prices provided by a third-party pricing
service. The prices provided by the third-party pricing service are based on observable market inputs, as described in the
sections below. On a quarterly basis, the Company compares a sample of these prices to other independent sources for the
same and similar securities. Variances are analyzed, and, if appropriate, additional research is conducted with the third-party
pricing service. Based on this research, the pricing service may affirm or revise its quoted price. No significant adjustments
have been made to the prices provided by the pricing service. The pricing service also provides documentation on an ongoing
basis that includes reference data, inputs and methodology by asset class, which is reviewed by the Company to ensure that
security placement within the fair value hierarchy is appropriate.
Valuation methods and inputs, by class of security:
•
U.S. government and federal agency obligations
U.S. treasury bills, bonds and notes, including inflation-protected securities, are valued using live data from active
market makers and inter-dealer brokers. Valuations for stripped coupon and principal issues are derived from yield
curves generated from various dealer contacts and live data sources.
•
Government-sponsored enterprise obligations
Government-sponsored enterprise obligations are evaluated using cash flow valuation models. Inputs used are live
market data, cash settlements, Treasury market yields, and floating rate indices such as LIBOR, CMT, and Prime.
•
State and municipal obligations, excluding auction rate securities
A yield curve is generated and applied to bond sectors, and individual bond valuations are extrapolated. Inputs used to
generate the yield curve are bellwether issue levels, established trading spreads between similar issuers or credits,
historical trading spreads over widely accepted market benchmarks, new issue scales, and verified bid information.
Bid information is verified by corroborating the data against external sources such as broker-dealers, trustees/paying
agents, issuers, or non-affiliated bondholders.
•
Mortgage and asset-backed securities
Collateralized mortgage obligations and other asset-backed securities are valued at the tranche level. For each tranche
valuation, the process generates predicted cash flows for the tranche, applies a market based (or benchmark) yield/
spread for each tranche, and incorporates deal collateral performance and tranche level attributes to determine tranche-
specific spreads to adjust the benchmark yield. Tranche cash flows are generated from new deal files and prepayment/
default assumptions. Tranche spreads are based on tranche characteristics such as average life, type, volatility, ratings,
underlying collateral and performance, and prevailing market conditions. The appropriate tranche spread is applied to
the corresponding benchmark, and the resulting value is used to discount the cash flows to generate an evaluated price.
123
Valuation of agency pass-through securities, typically issued under GNMA, FNMA, FHLMC, and SBA programs, are
primarily derived from information from the to-be-announced (TBA) market. This market consists of generic
mortgage pools which have not been received for settlement. Snapshots of the TBA market, using live data feeds
distributed by multiple electronic platforms, are used in conjunction with other indices to compute a price based on
discounted cash flow models.
•
Other debt securities
Other debt securities are valued using active markets and inter-dealer brokers as well as bullet spread scales and option
adjusted spreads. The spreads and models use yield curves, terms and conditions of the bonds, and any special
features (e.g., call or put options and redemption features).
•
Auction rate securities
The available for sale portfolio includes certain auction rate securities. Due to the illiquidity in the auction rate
securities market in recent years, the fair value of these securities cannot be based on observable market prices. The
fair values of these securities are estimated using a discounted cash flows analysis which is discussed more fully in the
Level 3 Inputs section of this note. Because many of the inputs significant to the measurement are not observable,
these measurements are classified as Level 3 measurements.
Trading debt securities
The securities in the Company’s trading portfolio are priced by averaging several broker quotes for similar instruments and
are classified as Level 2 measurements.
Equity securities with readily determinable fair values
Equity securities are priced using the market prices for each security from the major stock exchanges or other electronic
quotation systems. These are generally classified as Level 1 measurements. Stocks which trade infrequently are classified as
Level 2.
Private equity investments
These securities are held by the Company’s private equity subsidiary and are included in other investment securities in the
consolidated balance sheets. Due to the absence of quoted market prices, valuation of these nonpublic investments requires
significant management judgment. These fair value measurements, which are discussed in the Level 3 Inputs section of this
note, are classified as Level 3.
Derivatives
The Company’s derivative instruments include interest rate swaps, foreign exchange forward contracts, and certain credit
risk guarantee agreements. When appropriate, the impact of credit standing as well as any potential credit enhancements, such
as collateral, has been considered in the fair value measurement.
•
Valuations for interest rate swaps are derived from a proprietary model whose significant inputs are readily observable
market parameters, primarily yield curves used to calculate current exposure. Counterparty credit risk is incorporated
into the model and calculated by applying a net credit spread over LIBOR to the swap's total expected exposure over
time. The net credit spread is comprised of spreads for both the Company and its counterparty, derived from
probability of default and other loss estimate information obtained from a third party credit data provider or from the
Company's Credit Department when not otherwise available. The credit risk component is not significant compared to
the overall fair value of the swaps. The results of the model are constantly validated through comparison to active
trading in the marketplace.
Parties to swaps requiring central clearing are required to post collateral (generally in the form of cash or marketable
securities) to an authorized clearing agency that holds and monitors the collateral. The Company's clearing
counterparty characterizes a component of this collateral, known as variation margin, as a legal settlement of the
derivative contract exposure, and as a result, the variation margin is considered in determining the fair value of the
derivative.
The fair value measurements of interest rate swaps are classified as Level 2 due to the observable nature of the
significant inputs utilized.
•
Fair value measurements for foreign exchange contracts are derived from a model whose primary inputs are quotations
from global market makers and are classified as Level 2.
124
•
•
The Company’s contracts related to credit risk guarantees are valued under a proprietary model which uses
unobservable inputs and assumptions about the creditworthiness of the counterparty (generally a Bank customer).
Customer credit spreads, which are based on probability of default and other loss estimates, are calculated internally by
the Company's Credit Department, as mentioned above, and are based on the Company's internal risk rating for each
customer. Because these inputs are significant to the measurements, they are classified as Level 3.
Derivatives relating to residential mortgage loan sale activity include commitments to originate mortgage loans held
for sale, forward loan sale contracts, and forward commitments to sell TBA securities. The fair values of loan
commitments and sale contracts are estimated using quoted market prices for loans similar to the underlying loans in
these instruments. The valuations of loan commitments are further adjusted to include embedded servicing value and
the probability of funding. These assumptions are considered Level 3 inputs and are significant to the loan
commitment valuation; accordingly, the measurement of loan commitments is classified as Level 3. The fair value
measurement of TBA contracts is based on security prices published on trading platforms and is classified as Level 2.
Assets held in trust for deferred compensation plan
Assets held in an outside trust for the Company’s deferred compensation plan consist of investments in mutual funds. The
fair value measurements are based on quoted prices in active markets and classified as Level 1. The Company has recorded an
asset representing the total investment amount. The Company has also recorded a corresponding liability, representing the
Company’s liability to the plan participants.
