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Commerce Bancshares, Inc. Reports Third Quarter Earnings Per Share of $.96

Commerce Bancshares, Inc. announced earnings of $.96 per share for the three months ended September 30, 2023, compared to $.97 per share in the same quarter last year and $1.02 per share in the second quarter of 2023. Net income for the third quarter of 2023 amounted to $120.6 million, compared to $122.8 million in the third quarter of 2022 and $127.8 million in the prior quarter.

For the nine months ended September 30, 2023, earnings per share totaled $2.93, compared to $2.81 for the first nine months of 2022. Net income amounted to $367.8 million for the nine months ended September 30, 2023, compared to $356.8 million in the comparable period last year. For the year to date, the return on average assets was 1.53%, and the return on average equity was 18.42%.

"Our strong quarterly performance in this high-rate environment demonstrates the resilience of our operating model and the adaptability of our bank," said John Kemper, President and Chief Executive Officer. "Our net interest margin declined only one basis point from the previous quarter, reflecting the impact of higher asset yields and the strength of our core deposits. Non-interest income comprised 36.5% of total revenue."

On the balance sheet, Kemper added, "As planned, we decreased the excess liquidity position that was built through short-term brokered deposit funding and FHLB advances during the second quarter.

"Our liquidity and capital levels remain robust, and credit performance remains excellent, with non-accrual loans at .05% of total loans, the same level as the third quarter of last year."

Third Quarter 2023 Financial Highlights:

  • Net interest income was $248.5 million, a $991 thousand decrease from the prior quarter. The net yield on interest earning assets decreased 1 basis point to 3.11%.
  • Non-interest income totaled $142.9 million, an increase of $4.4 million compared to the same quarter last year.
  • Non-interest expense totaled $228.0 million, an increase of $15.1 million compared to the same quarter last year.
  • Average loan balances totaled $17.0 billion, an increase of $299.3 million, or 1.8%, over the prior quarter.
  • Total average available for sale debt securities decreased 6.9%, or $752.0 million, from the prior quarter to $10.2 billion, at fair value. During the third quarter of 2023, the unrealized loss on available for sale securities increased $177.4 million to $1.6 billion, at period end.
  • Total average deposits increased $358.6 million, or 1.4%, compared to June 30, 2023. The average rate paid on interest bearing deposits in the current quarter was 1.76%.
  • The ratio of annualized net loan charge-offs to average loans was .23% compared to .16% in the prior quarter.
  • The allowance for credit losses on loans increased $3.6 million during the third quarter to $162.2 million, and at September 30, 2023, the ratio of the allowance for credit losses on loans to total loans was .95%, compared to .94% at June 30, 2023.
  • Total assets at September 30, 2023 were $31.4 billion, a decrease of $1.5 billion, or 4.4%, from the prior quarter.
  • For the quarter, the return on average assets was 1.49%, the return on average equity was 17.73%, and the efficiency ratio was 58.2%.

Commerce Bancshares, Inc. is a regional bank holding company offering a full line of banking services through its subsidiaries, including payment solutions, investment management and securities brokerage. One of its subsidiaries, Commerce Bank, leverages nearly 160 years of proven strength and experience to help individuals and businesses solve financial challenges. In addition to offering payment solutions across the U.S., Commerce Bank currently operates full-service banking facilities across the Midwest including the St. Louis and Kansas City metropolitan areas, Springfield, Central Missouri, Central Illinois, Wichita, Tulsa, Oklahoma City, and Denver. It also maintains commercial offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids. Commerce delivers high-touch service and sophisticated financial solutions at regional branches, commercial offices, ATMs, online, mobile and through a 24/7 customer service line.

This financial news release and the supplementary Earnings Highlights presentation are available on the Company’s website at https://investor.commercebank.com/news-info/financial-news-releases/default.aspx.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

FINANCIAL HIGHLIGHTS

 

 

 

For the Three Months Ended

For the Nine Months Ended

(Unaudited)

(Dollars in thousands, except per share data)

 

Sep. 30,

2023

Jun. 30,

2023

Sep. 30,

2022

Sep. 30,

2023

Sep. 30,

2022

FINANCIAL SUMMARY

 

 

Net interest income

 

$248,547

 

$249,538

 

$246,373

 

$749,708

 

$687,544

 

Non-interest income

 

142,949

 

147,605

 

138,514

 

428,166

 

409,710

 

Total revenue

 

391,496

 

397,143

 

384,887

 

1,177,874

 

1,097,254

 

Investment securities gains (losses)

 

4,298

 

3,392

 

3,410

 

7,384

 

11,602

 

Provision for credit losses

 

11,645

 

6,471

 

15,290

 

29,572

 

12,594

 

Non-interest expense

 

228,010

 

227,611

 

212,884

 

679,728

 

632,037

 

Income before taxes

 

156,139

 

166,453

 

160,123

 

475,958

 

464,225

 

Income taxes

 

33,439

 

35,990

 

33,936

 

102,242

 

97,859

 

Non-controlling interest expense

 

2,104

 

2,674

 

3,364

 

5,879

 

9,595

 

Net income attributable to Commerce Bancshares, Inc.

