What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-23 compared with 2021-02-24 · 590 added, 602 removed, 1380 unchanged (46% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

Forward-Looking Statements

30 unchanged sentences

• Net income and earnings per share — Net income attributable to Commerce Bancshares, Inc.

was $354.1 million, a decrease of 15.9% compared to the previous year.

was $530.8 million, an increase of 49.9% compared to the previous year.

The return on average assets was 1.55% in 2021, and the return on average common equity was 15.37%.

Diluted earnings per share decreased 14.7% in 2020 compared to 2019.

Diluted earnings per share increased 55.6% in 2021 compared to 2020.

• Total revenue — Total revenue is comprised of net interest income and non-interest income.

Total revenue in 2020 decreased $10.3 million, or .8%, from 2019, as net interest income grew $8.6 million, while non-interest income fell $18.8 million.

Growth in net interest income resulted principally from a decrease in interest expense, while the decline in non-interest income in 2020 was mainly due to a one-time gain of $11.5 million on the sale of our corporate trust business in 2019.

• Non-interest expense — Total non-interest expense increased .1% this year compared to 2019, mainly due to higher salaries and employee benefits expense, partially offset by higher deferred loan origination costs and lower supplies and communication and travel and entertainment expense.

Total revenue in 2021 increased $60.1 million, or 4.5%, from 2020, as net interest income grew $5.6 million, and non-interest income grew $54.5 million.

Growth in net interest income resulted principally from a decrease in interest expense, while the increase in non-interest income in 2021 was mainly due to growth in trust fees and bank card fees.

• Non-interest expense — Total non-interest expense increased 4.9% this year compared to 2020, mainly due to higher salaries and employee benefits expense, data processing and software expense and other non-interest expense.

• Asset quality — Net loan charge-offs totaled $18.6 million in 2021, a decrease of $16.3 million from those recorded in 2020, and averaged .12% of loans compared to .22% in the previous year.

2 unchanged sentences

In 2021, the Company issued its 28th consecutive annual 5% common stock dividend, and in February 2022, the Company's Board of Directors authorized an increase of 6.0% in the common cash dividend.

The Company purchased 886,379 shares of treasury stock, mostly in the first quarter of 2020.

Total shareholder return, including the change in stock price and dividend reinvestment, was 16.5%, 13.0%, and 9.1% over the past 5, 10, and 15 years, respectively.

The Company purchased 1,807,257 shares in 2021.

Total shareholder return, including

the change in stock price and dividend reinvestment, was 10.5%, 13.9%, and 9.9% over the past 5, 10, and 15 years, respectively.

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes.

52 unchanged sentences

* Intangible assets other than mortgage servicing rights.

Selected Financial Data

(In thousands, except per share data) 2020 2019 2018 2017 2016

Net interest income $ 829,847 $ 821,293 $ 823,825 $ 733,679 $ 680,049

Provision for credit losses 137,190 50,438 42,694 45,244 36,318

Non-interest income 505,867 524,703 501,341 461,263 446,556

Investment securities gains (losses), net 11,032 3,626 (488) 25,051 (53)

Non-interest expense 768,378 767,398 737,821 744,343 689,229

Net income attributable to Commerce Bancshares, Inc.

354,057 421,231 433,542 319,383 275,391

Net income available to common shareholders

342,091 412,231 424,542 310,383 266,391

Net income per common share-basic* 2.91 3.42 3.44 2.51 2.16

Net income per common share-diluted* 2.91 3.41 3.43 2.50 2.15

Cash dividends on common stock 120,818 113,466 100,238 91,619 87,070

Cash dividends per common share* 1.029 .943 .812 .740 .705

Market price per common share* 65.70 64.70 51.13 48.24 47.56

Book value per common share* 29.03 25.43 22.79 20.85 19.11

Common shares outstanding* 117,138 117,738 122,519 123,420 123,326

Total assets 32,922,974 26,065,789 25,463,842 24,833,415 25,641,424

Loans, including held for sale 16,374,730 14,751,626 14,160,992 14,005,072 13,427,192

Investment securities 12,645,693 8,741,888 8,698,666 8,893,307 9,770,986

Deposits 26,946,745 20,520,415 20,323,659 20,425,446 21,101,095

Long-term debt — — 951 1,758 102,049

Equity 3,399,972 3,138,472 2,937,149 2,718,184 2,501,132

Non-performing assets 26,633 10,585 13,949 12,664 14,649

* Restated for the 5% stock dividend distributed in December 2020.

Results of Operations

4 unchanged sentences

Non-interest income 560,393 505,867 524,703 54,526 (18,836) 10.8 (3.6)

Investment securities gains (losses), net 11,032 3,626 (488) 7,406 4,114 N.M.

Investment securities gains, net 30,059 11,032 3,626 19,027 7,406 N.M.

Non-interest expense (805,901) (768,378) (767,398) 37,523 980 4.9 .1

Income taxes (145,711) (87,293) (109,074) 58,418 (21,781) 66.9 (20.0)

Non-controlling interest income (expense) 172 (1,481) (4,672) (1,653) (3,191) N.M.

Income (expense) attributable to non-controlling interest (9,825) 172 (1,481) 9,997 (1,653) N.M.

Net income attributable to Commerce

1 unchanged sentence

530,765 354,057 421,231 176,708 (67,174) 49.9 (15.9)

Preferred stock dividends (11,966) (9,000) (9,000) 2,966 — 33.0 N.M.

Preferred stock dividends — (11,966) (9,000) (11,966) (2,966) (100.0) 33.0

Net income available to common

2 unchanged sentences

Net income attributable to Commerce Bancshares, Inc.

(net income) for 2021 was $530.8 million, an increase of $176.7 million, or 49.9%, compared to $354.1 million in 2020.

Diluted income per common share was $ 4.31 in 2021, compared to $ 2.77 in 2020.

The increase in net income resulted from a decrease of $203.5 million in the provision for credit losses, as well as an increase of $54.5 million in non-interest income.

These increases in net income were partly offset by increases in non-interest expense and income tax expense of $37.5 million and $58.4 million, respectively.

The return on average assets was 1.55% in 2021 compared to 1.20% in 2020, and the return on average common equity was 15.37% in 2021 compared to 10.64% in 2020.

At December 31, 2021, the ratio of tangible common equity to assets decreased to 9.01%, compared to 9.92% at year end 2020.

During 2021, net interest income grew mainly due to a decrease of $29.9 million in interest expense on deposits and borrowings, due to lower average rates paid, coupled with an increase of $19.5 million in interest income earned on investment securities, mainly due to higher average balances.

These increases in net interest income were partly offset by a decline of $41.5 million in interest earned on loans, mainly due to lower rates earned.

Total rates earned on average interest earning assets fell 53 basis points this year, while funding costs for deposits and borrowings decreased 19 basis points.

The provision for credit losses decreased due to an improved credit outlook and the release of loan loss reserves provided for anticipated credit losses in the prior year, which did not occur.

Net loan charge-offs decreased $16.3 million in 2021 compared to 2020, mainly due to lower credit card loan net charge-offs and net recoveries on business loans.

Non-interest income grew 10.8% in 2021, mainly due to growth in trust and net bank card fee income.

Net gains on investment securities in 2021 were comprised mainly of net fair value gains on the Company's private equity investment portfolio, partly offset by net losses on bond sales.

Non-interest expense increased $37.5 million in 2021 compared to 2020, largely due to higher salaries and benefits expense and data processing and software expense, as well as lower deferred loan origination costs and non-recurring litigation settlement costs recorded in the third quarter of 2021.

Net income for 2020 was $354.1 million, a decrease of $67.2 million, or 15.9%, compared to $421.2 million in 2019.

1 unchanged sentence

The decline in net income resulted from an increase of $86.8 million in the provision for credit losses, as well as a decrease of $18.8 million in non-interest income.

These decreases in net income were partly offset by increases of $8.6 million in net interest income and $7.4 million in investment securities gains, coupled with decreases of $21.8 million in income taxes and $1.7 million in non-controlling interest expense.

These decreases to net income were partly offset by increases of $8.6 million in net interest income and $7.4 million in investment securities gains, coupled with decreases of $21.8 million in income taxes and $1.7 million in non-controlling interest expense.

The return on average assets was 1.20% in 2020 compared to 1.67 in 2019, and the return on average common equity was 10.64% in 2020 compared to 14.06% in 2019.

At December 31, 2020, the ratio of tangible common equity to assets decreased to 9.92%, compared to 10.99% at year end 2019.

During 2020, net interest income grew mainly due to an increase of $24.7 million in interest income on long-term securities purchased under agreements to resell, mainly due to higher rates earned, coupled with a decrease of $60.6 million in interest expense on deposits and borrowings, due to lower rates paid.

As compared to 2019, the growth in net interest income in 2020 resulted mainly from an increase of $24.7 million in interest income on securities purchased under agreements to resell, mainly due to higher rates earned, coupled with a decrease of $60.6 million in interest expense on deposits and borrowings, due to lower rates paid.

These increases in net interest income were partly offset by declines in interest earned on loans and investment securities, resulting mainly from lower yields.

Total rates earned on average earning assets fell 76 basis points this year, while funding costs for deposits and borrowings decreased 41 basis points.

The provision for credit losses totaled $137.2 million, reflecting an increase in the provision for credit losses on the Company's loan portfolio and liability for unfunded loan commitments, resulting from deteriorating economic conditions driven by the COVID-19 pandemic.

Net loan charge-offs decreased $14.8 million in 2020 compared to 2019, mainly due to lower credit card net charge-offs.

Non-interest income fell 3.6% in 2020, mainly due to a one-time gain of $11.5 million resulting from the sale of the Company's corporate trust business in the fourth quarter of 2019, coupled with a decline in bank card fees.

Total rates earned on average earning assets fell 76 basis points in 2020, while funding costs for deposits and borrowings decreased 41 basis points.

driven by the COVID-19 pandemic.

Net loan charge-offs decreased $14.8 million in 2020 compared to 2019, mainly due to lower credit card loan net charge-offs.

Net investment securities gains of $11.0 million were recorded in 2020 and were comprised mainly of net gains realized on sales of mortgage-backed securities.

Non-interest expense grew $980 thousand in 2020 compared to 2019, largely due to higher salaries and benefits expense, mostly offset by higher deferred loan origination costs and lower supplies and communication and travel and entertainment expense.

Net income for 2019 was $421.2 million, a decrease of $12.3 million, or 2.8%, compared to $433.5 million in 2018.

Diluted income per common share was $3.41 in 2019, compared to $3.43 in 2018.

The decline in net income resulted from a decrease of $2.5 million in net interest income, as well as increases of $29.6 million in non-interest expense, $7.7 million in the provision for loan losses and $3.1 million in income taxes.

These decreases in net income were partly offset by increases of $23.4 million in non-interest income and $4.1 million in investment securities gains, coupled with a decrease of $3.2 million in non-controlling interest expense.

The return on average assets was 1.67% in 2019 compared to 1.76% in 2018, and the return on average common equity was 14.06% in 2019 compared to 16.16% in 2018.

At December 31, 2019, the ratio of tangible common equity to assets increased to 10.99%, compared to 10.45% at year end 2018.

As compared to 2018, the decrease in net interest income in 2019 resulted mainly from increased rates on the Company’s interest-bearing deposits and borrowings, coupled with lower average balances on investment securities.

These declines in net interest income were partially offset by growth in interest earned on loans as a result of higher loan yields and average balances.

Total rates earned on average earning assets grew 10 basis points in 2019, while funding costs for deposits and borrowings increased 23 basis points.

The provision for loan losses totaled $50.4 million, an increase of $7.7 million over the previous year and exceeded net loan charge-offs by $750 thousand.

Net loan charge-offs increased $7.4 million in 2019 compared to 2018,

mainly due to higher credit card and business loan net charge-offs.

The increase in business loan net charge-offs was primarily the result of a loan charge-off related to a single leasing customer.

Non-interest income grew 4.7% in 2019, mainly due to growth in trust fees, loan fees and sales, and gains on sales of assets.

Net investment securities gains of $3.6 million were recorded in 2019 and were mainly comprised of net gains realized on sales of equity investments.

Non-interest expense grew $29.6 million in 2019 compared to 2018, largely due to higher salaries and benefits and data processing and software expense, which increased $24.7 million and $6.9 million, respectively.

Non-interest expense grew $980 thousand in 2020 compared to 2019, largely due to higher salaries and benefits expense, mostly offset by higher deferred loan originations costs and lower supplies and communication expense and travel and entertainments expense.

The Company distributed a 5% stock dividend for the 28th consecutive year on December 17, 2021.

All per share and average share data in this report has been restated for the 2021 stock dividend.

Critical Accounting Policies

Critical Accounting Estimates and Related Policies

The Company's consolidated financial statements are prepared based on the application of certain accounting policies, the most significant of which are described in Note 1 to the consolidated financial statements.

3 unchanged sentences

The Company has identified several policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.

These policies relate to the allowance for credit losses and fair value measurement.

These estimates and related policies are the Company's allowance for credit losses and fair value measurement policies.

Allowance for Credit Losses

The Company's Allowance for Credit Losses policy covers the collectability of its loan portfolio, the exposure of its unfunded lending commitments, and the potential for credit losses in its available for sale investment portfolio.

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

Allowance for Credit Losses – Loans and Unfunded Lending Commitments

The Company performs periodic and systematic detailed reviews of its loan portfolio and unfunded lending commitments to assess overall collectability.

The level of the allowance for credit losses on loans and unfunded lending commitments reflects the Company's estimate of the losses expected in the loan portfolio and unfunded lending commitments at any point in time.

While these estimates are based on substantive methods for determining allowance requirements, actual outcomes may differ significantly from estimated results, especially when determining allowances for business, construction and business real estate loans, as well as for their related unfunded lending commitments.

These loans and commitments are normally larger and more complex, and their collection rates are harder to predict.

Personal banking loans, including personal real estate, credit card and consumer loans, are individually smaller and perform in a more homogenous manner, making loss estimates more predictable.

Additionally, the allowance for credit losses requires the calculation of expected lifetime credit losses utilizing a forward-looking forecast of macroeconomic conditions, which may differ significantly from actual results.

Further discussion of the methodology used in establishing the allowance is provided in the Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments section of Item 7 and in Note 1 to the consolidated financial statements.

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

The allowance for credit losses is measured on a collective (pool) basis.

Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral type and expected credit loss patterns.

Loans that do not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis.

The allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and an economic forecast that may affect the collectability of the remaining cash flows over the contractual term of the loans.

The calculated loss rate is increased or decreased to reflect expectations of future losses given a single path economic forecast.

These adjustments to the loss rate are based on results from various regression models projecting the impact of the macroeconomic variables.

The forecast is used for a reasonable and supportable period before reverting to historical averages using a straight-line method.

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

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

Assumptions, Judgments, and Uncertainties:

The uncertainty in the estimation of the allowance for credit losses is created because key assumptions and judgements are applied throughout the process.

Key assumptions include segmentation of the portfolio into pools, calculations of life of a loan using a combination of contractual terms and expected prepayment speeds and forecast of macroeconomic conditions.

The Company utilizes a third-party macro-economic forecast that continuously changes due to economic conditions and events.

The single path economic forecast includes key macroeconomic variables including GDP, disposable income, unemployment rate, various interest rates, consumer price index (CPI) inflation rate, housing price index (HPI), commercial real estate price index (CREPI) and market volatility.

Each reporting period, the base macroeconomic forecast scenario is evaluated to ensure it is not inconsistent with management’s expectations.

Changes in the forecast cause fluctuations in the estimates of the allowance for credit losses on loans and the liability for unfunded lending commitments.

Potential changes in any one economic variable may or may not affect the overall allowance because a variety of economic variables and inputs are considered in estimating the allowance, and changes in those variables and inputs may not occur at the same rate, may not be consistent across product types and may have offsetting impacts to other changing variables and inputs.

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

Qualitative factors not included in historical information or macroeconomic forecast require significant judgement to identify and determine how to apply to the estimate for credit losses.

The qualitative factors continuously evolve in reaction to other changing assumptions, data inputs and industry trends.

The Company uses its best judgment to assess the macroeconomic forecast, key assumptions and internal and external data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments.

These estimates are subject to continuous refinement based on changes in the underlying external and internal data.

Impact if actual results differ from assumptions :

The allowance for credit losses represents management’s best estimate of expected current credit losses in the loan portfolio and within the Company’s unfunded lending commitments, but changes in the inputs and assumptions described above could significantly impact the calculated estimated credit losses.

Therefore, actual credit losses may differ significantly from estimated results.

Significant deterioration in circumstances relating to loan quality and economic conditions could result in a requirement for additional allowance.

Likewise, an upturn in loan quality and improved economic conditions may allow a reduction in the required allowance.

In either instance, changes could have a significant impact on our financial condition and results of operations.

Allowance for Credit Losses - Available for Sale Debt Securities

The level of the allowance for credit losses on available for sale securities reflects the Company’s estimate of the losses expected in the available for sale debt security portfolio.

1 unchanged sentence

If the unrealized loss is not expected to be recovered, the Company performs further analyses to determine whether any portion of the unrealized loss indicates that a credit loss exists.

Further discussion of the methodology used in establishing the allowance for credit losses on available for sale securities is provided in Note 1 to the consolidated financial statements.

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

Assumptions, Judgments, and Uncertainties:

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 watch list and cash flow analyses are prepared on an individual security basis.

Credit impairment is determined using input factors such as contractual payments required, expected delinquency rates, credit support from other tranches, prepayment speeds, collateral loss severity rates, and various other information related to the underlying collateral.

Impact if actual results differ from assumptions :

The allowance for credit losses represents management’s best estimate of expected credit losses in the available for sale debt portfolio, but significant deterioration in interest rates and economic

conditions could result in a requirement for additional allowance.

Likewise, an increase in interest rates and improved economic conditions may allow a reduction in the required allowance.

In either instance, anticipated changes could have a significant impact on our financial condition and results of operations.

Fair Value Measurement

Investment securities, including available-for-sale, trading, equity and other securities, residential mortgage loans held for sale, derivatives and deferred compensation plan assets and associated liabilities are recorded at fair value on a recurring basis.

Investment securities, including available-for-sale debt, trading, equity and other securities, residential mortgage loans held for sale, derivatives and deferred compensation plan assets and associated liabilities are recorded at fair value on a recurring basis.

