What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-02-22 compared with 2023-02-22 · 366 added, 435 removed, 1529 unchanged (34% of the section changed)

37 unchanged sentences

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

Total revenue in 2022 increased $92.9 million, or 6.7%, from 2021, as net interest income grew $106.8 million, and non-interest income decreased $13.9 million.

Growth in net interest income resulted principally from increases in interest income from investment securities and loans, partly offset by an increase in interest expense on deposits and borrowings.

The decrease in non-interest income in 2022 was mainly due to lower loan fees and sales income.

• Non-interest expense — Total non-interest expense increased 5.3% this year compared to 2021, mainly due to higher salaries and employee benefits expense and data processing and software expense.

• Asset quality — Net loan charge-offs totaled $19.1 million in 2022, an increase of $496 thousand from those recorded in 2021, and averaged .12% of loans in both 2022 and 2021.

Total revenue in 2023 increased $82.5 million, or 5.5%, from 2022, as net interest income grew $55.9 million, and non-interest income increased $26.5 million.

Growth in net interest income resulted principally from increases in interest income from loans, partly offset by an increase in interest expense on deposits and borrowings.

The increase in non-interest income in 2023 was mainly due to higher bankcard transaction fees and trust fees.

• Non-interest expense — Total non-interest expense increased 9.7% this year compared to 2022, mainly due to higher salaries and employee benefits expense and higher deposit insurance expense due to a special FDIC assessment accrued in 2023.

• Asset quality — Net loan charge-offs totaled $31.1 million in 2023, an increase of $12.0 million from those recorded in 2022, and averaged .19% of loans in 2023, as compared to .12% of loans in 2022.

Total non-performing assets, which include non-accrual loans and foreclosed real estate, amounted to $7.6 million at December 31, 2023, compared to $8.4 million at December 31, 2022, and represented .04% of loans outstanding at December 31, 2023.

• Shareholder return — During 2023, the Company paid cash dividends of $1.03 per share on its common stock, representing an increase of 7.1% over the previous year.

In 2022, the Company issued its 29th consecutive annual 5% common stock dividend, and in February 2023, the Company's Board of Directors authorized an increase of 7.1% in the common cash dividend.

In 2023, the Company issued its 30th consecutive annual 5% common stock dividend, and in February 2024, the Company's Board of Directors authorized an increase of 5.1% in

the common cash dividend.

The Company purchased 1,354,811 shares in 2023.

Total shareholder return, including

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the change in stock price and dividend reinvestment, was 11.0%, 14.2%, and 10.4% over the past 5, 10, and 15 years, respectively.

Total shareholder return, including the change in stock price and dividend reinvestment, was 5.7%, 8.7%, and 8.7% over the past 5, 10, and 15 years, respectively.

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

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* Intangible assets other than mortgage servicing rights.

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Results of Operations

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Non-interest income 573,045 546,535 560,393 26,510 (13,858) 4.9 (2.5)

Investment securities gains, net 20,506 30,059 11,032 (9,553) 19,027 (31.8) N.M.

Investment securities gains (losses), net 14,985 20,506 30,059 (5,521) (9,553) (26.9) (31.8)

Non-interest expense (930,982) (848,777) (805,901) 82,205 42,876 9.7 5.3

Income taxes (134,549) (132,358) (145,711) 2,191 (13,353) 1.7 (9.2)

Income (expense) attributable to non-controlling interest (11,621) (9,825) 172 1,796 9,997 18.3 N.M.

Income (expense) attributable to non-controlling interest (8,117) (11,621) (9,825) (3,504) 1,796 (30.2) 18.3

Net income attributable to Commerce

1 unchanged sentence

$ 477,060 $ 488,399 $ 530,765 $ (11,339) $ (42,366) (2.3) % (8.0) %

Preferred stock dividends — — (11,966) — 11,966 — (100.0)

Net income available to common

shareholders $ 488,399 $ 530,765 $ 342,091 $ (42,366) $ 188,674 (8.0) % 55.2 %

- Not meaningful.

2 unchanged sentences

Diluted income per common share was $3.64 in 2023, compared to $3.67 in 2022.

The decrease in net income resulted mainly from an increase of $82.2 million in non-interest expense, partly offset by increases in net interest income of $55.9 million and non-interest income of $26.5 million.

The return on average assets was 1.49% in 2023 compared to 1.45% in 2022, and the return on average common equity was 17.94% in 2023 compared to 17.31% in 2022.

At December 31, 2023, the ratio of tangible common equity to tangible assets increased to 8.85%, compared to 7.32% at year end 2022.

During 2023, net interest income grew mainly due to increases of $338.1 million in interest income earned on loans and $88.2 million in interest income earned on deposits with banks, mainly due to higher average rates, partly offset by increases in interest expense on deposits and borrowings of $215.7 million and $110.2 million, respectively, mainly due to higher average rates paid.

Total rates earned on average interest earning assets increased 134 basis points this year, while funding costs for deposits and borrowings increased 156 basis points.

The provision for credit losses increased mainly due to higher net loan charge-offs and an increase in the estimate of the allowance for credit losses this year compared to last year.

Net loan charge-offs increased $12.0 million, mainly due to higher credit card, consumer and business loan net charge-offs in 2023.

Non-interest income grew 4.9% in 2023, mainly due to increases in bank card and trust fees.

Net investment securities gains of $15.0 million were recorded in 2023 and were comprised mainly of net fair value gains on the Company's private equity investment portfolio, partly offset by losses on sales of available for sale securities.

Non-interest expense increased $82.2 million in 2023 compared to 2022, mainly due to higher salaries and benefits expense and deposit insurance expense.

Net income attributable to Commerce Bancshares, Inc.

(net income) for 2022 was $488.4 million, a decrease of $42.4 million, or 8.0%, compared to $530.8 million in 2021.

Diluted income per common share was $3.67 in 2022, compared to $3.91 in 2021.

The decrease in net income resulted from an increase of $94.4 million in the provision for credit losses, as well as an increase of $42.9 million in non-interest expense and a decrease of $13.9 million in non-interest income.

3 unchanged sentences

During 2022, net interest income grew mainly due to increases of $77.6 million in interest income earned on investment securities, due to higher average rates earned and higher average balances, and $75.5 million in interest income earned on loans, mainly due to higher average rates earned, partly offset by an increase in interest expense on deposits and borrowings of $43.9 million, due to higher average rates paid.

Total rates earned on average interest earning assets increased 41 basis points this year, while funding costs for deposits and borrowings increased 23 basis points.

Total rates earned on average interest earning assets increased 41 basis points in 2022, while funding costs for deposits and borrowings increased 23 basis points.

The provision for credit losses increased in 2022 compared to 2021 due to a significant reduction in the allowance for credit losses on loans during 2021, which did not reoccur in 2022.

2 unchanged sentences

Non-interest income fell 2.5% in 2022, mainly due to a decrease in loan fees and sales income.

Net investment securities gains of $20.5 million were recorded in 2022 and were comprised mainly of net fair value gains on the Company's private equity investment portfolio, partly offset by losses on sales of available for sale securities.

Net investment securities gains of $20.5 million were recorded in 2022 and were comprised mainly of net fair value gains on the Company's private

equity investment portfolio, partly offset by losses on sales of available for sale securities.

Non-interest expense increased $42.9 million in 2022 compared to 2021, mainly due to higher salaries and benefits expense and data processing and software expense.

Net income attributable to Commerce Bancshares, Inc.

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

Diluted income per common share was $4.11 in 2021, compared to $2.64 in 2020.

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

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

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

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

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

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

Total rates earned on average interest earning assets fell 53 basis points in 2021, while funding costs for deposits and borrowings decreased 19 basis points.

The provision for credit losses decreased due to an improved credit outlook and the release of loan loss reserves provided for anticipated credit losses in

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2020, which did not occur.

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

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

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

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

The Company distributed a 5% stock dividend for the 30th consecutive year on December 19, 2023.

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Allowance for Credit Losses

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

Allowance for Credit Losses – Loans and Unfunded Lending Commitments

11 unchanged sentences

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

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Assumptions, Judgments, and Uncertainties:

1 unchanged sentence

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

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

The Company utilizes a third-party macro-economic forecast

that continuously changes due to economic conditions and events.

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

11 unchanged sentences

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

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

Likewise, an upturn in loan quality and improved economic conditions may require a reduction in the allowance for credit losses.

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

2 unchanged sentences

In order to estimate the allowance for credit losses on available for sale debt securities, the Company performs quarterly reviews of its investment portfolio to identify securities in an unrealized loss position.

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

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

2 unchanged sentences

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

Special emphasis is placed on securities whose credit rating has fallen below Baa3 (Moody's) or BBB- (Standard & Poor's), whose fair values have fallen more than 20% below purchase price, or who have been identified based on management’s judgment.

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 those 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.

3 unchanged sentences

Impact if actual results differ from assumptions :

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

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conditions could result in a requirement for additional allowance.

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

The allowance for credit losses represents management’s best estimate of expected credit losses in the available for sale debt securities portfolio, but significant change in interest rates and deterioration in economic conditions could result in a requirement for additional allowance.

Likewise, an increase in interest rates and improved economic conditions may require a reduction in the allowance for credit losses.

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

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

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Net Interest Income

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Net interest income totaled $998.1 million in 2023, increasing $55.9 million, or 5.9%, compared to $942.2 million in 2022.

On a fully taxable-equivalent (FTE) basis, net interest income totaled $951.8 million, and increased $104.7 million over 2021.

This growth was mainly due to an increase of $75.7 million in interest earned on loans, due to higher average rates paid and an increase of $76.9 million in interest earned on investment securities, due to higher rates and average balances, partly offset by an increase of $45.3 million in interest expense on deposits and borrowings, due to higher average rates paid.

On a fully taxable-equivalent (FTE) basis, net interest income totaled $1.0 billion, and increased $54.9 million over 2022.

This growth was mainly due to increases of $339.4 million in interest earned on loans and $88.2 million in interest earned on balances at the Federal Reserve, both mainly due to higher average rates earned.

These increases were partly offset by an increase of $325.9 million in interest expense on deposits and borrowings, mainly due to higher average rates paid, and lower interest earned on investment securities of $38.0 million, mainly due to lower average balances.

The net yield on earning assets (FTE) was 3.16% in 2023 compared with 2.85% in 2022.

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The fully taxable-equivalent basis uses a federal income tax rate of 21%.

During 2023, loan interest income (FTE) grew $339.4 million over 2022 mainly due to an increase in rates earned for all loan categories and a $1.2 billion, or 7.8%, increase in average loan balances.

The average fully taxable-equivalent rate earned on the loan portfolio increased 172 basis points to 5.90% in 2023 compared to 4.18% in 2022.

The higher rates earned on the loan portfolio were partly related to actions taken by the Federal Reserve to raise short-term interest rates, which caused most of the Company's variable rate loan portfolio to re-price higher.

Additionally, fixed rate loans were generally originated in 2023 at higher interest rates than the weighted-average of the portfolio of fixed rate loans.

Increased interest earned on business, business real estate and construction and land loans was the main driver of overall higher interest income.

Business loan interest income increased $128.3 million due to a 196 basis point increase in the average rate earned and an increase of $405.2 million, or 7.5%, in average balances.

Business real estate loan interest grew $80.2 million in 2023 compared to 2022 as a result of an increase of 181 basis points in the average rate earned and higher average balances of $372.0 million, or 11.6%.

Interest earned on construction and land loans increased $55.3 million due to an increase of 292 basis points in the average rate earned and growth of $243.8 million, or 19.8%, in average balances.

Interest on personal real estate loans increased $15.9 million as the average rate earned increased 38 basis points and the average balance grew $137.4 million.

Interest on consumer loans grew $37.3 million over the prior year as the average rate earned increased 174 basis points.

Revolving home equity loan interest increased $10.2 million due to an increase of 301 basis points in the average rate earned and growth in average balances of $22.7 million.

Interest on consumer credit card loans was higher by $12.4 million due to an increase of 191 basis points in the average rate earned and a $14.0 million increase in average balances.

Fully taxable-equivalent interest income on total investment securities decreased $38.0 million during 2023, as average balances declined $2.6 billion, while the average rate earned increased 14 basis points.

The average rate on the total investment securities portfolio was 2.29% in 2023 compared to 2.15% in 2022, while the average balance of the total investment securities portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $12.4 billion in 2023 compared to an average balance of $14.9 billion in 2022.

The decrease in interest income was mainly due to lower interest income earned on U.S.

government securities, state and municipal securities and mortgage-backed securities.

Interest earned on U.S.

government securities decreased $16.2 million mainly due to lower treasury inflation-protected securities (TIPS) interest income of $14.3 million.

Average balances of U.S.

government securities decreased $96.0 million and the average rate earned declined 125 basis points.

The decrease of $15.8 million in interest earned on state and municipal securities was due to a decrease of $542.8 million in average balances and a decline of 23 basis points in average rate earned.

