High Rates & Loan Demand Aid Commerce Bancshares Amid Rising Expenses

Core Viewpoint - Commerce Bancshares, Inc. (CBSH) is positioned for growth due to strong loan demand, high interest rates, and a solid balance sheet, but faces challenges from deteriorating asset quality and rising expenses [1] Group 1: Growth Drivers - CBSH's organic growth strategy has led to a revenue CAGR of 3.5% from 2018 to 2023, driven by strong loan balances and fee income [2] - Total revenues and net loans are projected to grow at CAGRs of 2.3% and 2.9% respectively by 2026 [4] - The company announced a balance sheet repositioning strategy in May 2024 to enhance net interest income by selling debt securities and reinvesting at higher yields [5][6] Group 2: Financial Performance - The net yield on interest-earning assets increased from 2.85% in 2022 to 3.16% in 2023, with projections of 3.40%, 3.42%, and 3.50% for 2024, 2025, and 2026 respectively [6] - As of June 30, 2024, CBSH's total debt was $580.4 million, with cash and interest-earning deposits totaling $2.5 billion [6][7] Group 3: Challenges - Non-interest expenses have increased at a CAGR of 4.8% over the past five years, driven by higher salaries and benefits, and are expected to rise by 4.5% and 5.1% in 2024 and 2025 respectively [8][10] - CBSH has experienced deteriorating asset quality, with a significant rise in provisions for credit losses in 2022 and 2023, although provisions dipped in the first half of 2024 [11]