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Commerce Bancshares, Inc. Reports Second Quarter Earnings Per Share of $1.02

Commerce Bancshares, Inc. announced earnings of $1.02 per share for the three months ended June 30, 2023, compared to $.92 per share in the same quarter last year and $.95 per share in the first quarter of 2023. Net income for the second quarter of 2023 amounted to $127.8 million, compared to $115.8 million in the second quarter of 2022 and $119.5 million in the prior quarter.

For the six months ended June 30, 2023, earnings per share totaled $1.97, compared to $1.84 for the first six months of 2022. Net income amounted to $247.2 million for the six months ended June 30, 2023, compared to $233.9 million in the comparable period last year. For the year to date, the return on average assets was 1.55%, and the return on average equity was 18.78%.

“Commerce delivered strong results in the second quarter,” said John Kemper, President and Chief Executive Officer. “Against a backdrop of elevated interest rates, the Company produced record revenues, showing strength in both our net interest and non-interest income categories. These results reflect the ability of our diversified business model to perform across economic cycles. Our low loan-to-deposit ratio positioned us to meet loan demand across our footprint and provided opportunities for our teams to welcome new customer relationships.”

On deposit balances, Kemper added, “Our customer deposits increased during the quarter, helping to accommodate loan growth. On top of this, the Company took steps to add short-term brokered deposit funding, increasing our liquidity cushion in the wake of the first quarter’s industry disruption. This short-term liquidity build impacted our net interest margin but was neutral to net interest income and reflects our conservative posture in times of economic uncertainty.

We are confident in our liquidity and capital levels, and credit performance remains excellent.”

Second Quarter 2023 Financial Highlights:

  • Net interest income was $249.5 million, a $2.1 million decrease from the prior quarter. The net yield on interest earning assets decreased 14 basis points to 3.12%.
  • Non-interest income totaled $147.6 million, an increase of $8.2 million compared to the same quarter last year.
  • Non-interest expense totaled $227.6 million, an increase of $14.1 million compared to the same quarter last year.
  • Average loan balances totaled $16.7 billion, an increase of $265.2 million, or 1.6%, over the prior quarter.
  • Total average available for sale debt securities decreased 7.2%, or $852.8 million, from the prior quarter to $11.0 billion, at fair value. During the second quarter of 2023, the unrealized loss on available for sale securities increased $109.2 million to $1.4 billion, at period end.
  • Period end deposits increased $1.2 billion, or 4.8%, over March 31, 2023. The average rate paid on interest bearing deposits in the current quarter was 1.29%.
  • The ratio of annualized net loan charge-offs to average loans was .16% compared to .17% in the prior quarter.
  • The allowance for credit losses on loans decreased $632 thousand during the second quarter to $158.7 million, and at June 30, 2023, the ratio of the allowance for credit losses on loans to total loans was .94%, compared to .96% at March 31, 2023.
  • Total assets at June 30, 2023 were $32.8 billion, an increase of $826.4 million, or 2.6%, over the prior quarter.
  • For the quarter, the return on average assets was 1.56%, the return on average equity was 18.81%, and the efficiency ratio was 57.2%.

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 Six Months Ended

(Unaudited)

(Dollars in thousands, except per share data)

 

Jun. 30,

2023

Mar. 31,

2023

Jun. 30,

2022

Jun. 30,

2023

Jun. 30,

2022

FINANCIAL SUMMARY

 

 

Net interest income

 

$249,538

 

$251,623

 

$232,385

 

$501,161

 

$441,171

 

Non-interest income

 

147,605

 

137,612

 

139,427

 

285,217

 

271,196

 

Total revenue

 

397,143

 

389,235

 

371,812

 

786,378

 

712,367

 

Investment securities gains (losses)

 

3,392

 

(306

)

1,029

 

3,086

 

8,192

 

Provision for credit losses

 

6,471

 

11,456

 

7,162

 

17,927

 

(2,696

)

Non-interest expense

 

227,611

 

224,107

 

213,505

 

451,718

 

419,153

 

Income before taxes

 

166,453

 

153,366

 

152,174

 

319,819

 

304,102

 

Income taxes

 

35,990

 

32,813

 

32,021

 

68,803

 

63,923

 

Non-controlling interest expense

 

2,674

 

1,101

 

4,359

 

3,775

 

6,231

 

Net income attributable to Commerce Bancshares, Inc.

$127,789

 

$119,452

 

$115,794

 

$247,241

 

$233,948

 

Earnings per common share:

 

 

 

 

 

 

Net income — basic

 

$1.03

 

$0.95

 

$0.92

 

$1.98

 

$1.84

 

Net income — diluted

 

$1.02

 

$0.95

 

$0.92

 

$1.97

 

$1.84

 

Effective tax rate

 

21.97

%

21.55

%

21.66

%

21.77

%

21.46

%

Fully-taxable equivalent net interest income

 

$251,757

 

$253,411

 

$235,010

 

$505,168

 

$446,403

 

Average total interest earning assets (1)

 

$32,412,084

 

$31,568,594

 

$33,839,655

 

$ 31,992,669

 

$34,385,339

 

Diluted wtd. average shares outstanding

 

