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

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

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

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

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

Third Quarter 2023 Financial Highlights:

Net interest income was $248.5 million, a $991 thousand decrease from the prior quarter. The net yield on interest earning assets decreased 1 basis point to 3.11%.

Non-interest income totaled $142.9 million, an increase of $4.4 million compared to the same quarter last year.

Non-interest expense totaled $228.0 million, an increase of $15.1 million compared to the same quarter last year.

Average loan balances totaled $17.0 billion, an increase of $299.3 million, or 1.8%, over the prior quarter.

Total average available for sale debt securities decreased 6.9%, or $752.0 million, from the prior quarter to $10.2 billion, at fair value. During the third quarter of 2023, the unrealized loss on available for sale securities increased $177.4 million to $1.6 billion, at period end.

Total average deposits increased $358.6 million, or 1.4%, compared to June 30, 2023. The average rate paid on interest bearing deposits in the current quarter was 1.76%.

The ratio of annualized net loan charge-offs to average loans was .23% compared to .16% in the prior quarter.

The allowance for credit losses on loans increased $3.6 million during the third quarter to $162.2 million, and at September 30, 2023, the ratio of the allowance for credit losses on loans to total loans was .95%, compared to .94% at June 30, 2023.

Total assets at September 30, 2023 were $31.4 billion, a decrease of $1.5 billion, or 4.4%, from the prior quarter.

For the quarter, the return on average assets was 1.49%, the return on average equity was 17.73%, and the efficiency ratio was 58.2%.

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

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

COMMERCE BANCSHARES, INC. and SUBSIDIARIES FINANCIAL HIGHLIGHTS

	For the Three Months Ended						For the Nine Months Ended
(Unaudited) (Dollars in thousands, except per share data)	Sep. 30, 2023		Jun. 30, 2023		Sep. 30, 2022		Sep. 30, 2023		Sep. 30, 2022
FINANCIAL SUMMARY
Net interest income	$248,547		$249,538		$246,373		$749,708		$687,544
Non-interest income	142,949		147,605		138,514		428,166		409,710
Total revenue	391,496		397,143		384,887		1,177,874		1,097,254
Investment securities gains (losses)	4,298		3,392		3,410		7,384		11,602
Provision for credit losses	11,645		6,471		15,290		29,572		12,594
Non-interest expense	228,010		227,611		212,884		679,728		632,037
Income before taxes	156,139		166,453		160,123		475,958		464,225
Income taxes	33,439		35,990		33,936		102,242		97,859
Non-controlling interest expense	2,104		2,674		3,364		5,879		9,595
Net income attributable to Commerce Bancshares, Inc.	$120,596		$127,789		$122,823		$367,837		$356,771
Earnings per common share:
Net income — basic	$0.96		$1.03		$0.97		$2.94		$2.81
Net income — diluted	$0.96		$1.02		$0.97		$2.93		$2.81
Effective tax rate	21.71	%	21.97	%	21.65	%	21.75	%	21.52	%
Fully-taxable equivalent net interest income	$250,962		$251,757		$248,737		$756,130		$695,140
Average total interest earning assets ⁽¹⁾	$31,974,945		$32,412,084		$32,807,393		$ 31,986,696		$33,853,577
Diluted wtd. average shares outstanding	123,817,943		124,007,300		125,116,585		124,026,459		125,887,632

RATIOS
Average loans to deposits ⁽²⁾	66.39	%	66.15	%	56.40	%	65.85	%	54.05	%
Return on total average assets	1.49		1.56		1.48		1.53		1.39
Return on average equity ⁽³⁾	17.73		18.81		17.84		18.42		16.08
Non-interest income to total revenue	36.51		37.17		35.99		36.35		37.34
Efficiency ratio ⁽⁴⁾	58.15		57.22		55.19		57.62		57.48
Net yield on interest earning assets	3.11		3.12		3.01		3.16		2.75

