Shares of Commerce Bancshares, Inc. (CBSH) declined over 2% in the full trading session following its fourth-quarter 2014 earnings release, which reflected strained performance on subdued revenue generation and weak expense management. The company reported earnings per share of 62 cents, which came in below the Zacks Consensus Estimate as well as the year-ago quarter figure of 65 cents.
For full-year 2014, earnings per share stood at $2.61, up from $2.59 in 2013. However, this missed the Zacks Consensus Estimate of $2.65.
Results were negatively impacted by elevated expenses as well as pressurized top line. However, consistent improvement in loans and deposits as well as lower provisions acted as the positives, salvaging the results slightly. Credit quality displayed decent improvement except net loan charge-offs which increased during the quarter.
Net income available to common shareholders amounted to $60.5 million, down 8.3% year over year. For 2014, net income available to common shareholders fell 1.2% year over year to $257.7 million.
Performance in Detail
Commerce Bancshares’ net revenue declined marginally from the year-ago quarter to $264.2 million. Moreover, this came below the Zacks Consensus Estimate of $272.0 million.
For 2014, net revenue climbed 1.8% year over year to $1.06 billion. However, it missed the Zacks Consensus Estimate of $1.08 billion.
Taxable equivalent net interest income summed $159.2 million, inching down 1.9% year over year on the back of lower net yield on earning assets.
Non-interest income totaled $112.3 million, up 2.5% year over year driven by a rise in bank card fee income as well as trust fees.
Non-interest expenses rose 5.6% year over year to $170.3 million. The increase was primarily a result of higher salaries and employee benefits, marketing costs, data processing, foreclosed assets and credit card related expense. These were, however, partially offset by a reduction in net occupancy.
Commerce Bancshares’ efficiency ratio increased to 64.27% from 60.81% in the prior-year quarter. An increase in efficiency ratio implies a fall in profitability.
Total loans improved 4.7% year over year to $11.5 billion as of Dec 31, 2014. Additionally, total deposits grew 2.2% year over year to $19.5 billion.
Credit Quality
In the reported quarter, credit quality reflected a mixed picture. Total non-performing assets came in at $46.3 million, down 16.6% year over year. However, allowance for loan losses, as a percentage of total loans stood at 1.36%, down 11 basis points (bps) year over year.
Provision for loan losses decreased 15.9% year over year to $4.7 million. However, net loan charge-offs rose 28.1% year over year to $9.7 million.
Capital and Profitability Ratios
Commerce Bancshares’ capital ratios weakened while profitability ratios represented a mixed bag. As of Dec 31, 2014, Tier I leverage ratio came in at 9.36%, down from 9.43% at the end of the prior-year quarter. Tangible common equity to assets ratio as of Dec 31, 2014 stood at 8.55%, down from 9.00% as of Dec 31, 2013.
As of Dec 31, 2014, the company’s return on average assets inched down 10 bps year over year to 1.08%, while return on average equity descended 83 bps year over year to 10.98%.
However, book value per common share came in at $22.73 as of Dec 31, 2014, up from $22.00 at the end of the year-ago quarter.
Our Viewpoint
Commerce Bancshares remains set for future growth on the back of a sound capital base and strong liquidity level. Also, the company’s enhanced 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 as well as sluggish economic recovery will likely keep the financials under pressure in the near term.
Commerce Bancshares currently carries a Zacks Rank #3 (Hold).
Among other Midwest banks, Old National Bancorp. (ONB) is scheduled to report fourth-quarter 2014 earnings results on Feb 2, while First Financial Bancorp. (FFBC) and TCF Financial Corporation (TCB) are slated to report on Jan 29.
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