CBSH US Equity☆

Item 1a. RISK FACTORS

Making or continuing an investment in securities issued by the Company, including its common stock, involves certain risks that you should carefully consider. If any of the following risks actually occur, the Company's business, financial condition or results of operations could be negatively affected, the market price for your securities could decline, and you could lose all or a part of your investment. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause the Company’s actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of Commerce Bancshares, Inc.

Market Risks

Difficult market conditions may affect the Company’s industry.

The concentration of the Company’s banking business in the United States particularly exposes it to downturns in the U.S. economy. In particular, the Company may face the following risks in connection with market conditions:

•In 2024, the United States ("U.S.") economy faced a series of challenges, including declining but elevated inflation. The economy saw a strong but slowing job market and solid consumer spending fueling economic growth. Uncertainties about global geopolitical tensions continued in 2024, as did lingering supply chain concerns. Looking ahead to 2025, inflationary pressures have eased but uncertainty remains around tax reform, tariffs, and other monetary policy.

•The U.S. economy is affected by global events and conditions, including U.S. trade disputes and renewed trade agreements with various countries. Although the Company does not directly hold foreign debt or have significant activities with foreign customers, the global economy, the strength of the U.S. dollar, international trade conditions, and oil prices may ultimately affect interest rates, business import/export activity, capital expenditures by businesses, and investor confidence. Unfavorable changes in these factors may result in declines in consumer credit usage, adverse changes in payment patterns, reduced loan demand, and higher loan delinquencies and default rates. These could impact the Company’s future provision for credit losses, as a significant part of the Company’s business includes consumer and credit card lending.

•In addition to the results above, a slowdown in economic activity may cause declines in financial services activity, including declines in bank card, corporate cash management and other fee businesses, as well as the fees earned by the Company on such transactions.

•During recent years, there was a shift from in-office work to remote work. As a result, businesses continue to reevaluate their office space needs and, in some cases, reduce their leased office space, selling commercial office buildings, or leasing space no longer needed. The impact of this shift continues to be seen but could result in reduced demand for office space, lower lease rates for office space, and lower values of office buildings. These factors may contribute to higher delinquencies and net charge-offs for commercial office real estate loans. Additionally, businesses that cater to or are located near dense areas of office buildings may be adversely impacted, which could result in higher delinquencies and net charge-offs for certain commercial borrowers.

•The process used to estimate credit losses in the Company’s loan portfolio requires difficult, subjective, and complex judgments, including consideration of economic conditions and how these economic predictions might impair the ability of its borrowers to repay their loans. If an instance occurs that renders these predictions no longer capable of accurate estimation, this may in turn impact the reliability of the process.

•Competition in the industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions, thereby reducing market prices for various products and services which could in turn reduce the Company’s revenues.

The performance of the Company is dependent on the economic conditions of the markets in which the Company operates.

The Company’s success is heavily influenced by the general economic conditions of the specific markets in which it operates. Unlike larger national or other regional banks that are more geographically diversified, the Company provides financial services primarily throughout the states of Missouri, Kansas, central Illinois, Oklahoma, and Colorado. It also has a growing presence in additional states through its offices in: Texas, Iowa, Indiana, Michigan, Ohio, Florida, and Tennessee that serve commercial or trust customers. As the Company does not have a significant banking presence in other parts of the country, a prolonged economic downturn in the markets where the Company has a primary or growing presence could have a material adverse effect on the Company’s financial condition and results of operations.

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The Company operates in a highly competitive industry and market area.

The Company operates in the financial services industry and has numerous competitors including other banks and insurance companies, securities dealers, brokers, trust and investment companies, mortgage bankers, and financial technology companies. Consolidation among financial service providers and new changes in technology, product offerings and regulation continue to challenge the Company's marketplace position. As consolidation occurs, larger regional and national banks may enter the Company's markets and add to existing competition. Large, national financial institutions have substantial capital, technology and marketing resources. These new competitors may lower fees to grow market share, which could result in a loss of customers and lower fee revenue for the Company. They may have greater access to capital at a lower cost than the Company, and may have higher loan limits, both of which may adversely affect the Company’s ability to compete effectively. The Company must continue to make investments in its products and delivery systems to stay competitive with the industry, or its financial performance may suffer.

Regulatory and Compliance Risks

The Company is subject to extensive government regulation and supervision.

As part of the financial services industry, the Company is subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds, and the banking system, not shareholders. These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy, and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations, and policies for possible changes. Changes to statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes, regulations, or policies, could affect the Company in substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial services and products it may offer, restrict the Company's ability to pay dividends, subject the Company to higher capital requirements, and/or increase the ability of non-banks to offer competing financial services and products, among other things. During November 2023, the FDIC approved a final rule implementing a one-time special assessment to recover the loss to the DIF associated with protecting uninsured depositors following the closures of Silicon Valley Bank and Signature Bank in 2023. Largely as a result of the FDIC's approval of its final rule, the Company's deposit insurance expense was $33.2 million in 2023, compared to $10.6 million in 2022. For the year ended December 31, 2024, the Company's deposit insurance expense was $16.5 million. Assessments driven by regulation, such as these, increased the Company's expenses in 2023 and additional assessments could further increase the Company's expenses.

Beyond the expense of additional regulation, failure to comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/or reputation damage, which could have a material adverse effect on the Company’s business, financial condition, and results of operations. While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur.

Significant changes in federal monetary policy could materially affect the Company’s business.

The Federal Reserve System regulates the supply of money and credit in the United States. Its policies determine in large part the cost of funds for lending and interest rates earned on loans and paid on borrowings and interest-bearing deposits. Credit conditions are influenced by its open market operations in U.S. government securities, changes in the member bank discount rate, and bank reserve requirements. Changes in Federal Reserve Board policies are beyond the Company’s control and difficult to predict, and such changes may result in lower interest margins and a lack of demand for credit products.

Climate-related and other Environmental, Social, and Governance ("ESG") developments could result in additional regulation and reporting for the Company.

In recent years, federal, state and international lawmakers and regulators have increased their focus on financial institutions' and other companies' risk oversight, disclosures and practices in connection with climate change and other ESG matters. For example, the state of California, in which the Company does business, has enacted bills that would require the Company and other entities to report climate-related information such as greenhouse gas emissions and climate-related risks. The SEC has also announced plans to propose rules to require enhanced disclosure regarding human capital management and board diversity for public issuers. These additional disclosures and reporting would require increased time and expense for the Company related to information gathering and compliance.

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Liquidity and Capital Risks

The Company is subject to both interest rate and liquidity risk.

With oversight from its Asset-Liability Management Committee, the Company devotes substantial resources to monitoring its liquidity and interest rate risk on a monthly basis. The Company's net interest income is the largest source of overall revenue to the Company, representing 63% of total revenue for the year ended December 31, 2024. The interest rate environment in which the Company operates fluctuates in response to general economic conditions and policies of various governmental and regulatory agencies, particularly the Federal Reserve Board, which regulates the supply of money and credit in the U.S. Changes in monetary policy, including changes in interest rates, will influence loan originations, deposit generation, demand for investments and revenues and costs for earning assets and liabilities, and could significantly impact the Company’s net interest income.

To combat the high inflation experienced in 2022 and 2023, the Federal Reserve Board significantly increased the benchmark interest rate from nearly zero at the start of 2022 to between 4.25% and 4.50% at the end of 2022 and continued to raise interest rates at a more modest pace to between 5.25% and 5.50% by the end of July 2023. These elevated rates remained in effect for the first half of 2024 and drove an increase in unrealized losses in fixed rate asset portfolios. During September 2024, the Federal Reserve began reducing rates as inflation began to subside. Monetary policy led by the Federal Reserve in the coming year will play a crucial role in liquidity and interest rate risk. Future economic conditions or other factors could shift monetary policy resulting in additional increases or decreases in the benchmark rate. Furthermore, changes in interest rates could result in unanticipated changes to customer deposit balances and adversely affect the Company’s liquidity position.

The soundness of other financial institutions could adversely affect the Company.

As demonstrated by banking failures within the industry during 2023, the Company’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institution counterparties. Financial services institutions are interrelated because of trading, clearing, counterparty or other relationships. The Company has exposure to many different industries and counterparties and routinely executes transactions with counterparties in the financial industry, including brokers and dealers, commercial banks, investment banks, mutual funds, and other institutional clients. Transactions with these institutions include overnight and term borrowings, interest rate swap agreements, securities purchased and sold, short-term investments, and other such transactions. Because of this exposure, defaults by, or rumors or questions about, one or more financial services institutions or the financial services industry in general, could lead to market-wide liquidity problems and defaults by other institutions. Many of these transactions expose the Company to credit risk in the event of default of its counterparty or client, while other transactions expose the Company to liquidity risks should funding sources quickly disappear. In addition, the Company’s credit risk may be exacerbated when the collateral held cannot be realized or is liquidated at prices not sufficient to recover the full amount of the exposure due to the Company. Any such losses could materially and adversely affect results of operations.

Decreased confidence in regional banks among deposit customers, investors, and other counterparties may cause significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. Rapidly rising interest rates could result in an increase in unrealized losses in the Company's available for sale debt securities portfolio. Additionally, rising interest rates may result in increased competition for bank deposits. These events could have adverse impacts on the market price and volatility of the Company’s stock. These events could also lead to increases in the Company’s interest expense, as it could require the Company to raise interest rates paid to depositors in order to compete with other banks, and in an effort to replace deposits, seek borrowings which carry higher interest rates.

Bank failures during 2023 caused concern and uncertainty regarding the liquidity adequacy of the banking sector as a whole and resulted in some regional bank customers choosing to maintain deposits with larger financial institutions. A significant reduction in the Company’s deposits could materially and adversely impact the Company’s liquidity, ability to fund loans, and results of operations. In addition to customer deposits, the Company borrows on an overnight and short-term basis from third parties in the form of federal funds purchased and repurchase agreements and through lines of credit and borrowings from the FHLB and FRB. If the Company were not able to access borrowings through those facilities due to an increase in demand from other banks or due to insufficient levels of pledgeable assets, its ability to borrow funds may be materially adversely impacted.

Commerce Bancshares, Inc. relies on dividends from its subsidiary bank for most of its revenue.

Commerce Bancshares, Inc. is a separate and distinct legal entity from its banking and other subsidiaries. It receives substantially all of its revenue from dividends from its subsidiary bank. These dividends, which are limited by various federal and state regulations, are the principal source of funds to pay dividends on its common stock and to meet its other cash needs. In the event the subsidiary bank is unable to pay dividends, the Company may not be able to pay dividends or other obligations, which would have a material adverse effect on the Company's financial condition and results of operations.

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Operational Risks

The Company’s asset valuation may include methodologies, models, estimations and assumptions which are subject to differing interpretations and could result in changes to asset valuations that may materially adversely affect its results of operations or financial condition.

The Company uses estimates, assumptions, and judgments when certain financial assets and liabilities are measured and reported at fair value. Assets and liabilities carried at fair value inherently result in greater financial statement volatility. Fair values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices and/or other observable inputs provided by independent third-party sources, when available. When such third-party information is not available, fair value is estimated primarily by using cash flow and other financial modeling techniques utilizing assumptions such as credit quality, liquidity, interest rates and other relevant inputs. Changes in underlying factors, assumptions, or estimates in any of these areas could materially impact the Company’s future financial condition and results of operations. Furthermore, if models used to calculate fair value of financial instruments are inadequate or inaccurate due to flaws in their design or execution, upon sale, the Company may not realize the cash flows of a financial instrument as modeled and could incur material, unexpected losses.

During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity, it may be difficult to value certain assets if trading becomes less frequent and/or market data becomes less observable. There may be certain asset classes in active markets with significant observable data that become illiquid due to the current financial environment. In such cases, certain asset valuations may require more subjectivity and management judgment. As such, valuations may include inputs and assumptions that are less observable or require greater estimation. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of assets as reported within the Company’s consolidated financial statements, and the period-to-period changes in value could vary significantly. Decreases in value may have a material adverse effect on results of operations or financial condition.

The Company’s operations rely on certain external vendors.

The Company relies on third-party vendors to provide products and services necessary to maintain day-to-day operations. For example, the Company outsources a portion of its information systems, communication, data management, and transaction processing to third parties. Accordingly, the Company is exposed to the risk that these vendors might not perform in accordance with the contracted arrangements or service level agreements because of changes in the vendor’s organizational structure, financial condition, support for existing products and services, or strategic focus. Such failure to perform could be disruptive to the Company’s operations, which could have a materially adverse impact on its business, financial condition and results of operations. These third parties are also sources of risk associated with operational errors, system interruptions or breaches and unauthorized disclosure of confidential information. If the vendors encounter any of these issues, the Company could be exposed to disruption of service, damage to reputation and litigation. Because the Company is an issuer of both debit and credit cards, it is periodically exposed to losses related to security breaches which occur at retailers that are unaffiliated with the Company (e.g., customer card data being compromised at retail stores). These losses include, but are not limited to, costs and expenses for card reissuance as well as losses resulting from fraudulent card transactions.

