COMMERCE BANCSHARES INC /MO/ 10-Q

Item 1. FINANCIAL STATEMENTS Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS March 31, 2023 December 31, 2022 (Unaudited) (In thousands) ASSETS Loans $ 16,535,522 $ 16,303,131 Allowance for credit losses on loans ( 159,317 ) ( 150,136 ) Net loans 16,376,205 16,152,995 Loans held for sale (including $ 684,000 and $ — of residential mortgage loans carried at fair value at March 31, 2023 and December 31, 2022, respectively) 6,162 4,964 Investment securities: Available for sale debt, at fair value (amortized cost of $ 12,538,550,000 and $ 13,738,206,000 at March 31, 2023 and December 31, 2022, respectively, and allowance for credit losses of $ — at both March 31, 2023 and December 31, 2022) 11,228,616 12,238,316 Trading debt 41,584 43,523 Equity 12,528 12,304 Other 268,417 225,034 Total investment securities 11,551,145 12,519,177 Federal funds sold 27,060 49,505 Securities purchased under agreements to resell 825,000 825,000 Interest earning deposits with banks 1,341,854 389,140 Cash and due from banks 351,210 452,496 Premises and equipment – net 428,169 418,909 Goodwill 138,921 138,921 Other intangible assets – net 14,918 15,234 Other assets 944,212 909,590 Total assets $ 32,004,856 $ 31,875,931 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 8,685,234 $ 10,066,356 Savings, interest checking and money market 14,419,741 15,126,981 Certificates of deposit of less than $100,000 468,667 387,336 Certificates of deposit of $100,000 and over 1,109,818 606,767 Total deposits 24,683,460 26,187,440 Federal funds purchased and securities sold under agreements to repurchase 2,784,559 2,841,734 Other borrowings 1,507,776 9,672 Other liabilities 346,649 355,508 Total liabilities 29,322,444 29,394,354 Commerce Bancshares, Inc. stockholders’ equity: Common stock, $ 5 par value Authorized 140,000,000 ; issued 125,863,879 shares at March 31, 2023 and December 31, 2022 629,319 629,319 Capital surplus 2,919,060 2,932,959 Retained earnings 117,313 31,620 Treasury stock of 883,736 shares at March 31, 2023 and 605,142 shares at December 31, 2022, at cost ( 59,670 ) ( 41,743 ) Accumulated other comprehensive income (loss) ( 940,498 ) ( 1,086,864 ) Total Commerce Bancshares, Inc. stockholders' equity 2,665,524 2,465,291 Non-controlling interest 16,888 16,286 Total equity 2,682,412 2,481,577 Total liabilities and equity $ 32,004,856 $ 31,875,931 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 March 31 (In thousands, except per share data) 2023 2022 (Unaudited) INTEREST INCOME Interest and fees on loans $ 223,816 $ 132,075 Interest and fees on loans held for sale 145 150 Interest on investment securities 71,119 73,105 Interest on federal funds sold 489 1 Interest on securities purchased under agreements to resell 3,952 5,300 Interest on deposits with banks 9,336 1,151 Total interest income 308,857 211,782 INTEREST EXPENSE Interest on deposits: Savings, interest checking and money market 20,151 1,760 Certificates of deposit of less than $100,000 1,425 139 Certificates of deposit of $100,000 and over 6,627 427 Interest on federal funds purchased 5,586 7 Interest on securities sold under agreements to repurchase 17,495 682 Interest on other borrowings 5,950 ( 19 ) Total interest expense 57,234 2,996 Net interest income 251,623 208,786 Provision for credit losses 11,456 ( 9,858 ) Net interest income after credit losses 240,167 218,644 NON-INTEREST INCOME Trust fees 45,328 47,811 Bank card transaction fees 46,654 42,045 Deposit account charges and other fees 21,752 22,307 Consumer brokerage services 5,085 4,446 Capital market fees 3,362 4,125 Loan fees and sales 2,589 4,235 Other 12,842 6,800 Total non-interest income 137,612 131,769 INVESTMENT SECURITIES GAINS (LOSSES), NET ( 306 ) 7,163 NON-INTEREST EXPENSE Salaries and employee benefits 144,373 135,953 Data processing and software 28,154 27,016 Net occupancy 12,759 12,296 Equipment 4,850 4,568 Supplies and communication 4,590 4,713 Marketing 5,471 6,344 Other 23,910 14,758 Total non-interest expense 224,107 205,648 Income before income taxes 153,366 151,928 Less income taxes 32,813 31,902 Net income 120,553 120,026 Less non-controlling interest expense (income) 1,101 1,872 Net income attributable to Commerce Bancshares, Inc. $ 119,452 $ 118,154 Net income per common share — basic $ .95 $ .92 Net income per common share — diluted $ .95 $ .92 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 March 31 (In thousands) 2023 2022 (Unaudited) Net income $ 120,553 $ 120,026 Other comprehensive income (loss): Net unrealized gains (losses) on available for sale debt securities 142,466 ( 507,265 ) Change in pension loss 270 323 Unrealized gains (losses) on cash flow hedge derivatives 3,630 ( 4,538 ) Other comprehensive income (loss) 146,366 ( 511,480 ) Comprehensive income (loss) 266,919 ( 391,454 ) Less non-controlling interest (income) expense 1,101 1,872 Comprehensive income (loss) attributable to Commerce Bancshares, Inc. $ 265,818 $ ( 393,326 ) 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 March 31, 2023 and 2022 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, 2022 $ 629,319 $ 2,932,959 $ 31,620 $ ( 41,743 ) $ ( 1,086,864 ) $ 16,286 $ 2,481,577 Net income 119,452 1,101 120,553 Other comprehensive income (loss) 146,366 146,366 Distributions to non-controlling interest ( 453 ) ( 453 ) Purchases of treasury stock ( 36,245 ) ( 36,245 ) Sale of non-controlling interest of subsidiary 46 ( 46 ) — Issuance under stock purchase and equity compensation plans ( 18,318 ) 18,318 — Stock-based compensation 4,373 4,373 Cash dividends paid on common stock ($ .270 per share) ( 33,759 ) ( 33,759 ) Balance March 31, 2023 $ 629,319 $ 2,919,060 $ 117,313 $ ( 59,670 ) $ ( 940,498 ) $ 16,888 $ 2,682,412 Balance December 31, 2021 $ 610,804 $ 2,689,894 $ 92,493 $ ( 32,973 ) $ 77,080 $ 11,026 $ 3,448,324 Net income 118,154 1,872 120,026 Other comprehensive income (loss) ( 511,480 ) ( 511,480 ) Distributions to non-controlling interest ( 136 ) ( 136 ) Purchases of treasury stock ( 55,855 ) ( 55,855 ) Issuance under stock purchase and equity compensation plans ( 16,087 ) 16,535 448 Stock-based compensation 4,218 4,218 Cash dividends paid on common stock ($ .252 per share) ( 32,143 ) ( 32,143 ) Balance March 31, 2022 $ 610,804 $ 2,678,025 $ 178,504 $ ( 72,293 ) $ ( 434,400 ) $ 12,762 $ 2,973,402 See accompanying notes to consolidated financial statements. 6 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31 (In thousands) 2023 2022 (Unaudited) OPERATING ACTIVITIES: Net income $ 120,553 $ 120,026 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 11,456 ( 9,858 ) Provision for depreciation and amortization 11,565 11,811 Amortization of investment security premiums, net 7,654 4,932 Investment securities (gains) losses, net (A) 306 ( 7,163 ) Net (gains) losses on sales of loans held for sale ( 137 ) ( 1,302 ) Originations of loans held for sale ( 9,931 ) ( 57,580 ) Proceeds from sales of loans held for sale 8,850 57,789 Net (increase) decrease in trading debt securities, excluding unsettled transactions 11,548 9,798 Purchase of interest rate floor ( 25,900 ) — Stock-based compensation 4,373 4,218 (Increase) decrease in interest receivable ( 1,005 ) ( 7,972 ) Increase (decrease) in interest payable 10,025 273 Increase (decrease) in income taxes payable 26,970 28,657 Other changes, net ( 60,270 ) ( 29,115 ) Net cash provided by operating activities 116,057 124,514 INVESTING ACTIVITIES: Distributions received from equity-method investment 1,434 400 Proceeds from sales of investment securities (A) 840,435 1,745 Proceeds from maturities/pay downs of investment securities (A) 474,220 805,355 Purchases of investment securities (A) ( 168,584 ) ( 1,812,434 ) Net (increase) decrease in loans ( 239,230 ) ( 287,328 ) Securities purchased under agreements to resell — ( 200,000 ) Purchases of premises and equipment ( 20,044 ) ( 15,597 ) Sales of premises and equipment 6 175 Net cash provided by (used in) investing activities 888,237 ( 1,507,684 ) FINANCING ACTIVITIES: Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits ( 2,137,278 ) ( 208,358 ) Net increase (decrease) in certificates of deposit 584,382 ( 303,277 ) Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase ( 57,175 ) ( 705,506 ) Net increase (decrease) in other borrowings 1,498,104 ( 3,503 ) Purchases of treasury stock ( 36,245 ) ( 55,855 ) Issuance of stock under equity compensation plans — 448 Cash dividends paid on common stock ( 33,759 ) ( 32,143 ) Net cash used in financing activities ( 181,971 ) ( 1,308,194 ) Increase (decrease) in cash, cash equivalents and restricted cash 822,323 ( 2,691,364 ) Cash, cash equivalents and restricted cash at beginning of year 897,801 4,296,954 Cash, cash equivalents and restricted cash at March 31 $ 1,720,124 $ 1,605,590 Income tax payments, net $ 3,857 $ 1,640 Interest paid on deposits and borrowings $ 47,209 $ 2,723 Loans transferred to foreclosed real estate $ 72 $ 25 (A) Available for sale debt securities, equity securities, and other securities. See accompanying notes to consolidated financial statements. Restricted cash is comprised of cash collateral posted by the Company to secure interest rate swap agreements. This balance is included in other assets in the consolidated balance sheets and totaled $ 18.2 million at March 31, 2022. The Company had no restricted cash at March 31, 2023. 