COMMERCE BANCSHARES INC /MO/ 10-Q

Item 1. FINANCIAL STATEMENTS Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS September 30, 2021 December 31, 2020 (Unaudited) (In thousands) ASSETS Loans $ 15,148,390 $ 16,329,641 Allowance for credit losses on loans ( 162,775 ) ( 220,834 ) Net loans 14,985,615 16,108,807 Loans held for sale (including $ 11,982,000 and $ 39,396,000 of residential mortgage loans carried at fair value at September 30, 2021 and December 31, 2020, respectively) 16,043 45,089 Investment securities: Available for sale debt, at fair value (amortized cost of $ 14,027,284,000 and $ 12,097,533,000 and allowance for credit losses of $ — at September 30, 2021 and December 31, 2020, respectively) 14,165,656 12,449,264 Trading debt 40,114 35,321 Equity 9,174 4,363 Other 184,450 156,745 Total investment securities 14,399,394 12,645,693 Securities purchased under agreements to resell 1,750,000 850,000 Interest earning deposits with banks 1,888,545 1,747,363 Cash and due from banks 344,460 437,563 Premises and equipment – net 377,476 371,083 Goodwill 138,921 138,921 Other intangible assets – net 14,458 11,207 Other assets 582,631 567,248 Total assets $ 34,497,543 $ 32,922,974 LIABILITIES AND EQUITY Deposits: Non-interest bearing $ 11,622,855 $ 10,497,598 Savings, interest checking and money market 14,907,654 14,604,456 Certificates of deposit of less than $100,000 452,432 529,802 Certificates of deposit of $100,000 and over 1,163,343 1,314,889 Total deposits 28,146,284 26,946,745 Federal funds purchased and securities sold under agreements to repurchase 2,253,753 2,098,383 Other borrowings 4,006 802 Other liabilities 602,279 477,072 Total liabilities 31,006,322 29,523,002 Commerce Bancshares, Inc. stockholders’ equity: Common stock, $ 5 par value Authorized 140,000,000 ; issued 117,870,372 shares 589,352 589,352 Capital surplus 2,427,544 2,436,288 Retained earnings 396,655 73,000 Treasury stock of 1,303,270 shares at September 30, 2021 and 497,413 shares at December 31, 2020, at cost ( 92,047 ) ( 32,970 ) Accumulated other comprehensive income 159,166 331,377 Total Commerce Bancshares, Inc. stockholders' equity 3,480,670 3,397,047 Non-controlling interest 10,551 2,925 Total equity 3,491,221 3,399,972 Total liabilities and equity $ 34,497,543 $ 32,922,974 See accompanying notes to consolidated financial statements. 3 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended September 30 For the Nine Months Ended September 30 (In thousands, except per share data) 2021 2020 2021 2020 (Unaudited) INTEREST INCOME Interest and fees on loans $ 142,887 $ 150,808 $ 433,809 $ 461,500 Interest and fees on loans held for sale 187 264 736 588 Interest on investment securities 63,904 60,534 170,604 164,391 Interest on federal funds sold 1 — 3 2 Interest on securities purchased under agreements to resell 9,007 11,247 30,551 29,445 Interest on deposits with banks 995 261 2,108 1,996 Total interest income 216,981 223,114 637,811 657,922 INTEREST EXPENSE Interest on deposits: Savings, interest checking and money market 1,817 3,206 5,764 15,492 Certificates of deposit of less than $100,000 206 1,028 1,006 4,196 Certificates of deposit of $100,000 and over 450 2,512 2,173 11,357 Interest on federal funds purchased and securities sold under agreements to repurchase 480 406 1,112 5,761 Interest on other borrowings ( 9 ) — ( 11 ) 1,032 Total interest expense 2,944 7,152 10,044 37,838 Net interest income 214,037 215,962 627,767 620,084 Provision for credit losses ( 7,385 ) 3,101 ( 59,272 ) 141,593 Net interest income after credit losses 221,422 212,861 687,039 478,491 NON-INTEREST INCOME Bank card transaction fees 42,815 37,873 123,118 111,818 Trust fees 48,950 40,769 139,334 118,676 Deposit account charges and other fees 25,161 23,107 71,724 69,063 Capital market fees 3,794 3,194 12,102 10,756 Consumer brokerage services 4,900 4,011 13,484 11,099 Loan fees and sales 6,842 9,769 24,472 17,653 Other 5,044 10,849 28,460 31,685 Total non-interest income 137,506 129,572 412,694 370,750 INVESTMENT SECURITIES GAINS (LOSSES), NET 13,108 16,155 39,765 ( 1,275 ) NON-INTEREST EXPENSE Salaries and employee benefits 132,824 127,308 392,608 383,004 Net occupancy 12,329 12,058 35,877 35,075 Equipment 4,440 4,737 13,398 14,313 Supplies and communication 4,530 4,141 12,688 13,226 Data processing and software 25,598 23,610 76,015 71,002 Marketing 5,623 4,926 16,461 14,706 Other 26,276 14,078 55,272 40,742 Total non-interest expense 211,620 190,858 602,319 572,068 Income before income taxes 160,416 167,730 537,179 275,898 Less income taxes 34,662 34,375 111,947 54,209 Net income 125,754 133,355 425,232 221,689 Less non-controlling interest expense (income) 3,193 907 9,373 ( 2,479 ) Net income attributable to Commerce Bancshares, Inc. 122,561 132,448 415,859 224,168 Less preferred stock dividends — 7,466 — 11,966 Net income available to common shareholders $ 122,561 $ 124,982 $ 415,859 $ 212,202 Net income per common share — basic $ 1.05 $ 1.06 $ 3.55 $ 1.80 Net income per common share — diluted $ 1.05 $ 1.06 $ 3.54 $ 1.80 See accompanying notes to consolidated financial statements. 4 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Three Months Ended September 30 For the Nine Months Ended September 30 (In thousands) 2021 2020 2021 2020 (Unaudited) Net income $ 125,754 $ 133,355 $ 425,232 $ 221,689 Other comprehensive income (loss): Net unrealized gains (losses) on available for sale debt securities ( 57,068 ) 330 ( 160,019 ) 165,464 Pension loss amortization 451 327 1,326 1,038 Unrealized gains (losses) on cash flow hedge derivatives ( 4,607 ) ( 6,483 ) ( 13,518 ) 66,489 Other comprehensive income (loss) ( 61,224 ) ( 5,826 ) ( 172,211 ) 232,991 Comprehensive income 64,530 127,529 253,021 454,680 Less non-controlling interest expense (income) 3,193 907 9,373 ( 2,479 ) Comprehensive income attributable to Commerce Bancshares, Inc. $ 61,337 $ 126,622 $ 243,648 $ 457,159 See accompanying notes to consolidated financial statements. 5 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Three Months Ended September 30, 2021 and 2020 Commerce Bancshares, Inc. Shareholders (In thousands, except per share data) Preferred Stock Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Non-Controlling Interest Total (Unaudited) Balance June 30, 2021 $ — $ 589,352 $ 2,424,157 $ 304,739 $ ( 53,018 ) $ 220,390 $ 8,210 $ 3,493,830 Net income 122,561 3,193 125,754 Other comprehensive loss ( 61,224 ) ( 61,224 ) Distributions to non-controlling interest ( 193 ) ( 193 ) Purchases of treasury stock ( 40,165 ) ( 40,165 ) Sale of non-controlling interest of subsidiary 659 ( 659 ) — Issuance of stock under purchase and equity compensation plans ( 1,137 ) 1,136 ( 1 ) Stock-based compensation 3,865 3,865 Cash dividends paid on common stock ($ 0.263 per share) ( 30,645 ) ( 30,645 ) Balance September 30, 2021 $ — $ 589,352 $ 2,427,544 $ 396,655 $ ( 92,047 ) $ 159,166 $ 10,551 $ 3,491,221 Balance June 30, 2020 $ 144,784 $ 563,978 $ 2,136,874 $ 232,082 $ ( 69,112 ) $ 349,261 $ 302 $ 3,358,169 Net income 132,448 907 133,355 Other comprehensive loss ( 5,826 ) ( 5,826 ) Distributions to non-controlling interest ( 608 ) ( 608 ) Redemption of preferred stock ( 144,784 ) ( 5,216 ) ( 150,000 ) Purchases of treasury stock ( 167 ) ( 167 ) Issuance of stock under purchase and equity compensation plans ( 229 ) 229 — Stock-based compensation 3,765 3,765 Cash dividends paid on common stock ($ .257 per share) ( 30,174 ) ( 30,174 ) Cash dividends paid on preferred stock ($ .375 per depositary share) ( 2,250 ) ( 2,250 ) Balance September 30, 2020 $ — $ 563,978 $ 2,140,410 $ 326,890 $ ( 69,050 ) $ 343,435 $ 601 $ 3,306,264 See accompanying notes to consolidated financial statements. 6 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Nine Months Ended September 30, 2021 and 2020 Commerce Bancshares, Inc. Shareholders (In thousands, except per share data) Preferred Stock Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Non-Controlling Interest Total (Unaudited) Balance December 31, 2020 $ — $ 589,352 $ 2,436,288 $ 73,000 $ ( 32,970 ) $ 331,377 $ 2,925 $ 3,399,972 Net income 415,859 9,373 425,232 Other comprehensive loss ( 172,211 ) ( 172,211 ) Distributions to non-controlling interest ( 1,088 ) ( 1,088 ) Purchases of treasury stock ( 80,052 ) ( 80,052 ) Sale of non-controlling interest of subsidiary 659 ( 659 ) — Issuance of stock under purchase and equity compensation plans ( 20,991 ) 20,975 ( 16 ) Stock-based compensation 11,588 11,588 Cash dividends on common stock ($ .788 per share) ( 92,204 ) ( 92,204 ) Balance September 30, 2021 $ — $ 589,352 $ 2,427,544 $ 396,655 $ ( 92,047 ) $ 159,166 $ 10,551 $ 3,491,221 Balance December 31, 2019 $ 144,784 $ 563,978 $ 2,151,464 $ 201,562 $ ( 37,548 ) $ 110,444 $ 3,788 $ 3,138,472 Adoption of ASU 2016-13 3,766 3,766 Balance December 31, 2019, adjusted 144,784 563,978 2,151,464 205,328 ( 37,548 ) 110,444 3,788 3,142,238 Net income 224,168 ( 2,479 ) 221,689 Other comprehensive income 232,991 232,991 Distributions to non-controlling interest ( 708 ) ( 708 ) Redemption of preferred stock ( 144,784 ) ( 5,216 ) ( 150,000 ) Purchases of treasury stock ( 53,760 ) ( 53,760 ) Issuance of stock under purchase and equity compensation plans ( 22,285 ) 22,258 ( 27 ) Stock-based compensation 11,231 11,231 Cash dividends on common stock ($ .771 per share) ( 90,640 ) ( 90,640 ) Cash dividends on preferred stock ($ 1.125 per depositary share) ( 6,750 ) ( 6,750 ) Balance September 30, 2020 $ — $ 563,978 $ 2,140,410 $ 326,890 $ ( 69,050 ) $ 343,435 $ 601 $ 3,306,264 See accompanying notes to consolidated financial statements. 7 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30 (In thousands) 2021 2020 (Unaudited) OPERATING ACTIVITIES: Net income $ 425,232 $ 221,689 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses ( 59,272 ) 141,593 Provision for depreciation and amortization 33,554 32,462 Amortization of investment security premiums, net 51,822 37,623 Investment securities (gains) losses, net (A) ( 39,765 ) 1,275 Net gains on sales of loans held for sale ( 18,849 ) ( 8,267 ) Originations of loans held for sale ( 442,853 ) ( 169,774 ) Proceeds from sales of loans held for sale 485,231 152,825 Net (increase) decrease in trading debt securities ( 9,093 ) 5,636 Stock-based compensation 11,588 11,231 (Increase) decrease in interest receivable 11,449 ( 11,012 ) Decrease in interest payable ( 3,168 ) ( 7,670 ) Increase (decrease) in income taxes payable 19,831 ( 7,942 ) Proceeds from terminated interest rate floors — 110,640 Other changes, net 20,418 ( 37,926 ) Net cash provided by operating activities 486,125 472,383 INVESTING ACTIVITIES: Disbursements received from equity-method investment 13,540 — Proceeds from sales of investment securities (A) 10,060 574,376 Proceeds from maturities/pay downs of investment securities (A) 2,571,116 1,856,780 Purchases of investment securities (A) ( 4,457,716 ) ( 5,135,211 ) Net (increase) decrease in loans 1,166,769 ( 1,710,009 ) Securities purchased under agreements to resell ( 900,000 ) — Purchases of premises and equipment ( 37,385 ) ( 29,192 ) Sales of premises and equipment 4,786 313 Net cash used in investing activities ( 1,628,830 ) ( 4,442,943 ) FINANCING ACTIVITIES: Net increase in non-interest bearing, savings, interest checking and money market deposits 1,428,561 5,138,314 Net decrease in certificates of deposit ( 228,916 ) ( 17,565 ) Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 155,370 ( 197,708 ) Net increase (decrease) in short-term borrowings 3,204 ( 1,636 ) Preferred stock redemption — ( 150,000 ) Purchases of treasury stock ( 80,052 ) ( 53,760 ) Issuance of stock under purchase and equity compensation plans ( 16 ) ( 27 ) Cash dividends paid on common stock ( 92,204 ) ( 90,640 ) Cash dividends paid on preferred stock — ( 6,750 ) Net cash provided by financing activities 1,185,947 4,620,228 Increase in cash, cash equivalents and restricted cash 43,242 649,668 Cash, cash equivalents and restricted cash at beginning of year 2,208,328 907,808 Cash, cash equivalents and restricted cash at September 30 $ 2,251,570 $ 1,557,476 Income tax payments, net $ 87,989 $ 58,750 Interest paid on deposits and borrowings $ 13,213 $ 45,508 Loans transferred to foreclosed real estate $ 172 $ 57 (A) Available for sale debt securities, equity securities, and other securities. See accompanying notes to consolidated financial statements. Restricted cash is comprised of cash collateral posted by the Company to secure interest rate swap agreements. This balance is included in other assets in the consolidated balance sheets and totaled $ 18.6 million and $ 25.9 million at September 30, 2021 and 2020, respectively. 