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Commerce Bancshares (CBSH) Ratings, Outlook Affirmed by Moody's

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Ratings of Commerce Bancshares, Inc. (CBSH - Free Report) and its subsidiaries have been affirmed by Moody’s Investors Service, a rating arm of Moody’s Corporation (MCO - Free Report) . The outlook for the company remains stable.

The ratings agency affirmed the long- and short-term deposit ratings at A2/Prime-1 and the long-term issuer rating at A2. Also, Commerce Bancshares' baseline credit assessment was reiterated at a1.

Following this development, shares of Commerce Bancshares rallied 2.6%.

Reasons Behind the Affirmations

The affirmations are reflective of Commerce Bancshares' robust asset quality along with balance sheet and liquidity strength. The rating agency also took into account the company’s quick rebound to profitability after being hit by elevated credit costs earlier in the year. The company’s diversified business model and strong capital positions were also the reasons for rating reiterations.

Moody’s is of the opinion that the company’s conservative underwriting practices and a diversified loan portfolio give it an edge over its peers. Commerce Bancshares' limited exposure to commercial real estate loan portfolio and diverse revenue mix (nearly 40% of total revenues coming from fee income) are likely to continue aiding profitability “even if the coronavirus pandemic results in further economic weakness.”

Yet, a low interest rate environment will continue to hurt Commerce Bancshares' ability to grow interest income, especially once the loans provided under the Paycheck Protection Program (PPP) run off its balance sheet in 2021. As of Sep 30, 2020, PPP loans constituted approximately 9% of total loans.

Additionally, the company has limited scope to further lower the funding costs. Hence, given these headwinds, Moody’s doesn’t expect Commerce Bancshares' net income/tangible assets ratio to revert to pre-crisis level, despite expecting the profitability will remain solid going forward.

Price Performance & Zacks Rank

Shares of Commerce Bancshares have gained 17.7% over the past six months, underperforming the 21.7% rally of the industry it belongs to.

Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Rating Actions by Moody’s on Other Banks

In the past month, Moody’s has affirmed ratings for many finance companies. Some of these are Signature Bank (SBNY - Free Report) and Huntington Bancshares (HBAN - Free Report) . While the outlook for Signature Bank was lowered to stable, the same for Huntington Bancshares was affirmed at stable.

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