A month has gone by since the last earnings report for Commerce Bancshares (CBSH). Shares have lost about 2.4% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Commerce due for a breakout? 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 drivers.
Commerce Bancshares Q2 Earnings Beat Estimates, Costs Rise
Commerce Bancshares’ second-quarter 2019 earnings per share of 96 cents surpassed the Zacks Consensus Estimate of 94 cents. Moreover, the figure was in line with the prior-year quarter’s earnings.
Results benefited from slight improvement in revenues. Moreover, the company’s balance sheet position remained strong in the quarter. However, an increase in expenses and higher provisions were the undermining factors. Further, the company’s profitability ratios worsened in the quarter.
Net income attributable to common shareholders was $105.7 million, down 2.2% from the prior-year quarter.
Revenues Improve, Expenses Rise
Total revenues were $338.9 million, reflecting a year-over-year increase of nearly 1%. Moreover, the reported figure surpassed the Zacks Consensus Estimate of $336.5 million.
Net interest income for the quarter was $211.6 million, up marginally year over year.
Non-interest income was $127.3 million, up 1.9% year over year. This upside stemmed from an improvement in almost all components of fee income except for bank card transaction fees, capital market fees and consumer brokerage service fees.
Non-interest expenses increased 4.4% year over year to $189.8 million. This rise was due to an increase in almost all expense components except for deposit insurance and community service costs.
Efficiency ratio increased to 55.88% from 54.06% reported in the year-ago quarter. Rise in efficiency ratio indicates lower profitability.
Strong Balance Sheet
As of Jun 30, 2019, total loans were $14.3 billion, up nearly 1% from the prior quarter. Total deposits as of the same date were nearly $19.8 billion, down marginally from the previous quarter.
Total stockholders’ equity was $3.2 billion as of Jun 30, 2019, reflecting an improvement from $3 billion in the prior quarter.
Credit Quality: A Mixed Bag
Provision for loan losses for the reported quarter was $11.8 million, up 17.6% year over year. Moreover, the ratio of net loan charge-offs to average loans was 0.32%, up from 0.29% witnessed in the prior-year quarter. However, allowance for loan losses as a percentage of total loans was 1.13%, down 1 bps year over year.
Capital Ratios Improve, Profitability Ratios Worsen
As of Jun 30, 2019, Tier I leverage ratio was 11.75%, up from 11.18% recorded in the year-ago quarter. Moreover, tangible common equity to tangible assets ratio grew to 11.25% from 10.18%.
At the end of the reported quarter, return on average assets was 1.73%, down from 1.80% witnessed in the year-ago quarter. Return on average common equity was 14.46%, down from 16.78% in the prior-year quarter.
During the quarter, the company repurchased 779,726 shares of treasury stock for $59.48 per share.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision flatlined during the past month.
Currently, Commerce has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
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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