UMB FINANCIAL CORP (UMBF) FY 2024 MD&A

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis

This Management’s Discussion and Analysis highlights the material changes in the results of operations and changes in financial condition for each of the three years in the period ended December 31, 2024. It should be read in conjunction with the accompanying Consolidated Financial Statements, Notes to Consolidated Financial Statements, and other financial statistics appearing elsewhere in this Annual Report on Form 10-K. Results of operations for the periods included in this review are not necessarily indicative of results to be attained during any future period.

CAUTIONARY NOTICE ABOUT FORWARD-LOOKING STATEMENTS

From time to time the Company has made, and in the future will make, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often use words such as “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “outlook,” “forecast,” “target,” “trend,” “plan,” “goal,” or other words of comparable meaning or future-tense or conditional verbs such as “may,” “will,” “should,” “would,” or “could.” Forward-looking statements convey the Company’s expectations, intentions, or forecasts about future events, circumstances, results, or aspirations.

This report, including any information incorporated by reference in this report, contains forward-looking statements. The Company also may make forward-looking statements in other documents that are filed or furnished with the SEC. In addition, the Company may make forward-looking statements orally or in writing to investors, analysts, members of the media, or others.

All forward-looking statements, by their nature, are subject to assumptions, risks, and uncertainties, which may change over time and many of which are beyond the Company’s control. You should not rely on any forward-looking statement as a prediction or guarantee about the future. Actual future objectives, strategies, plans, prospects, performance, conditions, or results may differ materially from those set forth in any forward-looking statement. While no list of assumptions, risks, or uncertainties could be complete, some of the factors that may cause actual results or other future events, circumstances, or aspirations to differ from those in forward-looking statements include:

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local, regional, national, or international business, economic, or political conditions or events;

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changes in laws or the regulatory environment, including as a result of financial-services legislation or regulation;

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changes in monetary, fiscal, or trade laws or policies, including as a result of actions by central banks or supranational authorities;

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the pace and magnitude of interest rate movements;

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changes in accounting standards or policies;

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shifts in investor sentiment or behavior in the securities, capital, or other financial markets, including changes in market liquidity or volatility or changes in interest or currency rates;

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changes in spending, borrowing, or saving by businesses or households;

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the Company’s ability to effectively manage capital or liquidity or to effectively attract or deploy deposits;

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changes in any credit rating assigned to the Company or its affiliates;

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adverse publicity or other reputational harm to the Company;

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changes in the Company’s corporate strategies, the composition of its assets, or the way in which it funds those assets;

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the Company’s ability to develop, maintain, or market products or services or to absorb unanticipated costs or liabilities associated with those products or services;

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the Company’s ability to innovate to anticipate the needs of current or future customers, to successfully compete in its chosen business lines, to increase or hold market share in changing competitive environments, or to deal with pricing or other competitive pressures;

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changes in the credit, liquidity, or other condition of the Company’s customers, counterparties, or competitors;

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the Company’s ability to effectively deal with economic, business, or market slowdowns or disruptions;

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judicial, regulatory, or administrative investigations, proceedings, disputes, or rulings that create uncertainty for, or are adverse to, the Company or the financial-services industry;

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the Company’s ability to address changing or stricter regulatory or other governmental supervision or requirements;

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the Company’s ability to maintain secure and functional financial, accounting, technology, data processing, or other operating systems or facilities, including its capacity to withstand cyber-attacks;

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the adequacy of the Company’s corporate governance, risk-management framework, compliance programs, or internal controls, including its ability to control lapses or deficiencies in financial reporting or to effectively mitigate or manage operational risk;

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the efficacy of the Company’s methods or models in assessing business strategies or opportunities or in valuing, measuring, monitoring, or managing positions or risk;

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the Company’s ability to keep pace with changes in technology that affect the Company or its customers, counterparties, or competitors;

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mergers, acquisitions, or dispositions, including the Company’s ability to integrate acquisitions and divest assets;

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the Company’s ability to complete the planned issuance of shares of the Company’s common stock in connection with the forward sale agreements;

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the Company’s ability to manage the expenses associated with the merger with HTLF and the impact these expenses may have on the Company’s financial results;

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the benefits from the merger with HTLF may not be fully realized or may take longer to realize than expected;

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the Company’s ability to promptly and effectively integrate the merger of HTLF;

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the adequacy of the Company’s succession planning for key executives or other personnel;

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the Company’s ability to grow revenue, control expenses, or attract and retain qualified employees;

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natural disasters, war, terrorist activities, including instability in the Middle East and Russia's military action in Ukraine, pandemics, and their effects on economic and business environment in which the Company operates;

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macroeconomic and adverse developments and uncertainties related to the collateral effects of the collapse of, and challenges for, domestic and international banks, including the impacts to the U.S. and global economies and reputational harm to the U.S. banking system; or

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other assumptions, risks, or uncertainties described in the Risk Factors (Item 1A), Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 7), or the Notes to the Consolidated Financial Statements (Item 8) in this Annual Report on Form 10-K or described in any of the Company’s annual, quarterly or current reports.

Any forward-looking statement made by the Company or on its behalf speaks only as of the date that it was made. The Company does not undertake to update any forward-looking statement to reflect the impact of events, circumstances, or results that arise after the date that the statement was made, except as required by applicable securities laws. You, however, should consult further disclosures (including disclosures of a forward-looking nature) that the Company may make in any subsequent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.

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Results of Operations

Overview

The Company focuses on the following four core financial objectives. Management believes these objectives will guide its efforts to achieve its vision, to deliver the Unparalleled Customer Experience, all while seeking to improve net income and strengthen the balance sheet while undertaking prudent risk management.

The first financial objective is to continuously improve operating efficiencies. The Company has focused on identifying efficiencies that simplify its organizational and reporting structures, streamline back-office functions and take advantage of synergies and newer technologies among various platforms and distribution networks. The Company has identified and expects to continue identifying ongoing efficiencies through the normal course of business that, when combined with increased revenue, will contribute to improved operating leverage. For 2024, total revenue increased 11.4%, and noninterest expense increased 2.8%, as compared to the previous year. The Company continues to invest in technological advances that it believes will help management drive operating leverage in the future through improved data analysis and automation. The Company also continues to evaluate core systems and will invest in enhancements that it believes will yield operating efficiencies.

The second financial objective is to increase net interest income through profitable loan and deposit growth and the optimization of the balance sheet. For 2024, net interest income increased $80.8 million, or 8.8%, as compared to the previous year. The Company has shown increased net interest income through the effects of increased volume and mix of average earning assets, coupled with higher interest rates. This increase was partially offset by higher interest-bearing deposit rates. Average earning assets increased $3.3 billion, or 8.9%, compared to 2023. Average loan balances increased $1.9 billion, coupled with an increase in average interest-bearing due from banks of $1.4 billion from the prior year. The funding for these assets was driven primarily by a 19.4% increase in average interest-bearing deposits, partially offset by a 37.4% decrease in average borrowed funds and a decrease of 5.3% in noninterest-bearing deposits. Net interest margin, on a fully tax-equivalent (FTE) basis, decreased one basis point compared to the same period in 2023 in large part due to repricing and mix changes of interest-bearing liabilities with the changes in short-term interest rates, partially offset by the repricing of earning assets. Net interest spread contracted by three basis points during the same period.

The third financial objective is to grow the Company’s revenue from noninterest sources. The Company seeks to grow noninterest revenues throughout all economic and interest rate cycles, while positioning itself to benefit in periods of economic growth. Noninterest income increased $86.3 million, or 15.9%, to $628.1 million for the year ended December 31, 2024, compared to the same period in 2023. The increase in 2024 was driven by increased trust and securities processing income, other miscellaneous income, investment securities gains, net, and bankcard income. These changes are discussed in greater detail below under Noninterest income. For the year ended December 31, 2024, noninterest income represented 38.6% of total revenues, as compared to 37.1% for 2023.