Credit Risks

The allowance for credit losses may be insufficient or future credit losses could increase.

The allowance for credit losses on loans and the liability for unfunded lending commitments at December 31, 2024 reflect management's estimate of credit losses expected in the loan portfolio, including unfunded lending commitments, as of the balance sheet date. See Note 2 to the consolidated financial statements and the section captioned “Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments” in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report for further discussion related to the Company’s process for determining the appropriate level of the allowance for credit losses on loans and the liability for unfunded lending commitments at December 31, 2024.

The Company's estimate of credit losses utilizes a life of loan loss concept, and the level of the allowance is based on management’s methodology that utilizes historical net charge-off rates and adjusts for the impacts in the reasonable and supportable forecast and other qualitative factors. Key assumptions include the application of historical loss rates, prepayment speeds, economic forecast results of a reasonable and supportable period, the period to revert to historical loss rates, and qualitative factors. The Company’s allowance level is subject to review by regulatory agencies, and that review could also result in adjustments to the allowance for credit losses. Additionally, the volatility of the Company's provision for credit losses may change from year to year due to macroeconomic variables that influence the Company's loss estimates, and the volatility in credit losses may be material to the Company's earnings.

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The Company’s investment portfolio values may be adversely impacted by deterioration in the credit quality of underlying collateral within the various categories of investment securities it owns.

The Company maintains a portfolio of investments, which includes available for sale debt securities, trading securities, equity securities, and other investments. The Company does not hold any investments classified as held-to-maturity. The Company generally invests in liquid, investment grade securities, however, these securities are subject to changes in market value due to changing interest rates and implied credit spreads. While the Company maintains prudent risk management practices over bonds issued by municipalities and other issuers, credit deterioration in these bonds could occur and result in losses. Certain mortgage and asset-backed securities (which are collateralized by residential mortgages, credit cards, automobiles, mobile homes or other assets) may decline in value due to actual or expected deterioration in the underlying collateral. Under accounting rules, when an available for sale debt security is in an unrealized loss position, the entire loss in fair value is required to be recognized in current earnings if the Company intends to sell the security or believes it is more likely than not that the Company will be required to sell the security before the value recovers. Additionally, the current expected credit loss model (CECL) requires that lifetime expected credit losses on securities be recorded in current earnings. This could result in significant losses.

The Company could recognize losses on securities held in its securities portfolio, particularly if it were to sell a significant portion of its investments prior to maturity.

The Company's available for sale debt securities portfolio is carried at fair value, with unrealized gains and losses carried in accumulated other comprehensive income (loss) within shareholder's equity. The fair value of investments, including available for sale debt investments, may change with changes in interest rates, credit concerns, or other economic factors. Due mostly to the increase in interest rates during 2022 and 2023, the fair value of the Company's available of sale debt securities included a net unrealized loss of $991 million at December 31, 2024. As of December 31, 2024, the Company has the intent and ability to maintain its available for sale debt investments until recovery of their amortized cost basis. However, if in the future the Company were to elect to sell or needed to sell the investments before the recovery of their amortized cost basis, the Company could realize significant losses in its income statement.

Strategic Risk

New lines of business or new products and services may subject the Company to additional risk.

From time to time, the Company may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and new products or services, the Company may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business, or new product or service, could have a significant impact on the effectiveness of the Company’s system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business and new products or services could have a material adverse effect on the Company’s financial condition and results of operations.

Technology Risks

A successful cyber attack or other computer system breach could significantly harm the Company, its reputation and its customers.

The Company relies heavily on communications and information systems to conduct its business, and as part of its business, the Company maintains significant amounts of data about its customers and the products they use. The Company’s data is maintained on its own systems and on the systems of its vendors, business partners and third-party service providers. The Company relies on a layered system of security controls to secure collection, transmission, storage, and retrieval of data, including confidential data, in its computer systems and the systems of third parties. Information security risks continue to increase due to new technologies, the increasing use of the Internet and telecommunication technologies (including mobile devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, and others. The Company has faced security incidents, which have been minor in scope and impact, and it expects unauthorized parties to continue to attempt to gain access to its systems or information, as well as those of its business partners and service providers. The Company makes significant investments in various technology to identify and prevent intrusions into its information systems. The Company has policies, procedures and controls designed to identify, protect, detect, respond, and recover from security incidents. The Company also requires ongoing security awareness training for employees, hosts tabletop exercises to test response readiness, and performs regular audits using both internal and outside resources. However, there can be no assurance that any such failures, interruptions or security breaches will not occur, or if

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they do occur, that they will be adequately addressed. In addition to unauthorized access, denial-of-service attacks or other operational disruptions could prevent the Company from adequately serving customers. Should any of the Company's systems become compromised or customer information be obtained by unauthorized parties, the reputation of the Company could be damaged, relationships with existing customers may be impaired, and the Company could be subject to lawsuits, all of which could result in lost business and have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company continually encounters technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services, including the entrance of financial technology companies offering new financial service products. The Company regularly upgrades or replaces technological systems to increase efficiency, enhance product and service capabilities, eliminate risks of end-of-lifecycle products, reduce costs, and better serve our customers. As the Company completes system upgrades, it may face operational risks after system conversions, including disruptions to its technology systems, which may adversely impact customers. The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company’s operations. Many of the Company’s competitors have substantially greater resources to invest in technological improvements. The Company may encounter significant problems in effectively implementing new technology-driven products and services and may not be successful in marketing the new products and services to its customers. These problems might include significant time delays, cost overruns, loss of key people, and technological system failures. Failure to successfully keep pace with technological change affecting the financial services industry or failure to successfully complete the replacement of technological systems could have a material adverse effect on the Company’s business, financial condition and results of operations.

General Risks

The Company must attract and retain skilled employees.

The Company’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people can be intense, and the Company spends considerable time and resources attracting, hiring, and retaining qualified people for its various business lines and support units. The unexpected loss of the services of one or more of the Company’s key personnel could have a material adverse impact on the Company’s business because of their skills, knowledge of the Company’s market, and years of industry experience, as well as the difficulty of promptly finding qualified replacement personnel.

Public health threats or outbreaks of communicable diseases could have an adverse effect on the Company's operations and financial results.

The Company may face risks related to public health threats or outbreaks of communicable diseases. A widespread healthcare crisis, such as an outbreak of a communicable disease could adversely affect the global economy and the Company’s financial performance. For example, the global COVID-19 pandemic caused significant disruption and harm to the economy and the financial markets in which the Company operates.

As seen during the COVID-19 pandemic, fallout from economic and societal changes resulting from significant public health threats may cause prolonged global or national recessionary economic conditions, which could have a material adverse effect on the Company's business, results of operations and financial condition. The potential impacts of future epidemics, pandemics, or other outbreaks of an illness, disease, or virus could therefore materially and adversely affect the Company's business, revenue, operations, financial condition, liquidity and cash flows.

Our business and financial results may be affected by societal and governmental responses to climate change and related environmental issues.

The current and anticipated effects of climate change have raised concerns for the condition of the global environment. These concerns have changed and will continue to change the behavior of consumers and businesses. Further, governments have increased their attention on the issue of climate change. As a result, international agreements have been signed to attempt to reduce global temperatures and federal and state legislative and regulatory initiatives have been proposed to seek to mitigate the effects of climate change. The Company and its customers may need to respond to new laws and regulations as well as new consumer and business preferences resulting from climate change concerns. These changes may result in cost increases, asset value reductions, and operating process changes to the Company and its customers. The impact on our customers will likely vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to the Company could be a drop in demand for our products and services, particularly in certain industries. In addition, the Company could experience reductions in creditworthiness on the part of some customers or in the value of assets securing

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loans. The Company’s efforts to take these risks into account in making lending and other decisions, including by increasing the Company’s business with climate-friendly companies, may not be effective in protecting the Company from the adverse impact of new laws and regulations or changes in consumer or business behavior.

Item 1b. UNRESOLVED STAFF COMMENTS

None

Item 1c. CYBERSECURITY

Cybersecurity Program and Management Oversight

The Company has established an Information and Cybersecurity program integrated into its risk management process. The program is directed by the Company’s Information Security Strategy Board (“ISSB”). The purpose of the ISSB is to (i) provide management direction and support for information security risk oversight for the Company’s information security program and (ii) to engage Company leaders to promote information security risk awareness and sound information security risk management practices across the organization. The ISSB has been delegated authority from the Company’s Enterprise Risk Management Committee (“ERM Committee”) to advance and monitor the overall effectiveness of the Company’s information security program and risk management activities. The ISSB also has the authority to direct effective and timely implementation of actions to address emerging information security risks and information security risk management deficiencies. The ISSB meets at least quarterly.

The ISSB is responsible for identifying, evaluating and monitoring information security risk across the Company. In order to fulfill this role, the ISSB engages in a variety of activities, including, but not limited to, the following:

a.Review current status of the Company’s overall information security program.

b.Review and monitor impacts, outcomes and remediation plans or mitigation activities related to internal and external security incidents, vulnerability scans or assessments.

c.Review and monitor significant information security related projects and regulatory initiatives.

d.Monitor metrics related to the Company’s information security program.

e.Review and approve new, and modifications to existing, information security policies for which the ISSB has been designated approval authority by the ERM Committee. Existing information security policies are reviewed at least annually.

f.Review information security examination reports and other significant communications from regulatory agencies and the status of any outstanding information security related regulatory findings.

g.Monitor and discuss emerging industry information security risk issues including applicable frameworks, rules and regulations.

h.Identify and analyze significant changes affecting information security risk management such as changes in the external environment, business model and leadership.

i.Review new, expanded or modified software and applications that process, transmit, or store sensitive information to ensure appropriate information security risk management is embedded in the development and implementation processes.

The ISSB is comprised of the following:

a.Chief Information Security Officer – Chair

b.Chief Information Officer

c.Executive Director, Consumer Segment & Strategic Services

d.Managing Counsel

e.Director, Bank Operations

f.Executive Director, Retail

g.Chief Risk Officer

h.Commerce Trust Chief Operating Officer

i.IT General Manager

j.Director, Commercial LOB Products & Operations

k.Director, Audit

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The Chief Information Security Officer (“CISO”) is responsible for the Company’s enterprise-wide Information and Cybersecurity Program. Responsibilities include the Information and Cybersecurity program, Security Architecture, Application Security, IT Risk Management, Operational Security, Security Consulting, Awareness and Training, Policies and Standards development, Incident Response and Information Security defense / mitigation strategy, strategic planning, and Vendor and Service Provider monitoring. The CISO has 25 years of experience with Information Security Program development, Application Security program development, IT Risk Management program development, Incident Response preparation, planning, and testing, Operational and Technical Security Architecture, and Creating Zero-Day defense strategies. The CISO is a Certified Information Systems Security Professional, is a member of the Information Systems Security Association and Infragard, and participates in local and national Security consortiums. CISO demonstrates expertise in Graham-Leach-Bliley Act, Health Insurance Portability and Accountability Act, Payment Card Industry, International Organization for Standardization27001, National Institute of Standards and Technology, Open Worldwide Application Security Project, and other programs to provide strategic consulting across a variety of industry sectors.

Governance

The Company’s Board of Directors (the “Board”) is responsible for the oversight of all risk management activities, including cybersecurity risk. The Board has delegated that oversight responsibility to the Audit and Risk Committee. The Audit and Risk Committee has delegated the responsibility to advance and monitor the overall effectiveness of the Company’s risk management activities, including cybersecurity risk, to the ERM Committee. The ERM Committee also has the authority to direct effective and timely implementation of actions to address emerging cybersecurity risks. The ISSB provides quarterly reports to the Operational Risk Management Committee and ERM Committee. Through reports received from the ERM Committee, the Audit and Risk Committee notifies the Board of Directors about new policies and policy changes, changes in standards applied, and key risk metrics to evaluate ongoing cybersecurity threats and security risk exposure (the “Governance Model”). In addition, the ISSB provides a full report on the Company’s cybersecurity framework, risks, initiatives, and significant incidents to the Audit and Risk Committee or the Company’s Board of Directors not less than annually.

Cybersecurity Risk Assessment Strategy, Policies and Standards

The Company’s cybersecurity program is primarily structured based upon national and international security protocols and frameworks. The Company has implemented a strategy to address threats to Company assets. The Company’s Information Security program balances security risks with business goals and provides appropriate protections for the confidentiality, integrity and availability of Company and customer information. The Company conducts benchmark assessments of its Information Security program to evaluate its strength as measured against recommended industry security best practice entities.

The Company has a process to prioritize and manage security related projects. The ISSB provides oversight of program changes, security awareness updates, exposures from new exploits, and risks to information, data and systems. Policies and standards are regularly reviewed within the Governance Model and presented to the Board.

The Company utilizes a risk assessment approach to oversee and identify material risks from cyber threats, which includes information gathering, analysis, and prioritization of mitigation strategies. This approach was designed following security industry standard processes, models and guidelines. Risk assessments are a key component of the overall risk management process. The objectives of the risk assessment process are as follows:

a.Provide assurance that management has implemented appropriate controls to mitigate risk.

b.Identify applications, vendors, service providers, and/or business units that process, transmit, or store sensitive information.

c.Comply with the various regulations addressing data security.

d.Comply with the Company’s information security policies and standards.

