Commerce Bancshares - 10-Q quarterly report FY2024 Q1

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Table of Contents

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 March 31, 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 May 3, 2024, the registrant had outstanding 129,536,050 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 March 31, 2024 (unaudited) and December 31, 2023	3
		Consolidated Statements of Income for the Three Months Ended March 31, 2024 and 2023 (unaudited)	4
		Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2024 and 2023 (unaudited)	5
		Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2024 and 2023 (unaudited)	6
		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited)	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	45
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	67
	Item 4.	Controls and Procedures	67

Part II	Other Information
	Item 1.	Legal Proceedings	68
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
	Item 5.	Other Information	68
	Item 6.	Exhibits	68
Signatures			69

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS


	March 31, 2024		December 31, 2023
	(Unaudited)
	(In thousands)
ASSETS
Loans	$	17,298,840	$	17,205,479
Allowance for credit losses on loans	(160,465)		(162,395)
Net loans	17,138,375		17,043,084
Loans held for sale (including $1,185,000 and $1,585,000 of residential mortgage loans carried at fair value at March 31, 2024 and December 31, 2023, respectively)	2,328		4,177
Investment securities:
Available for sale debt, at fair value (amortized cost of $10,388,902,000 and $10,904,765,000 at
March 31, 2024 and December 31, 2023, respectively, and allowance for credit losses of $—
at both March 31, 2024 and December 31, 2023)	9,141,695		9,684,760
Trading debt	56,716		28,830
Equity	12,852		12,701
Other	229,146		222,473
Total investment securities	9,440,409		9,948,764
Federal funds sold	—		5,025
Securities purchased under agreements to resell	225,000		450,000
Interest earning deposits with banks	1,609,614		2,239,010
Cash and due from banks	291,040		443,147
Premises and equipment – net	467,377		469,059
Goodwill	146,539		146,539
Other intangible assets – net	13,918		14,179
Other assets	1,037,508		938,077
Total assets	$	30,372,108	$	31,701,061
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing	$	7,513,464	$	7,975,935
Savings, interest checking and money market	14,463,211		14,512,273
Certificates of deposit of less than $100,000	997,979		930,432
Certificates of deposit of $100,000 and over	1,465,541		1,945,258
Total deposits	24,440,195		25,363,898
Federal funds purchased and securities sold under agreements to repurchase	2,505,576		2,908,815
Other borrowings	2,359		1,404
Other liabilities	460,089		462,714
Total liabilities	27,408,219		28,736,831
Commerce Bancshares, Inc. stockholders’ equity:



Common stock, $5 par value
Authorized 190,000,000; issued 131,064,418 shares at both March 31, 2024 and December 31, 2023	655,322		655,322
Capital surplus	3,148,649		3,162,622
Retained earnings	130,706		53,183
Treasury stock of 1,092,341 shares at March 31, 2024
and 611,546 shares at December 31, 2023, at cost	(59,674)		(35,599)
Accumulated other comprehensive income (loss)	(931,027)		(891,412)
Total Commerce Bancshares, Inc. stockholders' equity	2,943,976		2,944,116
Non-controlling interest	19,913		20,114
Total equity	2,963,889		2,964,230
Total liabilities and equity	$	30,372,108	$	31,701,061

See accompanying notes to consolidated financial statements.

Table of Contents

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME


	For the Three Months Ended March 31
(In thousands, except per share data)		2024		2023
	(Unaudited)
INTEREST INCOME
Interest and fees on loans		$	264,677	$	223,816
Interest and fees on loans held for sale		40		145
Interest on investment securities		65,928		71,119
Interest on federal funds sold		10		489
Interest on securities purchased under agreements to resell		1,634		3,952
Interest on deposits with banks		26,432		9,336
Total interest income		358,721		308,857
INTEREST EXPENSE
Interest on deposits:
Savings, interest checking and money market		55,580		20,151
Certificates of deposit of less than $100,000		10,191		1,425
Certificates of deposit of $100,000 and over		18,096		6,627
Interest on federal funds purchased		4,419		5,586
Interest on securities sold under agreements to repurchase		21,438		17,495
Interest on other borrowings		(2)		5,950
Total interest expense		109,722		57,234
Net interest income		248,999		251,623
Provision for credit losses		4,787		11,456
Net interest income after credit losses		244,212		240,167
NON-INTEREST INCOME
Trust fees		51,105		45,328
Bank card transaction fees		46,930		46,654
Deposit account charges and other fees		24,151		21,752
Consumer brokerage services		4,408		5,085
Capital market fees		3,892		3,362
Loan fees and sales		3,141		2,589
Other		15,221		12,842
Total non-interest income		148,848		137,612





INVESTMENT SECURITIES GAINS (LOSSES), NET		(259)		(306)
NON-INTEREST EXPENSE
Salaries and employee benefits		151,801		144,373
Data processing and software		31,153		28,154
Net occupancy		13,574		12,759
Deposit insurance		8,017		4,643
Equipment		5,010		4,850
Supplies and communication		4,744		4,590
Marketing		4,036		5,471
Other		27,362		19,267
Total non-interest expense		245,697		224,107
Income before income taxes		147,104		153,366
Less income taxes		31,652		32,813
Net income		115,452		120,553
Less non-controlling interest expense (income)		2,789		1,101
Net income attributable to Commerce Bancshares, Inc.		$	112,663	$	119,452


Net income per common share — basic		$	.87	$	.91
Net income per common share — diluted		$	.86	$	.91

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	For the Three Months Ended March 31
(In thousands)		2024		2023
		(Unaudited)
Net income		$	115,452	$	120,553
Other comprehensive income (loss):


Net unrealized gains (losses) on available for sale debt securities		(20,401)		142,466
Change in pension loss		176		270
Unrealized gains (losses) on cash flow hedge derivatives		(19,390)		3,630
Other comprehensive income (loss)		(39,615)		146,366
Comprehensive income (loss)		75,837		266,919
Less non-controlling interest (income) expense		2,789		1,101
Comprehensive income (loss) attributable to Commerce Bancshares, Inc.		$	73,048	$	265,818

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended March 31, 2024 and 2023


	Commerce Bancshares, Inc. Shareholders
(In thousands, except per share data)	Common Stock		Capital Surplus		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Non-Controlling Interest		Total
	(Unaudited)
Balance December 31, 2023	$	655,322	$	3,162,622	$	53,183	$	(35,599)	$	(891,412)	$	20,114	$	2,964,230
Net income					112,663						2,789		115,452
Other comprehensive income (loss)									(39,615)				(39,615)
Distributions to non-controlling interest											(2,990)		(2,990)
Purchases of treasury stock							(42,314)						(42,314)


Issuance under stock purchase and equity compensation plans			(18,239)				18,239						—
Stock-based compensation			4,266										4,266
Cash dividends paid on common stock ($0.270 per share)					(35,140)								(35,140)

Balance March 31, 2024	$	655,322	$	3,148,649	$	130,706	$	(59,674)	$	(931,027)	$	19,913	$	2,963,889
Balance December 31, 2022	$	629,319	$	2,932,959	$	31,620	$	(41,743)	$	(1,086,864)	$	16,286	$	2,481,577

Net Income					119,452						1,101		120,553
Other comprehensive income (loss)									146,366				146,366
Distributions to non-controlling interest											(453)		(453)
Purchases of treasury stock							(36,245)						(36,245)
Sale of non-controlling interest of subsidiary			46								(46)		—
Issuance under stock purchase and equity compensation plans			(18,318)				18,318						—
Stock-based compensation			4,373										4,373
Cash dividends paid on common stock ($.257 per share)					(33,759)								(33,759)

Balance March 31, 2023	$	629,319	$	2,919,060	$	117,313	$	(59,670)	$	(940,498)	$	16,888	$	2,682,412

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS


	For the Three Months Ended March 31
(In thousands)	2024		2023
	(Unaudited)
OPERATING ACTIVITIES:
Net income	$	115,452	$	120,553
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	4,787		11,456
Provision for depreciation and amortization	13,269		11,565
Amortization of investment security premiums, net	3,905		7,654
Investment securities (gains) losses, net (A)	259		306
Net (gains) losses on sales of loans held for sale	(328)		(137)
Originations of loans held for sale	(15,914)		(9,931)
Proceeds from sales of loans held for sale	18,007		8,850
Net (increase) decrease in trading debt securities, excluding unsettled transactions	(40,529)		11,548
Purchase of interest rate floor derivative contracts	—		(25,900)
Stock-based compensation	4,266		4,373
(Increase) decrease in interest receivable	561		(1,005)
Increase (decrease) in interest payable	(286)		10,025
Increase (decrease) in income taxes payable	28,750		26,970


Other changes, net	3,277		(60,270)
Net cash provided by (used in) operating activities	135,476		116,057
INVESTING ACTIVITIES:


Distributions received from equity-method investment	—		1,434
Proceeds from sales of investment securities (A)	10,250		840,435
Proceeds from maturities/pay downs of investment securities (A)	571,764		474,220
Purchases of investment securities (A)	(155,475)		(168,584)
Net (increase) decrease in loans	(102,295)		(239,230)
Securities purchased under agreements to resell	(100,000)		—
Repayments of securities purchased under agreements to resell	325,000		—
Purchases of premises and equipment	(10,998)		(20,044)
Sales of premises and equipment	2,671		6
Net cash provided by (used in) investing activities	540,917		888,237
FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits	(571,329)		(2,137,278)
Net increase (decrease) in certificates of deposit	(412,170)		584,382


Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase	(403,239)		(57,175)




Net increase (decrease) in other borrowings	955		1,498,104

Purchases of treasury stock	(42,028)		(36,245)



Cash dividends paid on common stock	(35,140)		(33,759)


Net cash provided by (used in) financing activities	(1,462,951)		(181,971)
Increase (decrease) in cash, cash equivalents and restricted cash	(786,558)		822,323
Cash, cash equivalents and restricted cash at beginning of year	2,687,283		897,801
Cash, cash equivalents and restricted cash at March 31	$	1,900,725	$	1,720,124

Income tax payments, net	$	1,029	$	3,857
Interest paid on deposits and borrowings	$	110,008	$	47,209
Loans transferred to foreclosed real estate	$	57	$	72

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

See accompanying notes to consolidated financial statements.

Restricted cash is comprised of cash collateral posted by the Company to secure interest rate swap agreements. This balance is included in other assets in the consolidated balance sheets and totaled $71 thousand at March 31, 2024. The Company had no restricted cash at March 31, 2023.

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Commerce Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024 (Unaudited)

1. Principles of Consolidation and Presentation

The accompanying consolidated financial statements include the accounts of Commerce Bancshares, Inc. and all majority-owned subsidiaries (the Company). Most of the Company's operations are conducted by its subsidiary bank, Commerce Bank (the Bank). The consolidated financial statements in this report have not been audited by an independent registered public accounting firm, but in the opinion of management, all adjustments necessary to present fairly the financial position and the results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications were made to 2023 data to conform to current year presentation. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets and revenues and expenses for the periods. Actual results could differ significantly from those estimates. Management has evaluated subsequent events for potential recognition or disclosure. The results of operations for the three month period ended March 31, 2024 are not necessarily indicative of results to be attained for the full year or any other interim period.

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

2. Loans and Allowance for Credit Losses

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


(In thousands)	March 31, 2024		December 31, 2023
Commercial:
Business	$	5,994,974	$	6,019,036
Real estate – construction and land	1,497,647		1,446,764
Real estate – business	3,711,602		3,719,306
Personal Banking:
Real estate – personal	3,039,885		3,026,041
Consumer	2,119,308		2,077,723
Revolving home equity	322,523		319,894
Consumer credit card	564,388		589,913
Overdrafts	48,513		6,802
Total loans	$	17,298,840	$	17,205,479

Accrued interest receivable totaled $72.8 million and $71.9 million at March 31, 2024 and December 31, 2023, respectively, and was included within other assets on the consolidated balance sheets. For the three months ended March 31, 2024, the Company wrote-off accrued interest by reversing interest income of $94 thousand and $1.6 million in the Commercial and Personal Banking portfolios, respectively. Similarly, for the three months ended March 31, 2023, the Company reversed interest income of $34 thousand and $1.1 million in the Commercial and Personal Banking portfolios, respectively.

At March 31, 2024, loans of $3.6 billion were pledged at the Federal Home Loan Bank as collateral for borrowings and letters of credit obtained to secure public deposits. Additional loans of $2.9 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings.

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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 March 31, 2024 and December 31, 2023 are discussed below.


Key Assumption	March 31, 2024	December 31, 2023

Overall economic forecast	•Economic strength is visible in the strong labor market •Fiscal policy is forecasted to be a modest drag on GDP •There are expectations that the Federal Reserve will start cutting rates in 2nd quarter 2024	•The US economy is projected to slow at the start of 2024, but not enter a recession •Impacts of tighter monetary and fiscal policy creates uncertainty •Consumer spending is expected to decrease
Reasonable and supportable period and related reversion period	•Reasonable and supportable period of one year •Reversion to historical average loss rates within two quarters using a straight-line method	•Reasonable and supportable period of one year •Reversion to historical average loss rates within two quarters using a straight-line method
Forecasted macro-economic variables	•Unemployment rate ranges from 3.9% to 4.1% during the reasonable and supportable forecast period •Real GDP growth ranges from 1.5% to 3.0% •BBB corporate yield from 4.7% to 5.1% •Housing Price Index from 312.1 to 316.6	•Unemployment rate ranges from 4.1% to 4.5% during the reasonable and supportable forecast period •Real GDP growth ranges from .46% to 2.1% •BBB corporate yield from 5.3% to 5.9% •Housing Price Index from 305.4 to 307.4
Prepayment assumptions	Commercial loans •pools ranging from 0% to 5% Personal banking loans •Ranging from 6.2% to 21.6% for most loan pools •Consumer credit cards 66.6%	Commercial loans •5% for most loan pools Personal banking loans •Ranging from 6.5% to 23.5% for most loan pools •Consumer credit cards 66.9%
Qualitative factors	Added qualitative factors related to: •Changes in the composition of the loan portfolios •Certain stressed industries within the portfolio •Certain portfolios sensitive to unusually high rate of inflation and supply chain issues •Loans downgraded to special mention, substandard, or non-accrual status •Certain portfolios where the model assumptions do not capture all identified loss risk	Added qualitative factors related to: •Changes in the composition of the loan portfolios •Certain stressed industries within the portfolio •Certain portfolios sensitive to unusually high rate of inflation and supply chain issues •Loans downgraded to special mention, substandard, or non-accrual status

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

Sensitivity in the Allowance for Credit Loss model

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

The current forecast projects low unemployment and positive GDP. It is expected the Federal Reserve will start cutting rates in the 2nd quarter of 2024.

