Commerce Bancshares Inc.

10/17/2024 | Press release | Distributed by Public on 10/17/2024 07:22

COMMERCE BANCSHARES, INC. REPORTS THIRD QUARTER EARNINGS PER SHARE OF $1.07 Form 8 K

COMMERCE BANCSHARES, INC. REPORTS
THIRD QUARTER EARNINGS PER SHARE OF $1.07

Commerce Bancshares, Inc. announced earnings of $1.07 per share for the three months ended September 30, 2024, compared to $.92 per share in the same quarter last year and $1.07 per share in the second quarter of 2024. Net income for the third quarter of 2024 amounted to $138.0 million, compared to $120.6 million in the third quarter of 2023 and $139.6 million in the prior quarter.

For the nine months ended September 30, 2024, earnings per share totaled $3.00, compared to $2.80 for the first nine months of 2023. Net income amounted to $390.2 million for the nine months ended September 30, 2024, compared to $367.8 million in the comparable period last year. For the year to date, the return on average assets was 1.71%, and the return on average equity was 16.92%.

In announcing these results, John Kemper, President and Chief Executive Officer, said, "We are pleased with our third quarter results, which exemplify our diversified operating model and the growth mindset of our team. Our net interest margin, excluding the impact of inflation income on treasury bonds, expanded four basis points from the prior quarter. Interest bearing deposit costs continue to flatten, increasing just one basis point this quarter when compared to the previous quarter, while average deposits increased slightly. Trust fees were strong and experienced continued growth, up 11.1% over the same period last year. Total non-interest income was 37.7% of total revenue. During the quarter, we purchased $976.1 million in available for sale debt securities, indicative of lower loan demand and the relatively short duration of our investment securities portfolio.

"Credit quality remains excellent, and we continue to maintain strong levels of capital. Non-accrual loans were .11% of total loans, flat when compared to the previous quarter. Our tangible common equity to tangible assets ratio increased to 10.47% as interest rates declined, and book value per share increased 9.9% during the quarter."

Third Quarter 2024 Financial Highlights:

•Net interest income was $262.4 million, a $102 thousand increase over the prior quarter. The net yield on interest earning assets decreased five basis points to 3.50%.

•Non-interest income totaled $159.0 million, an increase of $16.1 million over the same quarter last year.

•Trust fees grew $5.5 million, or 11.1%, compared to the same period last year, mostly due to higher private client fees.

•Non-interest expense totaled $237.6 million, an increase of $9.6 million, or 4.2%, compared to the same quarter last year.
1

•Average loan balances totaled $17.0 billion, a decrease of .9% compared to the prior quarter.

•Total average available for sale debt securities decreased $87.8 million from the prior quarter to $8.7 billion, at fair value. During the third quarter of 2024, the unrealized loss on available for sale debt securities decreased $287.4 million to $786.4 million, at period end.

•Total average deposits increased $65.3 million, or .3%, compared to the prior quarter. The average rate paid on interest bearing deposits in the current quarter was 2.00%.

•The ratio of annualized net loan charge-offs to average loans was .22% compared to .23% in the prior quarter.

•The allowance for credit losses on loans increased $2.3 million during the third quarter of 2024 to $160.8 million, and the ratio of the allowance for credit losses on loans to total loans was .94%, at September 30, 2024, compared to .92% at June 30, 2024.

•Total assets at September 30, 2024 were $31.5 billion, an increase of $924.2 million, or 3.0%, compared to the prior quarter.

•For the quarter, the return on average assets was 1.80%, the return on average equity was 16.81%, and the efficiency ratio was 56.3%.

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.
* * * * * * * * * * * * * * *
For additional information, contact
Matt Burkemper, Investor Relations
(314) 746-7485
www.commercebank.com