The scope of the risk assessment process includes but is not limited to the following asset types:

a.Applications

b.Business units

c.Service providers

d.Servers

e.Databases

f.Data centers

g.Network infrastructure

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h.Security infrastructure

i.Storage/recovery

j.Mobile devices

k.Workstations

l.Authentication directory services

m.Cloud.

The Company conducts detailed due diligence (as described below), contract reviews and ongoing monitoring of high-risk third-party service providers. Third-party service providers hosting an application or providing a service that processes, analyzes, transmits, stores, or reports the Company’s sensitive information must complete a control questionnaire. Vendors are subject to rigorous review of the vendor’s internal control policies, procedures, data security and contingency capabilities. Ongoing monitoring is also performed annually on selected service providers. The program requires service providers on the ongoing monitoring list to provide the Company with a third-party security penetration assessment, and other artifacts based on the type of information processed, transmitted, or stored, annually.

The Company has also developed a comprehensive set of key risk metrics to evaluate ongoing cybersecurity threats and the security risk exposure. These metrics are used for threat trending, identifying attack vectors, and determining the effectiveness of controls. Key risk metrics are provided to management monthly and reported through the Governance Model to the Board.

Security event monitoring and detection

The Company formally tracks and reports on major identified risks and vulnerabilities and the results of their analysis and evaluation. These details can then be used to track and monitor their successful management as part of the activity to deliver the required, anticipated results. Security risks are categorized by Practice or Vulnerability (exploitable). The information is reported in the monthly security metrics report along with quarterly reporting to the ISSB.

The Company actively monitors alerts and shared intelligence from a variety of industry-standard sources and takes appropriate actions when warranted. As new threats and vulnerabilities emerge that threaten its systems and data, the Company continues to evaluate and address these threats through a layered security approach.

The Company engages cybersecurity assessors and consultants, including third party auditors, to perform annual penetration testing and risk assessments. These external parties provide validation of our processes and controls, ensuring they meet industry best practices and regulatory standards.

The Company performs network and application penetration testing on external high-risk applications as well as network penetration testing across its production, test, and disaster recovery networks. The Company also performs tests on its operational defense and response to assess the ability to detect and respond to a threat actor. This allows the Company to test lateral movement, exploitation, data exfiltration, and evaluate its security posture around three primary security functions: detection, prevention, and response. The Company regularly participates in desktop exercises to help demonstrate incident preparedness and regulatory compliance. All testing results are reported to the Board quarterly through the Governance Model.

Incident materiality

The Commerce Bank Cybersecurity Incident Investigation and Response Plan is a component of the Information Security policy and sets forth the severity categories and processes required to assess the impact of a cyber-related incident to the Company. The impact is categorized in one of five severity levels and is expressed in terms of financial loss, strategic objectives, customer, legal and regulatory, reputation, and service interruption. The incident response plan includes timely notification of a material cybersecurity incident to the Board of Directors and other members of senior management.

Like other financial institutions, the Company experiences malicious cyber activity on an ongoing basis directed at its websites, computer systems, software, networks and users. This malicious activity includes attempts at unauthorized access, implantation of computer viruses or malware, and denial of service attacks. The Company also experiences large volumes of phishing and other forms of social engineering attempted for the purpose of perpetrating fraud. While, to date, malicious cyber activity, cyberattacks and other information security breaches have not had a material adverse impact on the Company, risk to its systems remains significant. See Technology Risk "A successful cyber attack or other computer system breach could significantly harm the Company, its reputation and its customers" within Risk Factors Item 1a.

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Item 2. PROPERTIES

The main offices of the Company are located in Kansas City and St. Louis, Missouri. The Company owns its main offices and leases unoccupied premises to the public. The larger office buildings include:

Building Net rentable square footage % occupied in total % occupied by Bank

The Company has an additional 140 branch locations in Missouri, Illinois, Kansas, Oklahoma and Colorado which are owned or leased.

Item 3. LEGAL PROCEEDINGS

Item 4. MINE SAFETY DISCLOSURES

Not applicable

Information about the Company's Executive Officers

The following are the executive officers of the Company as of February 25, 2025, each of whom is designated annually. There are no arrangements or understandings between any of the persons so named and any other person pursuant to which such person was designated an executive officer.

Name and Age Positions with Registrant

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Name and Age Positions with Registrant

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PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS

AND ISSUER PURCHASES OF EQUITY SECURITIES

Commerce Bancshares, Inc.

Common Stock Data

Commerce Bancshares, Inc. common shares are listed on the Nasdaq Global Select Market (NASDAQ) under the symbol CBSH. The Company had 3,262 common shareholders of record as of December 31, 2024. Certain of the Company's shares are held in "nominee" or "street" name and the number of beneficial owners of such shares is approximately 152,000.

Performance Graph

The following graph presents a comparison of Company (CBSH) performance to the indices named below. It assumes $100 invested on December 31, 2019 with dividends reinvested on a cumulative total shareholder return basis.

The Company has a long history of paying dividends. 2024 marked the 56th consecutive year of growth in our regular common dividend, and the Company has also issued an annual 5% common stock dividend for the past 31 years. However, payment of future dividends is within the discretion of the Board of Directors and will depend, among other factors, on earnings, capital requirements, and the operating and financial condition of the Company. The Board of Directors makes the dividend determination quarterly.

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The following table sets forth information about the Company’s purchases of its $5 par value common stock, its only class of common stock registered pursuant to Section 12 of the Exchange Act, during the fourth quarter of 2024.

The Company’s stock purchases shown above were made under authorizations by the Board of Directors. Under the most recent authorization in April 2024 of 5,000,000 shares, 2,931,648 shares remained available for purchase at December 31, 2024.

Item 6. RESERVED

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Forward-Looking Statements

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 Commerce Bancshares, Inc. and its subsidiaries (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 which 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 the risk factors identified in Item 1a Risk Factors and the following: 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; failure of litigation settlement agreements to become final in accordance with their terms; and competition with other entities that offer financial services.

Overview

The Company operates as a super-community bank and offers a broad range of financial products to consumer, municipal, and commercial customers, delivered with a focus on high-quality, personalized service. The Company is headquartered in Missouri, with its principal offices in Kansas City and St. Louis, Missouri. Customers are served from 243 locations in Missouri, Kansas, Illinois, Oklahoma and Colorado and commercial offices throughout the nation's midsection. A variety of delivery platforms are utilized, including an extensive network of branches and ATM machines, full-featured online banking, a mobile application, and a centralized contact center.

The core of the Company’s competitive advantage is its focus on the local markets in which it operates, its offering of competitive, sophisticated financial products, and its concentration on relationship banking and high-touch service. In order to enhance shareholder value, the Company targets core revenue growth. To achieve this growth, the Company focuses on strategies that will expand new and existing customer relationships, offer opportunities for controlled expansion in additional markets, utilize improved technology, and enhance customer satisfaction.

Various indicators are used by management in evaluating the Company’s financial condition and operating performance. Among these indicators are the following:

• Net income and earnings per share — Net income attributable to Commerce Bancshares, Inc. during 2024 was $526.3 million, an increase of 10.3% compared to the previous year. The return on average assets was 1.72% in 2024, and the return on average common equity was 16.66%. Diluted earnings per share increased 11.8% in 2024 compared to 2023.

• Total revenue — Total revenue is comprised of net interest income and non-interest income. Total revenue in 2024 increased $84.6 million, or 5.4%, from 2023, as net interest income grew $42.1 million, and non-interest income increased $42.5 million. Growth in net interest income resulted principally from increases in interest income from loans, partly offset by an increase in interest expense on deposits. The increase in non-interest income in 2024 was mainly due to higher trust fees, supplemented by higher deposit account fees and capital market fees.

• Non-interest expense — Total non-interest expense increased 2.2% this year compared to 2023, mainly due to higher salaries and employee benefits expense, partially offset by lower deposit insurance expense due to a special FDIC assessment accrued in 2023.

• Asset quality — Net loan charge-offs totaled $38.9 million in 2024, an increase of $7.8 million from those recorded in 2023, and averaged .23% of loans in 2024, as compared to .19% of loans in 2023. Total non-performing assets, which include non-accrual loans and foreclosed real estate, amounted to $18.6 million at December 31, 2024, compared to $7.6 million at December 31, 2023, and represented .11% of loans outstanding at December 31, 2024.

• Shareholder return — During 2024, the Company paid cash dividends of $1.03 per share on its common stock, representing an increase of 5.0% over the previous year. In 2024, the Company issued its 31st consecutive annual 5%

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common stock dividend, and in February 2025, the Company's Board of Directors authorized an increase of 7.0% in the common cash dividend. The Company purchased 2,875,349 shares in 2024. Total shareholder return, including the change in stock price and dividend reinvestment, was 5.1%, 10.8%, and 10.7% over the past 5, 10, and 15 years, respectively.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes. The historical trends reflected in the financial information presented below are not necessarily reflective of anticipated future results.

Key Ratios

(Based on average balances)

(Based on end of period data)

(1) Includes loans held for sale.

(2) Revenue includes net interest income and non-interest income.

(3) The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of total revenue.

(4) The tangible common equity to tangible assets ratio is a measurement which management believes is a useful indicator of capital adequacy and utilization. It provides a meaningful basis for period to period and company to company comparisons, and also assist regulators, investors and analysts in analyzing the financial position of the Company. Tangible common equity and tangible assets are non-GAAP measures and should not be viewed as substitutes for, or superior to, data prepared in accordance with GAAP.

The following table is a reconciliation of the GAAP financial measures of total equity and total assets to the non-GAAP measures of total tangible common equity and total tangible assets.

* Intangible assets other than mortgage servicing rights.

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Results of Operations

$ Change % Change

N.M. - Not meaningful.

Net income attributable to Commerce Bancshares, Inc. (net income) for 2024 was $526.3 million, an increase of $49.3 million, or 10.3%, compared to $477.1 million in 2023. Diluted income per common share was $3.87 in 2024, compared to $3.46 in 2023. The growth in net income resulted mainly from increases of $42.5 million in non-interest income and $42.1 million in net interest income, partly offset by increases in non-interest expense and income taxes of $20.2 million and $10.5 million, respectively. The return on average assets was 1.72% in 2024 compared to 1.49% in 2023, and the return on average common equity was 16.66% in 2024 compared to 17.94% in 2023. At December 31, 2024, the ratio of tangible common equity to tangible assets increased to 9.92%, compared to 8.85% at year end 2023.

During 2024, net interest income grew mainly due to an increase of $78.4 million in interest income earned on loans, mainly due to higher average rates, and a decrease of $43.9 million in interest expense on borrowings, mainly due to lower average balances, partly offset by an increase in interest expense on deposits of $90.0 million, mainly due to higher average rates paid. Total rates earned on average interest earning assets increased 52 basis points this year, while funding costs increased 52 basis points for deposits and decreased 28 basis points for borrowings. The provision for credit losses increased mainly due to higher net loan charge-offs and an increase in the estimate of the allowance for credit losses on loans this year compared to last year. These increases were partly offset by a decrease in the liability for unfunded lending commitments. Net loan charge-offs increased $7.8 million, mainly due to higher credit card and consumer loan net charge-offs in 2024, partly offset by a decrease in business loan net charge-offs.

Non-interest income grew 7.4% in 2024, mainly due to increases in trust fees and deposit account fees. Net investment securities gains of $7.8 million were recorded in 2024 and were comprised mainly of gains on the sales of equity securities, partly offset by losses on sales of available for sale debt securities. Non-interest expense increased $20.2 million in 2024 compared to 2023, mainly due to higher salaries and benefits expense and data processing and software expense, partly offset by a decrease in deposit insurance expense.

Net income for 2023 was $477.1 million, a decrease of $11.3 million, or 2.3%, compared to $488.4 million in 2022. Diluted income per common share was $3.46 in 2023, compared to $3.50 in 2022. The decrease in net income resulted mainly from an increase of $82.2 million in non-interest expense, partly offset by increases in net interest income of $55.9 million and non-interest income of $26.5 million. The return on average assets was 1.49% in 2023 compared to 1.45% in 2022, and the return on average common equity was 17.94% in 2023 compared to 17.31% in 2022. At December 31, 2023, the ratio of tangible common equity to tangible assets increased to 8.85%, compared to 7.32% at year end 2022.

During 2023, net interest income grew mainly due to increases of $338.1 million in interest income earned on loans and $88.2 million in interest income earned on deposits with banks, mainly due to higher average rates, partly offset by increases in interest expense on deposits and borrowings of $215.7 million and $110.2 million, respectively, mainly due to higher average rates paid. Total rates earned on average interest earning assets increased 134 basis points in 2023, while funding costs for deposits and borrowings increased 156 basis points. The provision for credit losses increased mainly due to higher net loan charge-offs and an increase in the estimate of the allowance for credit losses in 2023 compared to 2022. Net loan charge-offs increased $12.0 million, mainly due to higher credit card, consumer and business loan net charge-offs in 2023.

