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Commerce Bancshares Misses Earnings, Beats Revs

Zacks Equity Research

Commerce Bancshares, Inc.’s (NASD:CBSH) fourth-quarter 2013 earnings per share of 69 cents missed the Zacks Consensus Estimate of 71 cents. However, the reported figure was in line with prior-year quarter earnings.

For the full year 2013, Commerce Bancshares recorded earnings per share of $2.72 versus $2.76 in 2012. Moreover, earnings missed the Zacks Consensus Estimate by a nickel.

Commerce Bancshares’ intra-day stock price movement following the earnings release on Tuesday reflects negative market sentiment. The stock closed at $44.51, declining 1.2% from the previous day. However, to understand the impact of the earnings release more appropriately, we will have to observe the stock price movement for some time.

Results were negatively impacted by decline in net interest income and higher operating expense, partially offset by lower provision for loan losses and rise in non-interest income. However, improvement in credit quality and growth in loans and deposits were tailwinds for the quarter. Additionally, while capital ratios were strong, profitability ratios were a mixed bag.

Net income was $65.9 million, down 1.3% year over year. For 2013, net income came in at $261.0 million, declining 3.1% from $269.3 million in 2012.

Performance in Detail

Commerce Bancshares’ total revenue was $271.7 million, down 0.7% year over year. However, total revenue was 1.0% above the Zacks Consensus Estimate of $269.0 million.

For 2013, total revenue came in at $1.07 billion, dipping nearly 1.0% from $1.08 billion in 2012. However, total revenue surpassed the Zacks Consensus Estimate of 1.06 million by nearly 1.0%.

Taxable equivalent net interest income was $162.2 million, down 3.7% from the prior-year quarter. The decline was largely due to lower net return on interest earning assets.

Non-interest income was $109.5 million, up 6.0% on a year-over-year basis. The increase was primarily driven by a rise bank card and trust fees.

Non-interest expense rose 1.9% to $161.3 million from the year-ago quarter, mainly due to increases in salaries and employee benefits, net occupancy costs, supplies and communication expenses, data processing and software expenditure, marketing costs, deposit insurance cost as well as other expenses. These were partially offset by decrease in equipment costs.

Commerce Bancshares’ efficiency ratio deteriorated to 60.81% from 59.62% in the prior-year quarter. The increase implies a fall in profitability.

Commerce Bancshares’ total loans improved 11.4% year over year to $11.0 billion as of Dec 31, 2013. Additionally, total deposits rose 3.8% year-over-year to $19.0 billion.

Credit Quality

In the reported quarter, credit quality showed improvement. Total nonperforming assets came in at $55.4 million, down 14.5% year-over-year. Further, allowance for loan losses as a percentage of total loans was 1.47%, down 28 basis points from the prior-year quarter.

Moreover, net loan charge-offs decreased 30.3% year-over-year to $7.5 million. Likewise, provision for loan losses declined 33.4% from the previous-year quarter to $5.5 million.

Capital and Profitability Ratios

In 2013, Commerce Bancshares’ capital ratios and profitability ratios were a mixed bag. As of Dec 31, 2013, Tier I leverage ratio came in at 9.43%, up from 9.14% in the prior-year quarter. Tangible common equity to assets ratio as of Dec 31, 2013 was 9.00%, compared with 9.25% as of Dec 31, 2012.

The company’s return on average assets was 1.18% down from 1.25% as of Dec 31, 2012. Return on average equity increased to 11.81% from 11.62% as of Dec 31, 2012.

Further, book value, based on total equity was $23.10 per share as of Dec 31, 2013, up from $22.62 as of Dec 31, 2012.

Our Viewpoint

The present near-zero interest rate levels, sluggish economic recovery and a stringent regulatory environment will continue to pressure the top line in the quarters ahead. Additionally, mounting expenses is a concern.

On the flip side, we remain optimistic about Commerce Bancshares’ inorganic growth plans and efficient capital deployment activities, given its sound capital base and solid liquidity.

Commerce Bancshares currently carries a Zacks Rank #3 (Hold).

Among other Midwest banks, Huntington Bancshares Inc. (NASD:HBAN) and Associated Banc-Corp (NASD:ASBC) are scheduled to report their results on Jan 16, while First Interstate Bancsystem Inc. (NASD:FIBK) will do so on Jan 29.

Read the Full Research Report on CBSH
Read the Full Research Report on HBAN
Read the Full Research Report on ASBC
Read the Full Research Report on FIBK

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