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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, 2024 Jun. 30, 2024 Sep. 30, 2023 Sep. 30, 2024 Sep. 30, 2023
FINANCIAL SUMMARY
Net interest income $262,351 $262,249 $248,547 $773,599 $749,708
Non-interest income 159,025 152,244 142,949 460,117 428,166
Total revenue 421,376 414,493 391,496 1,233,716 1,177,874
Investment securities gains (losses) 3,872 3,233 4,298 6,846 7,384
Provision for credit losses 9,140 5,468 11,645 19,395 29,572
Non-interest expense 237,600 232,214 228,010 715,511 679,728
Income before taxes 178,508 180,044 156,139 505,656 475,958
Income taxes 38,245 38,602 33,439 108,499 102,242
Non-controlling interest expense 2,256 1,889 2,104 6,934 5,879
Net income attributable to Commerce Bancshares, Inc. $138,007 $139,553 $120,596 $390,223 $367,837
Earnings per common share:
Net income - basic $1.07 $1.07 $0.92 $3.01 $2.80
Net income - diluted $1.07 $1.07 $0.92 $3.00 $2.80
Effective tax rate 21.70 % 21.67 % 21.71 % 21.76 % 21.75 %
Fully-taxable equivalent net interest income $264,638 $264,578 $250,962 $780,528 $756,130
Average total interest earning assets (1)
$30,051,845 $30,016,060 $31,974,945 $ 30,144,221 $31,986,696
Diluted wtd. average shares outstanding 127,995,072 128,610,693 130,008,840 128,595,025 130,227,782
RATIOS
Average loans to deposits (2)
69.93 % 70.73 % 66.39 % 70.17 % 65.85 %
Return on total average assets 1.80 1.86 1.49 1.71 1.53
Return on average equity(3)
16.81 18.52 17.73 16.92 18.42
Non-interest income to total revenue 37.74 36.73 36.51 37.30 36.35
Efficiency ratio (4)
56.31 55.95 58.15 57.92 57.62
Net yield on interest earning assets 3.50 3.55 3.11 3.46 3.16
EQUITY SUMMARY
Cash dividends per share $.270 $.270 $.257 $.810 $.771
Cash dividends on common stock $34,794 $34,960 $33,657 $104,894 $101,160
Book value per share (5)
$26.90 $24.48 $19.90
Market value per share (5)
$59.40 $55.78 $45.70
High market value per share $65.86 $57.48 $52.37
Low market value per share $54.88 $50.92 $44.10
Common shares outstanding (5)
128,378,890 129,004,231 130,586,153
Tangible common equity to tangible assets (6)
10.47 % 9.82 % 7.78 %
Tier I leverage ratio 12.31 % 12.13 % 10.87 %
OTHER QTD INFORMATION
Number of bank/ATM locations 244 247 266
Full-time equivalent employees 4,711 4,724 4,714
(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.
3
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, 2024 Jun. 30, 2024 Mar. 31, 2024 Dec. 31, 2023 Sep. 30, 2023 Sep. 30, 2024 Sep. 30, 2023
Interest income $372,068 $369,363 $358,721 $362,609 $361,162 $1,100,152 $1,018,682
Interest expense 109,717 107,114 109,722 114,188 112,615 326,553 268,974
Net interest income 262,351 262,249 248,999 248,421 248,547 773,599 749,708
Provision for credit losses 9,140 5,468 4,787 5,879 11,645 19,395 29,572
Net interest income after credit losses 253,211 256,781 244,212 242,542 236,902 754,204 720,136
NON-INTEREST INCOME
Trust fees 54,689 52,291 51,105 49,154 49,207 158,085 141,800
Bank card transaction fees 47,570 47,477 46,930 47,878 46,899 141,977 143,278
Deposit account charges and other fees 25,380 25,325 24,151 23,517 23,090 74,856 67,475
Capital market fees 5,995 4,760 3,892 4,269 3,524 14,647 9,831
Consumer brokerage services 4,619 4,478 4,408 3,641 3,820 13,505 13,582
Loan fees and sales 3,444 3,431 3,141 2,875 2,966 10,016 8,290
Other 17,328 14,482 15,221 13,545 13,443 47,031 43,910
Total non-interest income 159,025 152,244 148,848 144,879 142,949 460,117 428,166
INVESTMENT SECURITIES GAINS (LOSSES), NET 3,872 3,233 (259) 7,601 4,298 6,846 7,384
NON-INTEREST EXPENSE
Salaries and employee benefits 153,122 149,120 151,801 147,456 146,805 454,043 436,607
Data processing and software 32,194 31,529 31,153 31,141 30,744 94,876 87,617
Net occupancy 13,411 12,544 13,574 13,927 13,948 39,529 39,702
Professional and other services 8,830 8,617 8,648 9,219 8,293 26,095 26,979
Marketing 7,278 5,356 4,036 6,505 6,167 16,670 18,006
Equipment 5,286 5,091 5,010 5,137 4,697 15,387 14,411
Supplies and communication 4,963 4,636 4,744 5,242 4,963 14,343 14,178
Deposit Insurance 2,930 2,354 8,017 20,304 4,029 13,301 12,859
Other 9,586 12,967 18,714 12,323 8,364 41,267 29,369
Total non-interest expense 237,600 232,214 245,697 251,254 228,010 715,511 679,728
Income before income taxes 178,508 180,044 147,104 143,768 156,139 505,656 475,958
Less income taxes 38,245 38,602 31,652 32,307 33,439 108,499 102,242
Net income 140,263 141,442 115,452 111,461 122,700 397,157 373,716
Less non-controlling interest expense (income) 2,256 1,889 2,789 2,238 2,104 6,934 5,879
Net income attributable to Commerce Bancshares, Inc. $138,007 $139,553 $112,663 $109,223 $120,596 $390,223 $367,837
Net income per common share - basic $1.07 $1.07 $0.87 $0.84 $0.92 $3.01 $2.80
Net income per common share - diluted $1.07 $1.07 $0.86 $0.84 $0.92 $3.00 $2.80
OTHER INFORMATION
Return on total average assets 1.80 % 1.86 % 1.48 % 1.38 % 1.49 % 1.71 % 1.53 %
Return on average equity (1)
16.81 18.52 15.39 16.48 17.73 16.92 18.42
Efficiency ratio (2)
56.31 55.95 61.67 63.80 58.15 57.92 57.62
Effective tax rate 21.70 21.67 21.93 22.83 21.71 21.76 21.75
Net yield on interest earning assets 3.50 3.55 3.33 3.17 3.11 3.46 3.16
Fully-taxable equivalent net interest income $264,638 $264,578 $251,312 $250,547 $250,962 $780,528 $756,130
(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 $1.1 million and $1.5 million from other non-interest income to capital market fees for the third quarter of 2023 and the first nine months of 2023, respectively.

