CBSH — Q2 2026 Financial Report Analysis

Commerce Bancshares' first half-year with FineMark, the Florida-based private bank it bought on January 1, 2026, lifted second-quarter revenue 11.9% to $498.9 million and net income 4.8% to $159.8 million. Per-share earnings barely moved, though: diluted EPS (earnings per share, counting every share that could exist) rose only from $1.09 to $1.10. Commerce paid for FineMark with about 9.9 million new shares, and costs grew almost twice as fast as revenue.

At a glance

• Revenue +11.9% ($498.9M), expenses +21.5% ($297.1M). FineMark brought in loans and trust fees, and it also brought its staff, systems and $12.0 million of unrelated litigation expense into the same quarter.
• EPS +0.9% against net income +4.8%. About 5.1 million more diluted shares were outstanding than a year ago (144.3M vs 139.2M), because the shares issued for FineMark outweighed this year's buybacks.
• Net charge-offs 0.19% of loans. Loans the bank wrote off as uncollectable, net of recoveries, came to an annualized 0.19% of average loans, down from 0.22% a year ago and 0.30% in Q1. Credit quality is not where the pressure is.

The quarter in numbers

Prior-year per-share figures are restated for the 5% stock dividend paid in December 2025. The net interest margin is stated on a fully taxable-equivalent (FTE) basis, which grosses up tax-exempt interest so it compares with taxable interest. The efficiency ratio is the company's own measure: non-interest expense, excluding intangibles amortization, as a share of revenue. Lower is better. The 10-Q does not report a return on tangible common equity, so none is shown here.

Where the growth came from: mostly FineMark

Net interest income, the gap between what the bank earns on loans and securities and what it pays depositors, rose $34.9 million. The 10-Q puts this "mainly" down to higher average loan balances from FineMark. Average loans rose $3.0 billion (17.3%), and FineMark supplied $2.7 billion of that. The average yield on loans actually fell 28 basis points (0.28 percentage points) as interest rates came down. That means the gain came from having more loans, not from earning more on each one. The biggest single increase was in personal real estate (residential mortgage) loans, where interest income rose $19.6 million on a 43.9% jump in average balances. That fits FineMark's wealthy private-banking clients.

The margin, meaning net interest income as a share of interest-earning assets, edged up from 3.70% to 3.77%. Two details matter here:

• $6.2 million of the quarter's interest income is purchase-accounting accretion. When Commerce booked FineMark's loans at fair value on the acquisition date, it marked them below face value. That discount is now being recognized as extra interest income, and it shrinks as the loans pay down.
• Deposit costs fell. The average rate on total deposits was 10 basis points lower than a year ago. Shortly after the deal closed, the bank also moved $1.0 billion of FineMark's "high-cost" money-market deposits off its balance sheet.

Fee income rose $18.2 million. Of that, $15.9 million came from trust fees (+28.7%), "mainly due to growth of $14.9 million in private client trust fees". FineMark is primarily a wealth-management franchise, so this is the part of the deal that shows up most directly. Deposit account fees added $3.0 million, mainly from corporate cash management. Gains on asset sales fell $4.7 million.

Segment view (first half). Commerce reports segment results only for the six months. Pre-tax income from the Wealth segment rose $41.9 million (46.0%) to $133.0 million, "mainly due to the FineMark acquisition". Commercial fell $29.2 million (15.1%) to $164.0 million, on higher legal fees and salaries and a charge-off on "a single senior living loan". Retail Banking fell $11.3 million (9.9%) to $102.8 million. Wealth now earns about a third of the three segments' combined pre-tax profit. Excluding FineMark, the legacy commercial and retail businesses earned less than a year ago.

Why costs grew faster than revenue

Non-interest expense rose $52.6 million. The 10-Q breaks this down:

• Salaries and benefits up $24.9 million (16.1%), "primarily a result of onboarding FineMark team members". This includes $3.7 million of acquisition-related pay. Headcount went from 4,658 to 4,976 full-time equivalents.
• $12.0 million of litigation expense. The filing gives no details beyond its general legal-proceedings note, and nothing in it ties this to FineMark.
• $5.4 million more amortization of acquired intangibles. This is a non-cash charge that writes down the value of FineMark's customer relationships over time, and it will recur.
• Data processing and software up $5.3 million. Professional services up $3.5 million, including $1.5 million of deal-related legal and advisory fees.

As a result, the efficiency ratio worsened from 54.77% to 58.40%, and return on equity fell from 17.40% to 14.70%. Part of the ROE drop is arithmetic: the FineMark shares added about $520 million of equity (the deal's total purchase price was $519.9 million), and FineMark's earnings have not yet caught up with that larger equity base.

