Commerce Bancshares, Inc. Announces Visa Inc.’s Acceptance of Class B-1 Common Stock and Investment Securities Repositioning

Rhea-AI Summary

Commerce Bancshares, Inc. (NASDAQ: CBSH) announced that Visa Inc. accepted its 823,447 shares of Visa Class B-1 common stock in exchange for Visa Class B-2 and Visa Class C stock, resulting in a $175.5 million gain. The company plans to reposition $1.0 billion worth of debt securities to increase net interest income and improve securities quality.

Positive

• Successful exchange offer with Visa Inc. resulted in a gain of $175.5 million for Commerce Bancshares, Inc.

• Repositioning of available for sale debt securities to higher yielding investments expected to increase net interest income.

• Improvement in the quality of the company's pledgeable investment securities through the repositioning plan.

Negative

• Expected loss of approximately $165 million from the sale of securities with a yield of approximately 2.0%.

• The timing and amount of loss realized on available for sale debt securities and reinvestment assumptions depend on various factors including market conditions and stock prices.

Financial Analyst

The transaction involving the tender of Visa Inc. Class B-1 common stock by Commerce Bancshares, Inc. showcases strategic asset management, particularly in optimizing the value of long-term investments. The substantial gain recorded, amounting to $175.5 million>, is a positive indicator of financial acumen, particularly in timing the exchange to maximize the fair value mark. This gain is a one-time event that will bolster the company's financials for the current quarter, potentially impacting earnings per share positively. However, the subsequent sale of debt securities at a loss of approximately $165 million>, although initially negative, is expected to realign the investment portfolio towards higher-yielding assets, which could enhance net interest income over time. The strategy to shift from lower-yield (2.0%) to higher-yield (4.6%) investment securities reflects an aggressive stance on interest income growth and a proactive approach to interest rate risk management. The overall financial maneuvering by Commerce Bancshares, Inc. is projected to strengthen the company's financial position in the long run, despite short-term losses. The critical factor for investors to monitor would be the execution of the reinvestment strategy and its yield performance relative to market interest rate movements.

Risk Management Analyst

From a risk management perspective, the key aspect here is the improvement in the quality of Commerce Bancshares, Inc.'s pledgeable investment securities, which is an often overlooked but significant factor. High-quality pledgeable securities can enhance the company's flexibility in liquidity management and borrowing activities. Additionally, the reduction of interest rate risk associated with lower rates is an essential step in preparing for potential rate changes that could unfavorably impact the portfolio. It is worth noting that the move also demonstrates a response to the current interest rate environment, suggesting an expectation of increasing rates where the reinvestment at a higher yield would be beneficial. Investors should consider the potential for improved financial stability and risk reduction against the backdrop of these strategic decisions. However, the effectiveness of these strategies will hinge on market conditions and future interest rate trends, making it critical for investors to remain vigilant about macroeconomic indicators and regulatory changes that could influence the financial sector.

KANSAS CITY, Mo.--(BUSINESS WIRE)-- Commerce Bancshares, Inc. (NASDAQ: CBSH) announced today that Visa Inc. has accepted the company’s tender of its 823,447 shares of Visa Class B-1 common stock in exchange for a combination of Visa Class B-2 common stock and Visa Class C common stock.

As a result of the exchange, Commerce marked its Visa Class C common stock to fair value and recorded a gain of $175.5 million based on the conversion privilege of the Visa Class C common stock and the closing price of Visa Class A common stock on May 3, 2024 of $268.49 per share. The company’s Visa Class C shares are expected to continue to be marked to fair value on a recurring basis using the Visa Class A shares as evidence of orderly transactions between market participants for similar securities issued by Visa.

Subsequent to the successful close of the Exchange Offer, the company approved a plan to reposition a portion of its available for sale debt securities portfolio through the sale of securities with an amortized cost of approximately $1.0 billion. The securities that the company plans to sell have a yield of approximately 2.0%, which is expected to result in a loss of approximately $165 million, and the company expects to reinvest the proceeds mostly into investment securities yielding approximately 4.6%. The company expects the repositioning to increase net interest income, reduce interest rate risk to lower rates, and improve the quality of the Company's pledgeable investment securities. The timing and amount of the loss ultimately realized on the available for sale debt securities and the reinvestment assumptions may depend on many considerations, including market conditions, the future price of Visa Class A common stock, and other factors.

Details of the exchange and repositioning can be found on pages 21 and 22 of Commerce Bancshares, Inc.’s Form 10-Q, for the quarter ending March 31, 2024.

About Commerce Bank

With $30.4 billion in assets¹, Commerce Bancshares, Inc. (NASDAQ: CBSH) 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. Learn more at www.commercebank.com.

¹As of March 31, 2024

View source version on businesswire.com: https://www.businesswire.com/news/home/20240508735736/en/

Matt Burkemper (314) 746-7485

Matthew.Burkemper@CommerceBank.com

Source: Commerce Bancshares, Inc.

FAQ

What was the gain recorded by Commerce Bancshares, Inc. from the exchange with Visa Inc.?

Commerce Bancshares, Inc. recorded a gain of $175.5 million from the exchange with Visa Inc.

What is the expected loss from the sale of securities during the repositioning plan?

The company expects to incur a loss of approximately $165 million from the sale of securities with a yield of about 2.0%.

Where can more details about the exchange and repositioning plan be found?

More details about the exchange and repositioning plan can be found on pages 21 and 22 of Commerce Bancshares, Inc.'s Form 10-Q for the quarter ending March 31, 2024.