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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended June 30, 2023March 31, 2024

OR
 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)
Missouri43-0889454
(State of Incorporation)(IRS Employer Identification No.)
1000 Walnut
Kansas City,MO64106
(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 classTrading symbol(s)Name of exchange on which registered
$5 Par Value Common StockCBSHNASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ     No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ     No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No 
As of August 1, 2023,May 3, 2024, the registrant had outstanding 124,700,008129,536,050 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
Consolidated Balance Sheets as of June 30, 2023March 31, 2024 (unaudited) and December 31, 20222023
Consolidated Statements of Comprehensive Income for the Three and SixMonths Ended June 30, 2023March 31, 2024 and 20222023 (unaudited)

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PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS


June 30,
2023
December 31, 2022

March 31,
2024
December 31, 2023
(Unaudited)
(In thousands)
(Unaudited)
(In thousands)
(In thousands)
(In thousands)
ASSETSASSETS
Loans
Loans
LoansLoans$16,956,539 $16,303,131 
Allowance for credit losses on loans Allowance for credit losses on loans(158,685)(150,136)
Net loansNet loans16,797,854 16,152,995 
Loans held for sale (including $1,566,000 and $— of residential mortgage loans carried at fair value at June 30, 2023 and December 31, 2022, respectively)6,776 4,964 
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)
Investment securities:Investment securities: Investment securities: 
Available for sale debt, at fair value (amortized cost of $11,833,736,000 and $13,738,206,000 at
June 30, 2023 and December 31, 2022, respectively, and allowance for credit losses of $—
at both June 30, 2023 and December 31, 2022)10,414,625 12,238,316 
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 $—
March 31, 2024 and December 31, 2023, respectively, and allowance for credit losses of $—
March 31, 2024 and December 31, 2023, respectively, and allowance for credit losses of $—
at both March 31, 2024 and December 31, 2023)
at both March 31, 2024 and December 31, 2023)
at both March 31, 2024 and December 31, 2023)
Trading debtTrading debt29,412 43,523 
EquityEquity12,266 12,304 
OtherOther258,045 225,034 
Total investment securitiesTotal investment securities10,714,348 12,519,177 
Federal funds soldFederal funds sold2,750 49,505 
Securities purchased under agreements to resellSecurities purchased under agreements to resell825,000 825,000 
Interest earning deposits with banksInterest earning deposits with banks2,568,695 389,140 
Cash and due from banksCash and due from banks366,699 452,496 
Premises and equipment – netPremises and equipment – net451,568 418,909 
GoodwillGoodwill146,371 138,921 
Other intangible assets – netOther intangible assets – net14,666 15,234 
Other assetsOther assets936,535 909,590 
Total assetsTotal assets$32,831,262 $31,875,931 
LIABILITIES AND STOCKHOLDERS' EQUITYLIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:Deposits: 
Deposits:
Deposits: 
Non-interest bearing Non-interest bearing$8,198,849 $10,066,356 
Savings, interest checking and money market Savings, interest checking and money market14,418,974 15,126,981 
Certificates of deposit of less than $100,000 Certificates of deposit of less than $100,0001,543,424 387,336 
Certificates of deposit of $100,000 and over Certificates of deposit of $100,000 and over1,708,197 606,767 
Total depositsTotal deposits25,869,444 26,187,440 
Federal funds purchased and securities sold under agreements to repurchaseFederal funds purchased and securities sold under agreements to repurchase2,878,021 2,841,734 
Other borrowingsOther borrowings1,005,613 9,672 
Other liabilitiesOther liabilities392,956 355,508 
Total liabilitiesTotal liabilities30,146,034 29,394,354 
Commerce Bancshares, Inc. stockholders’ equity:Commerce Bancshares, Inc. stockholders’ equity: Commerce Bancshares, Inc. stockholders’ equity: 
Common stock, $5 par value Common stock, $5 par value 
Authorized 190,000,000 at June 30, 2023 and 140,000,000 at December 31, 2022; issued 125,863,879 shares at June 30, 2023 and December 31, 2022629,319 629,319 
Common stock, $5 par value
Common stock, $5 par value 
Authorized 190,000,000; issued 131,064,418 shares at both March 31, 2024 and December 31, 2023
Capital surplus Capital surplus2,921,365 2,932,959 
Retained earnings Retained earnings211,358 31,620 
Treasury stock of 868,125 shares at June 30, 2023
and 605,142 shares at December 31, 2022, at cost(58,389)(41,743)
Treasury stock of 1,092,341 shares at March 31, 2024
and 611,546 shares at December 31, 2023, at cost
and 611,546 shares at December 31, 2023, at cost
and 611,546 shares at December 31, 2023, at cost
Accumulated other comprehensive income (loss) Accumulated other comprehensive income (loss)(1,036,295)(1,086,864)
Total Commerce Bancshares, Inc. stockholders' equityTotal Commerce Bancshares, Inc. stockholders' equity2,667,358 2,465,291 
Non-controlling interestNon-controlling interest17,870 16,286 
Total equityTotal equity2,685,228 2,481,577 
Total liabilities and equityTotal liabilities and equity$32,831,262 $31,875,931 
See accompanying notes to consolidated financial statements.
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Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended June 30For the Six Months Ended June 30
For the Three Months Ended March 31
For the Three Months Ended March 31
For the Three Months Ended March 31
