I'm the Senior Mid-Cap Analyst here at Bank of America, and joining me this afternoon is Chuck Kim, Commerce Bancshares Executive Vice President and Chief Financial Officer. You've served as CFO since 2009, you've been with the bank since 1989, and under your leadership the bank has essentially maintained a reputation as being one of the most consistent, well-capitalized banks in the country, so it's a pleasure to have you. Before we jump into 2026, I would love to hear your thoughts on how 2025 went for the bank in your perspective.
Sure, so 2025, exciting year for us. Back in the M&A space for the first time in 13 years with FineMark, and we can talk some more about that later, but very exciting strategic opportunity for us. 2025 was a record year, almost no matter how you slice it, record earnings, record EPS, probably record ROA for the whole year, and that was built on the back of 10% EPS growth in 2024, where we had posted sort of similar results, 9% growth in EPS in 2025. So really strong years. I think our model with our low-cost deposit base and our really strong fee-income businesses really played out the way it should play out, and we've enjoyed a couple of strong years. And then we did close on the FineMark transaction, which was an exciting thing for us.
It was fun to get that across the finish line, result of a five-year relationship that we had with FineMark, getting to know them, and the timing got to be right, and so we were thrilled to be able to execute on that transaction and get it closed right at the first of the year.
That's great, and it's a great transition into FineMark, right? So as you said, close on the first. As you get through the 90 days of integration, all that, what are the operational and client-facing milestones that you're prioritizing that we should, on the outside, be keeping an eye on?
Yeah, for us, this purchase is a strategy play, not a cost-takeout play. So one of our most important goals is to keep the FineMark model intact, and so that means keeping the client-facing associates engaged and happy, and keeping the customers in place. That'll be hard for you all to track other than just talking to us about it and looking at the numbers in terms of growth, but we're very pleased with how that's going thus far. Since the deal's been announced, FineMark's assets under management have grown nicely from the $7 billion to over $8 billion, and so it's a sign that they've been able to continue to sell and bring in new customers even while the deal was in play.
So ultimately, this strengthens our wealth business, so sort of looking overall at growth in trust assets, trust fees, and then within the loan buckets, our private banking business is one of our faster-growing segments in terms of loans. It's kind of spread across several categories, so you don't see it as much, but it should show up more with FineMark in place. So those would be the areas, and what we're looking to do, and we've done it so far, with the legal day-one close, we retained the FineMark brand and sort of in a co-branding strategy because that was a brand that's well-known in the wealth segment, in Florida particularly, and it means something to the customers.
And then Joseph Catti, who built the business over the last 20 years, very much still in place running the FineMark brand and the FineMark branches alongside John Handy, our Head of Wealth. So we're very excited from what we can learn from them and then our ability to bring the larger Commerce set of products and services to them.
Gotcha, and so you described the acquisition as being a strategy play, and I'm curious to hear from your perspective. You're in some newer markets. How does that strengthen your competitive advantage in those markets? You're bringing a bigger balance sheet, more capabilities. Can we just talk about, from your perspective, how you can posture yourself or position yourself to sort of take advantage of the market?
Sure, so FineMark has some very nice locations in some great parts of Southern Florida, as well as Scottsdale and South Carolina, but that Southern Florida franchise is particularly important to us. It has one, I think, our third-largest concentration of assets under management outside of St. Louis and Kansas City because lots of folks from the Midwest tend to migrate down to that area. So our ability to offer more convenience to our existing customers is a big deal. We had a client event there, the first joint client event, I think, a couple of weeks ago, and over 300 people in attendance, half, maybe 40% Commerce. And so they have a set of branches, as well as some of the best wealth management professionals that we've seen at FineMark at their service now.
So I think it helps us with that customer base, but it also gives us so the FineMark bankers have pretty broad sets of experience, some more on the commercial banking side, even though now they're more focused at the wealth segment, and they can spot opportunities that maybe FineMark might not have been able to go after because of our broader product set, more treasury services offerings, maybe our specialization in healthcare, just bigger balance sheet, some of those things. We feel we're already seeing them reach out and say, "Hey, can you help me with this?" And then I would say just sort of strengthening their good business. There's a lot of infrastructure in our wealth management business.
