cbsh-20240630

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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 June 30, 2024


☐			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 August 1, 2024, the registrant had outstanding 128,917,831 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 June 30, 2024 (unaudited) and December 31, 2023	3
		Consolidated Statements of Income for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	4
		Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	5
		Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	6
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (unaudited)	8
		Notes to Consolidated Financial Statements	9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	50
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	76
	Item 4.	Controls and Procedures	76

Part II	Other Information
	Item 1.	Legal Proceedings	77
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	77
	Item 5.	Other Information	77
	Item 6.	Exhibits	77
Signatures			78

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PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS


	June 30, 2024		December 31, 2023
	(Unaudited)
	(In thousands)
ASSETS
Loans	$	17,163,065	$	17,205,479
Allowance for credit losses on loans	(158,557)		(162,395)
Net loans	17,004,508		17,043,084
Loans held for sale (including $2,186,000 and $1,585,000 of residential mortgage loans carried at fair value at June 30, 2024 and December 31, 2023, respectively)	2,930		4,177
Investment securities:
Available for sale debt, at fair value (amortized cost of $9,608,044,000 and $10,904,765,000 at
June 30, 2024 and December 31, 2023, respectively, and allowance for credit losses of $—
at both June 30, 2024 and December 31, 2023)	8,534,271		9,684,760
Trading debt	45,499		28,830
Equity	113,584		12,701
Other	223,798		222,473
Total investment securities	8,917,152		9,948,764
Federal funds sold	—		5,025
Securities purchased under agreements to resell	475,000		450,000
Interest earning deposits with banks	2,215,057		2,239,010
Cash and due from banks	329,692		443,147
Premises and equipment – net	467,256		469,059
Goodwill	146,539		146,539
Other intangible assets – net	13,801		14,179
Other assets	997,423		938,077
Total assets	$	30,569,358	$	31,701,061
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing	$	7,492,751	$	7,975,935
Savings, interest checking and money market	14,367,710		14,512,273
Certificates of deposit of less than $100,000	1,010,251		930,432
Certificates of deposit of $100,000 and over	1,408,548		1,945,258
Total deposits	24,279,260		25,363,898
Federal funds purchased and securities sold under agreements to repurchase	2,551,399		2,908,815
Other borrowings	3,984		1,404
Other liabilities	576,380		462,714
Total liabilities	27,411,023		28,736,831
Commerce Bancshares, Inc. stockholders’ equity:



Common stock, $5 par value
Authorized 190,000,000; issued 131,064,418 shares at both June 30, 2024 and December 31, 2023	655,322		655,322
Capital surplus	3,153,107		3,162,622
Retained earnings	235,299		53,183
Treasury stock of 1,781,315 shares at June 30, 2024
and 611,546 shares at December 31, 2023, at cost	(98,176)		(35,599)
Accumulated other comprehensive income (loss)	(807,817)		(891,412)
Total Commerce Bancshares, Inc. stockholders' equity	3,137,735		2,944,116
Non-controlling interest	20,600		20,114
Total equity	3,158,335		2,964,230
Total liabilities and equity	$	30,569,358	$	31,701,061

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME


	For the Three Months Ended June 30				For the Six Months Ended June 30
(In thousands, except per share data)	2024		2023		2024		2023
	(Unaudited)
INTEREST INCOME
Interest and fees on loans	$	267,463	$	241,327	$	532,140	$	465,143
Interest and fees on loans held for sale	46		151		86		296
Interest on investment securities	70,776		73,727		136,704		144,846
Interest on federal funds sold	27		105		37		594
Interest on securities purchased under agreements to resell	2,421		4,099		4,055		8,051
Interest on deposits with banks	28,630		29,254		55,062		38,590
Total interest income	369,363		348,663		728,084		657,520
INTEREST EXPENSE
Interest on deposits:
Savings, interest checking and money market	56,829		30,046		112,409		50,197
Certificates of deposit of less than $100,000	10,523		10,125		20,714		11,550
Certificates of deposit of $100,000 and over	16,892		14,416		34,988		21,043
Interest on federal funds purchased	3,569		6,397		7,988		11,983
Interest on securities sold under agreements to repurchase	19,293		17,014		40,731		34,509
Interest on other borrowings	8		21,127		6		27,077
Total interest expense	107,114		99,125		216,836		156,359
Net interest income	262,249		249,538		511,248		501,161
Provision for credit losses	5,468		6,471		10,255		17,927
Net interest income after credit losses	256,781		243,067		500,993		483,234
NON-INTEREST INCOME
Trust fees	52,291		47,265		103,396		92,593
Bank card transaction fees	47,477		49,725		94,407		96,379
Deposit account charges and other fees	25,325		22,633		49,476		44,385
Consumer brokerage services	4,478		4,677		8,886		9,762
Capital market fees	4,760		2,945		8,652		6,307
Loan fees and sales	3,431		2,735		6,572		5,324
Other	14,482		17,625		29,703		30,467
Total non-interest income	152,244		147,605		301,092		285,217





INVESTMENT SECURITIES GAINS (LOSSES), NET	3,233		3,392		2,974		3,086
NON-INTEREST EXPENSE
Salaries and employee benefits	149,120		145,429		300,921		289,802
Data processing and software	31,529		28,719		62,682		56,873
Net occupancy	12,544		12,995		26,118		25,754
Deposit insurance	2,354		4,187		10,371		8,830
Equipment	5,091		4,864		10,101		9,714
Marketing	5,356		6,368		9,392		11,839
Supplies and communication	4,636		4,625		9,380		9,215
Other	21,584		20,424		48,946		39,691
Total non-interest expense	232,214		227,611		477,911		451,718
Income before income taxes	180,044		166,453		327,148		319,819
Less income taxes	38,602		35,990		70,254		68,803
Net income	141,442		130,463		256,894		251,016
Less non-controlling interest expense (income)	1,889		2,674		4,678		3,775
Net income attributable to Commerce Bancshares, Inc.	$	139,553	$	127,789	$	252,216	$	247,241


Net income per common share — basic	$	1.07	$	.97	$	1.94	$	1.88
Net income per common share — diluted	$	1.07	$	.97	$	1.93	$	1.88

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	For the Three Months Ended June 30				For the Six Months Ended June 30
(In thousands)	2024		2023		2024		2023
	(Unaudited)
Net income	$	141,442	$	130,463	$	256,894	$	251,016
Other comprehensive income (loss):


Net unrealized gains (losses) on available for sale debt securities	130,076		(81,882)		109,675		60,584
Change in pension loss	177		269		353		539
Unrealized gains (losses) on cash flow hedge derivatives	(7,043)		(14,184)		(26,433)		(10,554)
Other comprehensive income (loss)	123,210		(95,797)		83,595		50,569
Comprehensive income (loss)	264,652		34,666		340,489		301,585
Less non-controlling interest (income) expense	1,889		2,674		4,678		3,775
Comprehensive income (loss) attributable to Commerce Bancshares, Inc.	$	262,763	$	31,992	$	335,811	$	297,810

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended June 30, 2024 and 2023


	Commerce Bancshares, Inc. Shareholders
(In thousands, except per share data)	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest		Total
	(Unaudited)
Balance March 31, 2024	$	655,322	$	3,148,649	$	130,706	$	(59,674)	$	(931,027)	$	19,913	$	2,963,889
Net income					139,553						1,889		141,442
Other comprehensive income (loss)									123,210				123,210
Distributions to non-controlling interest											(1,202)		(1,202)
Purchases of treasury stock							(38,229)						(38,229)


Issuance under stock purchase and equity compensation plans			273				(273)						—
Stock-based compensation			4,185										4,185
Cash dividends paid on common stock ($0.270 per share)					(34,960)								(34,960)

Balance June 30, 2024	$	655,322	$	3,153,107	$	235,299	$	(98,176)	$	(807,817)	$	20,600	$	3,158,335
Balance March 31, 2023	$	629,319	$	2,919,060	$	117,313	$	(59,670)	$	(940,498)	$	16,888	$	2,682,412

Net Income					127,789						2,674		130,463
Other comprehensive income (loss)									(95,797)				(95,797)
Distributions to non-controlling interest											(1,692)		(1,692)
Purchases of treasury stock							(318)						(318)

Issuance under stock purchase and equity compensation plans			(1,599)				1,599						—
Stock-based compensation			3,904										3,904
Cash dividends paid on common stock ($.257 per share)					(33,744)								(33,744)

Balance June 30, 2023	$	629,319	$	2,921,365	$	211,358	$	(58,389)	$	(1,036,295)	$	17,870	$	2,685,228

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Six Months Ended June 30, 2024 and 2023


	Commerce Bancshares, Inc. Shareholders
(In thousands, except per share data)	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest		Total
	(Unaudited)
Balance December 31, 2023	$	655,322	$	3,162,622	$	53,183	$	(35,599)	$	(891,412)	$	20,114	$	2,964,230


Net income					252,216						4,678		256,894
Other comprehensive income (loss)									83,595				83,595
Distributions to non-controlling interest											(4,192)		(4,192)

Purchases of treasury stock							(80,543)						(80,543)

Issuance under stock purchase and equity compensation plans			(17,966)				17,966						—
Stock-based compensation			8,451										8,451
Cash dividends paid on common stock ($.540 per share)					(70,100)								(70,100)

Balance June 30, 2024	$	655,322	$	3,153,107	$	235,299	$	(98,176)	$	(807,817)	$	20,600	$	3,158,335
Balance December 31, 2022	$	629,319	$	2,932,959	$	31,620	$	(41,743)	$	(1,086,864)	$	16,286	$	2,481,577



Net income					247,241						3,775		251,016
Other comprehensive income (loss)									50,569				50,569
Distributions to non-controlling interest											(2,145)		(2,145)
Purchases of treasury stock							(36,563)						(36,563)
Sale of non-controlling interest of subsidiary			46								(46)		—
Issuance under stock purchase and equity compensation plans			(19,917)				19,917						—
Stock-based compensation			8,277										8,277
Cash dividends paid on common stock ($.514 per share)					(67,503)								(67,503)

Balance June 30, 2023	$	629,319	$	2,921,365	$	211,358	$	(58,389)	$	(1,036,295)	$	17,870	$	2,685,228

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Six Months Ended June 30
(In thousands)	2024		2023
	(Unaudited)
OPERATING ACTIVITIES:
Net income	$	256,894	$	251,016
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	10,255		17,927
Provision for depreciation and amortization	26,800		24,164
Amortization of investment security premiums, net	1,649		9,482
Investment securities (gains) losses, net (A)	(2,974)		(3,086)
Net (gains) losses on sales of loans held for sale	(988)		(422)
Originations of loans held for sale	(43,505)		(25,729)
Proceeds from sales of loans held for sale	45,453		24,210
Net (increase) decrease in trading debt securities, excluding unsettled transactions	(13,589)		17,915
Purchase of interest rate floor derivative contracts	—		(25,900)
Stock-based compensation	8,451		8,277
(Increase) decrease in interest receivable	2,794		(667)
Increase (decrease) in interest payable	(2,303)		31,819
Increase (decrease) in income taxes payable	528		(74)


Other changes, net	(6,630)		(108,044)
Net cash provided by (used in) operating activities	282,835		220,888
INVESTING ACTIVITIES:
Cash paid in acquisition, net of cash received	—		(6,197)

Distributions received from equity-method investment	—		1,434
Proceeds from sales of investment securities (A)	1,157,176		1,130,536
Proceeds from maturities/pay downs of investment securities (A)	1,166,452		922,759
Purchases of investment securities (A)	(1,100,450)		(190,253)
Net (increase) decrease in loans	23,692		(666,743)
Securities purchased under agreements to resell	(350,000)		—
Repayments of securities purchased under agreements to resell	325,000		—
Purchases of premises and equipment	(19,504)		(51,904)
Sales of premises and equipment	3,281		1,215
Net cash provided by (used in) investing activities	1,205,647		1,140,847
FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits	(669,259)		(2,506,872)
Net increase (decrease) in certificates of deposit	(456,891)		2,257,518


Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase	(357,416)		36,287


FHLB short-term borrowings	—		2,250,000
Repayments of FHLB borrowings	—		(1,250,000)
Net increase (decrease) in other borrowings	2,580		(4,059)

Purchases of treasury stock	(79,889)		(36,563)



Cash dividends paid on common stock	(70,100)		(67,503)


Net cash provided by (used in) financing activities	(1,630,975)		678,808
Increase (decrease) in cash, cash equivalents and restricted cash	(142,493)		2,040,543
Cash, cash equivalents and restricted cash at beginning of year	2,687,283		897,801
Cash, cash equivalents and restricted cash at June 30	$	2,544,790	$	2,938,344

Income tax payments, net	$	65,890	$	64,925
Interest paid on deposits and borrowings	$	219,139	$	124,540
Loans transferred to foreclosed real estate	$	88	$	72

(A) Available for sale debt securities, equity securities, and other securities.

See accompanying notes to consolidated financial statements.

Restricted cash is comprised of cash collateral posted by the Company to secure interest rate swap agreements. This balance is included in other assets in the consolidated balance sheets and totaled $41 thousand at June 30, 2024. The Company had $200 thousand restricted cash at June 30, 2023.

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Commerce Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 (Unaudited)

1. Principles of Consolidation and Presentation

The accompanying consolidated financial statements include the accounts of Commerce Bancshares, Inc. and all majority-owned subsidiaries (the Company). Most of the Company's operations are conducted by its subsidiary bank, Commerce Bank (the Bank). The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments necessary to present fairly the financial position and the results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to 2023 data to conform to current year presentation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets and revenues and expenses for the periods. Actual results could differ significantly from those estimates. Management has evaluated subsequent events for potential recognition or disclosure. The results of operations for the six month period ended June 30, 2024 are not necessarily indicative of results to be attained for the full year or any other interim period.

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

2. Loans and Allowance for Credit Losses

Major classifications within the Company’s held for investment loan portfolio at June 30, 2024 and December 31, 2023 are as follows:


(In thousands)	June 30, 2024		December 31, 2023
Commercial:
Business	$	6,090,724	$	6,019,036
Real estate – construction and land	1,396,515		1,446,764
Real estate – business	3,572,539		3,719,306
Personal Banking:
Real estate – personal	3,055,182		3,026,041
Consumer	2,145,609		2,077,723
Revolving home equity	331,381		319,894
Consumer credit card	566,925		589,913
Overdrafts	4,190		6,802
Total loans	$	17,163,065	$	17,205,479

Accrued interest receivable totaled $71.9 million at both June 30, 2024 and December 31, 2023, and was included within other assets on the consolidated balance sheets. For the three months ended June 30, 2024, the Company wrote-off accrued interest by reversing interest income of $341 thousand and $1.6 million in the Commercial and Personal Banking portfolios, respectively. Similarly, for the six months ended June 30, 2024, the Company wrote off accrued interest of $435 thousand and $3.1 million in the Commercial and Personal Banking portfolios, respectively. For the three months ended June 30, 2023, the Company reversed interest income of $43 thousand and $1.1 million in the Commercial and Personal Banking portfolios, respectively, and in the six months ended June 30, 2023, reversed $77 thousand and $2.2 million in the Commercial and Personal Banking portfolios, respectively.

At June 30, 2024, loans of $3.6 billion were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of $2.9 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings.

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Allowance for credit losses

The allowance for credit losses is measured using an average historical loss model which incorporates relevant information about past events (including historical credit loss experience on loans with similar risk characteristics), current conditions, and reasonable and supportable forecasts that affect the collectability of the remaining cash flows over the contractual term of the loans. The allowance for credit losses is measured on a collective (pool) basis. Loans are aggregated into pools based on similar risk characteristics including borrower type, collateral type and expected credit loss patterns. Loans that do not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis.

For loans evaluated for credit losses on a collective basis, average historical loss rates are calculated for each pool using the Company’s historical net charge-offs (combined charge-offs and recoveries by observable historical reporting period) and outstanding loan balances during a lookback period. Lookback periods can be different based on the individual pool and represent management’s credit expectations for the pool of loans over the remaining contractual life. In certain loan pools, if the Company’s own historical loss rate is not reflective of the loss expectations, the historical loss rate is augmented by industry and peer data. The calculated average net charge-off rate is then adjusted for current conditions and reasonable and supportable forecasts. These adjustments increase or decrease the average historical loss rate to reflect expectations of future losses given a single path economic forecast of key macroeconomic variables including GDP, disposable income, various interest rates, unemployment rate, consumer price index (CPI) inflation rate, housing price index (HPI), commercial real estate price index (CREPI) and market volatility. The adjustments are based on results from various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting back to historical averages using a straight-line method. The forecast-adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions (except for contractual extensions at the option of the customer), renewals and modifications. Credit cards and certain similar consumer lines of credit do not have stated maturities and therefore, for these loan classes, remaining contractual lives are determined by estimating future cash flows expected to be received from customers until payments have been fully allocated to outstanding balances. Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecast such as changes in portfolio composition, underwriting practices, or significant unique events or conditions.

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Key assumptions in the Company’s allowance for credit loss model include the economic forecast, the reasonable and supportable period, forecasted macro-economic variables, prepayment assumptions and qualitative factors applied for portfolio composition changes, underwriting practices, or significant unique events or conditions. The assumptions utilized in estimating the Company’s allowance for credit losses at June 30, 2024 and March 31, 2024 are discussed below.


Key Assumption	June 30, 2024	March 31, 2024

Overall economic forecast	•Economic growth expected to slightly cool with no significant rise in layoffs or unemployment rate •Inflation expected to moderate •Expectations the Federal Reserve will start cutting rates in September 2024	•Economic strength is visible in the strong labor market •Fiscal policy is forecasted to be a modest drag on GDP •There are expectations that the Federal Reserve will start cutting rates in 2nd quarter 2024
Reasonable and supportable period and related reversion period	•Reasonable and supportable period of one year •Reversion to historical average loss rates within two quarters using a straight-line method	•Reasonable and supportable period of one year •Reversion to historical average loss rates within two quarters using a straight-line method
Forecasted macro-economic variables	•Unemployment rate ranges from 4.0% to 4.2% during the reasonable and supportable forecast period •Real GDP growth ranges from 1.7% to 2.2% •BBB corporate yield from 5.0% to 5.4% •Housing Price Index from 321.2 to 327.1	•Unemployment rate ranges from 3.9% to 4.1% during the reasonable and supportable forecast period •Real GDP growth ranges from 1.5% to 3.0% •BBB corporate yield from 4.7% to 5.1% •Housing Price Index from 312.1 to 316.6
Prepayment assumptions	Commercial loans •Pools ranging from 0% to 5% Personal banking loans •Ranging from 7.7% to 22.7% for most loan pools •Consumer credit cards 66.6%	Commercial loans •Pools ranging from 0% to 5% Personal banking loans •Ranging from 6.2% to 21.6% for most loan pools •Consumer credit cards 66.6%
Qualitative factors	Added qualitative factors related to: •Changes in the composition of the loan portfolios •Certain industries experiencing stress or emerging concerns within the portfolio •Certain portfolios sensitive to unusually high rate of inflation and supply chain issues •Loans downgraded to special mention, substandard, or non-accrual status •Certain portfolios where the model assumptions do not capture all identified loss risk	Added qualitative factors related to: •Changes in the composition of the loan portfolios •Certain stressed industries within the portfolio •Certain portfolios sensitive to unusually high rate of inflation and supply chain issues •Loans downgraded to special mention, substandard, or non-accrual status •Certain portfolios where the model assumptions do not capture all identified loss risk

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

Sensitivity in the Allowance for Credit Loss model

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

The current forecast projects continued low unemployment. It is expected that the Federal Reserve will start cutting rates in September of 2024 and fiscal policy will be maintained.

Updated information on inflation and labor market trends could impact the Federal Reserve's decision on the timing and degree of rate reductions. The market's response to these events along with other economic, political, and social developments regionally, nationally, and even globally could significantly modify economic projections used in the estimation of the allowance for credit losses. The upcoming presidential election could result in policy changes that might also impact the estimation of the allowance for credit losses.

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Potential changes in any one economic variable may or may not affect the overall allowance because a variety of economic variables and inputs are considered in estimating the allowance, and changes in those variables and inputs may not occur at the same rate, may not be consistent across product types, and may have offsetting impacts to other changing variables and inputs.

A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments for the three and six months ended June 30, 2024 and 2023, respectively, follows:


	For the Three Months Ended June 30, 2024						For the Six Months Ended June 30, 2024
(In thousands)	Commercial		Personal Banking		Total		Commercial		Personal Banking		Total
ALLOWANCE FOR CREDIT LOSSES ON LOANS


Balance at beginning of period	$	105,464	$	55,001	$	160,465	$	108,201	$	54,194	$	162,395
Provision for credit losses on loans	2,367		5,482		7,849		(488)		15,284		14,796
Deductions:
Loans charged off	850		11,018		11,868		1,166		21,867		23,033
Less recoveries on loans	236		1,875		2,111		670		3,729		4,399
Net loan charge-offs (recoveries)	614		9,143		9,757		496		18,138		18,634
Balance June 30, 2024	$	107,217	$	51,340	$	158,557	$	107,217	$	51,340	$	158,557
LIABILITY FOR UNFUNDED LENDING COMMITMENTS


Balance at beginning of period	$	21,636	$	1,450	$	23,086	$	23,909	$	1,337	$	25,246
Provision for credit losses on unfunded lending commitments	(2,273)		(108)		(2,381)		(4,546)		5		(4,541)
Balance June 30, 2024	$	19,363	$	1,342	$	20,705	$	19,363	$	1,342	$	20,705
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$	126,580	$	52,682	$	179,262	$	126,580	$	52,682	$	179,262


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


Balance at beginning of period	$	108,615	$	50,702	$	159,317	$	103,293	$	46,843	$	150,136
Provision for credit losses on loans	(546)		6,410		5,864		5,002		16,810		21,812
Deductions:
Loans charged off	307		8,531		8,838		599		17,287		17,886
Less recoveries on loans	262		2,080		2,342		328		4,295		4,623
Net loan charge-offs (recoveries)	45		6,451		6,496		271		12,992		13,263
Balance June 30, 2023	$	108,024	$	50,661	$	158,685	$	108,024	$	50,661	$	158,685
LIABILITY FOR UNFUNDED LENDING COMMITMENTS


Balance at beginning of period	$	27,105	$	1,523	$	28,628	$	31,743	$	1,377	$	33,120
Provision for credit losses on unfunded lending commitments	737		(130)		607		(3,901)		16		(3,885)
Balance June 30, 2023	$	27,842	$	1,393	$	29,235	$	27,842	$	1,393	$	29,235
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$	135,866	$	52,054	$	187,920	$	135,866	$	52,054	$	187,920

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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 June 30, 2024 and December 31, 2023.


