COMMERCE BANCSHARES INC /MO/ 10-Q

Item 1. FINANCIAL STATEMENTS Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS March 31, 2024 December 31, 2023 (Unaudited) (In thousands) ASSETS Loans $ 17,298,840 $ 17,205,479 Allowance for credit losses on loans ( 160,465 ) ( 162,395 ) Net loans 17,138,375 17,043,084 Loans held for sale (including $ 1,185,000 and $ 1,585,000 of residential mortgage loans carried at fair value at March 31, 2024 and December 31, 2023, respectively) 2,328 4,177 Investment securities: Available for sale debt, at fair value (amortized cost of $ 10,388,902,000 and $ 10,904,765,000 at March 31, 2024 and December 31, 2023, respectively, and allowance for credit losses of $ — at both March 31, 2024 and December 31, 2023) 9,141,695 9,684,760 Trading debt 56,716 28,830 Equity 12,852 12,701 Other 229,146 222,473 Total investment securities 9,440,409 9,948,764 Federal funds sold — 5,025 Securities purchased under agreements to resell 225,000 450,000 Interest earning deposits with banks 1,609,614 2,239,010 Cash and due from banks 291,040 443,147 Premises and equipment – net 467,377 469,059 Goodwill 146,539 146,539 Other intangible assets – net 13,918 14,179 Other assets 1,037,508 938,077 Total assets $ 30,372,108 $ 31,701,061 LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Non-interest bearing $ 7,513,464 $ 7,975,935 Savings, interest checking and money market 14,463,211 14,512,273 Certificates of deposit of less than $100,000 997,979 930,432 Certificates of deposit of $100,000 and over 1,465,541 1,945,258 Total deposits 24,440,195 25,363,898 Federal funds purchased and securities sold under agreements to repurchase 2,505,576 2,908,815 Other borrowings 2,359 1,404 Other liabilities 460,089 462,714 Total liabilities 27,408,219 28,736,831 Commerce Bancshares, Inc. stockholders’ equity: Common stock, $ 5 par value Authorized 190,000,000 ; issued 131,064,418 shares at both March 31, 2024 and December 31, 2023 655,322 655,322 Capital surplus 3,148,649 3,162,622 Retained earnings 130,706 53,183 Treasury stock of 1,092,341 shares at March 31, 2024 and 611,546 shares at December 31, 2023, at cost ( 59,674 ) ( 35,599 ) Accumulated other comprehensive income (loss) ( 931,027 ) ( 891,412 ) Total Commerce Bancshares, Inc. stockholders' equity 2,943,976 2,944,116 Non-controlling interest 19,913 20,114 Total equity 2,963,889 2,964,230 Total liabilities and equity $ 30,372,108 $ 31,701,061 See accompanying notes to consolidated financial statements. 3 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME For the Three Months Ended March 31 (In thousands, except per share data) 2024 2023 (Unaudited) INTEREST INCOME Interest and fees on loans $ 264,677 $ 223,816 Interest and fees on loans held for sale 40 145 Interest on investment securities 65,928 71,119 Interest on federal funds sold 10 489 Interest on securities purchased under agreements to resell 1,634 3,952 Interest on deposits with banks 26,432 9,336 Total interest income 358,721 308,857 INTEREST EXPENSE Interest on deposits: Savings, interest checking and money market 55,580 20,151 Certificates of deposit of less than $100,000 10,191 1,425 Certificates of deposit of $100,000 and over 18,096 6,627 Interest on federal funds purchased 4,419 5,586 Interest on securities sold under agreements to repurchase 21,438 17,495 Interest on other borrowings ( 2 ) 5,950 Total interest expense 109,722 57,234 Net interest income 248,999 251,623 Provision for credit losses 4,787 11,456 Net interest income after credit losses 244,212 240,167 NON-INTEREST INCOME Trust fees 51,105 45,328 Bank card transaction fees 46,930 46,654 Deposit account charges and other fees 24,151 21,752 Consumer brokerage services 4,408 5,085 Capital market fees 3,892 3,362 Loan fees and sales 3,141 2,589 Other 15,221 12,842 Total non-interest income 148,848 137,612 INVESTMENT SECURITIES GAINS (LOSSES), NET ( 259 ) ( 306 ) NON-INTEREST EXPENSE Salaries and employee benefits 151,801 144,373 Data processing and software 31,153 28,154 Net occupancy 13,574 12,759 Deposit insurance 8,017 4,643 Equipment 5,010 4,850 Supplies and communication 4,744 4,590 Marketing 4,036 5,471 Other 27,362 19,267 Total non-interest expense 245,697 224,107 Income before income taxes 147,104 153,366 Less income taxes 31,652 32,813 Net income 115,452 120,553 Less non-controlling interest expense (income) 2,789 1,101 Net income attributable to Commerce Bancshares, Inc. $ 112,663 $ 119,452 Net income per common share — basic $ .87 $ .91 Net income per common share — diluted $ .86 $ .91 See accompanying notes to consolidated financial statements. 4 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the Three Months Ended March 31 (In thousands) 2024 2023 (Unaudited) Net income $ 115,452 $ 120,553 Other comprehensive income (loss): Net unrealized gains (losses) on available for sale debt securities ( 20,401 ) 142,466 Change in pension loss 176 270 Unrealized gains (losses) on cash flow hedge derivatives ( 19,390 ) 3,630 Other comprehensive income (loss) ( 39,615 ) 146,366 Comprehensive income (loss) 75,837 266,919 Less non-controlling interest (income) expense 2,789 1,101 Comprehensive income (loss) attributable to Commerce Bancshares, Inc. $ 73,048 $ 265,818 See accompanying notes to consolidated financial statements. 5 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Three Months Ended March 31, 2024 and 2023 Commerce Bancshares, Inc. Shareholders (In thousands, except per share data) Common Stock Capital Surplus Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Non-Controlling Interest Total (Unaudited) Balance December 31, 2023 $ 655,322 $ 3,162,622 $ 53,183 $ ( 35,599 ) $ ( 891,412 ) $ 20,114 $ 2,964,230 Net income 112,663 2,789 115,452 Other comprehensive income (loss) ( 39,615 ) ( 39,615 ) Distributions to non-controlling interest ( 2,990 ) ( 2,990 ) Purchases of treasury stock ( 42,314 ) ( 42,314 ) Issuance under stock purchase and equity compensation plans ( 18,239 ) 18,239 — Stock-based compensation 4,266 4,266 Cash dividends paid on common stock ($ 0.270 per share) ( 35,140 ) ( 35,140 ) Balance March 31, 2024 $ 655,322 $ 3,148,649 $ 130,706 $ ( 59,674 ) $ ( 931,027 ) $ 19,913 $ 2,963,889 Balance December 31, 2022 $ 629,319 $ 2,932,959 $ 31,620 $ ( 41,743 ) $ ( 1,086,864 ) $ 16,286 $ 2,481,577 Net Income 119,452 1,101 120,553 Other comprehensive income (loss) 146,366 146,366 Distributions to non-controlling interest ( 453 ) ( 453 ) Purchases of treasury stock ( 36,245 ) ( 36,245 ) Sale of non-controlling interest of subsidiary 46 ( 46 ) — Issuance under stock purchase and equity compensation plans ( 18,318 ) 18,318 — Stock-based compensation 4,373 4,373 Cash dividends paid on common stock ($ .257 per share) ( 33,759 ) ( 33,759 ) Balance March 31, 2023 $ 629,319 $ 2,919,060 $ 117,313 $ ( 59,670 ) $ ( 940,498 ) $ 16,888 $ 2,682,412 See accompanying notes to consolidated financial statements. 6 Table of Contents Commerce Bancshares, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS For the Three Months Ended March 31 (In thousands) 2024 2023 (Unaudited) OPERATING ACTIVITIES: Net income $ 115,452 $ 120,553 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 4,787 11,456 Provision for depreciation and amortization 13,269 11,565 Amortization of investment security premiums, net 3,905 7,654 Investment securities (gains) losses, net (A) 259 306 Net (gains) losses on sales of loans held for sale ( 328 ) ( 137 ) Originations of loans held for sale ( 15,914 ) ( 9,931 ) Proceeds from sales of loans held for sale 18,007 8,850 Net (increase) decrease in trading debt securities, excluding unsettled transactions ( 40,529 ) 11,548 Purchase of interest rate floor derivative contracts — ( 25,900 ) Stock-based compensation 4,266 4,373 (Increase) decrease in interest receivable 561 ( 1,005 ) Increase (decrease) in interest payable ( 286 ) 10,025 Increase (decrease) in income taxes payable 28,750 26,970 Other changes, net 3,277 ( 60,270 ) Net cash provided by (used in) operating activities 135,476 116,057 INVESTING ACTIVITIES: Distributions received from equity-method investment — 1,434 Proceeds from sales of investment securities (A) 10,250 840,435 Proceeds from maturities/pay downs of investment securities (A) 571,764 474,220 Purchases of investment securities (A) ( 155,475 ) ( 168,584 ) Net (increase) decrease in loans ( 102,295 ) ( 239,230 ) Securities purchased under agreements to resell ( 100,000 ) — Repayments of securities purchased under agreements to resell 325,000 — Purchases of premises and equipment ( 10,998 ) ( 20,044 ) Sales of premises and equipment 2,671 6 Net cash provided by (used in) investing activities 540,917 888,237 FINANCING ACTIVITIES: Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits ( 571,329 ) ( 2,137,278 ) Net increase (decrease) in certificates of deposit ( 412,170 ) 584,382 Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase ( 403,239 ) ( 57,175 ) Net increase (decrease) in other borrowings 955 1,498,104 Purchases of treasury stock ( 42,028 ) ( 36,245 ) Cash dividends paid on common stock ( 35,140 ) ( 33,759 ) Net cash provided by (used in) financing activities ( 1,462,951 ) ( 181,971 ) Increase (decrease) in cash, cash equivalents and restricted cash ( 786,558 ) 822,323 Cash, cash equivalents and restricted cash at beginning of year 2,687,283 897,801 Cash, cash equivalents and restricted cash at March 31 $ 1,900,725 $ 1,720,124 Income tax payments, net $ 1,029 $ 3,857 Interest paid on deposits and borrowings $ 110,008 $ 47,209 Loans transferred to foreclosed real estate $ 57 $ 72 (A) Available for sale debt securities, equity securities, and other securities. See accompanying notes to consolidated financial statements. Restricted cash is comprised of cash collateral posted by the Company to secure interest rate swap agreements. This balance is included in other assets in the consolidated balance sheets and totaled $ 71 thousand at March 31, 2024. The Company had no restricted cash at March 31, 2023. 7 Table of Contents Commerce Bancshares, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2024 (Unaudited) 1. Principles of Consolidation and Presentation The accompanying consolidated financial statements include the accounts of Commerce Bancshares, Inc. and all majority-owned subsidiaries (the Company). Most of the Company's operations are conducted by its subsidiary bank, Commerce Bank (the Bank). The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments necessary to present fairly the financial position and the results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to 2023 data to conform to current year presentation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets and revenues and expenses for the periods. Actual results could differ significantly from those estimates. Management has evaluated subsequent events for potential recognition or disclosure. The results of operations for the three month period ended March 31, 2024 are not necessarily indicative of results to be attained for the full year or any other interim period. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company's most recent Annual Report on Form 10-K, containing the latest audited consolidated financial statements and notes thereto. 