merce Bancshares(CBSH) - 2025 Q3 - Quarterly Results

Executive Summary This section provides an overview of Commerce Bancshares, Inc.'s third quarter 2025 financial performance and key strategic highlights Third Quarter 2025 Earnings Overview Commerce Bancshares, Inc. reported Q3 2025 earnings per share of $1.06, an increase from $1.01 in Q3 2024 but a decrease from $1.14 in Q2 2025 Earnings Per Share and Net Income | Metric | Q3 2025 | Q3 2024 | Q2 2025 | YTD 2025 | YTD 2024 | | :----- | :------ | :------ | :------ | :------- | :------- | | EPS | $1.06 | $1.01 | $1.14 | $3.18 | $2.86 | | Net Income | $141.5M | $138.0M | $152.5M | $425.6M | $390.2M | CEO Commentary CEO John Kemper highlighted a strong quarter driven by the diversified operating model, steady loan balances, robust fee income, and disciplined expense management - Commerce delivered a strong quarter, reflecting the resilience of its diversified operating model, steady loan balances, robust fee income, and disciplined expense management, leading to high profitability[4] - The company maintained excellent credit quality, with non-accrual loans at just 0.09% of total loans, and strong capital and liquidity positions[5] - The acquisition of FineMark is expected to close on January 1, 2026, representing a strategic milestone after years of relationship building and integration planning[6] Key Financial Highlights Third quarter 2025 financial highlights include a slight decrease in net interest income compared to the prior quarter, while non-interest income increased 1.6% year-over-year, driven by trust fees Key Financial Metrics | Metric | Q3 2025 | QoQ Change | YoY Change | | :------------------------------------ | :------ | :--------- | :--------- | | Net Interest Income | $279.5M | -$690K | N/A | | Non-Interest Income | $161.5M | N/A | +$2.5M (1.6%) | | Trust Fees (YoY) | N/A | N/A | +$3.7M (6.8%) | | Non-Interest Expense | $244.0M | N/A | +$6.4M (2.7%) | | Average Loan Balances | $17.5B | Flat | N/A | | Total Average Deposits | N/A | -$140.1M (0.6%) | N/A | | Net Loan Charge-offs to Average Loans | 0.23% | +0.01% | +0.01% | | Allowance for Credit Losses on Loans | $175.7M | +$10.4M | N/A | | Return on Average Assets | 1.78% | N/A | N/A | | Return on Average Equity | 15.26% | N/A | N/A | | Efficiency Ratio | 55.3% | N/A | N/A | Consolidated Financial Results This section details the company's consolidated financial performance, including key income statement and balance sheet metrics for the reported periods Financial Summary The financial summary provides a snapshot of key performance indicators for the three and nine months ended September 30, 2025, compared to prior periods Consolidated Financial Summary (in thousands, except per share) | Metric (in thousands, except per share) | Sep. 30, 2025 (Q3) | Jun. 30, 2025 (Q2) | Sep. 30, 2024 (Q3) | Sep. 30, 2025 (YTD) | Sep. 30, 2024 (YTD) | | :-------------------------------------- | :----------------- | :----------------- | :----------------- | :------------------ | :------------------ | | Net interest income | $279,457 | $280,147 | $262,351 | $828,706 | $773,599 | | Non-interest income | 161,511 | 165,613 | 159,025 | 486,073 | 460,117 | | Total revenue | 440,968 | 445,760 | 421,376 | 1,314,779 | 1,233,716 | | Net income attributable to Commerce Bancshares, Inc. | $141,518 | $152,479 | $138,007 | $425,589 | $390,223 | | Diluted EPS | $1.06 | $1.14 | $1.01 | $3.18 | $2.86 | | Return on total average assets | 1.78% | 1.95% | 1.80% | 1.81% | 1.71% | | Return on average equity | 15.26% | 17.40% | 16.81% | 16.15% | 16.92% | | Efficiency ratio | 55.26% | 54.77% | 56.31% | 55.21% | 57.92% | | Net yield on interest earning assets | 3.64% | 3.70% | 3.50% | 3.63% | 3.46% | Consolidated Statements of Income The consolidated statements of income detail the components of revenue and expense, showing net interest income, non-interest income, and total non-interest expense for the reported periods Consolidated Income Statement Details (in thousands) | Metric (in thousands) | Sep. 30, 2025 (Q3) | Jun. 30, 2025 (Q2) | Sep. 30, 2024 (Q3) | Sep. 30, 2025 (YTD) | Sep. 30, 2024 (YTD) | | :-------------------------------------- | :----------------- | :----------------- | :----------------- | :------------------ | :------------------ | | Interest income | $374,105 | $371,636 | $372,068 | $1,110,106 | $1,100,152 | | Interest expense | 94,648 | 91,489 | 109,717 | 281,400 | 326,553 | | Net interest income | 279,457 | 280,147 | 262,351 | 828,706 | 773,599 | | Provision for credit losses | 20,061 | 5,597 | 9,140 | 40,145 | 19,395 | | Total non-interest income | 161,511 | 165,613 | 159,025 | 486,073 | 460,117 | | Trust fees | 58,412 | 55,571 | 54,689 | 170,575 | 158,085 | | Bank card transaction fees | 45,551 | 46,362 | 47,570 | 137,506 | 141,977 | | Total