1000 Walnut Street / Suite 700 / Kansas City, Missouri 64106 / 816.234.2000
FOR IMMEDIATE RELEASE:
Thursday, January 19, 2023
COMMERCE BANCSHARES, INC. REPORTS
FOURTH QUARTER EARNINGS PER SHARE OF $1.04
Commerce Bancshares, Inc. announced earnings of $1.04 per share for the three months ended December 31, 2022, compared to $.90 per share in the same quarter last year and $.97 per share in the third quarter of 2022. Net income for the fourth quarter of 2022 amounted to $131.6 million, compared to $114.9 million in the fourth quarter of 2021 and $122.8 million in the prior quarter.
“The company delivered strong results in the fourth quarter,” said John Kemper, President and Chief Executive Officer. “Loan growth, margin expansion, and resilient fee-based income all contributed to record quarterly revenue. Taking stock of where we are and looking ahead into 2023, the strength of our deposit franchise and our long-term, conservative and disciplined approach to credit and capital management position us well in an uncertain environment.
“Our results would not be possible without our talented team members and their unwavering commitment to our purpose and culture. Our results are a reflection of the way our team works collaboratively, communicates, and strives toward the shared goal of helping our customers focus on what matters most.”
Fourth Quarter 2022 Financial Highlights:
•Net interest income was $254.6 million, an $8.3 million increase over the prior quarter. The net yield on interest earning assets increased 17 basis points to 3.18%.
•Non-interest income totaled $136.8 million, a decrease of $1.7 million compared to the prior quarter.
•Non-interest expense totaled $216.7 million, an increase of $3.9 million compared to the prior quarter.
•Average loan balances totaled $15.9 billion, an increase of $239.0 million, or 1.5%, over the prior quarter.
•Total average available for sale debt securities decreased 7.9%, or $1.1 billion, from the prior quarter to $12.4 billion, at fair value. Purchases of securities during the quarter totaled $145.3 million, with a weighted average yield of approximately 5.05%.
•Average deposits declined $1.1 billion, or 4.1%, from the prior quarter. The average rate paid on interest bearing deposits was .40%.
•The ratio of annualized net loan charge-offs to average loans was .14% compared to .12% in the prior quarter.
1
Exhibit 99.1
•Non-accrual loans totaled $8.3 million compared to $7.2 million in the prior quarter. Non-accrual loans were .05% of total loans.
•The allowance for credit losses on loans increased $6.8 million during the fourth quarter to $150.1 million, and at December 31, 2022, the ratio of the allowance for credit losses on loans to total loans was .92%, compared to .90% at September 30, 2022.
•The Company purchased 332,178 shares of its common stock this quarter at an average price of $70.15.
•Total assets at December 31, 2022 were $31.9 billion, a decrease of $726.7 million, or 2.2%, from the prior quarter.
•For the quarter, the return on average assets was 1.65%, the return on average equity was 21.88%, and the efficiency ratio was 55.3%.
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 almost 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 Year Ended
(Unaudited) (Dollars in thousands, except per share data)
Dec. 31, 2022
Sep. 30, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
FINANCIAL SUMMARY
Net interest income
$254,641
$246,373
$207,657
$942,185
$835,424
Non-interest income
136,825
138,514
147,699
546,535
560,393
Total revenue
391,466
384,887
355,356
1,488,720
1,395,817
Investment securities gains (losses)
8,904
3,410
(9,706)
20,506
30,059
Provision for credit losses
15,477
15,290
(7,054)
28,071
(66,326)
Non-interest expense
216,740
212,884
203,582
848,777
805,901
Income before taxes
168,153
160,123
149,122
632,378
686,301
Income taxes
34,499
33,936
33,764
132,358
145,711
Non-controlling interest expense
2,026
3,364
452
11,621
9,825
Net income attributable to Commerce Bancshares, Inc.
