COMMERCE BANCSHARES INC /MO/ 10-Q

Item 1. FINANCIAL STATEMENTS Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS June 30, 2022 December 31, 2021 (Unaudited) (In thousands) ASSETS Loans $ 15,686,627 $ 15,176,359 Allowance for credit losses on loans ( 138,039 ) ( 150,044 ) Net loans 15,548,588 15,026,315 Loans held for sale (including $ 1,036,000 and $ 5,570,000 of residential mortgage loans carried at fair value at June 30, 2022 and December 31, 2021, respectively) 6,467 8,615 Investment securities: Available for sale debt, at fair value (amortized cost of $ 14,783,369,000 and $ 14,419,133,000 at June 30, 2022 and December 31, 2021, respectively, and allowance for credit losses of $ — at both June 30, 2022 and December 31, 2021) 13,700,308 14,450,027 Trading debt 34,195 46,235 Equity 8,546 9,202 Other 207,989 194,047 Total investment securities 13,951,038 14,699,511 Federal funds sold 26,000 2,800 Securities purchased under agreements to resell 1,450,000 1,625,000 Interest earning deposits with banks 684,994 3,971,217 Cash and due from banks 355,524 305,539 Premises and equipment – net 397,877 388,738 Goodwill 138,921 138,921 Other intangible assets – net 15,853 15,570 Other assets 860,108 506,862 Total assets $ 33,435,370 $ 36,689,088 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 11,102,585 $ 11,772,374 Savings, interest checking and money market 16,063,064 16,598,085 Certificates of deposit of less than $100,000 404,096 435,960 Certificates of deposit of $100,000 and over 601,488 1,006,654 Total deposits 28,171,233 29,813,073 Federal funds purchased and securities sold under agreements to repurchase 2,234,296 3,022,967 Other borrowings 6,025 12,560 Other liabilities 348,503 392,164 Total liabilities 30,760,057 33,240,764 Commerce Bancshares, Inc. stockholders’ equity: Common stock, $ 5 par value Authorized 140,000,000 ; issued 122,160,705 shares at June 30, 2022 and December 31, 2021 610,804 610,804 Capital surplus 2,682,161 2,689,894 Retained earnings 262,363 92,493 Treasury stock of 1,881,806 shares at June 30, 2022 and 476,392 shares at December 31, 2021, at cost ( 129,588 ) ( 32,973 ) Accumulated other comprehensive income ( 766,894 ) 77,080 Total Commerce Bancshares, Inc. stockholders' equity 2,658,846 3,437,298 Non-controlling interest 16,467 11,026 Total equity 2,675,313 3,448,324 Total liabilities and equity $ 33,435,370 $ 36,689,088 See accompanying notes to consolidated financial statements. 3 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended June 30 For the Six Months Ended June 30 (In thousands, except per share data) 2022 2021 2022 2021 (Unaudited) INTEREST INCOME Interest and fees on loans $ 142,526 $ 144,584 $ 274,601 $ 290,922 Interest and fees on loans held for sale 161 245 311 549 Interest on investment securities 88,635 55,143 161,740 106,700 Interest on federal funds sold 19 2 20 2 Interest on securities purchased under agreements to resell 4,385 10,416 9,685 21,544 Interest on deposits with banks 2,428 743 3,579 1,113 Total interest income 238,154 211,133 449,936 420,830 INTEREST EXPENSE Interest on deposits: Savings, interest checking and money market 2,278 1,844 4,038 3,947 Certificates of deposit of less than $100,000 205 327 344 800 Certificates of deposit of $100,000 and over 470 661 897 1,723 Interest on federal funds purchased and securities sold under agreements to repurchase 2,926 320 3,615 632 Interest on other borrowings ( 110 ) ( 1 ) ( 129 ) ( 2 ) Total interest expense 5,769 3,151 8,765 7,100 Net interest income 232,385 207,982 441,171 413,730 Provision for credit losses 7,162 ( 45,655 ) ( 2,696 ) ( 51,887 ) Net interest income after credit losses 225,223 253,637 443,867 465,617 NON-INTEREST INCOME Bank card transaction fees 43,873 42,608 85,918 80,303 Trust fees 46,792 46,257 94,603 90,384 Deposit account charges and other fees 25,564 23,988 47,871 46,563 Capital market fees 3,327 3,327 7,452 8,308 Consumer brokerage services 5,068 4,503 9,514 8,584 Loan fees and sales 3,246 7,446 7,481 17,630 Other 11,557 11,014 18,357 23,416 Total non-interest income 139,427 139,143 271,196 275,188 INVESTMENT SECURITIES GAINS, NET 1,029 16,804 8,192 26,657 NON-INTEREST EXPENSE Salaries and employee benefits 142,243 130,751 278,196 259,784 Net occupancy 12,503 11,527 24,799 23,548 Equipment 4,734 4,605 9,302 8,958 Supplies and communication 4,361 4,033 9,074 8,158 Data processing and software 27,635 24,954 54,651 50,417 Marketing 5,836 5,680 12,180 10,838 Other 16,193 16,576 30,951 28,996 Total non-interest expense 213,505 198,126 419,153 390,699 Income before income taxes 152,174 211,458 304,102 376,763 Less income taxes 32,021 45,209 63,923 77,285 Net income 120,153 166,249 240,179 299,478 Less non-controlling interest expense 4,359 3,923 6,231 6,180 Net income attributable to Commerce Bancshares, Inc. $ 115,794 $ 162,326 $ 233,948 $ 293,298 Net income per common share — basic $ .96 $ 1.32 $ 1.93 $ 2.38 Net income per common share — diluted $ .96 $ 1.32 $ 1.93 $ 2.38 See accompanying notes to consolidated financial statements. 4 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Three Months Ended June 30 For the Six Months Ended June 30 (In thousands) 2022 2021 2022 2021 (Unaudited) Net income $ 120,153 $ 166,249 $ 240,179 $ 299,478 Other comprehensive income (loss): Net unrealized losses on available for sale debt securities ( 328,201 ) 55,725 ( 835,466 ) ( 102,951 ) Pension loss amortization 322 438 645 875 Unrealized losses on cash flow hedge derivatives ( 4,615 ) ( 4,525 ) ( 9,153 ) ( 8,911 ) Other comprehensive income (loss) ( 332,494 ) 51,638 ( 843,974 ) ( 110,987 ) Comprehensive income (loss) ( 212,341 ) 217,887 ( 603,795 ) 188,491 Less non-controlling interest expense 4,359 3,923 6,231 6,180 Comprehensive income (loss) attributable to Commerce Bancshares, Inc. $ ( 216,700 ) $ 213,964 $ ( 610,026 ) $ 182,311 See accompanying notes to consolidated financial statements. 5 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Three Months Ended June 30, 2022 and 2021 Commerce Bancshares, Inc. Shareholders (In thousands, except per share data) Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Non-Controlling Interest Total (Unaudited) Balance March 31, 2022 $ 610,804 $ 2,678,025 $ 178,504 $ ( 72,293 ) $ ( 434,400 ) $ 12,762 $ 2,973,402 Net income 115,794 4,359 120,153 Other comprehensive loss ( 332,494 ) ( 332,494 ) Distributions to non-controlling interest ( 654 ) ( 654 ) Purchases of treasury stock ( 57,350 ) ( 57,350 ) Issuance of stock under purchase and equity compensation plans ( 55 ) 55 — Stock-based compensation 4,191 4,191 Cash dividends paid on common stock ($ 0.265 per share) ( 31,935 ) ( 31,935 ) Balance June 30, 2022 $ 610,804 $ 2,682,161 $ 262,363 $ ( 129,588 ) $ ( 766,894 ) $ 16,467 $ 2,675,313 Balance March 31, 2021 $ 589,352 $ 2,420,393 $ 173,173 $ ( 39,080 ) $ 168,752 $ 4,795 $ 3,317,385 Net Income 162,326 3,923 166,249 Other comprehensive loss 51,638 51,638 Distributions to non-controlling interest ( 508 ) ( 508 ) Purchases of treasury stock ( 13,964 ) ( 13,964 ) Issuance of stock under purchase and equity compensation plans ( 26 ) 26 — Stock-based compensation 3,790 3,790 Cash dividends paid on common stock ($ .250 per share) ( 30,760 ) ( 30,760 ) Balance June 30, 2021 $ 589,352 $ 2,424,157 $ 304,739 $ ( 53,018 ) $ 220,390 $ 8,210 $ 3,493,830 See accompanying notes to consolidated financial statements. 6 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Six Months Ended June 30, 2022 and 2021 Commerce Bancshares, Inc. Shareholders (In thousands, except per share data) Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Non-Controlling Interest Total (Unaudited) Balance December 31, 2021 $ 610,804 $ 2,689,894 $ 92,493 $ ( 32,973 ) $ 77,080 $ 11,026 $ 3,448,324 Net income 233,948 6,231 240,179 Other comprehensive loss ( 843,974 ) ( 843,974 ) Distributions to non-controlling interest ( 790 ) ( 790 ) Purchases of treasury stock ( 113,205 ) ( 113,205 ) Issuance of stock under purchase and equity compensation plans ( 16,142 ) 16,590 448 Stock-based compensation 8,409 8,409 Cash dividends on common stock ($ .530 per share) ( 64,078 ) ( 64,078 ) Balance June 30, 2022 $ 610,804 $ 2,682,161 $ 262,363 $ ( 129,588 ) $ ( 766,894 ) $ 16,467 $ 2,675,313 Balance December 31, 2020 $ 589,352 $ 2,436,288 $ 73,000 $ ( 32,970 ) $ 331,377 $ 2,925 $ 3,399,972 Net income 293,298 6,180 299,478 Other Comprehensive Loss ( 110,987 ) ( 110,987 ) Distributions to non-controlling interest ( 895 ) ( 895 ) Purchases of treasury stock ( 39,887 ) ( 39,887 ) Issuance of stock under purchase and equity compensation plans ( 19,854 ) 19,839 ( 15 ) Stock-based compensation 7,723 7,723 Cash dividends on common stock ($ .500 per share) ( 61,559 ) ( 61,559 ) Balance June 30, 2021 589,352 2,424,157 304,739 ( 53,018 ) 220,390 8,210 3,493,830 See accompanying notes to consolidated financial statements. 7 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30 (In thousands) 2022 2021 (Unaudited) OPERATING ACTIVITIES: Net income $ 240,179 $ 299,478 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses ( 2,696 ) ( 51,887 ) Provision for depreciation and amortization 23,638 22,525 Amortization of investment security premiums, net 5,946 41,270 Investment securities gains, net (A) ( 8,192 ) ( 26,657 ) Net gains on sales of loans held for sale ( 1,944 ) ( 13,677 ) Originations of loans held for sale ( 93,439 ) ( 325,714 ) Proceeds from sales of loans held for sale 96,282 356,559 Net decrease in trading debt securities, excluding unsettled transactions 870 1,287 Stock-based compensation 8,409 7,723 (Increase) decrease in interest receivable ( 11,739 ) 6,688 Increase (decrease) in interest payable 247 ( 2,809 ) Increase (decrease) in income taxes payable ( 1,855 ) 19,095 Other changes, net 30,464 ( 6,632 ) Net cash provided by operating activities 286,170 327,249 INVESTING ACTIVITIES: Distributions received from equity-method investment 400 — Proceeds from sales of investment securities (A) 3,712 10,060 Proceeds from maturities/pay downs of investment securities (A) 1,462,151 1,789,405 Purchases of investment securities (A) ( 1,894,221 ) ( 2,707,024 ) Net (increase) decrease in loans ( 518,899 ) 678,554 Securities purchased under agreements to resell ( 200,000 ) ( 450,000 ) Repayments of securities purchased under agreements to resell 375,000 — Purchases of premises and equipment ( 28,985 ) ( 21,944 ) Sales of premises and equipment 1,401 4,786 Net cash used in investing activities ( 799,441 ) ( 696,163 ) FINANCING ACTIVITIES: Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits ( 1,302,692 ) 685,582 Net decrease in certificates of deposit ( 437,030 ) ( 98,436 ) Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase ( 788,671 ) 219,845 Net increase (decrease) in other borrowings ( 6,535 ) 1,392 Purchases of treasury stock ( 113,205 ) ( 39,887 ) Issuance of stock under equity compensation plans 448 ( 15 ) Cash dividends paid on common stock ( 64,078 ) ( 61,559 ) Net cash provided by (used in) financing activities ( 2,711,763 ) 706,922 Increase (decrease) in cash, cash equivalents and restricted cash ( 3,225,034 ) 338,008 Cash, cash equivalents and restricted cash at beginning of year 4,296,954 2,208,328 Cash, cash equivalents and restricted cash at June 30 $ 1,071,920 $ 2,546,336 Income tax payments, net $ 62,588 $ 55,440 Interest paid on deposits and borrowings $ 8,518 $ 9,909 Loans transferred to foreclosed real estate $ 25 $ 172 (A) Available for sale debt securities, equity securities, and other securities. See accompanying notes to consolidated financial statements. Restricted cash is comprised of cash collateral posted by the Company to secure interest rate swap agreements. This balance is included in other assets in the consolidated balance sheets and totaled $ 5.4 million and $ 20.6 million at June 30, 2022 and 2021, respectively. 8 Table of Contents Commerce Bancshares, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2022 (Unaudited) 1. Principles of Consolidation and Presentation The accompanying consolidated financial statements include the accounts of Commerce Bancshares, Inc. and all majority-owned subsidiaries (the Company). Most of the Company's operations are conducted by its subsidiary bank, Commerce Bank (the Bank). The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments necessary to present fairly the financial position and the results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to 2021 data to conform to current year presentation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets and revenues and expenses for the periods. Actual results could differ significantly from those estimates. Management has evaluated subsequent events for potential recognition or disclosure. The results of operations for the six month period ended June 30, 2022 are not necessarily indicative of results to be attained for the full year or any other interim period. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company's most recent Annual Report on Form 10-K, containing the latest audited consolidated financial statements and notes thereto. 2. Loans and Allowance for Credit Losses Major classifications within the Company’s held for investment loan portfolio at June 30, 2022 and December 31, 2021 are as follows: (In thousands) June 30, 2022 December 31, 2021 Commercial: Business $ 5,441,592 $ 5,303,535 Real estate – construction and land 1,266,260 1,118,266 Real estate – business 3,215,578 3,058,837 Personal Banking: Real estate – personal 2,836,835 2,805,401 Consumer 2,089,592 2,032,225 Revolving home equity 271,854 275,945 Consumer credit card 558,102 575,410 Overdrafts 6,814 6,740 Total loans $ 15,686,627 $ 15,176,359 Accrued interest receivable totaled $ 36.1 million and $ 25.9 million at June 30, 2022 and December 31, 2021, respectively, and was included within other assets on the consolidated balance sheets. For the three months ended June 30, 2022, the Company wrote-off accrued interest by reversing interest income of $ 26 thousand and $ 762 thousand in the Commercial and Personal Banking portfolios, respectively. Similarly, for the six months ended June 30, 2022, the Company wrote-off accrued interest of $ 55 thousand and $ 1.7 million in the Commercial and Personal Banking portfolios, respectively. At June 30, 2022, loans of $ 3.1 billion were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of $ 1.3 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings. 9 Table of Contents Allowance for credit losses The allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral type and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis. For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and outstanding loan balances during a lookback period. Lookback periods can be different based on the individual pool and represent management’s credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given a single path economic forecast of key macroeconomic variables including GDP, disposable income, various interest rates, unemployment rate, consumer price index (CPI) inflation rate, housing price index (HPI), commercial real estate price index (CREPI) and market volatility. The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting back to historical averages using a straight-line method. The forecast adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions (except for contractual extensions at the option of the customer), renewals and modifications unless there is a reasonable expectation that a troubled debt restructuring will be executed. Credit cards and certain similar consumer lines of credit do not have stated maturities and therefore, for these loan classes, remaining contractual lives are determined by estimating future cash flows expected to be received from customers until payments have been fully allocated to outstanding balances. Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecast such as changes in portfolio composition, underwriting practices, or significant unique events or conditions. 10 Table of Contents Key assumptions in the Company’s allowance for credit loss model include the economic forecast, the reasonable and supportable period, forecasted macro-economic variables, prepayment assumptions and qualitative factors applied for portfolio composition changes, underwriting practices, or significant unique events or conditions. The assumptions utilized in estimating the Company’s allowance for credit losses at June 30, 2022 and March 31, 2022 are discussed below. Key Assumption June 30, 2022 March 31, 2022 Overall economic forecast • Positive economic momentum faced with continued COVID challenges, supply constraints and high inflation • Continued monetary policy tightening to rein in inflation • Uncertainties related to supply chain issues and the timing and likelihood of a recession • Improving health situation supports positive economic momentum in the short term • Projects significant monetary policy tightening to rein in inflation • Projects continued high inflation • Uncertainties related to supply chain issues Reasonable and supportable period and related reversion period • One year for commercial and personal banking loans • Reversion to historical average loss rates within two quarters using straight-line method • One year for commercial and personal banking loans • Reversion to historical average loss rates within two quarters using straight-line method Forecasted macro-economic variables • Unemployment rate ranging from 3.5% to 3.7% during the supportable forecast period • Real GDP growth ranging from 1.5% to 2.7% • Prime rate from 4.9% to 6.2% • Unemployment rate ranging from 3.6% to 3.4% during the supportable forecast period • Real GDP growth ranging from 2.6% to 3.7% • Prime rate from 4.0% to 5.2% Prepayment assumptions Commercial loans • 5% for most loan pools Personal banking loans • Ranging from 28.5% to 16.5% for most loan pools • 67.0% for consumer credit cards Commercial loans • 5% for most loan pools Personal banking loans • Ranging from 28.3% to 16.5% for most loan pools • 66.0% for consumer credit cards Qualitative factors Added qualitative factors related to: • Certain portfolios sensitive to pandemic economic uncertainties • Changes in the composition of the loan portfolios • Uncertainty related to unusually high rate of inflation, geopolitical environment, and supply chain issues • Loans downgraded to special mention, substandard, or non-accrual status Added qualitative factors related to: • Certain portfolios sensitive to pandemic economic uncertainties • Changes in the composition of the loan portfolios • Uncertainty related to unusually high rate of inflation, geopolitical environment, and supply chain issues • Loans downgraded to special mention, substandard, or non-accrual status The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans, however, the liability for unfunded lending commitments incorporates an assumption for the portion of unfunded commitments that are expected to be funded. Sensitivity in the Allowance for Credit Loss model The allowance for credit losses is an estimate that requires significant judgment including projections of the macro-economic environment. The forecasted macro-economic environment continuously changes which can cause fluctuations in estimated expected credit losses. The current forecast projects a continued positive economic momentum faced with pandemic complications, high inflation, supply chain constraints, and uncertainty related to the Russian invasion of Ukraine. The geopolitical environment, trends in health conditions and impacted supply constraints could significantly modify economic projections used in the estimation of the allowance for credit losses and liability for unfunded lending commitments. 11 Table of Contents A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments during the six months ended June 30, 2022 and 2021, respectively, follows: For the Three Months Ended June 30, 2022 For the Six Months Ended June 30, 2022 (In thousands) Commercial Personal Banking Total Commercial Personal Banking Total ALLOWANCE FOR CREDIT LOSSES ON LOANS Balance at beginning of period $ 94,827 $ 39,883 $ 134,710 $ 97,776 $ 52,268 $ 150,044 Provision for credit losses on loans 4,716 2,571 7,287 1,837 ( 5,236 ) ( 3,399 ) Deductions: Loans charged off 207 6,533 6,740 384 13,818 14,202 Less recoveries on loans 189 2,593 2,782 296 5,300 5,596 Net loan charge-offs (recoveries) 18 3,940 3,958 88 8,518 8,606 Balance June 30, 2022 $ 99,525 $ 38,514 $ 138,039 $ 99,525 $ 38,514 $ 138,039 LIABILITY FOR UNFUNDED LENDING COMMITMENTS Balance at beginning of period $ 23,780 $ 1,252 $ 25,032 $ 23,271 $ 933 $ 24,204 Provision for credit losses on unfunded lending commitments ( 163 ) 38 ( 125 ) 346 357 703 Balance June 30, 2022 $ 23,617 $ 1,290 $ 24,907 $ 23,617 $ 1,290 $ 24,907 ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 123,142 $ 39,804 $ 162,946 $ 123,142 $ 39,804 $ 162,946 For the Three Months Ended June 30, 2021 For the Six Months Ended June 30, 2021 (In thousands) Commercial Personal Banking Total Commercial Personal Banking Total ALLOWANCE FOR CREDIT LOSSES ON LOANS Balance at beginning of period $ 119,623 $ 80,904 $ 200,527 $ 121,549 $ 99,285 $ 220,834 Provision for credit losses on loans ( 26,579 ) ( 854 ) ( 27,433 ) ( 28,488 ) ( 9,300 ) ( 37,788 ) Deductions: Loans charged off 270 8,598 8,868 502 21,307 21,809 Less recoveries on loans 5,264 2,905 8,169 5,479 5,679 11,158 Net loan charge-offs ( 4,994 ) 5,693 699 ( 4,977 ) 15,628 10,651 Balance June 30, 2021 $ 98,038 $ 74,357 $ 172,395 $ 98,038 $ 74,357 $ 172,395 LIABILITY FOR UNFUNDED LENDING COMMITMENTS Balance at beginning of period $ 41,513 $ 917 $ 42,430 $ 37,259 $ 1,048 $ 38,307 Provision for credit losses on unfunded lending commitments ( 18,163 ) ( 59 ) ( 18,222 ) ( 13,909 ) ( 190 ) ( 14,099 ) Balance June 30, 2021 $ 23,350 $ 858 $ 24,208 $ 23,350 $ 858 $ 24,208 ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 121,388 $ 75,215 $ 196,603 $ 121,388 $ 75,215 $ 196,603 12 Table of Contents Delinquent and non-accrual loans The Company considers loans past due on the day following the contractual repayment date, if the contractual repayment was not received by the Company as of the end of the business day. The following table provides aging information on the Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at June 30, 2022 and December 31, 2021. (In thousands) Current or Less Than 30 Days Past Due 30 – 89 Days Past Due 90 Days Past Due and Still Accruing Non-accrual Total June 30, 2022 Commercial: Business $ 5,432,582 $ 2,278 $ 418 $ 6,314 $ 5,441,592 Real estate – construction and land 1,266,203 57 — — 1,266,260 Real estate – business 3,212,739 2,313 359 167 3,215,578 Personal Banking: Real estate – personal 2,821,955 9,762 3,682 1,436 2,836,835 Consumer 2,069,092 18,001 2,499 — 2,089,592 Revolving home equity 270,572 464 818 — 271,854 Consumer credit card 549,589 4,385 4,128 — 558,102 Overdrafts 6,305 504 5 — 6,814 Total $ 15,629,037 $ 37,764 $ 11,909 $ 7,917 $ 15,686,627 December 31, 2021 Commercial: Business $ 5,292,125 $ 3,621 $ 477 $ 7,312 $ 5,303,535 Real estate – construction and land 1,117,434 832 — — 1,118,266 Real estate – business 3,058,566 57 — 214 3,058,837 Personal Banking: Real estate – personal 2,796,662 4,125 2,983 1,631 2,805,401 Consumer 2,005,556 24,458 2,211 — 2,032,225 Revolving home equity 274,372 772 801 — 275,945 Consumer credit card 565,335 4,821 5,254 — 575,410 Overdrafts 6,425 315 — — 6,740 Total $ 15,116,475 $ 39,001 $ 11,726 $ 9,157 $ 15,176,359 At June 30, 2022, the Company had $ 4.5 million in non-accrual business loans that had no allowance for credit loss. At December 31, 2021, the Company had $ 5.3 million in non-accrual business loans that had no allowance for credit loss. The Company did not record any interest income on non-accrual loans during the three and six months ended June 30, 2022 and 2021, respectively. Credit quality indicators The following table provides information about the credit quality of the Commercial loan portfolio. The Company utilizes an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the expectation of debt repayment based on borrower specific information including, but not limited to, current financial information, historical payment experience, industry information, collateral levels and collateral types. The “pass” category consists of a range of loan grades that reflect increasing, though still acceptable, risk. A loan is assigned the risk rating at origination and then monitored throughout the contractual term for possible risk rating changes. Movement of risk through the various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention” rating is applied to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. All loans are analyzed for risk rating updates annually. For larger loans, rating assessments may be more frequent if relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans 13 Table of Contents are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past due related to credit issues. Loans rated Special Mention, Substandard or Non-accrual are subject to quarterly review and monitoring processes. In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by a credit review department which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan. The risk category of loans in the Commercial portfolio as of June 30, 2022 and December 31, 2021 are as follows: Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total June 30, 2022 Business Risk Rating: Pass $ 668,983 $ 1,026,985 $ 562,836 $ 456,621 $ 206,448 $ 337,860 $ 2,129,662 $ 5,389,395 Special mention 