What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-02-22 compared with 2022-02-23 · 263 added, 227 removed, 2599 unchanged (16% of the section changed)

8 unchanged sentences

generally accepted accounting principles.

Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for the recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, and its related amendments.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

13 unchanged sentences

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the allowance for loan losses related to loans collectively evaluated for impairment

As discussed in Notes 1 and 2 to the consolidated financial statements, the allowance for credit losses related to loans evaluated on a collective basis (the December 31, 2021 collective ACL) was $149.9 million of a total allowance for credit losses of $150.0 million as December 31, 2021.

Table of Conte nts

Assessment for credit losses related to loans collectively evaluated for impairment

As discussed in Notes 1 and 2 to the consolidated financial statements, the allowance for credit losses related to loans evaluated on a collective basis (the December 31, 2022 collective ACL) was $148.0 million of a total allowance for credit losses of $150.1 million as of December 31, 2022.

The allowance for credit losses on loans and leases is measured on a collective (pool) basis whereas loans are aggregated into pools based on similar risk characteristics.

The Company estimates the collective ACL utilizing average historical loss rates, calculated using historical net charge-offs and outstanding loan balances during a lookback period for each pool.

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.

In certain 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 (forecast adjusted loss rate).

22 unchanged sentences

February 22, 2023

Table of Conte nts

Commerce Bancshares, Inc.

54 unchanged sentences

( 41,743 ) ( 32,973 )

Accumulated other comprehensive income 77,080 331,377

Accumulated other comprehensive income (loss) ( 1,086,864 ) 77,080

Total Commerce Bancshares, Inc.

5 unchanged sentences

See accompanying notes to consolidated financial statements.

Table of Conte nts

Commerce Bancshares, Inc.

7 unchanged sentences

Interest on loans held for sale

880 860 1,209

Interest on investment securities

25 unchanged sentences

NON-INTEREST INCOME

Trust fees 184,719 188,227 160,637

Bank card transaction fees

176,144 167,891 151,797

188,227 160,637 155,628

Deposit account charges and other fees

94,381 97,217 93,227

Capital market fees

15,943 14,582 8,146

Consumer brokerage services 19,117 18,362 15,095

Capital market fees

14,231 15,943 14,582

9 unchanged sentences

554,047 525,248 512,987

Data processing and software 110,692 101,792 95,325

Net occupancy

3 unchanged sentences

18,101 17,118 17,419

Data processing and software

23,827 21,856 19,734

73,634 73,613 57,429

73,613 57,429 73,046

Total non-interest expense

10 unchanged sentences

Less preferred stock dividends

— 11,966 9,000

Net income available to common shareholders

5 unchanged sentences

See accompanying notes to consolidated financial statements.

Table of Conte nts

Commerce Bancshares, Inc.

5 unchanged sentences

Other comprehensive income (loss):

Net unrealized losses on securities for which a portion of an other-than-temporary impairment has been recorded in earnings — — ( 632 )

Net unrealized gains (losses) on other securities

5 unchanged sentences

( 1,163,944 ) ( 254,297 ) 220,933

Comprehensive income 286,293 574,818 597,825

Comprehensive income (loss) ( 663,924 ) 286,293 574,818

Less non-controlling interest (income) loss 11,621 9,825 ( 172 )

Comprehensive income attributable to Commerce Bancshares, Inc.

Comprehensive income (loss) attributable to Commerce Bancshares, Inc.

$ ( 675,545 ) $ 276,468 $ 574,990

See accompanying notes to consolidated financial statements.

Table of Conte nts

Commerce Bancshares, Inc.

6 unchanged sentences

$ 144,784 $ 563,978 $ 2,151,464 $ 201,562 $ ( 37,548 ) $ 110,444 $ 3,788 $ 3,138,472

Adoption of ASU 2016-13 3,766 3,766

Balance at December 31, 2019, adjusted

144,784 563,978 2,151,464 205,328 ( 37,548 ) 110,444 3,788 3,142,238

Net income 354,057 ( 172 ) 353,885

Other comprehensive loss 175,113 175,113

Other comprehensive income 220,933 220,933

Distributions to non-controlling interest ( 691 ) ( 691 )

Redemption of preferred stock ( 144,784 ) ( 5,216 ) ( 150,000 )

Purchases of treasury stock ( 54,163 ) ( 54,163 )

Accelerated share repurchase agreements ( 150,000 ) ( 150,000 )

Cash dividends paid on common stock ($ .933 per share)

9 unchanged sentences

— 589,352 2,436,288 73,000 ( 32,970 ) 331,377 2,925 3,399,972

Adoption of ASU 2016-13

Adjusted Balance December 31, 2019

530,765 9,825 540,590

354,057 ( 172 ) 353,885

Other comprehensive income 220,933 220,933

Other comprehensive loss ( 254,297 ) ( 254,297 )

Distributions to non-controlling interest ( 1,065 ) ( 1,065 )

Redemption of preferred stock ( 144,784 ) ( 5,216 ) ( 150,000 )

Purchases of treasury stock ( 129,361 ) ( 129,361 )

Sale of non-controlling interest of subsidiary 659 ( 659 ) —

Cash dividends paid on common stock ($ .952 per share)

( 122,693 ) ( 122,693 )

Cash dividends paid on preferred stock ($ 1.125 per depositary share)

( 6,750 ) ( 6,750 )

Stock-based compensation 15,415 15,415

5 unchanged sentences

Net income 488,399 11,621 500,020

Other comprehensive income ( 254,297 ) ( 254,297 )

Other comprehensive loss ( 1,163,944 ) ( 1,163,944 )

Distributions to non-controlling interest ( 6,361 ) ( 6,361 )

Purchases of treasury stock ( 186,622 ) ( 186,622 )

Sale of non-controlling interest of subsidiary 659 ( 659 ) —

Cash dividends paid on common stock ($ 1.010 per share)

7 unchanged sentences

See accompanying notes to consolidated financial statements.

Table of Conte nts

Commerce Bancshares, Inc.

15 unchanged sentences

Net (increase) decrease in trading securities, excluding unsettled transactions 4,152 ( 29,885 ) ( 770 )

Purchase of interest rate floors ( 35,799 ) — —

Stock-based compensation 16,995 15,415 14,915

2 unchanged sentences

Increase (decrease) in income taxes payable ( 12,936 ) ( 5,175 ) 12,345

Gain on sale of Corporate Trust business — — ( 11,472 )

Proceeds from terminated interest rate floors — — 156,740

15 unchanged sentences

Repayments of securities purchased under agreements to resell

1,000,000 125,000 —

Purchases of premises and equipment

2 unchanged sentences

2,985 8,859 1,878

Net cash used in investing activities

Net cash provided by (used in) investing activities

242,271 ( 2,082,758 ) ( 5,390,504 )

FINANCING ACTIVITIES

Net increase in non-interest bearing, savings, interest checking and money market deposits

Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits

( 3,254,081 ) 3,291,466 6,316,100

Net increase (decrease) in certificates of deposit

Net decrease in certificates of deposit

( 448,511 ) ( 402,077 ) ( 163,321 )

7 unchanged sentences

( 186,622 ) ( 129,361 ) ( 54,163 )

Accelerated share repurchase agreement

— — ( 150,000 )

Issuance of stock under equity compensation plans

19 unchanged sentences

See accompanying notes to consolidated financial statements.

Table of Conte nts

Commerce Bancshares, Inc.

6 unchanged sentences

Principal activities include retail and commercial banking, investment management, securities brokerage, mortgage banking, trust, and private banking services.

The Company also maintains commercial banking offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids and operates a commercial payments business with sales representatives covering the continental U.S.

The Company also maintains offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids that support customers in its commercial and/or wealth segments and operates a commercial payments business with sales representatives covering the continental U.S.

Basis of Presentation, Use of Estimates, and Subsequent Events

20 unchanged sentences

The Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, and its related amendments on January 1, 2020.

Further discussion of the impact of adoption is included below, as well as in Note 2, Loans and Allowance for Credit Losses, and Note 3, Investment Securities.

Known as the current expected credit loss (CECL), the standard replaced the incurred loss methodology.

