COMMERCE BANCSHARES INC /MO/

Previous wording

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 months ended March 31, 2025 are not necessarily indicative of results to be attained for any other period.

Current wording

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.

Previous wording

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, 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. During the quarter ended March 31, 2025, there were no material changes to the Risk Factors disclosed in the Company's 2024 Annual Report on Form 10-K.

Current wording

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.

Previous wording

For the quarter ended March 31, 2025, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $131.6 million, an increase of $18.9 million, or 16.8%, compared to the first quarter of the previous year. For the current quarter, the annualized return on average assets was 1.69%, the annualized return on average equity was 15.82%, and the efficiency ratio was 55.61%. Diluted earnings per common share was $.98 per share in the current quarter, an increase of 19.5% compared to $.82 per share in the first quarter of 2024, and a decrease compared to $1.01 per share in the previous quarter.

Current wording

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.

Previous wording

Compared to the first quarter of last year, net interest income increased $20.1 million, or 8.1%, mainly due to increases in interest income on investment securities and securities purchased under agreements to resell ("resale agreements") of $10.5 million and $5.8 million, respectively. In addition to the increase in interest income, interest expense on deposits decreased $9.2 million and interest expense on borrowings decreased $5.2 million. The provision for credit losses increased $9.7 million, compared to the same quarter in the prior year due to an increase in the estimate of allowance for credit losses on loans. Non-interest income increased $10.1 million, or 6.8%, compared to the first quarter of 2024, mainly due to an increase in trust fees, deposit account fees, and capital market fees. Net losses on investment securities totaled $7.6 million in the current quarter compared to net losses of $259 thousand in the same quarter of last year. Securities losses in the current quarter primarily resulted from net losses in fair value of $8.5 million recorded on private equity investment which were partly offset by net gains of $1.0 million on sales of private equity securities. Non-interest expense decreased $7.3 million, or 3.0%, over the first quarter of 2024, mainly due to non-recurring litigation settlement expense and an FDIC special assessment accrual adjustment during the prior year, partly offset by higher marketing expense, professional and other services expense, salaries expense, and data processing and software expense.

Current wording

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.

Previous wording

Net interest income in the first quarter of 2025 was $269.1 million, an increase of $20.1 million over the first quarter of 2024. On a fully taxable-equivalent (FTE) basis, net interest income totaled $271.4 million in the first quarter of 2025, up $20.1 million over the same period last year and up $2.5 million over the previous quarter. The increase in net interest income compared to the first quarter of 2024 was mainly due to higher interest income earned on investment securities (FTE) of $10.3 million and lower deposit interest expense of $9.2 million, partly offset by lower interest income earned on loans (FTE) of $10.3 million. The increase in total interest earned on investment securities (FTE) was mainly the result of higher average rates earned, while the decrease in deposit interest expense was due to lower average rates paid, slightly offset by higher average balances. Interest income on loans (FTE) decreased mainly due to lower average rates earned, partly offset by higher average business loan balances. The Company's net yield on earning assets (FTE) was 3.56% in the current quarter compared to 3.33% in the first quarter of 2024.

Current wording

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 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.

Previous wording

Total interest income (FTE) increased $5.6 million over the first quarter of 2024. Interest income on loans (FTE) was $255.9 million during the first quarter of 2025, a decrease of $10.3 million, or 3.9%, from the same quarter last year. The decrease in loan interest income from the same quarter of last year was primarily due to a decrease of 25 basis points in the average rate earned, partly offset by growth of $162.6 million, or 1.0%, 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 $5.3 million due to a 110 basis point decrease in the average rate earned, coupled with a decline in average balances of $57.2 million, or 3.9%. Business real estate loan interest income decreased $4.8 million due to a decrease of 38 basis points in the average rate earned and lower average balances of $59.8 million, or 1.6%. Business loan interest income declined $2.1 million due to a 32 basis point decrease in the average rate earned, partly offset by higher average balances of $232.7 million, or 4.0%. Consumer credit card loan interest income declined $1.1 million mainly due to a 62 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 $2.4 million due to a 33 basis point increase in the average rate earned and growth of $14.7 million in average loan balances.