Takeaway: FineMark is doing what it was bought to do. It added $2.7 billion of loans, lifted trust fees by nearly 29%, and made Wealth the fastest-growing segment. But it was paid for in stock, and its costs arrived in full while revenue synergies did not. So far, shareholders own a bigger bank with the same per-share earnings: $1.10 versus $1.09. The case for the deal now rests on the efficiency ratio coming back down from 58% as deal costs and the one-off litigation charge drop out.

What the headline numbers hide

• A large securities gain offset by a large securities loss. The quarter's $12.8 million net securities gain combines a $114.1 million gain on equity securities with a $97.7 million loss. The gain was mostly Visa stock: $34.5 million realized on shares sold, plus a $71.0 million mark-to-market gain on shares still held. The loss came from a deliberate bond-portfolio "repositioning". Commerce sold $904.7 million of bonds yielding about 2.6% and reinvested $613.7 million of the proceeds into U.S. Treasuries yielding about 4.3%. It also sold its inflation-linked Treasury (TIPS) holdings. The Visa gain essentially paid for taking the bond loss up front. Expect higher, steadier securities income from here, since the TIPS income moved with the CPI and that link is now gone.
• One-offs roughly cancel. Before tax, the $12.8 million net securities gain is set against the $12.0 million litigation charge, $3.7 million of acquisition pay and $1.5 million of deal fees. The quarter's reported $159.8 million is therefore close to, or slightly below, its underlying run-rate. It is not flattered by the Visa gain.
• EPS growth did not come from buybacks. Commerce bought back 3.7 million shares in the first half at an average $52.39 ($196.3 million). That was not enough to offset the 9.9 million shares issued for FineMark, so diluted shares rose 3.7% year over year. The effective tax rate also rose slightly, to 22.3% from 21.8%. Neither buybacks nor tax helped EPS this quarter.
• Cash conversion is not a concern. Operating activities generated $866.7 million of cash in the first half against $301.4 million of net income. For a bank this figure swings with loan sales and other items, but nothing in it suggests earnings that aren't backed by cash.
• The credit picture has one soft spot. Non-accrual loans, where the bank no longer expects full payment, fell to $11.6 million from $15.7 million at year-end. Charge-offs are low. The allowance for credit losses slipped to 0.94% of loans from 1.01% at year-end, which the filing attributes to FineMark's mix of lower-risk home loans. However, substandard loans (borrowers the bank is worried about but who are still paying) rose 19.5% in six months to $316.6 million. The filing does not say how much of that came from FineMark's book. This is the number to watch.
• No guidance to compare. Commerce does not give earnings guidance in its 10-Q, so there is no earlier forecast to measure this quarter against.

Balance sheet and capital

Total loans reached $20.83 billion and deposits $27.88 billion at June 30, up $3.06 billion and $2.2 billion respectively from December 31, both mainly because of FineMark. Core customer deposits (non-interest-bearing, checking, savings and money-market accounts) were 91.5% of total deposits, which gives the bank stable, low-cost funding. The $350 million of Federal Home Loan Bank advances that came with FineMark were repaid in January, and no FHLB borrowings were outstanding at quarter-end. The CET1 ratio, which measures the bank's highest-quality capital against its risk-weighted assets, was 16.85%. That is down from 17.34% at year-end because the acquired loans added risk-weighted assets, but it is still far above the 7.0% minimum including buffers. The quarterly dividend was raised 5.0% to $0.275, and the buyback authorization was increased to 7.5 million shares in April, with 5.4 million still available at June 30.

What to watch next

This is the first report we have published for Commerce Bancshares, so there is no earlier outlook to check against.

Commerce has historically reported third-quarter results in mid-October. Three questions for the coming quarters:

1. Does the efficiency ratio fall back toward the mid-50s? Litigation and deal costs should not repeat at the Q2 level, but intangible amortization will. Q1 EPS of $0.96 versus $1.10 in Q2 shows how heavy the early integration costs were.
2. How much does the bond repositioning add? Roughly $614 million moved from a 2.6% yield to 4.3%, which is a known boost to interest income. The benefit should be partly offset by fading FineMark accretion income and by lower loan yields if rates keep falling.
3. Do substandard loans stop rising? Credit losses are low today. A 19.5% rise in criticized loans within six months is the clearest early warning sign in the filing, and Commercial already took one large senior-living charge-off this year.

Our read: the core bank is still highly capitalized and conservatively funded. But 2026 is a digestion year, and per-share earnings growth should not be expected until FineMark's costs level off.