124,007,300

 

124,258,981

 

125,916,229

 

124,132,445

 

126,279,546

 

 

 

 

 

 

 

 

RATIOS

 

 

 

 

 

 

Average loans to deposits (2)

 

66.15

%

64.99

%

53.93

%

65.57

%

52.91

%

Return on total average assets

 

1.56

 

1.54

 

1.36

 

1.55

 

1.35

 

Return on average equity (3)

 

18.81

 

18.75

 

16.29

 

18.78

 

15.28

 

Non-interest income to total revenue

 

37.17

 

35.35

 

37.50

 

36.27

 

38.07

 

Efficiency ratio (4)

 

57.22

 

57.49

 

57.29

 

57.35

 

58.72

 

Net yield on interest earning assets

 

3.12

 

3.26

 

2.79

 

3.18

 

2.62

 

 

 

 

 

 

 

 

EQUITY SUMMARY

 

 

 

 

 

 

Cash dividends per share

 

$.270

 

$.270

 

$.252

 

$.540

 

$.505

 

Cash dividends on common stock

 

$33,744

 

$33,759

 

$31,935

 

$67,503

 

$64,078

 

Book value per share (5)

 

$21.53

 

$21.51

 

$21.23

 

 

 

Market value per share (5)

 

$48.70

 

$58.35

 

$62.52

 

 

 

High market value per share

 

$58.97

 

$70.20

 

$70.78

 

 

 

Low market value per share

 

$45.55

 

$55.72

 

$59.81

 

 

 

Common shares outstanding (5)

 

124,734,830

 

124,720,710

 

126,034,333

 

 

 

Tangible common equity to tangible assets (6)

 

7.70

%

7.92

%

7.56

%

 

 

Tier I leverage ratio

 

10.46

%

10.61

%

9.45

%

 

 

 

 

 

 

 

 

 

OTHER QTD INFORMATION

 

 

 

 

 

 

Number of bank/ATM locations

 

272

 

275

 

279

 

 

 

Full-time equivalent employees

 

4,680

 

4,636

 

4,579

 

 

 

(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 Six Months Ended

 

Jun. 30,

2023

Mar. 31,

2023

Dec. 31,

2022

Sep. 30,

2022

Jun. 30,

2022

Jun. 30,

2023

Jun. 30,

2022

Interest income

 

$348,663

 

$308,857

 

$286,377

 

$262,666

 

$238,154

 

$657,520

 

$449,936

 

Interest expense

 

99,125

 

57,234

 

31,736

 

16,293

 

5,769

 

156,359

 

8,765

 

Net interest income

 

249,538

 

251,623

 

254,641

 

246,373

 

232,385

 

501,161

 

441,171

 

Provision for credit losses

 

6,471

 

11,456

 

15,477

 

15,290

 

7,162

 

17,927

 

(2,696

)

Net interest income after credit losses

243,067

 

240,167

 

239,164

 

231,083

 

225,223

 

483,234

 

443,867

 

NON-INTEREST INCOME

 

 

 

 

 

 

 

 

Bank card transaction fees

 

49,725

 

46,654

 

44,588

 

45,638

 

43,873

 

96,379

 

85,918

 

Trust fees

 

47,265

 

45,328

 

44,710

 

45,406

 

46,792

 

92,593

 

94,603

 

Deposit account charges and other fees

22,633

 

21,752

 

21,989

 

24,521

 

25,564

 

44,385

 

47,871

 

Consumer brokerage services

 

4,677

 

5,085

 

4,518

 

5,085

 

5,068

 

9,762

 

9,514

 

Capital market fees

 

2,539

 

3,362

 

3,386

 

3,393

 

3,327

 

5,901

 

7,452

 

Loan fees and sales

 

2,735

 

2,589

 

2,566

 

3,094

 

3,246

 

5,324

 

7,481

 

Other

 

18,031

 

12,842

 

15,068

 

11,377

 

11,557

 

30,873

 

18,357

 

Total non-interest income

 

147,605

 

137,612

 

136,825

 

138,514

 

139,427

 

285,217

 

271,196

 

INVESTMENT SECURITIES GAINS (LOSSES), NET

3,392

 

(306

)

8,904

 

3,410

 

1,029

 

3,086

 

8,192

 

NON-INTEREST EXPENSE

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

145,429

 

144,373

 

138,458

 

137,393

 

142,243

 

289,802

 

278,196

 

Data processing and software

 

28,719

 

28,154

 

27,991

 

28,050

 

27,635

 

56,873

 

54,651

 

Net occupancy

 

12,995

 

12,759

 

11,774

 

12,544

 

12,503

 

25,754

 

24,799

 

Marketing

 

6,368

 

5,471

 

5,419

 

6,228

 

5,836

 

11,839

 

12,180

 

Equipment

 

4,864

 

4,850

 

5,021

 

5,036

 

4,734

 

9,714

 

9,302

 

Supplies and communication

 

4,625

 

4,590

 

4,446

 

4,581

 

4,361

 

9,215

 

9,074

 

Other

 

24,611

 

23,910

 

23,631

 

19,052

 

16,193

 

48,521

 

30,951

 

Total non-interest expense

 

227,611

 

224,107

 

216,740

 

212,884

 

213,505

 

451,718

 

419,153

 

Income before income taxes

 

166,453

 

153,366

 

168,153

 

160,123

 

152,174

 

319,819

 

304,102

 

Less income taxes

 

35,990

 

32,813

 

34,499

 

33,936

 

32,021

 

68,803

 

63,923

 

Net income

 

130,463

 

120,553

 

133,654

 

126,187

 

120,153

 

251,016

 

240,179

 

Less non-controlling interest expense (income)

2,674

 

1,101

 

2,026

 

3,364

 

4,359

 

3,775

 

6,231

 

Net income attributable to Commerce Bancshares, Inc.