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

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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 months ended March 31, 2024 and 2023, respectively, follows:


	For the Three Months Ended March 31, 2024
(In thousands)	Commercial		Personal Banking		Total
ALLOWANCE FOR CREDIT LOSSES ON LOANS


Balance at beginning of period	$	108,201	$	54,194	$	162,395
Provision for credit losses on loans	(2,855)		9,802		6,947
Deductions:
Loans charged off	316		10,849		11,165
Less recoveries on loans	434		1,854		2,288
Net loan charge-offs (recoveries)	(118)		8,995		8,877
Balance March 31, 2024	$	105,464	$	55,001	$	160,465
LIABILITY FOR UNFUNDED LENDING COMMITMENTS


Balance at beginning of period	$	23,909	$	1,337	$	25,246
Provision for credit losses on unfunded lending commitments	(2,273)		113		(2,160)
Balance March 31, 2024	$	21,636	$	1,450	$	23,086
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$	127,100	$	56,451	$	183,551


	For the Three Months Ended March 31, 2023
(In thousands)	Commercial		Personal Banking		Total
ALLOWANCE FOR CREDIT LOSSES ON LOANS


Balance at beginning of period	$	103,293	$	46,843	$	150,136
Provision for credit losses on loans	5,548		10,400		15,948
Deductions:
Loans charged off	292		8,756		9,048
Less recoveries on loans	66		2,215		2,281
Net loan charge-offs (recoveries)	226		6,541		6,767
Balance March 31, 2023	$	108,615	$	50,702	$	159,317
LIABILITY FOR UNFUNDED LENDING COMMITMENTS


Balance at beginning of period	$	31,743	$	1,377	$	33,120
Provision for credit losses on unfunded lending commitments	(4,638)		146		(4,492)
Balance March 31, 2023	$	27,105	$	1,523	$	28,628
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$	135,720	$	52,225	$	187,945

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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 March 31, 2024 and December 31, 2023.


(In thousands)	Current or Less Than 30 Days Past Due		30 – 89 Days Past Due		90 Days Past Due and Still Accruing		Non-accrual		Total
March 31, 2024
Commercial:
Business	$	5,991,756	$	1,644	$	536	$	1,038	$	5,994,974
Real estate – construction and land	1,497,325		322		—		—		1,497,647
Real estate – business	3,710,321		35		—		1,246		3,711,602
Personal Banking:
Real estate – personal	3,015,760		13,911		8,691		1,523		3,039,885
Consumer	2,094,997		21,409		2,902		—		2,119,308
Revolving home equity	318,682		1,432		432		1,977		322,523
Consumer credit card	549,407		7,261		7,720		—		564,388
Overdrafts	48,282		231		—		—		48,513
Total	$	17,226,530	$	46,245	$	20,281	$	5,784	$	17,298,840
December 31, 2023
Commercial:
Business	$	5,985,713	$	29,087	$	614	$	3,622	$	6,019,036
Real estate – construction and land	1,446,764		—		—		—		1,446,764
Real estate – business	3,714,579		4,582		85		60		3,719,306
Personal Banking:
Real estate – personal	2,999,988		14,841		9,559		1,653		3,026,041
Consumer	2,036,353		38,217		3,153		—		2,077,723
Revolving home equity	315,483		1,564		870		1,977		319,894
Consumer credit card	574,805		7,525		7,583		—		589,913
Overdrafts	6,553		249		—		—		6,802
Total	$	17,080,238	$	96,065	$	21,864	$	7,312	$	17,205,479

At March 31, 2024, the Company had $3.7 million in non-accrual loans that had no allowance for credit loss, compared to $4.3 million in non-accrual loans that had no allowance for credit loss at December 31, 2023. The Company did not record any interest income on non-accrual loans during the three months ended March 31, 2024 and 2023, respectively.

Credit quality indicators

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

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

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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 March 31, 2024 and December 31, 2023 are as follows:


	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Total
March 31, 2024
Business
Risk Rating:
Pass	$	344,128	$	1,385,556	$	790,788	$	506,163	$	219,920	$	443,229	$	2,088,966	$	5,778,750
Special mention	4,215		8,618		3,448		33,270		531		2,494		34,499		87,075
Substandard	35		16,793		15,722		8,131		20,194		10,792		56,444		128,111
Non-accrual	—		48		108		27		—		855		—		1,038
Total Business:	$	348,378	$	1,411,015	$	810,066	$	547,591	$	240,645	$	457,370	$	2,179,909	$	5,994,974
Gross write-offs for the three months ended March 31, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	316	$	316
Real estate-construction
Risk Rating:
Pass	$	148,846	$	421,041	$	578,146	$	248,045	$	44,049	$	3,224	$	36,498	$	1,479,849
Special mention	582		—		—		—		—		—		—		582
Substandard	—		—		17,216		—		—		—		—		17,216

Total Real estate-construction:	$	149,428	$	421,041	$	595,362	$	248,045	$	44,049	$	3,224	$	36,498	$	1,497,647
Gross write-offs for the three months ended March 31, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Real estate-business
Risk Rating:
Pass	$	125,646	$	731,463	$	1,007,351	$	495,444	$	436,286	$	582,000	$	120,880	$	3,499,070
Special mention	1,000		35,879		27,599		14,696		1,094		10,356		—		90,624
Substandard	—		4,744		15,342		15,088		16,161		69,327		—		120,662
Non-accrual	—		—		1,204		—		—		42		—		1,246
Total Real estate-business:	$	126,646	$	772,086	$	1,051,496	$	525,228	$	453,541	$	661,725	$	120,880	$	3,711,602
Gross write-offs for the three months ended March 31, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Commercial loans
Risk Rating:
Pass	$	618,620	$	2,538,060	$	2,376,285	$	1,249,652	$	700,255	$	1,028,453	$	2,246,344	$	10,757,669
Special mention	5,797		44,497		31,047		47,966		1,625		12,850		34,499		178,281
Substandard	35		21,537		48,280		23,219		36,355		80,119		56,444		265,989
Non-accrual	—		48		1,312		27		—		897		—		2,284
Total Commercial loans:	$	624,452	$	2,604,142	$	2,456,924	$	1,320,864	$	738,235	$	1,122,319	$	2,337,287	$	11,204,223
Gross write-offs for the three months ended March 31, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	316	$	316

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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 March 31, 2024 and December 31, 2023 below.


	Term Loans Amortized Cost Basis by Origination Year
(In thousands)	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Total
March 31, 2024
Real estate-personal
Current to 90 days past due	$	91,591	$	438,966	$	443,124	$	526,377	$	695,433	$	825,842	$	8,338	$	3,029,671
Over 90 days past due	2,129		353		1,263		1,394		1,387		2,165		—		8,691
Non-accrual	—		—		227		167		—		1,129		—		1,523
Total Real estate-personal:	$	93,720	$	439,319	$	444,614	$	527,938	$	696,820	$	829,136	$	8,338	$	3,039,885
Gross write-offs for the three months ended March 31, 2024	$	—	$	—	$	33	$	—	$	—	$	3	$	—	$	36
Consumer
Current to 90 days past due	$	134,876	$	478,401	$	310,901	$	231,786	$	110,884	$	91,872	$	757,686	$	2,116,406
Over 90 days past due	—		255		410		196		79		647		1,315		2,902

Total Consumer:	$	134,876	$	478,656	$	311,311	$	231,982	$	110,963	$	92,519	$	759,001	$	2,119,308
Gross write-offs for the three months ended March 31, 2024	$	—	$	563	$	521	$	438	$	135	$	126	$	695	$	2,478
Revolving home equity
Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	320,114	$	320,114
Over 90 days past due	—		—		—		—		—		—		432		432
Non-accrual	—		—		—		—		—		—		1,977		$	1,977
Total Revolving home equity:	$	—	$	—	$	—	$	—	$	—	$	—	$	322,523	$	322,523
Gross write-offs for the three months ended March 31, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Consumer credit card
Current to 90 days past due	$	—	$	—	$	—	$	—	$	—	$	—	$	556,668	$	556,668
Over 90 days past due	—		—		—		—		—		—		7,720		7,720

Total Consumer credit card:	$	—	$	—	$	—	$	—	$	—	$	—	$	564,388	$	564,388
Gross write-offs for the three months ended March 31, 2024	$	—	$	—	$	—	$	—	$	—	$	—	$	7,596	$	7,596
Overdrafts
Current to 90 days past due	$	48,513	$	—	$	—	$	—	$	—	$	—	$	—	$	48,513


Total Overdrafts:	$	48,513	$	—	$	—	$	—	$	—	$	—	$	—	$	48,513
Gross write-offs for the three months ended March 31, 2024	$	739	$	—	$	—	$	—	$	—	$	—	$	—	$	739
Personal banking loans
Current to 90 days past due	$	274,980	$	917,367	$	754,025	$	758,163	$	806,317	$	917,714	$	1,642,806	$	6,071,372
Over 90 days past due	2,129		608		1,673		1,590		1,466		2,812		9,467		19,745
Non-accrual	—		—		227		167		—		1,129		1,977		3,500
Total Personal banking loans:	$	277,109	$	917,975	$	755,925	$	759,920	$	807,783	$	921,655	$	1,654,250	$	6,094,617
Gross write-offs for the three months ended March 31, 2024	$	739	$	563	$	554	$	438	$	135	$	129	$	8,291	$	10,849

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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

Collateral-dependent loans

The Company's collateral-dependent loans are comprised of large loans on non-accrual status. The Company requires that collateral-dependent loans are either over-collateralized or carry collateral equal to the amortized cost of the loan. The following table presents the amortized cost basis of collateral-dependent loans as of March 31, 2024 and December 31, 2023.

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(In thousands)	Business Assets		Real Estate		Oil & Gas Assets		Total
March 31, 2024
Commercial:


Real estate - business	$	—	$	1,203	$	—	$	1,203
Personal Banking:


Revolving home equity	—		1,977		—		1,977


Total	$	—	$	3,180	$	—	$	3,180
December 31, 2023
Commercial:
Business	$	1,183	$	—	$	1,238	$	2,421


Personal Banking:


Revolving home equity	—		1,977		—		1,977


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

Other Personal Banking loan information

As noted above, the credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided in the table in the above section on "Credit quality indicators." In addition, FICO scores are obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit score designed to measure the risk of default by taking into account various factors from a borrower's financial history and is considered supplementary information utilized by the Company, as management does not consider this information in evaluating the allowance for credit losses on loans. The Bank normally obtains a FICO score at the loan's origination and renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain personal real estate loans for which FICO scores are not obtained because the loans generally pertain to commercial customer activities and are often underwritten with other collateral considerations. These loans totaled $168.8 million at March 31, 2024 and $168.9 million at December 31, 2023. The table also excludes consumer loans related to the Company's patient healthcare loan program, which totaled $210.4 million at March 31, 2024 and $211.3 million at December 31, 2023. As the healthcare loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and consumer loans excluded below totaled less than 7% of the Personal Banking portfolio. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at March 31, 2024 and December 31, 2023 by FICO score.


Personal Banking Loans
	% of Loan Category
	Real Estate - Personal		Consumer		Revolving Home Equity		Consumer Credit Card
March 31, 2024
FICO score:
Under 600	2.0	%	2.8	%	2.0	%	5.0	%
600 - 659	2.5		4.1		3.3		12.2
660 - 719	8.5		13.0		11.7		30.4
720 - 779	21.6		24.2		22.2		27.0
780 and over	65.4		55.9		60.8		25.4
Total	100.0	%	100.0	%	100.0	%	100.0	%
December 31, 2023
FICO score:
Under 600	2.0	%	2.5	%	1.9	%	4.7	%
600 - 659	2.3		4.3		3.3		12.1
660 - 719	8.5		12.9		10.9		29.2
720 - 779	21.9		28.2		22.4		27.0
780 and over	65.3		52.1		61.5		27.0
Total	100.0	%	100.0	%	100.0	%	100.0	%

Modifications for borrowers experiencing financial difficulty

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The Company's modifications of loans to borrowers experiencing financial difficulty are generally in the form of term extensions, repayment plans, payment deferrals, forbearance agreements, interest rate reductions, forgiveness of interest and/or fees, or any combination thereof. Commercial loans modified to borrowers experiencing financial difficulty are primarily loans that are substandard or non-accrual, where the maturity date was extended. Modifications on personal real estate loans are primarily those placed on forbearance plans, repayment plans, or deferral plans where monthly payments are suspended for a period of time or past due amounts are paid off over a certain period of time in the future or set up as a balloon payment at maturity. Modifications to certain credit card and other small consumer loans are often modified under debt counseling programs that can reduce the contractual rate or, in certain instances, forgive certain fees and interest charges. Other consumer loans modified to borrowers experiencing financial difficulty consist of various other workout arrangements with consumer customers.

The following tables present the amortized cost at March 31, 2024 of loans that were modified during the three months ended March 31, 2024 and the amortized cost of at March 31, 2023 of loans that were modified during the three months ended March 31, 2023.


	For the Three Months Ended March 31, 2024
(Dollars in thousands)	Term Extension		Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Other		Total		% of Total Loan Category
March 31, 2024
Commercial:
Business	$	11,648	$	—	$	—	$	—	$	—	$	11,648	0.2	%

Real estate – business	17,004		—		—		—		—		17,004		0.5
Personal Banking:
Real estate – personal	526		2,706		—		—		—		3,232		0.1
Consumer	—		—		31		—		—		31		—

Consumer credit card	—		—		945		—		—		945		0.2

Total	$	29,178	$	2,706	$	976	$	—	$	—	$	32,860	0.2	%


	For the Three Months Ended March 31, 2023
(Dollars in thousands)	Term Extension		Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Other		Total		% of Total Loan Category














March 31, 2023
Commercial:
Business	$	3,104	$	—	$	—	$	—	$	—	$	3,104	0.1	%

Real estate – business	23,039		—		—		—		—		23,039		0.7
Personal Banking:
Real estate – personal	—		1,666		—		—		—		1,666		0.1
Consumer	—		58		16		—		55		129		—

Consumer credit card	—		—		618		275		—		893		0.2

Total	$	26,143	$	1,724	$	634	$	275	$	55	$	28,831	0.2	%

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

If a loan to a borrower experiencing financial difficulty is modified and subsequently deemed uncollectible, the allowance for credit losses continues to be based on individual evaluation, if that loan is already on non-accrual status. For those loans, the allowance for credit losses is estimated using discounted expected cash flows or the fair value of collateral. If an accruing

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

The following tables summarize the financial impact of loan modifications and payment deferrals during the three months ended March 31, 2024 and March 31, 2023.


	Term Extension












	Three Months Ended March 31, 2024	Three Months Ended March 31, 2023
Commercial:
Business	Extended maturity by a weighted average of 6 months.	Extended maturity by a weighted average of 12 months.

Real estate – business	Extended maturity by a weighted average of 8 months.	Extended maturity by a weighted average of 17 months.
Personal Banking:
Real estate – personal	Extended maturity by a weighted average of 6 months.