$120,596

 

$127,789

 

$122,823

 

$367,837

 

$356,771

 

Earnings per common share:

 

 

 

 

 

 

Net income — basic

 

$0.96

 

$1.03

 

$0.97

 

$2.94

 

$2.81

 

Net income — diluted

 

$0.96

 

$1.02

 

$0.97

 

$2.93

 

$2.81

 

Effective tax rate

 

21.71

%

21.97

%

21.65

%

21.75

%

21.52

%

Fully-taxable equivalent net interest income

 

$250,962

 

$251,757

 

$248,737

 

$756,130

 

$695,140

 

Average total interest earning assets (1)

 

$31,974,945

 

$32,412,084

 

$32,807,393

 

$ 31,986,696

 

$33,853,577

 

Diluted wtd. average shares outstanding

 

123,817,943

 

124,007,300

 

125,116,585

 

124,026,459

 

125,887,632

 

 

 

 

 

 

 

 

RATIOS

 

 

 

 

 

 

Average loans to deposits (2)

 

66.39

%

66.15

%

56.40

%

65.85

%

54.05

%

Return on total average assets

 

1.49

 

1.56

 

1.48

 

1.53

 

1.39

 

Return on average equity (3)

 

17.73

 

18.81

 

17.84

 

18.42

 

16.08

 

Non-interest income to total revenue

 

36.51

 

37.17

 

35.99

 

36.35

 

37.34

 

Efficiency ratio (4)

 

58.15

 

57.22

 

55.19

 

57.62

 

57.48

 

Net yield on interest earning assets

 

3.11

 

3.12

 

3.01

 

3.16

 

2.75

 

 

 

 

 

 

 

 

EQUITY SUMMARY

 

 

 

 

 

 

Cash dividends per share

 

$.270

 

$.270

 

$.252

 

$.810

 

$.757

 

Cash dividends on common stock

 

$33,657

 

$33,744

 

$31,740

 

$101,160

 

$95,818

 

Book value per share (5)

 

$20.90

 

$21.53

 

$18.91

 

 

 

Market value per share (5)

 

$47.98

 

$48.70

 

$63.01

 

 

 

High market value per share

 

$54.99

 

$58.97

 

$70.45

 

 

 

Low market value per share

 

$46.30

 

$45.55

 

$61.14

 

 

 

Common shares outstanding (5)

 

124,367,765

 

124,734,830

 

125,329,198

 

 

 

Tangible common equity to tangible assets (6)

 

7.78

%

7.70

%

6.80

%

 

 

Tier I leverage ratio

 

10.87

%

10.46

%

9.87

%

 

 

 

 

 

 

 

 

 

OTHER QTD INFORMATION

 

 

 

 

 

 

Number of bank/ATM locations

 

266

 

272

 

277

 

 

 

Full-time equivalent employees

 

4,714

 

4,680

 

4,595

 

 

 

(1)

Excludes allowance for credit losses on loans and unrealized gains/(losses) on available for sale debt securities.

(2)

Includes loans held for sale.

(3)

Annualized net income attributable to Commerce Bancshares, Inc. divided by average total equity.

(4)

The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of total revenue.

(5)

As of period end.

(6)

The tangible common equity ratio is a non-gaap ratio and is calculated as stockholders’ equity reduced by goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).

All share and per share amounts have been restated to reflect the 5% stock dividend distributed in December 2022.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

 

(Unaudited)

(In thousands, except per share data)

 

For the Three Months Ended

For the Nine Months Ended

 

Sep. 30,

2023

Jun. 30,

2023

Mar. 31,

2023

Dec. 31,

2022

Sep. 30,

2022

Sep. 30,

2023

Sep. 30,

2022

Interest income

 

$361,162

 

$348,663

 

$308,857

 

$286,377

 

$262,666

 

$1,018,682

 

$712,602

 

Interest expense

 

112,615

 

99,125

 

57,234

 

31,736

 

16,293

 

268,974

 

25,058

 

Net interest income

 

248,547

 

249,538

 

251,623

 

254,641

 

246,373

 

749,708

 

687,544

 

Provision for credit losses

 

11,645

 

6,471

 

11,456

 

15,477

 

15,290

 

29,572

 

12,594

 

Net interest income after credit losses

236,902

 

243,067

 

240,167

 

239,164

 

231,083

 

720,136

 

674,950

 

NON-INTEREST INCOME

 

 

 

 

 

 

 

 

Bank card transaction fees

 

46,899

 

49,725

 

46,654

 

44,588

 

45,638

 

143,278

 

131,556

 

Trust fees

 

49,207

 

47,265

 

45,328

 

44,710

 

45,406

 

141,800

 

140,009

 

Deposit account charges and other fees

23,090

 

22,633

 

21,752

 

21,989

 

24,521

 

67,475

 

72,392

 

Consumer brokerage services

 

3,820

 

4,677

 

5,085

 

4,518

 

5,085

 

13,582

 

14,599

 

Capital market fees

 

2,410

 

2,539

 

3,362

 

3,386

 

3,393

 

8,311

 

10,845

 

Loan fees and sales

 

2,966

 

2,735

 

2,589

 

2,566

 

3,094

 

8,290

 

10,575

 

Other

 

14,557

 

18,031

 

12,842

 

15,068

 

11,377

 

45,430

 

29,734

 

Total non-interest income

 

142,949

 

147,605

 

137,612

 

136,825

 

138,514

 

428,166

 

409,710

 

INVESTMENT SECURITIES GAINS (LOSSES), NET

4,298

 

3,392

 

(306

)

8,904

 

3,410

 

7,384

 

11,602

 

NON-INTEREST EXPENSE

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

146,805

 

