1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000
FOR IMMEDIATE RELEASE:
Wednesday, July 19, 2023
COMMERCE BANCSHARES, INC. REPORTS
SECOND QUARTER EARNINGS PER SHARE OF $1.02
Commerce Bancshares, Inc. announced earnings of $1.02 per share for the three months ended June 30, 2023, compared to $.92 per share in the same quarter last year and $.95 per share in the first quarter of 2023. Net income for the second quarter of 2023 amounted to $127.8 million, compared to $115.8 million in the second quarter of 2022 and $119.5 million in the prior quarter.
For the six months ended June 30, 2023, earnings per share totaled $1.97, compared to $1.84 for the first six months of 2022. Net income amounted to $247.2 million for the six months ended June 30, 2023, compared to $233.9 million in the comparable period last year. For the year to date, the return on average assets was 1.55%, and the return on average equity was 18.78%.
“Commerce delivered strong results in the second quarter,” said John Kemper, President and Chief Executive Officer. “Against a backdrop of elevated interest rates, the Company produced record revenues, showing strength in both our net interest and non-interest income categories. These results reflect the ability of our diversified business model to perform across economic cycles. Our low loan-to-deposit ratio positioned us to meet loan demand across our footprint and provided opportunities for our teams to welcome new customer relationships.”
On deposit balances, Kemper added, “Our customer deposits increased during the quarter, helping to accommodate loan growth. On top of this, the Company took steps to add short-term brokered deposit funding, increasing our liquidity cushion in the wake of the first quarter’s industry disruption. This short-term liquidity build impacted our net interest margin but was neutral to net interest income and reflects our conservative posture in times of economic uncertainty.
We are confident in our liquidity and capital levels, and credit performance remains excellent.”
Second Quarter 2023 Financial Highlights:
•Net interest income was $249.5 million, a $2.1 million decrease from the prior quarter. The net yield on interest earning assets decreased 14 basis points to 3.12%.
•Non-interest income totaled $147.6 million, an increase of $8.2 million compared to the same quarter last year.
•Non-interest expense totaled $227.6 million, an increase of $14.1 million compared to the same quarter last year.
1
Exhibit 99.1
•Average loan balances totaled $16.7 billion, an increase of $265.2 million, or 1.6%, over the prior quarter.
•Total average available for sale debt securities decreased 7.2%, or $852.8 million, from the prior quarter to $11.0 billion, at fair value. During the second quarter of 2023, the unrealized loss on available for sale securities increased $109.2 million to $1.4 billion, at period end.
•Period end deposits increased $1.2 billion, or 4.8%, over March 31, 2023. The average rate paid on interest bearing deposits in the current quarter was 1.29%.
•The ratio of annualized net loan charge-offs to average loans was .16% compared to .17% in the prior quarter.
•The allowance for credit losses on loans decreased $632 thousand during the second quarter to $158.7 million, and at June 30, 2023, the ratio of the allowance for credit losses on loans to total loans was .94%, compared to .96% at March 31, 2023.
•Total assets at June 30, 2023 were $32.8 billion, an increase of $826.4 million, or 2.6%, over the prior quarter.
•For the quarter, the return on average assets was 1.56%, the return on average equity was 18.81%, and the efficiency ratio was 57.2%.
Commerce Bancshares, Inc. is a regional bank holding company offering a full line of banking services through its subsidiaries, including payment solutions, investment management and securities brokerage. One of its subsidiaries, Commerce Bank, leverages nearly 160 years of proven strength and experience to help individuals and businesses solve financial challenges. In addition to offering payment solutions across the U.S., Commerce Bank currently operates full-service banking facilities across the Midwest including the St. Louis and Kansas City metropolitan areas, Springfield, Central Missouri, Central Illinois, Wichita, Tulsa, Oklahoma City, and Denver. It also maintains commercial offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids. Commerce delivers high-touch service and sophisticated financial solutions at regional branches, commercial offices, ATMs, online, mobile and through a 24/7 customer service line.
This financial news release and the supplementary Earnings Highlights presentation are available on the Company’s website at https://investor.commercebank.com/news-info/financial-news-releases/default.aspx.