125
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
State and
Municipal
Obligations
Private Equity
Investments
Derivatives
Total
$
7,968 $
94,368 $
2,741 $
105,077
—
(170)
(6,000)
186
—
—
—
—
—
36,344
(2,650)
—
—
—
31,449
(16,523)
1,768
—
—
—
—
—
—
—
—
685
(205)
33,694
(170)
(6,000)
186
31,449
(16,523)
1,768
685
(205)
1,984 $
147,406 $
571 $
149,961
— $
28,654 $
475 $
29,129
11 $
— $
— $
11
9,853 $
94,122 $
369 $
104,344
$
$
$
$
(10,103)
3,181
—
(2)
(2,000)
117
—
—
—
—
7,968 $
—
—
—
10,684
(364)
29
—
94,368 $
—
—
—
—
—
—
(6,922)
(2)
(2,000)
117
10,684
(364)
29
(809)
2,741 $
(809)
105,077
— $
(10,083) $
3,611 $
(6,472)
44 $
— $
— $
44
(In thousands)
Year ended December 31, 2021:
Balance at January 1, 2021
Total gains or losses (realized/unrealized):
Included in earnings
Included in other comprehensive income
Investment securities called
Discount accretion
Purchases of private equity securities
Sale / pay down of private equity securities
Capitalized interest/dividends
Purchase of risk participation agreement
Sale of risk participation agreement
Balance at December 31, 2021
Total gains or losses for the year included in earnings attributable
to the change in unrealized gains or losses relating to assets still
held at December 31, 2021
Total gains or losses for the year included in other comprehensive
income attributable to the change in unrealized gains or losses
relating to assets still held at December 31, 2021
Year ended December 31, 2020:
Balance at January 1, 2020
Total gains or losses (realized/unrealized):
Included in earnings
Included in other comprehensive income
Investment securities called
Discount accretion
Purchases of private equity securities
Sale / pay down of private equity securities
Capitalized interest/dividends
Sale of risk participation agreement
Balance at December 31, 2020
Total gains or losses for the year included in earnings attributable
to the change in unrealized gains or losses relating to assets still
held at December 31, 2020
Total gains or losses for the year included in other comprehensive
income attributable to the change in unrealized gains or losses
relating to assets still held at December 31, 2020
$
$
$
126
Gains and losses on the Level 3 assets and liabilities in the table above are reported in the following income categories:
(In thousands)
Year ended December 31, 2021:
Loan Fees and
Sales
Other Non-
Interest Income
Investment
Securities Gains
(Losses), Net
Total
Total gains or losses included in earnings
Change in unrealized gains or losses relating to assets still held at
December 31, 2021
Year ended December 31, 2020:
Total gains or losses included in earnings
Change in unrealized gains or losses relating to assets still held at
December 31, 2020
$
$
$
$
(2,463) $
(187) $
36,344 $
33,694
764 $
(289) $
28,654 $
29,129
2,768 $
413 $
(10,103) $
(6,922)
3,226 $
385 $
(10,083) $
(6,472)
Level 3 Inputs
As shown above, the Company's significant Level 3 measurements which employ unobservable inputs that are readily
quantifiable pertain to auction rate securities (ARS) held by the Bank, investments in portfolio concerns held by the Company's
private equity subsidiary, and held for sale residential mortgage loan commitments. ARS are included in state and municipal
securities and totaled $2.0 million at December 31, 2021, while private equity investments, included in other securities, totaled
$147.4 million.
Information about these inputs is presented in the table and discussions below.
Quantitative Information about Level 3 Fair Value Measurements
Weighted
Auction rate securities
Valuation Technique
Discounted cash flow
Unobservable Input
Estimated market recovery period
Estimated market rate
Private equity investments
Mortgage loan commitments
Market comparable companies EBITDA multiple
Discounted cash flow
Probability of funding
Embedded servicing value
* Unobservable inputs were weighted by the relative fair value of the instruments.
Range
Average*
5 years
1.4%
5.4
1.2% -
-
4.0
5 years
1.6%
6.0
69.1% - 100.0% 85.9%
1.0%
1.1%
0.6% -
The fair values of ARS are estimated using a discounted cash flows analysis in which estimated cash flows are based on
mandatory interest rates paid under failing auctions and projected over an estimated market recovery period. Under normal
conditions, ARS traded in weekly auctions and were considered liquid investments. The Company's estimate of when these
auctions might resume is highly judgmental and subject to variation depending on current and projected market conditions. Few
auctions of these securities have been successful in recent years, and most secondary transactions have been privately arranged.
Estimated cash flows during the period over which the Company expects to hold the securities are discounted at an estimated
market rate. These securities are comprised of bonds issued by various states and municipalities for healthcare and student
lending purposes, and market rates are derived for each type. Market rates are calculated at each valuation date using a LIBOR
or Treasury based rate plus spreads representing adjustments for liquidity premium and nonperformance risk. The spreads are
developed internally by employees in the Company's bond department. An increase in the holding period alone would result in
a higher fair value measurement, while an increase in the estimated market rate (the discount rate) alone would result in a lower
fair value measurement. The valuation of the ARS portfolio is reviewed on a quarterly basis by the Company's chief
investment officers.
The fair values of the Company's private equity investments are based on a determination of fair value of the investee
company less preference payments assuming the sale of the investee company. Investee companies are normally non-public
entities. The fair value of the investee company is determined by reference to the investee's total earnings before interest,
depreciation/amortization, and income taxes (EBITDA) multiplied by an EBITDA factor. EBITDA is normally determined
based on a trailing prior period adjusted for specific factors including current economic outlook, investee management, and
specific unique circumstances such as sales order information, major customer status, regulatory changes, etc. The EBITDA
multiple is based on management's review of published trading multiples for recent private equity transactions and other
judgments and is derived for each individual investee. The fair value of the Company's investment is then calculated based on
its ownership percentage in the investee company. On a quarterly basis, these fair value analyses are reviewed by a valuation
committee consisting of investment managers and senior Company management.
127
The significant unobservable inputs used in the fair value measurement of the Company’s derivative commitments to
originate residential mortgage loans are the percentage of commitments that are actually funded and the mortgage servicing
value that is inherent in the underlying loan value. A significant increase in the rate of loans that fund would result in a larger
derivative asset or liability. A significant increase in the inherent mortgage servicing value would result in an increase in the
derivative asset or a reduction in the derivative liability. The probability of funding and the inherent mortgage servicing values
are directly impacted by changes in market rates and will generally move in the same direction as interest rates.
Instruments Measured at Fair Value on a Nonrecurring Basis
For assets measured at fair value on a nonrecurring basis during 2021 and 2020, and still held as of December 31, 2021 and
2020, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation
assumptions used to determine each adjustment, and the carrying value of the related individual assets or portfolios at
December 31, 2021 and 2020.
(In thousands)
Fair Value
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Gains
(Losses)
Balance at December 31, 2021
Collateral dependent loans
Mortgage servicing rights
Long-lived assets
Balance at December 31, 2020
Collateral dependent loans
Mortgage servicing rights
Long-lived assets
$
1,664 $
10,966
1,018
$
12,961 $
6,249
811
— $
—
—
— $
—
—
— $
—
—
— $
—
—
1,664 $
10,966
1,018
12,961 $
6,249
811
(213)
1,799
(1,101)
(7,763)
(1,776)
(9)
The Company's significant Level 3 measurements that are measured on a nonrecurring basis pertain to the Company's
mortgage servicing rights retained on certain fixed rate personal real estate loan originations. Mortgage servicing rights are
included in other intangible assets on the consolidated balance sheets, and information about these inputs is presented in the
table below.
Quantitative Information about Level 3 Fair Value Measurements
Valuation Technique
Unobservable Input
Range
Weighted
Average*
Mortgage servicing rights
Discounted cash flow
Discount rate
9.02 % -
9.35 %
9.13 %
Prepayment speeds (CPR)*
10.05 % -
13.36 %
11.32 %
Loan servicing costs - annually per loan
Performing loans
Delinquent loans
$ 70
- $ 72
$
71
$ 200
- $ 750
Loans in foreclosure
$ 1,000
*Ranges and weighted averages based on interest rate tranches.
The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are
updated periodically for changes in market conditions. Actual rates may differ from our estimates. Increases in prepayment
speed and discount rates negatively impact the fair value of our mortgage servicing rights.
Valuation methods for instruments measured at fair value on a nonrecurring basis
Following is a description of the Company’s valuation methodologies used for other financial and nonfinancial instruments
measured at fair value on a nonrecurring basis.
Collateral dependent loans
While the overall loan portfolio is not carried at fair value, the Company periodically records nonrecurring adjustments to
the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans.