Additionally, from time to time, other assets and liabilities may be recorded at fair value on a nonrecurring basis, such as loan values that have been reduced based on the fair value of the underlying collateral, other real estate (primarily foreclosed property), non-marketable equity securities and certain other assets and liabilities.

These nonrecurring fair value adjustments typically involve write-downs of individual assets or application of lower of cost or fair value accounting.

Assumptions, Judgments, and Uncertainties:

Fair value is an estimate of the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale) between market participants at the measurement date and is based on the assumptions market participants would use when pricing an asset or liability.

Fair value measurement and disclosure guidance establishes a three-level hierarchy for disclosure of assets and liabilities recorded at fair value.

The fair value hierarchy, the extent to which fair value is used to measure assets and liabilities and the valuation methodologies and key inputs used are discussed in Note 17 on Fair Value Measurements.

Fair value is measured based on a variety of inputs.

Fair value may be based on quoted market prices for identical assets or liabilities traded in active markets (Level 1 valuations).

If market prices are not available, quoted market prices for similar instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market are used (Level 2 valuations).

Where observable market data is not available, the valuation is generated from model-based techniques that use significant assumptions not observable in the market (Level 3 valuations).

Unobservable assumptions reflect the Company’s estimates for assumptions that market participants would use in pricing the asset or liability.

Valuation techniques typically include discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that are not directly comparable to the subject asset or liability.

The selection and weighting of the various fair value techniques may result in a fair value higher or lower than carrying value.

Considerable judgment may be involved in determining the amount that is most representative of fair value.

For assets and liabilities recorded at fair value, the Company looks to active and observable market data when developing fair value measurements for those items where there is an active market.

Certain assets and liabilities are not actively traded in observable markets, and the Company must use alternative valuation techniques to derive an estimated fair value measurement.

In doing so, the Company may be required to make judgments about assumptions market participants would use in estimating the fair value of the financial instrument.

The assumptions used to determine fair value adjustments are regularly evaluated by management for relevance under current facts and circumstances.

Changes in market conditions may reduce the availability of quoted prices or observable data.

For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable.

When market data is not available, the Company uses valuation techniques requiring more management judgment to estimate the appropriate fair value.

Impairment analysis also relates to long-lived assets and core deposit and other intangible assets.

An impairment loss is recognized if the carrying amount of the asset is not likely to be recoverable and exceeds its fair value.

In determining the fair value, management uses models and applies the techniques and assumptions previously discussed.

At December 31, 2021, assets and liabilities measured using observable inputs that are classified as either Level 1 or Level 2 represented 98.9% and 99.2% of total assets and liabilities recorded at fair value, respectively.

Valuations generated from model-based techniques that use at least one significant assumption not observable in the market are considered Level 3, and the Company's Level 3 assets totaled $150.2 million, or 1.0% of total assets recorded at fair value on a recurring basis.

Unobservable assumptions reflect estimates of assumptions market participants would use in pricing the asset or liability.

Fair value measurements for assets and liabilities where limited or no observable market data exists often involves significant judgments about assumptions, such as determining an appropriate discount rate that factors in both liquidity and risk premiums, and in many cases may not reflect amounts exchanged in a current sale of the financial instrument.

In addition, changes in market conditions may reduce the availability of quoted prices or observable data.

For example, reduced liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming unavailable.

Therefore, when market data is not available, the Company would use valuation techniques requiring more management judgment to estimate the appropriate fair value.

The fair value hierarchy, the extent to which fair value is used to measure assets and liabilities, and the valuation methodologies and key inputs used are discussed in Note 17 on Fair Value Measurements.

Impact if actual results differ from assumptions :

Changes in fair value are recorded either in earnings or accumulated other comprehensive income.

Adjustments in the inputs and assumptions described above could significantly impact the fair values of the Company’s assets and liabilities and have a significant impact on our financial condition and results of operations.

Net Interest Income

32 unchanged sentences

70,234 (51,245) 18,989 43,026 (63,523) (20,497)

Federal funds sold and short-term securities purchased

under agreements to resell (48) (4) (52) (480) 16 (464)

Long-term securities purchased under agreements to

Federal funds sold 4 (3) 1 (48) (4) (52)

Securities purchased under agreements to resell

20,355 (23,625) (3,270) 2,342 22,407 24,749

9 unchanged sentences

Certificates of deposit of $100,000 and over (1,410) (8,961) (10,371) (617) (13,380) (13,997)

Federal funds purchased and securities sold under agreements to repurchase

Federal funds purchased (646) (131) (777) (2,612) (1,926) (4,538)

Securities purchased under agreements to resell

1,366 (5,034) (3,668) 4,059 (22,845) (18,786)

7 unchanged sentences

On a tax equivalent (T/E) basis, net interest income totaled $847.1 million, and increased $4.3 million over 2020.

This increase was mainly due to a decline of $60.6 million in interest expense on deposits and borrowings, due to lower average rates paid, as well as an increase of $24.7 million in interest earned on long-term securities purchased under agreements to resell.

This increase was mainly due to a decline of $29.9 million in interest expense on deposits and borrowings, due to lower average rates paid, coupled with an increase of $19.0 million in interest earned on investment securities, mainly due to higher average balances.

These increases to net interest income (T/E) were partly offset by lower interest earned on loans, which declined $42.3 million, mainly due to lower rates earned.

The net yield on earning assets (T/E) was 2.58% in 2021 compared with 2.99% in 2020.

During 2021, loan interest income (T/E) fell $42.3 million from 2020 mainly due to a decline in rates earned for most loan categories and lower average business and consumer credit card loan balances.

The average tax equivalent rate earned on the loan portfolio decreased 21 basis points to 3.67% in 2021 compared to 3.88% in 2020.

Average loan balances decreased $232.5 million, or 1.5%, this year.

The decrease in consumer credit card loan interest income was the main driver of overall lower interest income.

Consumer credit card loan interest declined $14.4 million due to lower average balances of $91.4 million and a decrease of 64 basis points in the average rate earned.

Business loan interest income declined $9.3 million mainly due to a decrease of $548.7 million in average balances, partly offset by a 13 basis point increase in the average rate earned.

Average balances of business loans included average balances of $854.1 million in Paycheck Protection Program (PPP) loans at December 31, 2021, which was a decline of $204.9 million from balances of $1.1 billion at December 31, 2020.

The average rate earned on PPP loans increased 193 basis points to 4.81% in 2021 compared to 2.88% in 2020, partly offsetting the decline in average balances.

During 2021, the Company recognized $41.0 million in interest income on PPP loans.

As of December 31, 2021, 93% of the PPP loans originated by the Company had been forgiven, and the Company expects almost all of the remaining loans to be forgiven in 2022.

Business real estate loan interest was lower by $5.8 million in 2021 compared to 2020 as a result of a decrease of 25 basis points in the average rate, partly offset by higher average balances of $46.9 million.

Interest on personal real estate loans decreased $2.6 million as the average rate earned declined 32 basis points, while average balances increased $178.4 million.

Interest on consumer loans declined $9.7 million from the prior year as the average rate earned decreased 58 basis points, but was partly offset by growth in average balances of $42.4 million.

These decreases to loan interest income (T/E) were partly offset by an increase of $2.1 million in interest earned on construction and land loans.

This increase resulted from higher average balances of $187.7 million, partly offset by a 48 basis point decrease in the average rate earned.

Tax equivalent interest income on total investment securities increased $19.0 million during 2021, as average balances grew $3.2 billion, while the average rate earned decreased 38 basis points.

The average rate on the total investment securities portfolio was 1.81% in 2021 compared to 2.19% in 2020, while the average balance of the total investment securities portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $13.5 billion in 2021 compared to an average balance of $10.3 billion in 2020.

The increase in interest income was mainly due to higher interest income earned on U.S.

government securities, state and municipal obligations, asset-backed securities and other securities.

Interest earned on U.S.

government securities grew $15.5 million and was mainly impacted by growth of the same amount in inflation income on treasury inflation-protected securities (TIPS).

Average balances of U.S.

government securities increased $15.1 million and the average rated earned grew 191 basis points.

The increase in interest earned on state and municipal obligations resulted mainly from growth of $453.2 million in average balances, partly offset by a 33 basis point decrease in the average rate earned.

Interest on asset-backed securities increased $2.9 million mainly due to growth of $1.4 billion in the average balance, partly offset by an 87 basis point decrease in the average rate earned.

Other securities interest increased $11.9 million mainly due to higher interest earned on equity securities, largely as a result of one-time dividend payments of $5.5 million received on private equity portfolio investments in 2021.

Partly offsetting these increases in interest income was a decline of $14.7 million in interest income on mortgage-backed securities, due to a decrease of 56 basis points in the average rate earned, partly offset by higher average balances of $1.3 billion.

Interest on securities purchased under resell agreements decreased $3.3 million compared to 2020 due to a decrease of 185 basis points in the average rate, partly offset by growth in balances of $425.8 million.

Interest earned on deposits with banks increased $929 thousand over 2020, mainly due to growth in average balances of $1.3 billion, partly offset by a seven basis point decrease in the average rate earned.

During 2021, interest expense on deposits decreased $24.5 million from 2020 and resulted mainly from a 17 basis point decrease in the overall average rate paid on deposits.

Interest expense on interest checking and money market accounts decreased $10.4 million mainly due to lower rates paid, which fell 10 basis points, but was partly offset by higher average balances of $1.8 billion.

Interest expense on certificates of deposit over $100,000 declined $10.4 million, mainly due to a 74 basis point decline in the average rate paid.

The overall rate paid on total deposits decreased from .24% in 2020 to .07% in the current year.

Interest expense on borrowings decreased $5.5 million mainly due to lower rates paid on securities sold under repurchase agreements, partly offset by higher average balances.

The overall average rate incurred on all interest bearing liabilities was .07% in 2021, compared to .26% in 2020.

During 2020, net interest income totaled $829.8 million, increasing $8.6 million, or 1.0%, compared to $821.3 million in 2019.

On a tax equivalent (T/E) basis, net interest income totaled $842.8 million, and increased $7.4 million over 2019.

These increases to net interest income (T/E) were largely offset by lower interest earned on loans and investment securities, which declined $52.6 million and $20.5 million, respectively, mainly due to lower rates earned.

6 unchanged sentences

Business loan interest income declined $6.1 million mainly due to an 81 basis point decrease in the average rate earned, partly offset by an increase of $1.2 billion in average balances.

Average balances of business real estate loans included average balances of $1.1 billion in Paycheck Protection Program (PPP) loans at December 31, 2020.

Average balances of business loans included average balances of $1.1 billion in PPP loans at December 31, 2020.

Interest income on consumer credit card loans declined $15.1 million as a result of a decreases in the average balance of $96.0 million and the average rate of 49 basis points.

10 unchanged sentences

Interest earned on U.S.

government securities fell $3.6 million and was mainly impacted by a decline of $3.0 million in inflation income on treasury inflation-protected securities (TIPS).

government securities fell $3.6 million and was mainly impacted by a decline of $3.0 million in inflation income on TIPS.

Average balances of U.S.

2 unchanged sentences

Partly offsetting these decreases in interest income was growth of $3.9 million and $1.8 million in interest earned on state and municipal obligations and other debt securities, respectively.

The growth in interest earned on state and municipal obligations resulted mainly from an increase of $341.5 million in average balances, partly offset a 44 basis point decrease in the average rate earned.

The growth in interest earned on state and municipal obligations resulted mainly from an increase of $341.5 million in average balances, partly offset by a 44 basis point decrease in the average rate earned.

Other debt securities interest increased due to growth of $111.4 million in average balances, partly offset by a decline of 27 basis points in the average rate earned.

Interest on long-term securities purchased under resell agreements increased $24.7 million compared to 2019 due to an increase in the average rate of 263 basis points, as these assets were structured with floor spreads to protect against falling interest rates.

Of the $850.0 million in securities purchased under agreements to resell held by the Company throughout 2020, $450.0 million and $325.0 million of those agreements will mature throughout 2021 and 2022, respectively.

Interest on securities purchased under resell agreements increased $24.7 million in 2020 due to an increase in the average rate of 263 basis points, as these assets were structured with floor spreads to protect against falling interest rates.

Of the $850.0 million in securities purchased under agreements to resell held by the Company throughout 2020, $450.0 million of those agreements matured in 2021.

Interest earned on deposits with banks fell $4.4 million from 2019, mainly due to a 192 basis point decrease in the average rate earned, partly offset by an increase in average balances of $799.3 million.

1 unchanged sentence

Interest expense on interest checking and money market accounts decreased $21.9 million due to lower rates paid, which fell 21 basis points, while interest expense on certificates of deposit over $100,000 declined $14.0 million, mainly due to a 98 basis point decline in the average rate paid.

The overall rate paid on total deposits decreased from .54% in 2019 to .24% in the current year.

The overall rate paid on total deposits decreased from .54% in 2019 to .24% in 2020.

Interest expense on borrowings decreased $23.4 million mainly due to lower rates paid on federal funds purchased and customer repurchase agreements.

The overall average rate incurred on all interest bearing liabilities was .26% in 2020, compared to .67% in 2019.

Net interest income totaled $821.3 million in 2019, decreasing $2.5 million compared to $823.8 million in 2018.

On a tax equivalent (T/E) basis, net interest income totaled $835.4 million, and decreased $4.6 million from 2018.

This decrease included combined growth of $38.0 million in interest expense on deposits and borrowings, due to higher average rates paid and higher average balances.

In addition, interest earned on investment securities decreased $5.2 million, mainly due to lower average balances, while loan interest income (T/E) grew $38.6 million due to higher rates earned and higher average balances.

The net yield on earning assets (T/E) was 3.48% in 2019 compared with 3.53% in 2018.

During 2019, loan interest income (T/E) grew $38.6 million over 2018 mainly due to higher rates earned coupled with increased average balances for business, business real estate and personal real estate loan categories.

The average tax equivalent rate earned on the loan portfolio increased 18 basis points to 4.71% in 2019 compared to 4.53% in 2018.

In addition, average loan balances increased 2.1%, or $298.6 million, in 2019.

Increased interest of $17.5 million earned on business loans was the main driver of overall higher loan interest income, due to growth of $251.1 million in average business loan balances and a 16 basis point increase in the average rate.

While higher rates also contributed to the increase in interest income, rates were impacted by actions taken by the Federal Reserve during the second half of 2019 to lower interest rates.

Business real estate interest was higher by $10.1 million as a result of an increase in average balances of $121.2 million, along with an increase in the average rate of 17 basis points.

Personal real estate loan interest income increased $5.2 million and resulted from growth in average balances of $84.9 million and a nine basis point increase in the average rate earned.

Interest on consumer loans increased $3.3 million as the average rate grew 36 basis points, but was partly offset by a decline in average balances of $79.9 million, or 4.0%.

Interest on consumer credit card loans grew $1.5 million over 2018 as the average rate earned increased 26 basis points, while average balances declined $4.0 million.

Tax equivalent interest income on total investment securities decreased $5.2 million during 2019, as average balances declined $74.4 million and the average rate earned decreased three basis points.

The average rate on the total investment portfolio was 2.81% in 2019 compared to 2.84% in 2018, while the average balance of the total investment securities portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $8.7 billion in 2019 compared to an average balance of $8.8 billion in 2018.

The decrease in interest income was mainly due to lower interest and dividend income earned on equity and other securities, coupled with decreases in interest earned on state and municipal obligations, GSE's and U.S.

government securities.

Interest income on equity securities decreased $10.0 million, due to the receipt of $8.9 million in dividend income in the second quarter of 2018, which was related to a liquidated equity security that was carried at fair value.

Interest on other securities decreased $3.9 million mainly due to receipts of non-recurring equity investment dividends in 2018, but was partly offset by higher average balances.

Interest income on state and municipal obligations decreased $4.5 million, due to lower average balances of $189.7 million, partly offset by an increase of 10 basis points in the average rate earned.

Interest income on GSE's decreased $1.5 million, due to a decline in average balances of $117.1 million, partly offset by an increase of 40 basis points in the average rate earned.

Interest earned on U.S.

government securities fell $752 thousand and was mainly impacted by a decline of $3.0 million in inflation income on TIPS.

In addition, average balances declined $70.6 million, while the average rate earned increased 10 basis points.

Partly offsetting these decreases in interest income was growth of $12.1 million and $3.3 million in interest earned on mortgage-backed and asset-backed securities, respectively.

The growth in mortgage-backed interest resulted mainly from an increase of $391.0 million in average balances, coupled with a three basis point increase in the average rate earned.

Asset-backed securities interest increased due to growth of 38 basis points in the average rate earned, partly offset by a decline of $83.1 million in average balances.

During 2019, interest expense on deposits increased $27.3 million over 2018 and resulted mainly from a 20 basis point increase in the overall average rate paid on deposits.

Interest expense on interest checking and money market accounts increased $11.9 million due to higher rates paid, which rose 11 basis points.

The growth in interest expense on certificates of deposit was due to both higher rates paid on all certificates of deposit and higher average balances in certificates of deposit over $100,000, which grew $281.9 million, or 25.3%.

The overall rate paid on total deposits increased from .34% in 2018 to .54% in 2019.

Interest expense on borrowings increased $10.7 million due to both higher rates paid and higher average balances of federal funds purchased and customer repurchase agreements.

The overall average rate incurred on all interest bearing liabilities was .67% in 2019, compared to .44% in 2018.

Provision for Credit Losses

The provision for credit losses is recorded to bring the allowance for credit losses on loans and the liability for unfunded lending commitments to a level deemed adequate by management based on the factors mentioned in the “Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments” section of this discussion.

The provision for credit losses totaled $137.2 million in 2020, an increase of $86.8 million from the 2019 provision of $50.4 million.

In 2019, the provision for credit losses on loans exceeded net loan charge-offs by $750 thousand, increasing the allowance for credit losses on loans by the same amount, whereas the 2020 provision for credit losses on loans was $81.2 million greater than net loan charge-offs for the year.

In 2020, the provision for credit losses on unfunded lending commitments totaled $21.1 million.

Net loan charge-offs for the year totaled $34.9 million and decreased $14.8 million compared to $49.7 million in 2019.

The decrease in net loan charge-offs from the previous year was mainly the result of lower net charge-offs on credit card loans and consumer loans, which decreased $9.4 million and $4.1 million, respectively.

In addition, business loan net charge-offs decreased $437 thousand, while revolving home equity loan and personal real estate loan net recoveries increased $375 thousand and $347 thousand, respectively.

