Commerce Bancshares Inc. (CBSH) today reported its third quarter 2009 earnings at $51.6 million or 66 cents per diluted share, compared to $37.0  million or 48 cents per diluted share in the prior quarter and $24.7 million or 32 cents per diluted share in the prior-year quarter.
The results for the reported quarter were far ahead of the Zacks Consensus Estimate of 51 cents. Results benefited from improvement in both spread and fee income coupled with sound expense control.
Taxable-equivalent net interest income for third quarter 2009 increased 3.9% sequentially and 7.9% year-over-year to $163.5 million. The increase  over the previous quarter was primarily the result of higher average  balances of investment securities, coupled with lower rates on deposits and partially offset by lower volumes. Net interest margin increased to 4.02% from 3.91% in the previous quarter but declined slightly from 4.04% in the prior-year quarter.
Average loans decreased 3.6% sequentially and 5.1% year-over-year to $10.3 billion. Available for-sale investment securities (excluding fair value adjustments) increased 17.8% sequentially and 66.0% year-over-year to $6.1 billion. Average deposits decreased 3.0% sequentially but increased 13.9% year-over-year to $13.8 billion.
Non-interest income came in at $102.1 million, up 3.6% sequentially and 6.8% over the prior-year quarter. Non-interest expense for the quarter decreased 3.45% sequentially and 16.2% year-over-year to $154.4 million. Non-interest expense for the current quarter included a reduction of $2.5 million in certain Visa, Inc. (V) indemnification costs.
Credit metrics continued to be weak during the quarter, with total non-performing assets at $129.2 million or 1.26% of loans outstanding compared with $131.7 million or 1.23% of loans outstanding at the end of the prior quarter, and $46.2 million or 0.42% of loans outstanding at the end of the prior-year quarter. Net charge-offs however, declined to $30.9 million compared to $36.0 million in the prior quarter but increased from $18.7 million in the prior-year quarter.
The allowance for loan losses increased to 1.85% of total loans, up 11 basis points (bps) sequentially and 43 bps year-over-year. The provision for loan losses declined 14.1% sequentially but increased 19.6% year-over-year to $35.4 million.
For the three months ended Sept. 30, 2009, return on assets (ROA) and return on equity (ROE) both improved substantially to 1.16% and 11.49%, respectively, from 0.84% and 8.91% for the three months ended June 30, 2009. Book value as on Sept. 30, 2009 was $23.45 per share, up from $22.04 per share on June 30, 2009 and $21.16 per share on Sept. 30, 2008.
Commerce Bancshares’s third-quarter earnings were aided by decent growth in net interest income, core fees and cost control initiatives. The company is one of the few names that did not report losses even during the financial crisis. We believe that Commerce is one of the best capitalized banks in the industry and will generate positive earnings throughout the credit cycle.
Therefore, we are maintaining our Outperform recommendation on the stock.
Read the full analyst report on “CBSH”
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