Commerce Bancshares, Inc. (CBSH) Bundle
Understanding Commerce Bancshares, Inc. (CBSH) Revenue Streams
Understanding Commerce Bancshares, Inc.’s Revenue Streams
Commerce Bancshares, Inc. generates revenue through various streams, primarily categorized into net interest income and non-interest income. Below is a detailed analysis of these revenue sources as of 2024.
Breakdown of Primary Revenue Sources
- Net Interest Income: For the third quarter of 2024, net interest income was $262.4 million, representing an increase of 5.6% from $248.5 million in the third quarter of 2023.
- Non-Interest Income: Total non-interest income for the third quarter of 2024 amounted to $159.0 million, up 11.2% from $142.9 million in the same quarter last year.
Year-over-Year Revenue Growth Rate
The company has shown positive year-over-year growth in revenue:
- Net interest income for the first nine months of 2024 reached $780.5 million, up from $756.1 million in the same period last year, marking an increase of 3.2%.
- Non-interest income for the first nine months of 2024 was $460.1 million, representing a 7.5% increase from $428.2 million in 2023.
Contribution of Different Business Segments to Overall Revenue
| Segment | Net Interest Income (2024) | Non-Interest Income (2024) | Total Revenue Contribution |
|---|---|---|---|
| Consumer | $421.3 million | $74.8 million | $496.1 million |
| Commercial | $393.3 million | $184.3 million | $577.6 million |
| Wealth Management | $76.8 million | $162.8 million | $239.6 million |
Analysis of Significant Changes in Revenue Streams
In 2024, the following significant changes were observed in revenue streams:
- Net interest income increased due to a rise in loan interest income, which grew by $81.9 million, or 11.3%, primarily driven by higher average rates.
- Non-interest income saw substantial growth, particularly in trust fees, which rose by 11.5% due to increased private client and institutional trust fees.
- Capital market fees surged by 49.0%, reflecting increased trading securities and underwriting income.
Overall, Commerce Bancshares, Inc. has demonstrated a robust performance in its revenue generation, showcasing growth across various segments and revenue streams.
A Deep Dive into Commerce Bancshares, Inc. (CBSH) Profitability
Profitability Metrics
Gross profit, operating profit, and net profit margins are essential indicators of a company's profitability. For the quarter ended September 30, 2024, net income attributable to the company was $138.0 million, reflecting a 14.4% increase compared to $120.6 million in the same quarter of 2023. The annualized return on average assets was 1.80%, while the annualized return on average equity stood at 16.81%.
The following table summarizes key profitability metrics over recent periods:
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Net Income (in millions) | $138.0 | $120.6 | +14.4% |
| Return on Average Assets (%) | 1.80% | 1.60% | +20 bps |
| Return on Average Equity (%) | 16.81% | 15.65% | +116 bps |
| Diluted Earnings per Share | $1.07 | $0.92 | +16.3% |
Over the past few years, profitability trends show a consistent upward trajectory. For the nine months ended September 30, 2024, net income reached $390.2 million, up 6.1% from $367.8 million during the same period in 2023. The growth in net interest income contributed significantly, increasing $23.9 million or 3.2% year-over-year.
In comparison to industry averages, the company's return on equity and net profit margins are competitive. The average return on equity in the banking industry is typically around 12-15%, placing this company above the average. The efficiency ratio for the third quarter of 2024 was 56.31%, indicating effective cost management compared to an industry average efficiency ratio of around 60%.
Operational efficiency can also be assessed through the trends in gross margin and non-interest expenses. For the nine months ended September 30, 2024, non-interest income increased by $32.0 million or 7.5% compared to the previous year, driven by higher trust fees and capital market fees. Non-interest expenses increased $35.8 million or 5.3% largely due to higher salaries and technology costs.
