UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
			SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2022~~2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
			SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-36502


			COMMERCE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)


Missouri		43-0889454
(State of Incorporation)		(IRS Employer Identification No.)
1000 Walnut
Kansas City,	MO	64106
(Address of principal executive offices)		(Zip Code)

(816) 234-2000

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:

Title of class	Trading symbol(s)	Name of exchange on which registered
$5 Par Value Common Stock	CBSH	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of November 2, ~~2022,~~2023, the registrant had outstanding ~~119,352,570~~124,288,417 shares of its $5 par value common stock, registrant’s only class of common stock.

Commerce Bancshares, Inc. and Subsidiaries

Form 10-Q


			Page
INDEX
Part I	Financial Information
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of September 30, ~~2022~~2023 (unaudited) and December 31, ~~2021~~2022	3
		Consolidated Statements of Income for the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	4
		Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	5
		Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	6
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022 (unaudited)	8
		Notes to Consolidated Financial Statements	9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4548
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6972
	Item 4.	Controls and Procedures	7072

Part II	Other Information
	Item 1.	Legal Proceedings	7173
	Item 1A.	Risk Factors	73
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7174
	Item 5.	Other Information	74
	Item 6.	Exhibits	7174
Signatures			7275

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS


		September 30, 2022		December 31, 2021			September 30, 2023		December 31, 2022
		(Unaudited)					(Unaudited)
		(In thousands)					(In thousands)
ASSETS	ASSETS					ASSETS
Loans	Loans	$	15,898,958	$	15,176,359	Loans	$	17,129,326	$	16,303,131
Allowance for credit losses on loans	Allowance for credit losses on loans	(143,377)		(150,044)		Allowance for credit losses on loans	(162,244)		(150,136)
Net loans	Net loans	15,755,581		15,026,315		Net loans	16,967,082		16,152,995
Loans held for sale (including $1,426,000 and $5,570,000 of residential mortgage loans carried at fair value at September 30, 2022 and December 31, 2021, respectively)		8,062		8,615
Loans held for sale (including $366,000 and $— of residential mortgage loans carried at fair value at September 30, 2023 and December 31, 2022, respectively)						Loans held for sale (including $366,000 and $— of residential mortgage loans carried at fair value at September 30, 2023 and December 31, 2022, respectively)	5,120		4,964
Investment securities:	Investment securities:					Investment securities:
Available for sale debt, at fair value (amortized cost of $14,176,324,000 and $14,419,133,000 at
September 30, 2022 and December 31, 2021, respectively, and allowance for credit losses of $—
at both September 30, 2022 and December 31, 2021)		12,632,510		14,450,027
Available for sale debt, at fair value (amortized cost of $11,457,305,000 and $13,738,206,000 at						Available for sale debt, at fair value (amortized cost of $11,457,305,000 and $13,738,206,000 at
September 30, 2023 and December 31, 2022, respectively, and allowance for credit losses of $—						September 30, 2023 and December 31, 2022, respectively, and allowance for credit losses of $—
at both September 30, 2023 and December 31, 2022)						at both September 30, 2023 and December 31, 2022)	9,860,828		12,238,316
Trading debt	Trading debt	39,222		46,235		Trading debt	35,564		43,523
Equity	Equity	8,954		9,202		Equity	12,212		12,304
Other	Other	222,742		194,047		Other	230,792		225,034
Total investment securities	Total investment securities	12,903,428		14,699,511		Total investment securities	10,139,396		12,519,177
Federal funds sold	Federal funds sold	14,020		2,800		Federal funds sold	2,735		49,505
Securities purchased under agreements to resell	Securities purchased under agreements to resell	1,275,000		1,625,000		Securities purchased under agreements to resell	450,000		825,000
Interest earning deposits with banks	Interest earning deposits with banks	642,943		3,971,217		Interest earning deposits with banks	1,847,641		389,140
Cash and due from banks	Cash and due from banks	344,178		305,539		Cash and due from banks	358,010		452,496
Premises and equipment – net	Premises and equipment – net	407,833		388,738		Premises and equipment – net	460,830		418,909
Goodwill	Goodwill	138,921		138,921		Goodwill	146,539		138,921
Other intangible assets – net	Other intangible assets – net	15,599		15,570		Other intangible assets – net	14,432		15,234
Other assets	Other assets	1,097,031		506,862		Other assets	984,907		909,590
Total assets	Total assets	$	32,602,596	$	36,689,088	Total assets	$	31,376,692	$	31,875,931
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:	Deposits:					Deposits:
Non-interest bearing	Non-interest bearing	$	10,468,591	$	11,772,374	Non-interest bearing	$	7,961,402	$	10,066,356
Savings, interest checking and money market	Savings, interest checking and money market	16,014,487		16,598,085		Savings, interest checking and money market	14,154,275		15,126,981
Certificates of deposit of less than $100,000	Certificates of deposit of less than $100,000	391,145		435,960		Certificates of deposit of less than $100,000	1,210,169		387,336
Certificates of deposit of $100,000 and over	Certificates of deposit of $100,000 and over	597,093		1,006,654		Certificates of deposit of $100,000 and over	1,764,611		606,767
Total deposits	Total deposits	27,471,316		29,813,073		Total deposits	25,090,457		26,187,440
Federal funds purchased and securities sold under agreements to repurchase	Federal funds purchased and securities sold under agreements to repurchase	2,314,590		3,022,967		Federal funds purchased and securities sold under agreements to repurchase	2,745,181		2,841,734
Other borrowings	Other borrowings	1,831		12,560		Other borrowings	503,589		9,672
Other liabilities	Other liabilities	443,752		392,164		Other liabilities	438,199		355,508
Total liabilities	Total liabilities	30,231,489		33,240,764		Total liabilities	28,777,426		29,394,354
Commerce Bancshares, Inc. stockholders’ equity:	Commerce Bancshares, Inc. stockholders’ equity:					Commerce Bancshares, Inc. stockholders’ equity:

Common stock, $5 par value	Common stock, $5 par value					Common stock, $5 par value
Authorized 140,000,000; issued 122,160,705 shares at September 30, 2022 and December 31, 2021		610,804		610,804
Authorized 190,000,000 at September 30, 2023 and 140,000,000 at December 31, 2022; issued 125,863,879 shares at September 30, 2023 and December 31, 2022						Authorized 190,000,000 at September 30, 2023 and 140,000,000 at December 31, 2022; issued 125,863,879 shares at September 30, 2023 and December 31, 2022	629,319		629,319
Capital surplus	Capital surplus	2,683,631		2,689,894		Capital surplus	2,924,211		2,932,959
Retained earnings	Retained earnings	353,446		92,493		Retained earnings	298,297		31,620
Treasury stock of 2,553,242 shares at September 30, 2022
and 476,392 shares at December 31, 2021, at cost		(176,943)		(32,973)
Accumulated other comprehensive income		(1,119,344)		77,080
Treasury stock of 1,233,706 shares at September 30, 2023						Treasury stock of 1,233,706 shares at September 30, 2023
and 605,142 shares at December 31, 2022, at cost						and 605,142 shares at December 31, 2022, at cost	(76,888)		(41,743)
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(1,193,534)		(1,086,864)
Total Commerce Bancshares, Inc. stockholders' equity	Total Commerce Bancshares, Inc. stockholders' equity	2,351,594		3,437,298		Total Commerce Bancshares, Inc. stockholders' equity	2,581,405		2,465,291
Non-controlling interest	Non-controlling interest	19,513		11,026		Non-controlling interest	17,861		16,286
Total equity	Total equity	2,371,107		3,448,324		Total equity	2,599,266		2,481,577
Total liabilities and equity	Total liabilities and equity	$	32,602,596	$	36,689,088	Total liabilities and equity	$	31,376,692	$	31,875,931

See accompanying notes to consolidated financial statements.

Table of Contents

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME


		For the Three Months Ended September 30				For the Nine Months Ended September 30					For the Three Months Ended September 30				For the Nine Months Ended September 30
(In thousands, except per share data)	(In thousands, except per share data)	2022		2021		2022		2021		(In thousands, except per share data)	2023		2022		2023		2022
		(Unaudited)									(Unaudited)
INTEREST INCOME	INTEREST INCOME									INTEREST INCOME
Interest and fees on loans	Interest and fees on loans	$	171,272	$	142,887	$	445,873	$	433,809	Interest and fees on loans	$	256,242	$	171,272	$	721,385	$	445,873
Interest and fees on loans held for sale	Interest and fees on loans held for sale	159		187		470		736		Interest and fees on loans held for sale	152		159		448		470
Interest on investment securities	Interest on investment securities	79,586		63,904		241,326		170,604		Interest on investment securities	69,245		79,586		214,091		241,326
Interest on federal funds sold	Interest on federal funds sold	94		1		114		3		Interest on federal funds sold	45		94		639		114
Interest on securities purchased under agreements to resell	Interest on securities purchased under agreements to resell	5,984		9,007		15,669		30,551		Interest on securities purchased under agreements to resell	3,740		5,984		11,791		15,669
Interest on deposits with banks	Interest on deposits with banks	5,571		995		9,150		2,108		Interest on deposits with banks	31,738		5,571		70,328		9,150
Total interest income	Total interest income	262,666		216,981		712,602		637,811		Total interest income	361,162		262,666		1,018,682		712,602
INTEREST EXPENSE	INTEREST EXPENSE									INTEREST EXPENSE
Interest on deposits:	Interest on deposits:									Interest on deposits:
Savings, interest checking and money market	Savings, interest checking and money market	7,545		1,817		11,583		5,764		Savings, interest checking and money market	43,795		7,545		93,992		11,583
Certificates of deposit of less than $100,000	Certificates of deposit of less than $100,000	411		206		755		1,006		Certificates of deposit of less than $100,000	15,499		411		27,049		755
Certificates of deposit of $100,000 and over	Certificates of deposit of $100,000 and over	871		450		1,768		2,173		Certificates of deposit of $100,000 and over	18,942		871		39,985		1,768
Interest on federal funds purchased and securities sold under
agreements to repurchase		7,891		480		11,506		1,112
Interest on federal funds purchased										Interest on federal funds purchased	6,833		315		18,816		546
Interest on securities sold under agreements to repurchase										Interest on securities sold under agreements to repurchase	18,431		7,576		52,940		10,960
Interest on other borrowings	Interest on other borrowings	(425)		(9)		(554)		(11)		Interest on other borrowings	9,115		(425)		36,192		(554)
Total interest expense	Total interest expense	16,293		2,944		25,058		10,044		Total interest expense	112,615		16,293		268,974		25,058
Net interest income	Net interest income	246,373		214,037		687,544		627,767		Net interest income	248,547		246,373		749,708		687,544
Provision for credit losses	Provision for credit losses	15,290		(7,385)		12,594		(59,272)		Provision for credit losses	11,645		15,290		29,572		12,594
Net interest income after credit losses	Net interest income after credit losses	231,083		221,422		674,950		687,039		Net interest income after credit losses	236,902		231,083		720,136		674,950
NON-INTEREST INCOME	NON-INTEREST INCOME									NON-INTEREST INCOME
Bank card transaction fees										Bank card transaction fees	46,899		45,638		143,278		131,556
Trust fees	Trust fees	45,406		48,950		140,009		139,334		Trust fees	49,207		45,406		141,800		140,009
Bank card transaction fees		45,638		42,815		131,556		123,118
Deposit account charges and other fees	Deposit account charges and other fees	24,521		25,161		72,392		71,724		Deposit account charges and other fees	23,090		24,521		67,475		72,392
Consumer brokerage services	Consumer brokerage services	5,085		4,900		14,599		13,484		Consumer brokerage services	3,820		5,085		13,582		14,599
Capital market fees	Capital market fees	3,393		3,794		10,845		12,102		Capital market fees	2,410		3,393		8,311		10,845
Loan fees and sales	Loan fees and sales	3,094		6,842		10,575		24,472		Loan fees and sales	2,966		3,094		8,290		10,575
Other	Other	11,377		5,044		29,734		28,460		Other	14,557		11,377		45,430		29,734
Total non-interest income	Total non-interest income	138,514		137,506		409,710		412,694		Total non-interest income	142,949		138,514		428,166		409,710

INVESTMENT SECURITIES GAINS, NET		3,410		13,108		11,602		39,765
INVESTMENT SECURITIES GAINS (LOSSES), NET										INVESTMENT SECURITIES GAINS (LOSSES), NET	4,298		3,410		7,384		11,602
NON-INTEREST EXPENSE	NON-INTEREST EXPENSE									NON-INTEREST EXPENSE
Salaries and employee benefits	Salaries and employee benefits	137,393		132,824		415,589		392,608		Salaries and employee benefits	146,805		137,393		436,607		415,589
Data processing and software	Data processing and software	28,050		25,598		82,701		76,015		Data processing and software	30,744		28,050		87,617		82,701
Net occupancy	Net occupancy	12,544		12,329		37,343		35,877		Net occupancy	13,948		12,544		39,702		37,343
Marketing										Marketing	6,167		6,228		18,006		18,408
Equipment	Equipment	5,036		4,440		14,338		13,398		Equipment	4,697		5,036		14,411		14,338
Supplies and communication	Supplies and communication	4,581		4,530		13,655		12,688		Supplies and communication	4,963		4,581		14,178		13,655
Marketing		6,228		5,623		18,408		16,461
Other	Other	19,052		26,276		50,003		55,272		Other	20,686		19,052		69,207		50,003
Total non-interest expense	Total non-interest expense	212,884		211,620		632,037		602,319		Total non-interest expense	228,010		212,884		679,728		632,037
Income before income taxes	Income before income taxes	160,123		160,416		464,225		537,179		Income before income taxes	156,139		160,123		475,958		464,225
Less income taxes	Less income taxes	33,936		34,662		97,859		111,947		Less income taxes	33,439		33,936		102,242		97,859
Net income	Net income	126,187		125,754		366,366		425,232		Net income	122,700		126,187		373,716		366,366
Less non-controlling interest expense		3,364		3,193		9,595		9,373
Less non-controlling interest expense (income)										Less non-controlling interest expense (income)	2,104		3,364		5,879		9,595
Net income attributable to Commerce Bancshares, Inc.	Net income attributable to Commerce Bancshares, Inc.	$	122,823	$	122,561	$	356,771	$	415,859	Net income attributable to Commerce Bancshares, Inc.	$	120,596	$	122,823	$	367,837	$	356,771

Net income per common share — basic	Net income per common share — basic	$	1.03	$	1.00	$	2.96	$	3.38	Net income per common share — basic	$	.96	$	.97	$	2.94	$	2.81
Net income per common share — diluted	Net income per common share — diluted	$	1.02	$	.99	$	2.95	$	3.37	Net income per common share — diluted	$	.96	$	.97	$	2.93	$	2.81

See accompanying notes to consolidated financial statements.

Table of Contents

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


		For the Three Months Ended September 30				For the Nine Months Ended September 30					For the Three Months Ended September 30				For the Nine Months Ended September 30
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022
		(Unaudited)									(Unaudited)
Net income	Net income	$	126,187	$	125,754	$	366,366	$	425,232	Net income	$	122,700	$	126,187	$	373,716	$	366,366
Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):

Net unrealized losses on available for sale debt securities		(345,565)		(57,068)		(1,181,031)		(160,019)
Pension loss amortization		302		451		947		1,326
Unrealized losses on cash flow hedge derivatives		(7,187)		(4,607)		(16,340)		(13,518)
Net unrealized gains (losses) on available for sale debt securities										Net unrealized gains (losses) on available for sale debt securities	(133,024)		(345,565)		(72,440)		(1,181,031)
Change in pension loss										Change in pension loss	199		302		738		947
Unrealized gains (losses) on cash flow hedge derivatives										Unrealized gains (losses) on cash flow hedge derivatives	(24,414)		(7,187)		(34,968)		(16,340)
Other comprehensive income (loss)	Other comprehensive income (loss)	(352,450)		(61,224)		(1,196,424)		(172,211)		Other comprehensive income (loss)	(157,239)		(352,450)		(106,670)		(1,196,424)
Comprehensive income (loss)	Comprehensive income (loss)	(226,263)		64,530		(830,058)		253,021		Comprehensive income (loss)	(34,539)		(226,263)		267,046		(830,058)
Less non-controlling interest expense		3,364		3,193		9,595		9,373
Less non-controlling interest (income) expense										Less non-controlling interest (income) expense	2,104		3,364		5,879		9,595
Comprehensive income (loss) attributable to Commerce Bancshares, Inc.	Comprehensive income (loss) attributable to Commerce Bancshares, Inc.	$	(229,627)	$	61,337	$	(839,653)	$	243,648	Comprehensive income (loss) attributable to Commerce Bancshares, Inc.	$	(36,643)	$	(229,627)	$	261,167	$	(839,653)

See accompanying notes to consolidated financial statements.

Table of Contents

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended September 30, ~~2022~~2023 and ~~2021~~2022


		Commerce Bancshares, Inc. Shareholders															Commerce Bancshares, Inc. Shareholders
(In thousands, except per share data)	(In thousands, except per share data)	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest		Total		(In thousands, except per share data)	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest		Total
		(Unaudited)															(Unaudited)
Balance June 30, 2022		$	610,804	$	2,682,161	$	262,363	$	(129,588)	$	(766,894)	$	16,467	$	2,675,313
Balance June 30, 2023																Balance June 30, 2023	$	629,319	$	2,921,365	$	211,358	$	(58,389)	$	(1,036,295)	$	17,870	$	2,685,228
Net income	Net income					122,823						3,364		126,187		Net income					120,596						2,104		122,700
Other comprehensive loss										(352,450)				(352,450)
Other comprehensive income (loss)																Other comprehensive income (loss)									(157,239)				(157,239)
Distributions to non-controlling interest	Distributions to non-controlling interest											(318)		(318)		Distributions to non-controlling interest											(2,105)		(2,105)
Purchases of treasury stock	Purchases of treasury stock							(50,116)						(50,116)		Purchases of treasury stock							(19,978)						(19,978)

Sale of non-controlling interest of subsidiary																Sale of non-controlling interest of subsidiary			8								(8)		—
Issuance under stock purchase and equity compensation plans																Issuance under stock purchase and equity compensation plans			(1,479)				1,479						—
Stock-based compensation																Stock-based compensation			4,317										4,317
Cash dividends paid on common stock ($0.270 per share)																Cash dividends paid on common stock ($0.270 per share)					(33,657)								(33,657)

Issuance of stock under purchase and equity compensation plans				(2,762)				2,761						(1)
Balance September 30, 2023																Balance September 30, 2023	$	629,319	$	2,924,211	$	298,297	$	(76,888)	$	(1,193,534)	$	17,861	$	2,599,266
Balance June 30, 2022																Balance June 30, 2022	$	610,804	$	2,682,161	$	262,363	$	(129,588)	$	(766,894)	$	16,467	$	2,675,313

Net Income																Net Income					122,823						3,364		126,187
Other comprehensive income (loss)																Other comprehensive income (loss)									(352,450)				(352,450)
Distributions to non-controlling interest																Distributions to non-controlling interest											(318)		(318)
Purchases of treasury stock																Purchases of treasury stock							(50,116)						(50,116)

Issuance under stock purchase and equity compensation plans																Issuance under stock purchase and equity compensation plans			(2,762)				2,761						(1)
Stock-based compensation	Stock-based compensation			4,232										4,232		Stock-based compensation			4,232										4,232
Cash dividends paid on common stock ($0.265 per share)						(31,740)								(31,740)
Cash dividends paid on common stock ($.252 per share)																Cash dividends paid on common stock ($.252 per share)					(31,740)								(31,740)

Balance September 30, 2022	Balance September 30, 2022	$	610,804	$	2,683,631	$	353,446	$	(176,943)	$	(1,119,344)	$	19,513	$	2,371,107	Balance September 30, 2022	$	610,804	$	2,683,631	$	353,446	$	(176,943)	$	(1,119,344)	$	19,513	$	2,371,107
Balance June 30, 2021		$	589,352	$	2,424,157	$	304,739	$	(53,018)	$	220,390	$	8,210	$	3,493,830

Net Income						122,561						3,193		125,754
Other comprehensive loss										(61,224)				(61,224)
Distributions to non-controlling interest												(193)		(193)
Purchases of treasury stock								(40,165)						(40,165)
Sale of non-controlling interest of subsidiary				659								(659)		—
Issuance of stock under purchase and equity compensation plans				(1,137)				1,136						(1)
Stock-based compensation				3,865										3,865
Cash dividends paid on common stock ($.250 per share)						(30,645)								(30,645)

Balance September 30, 2021		$	589,352	$	2,427,544	$	396,655	$	(92,047)	$	159,166	$	10,551	$	3,491,221

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022


		Commerce Bancshares, Inc. Shareholders															Commerce Bancshares, Inc. Shareholders
(In thousands, except per share data)	(In thousands, except per share data)	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest		Total		(In thousands, except per share data)	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest		Total
		(Unaudited)															(Unaudited)
Balance December 31, 2021		$	610,804	$	2,689,894	$	92,493	$	(32,973)	$	77,080	$	11,026	$	3,448,324
Balance December 31, 2022																Balance December 31, 2022	$	629,319	$	2,932,959	$	31,620	$	(41,743)	$	(1,086,864)	$	16,286	$	2,481,577

Net income	Net income					356,771						9,595		366,366		Net income					367,837						5,879		373,716
Other comprehensive loss										(1,196,424)				(1,196,424)
Other comprehensive income (loss)																Other comprehensive income (loss)									(106,670)				(106,670)
Distributions to non-controlling interest	Distributions to non-controlling interest											(1,108)		(1,108)		Distributions to non-controlling interest											(4,250)		(4,250)

Purchases of treasury stock	Purchases of treasury stock							(163,321)						(163,321)		Purchases of treasury stock							(56,541)						(56,541)
Sale of non-controlling interest of subsidiary																Sale of non-controlling interest of subsidiary			54								(54)		—
Issuance under stock purchase and equity compensation plans																Issuance under stock purchase and equity compensation plans			(21,396)				21,396						—
Stock-based compensation																Stock-based compensation			12,594										12,594
Cash dividends paid on common stock ($.810 per share)																Cash dividends paid on common stock ($.810 per share)					(101,160)								(101,160)

Issuance of stock under purchase and equity compensation plans				(18,904)				19,351						447
Stock-based compensation				12,641										12,641
Cash dividends on common stock ($.795 per share)						(95,818)								(95,818)

Balance September 30, 2022		$	610,804	$	2,683,631	$	353,446	$	(176,943)	$	(1,119,344)	$	19,513	$	2,371,107
Balance December 31, 2020		$	589,352	$	2,436,288	$	73,000	$	(32,970)	$	331,377	$	2,925	$	3,399,972
Balance September 30, 2023																Balance September 30, 2023	$	629,319	$	2,924,211	$	298,297	$	(76,888)	$	(1,193,534)	$	17,861	$	2,599,266
Balance December 31, 2021																Balance December 31, 2021	$	610,804	$	2,689,894	$	92,493	$	(32,973)	$	77,080	$	11,026	$	3,448,324

Net income	Net income					415,859						9,373		425,232		Net income					356,771						9,595		366,366
Other comprehensive loss										(172,211)				(172,211)
Other comprehensive income (loss)																Other comprehensive income (loss)									(1,196,424)				(1,196,424)
Distributions to non-controlling interest	Distributions to non-controlling interest											(1,088)		(1,088)		Distributions to non-controlling interest											(1,108)		(1,108)
Purchases of treasury stock	Purchases of treasury stock							(80,052)						(80,052)		Purchases of treasury stock							(163,321)						(163,321)
Sale of non-controlling interest of subsidiary				659								(659)		—
Issuance of stock under purchase and equity compensation plans				(20,991)				20,975						(16)

Issuance under stock purchase and equity compensation plans																Issuance under stock purchase and equity compensation plans			(18,904)				19,351						447
Stock-based compensation	Stock-based compensation			11,588										11,588		Stock-based compensation			12,641										12,641
Cash dividends on common stock ($.750 per share)						(92,204)								(92,204)
Cash dividends paid on common stock ($.757 per share)																Cash dividends paid on common stock ($.757 per share)					(95,818)								(95,818)

Balance September 30, 2021		$	589,352	$	2,427,544	$	396,655	$	(92,047)	$	159,166	$	10,551	$	3,491,221
Balance September 30, 2022																Balance September 30, 2022	$	610,804	$	2,683,631	$	353,446	$	(176,943)	$	(1,119,344)	$	19,513	$	2,371,107

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS


		For the Nine Months Ended September 30					For the Nine Months Ended September 30
(In thousands)	(In thousands)	2022		2021		(In thousands)	2023		2022
		(Unaudited)					(Unaudited)
OPERATING ACTIVITIES:	OPERATING ACTIVITIES:					OPERATING ACTIVITIES:
Net income	Net income	$	366,366	$	425,232	Net income	$	373,716	$	366,366
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	Provision for credit losses	12,594		(59,272)		Provision for credit losses	29,572		12,594
Provision for depreciation and amortization	Provision for depreciation and amortization	35,350		33,554		Provision for depreciation and amortization	36,661		35,350
Amortization of investment security premiums, net	Amortization of investment security premiums, net	8,565		51,822		Amortization of investment security premiums, net	13,345		8,565
Investment securities gains, net (A)		(11,602)		(39,765)
Net gains on sales of loans held for sale		(2,607)		(18,849)
Investment securities (gains) losses, net (A)						Investment securities (gains) losses, net (A)	(7,384)		(11,602)
Net (gains) losses on sales of loans held for sale						Net (gains) losses on sales of loans held for sale	(705)		(2,607)
Originations of loans held for sale	Originations of loans held for sale	(114,765)		(442,853)		Originations of loans held for sale	(40,470)		(114,765)
Proceeds from sales of loans held for sale	Proceeds from sales of loans held for sale	116,421		485,231		Proceeds from sales of loans held for sale	40,775		116,421
Net (increase) decrease in trading debt securities, excluding unsettled transactions	Net (increase) decrease in trading debt securities, excluding unsettled transactions	14,080		(9,093)		Net (increase) decrease in trading debt securities, excluding unsettled transactions	14,354		14,080
Purchase of interest rate floor		(16,849)		—
Purchase of interest rate floor derivative contracts						Purchase of interest rate floor derivative contracts	(54,449)		(16,849)
Stock-based compensation	Stock-based compensation	12,641		11,588		Stock-based compensation	12,594		12,641
(Increase) decrease in interest receivable	(Increase) decrease in interest receivable	(21,959)		11,449		(Increase) decrease in interest receivable	(7,861)		(21,959)
Increase (decrease) in interest payable	Increase (decrease) in interest payable	1,097		(3,168)		Increase (decrease) in interest payable	41,622		1,097
Increase in income taxes payable		168		19,831
Increase (decrease) in income taxes payable						Increase (decrease) in income taxes payable	(52)		168

Other changes, net	Other changes, net	70,285		20,418		Other changes, net	(83,973)		70,285
Net cash provided by operating activities		469,785		486,125
Net cash provided by (used in) operating activities						Net cash provided by (used in) operating activities	367,745		469,785
INVESTING ACTIVITIES:	INVESTING ACTIVITIES:					INVESTING ACTIVITIES:

Cash paid in acquisition, net of cash received						Cash paid in acquisition, net of cash received	(6,365)		—

Distributions received from equity-method investment	Distributions received from equity-method investment	400		13,540		Distributions received from equity-method investment	1,434		400
Proceeds from sales of investment securities (A)	Proceeds from sales of investment securities (A)	55,690		10,060		Proceeds from sales of investment securities (A)	1,141,949		55,690
Proceeds from maturities/pay downs of investment securities (A)	Proceeds from maturities/pay downs of investment securities (A)	2,079,939		2,571,116		Proceeds from maturities/pay downs of investment securities (A)	1,315,175		2,079,939
Purchases of investment securities (A)	Purchases of investment securities (A)	(1,951,694)		(4,457,716)		Purchases of investment securities (A)	(190,637)		(1,951,694)
Net (increase) decrease in loans	Net (increase) decrease in loans	(736,474)		1,166,769		Net (increase) decrease in loans	(849,375)		(736,474)
Securities purchased under agreements to resell	Securities purchased under agreements to resell	(200,000)		(900,000)		Securities purchased under agreements to resell	—		(200,000)
Repayments of securities purchased under agreements to resell	Repayments of securities purchased under agreements to resell	550,000		—		Repayments of securities purchased under agreements to resell	375,000		550,000
Purchases of premises and equipment	Purchases of premises and equipment	(46,636)		(37,385)		Purchases of premises and equipment	(72,563)		(46,636)
Sales of premises and equipment	Sales of premises and equipment	1,613		4,786		Sales of premises and equipment	3,751		1,613
Net cash used in investing activities		(247,162)		(1,628,830)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	1,718,369		(247,162)
FINANCING ACTIVITIES:	FINANCING ACTIVITIES:					FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits	Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits	(2,078,327)		1,428,561		Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits	(2,995,739)		(2,078,327)
Net decrease in certificates of deposit		(454,376)		(228,916)
Net increase (decrease) in certificates of deposit						Net increase (decrease) in certificates of deposit	1,980,677		(454,376)

Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase	Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase	(708,377)		155,370		Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase	(96,553)		(708,377)

FHLB short-term borrowings						FHLB short-term borrowings	2,250,000		—
Repayments of FHLB borrowings						Repayments of FHLB borrowings	(1,750,000)		—
Net increase (decrease) in other borrowings	Net increase (decrease) in other borrowings	(10,729)		3,204		Net increase (decrease) in other borrowings	(6,083)		(10,729)

Purchases of treasury stock	Purchases of treasury stock	(163,321)		(80,052)		Purchases of treasury stock	(56,541)		(163,321)

Issuance of stock under equity compensation plans		447		(16)

Cash dividends paid on common stock	Cash dividends paid on common stock	(95,818)		(92,204)		Cash dividends paid on common stock	(101,160)		(95,818)

Other, net						Other, net	—		447
Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(3,510,501)		1,185,947		Net cash provided by (used in) financing activities	(775,399)		(3,510,501)
Increase (decrease) in cash, cash equivalents and restricted cash	Increase (decrease) in cash, cash equivalents and restricted cash	(3,287,878)		43,242		Increase (decrease) in cash, cash equivalents and restricted cash	1,310,715		(3,287,878)
Cash, cash equivalents and restricted cash at beginning of year	Cash, cash equivalents and restricted cash at beginning of year	4,296,954		2,208,328		Cash, cash equivalents and restricted cash at beginning of year	897,801		4,296,954
Cash, cash equivalents and restricted cash at September 30	Cash, cash equivalents and restricted cash at September 30	$	1,009,076	$	2,251,570	Cash, cash equivalents and restricted cash at September 30	$	2,208,516	$	1,009,076

Income tax payments, net	Income tax payments, net	$	92,646	$	87,989	Income tax payments, net	$	97,018	$	92,646
Interest paid on deposits and borrowings	Interest paid on deposits and borrowings	$	23,961	$	13,213	Interest paid on deposits and borrowings	$	227,352	$	23,961
Loans transferred to foreclosed real estate	Loans transferred to foreclosed real estate	$	457	$	172	Loans transferred to foreclosed real estate	$	133	$	457

(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 ~~$7.9 million~~$130 thousand at September 30, 2023 and ~~$18.6~~$7.9 million at September 30, ~~2022 and 2021, respectively.~~2022.

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Commerce Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, ~~2022~~2023 (Unaudited)

1. Principles of Consolidation and Presentation

The accompanying consolidated financial statements include the accounts of Commerce Bancshares, Inc. and all majority-owned subsidiaries (the Company). Most of the Company's operations are conducted by its subsidiary bank, Commerce Bank (the Bank). The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments necessary to present fairly the financial position and the results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to ~~2021~~2022 data to conform to current year presentation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets and revenues and expenses for the periods. Actual results could differ significantly from those estimates. Management has evaluated subsequent events for potential recognition or disclosure. The results of operations for the nine month period ended September 30, ~~2022~~2023 are not necessarily indicative of results to be attained for the full year or any other interim period.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission. Accordingly, the financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company's most recent Annual Report on Form 10-K, containing the latest audited consolidated financial statements and notes thereto.

The Company adopted ASU 2022-02 Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures on January 1, 2023, using the prospective transition method. This ASU eliminates the troubled debt restructuring recognition and measurement guidance and requires an entity to present gross write-offs by year of origination. The amendments also enhance disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. With the exception of enhanced disclosures, there was no material impact to the consolidated financial statements from adoption of this ASU. As of the Company's adoption date, all restructurings are evaluated to determine whether they are modifications to a borrower experiencing financial difficulty. Loans that were accounted for under the troubled debt restructuring method as of December 31, 2022 will continue to be accounted for under that method until they are paid off or modified.

The following significant accounting policies have been updated since the Company's 2022 Annual Report on Form 10-K to reflect the adoption of ASU 2022-02.

Troubled Debt Restructurings

Prior to the Company's adoption of ASU 2022-02, a loan was accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower's financial difficulties, granted a concession to the borrower that it would not otherwise consider. A troubled debt restructuring typically involves (1) modification of terms such as a reduction of the stated interest rate, loan principal, or accrued interest, (2) a loan renewal at a stated interest rate lower than the current market rate for a new loan with similar risk, or (3) debt that was not reaffirmed in bankruptcy. Business, business real estate, construction and land real estate and personal real estate troubled debt restructurings with impairment charges are placed on non-accrual status. The Company measures the impairment loss of a troubled debt restructuring at the time of modification based on the present value of expected future cash flows. Subsequent to modification, troubled debt restructurings are subject to the Company’s allowance for credit loss model, which is discussed below and in Note 2, Loans and Allowance for Credit Losses. Troubled debt restructurings that are performing under their contractual terms continue to accrue interest, which is recognized in current earnings. Loans that were accounted as troubled debt restructurings at of December 31, 2022 will continue to be accounted for under that method until they are either paid off or modified.

Modifications for Borrowers Experiencing Financial Difficulty

The Company may renegotiate the terms of existing loans for a variety of reasons. When refinancing or restructuring a loan, the Company evaluates whether the borrower is experiencing financial difficulty. In making this determination, the Company considers whether the borrower is currently in default on any of its debt. In addition, the Company evaluates whether it is probable that the borrower would be in payment default on any of its debt in the foreseeable future without the modification and if the borrower (without the current modification) could obtain equivalent financing from another creditor at a market rate for similar debt. Modifications of loans to borrowers in these situations may indicate that the borrower is facing financial difficulty.

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Modifications of loans to borrowers experiencing financial difficulty that are in the form of principal forgiveness, interest rate reductions, other-than-insignificant payment delays, or a term extension (or a combination thereof) require disclosure. The Company's disclosures are included in Note 2, Loans and Allowance for Credit Losses.

2. Loans and Allowance for Credit Losses

Major classifications within the Company’s held for investment loan portfolio at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 are as follows:


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	September 30, 2023		December 31, 2022
Commercial:	Commercial:					Commercial:
Business	Business	$	5,528,895	$	5,303,535	Business	$	5,908,330	$	5,661,725
Real estate – construction and land	Real estate – construction and land	1,206,955		1,118,266		Real estate – construction and land	1,539,566		1,361,095
Real estate – business	Real estate – business	3,331,627		3,058,837		Real estate – business	3,647,168		3,406,981
Personal Banking:	Personal Banking:					Personal Banking:
Real estate – personal	Real estate – personal	2,862,519		2,805,401		Real estate – personal	3,024,639		2,918,078
Consumer	Consumer	2,116,371		2,032,225		Consumer	2,125,804		2,059,088
Revolving home equity	Revolving home equity	286,026		275,945		Revolving home equity	305,237		297,207
Consumer credit card	Consumer credit card	563,349		575,410		Consumer credit card	574,829		584,000
Overdrafts	Overdrafts	3,216		6,740		Overdrafts	3,753		14,957
Total loans	Total loans	$	15,898,958	$	15,176,359	Total loans	$	17,129,326	$	16,303,131

Accrued interest receivable totaled ~~$46.2~~$72.5 million and ~~$25.9~~$55.5 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and was included within other assets on the consolidated balance sheets. For the three months ended September 30, ~~2022,~~2023, the Company wrote-off accrued interest by reversing interest income of ~~$48~~$237 thousand and ~~$699 thousand~~$1.2 million in the Commercial and Personal Banking portfolios, respectively. Similarly, for the nine months ended September 30, ~~2022,~~2023, the Company wrote-off accrued interest of $313 thousand and $3.4 million in the Commercial and Personal Banking portfolios, respectively. For the three months ended September 30, 2022, the Company reversed interest income of $48 thousand and $699 thousand in the Commercial and Personal Banking portfolios, respectively, and in the nine months ended September 30, 2022, reversed $103 thousand and $2.4 million in the Commercial and Personal Banking ~~portfolios, respectively.~~portfolios.

At September 30, ~~2022,~~2023, loans of ~~$3.1~~$3.5 billion were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of ~~$1.3~~$3.1 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings.

~~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 unless there is a reasonable expectation that a troubled debt restructuring will be executed.~~modifications. Credit cards and certain similar consumer

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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.

~~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 September 30, ~~2022~~2023 and June 30, ~~2022~~2023 are discussed below.


Key Assumption	September 30, ~~2022~~2023	June 30, ~~2022~~2023

Overall economic forecast	•~~High inflation, rising interest rates, supply chain difficulties and a weaker job market create an expectation~~Mild recession starting in the fourth quarter of ~~a mild recession in~~ 2023 •~~Continued monetary policy tightening~~Risks remain tilted toward another rate hike if progress on inflation and labor markets reverse course •Consumer spending is expected to ~~rein in inflation~~be short lived, and growth is expected to fall	•~~Positive economic momentum faced with continued COVID challenges, supply constraints and high inflation~~Mild recession in the second half of 2023 •~~Continued monetary policy tightening to rein in inflation~~Assume the Federal Reserve will pause increasing interest rates through year end •~~Uncertainties related~~Mild recession is expected to ~~supply chain issues and the timing and likelihood of a recession~~weaken employment
Reasonable and supportable period and related reversion period	•~~One~~Reasonable and supportable period of one year ~~for commercial and personal banking loans~~ •Reversion to historical average loss ~~rates~~ within two quarters using straight-line method	•~~One~~Reasonable and supportable period of one year ~~for commercial and personal banking loans~~ •Reversion to historical average loss ~~rates~~ within two quarters using straight-line method
Forecasted macro-economic variables	•Unemployment rate ~~ranging~~ranges from ~~3.7%~~3.9% to ~~4.6%~~5.0% during the supportable forecast period •Real GDP growth ~~ranging~~ranges from ~~(.3)~~(.29)% to ~~.2%~~ •~~Prime rate from 6.6% to 7.0%~~1.5% •BBB corporate yield from ~~5.03%~~4.8% to ~~5.7%~~5.8% •Housing Price Index from 291.0 to 296.1	•Unemployment rate ~~ranging~~ranges from ~~3.5%~~3.9% to ~~3.7%~~5.3% during the supportable forecast period •Real GDP growth ~~ranging~~ranges from ~~1.5%~~(.27)% to ~~2.7%~~1.2% •~~Prime rate~~BBB corporate yield from 4.9% to ~~6.2%~~5.5% •Housing Price Index from 282.1 to 284.5
Prepayment assumptions	Commercial loans •5% for most loan pools Personal banking loans •Ranging from ~~16.5%~~8.0% to ~~28.1%~~22.8% for most loan pools •~~67.7% for consumer~~Consumer credit cards 67.3%	Commercial loans •5% for most loan pools Personal banking loans •Ranging from ~~16.5%~~7.93% to ~~28.5%~~22.9% for most loan pools •~~67.0% for consumer~~Consumer credit cards 67.6%
Qualitative factors	Added qualitative factors related to: •~~Certain portfolios sensitive to pandemic economic uncertainties~~ •Changes in the composition of the loan portfolios •~~Uncertainty related~~Certain stressed industries within the portfolio •Certain portfolios sensitive to unusually high rate of inflation ~~geopolitical environment,~~ and supply chain issues •Loans downgraded to special mention, substandard, or non-accrual status	Added qualitative factors related to: •~~Certain portfolios sensitive to pandemic economic uncertainties~~ •Changes in the composition of the loan portfolios •~~Uncertainty related~~Certain stressed industries within the portfolio •Certain portfolios sensitive to unusually high rate of inflation ~~geopolitical environment,~~ and supply chain issues •Loans downgraded to special mention, substandard, or non-accrual status

The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans, however, the liability for unfunded lending commitments incorporates an assumption for the portion of unfunded commitments that are expected to be funded.

Sensitivity in the Allowance for Credit Loss model

The allowance for credit losses is an estimate that requires significant judgment including projections of the macro-economic environment. The forecasted macro-economic environment continuously changes which can cause fluctuations in estimated expected credit losses.

The current forecast projects a mild recession starting in the fourth quarter of 2023 ~~due~~as the economy continues to face high inflation, ~~rising~~higher interest rates ~~supply chain difficulties~~ and a weaker job market. The ~~Russian invasion~~impacts of ~~Ukraine created additional uncertainty as~~ the ~~world responds~~market's response to ~~the economic impact. The geopolitical environment,~~unusual events or trends including high inflation, supply chain stresses, trends in health conditions and ~~impacted supply constraints~~changes in the geopolitical environment could significantly modify economic projections used in the estimation of the allowance for credit ~~losses and liability for unfunded lending commitments.~~losses.