2,202 648 232 972 74 7,336 2,043 13,507 Substandard 2,298 880 1,028 4,249 4,077 10,352 9,492 32,376 Non-accrual 267 82 — 4 1,433 4,528 — 6,314 Total Business: $ 673,750 $ 1,028,595 $ 564,096 $ 461,846 $ 212,032 $ 360,076 $ 2,141,197 $ 5,441,592 Real estate-construction Risk Rating: Pass $ 329,256 $ 606,428 $ 190,785 $ 58,550 $ 536 $ 2,278 $ 18,310 $ 1,206,143 Special mention — — — — 967 — — 967 Substandard — 19,487 11,580 — 14,908 13,175 — 59,150 Total Real estate-construction: $ 329,256 $ 625,915 $ 202,365 $ 58,550 $ 16,411 $ 15,453 $ 18,310 $ 1,266,260 Real estate-business Risk Rating: Pass $ 587,973 $ 686,505 $ 596,190 $ 485,665 $ 184,182 $ 341,348 $ 86,789 $ 2,968,652 Special mention — 3,492 646 8,891 4,970 2,079 — 20,078 Substandard 1,534 31,028 61,741 12,844 33,504 85,069 961 226,681 Non-accrual — — — — 157 10 — 167 Total Real estate-business: $ 589,507 $ 721,025 $ 658,577 $ 507,400 $ 222,813 $ 428,506 $ 87,750 $ 3,215,578 Commercial loans Risk Rating: Pass $ 1,586,212 $ 2,319,918 $ 1,349,811 $ 1,000,836 $ 391,166 $ 681,486 $ 2,234,761 $ 9,564,190 Special mention 2,202 4,140 878 9,863 6,011 9,415 2,043 34,552 Substandard 3,832 51,395 74,349 17,093 52,489 108,596 10,453 318,207 Non-accrual 267 82 — 4 1,590 4,538 — 6,481 Total Commercial loans: $ 1,592,513 $ 2,375,535 $ 1,425,038 $ 1,027,796 $ 451,256 $ 804,035 $ 2,247,257 $ 9,923,430 14 Table of Contents Term Loans Amortized Cost Basis by Origination Year (In thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total December 31, 2021 Business Risk Rating: Pass $ 1,473,869 $ 704,157 $ 554,759 $ 248,739 $ 159,238 $ 270,454 $ 1,795,073 $ 5,206,289 Special mention 1,785 126 17,576 12,050 1,490 3,232 16,545 52,804 Substandard 836 1,191 8,855 4,936 1 10,775 10,536 37,130 Non-accrual 430 — 1 1,549 — 5,332 — 7,312 Total Business: $ 1,476,920 $ 705,474 $ 581,191 $ 267,274 $ 160,729 $ 289,793 $ 1,822,154 $ 5,303,535 Real estate-construction Risk Rating: Pass $ 598,734 $ 346,507 $ 66,985 $ 2,110 $ 2,655 $ 2,252 $ 13,230 $ 1,032,473 Special mention 44,649 — — 985 — — — 45,634 Substandard 485 11,620 — 14,896 13,158 — — 40,159 Total Real estate-construction: $ 643,868 $ 358,127 $ 66,985 $ 17,991 $ 15,813 $ 2,252 $ 13,230 $ 1,118,266 Real estate- business Risk Rating: Pass $ 775,561 $ 712,173 $ 551,697 $ 230,138 $ 170,888 $ 254,489 $ 76,641 $ 2,771,587 Special mention 4,011 30,322 10,500 37,576 2,068 2,103 1 86,581 Substandard 17,079 62,939 12,930 2,326 58,934 45,265 982 200,455 Non-accrual — — — 189 — 25 — 214 Total Real-estate business: $ 796,651 $ 805,434 $ 575,127 $ 270,229 $ 231,890 $ 301,882 $ 77,624 $ 3,058,837 Commercial loans Risk Rating: Pass $ 2,848,164 $ 1,762,837 $ 1,173,441 $ 480,987 $ 332,781 $ 527,195 $ 1,884,944 $ 9,010,349 Special mention 50,445 30,448 28,076 50,611 3,558 5,335 16,546 185,019 Substandard 18,400 75,750 21,785 22,158 72,093 56,040 11,518 277,744 Non-accrual 430 — 1 1,738 — 5,357 — 7,526 Total Commercial loans: $ 2,917,439 $ 1,869,035 $ 1,223,303 $ 555,494 $ 408,432 $ 593,927 $ 1,913,008 $ 9,480,638 15 Table of Contents The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided as of June 30, 2022 and December 31, 2021 below: Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total June 30, 2022 Real estate-personal Current to 90 days past due $ 287,827 $ 635,806 $ 824,919 $ 310,349 $ 143,554 $ 618,438 $ 10,824 $ 2,831,717 Over 90 days past due — 349 1,258 127 140 1,808 — 3,682 Non-accrual — — — 174 106 1,156 — 1,436 Total Real estate-personal: $ 287,827 $ 636,155 $ 826,177 $ 310,650 $ 143,800 $ 621,402 $ 10,824 $ 2,836,835 Consumer Current to 90 days past due $ 315,284 $ 454,310 $ 275,200 $ 142,639 $ 54,300 $ 84,426 $ 760,934 $ 2,087,093 Over 90 days past due 26 403 158 183 352 373 1,004 2,499 Total Consumer: $ 315,310 $ 454,713 $ 275,358 $ 142,822 $ 54,652 $ 84,799 $ 761,938 $ 2,089,592 Revolving home equity Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 271,036 $ 271,036 Over 90 days past due — — — — — — 818 818 Total Revolving home equity: $ — $ — $ — $ — $ — $ — $ 271,854 $ 271,854 Consumer credit card Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 553,974 $ 553,974 Over 90 days past due — — — — — — 4,128 4,128 Total Consumer credit card: $ — $ — $ — $ — $ — $ — $ 558,102 $ 558,102 Overdrafts Current to 90 days past due $ 6,809 $ — $ — $ — $ — $ — $ — $ 6,809 Over 90 days past due 5 — — — — — — 5 Total Overdrafts: $ 6,814 $ — $ — $ — $ — $ — $ — $ 6,814 Personal banking loans Current to 90 days past due $ 609,920 $ 1,090,116 $ 1,100,119 $ 452,988 $ 197,854 $ 702,864 $ 1,596,768 $ 5,750,629 Over 90 days past due 31 752 1,416 310 492 2,181 5,950 11,132 Non-accrual — — — 174 106 1,156 — 1,436 Total Personal banking loans: $ 609,951 $ 1,090,868 $ 1,101,535 $ 453,472 $ 198,452 $ 706,201 $ 1,602,718 $ 5,763,197 16 Table of Contents Term Loans Amortized Cost Basis by Origination Year (In thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total December 31, 2021 Real estate-personal Current to 90 days past due $ 690,058 $ 888,631 $ 354,292 $ 157,485 $ 149,391 $ 551,460 $ 9,470 $ 2,800,787 Over 90 days past due 133 1,150 298 124 97 1,181 — 2,983 Non-accrual 115 — 251 109 — 1,156 — 1,631 Total Real estate-personal: $ 690,306 $ 889,781 $ 354,841 $ 157,718 $ 149,488 $ 553,797 $ 9,470 $ 2,805,401 Consumer Current to 90 days past due $ 571,455 $ 348,774 $ 192,076 $ 79,887 $ 47,401 $ 78,088 $ 712,333 $ 2,030,014 Over 90 days past due 283 335 257 250 74 351 661 2,211 Total Consumer: $ 571,738 $ 349,109 $ 192,333 $ 80,137 $ 47,475 $ 78,439 $ 712,994 $ 2,032,225 Revolving home equity Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 275,144 $ 275,144 Over 90 days past due — — — — — — 801 801 Total Revolving home equity: $ — $ — $ — $ — $ — $ — $ 275,945 $ 275,945 Consumer credit card Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 570,156 $ 570,156 Over 90 days past due — — — — — — 5,254 5,254 Total Consumer credit card: $ — $ — $ — $ — $ — $ — $ 575,410 $ 575,410 Overdrafts Current to 90 days past due $ 6,740 $ — $ — $ — $ — $ — $ — $ 6,740 Total Overdrafts: $ 6,740 $ — $ — $ — $ — $ — $ — $ 6,740 Personal banking loans Current to 90 days past due $ 1,268,253 $ 1,237,405 $ 546,368 $ 237,372 $ 196,792 $ 629,548 $ 1,567,103 $ 5,682,841 Over 90 days past due 416 1,485 555 374 171 1,532 6,716 11,249 Non-accrual 115 — 251 109 — 1,156 — 1,631 Total Personal banking loans: $ 1,268,784 $ 1,238,890 $ 547,174 $ 237,855 $ 196,963 $ 632,236 $ 1,573,819 $ 5,695,721 Collateral-dependent loans The Company's collateral-dependent loans are comprised of large loans on non-accrual status. The Company requires that collateral-dependent loans are either over-collateralized or carry collateral equal to the amortized cost of the loan. The following table presents the amortized cost basis of collateral-dependent loans as of June 30, 2022 and December 31, 2021. (In thousands) Business Assets Oil & Gas Assets Total June 30, 2022 Commercial: Business $ 1,465 $ 2,194 $ 3,659 Total $ 1,465 $ 2,194 $ 3,659 December 31, 2021 Commercial: Business $ 1,604 $ 2,459 $ 4,063 Total $ 1,604 $ 2,459 $ 4,063 Other Personal Banking loan information As noted above, the credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided in the table in the above section on "Credit quality indicators." In addition, FICO scores are obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit score designed to measure the risk of default by taking into account various factors from a borrower's financial history and is considered supplementary information utilized by the Company, as management does not consider this information in evaluating the allowance for credit losses on loans. The Bank normally obtains a FICO score at the loan's origination and renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain personal real estate loans for which FICO scores are not obtained because the loans generally pertain to commercial customer activities and are 17 Table of Contents often underwritten with other collateral considerations. These loans totaled $ 186.0 million at June 30, 2022 and $ 185.6 million at December 31, 2021. The table also excludes consumer loans related to the Company's patient healthcare loan program, which totaled $ 186.6 million at June 30, 2022 and $ 186.6 million at December 31, 2021. As the healthcare loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and consumer loans excluded below totaled less than 7 % of the Personal Banking portfolio. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at June 30, 2022 and December 31, 2021 by FICO score. Personal Banking Loans % of Loan Category Real Estate - Personal Consumer Revolving Home Equity Consumer Credit Card June 30, 2022 FICO score: Under 600 1.2 % 1.7 % 1.5 % 3.3 % 600 - 659 2.6 4.0 2.5 11.3 660 - 719 7.9 13.5 8.6 29.5 720 - 779 23.4 24.1 22.2 28.1 780 and over 64.9 56.7 65.2 27.8 Total 100.0 % 100.0 % 100.0 % 100.0 % December 31, 2021 FICO score: Under 600 1.0 % 1.9 % 0.9 % 3.4 % 600 - 659 2.4 3.9 2.6 11.3 660 - 719 7.4 13.8 9.4 29.9 720 - 779 25.2 25.3 20.4 28.2 780 and over 64.0 55.1 66.7 27.2 Total 100.0 % 100.0 % 100.0 % 100.0 % Troubled debt restructurings Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due under the contractual terms will be collected. Commercial performing restructured loans are primarily comprised of certain business, construction and business real estate loans classified as substandard but renewed at rates judged to be non-market. These loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. Troubled debt restructurings also include certain credit card and other small consumer loans under various debt management and assistance programs. Modifications to these loans generally involve removing the available line of credit, placing loans on amortizing status, and lowering the contractual interest rate. Certain personal real estate, revolving home equity, and consumer loans were classified as consumer bankruptcy troubled debt restructurings because they were not reaffirmed by the borrower in bankruptcy proceedings. Interest on these loans is being recognized on an accrual basis, as the borrowers are continuing to make payments. Other consumer loans classified as troubled debt restructurings consist of various other workout arrangements with consumer customers. (In thousands) June 30, 2022 December 31, 2021 Accruing restructured loans: Commercial $ 126,456 $ 46,867 Assistance programs 5,571 6,146 Other consumer 4,347 4,787 Non-accrual loans 6,006 7,087 Total troubled debt restructurings $ 142,380 $ 64,887 Section 4013 of the CARES Act was signed into law on March 27, 2020, and included a provision that short-term modifications are not troubled debt restructurings, if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to December 31, 2019. The Company elected such option under the CARES Act when determining if a customer’s modification is subject to troubled debt restructuring classification. The initial guidance issued under the CARES Act was due to expire on December 31, 2020. During January 2021, the Consolidated Appropriations Act, 2021 was enacted and extended through the end of 2021 the relief offered under the CARES Act related to the accounting and disclosure 18 Table of Contents requirements for troubled debt restructurings as a result of COVID-19. The Company elected to extend its application of this guidance through December 31, 2021. During the period covered by the CARES Act, if it was deemed that the loan modification was not short-term, not COVID-19 related or the customer does not meet the criteria under the guidance to be scoped out of troubled debt restructuring classification, the Company evaluated the loan modifications under its existing framework and accounted for the modification as a troubled debt restructuring. The table below shows the balance of troubled debt restructurings by loan classification at June 30, 2022, in addition to the outstanding balances of these restructured loans which the Company considers to have been in default at any time during the past twelve months. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal. (In thousands) June 30, 2022 Balance 90 days past due at any time during previous 12 months Commercial: Business $ 15,955 $ — Real estate - construction and land 10,100 — Real estate - business 105,350 — Personal Banking: Real estate - personal 2,964 661 Consumer 20 — Revolving home equity 2,499 267 Consumer credit card 5,492 387 Total troubled debt restructurings $ 142,380 $ 1,315 For those loans on non-accrual status also classified as restructured, the modification did not create any further financial effect on the Company as those loans were already recorded at net realizable value. For those performing commercial loans classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no financial impact to the Company as a result of modification to these loans. However, the effects of modifications to loans under various debt management and assistance programs were estimated to decrease interest income by approximately $ 673 thousand on an annual, pre-tax basis, compared to amounts contractually owed. Other modifications to consumer loans mainly involve extensions and other small modifications that did not include the forgiveness of principal or interest. The allowance for credit losses related to troubled debt restructurings on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which management expects to collect under contractual terms. Performing commercial loans having no other concessions granted other than being renewed at non-market interest rates are judged to have similar risk characteristics as non-troubled debt commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical experience and current economic factors. If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for credit losses continues to be based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If an accruing troubled debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for credit losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begin. The Company had commitments of $ 15.2 million at June 30, 2022 to lend additional funds to borrowers with restructured loans. Additionally, the Company had commitments at June 30, 2022 of $ 24.0 million related to letters of credit with an internal risk rating below substandard. Loans held for sale The Company designates certain long-term fixed rate personal real estate loans as held for sale, and the Company has elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the related economic hedges discussed in Note 11. The loans are primarily sold to Federal Home Loan Mortgage Corporation 19 Table of Contents (FHLMC) and Federal National Mortgage Association (FNMA). At June 30, 2022, the fair value of these loans was $ 1.0 million, and the unpaid principal balance was $ 1.0 million. The Company also designates certain student loan originations as held for sale. The borrowers are credit-worthy students who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company maintains contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are carried at lower of cost or fair value, which at June 30, 2022 totaled $ 5.4 million. At June 30, 2022, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing interest. Foreclosed real estate/repossessed assets The Company’s holdings of foreclosed real estate totaled $ 296 thousand and $ 115 thousand at June 30, 2022 and December 31, 2021, respectively. Personal property acquired in repossession, generally autos, totaled $ 1.1 million at both June 30, 2022 and December 31, 2021. Upon acquisition, these assets are recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower of this cost basis or fair value less estimated selling costs. 3. Investment Securities Investment securities consisted of the following at June 30, 2022 and December 31, 2021. (In thousands) June 30, 2022 December 31, 2021 Available for sale debt securities $ 13,700,308 $ 14,450,027 Trading debt securities 34,195 46,235 Equity securities: Readily determinable fair value 6,130 7,153 No readily determinable fair value 2,416 2,049 Other: Federal Reserve Bank stock 34,621 34,379 Federal Home Loan Bank stock 10,163 10,428 Equity method investments 1,434 1,834 Private equity investments 161,771 147,406 Total investment securities (1) $ 13,951,038 $ 14,699,511 (1) Accrued interest receivable totaled $ 41.5 million and $ 39.5 million at June 30, 2022 and December 31, 2021, respectively, and was included within other assets on the consolidated balance sheets. The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer. This portfolio includes the Company's holdings of Visa Class B shares, which have a carrying value of zero, as there have not been observable price changes in orderly transactions for identical or similar investments of the same issuer. During the six months ended June 30, 2022, the Company did not record any impairment or other adjustments to the carrying amount of its portfolio of equity securities with no readily determinable fair value. Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, equity method investments, and investments in portfolio concerns held by the Company's private equity subsidiary. FRB stock and FHLB stock are held for debt and regulatory purposes. Investment in FRB stock is based on the capital structure of the investing bank, and investment in FHLB stock is tied to the asset size of the borrowing bank and the level of borrowings from the FHLB. These holdings are carried at cost. Additionally, the Company's equity method investments are carried at cost, adjusted to reflect the Company's portion of income, loss, or dividends of the investee. These adjustments are included in non-interest income on the Company's consolidated statements of income. The Company's private equity investments are carried at estimated fair value. The majority of the Company’s investment portfolio is comprised of available for sale debt securities, which are carried at fair value with changes in fair value reported in other comprehensive income (OCI). A summary of the available for sale debt securities by maturity groupings as of June 30, 2022 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and Government National Mortgage Association (GNMA), in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit 20 Table of Contents cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral. (In thousands) Amortized Cost Fair Value U.S. government and federal agency obligations: Within 1 year $ 207,783 $ 208,605 After 1 but within 5 years 731,507 718,407 After 5 but within 10 years 186,246 182,116 Total U.S. government and federal agency obligations 1,125,536 1,109,128 Government-sponsored enterprise obligations: After 5 but within 10 years 5,000 4,922 After 10 years 50,758 42,186 Total government-sponsored enterprise obligations 55,758 47,108 State and municipal obligations: Within 1 year 190,263 190,534 After 1 but within 5 years 731,959 719,545 After 5 but within 10 years 879,897 787,103 After 10 years 299,193 255,616 Total state and municipal obligations 2,101,312 1,952,798 Mortgage and asset-backed securities: Agency mortgage-backed securities 5,464,292 4,923,683 Non-agency mortgage-backed securities 1,480,969 1,329,114 Asset-backed securities 3,959,409 3,794,487 Total mortgage and asset-backed securities 10,904,670 10,047,284 Other debt securities: Within 1 year 64,757 64,704 After 1 but within 5 years 250,670 238,482 After 5 but within 10 years 271,406 232,905 After 10 years 9,260 7,899 Total other debt securities 596,093 543,990 Total available for sale debt securities $ 14,783,369 $ 13,700,308 Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $ 383.7 million, at fair value, at June 30, 2022. Interest paid on these securities increases with inflation and decreases with deflation, as measured by the Consumer Price Index. At maturity, the principal paid is the greater of an inflation-adjusted principal or the original principal. Allowance for credit losses on available for sale debt securities The Company’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 cash flow projections, contractual payments required, expected delinquency rates, credit support from other tranches, prepayment speeds, collateral loss severity rates (including loan to values), and various other information related to the underlying collateral. At June 30, 2022, the fair value of securities on this watch list was $ 106.4 million compared to $ 13.4 million at December 31, 2021. Significant inputs to the cash flow model used at June 30, 2022 to quantify credit losses were primarily credit support agreements, as the securities on the Company's watch list at June 30, 2022 were securities backed by government-guaranteed student loans and are expected to perform as contractually required. As of June 30, 2022, the Company did not identify any securities for which a credit loss exists, and for the six months ended June 30, 2022 and 2021, the Company did not recognize a credit loss expense on any available for sale debt securities. 21 Table of Contents The table below summarizes debt securities available for sale in an unrealized loss position, aggregated by length of loss period, for which an allowance for credit losses has not been recorded at June 30, 2022 and December 31, 2021. Unrealized losses on these available for sale securities have not been recognized into income because after review, the securities were deemed not to be impaired. The unrealized losses on these securities are primarily attributable to changes in interest rates and current market conditions. Additionally, management does not intend to sell the securities, and it is more likely than not that management will not be required to sell the securities prior to their anticipated recovery. Less than 12 months 12 months or longer Total (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses June 30, 2022 U.S. government and federal agency obligations $ 609,636 $ 20,883 $ — $ — $ 609,636 $ 20,883 Government-sponsored enterprise obligations 32,362 3,577 14,746 5,073 47,108 8,650 State and municipal obligations 1,239,029 127,348 137,304 24,739 1,376,333 152,087 Mortgage and asset-backed securities: Agency mortgage-backed securities 3,727,959 351,355 1,162,478 190,021 4,890,437 541,376 Non-agency mortgage-backed securities 1,295,069 148,483 26,541 3,469 1,321,610 151,952 Asset-backed securities 3,416,797 152,152 247,462 12,906 3,664,259 165,058 Total mortgage and asset-backed securities 8,439,825 651,990 1,436,481 206,396 9,876,306 858,386 Other debt securities 390,367 28,962 141,592 23,154 531,959 52,116 Total $ 10,711,219 $ 832,760 $ 1,730,123 $ 259,362 $ 12,441,342 $ 1,092,122 December 31, 2021 U.S. government and federal agency obligations $ 296,492 $ 2,241 $ — $ — $ 296,492 $ 2,241 Government-sponsored enterprise obligations — — 18,899 919 18,899 919 State and municipal obligations 876,691 15,874 32,684 1,049 909,375 16,923 Mortgage and asset-backed securities: Agency mortgage-backed securities 3,333,691 59,044 265,835 8,720 3,599,526 67,764 Non-agency mortgage-backed securities 1,285,611 17,222 1,948 19 1,287,559 17,241 Asset-backed securities 2,518,935 19,201 87,893 525 2,606,828 19,726 Total mortgage and asset-backed securities 7,138,237 95,467 355,676 9,264 7,493,913 104,731 Other debt securities 270,409 5,098 58,574 3,017 328,983 8,115 Total $ 8,581,829 $ 118,680 $ 465,833 $ 14,249 $ 9,047,662 $ 132,929 The entire available for sale debt portfolio included $ 12.4 billion of securities that were in a loss position at June 30, 2022, compared to $ 9.0 billion at December 31, 2021. The total amount of unrealized loss on these securities was $ 1.1 billion at June 30, 2022, an increase of $ 959.2 million compared to the unrealized loss at December 31, 2021. Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt securities" section above. 22 Table of Contents For debt securities classified as available for sale, the following table shows the amortized cost, fair value, and allowance for credit losses of securities available for sale at June 30, 2022 and December 31, 2021, and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI, by security type. (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value June 30, 2022 U.S. government and federal agency obligations $ 1,125,536 $ 4,475 $ ( 20,883 ) $ — $ 1,109,128 Government-sponsored enterprise obligations 55,758 — ( 8,650 ) — 47,108 State and municipal obligations 2,101,312 3,573 ( 152,087 ) — 1,952,798 Mortgage and asset-backed securities: Agency mortgage-backed securities 5,464,292 767 ( 541,376 ) — 4,923,683 Non-agency mortgage-backed securities 1,480,969 97 ( 151,952 ) — 1,329,114 Asset-backed securities 3,959,409 136 ( 165,058 ) — 3,794,487 Total mortgage and asset-backed securities 10,904,670 1,000 ( 858,386 ) — 10,047,284 Other debt securities 596,093 13 ( 52,116 ) — 543,990 Total $ 14,783,369 $ 9,061 $ ( 1,092,122 ) $ — $ 13,700,308 December 31, 2021 U.S. government and federal agency obligations $ 1,035,477 $ 47,484 $ ( 2,241 ) $ — $ 1,080,720 Government-sponsored enterprise obligations 50,773 1,901 ( 919 ) — 51,755 State and municipal obligations 2,072,210 41,540 ( 16,923 ) — 2,096,827 Mortgage and asset-backed securities: Agency mortgage-backed securities 5,698,088 52,676 ( 67,764 ) — 5,683,000 Non-agency mortgage-backed securities 1,383,037 681 ( 17,241 ) — 1,366,477 Asset-backed securities 3,546,024 12,921 ( 19,726 ) — 3,539,219 Total mortgage and asset-backed securities 10,627,149 66,278 ( 104,731 ) — 10,588,696 Other debt securities 633,524 6,620 ( 8,115 ) — 632,029 Total $ 14,419,133 $ 163,823 $ ( 132,929 ) $ — $ 14,450,027 The following table presents proceeds from sales of securities and the components of investment securities gains and losses which have been recognized in earnings. For the Six Months Ended June 30 (In thousands) 2022 2021 Proceeds from sales of securities: Available for sale debt securities $ 51,948 $ — Other investments 3,805 10,060 Total proceeds $ 55,753 $ 10,060 Investment securities gains (losses), net: Available for sale debt securities: Losses realized on sales $ ( 9,582 ) $ — Equity securities: Fair value adjustments, net ( 1,023 ) 15 Other: Gains realized on sales 27 1,611 Losses realized on sales ( 4,313 ) — Fair value adjustments, net 23,083 25,031 Total investment securities gains, net $ 8,192 $ 26,657 Net gains on investment securities for the six months ended June 30, 2022 were mainly comprised of losses of $ 9.6 million on sales of available for sale securities, net losses of $ 4.3 million on sales of private equity investments, and net losses in fair value of $ 1.0 million on equity investments, offset by net gains in fair value of $ 23.1 million on private equity investments, due to fair value adjustments. 