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Commerce Bancshares (CBSH) Stock Up 6.3% on Q1 Earnings Beat

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Shares of Commerce Bancshares, Inc. (CBSH - Free Report) have gained 6.3%, following the release of first-quarter 2018 results. Earnings per share of 92 cents surpassed the Zacks Consensus Estimate of 80 cents. Also, the figure reflects an improvement of 41.5% from the year-ago quarter.

Results primarily benefited from an improvement in both net interest income as well as non-interest income. Also, a decrease in provisions was a tailwind. Further, the company’s capital and profitability ratios improved during the quarter. However, higher expenses acted as a headwind.

Net income attributable to Commerce Bancshares was $101 million, up from $71.5 million recorded in the prior-year quarter.

Revenue Growth Offsets Rise in Costs

Total revenues for the quarter were $312.6 million, reflecting an increase of 8.6% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $310.6 million.

Net interest income was $192.9 million, increasing 8.2% year over year. Further, net interest margin was 3.37%, up 24 basis points (bps) year over year. The rise reflects an increase in interest earned on loan portfolio and stable funding cost.

Non-interest income was $119.7 million, up 9.2% year over year. The rise was primarily driven by an improvement in all components except capital market fees, loan fees and sales, along with other income.

Non-interest expenses rose 1.6% year over year to $182.3 million. The increase was largely due to a rise in salaries and employee-benefit costs, net occupancy cost, data processing and software costs, and marketing costs.

Efficiency ratio for the quarter decreased to 58.21% from 62.19% in the prior-year quarter. A fall in efficiency ratio indicates higher profitability.

Balance Sheet Position

As of Mar 31, 2018, total loans were nearly $13.9 billion, down marginally from the prior-quarter level. However, total deposits, as of the same date, were $20.5 billion, increasing marginally from the prior quarter.

Total stockholders’ equity was $2.7 billion as of Mar 31, 2018, reflecting a marginal decline of 0.5% from the previous quarter.

Credit Quality: A Mixed Bag

Provision for loan losses decreased 6.6% year over year to $10.4 million in the reported quarter. Also, allowance for loan losses, as a percentage of total loans, was 1.15%, down 1 bps year over year.

However, net loan charge-offs to average loans ratio (excluding loans held for sale) increased 2 bps year over year to 0.30%.

Improving Capital & Profitability Ratios

As of Mar 31, 2018, Tier I leverage ratio was 10.84%, up from 9.56% in the prior-year quarter. Moreover, tangible common equity to tangible assets ratio grew to 9.88% from 9.03% as of Mar 31, 2017.

Further, the company’s return on average assets was 1.66%, increasing from 1.15% in the year-ago quarter. Return on average common equity was 15.58% at the end of the reported quarter, up from 11.74% in the year-ago quarter.

Our Take

Commerce Bancshares’ efforts to expand footprint in newer markets and an improving rate scenario should continue driving revenue growth. Also, persistent rise in fee income is likely to aid top-line growth. Moreover, improving profitability and capital ratios are encouraging.

However, mounting expenses continue to be a major concern for the company. Also, significant exposure to real estate loans might pose near-term risks.

Commerce Bancshares, Inc. Price, Consensus and EPS Surprise
 

Commerce Bancshares, Inc. Price, Consensus and EPS Surprise | Commerce Bancshares, Inc. Quote

Currently, Commerce Bancshares carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other Midwest banks, results are expected from Old National Bancorp (ONB - Free Report) on Apr 23, while First Midwest Bancorp, Inc. and First Interstate BancSystem, Inc. (FIBK - Free Report) are scheduled to announce their results on Apr 24 and Apr 25, respectively.

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