Item 2. Management’s Discussion and Analysis
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Company's 2024 Annual Report on Form 10-K. Results of operations for the three and six months ended June 30, 2025 are not necessarily indicative of results to be attained for any other period.
Pending Acquisition
On June 16, 2025, the Company and FineMark Holdings, Inc. ("FineMark") announced they entered into a definitive merger agreement ("Merger Agreement") in which the Company will acquire all outstanding shares of FineMark in an all-stock transaction ("Merger"). Immediately after the merger, FineMark's wholly-owned subsidiary, FineMark National Bank & Trust will merge into the Bank ("Bank Merger"). FineMark is headquartered in Fort Meyers, Florida and has 13 banking offices in Florida, Arizona, and South Carolina. As of June 30, 2025, FineMark disclosed that it had total assets of $3.9 billion (including $2.6 billion in loans), $3.5 billion of total liabilities (including $3.1 billion in deposits), and $373 million of total shareholders' equity. Under the terms of the agreement, the shareholders of FineMark will receive a fixed exchange ratio of .690 shares of Company common stock for each share of FineMark common stock. The transaction is valued at approximately $585 million (with the price based on the closing price of the Company's common shares as of June 13, 2025, the last trading day before the public announcement of the merger). The transaction remains subject to regulatory approval, approval of FineMark shareholders and other customary closing conditions. Pending these approvals, the transaction is anticipated to close on January 1, 2026.
In connection with the acquisition, the Company incurred merger-related expenses consisting predominantly of professional services for investment banking, legal, and other services associated with the pending transaction that totaled $1.9 million in the second quarter of 2025.
Forward-Looking Information
This report may contain "forward-looking statements" that are subject to risks and uncertainties and include information about possible or assumed future results of operations. Many possible events or factors could affect the future financial results and performance of the Company. This could cause results or performance to differ materially from those expressed in the forward-looking statements. Words such as "expects", "anticipates", "believes", "estimates", variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed throughout this report. Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. Such possible events or factors include: changes in economic conditions in the Company's market area; changes in policies by regulatory agencies; governmental legislation and regulation; fluctuations in interest rates; changes in liquidity requirements; demand for loans in the Company's market area; changes in accounting and tax principles, estimates made on income taxes, competition with other entities that offer financial services, cybersecurity threats; risks related to the proposed Merger with FineMark including, among others, (i) failure to complete the Merger or unexpected delays related to the merger or either party’s inability to satisfy closing conditions required to complete the Merger, (ii) certain restrictions during the pendency of the proposed Merger that may impact the parties’ ability to pursue certain business opportunities or strategic transactions, (iii) diversion of management’s attention from ongoing business operations and opportunities, (iv) cost savings and any revenue synergies from the Merger may not be fully realized or may take longer than anticipated to be realized, (v) deposits attrition, customer or employee loss and/or revenue loss as a result of the proposed Merger, and (vi) expenses related to the proposed Merger being greater than expected; and such other factors as discussed in Part I Item 1A - "Risk Factors" and Part II Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2024 Annual Report on Form 10-K and Part II, Item 1A. - "Risk Factors" in this report.
Critical Accounting Estimates and Related Policies
The Company has identified certain policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These estimates and
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related policies are the Company's allowance for credit losses and fair value measurement policies. A discussion of these estimates and related policies can be found in the sections captioned "Critical Accounting Policies" and "Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 2024 Annual Report on Form 10-K. There have been no changes in the Company's application of critical accounting policies since December 31, 2024.
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Selected Financial Data
Three Months Ended June 30 Six Months Ended June 30
2025 2024 2025 2024
Per Share Data
Net income per common share — basic $ 1.14 $ 1.03 * $ 2.12 $ 1.85 *
Net income per common share — diluted 1.14 1.03 * 2.12 1.85 *
Cash dividends on common stock .275 .257 * .550 .514 *
Book value per common share 27.43 23.31 *
Market price 62.17 53.12 *
Selected Ratios
(Based on average balance sheets)
Loans to deposits (1)
70.22 % 70.73 % 69.80 % 70.30 %
Non-interest bearing deposits to total deposits 29.52 30.05 29.45 30.01
Equity to loans (1)
20.09 17.64 19.83 17.44
Equity to deposits 14.11 12.48 13.84 12.26
Equity to total assets 11.23 10.02 10.97 9.82
Return on total assets 1.95 1.86 1.82 1.67
Return on equity 17.40 18.52 16.63 16.98
(Based on end-of-period data)
Non-interest income to revenue (2)
37.15 36.73 37.14 37.06
Efficiency ratio (3)
54.77 55.95 55.18 58.75
Tier I common risk-based capital ratio 17.17 16.19
Tier I risk-based capital ratio
17.17 16.19
Total risk-based capital ratio 17.94 16.96
Tangible common equity to tangible assets ratio (4)
10.86 9.82
Tier I leverage ratio
12.75 12.13
* Restated for the 5% stock dividend distributed in December 2024.
(1) Includes loans held for sale.
(2) Revenue includes net interest income and non-interest income.
(3) The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.
(4) The tangible common equity to tangible assets ratio is a measurement which management believes is a useful indicator of capital adequacy and utilization.
It provides a meaningful basis for period to period and company to company comparisons, and also assists regulators, investors and analysts in analyzing the financial position of the Company. Tangible common equity and tangible assets are non-GAAP measures and should not be viewed as substitutes for, or superior to, data prepared in accordance with GAAP.
The following table is a reconciliation of the GAAP financial measures of total equity and total assets to the non-GAAP measures of total tangible common equity and total tangible assets.
June 30
(Dollars in thousands) 2025 2024
Total equity $ 3,660,114 $ 3,158,335
Less non-controlling interest 19,542 20,600
Less goodwill 146,539 146,539
Less intangible assets* 3,785 3,952
Total tangible common equity (a) $ 3,490,248 $ 2,987,244
Total assets $ 32,284,247 $ 30,569,358
Less goodwill 146,539 146,539
Less intangible assets* 3,785 3,952
Total tangible assets (b) $ 32,133,923 $ 30,418,867
Tangible common equity to tangible assets ratio (a)/(b) 10.86 % 9.82 %
* Intangible assets other than mortgage servicing rights.
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Results of Operations
Summary
Three Months Ended June 30 Six Months Ended June 30
(Dollars in thousands) 2025 2024 % change 2025 2024 % change
Net interest income (expense) $ 280,147 $ 262,249 6.8 % $ 549,249 $ 511,248 7.4 %
Provision for credit losses (5,597) (5,468) 2.4 (20,084) (10,255) 95.8
Non-interest income 165,613 152,244 8.8 324,562 301,092 7.8
Investment securities gains (losses), net 437 3,233 (86.5) (7,154) 2,974 N.M.
Non-interest expense (244,437) (232,214) 5.3 (482,813) (477,911) 1.0
Income taxes (42,400) (38,602) 9.8 (79,364) (70,254) 13.0
Non-controlling interest income (expense) (1,284) (1,889) (32.0) (325) (4,678) (93.1)
Net income attributable to Commerce Bancshares, Inc. $ 152,479 $ 139,553 9.3 % $ 284,071 $ 252,216 12.6 %
For the quarter ended June 30, 2025, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $152.5 million, an increase of $12.9 million, or 9.3%, compared to the second quarter of the previous year. For the current quarter, the annualized return on average assets was 1.95%, the annualized return on average equity was 17.40%, and the efficiency ratio was 54.77%. Diluted earnings per common share was $1.14 per share in the current quarter, an increase of 10.7% compared to $1.03 per share in the second quarter of 2024, and increased 16.3% compared to $0.98 per share in the previous quarter.
Compared to the second quarter of last year, net interest income increased $17.9 million, or 6.8%, mainly due to increases in interest income on investment securities and securities purchased under agreements to resell ("resale agreements") of $9.2 million and $6.1 million, respectively, partly offset by a decrease in interest income on loans of $7.0 million. Interest expense on deposits and interest expense on borrowings also decreased $11.0 million and $4.6 million, respectively. The provision for credit losses increased $129 thousand, or 2.4%, compared to the same quarter in the prior year. Non-interest income increased $13.4 million, or 8.8%, compared to the second quarter of 2024, mainly due to increases in trust fees and capital market fees of $3.3 million and $1.4 million, respectively, along with $5.5 million in gains on the sale of assets. Net gains on investment securities totaled $437 thousand in the current quarter compared to net gains of $3.2 million in the same quarter of last year. Securities gains in the current quarter primarily resulted from net gains in fair value of $4.4 million recorded on private equity investments which were partly offset by net losses of $4.2 million on sales of available for sale debt securities. Non-interest expense increased $12.2 million, or 5.3%, over the second quarter of 2024, mainly due to higher salaries expense, professional and other services expense, and data processing and software expense, partly offset by a non-recurring charitable donation made during the prior year.
Net income for the first six months of 2025 totaled $284.1 million, an increase of $31.9 million, or 12.6% from the same period last year. Diluted earnings per common share was $2.12, an increase of 14.6% compared to $1.85 per share in the same period last year. For the first six months of 2025, the annualized return on average assets was 1.82%, the annualized return on average equity was 16.63% and the efficiency ratio was 55.18%. Net interest income increased $38.0 million, or 7.4%, over the same period last year. This growth was largely due to an increase in interest income on investment securities and securities purchased under agreements to resell ("resale agreements") of $19.7 million and $11.9 million, respectively, partly offset by a decline in interest income on loans of $17.5 million. Interest expense on deposits and interest expense on borrowings also decreased $20.3 million and $9.8 million, respectively, over the same period last year. The provision for credit losses was $20.1 million for the first six months of 2025, compared to a provision of $10.3 million in the same period last year. Non-interest income increased $23.5 million, or 7.8%, from the first six months of last year largely due to increases in trust fees, deposit fees, and capital market fees. Non-interest expense increased $4.9 million, or 1.0%, over the first six months of last year mainly due to increases in salaries and benefits expense and professional and other services expense, partly offset by non-recurring litigation settlement expense during the prior year.
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Net Interest Income
The following table summarizes the changes in net interest income on a fully taxable-equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates. Changes not solely due to volume or rate are allocated to rate.
