Commerce Bancshares, Inc. announced earnings of $.84 per share for the three months ended December 31, 2023, compared to $1.00 per share in the same quarter last year and $.92 per share in the third quarter of 2023. Net income for the fourth quarter of 2023 amounted to $109.2 million, compared to $131.6 million in the fourth quarter of 2022 and $120.6 million in the prior quarter.

"We are pleased with our fourth quarter results," said John Kemper, President and Chief Executive Officer. "These results reflect the strength of our core deposit base, the impact of higher earning asset yields, and the contribution from key non-interest income categories, notably trust, bank card and deposit fees. Net interest income was generally flat to the previous quarter, while the net interest margin expanded six basis points. Non-interest income comprised 36.8% of total revenue. Our results included a one-time FDIC special assessment of $16 million.

"On the balance sheet," Kemper added, "the final tranches of FHLB advances and brokered deposits matured during the quarter as planned. More than offsetting these brokered deposit maturities, we saw deposit growth across our three business segments of $674 million, resulting in a period end net deposit increase of $273 million.

"We continue to maintain ample levels of liquidity and capital, which positions us well moving into 2024. Book value per share increased 14.4% during the quarter as interest rates declined. Credit quality of the loan portfolio remains strong with non-accrual loans at .04% of total loans, down one basis point from the previous quarter and prior year."

Fourth Quarter 2023 Financial Highlights:

Net interest income was $248.4 million, a $126 thousand decrease from the prior quarter. The net yield on interest earning assets increased 6 basis points to 3.17%.

Non-interest income totaled $144.9 million, an increase of $8.1 million compared to the same quarter last year.

Non-interest expense totaled $251.3 million, an increase of $34.5 million compared to the same quarter last year, mostly due to a $16.0 million accrual for a one-time FDIC insurance special assessment.

Average loan balances totaled $17.1 billion, an increase of $89.8 million, or .5%, over the prior quarter.

Total average available for sale debt securities decreased 6.2%, or $633.9 million, from the prior quarter to $9.6 billion, at fair value. During the fourth quarter of 2023, the unrealized loss on available for sale debt securities decreased $376.5 million to $1.2 billion, at period end.

Total average deposits decreased $356.2 million, or 1.4%, compared to the prior quarter, which reflected a payoff of the last tranche of brokered deposits issued during 2023. The average rate paid on interest bearing deposits in the current quarter was 1.93%.

The ratio of annualized net loan charge-offs to average loans was .19% compared to .23% in the prior quarter.

The allowance for credit losses on loans increased $151 thousand during the fourth quarter to $162.4 million, and the ratio of the allowance for credit losses on loans to total loans was .94% at December 31, 2023, compared to .95% at September 30, 2023.

Total assets at December 31, 2023 were $31.7 billion, an increase of $324.4 million, or 1.0%, over the prior quarter.

For the quarter, the return on average assets was 1.38%, the return on average equity was 16.48%, and the efficiency ratio was 63.8%.

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 Year Ended
(Unaudited) (Dollars in thousands, except per share data)	Dec. 31, 2023		Sep. 30, 2023		Dec. 31, 2022		Dec. 31, 2023		Dec. 31, 2022
FINANCIAL SUMMARY
Net interest income	$248,421		$248,547		$254,641		$998,129		$942,185
Non-interest income	144,879		142,949		136,825		573,045		546,535
Total revenue	393,300		391,496		391,466		1,571,174		1,488,720
Investment securities gains (losses)	7,601		4,298		8,904		14,985		20,506
Provision for credit losses	5,879		11,645		15,477		35,451		28,071
Non-interest expense	251,254		228,010		216,740		930,982		848,777
Income before taxes	143,768		156,139		168,153		619,726		632,378
Income taxes	32,307		33,439		34,499		134,549		132,358
Non-controlling interest expense	2,238		2,104		2,026		8,117		11,621
Net income attributable to Commerce Bancshares, Inc.	$109,223		$120,596		$131,628		$477,060		$488,399
Earnings per common share:
Net income — basic	$0.84		$0.92		$1.00		$3.64		$3.68
Net income — diluted	$0.84		$0.92		$1.00		$3.64		$3.67
Effective tax rate	22.83	%	21.71	%	20.77	%	22.00	%	21.32	%
Fully-taxable equivalent net interest income	$250,547		$250,962		$256,675		$1,006,677		$951,815
Average total interest earning assets ⁽¹⁾	$31,340,958		$31,974,945		$31,991,224		$ 31,823,935		$33,384,162
Diluted wtd. average shares outstanding	129,608,322		130,008,840		130,818,789		130,071,644		131,838,406
RATIOS
Average loans to deposits ⁽²⁾	67.69	%	66.39	%	59.73	%	66.31	%	55.41	%
Return on total average assets	1.38		1.49		1.65		1.49		1.45
Return on average equity ⁽³⁾	16.48		17.73		21.88		17.94		17.31
Non-interest income to total revenue	36.84		36.51		34.95		36.47		36.71
Efficiency ratio ⁽⁴⁾	63.80		58.15		55.26		59.17		56.90
Net yield on interest earning assets	3.17		3.11		3.18		3.16		2.85
EQUITY SUMMARY
Cash dividends per share	$.257		$.257		$.240		$1.029		$.961
Cash dividends on common stock	$33,574		$33,657		$31,648		$134,734		$127,466
Book value per share ⁽⁵⁾	$22.77		$19.90		$18.90
Market value per share ⁽⁵⁾	$53.41		$45.70		$64.83
High market value per share	$56.75		$52.37		$69.14
Low market value per share	$40.91		$44.10		$60.16
Common shares outstanding ⁽⁵⁾	130,176,048		130,586,153		131,249,055
Tangible common equity to tangible assets ⁽⁶⁾	8.85	%	7.78	%	7.32	%
Tier I leverage ratio	11.25	%	10.87	%	10.34	%
OTHER QTD INFORMATION
Number of bank/ATM locations	257		266		275
Full-time equivalent employees	4,718		4,714		4,594