145,429

 

144,373

 

138,458

 

137,393

 

436,607

 

415,589

 

Data processing and software

 

30,744

 

28,719

 

28,154

 

27,991

 

28,050

 

87,617

 

82,701

 

Net occupancy

 

13,948

 

12,995

 

12,759

 

11,774

 

12,544

 

39,702

 

37,343

 

Marketing

 

6,167

 

6,368

 

5,471

 

5,419

 

6,228

 

18,006

 

18,408

 

Equipment

 

4,697

 

4,864

 

4,850

 

5,021

 

5,036

 

14,411

 

14,338

 

Supplies and communication

 

4,963

 

4,625

 

4,590

 

4,446

 

4,581

 

14,178

 

13,655

 

Other

 

20,686

 

24,611

 

23,910

 

23,631

 

19,052

 

69,207

 

50,003

 

Total non-interest expense

 

228,010

 

227,611

 

224,107

 

216,740

 

212,884

 

679,728

 

632,037

 

Income before income taxes

 

156,139

 

166,453

 

153,366

 

168,153

 

160,123

 

475,958

 

464,225

 

Less income taxes

 

33,439

 

35,990

 

32,813

 

34,499

 

33,936

 

102,242

 

97,859

 

Net income

 

122,700

 

130,463

 

120,553

 

133,654

 

126,187

 

373,716

 

366,366

 

Less non-controlling interest expense (income)

2,104

 

2,674

 

1,101

 

2,026

 

3,364

 

5,879

 

9,595

 

Net income attributable to Commerce Bancshares, Inc.

$120,596

 

$127,789

 

$119,452

 

$131,628

 

$122,823

 

$367,837

 

$356,771

 

Net income per common share — basic

$0.96

 

$1.03

 

$0.95

 

$1.05

 

$0.97

 

$2.94

 

$2.81

 

Net income per common share — diluted

$0.96

 

$1.02

 

$0.95

 

$1.04

 

$0.97

 

$2.93

 

$2.81

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

Return on total average assets

 

1.49

%

1.56

%

1.54

%

1.65

%

1.48

%

1.53

%

1.39

%

Return on average equity (1)

17.73

 

18.81

 

18.75

 

21.88

 

17.84

 

18.42

 

16.08

 

Efficiency ratio (2)

 

58.15

 

57.22

 

57.49

 

55.26

 

55.19

 

57.62

 

57.48

 

Effective tax rate

 

21.71

 

21.97

 

21.55

 

20.77

 

21.65

 

21.75

 

21.52

 

Net yield on interest earning assets

3.11

 

3.12

 

3.26

 

3.18

 

3.01

 

3.16

 

2.75

 

Fully-taxable equivalent net interest income

 

$250,962

 

$251,757

 

$253,411

 

$256,675

 

$248,737

 

$756,130

 

$695,140

 

(1)

Annualized net income attributable to Commerce Bancshares, Inc. divided by average total equity.

(2)

The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of total revenue.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS - PERIOD END

 

(Unaudited)

(In thousands)

 

Sep. 30,

2023

Jun. 30,

2023

Sep. 30,

2022

ASSETS

 

 

 

 

Loans

 

 

 

 

Business

 

$ 5,908,330

 

$ 5,906,493

 

$ 5,528,895

 

Real estate — construction and land

 

1,539,566

 

1,451,783

 

1,206,955

 

Real estate — business

 

3,647,168

 

3,621,222

 

3,331,627

 

Real estate — personal

 

3,024,639

 

2,980,599

 

2,862,519

 

Consumer

 

2,125,804

 

2,110,605

 

2,116,371

 

Revolving home equity

 

305,237

 

303,845

 

286,026

 

Consumer credit card

 

574,829

 

574,755

 

563,349

 

Overdrafts

 

3,753

 

7,237

 

3,216

 

Total loans

 

17,129,326

 

16,956,539

 

15,898,958

 

Allowance for credit losses on loans

 

(162,244

)

(158,685

)

(143,377

)

Net loans

 

16,967,082

 

16,797,854

 

15,755,581

 

Loans held for sale

 

5,120

 

6,776

 

8,062

 

Investment securities:

 

 

 

 

Available for sale debt securities

 

9,860,828

 

10,414,625

 

12,632,510

 

Trading debt securities

 

35,564

 

29,412

 

39,222

 

Equity securities

 

12,212

 

12,266

 

8,954

 

Other securities

 

230,792

 

258,045

 

222,742

 

Total investment securities

 

10,139,396

 

10,714,348

 

12,903,428

 

Federal funds sold

 

2,735

 

2,750

 

14,020

 

Securities purchased under agreements to resell

 

450,000

 

825,000

 

1,275,000

 

Interest earning deposits with banks

 

1,847,641

 

2,568,695

 

642,943

 

Cash and due from banks

 

358,010

 

366,699

 

344,178

 

Premises and equipment — net

 

460,830

 

451,568

 

407,833

 

Goodwill

 

146,539

 

146,371

 

138,921

 

Other intangible assets — net

 

14,432

 

14,666

 

15,599

 

Other assets

 

984,907

 

936,535

 

1,097,031

 

Total assets

 

$ 31,376,692

 

$ 32,831,262

 

$ 32,602,596

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Deposits:

 

 

 

 

Non-interest bearing

 

$ 7,961,402

 

$ 8,198,849

 

$ 10,468,591

 

