Commerce Bancshares, Inc. (NASDAQ:CBSH) announced earnings of $.95 per share for the three months ended March 31, 2023, compared to $.92 per share in the same quarter last year and $1.05 per share in the fourth quarter of 2022. Net income for the first quarter of 2023 amounted to $119.5 million, compared to $118.2 million in the first quarter of 2022 and $131.6 million in the prior quarter.

"Our first quarter results are the product of the consistent and conservative business model that Commerce has executed for nearly 160 years," said John Kemper, President and Chief Executive Officer.

On deposit balances, Kemper added, "We saw normal seasonal deposit outflows in January, but experienced minimal flows throughout the remainder of the quarter, reflecting the strength and diversity of our deposit portfolio.

"Although disruption from recent bank failures may be felt across the industry for a period of time, we see this as a moment for our franchise to differentiate itself as a safe haven, and bring peace of mind to customers who put a lot of trust in Commerce and in the banking system.

"Our stakeholders can rest assured that we have ample liquidity and capital to weather any events to come, and we are well-positioned to accommodate our customers' lending, deposit, and service needs."

First Quarter 2023 Financial Highlights:

Net interest income was $251.6 million, a $3.0 million decrease from the prior quarter. The net yield on interest earning assets increased 8 basis points to 3.26%.
Non-interest income totaled $137.6 million, an increase of $5.8 million compared to the same quarter last year.
Net securities losses of $306 thousand compared to net gains of $8.9 million in the prior quarter.
Non-interest expense totaled $224.1 million, an increase of $18.5 million compared to the same quarter last year.
Average loan balances totaled $16.4 billion, an increase of $518.9 million, or 3.3%, over the prior quarter.
Total average available for sale debt securities decreased 4.8%, or $591.1 million, from the prior quarter to $11.8 billion, at fair value. During the first quarter of 2023, the unrealized loss on available for sale securities decreased $190.0 million to $1.3 billion, at period end.
Average deposits declined $1.4 billion, or 5.1%, from the prior quarter. The average rate paid on interest bearing deposits was .71%.
The ratio of annualized net loan charge-offs to average loans was .17% compared to .14% in the prior quarter.
Non-accrual loans totaled $7.8 million compared to $8.3 million in the prior quarter. Non-accrual loans were .05% of total loans.
The allowance for credit losses on loans increased $9.2 million during the first quarter to $159.3 million, and at March 31, 2023, the ratio of the allowance for credit losses on loans to total loans was .96%, compared to .92% at December 31, 2022.
The Company purchased 547,381 shares of its common stock this quarter at an average price of $65.93.
Total assets at March 31, 2023 were $32.0 billion, an increase of $128.9 million, or .4%, over the prior quarter.
For the quarter, the return on average assets was 1.54%, the return on average equity was 18.75%, and the efficiency ratio was 57.5%.

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
(Unaudited) (Dollars in thousands, except per share data)	Mar. 31, 2023		Dec. 31, 2022		Mar. 31, 2022
FINANCIAL SUMMARY
Net interest income	$251,623		$254,641		$208,786
Non-interest income	137,612		136,825		131,769
Total revenue	389,235		391,466		340,555
Investment securities gains (losses)	(306	)	8,904		7,163
Provision for credit losses	11,456		15,477		(9,858	)
Non-interest expense	224,107		216,740		205,648
Income before taxes	153,366		168,153		151,928
Income taxes	32,813		34,499		31,902
Non-controlling interest expense (income)	1,101		2,026		1,872
Net income attributable to Commerce Bancshares, Inc.	$119,452		$131,628		$118,154
Earnings per common share:
Net income — basic	$0.95		$1.05		$0.92
Net income — diluted	$0.95		$1.04		$0.92
Effective tax rate	21.55	%	20.77	%	21.26	%
Fully-taxable equivalent net interest income	$253,411		$256,675		$211,393
Average total interest earning assets ⁽¹⁾	$31,568,594		$31,991,224		$34,937,086
Diluted wtd. average shares outstanding	124,258,981		124,589,323		126,646,900