$127,789

 

$119,452

 

$131,628

 

$122,823

 

$115,794

 

$247,241

 

$233,948

 

Net income per common share — basic

$1.03

 

$0.95

 

$1.05

 

$0.97

 

$0.92

 

$1.98

 

$1.84

 

Net income per common share — diluted

$1.02

 

$0.95

 

$1.04

 

$0.97

 

$0.92

 

$1.97

 

$1.84

 

 

 

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

Return on total average assets

 

1.56

%

1.54

%

1.65

%

1.48

%

1.36

%

1.55

%

1.35

%

Return on average equity (1)

18.81

 

18.75

 

21.88

 

17.84

 

16.29

 

18.78

 

15.28

 

Efficiency ratio (2)

 

57.22

 

57.49

 

55.26

 

55.19

 

57.29

 

57.35

 

58.72

 

Effective tax rate

 

21.97

 

21.55

 

20.77

 

21.65

 

21.66

 

21.77

 

21.46

 

Net yield on interest earning assets

3.12

 

3.26

 

3.18

 

3.01

 

2.79

 

3.18

 

2.62

 

Fully-taxable equivalent net interest income

 

$251,757

 

$253,411

 

$256,675

 

$248,737

 

$235,010

 

$505,168

 

$446,403

 

(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)

 

Jun. 30,

2023

Mar. 31,

2023

Jun. 30,

2022

ASSETS

 

 

 

 

Loans

 

 

 

 

Business

 

$ 5,906,493

 

$ 5,704,467

 

$ 5,441,592

 

Real estate — construction and land

 

1,451,783

 

1,437,419

 

1,266,260

 

Real estate — business

 

3,621,222

 

3,486,543

 

3,215,578

 

Real estate — personal

 

2,980,599

 

2,952,042

 

2,836,835

 

Consumer

 

2,110,605

 

2,094,389

 

2,089,592

 

Revolving home equity

 

303,845

 

295,478

 

271,854

 

Consumer credit card

 

574,755

 

558,669

 

558,102

 

Overdrafts

 

7,237

 

6,515

 

6,814

 

Total loans

 

16,956,539

 

16,535,522

 

15,686,627

 

Allowance for credit losses on loans

 

(158,685

)

(159,317

)

(138,039

)

Net loans

 

16,797,854

 

16,376,205

 

15,548,588

 

Loans held for sale

 

6,776

 

6,162

 

6,467

 

Investment securities:

 

 

 

 

Available for sale debt securities

 

10,414,625

 

11,228,616

 

13,700,308

 

Trading debt securities

 

29,412

 

41,584

 

34,195

 

Equity securities

 

12,266

 

12,528

 

8,546

 

Other securities

 

258,045

 

268,417

 

207,989

 

Total investment securities

 

10,714,348

 

11,551,145

 

13,951,038

 

Federal funds sold

 

2,750

 

27,060

 

26,000

 

Securities purchased under agreements to resell

 

825,000

 

825,000

 

1,450,000

 

Interest earning deposits with banks

 

2,568,695

 

1,341,854

 

684,994

 

Cash and due from banks

 

366,699

 

351,210

 

355,524

 

Premises and equipment — net

 

451,568

 

428,169

 

397,877

 

Goodwill

 

146,371

 

138,921

 

138,921

 

Other intangible assets — net

 

14,666

 

14,918

 

15,853

 

Other assets

 

936,535

 

944,212

 

860,108

 

Total assets

 

$ 32,831,262

 

$ 32,004,856

 

$ 33,435,370

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

Deposits:

 

 

 

 

Non-interest bearing

 

$ 8,198,849

 

$ 8,685,234

 

$ 11,102,585

 

Savings, interest checking and money market

 

14,418,974

 

14,419,741

 

16,063,064

 

Certificates of deposit of less than $100,000

 

1,543,424

 

468,667

 

404,096

 

Certificates of deposit of $100,000 and over

 

1,708,197

 

1,109,818

 

601,488

 

Total deposits

 

25,869,444

 

24,683,460

 

28,171,233

 

Federal funds purchased and securities sold under agreements to repurchase

 

2,878,021

 

2,784,559

 

2,234,296

 

Other borrowings

 

1,005,613

 

1,507,776

 

6,025

 

Other liabilities

 

392,956

 

346,649

 

348,503

 

Total liabilities

 

30,146,034

 

29,322,444

 

30,760,057

 

Stockholders’ equity:

 

 

 

 

Common stock

 

629,319

 

629,319

 

610,804

 