(1)	Excludes allowance for credit losses on loans and unrealized gains/(losses) on available for sale debt securities.
(2)	Includes loans held for sale.
(3)	Annualized net income attributable to Commerce Bancshares, Inc. divided by average total equity.
(4)	The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of total revenue.
(5)	As of period end.
(6)	The tangible common equity ratio is a non-gaap ratio and is calculated as stockholders' equity reduced by goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).
All share and per share amounts have been restated to reflect the 5% stock dividend distributed in December 2023.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

(Unaudited) (In thousands, except per share data)	For the Three Months Ended										For the Year Ended
(Unaudited) (In thousands, except per share data)	Dec. 31, 2023		Sep. 30, 2023		Jun. 30, 2023		Mar. 31, 2023		Dec. 31, 2022		Dec. 31, 2023		Dec. 31, 2022
Interest income	$362,609		$361,162		$348,663		$308,857		$286,377		$1,381,291		$998,979
Interest expense	114,188		112,615		99,125		57,234		31,736		383,162		56,794
Net interest income	248,421		248,547		249,538		251,623		254,641		998,129		942,185
Provision for credit losses	5,879		11,645		6,471		11,456		15,477		35,451		28,071
Net interest income after credit losses	242,542		236,902		243,067		240,167		239,164		962,678		914,114
NON-INTEREST INCOME
Trust fees	49,154		49,207		47,265		45,328		44,710		190,954		184,719
Bank card transaction fees	47,878		46,899		49,725		46,654		44,588		191,156		176,144
Deposit account charges and other fees	23,517		23,090		22,633		21,752		21,989		90,992		94,381
Consumer brokerage services	3,641		3,820		4,677		5,085		4,518		17,223		19,117
Capital market fees	4,269		3,524		2,945		3,362		3,386		14,100		14,231
Loan fees and sales	2,875		2,966		2,735		2,589		2,566		11,165		13,141
Other	13,545		13,443		17,625		12,842		15,068		57,455		44,802
Total non-interest income	144,879		142,949		147,605		137,612		136,825		573,045		546,535
INVESTMENT SECURITIES GAINS (LOSSES), NET	7,601		4,298		3,392		(306	)	8,904		14,985		20,506
NON-INTEREST EXPENSE
Salaries and employee benefits	147,456		146,805		145,429		144,373		138,458		584,063		554,047
Data processing and software	31,141		30,744		28,719		28,154		27,991		118,758		110,692
Net occupancy	13,927		13,948		12,995		12,759		11,774		53,629		49,117
Deposit insurance	20,304		4,029		4,187		4,643		3,153		33,163		10,583
Marketing	6,505		6,167		6,368		5,471		5,419		24,511		23,827
Equipment	5,137		4,697		4,864		4,850		5,021		19,548		19,359
Supplies and communication	5,242		4,963		4,625		4,590		4,446		19,420		18,101
Other	21,542		16,657		20,424		19,267		20,478		77,890		63,051
Total non-interest expense	251,254		228,010		227,611		224,107		216,740		930,982		848,777
Income before income taxes	143,768		156,139		166,453		153,366		168,153		619,726		632,378
Less income taxes	32,307		33,439		35,990		32,813		34,499		134,549		132,358
Net income	111,461		122,700		130,463		120,553		133,654		485,177		500,020
Less non-controlling interest expense (income)	2,238		2,104		2,674		1,101		2,026		8,117		11,621
Net income attributable to Commerce Bancshares, Inc.	$109,223		$120,596		$127,789		$119,452		$131,628		$477,060		$488,399
Net income per common share — basic	$0.84		$0.92		$0.97		$0.91		$1.00		$3.64		$3.68
Net income per common share — diluted	$0.84		$0.92		$0.97		$0.91		$1.00		$3.64		$3.67