* * * * * * * * * * * * * * *
For additional information, contact
Matt Burkemper, Investor Relations
(314) 746-7485
www.commercebank.com
matthew.burkemper@commercebank.com
2
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
FINANCIAL HIGHLIGHTS
For the Three Months Ended
For the Six Months Ended
(Unaudited) (Dollars in thousands, except per share data)
Jun. 30, 2023
Mar. 31, 2023
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
FINANCIAL SUMMARY
Net interest income
$249,538
$251,623
$232,385
$501,161
$441,171
Non-interest income
147,605
137,612
139,427
285,217
271,196
Total revenue
397,143
389,235
371,812
786,378
712,367
Investment securities gains (losses)
3,392
(306)
1,029
3,086
8,192
Provision for credit losses
6,471
11,456
7,162
17,927
(2,696)
Non-interest expense
227,611
224,107
213,505
451,718
419,153
Income before taxes
166,453
153,366
152,174
319,819
304,102
Income taxes
35,990
32,813
32,021
68,803
63,923
Non-controlling interest expense
2,674
1,101
4,359
3,775
6,231
Net income attributable to Commerce Bancshares, Inc.
$127,789
$119,452
$115,794
$247,241
$233,948
Earnings per common share:
Net income — basic
$1.03
$0.95
$0.92
$1.98
$1.84
Net income — diluted
$1.02
$0.95
$0.92
$1.97
$1.84
Effective tax rate
21.97
%
21.55
%
21.66
%
21.77
%
21.46
%
Fully-taxable equivalent net interest income
$251,757
$253,411
$235,010
$505,168
$446,403
Average total interest earning assets (1)
$32,412,084
$31,568,594
$33,839,655
$
31,992,669
$34,385,339
Diluted wtd. average shares outstanding
124,007,300
124,258,981
125,916,229
124,132,445
126,279,546
RATIOS
Average loans to deposits (2)
66.15
%
64.99
%
53.93
%
65.57
%
52.91
%
Return on total average assets
1.56
1.54
1.36
1.55
1.35
Return on average equity (3)
18.81
18.75
16.29
18.78
15.28
Non-interest income to total revenue
37.17
35.35
37.50
36.27
38.07
Efficiency ratio (4)
57.22
57.49
57.29
57.35
58.72
Net yield on interest earning assets
3.12
3.26
2.79
3.18
2.62
EQUITY SUMMARY
Cash dividends per share
$.270
$.270
$.252
$.540
$.505
Cash dividends on common stock
$33,744
$33,759
$31,935
$67,503
$64,078
Book value per share (5)
$21.53
$21.51
$21.23
Market value per share (5)
$48.70
$58.35
$62.52
High market value per share
$58.97
$70.20
$70.78
Low market value per share
$45.55
$55.72
$59.81
Common shares outstanding (5)
124,734,830
124,720,710
126,034,333
Tangible common equity to tangible assets (6)
7.70
%
7.92
%
7.56
%
Tier I leverage ratio
10.46
%
10.61
%
9.45
%
OTHER QTD INFORMATION
Number of bank/ATM locations
272
275
279
Full-time equivalent employees
4,680
4,636
4,579
(1)Excludes allowance for credit losses on loans and unrealized gains/(losses) on available for sale debt securities.
(2)Includes loans held for sale.
(3)Annualized net income attributable to Commerce Bancshares, Inc. divided by average total equity.
(4)The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of total revenue.
(5)As of period end.
(6)The tangible common equity ratio is a non-gaap ratio and is calculated as stockholders’ equity reduced by goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).
All share and per share amounts have been restated to reflect the 5% stock dividend distributed in December 2022.
3
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) (In thousands, except per share data)
For the Three Months Ended
For the Six Months Ended
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Sep. 30, 2022
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
Interest income
$348,663
$308,857
$286,377
$262,666
$238,154
$657,520
$449,936
Interest expense
99,125
57,234
31,736
16,293
5,769
156,359
8,765
Net interest income
249,538
251,623
254,641
246,373
232,385
501,161
441,171
Provision for credit losses
6,471
11,456
15,477
15,290
7,162
17,927
(2,696)
Net interest income after credit losses
243,067
240,167
239,164
231,083
225,223
483,234
443,867
NON-INTEREST INCOME
Bank card transaction fees
49,725
46,654
44,588
45,638
43,873
96,379
85,918
Trust fees
47,265
45,328
44,710
45,406
46,792
92,593
94,603
Deposit account charges and other fees
22,633
21,752
21,989
24,521
25,564
44,385
47,871
Consumer brokerage services
4,677
5,085
4,518
5,085
5,068
9,762
9,514
Capital market fees
2,539
3,362
3,386
3,393
3,327
5,901
7,452
Loan fees and sales
2,735
2,589
2,566
3,094
3,246
5,324
7,481
Other
18,031
12,842
15,068
11,377
11,557
30,873
18,357
Total non-interest income
147,605
137,612
136,825
138,514
139,427
285,217
271,196
INVESTMENT SECURITIES GAINS (LOSSES), NET
3,392
(306)
8,904
3,410
1,029
3,086
8,192
NON-INTEREST EXPENSE
Salaries and employee benefits
145,429
144,373
138,458
137,393
142,243
289,802
278,196
Data processing and software
28,719
28,154
27,991
28,050
27,635
56,873
54,651
Net occupancy
12,995
12,759
11,774
12,544
12,503
25,754
24,799
Marketing
6,368
5,471
5,419
6,228
5,836
11,839
12,180
Equipment
4,864
4,850
5,021
5,036
4,734
9,714
9,302
Supplies and communication
4,625
4,590
4,446
4,581
4,361
9,215
9,074
Other
24,611
23,910
23,631
19,052
16,193
48,521
30,951
Total non-interest expense
227,611
224,107
216,740
212,884
213,505
451,718
419,153
Income before income taxes
166,453
153,366
168,153
160,123
152,174
319,819
304,102
Less income taxes
35,990
32,813
34,499
33,936
32,021
68,803
63,923
Net income
130,463
120,553
133,654
126,187
120,153
251,016
240,179
Less non-controlling interest expense (income)
2,674
1,101
2,026
3,364
4,359
3,775
6,231
Net income attributable to Commerce Bancshares, Inc.