Capital surplus

 

2,921,365

 

2,919,060

 

2,682,161

 

Retained earnings

 

211,358

 

117,313

 

262,363

 

Treasury stock

 

(58,389

)

(59,670

)

(129,588

)

Accumulated other comprehensive income (loss)

 

(1,036,295

)

(940,498

)

(766,894

)

Total stockholders’ equity

 

2,667,358

 

2,665,524

 

2,658,846

 

Non-controlling interest

 

17,870

 

16,888

 

16,467

 

Total equity

 

2,685,228

 

2,682,412

 

2,675,313

 

Total liabilities and equity

 

$ 32,831,262

 

$ 32,004,856

 

$ 33,435,370

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE BALANCE SHEETS

 

(Unaudited)

(In thousands)

For the Three Months Ended

Jun. 30,

2023

Mar. 31,

2023

Dec. 31,

2022

Sep. 30,

2022

Jun. 30,

2022

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business

$ 5,757,388

 

$ 5,656,104

 

$ 5,478,241

 

$ 5,317,696

 

$ 5,385,181

 

Real estate — construction and land

1,450,196

 

1,410,835

 

1,268,900

 

1,288,721

 

1,225,267

 

Real estate — business

3,540,851

 

3,478,382

 

3,300,697

 

3,258,128

 

3,163,508

 

Real estate — personal

2,960,962

 

2,933,750

 

2,886,686

 

2,844,376

 

2,825,578

 

Consumer

2,098,523

 

2,067,385

 

2,089,912

 

2,101,622

 

2,070,560

 

Revolving home equity

300,623

 

296,748

 

293,681

 

280,923

 

272,280

 

Consumer credit card

555,875

 

556,223

 

559,463

 

550,058

 

537,681

 

Overdrafts

4,630

 

4,449

 

7,428

 

4,438

 

5,524

 

Total loans

16,669,048

 

16,403,876

 

15,885,008

 

15,645,962

 

15,485,579

 

Allowance for credit losses on loans

(159,068

)

(150,117

)

(143,285

)

(137,833

)

(134,670

)

Net loans

16,509,980

 

16,253,759

 

15,741,723

 

15,508,129

 

15,350,909

 

Loans held for sale

5,957

 

5,708

 

6,567

 

7,170

 

7,933

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

1,035,651

 

1,099,067

 

1,055,602

 

1,113,442

 

1,119,305

 

Government-sponsored enterprise obligations

55,751

 

87,086

 

55,732

 

55,753

 

55,762

 

State and municipal obligations

1,532,519

 

1,793,756

 

1,990,643

 

2,052,908

 

2,126,380

 

Mortgage-backed securities

6,316,224

 

6,454,408

 

6,605,936

 

6,847,912

 

7,158,252

 

Asset-backed securities

2,827,911

 

3,233,757

 

3,714,092

 

3,870,953

 

4,038,113

 

Other debt securities

519,988

 

528,941

 

560,951

 

587,026

 

643,463

 

Unrealized gain (loss) on debt securities

(1,331,002

)

(1,387,196

)

(1,582,061

)

(1,064,534

)

(851,110

)

Total available for sale debt securities

10,957,042

 

11,809,819

 

12,400,895

 

13,463,460

 

14,290,165

 

Trading debt securities

46,493

 

45,757

 

44,626

 

35,621

 

43,904

 

Equity securities

12,335

 

12,458

 

10,534

 

8,838

 

9,094

 

Other securities

273,587

 

229,867

 

219,354

 

208,708

 

195,090

 

Total investment securities

11,289,457

 

12,097,901

 

12,675,409

 

13,716,627

 

14,538,253

 

Federal funds sold

7,484

 

38,978

 

27,683

 

13,486

 

4,269

 

Securities purchased under agreements to resell

824,974

 

825,000

 

1,174,457

 

1,379,341

 

1,703,569

 

Interest earning deposits with banks

2,284,162

 

809,935

 

640,039

 

980,273

 

1,248,942

 

Other assets

1,941,340

 

1,376,551

 

1,339,554

 

1,256,498

 

1,238,493

 

Total assets

$ 32,863,354

 

$ 31,407,832

 

$ 31,605,432

 

$ 32,861,524

 

$ 34,092,368

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Non-interest bearing deposits

$ 8,224,475

 

$ 9,114,512

 

$ 10,360,834

 

$ 10,758,353

 

$ 11,209,680

 

Savings

1,516,887

 

1,550,215

 

1,567,113

 

1,595,857

 

1,609,694

 

Interest checking and money market

12,918,399

 

13,265,485

 

13,693,974

 

14,423,713

 

14,847,306

 

Certificates of deposit of less than $100,000

1,075,110

 

415,367

 

388,304

 

397,071

 

411,655

 

Certificates of deposit of $100,000 and over

1,472,208

 

903,393

 

596,703

 

578,158

 

648,728

 

Total deposits

25,207,079

 

25,248,972

 

26,606,928

 

27,753,152

 

28,727,063

 

Borrowings:

 

 

 

 

 

Federal funds purchased

507,165

 

493,721

 

143,630

 

51,929

 

113,128

 

Securities sold under agreements to repurchase

2,206,612

 