We've got people that specialize in managing farms and business valuation specialists, just many different specialists that FineMark either wouldn't have as much of a portfolio there, wouldn't have as many people with that expertise, or maybe they're outsourcing it, and now we can bring that to bear and improve service provided to their customers. And their customers are a very, very happy bunch, but I think there's more opportunity for both just in the market and with their customer base.
Gotcha, and before we move to the next topic, if you guys have any questions in the audience, please raise your hand and someone will come around with the mic. So shifting away from the acquisition and focus on legacy core Commerce Bancshares, let's talk quickly, or for however long you want, actually, the borrower sentiment, the expectations for loan growth into this year, what you're hearing, whether or not any of the tax benefits are trickling through.
Yeah, so this would be a question I've answered a few times today because everybody's very interested in borrower sentiment, and if you want to juxtapose it against a year ago, I think there was a lot of uncertainty. You had the tariffs and huge numbers, and everybody worried about, "Well, how's that going to affect inflation? How's that going to affect the economy?" Just a lot of noise and uncertainty, and that continued on through the year, but I think people now have adjusted a little bit to the noise. We've seen the tariffs work their way through and their impact on inflation, GDP, whatever. I think it feels like people are in a better place than they would have been a year ago in terms of uncertainty, but it's still probably kind of a moderate sentiment.
I wouldn't say that it's a real go-go sentiment, but I don't think people are afraid of making investments or afraid of stepping out. Maybe earlier they were looking for rates to drop a lot; now it kind of seems like rates maybe have stabilized for a while, and maybe that gets some people into the market. I think the jury's still out as to what does that translate into. We've seen about 3% loan growth in 2025, and if you look at average to average for the fourth quarter, about that same level.
We usually talk about the fact that we're kind of a moderate single-digit grower of loans, not that we can't do better than that sometime, but it tends to be just sort of a lumpy exception, and we'll do whatever loans that fit our credit box, but that's kind of the way it tends to turn out. So in this environment where the trend line's running about 3% right now, not a lot of expectation. I'm from Missouri, you kind of have to show it to me before I believe it.
So while our lenders will talk about pipeline and all those things, I think we sort of need to see the first quarter work out, and maybe as we get a little further into the year, we can see something that lifts us above the trend line, but right now that's kind of what we're looking at.
Gotcha, and just going back quickly to the deal, just in terms of how you're thinking about the core franchise, you did make some balance sheet. You did take some balance sheet action since the close, but I'm curious, FineMark was a little bit more heavy and resi. Are you making any changes to how you think about growth in that? So I guess as the two portfolios do come together, it's a little bit more balanced than maybe more weighted to resi.
Yeah, so if you look at, I mean, we have a decent-sized 1-4 family mortgage business in our portfolio, and a good piece of it is wealth-oriented. We're not outsized there. Throw in $1 billion or $2 billion from FineMark in that space, and we're probably above average, maybe tilting into the 75th percentile or something, but we have been reducing our exposure to mortgage-backed securities, so sort of reducing the convexity risk in the bond portfolio so that we can keep the balance sheet freed up for those good customers that come our way.
FineMark is particularly good at sort of multiple relationships or multiple services to their customers, so if they're doing a mortgage loan, they're likely they've got that person's deposits, they've got that person's wealth management, and we want to make sure that we've got the capacity to continue to accommodate their growth, which had been high single-digit, double-digit loan growth, although last year slowed down a little bit. The production was still what was expected, but payoffs were greater. On the legacy Commerce side, that's kind of in the commercial real estate space.
With them, it was a little bit of that, but basically their wealth customers had experienced quite a bit of appreciation, and they sort of opportunistically paid off more than what was anticipated, so the production amounts didn't create that same loan growth, but we feel like that can come back gradually as we work our way through 2026.
