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Commerce Bancshares, Inc. Reports First Quarter Earnings Per Share of $.95

Commerce Bancshares, Inc. (NASDAQ: CBSH) announced earnings of $.95 per share for the three months ended March 31, 2023, compared to $.92 per share in the same quarter last year and $1.05 per share in the fourth quarter of 2022. Net income for the first quarter of 2023 amounted to $119.5 million, compared to $118.2 million in the first quarter of 2022 and $131.6 million in the prior quarter.

“Our first quarter results are the product of the consistent and conservative business model that Commerce has executed for nearly 160 years,” said John Kemper, President and Chief Executive Officer.

On deposit balances, Kemper added, “We saw normal seasonal deposit outflows in January, but experienced minimal flows throughout the remainder of the quarter, reflecting the strength and diversity of our deposit portfolio.

“Although disruption from recent bank failures may be felt across the industry for a period of time, we see this as a moment for our franchise to differentiate itself as a safe haven, and bring peace of mind to customers who put a lot of trust in Commerce and in the banking system.

“Our stakeholders can rest assured that we have ample liquidity and capital to weather any events to come, and we are well-positioned to accommodate our customers’ lending, deposit, and service needs.”

First Quarter 2023 Financial Highlights:

  • Net interest income was $251.6 million, a $3.0 million decrease from the prior quarter. The net yield on interest earning assets increased 8 basis points to 3.26%.
  • Non-interest income totaled $137.6 million, an increase of $5.8 million compared to the same quarter last year.
  • Net securities losses of $306 thousand compared to net gains of $8.9 million in the prior quarter.
  • Non-interest expense totaled $224.1 million, an increase of $18.5 million compared to the same quarter last year.
  • Average loan balances totaled $16.4 billion, an increase of $518.9 million, or 3.3%, over the prior quarter.
  • Total average available for sale debt securities decreased 4.8%, or $591.1 million, from the prior quarter to $11.8 billion, at fair value. During the first quarter of 2023, the unrealized loss on available for sale securities decreased $190.0 million to $1.3 billion, at period end.
  • Average deposits declined $1.4 billion, or 5.1%, from the prior quarter. The average rate paid on interest bearing deposits was .71%.
  • The ratio of annualized net loan charge-offs to average loans was .17% compared to .14% in the prior quarter.
  • Non-accrual loans totaled $7.8 million compared to $8.3 million in the prior quarter. Non-accrual loans were .05% of total loans.
  • The allowance for credit losses on loans increased $9.2 million during the first quarter to $159.3 million, and at March 31, 2023, the ratio of the allowance for credit losses on loans to total loans was .96%, compared to .92% at December 31, 2022.
  • The Company purchased 547,381 shares of its common stock this quarter at an average price of $65.93.
  • Total assets at March 31, 2023 were $32.0 billion, an increase of $128.9 million, or .4%, over the prior quarter.
  • For the quarter, the return on average assets was 1.54%, the return on average equity was 18.75%, and the efficiency ratio was 57.5%.

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

(Unaudited)

(Dollars in thousands, except per share data)

Mar. 31,

2023

Dec. 31,

2022

Mar. 31,

2022

FINANCIAL SUMMARY

Net interest income

 

$251,623

 

$254,641

 

$208,786

 

Non-interest income

 

137,612

 

136,825

 

131,769

 

Total revenue

 

389,235

 

391,466

 

340,555

 

Investment securities gains (losses)

 

(306

)

8,904

 

7,163

 

Provision for credit losses

 

11,456

 

15,477

 

(9,858

)

Non-interest expense

 

224,107

 

216,740

 

205,648

 

Income before taxes

 

153,366

 

168,153

 

151,928

 

Income taxes

 

32,813

 

34,499

 

31,902

 

Non-controlling interest expense (income)

 

1,101

 

2,026

 

1,872

 

Net income attributable to Commerce Bancshares, Inc.

$119,452

 

$131,628

 

$118,154

 

Earnings per common share:

 

 

 

 

Net income — basic

 

$0.95

 

$1.05

 

$0.92

 

Net income — diluted

 

$0.95

 

$1.04

 

$0.92

 

Effective tax rate

 

21.55

%

20.77

%

21.26

%

Fully-taxable equivalent net interest income

 

$253,411

 

$256,675

 

$211,393

 

Average total interest earning assets (1)

 

$31,568,594

 

$31,991,224

 

$34,937,086

 

Diluted wtd. average shares outstanding

 

124,258,981

 

124,589,323

 

126,646,900

 

 

 

 

 

 

RATIOS

 

 

 

 

Average loans to deposits (2)

 