	Payment Delay












	Three Months Ended March 31, 2024	Three Months Ended March 31, 2023




Personal Banking:
Real estate – personal	Deferred certain payments by a weighted average of 8 years.	Deferred past due monthly payments to maturity as a balloon payment. Deferral delayed payments a weighted average of 27 years.
Consumer		Deferred past due monthly payments to maturity as a balloon payment. Deferral delayed payments a weighted average of 11 years


	Interest Rate Reduction












	Three Months Ended March 31, 2024	Three Months Ended March 31, 2023




Personal Banking:

Consumer	Reduced weighted-average contractual interest rate from average 23% to 6%.	Reduced weighted-average contractual interest rate from 20% to 6%.

Consumer credit card	Reduced weighted-average contractual interest rate from average 23% to 6%.	Reduced weighted-average contractual interest rate from 20% to 6%.


	Forgiveness of Interest/Fees












	Three Months Ended March 31, 2024	Three Months Ended March 31, 2023




Personal Banking:



Consumer credit card		Approximately $14 thousand of interest and fees forgiven.

The Company had commitments of $2.4 million and $28.4 million at March 31, 2024 and December 31, 2023, respectively, to lend additional funds to borrowers experiencing financial difficulty and for whom the Company has modified the terms of loans in the form of an interest rate reduction; an other-than-insignificant payment delay; forgiveness of principal, interest, or fees; or a term extension during the current reporting period.

The following tables provide the amortized cost basis at March 31, 2024 of loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2024 and were modified within the 12 months preceding the payment default, as well as the amortized cost basis at March 31, 2023 of loans to borrowers experiencing financial difficulty that had a payment default during the three months ended March 31, 2023 and had been modified on or after January 1, 2023 (the date we adopted ASU 2022-02). For purposes of this disclosure, the Company considers "default" to mean 90 days or more past due as to interest or principal.

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	For the Three Months Ended March 31, 2024
(Dollars in thousands)	Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Total
March 31, 2024




Personal Banking:
Real estate – personal	$	1,138	$	—	$	—	$	1,138
Consumer	—		14		—		14

Consumer credit card	—		260		61		321

Total	$	1,138	$	274	$	61	$	1,473

	For the Three Months Ended March 31, 2023
(Dollars in thousands)	Payment Delay		Interest Rate Reduction		Interest/Fees Forgiven		Total
March 31, 2023




Personal Banking:

Consumer	$	—	$	8	$	—	$	8

Consumer credit card	—		63		12		75

Total	$	—	$	71	$	12	$	83

The following tables present the amortized cost basis at March 31, 2024 of loans to borrowers experiencing financial difficulty that had been modified within the previous 12 months as well as the amortized cost basis at March 31, 2023 of loans to borrowers experiencing financial difficulty that had been modified on or after January 1, 2023 (the date we adopted ASU 2022-02) through March 31, 2023.


(In thousands)	Current		30-89 Days Past Due		90 Days Past Due		Total
March 31, 2024
Commercial:
Business	$	25,544	$	—	$	—	$	25,544

Real estate – business	93,924		—		—		93,924
Personal Banking:
Real estate – personal	3,556		1,136		1,761		6,453
Consumer	150		17		14		181

Consumer credit card	2,107		513		296		2,916

Total	$	125,281	$	1,666	$	2,071	$	129,018


(In thousands)	Current		30-89 Days Past Due		90 Days Past Due		Total
March 31, 2023
Commercial:
Business	$	3,104	$	—	$	—	$	3,104

Real estate – business	23,039		—		—		23,039
Personal Banking:
Real estate – personal	1,061		605		—		1,666
Consumer	75		46		8		129

Consumer credit card	645		173		75		893

Total	$	27,924	$	824	$	83	$	28,831

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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 March 31, 2024, the fair value of these loans was $1.2 million, and the unpaid principal balance was $1.1 million.

The Company also designates certain student loan originations as held for sale. The borrowers are credit-worthy students who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company maintains contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are carried at lower of cost or fair value, which at March 31, 2024 totaled $763 thousand.

At March 31, 2024, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing interest.

Foreclosed real estate/repossessed assets

The Company’s holdings of foreclosed real estate totaled $206 thousand and $270 thousand at March 31, 2024 and December 31, 2023, respectively, and included in those amounts were $206 thousand and $270 thousand at March 31, 2024 and December 31, 2023, respectively, of foreclosed residential real estate properties held as a result of obtaining physical possession. Personal property acquired in repossession, generally autos, totaled $2.0 million and $1.8 million at March 31, 2024 and December 31, 2023. Upon acquisition, these assets are recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower of this cost basis or fair value less estimated selling costs.

3. Investment Securities

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


(In thousands)	March 31, 2024		December 31, 2023
Available for sale debt securities	$	9,141,695	$	9,684,760
Trading debt securities	56,716		28,830
Equity securities:
Readily determinable fair value	5,864		5,723
No readily determinable fair value	6,988		6,978
Other:
Federal Reserve Bank stock	35,267		35,166
Federal Home Loan Bank stock	10,173		10,640

Private equity investments	183,706		176,667
Total investment securities (1)	$	9,440,409	$	9,948,764

(1)Accrued interest receivable totaled $28.2 million and $28.9 million at March 31, 2024 and December 31, 2023, respectively, and was included within other assets on the consolidated balance sheets.

The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer. At March 31, 2024, this portfolio included the Company's 823,447 shares of Visa Inc. ("Visa") Class B-1 common stock (formerly Class B common stock), which were held by Commerce Bancshares, Inc. (the Company's parent company). The Company's Visa Class B shares had a carrying value of zero at March 31, 2024, as there had not been observable price changes in orderly transactions for identical or similar investments of the same issuer. During the three months ended March 31, 2024, the Company did not record any impairment or other adjustments to the carrying amount of its portfolio of equity securities with no readily determinable fair value.

On April 8, 2024, Visa announced the commencement of a public offering to permit the exchange of its Class B-1 common stock for a combination of shares of its Class B-2 common stock and its Class C common stock (“Exchange Offer”). The Company tendered all of its Visa Class B-1 shares pursuant to the Exchange Offer. On May 3, 2024, the Exchange Offer closed and the Company received notification of Visa’s acceptance of that tender. In exchange for its 823,447 shares of Visa Class B-1 common stock, the Company received 411,723 shares of Visa Class B-2 common stock (which will be convertible under certain circumstances, as further described below, into Visa’s publicly traded Class A common stock at an initial rate of 1.5875 shares of Class A common for each share of Class B-2 common stock, subject to adjustment) and 163,404 shares of Visa Class C common stock which will automatically convert into four shares of Visa's Class A common stock (subject to

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future adjustments for any stock splits, recapitalizations or similar transactions) upon any transfer to a person other than a Visa member or an affiliate of a Visa member.

As a condition of participating in the exchange, the Company entered into a Makewhole Agreement with Visa that provides for cash payments to Visa to the extent (if any) that future adjustments to the conversion ratio for the Visa Class B-2 common stock to Class A common stock cause such ratio to fall below zero. Changes to the conversion ratio occur when Visa deposits funds to a litigation escrow established by Visa to pay settlements for certain covered litigation that pre-dated Visa’s initial public offering, for which Visa has been effectively indemnified by Visa USA members through reductions to the conversion ratio for its Class B-1 common stock. The purpose of the Makewhole Agreement is to preserve the economic benefit of these adjustments to the Class B-1 conversion ratio for the benefit of Visa’s Class A and Class C common stockholders following the exchange. As further described in Visa’s related Issuer Tender Offer Statement on Schedule TO and Prospectus, each dated April 8, 2024, publicly filed with the U. S. Securities and Exchange Commission, both the Makewhole Agreement and the related escrow fund and transfer restrictions on Visa’s Class B-1 common stock and the new Class B-2 common stock will terminate whenever the covered litigation is ultimately resolved, at which future date outstanding shares of Visa Class B-2 common stock will be convertible into shares of its Class A common stock at the then-applicable conversion ratio. The Makewhole Agreement also includes limited transfer restrictions, such that the Company may only transfer up to one-third of the shares of Visa Class C common stock received in the exchange within the first 45 days following May 3, 2024, and may only transfer up to two-thirds of the Class C common stock received within the first 90 days following May 3, 2024.

As a result of the exchange, the Company marked its Visa Class C common stock to fair value and recorded a gain of $175.5 million based on the conversion privilege of the Visa Class C common stock and the closing price of Visa Class A common stock on May 3, 2024 of $268.49 per share. The Company’s Visa Class C shares are expected to continue to be marked to fair value on a recurring basis using the Visa Class A shares as evidence of orderly transactions between market participants for similar securities issued by Visa. The Company’s Visa Class B-2 common stock will continue to be carried at cost of $0 as there are not observable price changes in orderly transactions for identical or similar investments of the same issuer.

Subsequent to the successful close of the Exchange Offer, the Company approved a plan to reposition a portion of its available for sale debt securities portfolio through the sale of securities with an amortized cost of approximately $1.0 billion. The securities that the Company plans to sell have a yield of approximately 2.0%, which is expected to result in a loss of approximately $165 million, and the Company expects to reinvest the proceeds mostly into investment securities yielding approximately 4.6%. The Company expects the repositioning to increase net interest income, reduce interest rate risk to lower rates, and improve the quality of the Company's pledgeable investment securities. The timing and amount of the loss ultimately realized on the available for sale debt securities and the reinvestment assumptions may depend on many considerations, including market conditions, the future price of Visa Class A common stock, and other factors.

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

The majority of the Company’s investment portfolio is comprised of available for sale debt securities, which are carried at fair value with changes in fair value reported in accumulated other comprehensive income (AOCI). A summary of the available for sale debt securities by maturity groupings as of March 31, 2024 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and Government National Mortgage Association (GNMA), in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral.

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(In thousands)	Amortized Cost		Fair Value
U.S. government and federal agency obligations:
Within 1 year	$	266,255	$	262,767
After 1 but within 5 years	380,713		370,689
After 5 but within 10 years	126,085		116,577

Total U.S. government and federal agency obligations	773,053		750,033
Government-sponsored enterprise obligations:


After 5 but within 10 years	4,935		4,454
After 10 years	50,702		39,391
Total government-sponsored enterprise obligations	55,637		43,845
State and municipal obligations:
Within 1 year	81,511		80,031
After 1 but within 5 years	431,208		397,795
After 5 but within 10 years	639,802		550,622
After 10 years	126,706		103,247
Total state and municipal obligations	1,279,227		1,131,695
Mortgage and asset-backed securities:
Agency mortgage-backed securities	4,524,253		3,754,837
Non-agency mortgage-backed securities	1,309,628		1,139,113
Asset-backed securities	1,954,148		1,877,805
Total mortgage and asset-backed securities	7,788,029		6,771,755
Other debt securities:
Within 1 year	60,606		59,575
After 1 but within 5 years	193,035		181,078
After 5 but within 10 years	226,055		192,193
After 10 years	13,260		11,521
Total other debt securities	492,956		444,367
Total available for sale debt securities	$	10,388,902	$	9,141,695

Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $396.2 million, at fair value, at March 31, 2024. Interest earned on these securities increases with inflation and decreases with deflation, as measured by the non-seasonally adjusted Consumer Price Index (CPI-U). At maturity, the principal paid is the greater of an inflation-adjusted principal or the original principal.

Allowance for credit losses on available for sale debt securities

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

At March 31, 2024, the fair value of securities on this watch list was $1.7 billion compared to $1.2 billion at December 31, 2023. Almost all of the securities included on the Company's watch list in the current quarter were experiencing unrealized loss positions due to the significant increase in interest rates and were analyzed outside of the cash flow model. At March 31, 2024, the securities on the Company's watch list that were not deemed to be solely related to increasing interest rates were securities backed by government-guaranteed student loans and are expected to perform as contractually required. As of March 31, 2024, the Company did not identify any securities for which a credit loss exists, and for the three months ended March 31, 2024 and 2023, the Company did not recognize a credit loss expense on any available for sale debt securities.

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


	Less than 12 months				12 months or longer				Total
(In thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2024
U.S. government and federal agency obligations	$	223,026	$	1,971	$	502,312	$	21,049	$	725,338	$	23,020
Government-sponsored enterprise obligations	—		—		43,845		11,792		43,845		11,792
State and municipal obligations	9,675		703		1,113,829		146,839		1,123,504		147,542
Mortgage and asset-backed securities:
Agency mortgage-backed securities	2,907		35		3,732,370		769,632		3,735,277		769,667
Non-agency mortgage-backed securities	—		—		1,133,805		170,644		1,133,805		170,644
Asset-backed securities	3,707		8		1,853,484		76,356		1,857,191		76,364
Total mortgage and asset-backed securities	6,614		43		6,719,659		1,016,632		6,726,273		1,016,675
Other debt securities	—		—		444,367		48,589		444,367		48,589
Total	$	239,315	$	2,717	$	8,824,012	$	1,244,901	$	9,063,327	$	1,247,618
December 31, 2023
U.S. government and federal agency obligations	$	51,585	$	809	$	714,400	$	24,025	$	765,985	$	24,834
Government-sponsored enterprise obligations	—		—		43,962		11,696		43,962		11,696
State and municipal obligations	24,022		760		1,167,607		148,478		1,191,629		149,238
Mortgage and asset-backed securities:
Agency mortgage-backed securities	4,382		59		3,875,432		720,649		3,879,814		720,708
Non-agency mortgage-backed securities	—		—		1,152,045		173,526		1,152,045		173,526
Asset-backed securities	19,086		156		2,081,293		93,076		2,100,379		93,232
Total mortgage and asset-backed securities	23,468		215		7,108,770		987,251		7,132,238		987,466
Other debt securities	—		—		460,136		47,250		460,136		47,250
Total	$	99,075	$	1,784	$	9,494,875	$	1,218,700	$	9,593,950	$	1,220,484

The entire available for sale debt portfolio included $9.1 billion of securities that were in a loss position at March 31, 2024, compared to $9.6 billion at December 31, 2023. The total amount of unrealized loss on these securities was $1.2 billion at March 31, 2024, an increase of $27.1 million compared to the unrealized loss at December 31, 2023. Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt securities" section above.