Non-interest income grew 4.9% in 2023, mainly due to increases in bank card and trust fees. Net investment securities gains of $15.0 million were recorded in 2023 and were comprised mainly of net fair value gains on the Company's private equity

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investment portfolio, partly offset by losses on sales of available for sale securities. Non-interest expense increased $82.2 million in 2023 compared to 2022, mainly due to higher salaries and benefits expense and deposit insurance expense.

The Company distributed a 5% stock dividend for the 31st consecutive year on December 18, 2024. All per share and average share data in this report has been restated for the 2024 stock dividend.

Critical Accounting Estimates and Related Policies

The Company's consolidated financial statements are prepared based on the application of certain accounting policies, the most significant of which are described in Note 1 to the consolidated financial statements. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or be subject to variations which may significantly affect the Company's reported results and financial position for the current period or future periods. The use of estimates, assumptions, and judgments are necessary when financial assets and liabilities are required to be recorded at, or adjusted to reflect, fair value. Current economic conditions may require the use of additional estimates, and some estimates may be subject to a greater degree of uncertainty due to the current instability of the economy. The Company has identified several policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These estimates and related policies are the Company's allowance for credit losses and fair value measurement policies.

Allowance for Credit Losses

The Company's Allowance for Credit Losses policies govern the processes and procedures used to estimate the collectability of its loan portfolio and unfunded lending commitments, and the potential for credit losses in its available for sale debt securities portfolio.

Allowance for Credit Losses – Loans and Unfunded Lending Commitments

The Company performs periodic and systematic detailed reviews of its loan portfolio and unfunded lending commitments to assess overall collectability. The level of the allowance for credit losses on loans and unfunded lending commitments reflects the Company's estimate of the losses expected in the loan portfolio and unfunded lending commitments over the assets’ contractual term.

The allowance for credit loss is an estimate that is subject to uncertainty due to the various assumptions and judgments used in the estimation process.

The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral type and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis.

The allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and an economic forecast that may affect the collectability of the remaining cash flows over the contractual term of the loans. The calculated loss rate is increased or decreased to reflect expectations of future losses given a single path economic forecast. These adjustments to the loss rate are based on results from various regression models projecting the impact of the macroeconomic variables. The forecast is used for a reasonable and supportable period before reverting to historical averages using a straight-line method.

Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecast such as changes in portfolio composition, underwriting practices, or significant unique events or conditions.

Adjustments to the allowance for credit losses are made by increases to or reductions in the provision for credit losses, which are reflected in the consolidated statements of income.

Assumptions, Judgments, and Uncertainties: The uncertainty in the estimation of the allowance for credit losses is created because key assumptions and judgements are applied throughout the process. Key assumptions include segmentation of the portfolio into pools, calculations of life of a loan using a combination of contractual terms and expected prepayment speeds and forecast of macroeconomic conditions. The Company utilizes a third-party macro-economic forecast that continuously changes due to economic conditions and events. The single path economic forecast includes key

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macroeconomic variables including GDP, disposable income, unemployment rate, various interest rates, consumer price index (CPI) inflation rate, housing price index (HPI), commercial real estate price index (CREPI) and market volatility. Each reporting period, the base macroeconomic forecast scenario is evaluated to ensure it is not inconsistent with management’s expectations. Changes in the forecast cause fluctuations in the estimates of the allowance for credit losses on loans and the liability for unfunded lending commitments. Potential changes in any one economic variable may or may not affect the overall allowance because a variety of economic variables and inputs are considered in estimating the allowance, and changes in those variables and inputs may not occur at the same rate, may not be consistent across product types and may have offsetting impacts to other changing variables and inputs.

Data points such as loan mix, level of loan balances outstanding, portfolio performance, line utilization trends and risk ratings change throughout the life of a portfolio which could cause changes to the expected credit losses.

Qualitative factors not included in historical information or macroeconomic forecast require significant judgment to identify and determine how to apply to the estimate for credit losses. The qualitative factors continuously evolve in reaction to other changing assumptions, data inputs and industry trends.

The Company uses its best judgment to assess the macroeconomic forecast, key assumptions and internal and external data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments. These estimates are subject to continuous refinement based on changes in the underlying external and internal data.

Impact if actual results differ from assumptions: The allowance for credit losses represents management’s best estimate of expected current credit losses in the loan portfolio and within the Company’s unfunded lending commitments, but changes in the inputs and assumptions described above could significantly impact the calculated estimated credit losses. Therefore, actual credit losses may differ significantly from estimated results. Significant deterioration in circumstances relating to loan quality and economic conditions could result in a requirement for additional allowance. Likewise, an upturn in loan quality and improved economic conditions may require a reduction in the allowance for credit losses. In either instance, changes could have a significant impact on our financial condition and results of operations.

Allowance for Credit Losses - Available for Sale Debt Securities

The level of the allowance for credit losses on available for sale securities reflects the Company’s estimate of the losses expected in the available for sale debt security portfolio. In order to estimate the allowance for credit losses on available for sale debt securities, the Company performs quarterly reviews of its investment portfolio to identify securities in an unrealized loss position.

Changes to the allowance for credit losses are made by changes to or reductions in the provision for credit losses, which are reflected in the consolidated statements of income.

Assumptions, Judgments, and Uncertainties: Securities for which fair value is less than amortized cost are reviewed for impairment. Special emphasis is placed on securities whose credit rating has fallen below Baa3 (Moody's) or BBB- (Standard & Poor's), whose fair values have fallen more than 20% below purchase price, or those which have been identified based on management’s judgment. These securities are placed on a watch list and cash flow analyses are prepared on an individual security basis. Certain securities are analyzed using a projected cash flow model, discounted to present value, and compared to the current amortized cost bases of the securities. The model uses input factors such as cash flow projections, contractual payments required, expected delinquency rates, credit support from other tranches, prepayment speeds, collateral loss severity rates (including loan to values), and various other information related to the underlying collateral. Securities not analyzed using the cash flow model are analyzed by reviewing risk ratings, credit support agreements, and industry knowledge to project future cash flows and any possible credit impairment.

Impact if actual results differ from assumptions: The allowance for credit losses represents management’s best estimate of expected credit losses in the available for sale debt securities portfolio, but significant change in interest rates and deterioration in economic conditions could result in a requirement for additional allowance. Likewise, an increase in interest rates and improved economic conditions may require a reduction in the allowance for credit losses. In either instance, anticipated changes could have a significant impact on our financial condition and results of operations.

Fair Value Measurement

Investment securities, including available for sale debt, trading, equity and other securities, residential mortgage loans held for sale, derivatives and deferred compensation plan assets and associated liabilities are recorded at fair value on a recurring basis. Additionally, from time to time, other assets and liabilities may be recorded at fair value on a nonrecurring basis, such as

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loan values that have been reduced based on the fair value of the underlying collateral, other real estate (primarily foreclosed property), non-marketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments typically involve write-downs of individual assets or application of lower of cost or fair value accounting.

Assumptions, Judgments, and Uncertainties: Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the measurement date and is based on the assumptions market participants would use when pricing an asset or liability. Fair value measurement and disclosure guidance establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value.

Fair value is measured based on a variety of inputs. Fair value may be based on quoted market prices for identical assets or liabilities traded in active markets (Level 1 valuations). If market prices are not available, quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market are used (Level 2 valuations). Where observable market data is not available, the valuation is generated from model-based techniques that use significant assumptions not observable in the market (Level 3 valuations). Unobservable assumptions reflect the Company’s estimates for assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability.

The selection and weighting of the various fair value techniques may result in a fair value higher or lower than carrying value. Considerable judgment may be involved in determining the amount that is most representative of fair value.

For assets and liabilities recorded at fair value, the Company looks to active and observable market data when developing fair value measurements for those items where there is an active market. Certain assets and liabilities are not actively traded in observable markets, and the Company must use alternative valuation techniques to derive an estimated fair value measurement. In doing so, the Company may be required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument. The assumptions used to determine fair value adjustments are regularly evaluated by management for relevance under current facts and circumstances.

Changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable. When market data is not available, the Company uses valuation techniques requiring more management judgment to estimate the appropriate fair value.

Impairment analysis also relates to long-lived assets and core deposit and other intangible assets. An impairment loss is recognized if the carrying amount of the asset is not likely to be recoverable and exceeds its fair value. In determining the fair value, management uses models and applies the techniques and assumptions previously discussed.

At December 31, 2024, assets and liabilities measured using observable inputs that are classified as either Level 1 or Level 2 represented 98.1% and 99.9% of total assets and liabilities recorded at fair value, respectively. Valuations generated from model-based techniques that use at least one significant assumption not observable in the market are considered Level 3, and the Company's Level 3 assets totaled $185.4 million, or 2.0% of total assets recorded at fair value on a recurring basis. The fair value hierarchy, the extent to which fair value is used to measure assets and liabilities, and the valuation methodologies and key inputs used are discussed in Note 17 on Fair Value Measurements.

Impact if actual results differ from assumptions: Changes in fair value are recorded either in earnings or accumulated other comprehensive income. Adjustments in the inputs and assumptions described above could significantly impact the fair values of the Company’s assets and liabilities and have a significant impact on our financial condition and results of operations.

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Net Interest Income

Net interest income, the largest source of revenue, results from the Company’s lending, investing, borrowing, and deposit gathering activities. It is affected by both changes in the level of interest rates and changes in the amounts and mix of interest earning assets and interest bearing liabilities. The following table summarizes the changes in net interest income on a fully taxable equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates. Changes not solely due to volume or rate changes are allocated to rate.

Change due to Change due to

Interest income, fully taxable-equivalent basis

Loans:

Investment securities:

Interest expense

Interest bearing deposits:

Net interest income totaled $1.0 billion in 2024, increasing $42.1 million, or 4.2%, compared to $998.1 million in 2023. On a fully taxable-equivalent (FTE) basis, net interest income totaled $1.0 billion, and increased $42.8 million over 2023. This growth was due to increases of $79.6 million in interest earned on loans (FTE), due to higher average rates and balances, and $18.2 million in interest earned on balances at the Federal Reserve, due to higher average balances, and a decrease of $44.8 million in interest expense on borrowings, mainly due to lower average balances. These increases to income were partly offset by an increase of $90.0 million in interest expense on deposits, mainly due to higher average rates paid, and lower interest earned on investment securities of $8.5 million, due to lower average balances, partly offset by higher average rates. The net yield on earning assets (FTE) was 3.47% in 2024 compared with 3.16% in 2023. The fully taxable-equivalent basis uses a federal income tax rate of 21%.

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During 2024, loan interest income (FTE) grew $79.6 million over 2023 mainly due to an increase in rates earned for all loan categories and growth of $310.2 million, or 1.8%, in average loan balances. The average fully taxable-equivalent rate earned on the loan portfolio increased 36 basis points to 6.26% in 2024 compared to 5.90% in 2023. The higher rates earned on the loan portfolio were impacted by actions taken by the Federal Reserve in 2024 to lower short-term interest rates, which caused most of the Company's variable rate loan portfolio to re-price lower and fixed rate loans to originate at lower interest rates than the weighted-average of the portfolio of fixed rate loans. Increased interest earned on business, consumer, personal real estate and business real estate loans was the main driver of overall higher loan interest income. Business loan interest income increased $33.3 million due to a 40 basis point increase in the average rate earned and an increase of $164.3 million, or 2.84%, in average balances. Interest earned on consumer loans increased $16.2 million mainly due to an increase of 74 basis points in the average rate earned. Personal real estate loan interest grew $13.0 million in 2024 compared to 2023 as a result of an increase of 35 basis points in the average rate earned and higher average balances of $63.8 million, or 2.14%. Interest on construction and land loans grew $1.3 million over the prior year due to growth in the average rate earned of 29 basis points, partly offset by a decrease of $35.0 million, or 2.4%, in average loan balances. Interest on business real estate loans increased $12.5 million as the average rate earned increased 21 basis points and the average balance grew $75.3 million, or 2.1%. Revolving home equity loan interest increased $2.5 million mainly due to growth in average balances of $30.7 million, or 10.1%. Interest on consumer credit card loans was higher by $829 thousand due to an increase of 16 basis points in the average rate earned.

Fully taxable-equivalent interest income on total investment securities decreased $8.5 million during 2024, as average balances declined $1.9 billion, while the average rate earned increased 34 basis points. The average rate on the total investment securities portfolio was 2.63% in 2024 compared to 2.29% in 2023, while the average balance of the total investment securities portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $10.4 billion in 2024 compared to an average balance of $12.4 billion in 2023. The decrease in interest income was mainly due to lower interest income earned on mortgage-backed securities, asset-backed securities and state and municipal securities, partly offset by an higher interest income earned on U.S. government securities. Interest earned on mortgage-backed securities decreased $16.2 million due to lower average balances of $878.4 million, slightly offset by an increase of three basis points in the average rate earned. Interest earned on asset-backed securities decreased $12.8 million, due to a decline in average balances of $991.4 million, partly offset by an increase of 48 basis points in the average rate earned. The decrease of $10.9 million in interest earned on state and municipal securities was due to a decrease of $497.5 million in average balances and a decline of seven basis points in average rate earned. Interest earned on U.S. government securities increased $35.9 million mainly due to higher average balances of $601.7 million, or 60.0%, and an increase in average rate earned of 130 basis points. Interest earned on U.S. government securities was impacted by a decline of $2.5 million in inflation income on treasury inflation-protected securities (TIPS).

