10-K: Commerce Bancshares Reports Strong 2025 Growth, Strategic Expansion

Commerce Bancshares, Inc. reported a 7.6% increase in net income for 2025, driven by revenue growth and a strategic acquisition, while maintaining robust capital levels.

Summary

• Net income attributable to Commerce Bancshares, Inc. increased 7.6% to $566.3 million in 2025, up from $526.3 million in 2024.
• Diluted earnings per share rose 9.5% to $4.04 in 2025 from $3.69 in 2024.
• Total revenue grew 6.5% to $1.76 billion in 2025, with net interest income up $71.6 million (6.9%) and non-interest income up $36.7 million (6.0%).
• Non-interest expense increased 3.0% to $979.8 million in 2025, primarily due to higher salaries and employee benefits, and professional and other services expense.
• The provision for credit losses increased by $23.2 million to $56.1 million in 2025, mainly due to higher net loan charge-offs.
• Net loan charge-offs totaled $40.7 million in 2025, an increase of $1.8 million from 2024, averaging 0.23% of loans in both years.
• Non-performing assets decreased to $17.0 million at December 31, 2025, from $18.6 million at December 31, 2024, representing 0.10% of loans outstanding.
• The company completed the acquisition of FineMark Holdings, Inc. on January 1, 2026, in an all-stock transaction, issuing 9.9 million shares of common stock.
• FineMark adds 13 banking offices in Florida, Arizona, and South Carolina, with $2.7 billion in loans, $3.1 billion in deposits, and $8.7 billion in assets under administration at December 31, 2025.
• The company maintained strong capital ratios, with Tier I common risk-based capital ratio at 17.34% and Tier I leverage ratio at 12.65% at December 31, 2025, well above minimum requirements.
• Cash dividends of $1.05 per share were paid in 2025, representing a 6.9% increase over the previous year, marking the 57th consecutive year of growth in its regular common dividend.
• A 5% common stock dividend was issued for the 32nd consecutive year in December 2025.
• The company purchased 3.6 million shares of its common stock in 2025.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as a solid performance with strong core financial growth and strategic expansion through acquisition. While the increase in credit loss provision is a watch point, overall asset quality remains strong, and capital levels are robust. The underperformance in TSR compared to benchmarks is a concern, but the underlying operational improvements are positive.

Positives

• Net income attributable to Commerce Bancshares, Inc. increased 7.6% to $566.3 million in 2025.
• Diluted earnings per share grew 9.5% to $4.04 in 2025.
• Total revenue increased 6.5% to $1.76 billion in 2025, driven by both net interest income (up 6.9%) and non-interest income (up 6.0%).
• Trust fee income increased $18.3 million, or 8.5%, mainly from higher private client trust fees.
• Deposit account fees increased $7.9 million, or 7.9%, primarily due to higher corporate cash management fees.
• Non-performing assets decreased to $17.0 million at December 31, 2025, representing a low 0.10% of loans outstanding.
• Capital adequacy ratios remain strong and well in excess of minimum requirements, with a Tier I common risk-based capital ratio of 17.34% and a Tier I leverage ratio of 12.65% at December 31, 2025.
• The company has a long history of paying dividends, marking its 57th consecutive year of regular common dividend growth and 32nd consecutive annual 5% common stock dividend.
• The acquisition of FineMark Holdings, Inc. on January 1, 2026, strengthens the company's presence in Florida and adds new high-growth markets in Arizona and South Carolina to its wealth segment.
• The efficiency ratio improved to 55.5% in 2025 from 57.4% in 2024, indicating better cost management.
• Net yield on interest earning assets increased to 3.63% in 2025 compared to 3.47% in 2024.

Negatives

• The provision for credit losses increased significantly by $23.2 million, or 70.6%, to $56.1 million in 2025.
• Net loan charge-offs increased by $1.8 million in 2025, mainly due to higher consumer credit card and business loan net charge-offs.
• Interest earned on loans decreased by $25.9 million in 2025, primarily due to lower average rates earned, partly offset by higher average balances.
• Net investment securities gains (losses) decreased by 53.2% to $3.7 million in 2025 from $7.8 million in 2024.
• Net corporate card fees decreased by 3.7% and net credit card fees decreased by 10.1% in 2025, mainly due to higher rewards expense.
• Total shareholder return, including stock price change and dividend reinvestment, was 2.1% over the past 5 years, underperforming the KBW Nasdaq Regional Banking Index (9.1%) and the S&P 500 (9.2%) over the same period.