Great, and then so sort of switching to the other side of the balance sheet for a second, right? When we catch up during the year, you guys have told us that the deposit competition in the market had been elevated, right? But it did stabilize in the end of the year. Balances did grow about 1% quarter-over-quarter in the fourth quarter. How would you describe the competition at the start this year relative to how things were in 2025 and what your expectations are for some maybe balance sheet growth?
Sure, so what we kind of talked about most of the last year was getting back to sort of trendline growth in deposits, which for us is in the 2%-3% range. In high-interest-rate environments where the competition gets heavy and very expensive, probably lower deposit growth rates. In low-interest-rate times, lower than where we are now, we tend to grow faster because we're kind of the operating bank for a lot of our customers, and they tend to just accumulate extra cash if there's nothing else to do with it with us. So right now, we think that kind of trendline growth, 2%-3%, is pretty representative of where we are. That gives us more than enough to fund loan growth.
When you look at competitiveness, I think what we saw is when we got a few rate decreases in a row fairly quickly, we didn't see as much decline sort of in the retail rate. It tends to be promotions and CDs. It felt like people were sort of artificially keeping those up, and then later in the year, as you mentioned, it feels like they've begun to do what they needed to do in terms of lowering rates, and so that's a good thing. We were able to lower deposit costs in the fourth quarter, but with our low-cost funding base, there's a lot of our deposits that can't go down. Now, we do have our wealth deposits, some of our commercial money market, and we have some customer repos that are all very interest-rate sensitive.
Those cannot go down with a pretty good beta, but as we get lower, that becomes more challenging.
Gotcha, and I think that's one aspect that people may not necessarily have a full grasp of, of how you sort of approach the deposit customer with the whole bank opportunity, right? And it's the reason why your deposit costs have been as low as they are, right? Obviously, it does limit the deposit beta leverage on the downside, but you did see 37% deposit beta on the upside. Is there an opportunity to, with or without rate cuts, sort of retrace that so that through the cycle on the downside is also 37%, or is the competition in the market sort of keeping you sort of higher, or I should say lower than that 37%?
Sure, so we're not quite there. We'd still be in the 20s right now. Through the cycle, can we get into the 30s? I think so. I mean, I think we originally and our treasurer would probably still say, "Yeah, we'll eventually get there." Some of it's got to do, though, with the timing of how quickly you get the rate increases and decreases, but we do through another couple of three-rate decreases, we've got plenty of room to move sort of the heavy barbell end of our deposits down more, but you start getting much further than three or four another 100 basis points, and it's a little tougher to squeeze at that point. It'll be tougher for everybody to squeeze, which is why we have some hedges.
Our biggest risk is to downward is to zero rates, so we have about $2 billion worth of floors that actually, if we move one more rate decrease or maybe two, we get into the money on one of those, and that kind of sounds good. Oh, we're going to get into the money, and we'd rather rates stay high. It's sort of like, do you really want to use your homeowner's insurance? You probably don't. You'd rather just pay the premium and never realize it, and that's the way we'd be on interest rates, but we do have those things in place.
We have some asset repos that will kick up in yield as rates move down, so we try to hedge that exposure to zero interest rates, and we experienced zero interest rates for a number of years, and we posted good returns during those times. It was more challenging, but still were ROAs, ROEs, and top quartile performance, even with that sort of asset sensitivity working against us.
Gotcha, and so that's a great segue, right? The asset sensitivity of the bank, right? So can you just walk through the cadence of how legacy CBSH NIM could progress over the course of the year, right? You talked about around 3% loan growth, 2%-3% deposit growth, having some leverage on the deposit side, but I would love to know how legacy CBSH can what the NIM expansion story could be.
Sure, sure, so I think the best thing to look at is what happened in the last two quarters because we had some rate decreases in those two quarters, and actually, if you look at the fourth quarter with a decrease in December and another one pretty late in the quarter, those have still yet to filter through. And if you look at our headline NIM, or if you want to adjust for a couple of things that we typically adjust for, we were quarter to quarter probably down somewhere 3-6 basis points each quarter in NIM.