$127,789
$119,452
$131,628
$122,823
$115,794
$247,241
$233,948
Net income per common share — basic
$1.03
$0.95
$1.05
$0.97
$0.92
$1.98
$1.84
Net income per common share — diluted
$1.02
$0.95
$1.04
$0.97
$0.92
$1.97
$1.84
OTHER INFORMATION
Return on total average assets
1.56
%
1.54
%
1.65
%
1.48
%
1.36
%
1.55
%
1.35
%
Return on average equity (1)
18.81
18.75
21.88
17.84
16.29
18.78
15.28
Efficiency ratio (2)
57.22
57.49
55.26
55.19
57.29
57.35
58.72
Effective tax rate
21.97
21.55
20.77
21.65
21.66
21.77
21.46
Net yield on interest earning assets
3.12
3.26
3.18
3.01
2.79
3.18
2.62
Fully-taxable equivalent net interest income
$251,757
$253,411
$256,675
$248,737
$235,010
$505,168
$446,403
(1)Annualized net income attributable to Commerce Bancshares, Inc. divided by average total equity.
(2)The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of total revenue.
4
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - PERIOD END
(Unaudited) (In thousands)
Jun. 30, 2023
Mar. 31, 2023
Jun. 30, 2022
ASSETS
Loans
Business
$
5,906,493
$
5,704,467
$
5,441,592
Real estate — construction and land
1,451,783
1,437,419
1,266,260
Real estate — business
3,621,222
3,486,543
3,215,578
Real estate — personal
2,980,599
2,952,042
2,836,835
Consumer
2,110,605
2,094,389
2,089,592
Revolving home equity
303,845
295,478
271,854
Consumer credit card
574,755
558,669
558,102
Overdrafts
7,237
6,515
6,814
Total loans
16,956,539
16,535,522
15,686,627
Allowance for credit losses on loans
(158,685)
(159,317)
(138,039)
Net loans
16,797,854
16,376,205
15,548,588
Loans held for sale
6,776
6,162
6,467
Investment securities:
Available for sale debt securities
10,414,625
11,228,616
13,700,308
Trading debt securities
29,412
41,584
34,195
Equity securities
12,266
12,528
8,546
Other securities
258,045
268,417
207,989
Total investment securities
10,714,348
11,551,145
13,951,038
Federal funds sold
2,750
27,060
26,000
Securities purchased under agreements to resell
825,000
825,000
1,450,000
Interest earning deposits with banks
2,568,695
1,341,854
684,994
Cash and due from banks
366,699
351,210
355,524
Premises and equipment — net
451,568
428,169
397,877
Goodwill
146,371
138,921
138,921
Other intangible assets — net
14,666
14,918
15,853
Other assets
936,535
944,212
860,108
Total assets
$
32,831,262
$
32,004,856
$
33,435,370
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing
$
8,198,849
$
8,685,234
$
11,102,585
Savings, interest checking and money market
14,418,974
14,419,741
16,063,064
Certificates of deposit of less than $100,000
1,543,424
468,667
404,096
Certificates of deposit of $100,000 and over
1,708,197
1,109,818
601,488
Total deposits
25,869,444
24,683,460
28,171,233
Federal funds purchased and securities sold under agreements to repurchase
2,878,021
2,784,559
2,234,296
Other borrowings
1,005,613
1,507,776
6,025
Other liabilities
392,956
346,649
348,503
Total liabilities
30,146,034
29,322,444
30,760,057
Stockholders’ equity:
Common stock
629,319
629,319
610,804
Capital surplus
2,921,365
2,919,060
2,682,161
Retained earnings
211,358
117,313
262,363
Treasury stock
(58,389)
(59,670)
(129,588)
Accumulated other comprehensive income (loss)
(1,036,295)
(940,498)
(766,894)
Total stockholders’ equity
2,667,358
2,665,524
2,658,846
Non-controlling interest
17,870
16,888
16,467
Total equity
2,685,228
2,682,412
2,675,313
Total liabilities and equity
$
32,831,262
$
32,004,856
$
33,435,370
5
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS
(Unaudited) (In thousands)
For the Three Months Ended
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Sep. 30, 2022
Jun. 30, 2022
ASSETS:
Loans:
Business
$
5,757,388
$
5,656,104
$
5,478,241
$
5,317,696
$
5,385,181
Real estate — construction and land
1,450,196
1,410,835
1,268,900
1,288,721
1,225,267
Real estate — business