RATIOS
Average loans to deposits ⁽²⁾	64.99	%	59.73	%	51.90	%
Return on total average assets	1.54		1.65		1.33
Return on average equity ⁽³⁾	18.75		21.88		14.41
Non-interest income to total revenue	35.35		34.95		38.69
Efficiency ratio ⁽⁴⁾	57.49		55.26		60.29
Net yield on interest earning assets	3.26		3.18		2.45

EQUITY SUMMARY
Cash dividends per share	$.270		$.252		$.252
Cash dividends on common stock	$33,759		$31,648		$32,143
Book value per share ⁽⁵⁾	$21.51		$19.85		$23.43
Market value per share ⁽⁵⁾	$58.35		$68.07		$68.18
High market value per share	$70.20		$72.60		$71.16
Low market value per share	$55.72		$63.17		$63.12
Common shares outstanding ⁽⁵⁾	124,720,710		124,999,100		126,925,176
Tangible common equity to tangible assets ⁽⁶⁾	7.92	%	7.32	%	8.09	%
Tier I leverage ratio	10.61	%	10.34	%	9.07	%

OTHER QTD INFORMATION
Number of bank/ATM locations	275		275		285
Full-time equivalent employees	4,636		4,594		4,563

(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
(Unaudited) (In thousands, except per share data)	Mar. 31, 2023		Dec. 31, 2022		Sep. 30, 2022		Jun. 30, 2022		Mar. 31, 2022
Interest income	$308,857		$286,377		$262,666		$238,154		$211,782
Interest expense	57,234		31,736		16,293		5,769		2,996
Net interest income	251,623		254,641		246,373		232,385		208,786
Provision for credit losses	11,456		15,477		15,290		7,162		(9,858	)
Net interest income after credit losses	240,167		239,164		231,083		225,223		218,644
NON-INTEREST INCOME
Trust fees	45,328		44,710		45,406		46,792		47,811
Bank card transaction fees	46,654		44,588		45,638		43,873		42,045
Deposit account charges and other fees	21,752		21,989		24,521		25,564		22,307
Consumer brokerage services	5,085		4,518		5,085		5,068		4,446
Capital market fees	3,362		3,386		3,393		3,327		4,125
Loan fees and sales	2,589		2,566		3,094		3,246		4,235
Other	12,842		15,068		11,377		11,557		6,800
Total non-interest income	137,612		136,825		138,514		139,427		131,769
INVESTMENT SECURITIES GAINS (LOSSES), NET	(306	)	8,904		3,410		1,029		7,163
NON-INTEREST EXPENSE
Salaries and employee benefits	144,373		138,458		137,393		142,243		135,953
Data processing and software	28,154		27,991		28,050		27,635		27,016
Net occupancy	12,759		11,774		12,544		12,503		12,296
Equipment	4,850		5,021		5,036		4,734		4,568
Supplies and communication	4,590		4,446		4,581		4,361		4,713
Marketing	5,471		5,419		6,228		5,836		6,344
Other	23,910		23,631		19,052		16,193		14,758
Total non-interest expense	224,107		216,740		212,884		213,505		205,648
Income before income taxes	153,366		168,153		160,123		152,174		151,928
Less income taxes	32,813		34,499		33,936		32,021		31,902
Net income	120,553		133,654		126,187		120,153		120,026
Less non-controlling interest expense (income)	1,101		2,026		3,364		4,359		1,872
Net income attributable to Commerce Bancshares, Inc.	$119,452		$131,628		$122,823		$115,794		$118,154
Net income per common share — basic	$0.95		$1.05		$0.97		$0.92		$0.92
Net income per common share — diluted	$0.95		$1.04		$0.97		$0.92		$0.92

