Shares of Commerce Bancshares, Inc. CBSH ended over 1% higher at the end of yesterday’s trading session following its first-quarter 2015 earnings release, which reflected improved performance on robust growth in loans and deposits. The company reported earnings per share of 61 cents, which surpassed the Zacks Consensus Estimate of 57 cents. However, the figure came in 4.7% below the year-ago quarter figure.
Results gained on the back of higher non-interest income and lower provisions, partly mitigated by elevated expenses as well as pressurized net interest income. Credit quality displayed improvement, while efficiency ratio continued to be unfavorable.
Net income available to common shareholders amounted to $58.8 million, down 8.6% year over year.
Performance in Detail
Commerce Bancshares’ taxable equivalent net revenue declined 1% year over year to $259.8 million. Moreover, this came below the Zacks Consensus Estimate of $263.0 million.
Taxable equivalent net interest income summed $153.3 million, inching down 4.0% year over year on the back of lower net yield on earning assets.
Non-interest income totaled $106.4 million, up 3.7% year over year driven by a rise in trust fees, corporate card, brokerage, interest rate swap and mortgage banking fee income.
Non-interest expenses rose 1.1% year over year to $163.7 million. The increase was primarily a result of higher salaries and employee benefits, partially offset by a reduction in costs for foreclosed property, supplies and communications, occupancy, credit card rewards expense as well as legal and loan collection fees.
Commerce Bancshares’ efficiency ratio increased to 64.63% from 63.13% in the prior-year quarter. An increase in efficiency ratio implies a fall in profitability.
Total loans improved 4.7% year over year to $11.7 billion as of Mar 31, 2015. Additionally, total deposits grew 1.9% year over year to $19.6 billion.
Credit Quality
In the reported quarter, credit quality represented improvement. Total non-performing assets came in at $40.8 million, down 25.1% year over year. However, allowance for loan losses, as a percentage of total loans stood at 1.31%, down 13 basis points (bps) year over year.
Provision for loan losses decreased 54.2% year over year to $4.4 million. Moreover, net loan charge-offs fell 23.2% year over year to $7.4 million.
Capital and Profitability Ratios
Commerce Bancshares’ capital ratios deteriorated while profitability ratios represented a mixed bag. As of Mar 31, 2015, Tier I leverage ratio came in at 9.31%, down from 9.41% at the end of the prior-year quarter. Tangible common equity to assets ratio as of Mar 31, 2015 stood at 8.83%, down from 9.37% as of Mar 31, 2014.
As of Mar 31, 2015, the company’s return on average assets inched down 11 bps year over year to 1.05%, while return on average equity descended 87 bps year over year to 10.69%.
However, book value per common share came in at $23.42 as of Mar 31, 2015, up from $22.62 at the end of the year-ago quarter.
Our Viewpoint
Commerce Bancshares remains well positioned for future growth on the basis of its sound capital base and strong liquidity level. Also, the company’s steady capital deployment activities and inclination towards inorganic growth are expected to yield positive results going forward.
However, the company’s weak expense management may worsen further owing to stringent regulatory requirements. Also, the prevailing low interest rate environment will likely keep the financials under pressure in the near term.
Commerce Bancshares currently carries a Zacks Rank #4 (Sell).
Among other Midwest banks, Wintrust Financial Corporation WTFC, TCF Financial Corporation TCB and Old National Bancorp. ONB are scheduled to report first-quarter 2015 earnings results on Apr 15, Apr 21 and Apr 27, respectively.
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