4
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - PERIOD END

(Unaudited)
(In thousands) 		Sep. 30, 2024 Jun. 30, 2024 Sep. 30, 2023
ASSETS
Loans
Business $ 6,048,328 $ 6,090,724 $ 5,908,330
Real estate - construction and land 1,381,607 1,396,515 1,539,566
Real estate - business 3,586,999 3,572,539 3,647,168
Real estate - personal 3,043,391 3,055,182 3,024,639
Consumer 2,108,281 2,145,609 2,125,804
Revolving home equity 342,376 331,381 305,237
Consumer credit card 574,746 566,925 574,829
Overdrafts 4,272 4,190 3,753
Total loans 17,090,000 17,163,065 17,129,326
Allowance for credit losses on loans (160,839) (158,557) (162,244)
Net loans 16,929,161 17,004,508 16,967,082
Loans held for sale 1,707 2,930 5,120
Investment securities:
Available for sale debt securities 9,167,681 8,534,271 9,860,828
Trading debt securities 42,645 45,499 35,564
Equity securities 57,115 113,584 12,212
Other securities 216,543 223,798 230,792
Total investment securities 9,483,984 8,917,152 10,139,396
Federal funds sold 10 - 2,735
Securities purchased under agreements to resell 475,000 475,000 450,000
Interest earning deposits with banks 2,642,048 2,215,057 1,847,641
Cash and due from banks 507,941 329,692 358,010
Premises and equipment - net 469,986 467,256 460,830
Goodwill 146,539 146,539 146,539
Other intangible assets - net 13,722 13,801 14,432
Other assets 823,494 997,423 984,907
Total assets $ 31,493,592 $ 30,569,358 $ 31,376,692
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 7,396,153 $ 7,492,751 $ 7,961,402
Savings, interest checking and money market 15,216,557 14,367,710 14,154,275
Certificates of deposit of less than $100,000 1,113,962 1,010,251 1,210,169
Certificates of deposit of $100,000 and over 1,511,120 1,408,548 1,764,611
Total deposits 25,237,792 24,279,260 25,090,457
Federal funds purchased and securities sold under agreements to repurchase 2,182,229 2,551,399 2,745,181
Other borrowings 10,201 3,984 503,589
Other liabilities 609,831 576,380 438,199
Total liabilities 28,040,053 27,411,023 28,777,426
Stockholders' equity:
Common stock 655,322 655,322 629,319
Capital surplus 3,154,300 3,153,107 2,924,211
Retained earnings 338,512 235,299 298,297
Treasury stock (139,149) (98,176) (76,888)
Accumulated other comprehensive income (loss) (576,904) (807,817) (1,193,534)
Total stockholders' equity 3,432,081 3,137,735 2,581,405
Non-controlling interest 21,458 20,600 17,861
Total equity 3,453,539 3,158,335 2,599,266
Total liabilities and equity $ 31,493,592 $ 30,569,358 $ 31,376,692