The allowance for credit losses on loans totaled $220.8 million at December 31, 2020, an increase of $60.2 million compared to the prior year, and represented 1.35% of loans at year end 2020, compared to 1.09% at December 31, 2019.

The liability for unfunded lending commitments totaled $38.3 million at December 31, 2020.

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

The provision for credit losses was a recovery of $66.3 million in 2021, which was a decrease of $203.5 million from the 2020 provision of $137.2 million.

The provision for credit losses on loans in 2021 was a recovery of $52.2 million, compared to a provision for credit losses on loans of $116.1 million in 2020.

The allowance for credit losses on loans totaled $150.0 million at December 31, 2021, a decrease of $70.8 million compared to the prior year, and represented .99% of loans at year end 2021, compared to 1.35% at December 31, 2020.

The provision for unfunded lending commitments was a recovery of $14.1 million during 2021, compared to a provision of $21.1 million in 2020, and the liability for unfunded lending commitments was $24.2 million at December 31, 2021, compared to $38.3 million at December 31, 2020.

Non-Interest Income

31 unchanged sentences

$ 167,891 $ 151,797 $ 167,879 10.6 % (9.6 %)

Non-interest income totaled $505.9 million, a decrease of $18.8 million, or 3.6%, compared to $524.7 million in 2019.

Bank card fees decreased $16.1 million, or 9.6%, from the prior year, due to declines in net corporate card fees of $12.0 million, net debit card fees of $2.4 million, net merchant fees of $903 thousand and net credit card fees of $784 thousand.

The decline in net corporate card fees from the prior year was due to lower transaction volume, partly offset by lower network and rewards expense.

Non-interest income totaled $560.4 million, an increase of $54.5 million, or 10.8%, compared to $505.9 million in 2020.

Bank card fees increased $16.1 million, or 10.6%, over the prior year, due to increases in net corporate card fees of $9.3 million, net debit card fees of $3.4 million, net credit card fees of $1.8 million and net merchant fees of $1.7 million.

The growth in net corporate and credit card fees over the prior year was due to higher interchange income, partly offset by higher rewards expense.

Net debit card fees increased due to higher interchange income, partly offset by an increase in network expense.

Net merchant fees were up due to an increase in merchant discount fees, partly offset by higher rewards expense.

Trust fee income increased $27.6 million, or 17.2%, as a result of continued growth in private client trust fees (up 19.1%) and higher institutional trust fees (up 11.0%).

Private client trust fees comprised 78.4% of trust fee income in 2021.

The market value of total customer trust assets totaled $69.3 billion at year end 2021, which was an increase of 13.2% over year end 2020 balances.

Deposit account fees increased $4.0 million, or 4.3%, mainly due to growth in corporate cash management fees and overdraft and return item fees of $3.3 million and $1.2 million, respectively, partly offset by lower personal deposit account service charge fees of $1.2 million.

In 2021, corporate cash management fees comprised 51.5% of total deposit fees, while overdraft fees comprised 24.8% of total deposit fees.

Capital market fees grew $1.4 million, or 9.3%, compared to the prior year, while revenue from consumer brokerage services increased $3.3 million, or 21.6%, due to growth in advisory and annuity

Loan fees and sales increased $3.0 million, or 11.4%, mainly due to growth in mortgage banking revenue and loan commitment fees.

Mortgage banking revenue was stronger in the first half of 2021 than during the second half of the year.

As interest rates and competition for mortgage loans increased during 2021, loan fees and sales declined in the second half of 2021.

Other non-interest income decreased $812 thousand, or 1.9%, from the prior year mainly due to lower cash sweep commissions of $7.9 million and a $2.2 million loss recorded on an equity method investment in 2021.

These decreases were partly offset by gains of $5.6 million recorded mainly on sales of branch properties during 2021 and increases in interest rate swap fees and check sales and wire fees of $2.2 million and $1.0 million, respectively.

During 2020, non-interest income totaled $505.9 million, a decrease of $18.8 million, or 3.6%, compared to $524.7 million in 2019.

Bank card fees decreased $16.1 million, or 9.6%, from 2019, due to declines in net corporate card fees of $12.0 million, net debit card fees of $2.4 million, net merchant fees of $903 thousand and net credit card fees of $784 thousand.

The decline in net corporate card fees from 2019 was due to lower transaction volume, partly offset by lower network and rewards expense.

The decline in net credit and debit card fees was mainly due to lower interchange income.

1 unchanged sentence

Net merchant fees fell due to lower merchant discount fees, partly offset by higher interchange income and lower network expense.

Trust fee income increased $5.0 million, or 3.2%, as a result of continued growth in private client trust fees (up 4.3%), which comprised 77.2% of trust fee income in 2020.

Trust fee income increased $5.0 million, or 3.2%, as a result of growth in private client trust fees (up 4.3%), which comprised 77.2% of trust fee income in 2020.

The market value of total customer trust assets totaled $61.2 billion at year end 2020, which was an increase of 7.9% over year end 2019 balances.

1 unchanged sentence

In 2020, corporate cash management fees comprised 50.2% of total deposit fees, while overdraft fees comprised 24.6% of total deposit fees.

Capital market fees grew $6.4 million, or 79.0%, compared to the prior year, mostly due to higher sales volume, while consumer brokerage services fell $709 thousand, or 4.5%.

Capital market fees grew $6.4 million, or 79.0%, compared to 2019, mostly due to higher sales volume, while consumer brokerage services fees fell $709 thousand, or 4.5%.

Loan fees and sales increased $10.9 million, or 69.2%, mainly due to growth in mortgage banking revenue.

2 unchanged sentences

In addition, cash sweep commissions and interest rate swap fees decreased $2.1 million and $4.4 million, respectively.

During 2019, non-interest income increased $23.4 million, or 4.7%, to $524.7 million compared to $501.3 million in 2018.

Bank card fees decreased $3.7 million, or 2.2%, from 2018.

This decrease included a decline in net corporate card fees of $5.3 million, partly offset by growth in net credit card fees of $1.2 million and net debit card fees of $287 thousand .

Trust fee income increased $7.7 million, or 5.2%, as a result of growth in private client trust fees (up 6.5%), which comprised 76.4% of trust fee income in 2019.

The market value of total customer trust assets totaled $56.7 billion at year end 2019, which was an increase of 13.3% over year end 2018 balances.

Deposit account fees increased $1.5 million, or 1.6%, mainly due to growth of $3.0 million in corporate cash management fees.

This increase was partly offset by declines of $872 thousand in overdraft and return item fees and $636 thousand in deposit account service charges.

Capital market fees grew $425 thousand, or 5.5%, compared to the prior year, while loan fees and sales increased $3.0 million, or 23.9%, mainly due to growth in mortgage banking revenue as a result of higher loan originations in 2019.

Other non-interest income increased $14.5 million, or 28.3%, mainly due to the one-time gain of $11.5 million, mentioned above.

In addition, cash sweep commissions increased $2.7 million and higher gains of $2.4 million were recorded on sales of leased assets to customers upon lease termination.

These increases were partly offset by gains of $6.6 million recorded on the sales of branch properties in 2018.

Investment Securities Gains (Losses), Net

2 unchanged sentences

Net gains on sales and fair value adjustments of equity securities 187 39 3,606

Adjustment for dividend income on a liquidated equity investment — — (8,917)

Net gains (losses) on sales and fair value adjustments of private equity investments 33,156 (10,103) 367

Other — — (133)

Total investment securities gains (losses), net

Total investment securities gains, net

$ 30,059 $ 11,032 $ 3,626

2 unchanged sentences

The gains and losses on private equity investments include fair value adjustments, in addition to gains and losses realized upon disposition.

The portions of private equity investment gains and losses that are attributable to minority interests are reported as non-controlling interest in the consolidated statements of income, and resulted in income of $1.4 million in 2020, compared to expense of $348 thousand in 2019 and expense of $2.8 million in 2018.

The portions of private equity investment gains and losses that are attributable to minority interests are reported as non-controlling interest in the consolidated statements of income, and resulted in expense of $6.5 million in 2021, compared to income of $1.4 million in 2020 and expense of $348 thousand in 2019.

Net securities gains of $30.1 million were recorded in 2021, which included $1.5 million in net gains realized on sales of private equity investments, net gains totaling $31.7 million of fair value adjustments on private equity investments, and $187 thousand of fair value adjustments on equity investments.

These net gains were offset by losses of $3.3 million realized on bond sales resulting from the Company's sale of approximately $73 million (book value) of bonds, mainly mortgage-backed securities.

Net securities gains of $11.0 million were recorded in 2020, which included $21.1 million in net gains realized on bond sales resulting from the Company's sale of approximately $602 million (book value) of bonds, mainly mortgage-backed securities and municipal securities.

These gains were offset by net losses totaling $10.1 million of fair value adjustments on private equity investments, in addition to net gains totaling $37 thousand of fair value adjustments on equity investments.

These gains were offset by net losses totaling $10.1 million of fair value adjustments on private equity investments.

Net securities gains of $3.6 million were recorded in 2019, which included $214 thousand in net losses realized on bond sales resulting from the Company's sale of approximately $400 million (book value) of bonds, mainly municipal securities, treasuries and asset-backed securities.

1 unchanged sentence

These gains were offset by net losses totaling $727 thousand of fair value adjustments on private equity investments.

Net securities losses of $488 thousand were recorded in 2018, which included $9.7 million in net losses realized on bond sales resulting from the Company's sale of approximately $680 million (book value) of bonds, mainly mortgage and asset-backed securities.

Net securities losses also included $8.9 million in losses related to an adjustment for dividend income on a liquidated investment.

These losses were offset by net gains totaling $13.8 million of fair value adjustments on private equity investments, in addition to fair value adjustments and net gains realized on sales of equity investments.

Non-Interest Expense

20 unchanged sentences

4,567 4,766 4,858

Non-interest expense was $768.4 million in 2020, an increase of $980 thousand, or .1%, over the previous year.

Non-interest expense was $805.9 million in 2021, an increase of $37.5 million, or 4.9%, over the previous year.

Salaries and benefits expense increased $12.3 million, or 2.4%, mainly due to higher incentive compensation and healthcare expense, partly offset by lower salaries expense.

Incentive compensation increased due to higher incentives in wealth and commercial, while full-time and part-time salaries expense declined mainly due to lower retail banking salaries expense.

Full-time equivalent employees totaled 4,567 at December 31, 2021, reflecting a 4.2% decrease from 2020.

Net occupancy expense increased $1.5 million, or 3.3%, mainly due to lower external rent income.

Equipment expense decreased $750 thousand, or 4.0%, mainly due to lower depreciation and equipment service expense, while supplies and communication expense decreased $301 thousand, or 1.7%.

Data processing and software expense increased $6.5 million, or 6.8%, primarily due to higher costs for service providers, bank card processing fees and software expense, while marketing expense increased $2.1 million, or 10.8%.

Other non-interest expense increased $16.2 million, or 28.2%, over the prior year mainly due to $8.2 million in non-recurring litigation settlement costs recorded in the third quarter of 2021.

In addition, deferred origination costs declined $3.5 million and deposit insurance expense increased $1.3 million.

These increases were partly offset by a reduction in impairment expense of $3.6 million on the Company's mortgage servicing rights.

In 2020, non-interest expense was $768.4 million in 2020, an increase of $980 thousand, or .1%, over 2019.

Salaries and benefits expense increased $20.1 million, or 4.1%, mainly due to higher costs for full-time salaries and incentive compensation.

Full-time salaries expense increased due to growth in commercial, information technology, wealth management

and other support unit salaries expense, while incentive compensation saw increases in mortgage, capital markets, and in association with the origination of PPP loans.

Full-time salaries expense increased due to growth in commercial, information technology, wealth management and other support unit salaries expense, while incentive compensation saw increases in mortgage, capital markets, and in association with the origination of PPP loans.

Full-time equivalent employees totaled 4,766 at December 31, 2020, reflecting a 1.9% decrease from 2019.

2 unchanged sentences

Data processing and software expense increased $2.4 million, or 2.6%, primarily due to higher costs for service providers and software expense, partly offset by lower bank card processing fees, while marketing expense decreased $2.2 million, or 9.9%.

Other non-interest expense decreased $15.6 million, or 21.4%, from the prior year mainly due to higher deferred origination costs (up $3.7 million) and lower travel and entertainment (down $8.7 million) and education expense (down $1.2 million).

Other non-interest expense decreased $15.6 million, or 21.4%, from 2019 mainly due to higher deferred origination costs (up $3.7 million) and lower travel and entertainment (down $8.7 million) and education expense (down $1.2 million).

These decreases were partly offset by higher deposit insurance expense (up $1.2 million), as well as higher impairment expense (up $1.8 million) and amortization (up $2.4 million) on the Company's mortgage servicing rights.

In 2019, non-interest expense was $767.4 million in 2019, an increase of $29.6 million, or 4.0%, over 2018.

Salaries and benefits expense increased $24.7 million, or 5.3%, mainly due to higher full-time salaries and medical expense.

Full-time salaries expense increased due to growth in consumer, commercial, information technology and other support unit salaries expense.

Full-time equivalent employees totaled 4,858 at December 31, 2019, reflecting a 1.3% increase over 2018.

Occupancy expense increased $1.1 million, or 2.4%, mainly due to higher real estate taxes and building depreciation expense, partly offset by a decline in utilities expense.

Equipment expense increased $936 thousand, or 5.2%, due to higher equipment depreciation expense.

Data processing and software expense increased $6.9 million, or 8.0%, primarily due to higher costs for service providers and higher bank card processing expense.

Marketing expense increased $1.4 million, or 6.6%, due to increased marketing efforts to support consumer and healthcare banking initiatives, partly offset by bank card marketing initiatives in 2018.

Other expense declined $5.2 million, or 6.7%, from 2018 mainly due to lower deposit insurance expense as a result of reduced FDIC insurance rates.

Income tax expense was $145.7 million in 2021, compared to $87.3 million in 2020 and $109.1 million in 2019.

The effective tax rate, including the effect of non-controlling interest, was 21.5% in 2021 compared to 19.8% in 2020 and 20.6% in 2019.

The decrease in effective tax rate in 2020 compared to 2019 was primarily driven by lower state and local income taxes.

The increase in effective tax rate in 2021 compared to 2020 was primarily driven by higher net income before taxes.

Additional information about income tax expense is provided in Note 9 to the consolidated financial statements.

1 unchanged sentence

Loan Portfolio Analysis

Classifications of consolidated loans by major category at December 31 for each of the past five years are shown in the table below.

Classifications of consolidated loans by major category at December 31, 2021 and 2020 are shown in the table below.

This portfolio consists of loans which were acquired or originated with the intent of holding to their maturity.

17 unchanged sentences

$ 15,176,359 $ 16,329,641

$ 16,329,641 $ 14,737,817 $ 14,140,298 $ 13,983,674 $ 13,412,736

The contractual maturities of business and real estate loan categories at December 31, 2020, and a breakdown of those loans between fixed rate and floating rate loans are as follows.

The contractual maturities of the loan portfolio at December 31, 2021, and a breakdown of those loans between fixed rate and floating rate loans are as follows.

Principal Payments Due

1 unchanged sentence

or Less After One

Five Years After

Business $ 3,034,763 $ 3,087,617 $ 423,707 $ 6,546,087

Five Years After Five

Years Through Fifteen Years After Fifteen Years Total

$ 2,247,212 $ 2,663,830 $ 392,279 $ 214 $ 5,303,535

Real estate — construction and land

350,745 719,563 46,390 1,568 1,118,266

Real estate — business

587,310 2,006,034 461,987 3,506 3,058,837

Personal banking:

Real estate — personal

Total business and real estate loans

173,492 570,119 1,068,954 992,836 2,805,401

Business and real estate loans:

823,145 1,015,556 193,356 168 2,032,225

Revolving home equity

18,390 94,567 162,988 — 275,945

Consumer credit card

65,375 195,195 314,840 — 575,410

6,740 — — — 6,740

$ 4,272,409 $ 7,264,864 $ 2,640,794 $ 998,292 $ 15,176,359

Loans with fixed rates

2 unchanged sentences

3,012,258 3,567,477 1,029,454 355,724 7,964,913

Total business and real estate loans

$ 4,272,409 $ 7,264,864 $ 2,640,794 $ 998,292 $ 15,176,359

13 unchanged sentences

$ 7,211,446 $ 7,964,913 $ 15,176,359 52.5 %

Total loans at December 31, 2020 were $16.3 billion, an increase of $1.6 billion, or 10.8%, over balances at December 31, 2019.

The growth in loans during 2020 occurred in the business, construction, business real estate and personal real estate loan categories, while consumer, consumer credit card, revolving home equity and overdraft loan categories declined from the prior year.

Business loans increased $980.6 million, or 17.6%, reflecting growth in commercial and industrial loans and commercial card, while lease lending and tax-advantaged lending remained mostly flat.

The Company funded $1.5 billion of PPP loans during 2020, all of which were fixed rate loans carrying a 1% interest rate.

For these loans, the Company collected fees paid by the SBA totaling $41.0 million, of which $21.4 million were recognized in net interest income during 2020.

Total loans at December 31, 2021 were $15.2 billion, a decrease of $1.2 billion, or 7.1%, over balances at December 31, 2020.

The decline in loans during 2021 occurred in the business, consumer credit card, revolving home equity and personal real estate loan categories, while construction, consumer, business real estate and overdraft loan categories increased from the prior year.

Business loans decreased $1.2 billion, or 19.0%, mainly due to a $1.2 billion decline in PPP loan balances.

As of December 31, 2021, 93% of PPP loan balances have been forgiven.

Excluding PPP loans, business loans increased $204.5 million, or 4.1%, over balances at December 31, 2020.

Lease lending and tax-advantaged lending, included within Business loans, declined during 2021, but these declines were partly offset by growth in commercial card lending.

Construction loans increased $96.7 million, or 9.5% mainly due to growth in commercial construction lending.

Business real estate loans increased $192.6 million, or 6.8%, due mainly to increases in owner-occupied and office lending.

Business real estate hotel, senior living, and industrial lending also grew this year, while retail lending declined.

Personal real estate loans increased $465.3 million, or 19.8%, due to continued strong demand for residential mortgage loans.

Business real estate loans increased $32.7 million, or 1.1%, due mainly to increases in multi-family, owner-occupied, and industrial lending, while hotel and senior living lending declined.

Personal real estate loans declined $14.6 million, or .5%.

The Company sells certain long-term fixed rate mortgage loans to the secondary market, and loan sales in 2021 totaled $547.1 million, compared to $275.1 million in 2020.