$131,628
$122,823
$114,906
$488,399
$530,765
Earnings per common share:
Net income — basic
$1.05
$0.97
$0.90
$3.86
$4.12
Net income — diluted
$1.04
$0.97
$0.90
$3.85
$4.11
Effective tax rate
20.77
%
21.65
%
22.71
%
21.32
%
21.54
%
Fully-taxable equivalent net interest income
$256,675
$248,737
$210,424
$951,815
$847,116
Average total interest earning assets (1)
$31,991,224
$32,807,393
$34,318,520
$
33,384,162
$32,874,701
Diluted wtd. average shares outstanding
124,589,323
125,116,585
127,282,556
125,560,387
128,038,042
RATIOS
Average loans to deposits (2)
59.73
%
56.40
%
52.36
%
55.41
%
56.46
%
Return on total average assets
1.65
1.48
1.28
1.45
1.55
Return on average equity (3)
21.88
17.84
13.11
17.31
15.37
Non-interest income to total revenue
34.95
35.99
41.56
36.71
40.15
Efficiency ratio (4)
55.26
55.19
57.29
56.90
57.64
Net yield on interest earning assets
3.18
3.01
2.43
2.85
2.58
EQUITY SUMMARY
Cash dividends per share
$.252
$.252
$.238
$1.010
$.952
Cash dividends on common stock
$31,648
$31,740
$30,489
$127,466
$122,693
Book value per share (5)
$19.85
$18.91
$27.05
Market value per share (5)
$68.07
$63.01
$65.47
High market value per share
$72.60
$70.45
$68.10
Low market value per share
$63.17
$61.14
$61.76
Common shares outstanding (5)
124,999,100
125,329,198
127,508,571
Tangible common equity to tangible assets (6)
7.32
%
6.80
%
9.01
%
Tier I leverage ratio
10.34
%
9.87
%
9.13
%
OTHER QTD INFORMATION
Number of bank/ATM locations
275
277
287
Full-time equivalent employees
4,594
4,595
4,567
(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 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 Year Ended
Dec. 31, 2022
Sep. 30, 2022
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
Interest income
$286,377
$262,666
$238,154
$211,782
$210,479
$998,979
$848,290
Interest expense
31,736
16,293
5,769
2,996
2,822
56,794
12,866
Net interest income
254,641
246,373
232,385
208,786
207,657
942,185
835,424
Provision for credit losses
15,477
15,290
7,162
(9,858)
(7,054)
28,071
(66,326)
Net interest income after credit losses
239,164
231,083
225,223
218,644
214,711
914,114
901,750
NON-INTEREST INCOME
Trust fees
44,710
45,406
46,792
47,811
48,893
184,719
188,227
Bank card transaction fees
44,588
45,638
43,873
42,045
44,773
176,144
167,891
Deposit account charges and other fees
21,989
24,521
25,564
22,307
25,493
94,381
97,217
Consumer brokerage services
4,518
5,085
5,068
4,446
4,878
19,117
18,362
Capital market fees
3,386
3,393
3,327
4,125
3,841
14,231
15,943
Loan fees and sales
2,566
3,094
3,246
4,235
5,248
13,141
29,720
Other
15,068
11,377
11,557
6,800
14,573
44,802
43,033
Total non-interest income
136,825
138,514
139,427
131,769
147,699
546,535
560,393
INVESTMENT SECURITIES GAINS (LOSSES), NET
8,904
3,410
1,029
7,163
(9,706)
20,506
30,059
NON-INTEREST EXPENSE
Salaries and employee benefits
138,458
137,393
142,243
135,953
132,640
554,047
525,248
Data processing and software
27,991
28,050
27,635
27,016
25,777
110,692
101,792
Net occupancy
11,774
12,544
12,503
12,296
12,308
49,117
48,185
Equipment
5,021
5,036
4,734
4,568
4,691
19,359
18,089
Supplies and communication
4,446
4,581
4,361
4,713
4,430
18,101
17,118
Marketing
5,419
6,228
5,836
6,344
5,395
23,827
21,856
Other
23,631
19,052
16,193
14,758
18,341
73,634
73,613
Total non-interest expense
216,740
212,884
213,505
205,648
203,582
848,777
805,901
Income before income taxes
168,153
160,123
152,174
151,928
149,122
632,378
686,301
Less income taxes
34,499
33,936
32,021
31,902
33,764
132,358
145,711
Net income
133,654
126,187
120,153
120,026
115,358
500,020
540,590
Less non-controlling interest expense
2,026
3,364
4,359
1,872
452
11,621
9,825
Net income attributable to Commerce Bancshares, Inc.
