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Why Is Commerce (CBSH) Up 1.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Commerce Bancshares (CBSH). Shares have added about 1.1% in that time frame, underperforming 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 drivers.

Commerce Bancshares Q3 Earnings Beat on Higher Revenues

Commerce Bancshares’ third-quarter 2021 earnings per share of $1.05 surpassed the Zacks Consensus Estimate of $1.00. The bottom line, however, declined almost 1% from the prior-year quarter.

Results were primarily supported by an improvement in non-interest income and provision benefit. However, an increase in non-interest expenses, lower net interest income, and a decline in loan balances were the headwinds.
 
Net income attributable to common shareholders was $122.6 million, down 1.9% year over year.

Revenues & Expenses Rise

Total revenues were $351.5 million, up 1.7% year over year. The top line also beat the Zacks Consensus Estimate of $343.6 million.

Net interest income was $214 million, down nearly 1% from the prior-year quarter. Net yield on interest-earning assets contracted 39 basis points (bps) to 2.58%.

Non-interest income was $137.5 million, growing 6.1%. The upswing resulted from an increase in all fee income components, except for loan fees and sales, and other fees.

Non-interest expenses increased 10.9% to $211.6 million, primarily due to a rise in all cost components, except for equipment costs.

Efficiency ratio increased to 59.95% from 55.00% in the year-ago quarter. A rise in efficiency ratio indicates deterioration in profitability.

As of Sep 30, 2021, total loans were $15.1 billion, down 3.1% sequentially. Total deposits as of the same date were $28.1 billion, up 2.4%. Total stockholders’ equity was $3.5 billion as of Sep 30, 2021, down modestly.

Credit Quality Improves

Provision for credit losses was a benefit of $7.4 million against a provision of $3.1 million in the prior-year quarter. The ratio of annualized net loan charge-offs to total average loans was 0.10%, down from 0.18% recorded in the year-earlier quarter.

Total non-performing assets as of Sep 30, 2021, were $10.5 million, plunging 73.9% year over year.

Capital & Profitability Ratios Deteriorate

As of Sep 30, 2021, Tier I leverage ratio was 9.31%, down from 9.39% recorded in the year-ago quarter. Tangible common equity to tangible assets ratio declined to 9.71% from the prior-year quarter’s 10.11%.

At the end of the third quarter, return on average assets was 1.40%, down from the year-ago period’s 1.71%. Return on average common equity was 13.74%, down from 15.21% in the prior-year quarter.

Share Repurchase Update

During the quarter, Commerce Bancshares repurchased 0.6 million shares at an average price of $69.80.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, Commerce has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward 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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