1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000
FOR IMMEDIATE RELEASE:
Wednesday, October 18, 2023
COMMERCE BANCSHARES, INC. REPORTS
THIRD QUARTER EARNINGS PER SHARE OF $.96
Commerce Bancshares, Inc. announced earnings of $.96 per share for the three months ended September 30, 2023, compared to $.97 per share in the same quarter last year and $1.02 per share in the second quarter of 2023. Net income for the third quarter of 2023 amounted to $120.6 million, compared to $122.8 million in the third quarter of 2022 and $127.8 million in the prior quarter.
For the nine months ended September 30, 2023, earnings per share totaled $2.93, compared to $2.81 for the first nine months of 2022. Net income amounted to $367.8 million for the nine months ended September 30, 2023, compared to $356.8 million in the comparable period last year. For the year to date, the return on average assets was 1.53%, and the return on average equity was 18.42%.
"Our strong quarterly performance in this high-rate environment demonstrates the resilience of our operating model and the adaptability of our bank," said John Kemper, President and Chief Executive Officer. "Our net interest margin declined only one basis point from the previous quarter, reflecting the impact of higher asset yields and the strength of our core deposits. Non-interest income comprised 36.5% of total revenue."
On the balance sheet, Kemper added, "As planned, we decreased the excess liquidity position that was built through short-term brokered deposit funding and FHLB advances during the second quarter.
"Our liquidity and capital levels remain robust, and credit performance remains excellent, with non-accrual loans at .05% of total loans, the same level as the third quarter of last year."
Third Quarter 2023 Financial Highlights:
•Net interest income was $248.5 million, a $991 thousand decrease from the prior quarter. The net yield on interest earning assets decreased 1 basis point to 3.11%.
•Non-interest income totaled $142.9 million, an increase of $4.4 million compared to the same quarter last year.
•Non-interest expense totaled $228.0 million, an increase of $15.1 million compared to the same quarter last year.
•Average loan balances totaled $17.0 billion, an increase of $299.3 million, or 1.8%, over the prior quarter.
1
Exhibit 99.1
•Total average available for sale debt securities decreased 6.9%, or $752.0 million, from the prior quarter to $10.2 billion, at fair value. During the third quarter of 2023, the unrealized loss on available for sale securities increased $177.4 million to $1.6 billion, at period end.
•Total average deposits increased $358.6 million, or 1.4%, compared to June 30, 2023. The average rate paid on interest bearing deposits in the current quarter was 1.76%.
•The ratio of annualized net loan charge-offs to average loans was .23% compared to .16% in the prior quarter.
•The allowance for credit losses on loans increased $3.6 million during the third quarter to $162.2 million, and at September 30, 2023, the ratio of the allowance for credit losses on loans to total loans was .95%, compared to .94% at June 30, 2023.
•Total assets at September 30, 2023 were $31.4 billion, a decrease of $1.5 billion, or 4.4%, from the prior quarter.
•For the quarter, the return on average assets was 1.49%, the return on average equity was 17.73%, and the efficiency ratio was 58.2%.
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 Nine Months Ended
(Unaudited) (Dollars in thousands, except per share data)
Sep. 30, 2023
Jun. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
FINANCIAL SUMMARY
Net interest income
$248,547
$249,538
$246,373
$749,708
$687,544
Non-interest income
142,949
147,605
138,514
428,166
409,710
Total revenue
391,496
397,143
384,887
1,177,874
1,097,254
Investment securities gains (losses)
4,298
3,392
3,410
7,384
11,602
Provision for credit losses
11,645
6,471
15,290
29,572
12,594
Non-interest expense
228,010
227,611
212,884
679,728
632,037
Income before taxes
156,139
166,453
160,123
475,958
464,225
Income taxes
33,439
35,990
33,936
102,242
97,859
Non-controlling interest expense
2,104
2,674
3,364
5,879
9,595
Net income attributable to Commerce Bancshares, Inc.