OTHER INFORMATION
Return on total average assets	1.38	%	1.49	%	1.56	%	1.54	%	1.65	%	1.49	%	1.45	%
Return on average equity ⁽¹⁾	16.48		17.73		18.81		18.75		21.88		17.94		17.31
Efficiency ratio ⁽²⁾	63.80		58.15		57.22		57.49		55.26		59.17		56.90
Effective tax rate	22.83		21.71		21.97		21.55		20.77		22.00		21.32
Net yield on interest earning assets	3.17		3.11		3.12		3.26		3.18		3.16		2.85
Fully-taxable equivalent net interest income	$250,547		$250,962		$251,757		$253,411		$256,675		$1,006,677		$951,815

(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 statement above reflects the reclassification of non-interest income of $406 thousand and $1.1 million from other non-interest income to capital market fees for the second and third quarters of 2023.

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

(Unaudited) (In thousands)	Dec. 31, 2023		Sep. 30, 2023		Dec. 31, 2022
ASSETS
Loans
Business	$ 6,019,036		$ 5,908,330		$ 5,661,725
Real estate — construction and land	1,446,764		1,539,566		1,361,095
Real estate — business	3,719,306		3,647,168		3,406,981
Real estate — personal	3,026,041		3,024,639		2,918,078
Consumer	2,077,723		2,125,804		2,059,088
Revolving home equity	319,894		305,237		297,207
Consumer credit card	589,913		574,829		584,000
Overdrafts	6,802		3,753		14,957
Total loans	17,205,479		17,129,326		16,303,131
Allowance for credit losses on loans	(162,395	)	(162,244	)	(150,136	)
Net loans	17,043,084		16,967,082		16,152,995
Loans held for sale	4,177		5,120		4,964
Investment securities:
Available for sale debt securities	9,684,760		9,860,828		12,238,316
Trading debt securities	28,830		35,564		43,523
Equity securities	12,701		12,212		12,304
Other securities	222,473		230,792		225,034
Total investment securities	9,948,764		10,139,396		12,519,177
Federal funds sold	5,025		2,735		49,505
Securities purchased under agreements to resell	450,000		450,000		825,000
Interest earning deposits with banks	2,239,010		1,847,641		389,140
Cash and due from banks	443,147		358,010		452,496
Premises and equipment — net	469,059		460,830		418,909
Goodwill	146,539		146,539		138,921
Other intangible assets — net	14,179		14,432		15,234
Other assets	938,077		984,907		909,590
Total assets	$ 31,701,061		$ 31,376,692		$ 31,875,931
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing	$ 7,975,935		$ 7,961,402		$ 10,066,356
Savings, interest checking and money market	14,512,273		14,154,275		15,126,981
Certificates of deposit of less than $100,000	930,432		1,210,169		387,336
Certificates of deposit of $100,000 and over	1,945,258		1,764,611		606,767
Total deposits	25,363,898		25,090,457		26,187,440
Federal funds purchased and securities sold under agreements to repurchase	2,908,815		2,745,181		2,841,734
Other borrowings	1,404		503,589		9,672
Other liabilities	462,714		438,199		355,508
Total liabilities	28,736,831		28,777,426		29,394,354
Stockholders' equity:
Common stock	655,322		629,319		629,319
Capital surplus	3,162,622		2,924,211		2,932,959
Retained earnings	53,183		298,297		31,620
Treasury stock	(35,599	)	(76,888	)	(41,743	)
Accumulated other comprehensive income (loss)	(891,412	)	(1,193,534	)	(1,086,864	)
Total stockholders' equity	2,944,116		2,581,405		2,465,291
Non-controlling interest	20,114		17,861		16,286
Total equity	2,964,230		2,599,266		2,481,577
Total liabilities and equity	$ 31,701,061		$ 31,376,692		$ 31,875,931

