Commerce Expands Margin as Securities Yield Jumps
Net interest margin widened 18 bps QoQ to 3.77%, ending four quarters of compression or near-flat performance.
Commerce Bancshares (CBSH), the regional lender, increased net interest income by $15.2 million QoQ to $315.1 million as net interest margin expanded 18 bps to 3.77%. NII rose 12.5% YoY, while the margin stood 7 bps above its year-earlier level.
The margin widened even as loan yield declined 6 bps to 5.73%. Investment-securities yield increased 45 bps to 3.42%, lifting total earning-asset yield by 13 bps, while the cost of interest-bearing liabilities fell 4 bps to 1.68%. Commerce sold its available-for-sale TIPS holdings, recognizing a $97.7 million loss that was offset by a $105.4 million Visa-stock gain. Management said the repositioning raised the portfolio yield and made future NII and margin more durable.
Loan growth normalized after the FineMark acquisition drove a 15.2% first-quarter increase. Average loans rose 0.9% QoQ to $20.5 billion and were $3.0 billion higher YoY, with FineMark accounting for $2.7 billion of that increase. Business loans added $177.2 million sequentially, while construction and average credit-card balances declined.
Average deposits fell 0.5% QoQ to $27.6 billion after rising 8.2% in the first quarter, though balances remained about 10.6% above the prior-year period, primarily because of FineMark. The funding mix improved as non-interest-bearing deposits increased $160.3 million and interest checking and money-market balances declined $249.2 million. The cost of interest-bearing deposits dropped 4 bps to 1.57%, extending its decline from 1.71% in the third quarter of 2024.
Fee income provided another lift. Non-interest income increased 4.5% QoQ and 11.0% YoY to $183.8 million, with bank-card fees rising 5.6% sequentially and trust fees advancing 28.7% from a year earlier. Expenses grew 2.0% QoQ to $297.1 million, while the efficiency ratio improved 160 bps to 58.40% as acquisition-related pressure eased.
Credit costs also declined. Provision for credit losses fell to $8.7 million from $11.0 million QoQ, and net charge-offs dropped to $9.5 million, lowering the annualized charge-off ratio by 11 bps to 0.19%. The allowance decreased $3.2 million to $195.4 million, or 0.94% of loans, while nonaccruals remained at 0.06%.
Commerce repurchased about 2.1 million shares for $110 million at an average $53.03, increasing capital deployment from more than $84 million in the first quarter. The Tier I leverage ratio still rose 21 bps QoQ to 12.81%, and tangible common equity increased 32 bps to 11.39% of tangible assets. With deposit costs declining and the repositioned securities portfolio earning more, management expects the balance-sheet changes to support more durable net interest income and margin.