C onsumer loans decreased $13.6 million, or .7%, due to decreases in auto lending, fixed rate home equity loans, and health service financing lending, along with continued run off of marine and recreational vehicle loan balances.

These decreases were partly offset by an increase in private banking loans.

C onsumer loans increased $81.7 million, or 4.2%, mainly due to growth in private banking lending.

Other vehicle and equipment lending (mostly comprised of motorcycle loans) also increased, offset by declines in auto lending, fixed rate home equity loans and continued run off of marine and recreational vehicle loan balances.

Consumer credit card loans decreased $79.7 million, or 12.2%, and revolving home equity loan balances declined $31.1 million, or 10.1%, compared to balances at year end 2020.

10 unchanged sentences

The business loan portfolio includes tax-advantaged loans and leases which carry tax-free interest rates.

These loans totaled $861.0 million at December 31, 2020, an increase of $2.9 million, or .3%, from December 31, 2019 balances.

The business loan portfolio also includes direct financing and sales type leases totaling $584.3 million, which are used by commercial customers to finance capital purchases ranging from computer equipment to office and transportation equipment.

These lease-related loans were flat compared to 2019.

Additionally, the Company has outstanding oil and gas energy-related loans totaling $178.7 million at December 31, 2020, which are further discussed within the Oil and Gas Energy Lending section of the Risk Elements of Loan Portfolio section located within Management's Discussion and Analysis of Financial Condition and Results of Operations.

Also included in the business

portfolio are corporate card loans, which totaled $333.2 million at December 31, 2020 and are made in conjunction with the Company’s corporate card business for corporate trade purchases.

These loans totaled $729.9 million at December 31, 2021, a decrease of $131.1 million, or 15.2%, from December 31, 2020 balances.

In addition to tax-advantaged leases, the business loan portfolio also includes other direct financing and sales type leases totaling $536.9 million at December 31, 2021, a decrease of $47.4 million, or 8.1%, from December 31, 2020.

These loans are used by commercial customers to finance capital purchases ranging from computer equipment to office and transportation equipment.

Additionally, the Company has outstanding oil and gas energy-related loans totaling $260.6 million at December 31, 2021, which are further discussed within the Oil and Gas Energy Lending section of

the Risk Elements of Loan Portfolio section located within Management's Discussion and Analysis of Financial Condition and Results of Operations.

Also included in the business portfolio are corporate card loans, which totaled $346.9 million at December 31, 2021 and are made in conjunction with the Company’s corporate card business for corporate trade purchases.

Corporate card loans are made to corporate, non-profit and government customers nationwide, but have very short-term maturities, which limits credit risk.

3 unchanged sentences

Consistent with management’s strategy and emphasis upon relationship banking, most borrowing customers also maintain deposit accounts and utilize other banking services.

Net loan charge-offs in this category totaled $3.7 million in 2020 compared to net loan charge-offs of $4.1 million recorded in 2019.

N et loan recoveries in this category totaled $4.8 million in 2021 compared to net loan charge-offs of $3.7 million in 2020 .

Non-accrual business loans were $7.3 million (.1% of business loans) at December 31, 2021 compared to $22.5 million at December 31, 2020 .

Real Estate-Construction and Land

The portfolio of loans in this category amounted to $1.0 billion at December 31, 2020, which was an increase of $122.2 million, or 13.6%, from the prior year and comprised 6.3% of the Company’s total loan portfolio.

The portfolio of loans in this category amounted to $1.1 billion at December 31, 2021, an increase of $96.7 million, or 9.5%, from the prior year and comprised 7.4% of the Company’s total loan portfolio.

Commercial construction and land development loans totaled $971.1 million, or 86.8% of total construction loans at December 31, 2021.

3 unchanged sentences

Residential construction and land development loans at December 31, 2021 totaled $147.1 million, or 13.2% of total construction loans.

A stable construction market has contributed to low loss rates on these loans, with net loan recoveries of $3 thousand and $117 thousand recorded in 2020 and 2019, respectively.

A stable construction market has contributed to low loss rates on these loans, with net loan charge-offs of nearly zero in both 2021 and 2020.

Real Estate-Business

3 unchanged sentences

Additional information about business real estate loans by borrower is disclosed within the Real Estate - Business Loans section of the Risk Elements of Loan Portfolio section located within Management's Discussion and Analysis of Financial Condition and Results of Operations.

At December 31, 2020, balances of non-accrual loans amounted to $2.2 million, up from $1.0 million at year end 2019, but less than .1% of business real estate loans at year end 2020.

At December 31, 2021, balances of non-accrual loans amounted to $214 thousand, less than .1% of business real estate loans, down from $2.2 million at year end 2020.

The Company experienced net loan recoveries of $64 thousand in 2021, compared to net loan recoveries of $47 thousand in 2020.

5 unchanged sentences

The Company does not purchase any loans from outside parties or brokers and has never maintained no-document products.

Levels of mortgage loan origination activity increased in 2020, with originations of $1.5 billion in 2020 compared to $871.6 million in 2019.

Net loans retained by the Company increased $465.3 million, driven by growth in new loan production aided by the lower interest rate environment.

Loans sold to the secondary market increased $36.1 million.

The loan sales were made under an initiative to originate and sell certain long term fixed rate loans, resulting in sales of $275.1 million in 2020 compared to $239.0 million in 2019.

The Company originates certain mortgage loans with the intent to sell to the secondary market, generally FNMA or FHLMC conforming fixed rate loans.

The remaining loans are originated with the intent to hold to maturity.

Of the $1.3 billion of mortgage loans originated in 2021, $547.1 million were sold to the secondary market.

This compares to $1.5 billion of mortgage loans originated and $275.1 million of loans sold to the secondary market in 2020.

The increase in loan sales during 2021 compared to 2020 was partly due to the Company temporarily pausing loan sales for the second quarter of 2020.

The Company has experienced lower credit losses on loans in this category than many others in the industry and believes this is partly because of its conservative underwriting culture and the fact that it does not purchase loans from brokers.

Net loan recoveries in 2020 totaled $291 thousand, and net loan charge-offs were $56 thousand in 2019.

recoveries in 2021 totaled $98 thousand, and net loan recoveries were $291 thousand in 2020.

Balances of non-accrual loans in this category were $1.6 million at December 31, 2021, compared to $1.8 million at year end 2020.

Consumer loans consist of private banking, automobile, motorcycle, marine, tractor/trailer, recreational vehicle (RV), fixed rate home equity, patient health care financing and other types of consumer loans.

These loans totaled $2.0 billion at year end 2020.

Approximately 45% of the consumer portfolio consists of automobile loans, 24% in private banking loans, 13% in fixed rate home equity loans, 10% in healthcare financing loans, 3% in motorcycle loans, and 1% in marine and RV loans.

Total consumer loans decreased $13.6 million at year end 2020 compared to year end 2019.

Growth of $65.3 million in private banking loans was offset by declines of $28.3 million in automobile loans, $21.7 million in fixed rate home equity loans, $11.1 million in patient healthcare financing, $10.3 million in marine and RV loans, and $4.3 million in motorcycle loans.

These loans totaled $2.0 billion at December 31, 2021.

Approximately 42% of the consumer portfolio consists of automobile loans, 29% in private banking loans, 11% in fixed rate home equity loans, and 9% in healthcare financing loans.

Total consumer loans increased $81.7 million at year end 2021 compared to year end 2020.

Growth of $109.6 million in private banking loans was supplemented by increases in other executive lines of credit and motorcycle loans.

These increases in consumer loan balances were partially offset by declines of $24.5 million in automobile loans, $19.3 million in fixed rate home equity loans, $7.3 million in marine and RV loans, and $1.5 million in patient healthcare financing.

Net charge-offs on total consumer loans were $2.6 million in 2021, compared to $4.4 million in 2020, averaging .13% and .23% of consumer loans in 2021 and 2020, respectively.

Revolving Home Equity

Revolving home equity loans, of which 99% are adjustable rate loans, totaled $307.1 million at year end 2020.

Revolving home equity loans, of which more than 99% are adjustable rate loans, totaled $275.9 million at year end 2021.

An additional $784.3 million was available in unused lines of credit, which can be drawn at the discretion of the borrower.

1 unchanged sentence

The underwriting terms for the home equity line product permit borrowing availability, in the aggregate, generally up to 80% or 90% of the appraised value of the collateral property at the time of origination.

Net recoveries totaled $166 thousand in 2020, compared to net charge-offs of $209 thousand in 2019.

Net loan charge-offs were nearly zero in 2021, compared to net loan recoveries of $166 thousand in 2020.

Consumer Credit Card

3 unchanged sentences

Approximately 39% of the households that own a Commerce credit card product also maintain a deposit relationship with the subsidiary bank.

At December 31, 2020, approximately 95% of the outstanding credit card loan balances had a floating interest rate, compared to 93% in the prior year.

Approximately 95% of the outstanding credit card loan balances had a floating interest rate at year end 2021, unchanged from year end 2020.

Net charge-offs amounted to $20.0 million in 2021, a decrease of $6.0 million from $26.0 million in 2020.

5 unchanged sentences

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

The Company has an established process to determine the amount of the allowance for credit losses on loans and the liability for unfunded lending commitments, which assesses the risks and losses expected in its portfolios.

To determine the amount of the allowance for credit losses on loans and the liability for unfunded lending commitments, the Company has established a process which assesses the risks and losses expected in its portfolios.

This process provides an allowance based on estimates of allowances for pools of loans and unfunded lending commitments, as well as a second, smaller component based on certain individually evaluated loans and unfunded lending commitments.

7 unchanged sentences

Collectively-evaluated loans include certain troubled debt restructurings with similar risk characteristics.

The Company adopted ASU 2016-13, known as the current expected credit loss (CECL) model, on January 1, 2020.

Upon adoption, the allowance for credit losses on loans was reduced $21.0 million and the liability for unfunded lending

commitments increased $16.1 million.

The decrease in the allowance for credit losses on loans at the time of adoption was significantly influenced by the forecasted economic environment used in the estimation process as required by CECL, which was characterized by low unemployment.

As the estimation model for credit losses on lending commitments became governed by CECL, the Company increased the related liability for unfunded lending commitments (mostly related to construction lending), as the Company expected to fully fund the commitments under these contracts.

The table below shows the composition of the allowance by loan class at December 31, 2019, January 1, 2020 (at the adoption of CECL), and December 31, 2020.

December 31, 2019 January 1, 2020 (Implementation) December 31, 2020

(Dollars in thousands) Allowance for Loan Losses ALL as a % of Loans Allowance for Credit Losses ACL as a % of Loans Allowance for Credit Losses ACL as a % of Loans

Business $ 44,268 .80 % $ 37,940 .68 % $ 63,660 .97 %

RE - construction and land 21,589 2.40 9,204 1.02 27,836 2.72

RE - business 25,903 .91 14,905 .53 30,053 .99

91,760 .99 62,049 .67 121,549 1.15

Personal Banking:

RE - personal 3,125 .13 4,855 .21 8,304 .29

Consumer 15,932 .81 14,518 .74 15,244 .78

Revolving home equity 638 .18 1,624 .46 1,475 .48

Consumer credit card 47,997 6.27 56,495 7.39 74,001 11.30

Overdrafts 1,230 19.51 102 1.62 261 8.29

68,922 1.27 77,594 1.43 99,285 1.73

Total $ 160,682 1.09 % $ 139,643 .95 % $ 220,834 1.35 %

The allowance for credit losses on loans and the liability for unfunded lending commitments are estimates that require significant judgment including projections of the macro-economic environment.

1 unchanged sentence

These changes in the forecast cause fluctuations in the allowance for credit losses on loans and the liability for unfunded lending commitments.

The Company used its best judgment to assess the macro-economic forecast and internal loss data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments.

The Company uses its best judgment to assess the macro-economic forecast and internal loss data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments.

These estimates are subject to periodic refinement based on changes in the underlying external and internal data.

Events such as government-required business lock downs, trends in infection and mortality rates, government stimulus payments, and widespread vaccinations could significantly modify the economic projections used in the forecast to estimate the allowance for credit losses on loans and the liability for unfunded lending commitments.

The Company has internal credit administration and loan review staff that continuously review loan quality and report the results of their reviews and examinations to the Company’s senior management and Board of Directors.

2 unchanged sentences

Refer to Note 1 to the consolidated financial statements for additional discussion on the allowance and charge-off policies.

At December 31, 2020, the allowance for credit losses on loans was $220.8 million, compared to $139.6 million at January 1, 2020, the adoption of CECL.

The allowance for credit losses related to commercial loans increased $59.5 million, due to increases in the allowance on business, construction and business real estate loans of $25.7 million, $18.6 million, and $15.1 million, respectively.

Compared to January 1, 2020, the allowance for credit losses on consumer credit card, personal real estate, and consumer loans increased $17.5 million, $3.4 million, and $726 thousand, respectively.

These large increases resulted from the sudden entrance into a sharp recession brought on by an unprecedented pandemic.

The economic outlook shifted from a stable economy with low unemployment at January 1, 2020 to an uncertain economic projection at December 31, 2020, defined by higher unemployment and other business and personal disruptions caused by COVID-19.

Given the significant uncertainty of the economic projections of a pandemic-induced recession, the credit loss estimate utilized in the Company's CECL model uses a short reasonable and supportable forecasted period.

As businesses navigate through the current recession, key assumptions utilized in the Company's CECL model may be modified.

Traditional credit quality indicators, such as net charge-off experience, greater than 90 days delinquent statistics and decreases in the internal risk rating to special mention or substandard ratings, are lagging credit quality indicators and do not yet reflect the expected impacts of the crisis, as

changes in these indicators may be delayed by the Company's offering of certain assistance programs to impacted customers as allowed by various regulations and as customers are able to participate in various governmental support programs.

See Note 2 for further discussion of the credit quality indicators, and refer to Risk Elements of the Loan Portfolio, Loans with Special Risk Characteristics for further information about the assistance programs offered by the Company to its customers.

At December 31, 2021, the allowance for credit losses on loans was $150.0 million, compared to $220.8 million at December 31, 2020.

The allowance for credit losses related to commercial loans decreased $23.8 million during 2021, due to decreases in the allowance for business and construction loans of $19.7 million and $4.7 million, respectively.

Compared to December 31, 2020, the allowance for credit losses on consumer credit card, personal real estate, and consumer loans decreased $38.5 million, $3.0 million, and $5.2 million, respectively.

These large decreases resulted from an improved forecast utilized in the Company’s estimate of future credit losses at December 31, 2021, coupled with lower than projected net loan charge-offs during the year.

The allowance for credit losses at December 31, 2020 included an uncertain economic projection defined by high unemployment and other business and personal disruptions caused by COVID-19.

Through various governmental stimulus programs and improvements in the public health crisis due to the development and increasing availability of a COVID-19 vaccine, the projected net charge-offs were not realized and the economic forecast improved, thus allowing the release of the allowance for credit losses during 2021.

As a result, the provision for credit losses, which includes the provision for loans and unfunded lending commitments, was a benefit of $66.3 million for the year, compared to a provision of $137.2 million in 2020.

See Note 2 to the consolidated financial statements for the various model assumptions utilized in the Company's CECL estimate at December 31, 2021.

The percentage of allowance to loans increased to 1.35% at December 31, 2020, compared to .95% at the implementation of CECL, for the reasons described above.

Included within business loans at December 31, 2020 are approximately $1.4 billion PPP loans that are fully guaranteed by the government, and therefore, no allowance for credit losses was estimated for these loans.

Excluding the PPP loans, the allowance for credit losses on loans was 1.48% of loans at December 31, 2020.

Total loans delinquent 90 days or more and still accruing were $22.2 million at December 31, 2020, an increase of $2.3 million compared to year end 2019.

The increase was mainly driven by increases of $2.7 million in business, $1.1 million in personal real estate, and $1.3 million in consumer loans delinquent 90 days or more, partly offset by a decrease of $3.5 million in construction loan delinquencies.

Non-accrual loans at December 31, 2020 were $26.5 million, an increase of $16.3 million over the prior year, mainly due to an increase in business and business real-estate non-accrual loans of $15.0 million and $1.2 million, respectively.

The 2020 year end balance of non-accrual loans was comprised of $22.5 million of business loans, $2.2 million of business real estate loans and $1.8 million of personal real estate loans.

The percentage of allowance to loans decreased to .99% at December 31, 2021, compared to 1.35% at December 30, 2020.

The percentage of allowance to commercial portfolio loans decreased to 1.03% at December 31, 2021, compared to 1.15% at December 30, 2020, and the percentage of allowance to personal banking loans decreased to .92% at December 31, 2021 from 1.73% at December 31, 2020.

The allowance fell as a percentage of loans at December 31, 2021 because the economic forecast utilized in the Company’s CECL model improved over the forecast utilized at December 31, 2020, and the net charge-offs projected at December 31, 2020 did not come to fruition.

Additionally, included within business loans at December 31, 2020 are approximately $1.4 billion PPP loans that are fully guaranteed by the government, and therefore, no allowance for credit losses was estimated for these loans.

At December 31, 2021, PPP loans outstanding were approximately $129.2 million.

Excluding the PPP loans, the allowance for credit losses on loans was 1.00% of loans at December 31, 2021 and 1.48% at December 31, 2020.

Most of the PPP loans originated by the Company during 2020 and 2021 have been forgiven, and the Company expects nearly all of the remaining outstanding PPP loans to be forgiven during 2022.

Total loans delinquent 90 days or more and still accruing were $11.7 million at December 31, 2021, a decrease of $10.5 million compared to year end 2020.

The decrease was mainly driven by decreases of $7.0 million in consumer credit card, $3.0 million in business, and $1.1 million in consumer loans delinquent 90 days or more, partly offset by an increase of $411 thousand in revolving home equity loan delinquencies.

Non-accrual loans at December 31, 2021 were $9.2 million, a decrease of $17.4 million over the prior year, mainly due to a decrease in business and business real-estate non-accrual loans of $15.2 million and $2.0 million, respectively.

The allowance for credit losses as a percentage of non-accrual loans was 1,638.6% at December 31, 2021, compared to 832.1% at December 31, 2020.

The increase in the ratio of the allowance to non-accrual loans was driven by the decrease in non-accrual loans outstanding.

The 2021 year-end balance of non-accrual loans was comprised of $7.3 million of business loans, $1.6 million of personal real estate loans, and $214 thousand of business real estate loans.

