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High Rates & Loan Demand Aid Commerce Bancshares, Costs Ail
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Key Takeaways
CBSH is seeing revenue gains from loan demand, fee income strength and favorable interest rates.
Balance sheet repositioning will likely continue to drive the net yield on interest-earning assets.
Asset quality pressures and elevated non-interest expenses remain key headwinds to CBSH's performance.
Commerce Bancshares, Inc. (CBSH - Free Report) is well-poised for top-line growth on the back of decent loan demand and relatively high interest rates. Its balance sheet repositioning strategy will likely support growth. However, weak asset quality and elevated expenses are major concerns.
CBSH’s Key Growth Drivers
Robust Loan Demand & Fee Income Strength: Solid loan balances (recording a compound annual growth rate (CAGR) of 3.2% over the period between 2019 and 2024) and strength in fee income sources have aided CBSH’s revenue growth over the past several years. While the company’s revenues declined in 2020, the same witnessed a five-year (2019-2024) CAGR of 4.2%, with the uptrend continuing in the first quarter of 2025.
Given the continued demand for loans and a solid non-interest income performance, CBSH’s top line is expected to improve in the near term. We estimate total revenues to witness a CAGR of 2.7% by 2027, capital market fees to see a CAGR of 5.1%, and loan fees and sales to witness a CAGR of 5%. Our estimates for net loans and leases imply a CAGR of 1.7% over the next three years.
Higher Interest Rates & Balance Sheet Repositioning: With the Federal Reserve expected to keep interest rates steady in the near term because of tariff-related concerns, relatively high rates will support Commerce Bancshares’ net yield on interest-earning assets in the quarters ahead. Moreover, in May 2024, the company announced a balance sheet repositioning strategy, under which it sold its debt securities and reinvested the proceeds at higher yields. This will boost growth.
Supported by the repositioning, in 2024, the net yield on interest-earning assets expanded to 3.47% from 3.16% in 2023 and 2.85% in 2022. The metric rose to 3.56% in the first three months of 2025, reflecting a consistent upward trend on a year-over-year basis. We expect the metric to be 3.58% in 2025, 3.67% in 2026 and 3.75% in 2027.
Solid Capital & Liquidity Position: As of March 31, 2025, Commerce Bancshares had total debt (comprising other liabilities and other borrowings) of $624.7 million, and cash and due from banks and interest-earning deposits with banks of $3.3 billion. Thus, the company’s earnings strength implies that it will be able to meet debt obligations in the near term, even if the economic situation worsens.
Also, CBSH is engaged in impressive capital distribution activities. The company has been consistently paying a 5% stock dividend for more than 25 years now. Apart from this, it pays regular quarterly cash dividends and has a share repurchase program in place. As of March 31, 2025, 2.8 million shares were available under the authorization. Given its earnings strength and solid liquidity position, the company will likely be able to sustain the current capital distributions, thus enhancing shareholder value.
Near-Term Headwinds for CBSH
Worsening Asset Quality: Commerce Bancshares' asset quality has been deteriorating over the past few years. While the company recorded a provision benefit in 2021 and witnessed a decline in provisions for credit losses in 2024, a substantial rise in provision for credit losses was recorded in 2022 and 2023. Further, total net loan charge-offs (NCOs) witnessed a CAGR of 2.8% in the four years ended 2024. The uptrend in provisions and NCOs continued in the first quarter of 2025.
Overall provisions are expected to remain elevated in the near term as the company continues to build reserves to combat the tough operating environment. We expect provisions and NCOs to rise 41.2% and 7.1% in 2025, respectively.
Rising Expense Base: Commerce Bancshares has been witnessing a persistent rise in non-interest expenses. Expenses witnessed a CAGR of 4.4% in the last five years ended 2024. The rise was mainly due to higher salaries and employee benefit costs. Although expenses declined in the first quarter of 2025 due to the absence of certain one-time charges, they are likely to remain elevated as the company invests in technology upgrades amid ongoing inflationary pressure. We expect non-interest expenses to witness a CAGR of 1.1% by 2027.
CBSH’s Price Performance & Zacks Rank
Over the past year, shares of Commerce Bancshares have gained 15.3% compared with the industry’s growth of 21.6%.
Estimates for CIVB’s current-year earnings have been revised 20.9% upward in the past 60 days. The company’s shares have gained 54.2% in the past 12 months.
Estimates for EFSC’s current-year earnings have been revised 4.5% north in the past 60 days. The company’s shares have risen 35.4% in the past year.