EQUITY SUMMARY
Cash dividends per share	$.270		$.270		$.252		$.810		$.757
Cash dividends on common stock	$33,657		$33,744		$31,740		$101,160		$95,818
Book value per share ⁽⁵⁾	$20.90		$21.53		$18.91
Market value per share ⁽⁵⁾	$47.98		$48.70		$63.01
High market value per share	$54.99		$58.97		$70.45
Low market value per share	$46.30		$45.55		$61.14
Common shares outstanding ⁽⁵⁾	124,367,765		124,734,830		125,329,198
Tangible common equity to tangible assets ⁽⁶⁾	7.78	%	7.70	%	6.80	%
Tier I leverage ratio	10.87	%	10.46	%	9.87	%

OTHER QTD INFORMATION
Number of bank/ATM locations	266		272		277
Full-time equivalent employees	4,714		4,680		4,595

(1)	Excludes allowance for credit losses on loans and unrealized gains/(losses) on available for sale debt securities.
(2)	Includes loans held for sale.
(3)	Annualized net income attributable to Commerce Bancshares, Inc. divided by average total equity.
(4)	The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of total revenue.
(5)	As of period end.
(6)	The tangible common equity ratio is a non-gaap ratio and is calculated as stockholders' equity reduced by goodwill and other intangible assets (excluding mortgage servicing rights) divided by total assets reduced by goodwill and other intangible assets (excluding mortgage servicing rights).
All share and per share amounts have been restated to reflect the 5% stock dividend distributed in December 2022.

COMMERCE BANCSHARES, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

(Unaudited) (In thousands, except per share data)	For the Three Months Ended										For the Nine Months Ended
(Unaudited) (In thousands, except per share data)	Sep. 30, 2023		Jun. 30, 2023		Mar. 31, 2023		Dec. 31, 2022		Sep. 30, 2022		Sep. 30, 2023		Sep. 30, 2022
Interest income	$361,162		$348,663		$308,857		$286,377		$262,666		$1,018,682		$712,602
Interest expense	112,615		99,125		57,234		31,736		16,293		268,974		25,058
Net interest income	248,547		249,538		251,623		254,641		246,373		749,708		687,544
Provision for credit losses	11,645		6,471		11,456		15,477		15,290		29,572		12,594
Net interest income after credit losses	236,902		243,067		240,167		239,164		231,083		720,136		674,950
NON-INTEREST INCOME
Bank card transaction fees	46,899		49,725		46,654		44,588		45,638		143,278		131,556
Trust fees	49,207		47,265		45,328		44,710		45,406		141,800		140,009
Deposit account charges and other fees	23,090		22,633		21,752		21,989		24,521		67,475		72,392
Consumer brokerage services	3,820		4,677		5,085		4,518		5,085		13,582		14,599
Capital market fees	2,410		2,539		3,362		3,386		3,393		8,311		10,845
Loan fees and sales	2,966		2,735		2,589		2,566		3,094		8,290		10,575
Other	14,557		18,031		12,842		15,068		11,377		45,430		29,734
Total non-interest income	142,949		147,605		137,612		136,825		138,514		428,166		409,710
INVESTMENT SECURITIES GAINS (LOSSES), NET	4,298		3,392		(306	)	8,904		3,410		7,384		11,602
NON-INTEREST EXPENSE
Salaries and employee benefits	146,805		145,429		144,373		138,458		137,393		436,607		415,589
Data processing and software	30,744		28,719		28,154		27,991		28,050		87,617		82,701
Net occupancy	13,948		12,995		12,759		11,774		12,544		39,702		37,343
Marketing	6,167		6,368		5,471		5,419		6,228		18,006		18,408
Equipment	4,697		4,864		4,850		5,021		5,036		14,411		14,338
Supplies and communication	4,963		4,625		4,590		4,446		4,581		14,178		13,655
Other	20,686		24,611		23,910		23,631		19,052		69,207		50,003
Total non-interest expense	228,010		227,611		224,107		216,740		212,884		679,728		632,037
Income before income taxes	156,139		166,453		153,366		168,153		160,123		475,958		464,225
Less income taxes	33,439		35,990		32,813		34,499		33,936		102,242		97,859
Net income	122,700		130,463		120,553		133,654		126,187		373,716		366,366
Less non-controlling interest expense (income)	2,104		2,674		1,101		2,026		3,364		5,879		9,595
Net income attributable to Commerce Bancshares, Inc.	$120,596		$127,789		$119,452		$131,628		$122,823		$367,837		$356,771
Net income per common share — basic	$0.96		$1.03		$0.95		$1.05		$0.97		$2.94		$2.81
Net income per common share — diluted	$0.96		$1.02		$0.95		$1.04		$0.97		$2.93		$2.81