Interest on federal funds sold decreased $610 thousand and interest on securities purchased under resell agreements decreased $291 thousand compared to 2023 both due to declines in average balances, partly offset by growth in the average rate earned. Interest income on balances at the Federal Reserve increased $18.2 million over 2023, due to growth in average balances of $344.8 million, or 17.6%.

During 2024, interest expense on deposits increased $90.0 million over 2023 and resulted mainly from a 52 basis point increase in the overall average rate paid on deposits. Interest expense on interest checking and money market accounts increased $80.5 million due to higher rates paid, which grew 59 basis points, and growth in average balances of $226.3 million, or 1.7%. Interest expense on certificates of deposit grew $9.5 million, due to a 33 basis point increase in the average rate paid, coupled with a $33.1 million increase in average balances. The overall rate paid on total deposits increased from 1.44% in 2023 to 1.96% in the current year. Interest expense on borrowings decreased $44.8 million mainly due to a $975.0 million decrease in average balances. Interest expense on federal funds purchased decreased $13.0 million, mainly due to a $265.7 million decline in average balances, while interest expense on securities sold under repurchase agreements increased $7.7 million due to a 26 basis point increase in average rate earned and an increase of $47.4 million in average balances. Interest expense on Federal Home Loan Bank (FHLB) borrowings declined $39.5 million due to a decline of $756.7 million in average balances. The Company did not have any outstanding FHLB borrowings at December 31, 2024. The overall average rate incurred on all interest bearing liabilities was 2.17% in 2024, compared to 1.86% in 2023.

Net interest income totaled $998.1 million in 2023, increasing $55.9 million, or 5.9%, compared to $942.2 million in 2022. On a FTE basis, net interest income totaled $1.0 billion, and increased $54.9 million over 2022. This growth was mainly due to increases of $339.4 million in interest earned on loans and $88.2 million in interest earned on balances at the Federal Reserve, both mainly due to higher average rates earned. These increases were partly offset by an increase of $325.9 million in interest expense on deposits and borrowings, mainly due to higher average rates paid, and lower interest earned on investment securities of $38.0 million, mainly due to lower average balances. The net yield on earning assets (FTE) was 3.16% in 2023 compared with 2.85% in 2022.

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During 2023, loan interest income (FTE) grew $339.4 million over 2022 mainly due to an increase in rates earned for all loan categories and a $1.2 billion, or 7.8%, increase in average loan balances. The average fully taxable-equivalent rate earned on the loan portfolio increased 172 basis points to 5.90% in 2023 compared to 4.18% in 2022. The higher rates earned on the loan portfolio were partly related to actions taken by the Federal Reserve to raise short-term interest rates during 2022 and 2023, which caused most of the Company's variable rate loan portfolio to re-price higher. Additionally, fixed rate loans were generally originated in 2023 at higher interest rates than the weighted-average of the portfolio of fixed rate loans. Increased interest earned on business, business real estate and construction and land loans was the main driver of overall higher interest income. Business loan interest income increased $128.3 million due to a 196 basis point increase in the average rate earned and an increase of $405.2 million, or 7.5%, in average balances. Business real estate loan interest grew $80.2 million in 2023 compared to 2022 as a result of an increase of 181 basis points in the average rate earned and higher average balances of $372.0 million, or 11.6%. Interest earned on construction and land loans increased $55.3 million due to an increase of 292 basis points in the average rate earned and growth of $243.8 million, or 19.8%, in average balances. Interest on personal real estate loans increased $15.9 million as the average rate earned increased 38 basis points and the average balance grew $137.4 million. Interest on consumer loans grew $37.3 million over 2022 as the average rate earned increased 174 basis points. Revolving home equity loan interest increased $10.2 million due to an increase of 301 basis points in the average rate earned and growth in average balances of $22.7 million. Interest on consumer credit card loans was higher by $12.4 million due to an increase of 191 basis points in the average rate earned and a $14.0 million increase in average balances.

Fully taxable-equivalent interest income on total investment securities decreased $38.0 million during 2023, as average balances declined $2.6 billion, while the average rate earned increased 14 basis points. The average rate on the total investment securities portfolio was 2.29% in 2023 compared to 2.15% in 2022, while the average balance of the total investment securities portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $12.4 billion in 2023 compared to an average balance of $14.9 billion in 2022. The decrease in interest income was mainly due to lower interest income earned on U.S. government securities, state and municipal securities and mortgage-backed securities. Interest earned on U.S. government securities decreased $16.2 million mainly due to lower TIPS interest income of $14.3 million. Average balances of U.S. government securities decreased $96.0 million and the average rate earned declined 125 basis points. The decrease of $15.8 million in interest earned on state and municipal securities was due to a decrease of $542.8 million in average balances and a decline of 23 basis points in average rate earned. Interest earned on mortgage-backed securities decreased $7.0 million due to a lower average balances of $742.6 million, partly offset by an increase of 12 basis points in the average rate earned. Interest earned on asset-backed securities decreased $398 thousand, due to a decline in average balances of $1.2 billion, mostly offset by an increase of 62 basis points in the average rate earned.

Interest on securities purchased under resell agreements decreased $9.0 million compared to 2022 due to a decrease in average balances of $793.8 million, partly offset by growth of 43 basis points in the average rate. Interest income on balances at the Federal Reserve increased $88.2 million over 2022, mainly due to a 416 basis point increase in the average rate earned and growth in average balances of $597.3 million.

During 2023, interest expense on deposits increased $215.7 million over 2022 and resulted mainly from a 126 basis point increase in the overall average rate paid on deposits. Interest expense on interest checking and money market accounts increased $121.3 million mainly due to higher rates paid, which grew 94 basis points, slightly offset by lower average balances of $1.4 billion. Interest expense on certificates of deposit grew $94.4 million, mainly due to a 350 basis point increase in the average rate paid, coupled with a $1.4 billion increase in average balances. The overall rate paid on total deposits increased from .18% in 2022 to 1.44% in 2023. Interest expense on borrowings increased $110.2 million mainly due to a 210 basis point increase in the rate paid on securities sold under repurchase agreements and an increase in $711.3 million in average FHLB borrowings. The Company did not have any outstanding FHLB borrowings at December 31, 2023. The overall average rate incurred on all interest bearing liabilities was 1.86% in 2023, compared to .30% in 2022.

Provision for Credit Losses

The provision for credit losses is comprised of provisions for credit losses on loans and unfunded lending commitments and is recorded to adjust the allowance for credit losses on loans and the liability for unfunded lending commitments to a level deemed adequate by management based on the factors mentioned in the “Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments” section of this discussion. The provision for credit losses was $32.9 million in 2024, a decrease of $2.5 million from the 2023 provision.

The provision for credit losses on loans for the year ended December 31, 2024 was $39.2 million, compared to $43.3 million in 2023. The allowance for credit losses on loans totaled $162.7 million at December 31, 2024, an increase of $347 thousand compared to the prior year, and represented .95% of loans at year end 2024, compared to .94% at December 31, 2023.

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The provision for unfunded lending commitments was a benefit of $6.3 million during 2024, compared to a benefit of $7.9 million in 2023. The liability for unfunded lending commitments was $18.9 million at December 31, 2024, compared to $25.2 million at December 31, 2023.

Non-Interest Income

% Change

Non-interest income as a % of total revenue* 37.2 % 36.5 % 36.7 %

Total revenue per full-time equivalent employee $ 352.8 $ 333.0 $ 324.1

* Total revenue is calculated as net interest income plus non-interest income.

Below is a summary of net bank card transaction fees for the years ended December 31, 2024, 2023 and 2022, respectively.

% Change

Non-interest income totaled $615.6 million, an increase of $42.5 million, or 7.4%, compared to $573.0 million in 2023. Trust fee income increased $23.5 million, or 12.3%, mainly as a result of higher private client trust fees (up 13.1%), which comprised 81.0% of trust fee income in 2024. The market value of total customer trust assets totaled $74.8 billion at year end 2024, which was an increase of 8.6% over year end 2023 balances. Bank card fees decreased $1.4 million, or .7%, from the prior year, mainly due to a decrease in net corporate card fees of $4.0 million, partly offset by increases in net credit card fees of $1.6 million, net debit card fees of $636 thousand and net merchant fees of $407 thousand. The decline in net corporate card fees from the prior year was mainly due to lower interchange income coupled with higher rewards expense. Net debit card fees increased mainly due to higher interchange income, while net credit card fees increased due to lower rewards expense. Net merchant fees increased mainly due to higher merchant discount fees, partly offset by lower interchange fees. Deposit account fees increased $9.3 million, or 10.3%, mainly due to higher corporate cash management fees of $8.5 million and other deposit fees of $894 thousand. In 2024, corporate cash management fees comprised 64.6% of total deposit fees, while overdraft fees comprised 11.5% of total deposit fees. Capital markets fees increased $5.7 million, or 40.3%, mainly due to higher trading securities income of $4.1 million and underwriting income of $2.4 million. Revenue from consumer brokerage services increased $918 thousand, or 5.3%, mainly due to higher annuity fees, while loan fees and sales increased $1.7 million, or 15.5%, mainly due to higher loan commitment fees and mortgage banking revenue. Other non-interest income increased $2.7 million, or 4.8%, over the prior year mainly due to higher gains on asset sales of $2.5 million, cash sweep commissions of $2.2 million and tax credit sales income of $2.1 million. These increases were partly offset by lower letter of credit fees of $2.3 million and swap fees of $1.2 million.

During 2023, non-interest income totaled $573.0 million, an increase of $26.5 million, or 4.9%, compared to $546.5 million in 2022. Bank card fees increased $15.0 million, or 8.5%, over 2022, mainly due to increases in net corporate card fees of $10.6 million, net debit card fees of $2.9 million and net merchant fees of $1.6 million. The growth in net corporate card fees over 2022 was mainly due to lower rewards and network expense coupled with higher interchange income. Net debit card fees increased mainly due to lower network expense, while net merchant fees increased mainly due to higher merchant discount fees. Trust fee income increased $6.2 million, or 3.4%, as a result of higher private client trust fees (up 4.3%), which comprised 80.4% of trust fee income in 2023. The market value of total customer trust assets totaled $68.9 billion at year end 2023, which was an increase of 14.2% over year end 2022 balances. Deposit account fees decreased $3.4 million, or 3.6%,

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mainly due to lower overdraft and return item fees of $8.3 million, partly offset by growth in corporate cash management fees of $3.8 million. In 2023, corporate cash management fees comprised 61.9% of total deposit fees, while overdraft fees comprised 12.8% of total deposit fees. Revenue from consumer brokerage services decreased $1.9 million, or 9.9%, mainly due to lower annuity fees, while loan fees and sales decreased $2.0 million, or 15.0%, mainly due to lower mortgage banking revenue. Other non-interest income increased $12.7 million, or 28.2%, over 2022 mainly due to higher letter of credit fees of $3.2 million, cash sweep commissions of $2.9 million, gains on the sale of real estate of $2.1 million and swap fees of $1.1 million. In addition, increases of $6.4 million in fair value adjustments were recorded on the Company's deferred compensation plan, which are held in a trust and recorded as both an asset and a liability, affecting both other income and other expense. These increases were partly offset by lower tax credit sales income of $2.4 million.

Investment Securities Gains (Losses), Net

Net gains (losses) on sales of private equity investments 1,880 (100) (2,128)

Total investment securities gains (losses), net $ 7,823 $ 14,985 $ 20,506

Net gains and losses on investment securities during 2024, 2023 and 2022 are shown in the table above. Included in these amounts are gains and losses arising from sales of securities from the Company’s available for sale debt portfolio, net gains and losses on equity securities, and gains and losses relating to private equity investments, which are primarily held by the Parent’s majority-owned private equity subsidiary. The gains and losses on private equity investments include fair value adjustments, in addition to gains and losses realized upon disposition. The portions of private equity investment gains and losses that are attributable to minority interests are reported as non-controlling interest in the consolidated statements of income, and resulted in expense of $4.2 million in 2024, $4.8 million in 2023, and $8.5 million in 2022.

Net securities gains of $7.8 million were recorded in 2024, which included net gains of $178.1 million on equity securities, net gains of $24.1 million in fair value adjustments on private equity investments, and net gains of $1.9 million on sales of private equity investments. These gains were offset by net losses of $196.3 million realized on sales of available for sale debt securities resulting from the Company's sale of approximately $1.3 billion (book value) in bonds, mainly state and municipal, mortgage-backed, and corporate debt securities.

Net securities gains of $15.0 million were recorded in 2023, which included net gains of $24.0 million in fair value adjustments on private equity investments. This increase was partly offset by losses of $8.4 million realized on sales of available for sale debt securities resulting from the Company's sale of approximately $1.1 billion (book value) in bonds, mainly state and municipal securities and asset-backed securities, net losses of $100 thousand on sales of private equity investments, and net losses of $487 thousand on equity securities.

