Commerce Bancshares (CBSH) Q3 2026 earnings review
Commerce's loans grow, but its wealth clients pull deposits
Commerce Bancshares is lending more and collecting higher fees, but the deposits that fund it are slipping. Revenue rose 12% from a year ago, most of it from the FineMark purchase, and profit per share reached $1.08. Chief executive John Kemper called deposits in line with his expectations, yet wealth clients withdrew about $295 million on average and the FineMark systems conversion slipped to February 2027.
| Loans, excluding the FineMark purchase | +3.5% from a year ago by our math; +1.8% from June |
|---|---|
| Profit per share | $1.08 +7% from a year ago |
| Average deposits | $27.2 billion −1.3% from last quarter |
| Bond maturities and paydowns, next 12 months | Unchanged about $1.1 billion |
⚖️ Verdict: ⚪ Neutral
The story is unchanged, because the quarter's gains and setbacks sit on opposite sides of the same purchase. Loans grew on their own and the underlying margin widened, so the lending side is doing what the bank promised. The bad news: wealth deposits keep leaving, costs still outrun revenue, and the integration milestone moved back, which leaves the case for the FineMark deal no clearer than three months ago.
The question now is whether FineMark's clients are staying. If the deposit decline is cash moving into investment products, fee income from those clients will keep rising, as trust fees did this quarter. If clients are leaving, assets under administration and trust fees will fall together. The fourth quarter's segment deposit chart and trust fees will tell, before the February conversion.
🐂 Bull Case
Loan Growth Now Comes From Commerce Itself
Commerce Bancshares, a Kansas City lender that also runs a large trust business, bought Florida's FineMark in January. That purchase inflates the year-ago comparison, so the number to read is growth since June. Chief executive John Kemper pointed to "broad-based loan growth", "led by continued strength in our commercial and wealth segments".
Loans at quarter end reached $21.2 billion, up 1.8% from June. That pace is about 7% a year. Business customers borrowed more and consumers took on more car and personal loans, while builders and home buyers borrowed less, so the growth is real but not evenly spread.
- Consumer loans: up 7.3% from June
- Business real estate: up 4.0%
- Business loans: up 2.1%
- Construction and land: down 2.8%
- Total loans excluding the FineMark purchase: up about 3.5% from a year ago, by our math
This matters because loans are the bank's main earning asset, and it still funds them cheaply: it lends out 76% of its deposits, up from 74% last quarter. But the mix is tilting toward consumer credit, where losses run higher than on business loans.
What to watch: loan growth from one quarter to the next in the fourth quarter, when the year-ago figures still exclude FineMark. Another quarter near 7% a year would show Commerce can grow without buying it.
The Margin Rose Once TIPS Income Is Excluded
Net interest margin is the gap between what a bank earns on loans and bonds and what it pays for deposits, as a share of earning assets. Last quarter Commerce sold its inflation-linked Treasuries, called TIPS, which had paid $9.1 million of inflation income in that quarter alone.
"Our underlying net interest margin expanded after excluding the TIPS inflation income recognized in the prior quarter," Kemper said. The numbers support him: without TIPS, the margin went to 3.71% from 3.66%. The reported figure fell, to 3.71% from 3.77%, and the whole difference is the TIPS income that no longer exists.
The gain comes from reinvesting. Loan income rose $4.5 million from last quarter on more consumer lending. New bonds bought this quarter yield 4.88%, well above the 3.20% the whole securities book earns, so each maturing bond that gets replaced lifts the margin a little.
What to watch: the net yield on earning assets in the fourth quarter against this quarter's 3.71%. A reading at or above it would show that bond reinvestment is outweighing the rise in deposit costs.
Buybacks Have Retired Over Half the Deal Shares
Commerce paid for FineMark with 9.9 million new shares in January, so the purchase diluted existing holders. Since then it has bought back about 5.6 million shares by our math, more than half of what it issued. This quarter's 1.9 million shares cost about $111 million, by our math from the change in treasury stock.
With the dividend, payouts reached 96% of profit, the company said, while tangible common equity stayed at 11.06% of tangible assets. The diluted share count is still 2.3% above a year ago. That is why profit per share grew 7% when net income grew 10%.
What to watch: the share count at year end. A figure near the 137.5 million of last December would mean the dilution from the deal is gone, and per-share profit would then track net income.
🐻 Bear Case
Wealth Clients Pulled $295 Million of Deposits
"Deposit balances performed in line with our expectations during the quarter," Kemper said. The numbers behind that sentence are uneven. Average deposits fell $361.6 million from the second quarter, and most of the drop came from the wealth business that FineMark was bought to expand.
Wealth deposits, the accounts of private-banking and trust clients, fell $295.2 million on average, the company said. Retail balances slipped $145.8 million, and only commercial customers added money. Since the first quarter, average wealth deposits have fallen to $4.4 billion from $4.8 billion. That is a drop of about 8% by our math.
The fee side of the same business is working. Trust fees rose 2.7% from last quarter and 25.7% from a year ago, mostly on private client fees, the bank said. So clients still pay for advice, but they are moving their cash elsewhere.
Deposits matter because they fund loans cheaply. To hold on to them, Commerce paid 1.54% on interest checking and money market accounts, up from 1.45% last quarter. Attrition after a merger is the central risk in any bank purchase, and the systems conversion has now slipped to February 2027.
What to watch: average wealth deposits in the fourth quarter, in the segment chart of the earnings presentation. A fourth straight decline would mean FineMark clients are leaving before the conversion, not just chasing higher yields.