2. Loans and Allowance for Credit Losses Major classifications within the Company’s held for investment loan portfolio at March 31, 2024 and December 31, 2023 are as follows: (In thousands) March 31, 2024 December 31, 2023 Commercial: Business $ 5,994,974 $ 6,019,036 Real estate – construction and land 1,497,647 1,446,764 Real estate – business 3,711,602 3,719,306 Personal Banking: Real estate – personal 3,039,885 3,026,041 Consumer 2,119,308 2,077,723 Revolving home equity 322,523 319,894 Consumer credit card 564,388 589,913 Overdrafts 48,513 6,802 Total loans $ 17,298,840 $ 17,205,479 Accrued interest receivable totaled $ 72.8 million and $ 71.9 million at March 31, 2024 and December 31, 2023, respectively, and was included within other assets on the consolidated balance sheets. For the three months ended March 31, 2024, the Company wrote-off accrued interest by reversing interest income of $ 94 thousand and $ 1.6 million in the Commercial and Personal Banking portfolios, respectively. Similarly, for the three months ended March 31, 2023, the Company reversed interest income of $ 34 thousand and $ 1.1 million in the Commercial and Personal Banking portfolios, respectively. At March 31, 2024, loans of $ 3.6 billion were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of $ 2.9 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings. 8 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, various interest rates, unemployment rate, consumer price index (CPI) inflation rate, housing price index (HPI), commercial real estate price index (CREPI) and market volatility. The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting back to historical averages using a straight-line method. The forecast-adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions (except for contractual extensions at the option of the customer), renewals and modifications. 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. 9 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 March 31, 2024 and December 31, 2023 are discussed below. Key Assumption March 31, 2024 December 31, 2023 Overall economic forecast • Economic strength is visible in the strong labor market • Fiscal policy is forecasted to be a modest drag on GDP • There are expectations that the Federal Reserve will start cutting rates in 2nd quarter 2024 • 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 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 a straight-line method Forecasted macro-economic variables • Unemployment rate ranges from 3.9% to 4.1% during the reasonable and supportable forecast period • Real GDP growth ranges from 1.5% to 3.0% • BBB corporate yield from 4.7% to 5.1% • Housing Price Index from 312.1 to 316.6 • 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 Prepayment assumptions Commercial loans • pools ranging from 0% to 5% Personal banking loans • Ranging from 6.2% to 21.6% for most loan pools • Consumer credit cards 66.6% 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% 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 • Certain portfolios where the model assumptions do not capture all identified loss risk 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 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 the estimate of expected credit losses. The current forecast projects low unemployment and positive GDP. It is expected the Federal Reserve will start cutting rates in the 2nd quarter of 2024. Updated information on inflation and labor market trends could impact the Federal Reserve's decision on the timing and degree of rate reductions. The market's response to these events along with other economic, political, and social developments regionally, nationally, and even globally could significantly modify economic projections used in the estimation of the allowance for credit losses. 10 Table of Contents Potential changes in any one economic variable may or may not affect the overall allowance because a variety of economic variables and inputs are considered in estimating the allowance, and changes in those variables and inputs may not occur at the same rate, may not be consistent across product types, and may have offsetting impacts to other changing variables and inputs. A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments for the three months ended March 31, 2024 and 2023, respectively, follows: For the Three Months Ended March 31, 2024 (In thousands) Commercial Personal Banking Total ALLOWANCE FOR CREDIT LOSSES ON LOANS Balance at beginning of period $ 108,201 $ 54,194 $ 162,395 Provision for credit losses on loans ( 2,855 ) 9,802 6,947 Deductions: Loans charged off 316 10,849 11,165 Less recoveries on loans 434 1,854 2,288 Net loan charge-offs (recoveries) ( 118 ) 8,995 8,877 Balance March 31, 2024 $ 105,464 $ 55,001 $ 160,465 LIABILITY FOR UNFUNDED LENDING COMMITMENTS Balance at beginning of period $ 23,909 $ 1,337 $ 25,246 Provision for credit losses on unfunded lending commitments ( 2,273 ) 113 ( 2,160 ) Balance March 31, 2024 $ 21,636 $ 1,450 $ 23,086 ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 127,100 $ 56,451 $ 183,551 For the Three Months Ended March 31, 2023 (In thousands) Commercial Personal Banking Total ALLOWANCE FOR CREDIT LOSSES ON LOANS Balance at beginning of period $ 103,293 $ 46,843 $ 150,136 Provision for credit losses on loans 5,548 10,400 15,948 Deductions: Loans charged off 292 8,756 9,048 Less recoveries on loans 66 2,215 2,281 Net loan charge-offs (recoveries) 226 6,541 6,767 Balance March 31, 2023 $ 108,615 $ 50,702 $ 159,317 LIABILITY FOR UNFUNDED LENDING COMMITMENTS Balance at beginning of period $ 31,743 $ 1,377 $ 33,120 Provision for credit losses on unfunded lending commitments ( 4,638 ) 146 ( 4,492 ) Balance March 31, 2023 $ 27,105 $ 1,523 $ 28,628 ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 135,720 $ 52,225 $ 187,945 11 Table of Contents Delinquent and non-accrual loans The Company considers loans past due on the day following the contractual repayment date, if the contractual repayment was not received by the Company as of the end of the business day. The following table provides aging information on the Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at March 31, 2024 and December 31, 2023. (In thousands) Current or Less Than 30 Days Past Due 30 – 89 Days Past Due 90 Days Past Due and Still Accruing Non-accrual Total March 31, 2024 Commercial: Business $ 5,991,756 $ 1,644 $ 536 $ 1,038 $ 5,994,974 Real estate – construction and land 1,497,325 322 — — 1,497,647 Real estate – business 3,710,321 35 — 1,246 3,711,602 Personal Banking: Real estate – personal 3,015,760 13,911 8,691 1,523 3,039,885 Consumer 2,094,997 21,409 2,902 — 2,119,308 Revolving home equity 318,682 1,432 432 1,977 322,523 Consumer credit card 549,407 7,261 7,720 — 564,388 Overdrafts 48,282 231 — — 48,513 Total $ 17,226,530 $ 46,245 $ 20,281 $ 5,784 $ 17,298,840 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 At March 31, 2024, the Company had $ 3.7 million in non-accrual loans that had no allowance for credit loss, compared to $ 4.3 million in non-accrual loans that had no allowance for credit loss at December 31, 2023. The Company did not record any interest income on non-accrual loans during the three months ended March 31, 2024 and 2023, respectively. Credit quality indicators The following table provides information about the credit quality of the Commercial loan portfolio. The Company utilizes an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the expectation of debt repayment based on borrower specific information including, but not limited to, current financial information, historical payment experience, industry information, collateral levels and collateral types. The “pass” category consists of a range of loan grades that reflect increasing, though still acceptable, risk. A loan is assigned the risk rating at origination and then monitored throughout the contractual term for possible risk rating changes. Movement of risk through the various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention” rating is applied to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. All loans are analyzed for risk rating updates annually. For larger loans, rating assessments may be more frequent if relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past 12 Table of Contents due related to credit issues. Loans rated Special Mention, Substandard or Non-accrual are subject to quarterly review and monitoring processes. In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by a credit review department which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan. The risk category of loans in the Commercial portfolio as of March 31, 2024 and December 31, 2023 are as follows: Term Loans Amortized Cost Basis by Origination Year (In thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total March 31, 2024 Business Risk Rating: Pass $ 344,128 $ 1,385,556 $ 790,788 $ 506,163 $ 219,920 $ 443,229 $ 2,088,966 $ 5,778,750 Special mention 4,215 8,618 3,448 33,270 531 2,494 34,499 87,075 Substandard 35 16,793 15,722 8,131 20,194 10,792 56,444 128,111 Non-accrual — 48 108 27 — 855 — 1,038 Total Business: $ 348,378 $ 1,411,015 $ 810,066 $ 547,591 $ 240,645 $ 457,370 $ 2,179,909 $ 5,994,974 Gross write-offs for the three months ended March 31, 2024 $ — $ — $ — $ — $ — $ — $ 316 $ 316 Real estate-construction Risk Rating: Pass $ 148,846 $ 421,041 $ 578,146 $ 248,045 $ 44,049 $ 3,224 $ 36,498 $ 1,479,849 Special mention 582 — — — — — — 582 Substandard — — 17,216 — — — — 17,216 Total Real estate-construction: $ 149,428 $ 421,041 $ 595,362 $ 248,045 $ 44,049 $ 3,224 $ 36,498 $ 1,497,647 Gross write-offs for the three months ended March 31, 2024 $ — $ — $ — $ — $ — $ — $ — $ — Real estate-business Risk Rating: Pass $ 125,646 $ 731,463 $ 1,007,351 $ 495,444 $ 436,286 $ 582,000 $ 120,880 $ 3,499,070 Special mention 1,000 35,879 27,599 14,696 1,094 10,356 — 90,624 Substandard — 4,744 15,342 15,088 16,161 69,327 — 120,662 Non-accrual — — 1,204 — — 42 — 1,246 Total Real estate-business: $ 126,646 $ 772,086 $ 1,051,496 $ 525,228 $ 453,541 $ 661,725 $ 120,880 $ 3,711,602 Gross write-offs for the three months ended March 31, 2024 $ — $ — $ — $ — $ — $ — $ — $ — Commercial loans Risk Rating: Pass $ 618,620 $ 2,538,060 $ 2,376,285 $ 1,249,652 $ 700,255 $ 1,028,453 $ 2,246,344 $ 10,757,669 Special mention 5,797 44,497 31,047 47,966 1,625 12,850 34,499 178,281 Substandard 35 21,537 48,280 23,219 36,355 80,119 56,444 265,989 Non-accrual — 48 1,312 27 — 897 — 2,284 Total Commercial loans: $ 624,452 $ 2,604,142 $ 2,456,924 $ 1,320,864 $ 738,235 $ 1,122,319 $ 2,337,287 $ 11,204,223 Gross write-offs for the three months ended March 31, 2024 $ — $ — $ — $ — $ — $ — $ 316 $ 316 13 Table of Contents 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 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 14 Table of Contents The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided as of March 31, 2024 and December 31, 2023 below. Term Loans Amortized Cost Basis by Origination Year (In thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Total March 31, 2024 Real estate-personal Current to 90 days past due $ 91,591 $ 438,966 $ 443,124 $ 526,377 $ 695,433 $ 825,842 $ 8,338 $ 3,029,671 Over 90 days past due 2,129 353 1,263 1,394 1,387 2,165 — 8,691 Non-accrual — — 227 167 — 1,129 — 1,523 Total Real estate-personal: $ 93,720 $ 439,319 $ 444,614 $ 527,938 $ 696,820 $ 829,136 $ 8,338 $ 3,039,885 Gross write-offs for the three months ended March 31, 2024 $ — $ — $ 33 $ — $ — $ 3 $ — $ 36 Consumer Current to 90 days past due $ 134,876 $ 478,401 $ 310,901 $ 231,786 $ 110,884 $ 91,872 $ 757,686 $ 2,116,406 Over 90 days past due — 255 410 196 79 647 1,315 2,902 Total Consumer: $ 134,876 $ 478,656 $ 311,311 $ 231,982 $ 110,963 $ 92,519 $ 759,001 $ 2,119,308 Gross write-offs for the three months ended March 31, 2024 $ — $ 563 $ 521 $ 438 $ 135 $ 126 $ 695 $ 2,478 Revolving home equity Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 320,114 $ 320,114 Over 90 days past due — — — — — — 432 432 Non-accrual — — — — — — 1,977 $ 1,977 Total Revolving home equity: $ — $ — $ — $ — $ — $ — $ 322,523 $ 322,523 Gross write-offs for the three months ended March 31, 2024 $ — $ — $ — $ — $ — $ — $ — $ — Consumer credit card Current to 90 days past due $ — $ — $ — $ — $ — $ — $ 556,668 $ 556,668 Over 90 days past due — — — — — — 7,720 7,720 Total Consumer credit card: $ — $ — $ — $ — $ — $ — $ 564,388 $ 564,388 Gross write-offs for the three months ended March 31, 2024 $ — $ — $ — $ — $ — $ — $ 7,596 $ 7,596 Overdrafts Current to 90 days past due $ 48,513 $ — $ — $ — $ — $ — $ — $ 48,513 Total Overdrafts: $ 48,513 $ — $ — $ — $ — $ — $ — $ 48,513 Gross write-offs for the three months ended March 31, 2024 $ 739 $ — $ — $ — $ — $ — $ — $ 739 Personal banking loans Current to 90 days past due $ 274,980 $ 917,367 $ 754,025 $ 758,163 $ 806,317 $ 917,714 $ 1,642,806 $ 6,071,372 Over 90 days past due 2,129 608 1,673 1,590 1,466 2,812 9,467 19,745 Non-accrual — — 227 167 — 1,129 1,977 3,500 Total Personal banking loans: $ 277,109 $ 917,975 $ 755,925 $ 759,920 $ 807,783 $ 921,655 $ 1,654,250 $ 6,094,617 Gross write-offs for the three months ended March 31, 2024 $ 739 $ 563 $ 554 $ 438 $ 135 $ 129 $ 8,291 $ 10,849 15 Table of Contents 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 Collateral-dependent loans The Company's collateral-dependent loans are comprised of large loans on non-accrual status. The Company requires that collateral-dependent loans are either over-collateralized or carry collateral equal to the amortized cost of the loan. The following table presents the amortized cost basis of collateral-dependent loans as of March 31, 2024 and December 31, 2023. 16 Table of Contents (In thousands) Business Assets Real Estate Oil & Gas Assets Total March 31, 2024 Commercial: Real estate - business $ — $ 1,203 $ — $ 1,203 Personal Banking: Revolving home equity — 1,977 — 1,977 Total $ — $ 3,180 $ — $ 3,180 December 31, 2023 Commercial: Business $ 1,183 $ — $ 1,238 $ 2,421 Personal Banking: Revolving home equity — 1,977 — 1,977 Total $ 1,183 $ 1,977 $ 1,238 $ 4,398 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 $ 168.8 million at March 31, 2024 and $ 168.9 million at December 31, 2023. The table also excludes consumer loans related to the Company's patient healthcare loan program, which totaled $ 210.4 million at March 31, 2024 and $ 211.3 million at December 31, 2023. As the healthcare loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and consumer loans excluded below totaled less than 7 % of the Personal Banking portfolio. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at March 31, 2024 and December 31, 2023 by FICO score. Personal Banking Loans % of Loan Category Real Estate - Personal Consumer Revolving Home Equity Consumer Credit Card March 31, 2024 FICO score: Under 600 2.0 % 2.8 % 2.0 % 5.0 % 600 - 659 2.5 4.1 3.3 12.2 660 - 719 8.5 13.0 11.7 30.4 720 - 779 21.6 24.2 22.2 27.0 780 and over 65.4 55.9 60.8 25.4 Total 100.0 % 100.0 % 100.0 % 100.0 % 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 % 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. 17 Table of Contents The Company's modifications of loans to borrowers experiencing financial difficulty are generally in the form of term extensions, repayment plans, payment deferrals, forbearance agreements, interest rate reductions, forgiveness of interest and/or fees, or any combination thereof. Commercial loans modified to borrowers experiencing financial difficulty are primarily loans that are substandard or non-accrual, where the maturity date was extended. Modifications on personal real estate loans are primarily those placed on forbearance plans, repayment plans, or deferral plans where monthly payments are suspended for a period of time or past due amounts are paid off over a certain period of time in the future or set up as a balloon payment at maturity. Modifications to certain credit card and other small consumer loans are often modified under debt counseling programs that can reduce the contractual rate or, in certain instances, forgive certain fees and interest charges. Other consumer loans modified to borrowers experiencing financial difficulty consist of various other workout arrangements with consumer customers. The following tables present the amortized cost at March 31, 2024 of loans that were modified during the three months ended March 31, 2024 and the amortized cost of at March 31, 2023 of loans that were modified during the three months ended March 31, 2023. For the Three Months Ended March 31, 2024 (Dollars in thousands) Term Extension Payment Delay Interest Rate Reduction Interest/Fees Forgiven Other Total % of Total Loan Category March 31, 2024 Commercial: Business $ 11,648 $ — $ — $ — $ — $ 11,648 0.2 % Real estate – business 17,004 — — — — 17,004 0.5 Personal Banking: Real estate – personal 526 2,706 — — — 3,232 0.1 Consumer — — 31 — — 31 — Consumer credit card — — 945 — — 945 0.2 Total $ 29,178 $ 2,706 $ 976 $ — $ — $ 32,860 0.2 % For the Three Months Ended March 31, 2023 (Dollars in thousands) Term Extension Payment Delay Interest Rate Reduction Interest/Fees Forgiven Other Total % of Total Loan Category March 31, 2023 Commercial: Business $ 3,104 $ — $ — $ — $ — $ 3,104 0.1 % Real estate – business 23,039 — — — — 23,039 0.7 Personal Banking: Real estate – personal — 1,666 — — — 1,666 0.1 Consumer — 58 16 — 55 129 — Consumer credit card — — 618 275 — 893 0.2 Total $ 26,143 $ 1,724 $ 634 $ 275 $ 55 $ 28,831 0.2 % The estimate of lifetime expected losses utilized in the allowance for credit losses model is developed using average historical experience on loans with similar risk characteristics, which includes losses from modifications of loans to borrowers experiencing financial difficulty. As a result, a change to the allowance for credit losses is generally not recorded upon modification. For modifications to loans made to borrowers experiencing financial difficulty that are placed on non-accrual status, the Company determines the allowance for credit losses on an individual evaluation, using the same process that it utilizes for other loans on non-accrual status. Modifications made to commercial loans which are not on non-accrual status for borrowers experiencing financial difficulty are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience, and current economic factors. Modifications made to borrowers experiencing financial difficulty for personal banking loans which are not on non-accrual status are collectively evaluated based on loan type, delinquency, historical experience, and current economic factors. If a loan to a borrower experiencing financial difficulty is modified and subsequently deemed uncollectible, the allowance for credit losses continues to be based on individual evaluation, if that loan is already on non-accrual status. For those loans, the allowance for credit losses is estimated using discounted expected cash flows or the fair value of collateral. If an accruing 18 Table of Contents 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 three months ended March 31, 2024 and March 31, 2023. Term Extension Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Commercial: Business Extended maturity by a weighted average of 6 months. Extended maturity by a weighted average of 12 months. Real estate – business Extended maturity by a weighted average of 8 months. Extended maturity by a weighted average of 17 months. Personal Banking: Real estate – personal Extended maturity by a weighted average of 6 months. Payment Delay Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Personal Banking: Real estate – personal Deferred certain payments by a weighted average of 8 years . Deferred past due monthly payments to maturity as a balloon payment. Deferral delayed payments a weighted average of 27 years . Consumer Deferred past due monthly payments to maturity as a balloon payment. Deferral delayed payments a weighted average of 11 years Interest Rate Reduction Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Personal Banking: Consumer Reduced weighted-average contractual interest rate from average 23% to 6%. Reduced weighted-average contractual interest rate from 20% to 6%. Consumer credit card Reduced weighted-average contractual interest rate from average 23% to 6%. Reduced weighted-average contractual interest rate from 20% to 6%. Forgiveness of Interest/Fees Three Months Ended March 31, 2024 Three Months Ended March 31, 2023 Personal Banking: Consumer credit card Approximately $14 thousand of interest and fees forgiven. The Company had commitments of $ 2.4 million and $ 28.4 million at March 31, 2024 and December 31, 2023, respectively, to lend additional funds to borrowers experiencing financial difficulty and for whom the Company has modified the terms of loans in the form of an interest rate reduction; an other-than-insignificant payment delay; forgiveness of principal, interest, or fees; or a term extension during the current reporting period. The following tables provide the amortized cost basis at March 31, 2024 of loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2024 and were modified within the 12 months preceding the payment default, as well as the amortized cost basis at March 31, 2023 of loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2023 and had been modified on or after January 1, 2023 (the date we adopted ASU 2022-02). For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal. 19 Table of Contents For the Three Months Ended March 31, 2024 (Dollars in thousands) Payment Delay Interest Rate Reduction Interest/Fees Forgiven Total March 31, 2024 Personal Banking: Real estate – personal $ 1,138 $ — $ — $ 1,138 Consumer — 14 — 14 Consumer credit card — 260 61 321 Total $ 1,138 $ 274 $ 61 $ 1,473 For the Three Months Ended March 31, 2023 (Dollars in thousands) Payment Delay Interest Rate Reduction Interest/Fees Forgiven Total March 31, 2023 Personal Banking: Consumer $ — $ 8 $ — $ 8 Consumer credit card — 63 12 75 Total $ — $ 71 $ 12 $ 83 The following tables present the amortized cost basis at March 31, 2024 of loans to borrowers experiencing financial difficulty that had been modified within the previous 12 months as well as the amortized cost basis at March 31, 2023 of loans to borrowers experiencing financial difficulty that had been