$131,628
$122,823
$115,794
$118,154
$114,906
$488,399
$530,765
Net income per common share — basic
$1.05
$0.97
$0.92
$0.92
$0.90
$3.86
$4.12
Net income per common share — diluted
$1.04
$0.97
$0.92
$0.92
$0.90
$3.85
$4.11
OTHER INFORMATION
Return on total average assets
1.65
%
1.48
%
1.36
%
1.33
%
1.28
%
1.45
%
1.55
%
Return on average equity (1)
21.88
17.84
16.29
14.41
13.11
17.31
15.37
Efficiency ratio (2)
55.26
55.19
57.29
60.29
57.29
56.90
57.64
Effective tax rate
20.77
21.65
21.66
21.26
22.71
21.32
21.54
Net yield on interest earning assets
3.18
3.01
2.79
2.45
2.43
2.85
2.58
Fully-taxable equivalent net interest income
$256,675
$248,737
$235,010
$211,393
$210,424
$951,815
$847,116
(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)
Dec. 31, 2022
Sep. 30, 2022
Dec. 31, 2021
ASSETS
Loans
Business
$
5,661,725
$
5,528,895
$
5,303,535
Real estate — construction and land
1,361,095
1,206,955
1,118,266
Real estate — business
3,406,981
3,331,627
3,058,837
Real estate — personal
2,918,078
2,862,519
2,805,401
Consumer
2,059,088
2,116,371
2,032,225
Revolving home equity
297,207
286,026
275,945
Consumer credit card
584,000
563,349
575,410
Overdrafts
14,957
3,216
6,740
Total loans
16,303,131
15,898,958
15,176,359
Allowance for credit losses on loans
(150,136)
(143,377)
(150,044)
Net loans
16,152,995
15,755,581
15,026,315
Loans held for sale
4,964
8,062
8,615
Investment securities:
Available for sale debt securities
12,238,316
12,632,510
14,450,027
Trading debt securities
43,523
39,222
46,235
Equity securities
12,304
8,954
9,202
Other securities
225,034
222,742
194,047
Total investment securities
12,519,177
12,903,428
14,699,511
Federal funds sold
49,505
14,020
2,800
Securities purchased under agreements to resell
825,000
1,275,000
1,625,000
Interest earning deposits with banks
389,140
642,943
3,971,217
Cash and due from banks
452,496
344,178
305,539
Premises and equipment — net
418,909
407,833
388,738
Goodwill
138,921
138,921
138,921
Other intangible assets — net
15,234
15,599
15,570
Other assets
909,590
1,097,031
506,862
Total assets
$
31,875,931
$
32,602,596
$
36,689,088
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing
$
10,066,356
$
10,468,591
$
11,772,374
Savings, interest checking and money market
15,126,981
16,014,487
16,598,085
Certificates of deposit of less than $100,000
387,336
391,145
435,960
Certificates of deposit of $100,000 and over
606,767
597,093
1,006,654
Total deposits
26,187,440
27,471,316
29,813,073
Federal funds purchased and securities sold under agreements to repurchase
2,841,734
2,314,590
3,022,967
Other borrowings
9,672
1,831
12,560
Other liabilities
355,508
443,752
392,164
Total liabilities
29,394,354
30,231,489
33,240,764
Stockholders’ equity:
Common stock
629,319
610,804
610,804
Capital surplus
2,932,959
2,683,631
2,689,894
Retained earnings
31,620
353,446
92,493
Treasury stock
(41,743)
(176,943)
(32,973)
Accumulated other comprehensive income
(1,086,864)
(1,119,344)
77,080
Total stockholders’ equity
2,465,291
2,351,594
3,437,298
Non-controlling interest
16,286
19,513
11,026
Total equity
2,481,577
2,371,107
3,448,324
Total liabilities and equity
$
31,875,931
$
32,602,596
$
36,689,088
5
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS
(Unaudited) (In thousands)
For the Three Months Ended