3,540,851
3,478,382
3,300,697
3,258,128
3,163,508
Real estate — personal
2,960,962
2,933,750
2,886,686
2,844,376
2,825,578
Consumer
2,098,523
2,067,385
2,089,912
2,101,622
2,070,560
Revolving home equity
300,623
296,748
293,681
280,923
272,280
Consumer credit card
555,875
556,223
559,463
550,058
537,681
Overdrafts
4,630
4,449
7,428
4,438
5,524
Total loans
16,669,048
16,403,876
15,885,008
15,645,962
15,485,579
Allowance for credit losses on loans
(159,068)
(150,117)
(143,285)
(137,833)
(134,670)
Net loans
16,509,980
16,253,759
15,741,723
15,508,129
15,350,909
Loans held for sale
5,957
5,708
6,567
7,170
7,933
Investment securities:
U.S. government and federal agency obligations
1,035,651
1,099,067
1,055,602
1,113,442
1,119,305
Government-sponsored enterprise obligations
55,751
87,086
55,732
55,753
55,762
State and municipal obligations
1,532,519
1,793,756
1,990,643
2,052,908
2,126,380
Mortgage-backed securities
6,316,224
6,454,408
6,605,936
6,847,912
7,158,252
Asset-backed securities
2,827,911
3,233,757
3,714,092
3,870,953
4,038,113
Other debt securities
519,988
528,941
560,951
587,026
643,463
Unrealized gain (loss) on debt securities
(1,331,002)
(1,387,196)
(1,582,061)
(1,064,534)
(851,110)
Total available for sale debt securities
10,957,042
11,809,819
12,400,895
13,463,460
14,290,165
Trading debt securities
46,493
45,757
44,626
35,621
43,904
Equity securities
12,335
12,458
10,534
8,838
9,094
Other securities
273,587
229,867
219,354
208,708
195,090
Total investment securities
11,289,457
12,097,901
12,675,409
13,716,627
14,538,253
Federal funds sold
7,484
38,978
27,683
13,486
4,269
Securities purchased under agreements to resell
824,974
825,000
1,174,457
1,379,341
1,703,569
Interest earning deposits with banks
2,284,162
809,935
640,039
980,273
1,248,942
Other assets
1,941,340
1,376,551
1,339,554
1,256,498
1,238,493
Total assets
$
32,863,354
$
31,407,832
$
31,605,432
$
32,861,524
$
34,092,368
LIABILITIES AND EQUITY:
Non-interest bearing deposits
$
8,224,475
$
9,114,512
$
10,360,834
$
10,758,353
$
11,209,680
Savings
1,516,887
1,550,215
1,567,113
1,595,857
1,609,694
Interest checking and money market
12,918,399
13,265,485
13,693,974
14,423,713
14,847,306
Certificates of deposit of less than $100,000
1,075,110
415,367
388,304
397,071
411,655
Certificates of deposit of $100,000 and over
1,472,208
903,393
596,703
578,158
648,728
Total deposits
25,207,079
25,248,972
26,606,928
27,753,152
28,727,063
Borrowings:
Federal funds purchased
507,165
493,721
143,630
51,929
113,128
Securities sold under agreements to repurchase
2,206,612
2,418,726
2,260,263
2,199,866
2,258,184
Other borrowings
1,617,952
551,267
179,552
2,010
2,029
Total borrowings
4,331,729
3,463,714
2,583,445
2,253,805
2,373,341
Other liabilities
598,915
112,052
28,745
123,691
139,986
Total liabilities
30,137,723
28,824,738
29,219,118
30,130,648
31,240,390
Equity
2,725,631
2,583,094
2,386,314
2,730,876
2,851,978
Total liabilities and equity
$
32,863,354
$
31,407,832
$
31,605,432
$
32,861,524
$
34,092,368
6
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE RATES
(Unaudited)
For the Three Months Ended
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Sep. 30, 2022
Jun. 30, 2022
ASSETS:
Loans:
Business (1)
5.58
%
5.31
%
4.68
%
3.94
%
3.16
%
Real estate — construction and land
7.92
7.33
6.80
5.27
4.09
Real estate — business
5.96
5.65
5.15
4.40
3.70
Real estate — personal
3.68
3.61
3.45
3.36
3.27
Consumer
5.63
5.31
4.77
4.17
3.62
Revolving home equity
7.55
7.03
5.89
4.82
3.69
Consumer credit card
13.77
13.68
12.64
12.05
11.32
Overdrafts
—
—
—
—
—
Total loans
5.84
5.56
5.03
4.37
3.72
Loans held for sale
10.17
10.30
10.09
8.80
8.14
Investment securities:
U.S. government and federal agency obligations
3.42
1.90
2.01
4.51
4.93
Government-sponsored enterprise obligations
