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Commerce Bancshares (CBSH) Q1 Earnings Beat on Solid Revenues

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Commerce Bancshares Inc.’s (CBSH - Free Report) first-quarter 2021 earnings per share of $1.11 surpassed the Zacks Consensus Estimate of 96 cents. Also, the bottom line surged significantly from the 42 cents earned in the prior-year quarter.

Results were supported by improvement in net interest income and provision benefits. Further, higher non-interest income and a modest decline in expenses acted as tailwinds. In addition, the company witnessed a rise in deposits and modestly higher loan balance during the quarter. However, low interest rates and weak lending scenario remain concerns.

Net income attributable to common shareholders was $131million, up significantly from the year-ago quarter’s $49.6 million.

Revenues Up, Expenses Decline

Total revenues were $341.8 million, up 5.3% year over year. Further, the top line outpaced the Zacks Consensus Estimate of $338.7 million.

Net interest income came in at $205.7 million, up 2.3% year over year. Yet, net yield on interest-earning assets contracted 62 basis points (bps) to 2.71%.

Non-interest income was $136 million, reflecting a rise of 10%. This upswing was mainly driven by increase in almost all fee income components, except for bank card transaction fees, and deposit account charges and other fees.

Non-interest expenses slightly declined to $192.6 million, primarily due to fall in salaries and employee benefits, equipment, supplies and communication, and other costs.

The efficiency ratio decreased to 56.37% from the 59.17% reported in the year-ago quarter. A fall in efficiency ratio indicates improvement in profitability.

As of Mar 31, 2021, total loans were $16.4 billion, up marginally from the prior quarter. Total deposits as of the same date were $27.4 billion, up 1.8%. Total stockholders’ equity was $3.3 billion as of Mar 31, 2020, reflecting a fall 2.5% sequentially.

Credit Quality: Mixed Bag

Provision for credit losses was a benefit of $6.2 million against the provision of $58 million witnessed in the prior-year quarter. The ratio of annualized net loan charge-offs to total average loans were 0.25%, down 5 bps from the year-earlier quarter.

However, total non-performing assets as of Mar 31, 2021 were $23.7 million, up significantly from $11.1 million as of Mar 31, 2020.

Capital Ratios Deteriorate & Profitability Ratios Improve

As of Mar 31, 2021, Tier I leverage ratio was 9.38%, down from the 11.13% recorded in the year-ago quarter. Additionally, tangible common equity to tangible assets ratio declined to 9.57% from the prior-year quarter’s 11.13%.

At the end of the first quarter, return on average assets was 1.63%, up from the year-ago period’s 0.80%. Return on average common equity was 15.69%, up from the 6.48% in the prior-year quarter.

Our Take

Commerce Bancshares’ revenues are likely to benefit from a rise in deposits balance, and gradual increase in loan demand. Nevertheless, low interest rates continue to hurt its financials.

Commerce Bancshares, Inc. Price, Consensus and EPS Surprise

Commerce Bancshares, Inc. Price, Consensus and EPS Surprise

Commerce Bancshares, Inc. price-consensus-eps-surprise-chart | 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.

Performance of Other Banks

First Republic Bank (FRC - Free Report) registered an earnings surprise of 16.2% in first-quarter 2021 on solid top-line strength. Earnings per share of $1.79 surpassed the Zacks Consensus Estimate of $1.54. Additionally, the bottom line climbed 53.1% from the year-ago quarter.

Citigroup (C - Free Report) delivered a positive earnings surprise of 1.4% in the first quarter on significant reserve releases. Income from continuing operations per share of $3.62 handily outpaced the Zacks Consensus Estimate of $2.56. Also, results compared favorably with $1.06 in the prior-year quarter.

U.S. Bancorp (USB - Free Report) reported earnings per share of $1.45 for the January-March quarter, topping the Zacks Consensus Estimate of 95 cents. The bottom line compared favorably with the prior-year quarter’s 72 cents.

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