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


(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
March 31, 2024
U.S. government and federal agency obligations	$	773,053	$	—	$	(23,020)	$	—	$	750,033
Government-sponsored enterprise obligations	55,637		—		(11,792)		—		43,845
State and municipal obligations	1,279,227		10		(147,542)		—		1,131,695
Mortgage and asset-backed securities:
Agency mortgage-backed securities	4,524,253		251		(769,667)		—		3,754,837
Non-agency mortgage-backed securities	1,309,628		129		(170,644)		—		1,139,113
Asset-backed securities	1,954,148		21		(76,364)		—		1,877,805
Total mortgage and asset-backed securities	7,788,029		401		(1,016,675)		—		6,771,755
Other debt securities	492,956		—		(48,589)		—		444,367
Total	$	10,388,902	$	411	$	(1,247,618)	$	—	$	9,141,695
December 31, 2023
U.S. government and federal agency obligations	$	841,267	$	81	$	(24,834)	$	—	$	816,514
Government-sponsored enterprise obligations	55,658		—		(11,696)		—		43,962
State and municipal obligations	1,346,633		24		(149,238)		—		1,197,419
Mortgage and asset-backed securities:
Agency mortgage-backed securities	4,621,821		233		(720,708)		—		3,901,346
Non-agency mortgage-backed securities	1,331,288		136		(173,526)		—		1,157,898
Asset-backed securities	2,200,712		5		(93,232)		—		2,107,485
Total mortgage and asset-backed securities	8,153,821		374		(987,466)		—		7,166,729
Other debt securities	507,386		—		(47,250)		—		460,136
Total	$	10,904,765	$	479	$	(1,220,484)	$	—	$	9,684,760

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


	For the Three Months Ended March 31
(In thousands)	2024		2023
Proceeds from sales of securities:
Available for sale debt securities	$	25,494	$	812,176

Other investments	10,250		28,259
Total proceeds	$	35,744	$	840,435

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


Losses realized on sales	$	(8,470)	$	(3,088)

Equity securities:



Fair value adjustments, net	142		(127)
Other:
Gains realized on sales	969		658

Fair value adjustments, net	7,100		2,251
Total investment securities gains (losses), net	$	(259)	$	(306)

Net losses on investment securities for the three months ended March 31, 2024 were mainly comprised of net losses of $8.5 million on sales of available for sale securities, partially offset by net gains in fair value of $142 thousand on equity investments, net gains of $969 thousand on sales of private equity securities, and net gains in private equity securities due to fair value adjustments of $7.1 million.

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At March 31, 2024, securities totaling $6.6 billion in fair value were pledged to secure public fund deposits, securities sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB, compared to $7.5 billion at December 31, 2023. Except for obligations of various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeded 10% of stockholders’ equity.

4. Goodwill and Other Intangible Assets

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


	March 31, 2024								December 31, 2023
(In thousands)	Gross Carrying Amount		Accumulated Amortization		Valuation Allowance		Net Amount		Gross Carrying Amount		Accumulated Amortization		Valuation Allowance		Net Amount
Amortizable intangible assets:
Core deposit premium	$	5,550	$	(5,145)	$	—	$	405	$	5,550	$	(5,092)	$	—	$	458
Mortgage servicing rights	13,651		(3,738)		—		9,913		13,723		(3,602)		—		10,121
Total	$	19,201	$	(8,883)	$	—	$	10,318	$	19,273	$	(8,694)	$	—	$	10,579

Aggregate amortization expense on intangible assets was $331 thousand and $356 thousand for the three month periods ended March 31, 2024 and 2023, respectively. The following table shows the estimated annual amortization expense for the next five fiscal years. This expense is based on existing asset balances and the interest rate environment as of March 31, 2024. The Company’s actual amortization expense in any given period may be different from the estimated amounts depending upon the acquisition of intangible assets, changes in mortgage interest rates, prepayment rates and other market conditions.


(In thousands)
2024	$	1,277
2025	1,140
2026	997
2027	861
2028	748

Changes in the carrying amount of goodwill and other intangible assets for the three month period ended March 31, 2024 are as follows:


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

Originations, net of disposals	—		—		—		70
Amortization	—		—		(53)		(278)

Balance March 31, 2024	$	146,539	$	3,600	$	405	$	9,913

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


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

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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 March 31, 2024, that net liability was $3.9 million, which will be accreted into income over the remaining life of the respective commitments. The contractual amount of these letters of credit, which represents the maximum potential future payments guaranteed by the Company, was $634.5 million at March 31, 2024.

The Company periodically enters into credit risk participation agreements (RPAs) as a guarantor to other financial institutions, in order to mitigate those institutions’ credit risk associated with interest rate swaps with third parties. The RPA stipulates that, in the event of default by the third party on the interest rate swap, the Company will reimburse a portion of the loss borne by the financial institution. These interest rate swaps are normally collateralized (generally with real property, inventories and equipment) by the third party, which limits the credit risk associated with the Company’s RPAs. The third parties usually have other borrowing relationships with the Company. The Company monitors overall borrower collateral and at March 31, 2024, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair value throughout their term with all changes in fair value, including those due to a change in the third party’s creditworthiness, recorded in current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 2 years to 15 years. At March 31, 2024, the fair value of the Company's guarantee liabilities for RPAs was $106 thousand, and the notional amount of the underlying swaps was $464.9 million. The maximum potential future payment guaranteed by the Company cannot be readily estimated but is dependent upon the fair value of the interest rate swaps at the time of default.

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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 3 months to 15 years.

The following table provides the components of lease income.


	For the Three Months Ended March 31
(in thousands)	2024		2023
Direct financing and sales-type leases	$	9,012	$	6,755
Operating leases(a)	4,132		2,334
Total lease income	$	13,144	$	9,089

(a) Includes rent from Tower Properties Company, a related party, of $19 thousand for both of the three month periods ended March 31, 2024 and 2023.

7. Pension

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


	For the Three Months Ended March 31
(In thousands)	2024		2023
Service cost	$	97	$	116
Interest cost on projected benefit obligation	1,112		1,158
Expected return on plan assets	(1,019)		(1,001)
Amortization of prior service cost	(45)		(67)
Amortization of unrecognized net loss	280		427
Net periodic pension cost	$	425	$	633

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

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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 March 31
(In thousands, except per share data)		2024		2023
Basic income per common share:
Net income attributable to Commerce Bancshares, Inc.		$	112,663	$	119,452
Less income allocated to nonvested restricted stock		1,044		1,056
Net income allocated to common stock		$	111,619	$	118,396
Weighted average common shares outstanding		129,042		130,204
Basic income per common share		$	.87	$	.91
Diluted income per common share:
Net income attributable to Commerce Bancshares, Inc.		$	112,663	$	119,452
Less income allocated to nonvested restricted stock		1,043		1,054
Net income allocated to common stock		$	111,620	$	118,398
Weighted average common shares outstanding		129,042		130,204

Net effect of the assumed exercise of stock-based awards - based on the treasury stock method using the average market price for the respective periods		144		268
Weighted average diluted common shares outstanding		129,186		130,472
Diluted income per common share		$	.86	$	.91

Unexercised stock appreciation rights of 353 thousand and 226 thousand for the three month periods ended March 31, 2024 and 2023, respectively, were excluded from the computation of diluted income per common share because their inclusion would have been anti-dilutive.

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

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

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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	(35,671)		—		(22,865)		(58,536)
Amounts reclassified to current earnings from accumulated other comprehensive income	8,469		235		(2,989)		5,715
Current period other comprehensive income (loss), before tax	(27,202)		235		(25,854)		(52,821)
Income tax (expense) benefit	6,801		(59)		6,464		13,206
Current period other comprehensive income (loss), net of tax	(20,401)		176		(19,390)		(39,615)

Balance March 31, 2024	$	(935,402)	$	(13,420)	$	17,795	$	(931,027)
Balance January 1, 2023	$	(1,124,915)	$	(17,186)	$	55,237	$	(1,086,864)


Other comprehensive income (loss) before reclassifications to current earnings	186,868		—		9,225		196,093
Amounts reclassified to current earnings from accumulated other comprehensive income	3,088		360		(4,385)		(937)
Current period other comprehensive income (loss), before tax	189,956		360		4,840		195,156
Income tax (expense) benefit	(47,490)		(90)		(1,210)		(48,790)
Current period other comprehensive income (loss), net of tax	142,466		270		3,630		146,366

Balance March 31, 2023	$	(982,449)	$	(16,916)	$	58,867	$	(940,498)

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

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

10. Segments

The Company segregates financial information for use in assessing its performance and allocating resources among three operating segments: Consumer, Commercial and Wealth. The Consumer segment consists of various consumer loan and deposit products offered through its retail branch network of approximately 140 locations. This segment also includes indirect and other consumer loan financing businesses, along with debit and credit card loan and fee businesses. The Commercial segment provides corporate lending (including the Small Business Banking product line within the branch network), leasing, and international services, along with business and governmental deposit products and commercial cash management services. This segment also includes both merchant and commercial bank card products as well as the Capital Markets Group, which sells fixed income securities and provides securities safekeeping and accounting services to its business and correspondent bank customers. The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management, and brokerage services. This segment also provides various loan and deposit related services to its private banking customers.

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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 March 31, 2024
Net interest income	$	129,676	$	126,687	$	24,155	$	(31,519)	$	248,999
Provision for credit losses	(8,888)		(41)		1		4,141		(4,787)
Non-interest income	24,335		63,802		58,399		2,312		148,848
Investment securities gains (losses), net	—		—		—		(259)		(259)
Non-interest expense	(80,644)		(100,356)		(39,551)		(25,146)		(245,697)
Income before income taxes	$	64,479	$	90,092	$	43,004	$	(50,471)	$	147,104







Three Months Ended March 31, 2023
Net interest income	$	144,460	$	137,127	$	28,025	$	(57,989)	$	251,623
Provision for loan losses	(6,306)		(393)		(13)		(4,744)		(11,456)
Non-interest income	24,303		58,324		52,944		2,041		137,612
Investment securities gains (losses), net	—		—		—		(306)		(306)
Non-interest expense	(77,370)		(93,685)		(39,585)		(13,467)		(224,107)
Income before income taxes	$	85,087	$	101,373	$	41,371	$	(74,465)	$	153,366

The information presented above was derived from the internal profitability reporting system used by management to monitor and manage the financial performance of the Company. This information is based on internal management accounting procedures and methods, which have been developed to reflect the underlying economics of the businesses. The methodologies are applied in connection with funds transfer pricing and assignment of overhead costs among segments. Funds transfer pricing was used in the determination of net interest income by assigning a standard cost (credit) for funds used (provided by) assets and liabilities based on their maturity, prepayment and/or repricing characteristics.

The segment activity, as shown above, includes both direct and allocated items. Amounts in the “Other/Elimination” column include activity not related to the segments, such as that relating to administrative functions, the investment securities portfolio, and the effect of certain expense allocations to the segments. The provision for credit losses in this category contains the difference between net loan charge-offs assigned directly to the segments and the recorded provision for credit loss expense. Included in this category’s net interest income are earnings of the investment portfolio, which are not allocated to a segment.

The performance measurement of the operating segments is based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. The information is also not necessarily indicative of the segments' financial condition and results of operations if they were independent entities.

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11. Derivative Instruments

The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. With the exception of the interest rate floors (discussed below), the Company's derivative instruments are accounted for as free-standing derivatives, and changes in their fair value are recorded in current earnings.


(In thousands)	March 31, 2024		December 31, 2023
Interest rate swaps	$	2,121,244	$	2,166,393
Interest rate floors	2,000,000		2,000,000
Interest rate caps	336,682		336,682
Credit risk participation agreements	642,197		653,887
Foreign exchange contracts	25,669		30,401
Mortgage loan commitments	3,616		3,004
Mortgage loan forward sale contracts	—		1,349
Forward TBA contracts	4,000		3,000
Total notional amount	$	5,133,408	$	5,194,716

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

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

As of March 31, 2024, the Company held four interest rate floors indexed to 1-month SOFR to hedge the risk of declining interest rates on certain floating rate commercial loans. The floors have a combined notional value of $2.0 billion and are forward-starting. Each of the four interest rate floors has a six-year term and a notional amount of $500.0 million. In the event that the index rate falls below zero, the maximum rate that the Company can earn on the notional amount of each floor is limited to the strike rate. Information about the floors is provided in the table below.


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

The premium paid for the floors totaled $90.2 million. The maximum length of time over which the Company is hedging its exposure to lower rates is approximately 7 years. These interest rate floors qualified and were designated as cash flow hedges and were assessed for effectiveness using regression analysis. The change in the fair value of these interest rate floors is recorded in AOCI, net of the amortization of the premiums paid, which are recorded against interest and fees on loans in the consolidated statements of income. As of March 31, 2024, net deferred losses on the interest rate floors totaled $21.9 million (pre-tax) and were recorded in AOCI in the consolidated balance sheet. As of March 31, 2024, it is expected that $10.7 million (pre-tax) interest rate floor premium amortization will be reclassified from AOCI into earnings over the next 12 months for the outstanding interest rate floors.

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

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2024, the total realized gains on the monetized cash flow hedges remaining in AOCI was $45.7 million (pre-tax), which will be reclassified into interest income over the next 2.7 years. The estimated amount of net gains related to the cash flow hedges remaining in AOCI at March 31, 2024 that is expected to be reclassified into income within the next 12 months is $21.7 million.