Dec. 31, 2022
Sep. 30, 2022
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
ASSETS:
Loans:
Business
$
5,478,241
$
5,317,696
$
5,385,181
$
5,324,172
$
5,191,844
Real estate — construction and land
1,268,900
1,288,721
1,225,267
1,134,902
1,228,237
Real estate — business
3,300,697
3,258,128
3,163,508
3,095,068
3,003,459
Real estate — personal
2,886,686
2,844,376
2,825,578
2,808,980
2,785,095
Consumer
2,089,912
2,101,622
2,070,560
2,040,200
2,043,690
Revolving home equity
293,681
280,923
272,280
273,859
276,464
Consumer credit card
559,463
550,058
537,681
540,844
559,429
Overdrafts
7,428
4,438
5,524
5,178
4,926
Total loans
15,885,008
15,645,962
15,485,579
15,223,203
15,093,144
Allowance for credit losses on loans
(143,285)
(137,833)
(134,670)
(149,685)
(162,428)
Net loans
15,741,723
15,508,129
15,350,909
15,073,518
14,930,716
Loans held for sale
6,567
7,170
7,933
9,383
11,203
Investment securities:
U.S. government and federal agency obligations
1,055,602
1,113,442
1,119,305
1,103,749
1,009,025
Government-sponsored enterprise obligations
55,732
55,753
55,762
51,770
50,777
State and municipal obligations
1,990,643
2,052,908
2,126,380
2,077,600
2,095,517
Mortgage-backed securities
6,605,936
6,847,912
7,158,252
7,316,609
7,141,249
Asset-backed securities
3,714,092
3,870,953
4,038,113
3,933,061
3,514,541
Other debt securities
560,951
587,026
643,463
636,247
629,643
Unrealized gain (loss) on debt securities
(1,582,061)
(1,064,534)
(851,110)
(174,297)
86,020
Total available for sale debt securities
12,400,895
13,463,460
14,290,165
14,944,739
14,526,772
Trading debt securities
44,626
35,621
43,904
40,686
46,513
Equity securities
10,534
8,838
9,094
9,498
9,171
Other securities
219,354
208,708
195,090
192,311
190,346
Total investment securities
12,675,409
13,716,627
14,538,253
15,187,234
14,772,802
Federal funds sold
27,683
13,486
4,269
1,053
564
Securities purchased under agreements to resell
1,174,457
1,379,341
1,703,569
1,733,887
1,669,835
Interest earning deposits with banks
640,039
980,273
1,248,942
2,608,029
2,856,992
Other assets
1,339,554
1,256,498
1,238,493
1,304,400
1,288,323
Total assets
$
31,605,432
$
32,861,524
$
34,092,368
$
35,917,504
$
35,530,435
LIABILITIES AND EQUITY:
Non-interest bearing deposits
$
10,360,834
$
10,758,353
$
11,209,680
$
11,544,701
$
11,919,268
Savings
1,567,113
1,595,857
1,609,694
1,563,093
1,507,199
Interest checking and money market
13,693,974
14,423,713
14,847,306
14,949,727
13,873,985
Certificates of deposit of less than $100,000
388,304
397,071
411,655
429,852
441,920
Certificates of deposit of $100,000 and over
596,703
578,158
648,728
862,232
1,105,480
Total deposits
26,606,928
27,753,152
28,727,063
29,349,605
28,847,852
Borrowings:
Federal funds purchased
143,630
51,929
113,128
23,356
20,848
Securities sold under agreements to repurchase
2,260,263
2,199,866
2,258,184
2,712,468
2,620,348
Other borrowings
179,552
2,010
2,029
768
1,078
Total borrowings
2,583,445
2,253,805
2,373,341
2,736,592
2,642,274
Other liabilities
28,745
123,691
139,986
505,644
562,102
Total liabilities
29,219,118
30,130,648
31,240,390
32,591,841
32,052,228
Equity
2,386,314
2,730,876
2,851,978
3,325,663
3,478,207
Total liabilities and equity
$
31,605,432
$
32,861,524
$
34,092,368
$
35,917,504
$
35,530,435
6
Exhibit 99.1
