Commerce Bancshares (CBSH) Up 4.2% Despite Q2 Earnings Miss
Commerce Bancshares Inc.’s CBSH second-quarter 2020 earnings per share of 34 cents lagged the Zacks Consensus Estimate of 53 cents. Also, the bottom line represents a decline of 62.6% from the prior-year quarter.
The results were primarily hurt by a significant increase in provisions, decline in revenues and lower interest rates. However, a rise in loan balance and lower operating expenses were tailwinds. These positives were perhaps the reasons behind the company’s share price gain of 4.2%, following the earnings release.
Net income attributable to common shareholders was $37.6 million, down 64.4% from the prior-year quarter.
Revenues & Expenses Decline
Total revenues were $320.6 million, down 5.4% from the prior-year quarter. However, the top line surpassed the Zacks Consensus Estimate of $314.8 million.
Net interest income was $203.1 million, down 4.1% year over year. Net yield on interest-earning assets declined 67 basis points (bps) to 2.94%.
Non-interest income was $117.5 million, reflecting a decline of 7.7% year over year. This was mainly due to decline in almost all fee income components, except for loan fees and sales, and capital market fees.
Non-interest expenses declined 1.2% year over year to $187.5 million, mainly due to lower market costs. This was partially offset by increase in salaries and employee benefit expenses.
The efficiency ratio increased to 58.10% from 55.88% reported in the year-ago quarter. A rise in efficiency ratio indicates lower profitability.
Balance Sheet Strong
As of Jun 30, 2020, total loans were $16.4 billion, up 8.8% from the prior quarter. Total deposits as of the same date were $24.5 billion, up 18.1% from the previous quarter.
Total stockholders’ equity was $3.4 billion as of Jun 30, 2020, reflecting a rise of 3.3% from the prior quarter-end.
Credit Quality: Mixed Bag
Provision for credit losses for the reported quarter was $80.5 million, up significantly from $11.8 million recorded in the prior-year quarter. Allowance for loan losses as a percentage of total loans was 1.47%, up 34 bps year over year.
The ratio of net loan charge-offs to average loans was 0.21%, down from 0.32% in the prior-year quarter.
Capital & Profitability Ratios Deteriorate
As of Jun 30, 2020, Tier I leverage ratio was 10.78%, down from 11.75% recorded in the year-ago quarter. Also, tangible common equity to tangible assets ratio declined to 11.12% from 11.25% in the prior-year quarter.
At the end of the reported quarter, return on average assets was 0.54%, down from 1.73% in the year-ago period. Return on average common equity was 4.77%, down from 14.46% recorded in the prior-year quarter.
Our Viewpoint
Commerce Bancshares’ revenues are likely to benefit from a rise in loan balance amid lower interest rates. However, rise in credit costs and economic slowdown will likely hurt its financials.
Commerce Bancshares, Inc. Price, Consensus and EPS Surprise
Commerce Bancshares, Inc. price-consensus-eps-surprise-chart | Commerce Bancshares, Inc. Quote
Currently, Commerce Bancshares carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Banks
Zacks #3 Ranked First Horizon National Corporation FHN reported second-quarter 2020 adjusted earnings per share of 20 cents, missing the Zacks Consensus Estimate of 21 cents. Further, the bottom line was 52.4% lower than the year-ago figure.
Regions Financial RF, holding a Zacks Rank #4 (Sell), reported second-quarter 2020 adjusted loss of 23 cents per share against earnings of 39 cents recorded in the prior-year period. The Zacks Consensus Estimate was pegged at earnings of 7 cents per share.
Zacks #3 Ranked Zions Bancorporation’s ZION second-quarter 2020 net earnings per share of 34 cents missed the Zacks Consensus Estimate of 37 cents. Moreover, the bottom line compares unfavorably with the year-ago quarter’s 99 cents per share.
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