OTHER INFORMATION
Return on total average assets	1.54	%	1.65	%	1.48	%	1.36	%	1.33	%
Return on average equity ⁽¹⁾	18.75		21.88		17.84		16.29		14.41
Efficiency ratio ⁽²⁾	57.49		55.26		55.19		57.29		60.29
Effective tax rate	21.55		20.77		21.65		21.66		21.26
Net yield on interest earning assets	3.26		3.18		3.01		2.79		2.45
Fully taxable-equivalent net interest income	$253,411		$256,675		$248,737		$235,010		$211,393

(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)	Mar. 31, 2023		Dec. 31, 2022		Mar. 31, 2022
ASSETS
Loans
Business	$5,704,467		$5,661,725		$5,508,508
Real estate — construction and land	1,437,419		1,361,095		1,144,411
Real estate — business	3,486,543		3,406,981		3,109,668
Real estate — personal	2,952,042		2,918,078		2,820,076
Consumer	2,094,389		2,059,088		2,053,160
Revolving home equity	295,478		297,207		264,401
Consumer credit card	558,669		584,000		544,579
Overdrafts	6,515		14,957		14,211
Total loans	16,535,522		16,303,131		15,459,014
Allowance for credit losses on loans	(159,317	)	(150,136	)	(134,710	)
Net loans	16,376,205		16,152,995		15,324,304
Loans held for sale	6,162		4,964		8,908
Investment securities:
Available for sale debt securities	11,228,616		12,238,316		14,780,494
Trading debt securities	41,584		43,523		31,380
Equity securities	12,528		12,304		9,284
Other securities	268,417		225,034		199,576
Total investment securities	11,551,145		12,519,177		15,020,734
Federal funds sold	27,060		49,505		—
Securities purchased under agreements to resell	825,000		825,000		1,825,000
Interest earning deposits with banks	1,341,854		389,140		1,260,813
Cash and due from banks	351,210		452,496		326,549
Premises and equipment — net	428,169		418,909		394,028
Goodwill	138,921		138,921		138,921
Other intangible assets — net	14,918		15,234		15,885
Other assets	944,212		909,590		671,651
Total assets	$32,004,856		$31,875,931		$34,986,793
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing	$8,685,234		$10,066,356		$11,428,372
Savings, interest checking and money market	14,419,741		15,126,981		16,751,632
Certificates of deposit of less than $100,000	468,667		387,336		422,992
Certificates of deposit of $100,000 and over	1,109,818		606,767		716,345
Total deposits	24,683,460		26,187,440		29,319,341
Federal funds purchased and securities sold under agreements to repurchase	2,784,559		2,841,734		2,317,461
Other borrowings	1,507,776		9,672		9,057
Other liabilities	346,649		355,508		367,532
Total liabilities	29,322,444		29,394,354		32,013,391
Stockholders' equity:
Common stock	629,319		629,319		610,804
Capital surplus	2,919,060		2,932,959		2,678,025
Retained earnings	117,313		31,620		178,504
Treasury stock	(59,670	)	(41,743	)	(72,293	)
Accumulated other comprehensive income (loss)	(940,498	)	(1,086,864	)	(434,400	)
Total stockholders' equity	2,665,524		2,465,291		2,960,640
Non-controlling interest	16,888		16,286		12,762
Total equity	2,682,412		2,481,577		2,973,402
Total liabilities and equity	$32,004,856		$31,875,931		$34,986,793