Net loan charge-offs totaled $18.6 million in 2021, representing a $16.3 million decrease compared to net charge-offs of $34.9 million in 2020.

The decrease was largely due to lower credit card loan and consumer loan net charge-offs of $9.4 million and $4.1 million, respectively.

The decreases in net charge-offs on consumer credit card, consumer and business loans were primarily the result of various COVID-19 relief programs that allowed customers to defer loan payments without advancing in past due or charge-off status.

Many of these customers have resumed to normal scheduled payments.

See Risk Elements of the Loan Portfolio, Loans with Special Characteristics for further information.

The decrease was largely due net recoveries of $4.8 million on business loans during 2021, compared to net charge-offs of $3.7 million in the prior year, and lower net charge-offs in consumer credit card and consumer loans of $6.0 million and $1.9 million, respectively.

Consumer credit card net charge-offs were 3.47% of average consumer credit card loans in 2021, compared to 3.88% in 2020.

2 unchanged sentences

The ratio of net charge-offs to total average loans outstanding in 2021 was .12%, compared to .22% in 2020 and .35% in 2019.

As noted above, on January 1, 2020, the estimation model for credit losses on lending commitments became governed by CECL, and at adoption, the Company increased the related liability for unfunded lending commitments by $16.1 million to $17.2 million.

At December 31, 2020, the liability for unfunded lending commitments was $38.3 million, an increase of $21.1 million compared to January 1, 2020.

The Company's unfunded lending commitments primarily relate to construction loans.

The increase in the liability for unfunded lending commitments during 2020 was driven by the impact of the pandemic-driven recession on the economy.

The Company's estimate for credit losses in its unfunded lending commitments utilizes the same model and forecast as its estimate for credit losses on loans.

At December 31, 2021, the liability for unfunded lending commitments was $24.2 million, a decrease of $14.1 million compared to December 31, 2020.

The decrease in the liability for unfunded lending commitments during 2021 was driven by the improved economic forecast.

The Company's unfunded lending commitments primarily relate to construction loans, and the Company's estimate for credit losses in its unfunded lending commitments utilizes the same model and forecast as its estimate for credit losses on loans.

See Note 2 for further discussion of the model inputs utilized in the Company's estimate of credit losses.

The provision for credit losses, which includes the provision for loans and unfunded lending commitments, was $137.2 million in 2020, compared to $50.4 million in 2019 and $42.7 million in 2018.

The Company considers the allowance for credit losses on loans and the liability for unfunded lending commitments adequate to cover losses expected in the loan portfolio, including unfunded commitments, at December 31, 2021.

37 unchanged sentences

Ratio of provision to average loans outstanding -.33 % .73 % .35 %

.73 % .35 % .31 % .33 % 0.28 %

Non-accrual loans $ 9,157 $ 26,540 $ 10,220

Ratio of non-accrual loans to total loans outstanding .06 % .16 % .07 %

Ratio of allowance for credit losses on loans to non-accrual loans 1,638.57 832.08 1,572.23

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

12 unchanged sentences

.12 % .22 % .35 %

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

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

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

(Dollars in thousands) 2021 2020

Credit Loss Allowance Allocation % of Loans to Total Loans Credit Loss Allowance Allocation % of Loans to Total Loans Credit Loss Allowance Allocation % of Loans to Total Loans Credit Loss Allowance Allocation % of Loans to Total Loans Credit Loss Allowance Allocation % of Loans to Total Loans

Credit Loss Allowance Allocation % of Loans to Total Loans % of ACL to Loan Category Credit Loss Allowance Allocation % of Loans to Total Loans % of ACL to Loan Category

Business $ 43,943 34.9 % .83 % $ 63,660 40.1 % .97 %

8 unchanged sentences

Total $ 150,044 100.0 % .99 % $ 220,834 100.0 % 1.35 %

Risk Elements of Loan Portfolio

Risk Elements of the Loan Portfolio

Management reviews the loan portfolio continuously for evidence of problem loans.

8 unchanged sentences

Credit card loans and the related accrued interest are charged off when the receivable is more than 180 days past due.

During 2020, Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law and provided financial institutions the option to suspend the requirement to categorize certain modifications related to the COVID-19 pandemic as troubled debt restructurings.

The 2021 Consolidated Appropriations Act signed on December 27, 2020 extends this temporary suspension through January 1, 2022.

The Company follows the guidance under the CARES Act when determining if a customer’s modification is subject to troubled debt restructuring classification.

Refer to Note 2 for additional information.

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

11 unchanged sentences

$ 11,726 $ 22,190 $ 19,859 $ 16,658 $ 18,127

The table below shows the effect on interest income in 2020 of loans on non-accrual status at year end.

(In thousands)

Gross amount of interest that would have been recorded at original rate

Interest that was reflected in income

Interest income not recognized

Non-accrual loans totaled $26.5 million at year end 2020, an increase of $16.3 million from the balance at year end 2019.

The increase from December 31, 2019 occurred mainly in business loans, which increased $15.0 million, and business real

estate loans, which increased $1.2 million.

At December 31, 2020, non-accrual loans were comprised of business (84.9%), business real estate (8.4%), and personal real estate (6.7%) loans.

Foreclosed real estate totaled $93 thousand at December 31, 2020, a decrease of $272 thousand when compared to December 31, 2019.

Non-accrual loans totaled $9.2 million at year end 2021, a decrease of $17.4 million from the balance at year end 2020.

The decrease from December 31, 2020 occurred mainly in business loans, which decreased $15.2 million, and business real estate loans, which decreased $2.0 million.

At December 31, 2021, non-accrual loans were comprised of business (79.9%), personal real estate (17.8%), and business real estate (2.3%) loans.

Foreclosed real estate totaled $115 thousand at December 31, 2021, an increase of $22 thousand when compared to December 31, 2020.

Total non-performing assets remain low compared to the overall banking industry in 2021, with the non-performing assets to total loans ratio at .06% at December 31, 2021.

Total loans past due 90 days or more and still accruing interest were $22.2 million as of December 31, 2020, an increase of $2.3 million when compared to December 31, 2019.

Total loans past due 90 days or more and still accruing interest were $11.7 million as of December 31, 2021, a decrease of $10.5 million when compared to December 31, 2020.

Balances by class for non-accrual loans and loans past due 90 days and still accruing interest are shown in the "Delinquent and non-accrual loans" section of Note 2 to the consolidated financial statements.

3 unchanged sentences

Although these loans are generally identified as potential problem loans, they may never become non-performing.

Such loans totaled $361.8 million at December 31, 2020, compared with $164.8 million at December 31, 2019, resulting in an increase of $197.0 million or 119.6%.

The increase in potential problem loans was largely driven by a $118.6 million increase in business real estate loans, a $49.1 million increase in business loans, and a $28.9 million increase in construction loans.

Such loans totaled $278.7 million at December 31, 2021, compared with $361.8 million at December 31, 2020, resulting in a decrease of $83.1 million or 23.0%.

The decrease in potential problem loans was largely driven by a $95.9 million decrease in business loans, partly offset by a $10.9 million and $2.1 million increase in construction loans and business real estate loans, respectively.

(In thousands)

5 unchanged sentences

Total potential problem loans $ 278,694 $ 361,753

At December 31, 2020, the Company had $140.6 million of loans whose terms have been modified or restructured, meeting the definition of a troubled debt restructuring.

These loans have been extended to borrowers who are experiencing financial difficulty and who have been granted a concession, as defined by accounting guidance, and are further discussed in the "Troubled debt restructurings" section in Note 2 to the consolidated financial statements.

This balance includes certain commercial loans totaling $117.7 million, which are classified as substandard and included in the table above because of this classification.

Loans with Special Risk Characteristics

Management relies primarily on an internal risk rating system, in addition to delinquency status, to assess risk in the loan portfolio, and these statistics are presented in Note 2 to the consolidated financial statements.

However, certain types of loans are considered at high risk of loss due to their terms, location, or special conditions.

However, certain types of loans are considered at a higher risk of loss due to their terms, location, or special conditions.

Construction and land loans and business real estate loans are subject to higher risk because of the impact that volatile interest rates and a changing economy can have on real estate value, and because of the potential volatility of the real estate industry.

2 unchanged sentences

Information presented below for home equity loans is based on LTV ratios which were calculated with valuations at loan origination date.

The Company does not attempt to obtain updated appraisals or valuations unless the loans become significantly delinquent or are in the process of being foreclosed upon.

The Company does not obtain updated appraisals or valuations unless the loans become significantly delinquent or are in the process of being foreclosed upon.

For credit monitoring purposes, the Company analyzes delinquency information, current FICO scores, and line utilization.

8 unchanged sentences

Residential construction 96,618 8.6 .7 94,729 9.3 .6

Residential land

and land development 59,299 5.8 .4 65,687 7.3 .4

Commercial land

and land development 40,021 3.9 .2 34,525 3.8 .2

Residential land and land development 50,513 4.6 .3 59,299 5.8 .4

Commercial land and land development 48,481 4.3 .3 40,021 3.9 .2

Total real estate – construction and land loans

8 unchanged sentences

Office 380,101 12.4 2.5 385,392 12.7 2.4

Retail 349,461 11.5 2.1 383,234 13.5 2.6

Multi-family 354,282 11.6 2.3 301,161 10.0 1.8

Retail 339,874 11.1 2.2 349,461 11.5 2.1

Hotels 234,673 7.7 1.5 271,189 9.0 1.7

Senior living 195,800 6.5 1.2 164,000 5.8 1.1

Farm 178,780 5.8 1.2 169,692 5.6 1.0

Senior living 174,871 5.7 1.2 195,800 6.5 1.2

Industrial 99,800 3.3 .7 78,341 2.6 .5

37 unchanged sentences

Consumer Loans

The Company's consumer loans totaled $2.0 billion and comprised 13.4% of total loans outstanding at December 31, 2021.

Within the consumer loan portfolio are several direct and indirect product lines comprised mainly of loans secured by automobiles, motorcycles, marine, and RVs.

4 unchanged sentences

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 11% of the consumer loan portfolio at December 31, 2021.

Losses on these loans have historically been low, and the Company saw recoveries of $70 thousand in 2020.

Losses on these loans have historically been low, and the Company saw a net charge-off of $47 thousand in 2021.

Private banking loans comprised 29% of the consumer loan portfolio at December 31, 2021.

9 unchanged sentences

Oil and Gas Energy Lending

The Company's energy lending portfolio was comprised of lending to the petroleum and natural gas sectors and totaled $178.7 million at December 31, 2020, a decrease of $18.7 million from year end 2019, as shown in the table below.

The Company's energy lending portfolio was comprised of lending to the petroleum and natural gas sectors and totaled $260.6 million at December 31, 2021, an increase of $81.9 million from year end 2020, as shown in the table below.

(In thousands)

1 unchanged sentence

Extraction $ 184,840 $ 133,866 $ 134,844

Downstream distribution and refining 18,365 7,168 24,263

Mid-stream shipping and storage 36,850 15,634 69,634

Downstream distribution and refining 24,915 18,365 23,521

Support activities 14,039 10,864 18,034

7 unchanged sentences

Total $ 260,644 100.0 % $ 178,729 100.0 %

Energy lending balances classified as substandard and non-accrual represented 17.7% and 1.5% respectively, of total energy lending loan balances at December 31, 2020.

The Company recorded $15 thousand of net loan charge-offs on energy loans for the year ended December 31, 2020.

There were no net loan charge-offs on energy loans for the year ended December 31, 2019.

Pandemic-Sensitive Industry Lending

As a result of the ongoing COVID-19 global pandemic, the U.S.

economy is currently in an unprecedented state of uncertainty.

While nearly every industry has been impacted to some degree by business disruptions, the Company identified the following industries and lending exposures, excluding PPP loans, within its loan portfolio at December 31, 2020 and December 31, 2019.

(In thousands) December 31, 2020 % of Loan Portfolio at December 31, 2020 December 31, 2019 Unfunded commitments at December 31, 2020

Hospitals $ 729,184 4.9 % $ 678,466 $ 1,723,537

Multifamily and student housing 550,345 3.7 528,280 301,464

Commercial real estate - retail 386,939 2.6 405,795 18,148

Senior living 310,771 2.1 301,441 81,866

Hotels 302,606 2.0 256,512 31,892

Energy 172,533 1.1 198,162 161,528

Retail stores 111,126 .7 147,223 176,298

Restaurants 67,247 .4 82,398 21,807

Total $ 2,630,751 17.5 % $ 2,598,277 $ 2,516,540

Due to the significant deterioration of the U.S.

economy resulting from the COVID-19 pandemic, the Company saw an increase in loan payment deferral requests through the end of the second quarter of 2020.

Loans on active deferral decreased significantly in the second half of the year.

A summary of loan balances related to active loan payment deferral requests as of December 31, 2020 are shown in the table below.

(Dollars in thousands) Number of Payment Deferral Requests (1)

Loan Balance Outstanding at December 31, 2020 % of Loan Class - based on December 31, 2020 Loan Balance

Commercial (2)

8 $ 56,597 .5 %

Real estate - personal 86 $ 18,098 .6 %

Consumer credit card 93 $ 610 .1 %

Consumer 609 $ 8,414 .4 %

Total 796 $ 83,719 .5 %

(1) Excludes deferrals offered through the Company's skip pay program.

(2) Excludes commercial card payment deferral requests.

Active payment deferral requests on commercial loans as of December 31, 2020, categorized by industry, are listed below:

(Dollars in thousands) Number of Payment Deferral Requests Loan Balance Outstanding at December 31, 2020

Credit intermediation 1 $ 40,789

Nursing and residential care facilities 1 15,130

Building materials 1 309

Real estate developer/owner 2 301

Animal production 1 31

Social assistance 1 21

Restaurants and dining 1 16

(1) As of January 25, 2021, $55.9 million of commercial requests have been deferred more than 90 days.

Energy lending balances classified as non-accrual represented .9% of total energy lending loan balances at December 31, 2021.

There were no balances classified as substandard at December 31, 2021.

The Company recorded $10 thousand of recoveries on energy loans for the year ended December 31, 2021, compared to $15 thousand of net loan charge-offs on energy loans for the year ended December 31, 2020.

Small Business Lending

During April 2020, in response to the COVID-19 crisis, the federal government created the Paycheck Protection Program, sponsored by the Small Business Administration ("SBA"), under the CARES Act.

As a participating lender under the program, the Company funded loans of $1.5 billion for 7,618 customers, with a median loan size of $33 thousand.

During April 2020, in response to the COVID-19 crisis, the federal government created the Paycheck Protection Program, sponsored by the Small Business Administration ("SBA"), under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

As a participating lender under the program, the Company funded $1.9 billion in loans for customers.

From the start of the PPP through December 31, 2021, the Company has recognized in income $57.2 million out of $60.4 million total fees that it expects to earn from the program.

The Company understands that the loans are fully guaranteed by the SBA.

Therefore, there was no increase in the allowance for credit losses on loans related to these loans, as there is no expectation of credit loss.

The maximum term of the loans range from two to five years, however, the Company believes that the majority of the loan balances are expected to be forgiven by the SBA.

The process of loan forgiveness began during the third quarter of 2020, and the Company believes the majority of loan balances will be forgiven in 2021.

The maximum term of the originated loans is five years, however, as of December 31, 2021, 93% of the PPP loans have been forgiven by the SBA.

Almost all of the remaining loans are expected to be forgiven during 2022.

Investment Securities Analysis

1 unchanged sentence

The largest component, available for sale debt securities, increased 19.2% during 2021 to $14.4 billion (excluding unrealized gains/losses in fair value) at year end 2021.

During 2020, debt securities of $7.0 billion were purchased, which included $4.5 billion in agency mortgage-backed securities, $997.7 million in asset-backed securities, $894.0 million in state and municipal securities, $300.8 million in non-agency mortgage-based securities, and $275.5 million in other debt securities.

Total sales, maturities and pay downs were $3.3 billion during 2020.

During 2021, debt securities of $5.9 billion were purchased, which included $1.5 billion in agency mortgage-backed securities, $2.4 billion in asset-backed securities, $286.7 million in state and municipal securities, and $1.3 billion in non-agency mortgage-based securities.

Total sales, maturities and pay downs of available for sale debt securities were $3.5 billion during 2021.

During 2022, maturities and pay downs of approximately $3.0 billion are expected to occur.

The Company's tax-exempt investment portfolio is primarily comprised of tax-exempt municipal bonds and certain equity securities in its private equity investment portfolio.

There were no significant changes to the Company's tax-exempt investment portfolio during 2021.

The average tax equivalent yield earned on total investment securities was 1.81% in 2021 and 2.19% in 2020.

At December 31, 2021, the fair value of available for sale securities was $14.5 billion, which included a net unrealized gain in fair value of $30.9 million, compared to a net unrealized gain of $351.7 million at December 31, 2020.

The overall unrealized gain in fair value at December 31, 2020 included net gains of $77.1 million in state and municipal securities and net gains of $186.4 million in mortgage and asset-backed securities.

The portfolio also included unrealized net gains of $62.5 million and $22.1 million on U.S.

government and federal agency obligations and other debt securities, respectively.

As described in Note 1, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, on January 1, 2020, and the current expected credit loss model (CECL) implemented by the Company requires that lifetime expected credit

losses on securities be recorded in current earnings.

The overall unrealized gain in fair value at December 31, 2021 included net gains of $45.2 million is U.S.

government and federal agency obligations and net gains of $24.6 million in state and municipal securities.

These unrealized gains were partly offset by net losses of $38.5 million in mortgage and asset-backed securities.

For the year ended December 31, 2021, the Company did not recognize a credit loss expense on any available for sale debt securities.

21 unchanged sentences

At December 31, 2021, the available for sale portfolio included $5.7 billion of agency mortgage-backed securities, which are collateralized bonds issued by agencies including FNMA, GNMA, FHLMC, FHLB, Federal Farm Credit Banks and FDIC.

Non-agency mortgage-backed securities totaled $361.1 million and included $64.4 million collateralized by commercial mortgages and $296.5 million collateralized by residential mortgages at December 31, 2020.

Non-agency mortgage-backed securities totaled $1.4 billion and included $329.3 million collateralized by commercial mortgages and $1.0 billion collateralized by residential mortgages at December 31, 2021.

At December 31, 2021, U.S.

37 unchanged sentences

$ 194,047 $ 156,745

In addition to its holdings in the investment securities portfolio, the Company invests in long-term securities purchased under agreements to resell, which totaled $850.0 million at both December 31, 2020 and December 31, 2019.

