What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-22 compared with 2023-02-22 · 328 added, 355 removed, 2507 unchanged (21% of the section changed)

8 unchanged sentences

generally accepted accounting principles.

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

Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

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

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Assessment for credit losses related to loans collectively evaluated for impairment

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

As discussed in Notes 1 and 2 to the consolidated financial statements, the allowance for credit losses related to loans evaluated on a collective basis (the December 31, 2023 collective ACL) was $161.2 million of a total allowance for credit losses of $162.4 million as December 31, 2023.

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

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

In certain pools, if the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data.

The Company estimates the collective ACL utilizing average historical loss rates, calculated using historical net charge-offs and

outstanding loan balances during a lookback period for each pool.

In certain pools, if the Company’s own historical loss rate is not reflective of loss expectations, the historical loss rate is augmented by industry and peer data.

The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts (forecast adjusted loss rate).

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

The forecast adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments.

The forecast adjustment loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments.

The allowance is further adjusted for certain qualitative factors not included in historical loss rates or the macroeconomic forecast, which include changes in portfolio composition and characteristics, underwriting practices, watchlist trends, or significant unique events or conditions.

We identified the assessment of the December 31, 2023 collective ACL as a critical audit matter.

A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the assessment due to significant measurement uncertainty.

A high degree of audit effort, including specialized skills and knowledge, and subjective and complex auditor judgement was involved in the assessment due to significant measurement uncertainty.

Specifically, this assessment encompassed the evaluation of the conceptual soundness of the average historical loss model used to estimate the collective ACL, including the following key factors and assumptions (1) historical losses, (2) the reasonable and supportable forecast period, and (3) the development and evaluation of qualitative adjustments.

In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

In addition, auditor judgement was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address the critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL estimates, including controls over the (1) development and approval of the collective ACL methodology, (2) validation of the collective ACL methodology and model, (3) identification and determination of the key factors and assumptions used to estimate the collective ACL, (4) development of qualitative adjustments, and (5) analysis of the collective ACL results, trends, and ratios.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL estimates, including controls over the (1) development and approval of the collective ACL methodology, (2) performance monitoring of the collective ACL methodology and model, (3) identification and determination of the key factors and assumptions used to estimate the collective ACL, (4) development of qualitative adjustments, and (5) analysis of the collective ACL results, trends, and ratios.

We evaluated the Company’s process to develop the collective ACL estimates by testing certain sources of data, factors, and assumptions, and considered the relevance and reliability of such data, factors, and assumptions.

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February 22, 2024

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Commerce Bancshares, Inc.

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12,701 12,304

222,473 225,034

Total investment securities

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Common stock, $ 5 par value

Authorized 140,000,000 ;

Authorized 190,000,000 shares at December 31, 2023 and 140,000,000 shares at December 31, 2022;

issued 131,064,418 shares at December 31, 2023 and 125,863,879 shares at December 31, 2022

12 unchanged sentences

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc.

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Certificates of deposit of $100,000 and over 61,057 3,898 2,577

Interest on federal funds purchased and securities sold under agreements to repurchase

Interest on federal funds purchased

25,265 1,836 16

Interest on securities sold under agreements to repurchase

73,164 24,022 1,630

Interest on other borrowings

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NON-INTEREST INCOME

Trust fees 184,719 188,227 160,637

Bank card transaction fees

191,156 176,144 167,891

Trust fees 190,954 184,719 188,227

Deposit account charges and other fees

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573,045 546,535 560,393

INVESTMENT SECURITIES GAINS, NET

INVESTMENT SECURITIES GAINS (LOSSES), NET

14,985 20,506 30,059

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53,629 49,117 48,185

Deposit insurance

33,163 10,583 9,094

Supplies and communication

24,511 23,827 21,856

19,548 19,359 18,089

Supplies and communication

19,420 18,101 17,118

77,890 63,051 64,519

Total non-interest expense

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$ 477,060 $ 488,399 $ 530,765

Less preferred stock dividends

Net income available to common shareholders

$ 488,399 $ 530,765 $ 342,091

Net income per common share - basic

3 unchanged sentences

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc.

and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Years Ended December 31

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Net unrealized gains (losses) on other securities 209,914 ( 1,148,089 ) ( 240,627 )

( 1,148,089 ) ( 240,627 ) 161,728

Change in pension loss 3,590 3,482 4,450

3,482 4,450 ( 3,178 )

Unrealized gains (losses) on cash flow hedge derivatives ( 18,052 ) ( 19,337 ) ( 18,120 )

6 unchanged sentences

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc.

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(In thousands, except per share data)

Preferred Stock Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Non-Controlling Interest Total

Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Non-Controlling Interest Total

Balance at December 31, 2020

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

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

Balance at December 31, 2019, adjusted

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

Net income 530,765 9,825 540,590

Other comprehensive income 220,933 220,933

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

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

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

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

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

Cash dividends paid on common stock ($ .907 per share)

( 122,693 ) ( 122,693 )

Cash dividends paid on preferred stock

($ 1.125 per depositary share)

( 6,750 ) ( 6,750 )

Stock-based compensation 15,415 15,415

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488,399 11,621 500,020

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

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

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

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

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

Cash dividends paid on common stock ($ .961 per share)

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Net income 477,060 8,117 485,177

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

Other comprehensive income (loss) 195,452 195,452

Distributions to non-controlling interest ( 4,235 ) ( 4,235 )

Purchases of treasury stock ( 76,890 ) ( 76,890 )

Sale of non-controlling interest of subsidiary 54 ( 54 ) —

Cash dividends paid on common stock ($ 1.029 per share)

7 unchanged sentences

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc.

7 unchanged sentences

Provision for credit losses 35,451 28,071 ( 66,326 )

Provision for depreciation and amortization 46,856 44,866 43,769

Depreciation and amortization 49,513 46,856 44,866

Amortization of investment security premiums, net 17,666 18,805 66,934

Deferred income tax (benefit) expense ( 7,399 ) 21,716 25,613

Investment securities gains, net (A) ( 20,506 ) ( 30,059 ) ( 11,032 )

Net gains on sales of loans held for sale ( 2,660 ) ( 22,641 ) ( 16,406 )

Investment securities (gains) losses, net (A) ( 14,985 ) ( 20,506 ) ( 30,059 )

Net (gains) losses on sales of loans held for sale ( 1,026 ) ( 2,660 ) ( 22,641 )

Proceeds from sales of loans held for sale 58,946 123,656 576,864

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Increase (decrease) in income taxes payable 4,586 ( 12,936 ) ( 5,175 )

Proceeds from terminated interest rate floors — — 156,740

Other changes, net ( 113,481 ) 15,250 ( 10,486 )

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INVESTING ACTIVITIES

Cash paid in acquisition, net of cash received

( 6,365 ) — —

Distributions received from equity-method investment

1,434 400 13,540

Proceeds from sales of investment securities (A)

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( 2,612,412 ) ( 3,254,081 ) 3,291,466

Net decrease in certificates of deposit

Net increase (decrease) in certificates of deposit

1,881,587 ( 448,511 ) ( 402,077 )

1 unchanged sentence

67,081 ( 181,233 ) 924,584

Net increase (decrease) in other borrowings

FHLB short-term borrowings

2,250,000 — —

Preferred stock redemption

Repayments of FHLB borrowings

( 2,250,000 ) — —

Purchases of treasury stock

Net increase (decrease) in other borrowings

( 8,268 ) ( 2,888 ) 11,758

Issuance of stock under equity compensation plans

Purchases of treasury stock

( 76,370 ) ( 186,622 ) ( 129,361 )

1 unchanged sentence

( 134,734 ) ( 127,466 ) ( 122,693 )

Cash dividends paid on preferred stock

— — ( 6,750 )

Other, net ( 3 ) ( 8 ) ( 15 )

Net cash provided by (used in) financing activities

13 unchanged sentences

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc.

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The Company adopted ASU 2022-02 Financial Instruments—Credit Losses (Topic 326):

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

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

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

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

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

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Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, using the prospective transition method.

This ASU eliminates the troubled debt restructuring recognition and measurement guidance and requires an entity to present gross write-offs by year of origination.

The amendments also enhance disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

With the exception of enhanced disclosures, there was no material impact to the Company's consolidated financial statements from adoption of this ASU.

Since the Company's adoption date, all restructurings are evaluated to determine whether they are modifications to a borrower experiencing financial difficulty.

Loans that were accounted for under the troubled debt restructuring method as of December 31, 2022 will continue to be accounted for under that method until they are paid off or modified.

Cash, Cash Equivalents and Restricted Cash

In the accompanying consolidated statements of cash flows, cash and cash equivalents include “Cash and due from banks”, “Federal funds sold and short-term securities purchased under agreements to resell”, and “Interest earning deposits with banks” as segregated in the accompanying consolidated balance sheets.

