Commerce Bancshares, Inc. (CBSH) is a diversified financial holding company headquartered in Kansas City, Missouri. As one of the largest regional banks in the Midwest, Commerce Bancshares has navigated the challenging macroeconomic environment over the past several years through its prudent risk management and diversified business model.
Business Overview
Commerce Bancshares, Inc. was incorporated under the laws of Missouri on August 4, 1966 and operates as a bank holding company. Through its wholly-owned subsidiary, Commerce Bank, the company conducts a general banking business, providing a broad range of retail, mortgage banking, corporate, investment, trust, and private banking services to individuals, businesses, and municipalities.
The company's main offices are located in Kansas City and St. Louis, Missouri. Over the years, Commerce Bancshares has expanded its geographic footprint to include approximately 243 branch and ATM locations throughout Missouri, Kansas, Illinois, Oklahoma and Colorado. The company also maintains commercial and wealth management offices in additional states to serve customers in those segments.
In the late 1990s and early 2000s, Commerce Bancshares faced increasing competition from larger regional and national banks entering its Midwest markets. To remain competitive, the company invested in technology and continued to emphasize its community banking approach of local decision-making and superior customer service.
The 2008 financial crisis posed significant obstacles for Commerce Bancshares, as the company worked to manage credit quality and earnings amidst the economic downturn. However, its diversified business model, conservative underwriting, and strong risk management culture helped it weather the storm relatively well compared to many of its peers. The company emerged from the crisis in a position of strength, with a well-capitalized balance sheet and renewed focus on profitable growth opportunities.
Financial Performance
Over the past three years, Commerce Bancshares has demonstrated consistent financial performance, even as the macroeconomic environment has fluctuated. In 2024, the company reported net income of $526.3 million, or $3.87 per diluted share, on $1.66 billion in total revenue. This represented an 10.3% increase in net income compared to 2023.
The company's net interest margin (NIM) was 3.47% in 2024, up from 3.16% in 2023, as rising interest rates allowed Commerce Bancshares to reprice its loan portfolio and deposit base. Noninterest income also grew 7.4% year-over-year to $615.6 million, driven by increases in trust fees, deposit account fees, and capital markets revenue.
Provision for credit losses was $32.9 million in 2024, down from $35.5 million in 2023, as the company's loan portfolio continued to perform well. Net charge-offs increased to 0.23% of average loans, compared to 0.19% in the prior year, but remained low overall. Commerce Bancshares' allowance for credit losses stood at 0.95% of total loans at the end of 2024.
Financials
The company's balance sheet remains strong, with a CET1 capital ratio of 16.71% and a total risk-based capital ratio of 17.48% as of December 31, 2024. This provides ample cushion above the regulatory minimums for well-capitalized banks. Commerce Bancshares also maintains robust liquidity, with over $12.4 billion in cash, cash equivalents, and available-for-sale securities at the end of 2024.
For the fiscal year ended December 31, 2024, Commerce Bancshares reported revenue of $1.66 billion, net income of $526.33 million, operating cash flow of $577.86 million, and free cash flow of $531.73 million. The company's return on average assets was 1.72% in 2024, up from 1.49% in 2023, while its return on average common equity was 16.66% in 2024 compared to 17.94% in 2023.
In the most recent quarter (Q4 2024), the company reported revenue of $422.08 million and net income of $136.11 million. This represented year-over-year growth of 7.3% in revenue and 24.6% in net income compared to Q4 2023. The increases were primarily driven by higher net interest income, up $42.1 million, and non-interest income, up $42.5 million. These gains were partially offset by higher non-interest expense, up $20.25 million, and income taxes, up $10.54 million.
Liquidity
Commerce Bancshares maintains a strong liquidity position, which is essential for managing its operations and meeting regulatory requirements. The company's robust liquidity profile is evidenced by its significant holdings in cash, cash equivalents, and available-for-sale securities, totaling over $12.4 billion at the end of 2024. This substantial liquidity buffer provides the bank with flexibility to meet unexpected demands and capitalize on potential opportunities in the market.