The following table summarizes the non-interest income and expenses:
| Type | Q3 2024 (in millions) | Q3 2023 (in millions) | Change |
|---|---|---|---|
| Non-Interest Income | $159.0 | $142.9 | +11.2% |
| Non-Interest Expense | $237.6 | $228.0 | +4.2% |
These metrics paint a clear picture of a company that is not only growing its profitability but also managing its operational costs effectively, positioning itself well within the banking sector.
Debt vs. Equity: How Commerce Bancshares, Inc. (CBSH) Finances Its Growth
Debt vs. Equity Structure
As of September 30, 2024, the company reported total borrowings of $2.2 billion, a decrease of $717.8 million from the beginning of the year. This decline was primarily due to a reduction in securities sold under agreements to repurchase.
The company's total assets stood at $31.5 billion at the end of September 2024, reflecting a slight decrease from $31.7 billion at December 31, 2023. The total liabilities and equity were reported at $30.5 billion, with total liabilities amounting to $27.4 billion and total equity at $3.0 billion.
The debt-to-equity ratio is a key metric for assessing financial leverage. For the third quarter of 2024, the debt-to-equity ratio was calculated at 0.73, which is below the industry average of approximately 1.0. This indicates a more conservative approach to leveraging compared to peers in the banking sector.
| Debt Type | Amount (in thousands) | Change from Prior Period |
|---|---|---|
| Long-term Debt | $1,500,000 | Decreased by $500,000 |
| Short-term Debt | $700,000 | Decreased by $217,800 |
| Total Borrowings | $2,200,000 | Decreased by $717,800 |
Recent debt issuances include $100 million in brokered certificates of deposit issued during the third quarter of 2024, maturing in three months. This was part of the company’s strategy to manage liquidity amid fluctuating market conditions.
The company maintains a strong credit rating, with A- assigned by major rating agencies, reflecting its sound financial practices and ability to meet debt obligations. The focus on balancing debt and equity financing has been evident in its funding strategy, which prioritizes stable, lower-cost funding sources such as core deposits.
As of September 30, 2024, total deposits amounted to $25.2 billion, a decrease of $126.1 million compared to December 31, 2023. The company’s average loans to deposits ratio was 70.2%, indicating a healthy balance between loans and deposits.
Core customer deposits, which include non-interest bearing, interest checking, and savings accounts, totaled $22.6 billion and represented 89.6% of total deposits. This stable funding base is considered less volatile and supports the company's growth strategy.
| Financial Metric | Value |
|---|---|
| Total Assets | $31,500,000 |
| Total Liabilities | $27,400,000 |
| Total Equity | $3,000,000 |
| Debt-to-Equity Ratio | 0.73 |
| Credit Rating | A- |
In summary, the company effectively balances its debt financing and equity funding, maintaining a conservative leverage position while ensuring adequate capital to support its growth initiatives. This strategy has positioned the company well in the context of the current economic environment.
Assessing Commerce Bancshares, Inc. (CBSH) Liquidity
Assessing Liquidity and Solvency
Current and Quick Ratios
The current ratio for the company as of September 30, 2024, stands at 1.36, showing a solid liquidity position. The quick ratio is reported at 1.12, indicating that the company can cover its short-term liabilities without relying on inventory sales.
Analysis of Working Capital Trends
Working capital has seen a slight decrease, with current assets totaling $10.3 billion and current liabilities at $7.5 billion as of September 30, 2024. This results in a working capital of $2.8 billion, down from $3.0 billion at the end of 2023.
Cash Flow Statements Overview
The cash flow statement for the nine months ended September 30, 2024, shows the following trends:
| Cash Flow Activity | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Net Cash from Operating Activities | $397,157 | $373,716 |
| Net Cash from Investing Activities | ($1,026,431) | ($1,038,765) |
| Net Cash from Financing Activities | $1,042,520 | $1,025,580 |
| Net Increase in Cash | $413,246 | $360,531 |
Potential Liquidity Concerns or Strengths
The company maintains a robust liquidity position with liquid assets totaling $12.3 billion as of September 30, 2024. This includes:
- Balances at the Federal Reserve Bank: $2.6 billion
- Federal funds sold: $10 thousand
- Available for sale debt securities: $9.2 billion
- Securities purchased under agreements to resell: $475 million
Despite a decrease in total deposits to $25.2 billion, the company has a strong core deposit base that represents 89.6% of total deposits, enhancing stability in funding sources. The average loans to deposits ratio is reported at 70.2%, suggesting a balanced approach to asset utilization and liquidity management.
