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Commerce Bancshares, Inc. Reports First Quarter Earnings Per Share of $.86

Commerce Bancshares, Inc. announced earnings of $.86 per share for the three months ended March 31, 2024, compared to $.91 per share in the same quarter last year and $.84 per share in the fourth quarter of 2023. Net income for the first quarter of 2024 amounted to $112.7 million, compared to $119.5 million in the first quarter of 2023 and $109.2 million in the prior quarter.

“Commerce delivered a strong financial performance for the first quarter,” said John Kemper, President and Chief Executive Officer. “Our results are a reflection of fundamental strength and a diversified business model, and evidence of our ability to perform well through economic cycles.

“Although interest rates continue to be elevated and put downward pressure on bank balance sheets, Commerce's net interest income grew slightly over the previous quarter and our net interest margin expanded 16 basis points. Interest-bearing deposit costs increased just four basis points over the previous quarter, a product of our high-quality deposit franchise. Non-interest income comprised 37.4% of total revenue.

"Our liquidity and capital levels remain robust, and credit performance remains excellent, with non-accrual loans at .03% of total loans, down from .05% from the first quarter of last year."

First Quarter 2024 Financial Highlights:

  • Net interest income was $249.0 million, a $578 thousand increase over the prior quarter. The net yield on interest earning assets increased 16 basis points to 3.33%.
  • Non-interest income totaled $148.8 million, an increase of $11.2 million compared to the same quarter last year.
  • Trust fees grew $5.8 million, or 12.7% compared to the same period last year, mostly due to higher private client fees.
  • Non-interest expense totaled $245.7 million, an increase of $21.6 million compared to the same quarter last year and included a $10.0 million litigation settlement expense and a $4.0 million accrual adjustment to the FDIC's insurance special assessment.
  • Average loan balances totaled $17.1 billion and were flat compared to the prior quarter.
  • Total average available for sale debt securities decreased $116.6 million from the prior quarter to $9.5 billion, at fair value. During the first quarter of 2024, the unrealized loss on available for sale debt securities increased $27.2 million to $1.2 billion, at period end.
  • Total average deposits decreased $759.5 million, or 3.0%, compared to the prior quarter, and included $225.4 million of lower average brokered deposits, which paid off last quarter. The average rate paid on interest bearing deposits in the current quarter was 1.97%.
  • The ratio of annualized net loan charge-offs to average loans was .21% compared to .19% in the prior quarter.
  • The allowance for credit losses on loans decreased $1.9 million during the first quarter to $160.5 million, and the ratio of the allowance for credit losses on loans to total loans was .93% at March 31, 2024, compared to .94% at December 31, 2023.
  • Total assets at March 31, 2024 were $30.4 billion, a decrease of $1.3 billion, or 4.2%, compared to the prior quarter.
  • For the quarter, the return on average assets was 1.48%, the return on average equity was 15.39%, and the efficiency ratio was 61.7%.

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. Beyond the Midwest, Commerce also maintains commercial offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids and wealth offices in Dallas, Houston, and Naples. Commerce delivers high-touch service and sophisticated financial solutions at regional branches, commercial and wealth 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

(Unaudited)

(Dollars in thousands, except per share data)

 

Mar. 31, 2024

Dec. 31, 2023

Mar. 31, 2023

FINANCIAL SUMMARY

Net interest income

 

$248,999

 

$248,421

 

$251,623

 

Non-interest income

 

148,848

 

144,879

 

137,612

 

Total revenue

 

397,847

 

393,300

 

389,235

 

Investment securities gains (losses)

 

(259

)

7,601

 

(306

)

Provision for credit losses

 

4,787

 

5,879

 

11,456

 

Non-interest expense

 

245,697

 

251,254

 

224,107

 

Income before taxes

 

147,104

 

143,768

 

153,366

 

Income taxes

 

31,652

 

32,307

 

32,813

 

Non-controlling interest expense

 

2,789

 

2,238

 

1,101

 

Net income attributable to Commerce Bancshares, Inc.

$112,663

 

$109,223

 

$119,452

 

Earnings per common share:

 

 

 

 

Net income — basic

 

$0.87

 

$0.84

 

$0.91

 

Net income — diluted

 

$0.86

 

$0.84

 

$0.91

 

Effective tax rate

 

21.93

%

22.83

%

21.55

%

Fully-taxable equivalent net interest income

 

$251,312

 

$250,547

 

$253,411

 

Average total interest earning assets (1)

 

$30,365,774

 

$31,340,958

 

$31,568,594

 

Diluted wtd. average shares outstanding

 

129,185,903

 

129,608,322

 

130,471,930

 

RATIOS

 

 

 

 

Average loans to deposits (2)

 