Analysis of Changes in Net Interest Income
Three Months Ended June 30, 2025 vs. 2024 Six Months Ended June 30, 2025 vs. 2024
Change due to Change due to
(In thousands) Average
Volume Average
Rate
Total Average
Volume Average
Rate
Total
Interest income, fully taxable equivalent basis:
Loans:
Business $ 4,393 $ (6,127) $ (1,734) $ 8,041 $ (11,849) $ (3,808)
Real estate - construction and land (849) (3,362) (4,211) (2,033) (7,446) (9,479)
Real estate - business 411 (3,062) (2,651) (517) (6,960) (7,477)
Real estate - personal 40 2,067 2,107 185 4,292 4,477
Consumer 344 (580) (236) 341 (237) 104
Revolving home equity 691 (228) 463 1,387 (662) 725
Consumer credit card 242 (1,026) (784) 160 (2,047) (1,887)
Overdrafts — — — — — —
Total interest on loans 5,272 (12,318) (7,046) 7,564 (24,909) (17,345)
Loans held for sale (19) 13 (6) (44) 21 (23)
Investment securities:
U.S. government and federal agency securities 17,867 (4,913) 12,954 29,827 4,788 34,615
Government-sponsored enterprise obligations (4) — (4) (5) (2) (7)
State and municipal obligations (1,445) 112 (1,333) (4,008) 228 (3,780)
Mortgage-backed securities (4,754) 35 (4,719) (10,757) (1,435) (12,192)
Asset-backed securities (1,248) 4,879 3,631 (3,811) 9,158 5,347
Other securities (1,485) 157 (1,328) (2,136) (2,307) (4,443)
Total interest on investment securities 8,931 270 9,201 9,110 10,430 19,540
Federal funds sold (24) (1) (25) — (6) (6)
Securities purchased under agreements to resell 4,373 1,722 6,095 6,240 5,639 11,879
Interest earning deposits with banks (860) (5,134) (5,994) 5,234 (11,411) (6,177)
Total interest income 17,673 (15,448) 2,225 28,104 (20,236) 7,868
Interest expense:
Deposits:
Savings (4) (24) (28) (10) (46) (56)
Interest checking and money market 4,234 (9,200) (4,966) 7,976 (16,091) (8,115)
Certificates of deposit of less than $100,000 118 (2,196) (2,078) 633 (3,970) (3,337)
Certificates of deposit of $100,000 and over (971) (3,007) (3,978) (3,405) (5,350) (8,755)
Total interest on deposits 3,377 (14,427) (11,050) 5,194 (25,457) (20,263)
Federal funds purchased (1,826) (327) (2,153) (4,502) (686) (5,188)
Securities sold under agreements to repurchase 996 (3,436) (2,440) 2,776 (7,430) (4,654)
Other borrowings (3) 21 18 — 19 19
Total interest expense 2,544 (18,169) (15,625) 3,468 $ (33,554) $ (30,086)
Net interest income, fully taxable-equivalent basis $ 15,129 $ 2,721 $ 17,850 $ 24,636 $ 13,318 $ 37,954
Net interest income in the second quarter of 2025 was $280.1 million, an increase of $17.9 million over the second quarter of 2024. On a fully taxable-equivalent (FTE) basis, net interest income totaled $282.4 million in the second quarter of 2025, up $17.9 million over the same period last year and up $11.0 million over the previous quarter. The increase in net interest income
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compared to the second quarter of 2024 was mainly due to higher interest income earned on investment securities (FTE) of $9.2 million and lower deposit interest expense of $11.1 million, partly offset by lower interest income earned on loans (FTE) of $7.0 million. The increase in total interest earned on investment securities (FTE) was mainly the result of higher average balances of U.S. government and federal agency securities, while the decrease in deposit interest expense was due to lower average rates paid, partly offset by higher average balances. Interest income earned on loans (FTE) decreased mainly due to lower average rates, partly offset by higher average balances. The Company's net yield on earning assets (FTE) was 3.70% in the current quarter compared to 3.55% in the second quarter of 2024.
Total interest income (FTE) increased $2.2 million over the second quarter of 2024. Interest income on loans (FTE) was $262.1 million during the second quarter of 2025, a decrease of $7.0 million, or 2.6%, from the same quarter last year. The decrease in loan interest income from the same quarter of last year was primarily due to a decline of 29 basis points in the average rate earned, partly offset by growth of $321.3 million, or 1.9%, in average loan balances. Most of the decrease in interest income occurred in the construction and land, business real estate and business loan categories. The largest decrease to interest income occurred in construction and land loan interest, which declined $4.2 million due to a 97 basis point decrease in the average rate earned, coupled with a decline in average balances of $40.7 million, or 2.8%. Business real estate loan interest income decreased $2.7 million due to a decrease of 34 basis points in the average rate earned, slightly offset by higher average balances of $26.3 million. Business loan interest income declined $1.7 million due to a 39 basis point decrease in the average rate earned, partly offset by higher average balances of $266.9 million, or 4.5%. Consumer credit card loan interest income declined $784 thousand mainly due to a 78 basis point decrease in the average rate earned. These decreases in interest income were partly offset by an increase in personal real estate loan interest income of $2.1 million mainly due to a 26 basis point increase in the average rate earned.
Interest income on investment securities (FTE) was $80.6 million during the second quarter of 2025, which was an increase of $9.2 million over the same quarter last year. The increase in interest income occurred mainly in interest earned on U.S. government and federal agency securities which grew $13.0 million due to a $1.4 billion increase in average balances, partly offset by a 76 basis point decrease in the average rate earned. Interest income related to the Company's U.S. Treasury inflation-protected securities, which is tied to the non-seasonally adjusted Consumer Price Index (CPI-U), decreased $2.8 million from the same quarter last year. Interest income earned on asset-backed securities grew $3.6 million due to a 123 basis point increase in the average rate earned, partly offset by a decrease in average balances of $200.2 million, or 11.2%. These increases to interest income were partly offset by a decline in interest income on mortgage-backed securities of $4.7 million, driven by lower average balances of $912.4 million, or 16.4%. In addition, the Company recorded a $1.0 million adjustment to premium amortization at June 30, 2025, which increased interest income and reflected slower forward prepayment speed estimates on mortgage-backed securities. This increase was higher than the $740 thousand adjustment increasing income in the same quarter last year. Interest income earned on state and municipal obligations declined $1.3 million mainly due to a $289.9 million, or 27.1%, decrease in average balances. Interest earned on other securities decreased $1.3 million mainly due to a $207.8 million, or 27.1%, decrease in average balances. Additionally, the average rate earned on investment securities during the three months ended June 30, 2025 increased 41 basis points over the same period in the prior year. The average balance of the total investment portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $10.2 billion in the second quarter of 2025, compared to $10.4 billion in the second quarter of 2024.
Interest income on securities purchased under agreements to resell increased $6.1 million over the same quarter last year, due to an increase of 81 basis points in the average rate earned and growth of $546.4 million in the average balance. Interest income on deposits at the Federal Reserve decreased $6.0 million mainly due to a decline of 102 basis points in average rate earned.
The average fully taxable-equivalent yield on total interest earning assets was 4.90% in the second quarter of 2025, down from 4.98% in the second quarter of 2024.
Total interest expense decreased $15.6 million compared to the second quarter of 2024 due to decreases of $11.1 million in interest expense on interest bearing deposits and $4.6 million in interest expense on borrowings. The decrease in deposit interest expense resulted from lower interest expense on certificates of deposit of $6.1 million due to a 78 basis point decline in the average rate paid and a decrease of $140.1 million, or 5.6%, in average balances. Interest expense on interest checking and money market deposit accounts decreased $5.0 million due to a 24 basis point decline in average rates paid, partly offset by an increase of $739.5 million, or 5.6%, in average balances. The overall rate paid on total deposits decreased 32 basis points from the same quarter last year. Interest expense on federal funds purchased decreased $2.2 million due to lower average balances of $135.2 million and a 105 basis point decline in the average rate paid. Interest expense on customer repurchase agreements decreased $2.4 million due to a 59 basis point decline in the average rate paid, partly offset by growth of $116.2 million in the average balance. The overall average rate incurred on all interest bearing liabilities was 1.83% and 2.21% in the second quarters of 2025 and 2024, respectively.
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Net interest income (FTE) for the first six months of 2025 was $553.8 million compared to $515.9 million for the same period in 2024. For the first six months of 2025, the net interest margin was 3.63% compared to 3.44% for the same period in 2024.
Total interest income (FTE) for the first six months of 2025 increased $7.9 million over the same period last year mainly due to higher interest income on investment securities (FTE) and securities purchased under agreements to resell, partly offset by lower interest income on loans (FTE) and deposit balances at the Federal Reserve. Loan interest income (FTE) decreased $17.3 million, or 3.2%, due to a 28 basis point decrease in the average rate earned, partly offset by a $242.7 million, or 1.4%, increase in average loan balances. The decrease in interest earned occurred in the construction and land, business real estate, business and consumer credit card loan categories, partly offset by an increase in the personal real estate loan category. Interest income on investment securities (FTE) increased $19.5 million mainly due to a 48 basis point increase in the average rate earned and an increase of $1.6 billion in average balances of U.S. government and federal agency securities. Interest earned on U.S. government and federal agency securities increased $34.6 million due to higher average balances and an increase in the average rate earned, while interest earned on asset-backed securities increased $5.4 million due to higher average rates earned, partly offset by a decrease in average balances. These increases in interest income on investment securities were partly offset by a decreases in interest earned on mortgage-backed and securities and state and municipal obligations of $12.2 million and $3.8 million, respectively, mainly due to decreases in average balances. Interest earned on other securities decreased $4.4 million due to declines in both average balances and rates earned. Higher interest income of $11.9 million was earned on securities purchased under agreements to resell, which saw growth in both average balances and rates earned. Interest income on balances at the Federal Reserve decreased $6.2 million due to a 102 basis point decline in the average rate earned, partly offset by a $192.6 million increase in the average balance invested.
Total interest expense for the first six months of 2025 decreased $30.1 million compared to the same period last year. Interest expense on deposits decreased $20.3 million, due to a 28 basis point decline in the average rate paid, partly offset by a $504.5 million increase in average balances. Interest expense on borrowings decreased $9.8 million, due lower interest expense on federal funds purchased of $5.2 million, mainly due to lower average balances, while interest expense on securities sold under agreements to repurchase declined $4.7 million due to lower average rates paid, partly offset by higher average balances. The overall cost of total interest bearing liabilities increased to 1.86% compared to 2.21% in the same period last year.
Summaries of average assets and liabilities and the corresponding average rates earned/paid appear on the last page of this discussion.