OTHER INFORMATION
Return on total average assets	1.49	%	1.56	%	1.54	%	1.65	%	1.48	%	1.53	%	1.39	%
Return on average equity ⁽¹⁾	17.73		18.81		18.75		21.88		17.84		18.42		16.08
Efficiency ratio ⁽²⁾	58.15		57.22		57.49		55.26		55.19		57.62		57.48
Effective tax rate	21.71		21.97		21.55		20.77		21.65		21.75		21.52
Net yield on interest earning assets	3.11		3.12		3.26		3.18		3.01		3.16		2.75
Fully-taxable equivalent net interest income	$250,962		$251,757		$253,411		$256,675		$248,737		$756,130		$695,140

(1)	Annualized net income attributable to Commerce Bancshares, Inc. divided by average total equity.
(2)	The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of total revenue.

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

(Unaudited) (In thousands)	Sep. 30, 2023		Jun. 30, 2023		Sep. 30, 2022
ASSETS
Loans
Business	$ 5,908,330		$ 5,906,493		$ 5,528,895
Real estate — construction and land	1,539,566		1,451,783		1,206,955
Real estate — business	3,647,168		3,621,222		3,331,627
Real estate — personal	3,024,639		2,980,599		2,862,519
Consumer	2,125,804		2,110,605		2,116,371
Revolving home equity	305,237		303,845		286,026
Consumer credit card	574,829		574,755		563,349
Overdrafts	3,753		7,237		3,216
Total loans	17,129,326		16,956,539		15,898,958
Allowance for credit losses on loans	(162,244	)	(158,685	)	(143,377	)
Net loans	16,967,082		16,797,854		15,755,581
Loans held for sale	5,120		6,776		8,062
Investment securities:
Available for sale debt securities	9,860,828		10,414,625		12,632,510
Trading debt securities	35,564		29,412		39,222
Equity securities	12,212		12,266		8,954
Other securities	230,792		258,045		222,742
Total investment securities	10,139,396		10,714,348		12,903,428
Federal funds sold	2,735		2,750		14,020
Securities purchased under agreements to resell	450,000		825,000		1,275,000
Interest earning deposits with banks	1,847,641		2,568,695		642,943
Cash and due from banks	358,010		366,699		344,178
Premises and equipment — net	460,830		451,568		407,833
Goodwill	146,539		146,371		138,921
Other intangible assets — net	14,432		14,666		15,599
Other assets	984,907		936,535		1,097,031
Total assets	$ 31,376,692		$ 32,831,262		$ 32,602,596
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing	$ 7,961,402		$ 8,198,849		$ 10,468,591
Savings, interest checking and money market	14,154,275		14,418,974		16,014,487
Certificates of deposit of less than $100,000	1,210,169		1,543,424		391,145
Certificates of deposit of $100,000 and over	1,764,611		1,708,197		597,093
Total deposits	25,090,457		25,869,444		27,471,316
Federal funds purchased and securities sold under agreements to repurchase	2,745,181		2,878,021		2,314,590
Other borrowings	503,589		1,005,613		1,831
Other liabilities	438,199		392,956		443,752
Total liabilities	28,777,426		30,146,034		30,231,489
Stockholders' equity:
Common stock	629,319		629,319		610,804
Capital surplus	2,924,211		2,921,365		2,683,631
Retained earnings	298,297		211,358		353,446
Treasury stock	(76,888	)	(58,389	)	(176,943	)
Accumulated other comprehensive income (loss)	(1,193,534	)	(1,036,295	)	(1,119,344	)
Total stockholders' equity	2,581,405		2,667,358		2,351,594
Non-controlling interest	17,861		17,870		19,513
Total equity	2,599,266		2,685,228		2,371,107
Total liabilities and equity	$ 31,376,692		$ 32,831,262		$ 32,602,596