(In thousands, except per share data)(In thousands, except per share data)2023202220232022(In thousands, except per share data)20242023
(Unaudited)
(Unaudited)(Unaudited)
INTEREST INCOMEINTEREST INCOME
Interest and fees on loans
Interest and fees on loans
Interest and fees on loansInterest and fees on loans$241,327 $142,526 $465,143 $274,601 
Interest and fees on loans held for saleInterest and fees on loans held for sale151 161 296 311 
Interest on investment securitiesInterest on investment securities73,727 88,635 144,846 161,740 
Interest on federal funds soldInterest on federal funds sold105 19 594 20 
Interest on securities purchased under agreements to resellInterest on securities purchased under agreements to resell4,099 4,385 8,051 9,685 
Interest on deposits with banksInterest on deposits with banks29,254 2,428 38,590 3,579 
Total interest incomeTotal interest income348,663 238,154 657,520 449,936 
INTEREST EXPENSEINTEREST EXPENSE
Interest on deposits:Interest on deposits:
Interest on deposits:
Interest on deposits:
Savings, interest checking and money market
Savings, interest checking and money market
Savings, interest checking and money market Savings, interest checking and money market30,046 2,278 50,197 4,038 
Certificates of deposit of less than $100,000 Certificates of deposit of less than $100,00010,125 205 11,550 344 
Certificates of deposit of $100,000 and over Certificates of deposit of $100,000 and over14,416 470 21,043 897 
Interest on federal funds purchasedInterest on federal funds purchased6,397 224 11,983 231 
Interest on securities sold under agreements to repurchaseInterest on securities sold under agreements to repurchase17,014 2,702 34,509 3,384 
Interest on other borrowingsInterest on other borrowings21,127 (110)27,077 (129)
Total interest expenseTotal interest expense99,125 5,769 156,359 8,765 
Net interest incomeNet interest income249,538 232,385 501,161 441,171 
Provision for credit lossesProvision for credit losses6,471 7,162 17,927 (2,696)
Net interest income after credit lossesNet interest income after credit losses243,067 225,223 483,234 443,867 
NON-INTEREST INCOMENON-INTEREST INCOME
Trust fees
Trust fees
Trust fees
Bank card transaction feesBank card transaction fees49,725 43,873 96,379 85,918 
Trust fees47,265 46,792 92,593 94,603 
Deposit account charges and other feesDeposit account charges and other fees22,633 25,564 44,385 47,871 
Consumer brokerage servicesConsumer brokerage services4,677 5,068 9,762 9,514 
Capital market feesCapital market fees2,539 3,327 5,901 7,452 
Loan fees and salesLoan fees and sales2,735 3,246 5,324 7,481 
OtherOther18,031 11,557 30,873 18,357 
Total non-interest incomeTotal non-interest income147,605 139,427 285,217 271,196 
INVESTMENT SECURITIES GAINS (LOSSES), NETINVESTMENT SECURITIES GAINS (LOSSES), NET3,392 1,029 3,086 8,192 
INVESTMENT SECURITIES GAINS (LOSSES), NET
INVESTMENT SECURITIES GAINS (LOSSES), NET
NON-INTEREST EXPENSENON-INTEREST EXPENSE
Salaries and employee benefits
Salaries and employee benefits
Salaries and employee benefitsSalaries and employee benefits145,429 142,243 289,802 278,196 
Data processing and softwareData processing and software28,719 27,635 56,873 54,651 
Net occupancyNet occupancy12,995 12,503 25,754 24,799 
Marketing6,368 5,836 11,839 12,180 
Deposit insurance
EquipmentEquipment4,864 4,734 9,714 9,302 
Supplies and communicationSupplies and communication4,625 4,361 9,215 9,074 
Marketing
OtherOther24,611 16,193 48,521 30,951 
Total non-interest expenseTotal non-interest expense227,611 213,505 451,718 419,153 
Income before income taxesIncome before income taxes166,453 152,174 319,819 304,102 
Less income taxesLess income taxes35,990 32,021 68,803 63,923 
Net incomeNet income130,463 120,153 251,016 240,179 
Less non-controlling interest expense (income)Less non-controlling interest expense (income)2,674 4,359 3,775 6,231 
Net income attributable to Commerce Bancshares, Inc.Net income attributable to Commerce Bancshares, Inc.$127,789 $115,794 $247,241 $233,948 
Net income per common share — basicNet income per common share — basic$1.03 $.92 $1.98 $1.84 
Net income per common share — basic
Net income per common share — basic
Net income per common share — dilutedNet income per common share — diluted$1.02 $.92 $1.97 $1.84 
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
For the Three Months Ended March 31
For the Three Months Ended March 31
(In thousands)(In thousands)20242023
(Unaudited)(Unaudited)
Net income
Other comprehensive income (loss):
For the Three Months Ended June 30For the Six Months Ended June 30
(In thousands)2023202220232022
Net unrealized gains (losses) on available for sale debt securities
(Unaudited)
Net income$130,463 $120,153 $251,016 $240,179 
Other comprehensive income (loss):
Net unrealized gains (losses) on available for sale debt securities
Net unrealized gains (losses) on available for sale debt securitiesNet unrealized gains (losses) on available for sale debt securities(81,882)(328,201)60,584 (835,466)
Change in pension lossChange in pension loss269 322 539 645 
Unrealized gains (losses) on cash flow hedge derivativesUnrealized gains (losses) on cash flow hedge derivatives(14,184)(4,615)(10,554)(9,153)
Other comprehensive income (loss)Other comprehensive income (loss)(95,797)(332,494)50,569 (843,974)
Comprehensive income (loss)Comprehensive income (loss)34,666 (212,341)301,585 (603,795)
Less non-controlling interest (income) expenseLess non-controlling interest (income) expense2,674 4,359 3,775 6,231 
Comprehensive income (loss) attributable to Commerce Bancshares, Inc.Comprehensive income (loss) attributable to Commerce Bancshares, Inc.$31,992 $(216,700)$297,810 $(610,026)
See accompanying notes to consolidated financial statements.













