Commerce (CBSH) Up 7.4% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Commerce Bancshares (CBSH). Shares have added about 7.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Commerce due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Commerce Bancshares' Q3 Earnings Beat Estimates
Commerce Bancshares’ third-quarter 2023 earnings per share of 96 cents surpassed the Zacks Consensus Estimate of 93 cents. The bottom line, however, decreased 1% from the prior-year quarter.
Results benefited from a modest increase in net interest income (NII) driven by solid loan balance and higher interest rates. A rise in non-interest income and lower provisions were the other tailwinds. However, deposit outflows and higher non-interest expenses were the major concerning factors. Despite lower provisions, other asset quality metrics weakened during the quarter.
Net income attributable to common shareholders was $120.6 million, down 1.8% year over year. Our estimate for the metric was $110.6 million.
Revenues & Expenses Rise
Total revenues were $391.5 million, up 1.7% year over year. The top line also beat the Zacks Consensus Estimate of $388.7 million.
NII was $248.5 million, up almost 1%. Our estimate for NII was $244.8 million.
Net yield on interest-earning assets expanded 10 basis points (bps) to 3.11%.
Non-interest income came in at $142.9 million, growing 3.2%. The upswing was largely driven by an increase in bank card transaction fees, trust fees and other fees. Our estimate for non-interest income was $136.9 million.
Non-interest expenses increased 7.1% to $228 million. The rise was mainly due to an increase in all cost components except marketing and equipment. We had projected expenses to be $229.5 million.
The efficiency ratio increased to 58.15% from 55.19% in the year-ago quarter. A rise in the efficiency ratio indicates a deterioration in profitability.
As of Sep 30, 2023, total loans were $17.13 billion, up 1% from the prior quarter. Total deposits as of the same date were $25.09 billion, down 3%.
Asset Quality Weakening
Provision for credit losses was $11.6 million, which decreased 23.8% from the prior-year quarter. Our estimate for the metric was $11.9 million.
Non-accrual loans to total loans were 0.05%, on par with the prior-year quarter.
The ratio of annualized net loan charge-offs to total average loans was 0.23%, up from 0.12% in the year-earlier quarter. Allowance for credit losses on loans to total loans was 0.95%, increasing 5 bps.
Capital & Profitability Ratios Solid
As of Sep 30, 2023, the Tier I leverage ratio was 10.87%, up from 9.97% in the year-ago quarter. Tangible common equity to tangible assets ratio increased to 7.78% from the prior-year quarter’s 6.80%.
At the end of the third quarter of 2023, the return on total average assets was 1.49%, up from the year-ago period’s 1.48%. Return on average equity was 17.73% compared with 17.84% in the prior-year quarter.
Share Repurchase Update
During the reported quarter, the company repurchased 0.4 million shares at an average price of $50.96.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
VGM Scores
Currently, Commerce has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Commerce has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Commerce Bancshares, Inc. (CBSH) : Free Stock Analysis Report