64.99

%

59.73

%

51.90

%

Return on total average assets

 

1.54

 

1.65

 

1.33

 

Return on average equity (3)

 

18.75

 

21.88

 

14.41

 

Non-interest income to total revenue

 

35.35

 

34.95

 

38.69

 

Efficiency ratio (4)

 

57.49

 

55.26

 

60.29

 

Net yield on interest earning assets

 

3.26

 

3.18

 

2.45

 

 

 

 

 

 

EQUITY SUMMARY

 

 

 

 

Cash dividends per share

 

$.270

 

$.252

 

$.252

 

Cash dividends on common stock

 

$33,759

 

$31,648

 

$32,143

 

Book value per share (5)

 

$21.51

 

$19.85

 

$23.43

 

Market value per share (5)

 

$58.35

 

$68.07

 

$68.18

 

High market value per share

 

$70.20

 

$72.60

 

$71.16

 

Low market value per share

 

$55.72

 

$63.17

 

$63.12

 

Common shares outstanding (5)

 

124,720,710

 

124,999,100

 

126,925,176

 

Tangible common equity to tangible assets (6)

 

7.92

%

7.32

%

8.09

%

Tier I leverage ratio

 

10.61

%

10.34

%

9.07

%

 

 

 

 

 

OTHER QTD INFORMATION

 

 

 

 

Number of bank/ATM locations

 

275

 

275

 

285

 

Full-time equivalent employees

 

4,636

 

4,594

 

4,563

 

(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

 

Mar. 31,

2023

Dec. 31,

2022

Sep. 30,

2022

Jun. 30,

2022

Mar. 31,

2022

Interest income

 

$308,857

 

$286,377

 

$262,666

 

$238,154

 

$211,782

 

Interest expense

 

57,234

 

31,736

 

16,293

 

5,769

 

2,996

 

Net interest income

 

251,623

 

254,641

 

246,373

 

232,385

 

208,786

 

Provision for credit losses

 

11,456

 

15,477

 

15,290

 

7,162

 

(9,858

)

Net interest income after credit losses

240,167

 

239,164

 

231,083

 

225,223

 

218,644

 

NON-INTEREST INCOME

 

 

 

 

 

 

Trust fees

 

45,328

 

44,710

 

45,406

 

46,792

 

47,811

 

Bank card transaction fees

 

46,654

 

44,588

 

45,638

 

43,873

 

42,045

 

Deposit account charges and other fees

21,752

 

21,989

 

24,521

 

25,564

 

22,307

 

Consumer brokerage services

 

5,085

 

4,518

 

5,085

 

5,068

 

4,446

 

Capital market fees

 

3,362

 

3,386

 

3,393

 

3,327

 

4,125

 

Loan fees and sales

 

2,589

 

2,566

 

3,094

 

3,246

 

4,235

 

Other

 

12,842

 

15,068

 

11,377

 

11,557

 

6,800

 

Total non-interest income

 

137,612

 

136,825

 

138,514

 

139,427

 

131,769

 

INVESTMENT SECURITIES GAINS (LOSSES), NET

(306

)

8,904

 

3,410

 

1,029

 

7,163

 

NON-INTEREST EXPENSE

 

 

 

 

 

 

Salaries and employee benefits

 

144,373

 

138,458

 

137,393

 

142,243

 

135,953

 

Data processing and software

 

28,154

 

27,991

 

28,050

 

27,635

 

27,016

 

Net occupancy

 

12,759

 

11,774

 

12,544

 

12,503

 

12,296

 

Equipment

 

4,850

 

5,021

 

5,036

 

4,734

 

4,568

 

Supplies and communication

 

4,590

 

4,446

 

4,581

 

4,361

 

4,713

 

Marketing

 

5,471

 

5,419

 

6,228

 

5,836

 

6,344

 

Other

 

23,910

 

23,631

 

19,052

 

16,193

 

14,758

 

Total non-interest expense

 

224,107

 

216,740

 

212,884

 

213,505

 

205,648

 

Income before income taxes

 

153,366

 

168,153

 

160,123

 

152,174

 

151,928

 

Less income taxes

 

32,813

 

34,499

 

33,936

 

32,021

 

31,902

 

Net income

 

120,553

 

133,654

 

126,187

 

120,153

 

120,026

 

Less non-controlling interest expense (income)

1,101

 

2,026

 

3,364

 

4,359

 

1,872

 

Net income attributable to Commerce Bancshares, Inc.