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High Rates & Loan Demand Aid Commerce Bancshares, Costs Ail
Key Takeaways
Commerce Bancshares, Inc. (CBSH - Free Report) is well-poised for top-line growth on the back of decent loan demand and relatively high interest rates. Its balance sheet repositioning strategy will likely support growth. However, weak asset quality and elevated expenses are major concerns.
CBSH’s Key Growth Drivers
Robust Loan Demand & Fee Income Strength: Solid loan balances (recording a compound annual growth rate (CAGR) of 3.2% over the period between 2019 and 2024) and strength in fee income sources have aided CBSH’s revenue growth over the past several years. While the company’s revenues declined in 2020, the same witnessed a five-year (2019-2024) CAGR of 4.2%, with the uptrend continuing in the first quarter of 2025.
Given the continued demand for loans and a solid non-interest income performance, CBSH’s top line is expected to improve in the near term. We estimate total revenues to witness a CAGR of 2.7% by 2027, capital market fees to see a CAGR of 5.1%, and loan fees and sales to witness a CAGR of 5%. Our estimates for net loans and leases imply a CAGR of 1.7% over the next three years.
Higher Interest Rates & Balance Sheet Repositioning: With the Federal Reserve expected to keep interest rates steady in the near term because of tariff-related concerns, relatively high rates will support Commerce Bancshares’ net yield on interest-earning assets in the quarters ahead. Moreover, in May 2024, the company announced a balance sheet repositioning strategy, under which it sold its debt securities and reinvested the proceeds at higher yields. This will boost growth.
Supported by the repositioning, in 2024, the net yield on interest-earning assets expanded to 3.47% from 3.16% in 2023 and 2.85% in 2022. The metric rose to 3.56% in the first three months of 2025, reflecting a consistent upward trend on a year-over-year basis. We expect the metric to be 3.58% in 2025, 3.67% in 2026 and 3.75% in 2027.
Solid Capital & Liquidity Position: As of March 31, 2025, Commerce Bancshares had total debt (comprising other liabilities and other borrowings) of $624.7 million, and cash and due from banks and interest-earning deposits with banks of $3.3 billion. Thus, the company’s earnings strength implies that it will be able to meet debt obligations in the near term, even if the economic situation worsens.
Also, CBSH is engaged in impressive capital distribution activities. The company has been consistently paying a 5% stock dividend for more than 25 years now. Apart from this, it pays regular quarterly cash dividends and has a share repurchase program in place. As of March 31, 2025, 2.8 million shares were available under the authorization. Given its earnings strength and solid liquidity position, the company will likely be able to sustain the current capital distributions, thus enhancing shareholder value.
Near-Term Headwinds for CBSH
Worsening Asset Quality: Commerce Bancshares' asset quality has been deteriorating over the past few years. While the company recorded a provision benefit in 2021 and witnessed a decline in provisions for credit losses in 2024, a substantial rise in provision for credit losses was recorded in 2022 and 2023. Further, total net loan charge-offs (NCOs) witnessed a CAGR of 2.8% in the four years ended 2024. The uptrend in provisions and NCOs continued in the first quarter of 2025.
Overall provisions are expected to remain elevated in the near term as the company continues to build reserves to combat the tough operating environment. We expect provisions and NCOs to rise 41.2% and 7.1% in 2025, respectively.
Rising Expense Base: Commerce Bancshares has been witnessing a persistent rise in non-interest expenses. Expenses witnessed a CAGR of 4.4% in the last five years ended 2024. The rise was mainly due to higher salaries and employee benefit costs. Although expenses declined in the first quarter of 2025 due to the absence of certain one-time charges, they are likely to remain elevated as the company invests in technology upgrades amid ongoing inflationary pressure. We expect non-interest expenses to witness a CAGR of 1.1% by 2027.
CBSH’s Price Performance & Zacks Rank
Over the past year, shares of Commerce Bancshares have gained 15.3% compared with the industry’s growth of 21.6%.
Image Source: Zacks Investment Research
CBSH currently carries a Zacks Rank #3 (Hold).
CBSH’s Peers Worth a Look
Some better-ranked peers of CBSH are Civista Bancshares (CIVB - Free Report) and Enterprise Financial Services Corp (EFSC - Free Report) . CIVB flaunts a Zacks Rank #1 (Strong Buy) at present and EFSC carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Estimates for CIVB’s current-year earnings have been revised 20.9% upward in the past 60 days. The company’s shares have gained 54.2% in the past 12 months.
Estimates for EFSC’s current-year earnings have been revised 4.5% north in the past 60 days. The company’s shares have risen 35.4% in the past year.