COMMERCE BANCSHARES, INC. and SUBSIDIARIES AVERAGE BALANCE SHEETS

(Unaudited) (In thousands)	For the Three Months Ended
(Unaudited) (In thousands)	Sep. 30, 2023		Jun. 30, 2023		Mar. 31, 2023		Dec. 31, 2022		Sep. 30, 2022
ASSETS:
Loans:
Business	$ 5,849,227		$ 5,757,388		$ 5,656,104		$ 5,478,241		$ 5,317,696
Real estate — construction and land	1,508,850		1,450,196		1,410,835		1,268,900		1,288,721
Real estate — business	3,642,010		3,540,851		3,478,382		3,300,697		3,258,128
Real estate — personal	2,992,500		2,960,962		2,933,750		2,886,686		2,844,376
Consumer	2,102,281		2,098,523		2,067,385		2,089,912		2,101,622
Revolving home equity	304,055		300,623		296,748		293,681		280,923
Consumer credit card	564,039		555,875		556,223		559,463		550,058
Overdrafts	5,341		4,630		4,449		7,428		4,438
Total loans	16,968,303		16,669,048		16,403,876		15,885,008		15,645,962
Allowance for credit losses on loans	(158,335	)	(159,068	)	(150,117	)	(143,285	)	(137,833	)
Net loans	16,809,968		16,509,980		16,253,759		15,741,723		15,508,129
Loans held for sale	5,714		5,957		5,708		6,567		7,170
Investment securities:
U.S. government and federal agency obligations	986,284		1,035,651		1,099,067		1,055,602		1,113,442
Government-sponsored enterprise obligations	55,676		55,751		87,086		55,732		55,753
State and municipal obligations	1,391,541		1,532,519		1,793,756		1,990,643		2,052,908
Mortgage-backed securities	6,161,348		6,316,224		6,454,408		6,605,936		6,847,912
Asset-backed securities	2,553,562		2,827,911		3,233,757		3,714,092		3,870,953
Other debt securities	514,787		519,988		528,941		560,951		587,026
Unrealized gain (loss) on debt securities	(1,458,141	)	(1,331,002	)	(1,387,196	)	(1,582,061	)	(1,064,534	)
Total available for sale debt securities	10,205,057		10,957,042		11,809,819		12,400,895		13,463,460
Trading debt securities	35,044		46,493		45,757		44,626		35,621
Equity securities	12,230		12,335		12,458		10,534		8,838
Other securities	237,518		273,587		229,867		219,354		208,708
Total investment securities	10,489,849		11,289,457		12,097,901		12,675,409		13,716,627
Federal funds sold	2,722		7,484		38,978		27,683		13,486
Securities purchased under agreements to resell	712,472		824,974		825,000		1,174,457		1,379,341
Interest earning deposits with banks	2,337,744		2,284,162		809,935		640,039		980,273
Other assets	1,750,222		1,941,340		1,376,551		1,339,554		1,256,498
Total assets	$ 32,108,691		$ 32,863,354		$ 31,407,832		$ 31,605,432		$ 32,861,524