2.38
3.21
2.36
2.36
2.39
State and municipal obligations (1)
2.04
2.26
2.29
2.27
2.30
Mortgage-backed securities
2.09
2.06
1.88
1.93
1.99
Asset-backed securities
2.08
2.01
1.96
1.62
1.35
Other debt securities
1.86
1.93
1.89
1.93
1.97
Total available for sale debt securities
2.19
2.07
1.97
2.09
2.08
Trading debt securities (1)
4.53
4.59
3.81
2.74
2.46
Equity securities (1)
23.25
23.24
28.44
27.11
26.90
Other securities (1)
9.40
7.11
6.67
7.09
22.38
Total investment securities
2.37
2.18
2.07
2.18
2.36
Federal funds sold
5.63
5.09
4.27
2.77
1.79
Securities purchased under agreements to resell
1.99
1.94
2.36
1.72
1.03
Interest earning deposits with banks
5.14
4.67
3.69
2.25
.78
Total interest earning assets
4.34
4.00
3.59
3.21
2.86
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings
.05
.05
.06
.04
.04
Interest checking and money market
.93
.61
.38
.20
.06
Certificates of deposit of less than $100,000
3.78
1.39
.73
.41
.20
Certificates of deposit of $100,000 and over
3.93
2.98
1.42
.60
.29
Total interest bearing deposits
1.29
.71
.40
.21
.07
Borrowings:
Federal funds purchased
5.06
4.59
3.56
2.41
.79
Securities sold under agreements to repurchase
3.09
2.93
2.29
1.37
.48
Other borrowings
5.24
4.94
4.02
1.78
2.37
Total borrowings
4.13
3.49
2.48
1.39
.50
Total interest bearing liabilities
1.87
%
1.20
%
.69
%
.34
%
.12
%
Net yield on interest earning assets
3.12
%
3.26
%
3.18
%
3.01
%
2.79
%
(1) Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.
7
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CREDIT QUALITY
For the Three Months Ended
For the Six Months Ended
(Unaudited) (In thousands, except ratios)
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Sep. 30, 2022
Jun. 30, 2022
Jun. 30, 2023
Jun. 30, 2022
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period
$159,317
$150,136
$143,377
$138,039
$134,710
$150,136
$150,044
Provision for credit losses on loans
5,864
15,948
12,404
10,150
7,287
21,812
(3,399)
Net charge-offs (recoveries):
Commercial portfolio:
Business
165
230
496
461
19
395
96
Real estate — construction and land
(115)
—
—
—
—
(115)
—
Real estate — business
(5)
(4)
(4)
(8)
(1)
(9)
(8)
45
226
492
453
18
271
88
Personal banking portfolio:
Consumer credit card
4,687
4,325
3,467
2,882
2,937
9,012
6,309
Consumer
1,273
1,275
1,522
827
633
2,548
1,441
Overdraft
517
978
230
703
425
1,495
783
Real estate — personal
(6)
(11)
(40)
(15)
(41)
(17)
(19)
Revolving home equity
(20)
(26)
(26)
(38)
(14)
(46)
4
6,451
6,541
5,153
4,359
3,940
12,992
8,518
Total net loan charge-offs
6,496
6,767
5,645
4,812
3,958
13,263
8,606
Balance at end of period
$158,685
$159,317
$150,136
$143,377
$138,039
$158,685
$138,039
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
$29,235
$28,628
$33,120
$30,047
$24,907
NET CHARGE-OFF RATIOS (1)
Commercial portfolio:
Business
.01
%
.02
%
.04
%
.03
%
—
%
.01
%
—
%
Real estate — construction and land
(.03)
—
—
—
—
(.02)
—
Real estate — business
—
—
—
—
—
—
—
—
.01
.02
.02
—
.01
—
Personal banking portfolio:
Consumer credit card
3.38
3.15
2.46
2.08
2.19
3.27
2.36
Consumer
.24
.25
.29
.16
.12
.25
.14
Overdraft
44.79
89.15
12.28
62.85
30.86
66.40
29.50
Real estate — personal
—
—
(.01)
—
(.01)
—
—
Revolving home equity
(.03)
(.04)
(.04)
(.05)
(.02)
(.03)
—
.44
.45
.35
.30
.28
.44
.30
Total
.16
%
.17
%
.14
%
.12
%
.10
%
.16
%
.11
%
CREDIT QUALITY RATIOS
Non-accrual loans to total loans
.04
%
.05
%
.05
%
.05
%
.05
%
Allowance for credit losses on loans to total loans
.94
.96
.92
.90
.88
NON-ACCRUAL AND PAST DUE LOANS
Non-accrual loans:
Business
$4,732
$6,361
$6,751
$5,645
$6,314
Real estate — construction and land
—
—
—
—
—
Real estate — business
153
171
189
149
167
Real estate — personal
1,276
1,269
1,366
1,390
1,436
Total
6,161
7,801
8,306
7,184
7,917