23 Table of Contents At June 30, 2022, securities totaling $ 5.3 billion in fair value were pledged to secure public fund deposits, securities sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB, compared to $ 6.4 billion at December 31, 2021. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $ 209.9 million, while the remaining securities were pledged under agreements pursuant to which the secured parties may not sell or re-pledge the collateral. Except for obligations of various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeded 10 % of stockholders’ equity. 4. Goodwill and Other Intangible Assets The following table presents information about the Company's intangible assets which have estimable useful lives. June 30, 2022 December 31, 2021 (In thousands) Gross Carrying Amount Accumulated Amortization Valuation Allowance Net Amount Gross Carrying Amount Accumulated Amortization Valuation Allowance Net Amount Amortizable intangible assets: Core deposit premium $ 31,270 $ ( 30,424 ) $ — $ 846 $ 31,270 $ ( 30,266 ) $ — $ 1,004 Mortgage servicing rights 21,959 ( 10,552 ) — 11,407 20,870 ( 9,600 ) ( 304 ) 10,966 Total $ 53,229 $ ( 40,976 ) $ — $ 12,253 $ 52,140 $ ( 39,866 ) $ ( 304 ) $ 11,970 Aggregate amortization expense on intangible assets was $ 501 thousand and $ 745 thousand for the three month periods ended June 30, 2022 and 2021, respectively, and $ 1.1 million and $ 1.7 million for the six month periods ended June 30, 2022 and 2021, respectively. The following table shows the estimated annual amortization expense for the next five fiscal years. This expense is based on existing asset balances and the interest rate environment as of June 30, 2022. The Company’s actual amortization expense in any given period may be different from the estimated amounts depending upon the acquisition of intangible assets, changes in mortgage interest rates, prepayment rates and other market conditions. (In thousands) 2022 $ 1,885 2023 1,431 2024 1,272 2025 1,119 2026 974 Changes in the carrying amount of goodwill and net other intangible assets for the six month period ended June 30, 2022 are as follows: (In thousands) Goodwill Easement Core Deposit Premium Mortgage Servicing Rights Balance January 1, 2022 $ 138,921 $ 3,600 $ 1,004 $ 10,966 Originations, net of disposals — — — 1,089 Amortization — — ( 158 ) ( 952 ) Impairment recovery — — — 304 Balance June 30, 2022 $ 138,921 $ 3,600 $ 846 $ 11,407 Goodwill allocated to the Company’s operating segments at June 30, 2022 and December 31, 2021 is shown below. (In thousands) Consumer segment $ 70,721 Commercial segment 67,454 Wealth segment 746 Total goodwill $ 138,921 24 Table of Contents 5. Guarantees The Company, as a provider of financial services, routinely issues financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to guarantee the payment or performance obligation of a customer to a third party. While these represent a potential outlay by the Company, a significant amount of the commitments may expire without being drawn upon. The Company has recourse against the customer for any amount it is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by the Company. Most of the standby letters of credit are secured, and in the event of nonperformance by customers, the Company has rights to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. Upon issuance of standby letters of credit, the Company recognizes a liability for the fair value of the obligation undertaken, which is estimated to be equivalent to the amount of fees received from the customer over the life of the agreement. At June 30, 2022, that net liability was $ 4.0 million, which will be accreted into income over the remaining life of the respective commitments. The contractual amount of these letters of credit, which represents the maximum potential future payments guaranteed by the Company, was $ 504.0 million at June 30, 2022. The Company periodically enters into credit risk participation agreements (RPAs) as a guarantor to other financial institutions, in order to mitigate those institutions’ credit risk associated with interest rate swaps with third parties. The RPA stipulates that, in the event of default by the third party on the interest rate swap, the Company will reimburse a portion of the loss borne by the financial institution. These interest rate swaps are normally collateralized (generally with real property, inventories and equipment) by the third party, which limits the credit risk associated with the Company’s RPAs. The third parties usually have other borrowing relationships with the Company. The Company monitors overall borrower collateral and at June 30, 2022, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair value throughout their term with all changes in fair value, including those due to a change in the third party’s creditworthiness, recorded in current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 2 years to 15 years. At June 30, 2022, the fair value of the Company's guarantee liabilities for RPAs was $ 162 thousand, and the notional amount of the underlying swaps was $ 366.2 million. The maximum potential future payment guaranteed by the Company cannot be readily estimated but is dependent upon the fair value of the interest rate swaps at the time of default. 25 Table of Contents 6. Leases The Company has net investments in direct financing and sales-type leases to commercial, industrial, and tax-exempt entities. These leases are included within business loans on the Company's consolidated balance sheets. The Company primarily leases various types of equipment, trucks and trailers, and office furniture and fixtures. Lease agreements may include options for the lessee to renew or purchase the leased equipment at the end of the lease term. The Company has elected to adopt the lease component expedient in which the lease and nonlease components are combined into the total lease receivable. The Company also leases office space to third parties, and these leases are classified as operating leases. The leases may include options to renew or expand the leased space, and currently the leases have remaining terms of 3 months to 5 years. The following table provides the components of lease income. For the Three Months Ended June 30 For the Six Months Ended June 30 (in thousands) 2022 2021 2022 2021 Direct financing and sales-type leases $ 5,114 $ 5,795 $ 10,361 $ 11,916 Operating leases (a) 2,158 1,930 4,342 4,004 Total lease income $ 7,272 $ 7,725 $ 14,703 $ 15,920 (a) Includes rent from Tower Properties Company, a related party, of $ 19 thousand for the three month periods ended June 30, 2022 and 2021, and $ 38 thousand for the six months ended June 30, 2022 and 2021 . 7. Pension The amount of net pension cost is shown in the table below: For the Three Months Ended June 30 For the Six Months Ended June 30 (In thousands) 2022 2021 2022 2021 Service cost - benefits earned during the period $ 131 $ 94 $ 263 $ 189 Interest cost on projected benefit obligation 665 556 1,330 1,112 Expected return on plan assets ( 1,125 ) ( 1,124 ) ( 2,251 ) ( 2,248 ) Amortization of prior service cost ( 67 ) ( 68 ) ( 135 ) ( 136 ) Amortization of unrecognized net loss 497 651 995 1,302 Net periodic pension cost $ 101 $ 109 $ 202 $ 219 All benefits accrued under the Company’s defined benefit pension plan have been frozen since January 1, 2011. During the first six months of 2022, the Company made no funding contributions to its defined benefit pension plan and made minimal funding contributions to a supplemental executive retirement plan (the CERP), which carries no segregated assets. 26 Table of Contents 8. Common Stock * Presented below is a summary of the components used to calculate basic and diluted income per share. The Company applies the two-class method of computing income per share, as nonvested share-based awards that pay nonforfeitable common stock dividends are considered securities which participate in undistributed earnings with common stock. The two-class method requires the calculation of separate income per share amounts for the nonvested share-based awards and for common stock. Income per share attributable to common stock is shown in the table below. Nonvested share-based awards are further discussed in Note 13. For the Three Months Ended June 30 For the Six Months Ended June 30 (In thousands, except per share data) 2022 2021 2022 2021 Basic income per common share: Net income attributable to Commerce Bancshares, Inc. $ 115,794 $ 162,326 $ 233,948 $ 293,298 Less income allocated to nonvested restricted stock 1,052 1,478 2,122 2,678 Net income allocated to common stock $ 114,742 $ 160,848 $ 231,826 $ 290,620 Weighted average common shares outstanding 119,655 121,971 119,988 122,022 Basic income per common share $ .96 $ 1.32 $ 1.93 $ 2.38 Diluted income per common share: Net income attributable to Commerce Bancshares, Inc. $ 115,794 $ 162,326 $ 233,948 $ 293,298 Less income allocated to nonvested restricted stock 1,050 1,475 2,118 2,673 Net income allocated to common stock $ 114,744 $ 160,851 $ 231,830 $ 290,625 Weighted average common shares outstanding 119,655 121,971 119,988 122,022 Net effect of the assumed exercise of stock-based awards - based on the treasury stock method using the average market price for the respective periods 265 302 278 315 Weighted average diluted common shares outstanding 119,920 122,273 120,266 122,337 Diluted income per common share $ .96 $ 1.32 $ 1.93 $ 2.38 Unexercised stock appreciation rights of 168 thousand and 76 thousand for the three month periods ended June 30, 2022 and 2021, respectively, and 144 thousand and 53 thousand for the six month periods ended June 30, 2022 and 2021, respectively, were excluded from the computation of diluted income per common share because their inclusion would have been anti-dilutive. * All prior year share and per share amounts in this note have been restated for the 5% common stock dividend distributed in December 2021. 27 Table of Contents 9. Accumulated Other Comprehensive Income The table below shows the activity and accumulated balances for components of other comprehensive income. Information about unrealized gains and losses on securities can be found in Note 3, and information about unrealized gains and losses on cash flow hedge derivatives is located in Note 11. Unrealized Gains (Losses) on Securities (1) Pension Loss Unrealized Gains (Losses) on Cash Flow Hedge Derivatives (2) Total Accumulated Other Comprehensive Income (Loss) (In thousands) Balance January 1, 2022 $ 23,174 $ ( 20,668 ) $ 74,574 $ 77,080 Other comprehensive loss before reclassifications to current earnings ( 1,123,536 ) — — ( 1,123,536 ) Amounts reclassified to current earnings from accumulated other comprehensive income 9,582 860 ( 12,204 ) ( 1,762 ) Current period other comprehensive income (loss), before tax ( 1,113,954 ) 860 ( 12,204 ) ( 1,125,298 ) Income tax (expense) benefit 278,488 ( 215 ) 3,051 281,324 Current period other comprehensive income (loss), net of tax ( 835,466 ) 645 ( 9,153 ) ( 843,974 ) Balance June 30, 2022 $ ( 812,292 ) $ ( 20,023 ) $ 65,421 $ ( 766,894 ) Balance January 1, 2021 $ 263,801 $ ( 25,118 ) $ 92,694 $ 331,377 Other comprehensive loss before reclassifications to current earnings ( 137,270 ) — — ( 137,270 ) Amounts reclassified to current earnings from accumulated other comprehensive income — 1,166 ( 11,881 ) ( 10,715 ) Current period other comprehensive income (loss), before tax ( 137,270 ) 1,166 ( 11,881 ) ( 147,985 ) Income tax (expense) benefit 34,319 ( 291 ) 2,970 36,998 Current period other comprehensive income (loss), net of tax ( 102,951 ) 875 ( 8,911 ) ( 110,987 ) Balance June 30, 2021 $ 160,850 $ ( 24,243 ) $ 83,783 $ 220,390 (1) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "investment securities gains (losses), net" in the consolidated statements of income. (2) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "interest and fees on loans" in the consolidated statements of income. 