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE RATES
(Unaudited)
For the Three Months Ended
Dec. 31, 2022
Sep. 30, 2022
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
ASSETS:
Loans:
Business (1)
4.68
%
3.94
%
3.16
%
2.93
%
3.16
%
Real estate — construction and land
6.80
5.27
4.09
3.76
3.61
Real estate — business
5.15
4.40
3.70
3.38
3.41
Real estate — personal
3.45
3.36
3.27
3.28
3.21
Consumer
4.77
4.17
3.62
3.59
3.65
Revolving home equity
5.89
4.82
3.69
3.48
3.47
Consumer credit card
12.64
12.05
11.32
11.35
11.06
Overdrafts
—
—
—
—
—
Total loans
5.03
4.37
3.72
3.54
3.62
Loans held for sale
10.09
8.80
8.14
6.48
5.10
Investment securities:
U.S. government and federal agency obligations
2.01
4.51
4.93
3.42
3.11
Government-sponsored enterprise obligations
2.36
2.36
2.39
2.33
2.30
State and municipal obligations (1)
2.29
2.27
2.30
2.29
2.26
Mortgage-backed securities
1.88
1.93
1.99
1.98
1.40
Asset-backed securities
1.96
1.62
1.35
1.13
1.03
Other debt securities
1.89
1.93
1.97
2.00
2.07
Total available for sale debt securities
1.97
2.09
2.08
1.91
1.59
Trading debt securities (1)
3.81
2.74
2.46
1.84
1.54
Equity securities (1)
28.44
27.11
26.90
26.00
27.64
Other securities (1)
6.67
7.09
22.38
5.91
18.39
Total investment securities
2.07
2.18
2.36
1.97
1.82
Federal funds sold
4.27
2.77
1.79
.39
.70
Securities purchased under agreements to resell
2.36
1.72
1.03
1.24
1.62
Interest earning deposits with banks
3.69
2.25
.78
.18
.15
Total interest earning assets
3.59
3.21
2.86
2.49
2.47
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings
.06
.04
.04
.05
.08
Interest checking and money market
.38
.20
.06
.04
.04
Certificates of deposit of less than $100,000
.73
.41
.20
.13
.14
Certificates of deposit of $100,000 and over
1.42
.60
.29
.20
.14
Total interest bearing deposits
.40
.21
.07
.05
.05
Borrowings:
Federal funds purchased
3.56
2.41
.79
.12
.11
Securities sold under agreements to repurchase
2.29
1.37
.48
.10
.08
Other borrowings
4.02
1.78
2.37
.53
—
Total borrowings
2.48
1.39
.50
.10
.08
Total interest bearing liabilities
.69
%
.34
%
.12
%
.06
%
.06
%
Net yield on interest earning assets
3.18
%
3.01
%
2.79
%
2.45
%
2.43
%
(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 Year Ended
(Unaudited) (In thousands, except ratios)
Dec. 31, 2022
Sep. 30, 2022
Jun. 30, 2022
Mar. 31, 2022
Dec. 31, 2021
Dec. 31, 2022
Dec. 31, 2021
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period
$143,377
$138,039
$134,710
$150,044
$162,775
$150,044
$220,834
Provision for credit losses on loans
12,404
10,150
7,287
(10,686)
(8,474)
19,155
(52,223)
Net charge-offs (recoveries):
Commercial portfolio:
Business
496
461
19
77
90
1,053
(4,758)
Real estate — construction and land
—
—
—
—
—
—
1
Real estate — business
(4)
(8)
(1)
(7)
6
(20)
(64)
492
453
18
70
96
1,033
(4,821)
Personal banking portfolio:
Consumer credit card
3,467
2,882
2,937
3,372
2,964
12,658
20,008
Consumer
1,522
827
633
808
919
3,790
2,556
Overdraft
230
703
425
358
375
1,716
919
Real estate — personal
(40)
(15)
(41)
22
(71)
(74)
(98)
Revolving home equity
(26)
(38)
(14)
18
(26)
(60)
3
5,153
4,359
3,940
4,578
4,161
18,030
23,388
Total net loan charge-offs
5,645
4,812
3,958
4,648
4,257
19,063
18,567
Balance at end of period
$150,136
$143,377
$138,039
$134,710
$150,044