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Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Three Months Ended June 30,March 31, 2024 and 2023 and 2022
Commerce Bancshares, Inc. Shareholders
Commerce Bancshares, Inc. Shareholders
Commerce Bancshares, Inc. Shareholders
Commerce Bancshares, Inc. Shareholders

(In thousands, except per share data)

(In thousands, except per share data)
Common StockCapital SurplusRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Non-Controlling InterestTotal
(Unaudited)
Balance March 31, 2023$629,319 $2,919,060 $117,313 $(59,670)$(940,498)$16,888 $2,682,412 

(In thousands, except per share data)

(In thousands, except per share data)
Common StockCapital SurplusRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Non-Controlling InterestTotal
(Unaudited)(Unaudited)
Balance December 31, 2023
Net incomeNet income127,789 2,674 130,463 
Other comprehensive income (loss)Other comprehensive income (loss)(95,797)(95,797)
Distributions to non-controlling interestDistributions to non-controlling interest(1,692)(1,692)
Purchases of treasury stockPurchases of treasury stock(318)(318)
Issuance under stock purchase and equity
compensation plans
Issuance under stock purchase and equity
compensation plans
(1,599)1,599  
Issuance under stock purchase and equity
compensation plans
Issuance under stock purchase and equity
compensation plans
Stock-based compensationStock-based compensation3,904 3,904 
Cash dividends paid on common stock
($0.270 per share)
Cash dividends paid on common stock
($0.270 per share)
(33,744)(33,744)
Balance June 30, 2023$629,319 $2,921,365 $211,358 $(58,389)$(1,036,295)$17,870 $2,685,228 
Balance March 31, 2022$610,804 $2,678,025 $178,504 $(72,293)$(434,400)$12,762 $2,973,402 
Balance March 31, 2024
Balance March 31, 2024
Balance March 31, 2024
Balance December 31, 2022
Net Income
Net Income
Net IncomeNet Income115,794 4,359 120,153 
Other comprehensive income (loss)Other comprehensive income (loss)(332,494)(332,494)
Distributions to non-controlling interestDistributions to non-controlling interest(654)(654)
Purchases of treasury stockPurchases of treasury stock(57,350)(57,350)
Sale of non-controlling interest of subsidiary
Issuance under stock purchase and equity
compensation plans
Issuance under stock purchase and equity
compensation plans
(55)55 — 
Stock-based compensationStock-based compensation4,191 4,191 
Cash dividends paid on common stock
($.252 per share)
(31,935)(31,935)
Cash dividends paid on common stock
($.257 per share)
Balance June 30, 2022$610,804 $2,682,161 $262,363 $(129,588)$(766,894)$16,467 $2,675,313 
Balance March 31, 2023
Balance March 31, 2023
Balance March 31, 2023
See accompanying notes to consolidated financial statements.
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Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Six Months Ended June 30, 2023 and 2022
Commerce Bancshares, Inc. Shareholders
 