69.87

%

67.69

%

64.99

%

Return on total average assets

 

1.48

 

1.38

 

1.54

 

Return on average equity (3)

 

15.39

 

16.48

 

18.75

 

Non-interest income to total revenue

 

37.41

 

36.84

 

35.35

 

Efficiency ratio (4)

 

61.67

 

63.80

 

57.49

 

Net yield on interest earning assets

 

3.33

 

3.17

 

3.26

 

EQUITY SUMMARY

 

 

 

 

Cash dividends per share

 

$.270

 

$.257

 

$.257

 

Cash dividends on common stock

 

$35,140

 

$33,574

 

$33,759

 

Book value per share (5)

 

$22.70

 

$22.77

 

$20.49

 

Market value per share (5)

 

$53.20

 

$53.41

 

$55.57

 

High market value per share

 

$55.64

 

$56.75

 

$66.86

 

Low market value per share

 

$49.44

 

$40.91

 

$53.07

 

Common shares outstanding (5)

 

129,694,606

 

130,176,048

 

130,956,746

 

Tangible common equity to tangible assets (6)

 

9.24

%

8.85

%

7.92

%

Tier I leverage ratio

 

11.75

%

11.25

%

10.61

%

OTHER QTD INFORMATION

 

 

 

 

Number of bank/ATM locations

 

254

 

257

 

275

 

Full-time equivalent employees

 

4,721

 

4,718

 

4,636

 

(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 2023.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

(Unaudited)

(In thousands, except per share data)

 

For the Three Months Ended

 

Mar. 31, 2024

Dec. 31, 2023

Sep. 30, 2023

Jun. 30, 2023

Mar. 31, 2023

Interest income

 

$358,721

 

$362,609

 

$361,162

 

$348,663

 

$308,857

 

Interest expense

 

109,722

 

114,188

 

112,615

 

99,125

 

57,234

 

Net interest income

 

248,999

 

248,421

 

248,547

 

249,538

 

251,623

 

Provision for credit losses

 

4,787

 

5,879

 

11,645

 

6,471

 

11,456

 

Net interest income after credit losses

244,212

 

242,542

 

236,902

 

243,067

 

240,167

 

NON-INTEREST INCOME

 

 

 

 

 

 

Trust fees

 

51,105

 

49,154

 

49,207

 

47,265

 

45,328

 

Bank card transaction fees

 

46,930

 

47,878

 

46,899

 

49,725

 

46,654

 

Deposit account charges and other fees

24,151

 

23,517

 

23,090

 

22,633

 

21,752

 

Consumer brokerage services

 

4,408

 

3,641

 

3,820

 

4,677

 

5,085

 

Capital market fees

 

3,892

 

4,269

 

3,524

 

2,945

 

3,362

 

Loan fees and sales

 

3,141

 

2,875

 

2,966

 

2,735

 

2,589

 

Other

 

15,221

 

13,545

 

13,443

 

17,625

 

12,842

 

Total non-interest income

 

148,848

 

144,879

 

142,949

 

147,605

 

137,612

 

INVESTMENT SECURITIES GAINS (LOSSES), NET

(259

)

7,601

 

4,298

 

3,392

 

(306

)

NON-INTEREST EXPENSE

 

 

 

 

 

 

Salaries and employee benefits

 

151,801

 

147,456

 

146,805

 

145,429

 

144,373

 

Data processing and software

 

31,153

 

31,141

 

30,744

 

28,719

 

28,154

 

Net occupancy

 

13,574

 

13,927

 

13,948

 

12,995

 

12,759

 

Deposit insurance

 

8,017

 

20,304

 

4,029

 

4,187

 

4,643

 

Equipment

 

5,010

 

5,137

 

4,697

 

4,864

 

4,850

 

Supplies and communication

 

4,744

 

5,242

 

4,963

 

4,625

 

4,590

 

Marketing

 

4,036

 

6,505

 

6,167

 

6,368

 

5,471

 

Other

 

27,362

 

21,542

 

16,657

 

20,424

 

19,267

 

Total non-interest expense

 

245,697

 

251,254

 

228,010

 

227,611

 

224,107

 

Income before income taxes

 

147,104

 

143,768

 

156,139

 

166,453

 

153,366

 

Less income taxes

 

31,652

 

32,307

 

33,439

 

35,990

 

32,813

 

Net income

 

115,452

 

111,461

 

122,700

 

130,463

 

120,553

 

Less non-controlling interest expense (income)

2,789

 

2,238

 

2,104

 

2,674

 

1,101

 

Net income attributable to Commerce Bancshares, Inc.