COMMERCE BANCSHARES, INC. and SUBSIDIARIES AVERAGE BALANCE SHEETS

(Unaudited) (In thousands)	For the Three Months Ended
(Unaudited) (In thousands)	Dec. 31, 2023		Sep. 30, 2023		Jun. 30, 2023		Mar. 31, 2023		Dec. 31, 2022
ASSETS:
Loans:
Business	$ 5,861,229		$ 5,849,227		$ 5,757,388		$ 5,656,104		$ 5,478,241
Real estate — construction and land	1,523,682		1,508,850		1,450,196		1,410,835		1,268,900
Real estate — business	3,644,589		3,642,010		3,540,851		3,478,382		3,300,697
Real estate — personal	3,027,664		2,992,500		2,960,962		2,933,750		2,886,686
Consumer	2,117,268		2,102,281		2,098,523		2,067,385		2,089,912
Revolving home equity	310,282		304,055		300,623		296,748		293,681
Consumer credit card	568,112		564,039		555,875		556,223		559,463
Overdrafts	5,258		5,341		4,630		4,449		7,428
Total loans	17,058,084		16,968,303		16,669,048		16,403,876		15,885,008
Allowance for credit losses on loans	(161,932	)	(158,335	)	(159,068	)	(150,117	)	(143,285	)
Net loans	16,896,152		16,809,968		16,509,980		16,253,759		15,741,723
Loans held for sale	5,392		5,714		5,957		5,708		6,567
Investment securities:
U.S. government and federal agency obligations	889,390		986,284		1,035,651		1,099,067		1,055,602
Government-sponsored enterprise obligations	55,661		55,676		55,751		87,086		55,732
State and municipal obligations	1,363,649		1,391,541		1,532,519		1,793,756		1,990,643
Mortgage-backed securities	6,022,502		6,161,348		6,316,224		6,454,408		6,605,936
Asset-backed securities	2,325,089		2,553,562		2,827,911		3,233,757		3,714,092
Other debt securities	510,721		514,787		519,988		528,941		560,951
Unrealized gain (loss) on debt securities	(1,595,845	)	(1,458,141	)	(1,331,002	)	(1,387,196	)	(1,582,061	)
Total available for sale debt securities	9,571,167		10,205,057		10,957,042		11,809,819		12,400,895
Trading debt securities	37,234		35,044		46,493		45,757		44,626
Equity securities	12,249		12,230		12,335		12,458		10,534
Other securities	222,378		237,518		273,587		229,867		219,354
Total investment securities	9,843,028		10,489,849		11,289,457		12,097,901		12,675,409
Federal funds sold	1,194		2,722		7,484		38,978		27,683
Securities purchased under agreements to resell	450,000		712,472		824,974		825,000		1,174,457
Interest earning deposits with banks	2,387,415		2,337,744		2,284,162		809,935		640,039
Other assets	1,797,849		1,750,222		1,941,340		1,376,551		1,339,554
Total assets	$ 31,381,030		$ 32,108,691		$ 32,863,354		$ 31,407,832		$ 31,605,432

LIABILITIES AND EQUITY:
Non-interest bearing deposits	$ 7,748,654		$ 7,939,190		$ 8,224,475		$ 9,114,512		$ 10,360,834
Savings	1,357,733		1,436,149		1,516,887		1,550,215		1,567,113
Interest checking and money market	13,166,783		13,048,199		12,918,399		13,265,485		13,693,974
Certificates of deposit of less than $100,000	1,097,224		1,423,965		1,075,110		415,367		388,304
Certificates of deposit of $100,000 and over	1,839,057		1,718,126		1,472,208		903,393		596,703
Total deposits	25,209,451		25,565,629		25,207,079		25,248,972		26,606,928
Borrowings:
Federal funds purchased	473,534		508,851		507,165		493,721		143,630
Securities sold under agreements to repurchase	2,467,118		2,283,020		2,206,612		2,418,726		2,260,263
Other borrowings	179,587		685,222		1,617,952		551,267		179,552
Total borrowings	3,120,239		3,477,093		4,331,729		3,463,714		2,583,445
Other liabilities	421,402		367,741		598,915		112,052		28,745
Total liabilities	28,751,092		29,410,463		30,137,723		28,824,738		29,219,118
Equity	2,629,938		2,698,228		2,725,631		2,583,094		2,386,314
Total liabilities and equity	$ 31,381,030		$ 32,108,691		$ 32,863,354		$ 31,407,832		$ 31,605,432