Current wording

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.

Previous wording

Interest income on investment securities (FTE) was $77.0 million during the first quarter of 2025, which was an increase of $10.3 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 $21.7 million due to a $1.7 billion increase in average balances and a 201 basis point increase in the average rate earned. A portion of the increase in interest earned on U.S. government securities was interest related to the Company's U.S. Treasury inflation-protected securities, which are tied to the non-seasonally adjusted Consumer Price Index (CPI-U). Interest earned on these securities increased $1.6 million over the same quarter last year. Interest income earned on asset-backed securities grew $1.7 million due to a 107 basis point increase in the average rate earned, partly offset by a decrease in average balances of $429.3 million, or 20.6%. These increases to interest income were partly offset by a decline in interest income on mortgage-backed securities of $7.5 million, driven by lower average balances of $1.1 billion, or 18.9%, and a decline of 11 basis points in the average rate earned. In addition, the Company recorded a $539 thousand adjustment to premium amortization at March 31, 2025, which increased interest income and reflected slower forward prepayment speed estimates on mortgage-backed securities. This increase was lower than the $2.0 million adjustment increasing income in the same quarter last year. Interest income earned on state and municipal obligations declined $2.4 million mainly due to a $526.4 million, or 39.6%, decrease in average balances. Interest earned on other securities decreased $3.1 million mainly driven by dividend payments of $3.4 million from the Company's private equity investments recorded in 2024. Additionally, the average rate earned on investment securities during the three months ended March 31, 2025 increased 54 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 $10.5 billion in the first quarter of 2025, compared to $11.0 billion in the first quarter of 2024.

Current wording

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.

Previous wording

Interest income on securities purchased under agreements to resell increased $5.8 million over the same quarter last year, due to an increase of 188 basis points in the average rate earned and growth of $448.0 million in the average balance. Interest income on deposits at the Federal Reserve decreased $183 thousand mainly due to a decline of 102 basis points in average rate earned, mostly offset by an increase of $450.1 million in the average balance.

Current wording

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.

Previous wording

The average fully taxable-equivalent yield on total interest earning assets was 4.81% in the first quarter of 2025, up from 4.78% in the first quarter of 2024.

Current wording

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.

Previous wording

Total interest expense decreased $14.5 million compared to the first quarter of 2024 due to decreases of $9.2 million in interest expense on interest bearing deposits and $5.2 million in interest expense on borrowings. The decrease in deposit interest expense resulted mainly from a decrease of $6.0 million in interest expense on certificates of deposit due to a 59 basis point decline in the average rate paid and a decrease of $216.6 million, or 8.4%, in average balances. Interest expense on interest checking and money market deposit accounts decreased $3.1 million due to a 17 basis point decrease in average rates paid, partly offset by an increase of $691.6 million, or 5.2%, in average balances. The overall rate paid on total deposits decreased 25 basis points from the same quarter last year. Interest expense on federal funds purchased decreased $3.0 million due to lower average balances of $199.9 million and a 105 basis point decline in the average rate paid. Interest expense on customer repurchase agreements decreased $2.2 million due to a 57 basis point decline in the average rate paid, partly offset by growth of $211.3 million in the average balance. The overall average rate incurred on all interest bearing liabilities was 1.89% and 2.21% in the first quarters of 2025 and 2024, respectively.

Current wording

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.

Previous wording

The table below is a summary of net bank card transaction fees for the three month periods ended March 31, 2025 and 2024.

Current wording

The table below is a summary of net bank card transaction fees for the six month periods ended June 30, 2025 and 2024.

