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Commerce Bancshares (CBSH) Down 3.8% Despite Q1 Earnings Beat

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Commerce Bancshares Inc.’s (CBSH - Free Report) first-quarter 2023 earnings per share of 95 cents surpassed the Zacks Consensus Estimate of 92 cents. The bottom line increased 3.3% from the prior-year quarter.

Results benefited from an increase in net interest income (NII) driven by a rise in loan balance and higher interest rates. Also, non-interest income grew during the quarter.

However, a rise in non-interest expenses and provisions was the major setback. The company witnessed a decline in deposit balance during the quarter. These concerns are likely to have turned investors bearish on the stock. The company’s shares have lost 3.8% following the earnings release.

Net income attributable to common shareholders was $119.5 million, up 1.1% year over year.

Revenues & Expenses Rise

Total revenues were $389.2 million, up 14.3% year over year. The top line beat the Zacks Consensus Estimate of $388.8 million.

NII was $251.6 million, up 20.5%. Net yield on interest-earning assets expanded 81 basis points (bps) to 3.26%.

Non-interest income was $137.6 million, increasing 4.4%. The upswing was largely driven by an increase in bank card transaction fees and other fees.

Non-interest expenses increased 9% to $224.1 million. The rise was mainly due to higher salaries and employee benefit expenses, data processing and software expense, and travel and entertainment expense.

Efficiency ratio decreased to 57.49% from 60.29% in the year-ago quarter. A decrease in the efficiency ratio indicates an improvement in profitability.

As of Mar 31, 2023, total loans were $16.5 billion, up 1.4% from the prior quarter. Total deposits as of the same date were $24.7 billion, down 5.7%.

Deteriorating Credit Quality

Provision for credit losses was $11.5 million against a provision benefit of $9.9 million in the prior-year quarter.

The ratio of annualized net loan charge-offs to total average loans was 0.17%, up from 0.12% in the year-earlier quarter.

Non-accrual loans to total loans were 0.05%, in line with the prior-year number. Allowance for credit losses on loans to total loans was 0.96%, increasing 9 bps.

Capital & Profitability Ratios Solid

As of Mar 31, 2023, the Tier I leverage ratio was 10.61%, up from 9.07% in the year-ago quarter. Tangible common equity to tangible assets ratio declined to 7.92% from the prior-year quarter’s 8.09%.

At the end of the first quarter of 2023, return on total average assets was 1.54%, up from the year-ago period’s 1.33%. Return on average common equity was 18.75%, up from 14.41% in the prior-year quarter.

Share Repurchase Update

During the reported quarter, Commerce Bancshares repurchased 547,381 shares at an average price of $65.93 per share.

Our Take

Commerce Bancshares’ revenues are expected to be driven by decent loan demand, higher interest rates and initiatives to strengthen fee income sources. However, rising costs and provisions remain major near-term headwinds.

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.

Earnings Release Schedule of Other Banks

Zions Bancorporation (ZION - Free Report) is scheduled to release its first-quarter 2023 results on Apr 19.

Over the past 30 days, the Zacks Consensus Estimate for Zions Bancorporation’s quarterly earnings has declined 5.6% to $1.66. This implies an 18.9% increase from the prior-year quarter.

East West Bancorp, Inc. (EWBC - Free Report) is slated to report its first-quarter 2023 results on Apr 20.

Over the past 30 days, the Zacks Consensus Estimate for East West Bancorp’s quarterly earnings has decreased 1.4% to $2.16. This indicates a 30.1% increase from the prior-year quarter.

See More Zacks Research for These Tickers

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Zions Bancorporation, N.A. (ZION) - free report >>

Commerce Bancshares, Inc. (CBSH) - free report >>

East West Bancorp, Inc. (EWBC) - free report >>

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