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

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

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

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


	Asset Derivatives				Liability Derivatives
	Mar. 31, 2024		Dec. 31, 2023		Mar. 31, 2024		Dec. 31, 2023
(In thousands)	Fair Value				Fair Value
Derivatives designated as hedging instruments:
Interest rate floors	$	56,094	$	78,960	$	—	$	—
Total derivatives designated as hedging instruments	$	56,094	$	78,960	$	—	$	—
Derivative instruments not designated as hedging instruments:
Interest rate swaps	$	37,290	$	35,816	$	(37,290)	$	(35,816)
Interest rate caps	864		1,391		(864)		(1,391)
Credit risk participation agreements	39		77		(106)		(194)
Foreign exchange contracts	368		534		(275)		(479)
Mortgage loan commitments	102		89		—		(1)
Mortgage loan forward sale contracts	—		8		—		—
Forward TBA contracts	1		1		(11)		(18)
Total derivatives not designated as hedging instruments	$	38,664	$	37,916	$	(38,546)	$	(37,899)
Total	$	94,758	$	116,876	$	(38,546)	$	(37,899)

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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 March 31, 2024
Derivatives in cash flow hedging relationships:
Interest rate floors	$	(22,865)	$	(9,977)	$	(12,888)	Interest and fees on loans	$	2,989	$	7,199	$	(4,210)
Total	$	(22,865)	$	(9,977)	$	(12,888)	Total	$	2,989	$	7,199	$	(4,210)




For the Three Months Ended March 31, 2023
Derivatives in cash flow hedging relationships:
Interest rate floors	$	9,225	$	—	$	9,225	Interest and fees on loans	$	4,385	$	7,444	$	(3,059)
Total	$	9,225	$	—	$	9,225	Total	$	4,385	$	7,444	$	(3,059)

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


	Location of Gain or (Loss) Recognized in Consolidated Statements of Income		Amount of Gain or (Loss) Recognized in Income on Derivatives
		For the Three Months Ended March 31
(In thousands)			2024		2023



Derivative instruments:
Interest rate swaps	Other non-interest income		$	126	$	623

Credit risk participation agreements	Other non-interest income		26		(19)
Foreign exchange contracts	Other non-interest income		38		(20)
Mortgage loan commitments	Loan fees and sales		15		77
Mortgage loan forward sale contracts	Loan fees and sales		(8)		(1)
Forward TBA contracts	Loan fees and sales		6		1
Total			$	203	$	661

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

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

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							Gross Amounts Not Offset in the Balance Sheet
(In thousands)	Gross Amount Recognized		Gross Amounts Offset in the Balance Sheet		Net Amounts Presented in the Balance Sheet		Financial Instruments Available for Offset		Collateral Received/ Pledged		Net Amount
March 31, 2024
Assets:
Derivatives subject to master netting agreements	$	94,558	$	—	$	94,558	$	(1,274)	$	(91,278)	$	2,006
Derivatives not subject to master netting agreements	200		—		200
Total derivatives	$	94,758	$	—	$	94,758
Liabilities:
Derivatives subject to master netting agreements	$	38,202	$	—	$	38,202	$	(1,274)	$	—	$	36,928
Derivatives not subject to master netting agreements	344		—		344
Total derivatives	$	38,546	$	—	$	38,546
December 31, 2023
Assets:
Derivatives subject to master netting agreements	$	116,702	$	—	$	116,702	$	(3,930)	$	(107,492)	$	5,280
Derivatives not subject to master netting agreements	174		—		174
Total derivatives	$	116,876	$	—	$	116,876
Liabilities:
Derivatives subject to master netting agreements	$	37,300	$	—	$	37,300	$	(3,930)	$	—	$	33,370
Derivatives not subject to master netting agreements	599		—		599
Total derivatives	$	37,899	$	—	$	37,899

12. Resale and Repurchase Agreements

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

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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
March 31, 2024
Total resale agreements, subject to master netting arrangements	$	225,000	$	—	$	225,000	$	—	$	(225,000)	$	—
Total repurchase agreements, subject to master netting arrangements	2,241,106		—		2,241,106		—		(2,241,106)		—
December 31, 2023
Total resale agreements, subject to master netting arrangements	$	450,000	$	—	$	450,000	$	—	$	(450,000)	$	—
Total repurchase agreements, subject to master netting arrangements	2,647,510		—		2,647,510		—		(2,647,510)		—

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


	Remaining Contractual Maturity of the Agreements
(In thousands)	Overnight and continuous		Up to 90 days		Greater than 90 days		Total
March 31, 2024
Repurchase agreements, secured by:
U.S. government and federal agency obligations	$	140,569	$	—	$	—	$	140,569
Government-sponsored enterprise obligations	9,016		—		—		9,016

Agency mortgage-backed securities	1,448,175		5,550		23,100		1,476,825
Non-agency mortgage-backed securities	10,166		—		—		10,166
Asset-backed securities	493,590		29,531		17,800		540,921
Other debt securities	63,609		—		—		63,609
Total repurchase agreements, gross amount recognized	$	2,165,125	$	35,081	$	40,900	$	2,241,106
December 31, 2023
Repurchase agreements, secured by:
U.S. government and federal agency obligations	$	170,293	$	—	$	—	$	170,293
Government-sponsored enterprise obligations	8,749		—		—		8,749

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

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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 $4.3 million and $4.4 million in the three months ended March 31, 2024 and 2023 respectively.

Nonvested stock awards granted generally vest in 4 to 7 years and contain restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant. A summary of the status of the Company’s nonvested share awards as of March 31, 2024, and changes during the three month period then ended, is presented below.


	Shares	Weighted Average Grant Date Fair Value
Nonvested at January 1, 2024	1,166,335	$58.48
Granted	314,602	51.99
Vested	(235,194)	52.39
Forfeited	(11,342)	58.69

Nonvested at March 31, 2024	1,234,401	$57.99

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


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

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


(Dollars in thousands, except per share data)	Rights	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2024	1,023,321	$47.10
Granted	117,974	52.00
Forfeited	(781)	57.43
Expired	(4,025)	43.81
Exercised	(46,457)	27.89
Outstanding at March 31, 2024	1,090,032	$48.46	5.3 years	$7,960

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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 three months ended March 31, 2024, approximately 63% of the Company’s total revenue was comprised of net interest income, which is not within the scope of this guidance. Of the remaining revenue, those items that were subject to this guidance mainly included fees for bank card, trust, deposit account services and consumer brokerage services.

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


	Three Months Ended March 31
(In thousands)	2024		2023
Bank card transaction fees	$	46,930	$	46,654
Trust fees	51,105		45,328
Deposit account charges and other fees	24,151		21,752
Consumer brokerage services	4,408		5,085
Other non-interest income	10,516		8,339
Total non-interest income from contracts with customers	137,110		127,158
Other non-interest income (1)	11,738		10,454
Total non-interest income	$	148,848	$	137,612

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

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

The following table presents the opening and closing receivable balances for the three month periods ended March 31, 2024 and 2023 for the Company’s significant revenue from contracts with customers.


(In thousands)	March 31, 2024		December 31, 2023		March 31, 2023		December 31, 2022
Bank card transaction fees	$	15,673	$	18,069	$	15,585	$	17,254
Trust fees	2,506		1,764		2,098		2,038
Deposit account charges and other fees	6,156		6,588		5,398		6,631
Consumer brokerage services	—		8		773		949

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

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


			Fair Value Measurements Using
(In thousands)	Total Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2024
Assets:
Residential mortgage loans held for sale	$	1,185	$	—	$	1,185	$	—
Available for sale debt securities:
U.S. government and federal agency obligations	750,033		750,033		—		—
Government-sponsored enterprise obligations	43,845		—		43,845		—
State and municipal obligations	1,131,695		—		1,130,739		956
Agency mortgage-backed securities	3,754,837		—		3,754,837		—
Non-agency mortgage-backed securities	1,139,113		—		1,139,113		—
Asset-backed securities	1,877,805		—		1,877,805		—
Other debt securities	444,367		—		444,367		—
Trading debt securities	56,716		—		56,716		—
Equity securities	5,864		5,864		—		—
Private equity investments	183,706		—		—		183,706
Derivatives *	94,758		—		94,617		141
Assets held in trust for deferred compensation plan	21,270		21,270		—		—
Total assets	9,505,194		777,167		8,543,224		184,803
Liabilities:
Derivatives *	38,546		—		38,440		106
Liabilities held in trust for deferred compensation plan	21,270		21,270		—		—
Total liabilities	$	59,816	$	21,270	$	38,440	$	106
December 31, 2023
Assets:
Residential mortgage loans held for sale	$	1,585	$	—	$	1,585	$	—
Available for sale debt securities:
U.S. government and federal agency obligations	816,514		816,514		—		—
Government-sponsored enterprise obligations	43,962		—		43,962		—
State and municipal obligations	1,197,419		—		1,196,472		947
Agency mortgage-backed securities	3,901,346		—		3,901,346		—
Non-agency mortgage-backed securities	1,157,898		—		1,157,898		—
Asset-backed securities	2,107,485		—		2,107,485		—
Other debt securities	460,136		—		460,136		—
Trading debt securities	28,830		—		28,830		—
Equity securities	5,723		5,723		—		—
Private equity investments	176,667		—		—		176,667
Derivatives *	116,876		—		116,710		166
Assets held in trust for deferred compensation plan	20,538		20,538		—		—
Total assets	10,034,979		842,775		9,014,424		177,780
Liabilities:
Derivatives *	37,899		—		37,704		195
Liabilities held in trust for deferred compensation plan	20,538		20,538		—		—
Total liabilities	$	58,437	$	20,538	$	37,704	$	195

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

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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 March 31, 2024
Balance January 1, 2024	$	947	$	176,667	$	177,614
Total gains or losses (realized/unrealized):
Included in earnings	—		7,100		7,100
Included in other comprehensive income *	9		—		9


Purchases of private equity investments	—		9,477		9,477
Sale/pay down of private equity investments	—		(9,400)		(9,400)
Capitalized interest/dividends	—		(138)		(138)


Balance at March 31, 2024	$	956	$	183,706	$	184,662
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2024	$	—	$	7,100	$	7,100
*Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2024	$	9	$	—	$	9
For the three months ended March 31, 2023
Balance January 1, 2023	$	1,841	$	178,127	$	179,968
Total gains or losses (realized/unrealized):
Included in earnings	—		2,251		2,251
Included in other comprehensive income *	26		—		26
Investment securities called	(1,000)		—		(1,000)
Discount accretion	47		—		47
Purchases of private equity investments	—		10,532		10,532
Sale/pay down of private equity investments	—		(27,492)		(27,492)



Balance at March 31, 2023	$	914	$	163,418	$	164,332
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2023	$	—	$	2,251	$	2,251
*Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at March 31, 2023	$	4	$	—	$	4

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

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


(In thousands)	Investment Securities Gains (Losses), Net
For the three months ended March 31, 2024
Total gains or losses included in earnings	$	7,100
Change in unrealized gains or losses relating to assets still held at March 31, 2024	$	7,100



For the three months ended March 31, 2023
Total gains or losses included in earnings	$	2,251
Change in unrealized gains or losses relating to assets still held at March 31, 2023	$	2,251

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Level 3 Inputs

The Company's Level 3 measurements at March 31, 2024, which employ unobservable inputs that are readily quantifiable, pertain to investments in portfolio concerns held by the Company's private equity subsidiaries. Information about these inputs is presented in the table below.

Quantitative Information about Level 3 Fair Value Measurements

Weighted

Valuation Technique

Unobservable Input

Range

Average*

Private equity investments

Market comparable companies

EBITDA multiple

3.5

6.0

5.1

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

Instruments Measured at Fair Value on a Nonrecurring Basis

For assets measured at fair value on a nonrecurring basis during the first three months of 2024 and 2023, and still held as of March 31, 2024 and 2023, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation inputs used to determine each adjustment, and the carrying value of the related individual assets or portfolios at March 31, 2024 and 2023.


			Fair Value Measurements Using
(In thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses) Recognized During the Three Months Ended March 31
March 31, 2024
Collateral dependent loans	$	63	$	—	$	—	$	63	$	(32)





March 31, 2023
Collateral dependent loans	$	1,819	$	—	$	—	$	1,819	$	425

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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 March 31, 2024 and December 31, 2023:


	Carrying Amount		Estimated Fair Value at March 31, 2024
(In thousands)			Level 1		Level 2		Level 3		Total
Financial Assets
Loans:
Business	$	5,994,974	$	—	$	—	$	5,844,133	$	5,844,133
Real estate - construction and land	1,497,647		—		—		1,470,405		1,470,405
Real estate - business	3,711,602		—		—		3,582,707		3,582,707
Real estate - personal	3,039,885		—		—		2,565,443		2,565,443
Consumer	2,119,308		—		—		2,069,841		2,069,841
Revolving home equity	322,523		—		—		319,524		319,524
Consumer credit card	564,388		—		—		524,843		524,843
Overdrafts	48,513		—		—		47,310		47,310
Total loans	17,298,840		—		—		16,424,206		16,424,206
Loans held for sale	2,328		—		2,328		—		2,328




Investment securities	9,433,421		755,897		8,447,422		230,102		9,433,421

Securities purchased under agreements to resell	225,000		—		—		220,549		220,549
Interest earning deposits with banks	1,609,614		1,609,614		—		—		1,609,614
Cash and due from banks	291,040		291,040		—		—		291,040
Derivative instruments	94,758		—		94,617		141		94,758
Assets held in trust for deferred compensation plan	21,270		21,270		—		—		21,270
Total	$	28,976,271	$	2,677,821	$	8,544,367	$	16,874,998	$	28,097,186
Financial Liabilities
Non-interest bearing deposits	$	7,513,464	$	7,513,464	$	—	$	—	$	7,513,464
Savings, interest checking and money market deposits	14,463,211		14,463,211		—		—		14,463,211
Certificates of deposit	2,463,520		—		—		2,493,713		2,493,713
Federal funds purchased	264,470		264,470		—		—		264,470
Securities sold under agreements to repurchase	2,241,106		—		—		2,244,279		2,244,279
Other borrowings	2,327		—		2,327		—		2,327
Derivative instruments	38,546		—		38,440		106		38,546
Liabilities held in trust for deferred compensation plan	21,270		21,270		—		—		21,270
Total	$	27,007,914	$	22,262,415	$	40,767	$	4,738,098	$	27,041,280

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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 March 31, 2024, arising in the normal course of business. While some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet progressed to the point where a loss amount can be determined to be probable and estimable.

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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 months ended March 31, 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 March 31, 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 March 31
		2024			2023
Per Share Data
Net income per common share — basic		$	.87		$	.91	*
Net income per common share — diluted		.86			.91		*
Cash dividends on common stock		.270			.257		*
Book value per common share		22.70			20.49		*
Market price		53.20			55.57		*
Selected Ratios
(Based on average balance sheets)
Loans to deposits (1)		69.87		%	64.99		%
Non-interest bearing deposits to total deposits		29.97			36.10
Equity to loans (1)		17.24			15.74
Equity to deposits		12.05			10.23
Equity to total assets		9.61			8.22
Return on total assets		1.48			1.54

Return on equity		15.39			18.75
(Based on end-of-period data)
Non-interest income to revenue (2)		37.41			35.35
Efficiency ratio (3)		61.67			57.49
Tier I common risk-based capital ratio		15.35			14.47
Tier I risk-based capital ratio		15.35			14.47
Total risk-based capital ratio		16.11			15.26
Tangible common equity to tangible assets ratio (4)		9.24			7.92
Tier I leverage ratio		11.75			10.61

* 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.


	March 31
(Dollars in thousands)	2024			2023
Total equity	$	2,963,889		$	2,682,412
Less non-controlling interest	19,913			16,888

Less goodwill	146,539			138,921
Less intangible assets*	4,005			4,239
Total tangible common equity (a)	$	2,793,432		$	2,522,364
Total assets	$	30,372,108		$	32,004,856
Less goodwill	146,539			138,921
Less intangible assets*	4,005			4,239
Total tangible assets (b)	$	30,221,564		$	31,861,696
Tangible common equity to tangible assets ratio (a)/(b)	9.24		%	7.92		%

* Intangible assets other than mortgage servicing rights.

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Results of Operations

Summary


	Three Months Ended March 31				Increase (Decrease)
(Dollars in thousands)	2024		2023			Amount		% change
Net interest income (expense)	$	248,999	$	251,623		$	(2,624)	(1.0	%)
Provision for credit losses	(4,787)		(11,456)			(6,669)		(58.2)
Non-interest income	148,848		137,612			11,236		8.2
Investment securities gains (losses), net	(259)		(306)			47		15.4
Non-interest expense	(245,697)		(224,107)			21,590		9.6
Income taxes	(31,652)		(32,813)			(1,161)		(3.5)
Non-controlling interest income (expense)	(2,789)		(1,101)			1,688		N.M.
Net income attributable to Commerce Bancshares, Inc.	$	112,663	$	119,452		$	(6,789)	(5.7	%)

For the quarter ended March 31, 2024, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $112.7 million, a decrease of $6.8 million, or 5.7%, compared to the first quarter of the previous year. For the current quarter, the annualized return on average assets was 1.48%, the annualized return on average equity was 15.39%, and the efficiency ratio was 61.67%. Diluted earnings per common share was $.86 per share in the current quarter, a decrease of 5.5% compared to $.91 per share in the first quarter of 2023, and increased 2.4% compared to $.84 per share in the previous quarter.