COMMERCE BANCSHARES, INC. and SUBSIDIARIES AVERAGE BALANCE SHEETS

(Unaudited) (In thousands)	For the Three Months Ended
(Unaudited) (In thousands)	Mar. 31, 2023		Dec. 31, 2022		Sep. 30, 2022		Jun. 30, 2022		Mar. 31, 2022
ASSETS:
Loans:
Business	$5,656,104		$5,478,241		$5,317,696		$5,385,181		$5,324,172
Real estate — construction and land	1,410,835		1,268,900		1,288,721		1,225,267		1,134,902
Real estate — business	3,478,382		3,300,697		3,258,128		3,163,508		3,095,068
Real estate — personal	2,933,750		2,886,686		2,844,376		2,825,578		2,808,980
Consumer	2,067,385		2,089,912		2,101,622		2,070,560		2,040,200
Revolving home equity	296,748		293,681		280,923		272,280		273,859
Consumer credit card	556,223		559,463		550,058		537,681		540,844
Overdrafts	4,449		7,428		4,438		5,524		5,178
Total loans	16,403,876		15,885,008		15,645,962		15,485,579		15,223,203
Allowance for credit losses on loans	(150,117	)	(143,285	)	(137,833	)	(134,670	)	(149,685	)
Net loans	16,253,759		15,741,723		15,508,129		15,350,909		15,073,518
Loans held for sale	5,708		6,567		7,170		7,933		9,383
Investment securities:
U.S. government and federal agency obligations	1,099,067		1,055,602		1,113,442		1,119,305		1,103,749
Government-sponsored enterprise obligations	87,086		55,732		55,753		55,762		51,770
State and municipal obligations	1,793,756		1,990,643		2,052,908		2,126,380		2,077,600
Mortgage-backed securities	6,454,408		6,605,936		6,847,912		7,158,252		7,316,609
Asset-backed securities	3,233,757		3,714,092		3,870,953		4,038,113		3,933,061
Other debt securities	528,941		560,951		587,026		643,463		636,247
Unrealized loss on debt securities	(1,387,196	)	(1,582,061	)	(1,064,534	)	(851,110	)	(174,297	)
Total available for sale debt securities	11,809,819		12,400,895		13,463,460		14,290,165		14,944,739
Trading debt securities	45,757		44,626		35,621		43,904		40,686
Equity securities	12,458		10,534		8,838		9,094		9,498
Other securities	229,867		219,354		208,708		195,090		192,311
Total investment securities	12,097,901		12,675,409		13,716,627		14,538,253		15,187,234
Federal funds sold	38,978		27,683		13,486		4,269		1,053
Securities purchased under agreements to resell	825,000		1,174,457		1,379,341		1,703,569		1,733,887
Interest earning deposits with banks	809,935		640,039		980,273		1,248,942		2,608,029
Other assets	1,376,551		1,339,554		1,256,498		1,238,493		1,304,400
Total assets	$31,407,832		$31,605,432		$32,861,524		$34,092,368		$35,917,504

LIABILITIES AND EQUITY:
Non-interest bearing deposits	$9,114,512		$10,360,834		$10,758,353		$11,209,680		$11,544,701
Savings	1,550,215		1,567,113		1,595,857		1,609,694		1,563,093
Interest checking and money market	13,265,485		13,693,974		14,423,713		14,847,306		14,949,727
Certificates of deposit of less than $100,000	415,367		388,304		397,071		411,655		429,852
Certificates of deposit of $100,000 and over	903,393		596,703		578,158		648,728		862,232
Total deposits	25,248,972		26,606,928		27,753,152		28,727,063		29,349,605
Borrowings:
Federal funds purchased	493,721		143,630		51,929		113,128		23,356
Securities sold under agreements to repurchase	2,418,726		2,260,263		2,199,866		2,258,184		2,712,468
Other borrowings	551,267		179,552		2,010		2,029		768
Total borrowings	3,463,714		2,583,445		2,253,805		2,373,341		2,736,592
Other liabilities	112,052		28,745		123,691		139,986		505,644
Total liabilities	28,824,738		29,219,118		30,130,648		31,240,390		32,591,841
Equity	2,583,094		2,386,314		2,730,876		2,851,978		3,325,663
Total liabilities and equity	$31,407,832		$31,605,432		$32,861,524		$34,092,368		$35,917,504