Previous wording

For the first quarter of 2025, total non-interest income amounted to $158.9 million compared to $148.8 million in the same quarter last year, which was an increase of $10.1 million, or 6.8%. The increase was mainly due to higher trust fees, deposit account fees, capital market fees and other income. Trust fees increased $5.5 million, or 10.7%, mainly due to growth of $5.1 million in private client trust fees. Bank card transaction fees for the current quarter declined $1.3 million, or 2.8%, from the same period last year. Net corporate card fees declined $1.6 million mainly due to lower interchange income, partly offset by lower rewards expense. Net merchant fees increased $520 thousand mainly due to higher fees and lower network expense. Net credit and debit card fees decreased $164 thousand and $117 thousand, respectively, mainly due to lower interchange fees. Compared to the first quarter of last year, deposit account fees increased $2.5 million, or 10.2%, mainly due to higher corporate cash management fees of $2.6 million. Capital market fees increased $1.2 million, or 31.3%, mainly due to higher underwriting and trading securities income, while consumer brokerage fees increased $377 thousand, or 8.6%, mainly due to higher advisory fees. Other non-interest income increased $1.6 million, or 10.6%, mainly due to an increase of $2.4 million in gains on the sales of assets, partly offset by a decrease of $538 thousand in fair value adjustments recorded on the Company's deferred compensation plan, which is held in a trust and recorded as both an asset and liability, affecting both other income and other expense.

Current wording

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.

Previous wording

Net gains and losses on investment securities, which were recognized in earnings during the three months ended March 31, 2025 and 2024, are shown in the table above. Net securities losses of $7.6 million were reported in the first quarter of 2025, compared to net losses of $259 thousand in the same period last year. The net losses in the first quarter of 2025 were mainly comprised of net losses in fair value of $8.5 million recorded on private equity investments, partly offset by net gains of $1.0 million on sales of private equity investments. The net losses on investment securities for the same quarter last year were primarily comprised of net losses of $8.5 million realized on the sale of available for sale securities, mostly offset by net gains in fair value of $7.1 million and a gain of $969 thousand on the sale of an investment, both in the Company's private equity investment portfolio. 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 $1.5 million during the first three months of 2025 and expense of $1.5 million during the first three months of 2024.

Current wording

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.

Previous wording

Non-interest expense for the first quarter of 2025 amounted to $238.4 million, a decrease of $7.3 million, or 3.0%, compared to expense of $245.7 million in the first quarter of last year. The decrease in expense from the same period last year was mainly due to lower deposit insurance expense and litigation settlement expense, partly offset by higher marketing expense, professional and other services expense, salaries expense and data processing and software expense. Salaries and employee benefits expense increased $1.3 million, or .8%, mainly due to higher incentive compensation expense of $811 thousand and full-time salaries expense of $578 thousand, partly offset by lower medical expense of $970 thousand. Full-time equivalent employees totaled 4,662 at March 31, 2025, compared to 4,721 at March 31, 2024. Data processing and software expense increased $1.1 million, or 3.5%, mainly due to higher costs for service providers and software. Net occupancy increased $446 thousand, 3.3%, mainly due to higher demolition costs. Professional and other services expense increased $1.4 million, or 15.9%, and marketing expense increased $1.8 million, or 44.8%. Deposit insurance expense decreased $4.3 million due to a $4.0 million accrual adjustment recorded in 2024 for a one-time FDIC special assessment to replenish the Deposit Insurance Fund. Other non-interest expense decreased $9.6 million, or 51.2%, mainly due to a $10.0 million litigation settlement recorded in 2024 that did not reoccur.

Current wording

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.

Previous wording

Net loan charge-offs in the first quarter of 2025 amounted to $10.8 million, compared to $10.7 million in the prior quarter and $8.9 million in the first quarter of last year. Comp ared to the same period last year, total net loan charge-offs in thefirst quarter of 2025 increased $1.9 million and increased $152 thousand over the previous quarter. The increase over the prior year was mainly driven by increases of $869 thousand, $532 thousand, and $518 thousand in consumer, consumer credit card, and business real estate loan net charge-offs, respectively. The increase over the previous quarter was driven by increases in net charge-offs on consumer credit card and business real estate loans, largely offset by decreases in net charge-offs on consumer and business loans.

