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Commerce Bancshares' (CBSH) Stock Declines on Q3 Earnings Miss

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Shares of Commerce Bancshares Inc. (CBSH - Free Report) lost 2.8% following its third-quarter 2022 results. Earnings of $1.02 per share missed the Zacks Consensus Estimate of $1.04. The bottom line, however, increased 3% from the prior-year quarter. Our estimate for earnings was $1.03.

Results were primarily hurt by a marginal rise in expenses and higher provisions. However, an increase in revenues and higher loan balances were tailwinds. Supported by higher interest rates, the company recorded an improvement in margins.

Net income attributable to common shareholders of $122.8 million increased marginally year over year.

Revenues Improve, Expenses Rise Marginally

Total revenues were $384.9 million, growing 9.5% year over year. The top line marginally outpaced the Zacks Consensus Estimate of $384.6 million. Our estimate for revenues was $386.6 million.

Net interest income was $246.4 million, up 15.1% year over year. Our estimate for the same was $235 million. Net yield on interest-earning assets was 3.01%, which expanded 43 basis points (bps) year over year.

Non-interest income was $138.5 million, up marginally from the prior-year quarter. The rise was driven by an increase in almost all components of fee income, except for trust fees, deposit account charges and other fees, capital market fees, and loan fees and sales. Our estimate for total non-interest income was $151.6 million.

Non-interest expenses increased marginally year over year to $212.9 million. The rise was due to an increase in almost all cost components except for other expenses. Our estimate for the same was $227.4 million.

The efficiency ratio declined to 55.19% from 59.95% in the year-ago quarter. A fall in the efficiency ratio indicates an improvement in profitability.

As of Sep 30, 2022, total loans were $15.9 billion, up 1.4% from the prior quarter. Total deposits as of the same date were $27.5 billion, down 2.5% sequentially.

Credit Quality: Mixed Bag

Provision for credit losses was $15.3 million against a benefit of $7.4 million in the prior-year quarter. The ratio of annualized net loan charge-offs to total average loans was 0.12%, up from 0.10% in the year-earlier quarter.

Non-accrual loans to total loans were 0.05%, down 2 bps year over year. The allowance for credit losses on loans to total loans was 0.90%, declining 17 bps.

Capital Ratios Mixed, Profitability Ratios Improve

As of Sep 30, 2022, Tier I leverage ratio was 9.87%, up from 9.31% in the year-ago quarter. The tangible common equity to tangible assets ratio declined to 6.80% from the prior-year quarter’s 9.71%.

At the end of the third quarter, return on total average assets was 1.48%, up from the year-ago period’s 1.40%. Return on average common equity was 17.84%, up from 13.74%.

Share Repurchase Update

During the reported quarter, Commerce Bancshares repurchased 710,879 shares at an average price of $70.50 per share.

Our Take

Commerce Bancshares’ revenues are likely to continue benefiting from a rise in loan demand, higher interest rates and efforts to strengthen fee income sources. However, rising expenses keep hurting 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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Higher loan balance, rising rates and solid markets performance drive JPMorgan’s (JPM - Free Report) third-quarter 2022 earnings of $3.12 per share, which surpassed the Zacks Consensus Estimate of $2.97. The results included $959 million or 24 cents per share of net investment securities losses in the Corporate segment. Our estimate for earnings was $2.98 per share.

Disappointing investment banking performance, bigger reserve build and increased operating expenses hampered JPM’s quarterly performance to some extent.

Wells Fargo’s (WFC - Free Report) third-quarter 2022 adjusted earnings per share of $1.30 outpaced the Zacks Consensus Estimate of $1.09. Results excluded $2 billion or 45 cents per share of charges related to a number of “historical matters, including litigation, customer remediation, and regulatory matters.”

Results benefited from higher NII, rising rates and solid average loan growth. Yet, dismal non-interest income, higher provisions and weakness in the mortgage business were the major undermining factors for WFC. Also, the rise in non-interest expenses acted as a headwind.


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