8 Table of Contents Commerce Bancshares, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2021 (Unaudited) 1. Principles of Consolidation and Presentation The accompanying consolidated financial statements include the accounts of Commerce Bancshares, Inc. and all majority-owned subsidiaries (the Company). Most of the Company's operations are conducted by its subsidiary bank, Commerce Bank (the Bank). The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments necessary to present fairly the financial position and the results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to 2020 data to conform to current year presentation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Management has evaluated subsequent events for potential recognition or disclosure. The results of operations for the three and nine month periods ended September 30, 2021 are not necessarily indicative of results to be attained for the full year or any other interim period. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company's most recent Annual Report on Form 10-K, containing the latest audited consolidated financial statements and notes thereto. 2. Loans and Allowance for Credit Losses Major classifications within the Company’s held for investment loan portfolio at September 30, 2021 and December 31, 2020 are as follows: (In thousands) September 30, 2021 December 31, 2020 Commercial: Business $ 5,277,850 $ 6,546,087 Real estate – construction and land 1,257,836 1,021,595 Real estate – business 2,937,852 3,026,117 Personal Banking: Real estate – personal 2,769,292 2,820,030 Consumer 2,049,559 1,950,502 Revolving home equity 281,442 307,083 Consumer credit card 569,976 655,078 Overdrafts 4,583 3,149 Total loans $ 15,148,390 $ 16,329,641 Accrued interest receivable totaled $ 33.0 million and $ 41.9 million at September 30, 2021 and December 31, 2020, respectively, and was included within other assets on the consolidated balance sheets. For the three months ended September 30, 2021, the Company wrote-off accrued interest by reversing interest income of $ 27 thousand and $ 781 thousand in the Commercial and Personal Banking portfolios, respectively. Similarly, for the nine months ended September 30, 2021, the Company wrote-off accrued interest of $ 188 thousand and $ 3.9 million in the Commercial and Personal Banking portfolios, respectively. At September 30, 2021, loans of $ 3.5 billion were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of $ 1.3 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings. 9 Table of Contents Allowance for credit losses 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 reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. 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. For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and outstanding loan balances during a lookback period. Lookback periods can be different based on the individual pool and represent management’s credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given a single path economic forecast of key macroeconomic variables including GDP, disposable income, unemployment rate, various interest rates, CPI inflation rate, HPI, CREPI and market volatility. The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting back to historical averages using a straight-line method. The forecast adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions (except for contractual extensions at the option of the customer), renewals and modifications unless there is a reasonable expectation that a troubled debt restructuring will be executed. Credit cards and certain similar consumer lines of credit do not have stated maturities and therefore, for these loan classes, remaining contractual lives are determined by estimating future cash flows expected to be received from customers until payments have been fully allocated to outstanding balances. 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. 10 Table of Contents Key model assumptions in the Company’s allowance for credit loss model include the economic forecast, the reasonable and supportable period, prepayment assumptions and qualitative factors applied for portfolio composition changes, underwriting practices, or significant unique events or conditions. The assumptions utilized in estimating the Company’s allowance for credit losses at September 30, 2021 and June 30, 2021 are discussed below. Key Assumption September 30, 2021 June 30, 2021 Overall economic forecast • An optimistic recovery from the Global Coronavirus Recession (GCR) continues • Assumes improving health conditions • Assumes gradual easing of supply constraints • Continued uncertainty regarding the assumptions related to the health crisis • Uncertainty regarding rising inflation • An optimistic recovery from the GCR continues • Assumes improving health conditions and expanding vaccine distribution • Further fiscal stimulus assumed • Continued uncertainty regarding the assumptions related to the health crisis • Uncertainty regarding rising inflation Reasonable and supportable period and related reversion period • One year for commercial and personal banking loans • Reversion to historical average loss rates within two quarters using straight-line method • One year for commercial and personal banking loans • Reversion to historical average loss rates within two quarters using straight-line method Forecasted macro-economic variables • Unemployment rate ranging from 4.5% to 4.0% during the supportable forecast period • Real GDP growth ranging from 5.7% to 3.6% • Prime rate of 3.25% • Unemployment rate ranging from 4.6% to 4.0% during the supportable forecast period • Real GDP growth ranging from 10.7% to 1.7% • Prime rate of 3.25% Prepayment assumptions Commercial loans • 5% for most loan pools Personal banking loans • Ranging from 26.9% to 16.5% for most loan pools • 62.2% for consumer credit cards Commercial loans • 5% for most loan pools Personal banking loans • Ranging from 25.4% to 16.5% for most loan pools • 60.1% for consumer credit cards Qualitative factors Added net reserves using qualitative processes related to: • Loans originated in our expansion markets, loans that are designated as shared national credits, and certain portfolios considered to be COVID-19 impacted • Changes in the composition of the loan portfolios • Loans downgraded to special mention, substandard, or non-accrual status Added net reserves using qualitative processes related to: • Loans originated in our expansion markets, loans that are designated as shared national credits, and certain portfolios considered to be COVID-19 impacted • Changes in the composition of the loan portfolios • Loans downgraded to special mention, substandard, or non-accrual status The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans, however, the liability for unfunded lending commitments incorporates an assumption for the portion of unfunded commitments that are expected to be funded. Sensitivity in the Allowance for Credit Loss model The allowance for credit losses is an estimate that requires significant judgment including projections of the macro-economic environment. The forecasted macro-economic environment continuously changes which can cause fluctuations in estimated expected losses. The current forecast projects a continued recovery of the COVID-19 pandemic induced recession. This pandemic is unprecedented and information that could be used in the estimation of the allowance for credit losses changes frequently. Trends in health conditions and vaccine distribution could significantly modify economic projections used in the estimation of the allowance for credit losses. 11 Table of Contents A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments during the three and nine months ended September 30, 2021 and 2020, respectively, follows: For the Three Months Ended September 30, 2021 For the Nine Months Ended September 30, 2021 (In thousands) Commercial Personal Banking Total Commercial Personal Banking Total ALLOWANCE FOR CREDIT LOSSES ON LOANS Balance at beginning of period $ 98,038 $ 74,357 $ 172,395 $ 121,549 $ 99,285 $ 220,834 Provision for credit losses on loans 186 ( 6,147 ) ( 5,961 ) ( 28,302 ) ( 15,447 ) ( 43,749 ) Deductions: Loans charged off 190 6,387 6,577 692 27,694 28,386 Less recoveries on loans 130 2,788 2,918 5,609 8,467 14,076 Net loan charge-offs (recoveries) 60 3,599 3,659 ( 4,917 ) 19,227 14,310 Balance September 30, 2021 $ 98,164 $ 64,611 $ 162,775 $ 98,164 $ 64,611 $ 162,775 LIABILITY FOR UNFUNDED LENDING COMMITMENTS Balance at beginning of period $ 23,350 $ 858 $ 24,208 $ 37,259 $ 1,048 $ 38,307 Provision for credit losses on unfunded lending commitments ( 1,564 ) 140 ( 1,424 ) ( 15,473 ) ( 50 ) ( 15,523 ) Balance September 30, 2021 $ 21,786 $ 998 $ 22,784 $ 21,786 $ 998 $ 22,784 ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 119,950 $ 65,609 $ 185,559 $ 119,950 $ 65,609 $ 185,559 For the Three Months Ended September 30, 2020 For the Nine Months Ended September 30, 2020 (In thousands) Commercial Personal Banking Total Commercial Personal Banking Total ALLOWANCE FOR CREDIT LOSSES ON LOANS Balance at end of prior period $ 130,553 $ 110,191 $ 240,744 $ 91,760 $ 68,922 $ 160,682 Adoption of ASU 2016-13 — — — ( 29,711 ) 8,672 ( 21,039 ) Balance at beginning of period $ 130,553 $ 110,191 $ 240,744 $ 62,049 $ 77,594 $ 139,643 Provision for credit losses on loans ( 1,935 ) 5,135 3,200 69,418 54,141 123,559 Deductions: Loans charged off 357 10,292 10,649 4,159 32,127 36,286 Less recoveries on loans 163 2,902 3,065 1,116 8,328 9,444 Net loan charge-offs 194 7,390 7,584 3,043 23,799 26,842 Balance September 30, 2020 $ 128,424 $ 107,936 $ 236,360 $ 128,424 $ 107,936 $ 236,360 LIABILITY FOR UNFUNDED LENDING COMMITMENTS Balance at end of prior period $ 34,052 $ 1,247 $ 35,299 $ 399 $ 676 $ 1,075 Adoption of ASU 2016-13 — — — 16,057 33 16,090 Balance at beginning of period $ 34,052 $ 1,247 $ 35,299 $ 16,456 $ 709 $ 17,165 Provision for credit losses on unfunded lending commitments ( 60 ) ( 39 ) ( 99 ) 17,536 499 18,035 Balance September 30, 2020 $ 33,992 $ 1,208 $ 35,200 $ 33,992 $ 1,208 $ 35,200 ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 162,416 $ 109,144 $ 271,560 $ 162,416 $ 109,144 $ 271,560 12 Table of Contents Delinquent and non-accrual loans The Company considers loans past due on the day following the contractual repayment date, if the contractual repayment was not received by the Company as of the end of the business day. The following table provides aging information on the Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at September 30, 2021 and December 31, 2020. (In thousands) Current or Less Than 30 Days Past Due 30 – 89 Days Past Due 90 Days Past Due and Still Accruing Non-accrual Total September 30, 2021 Commercial: Business $ 5,266,174 $ 3,029 $ 354 $ 8,293 $ 5,277,850 Real estate – construction and land 1,257,836 — — — 1,257,836 Real estate – business 2,935,233 2,042 — 577 2,937,852 Personal Banking: Real estate – personal 2,762,146 3,029 2,566 1,551 2,769,292 Consumer 2,029,109 18,147 2,303 — 2,049,559 Revolving home equity 279,410 1,202 830 — 281,442 Consumer credit card 560,685 4,848 4,443 — 569,976 Overdrafts 4,294 289 — — 4,583 Total $ 15,094,887 $ 32,586 $ 10,496 $ 10,421 $ 15,148,390 December 31, 2020 Commercial: Business $ 6,517,838 $ 2,252 $ 3,473 $ 22,524 $ 6,546,087 Real estate – construction and land 1,021,592 — 3 — 1,021,595 Real estate – business 3,016,215 7,666 6 2,230 3,026,117 Personal Banking: Real estate – personal 2,808,886 6,521 2,837 1,786 2,820,030 Consumer 1,921,822 25,417 3,263 — 1,950,502 Revolving home equity 305,037 1,656 390 — 307,083 Consumer credit card 635,770 7,090 12,218 — 655,078 Overdrafts 2,896 253 — — 3,149 Total $ 16,230,056 $ 50,855 $ 22,190 $ 26,540 $ 16,329,641 At September 30, 2021, the Company had $ 5.5 million in non-accrual business loans that had no allowance for credit loss. At December 31, 2020, the Company had $ 9.4 million in non-accrual business loans that had no allowance for credit loss. The Company did not record any interest income on non-accrual loans during the three and nine months ended September 30, 2021 and 2020, respectively. Credit quality indicators The following table provides information about the credit quality of the Commercial loan portfolio. The Company utilizes an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the expectation of debt repayment based on borrower specific information including but not limited to current financial information, historical payment experience, industry information, collateral levels and collateral types. The “pass” category consists of a range of loan grades that reflect increasing, though still acceptable, risk. A loan is assigned the risk rating at origination and then monitored throughout the contractual term for possible risk rating changes. Movement of risk through the various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention” rating is applied to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. All loans are analyzed for risk rating updates annually. For larger loans, rating assessments may be more frequent if relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans 13 Table of Contents are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past due related to credit issues. Loans rated Special Mention, Substandard or Non-accrual are subject to quarterly review