In the accompanying consolidated statements of cash flows, cash and cash equivalents include “Cash and due from banks”, “Federal funds sold", "Securities purchased under agreements to resell”, and “Interest earning deposits with banks” as segregated in the accompanying consolidated balance sheets.

Restricted cash is comprised of cash collateral on deposit with another financial institution to secure interest rate swap transactions.

Restricted cash is included in other assets in the consolidated balance sheets and totaled $ 6.7 million and $ 17.4 million at December 31, 2022 and 2021, respectively.

Restricted cash is included in other assets in the consolidated balance sheets and totaled $ 101 thousand and $ 6.7 million at December 31, 2023 and 2022, respectively.

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

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

Other interest earning cash balances held at the Federal Reserve Bank totaled $ 2.2 billion at December 31, 2023.

Loans and Related Earnings

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

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Modifications for Borrowers Experiencing Financial Difficulty

The Company may renegotiate the terms of existing loans for a variety of reasons.

When refinancing or restructuring a loan, the Company evaluates whether the borrower is experiencing financial difficulty.

In making this determination, the Company considers whether the borrower is currently in default on any of its debt.

In addition, the Company evaluates whether it is probable that the borrower would be in payment default on any of its debt in the foreseeable future without the modification and if the borrower (without the current modification) could obtain equivalent financing from another creditor at a market rate for similar debt.

Modifications of loans to borrowers in these situations may indicate that the borrower is facing financial difficulty.

Troubled Debt Restructurings

A loan is accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider.

Prior to the Company's adoption of ASU 2022-02, a loan was accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower's financial difficulties, granted a concession to the borrower that it would not otherwise consider.

A troubled debt restructuring typically involves (1) modification of terms such as a reduction of the stated interest rate, loan principal, or accrued interest, (2) a loan renewal at a stated interest rate lower than the current market rate for a new loan with similar risk, or (3) debt that was not reaffirmed in bankruptcy.

Business, business real estate, construction and land real estate and personal real estate troubled debt restructurings with impairment charges are placed on non-accrual status.

The Company measures the impairment loss of a troubled debt restructuring at the time of modification based on the present value of expected future cash flows.

Subsequent to modification, troubled debt restructurings are subject to the Company’s allowance for credit loss model, which is discussed below and in Note 2, Loans and Allowance for Credit Losses.

Business, business real estate, construction and land real estate and personal real estate troubled debt restructurings with impairment charges were placed on non-accrual status.

The Company measured the impairment loss of a troubled debt restructuring at the time of modification based on the present value of expected future cash flows.

Subsequent to modification, troubled debt restructurings were subject to the Company’s allowance for credit loss model, which is discussed below and in Note 2, Loans and Allowance for Credit Losses.

Troubled debt restructurings that are performing under their contractual terms continue to accrue interest, which is recognized in current earnings.

Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was signed into law on March 27, 2020, provided financial institutions an option to suspend the requirement to categorize certain loan modifications related to the global Coronavirus Disease 2019 (COVID-19) pandemic as troubled debt restructurings.

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

The Company elected such option from March 27, 2020 through December 31, 2021.

Refer to Note 2 for additional information.

Loans that were accounted as troubled debt restructurings at of December 31, 2022 will continue to be accounted for under that method until they are either paid off or modified.

Loans Held For Sale

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

The allowance for credit losses on a troubled debt restructuring which continues to accrue interest is also measured on a collective basis.

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

The allowance related to these large non-accrual loans is measured using the fair value of the collateral (less selling cost, if applicable) as most of these loans are collateral dependent and the borrower is facing financial difficulty.

The allowance related to these large non-accrual loans is generally measured using the fair value of the collateral (less selling cost, if applicable) as most of these loans are collateral dependent and the borrower is facing financial difficulty.

As noted above, the allowance for credit losses on loans does not include an allowance for accrued interest.

2 unchanged sentences

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

The methodology used to measure credit losses for unfunded lending commitments is the same as the methodology used for loans, however, the estimate of credit risk for unfunded lending commitments takes into

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consideration the likelihood that funding will occur.

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

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Certain equity securities do not have readily determinable fair values.

The Company has elected under ASU 2016-01 to measure these equity securities without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer.

The Company has elected to measure these equity securities without a readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer.

The Company has not recorded any impairment or other adjustments to the carrying amount of these equity securities without readily determinable fair values.

11 unchanged sentences

Allowance for Credit Losses on Available for Sale Debt Securities

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

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security before the anticipated recovery.

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

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The assets are initially recorded at fair value less estimated selling costs, establishing a new cost basis.

Initial valuation adjustments are charged to the allowance for credit losses.

Initial valuation adjustments are charged to the allowance for

credit losses.

Fair values are estimated primarily based on appraisals, third-party price opinions, or internally developed pricing models.

3 unchanged sentences

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

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Goodwill and Intangible Assets

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The Company’s contracts with customers are generally short term in nature, with a duration of one year or less, and most contracts are cancellable by either the Company or its customer without penalty.

Performance obligations for customer contracts are generally satisfied at a single point in time, typically when the transaction is complete and the customer has received the goods or service, or over time.

Performance obligations for customer contracts are generally satisfied at a single point in time, typically when the transaction is

complete and the customer has received the goods or service, or over time.

For performance obligations satisfied over time, the Company recognizes the value of the goods or services transferred to the customer when the performance obligations have been transferred and received by the customer.

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

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

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In such transactions, revenue and the related costs to provide services is presented on a net basis in the financial statements.

These transactions primarily relate to fees earned from bank card and related network and rewards costs and the sales of annuities and certain limited insurance products.

These transactions primarily relate to fees earned from bank card and related network and rewards costs, the sales of annuities and certain limited insurance products, and beginning in August 2023, commissions on sales of consumer brokerage transactions and products.

Most of the Company's derivative contracts are accounted for as free-standing instruments.

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Additional information about derivatives held by the Company and valuation methods employed is provided in Note 17, Fair Value Measurements and Note 19, Derivative Instruments.

Cash flows associated with derivative instruments and their related gains and losses are presented in the consolidated statement of cash flows as operating activities.

The Company’s pension plan is described in Note 10, Employee Benefit Plans.

1 unchanged sentence

The funded status of the plan is recognized as an other asset or other liability in the consolidated balance sheets, and changes in that funded status are recognized in the year in which the changes occur through other comprehensive income.

Plan assets and benefit obligations are measured as of the fiscal year end of the plan.

Plan assets and

benefit obligations are measured as of the fiscal year end of the plan.

The measurement of the projected benefit obligation and pension expense involve actuarial valuation methods and the use of various actuarial and economic assumptions.

2 unchanged sentences

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

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Stock-Based Compensation

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All per share data has been restated to reflect the 5 % stock dividend distributed in December 2023.

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Loans and Allowance for Credit Losses

16 unchanged sentences

$ 17,205,479 $ 16,303,131

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

(1) Accrued interest receivable totaled $ 71.9 million and $ 55.5 million at December 31, 2023 and 2022, respectively, and was included within other assets on the consolidated balance sheets.

For the year ended December 31, 2023, the Company wrote-off accrued interest by reversing interest income of $ 460 thousand and $ 4.8 million in the Commercial and Personal Banking portfolios, respectively.

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

Loans to directors and executive officers of the Parent and the Bank, and to their affiliates, are summarized as follows:

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This investment includes deferred income of $ 98.6 million and $ 73.2 million at December 31, 2023 and 2022, respectively.

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Allowance for credit losses

11 unchanged sentences

The forecast-adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments.

The contractual term excludes expected extensions (except for contractual extensions at the option of the customer), renewals and modifications unless there is a reasonable expectation that a troubled debt restructuring will be executed.

The contractual term excludes expected extensions (except for contractual extensions at the option of the customer), renewals and modifications.

Credit cards and certain similar consumer lines of credit do not have stated maturities and therefore, for these loan classes, remaining contractual lives are determined by estimating future cash flows expected to be received from customers until payments have been fully allocated to outstanding balances.

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

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Key assumptions in the Company’s allowance for credit loss model include the economic forecast, the reasonable and supportable period, forecasted macro-economic variables, prepayment assumptions and qualitative factors applied for portfolio composition changes, underwriting practices, or significant unique events or conditions.

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Key Assumption December 31, 2023 December 31, 2022

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

• Assumes interest rates hikes will taper

• Continued recovery from the Global Coronavirus Recession (GCR)

• Assumes improving health conditions

• Assumes gradual easing of supply constraints

• Continued uncertainty regarding the health crisis

• Uncertainty regarding rising inflation

Overall economic forecast • The US economy is projected to slow at the start of 2024, but not enter a recession

• Impacts of tighter monetary and fiscal policy creates uncertainty

• Consumer spending is expected to decrease

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

• Assumes interest rate hikes will taper

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

1 unchanged sentence

• Reasonable and supportable period of one year

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

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

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

• Prime rate from 7.6% to 7.7%

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

Forecasted macro-economic variables • Unemployment rate ranges from 4.1% to 4.5% during the reasonable and supportable forecast period

• Real GDP growth ranges from .46% to 2.1%

• BBB corporate yield from 5.3% to 5.9%

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

• Housing Price Index from 305.4 to 307.4

• Unemployment rate ranges from 3.8% to 4.7% during the reasonable and supportable forecast period

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

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

• BBB corporate yield from 5.1% to 5.8%

• Prime rate from 7.6% to 7.7%

Prepayment assumptions Commercial loans

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• Ranging from 6.5% to 23.5% for most loan pools

• 67.9% for consumer credit cards

• Consumer credit cards 66.9%

Commercial loans

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• Ranging from 8.3% to 24.8% for most loan pools

• 64.1% for consumer credit cards

• Consumer credit cards 67.9%

Qualitative factors Added qualitative factors related to:

• Certain portfolios sensitive to pandemic economic uncertainties

• Changes in the composition of the loan portfolios

• Uncertainty related to unusually high rate of inflation and supply chain issues

• Certain stressed industries within the portfolio

• Certain portfolios sensitive to unusually high rate of inflation and supply chain issues

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

Added net reserves using qualitative processes related to:

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

Added qualitative factors related to:

• Changes in the composition of the loan portfolios

• Certain portfolios sensitive to pandemic economic uncertainties

• Uncertainty related to unusually high rate of inflation and supply chain issues

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

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

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

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

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The current forecast projects the economy will slow at the start of 2024.

It is expected that fiscal policy will tighten in 2024 and consumer spending will decrease.

The labor market is expected to soften slowly, creating lower household income growth at a time when excess savings have decreased.

The impacts of tighter fiscal policy and decreased consumer spending creates significant uncertainty in the forecast.

The impacts of the market's response to unusual events or trends including high inflation, supply chain stresses, trends in health conditions, and changes in the geopolitical environment could significantly modify economic projections used in the estimation of the allowance for credit losses.

A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments during the years ended December 31, 2023 and 2022 follows:

6 unchanged sentences

Less recoveries on loans 792 8,310 9,102

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

Net loan charge-offs (recoveries) 3,093 27,973 31,066

Balance December 31, 2023 $ 108,201 $ 54,194 $ 162,395

6 unchanged sentences

Balance at December 31, 2021

97,776 52,268 150,044

Provision for credit losses on loans 6,550 12,605 19,155

9 unchanged sentences

$ 31,743 $ 1,377 $ 33,120

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

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ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 135,036 $ 48,220 $ 183,256

Delinquent and non-accrual loans

35 unchanged sentences

$ 16,229,187 $ 49,808 $ 15,830 $ 8,306 $ 16,303,131

At December 31, 2022 and 2021, the Company had $ 3.8 million and $ 5.3 million, respectively, of non-accrual business loans that had no allowance for credit loss.

At December 31, 2023 and 2022, the Company had $ 4.3 million and $ 3.8 million, respectively, of non-accrual loans that had no allowance for credit loss.

The Company did not record any interest income on non-accrual loans during the years ended December 31, 2023 and 2022.

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Credit quality indicators

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In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by a credit review department which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan.

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The risk category of loans in the Commercial portfolio as of December 31, 2023 and 2022 are as follows:

8 unchanged sentences

$ 1,634,580 $ 851,719 $ 583,555 $ 294,635 $ 217,822 $ 272,205 $ 2,164,520 $ 6,019,036

Gross write-offs for the year ended December 31, 2023

$ — $ 2,260 $ 57 $ 41 $ — $ — $ 1,393 $ 3,751

Real estate-construction

4 unchanged sentences

$ 479,557 $ 594,946 $ 295,841 $ 41,418 $ 498 $ 2,834 $ 31,670 $ 1,446,764

Gross write-offs for the year ended December 31, 2023

$ — $ — $ — $ — $ — $ — $ — $ —

Real estate- business

5 unchanged sentences

$ 827,233 $ 1,090,271 $ 538,762 $ 451,344 $ 332,346 $ 384,918 $ 94,432 $ 3,719,306

Gross write-offs for the year ended December 31, 2023

$ — $ — $ — $ — $ — $ 134 $ — $ 134

Commercial loans

5 unchanged sentences

$ 2,941,370 $ 2,536,936 $ 1,418,158 $ 787,397 $ 550,666 $ 659,957 $ 2,290,622 $ 11,185,106

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Gross write-offs for the year ended December 31, 2023

$ — $ 2,260 $ 57 $ 41 $ — $ 134 $ 1,393 $ 3,885

Term Loans Amortized Cost Basis by Origination Year

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

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The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided as of December 31, 2023 and 2022 below:

8 unchanged sentences

$ 459,022 $ 454,064 $ 535,702 $ 712,276 $ 257,360 $ 598,997 $ 8,620 $ 3,026,041

Gross write-offs for the year ended December 31, 2023

$ — $ 18 $ — $ — $ — $ 23 $ — $ 41

Current to 90 days past due $ 518,619 $ 340,104 $ 258,348 $ 127,208 $ 56,394 $ 51,302 $ 722,595 $ 2,074,570

2 unchanged sentences

$ 519,010 $ 340,314 $ 258,542 $ 127,232 $ 56,448 $ 51,723 $ 724,454 $ 2,077,723

Gross write-offs for the year ended December 31, 2023

$ 926 $ 2,891 $ 1,939 $ 770 $ 376 $ 370 $ 1,051 $ 8,323

Revolving home equity

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Over 90 days past due — — — — — — 870 870

Non-accrual — — — — — — 1,977 $ 1,977

Total Revolving home equity:

$ — $ — $ — $ — $ — $ — $ 319,894 $ 319,894

Gross write-offs for the year ended December 31, 2023

$ — $ — $ — $ — $ — $ — $ 11 $ 11

Consumer credit card

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$ — $ — $ — $ — $ — $ — $ 589,913 $ 589,913

Gross write-offs for the year ended December 31, 2023

$ — $ — $ — $ — $ — $ — $ 24,105 $ 24,105

Current to 90 days past due $ 6,802 $ — $ — $ — $ — $ — $ — $ 6,802

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

Total Overdrafts:

$ 6,802 $ — $ — $ — $ — $ — $ — $ 6,802

Gross write-offs for the year ended December 31, 2023

$ 3,803 $ — $ — $ — $ — $ — $ — $ 3,803

Personal banking loans

4 unchanged sentences

$ 984,834 $ 794,378 $ 794,244 $ 839,508 $ 313,808 $ 650,720 $ 1,642,881 $ 6,020,373

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Gross write-offs for the year ended December 31, 2023

$ 4,729 $ 2,909 $ 1,939 $ 770 $ 376 $ 393 $ 25,167 $ 36,283

Term Loans Amortized Cost Basis by Origination Year

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

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

Total Overdrafts:

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December 31, 2023 December 31, 2022

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

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

Business $ 1,183 $ — $ 1,238 $ 2,421 $ 2,778 $ 1,824 $ 4,602

Revolving home equity — 1,977 — 1,977 — $ — —

Total $ 1,183 $ 1,977 $ 1,238 $ 4,398 $ 2,778 $ 1,824 $ 4,602

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These loans totaled $ 168.9 million at December 31, 2023 and $ 179.2 million at December 31, 2022.

The table also excludes consumer loans related to the Company's patient healthcare loan program, which totaled $ 197.5 million at December 31, 2022 and $ 186.6 million at December 31, 2021.

The table also excludes consumer loans related to the Company's patient healthcare loan

program, which totaled $ 211.3 million at December 31, 2023 and $ 197.5 million at December 31, 2022.

As the healthcare loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans.

The personal real estate loans and

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consumer loans excluded below totaled less than 7 % of the Personal Banking portfolio.

The personal real estate loans and consumer loans excluded below totaled less than 7 % of the Personal Banking portfolio.

For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at December 31, 2023 and 2022 by FICO score.

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100.0 % 100.0 % 100.0 % 100.0 %

Troubled debt restructurings

Modifications for borrowers experiencing financial difficulty

When borrowers are experiencing financial difficulty, the Company may agree to modify the contractual terms of a loan to a borrower in order to assist the borrower in repaying principal and interest owed to the Company.

The Company's modifications of loans to borrowers experiencing financial difficulty are generally in the form of term extensions, repayment plans, payment deferrals, forbearance agreements, interest rate reductions, forgiveness of interest and/or fees, or any combination thereof.

Commercial loans modified to borrowers experiencing financial difficulty are primarily loans that are substandard or non-accrual, where the maturity date was extended.

Modifications on personal real estate loans are primarily those placed on forbearance plans, repayment plans, or deferral plans where monthly payments are suspended for a period of time or past due amounts are paid off over a certain period of time in the future or set up as a balloon payment at maturity.

Modifications to certain credit card and other small consumer loans are often modified under debt counseling programs that can reduce the contractual rate or, in certain instances, forgive certain fees and interest charges.

Other consumer loans modified to borrowers experiencing financial difficulty consist of various other workout arrangements with consumer customers.

The following tables present the amortized cost at December 31, 2023 of loans that were modified during the year ended December 31, 2023.

For the Year Ended December 31, 2023

(Dollars in thousands)

Term Extension Payment Delay Interest Rate Reduction Interest/Fees Forgiven Other

Total % of Total Loan Category

December 31, 2023

Business $ 28,179 $ — $ — $ — $ — $ 28,179 0.5 %

Real estate – business 105,549 — — — — 105,549 2.8

Personal Banking:

Real estate – personal 383 4,203 — — — 4,586 0.2

Consumer 30 68 92 — 85 275 —

Consumer credit card — — 2,535 346 — 2,881 0.5

Total $ 134,141 $ 4,271 $ 2,627 $ 346 $ 85 $ 141,470 0.8 %

The estimate of lifetime expected losses utilized in the allowance for credit losses model is developed using average historical experience on loans with similar risk characteristics, which includes losses from modifications of loans to borrowers experiencing financial difficulty.

As a result, a change to the allowance for credit losses is generally not recorded upon modification.

For modifications to loans made to borrowers experiencing financial difficulty that are placed on non-accrual status, the Company determines the allowance for credit losses on an individual evaluation, using the same process that it utilizes for other loans on non-accrual status.

Modifications made to commercial loans which are not on non-accrual status for borrowers experiencing financial difficulty are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience, and current economic factors.

Modifications made to borrowers experiencing financial difficulty for personal banking loans which are not on non-accrual status are collectively evaluated based on loan type, delinquency, historical experience, and current economic factors.

If a loan to a borrower experiencing financial difficulty is modified and subsequently deemed uncollectible, the allowance for credit losses continues to be based on individual evaluation, if that loan is already on non-accrual status.

For those loans, the allowance for credit losses is estimated using discounted expected cash flows or the fair value of collateral.

If an accruing loan made to a borrower experiencing financial difficulty is modified and subsequently deemed uncollectible, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for credit losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begin.

The following tables summarize the financial impact of loan modifications and payment deferrals during the year ended December 31, 2023.

Term Extension

For the Year Ended December 31, 2023

Business Extended maturity by a weighted average of 7 months.

Real estate – business Extended maturity by a weighted average of 13 months.

Personal Banking:

Real estate – personal Extended maturity by a weighted average of 7 months.

Consumer Extended maturity by 10 years.

Payment Delay

For the Year Ended December 31, 2023

Personal Banking:

Real estate – personal Deferred certain payments by a weighted average of 20 years .

Consumer Deferred certain payments by a weighted average of 71 months .

Interest Rate Reduction

For the Year Ended December 31, 2023

Personal Banking:

Consumer Reduced weighted-average contractual interest rate from average 22% to 6%.

Consumer credit card Reduced weighted-average contractual interest rate from average 22% to 6%.

Forgiveness of Interest/Fees

For the Year Ended December 31, 2023

Personal Banking:

Consumer credit card Approximately $33 thousand of interest and fees forgiven.

The Company had commitments of $ 28.4 million at December 31, 2023 to lend additional funds to borrowers experiencing financial difficulty and for whom the Company has modified the terms of loans in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension during the current reporting period.

The following table provides the amortized cost basis of loans to borrowers experiencing financial difficulty that had a payment default during the year ended December 31, 2023 and were modified on or after January 1, 2023 (the date we adopted ASU 2022-02) through December 31, 2023.

For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal.

In addition to the loans below, the Company charged off $ 2.2 million and $ 729 thousand of business and consumer loans, respectively, during the year ended December 31, 2023 that were modified during the period.

For the Year Ended December 31, 2023

(Dollars in thousands)

Payment Delay Interest Rate Reduction Interest/Fees Forgiven Total

December 31, 2023

Personal Banking:

Real estate – personal $ 1,357 $ — $ — $ 1,357

Consumer — 24 — 24

Consumer credit card — 332 154 486

Total $ 1,357 $ 356 $ 154 $ 1,867

The following table presents the amortized cost basis at December 31, 2023 of loans that have been modified on or after January 1, 2023 (the date we adopted ASU 2022-02) through December 31, 2023.

(In thousands)

Current 30-89 Days

Past Due Total

December 31, 2023

Business $ 26,941 $ 1,238 $ — $ 28,179

Real estate – business 102,388 3,161 — 105,549

Personal Banking:

Real estate – personal 3,303 751 532 4,586

Consumer 233 28 14 275

Consumer credit card 2,071 456 354 2,881

Total $ 134,936 $ 5,634 $ 900 $ 141,470

Troubled debt restructuring disclosures prior to the Company's adoption of ASU 2022-02

Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession.

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Other consumer loans classified as troubled debt restructurings consist of various other workout arrangements with consumer customers.

Section 4013 of the CARES Act was signed into law on March 27, 2020, and includes a provision that short-term modifications are not troubled debt restructurings, if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to December 31, 2019.

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

If it is deemed the modification is not short-term, not COVID-19 related or the customer does not meet the criteria under the guidance to be scoped out of troubled debt restructuring classification, the Company will evaluate the loan modifications under its existing framework and account for the modification as a troubled debt restructuring.

The initial guidance issued under the CARES Act was due to expire on December 31, 2020.

During January 2021, the Consolidated Appropriations Act, 2021 was enacted and extended relief offered under the CARES Act related to the accounting and disclosure requirements for troubled debt restructurings as a result of COVID-19.

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

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

(In thousands) 2022 2021

(In thousands) December 31, 2022

Accruing loans:

$ 184,388 $ 46,867

Assistance programs

2 unchanged sentences

Total troubled debt restructurings

$ 198,671 $ 64,887

The table below shows the balance of troubled debt restructurings by loan classification at December 31, 2022, in addition to the outstanding balances of these restructured loans which the Company considers to have been in default at any time during the past twelve months.

For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal.

10 unchanged sentences

For those performing commercial loans classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no financial impact to the Company as a result of modification to these loans.

However, the effects of modifications to loans under various debt management and assistance programs were estimated to decrease interest income by approximately $ 661 thousand on an annual, pre-tax basis, compared to amounts contractually owed.

However, the effects of modifications to loans under various debt management and assistance programs were estimated at December 31, 2022 to decrease interest income by approximately $ 661 thousand on an annual, pre-tax basis, compared to amounts contractually owed.

Performing consumer loans where the debt was not reaffirmed in bankruptcy did not result in a concession, as no changes to loan terms occurred in that process.

2 unchanged sentences

Those performing loans classified as troubled debt restructurings are accruing loans which management expects to collect under contractual terms.

Performing commercial loans having no other concessions granted other than being renewed at non-market interest rates are judged to have similar risk characteristics as non-troubled debt commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and current economic factors.

Performing commercial loans having no other concessions granted other than being renewed at non-market interest rates are judged to have similar risk characteristics as non-troubled debt

commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and current economic factors.

Performing personal banking loans classified as troubled debt restructurings resulted from the borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future limitations on collecting payment deficiencies or in pursuing foreclosure actions.

As such, they have similar risk characteristics as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical experience and current economic factors.

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If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for credit losses continues to be based on individual evaluation, using discounted expected cash flows or the fair value of collateral.

If an accruing, troubled debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for credit losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begin.

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

The Company had $ 12.6 million commitments at December 31, 2022 to lend additional funds to borrowers with restructured loans.

Loans held for sale

2 unchanged sentences

The loans are primarily sold to FNMA and FHLMC.

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

At December 31, 2023, the fair value of these loans was $ 1.6 million, and the unpaid principal balance was $ 1.5 million.

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

4 unchanged sentences

Foreclosed real estate/repossessed assets

The Company’s holdings of foreclosed real estate totaled $ 96 thousand and $ 115 thousand at December 31, 2022 and 2021, respectively.

The Company’s holdings of foreclosed real estate totaled $ 270 thousand and $ 96 thousand at December 31, 2023 and 2022, respectively, and included in those amounts were $ 270 thousand and $ 96 thousand of foreclosed residential real estate properties held as a result of obtaining physical possession at December 31, 2023 and December 31, 2022, respectively.

Personal property acquired in repossession, generally autos, marine and recreational vehicles (RV), totaled $ 1.8 million and $ 1.6 million at December 31, 2023 and 2022, respectively.

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The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer.

This portfolio includes the Company's holdings of Visa Class B shares, which have a carrying value of zero , as there have not been observable price changes in orderly transactions for identical or similar investments of the same issuer.

This portfolio includes the Company's 823,447 shares of Visa Class B common stock, which are held by Commerce Bancshares, Inc.

(the Company's parent company).

These shares have a carrying value of zero , as there have not been observable price changes in orderly transactions for identical or similar investments of the same issuer.

During the year-ended December 31, 2023, the Company did not record any impairment or significant other adjustments to the carrying amount of its portfolio of equity securities with no readily determinable fair value.

At Visa, Inc.’s (“Visa”) annual meeting of shareholders on January 23, 2024, shareholders approved Proposal 4 – Approval and Adoption of the Class B Exchange Offer Program Certificate Amendments as described in Visa's 2024 Proxy Statement.

This proposal authorizes Visa to enable the release and public sale of portions of Visa’s Class B common stock in a measured and programmatic fashion through a series of exchange offers.

On January 24, 2024, the Company’s holdings of 823,447 shares of Visa Class B common stock were redenominated as Visa Class B-1 common stock pursuant to Visa’s Eighth Restated Certificate of Incorporation.

On January 29, 2024, Visa filed Form S-4 Registration Statement with the Securities and Exchange Commission, which proposes an offer to exchange any and all issued and outstanding shares of Class B-1 common stock for a combination of shares of Class B-2 common stock and shares of Class C common stock.

As of February 22, 2024, the Form S-4 Registration Statement was not yet effective.

The Company is currently evaluating the proposed exchange offer.

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

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

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

Table of Conte nts

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

Investment in FRB stock is based on the capital structure of the investing bank, and investment in FHLB stock is based on total assets of the Company (subject to a cap) and the level of borrowings from the FHLB.

These holdings are carried at cost.

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

These adjustments are included in non-interest income on the Company's consolidated statements of income.

49 unchanged sentences

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

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Allowance for credit losses on available for sale debt securities

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

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

1 unchanged sentence

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

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

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

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

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

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

At December 31, 2023, the fair value of securities on this watch list was $ 1.2 billion compared to $ 1.3 billion at December 31, 2022.

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

At December 31,

2023, the securities on the Company's watch list that were not deemed to be solely related to increasing interest rates were securities backed by government-guaranteed student loans and are expected to perform as contractually required.

As of December 31, 2023, the Company did not identify any securities for which a credit loss exists, and for the years ended December 31, 2023 and 2022, the Company did not recognize a credit loss expense on any available for sale debt securities.

Table of Conte nts

The table below summarizes debt securities available for sale in an unrealized loss position, aggregated by length of loss period, for which an allowance for credit losses has not been recorded at December 31, 2023 and 2022.

1 unchanged sentence

The unrealized losses on these securities are primarily attributable to changes in interest rates and current market conditions.

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

At December 31, 2023, the Company does not intend to sell the securities, nor is it anticipated that it would be required to sell any of these securities at a loss.

Less than 12 months 12 months or longer Total

28 unchanged sentences

The entire available for sale debt securities portfolio included $ 9.6 billion of securities that were in a loss position at December 31, 2023, compared to $ 12.0 billion at December 31, 2022.

The total amount of unrealized loss on these securities was $ 1.5 billion at December 31, 2022, an increase of $ 1.4 billion compared to the unrealized loss at December 31, 2021.

The total amount of unrealized loss on these securities was $ 1.2 billion at December 31, 2023, a decrease of $ 280.1 million compared to the unrealized loss at December 31, 2022.

Securities with significant unrealized losses are discussed in the " Allowance for credit losses on available for sale debt securities " section above.

Table of Conte nts

For debt securities classified as available for sale, the following table shows the amortized cost, fair value, and allowance for credit losses of securities available for sale at December 31, 2023 and 2022 and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI, by security type.

27 unchanged sentences

$ 13,738,206 $ 742 $ ( 1,500,632 ) $ — $ 12,238,316

Table of Conte nts

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

21 unchanged sentences

Fair value adjustments, net 24,016 43,833 31,704

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

Total investment securities gains (losses), net $ 14,985 $ 20,506 $ 30,059

At December 31, 2023, securities totaling $ 7.5 billion in fair value were pledged to secure public fund deposits, securities sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB, compared to $ 4.7 billion at December 31, 2022.

Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $ 211.0 million, while the remaining securities were pledged under agreements pursuant to which the secured parties may not sell or re-pledge the collateral.

Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $ 208 thousand, while the remaining securities were pledged under agreements pursuant to which the secured parties may not sell or re-pledge the collateral.

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

Table of Conte nts

Premises and Equipment

12 unchanged sentences

Repairs and maintenance expense of $ 18.5 million, $ 17.7 million, and $ 16.0 million for 2023, 2022 and 2021, respectively, was included in occupancy expense and equipment expense.

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

Interest expense capitalized on constructions projects totaled $ 903 thousand, $ 1.4 million, and $ 29 thousand in 2023, 2022 and 2021, respectively.

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

23 unchanged sentences

Total goodwill $ 146,539 $ 138,921

Table of Conte nts

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

During the year ended December 31, 2020, the Company purchased an easement for $ 3.6 million in connection with the Developer Services Agreement that was signed during the third quarter of 2020 to develop a commercial office complex in Clayton, Missouri.

In addition to its intangible assets with estimable useful lives included in the table above, the Company also has a $ 3.6 million intangible asset for an easement in connection with a commercial office complex in Clayton, Missouri.

The easement, which grants the Company access to all portions of the parking facility and terrace garden, is perpetual and will be assessed for impairment at least annually, or whenever events or circumstances indicate an impairment may have occurred.

No impairment was identified at December 31, 2023.

Changes in the net carrying amount of goodwill and other net intangible assets for the years ended December 31, 2023 and 2022 are shown in the following table.

(In thousands)

8 unchanged sentences

138,921 3,600 705 10,929

Acquisition 7,618 — — —

Originations, net of disposals — — — 340

Amortization — — ( 247 ) ( 1,148 )

Impairment recovery — — — 304

Balance at December 31, 2023

$ 146,539 $ 3,600 $ 458 $ 10,121

During 2023, the Company wrote off $ 25.7 million of core deposit intangible assets that were fully amortized.

Also during 2023, the Company acquired L.J.

Hart & Company, a municipal bond underwriter and advisor, and the acquisition resulted in goodwill of $ 7.6 million.

Mortgage servicing rights (MSRs) are initially recorded at fair value and subsequently amortized over the period of estimated servicing income.

1 unchanged sentence

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

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

During 2023, no impairment or impairment recovery was recognized.

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

3 unchanged sentences

(In thousands)

Table of Conte nts

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

The Company uses the FHLB fixed-advance rate at lease commencement or at any subsequent remeasurement event date based on the remaining lease term to calculate the liability for each lease.

The Company primarily has operating leases for branches, office space, ATM locations, and certain equipment.

As of December 31, 2022, the right-of-use asset for operating leases, reported within premises and equipment, net , and lease liability, reported within other liabilities , recognized on the Company's consolidated balance sheets totaled $ 24.9 million and $ 25.2 million, respectively, compared to right-of-use assets of $ 25.2 million and lease liability of $ 27.2 million at December 31, 2021.

The Company's operating leases are primarily for branches, office space, ATM locations, and certain equipment.

As of December 31, 2023, the right-of-use asset for operating leases, reported within premises and equipment, net , and lease liability, reported within other liabilities , recognized on the Company's consolidated balance sheets totaled $ 26.5 million and $ 26.9

million, respectively, compared to right-of-use assets of $ 24.9 million and lease liability of $ 25.2 million at December 31, 2022.

Total lease cost for the year ended December 31, 2023 was $ 8.3 million, compared to $ 7.9 million for the year ended December 31, 2022.

8 unchanged sentences

Present value of lease liabilities $ 26,894

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

(1) Excludes $ 743 thousand of legally binding minimum lease payments for operating leases signed but not yet commenced.

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

13 unchanged sentences

The Company also leases office space to third parties, and these leases are classified as operating leases.

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

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The leases may include options to renew or to expand the leased space, and currently the leases have remaining terms of 1 month to 15 years.

The following table provides the components of lease income.

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Present value of lease receipts $ 729,891

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At December 31, 2023, the scheduled maturities of certificates of deposit were as follows:

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Due in 2028 5,671

Thereafter 82

Total $ 2,875,690

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

Accrued interest for repurchase agreements was $ 695 thousand, $ 275 thousand and $ 9 thousand at December 31, 2023, 2022 and 2021, respectively.

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

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The FHLB also issues letters of credit to secure the Bank's obligations to certain depositors of public funds, which totaled $ 639.5 million at December 31, 2023.

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The components of income tax expense from operations for the years ended December 31, 2023, 2022 and 2021 were as follows:

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1,197 1,161 1,484

Adoption of ASU 2016-13

Income tax (benefit) expense allocated to stockholders’ equity

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Loans, principally due to allowance for credit losses 44,702 43,553

Deferred compensation 7,864 7,777

Equity-based compensation 7,491 7,348

Accrued expenses 6,748 6,340

Unearned fee income 10,810 5,534

Accrued expenses 10,531 6,748

Equity-based compensation 8,082 7,491

Deferred compensation 7,894 7,864

Other 812 1,737

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Equipment lease financing 99,453 91,913

Cash flow hedges 19,747 23,633

Land, buildings, and equipment 21,016 17,210

Private equity investments 9,393 3,034

Cash flow hedges 9,468 19,747

Intangible assets 7,545 7,519

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

Private equity investments 6,888 9,393

Other 7,235 8,138

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

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A reconciliation between the expected federal income tax expense using the federal statutory tax rate of 21 %, and the Company's actual income tax expense for 2023, 2022, and 2021 is provided below.

4 unchanged sentences

Increase (decrease) in income taxes resulting from:

Tax-exempt interest, net of cost to carry ( 8,473 ) ( 9,002 ) ( 10,013 )

State and local income taxes, net of federal tax benefit 12,633 12,260 14,697

Tax-exempt interest, net of cost to carry ( 7,002 ) ( 8,473 ) ( 9,002 )

Non-deductible FDIC insurance premiums 2,101 1,376 1,090

Share-based award payments ( 1,176 ) ( 1,669 ) ( 2,941 )

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Gross increases – tax positions in prior period 25 21

Gross decreases – tax positions in prior period — ( 8 )

Gross increases – current-period tax positions 336 235

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

To the extent that these

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

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

No contributions to the defined benefit plan were made in 2023, 2022 or 2021.

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The Company does not expect to make any further contributions in 2024 other than the necessary funding contributions to the CERP.

Contributions to the CERP were $ 14 thousand, $ 14 thousand and $ 80 thousand during 2022, 2021 and 2020, respectively.

Distributions under the CERP were $ 806 thousand, $ 14 thousand and $ 14 thousand during 2023, 2022 and 2021, respectively.

The following items are components of the net pension cost for the years ended December 31, 2023, 2022 and 2021.

(In thousands) 2023 2022 2021

Service cost-benefits earned during the year $ 516 $ 388 $ 410

Service cost $ 499 $ 516 $ 388

Interest cost on projected benefit obligation 4,615 2,725 2,169

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$ ( 4,107 ) $ ( 7,446 )

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

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

The unfunded pension benefit obligation decreased $ 3.3 million from the prior year primarily due to the plan assets earning $ 4.3 million more than expected.

This decrease was slightly offset by a decrease in the discount rate from 5.19 % to 4.98 %.

The accumulated benefit obligation, which represents the liability of a plan using only benefits as of the measurement date, was $ 93.9 million and $ 95.8 million for the combined plans on December 31, 2023 and 2022, respectively.

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Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) at December 31, 2023 and 2022 are shown below, including amounts recognized in other comprehensive income during the periods.

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

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The following table shows the fair values of the Company’s pension plan assets by asset category at December 31, 2023 and 2022.

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

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

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

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

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

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The assumed overall expected long-term rate of return on pension plan assets used in calculating 2023 pension plan expense was 4.75 %.

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The 10-year annualized return for the Company’s pension plan was 4.9 %.

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

During 2023, the plan’s assets gained 10.3 % of their value, compared to a loss of 12.0 % in 2022.

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

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

The Company expects to incur pension expense of $ 1.7 million in 2024, compared to $ 2.3 million in 2023.

The following future benefit payments are expected to be paid:

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The total fair value (at vest date) of shares vested during 2023, 2022 and 2021 was $ 20.9 million, $ 18.8 million and $ 17.6 million, respectively.

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Stock Appreciation Rights

9 unchanged sentences

( 55,079 ) 26.33

( 81,489 ) 38.14

Outstanding at December 31, 2023

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* All share and per share amounts in this note have been restated for the 5 % common stock dividend distributed in 2023.

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Accumulated Other Comprehensive Income

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This segment also includes indirect and other consumer loan financing businesses, along with debit and credit card loan and fee businesses.

Residential mortgage origination, sales and servicing functions are included in this Consumer segment, but residential mortgage loans retained by the Company are not considered part of this segment and are instead included in the Other/Elimination column.

In order to reflect a change in the Company's management of its portfolio of residential mortgage loans that it retains, the Company began including those loans in the Consumer segment on January 1, 2023.

These loans had previously been included in the Other/Elimination column.

As a result of this change, loans of approximately $ 1.9 billion were reclassified from the Other/Elimination column into the Consumer segment and prior periods presented below were restated to also reflect this change.

The Commercial segment provides corporate lending (including the Small Business Banking product line within the branch network), leasing, and international services, along with business and governmental deposit products and commercial cash management services.

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

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

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among segments.

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

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

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

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Additionally, in 2023, interest expense on the Company's brokered deposits, which matured in the fourth quarter of 2023, is included in this column, as the Company's brokered deposits were not allocated to a segment.

Segment Balance Sheet Data

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The above segment balances include only those items directly associated with the segment.

The “Other/Elimination” column includes unallocated bank balances not associated with a segment (such as investment securities and federal funds sold), balances relating to certain other administrative and corporate functions, and eliminations between segment and non-segment balances.

The “Other/Elimination” column includes unallocated bank balances not associated with a segment (such as investment securities, federal funds sold and brokered deposits), balances relating to certain other administrative and corporate functions, and eliminations between segment and non-segment balances.

This column also includes the resulting effect of allocating such items as float, deposit reserve and capital for the purpose of computing the cost or credit for funds used/provided.

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

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Common and Preferred Stock*

Common Stock*

On December 19, 2023, the Company distributed a 5 % stock dividend on its $ 5 par common stock for the 30th consecutive year.

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$ 477,060 $ 488,399 $ 530,765

Less preferred stock dividends — — 11,966

Net income available to common shareholders 488,399 530,765 342,091

Less income allocated to nonvested restricted stock 4,241 4,450 4,846

5 unchanged sentences

Diluted income per common share:

Net income available to common shareholders $ 488,399 $ 530,765 $ 342,091

Net income attributable to Commerce Bancshares, Inc.

$ 477,060 $ 488,399 $ 530,765

Less income allocated to nonvested restricted stock 4,237 4,442 4,838

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Unexercised stock appreciation rights of 363 thousand, 171 thousand and 97 thousand were excluded from the computation of diluted income per share for the years ended December 31, 2023, 2022 and 2021, respectively, because their inclusion would have been anti-dilutive.

On September 1, 2020, the Company redeemed all outstanding shares of its 6.00 % Series B Non-Cumulative Perpetual Preferred Stock, $ 1.00 par value per share, (Series B Preferred Stock) and the corresponding depositary shares representing fractional interests in the Series B Preferred Stock (Series B Depositary Shares).

The 6,000,000 depositary shares, each representing a 1/1,000th interest in a share of Series B Preferred Stock, were redeemed simultaneously with the redemption of the Series B Preferred Stock at a redemption price of $ 25 per depositary share.

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

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

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

1 unchanged sentence

At December 31, 2023, 1,757,247 shares of common stock remained available for purchase under the current authorization.

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

12 unchanged sentences

* Except as noted in the above table, all share and per share amounts in this footnote have been restated for the 5% common stock dividend distributed in 2023.

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Regulatory Capital Requirements

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At December 31, 2023 and 2022, the Company met all capital requirements to which it is subject, and the Bank’s capital position exceeded the regulatory definition of well-capitalized.

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Revenue from Contracts with Customers

The core principle of ASU 2014-09 Revenue from Contracts with Customers is that an entity should recognize revenue to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Revenue from contracts with customers, Accounting Standard Codification 606 ("ASC 606"), requires revenue recognition for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

For the year ended December 31, 2023, approximately 64 % of the Company’s total revenue was comprised of net interest income, which is not within the scope of this guidance.

Of the remaining revenue, those items that were subject to this guidance mainly included fees for bank card, trust, deposit account services and consumer brokerage services.

The following table disaggregates non-interest income subject to ASU 2014-09 by major product line.

The following table disaggregates revenue from contracts with customers by major product line.

For the Years Ended December 31

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Total non-interest income $ 573,045 $ 546,535 $ 560,393

(1) This revenue is not within the scope of ASU 2014-09, and includes fees relating to capital market activities, loan fees and sales, derivative instruments, standby letters of credit and various other transactions.

The following table presents the opening and closing receivable balances for the years ended December 31, 2022 and 2021 for the Company’s significant revenue categories subject to ASU 2014-09.

(1) This revenue is not within the scope of ASC 606, and includes fees relating to bond trading activities, loan fees and sales, derivative instruments, standby letters of credit and various other transactions.

The following table presents the opening and closing receivable balances for the years ended December 31, 2023 and 2022 for the Company’s significant revenue categories from contracts with customers.

(In thousands) December 31, 2023 December 31, 2022 December 31, 2021

5 unchanged sentences

A description of these revenue categories follows.

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Bank Card Transaction Fees

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

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Merchant Fees

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The customer is usually billed either monthly or

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

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

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

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

2 unchanged sentences

Consumer Brokerage Services

The following shows the components of revenue within consumer brokerage services, and nearly all of this revenue is reported in the Company's Wealth segment.

For the Years Ended December 31

(In thousands) 2022 2021 2020

Commission income $ 10,359 $ 9,328 $ 8,002

Managed account services 8,758 9,034 7,093

Total consumer brokerage services $ 19,117 $ 18,362 $ 15,095

Consumer brokerage services revenue is comprised of commissions received upon the execution of purchases and sales of mutual fund shares and equity securities, in addition to sales of annuities and certain limited insurance products, in an agency capacity.

Also, fees are earned on professionally managed advisory programs through arrangements with sub-advisors.

Payment from the customer is due upon settlement date for purchases and sales of securities, at the purchase date for annuities and insurance products, and upon inception of the service period for advisory programs.

Most of the contracts (except advisory contracts) encompass two types of performance obligations.

The first is an obligation to provide account maintenance, record keeping and custodial services throughout the contract term.

The second is the obligation to provide trade execution services for the customers' purchases and sales of products mentioned above.

The first obligation is satisfied over time as the service period elapses, while the second type of obligation is satisfied upon the execution of each purchase/sale transaction.

Contracts for advisory services contain a single performance obligation comprised of providing the management services and related reporting/administrative services over the contract term.

The transaction price of the contracts (except advisory contracts) is a commission charged at the time of trade execution.

The commission varies across different security types, insurance products and mutual funds.

It is generally determined by standardized price lists published by the Company and its mutual fund and insurance vendors.

Because the transaction price relates specifically to the trade execution, it has been allocated to that performance obligation and is recorded at the time of execution.

The fee for advisory services is charged to the customer in advance of the quarterly service period, based on the account balance at the beginning of the period.

Revenue is recognized ratably over the service period.

Also, commissions are earned on professionally managed advisory programs.

Revenue from these services is generally recognized as a commission at the time of the transaction’s execution.

Mutual fund and other distribution fees are recognized upon initial transaction execution as well as in future periods as customers continue to hold amounts in those mutual funds.

Commission revenue for advisory services is recognized ratably over the contract term.

Nearly all of the Company’s consumer brokerage services revenue is recorded in the Wealth segment.

Other Non-Interest Income from Contracts with Customers

Other non-interest income from contracts with customers consists mainly of various customer deposit related fees such as ATM fees and gains on sales of tax credits, foreclosed assets, and bank premises and equipment.

Performance obligations for these services consist mainly of the execution of transactions for sales of various properties or providing specific deposit related transactions.

Other non-interest income from contracts with customers consists mainly of various transaction-driven revenue streams such as ATM fees, check sales and wire fees, cash sweep commissions, and gains on sales of tax credits.

Performance obligations for these services consist mainly of the execution of a single transaction at a single point in time.

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

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Fair Value Measurements

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

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Instruments Measured at Fair Value on a Recurring Basis

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

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

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government and federal agency obligations

treasury bills, bonds and notes, including inflation-protected securities, are valued using live data from active market makers and inter-dealer brokers.

treasury bills, bonds and notes, including inflation-protected securities, are valued using quoted prices from active markets.

Valuations for stripped coupon and principal issues are derived from yield curves generated from various dealer contacts and live data sources.

1 unchanged sentence

Government-sponsored enterprise obligations are evaluated using cash flow valuation models.

Inputs used are live market data, cash settlements, Treasury market yields, and floating rate indices such as LIBOR, CMT, and Prime.

Inputs used are live market data, cash settlements, Treasury market yields, and floating rate indices such as SOFR, CMT, and Prime.

• State and municipal obligations, excluding auction rate securities

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

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

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• Other debt securities

Other debt securities are valued using active markets and inter-dealer brokers as well as bullet spread scales and option adjusted spreads.

Other debt securities are valued using active markets and inter-dealer brokers as well as option adjusted spreads.

The spreads and models use yield curves, terms and conditions of the bonds, and any special features (e.g., call or put options and redemption features).

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• Valuations for interest rate swaps are derived from a proprietary model whose significant inputs are readily observable market parameters, primarily yield curves used to calculate current exposure.

Counterparty credit risk is incorporated into the model and calculated by applying a net credit spread over LIBOR to the swap's total expected exposure over time.

Counterparty credit risk is incorporated into the model and calculated by applying a net credit spread over SOFR to the swap's total expected exposure over time.

The net credit spread is comprised of spreads for both the Company and its counterparty, derived from probability of default and other loss estimate information obtained from a third party credit data provider or from the Company's Credit department when not otherwise available.

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

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counterparties' non-performance risk.

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

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

2 unchanged sentences

State and Municipal Obligations Private Equity

Derivatives Total

Year ended December 31, 2023:

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Included in other comprehensive income * 57 — 57

Investment securities called

( 1,000 ) — ( 1,000 )

Discount accretion

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Capitalized interest/dividends

Purchase of risk participation agreement

Sale of risk participation agreement

— — ( 524 ) ( 524 )

Balance at December 31, 2023

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

Investment securities called ( 6,000 ) — — ( 6,000 )

Discount accretion 5 — 5

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Capitalized interest/dividends — 44 44

Purchase of risk participation agreement — — 685 685

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

Balance at December 31, 2022

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

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

(In thousands)

Loan Fees and Sales Other Non-Interest Income Investment Securities Gains (Losses), Net Total

Investment Securities Gains (Losses), Net

Year ended December 31, 2023:

1 unchanged sentence

Change in unrealized gains or losses relating to assets still held at December 31, 2023

$ — $ 170 $ 35,333 $ 35,503

Year ended December 31, 2022:

1 unchanged sentence

Change in unrealized gains or losses relating to assets still held at December 31, 2022

$ 764 $ ( 289 ) $ 28,654 $ 29,129

Level 3 Inputs

As shown above, the Company's significant Level 3 measurements which employ unobservable inputs that are readily quantifiable pertain to auction rate securities (ARS) held by the Bank, investments in portfolio concerns held by the Company's private equity subsidiary, and held for sale residential mortgage loan commitments.

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

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

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

The Company's significant Level 3 measurements, which employ unobservable inputs that are readily quantifiable, pertain to investments in portfolio concerns held by the Company's private equity subsidiaries.

Information about these inputs as of December 31, 2023 is presented in the table below.

Quantitative Information about Level 3 Fair Value Measurements Weighted

Valuation Technique Unobservable Input Range Average*

Auction rate securities Discounted cash flow Estimated market recovery period 5 years 5 years

Estimated market rate 7.2 % - 7.8 % 7.5 %

Private equity investments Market comparable companies EBITDA multiple 4.0 - 6.0 5.2

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

The fair values of ARS are estimated using a discounted cash flows analysis in which estimated cash flows are based on mandatory interest rates paid under failing auctions and projected over an estimated market recovery period.

Under normal conditions, ARS traded in weekly auctions and were considered liquid investments.

The Company's estimate of when these auctions might resume is highly judgmental and subject to variation depending on current and projected market conditions.

Few auctions of these securities have been successful in recent years, and most secondary transactions have been privately arranged.

Estimated cash flows during the period over which the Company expects to hold the securities are discounted at an estimated market rate.

These securities are comprised of bonds issued by various states and municipalities for healthcare and student lending purposes, and market rates are derived for each type.

Market rates are calculated at each valuation date using a LIBOR or Treasury based rate plus spreads representing adjustments for liquidity premium and nonperformance risk.

The spreads are developed internally by employees in the Company's bond department.

An increase in the holding period alone would result in a higher fair value measurement, while an increase in the estimated market rate (the discount rate) alone would result in a lower fair value measurement.

The valuation of the ARS portfolio is reviewed on a quarterly basis by the Company's chief investment officers.

The fair values of the Company's private equity investments are based on a determination of fair value of the investee company less preference payments assuming the sale of the investee company.

5 unchanged sentences

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

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

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value that is inherent in the underlying loan value.

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

A significant increase in the inherent mortgage servicing value would result in an increase in the derivative asset or a reduction in the derivative liability.

The probability of funding and the inherent mortgage servicing values are directly impacted by changes in market rates and will generally move in the same direction as interest rates.

Instruments Measured at Fair Value on a Nonrecurring Basis

9 unchanged sentences

$ 1,517 $ — $ — $ 1,517 $ ( 1,662 )

Mortgage servicing rights

10,929 — — 10,929 304

Long-lived assets

7 unchanged sentences

480 — — 480 ( 965 )

The Company's significant Level 3 measurements that are measured on a nonrecurring basis pertain to the Company's mortgage servicing rights retained on certain fixed rate personal real estate loan originations.

Mortgage servicing rights are included in other intangible assets on the consolidated balance sheets, and information about these inputs is presented in the table below.