Now we managed to get NII was up fourth quarter over third quarter because of some balance sheet expansion, but I think with the interest rate environment in the first quarter, it's going to make us look a lot like what happened in the last two in terms of pressure. After that, if we don't see rate cuts early in the year, things can kind of stabilize, I think. A little more pressure as those rate increases come later in the year, although for us, there's still some asset repricing, $300 million in the bond book that's coming off.
The average is $298 and probably going back on in the mid to high threes if we're buying Treasuries, so there's some leverage there, and then we do have some fixed-rate loans that also are repricing, getting probably a little bit better spread there, so those are all things that kind of work in our favor in a more stable interest rate environment, which is kind of what the market is forecasting for the first couple of quarters, but we still kind of have to endure sort of the full quarter effect of what happened in the fourth quarter in Q1.
Gotcha, and so sort of switching to fees, which is really what differentiates you guys from your mid-cap peers in terms of the diversification in revenue, just talk about the drivers there. I think Visa, Mastercard sort of talked about. A healthy consumer, just what you're sort of seeing on the card side and payment stuff.
Sure, so I would say our numbers would reflect what Visa's saying, but the consumer, I think, pretty resilient in spending. Debit and credit card fees on the consumer side kind of flattish, a little bit of competition on the reward side. Historically, over the last several years, the driver of growth has been on the commercial side for us, although we've kind of plateaued a little bit in our growth in our commercial card fees. It seems like volume and spend is picking up a little bit, so that usually portends an increase in the fees on the go forward.
What we're hoping for in 2026, instead of being a bit of a drag or flat part of our fee income portfolio, that it'll be totally flat or we'll get a little bit of growth out of the card business, and then so that's sort of one, the second largest component of our fee income, and a lot of the business in healthcare. Healthcare is growing, healthcare spend is growing, so we feel good about that.
On the trust side, we had growth both in our trust fees and brokerage fees, and those two units run together, one sort of serving mass affluent, the other serving the wealth side, and that growth, high single-digit, helped a little bit by the market, but mostly by record sales in our asset management business, and so as we look into 2026, we expect continued growth there.
Of course, it's going to be enhanced by FineMark coming on board, but I think both groups should be able to continue to grow. Now, if you don't get help from the market, it's hard to grow the trust fees much more than mid-single digits, even with really successful sales, but with the kind of retention that we have and the kind of sales that we've had, and I think the combination of our forces with FineMark should be really good for that fee income business, and then another piece would be our treasury services fees, our overall deposit account fees, which were growing at 5%-6% last year.
Again, a lot of that related to the healthcare business, the processing of payments through their handling of receivables, the payables on the card side, and we expect that to continue to do well.
We have several other smaller fee income businesses, which tend to, whether it's swaps or foreign exchange or our tax credit business, a little capital markets business selling bonds to banks. In 2025, we had some pretty good outcomes on some disposition of lease assets. It was produced about $9 million in one-timers that we really won't count on. We get some of those, but usually, it's not of that magnitude, so that's a little bit of a headwind on that growth number because that won't be replicated, but the model continues to work as expected, and I think it's heads down on getting the FineMark integration, right? But it's not going to slow down the growth either on the FineMark side or the commerce side, and now the combined entities in terms of that assets under management.
Gotcha, one of the positive surprises that investors got was the buyback. I know when we caught up, you guys explained that you were just catching up for being out of the market related to the deal, and you're going back to the $40 million-$45 million per quarter pace. I guess the first question I have is, why not increase the pace? Explain to investors why your view of holding more capital than peers is a value add.
Sure, so I would say maybe we'll start there. Our capital position gives us a lot of flexibility, so when things were tough, when you went through 2023, I didn't have anybody coming to me and saying, "Hey, you got too much capital." So the tune changes depending on what's going on in the environment, but we're a bit of a belt and suspenders kind of operation, maybe belt suspenders and an overcoat in terms of the way we approach the business prudently, whether that's our credit underwriting, our liquidity management, and our capital management, and we feel like that's a strength of who we are just because of that flexibility. Now, that said, the buyback is a consistent part of who we are, and we're one of the last ones.
