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Commerce Bancshares (CBSH) Beats on Q2 Earnings, Costs Rise

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Commerce Bancshares, Inc.’s CBSH second-quarter 2019 earnings per share of 96 cents surpassed the Zacks Consensus Estimate of 94 cents. Moreover, the figure was in line with the prior-year quarter’s earnings.

Results benefited from slight improvement in revenues. Moreover, the company’s balance sheet position remained strong in the quarter. However, an increase in expenses and higher provisions were the undermining factors. Further, the company’s profitability worsened in the quarter.

Net income attributable to common shareholders was $105.7 million, down 2.2% from the prior-year quarter.

Revenues Improve, Expenses Rise

Total revenues for the quarter under review were $338.9 million, reflecting a year-over-year increase of nearly 1%. Moreover, the reported figure surpassed the Zacks Consensus Estimate of $336.5 million.

Net interest income for the quarter was $211.6 million, up marginally year over year.

Non-interest income was $127.3 million, up 1.9% year over year. This upside stemmed from an improvement in almost all components of fee income except for bank card transaction fees, capital market fees and consumer brokerage service fees.

Non-interest expenses increased 4.4% year over year to $189.8 million. This rise was due to an increase in almost all expense components except for deposit insurance and community service costs.

Efficiency ratio for the quarter under review increased to 55.88% from 54.06% reported in the year-ago quarter. Rise in efficiency ratio indicates lower profitability.

Strong Balance Sheet

As of Jun 30, 2019, total loans were $14.3 billion, up nearly 1% from the prior quarter. Total deposits as of the same date were nearly $19.8 billion, down marginally from the previous quarter.

Total stockholders’ equity was $3.2 billion as of Jun 30, 2019, reflecting an improvement from $3 billion in the prior quarter.

Credit Quality: A Mixed Bag

Provision for loan losses for the reported quarter was $11.8 million, up 17.6% year over year. Moreover, the ratio of net loan charge-offs to average loans was 0.32%, up from 0.29% witnessed in the prior-year quarter. However, allowance for loan losses as a percentage of total loans was 1.13%, down 1 bps year over year.

Capital Ratios Improve, Profitability Ratios Worsen

As of Jun 30, 2019, Tier I leverage ratio was 11.75%, up from 11.18% recorded in the year-ago quarter. Moreover, tangible common equity to tangible assets ratio grew to 11.25% from 10.18%.

At the end of the reported quarter, return on average assets was 1.73%, down from 1.80% witnessed in the year-ago quarter. Return on average common equity was 14.46%, down from 16.78% in the prior-year quarter.

Our Take

Commerce Bancshares’s top-line growth remained on track, driven by continued rise in loan balances. However, its significant exposure to real estate loans might pose near-term risks. Also, continuously rising operating expenses are likely to hurt bottom-line growth.

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 Dates of Other Banks

Among other banks, BankUnited, Inc. BKU is scheduled to report quarterly results on Jul 24. Huntington Bancshares Incorporated (HBAN - Free Report) and Associated Banc-Corp ASB are slated to report numbers on Jul 25.

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