The fourth financial objective is effective capital management. The Company places a significant emphasis on maintaining a strong capital position, which management believes promotes investor confidence, provides access to funding sources under favorable terms, and enhances the Company’s ability to capitalize on business growth and acquisition opportunities. The Company continues to maximize shareholder value through a mix of reinvesting in organic growth, evaluating acquisition opportunities that complement the Company’s strategies, increasing dividends over time, and appropriately utilizing a share repurchase program. At December 31, 2024, the Company had a total risk-based capital ratio of 13.21% and $3.5 billion in total shareholders’ equity, an increase of $366.1 million, or 11.8%, compared to total shareholders’ equity at December 31, 2023. The Company did not repurchase shares of common stock during 2024 except for shares acquired pursuant to the Company's share-based incentive programs. In 2024, the Company declared $77.1 million in dividends, which represents a 2.4% increase compared to dividends declared during 2023.

Earnings Summary

The Company recorded consolidated net income of $441.2 million for the year ended December 31, 2024. This represents a 26.1% increase over 2023. Net income for 2023 was $350.0 million, or a decrease of 18.9% compared to 2022. Basic earnings per share for the year ended December 31, 2024, were $9.05 per share compared to $7.22 per share in 2023, an increase of 25.3%. Basic earnings per share were $8.93 per share in 2022, or a decrease of 19.1% from 2022 to 2023. Fully diluted earnings per share increased 25.2% from 2023 to 2024 and decreased 19.0% from 2022 to 2023. Return on average assets and return on average common shareholder’s equity

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for the year ended December 31, 2024 were 1.02% and 13.24%, respectively, compared to 0.88% and 12.23%, respectively, for the year ended December 31, 2023. Return on average assets and return on average common shareholder’s equity for the year ended December 31, 2022 were 1.15% and 15.83%, respectively.

The Company’s net interest income increased to $1.0 billion in 2024 compared to $920.1 million in 2023 and $913.8 million in 2022. In total, net interest income increased $80.8 million, as compared to 2023, primarily driven by a favorable volume variance of $88.5 million, offset by a $7.7 million rate variance. See Table 2. The favorable volume variance on earning assets was predominantly driven by an increase of $3.3 billion, or 8.9%, in average earning assets. In 2024, average loan balances increased $1.9 billion, coupled with an increase in average interest-bearing due from banks of $1.4 billion as compared to 2023. Net interest margin, on an FTE basis, decreased to 2.51% for 2024, compared to 2.52% for the same period in 2023, driven by repricing and mix changes of interest-bearing liabilities with the changes in short-term interest rates, partially offset by the repricing of earning assets. Net interest spread contracted by three basis points during the same period. The Company has seen a small increase in the benefit from interest-free funds as compared to 2023 driven by the changes in short-term interest rates. The impact of this benefit increased two basis points compared to 2023 and is illustrated on Table 3. The magnitude and duration of this impact will be largely dependent upon the FRB’s policy decisions and market movements. See Table 21 in Item 7A for an illustration of the impact of an interest rate increase or decrease on net interest income as of December 31, 2024.

The provision for credit losses totaled $61.1 million for the year ended December 31, 2024, which is an increase of $19.8 million, or 48.1%, compared to the same period in 2023. This change is driven by impacts of loan growth, portfolio metric changes, and changes in macro-economic metrics in the current period as compared to the prior period. See further discussion in “Provision and Allowance for Credit Losses” in this report.

The Company had an increase of $86.3 million, or 15.9%, in noninterest income in 2024, as compared to 2023, and a decrease of $12.4 million, or 2.2%, in 2023, compared to 2022. The increase in 2024 is primarily driven by increased trust and securities processing of $33.4 million, increased other income of $14.1 million, increased investment securities gains, net of $13.9 million, and increased bankcard fees of $13.1 million. The decrease in 2023 is primarily driven by decreased investment securities gains, net of $61.6 million, partially offset by an increase in trust and securities processing of $20.0 million and other income of $21.0 million. The change in noninterest income in 2024 from 2023, and 2023 from 2022 is illustrated in Table 6.

Noninterest expense increased in 2024 by $27.5 million, or 2.8%, compared to 2023 and increased by $101.0 million, or 11.2%, in 2023 compared to 2022. The increase in 2024 is primarily driven by increases in salaries and employee benefit expense of $40.5 million, increased legal and consulting fees of $16.2 million, increased processing fees of $14.8 million, and increased bankcard expense of $11.3 million, partially offset by decreased regulatory fees of $45.1 million related to the FDIC special assessment. The increase in 2023 is primarily driven by the FDIC special assessment of $52.8 million, and increases in salaries and employee benefits expense and processing fees. The increase in noninterest expense in 2024 from 2023, and 2023 from 2022 is illustrated in Table 7 and below under Noninterest Expense.

Net Interest Income

Net interest income is a significant source of the Company’s earnings and represents the amount by which interest income on earning assets exceeds the interest expense paid on liabilities. The volume of interest earning-assets and the related funding sources, the overall mix of these assets and liabilities, and the interest rates paid on each affect net interest income. Table 2 summarizes the change in net interest income resulting from changes in volume and rates for 2024, 2023 and 2022.

Net interest margin, presented in Table 1, is calculated as net interest income on a fully tax-equivalent basis as a percentage of average earning assets. Net interest income is presented on a tax-equivalent basis to adjust for the tax-exempt status of earnings from certain loans and investments, which are primarily obligations of state and local governments. A critical component of net interest income and related net interest margin is the percentage of earning assets funded by interest-free sources. Table 3 analyzes net interest margin for the three years ended December 31, 2024, 2023 and 2022. Net interest income, average balance sheet amounts and the corresponding yields earned and rates paid for the years 2022 through 2024 are presented in Table 1 below.

The following table presents, for the periods indicated, the average earning assets and resulting yields, as well as the average interest-bearing liabilities and resulting yields, expressed in both dollars and rates.

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Table 1

THREE YEAR AVERAGE BALANCE SHEETS/YIELDS AND RATES (tax-equivalent basis)

(in millions)

(1)
Interest income and yields are stated on an FTE basis, using a federal income tax rate of 21% for 2024, 2023, and 2022. The tax-equivalent interest income and yields give effect to tax-exempt interest income net of the disallowance of interest expense, for federal income tax purposes related to certain tax-free assets. Rates earned/paid may not compute to the rates shown due to presentation in millions. The tax-equivalent interest income totaled $25.9 million, $26.4 million, and $25.8 million in 2024, 2023, and 2022, respectively.

(2)
Loan fees are included in interest income. Such fees totaled $21.4 million, $17.7 million, and $18.2 million in 2024, 2023, and 2022, respectively.

(3)
Loans on nonaccrual are included in the computation of average balances. Interest income on these loans is also included in loan income.

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THREE YEAR AVERAGE BALANCE SHEETS/YIELDS AND RATES (tax-equivalent basis)

(in millions)

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Table 2

RATE-VOLUME ANALYSIS (in thousands)

This analysis attributes changes in net interest income either to changes in average balances or to changes in average interest rates for earning assets and interest-bearing liabilities. The change in net interest income that is due to both volume and interest rate has been allocated to volume and interest rate in proportion to the relationship of the absolute dollar amount of the change in each. All interest rates are presented on a tax-equivalent basis and give effect to tax-exempt interest income net of the disallowance of interest expense for federal income tax purposes, related to certain tax-free assets. The loan average balances and rates include nonaccrual loans.