If the economic environment is sort of dictating to slow down buybacks, we're one of the last ones to stop, and we're also one of the first ones to start because our model generates a lot of capital, and we have, in those fee businesses, those revenues, the businesses that support those fee businesses don't require a lot of capital, so we've always got that sort of high-class problem, so that's why the buyback's always going to be a part of who we are.
I would say, yeah, there was a bit of a catch-up in the fourth quarter. There was also some opportunistic buying because we feel like the price is a good one, and as we look out into 2026, one of the nice things about the buyback is it's a lever. You can move up and down depending. It's not like your dividend. You don't want to move that up and down, especially when you got 57 years of increasing it, but the buyback can move up and down, so we've got some flexibility there. It'll be interesting.
We'll get all the fair value accounting done here in the first quarter. Probably, the FineMark transaction uses a little bit less, 10 or 20 basis points of capital less than what we projected initially, and we'll see where the capital ratios land and then sort of go from there, but we've got a history of being in the market. We've got a history of returning capital consistently, and when we get too much, we return more.
Great, I do want to change the pace of the conversation if we can, right? You talked about being optimistic with the buyback. You guys have shown historically as being a high-quality compounder, right? So what do you think the market is underappreciating when you look at the stock and what your earnings trajectory could produce?
Sure, so we're known as being sort of a safe haven. People, a lot of the buy-side folks will say, "Yeah, you can never get fired for holding Commerce," because pretty much, we hold up well in bad times, and we haven't really had very many bad times. I mean, everybody looks like a fantastic credit underwriter in these conditions, and so I think probably, and that's part of what gives us the valuation we have is our credit underwriting, and I think right now, that's probably underappreciated, and I understand that just because nobody's experiencing much there, but over time, that will pay off. I think, again, tying into that safe haven thing, we're kind of a lower beta stock. We tend to move a little bit less, and sometimes, that makes us look good.
Sometimes, that makes us not look as good, and then a risk-on environment is where we might not be the name you'd go to. I do think people kind of, because of just the environment that we're in right now, our asset sensitivity is underappreciated.
I mean, the reason we're asset sensitive is because we have one of the best deposit bases in the business, low-cost, and over time, and through the cycle, that low-cost deposit base is a key part of why we're able to return significantly above our peers in ROA, year in, year out, over 10 years, over 20 years, and right now, okay, yes, if you're more liability sensitive, you're going to get some margin expansion in Q1 or Q4 here, and if you're a little bit asset sensitive like we are, yeah, it's going to work against you, but over time, I think we've proven that's a positive to our model, not a negative.
Gotcha, and then so as we enter and get into 2026, what are the one or two things you want investors to understand about the earnings durability of the bank?
Yeah, it ties into what I was just saying. We're kind of an all-weather model. We have diversity in our revenue stream and our asset base, really all over the bank, so you've got the diversity between the net interest margin exposure and the fee income exposure, and even our fee income. We're not a one-trick pony on the fee income. I described three of the big legs of the stool in card, in treasury services fees, and wealth, but on top of that, a lot of ancillary fee businesses that are really pretty good, so lots of diversity, things that work well in different kinds of environment, so when there's NIM pressure, we still got the fee income there to grow, so diversity there.
Then in our loan portfolio, diversity there as well. We have more, for a bank our size, we have more consumer exposure than most. That allows us to sort of be less concentrated in some areas that concern people. We're diversified in terms of our markets, at least we are now. We used to get some critique because we were just in low, sort of lower-growth Midwestern markets, but now, with the expansion down into Texas, Colorado, and then, of course, with FineMark, we've got some higher-growth geographies that we're in. So I think it's that the diverse business model that does well in all environments. I think that's a huge, huge takeaway, and then the capital strength and liquidity strength that allows us to weather any kind of situation.
