It has been about a month since the last earnings report for Commerce Bancshares (CBSH). Shares have added about 4.1% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Commerce Bancshares' Q2 Earnings Miss on Higher Provisions
Commerce Bancshares’ 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.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
At this time, Commerce has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Commerce has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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