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Table 3

ANALYSIS OF NET INTEREST MARGIN (in thousands)

The Company experienced an increase in net interest income of $80.8 million, or 8.8%, for the year ended December 31, 2024, compared to 2023. This follows an increase of $6.3 million, or 0.7%, for the year ended December 31, 2023, compared to 2022. Average earning assets for the year ended December 31, 2024 increased by $3.3 billion, or 8.9%, compared to the same period in 2023. Net interest margin, on a tax-equivalent basis, decreased to 2.51% for 2024 compared to 2.52% in 2023.

The Company funds a significant portion of its balance sheet with noninterest-bearing demand deposits. Noninterest-bearing demand deposits represented 31.6%, 33.9% and 40.6% of total outstanding deposits as of December 31, 2024, 2023 and 2022, respectively. The decrease in 2024 is driven by the increase in short-term interest rates. As illustrated in Table 3, the impact from these interest-free funds was 117 basis points in 2024, as compared to 115 basis points in 2023 and 43 basis points in 2022.

The Company experienced an increase in net interest income during 2024 due to a volume variance of $88.5 million, offset by a negative rate variance of $7.7 million. The average rate on earning assets during 2024 increased by 41 basis points, while the average rate on interest-bearing liabilities increased by 44 basis points, resulting in a three basis-point decrease in spread. The volume of loans increased from an average of $22.3 billion in 2023 to an average of $24.2 billion in 2024, driven by organic loan growth. The volume of interest-bearing liabilities increased from $25.6 billion in 2023 to $29.0 billion in 2024. The Company expects to see continued volatility in the economic markets and governmental responses to inflation, geopolitical tensions, and supply chain constraints. These changing economic conditions and governmental responses could have impacts on the balance sheet and income statement of the Company in 2025. Loan-related earning assets tend to generate a higher spread than those earned in the Company’s investment portfolio. By design, the Company’s investment portfolio is moderate in duration and liquid in its composition of assets.

During 2025, approximately $1.5 billion of available-for-sale securities are expected to have principal repayments. This includes approximately $317 million that will have principal repayments during the first quarter of 2025. The available-for-sale investment portfolio had an average life of 56.0 months, 52.6 months, and 62.3 months as of December 31, 2024, 2023, and 2022, respectively.

Provision and Allowance for Credit Losses

The ACL represents management’s judgment of total expected losses included in the Company’s loan portfolio as of the balance sheet date. The Company’s process for recording the ACL is based on the evaluation of the Company’s lifetime historical loss experience, management’s understanding of the credit quality inherent in the loan portfolio, and the impact of the current economic environment, coupled with reasonable and supportable economic forecasts.

A mathematical calculation of an estimate is made to assist in determining the adequacy and reasonableness of management’s recorded ACL. To develop the estimate, the Company follows the guidelines in Accounting Standards Codification (ASC) Topic 326, Financial Instruments – Credit Losses (ASC 326). The estimate reserves for assets held at amortized cost and any related credit deterioration in the Company’s available-for-sale debt security portfolio. Assets held at amortized cost include the Company’s loan book and held-to-maturity security portfolio.

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The process involves the consideration of quantitative and qualitative factors relevant to the specific segmentation of loans. These factors have been established over decades of financial institution experience and include economic observation and loan loss characteristics. This process is designed to produce a lifetime estimate of the losses, at a reporting date, that includes evaluation of historical loss experience, current economic conditions, reasonable and supportable forecasts, and the qualitative framework outlined by the Office of the Comptroller of the Currency in the published 2020 Interagency Policy Statement. This process allows management to take a holistic view of the recorded ACL reserve and ensure that all significant and pertinent information is considered.

The Company considers a variety of factors to ensure the safety and soundness of its estimate including a strong internal control framework, extensive methodology documentation, credit underwriting standards which encompass the Company’s desired risk profile, model validation, and ratio analysis. If the Company’s total ACL estimate, as determined in accordance with the approved ACL methodology, is either outside a reasonable range based on review of economic indicators or by comparison of historical ratio analysis, the ACL estimate is an outlier and management will investigate the underlying reason(s). Based on that investigation, issues or factors that previously had not been considered may be identified in the estimation process, which may warrant adjustments to estimated credit losses.

The ending result of this process is a recorded consolidated ACL that represents management’s best estimate of the total expected losses included in the loan portfolio, held-to-maturity securities, and credit deterioration in available-for-sale securities.

Table 4 presents the components of the allowance by loan portfolio segment. The Company manages the ACL against the risk in the entire loan portfolio and therefore, the allocation of the ACL to a particular loan segment may change in the future. Management of the Company believes the present ACL is adequate considering the Company’s loss experience, delinquency trends and current economic conditions. Future economic conditions and borrowers’ ability to meet their obligations, however, are uncertainties which could affect the Company’s ACL and/or need to change its current level of provision. For more information on loan portfolio segments and ACL methodology refer to Note 3, “Loans and Allowance for Credit Losses,” in the Notes to the Consolidated Financial Statements.

Table 4

ALLOCATION OF ALLOWANCE FOR CREDIT LOSSES ON LOANS (in thousands)

This table presents an allocation of the allowance for credit losses on loans and percent of loans to total loans by loan portfolio segment, which represents the total expected losses derived by both quantitative and qualitative methods. The amounts presented are not necessarily indicative of actual future charge-offs in any particular category and are subject to change.

Table 5 presents a summary of the Company’s ACL for the years ended December 31, 2024 and 2023. Also, please see “Quantitative and Qualitative Disclosures About Market Risk – Credit Risk Management” in this report for information relating to nonaccrual, past due, restructured loans, and other credit risk matters. For more information on loan portfolio segments and ACL methodology refer to Note 3, “Loans and Allowance for Credit Losses,” in the Notes to the Consolidated Financial Statements.

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As illustrated in Table 5 below, the ACL increased as a percentage of total loans to 1.01% as of December 31, 2024, compared to 0.95% as of December 31, 2023. The provision for credit losses, including provision for off-balance sheet credit exposures, totaled $61.1 million for the year ended December 31, 2024, which is an increase of $19.8 million, or 48.1%, compared to the same period in 2023. The provision for credit losses, including provision for off-balance sheet credit exposures, totaled $41.2 million for the year ended December 31, 2023. This increase is the result of the impacts of loan growth, portfolio metric changes, and changes in macro-economic metrics in the current period as compared to the prior period.

Table 5

ANALYSIS OF ALLOWANCE FOR CREDIT LOSSES (in thousands)

Noninterest Income

A key objective of the Company is the growth of noninterest income to provide a diverse source of revenue not directly tied to interest rates. Fee-based services are typically non-credit related and are not generally affected by fluctuations in interest rates. Noninterest income increased in 2024 by $86.3 million, or 15.9%, compared to 2023 and decreased in 2023 by $12.4 million, or 2.2%, compared to 2022. The increase in 2024 is primarily driven by increased trust and securities processing income, other miscellaneous income, investment securities gains, net, and bankcard income. The decrease in 2023 is primarily attributable to a decrease in investment securities gains, net, partially offset by an increase in other miscellaneous income and trust securities processing income. Changes in Noninterest income are presented in Table 6 below.

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The Company’s fee-based services offer multiple products and services, which management believes will more closely align with customer product demands. The Company is currently emphasizing fee-based services including trust and securities processing, bankcard, securities trading and brokerage and cash and treasury management. Management believes that it can offer these products and services both efficiently and profitably, as most have common platforms and support structures.