10. Segments The Company segregates financial information for use in assessing its performance and allocating resources among three operating segments: Consumer, Commercial and Wealth. The Consumer segment consists of various consumer loan and deposit products offered through its retail branch network of approximately 150 locations. This segment also includes indirect and other consumer loan financing businesses, along with debit and credit card loan and fee businesses. Residential mortgage origination, sales and servicing functions are included in this Consumer segment, but residential mortgage loans retained by the Company are not considered part of this segment and are instead included in the Other/Elimination column. The Commercial segment provides corporate lending (including the Small Business Banking product line within the branch network), leasing, and international services, along with business and governmental deposit products and commercial cash management services. This segment also includes both merchant and commercial bank card products as well as the Capital Markets Group, which sells fixed income securities and provides securities safekeeping and accounting services to its business and correspondent bank customers. The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management, and brokerage services. This segment also provides various loan and deposit related services to its private banking customers. 28 Table of Contents The following table presents selected financial information by segment and reconciliations of combined segment totals to consolidated totals. There were no material intersegment revenues between the three segments. Management periodically makes changes to methods of assigning costs and income to its business segments to better reflect operating results. If appropriate, these changes are reflected in prior year information presented below. (In thousands) Consumer Commercial Wealth Segment Totals Other/Elimination Consolidated Totals Three Months Ended June 30, 2022 Net interest income $ 83,633 $ 109,646 $ 19,226 $ 212,505 $ 19,880 $ 232,385 Provision for credit losses ( 3,924 ) ( 63 ) 23 ( 3,964 ) ( 3,198 ) ( 7,162 ) Non-interest income 30,924 56,815 53,983 141,722 ( 2,295 ) 139,427 Investment securities gains, net — — — — 1,029 1,029 Non-interest expense ( 75,406 ) ( 91,328 ) ( 36,487 ) ( 203,221 ) ( 10,284 ) ( 213,505 ) Income before income taxes $ 35,227 $ 75,070 $ 36,745 $ 147,042 $ 5,132 $ 152,174 Six Months Ended June 30, 2022 Net interest income $ 163,529 $ 219,176 $ 38,094 $ 420,799 $ 20,372 $ 441,171 Provision for credit losses ( 8,422 ) ( 145 ) ( 3 ) ( 8,570 ) 11,266 2,696 Non-interest income 59,278 110,466 107,189 276,933 ( 5,737 ) 271,196 Investment securities gains, net — — — — 8,192 8,192 Non-interest expense ( 148,400 ) ( 180,852 ) ( 72,773 ) ( 402,025 ) ( 17,128 ) ( 419,153 ) Income before income taxes $ 65,985 $ 148,645 $ 72,507 $ 287,137 $ 16,965 $ 304,102 Three Months Ended June 30, 2021 Net interest income $ 80,807 $ 114,185 $ 17,654 $ 212,646 $ ( 4,664 ) $ 207,982 Provision for loan losses ( 5,664 ) 4,952 ( 4 ) ( 716 ) 46,371 45,655 Non-interest income 36,905 52,259 52,505 141,669 ( 2,526 ) 139,143 Investment securities gains, net — — — — 16,804 16,804 Non-interest expense ( 73,915 ) ( 82,619 ) ( 34,049 ) ( 190,583 ) ( 7,543 ) ( 198,126 ) Income before income taxes $ 38,133 $ 88,777 $ 36,106 $ 163,016 $ 48,442 $ 211,458 Six Months Ended June 30, 2021 Net interest income $ 158,746 $ 224,750 $ 35,111 $ 418,607 $ ( 4,877 ) $ 413,730 Provision for credit losses ( 15,565 ) 4,925 1 ( 10,639 ) 62,526 51,887 Non-interest income 75,153 102,987 103,490 281,630 ( 6,442 ) 275,188 Investment securities gains, net — — — — 26,657 26,657 Non-interest expense ( 144,284 ) ( 161,900 ) ( 67,092 ) ( 373,276 ) ( 17,423 ) ( 390,699 ) Income before income taxes $ 74,050 $ 170,762 $ 71,510 $ 316,322 $ 60,441 $ 376,763 The information presented above was derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. This information is based on internal management accounting procedures and methods, which have been developed to reflect the underlying economics of the businesses. The methodologies are applied in connection with funds transfer pricing and assignment of overhead costs among segments. Funds transfer pricing was used in the determination of net interest income by assigning a standard cost (credit) for funds used (provided by) assets and liabilities based on their maturity, prepayment and/or repricing characteristics. The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination” column include activity not related to the segments, such as that relating to administrative functions, the investment securities portfolio, and the effect of certain expense allocations to the segments. The provision for credit losses in this category contains the difference between net loan charge-offs assigned directly to the segments and the recorded provision for credit loss expense. Included in this category’s net interest income are earnings of the investment portfolio, which are not allocated to a segment. The performance measurement of the operating segments is based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. The information is also not necessarily indicative of the segments' financial condition and results of operations if they were independent entities. 29 Table of Contents 11. Derivative Instruments The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. At June 30, 2022, the Company’s derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings. (In thousands) June 30, 2022 December 31, 2021 Interest rate swaps $ 2,091,114 $ 2,229,419 Interest rate caps 221,293 152,058 Credit risk participation agreements 526,651 485,633 Foreign exchange contracts 2,539 5,119 Mortgage loan commitments 8,352 21,787 Mortgage loan forward sale contracts — 1,165 Forward TBA contracts 7,500 21,000 Total notional amount $ 2,857,449 $ 2,916,181 The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. The customers are engaged in a variety of businesses, including real estate, manufacturing, retail product distribution, education, and retirement communities. These interest rate swap contracts with customers are offset by matching interest rate swap contracts purchased by the Company from other financial institutions (dealers). Contracts with dealers that require central clearing are novated to a clearing agency who becomes the Company's counterparty. Because of the matching terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings. Many of the Company’s interest rate swap contracts with large financial institutions contain contingent features relating to debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and ongoing collateralization on interest rate swaps in net liability positions or instant settlement of the contracts. The Company maintains debt ratings and capital well above these minimum requirements. During the year ended December 31, 2020, the Company monetized three interest rate floors that were previously classified as cash flow hedges with a combined notional balance of $ 1.5 billion and an asset fair value of $ 163.2 million. As of June 30, 2022, the total realized gains on the monetized cash flow hedges remaining in AOCI was $ 87.2 million (pre-tax), which will be reclassified into interest income over the next 4.5 years. The estimated amount of net gains related to the cash flow hedges remaining in AOCI at June 30, 2022 that is expected to be reclassified into income within the next 12 months is $ 24.2 million. The Company also contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps through risk participation agreements. The Company’s risks and responsibilities as guarantor are further discussed in Note 5 on Guarantees. In addition, the Company enters into foreign exchange contracts, which are mainly comprised of contracts to purchase or deliver foreign currencies for customers at specific future dates. Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date. The fair values of the Company's derivative instruments, whose notional amounts are listed above, are shown in the table below. Information about the valuation methods used to determine fair value is provided in Note 17 on Fair Value Measurements in the 2021 Annual Report on Form 10-K. 30 Table of Contents The Company's policy is to present its derivative assets and derivative liabilities on a gross basis in its consolidated balance sheets, and these are reported in other assets and other liabilities. Certain collateral posted to and from the Company's clearing counterparty has been applied to the fair values of the cleared swaps, such that at June 30, 2022 in the table below, the positive fair values of cleared swaps were reduced by $ 16.3 million and the negative fair values of cleared swaps were reduced by $ 929 thousand. At December 31, 2021, positive fair values of cleared swaps were reduced by $ 587 thousand and the negative fair values of cleared swaps were reduced by $ 29.7 million. Asset Derivatives Liability Derivatives June 30, 2022 Dec. 31, 2021 June 30, 2022 Dec. 31, 2021 (In thousands ) Fair Value Fair Value Derivative instruments: Interest rate swaps $ 10,484 $ 40,752 $ ( 25,879 ) $ ( 11,606 ) Interest rate caps 1,550 147 ( 1,550 ) ( 147 ) Credit risk participation agreements 86 84 ( 162 ) ( 277 ) Foreign exchange contracts 37 77 ( 5 ) ( 45 ) Mortgage loan commitments 230 764 — — Mortgage loan forward sale contracts — 5 — ( 1 ) Forward TBA contracts 17 13 ( 3 ) ( 25 ) Total $ 12,404 $ 41,842 $ ( 27,599 ) $ ( 12,101 ) The pre-tax effects of derivative instruments on the consolidated statements of income and consolidated statements of comprehensive income are shown in the tables below. Amount of Gain or (Loss) Recognized in OCI Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income (In thousands) Total Included Component Excluded Component Total Included Component Excluded Component For the Three Months Ended June 30, 2022 Derivatives in cash flow hedging relationships: Interest rate floors $ — $ — $ — Interest and fees on loans $ ( 6,154 ) $ ( 7,687 ) $ 1,533 Total $ — $ — $ — Total $ ( 6,154 ) $ ( 7,687 ) $ 1,533 For the Six Months Ended June 30, 2022 Derivatives in cash flow hedging relationships: Interest rate floors $ — $ — $ — Interest and fees on loans $ ( 12,204 ) $ ( 15,253 ) $ 3,049 Total $ — $ — $ — Total $ ( 12,204 ) $ ( 15,253 ) $ 3,049 For the Three Months Ended June 30, 2021 Derivatives in cash flow hedging relationships: Interest rate floors $ — $ — $ — Interest and fees on loans $ ( 6,033 ) $ ( 7,566 ) $ 1,533 Total $ — $ — $ — Total $ ( 6,033 ) $ ( 7,566 ) $ 1,533 For the Six Months Ended June 30, 2021 Derivatives in cash flow hedging relationships: Interest rate floors $ — $ — $ — Interest and fees on loans $ ( 11,881 ) $ ( 14,930 ) $ 3,049 Total $ — $ — $ — Total $ ( 11,881 ) $ ( 14,930 ) $ 3,049 31 Table of Contents Location of Gain or (Loss) Recognized in Consolidated Statements of Income Amount of Gain or (Loss) Recognized in Income on Derivatives For the Three Months Ended June 30 For the Six Months Ended June 30 (In thousands) 2022 2021 2022 2021 Derivative instruments: Interest rate swaps Other non-interest income $ 870 $ 875 $ 1,682 $ 1,950 Interest rate caps Other non-interest income — — 16 15 Credit risk participation agreements Other non-interest income ( 82 ) ( 385 ) ( 92 ) ( 20 ) Foreign exchange contracts Other non-interest income 14 ( 12 ) — 84 Mortgage loan commitments Loan fees and sales ( 49 ) ( 35 ) ( 534 ) ( 1,407 ) Mortgage loan forward sale contracts Loan fees and sales ( 4 ) ( 11 ) ( 4 ) 28 Forward TBA contracts Loan fees and sales 423 ( 1,046 ) 1,666 1,860 Total $ 1,172 $ ( 614 ) $ 2,734 $ 2,510 The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset. Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after netting is applied); thus, amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default. While the Company is party to master netting arrangements with most of its swap derivative counterparties, the Company does not offset derivative assets and liabilities under these agreements on its consolidated balance sheets. Collateral exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually consists of marketable securities. By contract, these may be sold or re-pledged by the secured party until recalled at a subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash or securities to its clearing agent. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table below. 