Commerce Bancshares (CBSH) Rides on High Rates Amid Cost Woes

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 high expenses [1]. Group 1: Growth and Revenue - CBSH's organic expansion efforts have led to a revenue compound annual growth rate (CAGR) of 3.5% from 2018 to 2023, driven by strong loan balances (4% CAGR) and fee income [2]. - Total revenues are projected to increase by 1.1%, 2.1%, and 2.7% in 2024, 2025, and 2026, respectively, with loan balances expected to grow at a 6% CAGR by 2026 [2]. Group 2: Interest Income and Balance Sheet - The net yield on interest-earning assets increased from 2.85% in 2022 to 3.16% in 2023, with projections of 3.30%, 3.31%, and 3.32% for 2024, 2025, and 2026 [3]. - As of March 31, 2024, CBSH's total debt was $464.1 million, with cash and due from banks totaling $1.9 billion, supported by an investment grade rating of A- from Standard & Poor's [4]. Group 3: Expenses and Asset Quality - Non-interest expenses have grown at a CAGR of 4.8% over the past five years, driven by higher salaries and benefits, with expectations of a 4.2% CAGR by 2026 [5]. - Deteriorating asset quality is a concern, with provisions for credit losses expected to rise by 11.4% in the second quarter of 2024, despite a dip in the first quarter of 2024 [6].