Business Overview and History Commerce Bancshares was founded in 1865 in Kansas City, Missouri, with the goal of providing banking services to the growing Midwest region. In its early years, the company focused on offering basic banking services to the local community in Kansas City. As the city expanded, so did the bank, growing its branch network and product offerings. A significant milestone was reached in 1920 when Commerce Bancshares established its first branch outside of Kansas City.
The 1960s marked a period of geographic expansion for the company, as it began opening new branches in neighboring states such as Missouri, Kansas, and Illinois. This strategic move helped Commerce Bancshares diversify its operations and better withstand regional economic fluctuations.
During the challenging period of the 1980s and 1990s, which saw the savings and loan crisis and increased competition from non-bank financial institutions, Commerce Bancshares maintained its stability through a strong focus on risk management. The company also diversified its revenue streams by expanding its wealth management and treasury services divisions, helping to offset pressure on its traditional lending business.
Throughout the 2000s, Commerce Bancshares continued its growth trajectory through both organic expansion and strategic acquisitions. These acquisitions were aimed at enhancing the company's presence in key markets and broadening its product offerings. Notably, despite the challenges posed by the 2008 financial crisis, Commerce Bancshares remained profitable and well-capitalized throughout the downturn, demonstrating its resilience and strong financial management.
Today, Commerce Bancshares operates through a network of approximately 140 locations, offering a comprehensive suite of financial products and services to its commercial, personal, and wealth management clients across Missouri, Kansas, Illinois, Oklahoma, and Colorado.
Financial Performance and Ratios Commerce Bancshares has demonstrated a solid financial track record, with a five-year (2018-2023) compound annual growth rate (CAGR) of 3.5% in total revenues. As of the latest reported quarter (Q3 2024), the company's total assets stood at $31.5 billion, with a loan portfolio of $17.1 billion and a deposit base of $25.2 billion. The company's net interest margin, a key metric in the banking industry, was 3.46% for the nine-month period ended September 30, 2024, reflecting its ability to effectively manage its interest-earning assets and liabilities.
In terms of profitability, Commerce Bancshares reported a net income of $390.2 million for the first nine months of 2024, up 6.1% year-over-year. The company's return on assets (ROA) and return on equity (ROE) stood at 1.71% and 16.92%, respectively, during the same period, highlighting its efficiency in utilizing its assets and generating shareholder returns.
For the most recent fiscal year (2023), Commerce Bancshares reported revenue of $1.59 billion, net income of $477.06 million, operating cash flow of $488.77 million, and free cash flow of $400.69 million. In the most recent quarter (Q3 2024), the company's revenue was $372.07 million, net income was $138.01 million, operating cash flow was $420.18 million, and free cash flow was $439.69 million. Compared to the same quarter last year, revenue increased 3.03%, net income increased 14.40%, operating cash flow increased 68.91%, and free cash flow increased 77.26%. These increases were driven by higher net interest income, non-interest income, and lower provision for credit losses.
Liquidity and Solvency Commerce Bancshares maintains a strong liquidity position, with cash and cash equivalents totaling $2.6 billion as of September 30, 2024. The company's loan-to-deposit ratio, a measure of its funding mix, was 70.17% for the nine-month period ended September 30, 2024, indicating a well-balanced and stable funding structure.
In terms of solvency, Commerce Bancshares' capital ratios are well above the regulatory requirements for well-capitalized institutions. As of September 30, 2024, the company's Tier 1 common risk-based capital ratio, Tier 1 risk-based capital ratio, and total risk-based capital ratio stood at 16.70%, 16.70%, and 17.47%, respectively, showcasing its robust capitalization and ability to withstand potential economic downturns.
The company's debt-to-equity ratio is 0.00047, indicating a very low level of debt relative to equity. Commerce Bancshares has a current ratio and quick ratio of 1.04, suggesting a strong ability to meet short-term obligations. Additionally, the company has approved lines of credit totaling $3.7 billion, further enhancing its liquidity position.
