It has been about a month since the last earnings report for Commerce Bancshares, Inc. (CBSH - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Commerce Bancshares Q3 Earnings Miss, Revenues Improve
Commerce Bancshares’ third-quarter 2017 earnings of 71 cents per share missed the Zacks Consensus Estimate of 75 cents. The figure reflects a 9.2% rise from the year-ago quarter.
The results were mainly driven by higher net interest income and non-interest income. Also, the company witnessed modest loan growth, and its capital and profitability ratios improved as well. However, escalated expenses and an increase in provision for loan losses acted as headwinds.
Net income available to common shareholders was $74.6 million, up 8.9% year over year.
Revenue Growth Offsets Rise in Costs
Total revenues for the quarter were $304.8 million, reflecting an increase of 4.9% year over year. However, the figure missed the Zacks Consensus Estimate of $312.4 million.
Net interest income increased 6.7% from the prior-year quarter to $182.6 million. Further, net interest margin was 3.18%, up 10 basis points (bps) year over year. The rise reflects an increase in interest earned on loan portfolio and stable deposit cost.
Non-interest income was $122.2 million, up 2.4% year over year. The rise was mainly driven by all components except bank card transaction fees and capital market fees.
Non-interest expenses rose 1.8% year over year to $184.6 million. The increase was largely due to a rise in salaries and employee benefits, marketing and other costs.
Efficiency ratio for the quarter declined to 60.44% from 62.25% in the prior-year quarter. A fall in efficiency ratio indicates improved profitability.
Strong Balance Sheet
As of Sep 30, 2017, total loans were $13.8 billion, up 1.5% on a sequential basis. However, total deposits, as of the same date, were $20.4 billion, down 1.9% from the prior quarter.
However, total stockholders’ equity was $2.7 billion as of Sep 30, 2017, reflecting a rise of 3.1% from the previous quarter.
Credit Quality: A Mixed Bag
Provision for loan losses increased 47.4% year over year to $10.7 million. Net loan charge-offs to average loans ratio (excluding loans held for sale) increased 11 bps year over year to 0.31%.
However, allowance for loan losses, as a per cent of total loans, came in at 1.15%, down 2 bps year over year.
Improving Profitability & Capital Ratios
As of Sep 30, 2017, Tier I leverage ratio was 10.16%, up from 9.58% from the prior-year quarter. Moreover, tangible common equity to tangible assets ratio grew from 9.22% as of Sep 30, 2016 to 9.72%.
Further, the company’s return on average assets was 1.19%, up from 1.12% in the year-ago quarter. Return on average common equity was 11.35% as of Sep 30, 2017, up from 10.97% in the year-ago quarter.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower.
At this time, Commerce Bancshares' stock has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stocks has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
The stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.