 

(In thousands, except per share data)
Common StockCapital SurplusRetained EarningsTreasury StockAccumulated Other Comprehensive Income (Loss)Non-Controlling InterestTotal
(Unaudited)
Balance December 31, 2022$629,319 $2,932,959 $31,620 $(41,743)$(1,086,864)$16,286 $2,481,577 
Net income247,241 3,775 251,016 
Other comprehensive income (loss)50,569 50,569 
Distributions to non-controlling interest(2,145)(2,145)
Purchases of treasury stock(36,563)(36,563)
Sale of non-controlling interest of subsidiary46 (46) 
Issuance under stock purchase and equity compensation plans(19,917)19,917  
Stock-based compensation8,277 8,277 
Cash dividends paid on common stock ($.540 per share)(67,503)(67,503)
Balance June 30, 2023$629,319 $2,921,365 $211,358 $(58,389)$(1,036,295)$17,870 $2,685,228 
Balance December 31, 2021$610,804 $2,689,894 $92,493 $(32,973)$77,080 $11,026 $3,448,324 
Net income233,948 6,231 240,179 
Other comprehensive income (loss)(843,974)(843,974)
Distributions to non-controlling interest(790)(790)
Purchases of treasury stock(113,205)(113,205)
Issuance under stock purchase and equity compensation plans(16,142)16,590 448 
Stock-based compensation8,409 8,409 
Cash dividends paid on common stock ($.505 per share)(64,078)(64,078)
Balance June 30, 2022$610,804 $2,682,161 $262,363 $(129,588)$(766,894)$16,467 $2,675,313 
See accompanying notes to consolidated financial statements.