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A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments during the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, follows:


		For the Three Months Ended September 30, 2022						For the Nine Months Ended September 30, 2022							For the Three Months Ended September 30, 2023						For the Nine Months Ended September 30, 2023
(In thousands)	(In thousands)	Commercial		Personal Banking		Total		Commercial		Personal Banking		Total		(In thousands)	Commercial		Personal Banking		Total		Commercial		Personal Banking		Total
ALLOWANCE FOR CREDIT LOSSES ON LOANS	ALLOWANCE FOR CREDIT LOSSES ON LOANS													ALLOWANCE FOR CREDIT LOSSES ON LOANS

Balance at beginning of period	Balance at beginning of period	$	99,525	$	38,514	$	138,039	$	97,776	$	52,268	$	150,044	Balance at beginning of period	$	108,024	$	50,661	$	158,685	$	103,293	$	46,843	$	150,136
Provision for credit losses on loans	Provision for credit losses on loans	4,014		6,136		10,150		5,851		900		6,751		Provision for credit losses on loans	5,201		8,142		13,343		10,203		24,952		35,155
Deductions:	Deductions:													Deductions:
Loans charged off	Loans charged off	509		6,721		7,230		893		20,539		21,432		Loans charged off	2,664		9,262		11,926		3,263		26,549		29,812
Less recoveries on loans	Less recoveries on loans	56		2,362		2,418		352		7,662		8,014		Less recoveries on loans	66		2,076		2,142		394		6,371		6,765
Net loan charge-offs		453		4,359		4,812		541		12,877		13,418
Balance September 30, 2022		$	103,086	$	40,291	$	143,377	$	103,086	$	40,291	$	143,377
Net loan charge-offs (recoveries)														Net loan charge-offs (recoveries)	2,598		7,186		9,784		2,869		20,178		23,047
Balance September 30, 2023														Balance September 30, 2023	$	110,627	$	51,617	$	162,244	$	110,627	$	51,617	$	162,244
LIABILITY FOR UNFUNDED LENDING COMMITMENTS	LIABILITY FOR UNFUNDED LENDING COMMITMENTS													LIABILITY FOR UNFUNDED LENDING COMMITMENTS

Balance at beginning of period	Balance at beginning of period	$	23,617	$	1,290	$	24,907	$	23,271	$	933	$	24,204	Balance at beginning of period	$	27,842	$	1,393	$	29,235	$	31,743	$	1,377	$	33,120
Provision for credit losses on unfunded lending commitments	Provision for credit losses on unfunded lending commitments	5,182		(42)		5,140		5,528		315		5,843		Provision for credit losses on unfunded lending commitments	(1,724)		26		(1,698)		(5,625)		42		(5,583)
Balance September 30, 2022		$	28,799	$	1,248	$	30,047	$	28,799	$	1,248	$	30,047
Balance September 30, 2023														Balance September 30, 2023	$	26,118	$	1,419	$	27,537	$	26,118	$	1,419	$	27,537
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$	131,885	$	41,539	$	173,424	$	131,885	$	41,539	$	173,424	ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$	136,745	$	53,036	$	189,781	$	136,745	$	53,036	$	189,781

For the Three Months Ended September 30, 2021 For the Nine Months Ended September 30, 2021
(In thousands) Commercial Personal Banking

Total
Commercial Personal Banking

Total
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period $ 98,038 $ 74,357 $ 172,395 $ 121,549 $ 99,285 $ 220,834
Provision for credit losses on loans 186 (6,147) (5,961) (28,302) (15,447) (43,749)
Deductions:
Loans charged off 190 6,387 6,577 692 27,694 28,386
Less recoveries on loans 130 2,788 2,918 5,609 8,467 14,076
Net loan charge-offs (recoveries) 60 3,599 3,659 (4,917) 19,227 14,310
Balance September 30, 2021 $ 98,164 $ 64,611 $ 162,775 $ 98,164 $ 64,611 $ 162,775
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance at beginning of period $ 23,350 $ 858 $ 24,208 $ 37,259 $ 1,048 $ 38,307
Provision for credit losses on unfunded lending commitments (1,564) 140 (1,424) (15,473) (50) (15,523)
Balance September 30, 2021 $ 21,786 $ 998 $ 22,784 $ 21,786 $ 998 $ 22,784
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 119,950 $ 65,609 $ 185,559 $ 119,950 $ 65,609 $ 185,559


	For the Three Months Ended September 30, 2022						For the Nine Months Ended September 30, 2022
(In thousands)	Commercial		Personal Banking		Total		Commercial		Personal Banking		Total
ALLOWANCE FOR CREDIT LOSSES ON LOANS


Balance at beginning of period	$	99,525	$	38,514	$	138,039	$	97,776	$	52,268	$	150,044
Provision for credit losses on loans	4,014		6,136		10,150		5,851		900		6,751
Deductions:
Loans charged off	509		6,721		7,230		893		20,539		21,432
Less recoveries on loans	56		2,362		2,418		352		7,662		8,014
Net loan charge-offs (recoveries)	453		4,359		4,812		541		12,877		13,418
Balance September 30, 2022	$	103,086	$	40,291	$	143,377	$	103,086	$	40,291	$	143,377
LIABILITY FOR UNFUNDED LENDING COMMITMENTS


Balance at beginning of period	$	23,617	$	1,290	$	24,907	$	23,271	$	933	$	24,204
Provision for credit losses on unfunded lending commitments	5,182		(42)		5,140		5,528		315		5,843
Balance September 30, 2022	$	28,799	$	1,248	$	30,047	$	28,799	$	1,248	$	30,047
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$	131,885	$	41,539	$	173,424	$	131,885	$	41,539	$	173,424

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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 September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


(In thousands)	(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		(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
September 30, 2022
September 30, 2023												September 30, 2023
Commercial:	Commercial:											Commercial:
Business	Business	$	5,513,234	$	9,480	$	536	$	5,645	$	5,528,895	Business	$	5,899,303	$	1,726	$	699	$	6,602	$	5,908,330
Real estate – construction and land	Real estate – construction and land	1,206,395		560		—		—		1,206,955		Real estate – construction and land	1,539,345		221		—		—		1,539,566
Real estate – business	Real estate – business	3,307,921		23,557		—		149		3,331,627		Real estate – business	3,646,573		519		—		76		3,647,168
Personal Banking:	Personal Banking:											Personal Banking:
Real estate – personal	Real estate – personal	2,847,665		10,506		2,958		1,390		2,862,519		Real estate – personal	3,003,094		13,578		6,436		1,531		3,024,639
Consumer	Consumer	2,091,670		21,135		3,566		—		2,116,371		Consumer	2,095,230		28,509		2,065		—		2,125,804
Revolving home equity	Revolving home equity	284,595		541		890		—		286,026		Revolving home equity	300,018		2,539		2,680		—		305,237
Consumer credit card	Consumer credit card	553,815		4,989		4,545		—		563,349		Consumer credit card	561,534		6,595		6,700		—		574,829
Overdrafts	Overdrafts	2,830		343		43		—		3,216		Overdrafts	3,395		358		—		—		3,753
Total	Total	$	15,808,125	$	71,111	$	12,538	$	7,184	$	15,898,958	Total	$	17,048,492	$	54,045	$	18,580	$	8,209	$	17,129,326
December 31, 2021
December 31, 2022												December 31, 2022
Commercial:	Commercial:											Commercial:
Business	Business	$	5,292,125	$	3,621	$	477	$	7,312	$	5,303,535	Business	$	5,652,710	$	1,759	$	505	$	6,751	$	5,661,725
Real estate – construction and land	Real estate – construction and land	1,117,434		832		—		—		1,118,266		Real estate – construction and land	1,361,095		—		—		—		1,361,095
Real estate – business	Real estate – business	3,058,566		57		—		214		3,058,837		Real estate – business	3,406,207		585		—		189		3,406,981
Personal Banking:	Personal Banking:											Personal Banking:
Real estate – personal	Real estate – personal	2,796,662		4,125		2,983		1,631		2,805,401		Real estate – personal	2,895,742		14,289		6,681		1,366		2,918,078
Consumer	Consumer	2,005,556		24,458		2,211		—		2,032,225		Consumer	2,031,827		25,089		2,172		—		2,059,088
Revolving home equity	Revolving home equity	274,372		772		801		—		275,945		Revolving home equity	295,303		1,201		703		—		297,207
Consumer credit card	Consumer credit card	565,335		4,821		5,254		—		575,410		Consumer credit card	572,213		6,238		5,549		—		584,000
Overdrafts	Overdrafts	6,425		315		—		—		6,740		Overdrafts	14,090		647		220		—		14,957
Total	Total	$	15,116,475	$	39,001	$	11,726	$	9,157	$	15,176,359	Total	$	16,229,187	$	49,808	$	15,830	$	8,306	$	16,303,131

At September 30, ~~2022,~~2023, the Company had ~~$4.1~~$2.6 million in non-accrual business loans that had no allowance for credit ~~loss. At December 31, 2021, the Company had $5.3~~loss, compared to $3.8 million in non-accrual business loans that had no allowance for credit ~~loss.~~loss at December 31, 2022. The Company did not record any interest income on non-accrual loans during the ~~three and~~ nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Credit quality indicators

The following table provides information about the credit quality of the Commercial loan portfolio. The Company utilizes an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the expectation of debt repayment based on borrower specific information including, but not limited to, current financial information, historical payment experience, industry information, collateral levels and collateral types. The “pass” category consists of a range of loan grades that reflect increasing, though still acceptable, risk. A loan is assigned the risk rating at origination and then monitored throughout the contractual term for possible risk rating changes. Movement of risk through the various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention” rating is applied to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment.

All loans are analyzed for risk rating updates annually. For larger loans, rating assessments may be more frequent if relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans

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are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past due related to credit issues. Loans rated Special Mention, Substandard or Non-accrual are subject to quarterly review and monitoring processes. In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by a credit review department which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan.

The risk category of loans in the Commercial portfolio as of September 30, ~~2022~~2023 and December 31, ~~2021~~2022 are as follows:


		Term Loans Amortized Cost Basis by Origination Year																	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	(In thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total		(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
September 30, 2022
September 30, 2023																		September 30, 2023
Business	Business																	Business
Risk Rating:	Risk Rating:																	Risk Rating:
Pass	Pass	$	1,167,741	$	902,680	$	519,179	$	396,052	$	188,319	$	255,455	$	2,041,998	$	5,471,424	Pass	$	1,277,612	$	944,231	$	585,620	$	302,672	$	281,949	$	281,170	$	2,101,284	$	5,774,538
Special mention	Special mention	2,205		5,535		224		635		70		7,994		1,923		18,586		Special mention	22,310		4,513		20,926		7,223		282		2,530		16,783		74,567
Substandard	Substandard	6,600		5,409		794		3,690		2,817		10,064		3,866		33,240		Substandard	68		5,675		9,511		14,799		465		10,726		11,379		52,623
Non-accrual	Non-accrual	430		55		60		51		956		4,093		—		5,645		Non-accrual	—		2,524		1,462		—		—		2,616		—		6,602
Total Business:	Total Business:	$	1,176,976	$	913,679	$	520,257	$	400,428	$	192,162	$	277,606	$	2,047,787	$	5,528,895	Total Business:	$	1,299,990	$	956,943	$	617,519	$	324,694	$	282,696	$	297,042	$	2,129,446	$	5,908,330
Gross write-offs for the nine months ended September 30, 2023																		Gross write-offs for the nine months ended September 30, 2023	$	—	$	2,241	$	56	$	41	$	—	$	—	$	924	$	3,262
Real estate-construction	Real estate-construction																	Real estate-construction
Risk Rating:	Risk Rating:																	Risk Rating:
Pass	Pass	$	399,880	$	560,930	$	140,643	$	26,840	$	1,362	$	2,208	$	17,474	$	1,149,337	Pass	$	344,977	$	638,963	$	467,912	$	46,827	$	469	$	2,984	$	29,907	$	1,532,039
Special mention	Special mention	—		—		—		—		—		—		—		—		Special mention	3,532		—		—		—		—		—		—		3,532
Substandard	Substandard	—		19,500		9,999		—		14,926		13,193		—		57,618		Substandard	—		3,995		—		—		—		—		—		3,995

Total Real estate-construction:	Total Real estate-construction:	$	399,880	$	580,430	$	150,642	$	26,840	$	16,288	$	15,401	$	17,474	$	1,206,955	Total Real estate-construction:	$	348,509	$	642,958	$	467,912	$	46,827	$	469	$	2,984	$	29,907	$	1,539,566
Gross write-offs for the nine months ended September 30, 2023																		Gross write-offs for the nine months ended September 30, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate-business	Real estate-business																	Real estate-business
Risk Rating:	Risk Rating:																	Risk Rating:
Pass	Pass	$	876,470	$	641,482	$	576,752	$	468,588	$	167,190	$	292,556	$	90,112	$	3,113,150	Pass	$	610,274	$	1,120,900	$	515,022	$	457,778	$	331,537	$	344,130	$	71,627	$	3,451,268
Special mention	Special mention	2,854		3,447		632		9,854		985		526		—		18,298		Special mention	4,107		15,582		3,032		895		9,373		886		—		33,875
Substandard	Substandard	—		30,992		61,356		11,437		33,977		62,268		—		200,030		Substandard	—		20,299		25,477		17,318		11,807		86,784		264		161,949
Non-accrual	Non-accrual	—		—		—		—		140		9		—		149		Non-accrual	—		—		—		—		—		76		—		76
Total Real estate-business:	Total Real estate-business:	$	879,324	$	675,921	$	638,740	$	489,879	$	202,292	$	355,359	$	90,112	$	3,331,627	Total Real estate-business:	$	614,381	$	1,156,781	$	543,531	$	475,991	$	352,717	$	431,876	$	71,891	$	3,647,168
Gross write-offs for the nine months ended September 30, 2023																		Gross write-offs for the nine months ended September 30, 2023	$	—	$	—	$	—	$	—	$	—	$	1	$	—	$	1
Commercial loans	Commercial loans																	Commercial loans
Risk Rating:	Risk Rating:																	Risk Rating:
Pass	Pass	$	2,444,091	$	2,105,092	$	1,236,574	$	891,480	$	356,871	$	550,219	$	2,149,584	$	9,733,911	Pass	$	2,232,863	$	2,704,094	$	1,568,554	$	807,277	$	613,955	$	628,284	$	2,202,818	$	10,757,845
Special mention	Special mention	5,059		8,982		856		10,489		1,055		8,520		1,923		36,884		Special mention	29,949		20,095		23,958		8,118		9,655		3,416		16,783		111,974
Substandard	Substandard	6,600		55,901		72,149		15,127		51,720		85,525		3,866		290,888		Substandard	68		29,969		34,988		32,117		12,272		97,510		11,643		218,567
Non-accrual	Non-accrual	430		55		60		51		1,096		4,102		—		5,794		Non-accrual	—		2,524		1,462		—		—		2,692		—		6,678
Total Commercial loans:	Total Commercial loans:	$	2,456,180	$	2,170,030	$	1,309,639	$	917,147	$	410,742	$	648,366	$	2,155,373	$	10,067,477	Total Commercial loans:	$	2,262,880	$	2,756,682	$	1,628,962	$	847,512	$	635,882	$	731,902	$	2,231,244	$	11,095,064
Gross write-offs for the nine months ended September 30, 2023																		Gross write-offs for the nine months ended September 30, 2023	$	—	$	2,241	$	56	$	41	$	—	$	1	$	924	$	3,263

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		Term Loans Amortized Cost Basis by Origination Year																	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total		(In thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
December 31, 2021
December 31, 2022																		December 31, 2022
Business	Business																	Business
Risk Rating:	Risk Rating:																	Risk Rating:
Pass	Pass	$	1,473,869	$	704,157	$	554,759	$	248,739	$	159,238	$	270,454	$	1,795,073	$	5,206,289	Pass	$	1,456,476	$	782,409	$	464,201	$	360,844	$	180,375	$	219,053	$	2,146,380	$	5,609,738
Special mention	Special mention	1,785		126		17,576		12,050		1,490		3,232		16,545		52,804		Special mention	3,113		2,548		7,757		1,063		67		—		1,319		15,867
Substandard	Substandard	836		1,191		8,855		4,936		1		10,775		10,536		37,130		Substandard	5,752		10,004		685		37		810		10,342		1,739		29,369
Non-accrual	Non-accrual	430		—		1		1,549		—		5,332		—		7,312		Non-accrual	195		1,987		—		1		792		3,776		—		6,751
Total Business:	Total Business:	$	1,476,920	$	705,474	$	581,191	$	267,274	$	160,729	$	289,793	$	1,822,154	$	5,303,535	Total Business:	$	1,465,536	$	796,948	$	472,643	$	361,945	$	182,044	$	233,171	$	2,149,438	$	5,661,725
Real estate-construction	Real estate-construction																	Real estate-construction
Risk Rating:	Risk Rating:																	Risk Rating:
Pass	Pass	$	598,734	$	346,507	$	66,985	$	2,110	$	2,655	$	2,252	$	13,230	$	1,032,473	Pass	$	538,022	$	596,465	$	129,632	$	27,331	$	1,305	$	2,029	$	18,559	$	1,313,343
Special mention	Special mention	44,649		—		—		985		—		—		—		45,634		Special mention	352		—		—		—		—		—		—		352
Substandard	Substandard	485		11,620		—		14,896		13,158		—		—		40,159		Substandard	—		19,494		—		—		14,766		13,140		—		47,400

Total Real estate-construction:	Total Real estate-construction:	$	643,868	$	358,127	$	66,985	$	17,991	$	15,813	$	2,252	$	13,230	$	1,118,266	Total Real estate-construction:	$	538,374	$	615,959	$	129,632	$	27,331	$	16,071	$	15,169	$	18,559	$	1,361,095
Real estate- business	Real estate- business																	Real estate- business
Risk Rating:	Risk Rating:																	Risk Rating:
Pass	Pass	$	775,561	$	712,173	$	551,697	$	230,138	$	170,888	$	254,489	$	76,641	$	2,771,587	Pass	$	1,085,379	$	616,516	$	555,648	$	424,641	$	163,628	$	271,579	$	90,799	$	3,208,190
Special mention	Special mention	4,011		30,322		10,500		37,576		2,068		2,103		1		86,581		Special mention	4,608		—		618		9,737		976		279		—		16,218
Substandard	Substandard	17,079		62,939		12,930		2,326		58,934		45,265		982		200,455		Substandard	2,795		30,944		61,141		10,490		30,782		46,232		—		182,384
Non-accrual	Non-accrual	—		—		—		189		—		25		—		214		Non-accrual	14		45		—		—		124		6		—		189
Total Real-estate business:	Total Real-estate business:	$	796,651	$	805,434	$	575,127	$	270,229	$	231,890	$	301,882	$	77,624	$	3,058,837	Total Real-estate business:	$	1,092,796	$	647,505	$	617,407	$	444,868	$	195,510	$	318,096	$	90,799	$	3,406,981
Commercial loans	Commercial loans																	Commercial loans
Risk Rating:	Risk Rating:																	Risk Rating:
Pass	Pass	$	2,848,164	$	1,762,837	$	1,173,441	$	480,987	$	332,781	$	527,195	$	1,884,944	$	9,010,349	Pass	$	3,079,877	$	1,995,390	$	1,149,481	$	812,816	$	345,308	$	492,661	$	2,255,738	$	10,131,271
Special mention	Special mention	50,445		30,448		28,076		50,611		3,558		5,335		16,546		185,019		Special mention	8,073		2,548		8,375		10,800		1,043		279		1,319		32,437
Substandard	Substandard	18,400		75,750		21,785		22,158		72,093		56,040		11,518		277,744		Substandard	8,547		60,442		61,826		10,527		46,358		69,714		1,739		259,153
Non-accrual	Non-accrual	430		—		1		1,738		—		5,357		—		7,526		Non-accrual	209		2,032		—		1		916		3,782		—		6,940
Total Commercial loans:	Total Commercial loans:	$	2,917,439	$	1,869,035	$	1,223,303	$	555,494	$	408,432	$	593,927	$	1,913,008	$	9,480,638	Total Commercial loans:	$	3,096,706	$	2,060,412	$	1,219,682	$	834,144	$	393,625	$	566,436	$	2,258,796	$	10,429,801

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 September 30, ~~2022~~2023 and December 31, ~~2021 below:~~2022 below.


		Term Loans Amortized Cost Basis by Origination Year																	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	(In thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total		(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
September 30, 2022
September 30, 2023																		September 30, 2023
Real estate-personal	Real estate-personal																	Real estate-personal
Current to 90 days past due	Current to 90 days past due	$	422,198	$	602,071	$	795,233	$	299,702	$	138,681	$	590,278	$	10,008	$	2,858,171	Current to 90 days past due	$	384,542	$	462,127	$	546,460	$	728,286	$	266,678	$	619,916	$	8,663	$	3,016,672
Over 90 days past due	Over 90 days past due	198		617		907		71		114		1,051		—		2,958		Over 90 days past due	49		1,299		1,499		1,071		—		2,518		—		6,436
Non-accrual	Non-accrual	—		—		—		172		104		1,114		—		1,390		Non-accrual	—		161		—		—		160		1,210		—		1,531
Total Real estate-personal:	Total Real estate-personal:	$	422,396	$	602,688	$	796,140	$	299,945	$	138,899	$	592,443	$	10,008	$	2,862,519	Total Real estate-personal:	$	384,591	$	463,587	$	547,959	$	729,357	$	266,838	$	623,644	$	8,663	$	3,024,639
Gross write-offs for the nine months ended September 30, 2023																		Gross write-offs for the nine months ended September 30, 2023	$	—	$	18	$	—	$	—	$	—	$	23	$	—	$	41
Consumer	Consumer																	Consumer
Current to 90 days past due	Current to 90 days past due	$	449,631	$	409,063	$	228,612	$	122,966	$	44,230	$	71,452	$	786,851	$	2,112,805	Current to 90 days past due	$	452,731	$	368,897	$	279,652	$	143,995	$	66,217	$	59,466	$	752,781	$	2,123,739
Over 90 days past due	Over 90 days past due	50		344		784		183		325		274		1,606		3,566		Over 90 days past due	293		392		200		28		66		378		708		2,065

Total Consumer:	Total Consumer:	$	449,681	$	409,407	$	229,396	$	123,149	$	44,555	$	71,726	$	788,457	$	2,116,371	Total Consumer:	$	453,024	$	369,289	$	279,852	$	144,023	$	66,283	$	59,844	$	753,489	$	2,125,804
Gross write-offs for the nine months ended September 30, 2023																		Gross write-offs for the nine months ended September 30, 2023	$	392	$	1,968	$	1,541	$	658	$	310	$	297	$	788	$	5,954
Revolving home equity	Revolving home equity																	Revolving home equity
Current to 90 days past due	Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	285,136	$	285,136	Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	302,557	$	302,557
Over 90 days past due	Over 90 days past due	—		—		—		—		—		—		890		890		Over 90 days past due	—		—		—		—		—		—		2,680		2,680

Total Revolving home equity:	Total Revolving home equity:	$	—	$	—	$	—	$	—	$	—	$	—	$	286,026	$	286,026	Total Revolving home equity:	$	—	$	—	$	—	$	—	$	—	$	—	$	305,237	$	305,237
Gross write-offs for the nine months ended September 30, 2023																		Gross write-offs for the nine months ended September 30, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	11	$	11
Consumer credit card	Consumer credit card																	Consumer credit card
Current to 90 days past due	Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	558,804	$	558,804	Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	568,129	$	568,129
Over 90 days past due	Over 90 days past due	—		—		—		—		—		—		4,545		4,545		Over 90 days past due	—		—		—		—		—		—		6,700		6,700

Total Consumer credit card:	Total Consumer credit card:	$	—	$	—	$	—	$	—	$	—	$	—	$	563,349	$	563,349	Total Consumer credit card:	$	—	$	—	$	—	$	—	$	—	$	—	$	574,829	$	574,829
Gross write-offs for the nine months ended September 30, 2023																		Gross write-offs for the nine months ended September 30, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	17,602	$	17,602
Overdrafts	Overdrafts																	Overdrafts
Current to 90 days past due	Current to 90 days past due	$	3,173	$	—	$	—	$	—	$	—	$	—	$	—	$	3,173	Current to 90 days past due	$	3,753	$	—	$	—	$	—	$	—	$	—	$	—	$	3,753
Over 90 days past due		43		—		—		—		—		—		—		43

Total Overdrafts:	Total Overdrafts:	$	3,216	$	—	$	—	$	—	$	—	$	—	$	—	$	3,216	Total Overdrafts:	$	3,753	$	—	$	—	$	—	$	—	$	—	$	—	$	3,753
Gross write-offs for the nine months ended September 30, 2023																		Gross write-offs for the nine months ended September 30, 2023	$	2,941	$	—	$	—	$	—	$	—	$	—	$	—	$	2,941
Personal banking loans	Personal banking loans																	Personal banking loans
Current to 90 days past due	Current to 90 days past due	$	875,002	$	1,011,134	$	1,023,845	$	422,668	$	182,911	$	661,730	$	1,640,799	$	5,818,089	Current to 90 days past due	$	841,026	$	831,024	$	826,112	$	872,281	$	332,895	$	679,382	$	1,632,130	$	6,014,850
Over 90 days past due	Over 90 days past due	291		961		1,691		254		439		1,325		7,041		12,002		Over 90 days past due	342		1,691		1,699		1,099		66		2,896		10,088		17,881
Non-accrual	Non-accrual	—		—		—		172		104		1,114		—		1,390		Non-accrual	—		161		—		—		160		1,210		—		1,531
Total Personal banking loans:	Total Personal banking loans:	$	875,293	$	1,012,095	$	1,025,536	$	423,094	$	183,454	$	664,169	$	1,647,840	$	5,831,481	Total Personal banking loans:	$	841,368	$	832,876	$	827,811	$	873,380	$	333,121	$	683,488	$	1,642,218	$	6,034,262
Gross write-offs for the nine months ended September 30, 2023																		Gross write-offs for the nine months ended September 30, 2023	$	3,333	$	1,986	$	1,541	$	658	$	310	$	320	$	18,401	$	26,549

Table of Contents


		Term Loans Amortized Cost Basis by Origination Year																	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	(In thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans Amortized Cost Basis		Total		(In thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans Amortized Cost Basis		Total
December 31, 2021
December 31, 2022																		December 31, 2022
Real estate-personal	Real estate-personal																	Real estate-personal
Current to 90 days past due	Current to 90 days past due	$	690,058	$	888,631	$	354,292	$	157,485	$	149,391	$	551,460	$	9,470	$	2,800,787	Current to 90 days past due	$	535,283	$	589,658	$	783,651	$	290,580	$	132,305	$	568,380	$	10,174	$	2,910,031
Over 90 days past due	Over 90 days past due	133		1,150		298		124		97		1,181		—		2,983		Over 90 days past due	514		967		1,338		81		1,388		2,393		—		6,681
Non-accrual	Non-accrual	115		—		251		109		—		1,156		—		1,631		Non-accrual	—		—		52		169		102		1,043		—		1,366
Total Real estate-personal:	Total Real estate-personal:	$	690,306	$	889,781	$	354,841	$	157,718	$	149,488	$	553,797	$	9,470	$	2,805,401	Total Real estate-personal:	$	535,797	$	590,625	$	785,041	$	290,830	$	133,795	$	571,816	$	10,174	$	2,918,078
Consumer	Consumer																	Consumer
Current to 90 days past due	Current to 90 days past due	$	571,455	$	348,774	$	192,076	$	79,887	$	47,401	$	78,088	$	712,333	$	2,030,014	Current to 90 days past due	$	536,429	$	378,118	$	205,849	$	106,733	$	36,096	$	62,255	$	731,436	$	2,056,916
Over 90 days past due	Over 90 days past due	283		335		257		250		74		351		661		2,211		Over 90 days past due	326		251		203		58		267		228		839		2,172

Total Consumer:	Total Consumer:	$	571,738	$	349,109	$	192,333	$	80,137	$	47,475	$	78,439	$	712,994	$	2,032,225	Total Consumer:	$	536,755	$	378,369	$	206,052	$	106,791	$	36,363	$	62,483	$	732,275	$	2,059,088
Revolving home equity	Revolving home equity																	Revolving home equity
Current to 90 days past due	Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	275,144	$	275,144	Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	296,504	$	296,504
Over 90 days past due	Over 90 days past due	—		—		—		—		—		—		801		801		Over 90 days past due	—		—		—		—		—		—		703		703

Total Revolving home equity:	Total Revolving home equity:	$	—	$	—	$	—	$	—	$	—	$	—	$	275,945	$	275,945	Total Revolving home equity:	$	—	$	—	$	—	$	—	$	—	$	—	$	297,207	$	297,207
Consumer credit card	Consumer credit card																	Consumer credit card
Current to 90 days past due	Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	570,156	$	570,156	Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	578,451	$	578,451
Over 90 days past due	Over 90 days past due	—		—		—		—		—		—		5,254		5,254		Over 90 days past due	—		—		—		—		—		—		5,549		5,549

Total Consumer credit card:	Total Consumer credit card:	$	—	$	—	$	—	$	—	$	—	$	—	$	575,410	$	575,410	Total Consumer credit card:	$	—	$	—	$	—	$	—	$	—	$	—	$	584,000	$	584,000
Overdrafts	Overdrafts																	Overdrafts
Current to 90 days past due	Current to 90 days past due	$	6,740	$	—	$	—	$	—	$	—	$	—	$	—	$	6,740	Current to 90 days past due	$	14,737	$	—	$	—	$	—	$	—	$	—	$	—	$	14,737

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

Total Overdrafts:	Total Overdrafts:	$	6,740	$	—	$	—	$	—	$	—	$	—	$	—	$	6,740	Total Overdrafts:	$	14,957	$	—	$	—	$	—	$	—	$	—	$	—	$	14,957
Personal banking loans	Personal banking loans																	Personal banking loans
Current to 90 days past due	Current to 90 days past due	$	1,268,253	$	1,237,405	$	546,368	$	237,372	$	196,792	$	629,548	$	1,567,103	$	5,682,841	Current to 90 days past due	$	1,086,449	$	967,776	$	989,500	$	397,313	$	168,401	$	630,635	$	1,616,565	$	5,856,639
Over 90 days past due	Over 90 days past due	416		1,485		555		374		171		1,532		6,716		11,249		Over 90 days past due	1,060		1,218		1,541		139		1,655		2,621		7,091		15,325
Non-accrual	Non-accrual	115		—		251		109		—		1,156		—		1,631		Non-accrual	—		—		52		169		102		1,043		—		1,366
Total Personal banking loans:	Total Personal banking loans:	$	1,268,784	$	1,238,890	$	547,174	$	237,855	$	196,963	$	632,236	$	1,573,819	$	5,695,721	Total Personal banking loans:	$	1,087,509	$	968,994	$	991,093	$	397,621	$	170,158	$	634,299	$	1,623,656	$	5,873,330

Collateral-dependent loans

The Company's collateral-dependent loans are comprised of large loans on non-accrual status. The Company requires that collateral-dependent loans are either over-collateralized or carry collateral equal to the amortized cost of the loan. The following table presents the amortized cost basis of collateral-dependent loans as of September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


(In thousands)	(In thousands)	Business Assets		Oil & Gas Assets		Total		(In thousands)	Business Assets		Oil & Gas Assets		Total
September 30, 2022
September 30, 2023								September 30, 2023
Commercial:	Commercial:							Commercial:
Business	Business	$	1,156	$	1,966	$	3,122	Business	$	3,792	$	1,345	$	5,137

Total	Total	$	1,156	$	1,966	$	3,122	Total	$	3,792	$	1,345	$	5,137
December 31, 2021
December 31, 2022								December 31, 2022
Commercial:	Commercial:							Commercial:
Business	Business	$	1,604	$	2,459	$	4,063	Business	$	2,778	$	1,824	$	4,602

Total	Total	$	1,604	$	2,459	$	4,063	Total	$	2,778	$	1,824	$	4,602

Other Personal Banking loan information

As noted above, the credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided in the table in the above section on "Credit quality indicators." In addition, FICO scores are obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit score designed to measure the risk of default by taking into account various factors from a borrower's financial history and is considered supplementary information utilized by the Company, as management does not consider this information in evaluating the allowance for credit losses on loans. The Bank normally obtains a FICO score at the loan's origination and

Table of Contents

renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain personal real estate

~~Table of Contents~~

loans for which FICO scores are not obtained because the loans generally pertain to commercial customer activities and are often underwritten with other collateral considerations. These loans totaled ~~$186.8~~$170.2 million at September 30, ~~2022~~2023 and ~~$185.6~~$179.2 million at December 31, ~~2021.~~2022. The table also excludes consumer loans related to the Company's patient healthcare loan program, which totaled ~~$197.7~~$210.0 million at September 30, ~~2022~~2023 and ~~$186.6~~$197.5 million at December 31, ~~2021.~~2022. As the healthcare loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and consumer loans excluded below totaled less than 7% of the Personal Banking portfolio. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 by FICO score.


Personal Banking Loans	Personal Banking Loans									Personal Banking Loans
		% of Loan Category									% of Loan Category
		Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card			Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card
September 30, 2022
September 30, 2023										September 30, 2023
FICO score:	FICO score:									FICO score:
Under 600	Under 600	1.3	%	1.8	%	1.5	%	3.6	%	Under 600	1.8	%	2.8	%	1.8	%	4.4	%
600 - 659	600 - 659	2.5		3.9		3.4		11.8		600 - 659	2.3		4.6		3.3		12.1
660 - 719	660 - 719	8.1		13.2		9.1		30.2		660 - 719	8.3		13.1		9.7		29.5
720 - 779	720 - 779	23.5		23.8		22.4		27.9		720 - 779	22.2		26.2		23.2		27.6
780 and over	780 and over	64.6		57.3		63.6		26.5		780 and over	65.4		53.3		62.0		26.4
Total	Total	100.0	%	100.0	%	100.0	%	100.0	%	Total	100.0	%	100.0	%	100.0	%	100.0	%
December 31, 2021
December 31, 2022										December 31, 2022
FICO score:	FICO score:									FICO score:
Under 600	Under 600	1.0	%	1.9	%	0.9	%	3.4	%	Under 600	1.4	%	2.2	%	1.5	%	3.4	%
600 - 659	600 - 659	2.4		3.9		2.6		11.3		600 - 659	2.2		4.2		2.8		11.4
660 - 719	660 - 719	7.4		13.8		9.4		29.9		660 - 719	8.1		14.5		9.7		30.8
720 - 779	720 - 779	25.2		25.3		20.4		28.2		720 - 779	23.7		26.7		21.4		27.1
780 and over	780 and over	64.0		55.1		66.7		27.2		780 and over	64.6		52.4		64.6		27.3
Total	Total	100.0	%	100.0	%	100.0	%	100.0	%	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.

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.

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The following tables present the amortized cost at September 30, 2023 of loans that were modified during the three and nine months ended September 30, 2023.


	For the Three Months Ended September 30, 2023
(Dollars in thousands)	Term Extension		Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Other		Total		% of Total Loan Category
September 30, 2023
Commercial:
Business	$	3,792	$	—	$	—	$	—	$	—	$	3,792	0.1	%

Real estate – business	56,552		—		—		—		—		56,552		1.6
Personal Banking:
Real estate – personal	45		773		—		—		—		818		—
Consumer	—		—		49		—		31		80		—

Consumer credit card	—		—		935		72		—		1,007		0.2

Total	$	60,389	$	773	$	984	$	72	$	31	$	62,249	0.4	%


	For the Nine Months Ended September 30, 2023
(Dollars in thousands)	Term Extension		Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Other		Total		% of Total Loan Category
September 30, 2023
Commercial:
Business	$	16,705	$	—	$	—	$	—	$	—	$	16,705	0.3	%

Real estate – business	106,034		—		—		—		—		106,034		2.9
Personal Banking:
Real estate – personal	289		3,313		—		—		—		3,602		0.1
Consumer	30		70		69		—		86		255		—

Consumer credit card	—		—		1,967		485		—		2,452		0.4

Total	$	123,058	$	3,383	$	2,036	$	485	$	86	$	129,048	0.8	%

The estimate of lifetime expected losses utilized in the allowance for credit losses model is developed using average historical experience on loans with similar risk characteristics, which includes losses from modifications of loans to borrowers experiencing financial difficulty. As a result, a change to the allowance for credit losses is generally not recorded upon modification. For modifications to loans made to borrowers experiencing financial difficulty that are placed on non-accrual status, the Company determines the allowance for credit losses on an individual evaluation, using the same process that it utilizes for other loans on non-accrual status. Modifications made to commercial loans which are not on non-accrual status for borrowers experiencing financial difficulty are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience, and current economic factors. Modifications made to borrowers experiencing financial difficulty for personal banking loans which are not on non-accrual status are collectively evaluated based on loan type, delinquency, historical experience, and current economic factors.

If a loan to a borrower experiencing financial difficulty is modified and subsequently deemed uncollectible, the allowance for credit losses continues to be based on individual evaluation, if that loan is already on non-accrual status. For those loans, the allowance for credit losses is estimated using discounted expected cash flows or the fair value of collateral. If an accruing loan made to a borrower experiencing financial difficulty is modified and subsequently deemed uncollectible, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for credit losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begin.

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The following tables summarize the financial impact of loan modifications and payment deferrals during the three and nine months ended September 30, 2023.


	Term Extension
	Three Months Ended September 30, 2023	Nine Months Ended September 30, 2023
Commercial:
Business	Extended maturity by a weighted average of 3 months.	Extended maturity by a weighted average of 8 months.

Real estate – business	Extended maturity by a weighted average of 12 months.	Extended maturity by a weighted average of 13 months.
Personal Banking:
Real estate – personal	Extended maturity by a weighted average of 6 months.	Extended maturity by a weighted average of 7 months.
Consumer		Extended maturity by 10 years.


	Payment Delay
	Three Months Ended September 30, 2023	Nine Months Ended September 30, 2023




Personal Banking:
Real estate – personal	Deferred certain payments by a weighted average of 22 years.	Deferred certain payments by a weighted average of 20 years.
Consumer		Deferred certain payments by a weighted average of 71 months.


	Interest Rate Reduction
	Three Months Ended September 30, 2023	Nine Months Ended September 30, 2023




Personal Banking:

Consumer	Reduced contractual interest from weighted average 21% to 6%.	Reduced contractual interest from weighted average 21% to 6%.

Consumer credit card	Reduced contractual interest from weighted average 21% to 6%.	Reduced contractual interest from weighted average 21% to 6%.


	Forgiveness of Interest/Fees
	Three Months Ended September 30, 2023	Nine Months Ended September 30, 2023




Personal Banking:



Consumer credit card	Approximately $5 thousand of interest and fees forgiven.	Approximately $33 thousand of interest and fees forgiven.

The Company had commitments of $9.1 million at September 30, 2023 to lend additional funds to borrowers experiencing financial difficulty and for whom the Company has modified the terms of loans in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, or a term extension during the current reporting period.

The following table provides the amortized cost basis of loans to borrowers experiencing financial difficulty that had a payment default during the three and nine months ended September 30, 2023 and were modifiedon or after January 1, 2023 (the date we adopted ASU 2022-02) through September 30, 2023. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal. In addition to the loans below, the Company charged off $2.2 million and $327 thousand of business and consumer credit card loans, respectively, during the nine months ended September 30, 2023 that were modified during the period.

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	For the Three Months Ended September 30, 2023								For the Nine Months Ended September 30, 2023
(Dollars in thousands)	Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Total			Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Total
September 30, 2023




Personal Banking:
Real estate – personal	$	802	$	—	$	—	$	802		$	1,007	$	—	$	—	$	1,007
Consumer	—		19		—		19			—		30		—		30

Consumer credit card	—		235		157		392			—		274		158		432

Total	$	802	$	254	$	157	$	1,213		$	1,007	$	304	$	158	$	1,469

The following table presents the amortized cost basis at September 30, 2023 of loans that have been modified on or after January 1, 2023 (the date we adopted ASU 2022-02) through September 30, 2023.


(In thousands)	Current		30-89 Days Past Due		90 Days Past Due		Total
September 30, 2023
Commercial:
Business	$	16,705	$	—	$	—	$	16,705

Real estate – business	106,034		—		—		106,034
Personal Banking:
Real estate – personal	2,203		597		802		3,602
Consumer	209		27		19		255

Consumer credit card	1,534		526		392		2,452

Total	$	126,685	$	1,150	$	1,213	$	129,048

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

Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due under the contractual terms will be collected. Commercial performing restructured loans are primarily comprised of certain business, construction and business real estate loans classified as substandard but renewed at rates judged to be non-market. These loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. Troubled debt restructurings also include certain credit card and other small consumer loans under various debt management and assistance programs. Modifications to these loans generally involve removing the available line of credit, placing loans on amortizing status, and lowering the contractual interest rate. Certain personal real estate, revolving home equity, and consumer loans were classified as consumer bankruptcy troubled debt restructurings because they were not reaffirmed by the borrower in bankruptcy proceedings. Interest on these loans is being recognized on an accrual basis, as the borrowers are continuing to make payments. Other consumer loans classified as troubled debt restructurings consist of various other workout arrangements with consumer customers.

(In thousands) September 30, 2022 December 31, 2021
Accruing restructured loans:
Commercial $ 140,564 $ 46,867
Assistance programs 5,218 6,146
Other consumer 4,289 4,787
Non-accrual loans 5,510 7,087
Total troubled debt restructurings $ 155,581 $ 64,887


(In thousands)		December 31, 2022
Accruing restructured loans:
	Commercial	$	184,388
	Assistance programs	5,156

	Other consumer	4,049
Non-accrual loans		5,078
Total troubled debt restructurings		$	198,671

Section 4013 of the CARES Act was signed into law on March 27, 2020, and included a provision that short-term modifications are not troubled debt restructurings, if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to December 31, 2019. The Company elected such option under the CARES Act when determining if a customer’s modification is subject to troubled debt restructuring classification. The initial guidance issued under the CARES Act was due to expire on December 31, 2020. During January 2021, the Consolidated Appropriations Act, 2021 was enacted

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and extended through the end of 2021 the relief offered under the CARES Act related to the accounting and disclosure requirements for troubled debt restructurings as a result of COVID-19. The Company elected to extend its application of this guidance through December 31, 2021. During the period covered by the CARES Act, if it was deemed that the loan

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modification was not short-term, not COVID-19 related or the customer does not meet the criteria under the guidance to be scoped out of troubled debt restructuring classification, the Company evaluated the loan modifications under its existing framework and accounted for the modification as a troubled debt restructuring.