COMMERCE BANCSHARES, INC. and SUBSIDIARIES AVERAGE RATES

(Unaudited)	For the Three Months Ended
(Unaudited)	Mar. 31, 2023		Dec. 31, 2022		Sep. 30, 2022		Jun. 30, 2022		Mar. 31, 2022
ASSETS:
Loans:
Business⁽¹⁾	5.31	%	4.68	%	3.94	%	3.16	%	2.93	%
Real estate — construction and land	7.33		6.80		5.27		4.09		3.76
Real estate — business	5.65		5.15		4.40		3.70		3.38
Real estate — personal	3.61		3.45		3.36		3.27		3.28
Consumer	5.31		4.77		4.17		3.62		3.59
Revolving home equity	7.03		5.89		4.82		3.69		3.48
Consumer credit card	13.68		12.64		12.05		11.32		11.35
Overdrafts	—		—		—		—		—
Total loans	5.56		5.03		4.37		3.72		3.54
Loans held for sale	10.30		10.09		8.80		8.14		6.48
Investment securities:
U.S. government and federal agency obligations	1.90		2.01		4.51		4.93		3.42
Government-sponsored enterprise obligations	3.21		2.36		2.36		2.39		2.33
State and municipal obligations⁽¹⁾	2.26		2.29		2.27		2.30		2.29
Mortgage-backed securities	2.06		1.88		1.93		1.99		1.98
Asset-backed securities	2.01		1.96		1.62		1.35		1.13
Other debt securities	1.93		1.89		1.93		1.97		2.00
Total available for sale debt securities	2.07		1.97		2.09		2.08		1.91
Trading debt securities⁽¹⁾	4.59		3.81		2.74		2.46		1.84
Equity securities ⁽¹⁾	23.24		28.44		27.11		26.90		26.00
Other securities ⁽¹⁾	7.11		6.67		7.09		22.38		5.91
Total investment securities	2.18		2.07		2.18		2.36		1.97
Federal funds sold	5.09		4.27		2.77		1.79		.39
Securities purchased under agreements to resell	1.94		2.36		1.72		1.03		1.24
Interest earning deposits with banks	4.67		3.69		2.25		.78		.18
Total interest earning assets	4.00		3.59		3.21		2.86		2.49

LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	.05		.06		.04		.04		.05
Interest checking and money market	.61		.38		.20		.06		.04
Certificates of deposit of less than $100,000	1.39		.73		.41		.20		.13
Certificates of deposit of $100,000 and over	2.98		1.42		.60		.29		.20
Total interest bearing deposits	.71		.40		.21		.07		.05
Borrowings:
Federal funds purchased	4.59		3.56		2.41		.79		.12
Securities sold under agreements to repurchase	2.93		2.29		1.37		.48		.10
Other borrowings	4.94		4.02		1.78		2.37		.53
Total borrowings	3.49		2.48		1.39		.50		.10
Total interest bearing liabilities	1.20	%	.69	%	.34	%	.12	%	.06	%

Net yield on interest earning assets	3.26	%	3.18	%	3.01	%	2.79	%	2.45	%

(1)

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

COMMERCE BANCSHARES, INC. and SUBSIDIARIES CREDIT QUALITY

	For the Three Months Ended
(Unaudited) (In thousands, except ratios)	Mar. 31, 2023		Dec. 31, 2022		Sep. 30, 2022		Jun. 30, 2022		Mar. 31, 2022
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period	$150,136		$143,377		$138,039		$134,710		$150,044
Provision for credit losses on loans	15,948		12,404		10,150		7,287		(10,686	)
Net charge-offs (recoveries):
Commercial portfolio:
Business	230		496		461		19		77
Real estate — construction and land	—		—		—		—		—
Real estate — business	(4	)	(4	)	(8	)	(1	)	(7	)
	226		492		453		18		70
Personal banking portfolio:
Consumer credit card	4,325		3,467		2,882		2,937		3,372
Consumer	1,275		1,522		827		633		808
Overdraft	978		230		703		425		358
Real estate — personal	(11	)	(40	)	(15	)	(41	)	22
Revolving home equity	(26	)	(26	)	(38	)	(14	)	18
	6,541		5,153		4,359		3,940		4,578
Total net loan charge-offs	6,767		5,645		4,812		3,958		4,648
Balance at end of period	$159,317		$150,136		$143,377		$138,039		$134,710
LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$28,628		$33,120		$30,047		$24,907		$25,032

