Investment Thesis

Based in Kansas City, Missouri, Commerce Bancshares, Inc. (CBSH) is a $30.5 billion asset holding company and parent to Commerce Bank. CBSH has a rich history of lending to the Midwest for more than 150 years. It currently operates a little over 160 branches with serving its local markets located in Colorado, Illinois, Kansas, Missouri, Oklahoma and Texas.

To me, CBSH is a bank that you would want to own in the beginning of a recession and but not necessarily today. Since the bank has a solid net interest margin and operating expense base it is typically more profitable than the average peer bank, and because of this has a that valuation is typically higher than peers. As one can see from the chart below, it currently trades at ~2.2x price to tangible book value per share.

While I do think that CBSH has a great mouse-trap, the current valuation is too today in order to have material upside tomorrow. I think credit could potentially more of an issue, but should not be a limiting factor today. In short, I think peer banks are likely to perform better.

ChartData by YCharts

Revenue Outlook

During the second quarter the spread revenue was $203 million. While most banks were dealing with margin compression and stagnate core loan growth, CBSH continued to grow net interest income by $2 million from the first quarter. While its net interest margin ((NIM)) did continue to fall in the second quarter, much like nearly every other bank, it was a little more muted than most Midwest based peers. In the second quarter the NIM fell by 37 basis points.

Throughout the second quarter, CBSH grew loans by a little more $1.3 billion. Given the diverse lending portfolio, there were some obvious puts and takes to