(In thousands)	Current or Less Than 30 Days Past Due		30 – 89 Days Past Due		90 Days Past Due and Still Accruing		Non-accrual		Total
June 30, 2024
Commercial:
Business	$	6,088,607	$	1,048	$	565	$	504	$	6,090,724
Real estate – construction and land	1,396,097		418		—		—		1,396,515
Real estate – business	3,556,541		948		—		15,050		3,572,539
Personal Banking:
Real estate – personal	3,029,550		16,598		7,262		1,772		3,055,182
Consumer	2,099,967		43,084		2,558		—		2,145,609
Revolving home equity	326,461		2,184		759		1,977		331,381
Consumer credit card	552,432		7,071		7,422		—		566,925
Overdrafts	3,531		659		—		—		4,190
Total	$	17,053,186	$	72,010	$	18,566	$	19,303	$	17,163,065
December 31, 2023
Commercial:
Business	$	5,985,713	$	29,087	$	614	$	3,622	$	6,019,036
Real estate – construction and land	1,446,764		—		—		—		1,446,764
Real estate – business	3,714,579		4,582		85		60		3,719,306
Personal Banking:
Real estate – personal	2,999,988		14,841		9,559		1,653		3,026,041
Consumer	2,036,353		38,217		3,153		—		2,077,723
Revolving home equity	315,483		1,564		870		1,977		319,894
Consumer credit card	574,805		7,525		7,583		—		589,913
Overdrafts	6,553		249		—		—		6,802
Total	$	17,080,238	$	96,065	$	21,864	$	7,312	$	17,205,479

At June 30, 2024, the Company had $2.5 million in non-accrual loans that had no allowance for credit loss, compared to $4.3 million in non-accrual loans that had no allowance for credit loss at December 31, 2023. The Company did not record any interest income on non-accrual loans during the six months ended June 30, 2024 and 2023, respectively.

Credit quality indicators

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

All loans are analyzed for risk rating updates annually. For larger loans, rating assessments may be more frequent if relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past

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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 June 30, 2024 and December 31, 2023 are as follows:


	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Total
June 30, 2024
Business
Risk Rating:
Pass	$	691,447	$	1,182,142	$	735,569	$	465,466	$	205,221	$	413,412	$	2,208,477	$	5,901,734
Special mention	693		10,765		8,356		21,365		382		2,331		21,935		65,827
Substandard	6,854		16,004		11,612		7,603		6,708		10,046		63,832		122,659
Non-accrual	58		48		1		—		—		397		—		504
Total Business:	$	699,052	$	1,208,959	$	755,538	$	494,434	$	212,311	$	426,186	$	2,294,244	$	6,090,724
Gross write-offs for the six months ended June 30, 2024	$	200	$	245	$	40	$	—	$	—	$	17	$	664	$	1,166
Real estate-construction
Risk Rating:
Pass	$	119,192	$	431,040	$	578,818	$	205,023	$	3,495	$	3,137	$	38,393	$	1,379,098

Substandard	—		—		17,417		—		—		—		—		17,417

Total Real estate-construction:	$	119,192	$	431,040	$	596,235	$	205,023	$	3,495	$	3,137	$	38,393	$	1,396,515
Gross write-offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate-business
Risk Rating:
Pass	$	331,315	$	693,611	$	819,487	$	485,498	$	425,513	$	506,521	$	112,621	$	3,374,566
Special mention	1,911		35,785		26,311		15,250		1,032		1,088		—		81,377
Substandard	—		4,659		13,333		14,802		1,034		67,673		45		101,546
Non-accrual	—		—		—		—		15,024		26		—		15,050
Total Real estate-business:	$	333,226	$	734,055	$	859,131	$	515,550	$	442,603	$	575,308	$	112,666	$	3,572,539
Gross write-offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial loans
Risk Rating:
Pass	$	1,141,954	$	2,306,793	$	2,133,874	$	1,155,987	$	634,229	$	923,070	$	2,359,491	$	10,655,398
Special mention	2,604		46,550		34,667		36,615		1,414		3,419		21,935		147,204
Substandard	6,854		20,663		42,362		22,405		7,742		77,719		63,877		241,622
Non-accrual	58		48		1		—		15,024		423		—		15,554
Total Commercial loans:	$	1,151,470	$	2,374,054	$	2,210,904	$	1,215,007	$	658,409	$	1,004,631	$	2,445,303	$	11,059,778
Gross write-offs for the six months ended June 30, 2024	$	200	$	245	$	40	$	—	$	—	$	17	$	664	$	1,166

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	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
December 31, 2023
Business
Risk Rating:
Pass	$	1,609,685	$	839,511	$	555,991	$	273,138	$	215,988	$	257,177	$	2,096,108	$	5,847,598
Special mention	19,639		3,412		19,489		643		412		2,485		43,054		89,134
Substandard	5,256		8,666		6,891		20,854		1,422		10,235		25,358		78,682
Non-accrual	—		130		1,184		—		—		2,308		—		3,622
Total Business:	$	1,634,580	$	851,719	$	583,555	$	294,635	$	217,822	$	272,205	$	2,164,520	$	6,019,036
Gross write-offs for the year ended December 31, 2023	$	—	$	2,260	$	57	$	41	$	—	$	—	$	1,393	$	3,751
Real estate-construction
Risk Rating:
Pass	$	476,489	$	579,933	$	295,841	$	41,418	$	498	$	2,834	$	31,670	$	1,428,683
Special mention	3,068		15,013		—		—		—		—		—		18,081


Total Real estate-construction:	$	479,557	$	594,946	$	295,841	$	41,418	$	498	$	2,834	$	31,670	$	1,446,764
Gross write-offs for the year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate- business
Risk Rating:
Pass	$	807,631	$	1,063,189	$	510,397	$	433,030	$	311,457	$	325,738	$	94,432	$	3,545,874
Special mention	16,650		8,619		451		884		9,253		733		—		36,590
Substandard	2,952		18,463		27,914		17,430		11,636		58,387		—		136,782
Non-accrual	—		—		—		—		—		60		—		60
Total Real-estate business:	$	827,233	$	1,090,271	$	538,762	$	451,344	$	332,346	$	384,918	$	94,432	$	3,719,306
Gross write-offs for the year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	134	$	—	$	134
Commercial loans
Risk Rating:
Pass	$	2,893,805	$	2,482,633	$	1,362,229	$	747,586	$	527,943	$	585,749	$	2,222,210	$	10,822,155
Special mention	39,357		27,044		19,940		1,527		9,665		3,218		43,054		143,805
Substandard	8,208		27,129		34,805		38,284		13,058		68,622		25,358		215,464
Non-accrual	—		130		1,184		—		—		2,368		—		3,682
Total Commercial loans:	$	2,941,370	$	2,536,936	$	1,418,158	$	787,397	$	550,666	$	659,957	$	2,290,622	$	11,185,106
Gross write-offs for the year ended December 31, 2023	$	—	$	2,260	$	57	$	41	$	—	$	134	$	1,393	$	3,885

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The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided as of June 30, 2024 and December 31, 2023 below.


	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Total
June 30, 2024
Real estate-personal
Current to 90 days past due	$	206,562	$	417,333	$	432,219	$	511,454	$	673,853	$	795,433	$	9,294	$	3,046,148
Over 90 days past due	—		879		1,788		1,671		1,546		1,378		—		7,262
Non-accrual	—		548		113		112		—		999		—		1,772
Total Real estate-personal:	$	206,562	$	418,760	$	434,120	$	513,237	$	675,399	$	797,810	$	9,294	$	3,055,182
Gross write-offs for the six months ended June 30, 2024	$	—	$	30	$	96	$	—	$	—	$	3	$	—	$	129
Consumer
Current to 90 days past due	$	247,306	$	444,713	$	283,806	$	206,600	$	97,422	$	78,440	$	784,764	$	2,143,051
Over 90 days past due	93		347		333		144		92		362		1,187		2,558

Total Consumer:	$	247,399	$	445,060	$	284,139	$	206,744	$	97,514	$	78,802	$	785,951	$	2,145,609
Gross write-offs for the six months ended June 30, 2024	$	14	$	1,182	$	1,246	$	722	$	253	$	175	$	1,240	$	4,832
Revolving home equity
Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	328,645	$	328,645
Over 90 days past due	—		—		—		—		—		—		759		759
Non-accrual	—		—		—		—		—		—		1,977		$	1,977
Total Revolving home equity:	$	—	$	—	$	—	$	—	$	—	$	—	$	331,381	$	331,381
Gross write-offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer credit card
Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	559,503	$	559,503
Over 90 days past due	—		—		—		—		—		—		7,422		7,422

Total Consumer credit card:	$	—	$	—	$	—	$	—	$	—	$	—	$	566,925	$	566,925
Gross write-offs for the six months ended June 30, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	15,462	$	15,462
Overdrafts
Current to 90 days past due	$	4,190	$	—	$	—	$	—	$	—	$	—	$	—	$	4,190


Total Overdrafts:	$	4,190	$	—	$	—	$	—	$	—	$	—	$	—	$	4,190
Gross write-offs for the six months ended June 30, 2024	$	1,444	$	—	$	—	$	—	$	—	$	—	$	—	$	1,444
Personal banking loans
Current to 90 days past due	$	458,058	$	862,046	$	716,025	$	718,054	$	771,275	$	873,873	$	1,682,206	$	6,081,537
Over 90 days past due	93		1,226		2,121		1,815		1,638		1,740		9,368		18,001
Non-accrual	—		548		113		112		—		999		1,977		3,749
Total Personal banking loans:	$	458,151	$	863,820	$	718,259	$	719,981	$	772,913	$	876,612	$	1,693,551	$	6,103,287
Gross write-offs for the six months ended June 30, 2024	$	1,458	$	1,212	$	1,342	$	722	$	253	$	178	$	16,702	$	21,867

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	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Total
December 31, 2023
Real estate-personal
Current to 90 days past due	$	455,703	$	452,153	$	533,313	$	711,442	$	257,159	$	596,439	$	8,620	$	3,014,829
Over 90 days past due	3,319		1,650		2,222		834		44		1,490		—		9,559
Non-accrual	—		261		167		—		157		1,068		—		1,653
Total Real estate-personal:	$	459,022	$	454,064	$	535,702	$	712,276	$	257,360	$	598,997	$	8,620	$	3,026,041
Gross write-offs for the year ended December 31, 2023	$	—	$	18	$	—	$	—	$	—	$	23	$	—	$	41
Consumer
Current to 90 days past due	$	518,619	$	340,104	$	258,348	$	127,208	$	56,394	$	51,302	$	722,595	$	2,074,570
Over 90 days past due	391		210		194		24		54		421		1,859		3,153

Total Consumer:	$	519,010	$	340,314	$	258,542	$	127,232	$	56,448	$	51,723	$	724,454	$	2,077,723
Gross write-offs for the year ended December 31, 2023	$	926	$	2,891	$	1,939	$	770	$	376	$	370	$	1,051	$	8,323
Revolving home equity
Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	317,047	$	317,047
Over 90 days past due	—		—		—		—		—		—		870		870
Non-accrual	—		—		—		—		—		—		1,977		$	1,977
Total Revolving home equity:	$	—	$	—	$	—	$	—	$	—	$	—	$	319,894	$	319,894
Gross write-offs for the year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	11	$	11
Consumer credit card
Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	582,330	$	582,330
Over 90 days past due	—		—		—		—		—		—		7,583		7,583

Total Consumer credit card:	$	—	$	—	$	—	$	—	$	—	$	—	$	589,913	$	589,913
Gross write-offs for the year ended December 31, 2023	$	—	$	—	$	—	$	—	$	—	$	—	$	24,105	$	24,105
Overdrafts
Current to 90 days past due	$	6,802	$	—	$	—	$	—	$	—	$	—	$	—	$	6,802


Total Overdrafts:	$	6,802	$	—	$	—	$	—	$	—	$	—	$	—	$	6,802
Gross write-offs for the year ended December 31, 2023	$	3,803	$	—	$	—	$	—	$	—	$	—	$	—	$	3,803
Personal banking loans
Current to 90 days past due	$	981,124	$	792,257	$	791,661	$	838,650	$	313,553	$	647,741	$	1,630,592	$	5,995,578
Over 90 days past due	3,710		1,860		2,416		858		98		1,911		10,312		21,165
Non-accrual	—		261		167		—		157		1,068		1,977		3,630
Total Personal banking loans:	$	984,834	$	794,378	$	794,244	$	839,508	$	313,808	$	650,720	$	1,642,881	$	6,020,373
Gross write-offs for the year ended December 31, 2023	$	4,729	$	2,909	$	1,939	$	770	$	376	$	393	$	25,167	$	36,283

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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 June 30, 2024 and December 31, 2023.


(In thousands)	Business Assets		Real Estate		Oil & Gas Assets		Total
June 30, 2024
Commercial:


Real estate - business	$	—	$	15,023	$	—	$	15,023
Personal Banking:
Real estate - personal	—		549		—		549

Revolving home equity	—		1,977		—		1,977


Total	$	—	$	17,549	$	—	$	17,549
December 31, 2023
Commercial:
Business	$	1,183	$	—	$	1,238	$	2,421


Personal Banking:


Revolving home equity	—		1,977		—		1,977


Total	$	1,183	$	1,977	$	1,238	$	4,398

Other Personal Banking loan information

As noted above, the credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided in the table in the above section on "Credit quality indicators." In addition, FICO scores are obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit score designed to measure the risk of default by taking into account various factors from a borrower's financial history and is considered supplementary information utilized by the Company, as management does not consider this information in evaluating the allowance for credit losses on loans. The Bank normally obtains a FICO score at the loan's origination and renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain personal real estate loans for which FICO scores are not obtained because the loans generally pertain to commercial customer activities and are often underwritten with other collateral considerations. These loans totaled $170.1 million at June 30, 2024 and $168.9 million at December 31, 2023. The table also excludes consumer loans related to the Company's patient healthcare loan program, which totaled $220.5 million at June 30, 2024 and $211.3 million at December 31, 2023. As the healthcare loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and consumer loans excluded below totaled less than 7% of the Personal Banking portfolio. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at June 30, 2024 and December 31, 2023 by FICO score.

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Personal Banking Loans
	% of Loan Category
	Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card
June 30, 2024
FICO score:
Under 600	2.1	%	2.3	%	2.0	%	4.9	%
600 - 659	2.3		4.1		2.9		12.0
660 - 719	7.3		12.8		10.5		29.3
720 - 779	21.6		24.2		23.4		26.7
780 and over	66.7		56.6		61.2		27.1
Total	100.0	%	100.0	%	100.0	%	100.0	%
December 31, 2023
FICO score:
Under 600	2.0	%	2.5	%	1.9	%	4.7	%
600 - 659	2.3		4.3		3.3		12.1
660 - 719	8.5		12.9		10.9		29.2
720 - 779	21.9		28.2		22.4		27.0
780 and over	65.3		52.1		61.5		27.0
Total	100.0	%	100.0	%	100.0	%	100.0	%

Modifications for borrowers experiencing financial difficulty

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 June 30, 2024 of loans that were modified during the three and six months ended June 30, 2024 and the amortized cost of at June 30, 2023 of loans that were modified during the three and six months ended June 30, 2023.


	For the Three Months Ended June 30, 2024
(Dollars in thousands)	Term Extension		Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Other		Total		% of Total Loan Category
June 30, 2024
Commercial:
Business	$	19,335	$	—	$	—	$	—	$	—	$	19,335	0.3	%

Real estate – business	45,513		—		—		—		—		45,513		1.3
Personal Banking:
Real estate – personal	70		1,704		—		—		—		1,774		0.1
Consumer	—		—		30		—		44		74		—

Consumer credit card	—		—		1,124		—		—		1,124		0.2

Total	$	64,918	$	1,704	$	1,154	$	—	$	44	$	67,820	0.4	%

	For the Six Months Ended June 30, 2024
June 30, 2024
Commercial:
Business	$	30,575	$	—	$	—	$	—	$	—	$	30,575	0.5	%

Real estate – business	47,787		—		—		—		—		47,787		1.3
Personal Banking:
Real estate – personal	309		3,975		—		—		—		4,284		0.1
Consumer	—		—		58		—		44		102		—

Consumer credit card	—		—		1,958		—		—		1,958		0.3

Total	$	78,671	$	3,975	$	2,016	$	—	$	44	$	84,706	0.5	%


	For the Three Months Ended June 30, 2023
(Dollars in thousands)	Term Extension		Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Other		Total		% of Total Loan Category
June 30, 2023
Commercial:
Business	$	17,097	$	—	$	—	$	—	$	—	$	17,097	0.3	%

Real estate – business	33,966		—		—		—		—		33,966		0.9
Personal Banking:
Real estate – personal	246		1,223		—		—		—		1,469		—
Consumer	31		18		8		—		—		57		—

Consumer credit card	—		—		731		224		—		955		0.2

Total	$	51,340	$	1,241	$	739	$	224	$	—	$	53,544	0.3	%

	For the Six Months Ended June 30, 2023
June 30, 2023
Commercial:
Business	$	18,193	$	—	$	—	$	—	$	—	$	18,193	0.3	%

Real estate – business	49,548		—		—		—		—		49,548		1.4
Personal Banking:
Real estate – personal	246		2,777		—		—		—		3,023		0.1
Consumer	31		75		21		—		55		182		—

Consumer credit card	—		—		1,299		487		—		1,786		0.3

Total	$	68,018	$	2,852	$	1,320	$	487	$	55	$	72,732	0.4	%

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

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modification. For modifications to loans made to borrowers experiencing financial difficulty that are placed on non-accrual status, the Company determines the allowance for credit losses on an individual evaluation, using the same process that it utilizes for other loans on non-accrual status. Modifications made to commercial loans which are not on non-accrual status for borrowers experiencing financial difficulty are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience, and current economic factors. Modifications made to borrowers experiencing financial difficulty for personal banking loans which are not on non-accrual status are collectively evaluated based on loan type, delinquency, historical experience, and current economic factors.

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

The following tables summarize the financial impact of loan modifications and payment deferrals during the three and six months ended June 30, 2024 and June 30, 2023.


	Term Extension
	Three Months Ended June 30, 2024	Three Months Ended June 30, 2023
Commercial:
Business	Extended maturity by a weighted average of 6 months.	Extended maturity by a weighted average of 9 months.

Real estate – business	Extended maturity by a weighted average of 11 months.	Extended maturity by a weighted average of 12 months.
Personal Banking:
Real estate – personal	Extended maturity by a weighted average of 3 months.	Extended maturity by a weighted average of 7 months.
Consumer		Added 10 years to the life of loans.




	Six Months Ended June 30, 2024	Six Months Ended June 30, 2023
Commercial:
Business	Extended maturity by a weighted average of 6 months.	Extended maturity by a weighted average of 9 months.

Real estate – business	Extended maturity by a weighted average of 10 months.	Extended maturity by a weighted average of 14 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		Added 10 years to the life of loans.


	Payment Delay
	Three Months Ended June 30, 2024	Three Months Ended June 30, 2023




Personal Banking:
Real estate – personal	Deferred certain payments by a weighted average of 4 years.	Deferred certain payments by a weighted average of 28 years.
Consumer		Deferred certain payments by a weighted average of 6 months.




	Six Months Ended June 30, 2024	Six Months Ended June 30, 2023





Real estate – personal	Deferred certain payments by a weighted average of 6 years.	Deferred certain payments by a weighted average of 20 years.
Consumer		Deferred certain payments by a weighted average of 71 months.

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	Interest Rate Reduction
	Three Months Ended June 30, 2024	Three Months Ended June 30, 2023




Personal Banking:

Consumer	Reduced contractual interest rate from average 22% to 6%.	Reduced contractual interest rate from average 21% to 6%.

Consumer credit card	Reduced contractual interest rate from average 22% to 6%.	Reduced contractual interest rate from average 21% to 6%.


	Six Months Ended June 30, 2024	Six Months Ended June 30, 2023




Personal Banking:

Consumer	Reduced contractual interest rate from average 22% to 6%.	Reduced contractual interest rate from average 21% to 6%.

Consumer credit card	Reduced contractual interest rate from average 22% to 6%.	Reduced contractual interest rate from average 21% to 6%.


	Forgiveness of Interest/Fees
	Three Months Ended June 30, 2024	Three Months Ended June 30, 2023




Personal Banking:



Consumer credit card		Approximately $13 thousand of interest and fees forgiven.


	Six Months Ended June 30, 2024	Six Months Ended June 30, 2023




Personal Banking:



Consumer credit card		Approximately $27 thousand of interest and fees forgiven.

The Company had commitments of $7.0 million and $28.4 million at June 30, 2024 and December 31, 2023, respectively, to lend additional funds to borrowers experiencing financial difficulty and for whom the Company has modified the terms of loans in the form of an interest rate reduction; an other-than-insignificant payment delay; forgiveness of principal, interest, or fees; or a term extension during the current reporting period.

