Commerce Bancshares, Inc. — 2023 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2023; it is not a standalone fourth-quarter filing. Commerce Bancshares is a regional bank holding company headquartered in Missouri, operating primarily in the lower Midwest through Commercial, Consumer and Wealth businesses. At year-end, it reported $31.7 billion in assets, $17.2 billion in loans, $25.4 billion in deposits and $3.0 billion in equity.
Key financial results
| Metric | 2023 | 2022 / comparison |
|---|---|---|
| Net interest income | $998.1 million | Up 5.9% |
| Non-interest income | $573.0 million | Up 4.9% |
| Total revenue, as defined by the company | $1.571 billion | Up 5.5% |
| Net income attributable to Commerce Bancshares | $477.1 million | Down 2.3% from $488.4 million |
| Diluted earnings per share | $3.64 | Down from $3.67 |
| Return on average assets / common equity | 1.49% / 17.94% | 1.45% / 17.31% |
| Net interest margin, fully taxable-equivalent basis | 3.16% | 2.85% |
| Efficiency ratio | 59.17% | 56.90% |
| Net loan charge-offs | $31.1 million; 0.19% of average loans | $19.1 million; 0.12% |
| Operating cash flow | $488.8 million | $559.4 million |
Fourth quarter. Net income attributable to the company was $109.2 million, or $0.84 diluted per share, versus $131.6 million, or $1.00 per share, in fourth-quarter 2022. Fourth-quarter net interest income was $248.4 million, compared with $254.6 million a year earlier. The filing does not provide a separate full set of fourth-quarter balance-sheet metrics.
Financial position, liquidity and capital
- Loans grew 5.5% to $17.2 billion. Year-end deposits fell 3.1% to $25.4 billion; average deposits declined 9.9%. The average loans-to-deposits ratio was 66.3%.
- Non-interest-bearing deposits fell to 31.4% of deposits from 38.4%. Uninsured deposits totaled $10.8 billion, compared with $11.0 billion in 2022.
- Borrowings were $2.91 billion, primarily $2.65 billion of repurchase agreements and $261 million of federal funds purchased. No FHLB advances were outstanding at year-end; the company reported no significant long-term debt.
- Reported liquid assets totaled $12.38 billion, including $2.24 billion in Federal Reserve balances and $9.68 billion in available-for-sale debt securities. The company reported $6.76 billion in available future FHLB and Federal Reserve borrowing capacity.
- Available-for-sale securities had a $1.22 billion net unrealized loss at year-end, down from $1.50 billion in 2022. Management stated it had the intent and ability to hold the portfolio until recovery; it recognized no credit-loss expense on these securities in 2023.
- Consolidated capital ratios were 15.25% Tier 1 common risk-based, 16.03% total risk-based and 11.25% Tier 1 leverage. The Bank exceeded regulatory well-capitalized thresholds.
- Cash, cash equivalents and restricted cash increased $1.79 billion to $2.69 billion. Investing activities provided $2.18 billion, while financing activities used $883 million, largely reflecting deposit outflows, dividends and share repurchases.
Material changes versus 2022
- Higher loan yields and rates on Federal Reserve balances lifted net interest income, but deposit and borrowing costs rose sharply. Average funding costs increased faster than earning-asset yields, while the net interest margin nevertheless improved.
- Non-interest expense rose 9.7% to $931.0 million. Deposit insurance expense increased to $33.2 million, including a $16.0 million fourth-quarter FDIC special assessment; salaries and benefits also increased.
- Credit costs increased: loan provision was $43.3 million versus $19.2 million, and net charge-offs rose, primarily from credit card and consumer lending. Non-performing assets remained low at $7.6 million, or 0.04% of loans.
- Non-interest income growth was led by bank card and trust fees. Net investment securities gains declined to $15.0 million from $20.5 million, including lower private-equity fair-value gains and losses on sales of available-for-sale bonds.
- The available-for-sale portfolio contracted, with amortized cost falling to $10.9 billion from $13.7 billion. Deposits shifted toward interest-bearing accounts and certificates of deposit.
- The company acquired municipal bond underwriter and advisor L.J. Hart & Company in the second quarter; the acquisition added $7.6 million of goodwill.
Outlook, management commentary and risks
The filing provides no formal earnings or net-interest-income guidance. Management’s credit-loss forecast assumed the U.S. economy would slow at the start of 2024 without entering a recession, with unemployment projected at 4.1%–4.5% during the forecast period. Management highlighted uncertainty around tighter policy, consumer spending, inflation and economic conditions. The filing cautions that actual results may differ materially from forward-looking statements.
- Funding and rates: Deposit competition, higher funding costs, deposit outflows and changes in Federal Reserve policy could pressure liquidity and net interest income. The company’s interest-rate simulations showed lower projected net interest income under each modeled up- and down-rate scenario.
- Credit: Charge-offs rose, particularly in credit cards and consumer loans. Management also identified commercial real estate and office-property risks, as well as uncertainty in its credit-loss assumptions and economic forecast.
- Securities: A forced sale of securities before recovery of amortized cost could cause significant income-statement losses. Rising rates have also created unrealized portfolio losses.
- Other risks and contingencies: The filing identifies regulatory, competitive, cyber, vendor, valuation and broader economic risks. Legal proceedings are pending in the ordinary course; some are too early to estimate and no clear aggregate exposure is provided. The company also had $14.5 billion in loan commitments and $590.6 million in standby letters of credit; many commitments may expire undrawn.
- Unusual items and returns: The company paid $1.03 per share in cash dividends, repurchased 1.35 million shares during 2023, and distributed its 30th consecutive 5% stock dividend. In February 2024, the board raised the regular cash dividend 5.1%. The financial statements received an unqualified audit opinion; the auditor identified the collective loan allowance as a critical audit matter.
Most important facts for investors to verify
- Whether deposit balances and mix stabilize, and whether uninsured deposits or funding costs increase.
- Whether loan charge-offs, delinquencies and the allowance for credit losses—especially in cards, consumer lending and commercial real estate—worsen.
- Whether the $1.22 billion unrealized securities loss can be carried until recovery without requiring sales or creating liquidity pressure.
- Whether revenue growth can offset expense inflation, including FDIC assessments, and support margins and earnings.
- The eventual funding and financial effects of off-balance-sheet commitments, legal matters and other disclosed contingencies.