The table below shows the balance of troubled debt restructurings by loan classification at ~~September 30,~~December 31, 2022, in addition to the outstanding balances of these restructured loans which the Company considers to have been in default at any time during the past twelve months. For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal.


(In thousands)	(In thousands)	September 30, 2022		Balance 90 days past due at any time during previous 12 months		(In thousands)	December 31, 2022		Balance at December 31, 2022 that was 90 days past due at any time during previous 12 months
Commercial:	Commercial:					Commercial:
Business	Business	$	10,958	$	—	Business	$	12,311	$	—
Real estate - construction and land	Real estate - construction and land	10,054		—		Real estate - construction and land	57,547		—
Real estate - business	Real estate - business	124,046		—		Real estate - business	118,654		—
Personal Banking:	Personal Banking:					Personal Banking:
Real estate - personal	Real estate - personal	2,894		653		Real estate - personal	2,809		419
Consumer	Consumer	18		—		Consumer	2,250		268
Revolving home equity	Revolving home equity	2,394		270		Revolving home equity	17		—
Consumer credit card	Consumer credit card	5,217		364		Consumer credit card	5,083		452
Total troubled debt restructurings	Total troubled debt restructurings	$	155,581	$	1,287	Total troubled debt restructurings	$	198,671	$	1,139

For those loans on non-accrual status also classified as restructured, the modification did not create any further financial effect on the Company as those loans were already recorded at net realizable value. For those performing commercial loans classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no financial impact to the Company as a result of modification to these loans. However, the effects of modifications to loans under various debt management and assistance programs at December 31, 2022 were estimated to decrease interest income by approximately ~~$663~~$661 thousand on an annual, pre-tax basis, compared to amounts contractually owed. Other modifications to consumer loans mainly involve extensions and other small modifications that did not include the forgiveness of principal or interest.

The allowance for credit losses related to troubled debt restructurings on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which management expects to collect under contractual terms. Performing commercial loans having no other concessions granted other than being renewed at non-market interest rates are judged to have similar risk characteristics as non-troubled debt commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical experience and current economic factors.

If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for credit losses continues to be based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If an accruing troubled debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for credit losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begin.

The Company had commitments of ~~$22.0~~$12.6 million at ~~September 30,~~December 31, 2022 to lend additional funds to borrowers with restructured loans. ~~Additionally, the Company had commitments at September 30, 2022 of $24.0 million related to letters of credit with an internal risk rating below substandard.~~

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

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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 September 30, ~~2022,~~2023, the fair value of these loans was ~~$1.4 million,~~$366 thousand, and the unpaid principal balance was ~~$1.5 million.~~$360 thousand.

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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 September 30, ~~2022~~2023 totaled ~~$6.6~~$4.5 million.

At September 30, ~~2022,~~2023, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing interest.

Foreclosed real estate/repossessed assets

The Company’s holdings of foreclosed real estate totaled ~~$354~~$114 thousand and ~~$115~~$96 thousand at September 30, ~~2022~~2023 and December 31, ~~2021, respectively.~~2022, respectively, and included in those amounts were $114 thousand and $96 thousand at September 30, 2023 and December 31, 2022, respectively, of foreclosed residential real estate properties held as a result of obtaining physical possession. Personal property acquired in repossession, generally autos, totaled ~~$1.7 million and $1.1~~$1.6 million at both September 30, ~~2022~~2023 and December 31, ~~2021, respectively.~~2022. 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 September 30, ~~2022~~2023 and December 31, ~~2021.~~2022.


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	September 30, 2023		December 31, 2022
Available for sale debt securities	Available for sale debt securities	$	12,632,510	$	14,450,027	Available for sale debt securities	$	9,860,828	$	12,238,316
Trading debt securities	Trading debt securities	39,222		46,235		Trading debt securities	35,564		43,523
Equity securities:	Equity securities:					Equity securities:
Readily determinable fair value	Readily determinable fair value	6,106		7,153		Readily determinable fair value	5,453		6,210
No readily determinable fair value	No readily determinable fair value	2,848		2,049		No readily determinable fair value	6,759		6,094
Other:	Other:					Other:
Federal Reserve Bank stock	Federal Reserve Bank stock	34,707		34,379		Federal Reserve Bank stock	35,070		34,795
Federal Home Loan Bank stock	Federal Home Loan Bank stock	10,260		10,428		Federal Home Loan Bank stock	30,400		10,678
Equity method investments	Equity method investments	1,434		1,834		Equity method investments	—		1,434
Private equity investments	Private equity investments	176,341		147,406		Private equity investments	165,322		178,127
Total investment securities (1)	Total investment securities (1)	$	12,903,428	$	14,699,511	Total investment securities (1)	$	10,139,396	$	12,519,177

(1)Accrued interest receivable totaled ~~$39.6~~$29.4 million and ~~$39.5~~$38.8 million at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and was included within other assets on the consolidated balance sheets.

The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer. This portfolio includes the Company's holdings of Visa Class B shares, which have a carrying value of zero, as there have not been observable price changes in orderly transactions for identical or similar investments of the same issuer. During the nine months ended September 30, ~~2022,~~2023, the Company did not record any impairment or other adjustments to the carrying amount of its portfolio of equity securities with no readily determinable fair value.

Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, equity method investments, and investments in portfolio concerns held by the Company's private equity subsidiary. FRB stock and FHLB stock are held for debt and regulatory purposes. Investment in FRB stock is based on the capital structure of the investing bank, and investment in FHLB stock is tied to the asset size of the borrowing bank and the level of borrowings from the FHLB. These holdings are carried at cost. Additionally, the Company's equity method investments are carried at cost, adjusted to reflect the Company's portion of income, loss, or dividends of the investee. These adjustments are included in non-interest income on the Company's consolidated statements of income. The Company's private equity investments are carried at estimated fair value.

The majority of the Company’s investment portfolio is comprised of available for sale debt securities, which are carried at fair value with changes in fair value reported in accumulated other comprehensive income (AOCI). A summary of the available for sale debt securities by maturity groupings as of September 30, ~~2022~~2023 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and Government National

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Mortgage Association (GNMA), in addition to non-agency mortgage-backed securities, which have no guarantee but are

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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.


(In thousands)	(In thousands)	Amortized Cost		Fair Value		(In thousands)	Amortized Cost		Fair Value
U.S. government and federal agency obligations:	U.S. government and federal agency obligations:					U.S. government and federal agency obligations:
Within 1 year	Within 1 year	$	159,019	$	158,319	Within 1 year	$	599,278	$	588,709
After 1 but within 5 years	After 1 but within 5 years	735,831		705,287		After 1 but within 5 years	211,650		199,843
After 5 but within 10 years	After 5 but within 10 years	190,134		172,719		After 5 but within 10 years	177,247		159,424

Total U.S. government and federal agency obligations	Total U.S. government and federal agency obligations	1,084,984		1,036,325		Total U.S. government and federal agency obligations	988,175		947,976
Government-sponsored enterprise obligations:	Government-sponsored enterprise obligations:					Government-sponsored enterprise obligations:

After 5 but within 10 years	After 5 but within 10 years	4,987		4,545		After 5 but within 10 years	4,948		4,293
After 10 years	After 10 years	50,750		38,630		After 10 years	50,718		36,300
Total government-sponsored enterprise obligations	Total government-sponsored enterprise obligations	55,737		43,175		Total government-sponsored enterprise obligations	55,666		40,593
State and municipal obligations:	State and municipal obligations:					State and municipal obligations:
Within 1 year	Within 1 year	197,465		196,380		Within 1 year	76,664		75,389
After 1 but within 5 years	After 1 but within 5 years	666,078		636,464		After 1 but within 5 years	373,467		338,785
After 5 but within 10 years	After 5 but within 10 years	936,136		787,205		After 5 but within 10 years	792,381		648,198
After 10 years	After 10 years	221,305		183,204		After 10 years	139,062		116,042
Total state and municipal obligations	Total state and municipal obligations	2,020,984		1,803,253		Total state and municipal obligations	1,381,574		1,178,414
Mortgage and asset-backed securities:	Mortgage and asset-backed securities:					Mortgage and asset-backed securities:
Agency mortgage-backed securities	Agency mortgage-backed securities	5,230,550		4,445,519		Agency mortgage-backed securities	4,722,758		3,792,567
Non-agency mortgage-backed securities	Non-agency mortgage-backed securities	1,449,021		1,235,584		Non-agency mortgage-backed securities	1,353,003		1,137,448
Asset-backed securities	Asset-backed securities	3,755,855		3,558,287		Asset-backed securities	2,441,736		2,313,545
Total mortgage and asset-backed securities	Total mortgage and asset-backed securities	10,435,426		9,239,390		Total mortgage and asset-backed securities	8,517,497		7,243,560
Other debt securities:	Other debt securities:					Other debt securities:
Within 1 year	Within 1 year	50,783		50,639		Within 1 year	50,120		48,876
After 1 but within 5 years	After 1 but within 5 years	272,029		249,688		After 1 but within 5 years	206,375		190,217
After 5 but within 10 years	After 5 but within 10 years	247,121		202,706		After 5 but within 10 years	244,638		200,148
After 10 years	After 10 years	9,260		7,334		After 10 years	13,260		11,044
Total other debt securities	Total other debt securities	579,193		510,367		Total other debt securities	514,393		450,285
Total available for sale debt securities	Total available for sale debt securities	$	14,176,324	$	12,632,510	Total available for sale debt securities	$	11,457,305	$	9,860,828

Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled ~~$368.7~~$391.7 million, at fair value, at September 30, ~~2022.~~2023. Interest ~~paid~~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 ~~who~~which have been identified based on management’s judgment. These securities are placed on a watch list and cash flow analyses are prepared on an individual security basis. Certain securities are analyzed using a projected cash flow model, discounted to present value, and compared to the current amortized cost bases of the securities. The model uses input factors such as cash flow projections, contractual payments required, expected delinquency rates, credit support from other tranches, prepayment speeds, collateral loss severity rates (including loan to values), and various other information related to the underlying collateral. Securities not analyzed using the cash flow model are analyzed by reviewing risk ratings, credit support agreements, and industry knowledge to project future cash flows and any possible credit impairment.

At September 30, ~~2022,~~2023, the fair value of securities on this watch list was ~~$1.3~~$2.8 billion compared to ~~$13.4 million~~$1.3 billion at December 31, ~~2021.~~2022. The majority of the securities included on the Company's watch list in the current quarter were experiencing unrealized loss positions due to the significant increase in interest rates and were analyzed outside of the cash flow model. At September 30, ~~2022,~~2023, the securities on the Company's watch list that were not deemed to be solely related to increasing interest rates were securities backed by government-guaranteed student loans and are expected to perform as contractually required. As of September 30, ~~2022,~~2023, the Company did not identify any securities for which a credit loss exists,

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and for the nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, the Company did not recognize a credit loss expense on any available for sale debt securities.

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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 September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. Unrealized losses on these available for sale securities have not been recognized into income because after review, the securities were deemed not to be impaired. The unrealized losses on these securities are primarily attributable to changes in interest rates and current market conditions. ~~Additionally, management~~At September 30, 2023, the Company does not intend to sell the securities, ~~and~~nor is it ~~is more likely than not~~anticipated that ~~management will not~~it would be required to sell ~~the~~any of these securities ~~prior to their anticipated recovery.~~at a loss.


		Less than 12 months				12 months or longer				Total					Less than 12 months				12 months or longer				Total
(In thousands)	(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
September 30, 2022
September 30, 2023														September 30, 2023
U.S. government and federal agency obligations	U.S. government and federal agency obligations	$	695,272	$	33,081	$	283,593	$	15,579	$	978,865	$	48,660	U.S. government and federal agency obligations	$	48,996	$	2,838	$	898,980	$	37,361	$	947,976	$	40,199
Government-sponsored enterprise obligations	Government-sponsored enterprise obligations	29,954		5,964		13,221		6,598		43,175		12,562		Government-sponsored enterprise obligations	—		—		40,593		15,073		40,593		15,073
State and municipal obligations	State and municipal obligations	1,101,122		72,473		673,390		145,337		1,774,512		217,810		State and municipal obligations	43,228		2,050		1,130,491		201,110		1,173,719		203,160
Mortgage and asset-backed securities:	Mortgage and asset-backed securities:													Mortgage and asset-backed securities:
Agency mortgage-backed securities	Agency mortgage-backed securities	1,970,947		241,074		2,450,227		544,264		4,421,174		785,338		Agency mortgage-backed securities	9,762		218		3,766,485		930,086		3,776,247		930,304
Non-agency mortgage-backed securities	Non-agency mortgage-backed securities	417,434		63,282		811,318		150,299		1,228,752		213,581		Non-agency mortgage-backed securities	809		5		1,131,284		215,658		1,132,093		215,663
Asset-backed securities	Asset-backed securities	2,145,330		92,243		1,381,680		105,368		3,527,010		197,611		Asset-backed securities	20,020		149		2,287,893		128,061		2,307,913		128,210
Total mortgage and asset-backed securities	Total mortgage and asset-backed securities	4,533,711		396,599		4,643,225		799,931		9,176,936		1,196,530		Total mortgage and asset-backed securities	30,591		372		7,185,662		1,273,805		7,216,253		1,274,177
Other debt securities	Other debt securities	297,155		25,979		210,212		42,847		507,367		68,826		Other debt securities	864		136		449,421		63,972		450,285		64,108
Total	Total	$	6,657,214	$	534,096	$	5,823,641	$	1,010,292	$	12,480,855	$	1,544,388	Total	$	123,679	$	5,396	$	9,705,147	$	1,591,321	$	9,828,826	$	1,596,717
December 31, 2021
December 31, 2022														December 31, 2022
U.S. government and federal agency obligations	U.S. government and federal agency obligations	$	296,492	$	2,241	$	—	$	—	$	296,492	$	2,241	U.S. government and federal agency obligations	$	605,840	$	17,490	$	380,573	$	25,940	$	986,413	$	43,430
Government-sponsored enterprise obligations	Government-sponsored enterprise obligations	—		—		18,899		919		18,899		919		Government-sponsored enterprise obligations	25,068		4,650		18,040		7,971		43,108		12,621
State and municipal obligations	State and municipal obligations	876,691		15,874		32,684		1,049		909,375		16,923		State and municipal obligations	814,799		26,708		875,329		171,385		1,690,128		198,093
Mortgage and asset-backed securities:	Mortgage and asset-backed securities:													Mortgage and asset-backed securities:
Agency mortgage-backed securities	Agency mortgage-backed securities	3,333,691		59,044		265,835		8,720		3,599,526		67,764		Agency mortgage-backed securities	1,323,938		125,330		2,966,851		654,327		4,290,789		779,657
Non-agency mortgage-backed securities	Non-agency mortgage-backed securities	1,285,611		17,222		1,948		19		1,287,559		17,241		Non-agency mortgage-backed securities	135,984		16,736		1,069,222		195,218		1,205,206		211,954
Asset-backed securities	Asset-backed securities	2,518,935		19,201		87,893		525		2,606,828		19,726		Asset-backed securities	1,331,055		50,056		2,006,188		140,424		3,337,243		190,480
Total mortgage and asset-backed securities	Total mortgage and asset-backed securities	7,138,237		95,467		355,676		9,264		7,493,913		104,731		Total mortgage and asset-backed securities	2,790,977		192,122		6,042,261		989,969		8,833,238		1,182,091
Other debt securities	Other debt securities	270,409		5,098		58,574		3,017		328,983		8,115		Other debt securities	166,040		9,690		308,818		54,707		474,858		64,397
Total	Total	$	8,581,829	$	118,680	$	465,833	$	14,249	$	9,047,662	$	132,929	Total	$	4,402,724	$	250,660	$	7,625,021	$	1,249,972	$	12,027,745	$	1,500,632

The entire available for sale debt portfolio included ~~$12.5~~$9.8 billion of securities that were in a loss position at September 30, ~~2022,~~2023, compared to ~~$9.0~~$12.0 billion at December 31, ~~2021.~~2022. The total amount of unrealized loss on these securities was ~~$1.5~~$1.6 billion at September 30, ~~2022,~~2023, an increase of ~~$1.4 billion~~$96.1 million compared to the unrealized loss at December 31, ~~2021.~~2022. Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt securities" section above.

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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 September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI, by security type.


(In thousands)	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
September 30, 2022
September 30, 2023												September 30, 2023
U.S. government and federal agency obligations	U.S. government and federal agency obligations	$	1,084,984	$	1	$	(48,660)	$	—	$	1,036,325	U.S. government and federal agency obligations	$	988,175	$	—	$	(40,199)	$	—	$	947,976
Government-sponsored enterprise obligations	Government-sponsored enterprise obligations	55,737		—		(12,562)		—		43,175		Government-sponsored enterprise obligations	55,666		—		(15,073)		—		40,593
State and municipal obligations	State and municipal obligations	2,020,984		79		(217,810)		—		1,803,253		State and municipal obligations	1,381,574		—		(203,160)		—		1,178,414
Mortgage and asset-backed securities:	Mortgage and asset-backed securities:											Mortgage and asset-backed securities:
Agency mortgage-backed securities	Agency mortgage-backed securities	5,230,550		307		(785,338)		—		4,445,519		Agency mortgage-backed securities	4,722,758		113		(930,304)		—		3,792,567
Non-agency mortgage-backed securities	Non-agency mortgage-backed securities	1,449,021		144		(213,581)		—		1,235,584		Non-agency mortgage-backed securities	1,353,003		108		(215,663)		—		1,137,448
Asset-backed securities	Asset-backed securities	3,755,855		43		(197,611)		—		3,558,287		Asset-backed securities	2,441,736		19		(128,210)		—		2,313,545
Total mortgage and asset-backed securities	Total mortgage and asset-backed securities	10,435,426		494		(1,196,530)		—		9,239,390		Total mortgage and asset-backed securities	8,517,497		240		(1,274,177)		—		7,243,560
Other debt securities	Other debt securities	579,193		—		(68,826)		—		510,367		Other debt securities	514,393		—		(64,108)		—		450,285
Total	Total	$	14,176,324	$	574	$	(1,544,388)	$	—	$	12,632,510	Total	$	11,457,305	$	240	$	(1,596,717)	$	—	$	9,860,828
December 31, 2021
December 31, 2022												December 31, 2022
U.S. government and federal agency obligations	U.S. government and federal agency obligations	$	1,035,477	$	47,484	$	(2,241)	$	—	$	1,080,720	U.S. government and federal agency obligations	$	1,078,807	$	29	$	(43,430)	$	—	$	1,035,406
Government-sponsored enterprise obligations	Government-sponsored enterprise obligations	50,773		1,901		(919)		—		51,755		Government-sponsored enterprise obligations	55,729		—		(12,621)		—		43,108
State and municipal obligations	State and municipal obligations	2,072,210		41,540		(16,923)		—		2,096,827		State and municipal obligations	1,965,028		174		(198,093)		—		1,767,109
Mortgage and asset-backed securities:	Mortgage and asset-backed securities:											Mortgage and asset-backed securities:
Agency mortgage-backed securities	Agency mortgage-backed securities	5,698,088		52,676		(67,764)		—		5,683,000		Agency mortgage-backed securities	5,087,893		191		(779,657)		—		4,308,427
Non-agency mortgage-backed securities	Non-agency mortgage-backed securities	1,383,037		681		(17,241)		—		1,366,477		Non-agency mortgage-backed securities	1,423,469		92		(211,954)		—		1,211,607
Asset-backed securities	Asset-backed securities	3,546,024		12,921		(19,726)		—		3,539,219		Asset-backed securities	3,588,025		256		(190,480)		—		3,397,801
Total mortgage and asset-backed securities	Total mortgage and asset-backed securities	10,627,149		66,278		(104,731)		—		10,588,696		Total mortgage and asset-backed securities	10,099,387		539		(1,182,091)		—		8,917,835
Other debt securities	Other debt securities	633,524		6,620		(8,115)		—		632,029		Other debt securities	539,255		—		(64,397)		—		474,858
Total	Total	$	14,419,133	$	163,823	$	(132,929)	$	—	$	14,450,027	Total	$	13,738,206	$	742	$	(1,500,632)	$	—	$	12,238,316

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


		For the Nine Months Ended September 30					For the Nine Months Ended September 30
(In thousands)	(In thousands)	2022		2021		(In thousands)	2023		2022
Proceeds from sales of securities:	Proceeds from sales of securities:					Proceeds from sales of securities:
Available for sale debt securities	Available for sale debt securities	$	85,023	$	—	Available for sale debt securities	$	1,101,782	$	85,023

Other investments	Other investments	3,907		10,060		Other investments	40,167		3,907
Total proceeds	Total proceeds	$	88,930	$	10,060	Total proceeds	$	1,141,949	$	88,930

Investment securities gains (losses), net:	Investment securities gains (losses), net:					Investment securities gains (losses), net:
Available for sale debt securities:	Available for sale debt securities:					Available for sale debt securities:

Gains realized on sales						Gains realized on sales	$	143	$	—
Losses realized on sales	Losses realized on sales	$	(20,274)	$	—	Losses realized on sales	(8,587)		(20,274)

Equity securities:	Equity securities:					Equity securities:

Fair value adjustments, net	Fair value adjustments, net	(1,048)		152		Fair value adjustments, net	(757)		(1,048)
Other:	Other:					Other:
Gains realized on sales	Gains realized on sales	104		1,611		Gains realized on sales	884		104
Losses realized on sales	Losses realized on sales	(4,313)		—		Losses realized on sales	(1,245)		(4,313)
Fair value adjustments, net	Fair value adjustments, net	37,133		38,002		Fair value adjustments, net	16,946		37,133
Total investment securities gains, net		$	11,602	$	39,765
Total investment securities gains (losses), net						Total investment securities gains (losses), net	$	7,384	$	11,602

Net ~~gains~~losses on investment securities for the nine months ended September 30, ~~2022~~2023 were mainly comprised of net losses of ~~$20.3~~$8.4 million on sales of available for sale securities, net losses in fair value of ~~$4.3 million~~$757 thousand on ~~sales of private~~ equity investments, and net ~~losses in fair value of $1.0 million on equity investments, offset by net gains in fair value of $37.1 million on private equity investments, due to fair value adjustments.~~

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losses of $361 thousand on sales of private equity securities, offset by net gains in private equity securities due to fair value adjustments of $16.9 million.

At September 30, ~~2022,~~2023, securities totaling ~~$4.8~~$7.6 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 ~~$6.4~~$4.7 billion at December 31, ~~2021.~~2022. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated ~~$208.3~~$207.1 million, while the remaining securities were pledged under agreements pursuant to which the secured parties may not sell or re-pledge the collateral. Except for obligations of the U.S. Treasury and various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeded 10% of stockholders’ equity.

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4. Goodwill and Other Intangible Assets

The following table presents information about the Company's intangible assets which have estimable useful lives.


		September 30, 2022								December 31, 2021									September 30, 2023								December 31, 2022
(In thousands)	(In thousands)	Gross Carrying Amount		Accumulated Amortization		Valuation Allowance		Net Amount		Gross Carrying Amount		Accumulated Amortization		Valuation Allowance		Net Amount		(In thousands)	Gross Carrying Amount		Accumulated Amortization		Valuation Allowance		Net Amount		Gross Carrying Amount		Accumulated Amortization		Valuation Allowance		Net Amount
Amortizable intangible assets:	Amortizable intangible assets:																	Amortizable intangible assets:
Core deposit premium	Core deposit premium	$	31,270	$	(30,499)	$	—	$	771	$	31,270	$	(30,266)	$	—	$	1,004	Core deposit premium	$	5,550	$	(5,039)	$	—	$	511	$	31,270	$	(30,565)	$	—	$	705
Mortgage servicing rights	Mortgage servicing rights	22,161		(10,933)		—		11,228		20,870		(9,600)		(304)		10,966		Mortgage servicing rights	22,438		(12,117)		—		10,321		22,187		(11,258)		—		10,929
Total	Total	$	53,431	$	(41,432)	$	—	$	11,999	$	52,140	$	(39,866)	$	(304)	$	11,970	Total	$	27,988	$	(17,156)	$	—	$	10,832	$	53,457	$	(41,823)	$	—	$	11,634

Aggregate amortization expense on intangible assets was ~~$456~~$344 thousand and ~~$682~~$456 thousand for the three month periods ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$1.6~~$1.1 million and ~~$2.4~~$1.6 million for the nine month periods ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The following table shows the estimated annual amortization expense for the next five fiscal years. This expense is based on existing asset balances and the interest rate environment as of September 30, ~~2022.~~2023. The Company’s actual amortization expense in any given period may be different from the estimated amounts depending upon the acquisition of intangible assets, changes in mortgage interest rates, prepayment rates and other market conditions.


(In thousands)	(In thousands)			(In thousands)
2022		$	1,945
2023	2023	1,389		2023	$	1,380
2024	2024	1,242		2024	1,272
2025	2025	1,098		2025	1,129
2026	2026	960		2026	989
2027				2027	853

During the first quarter of 2023, the Company wrote off $25.7 million of core deposit intangible assets that were fully amortized. During the second quarter of 2023, the Company acquired L.J. Hart & Company, a municipal bond underwriter and advisor, and the acquisition resulted in goodwill of $7.6 million. Changes in the carrying amount of goodwill and other intangible assets for the nine month period ended September 30, ~~2022~~2023 are as follows:


(In thousands)	(In thousands)	Goodwill		Easement		Core Deposit Premium		Mortgage Servicing Rights		(In thousands)	Goodwill		Easement		Core Deposit Premium		Mortgage Servicing Rights
Balance January 1, 2022		$	138,921	$	3,600	$	1,004	$	10,966

Balance January 1, 2023										Balance January 1, 2023	$	138,921	$	3,600	$	705	$	10,929
Acquisition										Acquisition	7,618		—		—		—
Originations, net of disposals	Originations, net of disposals	—		—		—		1,291		Originations, net of disposals	—		—		—		251
Amortization	Amortization	—		—		(233)		(1,333)		Amortization	—		—		(194)		(859)
Impairment recovery		—		—		—		304
Balance September 30, 2022		$	138,921	$	3,600	$	771	$	11,228

Balance September 30, 2023										Balance September 30, 2023	$	146,539	$	3,600	$	511	$	10,321

Goodwill allocated to the Company’s operating segments at September 30, ~~2022~~2023 and December 31, ~~2021~~2022 is shown below.


~~(In thousands)~~
~~Consumer segment~~	$	~~70,721~~
~~Commercial segment~~	~~67,454~~
~~Wealth segment~~	~~746~~
~~Total goodwill~~	$	~~138,921~~


(In thousands)	September 30, 2023		December 31, 2022
Consumer segment	$	70,721	$	70,721
Commercial segment	75,072		67,454
Wealth segment	746		746
Total goodwill	$	146,539	$	138,921

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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 September 30, ~~2022,~~2023, that net liability was ~~$3.6~~$3.4 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 ~~$516.2~~$594.2 million at September 30, ~~2022.~~2023.

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 September 30, ~~2022,~~2023, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair value throughout their term with all changes in fair value, including those due to a change in the third party’s creditworthiness, recorded in current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 2 years to 15 years. At September 30, ~~2022,~~2023, the fair value of the Company's guarantee liabilities for RPAs was ~~$94~~$44 thousand, and the notional amount of the underlying swaps was ~~$376.4~~$446.2 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.

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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 1 month to 615 years.

The following table provides the components of lease income.


		For the Three Months Ended September 30				For the Nine Months Ended September 30					For the Three Months Ended September 30				For the Nine Months Ended September 30
(in thousands)	(in thousands)	2022		2021		2022		2021		(in thousands)	2023		2022		2023		2022
Direct financing and sales-type leases	Direct financing and sales-type leases	$	5,477	$	5,482	$	15,838	$	17,398	Direct financing and sales-type leases	$	8,160	$	5,477	$	22,456	$	15,838
Operating leases(a)	Operating leases(a)	2,175		1,717		6,517		5,721		Operating leases(a)	3,399		2,175		9,215		6,517
Total lease income	Total lease income	$	7,652	$	7,199	$	22,355	$	23,119	Total lease income	$	11,559	$	7,652	$	31,671	$	22,355

(a) Includes rent from Tower Properties Company, a related party, of $19 thousand for both of the three month periods ended September 30, 2023 and 2022 and ~~2021, and $57~~$58 thousand for both of the nine ~~months~~month periods ended September 30, ~~2022~~2023 and ~~2021.~~

2022.

7. Pension

The amount of net pension cost is shown in the table below:


		For the Three Months Ended September 30				For the Nine Months Ended September 30					For the Three Months Ended September 30				For the Nine Months Ended September 30
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022
Service cost - benefits earned during the period		$	128	$	95	$	391	$	284
Service cost										Service cost	$	120	$	128	$	352	$	391
Interest cost on projected benefit obligation	Interest cost on projected benefit obligation	713		514		2,043		1,626		Interest cost on projected benefit obligation	1,146		713		3,461		2,043
Expected return on plan assets	Expected return on plan assets	(1,135)		(1,151)		(3,386)		(3,399)		Expected return on plan assets	(1,035)		(1,135)		(3,037)		(3,386)
Amortization of prior service cost	Amortization of prior service cost	(68)		(67)		(203)		(203)		Amortization of prior service cost	(68)		(68)		(203)		(203)
Amortization of unrecognized net loss	Amortization of unrecognized net loss	470		669		1,465		1,971		Amortization of unrecognized net loss	332		470		1,186		1,465
Net periodic pension cost	Net periodic pension cost	$	108	$	60	$	310	$	279	Net periodic pension cost	$	495	$	108	$	1,759	$	310

All benefits accrued under the Company’s defined benefit pension plan have been frozen since January 1, 2011. During the first nine months of ~~2022,~~2023, the Company made no funding contributions to its defined benefit pension plan and made minimal funding contributions to a supplemental executive retirement plan (the CERP), which carries no segregated assets.

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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 September 30				For the Nine Months Ended September 30					For the Three Months Ended September 30				For the Nine Months Ended September 30
(In thousands, except per share data)	(In thousands, except per share data)	2022		2021		2022		2021		(In thousands, except per share data)	2023		2022		2023		2022
Basic income per common share:	Basic income per common share:									Basic income per common share:
Net income attributable to Commerce Bancshares, Inc.	Net income attributable to Commerce Bancshares, Inc.	$	122,823	$	122,561	$	356,771	$	415,859	Net income attributable to Commerce Bancshares, Inc.	$	120,596	$	122,823	$	367,837	$	356,771
Less income allocated to nonvested restricted stock	Less income allocated to nonvested restricted stock	1,119		1,114		3,241		3,792		Less income allocated to nonvested restricted stock	1,073		1,119		3,257		3,241
Net income allocated to common stock	Net income allocated to common stock	$	121,704	$	121,447	$	353,530	$	412,067	Net income allocated to common stock	$	119,523	$	121,704	$	364,580	$	353,530
Weighted average common shares outstanding	Weighted average common shares outstanding	118,895		121,628		119,619		121,889		Weighted average common shares outstanding	123,718		124,840		123,868		125,600
Basic income per common share	Basic income per common share	$	1.03	$	1.00	$	2.96	$	3.38	Basic income per common share	$	.96	$	.97	$	2.94	$	2.81
Diluted income per common share:	Diluted income per common share:									Diluted income per common share:
Net income attributable to Commerce Bancshares, Inc.	Net income attributable to Commerce Bancshares, Inc.	$	122,823	$	122,561	$	356,771	$	415,859	Net income attributable to Commerce Bancshares, Inc.	$	120,596	$	122,823	$	367,837	$	356,771
Less income allocated to nonvested restricted stock	Less income allocated to nonvested restricted stock	1,118		1,112		3,236		3,785		Less income allocated to nonvested restricted stock	1,072		1,118		3,254		3,236
Net income allocated to common stock	Net income allocated to common stock	$	121,705	$	121,449	$	353,535	$	412,074	Net income allocated to common stock	$	119,524	$	121,705	$	364,583	$	353,535
Weighted average common shares outstanding	Weighted average common shares outstanding	118,895		121,628		119,619		121,889		Weighted average common shares outstanding	123,718		124,840		123,868		125,600

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	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	264		253		274		294		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	100		277		158		288
Weighted average diluted common shares outstanding	Weighted average diluted common shares outstanding	119,159		121,881		119,893		122,183		Weighted average diluted common shares outstanding	123,818		125,117		124,026		125,888
Diluted income per common share	Diluted income per common share	$	1.02	$	.99	$	2.95	$	3.37	Diluted income per common share	$	.96	$	.97	$	2.93	$	2.81

Unexercised stock appreciation rights of ~~167~~539 thousand and 99175 thousand for the three month periods ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~152~~342 thousand and 61159 thousand for the nine month periods ended September 30, ~~2022~~2023 and ~~2021,~~2022, respectively, were excluded from the computation of diluted income per common share because their inclusion would have been anti-dilutive.

In the Annual Meeting of the Shareholders, held on April 19, 2023, a proposal to increase the shares of the Company's common stock authorized for issuance under its articles of incorporation was approved. This approval increased the authorized shares from 140,000,000 to 190,000,000.

* All prior year share and per share amounts in this note have been restated for the 5% common stock dividend distributed in December ~~2021.~~2022.

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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)								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)	(In thousands)									(In thousands)

Balance January 1, 2023										Balance January 1, 2023						$	(1,124,915)	$	(17,186)	$	55,237	$	(1,086,864)

Other comprehensive income (loss) before reclassifications to current earnings										Other comprehensive income (loss) before reclassifications to current earnings						(105,030)		—		(34,530)		(139,560)
Amounts reclassified to current earnings from accumulated other comprehensive income										Amounts reclassified to current earnings from accumulated other comprehensive income						8,444		983		(12,093)		(2,666)
Current period other comprehensive income (loss), before tax										Current period other comprehensive income (loss), before tax						(96,586)		983		(46,623)		(142,226)
Income tax (expense) benefit										Income tax (expense) benefit						24,146		(245)		11,655		35,556
Current period other comprehensive income (loss), net of tax										Current period other comprehensive income (loss), net of tax						(72,440)		738		(34,968)		(106,670)

Balance September 30, 2023										Balance September 30, 2023						$	(1,197,355)	$	(16,448)	$	20,269	$	(1,193,534)
Balance January 1, 2022	Balance January 1, 2022	$	23,174							$	(20,668)	$	74,574	$	77,080		Balance January 1, 2022					$	23,174	$	(20,668)	$	74,574	$	77,080

Other comprehensive loss before reclassifications to current earnings		(1,594,981)		—		(3,464)		(1,598,445)
Other comprehensive income (loss) before reclassifications to current earnings										Other comprehensive income (loss) before reclassifications to current earnings						(1,594,981)		—		(3,464)		(1,598,445)
Amounts reclassified to current earnings from accumulated other comprehensive income	Amounts reclassified to current earnings from accumulated other comprehensive income	20,274		1,262		(18,322)		3,214		Amounts reclassified to current earnings from accumulated other comprehensive income						20,274		1,262		(18,322)		3,214
Current period other comprehensive income (loss), before tax	Current period other comprehensive income (loss), before tax	(1,574,707)		1,262		(21,786)		(1,595,231)		Current period other comprehensive income (loss), before tax						(1,574,707)		1,262		(21,786)		(1,595,231)
Income tax (expense) benefit	Income tax (expense) benefit	393,676		(315)		5,446		398,807		Income tax (expense) benefit						393,676		(315)		5,446		398,807
Current period other comprehensive income (loss), net of tax	Current period other comprehensive income (loss), net of tax	(1,181,031)		947		(16,340)		(1,196,424)		Current period other comprehensive income (loss), net of tax						(1,181,031)		947		(16,340)		(1,196,424)

Balance September 30, 2022	Balance September 30, 2022	$	(1,157,857)	$	(19,721)	$	58,234	$	(1,119,344)	Balance September 30, 2022						$	(1,157,857)	$	(19,721)	$	58,234	$	(1,119,344)
Balance January 1, 2021		$	263,801	$	(25,118)	$	92,694	$	331,377

Other comprehensive loss before reclassifications to current earnings		(213,362)		—		—		(213,362)
Amounts reclassified to current earnings from accumulated other comprehensive income		—		1,768		(18,024)		(16,256)
Current period other comprehensive income (loss), before tax		(213,362)		1,768		(18,024)		(229,618)
Income tax (expense) benefit		53,343		(442)		4,506		57,407
Current period other comprehensive income (loss), net of tax		(160,019)		1,326		(13,518)		(172,211)

Balance September 30, 2021		$	103,782	$	(23,792)	$	79,176	$	159,166

(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 ~~150~~140 locations. This segment also includes indirect and other consumer loan financing businesses, along with debit and credit card loan and fee businesses. ~~Residential mortgage origination, sales and servicing functions are included~~In order to reflect a change in ~~this Consumer segment, but~~the Company's management of its portfolio of residential mortgage loans ~~retained by~~that it retains, the Company ~~are not considered part of this~~began including those loans in the Consumer segment ~~and are instead~~on January 1, 2023. These loans had previously been included in the Other/Elimination column. As a result of this change, approximately $1.9 billion of loans were reclassified from the Other/Elimination column into the Consumer segment, and prior periods presented below were restated to also reflect this change.

The Commercial segment provides corporate lending (including the Small Business Banking product line within the branch network), leasing, and international services, along with business and governmental deposit products and commercial cash management services. This segment also includes both merchant and commercial bank card products as well as the Capital Markets Group, which sells fixed income securities and provides securities safekeeping and accounting services to its business and correspondent bank customers. The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management, and brokerage services. This segment also provides various loan and deposit related services to its private banking customers.

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The following table presents selected financial information by segment and reconciliations of combined segment totals to consolidated totals. There were no material intersegment revenues between the three segments. Management periodically makes changes to methods of assigning costs and income to its business segments to better reflect operating results. If appropriate, these changes are reflected in prior year information presented below.


(In thousands)	(In thousands)	Consumer		Commercial		Wealth		Segment Totals		Other/Elimination		Consolidated Totals		(In thousands)	Consumer		Commercial		Wealth		Segment Totals		Other/Elimination		Consolidated Totals
Three Months Ended September 30, 2022
Three Months Ended September 30, 2023														Three Months Ended September 30, 2023
Net interest income	Net interest income	$	86,232	$	114,087	$	18,637	$	218,956	$	27,417	$	246,373	Net interest income	$	106,453	$	123,062	$	19,629	$	249,144	$	(597)	$	248,547
Provision for credit losses	Provision for credit losses	(4,305)		(506)		5		(4,806)		(10,484)		(15,290)		Provision for credit losses	(7,048)		(2,721)		(1)		(9,770)		(1,875)		(11,645)
Non-interest income	Non-interest income	30,264		57,115		53,862		141,241		(2,727)		138,514		Non-interest income	24,939		61,195		55,378		141,512		1,437		142,949
Investment securities gains, net		—		—		—		—		3,410		3,410
Investment securities gains (losses), net														Investment securities gains (losses), net	—		—		—		—		4,298		4,298
Non-interest expense														Non-interest expense	(82,234)		(98,910)		(38,907)		(220,051)		(7,959)		(228,010)
Income before income taxes														Income before income taxes	$	42,110	$	82,626	$	36,099	$	160,835	$	(4,696)	$	156,139
Nine Months Ended September 30, 2023														Nine Months Ended September 30, 2023
Net interest income														Net interest income	$	304,859	$	355,690	$	54,193	$	714,742	$	34,966	$	749,708
Provision for credit losses														Provision for credit losses	(19,784)		(3,204)		(14)		(23,002)		(6,570)		(29,572)
Non-interest income														Non-interest income	74,773		184,288		162,835		421,896		6,270		428,166
Investment securities gains (losses), net														Investment securities gains (losses), net	—		—		—		—		7,384		7,384
Non-interest expense														Non-interest expense	(242,991)		(290,960)		(119,015)		(652,966)		(26,762)		(679,728)
Income before income taxes														Income before income taxes	$	116,857	$	245,814	$	97,999	$	460,670	$	15,288	$	475,958
Three Months Ended September 30, 2022														Three Months Ended September 30, 2022
Net interest income														Net interest income	$	93,182	$	114,135	$	18,640	$	225,957	$	20,416	$	246,373
Provision for loan losses														Provision for loan losses	(4,314)		(506)		5		(4,815)		(10,475)		(15,290)
Non-interest income														Non-interest income	27,709		57,115		53,862		138,686		(172)		138,514
Investment securities gains (losses), net														Investment securities gains (losses), net	—		—		—		—		3,410		3,410
Non-interest expense	Non-interest expense	(76,832)		(91,372)		(36,194)		(204,398)		(8,486)		(212,884)		Non-interest expense	(79,230)		(91,397)		(36,188)		(206,815)		(6,069)		(212,884)
Income before income taxes	Income before income taxes	$	35,359	$	79,324	$	36,310	$	150,993	$	9,130	$	160,123	Income before income taxes	$	37,347	$	79,347	$	36,319	$	153,013	$	7,110	$	160,123
Nine Months Ended September 30, 2022	Nine Months Ended September 30, 2022													Nine Months Ended September 30, 2022
Net interest income	Net interest income	$	249,761	$	333,263	$	56,731	$	639,755	$	47,789	$	687,544	Net interest income	$	270,561	$	333,270	$	56,731	$	660,562	$	26,982	$	687,544
Provision for credit losses	Provision for credit losses	(12,727)		(651)		2		(13,376)		782		(12,594)		Provision for credit losses	(12,727)		(651)		2		(13,376)		782		(12,594)
Non-interest income	Non-interest income	89,542		167,581		161,051		418,174		(8,464)		409,710		Non-interest income	82,464		167,581		161,051		411,096		(1,386)		409,710
Investment securities gains, net		—		—		—		—		11,602		11,602
Investment securities gains (losses), net														Investment securities gains (losses), net	—		—		—		—		11,602		11,602
Non-interest expense	Non-interest expense	(225,232)		(272,224)		(108,967)		(606,423)		(25,614)		(632,037)		Non-interest expense	(231,683)		(272,219)		(108,967)		(612,869)		(19,168)		(632,037)
Income before income taxes	Income before income taxes	$	101,344	$	227,969	$	108,817	$	438,130	$	26,095	$	464,225	Income before income taxes	$	108,615	$	227,981	$	108,817	$	445,413	$	18,812	$	464,225
Three Months Ended September 30, 2021
Net interest income		$	80,411	$	115,529	$	18,075	$	214,015	$	22	$	214,037
Provision for loan losses		(3,557)		(69)		9		(3,617)		11,002		7,385
Non-interest income		35,758		52,092		55,241		143,091		(5,585)		137,506
Investment securities gains, net		—		—		—		—		13,108		13,108
Non-interest expense		(75,996)		(84,601)		(34,285)		(194,882)		(16,738)		(211,620)
Income before income taxes		$	36,616	$	82,951	$	39,040	$	158,607	$	1,809	$	160,416
Nine Months Ended September 30, 2021
Net interest income		$	239,157	$	340,279	$	53,186	$	632,622	$	(4,855)	$	627,767
Provision for credit losses		(19,122)		4,856		10		(14,256)		73,528		59,272
Non-interest income		110,911		155,079		158,731		424,721		(12,027)		412,694
Investment securities gains, net		—		—		—		—		39,765		39,765
Non-interest expense		(220,280)		(246,501)		(101,377)		(568,158)		(34,161)		(602,319)
Income before income taxes		$	110,666	$	253,713	$	110,550	$	474,929	$	62,250	$	537,179

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. Additionally, interest expense on the Company's brokered deposits is included in this column, as the Company's brokered deposits 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.