The following tables provide the amortized cost basis at June 30, 2024 of loans to borrowers experiencing financial difficulty that had a payment default during the three and six months ended June 30, 2024 and were modified within the 12 months preceding the payment default, as well as the amortized cost basis at June 30, 2023 of loans to borrowers experiencing financial difficulty that had a payment default during the three and six months ended June 30, 2023 and had been modified on or after January 1, 2023 (the date we adopted ASU 2022-02). For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal.

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	For the Three Months Ended June 30, 2024								For the Six Months Ended June 30, 2024
(Dollars in thousands)	Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Total			Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Total
June 30, 2024




Personal Banking:
Real estate – personal	$	1,740	$	—	$	—	$	1,740		$	1,956	$	—	$	—	$	1,956
Consumer	—		12		—		12			—		12		—		12

Consumer credit card	—		349		12		361			—		457		12		469

Total	$	1,740	$	361	$	12	$	2,113		$	1,956	$	469	$	12	$	2,437

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




Personal Banking:
Real estate – personal	$	779	$	—	$	—	$	779		$	779	$	—	$	—	$	779
Consumer	—		6		—		6			—		11		—		11

Consumer credit card	—		67		78		145			—		111		78		189

Total	$	779	$	73	$	78	$	930		$	779	$	122	$	78	$	979

The following tables present the amortized cost basis at June 30, 2024 of loans to borrowers experiencing financial difficulty that had been modified within the previous 12 months as well as the amortized cost basis at June 30, 2023 of loans to borrowers experiencing financial difficulty that had been modified on or after January 1, 2023 (the date we adopted ASU 2022-02) through June 30, 2023.


(In thousands)	Current		30-89 Days Past Due		90 Days Past Due		Total
June 30, 2024
Commercial:
Business	$	32,565	$	—	$	—	$	32,565

Real estate – business	74,512		—		—		74,512
Personal Banking:
Real estate – personal	2,129		2,004		1,740		5,873
Consumer	172		1		12		185

Consumer credit card	2,337		478		321		3,136

Total	$	111,715	$	2,483	$	2,073	$	116,271


(In thousands)	Current		30-89 Days Past Due		90 Days Past Due		Total
June 30, 2023
Commercial:
Business	$	18,193	$	—	$	—	$	18,193

Real estate – business	49,548		—		—		49,548
Personal Banking:
Real estate – personal	2,027		217		779		3,023
Consumer	169		7		6		182

Consumer credit card	1,205		436		145		1,786

Total	$	71,142	$	660	$	930	$	72,732

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Loans held for sale

The Company designates certain long-term fixed rate personal real estate loans as held for sale, and the Company has elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the related economic hedges discussed in Note 11. The loans are primarily sold to Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA). At June 30, 2024, the fair value of these loans was $2.2 million, and the unpaid principal balance was $2.2 million.

The Company also designates certain student loan originations as held for sale. The borrowers are credit-worthy students who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company maintains contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are carried at lower of cost or fair value, which at June 30, 2024 totaled $448 thousand.

At June 30, 2024, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing interest.

Foreclosed real estate/repossessed assets

The Company’s holdings of foreclosed real estate totaled $143 thousand and $270 thousand at June 30, 2024 and December 31, 2023, respectively, and included in those amounts were $143 thousand and $270 thousand at June 30, 2024 and December 31, 2023, respectively, of foreclosed residential real estate properties held as a result of obtaining physical possession. Personal property acquired in repossession, generally autos, totaled $2.2 million and $1.8 million at June 30, 2024 and December 31, 2023. Upon acquisition, these assets are recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower of this cost basis or fair value less estimated selling costs.

3. Investment Securities

Investment securities consisted of the following at June 30, 2024 and December 31, 2023.


(In thousands)	June 30, 2024		December 31, 2023
Available for sale debt securities	$	8,534,271	$	9,684,760
Trading debt securities	45,499		28,830
Equity securities:
Readily determinable fair value	47,804		5,723
No readily determinable fair value	65,780		6,978
Other:
Federal Reserve Bank stock	35,361		35,166
Federal Home Loan Bank stock	10,116		10,640

Private equity investments	178,321		176,667
Total investment securities (1)	$	8,917,152	$	9,948,764

(1)Accrued interest receivable totaled $26.4 million and $28.9 million at June 30, 2024 and December 31, 2023, respectively, and was included within other assets on the consolidated balance sheets.

Most of the Company’s investment securities are classified as available for sale debt securities, and this portfolio is discussed in more detail below. The Company’s equity securities are also discussed below. Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, and investments in portfolio concerns held by the Company’s private equity subsidiary. FRB stock and FHLB stock are held for debt and regulatory purposes. Investment in FRB stock is based on the capital structure of the investing bank, and investment in FHLB stock is tied to the asset size of the borrowing bank and the level of borrowings from the FHLB. These holdings are carried at cost. The Company’s private equity investments are carried at estimated fair value.

Equity Securities

The Company’s equity securities portfolio includes common and preferred stock with readily determinable fair values as well as equity securities with no readily determinable fair value. The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer. At March 31, 2024, this portfolio included the Company’s 823,447 shares of Visa Inc. (“Visa”) Class B-1 common stock (formerly Class B common stock), which were held by Commerce Bancshares, Inc. The Company’s Visa Class B-1 shares had a carrying value of zero at March 31, 2024, as there had not been observable price changes in orderly transactions for identical or similar investments of the same issuer.

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On April 8, 2024, Visa announced the commencement of a public offering to permit the exchange of its Class B-1 common stock for a combination of shares of its Class B-2 common stock and its Class C common stock (“Exchange Offer”). The Company tendered all of its Visa Class B-1 shares pursuant to the Exchange Offer. On May 3, 2024, the Exchange Offer closed, and in exchange for its 823,447 shares of Visa Class B-1 common stock, the Company received 411,723 shares of Visa Class B-2 common stock (which will be convertible under certain circumstances, as further described below, into Visa’s publicly traded Class A common stock at an initial rate of 1.5875 shares of Class A common for each share of Class B-2 common stock, subject to adjustment) and 163,404 shares of Visa Class C common stock which will automatically convert into four shares of Visa's Class A common stock (subject to future adjustments for any stock splits, recapitalizations or similar transactions) upon any transfer to a person other than a Visa member or an affiliate of a Visa member.

As a condition of participating in the exchange, the Company entered into a Makewhole Agreement with Visa that provides for cash payments to Visa to the extent (if any) that future adjustments to the conversion ratio for the Visa Class B-2 common stock to Class A common stock cause such ratio to fall below zero. Changes to the conversion ratio occur when Visa deposits funds to a litigation escrow established by Visa to pay settlements for certain covered litigation that pre-dated Visa’s initial public offering, for which Visa has been effectively indemnified by Visa USA members through reductions to the conversion ratio for its Class B-1 common stock. The purpose of the Makewhole Agreement is to preserve the economic benefit of these adjustments to the Class B-1 conversion ratio for the benefit of Visa’s Class A and Class C common stockholders following the exchange. As further described in Visa’s related Issuer Tender Offer Statement on Schedule TO and Prospectus, each dated April 8, 2024, publicly filed with the U. S. Securities and Exchange Commission, both the Makewhole Agreement and the related escrow fund and transfer restrictions on Visa’s Class B-1 common stock and the new Class B-2 common stock will terminate whenever the covered litigation is ultimately resolved, at which future date outstanding shares of Visa Class B-2 common stock will be convertible into shares of its Class A common stock at the then-applicable conversion ratio.

As a result of the exchange, the Company elected the measurement alternative approach for its Visa Class C common stock and marked the stock to fair value, recording a gain based on the conversion privilege of the Visa Class C common stock and the closing price of Visa Class A common stock. During the second quarter of 2024, the Company sold 436 thousand shares of Visa Class A common stock at an average price of $274.91, resulting in proceeds of $119.8 million. The Company’s remaining 54 thousand Visa Class C shares had a fair value of $57.2 million at June 30, 2024, and are subject to limited transfer restrictions that end on August 1, 2024. These shares are expected to continue to be marked to fair value on a recurring basis using the Visa Class A shares as evidence of orderly transactions between market participants for similar securities issued by Visa. The Company’s Visa Class B-2 common stock will continue to be carried at cost of $0 as the Company elected the measurement alternative approach for these shares as well, and there are not observable price changes in orderly transactions for identical or similar investments of the same issuer for the Visa Class B-2 shares held by the Company.

Changes in equity investments with no readily determinable fair value for each period were as follows:


	Three Months Ended June 30		Six Months Ended June 30
(In thousands)	2024			2024
Balance at beginning of period	$	6,988		$	6,978
Observable upward price adjustments	178,227			178,227
Observable downward price adjustments	—			—
Impairment charges	—			—
Sales of securities and other activity	(119,435)			(119,425)
Balance at end of period	$	65,780		$	65,780

Net gains and losses for the Company's equity securities portfolio for each period were as follows:


	Three Months Ended June 30		Six Months Ended June 30
(In thousands)	2024			2024
Net gains (losses) recognized during the period on equity securities	$	178,164		$	178,306
Less: Net gains (losses) recognized during the period on equity securities sold during the period	(119,987)			(119,987)
Net unrealized gains (losses) recognized during the reporting period on equity securities still held at the reporting date	$	58,177		$	58,319

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Available for sale debt securities portfolio

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 June 30, 2024 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and Government National Mortgage Association (GNMA), in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral.


(In thousands)	Amortized Cost		Fair Value
U.S. government and federal agency obligations:
Within 1 year	$	363,629	$	361,547
After 1 but within 5 years	899,769		888,270
After 5 but within 10 years	397,826		388,010

Total U.S. government and federal agency obligations	1,661,224		1,637,827
Government-sponsored enterprise obligations:


After 5 but within 10 years	4,935		4,453
After 10 years	50,694		38,686
Total government-sponsored enterprise obligations	55,629		43,139
State and municipal obligations:
Within 1 year	70,356		69,154
After 1 but within 5 years	363,730		336,379
After 5 but within 10 years	311,520		269,379
After 10 years	124,318		101,071
Total state and municipal obligations	869,924		775,983
Mortgage and asset-backed securities:
Agency mortgage-backed securities	4,411,594		3,630,296
Non-agency mortgage-backed securities	729,009		646,357
Asset-backed securities	1,646,667		1,583,747
Total mortgage and asset-backed securities	6,787,270		5,860,400
Other debt securities:
Within 1 year	79,974		78,505
After 1 but within 5 years	69,711		65,103
After 5 but within 10 years	71,052		61,691
After 10 years	13,260		11,623
Total other debt securities	233,997		216,922
Total available for sale debt securities	$	9,608,044	$	8,534,271

Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $399.7 million, at fair value, at June 30, 2024. Interest earned on these securities increases with inflation and decreases with deflation, as measured by the non-seasonally adjusted Consumer Price Index (CPI-U). At maturity, the principal paid is the greater of an inflation-adjusted principal or the original principal.

Allowance for credit losses on available for sale debt securities

Securities for which fair value is less than amortized cost are reviewed for impairment. Special emphasis is placed on securities whose credit rating has fallen below Baa3 (Moody's) or BBB- (Standard & Poor's), whose fair values have fallen more than 20% below purchase price, or those which have been identified based on management’s judgment. These securities are placed on a watch list and cash flow analyses are prepared on an individual security basis. Certain securities are analyzed using a projected cash flow model, discounted to present value, and compared to the current amortized cost bases of the securities. The model uses input factors such as cash flow projections, contractual payments required, expected delinquency rates, credit support from other tranches, prepayment speeds, collateral loss severity rates (including loan to values), and various other information related to the underlying collateral. Securities not analyzed using the cash flow model are analyzed by reviewing credit ratings, credit support agreements, and industry knowledge to project future cash flows and any possible credit impairment.

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At June 30, 2024, the fair value of securities on this watch list was $1.8 billion compared to $1.2 billion at December 31, 2023. Almost all of the securities included on the Company's watch list in the current quarter were experiencing unrealized loss positions due to the significant increase in interest rates and were analyzed outside of the cash flow model. At June 30, 2024, the securities on the Company's watch list that were not deemed to be solely related to increasing interest rates were securities backed by government-guaranteed student loans and are expected to perform as contractually required. As of June 30, 2024, the Company did not identify any securities for which a credit loss exists, and for the six months ended June 30, 2024 and 2023, the Company did not recognize a credit loss expense on any available for sale debt securities.

The table below summarizes debt securities available for sale in an unrealized loss position, aggregated by length of loss period, for which an allowance for credit losses has not been recorded at June 30, 2024 and December 31, 2023. Unrealized losses on these available for sale securities have not been recognized into income because after review, the securities were deemed not to be impaired. The unrealized losses on these securities are primarily attributable to changes in interest rates and current market conditions. At June 30, 2024, the Company does not intend to sell the securities, nor is it anticipated that it would be required to sell any of these securities at a loss.


	Less than 12 months				12 months or longer				Total
(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2024
U.S. government and federal agency obligations	$	647,825	$	2,025	$	509,058	$	23,119	$	1,156,883	$	25,144
Government-sponsored enterprise obligations	—		—		43,139		12,490		43,139		12,490
State and municipal obligations	9,885		735		763,769		93,213		773,654		93,948
Mortgage and asset-backed securities:
Agency mortgage-backed securities	636		5		3,604,732		781,585		3,605,368		781,590
Non-agency mortgage-backed securities	—		—		641,907		82,800		641,907		82,800
Asset-backed securities	—		—		1,544,995		62,995		1,544,995		62,995
Total mortgage and asset-backed securities	636		5		5,791,634		927,380		5,792,270		927,385
Other debt securities	—		—		216,922		17,075		216,922		17,075
Total	$	658,346	$	2,765	$	7,324,522	$	1,073,277	$	7,982,868	$	1,076,042
December 31, 2023
U.S. government and federal agency obligations	$	51,585	$	809	$	714,400	$	24,025	$	765,985	$	24,834
Government-sponsored enterprise obligations	—		—		43,962		11,696		43,962		11,696
State and municipal obligations	24,022		760		1,167,607		148,478		1,191,629		149,238
Mortgage and asset-backed securities:
Agency mortgage-backed securities	4,382		59		3,875,432		720,649		3,879,814		720,708
Non-agency mortgage-backed securities	—		—		1,152,045		173,526		1,152,045		173,526
Asset-backed securities	19,086		156		2,081,293		93,076		2,100,379		93,232
Total mortgage and asset-backed securities	23,468		215		7,108,770		987,251		7,132,238		987,466
Other debt securities	—		—		460,136		47,250		460,136		47,250
Total	$	99,075	$	1,784	$	9,494,875	$	1,218,700	$	9,593,950	$	1,220,484

The entire available for sale debt portfolio included $8.0 billion of securities that were in a loss position at June 30, 2024, compared to $9.6 billion at December 31, 2023. The total amount of unrealized loss on these securities was $1.1 billion at June 30, 2024, a decrease of $144.4 million compared to the unrealized loss at December 31, 2023. Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt securities" section above.

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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 June 30, 2024 and December 31, 2023, and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI, by security type.


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
June 30, 2024
U.S. government and federal agency obligations	$	1,661,224	$	1,747	$	(25,144)	$	—	$	1,637,827
Government-sponsored enterprise obligations	55,629		—		(12,490)		—		43,139
State and municipal obligations	869,924		7		(93,948)		—		775,983
Mortgage and asset-backed securities:
Agency mortgage-backed securities	4,411,594		292		(781,590)		—		3,630,296
Non-agency mortgage-backed securities	729,009		148		(82,800)		—		646,357
Asset-backed securities	1,646,667		75		(62,995)		—		1,583,747
Total mortgage and asset-backed securities	6,787,270		515		(927,385)		—		5,860,400
Other debt securities	233,997		—		(17,075)		—		216,922
Total	$	9,608,044	$	2,269	$	(1,076,042)	$	—	$	8,534,271
December 31, 2023
U.S. government and federal agency obligations	$	841,267	$	81	$	(24,834)	$	—	$	816,514
Government-sponsored enterprise obligations	55,658		—		(11,696)		—		43,962
State and municipal obligations	1,346,633		24		(149,238)		—		1,197,419
Mortgage and asset-backed securities:
Agency mortgage-backed securities	4,621,821		233		(720,708)		—		3,901,346
Non-agency mortgage-backed securities	1,331,288		136		(173,526)		—		1,157,898
Asset-backed securities	2,200,712		5		(93,232)		—		2,107,485
Total mortgage and asset-backed securities	8,153,821		374		(987,466)		—		7,166,729
Other debt securities	507,386		—		(47,250)		—		460,136
Total	$	10,904,765	$	479	$	(1,220,484)	$	—	$	9,684,760

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


	For the Six Months Ended June 30
(In thousands)	2024		2023
Proceeds from sales of securities:
Available for sale debt securities	$	1,015,845	$	1,101,782
Equity securities	120,012		—
Other investments	21,319		28,754
Total proceeds	$	1,157,176	$	1,130,536

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

Gains realized on sales	$	—	$	143
Losses realized on sales	(187,543)		(8,587)

Equity securities:




Gains (losses) on equity securities, net	178,306		(690)
Other:
Gains realized on sales	956		879
Losses realized on sales	(1,522)		—
Fair value adjustments, net	12,777		11,341
Total investment securities gains (losses), net	$	2,974	$	3,086

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Net gains on investment securities for the six months ended June 30, 2024 were mainly comprised of net gains of $178.3 million on equity investments and net gains in fair value of $12.8 million recorded on private equity investments. These gains were largely offset by net losses of $187.5 million on sales of available for sale securities.

Subsequent to the successful close of the Exchange Offer in early May 2024, the Company approved and executed a plan to reposition a portion of its available for sale debt securities portfolio through the sale of securities with an amortized cost of $1.2 billion. The securities that the Company sold had a yield of approximately 2.1%, which resulted in a loss of $179.1 million, and the Company reinvested $928.8 million of the proceeds into U.S. Treasury securities yielding approximately 4.6%.

Pledged securities

At June 30, 2024, securities totaling $6.5 billion in fair value were pledged to secure public fund deposits, securities sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB, compared to $7.5 billion at December 31, 2023. Except for obligations of various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeded 10% of stockholders’ equity.

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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.


	June 30, 2024								December 31, 2023
(In thousands)	Gross Carrying Amount		Accumulated Amortization		Valuation Allowance		Net Amount		Gross Carrying Amount		Accumulated Amortization		Valuation Allowance		Net Amount
Amortizable intangible assets:
Core deposit premium	$	5,550	$	(5,198)	$	—	$	352	$	5,550	$	(5,092)	$	—	$	458
Mortgage servicing rights	13,559		(3,710)		—		9,849		13,723		(3,602)		—		10,121
Total	$	19,109	$	(8,908)	$	—	$	10,201	$	19,273	$	(8,694)	$	—	$	10,579

Aggregate amortization expense on intangible assets was $320 thousand and $353 thousand for the three month periods ended June 30, 2024 and 2023, respectively, and $651 thousand and $709 thousand for the six month periods ended June 30, 2024 and 2023, respectively. The following table shows the estimated annual amortization expense for the next five fiscal years. This expense is based on existing asset balances and the interest rate environment as of June 30, 2024. The Company’s actual amortization expense in any given period may be different from the estimated amounts depending upon the acquisition of intangible assets, changes in mortgage interest rates, prepayment rates and other market conditions.


(In thousands)
2024	$	1,279
2025	1,175
2026	1,025
2027	884
2028	768

Changes in the carrying amount of goodwill and other intangible assets for the six month period ended June 30, 2024 are as follows:


(In thousands)	Goodwill		Easement		Core Deposit Premium		Mortgage Servicing Rights
Balance January 1, 2024	$	146,539	$	3,600	$	458	$	10,121

Originations, net of disposals	—		—		—		273
Amortization	—		—		(106)		(545)

Balance June 30, 2024	$	146,539	$	3,600	$	352	$	9,849

Goodwill allocated to the Company’s operating segments at June 30, 2024 and December 31, 2023 is shown below.


(In thousands)	June 30, 2024		December 31, 2023
Consumer segment	$	70,721	$	70,721
Commercial segment	75,072		75,072
Wealth segment	746		746
Total goodwill	$	146,539	$	146,539

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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 June 30, 2024, that net liability was $3.6 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 $633.6 million at June 30, 2024.

The Company periodically enters into credit risk participation agreements (RPAs) as a guarantor to other financial institutions, in order to mitigate those institutions’ credit risk associated with interest rate swaps with third parties. The RPA stipulates that, in the event of default by the third party on the interest rate swap, the Company will reimburse a portion of the loss borne by the financial institution. These interest rate swaps are normally collateralized (generally with real property, inventories and equipment) by the third party, which limits the credit risk associated with the Company’s RPAs. The third parties usually have other borrowing relationships with the Company. The Company monitors overall borrower collateral and at June 30, 2024, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair value throughout their term with all changes in fair value, including those due to a change in the third party’s creditworthiness, recorded in current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 2 years to 15 years. At June 30, 2024, the fair value of the Company's guarantee liabilities for RPAs was $83 thousand, and the notional amount of the underlying swaps was $455.7 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 14 years.

The following table provides the components of lease income.


	For the Three Months Ended June 30				For the Six Months Ended June 30
(in thousands)	2024		2023		2024		2023
Direct financing and sales-type leases	$	9,043	$	7,541	$	18,055	$	14,296
Operating leases(a)	4,260		3,483		8,392		5,816
Total lease income	$	13,303	$	11,024	$	26,447	$	20,112

(a) Includes rent from Tower Properties Company, a related party, of $19 thousand for both of the three month periods ended June 30, 2024 and 2023, and $38 thousand for both the six month periods ended June 30, 2024 and 2023.