LIABILITIES AND EQUITY:
Non-interest bearing deposits	$ 7,939,190		$ 8,224,475		$ 9,114,512		$ 10,360,834		$ 10,758,353
Savings	1,436,149		1,516,887		1,550,215		1,567,113		1,595,857
Interest checking and money market	13,048,199		12,918,399		13,265,485		13,693,974		14,423,713
Certificates of deposit of less than $100,000	1,423,965		1,075,110		415,367		388,304		397,071
Certificates of deposit of $100,000 and over	1,718,126		1,472,208		903,393		596,703		578,158
Total deposits	25,565,629		25,207,079		25,248,972		26,606,928		27,753,152
Borrowings:
Federal funds purchased	508,851		507,165		493,721		143,630		51,929
Securities sold under agreements to repurchase	2,283,020		2,206,612		2,418,726		2,260,263		2,199,866
Other borrowings	685,222		1,617,952		551,267		179,552		2,010
Total borrowings	3,477,093		4,331,729		3,463,714		2,583,445		2,253,805
Other liabilities	367,741		598,915		112,052		28,745		123,691
Total liabilities	29,410,463		30,137,723		28,824,738		29,219,118		30,130,648
Equity	2,698,228		2,725,631		2,583,094		2,386,314		2,730,876
Total liabilities and equity	$ 32,108,691		$ 32,863,354		$ 31,407,832		$ 31,605,432		$ 32,861,524

COMMERCE BANCSHARES, INC. and SUBSIDIARIES AVERAGE RATES

(Unaudited)	For the Three Months Ended
(Unaudited)	Sep. 30, 2023		Jun. 30, 2023		Mar. 31, 2023		Dec. 31, 2022		Sep. 30, 2022
ASSETS:
Loans:
Business⁽¹⁾	5.77	%	5.58	%	5.31	%	4.68	%	3.94	%
Real estate — construction and land	8.17		7.92		7.33		6.80		5.27
Real estate — business	6.13		5.96		5.65		5.15		4.40
Real estate — personal	3.73		3.68		3.61		3.45		3.36
Consumer	5.97		5.63		5.31		4.77		4.17
Revolving home equity	7.76		7.55		7.03		5.89		4.82
Consumer credit card	13.77		13.77		13.68		12.64		12.05
Overdrafts	—		—		—		—		—
Total loans	6.02		5.84		5.56		5.03		4.37
Loans held for sale	10.55		10.17		10.30		10.09		8.80
Investment securities:
U.S. government and federal agency obligations	2.31		3.42		1.90		2.01		4.51
Government-sponsored enterprise obligations	2.36		2.38		3.21		2.36		2.36
State and municipal obligations⁽¹⁾	1.95		2.04		2.26		2.29		2.27
Mortgage-backed securities	2.06		2.09		2.06		1.88		1.93
Asset-backed securities	2.20		2.08		2.01		1.96		1.62
Other debt securities	1.75		1.86		1.93		1.89		1.93
Total available for sale debt securities	2.08		2.19		2.07		1.97		2.09
Trading debt securities⁽¹⁾	5.11		4.53		4.59		3.81		2.74
Equity securities ⁽¹⁾	23.06		23.25		23.24		28.44		27.11
Other securities ⁽¹⁾	13.13		9.40		7.11		6.67		7.09
Total investment securities	2.33		2.37		2.18		2.07		2.18
Federal funds sold	6.56		5.63		5.09		4.27		2.77
Securities purchased under agreements to resell	2.08		1.99		1.94		2.36		1.72
Interest earning deposits with banks	5.39		5.14		4.67		3.69		2.25
Total interest earning assets	4.51		4.34		4.00		3.59		3.21

LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	.05		.05		.05		.06		.04
Interest checking and money market	1.33		.93		.61		.38		.20
Certificates of deposit of less than $100,000	4.32		3.78		1.39		.73		.41
Certificates of deposit of $100,000 and over	4.37		3.93		2.98		1.42		.60
Total interest bearing deposits	1.76		1.29		.71		.40		.21
Borrowings:
Federal funds purchased	5.33		5.06		4.59		3.56		2.41
Securities sold under agreements to repurchase	3.20		3.09		2.93		2.29		1.37
Other borrowings	5.30		5.24		4.94		4.02		1.78
Total borrowings	3.93		4.13		3.49		2.48		1.39
Total interest bearing liabilities	2.12	%	1.87	%	1.20	%	.69	%	.34	%