$119,452

 

$131,628

 

$122,823

 

$115,794

 

$118,154

 

Net income per common share — basic

$0.95

 

$1.05

 

$0.97

 

$0.92

 

$0.92

 

Net income per common share — diluted

$0.95

 

$1.04

 

$0.97

 

$0.92

 

$0.92

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

Return on total average assets

 

1.54

%

1.65

%

1.48

%

1.36

%

1.33

%

Return on average equity (1)

18.75

 

21.88

 

17.84

 

16.29

 

14.41

 

Efficiency ratio (2)

 

57.49

 

55.26

 

55.19

 

57.29

 

60.29

 

Effective tax rate

 

21.55

 

20.77

 

21.65

 

21.66

 

21.26

 

Net yield on interest earning assets

3.26

 

3.18

 

3.01

 

2.79

 

2.45

 

Fully taxable-equivalent net interest income

 

$253,411

 

$256,675

 

$248,737

 

$235,010

 

$211,393

 

(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)

 

Mar. 31,

2023

Dec. 31,

2022

Mar. 31,

2022

ASSETS

 

 

 

 

Loans

 

 

 

 

Business

 

$5,704,467

 

$5,661,725

 

$5,508,508

 

Real estate — construction and land

 

1,437,419

 

1,361,095

 

1,144,411

 

Real estate — business

 

3,486,543

 

3,406,981

 

3,109,668

 

Real estate — personal

 

2,952,042

 

2,918,078

 

2,820,076

 

Consumer

 

2,094,389

 

2,059,088

 

2,053,160

 

Revolving home equity

 

295,478

 

297,207

 

264,401

 

Consumer credit card

 

558,669

 

584,000

 

544,579

 

Overdrafts

 

6,515

 

14,957

 

14,211

 

Total loans

 

16,535,522

 

16,303,131

 

15,459,014

 

Allowance for credit losses on loans

 

(159,317

)

(150,136

)

(134,710

)

Net loans

 

16,376,205

 

16,152,995

 

15,324,304

 

Loans held for sale

 

6,162

 

4,964

 

8,908

 

Investment securities:

 

 

 

 

Available for sale debt securities

 

11,228,616

 

12,238,316

 

14,780,494

 

Trading debt securities

 

41,584

 

43,523

 

31,380

 

Equity securities

 

12,528

 

12,304

 

9,284

 

Other securities

 

268,417

 

225,034

 

199,576

 

Total investment securities

 

11,551,145

 

12,519,177

 

15,020,734

 

Federal funds sold

 

27,060

 

49,505

 

 

Securities purchased under agreements to resell

 

825,000

 

825,000

 

1,825,000

 

Interest earning deposits with banks

 

1,341,854

 

389,140

 

1,260,813

 

Cash and due from banks

 

351,210

 

452,496

 

326,549

 

Premises and equipment — net

 

428,169

 

418,909

 

394,028

 

Goodwill

 

138,921

 

138,921

 

138,921

 

Other intangible assets — net

 

14,918

 

15,234

 

15,885

 

Other assets

 

944,212

 

909,590

 

671,651

 

Total assets

 

$32,004,856

 

$31,875,931

 

$34,986,793

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Deposits:

 

 

 

 

Non-interest bearing

 

$8,685,234

 

$10,066,356

 

$11,428,372

 

Savings, interest checking and money market

 

14,419,741

 

15,126,981

 

16,751,632

 

Certificates of deposit of less than $100,000

 

468,667

 

387,336

 

422,992

 

Certificates of deposit of $100,000 and over

 

1,109,818

 

606,767

 

716,345

 

Total deposits

 

24,683,460

 

26,187,440

 

29,319,341

 

Federal funds purchased and securities sold under agreements to repurchase

 

2,784,559

 

2,841,734

 

2,317,461

 

Other borrowings

 

1,507,776

 

9,672

 

9,057

 

Other liabilities

 

346,649

 

355,508

 

367,532

 

Total liabilities

 

29,322,444

 

29,394,354

 

32,013,391

 

Stockholders’ equity:

 

 

 

 

Common stock

 

629,319

 

629,319

 

610,804

 

Capital surplus

 

2,919,060

 

2,932,959

 

2,678,025

 

Retained earnings

 

117,313

 

31,620

 

178,504

 

Treasury stock

 

(59,670

)

(41,743

)

(72,293

)

Accumulated other comprehensive income (loss)

 

(940,498

)

(1,086,864

)

(434,400

)

Total stockholders’ equity

 

2,665,524

 

2,465,291

 

2,960,640

 

Non-controlling interest

 

16,888

 

16,286

 

12,762

 

Total equity

 

2,682,412

 

2,481,577

 

2,973,402

 

Total liabilities and equity

 

$32,004,856

 

$31,875,931

 

$34,986,793

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

 