$120,596
$127,789
$122,823
$367,837
$356,771
Earnings per common share:
Net income — basic
$0.96
$1.03
$0.97
$2.94
$2.81
Net income — diluted
$0.96
$1.02
$0.97
$2.93
$2.81
Effective tax rate
21.71
%
21.97
%
21.65
%
21.75
%
21.52
%
Fully-taxable equivalent net interest income
$250,962
$251,757
$248,737
$756,130
$695,140
Average total interest earning assets (1)
$31,974,945
$32,412,084
$32,807,393
$
31,986,696
$33,853,577
Diluted wtd. average shares outstanding
123,817,943
124,007,300
125,116,585
124,026,459
125,887,632
RATIOS
Average loans to deposits (2)
66.39
%
66.15
%
56.40
%
65.85
%
54.05
%
Return on total average assets
1.49
1.56
1.48
1.53
1.39
Return on average equity (3)
17.73
18.81
17.84
18.42
16.08
Non-interest income to total revenue
36.51
37.17
35.99
36.35
37.34
Efficiency ratio (4)
58.15
57.22
55.19
57.62
57.48
Net yield on interest earning assets
3.11
3.12
3.01
3.16
2.75
EQUITY SUMMARY
Cash dividends per share
$.270
$.270
$.252
$.810
$.757
Cash dividends on common stock
$33,657
$33,744
$31,740
$101,160
$95,818
Book value per share (5)
$20.90
$21.53
$18.91
Market value per share (5)
$47.98
$48.70
$63.01
High market value per share
$54.99
$58.97
$70.45
Low market value per share
$46.30
$45.55
$61.14
Common shares outstanding (5)
124,367,765
124,734,830
125,329,198
Tangible common equity to tangible assets (6)
7.78
%
7.70
%
6.80
%
Tier I leverage ratio
10.87
%
10.46
%
9.87
%
OTHER QTD INFORMATION
Number of bank/ATM locations
266
272
277
Full-time equivalent employees
4,714
4,680
4,595
(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 Nine Months Ended
Sep. 30, 2023
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Interest income
$361,162
$348,663
$308,857
$286,377
$262,666
$1,018,682
$712,602
Interest expense
112,615
99,125
57,234
31,736
16,293
268,974
25,058
Net interest income
248,547
249,538
251,623
254,641
246,373
749,708
687,544
Provision for credit losses
11,645
6,471
11,456
15,477
15,290
29,572
12,594
Net interest income after credit losses
236,902
243,067
240,167
239,164
231,083
720,136
674,950
NON-INTEREST INCOME
Bank card transaction fees
46,899
49,725
46,654
44,588
45,638
143,278
131,556
Trust fees
49,207
47,265
45,328
44,710
45,406
141,800
140,009
Deposit account charges and other fees
23,090
22,633
21,752
21,989
24,521
67,475
72,392
Consumer brokerage services
3,820
4,677
5,085
4,518
5,085
13,582
14,599
Capital market fees
2,410
2,539
3,362
3,386
3,393
8,311
10,845
Loan fees and sales
2,966
2,735
2,589
2,566
3,094
8,290
10,575
Other
14,557
18,031
12,842
15,068
11,377
45,430
29,734
Total non-interest income
142,949
147,605
137,612
136,825
138,514
428,166
409,710
INVESTMENT SECURITIES GAINS (LOSSES), NET
4,298
3,392
(306)
8,904
3,410
7,384
11,602
NON-INTEREST EXPENSE
Salaries and employee benefits
146,805
145,429
144,373
138,458
137,393
436,607
415,589
Data processing and software
30,744
28,719
28,154
27,991
28,050
87,617
82,701
Net occupancy
13,948
12,995
12,759
11,774
12,544
39,702
37,343
Marketing
6,167
6,368
5,471
5,419
6,228
18,006
18,408
Equipment
4,697
4,864
4,850
5,021
5,036
14,411
14,338
Supplies and communication
4,963
4,625
4,590
4,446
4,581
14,178
13,655
Other
20,686
24,611
23,910
23,631
19,052
69,207
50,003
Total non-interest expense
228,010
227,611
224,107
216,740
212,884
679,728
632,037
Income before income taxes
156,139
166,453
153,366
168,153
160,123
475,958
464,225
Less income taxes
33,439
35,990
32,813
34,499
33,936
102,242
97,859
Net income
122,700
130,463
120,553
133,654
126,187
373,716
366,366
Less non-controlling interest expense (income)
2,104
2,674
1,101
2,026
3,364
5,879
9,595
Net income attributable to Commerce Bancshares, Inc.