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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. ~~At September 30, 2022,~~With the ~~Company’s~~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)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	September 30, 2023		December 31, 2022
Interest rate swaps	Interest rate swaps	$	1,980,368	$	2,229,419	Interest rate swaps	$	2,199,242	$	1,981,821
Interest rate floors	Interest rate floors	500,000		—		Interest rate floors	2,000,000		1,000,000
Interest rate caps	Interest rate caps	152,784		152,058		Interest rate caps	172,784		152,784
Credit risk participation agreements	Credit risk participation agreements	536,188		485,633		Credit risk participation agreements	613,822		579,925
Foreign exchange contracts	Foreign exchange contracts	7,435		5,119		Foreign exchange contracts	38,234		27,991
Mortgage loan commitments	Mortgage loan commitments	984		21,787		Mortgage loan commitments	1,834		—
Mortgage loan forward sale contracts		669		1,165

Forward TBA contracts	Forward TBA contracts	1,000		21,000		Forward TBA contracts	2,000		—
Total notional amount	Total notional amount	$	3,179,428	$	2,916,181	Total notional amount	$	5,027,916	$	3,742,521

The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to modify their interest rate sensitivity. The customers are engaged in a variety of businesses, including real estate, manufacturing, retail product distribution, education, and retirement communities. These interest rate swap contracts with customers are offset by matching interest rate swap contracts purchased by the Company from other financial institutions (dealers). Contracts with dealers that require central clearing are novated to a clearing agency who becomes the Company's counterparty. Because of the matching terms of the offsetting contracts, in addition to collateral provisions which mitigate the impact of non-performance risk, changes in fair value subsequent to initial recognition have a minimal effect on earnings.

Many of the Company’s interest rate swap contracts with large financial institutions contain contingent features relating to debt ratings or capitalization levels. Under these provisions, if the Company’s debt rating falls below investment grade or if the Company ceases to be “well-capitalized” under risk-based capital guidelines, certain counterparties can require immediate and ongoing collateralization on interest rate swaps in net liability positions or instant settlement of the contracts. The Company maintains debt ratings and capital well above these minimum requirements.

~~During the third quarter~~As of ~~2022,~~September 30, 2023, the Company ~~entered into an~~held four interest rate ~~floor contract of $500.0 million~~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 ~~this floor~~the floors totaled ~~$16.8~~$90.2 million, which includes a $28.5 million premium paid during the third quarter of 2023 and $25.9 million paid during the first six months ended June 30, 2023. The maximum length of time over which the Company is ~~forward starting beginning on January 1, 2024. The~~hedging its exposure to lower rates is approximately 7 years. These interest rate ~~floor matures on January 1, 2030. The interest rate floor~~floors qualified and ~~was~~were designated as a cash flow ~~hedge~~hedges and ~~was~~were assessed for effectiveness using regression analysis. The change in the fair value of ~~the~~these interest rate ~~floor~~floors is recorded in AOCI, net of the amortization of the ~~premium~~premiums paid, which isare recorded against interest and fees on loans in the consolidated statements of income. As of September 30, ~~2022,~~2023, net deferred losses on the interest rate ~~floor~~floors totaled ~~$3.5~~$30.1 million (pre-tax) and ~~was~~were recorded in AOCI in the consolidated balance sheet. As of September 30, ~~2022, over the next twelve months,~~2023, it is expected that ~~$2.3~~$10.8 million (pre-tax)~~, representing the~~ interest rate floor premium amortization will be reclassified from AOCI into ~~earnings.~~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

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September 30, ~~2022,~~2023, the total realized gains on the monetized cash flow hedges remaining in AOCI was ~~$81.0~~$57.1 million (pre-tax), which will be reclassified into interest income over the next ~~4.2~~3.2 years. The estimated amount of net gains related to the cash flow hedges remaining in AOCI at September 30, ~~2022~~2023 that is expected to be reclassified into income within the next 12 months is ~~$23.9~~$22.6 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 ~~for customers~~ at specific future dates.

~~Table of Contents~~

Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date. In late 2022, the Company temporarily paused sales of these loans and halted entering into the forward contracts, as lower demand for mortgage loans coupled with volatility in the TBA market made it difficult to effectively hedge the Company's mortgage loan production. The Company resumed sales during the first quarter of 2023.

The fair values of the Company's derivative instruments, whose notional amounts are listed above, are shown in the table below. Information about the valuation methods used to determine fair value is provided in Note 1715 on Fair Value ~~Measurements in the 2021 Annual Report on Form 10-K.~~Measurements.

The Company's policy is to present its derivative assets and derivative liabilities on a gross basis inon its consolidated balance sheets, and these are reported in other assets and other liabilities. Certain collateral posted to and from the Company's clearing counterparty has been applied to the fair values of the cleared swaps, such that ~~at September 30, 2022~~ in the table below, the positive fair values of cleared swaps were reduced by ~~$30.7 million. At~~$27.8 million at December 31, ~~2021,~~2022. There was no reduction to positive fair values of cleared swaps ~~were reduced by $587 thousand and the negative fair values of cleared swaps were reduced by $29.7 million.~~at September 30, 2023.


		Asset Derivatives				Liability Derivatives					Asset Derivatives				Liability Derivatives
		Sept. 30, 2022		Dec. 31, 2021		Sept. 30, 2022		Dec. 31, 2021			Sept. 30, 2023		Dec. 31, 2022		Sept. 30, 2023		Dec. 31, 2022
(In thousands)	(In thousands)	Fair Value				Fair Value				(In thousands)	Fair Value				Fair Value
Derivatives designated as hedging instruments:	Derivatives designated as hedging instruments:									Derivatives designated as hedging instruments:
Interest rate floors	Interest rate floors	$	13,385	$	—	$	—	$	—	Interest rate floors	$	53,289	$	33,371	$	—	$	—
Total derivatives designated as hedging instruments	Total derivatives designated as hedging instruments	$	13,385	$	—	$	—	$	—	Total derivatives designated as hedging instruments	$	53,289	$	33,371	$	—	$	—
Derivative instruments not designated as hedging instruments:	Derivative instruments not designated as hedging instruments:									Derivative instruments not designated as hedging instruments:
Interest rate swaps	Interest rate swaps	$	22,256	$	40,752	$	(52,989)	$	(11,606)	Interest rate swaps	$	56,635	$	23,894	$	(56,635)	$	(51,742)
Interest rate caps	Interest rate caps	2,524		147		(2,524)		(147)		Interest rate caps	1,752		2,705		(1,752)		(2,705)
Credit risk participation agreements	Credit risk participation agreements	36		84		(94)		(277)		Credit risk participation agreements	11		34		(44)		(119)
Foreign exchange contracts	Foreign exchange contracts	191		77		(156)		(45)		Foreign exchange contracts	449		488		(287)		(418)
Mortgage loan commitments	Mortgage loan commitments	5		764		(5)		—		Mortgage loan commitments	35		—		—		—
Mortgage loan forward sale contracts		5		5		—		(1)

Forward TBA contracts	Forward TBA contracts	58		13		—		(25)		Forward TBA contracts	11		—		—		—
Total derivatives not designated as hedging instruments	Total derivatives not designated as hedging instruments	$	25,075	$	41,842	$	(55,768)	$	(12,101)	Total derivatives not designated as hedging instruments	$	58,893	$	27,121	$	(58,718)	$	(54,984)
Total	Total	$	38,460	$	41,842	$	(55,768)	$	(12,101)	Total	$	112,182	$	60,492	$	(58,718)	$	(54,984)

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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 September 30, 2023
Derivatives in cash flow hedging relationships:
Interest rate floors	$	(29,007)	$	—	$	(29,007)	Interest and fees on loans	$	3,543	$	7,459	$	(3,916)
Total	$	(29,007)	$	—	$	(29,007)	Total	$	3,543	$	7,459	$	(3,916)
For the Nine Months Ended September 30, 2023
Derivatives in cash flow hedging relationships:
Interest rate floors	$	(34,530)	$	—	$	(34,530)	Interest and fees on loans	$	12,093	$	22,358	$	(10,265)
Total	$	(34,530)	$	—	$	(34,530)	Total	$	12,093	$	22,358	$	(10,265)
For the Three Months Ended September 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate floors	$	(3,464)	$	—	$	(3,464)	Interest and fees on loans	$	6,118	$	7,745	$	(1,627)
Total	$	(3,464)	$	—	$	(3,464)	Total	$	6,118	$	7,745	$	(1,627)
For the Nine Months Ended September 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate floors	$	(3,464)	$	—	$	(3,464)	Interest and fees on loans	$	18,322	$	22,998	$	(4,676)
Total	$	(3,464)	$	—	$	(3,464)	Total	$	18,322	$	22,998	$	(4,676)

The ~~pre-tax effects of~~gain and loss recognized through various derivative instruments on the consolidated statements of income ~~and consolidated statements of comprehensive income~~ are shown in the ~~tables~~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 September 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate floors $ (3,464) $ — $ (3,464) Interest and fees on loans $ (6,118) $ (7,745) $ 1,627
Total $ (3,464) $ — $ (3,464) Total $ (6,118) $ (7,745) $ 1,627
For the Nine Months Ended September 30, 2022
Derivatives in cash flow hedging relationships:
Interest rate floors $ (3,464) $ — $ (3,464) Interest and fees on loans $ (18,322) $ (22,998) $ 4,676
Total $ (3,464) $ — $ (3,464) Total $ (18,322) $ (22,998) $ 4,676
For the Three Months Ended September 30, 2021
Derivatives in cash flow hedging relationships:
Interest rate floors $ — $ — $ — Interest and fees on loans $ (6,141) $ (7,691) $ 1,550
Total $ — $ — $ — Total $ (6,141) $ (7,691) $ 1,550
For the Nine Months Ended September 30, 2021
Derivatives in cash flow hedging relationships:
Interest rate floors $ — $ — $ — Interest and fees on loans $ (18,024) $ (22,623) $ 4,599
Total $ — $ — $ — Total $ (18,024) $ (22,623) $ 4,599


		Location of Gain or (Loss) Recognized in Consolidated Statements of Income	Amount of Gain or (Loss) Recognized in Income on Derivatives									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 September 30				For the Nine Months Ended September 30						For the Three Months Ended September 30				For the Nine Months Ended September 30
(In thousands)	(In thousands)		2022		2021		2022		2021		(In thousands)		2023		2022		2023		2022

Derivative instruments:	Derivative instruments:										Derivative instruments:
Interest rate swaps	Interest rate swaps	Other non-interest income	$	88	$	24	$	1,770	$	1,974	Interest rate swaps	Other non-interest income	$	365	$	88	$	2,861	$	1,770
Interest rate caps	Interest rate caps	Other non-interest income	—		—		16		15		Interest rate caps	Other non-interest income	23		—		23		16
Credit risk participation agreements	Credit risk participation agreements	Other non-interest income	122		47		30		27		Credit risk participation agreements	Other non-interest income	123		122		107		30
Foreign exchange contracts	Foreign exchange contracts	Other non-interest income	3		(22)		3		62		Foreign exchange contracts	Other non-interest income	122		3		93		3
Mortgage loan commitments	Mortgage loan commitments	Loan fees and sales	(230)		(309)		(764)		(1,716)		Mortgage loan commitments	Loan fees and sales	(23)		(230)		35		(764)
Mortgage loan forward sale contracts	Mortgage loan forward sale contracts	Loan fees and sales	5		(10)		1		18		Mortgage loan forward sale contracts	Loan fees and sales	—		5		—		1
Forward TBA contracts	Forward TBA contracts	Loan fees and sales	117		(184)		1,783		1,676		Forward TBA contracts	Loan fees and sales	63		117		113		1,783
Total	Total		$	105	$	(454)	$	2,839	$	2,056	Total		$	673	$	105	$	3,232	$	2,839

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

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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

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subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash or securities to its clearing agent. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table below.


								Gross Amounts Not Offset in the Balance Sheet													Gross Amounts Not Offset in the Balance Sheet
(In thousands)	(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		(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
September 30, 2022
September 30, 2023														September 30, 2023
Assets:	Assets:													Assets:
Derivatives subject to master netting agreements	Derivatives subject to master netting agreements	$	38,357	$	—	$	38,357	$	(113)	$	(35,763)	$	2,481	Derivatives subject to master netting agreements	$	112,028	$	—	$	112,028	$	(93)	$	(111,060)	$	875
Derivatives not subject to master netting agreements	Derivatives not subject to master netting agreements	103		—		103								Derivatives not subject to master netting agreements	154		—		154
Total derivatives	Total derivatives	$	38,460	$	—	$	38,460							Total derivatives	$	112,182	$	—	$	112,182
Liabilities:	Liabilities:													Liabilities:
Derivatives subject to master netting agreements	Derivatives subject to master netting agreements	$	55,681	$	—	$	55,681	$	(113)	$	—	$	55,568	Derivatives subject to master netting agreements	$	58,491	$	—	$	58,491	$	(93)	$	—	$	58,398
Derivatives not subject to master netting agreements	Derivatives not subject to master netting agreements	87		—		87								Derivatives not subject to master netting agreements	227		—		227
Total derivatives	Total derivatives	$	55,768	$	—	$	55,768							Total derivatives	$	58,718	$	—	$	58,718
December 31, 2021
December 31, 2022														December 31, 2022
Assets:	Assets:													Assets:
Derivatives subject to master netting agreements	Derivatives subject to master netting agreements	$	40,970	$	—	$	40,970	$	(347)	$	—	$	40,623	Derivatives subject to master netting agreements	$	60,270	$	—	$	60,270	$	(1,007)	$	(56,816)	$	2,447
Derivatives not subject to master netting agreements	Derivatives not subject to master netting agreements	872		—		872								Derivatives not subject to master netting agreements	222		—		222
Total derivatives	Total derivatives	$	41,842	$	—	$	41,842							Total derivatives	$	60,492	$	—	$	60,492
Liabilities:	Liabilities:													Liabilities:
Derivatives subject to master netting agreements	Derivatives subject to master netting agreements	$	12,019	$	—	$	12,019	$	(347)	$	(10,146)	$	1,526	Derivatives subject to master netting agreements	$	54,609	$	—	$	54,609	$	(1,007)	$	—	$	53,602
Derivatives not subject to master netting agreements	Derivatives not subject to master netting agreements	82		—		82								Derivatives not subject to master netting agreements	375		—		375
Total derivatives	Total derivatives	$	12,101	$	—	$	12,101							Total derivatives	$	54,984	$	—	$	54,984

12. Resale and Repurchase Agreements

The Company regularly enters into resale and repurchase agreement transactions with other financial institutions and with its own customers. Resale and repurchase agreements are agreements to purchase/sell securities subject to an obligation to resell/repurchase the same or similar securities. They are accounted for as secured lending and collateralized borrowing (e.g. financing transactions), not as true sales and purchases of the underlying collateral securities. Some of the resale and repurchase agreements were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default. The security collateral accepted or pledged in resale and repurchase agreements with other financial institutions may be sold or re-pledged by the secured party, but is usually delivered to and held by third party trustees. The Company generally retains custody of securities pledged for repurchase agreements with its customers.

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The Company is party to agreements commonly known as collateral swaps. These agreements involve the exchange of collateral under simultaneous repurchase and resale agreements with the same financial institution counterparty. These repurchase and resale agreements have the same principal amounts, inception dates, and maturity dates and have been offset against each other in the consolidated balance sheets, as permitted under the netting provisions of ASC 210-20-45. The collateral swaps totaled $200.0 million at September 30, ~~2022~~2023 and ~~$400.0 million at~~ December 31, ~~2021.~~2022. At September 30, 2023, the Company had posted collateral of $206.9 million in marketable securities, consisting of agency mortgage-backed bonds, and had accepted $209.8 million in agency mortgage-backed bonds.

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													Gross Amounts Not Offset in the Balance Sheet
(In thousands)	(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		(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
September 30, 2022
September 30, 2023														September 30, 2023
Total resale agreements, subject to master netting arrangements	Total resale agreements, subject to master netting arrangements	$	1,475,000	$	(200,000)	$	1,275,000	$	—	$	(1,275,000)	$	—	Total resale agreements, subject to master netting arrangements	$	650,000	$	(200,000)	$	450,000	$	—	$	(450,000)	$	—
Total repurchase agreements, subject to master netting arrangements	Total repurchase agreements, subject to master netting arrangements	2,203,390		(200,000)		2,003,390		—		(2,003,390)		—		Total repurchase agreements, subject to master netting arrangements	2,438,826		(200,000)		2,238,826		—		(2,238,826)		—
December 31, 2021
December 31, 2022														December 31, 2022
Total resale agreements, subject to master netting arrangements	Total resale agreements, subject to master netting arrangements	$	2,025,000	$	(400,000)	$	1,625,000	$	—	$	(1,625,000)	$	—	Total resale agreements, subject to master netting arrangements	$	1,025,000	$	(200,000)	$	825,000	$	—	$	(825,000)	$	—
Total repurchase agreements, subject to master netting arrangements	Total repurchase agreements, subject to master netting arrangements	3,379,582		(400,000)		2,979,582		—		(2,979,582)		—		Total repurchase agreements, subject to master netting arrangements	2,881,874		(200,000)		2,681,874		—		(2,681,874)		—

The table below shows the remaining contractual maturities of repurchase agreements outstanding at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, in addition to the various types of marketable securities that have been pledged by the Company as collateral for these borrowings.


		Remaining Contractual Maturity of the Agreements									Remaining Contractual Maturity of the Agreements
(In thousands)	(In thousands)	Overnight and continuous		Up to 90 days		Greater than 90 days		Total		(In thousands)	Overnight and continuous		Up to 90 days		Greater than 90 days		Total
September 30, 2022
September 30, 2023										September 30, 2023
Repurchase agreements, secured by:	Repurchase agreements, secured by:									Repurchase agreements, secured by:
U.S. government and federal agency obligations	U.S. government and federal agency obligations	$	420,541	$	8,759	$	21,828	$	451,128	U.S. government and federal agency obligations	$	137,949	$	13,015	$	4,500	$	155,464

Agency mortgage-backed securities	Agency mortgage-backed securities	1,178,459		20,721		202,859		1,402,039		Agency mortgage-backed securities	1,426,015		221,604		18,700		1,666,319
Non-agency mortgage-backed securities	Non-agency mortgage-backed securities	42,141		—		—		42,141		Non-agency mortgage-backed securities	9,100		—		—		9,100
Asset-backed securities	Asset-backed securities	296,075		—		—		296,075		Asset-backed securities	572,135		—		—		572,135
Other debt securities	Other debt securities	12,007		—		—		12,007		Other debt securities	35,808		—		—		35,808
Total repurchase agreements, gross amount recognized	Total repurchase agreements, gross amount recognized	$	1,949,223	$	29,480	$	224,687	$	2,203,390	Total repurchase agreements, gross amount recognized	$	2,181,007	$	234,619	$	23,200	$	2,438,826
December 31, 2021
December 31, 2022										December 31, 2022
Repurchase agreements, secured by:	Repurchase agreements, secured by:									Repurchase agreements, secured by:
U.S. government and federal agency obligations	U.S. government and federal agency obligations	$	600,866	$	33,373	$	9,259	$	643,498	U.S. government and federal agency obligations	$	488,053	$	26,928	$	12,460	$	527,441

Agency mortgage-backed securities	Agency mortgage-backed securities	1,844,652		3,908		400,250		2,248,810		Agency mortgage-backed securities	1,792,314		21,744		204,500		2,018,558
Non-agency mortgage-backed securities	Non-agency mortgage-backed securities	32,299		—		—		32,299		Non-agency mortgage-backed securities	40,950		—		—		40,950
Asset-backed securities	Asset-backed securities	422,525		—		—		422,525		Asset-backed securities	293,001		—		—		293,001
Other debt securities	Other debt securities	32,450		—		—		32,450		Other debt securities	1,924		—		—		1,924
Total repurchase agreements, gross amount recognized	Total repurchase agreements, gross amount recognized	$	2,932,792	$	37,281	$	409,509	$	3,379,582	Total repurchase agreements, gross amount recognized	$	2,616,242	$	48,672	$	216,960	$	2,881,874

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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 ~~$4.2~~$4.3 million and ~~$3.9~~$4.2 million in the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022 respectively, and $12.6 ~~million and $11.6~~ million in the nine months ended September 30, 2023 and 2022, ~~and 2021,~~ 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 September 30, ~~2022,~~2023, and changes during the nine month period then ended, is presented below.


		Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Nonvested at January 1, 2022		1,120,491	$55.58
Nonvested at January 1, 2023				Nonvested at January 1, 2023	1,148,873	$58.20
Granted	Granted	263,497	70.76	Granted	311,275	62.29
Vested	Vested	(262,579)	47.78	Vested	(315,761)	50.67
Forfeited	Forfeited	(23,145)	60.08	Forfeited	(25,539)	60.44

Nonvested at September 30, 2022		1,098,264	$61.00
Nonvested at September 30, 2023				Nonvested at September 30, 2023	1,118,848	$61.41

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	$~~17.42~~18.65
Assumptions:
Dividend yield	~~1.5~~1.6	%
Volatility	~~28.4~~27.9	%
Risk-free interest rate	~~1.6~~3.9	%
Expected term	~~5.7~~5.8 years

A summary of SAR activity during the first nine months of ~~2022~~2023 is presented below.


(Dollars in thousands, except per share data)	(Dollars in thousands, except per share data)	Rights	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value		(Dollars in thousands, except per share data)	Rights	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2022		896,348	$	46.21
Outstanding at January 1, 2023								Outstanding at January 1, 2023	948,727	$46.82
Granted	Granted	96,318	70.64					Granted	89,829	65.64
Forfeited	Forfeited	(8,135)	61.68					Forfeited	(4,337)	63.62
Expired	Expired	(2,350)	56.68					Expired	(5,781)	52.13
Exercised	Exercised	(66,608)	40.54					Exercised	(49,866)	26.83
Outstanding at September 30, 2022		915,573	$	49.02	5.5 years	$	16,367
Outstanding at September 30, 2023								Outstanding at September 30, 2023	978,572	$49.46	5.1 years	$4,468

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14. Revenue from Contracts with Customers

Revenue from contracts with customers, Accounting Standard Codification 606 ("ASC ~~606 "Revenue from Contracts with Customers"~~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 nine months ended September 30, ~~2022,~~2023, approximately ~~63%~~64% of the Company’s total revenue was comprised of net interest income, which is not within the scope of this guidance. Of the remaining revenue, those items that were subject to this guidance mainly included fees for bank card, trust, deposit account services and consumer brokerage services.

The following table disaggregates ~~non-interest income subject to ASC 606~~revenue from contracts with customers by major product line.


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended September 30				Nine Months Ended September 30
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022
Bank card transaction fees	Bank card transaction fees	$	45,638	$	42,815	$	131,556	$	123,118	Bank card transaction fees	$	46,899	$	45,638	$	143,278	$	131,556
Trust fees	Trust fees	45,406		48,950		140,009		139,334		Trust fees	49,207		45,406		141,800		140,009
Deposit account charges and other fees	Deposit account charges and other fees	24,521		25,161		72,392		71,724		Deposit account charges and other fees	23,090		24,521		67,475		72,392
Consumer brokerage services	Consumer brokerage services	5,085		4,900		14,599		13,484		Consumer brokerage services	3,820		5,085		13,582		14,599
Other non-interest income	Other non-interest income	9,360		2,510		24,605		17,168		Other non-interest income	11,912		9,360		29,737		24,605
Total non-interest income from contracts with customers	Total non-interest income from contracts with customers	130,010		124,336		383,161		364,828		Total non-interest income from contracts with customers	134,928		130,010		395,872		383,161
Other non-interest income (1)	Other non-interest income (1)	8,504		13,170		26,549		47,866		Other non-interest income (1)	8,021		8,504		32,294		26,549
Total non-interest income	Total non-interest income	$	138,514	$	137,506	$	409,710	$	412,694	Total non-interest income	$	142,949	$	138,514	$	428,166	$	409,710

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

For bank card transaction fees, nearly all of debit and credit card fees are earned in the Consumer segment, while corporate card and merchant fees are earned in the Commercial segment. The Consumer and Commercial segments ~~contribute~~contributed approximately ~~41%~~33% and ~~58%~~67%, respectively, of the Company's deposit account charge revenue. All trust fees and nearly all consumer brokerage services income ~~are~~were earned in the Wealth segment.

The following table presents the opening and closing receivable balances for the nine month periods ended September 30, ~~2022~~2023 and ~~2021~~2022 for the Company’s significant revenue ~~categories subject to ASC 606.~~from contracts with customers.


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		September 30, 2021		December 31, 2020		(In thousands)	September 30, 2023		December 31, 2022		September 30, 2022		December 31, 2021
Bank card transaction fees	Bank card transaction fees	$	14,167	$	16,424	$	13,349	$	14,199	Bank card transaction fees	$	15,160	$	17,254	$	14,167	$	16,424
Trust fees	Trust fees	2,073		2,222		2,211		2,071		Trust fees	1,886		2,038		2,073		2,222
Deposit account charges and other fees	Deposit account charges and other fees	5,658		6,702		5,969		6,933		Deposit account charges and other fees	5,762		6,631		5,658		6,702
Consumer brokerage services	Consumer brokerage services	632		391		513		432		Consumer brokerage services	74		949		632		391

For these revenue categories, none of the transaction price has been allocated to performance obligations that are unsatisfied as of the end of a reporting period.

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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 ~~2021~~2022 Annual Report on Form 10-K. There have been no significant changes in these methodologies since then.

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Instruments Measured at Fair Value on a Recurring Basis

The table below presents the September 30, ~~2022~~2023 and December 31, ~~2021~~2022 carrying values of assets and liabilities measured at fair value on a recurring basis. There were no transfers among levels during the first nine months of ~~2022~~2023 or the year ended December 31, ~~2021.~~2022.


				Fair Value Measurements Using									Fair Value Measurements Using
(In thousands)	(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)		(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)
September 30, 2022
September 30, 2023										September 30, 2023
Assets:	Assets:									Assets:
Residential mortgage loans held for sale	Residential mortgage loans held for sale	$	1,426	$	—	$	1,426	$	—	Residential mortgage loans held for sale	$	366	$	—	$	366	$	—
Available for sale debt securities:	Available for sale debt securities:									Available for sale debt securities:
U.S. government and federal agency obligations	U.S. government and federal agency obligations	1,036,325		1,036,325		—		—		U.S. government and federal agency obligations	947,976		947,976		—		—
Government-sponsored enterprise obligations	Government-sponsored enterprise obligations	43,175		—		43,175		—		Government-sponsored enterprise obligations	40,593		—		40,593		—
State and municipal obligations	State and municipal obligations	1,803,253		—		1,801,395		1,858		State and municipal obligations	1,178,414		—		1,177,476		938
Agency mortgage-backed securities	Agency mortgage-backed securities	4,445,519		—		4,445,519		—		Agency mortgage-backed securities	3,792,567		—		3,792,567		—
Non-agency mortgage-backed securities	Non-agency mortgage-backed securities	1,235,584		—		1,235,584		—		Non-agency mortgage-backed securities	1,137,448		—		1,137,448		—
Asset-backed securities	Asset-backed securities	3,558,287		—		3,558,287		—		Asset-backed securities	2,313,545		—		2,313,545		—
Other debt securities	Other debt securities	510,367		—		510,367		—		Other debt securities	450,285		—		450,285		—
Trading debt securities	Trading debt securities	39,222		—		39,222		—		Trading debt securities	35,564		—		35,564		—
Equity securities	Equity securities	6,106		6,106		—		—		Equity securities	5,453		5,453		—		—
Private equity investments	Private equity investments	176,341		—		—		176,341		Private equity investments	165,322		—		—		165,322
Derivatives *	Derivatives *	38,460		—		38,419		41		Derivatives *	112,182		—		112,136		46
Assets held in trust for deferred compensation plan	Assets held in trust for deferred compensation plan	16,588		16,588		—		—		Assets held in trust for deferred compensation plan	18,859		18,859		—		—
Total assets	Total assets	12,910,653		1,059,019		11,673,394		178,240		Total assets	10,198,574		972,288		9,059,980		166,306
Liabilities:	Liabilities:									Liabilities:
Derivatives *	Derivatives *	55,768		—		55,669		99		Derivatives *	58,718		—		58,674		44
Liabilities held in trust for deferred compensation plan	Liabilities held in trust for deferred compensation plan	16,588		16,588		—		—		Liabilities held in trust for deferred compensation plan	18,859		18,859		—		—
Total liabilities	Total liabilities	$	72,356	$	16,588	$	55,669	$	99	Total liabilities	$	77,577	$	18,859	$	58,674	$	44
December 31, 2021
December 31, 2022										December 31, 2022
Assets:	Assets:									Assets:
Residential mortgage loans held for sale	Residential mortgage loans held for sale	$	5,570	$	—	$	5,570	$	—	Residential mortgage loans held for sale	$	—	$	—	$	—	$	—
Available for sale debt securities:	Available for sale debt securities:									Available for sale debt securities:
U.S. government and federal agency obligations	U.S. government and federal agency obligations	1,080,720		1,080,720		—		—		U.S. government and federal agency obligations	1,035,406		1,035,406		—		—
Government-sponsored enterprise obligations	Government-sponsored enterprise obligations	51,755		—		51,755		—		Government-sponsored enterprise obligations	43,108		—		43,108		—
State and municipal obligations	State and municipal obligations	2,096,827		—		2,094,843		1,984		State and municipal obligations	1,767,109		—		1,765,268		1,841
Agency mortgage-backed securities	Agency mortgage-backed securities	5,683,000		—		5,683,000		—		Agency mortgage-backed securities	4,308,427		—		4,308,427		—
Non-agency mortgage-backed securities	Non-agency mortgage-backed securities	1,366,477		—		1,366,477		—		Non-agency mortgage-backed securities	1,211,607		—		1,211,607		—
Asset-backed securities	Asset-backed securities	3,539,219		—		3,539,219		—		Asset-backed securities	3,397,801		—		3,397,801		—
Other debt securities	Other debt securities	632,029		—		632,029		—		Other debt securities	474,858		—		474,858		—
Trading debt securities	Trading debt securities	46,235		—		46,235		—		Trading debt securities	43,523		—		43,523		—
Equity securities	Equity securities	7,153		7,153		—		—		Equity securities	6,210		6,210		—		—
Private equity investments	Private equity investments	147,406		—		—		147,406		Private equity investments	178,127		—		—		178,127
Derivatives *	Derivatives *	41,842		—		40,994		848		Derivatives *	60,492		—		60,458		34
Assets held in trust for deferred compensation plan	Assets held in trust for deferred compensation plan	21,794		21,794		—		—		Assets held in trust for deferred compensation plan	17,856		17,856		—		—
Total assets	Total assets	14,720,027		1,109,667		13,460,122		150,238		Total assets	12,544,524		1,059,472		11,305,050		180,002
Liabilities:	Liabilities:									Liabilities:
Derivatives *	Derivatives *	12,101		—		11,824		277		Derivatives *	54,984		—		54,865		119
Liabilities held in trust for deferred compensation plan	Liabilities held in trust for deferred compensation plan	21,794		21,794		—		—		Liabilities held in trust for deferred compensation plan	17,856		17,856		—		—
Total liabilities	Total liabilities	$	33,895	$	21,794	$	11,824	$	277	Total liabilities	$	72,840	$	17,856	$	54,865	$	119

* The fair value of each class of derivative is shown in Note 11.

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The changes in the Company's significant 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)									Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In thousands)	(In thousands)	State and Municipal Obligations		Private Equity Investments		Derivatives		Total		(In thousands)	State and Municipal Obligations		Private Equity Investments		Total
For the three months ended September 30, 2022
Balance June 30, 2022		$	1,816	$	161,771	$	154	$	163,741
For the three months ended September 30, 2023										For the three months ended September 30, 2023
Balance June 30, 2023										Balance June 30, 2023	$	920	$	172,732	$	173,652
Total gains or losses (realized/unrealized):	Total gains or losses (realized/unrealized):									Total gains or losses (realized/unrealized):
Included in earnings	Included in earnings	—		14,050		(108)		13,942		Included in earnings	—		5,605		5,605
Included in other comprehensive income *	Included in other comprehensive income *	40		—		—		40		Included in other comprehensive income *	18		—		18

Sale/pay down of private equity investments										Sale/pay down of private equity investments	—		(13,342)		(13,342)
Capitalized interest/dividends										Capitalized interest/dividends	—		327		327

Balance September 30, 2023										Balance September 30, 2023	$	938	$	165,322	$	166,260
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 September 30, 2023										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 September 30, 2023	$	—	$	5,605	$	5,605
*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 September 30, 2023										*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 September 30, 2023	$	17	$	—	$	17
For the nine months ended September 30, 2023										For the nine months ended September 30, 2023
Balance January 1, 2023										Balance January 1, 2023	$	1,841	$	178,127	$	179,968
Total gains or losses (realized/unrealized):										Total gains or losses (realized/unrealized):
Included in earnings										Included in earnings	—		16,946		16,946
Included in other comprehensive income *										Included in other comprehensive income *	49		—		49
Investment securities called										Investment securities called	(1,000)		—		(1,000)
Discount accretion	Discount accretion	2		—		—		2		Discount accretion	48		—		48
Purchases of private equity investments	Purchases of private equity investments	—		899		—		899		Purchases of private equity investments	—		10,756		10,756
Sale/pay down of private equity investments	Sale/pay down of private equity investments	—		(423)		—		(423)		Sale/pay down of private equity investments	—		(40,834)		(40,834)
Capitalized interest/dividends	Capitalized interest/dividends	—		44		—		44		Capitalized interest/dividends	—		327		327

Sale of risk participation agreements		—		—		(104)		(104)
Balance September 30, 2022		$	1,858	$	176,341	$	(58)	$	178,141
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 September 30, 2022		$	—	$	14,050	$	122	$	14,172
*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 September 30, 2022		$	40	$	—	$	—	$	40
For the nine months ended September 30, 2022
Balance January 1, 2022		$	1,984	$	147,406	$	571	$	149,961
Total gains or losses (realized/unrealized):
Included in earnings		—		37,133		(734)		36,399
Included in other comprehensive income *		(130)		—		—		(130)

Discount accretion		4		—		—		4
Purchases of private equity investments		—		2,021		—		2,021
Sale/pay down of private equity investments		—		(10,263)		—		(10,263)
Capitalized interest/dividends		—		44		—		44
Purchase of risk participation agreement		—		—		459		459
Sale of risk participation agreement		—		—		(354)		(354)
Balance September 30, 2022		$	1,858	$	176,341	$	(58)	$	178,141
Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2022		$	—	$	37,083	$	28	$	37,111
*Total gains or losses for the nine months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2022		$	(130)	$	—	$	—	$	(130)
Balance September 30, 2023										Balance September 30, 2023	$	938	$	165,322	$	166,260
Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2023										Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2023	$	—	$	17,446	$	17,446
*Total gains or losses for the nine months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2023										*Total gains or losses for the nine months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2023	$	27	$	—	$	27

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Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)

(In thousands)
State and Municipal Obligations
Private Equity
Investments
Derivatives Total
For the three months ended September 30, 2021
Balance June 30, 2021 $ 7,991 $ 116,246 $ 1,629 $ 125,866
Total gains or losses (realized/unrealized):
Included in earnings — 12,971 (262) 12,709
Included in other comprehensive income * (175) — — (175)
Investment securities called (6,000) — — (6,000)
Discount accretion 179 — — 179
Purchases of private equity investments — 8,835 — 8,835
Sale of risk participation agreement — — (27) (27)
Balance September 30, 2021 $ 1,995 $ 138,052 $ 1,340 $ 141,387
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 September 30, 2021 $ — $ 12,971 $ 1,557 $ 14,528
*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 September 30, 2021 $ 2 $ — $ — $ 2
For the nine months ended September 30, 2021
Balance January 1, 2021 $ 7,968 $ 94,368 $ 2,741 $ 105,077
Total gains or losses (realized/unrealized):
Included in earnings — 38,002 (1,689) 36,313
Included in other comprehensive income * (158) — — (158)
Investment securities called (6,000) — — (6,000)
Discount accretion 185 — — 185
Purchases of private equity investments — 14,491 — 14,491
Sale/pay down of private equity investments — (8,832) — (8,832)
Capitalized interest/dividends — 23 — 23
Purchase of risk participation agreement — — 445 445
Sale of risk participation agreement — — (157) (157)
Balance September 30, 2021 $ 1,995 $ 138,052 $ 1,340 $ 141,387
Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021 $ — $ 38,002 $ 1,367 $ 39,369
*Total gains or losses for the nine months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021 $ 23 $ — $ — $ 23


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In thousands)	State and Municipal Obligations		Private Equity Investments		Total
For the three months ended September 30, 2022
Balance June 30, 2022	$	1,816	$	161,771	$	163,587
Total gains or losses (realized/unrealized):
Included in earnings	—		14,050		14,050
Included in other comprehensive income *	40		—		40

Discount accretion	2		—		2
Purchases of private equity investments	—		899		899
Sale/pay down of private equity investments	—		(423)		(423)
Capitalized interest/dividends	—		44		44


Balance September 30, 2022	$	1,858	$	176,341	$	178,199
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 September 30, 2022	$	—	$	14,050	$	14,050
*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 September 30, 2022	$	40	$	—	$	40
For the nine months ended September 30, 2022
Balance January 1, 2022	$	1,984	$	147,406	$	149,390
Total gains or losses (realized/unrealized):
Included in earnings	—		37,133		37,133
Included in other comprehensive income *	(130)		—		(130)

Discount accretion	4		—		4
Purchases of private equity investments	—		2,021		2,021
Sale/pay down of private equity investments	—		(10,263)		(10,263)
Capitalized interest/dividends	—		44		44


Balance September 30, 2022	$	1,858	$	176,341	$	178,199
Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2022	$	—	$	37,083	$	37,083
*Total gains or losses for the nine months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2022	$	(130)	$	—	$	(130)

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

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Gains and losses included in earnings for the Company's significant Level 3 assets and liabilities in the previous table are reported in the following line items in the consolidated statements of income:

(In thousands) Loan Fees and Sales Other Non-Interest Income Investment Securities Gains (Losses), Net Total
For the three months ended September 30, 2022
Total gains or losses included in earnings $ (230) $ 122 $ 14,050 $ 13,942
Change in unrealized gains or losses relating to assets still held at September 30, 2022 $ — $ 122 $ 14,050 $ 14,172
For the nine months ended September 30, 2022
Total gains or losses included in earnings $ (764) $ 30 $ 37,133 $ 36,399
Change in unrealized gains or losses relating to assets still held at September 30, 2022 $ — $ 28 $ 37,083 $ 37,111
For the three months ended September 30, 2021
Total gains or losses included in earnings $ (309) $ 47 $ 12,971 $ 12,709
Change in unrealized gains or losses relating to assets still held at September 30, 2021 $ 1,510 $ 47 $ 12,971 $ 14,528
For the nine months ended September 30, 2021
Total gains or losses included in earnings $ (1,716) $ 27 $ 38,002 $ 36,313
Change in unrealized gains or losses relating to assets still held at September 30, 2021 $ 1,510 $ (143) $ 38,002 $ 39,369


(In thousands)	Investment Securities Gains (Losses), Net
For the three months ended September 30, 2023
Total gains or losses included in earnings	$	5,605
Change in unrealized gains or losses relating to assets still held at September 30, 2023	$	5,605
For the nine months ended September 30, 2023
Total gains or losses included in earnings	$	16,946
Change in unrealized gains or losses relating to assets still held at September 30, 2023	$	17,446
For the three months ended September 30, 2022
Total gains or losses included in earnings	$	14,050
Change in unrealized gains or losses relating to assets still held at September 30, 2022	$	14,050
For the nine months ended September 30, 2022
Total gains or losses included in earnings	$	37,133
Change in unrealized gains or losses relating to assets still held at September 30, 2022	$	37,083

Level 3 Inputs

The Company's significant Level 3 measurements at September 30, 2023, which employ unobservable inputs that are readily quantifiable, pertain to ~~auction rate securities (ARS),~~ investments in portfolio concerns held by the Company's private equity subsidiaries, and held for sale residential mortgage loan commitments. ARS are included in state and municipal securities and totaled $1.9 million at September 30, 2022, while private equity investments, included in other securities, totaled $176.3 million.

subsidiaries. Information about these inputs is presented in the table below.