$150,136
$150,044
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
$33,120
$30,047
$24,907
$25,032
$24,204
NET CHARGE-OFF RATIOS (1)
Commercial portfolio:
Business
.04
%
.03
%
—
%
.01
%
.01
%
.02
%
(.08
%)
Real estate — construction and land
—
—
—
—
—
—
—
Real estate — business
—
—
—
—
—
—
—
.02
.02
—
—
—
.01
(.05)
Personal banking portfolio:
Consumer credit card
2.46
2.08
2.19
2.53
2.10
2.31
3.47
Consumer
.29
.16
.12
.16
.18
.18
.13
Overdraft
12.28
62.85
30.86
28.04
30.20
30.40
21.20
Real estate — personal
(.01)
—
(.01)
—
(.01)
—
—
Revolving home equity
(.04)
(.05)
(.02)
.03
(.04)
(.02)
—
.35
.30
.28
.33
.29
.31
.41
Total
.14
%
.12
%
.10
%
.12
%
.11
%
.12
%
.12
%
CREDIT QUALITY RATIOS
Non-accrual loans to total loans
.05
%
.05
%
.05
%
.05
%
.06
%
Allowance for credit losses on loans to total loans
.92
.90
.88
.87
.99
NON-ACCRUAL AND PAST DUE LOANS
Non-accrual loans:
Business
$6,751
$5,645
$6,314
$6,756
$7,312
Real estate — construction and land
—
—
—
—
—
Real estate — business
189
149
167
190
214
Real estate — personal
1,366
1,390
1,436
1,389
1,631
Total
8,306
7,184
7,917
8,335
9,157
Loans past due 90 days and still accruing interest
$15,830
$12,538
$11,909
$10,670
$11,726
(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 Fourth Quarter Results
December 31, 2022
For the quarter ended December 31, 2022, net income amounted to $131.6 million, compared to $122.8 million in the previous quarter and $114.9 million in the same quarter last year. The increase in net income compared to the previous quarter was primarily the result of increases in net interest income and investment securities gains, partly offset by lower non-interest income and higher non-interest expense. The net yield on interest earning assets grew 17 basis points to 3.18%. Average loans grew $239.0 million compared to the previous quarter, while average available for sale debt securities and average deposits each declined $1.1 billion. For the quarter, the return on average assets was 1.65%, the return on average equity was 21.88%, and the efficiency ratio was 55.3%.
Balance Sheet Review
During the 4th quarter of 2022, average loans totaled $15.9 billion, an increase of $239.0 million over the prior quarter, and $791.9 million, or 5.3%, over the same quarter last year. Compared to the previous quarter, average balances of business, business real estate, and personal real estate loans grew $160.5 million, $42.6 million, and $42.3 million, respectively. Period end loans increased $404.2 million compared to the prior quarter. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $2.4 million, compared to $16.7 million in the prior quarter.
Total average available for sale debt securities decreased $1.1 billion compared to the previous quarter to $12.4 billion, at fair value. The decrease in investment securities was mainly the result of lower balances of mortgage-backed and other asset-backed securities. During the current quarter, purchases of securities totaled $145.3 million with a weighted average yield of approximately 5.05%. Maturities and pay downs were $573.2 million. At December 31, 2022, the duration of the investment portfolio was 3.7 years, and maturities and pay downs of approximately $2.4 billion are expected to occur during the next 12 months.
Total average deposits decreased $1.1 billion 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 $397.5 million and $729.7 million, respectively. Compared to the previous quarter, total average commercial, consumer, and wealth deposits declined $554.3 million, $426.7 million, and $162.0 million, respectively. The average loans to deposits ratio was 59.7% in the current quarter and 56.4% in the prior quarter. The Company’s average borrowings, which include customer repurchase agreements, were $2.6 billion in the 4th quarter of 2022 and $2.3 billion in the prior quarter.
Net Interest Income
Net interest income in the 4th quarter of 2022 amounted to $254.6 million, an increase of $8.3 million compared to the previous quarter. On a fully taxable-equivalent (FTE) basis, net interest income for the current quarter increased $7.9 million over the previous quarter to $256.7 million. The increase in net interest income was due to higher interest earned on loans, partly offset by lower interest earned on investment securities and higher interest expense. The net yield (FTE) on earning assets increased to 3.18%, compared to 3.01% in the prior quarter.
Compared to the previous quarter, interest income on loans (FTE) increased $29.2 million, mostly due to higher average rates on business, business real estate, construction, and consumer loans. The average yield (FTE) on the loan portfolio increased 66 basis points to 5.03% this quarter.
Interest income on investment securities (FTE) decreased $7.0 million compared to the prior quarter, due to lower rates earned, coupled with 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 $6.9 million in lower inflation income from Treasury inflation-protected securities this quarter. At December 31, 2022, the Company recorded a $1.1 million adjustment to premium amortization, which decreased interest income to reflect faster forward prepayment speed estimates on mortgage-backed securities. The average yield (FTE) on total investment securities was 2.07% in the current quarter, compared to 2.18% in the previous quarter.
The average rate paid on interest bearing deposits totaled .40% in the current quarter compared to .21% in the prior quarter. Interest expense on deposits increased $7.5 million this quarter compared to the previous quarter, while interest expense on securities sold under agreements to repurchase increased $5.5 million, due to a 92 basis point increase in the average rate paid. The overall rate paid on interest bearing liabilities was .69% in the current quarter compared to .34% in the prior quarter.
Non-Interest Income
In the 4th quarter of 2022, total non-interest income amounted to $136.8 million, a decrease of $10.9 million compared to the same period last year and decreased $1.7 million compared to the prior quarter. The decrease in non-interest income compared to the same period last year was mainly due to lower trust fees, deposit account fees, and loan fees and sales, partly offset by higher sweep fees. The decrease in non-interest income compared to the prior quarter was mainly due to lower deposit account fees and bank card fees. These decreases were partly offset by a $2.5 million increase in fair value adjustments on the Company’s deferred compensation plan assets, which are held in a trust
9
COMMERCE BANCSHARES, INC.
Management Discussion of Fourth Quarter Results
December 31, 2022
and recorded as both an asset and liability, affecting both other income and other expense.
Total net bank card fees in the current quarter decreased $185 thousand, or .4%, compared to the same period last year, and decreased $1.1 million compared to the prior quarter. Net corporate card fees increased $269 thousand, or 1.1%, over the same quarter of last year mainly due to higher interchange fee income, partly offset by higher rewards expense. Net debit card fees decreased $361 thousand, or 3.4%, and net credit card fees decreased $226 thousand, or 6.0%, while net merchant fees increased $133 thousand, or 2.5%. Total net bank card fees this quarter were comprised of fees on corporate card ($25.2 million), debit card ($10.4 million), merchant ($5.5 million) and credit card ($3.5 million) transactions.
In the current quarter, trust fees decreased $4.2 million, or 8.6%, from the same period last year, resulting from lower private client and institutional trust fees. Compared to the same period last year, deposit account fees decreased $3.5 million, or 13.7%, mainly due to lower overdraft and return item fees of $4.1 million. In September 2022, enhancements were made to consumer checking accounts that eliminated return item fees and lowered overdraft fees. Loan fees and sales declined $2.7 million, or 51.1%, compared to amounts recorded in the same quarter last year, mostly due to lower mortgage banking revenue.