$120,596
$127,789
$119,452
$131,628
$122,823
$367,837
$356,771
Net income per common share — basic
$0.96
$1.03
$0.95
$1.05
$0.97
$2.94
$2.81
Net income per common share — diluted
$0.96
$1.02
$0.95
$1.04
$0.97
$2.93
$2.81
OTHER INFORMATION
Return on total average assets
1.49
%
1.56
%
1.54
%
1.65
%
1.48
%
1.53
%
1.39
%
Return on average equity (1)
17.73
18.81
18.75
21.88
17.84
18.42
16.08
Efficiency ratio (2)
58.15
57.22
57.49
55.26
55.19
57.62
57.48
Effective tax rate
21.71
21.97
21.55
20.77
21.65
21.75
21.52
Net yield on interest earning assets
3.11
3.12
3.26
3.18
3.01
3.16
2.75
Fully-taxable equivalent net interest income
$250,962
$251,757
$253,411
$256,675
$248,737
$756,130
$695,140
(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)
Sep. 30, 2023
Jun. 30, 2023
Sep. 30, 2022
ASSETS
Loans
Business
$
5,908,330
$
5,906,493
$
5,528,895
Real estate — construction and land
1,539,566
1,451,783
1,206,955
Real estate — business
3,647,168
3,621,222
3,331,627
Real estate — personal
3,024,639
2,980,599
2,862,519
Consumer
2,125,804
2,110,605
2,116,371
Revolving home equity
305,237
303,845
286,026
Consumer credit card
574,829
574,755
563,349
Overdrafts
3,753
7,237
3,216
Total loans
17,129,326
16,956,539
15,898,958
Allowance for credit losses on loans
(162,244)
(158,685)
(143,377)
Net loans
16,967,082
16,797,854
15,755,581
Loans held for sale
5,120
6,776
8,062
Investment securities:
Available for sale debt securities
9,860,828
10,414,625
12,632,510
Trading debt securities
35,564
29,412
39,222
Equity securities
12,212
12,266
8,954
Other securities
230,792
258,045
222,742
Total investment securities
10,139,396
10,714,348
12,903,428
Federal funds sold
2,735
2,750
14,020
Securities purchased under agreements to resell
450,000
825,000
1,275,000
Interest earning deposits with banks
1,847,641
2,568,695
642,943
Cash and due from banks
358,010
366,699
344,178
Premises and equipment — net
460,830
451,568
407,833
Goodwill
146,539
146,371
138,921
Other intangible assets — net
14,432
14,666
15,599
Other assets
984,907
936,535
1,097,031
Total assets
$
31,376,692
$
32,831,262
$
32,602,596
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing
$
7,961,402
$
8,198,849
$
10,468,591
Savings, interest checking and money market
14,154,275
14,418,974
16,014,487
Certificates of deposit of less than $100,000
1,210,169
1,543,424
391,145
Certificates of deposit of $100,000 and over
1,764,611
1,708,197
597,093
Total deposits
25,090,457
25,869,444
27,471,316
Federal funds purchased and securities sold under agreements to repurchase
2,745,181
2,878,021
2,314,590
Other borrowings
503,589
1,005,613
1,831
Other liabilities
438,199
392,956
443,752
Total liabilities
28,777,426
30,146,034
30,231,489
Stockholders’ equity:
Common stock
629,319
629,319
610,804
Capital surplus
2,924,211
2,921,365
2,683,631
Retained earnings
298,297
211,358
353,446
Treasury stock
(76,888)
(58,389)
(176,943)
Accumulated other comprehensive income (loss)
(1,193,534)
(1,036,295)
(1,119,344)
Total stockholders’ equity
2,581,405
2,667,358
2,351,594
Non-controlling interest
17,861
17,870
19,513
Total equity
2,599,266
2,685,228
2,371,107
Total liabilities and equity
$
31,376,692
$
32,831,262
$
32,602,596
5
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS
(Unaudited) (In thousands)
For the Three Months Ended
Sep. 30, 2023
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Sep. 30, 2022
ASSETS:
Loans:
Business
$
5,849,227
$
5,757,388
$
5,656,104
$
5,478,241
$
5,317,696
Real estate — construction and land
1,508,850