Savings, interest checking and money market

 

14,154,275

 

14,418,974

 

16,014,487

 

Certificates of deposit of less than $100,000

 

1,210,169

 

1,543,424

 

391,145

 

Certificates of deposit of $100,000 and over

 

1,764,611

 

1,708,197

 

597,093

 

Total deposits

 

25,090,457

 

25,869,444

 

27,471,316

 

Federal funds purchased and securities sold under agreements to repurchase

 

2,745,181

 

2,878,021

 

2,314,590

 

Other borrowings

 

503,589

 

1,005,613

 

1,831

 

Other liabilities

 

438,199

 

392,956

 

443,752

 

Total liabilities

 

28,777,426

 

30,146,034

 

30,231,489

 

Stockholders’ equity:

 

 

 

 

Common stock

 

629,319

 

629,319

 

610,804

 

Capital surplus

 

2,924,211

 

2,921,365

 

2,683,631

 

Retained earnings

 

298,297

 

211,358

 

353,446

 

Treasury stock

 

(76,888

)

(58,389

)

(176,943

)

Accumulated other comprehensive income (loss)

 

(1,193,534

)

(1,036,295

)

(1,119,344

)

Total stockholders’ equity

 

2,581,405

 

2,667,358

 

2,351,594

 

Non-controlling interest

 

17,861

 

17,870

 

19,513

 

Total equity

 

2,599,266

 

2,685,228

 

2,371,107

 

Total liabilities and equity

 

$ 31,376,692

 

$ 32,831,262

 

$ 32,602,596

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

 

(Unaudited)

(In thousands)

For the Three Months Ended

Sep. 30,

2023

Jun. 30,

2023

Mar. 31,

2023

Dec. 31,

2022

Sep. 30,

2022

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business

$ 5,849,227

 

$ 5,757,388

 

$ 5,656,104

 

$ 5,478,241

 

$ 5,317,696

 

Real estate — construction and land

1,508,850

 

1,450,196

 

1,410,835

 

1,268,900

 

1,288,721

 

Real estate — business

3,642,010

 

3,540,851

 

3,478,382

 

3,300,697

 

3,258,128

 

Real estate — personal

2,992,500

 

2,960,962

 

2,933,750

 

2,886,686

 

2,844,376

 

Consumer

2,102,281

 

2,098,523

 

2,067,385

 

2,089,912

 

2,101,622

 

Revolving home equity

304,055

 

300,623

 

296,748

 

293,681

 

280,923

 

Consumer credit card

564,039

 

555,875

 

556,223

 

559,463

 

550,058

 

Overdrafts

5,341

 

4,630

 

4,449

 

7,428

 

4,438

 

Total loans

16,968,303

 

16,669,048

 

16,403,876

 

15,885,008

 

15,645,962

 

Allowance for credit losses on loans

(158,335

)

(159,068

)

(150,117

)

(143,285

)

(137,833

)

Net loans

16,809,968

 

16,509,980

 

16,253,759

 

15,741,723

 

15,508,129

 

Loans held for sale

5,714

 

5,957

 

5,708

 

6,567

 

7,170

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

986,284

 

1,035,651

 

1,099,067

 

1,055,602

 

1,113,442

 

Government-sponsored enterprise obligations

55,676

 

55,751

 

87,086

 

55,732

 

55,753

 

State and municipal obligations

1,391,541

 

1,532,519

 

1,793,756

 

1,990,643

 

2,052,908

 

Mortgage-backed securities

6,161,348

 

6,316,224

 

6,454,408

 

6,605,936

 

6,847,912

 

Asset-backed securities

2,553,562

 

2,827,911

 

3,233,757

 

3,714,092

 

3,870,953

 

Other debt securities

514,787

 

519,988

 

528,941

 

560,951

 

587,026

 

Unrealized gain (loss) on debt securities

(1,458,141

)

(1,331,002

)

(1,387,196

)

(1,582,061

)

(1,064,534

)

Total available for sale debt securities

10,205,057

 

10,957,042

 

11,809,819

 

12,400,895

 

13,463,460

 

Trading debt securities

35,044

 

46,493

 

45,757

 

44,626

 

35,621

 

Equity securities

12,230

 

12,335

 

12,458

 

10,534

 

8,838

 

Other securities

237,518

 

273,587

 

229,867

 

219,354

 

208,708

 

Total investment securities

10,489,849

 

11,289,457

 

12,097,901

 

12,675,409

 

13,716,627

 

Federal funds sold

2,722

 

7,484

 

38,978

 

27,683

 

13,486

 

Securities purchased under agreements to resell

712,472

 

824,974

 

825,000

 

1,174,457

 

1,379,341

 

Interest earning deposits with banks

2,337,744

 

2,284,162

 

809,935

 

640,039

 

980,273

 

Other assets

1,750,222

 

1,941,340

 

1,376,551

 

1,339,554

 

1,256,498

 

Total assets

$ 32,108,691

 

$ 32,863,354

 

$ 31,407,832

 

$ 31,605,432

 

$ 32,861,524

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Non-interest bearing deposits

$ 7,939,190

 

$ 8,224,475

 

$ 9,114,512

 

$ 10,360,834

 

$ 10,758,353

 

Savings

1,436,149

 

1,516,887

 

1,550,215

 

1,567,113

 

1,595,857

 

Interest checking and money market

13,048,199

 

12,918,399

 