NET CHARGE-OFF RATIOS ⁽¹⁾
Commercial portfolio:
Business	.02	%	.04	%	.03	%	—	%	.01	%
Real estate — construction and land	—		—		—		—		—
Real estate — business	—		—		—		—		—
	.01		.02		.02		—		—
Personal banking portfolio:
Consumer credit card	3.15		2.46		2.08		2.19		2.53
Consumer	.25		.29		.16		.12		.16
Overdraft	89.15		12.28		62.85		30.86		28.04
Real estate — personal	—		(.01	)	—		(.01	)	—
Revolving home equity	(.04	)	(.04	)	(.05	)	(.02	)	.03
	.45		.35		.30		.28		.33
Total	.17	%	.14	%	.12	%	.10	%	.12	%

CREDIT QUALITY RATIOS
Non-accrual loans to total loans	.05	%	.05	%	.05	%	.05	%	.05	%
Allowance for credit losses on loans to total loans	.96		.92		.90		.88		.87

NON-ACCRUAL AND PAST DUE LOANS
Non-accrual loans:
Business	$6,361		$6,751		$5,645		$6,314		$6,756
Real estate — construction and land	—		—		—		—		—
Real estate — business	171		189		149		167		190
Real estate — personal	1,269		1,366		1,390		1,436		1,389
Total	7,801		8,306		7,184		7,917		8,335
Loans past due 90 days and still accruing interest	$14,800		$15,830		$12,538		$11,909		$10,670

(1)

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

COMMERCE BANCSHARES, INC.

Management Discussion of First Quarter Results

March 31, 2023

For the quarter ended March 31, 2023, net income amounted to $119.5 million, compared to $131.6 million in the previous quarter and $118.2 million in the same quarter last year. The decrease in net income compared to the previous quarter was primarily the result of net realized investment securities losses compared to net gains recorded in the prior quarter, lower net interest income and higher non-interest expense. These decreases to income were partly offset by a decrease in the provision for credit losses. The net yield on interest earning assets grew eight basis points to 3.26%. Average loans grew $518.9 million compared to the previous quarter, while average deposits and average available for sale debt securities declined $1.4 billion and $591.1 million, respectively. For the quarter, the return on average assets was 1.54%, the return on average equity was 18.75%, and the efficiency ratio was 57.5%.

Balance Sheet Review

During the 1^st quarter of 2023, average loans totaled $16.4 billion, an increase of $518.9 million over the prior quarter, and $1.2 billion, or 7.8%, over the same quarter last year. Compared to the previous quarter, average balances of business, business real estate, and construction loans grew $177.9 million, $177.7 million, and $141.9 million, respectively. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $3.2 million, compared to $2.4 million in the prior quarter.

Total average available for sale debt securities decreased $591.1 million compared to the previous quarter to $11.8 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 1^st quarter of 2023, the unrealized loss on available for sale securities decreased $190.0 million to $1.3 billion, and sales, maturities and pay downs were $1.3 billion. At March 31, 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 $1.4 billion 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 $1.2 billion and $428.5 million, respectively, partly offset by higher certificate of deposit balances of $333.8 million. Compared to the previous quarter, total average commercial and consumer deposits declined $868.9 million and $530.1 million, respectively, while average wealth deposits increased $39.8 million. The average loans to deposits ratio was 65.0% in the current quarter and 59.7% in the prior quarter. The Company's average borrowings, which included customer repurchase agreements of $2.4 billion, were $3.5 billion in the 1^st quarter of 2023 and $2.6 billion in the prior quarter.