Quantitative Information about Level 3 Fair Value Measurements Weighted

Valuation Technique Unobservable Input Range Average*

Mortgage servicing rights Discounted cash flow Discount rate 9.51 % - 9.72 % 9.60 %

Prepayment speeds (CPR)* 6.26 % - 7.28 % 6.43 %

Loan servicing costs - annually per loan

Performing loans $ 70 - $ 72 $ 71

Delinquent loans $ 200 - $ 750

Loans in foreclosure $ 1,000

*Ranges and weighted averages based on interest rate tranches.

The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are updated periodically for changes in market conditions.

Actual rates may differ from our estimates.

Increases in prepayment speed and discount rates negatively impact the fair value of our mortgage servicing rights.

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

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

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

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

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

18 unchanged sentences

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

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Fair Value of Financial Instruments

40 unchanged sentences

Total $ 28,332,516 $ 22,770,051 $ 39,070 $ 5,567,773 $ 28,376,894

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Carrying Amount Estimated Fair Value at December 31, 2022

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

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Derivative Instruments

1 unchanged sentence

These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure.

With the exception of the interest rate floors (discussed below), the Company's derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings.

The Company's derivatives are not accounted for as accounting hedges except for the interest rate floors, as discussed below.

(In thousands) 2023 2022

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

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

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

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

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

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

The premium paid for these floors totaled $ 35.8 million.

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

As of December 31, 2023, the Company held four interest rate floors indexed to 1-month SOFR to hedge the risk of declining interest rates on certain floating rate commercial loans.

The floors have a combined notional value of $2.0 billion and are forward-starting.

Each of the four interest rate floors has a six-year term and a notional amount of $500 million.

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

Information about the floors is provided in the table below.

Strike Rate Effective Date Maturity Date

3.50 % July 1, 2024 July 1, 2030

3.25 % November 1, 2024 November 1, 2030

3.00 % March 1, 2025 March 1, 2031

2.75 % July 1, 2025 July 1, 2031

The premium paid for the floors totaled $ 90.2 million, which includes $ 54.4 million paid during 2023.

At December 31, 2023, the maximum length of time over which the Company is hedging its exposure to lower rates is approximately 7 years.

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

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

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

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

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

As of December 31, 2023, net deferred losses on the interest rate floors totaled $ 1.7 million (pre-tax) and were recorded in AOCI in the consolidated balance sheet.

As of December 31, 2023, it is expected that $ 10.8 million (pre-tax) interest rate floor premium amortization will be reclassified from AOCI into earnings over the next 12 months for the outstanding interest rate floors.

During the year ended December 31, 2020, the Company monetized three interest rate floors that were previously classified as cash flow hedges with a combined notional balance of $ 1.5 billion and an asset fair value of $ 163.2 million.

As of December 31, 2022, the total unrealized gains on the monetized cash flow hedges remaining in AOCI was $ 74.9 million (pre-tax).

The unrealized gains will be reclassified into interest income as the underlying forecasted transactions impact earnings through the original maturity dates of the hedged forecasted transactions, or approximately within 4.0 years.

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

Table of Conte nts

As of December 31, 2023, the total realized gains on the monetized cash flow hedges remaining in AOCI was $ 51.3 million (pre-tax), which will be reclassified into interest income over the next 3.0 years.

The estimated amount of net gains remaining in AOCI related to the monetized cash flow hedges at December 31, 2023 that is expected to be reclassified into income within the next 12 months is $ 22.2 million.

The Company also contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps through risk participation agreements.

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

The Company resumed sales during the first quarter of 2023.

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

Information about the valuation methods used to determine fair value is provided in Note 17 on Fair Value Measurements.

The Company presents derivative assets and derivative liabilities on a gross basis, as other assets and other liabilities, on its consolidated balance sheets.

As stated in the summary of significant accounting policies, derivative instruments and their related gains and losses are presented as operating cash flows in the consolidated statement of cash flows.

The Company's policy is to present its derivative assets and derivative liabilities on a gross basis in its consolidated balance sheets, and these are reported in other assets and other liabilities.

Certain collateral posted to and from the Company's clearing counterparty has been applied to the fair values of the cleared swaps, such that in the table below, the positive fair values of cleared swaps were reduced by $ 27.8 million at December 31, 2022.

There was no reduction to negative fair values of cleared swaps at December 31, 2022.

There was no reduction to positive or negative fair values of cleared swaps at December 31, 2023.

Asset Derivatives Liability Derivatives

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Total $ 116,876 $ 60,492 $ ( 37,899 ) $ ( 54,984 )

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

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

Table of Conte nts

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

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Total $ 3,922 $ 3,704 $ 2,394

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

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Total derivatives $ 54,984 $ — $ 54,984

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Resale and Repurchase Agreements

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These repurchase and resale agreements have the same principal amounts, inception dates, and maturity dates and have been offset against each other in the consolidated balance sheets, as permitted under the netting provisions of ASC 210-20-45.

The collateral swaps totaled $ 200.0 million at December 31, 2022 and $ 400.0 million at December 31, 2021.

The collateral swaps totaled $ 200.0 million at December 31, 2022.

There were no collateral swaps outstanding at December 31, 2023.

The following table shows the extent to which resale agreement assets and repurchase agreement liabilities with the same counterparty have been offset on the consolidated balance sheets, in addition to the extent to which they could potentially be offset.

10 unchanged sentences

Total repurchase agreements, subject to master netting arrangements 2,881,874 ( 200,000 ) 2,681,874 — ( 2,681,874 ) —

Table of Conte nts

The table below shows the remaining contractual maturities of repurchase agreements outstanding at December 31, 2023 and 2022, in addition to the various types of marketable securities that have been pledged by the Company as collateral for these borrowings.

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government and federal agency obligations $ 170,293 $ — $ — $ 170,293

Government-sponsored enterprise obligations 8,749 — — 8,749

Agency mortgage-backed securities 1,833,840 27,264 17,200 1,878,304

11 unchanged sentences

Total repurchase agreements, gross amount recognized $ 2,616,242 $ 48,672 $ 216,960 $ 2,881,874

Table of Conte nts

Commitments, Contingencies and Guarantees

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At December 31, 2023, the fair value of the Company's guarantee liability RPAs was $ 194 thousand, and the notional

Table of Conte nts

amount of the underlying swaps was $ 475.5 million.

The maximum potential future payment guaranteed by the Company cannot be readily estimated and is dependent upon the fair value of the interest rate swaps at the time of default.

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 has various legal proceedings pending at December 31, 2023, arising in the normal course of business.

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The line of credit is collateralized by Company stock and based on collateral value had a maximum borrowing amount of approximately $ 11.0 million at December 31, 2023.

There were no borrowings under this line during 2022, and no balance outstanding at December 31, 2022.

There were no borrowings under this line during 2023, and no balance was outstanding at December 31, 2023.

There were no borrowings during 2022 and 2021, and there was no balance outstanding at December 31, 2022 or 2021.

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Tower leases office space in the Kansas City bank headquarters building owned by the Company.

Rent paid to the Company totaled $ 82 thousand in 2022, $ 83 thousand in 2021, and $ 87 thousand in 2020, at $ 17.44 , $ 17.25 and $ 17.19 per square foot, respectively.

Rent paid to the Company totaled $ 82 thousand in 2023, $ 82 thousand in 2022, and $ 83 thousand in 2021, at $ 17.50 , $ 17.44 and $ 17.25 per square foot, for years 2023, 2022, and 2021, respectively.

Directors of the Company and their beneficial interests have deposit accounts with the Bank and may be provided with cash management and other banking services, including loans, in the ordinary course of business.

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

Table of Conte nts

Parent Company Condensed Financial Statements

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Advances to subsidiaries, net of borrowings 1,800 20,529

Deferred tax assets 11,987 8,645

Income tax receivable and deferred tax assets 10,263 11,987

30,486 26,539

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47,773 38,632 36,310

Investment securities gains

Investment securities gains (losses)

( 621 ) ( 872 ) 79

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2,842 3,709 2,927

539,105 549,318 581,991

Salaries and employee benefits

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$ 477,060 $ 488,399 $ 530,765

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Condensed Statements of Cash Flows

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(Increase) decrease in investment in subsidiaries, net

4,348 ( 9 ) 6

Proceeds from maturities/pay downs of investment securities

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Financing Activities

Preferred stock redemption

— — ( 150,000 )

Purchases of treasury stock

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( 134,734 ) ( 127,466 ) ( 122,693 )

Cash dividends paid on preferred stock

— — ( 6,750 )

Net cash used in financing activities

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

The Parent plans to fund an additional $ 69.4 million relating to private equity investments over the next several years.

The investments are made directly by the Parent and through non-bank subsidiaries.

At December 31, 2023, the fair value of the investment securities held by the Parent consisted of investments of $ 5.1 million in corporate bonds, $ 5.4 million in preferred and common stock with readily determinable fair values, and $ 6.0 million in equity securities that do not have readily determinable fair values.

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The Parent also holds 823,447 shares of Visa Class B-1 common stock, which are discussed in Note 3.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

2 unchanged sentences

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data