As of December 31, 2024, Commerce Bancshares had a debt-to-equity ratio of 0.0000018, indicating very low leverage. The company's cash balance stood at $3.38 billion, and it had $3.9 billion in approved lines of credit for federal funds purchased, further enhancing its liquidity position.
Business Segments
Commerce Bancshares operates through three main business segments: Consumer, Commercial, and Wealth.
The Consumer segment includes consumer deposit, consumer finance, and consumer debit and credit card activities. This segment offers various consumer loan and deposit products through the retail branch network of approximately 140 locations. It also includes the residential mortgage, indirect and other consumer loan financing businesses, as well as the debit and credit card loan and fee businesses. In 2024, the Consumer segment contributed 31% of the company's total segment pre-tax income.
The Commercial segment provides a full array of corporate lending, merchant and commercial bank card products, payment solutions, leasing, and international services, as well as business and government deposit, investment, institutional brokerage, and cash management services. This segment serves corporate, middle-market, and small business customers. The Commercial segment contributed 47% of the company's total segment pre-tax income in 2024.
The Wealth segment offers traditional trust and estate planning services, consumer brokerage services, and advisory and discretionary investment portfolio management services to both personal and institutional corporate customers. In 2024, the Wealth segment contributed 22% of the company's total segment pre-tax income.
Revenue Composition
Across these three segments, Commerce Bancshares generates revenue from both net interest income and various non-interest income sources. In 2024, net interest income represented 63% of the company's total revenue, while non-interest income made up the remaining 37%. The largest components of non-interest income were trust fees (35% of non-interest income), bank card transaction fees (31%), and deposit account charges and other fees (16%).
Geographic Markets
Commerce Bancshares is primarily focused on the central Midwest region, with its largest markets being in Missouri and Kansas. The company also has a growing presence in Illinois, Oklahoma, and Colorado. Commerce Bancshares does not have a significant banking presence outside of these regional markets.
Headwinds and Risks
While Commerce Bancshares has navigated the macroeconomic environment well, the company does face some potential headwinds and risks going forward. The continued uncertainty around interest rates, economic growth, and inflation could pressure the company's net interest margin and credit quality.
Additionally, the highly competitive banking landscape in the Midwest, with both large national banks and smaller community institutions, creates ongoing pressure on pricing and market share. Commerce Bancshares must continually invest in technology and digital capabilities to meet evolving customer preferences and compete effectively.
Regulatory changes, such as those stemming from the Dodd-Frank Act, also pose a risk, as they can increase compliance costs and affect the company's business model. Cyber threats and data security are also key concerns for all financial institutions today.
Outlook
Despite these challenges, the outlook for Commerce Bancshares remains positive. The company's diversified business model, strong capital position, and prudent risk management have positioned it well to navigate the current environment. Management has also demonstrated a consistent ability to deliver steady financial performance and shareholder returns over time.
In 2025, Commerce Bancshares is forecasting modest loan growth, stable net interest margins, and continued strength in its fee-based businesses. The company is also focused on improving efficiency, with a target efficiency ratio in the mid-to-high 50% range. These factors, combined with the company's fortress balance sheet, suggest Commerce Bancshares is well-equipped to weather any near-term macroeconomic turbulence.
Overall, Commerce Bancshares' status as a well-run regional banking franchise with a diversified business model and conservative risk profile makes it an attractive option for investors seeking exposure to the Midwest banking sector. The company's track record of steady performance through economic cycles underscores its ability to generate consistent returns for shareholders over the long term.
The banking industry has seen moderate growth in recent years, with a CAGR of around 4-5% for the Midwest regional banks. Commerce Bancshares has performed in line with industry averages, growing revenue and net income at a similar pace. As a super-community bank, the company's focus on relationship banking and high-touch customer service has been a key differentiator in its core markets.
With no major scandals, short seller reports, or CEO departures reported during the periods covered, Commerce Bancshares appears to be a stable, well-managed regional bank with a strong presence in its core Midwest markets. The company's consistent financial performance, diversified business mix, and solid growth in both revenue and earnings over the past year position it well for continued success in the competitive banking landscape.