Table 6

SUMMARY OF NONINTEREST INCOME (in thousands)

Noninterest income and the year-over-year changes in noninterest income are summarized in Table 6 above. The dollar change and percent change columns highlight the respective net increase or decrease in the categories of noninterest income in 2024 compared to 2023, and in 2023 compared to 2022.

Trust and securities processing income consists of fees earned on personal and corporate trust accounts, custody of securities services, trust investments and wealth management services, and mutual fund assets servicing. This income category increased by $33.4 million, or 13.0% in 2024, compared to 2023, and increased by $20.0 million, or 8.4%, in 2023, compared to 2022. During 2024, fund services income increased $20.5 million, corporate trust income increased $7.7 million and wealth management services increased $5.1 million. During 2023, fund services income increased $12.2 million and corporate trust income increased $7.7 million. The recent volatile markets have impacted the income in this category. Since trust and securities processing fees are primarily asset-based, which are highly correlated to the change in market value of the assets, the related income will be affected by changes in the securities markets. Management continues to emphasize sales of services to both new and existing clients as well as increasing and improving the distribution channels.

Trading and investment banking income increased $4.6 million, or 23.4%, in 2024 compared to 2023 and decreased $3.6 million, or 15.4%, in 2023 compared to 2022. The increase in 2024 compared to 2023 and the decrease in 2023 compared to 2022 was driven by increased and decreased bond trading income, respectively.

Service charges on deposits income decreased $0.4 million, or 0.5%, in 2024 compared to 2023 and decreased $0.2 million, or 0.3%, in 2023 compared to 2022. The decrease in both years was driven by decreased healthcare services income, offset by increased commercial service charge income.

Brokerage fees increased $7.4 million, or 13.8%, in 2024 compared to 2023 and increased $11.1 million, or 25.8%, in 2023 compared to 2022. The increase in both years was driven by increased 12b-1 and money market fees driven by the increase in short-term interest rates.

Bankcard fees increased $13.1 million, or 17.5%, in 2024 compared to 2023, and increased $1.3 million, or 1.7%, in 2023 compared to 2022. These increases were primarily driven by increased interchange income.

Investment securities gains, net increased $13.9 million in 2024 compared to 2023 and decreased $61.6 million in 2023 compared to 2022. The increase in 2024 was primarily driven by gain on sale of one of the Company's securities without readily determinable fair value in 2024, coupled with the impairment of one available-for-sale debt security in 2023. The decrease in 2023 was primarily driven by a $66.2 million gain realized on the sale of the Company’s Visa Inc. Class B common shares in 2022.

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Other noninterest income increased $14.1 million, or 26.4%, in 2024 compared to 2023 and increased $21.0 million, or 64.7%, in 2023 compared to 2022. The increase in 2024 was primarily driven by the gain on the sale of UMB Distribution Services, LLC, a legal settlement, and gains on the sale of other assets during 2024, coupled with increased bank-owned life insurance income. The increase in 2023 was primarily driven by market value changes in company-owned life insurance income.

Noninterest Expense

Noninterest expense increased in 2024 by $27.5 million, or 2.8%, compared to 2023 and increased in 2023 by $101.0 million, or 11.2%, compared to 2022. From 2023 to 2024 the increase was driven primarily by increased salaries and employee benefits expense, legal and consulting expense, and processing fees, partially offset by a decrease in regulatory fees. From 2022 to 2023 the increase was driven by the $52.8 million FDIC special assessment, increases in salaries and employee benefits expense and processing fees, and partially offset by a decrease in other miscellaneous expense. Table 7 below summarizes the components of noninterest expense and the respective year-over-year changes for each category.

Table 7

SUMMARY OF NONINTEREST EXPENSE (in thousands)

Salaries and employee benefits expense increased $40.5 million, or 7.3%, in 2024 compared to 2023 and $29.0 million, or 5.5%, in 2023 compared to 2022. In 2024, bonus and commission expense increased $22.4 million, or 19.5%, salaries and wage expense increased $14.0 million, or 4.1% and employee benefits expense increased $4.1 million, or 4.1%. In 2023, salaries and wage expense increased $23.8 million, or 7.5% and employee benefits expense increased $20.5 million, or 26.0%. These increases were offset by a decrease in bonus and commission expense of $15.3 million, or 11.8%.

Equipment expense decreased $5.3 million, or 7.7%, in 2024 compared to 2023, and decreased $5.5 million, or 7.5%, from 2022 to 2023. The decreases in both years were driven by lower software expense related to a transition to cloud-based computing solutions.

Marketing and business development expense increased $2.7 million, or 10.4%, in 2024 compared to 2023, and was flat in 2023 compared to 2022. The increase in 2024 was driven by the timing of advertising and business development projects and higher travel expenses as compared to the prior year.

Processing fees expense increased $14.8 million, or 14.4%, in 2024 compared to 2023, and increased $20.9 million, or 25.4%, in 2023 compared to 2022. The increases in 2024 and 2023 were primarily driven by higher software subscription costs due to the transition to cloud computing solutions and ongoing investments in digital channel and integrated platform solutions to support business growth.

Legal and consulting expense increased $16.2 million, or 54.0%, in 2024 compared to 2023 and decreased $9.1 million, or 23.3%, in 2023 compared to 2022. The increase in 2024 was driven by expenses incurred related to

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the announced acquisition of HTLF. The decrease in 2023 was primarily driven by fluctuations in legal and consulting expense due to the timing of multiple projects between years.

Bankcard expense increased $11.3 million, or 34.3%, in 2024 compared to 2023 and increased $6.6 million, or 25.0%, in 2023 compared to 2022. These increases in both years were driven by higher card administration costs coupled with higher fraud losses.

Regulatory fees decreased $45.1 million, or 58.6%, in 2024 compared to 2023 and increased $61.6 million, or 400.8%, in 2023 compared to 2022. The decrease in 2024 and the increase in 2023 was driven by the FDIC special assessment of $52.8 million recorded in 2023.

Other noninterest expense decreased $3.7 million, or 10.8%, in 2024 compared to 2023 and decreased $8.9 million, or 20.7%, in 2023 compared to 2022. The decreases in both 2024 and 2023 were driven by lower charitable contribution expenses and operational losses.

Income Taxes

Income tax expense totaled $100.0 million, $71.6 million, and $100.3 million in 2024, 2023, and 2022 respectively. These amounts equate to effective tax rates of 18.5%, 17.0%, and 18.9% for 2024, 2023 and 2022, respectively. The increase in the effective tax rate from 2023 to 2024 is primarily attributable to a smaller portion of pre-tax income being earned from tax-exempt municipal securities and higher non-deductible acquisition costs in 2024. These increases were partially offset by an increase in federal tax credits, net of related amortization. The decrease in the effective tax rate from 2022 to 2023 is primarily attributable to a larger portion of pre-tax income being earned from tax-exempt municipal securities and excludable life insurance policy gains.

For further information on income taxes refer to Note 16, “Income Taxes,” in the Notes to the Consolidated Financial Statements.

Business Segments

The Company has strategically aligned its operations into the following three reportable segments: Commercial Banking, Institutional Banking, and Personal Banking (collectively, the Business Segments). Senior executive officers regularly evaluate Business Segment financial results produced by the Company’s internal reporting system in deciding how to allocate resources and assess performance for individual Business Segments. The management accounting system assigns balance sheet and income statement items to each Business Segment using methodologies that are refined on an ongoing basis. For comparability purposes, amounts in all periods are based on methodologies in effect at December 31, 2024. Previously reported results have been reclassified in this Form 10-K to conform to the Company’s current organizational structure.