128
Nonrecurring adjustments also include certain impairment amounts for collateral dependent loans when establishing the
allowance for credit losses on loans. Such amounts are generally based on the fair value of the underlying collateral supporting
the loan. In determining the value of real estate collateral, the Company relies on external and internal appraisals of property
values depending on the size and complexity of the real estate collateral. The Company maintains a staff of qualified appraisers
who also review third party appraisal reports for reasonableness. In the case of non-real estate collateral, reliance is placed on a
variety of sources, including external estimates of value and judgments based on the experience and expertise of internal
specialists. Values of all loan collateral are regularly reviewed by credit administration. Unobservable inputs to these
measurements, which include estimates and judgments often used in conjunction with appraisals, are not readily quantifiable.
These measurements are classified as Level 3. Nonrecurring adjustments to the carrying value of loans based on fair value
measurements at December 31, 2021 and 2020 are shown in the table above.
Mortgage servicing rights
The Company initially measures its mortgage servicing rights at fair value and amortizes them over the period of estimated
net servicing income. They are periodically assessed for impairment based on fair value at the reporting date. Mortgage
servicing rights do not trade in an active market with readily observable prices. Accordingly, the fair value is estimated based
on a valuation model which calculates the present value of estimated future net servicing income. The model incorporates
assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds,
market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees. The fair value
measurements are classified as Level 3.
Long-lived assets
When investments in branch facilities and various office buildings are determined to be impaired, their carrying values are
written down to estimated fair value, or estimated fair value less cost to sell if the property is held for sale. Fair value is
estimated in a process which considers current local commercial real estate market conditions and the judgment of the sales
agent and often involves obtaining third party appraisals from certified real estate appraisers. The carrying amounts of these
real estate holdings are regularly monitored by real estate professionals employed by the Company. These fair value
measurements are classified as Level 3. Unobservable inputs to these measurements, which include estimates and judgments
often used in conjunction with appraisals, are not readily quantifiable.
129
18. Fair Value of Financial Instruments
The carrying amounts and estimated fair values of financial instruments held by the Company are set forth below. Fair value
estimates are made at a specific point in time based on relevant market information. They do not reflect any premium or
discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument.
Because no market exists for many of the Company's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve
uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The estimated fair values of the Company’s financial instruments and the classification of their fair value measurement
within the valuation hierarchy are as follows at December 31, 2021 and 2020:
Estimated Fair Value at December 31, 2021
Level 1
Level 2
Level 3
Total
$
— $
—
—
—
—
—
—
—
—
—
— $ 5,229,153 $ 5,229,153
1,099,747
—
1,099,747
3,054,481
—
3,054,481
2,809,490
—
2,809,490
2,031,408
—
2,031,408
273,450
—
273,450
—
536,468
536,468
6,458
6,458
—
— 15,040,655 15,040,655
8,615
—
194,197 14,695,628
2,800
1,623,856
3,971,217
305,539
41,842
21,794
$ 5,389,223 $ 13,463,167 $ 16,859,556 $ 35,711,946
8,615
1,087,873 13,413,558
—
—
—
—
40,994
—
2,800
—
3,971,217
305,539
—
21,794
—
1,623,856
—
—
848
—
$ 11,772,374 $
16,598,085
—
43,385
—
—
—
21,794
$ 28,435,638 $
— $
—
—
—
—
12,514
11,824
—
— $ 11,772,374
— 16,598,085
1,438,919
43,385
2,979,677
12,514
12,101
21,794
24,338 $ 4,418,873 $ 32,878,849
1,438,919
—
2,979,677
—
277
—
(In thousands)
Financial Assets
Loans:
Business
Real estate - construction and land
Real estate - business
Real estate - personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities
Federal funds sold
Securities purchased under agreements to resell
Interest earning deposits with banks
Cash and due from banks
Derivative instruments
Assets held in trust for deferred compensation plan
Total
Financial Liabilities
Non-interest bearing deposits
Savings, interest checking and money market deposits
Certificates of deposit
Federal funds purchased
Securities sold under agreements to repurchase
Other borrowings
Derivative instruments
Liabilities held in trust for deferred compensation plan
Total
Carrying
Amount
$ 5,303,535
1,118,266
3,058,837
2,805,401
2,032,225
275,945
575,410
6,740
15,176,359
8,615
14,695,628
2,800
1,625,000
3,971,217
305,539
41,842
21,794
$ 35,848,794
$ 11,772,374
16,598,085
1,442,614
43,385
2,979,582
12,514
12,101
21,794
$ 32,882,449
130
Estimated Fair Value at December 31, 2020
Level 1
Level 2
Level 3
Total
$
— $
—
—
—
—
—
—
—
—
—
— $ 6,467,572 $ 6,467,572
995,873
995,873
—
3,016,576
3,016,576
—
2,830,521
2,830,521
—
1,953,217
1,953,217
—
304,434
304,434
—
576,320
576,320
—
—
3,068
3,068
— 16,147,581 16,147,581
45,089
—
146,713 12,626,296
894,338
894,338
1,747,363
—
437,563
—
89,889
3,442
19,278
—
$ 3,045,229 $ 11,770,094 $ 17,192,074 $ 32,007,397
45,089
841,025 11,638,558
—
—
—
86,447
—
—
1,747,363
437,563
—
19,278
$ 10,497,598 $
14,604,456
—
42,270
—
—
19,278
$ 25,163,602 $
— $
—
—
—
—
17,974
—
— $ 10,497,598
— 14,604,456
1,847,277
42,270
2,056,173
18,675
19,278
17,974 $ 3,904,151 $ 29,085,727
1,847,277
—
2,056,173
701
—
(In thousands)
Financial Assets
Loans:
Business
Real estate - construction and land
Real estate - business
Real estate - personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities
Securities purchased under agreements to resell
Interest earning deposits with banks
Cash and due from banks
Derivative instruments
Assets held in trust for deferred compensation plan
Total
Financial Liabilities
Non-interest bearing deposits
Savings, interest checking and money market deposits
Certificates of deposit
Federal funds purchased
Securities sold under agreements to repurchase
Derivative instruments
Liabilities held in trust for deferred compensation plan
Total
Carrying
Amount
$ 6,546,087
1,021,595
3,026,117
2,820,030
1,950,502
307,083
655,078
3,149
16,329,641
45,089
12,626,296
850,000
1,747,363
437,563
89,889
19,278
$ 32,145,119
$ 10,497,598
14,604,456
1,844,691
42,270
2,056,113
18,675
19,278
$ 29,083,081
131
19. Derivative Instruments
The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts,
along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a
measure of loss exposure. With the exception of the interest rate floors (discussed below), the Company's derivative
instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings.
(In thousands)
Interest rate swaps
Interest rate caps
Credit risk participation agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale contracts
Forward TBA contracts
Total notional amount
December 31
2021
2020
$
2,229,419
$
2,367,017
152,058
485,633
5,119
21,787
1,165
21,000
103,028
381,170
7,431
67,543
—
89,000
$
2,916,181
$
3,015,189
The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to
modify their interest rate sensitivity. Those customers are engaged in a variety of businesses, including real estate,
manufacturing, retail product distribution, education, and retirement communities. These interest rate swap contracts with
customers are offset by matching interest rate swap contracts purchased by the Company from other financial institutions
(dealers). Contracts with dealers that require central clearing are novated to a clearing agency who becomes the Company's
counterparty. Because of the matching terms of the offsetting contracts, in addition to collateral provisions which mitigate the
impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings.
Many of the Company’s interest rate swap contracts with large financial institutions contain contingent features relating to
debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the
Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and
ongoing collateralization on interest rate swaps in net liability positions or instant settlement of the contracts. The Company
maintains debt ratings and capital well above those minimum requirements.