Current wording

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 thesecond 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.

Previous wording

For the three months ended March 31, 2025, annualized net charge-offs on average consumer credit card loans were 5.04%, compared to 4.59% in the previous quarter and 4.60% in the same period last year. Consumer loan annualized net charge-offs in the current quarter amounted to .56%, compared to .62% in the prior quarter and .38% in the same period last year. In thefirst quarter of 2025, total annualized net loan charge-offs were .25%, compared to .25% in the previous quarter and .21% in the same period last year.

Current wording

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 thesecond 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.

Previous wording

For the three months ended March 31, 2025, the provision for credit losses on loans was $15.1 million, which was an $8.1 million increase over the $6.9 million provision recorded in the same period last year. The increase resulted from the provision recorded for the first three months of 2024 including a reduction of the allowance for credit losses on loans, while the provision for credit losses in the first three months of 2025 includes an increase in the allowance for credit losses on loans. The provision for credit losses on loans for the three months ended March 31, 2025 increased $2.5 million increase over the $12.6 million provision recorded for the three months ending December 31, 2024. Changes in the provision are driven by changes in the estimate for the allowance for credit losses on loans.

Current wording

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.

Previous wording

At March 31, 2025, the allowance for credit losses on loans increased by $4.3 million, compared to the allowance for credit losses on loans at December 31, 2024. The forecast utilized to estimate the allowance for credit losses at March 31, 2025 reflected a slight decline in key macroeconomic variables, causing the allowance to increase. In the commercial loan portfolio, the increase in the allowance related to the decline in forecast variables was mostly offset by improvements in the volume of loans classified as substandard or requiring additional qualitative factors due to the type of industry. The allowance for the personal banking loan portfolio increased $4.4 million compared to December 31, 2024 due to the changes in the forecast assumptions, in addition to lower prepayment speeds in the personal real estate loan portfolio and increased loss experience in the consumer loan portfolio, partially offset by decreases in outstanding loan balances in the consumer credit card portfolio. The allowance for credit losses on loans was $167.0 million at March 31, 2025 and was .96%, .95% and .93% of total loans at March 31, 2025, December 31, 2024 and March 31, 2024, respectively.

Current wording

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.

Previous wording

In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $608 thousand, compared to a benefit of $2.2 million for the three months ended March 31, 2024. At March 31, 2025, the liability for unfunded lending commitments was $18.3 million, compared to $18.9 million at December 31, 2024 and $23.1 million at March 31, 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.

Current wording

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.

Previous wording

Non-accrual loans totaled $22.6 million at March 31, 2025, an increase of $4.3 million from the balance at December 31, 2024. The increase occurred mainly in business real estate non-accrual loans, which increased $3.4 million, as well as business non-accrual loans, which increased $1.0 million. At March 31, 2025, non-accrual loans were comprised of business real estate (81.0%), revolving home equity (8.7%), business (4.9%), personal real estate (4.4%), and construction and land (1.0%) loans. Foreclosed real estate totaled $642 thousand at March 31, 2025, an increase of $299 thousand compared to December 31, 2024. Total loans past due 90 days or more and still accruing interest totaled $19.4 million as of March 31, 2025, a decrease of $5.1 million 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.

Current wording

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.

Previous wording

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 $286.9 million at March 31, 2025 compared to $330.3 million at December 31, 2024, resulting in a decrease of $43.5 million, or 13.2%.

Current wording

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%.

Previous wording

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 March 31, 2025, the Company held $136.3 million of loans that had been modified during the three months ended March 31, 2025. These loans are further discussed in the"Modifications for borrowers experiencing financial difficulty"section in Note 2 to the consolidated financial statements.

Current wording

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.

Previous wording

The Company's portfolio of construction and land loans, as shown in the table below, amounted to 8.2% of total loans outstanding at March 31, 2025. The largest component of construction and land loans was commercial construction, which increased $18.6 million during the three months ended March 31, 2025. At March 31, 2025, multi-family residential construction loans totaled approximately $585.7 million, or 48.2%, of the commercial construction loan portfolio, compared to $526.6 million, or 44.0%, at December 31, 2024.

Current wording

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.

Previous wording

Total business real estate loans were $3.6 billion at March 31, 2025 and comprised 20.9% 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 March 31, 2025, 34.5% 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.

Current wording

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.

Previous wording

The Company had $356.7 million in revolving home equity loans at March 31, 2025 that were collateralized by residential real estate. Most of these loans (93.3%) 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 March 31, 2025, the outstanding principal of loans with an original LTV higher than 80% was $30.0 million, or 8.6% 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 $3.5 million at March 31, 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 March 31, 2025 and December 31, 2024. The weighted average FICO score for the total portfolio balance at March 31, 2025 is 774. 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 2027, approximately 14% of the Company's current outstanding balances are expected to mature. Of these balances, approximately 83% 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.

Current wording

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 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.

Previous wording

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 36.6% of the consumer loan portfolio at March 31, 2025, and outstanding balances for auto loans were $774.3 million and $776.7 million at March 31, 2025 and December 31, 2024, respectively. The balances over 30 days past due amounted to $10.9 million at March 31, 2025 and $14.4 million at December 31, 2024, respectively, and comprised 1.4% of the outstanding balances of these loans at March 31, 2025 and 1.9% at December 31, 2024. For the three months ended March 31, 2025, $98.0 million of new auto loans were originated, compared to $101.2 million during the first three months of 2024. At March 31, 2025, the automobile loan portfolio had a weighted average FICO score of 755, and net charge-offs on auto loans were 1.1% of average auto loans.

Current wording

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.

Previous wording

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 10.3% of the consumer loan portfolio at March 31, 2025. Losses on these loans have historically been low, and the Company saw net recoveries of $14 thousand for the first three months of 2025. Private banking loans comprised 37.3% of the consumer loan portfolio at March 31, 2025. The Company's private banking loans are generally well-collateralized, and at March 31, 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 $823 thousand in the first three months of 2025 and were .3% of the average balances of these loans at March 31, 2025.

Current wording

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.

Previous wording

The Company offers low promotional rates on selected consumer credit card products. Out of a portfolio at March 31, 2025 of $568.2 million in consumer credit card loans outstanding, approximately $120.3 million, or 21.2%, carried a low promotional rate. Within the next six months, $52.7 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.

Current wording

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.

Previous wording

The Company's energy lending portfolio is comprised of lending to the petroleum and natural gas sectors and totaled $322.4 million, or 1.9% of total loans at March 31, 2025, a decrease of $15.6 million from December 31, 2024, as shown in the table below.

Current wording

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.

Previous wording

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 $1.6 billion at both March 31, 2025 and December 31, 2024. Additional unfunded commitments at March 31, 2025 totaled $2.3 billion.

Current wording

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.

Previous wording

Income tax expense was $37.0 million in the first quarter of 2025, compared to $36.6 million in the fourth quarter of 2024 and $31.7 million in the first quarter of 2024. The Company's effective tax rate, including the effect of non-controlling interest, was 21.9% in the first quarter of 2025, compared to 21.2% in the fourth quarter of 2024 and 21.9% in the first quarter of 2024.

Current wording

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.

Previous wording

Total assets of the Company were $32.4 billion at March 31, 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 $31.4 billion at March 31, 2025 and $30.9 billion at December 31, 2024, and consisted of 55% in loans and 33% in investment securities at March 31, 2025.

Current wording

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.

Previous wording

Total average available for sale debt securities increased $66.1 million over the previous quarter to $9.2 billion, at fair value. The increase in available for sale debt securities was mainly the result of higher average balances of U.S. government and federal agency obligations and other asset-backed securities, partly offset by lower average balances of mortgage-backed securities. During the first quarter of 2025, the unrealized loss on available for sale debt securities decreased $157.7 million to $832.9 million, at period end. Also, during the first quarter of 2025, purchases of available for sale debt securities totaled $507.7 million with a weighted average yield of approximately 4.74%, and maturities and pay downs of available for sale debt securities were $542.3 million. At March 31, 2025, the duration of the available for sale investment portfolio was 4.1 years, and maturities and pay downs of approximately $1.4 billion are expected to occur during the next 12 months.

Current wording

Total available for sale debt securities, excluding fair value adjustments, decreased $447.3 million at June 30, 2025 compared to December 31, 2024. Available for sale debt security sales, maturities and pay downs during this period totaled $993.9 million, partly offset by purchases 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 June 30, 2025 compared to December 31, 2024. At June 30, 2025, the duration of the available for sale investment portfolio 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.

Previous wording

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $2.8 billion at March 31, 2025 and increased $132.0 million from December 31, 2024. At March 31, 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 $9.3 billion at March 31, 2025 and included an unrealized net loss of $832.9 million. The total net unrealized loss included net losses of $743.8 million on mortgage-backed and asset-backed securities and $68.4 million on state and municipal obligations.

Current wording

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.

Previous wording

The Company's available for sale debt securities portfolio has a diverse mix of high quality and liquid investment securities with a duration of 4.1 years at March 31, 2025. Approximately $1.4 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:

Current wording

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:

Previous wording

The average loans to deposits ratio is a measure of a bank's liquidity, and the Company’s average loans to deposits ratio was 69.4% for the three months ended March 31, 2025. Core customer deposits, defined as non-interest bearing, interest checking, savings, and money market deposit accounts totaled $23.5 billion and represented 90.9% of the Company's total deposits at March 31, 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 $588.3 million at March 31, 2025 compared to December 31, 2024, primarily due to increases in commercial and consumer deposits of $327.7 million and $149.6 million, respectively. While the Company considers core consumer and 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 $1.4 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 $6.1 billion through advances from the FHLB and the Federal Reserve.

Current wording

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 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.

Previous wording

The Company also holds securities sold under agreements to repurchase ("resale agreements") which are an additional source of liquidity. At March 31, 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 $875.2 million in fair value at March 31, 2025.

Current wording

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.

Previous wording

Certificates of deposit of $100,000 or greater totaled $1.4 billion at March 31, 2025. These deposits are normally considered more volatile and higher costing, and comprised 5.3% of total deposits at March 31, 2025.

Current wording

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.

Previous wording

Federal funds purchased, which totaled $132.4 million at March 31, 2025, are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit. At March 31, 2025, the Company had approved lines of credit totaling $4.1 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 March 31, 2025 were comprised of non-insured customer funds totaling $2.3 billion, and securities pledged as collateral for these retail agreements totaled $2.3 billion at March 31, 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 March 31, 2025.

Current wording

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.

Previous wording

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 $102.1 million during the first three 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 $138.6 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 $373.4 million. Activity in the investment securities portfolio used cash of $225.0 million from purchases of securities under agreements to resell (net of repayments). This decrease in investing cash flows was further supported by a net increase in the loan portfolio, which used cash of $170.6 million. These uses of cash were partly balanced by sales, maturities, and pay downs (net of purchases) of investment securities, which provided cash of $34.6 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 provided cash of $132.7 million, largely resulting from a net increase of $734.8 million in deposits during the first three months of 2025. This increase was largely offset by federal funds purchases and securities sold under agreements to repurchase, which used cash of $526.7 million. Additionally, purchases of treasury stock and cash dividends (including distributions to non-controlling interest) used cash of $55.2 million and $37.9 million, respectively.

Current wording

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.