The new measurement approach requires the calculation of expected lifetime credit losses and is applied to financial assets measured at amortized cost, including loans and held-to-maturity securities, as well as certain off-balance sheet credit exposures such as unfunded lending commitments.

The standard also changed the impairment model of available for sale debt securities.

Also see "Allowance for Credit Losses on Loans", "Liability for Unfunded Lending Commitments" and "Allowance for Credit Losses on Available for Sale Debt Securities" within Note 1 below.

Measurement of Credit Losses on Financial Instruments, and its related amendments (collectively known as “CECL”) on January 1, 2020.

The Company adopted CECL using the modified retrospective method for all financial assets measured at amortized cost and for unfunded lending commitments.

Results for reporting periods beginning on or after January 1, 2020 are presented under CECL, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Company recorded a net increase to retained earnings of $ 3.8 million as of January 1, 2020 for the cumulative effect of adopting CECL.

The Company recorded a net increase to retained earnings of $ 3.8 million as of January 1, 2020 for the cumulative effect of adopting CECL.

The transition adjustment included a decrease to the allowance for credit losses of $ 29.7 million related to the commercial loan portfolio, an increase to the allowance for credit losses of $ 8.7 million related to the personal banking loan portfolio, an increase to the liability for unfunded commitments of $ 16.1 million, and a tax impact of $ 1.2 million.

The table below illustrates the adoption impact of ASU 2016-13 on the Company's allowance for credit losses.

December 31, 2019 January 1, 2020

(In thousands) Allowance for loan losses ending balance CECL Adjustment Allowance for credit losses beginning balance

Business $ 44,268 $ ( 6,328 ) $ 37,940

Real estate - construction and land 21,589 ( 12,385 ) 9,204

Real estate - business 25,903 ( 10,998 ) 14,905

Total Commercial:

91,760 ( 29,711 ) 62,049

Personal Banking:

Real estate - personal 3,125 1,730 4,855

Consumer 15,932 ( 1,414 ) 14,518

Revolving home equity 638 986 1,624

Consumer credit card 47,997 8,498 56,495

Overdrafts 1,230 ( 1,128 ) 102

Total Personal Banking:

68,922 8,672 77,594

Allowance for credit losses on loans 160,682 ( 21,039 ) 139,643

Liability for unfunded lending commitments 1,075 16,090 17,165

Total allowance for credit losses $ 161,757 $ ( 4,949 ) $ 156,808

Table of Conte nts

Cash, Cash Equivalents and Restricted Cash

3 unchanged sentences

During 2020, the Federal Reserve System, which historically required the Bank to maintain cash balances at the Federal Reserve Bank, reduced the reserve requirement ratios to zero percent effective March 26, 2020.

Other interest earning cash balances held at the Federal Reserve Bank totaled $ 4.0 billion at December 31, 2021.

Other interest earning cash balances held at the Federal Reserve Bank totaled $ 389.1 million at December 31, 2022.

Loans and Related Earnings

8 unchanged sentences

Loan and commitment fees, net of costs, are deferred and recognized in interest income over the term of the loan or commitment as an adjustment of yield.

Annual fees charged on credit card loans are capitalized to principal and amortized over

12 months to loan fees and sales.

Annual fees charged on credit card loans are capitalized to principal and amortized over 12 months to loan fees and sales.

Other credit card fees, such as cash advance fees and late payment fees, are recognized in income as an adjustment of yield when charged to the cardholder’s account.

16 unchanged sentences

A six month history of sustained payment performance is generally required before reinstatement of accrual status.

Table of Conte nts

Troubled Debt Restructurings

36 unchanged sentences

Expected credit losses for these unfunded lending commitments are calculated over the contractual period during which the Company is exposed to the credit risk.

The methodology used to measure credit losses for unfunded lending commitments is the same as the methodology used for loans, however, the estimate of credit risk for unfunded lending commitments takes into consideration the likelihood that funding will occur.

Table of Conte nts

consideration the likelihood that funding will occur.

The liability for unfunded lending commitments excludes any exposures that are unconditionally cancellable by the Company.

36 unchanged sentences

Allowance for Credit Losses on Available for Sale Debt Securities

For available for sale debt securities in an unrealized loss position, the entire loss in fair value is required to be recognized in current earnings if the Company intends to sell the securities or believes it more likely than not that it will be required to sell the security before the anticipated recovery.

Table of Conte nts

security before the anticipated recovery.

If neither condition is met, and the Company does not expect to recover the amortized cost basis, the Company determines whether the decline in fair value resulted from credit losses or other factors.

20 unchanged sentences

Depreciation is computed using a straight-line method, utilizing estimated useful lives;

generally 30 years for buildings, 10 years for building improvements, and 3 to 10 years for equipment.

generally 30 to 40 years for buildings, 10 years for building improvements, and 3 to 10 years for equipment.

Leasehold improvements are amortized over the shorter of 10 years or the remaining lease term.

Maintenance and repairs are charged to non-interest expense as incurred.

Premises and equipment also includes the Company's right-of-use leased assets, which is mainly comprised of operating leases for branches, office space, ATM locations, and certain equipment.

Also included in premises and equipment is construction in process, which represents facilities construction projects underway that have not yet been placed into service, as well as the Company's right-of-use leased assets, which are mainly comprised of operating leases for branches, office space, ATM locations, and certain equipment.

Foreclosed Assets

7 unchanged sentences

Foreclosed assets are included in other assets on the consolidated balance sheets.

Table of Conte nts

Goodwill and Intangible Assets

33 unchanged sentences

Payments for satisfied performance obligations are typically due when or as the goods or services are completed, or shortly thereafter, which usually occurs within a single financial reporting period.

Table of Conte nts

In situations where payment is made before the performance obligation is satisfied, the fees are deferred until the performance obligations pertaining to those goods or services are completed.

15 unchanged sentences

Derivative instruments under this program include mortgage loan commitments, forward loan sale contracts, and forward contracts to sell certain to-be-announced (TBA) securities.

The Company's interest rate risk management policy permits the use of hedge accounting for derivatives.

The Company monetized its interest rate floors that had previously been designated and qualified as cash flow hedges.

The resulting

unrealized gain is initially recorded in accumulated other comprehensive income and reclassified into interest and fees on loans in the accompanying consolidated income statements as the underlying forecasted transactions impact earnings through the original maturity dates of the monetized interest rate floors.

The Company's interest rate risk management policy permits the use of hedge accounting for derivatives, and the Company has entered into interest rate floor contracts as protection from the potential for declining interest rates in the commercial loan portfolio.

These floors were designated and qualified as cash flow hedges.

In a cash flow hedge, the changes in fair value are recorded in accumulated other comprehensive income and recognized in the income statement when the hedged cash flows affect earnings.

Both at hedge inception and on an ongoing basis, the Company assesses whether the interest rate floors used in the hedging relationships are highly effective in offsetting changes in the cash flows of the hedged items.

From time to time, the Company has monetized its interest rate floors that had previously been designated and qualified as cash flow hedges.

In such case, the monetized cash flow hedge is derecognized and the amounts recorded in accumulated other comprehensive income (AOCI) remain in AOCI until the underlying forecasted transaction impacts earnings, unless the forecasted transaction becomes probable of not occurring.

The Company has master netting arrangements with various counterparties but does not offset derivative assets and liabilities under these arrangements in its consolidated balance sheets.

9 unchanged sentences

Such differences are adjusted over time as the assumptions are replaced by facts and values are recalculated.

Table of Conte nts

Stock-Based Compensation

14 unchanged sentences

All per share data has been restated to reflect the 5 % stock dividend distributed in December 2022.

Table of Conte nts

Loans and Allowance for Credit Losses

16 unchanged sentences

$ 16,303,131 $ 15,176,359

(1) Accrued interest receivable totaled $ 25.9 million at December 31, 2021 and was included within other assets on the consolidated balance sheet.

(1) Accrued interest receivable totaled $ 55.5 million and $ 25.9 million at December 31, 2022 and 2021, respectively, and was included within other assets on the consolidated balance sheet.

For the year ended December 31, 2022, the Company wrote-off accrued interest by reversing interest income of $ 145 thousand and $ 3.2 million in the Commercial and Personal Banking portfolios, respectively.

20 unchanged sentences

This investment includes deferred income of $ 73.2 million and $ 55.0 million at December 31, 2022 and 2021, respectively.

The net investment in operating leases amounted to $ 27.0 million and $ 13.7 million at December 31, 2021 and 2020, respectively, and is included in other assets on the Company’s consolidated balance sheets.

Table of Conte nts

Allowance for credit losses

14 unchanged sentences

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.

Table of Conte nts

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.

1 unchanged sentence

Key Assumption December 31, 2022 December 31, 2021

Overall economic forecast • Continued recovery from the Global Coronavirus Recession (GCR)

Overall economic forecast • Continued high inflation and higher cost of borrowing create a mild recession in 2023 with stalled job growth and possible job losses

• Assumes interest rates hikes will taper

• Continued recovery from the Global Coronavirus Recession (GCR)

• Assumes improving health conditions

2 unchanged sentences

• Uncertainty regarding rising inflation

• The recovery from the Global Coronavirus Recession (GCR) continues to be gradual throughout 2021 and 2022

• Assumes no additional systemic lockdown measures

• Considers government stimulus in the beginning of 2021

• Continued uncertainty regarding the health crisis

Reasonable and supportable period and related reversion period • One year for both commercial and personal banking loans

Reasonable and supportable period and related reversion period • Reasonable and supportable period of one year

• Reversion to historical average loss rates within two quarters using a straight-line method

• Two years for both commercial and personal banking loans

• Reasonable and supportable period of one year

• Reversion to historical average loss rates within two quarters using a straight-line method

Forecasted macro-economic variables • Unemployment rate ranging from 4.1% to 3.7% during the supportable forecast period

Forecasted macro-economic variables • Unemployment rate ranging from 3.8% to 4.7% during the reasonable and supportable forecast period

• Real GDP growth ranging from (.9)% to 1.3%

• Prime rate from 7.6% to 7.7%

• BBB corporate yield from 5.1% to 5.8%

• Unemployment rate ranging from 4.1% to 3.7% during the reasonable and supportable forecast period

• Real GDP growth ranges from 5.0% to 3.4%

• Prime rate of 3.25% through the second quarter of 2022, increasing to 3.5% by the end of 2022

• Unemployment rate ranging from 6.5% to 5.2% during the supportable forecast period

• Real GDP growth ranges from 3.7% to 2.2%

• Prime rate of 3.25%

Prepayment assumptions Commercial loans

8 unchanged sentences

• 64.1% for consumer credit cards

Qualitative factors Added net reserves using qualitative processes related to:

• Loans originated in our expansion markets, loans that are designated as shared national credits, and certain portfolios sensitive to pandemic economic uncertainties

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 and supply chain issues

• Loans downgraded to special mention, substandard, or non-accrual status

Added net reserves using qualitative processes related to:

• Loans originated in our expansion markets, loans that are designated as shared national credits, and certain portfolios considered to be COVID-19 impacted

• Loans originated in our expansion markets, loans that are designated as shared national credits, and certain portfolios sensitive to pandemic economic uncertainties

• Changes in the composition of the loan portfolios

4 unchanged sentences

The forecasted macro-economic environment continuously changes which can cause fluctuations in estimated expected credit losses.

The current forecast used in the model projects a continued recovery of the COVID pandemic-induced recession.

This pandemic is unprecedented and information that could be used in the estimation of the allowance for credit losses changes frequently.

Trends in health conditions, vaccine distribution, and supply constraints could significantly impact economic projections used in the estimation of the allowance for credit losses and liability for unfunded lending commitments.

The current forecast continues to reflect a mild recession in 2023 due to high inflation, higher interest rates, and a weaker job market.

The impacts of the stressed geopolitical environment, trends in health conditions, and market responses to the usually high inflation could significantly modify economic projections used in the estimation of the allowance for credit losses and liability for unfunded lending commitments.

Table of Conte nts

A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments during the years ended December 31, 2022 and 2021 follows:

6 unchanged sentences

Less recoveries on loans 447 9,732 10,179

Net loan charge-offs (recoveries) ( 4,821 ) 23,388 18,567

Net loan charge-offs 1,033 18,030 19,063

Balance December 31, 2022 $ 103,293 $ 46,843 $ 150,136

5 unchanged sentences

ALLOWANCE FOR CREDIT LOSSES ON LOANS

Balance December 31, 2019 $ 91,760 $ 68,922 $ 160,682

Adoption of ASU 2016-13 ( 29,711 ) 8,672 ( 21,039 )

Balance at December 31, 2019, adjusted 62,049 77,594 139,643

Balance at December 31, 2020 121,549 99,285 220,834

Provision for credit losses on loans ( 28,594 ) ( 23,629 ) ( 52,223 )

1 unchanged sentence

Less recoveries on loans 5,789 11,271 17,060

Net loan charge-offs 3,615 31,243 34,858

Net loan charge-offs (recoveries) ( 4,821 ) 23,388 18,567

Balance December 31, 2021

1 unchanged sentence

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

Balance December 31, 2019 $ 399 $ 676 $ 1,075

Adoption of ASU 2016-13 16,057 33 16,090

Balance at December 31, 2019, adjusted 16,456 709 17,165

Balance at December 31, 2020 37,259 1,048 38,307

Provision for credit losses on unfunded lending commitments ( 13,988 ) ( 115 ) ( 14,103 )

2 unchanged sentences

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND UNFUNDED LENDING COMMITMENTS $ 121,047 $ 53,201 $ 174,248

Allowance for loan losses

In the table below is a summary of the activity in the allowance for loan losses during 2019, calculated in accordance with the incurred loss methodology applicable to the Company prior to its adoption of CECL on January 1, 2020.

The allowance for loan losses under the incurred loss method estimated probable loan losses inherent in the portfolio as of the balance sheet date, and using this methodology, groups of similar loans were evaluated collectively for impairment and certain specific loans were evaluated for impairment individually.

The Company’s estimate of the allowance under the incurred loss method was based on various judgments and assumptions made by management and was influenced by several qualitative factors which included historical loan loss experience by loan type, loss emergence periods, trends in delinquencies, collateral valuation, current regional and national economic factors, current loan portfolio composition and characteristics, portfolio risk ratings, and levels of non-performing assets.

(In thousands) Commercial

Personal Banking

Balance at December 31, 2018

$ 92,869 $ 67,063 $ 159,932

Provision for loan losses 2,816 47,622 50,438

Loans charged off 4,711 57,169 61,880

Less recoveries 786 11,406 12,192

Net loans charged off 3,925 45,763 49,688

Balance at December 31, 2019

91,760 68,922 160,682

Table of Conte nts

Delinquent and non-accrual loans

35 unchanged sentences

$ 15,116,475 $ 39,001 $ 11,726 $ 9,157 $ 15,176,359

At December 31, 2021, the Company had $ 5.3 million of 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 year ended December 31, 2021.

At December 31, 2022 and 2021, the Company had $ 3.8 million and $ 5.3 million, respectively, of 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 years ended December 31, 2022 and 2021.

Table of Conte nts

Credit quality indicators

14 unchanged sentences

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.

Table of Conte nts

The risk category of loans in the Commercial portfolio as of December 31, 2022 and 2021 are as follows:

28 unchanged sentences

$ 3,096,706 $ 2,060,412 $ 1,219,682 $ 834,144 $ 393,625 $ 566,436 $ 2,258,796 $ 10,429,801

Table of Conte nts

Term Loans Amortized Cost Basis by Origination Year

27 unchanged sentences

$ 2,917,439 $ 1,869,035 $ 1,223,303 $ 555,494 $ 408,432 $ 593,927 $ 1,913,008 $ 9,480,638

Table of Conte nts

The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided as of December 31, 2022 and 2021 below:

23 unchanged sentences

Current to 90 days past due $ 14,737 $ — $ — $ — $ — $ — $ — $ 14,737

Over 90 days past due 220 — — — — — — 220

Total Overdrafts:

6 unchanged sentences

$ 1,087,509 $ 968,994 $ 991,093 $ 397,621 $ 170,158 $ 634,299 $ 1,623,656 $ 5,873,330

Table of Conte nts

Term Loans Amortized Cost Basis by Origination Year

33 unchanged sentences

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 December 31, 2021.

(In thousands) Business Assets Oil & Gas Assets Total

The following table presents the amortized cost basis of collateral-dependent loans as of December 31, 2022 and 2021.

December 31, 2022 December 31, 2021

(In thousands) Business Assets Oil & Gas Assets Total Business Assets Oil & Gas Assets Total

Business $ 2,778 $ 1,824 $ 4,602 $ 1,604 $ 2,459 $ 4,063

8 unchanged sentences

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 December 31, 2021 and 2020 by FICO score.

The personal real estate loans and

Table of Conte nts

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 December 31, 2022 and 2021 by FICO score.

Personal Banking Loans

31 unchanged sentences

The Company elected to extend its application of this guidance through December 31, 2021.

Table of Conte nts

The table below shows the balances of troubled debt restructurings by accrual status at December 31, 2022 and 2021.

28 unchanged sentences

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.

Table of Conte nts

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 no commitments at December 31, 2021 to lend additional funds to borrowers with restructured loans, compared to commitments of $ 10.7 million at December 31, 2020.

The Company had $ 12.6 million commitments at December 31, 2022 to lend additional funds to borrowers with restructured loans, compared to no commitments at December 31, 2021.

Loans held for sale

2 unchanged sentences

The loans are primarily sold to FNMA and FHLMC.

At December 31, 2021, the fair value of these loans was $ 5.6 million, and the unpaid principal balance was $ 5.4 million.

At December 31, 2022, there was no personal real estate loans held for sale.

The Company also designates certain student loan originations as held for sale.

25 unchanged sentences

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 year-ended December 31, 2021, 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.

During the year-ended December 31, 2022, the Company did not record any impairment or significant other adjustments to the carrying amount of its portfolio of equity securities with no readily determinable fair value.

Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, equity method investments, and investments in portfolio concerns held by the Company's private equity subsidiary.

FRB stock and FHLB stock are held for debt and regulatory purposes.

Investment in FRB stock is based on the capital structure of the investing bank, and investment in FHLB stock is tied to the level of borrowings from the FHLB.

These holdings are carried at

Investment in FRB stock is based on the capital structure of the

Table of Conte nts

investing bank, and investment in FHLB stock is tied to the level of borrowings from the FHLB.

These holdings are carried at cost.

Additionally, the Company's equity method investments are carried at cost, adjusted to reflect the Company's portion of income, loss, or dividends of the investee.

18 unchanged sentences

Government-sponsored enterprise obligations:

After 5 but within 10 years 4,987 4,531 2.94

After 10 years 50,742 38,577 2.32

27 unchanged sentences

Treasury inflation-protected securities, which totaled $ 373.8 million, at fair value, at December 31, 2022.

Interest paid on these securities increases with inflation and decreases with deflation, as measured by the Consumer Price Index.

Interest paid on these securities increases with inflation and decreases with deflation, as measured by the non-seasonally adjusted Consumer Price Index (CPI-U).

At maturity, the principal paid is the greater of an inflation-adjusted principal or the original principal.

Table of Conte nts

Allowance for credit losses on available for sale debt securities

As described in Note 1, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, on January 1, 2020.

The adoption of ASU 2016-13 had no impact to the Company's available for sale securities reported in its consolidated financial statements at January 1, 2020.

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

The Company’s model for establishing its allowance for credit losses uses cash flows projected to be received over the estimated life of the securities, discounted to present value, and compared to the current amortized cost bases of the securities.

Securities for which fair value is less than amortized cost are reviewed for impairment.

1 unchanged sentence

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 December 31, 2021, the fair value of securities on this watch list was $ 13.4 million compared to $ 31.0 million at December 31, 2020.

Significant inputs to the cash flow model used at December 31, 2021 to quantify credit losses were primarily credit support agreements, as the securities on the Company's watch list at December 31, 2021 were securities backed by government-guaranteed student loans and are expected to perform as contractually required.

As of December 31, 2021, the Company did not identify any securities for which a credit loss exists.

Certain securities are analyzed using a projected cash flow model, discounted to present value, and compared to the current amortized cost bases of the securities.

The model uses input factors such as cash flow projections, contractual payments required, expected delinquency rates, credit support from other tranches, prepayment speeds, collateral loss severity rates (including loan to values), and various other information related to the underlying collateral.

Securities not analyzed using the cash flow model are analyzed by reviewing risk ratings, credit support agreements, and industry knowledge to project future cash flows and any possible credit impairment.

At December 31, 2022, the fair value of securities on this watch list was $ 1.3 billion compared to $ 13.4 million at December 31, 2021.

The majority of the securities included on the Company's watch list were experiencing unrealized loss positions due to the significant increase in interest rates and were analyzed outside of the cash flow model.

At December 31, 2022, the securities on the Company's watch list that were not deemed to be solely related to increasing interest rates were securities backed by government-guaranteed student loans and are expected to perform as contractually required.

As of December 31, 2022, the Company did not identify any securities for which a credit loss exists, and for the years ended December 31, 2022 and 2021, the Company did not recognize a credit loss expense on any available for sale debt securities.

Table of Conte nts

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 December 31, 2022 and 2021.

1 unchanged sentence

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.

At December 31, 2022, the Company does not intend to sell the securities, nor is it anticipated that it would be required to sell any of its impaired securities at a loss.

Less than 12 months 12 months or longer Total

17 unchanged sentences

December 31, 2021

government and federal agency obligations $ 296,492 $ 2,241 $ — $ — $ 296,492 $ 2,241

Government-sponsored enterprise obligations — — 18,899 919 18,899 919

7 unchanged sentences

Total $ 8,581,829 $ 118,680 $ 465,833 $ 14,249 $ 9,047,662 $ 132,929

The entire available for sale debt securities portfolio included $ 9.0 billion of securities that were in a loss position at December 31, 2021, compared to $ 948.2 million at December 31, 2020.

The total amount of unrealized loss on these securities was $ 132.9 million at December 31, 2021, an increase of $ 126.6 million compared to the unrealized loss at December 31, 2020.

The entire available for sale debt securities portfolio included $ 12.0 billion of securities that were in a loss position at December 31, 2022, compared to $ 9.0 billion at December 31, 2021.

The total amount of unrealized loss on these securities was $ 1.5 billion at December 31, 2022, an increase of $ 1.4 billion 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.

Table of Conte nts

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 December 31, 2022 and 2021 and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI, by security type.

27 unchanged sentences

$ 14,419,133 $ 163,823 $ ( 132,929 ) $ — $ 14,450,027

Table of Conte nts

The following table presents proceeds from sales of securities and the components of investment securities gains and losses which have been recognized in earnings.

12 unchanged sentences

Losses realized on sales ( 20,273 ) ( 3,284 ) —

Other-than-temporary impairment recognized on debt securities — — ( 133 )

Equity securities:

1 unchanged sentence

Fair value adjustments, net

( 943 ) 187 37

Gains realized on sales

1 unchanged sentence

Losses realized on sales

( 3,798 ) ( 159 ) —

Fair value adjustments, net 43,833 31,704 ( 10,103 )

Total investment securities gains (losses), net $ 30,059 $ 11,032 $ 3,626

Total investment securities gains, net $ 20,506 $ 30,059 $ 11,032

At December 31, 2022, securities totaling $ 4.7 billion in fair value were pledged to secure public fund deposits, securities sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB, compared to $ 6.4 billion at December 31, 2021.

1 unchanged sentence

Except for obligations of various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeds 10 % of stockholders’ equity.

Table of Conte nts

Premises and Equipment

12 unchanged sentences

Repairs and maintenance expense of $ 17.7 million, $ 16.0 million, and $ 16.4 million for 2022, 2021 and 2020, respectively, was included in occupancy expense and equipment expense.

Interest expense capitalized on constructions projects totaled $ 29 thousand and $ 14 thousand in 2021 and 2020, respectively.

There was no interest expense capitalized on constructions projects in 2019.

Interest expense capitalized on constructions projects totaled $ 1.4 million, $ 29 thousand, and $ 14 thousand in 2022, 2021 and 2020, respectively.

Right of use leased assets are comprised mainly of operating leases for branches, office space, ATM locations, and certain equipment, as described in Note 6.

23 unchanged sentences

Total goodwill $ 138,921 $ 138,921

Table of Conte nts

Changes in the net carrying amount of goodwill and other net intangible assets for the years ended December 31, 2022 and 2021 are shown in the following table.

9 unchanged sentences

Amortization — — ( 354 ) ( 2,714 )

Impairment — — — ( 1,776 )

Impairment recovery — — — 1,799

Balance at December 31, 2021

8 unchanged sentences

Temporary impairment, including impairment recovery, is effected through a change in a valuation allowance.

At December 31, 2021, temporary impairment of $ 304 thousand had been recognized.

During 2022, impairment recovery of $ 304 thousand was recognized.

The fair value of the MSRs is based on the present value of expected future cash flows, as further discussed in Note 17 on Fair Value Measurements.

3 unchanged sentences

(In thousands)

Table of Conte nts

The Company's leasing activities include leasing certain real estate and equipment, providing lease financing to commercial customers, and leasing office space to third parties.

10 unchanged sentences

Total lease payments $ 32,234

Interest 7,003

Present value of lease liabilities $ 25,231

(1) Calculated using the interest rate for each lease.

(1) Excludes $ 2.1 million of legally binding minimum lease payments for operating leases signed but not yet commenced.

The following table presents the average lease term and discount rate of operating leases.

13 unchanged sentences

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 to expand the leased space, and currently the leases have remaining terms of 1 month to 6 years.

The leases may include options to renew or to expand the leased space, and currently the leases have remaining terms of 3 months to 16 years.

Table of Conte nts

The following table provides the components of lease income.

4 unchanged sentences

Total lease income $ 31,092 $ 30,224

(1) Includes rent from Tower Properties, a related party, of $ 76 thousand for the years ended December 31, 2021 and 2020.

(1) Includes rent from Tower Properties, a related party, of $ 76 thousand for the years ended both December 31, 2022 and 2021.

The following table presents the components of the net investments in direct financing and sales-type leases.

16 unchanged sentences

Present value of lease receipts $ 704,509

Table of Conte nts

At December 31, 2022, the scheduled maturities of certificates of deposit were as follows:

5 unchanged sentences

Due in 2027 5,910

Thereafter 82

Total $ 994,103

9 unchanged sentences

Federal funds purchased and repurchase agreements comprised the majority of the Company's short-term borrowings (borrowings with an original maturity of less than one year at December 31, 2022), and $ 2.7 billion of these borrowings were repurchase agreements, which generally have one day maturities and are mainly comprised of non-insured customer funds secured by a portion of the Company's investment portfolio.

Additional information about the securities pledged for repurchase agreements and repurchase agreement maturity are provided in Note 20 on Resale and Repurchase Agreements.

Additional information about the securities pledged for repurchase agreements and repurchase agreement maturity is provided in Note 20 on Resale and Repurchase Agreements.

The Bank is a member of the Des Moines FHLB and has access to term financing from the FHLB.

2 unchanged sentences

The FHLB also issues letters of credit to secure the Bank's obligations to certain depositors of public funds, which totaled $ 678.2 million at December 31, 2022.

Table of Conte nts

The components of income tax expense from operations for the years ended December 31, 2022, 2021 and 2020 were as follows:

26 unchanged sentences

Deferred tax assets:

Unrealized loss on available for sale debt securities $ 374,973 $ —

Loans, principally due to allowance for credit losses 43,553 $ 41,507

10 unchanged sentences

Land, buildings, and equipment 17,210 18,728

Unrealized gain on available for sale debt securities 7,724 87,933

Private equity investments 9,393 3,034

Intangible assets 7,519 7,459

Unrealized gain on available for sale debt securities — 7,724

Other 8,138 8,396

1 unchanged sentence

153,920 143,801

Net deferred tax liabilities

Net deferred tax assets (liabilities)

$ 293,980 $ ( 72,287 )

Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the total deferred tax assets, therefore, no valuation allowance is needed for the deferred tax assets at year end.

Table of Conte nts

A reconciliation between the expected federal income tax expense using the federal statutory tax rate of 21 %, and the Company's actual income tax expense for 2022, 2021, and 2020 is provided below.

10 unchanged sentences

$ 132,358 $ 145,711 $ 87,293

The gross amount of unrecognized tax benefits was $ 1.3 million at both December 31, 2021 and 2020, and the total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $ 1.0 million and $ 1.1 million at December 31, 2021 and 2020, respectively.

The gross amount of unrecognized tax benefits was $ 1.2 million and $ 1.3 million at December 31, 2022 and 2021, respectively, and the total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $ 1.0 million at both December 31, 2022 and 2021.

The activity in the accrued liability for unrecognized tax benefits for the years ended December 31, 2022 and 2021 was as follows:

29 unchanged sentences

Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to satisfy the statutory minimum required contribution as defined by the Pension Protection Act, which is intended to provide for current service accruals and for any unfunded accrued actuarial liabilities over a reasonable period.

To the extent that these requirements are fully covered by assets in the trust, a contribution might not be made in a particular year.

To the extent that these

Table of Conte nts

requirements are fully covered by assets in the trust, a contribution might not be made in a particular year.

No contributions to the defined benefit plan were made in 2022, 2021 or 2020.

8 unchanged sentences

Amortization of prior service cost ( 271 ) ( 271 ) ( 271 )

Amortization of unrecognized net loss 2,578 2,138 2,288

Amortization of unrecognized net (gain) loss 1,717 2,578 2,138

Net periodic pension cost $ 172 $ 332 $ 345

15 unchanged sentences

Actual return on plan assets

( 14,492 ) 6,913

Employer contributions

6 unchanged sentences

The pension benefit obligation decreased from the prior year primarily due to an increase in the discount rate from 2.58 % to 5.19 %, which decreased the pension benefit liability by approximately $ 23.8 million.

This decrease was partially offset by updates to lump sum payment assumptions, which increased the pension obligation by approximately $ 1.0 million, and the mortality scale.

The Company utilizes mortality tables published by the Society of Actuaries to incorporate mortality assumptions into the measurement of the pension benefit obligation.

At December 31, 2021, the Company utilized an updated mortality projection scale, which increased the pension benefit obligation on that date by approximately $ 300 thousand.

This decrease was slightly offset by updates to lump sum payment assumptions.

The accumulated benefit obligation, which represents the liability of a plan using only benefits as of the measurement date, was $ 95.8 million and $ 121.7 million for the combined plans on December 31, 2022 and 2021, respectively.

Table of Conte nts

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) at December 31, 2022 and 2021 are shown below, including amounts recognized in other comprehensive income during the periods.

1 unchanged sentence

(In thousands) 2022 2021

Prior service cost $ 723 $ 994

Accumulated loss ( 28,277 ) ( 34,482 )

Accumulated other comprehensive loss

Prior service credit (cost) $ 452 $ 723

Accumulated gain (loss) ( 23,363 ) ( 28,277 )

Accumulated other comprehensive income (loss)

( 22,911 ) ( 27,554 )

3 unchanged sentences

Net gain (loss) arising during period

3,627 ( 6,104 )

Amortization of net loss

Amortization of net (gain) loss

Amortization of prior service cost

7 unchanged sentences

Determination of benefit obligation at year end:

Effective discount rate for benefit obligations 2.58 % 2.25 % 3.07 %

Assumed credit on cash balance accounts 5.00 % 5.00 % 5.00 %

Effective discount rate on benefit obligations 5.19 % 2.58 % 2.25 %

Assumed cash balance interest crediting rate 5.00 % 5.00 % 5.00 %

Determination of net periodic benefit cost for year ended:

Effective discount rate for benefit obligations 2.25 % 3.08 % 4.13 %

Effective rate for interest on benefit obligations 1.63 % 2.69 % 3.81 %

Effective discount rate on benefit obligations 2.64 % 2.25 % 3.08 %

Effective rate for interest cost on benefit obligations 2.15 % 1.63 % 2.69 %

Long-term rate of return on assets 4.25 % 4.25 % 5.00 %

Assumed credit on cash balance accounts 5.00 % 5.00 % 5.00 %

Assumed cash balance interest crediting rate 5.00 % 5.00 % 5.00 %

Table of Conte nts

The following table shows the fair values of the Company’s pension plan assets by asset category at December 31, 2022 and 2021.

48 unchanged sentences

(d) This category represents investments in individual common stocks and equity funds.

These holdings are diversified, largely across the technology services, financial services, electronic technology, healthcare, and process industries.

These holdings are diversified, largely across the financial services, technology services, electronic technology, healthcare technology, and retail trade industries.

The investment policy of the pension plan is designed for growth in principal, within limits designed to safeguard against significant losses within the portfolio.

5 unchanged sentences

The Company regularly reviews its policies on investment mix and may make changes depending on economic conditions and perceived investment risk.

Table of Conte nts

The assumed overall expected long-term rate of return on pension plan assets used in calculating 2022 pension plan expense was 4.25 %.

2 unchanged sentences

The 10-year annualized return for the Company’s pension plan was 5.0 %.

During 2021, the plan’s assets gained 5.9 % of their value, compared to a gain of 8.9 % in 2020.

During 2022, the plan’s assets lost 12.0 % of their value, compared to a gain of 5.9 % in 2021.

Returns for any plan year may be affected by changes in the stock market and interest rates.

The Company expects to incur pension expense of $ 405 thousand in 2022, compared to $ 332 thousand in 2021.

The Company expects to incur pension expense of $ 2.5 million in 2023, compared to $ 172 thousand in 2022.

The following future benefit payments are expected to be paid:

20 unchanged sentences

The total fair value (at vest date) of shares vested during 2022, 2021 and 2020 was $ 18.8 million, $ 17.6 million and $ 18.0 million, respectively.

Table of Conte nts

Stock Appreciation Rights

9 unchanged sentences

( 2,493 ) 54.17

( 81,489 ) 38.14

Outstanding at December 31, 2022

29 unchanged sentences

Remaining shares available for issuance under this plan were 129,665 at December 31, 2022.

During February 2022, shares authorized for issuance under the plan were increased to 150,000 .

Shares authorized for issuance under the plan were increased to 150,000 shares in February 2022.

In 2022, 21,725 shares were purchased at an average price of $ 67.27 , and in 2021, 14,057 shares were purchased at an average price of $ 65.86 .

* All share and per share amounts in this note have been restated for the 5 % common stock dividend distributed in 2022.

Table of Conte nts

Accumulated Other Comprehensive Income

2 unchanged sentences

Another component is the amortization from other comprehensive income of losses associated with pension benefits, which occurs as the losses are included in current net periodic pension cost.

The remaining component is gains in fair value on certain interest rate floors that have been designated as cash flow hedges.

The interest rate floors were terminated during 2020, and the realized gains will be amortized into interest income through the original maturity dates of the interest rate floors.

Information about unrealized gains and losses on securities can be found in Note 3, and information about unrealized gains on cash flow hedge derivatives is located in Note 19.

Information about unrealized gains and losses on pension plans can be found in Note 10.

The Company adopted ASU 2016-13 (CECL) on January 1, 2020, which changed the impairment model for available for sale debt securities.

CECL requires an allowance for credit losses when the present value of the cash flows expected to be collected is less than the security's amortized cost basis and superseded the guidance related to other-than-temporary impairment (OTTI), including the requirement to separately disclose the unrealized gains and losses on securities with OTTI.

Prior to the Company's adoption of CECL, unrealized gains and losses on debt securities for which an OTTI has been recorded in current earnings were shown separately below.

As a result of adopting CECL, the table below will separately disclose unrealized gains and losses on debt securities for which an allowance for credit losses has been recorded.

During the years ended December 31, 2021 and 2020, there were no securities for which an allowance for credit losses was recorded.

Unrealized Gains (Losses) on Securities (1) Pension Loss Unrealized Gains on Cash Flow Hedge Derivatives (2) Total Accumulated Other Comprehensive Income (Loss)

(In thousands) OTTI Other

The remaining component is gains and losses in fair value on certain interest rate floors that have been designated as cash flow hedges, including interest rate floors terminated in prior years.

For those terminated floors, the realized gains are amortized into interest income through the original maturity dates of the floors.

Information about unrealized gains and losses on securities can be found in Note 3, information about unrealized gains and losses on pension plans can be found in Note 10, and information about unrealized gains and losses on cash flow hedge derivatives is located in Note 19.

(In thousands) Unrealized Gains (Losses) on Securities (1) Pension Loss Unrealized Gains (Losses) on Cash Flow Hedge Derivatives (2) Total Accumulated Other Comprehensive Income (Loss)

Balance January 1, 2022

$ 23,174 $ ( 20,668 ) $ 74,574 $ 77,080

Other comprehensive income (loss) before reclassifications — ( 324,122 ) 3,627 — ( 320,495 )

Amounts reclassified from accumulated other comprehensive income — 3,284 2,307 ( 24,160 ) ( 18,569 )

Other comprehensive income (loss) before reclassifications to current earnings ( 1,551,059 ) 3,197 ( 2,428 ) ( 1,550,290 )

Amounts reclassified to current earnings from accumulated other comprehensive income 20,273 1,446 ( 23,355 ) ( 1,636 )

Current period other comprehensive income (loss), before tax

6 unchanged sentences

Balance January 1, 2021 $ 263,801 $ ( 25,118 ) $ 92,694 $ 331,377

$ 3,264 $ 98,809 $ ( 21,940 ) $ 30,311 $ 110,444

Adoption of ASU 2016-13 ( 3,264 ) 3,264 — — —

Balance January 1, 2020, adjusted $ — $ 102,073 $ (21,940) $ 30,311 $ 110,444

Other comprehensive income (loss) before reclassifications — 236,733 ( 6,104 ) 93,497 324,126

Amounts reclassified from accumulated other comprehensive income — ( 21,096 ) 1,867 ( 10,319 ) ( 29,548 )

Other comprehensive income (loss) before reclassifications to current earnings ( 324,122 ) 3,627 — ( 320,495 )

Amounts reclassified to current earnings from accumulated other comprehensive income 3,284 2,307 ( 24,160 ) ( 18,569 )

Current period other comprehensive income (loss), before tax

11 unchanged sentences

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 segment.

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.

4 unchanged sentences

This information is based on internal management accounting procedures and methods, which have been developed to reflect the underlying economics of the businesses.

These 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 for (provided by) assets and liabilities based on their maturity, prepayment and/or repricing characteristics.

These methodologies are applied in connection with funds transfer pricing and assignment of overhead costs

Table of Conte nts

among segments.

Funds transfer pricing was used in the determination of net interest income.

A standard cost for funds used is applied to assets, and a credit for funds provided is applied to liabilities based on their maturity, prepayment and/or repricing characteristics.

Income and expense that directly relate to segment operations are recorded in the segment when incurred.

56 unchanged sentences

Included in this category’s net interest income are earnings of the investment portfolio, which are not allocated to a segment.

Table of Conte nts

Segment Balance Sheet Data

21 unchanged sentences

The information is also not necessarily indicative of the segments’ financial condition and results of operations if they were independent entities.

Table of Conte nts

Common and Preferred Stock*

37 unchanged sentences

For the year ended December 31, 2020, preferred stock dividends totaled $ 12.0 million, and included $ 5.2 million related to the preferred stock redemption, which is the excess of the redemption costs over the book value of the preferred stock.

The Company entered into an accelerated share repurchase program in 2019 for $ 150.0 million.

Final settlement of the program occurred at the end of 2019, and a total of 2,432,336 shares of common stock were received by the Company under the

Shares purchased under this program were part of the Company's stock repurchase program, as authorized by its Board of Directors.

The most recent authorization in November 2019 approved future purchases of 5,000,000 shares of the Company's common stock.

The Company maintains a treasury stock buyback program authorized by its Board of Directors.

The most recent authorization in April 2022 approved future purchases of 5,000,000 shares of the Company's common stock.

At December 31, 2022, 3,112,058 shares of common stock remained available for purchase under the current authorization.

Table of Conte nts

The table below shows activity in the outstanding shares of the Company’s common stock during the past three years.

12 unchanged sentences

* Except as noted in the above table, all share and per share amounts in this footnote have been restated for the 5% common stock dividend distributed in 2022.

Table of Conte nts

Regulatory Capital Requirements

61 unchanged sentences

At December 31, 2022 and 2021, the Company met all capital requirements to which it is subject, and the Bank’s capital position exceeded the regulatory definition of well-capitalized.

Table of Conte nts

Revenue from Contracts with Customers

23 unchanged sentences

A description of these revenue categories follows.

Table of Conte nts

Bank Card Transaction Fees

35 unchanged sentences

The expense associated with the cash rewards program is recorded net of the corporate card fees earned.

Table of Conte nts

Merchant Fees

35 unchanged sentences

Total deposit account charges and other fees $ 94,381 $ 97,217 $ 93,227

Approximately half of this revenue is reported in the Consumer segment, while the remainder is reported in the Commercial segment.

Approximately 60 % of this revenue is reported in the Commercial segment, while the remainder is reported in the Consumer segment.

The Company provides corporate cash management services to its business and non-profit customers to meet their various transaction processing needs.

2 unchanged sentences

The customer is usually billed either monthly or

Table of Conte nts

quarterly, however, some customers may be billed semi-annually or annually.

5 unchanged sentences

The Company’s performance obligation for overdraft transactions is based on the daily transaction processed and the obligation is satisfied as each day’s transaction processing is concluded.

In September 2022, as discussed in the Non-Interest Income section of Item 7, the Company implemented enhancements to consumer checking accounts that eliminated return item fees and are expected to lower future overdraft fees for customers.

Other deposit fees include numerous smaller fees such as monthly statement fees, foreign ATM processing fees, identification restoration fees, and stop payment fees.

26 unchanged sentences

Fees from these revenue sources are recognized when the performance obligation is completed, at which time cash is received by the Company.

Table of Conte nts

Fair Value Measurements

16 unchanged sentences

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

Table of Conte nts

Instruments Measured at Fair Value on a Recurring Basis

46 unchanged sentences

*The fair value of each class of derivative is shown in Note 19.

Table of Conte nts

Valuation methods for instruments measured at fair value on a recurring basis

16 unchanged sentences

The prices provided by the third-party pricing service are based on observable market inputs, as described in the sections below.

On a quarterly basis, the Company compares a sample of these prices to other independent sources for the same and similar securities.

On a quarterly basis, the Company compares these prices to other independent sources for the same and similar securities.

Variances are analyzed, and, if appropriate, additional research is conducted with the third-party pricing service.

19 unchanged sentences

The appropriate tranche spread is applied to the corresponding benchmark, and the resulting value is used to discount the cash flows to generate an evaluated price.

Table of Conte nts

Valuation of agency pass-through securities, typically issued under GNMA, FNMA, FHLMC, and SBA programs, are primarily derived from information from the to-be-announced (TBA) market.

19 unchanged sentences

These fair value measurements, which are discussed in the Level 3 Inputs section of this note, are classified as Level 3.

The Company’s derivative instruments include interest rate swaps, foreign exchange forward contracts, and certain credit risk guarantee agreements.

The Company’s derivative instruments include interest rate swaps and floors , foreign exchange forward contracts, and certain credit risk guarantee agreements.

When appropriate, the impact of credit standing as well as any potential credit enhancements, such as collateral, has been considered in the fair value measurement.

6 unchanged sentences

The Company's clearing counterparty characterizes a component of this collateral, known as variation margin, as a legal settlement of the derivative contract exposure, and as a result, the variation margin is considered in determining the fair value of the derivative.

The fair value measurements of interest rate swaps are classified as Level 2 due to the observable nature of the significant inputs utilized.

Valuations for interest rate floors are also derived from a proprietary model whose significant inputs are readily observable market parameters, primarily yield curves and volatility surfaces.

The model uses market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fall below the strike rates of the floors.

The model also incorporates credit valuation adjustments of both the Company's and the

Table of Conte nts

counterparties' non-performance risk.

The credit valuation adjustment component is not significant compared to the overall fair value of the floors.

The fair value measurements of interest rate swaps and floors are classified as Level 2 due to the observable nature of the significant inputs utilized.

• Fair value measurements for foreign exchange contracts are derived from a model whose primary inputs are quotations from global market makers and are classified as Level 2.

13 unchanged sentences

The Company has also recorded a corresponding liability, representing the Company’s liability to the plan participants.

Table of Conte nts

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

9 unchanged sentences

Included in other comprehensive income * ( 148 ) — — ( 148 )

Investment securities called

( 6,000 ) — — ( 6,000 )

Discount accretion

4 unchanged sentences

Capitalized interest/dividends

— 1,768 — 1,768

Purchase of risk participation agreement

18 unchanged sentences

Capitalized interest/dividends — 1,768 — 1,768

Purchase of risk participation agreement — — 685 685

Sale of risk participation agreement — — ( 205 ) ( 205 )

5 unchanged sentences

$ 11 $ — $ — $ 11

* Included in "net unrealized gains (losses) on securities" in the consolidated statements of comprehensive income.

Table of Conte nts

Gains and losses on the Level 3 assets and liabilities in the table above are reported in the following income categories:

12 unchanged sentences

ARS are included in state and municipal securities and totaled $ 1.8 million at December 31, 2022, while private equity investments, included in other securities, totaled $ 178.1 million.

Information about these inputs is presented in the table and discussions below.

At December 31, 2022, there were no mortgage loan commitments outstanding.

For the the Company's significant Level 3 measurements at December 31, 2022, information about the significant unobservable inputs is presented in the table and discussions below.

Quantitative Information about Level 3 Fair Value Measurements Weighted

3 unchanged sentences

Private equity investments Market comparable companies EBITDA multiple 4.0 - 6.5 5.4

Mortgage loan commitments Discounted cash flow Probability of funding 69.1 % - 100.0 % 85.9 %

Embedded servicing value 0.6 % - 1.1 % 1.0 %

* Unobservable inputs were weighted by the relative fair value of the instruments.

16 unchanged sentences

On a quarterly basis, these fair value analyses are reviewed by a valuation committee consisting of investment managers and senior Company management.

The significant unobservable inputs used in the fair value measurement of the Company’s derivative commitments to originate residential mortgage loans are the percentage of commitments that are actually funded and the mortgage servicing value that is inherent in the underlying loan value.

Table of Conte nts

value that is inherent in the underlying loan value.

A significant increase in the rate of loans that fund would result in a larger derivative asset or liability.

42 unchanged sentences

Nonrecurring adjustments also include certain impairment amounts for collateral dependent loans when establishing the allowance for credit losses on loans.

Such amounts are generally based on the fair value of the underlying collateral supporting the loan.

Such amounts are generally based on the fair value of the underlying collateral supporting

Table of Conte nts

In determining the value of real estate collateral, the Company relies on external and internal appraisals of property values depending on the size and complexity of the real estate collateral.

18 unchanged sentences

Unobservable inputs to these measurements, which include estimates and judgments often used in conjunction with appraisals, are not readily quantifiable.

Table of Conte nts

Fair Value of Financial Instruments

40 unchanged sentences

Total $ 29,110,845 $ 25,371,053 $ 63,696 $ 3,667,203 $ 29,101,952

Table of Conte nts

Carrying Amount Estimated Fair Value at December 31, 2021

15 unchanged sentences

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

10 unchanged sentences

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

1 unchanged sentence

Total $ 32,882,449 $ 28,435,638 $ 24,338 $ 4,418,873 $ 32,878,849

Table of Conte nts

Derivative Instruments

4 unchanged sentences

Interest rate swaps $ 1,981,821 $ 2,229,419

Interest rate floors 1,000,000 —

Interest rate caps 152,784 152,058

13 unchanged sentences

The Company maintains debt ratings and capital well above those minimum requirements.

As of December 31, 2022, the Company holds two interest rate floors with a combined notional value of $ 1.0 billion to hedge the risk of declining interest rates on certain floating rate commercial loans.

The first floor has a purchased strike rate of 2.50%, is forward-starting beginning on January 1, 2024 and matures on January 1, 2030.

In the event that the index rate falls below zero, the maximum rate spread the Company can earn on the notional amount is limited to 2.50%.

The second floor has a purchased strike rate of 3.00%, is forward-starting beginning on April 1, 2024 and matures on April 1, 2030.