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Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30
For the Three Months Ended March 31For the Three Months Ended March 31
(In thousands)(In thousands)20232022(In thousands)20242023
(Unaudited)
(Unaudited)(Unaudited)
OPERATING ACTIVITIES:OPERATING ACTIVITIES:
Net incomeNet income$251,016 $240,179 
Net income
Net income
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Provision for credit losses
Provision for credit losses Provision for credit losses17,927 (2,696)
Provision for depreciation and amortization Provision for depreciation and amortization24,164 23,638 
Amortization of investment security premiums, net Amortization of investment security premiums, net9,482 5,946 
Investment securities (gains) losses, net (A) Investment securities (gains) losses, net (A)(3,086)(8,192)
Net (gains) losses on sales of loans held for sale Net (gains) losses on sales of loans held for sale(422)(1,944)
Originations of loans held for sale Originations of loans held for sale(25,729)(93,439)
Proceeds from sales of loans held for sale Proceeds from sales of loans held for sale24,210 96,282 
Net (increase) decrease in trading debt securities, excluding unsettled transactions Net (increase) decrease in trading debt securities, excluding unsettled transactions17,915 870 
Purchase of interest rate floor(25,900)— 
Purchase of interest rate floor derivative contracts
Stock-based compensation Stock-based compensation8,277 8,409 
(Increase) decrease in interest receivable (Increase) decrease in interest receivable(667)(11,739)
Increase (decrease) in interest payable Increase (decrease) in interest payable31,819 247 
Increase (decrease) in income taxes payable Increase (decrease) in income taxes payable(74)(1,855)
Other changes, net Other changes, net(108,044)30,464 
Other changes, net
Other changes, net
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities220,888 286,170 
INVESTING ACTIVITIES:INVESTING ACTIVITIES:
Cash paid in acquisition, net of cash received(6,197)— 
Distributions received from equity-method investment
Distributions received from equity-method investment
Distributions received from equity-method investmentDistributions received from equity-method investment1,434 400 
Proceeds from sales of investment securities (A)Proceeds from sales of investment securities (A)1,130,536 3,712 
Proceeds from maturities/pay downs of investment securities (A)Proceeds from maturities/pay downs of investment securities (A)922,759 1,462,151 
Purchases of investment securities (A)Purchases of investment securities (A)(190,253)(1,894,221)
Net (increase) decrease in loansNet (increase) decrease in loans(666,743)(518,899)
Securities purchased under agreements to resellSecurities purchased under agreements to resell (200,000)
Repayments of securities purchased under agreements to resellRepayments of securities purchased under agreements to resell 375,000 
Purchases of premises and equipmentPurchases of premises and equipment(51,904)(28,985)
Sales of premises and equipmentSales of premises and equipment1,215 1,401 
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities1,140,847 (799,441)
FINANCING ACTIVITIES:FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing, savings, interest checking and money market depositsNet increase (decrease) in non-interest bearing, savings, interest checking and money market deposits(2,506,872)(1,302,692)
Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits
Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits
Net increase (decrease) in certificates of depositNet increase (decrease) in certificates of deposit2,257,518 (437,030)
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchaseNet increase (decrease) in federal funds purchased and securities sold under agreements to repurchase36,287 (788,671)
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase
FHLB short-term borrowings2,250,000 — 
Repayments of FHLB borrowings(1,250,000)— 
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase
Net increase (decrease) in other borrowings
Net increase (decrease) in other borrowings
Net increase (decrease) in other borrowingsNet increase (decrease) in other borrowings(4,059)(6,535)
Purchases of treasury stockPurchases of treasury stock(36,563)(113,205)
Purchases of treasury stock
Purchases of treasury stock
Issuance of stock under equity compensation plans 448 
Cash dividends paid on common stockCash dividends paid on common stock(67,503)(64,078)
Cash dividends paid on common stock
Cash dividends paid on common stock
Net cash provided by (used in) financing activities
Net cash provided by (used in) financing activities
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities678,808 (2,711,763)
Increase (decrease) in cash, cash equivalents and restricted cashIncrease (decrease) in cash, cash equivalents and restricted cash2,040,543 (3,225,034)
Cash, cash equivalents and restricted cash at beginning of yearCash, cash equivalents and restricted cash at beginning of year897,801 4,296,954 
Cash, cash equivalents and restricted cash at June 30$2,938,344 $1,071,920 
Cash, cash equivalents and restricted cash at March 31
Income tax payments, net
Income tax payments, net
Income tax payments, netIncome tax payments, net$64,925 $62,588 
Interest paid on deposits and borrowingsInterest paid on deposits and borrowings$124,540 $8,518 
Loans transferred to foreclosed real estateLoans transferred to foreclosed real estate$72 $25 
(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 $200$71 thousand at June 30, 2023 and $5.4 millionMarch 31, 2024. The Company had no restricted cash at June 30, 2022.March 31, 2023.
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Commerce Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2023March 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 20222023 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 sixthree month period ended June 30, 2023March 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.

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

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

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

Modifications for Borrowers Experiencing Financial Difficulty
The Company may renegotiate the terms of existing loans for a variety of reasons. When refinancing or restructuring a loan, the Company evaluates whether the borrower is experiencing financial difficulty. In making this determination, the Company considers whether the borrower is currently in default on any of its debt. In addition, the Company evaluates whether it is probable that the borrower would be in payment default on any of its debt in the foreseeable future without the modification and if the borrower (without the current modification) could obtain equivalent financing from another creditor at a market rate for similar debt. Modifications of loans to borrowers in these situations may indicate that the borrower is facing financial difficulty.
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Modifications of loans to borrowers experiencing financial difficulty that are in the form of principal forgiveness, interest rate reductions, other-than-insignificant payment delays, or a term extension (or a combination thereof) require disclosure. The Company's disclosures are included in Note 2, Loans and Allowance for Credit Losses.