modified on or after January 1, 2023 (the date we adopted ASU 2022-02) through March 31, 2023. (In thousands) Current 30-89 Days Past Due 90 Days Past Due Total March 31, 2024 Commercial: Business $ 25,544 $ — $ — $ 25,544 Real estate – business 93,924 — — 93,924 Personal Banking: Real estate – personal 3,556 1,136 1,761 6,453 Consumer 150 17 14 181 Consumer credit card 2,107 513 296 2,916 Total $ 125,281 $ 1,666 $ 2,071 $ 129,018 (In thousands) Current 30-89 Days Past Due 90 Days Past Due Total March 31, 2023 Commercial: Business $ 3,104 $ — $ — $ 3,104 Real estate – business 23,039 — — 23,039 Personal Banking: Real estate – personal 1,061 605 — 1,666 Consumer 75 46 8 129 Consumer credit card 645 173 75 893 Total $ 27,924 $ 824 $ 83 $ 28,831 20 Table of Contents Loans held for sale The Company designates certain long-term fixed rate personal real estate loans as held for sale, and the Company has elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the related economic hedges discussed in Note 11. The loans are primarily sold to Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA). At March 31, 2024, the fair value of these loans was $ 1.2 million, and the unpaid principal balance was $ 1.1 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 March 31, 2024 totaled $ 763 thousand. At March 31, 2024, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing interest. Foreclosed real estate/repossessed assets The Company’s holdings of foreclosed real estate totaled $ 206 thousand and $ 270 thousand at March 31, 2024 and December 31, 2023, respectively, and included in those amounts were $ 206 thousand and $ 270 thousand at March 31, 2024 and December 31, 2023, respectively, of foreclosed residential real estate properties held as a result of obtaining physical possession. Personal property acquired in repossession, generally autos, totaled $ 2.0 million and $ 1.8 million at March 31, 2024 and December 31, 2023. 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 March 31, 2024 and December 31, 2023. (In thousands) March 31, 2024 December 31, 2023 Available for sale debt securities $ 9,141,695 $ 9,684,760 Trading debt securities 56,716 28,830 Equity securities: Readily determinable fair value 5,864 5,723 No readily determinable fair value 6,988 6,978 Other: Federal Reserve Bank stock 35,267 35,166 Federal Home Loan Bank stock 10,173 10,640 Private equity investments 183,706 176,667 Total investment securities (1) $ 9,440,409 $ 9,948,764 (1) Accrued interest receivable totaled $ 28.2 million and $ 28.9 million at March 31, 2024 and December 31, 2023, respectively, and was included within other assets on the consolidated balance sheets. The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer. At March 31, 2024, this portfolio included the Company's 823,447 shares of Visa Inc. ("Visa") Class B-1 common stock (formerly Class B common stock), which were held by Commerce Bancshares, Inc. (the Company's parent company). The Company's Visa Class B shares had a carrying value of zero at March 31, 2024, as there had not been observable price changes in orderly transactions for identical or similar investments of the same issuer. During the three months ended March 31, 2024, the Company did not record any impairment or other adjustments to the carrying amount of its portfolio of equity securities with no readily determinable fair value. On April 8, 2024, Visa announced the commencement of a public offering to permit the exchange of its Class B-1 common stock for a combination of shares of its Class B-2 common stock and its Class C common stock (“Exchange Offer”). The Company tendered all of its Visa Class B-1 shares pursuant to the Exchange Offer. On May 3, 2024, the Exchange Offer closed and the Company received notification of Visa’s acceptance of that tender. In exchange for its 823,447 shares of Visa Class B-1 common stock, the Company received 411,723 shares of Visa Class B-2 common stock (which will be convertible under certain circumstances, as further described below, into Visa’s publicly traded Class A common stock at an initial rate of 1.5875 shares of Class A common for each share of Class B-2 common stock, subject to adjustment) and 163,404 shares of Visa Class C common stock which will automatically convert into four shares of Visa's Class A common stock (subject to 21 Table of Contents future adjustments for any stock splits, recapitalizations or similar transactions) upon any transfer to a person other than a Visa member or an affiliate of a Visa member. As a condition of participating in the exchange, the Company entered into a Makewhole Agreement with Visa that provides for cash payments to Visa to the extent (if any) that future adjustments to the conversion ratio for the Visa Class B-2 common stock to Class A common stock cause such ratio to fall below zero. Changes to the conversion ratio occur when Visa deposits funds to a litigation escrow established by Visa to pay settlements for certain covered litigation that pre-dated Visa’s initial public offering, for which Visa has been effectively indemnified by Visa USA members through reductions to the conversion ratio for its Class B-1 common stock. The purpose of the Makewhole Agreement is to preserve the economic benefit of these adjustments to the Class B-1 conversion ratio for the benefit of Visa’s Class A and Class C common stockholders following the exchange. As further described in Visa’s related Issuer Tender Offer Statement on Schedule TO and Prospectus, each dated April 8, 2024, publicly filed with the U. S. Securities and Exchange Commission, both the Makewhole Agreement and the related escrow fund and transfer restrictions on Visa’s Class B-1 common stock and the new Class B-2 common stock will terminate whenever the covered litigation is ultimately resolved, at which future date outstanding shares of Visa Class B-2 common stock will be convertible into shares of its Class A common stock at the then-applicable conversion ratio. The Makewhole Agreement also includes limited transfer restrictions, such that the Company may only transfer up to one-third of the shares of Visa Class C common stock received in the exchange within the first 45 days following May 3, 2024, and may only transfer up to two-thirds of the Class C common stock received within the first 90 days following May 3, 2024. As a result of the exchange, the Company marked its Visa Class C common stock to fair value and recorded a gain of $ 175.5 million based on the conversion privilege of the Visa Class C common stock and the closing price of Visa Class A common stock on May 3, 2024 of $ 268.49 per share. The Company’s Visa Class C shares are expected to continue to be marked to fair value on a recurring basis using the Visa Class A shares as evidence of orderly transactions between market participants for similar securities issued by Visa. The Company’s Visa Class B-2 common stock will continue to be carried at cost of $ 0 as there are not observable price changes in orderly transactions for identical or similar investments of the same issuer. Subsequent to the successful close of the Exchange Offer, the Company approved a plan to reposition a portion of its available for sale debt securities portfolio through the sale of securities with an amortized cost of approximately $ 1.0 billion. The securities that the Company plans to sell have a yield of approximately 2.0 %, which is expected to result in a loss of approximately $ 165 million, and the Company expects to reinvest the proceeds mostly into investment securities yielding approximately 4.6 %. The Company expects the repositioning to increase net interest income, reduce interest rate risk to lower rates, and improve the quality of the Company's pledgeable investment securities. The timing and amount of the loss ultimately realized on the available for sale debt securities and the reinvestment assumptions may depend on many considerations, including market conditions, the future price of Visa Class A common stock, and other factors. Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, equity method investments, and investments in portfolio concerns held by the Company's private equity subsidiary. FRB stock and FHLB stock are held for debt and regulatory purposes. Investment in FRB stock is based on the capital structure of the investing bank, and investment in FHLB stock is tied to the asset size of the borrowing bank and the level of borrowings from the FHLB. These holdings are carried at cost. The Company's private equity investments are carried at estimated fair value. The majority of the Company’s investment portfolio is comprised of available for sale debt securities, which are carried at fair value with changes in fair value reported in accumulated other comprehensive income (AOCI). A summary of the available for sale debt securities by maturity groupings as of March 31, 2024 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and Government National Mortgage Association (GNMA), in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral. 22 Table of Contents (In thousands) Amortized Cost Fair Value U.S. government and federal agency obligations: Within 1 year $ 266,255 $ 262,767 After 1 but within 5 years 380,713 370,689 After 5 but within 10 years 126,085 116,577 Total U.S. government and federal agency obligations 773,053 750,033 Government-sponsored enterprise obligations: After 5 but within 10 years 4,935 4,454 After 10 years 50,702 39,391 Total government-sponsored enterprise obligations 55,637 43,845 State and municipal obligations: Within 1 year 81,511 80,031 After 1 but within 5 years 431,208 397,795 After 5 but within 10 years 639,802 550,622 After 10 years 126,706 103,247 Total state and municipal obligations 1,279,227 1,131,695 Mortgage and asset-backed securities: Agency mortgage-backed securities 4,524,253 3,754,837 Non-agency mortgage-backed securities 1,309,628 1,139,113 Asset-backed securities 1,954,148 1,877,805 Total mortgage and asset-backed securities 7,788,029 6,771,755 Other debt securities: Within 1 year 60,606 59,575 After 1 but within 5 years 193,035 181,078 After 5 but within 10 years 226,055 192,193 After 10 years 13,260 11,521 Total other debt securities 492,956 444,367 Total available for sale debt securities $ 10,388,902 $ 9,141,695 Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $ 396.2 million, at fair value, at March 31, 2024. Interest earned on these securities increases with inflation and decreases with deflation, as measured by the non-seasonally adjusted Consumer Price Index (CPI-U). At maturity, the principal paid is the greater of an inflation-adjusted principal or the original principal. Allowance for credit losses on available for sale debt securities Securities for which fair value is less than amortized cost are reviewed for impairment. Special emphasis is placed on securities whose credit rating has fallen below Baa3 (Moody's) or BBB- (Standard & Poor's), whose fair values have fallen more than 20 % below purchase price, or 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 March 31, 2024, the fair value of securities on this watch list was $ 1.7 billion compared to $ 1.2 billion at December 31, 2023. Almost all of the securities included on the Company's watch list in the current quarter were experiencing unrealized loss positions due to the significant increase in interest rates and were analyzed outside of the cash flow model. At March 31, 2024, the securities on the Company's watch list that were not deemed to be solely related to increasing interest rates were securities backed by government-guaranteed student loans and are expected to perform as contractually required. As of March 31, 2024, the Company did not identify any securities for which a credit loss exists, and for the three months ended March 31, 2024 and 2023, the Company did not recognize a credit loss expense on any available for sale debt securities. 