7. Pension

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


	For the Three Months Ended June 30				For the Six Months Ended June 30
(In thousands)	2024		2023		2024		2023
Service cost	$	96	$	116	$	193	$	232
Interest cost on projected benefit obligation	1,113		1,157		2,225		2,315
Expected return on plan assets	(1,019)		(1,001)		(2,038)		(2,002)
Amortization of prior service cost	(46)		(68)		(91)		(135)
Amortization of unrecognized net loss	282		427		562		854
Net periodic pension cost	$	426	$	631	$	851	$	1,264

All benefits accrued under the Company’s defined benefit pension plan have been frozen since January 1, 2011. During the first six months of 2024, the Company made no funding contributions to its defined benefit pension plan and made minimal funding contributions to a supplemental executive retirement plan (the CERP), which carries no segregated assets.

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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 June 30				For the Six Months Ended June 30
(In thousands, except per share data)	2024		2023		2024		2023
Basic income per common share:
Net income attributable to Commerce Bancshares, Inc.	$	139,553	$	127,789	$	252,216	$	247,241
Less income allocated to nonvested restricted stock	1,313		1,128		2,357		2,184
Net income allocated to common stock	$	138,240	$	126,661	$	249,859	$	245,057
Weighted average common shares outstanding	128,458		130,079		128,750		130,141
Basic income per common share	$	1.07	$	.97	$	1.94	$	1.88
Diluted income per common share:
Net income attributable to Commerce Bancshares, Inc.	$	139,553	$	127,789	$	252,216	$	247,241
Less income allocated to nonvested restricted stock	1,312		1,128		2,355		2,182
Net income allocated to common stock	$	138,241	$	126,661	$	249,861	$	245,059
Weighted average common shares outstanding	128,458		130,079		128,750		130,141

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	153		129		148		198
Weighted average diluted common shares outstanding	128,611		130,208		128,898		130,339
Diluted income per common share	$	1.07	$	.97	$	1.93	$	1.88

Unexercised stock appreciation rights of 411 thousand and 450 thousand for the three month periods ended June 30, 2024 and 2023, respectively, and 382 thousand and 277 thousand for the six month periods ended June 30, 2024 and 2023, respectively, were excluded from the computation of diluted income per common share because their inclusion would have been anti-dilutive.

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

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

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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)
(In thousands)

Balance January 1, 2024	$	(915,001)	$	(13,596)	$	37,185	$	(891,412)


Other comprehensive income (loss) before reclassifications to current earnings	(41,310)		—		(29,367)		(70,677)
Amounts reclassified to current earnings from accumulated other comprehensive income	187,543		471		(5,877)		182,137
Current period other comprehensive income (loss), before tax	146,233		471		(35,244)		111,460
Income tax (expense) benefit	(36,558)		(118)		8,811		(27,865)
Current period other comprehensive income (loss), net of tax	109,675		353		(26,433)		83,595

Balance June 30, 2024	$	(805,326)	$	(13,243)	$	10,752	$	(807,817)
Balance January 1, 2023	$	(1,124,915)	$	(17,186)	$	55,237	$	(1,086,864)


Other comprehensive income (loss) before reclassifications to current earnings	72,335		—		(5,523)		66,812
Amounts reclassified to current earnings from accumulated other comprehensive income	8,444		719		(8,549)		614
Current period other comprehensive income (loss), before tax	80,779		719		(14,072)		67,426
Income tax (expense) benefit	(20,195)		(180)		3,518		(16,857)
Current period other comprehensive income (loss), net of tax	60,584		539		(10,554)		50,569

Balance June 30, 2023	$	(1,064,331)	$	(16,647)	$	44,683	$	(1,036,295)

(1) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "investment securities gains (losses), net" in the consolidated statements of income.

(2) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "interest and fees on loans" in the consolidated statements of income.

10. Segments

The Company segregates financial information for use in assessing its performance and allocating resources among three operating segments: Consumer, Commercial and Wealth. The Consumer segment consists of various consumer loan and deposit products offered through its retail branch network of approximately 140 locations. This segment also includes indirect and other consumer loan financing businesses, along with debit and credit card loan and fee businesses. The Commercial segment provides corporate lending (including the Small Business Banking product line within the branch network), leasing, and international services, along with business and governmental deposit products and commercial cash management services. This segment also includes both merchant and commercial bank card products as well as the Commercial Tradable Products division, which sells fixed income securities, underwrites municipal bonds, 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. Net interest income allocated among the segments prior to 2024 has been restated to reflect a funds transfer pricing methodology change implemented on January 1, 2024 for all deposit types, except certificates of deposit. The new methodology moves from a rolling pool to a profitability range methodology. The new methodology more accurately reflects the profitability of affected deposits relative to current rates and removes most interest rate risk from business segments.


(In thousands)	Consumer		Commercial		Wealth		Other/Elimination		Consolidated Totals
Three Months Ended June 30, 2024
Net interest income	$	124,715	$	125,189	$	21,269	$	(8,924)	$	262,249
Provision for credit losses	(9,037)		(725)		3		4,291		(5,468)
Non-interest income	26,000		65,152		59,600		1,492		152,244
Investment securities gains (losses), net	—		—		—		3,233		3,233
Non-interest expense	(81,882)		(99,218)		(38,902)		(12,212)		(232,214)
Income before income taxes	$	59,796	$	90,398	$	41,970	$	(12,120)	$	180,044
Six Months Ended June 30, 2024
Net interest income	$	254,391	$	251,876	$	45,424	$	(40,443)	$	511,248
Provision for credit losses	(17,925)		(766)		4		8,432		(10,255)
Non-interest income	50,335		128,954		117,999		3,804		301,092
Investment securities gains (losses), net	—		—		—		2,974		2,974
Non-interest expense	(162,526)		(199,574)		(78,453)		(37,358)		(477,911)
Income before income taxes	$	124,275	$	180,490	$	84,974	$	(62,591)	$	327,148
Three Months Ended June 30, 2023
Net interest income	$	141,235	$	128,018	$	25,393	$	(45,108)	$	249,538
Provision for loan losses	(6,430)		(90)		—		49		(6,471)
Non-interest income	25,531		64,769		54,513		2,792		147,605
Investment securities gains (losses), net	—		—		—		3,392		3,392
Non-interest expense	(83,312)		(98,409)		(40,522)		(5,368)		(227,611)
Income before income taxes	$	77,024	$	94,288	$	39,384	$	(44,243)	$	166,453
Six Months Ended June 30, 2023
Net interest income	$	285,695	$	265,145	$	53,418	$	(103,097)	$	501,161
Provision for credit losses	(12,736)		(483)		(13)		(4,695)		(17,927)
Non-interest income	49,834		123,093		107,457		4,833		285,217
Investment securities gains (losses), net	—		—		—		3,086		3,086
Non-interest expense	(160,682)		(192,094)		(80,107)		(18,835)		(451,718)
Income before income taxes	$	162,111	$	195,661	$	80,755	$	(118,708)	$	319,819

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, in 2023, interest expense on the Company's brokered certificates of deposit was included in this column, as the Company's brokered certificates of deposit were not allocated to a segment. There were no brokered certificates of deposit in 2024.

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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.

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. The Company's derivatives are accounted for as freestanding derivatives, and with the exception of the interest rate floors, changes in their fair value are recorded in current earnings.


(In thousands)	June 30, 2024		December 31, 2023
Interest rate swaps	$	2,300,300	$	2,166,393
Interest rate floors	2,000,000		2,000,000
Interest rate caps	267,447		336,682
Credit risk participation agreements	676,506		653,887
Foreign exchange contracts	33,042		30,401
Mortgage loan commitments	7,252		3,004
Mortgage loan forward sale contracts	717		1,349
Forward TBA contracts	7,500		3,000
Total notional amount	$	5,292,764	$	5,194,716

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

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

As of June 30, 2024, the Company held four interest rate floors indexed to 1-month SOFR to hedge the risk of declining interest rates on certain floating rate commercial loans. The floors have a combined notional value of $2.0 billion and are forward-starting. Each of the four interest rate floors has a six-year term and a notional amount of $500.0 million. In the event that the index rate falls below zero, the maximum rate that the Company can earn on the notional amount of each floor is limited to the strike rate. Information about the floors is provided in the table below.


Strike Rate		Effective Date	Maturity Date
3.50	%	July 1, 2024	July 1, 2030
3.25	%	November 1, 2024	November 1, 2030
3.00	%	March 1, 2025	March 1, 2031
2.75	%	July 1, 2025	July 1, 2031

The premium paid for the floors totaled $90.2 million. The maximum length of time over which the Company is hedging its exposure to lower rates is approximately 7 years. These interest rate floors qualified and were designated as cash flow hedges and were assessed for effectiveness using regression analysis. The change in the fair value of these interest rate floors is recorded in AOCI, net of the amortization of the premiums paid, which are recorded against interest and fees on loans in the consolidated statements of income. As of June 30, 2024, net deferred losses on the interest rate floors totaled $25.8 million (pre-tax) and were recorded in AOCI in the consolidated balance sheet. As of June 30, 2024, it is expected that $10.7 million

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(pre-tax) interest rate floor premium amortization will be reclassified from AOCI into earnings over the next 12 months for the outstanding interest rate floors.

During the year ended December 31, 2020, the Company monetized three interest rate floors that were previously classified as cash flow hedges with a combined notional balance of $1.5 billion and an asset fair value of $163.2 million. As of June 30, 2024, the total realized gains on the monetized cash flow hedges remaining in AOCI was $40.1 million (pre-tax), which will be reclassified into interest income over the next 2.5 years. The estimated amount of net gains related to the cash flow hedges remaining in AOCI at June 30, 2024 that is expected to be reclassified into income within the next 12 months is $21.2 million.

The Company also contracts with other financial institutions, as a guarantor or beneficiary, to share credit risk associated with certain interest rate swaps through risk participation agreements. The Company’s risks and responsibilities as guarantor are further discussed in Note 5 on Guarantees. In addition, the Company enters into foreign exchange contracts, which are mainly comprised of contracts with customers to purchase or deliver specific foreign currencies at specific future dates.

Under its program to sell residential mortgage loans in the secondary market, the Company designates certain newly-originated residential mortgage loans as held for sale. Derivative instruments arising from this activity include mortgage loan commitments and forward loan sale contracts. Changes in the fair values of the loan commitments and funded loans prior to sale that are due to changes in interest rates are economically hedged with forward contracts to sell residential mortgage-backed securities in the to-be-announced (TBA) market. These forward TBA contracts are also considered to be derivatives and are settled in cash at the security settlement date.

The fair values of the Company's derivative instruments, whose notional amounts are listed above, are shown in the table below. Information about the valuation methods used to determine fair value is provided in Note 15 on Fair Value Measurements.

The Company's policy is to present its derivative assets and derivative liabilities on a gross basis on its consolidated balance sheets, and these are reported in other assets and other liabilities. In prior years, certain collateral posted to and from the Company's clearing counterparty has been applied to the fair values of the cleared swap. There was no reduction to positive or negative fair values of cleared swaps at June 30, 2024 and December 31, 2023.


	Asset Derivatives				Liability Derivatives
	June 30, 2024		Dec. 31, 2023		June 30, 2024		Dec. 31, 2023
(In thousands)	Fair Value				Fair Value
Derivatives designated as hedging instruments:
Interest rate floors	$	49,593	$	78,960	$	—	$	—
Total derivatives designated as hedging instruments	$	49,593	$	78,960	$	—	$	—
Derivative instruments not designated as hedging instruments:
Interest rate swaps	$	36,149	$	35,816	$	(36,149)	$	(35,816)
Interest rate caps	392		1,391		(392)		(1,391)
Credit risk participation agreements	57		77		(83)		(194)
Foreign exchange contracts	359		534		(282)		(479)
Mortgage loan commitments	141		89		—		(1)
Mortgage loan forward sale contracts	8		8		—		—
Forward TBA contracts	10		1		(9)		(18)
Total derivatives not designated as hedging instruments	$	37,116	$	37,916	$	(36,915)	$	(37,899)
Total	$	86,709	$	116,876	$	(36,915)	$	(37,899)

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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 June 30, 2024
Derivatives in cash flow hedging relationships:
Interest rate floors	$	(6,502)	$	(131)	$	(6,371)	Interest and fees on loans	$	2,888	$	7,098	$	(4,210)
Total	$	(6,502)	$	(131)	$	(6,371)	Total	$	2,888	$	7,098	$	(4,210)
For the Six Months Ended June 30, 2024
Derivatives in cash flow hedging relationships:
Interest rate floors	$	(29,367)	$	(10,108)	$	(19,259)	Interest and fees on loans	$	5,877	$	14,297	$	(8,420)
Total	$	(29,367)	$	(10,108)	$	(19,259)	Total	$	5,877	$	14,297	$	(8,420)
For the Three Months Ended June 30, 2023
Derivatives in cash flow hedging relationships:
Interest rate floors	$	(14,748)	$	—	$	(14,748)	Interest and fees on loans	$	4,165	$	7,455	$	(3,290)
Total	$	(14,748)	$	—	$	(14,748)	Total	$	4,165	$	7,455	$	(3,290)
For the Six Months Ended June 30, 2023
Derivatives in cash flow hedging relationships:
Interest rate floors	$	(5,523)	$	—	$	(5,523)	Interest and fees on loans	$	8,550	$	14,899	$	(6,349)
Total	$	(5,523)	$	—	$	(5,523)	Total	$	8,550	$	14,899	$	(6,349)

The gain and loss recognized through various derivative instruments on the consolidated statements of income are shown in the table below.


	Location of Gain or (Loss) Recognized in Consolidated Statements of Income	Amount of Gain or (Loss) Recognized in Income on Derivatives
		For the Three Months Ended June 30				For the Six Months Ended June 30
(In thousands)		2024		2023		2024		2023



Derivative instruments:
Interest rate swaps	Other non-interest income	$	1,197	$	1,873	$	1,323	$	2,496

Credit risk participation agreements	Other non-interest income	(240)		3		(214)		(16)
Foreign exchange contracts	Other non-interest income	(17)		(9)		21		(29)
Mortgage loan commitments	Loan fees and sales	38		(19)		53		58
Mortgage loan forward sale contracts	Loan fees and sales	8		1		—		—
Forward TBA contracts	Loan fees and sales	8		49		14		50
Total		$	994	$	1,898	$	1,197	$	2,559

The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset. Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after netting is applied); thus, amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.

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While the Company is party to master netting arrangements with most of its swap derivative counterparties, the Company does not offset derivative assets and liabilities under these agreements on its consolidated balance sheets. Collateral exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually consists of marketable securities. By contract, these may be sold or re-pledged by the secured party until recalled at a subsequent valuation date by the pledging party. For those swap transactions requiring central clearing, the Company posts cash or securities to its clearing agent. Collateral positions are valued daily, and adjustments to amounts received and pledged by the Company are made as appropriate to maintain proper collateralization for these transactions. Swap derivative transactions with customers are generally secured by rights to non-financial collateral, such as real and personal property, which is not shown in the table below.


							Gross Amounts Not Offset in the Balance Sheet
(In thousands)	Gross Amount Recognized		Gross Amounts Offset in the Balance Sheet		Net Amounts Presented in the Balance Sheet		Financial Instruments Available for Offset		Collateral Received/ Pledged		Net Amount
June 30, 2024
Assets:
Derivatives subject to master netting agreements	$	86,398	$	—	$	86,398	$	(2,479)	$	(81,090)	$	2,829
Derivatives not subject to master netting agreements	311		—		311
Total derivatives	$	86,709	$	—	$	86,709
Liabilities:
Derivatives subject to master netting agreements	$	36,628	$	—	$	36,628	$	(2,479)	$	—	$	34,149
Derivatives not subject to master netting agreements	287		—		287
Total derivatives	$	36,915	$	—	$	36,915
December 31, 2023
Assets:
Derivatives subject to master netting agreements	$	116,702	$	—	$	116,702	$	(3,930)	$	(107,492)	$	5,280
Derivatives not subject to master netting agreements	174		—		174
Total derivatives	$	116,876	$	—	$	116,876
Liabilities:
Derivatives subject to master netting agreements	$	37,300	$	—	$	37,300	$	(3,930)	$	—	$	33,370
Derivatives not subject to master netting agreements	599		—		599
Total derivatives	$	37,899	$	—	$	37,899

12. Resale and Repurchase Agreements

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

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The following table shows the extent to which resale agreement assets and repurchase agreement liabilities with the same counterparty have been offset on the consolidated balance sheets, in addition to the extent to which they could potentially be offset. Also shown is collateral received or pledged, which consists of marketable securities. The collateral amounts in the table are limited to the outstanding balances of the related asset or liability (after offsetting is applied); thus amounts of excess collateral are not shown.


							Gross Amounts Not Offset in the Balance Sheet
(In thousands)	Gross Amount Recognized		Gross Amounts Offset in the Balance Sheet		Net Amounts Presented in the Balance Sheet		Financial Instruments Available for Offset		Securities Collateral Received/Pledged		Unsecured Amount
June 30, 2024
Total resale agreements, subject to master netting arrangements	$	475,000	$	—	$	475,000	$	—	$	(475,000)	$	—
Total repurchase agreements, subject to master netting arrangements	2,296,679		—		2,296,679		—		(2,296,679)		—
December 31, 2023
Total resale agreements, subject to master netting arrangements	$	450,000	$	—	$	450,000	$	—	$	(450,000)	$	—
Total repurchase agreements, subject to master netting arrangements	2,647,510		—		2,647,510		—		(2,647,510)		—

The table below shows the remaining contractual maturities of repurchase agreements outstanding at June 30, 2024 and December 31, 2023, in addition to the various types of marketable securities that have been pledged by the Company as collateral for these borrowings.


	Remaining Contractual Maturity of the Agreements
(In thousands)	Overnight and continuous		Up to 90 days		Greater than 90 days		Total
June 30, 2024
Repurchase agreements, secured by:
U.S. government and federal agency obligations	$	121,800	$	—	$	—	$	121,800
Government-sponsored enterprise obligations	8,612		—		—		8,612

Agency mortgage-backed securities	1,576,128		4,800		22,950		1,603,878
Non-agency mortgage-backed securities	10,028		—		—		10,028
Asset-backed securities	420,578		17,800		30,077		468,455
Other debt securities	83,906		—		—		83,906
Total repurchase agreements, gross amount recognized	$	2,221,052	$	22,600	$	53,027	$	2,296,679
December 31, 2023
Repurchase agreements, secured by:
U.S. government and federal agency obligations	$	170,293	$	—	$	—	$	170,293
Government-sponsored enterprise obligations	8,749		—		—		8,749

Agency mortgage-backed securities	1,833,840		27,264		17,200		1,878,304
Non-agency mortgage-backed securities	10,566		—		—		10,566
Asset-backed securities	516,726		9,606		20,000		546,332
Other debt securities	33,265		—		—		33,265
Total repurchase agreements, gross amount recognized	$	2,573,439	$	36,870	$	37,200	$	2,647,509

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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 million and $3.9 million in the three months ended June 30, 2024 and 2023 respectively, and $8.5 million and $8.3 million in the six months ended June 30, 2024 and 2023, respectively.

Nonvested stock awards granted generally vest in 4 to 7 years and contain restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant. A summary of the status of the Company’s nonvested share awards as of June 30, 2024, and changes during the six month period then ended, is presented below.


	Shares	Weighted Average Grant Date Fair Value
Nonvested at January 1, 2024	1,166,335	$58.48
Granted	322,088	52.03
Vested	(250,127)	52.21
Forfeited	(27,582)	59.87

Nonvested at June 30, 2024	1,210,714	$58.03

SARs are granted with exercise prices equal to the market price of the Company’s stock at the date of grant. SARs vest ratably over 4 years of continuous service and have contractual terms of 10 years. All SARs must be settled in stock under provisions of the plan. In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on date of grant. The current year per share average fair value and the model assumptions are shown in the table below.


Weighted per share average fair value at grant date	$14.88
Assumptions:
Dividend yield	2.1	%
Volatility	29.3	%
Risk-free interest rate	4.2	%
Expected term	6.0 years

A summary of SAR activity during the first six months of 2024 is presented below.


(Dollars in thousands, except per share data)	Rights	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2024	1,023,321	$47.10
Granted	117,974	52.00
Forfeited	(5,012)	59.54
Expired	(6,756)	49.94
Exercised	(67,213)	31.76
Outstanding at June 30, 2024	1,062,314	$48.54	5.1 years	$9,679

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14. Revenue from Contracts with Customers

Revenue from contracts with customers, Accounting Standard Codification 606 ("ASC 606"), requires revenue recognition for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For the six months ended June 30, 2024, approximately 63% of the Company’s total revenue was comprised of net interest income, which is not within the scope of this guidance. Of the remaining revenue, those items that were subject to this guidance mainly included fees for bank card, trust, deposit account services and consumer brokerage services.

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


	Three Months Ended June 30				Six Months Ended June 30
(In thousands)	2024		2023		2024		2023
Trust fees	$	52,291	$	47,265	$	103,396	$	92,593
Bank card transaction fees	47,477		49,725		94,407		96,379
Deposit account charges and other fees	25,325		22,633		49,476		44,385
Consumer brokerage services	4,478		4,677		8,886		9,762
Other non-interest income	12,325		9,486		22,841		17,825
Total non-interest income from contracts with customers	141,896		133,786		279,006		260,944
Other non-interest income (1)	10,348		13,819		22,086		24,273
Total non-interest income	$	152,244	$	147,605	$	301,092	$	285,217

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

For bank card transaction fees, nearly all of debit and credit card fees are earned in the Consumer segment, while corporate card and merchant fees are earned in the Commercial segment. The Consumer and Commercial segments contributed approximately 31% and 69%, respectively, of the Company's deposit account charge revenue. All trust fees and nearly all consumer brokerage services income were earned in the Wealth segment.