2,418,726

 

2,260,263

 

2,199,866

 

2,258,184

 

Other borrowings

1,617,952

 

551,267

 

179,552

 

2,010

 

2,029

 

Total borrowings

4,331,729

 

3,463,714

 

2,583,445

 

2,253,805

 

2,373,341

 

Other liabilities

598,915

 

112,052

 

28,745

 

123,691

 

139,986

 

Total liabilities

30,137,723

 

28,824,738

 

29,219,118

 

30,130,648

 

31,240,390

 

Equity

2,725,631

 

2,583,094

 

2,386,314

 

2,730,876

 

2,851,978

 

Total liabilities and equity

$ 32,863,354

 

$ 31,407,832

 

$ 31,605,432

 

$ 32,861,524

 

$ 34,092,368

 

COMMERCE BANCSHARES, INC. and SUBSIDIARIES

AVERAGE RATES

 

(Unaudited)

For the Three Months Ended

Jun. 30,

2023

Mar. 31,

2023

Dec. 31,

2022

Sep. 30,

2022

Jun. 30,

2022

ASSETS:

 

 

 

 

 

Loans:

 

 

 

 

 

Business (1)

5.58

%

5.31

%

4.68

%

3.94

%

3.16

%

Real estate — construction and land

7.92

 

7.33

 

6.80

 

5.27

 

4.09

 

Real estate — business

5.96

 

5.65

 

5.15

 

4.40

 

3.70

 

Real estate — personal

3.68

 

3.61

 

3.45

 

3.36

 

3.27

 

Consumer

5.63

 

5.31

 

4.77

 

4.17

 

3.62

 

Revolving home equity

7.55

 

7.03

 

5.89

 

4.82

 

3.69

 

Consumer credit card

13.77

 

13.68

 

12.64

 

12.05

 

11.32

 

Overdrafts

 

 

 

 

 

Total loans

5.84

 

5.56

 

5.03

 

4.37

 

3.72

 

Loans held for sale

10.17

 

10.30

 

10.09

 

8.80

 

8.14

 

Investment securities:

 

 

 

 

 

U.S. government and federal agency obligations

3.42

 

1.90

 

2.01

 

4.51

 

4.93

 

Government-sponsored enterprise obligations

2.38

 

3.21

 

2.36

 

2.36

 

2.39

 

State and municipal obligations (1)

2.04

 

2.26

 

2.29

 

2.27

 

2.30

 

Mortgage-backed securities

2.09

 

2.06

 

1.88

 

1.93

 

1.99

 

Asset-backed securities

2.08

 

2.01

 

1.96

 

1.62

 

1.35

 

Other debt securities

1.86

 

1.93

 

1.89

 

1.93

 

1.97

 

Total available for sale debt securities

2.19

 

2.07

 

1.97

 

2.09

 

2.08

 

Trading debt securities (1)

4.53

 

4.59

 

3.81

 

2.74

 

2.46

 

Equity securities (1)

23.25

 

23.24

 

28.44

 

27.11

 

26.90

 

Other securities (1)

9.40

 

7.11

 

6.67

 

7.09

 

22.38

 

Total investment securities

2.37

 

2.18

 

2.07

 

2.18

 

2.36

 

Federal funds sold

5.63

 

5.09

 

4.27

 

2.77

 

1.79

 

Securities purchased under agreements to resell

1.99

 

1.94

 

2.36

 

1.72

 

1.03

 

Interest earning deposits with banks

5.14

 

4.67

 

3.69

 

2.25

 

.78

 

Total interest earning assets

4.34

 

4.00

 

3.59

 

3.21

 

2.86

 

 

 

 

 

 

 

LIABILITIES AND EQUITY:

 

 

 

 

 

Interest bearing deposits:

 

 

 

 

 

Savings

.05

 

.05

 

.06

 

.04

 

.04

 

Interest checking and money market

.93

 

.61

 

.38

 

.20

 

.06

 

Certificates of deposit of less than $100,000

3.78

 

1.39

 

.73

 

.41

 

.20

 

Certificates of deposit of $100,000 and over

3.93

 

2.98

 

1.42

 

.60

 

.29

 

Total interest bearing deposits

1.29

 

.71

 

.40

 

.21

 

.07

 

Borrowings:

 

 

 

 

 

Federal funds purchased

5.06

 

4.59

 

3.56

 

2.41

 

.79

 

Securities sold under agreements to repurchase

3.09

 

2.93

 

2.29

 

1.37

 

.48

 

Other borrowings

5.24

 

4.94

 

4.02

 

1.78

 

2.37

 

Total borrowings

4.13

 

3.49

 

2.48

 

1.39

 

.50

 

Total interest bearing liabilities

1.87

%

1.20

%

.69

%

.34

%

.12

%

 

 

 

 

 

 

Net yield on interest earning assets

3.12

%

3.26

%

3.18

%

3.01

%

2.79

%

(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 Six Months Ended

(Unaudited)

(In thousands, except ratios)

 

Jun. 30,

2023

Mar. 31,

2023

Dec. 31,

2022

Sep. 30,

2022

Jun. 30,

2022

Jun. 30,

2023

Jun. 30,

2022

ALLOWANCE FOR CREDIT LOSSES ON LOANS

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$159,317

 