Non-Interest Income
Three Months Ended June 30 Increase (Decrease) Six Months Ended June 30 Increase (Decrease)
(Dollars in thousands) 2025 2024 Amount % change 2025 2024 Amount % change
Trust fees $ 55,571 $ 52,291 $ 3,280 6.3 % $ 112,163 $ 103,396 $ 8,767 8.5 %
Bank card transaction fees 46,362 47,477 (1,115) (2.3) 91,955 94,407 (2,452) (2.6)
Deposit account charges and other fees 26,248 25,325 923 3.6 52,870 49,476 3,394 6.9
Capital market fees 6,175 4,760 1,415 29.7 11,287 8,652 2,635 30.5
Consumer brokerage services 5,383 4,478 905 20.2 10,168 8,886 1,282 14.4
Loan fees and sales 3,419 3,431 (12) (.3) 6,823 6,572 251 3.8
Other 22,455 14,482 7,973 55.1 39,296 29,703 9,593 32.3
Total non-interest income $ 165,613 $ 152,244 $ 13,369 8.8 % $ 324,562 $ 301,092 $ 23,470 7.8 %
Non-interest income as a % of total revenue* 37.2 % 36.7 % 37.1 % 37.1 %
* Total revenue includes net interest income and non-interest income.
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The table below is a summary of net bank card transaction fees for the six month periods ended June 30, 2025 and 2024.
Three Months Ended June 30 Six Months Ended June 30
(Dollars in thousands) 2025 2024 $ change % change 2025 2024 $ change % change
Net debit card fees $ 11,260 $ 11,383 $ (123) (1.1) % $ 21,548 $ 21,788 $ (240) (1.1) %
Net credit card fees 3,242 4,033 (791) (19.6) 6,850 7,805 (955) (12.2)
Net merchant fees 5,934 5,865 69 1.2 11,701 11,112 589 5.3
Net corporate card fees 25,926 26,196 (270) (1.0) 51,856 53,702 (1,846) (3.4)
Total bank card transaction fees $ 46,362 $ 47,477 $ (1,115) (2.3) % $ 91,955 $ 94,407 $ (2,452) (2.6) %
For the second quarter of 2025, total non-interest income amounted to $165.6 million compared to $152.2 million in the same quarter last year, which was an increase of $13.4 million, or 8.8%. The increase was mainly due to higher trust fees, capital market fees and gains on sales of assets. Trust fees increased $3.3 million, or 6.3%, mainly due to growth of $2.7 million in private client trust fees. Bank card transaction fees for the current quarter declined $1.1 million, or 2.3%, from the same period last year. Net credit card fees decreased $791 thousand mainly due to higher rewards expense. Net corporate card fees declined $270 thousand mainly due to lower interchange income, partly offset by lower rewards expense. Net debit card fees decreased $123 thousand mainly due to higher network expense, while net merchant fees increased $69 thousand mainly due to lower network expense. Compared to the second quarter of last year, deposit account fees increased $923 thousand, or 3.6%, mainly due to higher corporate cash management fees of $910 thousand. Capital market fees increased $1.4 million, or 29.7%, mainly due to higher trading securities and underwriting income, while consumer brokerage fees increased $905 thousand, or 20.2%, mainly due to higher annuity and advisory fees. Other non-interest income increased $8.0 million, or 55.1%, mainly due to increases of $5.5 million in gains on sales of assets and $956 thousand in tax credit sales income. Additionally, higher fair value adjustments of $1.3 million were recorded on the Company's deferred compensation plan assets and liabilities, which affect both other income and other expense.
Non-interest income for the first six months of 2025 was $324.6 million compared to $301.1 million in the first six months of 2024, which was an increase of $23.5 million, or 7.8%. The increase was mainly due to higher trust fees, deposit account fees and gains on sales of assets, partly offset by lower net bank card fees. Trust fees increased $8.8 million, or 8.5%, mainly due to higher private client and institutional trust fees. Bank card transaction fees for the current year declined $2.5 million, or 2.6%, from the same period last year, mainly due to decreases of $1.8 million in net corporate card fees and $955 thousand in net credit card fees, partly offset by an increase in net merchant fees of $589 thousand. Deposit account fees increased $3.4 million, or 6.9%, mainly due to higher corporate cash management fees. Capital market fees increased $2.6 million, or 30.5%, mainly due to higher trading securities and underwriting income. Consumer brokerage fees increased $1.3 million, or 14.4%, mainly due to higher annuity and advisory fees, while loan fees and sales increased $251 thousand, or 3.8%. Other non-interest income increased $9.6 million, or 32.3%, mainly due to increases of $8.0 million in gains on sales of assets, $769 thousand in tax credit sales income and $568 thousand in cash sweep commissions. In addition, increases of $765 thousand in fair value adjustments were recorded the Company's deferred compensation plan assets and liabilities.
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Investment Securities Gains (Losses), Net
Three Months Ended June 30 Six Months Ended June 30
(In thousands) 2025 2024 2025 2024
Net gains (losses) on sales of available for sale debt securities $ (4,218) $ (179,073) $ (4,214) $ (187,543)
Net gains (losses) on equity securities 1,874 178,164 1,777 178,306
Net gains (losses) on sales of private equity investments (1,633) (1,535) (606) (566)
Fair value adjustments on private equity investments 4,414 5,677 (4,111) 12,777
Total investment securities gains (losses), net $ 437 $ 3,233 $ (7,154) $ 2,974
Net gains and losses on investment securities, which were recognized in earnings during the three months ended June 30, 2025 and 2024, are shown in the table above. Net securities gains of $437 thousand were reported in the second quarter of 2025, compared to net gains of $3.2 million in the same period last year. The net gains in the second quarter of 2025 were mainly comprised of net gains in fair value of $4.4 million recorded on private equity investments and net gains of $1.9 million on equity securities. These gains were largely offset by net losses of $4.2 million on sales of available for sale debt securities and net losses on sales of $1.6 million on sales of private equity investments. The net gains on investment securities for the same quarter last year were primarily comprised of net gains of $178.2 million on equity investments, primarily Visa Class C shares, and net gains in fair value of $5.7 million recorded on private equity investments, mostly offset by net losses of $179.1 million on the sale of available for sale securities as part of the planned portfolio repositioning. Additional information about the sale of Visa Class C shares and the Company's available for sale debt portfolio repositioning transactions is discussed in Note 3, Investment Securities.
Net losses on investment securities of $7.2 million were recognized in earnings for the six months ended June 30, 2025, compared to net gains of $3.0 million for the same period in 2024. Net losses in the first half of 2025 were mainly comprised of net losses of $4.2 million on sales of available for sale debt securities and net losses in fair value of $4.1 million recorded on private equity investments, partly offset by net gains of $1.8 million on equity securities. Net gains in the first half of 2024 were mainly comprised of net gains of $178.3 million on equity investments and net gains in fair value of $12.8 million recorded on private equity investments, largely offset by net losses of $187.5 million on sales of available for sale securities. The portion of private equity activity attributable to minority interests is reported as non-controlling interest in the consolidated statements of income and resulted in income of $943 thousand during the first six months of 2025 and expense of $1.8 million during the first six months of 2024.
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Non-Interest Expense
Three Months Ended June 30 Increase (Decrease) Six Months Ended June 30 Increase (Decrease)
(Dollars in thousands) 2025 2024 Amount % change 2025 2024 Amount % change
Salaries and employee benefits $ 155,025 $ 149,120 $ 5,905 4.0 % $ 308,103 $ 300,921 $ 7,182 2.4 %
Data processing and software 32,904 31,529 1,375 4.4 65,142 62,682 2,460 3.9
Net occupancy 13,654 12,544 1,110 8.8 27,674 26,118 1,556 6.0
Professional and other services 12,973 8,617 4,356 50.6 22,999 17,265 5,734 33.2
Marketing 5,974 5,356 618 11.5 11,817 9,392 2,425 25.8
Equipment 5,157 5,091 66 1.3 10,405 10,101 304 3.0
Supplies and communication 4,962 4,636 326 7.0 10,008 9,380 628 6.7
Deposit insurance 3,312 2,354 958 40.7 7,056 10,371 (3,315) (32.0)
Other 10,476 12,967 (2,491) (19.2) 19,609 31,681 (12,072) (38.1)
Total non-interest expense $ 244,437 $ 232,214 $ 12,223 5.3 % $ 482,813 $ 477,911 $ 4,902 1.0 %
Non-interest expense for the second quarter of 2025 amounted to $244.4 million, an increase of $12.2 million, or 5.3%, compared to expense of $232.2 million in the second quarter of last year. The increase in expense over the same period last year was mainly due to higher salaries and employee benefits expense, professional and other services expense and data processing and software expense, partly offset by lower contribution expense. Salaries and employee benefits expense increased $5.9 million, or 4.0%, mainly due to higher healthcare expense of $2.3 million, incentive compensation expense of $2.2 million and full-time salaries expense of $2.1 million. Full-time equivalent employees totaled 4,658 at June 30, 2025, compared to 4,724 at June 30, 2024. Data processing and software expense increased $1.4 million, or 4.4%, mainly due to higher costs for service providers and software. Net occupancy increased $1.1 million, 8.8%, mainly due to higher depreciation expense and lower external rent income. Professional and other services expense increased $4.4 million, or 50.6%, and included $1.9 million in acquisition related legal and professional services expense. Marketing expense increased $618 thousand, or 11.5%, and equipment expense increased $304 thousand, or 3.0%. Supplies and communication expense increased $326 thousand, or 7.0%, mainly due to higher postage and bank card reissuance costs. Deposit insurance expense increased $958 thousand, or 40.7%, mainly due to a $1.2 million accrual adjustment that lowered expense in the prior year from a one-time special assessment by the FDIC to replenish the Deposit Insurance Fund. Other non-interest expense decreased $2.5 million, or 19.2%, mainly due to a $5.0 million donation to a related charitable foundation in 2024 that did not reoccur. This decrease was partly offset by increases of $648 thousand in travel and entertainment expense and $1.3 million in fair value adjustments on the Company's deferred compensation plan assets and liabilities.