and monitoring processes. In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by a credit review department which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan. The risk category of loans in the Commercial portfolio as of September 30, 2021 and December 31, 2020 are as follows: Term Loans Amortized Cost Basis by Origination Year (In thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total September 30, 2021 Business Risk Rating: Pass $ 1,134,349 $ 857,499 $ 719,076 $ 287,921 $ 184,147 $ 316,405 $ 1,662,395 $ 5,161,792 Special mention 1,360 742 22,078 19,893 612 3,430 13,958 62,073 Substandard 3,489 9,371 7,961 4,124 5 11,444 9,298 45,692 Non-accrual 446 — 1 2,057 110 5,655 24 8,293 Total Business: $ 1,139,644 $ 867,612 $ 749,116 $ 313,995 $ 184,874 $ 336,934 $ 1,685,675 $ 5,277,850 Real estate-construction Risk Rating: Pass $ 448,441 $ 465,051 $ 141,423 $ 43,814 $ 2,691 $ 24,807 $ 27,175 $ 1,153,402 Special mention 15,474 28,037 — 995 19,499 — — 64,005 Substandard 239 11,767 — 15,226 13,197 — — 40,429 Total Real estate-construction: $ 464,154 $ 504,855 $ 141,423 $ 60,035 $ 35,387 $ 24,807 $ 27,175 $ 1,257,836 Real estate-business Risk Rating: Pass $ 424,347 $ 749,037 $ 577,966 $ 272,536 $ 209,234 $ 324,869 $ 57,801 $ 2,615,790 Special mention 1,080 29,998 10,980 22,751 2,117 5,853 2 72,781 Substandard 17,021 64,197 11,834 30,993 68,664 52,183 3,812 248,704 Non-accrual 198 65 76 205 — 33 — 577 Total Real estate-business: $ 442,646 $ 843,297 $ 600,856 $ 326,485 $ 280,015 $ 382,938 $ 61,615 $ 2,937,852 Commercial loans Risk Rating: Pass $ 2,007,137 $ 2,071,587 $ 1,438,465 $ 604,271 $ 396,072 $ 666,081 $ 1,747,371 $ 8,930,984 Special mention 17,914 58,777 33,058 43,639 22,228 9,283 13,960 198,859 Substandard 20,749 85,335 19,795 50,343 81,866 63,627 13,110 334,825 Non-accrual 644 65 77 2,262 110 5,688 24 8,870 Total Commercial loans: $ 2,046,444 $ 2,215,764 $ 1,491,395 $ 700,515 $ 500,276 $ 744,679 $ 1,774,465 $ 9,473,538 14 Table of Contents Term Loans Amortized Cost Basis by Origination Year (In thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total December 31, 2020 Business Risk Rating: Pass $ 2,472,419 $ 966,068 $ 438,557 $ 329,207 $ 163,357 $ 281,604 $ 1,619,680 $ 6,270,892 Special mention 28,612 26,746 14,102 1,781 5,091 1,664 41,749 119,745 Substandard 17,246 21,985 5,076 2,675 3,578 13,390 68,976 132,926 Non-accrual 12,619 1 5,327 391 502 3,659 25 22,524 Total Business: $ 2,530,896 $ 1,014,800 $ 463,062 $ 334,054 $ 172,528 $ 300,317 $ 1,730,430 $ 6,546,087 Real estate-construction Risk Rating: Pass $ 483,302 $ 330,480 $ 56,747 $ 3,021 $ 24,426 $ 1,692 $ 27,356 $ 927,024 Special mention 29,692 — 1,022 34,532 — — — 65,246 Substandard 1,154 — 14,989 13,182 — — — 29,325 Total Real estate-construction: $ 514,148 $ 330,480 $ 72,758 $ 50,735 $ 24,426 $ 1,692 $ 27,356 $ 1,021,595 Real estate- business Risk Rating: Pass $ 890,740 $ 666,399 $ 336,850 $ 241,656 $ 313,691 $ 199,534 $ 67,796 $ 2,716,666 Special mention 8,936 21,734 49,580 6,597 17,504 1,309 3,002 108,662 Substandard 46,882 1,037 4,061 81,435 17,538 45,014 2,592 198,559 Non-accrual 478 188 1,480 — — 84 — 2,230 Total Real-estate business: $ 947,036 $ 689,358 $ 391,971 $ 329,688 $ 348,733 $ 245,941 $ 73,390 $ 3,026,117 Commercial loans Risk Rating: Pass $ 3,846,461 $ 1,962,947 $ 832,154 $ 573,884 $ 501,474 $ 482,830 $ 1,714,832 $ 9,914,582 Special mention 67,240 48,480 64,704 42,910 22,595 2,973 44,751 293,653 Substandard 65,282 23,022 24,126 97,292 21,116 58,404 71,568 360,810 Non-accrual 13,097 189 6,807 391 502 3,743 25 24,754 Total Commercial loans: $ 3,992,080 $ 2,034,638 $ 927,791 $ 714,477 $ 545,687 $ 547,950 $ 1,831,176 $ 10,593,799 15 Table of Contents The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided as of September 30, 2021 and December 31, 2020 below: Term Loans Amortized Cost Basis by Origination Year (In thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total September 30, 2021 Real estate-personal Current to 90 days past due $ 509,080 $ 941,728 $ 379,912 $ 170,651 $ 158,655 $ 595,786 $ 9,363 $ 2,765,175 Over 90 days past due 86 663 — 188 167 1,462 — 2,566 Non-accrual — — 185 111 — 1,255 — 1,551 Total Real estate-personal: $ 509,166 $ 942,391 $ 380,097 $ 170,950 $ 158,822 $ 598,503 $ 9,363 $ 2,769,292 Consumer Current to 90 days past due $ 441,146 $ 391,312 $ 221,490 $ 96,086 $ 59,935 $ 93,205 $ 744,082 $ 2,047,256 Over 90 days past due 54 310 250 230 27 253 1,179 2,303 Total Consumer: $ 441,200 $ 391,622 $ 221,740 $ 96,316 $ 59,962 $ 93,458 $ 745,261 $ 2,049,559 Revolving home equity Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 280,612 $ 280,612 Over 90 days past due — — — — — — 830 830 Total Revolving home equity: $ — $ — $ — $ — $ — $ — $ 281,442 $ 281,442 Consumer credit card Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 565,533 $ 565,533 Over 90 days past due — — — — — — 4,443 4,443 Total Consumer credit card: $ — $ — $ — $ — $ — $ — $ 569,976 $ 569,976 Overdrafts Current to 90 days past due $ 4,583 $ — $ — $ — $ — $ — $ — $ 4,583 Total Overdrafts: $ 4,583 $ — $ — $ — $ — $ — $ — $ 4,583 Personal banking loans Current to 90 days past due $ 954,809 $ 1,333,040 $ 601,402 $ 266,737 $ 218,590 $ 688,991 $ 1,599,590 $ 5,663,159 Over 90 days past due 140 973 250 418 194 1,715 6,452 10,142 Non-accrual — — 185 111 — 1,255 — 1,551 Total Personal banking loans: $ 954,949 $ 1,334,013 $ 601,837 $ 267,266 $ 218,784 $ 691,961 $ 1,606,042 $ 5,674,852 16 Table of Contents Term Loans Amortized Cost Basis by Origination Year (In thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total December 31, 2020 Real estate-personal Current to 90 days past due $ 1,123,918 $ 488,379 $ 218,390 $ 201,971 $ 227,265 $ 544,008 $ 11,476 $ 2,815,407 Over 90 days past due 534 375 281 411 388 848 — 2,837 Non-accrual 29 191 116 45 65 1,340 — 1,786 Total Real estate-personal: $ 1,124,481 $ 488,945 $ 218,787 $ 202,427 $ 227,718 $ 546,196 $ 11,476 $ 2,820,030 Consumer Current to 90 days past due $ 536,799 $ 337,431 $ 161,337 $ 115,886 $ 75,769 $ 86,831 $ 633,186 $ 1,947,239 Over 90 days past due 212 358 328 220 174 397 1,574 3,263 Total Consumer: $ 537,011 $ 337,789 $ 161,665 $ 116,106 $ 75,943 $ 87,228 $ 634,760 $ 1,950,502 Revolving home equity Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 306,693 $ 306,693 Over 90 days past due — — — — — — 390 390 Total Revolving home equity: $ — $ — $ — $ — $ — $ — $ 307,083 $ 307,083 Consumer credit card Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 642,860 $ 642,860 Over 90 days past due — — — — — — 12,218 12,218 Total Consumer credit card: $ — $ — $ — $ — $ — $ — $ 655,078 $ 655,078 Overdrafts Current to 90 days past due $ 3,149 $ — $ — $ — $ — $ — $ — $ 3,149 Total Overdrafts: $ 3,149 $ — $ — $ — $ — $ — $ — $ 3,149 Personal banking loans Current to 90 days past due $ 1,663,866 $ 825,810 $ 379,727 $ 317,857 $ 303,034 $ 630,839 $ 1,594,215 $ 5,715,348 Over 90 days past due 746 733 609 631 562 1,245 14,182 18,708 Non-accrual 29 191 116 45 65 1,340 — 1,786 Total Personal banking loans: $ 1,664,641 $ 826,734 $ 380,452 $ 318,533 $ 303,661 $ 633,424 $ 1,608,397 $ 5,735,842 Collateral-dependent loans The Company's collateral-dependent loans are comprised of large loans on non-accrual status. The Company requires that collateral-dependent loans are either over-collateralized or carry collateral equal to the amortized cost of the loan. The following table presents the amortized cost basis of collateral-dependent loans as of September 30, 2021 and December 31, 2020. (In thousands) Business Assets Business Real Estate Oil & Gas Assets Total September 30, 2021 Commercial: Business $ 2,056 $ — $ 2,518 $ 4,574 Total $ 2,056 $ — $ 2,518 $ 4,574 December 31, 2020 Commercial: Business $ 13,109 $ — $ 2,695 $ 15,804 Real estate - business — 986 — 986 Total $ 13,109 $ 986 $ 2,695 $ 16,790 Other Personal Banking loan information As noted above, the credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided in the table in the above section on "Credit quality indicators." 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 17 Table of Contents renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain personal real estate loans for which FICO scores are not obtained because the loans generally pertain to commercial customer activities and are often underwritten with other collateral considerations. These loans totaled $ 186.0 million at September 30, 2021 and $ 191.1 million at December 31, 2020. The table also excludes consumer loans related to the Company's patient healthcare loan program, which totaled $ 189.6 million at September 30, 2021 and $ 188.1 million at December 31, 2020. As the healthcare loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and consumer loans excluded below totaled less than 7 % of the Personal Banking portfolio. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at September 30, 2021 and December 31, 2020 by FICO score. Personal Banking Loans % of Loan Category Real Estate - Personal Consumer Revolving Home Equity Consumer Credit Card September 30, 2021 FICO score: Under 600 .9 % 1.7 % 0.9 % 3.3 % 600 - 659 2.0 3.8 2.3 11.3 660 - 719 7.8 14.2 9.2 30.8 720 - 779 24.4 25.0 21.0 28.5 780 and over 64.9 55.3 66.6 26.1 Total 100.0 % 100.0 % 100.0 % 100.0 % December 31, 2020 FICO score: Under 600 .8 % 2.3 % 1.3 % 5.0 % 600 - 659 1.9 4.2 2.4 12.3 660 - 719 8.8 14.1 8.6 31.2 720 - 779 24.5 23.9 22.2 28.0 780 and over 64.0 55.5 65.5 23.5 Total 100.0 % 100.0 % 100.0 % 100.0 % Troubled debt restructurings Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due under the contractual terms will be collected. Commercial performing restructured loans are primarily comprised of certain business, construction and business real estate loans classified as substandard but renewed at rates judged to be non-market. These loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. Troubled debt restructurings also include certain credit card and other small consumer loans under various debt management and assistance programs. Modifications to these loans generally involve removing the available line of credit, placing loans on amortizing status, and lowering the contractual interest rate. Certain personal real estate, revolving home equity, and consumer loans were classified as consumer bankruptcy troubled debt restructurings because they were not reaffirmed by the borrower in bankruptcy proceedings. Interest on these loans is being recognized on an accrual basis, as the borrowers are continuing to make payments. Other consumer loans classified as troubled debt restructurings consist of various other workout arrangements with consumer customers. (In thousands) September 30, 2021 December 31, 2020 Accruing restructured loans: Commercial $ 110,583 $ 117,740 Assistance programs 6,789 7,804 Consumer bankruptcy 2,327 2,841 Other consumer 2,293 2,353 Non-accrual loans 7,866 9,889 Total troubled debt restructurings $ 129,858 $ 140,627 Section 4013 of the CARES Act was signed into law on March 27, 2020, and includes a provision that short-term modifications are not troubled debt restructurings, if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to December 31, 2019. The Company follows the guidance under the CARES Act when determining if a 18 Table of Contents customer’s modification is subject to troubled debt restructuring classification. If it is deemed the modification is not short-term, not COVID-19 related or the customer does not meet the criteria under the guidance to be scoped out of troubled debt restructuring classification, the Company will evaluate the loan modifications under its existing framework which requires modifications that result in a concession to a borrower experiencing financial difficulty be accounted for as a troubled debt restructuring. The initial guidance issued under the CARES Act was due to expire on December 31, 2020. During January 2021, the Consolidated Appropriations Act, 2021 was enacted and extended through the end of 2021 the relief offered under the CARES Act related to the accounting and disclosure requirements for troubled debt restructurings as a result of COVID-19. The Company elected to adopt the extension of this guidance. The table below shows the balance of troubled debt restructurings by loan classification at September 30, 2021, in addition to the outstanding balances of these restructured loans which the Company considers to have been in default at any time during the past twelve months. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal. (In thousands) September 30, 2021 Balance 90 days past due at any time during previous 12 months Commercial: Business $ 53,850 $ 347 Real estate - construction and land 10,104 — Real estate - business 53,240 198 Personal Banking: Real estate - personal 3,131 483 Consumer 2,865 177 Revolving home equity 23 — Consumer credit card 6,645 368 Total troubled debt restructurings $ 129,858 $ 1,573 For those loans on non-accrual status also classified as restructured, the modification did not create any further financial effect on the Company as those loans were already recorded at net realizable value. For those performing commercial loans classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no financial impact to the Company as a result of modification to these loans. No financial impact resulted from those performing loans where the debt was not reaffirmed in bankruptcy, as no changes to loan terms occurred in that process. However, the effects of modifications to loans under various debt management and assistance programs were estimated to decrease interest income by approximately $ 815 thousand on an annual, pre-tax basis, compared to amounts contractually owed. Other modifications to consumer loans mainly involve extensions and other small modifications that did not include the forgiveness of principal or interest. The allowance for credit losses related to troubled debt restructurings on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which management expects to collect under contractual terms. Performing commercial loans having no other concessions granted other than being renewed at non-market interest rates are judged to have similar risk characteristics as non-troubled debt commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical experience and current economic factors. If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for credit losses continues to be based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If an accruing troubled debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for credit losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begin. 19 Table of Contents The Company had commitments of $ 245 thousand at September 30, 2021 to lend additional funds to borrowers with restructured loans. Additionally, the Company had commitments at September 30, 2021 of $ 24.0 million related to letters of credit with an internal risk rating below substandard. Loans held for sale The Company designates certain long-term fixed rate personal real estate loans as held for sale, and the Company has elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the related economic hedges discussed in Note 11. The loans are primarily sold to Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA). At September 30, 2021, the fair value of these loans was $ 12.0 million, and the unpaid principal balance was $ 11.6 million. The Company also designates certain student loan originations as held for sale. The borrowers are credit-worthy students who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company maintains contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are carried at lower of cost or fair value, which at September 30, 2021 totaled $ 4.1 million. At September 30, 2021, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing. Foreclosed real estate/repossessed assets The Company’s holdings of foreclosed real estate totaled $ 115 thousand and $ 93 thousand at September 30, 2021 and December 31, 2020, respectively. Personal property acquired in repossession, generally autos, totaled $ 1.0 million and $ 1.4 million at September 30, 2021 and December 31, 2020, respectively. Upon acquisition, these assets are recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower of this cost basis or fair value less estimated selling costs. 3. Investment Securities Investment securities consisted of the following at September 30, 2021 and December 31, 2020. (In thousands) September 30, 2021 December 31, 2020 Available for sale debt securities $ 14,165,656 $ 12,449,264 Trading debt securities 40,114 35,321 Equity securities: Readily determinable fair value 7,118 2,966 No readily determinable fair value 2,056 1,397 Other: Federal Reserve Bank stock 34,379 34,070 Federal Home Loan Bank stock 10,185 10,307 Equity method investments 1,834 18,000 Private equity investments 138,052 94,368 Total investment securities (1) $ 14,399,394 $ 12,645,693 (1) Accrued interest receivable totaled $ 39.4 million and $ 41.5 million at September 30, 2021 and December 31, 2020, respectively, and was included within other assets on the consolidated balance sheet. The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer. This portfolio includes the Company's holdings of Visa Class B shares, which have a carrying value of zero, as there have not been observable price changes in orderly transactions for identical or similar investments of the same issuer. During the period, the Company did not record any impairment or other adjustments to the carrying amount of its portfolio of equity securities with no readily determinable fair value. Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, equity method investments, and investments in portfolio concerns held by the Company's private equity subsidiary. FRB stock and FHLB stock are held for debt and regulatory purposes. Investment in FRB stock is based on the capital structure of the investing bank, and investment in FHLB stock is tied to the level of borrowings from the FHLB. These holdings are carried at cost. Additionally, the Company's equity method investments are carried at cost, adjusted to reflect the Company's portion of income, loss, or dividends of the investee. These adjustments are included in non-interest income on the Company's income 20 Table of Contents statement. The Company's private equity investments, in the absence of readily ascertainable market values, are carried at estimated fair value. The majority of the Company’s investment portfolio is comprised of available for sale debt securities, which are carried at fair value with changes in fair value reported in accumulated other comprehensive income (AOCI). A summary of the available for sale debt securities by maturity groupings as of September 30, 2021 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and Government National Mortgage Association (GNMA), in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral. (In thousands) Amortized Cost Fair Value U.S. government and federal agency obligations: Within 1 year $ 79,731 $ 81,194 After 1 but within 5 years 454,372 479,137 After 5 but within 10 years 198,011 223,859 Total U.S. government and federal agency obligations 732,114 784,190 Government-sponsored enterprise obligations: After 10 years 50,781 51,941 Total government-sponsored enterprise obligations 50,781 51,941 State and municipal obligations: Within 1 year 170,006 171,558 After 1 but within 5 years 785,942 813,597 After 5 but within 10 years 752,596 764,446 After 10 years 410,023 405,475 Total state and municipal obligations 2,118,567 2,155,076 Mortgage and asset-backed securities: Agency mortgage-backed securities 5,943,839 5,974,802 Non-agency mortgage-backed securities 1,228,509 1,225,091 Asset-backed securities 3,342,935 3,359,915 Total mortgage and asset-backed securities 10,515,283 10,559,808 Other debt securities: Within 1 year 113,944 115,321 After 1 but within 5 years 222,106 226,915 After 5 but within 10 years 255,052 253,271 After 10 years 19,437 19,134 Total other debt securities 610,539 614,641 Total available for sale debt securities $ 14,027,284 $ 14,165,656 Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $ 387.1 million, at fair value, at September 30, 2021. Interest paid on these securities increases with inflation and decreases with deflation, as measured by the Consumer Price Index. At maturity, the principal paid is the greater of an inflation-adjusted principal or the original principal. Allowance for credit losses on available for sale debt securities The Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, on January 1, 2020. The adoption of ASU 2016-13 had no impact to the Company's available for sale securities reported in its consolidated financial statements at January 1, 2020. For the nine months ended September 30, 2021 and 2020, the Company did not recognize a credit loss expense on any available for sale debt securities. The Company’s model for establishing its allowance for credit losses uses cash flows projected to be received over the estimated life of the securities, discounted to present value, and compared to the current amortized cost bases of the securities. 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 who have been identified based on management’s judgment. These securities are placed on a 21 Table of Contents watch list and cash flow analyses are prepared on an individual security basis. Credit impairment is determined using 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. At September 30, 2021, the fair value of securities on this watch list was $ 13.7 million compared to $ 31.0 million at December 31, 2020. Significant inputs to the cash flow model used at September 30, 2021 to quantify credit losses were primarily credit support agreements, as the securities on the Company's watch list at September 30, 2021 were securities backed by government-guaranteed student loans and are expected to perform as contractually required. As of September 30, 2021, the Company did not identify any securities for which a credit loss exists. The table below summarizes debt securities available for sale in an unrealized loss position, aggregated by length of loss period, for which an allowance for credit losses has not been recorded at September 30, 2021 and December 31, 2020. Unrealized losses on these available for sale securities have not been recognized into income because after review, the securities were deemed not to be impaired. The unrealized losses on these securities are primarily attributable to changes in interest rates and current market conditions. Additionally, management does not intend to sell the securities, and it is more likely than not that management will not be required to sell the securities prior to their anticipated recovery. Less than 12 months 12 months or longer Total (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses September 30, 2021 Government-sponsored enterprise obligations $ 19,249 $ 569 $ — $ — $ 19,249 $ 569 State and municipal obligations 757,283 9,795 14,385 436 771,668 10,231 Mortgage and asset-backed securities: Agency mortgage-backed securities 3,076,674 44,140 38,993 1,968 3,115,667 46,108 Non-agency mortgage-backed securities 911,825 5,020 — — 911,825 5,020 Asset-backed securities 1,024,409 3,609 107,526 705 1,131,935 4,314 Total mortgage and asset-backed securities 5,012,908 52,769 146,519 2,673 5,159,427 55,442 Other debt securities 233,200 4,475 23,375 1,326 256,575 5,801 Total $ 6,022,640 $ 67,608 $ 184,279 $ 4,435 $ 6,206,919 $ 72,043 December 31, 2020 Government-sponsored enterprise obligations $ 19,720 $ 98 $ — $ — $ 19,720 $ 98 State and municipal obligations 45,622 230 — — 45,622 230 Mortgage and asset-backed securities: Agency mortgage-backed securities 470,373 2,802 — — 470,373 2,802 Non-agency mortgage-backed securities 112,861 380 — — 112,861 380 Asset-backed securities 21,360 56 253,734 2,617 275,094 2,673 Total mortgage and asset-backed securities 604,594 3,238 253,734 2,617 858,328 5,855 Other debt securities 24,522 175 — — 24,522 175 Total $ 694,458 $ 3,741 $ 253,734 $ 2,617 $ 948,192 $ 6,358 The entire available for sale debt portfolio included $ 6.2 billion of securities that were in a loss position at September 30, 2021, compared to $ 948.2 million at December 31, 2020. The total amount of unrealized loss on these securities was $ 72.0 million at September 30, 2021, an increase of $ 65.7 million compared to the loss at December 31, 2020. Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt securities" section above. 22 Table of Contents For debt securities classified as available for sale, the following tables show the amortized cost, fair value, and allowance for credit losses of securities available for sale at September 30, 2021 and December 31, 2020, and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI, by security type. (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value September 30, 2021 U.S. government and federal agency obligations $ 732,114 $ 52,076 $ — $ — $ 784,190 Government-sponsored enterprise obligations 50,781 1,729 ( 569 ) — 51,941 State and municipal obligations 2,118,567 46,740 ( 10,231 ) — 2,155,076 Mortgage and asset-backed securities: Agency mortgage-backed securities 5,943,839 77,071 ( 46,108 ) — 5,974,802 Non-agency mortgage-backed securities 1,228,509 1,602 ( 5,020 ) — 1,225,091 Asset-backed securities 3,342,935 21,294 ( 4,314 ) — 3,359,915 Total mortgage and asset-backed securities 10,515,283 99,967 ( 55,442 ) — 10,559,808 Other debt securities 610,539 9,903 ( 5,801 ) — 614,641 Total $ 14,027,284 $ 210,415 $ ( 72,043 ) $ — $ 14,165,656 December 31, 2020 U.S. government and federal agency obligations $ 775,592 $ 62,467 $ — $ — $ 838,059 Government-sponsored enterprise obligations 50,803 3,780 ( 98 ) — 54,485 State and municipal obligations 1,968,006 77,323 ( 230 ) — 2,045,099 Mortgage and asset-backed securities: Agency mortgage-backed securities 6,557,098 157,789 ( 2,802 ) — 6,712,085 Non-agency mortgage-backed securities 358,074 3,380 ( 380 ) — 361,074 Asset-backed securities 1,853,791 31,125 ( 2,673 ) — 1,882,243 Total mortgage and asset-backed securities 8,768,963 192,294 ( 5,855 ) — 8,955,402 Other debt securities 534,169 22,225 ( 175 ) — 556,219 Total $ 12,097,533 $ 358,089 $ ( 6,358 ) $ — $ 12,449,264 The following tables present proceeds from sales of securities and the components of investment securities gains and losses which have been recognized in earnings. For the Nine Months Ended September 30 (In thousands) 2021 2020 Proceeds from sales of securities: Available for sale debt securities $ — $ 574,374 Equity securities — 2 Other 10,060 — Total proceeds $ 10,060 $ 574,376 Investment securities gains (losses), net: Available for sale debt securities: Gains realized on sales $ — $ 16,965 Equity securities: Gains realized on sales — 2 Fair value adjustments, net 152 ( 126 ) Other: Gains realized on sales 1,611 — Fair value adjustments, net 38,002 ( 18,116 ) Total investment securities gains (losses), net $ 39,765 $ ( 1,275 ) Net gains on investment securities for the nine months ended September 30, 2021 were mainly comprised of gains of $ 1.6 million realized on the sale of a private equity investment and net gains in fair value of $ 38.0 million on private equity investments due to fair value adjustments. 