• 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 - Get Report) 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.

Kemper said that "while non-interest income continued to be affected by recent debit card interchange regulations, commercial card fees grew 21.8% compared to last year and remained strong, while trust fees also increased 7.1%. Non-interest expense was flat compared to the same quarter of last year." Third-quarter noninterest income totaled $100.9 million, increasing slightly from $100.8 million the previous quarter, but declining from $101.6 million a year earlier.

Total deposits increased slightly during the third quarter to $16.85 billion as of Sept. 30, with coveted non-interest bearing deposits growing by 3%, while CD deposit balances declined.

The company's overall earnings performance remained relatively strong, with a third-quarter return on average assets of 1.28%, and a return on average equity of 11.57%.

Commerce's shares closed at $38.95 Monday, returning 4% year-to-date, following a 3% return during 2011.

The shares trade for 1.5 times their reported Sept. 30 book value of $26.33, and for 12.7 times the consensus 2013 EPS estimate of $3.07.

Based on a quarterly payout of 23 cents, the shares have a dividend yield of 2.36%.

Interested in more on Commerce Bancshares? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.