13,265,485

 

13,693,974

 

14,423,713

 

Certificates of deposit of less than $100,000

1,423,965

 

1,075,110

 

415,367

 

388,304

 

397,071

 

Certificates of deposit of $100,000 and over

1,718,126

 

1,472,208

 

903,393

 

596,703

 

578,158

 

Total deposits

25,565,629

 

25,207,079

 

25,248,972

 

26,606,928

 

27,753,152

 

Borrowings:

 

 

 

 

 

Federal funds purchased

508,851

 

507,165

 

493,721

 

143,630

 

51,929

 

Securities sold under agreements to repurchase

2,283,020

 

2,206,612

 

2,418,726

 

2,260,263

 

2,199,866

 

Other borrowings

685,222

 

1,617,952

 

551,267

 

179,552

 

2,010

 

Total borrowings

3,477,093

 

4,331,729

 

3,463,714

 

2,583,445

 

2,253,805

 

Other liabilities

367,741

 

598,915

 

112,052

 

28,745

 

123,691

 

Total liabilities

29,410,463

 

30,137,723

 

28,824,738

 

29,219,118

 

30,130,648

 

Equity

2,698,228

 

2,725,631

 

2,583,094

 

2,386,314

 

2,730,876

 

Total liabilities and equity

$ 32,108,691

 

$ 32,863,354

 

$ 31,407,832

 

$ 31,605,432

 

$ 32,861,524

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

 

(Unaudited)

For the Three Months Ended

Sep. 30,

2023

Jun. 30,

2023

Mar. 31,

2023

Dec. 31,

2022

Sep. 30,

2022

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business (1)

5.77

%

5.58

%

5.31

%

4.68

%

3.94

%

Real estate — construction and land

8.17

 

7.92

 

7.33

 

6.80

 

5.27

 

Real estate — business

6.13

 

5.96

 

5.65

 

5.15

 

4.40

 

Real estate — personal

3.73

 

3.68

 

3.61

 

3.45

 

3.36

 

Consumer

5.97

 

5.63

 

5.31

 

4.77

 

4.17

 

Revolving home equity

7.76

 

7.55

 

7.03

 

5.89

 

4.82

 

Consumer credit card

13.77

 

13.77

 

13.68

 

12.64

 

12.05

 

Overdrafts

 

 

 

 

 

Total loans

6.02

 

5.84

 

5.56

 

5.03

 

4.37

 

Loans held for sale

10.55

 

10.17

 

10.30

 

10.09

 

8.80

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

2.31

 

3.42

 

1.90

 

2.01

 

4.51

 

Government-sponsored enterprise obligations

2.36

 

2.38

 

3.21

 

2.36

 

2.36

 

State and municipal obligations (1)

1.95

 

2.04

 

2.26

 

2.29

 

2.27

 

Mortgage-backed securities

2.06

 

2.09

 

2.06

 

1.88

 

1.93

 

Asset-backed securities

2.20

 

2.08

 

2.01

 

1.96

 

1.62

 

Other debt securities

1.75

 

1.86

 

1.93

 

1.89

 

1.93

 

Total available for sale debt securities

2.08

 

2.19

 

2.07

 

1.97

 

2.09

 

Trading debt securities (1)

5.11

 

4.53

 

4.59

 

3.81

 

2.74

 

Equity securities (1)

23.06

 

23.25

 

23.24

 

28.44

 

27.11

 

Other securities (1)

13.13

 

9.40

 

7.11

 

6.67

 

7.09

 

Total investment securities

2.33

 

2.37

 

2.18

 

2.07

 

2.18

 

Federal funds sold

6.56

 

5.63

 

5.09

 

4.27

 

2.77

 

Securities purchased under agreements to resell

2.08

 

1.99

 

1.94

 

2.36

 

1.72

 

Interest earning deposits with banks

5.39

 

5.14

 

4.67

 

3.69

 

2.25

 

Total interest earning assets

4.51

 

4.34

 

4.00

 

3.59

 

3.21

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

Savings

.05

 

.05

 

.05

 

.06

 

.04

 

Interest checking and money market

1.33

 

.93

 

.61

 

.38

 

.20

 

Certificates of deposit of less than $100,000

4.32

 

3.78

 

1.39

 

.73

 

.41

 

Certificates of deposit of $100,000 and over

4.37

 

3.93

 

2.98

 

1.42

 

.60

 

Total interest bearing deposits

1.76

 

1.29

 

.71

 

.40

 

.21

 

Borrowings:

 

 

 

 

 

Federal funds purchased

5.33

 

5.06

 

4.59

 

3.56

 

2.41

 

Securities sold under agreements to repurchase

3.20

 

3.09

 

2.93

 

2.29

 

1.37

 

Other borrowings

5.30

 

5.24

 

4.94

 

4.02

 

1.78

 

Total borrowings

3.93

 

4.13

 

3.49

 

2.48

 

1.39

 

Total interest bearing liabilities

2.12

%

1.87

%

1.20

%

.69

%

.34

%

 

 

 

 

 

 

Net yield on interest earning assets

3.11

%

3.12

%

3.26

%

3.18

%

3.01

%

(1)

Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

CREDIT QUALITY

 

 

 

For the Three Months Ended

For the Nine Months Ended

(Unaudited)

(In thousands, except ratios)

 