$112,663

 

$109,223

 

$120,596

 

$127,789

 

$119,452

 

Net income per common share — basic

$0.87

 

$0.84

 

$0.92

 

$0.97

 

$0.91

 

Net income per common share — diluted

$0.86

 

$0.84

 

$0.92

 

$0.97

 

$0.91

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

Return on total average assets

 

1.48

%

1.38

%

1.49

%

1.56

%

1.54

%

Return on average equity (1)

15.39

 

16.48

 

17.73

 

18.81

 

18.75

 

Efficiency ratio (2)

 

61.67

 

63.80

 

58.15

 

57.22

 

57.49

 

Effective tax rate

 

21.93

 

22.83

 

21.71

 

21.97

 

21.55

 

Net yield on interest earning assets

3.33

 

3.17

 

3.11

 

3.12

 

3.26

 

Fully-taxable equivalent net interest income

 

$251,312

 

$250,547

 

$250,962

 

$251,757

 

$253,411

 

(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.

The income statement above reflects the reclassification of non-interest income of $406 thousand and $1.1 million from other non-interest income to capital market fees for the second and third quarters of 2023.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - PERIOD END

 

(Unaudited)

(In thousands)

 

Mar. 31, 2024

Dec. 31, 2023

Mar. 31, 2023

ASSETS

 

 

 

 

Loans

 

 

 

 

Business

 

$5,994,974

 

$6,019,036

 

$5,704,467

 

Real estate — construction and land

 

1,497,647

 

1,446,764

 

1,437,419

 

Real estate — business

 

3,711,602

 

3,719,306

 

3,486,543

 

Real estate — personal

 

3,039,885

 

3,026,041

 

2,952,042

 

Consumer

 

2,119,308

 

2,077,723

 

2,094,389

 

Revolving home equity

 

322,523

 

319,894

 

295,478

 

Consumer credit card

 

564,388

 

589,913

 

558,669

 

Overdrafts

 

48,513

 

6,802

 

6,515

 

Total loans

 

17,298,840

 

17,205,479

 

16,535,522

 

Allowance for credit losses on loans

 

(160,465

)

(162,395

)

(159,317

)

Net loans

 

17,138,375

 

17,043,084

 

16,376,205

 

Loans held for sale

 

2,328

 

4,177

 

6,162

 

Investment securities:

 

 

 

 

Available for sale debt securities

 

9,141,695

 

9,684,760

 

11,228,616

 

Trading debt securities

 

56,716

 

28,830

 

41,584

 

Equity securities

 

12,852

 

12,701

 

12,528

 

Other securities

 

229,146

 

222,473

 

268,417

 

Total investment securities

 

9,440,409

 

9,948,764

 

11,551,145

 

Federal funds sold

 

 

5,025

 

27,060

 

Securities purchased under agreements to resell

 

225,000

 

450,000

 

825,000

 

Interest earning deposits with banks

 

1,609,614

 

2,239,010

 

1,341,854

 

Cash and due from banks

 

291,040

 

443,147

 

351,210

 

Premises and equipment — net

 

467,377

 

469,059

 

428,169

 

Goodwill

 

146,539

 

146,539

 

138,921

 

Other intangible assets — net

 

13,918

 

14,179

 

14,918

 

Other assets

 

1,037,508

 

938,077

 

944,212

 

Total assets

 

$30,372,108

 

$31,701,061

 

$32,004,856

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Deposits:

 

 

 

 

Non-interest bearing

 

$7,513,464

 

$7,975,935

 

$8,685,234

 

Savings, interest checking and money market

 

14,463,211

 

14,512,273

 

14,419,741

 

Certificates of deposit of less than $100,000

 

997,979

 

930,432

 

468,667

 

Certificates of deposit of $100,000 and over

 

1,465,541

 

1,945,258

 

1,109,818

 

Total deposits

 

24,440,195

 

25,363,898

 

24,683,460

 

Federal funds purchased and securities sold under agreements to repurchase

 

2,505,576

 

2,908,815

 

2,784,559

 

Other borrowings

 

2,359

 

1,404

 

1,507,776

 

Other liabilities

 

460,089

 

462,714

 

346,649

 

Total liabilities

 

27,408,219

 

28,736,831

 

29,322,444

 

Stockholders’ equity:

 

 

 

 

Common stock

 

655,322

 

655,322

 

629,319

 

Capital surplus

 

3,148,649

 

3,162,622

 

2,919,060

 

Retained earnings

 

130,706

 

53,183

 

117,313

 

Treasury stock

 

(59,674

)

(35,599

)

(59,670

)

Accumulated other comprehensive income (loss)

 

(931,027

)

(891,412

)

(940,498

)

Total stockholders’ equity

 

2,943,976

 

2,944,116

 

2,665,524

 

Non-controlling interest

 

19,913

 

20,114

 

16,888

 

Total equity

 

2,963,889

 

2,964,230

 

