Commerce Bancshares, Inc.’s (CBSH - Free Report) second-quarter 2018 earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 89 cents. Also, the reported figure reflects an improvement of 42.3% from the year-ago quarter.
Results primarily benefited from improvement in net interest income as well as non-interest income. Also, a decrease in provisions was a tailwind. Further, the company’s capital and profitability ratios improved during the quarter. However, elevated operating expenses acted as a headwind.
Net income attributable to Commerce Bancshares was $110.3 million, up 39.7% from the prior-year quarter.
Revenue Growth Offsets Rise in Costs
Total revenues for the quarter were $335.8 million, reflecting an increase of 12.6% year over year. In addition, the reported figure outpaced the Zacks Consensus Estimate of $319.3 million.
Net interest income came in at $211 million, rising 15.4% year over year. Furthermore, net interest margin was 3.50%, up 31 basis points (bps) year over year. The rise reflects increase in interest earned on loan portfolio and stable deposits cost.
Non-interest income was $124.9 million, up 8.2% year over year. This upswing was primarily driven by improvement in all components except capital market fees, loan fees and sales and other income.
Non-interest expenses flared up 2.8% year over year to $181.9 million. The upsurge largely resulted from rise in salaries and employee-benefit costs, data processing and software costs, and marketing costs.
Efficiency ratio for the quarter under review decreased to 54.06% from 59.21% reported in the year-ago quarter. A fall in efficiency ratio indicates higher profitability.
Loans Improve Marginally, Deposits Fall
As of Jun 30, 2018, total loans were $14.0 billion, up 0.4% from the prior-quarter level. However, total deposits, as of the same date, were $20.3 billion, edging down 1.1% from the prior quarter.
Total stockholders’ equity was $2.8 billion as of Jun 30, 2018, reflecting a rise of 2.4% from the previous quarter.
Credit Quality Up
Provision for loan losses decreased 6.7% year over year to $10 million in the reported quarter. Additionally, allowance for loan losses, as a percentage of total loans, came in at 1.14%, contracting 2 bps year over year. Further, net loan charge-offs to average loans ratio shrunk 3 bps, year over year, to 0.29%.
Improving Capital & Profitability Ratios
As of Jun 30, 2018, Tier I leverage ratio was 11.18%, up from 9.87% recorded in the prior-year quarter. Moreover, tangible common equity to tangible assets ratio grew to 10.18% from 9.37% as of Jun 30, 2017.
Further, the company’s return on average assets was 1.80%, inching up from 1.26% witnessed in the year-ago quarter. Return on average common equity was 16.78% at the end of the reported quarter, up from 12.48% in the year-earlier quarter.
Commerce Bancshares’ improving net interest margin will likely continue driving the top line, moving ahead. Moreover, improving profitability and capital ratios look encouraging. Nevertheless, mounting expenses remain a major concern for the company and are expected to remain elevated in the near future. Also, significant exposure to real estate loans might pose near-term risks.
Currently, Commerce Bancshares carries a Zacks Rank #3 (Hold). You can the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other Midwest banks, Old National Bancorp (ONB - Free Report) is slated to release its earnings numbers on Jul 23, while First Midwest Bancorp, Inc. (FMBI - Free Report) and First Interstate BancSystem, Inc. (FIBK - Free Report) are scheduled to announce their results on Jul 24 and Jul 25, respectively.
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