Table 8

COMMERCIAL BANKING OPERATING RESULTS (in thousands)

For the year ended December 31, 2024, Commercial Banking net income increased $69.2 million, or 27.8%, to $318.2 million compared to the same period in 2023. Net interest income increased $67.2 million, or 11.2%, for the year ended December 31, 2024, compared to the same period last year, driven by strong loan growth, earning asset mix changes and the increase in short-term interest rates. Provision for credit losses increased $17.0 million,

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or 51.1%, as compared to 2023, driven by loan growth, portfolio metric changes, and changes in macro-economic metrics in 2024 as compared to 2023. Noninterest income increased $32.6 million, or 33.4%, over the same period in 2023. This increase was primarily due to increases of $11.0 million in investment security gains, $7.4 million in bankcard income, $5.8 million in other income driven by a legal settlement in the first quarter of 2024 and increased life insurance income, and $4.0 million in service charges on deposit accounts. Noninterest expense decreased $9.7 million, or 2.7%, as compared to the same period in 2023. This decrease was driven by a decrease of $20.8 million in technology, service, and overhead expenses, partially offset by increases of $7.0 million in salaries and employee benefits expense, $2.1 million in marketing and business development, $1.6 million in processing fees and $1.6 million in bankcard expense.

Table 9

INSTITUTIONAL BANKING OPERATING RESULTS (in thousands)

For the year ended December 31, 2024, Institutional Banking net income increased $24.0 million, or 18.5%, to $153.9 million compared to the same period last year. Net interest income increased $7.1 million, or 3.7%, compared to the same period last year, due to an increase in funds transfer pricing due to the increase in interest rates. Provision for credit losses increased $1.4 million as compared to 2023, driven by loan growth, portfolio metric changes, and changes in the macro-economic metrics in 2024 as compared to 2023. Noninterest income increased $50.4 million, or 14.5%, primarily due to increases of $28.4 million in trust and securities processing income driven by higher fund services and corporate trust revenue, an increase of $7.1 million in brokerage income, $6.5 million in bankcard income, an increase of $4.7 million in bond trading income, and an increase of $4.0 million in other income driven by the gain on the sale of UMB Distribution Services, LLC during the fourth quarter. These increases were partially offset by a decrease of $3.9 million in service charges on deposit accounts. Noninterest expense increased $25.6 million, or 6.7% as compared to 2023, primarily driven by increases of $18.0 million in salaries and employee benefits expense, $8.6 million in bankcard expense, $6.1 million in processing fees, $1.7 million in legal and consulting expense, and $1.2 million in equipment expense. These increases were partially offset by a decrease of $11.1 million in technology, service, and overhead expenses.

Table 10

PERSONAL BANKING OPERATING RESULTS (in thousands)

For the year ended December 31, 2024, Personal Banking net income decreased $2.0 million, or 6.9%, to a net loss of $30.9 million as compared to the same period last year. Net interest income increased $6.5 million, or 5.0%, compared to the same period last year due to loan growth and the increase in short-term interest rates. Provision for

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credit losses increased $1.5 million, or 22.3%, for the period, driven by loan growth, portfolio metric changes, and changes in macro-economic metrics in 2024 as compared to 2023. Noninterest income increased $3.3 million, or 3.4%, for the same period primarily driven by an increase of $5.0 million in trust and securities processing income, and $2.9 million in life insurance income, partially offset by a decrease of $3.2 million in investment securities gains. Noninterest expense increased $11.7 million, or 4.7%, primarily due to increases of $6.4 million in technology, service, and overhead expenses, $5.2 million in salaries and employee benefits, and $1.0 million in bankcard expense, partially offset by a decrease of $1.7 million in operational losses.

Balance Sheet Analysis

Loans and Loans Held For Sale

Loans represent the Company’s largest source of interest income. Loan balances held for investment increased by $2.5 billion, or 10.7%, in 2024. This increase was primarily driven by an increase of $1.2 billion, or 13.9%, in commercial real estate loans, $971.6 million, or 9.8%, in commercial and industrial loans, and $226.5 million, or 7.7% in consumer real estate loans.

Commercial and industrial loans and commercial real estate loans continue to represent the largest segments of the Company’s loan portfolio, comprising approximately 42.5% and 39.5%, respectively, of total loans and loans held for sale at the end of 2024 and 42.8% and 38.4%, respectively, of total loans and loans held for sale at the end of 2023.

Commercial and industrial loans represent the largest percent of total loans. Commercial and industrial loans at December 31, 2024 increased $971.6 million, or 9.8%, as compared to December 31, 2023.

As a percentage of total loans, commercial real estate comprises 39.5% of total loans compared to 38.4% in 2023. Commercial real estate loans increased $1.2 billion, or 13.9%, compared to 2023. Commercial real estate loans generally involve a greater degree of credit risk than consumer real estate loans because they typically have larger balances and are more affected by adverse conditions in the economy. Because payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulations. In recent years, commercial real estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic. The COVID-19 pandemic has also been a catalyst for the evolution of various remote work options, which could impact the long-term performance of some types of office properties within our commercial real estate portfolio. Due to these risks, the Company is actively monitoring its exposure to commercial real estate.

Generally, these loans are made for investment and real estate development or working capital and business expansion purposes and are primarily secured by real estate with a maximum loan-to-value of 80%. Most of these properties are non-owner occupied and have guarantees as additional security. The Company’s investment CRE portfolio (which includes non-owner occupied and construction loans) totaled 28.5% and 26.5% of total Company loans as of December 31, 2024 and December 31, 2023, respectively. The average investment CRE loan was approximately $7.2 million and $5.8 million, as of December 31, 2024 and December 31, 2023, respectively, and 90% are recourse loans as of both December 31, 2024 and December 31, 2023. These loans have an average loan-to-value of 57% as of both December 31, 2024 and December 31, 2023.

The properties securing the commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce exposure to adverse economic events that affect any single market or industry. Notwithstanding, commercial real estate loans, in general, may be more adversely impacted by conditions in the real estate market or the economy.

The following table presents the Company’s investment CRE (which includes non-owner occupied and construction loans) by industry. The table separately discloses the top five industries as a percentage of the Company’s loan portfolio as of either period presented, while the remainder are included in “Other.”

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Table 11

The following table presents the Company’s investment CRE (which includes non-owner occupied and construction loans) by state. The table separately discloses all states that represent at least 5.0% of the Company’s investment CRE portfolio as of either period presented, while the remainder are included in “All Others.”

Table 12

The shift to work-from-home and hybrid work environments has caused a decreased utilization of, and demand for, office space. The Company is actively monitoring its exposure to office space in its non-owner occupied commercial real estate portfolio. The average loan size in the Company’s office portfolio was approximately $8.9 million and $9.2 million as of December 31, 2024 and December 31, 2023, respectively. The average loan-to-value of the office portfolio was 63% and 64% as of December 31, 2024 and December 31, 2023, respectively, and 84% are recourse loans as of the end of both periods. Further, only 18% and 30% of the Company’s office portfolio as of December 31, 2024 and December 31, 2023, respectively, is in central business districts, which have been more heavily impacted by the shift to remote work. The remainder of the Company’s office portfolio is in suburban or medical properties.

The table below presents the Company’s portfolio of office commercial real estate by the metropolitan statistical area (MSAs) in which the loan collateral is located. The table separately discloses all MSAs that represent at least 5.0% of the Company's office commercial real estate portfolio as of either period presented, while the remainder are included in “All Others.”

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Table 13

Consumer real estate loans increased $226.5 million, or 7.7%, compared to 2023. These loans represented 12.4% of total loans as of December 31, 2024, compared to 12.8% as of December 31, 2023.

