COMMERCE BANCSHARES INC /MO/ 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Commerce Bancshares, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Commerce Bancshares, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. 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, 2023, 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, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Assessment 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, 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 65 Table of Contents 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). These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given a single path economic forecast of key macroeconomic variables. The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting back to historical averages using a straight-line method. The forecast 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 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 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) 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. We evaluated whether the historical losses in the Company’s portfolio are representative of the credit characteristics of the current portfolio. We involved credit risk professionals with specialized skills and knowledge, who assisted in: • evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting principles • evaluating the collective ACL methodology and model for conceptual soundness by inspecting the methodology and model documentation to determine whether the methodology and model are suitable for intended use • testing the historical losses period and the reasonable and supportable forecast period by comparing them to the Company’s business environment and relevant industry practices • evaluating the methodology used to develop the qualitative factors and the effect of those factors on the collective ACL compared with changes in the nature and volume of the entity's financial assets and identified limitations of the underlying quantitative model. We assessed the sufficiency of the audit evidence obtained related to the Company’s December 31, 2023 collective ACL by evaluating the cumulative results of the audit procedures, qualitative aspects of the Company’s accounting practices and potential bias in the accounting estimates. We have served as the Company’s auditor since 1971. Kansas City, Missouri February 22, 2024 66 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31 2023 2022 (In thousands) ASSETS Loans $ 17,205,479 $ 16,303,131 Allowance for credit losses on loans ( 162,395 ) ( 150,136 ) Net loans 17,043,084 16,152,995 Loans held for sale (including $ 1,585,000 and $ — of residential mortgage loans carried at fair value at December 31, 2023 and 2022, respectively) 4,177 4,964 Investment securities: Available for sale debt, at fair value (amortized cost of $ 10,904,765,000 and $ 13,738,206,000 at December 31, 2023 and 2022, respectively, and allowance for credit losses of $ – at both December 31, 2023 and 2022) 9,684,760 12,238,316 Trading debt 28,830 43,523 Equity 12,701 12,304 Other 222,473 225,034 Total investment securities 9,948,764 12,519,177 Federal funds sold 5,025 49,505 Securities purchased under agreements to resell 450,000 825,000 Interest earning deposits with banks 2,239,010 389,140 Cash and due from banks 443,147 452,496 Premises and equipment – net 469,059 418,909 Goodwill 146,539 138,921 Other intangible assets – net 14,179 15,234 Other assets 938,077 909,590 Total assets $ 31,701,061 $ 31,875,931 LIABILITIES AND STOCKHOLDERS’ EQUITY Deposits: Non-interest bearing $ 7,975,935 $ 10,066,356 Savings, interest checking and money market 14,512,273 15,126,981 Certificates of deposit of less than $100,000 930,432 387,336 Certificates of deposit of $100,000 and over 1,945,258 606,767 Total deposits 25,363,898 26,187,440 Federal funds purchased and securities sold under agreements to repurchase 2,908,815 2,841,734 Other borrowings 1,404 9,672 Other liabilities 462,714 355,508 Total liabilities 28,736,831 29,394,354 Commerce Bancshares, Inc. stockholders’ equity: Common stock, $ 5 par value 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 655,322 629,319 Capital surplus 3,162,622 2,932,959 Retained earnings 53,183 31,620 Treasury stock of 611,546 shares at December 31, 2023 and 605,142 shares at December 31, 2022, at cost ( 35,599 ) ( 41,743 ) Accumulated other comprehensive income (loss) ( 891,412 ) ( 1,086,864 ) Total Commerce Bancshares, Inc. stockholders’ equity 2,944,116 2,465,291 Non-controlling interest 20,114 16,286 Total equity 2,964,230 2,481,577 Total liabilities and equity $ 31,701,061 $ 31,875,931 See accompanying notes to consolidated financial statements. 67 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31 (In thousands, except per share data) 2023 2022 2021 INTEREST INCOME Interest and fees on loans $ 984,397 $ 646,293 $ 570,549 Interest on loans held for sale 583 637 880 Interest on investment securities 278,755 313,892 236,278 Interest on federal funds sold 659 412 4 Interest on securities purchased under agreements to resell 13,649 22,647 37,377 Interest on deposits with banks 103,248 15,098 3,202 Total interest income 1,381,291 998,979 848,290 INTEREST EXPENSE Interest on deposits: Savings, interest checking and money market 146,392 25,099 7,509 Certificates of deposit of less than $100,000 38,690 1,469 1,158 Certificates of deposit of $100,000 and over 61,057 3,898 2,577 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 38,594 470 ( 24 ) Total interest expense 383,162 56,794 12,866 Net interest income 998,129 942,185 835,424 Provision for credit losses 35,451 28,071 ( 66,326 ) Net interest income after credit losses 962,678 914,114 901,750 NON-INTEREST INCOME Bank card transaction fees 191,156 176,144 167,891 Trust fees 190,954 184,719 188,227 Deposit account charges and other fees 90,992 94,381 97,217 Consumer brokerage services 17,223 19,117 18,362 Capital market fees 14,100 14,231 15,943 Loan fees and sales 11,165 13,141 29,720 Other 57,455 44,802 43,033 Total non-interest income 573,045 546,535 560,393 INVESTMENT SECURITIES GAINS (LOSSES), NET 14,985 20,506 30,059 NON-INTEREST EXPENSE Salaries and employee benefits 584,063 554,047 525,248 Data processing and software 118,758 110,692 101,792 Net occupancy 53,629 49,117 48,185 Deposit insurance 33,163 10,583 9,094 Marketing 24,511 23,827 21,856 Equipment 19,548 19,359 18,089 Supplies and communication 19,420 18,101 17,118 Other 77,890 63,051 64,519 Total non-interest expense 930,982 848,777 805,901 Income before income taxes 619,726 632,378 686,301 Less income taxes 134,549 132,358 145,711 Net income 485,177 500,020 540,590 Less non-controlling interest expense (income) 8,117 11,621 9,825 Net income attributable to Commerce Bancshares, Inc. $ 477,060 $ 488,399 $ 530,765 Net income per common share - basic $ 3.64 $ 3.68 $ 3.92 Net income per common share - diluted $ 3.64 $ 3.67 $ 3.91 See accompanying notes to consolidated financial statements. 68 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) For the Years Ended December 31 (In thousands) 2023 2022 2021 Net income $ 485,177 $ 500,020 $ 540,590 Other comprehensive income (loss): Net unrealized gains (losses) on other securities 209,914 ( 1,148,089 ) ( 240,627 ) Change in pension loss 3,590 3,482 4,450 Unrealized gains (losses) on cash flow hedge derivatives ( 18,052 ) ( 19,337 ) ( 18,120 ) Other comprehensive income (loss) 195,452 ( 1,163,944 ) ( 254,297 ) Comprehensive income (loss) 680,629 ( 663,924 ) 286,293 Less non-controlling interest (income) loss 8,117 11,621 9,825 Comprehensive income (loss) attributable to Commerce Bancshares, Inc. $ 672,512 $ ( 675,545 ) $ 276,468 See accompanying notes to consolidated financial statements. 69 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Commerce Bancshares, Inc. Shareholders (In thousands, except per share data) Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Non-Controlling Interest Total Balance at December 31, 2020 $ 589,352 $ 2,436,288 $ 73,000 $ ( 32,970 ) $ 331,377 $ 2,925 $ 3,399,972 Net income 530,765 9,825 540,590 Other comprehensive income (loss) ( 254,297 ) ( 254,297 ) Distributions to non-controlling interest ( 1,065 ) ( 1,065 ) 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 ) Stock-based compensation 15,415 15,415 Issuance under stock purchase and equity compensation plans ( 21,799 ) 22,710 911 5 % stock dividend, net 21,452 259,331 ( 388,579 ) 106,648 ( 1,148 ) Balance at December 31, 2021 610,804 2,689,894 92,493 ( 32,973 ) 77,080 11,026 3,448,324 Net income 488,399 11,621 500,020 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 ) Cash dividends paid on common stock ($ .961 per share) ( 127,466 ) ( 127,466 ) Stock-based compensation 16,995 16,995 Issuance under stock purchase and equity compensation plans ( 19,563 ) 21,468 1,905 5 % stock dividend, net 18,515 245,633 ( 421,806 ) 156,384 ( 1,274 ) Balance at December 31, 2022 629,319 2,932,959 31,620 ( 41,743 ) ( 1,086,864 ) 16,286 2,481,577 Net income 477,060 8,117 485,177 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) ( 134,734 ) ( 134,734 ) Stock-based compensation 17,052 17,052 Issuance under stock purchase and equity compensation plans ( 21,732 ) 23,439 1,707 5 % stock dividend, net 26,003 234,289 ( 320,763 ) 59,595 ( 876 ) Balance at December 31, 2023 $ 655,322 $ 3,162,622 $ 53,183 $ ( 35,599 ) $ ( 891,412 ) $ 20,114 $ 2,964,230 See accompanying notes to consolidated financial statements. 70 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31 (In thousands) 2023 2022 2021 OPERATING ACTIVITIES Net income $ 485,177 $ 500,020 $ 540,590 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 35,451 28,071 ( 66,326 ) 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) 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 Originations of loans held for sale ( 57,424 ) ( 118,850 ) ( 524,597 ) Net (increase) decrease in trading securities, excluding unsettled transactions 28,478 4,152 ( 29,885 ) Purchase of interest rate floors ( 54,449 ) ( 35,799 ) — Stock-based compensation 17,052 16,995 15,415 (Increase) decrease in interest receivable ( 5,986 ) ( 28,439 ) 19,788 Increase (decrease) in interest payable 46,650 3,054 ( 3,179 ) Increase (decrease) in income taxes payable 4,586 ( 12,936 ) ( 5,175 ) Other changes, net ( 113,481 ) 15,250 ( 10,486 ) Net cash provided by operating activities 488,769 559,385 597,722 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) 1,141,949 106,971 80,811 Proceeds from maturities/pay downs of investment securities (A) 1,935,552 2,691,260 3,459,106 Purchases of investment securities (A) ( 246,286 ) ( 2,147,862 ) ( 5,947,891 ) Net (increase) decrease in loans ( 933,736 ) ( 1,146,292 ) 1,134,533 Securities purchased under agreements to resell — ( 200,000 ) ( 900,000 ) Repayments of securities purchased under agreements to resell 375,000 1,000,000 125,000 Purchases of premises and equipment ( 88,074 ) ( 65,191 ) ( 56,716 ) Sales of premises and equipment 4,358 2,985 8,859 Net cash provided by (used in) investing activities 2,183,832 242,271 ( 2,082,758 ) FINANCING ACTIVITIES Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits ( 2,612,412 ) ( 3,254,081 ) 3,291,466 Net increase (decrease) in certificates of deposit 1,881,587 ( 448,511 ) ( 402,077 ) Net increase (decrease) in federal funds purchased and short-term securities sold under agreements to repurchase 67,081 ( 181,233 ) 924,584 FHLB short-term borrowings 2,250,000 — — Repayments of FHLB borrowings ( 2,250,000 ) — — Net increase (decrease) in other borrowings ( 8,268 ) ( 2,888 ) 11,758 Purchases of treasury stock ( 76,370 ) ( 186,622 ) ( 129,361 ) Cash dividends paid on common stock ( 134,734 ) ( 127,466 ) ( 122,693 ) Other, net ( 3 ) ( 8 ) ( 15 ) Net cash provided by (used in) financing activities ( 883,119 ) ( 4,200,809 ) 3,573,662 Increase (decrease) in cash, cash equivalents and restricted cash 1,789,482 ( 3,399,153 ) 2,088,626 Cash, cash equivalents and restricted cash at beginning of year 897,801 4,296,954 2,208,328 Cash, cash equivalents and restricted cash at end of year $ 2,687,283 $ 897,801 $ 4,296,954 Income tax payments, net $ 130,957 $ 116,995 $ 119,665 Interest paid on deposits and borrowings 336,512 53,740 16,045 Loans transferred to foreclosed real estate 322 457 182 (A) Available for sale debt securities, equity securities, and other securities. See accompanying notes to consolidated financial statements. 71 Table of Contents Commerce Bancshares, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Nature of Operations Commerce Bancshares, Inc. and its subsidiaries (the Company) conducts its principal activities from approximately 257 branch and ATM locations throughout Missouri, Kansas, Illinois, Oklahoma and Colorado. Principal activities include retail and commercial banking, investment management, securities brokerage, mortgage banking, trust, and private banking services. The Company also maintains offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids that support customers in its commercial and/or wealth segments and operates a commercial payments business with sales representatives covering the continental U.S. Basis of Presentation, Use of Estimates, and Subsequent Events The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All material inter-company transactions have been eliminated through consolidation. Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no effect on net income or total assets. The Company follows accounting principles generally accepted in the United States of America (GAAP) and reporting practices applicable to the banking industry. The preparation of financial statements under GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. These estimates are based on information available to management at the time the estimates are made. While the consolidated financial statements reflect management’s best estimates and judgments, actual results could differ from those estimates. Management has evaluated subsequent events for potential recognition or disclosure through the date these consolidated financial statements were issued. The Company, in the normal course of business, engages in a variety of activities that involve variable interest entities (VIEs). A VIE is a legal entity that lacks equity investors or whose equity investors do not have a controlling financial interest in the entity through their equity investments. However, an enterprise is deemed to have a controlling financial interest and is the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. An enterprise that is the primary beneficiary must consolidate the VIE. The Company’s interests in VIEs are evaluated to determine if the Company is the primary beneficiary both at inception and when there is a change in circumstances that requires a reconsideration. The Company is considered to be the primary beneficiary in a rabbi trust related to a deferred compensation plan offered to certain employees. The assets and liabilities of this trust, which are included in the accompanying consolidated balance sheets, are not significant. The Company also has variable interests in certain entities in which it is not the primary beneficiary. These entities are not consolidated. These interests include certain investments in entities accounted for using the equity method of accounting, as well as affordable housing limited partnership interests, holdings in its investment portfolio of various asset and mortgage-backed bonds that are issued by securitization trusts, and managed discretionary trust assets that are not included in the accompanying consolidated balance sheets. Adoption of ASU 2022-02 The Company adopted ASU 2022-02 Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, using the prospective transition method. This ASU eliminates the troubled debt restructuring recognition and measurement guidance and requires an entity to present gross write-offs by year of origination. The amendments also enhance disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. With the exception of enhanced disclosures, there was no material impact to the 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. 72 Table of Contents 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", "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 $ 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 $ 2.2 billion at December 31, 2023. Loans and Related Earnings The Company's portfolio of held-for-investment loans includes a net investment in direct financing and sales type leases to commercial and industrial and tax-exempt entities, and collectively, the Company's portfolio of loans and leases is referred to as its "loan portfolio" or "loans". Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at amortized cost, excluding accrued interest receivable. Amortized cost is the outstanding principal balance, net of any deferred fees and costs on originated loans. Origination fee income received on loans and amounts representing the estimated direct costs of origination are deferred and amortized to interest income over the life of the loan using the interest method. Interest on loans is accrued based upon the principal amount outstanding. The Company has elected the practical expedient to exclude all accrued interest receivable from all required disclosures of amortized cost. Additionally, an election was made not to measure an allowance for credit losses for accrued interest receivables. The Company has also made the election that all interest accrued but ultimately not received is reversed against interest income. Loan and commitment fees, net of costs, are deferred and recognized in interest income over the term of the loan or commitment as an adjustment of yield. Annual fees charged on credit card loans are capitalized to principal and amortized over 12 months to loan fees and sales. Other credit card fees, such as cash advance fees and late payment fees, are recognized in income as an adjustment of yield when charged to the cardholder’s account. Past Due Loans Management reports loans as past due on the day following the contractual repayment date if payment was not received by end of the business day. Loans, or portions of loans, are charged off to the extent deemed uncollectible. Loan charge-offs reduce the allowance for credit losses on loans, and recoveries of loans previously charged off are added back to the allowance. Business, business real estate, construction and land real estate, and personal real estate loans are generally charged down to estimated collectible balances when they are placed on non-accrual status. Consumer loans and related accrued interest are normally charged down to the fair value of related collateral (or are charged off in full if not collateralized) once the loans are more than 120 to 180 days delinquent, depending on the type of loan. Revolving home equity loans are charged down to the fair value of the related collateral once the loans are more than 180 days past due. Credit card loans are charged off against the allowance for credit losses when the receivable is more than 180 days past due. Non-Accrual Loans Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. Business, construction real estate, business real estate, and personal real estate loans that are contractually 90 days past due as to principal and/or interest payments are generally placed on non-accrual status, unless they are both well-secured and in the process of collection. Consumer, revolving home equity and credit card loans are exempt under regulatory rules from being classified as non-accrual. When a loan is placed on non-accrual status, any interest previously accrued but not collected is reversed against current interest income, and the loan is charged off to the extent uncollectible. Principal and interest payments received on non-accrual loans are generally applied to principal. Interest is included in income only after all previous loan charge-offs have been recovered and is recorded only as received. The loan is returned to accrual status only when the borrower has brought all past due principal and interest payments current, and, in the opinion of management, the borrower has demonstrated the ability to make future payments of principal and interest as scheduled. A six month history of sustained payment performance is generally required before reinstatement of accrual status. 73 Table of Contents 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 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 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. 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 Loans held for sale include student loans and certain fixed rate residential mortgage loans. These loans are typically classified as held for sale upon origination based upon management's intent to sell the production of these loans. The student loans are carried at the lower of aggregate cost or fair value, and their fair value is determined based on sale contract prices. The mortgage loans are carried at fair value under the elected fair value option. Their fair value is based on secondary market prices for loans with similar characteristics, including an adjustment for embedded servicing value. Changes in fair value and gains and losses on sales are included in loan fees and sales. Deferred fees and costs related to these loans are not amortized but are recognized as part of the cost basis of the loan at the time it is sold. Interest income related to loans held for sale is accrued based on the principal amount outstanding and the loan's contractual interest rate. Occasionally, other types of loans may be classified as held for sale in order to manage credit concentration. These loans are carried at the lower of cost or fair value with gains and losses on sales recognized in loan fees and sales. Allowance for Credit Losses on Loans The allowance for credit losses on loans is a valuation amount that is deducted from the amortized cost basis of loans not held at fair value to present the net amount expected to be collected over the contractual term of the loans. The allowance for credit losses on loans is measured using relevant information about past events, including historical credit loss experience on loans with similar risk characteristics, current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. An allowance will be created upon origination or acquisition of a loan and is updated at subsequent reporting dates. The methodology is applied consistently for each reporting period and reflects management’s current expectations of credit losses. Changes to the allowance for credit losses on loans resulting from periodic evaluations are recorded through increases or decreases to the credit loss expense for loans, which is recorded in provision for credit losses on the consolidated statements of income. Loans that are deemed to be uncollectible are charged off against the related allowance for credit losses on loans. The allowance for credit losses on loans is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral type and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis. 