In addition to its holdings in the investment securities portfolio, the Company invests in securities purchased under agreements to resell, which totaled $1.6 billion at December 31, 2021 and $850.0 million at December 31, 2020.

These investments mature in 2022 through 2023 and have fixed rates or variable rates that fluctuate with published indices.

The counterparties to these agreements are other financial institutions from whom the Company has accepted collateral of $899.1 million in marketable investment securities at December 31, 2020.

The counterparties to these agreements are other financial institutions from whom the Company has accepted collateral of $1.7 billion in marketable investment securities at December 31, 2021.

The average rate earned on these agreements during 2021 was 2.9%, compared to 4.7% in 2020.

The Company also holds offsetting repurchase and resale agreements totaling $200.0 million at December 31, 2020 and December 31, 2019, which are further discussed in Note 20 to the consolidated financial statements.

The Company also holds offsetting repurchase and resale agreements totaling $400.0 million at December 31, 2021 and $200.0 million at December 31, 2020, which are further discussed in Note 20 to the consolidated financial statements.

These agreements involve the exchange of collateral under simultaneous repurchase and resale agreements with the same financial institution counterparty.

5 unchanged sentences

Average deposits increased $4.3 billion, or 18.2%, in 2021 compared to 2020, resulting from increases in average demand deposits, which increased $2.4 billion, primarily driven by higher balances in business demand deposits.

Additionally, average money market deposit account balances increased $985.8 million in 2020 and savings account balances increased $204.5 million.

Additionally, average money market deposit account balances increased $1.8 billion in 2021, and savings account balances increased $327.1 million.

Partially offsetting these increases in deposit balances were declines in average certificates of deposit balances, which decreased $221.0 million in 2021.

8 unchanged sentences

Core deposits, which include non-interest bearing, interest checking, savings, and money market deposits, supported 79% and 77% of average earning assets in 2021 and 2020, respectively.

Average balances by major deposit category for the last six

years are disclosed in the Average Balance Sheets section of Management's Discussion and Analysis of Financial Condition and Results of Operations below.

A maturity schedule of certificates of deposits outstanding at December 31, 2020 is included in Note 7 on Deposits in the consolidated financial statements.

Average balances by major deposit category for the last six years are disclosed in the Average Balance Sheets section of Management's Discussion and Analysis of Financial Condition and Results of Operations below.

A maturity schedule of all certificates of deposits outstanding at December 31, 2021 is included in Note 7 on Deposits in the consolidated financial statements.

Total uninsured deposits were calculated using the same methodology that the Company uses to determine uninsured deposits for regulatory reporting and amounted to $14.6 billion and $12.7 billion at December 31, 2021 and December 31, 2020.

The following table shows a detailed breakdown of the maturities of uninsured certificates of deposit at December 31, 2021.

The Company calculated the uninsured deposits in the following table by aggregating all deposit balances by customer and assuming federal deposit insurance would first apply to demand deposits, followed by savings deposits, and lastly to time deposits (beginning with the earliest maturity deposits).

(In thousands) Uninsured Certificates of Deposit at December 31, 2021

Due in 3 months or less $ 411,628

Due in over 3 through 6 months 150,443

Due in over 6 through 12 months 186,730

Due in over 12 months 170,521

Total $ 919,322

The Company’s primary sources of overnight borrowings are federal funds purchased and securities sold under agreements to repurchase (repurchase agreements).

Balances in these accounts can fluctuate significantly on a day-to-day basis and generally have one day maturities.

Total balances of federal funds purchased and repurchase agreements outstanding at December 31, 2020 were $2.1 billion, a $247.6 million increase from the $1.9 billion balance outstanding at year end 2019.

Total balances of federal funds purchased and repurchase agreements outstanding at December 31, 2021 were $3.0 billion, comprised of federal funds purchased of $43.4 million and repurchase agreements of $3.0 billion.

These balances increased $1.1 million and $923.5 million from the federal funds purchased and repurchase agreements outstanding at December 31, 2020.

On an average basis, these borrowings increased $368.4 million, or 18.7%, during 2021, due to an increase of $470.9 million in repurchase agreements, partially offset by a decrease of $102.6 million in federal funds purchased.

The average rate paid on total federal funds purchased and repurchase agreements was .31% during 2020 and 1.61% during 2019.

The average rate paid on both federal funds purchased and repurchase agreements was .07% during 2021, compared to rates of .63% paid on federal funds purchased and .29% paid on repurchase agreements during 2020.

Historically, the majority of the Company’s long-term debt has been comprised of fixed rate advances from the FHLB.

There were no FHLB borrowings during 2021.

In March 2020, the Company borrowed $750.0 million of short-term funds from the FHLB, and all of those borrowings were repaid by the Company during the second quarter of 2020.

During 2019, $250.0 million of advances were taken and subsequently repaid by the Company in October 2019.

The average rate paid on FHLB advances was .82% and 2.19% during 2020 and 2019, respectively.

The average rate paid on FHLB advances was .82% during 2020.

Liquidity and Capital Resources

14 unchanged sentences

$ 14,450,027 $ 12,449,264

Long-term securities purchased under agreements to resell

Federal funds sold

Securities purchased under agreements to resell

1,625,000 850,000

2 unchanged sentences

Total $ 20,049,044 $ 15,046,627

There were no federal funds sold at December 31, 2020, which are funds lent to the Company’s correspondent bank customers with overnight maturities.

At December 31, 2020, the Company had lent funds totaling $850.0 million under long-term resale agreements to other large financial institutions and $450.0 million, $325.0 million, and $75.0 million of these agreements mature in years 2021, 2022, and 2023, respectively.

Under these agreements, the Company holds marketable securities, safekept by a third-party custodian, as collateral.

This collateral totaled $899.1 million in fair value at December 31, 2020.

There were $2.8 million federal funds sold at December 31, 2021, which are funds lent to the Company’s correspondent bank customers with overnight maturities.

Resale agreements, maturing through 2023, totaled $1.6 billion at December 31, 2021.

Under these agreements, the Company lends funds to upstream financial institutions and holds marketable securities, safe-kept by a third-party custodian, as collateral.

This collateral totaled $1.7 billion in fair value at December 31, 2021.

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $4.0 billion at December 31, 2021.

The Company’s available for sale investment portfolio includes scheduled maturities and expected pay downs of approximately $2.0 billion during 2021, and these funds offer substantial resources to meet either new loan demand or help offset reductions in the Company’s deposit funding base.

The Company pledges portions of its investment securities portfolio to secure public fund deposits, repurchase agreements, trust funds, letters of credit issued by the FHLB, and borrowing capacity at the Federal Reserve Bank.

The fair value of the available for sale debt portfolio was $14.5 billion at December 31, 2021 and included an unrealized net gain of $30.9 million.

The total net unrealized gain included net gains of $45.2 million on U.S.

government and federal agency obligations and $24.6 million on state and municipal obligations.

These net gains were partially offset by net unrealized losses of $38.5 million on mortgage-backed and asset-backed securities.

Approximately $3.0 billion of the available for sale debt portfolio is expected to mature or pay down during 2022, and these funds offer substantial resources to meet either new loan demand or help offset potential reductions in the Company’s deposit funding base.

The Company pledges portions of its investment securities portfolio to secure public fund deposits, securities sold under agreements to repurchase, trust funds, letters of credit issued by the FHLB, and borrowing capacity at the Federal Reserve Bank.

At December 31, 2021 and 2020, total investment securities pledged for these purposes were as follows:

14 unchanged sentences

These core deposits are normally less volatile, often with customer relationships tied to other products offered by the Company promoting long lasting relationships and stable funding sources.

Core deposits increased $6.6 billion at year end 2020 compared to year end 2019, with increases in commercial, consumer, and wealth management deposits of $3.1 billion, $2.0 billion, and $1.5 billion, respectively.

Core deposits increased $3.3 billion at year end 2021 compared to year end 2020, primarily due to increases in commercial and consumer deposits of $2.0 billion and $1.4 billion, respectively.

While the Company considers core consumer and wealth management deposits less volatile, corporate deposits could decline if interest rates increase significantly, encouraging corporate customers to increase investing activities, or if the economy declines and companies experience lower cash inflows, reducing deposit balances.

48 unchanged sentences

Operating activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of $597.7 million and has historically been a stable source of funds.

Investing activities used cash of $5.4 billion, mainly from an increase in the investment securities portfolio as well as an increase in the loan portfolio.

Purchases (net of sales and maturities proceeds) of investment securities used cash of $3.7 billion, and growth in the loan portfolio used cash of $1.6 billion.

Investing activities used cash of $2.1 billion.

Purchases (net of sales and maturities proceeds) of investment securities used cash of $2.4 billion, securities purchased under agreements to resell used cash of $900.0 million, and a net decrease in the loan portfolio provided cash of $1.1 billion.

Investing activities are somewhat unique to financial institutions in that, while large sums of cash flow are normally used to fund growth in investment securities, loans, or other bank assets, they are normally dependent on the financing activities described below.

2 unchanged sentences

Federal funds purchases and short-term securities sold under agreements to repurchase provided cash in the amount of $924.6 million.

The Company paid cash dividends of $127.6 million on common and preferred stock.

Treasury stock purchases used cash of $54.2 million during 2020, and the Company used cash of $150.0 million to redeem its preferred stock.

The Company paid cash dividends of $122.7 million on common stock, and treasury stock purchases used cash of $129.4 million during 2021.

Future short-term liquidity needs for daily operations are not expected to vary significantly, and the Company believes it maintains adequate liquidity to meet these cash flows.

The Company’s sound equity base, along with its long-term low debt level, common and preferred stock availability, and excellent debt ratings, provide several alternatives for future financing.

Future acquisitions may utilize partial funding through one or more of these options.

Cash outflows resulting from the Company’s transactions in its common and preferred stock were as follows:

26 unchanged sentences

In addition, the Company prepares forecasts to project changes in the balance sheet affecting liquidity and to allow the Company to better plan for forecasted changes.

Material Cash Requirements, Contractual Obligations, Commitments, and Off-Balance Sheet Arrangements

The Company's material cash requirements include commitments for contractual obligations (both short-term and long-term), commitments to extend credit, and off-balance sheet arrangements.

The Company's material cash requirements for the next 12 months are primarily to fund loan growth.

Additionally, the Company will utilize cash to fund deposit maturities and withdrawals that may occur in the next 12 months.

Other contractual obligations, purchase commitments, lease obligations, and unfunded commitments may require cash payments by the Company within the next 12 months, and these, along with longer-term obligations, are discussed below.

A table summarizing contractual cash obligations of the Company at December 31, 2021, and the expected timing of these payments follows:

Payments Due by Period

(In thousands) In One Year or Less After One Year Through Three Years After Three Years Through Five Years After Five Years Total

Operating lease obligations $ 6,009 $ 9,317 $ 4,275 $ 13,727 $ 33,328

Purchase obligations 319,168 321,625 90,368 74,101 805,262

Certificates of Deposit* 1,138,020 236,411 68,176 7 1,442,614

Total $ 1,463,197 $ 567,353 $ 162,819 $ 87,835 $ 2,281,204

*Includes principal payments only.

In the normal course of business, various commitments and contingent liabilities arise that are not required to be recorded on the balance sheet.

The most significant of these are loan commitments totaling $13.3 billion (including approximately $5.0

billion in unused, approved credit card lines) and the contractual amount of standby letters of credit totaling $418.3 million at December 31, 2021.

As many commitments expire unused or only partially used, these totals do not necessarily reflect future cash requirements.

Management does not anticipate any material losses arising from commitments or contingent liabilities and believes there are no material commitments to extend credit that represent risks of an unusual nature.

The Company funds a defined benefit pension plan for a portion of its employees.

Under the funding policy for the plan, contributions are made as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable period.

No contributions to the defined benefit plan were made in 2021, 2020 or 2019, and the Company is not required nor does it expect to make a contribution in 2022.

The Company has investments in low-income housing partnerships generally within the areas it serves.

These partnerships supply funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the population with lower family income.

If these developments successfully attract a specified percentage of residents falling in that lower income range, federal (and sometimes state) income tax credits are made available to the partners.

The tax credits are normally recognized over ten years, and they play an important part in the anticipated yield from these investments.

In order to continue receiving the tax credits each year over the life of the partnership, the low-income residency targets must be maintained.

Under the terms of the partnership agreements, the Company has a commitment to fund a specified amount that will be due in installments over the life of the agreements, which ranges from 3 to 17 years.

At December 31, 2021, the investments totaled $60.0 million and are recorded as other assets in the Company’s consolidated balance sheet.

Unfunded commitments, which are recorded as liabilities, amounted to $40.6 million at December 31, 2021.

During the third quarter of 2020, the Company signed a $106.7 million agreement with U.S.

Capital Development to develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri.

As of December 31, 2021, the Company has made payments totaling $55.2 million.

While the Company intends to occupy a portion of the office building for executive offices, a 15 year lease has been signed by an anchor tenant to lease approximately 50% of the office building.

The Company regularly purchases various state tax credits arising from third-party property redevelopment.

These credits are either resold to third parties for a profit or retained for use by the Company.

During 2021, purchases and sales of tax credits amounted to $113.5 million and $108.1 million, respectively.

Income from the sales of tax credits were $4.5 million, $4.2 million and $3.5 million in 2021, 2020 and 2019, respectively.

At December 31, 2021, the Company had outstanding purchase commitments totaling $186.0 million that it expects to fund in 2022.

These commitments, along with the commitments for the next five years, are included in the table above.

The Company’s sound equity base, along with its long-term low debt level, common and preferred stock availability, and excellent debt ratings, provide several alternatives for future financing.

Future acquisitions may utilize partial funding through one or more of these options.

Through the various sources of liquidity described above, the Corporation maintains a liquidity position that it believes will adequately satisfy its financial obligations.

The Company is not aware of any trends, events, or commitments that are reasonably likely to increase or decrease its liquidity in a material way.

Capital Management

14 unchanged sentences

The Company is subject to a 2.5% capital conservation buffer, which is an amount above the minimum ratios under capital adequacy guidelines, and is required under Basel III.

The capital conservation buffer is intended to absorb losses during

periods of economic stress.

The capital conservation buffer is intended to absorb losses during periods of economic stress.

Failure to maintain the buffer will result in constraints on dividends, share repurchases, and executive compensation.

5 unchanged sentences

The Company maintains a treasury stock buyback program under authorizations by its Board of Directors and periodically purchases stock in the open market.

During 2019, the Company purchased 4.7 million shares, including 2.4 million shares purchased under an accelerated share repurchase (ASR) agreement.

During 2020, the Company purchased 886 thousand shares, and during 2021 the Company purchased 1.8 million shares.

There were no shares purchased under an accelerated share repurchase (ASR) agreement in 2021 or 2020.

The ASR agreement is further discussed in Note 14 to the consolidated financial statements.

During 2020, the Company purchased 886 thousand shares.

At December 31, 2021, 1.7 million shares remained available for purchase under the current Board authorization.

The Company’s common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain adequate capital levels and alternative investment options.

Per share cash dividends paid by the Company increased 9.1% in 2020 compared with 2019, and the Company increased its first quarter 2021 cash dividend 2.1%, making 2021 the Company's 53rd consecutive year of regular cash dividend increases.

Per share cash dividends paid by the Company increased 2.0% in 2021 compared with 2020, and the Company increased its first quarter 2022 cash dividend 6.0%, making 2022 the Company's 54th consecutive year of regular cash dividend increases.

The Company also distributed its 28th consecutive annual 5% stock dividend in December 2021.

2 unchanged sentences

On and after September 1, 2020, all dividends on the shares of Series B Preferred Stock ceased to accrue.

Commitments, Contractual Obligations, and Off-Balance Sheet Arrangements

In the normal course of business, various commitments and contingent liabilities arise that are not required to be recorded on the balance sheet.

The most significant of these are loan commitments totaling $13.0 billion (including approximately $5.0 billion in unused, approved credit card lines) and the contractual amount of standby letters of credit totaling $357.1 million at December 31, 2020.

As many commitments expire unused or only partially used, these totals do not necessarily reflect future cash requirements.

A table summarizing contractual cash obligations of the Company at December 31, 2020 and the expected timing of these payments follows:

Payments Due by Period

(In thousands) In One Year or Less After One Year Through Three Years After Three Years Through Five Years After Five Years Total

Operating lease obligations* $ 6,406 $ 10,737 $ 6,206 $ 15,538 $ 38,887

Purchase obligations 263,553 390,802 69,117 74,734 798,206

Certificates of Deposit** 1,627,852 193,342 23,440 57 1,844,691

Total $ 1,897,811 $ 594,881 $ 98,763 $ 90,329 $ 2,681,784

* Includes operating leases signed but not yet commenced.

** Includes principal payments only.

The Company funds a defined benefit pension plan for a portion of its employees.

Under the funding policy for the plan, contributions are made as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a reasonable period.

No contributions to the defined benefit plan were made in 2020, 2019 or 2018, and the Company is not required nor does it expect to make a contribution in 2021.

The Company has investments in low-income housing partnerships generally within the areas it serves.

These partnerships supply funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the

population with lower family income.

If these developments successfully attract a specified percentage of residents falling in that lower income range, federal (and sometimes state) income tax credits are made available to the partners.

The tax credits are normally recognized over ten years, and they play an important part in the anticipated yield from these investments.

In order to continue receiving the tax credits each year over the life of the partnership, the low-income residency targets must be maintained.

At December 31, 2020, the investments totaled $47.6 million and are recorded as other assets in the Company’s consolidated balance sheet.

Unfunded commitments, which are recorded as liabilities, amounted to $29.3 million at December 31, 2020.

During the third quarter of 2020, the Company signed a $106.6 million agreement with U.S.

Capital Development to develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri.

While the Company intends to occupy a portion of the office building for executive offices, a 15 year lease agreement has been signed by an anchor tenant to lease approximately 40% of the office building.

The commitments related to the construction of the commercial office building are included in the table above.

The Company regularly purchases various state tax credits arising from third-party property redevelopment.

These credits are either resold to third parties or retained for use by the Company.

During 2020, purchases and sales of tax credits amounted to $151.2 million and $131.4 million, respectively.

Fees from the sales of tax credits were $4.2 million, $3.5 million and $4.9 million in 2020, 2019 and 2018, respectively.

At December 31, 2020, the Company had outstanding purchase commitments totaling $141.3 million that it expects to fund in 2021.

These commitments, along with the commitments for the next five years, are included in the table above.