non-interest expense | 244,018 | 244,437 | 237,600 | 726,831 | 715,511 | | Salaries and employee benefits | 157,461 | 155,025 | 153,122 | 465,564 | 454,043 | | Net income attributable to Commerce Bancshares, Inc. | $141,518 | $152,479 | $138,007 | $425,589 | $390,223 | Balance Sheet Analysis This section provides a detailed analysis of the company's balance sheet, including period-end and average balances for assets, liabilities, and equity Consolidated Balance Sheets (Period End) As of September 30, 2025, total assets were $32.3 billion, remaining flat compared to the prior quarter, with total deposits at $25.5 billion and stockholders' equity increasing to $3.77 billion Period-End Balance Sheet (in thousands) | Metric (in thousands) | Sep. 30, 2025 | Jun. 30, 2025 | Sep. 30, 2024 | | :-------------------------------------- | :------------ | :------------ | :------------ | | Total assets | $32,288,688 | $32,284,247 | $31,493,592 | | Total loans | 17,786,767 | 17,665,468 | 17,090,000 | | Allowance for credit losses on loans | (175,671) | (165,260) | (160,839) | | Net loans | 17,611,096 | 17,500,208 | 16,929,161 | | Total investment securities | 9,335,491 | 9,236,826 | 9,483,984 | | Total deposits | 25,458,049 | 25,494,028 | 25,237,792 | | Non-interest bearing deposits | 7,489,645 | 7,393,559 | 7,396,153 | | Total liabilities | 28,495,641 | 28,624,133 | 28,040,053 | | Total stockholders' equity | 3,771,665 | 3,640,572 | 3,432,081 | Average Balance Sheets Average total assets for Q3 2025 were $31.5 billion, a slight increase from the prior quarter, while average total deposits decreased to $24.8 billion Average Balance Sheet (in thousands) | Metric (in thousands) | Sep. 30, 2025 (Q3) | Jun. 30, 2025 (Q2) | Sep. 30, 2024 (Q3) | | :-------------------------------------- | :----------------- | :----------------- | :----------------- | | Total assets | $31,511,264 | $31,297,059 | $30,580,468 | | Total loans | 17,494,351 | 17,495,809 | 17,025,865 | | Total investment securities | 9,197,456 | 9,407,176 | 9,021,640 | | Total deposits | 24,778,046 | 24,918,180 | 24,350,733 | | Non-interest bearing deposits | 7,345,156 | 7,356,882 | 7,284,834 | | Total borrowings | 2,652,142 | 2,503,670 | 2,559,010 | | Equity | 3,678,811 | 3,515,005 | 3,265,235 | Interest Rate and Yield Analysis This section analyzes the average rates on the company's interest-earning assets and interest-bearing liabilities, along with the net yield on interest-earning assets Average Rates on Assets and Liabilities For Q3 2025, the average yield on total loans slightly increased to 6.02%, while the net yield on interest earning assets decreased six basis points to 3.64% Average Yields and Rates | Metric | Sep. 30, 2025 (Q3) | Jun. 30, 2025 (Q2) | Sep. 30, 2024 (Q3) | | :-------------------------------------- | :----------------- | :----------------- | :----------------- | | Total loans yield | 6.02% | 6.01% | 6.35% | | Total investment securities yield | 2.99% | 3.16% | 2.52% | | Total interest earning assets yield | 4.86% | 4.90% | 4.96% | | Total interest bearing deposits rate | 1.71% | 1.67% | 2.00% | | Total borrowings rate | 2.95% | 2.93% | 3.71% | | Total interest bearing liabilities rate | 1.87% | 1.83% | 2.22% | | Net yield on interest earning assets | 3.64% | 3.70% | 3.50% | Credit Quality This section examines the company's credit quality metrics, including the allowance for credit losses, net charge-offs, and non-accrual loans Allowance for Credit Losses and Net Charge-offs The allowance for credit losses on loans increased to $175.7 million at September 30, 2025, with total net loan charge-offs for the quarter amounting to $10.3 million Allowance for Credit Losses and Net Charge-offs Summary (in thousands, except ratios) | Metric (in thousands, except ratios) | Sep. 30, 2025 (Q3) | Jun. 30, 2025 (Q2) | Sep. 30, 2024 (Q3) | Sep. 30, 2025 (YTD) | Sep. 30, 2024 (YTD) | | :-------------------------------------- | :----------------- | :----------------- | :----------------- | :------------------ | :------------------ | | Balance at beginning of period (ACL) | $165,260 | $167,031 | $160,839 | $162,742 | $162,395 | | Provision for credit losses on loans | 20,739 | 7,919 | 11,861 | 43,753 | 26,657 | | Total net loan charge-offs | 10,328 | 9,690 | 9,579 | 30,824 | 28,213 | | Balance at end of period (ACL) | $175,671 | $165,260 | $160,839 | $175,671 | $160,839 | | Total net charge-off ratio | 0.23% | 0.22% | 0.22% | 0.24% | 0.22% | Non-Accrual and Past Due Loans Total non-accrual loans decreased to $16.3 million at September 30, 2025, representing 0.09% of total loans, while the allowance for credit losses on loans to total loans ratio increased to 0.99% Non-Accrual and Past Due Loan Metrics | Metric | Sep. 30, 2025 | Jun. 30, 2025 | Sep. 30, 2024 | | :-------------------------------------- | :------------ | :------------ | :------------ | | Non-accrual loans to total loans | 0.09% | 0.11% | 0.11% | | Allowance for credit losses on loans to total loans | 0.99% | 0.94% | 0.94% | | Total non-accrual loans (in thousands) | $16,253 | $18,870 | $18,419 | | Loans past due 90 days and still accruing interest (in thousands) | $21,536 | $25,303 | $21,986 | Management's Discussion and Analysis of Third Quarter Results This section provides management's perspective and detailed discussion of the company's financial and operational performance for the third quarter Overall Performance Discussion Net income for Q3 2025 decreased compared to the previous quarter, primarily due to an increased provision for credit losses and lower non-interest income, partially offset by higher gains on investment securities - Net income decreased QoQ primarily due to an increased provision for credit losses and lower non-interest income, partly offset by higher gains on investment securities[28] - The net yield on interest earning assets decreased six basis points from the previous quarter[28] - Average loans were flat, while average available for sale investment securities and deposits decreased QoQ by $214.5 million and $140.1 million, respectively[28] Balance Sheet Review The balance sheet review highlights that average loans remained flat quarter-over-quarter but increased year-over-year, while average available for sale debt securities and total average deposits decreased Loans Average loans totaled $17.5 billion, flat compared to the prior quarter but up $468.5 million year-over-year, with growth in business real estate loans - Average loans totaled $17.5 billion, flat QoQ but increased $468.5 million YoY[29] - Business real estate loans grew $23.2 million QoQ, while construction and business loans declined[29] - The company sold $30.6 million in fixed rate personal real estate loans in Q3 2025[29] Investment Securities Total average available for sale debt securities decreased $214.5 million QoQ to $8.9 billion, mainly due to lower mortgage-backed and asset-backed securities, though unrealized losses improved - Total average available for sale debt securities decreased $214.5 million QoQ to $8.9 billion, primarily due to lower mortgage-backed and asset-backed securities[30] - The unrealized loss on available for sale debt securities decreased $75.9 million to $688.5 million at period end[30] - Purchases of AFS debt securities totaled $459.3 million (weighted average yield of 4.15%), with maturities and pay downs of $456.7 million[30] Deposits and Borrowings Total average deposits decreased $140.1 million QoQ, mainly from lower average interest checking and money market balances, while average commercial deposits grew - Total average deposits decreased $140.1 million QoQ, primarily due to lower average interest checking and money market balances[31] - Average wealth and consumer deposits declined, while average commercial deposits grew $118.1 million QoQ[31] - The average loans to deposits ratio was 70.6% in Q3 2025, up from 70.2% in the prior quarter[31] Net Interest Income Discussion Net interest income decreased $690 thousand QoQ to $279.5 million, with the fully taxable-equivalent (FTE) net yield on earning assets decreasing to 3.64% - Net interest income decreased $690 thousand QoQ to $279.5 million, with the net yield on interest earning assets decreasing six basis points to 3.64%[7][32] - The decrease in NII was mostly due to lower interest income on investment securities and higher interest expense on borrowings and deposits, partly offset by higher interest income on loans and deposits with banks[32] - Interest income on loans (FTE) increased $3.5 million QoQ, mainly due to an additional day of interest, with the average loan portfolio yield increasing one basis point to 6.02%[33] - Interest income on investment securities (FTE) decreased $5.6 million QoQ, primarily due to lower average balances of asset-backed and mortgage-backed securities and lower rates on certain government securities[34] - Interest expense increased $3.2 million QoQ, mainly due to higher average rates paid on deposits (1.71% vs 1.67%) and higher average balances of borrowings[36][37] Non-Interest Income Discussion Total non-interest income for Q3 2025 was $161.5 million, an increase of 1.6% year-over-year but a decrease of $4.1 million quarter-over-quarter - Total non-interest income was $161.5 million, increasing 1.6% YoY but decreasing $4.1 million QoQ[10][38] - The YoY increase was mainly due to higher trust fees (up $3.7 million or 6.8%), deposit account fees (up $2.0 million or 8.1%), and consumer brokerage fees (up $2.1 million)[10][38][40] - The QoQ decrease was mainly due to lower gains on sales of assets ($6.5 million decrease)[38] - Total