Commerce Bancshares Inc.

Overview Key strengths Key risks Strong risk-adjusted capital ratios, though the tangible common equity ratio is lower because of large unrealized losses in the securities portfolio. Substantial geographic concentration in the Midwest, most notably in two states. Track record of consistent profitability and stable, strong credit quality. Fairly modest domestic market share, especially when compared with similarly rated peers. High contribution of noninterest income, which helps revenue stability and diversification throughout interest rate and credit cycles. Relatively high proportion of construction loans due to strong growth in recent years. Strong funding metrics and a low-cost deposit franchise aided by its large proportion of non-interest-bearing deposits. We expect Commerce to grow its primary businesses (commercial, consumer, and wealth management) organically and

...Our ratings on Commerce Bancshares Inc. reflect our expectation that it will maintain its consistent performance, solid revenue diversification, and conservative financial policies. We expect Commerce to grow its primary businesses (commercial, consumer, and wealth management) organically and at a modest pace while it continues to prudently expand into other geographies outside of its core Midwestern footprint. Commerce's diversified revenue base, its high proportion of noninterest income (typically 35%-40% of operating revenue), and management's conservative financial policies have contributed to the company's stable franchise and good earnings performance, in our view, and have roughly offset the company's geographic concentration and limited domestic market share. We expect Commerce's risk-adjusted capital ratios to remain higher than the ratios at many regional bank peers. The bank's common equity Tier 1 capital ratio of 14.75% as of June 30, 2023, continues to exceed that of many of...

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