2,682,412

 

Total liabilities and equity

 

$30,372,108

 

$31,701,061

 

$32,004,856

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

 

(Unaudited)

(In thousands)

For the Three Months Ended

Mar. 31, 2024

Dec. 31, 2023

Sep. 30, 2023

Jun. 30, 2023

Mar. 31, 2023

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business

$5,873,525

 

$5,861,229

 

$5,849,227

 

$5,757,388

 

$5,656,104

 

Real estate — construction and land

1,472,554

 

1,523,682

 

1,508,850

 

1,450,196

 

1,410,835

 

Real estate — business

3,727,643

 

3,644,589

 

3,642,010

 

3,540,851

 

3,478,382

 

Real estate — personal

3,031,193

 

3,027,664

 

2,992,500

 

2,960,962

 

2,933,750

 

Consumer

2,082,490

 

2,117,268

 

2,102,281

 

2,098,523

 

2,067,385

 

Revolving home equity

322,074

 

310,282

 

304,055

 

300,623

 

296,748

 

Consumer credit card

562,892

 

568,112

 

564,039

 

555,875

 

556,223

 

Overdrafts

7,696

 

5,258

 

5,341

 

4,630

 

4,449

 

Total loans

17,080,067

 

17,058,084

 

16,968,303

 

16,669,048

 

16,403,876

 

Allowance for credit losses on loans

(161,891

)

(161,932

)

(158,335

)

(159,068

)

(150,117

)

Net loans

16,918,176

 

16,896,152

 

16,809,968

 

16,509,980

 

16,253,759

 

Loans held for sale

2,149

 

5,392

 

5,714

 

5,957

 

5,708

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

851,656

 

889,390

 

986,284

 

1,035,651

 

1,099,067

 

Government-sponsored enterprise obligations

55,652

 

55,661

 

55,676

 

55,751

 

87,086

 

State and municipal obligations

1,330,808

 

1,363,649

 

1,391,541

 

1,532,519

 

1,793,756

 

Mortgage-backed securities

5,902,328

 

6,022,502

 

6,161,348

 

6,316,224

 

6,454,408

 

Asset-backed securities

2,085,050

 

2,325,089

 

2,553,562

 

2,827,911

 

3,233,757

 

Other debt securities

503,204

 

510,721

 

514,787

 

519,988

 

528,941

 

Unrealized gain (loss) on debt securities

(1,274,125

)

(1,595,845

)

(1,458,141

)

(1,331,002

)

(1,387,196

)

Total available for sale debt securities

9,454,573

 

9,571,167

 

10,205,057

 

10,957,042

 

11,809,819

 

Trading debt securities

40,483

 

37,234

 

35,044

 

46,493

 

45,757

 

Equity securities

12,768

 

12,249

 

12,230

 

12,335

 

12,458

 

Other securities

221,695

 

222,378

 

237,518

 

273,587

 

229,867

 

Total investment securities

9,729,519

 

9,843,028

 

10,489,849

 

11,289,457

 

12,097,901

 

Federal funds sold

599

 

1,194

 

2,722

 

7,484

 

38,978

 

Securities purchased under agreements to resell

340,934

 

450,000

 

712,472

 

824,974

 

825,000

 

Interest earning deposits with banks

1,938,381

 

2,387,415

 

2,337,744

 

2,284,162

 

809,935

 

Other assets

1,715,716

 

1,797,849

 

1,750,222

 

1,941,340

 

1,376,551

 

Total assets

$30,645,474

 

$31,381,030

 

$32,108,691

 

$32,863,354

 

$31,407,832

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Non-interest bearing deposits

$7,328,603

 

$7,748,654

 

$7,939,190

 

$8,224,475

 

$9,114,512

 

Savings

1,333,983

 

1,357,733

 

1,436,149

 

1,516,887

 

1,550,215

 

Interest checking and money market

13,215,270

 

13,166,783

 

13,048,199

 

12,918,399

 

13,265,485

 

Certificates of deposit of less than $100,000

976,804

 

1,097,224

 

1,423,965

 

1,075,110

 

415,367

 

Certificates of deposit of $100,000 and over

1,595,310

 

1,839,057

 

1,718,126

 

1,472,208

 

903,393

 

Total deposits

24,449,970

 

25,209,451

 

25,565,629

 

25,207,079

 

25,248,972

 

Borrowings:

 

 

 

 

 

Federal funds purchased

328,216

 

473,534

 

508,851

 

507,165

 

493,721

 

Securities sold under agreements to repurchase

2,511,959

 

2,467,118

 

2,283,020

 

2,206,612

 

2,418,726

 

Other borrowings

76

 

179,587

 

685,222

 

1,617,952

 

551,267

 

Total borrowings

2,840,251

 