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. 74 Table of Contents Liability for Unfunded Lending Commitments The Company’s unfunded lending commitments are primarily unfunded loan commitments and letters of credit. Expected credit losses for these unfunded lending commitments are calculated over the contractual period during which the Company is exposed to the credit risk. The methodology used to measure credit losses for unfunded lending commitments is the same as the methodology used for loans, however, the estimate of credit risk for unfunded lending commitments takes into consideration the likelihood that funding will occur. The liability for unfunded lending commitments excludes any exposures that are unconditionally cancellable by the Company. The loss estimate is recorded within other liabilities on the consolidated balance sheet. Changes to the liability for unfunded lending commitments are recorded through increases or decreases to the provision for credit losses on the consolidated statements of income. Direct Financing and Sales Type Leases The net investment in direct financing and sales type leases is included in loans on the Company’s consolidated balance sheets and consists of the present values of the sum of the future minimum lease payments and estimated residual value of the leased asset. Revenue consists of interest earned on the net investment and is recognized over the lease term as a constant percentage return thereon. Investments in Debt and Equity Securities The majority of the Company's investment portfolio is comprised of debt securities that are classified as available for sale. From time to time, the Company sells securities and utilizes the proceeds to reduce borrowings, fund loan growth, or modify its interest rate profile. Securities classified as available for sale are carried at fair value. Changes in fair value are reported in other comprehensive income (loss), a component of stockholders’ equity. Securities are periodically evaluated for credit losses in accordance with the guidance provided in Accounting Standards Codification (ASC) 326. Further discussion of this evaluation is provided in " Allowance for Credit Losses on Available for Sale Debt Securities" below. Gains and losses realized upon sales of securities are calculated using the specific identification method and are included in investment securities gains (losses), net, in the consolidated statements of income. Purchase premiums and discounts are amortized to interest income using a level yield method over the estimated lives of the securities. For certain callable debt securities purchased at a premium, the amortization is recorded to the earliest call date. For mortgage and asset-backed securities, prepayment experience is evaluated quarterly to determine if a change in a bond's estimated remaining life is necessary. A corresponding adjustment is then made in the related amortization of premium or discount accretion. Accrued interest receivable on available for sale debt securities is reported in other assets on the consolidated balance sheet. The Company has elected the practical expedient to exclude the accrued interest from all required disclosures of amortized cost of debt securities. Additionally, an election was made not to measure an allowance for credit losses for accrued interest receivables. Interest accrued but not received is reversed against interest income. Equity securities include common and preferred stock and are carried at fair value. Certain equity securities do not have readily determinable fair values. 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. Other securities include the Company's investments in Federal Reserve Bank stock and Federal Home Loan Bank stock, equity method investments, and private equity investments. Federal Reserve Bank stock and Federal Home Loan Bank stock are held for debt and regulatory purposes, are carried at cost and are periodically evaluated for impairment. 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. The Company's private equity investments in portfolio concerns, consisting of both debt and equity instruments, are held by the Company’s private equity subsidiary, which is a small business investment company licensed by the Small Business Administration. The Company's private equity investments are carried at fair value in accordance with investment company accounting guidance (ASC 946-10-15), with changes in fair value reported in current income. In the absence of readily ascertainable market values, fair value is estimated using internally developed methods. Changes in fair value which are recognized in current income and gains and losses from sales are included in investment securities gains (losses), net, in the consolidated statements of income. Trading account securities, which are debt securities bought and held principally for the purpose of resale in the near term, are carried at fair value. Gains and losses, both realized and unrealized, are recorded in non-interest income. 75 Table of Contents Purchases and sales of securities are recognized on a trade date basis. A receivable or payable is recognized for transaction pending settlements. Allowance for Credit Losses on Available for Sale Debt Securities For available for sale debt securities in an unrealized loss position, the entire loss in fair value is required to be recognized in current earnings if the Company intends to sell the securities or believes it more likely than not that it will be required to sell the security before the anticipated recovery. 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. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss has occurred, and an allowance for credit losses is recorded. The allowance for credit losses is limited by the amount that the fair value is less than the amortized cost basis. Any impairment not recorded through the provision for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses on the consolidated statements of income. Losses are charged against the allowance for credit losses on securities when management believes the uncollectibility of an available for sale security is confirmed or when either of the conditions regarding intent or requirement to sell is met. Accrued interest receivable on available for sale debt securities is excluded from the estimate of credit losses. Securities Purchased under Agreements to Resell and Securities Sold under Agreements to Repurchase Securities purchased under agreements to resell and securities sold under agreements to repurchase are treated as collateralized financing transactions, not as purchases and sales of the underlying securities. The agreements are recorded at the amount of cash advanced or received. The Company periodically enters into securities purchased under agreements to resell with large financial institutions. Securities pledged by the counterparties to secure these agreements are delivered to a third party custodian. Securities sold under agreements to repurchase are a source of funding to the Company and are offered to cash management customers as an automated, collateralized investment account. From time to time, securities sold may also be used by the Bank to obtain additional borrowed funds at favorable rates. These borrowings are secured by a portion of the Company's investment security portfolio and delivered either to the dealer custody account at the Federal Reserve Bank or to the applicable counterparty. The fair value of collateral either received from or provided to a counterparty is monitored daily, and additional collateral is obtained, returned, or provided by the Company in order to maintain full collateralization for these transactions. As permitted by current accounting guidance, the Company offsets certain securities purchased under agreements to resell against securities sold under agreements to repurchase in its balance sheet presentation. These agreements are further discussed in Note 20, Resale and Repurchase Agreements. Premises and Equipment Land is stated at cost, and buildings and equipment are stated at cost, including capitalized interest when appropriate, less accumulated depreciation. Depreciation is computed using a straight-line method, utilizing estimated useful lives; generally 30 to 40 years for buildings, 10 years for building improvements, and 3 to 10 years for equipment. Leasehold improvements are amortized over the shorter of 10 years or the remaining lease term. Maintenance and repairs are charged to non-interest expense as incurred. Also included in premises and equipment is construction in process, which represents facilities construction projects underway that have not yet been placed into service, as well as the Company's right-of-use leased assets, which are mainly comprised of operating leases for branches, office space, ATM locations, and certain equipment. Foreclosed Assets Foreclosed assets consist of property that has been repossessed and is comprised of commercial and residential real estate and other non-real estate property, including auto and recreational and marine vehicles. 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 76 Table of Contents credit losses. Fair values are estimated primarily based on appraisals, third-party price opinions, or internally developed pricing models. After initial recognition, fair value estimates are updated periodically. Declines in fair value below cost are recognized through valuation allowances which may be reversed when supported by future increases in fair value. These valuation adjustments, in addition to gains and losses realized on sales and net operating expenses, are recorded in other non-interest expense. Foreclosed assets are included in other assets on the consolidated balance sheets. Goodwill and Intangible Assets Goodwill and intangible assets that have indefinite useful lives, such as property easement intangible assets, are not amortized but are assessed for impairment on an annual basis or more frequently in certain circumstances. When testing for goodwill impairment, the Company may initially perform a qualitative assessment. Based on the results of this qualitative assessment, if the Company concludes it is more likely than not that a reporting unit's fair value is less than its carrying amount, a quantitative analysis is performed. Quantitative valuation methodologies include a combination of formulas using current market multiples, based on recent sales of financial institutions within the Company's geographic marketplace. If the fair value of a reporting unit is less than the carrying amount, an impairment has occurred and is measured as the amount by which the carrying amount exceeds the reporting unit's fair value. The Company has not recorded impairment resulting from goodwill impairment tests. However, adverse changes in the economic environment, operations of the reporting unit, or other factors could result in a decline in fair value. Intangible assets that have finite useful lives, such as core deposit intangibles and mortgage servicing rights, are amortized over their estimated useful lives. Core deposit intangibles are generally amortized over periods of 8 to 14 years, representing their estimated lives, using accelerated methods. Mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income, considering appropriate prepayment assumptions. Core deposit intangibles are reviewed for impairment whenever events or changes in circumstances indicate their carrying amount may not be recoverable. Impairment is indicated if the sum of the undiscounted estimated future net cash flows is less than the carrying value of the intangible asset. Mortgage servicing rights, while initially recorded at fair value, are subsequently amortized and carried at the lower of the initial capitalized amount (net of accumulated amortization), or estimated fair value. The Company evaluates its mortgage servicing rights for impairment on a quarterly basis, using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the underlying loans. A valuation allowance has been established, through a charge to earnings, to the extent the amortized cost exceeds the estimated fair value. However, the Company has not recorded other-than-temporary impairment losses on its intangible assets. Income Taxes Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income taxes are provided for temporary differences between the financial reporting bases and income tax bases of the Company’s assets and liabilities, net operating losses, and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income when such assets and liabilities are anticipated to be settled or realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as tax expense or benefit in the period that includes the enactment date of the change. In determining the amount of deferred tax assets to recognize in the financial statements, the Company evaluates the likelihood of realizing such benefits in future periods. A valuation allowance is established if it is more likely than not that all or some portion of the deferred tax asset will not be realized. The Company recognizes interest and penalties related to income taxes within income tax expense in the consolidated statements of income. The Company and its eligible subsidiaries file a consolidated federal income tax return. State and local income tax returns are filed on a combined, consolidated or separate return basis based upon each jurisdiction’s laws and regulations. Additional information about current and deferred income taxes is provided in Note 9, Income Taxes. Non-Interest Income Non-interest income is mainly comprised of revenue from contracts with customers. For that revenue (excluding certain revenue associated with financial instruments, derivative and hedging instruments, guarantees, lease contracts, transferring and servicing of financial assets, and other specific revenue transactions), the Company applies the following five-step approach when recognizing revenue: (i) identify the contract with the customer, (ii) identify the performance obligations, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) the performance obligation is satisfied. 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 77 Table of Contents 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. 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. In cases where payment has not been received despite satisfaction of its performance obligations, the Company accrues an estimate of the amount due in the period that the performance obligations have been satisfied. For contracts with variable components, the Company only recognizes revenue to the extent that it is probable that the cumulative amount recognized will not be subject to a significant reversal in future periods. Generally, the Company’s contracts do not include terms that require significant judgment to determine whether a variable component is included within the transaction price. The Company generally acts in a principal capacity, on its own behalf, in most of its contracts with customers. For these transactions, revenue and the related costs to provide the goods or services are presented on a gross basis in the financial statements. In some cases, the Company acts in an agent capacity, deriving revenue through assisting third parties in transactions with the Company’s customers. 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, the sales of annuities and certain limited insurance products, and beginning in August 2023, commissions on sales of consumer brokerage transactions and products. Derivatives Most of the Company's derivative contracts are accounted for as free-standing instruments. These instruments are carried at fair value, and changes in fair value are recognized in current earnings. They include interest rate swaps and caps, which are offered to customers to assist in managing their risks of adverse changes in interest rates. Each contract between the Company and a customer is offset by a contract between the Company and an institutional counterparty, thus minimizing the Company's exposure to rate changes. The Company also enters into certain contracts, known as credit risk participation agreements, to buy or sell credit protection on specific interest rate swaps. It also purchases and sells forward foreign exchange contracts, either in connection with customer transactions, or for its own trading purposes. Additionally, the Company originates and sells certain personal real estate mortgages. Derivative instruments under this program include mortgage loan commitments, forward loan sale contracts, and forward contracts to sell certain to-be-announced (TBA) securities. The Company's interest rate risk management policy permits the use of hedge accounting for derivatives, and the Company has entered into interest rate floor contracts as protection from the potential for declining interest rates in the commercial loan portfolio. These floors were designated and qualified as cash flow hedges. In a cash flow hedge, the changes in fair value are recorded in accumulated other comprehensive income and recognized in the income statement when the hedged cash flows affect earnings. Both at hedge inception and on an ongoing basis, the Company assesses whether the interest rate floors used in the hedging relationships are highly effective in offsetting changes in the cash flows of the hedged items. From time to time, the Company has monetized its interest rate floors that had previously been designated and qualified as cash flow hedges. In such case, the monetized cash flow hedge is derecognized and the amounts recorded in accumulated other comprehensive income (AOCI) remain in AOCI until the underlying forecasted transaction impacts earnings, unless the forecasted transaction becomes probable of not occurring. The Company has master netting arrangements with various counterparties but does not offset derivative assets and liabilities under these arrangements in its consolidated balance sheets. However, interest rate swaps that are executed under central clearing requirements are presented net of variation margin as mandated by the statutory terms of the Company's contract with its clearing counterparty. 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. Pension Plan The Company’s pension plan is described in Note 10, Employee Benefit Plans. In accordance with ASU 2017-07, the Company has reported the service cost component of net periodic pension cost in salaries and employee benefits in the accompanying consolidated statements of income, while the other components are reported in other non-interest expense. 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 78 Table of Contents 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. The Company monitors the assumptions and updates them periodically. Due to the long-term nature of the pension plan obligation, actual results may differ significantly from estimations. Such differences are adjusted over time as the assumptions are replaced by facts and values are recalculated. Stock-Based Compensation The Company’s stock-based compensation plan is described in Note 11, Stock-Based Compensation and Directors Stock Purchase Plan. In accordance with the requirements of ASC 718-10-30-3 and 35-2, the Company measures the cost of stock-based compensation based on the grant-date fair value of the award, recognizing the cost over the requisite service period, which is generally the vesting period. The fair value of stock appreciation rights is estimated using the Black-Scholes option-pricing model while the fair value of a nonvested stock award is the common stock (CBSH) market price. The expense recognized for stock-based compensation is included in salaries and benefits in the accompanying consolidated statements of income. The Company recognizes forfeitures as a reduction to expense only when they have occurred. Treasury Stock Purchases of the Company’s common stock are recorded at cost. Upon re-issuance for acquisitions, exercises of stock-based awards or other corporate purposes, treasury stock is reduced based upon the average cost basis of shares held. Income per Share Basic income per share is computed using the weighted average number of common shares outstanding during each year. Diluted income per share includes the effect of all dilutive potential common shares (primarily stock appreciation rights) outstanding during each year. The Company applies the two-class method of computing income per share. The two-class method is an earnings allocation formula that determines income per share for common stock and for participating securities, according to dividends declared and participation rights in undistributed earnings. The Company’s nonvested stock awards are considered to be a class of participating security. All per share data has been restated to reflect the 5 % stock dividend distributed in December 2023. 