Compared to the first quarter of last year, net interest income decreased $2.6 million, or 1.0%, mainly due to an increase in interest expense on interest bearing accounts of $55.7 million. This decrease was mainly offset by an increase in interest income on loans of $40.9 million, and an increase in deposits with banks of $17.1 million. The provision for credit losses decreased $6.7 million, or 58.2%, compared to the same quarter in the prior year. Non-interest income increased $11.2 million, or 8.2%, compared to the first quarter of 2023, mainly due to an increase in trust fees and deposit account fees, partly offset by lower consumer brokerage services fees. Net losses on investment securities totaled $259 thousand in the current quarter compared to net losses of $306 thousand in the same quarter of last year. Net securities losses in the current quarter primarily resulted from losses of $8.5 million related to the sales of available for sale debt securities, partly offset by $7.1 million of fair value adjustments on private equity investments and $969 thousand in gains on sales of private equity investments. Non-interest expense increased $21.6 million, or 9.6%, over the first quarter of 2023, mainly due to increases in salaries and employee benefits expense, data processing expense, Federal Deposit Insurance Corporation ("FDIC") insurance expense and 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 March 31, 2024 vs. 2023
	Change due to
(In thousands)	Average Volume		Average Rate		Total
Interest income, fully taxable equivalent basis:
Loans:
Business	$	2,405	$	12,196	$	14,601
Real estate - construction and land	1,125		4,143		5,268
Real estate - business	3,502		6,083		9,585
Real estate - personal	875		2,814		3,689
Consumer	199		5,867		6,066
Revolving home equity	443		574		1,017
Consumer credit card	227		766		993
Overdrafts	—		—		—
Total interest on loans	8,776		32,443		41,219
Loans held for sale	(103)		(2)		(105)
Investment securities:
U.S. government and federal agency securities	(1,169)		433		(736)
Government-sponsored enterprise obligations	(251)		(108)		(359)
State and municipal obligations	(2,601)		(874)		(3,475)
Mortgage-backed securities	(2,828)		2,086		(742)
Asset-backed securities	(5,741)		2,099		(3,642)
Other securities	(309)		3,471		3,162
Total interest on investment securities	(12,899)		7,107		(5,792)
Federal funds sold	(486)		7		(479)
Securities purchased under agreements to resell	(2,335)		17		(2,318)
Interest earning deposits with banks	13,103		3,993		17,096
Total interest income	6,056		43,565		49,621
Interest expense:
Deposits:
Savings	(27)		29		2
Interest checking and money market	690		34,737		35,427
Certificates of deposit of less than $100,000	2,115		6,651		8,766
Certificates of deposit of $100,000 and over	6,709		4,760		11,469
Total interest on deposits	9,487		46,177		55,664
Federal funds purchased	(1,889)		722		(1,167)
Securities sold under agreements to repurchase	679		3,264		3,943
Other borrowings	(6,776)		56		(6,720)
Total interest expense	1,501		50,219		51,720
Net interest income, tax equivalent basis	$	4,555	$	(6,654)	$	(2,099)

Net interest income in the first quarter of 2024 was $249.0 million, a decrease of $2.6 million from the first quarter of 2023. On a fully taxable-equivalent (FTE) basis, net interest income totaled $251.3 million in the first quarter of 2024, down $2.1 million from the same period last year and up $765 thousand over the previous quarter. The decrease in net interest income

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compared to the first quarter of 2023 was mainly due to higher deposit interest expense of $55.7 million and lower interest income earned on investment securities (FTE) of $5.8 million, partly offset by higher interest income earned on loans (FTE) of $41.2 million and balances at the Federal Reserve of $17.1 million. The increase in deposit interest expense was mainly due to higher rates paid, while interest earned on investment securities (FTE) declined mainly due to lower average balances. The increase in total interest earned on loans (FTE) was the result of higher loan yields on all loan products, especially commercial loans, many of which have variable rates, coupled with higher average balances. The Company's net yield on earning assets (FTE) was 3.33% in the current quarter compared to 3.26% in the first quarter of 2023.

Total interest income (FTE) increased $49.6 million over the first quarter of 2023. Interest income on loans (FTE) was $266.2 million during the first quarter of 2024, an increase of $41.2 million, or 18.3%, 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 71 basis points in the average rate earned and growth of $676.2 million, or 4.1%, 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 $14.6 million due to a 76 basis point increase in the average rate earned, coupled with growth in average balances of $217.4 million, or 3.84%. Business real estate loan interest income increased $9.6 million due to an increase of 61 basis points in the average rate earned and higher average balances of $249.3 million, or 7.2%. Consumer loan interest income grew $6.1 million due to a 109 basis point increase in the average rate earned. In addition, construction and land loan interest income increased $5.3 million due to an increase of 107 basis points in the average rate earned and higher average loan balances of $61.7 million, or 4.4%. Personal real estate loan interest income grew $3.7 million due to a 34 basis point increase in the average rate earned and growth of $97.4 million, or 3.3%, in average loan balances.

Interest income on investment securities (FTE) was $66.7 million during the first quarter of 2024, which was a decrease of $5.8 million from the same quarter last year. The decrease in interest income occurred mainly in interest earned on asset-backed securities and state and municipal securities. Interest income earned on asset-backed securities declined $3.6 million due to a $1.1 billion, or 35.5%, decrease in average balances, partly offset by an increase of 38 basis points in the average rate earned. Interest income earned on state and municipal securities declined $3.5 million due to lower average balances of $462.9 million, or 25.8%, and a 29 basis point decrease in the average rate earned. Interest income earned on U.S. government and federal agency obligations declined $736 thousand due to a $247.4 million, or 22.5%, decrease in average balances, partly offset by an increase of 18 basis points in the average rate earned. 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), decreased $584 thousand from the same quarter last year. Interest income earned on mortgage-backed securities decreased $742 thousand mainly due to a decline of $552.1 million, or 8.6%, in the average balance. In addition, a $2.0 million increase in premium amortization, reflecting slower forward prepayment speed estimates was recorded in the current year, compared to a premium amortization adjustment increase of $802 thousand in the prior year. These decreases to interest income were partly offset by growth in interest income on other securities of $3.2 million, mainly driven by dividend payments of $3.4 million from the Company's private equity investments in the first quarter of 2024. Additionally, the average rate earned on investment securities during the three months ended March 31, 2024 increased 26 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 $11.0 billion in the first quarter of 2024, compared to $13.5 billion in the first quarter of 2023.

Interest income on securities purchased under agreements to resell decreased $2.3 million from the same quarter last year, due to a decline of $484.1 million in the average balance. Interest income on balances at the Federal Reserve grew $17.1 million due to an increase of 81 basis points in the average rate earned and an increase of $1.1 billion in the average balance invested.

The average fully taxable-equivalent yield on total interest earning assets was 4.78% in the first quarter of 2024, up from 4.00% in the first quarter of 2023.

Total interest expense increased $51.7 million compared to the first quarter of 2023 due to an increase of $55.7 million in interest expense on interest bearing deposits, partly offset by a $3.9 million decrease in interest expense on borrowings. The increase in deposit interest expense resulted mainly from an increase of $35.4 million in interest expense on interest checking and money market deposit accounts due to a 108 basis point increase in the average rate paid. In addition, interest expense on certificates of deposit increased $20.2 million mainly due to an increase of 194 basis points in the average rate paid and an increase in average balances of $1.3 billion. The overall rate paid on total deposits increased 126 basis points over the same quarter last year. Interest expense on customer repurchase agreements increased $3.9 million due to a 50 basis point increase in the average rate paid and a $93.2 million increase in the average balance. These increases to interest expense were partly offset by lower interest expense on other borrowings of $6.7 million due to a decrease of $550.0 million in average Federal Home Loan Bank (FHLB) borrowings. In addition, interest expense on federal funds purchased decreased $1.2 million mainly due to a $165.5 million decrease in the average balance, partly offset by an increase in the average rate paid of 83 basis points. The

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overall average rate incurred on all interest bearing liabilities was 2.21% and 1.20% in the first quarters of 2024 and 2023, respectively.

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

Non-Interest Income


	Three Months Ended March 31						Increase (Decrease)
(Dollars in thousands)	2024			2023			Amount		% change
Trust fees	$	51,105		$	45,328		$	5,777	12.7	%
Bank card transaction fees	46,930			46,654			276		.6
Deposit account charges and other fees	24,151			21,752			2,399		11.0
Consumer brokerage services	4,408			5,085			(677)		(13.3)
Capital market fees	3,892			3,362			530		15.8
Loan fees and sales	3,141			2,589			552		21.3
Other	15,221			12,842			2,379		18.5
Total non-interest income	$	148,848		$	137,612		$	11,236	8.2	%
Non-interest income as a % of total revenue*	37.4		%	35.4		%

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

The table below is a summary of net bank card transaction fees for the three month periods ended March 31, 2024 and 2023.


	Three Months Ended March 31
(Dollars in thousands)	2024		2023		$ change		% change
Net debit card fees	$	10,405	$	10,287	$	118	1.1	%
Net credit card fees	3,772		3,674		98		2.7
Net merchant fees	5,247		5,351		(104)		(1.9)
Net corporate card fees	27,506		27,342		164		.6
Total bank card transaction fees	$	46,930	$	46,654	$	276	.6	%

For the first quarter of 2024, total non-interest income amounted to $148.8 million compared to $137.6 million in the same quarter last year, which was an increase of $11.2 million, or 8.2%. The increase was mainly due to higher trust fees, deposit account fees and tax credit sales income. Trust fees increased $5.8 million, or 12.7%, mainly due to growth of $4.9 million in private client trust fees and $714 thousand in institutional trust fees. Bank card transaction fees for the current quarter grew $276 thousand, or .6%, over the same period last year, mainly due to growth in net corporate card fees and net debit card fees. The growth of $164 thousand in net corporate card fees was mainly due to higher interchange fees, partly offset by higher rewards expense. Net debit card fees increased $118 thousand mainly due to lower network expense. Compared to the first quarter of last year, deposit account fees increased $2.4 million, or 11.0%, mainly due to higher corporate cash management fees of $2.0 million. Consumer brokerage fees declined $677 thousand mainly due to lower variable annuity fees, while capital market fees increased $530 thousand, or 15.8%. Other non-interest income increased $2.4 million, or 18.5%, mainly due to growth of $1.5 million in tax credit sales income and $731 thousand in cash sweep commissions.

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Investment Securities Gains (Losses), Net


	Three Months Ended March 31
(In thousands)	2024		2023
Net gains (losses) on sales of available for sale debt securities	$	(8,470)	$	(3,088)

Fair value adjustments on equity securities, net	142		(127)
Net gains (losses) on sales of private equity investments	969		658
Fair value adjustments on private equity investments	7,100		2,251



Total investment securities gains (losses), net	$	(259)	$	(306)

Net gains and losses on investment securities, which were recognized in earnings during the three months ended March 31, 2024 and 2023, are shown in the table above. Net securities losses of $259 thousand were reported in the first quarter of 2024, compared to net losses of $306 thousand in the same period last year. The net losses in the first quarter of 2024 were primarily comprised of net losses of $8.5 million realized on the sale of available for sale securities, mostly offset by net gains in fair value of $7.1 million and a gain of $969 thousand on the sale of an investment, both in the Company's private equity investment portfolio. The net losses on investment securities for the same quarter last year were primarily comprised of net losses of $3.1 million realized on the sale of available for sale securities, mostly offset by net gains in fair value of $2.3 million and a gain of $658 thousand on sales of an investment, both in the Company's private equity investment portfolio. 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 $1.5 million during the first three months of 2024 and expense of $582 thousand during the first three months of 2023.

Non-Interest Expense


	Three Months Ended March 31				Increase (Decrease)
(Dollars in thousands)	2024		2023		Amount		% change
Salaries and employee benefits	$	151,801	$	144,373	$	7,428	5.1	%
Data processing and software	31,153		28,154		2,999		10.7
Net occupancy	13,574		12,759		815		6.4
Deposit insurance	8,017		4,643		3,374		72.7
Equipment	5,010		4,850		160		3.3
Supplies and communication	4,744		4,590		154		3.4
Marketing	4,036		5,471		(1,435)		(26.2)
Other	27,362		19,267		8,095		42.0
Total non-interest expense	$	245,697	$	224,107	$	21,590	9.6	%

Non-interest expense for the first quarter of 2024 amounted to $245.7 million, an increase of $21.6 million, or 9.6%, compared to expense of $224.1 million in the first quarter of last year. The increase in expense over the same period last year was mainly due to litigation settlement expense as well as higher salaries and employee benefits expense, FDIC insurance expense and data processing and software expense, partly offset by lower marketing expense. Salaries and employees benefits expense increased $7.4 million, or 5.1%, mainly due to higher full-time salaries expense of $5.8 million, or 6.2%, and higher employee benefits expense of $1.3 million, or 4.9%. Full-time equivalent employees totaled 4,721 at March 31, 2024, compared to 4,636 at March 31, 2023. Data processing and software expense increased $3.0 million, or 10.7%, due to higher bank card processing fees and increased costs for service providers. Occupancy expense increased $815 thousand, or 6.4%, mainly due to higher depreciation expense and real estate taxes, partly offset by higher rent income, while marketing expense declined $1.4 million, or 26.2%. Deposit insurance increased $3.4 million, due to a $4.0 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 $8.1 million, or 42.0%, mainly due to litigation settlement expense of $10.0 million, net of insurance.

