8-K: Commerce Bancshares Reports Fourth Quarter Earnings, Impacted by FDIC Assessment

Commerce Bancshares reported fourth quarter earnings of $0.84 per share, down from $1.00 per share in the same quarter last year, and $0.92 in the previous quarter, with results impacted by a one-time FDIC special assessment.

Summary

• Commerce Bancshares announced earnings of $0.84 per share for the fourth quarter of 2023, a decrease compared to $1.00 per share in the same quarter of 2022 and $0.92 per share in the third quarter of 2023.
• Net income for the fourth quarter of 2023 was $109.2 million, down from $131.6 million in the fourth quarter of 2022 and $120.6 million in the previous quarter.
• The results were influenced by a one-time FDIC special assessment of $16 million.
• Net interest income was relatively flat compared to the previous quarter, while the net interest margin increased by six basis points.
• Non-interest income accounted for 36.8% of total revenue.
• The company experienced deposit growth of $674 million across its three business segments, resulting in a net deposit increase of $273 million at period end.
• Book value per share increased by 14.4% during the quarter due to declining interest rates.
• The credit quality of the loan portfolio remained strong, with non-accrual loans at 0.04% of total loans, down one basis point from the previous quarter and prior year.
• Average loan balances totaled $17.1 billion, an increase of 0.5% over the prior quarter.
• Total average available for sale debt securities decreased by 6.2% from the prior quarter to $9.6 billion at fair value.
• The unrealized loss on available for sale debt securities decreased by $376.5 million to $1.2 billion at period end.
• The ratio of annualized net loan charge-offs to average loans was 0.19%, compared to 0.23% in the prior quarter.
• Total assets at December 31, 2023, were $31.7 billion, an increase of 1.0% over the prior quarter.
• The return on average assets was 1.38%, the return on average equity was 16.48%, and the efficiency ratio was 63.8% for the quarter.

Sentiment

Score: 5

Explanation: The sentiment is neutral to slightly negative due to decreased earnings and the impact of the FDIC assessment, although the company highlights positive aspects such as deposit growth and strong credit quality.

Positives

• The company saw deposit growth of $674 million across its business segments.
• The net interest margin expanded by six basis points.
• The credit quality of the loan portfolio remained strong, with non-accrual loans at 0.04% of total loans.
• Book value per share increased by 14.4% during the quarter.
• The unrealized loss on available for sale debt securities decreased by $376.5 million to $1.2 billion at period end.

Negatives

• Earnings per share decreased to $0.84 from $1.00 in the same quarter last year.
• Net income decreased to $109.2 million from $131.6 million in the same quarter last year.
• The company incurred a one-time FDIC special assessment of $16 million.
• Total average deposits decreased $356.2 million, or 1.4%, compared to the prior quarter.

Risks

• The company's earnings were negatively impacted by a one-time FDIC special assessment.
• The decrease in net income compared to the previous quarter was primarily the result of higher non-interest expense.
• The company experienced a decrease in total average deposits compared to the previous quarter.

Future Outlook

The company maintains ample levels of liquidity and capital, which positions it well moving into 2024. Approximately $1.8 billion of the available for sale debt securities portfolio is expected to mature or pay down over the next 12 months.

Management Comments

• We are pleased with our fourth quarter results, said John Kemper, President and Chief Executive Officer.
• These results reflect the strength of our core deposit base, the impact of higher earning asset yields, and the contribution from key non-interest income categories, notably trust, bank card and deposit fees.
• We continue to maintain ample levels of liquidity and capital, which positions us well moving into 2024.

Industry Context

The results reflect the challenges and opportunities in the current banking environment, including the impact of interest rate changes and regulatory assessments. The company's focus on core deposits and non-interest income is consistent with strategies employed by other regional banks to navigate these conditions.

Comparison to Industry Standards

• Commerce Bancshares is the 41st largest U.S. bank based on asset size and 19th largest based on market cap.
• The company's Tier 1 common risk-based capital ratio is the 3rd highest among the top 50 U.S. banks based on asset size.
• The company's baseline credit assessment is two ratings above the U.S. banking industry median.
• The company's return on average common equity year-to-date is 7th for the top 50 U.S. banks based on asset size.

Stakeholder Impact

• Shareholders may be concerned about the decrease in earnings per share and net income.
• Employees may be affected by changes in the company's financial performance.
• Customers may be impacted by changes in the company's services or fees.
• Creditors may be impacted by changes in the company's financial stability.

Next Steps

• The company will continue to focus on maintaining ample liquidity and capital.
• The company expects approximately $1.8 billion of its available for sale debt securities portfolio to mature or pay down over the next 12 months.

Key Dates

Keywords

earnings, net income, FDIC, deposits, loans, interest margin, non-interest income, credit quality, book value, assets