Quantitative Information about Level 3 Fair Value Measurements	Quantitative Information about Level 3 Fair Value Measurements						Weighted	Quantitative Information about Level 3 Fair Value Measurements						Weighted
		Valuation Technique	Unobservable Input	Range			Average*		Valuation Technique	Unobservable Input	Range			Average*
Auction rate securities		Discounted cash flow	Estimated market recovery period			5 years	5 years

			Estimated market rate	5.8%	-	6.5%	6.1%
Private equity investments	Private equity investments	Market comparable companies	EBITDA multiple	4.0	-	7.0	5.5	Private equity investments	Market comparable companies	EBITDA multiple	4.0	-	6.0	5.1
Mortgage loan commitments		Discounted cash flow	Probability of funding	87.7%	-	100.0%	91.1%
			Embedded servicing value	1.0%	-	1.5%	1.3%

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

~~Table of Contents~~

Instruments Measured at Fair Value on a Nonrecurring Basis

For assets measured at fair value on a nonrecurring basis during the first nine months of ~~2022~~2023 and ~~2021,~~2022, and still held as of September 30, ~~2022~~2023 and ~~2021,~~2022, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation inputs used to determine each adjustment, and the carrying value of the related individual assets or portfolios at September 30, ~~2022~~2023 and ~~2021.~~2022.


				Fair Value Measurements Using											Fair Value Measurements Using
(In thousands)	(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 Nine Months Ended September 30		(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 Nine Months Ended September 30
September 30, 2022
September 30, 2023												September 30, 2023
Collateral dependent loans	Collateral dependent loans	$	200	$	—	$	—	$	200	$	(394)	Collateral dependent loans	$	4,029	$	—	$	—	$	4,029	$	(2,059)

Mortgage servicing rights		11,228		—		—		11,228		304

Long-lived assets	Long-lived assets	480		—		—		480		(965)		Long-lived assets	1,894		—		—		1,894		(164)

September 30, 2021
September 30, 2022												September 30, 2022
Collateral dependent loans	Collateral dependent loans	$	2,057	$	—	$	—	$	2,057	$	(349)	Collateral dependent loans	$	200	$	—	$	—	$	200	$	(394)
Mortgage servicing rights	Mortgage servicing rights	9,774		—		—		9,774		1,120		Mortgage servicing rights	11,228		—		—		11,228		304

Long- lived assets	Long- lived assets	1,393		—		—		1,393		(726)		Long- lived assets	480		—		—		480		(965)

The Company's significant Level 3 measurements that are measured on a nonrecurring basis pertain to the Company's mortgage servicing rights retained on certain fixed rate personal real estate loan originations. Mortgage servicing rights are included in other intangible assets-net on the consolidated balance sheets, and information about these inputs at September 30, 2022 is presented in the table below.

Quantitative Information about Level 3 Fair Value Measurements Weighted
Valuation Technique Unobservable Input Range Average*
Mortgage servicing rights Discounted cash flow Discount rate 9.51 % - 9.81 % 9.61 %
Prepayment speeds (CPR)* 6.25 % - 6.53 % 6.32 %
Loan servicing costs - annually per loan
    Performing loans $ 70 - $ 72 $ 71
    Delinquent loans $ 200 - $ 750
    Loans in foreclosure $ 1,000

*Ranges and weighted averages based on interest rate tranches.

Table of Contents

The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are updated periodically for changes in market conditions. Actual rates may differ from our estimates. Increases in prepayment speed and discount rates negatively impact the fair value of our mortgage servicing rights.

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.

~~Table of Contents~~

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 September 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


		Carrying Amount		Estimated Fair Value at September 30, 2022									Carrying Amount		Estimated Fair Value at September 30, 2023
(In thousands)	(In thousands)			Level 1		Level 2		Level 3		Total		(In thousands)			Level 1		Level 2		Level 3		Total
Financial Assets	Financial Assets											Financial Assets
Loans:	Loans:											Loans:
Business	Business	$	5,528,895	$	—	$	—	$	5,384,563	$	5,384,563	Business	$	5,908,330	$	—	$	—	$	5,733,548	$	5,733,548
Real estate - construction and land	Real estate - construction and land	1,206,955		—		—		1,191,317		1,191,317		Real estate - construction and land	1,539,566		—		—		1,520,702		1,520,702
Real estate - business	Real estate - business	3,331,627		—		—		3,214,321		3,214,321		Real estate - business	3,647,168		—		—		3,486,455		3,486,455
Real estate - personal	Real estate - personal	2,862,519		—		—		2,628,213		2,628,213		Real estate - personal	3,024,639		—		—		2,652,514		2,652,514
Consumer	Consumer	2,116,371		—		—		2,072,740		2,072,740		Consumer	2,125,804		—		—		2,059,484		2,059,484
Revolving home equity	Revolving home equity	286,026		—		—		282,993		282,993		Revolving home equity	305,237		—		—		302,428		302,428
Consumer credit card	Consumer credit card	563,349		—		—		525,940		525,940		Consumer credit card	574,829		—		—		540,766		540,766
Overdrafts	Overdrafts	3,216		—		—		3,160		3,160		Overdrafts	3,753		—		—		3,667		3,667
Total loans	Total loans	15,898,958		—		—		15,303,247		15,303,247		Total loans	17,129,326		—		—		16,299,564		16,299,564
Loans held for sale	Loans held for sale	8,062		—		8,062		—		8,062		Loans held for sale	5,120		—		5,120		—		5,120

Investment securities	Investment securities	12,899,146		1,042,431		11,633,549		223,166		12,899,146		Investment securities	10,132,637		953,429		8,947,478		231,730		10,132,637
Federal funds sold	Federal funds sold	14,020		14,020		—		—		14,020		Federal funds sold	2,735		2,735		—		—		2,735
Securities purchased under agreements to resell	Securities purchased under agreements to resell	1,275,000		—		—		1,243,913		1,243,913		Securities purchased under agreements to resell	450,000		—		—		439,056		439,056
Interest earning deposits with banks	Interest earning deposits with banks	642,943		642,943		—		—		642,943		Interest earning deposits with banks	1,847,641		1,847,641		—		—		1,847,641
Cash and due from banks	Cash and due from banks	344,178		344,178		—		—		344,178		Cash and due from banks	358,010		358,010		—		—		358,010
Derivative instruments	Derivative instruments	38,460		—		38,419		41		38,460		Derivative instruments	112,182		—		112,136		46		112,182
Assets held in trust for deferred compensation plan	Assets held in trust for deferred compensation plan	16,588		16,588		—		—		16,588		Assets held in trust for deferred compensation plan	18,859		18,859		—		—		18,859
Total	Total	$	31,137,355	$	2,060,160	$	11,680,030	$	16,770,367	$	30,510,557	Total	$	30,056,510	$	3,180,674	$	9,064,734	$	16,970,396	$	29,215,804
Financial Liabilities	Financial Liabilities											Financial Liabilities
Non-interest bearing deposits	Non-interest bearing deposits	$	10,468,591	$	10,468,591	$	—	$	—	$	10,468,591	Non-interest bearing deposits	$	7,961,402	$	7,961,402	$	—	$	—	$	7,961,402
Savings, interest checking and money market deposits	Savings, interest checking and money market deposits	16,014,487		16,014,487		—		—		16,014,487		Savings, interest checking and money market deposits	14,154,275		14,154,275		—		—		14,154,275
Certificates of deposit	Certificates of deposit	988,238		—		—		972,605		972,605		Certificates of deposit	2,974,780		—		—		3,003,240		3,003,240
Federal funds purchased	Federal funds purchased	311,200		311,200		—		—		311,200		Federal funds purchased	506,355		506,355		—		—		506,355
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	2,003,390		—		—		2,004,755		2,004,755		Securities sold under agreements to repurchase	2,238,826		—		—		2,241,706		2,241,706
Other borrowings	Other borrowings	985		—		985		—		985		Other borrowings	503,547		—		3,547		500,000		503,547
Derivative instruments	Derivative instruments	55,768		—		55,669		99		55,768		Derivative instruments	58,718		—		58,674		44		58,718
Liabilities held in trust for deferred compensation plan	Liabilities held in trust for deferred compensation plan	16,588		16,588		—		—		16,588		Liabilities held in trust for deferred compensation plan	18,859		18,859		—		—		18,859
Total	Total	$	29,859,247	$	26,810,866	$	56,654	$	2,977,459	$	29,844,979	Total	$	28,416,762	$	22,640,891	$	62,221	$	5,744,990	$	28,448,102

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		Carrying Amount		Estimated Fair Value at December 31, 2021									Carrying Amount		Estimated Fair Value at December 31, 2022
(In thousands)	(In thousands)			Level 1		Level 2		Level 3		Total		(In thousands)			Level 1		Level 2		Level 3		Total
Financial Assets	Financial Assets											Financial Assets
Loans:	Loans:											Loans:
Business	Business	$	5,303,535	$	—	$	—	$	5,229,153	$	5,229,153	Business	$	5,661,725	$	—	$	—	$	5,506,128	$	5,506,128
Real estate - construction and land	Real estate - construction and land	1,118,266		—		—		1,099,747		1,099,747		Real estate - construction and land	1,361,095		—		—		1,347,328		1,347,328
Real estate - business	Real estate - business	3,058,837		—		—		3,054,481		3,054,481		Real estate - business	3,406,981		—		—		3,289,655		3,289,655
Real estate - personal	Real estate - personal	2,805,401		—		—		2,809,490		2,809,490		Real estate - personal	2,918,078		—		—		2,654,423		2,654,423
Consumer	Consumer	2,032,225		—		—		2,031,408		2,031,408		Consumer	2,059,088		—		—		1,999,788		1,999,788
Revolving home equity	Revolving home equity	275,945		—		—		273,450		273,450		Revolving home equity	297,207		—		—		295,005		295,005
Consumer credit card	Consumer credit card	575,410		—		—		536,468		536,468		Consumer credit card	584,000		—		—		538,268		538,268
Overdrafts	Overdrafts	6,740		—		—		6,458		6,458		Overdrafts	14,957		—		—		14,666		14,666
Total loans	Total loans	15,176,359		—		—		15,040,655		15,040,655		Total loans	16,303,131		—		—		15,645,261		15,645,261
Loans held for sale	Loans held for sale	8,615		—		8,615		—		8,615		Loans held for sale	4,964		—		4,964		—		4,964

Investment securities	Investment securities	14,695,628		1,087,873		13,413,558		194,197		14,695,628		Investment securities	12,511,649		1,041,616		11,244,592		225,441		12,511,649
Federal funds sold	Federal funds sold	2,800		2,800		—		—		2,800		Federal funds sold	49,505		49,505		—		—		49,505
Securities purchased under agreements to resell	Securities purchased under agreements to resell	1,625,000		—		—		1,623,856		1,623,856		Securities purchased under agreements to resell	825,000		—		—		795,574		795,574
Interest earning deposits with banks	Interest earning deposits with banks	3,971,217		3,971,217		—		—		3,971,217		Interest earning deposits with banks	389,140		389,140		—		—		389,140
Cash and due from banks	Cash and due from banks	305,539		305,539		—		—		305,539		Cash and due from banks	452,496		452,496		—		—		452,496
Derivative instruments	Derivative instruments	41,842		—		40,994		848		41,842		Derivative instruments	60,492		—		60,458		34		60,492
Assets held in trust for deferred compensation plan	Assets held in trust for deferred compensation plan	21,794		21,794		—		—		21,794		Assets held in trust for deferred compensation plan	17,856		17,856		—		—		17,856
Total	Total	$	35,848,794	$	5,389,223	$	13,463,167	$	16,859,556	$	35,711,946	Total	$	30,614,233	$	1,950,613	$	11,310,014	$	16,666,310	$	29,926,937
Financial Liabilities	Financial Liabilities											Financial Liabilities
Non-interest bearing deposits	Non-interest bearing deposits	$	11,772,374	$	11,772,374	$	—	$	—	$	11,772,374	Non-interest bearing deposits	$	10,066,356	$	10,066,356	$	—	$	—	$	10,066,356
Savings, interest checking and money market deposits	Savings, interest checking and money market deposits	16,598,085		16,598,085		—		—		16,598,085		Savings, interest checking and money market deposits	15,126,981		15,126,981		—		—		15,126,981
Certificates of deposit	Certificates of deposit	1,442,614		—		—		1,438,919		1,438,919		Certificates of deposit	994,103		—		—		982,613		982,613
Federal funds purchased	Federal funds purchased	43,385		43,385		—		—		43,385		Federal funds purchased	159,860		159,860		—		—		159,860
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	2,979,582		—		—		2,979,677		2,979,677		Securities sold under agreements to repurchase	2,681,874		—		—		2,684,471		2,684,471
Other borrowings	Other borrowings	12,514		—		12,514		—		12,514		Other borrowings	8,831		—		8,831		—		8,831
Derivative instruments	Derivative instruments	12,101		—		11,824		277		12,101		Derivative instruments	54,984		—		54,865		119		54,984
Liabilities held in trust for deferred compensation plan	Liabilities held in trust for deferred compensation plan	21,794		21,794		—		—		21,794		Liabilities held in trust for deferred compensation plan	17,856		17,856		—		—		17,856
Total	Total	$	32,882,449	$	28,435,638	$	24,338	$	4,418,873	$	32,878,849	Total	$	29,110,845	$	25,371,053	$	63,696	$	3,667,203	$	29,101,952

17. Legal and Regulatory Proceedings

The Company has various legal proceedings pending at September 30, ~~2022,~~2023, arising in the normal course of business. While some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet progressed to the point where a loss amount can be determined to be probable and estimable.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Company's ~~2021~~2022 Annual Report on Form 10-K. Results of operations for the three and nine ~~month periods~~months ended September 30, ~~2022~~2023 are not necessarily indicative of results to be attained for any other period.

Forward-Looking Information

This report may contain "forward-looking statements" that are subject to risks and uncertainties and include information about possible or assumed future results of operations. Many possible events or factors could affect the future financial results and performance of the Company. This could cause results or performance to differ materially from those expressed in the forward-looking statements. Words such as "expects", "anticipates", "believes", "estimates", variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed throughout this report. Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. Such possible events or factors include: changes in economic conditions in the Company's market area, the effects of the COVID-19 pandemic, changes in policies by regulatory agencies, governmental legislation and regulation, fluctuations in interest rates, changes in liquidity requirements, demand for loans in the Company's market area, changes in accounting and tax principles, estimates made on income taxes, competition with other entities that offer financial services, cybersecurity threats, and such other factors as discussed in Part I Item 1A - "Risk Factors" and Part II Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's ~~2021~~2022 Annual Report on Form 10-K. During the quarter ended September 30, ~~2022,~~2023, there were no material changes to the Risk Factors disclosed in the Company's ~~2021~~2022 Annual Report on Form 10-K.

Critical Accounting Estimates and Related Policies

The Company has identified certain policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These estimates and related policies are the Company's allowance for credit losses and fair value measurement policies. A discussion of these estimates and related policies can be found in the sections captioned "Critical Accounting Policies" and "Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's ~~2021~~2022 Annual Report on Form 10-K. There have been no changes in the Company's application of critical accounting policies since December 31, ~~2021.~~2022.

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Selected Financial Data


		Three Months Ended September 30						Nine Months Ended September 30							Three Months Ended September 30						Nine Months Ended September 30
		2022			2021			2022			2021				2023			2022			2023			2022
Per Share Data	Per Share Data													Per Share Data
Net income per common share — basic	Net income per common share — basic	$	1.03		$	1.00	*	$	2.96		$	3.38	*	Net income per common share — basic	$	.96		$	.97	*	$	2.94		$	2.81	*
Net income per common share — diluted	Net income per common share — diluted	1.02			.99		*	2.95			3.37		*	Net income per common share — diluted	.96			.97		*	2.93			2.81		*
Cash dividends on common stock	Cash dividends on common stock	.265			.250		*	.795			.750		*	Cash dividends on common stock	.270			.252		*	.810			.757		*
Book value per common share	Book value per common share							19.86			28.58		*	Book value per common share							20.90			18.91		*
Market price	Market price							66.16			66.36		*	Market price							47.98			63.01		*
Selected Ratios	Selected Ratios													Selected Ratios
(Based on average balance sheets)	(Based on average balance sheets)													(Based on average balance sheets)
Loans to deposits (1)	Loans to deposits (1)	56.40		%	54.44		%	54.05		%	57.91		%	Loans to deposits (1)	66.39		%	56.40		%	65.85		%	54.05		%
Non-interest bearing deposits to total deposits	Non-interest bearing deposits to total deposits	38.76			40.90			39.04			40.15			Non-interest bearing deposits to total deposits	31.05			38.76			33.23			39.04
Equity to loans (1)	Equity to loans (1)	17.45			23.17			19.19			21.68			Equity to loans (1)	15.90			17.45			16.00			19.19
Equity to deposits	Equity to deposits	9.84			12.62			10.37			12.56			Equity to deposits	10.55			9.84			10.53			10.37
Equity to total assets	Equity to total assets	8.31			10.22			8.66			10.22			Equity to total assets	8.40			8.31			8.31			8.66
Return on total assets	Return on total assets	1.48			1.40			1.39			1.65			Return on total assets	1.49			1.48			1.53			1.39

Return on equity	Return on equity	17.84			13.74			16.08			16.14			Return on equity	17.73			17.84			18.42			16.08
(Based on end-of-period data)	(Based on end-of-period data)													(Based on end-of-period data)
Non-interest income to revenue (2)	Non-interest income to revenue (2)	35.99			39.11			37.34			39.66			Non-interest income to revenue (2)	36.51			35.99			36.35			37.34
Efficiency ratio (3)	Efficiency ratio (3)	55.19			59.95			57.48			57.76			Efficiency ratio (3)	58.15			55.19			57.62			57.48
Tier I common risk-based capital ratio	Tier I common risk-based capital ratio							13.97			14.02			Tier I common risk-based capital ratio							15.11			13.97
Tier I risk-based capital ratio	Tier I risk-based capital ratio							13.97			14.02			Tier I risk-based capital ratio							15.11			13.97
Total risk-based capital ratio	Total risk-based capital ratio							14.69			14.83			Total risk-based capital ratio							15.90			14.69
Tangible common equity to tangible assets ratio (4)	Tangible common equity to tangible assets ratio (4)							6.80			9.71			Tangible common equity to tangible assets ratio (4)							7.78			6.80
Tier I leverage ratio	Tier I leverage ratio							9.87			9.31			Tier I leverage ratio							10.87			9.87

* Restated for the 5% stock dividend distributed in December ~~2021.~~2022.

(1) Includes loans held for sale.

(2) Revenue includes net interest income and non-interest income.

(3) The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.

(4) The tangible common equity to tangible assets ratio is a measurement which management believes is a useful indicator of capital adequacy and utilization.

It provides a meaningful basis for period to period and company to company comparisons, and also assists regulators, investors and analysts in analyzing the financial position of the Company. Tangible common equity and tangible assets are non-GAAP measures and should not be viewed as substitutes for, or superior to, data prepared in accordance with GAAP.

The following table is a reconciliation of the GAAP financial measures of total equity and total assets to the non-GAAP measures of total tangible common equity and total tangible assets.


		September 30							September 30
(Dollars in thousands)	(Dollars in thousands)	2022			2021			(Dollars in thousands)	2023			2022
Total equity	Total equity	$	2,371,107		$	3,491,221		Total equity	$	2,599,266		$	2,371,107
Less non-controlling interest	Less non-controlling interest	19,513			10,551			Less non-controlling interest	17,861			19,513

Less goodwill	Less goodwill	138,921			138,921			Less goodwill	146,539			138,921
Less intangible assets*	Less intangible assets*	4,371			4,684			Less intangible assets*	4,111			4,371
Total tangible common equity (a)	Total tangible common equity (a)	$	2,208,302		$	3,337,065		Total tangible common equity (a)	$	2,430,755		$	2,208,302
Total assets	Total assets	$	32,602,596		$	34,497,543		Total assets	$	31,376,692		$	32,602,596
Less goodwill	Less goodwill	138,921			138,921			Less goodwill	146,539			138,921
Less intangible assets*	Less intangible assets*	4,371			4,684			Less intangible assets*	4,111			4,371
Total tangible assets (b)	Total tangible assets (b)	$	32,459,304		$	34,353,938		Total tangible assets (b)	$	31,226,042		$	32,459,304
Tangible common equity to tangible assets ratio (a)/(b)	Tangible common equity to tangible assets ratio (a)/(b)	6.80		%	9.71		%	Tangible common equity to tangible assets ratio (a)/(b)	7.78		%	6.80		%

* Intangible assets other than mortgage servicing rights.

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Results of Operations

Summary


		Three Months Ended September 30						Nine Months Ended September 30							Three Months Ended September 30								Nine Months Ended September 30
(Dollars in thousands)	(Dollars in thousands)	2022		2021		% change			2022		2021		% change			(Dollars in thousands)	2023		2022		% change			2023		2022		% change
Net interest income		$	246,373	$	214,037	15.1	%		$	687,544	$	627,767	9.5	%
Net interest income (expense)																Net interest income (expense)	$	248,547	$	246,373	.9	%		$	749,708	$	687,544	9.0	%
Provision for credit losses	Provision for credit losses	(15,290)		7,385		307.0			(12,594)		59,272		121.2			Provision for credit losses	(11,645)		(15,290)		23.8			(29,572)		(12,594)		(134.8)
Non-interest income	Non-interest income	138,514		137,506		.7			409,710		412,694		(.7)			Non-interest income	142,949		138,514		3.2			428,166		409,710		4.5
Investment securities gains, net		3,410		13,108		(74.0)			11,602		39,765		(70.8)
Investment securities gains (losses), net																Investment securities gains (losses), net	4,298		3,410		26.0			7,384		11,602		(36.4)
Non-interest expense	Non-interest expense	(212,884)		(211,620)		.6			(632,037)		(602,319)		4.9			Non-interest expense	(228,010)		(212,884)		7.1			(679,728)		(632,037)		7.5
Income taxes	Income taxes	(33,936)		(34,662)		(2.1)			(97,859)		(111,947)		(12.6)			Income taxes	(33,439)		(33,936)		(1.5)			(102,242)		(97,859)		4.5
Non-controlling interest expense		(3,364)		(3,193)		5.4			(9,595)		(9,373)		2.4
Non-controlling interest income (expense)																Non-controlling interest income (expense)	(2,104)		(3,364)		(37.5)			(5,879)		(9,595)		(38.7)
Net income attributable to Commerce Bancshares, Inc.	Net income attributable to Commerce Bancshares, Inc.	$	122,823	$	122,561	.2	%		$	356,771	$	415,859	(14.2	%)		Net income attributable to Commerce Bancshares, Inc.	$	120,596	$	122,823	(1.8	%)		$	367,837	$	356,771	3.1	%

For the quarter ended September 30, ~~2022,~~2023, net income attributable to Commerce Bancshares, Inc. (net income) amounted to ~~$122.8~~$120.6 million, ~~an increase~~a decrease of ~~$262 thousand,~~$2.2 million, or ~~.2%~~1.8%, compared to the third quarter of the previous year. For the current quarter, the annualized return on average assets was ~~1.48%~~1.49%, the annualized return on average equity was ~~17.84%~~17.73%, and the efficiency ratio was ~~55.19%~~58.15%. Diluted earnings per common share was ~~$1.02, an increase~~$.96 per share in the current quarter, a decrease of ~~3.0%~~1.0% compared to ~~$0.99~~$0.97 per share in the third quarter of ~~2021,~~2022, and ~~increased 6.3%~~decreased 5.9% compared to ~~$.96~~$1.02 per share in the previous quarter.

Compared to the third quarter of last year, net interest income increased ~~$32.3~~$2.2 million, or ~~15.1%~~.9%, mainly due to increases ~~of $28.4 million~~ in interest income on loans and ~~$15.7 million in~~ interest income on ~~investment securities,~~deposits with banks of $85.0 million and $26.2 million, respectively. These increases were partly offset by an increase in deposits and borrowings interest expense of ~~$13.3~~$96.3 million. The provision for credit losses ~~increased $22.7~~decreased $3.6 million, ~~due~~or 23.8%, compared to ~~an increase~~the same quarter in the estimate of the allowance for credit losses on loans and unfunded lending commitments and higher net loan charge-offs, coupled with the release of allowances associated with certain pandemic-related estimates in the third quarter of 2021.prior year. Non-interest income increased ~~$1.0~~$4.4 million, or ~~.7%~~3.2%, compared to the third quarter of ~~2021,~~2022, mainly due to ~~increases~~an increase in ~~net~~trust fees and bank card fees, ~~and cash sweep commissions,~~ partly offset by lower ~~loan fees~~deposit account charges and ~~sales and trust~~consumer brokerage services fees. Net gains on investment securities totaled ~~$3.4~~$4.3 million in the current quarter compared to net gains of ~~$13.1~~$3.4 million in the same quarter of last year. Net securities gains in the current quarter primarily resulted from ~~net~~gains of $5.6 million related to fair value ~~gains of $14.1 million in the Company's~~adjustments on private equity ~~investment portfolio,~~investments, partly offset by ~~a loss~~$1.2 million of ~~$10.7 million~~net losses realized on the ~~sale~~sales of ~~an available for sale security.~~private equity investments. Non-interest expense increased ~~$1.3~~$15.1 million, or ~~.6%~~7.1%, over the third quarter of ~~2021~~2022, mainly due to higher salaries and employee benefits expense, higher data processing and software expense and ~~travel and entertainment expense, partly offset by $8.2 million in litigation settlement costs recorded in 2021.~~higher FDIC insurance expense.

Net income for the first nine months of ~~2022~~2023 was ~~$356.8~~$367.8 million, ~~a decrease~~an increase of ~~$59.1~~$11.1 million, or ~~14.2%~~3.1%, from the same period last year. Diluted earnings per common share was ~~$2.95, a decrease~~$2.93, an increase of ~~12.5%~~4.3% compared to ~~$3.37~~$2.81 per share in the same period last year. For the first nine months of ~~2022,~~2023, the annualized return on average assets was ~~1.39%~~1.53%, the annualized return on average equity was ~~16.08%~~18.42%, and the efficiency ratio was ~~57.48%~~57.62%. Net interest income increased ~~$59.8~~$62.2 million, or ~~9.5%~~9.0%, over the same period last year. This growth was largely due to ~~increases~~an increase of ~~$70.7 million in interest income on investment securities, $11.8~~$275.5 million in interest income on loans and ~~$7.0 million~~an increase in interest ~~earned~~ on ~~balances with~~deposits at the Federal Reserve of $61.2 million. These increases were partly offset by ~~a decrease~~increases in interest ~~income~~expense on ~~securities purchased under agreements to resell of $14.9 million and an increase in~~ deposits and borrowings ~~interest expense~~ of ~~$15.0~~$243.9 million. The provision for credit losses was ~~expense of $12.6~~$29.6 million for the first nine months of ~~2022,~~2023, compared to ~~a recovery of $59.3~~$12.6 million in the same period last ~~year, resulting in an increase in provision expense of $71.9 million.~~year. Non-interest income ~~decreased $3.0~~increased $18.5 million, or ~~.7%~~4.5%, from the first nine months of last year mainly due to ~~lower loan~~higher bank card fees, letters of credit fees, and ~~sales,~~cash sweep commission fees, partly offset by ~~higher net bank card~~lower deposit account fees. Non-interest expense increased ~~$29.7~~$47.7 million, or ~~4.9%~~7.5%, over the first nine months of last year mainly due to increases in salaries and benefits expense, higher FDIC insurance expense, and higher data processing and software expense.

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Net Interest Income

The following table summarizes the changes in net interest income on a fully taxable-equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates. Changes not solely due to volume or rate changes are allocated to rate.

Analysis of Changes in Net Interest Income


		Three Months Ended September 30, 2022 vs. 2021						Nine Months Ended September 30, 2022 vs. 2021							Three Months Ended September 30, 2023 vs. 2022						Nine Months Ended September 30, 2023 vs. 2022
		Change due to						Change due to							Change due to						Change due to
(In thousands)	(In thousands)	Average Volume		Average Rate		Total		Average Volume		Average Rate		Total		(In thousands)	Average Volume		Average Rate		Total		Average Volume		Average Rate		Total
Interest income, fully taxable equivalent basis:	Interest income, fully taxable equivalent basis:													Interest income, fully taxable equivalent basis:
Loans:	Loans:													Loans:
Business	Business	$	(851)	$	6,632	$	5,781	$	(17,148)	$	5,205	$	(11,943)	Business	$	5,165	$	27,126	$	32,291	$	10,565	$	94,985	$	105,550
Real estate - construction and land	Real estate - construction and land	1,063		5,744		6,807		2,655		7,955		10,610		Real estate - construction and land	2,924		11,013		13,937		7,920		37,133		45,053
Real estate - business	Real estate - business	2,401		7,693		10,094		4,334		8,267		12,601		Real estate - business	4,257		15,858		20,115		10,958		55,253		66,211
Real estate - personal	Real estate - personal	567		644		1,211		612		(523)		89		Real estate - personal	1,254		2,807		4,061		3,361		8,186		11,547
Consumer	Consumer	564		2,461		3,025		2,100		(776)		1,324		Consumer	7		9,513		9,520		526		28,727		29,253
Revolving home equity	Revolving home equity	(7)		964		957		(348)		1,209		861		Revolving home equity	281		2,253		2,534		743		7,744		8,487
Consumer credit card	Consumer credit card	(465)		1,064		599		(3,384)		1,716		(1,668)		Consumer credit card	425		2,434		2,859		1,372		9,032		10,404
Overdrafts	Overdrafts	—		—		—		—		—		—		Overdrafts	—		—		—		—		—		—
Total interest on loans	Total interest on loans	3,272		25,202		28,474		(11,179)		23,053		11,874		Total interest on loans	14,313		71,004		85,317		35,445		241,060		276,505
Loans held for sale	Loans held for sale	(70)		42		(28)		(413)		147		(266)		Loans held for sale	(33)		26		(7)		(94)		72		(22)
Investment securities:	Investment securities:													Investment securities:
U.S. government and federal agency securities	U.S. government and federal agency securities	5,583		(3,444)		2,139		13,376		(2,604)		10,772		U.S. government and federal agency securities	(1,445)		(5,469)		(6,914)		(2,325)		(13,696)		(16,021)
Government-sponsored enterprise obligations	Government-sponsored enterprise obligations	29		8		37		64		13		77		Government-sponsored enterprise obligations	—		(1)		(1)		205		185		390
State and municipal obligations	State and municipal obligations	77		(381)		(304)		1,742		(1,866)		(124)		State and municipal obligations	(3,788)		(1,147)		(4,935)		(8,795)		(2,234)		(11,029)
Mortgage-backed securities	Mortgage-backed securities	(1,032)		6,894		5,862		1,740		33,031		34,771		Mortgage-backed securities	(3,340)		1,959		(1,381)		(11,733)		4,740		(6,993)
Asset-backed securities	Asset-backed securities	2,294		5,283		7,577		12,360		4,424		16,784		Asset-backed securities	(5,379)		3,726		(1,653)		(11,045)		15,503		4,458
Other securities	Other securities	379		(130)		249		3,374		4,489		7,863		Other securities	391		3,467		3,858		3,422		(3,370)		52
Total interest on investment securities	Total interest on investment securities	7,330		8,230		15,560		32,656		37,487		70,143		Total interest on investment securities	(13,561)		2,535		(11,026)		(30,271)		1,128		(29,143)
Federal funds sold	Federal funds sold	18		75		93		23		88		111		Federal funds sold	(75)		26		(49)		180		345		525
Securities purchased under agreements to resell	Securities purchased under agreements to resell	(1,401)		(1,622)		(3,023)		12,316		(27,198)		(14,882)		Securities purchased under agreements to resell	(2,891)		647		(2,244)		(8,007)		4,129		(3,878)
Interest earning deposits with banks	Interest earning deposits with banks	(613)		5,189		4,576		(599)		7,641		7,042		Interest earning deposits with banks	7,699		18,468		26,167		1,192		59,986		61,178
Total interest income	Total interest income	8,536		37,116		45,652		32,804		41,218		74,022		Total interest income	5,452		92,706		98,158		(1,555)		306,720		305,165
Interest expense:	Interest expense:													Interest expense:
Deposits:	Deposits:													Deposits:
Savings	Savings	22		(134)		(112)		95		(426)		(331)		Savings	(16)		33		17		(27)		88		61
Interest checking and money market	Interest checking and money market	183		5,657		5,840		720		5,430		6,150		Interest checking and money market	(2,054)		38,287		36,233		(2,844)		85,192		82,348
Certificates of deposit of less than $100,000	Certificates of deposit of less than $100,000	(30)		235		205		(163)		(88)		(251)		Certificates of deposit of less than $100,000	196		14,892		15,088		224		26,070		26,294
Certificates of deposit of $100,000 and over	Certificates of deposit of $100,000 and over	(156)		577		421		(269)		(136)		(405)		Certificates of deposit of $100,000 and over	2,153		15,918		18,071		1,251		36,966		38,217
Total interest on deposits	Total interest on deposits	19		6,335		6,354		383		4,780		5,163		Total interest on deposits	279		69,130		69,409		(1,396)		148,316		146,920
Federal funds purchased	Federal funds purchased	10		302		312		17		518		535		Federal funds purchased	2,776		3,742		6,518		3,821		14,449		18,270
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	(30)		7,129		7,099		95		9,764		9,859		Securities sold under agreements to repurchase	287		10,568		10,855		(392)		42,372		41,980
Other borrowings	Other borrowings	5		3		8		9		8		17		Other borrowings	4,490		4,661		9,151		18,524		18,481		37,005
Total interest expense	Total interest expense	4		13,769		13,773		504		15,070		15,574		Total interest expense	7,832		88,101		95,933		20,557		$	223,618	$	244,175
Net interest income, tax equivalent basis	Net interest income, tax equivalent basis	$	8,532	$	23,347	$	31,879	$	32,300	$	26,148	$	58,448	Net interest income, tax equivalent basis	$	(2,380)	$	4,605	$	2,225	$	(22,112)	$	83,102	$	60,990

Net interest income in the third quarter of ~~2022~~2023 was ~~$246.4~~$248.5 million, an increase of ~~$32.3~~$2.2 million over the third quarter of ~~2021.~~2022. On a fully taxable-equivalent (FTE) basis, net interest income totaled ~~$248.7~~$251.0 million in the third quarter of ~~2022,~~2023, up ~~$31.9~~$2.2 million over the same period last year and ~~up $13.7 million over~~down $795 thousand from the previous quarter. The increase in net interest income

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compared to the third quarter of ~~2021~~2022 was mainly due to higher interest income earned on loans (FTE) of ~~$28.5~~$85.3 million and ~~investment securities (FTE)~~balances at the Federal Reserve of ~~$15.6~~$26.2 million, partly offset by higher interest expense on deposits and borrowings of ~~$13.8~~$95.9 million. The increase in total interest earned on loans (FTE) was the result of higher loan yields on all loan products, especially commercial loans, many of which have variable rates, coupled with higher average balances. The increase in interest earned on ~~investment securities (FTE)~~balances at the Federal Reserve was ~~the result of~~due to higher ~~average~~ rates ~~earned~~ and average balances, while the increase in interest expense was mainly due to higher rates paid on deposits and borrowings. The Company's net yield on earning assets (FTE) was ~~3.01%~~3.11% in the current quarter compared to ~~2.58%~~3.01% in the third quarter of ~~2021.~~2022.

Total interest income (FTE) increased ~~$45.7~~$98.2 million over the third quarter of ~~2021.~~2022. Interest income on loans (FTE) was ~~$172.4~~$257.7 million during the third quarter of ~~2022,~~2023, an increase of ~~$28.5~~$85.3 million, or ~~19.8%~~49.5%, over the same quarter last year. The increase in interest income over the same quarter of last year was primarily due to an increase of 63165 basis points in the average rate earned and growth of ~~$386.9 million,~~$1.3 billion, or ~~2.5%~~8.5%, in average loan balances. Most of the increase in interest income occurred in the business, business real estate ~~construction~~ and ~~consumer~~construction loan categories. The largest increase to interest income occurred in business ~~real estate~~ loan interest, which grew ~~$10.1~~$32.3 million due to a 94183 basis point increase in the average rate earned, coupled with growth in average balances of ~~$275.3~~$531.5 million, or ~~9.2%~~10.0%. Business real estate loan interest income increased ~~$5.8~~$20.1 million due to an increase of 51173 basis points in the average rate earned ~~partly offset by a decline~~and higher average balances of ~~$119.8~~$383.9 million, ~~in average balances.~~or 11.8%. Construction and land loan interest grew ~~$6.8~~$13.9 million due to a ~~176~~290 basis point increase in the average rate earned and growth of ~~$120.2~~$220.1 million, or ~~10.3%~~17.1%, in average loan balances. ~~Consumer~~In addition, consumer loan interest increased ~~$3.0~~$9.5 million due to an increase of 46180 basis points in the average rate earned, while consumer credit card loan increased $2.9 million mainly due to a 172 basis point increase in the average rate earned. Personal real estate loan interest income grew $4.1 million due to a 37 basis point increase in the average rate earned and growth of $148.1 million, or 5.2%, in average ~~balances of $60.4 million, or 3.0%.~~loan balances.

Interest income on investment securities (FTE) was ~~$81.3~~$70.3 million during the third quarter of ~~2022,~~2023, which was ~~an increase~~a decrease of ~~$15.6~~$11.0 million ~~over~~from the same quarter last year. The ~~increase~~decrease in interest income occurred mainly in interest earned on ~~asset-backed securities,~~U.S. government and federal agency obligations, which ~~rose $7.6~~declined $6.9 million due to ~~an increase of 54~~a decrease in inflation income on the Company's U.S. Treasury inflation-protected securities (TIPS). Interest income related to TIPS, which is tied to the non-seasonally adjusted Consumer Price Index (CPI-U), decreased $6.0 million from the same quarter last year. Interest income earned on state and municipal securities declined $4.9 million due to a $661.4 million, or 32.2%, decrease in average balances and a 32 basis ~~points~~point decline in the average rate ~~earned, coupled with higher average balances of $842.9 million, or 27.8%.~~earned. Interest income earned on mortgage-backed securities ~~increased $5.9~~decreased $1.4 million mainly due to ~~an increase in the average rate earned of 40 basis points, partly offset by~~ a decline of ~~$267.5~~$686.6 million, or ~~3.8%~~10.0%, in the average balance. In addition, a ~~$1.5~~$1.3 million increase in premium amortization, reflecting slower forward prepayment speed estimates was recorded in the current quarter, compared to a premium amortization adjustment increase of ~~$5.0~~$1.5 million in the prior year. Interest earned on ~~U.S. government and federal agency obligations grew $2.1~~asset-backed securities decreased $1.7 million ~~mainly~~ due to ~~higher~~lower average balances of ~~$385.9 million,~~$1.3 billion, or ~~53.0%~~34.0%, ~~and~~partly offset by an increase ~~in inflation income on the Company's U.S. Treasury inflation-protected securities (TIPS), while a decrease~~ of ~~123~~58 basis points in the average rate ~~earned~~earned. These decreases to interest income were partly offset ~~these increases~~by growth in ~~income. Interest~~interest income ~~related to TIPS, which is tied to~~on other securities of $3.9 million, mainly driven by a $2.3 million dividend from a private equity investment in the ~~non-seasonally adjusted Consumer Price Index (CPI-U),~~third quarter of 2023. Additionally, the average rate earned on investment securities during the three months ended September 30, 2023 increased ~~$1.8 million~~15 basis points over the same ~~quarter last~~period in the prior year. The average balance of the total investment portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $11.9 billion in the third quarter of 2023, compared to $14.8 billion in the third quarter of ~~2022, compared to $13.8 billion in the third quarter of 2021.~~2022.

Interest income on securities purchased under agreements to resell decreased ~~$3.0~~$2.2 million from the same quarter last year, due to a ~~decrease~~decline of 47$666.9 million in the average balance, partly offset by an increase of 36 basis points in the average rate ~~earned and a decline of $253.9 million in the average balance.~~earned. Interest income on balances at the Federal Reserve grew ~~$4.6~~$26.2 million due to an increase of ~~210~~314 basis points in the average rate earned ~~partly offset by a decrease~~and an increase of ~~$1.6~~$1.4 billion in the average balance invested.

The average fully taxable-equivalent yield on total interest earning assets was 4.51% in the third quarter of 2023, up from 3.21% in the third quarter of ~~2022, up from 2.62% in the third quarter of 2021.~~2022.