1,450,196
1,410,835
1,268,900
1,288,721
Real estate — business
3,642,010
3,540,851
3,478,382
3,300,697
3,258,128
Real estate — personal
2,992,500
2,960,962
2,933,750
2,886,686
2,844,376
Consumer
2,102,281
2,098,523
2,067,385
2,089,912
2,101,622
Revolving home equity
304,055
300,623
296,748
293,681
280,923
Consumer credit card
564,039
555,875
556,223
559,463
550,058
Overdrafts
5,341
4,630
4,449
7,428
4,438
Total loans
16,968,303
16,669,048
16,403,876
15,885,008
15,645,962
Allowance for credit losses on loans
(158,335)
(159,068)
(150,117)
(143,285)
(137,833)
Net loans
16,809,968
16,509,980
16,253,759
15,741,723
15,508,129
Loans held for sale
5,714
5,957
5,708
6,567
7,170
Investment securities:
U.S. government and federal agency obligations
986,284
1,035,651
1,099,067
1,055,602
1,113,442
Government-sponsored enterprise obligations
55,676
55,751
87,086
55,732
55,753
State and municipal obligations
1,391,541
1,532,519
1,793,756
1,990,643
2,052,908
Mortgage-backed securities
6,161,348
6,316,224
6,454,408
6,605,936
6,847,912
Asset-backed securities
2,553,562
2,827,911
3,233,757
3,714,092
3,870,953
Other debt securities
514,787
519,988
528,941
560,951
587,026
Unrealized gain (loss) on debt securities
(1,458,141)
(1,331,002)
(1,387,196)
(1,582,061)
(1,064,534)
Total available for sale debt securities
10,205,057
10,957,042
11,809,819
12,400,895
13,463,460
Trading debt securities
35,044
46,493
45,757
44,626
35,621
Equity securities
12,230
12,335
12,458
10,534
8,838
Other securities
237,518
273,587
229,867
219,354
208,708
Total investment securities
10,489,849
11,289,457
12,097,901
12,675,409
13,716,627
Federal funds sold
2,722
7,484
38,978
27,683
13,486
Securities purchased under agreements to resell
712,472
824,974
825,000
1,174,457
1,379,341
Interest earning deposits with banks
2,337,744
2,284,162
809,935
640,039
980,273
Other assets
1,750,222
1,941,340
1,376,551
1,339,554
1,256,498
Total assets
$
32,108,691
$
32,863,354
$
31,407,832
$
31,605,432
$
32,861,524
LIABILITIES AND EQUITY:
Non-interest bearing deposits
$
7,939,190
$
8,224,475
$
9,114,512
$
10,360,834
$
10,758,353
Savings
1,436,149
1,516,887
1,550,215
1,567,113
1,595,857
Interest checking and money market
13,048,199
12,918,399
13,265,485
13,693,974
14,423,713
Certificates of deposit of less than $100,000
1,423,965
1,075,110
415,367
388,304
397,071
Certificates of deposit of $100,000 and over
1,718,126
1,472,208
903,393
596,703
578,158
Total deposits
25,565,629
25,207,079
25,248,972
26,606,928
27,753,152
Borrowings:
Federal funds purchased
508,851
507,165
493,721
143,630
51,929
Securities sold under agreements to repurchase
2,283,020
2,206,612
2,418,726
2,260,263
2,199,866
Other borrowings
685,222
1,617,952
551,267
179,552
2,010
Total borrowings
3,477,093
4,331,729
3,463,714
2,583,445
2,253,805
Other liabilities
367,741
598,915
112,052
28,745
123,691
Total liabilities
29,410,463
30,137,723
28,824,738
29,219,118
30,130,648
Equity
2,698,228
2,725,631
2,583,094
2,386,314
2,730,876
Total liabilities and equity
$
32,108,691
$
32,863,354
$
31,407,832
$
31,605,432
$
32,861,524
6
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE RATES
(Unaudited)
For the Three Months Ended
Sep. 30, 2023
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Sep. 30, 2022
ASSETS:
Loans:
Business (1)
5.77
%
5.58
%
5.31
%
4.68
%
3.94
%
Real estate — construction and land
8.17
7.92
7.33
6.80
5.27
Real estate — business
6.13
5.96
5.65
5.15
4.40
Real estate — personal
3.73
3.68
3.61
3.45
3.36
Consumer
5.97
5.63
5.31
4.77