Net securities gains of $20.5 million were recorded in 2022, which included net gains of $43.8 million in fair value adjustments on private equity investments. This increase was partly offset by losses of $20.3 million realized on sales of available for sale debt securities resulting from the Company's sale of approximately $105 million (book value) in bonds, mainly mortgage-backed and corporate bond securities, net losses of $2.1 million on sales of private equity investments, and net losses of $926 thousand on equity securities.

The Company's significant gains in equity securities for the year ended December 31, 2024 primarily relate to gains recorded on its shares of Visa, as described in Note 3, Investment Securities. Likewise, the $196.3 million losses realized on the Company's available for sale debt securities portfolio mainly relate to the successful execution of its planned available for sale debt security portfolio repositioning, in which the Company sold bonds with an amortized cost of $1.2 billion and subsequently reinvested the proceeds into higher yielding available for sale debt securities. Additional information about the Company's available for sale debt portfolio repositioning transactions is discussed in Note 3, Investment Securities.

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Non-Interest Expense

% Change

Salaries and benefits as a % of total non-interest expense 63.9 % 62.7 % 65.3 %

N.M. - Not meaningful.

Non-interest expense was $951.2 million in 2024, an increase of $20.2 million, or 2.2%, over the previous year. Salaries and benefits expense increased $23.8 million, or 4.1%, mainly due to higher costs for full-time salaries, incentive compensation, payroll taxes and 401(k) expense, slightly offset by lower contract labor expense. Full-time equivalent employees totaled 4,693 at December 31, 2024, compared to 4,718 at December 31, 2023. Data processing and software expense increased $8.6 million, or 7.3%, primarily due to increased costs for service providers and higher software expense and bank card processing fees. Net occupancy expense decreased $406 thousand, or .8%, mainly due to higher external rent income, partly offset by higher building depreciation expense. Professional and other services expense decreased $1.1 million, or 3.1%, mainly due to declines in other professional fees, loan collection fees, and pension plan expense, partly offset by an increase in legal fees. Marketing expense decreased $2.2 million, or 8.8%, while equipment expense increased $1.1 million, or 5.5%, mainly due to higher furniture and equipment depreciation expense. Supplies and communication expense decreased $129 thousand, or .7%, while deposit insurance expense decreased $16.7 million due to a $16.0 million accrual recorded in 2023 for a one-time special assessment by the FDIC to replenish the Deposit Insurance Fund. Other non-interest expense increased $7.2 million, or 17.4%, mainly due to litigation settlement expense of $10.0 million and a $5.0 million donation to a related charitable foundation, both recorded in 2024. These increases were partly offset by deconversion costs of $2.1 million recorded in 2023, as well as decreases in swap fee amortization expense of $859 thousand, travel and entertainment expense of $687 thousand and recruiting expense of $489 thousand.

In 2023, non-interest expense was $931.0 million in 2023, an increase of $82.2 million, or 9.7%, over 2022. Salaries and benefits expense increased $30.0 million, or 5.4%, mainly due to higher costs for full-time salaries, healthcare expense and payroll taxes, partly offset by lower incentive compensation expense. Full-time equivalent employees totaled 4,718 at December 31, 2023, compared to 4,594 at December 31, 2022. Data processing and software expense increased $8.1 million, or 7.3%, primarily due to increased costs for service providers and higher bank card processing fees. Net occupancy expense increased $4.5 million, or 9.2%, mainly due to higher depreciation expense and real estate taxes, partly offset by higher rent income. Deposit insurance expense increased $22.6 million due to a $16.0 million one-time special assessment accrual recorded the fourth quarter of 2023, mentioned above. Professional and other services expense increased $393 thousand, or 1.1%, mainly due to higher pension plan expense, partly offset by lower loan collection fees. Marketing expense increased $684 thousand, or 2.9%, while supplies and communication expense increased $1.3 million, or 7.3%, mainly due to higher postage expense, bank card reissuance fees and office supplies expense. Other non-interest expense increased $14.4 million, or 53.0%, mainly due to higher costs for travel and entertainment expense (up $1.9 million), miscellaneous losses (up $2.1 million) and lower deferred origination costs (up $1.6 million). In addition, an increase of $6.4 million in fair value adjustments were recorded on the Company's deferred compensation plan, and deconversion costs of $2.1 million relating to the transition of Commerce Financial Advisors support to LPL Financial's Institution Services platform were recorded in 2023.

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Income Taxes

Income tax expense was $145.1 million in 2024, compared to $134.5 million in 2023 and $132.4 million in 2022. The effective tax rate, including the effect of non-controlling interest, was 21.6% in 2024 compared to 22.0% in 2023 and 21.3% in 2022. The decrease in the effective tax rate in 2024 compared to the rate for 2023 was mostly due to lower state and local income taxes. Additional information about income tax expense is provided in Note 9 to the consolidated financial statements.

Financial Condition

Loan Portfolio Analysis

Classifications of consolidated loans by major category at December 31, 2024 and 2023 are shown in the table below. This portfolio consists of loans which were acquired or originated with the intent of holding to their maturity. Loans held for sale are separately discussed in a following section. A schedule of average balances invested in each loan category below is disclosed within the Average Balance Sheets section of Management's Discussion and Analysis of Financial Condition and Results of Operations below.

Balance at December 31

Commercial:

Personal banking:

The table below presents contractual maturities of the loan portfolio, based on payment due dates, as well as a breakdown of fixed rate and floating rate loans at December 31, 2024.

Principal Payments Due

Commercial:

Personal banking:

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The following table shows loan balances at December 31, 2024, segregated between those with fixed interest rates and those with variable rates that fluctuate with an index.

(In thousands) Fixed Rate Loans Variable Rate Loans Total % Variable Rate Loans

Total loans at December 31, 2024 were $17.2 billion, an increase of $14.6 million, or 0.1%, over balances at December 31, 2023. The increase in loans during 2024 occurred mainly due to an increase in revolving home equity, business loans and personal real estate loans, partly offset by decreases in business real estate and construction loans. Business loans increased $34.8 million, or 0.6%, mainly due to a $68.0 million increase in commercial and industrial loans and a $23.1 million increase in tax-advantaged lending, partly offset by a $73.9 million decrease in commercial card loans. Lease loans, included within business loans, also increased during 2024. Construction loans decreased $36.9 million, or 2.5%, mainly due to a decline in commercial construction lending. Business real estate loans decreased $58.1 million, or 1.6%, due mainly to decreases in industrial and retail lending, while owner-occupied, multi-family and hotel lending grew. Personal real estate loans increased $32.2 million, or 1.1%. The Company sells certain long-term fixed rate mortgage loans to the secondary market, and loan sales in 2024 totaled $70.0 million, compared to $29.9 million in 2023. Consumer loans decreased $4.6 million, or .2%, mainly due to a decline in consumer auto lending. Fixed rate home equity and other vehicle and equipment loans also decreased combined with continued run off of marine and recreational vehicle loan balances, offset by growth in private banking and health services financing. Consumer credit card loans increased $6.0 million, or 1.0%, and revolving home equity loan balances increased $36.8 million, or 11.5%, compared to balances at year end 2023.

The Company currently holds approximately 31% of its loan portfolio in the Kansas City market, 25% in the St. Louis market, and 44% in other regional markets. The portfolio is diversified from a business and retail standpoint, with 65% in loans to businesses and 35% in loans to consumers. The Company believes a diversified approach to loan portfolio management, strong underwriting criteria and an aversion toward credit concentrations from an industry, geographic and product perspective, have contributed to low levels of problem loans and credit losses on loans experienced over the last several years.

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. At December 31, 2024, the balance of SNC loans totaled approximately $1.6 billion, with an additional $2.5 billion in unfunded commitments, compared to a balance of $1.5 billion, with an additional $2.2 billion in unfunded commitments, at year end 2023.

Commercial Loans

Business

Total business loans amounted to $6.1 billion at December 31, 2024 and includes loans used mainly to fund customer accounts receivable, inventories, and capital expenditures. The business loan portfolio includes tax-advantaged loans and leases which carry tax-free interest rates. These loans totaled $689.2 million at December 31, 2024, an increase of $23.1 million, or 3.5%, from December 31, 2023 balances. In addition to tax-advantaged leases, the business loan portfolio also includes other direct financing and sales type leases totaling $727.4 million at December 31, 2024, an increase of $17.6 million, or 2.5%, from December 31, 2023. These loans are used by commercial customers to finance capital purchases ranging from computer equipment to office and transportation equipment. Additionally, the Company has $330.5 million of outstanding loans included within its $338.0 million oil and gas energy-related loan portfolio at December 31, 2024, which is further discussed within the Oil and Gas Energy Lending section of the Risk Elements of Loan Portfolio section located within Management's Discussion and Analysis of Financial Condition and Results of Operations. Also included in the business portfolio are corporate card

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loans, which totaled $332.1 million at December 31, 2024 and are made in conjunction with the Company’s corporate card business for corporate trade purchases. Corporate card loans are made to corporate, non-profit and government customers nationwide, but have very short-term maturities, which limits credit risk.

Business loans, excluding corporate card loans, are made primarily to customers in the regional trade area of the Company, generally the central Midwest, encompassing the states of Missouri, Kansas, Illinois, and nearby Midwestern markets, including Iowa, Oklahoma, Colorado, Texas, Tennessee, Michigan, Indiana, and Ohio. This portfolio is diversified from an industry standpoint and includes businesses engaged in manufacturing, wholesaling, retailing, agribusiness, insurance, financial services, public utilities, health care, and other service businesses. Emphasis is upon middle-market and community businesses with known local management and financial stability. Consistent with management’s strategy and emphasis upon relationship banking, most borrowing customers also maintain deposit accounts and utilize other banking services. Net loan charge-offs in this category totaled $1.1 million in 2024 compared to $3.1 million in 2023. Non-accrual business loans were $101 thousand (less than .1% of business loans) at December 31, 2024 compared to $3.6 million at December 31, 2023.

Real Estate-Construction and Land

The portfolio of loans in this category amounted to $1.4 billion at December 31, 2024, a decrease of $36.9 million, or 2.5%, from the prior year and comprised 8.2% of the Company’s total loan portfolio. Commercial construction and land development loans totaled $1.2 billion, or 87.8% of total construction loans at December 31, 2024. These loans decreased $36.0 million from 2023 year end balances, driving the decline in the total construction portfolio. Commercial construction loans are made during the construction phase for small and medium-sized office and medical buildings, manufacturing and warehouse facilities, apartment complexes, shopping centers, hotels and motels, and other commercial properties. Commercial land development loans relate to land owned or developed for use in conjunction with business properties. Residential construction and land development loans at December 31, 2024 totaled $172.2 million, or 12.2% of total construction loans. A stable construction market has contributed to low loss rates on these loans, with no net loan charge-offs and net loan recoveries of $115 thousand in 2024 and 2023, respectively.

Real Estate-Business

Total business real estate loans were $3.7 billion at December 31, 2024 and comprised 21.3% of the Company’s total loan portfolio. This category includes mortgage loans for small and medium-sized office and medical buildings, manufacturing and warehouse facilities, distribution facilities, multi-family housing, farms, shopping centers, hotels and motels, churches, and other commercial properties. The business real estate borrowers and/or properties are generally located in local and regional markets where Commerce does business, and emphasis is placed on owner-occupied lending (33.8% of this portfolio), which presents lower risk levels. Additional information about business real estate loans by borrower is disclosed within the Real Estate - Business Loans section of the Risk Elements of Loan Portfolio section located within Management's Discussion and Analysis of Financial Condition and Results of Operations. At December 31, 2024, balances of non-accrual loans amounted to $15.0 million, or .4% of business real estate loans, up from $60 thousand at year end 2023. The Company experienced net loan recoveries of $106 thousand in 2024, compared to net loan charge-offs of $104 thousand in 2023.

Personal Banking Loans

Real Estate-Personal

At December 31, 2024, there were $3.1 billion in outstanding personal real estate loans, which comprised 17.8% of the Company’s total loan portfolio. The mortgage loans in this category are mainly for owner-occupied residential properties. The Company originates both adjustable and fixed rate mortgage loans, and at December 31, 2024, 44% of the portfolio was comprised of adjustable rate loans, while 56% was comprised of fixed rate loans. The Company does not purchase any loans from outside parties or brokers.

The Company originates certain mortgage loans with the intent to sell to the secondary market, generally FNMA or FHLMC conforming fixed rate loans. The remaining loans are originated with the intent to hold to maturity. Of the $453.0 million of mortgage loans originated in 2024, $70.0 million were sold to the secondary market. This compares to $510.0 million of mortgage loans originated and $29.9 million of loans sold to the secondary market in 2023. The increase in loan sales during 2024 compared to 2023 was mainly due to a shift in demand for fixed rate mortgage loans. Net loan charge-offs in 2024 totaled $239 thousand, and net loan recoveries were $37 thousand in 2023. Balances of non-accrual loans in this category were $1.0 million at December 31, 2024, compared to $1.7 million at year end 2023.

