Commerce Bancshares Echoes Q1 Earnings Theme of Resilience

Commerce Bancshares, one of the Midwest’s strongest regional banks, joined the chorus of Q1 results reporting Tuesday (April 16) and sounded the theme of resiliency. Tipping its hat to the high interest rates and cautious consumer spending outlook that has dominated bank reporting over the past week, the company posted better than expected first-quarter earnings, citing solid consumer credit management as it continues to focus on liquidity.

“Commerce delivered a strong financial performance for the first quarter,” President and Chief Executive Officer John Kemper said in a press release. “Our results are a reflection of fundamental strength and a diversified business model, and evidence of our ability to perform well through economic cycles.”

The bank posted a net income of $112.7 million, marking a slight decrease from the $119.5 million reported in Q1 2023. Kemper highlighted the bank’s resilient financial performance in which it managed a slight increase in net interest income over Q4 with a notable expansion in the net interest margin by 16 basis points. This was partially due to the controlled rise in interest-bearing deposit costs, which only increased by 4 basis points, reflecting the strength of Commerce’s deposits.

But Q1 earnings have been watched closely for indications of consumer spending and credit health. Here Commerce’s performance remained strong, with non-accrual loans constituting just 0.03% of total loans, an improvement from 0.05% in Q4. The bank reported that average loan balances stood steady at $17.1 billion. However, the dynamics within loan categories were mixed; average balances of business real estate loans increased, whereas construction and consumer loans saw declines. The bank sold fixed-rate personal real estate loans worth $7.4 million during the quarter.

Non-interest income for the quarter was $148.8 million, up by $11.2 million from last year, driven largely by an increase in trust fees, which grew by 12.7% due to higher private client fees, suggesting a growing reliance on wealth management and advisory services, possibly as consumers seek to navigate a complex financial landscape.

Non-interest expenses rose to $245.7 million, influenced by a $10.0 million litigation settlement expense and adjustments to the FDIC’s insurance special assessment, continuing to sound another common theme so far this earnings season, which are the ongoing costs that financial institutions are facing amid regulatory and legal challenges.

All in, the Commerce Q1 earnings provided a mixed but generally positive picture of consumer financial health. The stability in loan balances and the improvement in credit quality are encouraging signs. However, the shifts in deposit behaviors and the unrealized losses on securities suggest that consumers are feeling the impact of the persistent high interest rates. This could indicate a more cautious approach to spending and investment as consumers and businesses alike adapt to the current economic climate.