COMMERCE BANCSHARES, INC. and SUBSIDIARIES AVERAGE RATES

(Unaudited)	For the Three Months Ended
(Unaudited)	Dec. 31, 2023		Sep. 30, 2023		Jun. 30, 2023		Mar. 31, 2023		Dec. 31, 2022
ASSETS:
Loans:
Business⁽¹⁾	5.91	%	5.77	%	5.58	%	5.31	%	4.68	%
Real estate — construction and land	8.34		8.17		7.92		7.33		6.80
Real estate — business	6.18		6.13		5.96		5.65		5.15
Real estate — personal	3.85		3.73		3.68		3.61		3.45
Consumer	6.21		5.97		5.63		5.31		4.77
Revolving home equity	7.70		7.76		7.55		7.03		5.89
Consumer credit card	13.83		13.77		13.77		13.68		12.64
Overdrafts	—		—		—		—		—
Total loans	6.15		6.02		5.84		5.56		5.03
Loans held for sale	9.93		10.55		10.17		10.30		10.09
Investment securities:
U.S. government and federal agency obligations	2.32		2.31		3.42		1.90		2.01
Government-sponsored enterprise obligations	2.36		2.36		2.38		3.21		2.36
State and municipal obligations⁽¹⁾	1.94		1.95		2.04		2.26		2.29
Mortgage-backed securities	2.05		2.06		2.09		2.06		1.88
Asset-backed securities	2.30		2.20		2.08		2.01		1.96
Other debt securities	1.85		1.75		1.86		1.93		1.89
Total available for sale debt securities	2.10		2.08		2.19		2.07		1.97
Trading debt securities⁽¹⁾	5.05		5.11		4.53		4.59		3.81
Equity securities ⁽¹⁾	27.47		23.06		23.25		23.24		28.44
Other securities ⁽¹⁾	8.60		13.13		9.40		7.11		6.67
Total investment securities	2.27		2.33		2.37		2.18		2.07
Federal funds sold	6.65		6.56		5.63		5.09		4.27
Securities purchased under agreements to resell	1.64		2.08		1.99		1.94		2.36
Interest earning deposits with banks	5.47		5.39		5.14		4.67		3.69
Total interest earning assets	4.62		4.51		4.34		4.00		3.59

LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	.05		.05		.05		.05		.06
Interest checking and money market	1.57		1.33		.93		.61		.38
Certificates of deposit of less than $100,000	4.21		4.32		3.78		1.39		.73
Certificates of deposit of $100,000 and over	4.55		4.37		3.93		2.98		1.42
Total interest bearing deposits	1.93		1.76		1.29		.71		.40
Borrowings:
Federal funds purchased	5.40		5.33		5.06		4.59		3.56
Securities sold under agreements to repurchase	3.25		3.20		3.09		2.93		2.29
Other borrowings	5.45		5.30		5.24		4.94		4.02
Total borrowings	3.71		3.93		4.13		3.49		2.48
Total interest bearing liabilities	2.20	%	2.12	%	1.87	%	1.20	%	.69	%

Net yield on interest earning assets	3.17	%	3.11	%	3.12	%	3.26	%	3.18	%

(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 Year Ended
(Unaudited) (In thousands, except ratios)	Dec. 31, 2023		Sep. 30, 2023		Jun. 30, 2023		Mar. 31, 2023		Dec. 31, 2022		Dec. 31, 2023		Dec. 31, 2022
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period	$162,244		$158,685		$159,317		$150,136		$143,377		$150,136		$150,044
Provision for credit losses on loans	8,170		13,343		5,864		15,948		12,404		43,325		19,155
Net charge-offs (recoveries):
Commercial portfolio:
Business	96		2,613		165		230		496		3,104		1,053
Real estate — construction and land	—		—		(115	)	—		—		(115	)	—
Real estate — business	128		(15	)	(5	)	(4	)	(4	)	104		(20	)
	224		2,598		45		226		492		3,093		1,033
Personal banking portfolio:
Consumer credit card	5,325		4,716		4,687		4,325		3,467		19,053		12,658
Consumer	1,903		1,797		1,273		1,275		1,522		6,248		3,790
Overdraft	588		683		517		978		230		2,766		1,716
Real estate — personal	(11	)	(9	)	(6	)	(11	)	(40	)	(37	)	(74	)
Revolving home equity	(10	)	(1	)	(20	)	(26	)	(26	)	(57	)	(60	)
	7,795		7,186		6,451		6,541		5,153		27,973		18,030
Total net loan charge-offs	8,019		9,784		6,496		6,767		5,645		31,066		19,063
Balance at end of period	$162,395		$162,244		$158,685		$159,317		$150,136		$162,395		$150,136
LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$25,246		$27,537		$29,235		$28,628		$33,120
NET CHARGE-OFF RATIOS ⁽¹⁾
Commercial portfolio:
Business	.01	%	.18	%	.01	%	.02	%	.04	%	.05	%	.02	%
Real estate — construction and land	—		—		(.03	)	—		—		(.01	)	—
Real estate — business	.01		—		—		—		—		—		—
	.01		.09		—		.01		.02		.03		.01
Personal banking portfolio:
Consumer credit card	3.72		3.32		3.38		3.15		2.46		3.40		2.31
Consumer	.36		.34		.24		.25		.29		.30		.18
Overdraft	44.37		50.73		44.79		89.15		12.28		56.19		30.40
Real estate — personal	—		—		—		—		(.01	)	—		—
Revolving home equity	(.01	)	—		(.03	)	(.04	)	(.04	)	(.02	)	(.02	)
	.51		.48		.44		.45		.35		.47		.31
Total	.19	%	.23	%	.16	%	.17	%	.14	%	.19	%	.12	%
CREDIT QUALITY RATIOS
Non-accrual loans to total loans	.04	%	.05	%	.04	%	.05	%	.05	%
Allowance for credit losses on loans to total loans	.94		.95		.94		.96		.92
NON-ACCRUAL AND PAST DUE LOANS
Non-accrual loans:
Business	$3,622		$6,602		$4,732		$6,361		$6,751
Real estate — business	60		76		153		171		189
Real estate — personal	1,653		1,531		1,276		1,269		1,366
Revolving home equity	1,977		—		—		—		—
Total	7,312		8,209		6,161		7,801		8,306
Loans past due 90 days and still accruing interest	$21,864		$18,580		$15,351		$14,800		$15,830