Organic Growth and Strategic Initiatives Commerce Bancshares' organic growth strategy has been a key driver of its success. The company has consistently focused on expanding its loan portfolio, which grew at a CAGR of 4% from 2018 to 2023. This growth has been fueled by strong demand across its commercial, personal, and wealth management segments.
In addition to loan growth, Commerce Bancshares has placed a strong emphasis on diversifying its revenue streams. The company's non-interest income, which includes fee-based services such as trust fees, bank card transaction fees, and deposit account charges, accounted for 37.30% of its total revenue in the first nine months of 2024, up from 36.35% in the same period of the prior year.
Business Segments Commerce Bancshares operates through three main business segments: Consumer, Commercial, and Wealth.
The Consumer segment offers various consumer loan and deposit products through the company's retail branch network. For the nine months ended September 30, 2024, this segment reported net interest income of $384.70 million, a provision for credit losses of $27.45 million, non-interest income of $76.59 million, and income before income taxes of $185.36 million. The segment experienced a 20.6% decrease in income before income taxes compared to the same period in 2023, mainly due to a decline in net interest income and increases in non-interest expense and the provision for credit losses.
The Commercial segment provides corporate lending, leasing, international services, and business and governmental deposit products. For the nine months ended September 30, 2024, this segment reported net interest income of $387.39 million, a provision for credit losses of $952,000, non-interest income of $193.50 million, and income before income taxes of $278.60 million. The segment saw a 1.7% decrease in income before income taxes compared to the same period in 2023, primarily due to lower net interest income and higher non-interest expense, partly offset by higher non-interest income and a decrease in the provision for credit losses.
The Wealth segment offers trust and estate planning, advisory and discretionary investment management, and brokerage services. For the nine months ended September 30, 2024, this segment reported net interest income of $66.39 million, a provision for credit losses of $150,000, non-interest income of $179.84 million, and income before income taxes of $127.87 million. The segment experienced a 6.0% increase in income before income taxes compared to the same period in 2023, mainly due to higher non-interest income, partly offset by lower net interest income.
Navigating Challenges and Adapting to Changes While Commerce Bancshares has navigated the challenges posed by the COVID-19 pandemic, the company has also demonstrated its ability to adapt to changing market conditions and regulatory environments. During the pandemic, the company implemented various measures to support its clients, including loan payment deferrals and participation in government-sponsored relief programs.
Furthermore, Commerce Bancshares has been proactive in addressing emerging risks, such as cybersecurity threats and increasing regulatory scrutiny. The company has invested in robust risk management practices and has strengthened its compliance frameworks to ensure it operates within the evolving regulatory landscape.
Outlook and Future Prospects Looking ahead, Commerce Bancshares remains well-positioned for continued growth and success. The company's focus on organic expansion, diverse revenue streams, and prudent risk management practices position it to navigate the dynamic banking industry effectively.
Management projects total revenues and net loans and leases to have a CAGR of 2.3% and 2.8%, respectively, by 2026. This projection aligns with the company's historical growth trends and demonstrates confidence in its ability to continue expanding its business.
The company's strong capital position and liquidity profile provide the flexibility to seize strategic opportunities and weather potential economic challenges. With its diverse business segments and focus on fee-based services, Commerce Bancshares is well-equipped to adapt to changing market conditions and maintain its growth trajectory.
Conclusion Commerce Bancshares' rich history, financial strength, and adaptability to changing market conditions have been key factors in its success. The company's performance across its Consumer, Commercial, and Wealth segments demonstrates its ability to navigate different market dynamics and maintain a balanced portfolio of services.
As Commerce Bancshares continues to navigate the evolving banking landscape, its commitment to organic growth, diversification, and prudent risk management is expected to drive long-term value creation for its shareholders. The company's solid financial performance, strong liquidity position, and strategic focus on expanding its loan portfolio and fee-based services position it well for future growth in the competitive banking industry.