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Commerce Bancshares (CBSH) Beats on Q4 Earnings, Costs Up


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Commerce Bancshares, Inc. CBSH released its fourth-quarter and full-year 2017 results. Adjusted earnings per share for the quarter came in at 74 cents, which surpassed the Zacks Consensus Estimate of 71 cents. Also, the figure reflects improvement of 13.8% from the year-ago quarter.

Results primarily benefited from an improvement in both net interest income as well as non-interest income. Also, the company witnessed modest loan growth, and its capital and profitability ratios improved during the quarter. However, higher expenses and an increase in provision for loan losses acted as headwinds.

After taking into consideration several non-recurring items in the quarter (including the impact of the new tax legislation), net income attributable to Commerce Bancshares was $94.4 million or 86 cents per share.

For 2017, net income attributable to Commerce Bancshares came in at $319.4 million or $2.89 per share, up from $275.4 million or $2.49 per share registered in 2016.

Revenue Growth Offsets Rise in Costs

Total revenues for the quarter were $314.2 million, reflecting an increase of 7.4% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $313 million.

Total revenues for 2017 came in at $1.22 billion, up 5.7% from the prior year. However, the figure marginally missed the Zacks Consensus Estimate of $1.23 billion.

Net interest income for the quarter was $190 million, increasing 9.7% year over year. Further, net interest margin was 3.29%, up 26 basis points (bps) year over year. The rise reflects an increase in interest earned on loan portfolio and stable deposit cost.

Non-interest income was $124.2 million, up 4% year over year. The rise was primarily driven by an improvement in all components except capital market fees and other income.

Non-interest expenses rose 17.9% year over year to $213.7 million. The increase was largely due to a rise in salaries and employee benefits cost, supplies and communication costs and community service expense.

Efficiency ratio for the quarter increased to 67.91% from 61.82% in the prior-year quarter. A rise in efficiency ratio indicates lower profitability.

Strong Balance Sheet

As of Dec 31, 2017, total loans were nearly $14 billion, up 1.7% on a sequential basis. Total deposits, as of the same date, were $20.4 billion, almost stable compared with the prior quarter.

Total stockholders' equity was $2.7 billion as of Dec 31, 2017, reflecting a marginal rise of 0.6% from the previous quarter.

Credit Quality: A Mixed Bag

Provision for loan losses increased 21.7% year over year to $12.7 million in the reported quarter. Also, net loan charge-offs to average loans ratio (excluding loans held for sale) increased 5 bps year over year to 0.32%.

However, allowance for loan losses, as a percentage of total loans, came in at 1.14%, down 2 bps year over year.

Improving Capital & Profitability Ratios

As of Dec 31, 2017, Tier I leverage ratio was 10.39%, up from 9.55% in the prior-year quarter. Moreover, tangible common equity to tangible assets ratio grew from 8.66% as of Dec 31, 2016 to 9.84%.

Further, the company's return on average assets was 1.50%, increasing from 1.14% in the year-ago quarter. Return on average common equity was 14.17% at the end of the reported quarter, up from 11.48% in the year-ago quarter.

Our Take

Commerce Bancshares' efforts to expand its footprint in newer markets and an improving rate scenario should continue improving revenues. Also, persistent rise in fee income is likely to further aid top-line growth. Moreover, improving profitability and capital ratios are encouraging.

However, mounting expenses continue to be a major concern for the company. Also, significant exposure to real estate loans might pose near-term risks.

Commerce Bancshares, Inc. Price, Consensus and EPS Surprise

Commerce Bancshares, Inc. Price, Consensus and EPS Surprise | Commerce Bancshares, Inc. Quote

Currently, Commerce Bancshares carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Among other Midwest banks, results are expected from Old National Bancorp ONB on Jan 23, while First Midwest Bancorp, Inc. FMBI and First Interstate BancSystem, Inc. FIBK are scheduled to announce their results on Jan 29 and Jan 30, respectively.

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



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: CBSH , FMBI , ONB , FIBK



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