4.17
Revolving home equity
7.76
7.55
7.03
5.89
4.82
Consumer credit card
13.77
13.77
13.68
12.64
12.05
Overdrafts
—
—
—
—
—
Total loans
6.02
5.84
5.56
5.03
4.37
Loans held for sale
10.55
10.17
10.30
10.09
8.80
Investment securities:
U.S. government and federal agency obligations
2.31
3.42
1.90
2.01
4.51
Government-sponsored enterprise obligations
2.36
2.38
3.21
2.36
2.36
State and municipal obligations (1)
1.95
2.04
2.26
2.29
2.27
Mortgage-backed securities
2.06
2.09
2.06
1.88
1.93
Asset-backed securities
2.20
2.08
2.01
1.96
1.62
Other debt securities
1.75
1.86
1.93
1.89
1.93
Total available for sale debt securities
2.08
2.19
2.07
1.97
2.09
Trading debt securities (1)
5.11
4.53
4.59
3.81
2.74
Equity securities (1)
23.06
23.25
23.24
28.44
27.11
Other securities (1)
13.13
9.40
7.11
6.67
7.09
Total investment securities
2.33
2.37
2.18
2.07
2.18
Federal funds sold
6.56
5.63
5.09
4.27
2.77
Securities purchased under agreements to resell
2.08
1.99
1.94
2.36
1.72
Interest earning deposits with banks
5.39
5.14
4.67
3.69
2.25
Total interest earning assets
4.51
4.34
4.00
3.59
3.21
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings
.05
.05
.05
.06
.04
Interest checking and money market
1.33
.93
.61
.38
.20
Certificates of deposit of less than $100,000
4.32
3.78
1.39
.73
.41
Certificates of deposit of $100,000 and over
4.37
3.93
2.98
1.42
.60
Total interest bearing deposits
1.76
1.29
.71
.40
.21
Borrowings:
Federal funds purchased
5.33
5.06
4.59
3.56
2.41
Securities sold under agreements to repurchase
3.20
3.09
2.93
2.29
1.37
Other borrowings
5.30
5.24
4.94
4.02
1.78
Total borrowings
3.93
4.13
3.49
2.48
1.39
Total interest bearing liabilities
2.12
%
1.87
%
1.20
%
.69
%
.34
%
Net yield on interest earning assets
3.11
%
3.12
%
3.26
%
3.18
%
3.01
%
(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 Nine Months Ended
(Unaudited) (In thousands, except ratios)
Sep. 30, 2023
Jun. 30, 2023
Mar. 31, 2023
Dec. 31, 2022
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period
$158,685
$159,317
$150,136
$143,377
$138,039
$150,136
$150,044
Provision for credit losses on loans
13,343
5,864
15,948
12,404
10,150
35,155
6,751
Net charge-offs (recoveries):
Commercial portfolio:
Business
2,613
165
230
496
461
3,008
557
Real estate — construction and land
—
(115)
—
—
—
(115)
—
Real estate — business
(15)
(5)
(4)
(4)
(8)
(24)
(16)
2,598
45
226
492
453
2,869
541
Personal banking portfolio:
Consumer credit card
4,716
4,687
4,325
3,467
2,882
13,728
9,191
Consumer
1,797
1,273
1,275
1,522
827
4,345
2,268
Overdraft
683
517
978
230
703
2,178
1,486
Real estate — personal
(9)
(6)
(11)
(40)
(15)
(26)
(34)
Revolving home equity
(1)
(20)
(26)
(26)
(38)
(47)
(34)
7,186
6,451
6,541
5,153
4,359
20,178
12,877
Total net loan charge-offs
9,784
6,496
6,767
5,645
4,812
23,047
13,418
Balance at end of period
$162,244
$158,685
$159,317
$150,136
$143,377
$162,244
$143,377
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
$27,537
$29,235
$28,628
$33,120
$30,047
NET CHARGE-OFF RATIOS (1)
Commercial portfolio:
Business
.18
%
.01
%
.02
%
.04
%
.03
%
.07
%
.01
%
Real estate — construction and land
—
(.03)
—
—
—
(.01)
—
Real estate — business
—
—
—
—
—
—
—
.09
—
.01
.02
.02
.04
.01
Personal banking portfolio:
Consumer credit card
3.32
3.38
3.15
2.46
2.08
3.28
2.26
Consumer
.34
.24
.25
.29
.16
.28
.15
Overdraft
50.73
44.79
89.15
12.28
62.85
60.54
39.39
Real estate — personal
—
—
—
(.01)
—
—
—
Revolving home equity
—
(.03)
(.04)
(.04)
(.05)
(.02)
(.02)
.48
.44
.45
.35
.30
.46
.30
Total
.23
%