Net yield on interest earning assets	3.11	%	3.12	%	3.26	%	3.18	%	3.01	%

(1)

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

COMMERCE BANCSHARES, INC. and SUBSIDIARIES CREDIT QUALITY

	For the Three Months Ended										For the Nine Months Ended
(Unaudited) (In thousands, except ratios)	Sep. 30, 2023		Jun. 30, 2023		Mar. 31, 2023		Dec. 31, 2022		Sep. 30, 2022		Sep. 30, 2023		Sep. 30, 2022
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period	$158,685		$159,317		$150,136		$143,377		$138,039		$150,136		$150,044
Provision for credit losses on loans	13,343		5,864		15,948		12,404		10,150		35,155		6,751
Net charge-offs (recoveries):
Commercial portfolio:
Business	2,613		165		230		496		461		3,008		557
Real estate — construction and land	—		(115	)	—		—		—		(115	)	—
Real estate — business	(15	)	(5	)	(4	)	(4	)	(8	)	(24	)	(16	)
	2,598		45		226		492		453		2,869		541
Personal banking portfolio:
Consumer credit card	4,716		4,687		4,325		3,467		2,882		13,728		9,191
Consumer	1,797		1,273		1,275		1,522		827		4,345		2,268
Overdraft	683		517		978		230		703		2,178		1,486
Real estate — personal	(9	)	(6	)	(11	)	(40	)	(15	)	(26	)	(34	)
Revolving home equity	(1	)	(20	)	(26	)	(26	)	(38	)	(47	)	(34	)
	7,186		6,451		6,541		5,153		4,359		20,178		12,877
Total net loan charge-offs	9,784		6,496		6,767		5,645		4,812		23,047		13,418
Balance at end of period	$162,244		$158,685		$159,317		$150,136		$143,377		$162,244		$143,377
LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$27,537		$29,235		$28,628		$33,120		$30,047

NET CHARGE-OFF RATIOS ⁽¹⁾
Commercial portfolio:
Business	.18	%	.01	%	.02	%	.04	%	.03	%	.07	%	.01	%
Real estate — construction and land	—		(.03	)	—		—		—		(.01	)	—
Real estate — business	—		—		—		—		—		—		—
	.09		—		.01		.02		.02		.04		.01
Personal banking portfolio:
Consumer credit card	3.32		3.38		3.15		2.46		2.08		3.28		2.26
Consumer	.34		.24		.25		.29		.16		.28		.15
Overdraft	50.73		44.79		89.15		12.28		62.85		60.54		39.39
Real estate — personal	—		—		—		(.01	)	—		—		—
Revolving home equity	—		(.03	)	(.04	)	(.04	)	(.05	)	(.02	)	(.02	)
	.48		.44		.45		.35		.30		.46		.30
Total	.23	%	.16	%	.17	%	.14	%	.12	%	.18	%	.12	%

CREDIT QUALITY RATIOS
Non-accrual loans to total loans	.05	%	.04	%	.05	%	.05	%	.05	%
Allowance for credit losses on loans to total loans	.95		.94		.96		.92		.90

NON-ACCRUAL AND PAST DUE LOANS
Non-accrual loans:
Business	$6,602		$4,732		$6,361		$6,751		$5,645
Real estate — construction and land	—		—		—		—		—
Real estate — business	76		153		171		189		149
Real estate — personal	1,531		1,276		1,269		1,366		1,390
Total	8,209		6,161		7,801		8,306		7,184
Loans past due 90 days and still accruing interest	$18,580		$15,351		$14,800		$15,830		$12,538

(1)

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

COMMERCE BANCSHARES, INC.

Management Discussion of Third Quarter Results

September 30, 2023

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

Balance Sheet Review

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

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

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

Net Interest Income

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

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

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

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

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

Non-Interest Income

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

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

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

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

Investment Securities Gains and Losses

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

Non-Interest Expense

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

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

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

Income Taxes

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

Credit Quality

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

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

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

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

Liquidity

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

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

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

Other

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

Forward Looking Information

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

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