Sep. 30,

2023

Jun. 30,

2023

Mar. 31,

2023

Dec. 31,

2022

Sep. 30,

2022

Sep. 30,

2023

Sep. 30,

2022

ALLOWANCE FOR CREDIT LOSSES ON LOANS

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$158,685

 

$159,317

 

$150,136

 

$143,377

 

$138,039

 

$150,136

 

$150,044

 

Provision for credit losses on loans

 

13,343

 

5,864

 

15,948

 

12,404

 

10,150

 

35,155

 

6,751

 

Net charge-offs (recoveries):

 

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

 

Business

 

2,613

 

165

 

230

 

496

 

461

 

3,008

 

557

 

Real estate — construction and land

 

 

(115

)

 

 

 

(115

)

 

Real estate — business

 

(15

)

(5

)

(4

)

(4

)

(8

)

(24

)

(16

)

 

 

2,598

 

45

 

226

 

492

 

453

 

2,869

 

541

 

Personal banking portfolio:

 

 

 

 

 

 

 

 

Consumer credit card

 

4,716

 

4,687

 

4,325

 

3,467

 

2,882

 

13,728

 

9,191

 

Consumer

 

1,797

 

1,273

 

1,275

 

1,522

 

827

 

4,345

 

2,268

 

Overdraft

 

683

 

517

 

978

 

230

 

703

 

2,178

 

1,486

 

Real estate — personal

 

(9

)

(6

)

(11

)

(40

)

(15

)

(26

)

(34

)

Revolving home equity

 

(1

)

(20

)

(26

)

(26

)

(38

)

(47

)

(34

)

 

 

7,186

 

6,451

 

6,541

 

5,153

 

4,359

 

20,178

 

12,877

 

Total net loan charge-offs

 

9,784

 

6,496

 

6,767

 

5,645

 

4,812

 

23,047

 

13,418

 

Balance at end of period

 

$162,244

 

$158,685

 

$159,317

 

$150,136

 

$143,377

 

$162,244

 

$143,377

 

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

 

$27,537

 

$29,235

 

$28,628

 

$33,120

 

$30,047

 

 

 

 

 

 

 

 

 

 

 

 

NET CHARGE-OFF RATIOS (1)

 

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

 

Business

 

.18

%

.01

%

.02

%

.04

%

.03

%

.07

%

.01

%

Real estate — construction and land

 

 

(.03

)

 

 

 

(.01

)

 

Real estate — business

 

 

 

 

 

 

 

 

 

 

.09

 

 

.01

 

.02

 

.02

 

.04

 

.01

 

Personal banking portfolio:

 

 

 

 

 

 

 

 

Consumer credit card

 

3.32

 

3.38

 

3.15

 

2.46

 

2.08

 

3.28

 

2.26

 

Consumer

 

.34

 

.24

 

.25

 

.29

 

.16

 

.28

 

.15

 

Overdraft

 

50.73

 

44.79

 

89.15

 

12.28

 

62.85

 

60.54

 

39.39

 

Real estate — personal

 

 

 

 

(.01

)

 

 

 

Revolving home equity

 

 

(.03

)

(.04

)

(.04

)

(.05

)

(.02

)

(.02

)

 

 

.48

 

.44

 

.45

 

.35

 

.30

 

.46

 

.30

 

Total

 

.23

%

.16

%

.17

%

.14

%

.12

%

.18

%

.12

%

 

 

 

 

 

 

 

 

 

CREDIT QUALITY RATIOS

 

 

 

 

 

 

 

 

Non-accrual loans to total loans

 

.05

%

.04

%

.05

%

.05

%

.05

%

 

 

Allowance for credit losses on loans to total loans

 

.95

 

.94

 

.96

 

.92

 

.90

 

 

 

 

 

 

 

 

 

 

 

 

NON-ACCRUAL AND PAST DUE LOANS

 

 

 

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

 

 

 

Business

 

$6,602

 

$4,732

 

$6,361

 

$6,751

 

$5,645

 

 

 

Real estate — construction and land

 

 

 

 

 

 

 

 

Real estate — business

 

76

 

153

 

171

 

189

 

149

 

 

 

Real estate — personal

 

1,531

 

1,276

 

1,269

 

1,366

 

1,390

 

 

 

Total

 

8,209

 

6,161

 

7,801

 

8,306

 

7,184

 

 

 

Loans past due 90 days and still accruing interest

$18,580

 

$15,351

 

$14,800

 

$15,830

 

$12,538

 

 

 

(1)

Net charge-offs are annualized and calculated as a percentage of average loans (excluding loans held for sale).

COMMERCE BANCSHARES, INC.

Management Discussion of Third Quarter Results

September 30, 2023

For the quarter ended September 30, 2023, net income amounted to $120.6 million, compared to $127.8 million in the previous quarter and $122.8 million in the same quarter last year. The decrease in net income compared to the previous quarter was primarily the result of lower non-interest income coupled with a higher provision for credit losses. The net yield on interest earning assets declined 1 basis point from the previous quarter to 3.11%. Average loans and deposits grew $299.3 million and $358.6 million, respectively, compared to the previous quarter, while average borrowings and available for sale debt securities, at fair value, declined $854.6 million and $752.0 million, respectively. For the quarter, the return on average assets was 1.49%, the return on average equity was 17.73%, and the efficiency ratio was 58.2%.