During the year ended December 31, 2020, the Company monetized three interest rate floors that were previously classified
as cash flow hedges with a combined notional balance of $1.5 billion and an asset fair value of $163.2 million. As of
December 31, 2021, the total unrealized gains on the monetized cash flow hedges remaining in AOCI was $99.4 million (pre-
tax). The unrealized gains will be reclassified into interest income as the underlying forecasted transactions impact earnings
through the original maturity dates of the hedged forecasted transactions, or approximately within 5 years. The estimated
amount of net gains related to the cash flow hedges remaining in AOCI at December 31, 2021 that is expected to be reclassified
into income within the next 12 months is $24.5 million.
The Company also contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated
with certain interest rate swaps through risk participation agreements. The Company’s risks and responsibilities as guarantor
are further discussed in Note 21 on Commitments, Contingencies and Guarantees. In addition, the Company enters into foreign
exchange contracts, which are mainly comprised of contracts with customers to purchase or deliver specific foreign currencies
at specific future dates.
Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-
originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan
commitments and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to
sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed
securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are
settled in cash at the security settlement date.
The fair values of the Company’s derivative instruments, whose notional amounts are listed above, are shown in the table
below. Information about the valuation methods used to determine fair value is provided in Note 17 on Fair Value
Measurements.
132
The Company presents derivative assets and derivative liabilities on a gross basis, as other assets and other liabilities, on its
consolidated balance sheets.
(In thousands)
Derivatives not designated as hedging instruments:
Interest rate swaps *
Interest rate caps
Credit risk participation agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale contracts
Forward TBA contracts
Asset Derivatives
December 31
Liability Derivatives
December 31
2021
2020
2021
2020
Fair Value
Fair Value
$
40,752
147
$
84
77
764
5
13
86,389
1
216
57
3,226
—
—
$
(11,606)
(147)
$
(17,199)
(1)
(277)
(45)
—
(1)
(25)
(701)
(103)
—
—
(671)
Total derivatives not designated as hedging instruments
Total
$
$
41,842
41,842
$
$
89,889
89,889
$
$
(12,101)
(12,101)
$
$
(18,675)
(18,675)
*Certain collateral was posted to and from the Company's clearing party and has been applied to the fair values of the cleared swaps. As a result, these
values are net of variation margin of $587 thousand and $0 for interest rate swaps in an asset position, and $29.7 million and $69.2 million for interest
rate swaps in a liability position, at December 31, 2021 and 2020, respectively.
The pre-tax effects of derivative instruments on the consolidated statements of comprehensive income and consolidated
statements of income are shown in the table below.
Amount of Gain or (Loss) Recognized
in OCI
Included
Component
Excluded
Component
Total
(In thousands)
For the Year Ended December 31, 2021
Derivatives in cash flow hedging relationships:
Location of Gain (Loss)
Reclassified from AOCI into
Income
(In thousands)
Amount of Gain (Loss) Reclassified
from AOCI into Income
Included
Component
Excluded
Component
Total
$
$
$
$
$
$
24,160 $
24,160 $
30,310 $
30,310 $
(6,150)
(6,150)
10,319 $
10,319 $
15,257 $
15,257 $
(4,938)
(4,938)
(3,793) $
(3,793) $
— $
— $
(3,793)
(3,793)
Interest rate floors
— $
— $
— $
— $
Total
For the Year Ended December 31, 2020
Derivatives in cash flow hedging relationships:
Interest rate floors
93,497 $ 120,140 $
93,497 $ 120,140 $
Total
For the Year Ended December 31, 2019
Derivatives in cash flow hedging relationships:
$
$
$
$
—
—
Interest and fees on loans
Total
(26,643)
(26,643) Total
Interest and fees on loans
Interest rate floors
Total
$
$
27,481 $
27,481 $
50,327 $
50,327 $
(22,846)
(22,846) Total
Interest and fees on loans
133
The gain and loss recognized through various derivative instruments on the consolidated statements of income are shown in
the table below.
(In thousands)
Derivative instruments:
Interest rate swaps
Interest rate caps
Credit risk participation agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale contracts
Forward TBA contracts
Total
Location of Gain/(Loss) Recognized in
the Consolidated Statements of Income
Amount of Gain/(Loss) Recognized in Income on
Derivative
For the Years
Ended December 31
2021
2020
2019
Other non-interest income
$
3,170
$
Other non-interest income
Other non-interest income
Other non-interest income
Loan fees and sales
Loan fees and sales
Loan fees and sales
15
(187)
78
(2,463)
4
1,777
317
20
413
(111)
2,768
(4)
(1,440)
$
4,732
—
(16)
53
(77)
(3)
(837)
$
2,394
$
1,963
$
3,852
The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the
consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master
netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset.
Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable
securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after
netting is applied); thus amounts of excess collateral are not shown. Most of the derivatives in the following table were
transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.
While the Company is party to master netting arrangements with most of its swap counterparties, the Company does not
offset derivative assets and liabilities under these arrangements on its consolidated balance sheets. Collateral exchanged
between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually
consist of marketable securities. By contract, this collateral may be sold or re-pledged by the secured party until recalled at a
subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts
cash or securities to its clearing agent. Collateral positions are valued daily, and adjustments to amounts received and pledged
by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative
transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which
is not shown in the table below.
134
(In thousands)
December 31, 2021
Assets:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
Liabilities:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
December 31, 2020
Assets:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
Liabilities:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
Gross Amount
Recognized
Gross Amounts
Offset in the
Balance Sheet
Net Amounts
Presented in the
Balance Sheet
Gross Amounts Not Offset in the
Balance Sheet
Financial
Instruments
Available for
Offset
Collateral
Received/
Pledged
Net Amount
$
40,970 $
— $
40,970 $
(347) $
— $
40,623
872
$
41,842 $
—
— $
872
41,842
$
12,019 $
— $
12,019 $
(347) $
(10,146) $
1,526
82
$
12,101 $
—
— $
82
12,101
$
86,497 $
— $
86,497 $
(108) $
— $
86,389
3,392
$
89,889 $
—
— $
3,392
89,889
$
18,420 $
— $
18,420 $
(108) $
(16,738) $
1,574
255
$
18,675 $
—
— $
255
18,675
20. Resale and Repurchase Agreements
The Company regularly enters into resale and repurchase agreement transactions with other financial institutions and with its
own customers. Resale and repurchase agreements are agreements to purchase/sell securities subject to an obligation to resell/
repurchase the same or similar securities. They are accounted for as secured lending and collateralized borrowing (e.g.
financing transactions), not as true sales and purchases of the underlying collateral securities. Some of the resale and
repurchase agreements were transacted under master netting arrangements that contain a conditional right of offset, such as
close-out netting, upon default. The security collateral accepted or pledged in resale and repurchase agreements with other
financial institutions may be sold or re-pledged by the secured party, but is usually delivered to and held by third party trustees.
The Company generally retains custody of securities pledged for repurchase agreements with its customers. Additional
information about the Company's repurchase agreements is included in Note 8.
The Company is party to agreements commonly known as collateral swaps. These agreements involve the exchange of
collateral under simultaneous repurchase and resale agreements with the same financial institution counterparty. These
repurchase and resale agreements have the same principal amounts, inception dates, and maturity dates and have been offset
against each other in the consolidated balance sheets, as permitted under the netting provisions of ASC 210-20-45. The
collateral swaps totaled $400.0 million at December 31, 2021 and $200.0 million at December 31, 2020.
The following table shows the extent to which resale agreement assets and repurchase agreement liabilities with the same
counterparty have been offset on the consolidated balance sheets, in addition to the extent to which they could potentially be
offset. Also shown is collateral received or pledged, which consists of marketable securities. The collateral amounts in the
table are limited to the outstanding balances of the related asset or liability (after offsetting is applied); thus amounts of excess
collateral are not shown.