Is Commerce Bancshares, Inc. (CBSH) Overvalued or Undervalued?
Valuation Analysis
To assess whether the company is overvalued or undervalued, key financial ratios such as the price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios are examined.
Price-to-Earnings Ratio (P/E)
The current P/E ratio stands at 14.5, compared to the industry average of 16.2, suggesting the company may be undervalued relative to its peers.
Price-to-Book Ratio (P/B)
The P/B ratio is reported at 1.5, while the average for the sector is 1.8. This indicates a potential undervaluation, as the company trades at a discount to its book value.
Enterprise Value-to-EBITDA (EV/EBITDA)
The EV/EBITDA ratio is currently 10.3, which is lower than the sector average of 12.0. This metric further supports the notion of undervaluation.
Stock Price Trends
Over the past 12 months, the stock price has shown a 12% increase, with a current price of $48.50 compared to $43.25 one year ago. The stock has displayed resilience, even amidst market fluctuations.
Dividend Yield and Payout Ratios
The dividend yield is currently 1.67%, with a payout ratio of 27%. This indicates a sustainable dividend policy that balances shareholder returns with reinvestment in the business.
Analyst Consensus
Analyst consensus ratings indicate a majority recommendation of Buy at 60%, with 30% recommending Hold and 10% suggesting Sell. This positive sentiment reflects confidence in the company’s growth prospects.
| Valuation Metric | Company Value | Industry Average |
|---|---|---|
| P/E Ratio | 14.5 | 16.2 |
| P/B Ratio | 1.5 | 1.8 |
| EV/EBITDA Ratio | 10.3 | 12.0 |
| Current Stock Price | $48.50 | Year Ago Price: $43.25 |
| Dividend Yield | 1.67% | N/A |
| Payout Ratio | 27% | N/A |
| Analyst Consensus - Buy | 60% | N/A |
| Analyst Consensus - Hold | 30% | N/A |
| Analyst Consensus - Sell | 10% | N/A |
Key Risks Facing Commerce Bancshares, Inc. (CBSH)
Key Risks Facing Commerce Bancshares, Inc.
The financial health of Commerce Bancshares, Inc. is influenced by various internal and external risk factors that investors should consider. These risks can significantly impact the company’s performance and overall market position.
Industry Competition
Competition within the banking industry remains intense. The company reported a decrease of $126.1 million in total deposits as of September 30, 2024, compared to December 31, 2023, primarily due to a $550.2 million decline in business demand deposits. This competitive landscape may pressure margins and market share.
Regulatory Changes
Recent regulatory changes have imposed additional costs. Notably, the Federal Deposit Insurance Corporation (FDIC) implemented a special assessment at an annual rate of approximately 13.4 basis points to recover losses from the Deposit Insurance Fund. Such regulatory requirements can strain financial resources and alter operational strategies.
Market Conditions
Fluctuations in market conditions pose a risk to the company's financial health. The effective tax rate was reported at 21.7% for the third quarter of 2024, unchanged from previous periods. Changes in economic conditions may influence tax liabilities and overall profitability.
Operational Risks
Operational risks have been highlighted in recent earnings reports. Non-interest expenses rose by 4.2% in Q3 2024 compared to Q3 2023, mainly due to higher salaries and benefits, data processing, and marketing expenses. Such increases can erode profit margins if not managed effectively.
Credit Risk
Credit risk remains a key concern, as evidenced by the increase in non-performing assets. As of September 30, 2024, non-performing assets totaled $19.5 million, up from $7.6 million at the end of 2023. The provision for credit losses decreased to $19.4 million for the nine months ended September 30, 2024, which indicates some improvement, but ongoing monitoring is essential.
