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Commerce Bancshares (CBSH) Slips 4.9% on Q3 Earnings Miss

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Shares of Commerce Bancshares, Inc.CBSH slumped close to 5% after the company delivered weaker-than-expected results for third-quarter 2015.

Notably, our proven model didn't conclusively show that the company would deliver a positive earnings surprise this time around. While the stock was carrying a favorable Zacks Rank #3 (Hold), its Earnings ESP was 0.00%, prior to the release.

Commerce Bancshares reported earnings of 66 cents per share, which considerably lagged the Zacks Consensus Estimate of 71 cents. Moreover, the bottom line was down 4.3% from the year-ago tally of 69 cents.

Rise in expenses and increased provisions acted as headwinds during the quarter, partly offset by higher revenues. Additionally, capital and profitability ratios deteriorated during the quarter.

Net income came in at $62.3 million, plunging 5.3% year over year.

Performance in Detail

Commerce Bancshares' net revenue increased 2.3% year over year to $273.2 million, but missed the Zacks Consensus Estimate of $280.3 million.

Net interest income summed $162 million, up almost 4.7% year over year on the back of higher interest on loans. This was, however, partially offset by reduced earnings on inflation-protected securities.

Non-interest income inched down 1% to $111.1 million led by a fall in credit card and capital market fees as well as other non-interest income. However, all other components of non-interest income improved year over year. Notably, revenue in the prior-year quarter was higher as it included certain one-time items.

Non-interest expenses rose 5.8% year over year to $171.3 million. The increase was primarily triggered by investments in personnel and technology to support ongoing initiatives. Excluding net occupancy, every category of expense experienced a year-over-year rise.

Commerce Bancshares' efficiency ratio for the quarter jumped to 62.53% from 60.43% in the prior-year quarter. An increase in efficiency ratio implies a fall in profitability.

As of Sep 30, 2015, total loans summed $12.2 billion, up 6.8% year over year; while total deposits came in at $19 billion, up 2.2% year over year.

Credit Quality

Credit quality represented a mixed bag. Allowance for loan losses, as a percentage of total loans, was 1.24%, down 17 basis points (bps) year over year.

However, provision for loan losses increased 9.3% year over year to $8.4 million. Also, net charge-offs to average loan ratio (annualized) edged up 1 bp year over year to 0.28%.

Capital and Profitability Ratios

Commerce Bancshares' capital as well as profitability ratios deteriorated for the quarter.

As of Sep 30, 2015, Tier I leverage ratio declined to 9.31% from 9.37% at the end of the prior-year quarter; while tangible common equity to assets ratio fell to 8.72% from 8.85% as of Sep 30, 2014.

Further, the company's return on average assets fell 11 bps year over year to 1.09% as of Sep 30, 2014; while return on average equity declined 105 bps year over year to 11.25%.

However, book value per common share came in at $23.97 as of Sep 30, 2015, up from $22.27 at the end of the year-ago quarter.

Capital Deployment

During the third quarter, Commerce Bancshares completed its accelerated stock repurchase program, which had commenced in May 2015. Further, based on the average price of its stock during the repurchase period, the company has received additional 351,260 shares.

Our Viewpoint

Weak expense management remains a major headwind for Commerce Bancshares. While this limits the company's bottom-line expansion, the prevailing low rate environment continues to strain top-line performance. Moreover, regulatory pressure adds to the company's woes.

Nonetheless, we believe the company remains well positioned for future growth, backed by a sound capital base and strong liquidity level. Also, the company's steady capital deployment activities and inclination toward inorganic growth are expected to yield positive results.

Commerce Bancshares currently carries a Zacks Rank #3.

Among other Midwest banks, TCF Financial Corporation TCB and Huntington Bancshares Incorporated HBAN are expected to report on Oct 22, while FirstMerit Corporation FMER will announce results on Oct 27.

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HUNTINGTON BANC (HBAN): Free Stock Analysis Report

TCF FINL CORP (TCB): Free Stock Analysis Report

COMMERCE BANCSH (CBSH): Free Stock Analysis Report

FIRSTMERIT CORP (FMER): Free Stock Analysis Report

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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.


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

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