(Unaudited)

(In thousands)

For the Three Months Ended

Mar. 31,

2023

Dec. 31,

2022

Sep. 30,

2022

Jun. 30,

2022

Mar. 31,

2022

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business

$5,656,104

 

$5,478,241

 

$5,317,696

 

$5,385,181

 

$5,324,172

 

Real estate — construction and land

1,410,835

 

1,268,900

 

1,288,721

 

1,225,267

 

1,134,902

 

Real estate — business

3,478,382

 

3,300,697

 

3,258,128

 

3,163,508

 

3,095,068

 

Real estate — personal

2,933,750

 

2,886,686

 

2,844,376

 

2,825,578

 

2,808,980

 

Consumer

2,067,385

 

2,089,912

 

2,101,622

 

2,070,560

 

2,040,200

 

Revolving home equity

296,748

 

293,681

 

280,923

 

272,280

 

273,859

 

Consumer credit card

556,223

 

559,463

 

550,058

 

537,681

 

540,844

 

Overdrafts

4,449

 

7,428

 

4,438

 

5,524

 

5,178

 

Total loans

16,403,876

 

15,885,008

 

15,645,962

 

15,485,579

 

15,223,203

 

Allowance for credit losses on loans

(150,117

)

(143,285

)

(137,833

)

(134,670

)

(149,685

)

Net loans

16,253,759

 

15,741,723

 

15,508,129

 

15,350,909

 

15,073,518

 

Loans held for sale

5,708

 

6,567

 

7,170

 

7,933

 

9,383

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

1,099,067

 

1,055,602

 

1,113,442

 

1,119,305

 

1,103,749

 

Government-sponsored enterprise obligations

87,086

 

55,732

 

55,753

 

55,762

 

51,770

 

State and municipal obligations

1,793,756

 

1,990,643

 

2,052,908

 

2,126,380

 

2,077,600

 

Mortgage-backed securities

6,454,408

 

6,605,936

 

6,847,912

 

7,158,252

 

7,316,609

 

Asset-backed securities

3,233,757

 

3,714,092

 

3,870,953

 

4,038,113

 

3,933,061

 

Other debt securities

528,941

 

560,951

 

587,026

 

643,463

 

636,247

 

Unrealized loss on debt securities

(1,387,196

)

(1,582,061

)

(1,064,534

)

(851,110

)

(174,297

)

Total available for sale debt securities

11,809,819

 

12,400,895

 

13,463,460

 

14,290,165

 

14,944,739

 

Trading debt securities

45,757

 

44,626

 

35,621

 

43,904

 

40,686

 

Equity securities

12,458

 

10,534

 

8,838

 

9,094

 

9,498

 

Other securities

229,867

 

219,354

 

208,708

 

195,090

 

192,311

 

Total investment securities

12,097,901

 

12,675,409

 

13,716,627

 

14,538,253

 

15,187,234

 

Federal funds sold

38,978

 

27,683

 

13,486

 

4,269

 

1,053

 

Securities purchased under agreements to resell

825,000

 

1,174,457

 

1,379,341

 

1,703,569

 

1,733,887

 

Interest earning deposits with banks

809,935

 

640,039

 

980,273

 

1,248,942

 

2,608,029

 

Other assets

1,376,551

 

1,339,554

 

1,256,498

 

1,238,493

 

1,304,400

 

Total assets

$31,407,832

 

$31,605,432

 

$32,861,524

 

$34,092,368

 

$35,917,504

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Non-interest bearing deposits

$9,114,512

 

$10,360,834

 

$10,758,353

 

$11,209,680

 

$11,544,701

 

Savings

1,550,215

 

1,567,113

 

1,595,857

 

1,609,694

 

1,563,093

 

Interest checking and money market

13,265,485

 

13,693,974

 

14,423,713

 

14,847,306

 

14,949,727

 

Certificates of deposit of less than $100,000

415,367

 

388,304

 

397,071

 

411,655

 

429,852

 

Certificates of deposit of $100,000 and over

903,393

 

596,703

 

578,158

 

648,728

 

862,232

 

Total deposits

25,248,972

 

26,606,928

 

27,753,152

 

28,727,063

 

29,349,605

 

Borrowings:

 

 

 

 

 

Federal funds purchased

493,721

 

143,630

 

51,929

 

113,128

 

23,356

 

Securities sold under agreements to repurchase

2,418,726

 

2,260,263

 

2,199,866

 

2,258,184

 

2,712,468

 

Other borrowings

551,267

 

179,552

 

2,010

 

2,029

 

768

 

Total borrowings

3,463,714

 

2,583,445

 