Interest earned on mortgage-backed securities decreased $7.0 million due to a lower average balances of $742.6 million, partly offset by an increase of 12 basis points in the average rate earned.

Interest earned on asset-backed securities decreased $398 thousand, due to a decline in average balances of $1.2 billion, mostly offset by an increase of 62 basis points in the average rate earned.

Interest on securities purchased under resell agreements decreased $9.0 million compared to 2022 due to a decrease in average balances of $793.8 million, partly offset by growth of 43 basis points in the average rate.

Interest income on balances at the Federal Reserve increased $88.2 million over 2022, mainly due to a 416 basis point increase in the average rate earned and growth in average balances of $597.3 million.

During 2023, interest expense on deposits increased $215.7 million over 2022 and resulted mainly from a 126 basis point increase in the overall average rate paid on deposits.

Interest expense on interest checking and money market accounts increased $121.3 million mainly due to higher rates paid, which grew 94 basis points, slightly offset by lower average balances of $1.4 billion.

Interest expense on certificates of deposit grew $94.4 million, mainly due to a 350 basis point increase in the average rate paid, coupled with a $1.4 billion increase in average balances.

The overall rate paid on total deposits increased from .18% in 2022 to 1.44% in the current year.

Interest expense on borrowings increased $110.2 million mainly due to a 210 basis point increase in the rate paid on securities sold under repurchase agreements and an increase in $711.3 million in average Federal Home Loan Bank (FHLB) borrowings.

The Company did not have any outstanding FHLB borrowings at December 31, 2023.

The overall average rate incurred on all interest bearing liabilities was 1.86% in 2023, compared to .30% in 2022.

Net interest income totaled $942.2 million in 2022, increasing $106.8 million, or 12.8%, compared to $835.4 million in 2021.

On an FTE basis, net interest income totaled $951.8 million, and increased $104.7 million over 2021.

This growth was mainly due to an increase of $75.7 million in interest earned on loans, due to higher average rates earned and an increase of $76.9 million in interest earned on investment securities, due to higher rates and average balances, partly offset by an increase of $45.3 million in interest expense on deposits and borrowings, due to higher average rates paid.

The net yield on earning assets (FTE) was 2.85% in 2022 compared with 2.58% in 2021.

During 2022, loan interest income (FTE) grew $75.7 million over 2021 mainly due to an increase in rates earned for all loan categories.

The average fully taxable-equivalent rate earned on the loan portfolio increased 51 basis points to 4.18% in 2022 compared to 3.67% in 2021.

The higher rates earned on the loan portfolio were mostly related to actions taken by the Federal Reserve to raise short-term interest rates, which caused most of the Company's variable rate loan portfolio to re-price higher.

The higher rates earned on the loan portfolio were mostly related to actions taken by the Federal Reserve in 2022 to raise short-term interest rates, which caused most of the Company's variable rate loan portfolio to re-price higher.

Additionally, fixed rate loans were generally originated in 2022 at higher interest rates than the weighted-average of the portfolio of fixed rate loans.

The increase in interest rates earned was partly offset a decline in average loan balances of $102.4 million, or .7%, this year.

The increase in interest rates earned was partly offset a decline in average loan balances of $102.4 million, or .7%, in 2022.

Increased interest earned on business real estate and construction and land loans was the main driver of overall higher interest income.

2 unchanged sentences

Business loan interest income increased $11.3 million mainly due to a 49 basis point increase in the average rate earned, partly offset by a decrease of $462.1 million in average balances.

Average balances of business loans included average balances of $41.9 million in Paycheck Protection Program (PPP) loans at December 31, 2022, which was a decline of $812.2 million from balances of $854.1 billion at December 31, 2021.

Interest on personal real estate loans increased $2.6 million as the average balance grew $44.0 million and the average rate earned increased four basis points.

Interest on consumer loans grew $7.7 million over the prior year as the average rate earned increased 25 basis points and average balances were higher by $66.2 million.

Interest on consumer loans grew $7.7 million over 2021 as the average rate earned increased 25 basis points and average balances were higher by $66.2 million.

Revolving home equity loan interest increased $2.8 million due to an increase of 108 basis points in the average rate earned, slightly offset by lower average balances of $5.8 million.

7 unchanged sentences

Interest earned on U.S.

government securities grew $8.2 million and was mainly impacted by growth of $7.3 million in inflation income on treasury inflation-protected securities (TIPS).

government securities grew $8.2 million and was mainly impacted by growth of $7.3 million in inflation income on TIPS.

Average balances of U.S.

8 unchanged sentences

The overall average rate incurred on all interest bearing liabilities was .30% in 2022, compared to .07% in 2021.

Net interest income totaled $835.4 million in 2021, increasing $5.6 million, or .7%, compared to $829.8 million in 2020.

On a FTE basis, net interest income totaled $847.1 million, and increased $4.3 million over 2020.

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

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

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

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

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

Average loan balances decreased $232.5 million, or 1.5%, in 2021.

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

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

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

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

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

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

As of December 31, 2021, 93% of the PPP loans originated by the Company had been forgiven.

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

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

Interest on consumer loans declined $9.7 million from 2020 as the average rate earned decreased 58 basis points, but was partly offset by growth in average balances of $42.4 million.

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

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

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

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

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

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

Interest earned on U.S.

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

Average balances of U.S.

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

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

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

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

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

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

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

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

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

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

The overall rate paid on total deposits decreased from .24% in 2020 to .07% in 2021.

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

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

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Provision for Credit Losses

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

The provision for credit losses was $28.1 million in 2022, an increase of $94.4 million over the 2021 provision, which was a recovery of $66.3 million.

The provision for credit losses on loans in 2022 was $19.2 million, compared to a recovery in the provision for credit losses on loans of $52.2 million in 2021.

The allowance for credit losses on loans totaled $150.1 million at December 31, 2022, an increase of $92 thousand compared to the prior year, and represented .92% of loans at year end 2022, compared to .99% at December 31, 2021.

The provision for unfunded lending commitments was $8.9 million during 2022, compared to a recovery of $14.1 million in 2021, and the liability for unfunded lending commitments was $33.1 million at December 31, 2022, compared to $24.2 million at December 31, 2021.

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

The provision for credit losses was $35.5 million in 2023, an increase of $7.4 million over the 2022 provision.

The provision for credit losses on loans for the year ended December 31, 2023 was $43.3 million, compared to $19.2 million in 2022.

The allowance for credit losses on loans totaled $162.4 million at December 31, 2023, an increase of $12.3 million compared to the prior year, and represented .94% of loans at year end 2023, compared to .92% at December 31, 2022.

The provision for unfunded lending commitments was a benefit of $7.9 million during 2023, compared to a provision of $8.9 million in 2022.

The liability for unfunded lending commitments was $25.2 million at December 31, 2023, compared to $33.1 million at December 31, 2022.

Non-Interest Income

(Dollars in thousands) 2023 2022 2021 '23-'22 '22-'21

$ 184,719 $ 188,227 $ 160,637 (1.9) % 17.2 %

Bank card transaction fees $ 191,156 $ 176,144 $ 167,891 8.5 % 4.9 %

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$ 191,156 $ 176,144 $ 167,891 8.5 % 4.9 %

Non-interest income totaled $546.5 million, a decrease of $13.9 million, or 2.5%, compared to $560.4 million in 2021.

Non-interest income totaled $573.0 million, an increase of $26.5 million, or 4.9%, compared to $546.5 million in 2022.

Bank card fees increased $15.0 million, or 8.5%, over the prior year, mainly due to increases in net corporate card fees of $10.6 million, net debit card fees of $2.9 million and net merchant fees of $1.6 million.

The growth in net corporate card fees over the prior year was mainly due to lower rewards and network expense coupled with higher interchange income.

Net debit card fees increased mainly due to lower network expense, while net merchant fees increased mainly due to higher merchant discount fees.

Trust fee income increased $6.2 million, or 3.4%, as a result of higher private client trust fees (up 4.3%), which comprised 80.4% of trust fee income in 2023.

The market value of total customer trust assets totaled $68.9 billion at year end 2023, which was an increase of 14.2% over year end 2022 balances.

Deposit account fees decreased $3.4 million, or 3.6%, mainly due to lower overdraft and return item fees of $8.3 million, partly offset by growth in corporate cash management fees of $3.8 million.

In 2023, corporate cash management fees comprised 61.9% of total deposit fees, while overdraft fees comprised 12.8% of total deposit fees.

Revenue from consumer brokerage services decreased $1.9 million, or 9.9%, mainly due to lower annuity fees, while loan fees and sales decreased $2.0 million, or 15.0%, mainly due to lower mortgage banking revenue.

Other non-interest income increased $12.7 million, or 28.2%, over the prior year mainly due to higher letter of credit fees of $3.2 million, cash sweep commissions of $2.9 million, gains on the sale of real estate of $2.1 million and swap fees of $1.1 million.

In addition, increases of $6.4 million in fair value adjustments were recorded on the Company's deferred compensation plan, which are held in a trust and recorded as both an asset and a liability, affecting both other income and other expense.

These increases were partly offset by lower tax credit sales income of $2.4 million.

During 2022, non-interest income totaled $546.5 million, a decrease of $13.9 million, or 2.5%, compared to $560.4 million in 2021.

Trust fee income decreased $3.5 million, or 1.9%, as a result of lower institutional (down 7.0%), mutual fund (down 10.9%) and private client trust fees (down .3%).

1 unchanged sentence

The market value of total customer trust assets totaled $60.3 billion at year end 2022, which was a decrease of 13.0% from year end 2021 balances.

Bank card fees increased $8.3 million, or 4.9%, over the prior year, mainly due to an increase in net corporate card fees of $8.3 million.

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

Deposit account fees decreased $2.8 million, or 2.9%, mainly due to lower overdraft and return item fees of $4.2 million and personal account deposit fees of $1.2 million, partly offset by growth in corporate cash management fees of $2.5 million.

Bank card fees increased $8.3 million, or 4.9%, over 2021, mainly due to an increase in net corporate card fees of $8.3 million.

The growth in net corporate card fees over 2021 was mainly due to higher interchange income, partly offset by higher rewards expense.

fees of $2.5 million.

In 2022, corporate cash management fees comprised 55.6% of total deposit fees, while overdraft fees comprised 21.1% of total deposit fees.

In September 2022, the Company implemented enhancements to consumer checking accounts that eliminated return items fees and lowered overdraft fees.

Capital market fees decreased $1.7 million, or 10.7%, compared to the prior year, while revenue from consumer brokerage services increased $755 thousand, or 4.1%, mainly due to growth in annuity fees.

Capital market fees decreased $1.7 million, or 10.7%, compared to 2021, while revenue from consumer brokerage services increased $755 thousand, or 4.1%, mainly due to growth in annuity fees.

Loan fees and sales decreased $16.6 million, or 55.8%, mainly due to lower mortgage banking revenue.

Other non-interest income increased $1.8 million, or 4.1%, over the prior year mainly due to higher

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cash sweep commissions of $8.2 million and lease income of $1.3 million, income of $2.2 million from a life insurance death benefit recorded in the second quarter of 2022, a $2.6 million loss on an equity method investment recorded in 2021 and a lease impairment of $1.1 million recorded in 2021.

These increases were partly offset by gains of $5.6 million recorded mainly on the sales of branch properties last year.

In addition, a decrease of $6.6 million in fair value adjustments was recorded on the Company's deferred compensation plan assets, which are held in a trust, recorded as both an asset and a liability and affect both other income and other expense.

During 2021, non-interest income totaled $560.4 million, an increase of $54.5 million, or 10.8%, compared to $505.9 million in 2020.

Bank card fees increased $16.1 million, or 10.6%, over 2020, due to increases in net corporate card fees of $9.3 million, net debit card fees of $3.4 million, net credit card fees of $1.8 million and net merchant fees of $1.7 million.

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

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

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

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

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

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

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

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

Capital market fees grew $1.4 million, or 9.3%, compared to 2020, while revenue from consumer brokerage services increased $3.3 million, or 21.6%, due to growth in advisory and annuity fees.

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

Other non-interest income decreased $812 thousand, or 1.9%, from 2020 mainly due to lower cash sweep commissions of $7.9 million and a $2.6 million loss recorded on an equity method investment in 2021.

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

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Other non-interest income increased $1.8 million, or 4.1%, over 2021 mainly due to higher cash sweep commissions of $8.2 million and lease income of $1.3 million, income of $2.2 million from a life insurance death benefit recorded in the second quarter of 2022, a $2.6 million loss on an equity method investment recorded in 2021 and a lease impairment of $1.1 million recorded in 2021.

These increases were partly offset by gains of $5.6 million recorded mainly on the sales of branch properties in 2021.

In addition, a decrease of $6.6 million in fair value adjustments was recorded on the Company's deferred compensation plan.

Investment Securities Gains (Losses), Net

1 unchanged sentence

Net gains (losses) on sales of available for sale debt securities $ (8,444) $ (20,273) $ (3,284)

Net gains on sales of equity securities

Net gains (losses) on sales of equity securities

Fair value adjustments on equity securities, net

(487) (943) 187

Net gains (losses) on sales of private equity investments

1 unchanged sentence

Fair value adjustments of private equity investments 24,016 43,833 31,704

Total investment securities gains, net

Total investment securities gains (losses), net

$ 14,985 $ 20,506 $ 30,059

2 unchanged sentences

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

The portions of private equity investment gains and losses that are attributable to minority interests are reported as non-controlling interest in the consolidated statements of income, and resulted in expense of $8.5 million in 2022 and $6.5 million in 2021, compared to income of $1.4 million in 2020.

The portions of private equity investment gains and losses that are attributable to minority interests are reported as non-controlling interest in the consolidated statements of income, and resulted in expense of $4.8 million in 2023, $8.5 million in 2022, and $6.5 million in 2021.

Net securities gains of $15.0 million were recorded in 2023, which included net gains of $24.0 million in fair value adjustments on private equity investments.

This increase was partly offset by net losses of $8.4 million realized on sales resulting from the Company's sale of approximately $1.1 billion (book value) in bonds, mainly state and municipal securities and asset-backed securities, net losses of $100 thousand on sales of private equity investments, and net losses of $487 thousand in fair value adjustments on equity securities.

Net securities gains of $20.5 million were recorded in 2022, which included net gains of $43.8 million in fair value adjustments on private equity investments.

This increase was partly offset by losses of $20.3 million realized on sales resulting from the Company's sale of approximately $105 million (book value) in bonds, mainly mortgage-backed and corporate bond securities, net losses of $2.1 million on sales of private equity investments, and net losses of $943 thousand in fair value adjustments on equity securities.

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

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

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

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

Table of Conte nts

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

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

Non-Interest Expense

7 unchanged sentences

53,629 49,117 48,185 9.2 1.9

Deposit insurance

33,163 10,583 9,094 213.4 16.4

Supplies and communication

24,511 23,827 21,856 2.9 9.0

19,548 19,359 18,089 1.0 7.0

Supplies and communication

19,420 18,101 17,118 7.3 5.7

77,890 63,051 64,519 23.5 (2.3)

Total non-interest expense

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Non-interest expense was $931.0 million in 2023, an increase of $82.2 million, or 9.7%, over the previous year.

Salaries and benefits expense increased $30.0 million, or 5.4%, mainly due to higher costs for full-time salaries, healthcare expense and payroll taxes, partly offset by lower incentive compensation expense.

Full-time equivalent employees totaled 4,718 at December 31, 2023, compared to 4,594 at December 31, 2022.

Data processing and software expense increased $8.1 million, or 7.3%, primarily due to increased costs for service providers and higher bank card processing fees.

Net occupancy expense increased $4.5 million, or 9.2%, mainly due to higher depreciation expense and real estate taxes, partly offset by higher rent income.

Deposit insurance expense increased $22.6 million due to a $16.0 million accrual during the fourth quarter of 2023 for a one-time special assessment by the FDIC to replenish the Deposit Insurance Fund.

Marketing expense increased $684 thousand, or 2.9%, while supplies and communication expense increased $1.3 million, or 7.3%, mainly due to higher postage expense, bank card reissuance fees and office supplies expense.

Other non-interest expense increased $14.8 million, or 23.5%, mainly due to higher costs for travel and entertainment expense (up $1.9 million), miscellaneous losses (up $2.1 million), pension plan expense ($1.5 million) and lower deferred origination costs (up $1.6 million).

In addition, an increase of $6.4 million in fair value adjustments were recorded on the Company's deferred compensation plan, and deconversion costs of $2.1 million relating to the transition of Commerce Financial Advisors support to LPL Financial's Institution Services platform were recorded in 2023.

In 2022, non-interest expense was $848.8 million, an increase of $42.9 million, or 5.3%, over 2021.

Salaries and benefits expense increased $28.8 million, or 5.5%, mainly due to higher costs for full-time salaries, incentive compensation, stock compensation, payroll taxes and 401(k) expense.

Salaries expense included expense of $5.4 million for special bonuses paid to non-incentivized full-time and part-time employees in 2022.

Full-time equivalent employees totaled 4,594 at December 31, 2022, compared to 4,567 at December 31, 2021.

Full-time equivalent employees totaled 4,594 at December 31, 2022, reflecting a 1% increase over 2021.

Data processing and software expense increased $8.9 million, or 8.7%, primarily due to higher bank card processing fees, software amortization and expense, and increased costs for service providers.

4 unchanged sentences

Higher costs for travel and entertainment expense (up $5.1 million), insurance expense (up $1.9 million), depreciation expense on leased assets (up $958 thousand) and airplane expense (up $864 thousand) were offset by $8.2 million in non-recurring litigation settlement costs recorded in 2021.

In addition, the previously mentioned fair value adjustments on the Company's deferred compensation plan assets decreased $6.6 million from the prior year.

In 2021, non-interest expense was $805.9 million, an increase of $37.5 million, or 4.9%, over 2020.

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

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

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

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

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

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

Other non-interest expense increased $16.2 million, or 28.2%, over 2020 mainly due to $8.2 million in non-recurring litigation settlement costs mentioned above.

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

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

In addition, the previously mentioned fair value adjustments on the Company's deferred compensation plan assets decreased $6.6 million from 2021.

Income tax expense was $134.5 million in 2023, compared to $132.4 million in 2022 and $145.7 million in 2021.

1 unchanged sentence

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

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Financial Condition

46 unchanged sentences

$ 4,815,073 $ 8,402,662 $ 2,537,810 $ 1,449,934 $ 17,205,479

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The following table shows loan balances at December 31, 2023, segregated between those with fixed interest rates and those with variable rates that fluctuate with an index.

12 unchanged sentences

$ 7,353,767 $ 9,851,712 $ 17,205,479 57.3 %

Total loans at December 31, 2022 were $16.3 billion, an increase of $1.1 billion, or 7.4%, over balances at December 31, 2021.

The increase in loans during 2022 occurred in all categories over the previous year.

Business loans increased $358.2 million, or 6.8%, mainly due to a $374 million increase in commercial and industrial loans.

Excluding declines in PPP loan balances, which decreased $121.1 million during 2022, business loans increased $479.3 million, or 9.0%.

As of December 31, 2022, nearly 100% of PPP loan balances have been forgiven.

Lease lending and commercial card lending, included within business loans, also increased during 2022, but the increase was partly offset by a decline in tax-advantaged lending.

Total loans at December 31, 2023 were $17.2 billion, an increase of $902.3 million, or 5.5%, over balances at December 31, 2022.

The increase in loans during 2023 occurred in all categories over the previous year, with the exception of overdrafts.

Business loans increased $357.3 million, or 6.3%, mainly due to a $173.9 million increase in commercial and industrial loans and a $95.1 million increase in lease loans.

Commercial card and tax-advantaged lending, included within business loans, also increased during 2023.

Construction loans increased $85.7 million, or 6.3%, mainly due to growth in commercial construction lending.

Business real estate loans increased $348.1 million, or 11.4%, due mainly to increases in industrial and office building lending, while owner-occupied, multi-family, and senior living lending declined.

Business real estate loans increased $312.3 million, or 9.2%, due mainly to increases in industrial, hotel and senior living lending, while multi-family and office building lending declined.

Personal real estate loans increased $108.0 million, or 3.7%.

The Company sells certain long-term fixed rate mortgage loans to the secondary market, and loan sales in 2023 totaled $29.9 million, compared to $111.3 million in 2022.

Consumer loans increased $26.9 million, or 1.3%, mainly due to growth in private banking lending.

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

Consumer loans increased $18.6 million, or .9%, mainly due to growth in consumer auto lending.

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

Consumer credit card loans increased $5.9 million, or 1.0%, and revolving home equity loan balances increased $22.7 million, or 7.6%, compared to balances at year end 2022.

10 unchanged sentences

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

These loans totaled $618.1 million at December 31, 2022, a decrease of $111.8 million, or 15.3%, from December 31, 2021 balances.

These loans totaled $666.1 million at December 31, 2023, an increase of $48.0 million, or 7.8%, from December 31, 2022 balances.

In addition to tax-advantaged leases, the business loan portfolio also includes other direct financing and sales type leases totaling $709.7 million at December 31, 2023, an increase of $95.1 million, or 15.5%, from December 31, 2022.

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

Additionally, the Company has outstanding oil and gas energy-related loans totaling $296.4 million at December 31, 2022, which are further discussed within the Oil and Gas Energy Lending section of the Risk Elements of Loan Portfolio section located within Management's Discussion and Analysis of Financial Condition and

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Results of Operations.

Also included in the business portfolio are corporate card loans, which totaled $367.3 million at December 31, 2022 and are made in conjunction with the Company’s corporate card business for corporate trade purchases.

Additionally, the Company has $260.8 million of outstanding loans included within its $272.0 million oil and gas energy-related loan portfolio at December 31, 2023, which is further discussed within the Oil and Gas Energy Lending section of the Risk Elements of Loan Portfolio section located within Management's Discussion and Analysis of Financial Condition and Results of Operations.

Also included in the business portfolio are corporate card loans, which totaled $407.6 million at December 31, 2023 and are made in conjunction with the Company’s corporate card

business for corporate trade purchases.

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

3 unchanged sentences

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

Net loan charge-offs in this category totaled $1.1 million in 2022 compared to net loan recoveries of $4.8 million in 2021.

Net loan charge-offs in this category totaled $3.1 million in 2023 compared to $1.1 million in 2022.

Non-accrual business loans were $3.6 million (.1% of business loans) at December 31, 2023 compared to $6.8 million at December 31, 2022.

6 unchanged sentences

Residential construction and land development loans at December 31, 2023 totaled $173.1 million, or 12.0% of total construction loans.

A stable construction market has contributed to low loss rates on these loans, with net loan charge-offs of nearly zero in both 2022 and 2021.

A stable construction market has contributed to low loss rates on these loans, with net loan recoveries of $115 thousand and no net loan charge-offs in 2023 and 2022, respectively.

Real Estate-Business

4 unchanged sentences

At December 31, 2023, balances of non-accrual loans amounted to $60 thousand, less than .1% of business real estate loans, down from $189 thousand at year end 2022.

The Company experienced net loan recoveries of $20 thousand in 2022, compared to net loan recoveries of $64 thousand in 2021.

The Company experienced net loan charge-offs of $104 thousand in 2023, compared to net loan recoveries of $20 thousand in 2022.

Personal Banking Loans

7 unchanged sentences

Of the $510 million of mortgage loans originated in 2023, $29.9 million were sold to the secondary market.

This compares to $1.3 billion of mortgage loans originated and $547.1 million of loans sold to the secondary market in 2021.

The decrease in loan sales during 2022 compared to 2021 was partly due to lower demand for mortgage loans, as well as the Company's temporary pause on loan sales in late 2022.

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

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recoveries in 2022 totaled $74 thousand, and net loan recoveries were $98 thousand in 2021.

This compares to $699 million of mortgage loans originated and $111.3 million of loans sold to the secondary market in 2022.

The decrease in loan sales during 2023 compared to 2022 was mainly due to lower demand for mortgage loans.

Net loan recoveries in 2023 totaled $37 thousand, and net loan recoveries were $74 thousand in 2022.

Balances of non-accrual loans in this category were $1.7 million at December 31, 2023, compared to $1.4 million at year end 2022.

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

These loans totaled $2.1 billion at December 31, 2022.

These loans totaled $2.1 billion at

December 31, 2023.

Approximately 39% of the consumer portfolio consists of automobile loans, 32% in private banking loans, 11% in fixed rate home equity loans, and 10% in healthcare financing loans.

Total consumer loans increased $18.6 million at year end 2023 compared to year end 2022.

Growth of $77.6 million in private banking loans was supplemented by increases in patient healthcare financing and fixed rate home equity loans.

These increases in consumer loan balances were partially offset by declines of $56.8 million in automobile loans and $19.2 million in motorcycle loans.

Growth of $21.7 million in auto loans was supplemented by increases of $13.7 million and $4.5 million in patient healthcare financing and fixed rate home equity loans, respectively.

These increases in consumer loan balances were partially offset by declines of $13.7 million in other vehicle and equipment loans and $3.7 million in marine and RV loans.

Net charge-offs on total consumer loans were $6.2 million in 2023, compared to $3.8 million in 2022, averaging .30% and .18% of consumer loans in 2023 and 2022, respectively.

Revolving Home Equity

Revolving home equity loans, of which more than 99% are adjustable rate loans, totaled $297.2 million at year end 2022.

Revolving home equity loans, of which 100% are adjustable rate loans, totaled $319.9 million at year end 2023.

An additional $900.0 million was available in unused lines of credit, which can be drawn at the discretion of the borrower.

1 unchanged sentence

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

Net loan recoveries were $60 thousand in 2022, compared to net loan charge-offs of nearly zero in 2021.

Net loan recoveries were $57 thousand in 2023, compared to net loan recoveries of $60 thousand in 2022.

