A month has gone by since the last earnings report for Commerce Bancshares (CBSH). Shares have added about 6.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Commerce due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Commerce Bancshares Q3 Earnings Beat Estimates, Costs Rise
Commerce Bancshares’ third-quarter 2019 earnings per share of 98 cents surpassed the Zacks Consensus Estimate of 93 cents. The figure was in line with 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, an increase in expenses, lower net interest income and higher provisions were the undermining factors.
Net income attributable to common shareholders was $107 million, down 3% from the prior-year quarter.
Revenues Improve, Expenses Rise
Total revenues for the quarter under review were $336.3 million, reflecting a year-over-year increase of nearly 1.4%. However, the reported figure marginally lagged the Zacks Consensus Estimate of $336.9 million.
Net interest income was $203.5 million, down 2% year over year.
Non-interest income was $132.7 million, up 7.3% year over year. The rise was due to an improvement in all components of fee income.
Non-interest expenses rose 3.2% year over year to $191 million. The rise was due to an increase in almost all expense components, except for deposit insurance costs, community service costs and other expenses.
Efficiency ratio increased to 56.66% from 55.73% reported in the year-ago quarter. A rise in efficiency ratio indicates lower profitability.
Balance Sheet Strong
As of Sep 30, 2019, total loans were $14.5 billion, up nearly 1.4% from the prior quarter. Total deposits as of the same date were nearly $20.3 billion, up 2.4% from the previous quarter.
Total stockholders’ equity was $3.1 billion as of Sep 30, 2019, reflecting a decline from $3.2 billion recorded in the prior quarter.
Credit Quality: A Mixed Bag
Provision for loan losses for the reported quarter was $11 million, up 9.6% year over year. Moreover, the ratio of net loan charge-offs to average loans was 0.32%, up from 0.28% witnessed in the prior-year quarter. However, allowance for loan losses as a percentage of total loans was 1.11%, down 3 bps year over year.
Capital Ratios Mixed, Profitability Ratios Worsen
As of Sep 30, 2019, Tier I leverage ratio was 11.32%, down from 11.38% recorded in the year-ago quarter. However, tangible common equity to tangible assets ratio grew to 10.95% from 10.10%.
At the end of the reported quarter, return on average assets was 1.72%, down from 1.81% witnessed in the year-ago quarter. Return on average common equity was 14.21%, down from 16.43% in the prior-year quarter.
During the quarter, the company repurchased 581,685 shares of treasury stock for $58.26 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
Currently, Commerce has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Commerce has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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