Costs Still Rise Faster Than Revenue
Commerce spends about 57 cents of every revenue dollar on running the bank, up from 55 cents a year ago. Expenses grew faster than revenue for a fourth straight quarter, so three quarters after FineMark joined, the gap has not closed.
Pay and benefits is the line that moved: it rose 1.0 percentage point of revenue because FineMark's staff joined and healthcare costs went up $4.1 million. Deal-related costs came to $9.9 million this quarter by our math. Even without them, spending is up about 13% from a year ago.
The company sold the purchase on cost savings and a systems conversion in late 2026. That conversion now comes in February 2027, and management says "financial expectations and synergy targets remain unchanged". But it does not publish progress against those targets, so the expense line is the only visible test.
What to watch: non-interest expense in the fourth quarter against this quarter's $285.9 million. A rise before the conversion would mean the promised savings depend entirely on an event that has already slipped once.
Deposit Costs Rise While Loan Yields Slip
Most of Commerce's business loans float with short-term rates, so a Federal Reserve cut lowers what they earn almost at once, while deposit rates come down more slowly. The loan yield has already slipped to 5.71% from 6.02% a year ago, as rates eased and FineMark's low-rate mortgages joined the book.
This quarter the squeeze came from the other side. The rate paid on interest-bearing deposits climbed to 1.63% from 1.57%, because customers moved cash into higher-paying checking and money market accounts. One-month SOFR, the benchmark, stood at 3.91% at quarter end, the company said, before any cut.
Commerce has bought protection: $2.5 billion of floor contracts on commercial loans running to 2032, and a $1.15 billion book of resale agreements where "select agreements include structures that increase yields as rates decline". But the floors cover a fraction of $12.5 billion in commercial loans, and the exposed share grows as lending grows.
What to watch: the rate paid on interest-bearing deposits next quarter against 1.63%. If it keeps climbing while the loan yield falls, the margin gain from the bond book will not last.
Risks this quarter didn't answer
Several standing concerns got no new reading in the release or the presentation, because the figures that would settle them live in the quarterly filing, which Commerce has not yet published.
- Substandard business loans: rose sharply in the first half; the filing's problem-loan table will show whether migration stopped. The visible proxies are benign: business charge-offs .04%, non-accrual loans .05% of loans.
- FineMark's own revenue and profit: still not disclosed; the February 2027 conversion is now the only milestone the bank reports against.
- Litigation: the $12.0 million charge from last quarter did not recur, so other expense fell to $14.0 million, but the matter is still unnamed.
- Bond portfolio losses: the unrealized loss on securities rose $228.8 million to $847.4 million as yields climbed. That cut book value per share to $29.68, and selling before maturity would make the loss real.
- Visa shares: resolved. The bank sold the last of its Class C shares for a $3.1 million gain, so that market exposure is gone.
- Credit card losses: charge-offs fell to 4.60% annualized from 5.18%, but one quarter is not a trend, and consumer loan losses rose to .43% from .26%.
👓 Other Themes
Nolan Deal Closes; FineMark Conversion Moves to February
Commerce completed the purchase of Nolan & Associates, an investment banking firm, on October 1, the company said, without giving a price or revenue figure. The same slide moved the FineMark systems conversion from late 2026 to February 2027 "to provide additional time for testing and team readiness". Capital market fees, the line Nolan should feed, fell 29% from last quarter to $4.0 million.
💲 Other KPIs
Fee income rose for a fourth quarter and is growing faster each time: up 14.8% from a year ago after 11.0% last quarter. It now makes up 37.5% of revenue. Corporate card spending added $3.6 million of bank card fees, and corporate cash management added $2.2 million of deposit fees, both from a year ago.
Assets the trust business manages or holds for clients slipped 2.4% from June's $94.5 billion, the first decline since FineMark added $8.7 billion in January. They remain 12% above a year ago. Trust fees still rose in the quarter, so the bank earned more per dollar of assets, by our math.
The reserve held against loan losses rose $2.5 million, but loans grew faster, so it slipped to .93% of loans. Charge-offs ran at .20% of loans annualized, inside the narrow range of the past year. The provision for losses was $10.0 million, half the year-ago figure, so credit costs are not what is holding profit back.
🔮 Guidance
Unchanged. Commerce still expects about $1.1 billion of its bonds to mature or pay down over the next year, roughly an eighth of the $8.2 billion book. New bonds bought this quarter yield 4.88%, well above what the book earns, so reinvesting that cash keeps helping the margin without a rate move. The expected figure has come down from $1.3 billion a year ago as the portfolio shrinks.
❓ Key Questions
How much of trust fee growth comes from FineMark?
Trust fees rose 25.7% from a year ago, but that includes an acquired book. Commerce has not split FineMark's revenue out. Until it does, nobody can tell whether the Sunbelt wealth push is winning new clients or only adding bought ones.
Why did wealth deposits fall, and will it continue?
Average wealth deposits fell $295.2 million in a quarter. Kemper called deposits in line with expectations. Is the cash moving into Commerce's own investment products, where fees follow, or leaving to competitors ahead of the conversion?
What are problem loans at September 30?
Substandard business loans rose sharply in the first half while the allowance ratio fell. Charge-offs stayed low this quarter, but the problem-loan table that would show whether migration stopped sits in the unpublished filing.
What delayed the conversion, and are savings on track?
The FineMark systems switch moved from late 2026 to February 2027 for more testing. Commerce says targets are unchanged, but gives no progress figure on the cost savings the deal was sold on.
What will Nolan & Associates add to capital market fees?
Capital market fees fell 29% from last quarter to $4.0 million. Commerce closed the Nolan purchase on October 1 without a price or revenue figure, so the fourth-quarter fee line is the first reading.