Consumer Credit Card

4 unchanged sentences

Approximately 95% of the outstanding credit card loan balances had a floating interest rate at year end 2023, unchanged from year end 2022.

Net charge-offs amounted to $12.7 million in 2022, a decrease of $7.4 million from $20.0 million in 2021.

Net charge-offs amounted to $19.1 million in 2023, an increase of $6.4 million from $12.7 million in 2022.

Loans Held for Sale

At December 31, 2022, loans held for sale were comprised of certain loans extended to students while attending colleges and universities.

At December 31, 2023, loans held for sale were comprised of certain long-term fixed rate personal real estate loans and loans extended to students while attending colleges and universities.

The personal real estate loans are carried at fair value and totaled $1.6 million at December 31, 2023.

The student loans, carried at the lower of cost or fair value, totaled $2.2 million at December 31, 2023.

This portfolio is further discussed in Note 2 to the consolidated financial statements.

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

8 unchanged sentences

These loans consist of commercial loans (business, construction and business real estate) which have been graded pass, special mention, or substandard, and also include all personal banking loans except personal real estate loans on non-accrual status.

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

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

3 unchanged sentences

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

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

Such reviews also assist management in establishing the level of the allowance.

The Company’s subsidiary bank continues to be subject to examination by several regulatory agencies, and examinations are conducted throughout the year, targeting various segments of the loan portfolio for review.

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

At December 31, 2023, the allowance for credit losses on loans was $162.4 million, compared to $150.1 million at December 31, 2022.

The allowance for credit losses related to commercial loans increased $5.5 million during 2022, due to increases in the allowance for construction and business loans of $5.6 million and $2.4 million, respectively, partly offset by a decrease in the allowance for business real estate loans of $2.5 million.

The increase in the allowance for credit losses on the commercial portfolio is due to an increase in outstanding loan balances, partially offset by a reduction in certain pandemic-related reserves, as those uncertainties and concerns began to resolve.

Compared to December 31, 2021, the allowance for credit losses on consumer credit card loans decreased $10.6 million, due to the changing forecast, as concerns related to COVID-19 lessened.

This decrease was partly offset by a $4.7 million increase in the allowance for personal real estate loans, as prepayment speeds slowed, extending the estimated average life of the loans and increasing the related allowance.

T he provision for credit losses, which includes the provision for loans and unfunded lending commitments, was $28.1 million for the year, compared to a benefit of $66.3 million in 2021.

During 2021, the allowance for credit losses built in 2020 to estimate the impact of the pandemic were released as the economic forecast and loss projections improved.

The allowance for credit losses related to commercial loans increased $4.9 million during 2023, while the allowance for credit losses related to personal banking loans increased $7.4 million.

The increase in the allowance for credit losses was due to an increase in outstanding loan balances, slower prepayment speeds, changes in forecast assumptions, and increases in past due consumer and consumer credit card loans.

The percentage of allowance to loans increased to .94% at December 31, 2023, compared to .92% at December 31, 2022.

See Note 2 to the consolidated financial statements for the various model assumptions utilized in the Company's CECL estimate at December 31, 2023.

The percentage of allowance to loans decreased to .92% at December 31, 2022, compared to .99% at December 30, 2021.

The percentage of allowance to commercial portfolio loans decreased to .99% at December 31, 2022, compared to 1.03% at December 30, 2021, and the percentage of allowance to personal banking loans decreased to .80% at December 31, 2022 from .92% at December 31, 2021.

The allowance fell as a percentage of loans at December 31, 2022 as the forecast used in the Company's CECL model moved away from the forecast estimating losses related to the trailing impact of the unprecedented pandemic at year end 2021 to a forecast showing a near term mild recession.

Table of Conte nts

Net loan charge-offs totaled $31.1 million in 2023, representing a $12.0 million increase compared to net charge-offs of $19.1 million in 2022.

The increase was largely due to higher net charge-offs of $6.4 million, $2.5 million, $2.1 million, and $1.1 million on consumer credit card loans, consumer loans, business loans, and overdrafts, respectively, during 2023.

Consumer credit card loan net charge-offs were 3.40% of average consumer credit card loans in 2023, compared to 2.31% in 2022, and consumer loan net charge-offs were .30% of average consumer loans in 2023, compared to .18% in 2022.

The ratio of net loan charge-offs to total average loans outstanding was .19% in 2023 and .12% in both 2022 and 2021.

Total loans delinquent 90 days or more and still accruing were $21.9 million at December 31, 2023, an increase of $6.0 million compared to year end 2022.

The increase was mainly driven by growth of $2.9 million in personal real estate loans.

Non-accrual loans at December 31, 2022 were $8.3 million, a decrease of $851 thousand from the prior year, mainly due to declines in business and personal real estate non-accrual loans of $561 thousand and $264 thousand, respectively.

Non-accrual loans at December 31, 2023 were $7.3 million, a decrease of $994 thousand from the prior year, mainly due to a decrease in business non-accrual loans of $3.1 million, partly offset by an increase of $2.0 million in revolving home equity non-accrual loans.

The allowance for credit losses as a percentage of non-accrual loans was 2,220.9% at December 31, 2023, compared to 1,807.6% at December 31, 2022.

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

The 2022 year-end balance of non-accrual loans was comprised of $6.8 million of business loans, $1.4 million of personal real estate loans, and $189 thousand of business real estate loans.

Net loan charge-offs totaled $19.1 million in 2022, representing a $496 thousand increase compared to net charge-offs of $18.6 million in 2021.

The increase was largely due to net charge-offs of $1.1 million on business loans during 2022, compared to net recoveries of $4.8 million in the prior year, and higher net charge-offs on consumer loans of $1.2 million in 2022.

These increases to net charge-offs were partly offset by lower consumer credit card loan net charge-offs of $7.4 million.

Consumer credit card loan net charge-offs were 2.31% of average consumer credit card loans in 2022, compared to 3.47% in 202 1.

Consumer credit card loan net charge-offs as a percentage of total net charge-offs decreased to 66.4% in 2022, compared to 107.8% in 2021 .

Consumer loan net charge-offs were .18% of average consumer loans in 2022, compared to .13% in 2021, and represented 19.9% of total net loan charge-offs in 2022.

The ratio of net loan charge-offs to total average loans outstanding was .12% in both 2022 and 2021 and .22% in 2020.

At December 31, 2022, the liability for unfunded lending commitments was $33.1 million, an increase of $8.9 million compared to December 31, 2021.

The increase in the liability for unfunded lending commitments during 2022 was driven primarily by increases in the balance and the average term of unfunded lending commitments.

The increase in the ratio of the allowance to non-accrual loans was driven by the decrease in non-accrual loans outstanding and an increase in the allowance for credit losses.

The 2023 year-end balance of non-accrual loans was comprised of $3.6 million of business loans, $1.7 million of personal real estate loans, $2.0 million of revolving home equity loans, and $60 thousand of business real estate loans.

At December 31, 2023, the liability for unfunded lending commitments was $25.2 million, an decrease of $7.9 million compared to December 31, 2022.

The decrease in the liability for unfunded lending commitments during 2023 was driven primarily by decreases in the balance of unfunded lending commitments.

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

1 unchanged sentence

The Company considers the allowance for credit losses on loans and the liability for unfunded lending commitments adequate to cover losses expected in the loan portfolio, including unfunded commitments, at December 31, 2023.

Table of Conte nts

The schedules which follow summarize the relationship between loan balances and activity in the allowance for credit losses on loans:

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Balance at end of prior year $ 150,136 $ 150,044 $ 220,834

Adoption of ASU 2016-13 — — (21,039)

Balance at beginning of year 150,044 220,834 139,643

Provision for credit losses on loans 43,325 19,155 (52,223)

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

Table of Conte nts

Years Ended December 31

3 unchanged sentences

Real estate — construction and land (.01) — —

Real estate — business — — —

Real estate — personal — — (.01)

Consumer .30 .18 .13

18 unchanged sentences

Total $ 162,395 100.0 % .94 % $ 150,136 100.0 % .92 %

Table of Conte nts

The following schedule shows the liability for unfunded lending commitments.

Years Ended December 31

(In thousands) 2023 2022 2021

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

Balance at beginning of period $ 33,120 $ 24,204 $ 38,307

Provision for credit losses on unfunded lending commitments (7,874) 8,916 (14,103)

Balance at end of period $ 25,246 $ 33,120 $ 24,204

Risk Elements of the Loan Portfolio

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Non-accrual loans totaled $7.3 million at year end 2023, a decrease of $994 thousand from the balance at year end 2022.

The decrease from December 31, 2021 occurred mainly in business loans, which decreased $561 thousand, and personal real estate loans, which decreased $265 thousand.

At December 31, 2022, non-accrual loans were comprised of business (81.3%), personal real estate (16.4%), and business real estate (2.3%) loans.

Foreclosed real estate totaled $96 thousand at December 31, 2022, a decrease of $19 thousand when compared to December 31, 2021.

The decrease from December 31, 2022 occurred mainly in business loans, which decreased $3.1 million.

This decrease was partially offset by an increase in revolving home equity loans of $2.0 million.

At December 31, 2023, non-accrual loans were comprised of business (49.6%), revolving home equity (27.0%), personal real estate (22.6%), and business real estate (0.8%) loans.

Foreclosed real estate totaled $270 thousand at December 31, 2023, an increase of $174 thousand when compared to December 31, 2022.

Total non-performing assets remain low compared to the overall banking industry in 2023, with the non-performing assets to total loans ratio at .04% at December 31, 2023.

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Such loans totaled $216.4 million at December 31, 2023, compared with $259.7 million at December 31, 2022, resulting in a decrease of $43.3 million or 16.7%.

The decrease in potential problem loans was largely driven by an $18.2 million decrease in business real estate loans, partly offset by a $7.2 million increase in construction loans.

The decrease in potential problem loans was largely driven by a $47.5 million decrease in construction and land loans and a $41.7 million decrease in business real estate loans, partly offset by a $45.3 million increase in business loans.

(In thousands)

5 unchanged sentences

Total potential problem loans $ 216,387 $ 259,724

Table of Conte nts

Loans with Special Risk Characteristics

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Residential construction 110,687 7.7 .6 138,311 10.2 .8

Commercial land and land development 50,667 3.7 .3 48,481 4.3 .3

Residential land and land development 62,417 4.3 .4 50,012 3.7 .3

Commercial land and land development 50,699 3.5 .3 50,667 3.7 .3

Total real estate – construction and land loans

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Total business real estate loans were $3.7 billion at December 31, 2023 and comprised 21.6% of the Company’s total loan portfolio.

Approximately 33.3% of these loans were for owner-occupied real estate properties, which present lower risk profiles.

These loans include properties such as manufacturing and warehouse buildings, distribution facilities, small office and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties, which have historically resulted in lower net charge-off rates than non-owner-occupied commercial real estate loans.

Approximately 31.6% of these loans were for owner-occupied real estate properties, which have historically resulted in lower net charge-off rates than non-owner-occupied commercial real estate loans.

(Dollars in thousands)

1 unchanged sentence

Owner-occupied $ 1,175,476 31.6 % 6.8 % $ 1,136,189 33.3 % 7.0 %

Industrial 630,713 17.0 3.7 478,534 14.0 2.9

Office 489,320 13.2 2.8 497,601 14.6 3.1

Retail 366,693 9.9 2.1 322,971 9.5 2.0

Hotels 292,941 7.9 1.7 230,972 6.8 1.4

Multi-family 256,657 6.9 1.5 308,156 9.0 1.9

Farm 195,981 5.3 1.1 195,920 5.8 1.2

Senior living 183,778 4.9 1.1 131,217 3.9 .8

Other 127,747 3.3 .8 105,421 3.1 .6

Total real estate - business loans $ 3,719,306 100.0 % 21.6 % $ 3,406,981 100.0 % 20.9 %

Information about the credit quality of the Company's business real estate loan portfolio as of December 31, 2023 and December 31, 2022 is provided in the table below.

(Dollars in thousands) Pass Special Mention Substandard Non-Accrual Total

December 31, 2023

Owner-occupied $ 1,146,112 $ 10,376 $ 18,928 $ 60 $ 1,175,476

Industrial 630,644 69 — — 630,713

Office 489,320 — — — 489,320

Retail 349,321 15,500 1,872 — 366,693

Hotels 282,105 9,253 1,583 — 292,941

Multi-family 255,507 1,150 — — 256,657

Farm 195,981 — — — 195,981

Senior living 69,379 — 114,399 — 183,778

Other 127,505 242 — — 127,747

Total $ 3,545,874 $ 36,590 $ 136,782 $ 60 $ 3,719,306

December 31, 2022

Owner-occupied $ 1,129,343 $ 632 $ 6,084 $ 130 $ 1,136,189

Industrial 478,534 — — — 478,534

Office 494,169 3,432 — — 497,601

Retail 321,041 — 1,930 — 322,971

Hotels 174,558 9,725 46,689 — 230,972

Multi-family 286,202 1,975 19,979 — 308,156

Farm 195,685 177 — 58 195,920

1 unchanged sentence

Other 105,144 277 — — 105,421

Total real estate - business loans $ 3,406,981 100.0 % 20.9 % $ 3,058,837 100.0 % 20.2 %

Table of Conte nts

Total $ 3,208,190 $ 16,218 $ 182,384 $ 189 $ 3,406,981

Revolving Home Equity Loans

21 unchanged sentences

(Dollars in thousands)

Principal Outstanding at December 31, 2021

* New Lines Originated During 2021 * Unused Portion of Available Lines at December 31, 2021 * Balances Over 30 Days Past Due *

Principal Outstanding at December 31, 2022 * New Lines Originated During 2022 * Unused Portion of Available Lines at December 31, 2022 * Balances Over 30 Days Past Due *

Loans with interest-only payments

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Auto loans comprised 39% of the consumer loan portfolio at December 31, 2023, and outstanding balances in the auto loan portfolio were $820.3 million and $798.6 million at December 31, 2023 and 2022, respectively.

The balances over 30 days past due amounted to $9.9 million at December 31, 2022, compared to $9.0 million at the end of 2021, and comprised 1.2% of the outstanding balances of these loans at December 31, 2022 compared to 1.1% at December 31, 2021.

The balances over 30 days past due amounted to $9.5 million at December 31, 2023, compared to $9.9 million at the end of 2022, and comprised 1.2% of the outstanding balances of these loans at both December 31, 2023 and 2022.

For the year ended December 31, 2023, $364.9 million of new auto loans were originated, compared to $329.3 million during 2022.

1 unchanged sentence

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 11% of the consumer loan portfolio at December 31, 2023.

Losses on these loans have historically been low, and the Company saw net recoveries of $46 thousand in 2022.

Losses on these loans have historically been low, and the Company had net recoveries of $68 thousand in 2023.

Private banking loans comprised 32% of the consumer loan portfolio at December 31, 2023.

2 unchanged sentences

Net charge-offs on private banking, health services financing, motorcycle and marine and RV loans totaled $2.4 million in 2023 and were .3% of the average balances of these loans at December 31, 2023.

Table of Conte nts

Consumer Credit Card Loans

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Oil and Gas Energy Lending

The Company's energy lending portfolio was comprised of lending to the petroleum and natural gas sectors and totaled $296.4 million at December 31, 2022, an increase of $35.8 million from year end 2021, as shown in the table below.

The Company's energy lending portfolio was comprised of lending to the petroleum and natural gas sectors and totaled $272.0 million at December 31, 2023, a decrease of $24.4 million from year end 2022, as shown in the table below.

(In thousands)

5 unchanged sentences

Total energy lending portfolio $ 272,034 $ 296,427 $ 240,788

Information about the credit quality of the Company's energy lending portfolio as of December 31, 2022 and December 31, 2021 is provided in the table below.

(Dollars in thousands) December 31, 2022 % of Energy Lending December 31, 2021 % of Energy Lending

Pass $ 293,371 99.0 % $ 256,186 98.3 %

Special mention 1,232 .4 1,999 0.8

Substandard — — — —

Non-accrual 1,824 .6 2,459 0.9

Total $ 296,427 100.0 % $ 260,644 100.0 %

Energy lending balances classified as non-accrual represented .6% of total energy lending loan balances at December 31, 2022.

There were no balances classified as substandard at December 31, 2022.

The Company recorded $5 thousand of recoveries on energy loans for the year ended December 31, 2022, compared to $10 thousand of recoveries on energy loans for the year ended December 31, 2021.

Table of Conte nts

Investment Securities Analysis

1 unchanged sentence

The largest component, available for sale debt securities, decreased 20.6% during 2023 to $10.9 billion (excluding unrealized gains/losses in fair value) at year end 2023.

During 2022, debt securities of $2.1 billion were purchased, which included $1.1 billion in asset-backed securities, $406.3 million in agency mortgage-backed securities, $207.9 million in non-agency mortgage-based securities, $150.1 million in state and municipal securities, and $152.9 million in U.S.

government and federal agency obligations.

During 2023, debt securities of $138.8 million were purchased, which included $100.3 million in U.S.

government and federal agency obligations and $37.6 million in government-sponsored enterprise obligations.

Total sales, maturities and pay downs of available for sale debt securities were $3.0 billion during 2023.

During 2024, maturities and pay downs of approximately $1.8 billion are expected to occur.

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

There were no significant changes to the Company's tax-exempt investment portfolio during 2022.

The Company's tax-exempt investment portfolio is primarily comprised of tax-exempt municipal bonds.

In 2023 the Company's tax-exempt investment portfolio represented 30% of the Company's total state and municipal investment portfolio, as compared to 50% in 2022.

The average tax equivalent yield earned on total investment securities was 2.29% in 2023 and 2.15% in 2022.

At December 31, 2022, the fair value of available for sale securities was $12.2 billion, which included a net unrealized loss in fair value of $1.5 billion, compared to a net unrealized gain of $30.9 million at December 31, 2021.

At December 31, 2023, the fair value of available for sale securities was $9.7 billion, which included a net unrealized loss in fair value of $1.2 billion, compared to a net unrealized loss of $1.5 billion at December 31, 2022.

The overall unrealized loss in fair value at December 31, 2023 included net losses of $24.8 million is U.S.

government and federal agency obligations, net losses of $197.9 million in state and municipal securities, and net losses of $1.2 billion in mortgage and asset-backed securities.

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

government and federal agency obligations, net losses of $149.2 million in state and municipal securities, and net losses of $987.1 million in mortgage and asset-backed securities.

For the year ended December 31, 2023, the Company did not recognize a credit loss expense on any available for sale debt securities.

20 unchanged sentences

$ 9,684,760 $ 12,238,316

At December 31, 2022, the available for sale portfolio included $4.3 billion of agency mortgage-backed securities, which are collateralized bonds issued by agencies including FNMA, GNMA, FHLMC, FHLB, Federal Farm Credit Banks and FDIC.

At December 31, 2023, the available for sale portfolio included $3.9 billion of agency mortgage-backed securities, which are collateralized bonds issued by agencies including FNMA, GNMA, FHLMC, FHLB, and Federal Farm Credit Banks.

Non-agency mortgage-backed securities totaled $1.2 billion and included $336.0 million collateralized by commercial mortgages and $821.9 million collateralized by residential mortgages at December 31, 2023.

2 unchanged sentences

Other debt securities include corporate bonds, notes and commercial paper.

Table of Conte nts

The types of securities held in the available for sale security portfolio at year end 2023 are presented in the table below.

17 unchanged sentences

These are restricted securities and are carried at cost.

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.

Also included in other securities are private equity investments which are held by a subsidiary qualified as a Small Business Investment Company.

14 unchanged sentences

$ 222,473 $ 225,034

In addition to its holdings in the investment securities portfolio, the Company invests in securities purchased under agreements to resell, which totaled $825.0 million at December 31, 2022 and $1.6 billion at December 31, 2021.

These investments mature in 2023 through 2025 and have fixed rates or variable rates that fluctuate with published indices.

In addition to its holdings in the investment securities portfolio, the Company invests in securities purchased under agreements to resell, which totaled $450.0 million at December 31, 2023 and $825.0 million at December 31, 2022.

Of the total resale agreements outstanding at December 31, 2023, $325.0 million mature in 2024 and $125.0 million mature in 2025.

The resale agreements have fixed rates or variable rates that fluctuate with published indices.

The counterparties to these agreements are other financial institutions from whom the Company has accepted collateral of $479.0 million in marketable investment securities at December 31, 2023.

The average rate earned on these agreements during 2023 was 1.9%, compared to 1.5% in 2022.

The Company also holds offsetting repurchase and resale agreements totaling $200.0 million at December 31, 2022 and $400.0 million at December 31, 2021, which are further discussed in Note 20 to the consolidated financial statements.

At December 31, 2022, the Company also held offsetting repurchase and resale agreements totaling $200.0 million, which are further discussed in Note 20 to the consolidated financial statements.

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

These repurchase and resale agreements have been offset against each other in the balance sheet, as permitted under current accounting guidance.

The agreements mature in 2023 and earned an average of 29 basis points during 2022, compared to 30 basis points in 2021.

Table of Conte nts

The agreements matured in 2023 and earned an average of 30 basis points during 2023, compared to 29 basis points in 2022.

Deposits and Borrowings

Deposits, including both individual and corporate customers, are the primary funding source for the Bank and are acquired from a broad base of local markets.

Total period-end deposits were $26.2 billion at December 31, 2022, compared to $29.8 billion last year, reflecting an decrease of $3.6 billion, or 12.2%.

Average deposits increased $316.6 million, or 1.1%, in 2022 compared to 2021, resulting from increases in interest checking and money market account balances, and savings account balances of $1.1 billion and $133.5 million, respectively.

Partially offsetting these increases in deposit balances were declines in certificates of deposit balances, which decreased $646.1 million in 2022.

Additionally, average demand deposits decreased $275.7 million, primarily driven by lower balances in business demand deposits.

Deposits, including both individual and corporate customer deposits, are the primary funding source for the Bank and are acquired from a broad base of local markets.

Total period-end deposits were $25.4 billion at December 31, 2023, compared to $26.2 billion last year, reflecting a decrease of $823.5 million, or 3.1%.

Average deposits decreased $2.8 billion, or 9.9%, in 2023 compared to 2022, resulting from decreases of $6.1 billion and $2.7 billion in money market account balances and business demand deposits, respectfully.

Partially offsetting these decreases were increases in interest checking and certificate of deposit account balances of $4.7 billion and $1.4 billion, respectively.

The following table shows year end deposit balances by type, as a percentage of total deposits.

7 unchanged sentences

Core deposits, which include non-interest bearing, interest checking, savings, and money market deposits, supported 72% and 81% of average earning assets in 2023 and 2022, respectively.

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

A maturity schedule of all certificates of deposits outstanding at December 31, 2023 is included in Note 7 on Deposits in the consolidated financial statements.

11 unchanged sentences

Total balances of federal funds purchased and repurchase agreements outstanding at December 31, 2023 were $2.9 billion, comprised of federal funds purchased of $261.3 million and repurchase agreements of $2.6 billion.

These balances increased $116.5 million from the federal funds purchased and decreased $297.7 million from the repurchase agreements outstanding at December 31, 2021.

On an average basis, these borrowings increased $104.4 million, or 4.5%, during 2022, due to an increase of $44.8 million in repurchase agreements and $59.6 million in federal funds purchased.

The average rate was 2.21% paid on federal funds purchased and 1.02% paid on repurchase agreements during 2022, compared to the average rate paid on both federal funds purchased and repurchase agreements of .07% during 2021.

In addition to the funding sources above, the Company may borrow from the FHLB on a short-term basis (borrowings with an original maturity of less than one year) and long-term basis.

During 2022, the Company had average short-term borrowings of $45.1 million.

All of the short-term borrowings were repaid by the Company before December 31, 2022, and the average

Table of Conte nts

rate paid on the FHLB borrowings during 2022 was 4.02%.

The Company did not have any short-term FHLB borrowings during 2021.

Compared to balances at December 31, 2022, December 31, 2023 balances of federal funds purchased increased $101.4 million and repurchase agreements outstanding decreased $34.4 million.

On an average basis, these borrowings increased $400.4 million, or 16.4%, during 2023, due to an increase of $412.5 million in average federal funds purchased and a decrease of $12.2 million (average) in repurchase agreements.

The average rates paid on federal funds purchased and repurchase agreements were 5.1% and 3.12%, respectively, during 2023, compared to rates of 2.21% on federal funds purchased and 1.02% paid on repurchase agreements during 2022.

In addition to the funding sources above, the Company may borrow from the FHLB on a short-term basis or long-term basis.

During 2023, the Company had average short-term borrowings from the FHLB of $756.4 million.

All of the short-term borrowings were repaid by the Company before December 31, 2023, and the average rate paid on the FHLB borrowings during 2023 was 5.22%.

During 2022, the Company had average short-term borrowings from the FHLB of $45.1 million.

short-term borrowings were repaid by the Company before December 31, 2022, and the average rate paid on the FHLB borrowings was 4.02%.

The Company did not borrow any long-term funds from the FHLB during 2023 or 2022.

2 unchanged sentences

Liquidity is managed within the Company in order to satisfy cash flow requirements of deposit and borrowing customers while at the same time meeting its own cash flow needs.

The Company has taken numerous steps to address liquidity risk and has developed a variety of liquidity sources which it believes will provide the necessary funds for future growth.

The Company manages its liquidity position through a variety of sources including:

• A portfolio of liquid assets including marketable investment securities and overnight investments,

• A large customer deposit base and limited exposure to large, volatile certificates of deposit,

• Lower long-term borrowings that might place demands on Company cash flow,

• Relatively low loan to deposit ratio promoting strong liquidity,

• Excellent debt ratings from both Standard & Poor’s and Moody’s national rating services, and

• Available borrowing capacity from outside sources.

The Company’s most liquid assets include available for sale debt securities, federal funds sold, balances at the Federal Reserve Bank, and securities purchased under agreements to resell.

The Company has taken numerous steps to address liquidity risk and has developed a variety of liquidity sources which it believes will provide the necessary funds for future growth or to replace deposit runoff during periods of stress and uncertainty in the banking industry.

The Company manages its liquidity position through a variety of actions and sources including:

• A portfolio of liquid investments with overnight maturities,

• A portfolio of liquid available for sale debt securities,

• A diversified customer deposit base spread across three business segments,

• Access to the brokered certificate of deposit market,

• A loan to deposit ratio lower than industry average,

• Maintaining excellent debt ratings from both Standard & Poor's and Moody's national rating services,

• Available borrowing capacity of unsecured, overnight federal funds purchased, and

• Available borrowing capacity from the FHLB and Federal Reserve Bank.

The Company’s most liquid assets include balances at the Federal Reserve Bank, federal funds sold, available for sale debt securities, and securities purchased under agreements to resell.

At December 31, 2023 and 2022, such assets were as follows:

(In thousands) 2023 2022

Available for sale debt securities

$ 12,238,316 $ 14,450,027

Balances at the Federal Reserve Bank $ 2,239,010 $ 389,140

Federal funds sold

1 unchanged sentence

450,000 825,000

Balances at the Federal Reserve Bank

389,140 3,971,217

Available for sale debt securities 9,684,760 12,238,316

Total $ 12,378,795 $ 13,501,961

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $2.2 billion at December 31, 2023.

There were $5.0 million federal funds sold at December 31, 2023, which are funds lent to the Company’s correspondent bank customers with overnight maturities.

Resale agreements, maturing through 2025, totaled $825.0 million at December 31, 2022.

The fair value of the available for sale debt portfolio was $9.7 billion at December 31, 2023 and included an unrealized loss of $1.2 billion.

The total net unrealized loss included net losses of $987.1 million on mortgage-backed and asset-backed securities, $149.2 million on state and municipal obligations, and $47.3 million on other debt securities.

Resale agreements totaled $450.0 million at December 31, 2023, with $325.0 million of the agreements maturing in the first quarter of 2024 and $125.0 million maturing in the first quarter of 2025.

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

This collateral totaled $479.0 million in fair value at December 31, 2023.

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $389.1 million at December 31, 2022.

The fair value of the available for sale debt portfolio was $12.2 billion at December 31, 2022 and included an unrealized net loss of $1.5 billion.

The total net unrealized loss included net loss of $1.2 billion on mortgage-backed and asset-backed securities, $197.9 million on state and municipal obligations, and $43.4 million on U.S.

government and federal agency obligations.

Approximately $2.4 billion of the available for sale debt portfolio is expected to mature or pay down during 2023, and these funds offer substantial resources to meet either new loan demand or help offset potential reductions in the Company’s deposit funding base.

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

The available for sale debt securities portfolio has a diverse mix of high quality and liquid investment securities with a duration of 4.1 years.

Approximately $1.8 billion of the available for sale debt portfolio is expected to mature or pay down during 2024, and these funds offer substantial resources to meet either new loan demand or offset potential reductions in the Company’s deposit funding base.

At December 31, 2023 and 2022, total investment securities pledged for these purposes were as follows:

Table of Conte nts

(In thousands) 2023 2022

13 unchanged sentences

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

Core deposits decreased $3.2 billion at year end 2022 compared to year end 2021, primarily due to decreases in commercial and wealth management deposits of $2.0 billion and $820 million, respectively.

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

If these corporate deposits decline, the Company's funding needs can be met by liquidity supplied by investment security maturities and pay downs expected to total $2.4 billion over the next year, as noted above.

Core deposits decreased $2.7 billion at year end 2023 compared to year end 2022, primarily due to decreases in consumer and commercial deposits of $1.6 billion and $935 million, respectively.

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

If these corporate deposits decline, the Company's funding needs may be met by liquidity supplied by investment security maturities and pay downs expected to total $1.8 billion over the next year, as noted above.

In addition, as shown in the table of collateral available for future advances below, the Company has borrowing capacity of $6.8 billion through advances from the FHLB and the Federal Reserve.

5 unchanged sentences

Total $ 22,488,208 $ 25,193,337

Certificates of deposit of $100,000 or greater totaled $607 million at December 31, 2022.

Certificates of deposit of $100,000 or greater totaled $1.9 billion at December 31, 2023.

These deposits are normally considered more volatile and higher costing, and comprised 7.7% of total deposits at December 31, 2023.

Amid the banking sector's period of uncertainty during the second quarter of 2023, the Company issued several tranches of short-term brokered certificates of deposit totaling $1.2 billion, which all matured by December 31, 2023.

While it is not clear how many brokered certificates of deposit the market would allow the Company to issue, the Company believes brokered certificates of deposits may be an additional, reliable source of liquidity during periods of stress in the banking industry.

Other important components of liquidity are the level of borrowings from third party sources and the availability of future credit.

6 unchanged sentences

Federal funds purchased, which totaled $261.3 million at December 31, 2023, are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit.

At December 31, 2023, the Company had approved lines of credit totaling $4.0 billion.

Since these borrowings are unsecured and limited by market trading activity, their availability may be less certain than collateralized sources of borrowings.

Retail repurchase agreements are offered to customers wishing to earn interest in highly liquid balances and are used by the Company as a funding source considered to be stable, but short-term in nature.

Repurchase agreements are collateralized by securities in the Company’s investment portfolio.

Total repurchase agreements at December 31, 2022 were comprised of non-insured customer funds totaling $2.7 billion, and securities pledged for these retail agreements totaled $2.7 billion.

Table of Conte nts

Total repurchase agreements at December 31, 2023 were comprised of non-insured customer funds totaling $2.6 billion, and securities pledged as collateral for these retail agreements totaled $2.7 billion.

The Company pledges certain assets, including loans and investment securities, to both the Federal Reserve Bank and the FHLB as security to establish lines of credit and borrow from these entities.

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Because of its lack of significant long-term debt, the Company believes that, through its Capital Markets Group or in other public debt markets, it could generate additional liquidity from sources such as jumbo certificates of deposit, privately-placed corporate notes or other forms of debt.

The cash flows from the operating, investing and financing activities of the Company resulted in a net decrease in cash, cash equivalents and restricted cash of $3.4 billion in 2022, as reported in the consolidated statements of cash flows.

The cash flows from the operating, investing and financing activities of the Company resulted in a net increase in cash, cash equivalents and restricted cash of $1.8 billion in 2023, as reported in the consolidated statements of cash flows.

Operating activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of $488.8 million and has historically been a stable source of funds.

Investing activities provided cash of $242.3 million.

Sales and maturities proceeds (net of purchases) of investment securities provided cash of $650.4 million, repayments of securities purchased under agreements to resell (net of securities purchased under agreements to resell) provided cash of $800.0 million, and a net increase in the loan portfolio used cash of $1.1 billion.

Investing activities provided cash of $2.2 billion.

Sales and maturities proceeds (net of purchases) of investment securities provided cash of $2.8 billion, repayments of securities purchased under agreements to resell (net of securities purchased under agreements to resell) provided cash of $375.0 million, and a net increase in the loan portfolio used cash of $933.7 million.

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

During 2022, financing activities used cash of $4.2 billion.

This decrease in cash was largely driven by a decline in deposits, which used cash of $3.7 billion.

Federal funds purchases and short-term securities sold under agreements to repurchase used cash in the amount of $181.2 million.

During 2023, financing activities used cash of $883.1 million.

This decrease in cash was largely driven by a decline in deposits, which used cash of $730.8 million.

The Company paid cash dividends of $134.7 million on common stock, and treasury stock purchases used cash of $76.4 million during 2023.

Federal funds purchases and short-term securities sold under agreements to repurchase provided cash of $67.1 million.

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

Table of Conte nts

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

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

(In millions) 2023 2022 2021

3 unchanged sentences

134.7 127.5 122.7

Preferred stock redemption*

Preferred cash dividends paid

$ 211.1 $ 314.1 $ 252.1

* The period ended December 31, 2020 includes $5.2 million of excess redemption costs over the book value of the preferred stock.

This excess payment was considered a dividend.

The Parent faces unique liquidity constraints due to legal limitations on its ability to borrow funds from its bank subsidiary.

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

The most significant of these are loan commitments totaling $14.3 billion (including approximately $5.2 billion in unused, approved credit card lines) and the contractual amount of standby letters of credit totaling $555.9 million at

Table of Conte nts

December 31, 2022.

The most significant of these are loan commitments totaling $14.5 billion (including approximately $5.4 billion in unused, approved credit card lines) and the contractual amount of standby letters of credit totaling $590.6 million at December 31, 2023.

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

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

The allowance for these commitments is recorded in the Company’s liability for unfunded lending commitments within other liabilities on its consolidated balance sheets.

At December 31, 2023, the liability for unfunded commitments totaled $25.2 million.

See further discussion of the liability for unfunded lending commitments in Note 2 to the consolidated financial statements.

The Company funds a defined benefit pension plan for a portion of its employees.

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Unfunded commitments, which are recorded as liabilities, amounted to $48.4 million at December 31, 2023.

During the third quarter of 2020, the Company signed a $106.7 million agreement with U.S.

Capital Development to develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri.

As of December 31, 2022, the Company has made payments totaling $94.0 million.

While the Company intends to occupy a portion of the office building for executive offices, a 15 year lease has been signed by an anchor tenant to lease approximately 50% of the office building.

The Company regularly purchases various state tax credits arising from third-party property redevelopment.

4 unchanged sentences

These commitments, along with the commitments for the next five years, are included in the table above.

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

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

Through the various sources of liquidity described above, the Company maintains a liquidity position that it believes will adequately satisfy its financial obligations.

The Company is not aware of any trends, events, or commitments that are reasonably likely to increase or decrease its liquidity in a material way.

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Capital Management

1 unchanged sentence

(Dollars in thousands)

2022 2021 Minimum Ratios under Capital Adequacy Guidelines Minimum Ratios for Well-Capitalized Banks*

2023 2022 Minimum Capital Requirement Capital Conservation Buffer Minimum Ratios Requirement including Capital Conservation Buffer

Minimum Ratios for Well-Capitalized Banks*

Risk-adjusted assets $ 24,216,527 $ 24,178,423

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Total risk-based capital ratio 16.03 14.89 8.00 2.50 10.50 10.00

Tier I leverage ratio 10.34 9.13 4.00 5.00

Tier I leverage ratio 11.25 10.34 4.00 N/A 4.00 5.00

Tangible common equity to tangible assets 8.85 7.32

1 unchanged sentence

* Under Prompt Corrective Action requirements

The Company is subject to a 2.5% capital conservation buffer, which is an amount above the minimum ratios under capital adequacy guidelines, and is required under Basel III.

The capital conservation buffer is intended to absorb losses during periods of economic stress.

The Company is subject to a 2.5% capital conservation buffer, which is an amount above the minimum ratios under capital adequacy guidelines, and is intended to absorb losses during periods of economic stress.

Failure to maintain the buffer will result in constraints on dividends, share repurchases, and executive compensation.

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banking agencies became effective, providing banks that adopted CECL (ASU 2016-13) during the 2020 calendar year the option to delay recognizing the estimated impact on regulatory capital until after a two year deferral period, followed by a three year transition period.

In connection with the adoption of CECL on January 1, 2020, the Company has elected to utilize this option.

As a result, the two year deferral period for the Company extends through December 31, 2021.

In connection with the adoption of CECL on January 1, 2020, the Company elected to utilize this option.

As a result, the two year deferral period for the Company extended through December 31, 2021.

Beginning on January 1, 2022, the Company was required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025.

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The Company also distributed its 30th consecutive annual 5% stock dividend in December 2023.

On September 1, 2020, the Company redeemed all 6,000 outstanding shares of its 6.00% Series B Non-Cumulative Perpetual Preferred Stock and the corresponding depositary shares representing fractional interests in the Series B Preferred Stock at a redemption price of $25 per depositary share (equivalent to $1,000 per share of preferred stock).

Regular dividends on the outstanding shares of the Series B Preferred Stock were paid separately on September 1, 2020 to holders of record as of the close of business on August 14, 2020, in the customary manner.

On and after September 1, 2020, all dividends on the shares of Series B Preferred Stock ceased to accrue.

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Interest Rate Sensitivity

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The tables below show the effects of gradual shifts in interest rates over a twelve month period on the Company’s net interest income versus the Company's net interest income in a flat rate scenario.

Simulation A presents three rising rate scenarios and three falling rate scenarios and in each scenario, rates are assumed to change evenly over 12 months.

The simulation presents three rising rate scenarios and three falling rate scenarios and in each scenario, rates are assumed to change evenly over 12 months.

In these scenarios, the current balance sheet is held constant.

The sensitivity of deposit balances to changes in rates is particularly difficult to estimate in low rate environments.

Since the future effects of changes in rates on deposit balances cannot be known with certainty, the Company conservatively models alternate scenarios with greater deposit attrition as rates rise.

Simulation B illustrates results from these higher attrition scenarios to provide added perspective on potential effects of higher rates.

The Company utilizes these simulations for monitoring interest rate risk.

The Company utilizes this simulation for monitoring interest rate risk.

While the future effects of rising and falling rates on deposit balances cannot be known, the Company maintains a practice of running multiple rate scenarios to better understand interest rate risk and its effect on the Company’s performance.

Simulation A December 31, 2022 September 30, 2022

December 31, 2023 September 30, 2023

(Dollars in millions)

7 unchanged sentences

300 basis points falling (32.9) (3.24) — (27.0) (2.71) —

Under Simulation A, in the three rising rate scenarios and three falling rate scenarios, interest rate risk is less asset sensitive than the previous quarter.

This is mainly due to an increase in the Federal funds rate, which puts upward pressure on deposit

Table of Conte nts

rates in the rising rate scenarios and deposit rates have more room to fall in falling rate scenarios.

Under the simulation, in the three rising rate scenarios interest rate risk is less rate sensitive and in the three falling rate scenarios interest rate risk is more rate sensitive than the previous quarter.

This is mainly due to a change in the funding mix.

The Company has less wholesale borrowings, which are more rate sensitive, and higher deposits, which are less rate sensitive.

Deposits are held constant for this simulation in both the current and previous quarters.

Simulation B December 31, 2022 September 30, 2022

(Dollars in millions)

Assumed Deposit Attrition*

Assumed Deposit Attrition

300 basis points rising $ (17.9) (1.71) % $ (216.7) $ (49.4) (5.06) % $ (848.9)

200 basis points rising (11.4) (1.09) (180.4) (34.5) (3.54) (716.2)

100 basis points rising (5.0) (.48) (136.6) (14.0) (1.43) (405.7)

100 basis points falling 3.6 .34 539.3 (6.0) (.62) 403.2

200 basis points falling (15.2) (1.45) 761.0 (26.5) (2.72) 849.4

300 basis points falling (45.6) (4.36) 792.0 (58.7) (6.02) 1,446.4

* Compared to the flat rate scenario

In Simulation B, the assumed levels of deposit attrition were modeled to capture the results of a shrinking balance sheet due to the potential loss of surge deposits.

Under this Simulation, in the three rising rate scenarios and three falling rate scenarios, interest rate risk is less liability sensitive than the previous quarter, which primarily resulted from a decrease in surge deposits and changes in surge deposit run-off.

In the three falling rate scenarios, interest rate risk was also impacted by higher non-maturity deposit rates, which increased during the current quarter and now have more room to fall.

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Derivative Financial Instruments

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Because the notional amount does not represent amounts exchanged by the parties, it is not a measure of loss exposure related to the use of derivatives nor of exposure to liquidity risk.

All of these derivative instruments utilized by the Company are further discussed in Note 19 on Derivative Instruments.

All of these derivative instruments utilized by the Company are further discussed in Note 19 on Derivative Instruments in the consolidated financial statements.

(In thousands) Notional Amount Positive Fair Value Negative Fair Value Notional Amount Positive Fair Value Negative Fair Value

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The funds transfer pricing process attempts to remove interest rate risk from valuation, allowing management to compare profitability under various rate environments.

The Company also assigns loan charge-offs and recoveries (labeled in the table below as “provision for credit losses”) directly to each operating segment instead of allocating an estimated credit loss provision.

The Company also assigns loan charge-offs and recoveries (labeled in the table below as “provision for credit

losses”) directly to each operating segment instead of allocating an estimated credit loss provision.

The operating segments also include a number of allocations of income and expense from various support and overhead centers within the Company.

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The table below is a summary of segment pre-tax income results for the past three years.

10 unchanged sentences

99,910 246,183 218,241 564,334 8,711 573,045

Investment securities gains, net

Investment securities gains (losses), net

— — — — 14,985 14,985

10 unchanged sentences

106,538 224,890 213,388 544,816 1,719 546,535

Investment securities gains, net

Investment securities gains (losses), net

— — — — 20,506 20,506

3 unchanged sentences

$ 146,556 $ 311,104 $ 142,882 $ 600,542 $ 31,836 $ 632,378

Decrease in income before income taxes:

Increase (decrease) in income before income taxes:

Amount $ 12,913 $ 21,975 $ (9,097) $ 25,791 $ (38,443) $ (12,652)

7 unchanged sentences

126,218 211,048 213,617 550,883 9,510 560,393

Investment securities gains, net

Investment securities gains (losses), net

— — — — 30,059 30,059

3 unchanged sentences

$ 151,561 $ 340,272 $ 148,731 $ 640,564 $ 45,737 $ 686,301

Increase in income before income taxes:

Increase (decrease) in income before income taxes:

Amount $ (5,005) $ (29,168) $ (5,849) $ (40,022) $ (13,901) $ (53,923)

1 unchanged sentence

The Consumer segment includes consumer deposits, consumer finance, and consumer debit and credit cards.

During 2023, income before income taxes for the Consumer segment increased $12.9 million, or 8.8%, compared to 2022.

This increase was due to growth in net interest income of $47.1 million, or 12.8%, partly offset by higher non-interest expense of $17.9 million, or 5.8%, an increase in the provision for credit losses of $9.6 million, or 54.0%, and a decline in non-interest income of $6.6 million, or 6.2%.

Net interest income increased due to a $59.3 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios and a $41.8 million increase in loan interest income, partly offset by an increase of $54.0 million in deposit interest expense.

Non-interest income decreased mainly due to lower deposit account fees (mainly overdraft and return item fees) and mortgage banking revenue, partly offset by growth in net debit card fees .

Non-interest expense increased over the previous year mainly due to higher salaries and benefits expense, FDIC insurance expense, data processing and software expense and allocated support costs for consumer administration and operations and information technology.

The provision for credit losses totaled $27.5 million, a $9.6 million increase over the prior year, which resulted mainly from higher consumer credit card and personal loan net charge-offs.

Total average loans in this segment increased $127.4 million, or 3.4%, in 2023 compared to 2022 mainly due to increases in personal real estate loans and revolving and fixed

rate home equity loans.

Average deposits decreased $1.2 billion, or 8.8%, from the prior year, resulting from declines in money market, interest checking and savings deposit account balances, partly offset by growth in certificate of deposit account balances.

During 2022, income before income taxes for the Consumer segment decreased $5.0 million, or 3.3%, compared to 2021.

1 unchanged sentence

These decreases to income were partly offset by growth in net interest income of $18.1 million, or 5.2%, and a decrease in the provision for credit losses of $5.4 million, or 23.2%.

Net interest income increased due to a $19.0 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios.

Net interest income increased due to an $18.7 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios.

Non-interest income decreased mainly due to declines of $13.2 million in mortgage banking revenue and $4.0 million in overdraft and return item fees.

Non-interest expense increased over the prior year mainly due to higher occupancy expense, insurance expense and allocated service and support costs (mainly bank card fraud operations and information technology), partly offset by lower allocated service costs for branch employees and mortgage operations.

The provision for credit losses totaled $17.9 million, a $5.4 million decrease from the prior year, which resulted mainly from lower credit card loan net charge-offs, slightly offset by higher consumer loan net charge-offs.

The provision for credit losses totaled $17.8 million, a $5.4 million decrease from 2021, which resulted mainly from lower credit card loan net charge-offs, slightly offset by higher consumer loan net charge-offs.

Total average loans in this segment decreased $145.3 million, or 3.8%, in 2022 compared to 2021 mainly due to declines in consumer credit card and auto loans.

Average deposits increased $559.8 million, or 4.4%, over the prior year, resulting from growth in personal demand, savings and interest checking and money market deposit account balances.

Table of Conte nts

During 2021, income before income taxes for the Consumer segment increased $9.3 million, or 6.7%, compared to 2020.

This increase was due to a decrease in non-interest expense of $4.3 million, or 1.4%, and a decrease in the provision for credit losses of $8.0 million.

These increases to income were partly offset by a $1.6 million, or .5%, decrease in net interest income and a $1.3 million, or .9%, decrease to non-interest income.

Net interest income decreased due to a $21.9 million decline in loan interest income, partly offset by a $9.1 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios, and lower deposit interest expense of $11.2 million.

Non-interest income decreased mainly due to a decline in mortgage banking revenue, partly offset by growth in net credit and debit card fees (mainly higher interchange fees, partly offset by higher credit card rewards expense) and check sales and wire fees.

Non-interest expense decreased from 2020 mainly due to lower salaries and benefits expense, occupancy expense, allocated servicing costs for mortgage operations and a reduction in impairment expense on mortgage servicing rights.

These decreases were partly offset by higher marketing expense and higher allocated costs for information technology.

The provision for credit losses totaled $23.2 million, an $8.0 million decrease from 2020, which resulted mainly from lower net charge-offs on consumer credit card and consumer loans.

Total average loans in this segment decreased $178.3 million, or 8.5%, in 2021 compared to 2020 mainly due to declines in consumer credit card, auto and fixed and revolving home equity loans.

Average deposits increased $1.6 billion, or 13.8%, over 2020, resulting from growth in personal demand, savings and interest checking and money market deposit account balances.

Average deposits increased $561.0 million, or 4.4%, over 2021, resulting from growth in personal demand, savings and interest checking and money market deposit account balances.

The Commercial segment provides lending (including the Small Business Banking product line within the branch network), leasing, international services, and business, government deposit, and related commercial cash management services, as well as merchant and commercial bank card products.

The segment includes the Capital Markets Group, which sells fixed-income securities to correspondent banks, corporations, public institutions, municipalities, and individuals and also provides securities safekeeping and bond accounting services.

Pre-tax income for 2023 increased $22.0 million, or 7.1%, compared to 2022, mainly due to increases net interest income and non-interest income, partly offset by increases in non-interest expense and the provision for credit losses.

Net interest income increased $29.7 million, or 6.6%, due to higher loan interest income of $272.9 million.

This increase was partly offset by a decrease of $78.1 million in net allocated funding credits assigned to the Commercial segment's loan and deposit portfolios and increases in interest expense on customer repurchase agreements and deposits of $49.4 million and $116.4 million, respectively.

Non-interest income increased $21.3 million, or 9.5%, over 2022 due to growth in net bank card fees (mainly corporate card and merchant fees), deposit account fees (mainly corporate cash management fees), letter of credit fees and cash sweep commissions, partly offset by a decline in tax credit sales fees.

Non-interest expense increased $26.7 million, or 7.3%, mainly due to higher salaries and benefits expense, FDIC insurance expense and allocated service and support costs (mainly bank operations, commercial payments and products and credit administration).

These increases were partly offset by lower allocated support costs for information technology.

The provision for credit losses increased $2.3 million over the same period last year, mainly due to higher business loan net charge-offs.

Average segment loans increased $1.0 billion, or 10.4%, compared to 2022, mainly due to increases in business, business real estate, and construction loans.

Average deposits decreased $1.6 billion, or 13.1%, mainly due to declines in business demand and money market deposit account balances, partly offset by increases in interest checking and certificate of deposit account balances.

Pre-tax income for 2022 decreased $29.2 million, or 8.6%, compared to 2021, mainly due to increases in non-interest expense and the provision for credit losses, partly offset by an increase in non-interest income.

Net interest income decreased $1.0 million, or .2%, due to a $21.4 million decrease in net allocated funding credits assigned to the Commercial segment's loan and deposit portfolios, coupled with higher interest expense on customer repurchase agreements and deposits of $22.6 million and 18.5 million, respectively.

Net interest income decreased $1.0 million, or .2%, due to a $21.4 million decrease in net allocated funding credits, coupled with higher interest expense on customer repurchase agreements and deposits of $22.6 million and 18.5 million, respectively.

The decreases were partly offset by a $61.2 million increase in loan interest income.

The provision for credit losses increased $6.0 million due to net charge-offs recorded on business loans in 2022 compared to net recoveries recorded in the prior year.

The provision for credit losses increased $6.0 million due to net charge-offs recorded on business loans in 2022 compared to net recoveries recorded in 2021.

Non-interest income increased $13.8 million, or 6.6%, over 2021 due to higher net bank card fees (mainly corporate card), deposit account fees (mainly corporate cash management fees), and higher cash sweep commissions.

2 unchanged sentences

Average segment loans decreased $216.9 million, or 2.1%, compared to 2021, mainly due to a decline in business loans, partly offset by increases in business real estate and construction loans.

Average deposits decreased $49.4 million, or .4%, mainly due to declines in business demand and certificate of deposit account balances, offset by an increase in interest checking and money market deposit account balances.

Pre-tax income for 2021 increased $50.8 million, or 17.5%, compared to 2020, mainly due to increases in net interest income and non-interest income and a decline in the provision for credit losses, partly offset by an increase in non-interest expense.