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Consumer

Consumer loans consist of private banking, automobile, motorcycle, marine, tractor/trailer, recreational vehicle (RV), fixed rate home equity, patient health care financing and other types of consumer loans. These loans totaled $2.1 billion at December 31, 2024. Approximately 38% of the consumer portfolio consists of automobile loans, 35% in private banking loans, 11% in fixed rate home equity loans, and 11% in healthcare financing loans. Total consumer loans decreased $4.6 million at year end 2024 compared to year end 2023. A decline of $43.5 million in auto loans was supplemented by decreases of $13.6 million and $12.7 million in fixed rate home equity and other vehicle and equipment loans, respectively. These decreases in consumer loan balances were partially offset by growth of $63.0 million in private banking loans and $11.9 million in patient healthcare financing. Net charge-offs on total consumer loans were $9.8 million in 2024, compared to $6.2 million in 2023, averaging .46% and .30% of consumer loans in 2024 and 2023, respectively.

Revolving Home Equity

Revolving home equity loans, of which 100% are adjustable rate loans, totaled $356.7 million at year end 2024. An additional $947.9 million was available in unused lines of credit, which can be drawn at the discretion of the borrower. Home equity loans are secured mainly by second mortgages (and less frequently, first mortgages) on residential property of the borrower. The underwriting terms for the home equity line product permit borrowing availability, in the aggregate, generally up to 80% or 90% of the appraised value of the collateral property at the time of origination. Net loan recoveries were $166 thousand in 2024, compared to net loan recoveries of $57 thousand in 2023.

Consumer Credit Card

Total consumer credit card loans amounted to $595.9 million at December 31, 2024 and comprised 3.5% of the Company’s total loan portfolio. The credit card portfolio is concentrated within regional markets served by the Company. The Company offers a variety of credit card products, including affinity cards, rewards cards, and standard and premium credit cards, and emphasizes its credit card relationship product, Special Connections. Approximately 36% of the households that own a Commerce credit card product also maintain a deposit relationship with the subsidiary bank. Approximately 95% of the outstanding credit card loan balances had a floating interest rate at year end 2024, unchanged from year end 2023. Net charge-offs amounted to $26.0 million in 2024, an increase of $6.9 million from $19.1 million in 2023.

Loans Held for Sale

At December 31, 2024, loans held for sale were mainly comprised of certain long-term fixed rate personal real estate loans. The personal real estate loans are carried at fair value and totaled $3.0 million at December 31, 2024. This portfolio is further discussed in Note 2 to the consolidated financial statements.

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Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments

To determine the amount of the allowance for credit losses on loans and the liability for unfunded lending commitments, the Company has established a process which assesses the risks and losses expected in its portfolios. This process provides an allowance based on estimates of allowances for pools of loans and unfunded lending commitments, as well as a second, smaller component based on certain individually evaluated loans and unfunded lending commitments. The Company's policies and processes for determining the allowance for credit losses on loans and the liability for unfunded lending commitments are discussed in Note 1 to the consolidated financial statements and in the "Allowance for Credit Losses" discussion within Critical Accounting Policies above.

Loans subject to individual evaluation generally consist of business, construction, business real estate and personal real estate loans on non-accrual status. These non-accrual loans are evaluated individually for impairment based on factors such as payment history, borrower financial condition and collateral. For collateral dependent loans, appraisals of collateral (including exit costs) are normally obtained annually but discounted based on the date last received and market conditions. From these evaluations of expected cash flows and collateral values, specific allowances are determined.

Loans which are not individually evaluated are segregated by loan type and sub-type and are collectively evaluated. These loans consist of commercial loans (business, construction and business real estate) which have been graded pass, special mention, or substandard, and also include all personal banking loans except personal real estate loans on non-accrual status.

The allowance for credit losses on loans and the liability for unfunded lending commitments are estimates that require significant judgment including projections of the macro-economic environment. The Company utilizes a third-party macro-economic forecast that continuously changes due to economic conditions and events. These changes in the forecast cause fluctuations in the allowance for credit losses on loans and the liability for unfunded lending commitments. The Company uses judgment to assess the macro-economic forecast and internal loss data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments. These estimates are subject to periodic refinement based on changes in the underlying external and internal data.

At December 31, 2024, the allowance for credit losses on loans was $162.7 million, compared to $162.4 million at December 31, 2023. The allowance for credit losses related to commercial loans decreased $1.4 million during 2024, due to a decrease in loan balances and the impact of a continued positive economic forecast. Offsetting this decrease in the allowance for credit losses on commercial loans was a $1.8 million increase in the allowance for credit losses related to personal banking loans. The allowance for credit losses on personal banking loans increased over the December 31, 2023 allowance due to recent increased loan net charge-offs and past due trends in the credit card and auto portfolios, partially offset by an increase in the prepayment speeds of personal real estate loans. The percentage of allowance to loans increased to .95% at December 31, 2024, compared to .94% at December 31, 2023. See Note 2 to the consolidated financial statements for the various model assumptions utilized in the Company's CECL estimate at December 31, 2024.

Net loan charge-offs totaled $38.9 million in 2024, representing a $7.8 million increase compared to net charge-offs of $31.1 million in 2023. The increase was largely due to higher net charge-offs of $7.0 million and $3.5 million on consumer credit card loans and consumer loans, respectively, during 2024, and partially offset by a $2.0 million decrease in net charge-offs on business loans in 2024 compared to 2023. Consumer credit card loan net charge-offs were 4.64% of average consumer credit card loans in 2024, compared to 3.40% in 2023, and consumer loan net charge-offs were .46% of average consumer loans in 2024, compared to .30% in 2023. The ratio of net loan charge-offs to total average loans outstanding was .23% in 2024 and .19% in 2023.

Total loans delinquent 90 days or more and still accruing were $24.5 million at December 31, 2024, an increase of $2.7 million compared to year end 2023. Non-accrual loans at December 31, 2024 were $18.3 million, an increase of $11.0 million from the prior year, mainly due to an increase in business real estate non-accrual loans of $15.0 million, partly offset by a decrease of $3.5 million in business non-accrual loans. The allowance for credit losses as a percentage of non-accrual loans was 890.4% at December 31, 2024, compared to 2,220.9% at December 31, 2023. The decrease in the ratio of the allowance to non-accrual loans was driven by the increase in non-accrual loans outstanding. The 2024 year-end balance of non-accrual loans was comprised of $101 thousand of business loans, $220 thousand of construction real estate loans, $1.0 million of personal real estate loans, $2.0 million of revolving home equity loans, and $15.0 million of business real estate loans.

At December 31, 2024, the liability for unfunded lending commitments was $18.9 million, a decrease of $6.3 million compared to December 31, 2023. The decrease in the liability for unfunded lending commitments during 2024 was driven primarily by decreases in the balance of unfunded lending commitments. The Company's unfunded lending commitments primarily relate to construction loans, and the Company's estimate for credit losses in its unfunded lending commitments

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utilizes the same model and forecast as its estimate for credit losses on loans. See Note 2 for further discussion of the model inputs utilized in the Company's estimate of credit losses.

The Company considers the allowance for credit losses on loans and the liability for unfunded lending commitments adequate to cover losses expected in the loan portfolio, including unfunded commitments, at December 31, 2024.

The schedules which follow summarize the relationship between loan balances and activity in the allowance for credit losses on loans:

Years Ended December 31

Allowance for credit losses:

Loans charged off:

Real estate — construction and land — — —

Real estate — business 62 134 6

Revolving home equity — 11 77

Recoveries of loans previously charged off:

Real estate — construction and land — 115 —

Ratio of allowance to loans at end of year .95 % .94 % .92 %

Ratio of provision to average loans outstanding .23 % .26 % .12 %

Ratio of non-accrual loans to total loans outstanding .11 % .04 % .05 %

(A) Net of unearned income, before deducting allowance for credit losses on loans, excluding loans held for sale.

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Years Ended December 31

Real estate — construction and land — (.01) —

Real estate — personal .01 — —

Revolving home equity (.05) (.02) (.02)

Average loans outstanding by loan class are listed on the Company's average balance sheet on page 62.

The following schedule provides a breakdown of the allowance for credit losses on loans (ACL) by loan category and the percentage of each loan category to total loans outstanding at year end.

The following schedule shows a summary of the activity in the liability for unfunded lending commitments.

Years Ended December 31

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

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Risk Elements of the Loan Portfolio

Management reviews the loan portfolio continuously for evidence of problem loans. During the ordinary course of business, management becomes aware of borrowers that may not be able to meet the contractual requirements of loan agreements. Such loans are placed under close supervision with consideration given to placing the loan on non-accrual status, the need for an additional allowance for credit loss, and (if appropriate) partial or full loan charge-off. Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. After a loan is placed on non-accrual status, any interest previously accrued but not yet collected is reversed against current income. Interest is included in income only as received and only after all previous loan charge-offs have been recovered, so long as management is satisfied there is no impairment of collateral values. The loan is returned to accrual status only when the borrower has brought all past due principal and interest payments current, and, in the opinion of management, the borrower has demonstrated the ability to make future payments of principal and interest as scheduled. Loans that are 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of collection, or they are comprised of those personal banking loans that are exempt under regulatory rules from being classified as non-accrual. Consumer installment loans and related accrued interest are normally charged down to the fair value of related collateral (or are charged off in full if no collateral) once the loans are more than 120 days delinquent. Credit card loans and the related accrued interest are charged off when the receivable is more than 180 days past due.

The following schedule shows non-performing assets and loans past due 90 days and still accruing interest.

December 31

Non-accrual loans totaled $18.3 million at year end 2024, an increase of $11.0 million from the balance at year end 2023. The increase from December 31, 2023 occurred mainly in business real estate, which increased $14.9 million. This increase was partially offset by a decrease in business loans of $3.5 million. At December 31, 2024, non-accrual loans were comprised of business real estate (81.8%), revolving home equity (10.8%), personal real estate (5.6%), construction and land real estate (1.2%), and business (0.6%) loans. Foreclosed real estate totaled $343 thousand at December 31, 2024, an increase of $73 thousand when compared to December 31, 2023. Total non-performing assets remain low compared to the overall banking industry in 2024, with the non-performing assets to total loans ratio at .11% at December 31, 2024. Total loans past due 90 days or more and still accruing interest were $24.5 million as of December 31, 2024, an increase of $2.7 million when compared to December 31, 2023. 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 of Note 2 to the consolidated financial statements.

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 $330.3 million at December 31, 2024, compared with $216.4 million at December 31, 2023, resulting in an increase of $113.9 million or 52.7%. The increase in potential problem loans was largely driven by a $56.8 million increase in business loans and a $55.2 million increase in business real estate loans.

December 31

Potential problem loans:

Real estate – construction and land 2,662 —

Real estate – personal 96 827

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Loans with Special Risk Characteristics

Management relies primarily on an internal risk rating system, in addition to delinquency status, to assess risk in the loan portfolio, and these statistics are presented in Note 2 to the consolidated financial statements. However, certain types of loans are considered at a higher risk of loss due to their terms, location, or special conditions. Construction and land loans and business real estate loans are subject to higher risk because of the impact that volatile interest rates and a changing economy can have on real estate value, and because of the potential volatility of the real estate industry. Certain home equity loans have contractual features that could increase credit exposure in a market of declining real estate prices, when interest rates are steadily increasing, or when a geographic area experiences an economic downturn. For these home equity loans, higher risks could exist when 1) loan terms require a minimum monthly payment that covers only interest, or 2) loan-to-collateral value (LTV) ratios at origination are above 80%, with no private mortgage insurance. Information presented below for home equity loans is based on LTV ratios which were calculated with valuations at loan origination date. The Company does not obtain updated appraisals or valuations unless the loans become significantly delinquent or are in the process of being foreclosed upon. In addition, FICO scores are obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit score designed to measure the risk of default by taking into account various factors from a borrower's financial history and is considered supplementary information utilized by the Company, as management does not consider this information in evaluating the allowance for credit losses on loans. The Bank normally obtains a FICO score at the loan's origination and renewal dates, and updates are obtained on a quarterly basis. For credit monitoring purposes, the Company analyzes delinquency information, current FICO scores, and line utilization. This has remained an effective means of evaluating credit trends and identifying problem loans, partly because the Company offers standard, conservative lending products.

Real Estate - Construction and Land Loans

The Company’s portfolio of construction and land loans, as shown in the table below, amounted to 8.2% of total loans outstanding at December 31, 2024. The largest component of construction and land loans was commercial construction, which decreased $25.7 million during the year ended December 31, 2024. At December 31, 2024, multi-family residential construction loans totaled approximately $526.6 million, or 44.0%, of the commercial construction loan portfolio.

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Real Estate – Business Loans

Total business real estate loans were $3.7 billion at December 31, 2024 and comprised 21.3% of the Company’s total loan portfolio. These loans include properties such as manufacturing and warehouse buildings, distribution facilities, small office and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties, which have historically resulted in lower net charge-off rates than non-owner-occupied commercial real estate loans. Approximately 33.8% of these 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.