Risks

• Difficult market conditions, including uneven U.S. economic growth, persistently elevated inflation, and a slowing labor market, may negatively affect the company's industry.
• Uncertainties about tariff policies and international trade could contribute to price pressures and economic uncertainty, impacting consumer credit usage, payment patterns, loan demand, and default rates.
• The process used to estimate credit losses in the loan portfolio requires difficult, subjective, and complex judgments, which, if inaccurate, could impact the reliability of the process.
• Competition in the financial services industry could intensify due to consolidation and new entrants (e.g., financial technology companies), potentially reducing market prices for products and services and lowering revenues.
• The company's performance is heavily dependent on the economic conditions of its primary markets (Missouri, Kansas, central Illinois, Oklahoma, Colorado), making it vulnerable to prolonged regional economic downturns.
• Extensive government regulation and supervision, including potential changes in statutes, regulations, or policies, could subject the company to additional costs, limit service offerings, restrict dividend payments, or increase capital requirements.
• Significant changes in federal monetary policy, particularly by the Federal Reserve, could result in lower interest margins and a lack of demand for credit products.
• Climate-related and other Environmental, Social, and Governance (ESG) developments could lead to additional regulation, reporting requirements, increased time and expense for compliance, and potential impacts on customer creditworthiness.
• The company is subject to both interest rate and liquidity risk, with changes in monetary policy influencing loan originations, deposit generation, and net interest income.
• The soundness of other financial institutions could adversely affect the company's ability to engage in routine funding transactions, and defaults by counterparties could lead to liquidity problems.
• Decreased confidence in regional banks among deposit customers, investors, and other counterparties may cause significant disruption, volatility, and reduced valuations of equity and other securities.
• Rapidly rising interest rates could increase unrealized losses in the available-for-sale debt securities portfolio and intensify competition for bank deposits, leading to higher interest expense.
• The parent company relies on dividends from its subsidiary bank for most of its revenue, and regulatory limitations on these dividends could affect its ability to pay common stock dividends or meet other cash needs.
• The company's asset valuation methodologies, models, estimations, and assumptions are subject to differing interpretations and could result in changes to asset valuations that materially adversely affect results.
• Reliance on third-party vendors exposes the company to risks of non-performance, operational errors, system interruptions, or security breaches.
• Integrating FineMark into the company may be more difficult, costly, or time-consuming than expected, and anticipated benefits and cost savings may not be fully realized.
• The company has incurred and expects to incur substantial costs related to the FineMark merger, which may not be offset by efficiencies in the near term.
• Inability to retain key personnel, including management, could disrupt operations, lead to loss of customers, and increase recruitment costs.
• New lines of business or products may subject the company to additional risks, including failure to achieve timetables or profitability targets.
• A successful cyber attack or other computer system breach could significantly harm the company, its reputation, and its customers, leading to financial losses, litigation, and lost business.
• Failure to successfully keep pace with rapid technological change or effectively implement new technology-driven products and services could adversely affect the company's business.
• Public health threats or outbreaks of communicable diseases could have an adverse effect on the company's operations and financial results.

Future Outlook

The company's goal is to be the preferred provider of financial services in its communities, focusing on core revenue growth by expanding customer relationships, controlled expansion into additional markets, utilizing improved technology, and enhancing customer satisfaction. It anticipates approximately $1.2 billion in investment security maturities and pay downs during 2026, which will provide substantial resources to meet new loan demand or offset potential reductions in its deposit funding base. The company expects pension expense to decrease to $1.1 million in 2026 from $1.5 million in 2025.

Management Comments

• The Company's goal is to be the preferred provider of financial services in its communities, based on strong customer relationships built through providing top quality service with a strong risk management culture, and employing a strong balance sheet with strong capital levels.
• The Company operates under a super-community banking format which incorporates large bank product offerings coupled with deep local market knowledge, augmented by experienced, centralized support in select, critical areas.
• The Company believes inclusion builds stronger companies with better results and focuses its efforts around four key pillars: its workforce, its suppliers, its community and its customers.
• The Company's longstanding approach of doing what's right continues to guide its focus on its team members and communities.
• Management believes that the risks in the consumer loan portfolio are reasonable and the anticipated loss ratios are within acceptable parameters.
• Management believes all loans to directors and executive officers have been made in the ordinary course of business with normal credit terms, including interest rate and collateral considerations, and do not represent more than a normal risk of collection.
• Management believes there are no significant concentrations of risk within the plan asset portfolio at December 31, 2025.
• Management believes there are no material commitments to extend credit that represent risks of an unusual nature.
• Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the total deferred tax assets, therefore, no valuation allowance is needed for the deferred tax assets at year end.
• The Company considers the allowance for credit losses on loans and the liability for unfunded lending commitments adequate to cover losses expected in the loan portfolio, including unfunded commitments, at December 31, 2025.