Non-interest expense amounted to $482.8 million for the first six months of 2025, an increase of $4.9 million, or 1.0%, over the first six months of 2024. Salaries and benefits expense increased $7.2 million, or 2.4%, mainly due to higher incentive compensation, full-time salaries expense and healthcare expense. Data processing and software expense increased $2.5 million, or 3.9%, due to increased costs for service providers and software expense. Professional and other services expense $5.7 million, or 33.2%, and included $1.9 million in acquisition related legal and professional fees. Occupancy expense increased $1.6 million, or 6.0%, mainly due to higher building depreciation expense and demolition costs. Marketing expense increased $2.4 million, or 25.8%, and equipment expense increased $304 thousand, or 3.0%. Supplies and communication expense increased $628 thousand, or 6.7%, mainly due to higher bank card reissuance costs. Deposit insurance decreased $3.3 million, or 32.0%, mainly due to accrual adjustments in 2024 to the special assessment by the FDIC. Other non-interest expense decreased $12.1 million, or 38.1%, mainly due to litigation settlement expense of $10.0 million, net of insurance, and a $5.0 million donation to a related charitable foundation, both recorded in 2024.
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Provision and Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments
Three Months Ended Six Months Ended June 30
(In thousands) June 30, 2025 Mar. 31, 2025 June 30, 2024 2025 2024
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period $ 167,031 $ 162,742 $ 160,465 $ 162,742 $ 162,395
Provision for credit losses on loans 7,919 15,095 7,849 $ 23,014 $ 14,796
Net loan charge-offs (recoveries):
Commercial:
Business 432 46 622 478 645
Real estate-construction and land 24 — — 24 —
Real estate-business (425) 377 (8) (48) (149)
Commercial net loan charge-offs (recoveries) 31 423 614 454 496
Personal Banking:
Real estate-personal 35 72 79 107 103
Consumer 2,168 2,852 1,804 5,020 3,787
Revolving home equity 11 (3) (7) 8 (11)
Consumer credit card 7,085 6,967 6,746 14,052 13,181
Overdrafts 360 495 521 855 1,078
Personal banking net loan charge-offs (recoveries) 9,659 10,383 9,143 20,042 18,138
Total net loan charge-offs (recoveries) 9,690 10,806 9,757 20,496 18,634
Balance at end of period $ 165,260 $ 167,031 $ 158,557 $ 165,260 $ 158,557
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance at beginning of period $ 18,327 $ 18,935 $ 23,086 $ 18,935 $ 25,246
Provision for credit losses on unfunded lending commitments (2,322) (608) (2,381) (2,930) (4,541)
Balance at end of period 16,005 18,327 20,705 16,005 20,705
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 181,265 $ 185,358 $ 179,262 $ 181,265 $ 179,262
Three Months Ended Six Months Ended June 30
June 30, 2025 Mar. 31, 2025 June 30, 2024 2025 2024
Annualized net loan charge-offs (recoveries)*:
Commercial:
Business .03 % — % .04 % .02 % .02 %
Real estate-construction and land .01 — — — —
Real estate-business (.05) .04 — — (.01)
Commercial net loan charge-offs (recoveries) — .02 .02 .01 .01
Personal Banking:
Real estate-personal — .01 .01 .01 .01
Consumer .40 .56 .34 .48 .36
Revolving home equity .01 — (.01) — (.01)
Consumer credit card 5.08 5.04 4.91 5.06 4.75
Overdrafts 25.50 34.26 43.15 29.93 34.54
Personal banking net loan charge-offs (recoveries) .63 .70 .61 .66 .60
Total annualized net loan charge-offs (recoveries) .22 % .25 % .23 % .24 % .22 %
* as a percentage of average loans (excluding loans held for sale)
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The following schedule provides a breakdown of the allowance for credit losses on loans (ACL) by loan class and the percentage of the allowance for credit losses to the related loan class at period end.
June 30, 2025 Mar. 31, 2025 June 30, 2024
(Dollars in thousands)
Credit Loss Allowance Allocation % of ACL to Loan Category Credit Loss Allowance Allocation % of ACL to Loan Category Credit Loss Allowance Allocation % of ACL to Loan Category
Business $ 46,472 .73 % $ 45,669 .73 % $ 45,060 .74 %
RE — construction and land 28,152 2.00 29,284 2.06 29,920 2.14
RE — business 32,230 .86 31,747 .87 32,237 .90
RE — personal 10,753 .35 13,475 .44 9,109 .30
Consumer 14,853 .69 14,967 .71 11,086 .52
Revolving home equity 1,868 .51 1,857 .52 1,789 .54
Consumer credit card 30,796 5.35 29,904 5.26 29,201 5.15
Overdrafts 136 .83 128 4.09 155 3.70
Total $ 165,260 .94 % $ 167,031 .96 % $ 158,557 .92 %
To determine the amount of the allowance for credit losses on loans and the liability for unfunded lending commitments, the Company has an established process which assesses the risks and losses expected in its portfolios. This process provides an allowance based on estimates of allowances for pools of loans and unfunded lending commitments, as well as a second, smaller component based on certain individually evaluated loans and unfunded lending commitments. The Company's policies and processes for determining the allowance for credit losses on loans and the liability for unfunded lending commitments are discussed in Note 1 to the consolidated financial statements and in the " Allowance for Credit Losses" discussion within Critical Accounting Estimates and Related Policies in Item 7 of the 2024 Annual Report on Form 10-K.
Net loan charge-offs in the second quarter of 2025 amounted to $9.7 million, compared to $10.8 million in the prior quarter and $9.8 million in the second quarter of last year. Comp ared to the same period last year, net loan charge-offs in the second quarter of 2025 decreased $67 thousand and decreased $1.1 million from the previous quarter. The decrease from the prior year was mainly driven by decreases of $417 thousand and $190 thousand in business real estate and business loan net charge-offs, respectively, offset by increases of $364 thousand and $339 thousand in consumer and consumer credit card loan net charge-offs, respectively. The decrease in net loan charge-offs for the three months ended June 30, 2025 from the previous quarter was driven by decreases of $802 thousand and $684 thousand in net charge-offs on business real estate and consumer loans, respectively, partially offset by an increase of $386 thousand in net charge-offs on business loans.
For the three months ended June 30, 2025, annualized net charge-offs on average consumer credit card loans were 5.08%, compared to 5.04% in the previous quarter and 4.91% in the same period last year. Consumer loan annualized net charge-offs in the current quarter amounted to .40%, compared to .56% in the prior quarter and .34% in the same period last year. In the second quarter of 2025 , total annualized net loan charge-offs were .22%, compared to .25% in the previous quarter and .23% in the same period last year.
For the three months ended June 30, 2025 , the provision for credit losses on loans was $7.9 million, which was a decrease of $7.2 million from the provision recorded in the prior quarter. The provision for the three months ended March 31, 2025 included an increase in the allowance for credit losses on loans, as well as slightly higher loan net charge-offs, as compared to the provision for the three months ended June 30, 2025 . Compared to the same period in the prior year, the provision for credit losses on loans for the three months ended June 30, 2025 was flat. For the six months ended June 30, 2025, the provision for credit losses on loans was $23.0 million, which was an $8.2 million increase over the $14.8 million provision recorded in the same period last year. The increase mainly occurred during the first quarter of 2025, as explained above. Changes in the provision are driven by changes in the estimate for the allowance for credit losses on loans.
At June 30, 2025, the allowance for credit losses on loans increased $2.5 million compared to the allowance for credit losses on loans at December 31, 2024. The increase in the allowance for credit losses mainly occurred in the personal banking loan portfolio, which saw an increase of $2.4 million due to increased loss experience in the consumer portfolio, partially offset by a decrease in the allowance for credit losses in the personal real estate loan portfolio. The forecast utilized to estimate the allowance for credit losses at June 30, 2025 reflected a slight decline in key macroeconomic variables. The allowance for credit losses on loans was $165.3 million at June 30, 2025 and was .94%, .95% and .92% of total loans at June 30, 2025, December 31, 2024 and June 30, 2024, respectively.
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In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $2.3 million, compared to a benefit of $2.4 million for the three months ended June 30, 2024. At June 30, 2025, the liability for unfunded lending commitments was $16.0 million, compared to $18.9 million at December 31, 2024 and $20.7 million at June 30, 2024. The liability decreased primarily due to decreases in unfunded lending commitment balances, coupled with improvement in loss rate assumptions for the Company's construction loans. The Company's unfunded lending commitments primarily relate to construction loans, and the Company's estimate for credit losses in its unfunded lending commitments utilizes the same model and forecast as its estimate for credit losses on loans. See Note 2 for further discussion of the model inputs utilized in the Company's estimate of credit losses.
The Company considers the allowance for credit losses on loans and the liability for unfunded commitments adequate to cover losses expected in the loan portfolio, including unfunded commitments, at June 30, 2025.
The allowance for credit losses on loans and the liability for unfunded lending commitments are estimates that require significant judgment including projections of the macro-economic environment. The Company utilizes a third-party macro-economic forecast that continuously changes due to economic conditions and events. These changes in the forecast cause fluctuations in the allowance for credit losses on loans and the liability for unfunded lending commitments. The Company uses judgment to assess the macro-economic forecast and internal loss data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments. These estimates are subject to periodic refinement based on changes in the underlying external and internal data.
Risk Elements of Loan Portfolio
The following table presents non-performing assets and loans which are past due 90 days and still accruing interest. Non-performing assets include non-accruing loans and foreclosed real estate. Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. Loans that are 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of collection, or they are personal banking loans that are exempt under regulatory rules from being classified as non-accrual.
(Dollars in thousands)
June 30, 2025 December 31, 2024
Non-accrual loans $ 18,870 $ 18,278
Foreclosed real estate 397 343
Total non-performing assets $ 19,267 $ 18,621
Non-performing assets as a percentage of total loans .11 % .11 %
Non-performing assets as a percentage of total assets .06 % .06 %
Total loans past due 90 days and still accruing interest $ 25,303 $ 24,516
Non-accrual loans totaled $18.9 million at June 30, 2025, an increase of $592.0 thousand from the balance at December 31, 2024. The increase occurred mainly in business non-accrual loans, which increased $309 thousand, as well as construction and land loans, which increased $206 thousand. At June 30, 2025, non-accrual loans were comprised of business real estate (80.0%), revolving home equity (10.5%), business (2.2%), personal real estate (5.0%), and construction and land (2.3%) loans. Foreclosed real estate totaled $397 thousand at June 30, 2025, an increase of $54 thousand compared to December 31, 2024. Loans past due 90 days or more and still accruing interest totaled $25.3 million as of June 30, 2025, an increase of $787 thousand from December 31, 2024. Balances by class for non-accrual loans and loans past due 90 days and still accruing interest are shown in the "Delinquent and non-accrual loans" section in Note 2 to the consolidated financial statements.