(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 Fourth Quarter Results

December 31, 2023

For the quarter ended December 31, 2023, net income amounted to $109.2 million, compared to $120.6 million in the previous quarter and $131.6 million in the same quarter last year. The decrease in net income compared to the previous quarter was primarily the result of higher non-interest expense, partly offset by lower provision for credit losses and higher net gains on investment securities. The net yield on interest earning assets increased six basis points from the previous quarter to 3.17%. Average loans grew $89.8 million compared to the previous quarter, while average deposits, borrowings and available for sale debt securities, at fair value, declined $356.2 million, $356.9 million, and $633.9 million, respectively. For the quarter, the return on average assets was 1.38%, the return on average equity was 16.48%, and the efficiency ratio was 63.8%.

Balance Sheet Review

During the 4th quarter of 2023, average loans totaled $17.1 billion, an increase of $89.8 million over the prior quarter, and $1.2 billion, or 7.4%, over the same quarter last year. Compared to the previous quarter, average balances of personal real estate, consumer, construction, and business loans grew $35.2 million, $15.0 million, $14.8 million, and $12.0 million, respectively. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $8.7 million, compared to $9.2 million in the prior quarter.

Total average available for sale debt securities decreased $633.9 million compared to the previous quarter to $9.6 billion, at fair value. The decrease in investment securities was mainly the result of lower average balances of asset-backed, mortgage-backed, and U.S. government and federal agency obligation securities. During the 4th quarter of 2023, the unrealized loss on available for sale securities decreased $376.5 million to $1.2 billion, at period end, and maturities and pay downs were $598.7 million. At December 31, 2023, the duration of the available for sale investment portfolio was 4.1 years. The Company does not have any investment securities classified as held-to-maturity.

Total average deposits decreased $356.2 million this quarter compared to the previous quarter. The decrease in deposits mostly resulted from lower certificates of deposit, demand deposits, and savings average deposits of $205.8 million, $190.5 million, and $78.4 million, respectively, partly offset by higher interest checking and money market average deposits of $118.6 million. Compared to the previous quarter, total average commercial and wealth deposits increased $93.4 million and $23.0 million, respectively, while consumer deposits declined $5.9 million. During the 4th quarter, the Company paid off its final tranche of brokered deposits, which decreased average certificate of deposit balances by $471.3 million compared to the prior quarter. The average loans to deposits ratio was 67.7% in the current quarter and 66.4% in the prior quarter. The Company's average borrowings, which included customer repurchase agreements of $2.5 billion, decreased $356.9 million to $3.1 billion in the 4th quarter of 2023, mostly due to a decline of $505.4 million in Federal Home Loan Bank (FHLB) borrowings.

Net Interest Income

Net interest income in the 4th quarter of 2023 amounted to $248.4 million, a decrease of $126 thousand compared to the previous quarter. On a fully taxable-equivalent (FTE) basis, net interest income for the current quarter decreased $415 thousand from the previous quarter to $250.5 million. The decrease in net interest income was mostly due to higher interest expense on deposits and lower interest income on investment securities, partly offset by higher interest earned on loans and lower interest expense on borrowings. The net yield (FTE) on earning assets increased to 3.17%, from 3.11% in the prior quarter.