2,253,805

 

2,373,341

 

2,736,592

 

Other liabilities

112,052

 

28,745

 

123,691

 

139,986

 

505,644

 

Total liabilities

28,824,738

 

29,219,118

 

30,130,648

 

31,240,390

 

32,591,841

 

Equity

2,583,094

 

2,386,314

 

2,730,876

 

2,851,978

 

3,325,663

 

Total liabilities and equity

$31,407,832

 

$31,605,432

 

$32,861,524

 

$34,092,368

 

$35,917,504

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

 

(Unaudited)

For the Three Months Ended

Mar. 31,

2023

Dec. 31,

2022

Sep. 30,

2022

Jun. 30,

2022

Mar. 31,

2022

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business (1)

5.31

%

4.68

%

3.94

%

3.16

%

2.93

%

Real estate — construction and land

7.33

 

6.80

 

5.27

 

4.09

 

3.76

 

Real estate — business

5.65

 

5.15

 

4.40

 

3.70

 

3.38

 

Real estate — personal

3.61

 

3.45

 

3.36

 

3.27

 

3.28

 

Consumer

5.31

 

4.77

 

4.17

 

3.62

 

3.59

 

Revolving home equity

7.03

 

5.89

 

4.82

 

3.69

 

3.48

 

Consumer credit card

13.68

 

12.64

 

12.05

 

11.32

 

11.35

 

Overdrafts

 

 

 

 

 

Total loans

5.56

 

5.03

 

4.37

 

3.72

 

3.54

 

Loans held for sale

10.30

 

10.09

 

8.80

 

8.14

 

6.48

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

1.90

 

2.01

 

4.51

 

4.93

 

3.42

 

Government-sponsored enterprise obligations

3.21

 

2.36

 

2.36

 

2.39

 

2.33

 

State and municipal obligations (1)

2.26

 

2.29

 

2.27

 

2.30

 

2.29

 

Mortgage-backed securities

2.06

 

1.88

 

1.93

 

1.99

 

1.98

 

Asset-backed securities

2.01

 

1.96

 

1.62

 

1.35

 

1.13

 

Other debt securities

1.93

 

1.89

 

1.93

 

1.97

 

2.00

 

Total available for sale debt securities

2.07

 

1.97

 

2.09

 

2.08

 

1.91

 

Trading debt securities (1)

4.59

 

3.81

 

2.74

 

2.46

 

1.84

 

Equity securities (1)

23.24

 

28.44

 

27.11

 

26.90

 

26.00

 

Other securities (1)

7.11

 

6.67

 

7.09

 

22.38

 

5.91

 

Total investment securities

2.18

 

2.07

 

2.18

 

2.36

 

1.97

 

Federal funds sold

5.09

 

4.27

 

2.77

 

1.79

 

.39

 

Securities purchased under agreements to resell

1.94

 

2.36

 

1.72

 

1.03

 

1.24

 

Interest earning deposits with banks

4.67

 

3.69

 

2.25

 

.78

 

.18

 

Total interest earning assets

4.00

 

3.59

 

3.21

 

2.86

 

2.49

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

Savings

.05

 

.06

 

.04

 

.04

 

.05

 

Interest checking and money market

.61

 

.38

 

.20

 

.06

 

.04

 

Certificates of deposit of less than $100,000

1.39

 

.73

 

.41

 

.20

 

.13

 

Certificates of deposit of $100,000 and over

2.98

 

1.42

 

.60

 

.29

 

.20

 

Total interest bearing deposits

.71

 

.40

 

.21

 

.07

 

.05

 

Borrowings:

 

 

 

 

 

Federal funds purchased

4.59

 

3.56

 

2.41

 

.79

 

.12

 

Securities sold under agreements to repurchase

2.93

 

2.29

 

1.37

 

.48

 

.10

 

Other borrowings

4.94

 

4.02

 

1.78

 

2.37

 

.53

 

Total borrowings

3.49

 

2.48

 

1.39

 

.50

 

.10

 

Total interest bearing liabilities

1.20

%

.69

%

.34

%

.12

%

.06

%

 

 

 

 

 

 

Net yield on interest earning assets

3.26

%

3.18

%

3.01

%

2.79

%

2.45

%

(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,

2023

Dec. 31,

2022

Sep. 30,

2022

Jun. 30,

2022

Mar. 31,

2022

ALLOWANCE FOR CREDIT LOSSES ON LOANS

 

 

 

 

 

 

Balance at beginning of period

 

$150,136

 

$143,377

 

$138,039

 

$134,710

 

$150,044

 

Provision for credit losses on loans

 

15,948

 

12,404

 

10,150

 

7,287

 

(10,686

)

Net charge-offs (recoveries):

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

Business

 

230

 

496

 

461

 

19

 

77

 

Real estate — construction and land

 

 

 

 

 

 

Real estate — business

 

(4

)

(4

)

(8

)

(1

)

(7

)

 

 

226

 

492

 

453

 

18

 

70

 

Personal banking portfolio:

 

 

 

 

 

 

Consumer credit card

 

4,325

 

3,467

 

2,882

 

2,937

 

3,372

 

Consumer

 

1,275

 

1,522

 

827

 

633

 

808

 

Overdraft

 

978

 

230

 

703

 

425

 

358

 

Real estate — personal

 

(11

)

(40

)

(15

)

(41

)

22

 

Revolving home equity

 

(26

)

(26

)

(38

)

(14

)

18

 

 

 

6,541

 

5,153

 

4,359

 

3,940

 

4,578

 

Total net loan charge-offs

 

6,767

 

5,645

 

4,812

 

3,958

 

4,648

 

Balance at end of period

 

$159,317

 

$150,136

 

$143,377

 

$138,039

 

$134,710

 

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

 

$28,628

 

$33,120

 

$30,047

 

$24,907

 

$25,032

 

 

 

 

 

 

 

 

NET CHARGE-OFF RATIOS (1)

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

Business

 

.02

%

.04

%

.03

%

%

.01

%

Real estate — construction and land

 

 

 

 

 

 

Real estate — business

 

 

 

 

 

 

 

 

.01

 

.02

 

.02

 

 

 

Personal banking portfolio:

 

 

 

 

 

 

Consumer credit card

 

3.15

 

2.46

 

2.08

 

2.19

 

2.53

 

Consumer

 

.25

 

.29

 

.16

 

.12

 

.16

 

Overdraft

 

89.15

 

12.28

 

62.85

 

30.86

 

28.04

 

Real estate — personal

 

 

(.01

)

 

(.01

)

 

Revolving home equity

 

(.04

)

(.04

)

(.05

)

(.02

)

.03

 

 

 

.45

 

.35

 

.30

 

.28

 

.33

 

Total

 

.17

%

.14

%

.12

%

.10

%

.12

%

 

 

 

 

 

 

 

CREDIT QUALITY RATIOS

 

 

 

 

 

 

Non-accrual loans to total loans

 

.05

%

.05

%

.05

%

.05

%

.05

%

Allowance for credit losses on loans to total loans

 

.96

 

.92

 

.90

 

.88

 

.87

 

 

 

 

 

 

 

 

NON-ACCRUAL AND PAST DUE LOANS

 

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

 

Business

 

$6,361

 

$6,751

 

$5,645

 

$6,314

 

$6,756

 

Real estate — construction and land

 

 

 

 

 

 

Real estate — business

 

171

 

189

 

149

 

167

 

190

 

Real estate — personal

 

1,269

 

1,366

 

1,390

 

1,436

 

1,389

 

Total

 

7,801

 

8,306

 

7,184

 

7,917

 

8,335

 

Loans past due 90 days and still accruing interest

$14,800

 

$15,830

 

$12,538

 

$11,909

 

$10,670

 

(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, 2023

For the quarter ended March 31, 2023, net income amounted to $119.5 million, compared to $131.6 million in the previous quarter and $118.2 million in the same quarter last year. The decrease in net income compared to the previous quarter was primarily the result of net realized investment securities losses compared to net gains recorded in the prior quarter, lower net interest income and higher non-interest expense. These decreases to income were partly offset by a decrease in the provision for credit losses. The net yield on interest earning assets grew eight basis points to 3.26%. Average loans grew $518.9 million compared to the previous quarter, while average deposits and average available for sale debt securities declined $1.4 billion and $591.1 million, respectively. For the quarter, the return on average assets was 1.54%, the return on average equity was 18.75%, and the efficiency ratio was 57.5%.

Balance Sheet Review

During the 1st quarter of 2023, average loans totaled $16.4 billion, an increase of $518.9 million over the prior quarter, and $1.2 billion, or 7.8%, over the same quarter last year. Compared to the previous quarter, average balances of business, business real estate, and construction loans grew $177.9 million, $177.7 million, and $141.9 million, respectively. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $3.2 million, compared to $2.4 million in the prior quarter.

Total average available for sale debt securities decreased $591.1 million compared to the previous quarter to $11.8 billion, at fair value. The decrease in investment securities was mainly the result of lower balances of mortgage-backed, other asset-backed, and state and municipal securities. During the 1st quarter of 2023, the unrealized loss on available for sale securities decreased $190.0 million to $1.3 billion, and sales, maturities and pay downs were $1.3 billion. At March 31, 2023, the duration of the available for sale investment portfolio was 3.9 years. The Company does not have any investment securities classified as held-to-maturity.