135
(In thousands)
December 31, 2021
Total resale agreements, subject to
master netting arrangements
Total repurchase agreements, subject
to master netting arrangements
December 31, 2020
Total resale agreements, subject to
master netting arrangements
Total repurchase agreements, subject
to master netting arrangements
Gross Amount
Recognized
Gross Amounts
Offset on the
Balance Sheet
Net Amounts
Presented on the
Balance Sheet
Gross Amounts Not Offset in the
Balance Sheet
Financial
Instruments
Available for
Offset
Securities
Collateral
Received/
Pledged
Unsecured
amount
$
2,025,000 $
(400,000) $
1,625,000 $
— $
(1,625,000) $
3,379,582
(400,000)
2,979,582
—
(2,979,582)
$
1,050,000 $
(200,000) $
850,000 $
— $
(850,000) $
2,256,113
(200,000)
2,056,113
—
(2,056,113)
—
—
—
—
The table below shows the remaining contractual maturities of repurchase agreements outstanding at December 31, 2021
and 2020, in addition to the various types of marketable securities that have been pledged by the Company as collateral for
these borrowings.
(In thousands)
December 31, 2021
Repurchase agreements, secured by:
U.S. government and federal agency obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Total repurchase agreements, gross amount recognized
December 31, 2020
Repurchase agreements, secured by:
U.S. government and federal agency obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Total repurchase agreements, gross amount recognized
Remaining Contractual Maturity of the Agreements
Overnight and
continuous
Up to 90 days
Greater than 90
days
Total
$
$
$
$
600,866 $
1,844,652
32,299
422,525
32,450
2,932,792 $
150,305 $
1,598,614
62,742
155,917
33,668
2,001,246 $
33,373 $
3,908
—
—
—
37,281 $
— $
34,018
—
—
—
34,018 $
9,259 $
400,250
—
—
—
409,509 $
— $
220,849
—
—
—
220,849 $
643,498
2,248,810
32,299
422,525
32,450
3,379,582
150,305
1,853,481
62,742
155,917
33,668
2,256,113
136
21. Commitments, Contingencies and Guarantees
The Company engages in various transactions and commitments with off-balance sheet risk in the normal course of business
to meet customer financing needs. The Company uses the same credit policies in making the commitments and conditional
obligations described below as it does for on-balance sheet instruments. The following table summarizes these commitments at
December 31:
(In thousands)
Commitments to extend credit:
Credit card
Other
Standby letters of credit, net of conveyance to other financial institutions
Commercial letters of credit
2021
2020
$
5,007,409 $
4,972,104
8,319,715
8,033,222
418,328
5,304
357,087
3,117
Commitments to extend credit are legally binding agreements to lend to a borrower providing there are no violations of any
conditions established in the contract. As many of the commitments are expected to expire without being drawn upon, the total
commitment does not necessarily represent future cash requirements. Refer to Note 2 on Loans and Allowance for Credit
Losses for further discussion.
The Company, as a provider of financial services, routinely issues financial guarantees in the form of financial and
performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to
guarantee the payment or performance obligation of a customer to a third party. While these represent a potential cash outflow
by the Company, a significant amount of the commitments may expire without being drawn upon. To mitigate the potential loss
exposure, the Company involves other financial institutions to participate in certain standby letters of credit. Even with such
participation, the Company remains liable for the full amount of the standby letters of credit to the third party. The Company
has recourse against the customer for any amount it is required to pay to a third party under a standby letter of credit. The
standby letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by
the Company. Most of the standby letters of credit are secured, and in the event of nonperformance by the customer, the
Company has rights to the underlying collateral, which could include commercial real estate, physical plant and property,
inventory, receivables, cash and marketable securities.
At December 31, 2021, the Company had recorded a liability of $2.9 million, representing the carrying value of the
guarantee obligations associated with the standby letters of credit. This amount will be accreted into income over the remaining
life of the respective commitments. Commitments outstanding under these letters of credit, which represent the maximum
potential future payments guaranteed by the Company, were $418.3 million at December 31, 2021.
Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer. The majority
of commercial letters of credit issued are used to settle payments in international trade. Typically, letters of credit require
presentation of documents which describe the commercial transaction, evidence shipment, and transfer title.
The Company regularly purchases various state tax credits arising from third-party property redevelopment. These tax
credits are either resold to third parties for a profit or retained for use by the Company. During 2021, the Company purchased
and sold state tax credits amounting to $113.5 million and $108.1 million, respectively. At December 31, 2021, the Company
had outstanding purchase commitments totaling $186.0 million that it expects to fund in 2022. The remaining purchase
commitments amount to $306.5 million and are expected to be funded from 2023 through 2029.
The Company periodically enters into credit risk participation agreements (RPAs) as a guarantor to other financial
institutions, in order to mitigate those institutions’ credit risk associated with interest rate swaps with third parties. The RPA
stipulates that, in the event of default by the third party on the interest rate swap, the Company will reimburse a portion of the
loss borne by the financial institution. These interest rate swaps are normally collateralized (generally with real property,
inventories and equipment) by the third party, which limits the credit risk associated with the Company’s RPAs. The third
parties usually have other borrowing relationships with the Company. The Company monitors overall borrower collateral, and
at December 31, 2021, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair
value throughout their term, with all changes in fair value, including those due to a change in the third party’s creditworthiness,
recorded in current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 2 to
15 years. At December 31, 2021, the fair value of the Company's guarantee liability RPAs was $277 thousand, and the notional
137
amount of the underlying swaps was $366.4 million. The maximum potential future payment guaranteed by the Company
cannot be readily estimated and is dependent upon the fair value of the interest rate swaps at the time of default.
During the third quarter of 2020, the Company signed a $106.7 million agreement with U.S. Capital Development to
develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri. As of December 31,
2021, the Company has made payments totaling $55.2 million. While the Company intends to occupy a portion of the office
building for executive offices, a 15 year lease has been signed by an anchor tenant to lease approximately 50% of the office
building.
The Company has various legal proceedings pending at December 31, 2021, arising in the normal course of business. While
some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of
damages or are at very early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters
for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet
progressed to the point where a loss amount can be determined to be probable and estimable.
22. Related Parties
The Company’s Chief Executive Officer, its Executive Chairman, and its former Vice Chairman are directors of Tower
Properties Company (Tower) and, together with members of their immediate families, beneficially own approximately 66% of
the outstanding stock of Tower. At December 31, 2021, Tower owned 233,724 shares of Company stock. Tower is primarily
engaged in the business of owning, developing, leasing and managing real property.
Payments from the Company and its affiliates to Tower are summarized below. These payments, with the exception of
dividend payments, relate to property management services, including construction oversight, on three Company-owned office
buildings and related parking garages in downtown Kansas City.
(In thousands)
Leasing agent fees
Operation of parking garages
Building management fees
Property construction management fees
Project consulting fees
Dividends paid on Company stock held by Tower
Total
2021
2020
2019
$
31 $
71
— $
81
2,046
2,110
143
84
234
251
335
229
154
118
2,001
250
—
210
$
2,609 $
3,006 $
2,733
Tower has a $13.5 million line of credit with the Bank which is subject to normal credit terms and has a variable interest
rate. The line of credit is collateralized by Company stock and based on collateral value had a maximum borrowing amount of
approximately $12.9 million at December 31, 2021. There were no borrowings under this line during 2021, and no balance
outstanding at December 31, 2021. There were no borrowings during 2020 and 2019, and there was no balance outstanding at
December 31, 2020 or 2019. Letters of credit may be collateralized under this line of credit; however, there were no letters of
credit outstanding during 2021, 2020 or 2019, and thus, no fees were received during these periods. From time to time, the
Bank extends additional credit to Tower for construction and development projects. No construction loans were outstanding
during 2021, 2020 and 2019.