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


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


Balance at beginning of period	$	162,395	$	162,244	$	150,136
Provision for credit losses on loans	6,947		8,170		15,948
Net loan charge-offs (recoveries):
Commercial:
Business	23		96		230
Real estate-construction and land	—		—		—
Real estate-business	(141)		128		(4)
Commercial net loan charge-offs (recoveries)	(118)		224		226
Personal Banking:
Real estate-personal	24		(11)		(11)
Consumer	1,983		1,903		1,275
Revolving home equity	(4)		(10)		(26)
Consumer credit card	6,435		5,325		4,325
Overdrafts	557		588		978
Personal banking net loan charge-offs (recoveries)	8,995		7,795		6,541
Total net loan charge-offs (recoveries)	8,877		8,019		6,767
Balance at end of period	$	160,465	$	162,395	$	159,317
LIABILITY FOR UNFUNDED LENDING COMMITMENTS


Balance at beginning of period	25,246		27,537		33,120
Provision for credit losses on unfunded lending commitments	(2,160)		(2,291)		(4,492)
Balance at end of period	23,086		25,246		28,628
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS	$	183,551	$	187,641	$	187,945


	Three Months Ended
	Mar. 31, 2024		Dec. 31, 2023		Mar. 31, 2023
Annualized net loan charge-offs (recoveries)*:
Commercial:
Business	—	%	.01	%	.02	%
Real estate-construction and land	—		—		—
Real estate-business	(.02)		.01		—
Commercial net loan charge-offs (recoveries)	—		.01		.01
Personal Banking:
Real estate-personal	—		—		—
Consumer	.38		.36		.25
Revolving home equity	—		(.01)		(.04)
Consumer credit card	4.60		3.72		3.15
Overdrafts	29.11		44.37		89.15
Personal banking net loan charge-offs (recoveries)	.60		.51		.45
Total annualized net loan charge-offs (recoveries)	.21	%	.19	%	.17	%

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

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To determine the amount of the allowance for credit losses on loans and the liability for unfunded lending commitments, the Company has an established process which assesses the risks and losses expected in its portfolios. This process provides an allowance based on estimates of allowances for pools of loans and unfunded lending commitments, as well as a second, smaller component based on certain individually evaluated loans and unfunded lending commitments. The Company's policies and processes for determining the allowance for credit losses on loans and the liability for unfunded lending commitments are discussed in Note 1 to the consolidated financial statements and in the "Allowance for Credit Losses" discussion within Critical Accounting Estimates and Related Policies in Item 7 of the 2023 Annual Report on Form 10-K.

Net loan charge-offs in the first quarter of 2024 amounted to $8.9 million, compared to $8.0 million in the prior quarter and $6.8 million in the first quarter of last year. Compared to the same period last year, total net loan charge-offs in the first quarter of 2024 increased $2.1 million and increased $858 thousand from the previous quarter. The increase over the prior year was mainly driven by increases in net charge-offs on consumer credit cards and consumer loans of $2.1 million and $708 thousand, respectively. The increase from the previous quarter was driven by the increase in net charge-offs on consumer credit cards and consumer loans.

For the three months ended March 31, 2024, annualized net charge-offs on average consumer credit card loans were 4.60%, compared to 3.72% in the previous quarter and 3.15% in the same period last year. Consumer loan annualized net charge-offs in the current quarter amounted to .38%, compared to .36% in the prior quarter and .25% in the same period last year. In the first quarter of 2024, total annualized net loan charge-offs were .21%, compared to .19% in the previous quarter and .17% in the same period last year.

The provision for credit losses on loans was $6.9 million in the current quarter, which was a $1.2 million decrease from the $8.2 million provision recorded in the prior quarter and a $9.0 million decrease from the $15.9 million provision recorded for the three months ended March 31, 2023. The decrease in the provision from the prior quarter was due to decline in the related allowance for credit losses on loans.

Compared to the allowance for credit losses at December 31, 2023, the allowance for credit losses at March 31, 2024 decreased $1.9 million. The allowance for credit losses on commercial loans at March 31, 2024 was $2.7 million lower than at December 31, 2023, while the allowance for credit losses related to personal banking loans, including consumer credit card loans, was $807 thousand higher at March 31, 2024 than at December 31, 2023. Compared to March 31, 2023, the allowance for credit losses on loans at March 31, 2024 increased $1.1 million. The decrease in the allowance for credit losses at March 31, 2024 compared to December 31, 2023 was primarily the result of applying a less pessimistic forecast at March 31, 2024 than was utilized at December 31, 2023. The allowance for credit losses on loans was $160.5 million at March 31, 2024 and was .93%, .94% and .96% of total loans at March 31, 2024, December 31, 2023 and March 31, 2023, respectively.

In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $2.2 million, compared to a benefit of $4.5 million during the three months ended March 31, 2023 and an expense of $2.3 million during the prior quarter. At March 31, 2024, the liability for unfunded lending commitments was $23.1 million, compared to $25.2 million at December 31, 2023 and $28.6 million at March 31, 2023. 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 March 31, 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

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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)	March 31, 2024			December 31, 2023







Non-accrual loans	$	5,784		$	7,312
Foreclosed real estate	206			270
Total non-performing assets	$	5,990		$	7,582
Non-performing assets as a percentage of total loans	.03		%	.04		%
Non-performing assets as a percentage of total assets	.02		%	.02		%








Total loans past due 90 days and still accruing interest	$	20,281		$	21,864

Non-accrual loans totaled $5.8 million at March 31, 2024, a decrease of $1.5 million from the balance at December 31, 2023. The decrease occurred mainly in business and personal real estate non-accrual loans, which decreased $2.6 million and $130 thousand, respectively. These decreases were partly offset by a $1.2 million increase in business real estate non-accrual loans. At March 31, 2024, non-accrual loans were comprised of revolving home equity (34.2%), personal real estate (26.3%), business real estate (21.6%), and business (17.9%) loans. Foreclosed real estate totaled $206 thousand at March 31, 2024, a slight decrease compared to December 31, 2023. Total loans past due 90 days or more and still accruing interest were $20.3 million as of March 31, 2024, a decrease of $1.6 million from 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 $267.0 million at March 31, 2024 compared with $216.4 million at December 31, 2023, resulting in an increase of $50.6 million, or 23.4%.


(In thousands)	March 31, 2024		December 31, 2023
Potential problem loans:
Business	$	128,170	$	74,760
Real estate – construction and land	17,252		—
Real estate – business	120,679		140,800
Real estate – personal	896		827

Total potential problem loans	$	266,997	$	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 March 31, 2024, the Company held $32.9 million of loans that had been modified during the three months ended March 31, 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.

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Real Estate – Construction and Land Loans

The Company's portfolio of construction and land loans, as shown in the table below, amounted to 8.7% of total loans outstanding at March 31, 2024. The largest component of construction and land loans was commercial construction, which increased $29.5 million during the three months ended March 31, 2024. At March 31, 2024, multi-family residential construction loans totaled approximately $392.1 million, or 31.3%, of the commercial construction loan portfolio, compared to $414.6 million, or 33.9%, at December 31, 2023.


(Dollars in thousands)	March 31, 2024		% of Total		% of Total Loans		December 31, 2023		% of Total		% of Total Loans
Commercial construction	$	1,252,414	83.6	%	7.2	%	$	1,222,961	84.5	%	7.1	%
Residential construction	113,662		7.6		.7		110,687		7.7		.6
Residential land and land development	69,764		4.7		.4		62,417		4.3		.4
Commercial land and land development	61,807		4.1		.4		50,699		3.5		.3
Total real estate - construction and land loans	$	1,497,647	100.0	%	8.7	%	$	1,446,764	100.0	%	8.4	%

Real Estate – Business Loans

Total business real estate loans were $3.7 billion at March 31, 2024 and comprised 21.5% 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 March 31, 2024, 32.1% 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)	March 31, 2024		% of Total		% of Total Loans		December 31, 2023		% of Total		% of Total Loans
Owner-occupied	$	1,190,591	32.1	%	6.9	%	$	1,175,476	31.6	%	6.8	%
Industrial	605,761		16.3		3.5		630,713		17.0		3.7
Office	486,087		13.1		2.8		489,320		13.2		2.8
Retail	351,735		9.5		2.0		366,693		9.9		2.1
Multi-family	294,342		7.9		1.7		256,657		6.9		1.5
Hotels	293,951		7.9		1.7		292,941		7.9		1.7
Farm	193,307		5.2		1.1		195,981		5.3		1.1
Senior living	172,605		4.7		1.0		183,778		4.9		1.1
Other	123,223		3.3		.8		127,747		3.3		.8
Total real estate - business loans	$	3,711,602	100.0	%	21.5	%	$	3,719,306	100.0	%	21.6	%

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


(Dollars in thousands)	Pass		Special Mention		Substandard		Non-Accrual		Total
March 31, 2024
Owner-occupied	$	1,160,578	$	16,514	$	13,457	$	42	$	1,190,591
Industrial	605,704		57		—		—		605,761
Office	468,127		17,960		—		—		486,087
Retail	335,427		15,500		808		—		351,735
Multi-family	282,217		10,983		1,142		—		294,342
Hotels	282,311		9,132		1,304		1,204		293,951
Farm	193,307		—		—		—		193,307
Senior living	48,409		20,245		103,951		—		172,605
Other	122,990		233		—		—		123,223
Total	$	3,499,070	$	90,624	$	120,662	$	1,246	$	3,711,602
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 $322.5 million in revolving home equity loans at March 31, 2024 that were collateralized by residential real estate. Most of these loans (92.0%) 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 March 31, 2024, the outstanding principal of loans with an original LTV higher than 80% was $32.2 million, or 10.0% 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 $3.8 million at March 31, 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 March 31, 2024 and December 31, 2023. The weighted average FICO score for the total portfolio balance at March 31, 2024 is 783. 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 39.0% of the consumer loan portfolio at March 31, 2024, and outstanding balances for auto loans were $826.8 million and $820.3 million at March 31, 2024 and December 31, 2023, respectively. The balances over 30 days past due amounted to $8.5 million at March 31, 2024 and $9.5 million at December 31, 2023, respectively, and comprised 1.0% of the outstanding balances of these loans at March 31, 2024 and 1.2% at December 31, 2023, respectively. For the three months ended March 31, 2024, $101.2 million of new auto loans were originated, compared to $120.0 million during the first three months of 2023. At March 31, 2024, the automobile loan portfolio had a weighted average FICO score of 756, and net charge-offs on auto loans were .47% of average auto loans.

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The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 11.0% of the consumer loan portfolio at March 31, 2024. Losses on these loans have historically been low, and the Company saw net recoveries of $14 thousand for the first three months of 2024. Private banking loans comprised 33.6% of the consumer loan portfolio at March 31, 2024. The Company's private banking loans are generally well-collateralized, and at March 31, 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 $1.0 million in the first three months of 2024 and were .43% of the average balances of these loans at March 31, 2024.

Consumer Credit Card Loans

The Company offers low promotional rates on selected consumer credit card products. Out of a portfolio at March 31, 2024 of $564.4 million in consumer credit card loans outstanding, approximately $113.9 million, or 20.2%, carried a low promotional rate. Within the next six months, $51.0 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 $296.0 million, or 1.7% of total loans at March 31, 2024, an increase of $24.0 million from December 31, 2023, as shown in the table below.


(In thousands)	March 31, 2024		December 31, 2023		Unfunded commitments at March 31, 2024
Extraction	$	218,821	$	219,828	$	161,229
Mid-stream shipping and storage	59,468		35,505		98,762
Downstream distribution and refining	10,323		8,890		30,621
Support activities	7,399		7,811		8,038
Total energy lending portfolio	$	296,011	$	272,034	$	298,650

Shared National Credits

The Company participates in credits of large, publicly traded companies which are defined by regulation as shared national credits, or SNCs. Regulations define SNCs as loans exceeding $100 million that are shared by three or more financial institutions. The Company typically participates in these loans when business operations are maintained in the local communities or regional markets and opportunities to provide other banking services are present. The balance of SNC loans totaled $1.5 billion at both March 31, 2024 and December 31, 2023. Additional unfunded commitments at March 31, 2024 totaled $2.3 billion.

Income Taxes

Income tax expense was $31.7 million in the first quarter of 2024, compared to $32.3 million in the fourth quarter of 2023 and $32.8 million in the first quarter of 2023. The Company's effective tax rate, including the effect of non-controlling interest, was 21.9% in the first quarter of 2024, compared to 22.8% in the fourth quarter of 2023 and 21.6% in the first quarter of 2023.

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Financial Condition

Balance Sheet

Total assets of the Company were $30.4 billion at March 31, 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 March 31, 2024 and $31.1 billion at December 31, 2023, and consisted of 58% in loans and 36% in investment securities at March 31, 2024.

During the first quarter of 2024, average loans totaled $17.1 billion, an increase of $22.0 million over the prior quarter, and increased $676.2 million, or 4.1%, over the same quarter last year. Compared to the previous quarter, average balances of business real estate loans grew $83.1 million, while construction and consumer loans declined $51.1 million and $34.8 million, respectively. During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $7.4 million, compared to $8.7 million in the prior quarter.

Total average available for sale debt securities decreased $116.6 million compared to the previous quarter to $9.5 billion, at fair value. The decrease in debt securities was mainly the result of lower average balances of asset-backed securities. During the first quarter of 2024, the unrealized loss on available for sale securities increased $27.2 million to $1.2 billion, at period end. Also during the first quarter of 2024, purchases of securities totaled $145.7 million with a weighted average yield of approximately 4.65%, and sales, maturities and pay downs were $655.0 million. At March 31, 2024, the duration of the available for sale investment portfolio was 4.2 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 average deposits decreased $759.5 million this quarter compared to the previous quarter. The decrease in deposits mostly resulted from lower average demand deposits of $420.1 million and lower average certificates of deposit of $364.2 million, which included lower brokered deposits of $225.4 million. Compared to the previous quarter, total average commercial deposits declined $743.8 million, while consumer and wealth deposits increased $138.8 million and $71.8 million, respectively. The average loans to deposits ratio was 69.9% in the current quarter and 67.7% in the prior quarter. The Company’s average borrowings, which included average customer repurchase agreements of $2.5 billion, decreased $280.0 million to $2.8 billion in the first quarter of 2024, mostly due to a decline of $179.3 million in average FHLB borrowings.

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)	March 31, 2024		March 31, 2023		December 31, 2023
Liquid assets:
Balances at the Federal Reserve Bank	$	1,609,614	$	1,341,854	$	2,239,010
Federal funds sold	—		27,060		5,025
Available for sale debt securities	9,141,695		11,228,616		9,684,760
Securities purchased under agreements to resell	225,000		825,000		450,000
Total	$	10,976,309	$	13,422,530	$	12,378,795

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $1.6 billion at March 31, 2024 and decreased $629.4 million from December 31, 2023 balances. At March 31, 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 $9.1 billion at March 31, 2024 and included an unrealized net loss of $1.2 billion. The total net unrealized loss included net losses of $1.0 billion on mortgage-backed and asset-backed securities and $147.5 million on state and municipal obligations.

Resale agreements, maturing through 2028, totaled $225.0 million at March 31, 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 $239.2 million in fair value at March 31, 2024. $125.0 million of the Company's resale agreements will mature in the next 12 months.