3,120,239

 

3,477,093

 

4,331,729

 

3,463,714

 

Other liabilities

410,310

 

421,402

 

367,741

 

598,915

 

112,052

 

Total liabilities

27,700,531

 

28,751,092

 

29,410,463

 

30,137,723

 

28,824,738

 

Equity

2,944,943

 

2,629,938

 

2,698,228

 

2,725,631

 

2,583,094

 

Total liabilities and equity

$30,645,474

 

$31,381,030

 

$32,108,691

 

$32,863,354

 

$31,407,832

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

 

(Unaudited)

For the Three Months Ended

Mar. 31, 2024

Dec. 31, 2023

Sep. 30, 2023

Jun. 30, 2023

Mar. 31, 2023

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business (1)

6.07

%

5.91

%

5.77

%

5.58

%

5.31

%

Real estate — construction and land

8.40

 

8.34

 

8.17

 

7.92

 

7.33

 

Real estate — business

6.26

 

6.18

 

6.13

 

5.96

 

5.65

 

Real estate — personal

3.95

 

3.85

 

3.73

 

3.68

 

3.61

 

Consumer

6.40

 

6.21

 

5.97

 

5.63

 

5.31

 

Revolving home equity

7.70

 

7.70

 

7.76

 

7.55

 

7.03

 

Consumer credit card

14.11

 

13.83

 

13.77

 

13.77

 

13.68

 

Overdrafts

 

 

 

 

 

Total loans

6.27

 

6.15

 

6.02

 

5.84

 

5.56

 

Loans held for sale

7.49

 

9.93

 

10.55

 

10.17

 

10.30

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

2.08

 

2.32

 

2.31

 

3.42

 

1.90

 

Government-sponsored enterprise obligations

2.39

 

2.36

 

2.36

 

2.38

 

3.21

 

State and municipal obligations (1)

1.97

 

1.94

 

1.95

 

2.04

 

2.26

 

Mortgage-backed securities

2.19

 

2.05

 

2.06

 

2.09

 

2.06

 

Asset-backed securities

2.39

 

2.30

 

2.20

 

2.08

 

2.01

 

Other debt securities

1.93

 

1.85

 

1.75

 

1.86

 

1.93

 

Total available for sale debt securities

2.18

 

2.10

 

2.08

 

2.19

 

2.07

 

Trading debt securities (1)

5.30

 

5.05

 

5.11

 

4.53

 

4.59

 

Equity securities (1)

25.64

 

27.47

 

23.06

 

23.25

 

23.24

 

Other securities (1)

13.04

 

8.60

 

13.13

 

9.40

 

7.11

 

Total investment securities

2.44

 

2.27

 

2.33

 

2.37

 

2.18

 

Federal funds sold

6.71

 

6.65

 

6.56

 

5.63

 

5.09

 

Securities purchased under agreements to resell

1.93

 

1.64

 

2.08

 

1.99

 

1.94

 

Interest earning deposits with banks

5.48

 

5.47

 

5.39

 

5.14

 

4.67

 

Total interest earning assets

4.78

 

4.62

 

4.51

 

4.34

 

4.00

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

Savings

.06

 

.05

 

.05

 

.05

 

.05

 

Interest checking and money market

1.69

 

1.57

 

1.33

 

.93

 

.61

 

Certificates of deposit of less than $100,000

4.20

 

4.21

 

4.32

 

3.78

 

1.39

 

Certificates of deposit of $100,000 and over

4.56

 

4.55

 

4.37

 

3.93

 

2.98

 

Total interest bearing deposits

1.97

 

1.93

 

1.76

 

1.29

 

.71

 

Borrowings:

 

 

 

 

 

Federal funds purchased

5.42

 

5.40

 

5.33

 

5.06

 

4.59

 

Securities sold under agreements to repurchase

3.43

 

3.25

 

3.20

 

3.09

 

2.93

 

Other borrowings

 

5.45

 

5.30

 

5.24

 

4.94

 

Total borrowings

3.66

 

3.71

 

3.93

 

4.13

 

3.49

 

Total interest bearing liabilities

2.21

%

2.20

%

2.12

%

1.87

%

1.20

%

 

 

 

 

 

 

Net yield on interest earning assets

3.33

%

3.17

%

3.11

%

3.12

%

3.26

%

(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

(Unaudited)

(In thousands, except ratios)

 

Mar. 31, 2024

Dec. 31, 2023

Sep. 30, 2023

Jun. 30, 2023

Mar. 31, 2023

ALLOWANCE FOR CREDIT LOSSES ON LOANS

 

 

 

 

 

 

Balance at beginning of period

 

$162,395

 

$162,244

 

$158,685

 

$159,317

 

$150,136

 