Total interest expense increased ~~$13.8~~$95.9 million compared to the third quarter of ~~2021~~2022 due to increases of $69.4 million in interest expense ~~of $6.4 million~~ on interest bearing deposits and ~~$7.4~~$26.5 million on borrowings. The increase in deposit interest expense resulted mainly from an increase of ~~$5.8~~$36.2 million in interest expense on interest checking and money market deposit accounts due to a 15113 basis point increase in the average rate paid, ~~and higher~~slightly offset by lower average balances of ~~$1.1~~$1.4 billion, or 9.5%. In addition, interest expense on certificates of deposit increased $33.2 million mainly due to an increase of 383 basis points in the average rate paid and an increase in average balances of $2.2 billion. A portion of this increase was due to brokered deposits added by the Company during the second quarter of 2023. The brokered deposits consist of short-term certificates of deposit less than $100 thousand, and $401.3 million were outstanding at September 30, 2023. Interest expense on borrowings was higher due to an increase of ~~129~~$10.9 million in interest expense on customer repurchase agreements resulting from an increase of 183 basis points in the average rate paid. Interest expense on federal funds purchased increased $6.5 million mainly due to a 292 basis point increase in the average rate paid ~~on customer repurchase agreements.~~and a $456.9 million increase in the average balance of federal funds purchased, while

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FHLB borrowings increased $684.2 million and resulted in an increase of $9.2 million in interest expense. The overall average rate incurred on all interest bearing liabilities was ~~.34%~~2.12% and ~~.06%~~.34% in the third quarters of ~~2022~~2023 and ~~2021,~~2022, respectively.

Net interest income (FTE) for the first nine months of ~~2022~~2023 was ~~$695.1~~$756.1 million compared to ~~$636.7~~$695.1 million for the same period in ~~2021.~~2022. For the first nine months of ~~2022,~~2023, the net interest margin was ~~2.75%~~3.16% compared to ~~2.63%~~2.75% for the same period in ~~2021.~~2022.

Total interest income (FTE) for the first nine months of ~~2022~~2023 increased ~~$58.4~~$61.0 million over the same period last year mainly due to higher interest income on ~~investment securities~~loans (FTE) and ~~loans (FTE),~~balances at the Federal Reserve, partly offset by higher interest expense on deposit and borrowings and lower interest ~~earned~~income on investment securities ~~purchased under agreements to resell and higher interest expense.~~(FTE). Loan interest income (FTE) ~~grew $11.9~~increased $276.5 million, or ~~2.7%~~61.6%, due to a 20 basis point increase in the average rate earned, partly offset by a $403.8 million decrease in average loan balances. Most of the increase in loan interest occurred in the business real estate and construction loan categories due to

~~Table of Contents~~

higher average rates and balances. In addition, consumer loan interest increased due to higher average balances, partly offset by lower rates earned. These increases were partly offset by lower interest earned on business and credit card loans due to lower average balances, partly offset by higher rates earned. Interest income on investment securities (T/E) increased $70.1 million due to a 37193 basis point increase in the average rate earned and a ~~$2.1~~$1.2 billion, or 8.0%, increase in average loan balances. Most of the increase occurred in the business, business real estate and construction loan categories, but interest income in all loan categories increased due to higher average rates earned and average loan balances. Interest income on investment securities (FTE) decreased $29.1 million due to a $2.5 billion decrease in average balances, slightly offset by a 12 basis point increase in the average rate earned. Interest earned on U.S. government and federal agency obligations ~~increased $10.8~~decreased $16.0 million, mainly due to ~~higher~~lower TIPS interest income. Interest income earned on state and municipal securities declined $11.0 million due to lower average balances and lower interest rates earned. Interest earned on mortgage-backed securities ~~increased $34.8~~decreased $7.0 million ~~mainly~~ due to lower average balances, partly offset by higher average rates earned, while interest on asset-backed securities increased ~~$16.8~~$4.5 million due to higher average ~~balances and~~rates earned, partly offset by lower average rates earned. Interest earned on other securities increased $7.9 million mainly due to the receipt of $6.5 million in non-accrual interest on the sale of a private equity investment in the second quarter of 2022.balances. Interest income on securities purchased under agreements to resell decreased ~~$14.9~~$3.9 million due to lower ~~rates earned,~~average balances, partly offset by higher average ~~balances, while interest~~rates earned. Interest income on balances at the Federal Reserve increased ~~$7.0~~$61.2 million mainly due to higher average rates earned.

Total interest expense for the first nine months of ~~2022~~2023 increased ~~$15.6~~$244.2 million compared to the same period last year. Interest expense on deposits increased ~~$5.2 million, mainly due to a four basis point increase in the overall rate. Interest expense on interest checking and money market accounts increased $6.2~~$146.9 million, due to a ~~five~~116 basis point increase in the average rate ~~and higher average balances.~~paid. Interest expense on borrowings increased ~~$10.4~~$97.3 million, mainly due to higher rates paid on federal funds purchased and customer repurchase ~~agreements.~~agreements, as well as and higher average balances and higher rates paid on FHLB borrowings. The overall cost of total interest bearing liabilities increased to ~~.17%~~1.74% compared to ~~.07%~~.17% in the same period last year.

Summaries of average assets and liabilities and the corresponding average rates earned/paid appear on the last page of this discussion.

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Non-Interest Income


		Three Months Ended September 30						Increase (Decrease)				Nine Months Ended September 30						Increase (Decrease)				Three Months Ended September 30						Increase (Decrease)				Nine Months Ended September 30						Increase (Decrease)
(Dollars in thousands)	(Dollars in thousands)	2022			2021			Amount		% change		2022			2021			Amount	% change		(Dollars in thousands)	2023			2022			Amount		% change		2023			2022			Amount		% change
Bank card transaction fees																					Bank card transaction fees	$	46,899		$	45,638		$	1,261	2.8	%	$	143,278		$	131,556		$	11,722	8.9	%
Trust fees	Trust fees	$	45,406		$	48,950		(3,544)		(7.2)	%	$	140,009		$	139,334		675	.5	%	Trust fees	49,207			45,406			3,801		8.4		141,800			140,009			1,791		1.3
Bank card transaction fees		45,638			42,815			2,823		6.6		131,556			123,118			8,438	6.9
Deposit account charges and other fees	Deposit account charges and other fees	24,521			25,161			(640)		(2.5)		72,392			71,724			668	.9		Deposit account charges and other fees	23,090			24,521			(1,431)		(5.8)		67,475			72,392			(4,917)		(6.8)
Consumer brokerage services	Consumer brokerage services	5,085			4,900			185		3.8		14,599			13,484			1,115	8.3		Consumer brokerage services	3,820			5,085			(1,265)		(24.9)		13,582			14,599			(1,017)		(7.0)
Capital market fees	Capital market fees	3,393			3,794			(401)		(10.6)		10,845			12,102			(1,257)	(10.4)		Capital market fees	2,410			3,393			(983)		(29.0)		8,311			10,845			(2,534)		(23.4)
Loan fees and sales	Loan fees and sales	3,094			6,842			(3,748)		(54.8)		10,575			24,472			(13,897)	(56.8)		Loan fees and sales	2,966			3,094			(128)		(4.1)		8,290			10,575			(2,285)		(21.6)
Other	Other	11,377			5,044			6,333		125.6		29,734			28,460			1,274	4.5		Other	14,557			11,377			3,180		28.0		45,430			29,734			15,696		52.8
Total non-interest income	Total non-interest income	$	138,514		$	137,506		$	1,008	.7	%	$	409,710		$	412,694		(2,984)	(.7	%)	Total non-interest income	$	142,949		$	138,514		$	4,435	3.2	%	$	428,166		$	409,710		$	18,456	4.5	%
Non-interest income as a % of total revenue*	Non-interest income as a % of total revenue*	36.0		%	39.1		%					37.3		%	39.7		%				Non-interest income as a % of total revenue*	36.5		%	36.0		%					36.4		%	37.3		%

* Total revenue includes net interest income and non-interest income.

The table below is a summary of net bank card transaction fees for the three and nine month periods ended September 30, ~~2022~~2023 and ~~2021.~~2022.


		Three Months Ended September 30								Nine Months Ended September 30									Three Months Ended September 30								Nine Months Ended September 30
(Dollars in thousands)	(Dollars in thousands)	2022		2021		$ change		% change		2022		2021		$ change		% change		(Dollars in thousands)	2023		2022		$ change		% change		2023		2022		$ change		% change
Net debit card fees	Net debit card fees	$	10,508	$	10,402	$	106	1.0	%	$	30,593	$	30,274	$	319	1.1	%	Net debit card fees	$	11,089	$	10,508	$	581	5.5	%	$	32,716	$	30,593	$	2,123	6.9	%
Net credit card fees	Net credit card fees	3,597		3,863		(266)		(6.9)		11,031		11,389		(358)		(3.1)		Net credit card fees	3,430		3,597		(167)		(4.6)		10,916		11,031		(115)		(1.0)
Net merchant fees	Net merchant fees	5,232		5,202		30		.6		15,146		14,711		435		3.0		Net merchant fees	5,859		5,232		627		12.0		16,569		15,146		1,423		9.4
Net corporate card fees	Net corporate card fees	26,301		23,348		2,953		12.6		74,786		66,744		8,042		12.0		Net corporate card fees	26,521		26,301		220		.8		83,077		74,786		8,291		11.1
Total bank card transaction fees	Total bank card transaction fees	$	45,638	$	42,815	$	2,823	6.6	%	$	131,556	$	123,118	$	8,438	6.9	%	Total bank card transaction fees	$	46,899	$	45,638	$	1,261	2.8	%	$	143,278	$	131,556	$	11,722	8.9	%

For the third quarter of ~~2022,~~2023, total non-interest income amounted to ~~$138.5~~$142.9 million compared to ~~$137.5~~$138.5 million in the same quarter last year, which was an increase of ~~$1.0~~$4.4 million, or ~~.7%~~3.2%. The increase was mainly due to higher trust fees and net bank card fees, partly offset by lower deposit account fees, consumer brokerage services and capital market fees. Bank card transaction fees for the current quarter grew $1.3 million, or 2.8%, over the same period last year, mainly due to growth of $627 thousand in net merchant fees and $581 thousand in net debit card fees. The growth in net merchant fees was mainly due to higher interchange fees, and net debit card fees increased mainly due to lower network expense. Net corporate card fees increased mainly due to lower network and rewards expense, partly offset by lower interchange fees, while net credit card fees decreased due to lower interchange fees. Trust fees increased $3.8 million, or 8.4%, mainly due to higher private client trust fees. Compared to the third quarter of last year, deposit account fees decreased $1.4 million, or 5.8%, due to lower overdraft and return item fees, partly offset by higher corporate cash management fees. Consumer brokerage fees declined $1.3 million due to lower annuity and advisory fees, while capital market fees decreased $983 thousand, or 29.0%. Other non-interest income increased $3.2 million, or 28.0%, mainly due to growth of $942 thousand in bond underwriting fees and gains on the sale of real estate of $1.3 million recorded in the current quarter.

Non-interest income for the first nine months of 2023 was $428.2 million compared to $409.7 million in the first nine months of 2022, which was an increase of $18.5 million, or 4.5%. The increase was mainly due to higher net bank card fees and other ~~non-interest~~ income, partly offset by lower ~~trust~~deposit account fees, capital market fees and loan fees and sales. Bank card transaction fees for the current quarter grew ~~$2.8~~$11.7 million, or ~~6.6%~~8.9%, over the same period last year, mainly due to growth of ~~$3.0~~$8.3 million in net corporate card ~~fees. The growth~~fees and $2.1 million in net ~~corporate~~debit card fees. Trust fees ~~was~~increased $1.8 million, or 1.3%, mainly due to higher ~~interchange income, partly offset by higher rewards expense. Trust fees for the quarter decreased $3.5 million, or 7.2%, from the same quarter last year, resulting from lower~~ private client ~~fees and institutional~~ trust fees. ~~Compared to the third quarter of last year, deposit~~Deposit account fees decreased ~~$640 thousand,~~$4.9 million, or ~~2.5%~~6.8%, mainly due to lower overdraft and return item ~~fees. In September 2022, the Company implemented enhancements to consumer checking accounts that eliminate return item~~fees, partly offset by higher corporate cash management fees and ~~are expected to lower overdraft~~personal deposit account fees. Capital market fees ~~for our customers. Consumer~~decreased $2.5 million, or 23.4%, and consumer brokerage ~~service~~ fees ~~increased $185 thousand,~~declined $1.0 million, or ~~3.8%~~7.0%, due to ~~growth in annuity~~lower advisory and ~~mutual fund fees, while loan~~12b-1 fees. Loan fees and sales decreased ~~$3.7~~$2.3 million, or ~~54.8%~~21.6%, mainly due to ~~a decline in~~lower mortgage banking revenue. Other non-interest income increased ~~$6.3~~$15.7 million, or ~~125.6%~~52.8%, mainly due to higher ~~cash sweep commissions and tax~~letter of credit ~~sales~~ fees of ~~$3.4~~$3.1 million, ~~and $1.1 million, respectively. Additionally, a $2.0 million loss on an equity method investment was recorded in the third quarter of 2021.~~

Non-interest income for the first nine months of 2022 was $409.7 million, compared to $412.7 million in the first nine months of 2021, resulting in a decrease of $3.0 million, or .7%. Bank card fees increased $8.4 million, or 6.9%, mainly due to growth of $8.0 million in net corporate card fees. Trust fees increased $675 thousand, or .5%, mainly due to growth in private client trust fees, partly offset by lower institutional trust fees. Deposit account fees increased $668 thousand, or .9%, mainly due to higher corporate cash management fees, partly offset by lower personal account deposit fees. Capital market fees declined $1.3 million, or 10.4%, while consumer brokerage service fees increased $1.1 million, or 8.3%, due to higher annuity and mutual fund fees, partly offset by lower advisory fees. Loan fees and sales decreased $13.9 million, or 56.8%, due to lower mortgage banking revenue. Other income increased $1.3 million, or 4.5%, mainly due to higher cash sweep commissions of ~~$5.3~~$2.9 million, ~~and tax credit sales fees~~gains of ~~$1.2~~$2.1 million ~~income~~on the sale of ~~$2.2 million from a life insurance death benefit recorded in the second quarter of 2022, a $2.6 million loss on an equity method investment recorded in 2021~~real estate and a ~~lease impairment of $1.1 million recorded in 2021. These increases were partly offset by gains of $3.7 million recorded on branch sales last year coupled with a write-down~~write down of $965 thousand on a branch location recorded in ~~the first quarter of~~ 2022. In addition, ~~a decrease~~increases of ~~$6.8~~$6.0 million in fair value adjustments ~~was~~were recorded on the Company's deferred compensation plan, ~~assets,~~ which ~~are~~is held in a trust and recorded as both an asset and a liability, ~~and affect~~affecting both other income and other expense.

Table of Contents

Investment Securities Gains (Losses), Net


		Three Months Ended September 30				Nine Months Ended September 30					Three Months Ended September 30				Nine Months Ended September 30
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022
Net losses on sales of available for sale debt securities		$	(10,692)	$	—	$	(20,274)	$	—
Net gains (losses) on sales of available for sale debt securities										Net gains (losses) on sales of available for sale debt securities	$	—	$	(10,692)	$	(8,444)	$	(20,274)

Fair value adjustments on equity securities, net	Fair value adjustments on equity securities, net	(25)		137		(1,048)		152		Fair value adjustments on equity securities, net	(67)		(25)		(757)		(1,048)
Net gains (losses) on sales of private equity investments	Net gains (losses) on sales of private equity investments	77		—		(4,209)		1,611		Net gains (losses) on sales of private equity investments	(1,240)		77		(361)		(4,209)
Fair value adjustments on private equity investments	Fair value adjustments on private equity investments	14,050		12,971		37,133		38,002		Fair value adjustments on private equity investments	5,605		14,050		16,946		37,133

Total investment securities gains, net		$	3,410	$	13,108	$	11,602	$	39,765
Total investment securities gains (losses), net										Total investment securities gains (losses), net	$	4,298	$	3,410	$	7,384	$	11,602

Net gains on investment securities, which were recognized in earnings during the three months ended September 30, ~~2022~~2023 and ~~2021,~~2022, are shown in the table above. Net securities gains of ~~$3.4~~$4.3 million were reported in the third quarter of ~~2022,~~2023, compared to net gains of ~~$13.1~~$3.4 million in the same period last year. The net gains in the third quarter of ~~2022~~2023 were primarily driven by the Company's private equity investments, where $5.6 million in net gains in fair value were partially offset by net losses of $1.2 million on sales. The net gains on investment securities for the same quarter last year were primarily comprised of $14.1 million of net gains in fair value on the Company’s private equity investments, partially offset by a loss of $10.7 million on the sale of an available for sale debt security. ~~The net gains on investment securities for the same quarter last year were mainly comprised of $13.0 million of net gains in fair value on the Company’s private equity investments.~~

Net gains on investment securities of ~~$11.6~~$7.4 million were recognized in earnings for the nine months ended September 30, ~~2022,~~2023, compared to net gains of ~~$39.8~~$11.6 million for the same period in ~~2021.~~2022. Net gains in the first nine months of 2023 were mainly comprised of net gains in fair value of $16.9 million on private equity investments, due to fair value adjustments, partially offset by net losses of $8.4 million on sales of available for sale securities. Net gains in the first nine months of 2022 were mainly comprised of net gains in fair value of $37.1 million on private equity investments, ~~due to fair value adjustments,~~partly offset by losses of $20.3 million on sales of available for sale securities, net losses of $4.2 million on sales of private equity investments, and net losses in fair value of $1.0 million on equity investments. Net gains in the first nine months of 2021 were mainly comprised of a gain of $1.6 million on the sale of a private equity investment and $38.0 million of net gains in fair value on private equity investments. The portion of private equity activity attributable to minority interests is reported as non-controlling interest in the consolidated statements of income and resulted in expense of $3.3 million during the first nine months of 2023 and expense of $6.6 million during the first nine months of ~~2022 and expense of $7.7 million during the first nine months of 2021.~~2022.

Table of Contents

Non-Interest Expense


		Three Months Ended September 30				Increase (Decrease)				Nine Months Ended September 30				Increase (Decrease)					Three Months Ended September 30				Increase (Decrease)				Nine Months Ended September 30				Increase (Decrease)
(Dollars in thousands)	(Dollars in thousands)	2022		2021		Amount		% change		2022		2021		Amount		% change		(Dollars in thousands)	2023		2022		Amount		% change		2023		2022		Amount		% change
Salaries and employee benefits	Salaries and employee benefits	$	137,393	$	132,824	$	4,569	3.4	%	$	415,589	$	392,608	$	22,981	5.9	%	Salaries and employee benefits	$	146,805	$	137,393	$	9,412	6.9	%	$	436,607	$	415,589	$	21,018	5.1	%
Data processing and software	Data processing and software	28,050		25,598		2,452		9.6		82,701		76,015		6,686		8.8		Data processing and software	30,744		28,050		2,694		9.6		87,617		82,701		4,916		5.9
Net occupancy	Net occupancy	12,544		12,329		215		1.7		37,343		35,877		1,466		4.1		Net occupancy	13,948		12,544		1,404		11.2		39,702		37,343		2,359		6.3
Marketing																		Marketing	6,167		6,228		(61)		(1.0)		18,006		18,408		(402)		(2.2)
Equipment	Equipment	5,036		4,440		596		13.4		14,338		13,398		940		7.0		Equipment	4,697		5,036		(339)		(6.7)		14,411		14,338		73		.5
Supplies and communication	Supplies and communication	4,581		4,530		51		1.1		13,655		12,688		967		7.6		Supplies and communication	4,963		4,581		382		8.3		14,178		13,655		523		3.8
Marketing		6,228		5,623		605		10.8		18,408		16,461		1,947		11.8
Other	Other	19,052		26,276		(7,224)		(27.5)		50,003		55,272		(5,269)		(9.5)		Other	20,686		19,052		1,634		8.6		69,207		50,003		19,204		38.4
Total non-interest expense	Total non-interest expense	$	212,884	$	211,620	$	1,264	.6	%	$	632,037	$	602,319	$	29,718	4.9	%	Total non-interest expense	$	228,010	$	212,884	$	15,126	7.1	%	$	679,728	$	632,037	$	47,691	7.5	%

Non-interest expense for the third quarter of ~~2022~~2023 amounted to ~~$212.9~~$228.0 million, an increase of ~~$1.3~~$15.1 million, or ~~.6%~~7.1%, compared to expense of ~~$211.6~~$212.9 million in the third quarter of last year. The increase in expense over the same period last year was mainly due to higher salaries and employee benefits expense, ~~and~~ data processing and software expense, ~~partly offset by lower other non-interest~~FDIC insurance expense and occupancy expense. Salaries ~~and benefits~~ expense increased ~~$4.6~~$6.8 million, or ~~3.4%~~5.8%, due to higher full-time salaries expense of ~~$5.6~~$6.4 million, or ~~6.4%~~6.9%. Employee benefits expense totaled $21.5 million, reflecting growth of $2.6 million, or 13.6%, ~~partly offset by lower incentive compensation expense of $2.5 million.~~mainly due to higher healthcare expense. Full-time equivalent employees totaled 4,714 at September 30, 2023, compared to 4,595 at September 30, ~~2022, compared to 4,582 at September 30, 2021.~~2022. Data processing and software expense increased ~~$2.5~~$2.7 million, or 9.6%, due to higher ~~software amortization,~~ bank card processing fees and increased costs for service providers. Occupancy expense increased ~~$215 thousand,~~$1.4 million, or ~~1.7%, and equipment expense increased $596 thousand, or 13.4%~~11.2%, mainly due to higher ~~equipment repair~~depreciation expense and ~~depreciation expense. Marketing~~real estate taxes, partly offset by higher external rent income. Equipment expense ~~increased $605~~decreased $339 thousand, or ~~10.8%~~6.7%, ~~while other non-interest expense decreased $7.2 million, or 27.5%. This decrease was~~ mainly due to ~~$8.2~~lower equipment depreciation and repairs expense, while supplies and communication expense increased $382 thousand, or 8.3%, mainly due to higher postage, statement, and plastic expense. Other non-interest expense increased $1.6 million, ~~in litigation settlement costs recorded in the third quarter of 2021,~~or 8.6%, mainly due to higher FDIC insurance expense and lower ~~legal and professional fees of $1.1 million and higher~~ deferred ~~loan~~ origination costs of ~~$755 thousand. These decreases to expense were partly offset by increases in travel and entertainment expense of $1.5~~$1.3 million and ~~insurance expense of $619 thousand.~~$982 thousand, respectively.

~~Table of Contents~~

Non-interest expense amounted to ~~$632.0~~$679.7 million for the first nine months of ~~2022,~~2023, an increase of ~~$29.7~~$47.7 million, or ~~4.9%~~7.5%, over the first nine months of ~~2021.~~2022. Salaries and benefits expense increased ~~$23.0~~$21.0 million, or ~~5.9%~~5.1%, mainly due to higher ~~costs for~~full-time salaries expense, healthcare expense and payroll taxes, partly offset by lower incentive compensation ~~payroll taxes and 401(k) expense. Salaries~~ expense, ~~included expense~~largely the result of a $5.4 million accrual for special bonuses ~~paid to non-incentivized full-time and part-time employees~~ in ~~the second half of 2022.~~2022 that did not reoccur in 2023. Data processing and software expense increased ~~$6.7~~$4.9 million, or ~~8.8%~~5.9%, due to ~~higher~~increased costs for service providers ~~software amortization~~ and higher bank card processing fees. Occupancy expense increased ~~$1.5~~$2.4 million, or ~~4.1%~~6.3%, mainly due to higher depreciation expense and real estate taxes, partly offset by higher external rent income. Marketing expense decreased $402 thousand, or 2.2%, while supplies and ~~outside services expense. Equipment~~communication expense increased ~~$940~~$523 thousand, or ~~7.0%~~3.8%, mainly due to higher ~~equipment repair~~office supplies, data network, and ~~depreciation~~postage expense. ~~Supplies and communication~~Other non-interest expense increased ~~$967 thousand,~~$19.2 million, or ~~7.6%~~38.4%, mainly due to higher ~~bank card reissuance fees~~FDIC insurance expense of $5.4 million and ~~courier~~higher travel and entertainment expense, ~~while marketing expense increased $1.9 million, or 11.8%. Other non-interest expense decreased $5.3 million, or 9.5%, mainly due to the litigation settlement mentioned above, coupled with a decline~~miscellaneous losses and pension plan expense. In addition, an increase of ~~$6.8~~$6.0 million in fair value equity adjustments were recorded on the Company's deferred compensation plan, ~~assets. These decreases~~and deconversion costs of $2.1 million relating to the transition of Commerce Financial Advisors support to LPL Financial's Institution Services platform were ~~partly offset by increases~~recorded in ~~travel and entertainment expense~~the second quarter of ~~$3.9 million and insurance expense of $1.2 million.~~2023.

5356

Table of Contents

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


		Three Months Ended						Nine Months Ended September 30					Three Months Ended						Nine Months Ended September 30
		Sept. 30, 2022		June 30, 2022		Sept. 30, 2021		2022		2021
(In thousands)												(In thousands)	Sept. 30, 2023		June 30, 2023		Sept. 30, 2022		2023		2022
ALLOWANCE FOR CREDIT LOSSES ON LOANS	ALLOWANCE FOR CREDIT LOSSES ON LOANS											ALLOWANCE FOR CREDIT LOSSES ON LOANS

Balance at beginning of period	Balance at beginning of period	$	138,039	$	134,710	$	172,395	$	150,044	$	220,834	Balance at beginning of period	$	158,685	$	159,317	$	138,039	$	150,136	$	150,044
Provision for credit losses on loans	Provision for credit losses on loans	10,150		7,287		(5,961)		$	6,751	$	(43,749)	Provision for credit losses on loans	13,343		5,864		10,150		$	35,155	$	6,751
Net loan charge-offs (recoveries):	Net loan charge-offs (recoveries):											Net loan charge-offs (recoveries):
Commercial:	Commercial:											Commercial:
Business	Business	461		19		65		557		(4,848)		Business	2,613		165		461		3,008		557
Real estate-construction and land	Real estate-construction and land	—		—		—		—		1		Real estate-construction and land	—		(115)		—		(115)		—
Real estate-business	Real estate-business	(8)		(1)		(5)		(16)		(70)		Real estate-business	(15)		(5)		(8)		(24)		(16)
Commercial net loan charge-offs (recoveries)	Commercial net loan charge-offs (recoveries)	453		18		60		541		(4,917)		Commercial net loan charge-offs (recoveries)	2,598		45		453		2,869		541
Personal Banking:	Personal Banking:											Personal Banking:
Real estate-personal	Real estate-personal	(15)		(41)		(26)		(34)		(27)		Real estate-personal	(9)		(6)		(15)		(26)		(34)
Consumer	Consumer	827		633		496		2,268		1,637		Consumer	1,797		1,273		827		4,345		2,268
Revolving home equity	Revolving home equity	(38)		(14)		(22)		(34)		29		Revolving home equity	(1)		(20)		(38)		(47)		(34)
Consumer credit card	Consumer credit card	2,882		2,937		2,908		9,191		17,044		Consumer credit card	4,716		4,687		2,882		13,728		9,191
Overdrafts	Overdrafts	703		425		243		1,486		544		Overdrafts	683		517		703		2,178		1,486
Personal banking net loan charge-offs		4,359		3,940		3,599		12,877		19,227
Total net loan charge-offs		4,812		3,958		3,659		13,418		14,310
Personal banking net loan charge-offs (recoveries)												Personal banking net loan charge-offs (recoveries)	7,186		6,451		4,359		20,178		12,877
Total net loan charge-offs (recoveries)												Total net loan charge-offs (recoveries)	9,784		6,496		4,812		23,047		13,418
Balance at end of period	Balance at end of period	$	143,377	$	138,039	$	162,775	$	143,377	$	162,775	Balance at end of period	$	162,244	$	158,685	$	143,377	$	162,244	$	143,377
LIABILITY FOR UNFUNDED LENDING COMMITMENTS	LIABILITY FOR UNFUNDED LENDING COMMITMENTS											LIABILITY FOR UNFUNDED LENDING COMMITMENTS

Balance at beginning of period	Balance at beginning of period	24,907		25,032		24,208		24,204		38,307		Balance at beginning of period	29,235		28,628		24,907		33,120		24,204
Provision for credit losses on unfunded lending commitments	Provision for credit losses on unfunded lending commitments	5,140		(125)		(1,424)		5,843		(15,523)		Provision for credit losses on unfunded lending commitments	(1,698)		607		5,140		(5,583)		5,843
Balance at end of period	Balance at end of period	30,047		24,907		22,784		30,047		22,784		Balance at end of period	27,537		29,235		30,047		27,537		30,047
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$	173,424	$	162,946	$	185,559	$	173,424	$	185,559	ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$	189,781	$	187,920	$	173,424	$	189,781	$	173,424


		Three Months Ended						Nine Months Ended September 30					Three Months Ended						Nine Months Ended September 30
		Sept. 30, 2022		June 30, 2022		Sept. 30, 2021		2022		2021			Sept. 30, 2023		June 30, 2023		Sept. 30, 2022		2023		2022
Annualized net loan charge-offs (recoveries)*:	Annualized net loan charge-offs (recoveries)*:											Annualized net loan charge-offs (recoveries)*:
Commercial:	Commercial:											Commercial:
Business	Business	.03	%	—	%	—	%	.01	%	(.11	%)	Business	.18	%	.01	%	.03	%	.07	%	.01	%
Real estate-construction and land	Real estate-construction and land	—		—		—		—		—		Real estate-construction and land	—		(.03)		—		(.01)		—
Real estate-business	Real estate-business	—		—		—		—		—		Real estate-business	—		—		—		—		—
Commercial net loan charge-offs (recoveries)	Commercial net loan charge-offs (recoveries)	.02		—		—		.01		(.06)		Commercial net loan charge-offs (recoveries)	.09		—		.02		.04		.01
Personal Banking:	Personal Banking:											Personal Banking:
Real estate-personal	Real estate-personal	—		(.01)		—		—		—		Real estate-personal	—		—		—		—		—
Consumer	Consumer	.16		.12		.10		.15		.11		Consumer	.34		.24		.16		.28		.15
Revolving home equity	Revolving home equity	(.05)		(.02)		(.03)		(.02)		.01		Revolving home equity	—		(.03)		(.05)		(.02)		(.02)
Consumer credit card	Consumer credit card	2.08		2.19		2.04		2.26		3.91		Consumer credit card	3.32		3.38		2.08		3.28		2.26
Overdrafts	Overdrafts	62.85		30.86		18.87		39.39		17.59		Overdrafts	50.73		44.79		62.85		60.54		39.39
Personal banking net loan charge-offs		.30		.28		.25		.30		.45
Total annualized net loan charge-offs		.12	%	.10	%	.10	%	.12	%	.12	%
Personal banking net loan charge-offs (recoveries)												Personal banking net loan charge-offs (recoveries)	.48		.44		.30		.46		.30
Total annualized net loan charge-offs (recoveries)												Total annualized net loan charge-offs (recoveries)	.23	%	.16	%	.12	%	.18	%	.12	%

* as a percentage of average loans (excluding loans held for sale)

5457

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To determine the amount of the allowance for credit losses on loans and the liability for unfunded lending commitments, the Company has an established process which assesses the risks and losses expected in its portfolios. This process provides an allowance based on estimates of allowances for pools of loans and unfunded lending commitments, as well as a second, smaller component based on certain individually evaluated loans and unfunded lending commitments. The Company's policies and processes for determining the allowance for credit losses on loans and the liability for unfunded lending commitments are discussed in Note 1 to the consolidated financial statements and in the "Allowance for Credit Losses" discussion within Critical Accounting Estimates and Related Policies in Item 7 of the ~~2021~~2022 Annual Report on Form 10-K.

Net loan charge-offs in the third quarter of ~~2022~~2023 amounted to ~~$4.8~~$9.8 million, compared to ~~$4.0~~$6.5 million in the prior quarter and ~~$3.7~~$4.8 million in the third quarter of last year. During the third quarter of 2022, the Company recorded net charge-offs on commercial loans of $453 thousand, compared to net charge-offs of $18 thousand in the prior quarter and $60 thousand in the third quarter of 2021. Business loan net charge-offs increased $442 thousand in ~~the third quarter of 2022, compared to the prior quarte~~r. Compared to the same period last year, total net loan charge-offs in the third quarter of ~~2022~~2023 increased ~~$1.2 million. This~~$5.0 million and increased $3.3 million from the previous quarter. The increase over the prior year was mainly driven by increases in net charge-offs on ~~overdraft,~~business, consumer credit cards, and consumer loans of $2.2 million, $1.8 million, and $970 thousand, respectively. The increase from the previous quarter was driven by the increase in net charge-offs on business and consumer loans.

For the three months ended September 30, ~~2022,~~2023, annualized net charge-offs on average consumer credit card loans ~~totaled 2.08%~~were 3.32%, compared to ~~2.19%~~3.38% in the previous quarter and ~~2.04%~~2.08% in the same period last year. Consumer loan annualized net charge-offs in the current quarter amounted to ~~.16%~~.34%, compared to ~~.12%~~.24% in the prior quarter and ~~.10%~~.16% in the same period last year. In the third quarter of ~~2022,~~2023, total annualized net loan charge-offs were ~~.12%~~.23%, compared to ~~.10%~~.16% in the previous quarter and ~~.10%~~.12% in ~~the same period last year.~~

~~For the nine months ended September~~ ~~30, 2022, net loan charge-offs amounted to $13.4 million, compared to $14.3 million during the same period in the prior year.~~ The decrease in net loan charge-offs in the nine months ended September 30, 2022 was primarily due to a $7.9 million decline in net charge-offs on consumer credit card loans, which was mostly offset by a $5.4 million increase in net charge-offs on business loans driven by two large non-recurring recoveries in 2021. Net charge-offs on overdraft and consumer loans also increased $942 thousand and $631 thousand, respectively. For the nine months ended September 30, 2022, annualized net charge-offs on average consumer credit card loans totaled 2.26%, compared to 3.91% during the same period last year, while consumer loan annualized net charge-offs in the nine months ended September 30, 2022 amounted to .15%, compared to .11% during the same period last year. During first nine months of 2022, total annualized net loan charge-offs were .12%, unchanged from the same period last year.

The provision for credit losses on loans was ~~$10.2~~$13.3 million in the current quarter, which was a ~~$2.9~~$7.5 million increase ~~over~~from the ~~$7.3~~$5.9 million provision recorded in the ~~prior~~prior quarter and a ~~$16.1~~$3.2 million increase ~~over~~from the ~~$6.0~~$10.2 million ~~benefit~~provision recorded for the ~~nine~~three months ended September 30, ~~2021.~~2022. The increase in the provision from the prior quarter was due to ~~a slightly less optimistic forecast, which includes a mild recession~~growth in the ~~first half of 2023. The provision~~related allowance for credit losses on loans for the third quarter of the prior year reflected lower than projected net charge-offs and an improved forecast at that point in time, resulting in the release of reserves established for uncertainties related to the pandemic during that quarter. loans.

For the nine months ended September 30, 2023, net loan charge-offs amounted to $23.0 million, compared to $13.4 million for the same period in the prior year. The increase in net loan charge-offs over the prior year was driven mainly by increases in consumer credit card, business, and consumer loans and overdrafts. Annualized net charge-offs on consumer credit card loans totaled 3.28% and 2.26% for the nine months ended September 30, 2023 and 2022, respectively, while consumer loan annualized net charge-offs were .28% and .15% in the nine months ended September 30, 2023 and 2022, respectively. Total annualized net loan charge-offs were .18% and .12% for the nine months ended September 30, 2023 and 2022, respectively.

For the nine months ended September 30, 2023, the provision for credit losses on loans was $35.2 million, which was a $28.4 million increase over the $6.8 million ~~compared to a recovery of $43.7 million during~~provision recorded in the same period last year. The increase in the provision over the prior ~~year.~~year was due to the buildup of the related allowance for credit losses in the first nine months of 2023 related to an increase in loan net charge-offs as well as a future mild recession forecasted for the fourth quarter of 2023, while the first nine months of 2022 experienced reductions in the related allowance for credit losses primarily related to the improving economic forecast at that time.

For the nine months ended September 30, ~~2022,~~2023, the allowance for credit losses on loans ~~decreased $6.7~~increased $12.1 million, compared to the allowance for credit losses on loans ~~as of~~at December 31, ~~2021. The decrease was primarily~~2022. During the ~~net result of reducing~~nine months ended September 30, 2023, the allowance as pandemic economic concerns lessened compared to December 31, 2021, slightly offset by an emerging mild recession uncertainty related to the geopolitical environment, high inflation, and supply constraints on the economy. ~~The~~ allowance for credit losses on commercial loans increased by ~~$5.3~~$7.3 million, while the allowance for credit losses related to personal banking loans, including consumer credit card loans, ~~decreased $12.0 million, mostly related~~increased $4.8 million. Compared to ~~decreases in consumer credit card loans experienced in the first quarter of 2022.~~

At September 30, 2022, the allowance for credit losses on loans ~~amounted to $143.4 million, compared to $138.0 million~~ at ~~June~~September 30, ~~2022. This~~2023 increased $18.9 million. The increase in the allowance for credit losses ~~on loans~~at September 30, 2023 compared to both September 30, 2022 and December 31, 2022 was primarily the result of applying a slightly more pessimistic forecast at September 30, 2023 than was utilized in the prior ~~quarter is due to a less optimistic forecast~~year, coupled with ~~a mild recession in~~loan growth and rising interest rates that extended the ~~first half~~estimated lives of certain loan portfolios during 2023. ~~The current period estimation for credit losses continues to consider the uncertainty in the economy as inflation rises and supply chain issues continue.~~ The allowance for credit losses on loans was ~~$162.8~~$162.2 million at September 30, ~~2021, reflecting pandemic uncertainties and the economic forecast at that point in time,~~2023 and was ~~.90%~~.95%, ~~.88%~~.92% and ~~1.07%~~.90% of total loans at September 30, ~~2022, June 30,~~2023, December 31, 2022 and September 30, ~~2021,~~2022, respectively.

In the current quarter, the provision for credit losses on unfunded lending commitments was ~~$5.1~~a benefit of $1.7 million, compared to a ~~benefit~~provision of ~~$125 thousand in the prior quarter and a benefit of $1.4~~$5.1 million ~~in the third quarter of 2021.~~at September 30, 2022. For the nine months ended September 30, ~~2022,~~2023, the provision for credit losses on unfunded ~~lending~~ commitments was ~~$5.8~~a benefit of $5.6 million, compared to a ~~benefit~~provision of ~~$15.5~~$5.8 million ~~during the same period~~ in the ~~prior year.~~ first nine months of 2022. At September 30, ~~2022,~~2023, the liability for unfunded lending

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commitments was ~~$30.0~~$27.5 million, compared to ~~$24.9~~$33.1 million at ~~June 30,~~December 31, 2022 and ~~$22.8~~$30.0 million at September 30, ~~2021.~~2022. The Company's unfunded lending commitments primarily relate to construction loans, and the Company's estimate for credit losses in its unfunded lending commitments utilizes the same model and forecast as its estimate for credit losses on loans. See Note 2 for further discussion of the model inputs utilized in the Company's estimate of credit losses.

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The Company considers the allowance for credit losses on loans and the liability for unfunded commitments adequate to cover losses expected in the loan portfolio, including unfunded commitments, at September 30, ~~2022.~~2023.

The allowance for credit losses on loans and the liability for unfunded lending commitments are estimates that require significant judgment including projections of the macro-economic environment. The Company utilizes a third-party macro-economic forecast that continuously changes due to economic conditions and events. These changes in the forecast cause fluctuations in the allowance for credit losses on loans and the liability for unfunded lending commitments. The Company uses ~~its best~~ judgment to assess the macro-economic forecast and internal loss data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments. These estimates are subject to periodic refinement based on changes in the underlying external and internal data.

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Risk Elements of Loan Portfolio

The following table presents non-performing assets and loans which are past due 90 days and still accruing interest. Non-performing assets include non-accruing loans and foreclosed real estate. Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. Loans that are 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of collection, or they are personal banking loans that are exempt under regulatory rules from being classified as non-accrual.


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022			December 31, 2021			(Dollars in thousands)	September 30, 2023			December 31, 2022

Non-accrual loans	Non-accrual loans	$	7,184		$	9,157		Non-accrual loans	$	8,209		$	8,306
Foreclosed real estate	Foreclosed real estate	354			115			Foreclosed real estate	114			96
Total non-performing assets	Total non-performing assets	$	7,538		$	9,272		Total non-performing assets	$	8,323		$	8,402
Non-performing assets as a percentage of total loans	Non-performing assets as a percentage of total loans	.05		%	.06		%	Non-performing assets as a percentage of total loans	.05		%	.05		%
Non-performing assets as a percentage of total assets	Non-performing assets as a percentage of total assets	.02		%	.03		%	Non-performing assets as a percentage of total assets	.03		%	.03		%

Total loans past due 90 days and still accruing interest	Total loans past due 90 days and still accruing interest	$	12,538		$	11,726		Total loans past due 90 days and still accruing interest	$	18,580		$	15,830

Non-accrual loans totaled ~~$7.2~~$8.2 million at September 30, ~~2022,~~2023, a decrease of ~~$2.0 million~~$97 thousand from the balance at December 31, ~~2021.~~2022. The decrease occurred mainly in business and business real estate loans, which decreased ~~$1.7 million.~~$149 thousand and $113 thousand, respectively. These decreases were partly offset by a $165 thousand increase in personal real estate non-accrual loans. At September 30, ~~2022,~~2023, non-accrual loans were comprised of business ~~(78.6%~~(80.4%), personal real estate ~~(19.3%~~(18.7%), and business real estate ~~(2.1%~~(0.9%) loans. Foreclosed real estate totaled ~~$354~~$114 thousand at September 30, ~~2022, an~~2023, a slight increase ~~of $239 thousand when~~ compared to December 31, ~~2021.~~2022. Total loans past due 90 days or more and still accruing interest were ~~$12.5~~$18.6 million as of September 30, ~~2022,~~2023, an increase of ~~$812 thousand~~$2.8 million from December 31, ~~2021.~~2022. Balances by class for non-accrual loans and loans past due 90 days and still accruing interest are shown in the "Delinquent and non-accrual loans" section in Note 2 to the consolidated financial statements.

In addition to the non-performing and past due loans mentioned above, the Company also has identified loans for which management has concerns about the ability of the borrowers to meet existing repayment terms. They are classified as substandard under the Company's internal rating system. The loans are generally secured by either real estate or other borrower assets, reducing the potential for loss should they become non-performing. Although these loans are generally identified as potential problem loans, they may never become non-performing. Such loans totaled ~~$292.5~~$219.4 million at September 30, ~~2022~~2023 compared with ~~$278.7~~$259.7 million at December 31, ~~2021,~~2022, resulting in ~~an increase~~a decrease of ~~$13.8~~$40.4 million, or ~~4.9%~~15.5%.


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	September 30, 2023		December 31, 2022
Potential problem loans:	Potential problem loans:					Potential problem loans:
Business	Business	$	33,249	$	37,143	Business	$	52,642	$	29,455
Real estate – construction and land	Real estate – construction and land	57,647		40,259		Real estate – construction and land	4,027		47,493
Real estate – business	Real estate – business	200,418		200,766		Real estate – business	162,134		182,526
Real estate – personal	Real estate – personal	1,140		526		Real estate – personal	569		250

Total potential problem loans	Total potential problem loans	$	292,454	$	278,694	Total potential problem loans	$	219,372	$	259,724

~~At September 30, 2022, the Company had $155.6 million of loans whose terms have been modified or restructured under a troubled debt restructuring. These loans have been extended to~~When borrowers ~~who~~ 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 ~~who have~~interest owed to the Company. At September 30, 2023, the Company held $129.0 million of loans that had been ~~granted a concession, as defined by accounting guidance, and~~ modified during the nine months ended September 30, 2023. These loans

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are further discussed in the "~~Troubled debt restructurings"~~Modifications for borrowers experiencing financial difficulty" section in Note 2 to the consolidated financial statements. ~~This balance includes certain commercial loans totaling $140.6 million which are classified as substandard and included in the table above because of this classification.~~

Loans with Special Risk Characteristics

Management relies primarily on an internal risk rating system, in addition to delinquency status, to assess risk in the loan portfolio, and these statistics are presented in Note 2 to the consolidated financial statements. However, certain types of loans are considered at high risk of loss due to their terms, location, or special conditions. Additional information about the major types of loans in these categories and their risk features are provided below. Information based on loan-to-value (LTV) ratios was generally calculated with valuations at loan origination date. The Company normally obtains an updated appraisal or valuation at the time a loan is renewed or modified, or if the loan becomes significantly delinquent or is in the process of being foreclosed upon.

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Real Estate – Construction and Land Loans

The Company's portfolio of construction and land loans, as shown in the table below, amounted to ~~7.6%~~9.0% of total loans outstanding at September 30, ~~2022.~~2023. The largest component of construction and land loans was commercial construction, which increased ~~$55.1~~$183.3 million during the nine months ended September 30, ~~2022.~~2023. At September 30, ~~2022,~~2023, multi-family residential construction loans totaled approximately ~~$247.4~~$376.0 million, or ~~25.3%~~28.8%, of the commercial construction loan portfolio, compared to ~~$155.9~~$303.5 million, or ~~16.9%~~27.0%, at December 31, ~~2021.~~2022.


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		% of Total		% of Total Loans		December 31, 2021		% of Total		% of Total Loans		(Dollars in thousands)	September 30, 2023		% of Total		% of Total Loans		December 31, 2022		% of Total		% of Total Loans
Commercial construction	Commercial construction	$	977,771	81.0	%	6.1	%	$	922,654	82.5	%	6.1	%	Commercial construction	$	1,305,397	84.8	%	7.6	%	$	1,122,105	82.4	%	6.9	%
Residential construction	Residential construction	138,799		11.5		.9		96,618		8.6		.7		Residential construction	126,941		8.2		.8		138,311		10.2		.8
Residential land and land development														Residential land and land development	67,279		4.4		.4		50,012		3.7		.3
Commercial land and land development	Commercial land and land development	50,145		4.2		.3		48,481		4.3		.3		Commercial land and land development	39,949		2.6		.2		50,667		3.7		.3
Residential land and land development		40,240		3.3		.3		50,513		4.6		.3
Total real estate - construction and land loans	Total real estate - construction and land loans	$	1,206,955	100.0	%	7.6	%	$	1,118,266	100.0	%	7.4	%	Total real estate - construction and land loans	$	1,539,566	100.0	%	9.0	%	$	1,361,095	100.0	%	8.3	%

Real Estate – Business Loans

Total business real estate loans were ~~$3.3~~$3.6 billion at September 30, ~~2022~~2023 and comprised ~~21.0%~~21.3% of the Company's total loan portfolio. These loans include properties such as manufacturing and warehouse buildings, small office and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties. At September 30, ~~2022, 35.7%~~2023, 31.0% of business real estate loans were for owner-occupied real estate properties, which have historically resulted in lower net charge-off rates than non-owner-occupied commercial real estate loans.


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		% of Total		% of Total Loans		December 31, 2021		% of Total		% of Total Loans		(Dollars in thousands)	September 30, 2023		% of Total		% of Total Loans		December 31, 2022		% of Total		% of Total Loans
Owner-occupied	Owner-occupied	$	1,188,189	35.7	%	7.5	%	$	1,188,469	38.9	%	7.8	%	Owner-occupied	$	1,130,922	31.0	%	6.6	%	$	1,136,189	33.3	%	7.0	%
Industrial														Industrial	585,716		16.1		3.4		478,534		14.0		2.9
Office	Office	512,752		15.4		3.2		380,101		12.4		2.5		Office	509,493		14.0		3.0		497,601		14.6		3.1
Retail	Retail	330,033		9.9		2.1		339,874		11.1		2.2		Retail	352,477		9.7		2.1		322,971		9.5		2.0
Hotels														Hotels	293,420		8.0		1.7		230,972		6.8		1.4
Multi-family	Multi-family	313,740		9.4		2.0		354,282		11.6		2.3		Multi-family	281,542		7.7		1.6		308,156		9.0		1.9
Industrial		313,230		9.4		2.0		99,800		3.3		.7
Hotels		218,319		6.6		1.4		234,673		7.7		1.5
Farm	Farm	198,864		6.0		1.3		178,780		5.8		1.2		Farm	202,050		5.5		1.2		195,920		5.8		1.2
Senior living	Senior living	147,455		4.4		.9		174,871		5.7		1.2		Senior living	165,073		4.5		1.0		131,217		3.9		.8
Other	Other	109,045		3.2		.6		107,987		3.5		.8		Other	126,475		3.5		.7		105,421		3.1		.6
Total real estate - business loans	Total real estate - business loans	$	3,331,627	100.0	%	21.0	%	$	3,058,837	100.0	%	20.2	%	Total real estate - business loans	$	3,647,168	100.0	%	21.3	%	$	3,406,981	100.0	%	20.9	%

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Information about the credit quality of the Company's business real estate loan portfolio as of September 30, 2023 and December 31, 2022 is provided in the table below.


(Dollars in thousands)	Pass		Special Mention		Substandard		Non-Accrual		Total
September 30, 2023
Owner-occupied	$	1,110,769	$	7,510	$	12,567	$	76	$	1,130,922
Industrial	585,634		82		—		—		585,716
Office	506,196		—		3,297		—		509,493
Retail	335,143		15,501		1,833		—		352,477
Hotels	282,404		9,373		1,643		—		293,420
Multi-family	280,384		1,158		—		—		281,542
Farm	202,050		—		—		—		202,050
Senior living	22,464		—		142,609		—		165,073
Other	126,224		251		—		—		126,475
Total	$	3,451,268	$	33,875	$	161,949	$	76	$	3,647,168
December 31, 2022
Owner-occupied	$	1,129,343	$	632	$	6,084	$	130	$	1,136,189
Industrial	478,534		—		—		—		478,534
Office	494,169		3,432		—		—		497,601
Retail	321,041		—		1,930		—		322,971
Hotels	174,558		9,725		46,689		—		230,972
Multi-family	286,202		1,975		19,979		—		308,156
Farm	195,685		177		—		58		195,920
Senior living	23,514		—		107,702		1		131,217
Other	105,144		277		—		—		105,421
Total	$	3,208,190	$	16,218	$	182,384	$	189	$	3,406,981

Revolving Home Equity Loans

The Company had ~~$286.0~~$305.2 million in revolving home equity loans at September 30, ~~2022~~2023 that were ~~generally~~ collateralized by residential real estate. Most of these loans ~~(91.7%~~(91.3%) are written with terms requiring interest-only monthly payments. These loans are offered in three main product lines: LTV up to 80%, 80% to 90%, and 90% to 100%. As of September 30, ~~2022,~~2023, the outstanding principal of loans with an original LTV higher than 80% was ~~$30.1~~$32.2 million, or 10.5% of the portfolio, compared to ~~$30.9~~$32.4 million as of December 31, ~~2021.~~2022. Total revolving home equity loan balances over 30 days past due were ~~$1.4~~$5.2 million at September 30, ~~2022~~2023 and ~~$1.6~~$1.9 million at December 31, ~~2021,~~2022, and there were no revolving home equity loans on non-accrual status at September 30, ~~2022~~2023 or December 31, ~~2021.~~2022. The weighted average FICO score for the total ~~current~~ portfolio balance at September 30, 2023 is ~~788.~~785. At maturity, the accounts are re-underwritten, and if they qualify under the Company's credit, collateral and capacity policies, the borrower is given the option to renew the line of credit or convert the outstanding balance to an amortizing loan. If criteria are not met, amortization is required, or the borrower may pay off the loan. During the remainder of ~~2022~~2023 through ~~2024,~~2025, approximately ~~12%~~13% of the Company's current outstanding balances are expected to mature. Of these balances, approximately ~~85%~~86% have a FICO score of 700 or higher. The Company does not expect a significant increase in losses as these loans mature, due to their high FICO scores, low LTVs, and low historical loss levels.

Consumer Loans

Within the consumer loan portfolio are several direct and indirect product lines, which include loans for the purchase of automobiles, motorcycles, marine and RVs. Auto loans comprised ~~38.1%~~38.8% of the consumer loan portfolio at September 30, ~~2022,~~2023, and outstanding balances for auto loans were ~~$805.6~~$824.7 million and ~~$855.4~~$798.6 million at September 30, ~~2022~~2023 and December 31,

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~~2021,~~ 2022, respectively. The balances over 30 days past due amounted to ~~$7.4~~$8.6 million at September 30, ~~2022~~2023 and ~~$9.0~~$9.9 million at December 31, ~~2021,~~2022, respectively, and comprised ~~0.9%~~1.0% of the outstanding balances of these loans at September 30, ~~2022~~2023 and ~~1.1%~~1.2% at December 31, ~~2021,~~2022, respectively. For the nine months ended September 30, ~~2022, $257.5~~2023, $290.3 million of new auto loans were originated, compared to ~~$324.5~~$257.5 million during the first nine months of ~~2021.~~2022. At September 30, ~~2022,~~2023, the automobile loan portfolio had a weighted average FICO score of ~~756,~~755, and net charge-offs on auto loans were ~~.2%~~.5% of average auto loans.

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The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised ~~10.9%~~11.0% of the consumer loan portfolio at September 30, ~~2022.~~2023. Losses on these loans have historically been low, and the Company saw net recoveries of ~~$29~~$55 thousand for the first nine months of ~~2022.~~2023. Private banking loans comprised ~~33.5%~~32.1% of the consumer loan portfolio at September 30, ~~2022.~~2023. The Company's private banking loans are generally well-collateralized, and at September 30, ~~2022~~2023 were secured primarily by assets held by the Company's trust department. The remaining portion of the Company's consumer loan portfolio is comprised of health services financing, motorcycles, marine and RV loans. Net charge-offs on private banking, health services financing, motorcycle and marine and RV loans totaled ~~$1.1~~$1.6 million in the first nine months of ~~2022~~2023 and were ~~0.1%~~.2% of the average balances of these loans at September 30, ~~2022.~~2023.

Consumer Credit Card Loans

The Company offers low promotional rates on selected consumer credit card products. Out of a portfolio at September 30, ~~2022~~2023 of ~~$563.3~~$574.8 million in consumer credit card loans outstanding, approximately ~~$95.7~~$111.7 million, or ~~17.0%~~19.4%, carried a low promotional rate. Within the next six months, ~~$32.2~~$41.9 million of these loans are scheduled to convert to the ongoing higher contractual rate. To mitigate some of the risk involved with this credit card product, the Company performs credit checks and detailed analysis of the customer borrowing profile before approving the loan application. Management believes that the risks in the consumer loan portfolio are reasonable and the anticipated loss ratios are within acceptable parameters.

Oil and Gas Energy Lending

The Company's energy lending portfolio is comprised of lending to the petroleum and natural gas sectors and totaled ~~$279.6~~$257.2 million, or ~~1.8%~~1.5% of total loans at September 30, ~~2022, an increase~~2023, a decrease of ~~$18.9~~$39.3 million from ~~year end 2021,~~December 31, 2022, as shown in the table below.


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		Unfunded commitments at September 30, 2022		(In thousands)	September 30, 2023		December 31, 2022		Unfunded commitments at September 30, 2023
Extraction	Extraction	$	215,919	$	184,840	$	136,194	Extraction	$	204,372	$	235,933	$	118,941
Mid-stream shipping and storage	Mid-stream shipping and storage	42,080		36,850		94,749		Mid-stream shipping and storage	35,357		43,432		99,375
Downstream distribution and refining	Downstream distribution and refining	11,662		24,915		19,844		Downstream distribution and refining	9,718		7,675		12,590
Support activities	Support activities	9,916		14,039		9,749		Support activities	7,726		9,387		5,032
Total energy lending portfolio	Total energy lending portfolio	$	279,577	$	260,644	$	260,536	Total energy lending portfolio	$	257,173	$	296,427	$	235,938

Shared National Credits

The Company participates in credits of large, publicly traded companies which are defined by regulation as shared national credits, or SNCs. Regulations define SNCs as loans exceeding $100 million that are shared by three or more financial institutions. The Company typically participates in these loans when business operations are maintained in the local communities or regional markets and opportunities to provide other banking services are present. The balance of SNC loans totaled ~~$1.3~~$1.5 billion at September 30, ~~2022,~~2023, compared to ~~$1.2~~$1.4 billion at December 31, ~~2021.~~2022. Additional unfunded commitments at September 30, ~~2022~~2023 totaled ~~$1.7~~$2.1 billion.

Income Taxes

Income tax expense was $33.4 million in the third quarter of 2023, compared to $36.0 million in the second quarter of 2023 and $33.9 million in the third quarter of ~~2022, compared to $32.0 million in the second quarter of 2022 and $34.7 million in the third quarter of 2021.~~2022. The Company's effective tax rate, including the effect of non-controlling interest, was 21.7% in the third quarter of ~~2022,~~2023, compared to ~~21.7%~~22.0% in the second quarter of ~~2022~~2023 and ~~22.1%~~21.7% in the third quarter of 2021. For the nine months ended September 30, 2022, income tax expense was $97.9 million, compared to $111.9 million for the same period during the previous year, resulting in effective tax rates of 21.5% and 21.2%, respectively.2022.

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Financial Condition

Balance Sheet

Total assets of the Company were ~~$32.6~~$31.4 billion at September 30, ~~2022~~2023 and ~~$36.7~~$31.9 billion at December 31, ~~2021.~~2022. Earning assets (excluding the allowance for credit losses on loans and fair value adjustments on debt securities) amounted to ~~$32.3~~$31.2 billion at September 30, ~~2022~~2023 and ~~$35.5~~$31.6 billion at December 31, ~~2021,~~2022, and consisted of ~~49%~~55% in loans and ~~45%~~38% in investment securities at September 30, ~~2022.~~2023.

At September 30, ~~2022,~~2023, total loans increased ~~$722.6~~$826.2 million or ~~4.8%~~5.1%, compared to balances at December 31, ~~2021.~~2022. The increase was mainly due to growth in business, business real estate ~~business,~~ and construction loans of ~~$272.8~~$246.6 million, ~~$225.4~~$240.2 million, and ~~$88.7~~$178.5 million, respectively. The growth in business loans was mainly the result of increased commercial and industrial lending and higher lease and ~~commercial card lending, partly offset by a decline in~~ tax free ~~loans.~~loan balances. Personal real estate loans increased ~~$57.1 million. Consumer~~$106.6 million, and consumer loans, which ~~includes~~include automobile, marine and RV, fixed rate home equity and other consumer loans, increased ~~$84.1~~$66.7 million, asdue to growth in auto loans and other consumer ~~loans was partly offset by a decline in auto~~ loans. These increases ~~in loan balances~~ were ~~partly~~partially offset by ~~a decline~~declines in overdrafts and consumer credit card loans of ~~$12.1 million.~~$11.2 million and $9.2 million, respectively.

~~Available~~Total available for sale debt securities, excluding fair value adjustments, decreased ~~$242.8 million~~$2.3 billion at September 30, ~~2022~~2023 compared to December 31, ~~2021.~~2022. Purchases of securities during this period totaled ~~$1.9 billion,~~$87.4 million, offset by sales, maturities and pay downs of ~~$2.2~~$2.4 billion.The ~~largest declines~~decline in ~~outstanding~~investment securities was mainly the result of lower balances ~~occurred in agency mortgage-backed~~of asset-backed securities, state and municipal ~~obligations,~~securities, and ~~other debt~~agency mortgage-backed securities, which decreased ~~$467.5 million, $51.2~~$1.1 billion, $583.5 million, and ~~$54.3 million, respectively. These decreases were partially offset by increases in asset-backed securities and non-agency mortgage-backed securities, which increased $209.8 million and $66.0~~$365.1 million, respectively, at September 30, ~~2022~~2023 compared to December 31, ~~2021.~~ 2022.At September 30, ~~2022,~~2023, the duration of the available for sale investment portfolio was 3.9 years, and maturities and pay downs of approximately ~~$2.4~~$2.1 billion are expected to occur during the next 12 months.The Company does not have any investment securities classified as held-to-maturity.

Total deposits at September 30, ~~2022~~2023 amounted to ~~$27.5~~$25.1 billion, a decrease of ~~$2.3~~$1.1 billion compared to December 31, ~~2021.~~2022. The decline in deposits largely resulted from a decrease in demand deposits, mainly in business demand deposits (decrease of ~~$1.7~~$1.9 billion). Additionally, ~~certificates~~money market and savings deposit balances decreased $931.6 million and $157.3 million, respectively, while certificate of deposit ~~decreased $454.4 million and money market deposits decreased $650.3 million. These decreases were partly offset by growth in government demand deposits of $325.4 million~~balances grew $2.0 billion and interest checking ~~deposits of $58.4~~balances increased $116.0 million ~~at September 30, 2022 compared to~~over balances at December 31, ~~2021.~~2022. The ~~Company's~~Company’s borrowings totaled ~~$2.3~~$3.2 billion at September 30, ~~2022, a decrease~~2023, an increase of ~~$719.1~~$397.4 million ~~from~~over balances at December 31, ~~2021,~~2022, mainly due to ~~a decline in customer~~FHLB advances, which increased $500.0 million during the nine months ended September 30, 2023. Additionally, federal funds purchased were $346.5 million higher at September 30, 2023 than at December 31, 2022, whereas repurchase agreements ~~partly offset~~declined by ~~an increase in federal funds purchased.~~$443.0 million during the same period.

Liquidity and Capital Resources

Liquidity Management

The Company’s most liquid assets are comprised of available for sale debt securities, federal funds sold, securities purchased under agreements to resell (resale agreements), and deposit balances at the Federal Reserve Bank, as follows:


(In thousands)	(In thousands)	September 30, 2022		September 30, 2021		December 31, 2021		(In thousands)	September 30, 2023		September 30, 2022		December 31, 2022
Liquid assets:	Liquid assets:							Liquid assets:
Available for sale debt securities	Available for sale debt securities	$	12,632,510	$	14,165,656	$	14,450,027	Available for sale debt securities	$	9,860,828	$	12,632,510	$	12,238,316
Federal funds sold	Federal funds sold	14,020		—		2,800		Federal funds sold	2,735		14,020		49,505
Securities purchased under agreements to resell	Securities purchased under agreements to resell	1,275,000		1,750,000		1,625,000		Securities purchased under agreements to resell	450,000		1,275,000		825,000
Balances at the Federal Reserve Bank	Balances at the Federal Reserve Bank	642,943		1,888,545		3,971,217		Balances at the Federal Reserve Bank	1,847,641		642,943		389,140
Total	Total	$	14,564,473	$	17,804,201	$	20,049,044	Total	$	12,161,204	$	14,564,473	$	13,501,961

The fair value of the available for sale debt portfolio was $9.9 billion at September 30, 2023 and included an unrealized net loss of $1.6 billion. Federal funds sold, which are funds lent to the Company's correspondent bank customers with overnight maturities, totaled ~~$14.0~~$2.7 million as of September 30, ~~2022.~~2023. Resale agreements, maturing through 2025, totaled ~~$1.3 billion~~$450.0 million at September 30, ~~2022.~~2023. Under these agreements, the Company lends funds to upstream financial institutions and holds marketable securities, safe-kept by a third-party custodian, as ~~collateral. This~~collateral, and this collateral totaled ~~$1.3 billion~~$479.7 million in fair value at September 30, ~~2022.~~2023. $325.0 million of the Company's resale agreements will mature in the next 12 months. Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled ~~$642.9 million at September 30, 2022. The fair value of the available for sale debt portfolio was $12.6~~$1.8 billion at September 30, 2023 and increased $1.5 billion over December 31, 2022 ~~and included an unrealized net loss of $1.5 billion.~~balances.

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Approximately ~~$2.4~~$2.1 billion of the Company's available for sale debt portfolio is expected to mature or pay down during the next 12 months, and ~~these funds offer substantial resources to meet new loan demand or help offset potential reductions in~~at September 30, 2023, the duration of the Company's ~~deposit funding base.~~available for sale debt securities portfolio was 3.9 years. The Company pledges portions of its investment securities portfolio to secure public fund deposits, securities sold under agreements to repurchase, trust funds, letters of credit issued by the FHLB, and borrowing capacity at the Federal Reserve Bank. Total investment securities pledged for these purposes were as follows:


(In thousands)	(In thousands)	September 30, 2022		September 30, 2021		December 31, 2021		(In thousands)	September 30, 2023		September 30, 2022		December 31, 2022
Investment securities pledged for the purpose of securing:	Investment securities pledged for the purpose of securing:							Investment securities pledged for the purpose of securing:
Federal Reserve Bank borrowings	Federal Reserve Bank borrowings	$	13,446	$	18,566	$	17,465	Federal Reserve Bank borrowings	$	2,700,426	$	13,446	$	11,469
FHLB borrowings and letters of credit	FHLB borrowings and letters of credit	2,033		3,736		3,218		FHLB borrowings and letters of credit	301,406		2,033		1,817
Securities sold under agreements to repurchase *	Securities sold under agreements to repurchase *	2,275,924		2,511,891		3,475,589		Securities sold under agreements to repurchase *	2,500,400		2,275,924		2,950,240
Other deposits and swaps	Other deposits and swaps	2,483,636		3,210,326		2,897,576		Other deposits and swaps	2,082,807		2,483,636		1,772,974
Total pledged securities	Total pledged securities	4,775,039		5,744,519		6,393,848		Total pledged securities	7,585,039		4,775,039		4,736,500
Unpledged and available for pledging	Unpledged and available for pledging	6,905,006		7,123,799		6,913,721		Unpledged and available for pledging	2,264,732		6,905,006		6,545,695
Ineligible for pledging	Ineligible for pledging	952,465		1,297,338		1,142,458		Ineligible for pledging	11,057		952,465		956,121
Total available for sale debt securities, at fair value	Total available for sale debt securities, at fair value	$	12,632,510	$	14,165,656	$	14,450,027	Total available for sale debt securities, at fair value	$	9,860,828	$	12,632,510	$	12,238,316

* Includes securities pledged for collateral swaps, as discussed in Note 12 to the consolidated financial statements.

Liquidity is also available from the Company's large base of core customer deposits, defined as non-interest bearing, interest checking, savings, and money market deposit accounts. At September 30, ~~2022,~~2023, such deposits totaled ~~$26.5~~$22.1 billion and represented ~~96.4%~~88.1% of total deposits. These core deposits are normally less volatile, as they are often with customer relationships tied to other products offered by the Company, promoting long lasting relationships and stable funding sources. Certificates of deposit of $100,000 and over totaled ~~$597.1 million~~$1.8 billion at September 30, ~~2022.~~2023. These accounts are normally considered more volatile with higher cost and comprised ~~2.2%~~7.0% of total deposits at September 30, ~~2022.~~2023.


(In thousands)	(In thousands)	September 30, 2022		September 30, 2021		December 31, 2021		(In thousands)	September 30, 2023		September 30, 2022		December 31, 2022
Core deposit base:	Core deposit base:							Core deposit base:
Non-interest bearing	Non-interest bearing	$	10,468,591	$	11,622,855	$	11,772,374	Non-interest bearing	$	7,961,402	$	10,468,591	$	10,066,356
Interest checking	Interest checking	3,236,160		2,202,422		3,227,822		Interest checking	6,656,356		3,236,160		1,854,336
Savings and money market	Savings and money market	12,778,327		12,705,232		13,370,263		Savings and money market	7,497,919		12,778,327		13,272,645
Total	Total	$	26,483,078	$	26,530,509	$	28,370,459	Total	$	22,115,677	$	26,483,078	$	25,193,337

During the second quarter of 2023, the Company added brokered deposits in the form of short-term certificates of deposit less than $100 thousand, and $401.3 million were outstanding at September 30, 2023. At September 30, 2023, the Company's total deposit portfolio was $25.1 billion, compared to $26.2 billion at December 31, 2022. The Company's uninsured deposits were $10.2 billion, or 40.6% of total deposits at September 30, 2023. The Company's uninsured deposits include $2.1 billion of affiliate deposits and collateralized deposits. Excluding those affiliate and collateralized deposits, the Company's uninsured deposits at September 30, 2023 were $8.1 billion, or 32.3% of total deposits.

Other important components of liquidity are the level of borrowings from third party sources and the availability of future credit. The Company's outside borrowings are mainly comprised of federal funds purchased, ~~and~~ repurchase agreements, and FHLB advances, as follows:


(In thousands)	(In thousands)	September 30, 2022		September 30, 2021		December 31, 2021		(In thousands)	September 30, 2023		September 30, 2022		December 31, 2022
Borrowings:	Borrowings:							Borrowings:
Federal funds purchased	Federal funds purchased	$	311,200	$	11,345	$	43,385	Federal funds purchased	$	506,355	$	311,200	$	159,860
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	2,003,390		2,242,408		2,979,582		Securities sold under agreements to repurchase	2,238,826		2,003,390		2,681,874

FHLB advances								FHLB advances	500,000		—		—
Other debt	Other debt	1,831		4,006		12,560		Other debt	3,589		1,831		9,672
Total	Total	$	2,316,421	$	2,257,759	$	3,035,527	Total	$	3,248,770	$	2,316,421	$	2,851,406

Federal funds purchased are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit. In addition to the amount accessed as of September 30, 2023, the Company had access to an additional $3.8 billion of overnight, approved federal funds as of that date. Repurchase agreements are borrowings by the Company from its customers in the form of securities sold under agreements to repurchase. These

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repurchase agreements, which generally mature overnight, are comprised of non-insured customer funds totaling ~~$2.0~~$2.2 billion at September 30, ~~2022~~2023 and are collateralized by securities in the Company's investment portfolio. At September 30, ~~2022,~~2023, the value of the collateral pledged for the benefit of customers was ~~$2.0~~$2.4 billion. The Company also borrows on a secured basis through advances from the FHLB. The advances are generally short-term, fixed interest rate borrowings. There were no$500.0 million in advances outstanding from the FHLB at September 30, ~~2022.~~2023.

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The Company pledges certain assets, including loans and investment securities, to both the Federal Reserve Bank (FRB) and the FHLB as security to establish lines of credit and borrow from these entities. Based on the amount and type of collateral pledged, the FHLB establishes a collateral value from which the Company may draw advances against the ~~collateral. Also, this~~ collateral ~~is used to enable~~and enables the FHLB to issue letters of credit in favor of public fund depositors of the Company. The ~~Federal Reserve Bank~~FRB also establishes a collateral value of assets pledged and permits borrowings from the discount window. The following table reflects the collateral value of assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future funding capacity available to the Company at September 30, ~~2022.~~2023.


		September 30, 2022							September 30, 2023
(In thousands)	(In thousands)	FHLB		Federal Reserve		Total		(In thousands)	FHLB		Federal Reserve		Total
Total collateral value established by FHLB and FRB	Total collateral value established by FHLB and FRB	$	1,905,444	$	957,517	$	2,862,961	Total collateral value established by FHLB and FRB	$	2,501,198	$	4,950,839	$	7,452,037

Advances outstanding								Advances outstanding	(500,000)		—		(500,000)
Letters of credit issued	Letters of credit issued	(259,470)		—		(259,470)		Letters of credit issued	(399,541)		—		(399,541)
Available for future advances	Available for future advances	$	1,645,974	$	957,517	$	2,603,491	Available for future advances	$	1,601,657	$	4,950,839	$	6,552,496

In addition to those mentioned above, several other sources of liquidity are available. No commercial paper has been issued or outstanding during the past ten years. The Company has no subordinated debt or hybrid instruments which could affect future borrowing capacity. Because of its lack of significant long-term debt, the Company believes that through its Capital Markets Group or in other public debt markets, it could generate additional liquidity from sources such as jumbo certificates of deposit or privately placed corporate notes or other forms of debt. The Company receives strong outside ~~rankings~~ratings from both Standard & Poor's and Moody's on both the consolidated company level and its subsidiary bank, Commerce Bank, which would support future financing efforts, should the need arise. These ratings are as follows:


	Standard & Poor’s	Moody’s
Commerce Bancshares, Inc.
Issuer rating	A-

Rating outlook	Stable

Commerce Bank
Issuer rating	A	A2A3
Baseline credit assessment		a1a2
Short-term rating	A-1	P-1
Rating outlook	Stable	Stable

The cash flows from the operating, investing and financing activities of the Company resulted in a net ~~decrease~~increase in cash, cash equivalents and restricted cash of ~~$3.3~~$1.3 billion during the first nine months of ~~2022,~~2023, as reported in the consolidated statements of cash flows in this report. Operating activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of ~~$469.8~~$367.7 million and has historically been a stable source of funds. Investing activities, which occur mainly in the loan and investment securities portfolios, ~~used~~provided cash of ~~$247.2 million.~~$1.7 billion. Activity in the investment securities portfolio provided cash of ~~$183.9 million~~$2.3 billion from ~~purchases (net of~~ sales, maturities, and pay ~~downs)~~downs (net of purchases), but this increase in investing cash flows was partially offset by growth in the loan portfolio, which used cash of $849.4 million. Additionally, repayments of securities purchased under agreements to resell used cash of $200.0 million, and an increase in the loan portfolio used cash of $736.5 million. These cash outflows were partially offset by repayments related to securities purchased under agreements to resell, which provided cash of ~~$550.0~~$375.0 million. Financing activities used cash of ~~$3.5 billion,~~$775.4 million, largely resulting from ~~a a decrease~~net decreases in deposits of ~~$2.5~~$1.0 billion ~~paired with a decrease~~and $1.8 billion in ~~federal funds purchased and securities sold under agreements to repurchase~~repayments of ~~$708.4 million.~~FHLB advances, partially offset by FHLB advance borrowings of $2.3 billion during the first nine months of 2023.

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Capital Management

The Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, as shown in the following table.


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022			December 31, 2021			Minimum Ratios under Capital Adequacy Guidelines		Minimum Ratios for Well-Capitalized Banks *		(Dollars in thousands)	September 30, 2023			December 31, 2022			Minimum Capital Requirement		Capital Conservation Buffer		Minimum Ratios Requirement including Capital Conservation Buffer		Minimum Ratios for Well-Capitalized Banks *
Risk-adjusted assets	Risk-adjusted assets	$	23,885,207		$	22,483,748						Risk-adjusted assets	$	24,042,838		$	24,178,423
Tier I common risk-based capital	Tier I common risk-based capital	3,335,957			3,225,044							Tier I common risk-based capital	3,632,429			3,417,223
Tier I risk-based capital	Tier I risk-based capital	3,335,957			3,225,044							Tier I risk-based capital	3,632,429			3,417,223
Total risk-based capital	Total risk-based capital	3,509,822			3,399,880							Total risk-based capital	3,822,504			3,600,920
Tier I common risk-based capital ratio	Tier I common risk-based capital ratio	13.97		%	14.34		%	7.00	%	6.50	%	Tier I common risk-based capital ratio	15.11		%	14.13		%	4.50	%	2.50	%	7.00	%	6.50	%
Tier I risk-based capital ratio	Tier I risk-based capital ratio	13.97			14.34			8.50		8.00		Tier I risk-based capital ratio	15.11			14.13			6.00		2.50		8.50		8.00
Total risk-based capital ratio	Total risk-based capital ratio	14.69			15.12			10.50		10.00		Total risk-based capital ratio	15.90			14.89			8.00		2.50		10.50		10.00
Tier I leverage ratio	Tier I leverage ratio	9.87			9.13			4.00		5.00		Tier I leverage ratio	10.87			10.34			4.00		N/A		4.00		5.00

*Under Prompt Corrective Action requirements

The Company is subject to a 2.5% capital conservation buffer, which is an amount above the minimum ratios under capital adequacy guidelines, and ~~is required under Basel III. The capital conservation buffer~~ is intended to absorb losses during periods of economic stress. Failure to maintain the buffer will result in constraints on dividends, share repurchases, and executive compensation.

In the first quarter of 2020, the interim final rule of the Federal Reserve Bank and other U.S. banking agencies became effective, providing banks that adopt CECL (ASU 2016-13) during the 2020 calendar year the option to delay recognizing the estimated impact on regulatory capital until after a two year deferral period, followed by a three year transition period. In connection with the adoption of CECL on January 1, 2020, the Company elected to utilize this option. As a result, the two year deferral period for the Company extended through December 31, 2021. Beginning on January 1, 2022, the Company began to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025.

The Company maintains a treasury stock buyback program under authorizations by its Board of Directors (the Board) and normally purchases stock in the open market. During the nine months ended September 30, ~~2022,~~2023, the Company purchased ~~2,352,489~~941,890 shares at an average price of ~~$69.42~~$59.67 in open market purchases and through stock-based compensation transactions. At September 30, ~~2022, 3,444,236~~2023, 2,170,168 shares remained available for purchase under the current Board authorization.

The Company's common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain adequate capital and liquidity levels, and alternative investment options. The Company paid a ~~$.265~~$.270 per share cash dividend on its common stock in the third quarter of ~~2022,~~2023, which was a ~~6.0%~~7.1% increase compared to its ~~2021~~2022 quarterly dividend.

Material Cash Requirements, Commitments, Off-Balance Sheet Arrangements and Contingencies

The Company's material cash requirements include commitments for contractual obligations (both short-term and long-term), commitments to extend credit, and off-balance sheet arrangements. The Company's material cash requirements for the next 12 months are primarily to fund loan ~~growth. Additionally, the Company will utilize cash to fund~~commitments, deposit maturities and deposit withdrawals that may ~~occur in the next 12 months.~~occur; repay borrowings; and fund loan growth. Other contractual obligations, purchase commitments, lease obligations, and unfunded commitments may require cash payments by the Company, and these are further discussed in the Company's ~~2021~~2022 Annual Report on Form 10-K. ~~There have been no changes in the Company's material cash requirements since December 31, 2021.~~ Further discussion of the Company's longer-term material cash obligations and sources for fulfilling those obligations is below.

Events impacting the banking industry during the first few months of 2023, including the failure of Silicon Valley Bank and Signature Bank, have resulted in decreased confidence in banks among consumer and commercial customers, investors, and other counterparties. Additionally, rapidly rising interest rates have resulted in unrealized losses in the Company's available for sale debt securities portfolio. In response to these industry events, the Company sought additional borrowings of $1.3 billion during the first quarter of 2023, and as a result, the Company had outstanding borrowings of $1.5 billion from the FHLB as of March 31, 2023. During the second quarter of 2023, the Company initially borrowed an additional $500.0 million but subsequently repaid $1.0 billion of its FHLB borrowings, resulting in $1.0 billion of FHLB borrowings outstanding as of June 30, 2023. During the third quarter of 2023, the Company repaid $500.0 million of its FHLB borrowings, resulting in $500.00

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million of FHLB borrowings outstanding as of September 30, 2023. Additionally, the Company added short-term brokered certificates of deposit during the second quarter of 2023 to provide additional liquidity. As of September 30, 2023, the Company had $401.3 million of brokered deposits that are scheduled to mature prior to December 31, 2023. Other than the repayment of these additional borrowings and deposits, the Company’s material cash requirements have not changed significantly since December 31, 2022. Further discussion of the Company's longer-term material cash obligations and sources for fulfilling those obligations is below.

In the normal course of business, various commitments and contingent liabilities arise which are not required to be recorded on the balance sheet. The most significant of these are loan commitments, which at September 30, ~~2022~~2023 totaled ~~$13.9~~$14.3 billion (including ~~$5.1~~$5.2 billion in unused, approved credit card lines). In addition, the Company enters into standby and commercial letters of credit. ~~These contracts~~The contractual amount of standby and commercial letters of credit totaled ~~$516.2~~$583.1 million and ~~$1.2~~$5.1 million, respectively, at September 30, ~~2022.~~2023. As many commitments expire unused or only partially used, these totals do not necessarily reflect future cash requirements. The carrying value of the guarantee obligations associated with the standby letters of credit, which has been recorded as a liability on the consolidated balance sheet, amounted to ~~$3.6~~$3.4 million at September 30, ~~2022.~~2023. The allowance for these commitments is recorded

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in the Company’s liability for unfunded lending commitments within other liabilities on its consolidated balance sheets. At September 30, ~~2022,~~2023, the liability for unfunded commitments totaled ~~$30.0~~$27.5 million. See further discussion of the liability for unfunded lending commitments in Note 2 to the consolidated financial statements.

During the third quarter of 2020, the Company signed a $106.7 million agreement with U.S. Capital Development to develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri, which is expected to be completed in January 2023. As of September 30, 2022, the Company has made payments totaling $83.8 million. While the Company intends to occupy a portion of the office building for executive offices, a 15 year lease agreement has been signed by an anchor tenant to lease approximately 50% of the office building.

The Company regularly purchases various state tax credits arising from third party property redevelopment. These credits are either resold to third parties at a profit or retained for use by the Company. During the first nine months of ~~2022,~~2023, purchases and sales of tax credits amounted to ~~$95.7~~$89.3 million and ~~$99.9~~$52.4 million, respectively. Fees from sales of tax credits were ~~$4.4~~$3.0 million for the nine months ended September 30, ~~2022,~~2023, compared to ~~$3.2~~$4.4 million in the same period last year. At September 30, ~~2022,~~2023, the Company expected to fund outstanding purchase commitments of ~~$12.0~~$55.9 million during the remainder of ~~2022.~~2023 and had purchase commitments of $524.7 million that it expects to fund from 2024 through 2029.

The Company's sound equity base, along with its long-term low debt level, common and preferred stock availability, and excellent debt ratings, provide several alternatives for future financing. Future acquisitions may utilize partial funding through one or moreCompany continued to maintain a strong liquidity position throughout the first nine months of ~~these options.~~2023. Through the various sources of liquidity described above, the Company maintains a liquidity position that it believes will adequately satisfy its financial obligations. ~~The Company is not aware of any trends, events, or commitments that are reasonably likely to increase or decrease its liquidity in a material way.~~

Segment Results

The table below is a summary of segment pre-tax income results for the first nine months of ~~2022~~2023 and ~~2021.~~2022.