Net interest income increased $39.0 million, or 9.4%, due to higher net allocated funding credits of $56.9 million and lower interest expense of $12.9 million on deposits and customer repurchase agreements, partly offset by a decrease of $30.9 million in loan interest income.

The provision for credit losses decreased $8.6 million due to recoveries recorded on business loans in 2021 compared to net charge-offs recorded 2020.

Non-interest income increased $16.5 million, or 8.5%, over 2020 due to higher net bank card fees (mainly corporate card and merchant fees), deposit account fees (mainly corporate cash management fees), and higher interest rate swap fees.

These increases were partly offset by lower cash sweep commissions.

Non-interest expense increased $13.3 million, or 4.2%, during 2021, mainly due to higher salaries and benefits expense (mainly incentive compensation), data processing and software expense, allocated support costs for information technology and commercial banking, and lower deferred origination costs.

These increases were partly offset by lower allocated service costs (mainly lockbox).

Average segment loans decreased $327.8 million, or 3.1%, compared to 2020, with the decline occurring in business loans (mainly PPP loans), partly offset by an increase in construction loans.

Average deposits increased $2.1 billion, or 20.7%, mainly due to growth in business demand deposits.

Average deposits decreased $49.4 million, or .4%, mainly due to declines in business demand and certificate of deposit account balances, offset by increases in interest checking and money market deposit account balances.

The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management services, brokerage services, and includes Private Banking accounts.

At December 31, 2023, the Trust group managed investments with a market value of $41.2 billion and administered an additional $27.7 billion in non-managed assets.

It also provides investment management services to The Commerce Funds, a series of mutual funds with $2.5 billion in total assets at

Table of Conte nts

December 31, 2022.

provides investment management services to The Commerce Funds, a series of mutual funds with $2.6 billion in total assets at December 31, 2023.

In 2023, pre-tax income for the Wealth segment was $133.8 million, compared to $142.9 million in 2022, a decrease of $9.1 million, or 6.4%.

Net interest income increased $2.9 million, or 4.0%, mainly due to a $16.4 million increase in loan interest income, partly offset by a $12.5 million decrease in net allocated funding credits assigned to the Wealth segment's loan and deposit portfolios and a $1.0 million increase in deposit interest expense.

Net interest income decreased $1.2 million, or 1.6%, mainly due to a $26.2 million increase in deposit interest expense and a $7.2 million decline in net allocated funding credits assigned to the Wealth segment's loan and deposit portfolios, partly offset by a $32.3 million increase in loan interest income.

Non-interest income increased $4.9 million, or 2.3%, over the prior year mainly due to higher private client trust fees and cash sweep commissions, partly offset by lower brokerage fees (mainly annuity fees).

Non-interest expense increased $12.8 million, or 8.8%, mainly due to higher salaries and benefits expense and the deconversion costs previously mentioned.

The provision for credit losses increased $20 thousand over the prior year.

Average assets increased $54.9 million, or 3.0%, during 2023 mainly due to higher personal real estate loan balances, partly offset by lower business and fixed rate home equity loan balances.

Average deposits decreased $427.4 million, or 15.2%, due to declines in interest checking and money market deposit account balances, partly offset by growth in certificate of deposit account balances.

In 2022, pre-tax income for the Wealth segment was $142.9 million, compared to $148.7 million in 2021, a decrease of $5.8 million, or 3.9%.

Net interest income increased $2.9 million, or 4.0%, mainly due to a $16.4 million increase in loan interest income, partly offset by a $12.5 million decrease in net allocated funding credits and a $1.0 million increase in deposit interest expense.

Non-interest income decreased $229 thousand, or .1%, from the prior year due to higher cash sweep commissions and brokerage fees, partly offset by lower mortgage banking revenue and trust fees.

3 unchanged sentences

Average deposits decreased $161.0 million, or 5.4%, due to a decline in interest checking and money market deposit account balances.

In 2021, pre-tax income for the Wealth segment was $148.7 million, compared to $121.9 million in 2020, an increase of $26.8 million, or 22.0%.

Net interest income increased $13.6 million, or 23.5%, due to an $11.0 million increase in net allocated funding credits and lower deposit interest expense of $4.0 million, slightly offset by a decline in loan interest income of $1.3 million.

Non-interest income increased $24.7 million, or 13.1%, over 2020 largely due to higher private client and institutional trust fees and brokerage fees, partly offset by lower cash sweep commissions.

Non-interest expense increased $11.4 million, or 9.1%, resulting from higher salaries expense (mainly incentive compensation) and higher allocated support costs for information technology.

The provision for credit losses increased $64 thousand, mainly due to higher net charge-offs on revolving home equity loans.

Average assets increased $178.3 million, or 12.7%, during 2021 mainly due to higher personal real estate and consumer loan balances.

Average deposits increased $694.7 million, or 30.6%, due to growth in business demand and interest checking and money market account deposit balances.

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 certain administrative functions, the investment securities portfolio, and the effect of certain expense allocations to the segments.

Amounts in the “Other/Elimination” column include the activity of various support and overhead operating units of the Company, in addition to the investment securities portfolio, brokered deposits and other items not allocated to the segments.

In accordance with the Company's transfer pricing procedures, the difference between the total provision and total net charge-offs/recoveries is not allocated to a business segment and is included in this category.

In 2022, the pre-tax net income in this category was $41.7 million, compared to $47.3 million in 2021.

This decrease was mainly due to an increase in the provision for credit losses of $93.8 million and an $8.7 million increase in non-interest expense, partly offset by increases of $85.2 million in net interest income and $3.8 million in non-interest income.

In 2023, the pre-tax net loss in this category was $6.6 million, compared to net income of $31.8 million in 2022.

Unallocated securities gains were $15.0 million in 2023, compared to securities gains of $20.5 million in 2022.

The increase in the unallocated provision for credit losses of $93.8 million was primarily driven by an increase in the allowance for credit losses on loans and the liability for unfunded lending commitments, which are not allocated to segments for management reporting purposes.

Net charge-off are allocated to segments when incurred for management reporting purposes.

For the year ended December 31, 2022, the Company's provision for credit losses on unfunded lending commitments, which is not allocated to the segments for management reporting, was $8.9 million, compared to a benefit of $14.1 million in 2021.

Additionally, the provision for credit losses on loans was $92 thousand in excess of net charge-offs in 2022, while the provision was $70.8 million lower than net charge-offs in 2021.

Table of Conte nts

Additionally, non-interest expense increased $24.8 million and net interest income decreased $19.7 million.

These decreases were partly offset by a $7.0 million increase in non-interest income and a decrease in the provision for credit losses of $4.6 million.

The decrease in the unallocated provision for credit losses was primarily driven by a decrease in the liability for unfunded lending commitments, partly offset by an increase in the provision for credit losses on loans, which are both not allocated to the segments for management reporting purposes.

Net charge-offs are allocated to segments when incurred for management reporting purposes.

For the year ended December 31, 2023, the Company's provision for credit losses on unfunded lending commitments was a benefit $7.9 million, compared to a provision of $8.9 million in 2022.

The provision for credit losses on loans was $12.3 million in excess of net-charge offs in 2023, due to an increase in the allowance for credit losses on loans, while the provision was $92 thousand higher than net charge-offs in 2022.

Impact of Recently Issued Accounting Standards

Reference Rate Reform The FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting", in March 2020, and has been followed by additional clarifying guidance related to derivatives that are modified as a result of reference rate reform.

The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if they reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

Reference Rate Reform The Financial Accounting Standards Board ("FASB") issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting", in March 2020, and has been followed by additional clarifying guidance related to derivatives that are modified as a result of reference rate reform.

The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if they reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

Further, the guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform.

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The change is to align the temporary accounting relief guidance with the expected cessation date of LIBOR, which was postponed by administrators in 2021 to June 2023, a year after the current sunset date of ASU 2020-04.

In order to assess the impact of transition and ensure a successful transition process, the Company established a LIBOR Transition Program led by the LIBOR Transition Steering Committee (the Committee), which is an internal, cross-functional team with representatives from all relevant business lines, support functions and legal counsel.

A LIBOR impact and risk assessment has been performed, and the Committee has developed and prioritized action items.

All LIBOR-based loans must be converted to an alternative index by June 30, 2023, as LIBOR will no longer be published after June 30, 2023.

All of the Company's financial contracts that reference LIBOR have been identified, and LIBOR fallback language has been included in key loan provisions of new and renewed loans in preparation of the transition from LIBOR.

The Company ceased originating new loans with LIBOR as a reference rate at the end of 2021 and is actively working with customers to modify existing loans that reference LIBOR to a new reference rate.

The Company plans to finish transitioning the impacted loans by spring of 2023.

Credit Losses The FASB issued ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures", in March 2022.

This ASU eliminates the troubled debt restructuring recognition and measurement guidance and, instead, requires that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

The amendments require that an entity disclose current period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

The guidance is effective January 1, 2023.

Aside from additional disclosure requirements, the Company expects no material impact to its consolidated financial statements from adoption of this ASU.

The Company's LIBOR Transition Steering Committee completed the Company's transition from LIBOR during the first half of 2023.

Disclosure Improvements The FASB issued ASU 2023-06, "Disclosure Improvements:

Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative", in October 2023.

The amendments in this Update modify the disclosure or presentation requirements of a variety of topics in the Codification.

Certain of the amendments represent clarifications to or technical corrections of the current requirements.

The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

The adoption is not expected to have a significant effect on the Company's consolidated financial statements.

Segment Reporting The FASB issued ASU 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures", in November 2023.

The amendments require disclosure of significant segment expenses and other segment items on an annual and interim basis.

Public entities are required to disclose significant expense categories and amounts for each reportable segment, as well as the amount and a description of the composition of other segment items.

Significant expense categories are derived from expenses that are regularly provided to an entity’s chief operating decision-maker (“CODM”), and included in a segment’s reported measures of profit or loss.

Public entities are also required to disclose the title and position of the CODM and explain how the CODM uses the reported measures of profit or loss in assessing segment performance and deciding how to allocate resources.

This Update requires interim disclosures of certain segment-related disclosures that previously were only required annually.

This Update requires annual disclosures for fiscal years beginning January 1, 2024 and interim disclosures for fiscal years beginning January 1, 2025.

Early adoption is permitted.

The Company is required to apply the amendments in this Update retrospectively to all prior periods presented in the financial statements.

Other than the inclusion of additional disclosures, the adoption of this ASU is not expected to have a significant effect on the Company's consolidated financial statements.

Income Taxes The FASB issued ASU 2023-09, "Income Taxes (Topic 740) - Improvements to Income Tax Disclosures", in December 2023.

The amendments in this Update require additional disclosures regarding the rate reconciliation and income taxes paid.

This Update also removed certain existing disclosure requirements.

This Update is effective for annual periods beginning January 1, 2025.

Early adoption is permitted.

The amendments in this Update should be applied on a prospective basis, though retrospective application is permitted.

Other than the inclusion of additional disclosures, the adoption is not expected to have a significant effect on the Company's consolidated financial statements.

Corporate Governance

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This information is available on the Company’s investor relations website at investor.commercebank.com/overview/corporate-governance.

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AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

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VERAGE RATES AND

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Years Ended December 31

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(196,942) (160,212) (158,791) (.18)

74,605 (113,068) 45,760 N.M.

292,898 74,605 (113,068) 66.43

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2.99 % 3.48 % 3.53 %

(B) Interest income and yields are presented on a fully taxable-equivalent basis using a federal income tax rate of 21% in 2022, 2021, 2020, 2019 and 2018 and 35% in 2017.

.88 % (.55 %) 9.58 %

(B) Interest income and yields are presented on a fully taxable-equivalent basis using a federal income tax rate of 21%.

Loan interest income includes tax free loan income (categorized as business loan income) which includes tax equivalent adjustments of $5,467,000 in 2023, $4,126,000 in 2022, $4,176,000 in 2021, $4,916,000 in 2020, $6,282,000 in 2019, and $5,931,000 in 2018.

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(C) Interest expense of $903,000, $1,370,000, $29,000 and $14,000, which was capitalized on construction projects in 2023, 2022, 2021, and 2020, respectively,is not deducted from the interest expense shown above.

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QUARTERLY AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

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(162) (158) (159) (150)

Unrealized loss on debt securities (1,582) (1,065) (851) (174)

Unrealized gain (loss) on debt securities (1,596) (1,458) (1,331) (1,387)

Cash and due from banks

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(A) Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.

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— AVERAGE RATES AND YIELDS

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Allowance for credit losses on loans (143) (138) (135) (150)

Unrealized gain on debt securities 86 230 197 284

Unrealized gain (loss) on debt securities (1,582) (1,065) (851) (174)

Cash and due from banks 327 311 315 340

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(A) Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.

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SUMMARY OF QUARTERLY STATEMENTS OF INCOME

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144,879 142,949 147,605 137,612

Investment securities gains, net

Investment securities gains (losses), net

7,601 4,298 3,392 (306)

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* Restated for the 5% stock dividend distributed in 2023.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

What changed 10-K

Item 7. Management’s Discussion and Analysis