Compared to the previous quarter, interest income on loans (FTE) increased $6.8 million, due to higher average rates earned in most loan categories, coupled with higher average balances in almost all loan categories. The average yield (FTE) on the loan portfolio increased 13 basis points to 6.15% this quarter.

Interest income on investment securities (FTE) decreased $4.9 million compared to the prior quarter, mostly due to lower average balances of available for sale securities and a $2.3 million dividend from a private equity investment in the prior quarter that did not repeat in the current quarter. Interest income earned on U.S. government and federal agency securities decreased due to lower average balances, which included the impact of $473 thousand in lower inflation income from Treasury inflation-protected securities this quarter. Additionally, the Company recorded a $629 thousand adjustment to premium amortization at December 31, 2023, which increased interest income to reflect slower forward prepayment speed estimates on mortgage-backed securities, but was lower than the $1.3 million adjustment that increased interest income in the prior quarter. The average yield (FTE) on total investment securities was 2.27% in the current quarter, compared to 2.33% in the previous quarter.

Compared to the previous quarter, interest income on deposits with banks increased $1.2 million, due to higher average rates earned and higher average balances. The average yield on deposits with banks was 5.47% in the current quarter, compared to 5.39% in the prior quarter.

Interest expense increased $1.6 million, mostly due to higher rates paid on deposits, partly offset by lower average balances of borrowings and deposits. The average rate paid on interest bearing deposits totaled 1.93% in the current quarter compared to 1.76% in the prior quarter. Interest expense on deposits increased $6.9 million this quarter compared to the previous quarter. Interest expense on borrowings decreased $5.3 million, mostly due to a decline in average FHLB borrowings of $505.4 million. The overall rate paid on interest bearing liabilities was 2.20% in the current quarter compared to 2.12% in the prior quarter.

Non-Interest Income

In the 4th quarter of 2023, total non-interest income amounted to $144.9 million, an increase of $8.1 million compared to the same period last year and an increase of $1.9 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, bank card fees, deposit account fees, and capital market fees, partly offset by lower consumer brokerage fees and lower gains on sales of real estate. The increase in non-interest income compared to the prior quarter was mainly due to higher bank card fees, capital market fees, deposit account fees, and sweep fees, partly offset by lower tax credit sales income, and lower gains on sales of real estate. Additionally, an increase of $2.3 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.

Total net bank card fees in the current quarter increased $3.3 million, or 7.4%, compared to the same period last year, and increased $979 thousand compared to the prior quarter. Net corporate card fees increased $2.3 million, or 9.3%, over the same quarter of last year mainly due to lower rewards and network expense. Net debit card fees increased $790 thousand, or 7.6%, mostly due to lower network expense. Net merchant fees increased $159 thousand, or 2.9%, due to higher interchange fees, while net credit card fees increased $3 thousand. Total net bank card fees this quarter were comprised of fees on corporate card ($27.6 million), debit card ($11.2 million), merchant ($5.6 million) and credit card ($3.5 million) transactions.

In the current quarter, trust fees increased $4.4 million, or 9.9%, over the same period last year, mostly resulting from higher private client trust fees. Compared to the same period last year, deposit account fees increased $1.5 million, or 6.9%, mostly due to higher corporate cash management fees. Capital market fees increased $883 thousand, or 26.1%, over the same period last year due to higher underwriting fees, while consumer brokerage fees decreased $877 thousand, or 19.4%.

Other non-interest income decreased compared to the same period last year primarily due to lower tax credit sales income of $1.0 million and lower gains on sales of real estate and other assets of $1.2 million. These decreases were partly offset by higher fair value adjustments on the Company's deferred compensation plan this quarter. For the 4th quarter of 2023, non-interest income comprised 36.8% of the Company's total revenue.

Investment Securities Gains and Losses

The Company recorded net securities gains of $7.6 million in the current quarter, compared to gains of $4.3 million in the prior quarter and $8.9 million in the 4th quarter of 2022. Net securities gains in the current quarter primarily resulted from net fair value gains of $7.1 million on the Company's portfolio of private equity investments.

Non-Interest Expense

Non-interest expense for the current quarter amounted to $251.3 million, compared to $216.7 million in the same period last year and $228.0 million in the prior quarter. The increase in non-interest expense compared to the same period last year was mainly due to higher FDIC insurance expense, salaries and employee benefits expense, data processing and software expense, and occupancy expense. The increase in non-interest expense compared to the prior quarter was mainly due to higher FDIC insurance expense.