Great, and with a few more minutes, I do want to sort of pivot to expenses. One of the observations we made was the larger banks were spending a little bit more on tech than the average mid-cap bank, and you could see it in the expense growth rate divergence into 2026. I'm just curious, as you enter 2026, what are the investments you're making? What is table stakes now? Is AI just as important as having a good mobile app? I'm just, with respect to commerce, where are you investing? Where do you see the greatest ROI?
Sure, so in a couple of different areas, one, certainly, sort of enhancing our digital offerings to our customers and saying, our customers can open accounts digitally, but there are things that we need to do to improve that, to make it easier. Banks have to balance Know Your Customer with the ease of signing up. We have to get better at that. A lot of times, you have to turn off your digital channels because fraud is creeping in, and we've got to get past that.
We've got to figure out how to fight that off and still give the convenience to the customer, so we have initiatives on the consumer side and the commercial side to just continue to make it easier for our customers, less paper-intensive, easier to do it in whatever channel that they want to manage us, that they want to manage their business with us. So I'd say that sort of continued investment in digital, investment in data, and if you think about sort of utilizing AI, you've got to have clean data in order to really leverage that. And so we're upgrading our overall infrastructure, whether that's the tools we use to extract the data or where we use to house it.
We have stepped up our data governance, which kind of ties into the quality of the data so that you know when you're running those algorithms or you're utilizing AI, you know that what's feeding it is true, and so the outcomes you get are better, so a lot of investment there. Investing in commercial APIs, which we have a lot of sophisticated card and payments products that we need, those things to tie in easily to our customers' ERP systems, so it's important that we've got those APIs that just easily can fit into the major systems. We do that with some of the hospital-based systems already, but we need to be stronger because we're passing more information. I mean, that's what kind of makes our payment systems products sticky.
It's not just processing the payment quickly, which is another thing we're spending money on continuously, but it's also passing the information they need to tie right into their general ledger, so a lot of spend there, and I would say, sort of on the AI side, both internally figuring out sort of how various areas of the bank can utilize AI tools to make their jobs easier, and then looking for sort of those long-term business cases that are very valuable. At our size, we're going to have to leverage our partners that are providing us with systems, so think Temenos, think Avaya in the call center world.
We're not going to build the best AI call center agent that somebody else is going to do that, and we're going to buy that, but it doesn't mean that on the inside, we're not investing as well to sort of figure out what business cases make sense. A lot of fraud, a lot of solutions around fraud utilizing AI, and maybe the trick there is I've got all kinds of engines that try to capture fraud in the card business.
Maybe we can unplug some of those and plug in a cheaper AI version and save some money there, but still catch the same amount of fraud, so I'd say we've done a nice job of kind of getting in front of modernizing our systems, our core, but there's continued expansion there of improving our commercial loan system, investments going in there.
On the retail side, we're a Salesforce shop in commercial and wealth, and we're on the cusp of being a Salesforce shop in retail, and that really will just improve data movement between our frontline folks and enable the data flow into the data warehouses just that much slicker.
Great, great, great, so any questions from the audience? Well, I guess, just before I let you go, is there any final message you want investors to walk away? I mean, you talked about the revenue diversity of the bank, the capital position that provides you flexibility, the opportunity that FineMark gives. Is there any closing remarks you want to give the audience here for them to remember when they leave?
Sure, I would say one thing, we talked about the sort of misunderstanding about our asset sensitivity. I'd say our asset sensitivity is a feature of our model. It's not a fault, and over the long run, that's what helps us outperform. It's driven by that low-cost deposit base, and you'd always rather have a lower cost of funds, lower cost there than you would higher costs, so that would be one thing. Another thing is, and a couple of investors have said, we're ridiculously cheap right now, and we run the bank. We've been around 160 years.
We run the bank to be around another 160 years. We run it for the long run, so I'm not necessarily saying we're a quick turnaround play in terms of valuation, but I talk to a lot of people who say, "Yeah, we'd like to own you. You're a good earner. You're consistent with your execution year in and year out, but there's never a time to get in." Well, I'd say there's a time to get in now, so that's what I'd leave you with.
Well, thank you, everybody. Thank you very much, Chuck, for coming. I appreciate it.
All.