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Commerce Bancshares (CBSH) Hurt by Rising Costs & Provisions
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Commerce Bancshares (CBSH - Free Report) is expected to witness a persistent rise in operating expenses. This, along with the company's exposure to risky loan portfolios, is a major headwind.
CBSH has continued to record a rise in non-interest expenses over the past several years. The metric has witnessed a compound annual growth rate (CAGR) of 2.7% over the past six years ended 2022. The rise was primarily due to higher salaries and employee benefit costs. The uptrend persisted in the first quarter of 2023.
Overall costs are expected to remain high in the near term as the company continues to invest in technology upgrades amid inflationary pressure. Our estimates for total non-interest expenses suggest a CAGR of 7.3% over the next three years.
The company's significant part of the loan portfolio comprises revolving home equity and real estate. As of Mar 31, 2023, 49.4% of it's loan portfolio was exposed to such loans, depicting loan concentration. Though there has been an improvement in the housing sector, any deterioration in real estate prices will pose a threat to the company's financials.
Poor asset quality is another headwind for Commerce Bancshares. The company recorded a provision benefit in 2021 and built substantial reserves in 2020 and 2022 to combat the tough operating environment. The uptrend in the metric continued in the first quarter of 2023. We project provisions for credit losses to surge 123% this year.
Analysts also seem pessimistic regarding the company’s growth potential. The Zacks Consensus Estimate for CBSH’s current-year earnings has been revised marginally lower over the last 30 days. Thus, the company currently carries a Zacks Rank #4 (Sell).
Over the past six months, shares of Commerce Bancshares have fallen 31.2% compared with the industry's 29.8% decline.
Image Source: Zacks Investment Research
Despite the above-mentioned concerns, CBSH is well placed to grow organically with solid loan balances, higher interest rates and efforts to improve fee income. Further, the company is expected to continue with efficient capital deployment activities, thus enhancing shareholder value.
Banks Worth a Look
A couple of better-ranked stocks from the finance space are Pathward Financial, Inc. (CASH - Free Report) and First Citizens BancShares (FCNCA - Free Report) .
The Zacks Consensus Estimate for Pathward Financial’s current-year earnings has been revised 1.8% upward over the past 30 days. Its shares have gained 5.9% in the past six months. Currently, CASH carries a Zacks Rank #2 (Buy).
First Citizens BancShares currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 67% upward over the past 30 days. In the past six months, FCNCA’s shares have rallied 62.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Commerce Bancshares (CBSH) Hurt by Rising Costs & Provisions
Commerce Bancshares (CBSH - Free Report) is expected to witness a persistent rise in operating expenses. This, along with the company's exposure to risky loan portfolios, is a major headwind.
CBSH has continued to record a rise in non-interest expenses over the past several years. The metric has witnessed a compound annual growth rate (CAGR) of 2.7% over the past six years ended 2022. The rise was primarily due to higher salaries and employee benefit costs. The uptrend persisted in the first quarter of 2023.
Overall costs are expected to remain high in the near term as the company continues to invest in technology upgrades amid inflationary pressure. Our estimates for total non-interest expenses suggest a CAGR of 7.3% over the next three years.
The company's significant part of the loan portfolio comprises revolving home equity and real estate. As of Mar 31, 2023, 49.4% of it's loan portfolio was exposed to such loans, depicting loan concentration. Though there has been an improvement in the housing sector, any deterioration in real estate prices will pose a threat to the company's financials.
Poor asset quality is another headwind for Commerce Bancshares. The company recorded a provision benefit in 2021 and built substantial reserves in 2020 and 2022 to combat the tough operating environment. The uptrend in the metric continued in the first quarter of 2023. We project provisions for credit losses to surge 123% this year.
Analysts also seem pessimistic regarding the company’s growth potential. The Zacks Consensus Estimate for CBSH’s current-year earnings has been revised marginally lower over the last 30 days. Thus, the company currently carries a Zacks Rank #4 (Sell).
Over the past six months, shares of Commerce Bancshares have fallen 31.2% compared with the industry's 29.8% decline.
Image Source: Zacks Investment Research
Despite the above-mentioned concerns, CBSH is well placed to grow organically with solid loan balances, higher interest rates and efforts to improve fee income. Further, the company is expected to continue with efficient capital deployment activities, thus enhancing shareholder value.
Banks Worth a Look
A couple of better-ranked stocks from the finance space are Pathward Financial, Inc. (CASH - Free Report) and First Citizens BancShares (FCNCA - Free Report) .
The Zacks Consensus Estimate for Pathward Financial’s current-year earnings has been revised 1.8% upward over the past 30 days. Its shares have gained 5.9% in the past six months. Currently, CASH carries a Zacks Rank #2 (Buy).
First Citizens BancShares currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised 67% upward over the past 30 days. In the past six months, FCNCA’s shares have rallied 62.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.