2. Loans and Allowance for Credit Losses
Major classifications within the Company’s held for investment loan portfolio at June 30, 2023March 31, 2024 and December 31, 20222023 are as follows:

(In thousands)(In thousands)June 30, 2023December 31, 2022(In thousands)March 31, 2024December 31, 2023
Commercial:Commercial:
BusinessBusiness$5,906,493 $5,661,725 
Business
Business
Real estate – construction and landReal estate – construction and land1,451,783 1,361,095 
Real estate – businessReal estate – business3,621,222 3,406,981 
Personal Banking:Personal Banking:
Real estate – personal
Real estate – personal
Real estate – personalReal estate – personal2,980,599 2,918,078 
ConsumerConsumer2,110,605 2,059,088 
Revolving home equityRevolving home equity303,845 297,207 
Consumer credit cardConsumer credit card574,755 584,000 
OverdraftsOverdrafts7,237 14,957 
Total loansTotal loans$16,956,539 $16,303,131 

Accrued interest receivable totaled $63.9$72.8 million and $55.5$71.9 million at June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, and was included within other assets on the consolidated balance sheets. For the three months ended June 30, 2023,March 31, 2024, the Company wrote-off accrued interest by reversing interest income of $43$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. Similarly, for the six months ended June 30, 2023, the Company wrote-off accrued interest of $77 thousand and $2.2 million in the Commercial and Personal Banking portfolios, respectively. For the three months ended June 30, 2022, the Company reversed interest income of $26 thousand and $762 thousand in the Commercial and Personal Banking portfolios, respectively, and in the six months ended June 30, 2022, reversed $55 thousand and $1.7 million in the Commercial and Personal Banking portfolios.

At June 30, 2023,March 31, 2024, loans of $3.3$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 $3.1$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 adjustedforecast-adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions (except for contractual extensions at the option of the customer), renewals and modifications unless there is a reasonable expectation
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that a troubled debt restructuring will be executed.modifications. Credit cards and certain similar consumer lines of credit do not have stated maturities and therefore, for these loan classes, remaining contractual lives are determined by estimating future cash flows expected to be received from customers until payments have been fully allocated to outstanding balances. Additionally, the allowance for credit losses considers other qualitative factors not included in historical loss rates or macroeconomic forecast such as changes in portfolio composition, underwriting practices, or significant unique events or conditions.

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Key assumptions in the Company’s allowance for credit loss model include the economic forecast, the reasonable and supportable period, forecasted macro-economic variables, prepayment assumptions and qualitative factors applied for portfolio composition changes, underwriting practices, or significant unique events or conditions. The assumptions utilized in estimating the Company’s allowance for credit losses at June 30, 2023March 31, 2024 and MarchDecember 31, 2023 are discussed below.

Key AssumptionJune 30, 2023March 31, 2024MarchDecember 31, 2023
Overall economic forecast
Mild recessionEconomic strength is visible in the second half of 2023strong labor market
AssumeFiscal policy is forecasted to be a modest drag on GDP
There are expectations that the Federal Reserve will pause increasing intereststart cutting rates through year endin 2nd quarter 2024
Mild recession is expected to weaken employment
MildThe US economy is projected to slow at the start of 2024, but not enter a recession to start 3rd quarter of 2023
Assume the Federal Reserve will continue raising interest ratesImpacts of tighter monetary and fiscal policy creates uncertainty
Mild recessionConsumer spending is expected to weaken employmentdecrease
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 5.3%4.1% during the reasonable and supportable forecast period
Real GDP growth ranges from (.27)%1.5% to 1.2%3.0%
BBB corporate yield from 4.9%4.7% to 5.5%5.1%
Housing Price Index from 282.1312.1 to 284.5316.6
Unemployment rate ranges from 3.7%4.1% to 5.3%4.5% during the reasonable and supportable forecast period
Real GDP growth ranges from (.48)%.46% to 2.0%2.1%
BBB corporate yield from 5.3% to 5.8%5.9%
Housing Price Index from 280.2305.4 to 282.0307.4
Prepayment assumptions
Commercial loans
pools ranging from 0% to 5% for most loan pools
Personal banking loans
Ranging from 7.93%6.2% to 22.9%21.6% for most loan pools
Consumer credit cards 67.6%66.6%
Commercial loans
5% for most loan pools
Personal banking loans
Ranging from 6.45%6.5% to 22.4%23.5% for most loan pools
Consumer credit cards 67.5%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 portfolios sensitive to pandemic economic uncertaintiesstressed 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 estimatedthe estimate of expected credit losses.

The current forecast projects a mild recessionlow unemployment and positive GDP. It is expected the Federal Reserve will start cutting rates in the second half2nd quarter of 2023 as2024.

