Commerce Bancshares (CBSH) Stock Down 3.2% On Q1 Earnings Lag

Shares of Commerce Bancshares, Inc. (NASDAQ:CBSH) lost 3.2%, following the release of first-quarter 2019 results. Earnings per share of 85 cents lagged the Zacks Consensus Estimate of 91 cents. Moreover, the figure compares unfavorably with the prior-year quarter’s earnings of 88 cents.

Results were primarily hurt by an increase in expenses and higher provisions. Moreover, the company’s profitability worsened during the quarter. However, an increase in net interest income as well as non-interest income was a positive.

Net income attributable to common shareholders was $94.9 million, down 3.9% from the prior-year quarter.

Revenues Improve, Expenses Rise

Total revenues for the quarter under review were $324.7 million, reflecting a year-over-year increase of 3.9%. However, the reported figure lagged the Zacks Consensus Estimate of $334 million.

Net interest income for the quarter was $203.5 million, up 5.5% year over year.

Non-interest income was $121.2 million, up 1.3% year over year. This upside stemmed from an improvement in almost all components of fee income except for bank card transaction fees, capital market fees and consumer brokerage service fee.

Non-interest expenses increased 5% year over year to $191.4 million. The rise was due to an increase in almost all expense components except for deposit insurance, supplies and communication, and net occupancy costs.

Efficiency ratio for the quarter under review increased to 58.76% from 58.21% reported in the year-ago quarter. Rise in efficiency ratio indicates lower profitability.

Strong Balance Sheet

As of Mar 31, 2019, total loans were $14.1 billion, down marginally from the prior-quarter level. Total deposits as of the same date were nearly $20 billion, down 1.7% from the previous quarter.

Total stockholders’ equity was $3 billion as of Mar 31, 2019, reflecting improvement from $2.9 billion in the prior quarter.

Credit Quality: A Mixed Bag

Provision for loan losses for the reported quarter was $12.5 million, up 19.9% year over year. Moreover, the ratio of net loan charge-offs to average loans was 0.34%, up from 0.30% witnessed in the prior-year quarter. However, allowance for loan losses as a percentage of total loans was 1.14%, down 1 bps year over year.

Capital Ratios Improve, Profitability Ratios Worsen

As of Mar 31, 2019, Tier I leverage ratio was 11.67%, up from 10.84% recorded in the year-ago quarter. Moreover, tangible common equity to tangible assets ratio grew to 11.06% from 9.88%.

At the end of the reported quarter, return on average assets was 1.58%, down from 1.66% witnessed in the year-ago quarter. Return on average common equity was 13.64%, down from 15.58% in the prior-year quarter.

Our Take

Commerce Bancshares’s top-line growth remains on track, driven by continued rise in loan balances and higher interest rates. Furthermore, the company’s efforts to boost its fee income will likely continue driving top-line growth. However, its significant exposure to real estate loans might pose near-term risks. Also, continuously rising operating expenses are likely to hurt bottom-line growth.

Currently, Commerce Bancshares carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates of Other Banks

Among other banks, BankUnited, Inc. (NYSE:BKU) is scheduled to report quarterly results on Apr 24. Huntington Bancshares Incorporated (NASDAQ:HBAN) and Associated Banc-Corp (NYSE:ASB) are slated to report numbers on Apr 25.

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