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

Rhea-AI Summary

Commerce Bancshares, Inc. reported first-quarter earnings per share of $.86, a decrease from the previous year but an increase from the fourth quarter of 2023. Net income for the quarter was $112.7 million, reflecting a strong financial performance. Despite elevated interest rates affecting bank balance sheets, Commerce's net interest income grew slightly, and non-interest income comprised 37.4% of total revenue. The company's liquidity, capital levels, and credit performance remain robust.

Positive

• Net interest income increased to $249.0 million, with a net yield on interest-earning assets of 3.33%.
• Non-interest income totaled $148.8 million, driven by growth in trust fees and private client fees.
• Non-interest expense increased to $245.7 million, including a $10.0 million litigation settlement expense.
• Average loan balances remained flat at $17.1 billion, while total assets decreased to $30.4 billion.
• Return on average assets was 1.48%, return on average equity was 15.39%, and the efficiency ratio was 61.7%.
• Commerce Bancshares, Inc. operates full-service banking facilities across the Midwest and maintains commercial and wealth offices in various cities.
• The company's financial news release and earnings highlights presentation are available on its website.
• Earnings per common share were reported at $0.86 for the quarter.

Negative

• None.

Insights

Financial Analyst

The earnings report for Commerce Bancshares, Inc. reveals a mixed picture. The slight decrease in earnings per share (EPS) from $.91 to $.86 year-over-year may raise concerns about the bank's growth trajectory. However, it's essential to understand that the banking industry is heavily influenced by interest rates, particularly in a higher rate environment.

An important detail is the expansion of the net interest margin by 16 basis points despite elevated interest rates. This suggests that Commerce Bancshares has been effective in managing interest-bearing deposit costs, which only increased by four basis points. This kind of cost management is vital for maintaining profitability in the banking sector.

Another key point is the growth in non-interest income, which accounts for 37.4% of total revenue. Diversification of income sources is a strategic lever for financial institutions, providing stability against interest rate fluctuations. Growth in trust fees, particularly from private client services, underscores the bank's strength in wealth management services.

However, the increase in non-interest expense, influenced by a significant litigation settlement and an FDIC insurance special assessment accrual, suggests external factors and regulatory costs that need to be monitored closely. Investors should consider how recurring these expenses might be and their impact on future profitability.

Credit Analyst

A credit analyst would focus on the asset quality and credit performance of Commerce Bancshares. The reduction in non-accrual loans to .03% of total loans, down from .05% from last year, indicates strong credit performance and effective risk management. This is lower than the industry average, signaling a robust loan portfolio.

The slight reduction in the allowance for credit losses on loans to .93% from .94% also reflects the bank's confidence in the quality of its loan book. However, careful scrutiny is warranted as the economic cycle progresses, especially considering potential future downturns that may affect loan repayments.

Moreover, the ratio of annualized net loan charge-offs to average loans increased slightly to .21%, compared to .19% in the prior quarter. While this increase is minor, it is essential to watch for trends that might suggest a change in the credit environment. Overall, the bank's credit risk appears well-managed, but continued vigilance is necessary.

Market Analyst

From a market perspective, the report from Commerce Bancshares provides insights into broader economic trends. The elevated interest rates affecting the bank's balance sheets are a macroeconomic factor that influences all financial institutions. The bank's performance in this environment may be seen as a bellwether for the regional banking industry.

Furthermore, the decrease in total assets by 4.2% compared to the previous quarter requires attention. This reduction could indicate a strategic deleveraging or a response to market conditions, possibly a decrease in deposit levels or disinvestment from certain asset classes. The bank's liquidity and capital levels are described as robust, which is reassuring from a market stability standpoint.

With an efficiency ratio of 61.7%, there is an indication that the bank is managing its expenses relative to its revenue. However, investors should look for improvements in this area, as a lower efficiency ratio could point to a more optimized cost structure and higher profitability.

KANSAS CITY, Mo.--(BUSINESS WIRE)-- 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 1^st 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 1^st 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 1^st 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 1^st 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 1^st 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 1^st 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 1^st 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 1^st 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 1^st quarter of 2023.

Credit Quality

Net loan charge-offs in the 1^st 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 1^st 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 1^st 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 1^st 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240415507662/en/

Matt Burkemper, Investor Relations

(314) 746-7485

www.commercebank.com

matthew.burkemper@commercebank.com

Source: Commerce Bancshares, Inc.

FAQ

What were Commerce Bancshares, Inc.'s first-quarter earnings per share?

Commerce Bancshares, Inc. reported earnings per share of $.86 for the first quarter.

How did net interest income change in the first quarter of 2024?

Net interest income increased to $249.0 million in the first quarter of 2024.

What was the total non-interest income for the first quarter of 2024?

Non-interest income totaled $148.8 million in the first quarter of 2024.

What was the net income for Commerce Bancshares, Inc. in the first quarter of 2024?

Net income for Commerce Bancshares, Inc. was $112.7 million in the first quarter of 2024.

How did average loan balances change in the first quarter of 2024?

Average loan balances remained flat at $17.1 billion in the first quarter of 2024.

What was the return on average assets for Commerce Bancshares, Inc. in the first quarter of 2024?

The return on average assets for Commerce Bancshares, Inc. was 1.48% in the first quarter of 2024.

Where can I find Commerce Bancshares, Inc.'s financial news release and earnings highlights presentation?

The company's financial news release and earnings highlights presentation are available on its website.