Provision for credit losses on loans

 

6,947

 

8,170

 

13,343

 

5,864

 

15,948

 

Net charge-offs (recoveries):

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

Business

 

23

 

96

 

2,613

 

165

 

230

 

Real estate — construction and land

 

 

 

 

(115

)

 

Real estate — business

 

(141

)

128

 

(15

)

(5

)

(4

)

 

 

(118

)

224

 

2,598

 

45

 

226

 

Personal banking portfolio:

 

 

 

 

 

 

Consumer credit card

 

6,435

 

5,325

 

4,716

 

4,687

 

4,325

 

Consumer

 

1,983

 

1,903

 

1,797

 

1,273

 

1,275

 

Overdraft

 

557

 

588

 

683

 

517

 

978

 

Real estate — personal

 

24

 

(11

)

(9

)

(6

)

(11

)

Revolving home equity

 

(4

)

(10

)

(1

)

(20

)

(26

)

 

 

8,995

 

7,795

 

7,186

 

6,451

 

6,541

 

Total net loan charge-offs

 

8,877

 

8,019

 

9,784

 

6,496

 

6,767

 

Balance at end of period

 

$160,465

 

$162,395

 

$162,244

 

$158,685

 

$159,317

 

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

 

$23,086

 

$25,246

 

$27,537

 

$29,235

 

$28,628

 

 

 

 

 

 

 

 

NET CHARGE-OFF RATIOS (1)

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

Business

 

%

.01

%

.18

%

.01

%

.02

%

Real estate — construction and land

 

 

 

 

(.03

)

 

Real estate — business

 

(.02

)

.01

 

 

 

 

 

 

 

.01

 

.09

 

 

.01

 

Personal banking portfolio:

 

 

 

 

 

 

Consumer credit card

 

4.60

 

3.72

 

3.32

 

3.38

 

3.15

 

Consumer

 

.38

 

.36

 

.34

 

.24

 

.25

 

Overdraft

 

29.11

 

44.37

 

50.73

 

44.79

 

89.15

 

Real estate — personal

 

 

 

 

 

 

Revolving home equity

 

 

(.01

)

 

(.03

)

(.04

)

 

 

.60

 

.51

 

.48

 

.44

 

.45

 

Total

 

.21

%

.19

%

.23

%

.16

%

.17

%

CREDIT QUALITY RATIOS

 

 

 

 

 

 

Non-accrual loans to total loans

 

.03

%

.04

%

.05

%

.04

%

.05

%

Allowance for credit losses on loans to total loans

 

.93

 

.94

 

.95

 

.94

 

.96

 

NON-ACCRUAL AND PAST DUE LOANS

 

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

 

Business

 

$1,038

 

$3,622

 

$6,602

 

$4,732

 

$6,361

 

Real estate — business

 

1,246

 

60

 

76

 

153

 

171

 

Real estate — personal

 

1,523

 

1,653

 

1,531

 

1,276

 

1,269

 

Revolving home equity

 

1,977

 

1,977

 

 

 

 

Total

 

5,784

 

7,312

 

8,209

 

6,161

 

7,801

 

Loans past due 90 days and still accruing interest

$20,281

 

$21,864

 

$18,580

 

$15,351

 

$14,800

 

(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 First Quarter Results

March 31, 2024

For the quarter ended March 31, 2024, net income amounted to $112.7 million, compared to $109.2 million in the previous quarter and $119.5 million in the same quarter last year. The increase in net income compared to the previous quarter was primarily the result of lower non-interest expense and higher non-interest income, partly offset by net losses on investment securities. The net yield on interest earning assets increased 16 basis points over the previous quarter to 3.33%. Average loans increased $22.0 million over the previous quarter, while average deposits, borrowings and available for sale debt securities, at fair value, declined $759.5 million, $280.0 million, and $116.6 million, respectively. For the quarter, the return on average assets was 1.48%, the return on average equity was 15.39%, and the efficiency ratio was 61.7%.

Balance Sheet Review

During the 1st quarter of 2024, average loans totaled $17.1 billion, an increase of $22.0 million over the prior quarter, and increased $676.2 million, or 4.1%, over the same quarter last year. Compared to the previous quarter, average balances of business real estate loans grew $83.1 million, while construction and consumer loans declined $51.1 million and $34.8 million, respectively. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $7.4 million, compared to $8.7 million in the prior quarter.

Total average available for sale debt securities decreased $116.6 million compared to the previous quarter to $9.5 billion, at fair value. The decrease in debt securities was mainly the result of lower average balances of asset-backed securities. During the 1st quarter of 2024, the unrealized loss on available for sale securities increased $27.2 million to $1.2 billion, at period end. Also during the 1st quarter of 2024, purchases of securities totaled $145.7 million with a weighted average yield of approximately 4.65%, and sales, maturities and pay downs were $655.0 million. At March 31, 2024, the duration of the available for sale investment portfolio was 4.2 years, and maturities and pay downs of approximately $1.6 billion are expected to occur during the next 12 months. The Company does not have any investment securities classified as held-to-maturity.