(Dollars in thousands)	(Dollars in thousands)	Consumer			Commercial			Wealth			Segment Totals			Other/ Elimination			Consolidated Totals			(Dollars in thousands)	Consumer			Commercial			Wealth			Segment Totals			Other/ Elimination			Consolidated Totals
Nine Months Ended September 30, 2023																				Nine Months Ended September 30, 2023
Net interest income																				Net interest income	$	304,859		$	355,690		$	54,193		$	714,742		$	34,966		$	749,708
Provision for credit losses																				Provision for credit losses	(19,784)			(3,204)			(14)			(23,002)			(6,570)			(29,572)
Non-interest income																				Non-interest income	74,773			184,288			162,835			421,896			6,270			428,166
Investment securities gains (losses), net																				Investment securities gains (losses), net	—			—			—			—			7,384			7,384
Non-interest expense																				Non-interest expense	(242,991)			(290,960)			(119,015)			(652,966)			(26,762)			(679,728)
Income before income taxes																				Income before income taxes	$	116,857		$	245,814		$	97,999		$	460,670		$	15,288		$	475,958
Nine Months Ended September 30, 2022	Nine Months Ended September 30, 2022																			Nine Months Ended September 30, 2022
Net interest income	Net interest income	$	249,761		$	333,263		$	56,731		$	639,755		$	47,789		$	687,544		Net interest income	$	270,561		$	333,270		$	56,731		$	660,562		$	26,982		$	687,544
Provision for credit losses	Provision for credit losses	(12,727)			(651)			2			(13,376)			782			(12,594)			Provision for credit losses	(12,727)			(651)			2			(13,376)			782			(12,594)
Non-interest income	Non-interest income	89,542			167,581			161,051			418,174			(8,464)			409,710			Non-interest income	82,464			167,581			161,051			411,096			(1,386)			409,710
Investment securities gains, net		—			—			—			—			11,602			11,602
Investment securities gains (losses), net																				Investment securities gains (losses), net	—			—			—			—			11,602			11,602
Non-interest expense	Non-interest expense	(225,232)			(272,224)			(108,967)			(606,423)			(25,614)			(632,037)			Non-interest expense	(231,683)			(272,219)			(108,967)			(612,869)			(19,168)			(632,037)
Income before income taxes	Income before income taxes	$	101,344		$	227,969		$	108,817		$	438,130		$	26,095		$	464,225		Income before income taxes	$	108,615		$	227,981		$	108,817		$	445,413		$	18,812		$	464,225
Nine Months Ended September 30, 2021
Net interest income		$	239,157		$	340,279		$	53,186		$	632,622		$	(4,855)		$	627,767
Provision for credit losses		(19,122)			4,856			10			(14,256)			73,528			59,272
Non-interest income		110,911			155,079			158,731			424,721			(12,027)			412,694
Investment securities gains, net		—			—			—			—			39,765			39,765
Non-interest expense		(220,280)			(246,501)			(101,377)			(568,158)			(34,161)			(602,319)
Income before income taxes		$	110,666		$	253,713		$	110,550		$	474,929		$	62,250		$	537,179
Decrease in income before income taxes:
Increase (decrease) in income before income taxes:																				Increase (decrease) in income before income taxes:
Amount	Amount	$	(9,322)		$	(25,744)		$	(1,733)		$	(36,799)		$	(36,155)		$	(72,954)		Amount	$	8,242		$	17,833		$	(10,818)		$	15,257		$	(3,524)		$	11,733
Percent	Percent	(8.4		%)	(10.1		%)	(1.6		%)	(7.7		%)	(58.1		%)	(13.6		%)	Percent	7.6		%	7.8		%	(9.9		%)	3.4		%	(18.7)		%	2.5		%

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Consumer

For the nine months ended September 30, ~~2022,~~2023, income before income taxes for the Consumer segment ~~decreased $9.3~~increased $8.2 million, or ~~8.4%~~7.6%, compared to the first nine months of ~~2021.~~2022. The ~~decrease~~increase in income before income taxes was mainly due to ~~a decline in non-interest income of $21.4 million, or 19.3%, and higher non-interest expense of $5.0 million, or 2.2%. These decreases to income were partly offset by growth~~an increase in net interest income of ~~$10.6~~$34.3 million, or ~~4.4%~~12.7%, ~~and~~partly offset by a decrease in non-interest income of $7.7 million, or 9.3%, and increases in non-interest expense of $11.3 million, or 4.9%, and the provision for credit losses of ~~$6.4~~$7.1 million, or ~~33.4%~~55.4%.Net interest income increased due to a ~~$13.0~~$32.8 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios and a ~~$1.6~~$31.8 million ~~decrease~~increase in ~~deposit~~loan interest ~~expense.~~income. These increases ~~to income~~ were partly offset by ~~a $4.0 million decline in loan~~higher deposit interest ~~income.~~expense of $30.3 million. Non-interest income decreased mainly due to ~~a decline of $19.6 million in~~lower deposit account fees (mainly overdraft and return item fees) and mortgage banking ~~revenue.~~revenue, partly offset by growth in net debit card fees. Non-interest expense increased over

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the same period in the previous year mainly due to higher salaries and benefits expense, ~~marketing~~FDIC insurance expense and allocated ~~service and~~ support costs ~~(mainly bank card fraud~~for consumer administration and operations, ~~and information technology),~~ partly offset by lower ~~allocated service costs for branch employees and mortgage operations.~~marketing expense. The provision for credit losses totaled ~~$12.7~~$19.8 million, ~~a $6.4 million decrease from~~and increased over the first nine months of ~~2021,~~2022, mainly due to ~~lower~~higher consumer credit card and personal loan net charge-offs.

Commercial

For the nine months ended September 30, ~~2022,~~2023, income before income taxes for the Commercial segment ~~decreased $25.7~~increased $17.8 million, or ~~10.1%~~7.8%, compared to the same period in the previous year. This ~~decrease~~increase was mainly due to ~~an increase in non-interest expense and a decline~~growth in net interest income and non-interest income, partly offset by ~~an increase in~~higher non-interest ~~income.~~expense. Net interest income ~~decreased $7.0~~increased $22.4 million, or ~~2.1%~~6.7%, mainly due to higher loan interest income of $223.5 million. This increase was partly offset by lower net allocated funding credits of $76.2 million and increases of $83.3 million in deposit interest expense and $41.9 million in interest expense on customer repurchase ~~agreements and deposits of $10.0 million and $7.3 million, respectively. These decreases to income were partly offset by a $9.4 million increase in loan interest income.~~agreements. Non-interest income increased ~~$12.5~~$16.7 million, or ~~8.1%~~10.0%, over the previous year mainly due to growth in net bank card fees (mainly corporate card and merchant fees), deposit account fees (mainly corporate cash management fees), letters of credit fees and cash sweep commissions, partly offset by a decline in capital market fees. Non-interest expense increased ~~$25.7~~$18.7 million, or ~~10.4%~~6.9%, mainly due to higher salaries and benefits expense, ~~travel and entertainment~~FDIC insurance expense and allocated service and support costs (mainly bank operations, ~~branch employees,~~commercial sales and products and credit administration). These increases were partly offset by lower allocated support costs for information ~~technology and commercial payments).~~technology. The provision for credit losses increased ~~$5.5~~$2.6 million over the same period last year, mainly due to higher business loan net ~~charge-offs on business loans in the current year compared to net recoveries in the prior year.~~charge-offs.

Wealth

Wealth segment pre-tax profitability for the nine months ended September 30, ~~2022~~2023 decreased ~~$1.7~~$10.8 million, or ~~1.6%~~9.9%, from the same period in the previous year. Net interest income ~~increased $3.5~~decreased $2.5 million, or ~~6.7%~~4.5%, mainly due to ~~an $8.4~~a $12.3 million decline in net allocated funding credits and a $17.2 million increase in deposit interest expense, partly offset by a $27.0 million increase in loan interest ~~income, partly offset by a $5.3 million decrease in net allocated funding credits assigned to the Wealth segment's loan and deposit portfolios.~~income. Non-interest income increased ~~$2.3~~$1.8 million, or ~~1.5%~~1.1%, over the prior year largely due to higher ~~cash sweep commissions,~~ private client trust fees and ~~brokerage fees. These increases were~~cash sweep commissions, partly offset by lower ~~mortgage banking revenue and institutional trust~~brokerage fees. Non-interest expense increased ~~$7.6~~$10.0 million, or ~~7.5%~~9.2%, mainly due to higher salaries and benefits expense ~~travel~~ and ~~entertainment expense, and marketing expense.~~the deconversion costs previously mentioned. The provision for credit losses increased $8$16 thousand over the same period last ~~year, due to higher overdraft loan net charge-offs.~~year.

The Other/Elimination category in the preceding table includes the activity of various support and overhead operating units of the Company, in addition to the investment securities portfolio, brokered deposits, and other items not allocated to the segments. In accordance with the Company’s transfer pricing procedures, the difference between the total provision for credit losses and total net charge-offs/recoveries is not allocated to a business segment and is included in this category. The pre-tax profitability of this category was $3.5 million lower than in the same period last ~~year by $36.2 million.~~year. Unallocated securities gains were ~~$11.6~~$7.4 million in the first nine months of ~~2022~~2023 compared to gains of ~~$39.8~~$11.6 million in ~~2021.~~2022. Also, the unallocated provision for credit losses increased ~~by $72.7~~$7.4 million, primarily driven by ~~increases in the liability for unfunded lending commitments and~~an increase in the provision for credit losses on loans, partly offset by a decrease in the liability for unfunded lending commitments, which are both not allocated to the segments for management reporting purposes. Net charge-offs are allocated to the segments when incurred for management reporting purposes. The provision for credit losses on loans in the first nine months of 2023 was $35.2 million, or $12.1 million higher than net charge-offs due to an increase in the allowance for credit losses on loans. In the comparable period last year, the provision for credit losses on loans was $6.8 million, or $6.7 million lower than net charge-offs, due to a decrease in ~~2022, while~~ the ~~provision was $58.1 million lower than net charge-offs, as the provision was a benefit in 2021.~~ allowance for credit losses on loans. For the nine months ended September 30, ~~2022,~~2023, the Company's provision on unfunded lending commitments was a benefit of $5.6 million. Additionally, non-interest expense ~~of $5.8~~increased $7.6 million. These decreases to pre-tax profitability were partly offset by higher net interest income of ~~$52.6~~$8.0 million, and non-interest income of ~~$3.6 million, and lower non-interest expense of $8.5~~$7.7 million.

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Regulatory Changes

During the second quarter of 2023, the Federal Deposit Insurance Corporation (“FDIC”) issued a proposed rule to impose a special assessment to recover losses to the FDIC’s Deposit Insurance Fund following the failure of two financial institutions. The proposed rule applies to all insured depository institutions. Under the proposed rule, the assessment base for would be equal to an insured depository institution’s estimated insured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion of uninsured deposits. The proposed special assessment would apply an annual rate of 12.5 basis points. If the final rule is adopted as proposed, the estimated impact of the special assessment on the Company is approximately $14.9 million to be recognized at the time the rule is finalized and paid in eight quarterly installments beginning in the first quarter of 2024. The actual assessment may vary as a result of the final rule.

In July 2023, the SEC adopted a final rule requiring registrants provide enhanced disclosures regarding cybersecurity incidents as well as reporting on cybersecurity risk management, strategy, and governance. The final rule requires registrants to disclose on Form 8-K material cybersecurity incidents within four business days after the company determines that the cybersecurity incident is material. Additionally, registrants are also required to disclose annually on Form 10-K information the Company’s processes for assessing, identifying, and managing material risks from cybersecurity threats, management’s role in assessing and managing material risks from cybersecurity threats, and the board of directors’ oversight of cybersecurity risks. Companies are required to comply with the Form 8-K incident disclosure requirements beginning December 18, 2023. The annual disclosures in Form 10-K are required for fiscal years ending on or after December 15, 2023.

Impact of Recently Issued Accounting Standards

Reference Rate Reform The Financial Accounting Standards Board ("FASB") issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting", in March 2020, and has been followed by additional clarifying guidance related to derivatives that are modified as a result of reference rate reform. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if they reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Further, the guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The expedients and exceptions provided by the new guidance do not apply to contract modifications made and hedging relationships entered into or evaluated for effectiveness after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022. In ~~April~~December 2022, the FASB ~~proposed extending~~issued ASU 2022-06 which extended the sunset date under Topic 848 to December 31, 2024. The change is to align the temporary accounting relief guidance with the expected cessation date of LIBOR, which was postponed by administrators ~~earlier this year~~in 2021 to June 2023, a year after the current sunset date of ASU 2020-04. The Company's LIBOR Transition Steering Committee completed the Company's transition from LIBOR during the first half of 2023.

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In order to assess the impact of transition and ensure a successful transition process, the Company established a LIBOR Transition Program led by the LIBOR Transition Steering Committee (the Committee), which is an internal, cross-functional team with representatives from all relevant business lines, support functions and legal counsel. A LIBOR impact and risk assessment has been performed, and the Committee has developed and prioritized action items. All financial contracts that reference LIBOR have been identified and LIBOR fallback language has been included in key loan provisions of new and renewed loans in preparation from transition from LIBOR. The Company ceased originating new loans with LIBOR as a reference rate at the end of 2021 and is actively working with customers to modify existing loans that reference LIBOR to a new reference rate. The Company plans to finish transitioning the impacted loans by late spring of 2023.

~~Credit Losses~~Disclosure Improvements The FASB issued ASU ~~2022-02, "Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings~~2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and ~~Vintage Disclosures",~~Simplification Initiative," in March 2022. This ASU eliminates the troubled debt restructuring recognition and measurement guidance and, instead, requires that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.October 2023. The amendments ~~also enhance existing~~in this Update modify the disclosure or presentation requirements ~~and introduce new requirements~~of a variety of topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The adoption is not expected to certain modifications of receivables made to borrowers experiencing financial difficulty. The amendments require that an entity disclose current period gross write-offs by year of origination for financing receivables and net investment in leases withinhave a significant effect on the ~~scope of Subtopic 326-20. The guidance is effective January 1, 2023. The Company expects no material impact to its~~Company's consolidated financial ~~statements from adoption of this ASU.~~

statements.

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AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Three Months Ended September 30, ~~2022~~2023 and ~~2021~~2022


		Third Quarter 2022						Third Quarter 2021							Third Quarter 2023						Third Quarter 2022
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid		(Dollars in thousands)	Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid
ASSETS:	ASSETS:													ASSETS:
Loans:	Loans:													Loans:
Business(A)	Business(A)	$	5,317,696	$	52,813	3.94	%	$	5,437,498	$	47,032	3.43	%	Business(A)	$	5,849,227	$	85,104	5.77	%	$	5,317,696	$	52,813	3.94	%
Real estate — construction and land	Real estate — construction and land	1,288,721		17,133		5.27		1,168,566		10,326		3.51		Real estate — construction and land	1,508,850		31,070		8.17		1,288,721		17,133		5.27
Real estate — business	Real estate — business	3,258,128		36,121		4.40		2,982,847		26,027		3.46		Real estate — business	3,642,010		56,236		6.13		3,258,128		36,121		4.40
Real estate — personal	Real estate — personal	2,844,376		24,065		3.36		2,775,638		22,854		3.27		Real estate — personal	2,992,500		28,126		3.73		2,844,376		24,065		3.36
Consumer	Consumer	2,101,622		22,110		4.17		2,041,263		19,085		3.71		Consumer	2,102,281		31,630		5.97		2,101,622		22,110		4.17
Revolving home equity	Revolving home equity	280,923		3,413		4.82		281,689		2,456		3.46		Revolving home equity	304,055		5,947		7.76		280,923		3,413		4.82
Consumer credit card	Consumer credit card	550,058		16,711		12.05		566,406		16,112		11.29		Consumer credit card	564,039		19,570		13.77		550,058		16,711		12.05
Overdrafts	Overdrafts	4,438		—		—		5,110		—		—		Overdrafts	5,341		—		—		4,438		—		—
Total loans	Total loans	15,645,962		172,366		4.37		15,259,017		143,892		3.74		Total loans	16,968,303		257,683		6.02		15,645,962		172,366		4.37
Loans held for sale	Loans held for sale	7,170		159		8.80		16,021		187		4.63		Loans held for sale	5,714		152		10.55		7,170		159		8.80
Investment securities:	Investment securities:													Investment securities:
U.S. government and federal agency obligations	U.S. government and federal agency obligations	1,113,442		12,664		4.51		727,566		10,525		5.74		U.S. government and federal agency obligations	986,284		5,750		2.31		1,113,442		12,664		4.51
Government-sponsored enterprise obligations	Government-sponsored enterprise obligations	55,753		332		2.36		50,785		295		2.30		Government-sponsored enterprise obligations	55,676		331		2.36		55,753		332		2.36
State and municipal obligations(A)	State and municipal obligations(A)	2,052,908		11,758		2.27		2,039,942		12,062		2.35		State and municipal obligations(A)	1,391,541		6,823		1.95		2,052,908		11,758		2.27
Mortgage-backed securities	Mortgage-backed securities	6,847,912		33,323		1.93		7,115,419		27,461		1.53		Mortgage-backed securities	6,161,348		31,942		2.06		6,847,912		33,323		1.93
Asset-backed securities	Asset-backed securities	3,870,953		15,782		1.62		3,028,076		8,205		1.08		Asset-backed securities	2,553,562		14,129		2.20		3,870,953		15,782		1.62
Other debt securities	Other debt securities	587,026		2,852		1.93		608,642		3,125		2.04		Other debt securities	514,787		2,268		1.75		587,026		2,852		1.93
Trading debt securities(A)	Trading debt securities(A)	35,621		246		2.74		32,238		82		1.01		Trading debt securities(A)	35,044		451		5.11		35,621		246		2.74
Equity securities(A)	Equity securities(A)	8,838		604		27.11		8,756		528		23.92		Equity securities(A)	12,230		711		23.06		8,838		604		27.11
Other securities(A)	Other securities(A)	208,708		3,729		7.09		183,397		3,447		7.46		Other securities(A)	237,518		7,859		13.13		208,708		3,729		7.09
Total investment securities	Total investment securities	14,781,161		81,290		2.18		13,794,821		65,730		1.89		Total investment securities	11,947,990		70,264		2.33		14,781,161		81,290		2.18
Federal funds sold	Federal funds sold	13,486		94		2.77		792		1		.50		Federal funds sold	2,722		45		6.56		13,486		94		2.77
Securities purchased under agreements to resell	Securities purchased under agreements to resell	1,379,341		5,984		1.72		1,633,205		9,007		2.19		Securities purchased under agreements to resell	712,472		3,740		2.08		1,379,341		5,984		1.72
Interest earning deposits with banks	Interest earning deposits with banks	980,273		5,571		2.25		2,602,896		995		.15		Interest earning deposits with banks	2,337,744		31,738		5.39		980,273		5,571		2.25
Total interest earning assets	Total interest earning assets	32,807,393		265,464		3.21		33,306,752		219,812		2.62		Total interest earning assets	31,974,945		363,622		4.51		32,807,393		265,464		3.21
Allowance for credit losses on loans	Allowance for credit losses on loans	(137,833)						(172,112)						Allowance for credit losses on loans	(158,335)						(137,833)
Unrealized gain (loss) on debt securities	Unrealized gain (loss) on debt securities	(1,064,534)						230,058						Unrealized gain (loss) on debt securities	(1,458,141)						(1,064,534)
Cash and due from banks	Cash and due from banks	310,713						329,129						Cash and due from banks	295,711						310,713
Premises and equipment, net	Premises and equipment, net	408,884						408,966						Premises and equipment, net	463,828						408,884
Other assets	Other assets	536,901						523,182						Other assets	990,683						536,901
Total assets	Total assets	$	32,861,524					$	34,625,975					Total assets	$	32,108,691					$	32,861,524
LIABILITIES AND EQUITY:	LIABILITIES AND EQUITY:													LIABILITIES AND EQUITY:
Interest bearing deposits:	Interest bearing deposits:													Interest bearing deposits:
Savings	Savings	$	1,595,857	177		.04		$	1,484,923	289		.08		Savings	$	1,436,149	194		.05		$	1,595,857	177		.04
Interest checking and money market	Interest checking and money market	14,423,713		7,368		.20		13,343,180		1,528		.05		Interest checking and money market	13,048,199		43,601		1.33		14,423,713		7,368		.20
Certificates of deposit of less than $100,000	Certificates of deposit of less than $100,000	397,071		411		.41		464,367		206		.18		Certificates of deposit of less than $100,000	1,423,965		15,499		4.32		397,071		411		.41
Certificates of deposit of $100,000 and over	Certificates of deposit of $100,000 and over	578,158		871		.60		1,289,665		450		.14		Certificates of deposit of $100,000 and over	1,718,126		18,942		4.37		578,158		871		.60
Total interest bearing deposits	Total interest bearing deposits	16,994,799		8,827		.21		16,582,135		2,473		.06		Total interest bearing deposits	17,626,439		78,236		1.76		16,994,799		8,827		.21
Borrowings:	Borrowings:													Borrowings:
Federal funds purchased	Federal funds purchased	$	51,929	$	315	2.41		13,606		$	3	.10		Federal funds purchased	$	508,851	$	6,833	5.33		51,929		$	315	2.41
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	2,199,866		7,576		1.37		2,347,270		477		.08		Securities sold under agreements to repurchase	2,283,020		18,431		3.20		2,199,866		7,576		1.37
Other borrowings(B)	Other borrowings(B)	2,010		9		1.78		347		1		1.14		Other borrowings(B)	685,222		9,160		5.30		2,010		9		1.78
Total borrowings	Total borrowings	2,253,805		7,900		1.39		2,361,223		481		.08		Total borrowings	3,477,093		34,424		3.93		2,253,805		7,900		1.39
Total interest bearing liabilities	Total interest bearing liabilities	19,248,604		16,727		.34	%	18,943,358		2,954		.06	%	Total interest bearing liabilities	21,103,532		112,660		2.12	%	19,248,604		16,727		.34	%
Non-interest bearing deposits	Non-interest bearing deposits	10,758,353						11,475,113						Non-interest bearing deposits	7,939,190						10,758,353
Other liabilities	Other liabilities	123,691						667,786						Other liabilities	367,741						123,691
Equity	Equity	2,730,876						3,539,718						Equity	2,698,228						2,730,876
Total liabilities and equity	Total liabilities and equity	$	32,861,524					$	34,625,975					Total liabilities and equity	$	32,108,691					$	32,861,524
Net interest margin (FTE)	Net interest margin (FTE)			$	248,737					$	216,858			Net interest margin (FTE)			$	250,962					$	248,737
Net yield on interest earning assets	Net yield on interest earning assets					3.01	%					2.58	%	Net yield on interest earning assets					3.11	%					3.01	%

(A) Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.

(B) Interest expense capitalized on construction projects is not deducted from the interest expense shown above.

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AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022


		Nine Months 2022						Nine Months 2021							Nine Months 2023						Nine Months 2022
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid		(Dollars in thousands)	Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid
ASSETS:	ASSETS:													ASSETS:
Loans:	Loans:													Loans:
Business(A)	Business(A)	$	5,342,326	$	133,631	3.34	%	$	6,056,664	$	145,574	3.21	%	Business(A)	$	5,754,947	$	239,181	5.56	%	$	5,342,326	$	133,631	3.34	%
Real estate — construction and land	Real estate — construction and land	1,216,860		40,148		4.41		1,116,603		29,538		3.54		Real estate — construction and land	1,456,986		85,201		7.82		1,216,860		40,148		4.41
Real estate — business	Real estate — business	3,172,832		91,095		3.84		3,006,780		78,494		3.49		Real estate — business	3,554,347		157,306		5.92		3,172,832		91,095		3.84
Real estate — personal	Real estate — personal	2,826,441		69,804		3.30		2,801,861		69,715		3.33		Real estate — personal	2,962,619		81,351		3.67		2,826,441		69,804		3.30
Consumer	Consumer	2,071,019		58,891		3.80		1,998,081		57,567		3.85		Consumer	2,089,524		88,144		5.64		2,071,019		58,891		3.80
Revolving home equity	Revolving home equity	275,713		8,267		4.01		289,299		7,406		3.42		Revolving home equity	300,502		16,754		7.45		275,713		8,267		4.01
Consumer credit card	Consumer credit card	542,895		47,011		11.58		583,471		48,679		11.15		Consumer credit card	558,741		57,415		13.74		542,895		47,011		11.58
Overdrafts	Overdrafts	5,044		—		—		4,136		—		—		Overdrafts	4,810		—		—		5,044		—		—
Total loans	Total loans	15,453,130		448,847		3.88		15,856,895		436,973		3.68		Total loans	16,682,476		725,352		5.81		15,453,130		448,847		3.88
Loans held for sale	Loans held for sale	8,154		470		7.71		25,002		736		3.94		Loans held for sale	5,793		448		10.34		8,154		470		7.71
Investment securities:	Investment securities:													Investment securities:
U.S. government and federal agency obligations	U.S. government and federal agency obligations	1,112,201		35,751		4.30		724,269		24,979		4.61		U.S. government and federal agency obligations	1,039,921		19,730		2.54		1,112,201		35,751		4.30
Government-sponsored enterprise obligations	Government-sponsored enterprise obligations	54,443		962		2.36		50,793		885		2.33		Government-sponsored enterprise obligations	66,056		1,352		2.74		54,443		962		2.36
State and municipal obligations(A)	State and municipal obligations(A)	2,085,539		35,655		2.29		1,988,715		35,779		2.41		State and municipal obligations(A)	1,571,132		24,626		2.10		2,085,539		35,655		2.29
Mortgage-backed securities	Mortgage-backed securities	7,105,874		104,695		1.97		6,933,544		69,924		1.35		Mortgage-backed securities	6,309,586		97,702		2.07		7,105,874		104,695		1.97
Asset-backed securities	Asset-backed securities	3,947,148		40,378		1.37		2,592,618		23,594		1.22		Asset-backed securities	2,869,252		44,836		2.09		3,947,148		40,378		1.37
Other debt securities	Other debt securities	622,065		9,143		1.97		594,984		9,263		2.08		Other debt securities	521,187		7,204		1.85		622,065		9,143		1.97
Trading debt securities(A)	Trading debt securities(A)	40,052		700		2.34		33,171		272		1.10		Trading debt securities(A)	42,392		1,494		4.71		40,052		700		2.34
Equity securities(A)	Equity securities(A)	9,141		1,823		26.66		6,013		1,584		35.22		Equity securities(A)	12,340		2,140		23.19		9,141		1,823		26.66
Other securities(A)	Other securities(A)	198,763		17,417		11.72		164,911		10,101		8.19		Other securities(A)	247,019		18,297		9.90		198,763		17,417		11.72
Total investment securities	Total investment securities	15,175,226		246,524		2.17		13,089,018		176,381		1.80		Total investment securities	12,678,885		217,381		2.29		15,175,226		246,524		2.17
Federal funds sold	Federal funds sold	6,315		114		2.41		715		3		.56		Federal funds sold	16,262		639		5.25		6,315		114		2.41
Securities purchased under agreements to resell	Securities purchased under agreements to resell	1,604,300		15,669		1.31		1,143,061		30,551		3.57		Securities purchased under agreements to resell	787,070		11,791		2.00		1,604,300		15,669		1.31
Interest earning deposits with banks	Interest earning deposits with banks	1,606,452		9,150		.76		2,273,448		2,108		.12		Interest earning deposits with banks	1,816,210		70,328		5.18		1,606,452		9,150		.76
Total interest earning assets	Total interest earning assets	33,853,577		720,774		2.85		32,388,139		646,752		2.67		Total interest earning assets	31,986,696		1,025,939		4.29		33,853,577		720,774		2.85
Allowance for credit losses on loans	Allowance for credit losses on loans	(140,686)						(197,631)						Allowance for credit losses on loans	(155,870)						(140,686)
Unrealized gain (loss) on debt securities	Unrealized gain (loss) on debt securities	(699,908)						236,702						Unrealized gain (loss) on debt securities	(1,392,373)						(699,908)
Cash and due from banks	Cash and due from banks	321,994						337,595						Cash and due from banks	306,441						321,994
Premises and equipment, net	Premises and equipment, net	405,856						404,697						Premises and equipment, net	448,168						405,856
Other assets	Other assets	538,438						533,660						Other assets	936,131						538,438
Total assets	Total assets	$	34,279,271					$	33,703,162					Total assets	$	32,129,193					$	34,279,271
LIABILITIES AND EQUITY:	LIABILITIES AND EQUITY:													LIABILITIES AND EQUITY:
Interest bearing deposits:	Interest bearing deposits:													Interest bearing deposits:
Savings	Savings	$	1,589,668	512		.04		$	1,431,386	843		.08		Savings	$	1,500,666	573		.05		$	1,589,668	512		.04
Interest checking and money market	Interest checking and money market	14,738,322		11,071		.10		13,200,461		4,921		.05		Interest checking and money market	13,076,565		93,419		.96		14,738,322		11,071		.10
Certificates of deposit of less than $100,000	Certificates of deposit of less than $100,000	412,739		755		.24		490,655		1,006		.27		Certificates of deposit of less than $100,000	975,175		27,049		3.71		412,739		755		.24
Certificates of deposit of $100,000 and over	Certificates of deposit of $100,000 and over	695,332		1,768		.34		1,291,693		2,173		.22		Certificates of deposit of $100,000 and over	1,367,560		39,985		3.91		695,332		1,768		.34
Total interest bearing deposits	Total interest bearing deposits	17,436,061		14,106		.11		16,414,195		8,943		.07		Total interest bearing deposits	16,919,966		161,026		1.27		17,436,061		14,106		.11
Borrowings:	Borrowings:													Borrowings:
Federal funds purchased	Federal funds purchased	$	62,909	$	546	1.16		$	24,558	11		.06		Federal funds purchased	$	503,301	$	18,816	5.00		$	62,909	546		1.16
Securities sold under agreements to repurchase	Securities sold under agreements to repurchase	2,388,295		10,960		.61		2,207,037		1,101		.07		Securities sold under agreements to repurchase	2,302,289		52,940		3.07		2,388,295		10,960		.61
Other borrowings(B)	Other borrowings(B)	1,607		22		1.83		717		5		.93		Other borrowings(B)	951,971		37,027		5.20		1,607		22		1.83
Total borrowings	Total borrowings	2,452,811		11,528		.63		2,232,312		1,117		.07		Total borrowings	3,757,561		108,783		3.87		2,452,811		11,528		.63
Total interest bearing liabilities	Total interest bearing liabilities	19,888,872		25,634		.17	%	18,646,507		10,060		.07	%	Total interest bearing liabilities	20,677,527		269,809		1.74	%	19,888,872		25,634		.17	%
Non-interest bearing deposits	Non-interest bearing deposits	11,168,031						11,011,446						Non-interest bearing deposits	8,421,754						11,168,031
Other liabilities	Other liabilities	255,041						601,352						Other liabilities	360,506						255,041
Equity	Equity	2,967,327						3,443,857						Equity	2,669,406						2,967,327
Total liabilities and equity	Total liabilities and equity	$	34,279,271					$	33,703,162					Total liabilities and equity	$	32,129,193					$	34,279,271
Net interest margin (FTE)	Net interest margin (FTE)			$	695,140					$	636,692			Net interest margin (FTE)			$	756,130					$	695,140
Net yield on interest earning assets	Net yield on interest earning assets					2.75	%					2.63	%	Net yield on interest earning assets					3.16	%					2.75	%

(A) Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.

(B) Interest expense capitalized on construction projects is not deducted from the interest expense shown above.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. The Company primarily uses earnings simulation models to analyze net interest income sensitivity to movement in interest rates. The Company performs monthly simulations that model interest rate movements and risk in accordance with changes to its balance sheet composition. For further discussion of the Company’s market risk, see the Interest Rate Sensitivity section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s ~~2021~~2022 Annual Report on Form 10-K.

The ~~tables~~table below ~~show~~shows the effects of gradual shifts in interest rates over a twelve month period on the Company’s net interest income versus the Company's net interest income in a flat rate scenario. ~~Simulation A~~The simulation presents three rising rate scenarios and three falling rate scenarios, and in ~~each scenario,~~these scenarios, rates are assumed to change evenly over 12 ~~months. In these scenarios,~~months, while the balance sheet remains flat.

The sensitivity of deposit balances to changes in rates is particularly difficult to estimate in low interest rate environments. Since the future effects of changes in rates on deposit balances cannot be known with certainty, the Company conservatively models alternate scenarios with deposit attrition as rates rise. Simulation B illustrates results from these higher attrition scenarios to provide added perspective on potential effects of higher rates.

~~The~~ Company utilizes ~~these simulations~~this simulation both for monitoring interest rate risk and for liquidity planning purposes. While the future effects of rising and falling rates on deposit balances cannot be known, the Company maintains a practice of running multiple rate scenarios, when relevant, to better understand interest rate risk and its effect on the Company’s performance.

Simulation A September 30, 2022 June 30, 2022
(Dollars in millions)
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed Deposit (Attrition)/Growth
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed Deposit (Attrition)/Growth
300 basis points rising $ 3.3 .32 % $ — $ 45.2 4.91 % $ —
200 basis points rising 7.7 .75 — 36.9 4.01 —
100 basis points rising 9.9 .97 — 23.5 2.55 —
100 basis points falling (28.5) (2.80) — (35.3) (3.83) —
200 basis points falling (62.5) (6.14) — — — —
300 basis points falling (101.1) (9.94) — — — —


Simulation B		September 30, 2022						June 30, 2022
															September 30, 2023				June 30, 2023
(Dollars in millions)	(Dollars in millions)	$ Change in Net Interest Income		% Change in Net Interest Income		Assumed Deposit (Attrition)/Growth		$ Change in Net Interest Income		% Change in Net Interest Income		Assumed Deposit (Attrition)/Growth		(Dollars in millions)	$ Change in Net Interest Income		% Change in Net Interest Income			$ Change in Net Interest Income		% Change in Net Interest Income
300 basis points rising	300 basis points rising	$	(49.4)	(5.06)	%	$	(848.9)	$	(35.2)	(4.01	%)	$	(1,770.5)	300 basis points rising	$	(20.6)	(2.08)	%		$	(30.9)	(3.09)	%
200 basis points rising	200 basis points rising	(34.5)		(3.54)		(716.2)		(14.2)		(1.62)		(1,208.0)		200 basis points rising	(17.7)		(1.79)			(24.4)		(2.44)
100 basis points rising	100 basis points rising	(14.0)		(1.43)		(405.7)		(2.7)		(.31)		(612.5)		100 basis points rising	(9.1)		(.92)			(11.1)		(1.11)
100 basis points falling	100 basis points falling	(6.0)		(.62)		403.2		(2.7)		(.31)		1,086.4		100 basis points falling	$	(.6)	(.06)			(3.3)		(.33)
200 basis points falling	200 basis points falling	(26.5)		(2.72)		849.4		—		—		—		200 basis points falling	(11.0)		(1.11)			(16.6)		(1.66)
300 basis points falling	300 basis points falling	(58.7)		(6.02)		1,446.4		—		—		—		300 basis points falling	(27.0)		(2.71)			(34.3)		(3.43)

Under ~~Simulation A,~~the simulation, in the three rising rate scenarios and three falling rate scenarios, interest rate risk is ~~less asset sensitive than~~slightly improved compared to the previous quarter, primarily due to an increase in the Federal funds rate, which increases non-maturity deposit rates. Deposit attrition was removed from the simulation in both the current and previous quarters.

~~In Simulation B, the assumed levels of deposit attrition were modeled to capture the results of a shrinking balance sheet. Under this Simulation, in the three rising rate~~ scenarios ~~and three falling rate scenarios, interest rate risk is more liability sensitive than~~ in the previous quarter. This was primarily due to ~~an increase~~a decrease in wholesale funding, which is more rate sensitive, partly offset by non-interest bearing demand deposit accounts transitioning to more rate sensitive deposit sweep accounts. In addition, premium money market deposit account rates increased in the ~~Federal funds~~flat rate ~~which impacts surge deposit runoff~~scenario to a point where the forecasted rates are less sensitive in rising rate scenarios and ~~puts upward pressure on non-maturity deposit rates.~~more sensitive in falling rate scenarios when compared to the previous quarter.

~~Table of Contents~~

~~Projecting deposit activity in a period of historically low interest rates is difficult, and the Company cannot predict how deposits will actually react to shifting rates.~~ The ~~comparisons~~comparison above ~~provide~~provides insight into potential effects of changes in rates and deposit levels on net interest income. The Company believes that its approach to interest rate risk has appropriately considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of interest rate risk.

Item 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, ~~2022.~~2023. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective. There were no changes in the Company's internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

The information required by this item is set forth in Part I, Item 1 under Note 17, Legal and Regulatory Proceedings.

Item 1A. RISK FACTORS

In addition to the other information set forth in this report, the Company's business, financial condition, and results of operations may be materially impacted by the risks that are discussed under the caption “Risk Factors” in Part I, Item 1A of the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2022. The risk factors set forth below update, and should be read together with, such risk factors.

Liquidity and Capital Risks

Adverse developments affecting the banking industry, such as recent bank failures or concerns involving liquidity, may have material adverse effects on the Company’s operations.

Events impacting the banking industry during the first few months of 2023, including the failure of Silicon Valley Bank in March, have resulted in decreased confidence in regional banks among deposit customers, investors, and other counterparties. Additionally, these events have caused significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events occurred during a period of rapidly rising interest rates, which, among other things, has resulted in unrealized losses in the Company's available for sale debt securities portfolio and increased competition for bank deposits. These events have, and could continue to have, adverse impacts on the market price and volatility of the Company’s stock. These events could also lead to increases in the Company’s interest expense, as it has raised and may continue to raise interest rates paid to depositors in order to compete with other banks, and in an effort to replace deposits, seek borrowings which carry higher interest rates.

Recent bank failures have caused concern and uncertainty regarding the liquidity adequacy of the banking sector as a whole and resulted in some regional bank customers choosing to maintain deposits with larger financial institutions. A significant reduction in the Company’s deposits could materially, adversely impact the Company’s liquidity, ability to fund loans, and results of operations. In addition to customer deposits, the Company borrows on an overnight and short-term basis from third parties in the form of federal funds purchased and repurchase agreements and through lines of credit and borrowings from the FHLB and FRB. If the Company is not able to access borrowings through those facilities due to an increase in demand from other banks or due to insufficient levels of pledgeable assets, its ability to borrow funds may be materially adversely impacted.

The Company could recognize losses on securities held in its securities portfolio, particularly if it were to sell a significant portion of its investments prior to maturity.

The Company maintains a portfolio of investments, which includes available for sale debt securities, trading securities, equity securities, and other investments. At September 30, 2023, the Company did not hold any investments classified as held-to-maturity. The Company's available for sale debt securities portfolio is carried at fair value, with unrealized gains and losses carried in accumulated other comprehensive income (loss) within shareholder's equity. The fair value of investments, including available for sale debt investments, may change with changes in interest rates, credit concerns, or other economic factors. Due to the rapid rise of interest rates during 2022 and 2023, the fair value of the Company's available of sale debt securities included a net unrealized loss of $1.6 billion at September 30, 2023. Although as of September 30, 2023, the Company has the intent and ability to maintain its available for sale debt investments until maturity, if in the future the Company were to elect to sell or needed to sell the investments before their maturity, the Company could realize significant losses in its income statement.

Any changes to regulations, regulatory policies, laws, or supervisory or enforcement activities arising from the recent events in the banking industry could increase the Company’s expenses and adversely impact the Company’s operations.

In addition to operational impacts to the Company, the recent events in the banking industry may also result in changes to the laws and regulations governing banks and bank holding companies. As part of the financial services industry, the Company is subject to extensive federal and state regulation and supervision. Changes to regulations, regulatory policies, laws, or supervisory or enforcement activities could affect the Company in substantial and adverse ways, including limiting the services and products the Company may offer, restrict the Company’s ability to pay dividends, result in the Company incurring higher costs, or subject the Company to higher capital requirements. Inability to access short-term funding, loss of client deposits or

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changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact the Company’s overall liquidity or capitalization. The Company may be impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which can cause disruption within the financial markets and increased expenses. The cost of resolving the recent bank failures may also prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments, which would likely increase expenses and negatively impact net income.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information about the Company's purchases of its $5 par value common stock, its only class of common stock registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.

Period
Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as part of Publicly Announced Program Maximum Number that May Yet Be Purchased Under the Program
July 1 - 31, 2022 96,180 $ 69.16 96,180 4,058,935
August 1 - 31, 2022 388,724 $ 71.32 388,724 3,670,211
September 1 - 30, 2022 225,975 $ 69.65 225,975 3,444,236
Total 710,879 $ 70.50 710,879 3,444,236


Period	Total Number of Shares Purchased	Average Price Paid per Share			Total Number of Shares Purchased as part of Publicly Announced Program	Maximum Number that May Yet Be Purchased Under the Program
July 1 - 31, 2023	26,643		$	52.93	26,643	2,531,829
August 1 - 31, 2023	305,314		$	51.24	305,314	2,226,515
September 1 - 30, 2023	56,347		$	48.49	56,347	2,170,168
Total	388,304		$	50.96	388,304	2,170,168

The Company's stock purchases shown above were made under authorizations by the Board of Directors. Under the most recent authorization in April 2022 of 5,000,000 shares, ~~3,444,236~~2,170,168 shares remained available for purchase at September 30, ~~2022.~~2023.

Item 5. OTHER INFORMATION

During the three months ended September 30, 2023, none of the officers or directors of the Company adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

Item 6. EXHIBITS

The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed below.

10 — Amended and restated Commerce Bancshares, Inc. Executive Incentive Compensation Plan (EICP) effective December 1, 2023

31.1 — Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 — Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 — Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 — Interactive data files in Inline XBRL pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

104 — Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	COMMERCE BANCSHARES, INC.



	By	/s/ MARGARET M. ROWE
		Margaret M. Rowe
Date: November ~~4, 2022~~6, 2023		Vice President & Secretary


	By	/s/ PAUL A. STEINER
		Paul A. Steiner
		Controller
Date: November ~~4, 2022~~6, 2023		(Chief Accounting Officer)

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Simulation A	September 30, 2022						June 30, 2022
(Dollars in millions)	$ Change in Net Interest Income		% Change in Net Interest Income		Assumed Deposit (Attrition)/Growth		$ Change in Net Interest Income		% Change in Net Interest Income		Assumed Deposit (Attrition)/Growth
300 basis points rising	$	3.3	.32	%	$	—	$	45.2	4.91	%	$	—
200 basis points rising	7.7		.75		—		36.9		4.01		—
100 basis points rising	9.9		.97		—		23.5		2.55		—
100 basis points falling	(28.5)		(2.80)		—		(35.3)		(3.83)		—
200 basis points falling	(62.5)		(6.14)		—		—		—		—
300 basis points falling	(101.1)		(9.94)		—		—		—		—