Commerce Bancshares (CBSH) Misses Q1 EPS by 11c, Revenues Miss

Commerce Bancshares (NASDAQ: CBSH) reported Q1 EPS of $0.44, $0.11 worse than the analyst estimate of $0.55. Revenue for the quarter came in at $324.73 million versus the consensus estimate of $329.94 million.

In announcing these results, John Kemper, Chief Executive Officer, said, “While the U.S. economy entered this quarter on solid footing, it is currently in an unprecedented state of uncertainty amid the global COVID-19 pandemic. Commerce is committed to being there for our customers in this difficult time. As part of this commitment, we are suspending foreclosure proceedings, offering fee waivers and providing relief through loan modification programs. To ensure we are positioned to serve our customers, we have mobilized a significant team of internal resources, redeploying branch teams to assist in our customer care center. We have similarly cross-trained other personnel to provide our commercial customers access to much needed funding through the Small Business Administration’s new Paycheck Protection Program. As of April 17, when the initial CARES Act allocation from this program was exhausted, we assisted 4,529 customers in securing approximately $1.5 billion of funding, with a median loan size of $64 thousand. Our industry-leading capital levels and steadfast commitment to sound credit policy enables us to be a source of strength to our employees, customers and communities in this period of uncertainty.”

Mr. Kemper continued, “For Commerce, a fundamentally sound financial quarter was impacted by two significant charges, stemming primarily from COVID-19 and the resulting economic outlook. First, the provision for credit losses was increased to recognize expected future losses on loans and unfunded lending commitments. Second, we recognized unrealized losses on our portfolio of private equity investments through our quarterly valuation process. Compared to the prior quarter, we experienced robust growth in average loans, driven mainly by commercial and personal real estate loans, even as auto and consumer credit card lending were seasonally lower. Net interest margin declined 3 basis points this quarter, holding up well in a challenging interest rate environment. Fee income totaled $123.7 million this quarter and reflected growth over the first quarter of 2019 in trust, capital market, deposit account, and bank card fees.”

Mr. Kemper continued, "This quarter net loan charge-offs totaled $10.9 million, compared to $15.2 million in the prior quarter and $11.7 million in the first quarter of 2019. The ratio of annualized net loan charge-offs to average loans was .30% in the current quarter, .42% in the prior quarter and .34% in the first quarter of last year. Net loan charge-offs on commercial loans declined $3.5 million from the previous quarter and resulted in a net recovery this quarter, while net loan charge-offs on personal banking loans decreased $883 thousand to $11.3 million, mostly the result of lower consumer loan losses. Non-performing assets totaled $11.1 million this quarter and remained at very low levels.

"On January 1, 2020, Commerce adopted the CECL accounting standard. At that time, economic conditions were stable and the economic forecast supporting our CECL model reflected the prevailingly benign credit environment. The day one adoption reduced our allowance for credit losses on loans $21.0 million and increased our liability for unfunded commitments $16.1 million, resulting in a net increase to retained earnings of $3.8 million, after tax. By the end of the quarter, in light of the COVID-19 pandemic, the economic forecast used in our CECL model became significantly more pessimistic. As a result, the provision for credit losses for the first three months of 2020 totaled $58.0 million, which includes a provision for credit losses for loans and for unfunded loan commitments. The provision for credit losses on loans totaled $42.9 million and exceeded net loan charge-offs by $32.0 million, while the provision for credit losses for unfunded commitments totaled $15.1 million. The allowance for credit losses on loans amounted to $171.7 million at March 31, 2020, or 1.14% of period end loans, while the liability for unfunded commitments totaled $32.3 million at March 31, 2020.”

For earnings history and earnings-related data on Commerce Bancshares (CBSH) click here.

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