32 Table of Contents Gross Amounts Not Offset in the Balance Sheet (In thousands) Gross Amount Recognized Gross Amounts Offset in the Balance Sheet Net Amounts Presented in the Balance Sheet Financial Instruments Available for Offset Collateral Received/ Pledged Net Amount June 30, 2022 Assets: Derivatives subject to master netting agreements $ 12,112 $ — $ 12,112 $ ( 809 ) $ ( 8,770 ) $ 2,533 Derivatives not subject to master netting agreements 292 — 292 Total derivatives $ 12,404 $ — $ 12,404 Liabilities: Derivatives subject to master netting agreements $ 27,490 $ — $ 27,490 $ ( 809 ) $ — $ 26,681 Derivatives not subject to master netting agreements 109 — 109 Total derivatives $ 27,599 $ — $ 27,599 December 31, 2021 Assets: Derivatives subject to master netting agreements $ 40,970 $ — $ 40,970 $ ( 347 ) $ — $ 40,623 Derivatives not subject to master netting agreements 872 — 872 Total derivatives $ 41,842 $ — $ 41,842 Liabilities: Derivatives subject to master netting agreements $ 12,019 $ — $ 12,019 $ ( 347 ) $ ( 10,146 ) $ 1,526 Derivatives not subject to master netting agreements 82 — 82 Total derivatives $ 12,101 $ — $ 12,101 12. Resale and Repurchase Agreements The Company regularly enters into resale and repurchase agreement transactions with other financial institutions and with its own customers. Resale and repurchase agreements are agreements to purchase/sell securities subject to an obligation to resell/repurchase the same or similar securities. They are accounted for as secured lending and collateralized borrowing (e.g. financing transactions), not as true sales and purchases of the underlying collateral securities. Some of the resale and repurchase agreements were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default. The security collateral accepted or pledged in resale and repurchase agreements with other financial institutions may be sold or re-pledged by the secured party, but is usually delivered to and held by third party trustees. The Company generally retains custody of securities pledged for repurchase agreements with its customers. 33 Table of Contents The Company is party to agreements commonly known as collateral swaps. These agreements involve the exchange of collateral under simultaneous repurchase and resale agreements with the same financial institution counterparty. These repurchase and resale agreements have the same principal amounts, inception dates, and maturity dates and have been offset against each other in the consolidated balance sheets, as permitted under the netting provisions of ASC 210-20-45. The collateral swaps totaled $ 200.0 million at June 30, 2022 and $ 400.0 million at December 31, 2021. The following table shows the extent to which resale agreement assets and repurchase agreement liabilities with the same counterparty have been offset on the consolidated balance sheets, in addition to the extent to which they could potentially be offset. Also shown is collateral received or pledged, which consists of marketable securities. The collateral amounts in the table are limited to the outstanding balances of the related asset or liability (after offsetting is applied); thus amounts of excess collateral are not shown. Gross Amounts Not Offset in the Balance Sheet (In thousands) Gross Amount Recognized Gross Amounts Offset in the Balance Sheet Net Amounts Presented in the Balance Sheet Financial Instruments Available for Offset Securities Collateral Received/Pledged Unsecured Amount June 30, 2022 Total resale agreements, subject to master netting arrangements $ 1,650,000 $ ( 200,000 ) $ 1,450,000 $ — $ ( 1,450,000 ) $ — Total repurchase agreements, subject to master netting arrangements 2,426,546 ( 200,000 ) 2,226,546 — ( 2,226,546 ) — December 31, 2021 Total resale agreements, subject to master netting arrangements $ 2,025,000 $ ( 400,000 ) $ 1,625,000 $ — $ ( 1,625,000 ) $ — Total repurchase agreements, subject to master netting arrangements 3,379,582 ( 400,000 ) 2,979,582 — ( 2,979,582 ) — The table below shows the remaining contractual maturities of repurchase agreements outstanding at June 30, 2022 and December 31, 2021, in addition to the various types of marketable securities that have been pledged by the Company as collateral for these borrowings. Remaining Contractual Maturity of the Agreements (In thousands) Overnight and continuous Up to 90 days Greater than 90 days Total June 30, 2022 Repurchase agreements, secured by: U.S. government and federal agency obligations $ 461,775 $ 22,960 $ 9,661 $ 494,396 Agency mortgage-backed securities 1,393,803 — 200,100 1,593,903 Non-agency mortgage-backed securities 46,675 — — 46,675 Asset-backed securities 279,591 — — 279,591 Other debt securities 11,981 — — 11,981 Total repurchase agreements, gross amount recognized $ 2,193,825 $ 22,960 $ 209,761 $ 2,426,546 December 31, 2021 Repurchase agreements, secured by: U.S. government and federal agency obligations $ 600,866 $ 33,373 $ 9,259 $ 643,498 Agency mortgage-backed securities 1,844,652 3,908 400,250 2,248,810 Non-agency mortgage-backed securities 32,299 — — 32,299 Asset-backed securities 422,525 — — 422,525 Other debt securities 32,450 — — 32,450 Total repurchase agreements, gross amount recognized $ 2,932,792 $ 37,281 $ 409,509 $ 3,379,582 34 Table of Contents 13. Stock-Based Compensation The Company issues stock-based compensation in the form of nonvested restricted stock and stock appreciation rights (SARs). Historically, most of the awards have been issued during the first quarter of each year. The stock-based compensation expense charged against income was $ 4.2 million and $ 3.8 million in the three months ended June 30, 2022 and 2021, respectively, and $ 8.4 million and $ 7.7 million in the six months ended June 30, 2022 and 2021, respectively. Nonvested stock awards granted generally vest in 4 to 7 years and contain restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant. A summary of the status of the Company’s nonvested share awards as of June 30, 2022, and changes during the six month period then ended, is presented below. Shares Weighted Average Grant Date Fair Value Nonvested at January 1, 2022 1,120,491 $ 55.58 Granted 236,483 70.82 Vested ( 247,869 ) 47.64 Forfeited ( 18,367 ) 59.80 Nonvested at June 30, 2022 1,090,738 $ 60.62 SARs are granted with exercise prices equal to the market price of the Company’s stock at the date of grant. SARs vest ratably over 4 years of continuous service and have contractual terms of 10 years. All SARs must be settled in stock under provisions of the plan. In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on date of grant. The current year per share average fair value and the model assumptions are shown in the table below. Weighted per share average fair value at grant date $ 17.42 Assumptions: Dividend yield 1.5 % Volatility 28.4 % Risk-free interest rate 1.6 % Expected term 5.7 years A summary of SAR activity during the first six months of 2022 is presented below. (Dollars in thousands, except per share data) Rights Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2022 896,348 $ 46.21 Granted 96,318 70.64 Forfeited ( 6,390 ) 60.86 Expired ( 1,013 ) 60.19 Exercised ( 30,216 ) 44.26 Outstanding at June 30, 2022 955,047 $ 48.62 5.7 years $ 17,024 35 Table of Contents 14. Revenue from Contracts with Customers ASC 606 "Revenue from Contracts with Customers" requires revenue recognition for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For the six months ended June 30, 2022, approximately 62 % of the Company’s total revenue was comprised of net interest income, which is not within the scope of this guidance. Of the remaining revenue, those items that were subject to this guidance mainly included fees for bank card, trust, deposit account services and consumer brokerage services. The following table disaggregates non-interest income subject to ASC 606 by major product line. Three Months Ended June 30 Six Months Ended June 30 (In thousands) 2022 2021 2022 2021 Bank card transaction fees $ 43,873 $ 42,608 $ 85,918 $ 80,303 Trust fees 46,792 46,257 94,603 90,384 Deposit account charges and other fees 25,564 23,988 47,871 46,563 Consumer brokerage services 5,068 4,503 9,514 8,584 Other non-interest income 10,750 6,962 15,245 14,658 Total non-interest income from contracts with customers 132,047 124,318 253,151 240,492 Other non-interest income (1) 7,380 14,825 18,045 34,696 Total non-interest income $ 139,427 $ 139,143 $ 271,196 $ 275,188 (1) This revenue is not within the scope of ASC 606, and includes fees relating to capital market activities, loan fees and sales, derivative instruments, standby letters of credit and various other transactions. For bank card transaction fees, nearly all of debit and credit card fees are earned in the Consumer segment, while corporate card and merchant fees are earned in the Commercial segment. The Consumer and Commercial segments contribute approximately 40 % and 60 %, respectively, of the Company's deposit account charge revenue. All trust fees and nearly all consumer brokerage services income are earned in the Wealth segment. The following table presents the opening and closing receivable balances for the six month periods ended June 30, 2022 and 2021 for the Company’s significant revenue categories subject to ASC 606. (In thousands) June 30, 2022 December 31, 2021 June 30, 2021 December 31, 2020 Bank card transaction fees $ 14,598 $ 16,424 $ 13,248 $ 14,199 Trust fees 1,975 2,222 2,253 2,071 Deposit account charges and other fees 6,898 6,702 6,616 6,933 Consumer brokerage services 678 391 355 432 For these revenue categories, none of the transaction price has been allocated to performance obligations that are unsatisfied as of the end of a reporting period. 36 Table of Contents 15. Fair Value Measurements The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities and to determine fair value disclosures. Various financial instruments such as available for sale debt securities, equity securities, trading debt securities, certain investments relating to private equity activities, and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets and liabilities on a nonrecurring basis, such as mortgage servicing rights and certain other investment securities. These nonrecurring fair value adjustments typically involve lower of cost or fair value accounting or write-downs of individual assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: • Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. • Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds). • Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider. The valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis are described in the Fair Value Measurements note in the Company's 2021 Annual Report on Form 10-K. There have been no significant changes in these methodologies since then. 37 Table of Contents Instruments Measured at Fair Value on a Recurring Basis The table below presents the June 30, 2022 and December 31, 2021 carrying values of assets and liabilities measured at fair value on a recurring basis. There were no transfers among levels during the first six months of 2022 or the year ended December 31, 2021. Fair Value Measurements Using (In thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) June 30, 2022 Assets: Residential mortgage loans held for sale $ 1,036 $ — $ 1,036 $ — Available for sale debt securities: U.S. government and federal agency obligations 1,109,128 1,109,128 — — Government-sponsored enterprise obligations 47,108 — 47,108 — State and municipal obligations 1,952,798 — 1,950,982 1,816 Agency mortgage-backed securities 4,923,683 — 4,923,683 — Non-agency mortgage-backed securities 1,329,114 — 1,329,114 — Asset-backed securities 3,794,487 — 3,794,487 — Other debt securities 543,990 — 543,990 — Trading debt securities 34,195 — 34,195 — Equity securities 6,130 6,130 — — Private equity investments 161,771 — — 161,771 Derivatives * 12,404 — 12,088 316 Assets held in trust for deferred compensation plan 17,862 17,862 — — Total assets 13,933,706 1,133,120 12,636,683 163,903 Liabilities: Derivatives * 27,599 — 27,437 162 Liabilities held in trust for deferred compensation plan 17,862 17,862 — — Total liabilities $ 45,461 $ 17,862 $ 27,437 $ 162 December 31, 2021 Assets: Residential mortgage loans held for sale $ 5,570 $ — $ 5,570 $ — Available for sale debt securities: U.S. government and federal agency obligations 1,080,720 1,080,720 — — Government-sponsored enterprise obligations 51,755 — 51,755 — State and municipal obligations 2,096,827 — 2,094,843 1,984 Agency mortgage-backed securities 5,683,000 — 5,683,000 — Non-agency mortgage-backed securities 1,366,477 — 1,366,477 — Asset-backed securities 3,539,219 — 3,539,219 — Other debt securities 632,029 — 632,029 — Trading debt securities 46,235 — 46,235 — Equity securities 7,153 7,153 — — Private equity investments 147,406 — — 147,406 Derivatives * 41,842 — 40,994 848 Assets held in trust for deferred compensation plan 21,794 21,794 — — Total assets 14,720,027 1,109,667 13,460,122 150,238 Liabilities: Derivatives * 12,101 — 11,824 277 Liabilities held in trust for deferred compensation plan 21,794 21,794 — — Total liabilities $ 33,895 $ 21,794 $ 11,824 $ 277 * The fair value of each class of derivative is shown in Note 11. 