.16
%
.17
%
.14
%
.12
%
.18
%
.12
%
CREDIT QUALITY RATIOS
Non-accrual loans to total loans
.05
%
.04
%
.05
%
.05
%
.05
%
Allowance for credit losses on loans to total loans
.95
.94
.96
.92
.90
NON-ACCRUAL AND PAST DUE LOANS
Non-accrual loans:
Business
$6,602
$4,732
$6,361
$6,751
$5,645
Real estate — construction and land
—
—
—
—
—
Real estate — business
76
153
171
189
149
Real estate — personal
1,531
1,276
1,269
1,366
1,390
Total
8,209
6,161
7,801
8,306
7,184
Loans past due 90 days and still accruing interest
$18,580
$15,351
$14,800
$15,830
$12,538
(1) Net charge-offs are annualized and calculated as a percentage of average loans (excluding loans held for sale).
8
Exhibit 99.1
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2023
For the quarter ended September 30, 2023, net income amounted to $120.6 million, compared to $127.8 million in the previous quarter and $122.8 million in the same quarter last year. The decrease in net income compared to the previous quarter was primarily the result of lower non-interest income coupled with a higher provision for credit losses. The net yield on interest earning assets declined 1 basis point from the previous quarter to 3.11%. Average loans and deposits grew $299.3 million and $358.6 million, respectively, compared to the previous quarter, while average borrowings and available for sale debt securities, at fair value, declined $854.6 million and $752.0 million, respectively. For the quarter, the return on average assets was 1.49%, the return on average equity was 17.73%, and the efficiency ratio was 58.2%.
Balance Sheet Review
During the 3rd quarter of 2023, average loans totaled $17.0 billion, an increase of $299.3 million over the prior quarter, and $1.3 billion, or 8.5%, over the same quarter last year. Compared to the previous quarter, average balances of business real estate, business, construction, and personal real estate loans grew $101.2 million, $91.8 million, $58.7 million, and $31.5 million, respectively. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $9.2 million, compared to $8.9 million in the prior quarter.
Total average available for sale debt securities decreased $752.0 million compared to the previous quarter to $10.2 billion, at fair value. The decrease in investment securities was mainly the result of lower balances of asset-backed, mortgage-backed, and state and municipal securities. During the 3rd quarter of 2023, the unrealized loss on available for sale securities increased $177.4 million to $1.6 billion, at period end, and maturities and pay downs were $369.5 million. At September 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 increased $358.6 million this quarter compared to the previous quarter. The increase in deposits mostly resulted from higher certificates of deposit and interest checking and money market deposits of $594.8 million and $129.8 million, respectively, partly offset by lower demand deposits of $285.3 million. Compared to the previous quarter, total average commercial deposits increased $452.3 million, while consumer deposits and wealth deposits declined $185.3 million and $66.1 million, respectively. The average loans to deposits ratio was 66.4% in the current quarter and 66.2% in the prior quarter. The Company’s average borrowings, which included customer repurchase agreements of $2.3 billion, decreased $854.6 million to $3.5 billion in the 3rd quarter of 2023, mostly due to a decline of $931.7 million in Federal Home Loan Bank (FHLB) borrowings.