Net Interest Income

Net interest income in the 1^st quarter of 2023 amounted to $251.6 million, a decrease of $3.0 million compared to the previous quarter. On a fully taxable-equivalent (FTE) basis, net interest income for the current quarter decreased $3.3 million from the previous quarter to $253.4 million. The decrease in net interest income was due to higher interest expense, partly offset by higher interest earned on loans. The net yield (FTE) on earning assets increased to 3.26%, compared to 3.18% in the prior quarter.

Compared to the previous quarter, interest income on loans (FTE) increased $23.4 million, due to higher average rates earned on all loan categories, coupled with higher average balances of construction, business, and business real estate loans. The average yield (FTE) on the loan portfolio increased 53 basis points to 5.56% this quarter.

Interest income on investment securities (FTE) decreased $1.8 million compared to the prior quarter, due to lower average balances, partly offset by higher rates earned. Interest income earned on U.S. government and federal agency securities decreased due to lower rates earned, which included the impact of $652 thousand in lower inflation income from Treasury inflation-protected securities this quarter. At March 31, 2023, the Company recorded an $802 thousand 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 2.18% in the current quarter, compared to 2.07% in the previous quarter.

The average rate paid on interest bearing deposits totaled .71% in the current quarter compared to .40% in the prior quarter. Interest expense on deposits increased $11.8 million this quarter compared to the previous quarter, while interest expense on borrowings increased $13.6 million, due to a 101 basis point increase in the average rate paid coupled with higher average borrowings of $880.3 million. The overall rate paid on interest bearing liabilities was 1.20% in the current quarter compared to .69% in the prior quarter.

Non-Interest Income

In the 1^st quarter of 2023, total non-interest income amounted to $137.6 million, an increase of $5.8 million compared to the same period last year and increased $787 thousand 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 and sweep fees. In addition, a $2.0 million increase in fair value adjustments was 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 trust fees and loan fees and sales. The increase in non-interest income compared to the prior quarter was mainly due to higher bank card fees, mostly offset by a gain on the sale of real estate recorded in the prior quarter that did not reoccur this quarter, and lower tax credit sales fee income.

Total net bank card fees in the current quarter increased $4.6 million, or 11.0%, compared to the same period last year, and increased $2.1 million compared to the prior quarter. Net corporate card fees increased $3.6 million, or 14.9%, over the same quarter of last year mainly due to higher interchange fee income. Net debit card fees increased $735 thousand, or 7.7%, and net merchant fees increased $371 thousand, or 7.4%, while net credit card fees decreased $47 thousand, or 1.3%. Total net bank card fees this quarter were comprised of fees on corporate card ($27.3 million), debit card ($10.3 million), merchant ($5.4 million) and credit card ($3.7 million) transactions.

In the current quarter, trust fees decreased $2.5 million, or 5.2%, from the same period last year, mostly resulting from lower private client and institutional trust fees. Compared to the same period last year, deposit account fees decreased $555 thousand, or 2.5%, mainly due to lower overdraft and return item fees of $2.7 million, partly offset by higher personal deposit account fees and corporate cash management fees of $1.0 million and $959 thousand, respectively. Loan fees and sales declined $1.6 million, or 38.9%, compared to amounts recorded in the same quarter last year, due to lower mortgage banking revenue.

Other non-interest income increased over the same period last year primarily due to higher sweep fees of $2.6 million, the deferred compensation adjustment previously mentioned, and a write down on a branch location of $965 thousand recorded in the 1^st quarter of 2022. For the 1^st quarter of 2023, non-interest income comprised 35.4% of the Company's total revenue.