For further information on loan portfolio segments refer to Note 3, “Loans and Allowance for Credit Losses,” in the Notes to the Consolidated Financial Statements.

Nonaccrual, past due and restructured loans are discussed under “Quantitative and Qualitative Disclosure about Market Risk – Credit Risk Management” in Item 7A of this report.

Investment Securities

The Company’s investment portfolio contains trading, available-for-sale (AFS), and held-to-maturity (HTM) securities as well as FRB stock, Federal Home Loan Bank (FHLB) stock, and other miscellaneous investments. Investment securities totaled $13.7 billion as of December 31, 2024 and $13.3 billion as of December 31, 2023 and comprised 28.5% and 31.9% of the Company’s earning assets, respectively, as of those dates.

During 2022, securities with an amortized cost of $4.1 billion and a fair value of $3.8 billion were transferred from the AFS classification to the HTM classification as the Company has the positive intent and ability to hold these securities to maturity. The transfers of securities were made at fair value at the time of transfer. See further information in Note 4, “Securities” in the Notes to the Consolidated Financial Statements.

The Company’s AFS securities portfolio comprised 56.9% of the Company’s investment securities portfolio at December 31, 2024, compared to 53.3% at December 31, 2023. The Company’s AFS securities portfolio provides liquidity as a result of the composition and average life of the underlying securities. This liquidity can be used to fund loan growth or to offset the outflow of traditional funding sources. The average life of the AFS securities portfolio increased from 52.6 months at December 31, 2023 to 56.0 months at December 31, 2024. In addition to providing a potential source of liquidity, the AFS securities portfolio can be used as a tool to manage interest rate sensitivity. The Company’s goal in the management of its AFS securities portfolio is to maximize return within the Company’s parameters of liquidity goals, interest rate risk and credit risk.

Management expects collateral pledging requirements for public funds, loan demand, and deposit funding to be the primary factors impacting changes in the level of AFS securities. There were $10.5 billion of securities pledged to secure U.S. Government deposits, other public deposits, certain trust deposits, derivative transactions, and repurchase agreements at December 31, 2024.

The Company’s HTM securities portfolio consists of U.S. agency-backed securities, mortgage-backed securities, general obligation bonds, and private placement bonds. The Company’s HTM portfolio, net of the ACL totaled $5.4 billion as of December 31, 2024, a decrease of $312.3 million from December 31, 2023. The average life of the HTM portfolio was 9.1 years at December 31, 2024, compared to 8.4 years at December 31, 2023.

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The securities portfolio generates the Company’s second largest component of interest income. The AFS, HTM, and Other securities portfolios achieved an average yield on a tax-equivalent basis of 2.96% for 2024, compared to 2.66% in 2023. Securities available for sale had a net unrealized loss of $633.3 million at year-end, compared to a net unrealized loss of $624.2 million the preceding year. This market value change primarily reflects the impact of a longer average life and increasing market interest rates as of December 31, 2024, compared to December 31, 2023. These amounts are reflected, on an after-tax basis, in the Company’s Accumulated other comprehensive income (loss) (AOCI) in shareholders’ equity, as an unrealized loss of $478.5 million at year-end 2024, compared to an unrealized loss of $471.9 million for 2023. The AFS securities portfolio contains securities that have unrealized losses (see the table of these securities in Note 4, “Securities,” in the Notes to the Consolidated Financial Statements). The unrealized losses in the Company’s investments were caused by changes in interest rates, and not from a decline in credit of the underlying issuers. The U.S. Treasury, U.S. Agency, and Government Sponsored Entity (GSE) mortgage-backed securities are all considered to be agency-backed securities with no risk of loss as they are either explicitly or implicitly guaranteed by the U.S. government. The changes in fair value in the agency-backed portfolios are solely driven by change in interest rates caused by changing economic conditions. The Company has no knowledge of any underlying credit issues and the cash flows underlying the debt securities have not changed and are not expected to be impacted by changes in interest rates. As of December 31, 2024, the Company does not believe the decline in value in these portfolios is related to credit impairments and instead is due to increasing market interest rates. For the State and political subdivision portfolio, the majority of the Company’s holdings are in general obligation bonds, which have a very low historical default rate due to issuers generally having unlimited taxing authority to service the debt. For the State and political, Corporates, and Collateralized loan obligations portfolios, the Company has a robust process for monitoring credit risk, including both pre-purchase and ongoing post-purchase credit reviews and analysis. The Company monitors credit ratings of all bond issuers in these segments and reviews available financial data, including market and sector trends. The Company does not have the intent to sell these securities and does not believe it is more likely than not that the Company will be required to sell these securities before a recovery of amortized cost. As of December 31, 2024, there is no ACL related to the Company’s available-for-sale securities as the decline in fair value did not result from credit issues.

Included in Tables 14 and 15 are analyses of the fair value and average yield (tax-equivalent basis) of securities available for sale and securities held to maturity.

Table 14

SECURITIES AVAILABLE FOR SALE (in thousands)

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Table 15

SECURITIES HELD TO MATURITY (in thousands)

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The table below provides detailed information for Other securities at December 31, 2024 and 2023:

Table 16

OTHER SECURITIES (in thousands)

Equity securities with readily determinable fair values are generally traded on an exchange and market prices are readily available. Equity securities without readily determinable fair values are generally carried at cost less impairment. Unrealized gains or losses on equity securities with and without readily determinable fair values are recognized in the Investment Securities gains, net line of the Company’s Consolidated Statements of Income.

For further information on the Company’s investment securities, refer to Note 4, “Securities,” in the Notes to the Consolidated Financial Statements.

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Other Earning Assets

Federal funds transactions essentially are overnight loans between financial institutions, which allow for either the daily investment of excess funds or the daily borrowing of another institution’s funds in order to meet short-term liquidity needs. The net borrowed position was $70.4 million at December 31, 2024 compared to $8.8 million at December 31, 2023.

The Bank buys and sells federal funds as agent for non-affiliated banks. Because the transactions are pursuant to agency arrangements, these transactions do not appear on the balance sheet and averaged $161.7 million in 2024 and $192.6 million in 2023.

At December 31, 2024, the Company held securities purchased under agreements to resell of $545.0 million compared to $240.3 million at December 31, 2023. The Company uses these instruments as short-term secured investments, in lieu of selling federal funds, or to acquire securities required for collateral purposes. Balances will fluctuate based on the Company’s liquidity and investment decisions as well as the Company’s correspondent bank borrowing levels. These investments averaged $303.0 million in 2024 and $310.5 million in 2023.

The Company also maintains an active securities trading inventory. The average holdings in the securities trading inventory in 2024 were $22.3 million, compared to $14.0 million in 2023, and were recorded at fair market value. As discussed in “Quantitative and Qualitative Disclosures About Market Risk – Trading Account” in Part II, Item 7A, the Company offsets the trading account securities by the sale of exchange-traded financial futures contracts, with both the trading account and futures contracts marked to market daily.

Interest-bearing due from banks totaled $8.0 billion as of December 31, 2024 compared to $5.2 billion as of December 31, 2023 and includes amounts due from the FRB and interest-bearing accounts held at other financial institutions. The amount due from the FRB averaged $3.4 billion and $2.0 billion during the years ended December 31, 2024 and 2023, respectively. The increase in the FRB balance at December 31, 2024 compared to the prior year is primarily due to an increase in deposit balances. The interest-bearing accounts held at other financial institutions totaled $110.8 million and $78.7 million at December 31, 2024 and 2023, respectively.