Interest Rate Sensitivity

20 unchanged sentences

Simulation A presents three rising rate scenarios and in each scenario, rates are assumed to change evenly over 12 months.

In these scenarios, the balance sheet remains flat with the exception of deposit balances, which may fluctuate based on changes in rates.

For instance, the Company may experience deposit disintermediation if the spread between market rates and bank deposit rates widens as rates rise.

In these scenarios, the balance sheet remains flat.

The sensitivity of deposit balances to changes in rates is particularly difficult to estimate in exceptionally low rate environments.

10 unchanged sentences

100 basis points rising 39.5 5.42 — 37.7 5.17 —

Under Simulation A, in the three rising rate scenarios, interest rate risk is slightly more asset sensitive than the previous quarter, which resulted mainly from an increase in interest earning deposits with the Federal Reserve.

Deposit attrition was removed from the simulation in both the current and previous quarters.

The Company did not model a 100 basis point falling scenario due to the already low interest rate environment.

Simulation B December 31, 2021 September 30, 2021

5 unchanged sentences

100 basis points rising 33.5 4.59 (263.6) 33.2 4.55 (237.5)

Under Simulation A, in the three rising rate scenarios, interest income increases more quickly than funding costs.

The increase is predominately due to interest earning deposits with the Federal Reserve and variable rate loan rates repricing up with market rates, while deposit rates only partially reprice higher.

Higher deposits and balances at the Federal Reserve during the current quarter resulted in improved rising rate scenarios.

PPP loans were not included in the simulation and contributed to higher deposit balances at the Federal Reserve.

The Company did not model a 100 basis point falling scenario due to the already low interest rate environment.

In Simulation B, the assumed higher levels of deposit attrition were modeled to capture the results of a shrinking balance sheet.

Under this Simulation, in the three rising rate scenarios, interest rate risk is slightly less asset sensitive than the previous quarter, which primarily resulted from an increase in surge deposits.

Projecting deposit activity in a historically low interest rate environment is difficult, and the Company cannot predict how deposits will react to shifting rates.

3 unchanged sentences

The Company maintains an overall interest rate risk management strategy that permits the use of derivative instruments to modify exposure to interest rate risk.

Such instruments include interest rate swaps, interest rate floors, interest rate caps, credit risk participation agreements, foreign exchange contracts, mortgage loan commitments, forward sale contracts, and forward to-be-announced (TBA) contracts.

Such instruments include interest rate swaps, interest rate floors, interest rate caps, credit risk participation agreements, mortgage loan commitments, forward sale contracts, and forward to-be-announced (TBA) contracts.

The Company’s interest rate risk management strategy includes the ability to modify the re-pricing characteristics of certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin and cash flows.

All of these derivative instruments utilized by the Company are further discussed in Note 19 on Derivative Instruments.

In addition to using derivatives to manage interest rate risk, the Company enters into foreign exchange derivative instruments as an accommodation to customers and offsets the related foreign exchange risk by entering into offsetting third-party forward contracts with approved, reputable counterparties.

This trading activity is managed within a policy of specific controls and limits.

In all of these contracts, the Company is exposed to credit risk in the event of nonperformance by counterparties, who may be bank customers or other financial institutions.

The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures.

Because the Company generally enters into transactions only with high quality counterparties, there have been no losses associated with counterparty nonperformance on derivative financial instruments.

Because the Company generally only enters into transactions with high quality counterparties, there have been no losses associated with counterparty nonperformance on derivative financial instruments.

The following table summarizes the notional amounts and estimated fair values of the Company’s derivative instruments at December 31, 2021 and 2020.

1 unchanged sentence

Because the notional amount does not represent amounts exchanged by the parties, it is not a measure of loss exposure related to the use of derivatives nor of exposure to liquidity risk.

All of these derivative instruments utilized by the Company are further discussed in Note 19 on Derivative Instruments.

(In thousands) Notional Amount Positive Fair Value Negative Fair Value Notional Amount Positive Fair Value Negative Fair Value

Interest rate swaps $ 2,229,419 $ 40,752 $ (11,606) $ 2,367,017 $ 86,389 $ (17,199)

Interest rate floors — — — 1,500,000 67,192 —

Interest rate caps 152,058 147 (147) 103,028 1 (1)

51 unchanged sentences

$ 140,612 $ 289,501 $ 121,915 $ 552,028 $ (110,850) $ 441,178

Increase (decrease) in income before income taxes:

Increase in income before income taxes:

Amount $ 9,347 $ 50,771 $ 26,816 $ 86,934 $ 158,189 $ 245,123

Percent 29.5 % 23.8 % 15.3 % 23.2 % N.M.

Percent 6.6 % 17.5 % 22.0 % 15.7 % 142.7 % 55.6 %

Year ended December 31, 2019:

5 unchanged sentences

135,257 203,952 180,836 520,045 4,658 524,703

Investment securities losses, net

Investment securities gains, net

— — — — 3,626 3,626

8 unchanged sentences

During 2021, income before income taxes for the Consumer segment increased $9.3 million, or 6.6%, compared to 2020.

This increase was due to growth of $5.3 million, or 1.7%, in net interest income, $13.3 million, or 9.8%, in non-interest income, and a decrease to the provision for credit losses of $13.8 million.

Net interest income increased due to an $18.0 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios and lower deposit interest expense of $7.3 million, partly offset by a decrease in interest income on loans of $20.1 million.

This increase was due to a decrease in non-interest expense of $4.3 million, or 1.4%, and a decrease in the provision for credit losses of $8.0 million.

These increases to income were partly offset by a $1.6 million, or .5%, decrease in net interest income and a $1.3 million, or .9%, decrease to non-interest income.

Net interest income decreased due to a $21.9 million decline in loan interest income, partly offset by a $9.1 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios, and lower deposit interest expense of $11.2 million.

Non-interest income decreased mainly due to a decline in mortgage banking revenue, partly offset by growth in net credit and debit card fees (mainly higher interchange fees, partly offset by higher credit card rewards expense) and check sales and wire fees.

Non-interest expense decreased from the prior year mainly due to lower salaries and benefits expense, occupancy expense, allocated servicing costs for mortgage operations and a reduction in impairment expense on mortgage servicing rights.

These decreases were partly offset by higher marketing expense and higher allocated costs for information technology.

The provision for credit losses totaled $23.2 million, an $8.0 million decrease from the prior year, which resulted mainly from lower net charge-offs on consumer credit card and consumer loans.

Total average loans in this segment decreased $178.3 million, or 8.5%, in 2021 compared to 2020 mainly due to declines in consumer credit card, auto and fixed and revolving home equity loans.

Average deposits increased $1.6 billion, or 13.8%, over the prior year, resulting from growth in personal demand, savings and interest checking and money market deposit accounts.

During 2020, income before income taxes for the Consumer segment increased $32.1 million, or 29.6%, compared to 2019.

This increase was due to growth of $5.3 million, or 1.7% in net interest income, non interest income of $13.3 million, or 9.9%, and a decrease to the provision for credit losses of $13.8 million.

Net interest income increased due to an $18.0 million increase in net allocated funding credits and lower deposit interest expense of $7.3 million, partly offset by a decrease in interest income on loans of $20.1 million.

Non-interest income increased mainly due to growth in mortgage banking revenue, partly offset by declines in deposit fees (mainly overdraft and return item fees) and net credit and debit card fees (mainly lower interchange fees, partly offset by lower rewards expense).

These increases to income were partly offset by growth of $260 thousand, or .1%, in non-interest expense.

Non-interest expense increased over the prior year due to higher incentive compensation expense, allocated teller servicing costs, intangible asset amortization and an impairment on mortgage servicing rights.

Non-interest expense increased over 2019 due to higher incentive compensation expense, allocated teller servicing costs, intangible asset amortization and an impairment on mortgage servicing rights.

These increases were partly offset by lower supplies and communication expense, marketing expense, and bank card processing fees.

The provision for credit losses totaled $31.2 million, a $13.8 million decrease from the prior year, which resulted mainly from lower net charge-offs on consumer credit card and consumer loans.

The provision for credit losses totaled $31.2 million, a $13.8 million decrease from 2019, which resulted mainly from lower net charge-offs on consumer credit card and consumer loans.

Total average loans in this segment decreased $139.3 million, or 6.2%, in 2020 compared to 2019 mainly due to declines in consumer credit card and fixed and revolving home equity loans.

Average deposits increased $1.0 billion over the prior year, resulting from growth in personal demand, savings, interest checking and money market deposit accounts.

During 2019, income before income taxes for the Consumer segment increased $14.4 million, or 15.2%, compared to 2018.

This increase was due to growth of $21.0 million, or 7.1%, in net interest income and an increase in non-interest income of $9.0 million, or 7.1%.

Net interest income increased due to a $27.8 million increase in net allocated funding credits and growth of $3.4 million in loan interest income, partly offset by an increase of $10.1 million in deposit interest expense.

Non-interest income increased mainly due to growth in mortgage banking revenue and net credit card fees, (mainly higher interchange fees and lower rewards expense), partly offset by a decline in deposit fees (mainly overdraft and return item fees and deposit account service fees).

These increases to income were partly offset by growth of $11.2 million, or 3.9%, in non-interest expense.

Non-interest expense increased over 2018 due to higher salaries and benefits expense, data processing and software expense and allocated servicing and support costs (mainly teller services, online banking, installment loan and management fees).

The provision for loan losses totaled $45.0 million, a $4.4 million increase over 2018, which was mainly due to higher net charge-offs on consumer credit card loans.

Total average loans in this segment decreased $107.1 million, or 4.6%, in 2019 compared to 2018 mainly due to a decline in auto and other consumer loans.

Average deposits increased $25.8 million over 2018, resulting from growth in interest checking, savings, and certificate of deposit balances, partly offset by a decline in money market deposit accounts.

The Commercial segment provides corporate lending (including the Small Business Banking product line within the branch network), leasing, international services, and business, government deposit, and related commercial cash management services, as well as merchant and commercial bank card products.

Average deposits increased $1.0 billion over 2019, resulting from growth in personal demand, savings, interest checking and money market deposit accounts.

The Commercial segment provides lending (including the Small Business Banking product line within the branch network), leasing, international services, and business, government deposit, and related commercial cash management services, as well as merchant and commercial bank card products.

The segment includes the Capital Markets Group, which sells fixed-income securities to correspondent banks, corporations, public institutions, municipalities, and individuals and also provides securities safekeeping and bond accounting services.

Pre-tax income for 2020 increased $55.6 million, or 23.8%, compared to 2019, mainly due to an increase in net interest income, partly offset by a decrease in non-interest income and an increase non-interest expense.

Pre-tax income for 2021 increased $50.8 million, or 17.5%, compared to 2020, mainly due to increases in net interest income and non-interest income and a decline in the provision for credit losses, partly offset by an increase in non-interest expense.

Net interest income increased $39.0 million, or 9.4%, due to higher net allocated funding credits of $56.9 million and lower interest expense of $12.9 million on deposits and customer repurchase agreements, partly offset by a decrease of $30.9 million in loan interest income.

The provision for credit losses decreased $8.6 million due to recoveries recorded on business loans in the current year compared to net charge-offs recorded in the prior year.

Non-interest income increased $16.5 million, or 8.5%, over 2020 due to higher net bank card fees (mainly corporate card and merchant fees), deposit account fees (mainly corporate cash management fees), and higher interest rate swap fees.

These increases were partly offset by lower cash sweep commissions.

Non-interest expense increased $13.3 million, or 4.2%, during 2021, mainly due to higher salaries and benefits expense (mainly incentive compensation), data processing and software expense, allocated support costs for information technology and commercial banking, and lower deferred origination costs.

These increases were partly offset by lower allocated service costs (mainly lockbox).

Average segment loans decreased $327.8 million, or 3.1%, compared to 2020, with the decline occurring in business loans (mainly PPP loans), partly offset by an increase in construction loans.

Average deposits increased $2.1 billion, or 20.7%, mainly due to growth in business demand deposits.

Pre-tax income for 2020 increased $55.7 million, or 23.8%, compared to 2019, mainly due to an increase in net interest income, partly offset by a decrease in non-interest income and an increase in non-interest expense.

Net interest income increased $71.5 million, or 20.8%, due to growth of $75.7 million in net allocated funding credits and lower interest expense of $46.2 million on deposits and customer repurchase agreements, partly offset by a decrease of $50.4 million in loan interest income.

The provision for credit losses decreased $480 thousand from the prior year due to lower lease loan net charge-offs.

The provision for credit losses decreased $480 thousand from 2019 due to lower lease loan net charge-offs, partly offset by higher business loan net charge-offs.

Non-interest income decreased $9.4 million, or 4.6%, from 2019 due to lower net corporate card fees (driven by lower transaction volume), lower swap fees and lower gains on sales of leased assets.

4 unchanged sentences

Average deposits increased $2.1 billion, or 26.6%, mainly due to growth in business demand accounts.

Pre-tax income for 2019 decreased $14.7 million, or 5.9%, compared to 2018, mainly due to an increase in non-interest expense.

A decline in net interest income and an increase in the provision for loan losses further decreased pre-tax net income compared to 2018.

Net interest income decreased $1.7 million, or .5%, due to a decline of $12.7 million in net allocated funding credits and higher interest expense of $18.4 million on deposits and customer repurchase agreements, partly offset by an increase of $29.3 million in loan interest income.

The provision for loan losses increased $3.1 million over 2018, due to higher business loan net charge-offs (related to a charge-off on a single lease loan).

Non-interest income increased $1.4 million, or .7%, over 2018 due to higher deposit account fees (mainly corporate cash management), cash sweep commissions, and gains on sales of leased assets to customers upon lease termination.

These increases were partly offset by lower net corporate card fees (driven by lower interchange income and higher network and rewards expense) and lower tax credit sales fees.

Non-interest expense increased $11.3 million, or 3.8%, during 2019, mainly due to increases in salaries expense and allocated support costs (mainly information technology, marketing and commercial sales and product support).

These increases were partly offset by lower deposit insurance expense and allocated servicing costs (mainly teller services and deposit operations).

Average segment loans increased $310.9 million, or 3.5%, compared to 2018, with growth occurring in business and business real estate loans.

Average deposits decreased $180.9 million, or 2.3%, due to declines in business demand and money market deposit accounts, partly offset by growth in certificate of deposit balances.

The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management services, brokerage services, and includes Private Banking accounts.

1 unchanged sentence

It also provides investment management services to The Commerce Funds, a series of mutual funds with $3.2 billion in total assets at December 31, 2021.

In 2021, pre-tax income for the Wealth segment was $148.7 million, compared to $121.9 million in 2020,

an increase of $26.8 million, or 22.0%.

Net interest income increased $13.6 million, or 23.5%, due to an $11.0 million increase in net allocated funding credits and lower deposit interest expense of $4.0 million, slightly offset by a decline in loan interest income of $1.3 million.

Non-interest income increased $24.7 million, or 13.1%, over the prior year largely due to higher private client and institutional trust fees and brokerage fees, partly offset by lower cash sweep commissions.

Non-interest expense increased $11.4 million, or 9.1%, resulting from higher salaries expense (mainly incentive compensation) and higher allocated support costs for information technology.

The provision for credit losses increased $64 thousand, mainly due to higher net charge-offs on revolving home equity loans.

Average assets increased $178.3 million, or 12.7%, during 2021 mainly due to higher personal real estate and consumer loan balances.

Average deposits increased $694.7 million, or 30.6%, due to growth in business demand and interest checking and money market account deposit balances.

In 2020, pre-tax income for the Wealth segment was $121.9 million, compared to $105.7 million in 2019, an increase of $16.2 million, or 15.3%.

Net interest income increased $10.1 million, or 21.0%, due to a $14.4 million increase

in net allocated funding credits and lower deposit interest expense of $2.8 million, partly offset by a decline in loan interest income of $7.2 million.

Net interest income increased $10.1 million, or 21.0%, due to a $14.4 million increase in net allocated funding credits and lower deposit interest expense of $2.8 million, partly offset by a decline in loan interest income of $7.2 million.

Non-interest income increased $8.1 million, or 4.5%, over the prior year largely due to higher private client and institutional trust fees and mortgage banking revenue.

3 unchanged sentences

Average deposits increased $438.7 million, or 23.9%, due to growth in interest checking and money market account balances.

In 2019, pre-tax income for the Wealth segment was $105.7 million, compared to $94.6 million in 2018, an increase of $11.1 million, or 11.8%.

Net interest income increased $873 thousand, or 1.9%, due to a $4.3 million increase in loan interest income and a $1.5 million increase in net allocated funding credits, partly offset by higher interest expense of $4.9 million.

Non-interest income increased $11.0 million, or 6.5%, over 2018 largely due to higher private client fund trust fees and cash sweep commissions.

Non-interest expense increased $537 thousand, or .4%, resulting from higher salaries and benefits expense and higher allocated costs for information technology.

The provision for loan losses increased $206 thousand, mainly due to higher revolving home equity loan net charge-offs.

Average assets increased $45.1 million, or 3.6%, during 2019 mainly due to growth in personal real estate and consumer loan balances.

Average deposits decreased $39.2 million, or 2.1%, due to declines in interest checking account balances, partially offset by higher balances of demand deposits.

The segment activity, as shown above, includes both direct and allocated items.

1 unchanged sentence

In accordance with the Company's transfer pricing procedures, the difference between the total provision and total net charge-offs/recoveries is not allocated to a business segment and is included in this category.

In 2020, the pre-tax net loss in this category was $110.9 million, compared to net income of $83.6 million in 2019.

This decrease was due to lower net interest income of $78.3 million and lower non-interest income of $30.8 million, partly offset by a decrease in non-interest expense of $8.4 million.

In 2021, the pre-tax net income in this category was $47.3 million, compared to a net loss of $110.9 million in 2020.

This increase was due to higher non-interest income of $14.6 million, partly offset by a decrease in net interest income of $45.4 million, and an increase in non-interest expense of $17.1 million.

Unallocated securities gains were $30.1 million in 2021, compared to securities gains of $11.0 million in 2020.

Also, the unallocated provision for credit losses increased $101.2 million, primarily driven by an increase in the allowance for credit losses on loans and the liability for unfunded lending commitments, which are not allocated to segments for management reporting purposes.

Also, the unallocated provision for credit losses decreased $187.0 million, primarily driven by a decrease in the allowance for credit losses on loans and the liability for unfunded lending commitments, which are not allocated to segments for management reporting purposes.