23 Table of Contents The table below summarizes debt securities available for sale in an unrealized loss position, aggregated by length of loss period, for which an allowance for credit losses has not been recorded at March 31, 2024 and December 31, 2023. Unrealized losses on these available for sale securities have not been recognized into income because after review, the securities were deemed not to be impaired. The unrealized losses on these securities are primarily attributable to changes in interest rates and current market conditions. At March 31, 2024, the Company does not intend to sell the securities, nor is it anticipated that it would be required to sell any of these securities at a loss. Less than 12 months 12 months or longer Total (In thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses March 31, 2024 U.S. government and federal agency obligations $ 223,026 $ 1,971 $ 502,312 $ 21,049 $ 725,338 $ 23,020 Government-sponsored enterprise obligations — — 43,845 11,792 43,845 11,792 State and municipal obligations 9,675 703 1,113,829 146,839 1,123,504 147,542 Mortgage and asset-backed securities: Agency mortgage-backed securities 2,907 35 3,732,370 769,632 3,735,277 769,667 Non-agency mortgage-backed securities — — 1,133,805 170,644 1,133,805 170,644 Asset-backed securities 3,707 8 1,853,484 76,356 1,857,191 76,364 Total mortgage and asset-backed securities 6,614 43 6,719,659 1,016,632 6,726,273 1,016,675 Other debt securities — — 444,367 48,589 444,367 48,589 Total $ 239,315 $ 2,717 $ 8,824,012 $ 1,244,901 $ 9,063,327 $ 1,247,618 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 The entire available for sale debt portfolio included $ 9.1 billion of securities that were in a loss position at March 31, 2024, compared to $ 9.6 billion at December 31, 2023. The total amount of unrealized loss on these securities was $ 1.2 billion at March 31, 2024, an increase of $ 27.1 million compared to the unrealized loss at December 31, 2023. Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt securities" section above. 24 Table of Contents For debt securities classified as available for sale, the following table shows the amortized cost, fair value, and allowance for credit losses of securities available for sale at March 31, 2024 and December 31, 2023, and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI, by security type. (In thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value March 31, 2024 U.S. government and federal agency obligations $ 773,053 $ — $ ( 23,020 ) $ — $ 750,033 Government-sponsored enterprise obligations 55,637 — ( 11,792 ) — 43,845 State and municipal obligations 1,279,227 10 ( 147,542 ) — 1,131,695 Mortgage and asset-backed securities: Agency mortgage-backed securities 4,524,253 251 ( 769,667 ) — 3,754,837 Non-agency mortgage-backed securities 1,309,628 129 ( 170,644 ) — 1,139,113 Asset-backed securities 1,954,148 21 ( 76,364 ) — 1,877,805 Total mortgage and asset-backed securities 7,788,029 401 ( 1,016,675 ) — 6,771,755 Other debt securities 492,956 — ( 48,589 ) — 444,367 Total $ 10,388,902 $ 411 $ ( 1,247,618 ) $ — $ 9,141,695 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 The following table presents proceeds from sales of securities and the components of investment securities gains and losses which have been recognized in earnings. For the Three Months Ended March 31 (In thousands) 2024 2023 Proceeds from sales of securities: Available for sale debt securities $ 25,494 $ 812,176 Other investments 10,250 28,259 Total proceeds $ 35,744 $ 840,435 Investment securities gains (losses), net: Available for sale debt securities: Losses realized on sales $ ( 8,470 ) $ ( 3,088 ) Equity securities: Fair value adjustments, net 142 ( 127 ) Other: Gains realized on sales 969 658 Fair value adjustments, net 7,100 2,251 Total investment securities gains (losses), net $ ( 259 ) $ ( 306 ) Net losses on investment securities for the three months ended March 31, 2024 were mainly comprised of net losses of $ 8.5 million on sales of available for sale securities, partially offset by net gains in fair value of $ 142 thousand on equity investments, net gains of $ 969 thousand on sales of private equity securities, and net gains in private equity securities due to fair value adjustments of $ 7.1 million. 25 Table of Contents At March 31, 2024, securities totaling $ 6.6 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 $ 7.5 billion at December 31, 2023. Except for obligations of various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeded 10 % of stockholders’ equity. 4. Goodwill and Other Intangible Assets The following table presents information about the Company's intangible assets which have estimable useful lives. March 31, 2024 December 31, 2023 (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 $ ( 5,145 ) $ — $ 405 $ 5,550 $ ( 5,092 ) $ — $ 458 Mortgage servicing rights 13,651 ( 3,738 ) — 9,913 13,723 ( 3,602 ) — 10,121 Total $ 19,201 $ ( 8,883 ) $ — $ 10,318 $ 19,273 $ ( 8,694 ) $ — $ 10,579 Aggregate amortization expense on intangible assets was $ 331 thousand and $ 356 thousand for the three month periods ended March 31, 2024 and 2023, respectively. The following table shows the estimated annual amortization expense for the next five fiscal years. This expense is based on existing asset balances and the interest rate environment as of March 31, 2024. 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 $ 1,277 2025 1,140 2026 997 2027 861 2028 748 Changes in the carrying amount of goodwill and other intangible assets for the three month period ended March 31, 2024 are as follows: (In thousands) Goodwill Easement Core Deposit Premium Mortgage Servicing Rights Balance January 1, 2024 $ 146,539 $ 3,600 $ 458 $ 10,121 Originations, net of disposals — — — 70 Amortization — — ( 53 ) ( 278 ) Balance March 31, 2024 $ 146,539 $ 3,600 $ 405 $ 9,913 Goodwill allocated to the Company’s operating segments at March 31, 2024 and December 31, 2023 is shown below. (In thousands) March 31, 2024 December 31, 2023 Consumer segment $ 70,721 $ 70,721 Commercial segment 75,072 75,072 Wealth segment 746 746 Total goodwill $ 146,539 $ 146,539 26 Table of Contents 5. Guarantees The Company, as a provider of financial services, routinely issues financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to guarantee the payment or performance obligation of a customer to a third party. While these represent a potential outlay by the Company, a significant amount of the commitments may expire without being drawn upon. The Company has recourse against the customer for any amount it is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by the Company. Most of the standby letters of credit are secured, and in the event of nonperformance by customers, the Company has rights to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities. Upon issuance of standby letters of credit, the Company recognizes a liability for the fair value of the obligation undertaken, which is estimated to be equivalent to the amount of fees received from the customer over the life of the agreement. At March 31, 2024, that net liability was $ 3.9 million, which will be accreted into income over the remaining life of the respective commitments. The contractual amount of these letters of credit, which represents the maximum potential future payments guaranteed by the Company, was $ 634.5 million at March 31, 2024. The Company periodically enters into credit risk participation agreements (RPAs) as a guarantor to other financial institutions, in order to mitigate those institutions’ credit risk associated with interest rate swaps with third parties. The RPA stipulates that, in the event of default by the third party on the interest rate swap, the Company will reimburse a portion of the loss borne by the financial institution. These interest rate swaps are normally collateralized (generally with real property, inventories and equipment) by the third party, which limits the credit risk associated with the Company’s RPAs. The third parties usually have other borrowing relationships with the Company. The Company monitors overall borrower collateral and at March 31, 2024, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair value throughout their term with all changes in fair value, including those due to a change in the third party’s creditworthiness, recorded in current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 2 years to 15 years. At March 31, 2024, the fair value of the Company's guarantee liabilities for RPAs was $ 106 thousand, and the notional amount of the underlying swaps was $ 464.9 million. The maximum potential future payment guaranteed by the Company cannot be readily estimated but is dependent upon the fair value of the interest rate swaps at the time of default. 27 Table of Contents 6. Leases The Company has net investments in direct financing and sales-type leases to commercial, industrial, and tax-exempt entities. These leases are included within business loans on the Company's consolidated balance sheets. The Company primarily leases various types of equipment, trucks and trailers, and office furniture and fixtures. Lease agreements may include options for the lessee to renew or purchase the leased equipment at the end of the lease term. The Company has elected to adopt the lease component expedient in which the lease and nonlease components are combined into the total lease receivable. The Company also leases office space to third parties, and these leases are classified as operating leases. The leases may include options to renew or expand the leased space, and currently the leases have remaining terms of 3 months to 15 years. The following table provides the components of lease income. For the Three Months Ended March 31 (in thousands) 2024 2023 Direct financing and sales-type leases $ 9,012 $ 6,755 Operating leases (a) 4,132 2,334 Total lease income $ 13,144 $ 9,089 (a) Includes rent from Tower Properties Company, a related party, of $ 19 thousand for both of the three month periods ended March 31, 2024 and 2023. 7. Pension The amount of net pension cost is shown in the table below: For the Three Months Ended March 31 (In thousands) 2024 2023 Service cost $ 97 $ 116 Interest cost on projected benefit obligation 1,112 1,158 Expected return on plan assets ( 1,019 ) ( 1,001 ) Amortization of prior service cost ( 45 ) ( 67 ) Amortization of unrecognized net loss 280 427 Net periodic pension cost $ 425 $ 633 All benefits accrued under the Company’s defined benefit pension plan have been frozen since January 1, 2011. During the first three months of 2024, the Company made no funding contributions to its defined benefit pension plan and made minimal funding contributions to a supplemental executive retirement plan (the CERP), which carries no segregated assets. 