23 Table of Contents At September 30, 2021, securities totaling $ 5.7 billion in fair value were pledged to secure public fund deposits, securities sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB, compared to $ 4.8 billion at December 31, 2020. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $ 213.1 million, while the remaining securities were pledged under agreements pursuant to which the secured parties may not sell or re-pledge the collateral. Except for obligations of various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeded 10 % of stockholders’ equity. 4. Goodwill and Other Intangible Assets The following table presents information about the Company's intangible assets which have estimable useful lives. September 30, 2021 December 31, 2020 (In thousands) Gross Carrying Amount Accumulated Amortization Valuation Allowance Net Amount Gross Carrying Amount Accumulated Amortization Valuation Allowance Net Amount Amortizable intangible assets: Core deposit premium $ 31,270 $ ( 30,186 ) $ — $ 1,084 $ 31,270 $ ( 29,912 ) $ — $ 1,358 Mortgage servicing rights 19,747 ( 8,990 ) ( 983 ) 9,774 15,238 ( 6,886 ) ( 2,103 ) 6,249 Total $ 51,017 $ ( 39,176 ) $ ( 983 ) $ 10,858 $ 46,508 $ ( 36,798 ) $ ( 2,103 ) $ 7,607 Aggregate amortization expense on intangible assets was $ 682 thousand and $ 859 thousand for the three month periods ended September 30, 2021 and 2020, respectively, and $ 2.4 million and $ 1.6 million for the nine month periods ended September 30, 2021 and 2020, respectively. The following table shows the estimated annual amortization expense for the next five fiscal years. This expense is based on existing asset balances and the interest rate environment as of September 30, 2021. The Company’s actual amortization expense in any given period may be different from the estimated amounts depending upon the acquisition of intangible assets, changes in mortgage interest rates, prepayment rates and other market conditions. (In thousands) 2021 $ 2,929 2022 1,799 2023 1,498 2024 1,244 2025 1,027 Changes in the carrying amount of goodwill and net other intangible assets for the nine month period ended September 30, 2021 are as follows: (In thousands) Goodwill Easement Core Deposit Premium Mortgage Servicing Rights Balance January 1, 2021 $ 138,921 $ 3,600 $ 1,358 $ 6,249 Originations — — — 4,509 Amortization — — ( 274 ) ( 2,104 ) Impairment reversal — — — 1,120 Balance September 30, 2021 $ 138,921 $ 3,600 $ 1,084 $ 9,774 Goodwill allocated to the Company’s operating segments at September 30, 2021 and December 31, 2020 is shown below. (In thousands) Consumer segment $ 70,721 Commercial segment 67,454 Wealth segment 746 Total goodwill $ 138,921 24 Table of Contents 5. Guarantees The Company, as a provider of financial services, routinely issues financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to guarantee the payment or performance obligation of a customer to a third party. While these represent a potential outlay by the Company, a significant amount of the commitments may expire without being drawn upon. The Company has recourse against the customer for any amount it is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by the Company. Most of the standby letters of credit are secured, and in the event of nonperformance by customers, the Company has rights to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. Upon issuance of standby letters of credit, the Company recognizes a liability for the fair value of the obligation undertaken, which is estimated to be equivalent to the amount of fees received from the customer over the life of the agreement. At September 30, 2021, that net liability was $ 3.1 million, which will be accreted into income over the remaining life of the respective commitments. The contractual amount of these letters of credit, which represents the maximum potential future payments guaranteed by the Company, was $ 423.6 million at September 30, 2021. The Company periodically enters into credit risk participation agreements (RPAs) as a guarantor to other financial institutions, in order to mitigate those institutions’ credit risk associated with interest rate swaps with third parties. The RPA stipulates that, in the event of default by the third party on the interest rate swap, the Company will reimburse a portion of the loss borne by the financial institution. These interest rate swaps are normally collateralized (generally with real property, inventories and equipment) by the third party, which limits the credit risk associated with the Company’s RPAs. The third parties usually have other borrowing relationships with the Company. The Company monitors overall borrower collateral and at September 30, 2021, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair value throughout their term with all changes in fair value, including those due to a change in the third party’s creditworthiness, recorded in current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 2 years to 15 years. At September 30, 2021, the fair value of the Company's guarantee liabilities for RPAs was $ 283 thousand, and the notional amount of the underlying swaps was $ 268.1 million. The maximum potential future payment guaranteed by the Company cannot be readily estimated but is dependent upon the fair value of the interest rate swaps at the time of default. 25 Table of Contents 6. Leases The Company has net investments in direct financing and sales-type leases to commercial, industrial, and tax-exempt entities. These leases are included within business loans on the Company's consolidated balance sheets. The Company primarily leases various types of equipment, trucks and trailers, and office furniture and fixtures. Lease agreements may include options for the lessee to renew or purchase the leased equipment at the end of the lease term. The Company has elected to adopt the lease component expedient in which the lease and nonlease components are combined into the total lease receivable. The Company also leases office space to third parties, and these leases are classified as operating leases. The leases may include options to renew or expand the leased space, and currently the leases have remaining terms of 3 months to 6 years. The following table provides the components of lease income. For the Three Months Ended September 30 For the Nine Months Ended September 30 (in thousands) 2021 2020 2021 2020 Direct financing and sales-type leases $ 5,482 $ 6,437 $ 17,398 $ 19,099 Operating leases (a) 1,717 2,270 5,721 6,491 Total lease income $ 7,199 $ 8,707 $ 23,119 $ 25,590 (a) Includes rent from Tower Properties Company, a related party, of $ 19 thousand for the three month periods ended September 30, 2021 and 2020, and $ 57 thousand for the nine months ended September 30, 2021 and 2020. 7. Pension The amount of net pension cost is shown in the table below: For the Three Months Ended September 30 For the Nine Months Ended September 30 (In thousands) 2021 2020 2021 2020 Service cost - benefits earned during the period $ 95 $ 93 $ 284 $ 295 Interest cost on projected benefit obligation 514 818 1,626 2,463 Expected return on plan assets ( 1,151 ) ( 1,317 ) ( 3,399 ) ( 3,911 ) Amortization of prior service cost ( 67 ) ( 67 ) ( 203 ) ( 203 ) Amortization of unrecognized net loss 669 503 1,971 1,587 Net periodic pension cost $ 60 $ 30 $ 279 $ 231 All benefits accrued under the Company’s defined benefit pension plan have been frozen since January 1, 2011. During the first nine months of 2021, the Company made no funding contributions to its defined benefit pension plan and made minimal funding contributions to a supplemental executive retirement plan (the CERP), which carries no segregated assets. 26 Table of Contents 8. Common Stock * Presented below is a summary of the components used to calculate basic and diluted income per share. The Company applies the two-class method of computing income per share, as nonvested share-based awards that pay nonforfeitable common stock dividends are considered securities which participate in undistributed earnings with common stock. The two-class method requires the calculation of separate income per share amounts for the nonvested share-based awards and for common stock. Income per share attributable to common stock is shown in the table below. Nonvested share-based awards are further discussed in Note 13. For the Three Months Ended September 30 For the Nine Months Ended September 30 (In thousands, except per share data) 2021 2020 2021 2020 Basic income per common share: Net income attributable to Commerce Bancshares, Inc. $ 122,561 $ 132,448 $ 415,859 $ 224,168 Less preferred stock dividends — 7,466 — 11,966 Net income available to common shareholders 122,561 124,982 415,859 212,202 Less income allocated to nonvested restricted stock 1,114 1,173 3,792 1,996 Net income allocated to common stock $ 121,447 $ 123,809 $ 412,067 $ 210,206 Weighted average common shares outstanding 115,836 116,256 116,085 116,391 Basic income per common share $ 1.05 $ 1.06 $ 3.55 $ 1.80 Diluted income per common share: Net income available to common shareholders $ 122,561 $ 124,982 $ 415,859 $ 212,202 Less income allocated to nonvested restricted stock 1,112 1,170 3,785 1,993 Net income allocated to common stock $ 121,449 $ 123,812 $ 412,074 $ 210,209 Weighted average common shares outstanding 115,836 116,256 116,085 116,391 Net effect of the assumed exercise of stock-based awards - based on the treasury stock method using the average market price for the respective periods 241 188 280 219 Weighted average diluted common shares outstanding 116,077 116,444 116,365 116,610 Diluted income per common share $ 1.05 $ 1.06 $ 3.54 $ 1.80 Unexercised stock appreciation rights of 94 thousand and 413 thousand for the three month periods ended September 30, 2021 and 2020, respectively, and 58 thousand and 295 thousand for the nine month periods ended September 30, 2021 and 2020, respectively, were excluded from the computation of diluted income per common share because their inclusion would have been anti-dilutive. On September 1, 2020, the Company redeemed all outstanding shares of its 6.00 % Series B Non-Cumulative Perpetual Preferred Stock, $ 1.00 par value per share (Series B Preferred Stock) and the corresponding depositary shares representing fractional interests in the Series B Preferred Stock (Series B Depositary Shares). * All prior year share and per share amounts in this note have been restated for the 5% common stock dividend distributed in December 2020. 27 Table of Contents 9. Accumulated Other Comprehensive Income The table below shows the activity and accumulated balances for components of other comprehensive income. The largest component is the unrealized holding gains and losses on available for sale debt securities. Another component is the amortization from other comprehensive income of losses associated with pension benefits, which occurs as the losses are included in current net periodic pension cost. The remaining component is gains and losses in fair value on certain interest rate floors that have been designated as cash flow hedging instruments. The interest rate floors were terminated during 2020, and the realized gains will be amortized into interest income through the original maturity dates of the interest rate floors. Information about unrealized gains and losses on securities can be found in Note 3, and information about unrealized gains and losses on cash flow hedge derivatives is located in Note 11. Unrealized Gains (Losses) on Securities (1) Pension Loss Unrealized Gains (Losses) on Cash Flow Hedge Derivatives (2) Total Accumulated Other Comprehensive Income (Loss) (In thousands) Balance January 1, 2021 $ 263,801 $ ( 25,118 ) $ 92,694 $ 331,377 Other comprehensive loss before reclassifications to current earnings ( 213,362 ) — — ( 213,362 ) Amounts reclassified to current earnings from accumulated other comprehensive income — 1,768 ( 18,024 ) ( 16,256 ) Current period other comprehensive income (loss), before tax ( 213,362 ) 1,768 ( 18,024 ) ( 229,618 ) Income tax (expense) benefit 53,343 ( 442 ) 4,506 57,407 Current period other comprehensive income (loss), net of tax ( 160,019 ) 1,326 ( 13,518 ) ( 172,211 ) Balance September 30, 2021 $ 103,782 $ ( 23,792 ) $ 79,176 $ 159,166 Balance January 1, 2020 $ 102,073 $ ( 21,940 ) $ 30,311 $ 110,444 Other comprehensive income before reclassifications to current earnings 237,583 — 94,702 332,285 Amounts reclassified to current earnings from accumulated other comprehensive income ( 16,965 ) 1,384 ( 6,050 ) ( 21,631 ) Current period other comprehensive income, before tax 220,618 1,384 88,652 310,654 Income tax expense ( 55,154 ) ( 346 ) ( 22,163 ) ( 77,663 ) Current period other comprehensive income, net of tax 165,464 1,038 66,489 232,991 Balance September 30, 2020 $ 267,537 $ ( 20,902 ) $ 96,800 $ 343,435 (1) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "investment securities gains (losses), net" in the consolidated statements of income. (2) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "interest and fees on loans" in the consolidated statements of income. 10. Segments The Company segregates financial information for use in assessing its performance and allocating resources among three operating segments: Consumer, Commercial and Wealth. The Consumer segment consists of various consumer loan and deposit products offered through its retail branch network of approximately 155 locations. This segment also includes indirect and other consumer loan financing businesses, along with debit and credit card loan and fee businesses. Residential mortgage origination, sales and servicing functions are included in this Consumer segment, but residential mortgage loans retained by the Company are not considered part of this segment and are instead included in the Other/Elimination column. The Commercial segment provides corporate lending (including the Small Business Banking product line within the branch network), leasing, and international services, along with business and governmental deposit products and commercial cash management services. This segment also includes both merchant and commercial bank card products as well as the Capital Markets Group, which sells fixed income securities and provides securities safekeeping and accounting services to its business and correspondent bank customers. The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management, and brokerage services. This segment also provides various loan and deposit related services to its private banking customers. 28 Table of Contents The following table presents selected financial information by segment and reconciliations of combined segment totals to consolidated totals. There were no material intersegment revenues between the three segments. Management periodically makes changes to methods of assigning costs and income to its business segments to better reflect operating results. If appropriate, these changes are reflected in prior year information presented below. (In thousands) Consumer Commercial Wealth Segment Totals Other/Elimination Consolidated Totals Three Months Ended September 30, 2021 Net interest income $ 80,411 $ 115,536 $ 18,075 $ 214,022 $ 15 $ 214,037 Provision for credit losses ( 3,557 ) ( 69 ) 9 ( 3,617 ) 11,002 7,385 Non-interest income 35,758 52,092 55,241 143,091 ( 5,585 ) 137,506 Investment securities gains, net — — — — 13,108 13,108 Non-interest expense ( 75,823 ) ( 84,604 ) ( 34,286 ) ( 194,713 ) ( 16,907 ) ( 211,620 ) Income before income taxes $ 36,789 $ 82,955 $ 39,039 $ 158,783 $ 1,633 $ 160,416 Nine Months Ended September 30, 2021 Net interest income $ 239,159 $ 340,345 $ 53,186 $ 632,690 $ ( 4,923 ) $ 627,767 Provision for credit losses ( 19,122 ) 4,856 10 ( 14,256 ) 73,528 59,272 Non-interest income 110,911 155,079 158,731 424,721 ( 12,027 ) 412,694 Investment securities gains, net — — — — 39,765 39,765 Non-interest expense ( 220,276 ) ( 246,502 ) ( 101,377 ) ( 568,155 ) ( 34,164 ) ( 602,319 ) Income before income taxes $ 110,672 $ 253,778 $ 110,550 $ 475,000 $ 62,179 $ 537,179 Three Months Ended September 30, 2020 Net interest income $ 80,944 $ 111,527 $ 15,303 $ 207,774 $ 8,188 $ 215,962 Provision for loan losses ( 7,654 ) ( 200 ) 13 ( 7,841 ) 4,740 ( 3,101 ) Non-interest income 37,115 47,920 47,701 132,736 ( 3,164 ) 129,572 Investment securities gains, net — — — — 16,155 16,155 Non-interest expense ( 73,075 ) ( 78,277 ) ( 30,933 ) ( 182,285 ) ( 8,573 ) ( 190,858 ) Income before income taxes $ 37,330 $ 80,970 $ 32,084 $ 150,384 $ 17,346 $ 167,730 Nine Months Ended September 30, 2020 Net interest income $ 241,195 $ 300,301 $ 41,686 $ 583,182 $ 36,902 $ 620,084 Provision for credit losses ( 23,885 ) ( 3,122 ) 10 ( 26,997 ) ( 114,596 ) ( 141,593 ) Non-interest income 107,489 143,746 139,700 390,935 ( 20,185 ) 370,750 Investment securities losses, net — — — — ( 1,275 ) ( 1,275 ) Non-interest expense ( 225,791 ) ( 237,327 ) ( 92,915 ) ( 556,033 ) ( 16,035 ) ( 572,068 ) Income before income taxes $ 99,008 $ 203,598 $ 88,481 $ 391,087 $ ( 115,189 ) $ 275,898 The information presented above was derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. This information is based on internal management accounting procedures and methods, which have been developed to reflect the underlying economics of the businesses. The methodologies are applied in connection with funds transfer pricing and assignment of overhead costs among segments. Funds transfer pricing was used in the determination of net interest income by assigning a standard cost (credit) for funds used (provided by) assets and liabilities based on their maturity, prepayment and/or repricing characteristics. The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination” column include activity not related to the segments, such as that relating to administrative functions, the investment securities portfolio, and the effect of certain expense allocations to the segments. The provision for credit losses in this category contains the difference between net loan charge-offs assigned directly to the segments and the recorded provision for credit loss expense. Included in this category’s net interest income are earnings of the investment portfolio, which are not allocated to a segment. The performance measurement of the operating segments is based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. The information is also not necessarily indicative of the segments' financial condition and results of operations if they were independent entities. 29 Table of Contents 11. Derivative Instruments The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. At September 30, 2021, the Company’s derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings. (In thousands) September 30, 2021 December 31, 2020 Interest rate swaps $ 2,236,974 $ 2,367,017 Interest rate caps 185,177 103,028 Credit risk participation agreements 372,661 381,170 Foreign exchange contracts 7,566 7,431 Mortgage loan commitments 44,233 67,543 Mortgage loan forward sale contracts 6,987 — Forward TBA contracts 37,000 89,000 Total notional amount $ 2,890,598 $ 3,015,189 The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. The customers are engaged in a variety of businesses, including real estate, manufacturing, retail product distribution, education, and retirement communities. These customer swaps are offset by matching contracts purchased by the Company from other financial dealer institutions. Contracts with dealers that require central clearing are novated to a clearing agency who becomes the Company's counterparty. Because of the matching terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings. Many of the Company’s interest rate swap contracts with large financial institutions contain contingent features relating to debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and ongoing collateralization on interest rate swaps in net liability positions or instant settlement of the contracts. The Company maintains debt ratings and capital well above these minimum requirements. During the year ended December 31, 2020, the Company monetized three interest rate floors that were previously classified as cash flow hedges with a combined notional balance of $ 1.5 billion and an asset fair value of $ 163.2 million. The unrealized gains will be reclassified into interest income as the underlying forecasted transactions impact earnings through the original maturity dates of the hedged forecasted transactions. As of September 30, 2021, the total realized gains on the monetized cash flow hedges remaining in AOCI was $ 105.6 million (pre-tax), which will be reclassified into interest income over the next 5.2 years. The Company also contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps through risk participation agreements. The Company’s risks and responsibilities as guarantor are further discussed in Note 5 on Guarantees. In addition, the Company enters into foreign exchange contracts, which are mainly comprised of contracts to purchase or deliver foreign currencies for customers at specific future dates. Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date. The fair values of the Company's derivative instruments, whose notional amounts are listed above, are shown in the table below. Information about the valuation methods used to determine fair value is provided in Note 17 on Fair Value Measurements in the 2020 Annual Report on Form 10-K. 30 Table of Contents The Company's policy is to present its derivative assets and derivative liabilities on a gross basis in its consolidated balance sheets, and these are reported in other assets and other liabilities. Certain collateral posted to and from the Company's clearing counterparty has been applied to the fair values of the cleared swaps, such that at September 30, 2021 in the table below, the positive fair values of cleared swaps were reduced by $ 224 thousand and the negative fair values of cleared swaps were reduced by $ 41.2 million. At December 31, 2020, there were no reductions to the positive fair values of cleared swaps and the negative fair values of cleared swaps were reduced by $ 69.2 million. Asset Derivatives Liability Derivatives Sept. 30, 2021 Dec. 31, 2020 Sept. 30, 2021 Dec. 31, 2020 (In thousands ) Fair Value Fair Value Derivative instruments: Interest rate swaps $ 53,020 $ 86,389 $ ( 12,001 ) $ ( 17,199 ) Interest rate caps 78 1 ( 78 ) ( 1 ) Credit risk participation agreements 113 216 ( 283 ) ( 701 ) Foreign exchange contracts 108 57 ( 92 ) ( 103 ) Mortgage loan commitments 1,510 3,226 — — Mortgage loan forward sale contracts 27 — ( 9 ) — Forward TBA contracts 209 — ( 3 ) ( 671 ) Total $ 55,065 $ 89,889 $ ( 12,466 ) $ ( 18,675 ) The pre-tax effects of derivative instruments on the consolidated statements of income are shown in the tables below. Amount of Gain or (Loss) Recognized in OCI Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income (In thousands) Total Included Component Excluded Component Total Included Component Excluded Component For the Three Months Ended September 30, 2020 Derivatives in cash flow hedging relationships: Interest rate floors $ ( 4,481 ) $ ( 4,087 ) $ ( 394 ) Interest and fees on loans $ 4,163 $ 5,509 $ ( 1,346 ) Total $ ( 4,481 ) $ ( 4,087 ) $ ( 394 ) Total $ 4,163 $ 5,509 $ ( 1,346 ) For the Nine Months Ended September 30, 2020 Derivatives in cash flow hedging relationships: Interest rate floors $ 94,702 $ 121,621 $ ( 26,919 ) Interest and fees on loans $ 6,050 $ 9,458 $ ( 3,408 ) Total $ 94,702 $ 121,621 $ ( 26,919 ) Total $ 6,050 $ 9,458 $ ( 3,408 ) Location of Gain or (Loss) Recognized in Income on Derivatives Amount of Gain or (Loss) Recognized in Income on Derivatives For the Three Months Ended September 30 For the Nine Months Ended September 30 (In thousands) 2021 2020 2021 2020 Derivative instruments: Interest rate swaps Other non-interest income $ 24 $ 81 $ 1,974 $ 369 Interest rate caps Other non-interest income — 1 15 20 Credit risk participation agreements Other non-interest income 47 ( 87 ) 27 153 Foreign exchange contracts Other non-interest income ( 22 ) — 62 ( 82 ) Mortgage loan commitments Loan fees and sales ( 309 ) 589 ( 1,716 ) 2,678 Mortgage loan forward sale contracts Loan fees and sales ( 10 ) 20 18 19 Forward TBA contracts Loan fees and sales ( 184 ) ( 709 ) 1,676 ( 482 ) Total $ ( 454 ) $ ( 105 ) $ 2,056 $ 2,675 The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master 31 Table of Contents netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset. Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after netting is applied); thus, amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default. While the Company is party to master netting arrangements with most of its swap derivative counterparties, the Company does not offset derivative assets and liabilities under these agreements on its consolidated balance sheet. Collateral exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually consists of marketable securities. By contract, these may be sold or re-pledged by the secured party until recalled at a subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash or securities to its clearing agent. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table below. Gross Amounts Not Offset in the Balance Sheet (In thousands) Gross Amount Recognized Gross Amounts Offset in the Balance Sheet Net Amounts Presented in the Balance Sheet Financial Instruments Available for Offset Collateral Received/ Pledged Net Amount September 30, 2021 Assets: Derivatives subject to master netting agreements $ 53,373 $ — $ 53,373 $ ( 144 ) $ — $ 53,229 Derivatives not subject to master netting agreements 1,692 — 1,692 Total derivatives $ 55,065 $ — $ 55,065 Liabilities: Derivatives subject to master netting agreements $ 12,354 $ — $ 12,354 $ ( 144 ) $ ( 11,275 ) $ 935 Derivatives not subject to master netting agreements 112 — 112 Total derivatives $ 12,466 $ — $ 12,466 December 31, 2020 Assets: Derivatives subject to master netting agreements $ 86,497 $ — $ 86,497 $ ( 108 ) $ — $ 86,389 Derivatives not subject to master netting agreements 3,392 — 3,392 Total derivatives $ 89,889 $ — $ 89,889 Liabilities: Derivatives subject to master netting agreements $ 18,420 $ — $ 18,420 $ ( 108 ) $ ( 16,738 ) $ 1,574 Derivatives not subject to master netting agreements 255 — 255 Total derivatives $ 18,675 $ — $ 18,675 12. Resale and Repurchase Agreements The following table shows the extent to which assets and liabilities relating to securities purchased under agreements to resell (resale agreements) and securities sold under agreements to repurchase (repurchase agreements) have been offset in the consolidated balance sheets, in addition to the extent to which they could potentially be offset. Also shown is collateral received or pledged, which consists of marketable securities. The collateral amounts in the table are limited to the outstanding balances of the related asset or liability (after netting is applied); thus, amounts of excess collateral are not shown. The agreements in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default. 32 Table of Contents Resale and repurchase agreements are agreements to purchase/sell securities subject to an obligation to resell/repurchase the same or similar securities. They are accounted for as collateralized financing transactions, not as sales and purchases of the securities portfolio. The securities collateral accepted or pledged in resale and repurchase agreements with other financial institutions also may be sold or re-pledged by the secured party but is usually delivered to and held by third party trustees. The Company generally retains custody of securities pledged for repurchase agreements with customers. The Company is party to agreements commonly known as collateral swaps. These agreements involve the exchange of collateral under simultaneous repurchase and resale agreements with the same financial institution counterparty. These repurchase and resale agreements have the same principal amounts, inception dates, and maturity dates and have been offset against each other in the consolidated balance sheets, as permitted under the netting provisions of ASC 210-20-45. The collateral swaps totaled $ 200.0 million at September 30, 2021 and December 31, 2020. At September 30, 2021, the Company had posted collateral of $ 202.5 million in marketable securities, consisting of agency mortgage-backed bonds, and had accepted $ 209.1 million in agency mortgage-backed bonds. Gross Amounts Not Offset in the Balance Sheet (In thousands) Gross Amount Recognized Gross Amounts Offset in the Balance Sheet Net Amounts Presented in the Balance Sheet Financial Instruments Available for Offset Securities Collateral Received/Pledged Net Amount September 30, 2021 Total resale agreements, subject to master netting arrangements $ 1,950,000 $ ( 200,000 ) $ 1,750,000 $ — $ ( 1,750,000 ) $ — Total repurchase agreements, subject to master netting arrangements 2,442,408 ( 200,000 ) 2,242,408 — ( 2,242,408 ) — December 31, 2020 Total resale agreements, subject to master netting arrangements $ 1,050,000 $ ( 200,000 ) $ 850,000 $ — $ ( 850,000 ) $ — Total repurchase agreements, subject to master netting arrangements 2,256,113 ( 200,000 ) 2,056,113 — ( 2,056,113 ) — The table below shows the remaining contractual maturities of repurchase agreements outstanding at September 30, 2021 and December 31, 2020, in addition to the various types of marketable securities that have been pledged by the Company as collateral for these borrowings. Remaining Contractual Maturity of the Agreements (In thousands) Overnight and continuous Up to 90 days Greater than 90 days Total September 30, 2021 Repurchase agreements, secured by: U.S. government and federal agency obligations $ 273,267 $ 25,106 $ 19,942 $ 318,315 Agency mortgage-backed securities 1,640,466 3,775 209,759 1,854,000 Non-agency mortgage-backed securities 31,217 — — 31,217 Asset-backed securities 205,729 — — 205,729 Other debt securities 33,147 — — 33,147 Total repurchase agreements, gross amount recognized $ 2,183,826 $ 28,881 $ 229,701 $ 2,442,408 December 31, 2020 Repurchase agreements, secured by: U.S. government and federal agency obligations $ 150,305 $ — $ — $ 150,305 Agency mortgage-backed securities 1,598,614 34,018 220,849 1,853,481 Non-agency mortgage-backed securities 62,742 — — 62,742 Asset-backed securities 155,917 — — 155,917 Other debt securities 33,668 — — 33,668 Total repurchase agreements, gross amount recognized $ 2,001,246 $ 34,018 $ 220,849 $ 2,256,113 33 Table of Contents 13. Stock-Based Compensation The Company issues stock-based compensation in the form of nonvested restricted stock and stock appreciation rights (SARs). Historically, most of the awards have been issued during the first quarter of each year. The stock-based compensation expense that has been charged against income was $ 3.9 million and $ 3.8 million in the three months ended September 30, 2021 and 2020, respectively, and $ 11.6 million and $ 11.2 million in the nine months ended September 30, 2021 and 2020, respectively. Nonvested stock awards granted generally vest in 4 to 7 years and contain restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant. A summary of the status of the Company’s nonvested share awards as of September 30, 2021, and changes during the nine month period then ended, is presented below. Shares Weighted Average Grant Date Fair Value Nonvested at January 1, 2021 1,099,866 $ 52.11 Granted 224,336 71.90 Vested ( 242,139 ) 43.45 Forfeited ( 20,297 ) 58.68 Nonvested at September 30, 2021 1,061,766 $ 58.14 SARs are granted with exercise prices equal to the market price of the Company’s stock at the date of grant. SARs vest ratably over 4 years of continuous service and have contractual terms of 10 years. All SARs must be settled in stock under provisions of the plan. In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on date of grant. The current year per share average fair value and the model assumptions are shown in the table below. Weighted per share average fair value at grant date $ 16.78 Assumptions: Dividend yield 1.4 % Volatility 28.2 % Risk-free interest rate .7 % Expected term 5.7 years A summary of SAR activity during the first nine months of 2021 is presented below. (Dollars in thousands, except per share data) Rights Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2021 1,005,896 $ 44.95 Granted 72,416 72.91 Forfeited ( 6,363 ) 58.63 Expired ( 280 ) 57.95 Exercised ( 214,651 ) 39.59 Outstanding at September 30, 2021 857,018 $ 48.55 6.0 years $ 18,372 34 Table of Contents 14. Revenue from Contracts with Customers The core principle of ASU 2014-09, "Revenue from Contracts with Customers," is that an entity should recognize revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For the nine months ended September 30, 2021, approximately 60 % of the Company’s total revenue was comprised of net interest income, which is not within the scope of this guidance. Of the remaining revenue, those items that were subject to this guidance mainly included fees for bank card, trust, deposit account services and consumer brokerage services. The following table disaggregates non-interest income subject to ASU 2014-09 by major product line. Three Months Ended September 30 Nine Months Ended September 30 (In thousands) 2021 2020 2021 2020 Bank card transaction fees $ 42,815 $ 37,873 $ 123,118 $ 111,818 Trust fees 48,950 40,769 139,334 118,676 Deposit account charges and other fees 25,161 23,107 71,724 69,063 Consumer brokerage services 4,900 4,011 13,484 11,099 Other non-interest income 2,510 7,566 17,168 23,718 Total non-interest income from contracts with customers 124,336 113,326 364,828 334,374 Other non-interest income (1) 13,170 16,246 47,866 36,376 Total non-interest income $ 137,506 $ 129,572 $ 412,694 $ 370,750 (1) This revenue is not within the scope of ASU 2014-09, and includes fees relating to capital market activities, loan fees and sales, derivative instruments, standby letters of credit and various other transactions. For bank card transaction fees, the majority of debit and credit card fees are earned in the Consumer segment, while corporate card and merchant fees are earned in the Commercial segment. The Consumer and Commercial segments each contribute approximately half of the Company's deposit account charge revenue. All trust fees and consumer brokerage services income are earned in the Wealth segment. The following table presents the opening and closing receivable balances for the nine month periods ended September 30, 2021 and 2020 for the Company’s significant revenue categories subject to ASU 2014-09. (In thousands) September 30, 2021 December 31, 2020 September 30, 2020 December 31, 2019 Bank card transaction fees $ 13,349 $ 14,199 $ 11,501 $ 13,915 Trust fees 2,211 2,071 2,122 2,093 Deposit account charges and other fees 5,969 6,933 5,839 6,523 Consumer brokerage services 513 432 476 596 For these revenue categories, none of the transaction price has been allocated to performance obligations that are unsatisfied as of the end of a reporting period. 35 Table of Contents 15. Fair Value Measurements The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities and to determine fair value disclosures. Various financial instruments such as available for sale debt securities, equity securities, trading debt securities, certain investments relating to private equity activities, and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets and liabilities on a nonrecurring basis, such as mortgage servicing rights and certain other investment securities. These nonrecurring fair value adjustments typically involve lower of cost or fair value accounting or write-downs of individual assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: • Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. • Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds). • Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider. The valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis are described in the Fair Value Measurements note in the Company's 2020 Annual Report on Form 10-K. There have been no significant changes in these methodologies since then. 36 Table of Contents Instruments Measured at Fair Value on a Recurring Basis The table below presents the September 30, 2021 and December 31, 2020 carrying values of assets and liabilities measured at fair value on a recurring basis. There were no transfers among levels during the first nine months of 2021 or the year ended December 31, 2020. Fair Value Measurements Using (In thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) September 30, 2021 Assets: Residential mortgage loans held for sale $ 11,982 $ — $ 11,982 $ — Available for sale debt securities: U.S. government and federal agency obligations 784,190 784,190 — — Government-sponsored enterprise obligations 51,941 — 51,941 — State and municipal obligations 2,155,076 — 2,153,081 1,995 Agency mortgage-backed securities 5,974,802 — 5,974,802 — Non-agency mortgage-backed securities 1,225,091 — 1,225,091 — Asset-backed securities 3,359,915 — 3,359,915 — Other debt securities 614,641 — 614,641 — Trading debt securities 40,114 — 40,114 — Equity securities 7,118 7,118 — — Private equity investments 138,052 — — 138,052 Derivatives * 55,065 — 53,442 1,623 Assets held in trust for deferred compensation plan 20,880 20,880 — — Total assets 14,438,867 812,188 13,485,009 141,670 Liabilities: Derivatives * 12,466 — 12,183 283 Liabilities held in trust for deferred compensation plan 20,880 20,880 — — Total liabilities $ 33,346 $ 20,880 $ 12,183 $ 283 December 31, 2020 Assets: Residential mortgage loans held for sale $ 39,396 $ — $ 39,396 $ — Available for sale debt securities: U.S. government and federal agency obligations 838,059 838,059 — — Government-sponsored enterprise obligations 54,485 — 54,485 — State and municipal obligations 2,045,099 — 2,037,131 7,968 Agency mortgage-backed securities 6,712,085 — 6,712,085 — Non-agency mortgage-backed securities 361,074 — 361,074 — Asset-backed securities 1,882,243 — 1,882,243 — Other debt securities 556,219 — 556,219 — Trading debt securities 35,321 — 35,321 — Equity securities 2,966 2,966 — — Private equity investments 94,368 — — 94,368 Derivatives * 89,889 — 86,447 3,442 Assets held in trust for deferred compensation plan 19,278 19,278 — — Total assets 12,730,482 860,303 11,764,401 105,778 Liabilities: Derivatives * 18,675 — 17,974 701 Liabilities held in trust for deferred compensation plan 19,278 19,278 — — Total liabilities $ 37,953 $ 19,278 $ 17,974 $ 701 * The fair value of each class of derivative is shown in Note 11. 