Net charge-off are allocated to segments when incurred for management reporting purposes.

For the year ended December 31, 2020, the Company's provision for credit losses on unfunded lending commitments was $21.1 million.

Additionally, the provision for credit losses on loans was $81.2 million in excess of net charge-offs in 2020, while the provision was $750 thousand in excess of net charge-offs in 2019.

For the year ended December 31, 2021, the Company's provision for credit losses on unfunded lending commitments, which is not allocated to the segments for management reporting, was a benefit of $14.1 million.

Additionally, the provision for credit losses on loans was $70.8 million lower than net charge-offs, as the provision was a benefit in 2021, while the provision was $81.2 million in excess of net charge-offs in 2020.

Impact of Recently Issued Accounting Standards

1 unchanged sentence

This new standard is effective for fiscal years beginning after December 15, 2019 and was adopted by the Company on January 1, 2020 using the modified retrospective method.

This new measurement approach requires the calculation of expected lifetime credit losses and is applied to financial assets measured at amortized cost, including loans and held-to-maturity securities as well as certain unfunded lending commitments such as loan commitments.

CECL requires the calculation of expected lifetime credit losses and is applied to financial assets measured at amortized cost, including loans and held-to-maturity securities as well as certain unfunded lending commitments such as loan commitments.

The standard also changes the impairment model of available for sale debt securities.

The allowance for loan losses under the previously required incurred loss model that is reported on the Company's consolidated balance sheet is different under the requirements of the CECL model.

The allowance for loan losses under the previously required incurred loss model is different under the requirements of the CECL model.

At adoption, a cumulative-effect adjustment for the change in the allowance for credit losses increased retained earnings by $3.8 million.

The cumulative-effect adjustment to retained earnings, net of taxes, was comprised of the impact to the allowance for credit losses on outstanding loans and the impact to the liability for unfunded lending commitments.

There is no implementation impact on held-to-maturity debt securities as the Company does not hold any held-to-maturity debt securities.

The new accounting standard does not require the use of a specific loss estimation method for purposes of determining the allowance for credit losses.

There was no implementation impact on held-to-maturity debt securities as the Company does not hold any held-to-maturity debt securities.

CECL does not require the use of a specific loss estimation method for purposes of determining the allowance for credit losses.

The Company selected a methodology that uses historical net charge-off rates, adjusted by the impacts of a reasonable and supportable forecast and the impacts of other qualitative factors to determine the expected credit losses.

2 unchanged sentences

The model design and methodology requires management judgment.

The allowance for credit losses on the commercial portfolio decreased due to the relatively short contractual lives of the commercial loan portfolios coupled with an economic forecast predicting stable macroeconomic factors similar to the current environment at adoption.

The allowance for credit losses on the personal banking portfolio increased due to the relatively longer contractual lives of certain portfolios, primarily those collateralized with personal real estate.

Upon adoption of CECL, the allowance for credit losses on the commercial portfolio decreased due to the relatively short contractual lives of the commercial loan portfolios coupled with an economic forecast predicting stable macroeconomic factors.

The allowance for credit losses on the personal banking portfolio increased upon adoption of CECL, due to the relatively longer contractual lives of certain portfolios, primarily those collateralized with personal real estate.

Because the commercial loan portfolio represented 63% of total loans at December 31, 2019, the change in its allowance for credit losses had a more significant impact on the total allowance for credit losses, and resulted in a net reduction in the allowance for credit losses.

The Company's allowance for loan losses to total loans ratio declined from 1.09% at December 31, 2019, to .95% at adoption.

Offsetting the overall reduction in the allowance for credit losses for outstanding loans was an increase in the liability for unfunded lending commitments.

The liability increased as the loss estimation was required to be expanded over the contractual commitment period.

The adoption also resulted in an immaterial adjustment to retained earnings at January 1, 2020.

As a result, the Company's allowance for loan losses to total loans ratio declined from 1.09% at December 31, 2019, to .95% at the time of the Company's adoption of CECL.

Offsetting the overall reduction in the allowance for credit losses for outstanding loans was an increase in the liability for unfunded lending commitments, as the loss estimation was required to be expanded over the contractual commitment period.

Further discussion of the accounting impact of the Company's adoption is included in Note 1 to the consolidated financial statements.

28 unchanged sentences

Investment Securities The FASB issued ASU 2020-08, "Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs", in October 2020.

The amendments in the ASU clarify that for each reporting period an entity should evaluate whether a callable debt security that has multiple call dates may consider estimates of future principal

prepayments when applying the interest method.

The amendments in the ASU clarify that for each reporting period an entity should evaluate whether a callable debt security that has multiple call dates may consider estimates of future principal prepayments when applying the interest method.

The guidance was effective January 1, 2021, and the Company adopted it on that date.

3 unchanged sentences

Further, the guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform.

The expedients and exceptions provided by the new guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022.

The Company has established a LIBOR Transition Program, which is led by the LIBOR Transition Steering Committee (Committee) whose purpose is to guide the overall transition process for the Company.

The Committee is an internal, cross-functional team with representatives from all relevant business lines, support functions and legal counsel.

An initial LIBOR impact and risk assessment has been performed, and the Committee has developed and prioritized action items.

Changes to the Company's systems have been identified and the process of installing and testing code has started.

The expedients and exceptions provided by the new guidance do not apply to contract modifications made and hedging relationships entered into or evaluated for effectiveness after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022.

In December 2021, the FASB voted to propose extending the sunset date under Topic 848 from December 31, 2022 to December 31, 2024.

The change is to align the temporary accounting relief guidance with the expected cessation date of LIBOR, which was postponed by administrators earlier this year to June 2023, a year after the current sunset date of ASU 2020-04.

In order to assess the impact of transition and ensure a successful transition process, the Company established a LIBOR Transition Program led by the LIBOR Transition Steering Committee (the Committee), which is an internal, cross-functional team with representatives from all relevant business lines, support functions and legal counsel.

A LIBOR impact and risk assessment has been performed, and the Committee has developed and prioritized action items.

All financial contracts that reference LIBOR have been identified and are being monitored on an ongoing basis.

Remediation of these contracts is expected to be consistent with industry timing.

LIBOR fallback language has been included in key loan provisions of new and renewed loans in preparation for transition from LIBOR to the new benchmark rate when such transition occurs.

The process of remediating these contracts has started, and LIBOR fallback language has been included in key loan provisions of new and renewed loans in preparation for transition from LIBOR.

Additionally, changes to the Company's systems have been identified, and the process of installing and testing code was started in the third quarter of 2021.

The installation and testing process is expected to be completed in 2022.

Corporate Governance

2 unchanged sentences

This information is available on the Company’s website www.commercebank.com under "Social Responsibility".

SUMMARY OF QUARTERLY STATEMENTS OF INCOME

Year ended December 31, 2021

For the Quarter Ended

(In thousands, except per share data) 12/31/2021 9/30/2021 6/30/2021 3/31/2021

Interest income

$ 210,479 $ 216,981 $ 211,133 $ 209,697

Interest expense

(2,822) (2,944) (3,151) (3,949)

Net interest income

207,657 214,037 207,982 205,748

Non-interest income

147,699 137,506 139,143 136,045

Investment securities gains (losses), net

(9,706) 13,108 16,804 9,853

Salaries and employee benefits

(132,640) (132,824) (130,751) (129,033)

Other expense

(70,942) (78,796) (67,375) (63,540)

Provision for credit losses

7,054 7,385 45,655 6,232

Income before income taxes

149,122 160,416 211,458 165,305

(33,764) (34,662) (45,209) (32,076)

Non-controlling interest

(452) (3,193) (3,923) (2,257)

Net income attributable to Commerce Bancshares, Inc.

$ 114,906 $ 122,561 $ 162,326 $ 130,972

Net income per common share — basic*

$ .94 $ 1.00 $ 1.32 $ 1.06

Net income per common share — diluted*

$ .94 $ .99 $ 1.32 $ 1.06

Weighted average shares — basic*

120,964 121,628 121,971 122,073

Weighted average shares — diluted*

121,221 121,881 122,273 122,402

Year ended December 31, 2020

For the Quarter Ended

(In thousands, except per share data) 12/31/2020 9/30/2020 6/30/2020 3/31/2020

Interest income

$ 214,726 $ 223,114 $ 213,323 $ 221,485

Interest expense

(4,963) (7,152) (10,266) (20,420)

Net interest income

209,763 215,962 203,057 201,065

Non-interest income

135,117 129,572 117,515 123,663

Investment securities gains (losses), net

12,307 16,155 (4,129) (13,301)

Salaries and employee benefits

(129,983) (127,308) (126,759) (128,937)

Other expense

(66,327) (63,550) (60,753) (64,761)

Provision for credit losses

4,403 (3,101) (80,539) (57,953)

Income before income taxes

165,280 167,730 48,392 59,776

(33,084) (34,375) (9,661) (10,173)

Non-controlling interest

(2,307) (907) 1,132 2,254

Net income attributable to Commerce Bancshares, Inc.

$ 129,889 $ 132,448 $ 39,863 $ 51,857

Net income per common share — basic*

$ 1.05 $ 1.01 $ .31 $ .40

Net income per common share — diluted*

$ 1.05 $ 1.01 $ .31 $ .40

Weighted average shares — basic* 122,081 122,069 122,054 122,508

Weighted average shares — diluted* 122,333 122,266 122,264 122,792

Year ended December 31, 2019

For the Quarter Ended

(In thousands, except per share data) 12/31/2019 9/30/2019 6/30/2019 3/31/2019

Interest income

$ 226,665 $ 231,743 $ 238,412 $ 227,865

Interest expense

(24,006) (28,231) (26,778) (24,377)

Net interest income

202,659 203,512 211,634 203,488

Non-interest income

143,461 132,743 127,259 121,240

Investment securities gains (losses), net

(248) 4,909 (110) (925)

Salaries and employee benefits

(126,901) (123,836) (120,062) (122,128)

Other expense

(68,273) (67,184) (69,717) (69,297)

Provision for credit losses

(15,206) (10,963) (11,806) (12,463)

Income before income taxes

135,492 139,181 137,198 119,915

(28,214) (29,101) (28,899) (22,860)

Non-controlling interest

(398) (838) (328) 83

Net income attributable to Commerce Bancshares, Inc.

$ 106,880 $ 109,242 $ 107,971 $ 97,138

Net income per common share — basic*

$ .84 $ .85 $ .82 $ .74

Net income per common share — diluted*

$ .84 $ .85 $ .82 $ .74

Weighted average shares — basic*

123,183 124,563 126,744 127,351

Weighted average shares — diluted*

123,492 124,857 127,052 127,687

* Restated for the 5% stock dividend distributed in 2021.

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

47 unchanged sentences

13,491,742 243,824 1.81 10,261,688 224,835 2.19 8,731,995 245,332 2.81

Federal funds sold and short-term securities purchased under agreements to resell

Federal funds sold

677 4 .59 278 3 1.08 2,034 55 2.70

Long-term securities purchased under agreements to resell

Securities purchased under agreements to resell

1,275,837 37,377 2.93 849,998 40,647 4.78 741,089 15,898 2.15

24 unchanged sentences

16,543,849 11,244 .07 14,607,214 35,696 .24 13,533,687 73,025 .54

Federal funds purchased and securities sold under agreements to repurchase

Federal funds purchased

23,623 17 .07 126,203 794 .63 247,126 5,332 2.16

Securities sold under agreements to repurchase 2,311,214 1,629 .07 1,840,276 5,297 .29 1,574,972 24,083 1.53

Other borrowings (C)

20 unchanged sentences

Credit card income from merchant discounts and net interchange fees are not included in loan income.

E SHEETS — AVERAGE RATES AND YIELDS

E — AVERAGE RATES AND

Years Ended December 31

47 unchanged sentences

3.53 % 3.19 % 3.04 %

9.58 % 7.75 % 7.14 %

(B) Interest income and yields are presented on a fully-taxable equivalent basis using a federal income tax rate of 21% in 2021, 2020, 2019 and 2018, and 35% in prior periods.

2 unchanged sentences

These adjustments relate to state and municipal obligations, trading securities, equity securities, and other securities.

(C) Interest expense of $14,000, which was capitalized on construction projects in 2020, is not deducted from the interest expense shown above.

(C) Interest expense of $29,000 and $14,000, which was capitalized on construction projects in 2021 and 2020, respectively, is not deducted from the interest expense shown above.

QUARTERLY AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

35 unchanged sentences

14,687 1.82 13,795 1.89 12,880 1.78 12,580 1.72

Federal funds sold and short-term securities purchased under agreements to resell

Federal funds sold

1 .70 1 .50 1 .60 — —

Long-term securities purchased under agreements to resell

Securities purchased under agreements to resell

1,670 1.62 1,633 2.19 937 4.46 850 5.31

19 unchanged sentences

16,929 .05 16,582 .06 16,604 .07 16,051 .09

Federal funds purchased and securities sold under agreements to repurchase

2,028 .06 1,856 .09 1,992 .12 1,990 .96

Federal funds purchased 21 .11 14 .10 23 .05 37 .05

Securities sold under agreements to repurchase 2,620 .08 2,347 .08 2,143 .06 2,129 .06

Other borrowings 1 — — 1.14 1 .82 1 .98

15 unchanged sentences

(A) Includes tax equivalent calculations.

QUARTERLY AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

— AVERAGE RATES AND YIELDS

Year ended December 31, 2020

31 unchanged sentences

Total investment securities 11,973 1.81 11,087 2.24 9,427 2.24 8,533 2.61

Federal funds sold and short-term securities purchased under agreements to resell

1 2.22 1 2.57 2 2.76 5 2.79

Long-term securities purchased under agreements to resell

850 2.26 713 2.01 700 2.11 700 2.18

Federal funds sold — 1.12 — — — — — 2.47

Securities purchased under agreements to resell 850 5.24 850 5.26 850 5.08 850 3.53

Interest earning deposits with banks 1,083 .10 1,025 .10 1,755 .10 601 .86

17 unchanged sentences

15,315 .12 14,946 .18 14,504 .25 13,652 .45

Federal funds purchased and securities sold under agreements to repurchase

1,837 1.20 1,885 1.74 1,794 1.80 1,772 1.72

Federal funds purchased 48 .07 26 .01 223 .04 209 1.46

Securities sold under agreements to repurchase 1,980 .06 1,830 .09 1,769 .13 1,781 .91

Other borrowings 1 — 1 — 345 .82 162 .82

15 unchanged sentences

(A) Includes tax equivalent calculations.

SUMMARY OF QUARTERLY STATEMENTS OF INCOME

Year ended December 31, 2020 For the Quarter Ended

(In thousands, except per share data) 12/31/2020 9/30/2020 6/30/2020 3/31/2020

Interest income

$ 214,726 $ 223,114 $ 213,323 $ 221,485

Interest expense

(4,963) (7,152) (10,266) (20,420)

Net interest income

209,763 215,962 203,057 201,065

Non-interest income

135,117 129,572 117,515 123,663

Investment securities gains (losses), net

12,307 16,155 (4,129) (13,301)

Salaries and employee benefits

(129,983) (127,308) (126,759) (128,937)

Other expense

(66,327) (63,550) (60,753) (64,761)

Provision for credit losses

4,403 (3,101) (80,539) (57,953)

Income before income taxes

165,280 167,730 48,392 59,776

(33,084) (34,375) (9,661) (10,173)

Non-controlling interest

(2,307) (907) 1,132 2,254

Net income attributable to Commerce Bancshares, Inc.

$ 129,889 $ 132,448 $ 39,863 $ 51,857

Net income per common share — basic*

$ 1.11 $ 1.06 $ .32 $ .42

Net income per common share — diluted*

$ 1.11 $ 1.06 $ .32 $ .42

Weighted average shares — basic*

116,267 116,256 116,242 116,674

Weighted average shares — diluted*

116,508 116,444 116,442 116,945

Year ended December 31, 2019 For the Quarter Ended

(In thousands, except per share data) 12/31/2019 9/30/2019 6/30/2019 3/31/2019

Interest income

$ 226,665 $ 231,743 $ 238,412 $ 227,865

Interest expense

(24,006) (28,231) (26,778) (24,377)

Net interest income

202,659 203,512 211,634 203,488

Non-interest income

143,461 132,743 127,259 121,240

Investment securities gains (losses), net

(248) 4,909 (110) (925)

Salaries and employee benefits

(126,901) (123,836) (120,062) (122,128)

Other expense

(68,273) (67,184) (69,717) (69,297)

Provision for credit losses

(15,206) (10,963) (11,806) (12,463)

Income before income taxes

135,492 139,181 137,198 119,915

(28,214) (29,101) (28,899) (22,860)

Non-controlling interest

(398) (838) (328) 83

Net income attributable to Commerce Bancshares, Inc.

$ 106,880 $ 109,242 $ 107,971 $ 97,138

Net income per common share — basic*

$ .89 $ .89 $ .87 $ .77

Net income per common share — diluted*

$ .88 $ .89 $ .87 $ .77

Weighted average shares — basic* 117,317 118,631 120,709 121,287

Weighted average shares — diluted* 117,612 118,912 121,002 121,607

Year ended December 31, 2018 For the Quarter Ended

(In thousands, except per share data) 12/31/2018 9/30/2018 6/30/2018 3/31/2018

Interest income

$ 232,832 $ 224,751 $ 225,623 $ 205,995

Interest expense

(20,612) (16,997) (14,664) (13,103)

Net interest income

212,220 207,754 210,959 192,892

Non-interest income

133,087 123,714 124,850 119,690

Investment securities gains (losses), net

(7,129) 4,306 (3,075) 5,410

Salaries and employee benefits

(120,517) (116,194) (115,589) (115,894)

Other expense

(68,108) (68,865) (66,271) (66,383)

Provision for credit losses

(12,256) (9,999) (10,043) (10,396)

Income before income taxes

137,297 140,716 140,831 125,319

(26,537) (26,647) (29,507) (23,258)

Non-controlling interest

(1,108) (1,493) (994) (1,077)

Net income attributable to Commerce Bancshares, Inc.

$ 109,652 $ 112,576 $ 110,330 $ 100,984

Net income per common share — basic*

$ .87 $ .90 $ .87 $ .80

Net income per common share — diluted*

$ .87 $ .89 $ .87 $ .80

Weighted average shares — basic*

121,800 122,255 122,345 122,285

Weighted average shares — diluted*

122,124 122,664 122,742 122,669

* Restated for the 5% stock dividend distributed in 2020.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis