merce Bancshares(CBSH) - 2025 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis of Commerce Bancshares, Inc. for the periods ended June 30, 2025 Item 1. FINANCIAL STATEMENTS Unaudited consolidated financial statements and detailed notes for Commerce Bancshares, Inc. for periods ended June 30, 2025, and December 31, 2024 Consolidated Balance Sheets The Consolidated Balance Sheets show the financial position of Commerce Bancshares, Inc. and Subsidiaries as of June 30, 2025 (unaudited) and December 31, 2024. Key changes include an increase in total assets to $32.28 billion from $31.99 billion, driven by higher net loans, and an increase in total equity to $3.66 billion from $3.33 billion | Metric (In thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total assets | $32,284,247 | $31,996,627 | | Net loans | $17,500,208 | $17,057,361 | | Total investment securities | $9,236,826 | $9,462,380 | | Total deposits | $25,494,028 | $25,293,644 | | Total liabilities | $28,624,133 | $28,664,152 | | Total equity | $3,660,114 | $3,332,475 | Consolidated Statements of Income The Consolidated Statements of Income show an increase in net income attributable to Commerce Bancshares, Inc. for both the three and six months ended June 30, 2025, compared to the prior year. Net interest income grew, while interest expense decreased, contributing to improved profitability. Provision for credit losses also increased for the six-month period | Metric (In thousands, except per share data) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net interest income | $280,147 | $262,249 | $549,249 | $511,248 | | Provision for credit losses | $5,597 | $5,468 | $20,084 | $10,255 | | Total non-interest income | $165,613 | $152,244 | $324,562 | $301,092 | | Total non-interest expense | $244,437 | $232,214 | $482,813 | $477,911 | | Net income attributable to Commerce Bancshares, Inc. | $152,479 | $139,553 | $284,071 | $252,216 | | Net income per common share — diluted | $1.14 | $1.03 | $2.12 | $1.85 | Consolidated Statements of Comprehensive Income The Consolidated Statements of Comprehensive Income show that comprehensive income attributable to Commerce Bancshares, Inc. increased significantly for the six months ended June 30, 2025, reaching $461.9 million, up from $335.8 million in the prior year. This was primarily driven by substantial net unrealized gains on available-for-sale debt securities | Metric (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | $153,763 | $141,442 | $284,396 | $256,894 | | Net unrealized gains (losses) on available for sale debt securities | $51,374 | $130,076 | $169,662 | $109,675 | | Other comprehensive income (loss), net of tax | $53,527 | $123,210 | $177,862 | $83,595 | | Comprehensive income (loss) attributable to Commerce Bancshares, Inc. | $206,006 | $262,763 | $461,933 | $335,811 | Consolidated Statements of Changes in Equity The Consolidated Statements of Changes in Equity detail the movements in stockholders' equity for the three and six months ended June 30, 2025 and 2024. For the six months ended June 30, 2025, total equity increased to $3.66 billion from $3.33 billion at December 31, 2024, primarily due to net income and other comprehensive income, partially offset by treasury stock purchases and cash dividends | Metric (In thousands) | Balance Dec 31, 2024 | Net Income | Other Comprehensive Income (Loss) | Purchases of Treasury Stock | Cash Dividends Paid | Balance June 30, 2025 | | :-------------------- | :------------------- | :--------- | :-------------------------------- | :-------------------------- | :------------------ | :-------------------- | | Total Equity | $3,332,475 | $284,396 | $177,862 | $(66,076) | $(73,627) | $3,660,114 | Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows indicate a net decrease in cash, cash equivalents, and restricted cash of $229.7 million for the six months ended June 30, 2025, compared to a decrease of $142.5 million in the prior year. Operating activities provided $249.8 million, while investing activities used $250.7 million, and financing activities used $228.7 million | Metric (In thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | | Net cash provided by (used in) operating activities | $249,796 | $282,835 | | Net cash provided by (used in) investing activities | $(250,732) | $1,205,647 | | Net cash provided by (used in) financing activities | $(228,721) | $(1,630,975) | | Increase (decrease) in cash, cash equivalents and restricted cash | $(229,657) | $(142,493) | | Cash, cash equivalents and restricted cash at June 30 | $3,146,335 | $2,544,790 | Notes to Consolidated Financial Statements Detailed notes to the consolidated financial statements provide crucial context and breakdowns for the presented financial figures 1. Principles of Consolidation and Presentation Consolidated financial statements for Commerce Bancshares, Inc. and subsidiaries are prepared under GAAP using management estimates - The consolidated financial statements include Commerce Bancshares, Inc. and all majority-owned subsidiaries, with most operations conducted by Commerce Bank[15] - Statements are unaudited but include all necessary adjustments for fair presentation, which are of a normal recurring nature[15] - Preparation requires management estimates and assumptions, which could differ significantly from actual results[15] 2. Loans and Allowance for Credit Losses This note details the Company's loan portfolio, allowance for credit losses (ACL), and credit quality indicators. Total loans increased to $17.67 billion at June 30, 2025, from $17.22 billion at December 31, 2024. The ACL increased to $165.26 million, reflecting an increase in the personal banking loan portfolio's loss experience. Delinquent and non-accrual loans, as well as modifications for borrowers experiencing financial difficulty, are also discussed | Loan Classification (In thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Commercial: Business | $6,328,684 | $6,053,820 | | Commercial: Real estate – construction and land | $1,405,398 | $1,409,901 | | Commercial: Real estate – business | $3,757,778 | $3,661,218 | | Personal Banking: Real estate – personal | $3,058,845 | $3,058,195 | | Personal Banking: Consumer | $2,157,867 | $2,073,123 | | Total loans | $17,665,468 | $17,220,103 | | Metric (In thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Allowance for credit losses on loans | $165,260 | $162,742 | | Liability for unfunded lending commitments | $16,005 | $18,935 | - Loans of $3.4 billion were pledged at the Federal Home Loan Bank and $2.7 billion at the Federal Reserve Bank as collateral[18] Allowance for credit losses The allowance for credit losses (ACL) is determined using an average historical loss model, adjusted for current conditions and reasonable economic forecasts. Key assumptions include a one-year reasonable and supportable period, specific macroeconomic variables (e.g., unemployment, GDP, interest rates), and qualitative factors for portfolio changes or industry stress. The ACL on loans increased to $165.26 million at June 30, 2025, from $162.74 million at December 31, 2024, primarily due to increased loss experience in the consumer portfolio - The ACL model incorporates historical loss experience, current conditions, and reasonable and supportable forecasts of macroeconomic variables (GDP, unemployment, interest rates, CPI, HPI, CREPI)[19][20] | Macro-economic Variable | June 30, 2025 Forecast | December 31, 2024 Forecast | | :---------------------- | :--------------------- | :------------------------- | | Unemployment rate | 4.3% to 4.4% | 4.2% to 4.3% | | Real GDP growth | 1.0% to 1.6% | 2.5% to 2.7% | | BBB corporate yield | 5.9% to 6.2% | 5.2% to 5.3% | | Housing Price Index | 332.8 to 341.0 | 324.8 to 335.4 | | Metric (In thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | | Provision for credit losses on loans | $23,014 | $14,796 | | Net loan charge-offs (recoveries) | $20,496 | $18,634 | | Balance June 30 | $165,260 | $158,557 | Delinquent and non-accrual loans Delinquent and non-accrual loans are closely monitored, with loans considered past due the day after the contractual repayment date. At June 30, 2025, total loans past due 90 days and still accruing interest increased to $25.30 million from $24.52 million at December 31, 2024, while non-accrual loans slightly increased to $18.87 million from $18.28 million | Metric (In thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | 30 – 89 Days Past Due | $39,245 | $83,520 | | 90 Days Past Due and Still Accruing | $25,303 | $24,516 | | Non-accrual | $18,870 | $18,278 | | Total loans | $17,665,468 | $17,220,103 | - At June 30, 2025, $2.0 million in non-accrual loans had no allowance for credit loss, and no interest income was recorded on non-accrual loans during the six months ended June 30, 2025 and 2024[29] Credit quality indicators Loan quality is assessed using internal risk ratings for Commercial loans and delinquency for Personal Banking, with detailed breakdowns - Commercial loan portfolio risk ratings include Pass, Special Mention, Substandard, and Non-accrual, with annual reviews and quarterly monitoring for higher-risk loans[30][32] | Commercial Loan Risk Rating (In thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Pass | $11,033,032 | $10,680,734 | | Special mention | $167,123 | $99,147 | | Substandard | $275,760 | $329,783 | | Non-accrual | $15,945 | $15,275 | | Total Commercial loans | $11,491,860 | $11,124,939 | | Personal Banking Loan Delinquency (In thousands) | June 30, 2025 | December 31, 2024 | | :----------------------------------------------- | :------------ | :---------------- | | Current to 90 days past due | $6,146,494 | $6,068,209 | | Over 90 days past due | $24,189 | $23,952 | | Non-accrual | $2,925 | $3,003 | | Total Personal banking loans | $6,173,608 | $6,095,164 | Collateral-dependent loans The Company's collateral-dependent loans consist of large non-accrual loans, which are either over-collateralized or have collateral equal to their amortized cost. As of June 30, 2025, the total amortized cost basis of these loans was $16.49 million, slightly down from $16.64 million at December 31, 2024 - Collateral-dependent loans are large non-accrual loans, required to be over-collateralized or carry collateral equal to amortized cost[38] | Loan Type (In thousands) | June 30, 2025 | December 31, 2024 | | :----------------------- | :------------ | :---------------- | | Commercial: Real estate - business | $14,508 | $14,667 | | Personal Banking: Revolving home equity | $1,977 | $1,977 | | Total | $16,485 | $16,644 | Modifications for borrowers experiencing financial difficulty The Company modifies loan terms for borrowers facing financial difficulty, primarily through term extensions, repayment plans, payment deferrals, forbearance, or interest rate reductions. For the six months ended June 30, 2025, $138.13 million in loans were modified, an increase from $84.71 million in the prior year. These modifications are factored into the allowance for credit losses model, and specific details on payment defaults and commitments are provided - Loan modifications for borrowers experiencing financial difficulty include term extensions, payment deferrals, interest rate reductions, and forgiveness of interest/fees[41] | Modification Type (In thousands) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------- | :--------------------------- | :--------------------------- | | Term Extension | $129,515 | $78,671 | | Payment Delay | $6,847 | $3,975 | | Interest Rate Reduction | $1,764 | $2,016 | | Other | $— | $44 | | Total | $138,126 | $84,706 | - The Company had commitments of $12.7 million at June 30, 2025, to lend additional funds to borrowers experiencing financial difficulty who had modified loan terms[51] Loans held for sale The Company designates certain long-term fixed-rate personal real estate loans as held for sale, electing the fair value option. At June 30, 2025, the fair value of these loans was $3.5 million, with an unpaid principal balance of $3.4 million. None of these loans were on non-accrual status or 90 days past due - Certain long-term fixed rate personal real estate loans are designated as held for sale, with the fair value option elected[56] | Metric (In thousands) | June 30, 2025 | | :-------------------- | :------------ | | Fair value of loans held for sale | $3,500 | | Unpaid principal balance | $3,400 | - No loans held for sale were on non-accrual status or 90 days past due at June 30, 2025[57] Foreclosed real estate/repossessed assets The Company's foreclosed real estate holdings increased to $397 thousand at June 30, 2025, from $343 thousand at December 31, 2024. Repossessed personal property, primarily autos, also increased to $2.7 million from $2.2 million over the same period. These assets are recorded at the lower of cost or fair value less estimated selling costs upon acquisition | Asset Type (In thousands) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Foreclosed real estate | $397 | $343 | | Repossessed personal property | $2,700 | $2,200 | - Acquired assets are recorded at fair value less estimated selling costs at foreclosure date and subsequently carried at the lower of this cost basis or fair value less estimated selling costs[57] 3. Investment Securities This note details the Company's investment securities portfolio, which totaled $9.24 billion at June 30, 2025, down from $9.46 billion at December 31, 2024. The portfolio is primarily composed of available-for-sale debt securities, with a significant portion in U.S. government and federal agency obligations. The note also covers equity securities, the allowance for credit losses on debt securities, and pledged securities | Investment Security Type (In thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Available for sale debt securities | $8,915,779 | $9,136,853 | | Trading debt securities | $46,630 | $38,034 | | Equity securities | $54,511 | $57,442 | | Other (FRB, FHLB stock, Private equity) | $219,906 | $230,051 | | Total investment securities | $9,236,826 | $9,462,380 | - Accrued interest receivable on investment securities totaled $36.1 million at June 30, 2025[59] Equity Securities The Company's equity securities include those with readily determinable fair values and those without. In 2024, the Company participated in Visa's Exchange Offer, converting Class B-1 common stock into Class B-2 and Class C common stock. The Class C shares were subsequently sold, generating significant proceeds. Class B-2 shares are carried at cost ($0) due to the measurement alternative approach - The Company tendered 823,447 shares of Visa Class B-1 common stock in an Exchange Offer, receiving Class B-2 and Class C common stock[61] - During Q2 and Q3 2024, the Company sold all Visa Class C shares, generating $119.8 million and $56.8 million in proceeds, respectively[63] | Metric (In thousands) | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | | Net gains (losses) recognized during the period on equity securities | $178,164 | $178,306 | | Net unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date | $58,177 | $58,319 | Available for sale debt securities portfolio The available-for-sale debt securities portfolio, carried at fair value, is the largest component of the Company's investments. At June 30, 2025, its fair value was $8.92 billion, with U.S. government and federal agency obligations making up a significant portion. The portfolio also includes mortgage and asset-backed securities, which have uncertain maturity dates and are priced based on estimated prepayment rates | Security Type (In thousands) | Amortized Cost | Fair Value | | :--------------------------- | :------------- | :--------- | | U.S. government and federal agency obligations | $2,586,856 | $2,597,737 | | State and municipal obligations | $774,740 | $714,958 | | Mortgage and asset-backed securities | $6,048,285 | $5,352,358 | | Total available for sale debt securities | $9,680,135 | $8,915,779 | - The portfolio includes U.S. Treasury inflation-protected securities totaling $413.4 million at fair value, whose interest increases with inflation[66] Allowance for credit losses on available for sale debt securities Securities with fair values below amortized cost are reviewed for impairment, with a watch list for those below specific credit ratings or with significant fair value declines. At June 30, 2025, the fair value of securities on the watch list was $1.1 billion, primarily due to increased interest rates. No credit losses were identified or recognized for the six months ended June 30, 2025, as the Company does not intend to sell these securities at a loss - Securities with fair value less than amortized cost are reviewed for impairment, with a watch list for those below Baa3/BBB- ratings or with >20% fair value decline[67] | Metric (In thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Fair value of securities on watch list | $1,100,000 | $1,600,000 | | Total unrealized loss on available for sale debt securities | $796,304 | $994,534 | - No credit loss expense was recognized on available for sale debt securities for the six months ended June 30, 2025 and 2024[68] Pledged securities At June 30, 2025, securities with a fair value of $6.9 billion were pledged to secure public fund deposits, repurchase agreements, trust funds, and borrowings at the FRB and FHLB, consistent with $6.9 billion at December 31, 2024. No single issuer, excluding government-sponsored enterprises, exceeded 10% of stockholders' equity | Metric (In thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Securities pledged | $6,900,000 | $6,900,000 | - Pledged securities secure public fund deposits, securities sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB[77] 4. Goodwill and Other Intangible Assets This note provides details on the Company's goodwill and other intangible assets. Goodwill remained stable at $146.54 million at June 30, 2025, allocated across Consumer, Commercial, and Wealth segments. Amortizable intangible assets, primarily mortgage servicing rights, totaled $9.73 million, with estimated annual amortization expense provided for the next five fiscal years | Intangible Asset (In thousands) | June 30, 2025 Net Amount | December 31, 2024 Net Amount | | :------------------------------ | :----------------------- | :--------------------------- | | Core deposit premium | $185 | $264 | | Mortgage servicing rights | $9,548 | $9,768 | | Total amortizable intangible assets | $9,733 | $10,032 | | Goodwill Allocation (In thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Consumer segment | $70,721 | $70,721 | | Commercial segment | $75,072 | $75,072 | | Wealth segment | $746 | $746 | | Total goodwill | $146,539 | $146,539 | | Estimated Annual Amortization Expense (In thousands) | | :------------------------------------------------- | | 2025 | $1,250 | | 2026 | $1,116 | | 2027 | $966 | | 2028 | $841 | | 2029 | $757 | 5. Guarantees The Company issues financial guarantees, primarily standby letters of credit and credit risk participation agreements (RPAs). At June 30, 2025, the contractual amount of standby letters of credit was $610.3 million, with a net liability of $4.0 million. The fair value of RPA guarantee liabilities was $127 thousand, with a notional amount of $373.1 million, where the Company shares credit risk on interest rate swaps - Standby letters of credit are contingent commitments guaranteeing customer payment or performance obligations, subject to credit policies and often secured[82] | Guarantee Type (In thousands) | June 30, 2025 Contractual/Notional Amount | June 30, 2025 Net Liability/Fair Value | | :---------------------------- | :---------------------------------------- | :------------------------------------- | | Standby letters of credit | $610,300 | $4,000 | | Credit risk participation agreements | $373,100 | $127 | - RPAs involve the Company as a guarantor for other financial institutions' interest rate swaps, with underlying swaps normally collateralized[84] 6. Leases The Company has direct financing and sales-type leases for equipment, trucks, and office furniture, included in business loans. It also leases office space to third parties as operating leases. Total lease income for the six months ended June 30, 2025, was $28.18 million, an increase from $26.45 million in the prior year - The Company's leases include direct financing and sales-type leases (equipment, trucks, office furniture) and operating leases (office space to third parties)[86] | Lease Income (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Direct financing and sales-type leases | $9,852 | $9,043 | $19,695 | $18,055 | | Operating leases | $4,188 | $4,260 | $8,485 | $8,392 | | Total lease income | $14,040 | $13,303 | $28,180 | $26,447 | - Tower Properties Company, a related party, was no longer a lessee as of January 1, 2025[88] 7. Pension The Company's defined benefit pension plan has been frozen since January 1, 2011. Net periodic pension cost for the six months ended June 30, 2025, was $916 thousand, an increase from $851 thousand in the prior year. No funding contributions were made to the defined benefit plan during the first six months of 2025 - All benefits under the Company's defined benefit pension plan have been frozen since January 1, 2011[89] | Pension Cost (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Service cost | $135 | $96 | $271 | $193 | | Interest cost | $1,074 | $1,113 | $2,147 | $2,225 | | Expected return on plan assets | $(980) | $(1,019) | $(1,960) | $(2,038) | | Net periodic pension cost | $458 | $426 | $916 | $851 | - No funding contributions were made to the defined benefit pension plan during the first six months of 2025[89] 8. Common Stock This note details the calculation of basic and diluted income per common share using the two-class method. For the six months ended June 30, 2025, basic and diluted EPS were $2.12, up from $1.85 in the prior year. Weighted average common shares outstanding decreased to 132.69 million (basic) and 132.83 million (diluted) from 135.19 million and 135.34 million, respectively, in the prior year - The Company applies the two-class method for computing income per share, considering nonvested share-based awards as participating securities[90] | Metric (In thousands, except per share data) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income allocated to common stock | $151,018 | $138,240 | $281,351 | $249,859 | | Weighted average common shares outstanding (basic) | 132,455 | 134,881 | 132,685 | 135,187 | | Basic income per common share | $1.14 | $1.03 | $2.12 | $1.85 | | Diluted income per common share | $1.14 | $1.03 | $2.12 | $1.85 | - Prior year share and per share amounts have been restated for a 5% common stock dividend distributed in December 2024[92] 9. Accumulated Other Comprehensive Income This note summarizes the activity and balances of accumulated other comprehensive income (AOCI). At June 30, 2025, AOCI was a loss of $581.05 million, an improvement from a loss of $758.91 million at January 1, 2025. This change was primarily driven by current period other comprehensive income, net of tax, of $177.86 million, largely from net unrealized gains on available-for-sale debt securities | Metric (In thousands) | Balance Jan 1, 2025 | Current Period OCI (Loss), Net of Tax | Balance June 30, 2025 | | :-------------------- | :------------------ | :------------------------------------ | :-------------------- | | Unrealized Gains (Losses) on Securities | $(742,926) | $169,662 | $(573,264) | | Pension Loss | $(12,059) | $343 | $(11,716) | | Unrealized Gains (Losses) on Cash Flow Hedge Derivatives | $(3,926) | $7,857 | $3,931 | | Total Accumulated Other Comprehensive Income (Loss) | $(758,911) | $177,862 | $(581,049) | - Pre-tax reclassifications from AOCI to current earnings are included in 'investment securities gains (losses), net' and 'interest and fees on loans' in the consolidated statements of income[95][96] 10. Segments The Company operates through three segments: Consumer, Commercial, and Wealth, with performance evaluated by the CEO using net income before taxes. For the six months ended June 30, 2025, Commercial and Wealth segments showed increased pre-tax income, while Consumer segment income decreased. The 'Other/Elimination' category includes unallocated activities like the investment securities portfolio and administrative functions - The Company's operating segments are Consumer, Commercial, and Wealth, with the CEO as the chief operating decision maker[97][98] | Segment (In thousands) | 6 Months Ended June 30, 2025 Income Before Income Taxes | 6 Months Ended June 30, 2024 Income Before Income Taxes | | :--------------------- | :------------------------------------------------------ | :------------------------------------------------------ | | Consumer | $114,142 | $125,643 | | Commercial | $193,161 | $180,494 | | Wealth | $90,960 | $84,974 | | Other/Elimination | $(34,503) | $(63,963) | | Consolidated Totals | $363,760 | $327,148 | - Segment performance is based on internal management accounting procedures, including funds transfer pricing and overhead cost assignment, and is not necessarily comparable to other financial institutions[101][103] 11. Derivative Instruments The Company uses various derivative instruments, including interest rate swaps, floors, caps, credit risk participation agreements, and foreign exchange contracts, with a total notional amount of $4.61 billion at June 30, 2025. Interest rate floors are designated as cash flow hedges, with a fair value of $50.93 million. The Company's policy is to present derivative assets and liabilities on a gross basis on its consolidated balance sheets | Derivative Instrument (In thousands) | June 30, 2025 Notional Amount | December 31, 2024 Notional Amount | | :--------------------------------- | :---------------------------- | :-------------------------------- | | Interest rate swaps | $1,953,737 | $2,065,400 | | Interest rate floors | $2,000,000 | $2,000,000 | | Credit risk participation agreements | $540,569 | $503,196 | | Total notional amount | $4,611,075 | $4,631,381 | | Derivative Type (In thousands) | June 30, 2025 Fair Value (Asset) | December 31, 2024 Fair Value (Asset) | June 30, 2025 Fair Value (Liability) | December 31, 2024 Fair Value (Liability) | | :----------------------------- | :------------------------------- | :----------------------------------- | :----------------------------------- | :----------------------------------- | | Interest rate floors | $50,925 | $35,544 | $— | $— | | Interest rate swaps | $22,450 | $26,759 | $(22,450) | $(26,759) | | Total | $74,222 | $62,648 | $(23,277) | $(26,963) | - The Company held four interest rate floors with a combined notional value of $2.0 billion, designated as cash flow hedges, to hedge against declining interest rates on floating-rate commercial loans[107][109] 12. Resale and Repurchase Agreements The Company engages in resale and repurchase agreements, treated as secured lending and collateralized borrowing. At June 30, 2025, total resale agreements were $850.0 million, and total repurchase agreements were $2.47 billion. These agreements are often transacted under master netting arrangements, and the underlying collateral consists of marketable securities - Resale and repurchase agreements are accounted for as secured lending and collateralized borrowing, respectively[122] | Agreement Type (In thousands) | June 30, 2025 Gross Amount Recognized | December 31, 2024 Gross Amount Recognized | | :---------------------------- | :------------------------------------ | :---------------------------------------- | | Total resale agreements | $850,000 | $625,000 | | Total repurchase agreements | $2,470,486 | $2,803,043 | | Repurchase Agreements by Maturity (In thousands) | Overnight and continuous | Up to 90 days | Greater than 90 days | Total | | :----------------------------------------------- | :----------------------- | :------------ | :------------------- | :------ | | June 30, 2025 | $2,386,323 | $28,180 | $55,983 | $2,470,486 | 13. Stock-Based Compensation The Company issues stock-based compensation through nonvested restricted stock and stock appreciation rights (SARs). Stock-based compensation expense for the six months ended June 30, 2025, was $8.5 million. Nonvested stock awards generally vest over 4 to 7 years, while SARs vest ratably over 4 years and are settled in stock - Stock-based compensation expense was $8.5 million for the six months ended June 30, 2025 and 2024[126] | Nonvested Share Awards | Shares | Weighted Average Grant Date Fair Value | | :--------------------- | :----- | :------------------------------------- | | Nonvested at January 1, 2025 | 1,252,653 | $55.41 | | Granted | 287,040 | $65.29 | | Vested | (241,921) | $55.05 | | Forfeited | (28,060) | $57.18 | | Nonvested at June 30, 2025 | 1,269,712 | $57.68 | | SAR Activity (In thousands, except per share data) | Rights | Weighted Average Exercise Price | | :------------------------------------------------- | :----- | :------------------------------ | | Outstanding at January 1, 2025 | 841,962 | $48.90 | | Granted | 38,770 | $64.93 | | Exercised | (54,848) | $39.13 | | Outstanding at June 30, 2025 | 822,166 | $50.28 | 14. Revenue from Contracts with Customers This note disaggregates revenue from contracts with customers, which primarily includes fees for bank card transactions, trust services, deposit account charges, and consumer brokerage services. For the six months ended June 30, 2025, total non-interest income from contracts with customers was $300.36 million, an increase from $279.01 million in the prior year. Net interest income, comprising about 63% of total revenue, is outside the scope of ASC 606 - Approximately 63% of the Company's total revenue is net interest income, which is not within the scope of ASC 606[132] | Revenue Category (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Trust fees | $55,571 | $52,291 | $112,163 | $103,396 | | Bank card transaction fees | $46,362 | $47,477 | $91,955 | $94,407 | | Deposit account charges and other fees | $26,248 | $25,325 | $52,870 | $49,476 | | Consumer brokerage services | $5,383 | $4,478 | $10,168 | $8,886 | | Total non-interest income from contracts with customers | $152,381 | $141,896 | $300,364 | $279,006 | - Bank card transaction fees are primarily earned in the Consumer segment, while corporate card and merchant fees are in the Commercial segment. Trust fees and consumer brokerage services income are mainly in the Wealth segment[135] 15. Fair Value Measurements This note outlines the Company's fair value measurement practices, using a three-level hierarchy based on input transparency. Assets and liabilities measured at fair value on a recurring basis include investment securities, private equity investments, and derivatives. Level 3 assets, primarily private equity investments, are valued using unobservable inputs like EBITDA multiples. Nonrecurring fair value adjustments are also discussed - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable and significant inputs)[140][142] | Asset/Liability (In thousands) | Total Fair Value (June 30, 2025) | Level 1 (June 30, 2025) | Level 2 (June 30, 2025) | Level 3 (June 30, 2025) | | :----------------------------- | :------------------------------- | :---------------------- | :---------------------- | :---------------------- | | Available for sale debt securities | $8,915,779 | $2,597,737 | $6,318,084 | $950 | | Private equity investments | $174,070 | $— | $— | $174,070 | | Derivatives (Assets) | $74,222 | $— | $73,882 | $340 | | Derivatives (Liabilities) | $23,277 | $— | $23,150 | $127 | - Level 3 assets, primarily private equity investments, use market comparable companies and EBITDA multiples (weighted average 5.0) as unobservable inputs[149][150] 16. Fair Value of Financial Instruments This note presents the carrying amounts and estimated fair values of the Company's financial instruments, categorized by the fair value hierarchy. At June 30, 2025, total financial assets had a carrying amount of $30.99 billion and an estimated fair value of $30.49 billion. Total financial liabilities had a carrying amount of $28.15 billion and an estimated fair value of $28.18 billion - Fair value estimates are subjective and based on judgments regarding future expected loss experience, risk characteristics, and economic conditions[153] | Financial Instrument (In thousands) | Carrying Amount (June 30, 2025) | Estimated Fair Value (June 30, 2025) | | :---------------------------------- | :------------------------------ | :----------------------------------- | | Total Financial Assets | $30,989,464 | $30,487,667 | | Total Financial Liabilities | $28,151,197 | $28,180,621 | | Financial Assets by Level (In thousands) | Level 1 (June 30, 2025) | Level 2 (June 30, 2025) | Level 3 (June 30, 2025) | | :--------------------------------------- | :---------------------- | :---------------------- | :---------------------- | | Total Financial Assets | $5,824,545 | $6,428,255 | $18,234,867 | 17. Legal and Regulatory Proceedings The Company is involved in various legal proceedings in the normal course of business. Loss accruals are recorded for matters where a loss is probable and estimable. Some early-stage matters have not yet reached a point where a probable and estimable loss can be determined - The Company has various legal proceedings pending in the normal course of business[156] - A loss accrual is recorded for legal and regulatory matters deemed probable and reasonably estimable[156] - Some early-stage matters have not yet progressed to the point where a loss amount can be determined to be probable and estimable[156] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial condition, operations, credit losses, risk elements, and the FineMark acquisition is provided Pending Acquisition On June 16, 2025, Commerce Bancshares, Inc. announced a definitive merger agreement to acquire FineMark Holdings, Inc. in an all-stock transaction valued at approximately $585 million. The transaction, subject to regulatory and shareholder approvals, is anticipated to close on January 1, 2026. The Company incurred $1.9 million in merger-related expenses in Q2 2025 - The Company entered a definitive merger agreement to acquire FineMark Holdings, Inc. in an all-stock transaction[158] - The transaction is valued at approximately $585 million, based on the Company's common shares closing price as of June 13, 2025[158] - Merger-related expenses of $1.9 million were incurred in the second quarter of 2025[159] Forward-Looking Information This section highlights that the report contains forward-looking statements subject to various risks and uncertainties, which could cause actual results to differ materially from forecasts. Key factors include economic conditions, regulatory changes, interest rate fluctuations, and risks specifically related to the pending FineMark merger. The Company does not undertake to update these statements - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[160] - Key factors affecting future results include economic conditions, regulatory policies, interest rate fluctuations, and risks associated with the FineMark merger[160] - The Company does not undertake to update forward-looking statements to reflect future circumstances or unanticipated events[160] Critical Accounting Estimates and Related Policies The Company identifies its allowance for credit losses and fair value measurement policies as critical accounting estimates due to the significant judgment and inherent uncertainties involved. There have been no changes in the application of these policies since December 31, 2024 - The Company's critical accounting estimates include the allowance for credit losses and fair value measurement policies[161] - These policies require difficult, subjective, and complex judgments due to inherent uncertainties[161] - No changes in the application of critical accounting policies have occurred since December 31, 2024[162] Selected Financial Data This section presents key financial data and ratios for the Company. For the six months ended June 30, 2025, diluted EPS increased to $2.12 from $1.85 in the prior year. Return on total assets was 1.82%, and return on equity was 16.63%. The efficiency ratio improved to 55.18%, and capital ratios remained strong, with Tier I common risk-based capital at 17.17% | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income per common share — diluted | $1.14 | $1.03 | $2.12 | $1.85 | | Cash dividends on common stock | $0.275 | $0.257 | $0.550 | $0.514 | | Return on total assets | 1.95% | 1.86% | 1.82% | 1.67% | | Return on equity | 17.40% | 18.52% | 16.63% | 16.98% | | Efficiency ratio | 54.77% | 55.95% | 55.18% | 58.75% | | Tier I common risk-based capital ratio | - | - | 17.17% | 16.19% | - Book value per common share increased to $27.43 at June 30, 2025, from $23.31 at June 30, 2024[163] | Metric (In thousands) | June 30, 2025 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Total tangible common equity | $3,490,248 | $2,987,244 | | Total tangible assets | $32,133,923 | $30,418,867 | | Tangible common equity to tangible assets ratio | 10.86% | 9.82% | Results of Operations Analysis of the Company's financial performance covers net income, interest income, non-interest income, credit losses, and risk elements Summary For the second quarter of 2025, net income attributable to Commerce Bancshares, Inc. increased 9.3% to $152.5 million, with diluted EPS up 10.7% to $1.14. For the first six months of 2025, net income rose 12.6% to $284.1 million, and diluted EPS increased 14.6% to $2.12. This growth was driven by higher net interest income and non-interest income, partly offset by increased provision for credit losses and non-interest expense | Metric (Dollars in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % change | | :---------------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Net interest income | $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% | | Net income attributable to Commerce Bancshares, Inc. | $152,479 | $139,553 | 9.3% | $284,071 | $252,216 | 12.6% | - Annualized return on average assets was 1.95% and 1.82% for the three and six months ended June 30, 2025, respectively[168][170] - Diluted earnings per common share was $1.14 for Q2 2025, up 10.7% YoY, and $2.12 for the first six months of 2025, up 14.6% YoY[168][170] Net Interest Income Net interest income (FTE) increased by $17.9 million to $282.4 million in Q2 2025 compared to Q2 2024, primarily due to higher interest income on investment securities and lower deposit interest expense, partly offset by lower loan interest income. For the first six months of 2025, net interest income (FTE) rose $38.0 million to $553.8 million. The net yield on earning assets (FTE) was 3.70% in Q2 2025, up from 3.55% in Q2 2024 | Change in Net Interest Income (In thousands) | 3 Months Ended June 30, 2025 vs. 2024 | 6 Months Ended June 30, 2025 vs. 2024 | | :------------------------------------------- | :------------------------------------ | :------------------------------------ | | Total interest income | $2,225 | $7,868 | | Total interest expense | $(15,625) | $(30,086) | | Net interest income, fully taxable-equivalent basis | $17,850 | $37,954 | - Net interest income (FTE) increased $17.9 million in Q2 2025, mainly from higher interest income on investment securities ($9.2 million) and lower deposit interest expense ($11.1 million), partially offset by lower loan interest income ($7.0 million)[173] - The Company's net yield on earning assets (FTE) was 3.70% in Q2 2025, up from 3.55% in Q2 2024[173] Non-Interest Income Total non-interest income increased by $13.4 million (8.8%) to $165.6 million in Q2 2025, driven by higher trust fees, capital market fees, and gains on asset sales. For the first six months of 2025, non-interest income rose $23.5 million (7.8%) to $324.6 million, primarily from increased trust fees, deposit account fees, and asset sale gains, partially offset by lower net bank card fees | Non-Interest Income (Dollars in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % change | | :--------------------------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Trust fees | $55,571 | $52,291 | 6.3% | $112,163 | $103,396 | 8.5% | | Bank card transaction fees | $46,362 | $47,477 | (2.3)% | $91,955 | $94,407 | (2.6)% | | Capital market fees | $6,175 | $4,760 | 29.7% | $11,287 | $8,652 | 30.5% | | Other | $22,455 | $14,482 | 55.1% | $39,296 | $29,703 | 32.3% | | Total non-interest income | $165,613 | $152,244 | 8.8% | $324,562 | $301,092 | 7.8% | - Other non-interest income increased $8.0 million in Q2 2025, mainly due to $5.5 million in gains on sales of assets and $956 thousand in tax credit sales income[188] - Bank card transaction fees declined in both periods, with net credit card fees decreasing due to higher rewards expense and net corporate card fees declining due to lower interchange income[188][187] Investment Securities Gains (Losses), Net Net investment securities gains were $437 thousand in Q2 2025, down from $3.2 million in Q2 2024. This quarter's gains were primarily from private equity and equity securities, offset by losses on available-for-sale debt securities. For the first six months of 2025, net losses totaled $7.2 million, compared to net gains of $3.0 million in the prior year, largely due to losses on available-for-sale debt securities and private equity fair value adjustments | Investment Securities Gains (Losses), Net (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 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 | | 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 in Q2 2025 were mainly from $4.4 million in private equity fair value gains and $1.9 million in equity securities gains, offset by $4.2 million in losses on available-for-sale debt securities sales[193] - In 2024, the Company repositioned its available-for-sale debt securities portfolio, selling $1.2 billion at a $179.1 million loss and reinvesting $928.8 million into higher-yielding U.S. Treasury securities[76][193] Non-Interest Expense Total non-interest expense increased by $12.2 million (5.3%) to $244.4 million in Q2 2025, primarily due to higher salaries and employee benefits, professional and other services (including acquisition-related legal fees), and data processing and software expenses. For the first six months of 2025, non-interest expense increased $4.9 million (1.0%) to $482.8 million, with similar drivers, partially offset by non-recurring expenses in the prior year | Non-Interest Expense (Dollars in thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % change | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % change | | :---------------------------------------- | :--------------------------- | :--------------------------- | :------- | :--------------------------- | :--------------------------- | :------- | | Salaries and employee benefits | $155,025 | $149,120 | 4.0% | $308,103 | $300,921 | 2.4% | | Data processing and software | $32,904 | $31,529 | 4.4% | $65,142 | $62,682 | 3.9% | | Professional and other services | $12,973 | $8,617 | 50.6% | $22,999 | $17,265 | 33.2% | | Deposit insurance | $3,312 | $2,354 | 40.7% | $7,056 | $10,371 | (32.0)% | | Other | $10,476 | $12,967 | (19.2)% | $19,609 | $31,681 | (38.1)% | | Total non-interest expense | $244,437 | $232,214 | 5.3% | $482,813 | $477,911 | 1.0% | - Professional and other services expense in Q2 2025 included $1.9 million in acquisition-related legal and professional services[195] - Other non-interest expense decreased in Q2 2025 due to a non-recurring $5.0 million charitable donation in 2024[195] Provision and Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments Net loan charge-offs in Q2 2025 were $9.7 million, a decrease from $10.8 million in the prior quarter. The provision for credit losses on loans was $7.9 million in Q2 2025, flat compared to the prior year, but increased to $23.0 million for the six months ended June 30, 2025, up $8.2 million from the prior year. The allowance for credit losses on loans increased to $165.3 million, or 0.94% of total loans, at June 30, 2025, driven by increased loss experience in the consumer portfolio. The liability for unfunded lending commitments decreased to $16.0 million | Metric (In thousands) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Provision for credit losses on loans | $7,919 | $7,849 | $23,014 | $14,796 | | Total net loan charge-offs (recoveries) | $9,690 | $9,757 | $20,496 | $18,634 | | Allowance for credit losses on loans (end of period) | $165,260 | $158,557 | $165,260 | $158,557 | | Liability for unfunded lending commitments (end of period) | $16,005 | $20,705 | $16,005 | $20,705 | - Annualized net charge-offs on average consumer credit card loans were 5.08% in Q2 2025, compared to 4.91% in Q2 2024[201] - The allowance for credit losses on loans was 0.94% of total loans at June 30, 2025, compared to 0.92% at June 30, 2024[203] Risk Elements of Loan Portfolio Loan portfolio risk elements, including non-performing assets, potential problem loans, and specific high-risk categories, are detailed | Metric (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 | | Potential problem loans | $275,999 | $330,315 | - Non-performing assets as a percentage of total loans and total assets remained stable at 0.11% and 0.06%, respectively, at June 30, 2025[208] - The oil and gas energy lending portfolio decreased to $330.5 million (1.9% of total loans) at June 30, 2025, from $338.0 million at December 31, 2024[223] Real Estate – Construction and Land Loans The Company's construction and land loan portfolio totaled $1.41 billion at June 30, 2025, representing 8.0% of total loans. Commercial construction is the largest component, increasing by $6.1 million during the first six months of 2025, with multi-family residential construction loans comprising 47.5% of this category | Loan Type (Dollars in thousands) | June 30, 2025 | % of Total Loans | December 31, 2024 | % of Total Loans | | :------------------------------- | :------------ | :--------------- | :---------------- | :--------------- | | Commercial construction | $1,203,402 | 6.8% | $1,197,278 | 7.0% | | Residential construction | $99,361 | 0.6% | $106,884 | 0.6% | | Total real estate - construction and land loans | $1,405,398 | 8.0% | $1,409,901 | 8.2% | - Multi-family residential construction loans totaled approximately $571.7 million, or 47.5%, of the commercial construction loan portfolio at June 30, 2025[212] Real Estate – Business Loans Total business real estate loans amounted to $3.76 billion at June 30, 2025, comprising 21.3% of the total loan portfolio. Owner-occupied properties accounted for 33.5% of these loans, historically showing lower net charge-off rates. The credit quality table shows a decrease in substandard loans and a slight increase in non-accrual loans compared to December 31, 2024 | Loan Type (Dollars in thousands) | June 30, 2025 | % of Total Loans | December 31, 2024 | % of Total Loans | | :------------------------------- | :------------ | :--------------- | :---------------- | :--------------- | | Owner-occupied | $1,257,708 | 7.1% | $1,237,265 | 7.2% | | Office | $525,847 | 3.0% | $520,715 | 3.0% | | Total real estate - business loans | $3,757,778 | 21.3% | $3,661,218 | 21.3% | | Risk Rating (Dollars in thousands) | June 30, 2025 | December 31, 2024 | | :------------------------------- | :------------ | :---------------- | | Pass | $3,549,521 | $3,423,433 | | Special mention | $38,428 | $27,171 | | Substandard | $154,720 | $195,660 | | Non-accrual | $15,109 | $14,954 | Revolving Home Equity Loans Revolving home equity loans totaled $364.4 million at June 30, 2025, with most (93.5%) requiring interest-only payments. Loans with an original LTV higher than 80% decreased to $28.2 million (7.9% of the portfolio). Delinquencies over 30 days decreased, and non-accrual balances remained stable at $2.0 million. The portfolio has a weighted average FICO score of 775 - Revolving home equity loans totaled $364.4 million at June 30, 2025, with 93.5% requiring interest-only monthly payments[217] - Loans with an original LTV higher than 80% were $28.2 million (7.9% of the portfolio) at June 30, 2025, down from $31.9 million at December 31, 2024[218] - The weighted average FICO score for the total portfolio balance at June 30, 2025, is 775[218] Consumer Loans The consumer loan portfolio includes auto, motorcycle, marine, RV, fixed-rate home equity, and private banking loans. Auto loans, comprising 35.6% of the portfolio, decreased to $769.1 million at June 30, 2025, with delinquencies over 30 days decreasing to $8.1 million. Private banking loans, generally well-collateralized, made up 38.4% of the portfolio. Net charge-offs for private banking, health services financing, motorcycle, marine, and RV loans totaled $1.4 million for the first six months of 2025 - Auto loans comprised 35.6% of the consumer loan portfolio, totaling $769.1 million at June 30, 2025[219] - Delinquencies over 30 days for auto loans decreased to $8.1 million at June 30, 2025, from $14.4 million at December 31, 2024[219] - Private banking loans, generally well-collateralized, comprised 38.4% of the consumer loan portfolio[220] Consumer Credit Card Loans The Company offers consumer credit card products, with $576.2 million outstanding at June 30, 2025. Approximately 21.3% ($122.5 million) carried a low promotional rate, with $51.7 million scheduled to convert to higher contractual rates within six months. Credit checks and detailed customer analysis are performed to mitigate risk, and management believes anticipated loss ratios are acceptable - Out of $576.2 million in consumer credit card loans, $122.5 million (21.3%) carried a low promotional rate at June 30, 2025[221] - Within the next six months, $51.7 million of these loans are scheduled to convert to the ongoing higher contractual rate[221] | FICO Score Range | June 30, 2025 | December 31, 2024 | | :----------------- | :------------ | :---------------- | | 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% | Oil and Gas Energy Lending The Company's energy lending portfolio, focused on petroleum and natural gas sectors, decreased to $330.5 million (1.9% of total loans) at June 30, 2025, a $7.6 million decrease from December 31, 2024. Unfunded commitments for energy lending totaled $300.4 million at June 30, 2025 | Activity (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 | | Total energy lending portfolio | $330,476 | $338,049 | $300,376 | - The energy lending portfolio comprised 1.9% of total loans at June 30, 2025[223] Shared National Credits The Company participates in Shared National Credits (SNCs), defined as loans exceeding $100 million shared by three or more financial institutions. The balance of SNC loans increased to $1.7 billion at June 30, 2025, from $1.6 billion at December 31, 2024. Additional unfunded commitments for SNCs totaled $2.3 billion - SNCs are loans exceeding $100 million shared by three or more financial institutions, typically with business operations in local or regional markets[225] | Metric (In thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Balance of SNC loans | $1,700,000 | $1,600,000 | | Unfunded commitments | $2,300,000 | - | Income Taxes Income tax expense for Q2 2025 was $42.4 million, with an effective tax rate of 21.8%. The recently enacted One Big Beautiful Act (OBBBA) is not expected to have a significant impact on the Company's financial statements, though minor operational changes may be needed for new reporting requirements | Metric (In millions) | Q2 2025 | Q1 2025 | Q2 2024 | | :------------------- | :------ | :------ | :------ | | Income tax expense | $42.4 | $37.0 | $38.6 | | Effective tax rate | 21.8% | 21.9% | 21.7% | - The One Big Beautiful Act (OBBBA), enacted July 4, 2025, is not expected to significantly impact the Company's financial statements[227] Financial Condition Financial condition shows increased assets and deposits, strong liquidity, and robust capital ratios exceeding regulatory requirements Balance Sheet Total assets increased to $32.3 billion at June 30, 2025, from $32.0 billion at December 31, 2024. This growth was primarily driven by a $445.4 million increase in total loans, particularly in business and business real estate loans. Total deposits also increased by $200.4 million, mainly from interest checking and money market accounts, while borrowings decreased by $315.3 million | Metric (In billions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Total assets | $32.3 | $32.0 | | Total loans | $17.67 | $17.22 | | Total deposits | $25.5 | $25.3 | | Total borrowings | $2.6 | $2.9 | - Earning assets comprised 57% in loans and 32% in investment securities at June 30, 2025[228] - Available for sale debt securities decreased by $447.3 million, with a duration of 4.2 years[230][231] [Liquidity and Capita