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The Company's available for sale debt securities portfolio has a diverse mix of high quality and liquid investment securities with a duration of 4.2 years at March 31, 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)	March 31, 2024		March 31, 2023		December 31, 2023
Investment securities pledged for the purpose of securing:
Federal Reserve Bank borrowings	$	1,990,347	$	3,145,959	$	2,636,523
FHLB borrowings and letters of credit	293,345		294,025		301,617
Securities sold under agreements to repurchase *	2,294,520		2,290,546		2,710,616
Other deposits and swaps	1,975,291		2,409,058		1,818,092
Total pledged securities	6,553,503		8,139,588		7,466,848
Unpledged and available for pledging	2,582,746		3,070,590		2,211,243
Ineligible for pledging	5,446		18,438		6,669
Total available for sale debt securities, at fair value	$	9,141,695	$	11,228,616	$	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 69.9% for the three months ended March 31, 2024. Core customer deposits, defined as non-interest bearing, interest checking, savings, and money market deposit accounts totaled $22.0 billion and represented 89.9% of the Company's total deposits at March 31, 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 $511.5 million at March 31, 2024 compared to December 31, 2023, primarily due to decreases in commercial and wealth segment deposits of $473.8 million and $111.7 million, respectively, partially offset by growth in consumer segment deposits. 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 $6.6 billion through advances from the FHLB and the Federal Reserve.

Certificates of deposit of $100,000 or greater totaled $1.5 billion at March 31, 2024. These deposits are normally considered more volatile and higher costing, and comprised 6.0% of total deposits at March 31, 2024.


(In thousands)	March 31, 2024		March 31, 2023		December 31, 2023
Core deposit base:
Non-interest bearing	$	7,513,464	$	8,685,234	$	7,975,935
Interest checking	6,811,384		6,464,948		7,020,134
Savings and money market	7,651,827		7,954,793		7,492,139
Total	$	21,976,675	$	23,104,975	$	22,488,208

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:

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(In thousands)	March 31, 2024		March 31, 2023		December 31, 2023
Borrowings:
Federal funds purchased	$	264,470	$	756,470	$	261,305
Securities sold under agreements to repurchase	2,241,106		2,028,089		2,647,510
FHLB advances	—		1,500,000		—
Other debt	2,359		7,776		1,404
Total	$	2,507,935	$	4,292,335	$	2,910,219

Federal funds purchased, which totaled $264.5 million at March 31, 2024, are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit. At March 31, 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 March 31, 2024 were comprised of non-insured customer funds totaling $2.2 billion at March 31, 2024 and securities pledged as collateral for these retail agreements totaled $2.3 billion at March 31, 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 March 31, 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 March 31, 2024.


	March 31, 2024
(In thousands)	FHLB		Federal Reserve		Total
Total collateral value established by FHLB and FRB	$	2,536,792	$	4,186,053	$	6,722,845

Letters of credit issued	(172,416)		—		(172,416)
Available for future advances	$	2,364,376	$	4,186,053	$	6,550,429

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 Capital Markets Group 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.

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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 $786.6 million during the first three 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 $135.5 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 $540.9 million. Activity in the investment securities portfolio provided cash of $426.5 million from sales, maturities, and pay downs (net of purchases), but this increase in investing cash flows was partially offset by growth in the loan portfolio, which used cash of $102.3 million. Additionally, repayments of securities purchased under agreements to resell (net of purchases) provided cash of $225.0 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 $1.5 billion, largely resulting from net decreases in deposits of $983.5 million and $403.2 million in federal funds purchased and securities sold under agreements to repurchase during the first three months of 2024.

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


(Dollars in thousands)	March 31, 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	$	24,311,459		$	24,216,527
Tier I common risk-based capital	3,732,487			3,693,089
Tier I risk-based capital	3,732,487			3,693,089
Total risk-based capital	3,916,187			3,881,024
Tier I common risk-based capital ratio	15.35		%	15.25		%	4.50	%	2.50	%	7.00	%	6.50	%
Tier I risk-based capital ratio	15.35			15.25			6.00		2.50		8.50		8.00
Total risk-based capital ratio	16.11			16.03			8.00		2.50		10.50		10.00
Tier I leverage ratio	11.75			11.25			4.00		N/A		4.00		5.00

*Under Prompt Corrective Action requirements

The Company is subject to a 2.5% capital conservation buffer, which is an amount above the minimum ratios under capital adequacy guidelines, and is 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. During the three months ended March 31, 2024, the Company purchased 806,217 shares at an average price of $52.13 in open market purchases and through stock-based compensation transactions. At March 31, 2024, 951,030 shares remained available for purchase under the current Board authorization. On April 17, 2024, the share repurchase authorization was increased to 5,000,000 shares.

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 first 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

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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 March 31, 2024 totaled $14.8 billion (including $5.5 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 $622.7 million and $9.6 million, respectively, at March 31, 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 March 31, 2024, the liability for unfunded lending commitments totaled $23.1 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 three months of 2024, purchases and sales of tax credits amounted to $32.2 million and $45.6 million, respectively. Fees from sales of tax credits were $2.1 million for the three months ended March 31, 2024, compared to $560.7 thousand in the same period last year. At March 31, 2024, the Company expected to fund outstanding purchase commitments of $146.6 million during the remainder of 2024 and had purchase commitments of $420.2 million that it expects to fund from 2025 through 2030.

The Company continued to maintain a strong liquidity position throughout the first three 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.

Segment Results

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


(Dollars in thousands)	Consumer			Commercial			Wealth			Segment Totals			Other/ Elimination			Consolidated Totals
Three Months Ended March 31, 2024
Net interest income	$	129,676		$	126,687		$	24,155		$	280,518		$	(31,519)		$	248,999
Provision for credit losses	(8,888)			(41)			1			(8,928)			4,141			(4,787)
Non-interest income	24,335			63,802			58,399			146,536			2,312			148,848
Investment securities gains (losses), net	—			—			—			—			(259)			(259)
Non-interest expense	(80,644)			(100,356)			(39,551)			(220,551)			(25,146)			(245,697)
Income before income taxes	$	64,479		$	90,092		$	43,004		$	197,575		$	(50,471)		$	147,104
Three Months Ended March 31, 2023
Net interest income	$	144,460		$	137,127		$	28,025		$	309,612		$	(57,989)		$	251,623
Provision for credit losses	(6,306)			(393)			(13)			(6,712)			(4,744)			(11,456)
Non-interest income	24,303			58,324			52,944			135,571			2,041			137,612
Investment securities gains (losses), net	—			—			—			—			(306)			(306)
Non-interest expense	(77,370)			(93,685)			(39,585)			(210,640)			(13,467)			(224,107)
Income before income taxes	$	85,087		$	101,373		$	41,371		$	227,831		$	(74,465)		$	153,366
Increase (decrease) in income before income taxes:
Amount	$	(20,608)		$	(11,281)		$	1,633		$	(30,256)		$	23,994		$	(6,262)
Percent	(24.2)		%	(11.1)		%	3.9		%	(13.3)		%	(32.2)		%	(4.1)		%

Consumer

For the three months ended March 31, 2024, income before income taxes for the Consumer segment decreased $20.6 million, or 24.2%, compared to the first three months of 2023. The decrease in income before income taxes was mainly due to a decrease in net interest income of $14.8 million, or 10.2%, and increases in non-interest expense of $3.3 million, or 4.2%, and the provision for credit losses of $2.6 million. Net interest income declined due to a $25.8 million increase in deposit interest

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expense. This decrease was partly offset by a $3.4 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios and higher loan interest income of $7.8 million. Non-interest expense increased over the same period in the previous year mainly due to higher allocated support costs for administration and operations, information technology and online banking. These increases were partly offset by lower marketing expense and allocated support costs for the deposit system. The increase in the provision for credit losses over the first three months of 2023, was mainly due to higher consumer credit card and personal loan net charge-offs, partly offset by lower overdraft loan net charge-offs.

Commercial

For the three months ended March 31, 2024, income before income taxes for the Commercial segment decreased $11.3 million, or 11.1%, compared to the same period in the previous year. This decrease was mainly due to lower net interest income and higher non-interest expense, partly offset by an increase non-interest income. Net interest income decreased $10.4 million, or 7.6%, mainly due to lower net allocated funding credits of $16.8 million, coupled with higher interest expense on deposits and customer repurchase agreements of $21.0 million and $4.0 million, respectively. These decreases were partly offset by an increase of $31.9 million in loan interest income. Non-interest income increased $5.5 million, or 9.4%, 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. Non-interest expense increased $6.7 million, or 7.1%, mainly due to higher salaries and benefits expense and allocated service and support costs (mainly bank operations, commercial sales and support and management expense). The provision for credit losses decreased $352 thousand from the same period last year, mainly due to lower business and business real estate loan net charge-offs.

Wealth

Wealth segment pre-tax profitability for the three months ended March 31, 2024 increased $1.6 million, or 3.9%, over the same period in the previous year. Net interest income decreased $3.9 million, or 13.8%, mainly due to an $8.9 million increase in deposit interest expense. This increase was partly offset by a $2.0 million increase in net allocated funding credits and a $3.0 million increase in loan interest income. Non-interest income increased $5.5 million, or 10.3%, 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 $34 thousand mainly due to lower miscellaneous losses, mostly offset by higher salaries and benefits expense. The provision for credit losses decreased $14 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 $24.0 million higher than in the same period last year. Unallocated securities losses were $259 thousand in the first three months of 2024 compared to losses of $306 thousand in 2023. Also, the unallocated provision for credit losses decreased $8.9 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 three months of 2024 was $6.9 million, or $1.9 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 $15.9 million, or $9.2 million higher than net charge-offs, due to an increase in the allowance for credit losses on loans. For the three months ended March 31, 2024, the Company's provision on unfunded lending commitments was a benefit of $2.2 million. Additionally, net interest income increased $26.5 million and non-interest income increased $271 thousand. These increases to pre-tax profitability were partly offset by higher non-interest expense of $11.7 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 has accrued $20.1 million FDIC special assessment liabilities at the end of March 31, 2024.

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.

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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 March 31, 2024 and 2023


	First Quarter 2024						First 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)	$	5,873,525	$	88,638	6.07	%	$	5,656,104	$	74,037	5.31	%
Real estate — construction and land	1,472,554		30,754		8.40		1,410,835		25,486		7.33
Real estate — business	3,727,643		58,029		6.26		3,478,382		48,444		5.65
Real estate — personal	3,031,193		29,775		3.95		2,933,750		26,086		3.61
Consumer	2,082,490		33,126		6.40		2,067,385		27,060		5.31
Revolving home equity	322,074		6,163		7.70		296,748		5,146		7.03
Consumer credit card	562,892		19,750		14.11		556,223		18,757		13.68
Overdrafts	7,696		—		—		4,449		—		—
Total loans	17,080,067		266,235		6.27		16,403,876		225,016		5.56
Loans held for sale	2,149		40		7.49		5,708		145		10.30
Investment securities:
U.S. government and federal agency obligations	851,656		4,402		2.08		1,099,067		5,138		1.90
Government-sponsored enterprise obligations	55,652		331		2.39		87,086		690		3.21
State and municipal obligations(A)	1,330,808		6,519		1.97		1,793,756		9,994		2.26
Mortgage-backed securities	5,902,328		32,088		2.19		6,454,408		32,830		2.06
Asset-backed securities	2,085,050		12,399		2.39		3,233,757		16,041		2.01
Other debt securities	503,204		2,410		1.93		528,941		2,523		1.93
Trading debt securities(A)	40,483		533		5.30		45,757		518		4.59
Equity securities(A)	12,768		814		25.64		12,458		714		23.24
Other securities(A)	221,695		7,189		13.04		229,867		4,029		7.11
Total investment securities	11,003,644		66,685		2.44		13,485,097		72,477		2.18
Federal funds sold	599		10		6.71		38,978		489		5.09
Securities purchased under agreements to resell	340,934		1,634		1.93		825,000		3,952		1.94
Interest earning deposits with banks	1,938,381		26,432		5.48		809,935		9,336		4.67
Total interest earning assets	30,365,774		361,036		4.78		31,568,594		311,415		4.00
Allowance for credit losses on loans	(161,891)						(150,117)
Unrealized gain (loss) on debt securities	(1,274,125)						(1,387,196)
Cash and due from banks	281,610						314,024
Premises and equipment, net	477,881						431,288
Other assets	956,225						631,239
Total assets	$	30,645,474					$	31,407,832
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings	$	1,333,983	195		.06		$	1,550,215	193		.05
Interest checking and money market	13,215,270		55,385		1.69		13,265,485		19,958		.61
Certificates of deposit of less than $100,000	976,804		10,191		4.20		415,367		1,425		1.39
Certificates of deposit of $100,000 and over	1,595,310		18,096		4.56		903,393		6,627		2.98
Total interest bearing deposits	17,121,367		83,867		1.97		16,134,460		28,203		.71
Borrowings:
Federal funds purchased	$	328,216	$	4,419	5.42		493,721		$	5,586	4.59
Securities sold under agreements to repurchase	2,511,959		21,438		3.43		2,418,726		17,495		2.93
Other borrowings(B)	76		—		—		551,267		6,720		4.94
Total borrowings	2,840,251		25,857		3.66		3,463,714		29,801		3.49
Total interest bearing liabilities	19,961,618		109,724		2.21	%	19,598,174		58,004		1.20	%
Non-interest bearing deposits	7,328,603						9,114,512
Other liabilities	410,310						112,052
Equity	2,944,943						2,583,094
Total liabilities and equity	$	30,645,474					$	31,407,832
Net interest margin (FTE)			$	251,312					$	253,411
Net yield on interest earning assets					3.33	%					3.26	%

(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.


	March 31, 2024				December 31, 2023
(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	$	(13.9)	(1.37)	%		$	(13.4)	(1.32)	%
200 basis points rising	(13.6)		(1.35)			(13.1)		(1.29)
100 basis points rising	(7.4)		(.73)			(6.9)		(.68)
100 basis points falling	$	(5.8)	(.57)	%		$	(2.6)	(.26)	%
200 basis points falling	(20.3)		(2.01)			(15.4)		(1.52)
300 basis points falling	(37.9)		(3.73)			(32.9)		(3.24)

Under the simulation, in the three rising rate scenarios, interest rate risk is mostly unchanged from 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 a more conservative approach in modeling premium money market deposit accounts in the falling interest rate scenarios.

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 March 31, 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
January 1 - 31, 2024	156,436		$	54.03	156,436	1,600,811
February 1 - 29, 2024	379,435		$	51.32	379,435	1,221,376
March 1 - 31, 2024	270,346		$	52.16	270,346	951,030
Total	806,217		$	52.13	806,217	951,030

The Company's stock purchases shown above were made under authorizations by the Board of Directors. Under the most recent authorization in April 2022 of 5,000,000 shares, 951,030 shares remained available for purchase at March 31, 2024. On April 17, 2024, the share repurchase authorization was increased to 5,000,000 shares.

Item 5. OTHER INFORMATION

During the three months ended March 31, 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: May 8, 2024		Vice President & Secretary


	By	/s/ PAUL A. STEINER
		Paul A. Steiner
		Controller
Date: May 8, 2024		(Chief Accounting Officer)

Commerce Bancshares - 10-Q quarterly report FY2024 Q1

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