79 Table of Contents 2. Loans and Allowance for Credit Losses Major classifications within the Company’s held for investment loan portfolio at December 31, 2023 and 2022 are as follows: (In thousands) 2023 2022 Commercial: Business $ 6,019,036 $ 5,661,725 Real estate — construction and land 1,446,764 1,361,095 Real estate — business 3,719,306 3,406,981 Personal Banking: Real estate — personal 3,026,041 2,918,078 Consumer 2,077,723 2,059,088 Revolving home equity 319,894 297,207 Consumer credit card 589,913 584,000 Overdrafts 6,802 14,957 Total loans (1) $ 17,205,479 $ 16,303,131 (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: (In thousands) Balance at January 1, 2023 $ 41,107 Additions 2,300 Amounts collected ( 4,605 ) Amounts written off — Balance, December 31, 2023 $ 38,802 Management believes all loans to directors and executive officers have been made in the ordinary course of business with normal credit terms, including interest rate and collateral considerations, and do not represent more than a normal risk of collection. The activity in the table above includes draws and repayments on several lines of credit with business entities. There were no outstanding loans at December 31, 2023 to principal holders (over 10% ownership) of the Company’s common stock. The Company’s lending activity is generally centered in Missouri, Kansas, Illinois and other nearby states including Oklahoma, Colorado, Iowa, Ohio, and Texas. The Company maintains a diversified portfolio with limited industry concentrations of credit risk. Loans and loan commitments are extended under the Company’s normal credit standards, controls, and monitoring procedures. Most loan commitments are short or intermediate term in nature. Commercial loan maturities generally range from one to seven years. Collateral is commonly required and would include such assets as marketable securities, cash equivalent assets, accounts receivable, inventory, equipment, other forms of personal property, and real estate. At December 31, 2023, unfunded loan commitments totaled $ 14.5 billion (which included $ 5.4 billion in unused approved lines of credit related to credit card loan agreements) which could be drawn by customers subject to certain review and terms of agreement. At December 31, 2023, loans totaling $ 3.5 billion were pledged at the FHLB as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of $ 3.1 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings. The Company has a net investment in direct financing and sales type leases to commercial and industrial and tax-exempt entities o f $ 867.0 million and $ 779.9 million at December 31, 2023 and 2022, respectively, which is included in business loans on the Company’s consolidated balance sheets. This investment includes deferred income of $ 98.6 million and $ 73.2 million at December 31, 2023 and 2022, respectively. 80 Table of Contents Allowance for credit losses The allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral type and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis. For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and outstanding loan balances during a lookback period. Lookback periods can be different based on the individual pool and represent management’s credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given a single path economic forecast of key macroeconomic variables including GDP, disposable income, unemployment rate, various interest rates, consumer price index (CPI) inflation rate, housing price index (HPI), commercial real estate price index (CREPI) and market volatility. The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting back to historical averages using a straight-line method. The forecast-adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions (except for contractual extensions at the option of the customer), renewals and modifications. 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. 81 Table of Contents Key assumptions in the Company’s allowance for credit loss model include the economic forecast, the reasonable and supportable period, forecasted macro-economic variables, prepayment assumptions and qualitative factors applied for portfolio composition changes, underwriting practices, or significant unique events or conditions. The assumptions utilized in estimating the Company’s allowance for credit losses at December 31, 2023 and 2022 are discussed below. Key Assumption December 31, 2023 December 31, 2022 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 • Reversion to historical average loss rates within two quarters using a straight-line method • Reasonable and supportable period of one year • 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% • 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% • BBB corporate yield from 5.1% to 5.8% • Prime rate from 7.6% to 7.7% Prepayment assumptions Commercial loans • 5% for most loan pools Personal banking loans • Ranging from 6.5% to 23.5% for most loan pools • Consumer credit cards 66.9% Commercial loans • 5% for most loan pools Personal banking loans • Ranging from 8.3% to 24.8% for most loan pools • Consumer credit cards 67.9% Qualitative factors Added qualitative factors related to: • Changes in the composition of the loan portfolios • Certain 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 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 The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans, however, the liability for unfunded lending commitments incorporates an assumption for the portion of unfunded commitments that are expected to be funded. Sensitivity in the Allowance for Credit Loss model The allowance for credit losses is an estimate that requires significant judgment including projections of the macro-economic environment. The forecasted macro-economic environment continuously changes which can cause fluctuations in estimated expected credit losses. The current forecast projects 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. 82 Table of Contents A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments during the years ended December 31, 2023 and 2022 follows: For the Year Ended December 31 (In thousands) Commercial Personal Banking Total ALLOWANCE FOR CREDIT LOSSES ON LOANS Balance December 31, 2022 $ 103,293 $ 46,843 $ 150,136 Provision for credit losses on loans 8,001 35,324 43,325 Deductions: Loans charged off 3,885 36,283 40,168 Less recoveries on loans 792 8,310 9,102 Net loan charge-offs (recoveries) 3,093 27,973 31,066 Balance December 31, 2023 $ 108,201 $ 54,194 $ 162,395 LIABILITY FOR UNFUNDED LENDING COMMITMENTS Balance December 31, 2022 $ 31,743 $ 1,377 $ 33,120 Provision for credit losses on unfunded lending commitments ( 7,834 ) ( 40 ) ( 7,874 ) Balance December 31, 2023 $ 23,909 $ 1,337 $ 25,246 ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 132,110 $ 55,531 $ 187,641 ALLOWANCE FOR CREDIT LOSSES ON LOANS Balance at December 31, 2021 97,776 52,268 150,044 Provision for credit losses on loans 6,550 12,605 19,155 Deductions: Loans charged off 1,480 27,762 29,242 Less recoveries on loans 447 9,732 10,179 Net loan charge-offs (recoveries) 1,033 18,030 19,063 Balance December 31, 2022 $ 103,293 $ 46,843 $ 150,136 LIABILITY FOR UNFUNDED LENDING COMMITMENTS Balance at December 31, 2020 23,271 933 24,204 Provision for credit losses on unfunded lending commitments 8,472 444 8,916 Balance December 31, 2022 $ 31,743 $ 1,377 $ 33,120 ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 135,036 $ 48,220 $ 183,256 83 Table of Contents Delinquent and non-accrual loans The Company considers loans past due on the day following the contractual repayment date, if the contractual repayment was not received by the Company as of the end of the business day. The following table provides aging information on the Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at December 31, 2023 and 2022. (In thousands) Current or Less Than 30 Days Past Due 30 – 89 Days Past Due 90 Days Past Due and Still Accruing Non-accrual Total December 31, 2023 Commercial: Business $ 5,985,713 $ 29,087 $ 614 $ 3,622 $ 6,019,036 Real estate – construction and land 1,446,764 — — — 1,446,764 Real estate – business 3,714,579 4,582 85 60 3,719,306 Personal Banking: Real estate – personal 2,999,988 14,841 9,559 1,653 3,026,041 Consumer 2,036,353 38,217 3,153 — 2,077,723 Revolving home equity 315,483 1,564 870 1,977 319,894 Consumer credit card 574,805 7,525 7,583 — 589,913 Overdrafts 6,553 249 — — 6,802 Total $ 17,080,238 $ 96,065 $ 21,864 $ 7,312 $ 17,205,479 December 31, 2022 Commercial: Business $ 5,652,710 $ 1,759 $ 505 $ 6,751 $ 5,661,725 Real estate – construction and land 1,361,095 — — — 1,361,095 Real estate – business 3,406,207 585 — 189 3,406,981 Personal Banking: Real estate – personal 2,895,742 14,289 6,681 1,366 2,918,078 Consumer 2,031,827 25,089 2,172 — 2,059,088 Revolving home equity 295,303 1,201 703 — 297,207 Consumer credit card 572,213 6,238 5,549 — 584,000 Overdrafts 14,090 647 220 — 14,957 Total $ 16,229,187 $ 49,808 $ 15,830 $ 8,306 $ 16,303,131 At 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. 84 Table of Contents Credit quality indicators The following table provides information about the credit quality of the Commercial loan portfolio. The Company utilizes an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the expectation of debt repayment based on borrower specific information, including but not limited to, current financial information, historical payment experience, industry information, collateral levels and collateral types. The “pass” category consists of a range of loan grades that reflect increasing, though still acceptable, risk. A loan is assigned the risk rating at origination and then monitored throughout the contractual term for possible risk rating changes. Movement of risk through the various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention” rating is applied to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. All loans are analyzed for risk rating updates annually. For larger loans, rating assessments may be more frequent if relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past due related to credit issues. Loans rated Special Mention, Substandard or Non-accrual are subject to quarterly review and monitoring processes. In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by a credit review department which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan. 85 Table of Contents The risk category of loans in the Commercial portfolio as of December 31, 2023 and 2022 are as follows: Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total December 31, 2023 Business Risk Rating: Pass $ 1,609,685 $ 839,511 $ 555,991 $ 273,138 $ 215,988 $ 257,177 $ 2,096,108 $ 5,847,598 Special mention 19,639 3,412 19,489 643 412 2,485 43,054 89,134 Substandard 5,256 8,666 6,891 20,854 1,422 10,235 25,358 78,682 Non-accrual — 130 1,184 — — 2,308 — 3,622 Total Business: $ 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 Risk Rating: Pass $ 476,489 $ 579,933 $ 295,841 $ 41,418 $ 498 $ 2,834 $ 31,670 $ 1,428,683 Special mention 3,068 15,013 — — — — — 18,081 Substandard — — — — — — — — Total Real estate-construction: $ 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 Risk Rating: Pass $ 807,631 $ 1,063,189 $ 510,397 $ 433,030 $ 311,457 $ 325,738 $ 94,432 $ 3,545,874 Special mention 16,650 8,619 451 884 9,253 733 — 36,590 Substandard 2,952 18,463 27,914 17,430 11,636 58,387 — 136,782 Non-accrual — — — — — 60 — 60 Total Real-estate business: $ 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 Risk Rating: Pass $ 2,893,805 $ 2,482,633 $ 1,362,229 $ 747,586 $ 527,943 $ 585,749 $ 2,222,210 $ 10,822,155 Special mention 39,357 27,044 19,940 1,527 9,665 3,218 43,054 143,805 Substandard 8,208 27,129 34,805 38,284 13,058 68,622 25,358 215,464 Non-accrual — 130 1,184 — — 2,368 — 3,682 Total Commercial loans: $ 2,941,370 $ 2,536,936 $ 1,418,158 $ 787,397 $ 550,666 $ 659,957 $ 2,290,622 $ 11,185,106 Gross write-offs for the year ended December 31, 2023 $ — $ 2,260 $ 57 $ 41 $ — $ 134 $ 1,393 $ 3,885 86 Table of Contents Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total December 31, 2022 Business Risk Rating: Pass $ 1,456,476 $ 782,409 $ 464,201 $ 360,844 $ 180,375 $ 219,053 $ 2,146,380 $ 5,609,738 Special mention 3,113 2,548 7,757 1,063 67 — 1,319 15,867 Substandard 5,752 10,004 685 37 810 10,342 1,739 29,369 Non-accrual 195 1,987 — 1 792 3,776 — 6,751 Total Business: $ 1,465,536 $ 796,948 $ 472,643 $ 361,945 $ 182,044 $ 233,171 $ 2,149,438 $ 5,661,725 Real estate-construction Risk Rating: Pass $ 538,022 $ 596,465 $ 129,632 $ 27,331 $ 1,305 $ 2,029 $ 18,559 $ 1,313,343 Special mention 352 — — — — — — 352 Substandard — 19,494 — — 14,766 13,140 — 47,400 Total Real estate-construction: $ 538,374 $ 615,959 $ 129,632 $ 27,331 $ 16,071 $ 15,169 $ 18,559 $ 1,361,095 Real estate- business Risk Rating: Pass $ 1,085,379 $ 616,516 $ 555,648 $ 424,641 $ 163,628 $ 271,579 $ 90,799 $ 3,208,190 Special mention 4,608 — 618 9,737 976 279 — 16,218 Substandard 2,795 30,944 61,141 10,490 30,782 46,232 — 182,384 Non-accrual 14 45 — — 124 6 — 189 Total Real-estate business: $ 1,092,796 $ 647,505 $ 617,407 $ 444,868 $ 195,510 $ 318,096 $ 90,799 $ 3,406,981 Commercial loans Risk Rating: Pass $ 3,079,877 $ 1,995,390 $ 1,149,481 $ 812,816 $ 345,308 $ 492,661 $ 2,255,738 $ 10,131,271 Special mention 8,073 2,548 8,375 10,800 1,043 279 1,319 32,437 Substandard 8,547 60,442 61,826 10,527 46,358 69,714 1,739 259,153 Non-accrual 209 2,032 — 1 916 3,782 — 6,940 Total Commercial loans: $ 3,096,706 $ 2,060,412 $ 1,219,682 $ 834,144 $ 393,625 $ 566,436 $ 2,258,796 $ 10,429,801 87 Table of Contents The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided as of December 31, 2023 and 2022 below: Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Total December 31, 2023 Real estate-personal Current to 90 days past due $ 455,703 $ 452,153 $ 533,313 $ 711,442 $ 257,159 $ 596,439 $ 8,620 $ 3,014,829 Over 90 days past due 3,319 1,650 2,222 834 44 1,490 — 9,559 Non-accrual — 261 167 — 157 1,068 — 1,653 Total Real estate-personal: $ 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 Consumer Current to 90 days past due $ 518,619 $ 340,104 $ 258,348 $ 127,208 $ 56,394 $ 51,302 $ 722,595 $ 2,074,570 Over 90 days past due 391 210 194 24 54 421 1,859 3,153 Total Consumer: $ 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 Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 317,047 $ 317,047 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 Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 582,330 $ 582,330 Over 90 days past due — — — — — — 7,583 7,583 Total Consumer credit card: $ — $ — $ — $ — $ — $ — $ 589,913 $ 589,913 Gross write-offs for the year ended December 31, 2023 $ — $ — $ — $ — $ — $ — $ 24,105 $ 24,105 Overdrafts Current to 90 days past due $ 6,802 $ — $ — $ — $ — $ — $ — $ 6,802 Total Overdrafts: $ 6,802 $ — $ — $ — $ — $ — $ — $ 6,802 Gross write-offs for the year ended December 31, 2023 $ 3,803 $ — $ — $ — $ — $ — $ — $ 3,803 Personal banking loans Current to 90 days past due $ 981,124 $ 792,257 $ 791,661 $ 838,650 $ 313,553 $ 647,741 $ 1,630,592 $ 5,995,578 Over 90 days past due 3,710 1,860 2,416 858 98 1,911 10,312 21,165 Non-accrual — 261 167 — 157 1,068 1,977 3,630 Total Personal banking loans: $ 984,834 $ 794,378 $ 794,244 $ 839,508 $ 313,808 $ 650,720 $ 1,642,881 $ 6,020,373 Gross write-offs for the year ended December 31, 2023 $ 4,729 $ 2,909 $ 1,939 $ 770 $ 376 $ 393 $ 25,167 $ 36,283 88 Table of Contents Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior Revolving Loans Amortized Cost Basis Total December 31, 2022 Real estate-personal Current to 90 days past due $ 535,283 $ 589,658 $ 783,651 $ 290,580 $ 132,305 $ 568,380 $ 10,174 $ 2,910,031 Over 90 days past due 514 967 1,338 81 1,388 2,393 — 6,681 Non-accrual — — 52 169 102 1,043 — 1,366 Total Real estate-personal: $ 535,797 $ 590,625 $ 785,041 $ 290,830 $ 133,795 $ 571,816 $ 10,174 $ 2,918,078 Consumer Current to 90 days past due $ 536,429 $ 378,118 $ 205,849 $ 106,733 $ 36,096 $ 62,255 $ 731,436 $ 2,056,916 Over 90 days past due 326 251 203 58 267 228 839 2,172 Total Consumer: $ 536,755 $ 378,369 $ 206,052 $ 106,791 $ 36,363 $ 62,483 $ 732,275 $ 2,059,088 Revolving home equity Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 296,504 $ 296,504 Over 90 days past due — — — — — — 703 703 Total Revolving home equity: $ — $ — $ — $ — $ — $ — $ 297,207 $ 297,207 Consumer credit card Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 578,451 $ 578,451 Over 90 days past due — — — — — — 5,549 5,549 Total Consumer credit card: $ — $ — $ — $ — $ — $ — $ 584,000 $ 584,000 Overdrafts Current to 90 days past due $ 14,737 $ — $ — $ — $ — $ — $ — $ 14,737 Over 90 days past due 220 — — — — — — 220 Total Overdrafts: $ 14,957 $ — $ — $ — $ — $ — $ — $ 14,957 Personal banking loans Current to 90 days past due $ 1,086,449 $ 967,776 $ 989,500 $ 397,313 $ 168,401 $ 630,635 $ 1,616,565 $ 5,856,639 Over 90 days past due 1,060 1,218 1,541 139 1,655 2,621 7,091 15,325 Non-accrual — — 52 169 102 1,043 — 1,366 Total Personal banking loans: $ 1,087,509 $ 968,994 $ 991,093 $ 397,621 $ 170,158 $ 634,299 $ 1,623,656 $ 5,873,330 Collateral-dependent loans The Company's collateral-dependent loans are comprised of large loans on non-accrual status. The Company requires that collateral-dependent loans are either over-collateralized or carry collateral equal to the amortized cost of the loan. The following table presents the amortized cost basis of collateral-dependent loans as of December 31, 2023 and 2022. December 31, 2023 December 31, 2022 (In thousands) Business Assets Real Estate Oil & Gas Assets Total Business Assets Oil & Gas Assets Total Commercial: 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 Other Personal Banking loan information As noted above, the credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided in the table in the above section on "Credit quality indicators." In addition, FICO scores are obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit score designed to measure the risk of default by taking into account various factors from a borrower's financial history and is considered supplementary information utilized by the Company, as management does not consider this information in evaluating the allowance for credit losses on loans. The Bank normally obtains a FICO score at the loan's origination and renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain personal real estate loans for which FICO scores are not obtained because the loans generally pertain to commercial customer activities and are often underwritten with other collateral considerations. 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 89 Table of Contents 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 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. Personal Banking Loans % of Loan Category Real Estate - Personal Consumer Revolving Home Equity Consumer Credit Card December 31, 2023 FICO score: Under 600 2.0 % 2.5 % 1.9 % 4.7 % 600 – 659 2.3 4.3 3.3 12.1 660 – 719 8.5 12.9 10.9 29.2 720 – 779 21.9 28.2 22.4 27.0 780 and over 65.3 52.1 61.5 27.0 Total 100.0 % 100.0 % 100.0 % 100.0 % December 31, 2022 FICO score: Under 600 1.4 % 2.2 % 1.5 % 3.4 % 600 – 659 2.2 4.2 2.8 11.4 660 – 719 8.1 14.5 9.7 30.8 720 – 779 23.7 26.7 21.4 27.1 780 and over 64.6 52.4 64.6 27.3 Total 100.0 % 100.0 % 100.0 % 100.0 % Modifications for borrowers experiencing financial difficulty When borrowers are experiencing financial difficulty, the Company may agree to modify the contractual terms of a loan to a borrower in order to assist the borrower in repaying principal and interest owed to the Company. The Company's modifications of loans to borrowers experiencing financial difficulty are generally in the form of term extensions, repayment plans, payment deferrals, forbearance agreements, interest rate reductions, forgiveness of interest and/or fees, or any combination thereof. Commercial loans modified to borrowers experiencing financial difficulty are primarily loans that are substandard or non-accrual, where the maturity date was extended. Modifications on personal real estate loans are primarily those placed on forbearance plans, repayment plans, or deferral plans where monthly payments are suspended for a period of time or past due amounts are paid off over a certain period of time in the future or set up as a balloon payment at maturity. Modifications to certain credit card and other small consumer loans are often modified under debt counseling programs that can reduce the contractual rate or, in certain instances, forgive certain fees and interest charges. Other consumer loans modified to borrowers experiencing financial difficulty consist of various other workout arrangements with consumer customers. 90 Table of Contents 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 Commercial: 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 Commercial: 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 . 91 Table of Contents 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 90 Days Past Due Total December 31, 2023 Commercial: 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 92 Table of Contents Troubled debt restructuring disclosures prior to the Company's adoption of ASU 2022-02 Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due under the contractual terms will be collected. Commercial performing restructured loans are primarily comprised of certain business, construction and business real estate loans classified as substandard but renewed at rates judged to be non-market. These loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. Troubled debt restructurings also include certain credit card and other small consumer loans under various debt management and assistance programs. Modifications to these loans generally involve removing the available line of credit, placing loans on amortizing status, and lowering the contractual interest rate. Certain personal real estate, revolving home equity, and consumer loans were classified as consumer bankruptcy troubled debt restructurings because they were not reaffirmed by the borrower in bankruptcy proceedings. Interest on these loans is being recognized on an accrual basis, as the borrowers are continuing to make payments. Other consumer loans classified as troubled debt restructurings consist of various other workout arrangements with consumer customers. (In thousands) December 31, 2022 Accruing loans: Commercial $ 184,388 Assistance programs 5,156 Other consumer 4,049 Non-accrual loans 5,078 Total troubled debt restructurings $ 198,671 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 12 months prior to December 31, 2022. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal. (In thousands) December 31, 2022 Balance 90 days past due at any time during previous 12 months Commercial: Business $ 12,311 $ — Real estate – construction and land 57,547 — Real estate – business 118,654 — Personal Banking: Real estate – personal 2,809 419 Consumer 2,250 268 Revolving home equity 17 — Consumer credit card 5,083 452 Total troubled debt restructurings $ 198,671 $ 1,139 For those loans on non-accrual status also classified as restructured, the modification did not create any further financial effect on the Company as those loans were already recorded at net realizable value. For those performing commercial loans classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no financial impact to the Company as a result of modification to these loans. However, the effects of modifications to loans under various debt management and assistance programs 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. Other modifications to consumer loans mainly involve extensions and other small modifications that did not include the forgiveness of principal or interest. The allowance for credit losses related to troubled debt restructurings on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which management expects to collect under contractual terms. Performing commercial loans having no other concessions granted other than being renewed at non-market interest rates are judged to have similar risk characteristics as non-troubled debt 93 Table of Contents commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical experience and current economic factors. If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for credit losses continues to be based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If an accruing, troubled debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for credit losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begin. The Company had $ 12.6 million commitments at December 31, 2022 to lend additional funds to borrowers with restructured loans. Loans held for sale The Company designates certain long-term fixed rate personal real estate loans as held for sale, and the Company has elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the related economic hedges discussed in Note 19. The loans are primarily sold to FNMA and FHLMC. 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. The borrowers are credit-worthy students who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company maintains contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are carried at lower of cost or fair value, which at December 31, 2023 totaled $ 2.2 million. At December 31, 2023, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing. Foreclosed real estate/repossessed assets 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. Upon acquisition, these assets are recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower of this cost basis or fair value less estimated selling costs. 3. Investment Securities Investment securities consisted of the following at December 31, 2023 and 2022: (In thousands) 2023 2022 Available for sale debt securities $ 9,684,760 $ 12,238,316 Trading debt securities 28,830 43,523 Equity securities: Readily determinable fair value 5,723 6,210 No readily determinable fair value 6,978 6,094 Other: Federal Reserve Bank stock 35,166 34,795 Federal Home Loan Bank stock 10,640 10,678 Equity method investments — 1,434 Private equity investments 176,667 178,127 Total investment securities (1) $ 9,948,764 $ 12,519,177 (1) Accrued interest receivable totaled $ 28.9 million and $ 38.8 million at December 31, 2023 and December 31, 2022, respectively, and was included within other assets on the consolidated balance sheet. 94 Table of Contents 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 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 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. These adjustments are included in non-interest income on the Company's consolidated statements of income. The private equity investments are carried at estimated fair value. The majority of the Company’s investment portfolio is comprised of available for sale debt securities, which are carried at fair value with changes in fair value reported in other comprehensive income (OCI). A summary of the available for sale debt securities by maturity groupings as of December 31, 2023 is shown in the following table. The weighted average yield for each range of maturities was calculated using the yield on each security within that range weighted by the amortized cost of each security at December 31, 2023. Yields on tax exempt securities have not been adjusted for tax exempt status. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and GNMA, in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral. 95 Table of Contents (Dollars in thousands) Amortized Cost Fair Value Weighted Average Yield U.S. government and federal agency obligations: Within 1 year $ 399,926 $ 394,466 1.44 *% After 1 but within 5 years 263,138 255,368 1.26 * After 5 but within 10 years 178,203 166,680 .54 * Total U.S. government and federal agency obligations 841,267 816,514 1.19 * Government-sponsored enterprise obligations: After 5 but within 10 years 4,948 4,505 2.94 After 10 years 50,710 39,457 2.32 Total government-sponsored enterprise obligations 55,658 43,962 2.38 State and municipal obligations: Within 1 year 62,701 61,763 1.31 After 1 but within 5 years 403,542 376,194 1.67 After 5 but within 10 years 750,535 649,221 1.82 After 10 years 129,855 110,241 2.13 Total state and municipal obligations 1,346,633 1,197,419 1.78 Mortgage and asset-backed securities: Agency mortgage-backed securities 4,621,821 3,901,346 2.10 Non-agency mortgage-backed securities 1,331,288 1,157,898 2.37 Asset-backed securities 2,200,712 2,107,485 2.33 Total mortgage and asset-backed securities 8,153,821 7,166,729 2.20 Other debt securities: Within 1 year 48,102 47,374 1.87 After 1 but within 5 years 206,942 195,385 2.02 After 5 but within 10 years 239,082 205,950 1.83 After 10 years 13,260 11,427 1.82 Total other debt securities 507,386 460,136 1.91 % Total available for sale debt securities $ 10,904,765 $ 9,684,760 * Rate does not reflect inflation adjustment on inflation-protected securities Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $ 404.4 million, at fair value, at December 31, 2023. Interest paid on these securities increases with inflation and decreases with deflation, as measured by the non-seasonally adjusted Consumer Price Index (CPI-U). At maturity, the principal paid is the greater of an inflation-adjusted principal or the original principal. 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 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. Certain securities are analyzed using a projected cash flow model, discounted to present value, and compared to the current amortized cost bases of the securities. The model uses input factors such as cash flow projections, contractual payments required, expected delinquency rates, credit support from other tranches, prepayment speeds, collateral loss severity rates (including loan to values), and various other information related to the underlying collateral. Securities not analyzed using the cash flow model are analyzed by reviewing 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, 96 Table of Contents 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. 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. Unrealized losses on these available for sale securities have not been recognized into income because after review, the securities were deemed not to be impaired. The unrealized losses on these securities are primarily attributable to changes in interest rates and current market conditions. At 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 (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2023 U.S. government and federal agency obligations $ 51,585 $ 809 $ 714,400 $ 24,025 $ 765,985 $ 24,834 Government-sponsored enterprise obligations — — 43,962 11,696 43,962 11,696 State and municipal obligations 24,022 760 1,167,607 148,478 1,191,629 149,238 Mortgage and asset-backed securities: Agency mortgage-backed securities 4,382 59 3,875,432 720,649 3,879,814 720,708 Non-agency mortgage-backed securities — — 1,152,045 173,526 1,152,045 173,526 Asset-backed securities 19,086 156 2,081,293 93,076 2,100,379 93,232 Total mortgage and asset-backed securities 23,468 215 7,108,770 987,251 7,132,238 987,466 Other debt securities — — 460,136 47,250 460,136 47,250 Total $ 99,075 $ 1,784 $ 9,494,875 $ 1,218,700 $ 9,593,950 $ 1,220,484 December 31, 2022 U.S. government and federal agency obligations $ 605,840 $ 17,490 $ 380,573 $ 25,940 $ 986,413 $ 43,430 Government-sponsored enterprise obligations 25,068 4,650 18,040 7,971 43,108 12,621 State and municipal obligations 814,799 26,708 875,329 171,385 1,690,128 198,093 Mortgage and asset-backed securities: Agency mortgage-backed securities 1,323,938 125,330 2,966,851 654,327 4,290,789 779,657 Non-agency mortgage-backed securities 135,984 16,736 1,069,222 195,218 1,205,206 211,954 Asset-backed securities 1,331,055 50,056 2,006,188 140,424 3,337,243 190,480 Total mortgage and asset-backed securities 2,790,977 192,122 6,042,261 989,969 8,833,238 1,182,091 Other debt securities 166,040 9,690 308,818 54,707 474,858 64,397 Total $ 4,402,724 $ 250,660 $ 7,625,021 $ 1,249,972 $ 12,027,745 $ 1,500,632 The entire available for sale debt 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 $ 1.2 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. 97 Table of Contents For debt securities classified as available for sale, the following table shows the amortized cost, fair value, and allowance for credit losses of securities available for sale at December 31, 2023 and 2022 and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI, by security type. (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value December 31, 2023 U.S. government and federal agency obligations $ 841,267 $ 81 $ ( 24,834 ) $ — $ 816,514 Government-sponsored enterprise obligations 55,658 — ( 11,696 ) — 43,962 State and municipal obligations 1,346,633 24 ( 149,238 ) — 1,197,419 Mortgage and asset-backed securities: Agency mortgage-backed securities 4,621,821 233 ( 720,708 ) — 3,901,346 Non-agency mortgage-backed securities 1,331,288 136 ( 173,526 ) — 1,157,898 Asset-backed securities 2,200,712 5 ( 93,232 ) — 2,107,485 Total mortgage and asset-backed securities 8,153,821 374 ( 987,466 ) — 7,166,729 Other debt securities 507,386 — ( 47,250 ) — 460,136 Total $ 10,904,765 $ 479 $ ( 1,220,484 ) $ — $ 9,684,760 December 31, 2022 U.S. government and federal agency obligations $ 1,078,807 $ 29 $ ( 43,430 ) $ — $ 1,035,406 Government-sponsored enterprise obligations 55,729 — ( 12,621 ) — 43,108 State and municipal obligations 1,965,028 174 ( 198,093 ) — 1,767,109 Mortgage and asset-backed securities: Agency mortgage-backed securities 5,087,893 191 ( 779,657 ) — 4,308,427 Non-agency mortgage-backed securities 1,423,469 92 ( 211,954 ) — 1,211,607 Asset-backed securities 3,588,025 256 ( 190,480 ) — 3,397,801 Total mortgage and asset-backed securities 10,099,387 539 ( 1,182,091 ) — 8,917,835 Other debt securities 539,255 — ( 64,397 ) — 474,858 Total $ 13,738,206 $ 742 $ ( 1,500,632 ) $ — $ 12,238,316 98 Table of Contents The following table presents proceeds from sales of securities and the components of investment securities gains and losses which have been recognized in earnings. For the Year Ended December 31 (In thousands) 2023 2022 2021 Proceeds from sales of securities: Available for sale debt securities $ 1,101,782 $ 86,240 $ 69,809 Equity securities — 17 — Other 40,167 20,714 11,002 Total proceeds $ 1,141,949 $ 106,971 $ 80,811 Investment securities gains (losses), net: Available for sale debt securities: Gains realized on sales $ 143 $ — $ — Losses realized on sales ( 8,587 ) ( 20,273 ) ( 3,284 ) Equity securities: Gains realized on sales — 17 — Fair value adjustments, net ( 487 ) ( 943 ) 187 Other: Gains realized on sales 976 1,670 1,611 Losses realized on sales ( 1,076 ) ( 3,798 ) ( 159 ) Fair value adjustments, net 24,016 43,833 31,704 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 $ 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. 99 Table of Contents 4. Premises and Equipment Premises and equipment consist of the following at December 31, 2023 and 2022: (In thousands) 2023 2022 Land $ 88,564 $ 89,342 Buildings and improvements 730,445 673,802 Equipment 244,636 237,867 Right of use leased assets 26,962 26,030 Total 1,090,607 1,027,041 Less accumulated depreciation 621,548 608,132 Net premises and equipment $ 469,059 $ 418,909 Depreciation expense of $ 36.1 million in 2023, $ 32.3 million in 2022, and $ 31.9 million in 2021, was included in occupancy expense and equipment expense in the consolidated statements of income. 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 $ 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. 5. Goodwill and Other Intangible Assets The following table presents information about the Company's intangible assets which have estimable useful lives. December 31, 2023 December 31, 2022 ( In thousands) Gross Carrying Amount Accumulated Amortization Valuation Allowance Net Amount Gross Carrying Amount Accumulated Amortization Valuation Allowance Net Amount Amortizable intangible assets: Core deposit premium $ 5,550 $ ( 5,092 ) $ — $ 458 $ 31,270 $ ( 30,565 ) $ — $ 705 Mortgage servicing rights 13,723 ( 3,602 ) — 10,121 22,187 ( 11,258 ) — 10,929 Total $ 19,273 $ ( 8,694 ) $ — $ 10,579 $ 53,457 $ ( 41,823 ) $ — $ 11,634 The carrying amount of goodwill and its allocation among segments at December 31, 2023 and 2022 is shown in the table below. As a result of ongoing assessments, no impairment of goodwill was recorded in 2023, 2022 or 2021. Further, the annual assessment of qualitative factors on January 1, 2024 revealed no likelihood of impairment as of that date. (In thousands) December 31, 2023 December 31, 2022 Consumer segment $ 70,721 $ 70,721 Commercial segment 75,072 67,454 Wealth segment 746 746 Total goodwill $ 146,539 $ 138,921 100 Table of Contents 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) Goodwill Easement Core Deposit Premium Mortgage Servicing Rights Balance at December 31, 2021 $ 138,921 $ 3,600 $ 1,004 $ 10,966 Originations, net of disposals — — — 1,317 Amortization — — ( 299 ) ( 1,658 ) Impairment recovery — — — 304 Balance at December 31, 2022 138,921 3,600 705 10,929 Acquisition 7,618 — — — Originations, net of disposals — — — 340 Amortization — — ( 247 ) ( 1,148 ) 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. They are periodically reviewed for impairment at a tranche level, and if impairment is indicated, recorded at fair value. Temporary impairment, including impairment recovery, is effected through a change in a valuation allowance. 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. Aggregate amortization expense on intangible assets for the years ended December 31, 2023, 2022 and 2021 was $ 1.4 million, $ 2.0 million and $ 3.1 million, respectively. The following table shows the estimated future amortization expense based on existing asset balances and the interest rate environment as of December 31, 2023. The Company’s actual amortization expense in any given period may be different from the estimated amounts depending upon the acquisition of intangible assets, changes in mortgage interest rates, prepayment rates and other market conditions. (In thousands) 2024 $ 1,315 2025 1,153 2026 1,007 2027 867 2028 752 6. Leases 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. Lessee 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 $ 26.9 101 Table of Contents 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. For leases with a term of 12 months or less, an election was made not to recognize lease assets and lease liabilities for all asset classes, and to recognize lease expense for these leases on a straight-line basis over the lease term. The Company's leases have remaining terms of 1 month to 28 years, most of which contain renewal options. However, the renewal options are generally not included in the leased asset or liability because the option exercises are uncertain. The maturities of operating leases are included in the table below. (in thousands) Operating Leases (1) 2024 $ 6,290 2025 4,434 2026 3,833 2027 3,609 2028 3,303 After 2028 12,624 Total lease payments $ 34,093 Less: Interest 7,199 Present value of lease liabilities $ 26,894 (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. December 31, 2023 December 31, 2022 Weighted-average remaining lease term 9.9 years 10.6 years Weighted-average discount rate 4.11 % 3.73 % Supplemental cash flow information related to operating leases is included in the table below. For the Year Ended December 31 (in thousands) 2023 2022 Operating cash paid toward lease liabilities $ 6,486 6,529 Leased assets obtained in exchange for new lease liabilities $ 7,085 5,161 Lessor The Company has net investments in direct financing and sales-type leases to commercial, industrial, and tax-exempt entities. These leases are included within business loans on the Company's consolidated balance sheets. The Company primarily leases various types of equipment, trucks and trailers, and office furniture and fixtures. Lease agreements may include options for the lessee to renew or purchase the leased equipment at the end of the lease term. The Company has elected to adopt the lease component expedient in which the lease and nonlease components are combined into the total lease receivable. The Company also leases office space to third parties, and these leases are classified as operating leases. The leases may include options to renew or 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. For the Year Ended December 31 (in thousands) 2023 2022 Direct financing and sales-type leases 31,127 22,144 Operating leases (1) 13,036 8,948 Total lease income $ 44,163 $ 31,092 (1) Includes rent from Tower Properties, a related party, of $ 76 thousand for the years ended both December 31, 2023 and 2022. 102 Table of Contents The following table presents the components of the net investments in direct financing and sales-type leases. (in thousands) December 31, 2023 December 31, 2022 Lease payment receivable $ 729,891 $ 704,509 Unguaranteed residual assets 134,105 72,157 Total net investments in direct financing and sales-type leases $ 863,996 $ 776,666 Deferred origination cost 3,024 3,222 Total net investment included within business loans $ 867,020 $ 779,888 The maturities of lease receivables are included in the table below. (in thousands) Direct Financing and Sale-Type Leases Operating Leases Total 2024 $ 218,641 $ 11,976 $ 230,617 2025 182,103 10,725 192,828 2026 146,430 10,080 156,510 2027 110,328 9,034 119,362 2028 67,850 8,352 76,202 After 2028 80,861 46,783 127,644 Total lease receipts 806,213 $ 96,950 $ 903,163 Less: Net present value adjustment 76,322 Present value of lease receipts $ 729,891 7. Deposits At December 31, 2023, the scheduled maturities of certificates of deposit were as follows: (In thousands) Due in 2024 $ 2,647,310 Due in 2025 185,368 Due in 2026 29,435 Due in 2027 7,906 Due in 2028 5,671 Total $ 2,875,690 The aggregate amount of certificates of deposit that exceeded the $250,000 FDIC insurance limit totaled $ 1.3 million at December 31, 2023. 8. Borrowings At December 31, 2023, the Company's borrowings primarily consisted of federal funds purchased and securities sold under agreements to repurchase (repurchase agreements). The following table sets forth selected information for federal funds purchased and repurchase agreements. (Dollars in thousands) Year End Weighted Rate Average Weighted Rate Average Balance Outstanding Maximum Outstanding at any Month End Balance at December 31 Federal funds purchased and repurchase agreements: 2023 2.78 % 3.47 % $ 2,839,633 $ 3,133,020 $ 2,908,815 2022 2.01 1.06 2,439,279 2,841,734 2,841,734 2021 .06 .07 2,334,837 3,022,967 3,022,967 103 Table of Contents Federal funds purchased and repurchase agreements comprised the majority of the Company's short-term borrowings (borrowings with an original maturity of less than one year at December 31, 2023), and $ 2.6 billion of these borrowings were repurchase agreements, which generally have one day maturities and are mainly comprised of non-insured customer funds secured by a portion of the Company's investment portfolio. Additional information about the securities pledged for repurchase agreements and repurchase agreement maturity 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. These borrowings are secured under a blanket collateral agreement including primarily residential mortgages as well as all unencumbered assets and stock of the borrowing bank. At December 31, 2023, the Bank had no outstanding advances from the FHLB. 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. 9. Income Taxes The components of income tax expense from operations for the years ended December 31, 2023, 2022 and 2021 were as follows: (In thousands) Current Deferred Total Year ended December 31, 2023: U.S. federal $ 124,787 $ ( 6,228 ) $ 118,559 State and local 17,161 ( 1,171 ) 15,990 Total $ 141,948 $ ( 7,399 ) $ 134,549 Year ended December 31, 2022: U.S. federal $ 96,849 $ 19,990 $ 116,839 State and local 13,793 1,726 15,519 Total $ 110,642 $ 21,716 $ 132,358 Year ended December 31, 2021: U.S. federal $ 104,924 $ 22,184 $ 127,108 State and local 15,174 3,429 18,603 Total $ 120,098 $ 25,613 $ 145,711 The components of income tax (benefit) expense recorded directly to stockholders’ equity for the years ended 2023, 2022 and 2021 were as follows: (In thousands) 2023 2022 2021 Unrealized gain (loss) on available for sale debt securities $ 69,972 $ ( 382,697 ) $ ( 80,211 ) Change in fair value on cash flow hedges ( 6,017 ) ( 6,446 ) ( 6,040 ) Accumulated pension (benefit) loss 1,197 1,161 1,484 Income tax (benefit) expense allocated to stockholders’ equity $ 65,152 $ ( 387,982 ) $ ( 84,767 ) 104 Table of Contents Significant components of the Company’s deferred tax assets and liabilities at December 31, 2023 and 2022 were as follows: (In thousands) 2023 2022 Deferred tax assets: Unrealized loss on available for sale debt securities $ 305,001 $ 374,973 Loans, principally due to allowance for credit losses 44,702 43,553 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 Total deferred tax assets 387,832 447,900 Deferred tax liabilities: Equipment lease financing 99,453 91,913 Land, buildings, and equipment 21,016 17,210 Cash flow hedges 9,468 19,747 Intangible assets 7,545 7,519 Private equity investments 6,888 9,393 Other 7,235 8,138 Total deferred tax liabilities 151,605 153,920 Net deferred tax assets (liabilities) $ 236,227 $ 293,980 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. 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. The effective tax rate is calculated by dividing income taxes by income before income taxes less the non-controlling interest expense. (In thousands) 2023 2022 2021 Computed “expected” tax expense $ 128,438 $ 130,359 $ 142,060 Increase (decrease) in income taxes resulting from: 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 ) Other ( 445 ) ( 1,495 ) ( 193 ) Total income tax expense $ 134,549 $ 132,358 $ 145,711 The gross amount of unrecognized tax benefits was $ 1.3 million and $ 1.2 million at December 31, 2023 and 2022, respectively, and the total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $ 1.0 million at both December 31, 2023 and 2022. The activity in the accrued liability for unrecognized tax benefits for the years ended December 31, 2023 and 2022 was as follows: (In thousands) 2023 2022 Unrecognized tax benefits at beginning of year $ 1,205 $ 1,276 Gross increases – tax positions in prior period 25 21 Gross increases – current-period tax positions 336 235 Lapse of statute of limitations ( 296 ) ( 327 ) Unrecognized tax benefits at end of year $ 1,270 $ 1,205 The Company and its subsidiaries are subject to income tax by federal, state and local government taxing authorities. Tax years 2020 through 2023 remain open to examination for U.S. federal income tax and for major state taxing jurisdictions. 105 Table of Contents 10. Employee Benefit Plans Employee benefits charged to operating expenses are summarized in the table below. Substantially all of the Company’s employees are covered by a defined contribution (401(k)) plan, under which the Company makes matching contributions. (In thousands) 2023 2022 2021 Payroll taxes $ 31,507 $ 29,580 $ 28,084 Medical plans 36,277 31,004 31,131 401(k) plan 19,216 18,590 17,237 Pension plans 499 516 388 Other 3,587 3,097 1,170 Total employee benefits $ 91,086 $ 82,787 $ 78,010 A portion of the Company’s employees are covered by a noncontributory defined benefit pension plan, however, participation in the pension plan is not available to employees hired after June 30, 2003. All participants are fully vested in their benefit payable upon normal retirement date, which is based on years of participation and compensation. Since January 2011, all benefits accrued under the pension plan have been frozen. However, the accounts continue to accrue interest at a stated annual rate. Certain key executives also participate in a supplemental executive retirement plan (the CERP) that the Company funds only as retirement benefits are disbursed. The CERP carries no segregated assets. The CERP continues to provide credits based on hypothetical contributions in excess of those permitted under the 401(k) plan. In the tables presented below, the pension plan and the CERP are presented on a combined basis. Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to satisfy the statutory minimum required contribution as defined by the Pension Protection Act, which is intended to provide for current service accruals and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. No contributions to the defined benefit plan were made in 2023, 2022 or 2021. The minimum required contribution for 2024 is expected to be zero . The Company does not expect to make any further contributions in 2024 other than the necessary funding contributions to the CERP. 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 $ 499 $ 516 $ 388 Interest cost on projected benefit obligation 4,615 2,725 2,169 Expected return on plan assets ( 4,051 ) ( 4,515 ) ( 4,532 ) Amortization of prior service cost ( 271 ) ( 271 ) ( 271 ) Amortization of unrecognized net (gain) loss 1,464 1,717 2,578 Net periodic pension cost $ 2,256 $ 172 $ 332 106 Table of Contents The following table sets forth the pension plans’ funded status, using valuation dates of December 31, 2023 and 2022. (In thousands ) 2023 2022 Change in projected benefit obligation Projected benefit obligation at prior valuation date $ 95,842 $ 121,738 Service cost 499 516 Interest cost 4,615 2,725 Benefits paid ( 7,667 ) ( 6,933 ) Actuarial (gain) loss 660 ( 22,204 ) Projected benefit obligation at valuation date 93,949 95,842 Change in plan assets Fair value of plan assets at prior valuation date 88,396 109,807 Actual return on plan assets 8,307 ( 14,492 ) Employer contributions 806 14 Benefits paid ( 7,667 ) ( 6,933 ) Fair value of plan assets at valuation date 89,842 88,396 Funded status and net amount recognized at valuation date $ ( 4,107 ) $ ( 7,446 ) 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. 107 Table of Contents 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. All amounts are shown on a pre-tax basis. (In thousands) 2023 2022 Prior service credit (cost) $ 181 $ 452 Accumulated gain (loss) ( 18,304 ) ( 23,363 ) Accumulated other comprehensive income (loss) ( 18,123 ) ( 22,911 ) Cumulative employer contributions in excess of net periodic benefit cost 14,016 15,465 Net amount recognized as an accrued benefit liability on the December 31 balance sheet $ ( 4,107 ) $ ( 7,446 ) Net gain (loss) arising during period 3,594 3,197 Amortization of net (gain) loss 1,464 1,717 Amortization of prior service cost ( 271 ) ( 271 ) Total recognized in other comprehensive income (loss) $ 4,787 $ 4,643 Total income (expense) recognized in net periodic pension cost and other comprehensive income $ 2,531 $ 4,471 The following assumptions, on a weighted average basis, were used in accounting for the plans. 2023 2022 2021 Determination of benefit obligation at year end: Effective discount rate on benefit obligations 4.98 % 5.19 % 2.58 % Assumed cash balance interest crediting rate 5.00 % 5.00 % 5.00 % Determination of net periodic benefit cost for year ended: Effective discount rate on benefit obligations 5.19 % 2.64 % 2.25 % Effective rate for interest cost on benefit obligations 5.09 % 2.15 % 1.63 % Long-term rate of return on assets 4.75 % 4.25 % 4.25 % Assumed cash balance interest crediting rate 5.00 % 5.00 % 5.00 % 108 Table of Contents The following table shows the fair values of the Company’s pension plan assets by asset category at December 31, 2023 and 2022. Information about the valuation techniques and inputs used to measure fair value are provided in Note 17 on Fair Value Measurements. Fair Value Measurements (In thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2023 Assets: U.S. government obligations $ 14,041 $ 14,041 $ — $ — Government-sponsored enterprise obligations (a) 1,039 — 1,039 — State and municipal obligations 3,740 — 3,740 — Agency mortgage-backed securities (b) 2,230 — 2,230 — Non-agency mortgage-backed securities 2,271 — 2,271 — Asset-backed securities 5,687 — 5,687 — Corporate bonds (c) 48,534 — 48,534 — Equity securities and mutual funds: (d) Mutual funds 4,443 4,443 — — Common stocks 5,809 5,809 — — International developed markets funds 1,809 1,809 — — Emerging markets funds 239 239 — — Total $ 89,842 $ 26,341 $ 63,501 $ — December 31, 2022 Assets: U.S. government obligations $ 9,960 $ 9,960 $ — $ — Government-sponsored enterprise obligations (a) 1,022 — 1,022 — State and municipal obligations 6,840 — 6,840 — Agency mortgage-backed securities (b) 2,871 — 2,871 — Non-agency mortgage-backed securities 2,527 — 2,527 — Asset-backed securities 6,768 — 6,768 — Corporate bonds (c) 35,234 — 35,234 — Equity securities and mutual funds: (d) Mutual funds 4,395 4,395 — — Common stocks 15,868 15,868 — — International developed markets funds 2,604 2,604 — — Emerging markets funds 307 307 — — Total $ 88,396 $ 33,134 $ 55,262 $ — (a) This category represents bonds (excluding mortgage-backed securities) issued by agencies such as the Government National Mortgage Association, the Federal Home Loan Mortgage Corp and the Federal National Mortgage Association. (b) This category represents mortgage-backed securities issued by the agencies mentioned in (a). (c) This category represents investment grade bonds issued in the U.S., primarily by domestic issuers, representing diverse industries. (d) This category represents investments in individual common stocks and equity funds. These holdings are diversified, largely across the technology services, financial services, electronic technology, healthcare 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. The policy sets guidelines, which may change from time to time, regarding the types and percentages of investments held. Currently, the policy includes guidelines such as holding bonds rated investment grade or better and prohibiting investment in Company stock. The plan does not utilize derivatives. Management believes there are no significant concentrations of risk within the plan asset portfolio at December 31, 2023. Under the current policy, the long-term investment target mix for the plan is 10 % equity securities and 90 % fixed income securities. The Company regularly reviews its policies on investment mix and may make changes depending on economic conditions and perceived investment risk. 109 Table of Contents The assumed overall expected long-term rate of return on pension plan assets used in calculating 2023 pension plan expense was 4.75 %. Determination of the plan’s expected rate of return is based upon historical and anticipated returns of the asset classes invested in by the pension plan and the allocation strategy currently in place among those classes. The rate used in plan calculations may be adjusted by management for current trends in the economic environment. The 10-year annualized return for the Company’s pension plan was 4.9 %. 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 $ 1.7 million in 2024, compared to $ 2.3 million in 2023. The following future benefit payments are expected to be paid: (In thousands) 2024 $ 7,883 2025 7,859 2026 7,734 2027 7,618 2028 7,434 2029 - 2033 33,673 11. Stock-Based Compensation and Directors Stock Purchase Plan* The Company’s stock-based compensation is provided under a stockholder-approved plan that allows for issuance of various types of awards, including stock options, stock appreciation rights, restricted stock and restricted stock units, performance awards and stock-based awards. During the past three years, stock-based compensation has been issued in the form of nonvested restricted stock awards and stock appreciation rights. At December 31, 2023, 6,197,988 shares remained available for issuance under the plan. The stock-based compensation expense that was charged against income was $ 17.1 million, $ 17.0 million and $ 15.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $ 3.2 million, $ 3.0 million and $ 2.7 million for the years ended December 31, 2023, 2022 and 2021, respectively. Nonvested Restricted Stock Awards Nonvested stock is awarded to key employees by action of the Company's Compensation and Human Resources Committee and Board of Directors. These awards generally vest after 4 to 7 years of continued employment, but vesting terms may vary according to the specifics of the individual grant agreement. There are restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant of restricted stock awards. A summary of the status of the Company’s nonvested share awards as of December 31, 2023 and changes during the year then ended is presented below. Shares Weighted Average Grant Date Fair Value Nonvested at January 1, 2023 1,206,004 $ 55.43 Granted 331,889 59.11 Vested ( 341,152 ) 48.30 Forfeited ( 30,406 ) 58.13 Nonvested at December 31, 2023 1,166,335 $ 58.48 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. 110 Table of Contents Stock Appreciation Rights Stock appreciation rights (SARs) are granted with exercise prices equal to the market price of the Company’s stock at the date of grant. SARs generally vest ratably over 4 years of continuous service and have 10 -year contractual terms. All SARs must be settled in stock under provisions of the plan. A summary of SAR activity during 2023 is presented below. ( Dollars in thousands, except per share data) Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2023 995,591 $ 44.59 Granted 94,173 62.52 Forfeited ( 5,250 ) 60.99 Expired ( 6,114 ) 49.63 Exercised ( 55,079 ) 26.33 Outstanding at December 31, 2023 1,023,321 $ 47.10 4.8 years $ 9,189 Exercisable at December 31, 2023 786,452 $ 42.66 3.9 years $ 9,132 In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on date of grant. The Black-Scholes model is a closed-end model that uses various assumptions as shown in the following table. Expected volatility is based on historical volatility of the Company’s stock. The Company uses historical exercise behavior and other factors to estimate the expected term of the SARs, which represents the period of time that the SARs granted are expected to be outstanding. The risk-free rate for the expected term is based on the U.S. Treasury zero coupon spot rates in effect at the time of grant. The per share average fair value and the model assumptions for SARs granted during the past three years are shown in the table below. 2023 2022 2021 Weighted per share average fair value at grant date $ 17.76 $ 15.80 $ 14.50 Assumptions: Dividend yield 1.6 % 1.5 % 1.4 % Volatility 27.9 % 28.4 % 28.2 % Risk-free interest rate 3.9 % 1.6 % .7 % Expected term 5.8 years 5.7 years 5.7 years Additional information about SARs exercised is presented below. (In thousands) 2023 2022 2021 Intrinsic value of SARs exercised $ 1,723 $ 2,448 $ 7,664 Tax benefit realized SARs exercised 362 462 1,488 As of December 31, 2023, there was $ 34.0 million of unrecognized compensation cost related to unvested SARs and stock awards. This cost is expected to be recognized over a weighted average period of approximately 3.1 years. Directors Stock Purchase Plan The Company has a directors stock purchase plan whereby outside directors of the Company and its subsidiaries may elect to use their directors’ fees to purchase Company stock at market value each month end. Remaining shares available for issuance under this plan were 103,307 at December 31, 2023. Shares authorized for issuance under the plan were increased to 150,000 shares in February 2022. In 2023, 32,841 shares were purchased at an average price of $ 52.07 , and in 2022, 22,811 shares were purchased at an average price of $ 64.07 . * All share and per share amounts in this note have been restated for the 5 % common stock dividend distributed in 2023. 111 Table of Contents 12. Accumulated Other Comprehensive Income The table below shows the activity and accumulated balances for components of other comprehensive income. The largest component is the unrealized holding gains and losses on available for sale debt securities. Another component is the amortization from other comprehensive income of losses associated with pension benefits, which occurs as the losses are included in current net periodic pension cost. The remaining component is gains and losses in fair value on certain interest rate floors that have been designated as cash flow hedges, including interest rate floors terminated in prior years. For those terminated floors, the realized gains are amortized into interest income through the original maturity dates of the floors. Information about unrealized gains and losses on securities can be found in Note 3, information about unrealized gains and losses on pension plans can be found in Note 10, and information about unrealized gains and losses on cash flow hedge derivatives is located in Note 19. (In thousands) Unrealized Gains (Losses) on Securities (1) Pension Loss Unrealized Gains (Losses) on Cash Flow Hedge Derivatives (2) Total Accumulated Other Comprehensive Income (Loss) Balance January 1, 2023 $ ( 1,124,915 ) $ ( 17,186 ) $ 55,237 $ ( 1,086,864 ) Other comprehensive income (loss) before reclassifications to current earnings 271,442 3,594 ( 8,860 ) 266,176 Amounts reclassified to current earnings from accumulated other comprehensive income 8,444 1,193 ( 15,209 ) ( 5,572 ) Current period other comprehensive income (loss), before tax 279,886 4,787 ( 24,069 ) 260,604 Income tax (expense) benefit ( 69,972 ) ( 1,197 ) 6,017 ( 65,152 ) Current period other comprehensive income (loss), net of tax 209,914 3,590 ( 18,052 ) 195,452 Balance December 31, 2023 $ ( 915,001 ) $ ( 13,596 ) $ 37,185 $ ( 891,412 ) Balance January 1, 2022 $ 23,174 $ ( 20,668 ) $ 74,574 $ 77,080 Other comprehensive income (loss) before reclassifications to current earnings ( 1,551,059 ) 3,197 ( 2,428 ) ( 1,550,290 ) Amounts reclassified to current earnings from accumulated other comprehensive income 20,273 1,446 ( 23,355 ) ( 1,636 ) Current period other comprehensive income (loss), before tax ( 1,530,786 ) 4,643 ( 25,783 ) ( 1,551,926 ) Income tax (expense) benefit 382,697 ( 1,161 ) 6,446 387,982 Current period other comprehensive income (loss), net of tax ( 1,148,089 ) 3,482 ( 19,337 ) ( 1,163,944 ) Balance December 31, 2022 $ ( 1,124,915 ) $ ( 17,186 ) $ 55,237 $ ( 1,086,864 ) (1) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "investment securities gains (losses), net" in the consolidated statements of income. (2) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "interest and fees on loans" in the consolidated statements of income. 13. Segments The Company segregates financial information for use in assessing its performance and allocating resources among three operating segments: Consumer, Commercial, and Wealth. The Consumer segment consists of various consumer loan and deposit products offered through its retail branch network of approximately 140 locations. This segment also includes indirect and other consumer loan financing businesses, along with debit and credit card loan and fee businesses. In order to reflect a change in the Company's management of its portfolio of residential mortgage loans that it retains, the Company began including those loans in the Consumer segment on January 1, 2023. These loans had previously been included in the Other/Elimination column. As a result of this change, 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. This segment also includes both merchant and commercial bank card products as well as the Capital Markets Group, which sells fixed income securities and provides securities safekeeping and accounting services to its business and correspondent bank customers. The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management, and brokerage services. This segment also provides various loan and deposit related services to its private banking customers. 112 Table of Contents The Company’s business line reporting system derives segment information from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. This information is based on internal management accounting procedures and methods, which have been developed to reflect the underlying economics of the businesses. 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. A standard cost for funds used is applied to assets, and a credit for funds provided is applied to liabilities based on their maturity, prepayment and/or repricing characteristics. Income and expense that directly relate to segment operations are recorded in the segment when incurred. Expenses that indirectly support the segments are allocated based on the most appropriate method available. The Company uses a funds transfer pricing method to value funds used (e.g., loans, fixed assets, and cash) and funds provided (e.g., deposits, borrowings, and equity) by the business segments and their components. This process assigns a specific value to each new source or use of funds with a maturity, based on current swap rates, thus determining an interest spread at the time of the transaction. Non-maturity assets and liabilities are valued using weighted average pools. The funds transfer pricing process attempts to remove interest rate risk from valuation, allowing management to compare profitability under various rate environments. The following tables present selected financial information by segment and reconciliations of combined segment totals to consolidated totals. There were no material intersegment revenues between the three segments. Management periodically makes changes to methods of assigning costs and income to its business segments to better reflect operating results. If appropriate, these changes are reflected in prior year information presented below. Segment Income Statement Data (In thousands) Consumer Commercial Wealth Segment Totals Other/Elimination Consolidated Totals Year ended December 31, 2023: Net interest income $ 413,856 $ 482,389 $ 73,251 $ 969,496 $ 28,633 $ 998,129 Provision for credit losses ( 27,459 ) ( 3,513 ) ( 28 ) ( 31,000 ) ( 4,451 ) ( 35,451 ) Non-interest income 99,910 246,183 218,241 564,334 8,711 573,045 Investment securities gains, net — — — — 14,985 14,985 Non-interest expense ( 326,838 ) ( 391,980 ) ( 157,679 ) ( 876,497 ) ( 54,485 ) ( 930,982 ) Income before income taxes $ 159,469 $ 333,079 $ 133,785 $ 626,333 $ ( 6,607 ) $ 619,726 Year ended December 31, 2022: Net interest income $ 366,749 $ 452,686 $ 74,416 $ 893,851 $ 48,334 $ 942,185 Provision for loan losses ( 17,832 ) ( 1,196 ) ( 8 ) ( 19,036 ) ( 9,035 ) ( 28,071 ) Non-interest income 106,538 224,890 213,388 544,816 1,719 546,535 Investment securities gains, net — — — — 20,506 20,506 Non-interest expense ( 308,899 ) ( 365,276 ) ( 144,914 ) ( 819,089 ) ( 29,688 ) ( 848,777 ) Income before income taxes $ 146,556 $ 311,104 $ 142,882 $ 600,542 $ 31,836 $ 632,378 Year ended December 31, 2021: Net interest income $ 348,565 $ 453,692 $ 71,522 $ 873,779 $ ( 38,355 ) $ 835,424 Provision for loan losses ( 23,224 ) 4,845 ( 52 ) ( 18,431 ) 84,757 66,326 Non-interest income 126,218 211,048 213,617 550,883 9,510 560,393 Investment securities gains, net — — — — 30,059 30,059 Non-interest expense ( 299,998 ) ( 329,313 ) ( 136,356 ) ( 765,667 ) ( 40,234 ) ( 805,901 ) Income before income taxes $ 151,561 $ 340,272 $ 148,731 $ 640,564 $ 45,737 $ 686,301 The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination” column include activity not related to the segments, such as that relating to administrative functions, the investment securities portfolio, and the effect of certain expense allocations to the segments. The provision for credit losses in this category contains the difference between net loan charge-offs assigned directly to the segments and the recorded provision for credit loss expense. Included in this category’s net interest income are earnings of the investment portfolio, which are not allocated to a segment. 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. 113 Table of Contents Segment Balance Sheet Data (In thousands) Consumer Commercial Wealth Segment Totals Other/Elimination Consolidated Totals Average balances for 2023: Assets $ 3,984,071 $ 11,351,223 $ 1,892,958 $ 17,228,252 $ 14,712,363 $ 31,940,615 Loans, including held for sale 3,832,483 11,061,461 1,878,440 16,772,384 10,458 16,782,842 Goodwill and other intangible assets 81,655 72,066 746 154,467 3,600 158,067 Deposits 12,243,033 10,375,075 2,377,397 24,995,505 312,876 25,308,381 Average balances for 2022: Assets $ 3,853,875 $ 10,239,825 $ 1,838,023 $ 15,931,723 $ 17,673,594 $ 33,605,317 Loans, including held for sale 3,705,110 10,021,057 1,827,283 15,553,450 16,291 15,569,741 Goodwill and other intangible assets 82,566 67,727 746 151,039 3,600 154,639 Deposits 13,417,312 11,941,396 2,804,781 28,163,489 ( 62,792 ) 28,100,697 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, 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. The Company’s reportable segments are strategic lines of business that offer different products and services. They are managed separately because each line services a specific customer need, requiring different performance measurement analyses and marketing strategies. The performance measurement of the segments is based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. The information is also not necessarily indicative of the segments’ financial condition and results of operations if they were independent entities. 114 Table of Contents 14. Common Stock* On December 19, 2023, the Company distributed a 5 % stock dividend on its $ 5 par common stock for the 30th consecutive year. All per common share data in this report has been restated to reflect the stock dividend. The Company applies the two-class method of computing income per share, as nonvested share-based awards that pay nonforfeitable common stock dividends are considered securities which participate in undistributed earnings with common stock. The two-class method requires the calculation of separate income per share amounts for the nonvested share-based awards and for common stock. Income per share attributable to common stock is shown in the following table. Nonvested share-based awards are further discussed in Note 11, Stock-Based Compensation. Basic income per share is based on the weighted average number of common shares outstanding during the year. Diluted income per share gives effect to all dilutive potential common shares that were outstanding during the year. Presented below is a summary of the components used to calculate basic and diluted income per common share, which have been restated for all stock dividends. (In thousands, except per share data) 2023 2022 2021 Basic income per common share: Net income attributable to Commerce Bancshares, Inc. $ 477,060 $ 488,399 $ 530,765 Less income allocated to nonvested restricted stock 4,241 4,450 4,846 Net income allocated to common stock $ 472,819 $ 483,949 $ 525,919 Weighted average common shares outstanding 129,922 131,539 134,125 Basic income per common share $ 3.64 $ 3.68 $ 3.92 Diluted income per common share: 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 Net income allocated to common stock $ 472,823 $ 483,957 $ 525,927 Weighted average common shares outstanding 129,922 131,539 134,125 Net effect of the assumed exercise of stock-based awards - based on the treasury stock method using the average market price for the respective periods 150 299 315 Weighted average diluted common shares outstanding 130,072 131,838 134,440 Diluted income per common share $ 3.64 $ 3.67 $ 3.91 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. The Company maintains a treasury stock buyback program authorized by its Board of Directors. The most recent authorization in April 2022 approved future purchases of 5,000,000 shares of the Company's common stock. At December 31, 2023, 1,757,247 shares of common stock remained available for purchase under the current authorization. The table below shows activity in the outstanding shares of the Company’s common stock during the past three years. Shares in the table below are presented on an historical basis and have not been restated for the annual 5% stock dividends. Years Ended December 31 (In thousands) 2023 2022 2021 Shares outstanding at January 1 124,999 121,436 117,138 Issuance of stock: Awards and sales under employee and director plans 348 306 328 5% stock dividend 6,201 5,953 5,790 Other purchases of treasury stock ( 1,355 ) ( 2,684 ) ( 1,807 ) Other ( 17 ) ( 12 ) ( 13 ) Shares outstanding at December 31 130,176 124,999 121,436 * 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. 115 Table of Contents 15. Regulatory Capital Requirements The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and additional discretionary actions by regulators that could have a direct material effect on the Company’s financial statements. The regulations require the Company to meet specific capital adequacy guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital classification is also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The following tables show the capital amounts and ratios for the Company (on a consolidated basis) and the Bank, together with the minimum capital adequacy and well-capitalized capital requirements, at the last two year ends. Actual Minimum Capital Adequacy Requirement Well-Capitalized Capital Requirement (Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio December 31, 2023 Total Capital (to risk-weighted assets): Commerce Bancshares, Inc. (consolidated) $ 3,881,024 16.03 % $ 1,937,322 8.00 % N.A. N.A. Commerce Bank 3,313,640 13.81 1,919,257 8.00 $ 2,399,071 10.00 % Tier I Capital (to risk-weighted assets): Commerce Bancshares, Inc. (consolidated) $ 3,693,089 15.25 % $ 1,452,992 6.00 % N.A. N.A. Commerce Bank 3,125,706 13.03 1,439,443 6.00 $ 1,919,257 8.00 % Tier I Common Capital (to risk-weighted assets): Commerce Bancshares, Inc. (consolidated) $ 3,693,089 15.25 % $ 1,089,744 4.50 % N.A. N.A. Commerce Bank 3,125,706 13.03 1,079,582 4.50 $ 1,559,396 6.50 % Tier I Capital (to adjusted quarterly average assets): (Leverage Ratio) Commerce Bancshares, Inc. (consolidated) $ 3,693,089 11.25 % $ 1,313,377 4.00 % N.A. N.A. Commerce Bank 3,125,706 9.56 1,307,174 4.00 $ 1,633,968 5.00 % December 31, 2022 Total Capital (to risk-weighted assets): Commerce Bancshares, Inc. (consolidated) $ 3,600,920 14.89 % $ 1,934,274 8.00 % N.A. N.A. Commerce Bank 3,125,987 13.05 1,916,529 8.00 $ 2,395,661 10.00 % Tier I Capital (to risk-weighted assets): Commerce Bancshares, Inc. (consolidated) $ 3,417,223 14.13 % $ 1,450,705 6.00 % N.A. N.A. Commerce Bank 2,942,291 12.28 1,437,397 6.00 $ 1,916,529 8.00 % Tier I Common Capital (to risk-weighted assets): Commerce Bancshares, Inc. (consolidated) $ 3,417,223 14.13 % $ 1,088,029 4.50 % N.A. N.A. Commerce Bank 2,942,291 12.28 1,078,047 4.50 $ 1,557,180 6.50 % Tier I Capital (to adjusted quarterly average assets): (Leverage Ratio) Commerce Bancshares, Inc. (consolidated) $ 3,417,223 10.34 % $ 1,322,102 4.00 % N.A. N.A. Commerce Bank 2,942,291 8.86 1,328,220 4.00 $ 1,660,275 5.00 % The minimum required ratios for well-capitalized banks (under prompt corrective action provisions) are 6.5 % for Tier I common capital, 8.0 % for Tier I capital, 10.0 % for Total capital and 5.0 % for the leverage ratio. 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. 116 Table of Contents 16. Revenue from Contracts with Customers Revenue from contracts with customers, Accounting Standard Codification 606 ("ASC 606"), requires revenue recognition for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For the 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 revenue from contracts with customers by major product line. For the Years Ended December 31 (In thousands) 2023 2022 2021 Bank card transaction fees $ 191,156 $ 176,144 $ 167,891 Trust fees 190,954 184,719 188,227 Deposit account charges and other fees 90,992 94,381 97,217 Consumer brokerage services 17,223 19,117 18,362 Other non-interest income 38,784 34,742 27,223 Total non-interest income from contracts with customers 529,109 509,103 498,920 Other non-interest income (1) 43,936 37,432 61,473 Total non-interest income $ 573,045 $ 546,535 $ 560,393 (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 Bank card transaction fees $ 18,069 $ 17,254 $ 16,424 Trust fees 1,764 2,038 2,222 Deposit account charges and other fees 6,588 6,631 6,702 Consumer brokerage services 8 949 391 For these revenue categories, none of the transaction price has been allocated to performance obligations that are unsatisfied as of the end of a reporting period. A description of these revenue categories follows. 117 Table of Contents Bank Card Transaction Fees The following table presents the components of bank card fee income. For the Years Ended December 31 (In thousands) 2023 2022 2021 Debit card: Fee income $ 44,795 $ 44,240 $ 44,170 Expense for network charges ( 914 ) ( 3,272 ) ( 3,160 ) Net debit card fees 43,881 40,968 41,010 Credit card: Fee income 31,639 31,609 29,214 Expense for network charges and rewards ( 17,191 ) ( 17,049 ) ( 14,070 ) Net credit card fees 14,448 14,560 15,144 Corporate card: Fee income 220,229 217,539 197,483 Expense for network charges and rewards ( 109,588 ) ( 117,527 ) ( 105,782 ) Net corporate card fees 110,641 100,012 91,701 Merchant: Fee income 36,775 34,583 33,019 Fees to cardholder banks ( 11,001 ) ( 10,425 ) ( 9,640 ) Expense for network charges ( 3,588 ) ( 3,554 ) ( 3,343 ) Net merchant fees 22,186 20,604 20,036 Total bank card transaction fees $ 191,156 $ 176,144 $ 167,891 The majority of debit and credit card fees are reported in the Consumer segment, while corporate card and merchant fees are reported in the Commercial segment. Debit and Credit Card Fees The Company issues debit and credit cards to its retail and commercial banking customers who use the cards to purchase goods and services from merchants through an electronic payment system. As a card issuer, the Company earns fees, including interchange income, for processing the cardholder’s purchase transaction with a merchant through a settlement network. Purchases are charged directly to a customer’s checking account (in the case of a debit card), or are posted to a customer’s credit card account. The fees earned are established by the settlement network and are dependent on the type of transaction processed but are typically based on a per unit charge. Interchange income, the largest component of debit and credit card fees, is settled daily through the networks. The services provided to the cardholders include issuing and maintaining cards, settling purchases with merchants, and maintaining memberships in various card networks to facilitate processing. These services are considered one performance obligation, as one of the services would not be performed without the others. The performance obligation is satisfied as services are rendered for each purchase transaction, and income is immediately recognized. In order to participate in the settlement network process, the Company must pay various transaction-related costs, established by the networks, including membership fees and a per unit charge for each transaction. These expenses are recorded net of the card fees earned. Consumer credit card products offer cardholders rewards that can be later redeemed for cash, goods or services to encourage card usage. Reward programs must meet network requirements based on the type of card issued. The expense associated with the rewards granted are recorded net of the credit card fees earned. Commercial card products offer cash rewards to corporate cardholders to encourage card usage in facilitating corporate payments. The Company pays cash rewards based on contractually agreed upon amounts, normally as a percent of each sales transaction. The expense associated with the cash rewards program is recorded net of the corporate card fees earned. 118 Table of Contents Merchant Fees The Company offers merchant processing services to its business customers to enable them to accept credit and debit card payments. Merchant processing activities include gathering merchant sales information, authorizing sales transactions and collecting the funds from card issuers using the networks. The merchant is charged a merchant discount fee for the services based on agreed upon pricing between the merchant and the Company. Merchant fees are recorded net of outgoing interchange costs paid to the card issuing banks and net of other network costs as shown in the table above. Merchant services provided are considered one performance obligation, as one of the services would not be performed without the others. The performance obligation is satisfied as services are rendered for each settlement transaction and income is immediately recognized. Income earned from merchant fees settles with the customer according to terms negotiated in individual customer contracts. The majority of customers settle with the Company at least monthly. Trust Fees The following table shows the components of revenue within trust fees, which are reported within the Wealth segment. For the Years Ended December 31 (In thousands) 2023 2022 2021 Private client $ 153,524 $ 147,239 $ 147,653 Institutional 31,756 31,525 33,890 Other 5,674 5,955 6,684 Total trust fees $ 190,954 $ 184,719 $ 188,227 The Company provides trust and asset management services to both private client and institutional trust customers including asset custody, investment advice, and reporting and administrative services. Other specialized services such as tax preparation, financial planning, representation and other related services are provided as needed. Trust fees are generally earned monthly and billed based on a rate multiplied by the fair value of the customer's trust assets. The majority of customer trust accounts are billed monthly. However, some accounts are billed quarterly, and a small number of accounts are billed semi-annually or annually, in accordance with agreements in place with the customer. The Company accrues trust fees monthly based on an estimate of fees due and either directly charges the customer’s account the following month or invoices the customer for fees due according to the billing schedule. The Company maintains written product pricing information which is used to bill each trust customer based on the services provided. Providing trust services is considered to be a single performance obligation that is satisfied on a monthly basis, involving the monthly custody of customer assets, statement rendering, periodic investment advice where applicable, and other specialized services as needed. As such, performance obligations are considered to be satisfied at the conclusion of each month while trust fee income is also recognized monthly. Deposit Account Charges and Other Fees The following table shows the components of revenue within deposit account charges and other fees. For the Years Ended December 31 (In thousands) 2023 2022 2021 Corporate cash management fees $ 56,291 $ 52,501 $ 50,051 Overdraft and return item fees 11,607 19,938 24,157 Other service charges on deposit accounts 23,094 21,942 23,009 Total deposit account charges and other fees $ 90,992 $ 94,381 $ 97,217 Approximately 67 % of this revenue is reported in the Commercial segment, while the remainder is reported in the Consumer segment. The Company provides corporate cash management services to its business and non-profit customers to meet their various transaction processing needs. Such services include deposit and check processing, lockbox, remote deposit, reconciliation, online banking and other similar transaction processing services. The Company maintains unit prices for each type of service, and the customer is billed based on transaction volumes processed monthly. The customer is usually billed either monthly or 119 Table of Contents quarterly, however, some customers may be billed semi-annually or annually. The customer may pay for the cash management services either by paying in cash or using the value of deposit balances (formula provided to the customer) held at the Company. The Company’s performance obligation for corporate cash management services is the processing of items over a monthly term, and the obligations are satisfied at the conclusion of each month. Overdraft fees are charged to customers when daily checks and other withdrawals to customers’ accounts exceed balances on hand. Fees are based on a unit price multiplied by the number of items processed whose total amounts exceed the available account balance. The daily overdraft charge is calculated, and the fee is posted to the customer’s account each day. 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. Other deposit fees include numerous smaller fees such as monthly statement fees, foreign ATM processing fees, identification restoration fees, and stop payment fees. Such fees are mostly billed to customers directly on their monthly deposit account statements, or in the case of foreign ATM processing fees, the fee is charged to the customer on the day that transactions are processed. Performance obligations for all of these various services are satisfied at the time that the service is rendered. Consumer Brokerage Services 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, 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 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. 120 Table of Contents 17. Fair Value Measurements The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities and to determine fair value disclosures. Various financial instruments such as available for sale debt securities, equity securities, trading debt securities, certain investments relating to private equity activities, and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record other assets and liabilities at fair value on a nonrecurring basis, such as mortgage servicing rights and certain other investment securities. These nonrecurring fair value adjustments typically involve lower of cost or fair value accounting, or write-downs of individual assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: • Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. • Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds). • Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider. When determining the fair value measurements for assets and liabilities required or permitted to be recorded or disclosed at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to observable market data for similar assets and liabilities. 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. 121 Table of Contents Instruments Measured at Fair Value on a Recurring Basis The table below presents the carrying values of assets and liabilities measured at fair value on a recurring basis at December 31, 2023 and 2022. There were no transfers among levels during these years. Fair Value Measurements Using (In thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2023 Assets: Residential mortgage loans held for sale $ 1,585 $ — $ 1,585 $ — Available for sale debt securities: U.S. government and federal agency obligations 816,514 816,514 — — Government-sponsored enterprise obligations 43,962 — 43,962 — State and municipal obligations 1,197,419 — 1,196,472 947 Agency mortgage-backed securities 3,901,346 — 3,901,346 — Non-agency mortgage-backed securities 1,157,898 — 1,157,898 — Asset-backed securities 2,107,485 — 2,107,485 — Other debt securities 460,136 — 460,136 — Trading debt securities 28,830 — 28,830 — Equity securities 5,723 5,723 — — Private equity investments 176,667 — — 176,667 Derivatives * 116,876 — 116,710 166 Assets held in trust for deferred compensation plan 20,538 20,538 — — Total assets 10,034,979 842,775 9,014,424 177,780 Liabilities: Derivatives * 37,899 — 37,704 195 Liabilities held in trust for deferred compensation plan 20,538 20,538 — — Total liabilities $ 58,437 $ 20,538 $ 37,704 $ 195 December 31, 2022 Assets: Residential mortgage loans held for sale $ — $ — $ — $ — Available for sale debt securities: U.S. government and federal agency obligations 1,035,406 1,035,406 — — Government-sponsored enterprise obligations 43,108 — 43,108 — State and municipal obligations 1,767,109 — 1,765,268 1,841 Agency mortgage-backed securities 4,308,427 — 4,308,427 — Non-agency mortgage-backed securities 1,211,607 — 1,211,607 — Asset-backed securities 3,397,801 — 3,397,801 — Other debt securities 474,858 — 474,858 — Trading debt securities 43,523 — 43,523 — Equity securities 6,210 6,210 — — Private equity investments 178,127 — — 178,127 Derivatives * 60,492 — 60,458 34 Assets held in trust for deferred compensation plan 17,856 17,856 — — Total assets 12,544,524 1,059,472 11,305,050 180,002 Liabilities: Derivatives * 54,984 — 54,865 119 Liabilities held in trust for deferred compensation plan 17,856 17,856 — — Total liabilities $ 72,840 $ 17,856 $ 54,865 $ 119 *The fair value of each class of derivative is shown in Note 19. 