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In addition to the non-performing and past due loans mentioned above, the Company also has identified loans for which management has concerns about the ability of the borrowers to meet existing repayment terms. They are classified as substandard under the Company's internal rating system. The loans are generally secured by either real estate or other borrower assets, reducing the potential for loss should they become non-performing. Although these loans are generally identified as potential problem loans, they may never become non-performing. Such loans totaled $276.0 million at June 30, 2025 compared to $330.3 million at December 31, 2024, resulting in a decrease of $54.3 million, or 16.4%.
(In thousands)
June 30, 2025 December 31, 2024
Potential problem loans:
Business $ 118,558 $ 131,527
Real estate – construction and land 2,514 2,662
Real estate – business 154,831 196,030
Real estate – personal 96 96
Total potential problem loans $ 275,999 $ 330,315
When borrowers are experiencing financial difficulty, the Company may agree to modify the contractual terms of a loan to a borrower in order to assist the borrower in repaying principal and interest owed to the Company. At June 30, 2025, the Company held $138.1 million of loans that had been modified during the six months ended June 30, 2025. These loans are further discussed in the "Modifications for borrowers experiencing financial difficulty" section in Note 2 to the consolidated financial statements.
Loans with Special Risk Characteristics
Management relies primarily on an internal risk rating system, in addition to delinquency status, to assess risk in the loan portfolio, and these statistics are presented in Note 2 to the consolidated financial statements. However, certain types of loans are considered at high risk of loss due to their terms, location, or special conditions. Additional information about the major types of loans in these categories and their risk features are provided below. Information based on loan-to-value (LTV) ratios was generally calculated with valuations at loan origination date. The Company normally obtains an updated appraisal or valuation at the time a loan is renewed or modified, or if the loan becomes significantly delinquent or is in the process of being foreclosed upon.
Real Estate – Construction and Land Loans
The Company's portfolio of construction and land loans, as shown in the table below, amounted to 8.0% of total loans outstanding at June 30, 2025. The largest component of construction and land loans was commercial construction, which increased $6.1 million during the six months ended June 30, 2025. At June 30, 2025, multi-family residential construction loans totaled approximately $571.7 million, or 47.5%, of the commercial construction loan portfolio, compared to $526.6 million, or 44.0%, at December 31, 2024.
(Dollars in thousands) June 30,
2025
% of Total
% of
Total
Loans
December 31, 2024
% of Total
% of
Total
Loans
Commercial construction $ 1,203,402 85.6 % 6.8 % $ 1,197,278 84.9 % 7.0 %
Residential construction 99,361 7.1 .6 106,884 7.6 .6
Residential land and land development 65,109 4.6 .4 65,342 4.6 .4
Commercial land and land development 37,526 2.7 .2 40,397 2.9 .2
Total real estate - construction and land loans $ 1,405,398 100.0 % 8.0 % $ 1,409,901 100.0 % 8.2 %
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Real Estate – Business Loans
Total business real estate loans were $3.8 billion at June 30, 2025 and comprised 21.3% of the Company's total loan portfolio. These loans include properties such as manufacturing and warehouse buildings, small office and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties. At June 30, 2025, 33.5% of business real estate loans were for owner-occupied real estate properties, which have historically resulted in lower net charge-off rates than non-owner-occupied commercial real estate loans.
(Dollars in thousands) June 30,
2025
% of Total
% of
Total
Loans
December 31, 2024
% of Total
% of
Total
Loans
Owner-occupied $ 1,257,708 33.5 % 7.1 % $ 1,237,265 33.8 % 7.2 %
Office 525,847 14.0 3.0 520,715 14.2 3.0
Industrial 624,426 16.6 3.5 485,250 13.3 2.8
Hotels 287,173 7.6 1.6 334,479 9.1 1.9
Multi-family 348,438 9.3 2.0 310,806 8.5 1.8
Retail 307,788 8.2 1.7 309,431 8.5 1.8
Farm 193,998 5.2 1.1 189,794 5.2 1.1
Senior living 124,490 3.3 .7 183,695 5.0 1.1
Other 87,910 2.3 .6 89,783 2.4 .6
Total real estate - business loans $ 3,757,778 100.0 % 21.3 % $ 3,661,218 100.0 % 21.3 %
Information about the credit quality of the Company's business real estate loan portfolio as of June 30, 2025 and December 31, 2024 is provided in the table below.
(Dollars in thousands) Pass Special Mention Substandard Non-Accrual Total
June 30, 2025
Owner-occupied $ 1,204,075 $ 21,291 $ 32,050 $ 292 $ 1,257,708
Office 467,985 — 57,862 — 525,847
Industrial 624,426 — — — 624,426
Hotels 273,351 — 13,822 — 287,173
Multi-family 322,696 14,815 10,927 — 348,438
Retail 307,788 — — — 307,788
Farm 193,328 362 — 308 193,998
Senior living 69,922 — 40,059 14,509 124,490
Other 85,950 1,960 — — 87,910
Total $ 3,549,521 $ 38,428 $ 154,720 $ 15,109 $ 3,757,778
December 31, 2024
Owner-occupied $ 1,203,019 $ 3,362 $ 30,598 $ 286 $ 1,237,265
Office 451,189 11,980 57,546 — 520,715
Industrial 485,250 — — — 485,250
Hotels 334,479 — — — 334,479
Multi-family 299,825 10,981 — — 310,806
Retail 308,730 — 701 — 309,431
Farm 185,998 642 3,154 — 189,794
Senior living 65,366 — 103,661 14,668 183,695
Other 89,577 206 — — 89,783
Total $ 3,423,433 $ 27,171 $ 195,660 $ 14,954 $ 3,661,218
Revolving Home Equity Loans
The Company had $364.4 million in revolving home equity loans at June 30, 2025 that were collateralized by residential real estate. Most of these loans (93.5%) are written with terms requiring interest-only monthly payments. These loans are offered in three main product lines: LTV up to 80%, 80% to 90%, and 90% to 100%. As of June 30, 2025, the outstanding
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principal of loans with an original LTV higher than 80% was $28.2 million, or 7.9% of the portfolio, compared to $31.9 million as of December 31, 2024. Total revolving home equity loan balances over 30 days past due were $3.7 million at June 30, 2025 and $5.6 million at December 31, 2024, and the outstanding balance of revolving home equity loans on non-accrual status was $2.0 million at both June 30, 2025 and December 31, 2024. The weighted average FICO score for the total portfolio balance at June 30, 2025 is 775. At maturity, the accounts are re-underwritten, and if they qualify under the Company's credit, collateral and capacity policies, the borrower is given the option to renew the line of credit or convert the outstanding balance to an amortizing loan. If criteria are not met, amortization is required, or the borrower may pay off the loan. During the remainder of 2025 through 2028, approximately 15% of the Company's current outstanding balances are expected to mature. Of these balances, approximately 82% have a FICO score of 700 or higher. The Company does not expect a significant increase in losses as these loans mature, due to their high FICO scores, low LTVs, and low historical loss levels.
Consumer Loans
Within the consumer loan portfolio are several direct and indirect product lines, which include loans for the purchase of automobiles, motorcycles, marine and RVs. Auto loans comprised 35.6% of the consumer loan portfolio at June 30, 2025, and outstanding balances for auto loans were $769.1 million and $776.7 million at June 30, 2025 and December 31, 2024, respectively. The balances over 30 days past due amounted to $8.1 million at June 30, 2025 and $14.4 million at December 31, 2024, respectively, and comprised 1.1% of the outstanding balances of these loans at June 30, 2025 and 1.9% at December 31, 2024. For the six months ended June 30, 2025, $190.2 million of new auto loans were originated, compared to $196.4 million during the first six months of 2024. At June 30, 2025, the automobile loan portfolio had a weighted average FICO score of 756, and net charge-offs on auto loans were 1.0% of average auto loans.
The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 9.9% of the consumer loan portfolio at June 30, 2025. Losses on these loans have historically been low, and the Company saw net recoveries of $16 thousand for the first six months of 2025. Private banking loans comprised 38.4% of the consumer loan portfolio at June 30, 2025. The Company's private banking loans are generally well-collateralized, and at June 30, 2025 were secured primarily by assets held by the Company's trust department. The remaining portion of the Company's consumer loan portfolio is comprised of health services financing, motorcycles, marine and RV loans. Net charge-offs on private banking, health services financing, motorcycle and marine and RV loans totaled $1.4 million in the first six months of 2025 and were .3% of the average balances of these loans at June 30, 2025.
Consumer Credit Card Loans
The Company offers low promotional rates on selected consumer credit card products. Out of a portfolio at June 30, 2025 of $576.2 million in consumer credit card loans outstanding, approximately $122.5 million, or 21.3%, carried a low promotional rate. Within the next six months, $51.7 million of these loans are scheduled to convert to the ongoing higher contractual rate. To mitigate some of the risk involved with this credit card product, the Company performs credit checks and detailed analysis of the customer borrowing profile before approving the loan application. Management believes that the risks in the consumer loan portfolio are reasonable and the anticipated loss ratios are within acceptable parameters.
June 30, 2025 December 31, 2024
FICO score:
Under 600
5.2 % 5.1 %
600 – 659
12.0 11.9
660 – 719
27.9 28.3
720 – 779
26.7 26.3
780 and over
28.2 28.4
Total
100.0 % 100.0 %
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Oil and Gas Energy Lending
The Company's energy lending portfolio is comprised of lending to the petroleum and natural gas sectors and totaled $330.5 million, or 1.9% of total loans at June 30, 2025, a decrease of $7.6 million from December 31, 2024, as shown in the table below.
(In thousands)
June 30, 2025 December 31, 2024 Unfunded commitments at June 30, 2025
Upstream activities $ 252,928 $ 274,265 $ 168,363
Mid-stream activities 31,049 36,801 91,844
Downstream activities 18,903 9,757 26,104
Support activities 27,596 17,226 14,065
Total energy lending portfolio $ 330,476 $ 338,049 $ 300,376
Shared National Credits
The Company participates in credits of large, publicly traded companies which are defined by regulation as shared national credits, or SNCs. Regulations define SNCs as loans exceeding $100 million that are shared by three or more financial institutions. The Company typically participates in these loans when business operations are maintained in the local communities or regional markets and opportunities to provide other banking services are present. The balance of SNC loans totaled $1.7 billion and $1.6 billion at June 30, 2025 and December 31, 2024, respectively. Additional unfunded commitments at June 30, 2025 totaled $2.3 billion.
Income Taxes
Income tax expense was $42.4 million in the second quarter of 2025, compared to $37.0 million in the first quarter of 2025 and $38.6 million in the second quarter of 2024. The Company's effective tax rate, including the effect of non-controlling interest, was 21.8% in the second quarter of 2025, compared to 21.9% in the first quarter of 2025 and 21.7% in the second quarter of 2024.
On July 4, 2025, the One Big Beautiful Act ("OBBBA") was enacted in the United States. The OBBBA includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cut and Jobs Act, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. We do not expect these items to have a significant impact on our financial statements, though we expect that some minor operational changes may be necessary to support new information reporting requirements.
Financial Condition
Balance Sheet
Total assets of the Company were $32.3 billion at June 30, 2025 and $32.0 billion at December 31, 2024. Earning assets (excluding the allowance for credit losses on loans and fair value adjustments on available for sale debt securities) amounted to $31.1 billion at June 30, 2025 and $30.9 billion at December 31, 2024, and consisted of 57% in loans and 32% in investment securities at June 30, 2025.
At June 30, 2025, total loans increased $445.4 million or 2.6%, compared to balances at December 31, 2024. The increase was mainly due to growth in business and business real estate loans of $274.9 million and $96.6 million, respectively. The increase in business loans was mainly due growth in commercial and industrial lending. In addition, consumer loans, which includes automobile, marine and RV, fixed rate home equity and other consumer loans, increased $84.5 million, mainly due to growth in other consumer loans. These increases were partly offset by a decrease in consumer credit cards loans of $19.8 million.
Total available for sale debt securities, excluding fair value adjustments, decreased $447.3 million a t June 30, 2025 compared to December 31, 2024. Available for sale debt security sales, maturities and pay downs during this period totaled $993.9 mill ion, partly offset by pu rchases of available for sale debt securities during this period of $532.4 million. The decline in available for sale debt securities was mainly the result of lower balances of mortgage-backed securities, asset-backed securities and state and municipal obligations, which decreased $289.3 million, $78.9 million and $48.1 million, respectively, at J une 30, 2025 compared to December 31, 2024. At June 3 0, 2025, the duration of the available for sale investment portfolio
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was 4.2 years, and maturities and pay downs of approximately $1.3 billion are expected to occur during the next 12 months. The Company does not have any investment securities classified as held-to-maturity.
Total deposits at June 30, 2025 amounted to $25.5 billion, an increase of $200.4 million compared to December 31, 2024. The increase in deposits largely resulted from an increase in interest checking and money market deposit balances of $957.6 million. This increase was partly offset by a decrease in demand deposits of $757.1 million, mainly in business demand deposits (decrease of $819.8 million). The Company’s borrowings totaled $2.6 billion at June 30, 2025, a decrease of $315.3 million from balances at December 31, 2 024, mainly due to a decline in customer repurchase agreement balances.
Liquidity and Capital Resources
Liquidity Management
The Company’s most liquid assets include balances at the Federal Reserve Bank, federal funds sold, and available for sale debt securities, as follows:
(In thousands)
June 30, 2025 June 30, 2024 December 31, 2024
Liquid assets:
Balances at the Federal Reserve Bank $ 2,624,264 $ 2,215,057 $ 2,624,553
Federal funds sold — — 3,000
Available for sale debt securities 8,915,779 8,534,271 9,136,853
Total $ 11,540,043 $ 10,749,328 $ 11,764,406
Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $2.6 billion at June 30, 2025 and decreased $289 thousand from December 31, 2024. At June 30, 2025, the Company did not have a balance of federal funds sold, which are funds lent to the Company's correspondent bank customers with overnight maturities. The fair value of the available for sale debt portfolio was $8.9 billion at June 30, 2025 and included an unrealized net loss of $764.4 million. The total net unrealized loss included net losses of $695.9 million on mortgage-backed and asset-backed securities and $59.8 million on state and municipal obligations.
The Company's available for sale debt securities portfolio has a diverse mix of high quality and liquid investment securities with a duration of 4.2 years at June 30, 2025. Approximately $1.3 billion of the Company's available for sale debt portfolio is expected to mature or pay down during the next 12 months, and these funds offer substantial resources to meet either new loan demand or offset potential reductions in the Company's deposit funding base. The Company pledges portions of its investment securities portfolio to secure public fund deposits, securities sold under agreements to repurchase, trust funds, letters of credit issued by the FHLB, and borrowing capacity at the FHLB and the Federal Reserve Bank. Total investment securities pledged for these purposes were as follows:
(In thousands)
June 30, 2025 June 30, 2024 December 31, 2024
Investment securities pledged for the purpose of securing:
Federal Reserve Bank borrowings $ 625,132 $ 1,056,405 $ 840,771
FHLB borrowings and letters of credit 1,748,130 970,083 1,473,691
Securities sold under agreements to repurchase * 2,535,105 2,354,023 2,866,468
Other deposits and swaps 2,025,477 2,131,700 1,755,335
Total pledged securities 6,933,844 6,512,211 6,936,265
Unpledged and available for pledging 1,980,983 2,020,981 2,175,800
Ineligible for pledging 952 1,079 24,788
Total available for sale debt securities, at fair value $ 8,915,779 $ 8,534,271 $ 9,136,853
* Includes securities pledged for collateral swaps outstanding at each period end shown in the table.
The average loans to deposits ratio is a measure of a bank's liquidity, and the Company’s average loans to deposits ratio was 69.8% for the six months ended June 30, 2025. Core customer deposits, defined as non-interest bearing, interest checking, savings, and money market deposit accounts totaled $23.1 billion and represented 90.7% of the Company's total deposits at June 30, 2025. These core deposits are normally less volatile, as they are often with customer relationships tied to other products offered by the Company, promoting long lasting relationships and stable funding sources. Core deposits increased $215.9 million at June 30, 2025 compared to December 31, 2024, primarily due to increases in commercial and wealth management deposits of $351.2 million and $12.7 million, respectively. While the Company considers core consumer and
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wealth management deposits less volatile, corporate deposits could decline if interest rates increase significantly, encouraging corporate customers to increase investing activities, or if the economy deteriorates and companies experience lower cash inflows, reducing deposit balances. If these corporate deposits decline, the Company's funding needs may be met by liquidity supplied by investment security maturities and pay downs expected to total $1.3 billion over the next year, as noted above. In addition, as shown in the table of collateral available for future advances below, the Company has borrowing capacity of $6.3 billion through advances from the FHLB and the Federal Reserve.
The Company also holds securities sold under agreements to repurchase ("resale agreements") which are an additional source of liquidity. At June 30, 2025, the Company's resale agreements totaled $850.0 million and mature from 2028 through 2030. Under these agreements, the Company lends funds to upstream financial institutions and holds marketable securities, safe-kept by a third-party custodian, as collateral. This collateral totaled $874.6 million in fair value at June 30, 2025.
Certificates of deposit of $100,000 or greater totaled $1.4 billion at June 30, 2025. These deposits are normally considered more volatile and higher costing, and comprised 5.4% of total deposits at June 30, 2025.
(In thousands)
June 30, 2025 June 30, 2024 December 31, 2024
Core deposit base:
Non-interest bearing $ 7,393,559 $ 7,492,751 $ 8,150,669
Interest checking 8,121,371 6,870,344 7,301,288
Savings and money market 7,606,178 7,497,366 7,453,283
Total $ 23,121,108 $ 21,860,461 $ 22,905,240
During the third quarter of 2024, the Company issued $100.0 million of short-term brokered certificates of deposit, which all matured by December 31, 2024. The Company may occasionally issue brokered certificates of deposit to test the reliability of this potential funding source. While it is not clear how many brokered certificates of deposit the market would allow the Company to issue, the Company believes brokered certificates of deposits may be an additional, reliable source of liquidity during periods of stress in the banking industry.
Other important components of liquidity are the level of borrowings from third party sources and the availability of future credit. During 2025, the Company's outside borrowings have mainly been comprised of federal funds purchased and repurchase agreements, as follows:
(In thousands)
June 30, 2025 June 30, 2024 December 31, 2024
Borrowings:
Federal funds purchased $ 125,975 $ 254,720 $ 123,715
Securities sold under agreements to repurchase 2,470,486 2,296,679 2,803,043
Other debt 15,049 3,984 56
Total $ 2,611,510 $ 2,555,383 $ 2,926,814
Federal funds purchased, which totaled $126.0 million at June 30, 2025, are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit. At June 30, 2025, the Company had approved lines of credit totaling $4.5 billion. Since these borrowings are unsecured and limited by market trading activity, their availability may be less certain than collateralized sources of borrowings. Retail repurchase agreements are offered to customers wishing to earn interest in highly liquid balances and are used by the Company as a funding source considered to be stable, but short-term in nature. Repurchase agreements are collateralized by securities in the Company's investment portfolio. Total repurchase agreements at June 30, 2025 were comprised of non-insured customer funds totaling $2.5 billion, and securities pledged as collateral for these retail agreements totaled $2.5 billion at June 30, 2025. The Company also borrows on a secured basis through advances from the FHLB. The advances are generally short-term, fixed interest rate borrowings. There were no advances outstanding from the FHLB at June 30, 2025.
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The Company pledges certain assets, including loans and investment securities, to both the FRB and the FHLB as security to establish lines of credit and borrow from these entities. Based on the amount and type of collateral pledged, the FHLB establishes a collateral value from which the Company may draw advances against the collateral. Additionally, this collateral is used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Company. The FRB also establishes a collateral value of assets pledged and permits borrowings from the discount window. The following table reflects the collateral value of assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future funding capacity available to the Company at June 30, 2025.
June 30, 2025
(In thousands)
FHLB
Federal Reserve
Total
Total collateral value established by FHLB and FRB $ 3,616,503 $ 2,801,286 $ 6,417,789
Letters of credit issued (100,300) — (100,300)
Available for future advances $ 3,516,203 $ 2,801,286 $ 6,317,489
The Company receives outside ratings from both Standard & Poor’s and Moody’s on the consolidated company and its subsidiary bank, Commerce Bank. These ratings are as follows:
Standard & Poor’s Moody’s
Commerce Bancshares, Inc.
Issuer rating A-
Rating outlook Stable
Commerce Bank
Issuer rating A A3
Baseline credit assessment a2
Short-term rating A-1 P-1
Rating outlook Stable Stable
The Company considers these ratings to be indications of a sound capital base and strong liquidity and believes that these ratings would help ensure the ready marketability of its commercial paper, should the need arise. No commercial paper has been outstanding during the past ten years. The Company has no subordinated or hybrid debt instruments which would affect future borrowing capacity. Because of its lack of significant long-term debt, the Company believes that through its Commercial Tradable Products division or in other public debt markets, it could generate additional liquidity from sources such as jumbo certificates of deposit, privately placed corporate notes or other forms of debt.