Other non-interest income increased over the same period last year primarily due to higher sweep fees of $3.0 million, partly offset by lower gains on asset sales of $2.3 million. A $1.0 million gain on the sale of real estate was recorded this quarter, but it was lower than the $3.7 million gain on the sale of real estate recorded in the 4th quarter of 2021. For the 4th quarter of 2022, non-interest income comprised 35.0% of the Company’s total revenue.
Investment Securities Gains and Losses
The Company recorded net securities gains of $8.9 million in the current quarter, compared to gains of $3.4 million in the prior quarter and losses of $9.7 million in the 4th quarter of 2021. In the current quarter, the Company's private equity investment portfolio had net fair value gains and a gain on the sale of an investment of $6.7 million and $1.6 million, respectively.
Non-Interest Expense
Non-interest expense for the current quarter amounted to $216.7 million, compared to $203.6 million in the same period last year and $212.9 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, miscellaneous losses, and travel and entertainment expense. The increase in non-interest expense
compared to the prior quarter was mainly due to higher salaries and employee benefits expense, legal and professional fees expense, and the deferred compensation adjustment mentioned above, partly offset by lower marketing and occupancy expense.
Compared to the 4th quarter of last year, salaries and employee benefits expense increased $5.8 million, mostly due to higher full-time salaries expense, of $4.1 million, or 4.7%, and higher employee benefits expense of $1.3 million. Full-time equivalent employees totaled 4,594 and 4,567 at December 31, 2022 and 2021, respectively.
Compared to the same period last year, data processing and software expense increased $2.2 million due to higher software expense, bank card processing fees and increased costs for service providers. Other non-interest expense increased $5.3 million, mostly due to increases in miscellaneous losses, travel and entertainment, insurance, and professional fees expense of $1.6 million, $1.2 million, $742 thousand, and $507 thousand, respectively.
Income Taxes
The effective tax rate for the Company was 20.8% in the current quarter, 21.6% in the previous quarter, and 22.7% in the 4th quarter of 2021.
Credit Quality
Net loan charge-offs in the 4th quarter of 2022 amounted to $5.6 million, compared to $4.8 million in the prior quarter and $4.3 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .14% in the current quarter, .12% in the previous quarter, and .11% in the 4th quarter of last year. Net loan charge-offs on personal banking loans increased $794 thousand to $5.2 million, mainly due to higher consumer and consumer credit card loan net charge-offs.
In the 4th quarter of 2022, annualized net loan charge-offs on average consumer credit card loans were 2.46%, compared to 2.08% in the previous quarter, and 2.10% in the same quarter last year. Consumer loan net charge-offs were .29% of average consumer loans in the current quarter, .16% in the prior quarter, and .18% in the same quarter last year.
At December 31, 2022, the allowance for credit losses on loans totaled $150.1 million, or .92% of total loans, and increased $6.8 million compared to the prior quarter. Additionally, the liability for unfunded lending commitments at December 31, 2022 was $33.1 million, an increase of $3.1 million compared to the liability at September 30, 2022.
At December 31, 2022, total non-accrual loans amounted to $8.3 million, an increase of $1.1 million over the previous quarter. At December 31, 2022, the balance of non-accrual loans, which represented .05% of loans outstanding, included
10
COMMERCE BANCSHARES, INC.
Management Discussion of Fourth Quarter Results
December 31, 2022
business loans of $6.8 million, personal real estate loans of $1.4 million, and business real estate loans of $189 thousand. Loans more than 90 days past due and still accruing interest totaled $15.8 million at December 31, 2022.
Other
During the 4th quarter of 2022, the Company distributed a 5% stock dividend on its common stock and paid a cash dividend of $.25 per common share (as restated for the stock dividend), representing a 6.0% increase over the same period last year. The Company purchased 332,178 shares of treasury stock during the current quarter at an average price of $70.15.
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.