Deposits and Borrowed Funds

Deposits represent the Company’s primary funding source for its asset base. In addition to the core deposits garnered by the Company’s retail branch structure, the Company continues to focus on its cash management services, as well as its asset management and mutual fund servicing businesses in order to attract and retain additional core deposits. Deposits totaled $43.1 billion at December 31, 2024 and $35.8 billion at December 31, 2023, an increase of $7.3 billion, or 20.5%. There were $1.0 billion and $1.9 billion of brokered deposits as of December 31, 2024 and December 31, 2023, respectively. Deposits averaged $35.3 billion in 2024, and $31.8 billion in 2023.

Noninterest-bearing demand deposits averaged $10.1 billion in 2024 and $10.6 billion in 2023. These deposits represented 28.5% of average deposits in 2024, compared to 33.5% in 2023. The Company’s large commercial customer base provides a significant source of noninterest-bearing deposits. Many of these commercial accounts do not earn interest; however, they receive an earnings credit to offset the cost of other services provided by the Company.

Table 17

MATURITIES OF UNINSURED TIME DEPOSITS (in thousands)

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As of December 31, 2024, there were an estimated $31.0 billion of uninsured deposits, as compared to $24.4 billion as of December 31, 2023. Estimated uninsured deposits comprised approximately 72.0% and 68.2% of total deposits as of December 31, 2024 and December 31, 2023, respectively. A portion of these uninsured deposits represent affiliate deposits and collateralized deposits. Affiliate deposits represent deposit accounts owned by the wholly owned subsidiaries of UMB Financial Corporation that are on deposit at the Bank. Collateralized deposits are public fund deposits or corporate trust deposits that are collateralized by high quality securities within the investment portfolio. Excluding affiliate deposits of $2.4 billion and collateralized deposits of $6.0 billion, the adjusted estimated uninsured deposits were $22.7 billion as of December 31, 2024. Excluding affiliate deposits of $2.0 billion and collateralized deposits of $6.2 billion, the adjusted estimated uninsured deposits were $16.2 billion as of December 31, 2023. The adjusted ratio of estimated uninsured deposits, excluding affiliate and collateralized deposits, as a percentage of total deposits was approximately 52.6% and 45.3% as of December 31, 2024, and December 31, 2023, respectively.

The Company participates in the IntraFi Cash Service program, which allows its customers to place deposits into the program to receive reciprocal FDIC insurance coverage. As of December 31, 2024 and December 31, 2023, the Company had $1.3 billion and $1.2 billion of deposits in the program, respectively.

Table 18

ANALYSIS OF AVERAGE DEPOSITS (in thousands)

Capital Resources and Liquidity

The Company places a significant emphasis on the maintenance of a strong capital position, which it believes promotes investor confidence, provides access to funding sources under favorable terms, and enhances the Company’s ability to capitalize on business growth and acquisition opportunities. Higher levels of liquidity, however, bear corresponding costs, measured in terms of lower yields on short-term, more liquid earning assets, and higher expenses for extended liability maturities. The Company manages capital for each subsidiary based upon the subsidiary’s respective risks and growth opportunities as well as regulatory requirements.

Total shareholders’ equity increased $366.1 million, or 11.8% to $3.5 billion at December 31, 2024 as compared to December 31, 2023. The increase in shareholders’ equity from 2023 to 2024 is largely due to an increase in retained earnings.

The Board authorized, at its April 26, 2022 meeting, the repurchase of up to two million shares of the Company’s common stock during the twelve months following the meeting (a Repurchase Authorization). The Board authorized, at its July 25, 2023, and April 30, 2024 meetings, the repurchase of up to one million shares of the Company's common stock. The July 2023 Repurchase Authorization terminated on April 30, 2024, and the April 2024 Repurchase Authorization will terminate on April 29, 2025. During 2024 and 2023, the Company did not

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repurchase shares of common stock pursuant to any of its announced Repurchase Authorizations. The Company has not made any repurchase of its securities other than pursuant to the Repurchase Authorizations.

On April 28, 2024, the Company entered into the Merger Agreement with HTLF, a Delaware corporation and Blue Sky Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of the Company. The Merger Agreement and the merger were unanimously approved by the boards of directors of the Company and HTLF. Pending regulatory approval and approval by the shareholders of the Company and HTLF, and the merger closed on January 31, 2025. Under the terms of the Merger Agreement, HTLF stockholders received a fixed exchange ratio of 0.55 shares of the Company’s common stock for each share of HTLF stock, with a total market value of approximately $2.8 billion.

Additionally, on April 29, 2024, the Company also announced that in connection with the execution of the Merger Agreement, it entered into a forward sale agreement with BofA Securities, Inc. or its affiliate to issue 2.8 million shares of its common stock. The underwriters were granted an option to purchase up to an additional 420 thousand shares of the Company's common stock exercisable within 30 days of April 28, 2024. The underwriters exercised this option in full on April 30, 2024, upon which the Company entered into an additional forward sale agreement relating to the 420 thousand shares of the Company's common stock. The forward sale agreements are classified as an equity instrument under ASC 815-40, Contracts in Entity’s Own Equity. The Company expects to receive net proceeds of approximately $231.8 million from the sale of shares of common stock and settlement of the forward sale agreements.

Risk-based capital guidelines established by regulatory agencies set minimum capital standards based on the level of risk associated with a financial institution’s assets. The Company has implemented the Basel III regulatory capital rules adopted by the FRB. Basel III capital rules include a minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5% and a minimum tier 1 risk-based capital ratio of 6%. A financial institution’s total capital is also required to equal at least 8% of risk-weighted assets.

The risk-based capital guidelines indicate the specific risk weightings by type of asset. Certain off-balance sheet items (such as standby letters of credit and binding loan commitments) are multiplied by credit conversion factors to translate them into balance sheet equivalents before assigning them specific risk weightings. The Company is also required to maintain a leverage ratio equal to or greater than 4%. The leverage ratio is tier 1 core capital to total average assets less goodwill and intangibles. The Company's capital position as of December 31, 2024 is summarized in the table below and exceeded regulatory requirements.

Table 19

RISK-BASED CAPITAL (in thousands)

This table computes risk-based capital in accordance with current regulatory guidelines. These guidelines as of December 31, 2024, excluded net unrealized gains or losses on securities available for sale and net unrealized losses on securities held to maturity transferred from the available-for-sale category from the computation of regulatory capital and the related risk-based capital ratios.

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(1)
Adjustments include a portion of goodwill and intangibles as well as unrealized gains/losses on available-for-sale securities, cash flow hedges, and the impact of the Company’s election to use the five-year CECL transition.

(2)
Includes the Company’s ACL (inclusive of the reserve for off-balance sheet arrangements), subordinated long-term debt, and trust preferred subordinated notes.

(3)
After credit conversion factor and risk weighting is applied.

For further discussion of regulatory capital requirements, see Note 10, “Regulatory Requirements” within the Notes to Consolidated Financial Statements under Item 8.

Repurchase agreements are transactions involving the exchange of investment funds by the customer for securities by the Company, under an agreement to repurchase the same issues at an agreed-upon price and date. Securities sold under agreements to repurchase and federal funds purchased totaled $2.6 billion at December 31, 2024, and $2.1 billion at December 31, 2023. Repurchase agreements and federal funds purchased averaged $2.3 billion in 2024 and $2.2 billion in 2023. The Company enters into these transactions with its downstream correspondent banks, commercial customers, and various trust, mutual fund, and local government relationships.

The Company is a member bank with the FHLB of Des Moines, and through this relationship, the Company owns FHLB stock and has access to additional liquidity and funding sources through FHLB advances. The Company’s borrowing capacity is dependent upon the amount of collateral the Company places at the FHLB. As of December 31, 2024, and December 31, 2023, the Company owned $10.2 million and $55.2 million of FHLB stock, respectively.