7 Table of Contents Commerce Bancshares, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2023 (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 2022 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 three months ended March 31, 2023 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. The Company adopted ASU 2022-02 Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, using the prospective transition method. This ASU eliminates the troubled debt restructuring recognition and measurement guidance and requires an entity to present gross write-offs by year of origination. The amendments also enhance disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. With the exception of enhanced disclosures, there was no material impact to the consolidated financial statements from adoption of this ASU. As of the Company's adoption date, all restructurings are evaluated to determine whether they are modifications to a borrower experiencing financial difficulty. Loans that were accounted for under the troubled debt restructuring method as of December 31, 2022 will continue to be accounted for under that method until they are paid off or modified. The following significant accounting policies have been updated since the Company's 2022 Annual Report on Form 10-K to reflect the adoption of ASU 2022-02. Troubled Debt Restructurings Prior to the Company's adoption of ASU 2022-02, a loan was accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower's financial difficulties, granted a concession to the borrower that it would not otherwise consider. A troubled debt restructuring typically involves (1) modification of terms such as a reduction of the stated interest rate, loan principal, or accrued interest, (2) a loan renewal at a stated interest rate lower than the current market rate for a new loan with similar risk, or (3) debt that was not reaffirmed in bankruptcy. Business, business real estate, construction and land real estate and personal real estate troubled debt restructurings with impairment charges are placed on non-accrual status. The Company measures the impairment loss of a troubled debt restructuring at the time of modification based on the present value of expected future cash flows. Subsequent to modification, troubled debt restructurings are subject to the Company’s allowance for credit loss model, which is discussed below and in Note 2, Loans and Allowance for Credit Losses. Troubled debt restructurings that are performing under their contractual terms continue to accrue interest, which is recognized in current earnings. Loans that were accounted as troubled debt restructurings at of December 31, 2022 will continue to be accounted for under that method until they are either paid off or modified. Modifications for Borrowers Experiencing Financial Difficulty The Company may renegotiate the terms of existing loans for a variety of reasons. When refinancing or restructuring a loan, the Company evaluates where the borrower is experiencing financial difficulty. In making this determination, the Company considers whether the borrower is currently in default on any of its debt. In addition, the Company evaluates whether it is probable that the borrower would be in payment default on any of its debt in the foreseeable future without the modification and if the borrower (without the current modification) could obtain equivalent financing from another creditor at a market rate for 8 Table of Contents similar debt. Modifications of loans to borrowers in these situations may indicate that the borrower is facing financial difficulty. Modifications of loans to borrowers experiencing financial difficulty that are in the form of principal forgiveness, interest rate reductions, other-than-insignificant payment delays, or a term extension (or a combination thereof) require disclosure. The Company's disclosures are included in Note 2, Loans and Allowance for Credit Losses. 2. Loans and Allowance for Credit Losses Major classifications within the Company’s held for investment loan portfolio at March 31, 2023 and December 31, 2022 are as follows: (In thousands) March 31, 2023 December 31, 2022 Commercial: Business $ 5,704,467 $ 5,661,725 Real estate – construction and land 1,437,419 1,361,095 Real estate – business 3,486,543 3,406,981 Personal Banking: Real estate – personal 2,952,042 2,918,078 Consumer 2,094,389 2,059,088 Revolving home equity 295,478 297,207 Consumer credit card 558,669 584,000 Overdrafts 6,515 14,957 Total loans $ 16,535,522 $ 16,303,131 Accrued interest receivable totaled $ 61.9 million and $ 55.5 million at March 31, 2023 and December 31, 2022, respectively, and was included within other assets on the consolidated balance sheets. For the three months ended March 31, 2023, the Company wrote-off accrued interest by reversing interest income of $ 34 thousand and $ 1.1 million in the Commercial and Personal Banking portfolios, respectively. Similarly, for the three months ended March 31, 2022, the Company wrote-off accrued interest of $ 29 thousand and $ 899 thousand in the Commercial and Personal Banking portfolios, respectively. At March 31, 2023, loans of $ 3.3 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. 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 9 Table of Contents 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. 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 March 31, 2023 and December 31, 2022 are discussed below. Key Assumption March 31, 2023 December 31, 2022 Overall economic forecast • Mild recession to start 3rd quarter of 2023 • Assume the Federal Reserve will continue raising interest rates • Mild recession is expected to weaken employment • 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 Reasonable and supportable period and related reversion period • Reasonable and supportable period of one year • Reversion to historical average loss within 2 quarters using straight-line method • Reasonable and supportable period of one year • Reversion to historical average loss within 2 quarters using straight-line method Forecasted macro-economic variables • Unemployment rate ranges from 3.7% to 5.3% during the supportable forecast period • Real GDP growth ranges from (.5)% to 2.0% • BBB corporate yield from 5.3% to 5.8% • House Price Index from 280.2 to 282.0 • Unemployment rate ranges from 3.8% to 4.7% during the supportable forecast period • Real GDP growth ranging from (.9)% to 1.3% • BBB corporate yield from 5.1% to 5.8% • House Price Index from 280.9 to 284.6 Prepayment assumptions Commercial loans • 5% for most loan pools Personal banking loans • Ranging from 6.45% to 22.4% for most loan pools • Consumer credit cards 67.5% Commercial loans • 5% for most loan pools Personal banking loans • Ranging from 8.3% to 24.8% for most loan pools • Consumer credit cards 67.9% Qualitative factors Added qualitative factors related to: • Changes in the composition of the loan portfolios • Certain portfolios sensitive to pandemic economic uncertainties • Certain portfolios sensitive to unusually high rate of inflation and supply chain issues • Loans downgraded to special mention, substandard, or non-accrual status Added qualitative factors related to: • Changes in the composition of the loan portfolios • Certain portfolios sensitive to pandemic economic uncertainties • Certain portfolios sensitive to unusually high rate of inflation 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 mild recession to start in the third quarter of 2023 as the economy continues to face high inflation, higher interest rates and a weaker job market. The impacts of the market's response to unusual events or trends including high inflation, supply chain stresses, trends in health conditions and changes in the geopolitical environment could significantly modify economic projections used in the estimation of the ACL. 10 Table of Contents A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments during the three months ended March 31, 2023 and 2022, respectively, follows: For the Three Months Ended March 31, 2023 (In thousands) Commercial Personal Banking Total ALLOWANCE FOR CREDIT LOSSES ON LOANS Balance at beginning of period $ 103,293 $ 46,843 $ 150,136 Provision for credit losses on loans 5,548 10,400 15,948 Deductions: Loans charged off 292 8,756 9,048 Less recoveries on loans 66 2,215 2,281 Net loan charge-offs (recoveries) 226 6,541 6,767 Balance March 31, 2023 $ 108,615 $ 50,702 $ 159,317 LIABILITY FOR UNFUNDED LENDING COMMITMENTS Balance at beginning of period $ 31,743 $ 1,377 $ 33,120 Provision for credit losses on unfunded lending commitments ( 4,638 ) 146 ( 4,492 ) Balance March 31, 2023 $ 27,105 $ 1,523 $ 28,628 ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 135,720 $ 52,225 $ 187,945 For the Three Months Ended March 31, 2022 (In thousands) Commercial Personal Banking Total ALLOWANCE FOR CREDIT LOSSES ON LOANS Balance at beginning of period $ 97,776 $ 52,268 $ 150,044 Provision for credit losses on loans ( 2,879 ) ( 7,807 ) ( 10,686 ) Deductions: Loans charged off 177 7,285 7,462 Less recoveries on loans 107 2,707 2,814 Net loan charge-offs (recoveries) 70 4,578 4,648 Balance March 31, 2022 $ 94,827 $ 39,883 $ 134,710 LIABILITY FOR UNFUNDED LENDING COMMITMENTS Balance at beginning of period $ 23,271 $ 933 $ 24,204 Provision for credit losses on unfunded lending commitments 509 319 828 Balance March 31, 2022 $ 23,780 $ 1,252 $ 25,032 ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 118,607 $ 41,135 $ 159,742 11 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 March 31, 2023 and December 31, 2022. (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 March 31, 2023 Commercial: Business $ 5,692,966 $ 4,644 $ 496 $ 6,361 $ 5,704,467 Real estate – construction and land 1,432,344 4,646 429 — 1,437,419 Real estate – business 3,483,425 2,947 — 171 3,486,543 Personal Banking: Real estate – personal 2,937,474 8,375 4,924 1,269 2,952,042 Consumer 2,067,340 25,134 1,915 — 2,094,389 Revolving home equity 293,783 846 849 — 295,478 Consumer credit card 547,228 5,254 6,187 — 558,669 Overdrafts 6,189 326 — — 6,515 Total $ 16,460,749 $ 52,172 $ 14,800 $ 7,801 $ 16,535,522 December 31, 2022 Commercial: Business $ 5,652,710 $ 1,759 $ 505 $ 6,751 $ 5,661,725 Real estate – construction and land 1,361,095 — — — 1,361,095 Real estate – business 3,406,207 585 — 189 3,406,981 Personal Banking: Real estate – personal 2,895,742 14,289 6,681 1,366 2,918,078 Consumer 2,031,827 25,089 2,172 — 2,059,088 Revolving home equity 295,303 1,201 703 — 297,207 Consumer credit card 572,213 6,238 5,549 — 584,000 Overdrafts 14,090 647 220 — 14,957 Total $ 16,229,187 $ 49,808 $ 15,830 $ 8,306 $ 16,303,131 At March 31, 2023, the Company had $ 3.5 million in non-accrual business loans that had no allowance for credit loss, compared to $ 3.8 million in non-accrual business loans that had no allowance for credit loss at December 31, 2022. The Company did not record any interest income on non-accrual loans during the three months ended March 31, 2023 and 2022, 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 12 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 March 31, 2023 and December 31, 2022 are as follows: Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total March 31, 2023 Business Risk Rating: Pass $ 526,988 $ 1,268,330 $ 716,669 $ 374,953 $ 334,438 $ 369,983 $ 2,008,711 $ 5,600,072 Special mention 14,056 1,606 4,460 7,330 513 1,643 676 30,284 Substandard 1,127 6,188 10,059 17,261 503 10,732 21,880 67,750 Non-accrual — 158 1,818 33 1 4,280 71 6,361 Total Business: $ 542,171 $ 1,276,282 $ 733,006 $ 399,577 $ 335,455 $ 386,638 $ 2,031,338 $ 5,704,467 Gross write-offs for the three months ended March 31, 2023 $ — $ — $ — $ — $ — $ — $ 292 $ 292 Real estate-construction Risk Rating: Pass $ 156,801 $ 552,570 $ 549,106 $ 83,653 $ 27,431 $ 3,235 $ 27,547 $ 1,400,343 Special mention 7,115 207 — — — — — 7,322 Substandard — 2,016 — — — 27,738 — 29,754 Total Real estate-construction: $ 163,916 $ 554,793 $ 549,106 $ 83,653 $ 27,431 $ 30,973 $ 27,547 $ 1,437,419 Gross write-offs for the three months ended March 31, 2023 $ — $ — $ — $ — $ — $ — $ — $ — Real estate-business Risk Rating: Pass $ 229,043 $ 1,136,589 $ 573,233 $ 495,078 $ 388,892 $ 401,324 $ 109,489 $ 3,333,648 Special mention — 4,555 — 605 9,616 1,235 — 16,011 Substandard — 2,811 30,886 16,416 11,924 74,676 — 136,713 Non-accrual — 14 45 — — 112 — 171 Total Real estate-business: $ 229,043 $ 1,143,969 $ 604,164 $ 512,099 $ 410,432 $ 477,347 $ 109,489 $ 3,486,543 Gross write-offs for the three months ended March 31, 2023 $ — $ — $ — $ — $ — $ — $ — $ — Commercial loans Risk Rating: Pass $ 912,832 $ 2,957,489 $ 1,839,008 $ 953,684 $ 750,761 $ 774,542 $ 2,145,747 $ 10,334,063 Special mention 21,171 6,368 4,460 7,935 10,129 2,878 676 53,617 Substandard 1,127 11,015 40,945 33,677 12,427 113,146 21,880 234,217 Non-accrual — 172 1,863 33 1 4,392 71 6,532 Total Commercial loans: $ 935,130 $ 2,975,044 $ 1,886,276 $ 995,329 $ 773,318 $ 894,958 $ 2,168,374 $ 10,628,429 Gross write-offs for the three months ended March 31, 2023 $ — $ — $ — $ — $ — $ — $ 292 $ 292 13 Table of Contents Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total December 31, 2022 Business Risk Rating: Pass $ 1,456,476 $ 782,409 $ 464,201 $ 360,844 $ 180,375 $ 219,053 $ 2,146,380 $ 5,609,738 Special mention 3,113 2,548 7,757 1,063 67 — 1,319 15,867 Substandard 5,752 10,004 685 37 810 10,342 1,739 29,369 Non-accrual 195 1,987 — 1 792 3,776 — 6,751 Total Business: $ 1,465,536 $ 796,948 $ 472,643 $ 361,945 $ 182,044 $ 233,171 $ 2,149,438 $ 5,661,725 Real estate-construction Risk Rating: Pass $ 538,022 $ 596,465 $ 129,632 $ 27,331 $ 1,305 $ 2,029 $ 18,559 $ 1,313,343 Special mention 352 — — — — — — 352 Substandard — 19,494 — — 14,766 13,140 — 47,400 Total Real estate-construction: $ 538,374 $ 615,959 $ 129,632 $ 27,331 $ 16,071 $ 15,169 $ 18,559 $ 1,361,095 Real estate- business Risk Rating: Pass $ 1,085,379 $ 616,516 $ 555,648 $ 424,641 $ 163,628 $ 271,579 $ 90,799 $ 3,208,190 Special mention 4,608 — 618 9,737 976 279 — 16,218 Substandard 2,795 30,944 61,141 10,490 30,782 46,232 — 182,384 Non-accrual 14 45 — — 124 6 — 189 Total Real-estate business: $ 1,092,796 $ 647,505 $ 617,407 $ 444,868 $ 195,510 $ 318,096 $ 90,799 $ 3,406,981 Commercial loans Risk Rating: Pass $ 3,079,877 $ 1,995,390 $ 1,149,481 $ 812,816 $ 345,308 $ 492,661 $ 2,255,738 $ 10,131,271 Special mention 8,073 2,548 8,375 10,800 1,043 279 1,319 32,437 Substandard 8,547 60,442 61,826 10,527 46,358 69,714 1,739 259,153 Non-accrual 209 2,032 — 1 916 3,782 — 6,940 Total Commercial loans: $ 3,096,706 $ 2,060,412 $ 1,219,682 $ 834,144 $ 393,625 $ 566,436 $ 2,258,796 $ 10,429,801 14 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 March 31, 2023 and December 31, 2022 below. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total March 31, 2023 Real estate-personal Current to 90 days past due $ 113,590 $ 512,841 $ 578,969 $ 769,804 $ 284,835 $ 675,601 $ 10,209 $ 2,945,849 Over 90 days past due — 394 946 1,372 — 2,212 — 4,924 Non-accrual — — — — 167 1,102 — 1,269 Total Real estate-personal: $ 113,590 $ 513,235 $ 579,915 $ 771,176 $ 285,002 $ 678,915 $ 10,209 $ 2,952,042 Gross write-offs for the three months ended March 31, 2023 $ — $ — $ — $ — $ — $ 18 $ — $ 18 Consumer Current to 90 days past due $ 158,392 $ 430,621 $ 345,779 $ 183,261 $ 91,521 $ 82,898 $ 800,002 $ 2,092,474 Over 90 days past due — 343 310 115 62 443 642 1,915 Total Consumer: $ 158,392 $ 430,964 $ 346,089 $ 183,376 $ 91,583 $ 83,341 $ 800,644 $ 2,094,389 Gross write-offs for the three months ended March 31, 2023 $ — $ 519 $ 505 $ 279 $ 127 $ 159 $ 270 $ 1,859 Revolving home equity Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 294,629 $ 294,629 Over 90 days past due — — — — — — 849 849 Total Revolving home equity: $ — $ — $ — $ — $ — $ — $ 295,478 $ 295,478 Gross write-offs for the three months ended March 31, 2023 $ — $ — $ — $ — $ — $ — $ — $ — Consumer credit card Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 552,482 $ 552,482 Over 90 days past due — — — — — — 6,187 6,187 Total Consumer credit card: $ — $ — $ — $ — $ — $ — $ 558,669 $ 558,669 Gross write-offs for the three months ended March 31, 2023 $ — $ — $ — $ — $ — $ — $ 5,684 $ 5,684 Overdrafts Current to 90 days past due $ 6,515 $ — $ — $ — $ — $ — $ — $ 6,515 Over 90 days past due — — — — — — — — Total Overdrafts: $ 6,515 $ — $ — $ — $ — $ — $ — $ 6,515 Gross write-offs for the three months ended March 31, 2023 $ 1,195 $ — $ — $ — $ — $ — $ — $ 1,195 Personal banking loans Current to 90 days past due $ 278,497 $ 943,462 $ 924,748 $ 953,065 $ 376,356 $ 758,499 $ 1,657,322 $ 5,891,949 Over 90 days past due — 737 1,256 1,487 62 2,655 7,678 13,875 Non-accrual — — — — 167 1,102 — 1,269 Total Personal banking loans: $ 278,497 $ 944,199 $ 926,004 $ 954,552 $ 376,585 $ 762,256 $ 1,665,000 $ 5,907,093 Gross write-offs for the three months ended March 31, 2023 $ 1,195 $ 519 $ 505 $ 279 $ 127 $ 177 $ 5,954 $ 8,756 15 Table of Contents Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total December 31, 2022 Real estate-personal Current to 90 days past due $ 535,283 $ 589,658 $ 783,651 $ 290,580 $ 132,305 $ 568,380 $ 10,174 $ 2,910,031 Over 90 days past due 514 967 1,338 81 1,388 2,393 — 6,681 Non-accrual — — 52 169 102 1,043 — 1,366 Total Real estate-personal: $ 535,797 $ 590,625 $ 785,041 $ 290,830 $ 133,795 $ 571,816 $ 10,174 $ 2,918,078 Consumer Current to 90 days past due $ 536,429 $ 378,118 $ 205,849 $ 106,733 $ 36,096 $ 62,255 $ 731,436 $ 2,056,916 Over 90 days past due 326 251 203 58 267 228 839 2,172 Total Consumer: $ 536,755 $ 378,369 $ 206,052 $ 106,791 $ 36,363 $ 62,483 $ 732,275 $ 2,059,088 Revolving home equity Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 296,504 $ 296,504 Over 90 days past due — — — — — — 703 703 Total Revolving home equity: $ — $ — $ — $ — $ — $ — $ 297,207 $ 297,207 Consumer credit card Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 578,451 $ 578,451 Over 90 days past due — — — — — — 5,549 5,549 Total Consumer credit card: $ — $ — $ — $ — $ — $ — $ 584,000 $ 584,000 Overdrafts Current to 90 days past due $ 14,737 $ — $ — $ — $ — $ — $ — $ 14,737 Over 90 days past due 220 — — — — — — 220 Total Overdrafts: $ 14,957 $ — $ — $ — $ — $ — $ — $ 14,957 Personal banking loans Current to 90 days past due $ 1,086,449 $ 967,776 $ 989,500 $ 397,313 $ 168,401 $ 630,635 $ 1,616,565 $ 5,856,639 Over 90 days past due 1,060 1,218 1,541 139 1,655 2,621 7,091 15,325 Non-accrual — — 52 169 102 1,043 — 1,366 Total Personal banking loans: $ 1,087,509 $ 968,994 $ 991,093 $ 397,621 $ 170,158 $ 634,299 $ 1,623,656 $ 5,873,330 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 March 31, 2023 and December 31, 2022. (In thousands) Business Assets Oil & Gas Assets Total March 31, 2023 Commercial: Business $ 2,611 $ 1,671 $ 4,282 Total $ 2,611 $ 1,671 $ 4,282 December 31, 2022 Commercial: Business $ 2,778 $ 1,824 $ 4,602 Total $ 2,778 $ 1,824 $ 4,602 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 16 Table of Contents loans for which FICO scores are not obtained because the loans generally pertain to commercial customer activities and are often underwritten with other collateral considerations. These loans totaled $ 178.1 million at March 31, 2023 and $ 179.2 million at December 31, 2022. The table also excludes consumer loans related to the Company's patient healthcare loan program, which totaled $ 195.5 million at March 31, 2023 and $ 197.5 million at December 31, 2022. 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 March 31, 2023 and December 31, 2022 by FICO score. Personal Banking Loans % of Loan Category Real Estate - Personal Consumer Revolving Home Equity Consumer Credit Card March 31, 2023 FICO score: Under 600 1.8 % 2.6 % 1.8 % 4.2 % 600 - 659 2.5 4.0 3.3 11.9 660 - 719 9.2 13.6 9.8 30.9 720 - 779 21.8 29.2 21.7 27.5 780 and over 64.7 50.6 63.4 25.5 Total 100.0 % 100.0 % 100.0 % 100.0 % December 31, 2022 FICO score: Under 600 1.4 % 2.2 % 1.5 % 3.4 % 600 - 659 2.2 4.2 2.8 11.4 660 - 719 8.1 14.5 9.7 30.8 720 - 779 23.7 26.7 21.4 27.1 780 and over 64.6 52.4 64.6 27.3 Total 100.0 % 100.0 % 100.0 % 100.0 % Modifications for borrowers experiencing financial difficulty When borrowers are experiencing financial difficulty, the Company may agree to modify the contractual terms of a loan to a borrower in order to assist the borrower in repaying principal and interest owed to the Company. The Company's modifications of loans to borrowers experiencing financial difficulty are generally in the form of term extensions, repayment plans, payment deferrals, forbearance agreements, interest rate reductions, forgiveness of interest and/or fees, or any combination thereof. Commercial loans modified to borrowers experiencing financial difficulty are primarily loans that are substandard or non-accrual, where the maturity date was extended. Modifications on personal real estate loans are primarily those placed on forbearance plans, repayment plans, or deferral plans where monthly payments are suspended for a period of time or past due amounts are paid off over a certain period of time in the future or set up as a balloon payment at maturity. Modifications to certain credit card and other small consumer loans are often modified under debt counseling programs that can reduce the contractual rate or, in certain instances, forgive certain fees and interest charges. Other consumer loans modified to borrowers experiencing financial difficulty consist of various other workout arrangements with consumer customers. 17 Table of Contents The following table presents the amortized cost at March 31, 2023 of loans that were modified during the three months ended March 31, 2023. Three Months Ended March 31, 2023 (Dollars in thousands) Term Extension Payment Delay Interest Rate Reduction Interest/Fees Forgiven Other Total % of Total Loan Category March 31, 2023 Commercial: Business $ 3,104 $ — $ — $ — $ — $ 3,104 0.1 % Real estate – business 23,039 — — — — 23,039 0.7 Personal Banking: Real estate – personal — 1,666 — — — 1,666 0.1 Consumer — 58 16 — 55 129 — Consumer credit card — — 618 275 — 893 0.2 Total $ 26,143 $ 1,724 $ 634 $ 275 $ 55 $ 28,831 0.2 % The estimate of lifetime expected losses utilized in the allowance for credit losses model is developed using average historical experience on loans with similar risk characteristics, which includes losses from modifications of loans to borrowers experiencing financial difficulty. As a result, a change to the allowance for credit losses is generally not recorded upon modification. For modifications to loans made to borrowers experiencing financial difficulty that are placed on non-accrual status, the Company determines the allowance for credit losses on an individual evaluation, using the same process that it utilizes for other loans on non-accrual status. Modifications made to commercial loans which are not on non-accrual status for borrowers experiencing financial difficulty are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience, and current economic factors. Modifications made to borrowers experiencing financial difficulty for personal banking loans which are not on non-accrual status are collectively evaluated based on loan type, delinquency, historical experience, and current economic factors. If a loan to a borrower experiencing financial difficulty is modified and subsequently deemed uncollectible, the allowance for credit losses continues to be based on individual evaluation, if that loan is already on non-accrual status. For those loans, the allowance for credit losses is estimated using discounted expected cash flows or the fair value of collateral. If an accruing loan made to a borrower experiencing financial difficulty is modified and subsequently deemed uncollectible, 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 following table summarizes the financial impact of loan modifications and payment deferrals during the three months ended March 31, 2023. The qualitative impact of forbearance and repayment plans is the deferral of payments for 3 months up to 30 years, and therefore, those modifications are excluded from the table below. Term Extension Three Months Ended March 31, 2023 Commercial: Business Added a weighted-average of 12 months to the life of loans. Real estate – business Added a weighted-average of 17 months to the life of loans. Payment Delay Three Months Ended March 31, 2023 Personal Banking: Real estate – personal Deferred past due monthly payments to maturity as a balloon payment. Deferral delayed payments a weighted average of 27 years. Consumer Deferred past due monthly payments to maturity as a balloon payment. Deferral delayed payments a weighted average of 11 years. 18 Table of Contents Interest Rate Reduction Three Months Ended March 31, 2023 Personal Banking: Consumer Reduced weighted-average contractual interest by 14 %. Consumer credit card Reduced weighted-average contractual interest by 14 %. Forgiveness of Interest/Fees Three Months Ended March 31, 2023 Personal Banking: Consumer credit card Approximately $14 thousand of interest and fees forgiven. The Company had commitments of $ 532 thousand at March 31, 2023 to lend additional funds to borrowers with restructured loans. The following table provides the amortized cost basis of loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2023 and were modified on or after January 1, 2023 (the date we adopted ASU 2022-02) through March 31, 2023. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal. In addition to the loans below, the Company charged off $ 25 thousand of consumer credit card loans during the three months ended March 31, 2023 that were modified during the period. (Dollars in thousands) Interest Rate Reduction Interest/Fees Forgiven Total March 31, 2023 Personal Banking: Consumer $ 8 $ — $ 8 Consumer credit card 63 12 75 Total $ 71 $ 12 $ 83 The following table presents the amortized cost basis at March 31, 2023 of loans that have been modified on or after January 1, 2023 (the date we adopted ASU 2022-02) through March 31, 2023. (In thousands) Current 30-89 Days Past Due 90 Days Past Due Total March 31, 2023 Commercial: Business $ 3,104 $ — $ — $ 3,104 Real estate – business 23,039 — — 23,039 Personal Banking: Real estate – personal 1,061 605 — 1,666 Consumer 75 46 8 129 Consumer credit card 645 173 75 893 Total $ 27,924 $ 824 $ 83 $ 28,831 Troubled debt restructuring disclosures prior to the Company's adoption of ASU 2022-02 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 19 Table of Contents 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) December 31, 2022 Accruing restructured loans: Commercial $ 184,388 Assistance programs 5,156 Other consumer 4,049 Non-accrual loans 5,078 Total troubled debt restructurings $ 198,671 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 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 December 31, 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) December 31, 2022 Balance at December 31, 2022 that was 90 days past due at any time during previous 12 months Commercial: Business $ 12,311 $ — Real estate - construction and land 57,547 — Real estate - business 118,654 — Personal Banking: Real estate - personal 2,809 419 Consumer 2,250 268 Revolving home equity 17 — Consumer credit card 5,083 452 Total troubled debt restructurings $ 198,671 $ 1,139 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 at December 31, 2022 were estimated to decrease interest income by approximately $ 661 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. 20 Table of Contents 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 $ 12.6 million at December 31, 2022 to lend additional funds to borrowers with restructured loans. Loans held for sale The Company designates certain long-term fixed rate personal real estate loans as held for sale, and the Company has elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the related economic hedges discussed in Note 11. The loans are primarily sold to Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA). At March 31, 2023, the fair value of these loans was $ 684 thousand, and the unpaid principal balance was $ 666 thousand. 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 March 31, 2023 totaled $ 5.3 million. At March 31, 2023, 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 $ 167 thousand and $ 96 thousand at March 31, 2023 and December 31, 2022, respectively, and included in those amounts were $ 167 thousand and $ 96 thousand at March 31, 2023 and December 31, 2022, respectively, of foreclosed residential real estate properties held as a result of obtaining physical possession. Personal property acquired in repossession, generally autos, totaled $ 1.4 million and $ 1.6 million at March 31, 2023 and December 31, 2022, respectively. Upon acquisition, these assets are recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower of this cost basis or fair value less estimated selling costs. 21 Table of Contents 3. Investment Securities Investment securities consisted of the following at March 31, 2023 and December 31, 2022. (In thousands) March 31, 2023 December 31, 2022 Available for sale debt securities $ 11,228,616 $ 12,238,316 Trading debt securities 41,584 43,523 Equity securities: Readily determinable fair value 6,083 6,210 No readily determinable fair value 6,445 6,094 Other: Federal Reserve Bank stock 34,887 34,795 Federal Home Loan Bank stock 70,112 10,678 Equity method investments — 1,434 Private equity investments 163,418 178,127 Total investment securities (1) $ 11,551,145 $ 12,519,177 (1) Accrued interest receivable totaled $ 32.7 million and $ 38.8 million at March 31, 2023 and December 31, 2022, 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 three months ended March 31, 2023, 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 accumulated other comprehensive income (AOCI). A summary of the available for sale debt securities by maturity groupings as of March 31, 2023 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and Government National Mortgage Association (GNMA), in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral. 22 Table of Contents (In thousands) Amortized Cost Fair Value U.S. government and federal agency obligations: Within 1 year $ 482,979 $ 474,435 After 1 but within 5 years 391,902 378,408 After 5 but within 10 years 173,874 167,380 Total U.S. government and federal agency obligations 1,048,755 1,020,223 Government-sponsored enterprise obligations: After 5 but within 10 years 4,955 4,631 After 10 years 50,734 39,783 Total government-sponsored enterprise obligations 55,689 44,414 State and municipal obligations: Within 1 year 98,381 97,510 After 1 but within 5 years 465,196 442,933 After 5 but within 10 years 887,757 771,946 After 10 years 163,836 141,425 Total state and municipal obligations 1,615,170 1,453,814 Mortgage and asset-backed securities: Agency mortgage-backed securities 4,975,242 4,271,563 Non-agency mortgage-backed securities 1,403,543 1,207,969 Asset-backed securities 2,918,160 2,763,578 Total mortgage and asset-backed securities 9,296,945 8,243,110 Other debt securities: Within 1 year 14,040 13,572 After 1 but within 5 years 246,688 230,527 After 5 but within 10 years 245,003 209,285 After 10 years 16,260 13,671 Total other debt securities 521,991 467,055 Total available for sale debt securities $ 12,538,550 $ 11,228,616 Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $ 402.3 million, at fair value, at March 31, 2023. Interest earned 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. Allowance for credit losses on available for sale debt 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 which 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. 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 March 31, 2023, the fair value of securities on this watch list was $ 676.0 million compared to $ 1.3 billion at December 31, 2022. The majority of the securities included on the Company's watch list in the current quarter were experiencing unrealized loss positions due to the significant increase in interest rates and were analyzed outside of the cash flow model. At March 31, 2023, 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 March 31, 2023, the Company did not identify any securities for which a credit loss exists, and for the three months ended March 31, 2023 and 2022, the Company did not recognize a credit loss expense on any available for sale debt securities. 23 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 March 31, 2023 and December 31, 2022. 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. At March 31, 2023, the Company does not intend to sell the securities, nor is it anticipated that it would be required to sell any of these securities at a loss. Less than 12 months 12 months or longer Total (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses March 31, 2023 U.S. government and federal agency obligations $ 532,588 $ 9,565 $ 386,394 $ 20,444 $ 918,982 $ 30,009 Government-sponsored enterprise obligations 4,631 324 39,783 10,951 44,414 11,275 State and municipal obligations 188,055 2,025 1,200,901 159,549 1,388,956 161,574 Mortgage and asset-backed securities: Agency mortgage-backed securities 159,424 4,610 4,091,658 699,252 4,251,082 703,862 Non-agency mortgage-backed securities 648 12 1,199,354 195,665 1,200,002 195,677 Asset-backed securities 131,679 2,523 2,631,899 152,059 2,763,578 154,582 Total mortgage and asset-backed securities 291,751 7,145 7,922,911 1,046,976 8,214,662 1,054,121 Other debt securities 7,843 201 459,212 54,735 467,055 54,936 Total $ 1,024,868 $ 19,260 $ 10,009,201 $ 1,292,655 $ 11,034,069 $ 1,311,915 December 31, 2022 U.S. government and federal agency obligations $ 605,840 $ 17,490 $ 380,573 $ 25,940 $ 986,413 $ 43,430 Government-sponsored enterprise obligations 25,068 4,650 18,040 7,971 43,108 12,621 State and municipal obligations 814,799 26,708 875,329 171,385 1,690,128 198,093 Mortgage and asset-backed securities: Agency mortgage-backed securities 1,323,938 125,330 2,966,851 654,327 4,290,789 779,657 Non-agency mortgage-backed securities 135,984 16,736 1,069,222 195,218 1,205,206 211,954 Asset-backed securities 1,331,055 50,056 2,006,188 140,424 3,337,243 190,480 Total mortgage and asset-backed securities 2,790,977 192,122 6,042,261 989,969 8,833,238 1,182,091 Other debt securities 166,040 9,690 308,818 54,707 474,858 64,397 Total $ 4,402,724 $ 250,660 $ 7,625,021 $ 1,249,972 $ 12,027,745 $ 1,500,632 The entire available for sale debt portfolio included $ 11.0 billion of securities that were in a loss position at March 31, 2023, compared to $ 12.0 billion at December 31, 2022. The total amount of unrealized loss on these securities was $ 1.3 billion at March 31, 2023, a decrease of $ 188.7 million compared to the unrealized loss at December 31, 2022. Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt securities" section above. 24 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 March 31, 2023 and December 31, 2022, 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 March 31, 2023 U.S. government and federal agency obligations $ 1,048,755 $ 1,477 $ ( 30,009 ) $ — $ 1,020,223 Government-sponsored enterprise obligations 55,689 — ( 11,275 ) — 44,414 State and municipal obligations 1,615,170 218 ( 161,574 ) — 1,453,814 Mortgage and asset-backed securities: Agency mortgage-backed securities 4,975,242 183 ( 703,862 ) — 4,271,563 Non-agency mortgage-backed securities 1,403,543 103 ( 195,677 ) — 1,207,969 Asset-backed securities 2,918,160 — ( 154,582 ) — 2,763,578 Total mortgage and asset-backed securities 9,296,945 286 ( 1,054,121 ) — 8,243,110 Other debt securities 521,991 — ( 54,936 ) — 467,055 Total $ 12,538,550 $ 1,981 $ ( 1,311,915 ) $ — $ 11,228,616 December 31, 2022 U.S. government and federal agency obligations $ 1,078,807 $ 29 $ ( 43,430 ) $ — $ 1,035,406 Government-sponsored enterprise obligations 55,729 — ( 12,621 ) — 43,108 State and municipal obligations 1,965,028 174 ( 198,093 ) — 1,767,109 Mortgage and asset-backed securities: Agency mortgage-backed securities 5,087,893 191 ( 779,657 ) — 4,308,427 Non-agency mortgage-backed securities 1,423,469 92 ( 211,954 ) — 1,211,607 Asset-backed securities 3,588,025 256 ( 190,480 ) — 3,397,801 Total mortgage and asset-backed securities 10,099,387 539 ( 1,182,091 ) — 8,917,835 Other debt securities 539,255 — ( 64,397 ) — 474,858 Total $ 13,738,206 $ 742 $ ( 1,500,632 ) $ — $ 12,238,316 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 Three Months Ended March 31 (In thousands) 2023 2022 Proceeds from sales of securities: Available for sale debt securities $ 812,176 $ — Other investments 28,259 1,745 Total proceeds $ 840,435 $ 1,745 Investment securities gains (losses), net: Available for sale debt securities: Losses realized on sales $ ( 3,088 ) $ — Equity securities: Fair value adjustments, net ( 127 ) ( 287 ) Other: Gains realized on sales 658 — Fair value adjustments, net 2,251 7,450 Total investment securities gains (losses), net $ ( 306 ) $ 7,163 Net losses on investment securities for the three months ended March 31, 2023 were mainly comprised of losses of $ 3.1 million on sales of available for sale securities, and net losses in fair value of $ 127 thousand on equity investments, offset by net gains in private equity securities due to sales and fair value adjustments of $ 658 thousand and $ 2.3 million, respectively. 25 Table of Contents At March 31, 2023, securities totaling $ 8.1 billion in fair value were pledged to secure public fund deposits, securities sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB, compared to $ 4.7 billion at December 31, 2022. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $ 211.5 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 the U.S. Treasury and 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. March 31, 2023 December 31, 2022 (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 $ 5,550 $ ( 4,911 ) $ — $ 639 $ 31,270 $ ( 30,565 ) $ — $ 705 Mortgage servicing rights 22,227 ( 11,548 ) — 10,679 22,187 ( 11,258 ) — 10,929 Total $ 27,777 $ ( 16,459 ) $ — $ 11,318 $ 53,457 $ ( 41,823 ) $ — $ 11,634 Aggregate amortization expense on intangible assets was $ 356 thousand and $ 609 thousand for the three month periods ended March 31, 2023 and 2022, 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 March 31, 2023. 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) 2023 $ 1,396 2024 1,260 2025 1,117 2026 977 2027 841 During the first quarter of 2023, the Company wrote off $ 25.7 million of core deposit intangible assets that were fully amortized. Other c hanges in the carrying amount of goodwill and other intangible assets for the three month period ended March 31, 2023 are as follows: (In thousands) Goodwill Easement Core Deposit Premium Mortgage Servicing Rights Balance January 1, 2023 $ 138,921 $ 3,600 $ 705 $ 10,929 Originations, net of disposals — — — 40 Amortization — — ( 66 ) ( 290 ) Balance March 31, 2023 $ 138,921 $ 3,600 $ 639 $ 10,679 Goodwill allocated to the Company’s operating segments at March 31, 2023 and December 31, 2022 is shown below. (In thousands) Consumer segment $ 70,721 Commercial segment 67,454 Wealth segment 746 Total goodwill $ 138,921 26 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 March 31, 2023, that net liability was $ 4.9 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 $ 625.9 million at March 31, 2023. A portion of this amount has been conveyed to others. 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 March 31, 2023, 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 March 31, 2023, the fair value of the Company's guarantee liabilities for RPAs was $ 148 thousand, and the notional amount of the underlying swaps was $ 419.9 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. 27 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 16 years. The following table provides the components of lease income. For the Three Months Ended March 31 (in thousands) 2023 2022 Direct financing and sales-type leases $ 6,755 $ 5,247 Operating leases (a) 2,334 2,184 Total lease income $ 9,089 $ 7,431 (a) Includes rent from Tower Properties Company, a related party, of $ 19 thousand for the three month periods ended March 31, 2023 and 2022 . 7. Pension The amount of net pension cost is shown in the table below: For the Three Months Ended March 31 (In thousands) 2023 2022 Service cost $ 116 $ 132 Interest cost on projected benefit obligation 1,158 665 Expected return on plan assets ( 1,001 ) ( 1,126 ) Amortization of prior service cost ( 67 ) ( 68 ) Amortization of unrecognized net loss 427 498 Net periodic pension cost $ 633 $ 101 All benefits accrued under the Company’s defined benefit pension plan have been frozen since January 1, 2011. During the first three months of 2023, 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. 28 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 March 31 (In thousands, except per share data) 2023 2022 Basic income per common share: Net income attributable to Commerce Bancshares, Inc. $ 119,452 $ 118,154 Less income allocated to nonvested restricted stock 1,056 1,070 Net income allocated to common stock $ 118,396 $ 117,084 Weighted average common shares outstanding 124,004 126,341 Basic income per common share $ .95 $ .92 Diluted income per common share: Net income attributable to Commerce Bancshares, Inc. $ 119,452 $ 118,154 Less income allocated to nonvested restricted stock 1,054 1,068 Net income allocated to common stock $ 118,398 $ 117,086 Weighted average common shares outstanding 124,004 126,341 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 255 306 Weighted average diluted common shares outstanding 124,259 126,647 Diluted income per common share $ .95 $ .92 Unexercised stock appreciation rights of 216 thousand and 125 thousand for the three month periods ended March 31, 2023 and 2022, respectively, were excluded from the computation of diluted income per common share because their inclusion would have been anti-dilutive. In the Annual Meeting of the Shareholders, held on April 19, 2023, a proposal to increase the shares of the Company's common stock authorized for issuance under its articles of incorporation was approved. This approval increased the authorized shares from 140,000,000 to 190,000,000 . * All prior year share and per share amounts in this note have been restated for the 5% common stock dividend distributed in December 2022. 29 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, 2023 $ ( 1,124,915 ) $ ( 17,186 ) $ 55,237 $ ( 1,086,864 ) Other comprehensive income (loss) before reclassifications to current earnings 186,868 — 9,225 196,093 Amounts reclassified to current earnings from accumulated other comprehensive income 3,088 360 ( 4,385 ) ( 937 ) Current period other comprehensive income (loss), before tax 189,956 360 4,840 195,156 Income tax (expense) benefit ( 47,490 ) ( 90 ) ( 1,210 ) ( 48,790 ) Current period other comprehensive income (loss), net of tax 142,466 270 3,630 146,366 Balance March 31, 2023 $ ( 982,449 ) $ ( 16,916 ) $ 58,867 $ ( 940,498 ) Balance January 1, 2022 $ 23,174 $ ( 20,668 ) $ 74,574 $ 77,080 Other comprehensive income (loss) before reclassifications to current earnings ( 676,353 ) — — ( 676,353 ) Amounts reclassified to current earnings from accumulated other comprehensive income — 430 ( 6,050 ) ( 5,620 ) Current period other comprehensive income (loss), before tax ( 676,353 ) 430 ( 6,050 ) ( 681,973 ) Income tax (expense) benefit 169,088 ( 107 ) 1,512 170,493 Current period other comprehensive income (loss), net of tax ( 507,265 ) 323 ( 4,538 ) ( 511,480 ) Balance March 31, 2022 $ ( 484,091 ) $ ( 20,345 ) $ 70,036 $ ( 434,400 ) (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 145 locations. This segment also includes indirect and other consumer loan financing businesses, along with debit and credit card loan and fee businesses. In order to reflect a change in the Company's management of its portfolio of residential mortgage loans that it retains, the Company began including those loans in the Consumer segment on January 1, 2023. These loans had previously been included in the Other/Elimination column. As a result of this change, approximately $1.9 billion of loans were reclassified from the Other/Elimination column into the Consumer segment, and prior periods presented below were restated to also reflect this change. 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. 30 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 March 31, 2023 Net interest income $ 96,854 $ 116,166 $ 17,540 $ 230,560 $ 21,063 $ 251,623 Provision for credit losses ( 6,306 ) ( 393 ) ( 13 ) ( 6,712 ) ( 4,744 ) ( 11,456 ) Non-interest income 24,303 58,324 52,944 135,571 2,041 137,612 Investment securities gains (losses), net — — — — ( 306 ) ( 306 ) Non-interest expense ( 77,326 ) ( 93,623 ) ( 39,636 ) ( 210,585 ) ( 13,522 ) ( 224,107 ) Income before income taxes $ 37,525 $ 80,474 $ 30,835 $ 148,834 $ 4,532 $ 153,366 Three Months Ended March 31, 2022 Net interest income $ 86,818 $ 108,953 $ 18,869 $ 214,640 $ ( 5,854 ) $ 208,786 Provision for credit losses ( 4,504 ) ( 82 ) ( 26 ) ( 4,612 ) 14,470 9,858 Non-interest income 26,415 53,651 53,206 133,272 ( 1,503 ) 131,769 Investment securities gains (losses), net — — — — 7,163 7,163 Non-interest expense ( 74,823 ) ( 89,506 ) ( 36,288 ) ( 200,617 ) ( 5,031 ) ( 205,648 ) Income before income taxes $ 33,906 $ 73,016 $ 35,761 $ 142,683 $ 9,245 $ 151,928 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. 31 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. With the exception of the interest rate floors (discussed below), 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) March 31, 2023 December 31, 2022 Interest rate swaps $ 1,987,051 $ 1,981,821 Interest rate floors 1,500,000 1,000,000 Interest rate caps 152,784 152,784 Credit risk participation agreements 577,922 579,925 Foreign exchange contracts 15,335 27,991 Mortgage loan commitments 362 — Mortgage loan forward sale contracts 3,290 — Forward TBA contracts 3,500 — Total notional amount $ 4,240,244 $ 3,742,521 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. As of March 31, 2023, the Company holds three interest rate floors with a combined notional value of $ 1.5 billion to hedge the risk of declining interest rates on certain floating rate commercial loans. The first floor was purchased during the third quarter of 2022, 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 was purchased during the fourth quarter of 2022, 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 falls below zero, the maximum rate the Company can earn on the notional amount is limited to 3.00%. The third floor was purchased during the first quarter of 2023, has a purchased strike rate of 3.50%, is forward-starting beginning on July 1, 2024 and matures on July 1, 2030. In the event that the index rate falls below zero, the maximum rate the Company can earn on the notional amount is limited to 3.50%. The premium paid for these floors totaled $ 61.7 million. As of March 31, 2023, 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 March 31, 2023, net deferred gains on the interest rate floors totaled $ 6.8 million (pre-tax) and were recorded in AOCI in the consolidated balance sheet. As of March 31, 2023, it is expected that $ 7.3 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. As of March 31, 2023, the total realized gains on the monetized cash flow hedges remaining in AOCI was $ 69.0 million (pre-tax), which will be reclassified into interest income over the next 3.7 years. The estimated amount of net gains related to the cash flow hedges remaining in AOCI at March 31, 2023 that is expected to be reclassified into income within the next 12 months is $ 23.3 million. 32 Table of Contents 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 with customers to purchase or deliver specific foreign currencies 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. 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 Company resumed sales during the first quarter of 2023. 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 15 on Fair Value Measurements. 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 March 31, 2023 in the table below, the positive fair values of cleared swaps were reduced by $ 11.4 million. At December 31, 2022, positive fair values of cleared swaps were reduced by $ 27.8 million. Asset Derivatives Liability Derivatives Mar. 31, 2023 Dec. 31, 2022 Mar. 31, 2023 Dec. 31, 2022 (In thousands ) Fair Value Fair Value Derivatives designated as hedging instruments: Interest rate floors $ 68,495 $ 33,371 $ — $ — Total derivatives designated as hedging instruments $ 68,495 $ 33,371 $ — $ — Derivative instruments not designated as hedging instruments: Interest rate swaps $ 28,960 $ 23,894 $ ( 40,352 ) $ ( 51,742 ) Interest rate caps 2,222 2,705 ( 2,222 ) ( 2,705 ) Credit risk participation agreements 44 34 ( 148 ) ( 119 ) Foreign exchange contracts 359 488 ( 310 ) ( 418 ) Mortgage loan commitments 77 — — — Mortgage loan forward sale contracts — — ( 1 ) — Forward TBA contracts — — ( 35 ) — Total derivatives not designated as hedging instruments $ 31,662 $ 27,121 $ ( 43,068 ) $ ( 54,984 ) Total $ 100,157 $ 60,492 $ ( 43,068 ) $ ( 54,984 ) 33 Table of Contents 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 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 March 31, 2023 Derivatives in cash flow hedging relationships: Interest rate floors $ 9,225 $ — $ 9,225 Interest and fees on loans $ 4,385 $ 7,444 $ ( 3,059 ) Total $ 9,225 $ — $ 9,225 Total $ 4,385 $ 7,444 $ ( 3,059 ) For the Three Months Ended March 31, 2022 Derivatives in cash flow hedging relationships: Interest rate floors $ — $ — $ — Interest and fees on loans $ 6,050 $ 7,566 $ ( 1,516 ) Total $ — $ — $ — Total $ 6,050 $ 7,566 $ ( 1,516 ) The gain and loss recognized through various derivative instruments on the consolidated statements of income are shown in the table below. 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 March 31 (In thousands) 2023 2022 Derivative instruments: Interest rate swaps Other non-interest income $ 623 $ 812 Interest rate caps Other non-interest income — 16 Credit risk participation agreements Other non-interest income ( 19 ) ( 10 ) Foreign exchange contracts Other non-interest income ( 20 ) ( 14 ) Mortgage loan commitments Loan fees and sales 77 ( 485 ) Mortgage loan forward sale contracts Loan fees and sales ( 1 ) — Forward TBA contracts Loan fees and sales 1 1,243 Total $ 661 $ 1,562 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 34 Table of Contents transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table below. Gross Amounts Not Offset in the Balance Sheet (In thousands) Gross Amount Recognized Gross Amounts Offset in the Balance Sheet Net Amounts Presented in the Balance Sheet Financial Instruments Available for Offset Collateral Received/ Pledged Net Amount March 31, 2023 Assets: Derivatives subject to master netting agreements $ 100,005 $ — $ 100,005 $ ( 2,255 ) $ ( 93,822 ) $ 3,928 Derivatives not subject to master netting agreements 152 — 152 Total derivatives $ 100,157 $ — $ 100,157 Liabilities: Derivatives subject to master netting agreements $ 42,694 $ — $ 42,694 $ ( 2,255 ) $ — $ 40,439 Derivatives not subject to master netting agreements 374 — 374 Total derivatives $ 43,068 $ — $ 43,068 December 31, 2022 Assets: Derivatives subject to master netting agreements $ 60,270 $ — $ 60,270 $ ( 1,007 ) $ ( 56,816 ) $ 2,447 Derivatives not subject to master netting agreements 222 — 222 Total derivatives $ 60,492 $ — $ 60,492 Liabilities: Derivatives subject to master netting agreements $ 54,609 $ — $ 54,609 $ ( 1,007 ) $ — $ 53,602 Derivatives not subject to master netting agreements 375 — 375 Total derivatives $ 54,984 $ — $ 54,984 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. 35 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 March 31, 2023 and December 31, 2022. 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 March 31, 2023 Total resale agreements, subject to master netting arrangements $ 1,025,000 $ ( 200,000 ) $ 825,000 $ — $ ( 825,000 ) $ — Total repurchase agreements, subject to master netting arrangements 2,228,089 ( 200,000 ) 2,028,089 — ( 2,028,089 ) — December 31, 2022 Total resale agreements, subject to master netting arrangements $ 1,025,000 $ ( 200,000 ) $ 825,000 $ — $ ( 825,000 ) $ — Total repurchase agreements, subject to master netting arrangements 2,881,874 ( 200,000 ) 2,681,874 — ( 2,681,874 ) — The table below shows the remaining contractual maturities of repurchase agreements outstanding at March 31, 2023 and December 31, 2022, 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 March 31, 2023 Repurchase agreements, secured by: U.S. government and federal agency obligations $ 194,757 $ 13,602 $ 19,278 $ 227,637 Agency mortgage-backed securities 1,472,769 14,743 205,000 1,692,512 Non-agency mortgage-backed securities 11,818 — — 11,818 Asset-backed securities 294,161 — — 294,161 Other debt securities 1,961 — — 1,961 Total repurchase agreements, gross amount recognized $ 1,975,466 $ 28,345 $ 224,278 $ 2,228,089 December 31, 2022 Repurchase agreements, secured by: U.S. government and federal agency obligations $ 488,053 $ 26,928 $ 12,460 $ 527,441 Agency mortgage-backed securities 1,792,314 21,744 204,500 2,018,558 Non-agency mortgage-backed securities 40,950 — — 40,950 Asset-backed securities 293,001 — — 293,001 Other debt securities 1,924 — — 1,924 Total repurchase agreements, gross amount recognized $ 2,616,242 $ 48,672 $ 216,960 $ 2,881,874 36 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 $ 4.4 million and $ 4.2 million in the three months ended March 31, 2023 and 2022, 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 March 31, 2023, and changes during the three month period then ended, is presented below. Shares Weighted Average Grant Date Fair Value Nonvested at January 1, 2023 1,148,873 $ 58.20 Granted 247,082 65.63 Vested ( 284,800 ) 50.62 Forfeited ( 2,238 ) 61.82 Nonvested at March 31, 2023 1,108,917 $ 61.79 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 $ 18.65 Assumptions: Dividend yield 1.6 % Volatility 27.9 % Risk-free interest rate 3.9 % Expected term 5.8 years A summary of SAR activity during the first three months of 2023 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, 2023 948,727 $ 46.82 Granted 89,829 65.64 Forfeited ( 555 ) 60.00 Exercised ( 40,976 ) 25.88 Outstanding at March 31, 2023 997,025 $ 49.37 5.6 years $ 11,094 37 Table of Contents 14. Revenue from Contracts with Customers Revenue from contracts with customers, Accounting Standard Codification 606 ("ASC 606"), 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 three months ended March 31, 2023, approximately 65 % 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 revenue from contracts with customers by major product line. Three Months Ended March 31 (In thousands) 2023 2022 Bank card transaction fees $ 46,654 $ 42,045 Trust fees 45,328 47,811 Deposit account charges and other fees 21,752 22,307 Consumer brokerage services 5,085 4,446 Other non-interest income 8,339 4,495 Total non-interest income from contracts with customers 127,158 121,104 Other non-interest income (1) 10,454 10,665 Total non-interest income $ 137,612 $ 131,769 (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 34 % and 66 %, 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 three month periods ended March 31, 2023 and 2022 for the Company’s significant revenue from contracts with customers. (In thousands) March 31, 2023 December 31, 2022 March 31, 2022 December 31, 2021 Bank card transaction fees $ 15,585 $ 17,254 $ 14,171 $ 16,424 Trust fees 2,098 2,038 2,094 2,222 Deposit account charges and other fees 5,398 6,631 5,452 6,702 Consumer brokerage services 773 949 324 391 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. 38 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 2022 Annual Report on Form 10-K. There have been no significant changes in these methodologies since then. 39 Table of Contents Instruments Measured at Fair Value on a Recurring Basis The table below presents the March 31, 2023 and December 31, 2022 carrying values of assets and liabilities measured at fair value on a recurring basis. There were no transfers among levels during the first three months of 2023 or the year ended December 31, 2022. 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) March 31, 2023 Assets: Residential mortgage loans held for sale $ 684 $ — $ 684 $ — Available for sale debt securities: U.S. government and federal agency obligations 1,020,223 1,020,223 — — Government-sponsored enterprise obligations 44,414 — 44,414 — State and municipal obligations 1,453,814 — 1,452,900 914 Agency mortgage-backed securities 4,271,563 — 4,271,563 — Non-agency mortgage-backed securities 1,207,969 — 1,207,969 — Asset-backed securities 2,763,578 — 2,763,578 — Other debt securities 467,055 — 467,055 — Trading debt securities 41,584 500 41,084 — Equity securities 6,083 6,083 — — Private equity investments 163,418 — — 163,418 Derivatives * 100,157 — 100,036 121 Assets held in trust for deferred compensation plan 18,656 18,656 — — Total assets 11,559,198 1,045,462 10,349,283 164,453 Liabilities: Derivatives * 43,068 — 42,920 148 Liabilities held in trust for deferred compensation plan 18,656 18,656 — — Total liabilities $ 61,724 $ 18,656 $ 42,920 $ 148 December 31, 2022 Assets: Residential mortgage loans held for sale $ — $ — $ — $ — Available for sale debt securities: U.S. government and federal agency obligations 1,035,406 1,035,406 — — Government-sponsored enterprise obligations 43,108 — 43,108 — State and municipal obligations 1,767,109 — 1,765,268 1,841 Agency mortgage-backed securities 4,308,427 — 4,308,427 — Non-agency mortgage-backed securities 1,211,607 — 1,211,607 — Asset-backed securities 3,397,801 — 3,397,801 — Other debt securities 474,858 — 474,858 — Trading debt securities 43,523 — 43,523 — Equity securities 6,210 6,210 — — Private equity investments 178,127 — — 178,127 Derivatives * 60,492 — 60,458 34 Assets held in trust for deferred compensation plan 17,856 17,856 — — Total assets 12,544,524 1,059,472 11,305,050 180,002 Liabilities: Derivatives * 54,984 — 54,865 119 Liabilities held in trust for deferred compensation plan 17,856 17,856 — — Total liabilities $ 72,840 $ 17,856 $ 54,865 $ 119 * The fair value of each class of derivative is shown in Note 11. 40 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 March 31, 2023 Balance January 1, 2023 $ 1,841 $ 178,127 $ ( 85 ) $ 179,883 Total gains or losses (realized/unrealized): Included in earnings — 2,251 58 2,309 Included in other comprehensive income * 26 — — 26 Investment securities called ( 1,000 ) — — ( 1,000 ) Discount accretion 47 — — 47 Purchases of private equity investments — 10,532 — 10,532 Sale/pay down of private equity investments — ( 27,492 ) — ( 27,492 ) Balance March 31, 2023 $ 914 $ 163,418 $ ( 27 ) $ 164,305 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 March 31, 2023 $ — $ 2,251 $ 58 $ 2,309 *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 March 31, 2023 $ 4 $ — $ — $ 4 For the three months ended March 31, 2022 Balance January 1, 2022 $ 1,984 $ 147,406 $ 571 $ 149,961 Total gains or losses (realized/unrealized): Included in earnings — 7,450 ( 495 ) 6,955 Included in other comprehensive income * ( 83 ) — — ( 83 ) Discount accretion 1 — — 1 Purchases of private equity investments — 300 — 300 Sale/pay down of private equity investments — ( 1,745 ) — ( 1,745 ) Purchase of risk participation agreement — — 145 145 Balance March 31, 2022 $ 1,902 $ 153,411 $ 221 $ 155,534 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 March 31, 2022 $ — $ 7,450 $ 267 $ 7,717 *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 March 31, 2022 $ ( 83 ) $ — $ — $ ( 83 ) * Included in "net unrealized gains (losses) on available for sale debt securities" in the consolidated statements of comprehensive income. 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 March 31, 2023 Total gains or losses included in earnings $ 77 $ ( 19 ) $ 2,251 $ 2,309 Change in unrealized gains or losses relating to assets still held at March 31, 2023 $ 77 $ ( 19 ) $ 2,251 $ 2,309 For the three months ended March 31, 2022 Total gains or losses included in earnings $ ( 485 ) $ ( 10 ) $ 7,450 $ 6,955 Change in unrealized gains or losses relating to assets still held at March 31, 2022 $ 279 $ ( 12 ) $ 7,450 $ 7,717 41 Table of Contents Level 3 Inputs The Company's significant Level 3 measurements, which employ unobservable inputs that are readily quantifiable, pertain to investments in portfolio concerns held by the Company's private equity subsidiaries and held for sale residential mortgage loan commitments. 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* Private equity investments Market comparable companies EBITDA multiple 4.0 - 6.0 5.2 Mortgage loan commitments Discounted cash flow Probability of funding 62.6 % - 100.0 % 78.3 % Embedded servicing value .7 % - 1.6 % 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 three months of 2023 and 2022, and still held as of March 31, 2023 and 2022, 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 March 31, 2023 and 2022. 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 Three Months Ended March 31 March 31, 2023 Collateral dependent loans $ 1,819 $ — $ — $ 1,819 $ 425 March 31, 2022 Mortgage servicing rights $ 11,360 $ — $ — $ 11,360 $ 304 Long- lived assets 497 — — 497 ( 965 ) 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 March 31, 2023 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 9.51 % - 9.71 % 9.58 % Prepayment speeds (CPR)* 6.33 % - 7.47 % 6.53 % 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 March 31, 2023 and December 31, 2022: Carrying Amount Estimated Fair Value at March 31, 2023 (In thousands) Level 1 Level 2 Level 3 Total Financial Assets Loans: Business $ 5,704,467 $ — $ — $ 5,577,723 $ 5,577,723 Real estate - construction and land 1,437,419 — — 1,407,614 1,407,614 Real estate - business 3,486,543 — — 3,383,813 3,383,813 Real estate - personal 2,952,042 — — 2,700,721 2,700,721 Consumer 2,094,389 — — 2,033,884 2,033,884 Revolving home equity 295,478 — — 296,436 296,436 Consumer credit card 558,669 — — 530,987 530,987 Overdrafts 6,515 — — 6,372 6,372 Total loans 16,535,522 — — 15,937,550 15,937,550 Loans held for sale 6,162 — 6,162 — 6,162 Investment securities 11,544,700 1,026,806 10,248,563 269,331 11,544,700 Federal funds sold 27,060 27,060 — — 27,060 Securities purchased under agreements to resell 825,000 — — 804,959 804,959 Interest earning deposits with banks 1,341,854 1,341,854 — — 1,341,854 Cash and due from banks 351,210 351,210 — — 351,210 Derivative instruments 100,157 — 100,036 121 100,157 Assets held in trust for deferred compensation plan 18,656 18,656 — — 18,656 Total $ 30,750,321 $ 2,765,586 $ 10,354,761 $ 17,011,961 $ 30,132,308 Financial Liabilities Non-interest bearing deposits $ 8,685,234 $ 8,685,234 $ — $ — $ 8,685,234 Savings, interest checking and money market deposits 14,419,741 14,419,741 — — 14,419,741 Certificates of deposit 1,578,485 — — 1,577,207 1,577,207 Federal funds purchased 756,470 756,470 — — 756,470 Securities sold under agreements to repurchase 2,028,089 — — 2,030,615 2,030,615 Other borrowings 1,506,817 2,930 3,887 1,500,000 1,506,817 Derivative instruments 43,068 — 42,920 148 43,068 Liabilities held in trust for deferred compensation plan 18,656 18,656 — — 18,656 Total $ 29,036,560 $ 23,883,031 $ 46,807 $ 5,107,970 $ 29,037,808 43 Table of Contents Carrying Amount Estimated Fair Value at December 31, 2022 (In thousands) Level 1 Level 2 Level 3 Total Financial Assets Loans: Business $ 5,661,725 $ — $ — $ 5,506,128 $ 5,506,128 Real estate - construction and land 1,361,095 — — 1,347,328 1,347,328 Real estate - business 3,406,981 — — 3,289,655 3,289,655 Real estate - personal 2,918,078 — — 2,654,423 2,654,423 Consumer 2,059,088 — — 1,999,788 1,999,788 Revolving home equity 297,207 — — 295,005 295,005 Consumer credit card 584,000 — — 538,268 538,268 Overdrafts 14,957 — — 14,666 14,666 Total loans 16,303,131 — — 15,645,261 15,645,261 Loans held for sale 4,964 — 4,964 — 4,964 Investment securities 12,511,649 1,041,616 11,244,592 225,441 12,511,649 Federal funds sold 49,505 49,505 — — 49,505 Securities purchased under agreements to resell 825,000 — — 795,574 795,574 Interest earning deposits with banks 389,140 389,140 — — 389,140 Cash and due from banks 452,496 452,496 — — 452,496 Derivative instruments 60,492 — 60,458 34 60,492 Assets held in trust for deferred compensation plan 17,856 17,856 — — 17,856 Total $ 30,614,233 $ 1,950,613 $ 11,310,014 $ 16,666,310 $ 29,926,937 Financial Liabilities Non-interest bearing deposits $ 10,066,356 $ 10,066,356 $ — $ — $ 10,066,356 Savings, interest checking and money market deposits 15,126,981 15,126,981 — — 15,126,981 Certificates of deposit 994,103 — — 982,613 982,613 Federal funds purchased 159,860 159,860 — — 159,860 Securities sold under agreements to repurchase 2,681,874 — — 2,684,471 2,684,471 Other borrowings 8,831 — 8,831 — 8,831 Derivative instruments 54,984 — 54,865 119 54,984 Liabilities held in trust for deferred compensation plan 17,856 17,856 — — 17,856 Total $ 29,110,845 $ 25,371,053 $ 63,696 $ 3,667,203 $ 29,101,952 17. Legal and Regulatory Proceedings The Company has various legal proceedings pending at March 31, 2023, 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