Updated information on inflation and labor market trends could impact the economy continues to face high inflation, higher interest ratesFederal Reserve's decision on the timing and a weaker job market.degree of rate reductions. The impacts of the market's response to unusualthese events or trends including high inflation, supply chain stresses, trends in health conditionsalong with other economic, political, and changes in the geopolitical environmentsocial 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 duringfor the three and six months ended June 30,March 31, 2024 and 2023, and 2022, respectively, follows:

For the Three Months Ended June 30, 2023For the Six Months Ended June 30, 2023
For the Three Months Ended March 31, 2024
For the Three Months Ended March 31, 2024
For the Three Months Ended March 31, 2024
(In thousands)(In thousands)CommercialPersonal Banking

Total
CommercialPersonal Banking

Total
(In thousands)
(In thousands)
ALLOWANCE FOR CREDIT LOSSES ON LOANS
ALLOWANCE FOR CREDIT LOSSES ON LOANS
ALLOWANCE FOR CREDIT LOSSES ON LOANSALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of periodBalance at beginning of period$108,615 $50,702 $159,317 $103,293 $46,843 $150,136 
Balance at beginning of period
Balance at beginning of period
Provision for credit losses on loans
Provision for credit losses on loans
Provision for credit losses on loansProvision for credit losses on loans(546)6,410 5,864 5,002 16,810 21,812 
Deductions:Deductions:
Deductions:
Deductions:
Loans charged off
Loans charged off
Loans charged off Loans charged off307 8,531 8,838 599 17,287 17,886 
Less recoveries on loans Less recoveries on loans262 2,080 2,342 328 4,295 4,623 
Less recoveries on loans
Less recoveries on loans
Net loan charge-offs (recoveries)Net loan charge-offs (recoveries)45 6,451 6,496 271 12,992 13,263 
Balance June 30, 2023$108,024 $50,661 $158,685 $108,024 $50,661 $158,685 
Net loan charge-offs (recoveries)
Net loan charge-offs (recoveries)
Balance March 31, 2024
Balance March 31, 2024
Balance March 31, 2024
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
LIABILITY FOR UNFUNDED LENDING COMMITMENTSLIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance at beginning of periodBalance at beginning of period$27,105 $1,523 $28,628 $31,743 $1,377 $33,120 
Balance at beginning of period
Balance at beginning of period
Provision for credit losses on unfunded lending commitmentsProvision for credit losses on unfunded lending commitments737 (130)607 (3,901)16 (3,885)
Balance June 30, 2023$27,842 $1,393 $29,235 $27,842 $1,393 $29,235 
Provision for credit losses on unfunded lending commitments
Provision for credit losses on unfunded lending commitments
Balance March 31, 2024
Balance March 31, 2024
Balance March 31, 2024
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTSALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS$135,866 $52,054 $187,920 $135,866 $52,054 $187,920 
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS

For the Three Months Ended June 30, 2022For the Six Months Ended June 30, 2022
For the Three Months Ended March 31, 2023
For the Three Months Ended March 31, 2023
For the Three Months Ended March 31, 2023
(In thousands)(In thousands)CommercialPersonal Banking

Total
CommercialPersonal Banking

Total
(In thousands)
(In thousands)
ALLOWANCE FOR CREDIT LOSSES ON LOANS
ALLOWANCE FOR CREDIT LOSSES ON LOANS
ALLOWANCE FOR CREDIT LOSSES ON LOANSALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of periodBalance at beginning of period$94,827 $39,883 $134,710 $97,776 $52,268 $150,044 
Balance at beginning of period
Balance at beginning of period
Provision for credit losses on loans
Provision for credit losses on loans
Provision for credit losses on loansProvision for credit losses on loans4,716 2,571 7,287 1,837 (5,236)(3,399)
Deductions:Deductions:
Deductions:
Deductions:
Loans charged off
Loans charged off
Loans charged off Loans charged off207 6,533 6,740 384 13,818 14,202 
Less recoveries on loans Less recoveries on loans189 2,593 2,782 296 5,300 5,596 
Less recoveries on loans
Less recoveries on loans
Net loan charge-offs (recoveries)Net loan charge-offs (recoveries)18 3,940 3,958 88 8,518 8,606 
Balance June 30, 2022$99,525 $38,514 $138,039 $99,525 $38,514 $138,039 
Net loan charge-offs (recoveries)
Net loan charge-offs (recoveries)
Balance March 31, 2023
Balance March 31, 2023
Balance March 31, 2023
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
LIABILITY FOR UNFUNDED LENDING COMMITMENTSLIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance at beginning of periodBalance at beginning of period$23,780 $1,252 $25,032 $23,271 $933 $24,204 
Balance at beginning of period
Balance at beginning of period
Provision for credit losses on unfunded lending commitmentsProvision for credit losses on unfunded lending commitments(163)38 (125)346 357 703 
Balance June 30, 2022$23,617 $1,290 $24,907 $23,617 $1,290 $24,907 
Provision for credit losses on unfunded lending commitments
Provision for credit losses on unfunded lending commitments
Balance March 31, 2023
Balance March 31, 2023
Balance March 31, 2023
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTSALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS$123,142 $39,804 $162,946 $123,142 $39,804 $162,946 
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS
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Delinquent and non-accrual loans
The Company considers loans past due on the day following the contractual repayment date, if the contractual repayment was not received by the Company as of the end of the business day. The following table provides aging information on the Company’s past due and accruing loans, in addition to the balances of loans on non-accrual status, at June 30, 2023March 31, 2024 and December 31, 2022.2023.