Total average deposits decreased $759.5 million this quarter compared to the previous quarter. The decrease in deposits mostly resulted from lower average demand deposits of $420.1 million and lower average certificates of deposit of $364.2 million, which included lower brokered deposits of $225.4 million. Compared to the previous quarter, total average commercial deposits declined $743.8 million, while consumer and wealth deposits increased $138.8 million and $71.8 million, respectively. The average loans to deposits ratio was 69.9% in the current quarter and 67.7% in the prior quarter. The Company’s average borrowings, which included average customer repurchase agreements of $2.5 billion, decreased $280.0 million to $2.8 billion in the 1st quarter of 2024, mostly due to a decline of $179.3 million in average Federal Home Loan Bank (FHLB) borrowings.

Net Interest Income

Net interest income in the 1st quarter of 2024 amounted to $249.0 million, an increase of $578 thousand compared to the previous quarter. On a fully taxable-equivalent (FTE) basis, net interest income for the current quarter increased $765 thousand over the previous quarter to $251.3 million. The increase in net interest income was mostly due to higher interest earned on loans and investment securities and lower interest expense on deposits and borrowings, partly offset by lower interest income earned on deposits with banks. The net yield (FTE) on earning assets increased to 3.33%, from 3.17% in the prior quarter.

Compared to the previous quarter, interest income on loans (FTE) increased $1.7 million, mostly due to higher average rates earned on business, consumer, and personal real estate loans. Interest income on loans also increased due to higher balances of business real estate loans, largely offset by lower balances of construction loans. The average yield (FTE) on the loan portfolio increased 12 basis points to 6.27% this quarter.

Interest income on investment securities (FTE) increased $1.3 million compared to the prior quarter, mostly due to higher rates earned on other debt securities, partly offset by lower average balances of available for sale debt securities. Interest on other debt securities included dividend payments of $3.4 million from the Company’s private equity investments. Interest income earned on U.S. government and federal agency securities decreased due to lower average balances and lower average rates, which included the impact of $1.7 million in lower inflation income from Treasury inflation-protected securities this quarter. Additionally, the Company recorded a $2.0 million adjustment to premium amortization at March 31, 2024, which increased interest income to reflect slower forward prepayment speed estimates on mortgage-backed securities and was higher than the $629 thousand adjustment that increased interest income in the prior quarter. The average yield (FTE) on total investment securities was 2.44% in the current quarter, compared to 2.27% in the previous quarter.

Compared to the previous quarter, interest income on deposits with banks decreased $6.5 million, mostly due to $449.0 million of lower average balances.

Interest expense decreased $4.5 million, mostly due to lower average balances of borrowings and deposits, partly offset by higher rates paid. The average rate paid on interest bearing deposits totaled 1.97% in the current quarter compared to 1.93% in the prior quarter. Interest expense on deposits decreased $1.2 million this quarter compared to the previous quarter. Interest expense on borrowings decreased $3.3 million, mostly due to a decline in average FHLB borrowings of $179.3 million and lower average balances of federal funds purchased. The overall rate paid on interest bearing liabilities was 2.21% in the current quarter compared to 2.20% in the prior quarter.

Non-Interest Income

In the 1st quarter of 2024, total non-interest income amounted to $148.8 million, an increase of $11.2 million compared to the same period last year and an increase of $4.0 million compared to the prior quarter. The increase in non-interest income compared to the same period last year was mainly due to higher trust fees, deposit account fees, and tax credit sales income. The increase in non-interest income compared to the prior quarter was mainly due to higher trust fees, brokerage fees, and tax credit sales income, partly offset by lower bank card fees.

Total net bank card fees in the current quarter increased $276 thousand, or .6%, compared to the same period last year, and decreased $948 thousand compared to the prior quarter. Net corporate card fees increased $164 thousand, or .6%, over the same quarter of last year mainly due to higher interchange fees, partly offset by higher rewards expense. Net debit card fees increased $118 thousand, or 1.1%, mostly due to lower network expense. Net merchant fees decreased $104 thousand, or 1.9%, while net credit card fees increased $98 thousand, or 2.7%. Total net bank card fees this quarter were comprised of fees on corporate card ($27.5 million), debit card ($10.4 million), merchant ($5.2 million) and credit card ($3.8 million) transactions.