Total average deposits decreased $1.4 billion this quarter compared to the previous quarter. The decrease in deposits mostly resulted from lower demand deposits and interest checking and money market deposits of $1.2 billion and $428.5 million, respectively, partly offset by higher certificate of deposit balances of $333.8 million. Compared to the previous quarter, total average commercial and consumer deposits declined $868.9 million and $530.1 million, respectively, while average wealth deposits increased $39.8 million. The average loans to deposits ratio was 65.0% in the current quarter and 59.7% in the prior quarter. The Company’s average borrowings, which included customer repurchase agreements of $2.4 billion, were $3.5 billion in the 1st quarter of 2023 and $2.6 billion in the prior quarter.

Net Interest Income

Net interest income in the 1st quarter of 2023 amounted to $251.6 million, a decrease of $3.0 million compared to the previous quarter. On a fully taxable-equivalent (FTE) basis, net interest income for the current quarter decreased $3.3 million from the previous quarter to $253.4 million. The decrease in net interest income was due to higher interest expense, partly offset by higher interest earned on loans. The net yield (FTE) on earning assets increased to 3.26%, compared to 3.18% in the prior quarter.

Compared to the previous quarter, interest income on loans (FTE) increased $23.4 million, due to higher average rates earned on all loan categories, coupled with higher average balances of construction, business, and business real estate loans. The average yield (FTE) on the loan portfolio increased 53 basis points to 5.56% this quarter.

Interest income on investment securities (FTE) decreased $1.8 million compared to the prior quarter, due to lower average balances, partly offset by higher rates earned. Interest income earned on U.S. government and federal agency securities decreased due to lower rates earned, which included the impact of $652 thousand in lower inflation income from Treasury inflation-protected securities this quarter. At March 31, 2023, the Company recorded an $802 thousand 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 2.18% in the current quarter, compared to 2.07% in the previous quarter.

The average rate paid on interest bearing deposits totaled .71% in the current quarter compared to .40% in the prior quarter. Interest expense on deposits increased $11.8 million this quarter compared to the previous quarter, while interest expense on borrowings increased $13.6 million, due to a 101 basis point increase in the average rate paid coupled with higher average borrowings of $880.3 million. The overall rate paid on interest bearing liabilities was 1.20% in the current quarter compared to .69% in the prior quarter.

Non-Interest Income

In the 1st quarter of 2023, total non-interest income amounted to $137.6 million, an increase of $5.8 million compared to the same period last year and increased $787 thousand compared to the prior quarter. The increase in non-interest income compared to the same period last year was mainly due to higher bank card and sweep fees. In addition, a $2.0 million increase in fair value adjustments was recorded on the Company’s deferred compensation plan assets, which are held in a trust and recorded as both an asset and liability, affecting both other income and other expense. These increases were partly offset by lower trust fees and loan fees and sales. The increase in non-interest income compared to the prior quarter was mainly due to higher bank card fees, mostly offset by a gain on the sale of real estate recorded in the prior quarter that did not reoccur this quarter, and lower tax credit sales fee income.

Total net bank card fees in the current quarter increased $4.6 million, or 11.0%, compared to the same period last year, and increased $2.1 million compared to the prior quarter. Net corporate card fees increased $3.6 million, or 14.9%, over the same quarter of last year mainly due to higher interchange fee income. Net debit card fees increased $735 thousand, or 7.7%, and net merchant fees increased $371 thousand, or 7.4%, while net credit card fees decreased $47 thousand, or 1.3%. Total net bank card fees this quarter were comprised of fees on corporate card ($27.3 million), debit card ($10.3 million), merchant ($5.4 million) and credit card ($3.7 million) transactions.

In the current quarter, trust fees decreased $2.5 million, or 5.2%, from the same period last year, mostly resulting from lower private client and institutional trust fees. Compared to the same period last year, deposit account fees decreased $555 thousand, or 2.5%, mainly due to lower overdraft and return item fees of $2.7 million, partly offset by higher personal deposit account fees and corporate cash management fees of $1.0 million and $959 thousand, respectively. Loan fees and sales declined $1.6 million, or 38.9%, compared to amounts recorded in the same quarter last year, due to lower mortgage banking revenue.