37 Table of Contents The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In thousands) State and Municipal Obligations Private Equity Investments Derivatives Total For the three months ended September 30, 2021 Balance June 30, 2021 $ 7,991 $ 116,246 $ 1,629 $ 125,866 Total gains or losses (realized/unrealized): Included in earnings — 12,971 ( 262 ) 12,709 Included in other comprehensive income * ( 175 ) — — ( 175 ) Investment securities called ( 6,000 ) — — ( 6,000 ) Discount accretion 179 — — 179 Purchases of private equity investments — 8,835 — 8,835 Sale of risk participation agreements — — ( 27 ) ( 27 ) Balance September 30, 2021 $ 1,995 $ 138,052 $ 1,340 $ 141,387 Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021 $ — $ 12,971 $ 1,557 $ 14,528 Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021 $ 2 $ — $ — $ 2 For the nine months ended September 30, 2021 Balance January 1, 2021 $ 7,968 $ 94,368 $ 2,741 $ 105,077 Total gains or losses (realized/unrealized): Included in earnings — 38,002 ( 1,689 ) 36,313 Included in other comprehensive income * ( 158 ) — — ( 158 ) Investment securities called ( 6,000 ) — — ( 6,000 ) Discount accretion 185 — — 185 Purchases of private equity investments — 14,491 — 14,491 Sale/pay down of private equity investments — ( 8,832 ) — ( 8,832 ) Capitalized interest/dividends — 23 — 23 Purchase of risk participation agreement — — 445 445 Sale of risk participation agreement — — ( 157 ) ( 157 ) Balance September 30, 2021 $ 1,995 $ 138,052 $ 1,340 $ 141,387 Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021 $ — $ 38,002 $ 1,367 $ 39,369 Total gains or losses for the nine months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021 $ 23 $ — $ — $ 23 38 Table of Contents Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In thousands) State and Municipal Obligations Private Equity Investments Derivatives Total For the three months ended September 30, 2020 Balance June 30, 2020 $ 9,490 $ 73,846 $ 1,888 $ 85,224 Total gains or losses (realized/unrealized): Included in earnings — 2,389 504 2,893 Included in other comprehensive income * 271 — — 271 Investment securities called ( 2,000 ) — — ( 2,000 ) Discount accretion 105 — — 105 Purchases of private equity investments — 2,522 — 2,522 Sale/pay down of private equity investments — ( 295 ) — ( 295 ) Balance September 30, 2020 $ 7,866 $ 78,462 $ 2,392 $ 88,720 Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020 $ — $ 2,409 $ 3,050 $ 5,459 Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020 $ 258 $ — $ — $ 258 For the nine months ended September 30, 2020 Balance January 1, 2020 $ 9,853 $ 94,122 $ 369 $ 104,344 Total gains or losses (realized/unrealized): Included in earnings — ( 18,116 ) 2,832 ( 15,284 ) Included in other comprehensive income * ( 101 ) — — ( 101 ) Investment securities called ( 2,000 ) — — ( 2,000 ) Discount accretion 114 — — 114 Purchases of private equity investments — 2,791 — 2,791 Sale/pay down of private equity investments — ( 364 ) — ( 364 ) Capitalized interest/dividends — 29 — 29 Sale of risk participation agreement — — ( 809 ) ( 809 ) Balance September 30, 2020 $ 7,866 $ 78,462 $ 2,392 $ 88,720 Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020 $ — $ ( 18,096 ) $ 3,262 $ ( 14,834 ) Total gains or losses for the nine months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020 $ ( 52 ) $ — $ — $ ( 52 ) * Included in "net unrealized gains (losses) on other securities" in the consolidated statements of comprehensive income. 39 Table of Contents Gains and losses included in earnings for the Level 3 assets and liabilities in the previous table are reported in the following line items in the consolidated statements of income: (In thousands) Loan Fees and Sales Other Non-Interest Income Investment Securities Gains (Losses), Net Total For the three months ended September 30, 2021 Total gains or losses included in earnings $ ( 309 ) $ 47 $ 12,971 $ 12,709 Change in unrealized gains or losses relating to assets still held at September 30, 2021 $ 1,510 $ 47 $ 12,971 $ 14,528 For the nine months ended September 30, 2021 Total gains or losses included in earnings $ ( 1,716 ) $ 27 $ 38,002 $ 36,313 Change in unrealized gains or losses relating to assets still held at September 30, 2021 $ 1,510 $ ( 143 ) $ 38,002 $ 39,369 For the three months ended September 30, 2020 Total gains or losses included in earnings $ 591 $ ( 87 ) $ 2,389 $ 2,893 Change in unrealized gains or losses relating to assets still held at September 30, 2020 $ 3,137 $ ( 87 ) $ 2,409 $ 5,459 For the nine months ended September 30, 2020 Total gains or losses included in earnings $ 2,679 $ 153 $ ( 18,116 ) $ ( 15,284 ) Change in unrealized gains or losses relating to assets still held at September 30, 2020 $ 3,137 $ 125 $ ( 18,096 ) $ ( 14,834 ) Level 3 Inputs The Company's significant Level 3 measurements, which employ unobservable inputs that are readily quantifiable, pertain to auction rate securities (ARS), investments in portfolio concerns held by the Company's private equity subsidiaries, and held for sale residential mortgage loan commitments. ARS are included in state and municipal securities and totaled $ 2.0 million at September 30, 2021, while private equity investments, included in other securities, totaled $ 138.1 million. Information about these inputs is presented in the table below. Quantitative Information about Level 3 Fair Value Measurements Weighted Valuation Technique Unobservable Input Range Average* Auction rate securities Discounted cash flow Estimated market recovery period 5 years 5 years Estimated market rate 1.1 % - 1.3 % 1.2 % Private equity investments Market comparable companies EBITDA multiple 4.0 - 6.0 5.3 Mortgage loan commitments Discounted cash flow Probability of funding 67.2 % - 100.0 % 87.0 % Embedded servicing value .8 % - 1.2 % 1.0 % * Unobservable inputs were weighted by the relative fair value of the instruments. 40 Table of Contents Instruments Measured at Fair Value on a Nonrecurring Basis For assets measured at fair value on a nonrecurring basis during the first nine months of 2021 and 2020, and still held as of September 30, 2021 and 2020, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation inputs used to determine each adjustment, and the carrying value of the related individual assets or portfolios at September 30, 2021 and 2020. Fair Value Measurements Using (In thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Gains (Losses) Recognized During the Nine Months Ended September 30 September 30, 2021 Collateral dependent loans $ 2,057 $ — $ — $ 2,057 $ ( 349 ) Mortgage servicing rights 9,774 — — 9,774 1,120 Long-lived assets 1,393 — — 1,393 ( 726 ) September 30, 2020 Collateral dependent loans $ 11,772 $ — $ — $ 11,772 $ ( 3,214 ) Mortgage servicing rights 5,731 — — 5,731 ( 1,823 ) The Company's significant Level 3 measurements that are measured on a nonrecurring basis pertain to the Company's mortgage servicing rights retained on certain fixed rate personal real estate loan originations. Mortgage servicing rights are included in other assets on the consolidated balance sheet, and information about these inputs is presented in the table below. Quantitative Information about Level 3 Fair Value Measurements Weighted Valuation Technique Unobservable Input Range Average* Mortgage servicing rights Discounted cash flow Discount rate 9.02 % - 9.35 % 9.15 % Prepayment speeds (CPR)* 11.46 % - 14.21 % 12.55 % Loan servicing costs - annually per loan Performing loans $ 70 - $ 72 $ 71 Delinquent loans $ 200 - $ 750 Loans in foreclosure $ 1,000 *Ranges and weighted averages based on interest rate tranches . The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are updated periodically for changes in market conditions. Actual rates may differ from our estimates. Increases in prepayment speed and discount rates negatively impact the fair value of our mortgage servicing rights. 41 Table of Contents 16. Fair Value of Financial Instruments The carrying amounts and estimated fair values of financial instruments held by the Company are set forth below. Fair value estimates are made at a specific point in time based on relevant market information. They do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for many of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The estimated fair values of the Company’s financial instruments and the classification of their fair value measurement within the valuation hierarchy are as follows at September 30, 2021 and December 31, 2020: Carrying Amount Estimated Fair Value at September 30, 2021 (In thousands) Level 1 Level 2 Level 3 Total Financial Assets Loans: Business $ 5,277,850 $ — $ — $ 5,220,005 $ 5,220,005 Real estate - construction and land 1,257,836 — — 1,238,620 1,238,620 Real estate - business 2,937,852 — — 2,936,476 2,936,476 Real estate - personal 2,769,292 — — 2,772,259 2,772,259 Consumer 2,049,559 — — 2,046,338 2,046,338 Revolving home equity 281,442 — — 279,165 279,165 Consumer credit card 569,976 — — 529,617 529,617 Overdrafts 4,583 — — 4,236 4,236 Total loans 15,148,390 — — 15,026,716 15,026,716 Loans held for sale 16,043 — 16,043 — 16,043 Investment securities 14,395,504 791,308 13,419,585 184,611 14,395,504 Securities purchased under agreements to resell 1,750,000 — — 1,757,410 1,757,410 Interest earning deposits with banks 1,888,545 1,888,545 — — 1,888,545 Cash and due from banks 344,460 344,460 — — 344,460 Derivative instruments 55,065 — 53,442 1,623 55,065 Assets held in trust for deferred compensation plan 20,880 20,880 — — 20,880 Total $ 33,618,887 $ 3,045,193 $ 13,489,070 $ 16,970,360 $ 33,504,623 Financial Liabilities Non-interest bearing deposits $ 11,622,855 $ 11,622,855 $ — $ — $ 11,622,855 Savings, interest checking and money market deposits 14,907,654 14,907,654 — — 14,907,654 Certificates of deposit 1,615,775 — — 1,617,580 1,617,580 Federal funds purchased 11,345 11,345 — — 11,345 Securities sold under agreements to repurchase 2,242,408 — — 2,242,486 2,242,486 Other borrowings 3,949 — 3,949 — 3,949 Derivative instruments 12,466 — 12,183 283 12,466 Liabilities held in trust for deferred compensation plan 20,880 20,880 — — 20,880 Total $ 30,437,332 $ 26,562,734 $ 16,132 $ 3,860,349 $ 30,439,215 42 Table of Contents Carrying Amount Estimated Fair Value at December 31, 2020 (In thousands) Level 1 Level 2 Level 3 Total Financial Assets Loans: Business $ 6,546,087 $ — $ — $ 6,467,572 $ 6,467,572 Real estate - construction and land 1,021,595 — — 995,873 995,873 Real estate - business 3,026,117 — — 3,016,576 3,016,576 Real estate - personal 2,820,030 — — 2,830,521 2,830,521 Consumer 1,950,502 — — 1,953,217 1,953,217 Revolving home equity 307,083 — — 304,434 304,434 Consumer credit card 655,078 — — 576,320 576,320 Overdrafts 3,149 — — 3,068 3,068 Total loans 16,329,641 — — 16,147,581 16,147,581 Loans held for sale 45,089 — 45,089 — 45,089 Investment securities 12,626,296 841,025 11,638,558 146,713 12,626,296 Securities purchased under agreements to resell 850,000 — — 894,338 894,338 Interest earning deposits with banks 1,747,363 1,747,363 — — 1,747,363 Cash and due from banks 437,563 437,563 — — 437,563 Derivative instruments 89,889 — 86,447 3,442 89,889 Assets held in trust for deferred compensation plan 19,278 19,278 — — 19,278 Total $ 32,145,119 $ 3,045,229 $ 11,770,094 $ 17,192,074 $ 32,007,397 Financial Liabilities Non-interest bearing deposits $ 10,497,598 $ 10,497,598 $ — $ — $ 10,497,598 Savings, interest checking and money market deposits 14,604,456 14,604,456 — — 14,604,456 Certificates of deposit 1,844,691 — — 1,847,277 1,847,277 Federal funds purchased 42,270 42,270 — — 42,270 Securities sold under agreements to repurchase 2,056,113 — — 2,056,173 2,056,173 Derivative instruments 18,675 — 17,974 701 18,675 Liabilities held in trust for deferred compensation plan 19,278 19,278 — — 19,278 Total $ 29,083,081 $ 25,163,602 $ 17,974 $ 3,904,151 $ 29,085,727 17. Legal and Regulatory Proceedings The Company has various legal proceedings pending at September 30, 2021, arising in the normal course of business. While some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet progressed to the point where a loss amount can be determined to be probable and estimable. 43 Table of Contents