5
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE BALANCE SHEETS

(Unaudited)
(In thousands) 		For the Three Months Ended
Sep. 30, 2024 Jun. 30, 2024 Mar. 31, 2024 Dec. 31, 2023 Sep. 30, 2023
ASSETS:
Loans:
Business $ 5,966,797 $ 5,980,364 $ 5,873,525 $ 5,861,229 $ 5,849,227
Real estate - construction and land 1,400,563 1,471,504 1,472,554 1,523,682 1,508,850
Real estate - business 3,580,772 3,666,057 3,727,643 3,644,589 3,642,010
Real estate - personal 3,047,563 3,044,943 3,031,193 3,027,664 2,992,500
Consumer 2,129,483 2,127,650 2,082,490 2,117,268 2,102,281
Revolving home equity 335,817 326,204 322,074 310,282 304,055
Consumer credit card 559,410 552,896 562,892 568,112 564,039
Overdrafts 5,460 4,856 7,696 5,258 5,341
Total loans
17,025,865 17,174,474 17,080,067 17,058,084 16,968,303
Allowance for credit losses on loans (158,003) (159,791) (161,891) (161,932) (158,335)
Net loans 16,867,862 17,014,683 16,918,176 16,896,152 16,809,968
Loans held for sale 2,448 2,455 2,149 5,392 5,714
Investment securities:
U.S. government and federal agency obligations 1,888,985 1,201,954 851,656 889,390 986,284
Government-sponsored enterprise obligations 55,583 55,634 55,652 55,661 55,676
State and municipal obligations 856,620 1,069,934 1,330,808 1,363,649 1,391,541
Mortgage-backed securities 5,082,091 5,553,656 5,902,328 6,022,502 6,161,348
Asset-backed securities 1,525,593 1,785,598 2,085,050 2,325,089 2,553,562
Other debt securities
224,528 364,828 503,204 510,721 514,787
Unrealized gain (loss) on debt securities (961,695) (1,272,127) (1,274,125) (1,595,845) (1,458,141)
Total available for sale debt securities 8,671,705 8,759,477 9,454,573 9,571,167 10,205,057
Trading debt securities
47,440 46,565 40,483 37,234 35,044
Equity securities 85,118 127,584 12,768 12,249 12,230
Other securities 217,377 228,403 221,695 222,378 237,518
Total investment securities 9,021,640 9,162,029 9,729,519 9,843,028 10,489,849
Federal funds sold 12 1,612 599 1,194 2,722
Securities purchased under agreements to resell 474,997 303,586 340,934 450,000 712,472
Interest earning deposits with banks 2,565,188 2,099,777 1,938,381 2,387,415 2,337,744
Other assets 1,648,321 1,651,808 1,715,716 1,797,849 1,750,222
Total assets $ 30,580,468 $ 30,235,950 $ 30,645,474 $ 31,381,030 $ 32,108,691
LIABILITIES AND EQUITY:
Non-interest bearing deposits $ 7,284,834 $ 7,297,955 $ 7,328,603 $ 7,748,654 $ 7,939,190
Savings 1,303,675 1,328,989 1,333,983 1,357,733 1,436,149
Interest checking and money market 13,242,398 13,162,118 13,215,270 13,166,783 13,048,199
Certificates of deposit of less than $100,000 1,055,683 1,003,798 976,804 1,097,224 1,423,965
Certificates of deposit of $100,000 and over 1,464,143 1,492,592 1,595,310 1,839,057 1,718,126
Total deposits 24,350,733 24,285,452 24,449,970 25,209,451 25,565,629
Borrowings:
Federal funds purchased 206,644 265,042 328,216 473,534 508,851
Securities sold under agreements to repurchase 2,351,870 2,254,849 2,511,959 2,467,118 2,283,020
Other borrowings 496 838 76 179,587 685,222
Total borrowings 2,559,010 2,520,729 2,840,251 3,120,239 3,477,093
Other liabilities 405,490 399,080 410,310 421,402 367,741
Total liabilities 27,315,233 27,205,261 27,700,531 28,751,092 29,410,463
Equity 3,265,235 3,030,689 2,944,943 2,629,938 2,698,228
Total liabilities and equity $ 30,580,468 $ 30,235,950 $ 30,645,474 $ 31,381,030 $ 32,108,691