In the current quarter, trust fees increased $5.8 million, or 12.7%, over the same period last year, mostly resulting from higher private client trust fees. Compared to the same period last year, deposit account fees increased $2.4 million, or 11.0%, mostly due to higher corporate cash management fees. Consumer brokerage fees decreased $677 thousand, or 13.3%.

Other non-interest income increased compared to the same period last year primarily due to higher tax credit sales income of $1.5 million and cash sweep fees of $731 thousand. For the 1st quarter of 2024, non-interest income comprised 37.4% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded net securities losses of $259 thousand in the current quarter, compared to gains of $7.6 million in the prior quarter and losses of $306 thousand in the 1st quarter of 2023. Net securities losses in the current quarter primarily resulted from losses of $8.5 million realized on available for sale debt securities, partly offset by net fair value gains of $7.1 million in the Company’s portfolio of private equity investments.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $245.7 million, compared to $224.1 million in the same period last year and $251.3 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to litigation settlement expense as well as higher salaries and employee benefits expense, FDIC insurance expense, and data processing and software expense, partly offset by lower marketing expense. The decrease in non-interest expense compared to the prior quarter was mainly due to lower FDIC insurance expense and marketing expense, partly offset by higher litigation settlement expense and employee benefits expense.

Compared to the 1st quarter of last year, salaries and employee benefits expense increased $7.4 million, or 5.1%, mostly due to higher full-time salaries expense of $5.8 million and higher employee benefits expense of $1.3 million. Full-time equivalent employees totaled 4,721 and 4,636 at March 31, 2024 and 2023, respectively.

Compared to the same period last year, data processing and software expense increased $3.0 million due to higher bank card fees expense and increased costs for service providers. FDIC insurance expense increased $3.4 million, due to a $4.0 million accrual adjustment in the current quarter to the special assessment by the FDIC to replenish the Deposit Insurance Fund. These increases in expense were partly offset by lower marketing expense of $1.4 million. Other non-interest expense increased mainly due to $10.0 million in litigation settlement costs.

Income Taxes

The effective tax rate for the Company was 21.9% in the current quarter, 22.8% in the previous quarter, and 21.6% in the 1st quarter of 2023.

Credit Quality

Net loan charge-offs in the 1st quarter of 2024 amounted to $8.9 million, compared to $8.0 million in the prior quarter and $6.8 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .21% in the current quarter, .19% in the previous quarter, and .17% in the 1st quarter of last year. Compared to the prior quarter, net loan charge-offs on personal banking loans increased $1.2 million to $9.0 million, mainly due to $1.1 million of higher consumer credit card loan net charge-offs.

In the 1st quarter of 2024, annualized net loan charge-offs on average consumer credit card loans were 4.60%, compared to 3.72% in the previous quarter, and 3.15% in the same quarter last year. Consumer loan net charge-offs were .38% of average consumer loans in the current quarter, .36% in the prior quarter, and .25% in the same quarter last year.

At March 31, 2024, the allowance for credit losses on loans totaled $160.5 million, or .93% of total loans, and decreased $1.9 million compared to the prior quarter. Additionally, the liability for unfunded lending commitments at March 31, 2024 was $23.1 million, a decrease of $2.2 million compared to the liability at December 31, 2023.

At March 31, 2024, total non-accrual loans amounted to $5.8 million, a decrease of $1.5 million compared to the previous quarter. At March 31, 2024, the balance of non-accrual loans, which represented .03% of loans outstanding, included business loans of $1.0 million, revolving home equity loans of $2.0 million, personal real estate loans of $1.5 million, and business real estate loans of $1.2 million. Loans more than 90 days past due and still accruing interest totaled $20.3 million at March 31, 2024.

Other

During the 1st quarter of 2024, the Company paid a cash dividend of $.27 per common share, representing a 5.1% increase over the same period last year. The Company purchased 806,217 shares of treasury stock during the current quarter at an average price of $52.13.

The Company owns 823,447 shares of Visa Class B-1 common stock, carried at zero value on the Company’s balance sheet as of March 31, 2024. On April 8, 2024, Visa, Inc. (“Visa”) announced the commencement of a public offering to exchange Class B-1 common stock for a combination of shares of Class B-2 common stock and Class C common stock (“Exchange Offer”). The Company tendered all of its Visa Class B-1 shares and is awaiting notification of acceptance of that tender and the closing of the Exchange Offer. If the Company’s tendered shares are accepted and the exchange occurs in the second quarter of 2024, the Company expects to record a significant gain during the second quarter of 2024 based on the conversion privilege of the Class C common stock and the closing price of Visa Class A common stock. A full description of the terms of the Exchange Offer is set forth in Visa’s related Issuer Tender Offer Statement on Schedule TO and Prospectus, each dated April 8, 2024, publicly filed with the U. S. Securities and Exchange Commission.

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.

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