As of December 31, 2024, the Company had no outstanding advances at the FHLB of Des Moines. As of December 31, 2023, the Company had one short-term advance for $1.0 billion outstanding at the FHLB of Des Moines. Additionally, in both 2024 and 2023, the FHLB of Des Moines issued a letter of credit for $150.0 million on behalf of the Company to secure deposits. The letter of credit outstanding as of December 31, 2024 expired in January 2025 and was subsequently renewed with an expiration date in March 2025. Based on the collateral pledged, the Company had $1.8 billion of borrowing capacity remaining at the FHLB at December 31, 2024.

As of December 31, 2024, the Company had no borrowings outstanding with the Federal Reserve Bank's Bank Term Funding Program (BTFP). As of December 31, 2023, the Company had an $800.0 million short-term borrowing outstanding with the BTFP. The FRB terminated the BTFP during 2024. As of December 31, 2024, the Company's borrowing capacity with the Federal Reserve Discount Window was $12.5 billion.

In addition to the borrowing capacity with the FHLB and at the Federal Reserve Discount Window as described above, the Company had additional liquidity of $12.4 billion available via cash, unpledged bond collateral, the federal funds market, and the IntraFi Cash Service program as of December 31, 2024.

Long-term debt totaled $385.3 million at December 31, 2024, compared to $383.2 million at December 31, 2023. In September 2022, the Company issued $110.0 million in aggregate subordinated notes due in September 2032. The Company received $107.9 million, after deducting underwriting discounts and commissions and offering

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expenses, and used the proceeds from the offering for general corporate purposes, including, among other uses, contributing Tier 1 capital into the Bank. The subordinated notes were issued with a fixed-to-fixed rate of 6.25% and an effective rate of 6.64% due to issuance costs, with an interest rate reset date of September 2027.

In September 2020, the Company issued $200.0 million in aggregate subordinated notes due in September 2030. The Company received $197.7 million, after deducting underwriting discounts and commissions and offering expenses, and used the proceeds from the offering for general corporate purposes, including, among other uses, contributing Tier 1 capital into the Bank. The subordinated notes were issued with a fixed-to-fixed rate of 3.70% and an effective rate of 3.93%, due to issuance costs, with an interest rate reset date of September 2025.

The remainder of the Company’s long-term debt was assumed from the acquisition of Marquette Financial Companies (Marquette) in 2015 and consists of debt obligations payable to four unconsolidated trusts (Marquette Capital Trust I, Marquette Capital Trust II, Marquette Capital Trust III, and Marquette Capital Trust IV) that previously issued trust preferred securities. These long-term debt obligations had an aggregate contractual balance of $103.1 million and had a carrying value of $76.8 million at December 31, 2024 and $75.6 million at December 31, 2023. Interest rates on trust preferred securities are tied to the three-month term SOFR with spreads ranging from 133 basis points to 160 basis points and reset quarterly. The trust preferred securities have maturity dates ranging from January 2036 to September 2036. For further information on long-term debt refer to Note 9, “Borrowed Funds,” in the Notes to the Consolidated Financial Statements.

The Company has material off-balance sheet arrangements in the form of loan commitments, commercial and standby letters of credit, futures contracts and forward exchange contracts, which have maturity dates rather than payment due dates. These commitments and contingent liabilities are not required to be recorded on the Company’s balance sheet. Since commitments associated with letters of credit and lending and financing arrangements may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements. See Table 20 below, as well as Note 15, “Commitments, Contingencies and Guarantees” in the Notes to Consolidated Financial Statements under Item 8 for detailed information and further discussion of these arrangements. Management does not anticipate any material losses from its off-balance sheet arrangements.

Table 20

COMMITMENTS, MATERIAL CASH REQUIREMENTS AND OFF-BALANCE SHEET ARRANGEMENTS (in thousands)

The table below details the commitments, material cash requirements, and off-balance sheet arrangements for the Company as of December 31, 2024 and includes principal payments only. The Company has no capital leases or long-term purchase obligations.

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As of December 31, 2024, the Company’s total liabilities for unrecognized tax benefits were $8.3 million. The Company cannot reasonably estimate the settlement of these liabilities. Therefore, these liabilities have been excluded from the table above. See Note 16, “Income Taxes,” in the Notes to the Consolidated Financial Statements for information regarding the liabilities associated with unrecognized tax benefits.

For further discussion of capital and liquidity, see the “Quantitative and Qualitative Disclosures about Market Risk – Liquidity Risk” in Item 7A of this report.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to customers and suppliers, allowance for credit losses, bad debts, investments, financing operations, long-lived assets, taxes, other contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which have formed the basis for making such judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Under different assumptions or conditions, actual results may differ from the recorded estimates.

Management believes that the Company’s critical accounting policies and estimates are those relating to the allowance for credit losses.

Allowance for Credit Losses

The Company’s ACL represents management’s judgment of the total expected losses included in the Company’s assets held at amortized cost. The Company’s process for recording the ACL is based on the evaluation of the Company’s lifetime historical loss experience, management’s understanding of the credit quality inherent in the loan portfolio, and the impact of the current economic environment, coupled with reasonable and supportable economic forecasts.

A mathematical calculation of an estimate is made to assist in determining the adequacy and reasonableness of management’s recorded ACL. To develop the estimate, the Company follows the guidelines in ASC Topic 326, Financial Instruments – Credit Losses. The estimate reserves for assets held at amortized cost, which include the Company’s loan and held-to-maturity security portfolios.

The estimation process involves the consideration of quantitative and qualitative factors relevant to the specific segmentation of loans. These factors have been established over decades of financial institution experience

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and include economic observation and loan loss characteristics. This process is designed to produce a lifetime estimate of the losses, at a reporting date, that is based on evaluation of historical loss experience, current economic conditions, reasonable and supportable forecasts, and the qualitative framework outlined by the Office of the Comptroller of the Currency in the published 2020 Interagency Policy Statement. This process allows management to take a holistic view of the recorded ACL reserve and ensure that all significant and pertinent information is considered in its estimate.

The Company considers a variety of factors to ensure the safety and soundness of its estimate including a strong internal control framework, extensive methodology documentation, credit underwriting standards which encompass the Company’s desired risk profile, model validation, and ratio analysis. If the Company’s total ACL estimate, as determined in accordance with the approved ACL methodology, is either outside a reasonable range based on review of economic indicators or by comparison of historical ratio analysis, the ACL estimate is an outlier and management will investigate the underlying reason(s). Based on that investigation, issues or factors that previously had not been considered may be identified in the estimation process, which may warrant adjustments to estimated credit losses.

The ending result of this process is a recorded consolidated ACL that represents management’s best estimate of the total expected losses included in the loan and held-to-maturity security portfolios considering available information, from internal and external sources, relevant to assessing exposure to credit loss over the contractual term of the instrument. While management utilizes its best judgment and information available, the ultimate adequacy of the ACL is dependent upon a variety of factors beyond the Company’s control, including the performance of its portfolios, the economy, and changes in interest rates. As such, significant downturns 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 allow a reduction in the required allowance. In either instance, unanticipated changes could have a significant impact on the Company’s Provision for credit losses and ACL reported in its Consolidated Income Statements and Consolidated Balance Sheets, respectively.

For more information on loan portfolio segments, the Company’s ACL methodology, and management’s assumptions in estimating the ACL, refer to the section captioned “Allowance for Credit Losses” within Note 3, “Loans and Allowance for Credit Losses,” in the Notes to the Consolidated Financial Statements.

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