The following table presents the opening and closing receivable balances for the six month periods ended June 30, 2024 and 2023 for the Company’s significant revenue from contracts with customers.


(In thousands)	June 30, 2024		December 31, 2023		June 30, 2023		December 31, 2022
Bank card transaction fees	$	15,824	$	18,069	$	16,321	$	17,254
Trust fees	2,174		1,764		1,984		2,038
Deposit account charges and other fees	7,366		6,588		6,488		6,631
Consumer brokerage services	—		8		637		949

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

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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 2023 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 June 30, 2024 and December 31, 2023 carrying values of assets and liabilities measured at fair value on a recurring basis. There were no transfers among levels during the first six months of 2024 or the year ended December 31, 2023.


			Fair Value Measurements Using
(In thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2024
Assets:
Residential mortgage loans held for sale	$	2,186	$	—	$	2,186	$	—
Available for sale debt securities:
U.S. government and federal agency obligations	1,637,827		1,637,827		—		—
Government-sponsored enterprise obligations	43,139		—		43,139		—
State and municipal obligations	775,983		—		775,030		953
Agency mortgage-backed securities	3,630,296		—		3,630,296		—
Non-agency mortgage-backed securities	646,357		—		646,357		—
Asset-backed securities	1,583,747		—		1,583,747		—
Other debt securities	216,922		—		216,922		—
Trading debt securities	45,499		—		45,499		—
Equity securities	47,804		47,804		—		—
Private equity investments	178,321		—		—		178,321
Derivatives *	86,709		—		86,511		198
Assets held in trust for deferred compensation plan	21,550		21,550		—		—
Total assets	8,916,340		1,707,181		7,029,687		179,472
Liabilities:
Derivatives *	36,915		—		36,832		83
Liabilities held in trust for deferred compensation plan	21,550		21,550		—		—
Total liabilities	$	58,465	$	21,550	$	36,832	$	83
December 31, 2023
Assets:
Residential mortgage loans held for sale	$	1,585	$	—	$	1,585	$	—
Available for sale debt securities:
U.S. government and federal agency obligations	816,514		816,514		—		—
Government-sponsored enterprise obligations	43,962		—		43,962		—
State and municipal obligations	1,197,419		—		1,196,472		947
Agency mortgage-backed securities	3,901,346		—		3,901,346		—
Non-agency mortgage-backed securities	1,157,898		—		1,157,898		—
Asset-backed securities	2,107,485		—		2,107,485		—
Other debt securities	460,136		—		460,136		—
Trading debt securities	28,830		—		28,830		—
Equity securities	5,723		5,723		—		—
Private equity investments	176,667		—		—		176,667
Derivatives *	116,876		—		116,710		166
Assets held in trust for deferred compensation plan	20,538		20,538		—		—
Total assets	10,034,979		842,775		9,014,424		177,780
Liabilities:
Derivatives *	37,899		—		37,704		195
Liabilities held in trust for deferred compensation plan	20,538		20,538		—		—
Total liabilities	$	58,437	$	20,538	$	37,704	$	195

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

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


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In thousands)	State and Municipal Obligations		Private Equity Investments		Total
For the three months ended June 30, 2024
Balance March 31, 2024	$	956	$	183,706	$	184,662
Total gains or losses (realized/unrealized):
Included in earnings	—		5,677		5,677
Included in other comprehensive income *	(4)		—		(4)

Discount accretion	1		—		1
Purchases of private equity investments	—		1,470		1,470
Sale/pay down of private equity investments	—		(12,564)		(12,564)
Capitalized interest/dividends	—		32		32


Balance at June 30, 2024	$	953	$	178,321	$	179,274
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 June 30, 2024	$	—	$	5,677	$	5,677
*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 June 30, 2024	$	(4)	$	—	$	(4)
For the six months ended June 30, 2024
Balance January 1, 2024	$	947	$	176,667	$	177,614
Total gains or losses (realized/unrealized):
Included in earnings	—		12,777		12,777
Included in other comprehensive income *	5		—		5

Discount accretion	1		—		1
Purchases of private equity investments	—		10,947		10,947
Sale/pay down of private equity investments	—		(21,964)		(21,964)
Capitalized interest/dividends	—		(106)		(106)


Balance at June 30, 2024	$	953	$	178,321	$	179,274
Total gains or losses for the six months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2024	$	—	$	11,002	$	11,002
*Total gains or losses for the six months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2024	$	5	$	—	$	5

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	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
(In thousands)	State and Municipal Obligations		Private Equity Investments		Total
For the three months ended June 30, 2023
Balance at March 31, 2023	$	914	$	163,418	$	164,332
Total gains or losses (realized/unrealized):
Included in earnings	—		9,090		9,090
Included in other comprehensive income *	5		—		5

Discount accretion	1		—		1
Purchases of private equity investments	—		224		224




Balance at June 30, 2023	$	920	$	172,732	$	173,652
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 June 30, 2023	$	—	$	9,090	$	9,090
*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 June 30, 2023	$	5	$	—	$	5
For the six months ended June 30, 2023
Balance January 1, 2023	$	1,841	$	178,127	$	179,968
Total gains or losses (realized/unrealized):
Included in earnings	—		11,341		11,341
Included in other comprehensive income *	31		—		31
Investment securities called	(1,000)		—		(1,000)
Discount accretion	48		—		48
Purchases of private equity investments	—		10,756		10,756
Sale/pay down of private equity investments	—		(27,492)		(27,492)



Balance at June 30, 2023	$	920	$	172,732	$	173,652
Total gains or losses for the six months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2023	$	—	$	11,341	$	11,341
*Total gains or losses for the six months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2023	$	10	$	—	$	10

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

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


(In thousands)	Investment Securities Gains (Losses), Net
For the three months ended June 30, 2024
Total gains or losses included in earnings	$	5,677
Change in unrealized gains or losses relating to assets still held at June 30, 2024	$	5,677
For the six months ended June 30, 2024
Total gains or losses included in earnings	$	12,777
Change in unrealized gains or losses relating to assets still held at June 30, 2024	$	11,002
For the three months ended June 30, 2023
Total gains or losses included in earnings	$	9,090
Change in unrealized gains or losses relating to assets still held at June 30, 2023	$	9,090
For the six months ended June 30, 2023
Total gains or losses included in earnings	$	11,341
Change in unrealized gains or losses relating to assets still held at June 30, 2023	$	11,341

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Level 3 Inputs

The Company's Level 3 measurements at June 30, 2024, which employ unobservable inputs that are readily quantifiable, pertain to investments in portfolio concerns held by the Company's private equity subsidiaries. Information about these inputs is presented in the table below.

Quantitative Information about Level 3 Fair Value Measurements

Weighted

Valuation Technique

Unobservable Input

Range

Average*

Private equity investments

Market comparable companies

EBITDA multiple

3.5

7.5

5.2

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

Instruments Measured at Fair Value on a Nonrecurring Basis

For assets measured at fair value on a nonrecurring basis during the first six months of 2024 and 2023, and still held as of June 30, 2024 and 2023, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation inputs used to determine each adjustment, and the carrying value of the related individual assets or portfolios at June 30, 2024 and 2023.


			Fair Value Measurements Using
(In thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses) Recognized During the Six Months Ended June 30
June 30, 2024
Collateral dependent loans	$	15,081	$	—	$	—	$	15,081	$	(2,850)
Equity securities	58,376		—		57,185		1,191		58,241





June 30, 2023
Collateral dependent loans	$	1,647	$	—	$	—	$	1,647	$	588

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16. Fair Value of Financial Instruments

The carrying amounts and estimated fair values of financial instruments held by the Company are set forth below. Fair value estimates are made at a specific point in time based on relevant market information. They do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for many of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, risk characteristics and economic conditions. These estimates are subjective, involve uncertainties, and cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The estimated fair values of the Company’s financial instruments and the classification of their fair value measurement within the valuation hierarchy are as follows at June 30, 2024 and December 31, 2023:


	Carrying Amount		Estimated Fair Value at June 30, 2024
(In thousands)			Level 1		Level 2		Level 3		Total
Financial Assets
Loans:
Business	$	6,090,724	$	—	$	—	$	5,949,560	$	5,949,560
Real estate - construction and land	1,396,515		—		—		1,369,734		1,369,734
Real estate - business	3,572,539		—		—		3,449,075		3,449,075
Real estate - personal	3,055,182		—		—		2,588,478		2,588,478
Consumer	2,145,609		—		—		2,096,790		2,096,790
Revolving home equity	331,381		—		—		328,442		328,442
Consumer credit card	566,925		—		—		523,830		523,830
Overdrafts	4,190		—		—		4,077		4,077
Total loans	17,163,065		—		—		16,309,986		16,309,986
Loans held for sale	2,930		—		2,930		—		2,930




Investment securities	8,851,372		1,685,631		6,940,990		224,751		8,851,372

Securities purchased under agreements to resell	475,000		—		—		471,259		471,259
Interest earning deposits with banks	2,215,057		2,215,057		—		—		2,215,057
Cash and due from banks	329,692		329,692		—		—		329,692
Derivative instruments	86,709		—		86,511		198		86,709
Assets held in trust for deferred compensation plan	21,550		21,550		—		—		21,550
Total	$	29,145,375	$	4,251,930	$	7,030,431	$	17,006,194	$	28,288,555
Financial Liabilities
Non-interest bearing deposits	$	7,492,751	$	7,492,751	$	—	$	—	$	7,492,751
Savings, interest checking and money market deposits	14,367,710		14,367,710		—		—		14,367,710
Certificates of deposit	2,418,799		—		—		2,454,596		2,454,596
Federal funds purchased	254,720		254,720		—		—		254,720
Securities sold under agreements to repurchase	2,296,679		—		—		2,299,857		2,299,857
Other borrowings	3,956		—		3,956		—		3,956
Derivative instruments	36,915		—		36,832		83		36,915
Liabilities held in trust for deferred compensation plan	21,550		21,550		—		—		21,550
Total	$	26,893,080	$	22,136,731	$	40,788	$	4,754,536	$	26,932,055

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	Carrying Amount		Estimated Fair Value at December 31, 2023
(In thousands)			Level 1		Level 2		Level 3		Total
Financial Assets
Loans:
Business	$	6,019,036	$	—	$	—	$	5,873,549	$	5,873,549
Real estate - construction and land	1,446,764		—		—		1,420,522		1,420,522
Real estate - business	3,719,306		—		—		3,594,834		3,594,834
Real estate - personal	3,026,041		—		—		2,568,026		2,568,026
Consumer	2,077,723		—		—		2,016,334		2,016,334
Revolving home equity	319,894		—		—		317,013		317,013
Consumer credit card	589,913		—		—		550,464		550,464
Overdrafts	6,802		—		—		6,649		6,649
Total loans	17,205,479		—		—		16,347,391		16,347,391
Loans held for sale	4,177		—		4,177		—		4,177




Investment securities	9,941,786		822,237		8,896,129		223,420		9,941,786
Federal funds sold	5,025		5,025		—		—		5,025
Securities purchased under agreements to resell	450,000		—		—		444,448		444,448
Interest earning deposits with banks	2,239,010		2,239,010		—		—		2,239,010
Cash and due from banks	443,147		443,147		—		—		443,147
Derivative instruments	116,876		—		116,710		166		116,876
Assets held in trust for deferred compensation plan	20,538		20,538		—		—		20,538
Total	$	30,426,038	$	3,529,957	$	9,017,016	$	17,015,425	$	29,562,398
Financial Liabilities
Non-interest bearing deposits	$	7,975,935	$	7,975,935	$	—	$	—	$	7,975,935
Savings, interest checking and money market deposits	14,512,273		14,512,273		—		—		14,512,273
Certificates of deposit	2,875,690		—		—		2,916,627		2,916,627
Federal funds purchased	261,305		261,305		—		—		261,305
Securities sold under agreements to repurchase	2,647,510		—		—		2,650,951		2,650,951
Other borrowings	1,366		—		1,366		—		1,366
Derivative instruments	37,899		—		37,704		195		37,899
Liabilities held in trust for deferred compensation plan	20,538		20,538		—		—		20,538
Total	$	28,332,516	$	22,770,051	$	39,070	$	5,567,773	$	28,376,894

17. Legal and Regulatory Proceedings

The Company has various legal proceedings pending at June 30, 2024, arising in the normal course of business. While some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet progressed to the point where a loss amount can be determined to be probable and estimable.

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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 2023 Annual Report on Form 10-K. Results of operations for the three and six months ended June 30, 2024 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, 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 2023 Annual Report on Form 10-K. During the quarter ended June 30, 2024, there were no material changes to the Risk Factors disclosed in the Company's 2023 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 2023 Annual Report on Form 10-K. There have been no changes in the Company's application of critical accounting policies since December 31, 2023.

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Selected Financial Data


	Three Months Ended June 30						Six Months Ended June 30
	2024			2023			2024			2023
Per Share Data
Net income per common share — basic	$	1.07		$	.97	*	$	1.94		$	1.88	*
Net income per common share — diluted	1.07			.97		*	1.93			1.88		*
Cash dividends on common stock	.270			.257		*	.540			.514		*
Book value per common share							24.48			20.50		*
Market price							55.78			46.38		*
Selected Ratios
(Based on average balance sheets)
Loans to deposits (1)	70.73		%	66.15		%	70.30		%	65.57		%
Non-interest bearing deposits to total deposits	30.05			32.63			30.01			34.35
Equity to loans (1)	17.64			16.35			17.44			16.05
Equity to deposits	12.48			10.81			12.26			10.52
Equity to total assets	10.02			8.29			9.82			8.26
Return on total assets	1.86			1.56			1.67			1.55

Return on equity	18.52			18.81			16.98			18.78
(Based on end-of-period data)
Non-interest income to revenue (2)	36.73			37.17			37.06			36.27
Efficiency ratio (3)	55.95			57.22			58.75			57.35
Tier I common risk-based capital ratio							16.19			14.75
Tier I risk-based capital ratio							16.19			14.75
Total risk-based capital ratio							16.96			15.53
Tangible common equity to tangible assets ratio (4)							9.82			7.70
Tier I leverage ratio							12.13			10.46

* Restated for the 5% stock dividend distributed in December 2023.

(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.


	June 30
(Dollars in thousands)	2024			2023
Total equity	$	3,158,335		$	2,685,228
Less non-controlling interest	20,600			17,870

Less goodwill	146,539			146,371
Less intangible assets*	3,952			4,173
Total tangible common equity (a)	$	2,987,244		$	2,516,814
Total assets	$	30,569,358		$	32,831,262
Less goodwill	146,539			146,371
Less intangible assets*	3,952			4,173
Total tangible assets (b)	$	30,418,867		$	32,680,718
Tangible common equity to tangible assets ratio (a)/(b)	9.82		%	7.70		%

* Intangible assets other than mortgage servicing rights.

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Results of Operations

Summary


	Three Months Ended June 30						Six Months Ended June 30
(Dollars in thousands)	2024		2023		% change			2024		2023		% change
Net interest income (expense)	$	262,249	$	249,538	5.1	%		$	511,248	$	501,161	2.0	%
Provision for credit losses	(5,468)		(6,471)		(15.5)			(10,255)		(17,927)		(42.8)
Non-interest income	152,244		147,605		3.1			301,092		285,217		5.6
Investment securities gains (losses), net	3,233		3,392		(4.7)			2,974		3,086		(3.6)
Non-interest expense	(232,214)		(227,611)		2.0			(477,911)		(451,718)		5.8
Income taxes	(38,602)		(35,990)		7.3			(70,254)		(68,803)		2.1
Non-controlling interest income (expense)	(1,889)		(2,674)		(29.4)			(4,678)		(3,775)		23.9
Net income attributable to Commerce Bancshares, Inc.	$	139,553	$	127,789	9.2	%		$	252,216	$	247,241	2.0	%

For the quarter ended June 30, 2024, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $139.6 million, an increase of $11.8 million, or 9.2%, compared to the second quarter of the previous year. For the current quarter, the annualized return on average assets was 1.86%, the annualized return on average equity was 18.52%, and the efficiency ratio was 55.95%. Diluted earnings per common share was $1.07 per share in the current quarter, an increase of 10.3% compared to $.97 per share in the second quarter of 2023, and increased 24.4% compared to $.86 per share in the previous quarter.

Compared to the second quarter of last year, net interest income increased $12.7 million, or 5.1%, mainly due to an increase in interest income on loans of $26.1 million and a $21.7 million decrease in interest expense on borrowings. This increase was partly offset by an increase of $29.7 million in interest expense on deposits. The provision for credit losses decreased $1.0 million, or 15.5%, compared to the same quarter in the prior year. Non-interest income increased $4.6 million, or 3.1%, compared to the second quarter of 2023, mainly due to an increase in trust fees, capital market fees, and deposit account fees, partly offset by lower letter of credit fees. Net gains on investment securities totaled $3.2 million in the current quarter compared to net gains of $3.4 million in the same quarter of last year. Securities gains in the current quarter primarily resulted from net gains of $178.2 million on equity investments and net gains in fair value of $5.7 million recorded on private equity investments. These gains were largely offset by net losses of $179.1 million on sales of available for sale debt securities. Non-interest expense increased $4.6 million, or 2.0%, over the second quarter of 2023, mainly due to increases in salaries expense and data processing and software expense, partly offset by lower deposit insurance expense and lower marketing expense.

Net income for the first six months of 2024 was $252.2 million, an increase of $5.0 million, or 2.0%, from the same period last year. Diluted earnings per common share was $1.93, an increase of 2.7% compared to $1.88 per share in the same period last year. For the first six months of 2024, the annualized return on average assets was 1.67%, the annualized return on average equity was 16.98%, and the efficiency ratio was 58.75%. Net interest income increased $10.1 million, or 2.0%, over the same period last year. This growth was largely due to an increase of $67.0 million in interest income on loans, an increase of $16.5 million in interest earned on deposits with banks, and a $24.8 million decrease in interest expense on borrowings, largely offset by a $85.3 million increase in interest expense on deposits. The provision for credit losses was $10.3 million for the first six months of 2024, compared to a provision of $17.9 million in the same period last year. Non-interest income increased $15.9 million, or 5.6%, from the first six months of last year mainly due to higher trust and deposit account fees. Non-interest expense increased $26.2 million, or 5.8%, over the first six months of last year mainly due to increases in salaries and data processing and software expense and higher litigation settlement 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 June 30, 2024 vs. 2023						Six Months Ended June 30, 2024 vs. 2023
	Change due to						Change due to
(In thousands)	Average Volume		Average Rate		Total		Average Volume		Average Rate		Total
Interest income, fully taxable equivalent basis:
Loans:
Business	$	3,081	$	7,665	$	10,746	$	5,454	$	19,893	$	25,347
Real estate - construction and land	420		1,523		1,943		1,571		5,640		7,211
Real estate - business	1,855		2,623		4,478		5,404		8,659		14,063
Real estate - personal	768		2,683		3,451		1,641		5,499		7,140
Consumer	408		4,816		5,224		599		10,691		11,290
Revolving home equity	480		87		567		924		660		1,584
Consumer credit card	(102)		200		98		126		965		1,091
Overdrafts	—		—		—		—		—		—
Total interest on loans	6,910		19,597		26,507		15,719		52,007		67,726
Loans held for sale	(108)		3		(105)		(210)		—		(210)
Investment securities:
U.S. government and federal agency securities	1,414		4,801		6,215		(530)		6,009		5,479
Government-sponsored enterprise obligations	(1)		—		(1)		(225)		(135)		(360)
State and municipal obligations	(2,346)		(152)		(2,498)		(4,963)		(1,010)		(5,973)
Mortgage-backed securities	(3,963)		(151)		(4,114)		(6,795)		1,939		(4,856)
Asset-backed securities	(5,390)		1,829		(3,561)		(11,102)		3,899		(7,203)
Other securities	5,226		(4,499)		727		4,986		(1,097)		3,889
Total interest on investment securities	(5,060)		1,828		(3,232)		(18,629)		9,605		(9,024)
Federal funds sold	(82)		4		(78)		(567)		10		(557)
Securities purchased under agreements to resell	(2,580)		902		(1,678)		(4,925)		929		(3,996)
Interest earning deposits with banks	(2,356)		1,732		(624)		11,682		4,790		16,472
Total interest income	(3,276)		24,066		20,790		3,070		67,341		70,411
Interest expense:
Deposits:
Savings	(23)		33		10		(50)		62		12
Interest checking and money market	1,298		25,475		26,773		1,845		60,355		62,200
Certificates of deposit of less than $100,000	(665)		1,063		398		5,386		3,778		9,164
Certificates of deposit of $100,000 and over	170		2,306		2,476		7,602		6,343		13,945
Total interest on deposits	780		28,877		29,657		14,783		70,538		85,321
Federal funds purchased	(3,046)		218		(2,828)		(4,896)		901		(3,995)
Securities sold under agreements to repurchase	371		1,908		2,279		1,068		5,154		6,222
Other borrowings	(21,100)		(39)		(21,139)		(27,930)		71		(27,859)
Total interest expense	(22,995)		30,964		7,969		(16,975)		$	76,664	$	59,689
Net interest income, tax equivalent basis	$	19,719	$	(6,898)	$	12,821	$	20,045	$	(9,323)	$	10,722

Net interest income in the second quarter of 2024 was $262.2 million, an increase of $12.7 million over the second quarter of 2023. On a fully taxable-equivalent (FTE) basis, net interest income totaled $264.6 million in the second quarter of 2024, up $12.8 million over the same period last year and up $13.3 million over the previous quarter. The increase in net interest income

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compared to the second quarter of 2023 was mainly due to higher interest income earned on loans (FTE) of $26.5 million and lower interest expense on borrowings of $21.7 million, partly offset by higher deposit interest expense of $29.7 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. Interest expense on borrowings decreased mainly due to lower average balances, while the increase in deposit interest expense was due to higher average rates paid. The Company's net yield on earning assets (FTE) was 3.55% in the current quarter compared to 3.12% in the second quarter of 2023.