$150,136

 

$143,377

 

$138,039

 

$134,710

 

$150,136

 

$150,044

 

Provision for credit losses on loans

 

5,864

 

15,948

 

12,404

 

10,150

 

7,287

 

21,812

 

(3,399

)

Net charge-offs (recoveries):

 

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

 

Business

 

165

 

230

 

496

 

461

 

19

 

395

 

96

 

Real estate — construction and land

 

(115

)

 

 

 

 

(115

)

 

Real estate — business

 

(5

)

(4

)

(4

)

(8

)

(1

)

(9

)

(8

)

 

 

45

 

226

 

492

 

453

 

18

 

271

 

88

 

Personal banking portfolio:

 

 

 

 

 

 

 

 

Consumer credit card

 

4,687

 

4,325

 

3,467

 

2,882

 

2,937

 

9,012

 

6,309

 

Consumer

 

1,273

 

1,275

 

1,522

 

827

 

633

 

2,548

 

1,441

 

Overdraft

 

517

 

978

 

230

 

703

 

425

 

1,495

 

783

 

Real estate — personal

 

(6

)

(11

)

(40

)

(15

)

(41

)

(17

)

(19

)

Revolving home equity

 

(20

)

(26

)

(26

)

(38

)

(14

)

(46

)

4

 

 

 

6,451

 

6,541

 

5,153

 

4,359

 

3,940

 

12,992

 

8,518

 

Total net loan charge-offs

 

6,496

 

6,767

 

5,645

 

4,812

 

3,958

 

13,263

 

8,606

 

Balance at end of period

 

$158,685

 

$159,317

 

$150,136

 

$143,377

 

$138,039

 

$158,685

 

$138,039

 

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

 

$29,235

 

$28,628

 

$33,120

 

$30,047

 

$24,907

 

 

 

NET CHARGE-OFF RATIOS (1)

 

 

 

 

 

 

 

 

Commercial portfolio:

 

 

 

 

 

 

 

 

Business

 

.01

%

.02

%

.04

%

.03

%

%

.01

%

%

Real estate — construction and land

 

(.03

)

 

 

 

 

(.02

)

 

Real estate — business

 

 

 

 

 

 

 

 

 

 

 

.01

 

.02

 

.02

 

 

.01

 

 

Personal banking portfolio:

 

 

 

 

 

 

 

 

Consumer credit card

 

3.38

 

3.15

 

2.46

 

2.08

 

2.19

 

3.27

 

2.36

 

Consumer

 

.24

 

.25

 

.29

 

.16

 

.12

 

.25

 

.14

 

Overdraft

 

44.79

 

89.15

 

12.28

 

62.85

 

30.86

 

66.40

 

29.50

 

Real estate — personal

 

 

 

(.01

)

 

(.01

)

 

 

Revolving home equity

 

(.03

)

(.04

)

(.04

)

(.05

)

(.02

)

(.03

)

 

 

 

.44

 

.45

 

.35

 

.30

 

.28

 

.44

 

.30

 

Total

 

.16

%

.17

%

.14

%

.12

%

.10

%

.16

%

.11

%

CREDIT QUALITY RATIOS

 

 

 

 

 

 

 

 

Non-accrual loans to total loans

 

.04

%

.05

%

.05

%

.05

%

.05

%

 

 

Allowance for credit losses on loans to total loans

 

.94

 

.96

 

.92

 

.90

 

.88

 

 

 

NON-ACCRUAL AND PAST DUE LOANS

 

 

 

 

 

 

 

 

Non-accrual loans:

 

 

 

 

 

 

 

 

Business

 

$4,732

 

$6,361

 

$6,751

 

$5,645

 

$6,314

 

 

 

Real estate — construction and land

 

 

 

 

 

 

 

 

Real estate — business

 

153

 

171

 

189

 

149

 

167

 

 

 

Real estate — personal

 

1,276

 

1,269

 

1,366

 

1,390

 

1,436

 

 

 

Total

 

6,161

 

7,801

 

8,306

 

7,184

 

7,917

 

 

 

Loans past due 90 days and still accruing interest

$15,351

 

$14,800

 

$15,830

 

$12,538

 

$11,909

 

 

 

(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 Second Quarter Results

June 30, 2023

For the quarter ended June 30, 2023, net income amounted to $127.8 million, compared to $119.5 million in the previous quarter and $115.8 million in the same quarter last year. The increase in net income compared to the previous quarter was primarily the result of higher non-interest income and investment securities gains coupled with a lower provision for credit losses, partly offset by lower net interest income and higher non-interest expense. The net yield on interest earning assets declined 14 basis points from the previous quarter to 3.12%. Average loans grew $265.2 million compared to the previous quarter, while average available for sale debt securities and average deposits declined $852.8 million and $41.9 million, respectively. For the quarter, the return on average assets was 1.56%, the return on average equity was 18.81%, and the efficiency ratio was 57.2%.

