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Commerce Bancshares (CBSH) Stock Up 2.5% on Q4 Earnings Beat

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Shares of Commerce Bancshares, Inc. (CBSH - Free Report) gained 2.5% in response to fourth-quarter 2019 results. Its earnings per share of 93 cents surpassed the Zacks Consensus Estimate of 88 cents. The bottom line jumped 2.2% from the prior-year quarter.

Results benefited from improvement in non-interest income. Moreover, the company’s balance sheet position remained strong in the quarter. However, escalating expenses, lower net interest income and higher provisions were the undermining factors.

Net income attributable to common shareholders was $104.6 million, down 2.6% from the prior-year quarter.

For 2019, earnings were $3.58 per share compared with the prior year’s figure of $3.60. The bottom line outpaced the consensus estimate of $3.54. Net income dropped 2.9% to $412.2 million.

Revenues Up, Expenses Rise

Total revenues for the quarter were $346.1 million, reflecting marginal increase year over year. Also, the top line beat the consensus estimate of $332.9 million.

For 2019, total revenues of $1.3 billion matched the consensus estimate. Also, the top line rose 1.6% year over year.

Net interest income was $202.7 million, down 4.5% year over year. This decline is mainly due to lower interest rates, partly offset by improved loan balances and funding costs.

Non-interest income was $143.5 million, up 7.8% year over year. The rise was due to improvement in trust fees, deposit account charges and other fees, loan fees and sales, capital market fees along with the sale of corporate trust business.

Non-interest expenses rose 3.5% year over year to $195.2 million. The rise was due to an increase in all expense components, except for costs related to supplies and communication, marketing, deposit insurance, community service and other expenses.

Efficiency ratio increased to 56.29% from 54.53% reported in the year-ago quarter. A rise in efficiency ratio indicates lower profitability.

Balance Sheet Strong

As of Dec 31, 2019, total loans were $14.7 billion, up 1.9% from the prior quarter. Total deposits as of the same date were $20.5 billion, up 1% from the previous quarter.

Total stockholders’ equity was $3.1 billion as of Dec 31, 2019, reflecting a rise of 1% from the prior quarter.

Credit Quality: A Mixed Bag

Provision for loan losses for the reported quarter was $15.2 million, up 24.1% year over year. Moreover, the ratio of net loan charge-offs to average loans was 0.42%, up from 0.34% witnessed in the prior-year quarter. However, allowance for loan losses as a percentage of total loans was 1.09%, down 4 basis points year over year.

Capital Ratios Mixed, Profitability Ratios Worsen

As of Dec 31, 2019, Tier I leverage ratio was 11.38%, down from 11.52% recorded in the year-ago quarter. However, tangible common equity to tangible assets ratio grew to 10.99% from 10.45%.

At the end of the reported quarter, return on average assets was 1.65%, down from 1.75% witnessed in the year-ago quarter. Return on average common equity was 13.90%, down from 15.85% in the prior-year quarter.

Our Take

Commerce Bancshares’s is poised for top-line growth, driven by continued rise in loan balances. Also, the company’s efforts to boost fee income will aid revenues. Moreover, with a solid balance sheet position, the bank remains well positioned to grow. However, persistently rising operating expenses are likely to hurt bottom-line expansion. Also, increasing provisions act as a concern.

Commerce Bancshares, Inc. Price, Consensus and EPS Surprise

Zacks Rank

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 Results & Release Dates of Other Banks

Hancock Whitney Corporation’s HWC fourth-quarter 2019 adjusted earnings per share of $1.06 beat the Zacks Consensus Estimate of $1.04. However, the bottom line fell 5.4% from the year-ago quarter’s reported figure.

Washington Federal’s WAFD first-quarter fiscal 2020 (ended Dec 31) adjusted earnings came in at 58 cents per share, missing the Zacks Consensus Estimate of 60 cents. Results exclude the net positive impact of two significant non-recurring items.

Prosperity Bancshares, Inc. PB is slated to report on Jan 29.

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