Commerce Bancshares Beats, Exps Dip - Analyst Blog

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Commerce Bancshares Inc. ( CBSH ) reported first-quarter 2012 earnings of 75 cents per share, significantly ahead of the Zacks Consensus Estimate of 67 cents. However, after considering the losses on held-for-sale real estate property and certain incentives related to new bankcard network agreements, the company reported earnings per share of 74 cents.

This compares favorably with the prior quarter's earnings of 69 cents per share and the year-ago quarter's earnings of 66 cents.

Commerce Bancshares' results benefited from higher fee income and a drop in operating expenses, which was partially offset by a lower net interest income. Moreover, credit quality and capital ratios continued to show improvements.

Net income for the reported quarter was $65.8 million, up 7% sequentially from $61.5 million and 9% year over year from $60.5 million.

Quarter in Detail

Commerce Bancshares' quarterly revenues were $260.2 million, down from $262.0 million in the prior quarter and $262.4 million in the prior-year quarter. The decline was largely due to a drop in net interest income, partially offset by higher non-interest income. However, total revenues were ahead of the Zacks Consensus Estimate of $257.0 million.

Commerce Bancshares reported taxable-equivalent net interest income of $165.7 million in the first quarter, dipping 1.4% sequentially and 0.5% year over year. The drop was attributable to lower rates earned on loans, partly mitigated by a decline in rates paid on deposit accounts.

Net interest margin in the first quarter stood at 3.45%, down 1 basis point sequentially and 40 basis points year over year.

Non-interest income in the quarter rose 0.6% from the previous quarter, but fell 1.4% from the previous-year quarter to $94.6 million. The improvement was primarily due to higher trust fees, deposit account charges and other fees as well as capital market fees. These were, however, partially offset by lower bankcard transaction fees as well as loan fees and sales.

Non-interest expense during the quarter decreased 3.6% from the prior quarter and 2.3% from the year-ago quarter to $150.5 million. The sequential fall was mainly attributable to the absence of certain one-time charges that were recorded during the previous quarter.

Efficiency ratio, in the quarter under review, improved to 58.91% from 60.71% in the prior quarter and 59.64% in the year-ago quarter. The fall in efficiency ratio implies an improvement in profitability.

Credit Quality

The first-quarter witnessed considerable year-over-year improvement in Commerce Bancshares' credit quality. Total nonperforming assets declined to $87.5 million or 0.95% of loans outstanding from $93.8 million or 1.02% at the end of the prior-quarter and $103.0 million or 1.10% at the end of the prior-year quarter. Similarly, net charge-offs declined 28.7% sequentially and 40.6% year over year to $11.2 million.

Further, the allowance for loan losses as a percentage of total loans was 1.96% compared with 2.01% in the prior quarter and 2.08% in the previous-year quarter. Likewise, provision for loan losses decreased from $12.1 million in the prior quarter and $15.9 million in the year-ago quarter to $8.2 million.

Balance Sheet

Average loans (excluding loans held for sale) inched up 1.1% quarter over quarter, but dropped 2.5% year over year to $9.20 billion. Sequential rise reflected higher loan balances in all categories except consumer, consumer credit card as well as revolving home equity.

In the reported quarter, total average deposits slightly increased 1.7% sequentially to $11.5 billion, reflecting growth in money market deposit balances along with growth in certificate of deposit (CD).

Capital Ratios

The year saw betterment in Commerce Bancshares' capital ratios. As of March 31, 2012, the company's return on average assets improved to 1.29% from 1.19% as of December 31, 2011. Also, as of March 31, 2012, the company's return on average equity climbed to 12.04% from 11.39% as of December 31, 2011.

Similarly, book value as of March 31, 2012 was $24.83 per share, up from $24.40 as of December 31, 2011 and $22.64 as of March 31, 2011.

Share Repurchase

During the reported quarter, Commerce Bancshares repurchased 810,642 shares at an average cost of $38.98.

Our Viewpoint

With a strong capital base and an excellent liquidity position, Commerce Bancshares is robustly poised to expand inorganically. Moreover, the company's direct retail and commercial banking franchise are expected to perform steadily. However, prevailing low interest rates, diminishing loan demands and muted economic growth are expected to hurt the company's overall performance.

One of Commerce Bancshares' peers, TCF Financial Corporation ( TCB ), is expected to announce its first quarter 2012 results on April 19.

Commerce Bancshares currently retains a Zacks # 3 Rank, which translates into a short-term 'Hold' rating. Also, considering the fundamentals, we are maintaining our long-term "Neutral" recommendation on the shares.


 
COMMERCE BANCSH ( CBSH ): Free Stock Analysis Report
 
TCF FINL CORP ( TCB ): Free Stock Analysis Report
 
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Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CBSH , TCB

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