38 Table of Contents The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In thousands) State and Municipal Obligations Private Equity Investments Derivatives Total For the three months ended June 30, 2022 Balance March 31, 2022 $ 1,902 $ 153,411 $ 221 $ 155,534 Total gains or losses (realized/unrealized): Included in earnings — 15,633 ( 131 ) 15,502 Included in other comprehensive income * ( 87 ) — — ( 87 ) Discount accretion 1 — — 1 Purchases of private equity investments — 822 — 822 Sale/pay down of private equity investments — ( 8,095 ) — ( 8,095 ) Purchase of risk participation agreement — — 314 314 Sale of risk participation agreements — — ( 250 ) ( 250 ) Balance June 30, 2022 $ 1,816 $ 161,771 $ 154 $ 163,741 Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2022 $ — $ 15,633 $ 148 $ 15,781 *Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2022 $ ( 87 ) $ — $ — $ ( 87 ) For the six months ended June 30, 2022 Balance January 1, 2022 $ 1,984 $ 147,406 $ 571 $ 149,961 Total gains or losses (realized/unrealized): Included in earnings — 23,083 ( 626 ) 22,457 Included in other comprehensive income * ( 170 ) — — ( 170 ) Discount accretion 2 — — 2 Purchases of private equity investments — 1,122 — 1,122 Sale/pay down of private equity investments — ( 9,840 ) — ( 9,840 ) Purchase of risk participation agreement — — 459 459 Sale of risk participation agreement — — ( 250 ) ( 250 ) Balance June 30, 2022 $ 1,816 $ 161,771 $ 154 $ 163,741 Total gains or losses for the six months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2022 $ — $ 23,033 $ 136 $ 23,169 *Total gains or losses for the six months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2022 $ ( 170 ) $ — $ — $ ( 170 ) 39 Table of Contents Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In thousands) State and Municipal Obligations Private Equity Investments Derivatives Total For the three months ended June 30, 2021 Balance March 31, 2021 $ 7,970 $ 94,257 $ 1,636 $ 103,863 Total gains or losses (realized/unrealized): Included in earnings — 16,666 ( 420 ) 16,246 Included in other comprehensive income * 18 — — 18 Discount accretion 3 — — 3 Purchases of private equity investments — 5,656 — 5,656 Sale/pay down of private equity investments — ( 356 ) — ( 356 ) Capitalized interest/dividends — 23 — 23 Purchase of risk participation agreement — — 445 445 Sale of risk participation agreement — — ( 32 ) ( 32 ) Balance June 30, 2021 $ 7,991 $ 116,246 $ 1,629 $ 125,866 Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2021 $ — $ 16,666 $ 1,434 $ 18,100 *Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2021 $ 18 $ — $ — $ 18 For the six months ended June 30, 2021 Balance January 1, 2021 $ 7,968 $ 94,368 $ 2,741 $ 105,077 Total gains or losses (realized/unrealized): Included in earnings — 25,031 ( 1,427 ) 23,604 Included in other comprehensive income * 17 — — 17 Discount accretion 6 — — 6 Purchases of private equity investments — 5,656 — 5,656 Sale/pay down of private equity investments — ( 8,832 ) — ( 8,832 ) Capitalized interest/dividends — 23 — 23 Purchase of risk participation agreement — — 445 445 Sale of risk participation agreement — — ( 130 ) ( 130 ) Balance June 30, 2021 $ 7,991 $ 116,246 $ 1,629 $ 125,866 Total gains or losses for the six months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2021 $ — $ 25,031 $ 1,629 $ 26,660 *Total gains or losses for the six months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2021 $ 17 $ — $ — $ 17 * Included in "net unrealized gains (losses) on available for sale debt securities" in the consolidated statements of comprehensive income. 40 Table of Contents Gains and losses included in earnings for the Level 3 assets and liabilities in the previous table are reported in the following line items in the consolidated statements of income: (In thousands) Loan Fees and Sales Other Non-Interest Income Investment Securities Gains (Losses), Net Total For the three months ended June 30, 2022 Total gains or losses included in earnings $ ( 49 ) $ ( 82 ) $ 15,633 $ 15,502 Change in unrealized gains or losses relating to assets still held at June 30, 2022 $ 230 $ ( 82 ) $ 15,633 $ 15,781 For the six months ended June 30, 2022 Total gains or losses included in earnings $ ( 534 ) $ ( 92 ) $ 23,083 $ 22,457 Change in unrealized gains or losses relating to assets still held at June 30, 2022 $ 230 $ ( 94 ) $ 23,033 $ 23,169 For the three months ended June 30, 2021 Total gains or losses included in earnings $ ( 35 ) $ ( 385 ) $ 16,666 $ 16,246 Change in unrealized gains or losses relating to assets still held at June 30, 2021 $ 1,820 $ ( 386 ) $ 16,666 $ 18,100 For the six months ended June 30, 2021 Total gains or losses included in earnings $ ( 1,407 ) $ ( 20 ) $ 25,031 $ 23,604 Change in unrealized gains or losses relating to assets still held at June 30, 2021 $ 1,820 $ ( 191 ) $ 25,031 $ 26,660 Level 3 Inputs The Company's significant Level 3 measurements, which employ unobservable inputs that are readily quantifiable, pertain to auction rate securities (ARS), investments in portfolio concerns held by the Company's private equity subsidiaries, and held for sale residential mortgage loan commitments. ARS are included in state and municipal securities and totaled $ 1.8 million at June 30, 2022, while private equity investments, included in other securities, totaled $ 161.8 million. Information about these inputs is presented in the table below. Quantitative Information about Level 3 Fair Value Measurements Weighted Valuation Technique Unobservable Input Range Average* Auction rate securities Discounted cash flow Estimated market recovery period 5 years 5 years Estimated market rate 4.6 % - 5.3 % 5.0 % Private equity investments Market comparable companies EBITDA multiple 4.0 - 7.0 5.5 Mortgage loan commitments Discounted cash flow Probability of funding 67.2 % - 100.0 % 88.6 % Embedded servicing value .9 % - 1.5 % 1.2 % * Unobservable inputs were weighted by the relative fair value of the instruments. Instruments Measured at Fair Value on a Nonrecurring Basis For assets measured at fair value on a nonrecurring basis during the first six months of 2022 and 2021, and still held as of June 30, 2022 and 2021, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation inputs used to determine each adjustment, and the carrying value of the related individual assets or portfolios at June 30, 2022 and 2021. Fair Value Measurements Using (In thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Gains (Losses) Recognized During the Six Months Ended June 30 June 30, 2022 Mortgage servicing rights 11,407 — — 11,407 304 Long-lived assets 484 — — 484 ( 965 ) June 30, 2021 Mortgage servicing rights 9,376 — — 9,376 1,299 Long- lived assets 984 — — 984 ( 276 ) 41 Table of Contents The Company's significant Level 3 measurements that are measured on a nonrecurring basis pertain to the Company's mortgage servicing rights retained on certain fixed rate personal real estate loan originations. Mortgage servicing rights are included in other intangible assets-net on the consolidated balance sheets, and information about these inputs at June 30, 2022 is presented in the table below. Quantitative Information about Level 3 Fair Value Measurements Weighted Valuation Technique Unobservable Input Range Average* Mortgage servicing rights Discounted cash flow Discount rate 9.01 % - 9.31 % 9.11 % Prepayment speeds (CPR)* 6.42 % - 8.17 % 6.66 % Loan servicing costs - annually per loan Performing loans $ 70 - $ 72 $ 71 Delinquent loans $ 200 - $ 750 Loans in foreclosure $ 1,000 *Ranges and weighted averages based on interest rate tranches . The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are updated periodically for changes in market conditions. Actual rates may differ from our estimates. Increases in prepayment speed and discount rates negatively impact the fair value of our mortgage servicing rights. 42 Table of Contents 16. Fair Value of Financial Instruments The carrying amounts and estimated fair values of financial instruments held by the Company are set forth below. Fair value estimates are made at a specific point in time based on relevant market information. They do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for many of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The estimated fair values of the Company’s financial instruments and the classification of their fair value measurement within the valuation hierarchy are as follows at June 30, 2022 and December 31, 2021: Carrying Amount Estimated Fair Value at June 30, 2022 (In thousands) Level 1 Level 2 Level 3 Total Financial Assets Loans: Business $ 5,441,592 $ — $ — $ 5,326,823 $ 5,326,823 Real estate - construction and land 1,266,260 — — 1,249,488 1,249,488 Real estate - business 3,215,578 — — 3,128,428 3,128,428 Real estate - personal 2,836,835 — — 2,686,693 2,686,693 Consumer 2,089,592 — — 2,054,657 2,054,657 Revolving home equity 271,854 — — 268,543 268,543 Consumer credit card 558,102 — — 522,025 522,025 Overdrafts 6,814 — — 6,704 6,704 Total loans 15,686,627 — — 15,243,361 15,243,361 Loans held for sale 6,467 — 6,467 — 6,467 Investment securities 13,947,188 1,115,258 12,623,559 208,371 13,947,188 Federal funds sold 26,000 26,000 — — 26,000 Securities purchased under agreements to resell 1,450,000 — — 1,423,660 1,423,660 Interest earning deposits with banks 684,994 684,994 — — 684,994 Cash and due from banks 355,524 355,524 — — 355,524 Derivative instruments 12,404 — 12,088 316 12,404 Assets held in trust for deferred compensation plan 17,862 17,862 — — 17,862 Total $ 32,187,066 $ 2,199,638 $ 12,642,114 $ 16,875,708 $ 31,717,460 Financial Liabilities Non-interest bearing deposits $ 11,102,585 $ 11,102,585 $ — $ — $ 11,102,585 Savings, interest checking and money market deposits 16,063,064 16,063,064 — — 16,063,064 Certificates of deposit 1,005,584 — — 992,566 992,566 Federal funds purchased 7,750 7,750 — — 7,750 Securities sold under agreements to repurchase 2,226,546 — — 2,227,167 2,227,167 Other borrowings 4,390 — 4,390 — 4,390 Derivative instruments 27,599 — 27,437 162 27,599 Liabilities held in trust for deferred compensation plan 17,862 17,862 — — 17,862 Total $ 30,455,380 $ 27,191,261 $ 31,827 $ 3,219,895 $ 30,442,983 43 Table of Contents Carrying Amount Estimated Fair Value at December 31, 2021 (In thousands) Level 1 Level 2 Level 3 Total Financial Assets Loans: Business $ 5,303,535 $ — $ — $ 5,229,153 $ 5,229,153 Real estate - construction and land 1,118,266 — — 1,099,747 1,099,747 Real estate - business 3,058,837 — — 3,054,481 3,054,481 Real estate - personal 2,805,401 — — 2,809,490 2,809,490 Consumer 2,032,225 — — 2,031,408 2,031,408 Revolving home equity 275,945 — — 273,450 273,450 Consumer credit card 575,410 — — 536,468 536,468 Overdrafts 6,740 — — 6,458 6,458 Total loans 15,176,359 — — 15,040,655 15,040,655 Loans held for sale 8,615 — 8,615 — 8,615 Investment securities 14,695,628 1,087,873 13,413,558 194,197 14,695,628 Federal funds sold 2,800 2,800 — — 2,800 Securities purchased under agreements to resell 1,625,000 — — 1,623,856 1,623,856 Interest earning deposits with banks 3,971,217 3,971,217 — — 3,971,217 Cash and due from banks 305,539 305,539 — — 305,539 Derivative instruments 41,842 — 40,994 848 41,842 Assets held in trust for deferred compensation plan 21,794 21,794 — — 21,794 Total $ 35,848,794 $ 5,389,223 $ 13,463,167 $ 16,859,556 $ 35,711,946 Financial Liabilities Non-interest bearing deposits $ 11,772,374 $ 11,772,374 $ — $ — $ 11,772,374 Savings, interest checking and money market deposits 16,598,085 16,598,085 — — 16,598,085 Certificates of deposit 1,442,614 — — 1,438,919 1,438,919 Federal funds purchased 43,385 43,385 — — 43,385 Securities sold under agreements to repurchase 2,979,582 — — 2,979,677 2,979,677 Other borrowings 12,514 — 12,514 — 12,514 Derivative instruments 12,101 — 11,824 277 12,101 Liabilities held in trust for deferred compensation plan 21,794 21,794 — — 21,794 Total $ 32,882,449 $ 28,435,638 $ 24,338 $ 4,418,873 $ 32,878,849 17. Legal and Regulatory Proceedings The Company has various legal proceedings pending at June 30, 2022, arising in the normal course of business. While some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet progressed to the point where a loss amount can be determined to be probable and estimable. 44 Table of Contents