Balance Sheet Review

During the 3rd quarter of 2023, average loans totaled $17.0 billion, an increase of $299.3 million over the prior quarter, and $1.3 billion, or 8.5%, over the same quarter last year. Compared to the previous quarter, average balances of business real estate, business, construction, and personal real estate loans grew $101.2 million, $91.8 million, $58.7 million, and $31.5 million, respectively. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $9.2 million, compared to $8.9 million in the prior quarter.

Total average available for sale debt securities decreased $752.0 million compared to the previous quarter to $10.2 billion, at fair value. The decrease in investment securities was mainly the result of lower balances of asset-backed, mortgage-backed, and state and municipal securities. During the 3rd quarter of 2023, the unrealized loss on available for sale securities increased $177.4 million to $1.6 billion, at period end, and maturities and pay downs were $369.5 million. At September 30, 2023, the duration of the available for sale investment portfolio was 3.9 years. The Company does not have any investment securities classified as held-to-maturity.

Total average deposits increased $358.6 million this quarter compared to the previous quarter. The increase in deposits mostly resulted from higher certificates of deposit and interest checking and money market deposits of $594.8 million and $129.8 million, respectively, partly offset by lower demand deposits of $285.3 million. Compared to the previous quarter, total average commercial deposits increased $452.3 million, while consumer deposits and wealth deposits declined $185.3 million and $66.1 million, respectively. The average loans to deposits ratio was 66.4% in the current quarter and 66.2% in the prior quarter. The Company’s average borrowings, which included customer repurchase agreements of $2.3 billion, decreased $854.6 million to $3.5 billion in the 3rd quarter of 2023, mostly due to a decline of $931.7 million in Federal Home Loan Bank (FHLB) borrowings.

Net Interest Income

Net interest income in the 3rd quarter of 2023 amounted to $248.5 million, a decrease of $991 thousand compared to the previous quarter. On a fully taxable-equivalent (FTE) basis, net interest income for the current quarter decreased $795 thousand from the previous quarter to $251.0 million. The decrease in net interest income was mostly due to higher interest expense on deposits and lower interest income on investment securities, partly offset by higher interest earned on loans and lower interest expense on borrowings. The net yield (FTE) on earning assets decreased to 3.11%, from 3.12% in the prior quarter.

Compared to the previous quarter, interest income on loans (FTE) increased $15.0 million, due to higher average rates earned in most loan categories, coupled with higher average balances in all loan categories. The average yield (FTE) on the loan portfolio increased 18 basis points to 6.02% this quarter.

Interest income on investment securities (FTE) decreased $4.4 million compared to the prior quarter, mostly due to lower average balances. Interest income earned on U.S. government and federal agency securities decreased due to lower rates earned, which included the impact of $2.5 million in lower inflation income from Treasury inflation-protected securities this quarter. Partly offsetting this decrease was a $2.3 million dividend from a private equity investment this quarter. Additionally, at September 30, 2023, the Company recorded a $1.3 million adjustment to premium amortization, which increased interest income to reflect slower forward prepayment speed estimates on mortgage-backed securities. The average yield (FTE) on total investment securities was 2.33% in the current quarter, compared to 2.37% in the previous quarter.

Compared to the previous quarter, interest income on deposits with banks increased $2.5 million, due to higher average rates earned and average balances. The average yield on deposits with banks was 5.39% in the current quarter, compared to 5.14% in the prior quarter.

Interest expense increased $13.5 million, mostly due to higher average balances and rates paid on deposits, partly offset by lower average borrowings. The average rate paid on interest bearing deposits totaled 1.76% in the current quarter compared to 1.29% in the prior quarter. Interest expense on deposits increased $23.6 million this quarter compared to the previous quarter. Interest expense on borrowings decreased $10.1 million, mostly due to a decline in average FHLB borrowings of $931.7 million. The overall rate paid on interest bearing liabilities was 2.12% in the current quarter compared to 1.87% in the prior quarter.

Non-Interest Income

In the 3rd quarter of 2023, total non-interest income amounted to $142.9 million, an increase of $4.4 million compared to the same period last year and a decrease of $4.7 million compared to the prior quarter. The increase in non-interest income compared to the same period last year was mainly due to higher trust and bank card fees, partly offset by lower deposit fees, brokerage fees, and capital market fees. The decrease in non-interest income compared to the prior quarter was mainly due to lower bank card fees, letter of credit fees, and swap fees, partly offset by higher trust fees and tax credit fees. Additionally, a decrease of $1.5 million in fair value adjustments was recorded on the Company’s deferred compensation plan assets, which are held in a trust and recorded as both and asset and liability, affecting both other income and other expense.

Total net bank card fees in the current quarter increased $1.3 million, or 2.8%, compared to the same period last year, and decreased $2.8 million compared to the prior quarter. Net corporate card fees increased $220 thousand, or .8%, over the same quarter of last year mainly due to lower network expense and rewards expense, mostly offset by lower interchange fee income. Net debit card fees increased $581 thousand, or 5.5%, and net merchant fees increased $627 thousand, or 12.0%, due to higher interchange fees, while net credit card fees decreased $167 thousand, or 4.6%. Total net bank card fees this quarter were comprised of fees on corporate card ($26.5 million), debit card ($11.1 million), merchant ($5.9 million) and credit card ($3.4 million) transactions.

In the current quarter, trust fees increased $3.8 million, or 8.4%, over the same period last year, mostly resulting from higher private client trust fees. Compared to the same period last year, deposit account fees decreased $1.4 million, or 5.8%, due to lower overdraft and return item fees of $3.0 million, partly offset by higher corporate cash management fees of $1.6 million.