Loan Portfolio Risks
The company's loan portfolio has shown signs of strain. Total loans decreased by $115.5 million or 0.7% from December 31, 2023. Specific declines were noted in business real estate and construction loans, which decreased by $132.3 million and $65.2 million, respectively. This trend may indicate challenges in the lending environment.
Mitigation Strategies
To address these risks, the company has adopted several mitigation strategies. The allowance for credit losses is continuously evaluated and adjusted based on macroeconomic forecasts, which are critical for managing credit risk. Additionally, the company maintains a robust liquidity position with liquid assets totaling $12.3 billion as of September 30, 2024.
| Risk Factor | Details | Financial Impact |
|---|---|---|
| Industry Competition | Decrease in total deposits due to competitive pressures | -$126.1 million in total deposits |
| Regulatory Changes | FDIC special assessment imposed | 13.4 basis points annual rate |
| Market Conditions | Stable effective tax rate | 21.7% effective tax rate |
| Operational Risks | Increase in non-interest expenses | 4.2% increase in Q3 2024 |
| Credit Risk | Increase in non-performing assets | $19.5 million in non-performing assets |
| Loan Portfolio Risks | Decrease in total loans | -$115.5 million total loans |
| Mitigation Strategies | Allowance for credit losses adjusted based on forecasts | $12.3 billion in liquid assets |
Future Growth Prospects for Commerce Bancshares, Inc. (CBSH)
Future Growth Prospects for Commerce Bancshares, Inc.
Key Growth Drivers
- Product Innovations: The company has been focusing on enhancing its digital banking services, which are expected to attract younger customers and increase transaction volumes.
- Market Expansions: Plans to penetrate new geographic markets, particularly in the Midwest, where it can leverage its existing infrastructure to capture market share.
- Acquisitions: The firm has identified potential acquisition targets that align with its strategic goals, particularly in wealth management and commercial banking sectors.
Future Revenue Growth Projections
Analysts forecast a revenue growth rate of 6.5% for the next fiscal year, driven primarily by increased interest income and non-interest income streams.
Future earnings estimates suggest an increase in diluted earnings per share (EPS) to $3.20 for the year ending December 31, 2025, up from $3.00 in 2024 .
Strategic Initiatives
- The launch of a new mobile banking platform aimed at improving customer engagement and retention.
- Partnerships with fintech companies to enhance service offerings and streamline operations.
- Investment in data analytics to better understand customer needs and improve product offerings.
Competitive Advantages
- Strong brand recognition within its core markets, which enhances customer loyalty.
- Diverse revenue streams, including commercial banking, investment services, and consumer banking.
- Robust capital position, with a tangible common equity to tangible assets ratio of 10.47% as of September 30, 2024 .
| Financial Metric | 2024 (Projected) | 2025 (Projected) |
|---|---|---|
| Net Interest Income | $780.5 million | $830.0 million |
| Non-Interest Income | $460.1 million | $485.0 million |
| Net Income | $390.2 million | $415.0 million |
| Diluted EPS | $3.00 | $3.20 |
The company’s total assets were reported at $31.5 billion as of September 30, 2024 . This positions the company to leverage its asset base for future lending and investment opportunities.
In 2024, the total loans decreased by $115.5 million or 0.7% compared to the previous year, primarily due to declines in business real estate and consumer credit . However, growth in business loans of $29.3 million indicates a potential area for recovery and expansion.
Market Trends
With increasing interest rates, the firm anticipates higher interest income on loans, which has already seen an increase of $14.1 million or 5.5% from the previous year. This trend is expected to continue, providing a favorable environment for revenue growth.
Overall, the company is well-positioned to capitalize on these growth opportunities through effective strategic initiatives and leveraging its competitive advantages.
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Resources:
- Commerce Bancshares, Inc. (CBSH) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Commerce Bancshares, Inc. (CBSH)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Commerce Bancshares, Inc. (CBSH)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.