net bank card fees decreased $2.0 million (4.2%) YoY and $811 thousand QoQ, primarily due to higher rewards expense on corporate and credit cards[39] - Non-interest income comprised 36.6% of the Company's total revenue in Q3 2025[6][12][41] Investment Securities Gains and Losses Discussion The company recorded net securities gains of $7.9 million in Q3 2025, a significant increase from the prior quarter and Q3 2024, primarily from fair value adjustments on its private equity investment portfolio - Net securities gains were $7.9 million in Q3 2025, up from $437 thousand QoQ and $3.9 million YoY[12][16][42] - The gains mostly resulted from $8.0 million in net fair value adjustments on the private equity investment portfolio[42] Non-Interest Expense Discussion Non-interest expense for Q3 2025 amounted to $244.0 million, increasing year-over-year but remaining flat quarter-over-quarter, driven by higher salaries, data processing, and professional services expenses - Non-interest expense was $244.0 million, increasing YoY by $6.4 million (2.7%) but remaining flat QoQ[10][43] - The YoY increase was mainly due to higher salaries and employee benefits (up $4.3 million), data processing and software (up $1.4 million), and professional and other services (up $2.5 million)[43][44][45] - Professional and other services included $1.1 million of acquisition-related legal and professional services expense[45] - Other non-interest expense decreased due to a $1.5 million reimbursement from a litigation settlement[45] Income Taxes Discussion The effective tax rate for Q3 2025 was 22.5%, an increase from both the prior quarter and Q3 2024, primarily due to prior tax law changes and higher state and local income taxes - The effective tax rate was 22.5% in Q3 2025, up from 21.8% QoQ and 21.7% YoY[12][16][46] - The QoQ increase was mostly due to tax law changes in the prior quarter that had decreased the effective tax rate[46] - The YoY increase was mostly due to higher state and local income taxes[46] Credit Quality Discussion Net loan charge-offs in Q3 2025 increased to $10.3 million, with the annualized ratio to average loans at 0.23%, while the allowance for credit losses on loans increased to $175.7 million - Net loan charge-offs amounted to $10.3 million in Q3 2025, up from $9.7 million QoQ and $9.6 million YoY, with the annualized ratio to average loans at 0.23%[10][26][47] - Net loan charge-offs on business real estate, business, and personal real estate loans increased QoQ, while consumer credit card loan charge-offs decreased $570 thousand[47] - The allowance for credit losses on loans increased $10.4 million QoQ to $175.7 million, primarily due to weakness in soft commodity prices impacting certain industries[10][49] - Total non-accrual loans decreased $2.6 million QoQ to $16.3 million, representing 0.09% of loans outstanding[50][51] Other Information During Q3 2025, the company paid a cash dividend of $0.275 per common share, repurchased 418,131 shares of treasury stock, and announced the anticipated closing of the FineMark acquisition on January 1, 2026 - The company paid a cash dividend of $0.275 per common share in Q3 2025, a 7.0% increase YoY[12][52] - 418,131 shares of treasury stock were purchased during the quarter at an average price of $60.32[52] - The acquisition of FineMark Holdings, Inc. has received all regulatory approvals and FineMark shareholder approval, with an anticipated closing date of January 1, 2026[53] Company Information & Forward-Looking Statements This section provides an overview of Commerce Bancshares, Inc.'s profile and important disclosures regarding forward-looking statements Company Profile 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 - Commerce Bancshares, Inc. is a regional bank holding company providing banking services, payment solutions, investment management, and securities brokerage[9] - Commerce Bank operates full-service banking facilities across the Midwest and commercial/wealth offices in other key U.S. cities[9] - The company delivers financial solutions through regional branches, commercial and wealth offices, ATMs, online, mobile, and a 24/7 customer service line[9] Forward-Looking Information This section contains forward-looking statements regarding future financial and operating results, expectations, and intentions, which are subject to significant risks and uncertainties - The report contains forward-looking statements about future financial and operating results, expectations, and intentions[54] - These statements are based on current management beliefs and expectations and are subject to significant risks and uncertainties[54] - Actual results may differ materially from forward-looking statements, with additional risk information available in the company's Annual Report on Form 10-K[54]