In the event that the index rate on the second floor falls below zero, the maximum rate the Company can earn on the notional amount of the second floor is limited to 3.00%.

The premium paid for these floors totaled $ 35.8 million.

As of December 31, 2022, the maximum length of time over which the Company is hedging its exposure to lower rates is approximately 6 years.

These interest rate floors qualified and were designated as cash flow hedges and were assessed for effectiveness using regression analysis.

The change in the fair value of these interest rate floors is recorded in AOCI, net of the amortization of the premiums paid, which are recorded against interest and fees on loans in the consolidated statements of income.

As of December 31, 2022, net deferred gains on the interest rate floors totaled $ 2.4 million (pre-tax) and were recorded in AOCI in the consolidated balance sheet.

As of December 31, 2022, it is expected that $ 4.9 million (pre-tax) interest rate floor premium amortization will be reclassified from AOCI into earnings over the next 12 months.

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.

2 unchanged sentences

The estimated amount of net gains related to the cash flow hedges remaining in AOCI at December 31, 2022 that is expected to be reclassified into income within the next 12 months is $ 23.6 million.

Table of Conte nts

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.

5 unchanged sentences

These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date.

In late 2022, the Company temporarily paused sales of these loans and halted entering into the forward contracts, as lower demand for mortgage loans coupled with volatility in the TBA market made it difficult to effectively hedge the Company's mortgage loan production .

The fair values of the Company’s derivative instruments, whose notional amounts are listed above, are shown in the table below.

5 unchanged sentences

(In thousands )

Derivatives designated as hedging instruments:

Interest rate floors $ 33,371 $ — $ — $ —

Total derivatives designated as hedging instruments $ 33,371 $ — $ — $ —

Derivatives not designated as hedging instruments:

9 unchanged sentences

* Certain collateral was posted to and from the Company's clearing party and has been applied to the fair values of the cleared swaps.

As a result, these values are net of variation margin of $ 587 thousand and $ 0 for interest rate swaps in an asset position, and $ 29.7 million and $ 69.2 million for interest rate swaps in a liability position, at December 31, 2021 and 2020, respectively.

The pre-tax effects of derivative instruments on the consolidated statements of comprehensive income and consolidated statements of income are shown in the table below.

As a result, these values are net of variation margin of $ 27.8 million and $ 587 thousand for interest rate swaps in an asset position, and $ — million and $ 29.7 million for interest rate swaps in a liability position, at December 31, 2022 and 2021, respectively.

Table of Conte nts

The Company made an election to exclude the initial premiums paid on the interest rate floors from the hedge effectiveness measurement.

Those initial premiums are amortized over the periods between the premium payment month and the contract maturity month.

The pre-tax effects of the gains and losses (both the included and excluded amounts for hedge effectiveness assessment) recognized in the other comprehensive income from the cash flow hedging instruments and the amounts reclassified from accumulated other comprehensive income into income (both included and excluded amounts for hedge effectiveness measurement) are shown in the table below.

Amount of Gain or (Loss) Recognized in OCI

27 unchanged sentences

Total $ 3,704 $ 2,394 $ 1,963

Table of Conte nts

The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the consolidated balance sheets.

26 unchanged sentences

Total derivatives $ 12,101 $ — $ 12,101

Table of Conte nts

Resale and Repurchase Agreements

23 unchanged sentences

Total repurchase agreements, subject to master netting arrangements 3,379,582 ( 400,000 ) 2,979,582 — ( 2,979,582 ) —

Table of Conte nts

The table below shows the remaining contractual maturities of repurchase agreements outstanding at December 31, 2022 and 2021, in addition to the various types of marketable securities that have been pledged by the Company as collateral for these borrowings.

17 unchanged sentences

Total repurchase agreements, gross amount recognized $ 2,932,792 $ 37,281 $ 409,509 $ 3,379,582

Table of Conte nts

Commitments, Contingencies and Guarantees

5 unchanged sentences

Credit card $ 5,190,942 $ 5,007,409

Other 8,319,715 8,033,222

Other unfunded loan commitments 9,102,525 8,319,715

Standby letters of credit, net of conveyance to other financial institutions 555,858 418,328

13 unchanged sentences

This amount will be accreted into income over the remaining life of the respective commitments.

Commitments outstanding under these letters of credit, which represent the maximum potential future payments guaranteed by the Company, were $ 418.3 million at December 31, 2021.

Excluding amounts conveyed to others, commitments outstanding under these letters of credit were $ 614.5 million, which represents the maximum potential future payments guaranteed by the Company at December 31, 2022.

Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer.

14 unchanged sentences

At December 31, 2022, the fair value of the Company's guarantee liability RPAs was $ 119 thousand, and the notional

Table of Conte nts

amount of the underlying swaps was $ 421.0 million.

35 unchanged sentences

See Note 2 Loans and Allowance for Credit Losses for additional information for loans to directors and executive officers of the Company and the Bank, and to their affiliates.

As discussed in Note 21 on Commitments, Contingencies and Guarantees, the Company regularly purchases various state tax credits arising from third-party property redevelopment and resells the credits to third parties.

During 2021, the Company

sold state tax credits to its Executive Chairman, its former Vice Chairman, and its Chief Executive Officer in the amount of $ 772 thousand, $ 619 thousand, and $ 291 thousand, respectively, for personal tax planning.

During 2020, the Company sold state tax credits to its Executive Chairman, its former Vice Chairman, and its Chief Executive Officer in the amount of $ 603 thousand, $ 551 thousand, $ 223 thousand, respectively.

During 2019, the Company sold state tax credits to its Executive Chairman, its former Vice Chairman, its Chief Executive Officer, and its former Chief Credit Officer in the amount of $ 865 thousand, $ 663 thousand, $ 166 thousand, and $ 83 thousand, respectively.

The terms of the sales and the amounts paid were the same as the terms and amounts paid for similar tax credits by persons not related to the Company.

Table of Conte nts

Parent Company Condensed Financial Statements

36 unchanged sentences

Investment securities gains

( 872 ) 79 53

Net interest income on advances and note to subsidiaries

13 unchanged sentences

$ 488,399 $ 530,765 $ 354,057

Table of Conte nts

Condensed Statements of Cash Flows

11 unchanged sentences

(Increase) decrease in investment in subsidiaries, net

Proceeds from sales of investment securities

Proceeds from maturities/pay downs of investment securities

22 1,410 1,150

Purchases of investment securities

( 4,534 ) ( 4,786 ) ( 4,863 )

Increase in advances to subsidiaries, net

(Increase) decrease in advances to subsidiaries, net

19,996 ( 8,618 ) ( 5,810 )

1 unchanged sentence

( 741 ) ( 28 ) ( 94 )

Net cash used in investing activities

Net cash provided by (used in) investing activities

14,750 ( 13,404 ) ( 9,354 )

4 unchanged sentences

( 186,622 ) ( 129,361 ) ( 54,163 )

Accelerated share repurchase agreements

— — ( 150,000 )

Issuance of stock under equity compensation plans

18 unchanged sentences

The Parent makes cash advances to its private equity subsidiary for general short-term cash flow purposes.

Advances may be made to the Parent by its subsidiary bank holding company for temporary investment of idle funds.

Advances may be made to the Parent by its subsidiary bank for temporary investment of idle funds.

Interest on such advances is based on market rates.

In 2017, the Bank borrowed $ 50.0 million from the Parent as part of its strategy to manage FDIC insurance premiums.

The Bank has $ 50.0 million of borrowings from the Parent as part of its strategy to manage FDIC insurance premiums.

The note has a rolling 13 month maturity, and the interest rate is a variable rate equal to the one year treasury rate.

1 unchanged sentence

The Parent has not borrowed under this line during the past three years.

At December 31, 2021, the fair value of the investment securities held by the Parent consisted of investments of $ 4.8 million in corporate bonds and $ 6.9 million in preferred and common stock with readily determinable fair values, and $ 1.1 million in equity securities that do not have readily determinable fair values.

At December 31, 2022, the fair value of the investment securities held by the Parent consisted of investments of $ 5.2 million in corporate bonds, $ 6.0 million in preferred and common stock with readily determinable fair values, and $ 5.1 million in equity securities that do not have readily determinable fair values.

Table of Conte nts

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data