Information about the credit quality of the Company's business real estate loan portfolio as of December 31, 2024 and December 31, 2023 is provided in the table below.

(Dollars in thousands) Pass Special Mention Substandard Non-Accrual Total

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Revolving Home Equity Loans

The Company has revolving home equity loans that are generally 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 shown in the following tables, the percentage of loans with LTV ratios greater than 80% has remained a small segment of this portfolio, and delinquencies have been low and stable. The weighted average FICO score for the total portfolio balance at December 31, 2024 was 776. 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 to convert the outstanding balance to an amortizing loan. If criteria are not met, amortization is required, or the borrower may pay off the loan. Over the next three years, approximately 14.3% of the Company's current outstanding balances are expected to mature. Of these balances, 85.7% have a FICO score above 700. 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.

Loans with LTV:

* Percentage of total principal outstanding of $350.9 million at December 31, 2024.

Loans with LTV:

* Percentage of total principal outstanding of $319.9 million at December 31, 2023.

Consumer Loans

The Company's consumer loans totaled $2.1 billion and comprised 12% of total loans outstanding at December 31, 2024. Within the consumer loan portfolio are several direct and indirect product lines comprised mainly of loans secured by automobiles, motorcycles, marine, and RVs. Auto loans comprised 38% of the consumer loan portfolio at December 31, 2024, and outstanding balances in the auto loan portfolio were $776.7 million and $820.3 million at December 31, 2024 and 2023, respectively. The balances over 30 days past due amounted to $14.4 million at December 31, 2024, compared to $9.5 million at the end of 2023, and comprised 1.9% of the outstanding balances of these loans at December 31, 2024 compared to 1.2% at 2023. For the year ended December 31, 2024, $319.5 million of new auto loans were originated, compared to $364.9 million during 2023. At December 31, 2024, the automobile loan portfolio had a weighted average FICO score of 755, and net charge-offs on auto loans were .7% of average auto loans.

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 11% of the consumer loan portfolio at December 31, 2024. Losses on these loans have historically been low, and the Company had net recoveries of $97 thousand in 2024. Private banking loans comprised 35% of the consumer loan portfolio at December 31, 2024. The Company's private banking loans are generally well-collateralized and at December 31, 2024 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 $4.3 million in 2024 and were .4% of the average balances of these loans at December 31, 2024.

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Consumer Credit Card Loans

The Company offers low introductory rates on selected consumer credit card products. Out of a portfolio at December 31, 2024 of $595.9 million in consumer credit card loans outstanding, approximately $122.2 million, or 20.5%, carried a low promotional rate. Within the next six months, $51.4 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 promotional feature, the Company performs credit checks and detailed analysis of the customer borrowing profile before approving the loan application. Below are the FICO scores for the Company's consumer credit card loan portfolio at December 31, 2024 and 2023. Management believes that the risks in the consumer loan portfolio are reasonable and the anticipated loss ratios are within acceptable parameters.

FICO score:

Oil and Gas Energy Lending

The Company's energy lending portfolio was comprised of lending to the petroleum and natural gas sectors and totaled $338.0 million at December 31, 2024, an increase of $66.0 million from year end 2023, as shown in the table below.

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Investment Securities Analysis

Investment securities are comprised of securities that are classified as available for sale, equity, trading or other. The largest component, available for sale debt securities, decreased 7.1% during 2024 to $10.1 billion (excluding unrealized gains/losses in fair value) at year end 2024. During 2024, available for sale debt securities of $2.6 billion were purchased, which included $2.2 billion in U.S. government and federal agency obligations and $395.0 million in asset-backed securities. Total sales, maturities and pay downs of available for sale debt securities were $3.4 billion during 2024. During 2025, maturities and pay downs of approximately $1.6 billion are expected to occur. The Company's tax-exempt investment portfolio is included in its state and municipal obligations and represented 39% of this portfolio at December 31, 2024, compared to 30% at December 31, 2023. The decline in balances of tax-exempt investment securities during 2024 was mostly due to sales of securities as part of the Company's available for sale debt securities portfolio repositioning discussed in Note 3, Investment Securities.

At December 31, 2024, the fair value of available for sale securities was $9.1 billion, which included a net unrealized loss in fair value of $990.6 million, compared to a net unrealized loss of $1.2 billion at December 31, 2023. The overall unrealized loss in fair value at December 31, 2024 included net losses of $38.9 million is U.S. government and federal agency obligations, net losses of $79.9 million in state and municipal securities, and net losses of $845.9 million in mortgage and asset-backed securities. For the year ended December 31, 2024, the Company did not recognize a credit loss expense on any available for sale debt securities.

Available for sale investment securities at year end for the past two years are shown below:

December 31

Amortized Cost

U.S. government and federal agency obligations $ 2,594,130 $ 841,267

Government-sponsored enterprise obligations 55,425 55,658

Fair Value

U.S. government and federal agency obligations $ 2,555,252 $ 816,514

Government-sponsored enterprise obligations 42,849 43,962

At December 31, 2024, the available for sale portfolio included $3.4 billion of agency mortgage-backed securities, which are collateralized bonds issued by agencies including FNMA, GNMA, FHLMC, FHLB, and Federal Farm Credit Banks. Non-agency mortgage-backed securities totaled $568.7 million and included $325.6 million collateralized by commercial mortgages and $243.1 million collateralized by residential mortgages at December 31, 2024.

At December 31, 2024, U.S. government obligations included TIPS of $405.4 million, at fair value. Other debt securities include corporate bonds, notes and commercial paper.

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The types of securities held in the available for sale security portfolio at year end 2024 are presented in the table below. Additional detail by maturity category is provided in Note 3 to the consolidated financial statements.

Available for sale debt securities:

U.S. government and federal agency obligations 28.0 % 3.61 % 3.8 years

Government-sponsored enterprise obligations 0.5 2.38 11.4

State and municipal obligations 8.1 1.80 6.4

Agency mortgage-backed securities 37.7 2.11 7.3

Non-agency mortgage-backed securities 6.2 2.34 4.1

*Based on call provisions and estimated prepayment speeds.

Equity securities mainly include common and preferred stock with readily determinable fair values that totaled $48.4 million at December 31, 2024, compared to $5.7 million at December 31, 2023.

Other securities totaled $230.1 million at December 31, 2024 and $222.5 million at December 31, 2023. These include Federal Reserve Bank stock and Federal Home Loan Bank (Des Moines) stock held by the bank subsidiary in accordance with debt and regulatory requirements. These are restricted securities and are carried at cost. Also included in other securities are private equity investments which are held by a subsidiary qualified as a Small Business Investment Company. These investments are carried at estimated fair value, but are not readily marketable. While the nature of these investments carries a higher degree of risk than the normal lending portfolio, this risk is mitigated by the overall size of the investments and oversight provided by management, and management believes the potential for long-term gains in these investments outweighs the potential risks. Other securities at year end for the past two years are shown below:

December 31

Private equity investments in debt securities 66,454 67,322

Private equity investments in equity securities 117,932 109,345

In addition to its holdings in the investment securities portfolio, the Company invests in securities purchased under agreements to resell, which totaled $625.0 million at December 31, 2024 and $450.0 million at December 31, 2023. Of the total resale agreements outstanding at December 31, 2024, $125.0 million mature in 2025, $250.0 million mature in 2028, and $250.0 million mature in 2029. The resale agreements have fixed base rates and some of the agreements include structures that increase the base rate when interest rates decline to certain levels. The counterparties to these agreements are other financial institutions from whom the Company has accepted collateral of $649.6 million in marketable investment securities at December 31, 2024. The average rate earned on these agreements during 2024 was 3.2%, compared to 1.9% in 2023.

Deposits and Borrowings

Deposits, including both individual and corporate customer deposits, are the primary funding source for the Bank and are acquired from a broad base of local markets. Total period-end deposits were $25.3 billion at December 31, 2024, compared to $25.4 billion last year, reflecting a decrease of $70.3 million, or .3%.

Average deposits decreased $801.4 million, or 3.2%, in 2024 compared to 2023, mainly resulting from decreases of $884.5 million, $152.8 million and $110.8 million in business demand deposits, savings account balances and money market account balances, respectively. Partly offsetting these decreases was an increase in interest checking account balances of $328.6 million.

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The following table shows year end deposit balances by type, as a percentage of total deposits.

December 31

Non-interest bearing 32.3 % 31.4 %

Savings, interest checking and money market 58.3 57.2

Certificates of deposit of less than $100,000 3.9 3.7

Certificates of deposit of $100,000 and over 5.5 7.7

Core deposits, which include non-interest bearing, interest checking, savings, and money market deposits, supported 73% and 72% of average earning assets in 2024 and 2023, respectively. Average balances by major deposit category for the last six years are disclosed in the Average Balance Sheets section of Management's Discussion and Analysis of Financial Condition and Results of Operations. A maturity schedule of all certificates of deposits outstanding at December 31, 2024 is included in Note 7 on Deposits in the consolidated financial statements.

Total uninsured deposits were calculated using the same methodology that the Company uses to determine uninsured deposits for regulatory reporting and amounted to $10.8 billion at both December 31, 2024 and December 31, 2023. The following table shows a detailed breakdown of the maturities of uninsured certificates of deposit at December 31, 2024. The Company estimated the uninsured deposits in the following table by aggregating all deposit balances by customer and assuming federal deposit insurance would first apply to demand deposits, followed by savings deposits, and lastly to time deposits (beginning with the earliest maturity deposits).

(In thousands) Uninsured Certificates of Deposit at December 31, 2024

The Company’s primary sources of overnight borrowings are federal funds purchased and securities sold under agreements to repurchase (repurchase agreements). Balances in these accounts can fluctuate significantly on a day-to-day basis and generally have one day maturities. Total balances of federal funds purchased and repurchase agreements outstanding at December 31, 2024 were $2.9 billion, comprised of federal funds purchased of $123.7 million and repurchase agreements of $2.8 billion. At December 31, 2024, balances of federal funds purchased decreased $137.6 million, while repurchase agreements outstanding increased $155.5 million compared to balances at December 31, 2023. On an average basis, these borrowings decreased $218.4 million, or 7.7%, during 2024, due to a decrease of $265.7 million in federal funds purchased, partly offset by an increase of $47.4 million in repurchase agreements. The average rates paid on federal funds purchased and repurchase agreements were 5.31% and 3.38%, respectively, during 2024, compared to rates of 5.10% on federal funds purchased and 3.12% paid on repurchase agreements during 2023.

In addition to the funding sources above, the Company may borrow from the FHLB on a short-term basis or long-term basis. During 2024, there were no short-term borrowings from the FHLB. During 2023, the Company had average short-term borrowings from the FHLB of $756.4 million. All of the short-term borrowings were repaid by the Company before December 31, 2023, and the average rate paid on FHLB borrowings was 5.22%. The Company did not borrow any long-term funds from the FHLB during 2024 or 2023.

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Liquidity and Capital Resources

Liquidity Management

Liquidity is managed within the Company in order to satisfy cash flow requirements of deposit and borrowing customers while at the same time meeting its own cash flow needs. The Company has taken numerous steps to address liquidity risk and has developed a variety of liquidity sources which it believes will provide the necessary funds for future growth or to replace deposit runoff during periods of stress and uncertainty in the banking industry. The Company manages its liquidity position through a variety of actions and sources including:

•A portfolio of liquid investments with overnight maturities,

•A portfolio of liquid available for sale debt securities,

•A diversified customer deposit base spread across three business segments,

•Access to the brokered certificate of deposit market,

•A loan to deposit ratio lower than industry average,

•Maintaining excellent debt ratings from both Standard & Poor's and Moody's national rating services,

•Available borrowing capacity of unsecured, overnight federal funds purchased, and

•Available borrowing capacity from the FHLB and Federal Reserve Bank.

The Company’s most liquid assets include balances at the Federal Reserve Bank, federal funds sold, available for sale debt securities, and securities purchased under agreements to resell. At December 31, 2024 and 2023, such assets were as follows:

Securities purchased under agreements to resell 625,000 450,000

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $2.6 billion at December 31, 2024. There were $3.0 million federal funds sold at December 31, 2024, 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 $9.1 billion at December 31, 2024 and included an unrealized loss of $994.5 million. The total net unrealized loss included net losses of $846.9 million on mortgage-backed and asset-backed securities, $79.9 million on state and municipal obligations, and $41.9 million on U.S. government and federal agency obligations.

Resale agreements totaled $625.0 million at December 31, 2024, with $125.0 million of the agreements maturing in the first quarter of 2025 and the remaining amount to mature through 2029. 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 $649.6 million in fair value at December 31, 2024.

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The Company's available for sale debt securities portfolio has a diverse mix of high quality and liquid investment securities with a duration of 4.0 years at December 31, 2024. Approximately $1.6 billion of the available for sale debt portfolio is expected to mature or pay down during 2025, 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. At December 31, 2024 and 2023, total investment securities pledged for these purposes were as follows:

Investment securities pledged for the purpose of securing:

Total available for sale debt securities, at fair value $ 9,136,853 $ 9,684,760

* Includes securities pledged for collateral swaps, as discussed in Note 20 to the consolidated financial statements