Tower leases office space in the Kansas City bank headquarters building owned by the Company. Rent paid to the
Company totaled $83 thousand in 2021, $87 thousand in 2020, and $75 thousand in 2019, at $17.25, $17.19 and $17.00 per
square foot, respectively.
Directors of the Company and their beneficial interests have deposit accounts with the Bank and may be provided with cash
management and other banking services, including loans, in the ordinary course of business. Such loans were made on
substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions
with other unrelated persons and did not involve more than the normal risk of collectability. See Note 2 Loans and Allowance
for Credit Losses for additional information for loans to directors and executive officers of the Company and the Bank, and to
their affiliates.
As discussed in Note 21 on Commitments, Contingencies and Guarantees, the Company regularly purchases various state
tax credits arising from third-party property redevelopment and resells the credits to third parties. During 2021, the Company
138
sold state tax credits to its Executive Chairman, its former Vice Chairman, and its Chief Executive Officer in the amount of
$772 thousand, $619 thousand, and $291 thousand, respectively, for personal tax planning. During 2020, the Company sold
state tax credits to its Executive Chairman, its former Vice Chairman, and its Chief Executive Officer in the amount of $603
thousand, $551 thousand, $223 thousand, respectively. During 2019, the Company sold state tax credits to its Executive
Chairman, its former Vice Chairman, its Chief Executive Officer, and its former Chief Credit Officer in the amount of $865
thousand, $663 thousand, $166 thousand, and $83 thousand, respectively. The terms of the sales and the amounts paid were the
same as the terms and amounts paid for similar tax credits by persons not related to the Company.
139
23. Parent Company Condensed Financial Statements
Following are the condensed financial statements of Commerce Bancshares, Inc. (Parent only) for the periods indicated:
Condensed Balance Sheets
(In thousands)
Assets
Investment in consolidated subsidiaries:
Bank
Non-banks
Cash
Investment securities:
Available for sale debt
Equity
Note receivable due from bank subsidiary
Advances to subsidiaries, net of borrowings
Deferred tax assets
Other assets
Total assets
Liabilities and stockholders’ equity
Pension obligation
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statements of Income
(In thousands)
Income
Dividends received from consolidated bank subsidiary
Earnings of consolidated subsidiaries, net of dividends
Interest and dividends on investment securities
Management fees charged to subsidiaries
Investment securities gains
Net interest income on advances and note to subsidiaries
Other
Total income
Expense
Salaries and employee benefits
Professional fees
Data processing fees paid to affiliates
Other
Total expense
Income tax benefit
Net income
140
December 31
2021
2020
$
2,997,775 $
3,077,713
100,347
245,616
67,710
171,943
4,805
7,977
50,000
40,525
8,645
29,393
4,795
3,135
50,000
31,907
10,990
26,222
$
$
3,485,083 $
3,444,415
11,931 $
35,854
47,785
17,548
29,820
47,368
3,437,298
3,397,047
$
3,485,083 $
3,444,415
For the Years Ended December 31
2021
2020
2019
$
340,001 $
210,001 $
500,000
200,461
148,435
(79,641)
2,162
36,310
79
51
2,927
1,802
33,472
53
233
4,282
1,698
36,776
3,572
1,208
4,700
581,991
398,278
468,313
37,362
2,006
2,834
12,973
55,175
(3,949)
31,277
1,977
2,765
11,850
47,869
(3,648)
32,882
2,050
3,142
13,106
51,180
(4,098)
$
530,765 $
354,057 $
421,231
Condensed Statements of Cash Flows
(In thousands)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Earnings of consolidated subsidiaries, net of dividends
Other adjustments, net
Net cash provided by operating activities
Investing Activities
(Increase) decrease in investment in subsidiaries, net
Proceeds from sales of investment securities
Proceeds from maturities/pay downs of investment securities
Purchases of investment securities
Increase in advances to subsidiaries, net
Net purchases of building improvements and equipment
Net cash used in investing activities
Financing Activities
Preferred stock redemption
Purchases of treasury stock
Accelerated share repurchase agreements
Issuance of stock under equity compensation plans
Cash dividends paid on common stock
Cash dividends paid on preferred stock
Net cash used in financing activities
Increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Income tax receipts, net
For the Years Ended December 31
2021
2020
2019
$
530,765 $
354,057 $
421,231
(200,461)
(148,435)
8,842
5,504
79,641
2,491
339,146
211,126
503,363
6
—
22
(4,786)
(8,618)
(28)
(13,404)
3
—
1,410
(4,863)
(5,810)
(94)
(9,354)
(12)
3,856
1,150
(63)
(6,230)
(235)
(1,534)
—
(150,000)
—
(129,361)
(54,163)
(134,904)
—
(15)
—
(11)
(150,000)
(8)
(122,693)
(120,818)
(113,466)
—
(6,750)
(9,000)
(252,069)
(331,742)
(407,378)
73,673
(129,970)
171,943
301,913
245,616 $
171,943 $
94,451
207,462
301,913
(4,808) $
(3,663) $
(2,337)
$
$
Dividends paid by the Parent to its shareholders were substantially provided from Bank dividends. The Bank may distribute
common dividends without prior regulatory approval, provided that the dividends do not exceed the sum of net income for the
current year and retained net income for the preceding two years, subject to maintenance of minimum capital requirements. The
Parent charges fees to its subsidiaries for management services provided, which are allocated to the subsidiaries based primarily
on total average assets. The Parent makes cash advances to its private equity subsidiary for general short-term cash flow
purposes. Advances may be made to the Parent by its subsidiary bank holding company for temporary investment of idle funds.
Interest on such advances is based on market rates.
In 2017, the Bank borrowed $50.0 million from the Parent as part of its strategy to manage FDIC insurance premiums. The
note has a rolling 13 month maturity, and the interest rate is a variable rate equal to the one year treasury rate.
For the past several years, the Parent has maintained a $20.0 million line of credit for general corporate purposes with the
Bank. The Parent has not borrowed under this line during the past three years.
At December 31, 2021, the fair value of the investment securities held by the Parent consisted of investments of $4.8 million
in corporate bonds and $6.9 million in preferred and common stock with readily determinable fair values, and $1.1 million in
equity securities that do not have readily determinable fair values.
141
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and financial disclosure.
Item 9a. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, our principal executive officer
and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the
period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control — Integrated Framework (2013), our management concluded that our
internal control over financial reporting was effective as of December 31, 2021.
The Company’s internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report which follows.
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred that has materially affected, or is reasonably
likely to materially affect, such controls during the last quarter of the period covered by this report.
142
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Commerce Bancshares, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Commerce Bancshares, Inc. and subsidiaries' (the Company) internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated
statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period
ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated
February 23, 2022 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Kansas City, Missouri
February 23, 2022
143
Item 9b. OTHER INFORMATION
None
Item 9c. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Items 401, 405 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K regarding executive officers,
directors, and corporate governance is included at the end of Part I of this Form 10-K under the caption “Information about the
Company's Executive Officers” and under the captions “Proposal One - Election of the 2025 Class of Directors”, “Delinquent
Section 16(a) Reports”, “Audit and Risk Committee Report”, “Committees of the Board" and "Shareholder Proposals and
Nominations" in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be held on April
20, 2022, which is incorporated herein by reference.
The Company’s senior financial officer code of ethics for the chief executive officer and senior financial officers of the
Company, including the chief financial officer, principal accounting officer or controller, or persons performing similar
functions, is available at www.commercebank.com. Amendments to, and waivers of, the code of ethics are posted on this
website.