The cash flows from the operating, investing and financing activities of the Company resulted in a net decrease in cash, cash equivalents and restricted cash of $229.7 million during the first six months of 2025, as reported in the consolidated statements of cash flows in this report. Operating activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of $249.8 million and have historically been a stable source of funds. Investing activities, which occur mainly in the loan and investment securities portfolios, used cash of $250.7 million. Activity in the investment securities portfolio used cash of $466.5 million from a net increase in loans and $225.0 million from purchases of securities under agreements to resell (net of repayments). These uses of cash were partly balanced by sales, maturities, and pay downs (net of purchases) of investment securities, which provided cash of $463.9 million. Investing activities are somewhat unique to financial institutions in that, while large sums of cash flow are normally used to fund growth in investment securities, loans, or other bank assets, they are normally dependent on the financing activities described below. Financing activities used cash of $228.7 million, largely resulting from federal funds purchased and securities sold under agreements to repurchases, which used cash of $330.3 million during the first six months of 2025. This decrease was largely offset by a net increase of $230.6 million in deposits. Additionally, purchases of treasury stock and cash dividends (including distributions to non-controlling interest) used cash of $67.0 million and $77.0 million, respectively.
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Capital Management
The Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions at June 30, 2025 and December 31, 2024, as shown in the following table.
(Dollars in thousands) June 30, 2025 December 31, 2024 Minimum Capital Requirement Capital Conservation Buffer Minimum Ratios Requirement including Capital Conservation Buffer
Minimum Ratios
for
Well-Capitalized
Banks *
Risk-adjusted assets $ 23,751,533 $ 23,500,396
Tier I common risk-based capital 4,079,249 3,926,446
Tier I risk-based capital 4,079,249 3,926,446
Total risk-based capital 4,260,514 4,108,270
Tier I common risk-based capital ratio 17.17 % 16.71 % 4.50 % 2.50 % 7.00 % 6.50 %
Tier I risk-based capital ratio 17.17 16.71 6.00 2.50 8.50 8.00
Total risk-based capital ratio 17.94 17.48 8.00 2.50 10.50 10.00
Tier I leverage ratio 12.75 12.26 4.00 N/A 4.00 5.00
*Under Prompt Corrective Action requirements
The Company is subject to a 2.5% capital conservation buffer, which is an amount above the minimum ratios under capital adequacy guidelines, and is intended to absorb losses during periods of economic stress. Failure to maintain the buffer will result in constraints on dividends, share repurchases, and executive compensation.
In the first quarter of 2020, the interim final rule of the Federal Reserve Bank and other U.S. banking agencies became effective, providing banks that adopted CECL (ASU 2016-13) during the 2020 calendar year the option to delay recognizing the estimated impact on regulatory capital until after a two year deferral period, followed by a three year transition period. In connection with the adoption of CECL on January 1, 2020, the Company elected to utilize this option. As a result, the two year deferral period for the Company extended through December 31, 2021. Beginning on January 1, 2022, the Company was required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in, which was during the first quarter of 2025.
The Company maintains a treasury stock buyback program under authorizations by its Board of Directors (the Board) and periodically purchases stock in the open market. During the six months ended June 30, 2025, the Company purchased 1,026,705 shares at an average price of $63.88 in open market purchases and through stock-based compensation transactions. At June 30, 2025, 1,904,943 shares remained available for purchase under the current Board authorization.
The Company's common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain adequate capital levels and alternative investment options. The Company paid a $.275 per share cash dividend on its common stock in the second quarter of 2025, which was a 7.0% increase compared to its 2024 quarterly dividend.
Material Cash Requirements, Commitments, Off-Balance Sheet Arrangements and Contingencies
The Company's material cash requirements include commitments for contractual obligations (both short-term and long-term), commitments to extend credit, and off-balance sheet arrangements. The Company's material cash requirements for the next 12 months are primarily to fund loan growth. Additionally, the Company will utilize cash to fund deposit maturities and withdrawals that may occur in the next 12 months. Other contractual obligations, purchase commitments, lease obligations, and unfunded commitments may require cash payments by the Company within the next 12 months, and these are further discussed in the Company's 2024 Annual Report on Form 10-K. Further discussion of the Company's longer-term material cash obligations and sources for fulfilling those obligations is below.
In the normal course of business, various commitments and contingent liabilities arise that are not required to be recorded on the balance sheet. The most significant of these are loan commitments, which at June 30, 2025 totaled $15.9 billion (including $6.0 billion in unused, approved credit card lines). In addition, the Company enters into standby and commercial letters of credit. The contractual amount of standby and commercial letters of credit totaled $596.0 million and $1.7 million, respectively, at June 30, 2025. As many commitments expire unused or only partially used, these totals do not necessarily reflect future cash requirements. The allowance for these commitments is recorded in the Company’s liability for unfunded lending commitments within other liabilities on its consolidated balance sheets. At June 30, 2025, the liability for unfunded
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lending commitments totaled $16.0 million. See further discussion of the liability for unfunded lending commitments in Note 2 to the consolidated financial statements.
The Company regularly purchases various state tax credits arising from third party property redevelopment. These credits are either resold to third parties at a profit or retained for use by the Company. During the first six months of 2025, purchases and sales of tax credits amounted to $118.2 million and $94.6 million, respectively. Fees from sales of tax credits were $3.7 million for the six months ended June 30, 2025, compared to $2.9 million in the same period last year. At June 30, 2025, the Company expected to fund outstanding purchase commitments of $110.6 million during the remainder of 2025 and had purchase commitments of $390.8 million that it expects to fund from 2026 through 2029.
The Company continued to maintain a strong liquidity position throughout the first six months of 2025. Through the various sources of liquidity described above, the Company maintains a liquidity position that it believes will adequately satisfy its financial obligations.
Segment Results
The table below is a summary of segment pre-tax income results for the first six months of 2025 and 2024.
(Dollars in thousands)
Consumer
Commercial
Wealth
Segment
Totals
Other/ Elimination
Consolidated Totals
Six Months Ended June 30, 2025
Net interest income $ 252,352 $ 260,878 $ 45,195 $ 558,425 $ (9,176) $ 549,249
Provision for credit losses (19,819) (640) (18) (20,477) 393 (20,084)
Non-interest income 47,691 144,980 127,885 320,556 4,006 324,562
Investment securities gains (losses), net — — — — (7,154) (7,154)
Non-interest expense (166,082) (212,057) (82,102) (460,241) (22,572) (482,813)
Income before income taxes $ 114,142 $ 193,161 $ 90,960 $ 398,263 $ (34,503) $ 363,760
Six Months Ended June 30, 2024
Net interest income $ 255,374 $ 252,223 $ 45,424 $ 553,021 $ (41,773) $ 511,248
Provision for credit losses (17,925) (766) 4 (18,687) 8,432 (10,255)
Non-interest income 48,907 130,382 117,999 297,288 3,804 301,092
Investment securities gains (losses), net — — — — 2,974 2,974
Non-interest expense (160,713) (201,345) (78,453) (440,511) (37,400) (477,911)
Income before income taxes $ 125,643 $ 180,494 $ 84,974 $ 391,111 $ (63,963) $ 327,148
Increase (decrease) in income before income taxes:
Amount $ (11,501) $ 12,667 $ 5,986 $ 7,152 $ 29,460 $ 36,612
Percent (9.2) % 7.0 % 7.0 % 1.8 % (46.1) % 11.2 %
Consumer
For the six months ended June 30, 2025, income before income taxes for the Consumer segment decreased $11.5 million, or 9.2%, compared to the first six months of 2024. The decrease in income before income taxes was due to increases in non-interest expense of $5.4 million, or 3.3%, and the provision for credit losses of $1.9 million and declines in net interest income of $3.0 million, or 1.2%, and non-interest income of $1.2 million, or 2.5%. Net interest income declined mainly due to lower net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios of $8.2 million. This decrease was partly offset by lower deposit interest expense of $5.3 million. Non-interest income decreased mainly due to lower net bank card fees (mainly credit and debit card fees). Non-interest expense increased over the same period in the previous year mainly due to higher marketing, miscellaneous losses, data processing and software, and supplies expense. In addition, allocated support costs increased due to higher allocated costs for retail administration and operations. The increase in the provision for credit losses over the first six months of 2024 was mainly due to higher auto and consumer credit card loan net charge-offs.
Commercial
For the six months ended June 30, 2025, income before income taxes for the Commercial segment increased $12.7 million, or 7.0%, compared to the same period in the previous year. This increase was mainly due to higher net interest income and non-interest income, partly offset by higher non-interest expense. Net interest income increased $8.7 million, or 3.4%, mainly due to lower interest expense on deposits and customer repurchase agreements of $13.1 million and $4.3 million, respectively, coupled with higher net allocated funding credits of $10.5 million. These increases to income were partly offset by lower loan
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interest income of $19.9 million. Non-interest income increased $14.6 million, or 11.2%, over the previous year mainly due to higher gains on asset sales and growth in deposit account fees (mainly corporate cash management fees) and capital market fees (mainly underwriting and trading securities). These increases were partly offset by a decrease in net bank card fees (mainly corporate card fees). Non-interest expense increased $10.7 million, or 5.3%, mainly due to higher legal fees, salaries and benefits expense and allocated service and support costs for commercial payments and product support, commercial loan servicing and operations, and branch employee expense. The provision for credit losses decreased $126 thousand from the same period last year, mainly due to commercial and industrial loan net recoveries.
Wealth
Wealth segment pre-tax profitability for the six months ended June 30, 2025 increased $6.0 million, or 7.0%, over the same period in the previous year. Net interest income decreased $229 thousand, or .5%, mainly due to a $5.0 million decrease in net allocated funding credits. This decrease was largely offset by a $3.0 million increase in loan interest income and a $1.8 million decrease deposit interest expense. Non-interest income increased $9.9 million, or 8.4%, over the prior year largely due to higher private client and institutional trust fees and brokerage fees (mainly annuity and advisory fees). Non-interest expense increased $3.6 million, or 4.7%, mainly due to higher salaries and benefits, data processing and software, and allocated support costs for information technology. The provision for credit losses increased $22 thousand over the same period last year.