122 Table of Contents Valuation methods for instruments measured at fair value on a recurring basis Following is a description of the Company’s valuation methodologies used for instruments measured at fair value on a recurring basis: Residential mortgage loans held for sale The Company originates fixed rate, first lien residential mortgage loans that are intended for sale in the secondary market. Fair value is based on quoted secondary market prices for loans with similar characteristics, which are adjusted to include the embedded servicing value in the loans. This adjustment represents an unobservable input to the valuation but is not considered significant given the relative insensitivity of the valuation to changes in this input. Accordingly, these loan measurements are classified as Level 2. Available for sale debt securities For available for sale securities, changes in fair value are recorded in other comprehensive income. This portfolio comprises the majority of the assets which the Company records at fair value. Most of the portfolio, which includes government-sponsored enterprise, mortgage-backed and asset-backed securities, are priced utilizing industry-standard models that consider various assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace. These measurements are classified as Level 2 in the fair value hierarchy. Where quoted prices are available in an active market, the measurements are classified as Level 1. Most of the Level 1 measurements apply to U.S. Treasury obligations. The fair values of Level 1 and 2 securities in the available for sale portfolio are prices provided by a third-party pricing service. The prices provided by the third-party pricing service are based on observable market inputs, as described in the sections below. On a quarterly basis, the Company compares these prices to other independent sources for the same and similar securities. Variances are analyzed, and, if appropriate, additional research is conducted with the third-party pricing service. Based on this research, the pricing service may affirm or revise its quoted price. No significant adjustments have been made to the prices provided by the pricing service. The pricing service also provides documentation on an ongoing basis that includes reference data, inputs and methodology by asset class, which is reviewed by the Company to ensure that security placement within the fair value hierarchy is appropriate. Valuation methods and inputs, by class of security: • U.S. government and federal agency obligations U.S. 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. • Government-sponsored enterprise obligations 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 SOFR, CMT, and Prime. • State and municipal obligations, excluding auction rate securities A yield curve is generated and applied to bond sectors, and individual bond valuations are extrapolated. Inputs used to generate the yield curve are bellwether issue levels, established trading spreads between similar issuers or credits, historical trading spreads over widely accepted market benchmarks, new issue scales, and verified bid information. Bid information is verified by corroborating the data against external sources such as broker-dealers, trustees/paying agents, issuers, or non-affiliated bondholders. • Mortgage and asset-backed securities Collateralized mortgage obligations and other asset-backed securities are valued at the tranche level. For each tranche valuation, the process generates predicted cash flows for the tranche, applies a market based (or benchmark) yield/spread for each tranche, and incorporates deal collateral performance and tranche level attributes to determine tranche-specific spreads to adjust the benchmark yield. Tranche cash flows are generated from new deal files and prepayment/default assumptions. Tranche spreads are based on tranche characteristics such as average life, type, volatility, ratings, underlying collateral and performance, and prevailing market conditions. 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. 123 Table of Contents 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. This market consists of generic mortgage pools which have not been received for settlement. Snapshots of the TBA market, using live data feeds distributed by multiple electronic platforms, are used in conjunction with other indices to compute a price based on discounted cash flow models. • Other debt securities 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). • Auction rate securities The available for sale portfolio includes certain auction rate securities. Due to the illiquidity in the auction rate securities market in recent years, the fair value of these securities cannot be based on observable market prices. The fair values of these securities are estimated using a discounted cash flows analysis which is discussed more fully in the Level 3 Inputs section of this note. Because many of the inputs significant to the measurement are not observable, these measurements are classified as Level 3 measurements. Trading debt securities The securities in the Company’s trading portfolio are priced by averaging several broker quotes for similar instruments and are classified as Level 2 measurements. Equity securities with readily determinable fair values Equity securities are priced using the market prices for each security from the major stock exchanges or other electronic quotation systems. These are generally classified as Level 1 measurements. Stocks which trade infrequently are classified as Level 2. Private equity investments These securities are held by the Company’s private equity subsidiary and are included in other investment securities in the consolidated balance sheets. Due to the absence of quoted market prices, valuation of these nonpublic investments requires significant management judgment. These fair value measurements, which are discussed in the Level 3 Inputs section of this note, are classified as Level 3. Derivatives The Company’s derivative instruments include interest rate swaps and floors, foreign exchange forward contracts, and certain credit risk guarantee agreements. When appropriate, the impact of credit standing as well as any potential credit enhancements, such as collateral, has been considered in the fair value measurement. • 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 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. The credit risk component is not significant compared to the overall fair value of the swaps. The results of the model are constantly validated through comparison to active trading in the marketplace. Parties to swaps requiring central clearing are required to post collateral (generally in the form of cash or marketable securities) to an authorized clearing agency that holds and monitors the collateral. The Company's clearing counterparty characterizes a component of this collateral, known as variation margin, as a legal settlement of the derivative contract exposure, and as a result, the variation margin is considered in determining the fair value of the derivative. Valuations for interest rate floors are also derived from a proprietary model whose significant inputs are readily observable market parameters, primarily yield curves and volatility surfaces. The model uses market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fall below the strike rates of the floors. The model also incorporates credit valuation adjustments of both the Company's and the 124 Table of Contents counterparties' non-performance risk. The credit valuation adjustment component is not significant compared to the overall fair value of the floors. The fair value measurements of interest rate swaps and floors are classified as Level 2 due to the observable nature of the significant inputs utilized. • Fair value measurements for foreign exchange contracts are derived from a model whose primary inputs are quotations from global market makers and are classified as Level 2. • The Company’s contracts related to credit risk guarantees are valued under a proprietary model which uses unobservable inputs and assumptions about the creditworthiness of the counterparty (generally a Bank customer). Customer credit spreads, which are based on probability of default and other loss estimates, are calculated internally by the Company's Credit department, as mentioned above, and are based on the Company's internal risk rating for each customer. Because these inputs are significant to the measurements, they are classified as Level 3. • Derivatives relating to residential mortgage loan sale activity include commitments to originate mortgage loans held for sale, forward loan sale contracts, and forward commitments to sell TBA securities. The fair values of loan commitments and sale contracts are estimated using quoted market prices for loans similar to the underlying loans in these instruments. The valuations of loan commitments are further adjusted to include embedded servicing value and the probability of funding. These assumptions are considered Level 3 inputs and are significant to the loan commitment valuation; accordingly, the measurement of loan commitments is classified as Level 3. The fair value measurement of TBA contracts is based on security prices published on trading platforms and is classified as Level 2. Assets held in trust for deferred compensation plan Assets held in an outside trust for the Company’s deferred compensation plan consist of investments in mutual funds. The fair value measurements are based on quoted prices in active markets and classified as Level 1. The Company has recorded an asset representing the total investment amount. The Company has also recorded a corresponding liability, representing the Company’s liability to the plan participants. 125 Table of Contents The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows: Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (In thousands) State and Municipal Obligations Private Equity Investments Total Year ended December 31, 2023: Balance at January 1, 2023 $ 1,841 $ 178,127 $ 179,968 Total gains or losses (realized/unrealized): Included in earnings — 24,299 24,299 Included in other comprehensive income * 57 — 57 Investment securities called ( 1,000 ) — ( 1,000 ) Discount accretion 49 — 49 Purchases of private equity securities — 15,220 15,220 Sale / pay down of private equity securities — ( 41,341 ) ( 41,341 ) Capitalized interest/dividends — 362 362 Balance at December 31, 2023 $ 947 $ 176,667 $ 177,614 Total gains or losses for the year included in earnings attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2023 $ — $ 24,799 $ 24,799 Total gains or losses for the year included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2023 $ 35 $ — $ 35 Year ended December 31, 2022: Balance at January 1, 2022 $ 1,984 $ 147,406 $ 149,390 Total gains or losses (realized/unrealized): Included in earnings — 43,833 43,833 Included in other comprehensive income * ( 148 ) — ( 148 ) Discount accretion 5 — 5 Purchases of private equity securities — 12,281 12,281 Sale / pay down of private equity securities — ( 25,437 ) ( 25,437 ) Capitalized interest/dividends — 44 44 Balance at December 31, 2022 $ 1,841 $ 178,127 $ 179,968 Total gains or losses for the year included in earnings attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2022 $ — $ 35,333 35,333 Total gains or losses for the year included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at December 31, 2022 $ ( 148 ) $ — ( 148 ) * Included in "net unrealized gains (losses) on securities" in the consolidated statements of comprehensive income. Gains and losses on the Level 3 assets and liabilities in the table above are reported in the following income categories: (In thousands) Investment Securities Gains (Losses), Net Year ended December 31, 2023: Total gains or losses included in earnings $ 24,299 Change in unrealized gains or losses relating to assets still held at December 31, 2023 $ 24,799 Year ended December 31, 2022: Total gains or losses included in earnings $ 43,833 Change in unrealized gains or losses relating to assets still held at December 31, 2022 $ 35,333 126 Table of Contents Level 3 Inputs The Company's significant Level 3 measurements, which employ unobservable inputs that are readily quantifiable, pertain to investments in portfolio concerns held by the Company's private equity subsidiaries. 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* 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 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. Investee companies are normally non-public entities. The fair value of the investee company is determined by reference to the investee's total earnings before interest, depreciation/amortization, and income taxes (EBITDA) multiplied by an EBITDA factor. EBITDA is normally determined based on a trailing prior period adjusted for specific factors including current economic outlook, investee management, and specific unique circumstances such as sales order information, major customer status, regulatory changes, etc. The EBITDA multiple is based on management's review of published trading multiples for recent private equity transactions and other judgments and is derived for each individual investee. The fair value of the Company's investment is then calculated based on its ownership percentage in the investee company. On a quarterly basis, these fair value analyses are reviewed by a valuation committee consisting of investment managers and senior Company management. Instruments Measured at Fair Value on a Nonrecurring Basis For assets measured at fair value on a nonrecurring basis during 2023 and 2022, and still held as of December 31, 2023 and 2022, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation assumptions used to determine each adjustment, and the carrying value of the related individual assets or portfolios at December 31, 2023 and 2022. Fair Value Measurements Using (In thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Gains (Losses) Balance at December 31, 2023 Collateral dependent loans $ 1,517 $ — $ — $ 1,517 $ ( 1,662 ) Long-lived assets 2,662 — — 2,662 ( 193 ) Balance at December 31, 2022 Collateral dependent loans $ 1,988 $ — $ — $ 1,988 $ ( 2,090 ) Mortgage servicing rights 10,929 — — 10,929 304 Long-lived assets 480 — — 480 ( 965 ) Valuation methods for instruments measured at fair value on a nonrecurring basis Following is a description of the Company’s valuation methodologies used for other financial and nonfinancial instruments measured at fair value on a nonrecurring basis. Collateral dependent loans While the overall loan portfolio is not carried at fair value, the Company periodically records nonrecurring adjustments to the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans. Nonrecurring adjustments also include certain impairment amounts for collateral dependent loans when establishing the allowance for credit losses on loans. Such amounts are generally based on the fair value of the underlying collateral supporting the loan. 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. The Company maintains a staff of qualified appraisers who also review third party appraisal reports for reasonableness. In the case of non-real estate collateral, reliance is placed on a variety of sources, including external estimates of value and judgments based on the experience and expertise of internal specialists. Values of all loan collateral are regularly reviewed by credit administration. Unobservable inputs to these measurements, which include estimates and judgments often used in conjunction with appraisals, are not readily quantifiable. 127 Table of Contents These measurements are classified as Level 3. Nonrecurring adjustments to the carrying value of loans based on fair value measurements at December 31, 2023 and 2022 are shown in the table above. Mortgage servicing rights The Company initially measures its mortgage servicing rights at fair value and amortizes them over the period of estimated net servicing income. They are periodically assessed for impairment based on fair value at the reporting date. Mortgage servicing rights do not trade in an active market with readily observable prices. Accordingly, the fair value is estimated based on a valuation model which calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees. The fair value measurements are classified as Level 3. Long-lived assets When investments in branch facilities and various office buildings are determined to be impaired, their carrying values are written down to estimated fair value, or estimated fair value less cost to sell if the property is held for sale. Fair value is estimated in a process which considers current local commercial real estate market conditions and the judgment of the sales agent and often involves obtaining third party appraisals from certified real estate appraisers. The carrying amounts of these real estate holdings are regularly monitored by real estate professionals employed by the Company. These fair value measurements are classified as Level 3. Unobservable inputs to these measurements, which include estimates and judgments often used in conjunction with appraisals, are not readily quantifiable. 128 Table of Contents 18. Fair Value of Financial Instruments The carrying amounts and estimated fair values of financial instruments held by the Company are set forth below. Fair value estimates are made at a specific point in time based on relevant market information. They do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for many of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The estimated fair values of the Company’s financial instruments and the classification of their fair value measurement within the valuation hierarchy are as follows at December 31, 2023 and 2022: Carrying Amount Estimated Fair Value at December 31, 2023 (In thousands) Level 1 Level 2 Level 3 Total Financial Assets Loans: Business $ 6,019,036 $ — $ — $ 5,873,549 $ 5,873,549 Real estate - construction and land 1,446,764 — — 1,420,522 1,420,522 Real estate - business 3,719,306 — — 3,594,834 3,594,834 Real estate - personal 3,026,041 — — 2,568,026 2,568,026 Consumer 2,077,723 — — 2,016,334 2,016,334 Revolving home equity 319,894 — — 317,013 317,013 Consumer credit card 589,913 — — 550,464 550,464 Overdrafts 6,802 — — 6,649 6,649 Total loans 17,205,479 — — 16,347,391 16,347,391 Loans held for sale 4,177 — 4,177 — 4,177 Investment securities 9,941,786 822,237 8,896,129 223,420 9,941,786 Federal funds sold 5,025 5,025 — — 5,025 Securities purchased under agreements to resell 450,000 — — 444,448 444,448 Interest earning deposits with banks 2,239,010 2,239,010 — — 2,239,010 Cash and due from banks 443,147 443,147 — — 443,147 Derivative instruments 116,876 — 116,710 166 116,876 Assets held in trust for deferred compensation plan 20,538 20,538 — — 20,538 Total $ 30,426,038 $ 3,529,957 $ 9,017,016 $ 17,015,425 $ 29,562,398 Financial Liabilities Non-interest bearing deposits $ 7,975,935 $ 7,975,935 $ — $ — $ 7,975,935 Savings, interest checking and money market deposits 14,512,273 14,512,273 — — 14,512,273 Certificates of deposit 2,875,690 — — 2,916,627 2,916,627 Federal funds purchased 261,305 261,305 — — 261,305 Securities sold under agreements to repurchase 2,647,510 — — 2,650,951 2,650,951 Other borrowings 1,366 — 1,366 — 1,366 Derivative instruments 37,899 — 37,704 195 37,899 Liabilities held in trust for deferred compensation plan 20,538 20,538 — — 20,538 Total $ 28,332,516 $ 22,770,051 $ 39,070 $ 5,567,773 $ 28,376,894 129 Table of Contents Carrying Amount Estimated Fair Value at December 31, 2022 (In thousands) Level 1 Level 2 Level 3 Total Financial Assets Loans: Business $ 5,661,725 $ — $ — $ 5,506,128 $ 5,506,128 Real estate - construction and land 1,361,095 — — 1,347,328 1,347,328 Real estate - business 3,406,981 — — 3,289,655 3,289,655 Real estate - personal 2,918,078 — — 2,654,423 2,654,423 Consumer 2,059,088 — — 1,999,788 1,999,788 Revolving home equity 297,207 — — 295,005 295,005 Consumer credit card 584,000 — — 538,268 538,268 Overdrafts 14,957 — — 14,666 14,666 Total loans 16,303,131 — — 15,645,261 15,645,261 Loans held for sale 4,964 — 4,964 — 4,964 Investment securities 12,511,649 1,041,616 11,244,592 225,441 12,511,649 Federal funds sold 49,505 49,505 — — 49,505 Securities purchased under agreements to resell 825,000 — — 795,574 795,574 Interest earning deposits with banks 389,140 389,140 — — 389,140 Cash and due from banks 452,496 452,496 — — 452,496 Derivative instruments 60,492 — 60,458 34 60,492 Assets held in trust for deferred compensation plan 17,856 17,856 — — 17,856 Total $ 30,614,233 $ 1,950,613 $ 11,310,014 $ 16,666,310 $ 29,926,937 Financial Liabilities Non-interest bearing deposits $ 10,066,356 $ 10,066,356 $ — $ — $ 10,066,356 Savings, interest checking and money market deposits 15,126,981 15,126,981 — — 15,126,981 Certificates of deposit 994,103 — — 982,613 982,613 Federal funds purchased 159,860 159,860 — — 159,860 Securities sold under agreements to repurchase 2,681,874 — — 2,684,471 2,684,471 Other borrowings 8,831 — 8,831 — 8,831 Derivative instruments 54,984 — 54,865 119 54,984 Liabilities held in trust for deferred compensation plan 17,856 17,856 — — 17,856 Total $ 29,110,845 $ 25,371,053 $ 63,696 $ 3,667,203 $ 29,101,952 130 Table of Contents 19. Derivative Instruments The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. The Company's derivatives are not accounted for as accounting hedges except for the interest rate floors, as discussed below. December 31 (In thousands) 2023 2022 Interest rate swaps $ 2,166,393 $ 1,981,821 Interest rate floors 2,000,000 1,000,000 Interest rate caps 336,682 152,784 Credit risk participation agreements 653,887 579,925 Foreign exchange contracts 30,401 27,991 Mortgage loan commitments 3,004 — Mortgage loan forward sale contracts 1,349 — Forward TBA contracts 3,000 — Total notional amount $ 5,194,716 $ 3,742,521 The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. Those customers are engaged in a variety of businesses, including real estate, manufacturing, retail product distribution, education, and retirement communities. These interest rate swap contracts with customers are offset by matching interest rate swap contracts purchased by the Company from other financial institutions (dealers). Contracts with dealers that require central clearing are novated to a clearing agency who becomes the Company's counterparty. Because of the matching terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings. Many of the Company’s interest rate swap contracts with large financial institutions contain contingent features relating to debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and ongoing collateralization on interest rate swaps in net liability positions or instant settlement of the contracts. The Company maintains debt ratings and capital well above those minimum requirements. 