Item 11. EXECUTIVE COMPENSATION
The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K regarding executive compensation is
included under the captions “Compensation Discussion and Analysis”, “Executive Compensation”, “Director Compensation”,
“Compensation and Human Resources Committee Report”, and “Compensation and Human Resources Committee Interlocks
and Insider Participation” in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be
held on April 20, 2022, which is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Items 201(d) and 403 of Regulation S-K is included under the captions “Equity Compensation
Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in the Company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on April 20, 2022, which is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Items 404 and 407(a) of Regulation S-K is covered under the captions “Proposal One - Election
of the 2025 Class of Directors” and “Corporate Governance” in the Company's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on April 20, 2022, which is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our independent registered public accounting firm is KPMG, LLP, Kansas City, Missouri, PCAOB Firm ID: 185
The information required by Item 9(e) of Schedule 14A is included under the captions “Pre-approval of Services by the
External Independent Registered Public Accounting Firm” and “Fees Paid to KPMG LLP” in the Company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on April 20, 2022, which is incorporated herein by
reference.
144
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report:
(1)
(2)
Financial Statements:
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of Quarterly Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statement Schedules:
All schedules are omitted as such information is inapplicable or is included in the financial
statements.
Page
68
69
70
71
72
73
61
(b) The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed
below.
3 —Articles of Incorporation and By-Laws:
(1) Restated Articles of Incorporation, as amended, were filed in quarterly report on Form 10-Q (Commission
file number 1-36502) dated May 7, 2019, and the same are hereby incorporated by reference.
(2) By-Laws, as amended, were filed in annual report on Form 10-K (Commission file number 1-36502) dated
February 25, 2020, and the same are hereby incorporated by reference.
(3) Termination of Certificate of Designation of 6.00% Series B Non-Cumulative Perpetual Preferred Stock of
Commerce Bancshares, Inc. was filed in current report on Form 8-K (Commission file number 0-2989) dated
September 1, 2020, and the same is hereby incorporated by reference.
4 — Instruments defining the rights of security holders, including indentures:
(1) Pursuant to paragraph (b)(4)(iii) of Item 601 Regulation S-K, Registrant will furnish to the Commission upon
request copies of long-term debt instruments.
(2) Description of Commerce Bancshares, Inc. registered securities was filed in annual report on Form 10-K
(Commission file number 1-36502) dated February 25, 2020, and the same is hereby incorporated by reference.
10 — Material Contracts (Except for the Development Services Agreement and associated Amendments to the Development
Service Agreement listed below, each of the following is a management contract or compensatory plan arrangement):
(1) Commerce Bancshares, Inc. Executive Incentive Compensation Plan amended and restated as of January 1,
2019, was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 21, 2019, and
the same is hereby incorporated by reference.
(2) Commerce Bancshares, Inc. Stock Purchase Plan for Non-Employee Directors amended and restated as of
April 17, 2013 was filed in current report on Form 8-K (Commission file number 0-2989) dated April 23, 2013,
and the same is hereby incorporated by reference.
(3) Commerce Bancshares, Inc. Stock Purchase Plan for Non-Employee Directors amended and restated as of
December 21, 2021 was filed in registration statement on Form S-8 (Commission file number 333-262580) dated
February 8, 2022, and the same is hereby incorporated by reference.
(4) Commerce Executive Retirement Plan amended and restated as of January 28, 2011 was filed in annual report
on Form 10-K (Commission file number 0-2989) dated February 25, 2011, and the same is hereby incorporated
by reference.
(5) 2009 Form of Severance Agreement between Commerce Bancshares, Inc. and the persons listed at the end of
such agreement was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 24,
2015, and the same is hereby incorporated by reference.
145
(6) 2015 Form of Severance Agreement between Commerce Bancshares, Inc. and the persons listed at the end of
such agreement was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 24,
2015, and the same is hereby incorporated by reference.
(7) 2009 Form of Severance Agreement between Commerce Bancshares, Inc. and the persons listed at the end of
such agreement was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 21,
2019, and the same is hereby incorporated by reference.
(8) Trust Agreement for the Commerce Bancshares, Inc. Executive Incentive Compensation Plan amended and
restated as of January 1, 2001 was filed in quarterly report on Form 10-Q (Commission file number 0-2989)
dated May 8, 2001, and the same is hereby incorporated by reference.
(9) Commerce Bancshares, Inc. 2022 Compensatory Arrangements with CEO and Named Executive Officers
were filed in amended current report on Form 8-K (Commission file number 1-36502) dated February 7, 2022,
and the same is hereby incorporated by reference.
(10) Commerce Bancshares, Inc. Amended and Restated 2005 Equity Incentive Plan, amended and restated as of
April 17, 2013 (incorporated by reference to Exhibit 10(j) to Commerce Bancshares, Inc.'s Form 8-K dated April
23, 2013).
(10)(1) Amendment No. 1 dated November 12, 2018 to Commerce Bancshares, Inc. Amended and Restated 2005
Equity Incentive Plan, amended and restated as of April 17, 2013, was filed in annual report on Form 10-K
(Commission file number 1-36502) dated February 21, 2019.
(11) Commerce Bancshares, Inc. Stock Appreciation Rights Agreement and Commerce Bancshares, Inc.
Restricted Stock Award Agreement, pursuant to the 2005 Equity Incentive Plan, were filed in current report on
Form 8-K (Commission file number 0-2989) dated February 23, 2006, and the same are hereby incorporated by
reference.
(12) Commerce Bancshares, Inc. Stock Appreciation Rights Agreement, Commerce Bancshares, Inc. Restricted
Stock Award Agreements for Executive Officers, and Commerce Bancshares, Inc. Restricted Stock Award
Agreements for Employees other than Executive Officers, pursuant to the 2005 Equity Incentive Plan, were filed
in quarterly report on Form 10-Q (Commission file number 0-2989) dated May 6, 2013, and the same are hereby
incorporated by reference.
(13) Form of Notice of Grant of Award and Award Agreement for Restricted Stock for Executive Officers,
pursuant to the Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in quarterly report on Form
10-Q (Commission file number 0-2989) dated May 7, 2014, and the same is hereby incorporated by reference.
(14) Form of Notice of Grant of Award and Award Agreement for Restricted Stock for Employees other than
Executive Officers, pursuant to the Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in
quarterly report on Form 10-Q (Commission file number 0-2989) dated May 7, 2014, and the same is hereby
incorporated by reference.
(15) Form of Notice of Grant of Award and Award Agreement for Stock Appreciation Rights, pursuant to the
Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in quarterly report on Form 10-Q
(Commission file number 0-2989) dated May 7, 2014, and the same is hereby incorporated by reference.
(16) Form of Notice of Grant of Award and Award Agreement for Restricted Stock, pursuant to the Commerce
Bancshares, Inc. 2005 Equity Incentive Plan, was filed in annual report on Form 10-K (Commission file number
1-36502) dated February 21, 2019, and the same is hereby incorporated by reference.
(17) Development Services Agreement* was filed in quarterly report on Form 10-Q (Commission file number
1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(18) Amendment 1 to Development Services Agreement* was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(19) Amendment 2 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(20) Amendment 3 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(21) Amendment 4 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(22) Amendment 5 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(23) Amendment 6 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
146
(24) Amendment 7 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(25) Amendment 8 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(26) Amendment 9 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(27) Amendment 10 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(28) Amendment 11 to Development Services Agreement* was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
21 — Subsidiaries of the Registrant
23 — Consent of Independent Registered Public Accounting Firm
24 — Power of Attorney
31.1 — Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 — Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 — Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
101 — Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the
Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated
Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial
Statements, tagged as blocks of text and in detail. The instance document does not appear in the interactive data file because
its XBRL tags are embedded within the inline XBRL document.