Other non-interest income increased over the same period last year primarily due to higher sweep fees of $2.6 million, the deferred compensation adjustment previously mentioned, and a write down on a branch location of $965 thousand recorded in the 1st quarter of 2022. For the 1st quarter of 2023, non-interest income comprised 35.4% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded net securities losses of $306 thousand in the current quarter, compared to gains of $8.9 million in the prior quarter and $7.2 million in the 1st quarter of 2022. Net securities losses in the current quarter primarily resulted from losses of $3.1 million realized on sales of available for sale debt securities, mostly offset by net fair value gains of $2.3 million and a $653 thousand gain on the sale of an investment in the Company’s private equity investment portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $224.1 million, compared to $205.6 million in the same period last year and $216.7 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to higher salaries and employee benefits expense, FDIC insurance expense, data processing and software expense, miscellaneous losses, travel and entertainment expense, and the deferred compensation adjustment previously mentioned. The increase in non-interest expense compared to the prior quarter was mainly due to higher salaries and employee benefits expense, FDIC insurance expense, and occupancy expense, partly offset by lower travel and entertainment and legal and professional fees expense.

Compared to the 1st quarter of last year, salaries and employee benefits expense increased $8.4 million, mostly due to higher full-time salaries expense of $7.6 million, or 8.9%, and higher employee benefits expense of $1.4 million. Full-time equivalent employees totaled 4,636 and 4,563 at March 31, 2023 and 2022, respectively.

Compared to the same period last year, data processing and software expense increased $1.1 million due to higher bank card fees expense and increased costs for service providers. Other non-interest expense increased $9.2 million, mostly due to growth in FDIC insurance, deferred compensation, miscellaneous losses, and travel and entertainment expense of $2.3 million, $2.0 million, $1.3 million, and $1.1 million, respectively.

Income Taxes

The effective tax rate for the Company was 21.5% in the current quarter, 20.8% in the previous quarter, and 21.3% in the 1st quarter of 2022.

Credit Quality

Net loan charge-offs in the 1st quarter of 2023 amounted to $6.8 million, compared to $5.6 million in the prior quarter and $4.6 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .17% in the current quarter, .14% in the previous quarter, and .12% in the 1st quarter of last year. Net loan charge-offs on personal banking loans increased $1.4 million to $6.5 million, mainly due to higher overdraft and consumer credit card loan net charge-offs.

In the 1st quarter of 2023, annualized net loan charge-offs on average consumer credit card loans were 3.15%, compared to 2.46% in the previous quarter, and 2.53% in the same quarter last year. Consumer loan net charge-offs were .25% of average consumer loans in the current quarter, .29% in the prior quarter, and .16% in the same quarter last year

At March 31, 2023, the allowance for credit losses on loans totaled $159.3 million, or .96% of total loans, and increased $9.2 million compared to the prior quarter. Additionally, the liability for unfunded lending commitments at March 31, 2023 was $28.6 million, a decrease of $4.5 million compared to the liability at December 31, 2022.

At March 31, 2023, total non-accrual loans amounted to $7.8 million, a decrease of $505 thousand compared to the previous quarter. At March 31, 2023, the balance of non-accrual loans, which represented .05% of loans outstanding, included business loans of $6.4 million, personal real estate loans of $1.3 million, and business real estate loans of $171 thousand. Loans more than 90 days past due and still accruing interest totaled $14.8 million at March 31, 2023.

Liquidity

During the 1st quarter of 2023, the Company increased its deposit balance at the Federal Reserve Bank (FRB) by $952.7 million to $1.3 billion. The change in the balance at the FRB was mostly the result of a $1.5 billion increase in Federal Home Loan Bank (FHLB) advances and $1.3 billion of sales, maturities, and paydowns in the available for sale debt securities portfolio, partly offset by a $1.5 billion decrease in total deposits.

The Company regularly pledges loans and securities to the FRB and at March 31, 2023, the Company’s pledging resulted in a total borrowing capacity of $3.8 billion, or an increase of $2.9 billion compared to December 31, 2022. The Company did not have any borrowings from the FRB’s Discount Window or its newly established Bank Term Funding Program during the current quarter. The Company also pledges loans and securities and borrows from the FHLB. As of March 31, 2023, the Company had $1.5 billion of outstanding borrowings from the FHLB and $554.3 million of remaining borrowing capacity. 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 $11.2 billion at March 31, 2023. Approximately $2.0 billion is expected to mature or pay down over the next 12 months. At March 31, 2023, the Company had pledged $8.1 billion of the securities portfolio. The Company also has a portfolio of $825.0 million in securities purchased under agreements to resell, of which $700.0 million are expected to mature over the next 12 months.

Other

During the 1st 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 547,381 shares of treasury stock during the current quarter at an average price of $65.93.

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.

Contacts

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