6
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
AVERAGE RATES

(Unaudited) For the Three Months Ended
Sep. 30, 2024 Jun. 30, 2024 Mar. 31, 2024 Dec. 31, 2023 Sep. 30, 2023
ASSETS:
Loans:
Business(1)
6.17 % 6.11 % 6.07 % 5.91 % 5.77 %
Real estate - construction and land 8.44 8.36 8.40 8.34 8.17
Real estate - business 6.28 6.26 6.26 6.18 6.13
Real estate - personal 4.10 4.04 3.95 3.85 3.73
Consumer 6.64 6.56 6.40 6.21 5.97
Revolving home equity 7.69 7.68 7.70 7.70 7.76
Consumer credit card 14.01 13.96 14.11 13.83 13.77
Overdrafts - - - - -
Total loans 6.35 6.30 6.27 6.15 6.02
Loans held for sale 6.34 7.54 7.49 9.93 10.55
Investment securities:
U.S. government and federal agency obligations 3.68 5.04 2.08 2.32 2.31
Government-sponsored enterprise obligations 2.37 2.39 2.39 2.36 2.36
State and municipal obligations(1)
2.00 2.00 1.97 1.94 1.95
Mortgage-backed securities 1.95 2.09 2.19 2.05 2.06
Asset-backed securities 2.66 2.50 2.39 2.30 2.20
Other debt securities 2.07 2.01 1.93 1.85 1.75
Total available for sale debt securities 2.41 2.50 2.18 2.10 2.08
Trading debt securities(1)
4.52 4.95 5.30 5.05 5.11
Equity securities (1)
4.44 2.82 25.64 27.47 23.06
Other securities (1)
6.09 13.20 13.04 8.60 13.13
Total investment securities 2.52 2.75 2.44 2.27 2.33
Federal funds sold - 6.74 6.71 6.65 6.56
Securities purchased under agreements to resell 3.53 3.21 1.93 1.64 2.08
Interest earning deposits with banks 5.43 5.48 5.48 5.47 5.39
Total interest earning assets 4.96 4.98 4.78 4.62 4.51
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings .07 .06 .06 .05 .05
Interest checking and money market 1.74 1.73 1.69 1.57 1.33
Certificates of deposit of less than $100,000 4.17 4.22 4.20 4.21 4.32
Certificates of deposit of $100,000 and over 4.51 4.55 4.56 4.55 4.37
Total interest bearing deposits 2.00 1.99 1.97 1.93 1.76
Borrowings:
Federal funds purchased 5.38 5.42 5.42 5.40 5.33
Securities sold under agreements to repurchase 3.56 3.44 3.43 3.25 3.20
Other borrowings 4.81 3.84 - 5.45 5.30
Total borrowings 3.71 3.65 3.66 3.71 3.93
Total interest bearing liabilities 2.22 % 2.21 % 2.21 % 2.20 % 2.12 %
Net yield on interest earning assets 3.50 % 3.55 % 3.33 % 3.17 % 3.11 %
(1) Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.

7
COMMERCE BANCSHARES, INC. and SUBSIDIARIES
CREDIT QUALITY

For the Three Months Ended For the Nine Months Ended
(Unaudited)
(In thousands, except ratios) 		Sep. 30, 2024 Jun. 30, 2024 Mar. 31, 2024 Dec. 31, 2023 Sep. 30, 2023 Sep. 30, 2024 Sep. 30, 2023
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period $158,557 $160,465 $162,395 $162,244 $158,685 $162,395 $150,136
Provision for credit losses on loans 11,861 7,849 6,947 8,170 13,343 26,657 35,155
Net charge-offs (recoveries):
Commercial portfolio:
Business 114 622 23 96 2,613 759 3,008
Real estate - construction and land - - - - - - (115)
Real estate - business (7) (8) (141) 128 (15) (156) (24)
107 614 (118) 224 2,598 603 2,869
Personal banking portfolio:
Consumer credit card 6,273 6,746 6,435 5,325 4,716 19,454 13,728
Consumer 2,759 1,804 1,983 1,903 1,797 6,546 4,345
Overdraft 464 521 557 588 683 1,542 2,178
Real estate - personal 128 79 24 (11) (9) 231 (26)
Revolving home equity (152) (7) (4) (10) (1) (163) (47)
9,472 9,143 8,995 7,795 7,186 27,610 20,178
Total net loan charge-offs 9,579 9,757 8,877 8,019 9,784 28,213 23,047
Balance at end of period $160,839 $158,557 $160,465 $162,395 $162,244 $160,839 $162,244
LIABILITY FOR UNFUNDED LENDING COMMITMENTS $17,984 $20,705 $23,086 $25,246 $27,537
NET CHARGE-OFF RATIOS (1)
Commercial portfolio:
Business .01 % .04 % - % .01 % .18 % .02 % .07 %
Real estate - construction and land - - - - - - (.01)
Real estate - business - - (.02) .01 - (.01) -
- .02 - .01 .09 .01 .04
Personal banking portfolio:
Consumer credit card 4.46 4.91 4.60 3.72 3.32 4.65 3.28
Consumer .52 .34 .38 .36 .34 .41 .28
Overdraft 33.81 43.15 29.11 44.37 50.73 34.32 60.54
Real estate - personal .02 .01 - - - .01 -
Revolving home equity (.18) (.01) - (.01) - (.07) (.02)
.62 .61 .60 .51 .48 .61 .46
Total .22 % .23 % .21 % .19 % .23 % .22 % .18 %
CREDIT QUALITY RATIOS
Non-accrual loans to total loans .11 % .11 % .03 % .04 % .05 %
Allowance for credit losses on loans to total loans .94 .92 .93 .94 .95
NON-ACCRUAL AND PAST DUE LOANS
Non-accrual loans:
Business $354 $504 $1,038 $3,622 $6,602
Real estate - business 14,944 15,050 1,246 60 76
Real estate - personal 1,144 1,772 1,523 1,653 1,531
Revolving home equity 1,977 1,977 1,977 1,977 -
Total 18,419 19,303 5,784 7,312 8,209
Loans past due 90 days and still accruing interest $21,986 $18,566 $20,281 $21,864 $18,580
(1) Net charge-offs are annualized and calculated as a percentage of average loans (excluding loans held for sale).
8
COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2024
For the quarter ended September 30, 2024, net income amounted to $138.0 million, compared to $139.6 million in the previous quarter and $120.6 million in the same quarter last year. The decrease in net income compared to the previous quarter was primarily the result of increases in the provision for credit losses and non-interest expense, partly offset by higher non-interest income. The net yield on interest earning assets decreased five basis points compared to the previous quarter to 3.50%. Average deposits increased $65.3 million over the prior quarter, while average loans and available for sale debt securities, at fair value, declined $148.6 million and $87.8 million, respectively. For the quarter, the return on average assets was 1.80%, the return on average equity was 16.81%, and the efficiency ratio was 56.3%.

Balance Sheet Review
During the 3rd quarter of 2024, average loans totaled $17.0 billion, a decrease of $148.6 million compared to the prior quarter, and an increase of $57.6 million, or .3%, over the same quarter last year. Compared to the previous quarter, average balances of business real estate and construction loans declined $85.3 million and $70.9 million, respectively. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $22.6 million, compared to $18.2 million in the prior quarter.

Total average available for sale debt securities decreased $87.8 million compared to the previous quarter to $8.7 billion, at fair value. The decrease in debt securities was mainly the result of lower average balances of mortgage-backed, asset-backed, state and municipal obligations, and other debt securities, partly offset by higher average balances of U.S. government and federal agency obligations. During the 3rd quarter of 2024, the unrealized loss on available for sale debt securities decreased $287.4 million to $786.4 million, at period end. Also, during the 3rd quarter of 2024, purchases of available for sale debt securities totaled $976.1 million with a weighted average yield of approximately 3.87%, and sales, maturities and pay downs of available for sale debt securities were $630.3 million. At September 30, 2024, the duration of the available for sale investment portfolio was 4.0 years, and maturities and pay downs of approximately $1.6 billion are expected to occur during the next 12 months.