Loans past due 90 days and still accruing interest
$15,351
$14,800
$15,830
$12,538
$11,909
(1) Net charge-offs are annualized and calculated as a percentage of average loans (excluding loans held for sale).
8
COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2023
For the quarter ended June 30, 2023, net income amounted to $127.8 million, compared to $119.5 million in the previous quarter and $115.8 million in the same quarter last year. The increase in net income compared to the previous quarter was primarily the result of higher non-interest income and investment securities gains coupled with a lower provision for credit losses, partly offset by lower net interest income and higher non-interest expense. The net yield on interest earning assets declined 14 basis points from the previous quarter to 3.12%. Average loans grew $265.2 million compared to the previous quarter, while average available for sale debt securities and average deposits declined $852.8 million and $41.9 million, respectively. For the quarter, the return on average assets was 1.56%, the return on average equity was 18.81%, and the efficiency ratio was 57.2%.
Balance Sheet Review
During the 2nd quarter of 2023, average loans totaled $16.7 billion, an increase of $265.2 million over the prior quarter, and $1.2 billion, or 7.6%, over the same quarter last year. Compared to the previous quarter, average balances of business, business real estate, and construction loans grew $101.3 million, $62.5 million, and $39.4 million, respectively. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $8.9 million, compared to $3.2 million in the prior quarter.
Total average available for sale debt securities decreased $852.8 million compared to the previous quarter to $11.0 billion, at fair value. The decrease in investment securities was mainly the result of lower balances of mortgage-backed, other asset-backed, and state and municipal securities. During the 2nd quarter of 2023, the unrealized loss on available for sale securities increased $109.2 million to $1.4 billion, at period end, and sales, maturities and pay downs were $702.3 million. At June 30, 2023, the duration of the available for sale investment portfolio was 3.9 years. The Company does not have any investment securities classified as held-to-maturity.
Total average deposits decreased $41.9 million this quarter compared to the previous quarter. The decrease in deposits mostly resulted from lower demand deposits and interest checking and money market deposits of $890.0 million and $347.1 million, respectively. These decreases were partly offset by higher certificate of deposit balances of $1.2 billion. Compared to the previous quarter, total average commercial, consumer, and wealth deposits declined $256.5 million, $189.5 million, and $123.4 million, respectively. These decreases were offset by $523.5 million of average brokered deposits, which are not reported in the Company’s operating segments. The average loans to deposits ratio was 66.2% in the current quarter and 65.0% in the prior quarter. The Company’s average borrowings, which included customer repurchase agreements of $2.2
billion, were $4.3 billion in the 2nd quarter of 2023 and $3.5 billion in the prior quarter.
Net Interest Income
Net interest income in the 2nd quarter of 2023 amounted to $249.5 million, a decrease of $2.1 million compared to the previous quarter. On a fully taxable-equivalent (FTE) basis, net interest income for the current quarter decreased $1.7 million from the previous quarter to $251.8 million. The decrease in net interest income was mostly due to higher interest expense, mostly offset by higher interest earned on loans and deposits with banks. The net yield (FTE) on earning assets decreased to 3.12%, from 3.26% in the prior quarter.
