Commerce Bancshares Inc.
) third quarter 2012 earnings of 75 cents per share lagged the
Zacks Consensus Estimate by 2 cents. This compares unfavorably with
the prior quarter's earnings of 80 cents per share, but favorably
with the year-ago quarter's earnings of 72 cents.
The sequential improvement was due to higher non-interest income
and a decrease in operating expenses, 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 $66.0 million, down 6.7%
sequentially; however, it inched up 1.0% on a year-over-year basis.
Commerce Bancshares' total revenues were $264.1 million, down 4.1%
from $275.4 million in the prior quarter and 3.1% from $272.5
million in the year-ago quarter. Total revenues were also ahead of
the Zacks Consensus Estimate of $265.0 million by 0.3%.
Taxable equivalent net interest income was $159.9 million,
declining 6.6% sequentially. The fall was largely attributable to
lower inflation interest on the company's inflation-protected
Non-interest income inched up 0.1% from the previous quarter to
$100.9 million. The sequential improvement was mainly due to higher
bank card transaction fees and capital market fees, partly offset
by lower trust fees, deposit account charges and other fees,
consumer brokerage services as well as other income.
Non-interest expense fell 1.9% from the prior quarter to $153.4
million. The decrease was mainly attributable to lower other
expenditure, deposit insurance expenses, marketing costs as well as
supplies and communication expenses, partly mitigated by higher
salaries and employee benefits, net occupancy costs, as well as
data processing and software expenditure.
Efficiency ratio, in the quarter under review, increased to 59.99%
from 58.53% in the prior quarter. The hike in efficiency ratio
implies deterioration in profitability.
During the quarter, Commerce Bancshares' credit quality continued
to witness considerable improvement. Total nonperforming assets
declined to $73.4 million from $82.3 million at the end of the
prior-quarter and $99.7 million at the end of the prior-year
quarter. Further, allowance for loan losses as a percentage of
total loans was 1.82% down from 1.90% in the prior quarter and
2.07% in the previous-year quarter.
However, net charge-offs escalated 10.6% sequentially but
deteriorated 39.0% year over year to $9.1 million. Likewise,
provision for loan losses stood at $5.6 million in the quarter, up
7.0% from the previous quarter but down 51.0% from the year-ago
Average loans (excluding loans held for sale) inched up 2.3%
from the previous quarter and 3.9% from the comparable quarter last
year to $9.4 billion. Further, total deposits remained almost flat
sequentially but improved 5.2% year over year to $16.8 billion,
reflecting growth in non-interest bearing deposits and savings,
interest checking and money market deposits.
COMMERCE BANCSH (CBSH): Free Stock Analysis
TCF FINL CORP (TCB): Free Stock Analysis Report
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Capital and Profitability Ratios
Commerce Bancshares' capital ratios improved in the quarter under
review. Tier I leverage ratio came in at 10.00%, up from 9.73% in
the prior quarter and 9.74% in the prior-year quarter. Tangible
common equity to assets ratio as of September 30, 2012 was 10.47%,
up from 10.16% as of June 30, 2012 and 9.72% as of September 30,
As of September 30, 2012, the company's return on average assets
was 1.28% compared with 1.38% as of June 30, 2012 and 1.32% as of
September 30, 2011. Additionally, the company's return on average
equity decreased to 11.57% from 12.80% as of June 30, 2012 and
12.15% as of September 30, 2011.
However, book value based on total equity as of September 30, 2012
was $26.33 per share, up from $25.47 as of June 30, 2012 and $23.95
as of September 30, 2011.
During the quarter, Commerce Bancshares repurchased 98,000 shares
at an average price of $39.66 per share.
Strong capital base and an excellent liquidity enable Commerce
Bancshares to position itself comfortably for expansion via
acquisitions. Moreover, the company's direct retail and commercial
banking franchise are expected to perform steadily. Its focus on
developing in the high-growth areas and efforts to reorganize
expenses would also prove accretive to overall growth in the
However, prevailing low interest rates, diminishing loan demands
and muted economic growth are expected to hurt Commerce Bancshares'
overall performance. Also, the recently proposed financial rules
and the stringent regulatory reforms are matters of concern.
One of Commerce Bancshares peers,
TCF Financial Corporation
) is scheduled to announce its third quarter 2012 results on
Commerce Bancshares currently retains a Zacks #3 Rank, which
translates into a short-term Hold rating. Also, considering the
fundamentals, we maintain a long-term Neutral recommendation on the