Investment Securities Gains and Losses

The Company recorded net securities losses of $306 thousand in the current quarter, compared to gains of $8.9 million in the prior quarter and $7.2 million in the 1^st quarter of 2022. Net securities losses in the current quarter primarily resulted from losses of $3.1 million realized on sales of available for sale debt securities, mostly offset by net fair value gains of $2.3 million and a $653 thousand gain on the sale of an investment in the Company's private equity investment portfolio.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $224.1 million, compared to $205.6 million in the same period last year and $216.7 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, miscellaneous losses, 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 salaries and employee benefits expense, FDIC insurance expense, and occupancy expense, partly offset by lower travel and entertainment and legal and professional fees expense.

Compared to the 1^st quarter of last year, salaries and employee benefits expense increased $8.4 million, mostly due to higher full-time salaries expense of $7.6 million, or 8.9%, and higher employee benefits expense of $1.4 million. Full-time equivalent employees totaled 4,636 and 4,563 at March 31, 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 $9.2 million, mostly due to growth in FDIC insurance, deferred compensation, miscellaneous losses, and travel and entertainment expense of $2.3 million, $2.0 million, $1.3 million, and $1.1 million, respectively.

Income Taxes

The effective tax rate for the Company was 21.5% in the current quarter, 20.8% in the previous quarter, and 21.3% in the 1st quarter of 2022.

Credit Quality

Net loan charge-offs in the 1^st quarter of 2023 amounted to $6.8 million, compared to $5.6 million in the prior quarter and $4.6 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .17% in the current quarter, .14% in the previous quarter, and .12% in the 1^st quarter of last year. Net loan charge-offs on personal banking loans increased $1.4 million to $6.5 million, mainly due to higher overdraft and consumer credit card loan net charge-offs.

In the 1^st quarter of 2023, annualized net loan charge-offs on average consumer credit card loans were 3.15%, compared to 2.46% in the previous quarter, and 2.53% in the same quarter last year. Consumer loan net charge-offs were .25% of average consumer loans in the current quarter, .29% in the prior quarter, and .16% in the same quarter last year

At March 31, 2023, the allowance for credit losses on loans totaled $159.3 million, or .96% of total loans, and increased $9.2 million compared to the prior quarter. Additionally, the liability for unfunded lending commitments at March 31, 2023 was $28.6 million, a decrease of $4.5 million compared to the liability at December 31, 2022.

At March 31, 2023, total non-accrual loans amounted to $7.8 million, a decrease of $505 thousand compared to the previous quarter. At March 31, 2023, the balance of non-accrual loans, which represented .05% of loans outstanding, included business loans of $6.4 million, personal real estate loans of $1.3 million, and business real estate loans of $171 thousand. Loans more than 90 days past due and still accruing interest totaled $14.8 million at March 31, 2023.

Liquidity

During the 1st quarter of 2023, the Company increased its deposit balance at the Federal Reserve Bank (FRB) by $952.7 million to $1.3 billion. The change in the balance at the FRB was mostly the result of a $1.5 billion increase in Federal Home Loan Bank (FHLB) advances and $1.3 billion of sales, maturities, and paydowns in the available for sale debt securities portfolio, partly offset by a $1.5 billion decrease in total deposits.

The Company regularly pledges loans and securities to the FRB and at March 31, 2023, the Company's pledging resulted in a total borrowing capacity of $3.8 billion, or an increase of $2.9 billion compared to December 31, 2022. The Company did not have any borrowings from the FRB's Discount Window or its newly established Bank Term Funding Program during the current quarter. The Company also pledges loans and securities and borrows from the FHLB. As of March 31, 2023, the Company had $1.5 billion of outstanding borrowings from the FHLB and $554.3 million of remaining borrowing capacity. 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 $11.2 billion at March 31, 2023. Approximately $2.0 billion is expected to mature or pay down over the next 12 months. At March 31, 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 1^st 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 547,381 shares of treasury stock during the current quarter at an average price of $65.93.

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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Commerce Bancshares, Inc. Reports First Quarter Earnings Per Share of $.95