28 Table of Contents 8. Common Stock * Presented below is a summary of the components used to calculate basic and diluted income per share. The Company applies the two-class method of computing income per share, as nonvested share-based awards that pay nonforfeitable common stock dividends are considered securities which participate in undistributed earnings with common stock. The two-class method requires the calculation of separate income per share amounts for the nonvested share-based awards and for common stock. Income per share attributable to common stock is shown in the table below. Nonvested share-based awards are further discussed in Note 13. For the Three Months Ended March 31 (In thousands, except per share data) 2024 2023 Basic income per common share: Net income attributable to Commerce Bancshares, Inc. $ 112,663 $ 119,452 Less income allocated to nonvested restricted stock 1,044 1,056 Net income allocated to common stock $ 111,619 $ 118,396 Weighted average common shares outstanding 129,042 130,204 Basic income per common share $ .87 $ .91 Diluted income per common share: Net income attributable to Commerce Bancshares, Inc. $ 112,663 $ 119,452 Less income allocated to nonvested restricted stock 1,043 1,054 Net income allocated to common stock $ 111,620 $ 118,398 Weighted average common shares outstanding 129,042 130,204 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 144 268 Weighted average diluted common shares outstanding 129,186 130,472 Diluted income per common share $ .86 $ .91 Unexercised stock appreciation rights of 353 thousand and 226 thousand for the three month periods ended March 31, 2024 and 2023, respectively, were excluded from the computation of diluted income per common share because their inclusion would have been anti-dilutive. In the Annual Meeting of the Shareholders, held on April 19, 2023, a proposal to increase the shares of the Company's common stock authorized for issuance under its articles of incorporation was approved. This approval increased the authorized shares from 140,000,000 to 190,000,000 . * All prior year share and per share amounts in this note have been restated for the 5% common stock dividend distributed in December 2023. 29 Table of Contents 9. Accumulated Other Comprehensive Income The table below shows the activity and accumulated balances for components of other comprehensive income. Information about unrealized gains and losses on securities can be found in Note 3, and information about unrealized gains and losses on cash flow hedge derivatives is located in Note 11. Unrealized Gains (Losses) on Securities (1) Pension Loss Unrealized Gains (Losses) on Cash Flow Hedge Derivatives (2) Total Accumulated Other Comprehensive Income (Loss) (In thousands) Balance January 1, 2024 $ ( 915,001 ) $ ( 13,596 ) $ 37,185 $ ( 891,412 ) Other comprehensive income (loss) before reclassifications to current earnings ( 35,671 ) — ( 22,865 ) ( 58,536 ) Amounts reclassified to current earnings from accumulated other comprehensive income 8,469 235 ( 2,989 ) 5,715 Current period other comprehensive income (loss), before tax ( 27,202 ) 235 ( 25,854 ) ( 52,821 ) Income tax (expense) benefit 6,801 ( 59 ) 6,464 13,206 Current period other comprehensive income (loss), net of tax ( 20,401 ) 176 ( 19,390 ) ( 39,615 ) Balance March 31, 2024 $ ( 935,402 ) $ ( 13,420 ) $ 17,795 $ ( 931,027 ) Balance January 1, 2023 $ ( 1,124,915 ) $ ( 17,186 ) $ 55,237 $ ( 1,086,864 ) Other comprehensive income (loss) before reclassifications to current earnings 186,868 — 9,225 196,093 Amounts reclassified to current earnings from accumulated other comprehensive income 3,088 360 ( 4,385 ) ( 937 ) Current period other comprehensive income (loss), before tax 189,956 360 4,840 195,156 Income tax (expense) benefit ( 47,490 ) ( 90 ) ( 1,210 ) ( 48,790 ) Current period other comprehensive income (loss), net of tax 142,466 270 3,630 146,366 Balance March 31, 2023 $ ( 982,449 ) $ ( 16,916 ) $ 58,867 $ ( 940,498 ) (1) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "investment securities gains (losses), net" in the consolidated statements of income. (2) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "interest and fees on loans" in the consolidated statements of income. 10. Segments The Company segregates financial information for use in assessing its performance and allocating resources among three operating segments: Consumer, Commercial and Wealth. The Consumer segment consists of various consumer loan and deposit products offered through its retail branch network of approximately 140 locations. This segment also includes indirect and other consumer loan financing businesses, along with debit and credit card loan and fee businesses. The Commercial segment provides corporate lending (including the Small Business Banking product line within the branch network), leasing, and international services, along with business and governmental deposit products and commercial cash management services. This segment also includes both merchant and commercial bank card products as well as the Capital Markets Group, which sells fixed income securities and provides securities safekeeping and accounting services to its business and correspondent bank customers. The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management, and brokerage services. This segment also provides various loan and deposit related services to its private banking customers. 30 Table of Contents The following table presents selected financial information by segment and reconciliations of combined segment totals to consolidated totals. There were no material intersegment revenues between the three segments. Management periodically makes changes to methods of assigning costs and income to its business segments to better reflect operating results. If appropriate, these changes are reflected in prior year information presented below. Net interest income allocated among the segments prior to 2024 has been restated to reflect a funds transfer pricing methodology change implemented on January 1, 2024 for all deposit types, except certificates of deposit. The new methodology moves from a rolling pool to a profitability range methodology. The new methodology more accurately reflects the profitability of affected deposits relative to current rates and removes most interest rate risk from business segments. (In thousands) Consumer Commercial Wealth Other/Elimination Consolidated Totals Three Months Ended March 31, 2024 Net interest income $ 129,676 $ 126,687 $ 24,155 $ ( 31,519 ) $ 248,999 Provision for credit losses ( 8,888 ) ( 41 ) 1 4,141 ( 4,787 ) Non-interest income 24,335 63,802 58,399 2,312 148,848 Investment securities gains (losses), net — — — ( 259 ) ( 259 ) Non-interest expense ( 80,644 ) ( 100,356 ) ( 39,551 ) ( 25,146 ) ( 245,697 ) Income before income taxes $ 64,479 $ 90,092 $ 43,004 $ ( 50,471 ) $ 147,104 Three Months Ended March 31, 2023 Net interest income $ 144,460 $ 137,127 $ 28,025 $ ( 57,989 ) $ 251,623 Provision for loan losses ( 6,306 ) ( 393 ) ( 13 ) ( 4,744 ) ( 11,456 ) Non-interest income 24,303 58,324 52,944 2,041 137,612 Investment securities gains (losses), net — — — ( 306 ) ( 306 ) Non-interest expense ( 77,370 ) ( 93,685 ) ( 39,585 ) ( 13,467 ) ( 224,107 ) Income before income taxes $ 85,087 $ 101,373 $ 41,371 $ ( 74,465 ) $ 153,366 The information presented above was derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. This information is based on internal management accounting procedures and methods, which have been developed to reflect the underlying economics of the businesses. The methodologies are applied in connection with funds transfer pricing and assignment of overhead costs among segments. Funds transfer pricing was used in the determination of net interest income by assigning a standard cost (credit) for funds used (provided by) assets and liabilities based on their maturity, prepayment and/or repricing characteristics. The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination” column include activity not related to the segments, such as that relating to administrative functions, the investment securities portfolio, and the effect of certain expense allocations to the segments. The provision for credit losses in this category contains the difference between net loan charge-offs assigned directly to the segments and the recorded provision for credit loss expense. Included in this category’s net interest income are earnings of the investment portfolio, which are not allocated to a segment. The performance measurement of the operating segments is based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. The information is also not necessarily indicative of the segments' financial condition and results of operations if they were independent entities. 31 Table of Contents 11. Derivative Instruments The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. With the exception of the interest rate floors (discussed below), the Company's derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings. (In thousands) March 31, 2024 December 31, 2023 Interest rate swaps $ 2,121,244 $ 2,166,393 Interest rate floors 2,000,000 2,000,000 Interest rate caps 336,682 336,682 Credit risk participation agreements 642,197 653,887 Foreign exchange contracts 25,669 30,401 Mortgage loan commitments 3,616 3,004 Mortgage loan forward sale contracts — 1,349 Forward TBA contracts 4,000 3,000 Total notional amount $ 5,133,408 $ 5,194,716 The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. The customers are engaged in a variety of businesses, including real estate, manufacturing, retail product distribution, education, and retirement communities. These interest rate swap contracts with customers are offset by matching interest rate swap contracts purchased by the Company from other financial institutions (dealers). Contracts with dealers that require central clearing are novated to a clearing agency who becomes the Company's counterparty. Because of the matching terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings. Many of the Company’s interest rate swap contracts with large financial institutions contain contingent features relating to debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and ongoing collateralization on interest rate swaps in net liability positions or instant settlement of the contracts. The Company maintains debt ratings and capital well above these minimum requirements. As of March 31, 2024, 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 $500.0 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. The maximum length of time over which the Company is hedging its exposure to lower rates is approximately 7 years. These interest rate floors qualified and were designated as cash flow hedges and were assessed for effectiveness using regression analysis. The change in the fair value of these interest rate floors is recorded in AOCI, net of the amortization of the premiums paid, which are recorded against interest and fees on loans in the consolidated statements of income. As of March 31, 2024, net deferred losses on the interest rate floors totaled $ 21.9 million (pre-tax) and were recorded in AOCI in the consolidated balance sheet. As of March 31, 2024, it is expected that $ 10.7 million (pre-tax) interest rate floor premium amortization will be reclassified from AOCI into earnings over the next 12 months for the outstanding interest rate floors. During the year ended December 31, 2020, the Company monetized three interest rate floors that were previously classified as cash flow hedges with a combined notional balance of $ 1.5 billion and an asset fair value of $ 163.2 million. As of March 31, 32 Table of Contents 2024, the total realized gains on the monetized cash flow hedges remaining in AOCI was $ 45.7 million (pre-tax), which will be reclassified into interest income over the next 2.7 years. The estimated amount of net gains related to the cash flow hedges remaining in AOCI at March 31, 2024 that is expected to be reclassified into income within the next 12 months is $ 21.7 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 5 on Guarantees. In addition, the Company enters into foreign exchange contracts, which are mainly comprised of contracts with customers to purchase or deliver specific foreign currencies at specific future dates. Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date. The fair values of the Company's derivative instruments, whose notional amounts are listed above, are shown in the table below. Information about the valuation methods used to determine fair value is provided in Note 15 on Fair Value Measurements. The Company's policy is to present its derivative assets and derivative liabilities on a gross basis on its consolidated balance sheets, and these are reported in other assets and other liabilities. In prior years, certain collateral posted to and from the Company's clearing counterparty has been applied to the fair values of the cleared swap. There was no reduction to positive or negative fair values of cleared swaps at March 31, 2024 and December 31, 2023. Asset Derivatives Liability Derivatives Mar. 31, 2024 Dec. 31, 2023 Mar. 31, 2024 Dec. 31, 2023 (In thousands ) Fair Value Fair Value Derivatives designated as hedging instruments: Interest rate floors $ 56,094 $ 78,960 $ — $ — Total derivatives designated as hedging instruments $ 56,094 $ 78,960 $ — $ — Derivative instruments not designated as hedging instruments: Interest rate swaps $ 37,290 $ 35,816 $ ( 37,290 ) $ ( 35,816 ) Interest rate caps 864 1,391 ( 864 ) ( 1,391 ) Credit risk participation agreements 39 77 ( 106 ) ( 194 ) Foreign exchange contracts 368 534 ( 275 ) ( 479 ) Mortgage loan commitments 102 89 — ( 1 ) Mortgage loan forward sale contracts — 8 — — Forward TBA contracts 1 1 ( 11 ) ( 18 ) Total derivatives not designated as hedging instruments $ 38,664 $ 37,916 $ ( 38,546 ) $ ( 37,899 ) Total $ 94,758 $ 116,876 $ ( 38,546 ) $ ( 37,899 ) 33 Table of Contents The Company made an election to exclude the initial premiums paid on the interest rate floors from the hedge effectiveness measurement. Those initial premiums are amortized over the periods between the premium payment month and the contract maturity month. The pre-tax effects of the gains and losses (both the included and excluded amounts for hedge effectiveness assessment) recognized in the other comprehensive income from the cash flow hedging instruments and the amounts reclassified from accumulated other comprehensive income into income (both included and excluded amounts for hedge effectiveness measurement) are shown in the table below. Amount of Gain or (Loss) Recognized in OCI Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income (In thousands) Total Included Component Excluded Component Total Included Component Excluded Component For the Three Months Ended March 31, 2024 Derivatives in cash flow hedging relationships: Interest rate floors $ ( 22,865 ) $ ( 9,977 ) $ ( 12,888 ) Interest and fees on loans $ 2,989 $ 7,199 $ ( 4,210 ) Total $ ( 22,865 ) $ ( 9,977 ) $ ( 12,888 ) Total $ 2,989 $ 7,199 $ ( 4,210 ) For the Three Months Ended March 31, 2023 Derivatives in cash flow hedging relationships: Interest rate floors $ 9,225 $ — $ 9,225 Interest and fees on loans $ 4,385 $ 7,444 $ ( 3,059 ) Total $ 9,225 $ — $ 9,225 Total $ 4,385 $ 7,444 $ ( 3,059 ) The gain and loss recognized through various derivative instruments on the consolidated statements of income are shown in the table below. Location of Gain or (Loss) Recognized in Consolidated Statements of Income Amount of Gain or (Loss) Recognized in Income on Derivatives For the Three Months Ended March 31 (In thousands) 2024 2023 Derivative instruments: Interest rate swaps Other non-interest income $ 126 $ 623 Credit risk participation agreements Other non-interest income 26 ( 19 ) Foreign exchange contracts Other non-interest income 38 ( 20 ) Mortgage loan commitments Loan fees and sales 15 77 Mortgage loan forward sale contracts Loan fees and sales ( 8 ) ( 1 ) Forward TBA contracts Loan fees and sales 6 1 Total $ 203 $ 661 The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset. Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after netting is applied); thus, amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default. While the Company is party to master netting arrangements with most of its swap derivative counterparties, the Company does not offset derivative assets and liabilities under these agreements on its consolidated balance sheets. Collateral exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually consists of marketable securities. By contract, these may be sold or re-pledged by the secured party until recalled at a subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash or securities to its clearing agent. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative 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. 34 Table of Contents Gross Amounts Not Offset in the Balance Sheet (In thousands) Gross Amount Recognized Gross Amounts Offset in the Balance Sheet Net Amounts Presented in the Balance Sheet Financial Instruments Available for Offset Collateral Received/ Pledged Net Amount March 31, 2024 Assets: Derivatives subject to master netting agreements $ 94,558 $ — $ 94,558 $ ( 1,274 ) $ ( 91,278 ) $ 2,006 Derivatives not subject to master netting agreements 200 — 200 Total derivatives $ 94,758 $ — $ 94,758 Liabilities: Derivatives subject to master netting agreements $ 38,202 $ — $ 38,202 $ ( 1,274 ) $ — $ 36,928 Derivatives not subject to master netting agreements 344 — 344 Total derivatives $ 38,546 $ — $ 38,546 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 12. Resale and Repurchase Agreements The Company regularly enters into resale and repurchase agreement transactions with other financial institutions and with its own customers. Resale and repurchase agreements are agreements to purchase/sell securities subject to an obligation to resell/repurchase the same or similar securities. They are accounted for as secured lending and collateralized borrowing (e.g. financing transactions), not as true sales and purchases of the underlying collateral securities. Some of the resale and repurchase agreements were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default. The security collateral accepted or pledged in resale and repurchase agreements with other financial institutions may be sold or re-pledged by the secured party, but is usually delivered to and held by third party trustees. The Company generally retains custody of securities pledged for repurchase agreements with its customers. 35 Table of Contents The following table shows the extent to which resale agreement assets and repurchase agreement liabilities with the same counterparty have been offset on the consolidated balance sheets, in addition to the extent to which they could potentially be offset. Also shown is collateral received or pledged, which consists of marketable securities. The collateral amounts in the table are limited to the outstanding balances of the related asset or liability (after offsetting is applied); thus amounts of excess collateral are not shown. Gross Amounts Not Offset in the Balance Sheet (In thousands) Gross Amount Recognized Gross Amounts Offset in the Balance Sheet Net Amounts Presented in the Balance Sheet Financial Instruments Available for Offset Securities Collateral Received/Pledged Unsecured Amount March 31, 2024 Total resale agreements, subject to master netting arrangements $ 225,000 $ — $ 225,000 $ — $ ( 225,000 ) $ — Total repurchase agreements, subject to master netting arrangements 2,241,106 — 2,241,106 — ( 2,241,106 ) — 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 ) — The table below shows the remaining contractual maturities of repurchase agreements outstanding at March 31, 2024 and December 31, 2023, in addition to the various types of marketable securities that have been pledged by the Company as collateral for these borrowings. Remaining Contractual Maturity of the Agreements (In thousands) Overnight and continuous Up to 90 days Greater than 90 days Total March 31, 2024 Repurchase agreements, secured by: U.S. government and federal agency obligations $ 140,569 $ — $ — $ 140,569 Government-sponsored enterprise obligations 9,016 — — 9,016 Agency mortgage-backed securities 1,448,175 5,550 23,100 1,476,825 Non-agency mortgage-backed securities 10,166 — — 10,166 Asset-backed securities 493,590 29,531 17,800 540,921 Other debt securities 63,609 — — 63,609 Total repurchase agreements, gross amount recognized $ 2,165,125 $ 35,081 $ 40,900 $ 2,241,106 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 36 Table of Contents 13. Stock-Based Compensation The Company issues stock-based compensation in the form of nonvested restricted stock and stock appreciation rights (SARs). Historically, most of the awards have been issued during the first quarter of each year. The stock-based compensation expense charged against income was $ 4.3 million and $ 4.4 million in the three months ended March 31, 2024 and 2023 respectively. Nonvested stock awards granted generally vest in 4 to 7 years and contain restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant. A summary of the status of the Company’s nonvested share awards as of March 31, 2024, and changes during the three month period then ended, is presented below. Shares Weighted Average Grant Date Fair Value Nonvested at January 1, 2024 1,166,335 $ 58.48 Granted 314,602 51.99 Vested ( 235,194 ) 52.39 Forfeited ( 11,342 ) 58.69 Nonvested at March 31, 2024 1,234,401 $ 57.99 SARs are granted with exercise prices equal to the market price of the Company’s stock at the date of grant. SARs vest ratably over 4 years of continuous service and have contractual terms of 10 years. All SARs must be settled in stock under provisions of the plan. In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on date of grant. The current year per share average fair value and the model assumptions are shown