Commerce Beats as Spread Narrows

• Third-quarter earnings of 75 cents a share beat consensus EPS estimate of 72 cents.
• ROA of 1.28%, ROE 11.6%.
• Average loans grow 2% sequentially, 4% year-over-year..
• Net yield on earning assets down 25 basis points quarter-over-quarter.

NEW YORK (TheStreet) -- Commerce Bancshares (CBSH) continued its overall strong performance during the third quarter, despite significant earnings pressure in the prolonged low-rate environment.

The Kansas City, Mo., lender reported third-quarter earnings of $66.0 million, or 75 cents share, bearing the consensus estimate of a 72-cent profit, among analysts polled by Thomson Reuters. Earnings increased declined from $70.7 million, or 80 cents a share, the previous quarter, but increased from $65.4 million, or 72 cents a share, a year earlier.

The year-over-year earnings improvement mainly reflected a decline in the quarterly provision for loan losses to $5.6 million, from $11.4 million. Commerce Bancorp's overall asset quality remained very strong, with nonperforming assets -- including nonaccrual loans, loans past due 90 days or more, but still accruing, and repossessed real estate -- making up just 0.41% of total assets, as of Sept. 30.

During the third quarter, the company faced continued pressure on its net interest margin, in line with most banks, as the Federal Reserve's target federal funds rate has remained in a range of zero to 0.25% since the end of 2008, and the central bank last month increased its purchasing of log-term mortgage-backed securities -- QE3 -- in an effort to push long-term rates lower, or at least keep them at their historically low levels.

Commerce's third-quarter net yield on interest earning assets was 3.30%, declining from 3.55% during the second quarter, and 3.51% during the third quarter of 2011. CEO David Kemper said that "compared to the previous quarter, the decline in net interest income was partly due to non-recurring interest received last quarter and a reduction of $6.2 million in interest on our inflation-protected government securities." Excluding the second-quarter TIPS income and the non-recurring net interest income, the company's second-quarter net yield would have been 3.40%.

Third-quarter net interest income totaled $153.8 million, declining from $165.1 million the previous quarter, and $158.6 million, a year earlier.

The company grew its average loans by 2% sequentially, and 3% year-over-year, to $9.4 billion, as of Sept. 30, with growth across most loan categories, except for commercial real estate, construction and land development loans.

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