Compared to the previous quarter, interest income on loans (FTE) increased $17.6 million, due to higher average rates earned on all loan categories, coupled with higher average balances of all loan categories, except consumer credit cards. The average yield (FTE) on the loan portfolio increased 28 basis points to 5.84% this quarter.
Interest income on investment securities (FTE) increased $2.2 million compared to the prior quarter, due to higher rates earned, partly offset by lower average balances. Interest income earned on U.S. government and federal agency securities increased due to higher rates earned, which included the impact of $4.1 million in higher inflation income from Treasury inflation-protected securities this quarter. At June 30, 2023, the Company recorded a $1.7 million adjustment to premium amortization, which increased interest income to reflect slower forward prepayment speed estimates on mortgage-backed securities. The average yield (FTE) on total investment securities was 2.37% in the current quarter, compared to 2.18% in the previous quarter.
Compared to the previous quarter, interest income on deposits with banks increased $19.9 million, mostly due to higher average balances of $1.5 billion coupled with higher average rates earned. The average yield on deposits with banks was 5.14% in the current quarter, compared to 4.67% in the prior quarter.
Interest expense increased $41.1 million, mostly due to higher rates paid on deposits and higher Federal Home Loan Bank (FHLB) borrowings. The average rate paid on interest bearing deposits totaled 1.29% in the current quarter compared to .71% in the prior quarter. Interest expense on deposits increased $26.4 million this quarter compared to the previous quarter. Interest expense on borrowings increased $14.8 million, due to a 64 basis point increase in the average rate paid coupled with higher average borrowings of $868.0 million. The overall rate paid on interest bearing liabilities was 1.87% in the current quarter compared to 1.20% in the prior quarter.
9
COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2023
Non-Interest Income
In the 2nd quarter of 2023, total non-interest income amounted to $147.6 million, an increase of $8.2 million compared to the same period last year and an increase of $10.0 million compared to the prior quarter. The increase in non-interest income compared to the same period last year was mainly due to higher bank card fees, letter of credit fees, and an increase in fair value adjustments recorded on the Company’s deferred compensation plan assets, which are held in a trust and recorded as both an asset and liability, affecting both other income and other expense. These increases were partly offset by lower deposit fees. The increase in non-interest income compared to the prior quarter was mainly due to higher bank card fees, letter of credit fees, trust fees, swap fees, and a gain on the sale of real estate recorded in the current quarter.
Total net bank card fees in the current quarter increased $5.9 million, or 13.3%, compared to the same period last year, and increased $3.1 million compared to the prior quarter. Net corporate card fees increased $4.5 million, or 18.3%, over the same quarter of last year mainly due to higher interchange fee income and lower rewards expense. Net debit card fees increased $807 thousand, or 7.7%, net merchant fees increased $425 thousand, or 8.6%, and net credit card fees increased $100 thousand, or 2.7%. Total net bank card fees this quarter were comprised of fees on corporate card ($29.2 million), debit card ($11.3 million), merchant ($5.4 million) and credit card ($3.8 million) transactions.
In the current quarter, trust fees increased $473 thousand, or 1.0%, over the same period last year, mostly resulting from higher private client trust fees. Compared to the same period last year, deposit account fees decreased $2.9 million, or 11.5%, mainly due to lower overdraft and return item fees of $2.9 million.
Other non-interest income increased over the same period last year primarily due to higher swap fees of $1.1 million, higher letter of credit fees of $2.7 million, a $3.4 million increase in the deferred compensation adjustment previously mentioned, and a gain on the sale of real estate of $1.1 million recorded in the current quarter. These increases were partly offset by a decrease in tax credit sales fees of $1.5 million and the receipt of a $2.2 million life insurance death benefit recorded in the 2nd quarter of 2022. For the 2nd quarter of 2023, non-interest income comprised 37.2% of the Company’s total revenue.
Investment Securities Gains and Losses
The Company recorded net securities gains of $3.4 million in the current quarter, compared to losses of $306 thousand in the prior quarter and gains of $1.0 million in the 2nd quarter of 2022. Net securities gains in the current quarter primarily resulted from net fair value gains of $9.1 million on the Company’s private equity portfolio, partly offset by losses of $5.4
million realized on sales of available for sale debt securities.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $227.6 million, compared to $213.5 million in the same period last year and $224.1 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to higher salaries and employee benefits expense, FDIC insurance expense, data processing and software expense, deconversion expense, travel and entertainment expense, and the deferred compensation adjustment previously mentioned. The increase in non-interest expense compared to the prior quarter was mainly due to higher full-time salaries expense, marketing expense, travel and entertainment expense and deconversion expense, partly offset by lower employee benefits expense and miscellaneous losses.