Balance Sheet Review

During the 2nd quarter of 2023, average loans totaled $16.7 billion, an increase of $265.2 million over the prior quarter, and $1.2 billion, or 7.6%, over the same quarter last year. Compared to the previous quarter, average balances of business, business real estate, and construction loans grew $101.3 million, $62.5 million, and $39.4 million, respectively. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $8.9 million, compared to $3.2 million in the prior quarter.

Total average available for sale debt securities decreased $852.8 million compared to the previous quarter to $11.0 billion, at fair value. The decrease in investment securities was mainly the result of lower balances of mortgage-backed, other asset-backed, and state and municipal securities. During the 2nd quarter of 2023, the unrealized loss on available for sale securities increased $109.2 million to $1.4 billion, at period end, and sales, maturities and pay downs were $702.3 million. At June 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 decreased $41.9 million this quarter compared to the previous quarter. The decrease in deposits mostly resulted from lower demand deposits and interest checking and money market deposits of $890.0 million and $347.1 million, respectively. These decreases were partly offset by higher certificate of deposit balances of $1.2 billion. Compared to the previous quarter, total average commercial, consumer, and wealth deposits declined $256.5 million, $189.5 million, and $123.4 million, respectively. These decreases were offset by $523.5 million of average brokered deposits, which are not reported in the Company’s operating segments. The average loans to deposits ratio was 66.2% in the current quarter and 65.0% in the prior quarter. The Company’s average borrowings, which included customer repurchase agreements of $2.2 billion, were $4.3 billion in the 2nd quarter of 2023 and $3.5 billion in the prior quarter.

Net Interest Income

Net interest income in the 2nd quarter of 2023 amounted to $249.5 million, a decrease of $2.1 million compared to the previous quarter. On a fully taxable-equivalent (FTE) basis, net interest income for the current quarter decreased $1.7 million from the previous quarter to $251.8 million. The decrease in net interest income was mostly due to higher interest expense, mostly offset by higher interest earned on loans and deposits with banks. The net yield (FTE) on earning assets decreased to 3.12%, from 3.26% in the prior quarter.

Compared to the previous quarter, interest income on loans (FTE) increased $17.6 million, due to higher average rates earned on all loan categories, coupled with higher average balances of all loan categories, except consumer credit cards. The average yield (FTE) on the loan portfolio increased 28 basis points to 5.84% this quarter.

Interest income on investment securities (FTE) increased $2.2 million compared to the prior quarter, due to higher rates earned, partly offset by lower average balances. Interest income earned on U.S. government and federal agency securities increased due to higher rates earned, which included the impact of $4.1 million in higher inflation income from Treasury inflation-protected securities this quarter. At June 30, 2023, the Company recorded a $1.7 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 2.37% in the current quarter, compared to 2.18% in the previous quarter.

Compared to the previous quarter, interest income on deposits with banks increased $19.9 million, mostly due to higher average balances of $1.5 billion coupled with higher average rates earned. The average yield on deposits with banks was 5.14% in the current quarter, compared to 4.67% in the prior quarter.

Interest expense increased $41.1 million, mostly due to higher rates paid on deposits and higher Federal Home Loan Bank (FHLB) borrowings. The average rate paid on interest bearing deposits totaled 1.29% in the current quarter compared to .71% in the prior quarter. Interest expense on deposits increased $26.4 million this quarter compared to the previous quarter. Interest expense on borrowings increased $14.8 million, due to a 64 basis point increase in the average rate paid coupled with higher average borrowings of $868.0 million. The overall rate paid on interest bearing liabilities was 1.87% in the current quarter compared to 1.20% in the prior quarter.

Non-Interest Income

In the 2nd quarter of 2023, total non-interest income amounted to $147.6 million, an increase of $8.2 million compared to the same period last year and an increase of $10.0 million compared to the prior quarter. The increase in non-interest income compared to the same period last year was mainly due to higher bank card fees, letter of credit fees, and an increase in fair value adjustments recorded on the Company’s deferred compensation plan assets, which are held in a trust and recorded as both an asset and liability, affecting both other income and other expense. These increases were partly offset by lower deposit fees. The increase in non-interest income compared to the prior quarter was mainly due to higher bank card fees, letter of credit fees, trust fees, swap fees, and a gain on the sale of real estate recorded in the current quarter.

Total net bank card fees in the current quarter increased $5.9 million, or 13.3%, compared to the same period last year, and increased $3.1 million compared to the prior quarter. Net corporate card fees increased $4.5 million, or 18.3%, over the same quarter of last year mainly due to higher interchange fee income and lower rewards expense. Net debit card fees increased $807 thousand, or 7.7%, net merchant fees increased $425 thousand, or 8.6%, and net credit card fees increased $100 thousand, or 2.7%. Total net bank card fees this quarter were comprised of fees on corporate card ($29.2 million), debit card ($11.3 million), merchant ($5.4 million) and credit card ($3.8 million) transactions.

In the current quarter, trust fees increased $473 thousand, or 1.0%, 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 $2.9 million, or 11.5%, mainly due to lower overdraft and return item fees of $2.9 million.