Net Interest Income
Net interest income in the 3rd quarter of 2023 amounted to $248.5 million, a decrease of $991 thousand compared to the previous quarter. On a fully taxable-equivalent (FTE) basis, net interest income for the current quarter decreased $795 thousand from the previous quarter to $251.0 million. The decrease in net interest income was mostly due to higher interest expense on deposits and lower interest income on investment securities, partly offset by higher interest earned on loans and lower interest expense on borrowings. The net yield (FTE) on earning assets decreased to 3.11%, from 3.12% in the prior quarter.
Compared to the previous quarter, interest income on loans (FTE) increased $15.0 million, due to higher average rates earned in most loan categories, coupled with higher average balances in all loan categories. The average yield (FTE) on the loan portfolio increased 18 basis points to 6.02% this quarter.
Interest income on investment securities (FTE) decreased $4.4 million compared to the prior quarter, mostly due to lower average balances. Interest income earned on U.S. government and federal agency securities decreased due to lower rates earned, which included the impact of $2.5 million in lower inflation income from Treasury inflation-protected securities this quarter. Partly offsetting this decrease was a $2.3 million dividend from a private equity investment this quarter. Additionally, at September 30, 2023, the Company recorded a $1.3 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 2.33% in the current quarter, compared to 2.37% in the previous quarter.
Compared to the previous quarter, interest income on deposits with banks increased $2.5 million, due to higher average rates earned and average balances. The average yield on deposits with banks was 5.39% in the current quarter, compared to 5.14% in the prior quarter.
Interest expense increased $13.5 million, mostly due to higher average balances and rates paid on deposits, partly offset by lower average borrowings. The average rate paid on interest bearing deposits totaled 1.76% in the current quarter compared to 1.29% in the prior quarter. Interest expense on deposits increased $23.6 million this quarter compared to the previous quarter. Interest expense on borrowings decreased $10.1 million, mostly due to a decline in average FHLB borrowings of $931.7 million. The overall rate paid on interest bearing liabilities was 2.12% in the current quarter compared to 1.87% in the prior quarter.
9
Exhibit 99.1
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2023
Non-Interest Income
In the 3rd quarter of 2023, total non-interest income amounted to $142.9 million, an increase of $4.4 million compared to the same period last year and a decrease of $4.7 million compared to the prior quarter. The increase in non-interest income compared to the same period last year was mainly due to higher trust and bank card fees, partly offset by lower deposit fees, brokerage fees, and capital market fees. The decrease in non-interest income compared to the prior quarter was mainly due to lower bank card fees, letter of credit fees, and swap fees, partly offset by higher trust fees and tax credit fees. Additionally, a decrease of $1.5 million in fair value adjustments was recorded on the Company’s deferred compensation plan assets, which are held in a trust and recorded as both and asset and liability, affecting both other income and other expense.
Total net bank card fees in the current quarter increased $1.3 million, or 2.8%, compared to the same period last year, and decreased $2.8 million compared to the prior quarter. Net corporate card fees increased $220 thousand, or .8%, over the same quarter of last year mainly due to lower network expense and rewards expense, mostly offset by lower interchange fee income. Net debit card fees increased $581 thousand, or 5.5%, and net merchant fees increased $627 thousand, or 12.0%, due to higher interchange fees, while net credit card fees decreased $167 thousand, or 4.6%. Total net bank card fees this quarter were comprised of fees on corporate card ($26.5 million), debit card ($11.1 million), merchant ($5.9 million) and credit card ($3.4 million) transactions.
In the current quarter, trust fees increased $3.8 million, or 8.4%, 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 $1.4 million, or 5.8%, due to lower overdraft and return item fees of $3.0 million, partly offset by higher corporate cash management fees of $1.6 million.
Other non-interest income increased over the same period last year primarily due to higher bond underwriting fees of $942 thousand and gains on the sale of real estate in the current quarter of $1.3 million. For the 3rd quarter of 2023, non-interest income comprised 36.5% of the Company’s total revenue.
