Commerce Bancshares is the Kansas City, Missouri-based holding company for Commerce Bank that operates across Missouri, Kansas, Illinois, Oklahoma, Colorado, and the broader Midwest, and the company is in the middle of a fiscal second quarter that demonstrates the kind of margin-expansion and diversified-revenue-mix pivot the midwestern regional bank cohort has been waiting for. Q2 2026 net income of $159.8 million was 4.8 percent above the prior-year quarter's $152.5 million, the Q2 2026 earnings per share of $1.10 was 0.9 percent above the prior-year quarter's $1.09, and the Q2 2026 net interest margin of 3.77 percent was 18 basis points above the Q1 2026 level. The combination of the 18 basis points of Q1 2026 to Q2 2026 net interest margin expansion, the 4.5 percent quarter over quarter non-interest income growth to $183.8 million, the 0.19 percent annualized net loan charge-offs, the 0.94 percent allowance for credit losses on loans to total loans ratio, the 13.96 percent year to date return on average equity, the 1.84 percent Q2 2026 return on average assets, the $110 million of share repurchases (2.1 million shares), the AFS securities portfolio repositioning including the TIPS sale, and the $105.4 million Visa stock gain is the cleanest single-sentence read on what the midwestern regional bank business model is producing, and the combination is the source of the operating-leverage spread the equity offers the buy-side.
The numbers tell the story with the kind of operational detail the midwestern regional bank equity has been waiting for. The Q2 2026 net interest income of $315.1 million was 5.1 percent above the Q1 2026 level's $299.9 million, with the growth driven by the 18 basis points of net interest margin expansion and the loan growth. The Q2 2026 net yield on interest earning assets of 3.77 percent was 18 basis points above the Q1 2026 level.
The Q2 2026 non-interest income of $183.8 million was 4.5 percent above the Q1 2026 level's $175.8 million, with the growth driven by the trust fees growth of $15.9 million (28.7 percent year over year), the bank card fees growth of $2.5 million (5.6 percent quarter over quarter), and the broader fee revenue growth. The Q2 2026 non-interest income represented 37 percent of total revenue in both the current and prior quarters.
The Q2 2026 non-interest expense of $297.1 million was 2.0 percent above the Q1 2026 level's $291.2 million, with the expense growth reflecting the continued investment in the franchise. The Q2 2026 average loan balances of $20.5 billion were 0.9 percent above the Q1 2026 level's $20.3 billion.
The Q2 2026 average deposits of $27.6 billion were 0.5 percent below the Q1 2026 level's $27.7 billion, with the deposit stability reflecting the relationship banking model. The Q2 2026 total average available for sale debt securities of $8.7 billion at fair value were $247.1 million below the Q1 2026 level.
The Q2 2026 credit quality metrics include the 0.19 percent annualized net loan charge-offs (vs. 0.30 percent in the prior quarter), the 0.94 percent allowance for credit losses on loans to total loans ratio (vs. 0.97 percent at March 31, 2026), and the $195.4 million allowance for credit losses on loans. The credit quality metrics are the cleanest single read on the asset quality discipline the company is producing.
The Q2 2026 capital actions include the $110 million of share repurchases (2.1 million shares) and the AFS securities portfolio repositioning including the TIPS sale. The AFS securities portfolio repositioning increases the portfolio's overall yield, improves the consistency of future net interest income, and supports a more durable net interest margin over time.
The Q2 2026 Visa Inc. stock gain of $105.4 million and the $97.7 million loss on the TIPS repositioning are the structural features the company is positioning itself around. The investment securities gains net of the repositioning loss are the cleanest single read on the portfolio management the company is producing.
The H1 2026 net income of $301.4 million was 6.1 percent above the prior-year period's $284.1 million, with the H1 2026 earnings per share of $2.06 2.0 percent above the prior-year period's $2.02. The H1 2026 return on average assets of 1.73 percent and the H1 2026 return on average equity of 13.96 percent are the cleanest single read on the H1 2026 operating profile the company is producing.
The question the next four quarters resolve is whether the company can sustain the 18 basis points of net interest margin expansion and the 4.5 percent non-interest income growth through the second half of fiscal 2026, and whether the credit quality metrics can continue. A Q3 2026 print that continues the net interest margin expansion and the non-interest income growth would confirm the operating profile is sustainable. A Q3 2026 print that shows net interest margin compression or non-interest income decline would force the market to reprice the equity for a more modest terminal value.