Commerce Bancshares Up on Q2 Earnings Beat, Revenue Growth

Shares of Commerce Bancshares Inc. CBSH gained 3% following the release of its second-quarter 2024 results. Quarterly earnings per share of $1.07 surpassed the Zacks Consensus Estimate of 90 cents. Also, the bottom line increased 10.3% from the prior-year quarter.

Results benefited from a rise in net interest income (NII) and non-interest income. Also, lower provisions were a tailwind. The company recorded an increase in the capital ratios in the quarter. However, an increase in expenses hurt the results to some extent.

Net income attributable to common shareholders was $139.6 million, up 9.2% year over year. Our estimate for the metric was $110.2 million.

Revenues Improve, Expenses Rise

Total revenues were $414.5 million, up 4.4% year over year. The top line also beat the Zacks Consensus Estimate of $402.4 million.

NII was $262.2 million, up 5.1% year over year. Our estimate for NII was $252 million.

Net yield on interest-earning assets expanded 43 basis points (bps) from the prior-year quarter to 3.55%.

Non-interest income was $152.2 million, up 3.1% year over year. The rise was driven by an increase in almost all fee income components, except for bank card transaction fees, consumer brokerage services fees and other income. Our estimate for non-interest income was $144.7 million.

Non-interest expenses increased 2% year over year to $232.2 million. The rise was due to an increase in all cost components, except for net occupancy costs, deposit insurance costs and marketing expenses. We had projected expenses of $249.2 million.

Net investment securities gain was $3.23 million, down 4.7% from the prior-year quarter.

The efficiency ratio declined to 55.95% from 57.22% in the year-ago quarter. A fall in the efficiency ratio indicates an improvement in profitability.

As of Jun 30, 2024, total loans were $17.2 billion, down marginally from the prior-quarter end. Total deposits as of the same date were $24.3 billion, down marginally from the end of the previous quarter. Our estimates for total loans and deposits were $17.1 billion and $25.1 billion, respectively.

Asset Quality: Mixed Bag

Provision for credit losses was $5.5 million, which decreased 15.5% from the prior-year quarter. Our estimate for the metric was $7.2 million. Allowance for credit losses on loans to total loans was 0.92%, decreasing 2 bps year over year.

However, non-accrual loans to total loans were 0.11%, up 7 bps from the prior-year quarter. The ratio of annualized net loan charge-offs to total average loans was 0.23%, up from 0.16% in the year-earlier quarter.

Capital Ratios Improve, Profitability Ratios Mixed

As of Jun 30, 2024, the Tier I leverage ratio was 12.13%, up from 10.46% in the year-ago quarter. Tangible common equity to tangible assets ratio increased to 9.82% from the prior-year quarter's 7.70%.

At the end of the second quarter, the return on total average assets was 1.86%, up from the year-ago period's 1.56%. Return on average equity was 18.52% compared with 18.81% in the prior-year quarter.

Share Repurchase Update

In the reported quarter, the company repurchased 0.69 million shares at an average price of $55.21.

Our Take

Commerce Bancshares' revenues are expected to be driven by decent loan demand, high interest rates and its balance sheet repositioning strategy. However, rising expenses remain a near-term headwind.

Currently, Commerce Bancshares carries a Zacks Rank #2 (Buy).

Performance of Other Banks

Bank OZK's OZK second-quarter 2024 earnings per share of $1.52 surpassed the Zacks Consensus Estimate by a penny. The bottom line increased 3.4% from the prior-year quarter.

OZK's results benefited from a rise in NII, driven by higher rates, and improvements in loans and deposit balances. However, increases in expenses and provision for credit losses, rising funding costs, and lower non-interest income were the undermining factors.

WaFd, Inc.'s WAFD third-quarter fiscal 2024 (ended Jun 30) adjusted earnings of 76 cents per share handily surpassed the Zacks Consensus Estimate of 59 cents. Also, the bottom line rose 4.1% sequentially.

WAFD's results reflected a rise in NII and other income, which aided the top line. Also, higher loan balances and lower provisions were other positives. However, a rise in expenses and a slight decline in the deposit balance acted as spoilsports.

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