Compared to the 2nd quarter of last year, salaries and employee benefits expense increased $3.2 million, mostly due to higher full-time salaries expense of $6.9 million, or 7.6%. This increase was partly offset by lower incentive compensation of $5.7 million, largely the result of a $5.4 million accrual for special bonuses in 2022 that did not reoccur in 2023. Full-time equivalent employees totaled 4,680 and 4,579 at June 30, 2023 and 2022, respectively.
Compared to the same period last year, data processing and software expense increased $1.1 million due to higher bank card fees expense and increased costs for service providers. Other non-interest expense increased $8.4 million, mostly due to growth in deferred compensation, FDIC insurance, and travel and entertainment expense of $3.4 million, $1.8 million, and $797 thousand, respectively. Additionally, the Company recorded $2.1 million in deconversion expenses relating to the transition of Commerce Financial Advisors support to LPL Financial’s Institution Services platform.
Income Taxes
The effective tax rate for the Company was 22.0% in the current quarter, 21.6% in the previous quarter, and 21.7% in the 2nd quarter of 2022.
Credit Quality
Net loan charge-offs in the 2nd quarter of 2023 amounted to $6.5 million, compared to $6.8 million in the prior quarter and $4.0 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .16% in the current quarter, .17% in the previous quarter, and .10% in the 2nd quarter of last year. Net loan charge-offs on personal banking loans decreased $90 thousand to $6.5 million, mainly due to lower overdraft loan net charge-offs, partly offset by higher consumer credit card loan net charge-offs.
10
COMMERCE BANCSHARES, INC.
Management Discussion of Second Quarter Results
June 30, 2023
In the 2nd quarter of 2023, annualized net loan charge-offs on average consumer credit card loans were 3.38%, compared to 3.15% in the previous quarter, and 2.19% in the same quarter last year. Consumer loan net charge-offs were .24% of average consumer loans in the current quarter, .25% in the prior quarter, and .12% in the same quarter last year.
At June 30, 2023, the allowance for credit losses on loans totaled $158.7 million, or .94% of total loans, and decreased $632 thousand compared to the prior quarter. Additionally, the liability for unfunded lending commitments at June 30, 2023 was $29.2 million, an increase of $607 thousand compared to the liability at March 31, 2023.
At June 30, 2023, total non-accrual loans amounted to $6.2 million, a decrease of $1.6 million compared to the previous quarter. At June 30, 2023, the balance of non-accrual loans, which represented .04% of loans outstanding, included business loans of $4.7 million, personal real estate loans of $1.3 million, and business real estate loans of $153 thousand. Loans more than 90 days past due and still accruing interest totaled $15.4 million at June 30, 2023.
Liquidity
During the 2nd quarter of 2023, the Company increased its deposit balance at the Federal Reserve Bank (FRB) by $1.2 billion to $2.6 billion. The change in the balance at the FRB was mostly the result of a $1.2 billion increase in total deposits and $702.3 million of sales, maturities, and paydowns in the available for sale debt securities portfolio, partly offset by a $500.0 million decrease in FHLB advances, a $220.8 million decrease in net fed funds purchased, and growth of $421.0 million in loan balances.
The Company regularly pledges loans and securities to the FRB and at June 30, 2023, the Company’s pledging resulted in a total borrowing capacity of $5.0 billion, or an increase of $1.2 billion compared to March 31, 2023. The Company did not have any borrowings from the FRB’s Discount Window or the Bank Term Funding Program during the current quarter. The Company also pledges loans and securities and borrows from the FHLB. During the 2nd quarter of 2023, the Company reduced its outstanding borrowings from the FHLB by $500.0 million to $1.0 billion and had $1.1 billion of available borrowing capacity at June 30, 2023. Additionally, the Company pledges portions of its investment securities portfolio to secure public fund deposits, trust funds, and securities sold under agreements to repurchase.
The Company has an available for sale debt securities portfolio with a fair market value of $10.4 billion at June 30, 2023. Approximately $2.0 billion is expected to mature or pay down over the next 12 months. At June 30, 2023, the Company had pledged $8.1 billion of the securities portfolio. The Company
also has a portfolio of $825.0 million in securities purchased under agreements to resell, of which $700.0 million are expected to mature over the next 12 months.
Other
During the 2nd quarter of 2023, the Company paid a cash dividend of $.27 per common share, representing a 7.1% increase over the same period last year. The Company purchased 6,205 shares of treasury stock during the current quarter at an average price of $52.61. Additionally, the Company completed its acquisition of L.J. Hart and Company, a municipal bond underwriter and advisor, in June 2023.
Forward Looking Information
This information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions, and other statements that are not historical facts. Such statements are based on current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.