Other non-interest income increased over the same period last year primarily due to higher swap fees of $1.1 million, higher letter of credit fees of $2.7 million, a $3.4 million increase in the deferred compensation adjustment previously mentioned, and a gain on the sale of real estate of $1.1 million recorded in the current quarter. These increases were partly offset by a decrease in tax credit sales fees of $1.5 million and the receipt of a $2.2 million life insurance death benefit recorded in the 2nd quarter of 2022. For the 2nd quarter of 2023, non-interest income comprised 37.2% of the Company’s total revenue.

Investment Securities Gains and Losses

The Company recorded net securities gains of $3.4 million in the current quarter, compared to losses of $306 thousand in the prior quarter and gains of $1.0 million in the 2nd quarter of 2022. Net securities gains in the current quarter primarily resulted from net fair value gains of $9.1 million on the Company’s private equity portfolio, partly offset by losses of $5.4 million realized on sales of available for sale debt securities.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $227.6 million, compared to $213.5 million in the same period last year and $224.1 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to higher salaries and employee benefits expense, FDIC insurance expense, data processing and software expense, deconversion expense, travel and entertainment expense, and the deferred compensation adjustment previously mentioned. The increase in non-interest expense compared to the prior quarter was mainly due to higher full-time salaries expense, marketing expense, travel and entertainment expense and deconversion expense, partly offset by lower employee benefits expense and miscellaneous losses.

Compared to the 2nd quarter of last year, salaries and employee benefits expense increased $3.2 million, mostly due to higher full-time salaries expense of $6.9 million, or 7.6%. This increase was partly offset by lower incentive compensation of $5.7 million, largely the result of a $5.4 million accrual for special bonuses in 2022 that did not reoccur in 2023. Full-time equivalent employees totaled 4,680 and 4,579 at June 30, 2023 and 2022, respectively.

Compared to the same period last year, data processing and software expense increased $1.1 million due to higher bank card fees expense and increased costs for service providers. Other non-interest expense increased $8.4 million, mostly due to growth in deferred compensation, FDIC insurance, and travel and entertainment expense of $3.4 million, $1.8 million, and $797 thousand, respectively. Additionally, the Company recorded $2.1 million in deconversion expenses relating to the transition of Commerce Financial Advisors support to LPL Financial’s Institution Services platform.

Income Taxes

The effective tax rate for the Company was 22.0% in the current quarter, 21.6% in the previous quarter, and 21.7% in the 2nd quarter of 2022.

Credit Quality

Net loan charge-offs in the 2nd quarter of 2023 amounted to $6.5 million, compared to $6.8 million in the prior quarter and $4.0 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .16% in the current quarter, .17% in the previous quarter, and .10% in the 2nd quarter of last year. Net loan charge-offs on personal banking loans decreased $90 thousand to $6.5 million, mainly due to lower overdraft loan net charge-offs, partly offset by higher consumer credit card loan net charge-offs.

In the 2nd quarter of 2023, annualized net loan charge-offs on average consumer credit card loans were 3.38%, compared to 3.15% in the previous quarter, and 2.19% in the same quarter last year. Consumer loan net charge-offs were .24% of average consumer loans in the current quarter, .25% in the prior quarter, and .12% in the same quarter last year.

At June 30, 2023, the allowance for credit losses on loans totaled $158.7 million, or .94% of total loans, and decreased $632 thousand compared to the prior quarter. Additionally, the liability for unfunded lending commitments at June 30, 2023 was $29.2 million, an increase of $607 thousand compared to the liability at March 31, 2023.

At June 30, 2023, total non-accrual loans amounted to $6.2 million, a decrease of $1.6 million compared to the previous quarter. At June 30, 2023, the balance of non-accrual loans, which represented .04% of loans outstanding, included business loans of $4.7 million, personal real estate loans of $1.3 million, and business real estate loans of $153 thousand. Loans more than 90 days past due and still accruing interest totaled $15.4 million at June 30, 2023.

Liquidity

During the 2nd quarter of 2023, the Company increased its deposit balance at the Federal Reserve Bank (FRB) by $1.2 billion to $2.6 billion. The change in the balance at the FRB was mostly the result of a $1.2 billion increase in total deposits and $702.3 million of sales, maturities, and paydowns in the available for sale debt securities portfolio, partly offset by a $500.0 million decrease in FHLB advances, a $220.8 million decrease in net fed funds purchased, and growth of $421.0 million in loan balances.

The Company regularly pledges loans and securities to the FRB and at June 30, 2023, the Company’s pledging resulted in a total borrowing capacity of $5.0 billion, or an increase of $1.2 billion compared to March 31, 2023. 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 2nd quarter of 2023, the Company reduced its outstanding borrowings from the FHLB by $500.0 million to $1.0 billion and had $1.1 billion of available borrowing capacity at June 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 $10.4 billion at June 30, 2023. Approximately $2.0 billion is expected to mature or pay down over the next 12 months. At June 30, 2023, the Company had pledged $8.1 billion of the securities portfolio. The Company also has a portfolio of $825.0 million in securities purchased under agreements to resell, of which $700.0 million are expected to mature over the next 12 months.

Other

During the 2nd 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 6,205 shares of treasury stock during the current quarter at an average price of $52.61. Additionally, the Company completed its acquisition of L.J. Hart and Company, a municipal bond underwriter and advisor, in June 2023.

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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