Investment Securities Gains and Losses
The Company recorded net securities gains of $4.3 million in the current quarter, compared to gains of $3.4 million in both the prior quarter and the 3rd quarter of 2022. Net securities gains in the current quarter primarily resulted from net fair value gains of $5.6 million and an $847 thousand loss on the sale of an investment in the Company’s private equity portfolio.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $228.0 million, compared to $212.9 million in the same period last year and $227.6 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, data processing and software expense, FDIC insurance expense, and occupancy expense. The increase in non-interest expense compared to the prior quarter was mainly due to higher salaries expense, data processing and software expense, and miscellaneous losses, partly offset by lower deconversion expense and the $1.5 million decrease in the deferred compensation adjustment previously mentioned.
Compared to the 3rd quarter of last year, salaries and employee benefits expense increased $9.4 million, mostly due to higher full-time salaries expense of $6.4 million, or 6.9%, and higher medical expense of $2.0 million. Full-time equivalent employees totaled 4,714 and 4,595 at September 30, 2023 and 2022, respectively.
Compared to the same period last year, data processing and software expense increased $2.7 million due to higher bank card fees expense and increased costs for service providers. Occupancy expense increased $1.4 million mostly due to higher depreciation and real estate taxes, partly offset by higher external rent income. Other non-interest expense increased $1.6 million, mostly due to growth in FDIC insurance and lower deferred loan origination costs of $1.3 million and $982 thousand, respectively.
Income Taxes
The effective tax rate for the Company was 21.7% in the current quarter, 22.0% in the previous quarter, and 21.7% in the 3rd quarter of 2022.
Credit Quality
Net loan charge-offs in the 3rd quarter of 2023 amounted to $9.8 million, compared to $6.5 million in the prior quarter and $4.8 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .23% in the current quarter, .16% in the previous quarter, and .12% in the 3rd quarter of last year. Compared to the prior quarter, net loan charge-offs on commercial loans increased $2.6 million to $2.6 million, while net loan charge-offs on personal banking loans increased $735 thousand to $7.2 million, mainly due to higher consumer loan net charge-offs.
In the 3rd quarter of 2023, annualized net loan charge-offs on average consumer credit card loans were 3.32%, compared to 3.38% in the previous quarter, and 2.08% in the same quarter last year. Consumer loan net charge-offs were .34% of average consumer loans in the current quarter, .24% in the prior quarter, and .16% in the same quarter last year.
10
Exhibit 99.1
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2023
At September 30, 2023, the allowance for credit losses on loans totaled $162.2 million, or .95% of total loans, and increased $3.6 million compared to the prior quarter. Additionally, the liability for unfunded lending commitments at September 30, 2023 was $27.5 million, a decrease of $1.7 million compared to the liability at June 30, 2023.
At September 30, 2023, total non-accrual loans amounted to $8.2 million, an increase of $2.0 compared to the previous quarter. At September 30, 2023, the balance of non-accrual loans, which represented .05% of loans outstanding, included business loans of $6.6 million, personal real estate loans of $1.5 million, and business real estate loans of $76 thousand. Loans more than 90 days past due and still accruing interest totaled $18.6 million at September 30, 2023.
Liquidity
During the 3rd quarter of 2023, the Company reduced its deposit balance at the Federal Reserve Bank (FRB) by $721.1 million to $1.8 billion. The change in the balance at the FRB was mostly the result of a $779.0 million decrease in total deposits, including a $502.6 million decrease in brokered certificates of deposit, a $500.0 million decrease in FHLB advances, and a $172.8 million increase in loan balances, partly offset by $369.5 million of maturities and paydowns in the available for sale debt securities portfolio, and $375.0 million of maturities in securities purchased under agreements to resell.
The Company regularly pledges loans and securities to the FRB and at both September 30, 2023 and June 30, 2023, the Company’s pledging resulted in a total borrowing capacity of $5.0 billion. 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 3rd quarter of 2023, the Company reduced its outstanding borrowings from the FHLB by $500.0 million to $500.0 million and had $1.6 billion of available borrowing capacity at September 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 $9.9 billion at September 30, 2023. Approximately $2.1 billion is expected to mature or pay down over the next 12 months. At September 30, 2023, the Company had pledged $6.9 billion of the securities portfolio. The Company also has a portfolio of $450.0 million in securities purchased under agreements to resell, of which $325.0 million are expected to mature over the next 12 months.
Other
During the 3rd 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 388,304 shares of treasury stock during the current quarter at an average price of $50.96.
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.