The Other/Elimination category in the preceding table includes the activity of various support and overhead operating units of the Company, in addition to the investment securities portfolio and other items not allocated to the segments. In accordance with the Company’s transfer pricing procedures, the difference between the total provision for credit losses and total net charge-offs/recoveries is not allocated to a business segment and is included in this category. The pre-tax profitability in this category was $29.5 million higher than in the same period last year. Unallocated securities losses were $7.2 million in the first six months of 2025 compared to gains of $3.0 million in 2024. Also, the unallocated provision for credit losses decreased $8.0 million, primarily driven by a decrease in the liability for unfunded lending commitments, partly offset by an increase in the provision for credit losses on loans, which are both not allocated to the segments for management reporting purposes. Net charge-offs are allocated to the segments when incurred for management reporting purposes. The provision for credit losses on loans in the first six months of 2025 was $23.0 million, or $2.5 million higher than net charge-offs, due to an increase in the allowance for credit losses on loans. In the comparable period last year, the provision for credit losses on loans was $14.8 million, or $3.8 million lower than net charge-offs, due to a decrease in the allowance for credit losses on loans. For the six months ended June 30, 2025, the Company's provision on unfunded lending commitments was a benefit of $2.9 million. Additionally, net interest income increased $32.6 million and non-interest income increased $202 thousand, while non-interest expense decreased $14.8 million.
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Impact of Recently Issued Accounting Standards
Income Taxes The FASB issued ASU 2023-09, "Income Taxes (Topic 740) - Improvements to Income Tax Disclosures", in December 2023. The amendments in this Update require additional disclosures regarding the rate reconciliation and income taxes paid. This Update also removed certain existing disclosure requirements. This Update is effective for annual periods beginning January 1, 2025. Early adoption is permitted. The amendments in this Update should be applied on a prospective basis, though retrospective application is permitted. Other than the inclusion of additional disclosures, the adoption is not expected to have a significant effect on the Company's consolidated financial statements.
Income Statement Reporting The FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses" in November 2024. The amendments in this Update require new disclosures providing further detail of a company's income statement expense items. This Update is effective for annual periods beginning January 1, 2027, and interim periods beginning January 1, 2028. Early adoption is permitted. The amendments in this Update should be applied on a prospective basis. Other than the inclusion of additional disclosures, the adoption is not expected to have a significant effect on the Company's consolidated financial statements.
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AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
Three Months Ended June 30, 2025 and 2024
Second Quarter 2025
Second Quarter 2024
(Dollars in thousands)
Average Balance
Interest Income/Expense
Avg. Rates Earned/Paid
Average Balance Interest Income/Expense Avg. Rates Earned/Paid
ASSETS:
Loans:
Business (A)
$ 6,247,252 $ 89,052 5.72 % $ 5,980,364 $ 90,786 6.11 %
Real estate — construction and land 1,430,758 26,377 7.39 1,471,504 30,588 8.36
Real estate — business 3,692,405 54,453 5.92 3,666,057 57,104 6.26
Real estate — personal 3,048,895 32,697 4.30 3,044,943 30,590 4.04
Consumer 2,148,666 34,442 6.43 2,127,650 34,678 6.56
Revolving home equity 362,312 6,691 7.41 326,204 6,228 7.68
Consumer credit card 559,858 18,402 13.18 552,896 19,186 13.96
Overdrafts 5,663 — — 4,856 — —
Total loans 17,495,809 262,114 6.01 17,174,474 269,160 6.30
Loans held for sale 1,741 40 9.22 2,455 46 7.54
Investment securities:
U.S. government and federal agency obligations 2,623,896 28,011 4.28 1,201,954 15,057 5.04
Government-sponsored enterprise obligations 55,038 326 2.38 55,634 330 2.39
State and municipal obligations (A)
780,063 3,978 2.05 1,069,934 5,311 2.00
Mortgage-backed securities 4,641,295 24,097 2.08 5,553,656 28,816 2.09
Asset-backed securities 1,585,364 14,736 3.73 1,785,598 11,105 2.50
Other debt securities 237,385 1,741 2.94 364,828 1,826 2.01
Trading debt securities (A)
51,131 590 4.63 46,565 573 4.95
Equity securities (A)
54,472 850 6.26 127,584 893 2.82
Other securities (A)
216,560 6,280 11.63 228,403 7,497 13.20
Total investment securities 10,245,204 80,609 3.16 10,434,156 71,408 2.75
Federal funds sold 158 2 5.08 1,612 27 6.74
Securities purchased under agreements to resell 850,000 8,516 4.02 303,586 2,421 3.21
Interest earning deposits with banks 2,036,803 22,636 4.46 2,099,777 28,630 5.48
Total interest earning assets 30,629,715 373,917 4.90 30,016,060 371,692 4.98
Allowance for credit losses on loans (166,391) (159,791)
Unrealized gain (loss) on debt securities (838,028) (1,272,127)
Cash and due from banks 362,816 267,530
Premises and equipment, net 500,532 479,431
Other assets 808,415 904,847
Total assets $ 31,297,059 $ 30,235,950
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings $ 1,303,391 168 .05 $ 1,328,989 196 .06
Interest checking and money market 13,901,634 51,667 1.49 13,162,118 56,633 1.73
Certificates of deposit of less than $100,000 984,845 8,445 3.44 1,003,798 10,523 4.22
Certificates of deposit of $100,000 and over 1,371,428 12,914 3.78 1,492,592 16,892 4.55
Total interest bearing deposits 17,561,298 73,194 1.67 16,987,497 84,244 1.99
Borrowings:
Federal funds purchased $ 129,891 $ 1,416 4.37 265,042 $ 3,569 5.42
Securities sold under agreements to repurchase 2,371,031 16,853 2.85 2,254,849 19,293 3.44
Other borrowings (B)
2,748 26 3.79 838 8 3.84
Total borrowings 2,503,670 18,295 2.93 2,520,729 22,870 3.65
Total interest bearing liabilities 20,064,968 91,489 1.83 % 19,508,226 107,114 2.21 %
Non-interest bearing deposits 7,356,882 7,297,955
Other liabilities 360,204 399,080
Equity 3,515,005 3,030,689
Total liabilities and equity $ 31,297,059 $ 30,235,950
Net interest margin (FTE) $ 282,428 $ 264,578
Net yield on interest earning assets 3.70 % 3.55 %
(A) Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.
(B) Interest expense capitalized on construction projects in 2024 is not deducted from the interest expense shown above. There was no interest expense capitalized in 2025.
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AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
Six Months Ended June 30, 2025 and 2024
Six Months 2025
Six Months 2024
(Dollars in thousands)
Average Balance
Interest Income/Expense
Avg. Rates Earned/Paid
Average Balance Interest Income/Expense Avg. Rates Earned/Paid
ASSETS:
Loans:
Business (A)
$ 6,177,108 $ 175,616 5.73 % $ 5,926,945 $ 179,424 6.09 %
Real estate — construction and land 1,423,096 51,863 7.35 1,472,029 61,342 8.38
Real estate — business 3,680,187 107,656 5.90 3,696,850 115,133 6.26
Real estate — personal 3,047,394 64,842 4.29 3,038,068 60,365 4.00
Consumer 2,115,696 67,908 6.47 2,105,070 67,804 6.48
Revolving home equity 360,508 13,116 7.34 324,139 12,391 7.69
Consumer credit card 560,194 37,049 13.34 557,894 38,936 14.03
Overdrafts 5,761 — — 6,276 — —
Total loans 17,369,944 518,050 6.01 17,127,271 535,395 6.29
Loans held for sale 1,663 63 7.64 2,302 86 7.51
Investment securities:
U.S. government and federal agency obligations 2,605,522 54,074 4.19 1,026,805 19,459 3.81
Government-sponsored enterprise obligations 55,183 654 2.39 55,643 661 2.39
State and municipal obligations (A)
792,146 8,050 2.05 1,200,371 11,830 1.98
Mortgage-backed securities 4,714,293 48,712 2.08 5,727,992 60,904 2.14
Asset-backed securities 1,620,338 28,851 3.59 1,935,324 23,504 2.44
Other debt securities 247,703 3,456 2.81 434,016 4,236 1.96
Trading debt securities (A)
44,750 1,059 4.77 43,524 1,106 5.11
Equity securities (A)
55,743 1,978 7.16 70,176 1,707 4.89
Other securities (A)
224,964 10,799 9.68 225,049 14,686 13.12
Total investment securities 10,360,642 157,633 3.07 10,718,900 138,093 2.59
Federal funds sold 1,118 31 5.59 1,105 37 6.73
Securities purchased under agreements to resell 819,613 15,934 3.92 322,260 4,055 2.53
Interest earning deposits with banks 2,211,682 48,885 4.46 2,019,079 55,062 5.48
Total interest earning assets 30,764,662 740,596 4.85 30,190,917 732,728 4.88
Allowance for credit losses on loans (164,300) (160,841)
Unrealized gain (loss) on debt securities (886,273) (1,273,126)
Cash and due from banks 377,047 274,570
Premises and equipment, net 498,804 478,656
Other assets 809,106 930,536
Total assets $ 31,399,046 $ 30,440,712
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings $ 1,298,808 335 .05 $ 1,331,486 391 .06
Interest checking and money market 13,904,216 103,903 1.51 13,188,694 112,018 1.71
Certificates of deposit of less than $100,000 988,316 17,377 3.55 990,301 20,714 4.21
Certificates of deposit of $100,000 and over 1,367,563 26,233 3.87 1,543,951 34,988 4.56
Total interest bearing deposits 17,558,903 147,848 1.70 17,054,432 168,111 1.98
Borrowings:
Federal funds purchased $ 129,120 $ 2,800 4.37 $ 296,629 7,988 5.42
Securities sold under agreements to repurchase 2,546,156 36,077 2.86 2,383,404 40,731 3.44
Other borrowings (B)
1,688 27 3.23 457 8 3.52
Total borrowings 2,676,964 38,904 2.93 2,680,490 48,727 3.66
Total interest bearing liabilities 20,235,867 186,752 1.86 % 19,734,922 216,838 2.21 %
Non-interest bearing deposits 7,327,945 7,313,278
Other liabilities 390,618 404,695
Equity 3,444,616 2,987,817
Total liabilities and equity $ 31,399,046 $ 30,440,712
Net interest margin (FTE) $ 553,844 $ 515,890
Net yield on interest earning assets 3.63 % 3.44 %
(A) Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.
(B) Interest expense capitalized on construction projects in 2024 is not deducted from the interest expense shown above. There was no interest expense capitalized in 2025.
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