Total average deposits increased $65.3 million this quarter compared to the previous quarter. The increase in deposits mostly resulted from growth of $80.3 million in interest checking and money market average balances. Compared to the previous quarter, total average commercial deposits grew $250.3 million, while average consumer and trust deposits declined $117.6 million and $82.2 million, respectively. The average loans to deposits ratio was 69.9% in the current quarter and 70.7% in the prior quarter. The Company's average borrowings, which
included average customer repurchase agreements of $2.4 billion, increased $38.3 million to $2.6 billion in the 3rd quarter of 2024.

Net Interest Income
Net interest income in the 3rd quarter of 2024 amounted to $262.4 million, an increase of $102 thousand over the previous quarter. On a fully taxable-equivalent (FTE) basis, net interest income for the current quarter increased $60 thousand over the previous quarter to $264.6 million. The increase in net interest income was mostly due to higher interest income on loans and deposits with banks, partly offset by lower interest income on investment securities and higher interest expense on deposits and borrowings. The net yield (FTE) on earning assets decreased to 3.50%, from 3.55% in the prior quarter.

Compared to the previous quarter, interest income on loans (FTE) increased $2.7 million, due to higher average rates earned on all loan categories, partly offset by lower balances on construction and business real estate loans. The average yield (FTE) on the loan portfolio increased five basis points to 6.35% this quarter.

Interest income on investment securities (FTE) decreased $8.1 million compared to the prior quarter, mostly due to lower rates earned on U.S. government and federal agency, mortgage-backed and other securities. Interest income earned on U.S. government and federal agency securities increased due to higher average balances, partly offset by lower rates, which included the impact of $5.5 million in lower inflation income from Treasury inflation-protected securities compared to previous quarter. Additionally, the Company recorded a $286 thousand adjustment to premium amortization at September 30, 2024, which decreased interest income to reflect slightly faster forward prepayment speed estimates on mortgage-backed securities. This decrease was lower than the $740 thousand adjustment increasing interest income in the prior quarter. The average yield (FTE) on total investment securities was 2.52% in the current quarter, compared to 2.75% in the previous quarter.

Compared to the previous quarter, interest income on deposits with banks increased $6.4 million, due to higher average balances of $465.4 million. Interest earned on securities purchased under agreements to resell increased $1.8 million due to higher average balances and rates.

Interest expense increased $2.6 million compared to the previous quarter, mainly due to higher average borrowing rates and average interest bearing deposit balances. Interest expense on borrowings increased $994 thousand due to higher average rates and balances of customer repurchase agreements, partly offset by lower average balances of federal funds purchased. Interest expense on deposits increased $1.6 million mostly due to higher
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COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2024
average balances. The average rate paid on interest bearing deposits totaled 2.00% in the current quarter compared to 1.99% in the prior quarter. The overall rate paid on interest bearing liabilities was 2.22% in the current quarter and 2.21% in the prior quarter.

Non-Interest Income
In the 3rd quarter of 2024, total non-interest income amounted to $159.0 million, an increase of $16.1 million, or 11.2%, over the same period last year and an increase of $6.8 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, capital market fees, deposit account fees, and gains on the sales of real estate, partly offset by lower tax credit sales income. Additionally, an increase of $1.8 million in fair value adjustments was recorded on the company's deferred compensation plan, which are held in a trust and recorded as both an asset and liability, affecting both other income and other expense. The increase in non-interest income compared to the prior quarter was mainly due to higher trust fees, capital market fees, and gains on the sales of real estate.

Total net bank card fees in the current quarter increased $671 thousand, or 1.4%, compared to the same period last year, and increased $93 thousand compared to the prior quarter. Net corporate card fees increased $234 thousand, or .9%, compared to the same quarter of last year mainly due to lower rewards expense. Net merchant fees decreased $378 thousand, or 6.5%, mainly due to higher network expense. Net debit card fees increased $288 thousand, or 2.6%, while net credit card fees increased $527 thousand, or 15.4%, mostly due to higher interchange fees and lower rewards expense. Total net bank card fees this quarter were comprised of fees on corporate card ($26.8 million), debit card ($11.4 million), merchant ($5.5 million) and credit card ($4.0 million) transactions.