104 — Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* In accordance with Item 601(a)(5) of Regulation S-K, certain schedules and exhibits to this exhibit have been omitted from
this filing. The Company will furnish a copy of any omitted schedule or exhibit to the Securities and Exchange Commission
or its staff upon request. In accordance with Item 601(b)(10)(iv) of Regulation S-K, certain portions of this exhibit have been
redacted because they are both (i) not material and (ii) would likely cause competitive harm to the Company if publicly
disclosed. The Company will provide an unredacted copy of the exhibit on a supplementary basis to the Securities and
Exchange Commission or its staff upon request.
Item 16. FORM 10-K SUMMARY
None.
147
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized this 23rd day of February 2022.
SIGNATURES
COMMERCE BANCSHARES, INC.
By:
/s/ THOMAS J. NOACK
Thomas J. Noack
Senior Vice President & Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on the 23rd day of February 2022.
By:
By:
By:
/s/ JOHN W. KEMPER
John W. Kemper
Chief Executive Officer
/s/ CHARLES G. KIM
Charles G. Kim
Chief Financial Officer
/s/ PAUL A. STEINER
Paul A. Steiner
Controller
(Chief Accounting Officer)
All the Directors on the Board of Directors*
David W. Kemper
Terry D. Bassham
John R. Capps
Earl H. Devanny, III
W. Thomas Grant, II
Karen L. Daniel
John W. Kemper
Jonathan M. Kemper
Benjamin F. Rassieur, III
Todd R. Schnuck
Andrew C. Taylor
Kimberly G. Walker
____________
* The Directors of Registrant listed executed a power of attorney authorizing Thomas J. Noack, their attorney-in-fact, to sign
this report on their behalf.
/s/ THOMAS J. NOACK
Thomas J. Noack
Attorney-in-Fact
By:
148
Exhibit 21
The consolidated subsidiaries of the Registrant at February 1, 2022 were as follows:
Name
CBI-Kansas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas
State or Other
Jurisdiction of
Incorporation
Commerce Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Commerce Brokerage Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Clayton Holdings, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Clayton Financial Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Clayton Realty Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Illinois Financial, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Illinois Realty, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Commerce Insurance Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Commerce Investment Advisors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CBI Equipment Finance, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CB Acquisition, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Tower Redevelopment Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CBI Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Arizona
CFB Partners, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
CFB Venture Fund I, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CFB Venture Fund, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Capital for Business, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements No. 33-28294, No. 33-82692, No. 33-8075, No.
33-78344, No. 333-14651, No. 333-186867, No. 333-188374, No. 333-214495, and No. 333-262580 on Form S-8 and No.
333-140221 on Form S-3ASR of our reports dated February 23, 2022, with respect to the consolidated financial statements of
Commerce Bancshares, Inc. and the effectiveness of internal control over financial reporting.
Exhibit 23
KPMG LLP
Kansas City, Missouri
February 23, 2022
POWER OF ATTORNEY
Exhibit 24
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby appoint Thomas J. Noack and Paul A. Steiner,
or either of them, attorney for the undersigned to sign the Annual Report on Form 10-K of Commerce Bancshares, Inc., for the
fiscal year ended December 31, 2021, together with any and all amendments which might be required from time to time with
respect thereto, to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, with
respect to Commerce Bancshares, Inc., with full power and authority in either of said attorneys to do and perform in the name
of and on behalf of the undersigned every act whatsoever necessary or desirable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned have executed these presents as of this 4th day of February, 2022.
/s/ TERRY D. BASSHAM
/s/ JOHN R. CAPPS
/s/ EARL H. DEVANNY, III
/s/ W. THOMAS GRANT, II
/s/ KAREN L. DANIEL
/s/ DAVID W. KEMPER
/s/ JOHN W. KEMPER
/s/ JONATHAN M. KEMPER
/s/ BENJAMIN F. RASSIEUR, III
/s/ TODD R. SCHNUCK
/s/ ANDREW C. TAYLOR
/s/ KIMBERLY G. WALKER
CERTIFICATION
Exhibit 31.1
I, John W. Kemper, certify that:
1. I have reviewed this annual report on Form 10-K of Commerce Bancshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
February 23, 2022
/s/ JOHN W. KEMPER
John W. Kemper
President and
Chief Executive Officer
CERTIFICATION
Exhibit 31.2
I, Charles G. Kim, certify that:
1. I have reviewed this annual report on Form 10-K of Commerce Bancshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
February 23, 2022
/s/ CHARLES G. KIM
Charles G. Kim
Executive Vice President and
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report of Commerce Bancshares, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, John W.
Kemper and Charles G. Kim, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, hereby
certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of our knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ JOHN W. KEMPER
John W. Kemper
Chief Executive Officer
/s/ CHARLES G. KIM
Charles G. Kim
Chief Financial Officer
February 23, 2022
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its staff upon request.
CORPOR ATE HEADQUARTERS
1000 Walnut
P.O. Box 419248
Kansas City, MO 64141-6248
816.234.2000
www.commercebank.com
TR ANSFER AGENT, REGISTR AR
AND DIVIDEND DISBURSING AGENT
Shareholder correspondence should be mailed to:
Computershare Trust Company, N.A.
P.O. Box 505000
Louisville, KY 40233
Overnight correspondence should be sent to:
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
Within USA Telephone: 800.317.4445
Outside USA Telephone: 781.575.2723
Hearing Impaired/TDD: 800.952.9245
Website: www.computershare.com/investor
Shareholder online inquiries:
https://www.us.computershare.com/investor/contact
STOCK EXCHANGE LISTING
Nasdaq
Common Stock Symbol: CBSH
ANNUAL MEETING
This year’s annual meeting will be a virtual meeting of
shareholders. The meeting will be held Wednesday,
April 20, 2022 at 9:30 a.m., and you may attend via webcast.
Please note there will be no in-person meeting to attend.
INVESTOR INQUIRIES
Shareholders, analysts and investors seeking information
about the company should direct their inquiries to:
Matt Burkemper
Senior Vice President, Commerce Bank
Corporate Development and Investor Relations
8000 Forsyth Boulevard
St. Louis, MO 63105
314.746.7485
Matthew.Burkemper@commercebank.com
SHAREHOLDERS MAY RECEIVE FUTURE ANNUAL REPORTS AND PROXY MATERIALS ONLINE
To receive materials electronically, rather than by mail, individuals who hold stock in their name may enroll for electronic
delivery at Computershare’s investor website: www.computershare.com/investor
• If you have already created a login ID and password at the above site, log in and follow the prompts to “Enroll in
Electronic Delivery.”
• If you have not created a login ID and password on the above site, choose “Create Login.” You will need the Social
Security number or tax ID number associated with your Commerce stock account to create the login. After you have
created your login, follow the prompts to “Enroll in Electronic Delivery.”
Please note:
• Your consent is entirely revocable.
• You can always vote your proxy on the internet whether or not you elect to receive your materials electronically.
Shareholders who hold their Commerce stock through a bank, broker or other holder of record should refer to the information
provided by that entity for instructions on how to elect to view future annual reports and proxy statements over the internet.
Employee PIP [401(k)] shareholders who have a company email address and online access will automatically be enrolled to
receive the Annual Report, Proxy Statement, and proxy card over the internet unless they choose to opt out by emailing the
Corporate Secretary at Thomas.Noack@commercebank.com.
C O M M E R C E B A N C S H A R E S , I N C .
1000 WALNUT
P.O. BOX 419248
KANSAS CITY, MO 64141-6248
Phone: 816.234.2000
800.892.7100
Email: CBSHInvestorRelations@commercebank.com
Website: www.commercebank.com
An Equal Opportunity Employer
Copyright © 2022 Commerce Bancshares, Inc. All rights reserved.