in the table below. Weighted per share average fair value at grant date $ 14.88 Assumptions: Dividend yield 2.1 % Volatility 29.3 % Risk-free interest rate 4.2 % Expected term 6.0 years A summary of SAR activity during the first three months of 2024 is presented below. (Dollars in thousands, except per share data) Rights Weighted Average Exercise Price Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2024 1,023,321 $ 47.10 Granted 117,974 52.00 Forfeited ( 781 ) 57.43 Expired ( 4,025 ) 43.81 Exercised ( 46,457 ) 27.89 Outstanding at March 31, 2024 1,090,032 $ 48.46 5.3 years $ 7,960 37 Table of Contents 14. Revenue from Contracts with Customers Revenue from contracts with customers, Accounting Standard Codification 606 ("ASC 606"), requires revenue recognition for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For the three months ended March 31, 2024, approximately 63 % of the Company’s total revenue was comprised of net interest income, which is not within the scope of this guidance. Of the remaining revenue, those items that were subject to this guidance mainly included fees for bank card, trust, deposit account services and consumer brokerage services. The following table disaggregates revenue from contracts with customers by major product line. Three Months Ended March 31 (In thousands) 2024 2023 Bank card transaction fees $ 46,930 $ 46,654 Trust fees 51,105 45,328 Deposit account charges and other fees 24,151 21,752 Consumer brokerage services 4,408 5,085 Other non-interest income 10,516 8,339 Total non-interest income from contracts with customers 137,110 127,158 Other non-interest income (1) 11,738 10,454 Total non-interest income $ 148,848 $ 137,612 (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. For bank card transaction fees, nearly all of debit and credit card fees are earned in the Consumer segment, while corporate card and merchant fees are earned in the Commercial segment. The Consumer and Commercial segments contributed approximately 31 % and 69 %, respectively, of the Company's deposit account charge revenue. All trust fees and nearly all consumer brokerage services income were earned in the Wealth segment. The following table presents the opening and closing receivable balances for the three month periods ended March 31, 2024 and 2023 for the Company’s significant revenue from contracts with customers. (In thousands) March 31, 2024 December 31, 2023 March 31, 2023 December 31, 2022 Bank card transaction fees $ 15,673 $ 18,069 $ 15,585 $ 17,254 Trust fees 2,506 1,764 2,098 2,038 Deposit account charges and other fees 6,156 6,588 5,398 6,631 Consumer brokerage services — 8 773 949 For these revenue categories, none of the transaction price has been allocated to performance obligations that are unsatisfied as of the end of a reporting period. 38 Table of Contents 15. Fair Value Measurements The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities and to determine fair value disclosures. Various financial instruments such as available for sale debt securities, equity securities, trading debt securities, certain investments relating to private equity activities, and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets and liabilities on a nonrecurring basis, such as mortgage servicing rights and certain other investment securities. These nonrecurring fair value adjustments typically involve lower of cost or fair value accounting or write-downs of individual assets. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows: • Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. • Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds). • Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider. The valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis are described in the Fair Value Measurements note in the Company's 2023 Annual Report on Form 10-K. There have been no significant changes in these methodologies since then. 39 Table of Contents Instruments Measured at Fair Value on a Recurring Basis The table below presents the March 31, 2024 and December 31, 2023 carrying values of assets and liabilities measured at fair value on a recurring basis. There were no transfers among levels during the first three months of 2024 or the year ended December 31, 2023. Fair Value Measurements Using (In thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) March 31, 2024 Assets: Residential mortgage loans held for sale $ 1,185 $ — $ 1,185 $ — Available for sale debt securities: U.S. government and federal agency obligations 750,033 750,033 — — Government-sponsored enterprise obligations 43,845 — 43,845 — State and municipal obligations 1,131,695 — 1,130,739 956 Agency mortgage-backed securities 3,754,837 — 3,754,837 — Non-agency mortgage-backed securities 1,139,113 — 1,139,113 — Asset-backed securities 1,877,805 — 1,877,805 — Other debt securities 444,367 — 444,367 — Trading debt securities 56,716 — 56,716 — Equity securities 5,864 5,864 — — Private equity investments 183,706 — — 183,706 Derivatives * 94,758 — 94,617 141 Assets held in trust for deferred compensation plan 21,270 21,270 — — Total assets 9,505,194 777,167 8,543,224 184,803 Liabilities: Derivatives * 38,546 — 38,440 106 Liabilities held in trust for deferred compensation plan 21,270 21,270 — — Total liabilities $ 59,816 $ 21,270 $ 38,440 $ 106 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 * The fair value of each class of derivative is shown in Note 11. 40 Table of Contents The changes in the Company's 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 For the three months ended March 31, 2024 Balance January 1, 2024 $ 947 $ 176,667 $ 177,614 Total gains or losses (realized/unrealized): Included in earnings — 7,100 7,100 Included in other comprehensive income * 9 — 9 Purchases of private equity investments — 9,477 9,477 Sale/pay down of private equity investments — ( 9,400 ) ( 9,400 ) Capitalized interest/dividends — ( 138 ) ( 138 ) Balance at March 31, 2024 $ 956 $ 183,706 $ 184,662 Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2024 $ — $ 7,100 $ 7,100 *Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2024 $ 9 $ — $ 9 For the three months ended March 31, 2023 Balance January 1, 2023 $ 1,841 $ 178,127 $ 179,968 Total gains or losses (realized/unrealized): Included in earnings — 2,251 2,251 Included in other comprehensive income * 26 — 26 Investment securities called ( 1,000 ) — ( 1,000 ) Discount accretion 47 — 47 Purchases of private equity investments — 10,532 10,532 Sale/pay down of private equity investments — ( 27,492 ) ( 27,492 ) Balance at March 31, 2023 $ 914 $ 163,418 $ 164,332 Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2023 $ — $ 2,251 $ 2,251 *Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2023 $ 4 $ — $ 4 * Included in "net unrealized gains (losses) on available for sale debt securities" in the consolidated statements of comprehensive income. Gains and losses included in earnings for the Company's Level 3 assets and liabilities in the previous table are reported in the following line items in the consolidated statements of income: (In thousands) Investment Securities Gains (Losses), Net For the three months ended March 31, 2024 Total gains or losses included in earnings $ 7,100 Change in unrealized gains or losses relating to assets still held at March 31, 2024 $ 7,100 For the three months ended March 31, 2023 Total gains or losses included in earnings $ 2,251 Change in unrealized gains or losses relating to assets still held at March 31, 2023 $ 2,251 41 Table of Contents Level 3 Inputs The Company's Level 3 measurements at March 31, 2024, 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 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 3.5 - 6.0 5.1 * Unobservable inputs were weighted by the relative fair value of the instruments. Instruments Measured at Fair Value on a Nonrecurring Basis For assets measured at fair value on a nonrecurring basis during the first three months of 2024 and 2023, and still held as of March 31, 2024 and 2023, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation inputs used to determine each adjustment, and the carrying value of the related individual assets or portfolios at March 31, 2024 and 2023. Fair Value Measurements Using (In thousands) Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Gains (Losses) Recognized During the Three Months Ended March 31 March 31, 2024 Collateral dependent loans $ 63 $ — $ — $ 63 $ ( 32 ) March 31, 2023 Collateral dependent loans $ 1,819 $ — $ — $ 1,819 $ 425 42 Table of Contents 16. Fair Value of Financial Instruments The carrying amounts and estimated fair values of financial instruments held by the Company are set forth below. Fair value estimates are made at a specific point in time based on relevant market information. They do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for many of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates. The estimated fair values of the Company’s financial instruments and the classification of their fair value measurement within the valuation hierarchy are as follows at March 31, 2024 and December 31, 2023: Carrying Amount Estimated Fair Value at March 31, 2024 (In thousands) Level 1 Level 2 Level 3 Total Financial Assets Loans: Business $ 5,994,974 $ — $ — $ 5,844,133 $ 5,844,133 Real estate - construction and land 1,497,647 — — 1,470,405 1,470,405 Real estate - business 3,711,602 — — 3,582,707 3,582,707 Real estate - personal 3,039,885 — — 2,565,443 2,565,443 Consumer 2,119,308 — — 2,069,841 2,069,841 Revolving home equity 322,523 — — 319,524 319,524 Consumer credit card 564,388 — — 524,843 524,843 Overdrafts 48,513 — — 47,310 47,310 Total loans 17,298,840 — — 16,424,206 16,424,206 Loans held for sale 2,328 — 2,328 — 2,328 Investment securities 9,433,421 755,897 8,447,422 230,102 9,433,421 Securities purchased under agreements to resell 225,000 — — 220,549 220,549 Interest earning deposits with banks 1,609,614 1,609,614 — — 1,609,614 Cash and due from banks 291,040 291,040 — — 291,040 Derivative instruments 94,758 — 94,617 141 94,758 Assets held in trust for deferred compensation plan 21,270 21,270 — — 21,270 Total $ 28,976,271 $ 2,677,821 $ 8,544,367 $ 16,874,998 $ 28,097,186 Financial Liabilities Non-interest bearing deposits $ 7,513,464 $ 7,513,464 $ — $ — $ 7,513,464 Savings, interest checking and money market deposits 14,463,211 14,463,211 — — 14,463,211 Certificates of deposit 2,463,520 — — 2,493,713 2,493,713 Federal funds purchased 264,470 264,470 — — 264,470 Securities sold under agreements to repurchase 2,241,106 — — 2,244,279 2,244,279 Other borrowings 2,327 — 2,327 — 2,327 Derivative instruments 38,546 — 38,440 106 38,546 Liabilities held in trust for deferred compensation plan 21,270 21,270 — — 21,270 Total $ 27,007,914 $ 22,262,415 $ 40,767 $ 4,738,098 $ 27,041,280 43 Table of Contents 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 17. Legal and Regulatory Proceedings The Company has various legal proceedings pending at March 31, 2024, arising in the normal course of business. While some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet progressed to the point where a loss amount can be determined to be probable and estimable. 44 Table of Contents