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 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. 131 Table of Contents 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, 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. The Company’s risks and responsibilities as guarantor are further discussed in Note 21 on Commitments, Contingencies and Guarantees. In addition, the Company enters into foreign exchange contracts, which are mainly comprised of contracts with customers to purchase or deliver specific foreign currencies at specific future dates. Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date. In late 2022, the Company temporarily paused sales of these loans and halted entering into the forward contracts, as lower demand for mortgage loans coupled with volatility in the TBA market made it difficult to effectively hedge the Company's mortgage loan production. The Company resumed sales during the first quarter of 2023. The fair values of the Company’s derivative instruments, whose notional amounts are listed above, are shown in the table below. Information about the valuation methods used to determine fair value is provided in Note 17 on Fair Value Measurements. 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 December 31 December 31 2023 2022 2023 2022 (In thousands ) Fair Value Fair Value Derivatives designated as hedging instruments: Interest rate floors $ 78,960 $ 33,371 $ — $ — Total derivatives designated as hedging instruments $ 78,960 $ 33,371 $ — $ — Derivatives not designated as hedging instruments: Interest rate swaps $ 35,816 $ 23,894 $ ( 35,816 ) $ ( 51,742 ) Interest rate caps 1,391 2,705 ( 1,391 ) ( 2,705 ) Credit risk participation agreements 77 34 ( 194 ) ( 119 ) Foreign exchange contracts 534 488 ( 479 ) ( 418 ) Mortgage loan commitments 89 — ( 1 ) — Mortgage loan forward sale contracts 8 — — — Forward TBA contracts 1 — ( 18 ) — Total derivatives not designated as hedging instruments $ 37,916 $ 27,121 $ ( 37,899 ) $ ( 54,984 ) Total $ 116,876 $ 60,492 $ ( 37,899 ) $ ( 54,984 ) 132 Table of Contents The Company made an election to exclude the initial premiums paid on the interest rate floors from the hedge effectiveness measurement. Those initial premiums are amortized over the periods between the premium payment month and the contract maturity month. The pre-tax effects of the gains and losses (both the included and excluded amounts for hedge effectiveness assessment) recognized in the other comprehensive income from the cash flow hedging instruments and the amounts reclassified from accumulated other comprehensive income into income (both included and excluded amounts for hedge effectiveness measurement) are shown in the table below. Amount of Gain or (Loss) Recognized in OCI Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income (In thousands) Total Included Component Excluded Component (In thousands) Total Included Component Excluded Component For the Year Ended December 31, 2023 Derivatives in cash flow hedging relationships: Interest rate floors $ ( 8,860 ) $ 3,122 $ ( 11,982 ) Interest and fees on loans $ 15,209 $ 29,731 $ ( 14,522 ) Total $ ( 8,860 ) $ 3,122 $ ( 11,982 ) Total $ 15,209 $ 29,731 $ ( 14,522 ) For the Year Ended December 31, 2022 Derivatives in cash flow hedging relationships: Interest rate floors $ ( 2,428 ) $ — $ ( 2,428 ) Interest and fees on loans $ 23,355 $ 30,679 $ ( 7,324 ) Total $ ( 2,428 ) $ — $ ( 2,428 ) Total $ 23,355 $ 30,679 $ ( 7,324 ) For the Year Ended December 31, 2021 Derivatives in cash flow hedging relationships: Interest rate floors $ — $ — $ — Interest and fees on loans $ 24,160 $ 30,310 $ ( 6,150 ) Total $ — $ — $ — Total $ 24,160 $ 30,310 $ ( 6,150 ) The gain and loss recognized through various derivative instruments on the consolidated statements of income are shown in the table below. Location of Gain/(Loss) Recognized in the Consolidated Statements of Income Amount of Gain/(Loss) Recognized in Income on Derivative For the Years Ended December 31 (In thousands) 2023 2022 2021 Derivative instruments: Interest rate swaps Other non-interest income $ 3,642 $ 2,472 $ 3,170 Interest rate caps Other non-interest income 86 16 15 Credit risk participation agreements Other non-interest income 60 172 ( 187 ) Foreign exchange contracts Other non-interest income ( 14 ) 38 78 Mortgage loan commitments Loan fees and sales 87 ( 763 ) ( 2,463 ) Mortgage loan forward sale contracts Loan fees and sales 8 ( 4 ) 4 Forward TBA contracts Loan fees and sales 53 1,773 1,777 Total $ 3,922 $ 3,704 $ 2,394 133 Table of Contents The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset. Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after netting is applied); thus amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default. While the Company is party to master netting arrangements with most of its swap counterparties, the Company does not offset derivative assets and liabilities under these arrangements on its consolidated balance sheets. Collateral exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually consist of marketable securities. By contract, this collateral may be sold or re-pledged by the secured party until recalled at a subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash or securities to its clearing agent. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table below. Gross Amounts Not Offset in the Balance Sheet (In thousands) Gross Amount Recognized Gross Amounts Offset in the Balance Sheet Net Amounts Presented in the Balance Sheet Financial Instruments Available for Offset Collateral Received/Pledged Net Amount December 31, 2023 Assets: Derivatives subject to master netting agreements $ 116,702 $ — $ 116,702 $ ( 3,930 ) $ ( 107,492 ) $ 5,280 Derivatives not subject to master netting agreements 174 — 174 Total derivatives $ 116,876 $ — $ 116,876 Liabilities: Derivatives subject to master netting agreements $ 37,300 $ — $ 37,300 $ ( 3,930 ) $ — $ 33,370 Derivatives not subject to master netting agreements 599 — 599 Total derivatives $ 37,899 $ — $ 37,899 December 31, 2022 Assets: Derivatives subject to master netting agreements $ 60,270 $ — $ 60,270 $ ( 1,007 ) $ ( 56,816 ) $ 2,447 Derivatives not subject to master netting agreements 222 — 222 Total derivatives $ 60,492 $ — $ 60,492 Liabilities: Derivatives subject to master netting agreements $ 54,609 $ — $ 54,609 $ ( 1,007 ) $ — $ 53,602 Derivatives not subject to master netting agreements 375 — 375 Total derivatives $ 54,984 $ — $ 54,984 134 Table of Contents 20. Resale and Repurchase Agreements The Company regularly enters into resale and repurchase agreement transactions with other financial institutions and with its own customers. Resale and repurchase agreements are agreements to purchase/sell securities subject to an obligation to resell/repurchase the same or similar securities. They are accounted for as secured lending and collateralized borrowing (e.g. financing transactions), not as true sales and purchases of the underlying collateral securities. Some of the resale and repurchase agreements were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default. The security collateral accepted or pledged in resale and repurchase agreements with other financial institutions may be sold or re-pledged by the secured party, but is usually delivered to and held by third party trustees. The Company generally retains custody of securities pledged for repurchase agreements with its customers. Additional information about the Company's repurchase agreements is included in Note 8. The Company is party to agreements commonly known as collateral swaps. These agreements involve the exchange of collateral under simultaneous repurchase and resale agreements with the same financial institution counterparty. These repurchase and resale agreements have the same principal amounts, inception dates, and maturity dates and have been offset against each other in the consolidated balance sheets, as permitted under the netting provisions of ASC 210-20-45. The collateral swaps totaled $ 200.0 million at 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. Also shown is collateral received or pledged, which consists of marketable securities. The collateral amounts in the table are limited to the outstanding balances of the related asset or liability (after offsetting is applied); thus amounts of excess collateral are not shown. Gross Amounts Not Offset in the Balance Sheet (In thousands) Gross Amount Recognized Gross Amounts Offset on the Balance Sheet Net Amounts Presented on the Balance Sheet Financial Instruments Available for Offset Securities Collateral Received/Pledged Unsecured amount December 31, 2023 Total resale agreements, subject to master netting arrangements $ 450,000 $ — $ 450,000 $ — $ ( 450,000 ) $ — Total repurchase agreements, subject to master netting arrangements 2,647,510 — 2,647,510 — ( 2,647,510 ) — December 31, 2022 Total resale agreements, subject to master netting arrangements $ 1,025,000 $ ( 200,000 ) $ 825,000 $ — $ ( 825,000 ) $ — Total repurchase agreements, subject to master netting arrangements 2,881,874 ( 200,000 ) 2,681,874 — ( 2,681,874 ) — 135 Table of Contents 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. Remaining Contractual Maturity of the Agreements (In thousands) Overnight and continuous Up to 90 days Greater than 90 days Total December 31, 2023 Repurchase agreements, secured by: U.S. 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 Non-agency mortgage-backed securities 10,566 — — 10,566 Asset-backed securities 516,726 9,606 20,000 546,332 Other debt securities 33,265 — — 33,265 Total repurchase agreements, gross amount recognized $ 2,573,439 $ 36,870 $ 37,200 $ 2,647,509 December 31, 2022 Repurchase agreements, secured by: U.S. government and federal agency obligations $ 488,053 $ 26,928 $ 12,460 $ 527,441 Agency mortgage-backed securities 1,792,314 21,744 204,500 2,018,558 Non-agency mortgage-backed securities 40,950 — — 40,950 Asset-backed securities 293,001 — — 293,001 Other debt securities 1,924 — — 1,924 Total repurchase agreements, gross amount recognized $ 2,616,242 $ 48,672 $ 216,960 $ 2,881,874 136 Table of Contents 21. Commitments, Contingencies and Guarantees The Company engages in various transactions and commitments with off-balance sheet risk in the normal course of business to meet customer financing needs. The Company uses the same credit policies in making the commitments and conditional obligations described below as it does for on-balance sheet instruments. The following table summarizes these commitments at December 31: (In thousands) 2023 2022 Commitments to extend credit: Credit card $ 5,367,102 $ 5,190,942 Other unfunded loan commitments 9,144,971 9,102,525 Standby letters of credit, net of conveyance to other financial institutions 590,551 555,858 Commercial letters of credit 2,571 4,393 Commitments to extend credit are legally binding agreements to lend to a borrower providing there are no violations of any conditions established in the contract. As many of the commitments are expected to expire without being drawn upon, the total commitment does not necessarily represent future cash requirements. Refer to Note 2 on Loans and Allowance for Credit Losses for further discussion. The Company, as a provider of financial services, routinely issues financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to guarantee the payment or performance obligation of a customer to a third party. While these represent a potential cash outflow by the Company, a significant amount of the commitments may expire without being drawn upon. To mitigate the potential loss exposure, the Company involves other financial institutions to participate in certain standby letters of credit. Even with such participation, the Company remains liable for the full amount of the standby letters of credit to the third party. The Company has recourse against the customer for any amount it is required to pay to a third party under a standby letter of credit. The standby letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by the Company. Most of the standby letters of credit are secured, and in the event of nonperformance by the customer, the Company has rights to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. At December 31, 2023, the Company had recorded a liability of $ 3.0 million, representing the carrying value of the guarantee obligations associated with the standby letters of credit. This amount will be accreted into income over the remaining life of the respective commitments. Excluding amounts conveyed to others, commitments outstanding under these letters of credit were $ 601.8 million, which represents the maximum potential future payments guaranteed by the Company at December 31, 2023. Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer. The majority of commercial letters of credit issued are used to settle payments in international trade. Typically, letters of credit require presentation of documents which describe the commercial transaction, evidence shipment, and transfer title. The Company regularly purchases various state tax credits arising from third-party property redevelopment. These tax credits are either resold to third parties for a profit or retained for use by the Company. During 2023, the Company purchased and sold state tax credits amounting to $ 112.1 million and $ 54.0 million, respectively. At December 31, 2023, the Company had outstanding purchase commitments totaling $ 187.1 million that it expects to fund in 2024. The remaining purchase commitments amount to $ 388.2 million and are expected to be funded from 2025 through 2029. The Company periodically enters into credit risk participation agreements (RPAs) as a guarantor to other financial institutions, in order to mitigate those institutions’ credit risk associated with interest rate swaps with third parties. The RPA stipulates that, in the event of default by the third party on the interest rate swap, the Company will reimburse a portion of the loss borne by the financial institution. These interest rate swaps are normally collateralized (generally with real property, inventories and equipment) by the third party, which limits the credit risk associated with the Company’s RPAs. The third parties usually have other borrowing relationships with the Company. The Company monitors overall borrower collateral, and at December 31, 2023, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair value throughout their term, with all changes in fair value, including those due to a change in the third party’s creditworthiness, recorded in current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 1 to 15 years. At December 31, 2023, the fair value of the Company's guarantee liability RPAs was $ 194 thousand, and the notional 137 Table of Contents 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. The Company has various legal proceedings pending at December 31, 2023, arising in the normal course of business. While some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at very early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet progressed to the point where a loss amount can be determined to be probable and estimable. 22. Related Parties The Company’s Chief Executive Officer, its Executive Chairman, and its former Vice Chairman are directors of Tower Properties Company (Tower) and, together with members of their immediate families, beneficially own approximately 66 % of the outstanding stock of Tower. At December 31, 2023, Tower owned 257,680 shares of Company stock. Tower is primarily engaged in the business of owning, developing, leasing and managing real property. Payments from the Company and its affiliates to Tower are summarized below. These payments, with the exception of dividend payments, relate to property management services, including construction oversight, on three Company-owned office buildings and related parking garages in downtown Kansas City. (In thousands) 2023 2022 2021 Leasing agent fees $ 434 $ 125 $ 31 Operation of parking garages 111 100 71 Building management fees 2,202 2,118 2,046 Property construction management fees 360 184 143 Project consulting fees 419 — 84 Dividends paid on Company stock held by Tower 265 248 234 Total $ 3,791 $ 2,775 $ 2,609 Tower has a $ 13.5 million line of credit with the Bank which is subject to normal credit terms and has a variable interest rate. 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 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. Letters of credit may be collateralized under this line of credit; however, there were no letters of credit outstanding during 2023, 2022 or 2021, and thus, no fees were received during these periods. From time to time, the Bank extends additional credit to Tower for construction and development projects. No construction loans were outstanding during 2023, 2022 and 2021. Tower leases office space in the Kansas City bank headquarters building owned by the Company. 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. Such loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other unrelated persons and did not involve more than the normal risk of collectability. 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. 138 Table of Contents 23. Parent Company Condensed Financial Statements Following are the condensed financial statements of Commerce Bancshares, Inc. (Parent only) for the periods indicated: Condensed Balance Sheets December 31 (In thousands) 2023 2022 Assets Investment in consolidated subsidiaries: Bank $ 2,390,595 $ 2,008,454 Non-banks 160,244 138,501 Cash 322,573 233,261 Investment securities: Available for sale debt 5,081 5,207 Equity 11,396 11,129 Note receivable due from bank subsidiary 50,000 50,000 Advances to subsidiaries, net of borrowings 1,800 20,529 Income tax receivable and deferred tax assets 10,263 11,987 Other assets 30,486 26,539 Total assets $ 2,982,438 $ 2,505,607 Liabilities and stockholders’ equity Pension obligation $ 4,107 $ 7,446 Other liabilities 34,215 32,870 Total liabilities 38,322 40,316 Stockholders’ equity 2,944,116 2,465,291 Total liabilities and stockholders’ equity $ 2,982,438 $ 2,505,607 Condensed Statements of Income For the Years Ended December 31 (In thousands) 2023 2022 2021 Income Dividends received from consolidated bank subsidiary $ 280,000 $ 300,001 $ 340,001 Earnings of consolidated subsidiaries, net of dividends 203,570 203,965 200,461 Interest and dividends on investment securities 2,905 2,480 2,162 Management fees charged to subsidiaries 47,773 38,632 36,310 Investment securities gains (losses) ( 621 ) ( 872 ) 79 Net interest income on advances and note to subsidiaries 2,636 1,403 51 Other 2,842 3,709 2,927 Total income 539,105 549,318 581,991 Expense Salaries and employee benefits 41,549 44,352 37,362 Professional fees 3,580 2,740 2,006 Data processing fees paid to affiliates 3,347 3,173 2,834 Other 16,264 15,595 12,973 Total expense 64,740 65,860 55,175 Income tax benefit ( 2,695 ) ( 4,941 ) ( 3,949 ) Net income $ 477,060 $ 488,399 $ 530,765 139 Table of Contents Condensed Statements of Cash Flows For the Years Ended December 31 (In thousands ) 2023 2022 2021 Operating Activities Net income $ 477,060 $ 488,399 $ 530,765 Adjustments to reconcile net income to net cash provided by operating activities: Earnings of consolidated subsidiaries, net of dividends ( 203,570 ) ( 203,965 ) ( 200,461 ) Other adjustments, net 5,749 2,557 8,842 Net cash provided by operating activities 279,239 286,991 339,146 Investing Activities (Increase) decrease in investment in subsidiaries, net 4,348 ( 9 ) 6 Proceeds from maturities/pay downs of investment securities 15 38 22 Purchases of investment securities ( 902 ) ( 4,534 ) ( 4,786 ) (Increase) decrease in advances to subsidiaries, net 18,729 19,996 ( 8,618 ) Net purchases of building improvements and equipment ( 490 ) ( 741 ) ( 28 ) Net cash provided by (used in) investing activities 21,700 14,750 ( 13,404 ) Financing Activities Purchases of treasury stock ( 76,890 ) ( 186,622 ) ( 129,361 ) Issuance of stock under equity compensation plans ( 3 ) ( 8 ) ( 15 ) Cash dividends paid on common stock ( 134,734 ) ( 127,466 ) ( 122,693 ) Net cash used in financing activities ( 211,627 ) ( 314,096 ) ( 252,069 ) Increase (decrease) in cash 89,312 ( 12,355 ) 73,673 Cash at beginning of year 233,261 245,616 171,943 Cash at end of year $ 322,573 $ 233,261 $ 245,616 Income tax receipts, net $ ( 3,254 ) $ ( 587 ) $ ( 4,808 ) Dividends paid by the Parent to its shareholders were substantially provided from Bank dividends. The Bank may distribute common dividends without prior regulatory approval, provided that the dividends do not exceed the sum of net income for the current year and retained net income for the preceding two years, subject to maintenance of minimum capital requirements. The Parent charges fees to its subsidiaries for management services provided, which are allocated to the subsidiaries based primarily on total average assets. The Parent makes cash advances to its private equity subsidiary for general short-term cash flow purposes. Advances may be made to the Parent by its subsidiary bank for temporary investment of idle funds. Interest on such advances is based on market rates. The Bank has $ 50.0 million of borrowings from the Parent as part of its strategy to manage FDIC insurance premiums. The note has a rolling 13 month maturity, and the interest rate is a variable rate equal to the one year treasury rate. For the past several years, the Parent has maintained a $ 20.0 million line of credit for general corporate purposes with the Bank. 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. The Parent also holds 823,447 shares of Visa Class B-1 common stock, which are discussed in Note 3. 140 Table of Contents Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with accountants on accounting and financial disclosure.