Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil EL&P Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries Commerce Bancshares, Inc. Reports Third Quarter Earnings Per Share of $.96 By: Commerce Bancshares, Inc. via Business Wire October 18, 2023 at 06:00 AM EDT 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. 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. 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. 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. 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 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 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%. 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). 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. 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. 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. View source version on businesswire.com: https://www.businesswire.com/news/home/20231017592861/en/Contacts Matt Burkemper, Investor Relations (314) 746-7485 www.commercebank.com matthew.burkemper@commercebank.com Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
Commerce Bancshares, Inc. Reports Third Quarter Earnings Per Share of $.96 By: Commerce Bancshares, Inc. via Business Wire October 18, 2023 at 06:00 AM EDT 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. 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. 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. 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. 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 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 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%. 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). 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. 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. 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. View source version on businesswire.com: https://www.businesswire.com/news/home/20231017592861/en/Contacts Matt Burkemper, Investor Relations (314) 746-7485 www.commercebank.com matthew.burkemper@commercebank.com
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. 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. 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. 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. 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 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 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%. 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). 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. 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. 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. View source version on businesswire.com: https://www.businesswire.com/news/home/20231017592861/en/
Matt Burkemper, Investor Relations (314) 746-7485 www.commercebank.com matthew.burkemper@commercebank.com