Industry Context

StockSavvy.ai notes that Commerce Bancshares' strategic acquisition of FineMark Holdings, Inc. in Florida, Arizona, and South Carolina aligns with a broader industry trend of regional banks seeking growth in high-growth markets and expanding wealth management capabilities to diversify revenue streams. The company's strong capital ratios and focus on core deposits position it favorably amidst ongoing concerns about liquidity and regional bank stability, as highlighted by banking failures in 2023. The increase in provision for credit losses, particularly in consumer credit cards, reflects a cautious approach in a moderating economic environment, a trend observed across the banking sector.

Comparison to Industry Standards

• The company's average loans to deposits ratio of 69.8% for 2025 is lower than the industry average, indicating strong liquidity.
• The non-performing assets to total loans ratio at 0.1% at December 31, 2025, is low compared to the overall banking industry.
• The company's employee engagement levels, as recognized by Korn Ferry, are at or above U.S. high-performing benchmarks, suggesting strong human capital management compared to peers.
• The company's total shareholder return of 2.1% over the past 5 years significantly underperformed the KBW Nasdaq Regional Banking Index (9.1%) and the S&P 500 (9.2%) over the same period, indicating relative underperformance compared to both regional banking peers and the broader market.

Management Changes

Corporate Governance

Legal Proceedings

• The company has various legal proceedings pending at December 31, 2025, arising in the normal course of business.
• A loss accrual is recorded for all legal and regulatory matters for which a loss is deemed probable and can be reasonably estimated.
• Some matters are in early stages where a probable and estimable loss amount cannot yet be determined.

Related Party Transactions

• The company's Chief Executive Officer, Executive Chairman, and former Vice Chairman are directors of Tower Properties Company (Tower) and, together with members of their immediate families, beneficially own approximately 76% of Tower.
• Tower owned 284,092 shares of company stock at December 31, 2025.
• The company ended its property management services contract with Tower as of December 31, 2024.
• Tower was no longer a lessee of the company as of January 1, 2025.
• Tower has a $13.5 million line of credit with the Bank, subject to normal credit terms and a variable interest rate, collateralized by company stock with a maximum borrowing amount of approximately $9.7 million at December 31, 2025. No borrowings were outstanding in 2025, 2024, or 2023.
• Loans to directors and executive officers of the Parent and the Bank, and to their affiliates, totaled $78.6 million at December 31, 2025, made on substantially the same terms as for comparable transactions with unrelated persons.

Stakeholder Impact

• Shareholders: Positive impact from increased net income, EPS, and consistent dividend growth. Share repurchase program also benefits shareholders. Strategic acquisition aims for long-term value creation. However, underperformance in TSR compared to benchmarks is a concern.
• Employees: Continued focus on attracting and retaining talent through comprehensive 'Total Rewards' programs (401(k), health savings, EAP, Care.com, wellness, career development). Employee Resource Groups (ERGs) foster inclusion. Management changes for some executives.
• Customers: Expanded product offerings and geographic reach through FineMark acquisition, particularly in wealth management. Continued focus on high-quality service and relationship banking.
• Suppliers: Reliance on third-party vendors for operations, exposing the company to vendor performance risks.
• Creditors: Strong capital ratios and liquidity position enhance creditworthiness.

Next Steps

• Integration of FineMark Holdings, Inc. into the company's operations following the January 1, 2026 acquisition.
• Continued evaluation of potential acquisitions of various financial institutions and the purchase and disposition of real estate assets and branch locations.
• The Board of Directors will make quarterly dividend determinations.
• Expected pension expense of $1.1 million in 2026.
• Funding of outstanding purchase commitments totaling $165.2 million in 2026.
• Amortization of $11.1 million (pre-tax) interest rate floor premium from Accumulated Other Comprehensive Income (AOCI) into earnings over the next 12 months.
• Reclassification of $8.8 million (pre-tax) net gains from monetized cash flow hedges from AOCI into income within the next 12 months.
• The Annual Meeting of Shareholders is scheduled for April 24, 2026.

Key Dates

Recommendation

The company demonstrates solid financial performance with growth in net income and EPS, strong capital, and a strategic acquisition that expands its market presence and wealth management capabilities. However, the increase in the provision for credit losses and the historical underperformance in total shareholder return compared to industry benchmarks suggest that while the company is fundamentally sound, it may not offer superior growth prospects relative to its peers or the broader market in the near term. The acquisition integration risks also warrant a cautious approach.

Keywords

Banking, Financial Services, Regional Bank, Wealth Management, Commercial Lending, Retail Banking, Acquisition, FineMark, Credit Quality, Capital Adequacy, Dividends, Share Repurchase, Interest Rate Risk, Cybersecurity, ESG, Missouri, Kansas, Illinois, Oklahoma, Colorado, Florida, Arizona, South Carolina