In the current quarter, trust fees increased $5.5 million, or 11.1%, over the same period last year, mostly resulting from higher private client fees. Compared to the same period last year, deposit account fees increased $2.3 million, or 9.9%, mostly due to higher corporate cash management fees, while capital market fees increased $2.5 million, or 70.1%, mostly due to higher trading securities income.

Other non-interest income increased compared to the same period last year primarily due to higher gains on the sales of real estate of $3.4 million and the deferred compensation adjustment previously mentioned, partly offset by lower tax credit sales income of $1.4 million. For the 3rd quarter of 2024, non-interest income comprised 37.7% of the Company's total revenue.

Investment Securities Gains and Losses
The Company recorded net securities gains of $3.9 million in the current quarter, compared to gains of $3.2 million in the prior quarter and gains of $4.3 million in the 3rd quarter of 2023. Net securities gains in the current quarter resulted from net gains of $9.5 million on the Company's portfolio of private equity investments, driven by $7.4 million of fair value adjustments. These net gains were partly offset by losses of $5.4 million on sales of available for sale debt securities and a loss of $417 thousand resulting from the Company's sale of 217,872 shares of Visa Class A common stock (converted from 54,468 shares of Visa Class C common stock). As of September 30, 2024, the Company has sold all of the Visa Class C shares it received from the Visa exchange offer.

Non-Interest Expense
Non-interest expense for the current quarter amounted to $237.6 million, compared to $228.0 million in the same period last year and $232.2 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, and marketing expense, partly offset by lower deposit insurance expense. The increase in non-interest expense compared to the prior quarter was mainly due to higher salaries and employee benefits expense and marketing expense, partly offset by a donation to a related charitable foundation recorded in the prior quarter that did not reoccur in the current quarter.

Compared to the 3rd quarter of last year, salaries and employee benefits expense increased $6.3 million, or 4.3%, mostly due to higher full-time salaries expense of $3.5 million, and incentive compensation of $2.2 million. Full-time equivalent employees totaled 4,711 and 4,714 at September 30, 2024 and 2023, respectively.

Compared to the same period last year, data processing and software expense increased $1.5 million due to increased costs for service providers, and marketing expense increased $1.1 million. These increases were partly offset by a decrease in deposit insurance expense of $1.1 million, which was partially the result of a $525 thousand accrual adjustment to the FDIC's special assessment.

Income Taxes
The effective tax rate for the Company was 21.7% in the current quarter, unchanged from both the previous quarter, and the 3rd quarter of 2023.

Credit Quality
Net loan charge-offs in the 3rd quarter of 2024 amounted to $9.6 million, compared to $9.8 million in both the prior quarter and the same period last year. The ratio of annualized net loan charge-offs to total average loans was .22% in the current quarter,
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COMMERCE BANCSHARES, INC.
Management Discussion of Third Quarter Results
September 30, 2024
and .23% in both the previous quarter and the same quarter of last year. Compared to the prior quarter, net loan charge-offs on business and consumer credit card loans decreased $508 thousand and $473 thousand, respectively, while consumer loan net charge-offs increased $955 thousand.

In the 3rd quarter of 2024, annualized net loan charge-offs on average consumer credit card loans were 4.46%, compared to 4.91% in the previous quarter and 3.32% in the same quarter last year. Consumer loan net charge-offs were .52% of average consumer loans in the current quarter, and .34% in both the prior quarter and the same quarter last year.

At September 30, 2024, the allowance for credit losses on loans totaled $160.8 million, or .94% of total loans, and increased $2.3 million compared to the prior quarter. Additionally, the liability for unfunded lending commitments at September 30, 2024 was $18.0 million, a decrease of $2.7 million compared to the liability at June 30, 2024.

At September 30, 2024, total non-accrual loans amounted to $18.4 million, a decrease of $884 thousand compared to the previous quarter. At September 30, 2024, the balance of non-accrual loans, which represented .11% of loans outstanding, included business loans of $354 thousand, revolving home equity loans of $2.0 million, personal real estate loans of $1.1 million, and business real estate loans of $14.9 million. Loans more than 90 days past due and still accruing interest totaled $22.0 million at September 30, 2024.

Other
During the 3rd 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 699,919 shares of treasury stock during the current quarter at an average price of $62.39.

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. Additional information about risks and uncertainties is included in the "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections within the Company's Annual Report on Form 10-K.
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