Total interest income (FTE) increased $20.8 million over the second quarter of 2023. Interest income on loans (FTE) was $269.2 million during the second quarter of 2024, an increase of $26.5 million, or 10.9%, 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 46 basis points in the average rate earned and growth of $505.4 million, or 3.0%, in average loan balances. Most of the increase in interest income occurred in the business, business real estate and consumer loan categories. The largest increase to interest income occurred in business loan interest, which grew $10.7 million due to a 53 basis point increase in the average rate earned, coupled with growth in average balances of $223.0 million, or 3.9%. Business real estate loan interest income increased $4.5 million due to an increase of 30 basis points in the average rate earned and higher average balances of $125.2 million, or 3.5%. Consumer loan interest income grew $5.2 million due to a 93 basis point increase in the average rate earned. In addition, construction and land loan interest income increased $1.9 million due to an increase of 44 basis points in the average rate earned and higher average loan balances of $21.3 million, or 1.5%. Personal real estate loan interest income grew $3.5 million due to a 36 basis point increase in the average rate earned and growth of $84.0 million, or 2.8%, in average loan balances.

Interest income on investment securities (FTE) was $71.4 million during the second quarter of 2024, which was a decrease of $3.2 million from the same quarter last year. The decrease in interest income occurred mainly in interest earned on mortgage-backed securities and asset-backed securities. Interest income earned on mortgage-backed securities declined $4.1 million due to a $762.6 million, or 12.1%, decrease in average balances. In addition, the Company recorded a $740 thousand adjustment to premium amortization at June 30, 2024, which increased income and reflected slower forward prepayment speed estimates on mortgage-backed securities. The adjustment this quarter was lower than the $1.7 million in the same quarter last year. Interest income earned on asset-backed securities declined $3.6 million due to lower average balances of $1.0 billion, or 36.9%, partly offset by a 42 basis point increase in the average rate earned. Interest income earned on state and municipal obligations declined $2.5 million due to a $462.6 million, or 30.2%, decrease in average balances. These decreases to interest income were partly offset by growth in interest income on U.S. government and federal agency obligations of $6.2 million, driven by a 162 basis point increase in the average rate earned and higher average balances of $166.3 million. Interest income related to the Company's U.S. Treasury inflation-protected securities, which is tied to the non-seasonally adjusted Consumer Price Index (CPI-U), increased $1.2 million over the same quarter last year. Additionally, the average rate earned on investment securities during the three months ended June 30, 2024 increased 38 basis points over the same 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 $10.4 billion in the second quarter of 2024, compared to $12.6 billion in the second quarter of 2023.

Interest income on securities purchased under agreements to resell decreased $1.7 million from the same quarter last year, due to a decline of $521.4 million in the average balance, partly offset by an increase of 122 basis points in the average rate earned. Interest income on balances at the Federal Reserve decreased $624 thousand due to a decrease of $184.4 million in the average balance invested, partly offset by an increase of 34 basis points in the average rate earned.

The average fully taxable-equivalent yield on total interest earning assets was 4.98% in the second quarter of 2024, up from 4.34% in the second quarter of 2023.

Total interest expense increased $8.0 million compared to the second quarter of 2023 due to an increase of $29.7 million in interest expense on interest bearing deposits, partly offset by a $21.7 million decrease in interest expense on borrowings. The increase in deposit interest expense resulted mainly from an increase of $26.8 million in interest expense on interest checking and money market deposit accounts due to an 80 basis point increase in the average rate paid and an increase of $243.7 million in average balances. In addition, interest expense on certificates of deposit increased $2.9 million mainly due to an increase of 55 basis points in the average rate paid. The overall rate paid on total deposits increased 70 basis points over the same quarter last year. Interest expense on other borrowings decreased $21.1 million due to a decrease of $1.6 billion in average Federal Home Loan Bank (FHLB) borrowings. In addition, interest expense on federal funds purchased decreased $2.8 million mainly due to a $242.1 million decrease in the average balance, while interest expense on customer repurchase agreements increased $2.3 million mainly due to a 35 basis point increase in the average rate paid. The overall average rate incurred on all interest bearing liabilities was 2.21% and 1.87% in the second quarters of 2024 and 2023, respectively.

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Net interest income (FTE) for the first six months of 2024 was $515.9 million compared to $505.2 million for the same period in 2023. For the first six months of 2024, the net interest margin was 3.44% compared to 3.18% for the same period in 2023.

Total interest income (FTE) for the first six months of 2024 increased $70.4 million over the same period last year mainly due to higher interest income on loans (FTE) and balances at the Federal Reserve, partly offset by lower interest income on investment securities (FTE). Loan interest income (FTE) increased $67.7 million, or 14.5%, due to a 59 basis point increase in the average rate earned and a $590.1 million, or 3.6%, increase in average loan balances. Most of the increase occurred in the business, business real estate and consumer 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 $9.0 million due to a $2.3 billion decrease in average balances, partly offset by a 32 basis point increase in the average rate earned. Interest earned on asset-backed and mortgage-backed securities decreased $7.2 million and $4.9 million, respectively, due to lower average balances, partly offset by increases in the average rate earned. Interest earned on state and municipal obligations decreased $6.0 million due to declines in both the average balance and the average rate earned. These decreases in interest income on investment securities were partly offset by an increase in interest earned on U.S. government and federal agency obligations of $5.5 million, mainly due to an increase in the average rate earned. Interest income on securities purchased under agreements to resell decreased $4.0 million due to lower average balances, partly offset by higher average rates earned. Interest income on balances at the Federal Reserve increased $16.5 million due to higher average balances and average rates earned.

Total interest expense for the first six months of 2024 increased $59.7 million compared to the same period last year. Interest expense on deposits increased $85.3 million, due to a 97 basis point increase in the average rate paid and a $493.6 million increase in average balances. Interest expense on borrowings decreased $25.6 million, mainly due lower FHLB borrowings of $1.1 billion. In addition, interest expense on federal funds purchased declined mainly due to lower average balances, while interest expense on customer repurchase agreements increased due to higher average rates and average balances. The overall cost of total interest bearing liabilities increased to 2.21% compared to 1.55% 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 June 30						Increase (Decrease)				Six Months Ended June 30						Increase (Decrease)
(Dollars in thousands)	2024			2023			Amount		% change		2024			2023			Amount		% change
Trust fees	$	52,291		$	47,265		$	5,026	10.6	%	$	103,396		$	92,593		$	10,803	11.7	%
Bank card transaction fees	47,477			49,725			(2,248)		(4.5)		94,407			96,379			(1,972)		(2.0)
Deposit account charges and other fees	25,325			22,633			2,692		11.9		49,476			44,385			5,091		11.5
Consumer brokerage services	4,478			4,677			(199)		(4.3)		8,886			9,762			(876)		(9.0)
Capital market fees	4,760			2,945			1,815		61.6		8,652			6,307			2,345		37.2
Loan fees and sales	3,431			2,735			696		25.4		6,572			5,324			1,248		23.4
Other	14,482			17,625			(3,143)		(17.8)		29,703			30,467			(764)		(2.5)
Total non-interest income	$	152,244		$	147,605		$	4,639	3.1	%	$	301,092		$	285,217		$	15,875	5.6	%
Non-interest income as a % of total revenue*	36.7		%	37.2		%					37.1		%	36.3		%

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

The table below is a summary of net bank card transaction fees for the six month periods ended June 30, 2024 and 2023.


	Three Months Ended June 30								Six Months Ended June 30
(Dollars in thousands)	2024		2023		$ change		% change		2024		2023		$ change		% change
Net debit card fees	$	11,383	$	11,340	$	43	.4	%	$	21,788	$	21,627	$	161	.7	%
Net credit card fees	4,033		3,812		221		5.8		7,805		7,486		319		4.3
Net merchant fees	5,865		5,359		506		9.4		11,112		10,710		402		3.8
Net corporate card fees	26,196		29,214		(3,018)		(10.3)		53,702		56,556		(2,854)		(5.0)
Total bank card transaction fees	$	47,477	$	49,725	$	(2,248)	(4.5	%)	$	94,407	$	96,379	$	(1,972)	(2.0	%)

For the second quarter of 2024, total non-interest income amounted to $152.2 million compared to $147.6 million in the same quarter last year, which was an increase of $4.6 million, or 3.1%. The increase was mainly due to higher trust fees, deposit account fees and capital market fees, partly offset by lower net bank card fees and letter of credit fees. Trust fees increased $5.0 million, or 10.6%, mainly due to growth of $4.8 million in private client trust fees. Bank card transaction fees for the current quarter declined $2.2 million, or 4.5%, from the same period last year, mainly due to lower net corporate card fees, partly offset by growth in net merchant fees. The decline in net corporate card fees of $3.0 million was mainly due to lower interchange fees and higher rewards expense. Net merchant fees increased $506 thousand mainly due to higher interchange fees, partly offset by higher network expense. Compared to the second quarter of last year, deposit account fees increased $2.7 million, or 11.9%, mainly due to higher corporate cash management fees of $2.4 million. Consumer brokerage fees declined $199 thousand, while capital market fees increased $1.8 million, or 61.6%, mainly due to higher underwriting fees. Other non-interest income decreased $3.1 million, or 17.8%, mainly due to decreases of $2.3 million in letter of credit fees and $919 thousand in swap fees.

Non-interest income for the first six months of 2024 was $301.1 million compared to $285.2 million in the first six months of 2023, which was an increase of $15.9 million, or 5.6%. The increase was mainly due to higher trust fees, deposit account fees and capital market fees, partly offset by lower net bank card fees. Trust fees increased $10.8 million, or 11.7%, mainly due to higher private client and institutional trust fees. Bank card transaction fees for the current year declined $2.0 million, or 2.0%, from the same period last year, mainly due to a decrease of $2.9 million in net corporate card fees, partly offset by an increase in net merchant fees of $402 thousand. Deposit account fees increased $5.1 million, or 11.5%, mainly due to higher corporate cash management fees and overdraft and return item fees. Capital market fees increased $2.3 million, or 37.2%, mainly due to higher underwriting fees, while loan fees and sales increased $1.2 million mainly due to higher loan commitment fees and mortgage banking revenue. Other non-interest income decreased $764 thousand, or 2.5%, mainly due to decreases of $2.2 million in letter of credit fees and $1.4 million in swap fees. These decreases were partly offset by higher tax credit sales income of $1.9 million and cash sweep commissions of $1.3 million.

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Investment Securities Gains (Losses), Net


	Three Months Ended June 30				Six Months Ended June 30
(In thousands)	2024		2023		2024		2023
Net gains (losses) on sales of available for sale debt securities	$	(179,073)	$	(5,356)	$	(187,543)	$	(8,444)


Net gains (losses) on equity securities	178,164		(563)		178,306		(690)
Net gains (losses) on sales of private equity investments	(1,535)		221		(566)		879
Fair value adjustments on private equity investments	5,677		9,090		12,777		11,341



Total investment securities gains (losses), net	$	3,233	$	3,392	$	2,974	$	3,086

Net gains on investment securities, which were recognized in earnings during the three months ended June 30, 2024 and 2023, are shown in the table above. Net securities gains of $3.2 million were reported in the second quarter of 2024, compared to net gains of $3.4 million in the same period last year. The net gains in the second quarter of 2024 were mainly comprised of net gains of $178.2 million on equity investments and net gains in fair value of $5.7 million recorded on private equity investments. These gains were largely offset by net losses of $179.1 million on sales of available for sale debt securities. The net gains on investment securities for the same quarter last year were primarily comprised of $9.1 million of net gains in fair value on the Company’s private equity investments, partially offset by losses of $5.4 million on the sale of available for sale securities.

Net gains on investment securities of $3.0 million were recognized in earnings for the six months ended June 30, 2024, compared to net gains of $3.1 million for the same period in 2023. Net gains in the first half of 2024 were mainly comprised of net gains of $178.3 million on equity investments and net gains in fair value of $12.8 million recorded on private equity investments, largely offset by net losses of $187.5 million on sales of available for sale securities. Net gains in the first half of 2023 were mainly comprised of net gains in fair value of $11.3 million on private equity investments, due to fair value adjustments, partially offset by losses of $8.4 million on sales of available for sale debt securities. 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 $1.8 million during the first six months of 2024 and expense of $2.5 million during the first six months of 2023.

The Company's significant gains in equity securities for the three and six months ended June 30, 2024 primarily relate to gains recorded on its shares of Visa, as described in Note 3, Investment Securities. Likewise, the $179.1 million losses realized on the Company's available for sale debt securities portfolio relate to the successful execution of its planned available for sale debt security portfolio repositioning, in which the Company sold bonds with an amortized cost of $1.2 billion and subsequently reinvested the proceeds into higher yielding available for sale debt securities. Additional information about the Company's available for sale debt portfolio repositioning transactions is discussed in Note 3, Investment Securities.

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Non-Interest Expense


	Three Months Ended June 30				Increase (Decrease)				Six Months Ended June 30				Increase (Decrease)
(Dollars in thousands)	2024		2023		Amount		% change		2024		2023		Amount		% change
Salaries and employee benefits	$	149,120	$	145,429	$	3,691	2.5	%	$	300,921	$	289,802	$	11,119	3.8	%
Data processing and software	31,529		28,719		2,810		9.8		62,682		56,873		5,809		10.2
Net occupancy	12,544		12,995		(451)		(3.5)		26,118		25,754		364		1.4
Deposit insurance	2,354		4,187		(1,833)		(43.8)		10,371		8,830		1,541		17.5
Equipment	5,091		4,864		227		4.7		10,101		9,714		387		4.0
Marketing	5,356		6,368		(1,012)		(15.9)		9,392		11,839		(2,447)		(20.7)
Supplies and communication	4,636		4,625		11		.2		9,380		9,215		165		1.8
Other	21,584		20,424		1,160		5.7		48,946		39,691		9,255		23.3
Total non-interest expense	$	232,214	$	227,611	$	4,603	2.0	%	$	477,911	$	451,718	$	26,193	5.8	%

Non-interest expense for the second quarter of 2024 amounted to $232.2 million, an increase of $4.6 million, or 2.0%, compared to expense of $227.6 million in the second quarter of last year. The increase in expense over the same period last year was mainly due to higher salaries expense, data processing and software expense and other non-interest expense, partly offset by lower marketing and deposit insurance expense. Salaries and employees benefits expense increased $3.7 million, or 2.5%, mainly due to higher full-time salaries expense of $3.8 million and other salaries expense of $1.0 million, partly offset by lower healthcare expense of $1.5 million. Full-time equivalent employees totaled 4,724 at June 30, 2024, compared to 4,680 at June 30, 2023. Data processing and software expense increased $2.8 million, or 9.8%, mainly due to increased costs for service providers. Occupancy expense decreased $451 thousand, or 3.5%, while marketing expense declined $1.0 million, or 15.9%. Deposit insurance expense decreased $1.8 million partly due to a $1.2 million accrual adjustment in the current quarter to the special assessment by the FDIC to replenish the Deposit Insurance Fund. Other non-interest expense increased $1.2 million, or 5.7%, mainly due to a $5.0 million donation to a related charitable foundation, partly offset by deconversion expense of $2.1 million recorded in the same period last year.

Non-interest expense amounted to $477.9 million for the first six months of 2024, an increase of $26.2 million, or 5.8%, over the first six months of 2023. Salaries and benefits expense increased $11.1 million, or 3.8%, mainly due to higher full-time salaries expense, other salaries expense and payroll taxes, partly offset by a decrease in healthcare expense. Data processing and software expense increased $5.8 million, or 10.2%, due to increased costs for service providers and higher bank card processing fees. Occupancy expense increased $364 thousand, or 1.4%, while equipment expense increased $387 thousand, or 4.0%, due to higher depreciation and service contract expense. Marketing expense decreased $2.4 million, or 20.7%, while deposit insurance increased $1.5 million, or 17.5%, due to accrual adjustments in 2024 to the special assessment by the FDIC. Other non-interest expense increased $9.3 million, or 23.3%, mainly due to litigation settlement expense of $10.0 million, net of insurance, and the charitable donation of $5.0 million, partly offset by deconversion expense of $2.1 million recorded in 2023.

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


	Three Months Ended						Six Months Ended June 30
(In thousands)	June 30, 2024		Mar. 31, 2024		June 30, 2023		2024		2023
ALLOWANCE FOR CREDIT LOSSES ON LOANS


Balance at beginning of period	$	160,465	$	162,395	$	159,317	$	162,395	$	150,136
Provision for credit losses on loans	7,849		6,947		5,864		$	14,796	$	21,812
Net loan charge-offs (recoveries):
Commercial:
Business	622		23		165		645		395
Real estate-construction and land	—		—		(115)		—		(115)
Real estate-business	(8)		(141)		(5)		(149)		(9)
Commercial net loan charge-offs (recoveries)	614		(118)		45		496		271
Personal Banking:
Real estate-personal	79		24		(6)		103		(17)
Consumer	1,804		1,983		1,273		3,787		2,548
Revolving home equity	(7)		(4)		(20)		(11)		(46)
Consumer credit card	6,746		6,435		4,687		13,181		9,012
Overdrafts	521		557		517		1,078		1,495
Personal banking net loan charge-offs (recoveries)	9,143		8,995		6,451		18,138		12,992
Total net loan charge-offs (recoveries)	9,757		8,877		6,496		18,634		13,263
Balance at end of period	$	158,557	$	160,465	$	158,685	$	158,557	$	158,685
LIABILITY FOR UNFUNDED LENDING COMMITMENTS


Balance at beginning of period	$	23,086	$	25,246	$	28,628	$	25,246	$	33,120
Provision for credit losses on unfunded lending commitments	(2,381)		(2,160)		607		(4,541)		(3,885)
Balance at end of period	20,705		23,086		29,235		20,705		29,235
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$	179,262	$	183,551	$	187,920	$	179,262	$	187,920


	Three Months Ended						Six Months Ended June 30
	June 30, 2024		Mar. 31, 2024		June 30, 2023		2024		2023
Annualized net loan charge-offs (recoveries)*:
Commercial:
Business	.04	%	—	%	.01	%	.02	%	.01	%
Real estate-construction and land	—		—		(.03)		—		(.02)
Real estate-business	—		(.02)		—		(.01)		—
Commercial net loan charge-offs (recoveries)	.02		—		—		.01		.01
Personal Banking:
Real estate-personal	.01		—		—		.01		—
Consumer	.34		.38		.24		.36		.25
Revolving home equity	(.01)		—		(.03)		(.01)		(.03)
Consumer credit card	4.91		4.60		3.38		4.75		3.27
Overdrafts	43.15		29.11		44.79		34.54		66.40
Personal banking net loan charge-offs (recoveries)	.61		.60		.44		.60		.44
Total annualized net loan charge-offs (recoveries)	.23	%	.21	%	.16	%	.22	%	.16	%

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

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The following schedule provides a breakdown of the allowance for credit losses on loans (ACL) by loan class and the percentage of the allowance for loan losses to the related loan class at period end.


(Dollars in thousands)	June 30, 2024				Mar. 31, 2024				June 30, 2023
	Credit Loss Allowance Allocation		% of ACL to Loan Category		Credit Loss Allowance Allocation		% of ACL to Loan Category		Credit Loss Allowance Allocation		% of ACL to Loan Category
Business	$	45,060	.74	%	$	43,810	.73	%	$	47,071	.80	%
RE — construction and land	29,920		2.14		31,437		2.10		31,013		2.14
RE — business	32,237		.90		30,217		.81		29,940		.83
RE — personal	9,109		.30		12,266		.40		10,727		.36
Consumer	11,086		.52		11,849		.56		11,503		.55
Revolving home equity	1,789		.54		1,801		.56		1,572		.52

Consumer credit card	29,201		5.15		28,940		5.13		26,720		4.65
Overdrafts	155		3.70		145		.30		139		1.92

Total	$	158,557	.92	%	$	160,465	.93	%	$	158,685	.94	%

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 2023 Annual Report on Form 10-K.

Net loan charge-offs in the second quarter of 2024 amounted to $9.8 million, compared to $8.9 million in the prior quarter and $6.5 million in the second quarter of last year. Compared to the same period last year, total net loan charge-offs in the second quarter of 2024 increased $3.3 million and increased $880 thousand from the previous quarter. The increase over the prior year was mainly driven by increases in net charge-offs on consumer credit card, consumer and business loans of $2.1 million, $531 thousand, and $457 thousand, respectively. The increase from the previous quarter was driven by the increase in net charge-offs on consumer credit card and business loans.

For the three months ended June 30, 2024, annualized net charge-offs on average consumer credit card loans were 4.91%, compared to 4.60% in the previous quarter and 3.38% in the same period last year. Consumer loan annualized net charge-offs in the current quarter amounted to .34%, compared to .38% in the prior quarter and .24% in the same period last year. In the second quarter of 2024, total annualized net loan charge-offs were .23%, compared to .21% in the previous quarter and .16% in the same period last year.

For the three months ended June 30, 2024, the provision for credit losses on loans was $7.8 million which was a $2.0 million increase over the $5.9 million provision recorded in the same period last year and a $902 thousand increase over the $6.9 million provision recorded at March 31, 2024. The increase in the provision for credit losses on loans during the second quarter of 2024 over the same period last year was due to higher net loan charge-offs during the second quarter of 2024, partly offset by a larger reduction in the allowance for credit losses on loans in the current quarter compared to the same period last year.

For the six months ended June 30, 2024, net loan charge-offs amounted to $18.6 million, which was a $5.4 million increase over the first six months of 2023. The increase in net charge-offs on loans during the first six months of 2024 was primarily driven by an increase in net charge-offs on consumer credit card and consumer loans. For the six months ended June 30, 2024, annualized net loan charge-offs on consumer credit card and consumer loans were 4.75% and .36%, respectively, compared to 3.27% and .25%, respectively, for the same period last year. The annualized net charge-offs on loans for the six months ended June 30, 2024 and 2023, respectively, were .22% and .16%.

For the six months ended June 30, 2024, the provision for credit losses on loans was $14.8 million, which was a $7.0 million decrease from the $21.8 million provision recorded in the same period last year. Changes in the provision are driven by changes in the estimate for the allowance for credit losses on loans. The decrease in the provision for credit losses on loans in the first half of 2024 compared to the same period last year was primarily due to a reduction of the allowance for credit losses on loans during 2024, caused in part by an improving economic forecast in 2024, whereas the allowance for credit losses on

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loans in the first half of 2023 was increasing due to a weakening economic forecast which included a mild recession. The decrease in the provision for credit losses on loans during the first half of 2024 compared to the same period in the prior year was partly offset by higher net charge-offs recorded in the six months ended June 30, 2024 compared to the first half of 2023.

For the six months ended June 30, 2024, the allowance for credit losses on loans decreased by $3.8 million, compared to the allowance for credit losses on loans at December 31, 2023. During the six months ended June 30, 2024, the allowance for credit losses on commercial loans decreased by $984 thousand, while the allowance for credit losses related to personal banking loans, including consumer credit card loans, decreased $2.9 million. The decrease in the allowance for credit losses on loans during the first half of 2024 was primarily the result of a slightly more optimistic economic forecast at June 30, 2024, coupled with a faster prepayment speed assumption in the personal real estate portfolio compared to the assumptions used at December 31, 2023. The allowance for credit losses on loans was $158.6 million at June 30, 2024 and was .92%, .94% and .94% of total loans at June 30, 2024, December 31, 2023 and June 30, 2023, respectively.

In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $2.4 million, compared to a provision of $607 thousand for the three months ended June 30, 2023. For the six months ended June 30, 2024, the provision for credit losses on unfunded commitments was a benefit of $4.5 million compared to a benefit of $3.9 million in the first six months of 2023. At June 30, 2024, the liability for unfunded lending commitments was $20.7 million, compared to $25.2 million at December 31, 2023 and $29.2 million at June 30, 2023. The liability decreased primarily due to decreases in unfunded lending commitment balances, coupled with improvement in loss rate assumptions for the Company's construction loans. 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.

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 June 30, 2024.

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 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.

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)	June 30, 2024			December 31, 2023







Non-accrual loans	$	19,303		$	7,312
Foreclosed real estate	143			270
Total non-performing assets	$	19,446		$	7,582
Non-performing assets as a percentage of total loans	.11		%	.04		%
Non-performing assets as a percentage of total assets	.06		%	.02		%








Total loans past due 90 days and still accruing interest	$	18,566		$	21,864

Non-accrual loans totaled $19.3 million at June 30, 2024, an increase of $12.0 million from the balance at December 31, 2023. The increase occurred mainly in business real estate non-accrual loans, which increased $15.0 million. The increase was partly offset by a $3.1 million decrease in business non-accrual loans. At June 30, 2024, non-accrual loans were comprised of business real estate (78.0%), revolving home equity (10.2%), personal real estate (9.2%), and business (2.6%) loans. Foreclosed real estate totaled $143 thousand at June 30, 2024, a decrease of $127 thousand compared to December 31, 2023. Total loans past due 90 days or more and still accruing interest were $18.6 million as of June 30, 2024, a decrease of $3.3 million from

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December 31, 2023. 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 $242.2 million at June 30, 2024 compared with $216.4 million at December 31, 2023, resulting in an increase of $25.8 million, or 11.9%.


(In thousands)	June 30, 2024		December 31, 2023
Potential problem loans:
Business	$	122,774	$	74,760
Real estate – construction and land	17,452		—
Real estate – business	101,549		140,800
Real estate – personal	419		827

Total potential problem loans	$	242,194	$	216,387

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. At June 30, 2024, the Company held $84.7 million of loans that had been modified during the six months ended June 30, 2024. These loans are further discussed in the "Modifications for borrowers experiencing financial difficulty" section in Note 2 to the consolidated financial statements.

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.

Real Estate – Construction and Land Loans

The Company's portfolio of construction and land loans, as shown in the table below, amounted to 8.1% of total loans outstanding at June 30, 2024. The largest component of construction and land loans was commercial construction, which decreased $65.2 million during the six months ended June 30, 2024. At June 30, 2024, multi-family residential construction loans totaled approximately $469.2 million, or 40.5%, of the commercial construction loan portfolio, compared to $414.6 million, or 33.9%, at December 31, 2023.


(Dollars in thousands)	June 30, 2024		% of Total		% of Total Loans		December 31, 2023		% of Total		% of Total Loans
Commercial construction	$	1,157,721	82.9	%	6.7	%	$	1,222,961	84.5	%	7.1	%
Residential construction	118,223		8.5		.7		110,687		7.7		.6
Residential land and land development	67,469		4.8		.4		62,417		4.3		.4
Commercial land and land development	53,102		3.8		.3		50,699		3.5		.3
Total real estate - construction and land loans	$	1,396,515	100.0	%	8.1	%	$	1,446,764	100.0	%	8.4	%

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Real Estate – Business Loans

Total business real estate loans were $3.6 billion at June 30, 2024 and comprised 20.8% 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 June 30, 2024, 33.1% 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)	June 30, 2024		% of Total		% of Total Loans		December 31, 2023		% of Total		% of Total Loans
Owner-occupied	$	1,184,115	33.1	%	6.9	%	$	1,175,476	31.6	%	6.8	%
Office	525,818		14.7		3.1		489,320		13.2		2.8
Industrial	465,706		13.0		2.7		630,713		17.0		3.7
Retail	320,064		9.0		1.9		366,693		9.9		2.1
Hotels	300,677		8.4		1.8		292,941		7.9		1.7
Multi-family	292,627		8.2		1.7		256,657		6.9		1.5
Farm	195,972		5.5		1.1		195,981		5.3		1.1
Senior living	189,194		5.3		1.1		183,778		4.9		1.1
Other	98,366		2.8		.5		127,747		3.3		.8
Total real estate - business loans	$	3,572,539	100.0	%	20.8	%	$	3,719,306	100.0	%	21.6	%

Information about the credit quality of the Company's business real estate loan portfolio as of June 30, 2024 and December 31, 2023 is provided in the table below.


(Dollars in thousands)	Pass		Special Mention		Substandard		Non-Accrual		Total
June 30, 2024
Owner-occupied	$	1,160,625	$	15,975	$	7,489	$	26	$	1,184,115
Office	505,315		17,800		2,703		—		525,818
Industrial	465,662		44		—		—		465,706
Retail	303,850		15,500		714		—		320,064
Hotels	299,381		—		1,296		—		300,677
Multi-family	280,510		10,984		1,133		—		292,627
Farm	194,951		691		330		—		195,972
Senior living	66,131		20,158		87,881		15,024		189,194
Other	98,141		225		—		—		98,366
Total	$	3,374,566	$	81,377	$	101,546	$	15,050	$	3,572,539
December 31, 2023
Owner-occupied	$	1,146,112	$	10,376	$	18,928	$	60	$	1,175,476
Industrial	630,644		69		—		—		630,713
Office	489,320		—		—		—		489,320
Retail	349,321		15,500		1,872		—		366,693
Hotels	282,105		9,253		1,583		—		292,941
Multi-family	255,507		1,150		—		—		256,657
Farm	195,981		—		—		—		195,981
Senior living	69,379		—		114,399		—		183,778
Other	127,505		242		—		—		127,747
Total	$	3,545,874	$	36,590	$	136,782	$	60	$	3,719,306

Revolving Home Equity Loans

The Company had $331.4 million in revolving home equity loans at June 30, 2024 that were collateralized by residential real estate. Most of these loans (92.1%) 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 June 30, 2024, the outstanding

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principal of loans with an original LTV higher than 80% was $29.9 million, or 9.0% of the portfolio, compared to $32.3 million as of December 31, 2023. Total revolving home equity loan balances over 30 days past due were $4.9 million at June 30, 2024 and $4.4 million at December 31, 2023, and the outstanding balance of revolving home equity loans on non-accrual status was $2.0 million at both June 30, 2024 and December 31, 2023. The weighted average FICO score for the total portfolio balance at June 30, 2024 is 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 2024 through 2026, approximately 16% of the Company's current outstanding balances are expected to mature. Of these balances, approximately 84% 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 38.6% of the consumer loan portfolio at June 30, 2024, and outstanding balances for auto loans were $827.6 million and $820.3 million at June 30, 2024 and December 31, 2023, respectively. The balances over 30 days past due amounted to $9.9 million at June 30, 2024 and $9.5 million at December 31, 2023, respectively, and comprised 1.2% of the outstanding balances of these loans at both June 30, 2024 and December 31, 2023. For the six months ended June 30, 2024, $196.4 million of new auto loans were originated, compared to $210.1 million during the first six months of 2023. At June 30, 2024, the automobile loan portfolio had a weighted average FICO score of 757, and net charge-offs on auto loans were .4% of average auto loans.

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 10.7% of the consumer loan portfolio at June 30, 2024. Losses on these loans have historically been low, and the Company saw net recoveries of $62 thousand for the first six months of 2024. Private banking loans comprised 34.2% of the consumer loan portfolio at June 30, 2024. The Company's private banking loans are generally well-collateralized, and at June 30, 2024 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 $2.1 million in the first six months of 2024 and were .4% of the average balances of these loans at June 30, 2024.

Consumer Credit Card Loans

The Company offers low promotional rates on selected consumer credit card products. Out of a portfolio at June 30, 2024 of $566.9 million in consumer credit card loans outstanding, approximately $112.3 million, or 19.8%, carried a low promotional rate. Within the next six months, $50.0 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 $268.8 million, or 1.6% of total loans at June 30, 2024, a decrease of $3.2 million from December 31, 2023, as shown in the table below.


(In thousands)	June 30, 2024		December 31, 2023		Unfunded commitments at June 30, 2024
Extraction	$	212,844	$	219,828	$	154,932
Mid-stream shipping and storage	41,429		35,505		92,647
Downstream distribution and refining	7,475		8,890		40,692
Support activities	7,080		7,811		8,833
Total energy lending portfolio	$	268,828	$	272,034	$	297,104

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

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communities or regional markets and opportunities to provide other banking services are present. The balance of SNC loans totaled $1.6 billion and $1.5 billion at June 30, 2024 and December 31, 2023, respectively. Additional unfunded commitments at June 30, 2024 totaled $2.4 billion.

Income Taxes

Income tax expense was $38.6 million in the second quarter of 2024, compared to $31.7 million in the first quarter of 2024 and $36.0 million in the second quarter of 2023. The Company's effective tax rate, including the effect of non-controlling interest, was 21.7% in the second quarter of 2024, compared to 21.9% in the first quarter of 2024 and 22.0% in the second quarter of 2023.

Financial Condition

Balance Sheet

Total assets of the Company were $30.6 billion at June 30, 2024 and $31.7 billion at December 31, 2023. Earning assets (excluding the allowance for credit losses on loans and fair value adjustments on debt securities) amounted to $29.8 billion at June 30, 2024 and $31.1 billion at December 31, 2023, and consisted of 58% in loans and 33% in investment securities at June 30, 2024.

At June 30, 2024, total loans decreased $42.4 million or .25%, compared to balances at December 31, 2023. The decrease was mainly due to declines in business real estate, construction and consumer credit card loans of $146.8 million, $50.2 million, and $23.0 million, respectively. These decreases were partly offset by an increase of $71.7 million in business loans, mainly due to growth in commercial and industrial lending and tax-free loan balances. In addition, personal real estate loans increased $29.1 million, while consumer loans, which includes automobile, marine and RV, fixed rate home equity and other consumer loans, increased $67.9 million, mainly due to growth in other consumer loans.

Total available for sale debt securities, excluding fair value adjustments, decreased $1.3 billion at June 30, 2024 compared to December 31, 2023. Purchases of available for sale debt securities during this period totaled $1.1 billion, offset by available for sale debt security sales, maturities and pay downs of $2.4 billion. The decline in available for sale debit securities was mainly the result of lower balances of mortgage-backed securities, asset-backed securities and state and municipal obligations, which decreased $812.5 million, $554.0 million, and $476.7 million, respectively, at June 30, 2024 compared to December 31, 2023. These decreases were partly offset by an increase of $820.0 million in balances of U.S. government and federal agency obligations. At June 30, 2024, the duration of the available for sale investment portfolio was 4.0 years, and maturities and pay downs of approximately $1.6 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 June 30, 2024 amounted to $24.3 billion, a decrease of $1.1 billion compared to December 31, 2023. The decline in deposits largely resulted from a decrease in demand deposits, mainly in business demand deposits (decrease of $660.2 million). Additionally, certificate of deposit balances decreased $456.9 million and interest checking balances decreased $150.3 million from balances at December 31, 2023. The Company’s borrowings totaled $2.6 billion at June 30, 2024, a decrease of $354.8 million from balances at December 31, 2023, mainly due to a decline in FHLB advances, which were repaid in 2023.

Liquidity and Capital Resources

Liquidity Management

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


(In thousands)	June 30, 2024		June 30, 2023		December 31, 2023
Liquid assets:
Balances at the Federal Reserve Bank	$	2,215,057	$	2,568,695	$	2,239,010
Federal funds sold	—		2,750		5,025
Available for sale debt securities	8,534,271		10,414,625		9,684,760
Securities purchased under agreements to resell	475,000		825,000		450,000
Total	$	11,224,328	$	13,811,070	$	12,378,795

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Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $2.2 billion at June 30, 2024 and decreased $24.0 million from December 31, 2023 balances. At June 30, 2024, the Company did not have a balance of federal funds sold, which are funds lent to the Company's correspondent bank customers with overnight maturities. The fair value of the available for sale debt portfolio was $8.5 billion at June 30, 2024 and included an unrealized net loss of $1.1 billion. The total net unrealized loss included net losses of $926.9 million on mortgage-backed and asset-backed securities and $93.9 million on state and municipal obligations.

Resale agreements, maturing through 2029, totaled $475.0 million at June 30, 2024. Under these agreements, the Company lends funds to upstream financial institutions and holds marketable securities, safe-kept by a third-party custodian, as collateral. This collateral totaled $490.3 million in fair value at June 30, 2024. $125.0 million of the Company's resale agreements will mature in the next 12 months.

The Company's available for sale debt securities portfolio has a diverse mix of high quality and liquid investment securities with a duration of 4.0 years at June 30, 2024. Approximately $1.6 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 either new loan demand or offset potential reductions in the Company's deposit funding base. The Company pledges portions of its investment securities portfolio to secure public fund deposits, securities sold under agreements to repurchase, trust funds, letters of credit issued by the FHLB, and borrowing capacity at the FHLB and the Federal Reserve Bank. Total investment securities pledged for these purposes were as follows:


(In thousands)	June 30, 2024		June 30, 2023		December 31, 2023
Investment securities pledged for the purpose of securing:
Federal Reserve Bank borrowings	$	1,056,405	$	2,852,481	$	2,636,523
FHLB borrowings and letters of credit	970,083		315,323		301,617
Securities sold under agreements to repurchase *	2,354,023		2,630,852		2,710,616
Other deposits and swaps	2,131,700		2,340,094		1,818,092
Total pledged securities	6,512,211		8,138,750		7,466,848
Unpledged and available for pledging	2,020,981		2,263,586		2,211,243
Ineligible for pledging	1,079		12,289		6,669
Total available for sale debt securities, at fair value	$	8,534,271	$	10,414,625	$	9,684,760

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

The average loans to deposits ratio is a measure of a bank's liquidity, and the Company’s average loans to deposits ratio was 70.3% for the six months ended June 30, 2024. Core customer deposits, defined as non-interest bearing, interest checking, savings, and money market deposit accounts totaled $21.9 billion and represented 90.0% of the Company's total deposits at June 30, 2024. 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. Core deposits decreased $627.7 million at June 30, 2024 compared to December 31, 2023, primarily due to decreases in commercial, wealth, and consumer segment deposits of $371.1 million, $225.5 million, and $70.9 million, respectively. While the Company considers core consumer and wealth management deposits less volatile, corporate deposits could decline if interest rates increase significantly, encouraging corporate customers to increase investing activities, or if the economy deteriorates and companies experience lower cash inflows, reducing deposit balances. If these corporate deposits decline, the Company's funding needs may be met by liquidity supplied by investment security maturities and pay downs expected to total $1.6 billion over the next year, as noted above. In addition, as shown in the table of collateral available for future advances below, the Company has borrowing capacity of $6.3 billion through advances from the FHLB and the Federal Reserve.

Certificates of deposit of $100,000 or greater totaled $1.4 billion at June 30, 2024. These deposits are normally considered more volatile and higher costing, and comprised 5.8% of total deposits at June 30, 2024.


(In thousands)	June 30, 2024		June 30, 2023		December 31, 2023
Core deposit base:
Non-interest bearing	$	7,492,751	$	8,198,849	$	7,975,935
Interest checking	6,870,344		6,790,331		7,020,134
Savings and money market	7,497,366		7,628,643		7,492,139
Total	$	21,860,461	$	22,617,823	$	22,488,208

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Amid the banking sector's period of uncertainty during the second quarter of 2023, the Company issued several tranches of short-term brokered certificates of deposit totaling $1.2 billion, which all matured by December 31, 2023. While it is not clear how many brokered certificates of deposit the market would allow the Company to issue, the Company believes brokered certificates of deposits may be an additional, reliable source of liquidity during periods of stress in the banking industry.

Other important components of liquidity are the level of borrowings from third party sources and the availability of future credit. During 2024, the Company's outside borrowings have mainly been comprised of federal funds purchased and repurchase agreements, as follows:


(In thousands)	June 30, 2024		June 30, 2023		December 31, 2023
Borrowings:
Federal funds purchased	$	254,720	$	511,400	$	261,305
Securities sold under agreements to repurchase	2,296,679		2,366,621		2,647,510
FHLB advances	—		1,000,000		—
Other debt	3,984		5,613		1,404
Total	$	2,555,383	$	3,883,634	$	2,910,219

Federal funds purchased, which totaled $254.7 million at June 30, 2024, are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit. At June 30, 2024, the Company had approved lines of credit totaling $3.5 billion. Since these borrowings are unsecured and limited by market trading activity, their availability may be less certain than collateralized sources of borrowings. Retail repurchase agreements are offered to customers wishing to earn interest in highly liquid balances and are used by the Company as a funding source considered to be stable, but short-term in nature. Repurchase agreements are collateralized by securities in the Company's investment portfolio. Total repurchase agreements at June 30, 2024 were comprised of non-insured customer funds totaling $2.3 billion, and securities pledged as collateral for these retail agreements totaled $2.3 billion at June 30, 2024. 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 advances outstanding from the FHLB at June 30, 2024.

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. Additionally, this collateral is used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Company. The 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 June 30, 2024.


	June 30, 2024
(In thousands)	FHLB		Federal Reserve		Total
Total collateral value established by FHLB and FRB	$	3,140,120	$	3,288,661	$	6,428,781

Letters of credit issued	(115,491)		—		(115,491)
Available for future advances	$	3,024,629	$	3,288,661	$	6,313,290

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The Company receives outside ratings from both Standard & Poor’s and Moody’s on both the consolidated company and its subsidiary bank, Commerce Bank. These ratings are as follows:


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

Rating outlook	Stable

Commerce Bank
Issuer rating	A	A3
Baseline credit assessment		a2
Short-term rating	A-1	P-1
Rating outlook	Stable	Stable

The Company considers these ratings to be indications of a sound capital base and strong liquidity and believes that these ratings would help ensure the ready marketability of its commercial paper, should the need arise. No commercial paper has been outstanding during the past ten years. The Company has no subordinated or hybrid debt instruments which would affect future borrowing capacity. Because of its lack of significant long-term debt, the Company believes that through its Commercial Tradable Products division or in other public debt markets, it could generate additional liquidity from sources such as jumbo certificates of deposit, privately placed corporate notes or other forms of debt.

The cash flows from the operating, investing and financing activities of the Company resulted in a net decrease in cash, cash equivalents and restricted cash of $142.5 million during the first six months of 2024, 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 $282.8 million and have historically been a stable source of funds. Investing activities, which occur mainly in the loan and investment securities portfolios, provided cash of $1.2 billion. Activity in the investment securities portfolio provided cash of $1.2 billion from sales, maturities, and pay downs (net of purchases). This increase in investing cash flows was further supported by shrinking in the loan portfolio, which provided cash of $23.7 million. These increases were partly offset by purchases of securities under agreements to resell (net of repayments), which used cash of $25.0 million. Investing activities are somewhat unique to financial institutions in that, while large sums of cash flow are normally used to fund growth in investment securities, loans, or other bank assets, they are normally dependent on the financing activities described below. Financing activities used cash of $1.6 billion, largely resulting from net decreases in deposits of $1.1 billion and a net decrease of $357.4 million in federal funds purchased and securities sold under agreements to repurchase during the first six months of 2024. Additionally, purchases of treasury stock and cash dividends used cash of $79.9 million and $70.1 million, respectively.

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 June 30, 2024 and December 31, 2023, as shown in the following table.