Compared to the 4th quarter of last year, salaries and employee benefits expense increased $9.0 million, or 6.5%, mostly due to higher full-time salaries expense of $7.3 million and higher employee benefits expense of $2.0 million. Full-time equivalent employees totaled 4,718 and 4,594 at December 31, 2023 and 2022, respectively.

Compared to the same period last year, data processing and software expense increased $3.1 million due to higher bank card fees expense and increased costs for service providers. Occupancy expense increased $2.2 million mostly due to higher real estate taxes and depreciation expense, partly offset by higher rent income. FDIC insurance expense increased $17.2 million, mostly due to a $16.0 million accrual in the current quarter of a one-time special assessment by the FDIC to replenish the Deposit Insurance Fund.

Income Taxes

The effective tax rate for the Company was 22.8% in the current quarter, 21.7% in the previous quarter, and 20.8% in the 4th quarter of 2022. The increase in the effective tax rate compared to the prior quarter was mostly due to higher state and local income taxes. The increase in the effective tax rate compared to the same quarter last year was mostly due to higher state income taxes and lower tax-exempt income.

Credit Quality

Net loan charge-offs in the 4th quarter of 2023 amounted to $8.0 million, compared to $9.8 million in the prior quarter and $5.6 million in the same period last year. The ratio of annualized net loan charge-offs to total average loans was .19% in the current quarter, .23% in the previous quarter, and .14% in the 4th quarter of last year. Compared to the prior quarter, net loan charge-offs on commercial loans decreased $2.4 million to $224 thousand, while net loan charge-offs on personal banking loans increased $609 thousand to $7.8 million, mainly due to $609 thousand of higher consumer credit card loan net charge-offs.

In the 4th quarter of 2023, annualized net loan charge-offs on average consumer credit card loans were 3.72%, compared to 3.32% in the previous quarter, and 2.46% in the same quarter last year. Consumer loan net charge-offs were .36% of average consumer loans in the current quarter, .34% in the prior quarter, and .29% in the same quarter last year.

At December 31, 2023, the allowance for credit losses on loans totaled $162.4 million, or .94% of total loans, and increased $151 thousand compared to the prior quarter. Additionally, the liability for unfunded lending commitments at December 31, 2023 was $25.2 million, a decrease of $2.3 million compared to the liability at September 30, 2023.

At December 31, 2023, total non-accrual loans amounted to $7.3 million, a decrease of $897 thousand compared to the previous quarter. At December 31, 2023, the balance of non-accrual loans, which represented .04% of loans outstanding, included business loans of $3.6 million, revolving home equity loans of $2.0 million, personal real estate loans of $1.7 million, and business real estate loans of $60 thousand. Loans more than 90 days past due and still accruing interest totaled $21.9 million at December 31, 2023.

Liquidity

During the 4th quarter of 2023, the Company increased its interest earning deposit at the Federal Reserve Bank (FRB) by $391.4 million to $2.2 billion. The change in the balance at the FRB was mostly the result of $598.7 million of maturities and paydowns in the available for sale debt securities portfolio, a $408.7 million increase in securities sold under agreements to repurchase, and a $273.4 million increase in total deposits, which includes a $401.0 million decrease in brokered certificates of deposit, partly offset by a $500.0 million decrease in FHLB advances and a $245.1 million decrease in federal funds purchased.

The Company regularly pledges loans and securities to the FRB and at December 31, 2023 and September 30, 2023, the Company's pledging resulted in a total borrowing capacity of $4.9 billion and $5.0 billion, respectively. 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. At December 31, 2023, the Company did not have any outstanding borrowings and had $1.9 billion of available borrowing capacity from the FHLB. Additionally, the Company pledges portions of its investment securities portfolio to secure public fund deposits, trust funds, and securities sold under agreements to repurchase.

The Company has an available for sale debt securities portfolio with a fair market value of $9.7 billion at December 31, 2023. Approximately $1.8 billion is expected to mature or pay down over the next 12 months. At December 31, 2023, the Company had pledged $7.5 billion of the securities portfolio. The Company also has a portfolio of $450.0 million in securities purchased under agreements to resell, of which $325.0 million are expected to mature over the next 12 months.

Other

During the 4th quarter of 2023, the Company distributed a 5% stock dividend on its common stock and paid a cash dividend of $.26 per common share (as restated for the stock dividend), representing a 7.1% increase over the same period last year. The Company purchased 412,921 shares of treasury stock during the current quarter at an average price of $48.84.

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 Fourth Quarter Earnings Per Share of $.84