Commerce Bancshares, Inc.’s (CBSH) third-quarter 2013 earnings per share of 75 cents beat the Zacks Consensus Estimate as well as the prior-quarter earnings of 72 cents.
Better-than-expected results were driven by higher non-interest income and lower operating expense, partly offset by a fall in net interest income. Growth in loans and deposits were the tailwinds for the quarter. Moreover, capital and profitability ratios as well as credit quality were impressive and reflected the company’s financial strength.
Net income was $68.2 million, up 3.7% from the prior-quarter figure of $65.8 million.
Performance in Detail
Commerce Bancshares’ total revenue was $268.5 million, marginally down sequentially. However, total revenue was 1.7% above the Zacks Consensus Estimate of $264.0 million.
Taxable equivalent net interest income was $161.1 million, down 2.9% sequentially. The decline was largely due to lower inflation interest on the company's inflation-protected securities in the reported quarter and the inclusion of a special dividend received on a private equity investment in the prior quarter.
Non-interest income was $106.3 million, up 3.5% from the prior quarter. The increase was primarily driven by a rise in deposit account charges and other fees, bank card transaction fees, loan fees and sales as well as consumer brokerage services and other fees, partially offset by decline in trust fees and capital market fees.
Non-interest expense declined marginally from the prior quarter to $156.3 million, mainly due to a decrease in equipment costs, supplies and communication expenses, marketing costs as well as other expenditure. These were partially offset by increase in salaries and employee benefits, net occupancy costs, data processing and software expense and deposit insurance cost.
Commerce Bancshares’ efficiency ratio improved to 59.72% from 59.73% in the prior quarter.
Commerce Bancshares’ total loans improved 3.9% from the prior quarter to $10.8 billion as of Sep 30, 2013. Additionally, total deposits rose 1.7% sequentially to $18.2 billion.
In the reported quarter, credit quality showed a marked improvement. Total nonperforming assets came in at $44.8 million, down 14.7% sequentially. Further, allowance for loan losses as a percentage of total loans was 1.51%, down 9 basis points from the prior quarter.
Moreover, net charge-offs decreased 29.1% sequentially to $9.4 million. Likewise, provision for loan losses declined 43.8% from the previous quarter to $4.2 million.
Capital and Profitability Ratios
In the said quarter, Commerce Bancshares’ capital and profitability ratios were impressive. As of Sep 30, 2013, Tier I leverage ratio came in at 9.43%, up from 9.08% in the prior quarter. Tangible common equity to assets ratio as of Sep 30, 2013 was 9.10%, up from 9.06% as of Jun 30, 2013.
The company’s return on average assets was 1.26% compared with 1.20% as of Jun 30, 2013. Similarly, return on average equity increased to 12.69% from 12.07% as of Jun 30, 2013.
Further, book value, based on total equity as of Sep 30, 2013, was $23.90 per share, up from $23.23 as of Jun 30, 2013.
During the quarter, Commerce Bancshares bought back 547,000 shares at an average price of $43.70 per share.
In Sep 2013, Commerce Bancshares completed the acquisition of Summit Bancshares, Inc., of Tulsa and Oklahoma City with loans and deposits worth $207.0 million and $232.0 million, respectively.
With a sound capital base and solid liquidity, Commerce Bancshares is well poised to increase capital deployment activities as well as inorganic and organic growth.
However, sluggish economic recovery and stringent regulatory requirements will likely mar the company’s financials in the near term.
Among other Midwest banks, Huntington Bancshares Inc. (HBAN) and Associated Banc-Corp (ASBC) are scheduled to report their results on Oct 17, while First Interstate Bancsystem Inc. (FIBK) will do so on Oct 21.
Commerce Bancshares currently carries a Zacks Rank #4 (Sell).
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