(Dollars in thousands)	June 30, 2024			December 31, 2023			Minimum Capital Requirement		Capital Conservation Buffer		Minimum Ratios Requirement including Capital Conservation Buffer		Minimum Ratios for Well-Capitalized Banks *
Risk-adjusted assets	$	23,488,263		$	24,216,527
Tier I common risk-based capital	3,803,108			3,693,089
Tier I risk-based capital	3,803,108			3,693,089
Total risk-based capital	3,982,519			3,881,024
Tier I common risk-based capital ratio	16.19		%	15.25		%	4.50	%	2.50	%	7.00	%	6.50	%
Tier I risk-based capital ratio	16.19			15.25			6.00		2.50		8.50		8.00
Total risk-based capital ratio	16.96			16.03			8.00		2.50		10.50		10.00
Tier I leverage ratio	12.13			11.25			4.00		N/A		4.00		5.00

*Under Prompt Corrective Action requirements

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

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 adopted CECL (ASU 2016-13) during the 2020 calendar year the option to delay recognizing the estimated impact on regulatory capital until after a two year deferral period, followed by a three year transition period. In connection with the adoption of CECL on January 1, 2020, the Company elected to utilize this option. As a result, the two year deferral period for the Company extended through December 31, 2021. Beginning on January 1, 2022, the Company was required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025.

The Company maintains a treasury stock buyback program under authorizations by its Board of Directors (the Board) and periodically purchases stock in the open market. In April 2024, the Board approved the purchase of additional shares, bringing the total shares authorized for purchase to 5,000,000 at April 17, 2024. During the six months ended June 30, 2024, the Company purchased 1,491,902 shares at an average price of $53.55 in open market purchases and through stock-based compensation transactions. At June 30, 2024, 4,315,095 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 levels and alternative investment options. The Company paid a $.270 per share cash dividend on its common stock in the second quarter of 2024, which was a 5.1% increase compared to its 2023 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 deposit maturities and withdrawals that may occur in the next 12 months. Other contractual obligations, purchase commitments, lease obligations, and unfunded commitments may require cash payments by the Company within the next 12 months, and these are further discussed in the Company's 2023 Annual Report on Form 10-K. 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 that are not required to be recorded on the balance sheet. The most significant of these are loan commitments, which at June 30, 2024 totaled $14.9 billion (including $5.7 billion in unused, approved credit card lines). In addition, the Company enters into standby and commercial letters of credit. The contractual amount of standby and commercial letters of credit totaled $619.0 million and $4.9 million, respectively, at June 30, 2024. As many commitments expire unused or only partially used, these totals do not necessarily reflect future cash requirements. The allowance for these commitments is recorded in the Company’s liability for unfunded lending commitments within other liabilities on its consolidated balance sheets. At June 30, 2024, the liability for unfunded lending commitments totaled $20.7 million. See further discussion of the liability for unfunded lending commitments in Note 2 to the consolidated financial statements.

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 six months of 2024, purchases and sales of tax credits amounted to $53.7 million and $68.0 million, respectively. Fees from sales of tax credits were $2.9 million for the six months ended June 30, 2024, compared to $1.0 million in the same period last year. At June 30, 2024, the Company expected to fund outstanding purchase commitments of $111.0 million during the remainder of 2024 and had purchase commitments of $484.5 million that it expects to fund from 2025 through 2030.

The Company continued to maintain a strong liquidity position throughout the first six months of 2024. Through the various sources of liquidity described above, the Company maintains a liquidity position that it believes will adequately satisfy its financial obligations.

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Segment Results

The table below is a summary of segment pre-tax income results for the first six months of 2024 and 2023.


(Dollars in thousands)	Consumer			Commercial			Wealth			Segment Totals			Other/ Elimination			Consolidated Totals
Six Months Ended June 30, 2024
Net interest income	$	254,391		$	251,876		$	45,424		$	551,691		$	(40,443)		$	511,248
Provision for credit losses	(17,925)			(766)			4			(18,687)			8,432			(10,255)
Non-interest income	50,335			128,954			117,999			297,288			3,804			301,092
Investment securities gains (losses), net	—			—			—			—			2,974			2,974
Non-interest expense	(162,526)			(199,574)			(78,453)			(440,553)			(37,358)			(477,911)
Income before income taxes	$	124,275		$	180,490		$	84,974		$	389,739		$	(62,591)		$	327,148
Six Months Ended June 30, 2023
Net interest income	$	285,695		$	265,145		$	53,418		$	604,258		$	(103,097)		$	501,161
Provision for credit losses	(12,736)			(483)			(13)			(13,232)			(4,695)			(17,927)
Non-interest income	49,834			123,093			107,457			280,384			4,833			285,217
Investment securities gains (losses), net	—			—			—			—			3,086			3,086
Non-interest expense	(160,682)			(192,094)			(80,107)			(432,883)			(18,835)			(451,718)
Income before income taxes	$	162,111		$	195,661		$	80,755		$	438,527		$	(118,708)		$	319,819
Increase (decrease) in income before income taxes:
Amount	$	(37,836)		$	(15,171)		$	4,219		$	(48,788)		$	56,117		$	7,329
Percent	(23.3)		%	(7.8)		%	5.2		%	(11.1)		%	(47.3)		%	2.3		%

Consumer

For the six months ended June 30, 2024, income before income taxes for the Consumer segment decreased $37.8 million, or 23.3%, compared to the first six months of 2023. The decrease in income before income taxes was mainly due to a decline in net interest income of $31.3 million, or 11.0%, and increases in non-interest expense of $1.8 million, or 1.1%, and the provision for credit losses of $5.2 million. Net interest income declined mainly due to a $48.1 million increase in deposit interest expense. This decrease was partly offset by higher loan interest income of $13.6 million and a $4.0 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios. Non-interest income increased $501 thousand, or 1.0%, mainly due to higher net bank card fees (mainly credit and debit card fees) and deposit account fees. Non-interest expense increased over the same period in the previous year mainly due to higher allocated costs for information technology and retail support, partly offset by lower marketing expense. The increase in the provision for credit losses over the first six months of 2023 was mainly due to higher consumer credit card loan net charge-offs.

Commercial

For the six months ended June 30, 2024, income before income taxes for the Commercial segment decreased $15.2 million, or 7.8%, compared to the same period in the previous year. This decrease was mainly due to lower net interest income and non-interest expense, partly offset by higher non-interest income. Net interest income decreased $13.3 million, or 5.0%, mainly due to lower net allocated funding credits of $28.2 million, coupled with higher interest expense on deposits and customer repurchase agreements of $28.6 million and $6.4 million, respectively, partly offset by higher loan interest income of $50.8 million. Non-interest income increased $5.9 million, or 4.8%, over the previous year mainly due to growth in deposit account fees (mainly corporate cash management fees), tax credit sales fees, capital market fees and loan commitment fees. These increases were partly offset by decreases in net bank card fees (mainly corporate card fees), letter of credit fees and swap fees. Non-interest expense increased $7.5 million, or 3.9%, mainly due to higher salaries and benefits expense and allocated service and support costs for software, electronic banking and management expense. These increases were partly offset by lower allocated commercial sales and payment support costs. The provision for credit losses increased $283 thousand over the same period last year, mainly due to higher commercial credit card and commercial loan net charge-offs.

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Wealth

Wealth segment pre-tax profitability for the six months ended June 30, 2024 increased $4.2 million, or 5.2%, over the same period in the previous year. Net interest income decreased $8.0 million, or 15.0%, mainly due to a $15.3 million increase in deposit interest expense. This decrease was partly offset by a $1.6 million increase in net allocated funding credits and a $5.7 million increase in loan interest income. Non-interest income increased $10.5 million, or 9.8%, over the prior year largely due to higher private client and institutional trust fees and cash sweep commissions, partly offset by lower brokerage fees. Non-interest expense decreased $1.7 million, or 2.1%, mainly due to deconversion expense recorded in the prior year and lower professional fees, partly offset by higher salaries and benefits expense. The provision for credit losses decreased $17 thousand from the same period last year due to lower overdraft loan net charge-offs.

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 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 in this category was $56.1 million higher than in the same period last year. Unallocated securities gains were $3.0 million in the first six months of 2024 compared to gains of $3.1 million in 2023. Also, the unallocated provision for credit losses decreased $13.1 million, primarily driven by decreases in the provision for credit losses on loans and 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 six months of 2024 was $14.8 million, or $3.8 million lower than net charge-offs, due to a decrease in the allowance for credit losses on loans. In the comparable period last year, the provision for credit losses on loans was $21.8 million, or $8.5 million higher than net charge-offs, due to an increase in the allowance for credit losses on loans. For the six months ended June 30, 2024, the Company's provision on unfunded lending commitments was a benefit of $4.5 million. Additionally, net interest income increased $62.7 million. This increase to pre-tax profitability was partly offset by lower non-interest income of $1.0 million and higher non-interest expense of $18.5 million.

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Regulatory Changes

Deposit Insurance

On November 16, 2023, Federal Deposit Insurance Corporation (“FDIC”) issued a final rule to impose a special assessment to recover losses to the FDIC’s Deposit Insurance Fund following the failure of two financial institutions. The rule applies to all insured depository institutions and stated that the special assessment would be collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods. Because the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC could:

•Cease collection early, if it has collected enough to recover actual or estimated losses;

•Extend the special assessment collection period one or more quarters beyond the initial eight-quarter collection period, if actual or estimated losses exceed the amounts collected; and

•Impose a final shortfall special assessment on a one-time basis after the receiverships for certain failed banks terminate, if actual losses exceed the amounts collected.

During the first quarter of 2024, the FDIC increased its estimate of losses to the Deposit Insurance Fund and in turn increased its estimated special assessment, announcing that the special assessment would come in the form of a June 2024 invoice based on its March 31, 2024 estimate loss in the Deposit Insurance Fund. The Company paid $2.0 million towards the special assessment in June 2024 and has an accrual of $16.8 million at June 30, 2024 for FDIC special assessment liabilities.

SEC Climate Disclosure Rule

On March 6, 2024, the Securities and Exchange Commission adopted rules to enhance and standardize climate-related disclosures by public companies and in public offerings. This climate-related disclosure rule will have significant disclosure impact to the public companies affected, including the Company. Among many other items, this rule requires companies to disclose:

•Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition;

•The actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook;

•If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities;

•Specified disclosures regarding a registrant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices;

•Scope 1 and Scope 2 greenhouse gas (GHG) emissions, when material; and

•Capitalized costs, expenditures, charges, and losses incurred as a result of severe weather events or other natural conditions.

However, in April 2024, the SEC issued an order to stay the rules pending judicial review, due to legal challenges to this mandate. The SEC has not issued an update since April 2024.

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Impact of Recently Issued Accounting Standards

Disclosure Improvements The FASB issued ASU 2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative," in October 2023. The amendments in this Update modify the disclosure or presentation requirements of a variety of topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The adoption is not expected to have a significant effect on the Company's consolidated financial statements.

Segment Reporting The FASB issued ASU 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures", in November 2023. The amendments require disclosure of significant segment expenses and other segment items on an annual and interim basis. Public entities are required to disclose significant expense categories and amounts for each reportable segment, as well as the amount and a description of the composition of other segment items. Significant expense categories are derived from expenses that are regularly provided to an entity’s chief operating decision-maker (“CODM”), and included in a segment’s reported measures of profit or loss. Public entities are also required to disclose the title and position of the CODM and explain how the CODM uses the reported measures of profit or loss in assessing segment performance and deciding how to allocate resources. This Update requires interim disclosures of certain segment-related disclosures that previously were only required annually. This Update requires annual disclosures for fiscal years beginning January 1, 2024 and interim disclosures for fiscal years beginning January 1, 2025. Early adoption is permitted. The Company is required to apply the amendments in this Update retrospectively to all prior periods presented in the financial statements. Other than the inclusion of additional disclosures, the adoption of this ASU is not expected to have a significant effect on the Company's consolidated financial statements.

Income Taxes The FASB issued ASU 2023-09, "Income Taxes (Topic 740) - Improvements to Income Tax Disclosures", in December 2023. The amendments in this Update require additional disclosures regarding the rate reconciliation and income taxes paid. This Update also removed certain existing disclosure requirements. This Update is effective for annual periods beginning January 1, 2025. Early adoption is permitted. The amendments in this Update should be applied on a prospective basis, though retrospective application is permitted. Other than the inclusion of additional disclosures, the adoption is not expected to have a significant effect on the Company's consolidated financial statements.

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AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Three Months Ended June 30, 2024 and 2023


	Second Quarter 2024						Second Quarter 2023
(Dollars in thousands)	Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid
ASSETS:
Loans:
Business(A)	$	5,980,364	$	90,786	6.11	%	$	5,757,388	$	80,040	5.58	%
Real estate — construction and land	1,471,504		30,588		8.36		1,450,196		28,645		7.92
Real estate — business	3,666,057		57,104		6.26		3,540,851		52,626		5.96
Real estate — personal	3,044,943		30,590		4.04		2,960,962		27,139		3.68
Consumer	2,127,650		34,678		6.56		2,098,523		29,454		5.63
Revolving home equity	326,204		6,228		7.68		300,623		5,661		7.55
Consumer credit card	552,896		19,186		13.96		555,875		19,088		13.77
Overdrafts	4,856		—		—		4,630		—		—
Total loans	17,174,474		269,160		6.30		16,669,048		242,653		5.84
Loans held for sale	2,455		46		7.54		5,957		151		10.17
Investment securities:
U.S. government and federal agency obligations	1,201,954		15,057		5.04		1,035,651		8,842		3.42
Government-sponsored enterprise obligations	55,634		330		2.39		55,751		331		2.38
State and municipal obligations(A)	1,069,934		5,311		2.00		1,532,519		7,809		2.04
Mortgage-backed securities	5,553,656		28,816		2.09		6,316,224		32,930		2.09
Asset-backed securities	1,785,598		11,105		2.50		2,827,911		14,666		2.08
Other debt securities	364,828		1,826		2.01		519,988		2,413		1.86
Trading debt securities(A)	46,565		573		4.95		46,493		525		4.53
Equity securities(A)	127,584		893		2.82		12,335		715		23.25
Other securities(A)	228,403		7,497		13.20		273,587		6,409		9.40
Total investment securities	10,434,156		71,408		2.75		12,620,459		74,640		2.37
Federal funds sold	1,612		27		6.74		7,484		105		5.63
Securities purchased under agreements to resell	303,586		2,421		3.21		824,974		4,099		1.99
Interest earning deposits with banks	2,099,777		28,630		5.48		2,284,162		29,254		5.14
Total interest earning assets	30,016,060		371,692		4.98		32,412,084		350,902		4.34
Allowance for credit losses on loans	(159,791)						(159,068)
Unrealized gain (loss) on debt securities	(1,272,127)						(1,331,002)
Cash and due from banks	267,530						309,789
Premises and equipment, net	479,431						449,030
Other assets	904,847						1,182,521
Total assets	$	30,235,950					$	32,863,354
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	$	1,328,989	196		.06		$	1,516,887	186		.05
Interest checking and money market	13,162,118		56,633		1.73		12,918,399		29,860		.93
Certificates of deposit of less than $100,000	1,003,798		10,523		4.22		1,075,110		10,125		3.78
Certificates of deposit of $100,000 and over	1,492,592		16,892		4.55		1,472,208		14,416		3.93
Total interest bearing deposits	16,987,497		84,244		1.99		16,982,604		54,587		1.29
Borrowings:
Federal funds purchased	$	265,042	$	3,569	5.42		507,165		$	6,397	5.06
Securities sold under agreements to repurchase	2,254,849		19,293		3.44		2,206,612		17,014		3.09
Other borrowings(B)	838		8		3.84		1,617,952		21,147		5.24
Total borrowings	2,520,729		22,870		3.65		4,331,729		44,558		4.13
Total interest bearing liabilities	19,508,226		107,114		2.21	%	21,314,333		99,145		1.87	%
Non-interest bearing deposits	7,297,955						8,224,475
Other liabilities	399,080						598,915
Equity	3,030,689						2,725,631
Total liabilities and equity	$	30,235,950					$	32,863,354
Net interest margin (FTE)			$	264,578					$	251,757
Net yield on interest earning assets					3.55	%					3.12	%

(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

Six Months Ended June 30, 2024 and 2023



	Six Months 2024						Six Months 2023
(Dollars in thousands)	Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid		Average Balance		Interest Income/Expense		Avg. Rates Earned/Paid
ASSETS:
Loans:
Business(A)	$	5,926,945	$	179,424	6.09	%	$	5,707,026	$	154,077	5.44	%
Real estate — construction and land	1,472,029		61,342		8.38		1,430,624		54,131		7.63
Real estate — business	3,696,850		115,133		6.26		3,509,789		101,070		5.81
Real estate — personal	3,038,068		60,365		4.00		2,947,431		53,225		3.64
Consumer	2,105,070		67,804		6.48		2,083,040		56,514		5.47
Revolving home equity	324,139		12,391		7.69		298,696		10,807		7.30
Consumer credit card	557,894		38,936		14.03		556,048		37,845		13.72
Overdrafts	6,276		—		—		4,540		—		—
Total loans	17,127,271		535,395		6.29		16,537,194		467,669		5.70
Loans held for sale	2,302		86		7.51		5,833		296		10.23
Investment securities:
U.S. government and federal agency obligations	1,026,805		19,459		3.81		1,067,184		13,980		2.64
Government-sponsored enterprise obligations	55,643		661		2.39		71,332		1,021		2.89
State and municipal obligations(A)	1,200,371		11,830		1.98		1,662,416		17,803		2.16
Mortgage-backed securities	5,727,992		60,904		2.14		6,384,934		65,760		2.08
Asset-backed securities	1,935,324		23,504		2.44		3,029,713		30,707		2.04
Other debt securities	434,016		4,236		1.96		524,440		4,936		1.90
Trading debt securities(A)	43,524		1,106		5.11		46,127		1,043		4.56
Equity securities(A)	70,176		1,707		4.89		12,396		1,429		23.25
Other securities(A)	225,049		14,686		13.12		251,848		10,438		8.36
Total investment securities	10,718,900		138,093		2.59		13,050,390		147,117		2.27
Federal funds sold	1,105		37		6.73		23,144		594		5.18
Securities purchased under agreements to resell	322,260		4,055		2.53		824,987		8,051		1.97
Interest earning deposits with banks	2,019,079		55,062		5.48		1,551,121		38,590		5.02
Total interest earning assets	30,190,917		732,728		4.88		31,992,669		662,317		4.17
Allowance for credit losses on loans	(160,841)						(154,617)
Unrealized gain (loss) on debt securities	(1,273,126)						(1,358,944)
Cash and due from banks	274,570						311,895
Premises and equipment, net	478,656						440,208
Other assets	930,536						908,403
Total assets	$	30,440,712					$	32,139,614
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	$	1,331,486	391		.06		$	1,533,459	379		.05
Interest checking and money market	13,188,694		112,018		1.71		13,090,983		49,818		.77
Certificates of deposit of less than $100,000	990,301		20,714		4.21		747,061		11,550		3.12
Certificates of deposit of $100,000 and over	1,543,951		34,988		4.56		1,189,372		21,043		3.57
Total interest bearing deposits	17,054,432		168,111		1.98		16,560,875		82,790		1.01
Borrowings:
Federal funds purchased	$	296,629	$	7,988	5.42		$	500,480	11,983		4.83
Securities sold under agreements to repurchase	2,383,404		40,731		3.44		2,312,083		34,509		3.01
Other borrowings(B)	457		8		3.52		1,087,556		27,867		5.17
Total borrowings	2,680,490		48,727		3.66		3,900,119		74,359		3.84
Total interest bearing liabilities	19,734,922		216,838		2.21	%	20,460,994		157,149		1.55	%
Non-interest bearing deposits	7,313,278						8,667,035
Other liabilities	404,695						356,829
Equity	2,987,817						2,654,756
Total liabilities and equity	$	30,440,712					$	32,139,614
Net interest margin (FTE)			$	515,890					$	505,168
Net yield on interest earning assets					3.44	%					3.18	%

(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 2023 Annual Report on Form 10-K.

The table below 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. The simulation presents three rising rate scenarios and three falling rate scenarios, and in these scenarios, rates are assumed to change evenly over 12 months, while the balance sheet remains flat.

The Company utilizes 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.


	June 30, 2024				March 31, 2024
(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	$	(7.2)	(.67)	%		$	(13.9)	(1.37)	%
200 basis points rising	(9.0)		(.84)			(13.6)		(1.35)
100 basis points rising	(5.1)		(.47)			(7.4)		(.73)
100 basis points falling	$	(9.3)	(.86)	%		$	(5.8)	(.57)	%
200 basis points falling	(26.1)		(2.44)			(20.3)		(2.01)
300 basis points falling	(44.6)		(4.16)			(37.9)		(3.73)

Under the simulation, in the three rising rate scenarios, interest rate risk is improved compared to the scenarios in the previous quarter and in the three falling rate scenarios, interest rate risk is more negative when compared to the scenarios in the previous quarter. This change was primarily due to higher interest earning cash balances at the Federal Reserve coupled with the completion of the planned repositioning of a portion of the investment securities portfolio.

The comparison above provides insight into potential effects of changes in rates 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 June 30, 2024. 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 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
April 1 - 30, 2024	100,509		$	55.37	100,509	4,900,271
May 1 - 31, 2024	344,845		$	56.10	344,845	4,555,426
June 1 - 30, 2024	240,331		$	53.87	240,331	4,315,095
Total	685,685		$	55.21	685,685	4,315,095

The Company's stock purchases shown above were made under authorizations by the Board of Directors. In April 2024, the Board approved the purchase of additional shares, bringing the total shares authorized for purchase to 5,000,000 at April 17, 2024. At June 30, 2024, 4,315,095 shares remained available for purchase.

Item 5. OTHER INFORMATION

During the three months ended June 30, 2024, 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.

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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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: August 6, 2024		Vice President & Secretary


	By	/s/ PAUL A. STEINER
		Paul A. Steiner
		Controller
Date: August 6, 2024		(Chief Accounting Officer)