Other non-interest income increased over the same period last year primarily due to higher bond underwriting fees of $942 thousand and gains on the sale of real estate in the current quarter of $1.3 million. For the 3rd quarter of 2023, non-interest income comprised 36.5% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded net securities gains of $4.3 million in the current quarter, compared to gains of $3.4 million in both the prior quarter and the 3rd quarter of 2022. Net securities gains in the current quarter primarily resulted from net fair value gains of $5.6 million and an $847 thousand loss on the sale of an investment in the Company’s private equity portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $228.0 million, compared to $212.9 million in the same period last year and $227.6 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to higher salaries and employee benefits expense, data processing and software expense, FDIC insurance expense, and occupancy expense. The increase in non-interest expense compared to the prior quarter was mainly due to higher salaries expense, data processing and software expense, and miscellaneous losses, partly offset by lower deconversion expense and the $1.5 million decrease in the deferred compensation adjustment previously mentioned.

Compared to the 3rd quarter of last year, salaries and employee benefits expense increased $9.4 million, mostly due to higher full-time salaries expense of $6.4 million, or 6.9%, and higher medical expense of $2.0 million. Full-time equivalent employees totaled 4,714 and 4,595 at September 30, 2023 and 2022, respectively.

Compared to the same period last year, data processing and software expense increased $2.7 million due to higher bank card fees expense and increased costs for service providers. Occupancy expense increased $1.4 million mostly due to higher depreciation and real estate taxes, partly offset by higher external rent income. Other non-interest expense increased $1.6 million, mostly due to growth in FDIC insurance and lower deferred loan origination costs of $1.3 million and $982 thousand, respectively.

Income Taxes

The effective tax rate for the Company was 21.7% in the current quarter, 22.0% in the previous quarter, and 21.7% in the 3rd quarter of 2022.

Credit Quality

Net loan charge-offs in the 3rd quarter of 2023 amounted to $9.8 million, compared to $6.5 million in the prior quarter and $4.8 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .23% in the current quarter, .16% in the previous quarter, and .12% in the 3rd quarter of last year. Compared to the prior quarter, net loan charge-offs on commercial loans increased $2.6 million to $2.6 million, while net loan charge-offs on personal banking loans increased $735 thousand to $7.2 million, mainly due to higher consumer loan net charge-offs.

In the 3rd quarter of 2023, annualized net loan charge-offs on average consumer credit card loans were 3.32%, compared to 3.38% in the previous quarter, and 2.08% in the same quarter last year. Consumer loan net charge-offs were .34% of average consumer loans in the current quarter, .24% in the prior quarter, and .16% in the same quarter last year.

At September 30, 2023, the allowance for credit losses on loans totaled $162.2 million, or .95% of total loans, and increased $3.6 million compared to the prior quarter. Additionally, the liability for unfunded lending commitments at September 30, 2023 was $27.5 million, a decrease of $1.7 million compared to the liability at June 30, 2023.

At September 30, 2023, total non-accrual loans amounted to $8.2 million, an increase of $2.0 compared to the previous quarter. At September 30, 2023, the balance of non-accrual loans, which represented .05% of loans outstanding, included business loans of $6.6 million, personal real estate loans of $1.5 million, and business real estate loans of $76 thousand. Loans more than 90 days past due and still accruing interest totaled $18.6 million at September 30, 2023.

Liquidity

During the 3rd quarter of 2023, the Company reduced its deposit balance at the Federal Reserve Bank (FRB) by $721.1 million to $1.8 billion. The change in the balance at the FRB was mostly the result of a $779.0 million decrease in total deposits, including a $502.6 million decrease in brokered certificates of deposit, a $500.0 million decrease in FHLB advances, and a $172.8 million increase in loan balances, partly offset by $369.5 million of maturities and paydowns in the available for sale debt securities portfolio, and $375.0 million of maturities in securities purchased under agreements to resell.

The Company regularly pledges loans and securities to the FRB and at both September 30, 2023 and June 30, 2023, the Company’s pledging resulted in a total borrowing capacity of $5.0 billion. The Company did not have any borrowings from the FRB’s Discount Window or the Bank Term Funding Program during the current quarter. The Company also pledges loans and securities and borrows from the FHLB. During the 3rd quarter of 2023, the Company reduced its outstanding borrowings from the FHLB by $500.0 million to $500.0 million and had $1.6 billion of available borrowing capacity at September 30, 2023. Additionally, the Company pledges portions of its investment securities portfolio to secure public fund deposits, trust funds, and securities sold under agreements to repurchase.

The Company has an available for sale debt securities portfolio with a fair market value of $9.9 billion at September 30, 2023. Approximately $2.1 billion is expected to mature or pay down over the next 12 months. At September 30, 2023, the Company had pledged $6.9 billion of the securities portfolio. The Company also has a portfolio of $450.0 million in securities purchased under agreements to resell, of which $325.0 million are expected to mature over the next 12 months.

Other

During the 3rd quarter of 2023, the Company paid a cash dividend of $.27 per common share, representing a 7.1% increase over the same period last year. The Company purchased 388,304 shares of treasury stock during the current quarter at an average price of $50.96.

Forward Looking Information

This information contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include future financial and operating results, expectations, intentions, and other statements that are not historical facts. Such statements are based on current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.

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