merce Bancshares(CBSH) - 2023 Q4 - Annual Report

Loan Portfolio - Total loans increased to $17.2 billion at December 31, 2023, up from $16.3 billion in 2022, representing a growth of 5.5%[17] - Business real estate loans totaled $3.7 billion, comprising 21.6% of the total loan portfolio, with non-accrual loans at less than 0.1%[23] - Personal real estate loans reached $3.0 billion, accounting for 17.6% of the total loan portfolio, with 39% being adjustable rate loans[24] - Consumer loans totaled $2.1 billion, with a net increase of $18.6 million year-over-year, and net charge-offs increased to $6.2 million in 2023 from $3.8 million in 2022[26] - Net loan charge-offs for the company totaled $31.1 million in 2023, a 62.8% increase from $19.1 million in 2022, with consumer credit card loans experiencing a charge-off rate of 3.40%[29] - Non-accrual loans decreased to $7.3 million at year-end 2023, down from $8.3 million in 2022, with a low non-performing assets to total loans ratio of 0.04%[33] - Total potential problem loans decreased to $216.4 million in 2023 from $259.7 million in 2022, indicating improved loan quality[67] - Owner-occupied real estate loans totaled $1.18 billion, representing 31.6% of total loans, while total real estate business loans reached $3.72 billion, accounting for 21.6% of total loans[69] - The Company has loan commitments totaling $14.5 billion, including approximately $5.4 billion in unused, approved credit card lines[116] Investment Securities - The investment securities portfolio decreased by 20.6% to $10.9 billion in 2023, with a tax equivalent yield of 2.29%[41] - The available for sale portfolio included $3.9 billion of agency mortgage-backed securities at year-end 2023[42] - The company expects approximately $1.8 billion in maturities and pay downs of investment securities during 2024[41] - The Company recognized a net unrealized loss of $1.2 billion in its available for sale debt securities portfolio as of December 31, 2023, due to rising interest rates[147] - Investment securities totaled $12,366,334 thousand, generating $282,738 thousand in interest income, with an average rate of 2.29%[206] Liquidity and Funding - The Company has developed a variety of liquidity sources, including a portfolio of liquid investments and a diversified customer deposit base, to manage liquidity risk effectively[49] - As of December 31, 2023, resale agreements totaled $450.0 million, with $325.0 million maturing in Q1 2024 and $125.0 million in Q1 2025, backed by collateral valued at $479.0 million[50] - Total pledged securities increased to $7.47 billion in 2023 from $4.74 billion in 2022, while unpledged and available for pledging decreased to $2.21 billion from $6.55 billion[51] - The Company issued $1.2 billion in short-term brokered certificates of deposit during Q2 2023, all maturing by December 31, 2023, as a reliable liquidity source[52] - Federal funds purchased amounted to $261.3 million at year-end 2023, with approved lines of credit totaling $4.0 billion[53] - The Company maintains a loan to deposit ratio lower than the industry average, contributing to its strong liquidity position[49] - The Company has no significant long-term debt, which enhances its future borrowing capacity and liquidity options[54] Income and Expenses - Net interest income for the year ended December 31, 2023, was $998.1 million, an increase from $942.2 million in 2022, representing a growth of 5.9%[129] - Non-interest income for 2023 was $573.0 million, up from $546.5 million in 2022, marking an increase of 4.8%[129] - The Company reported a pre-tax income of $619.7 million for 2023, compared to $632.4 million in 2022, a decrease of 2.0%[129] - The Company’s non-interest expense increased by $12.8 million, or 8.8%, mainly due to higher salaries and benefits expense[106] - Total non-interest expense increased to $930,982, up 9.7% from $848,777 in 2022[199] Credit Losses - The allowance for credit losses on loans is deemed adequate to cover expected losses in the loan portfolio as of December 31, 2023[30] - The provision for credit losses in the Consumer segment totaled $27.5 million, reflecting a $9.6 million increase over the prior year, mainly from higher consumer credit card and personal loan net charge-offs[103] - Provision for credit losses increased to $35.5 million in 2023 from $28.1 million in 2022, reflecting a rise of 26.5%[129] - The Company’s provision for credit losses on unfunded lending commitments was a benefit of $7.9 million in 2023, compared to a provision of $8.9 million in 2022[161] Market and Economic Conditions - The Company operates primarily in the U.S. and is exposed to economic downturns in its concentrated markets, which could materially affect its financial condition[165] - Changes in federal monetary policy could materially affect the Company's business, particularly regarding loan demand and interest rates[171] - The Federal Reserve raised the benchmark interest rate from nearly zero at the start of 2022 to between 5.25% and 5.50% by the end of July 2023, impacting the Company's interest margins and liquidity[178] - The Company is subject to both interest rate and liquidity risk, which are monitored monthly by its Asset-Liability Management Committee[174] Regulatory and Compliance - The SEC proposed a rule in March 2022 requiring public issuers, including the Company, to expand climate-related disclosures significantly[173] - The Company faces potential sanctions and penalties for non-compliance with laws and regulations, which could adversely affect its financial condition[170] - The FASB issued ASU 2023-06 in October 2023, modifying disclosure requirements, but the adoption is not expected to significantly affect the Company's financial statements[180] - The FASB also issued ASU 2023-09 in December 2023, requiring additional disclosures regarding income tax reconciliations, effective January 1, 2025[181] Shareholder Returns - Cash dividends paid per share increased by 7.1% in 2023 compared to 2022, with a 5.1% increase in the first quarter 2024 cash dividend[119] - The Company purchased 1.4 million shares in 2023 under its treasury stock buyback program, with 1.8 million shares remaining available for purchase[92] Technology and Growth Initiatives - The Company invested significantly in technology to enhance data security and prevent cyber attacks, which remain a growing risk[151] - The company’s new product development initiatives are expected to drive future growth, with a focus on expanding market presence[207] - The overall market expansion strategy includes potential mergers and acquisitions to enhance competitive positioning[207]