Commerce Bancshares (CBSH)

Regional banking company Commerce Bancshares (NASDAQ:CBSH) missed Wall Street’s revenue expectations in Q3 CY2025 as sales rose 3.7% year on year to $441 million. Its GAAP profit of $1.06 per share was 3.3% below analysts’ consensus estimates.

Company Overview

Founded in 1865 during the post-Civil War economic boom, Commerce Bancshares (NASDAQGS:CBSH) is a Midwest-focused bank holding company that provides retail, commercial, and wealth management services to individuals and businesses.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Commerce Bancshares competes with other regional banks operating in the Midwest such as UMB Financial (NASDAQ:UMBF), Bank of America (NYSE:BAC), U.S. Bancorp (NYSE:USB), and Truist Financial (NYSE:TFC), as well as with local community banks throughout its service area.

From lending activities to service fees, most banks build their revenue model around two income sources. Interest rate spreads between loans and deposits create the first stream, with the second coming from charges on everything from basic bank accounts to complex investment banking transactions. Over the last five years, Commerce Bancshares grew its revenue at a decent 5.3% compounded annual growth rate. Its growth was slightly above the average banking company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. Commerce Bancshares’s annualized revenue growth of 4.5% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Commerce Bancshares’s revenue grew by 3.7% year on year to $441 million, falling short of Wall Street’s estimates.

Net interest income made up 61.7% of the company’s total revenue during the last five years, meaning lending operations are Commerce Bancshares’s largest source of revenue.

Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.

Topline growth alone doesn't tell the complete story - the profitability of that growth shapes actual earnings impact. Banks track this dynamic through efficiency ratios, which compare non-interest expenses such as personnel, rent, IT, and marketing costs to total revenue streams.

Investors place greater emphasis on efficiency ratio movements than absolute values, understanding that expense structures reflect revenue mix variations. Lower ratios represent better operational performance since they show banks generating more revenue per dollar of expense.

Over the last five years, Commerce Bancshares’s efficiency ratio has swelled by 2.2 percentage points, going from 57.7% to 55.2%. Said differently, the company’s expenses have grown at a slower rate than revenue, which typically signals prudent management.

In Q3, Commerce Bancshares’s efficiency ratio was 55.3%, falling short of analysts’ expectations by 51.7 basis points (100 basis points = 1 percentage point). This result was 1.1 percentage points better than the same quarter last year.

For the next 12 months, Wall Street expects Commerce Bancshares to maintain its trailing one-year ratio with a projection of 55.5%.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Commerce Bancshares’s EPS grew at an astounding 13.7% compounded annual growth rate over the last five years, higher than its 5.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its efficiency ratio didn’t improve.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Commerce Bancshares, its two-year annual EPS growth of 7.6% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Commerce Bancshares reported EPS of $1.06, up from $1.02 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Commerce Bancshares’s full-year EPS of $4.19 to grow 1.3%.

The balance sheet drives banking profitability since earnings flow from the spread between borrowing and lending rates. As such, valuations for these companies concentrate on capital strength and sustainable equity accumulation potential.

Because of this, tangible book value per share (TBVPS) emerges as the critical performance benchmark. By excluding intangible assets with uncertain liquidation values, this metric captures real, liquid net worth per share. On the other hand, EPS is often distorted by mergers and flexible loan loss accounting. TBVPS provides clearer performance insights.

Commerce Bancshares’s TBVPS grew at a mediocre 4.1% annual clip over the last five years. However, TBVPS growth has accelerated recently, growing by 23.9% annually over the last two years from $17.69 to $27.15 per share.

Over the next 12 months, Consensus estimates call for Commerce Bancshares’s TBVPS to grow by 8.9% to $29.56, decent growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Commerce Bancshares has averaged a Tier 1 capital ratio of 15.9%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) reveals the profit generated per dollar of shareholder equity, which represents a key source of bank funding. Banks maintaining elevated ROE levels tend to accelerate wealth creation for shareholders via earnings retention, buybacks, and distributions.

Over the last five years, Commerce Bancshares has averaged an ROE of 17%, exceptional for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This shows Commerce Bancshares has a strong competitive moat.

We struggled to find many positives in these results. Its net interest income missed and its EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $56.65 immediately after reporting.

Updated: December 3, 2025 at 11:50 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Commerce Bancshares isn’t a bad business, but we’re not clamoring to buy it here and now. Although its revenue growth was uninspiring over the last five years, its growth over the next 12 months is expected to be higher. And while Commerce Bancshares’s net interest income growth was weak over the last five years, its expanding net interest margin shows its loan book is becoming more profitable.

Commerce Bancshares’s P/B ratio based on the next 12 months is 1.7x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $64.25 on the company (compared to the current share price of $53).