(In thousands)



(In thousands)
Current or Less Than 30 Days Past Due

30 – 89
Days Past Due
90 Days Past Due and Still AccruingNon-accrual



Total



(In thousands)
Current or Less Than 30 Days Past Due

30 – 89
Days Past Due
90 Days Past Due and Still AccruingNon-accrual



Total
June 30, 2023
March 31, 2024
Commercial:Commercial:
Commercial:
Commercial:
Business
Business
BusinessBusiness$5,896,412 $4,847 $502 $4,732 $5,906,493 
Real estate – construction and landReal estate – construction and land1,451,314 469   1,451,783 
Real estate – businessReal estate – business3,619,936 1,133  153 3,621,222 
Personal Banking:Personal Banking:
Real estate – personal
Real estate – personal
Real estate – personalReal estate – personal2,962,174 10,921 6,228 1,276 2,980,599 
ConsumerConsumer2,087,542 21,199 1,864  2,110,605 
Revolving home equityRevolving home equity300,329 2,676 840  303,845 
Consumer credit cardConsumer credit card562,657 6,181 5,917  574,755 
OverdraftsOverdrafts6,932 305   7,237 
TotalTotal$16,887,296 $47,731 $15,351 $6,161 $16,956,539 
December 31, 2022
December 31, 2023
Commercial:Commercial:
Commercial:
Commercial:
Business
Business
BusinessBusiness$5,652,710 $1,759 $505 $6,751 $5,661,725 
Real estate – construction and landReal estate – construction and land1,361,095 — — — 1,361,095 
Real estate – businessReal estate – business3,406,207 585 — 189 3,406,981 
Personal Banking:Personal Banking:
Real estate – personal
Real estate – personal
Real estate – personalReal estate – personal2,895,742 14,289 6,681 1,366 2,918,078 
ConsumerConsumer2,031,827 25,089 2,172 — 2,059,088 
Revolving home equityRevolving home equity295,303 1,201 703 — 297,207 
Consumer credit cardConsumer credit card572,213 6,238 5,549 — 584,000 
OverdraftsOverdrafts14,090 647 220 — 14,957 
TotalTotal$16,229,187 $49,808 $15,830 $8,306 $16,303,131 

At June 30, 2023,March 31, 2024, the Company had $2.9$3.7 million in non-accrual business loans that had no allowance for credit loss, compared to $3.8$4.3 million in non-accrual business loans that had no allowance for credit loss at December 31, 2022.2023. The Company did not record any interest income on non-accrual loans during the sixthree months ended June 30,March 31, 2024 and 2023, and 2022, respectively.

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

All loans are analyzed for risk rating updates annually. For larger loans, rating assessments may be more frequent if relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans
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are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past
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due related to credit issues. Loans rated Special Mention, Substandard or Non-accrual are subject to quarterly review and monitoring processes. In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by a credit review department which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan.

The risk category of loans in the Commercial portfolio as of June 30, 2023March 31, 2024 and December 31, 20222023 are as follows:

Term Loans Amortized Cost Basis by Origination Year
Term Loans Amortized Cost Basis by Origination Year
(In thousands)(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
June 30, 2023
(In thousands)
(In thousands)20242023202220212020PriorRevolving Loans Amortized Cost BasisTotal
March 31, 2024
Business
Business
BusinessBusiness
Risk Rating: Risk Rating:
Risk Rating:
Risk Rating:
Pass
Pass
Pass Pass$1,136,860 $1,058,237 $631,119 $325,640 $303,589 $315,781 $2,001,024 $5,772,250 
Special mention Special mention22,690 4,981 21,536 7,692 456 4,067 5,994 67,416 
Substandard Substandard71 11,828 9,759 15,748 484 10,320 13,885 62,095 
Non-accrual Non-accrual— 58 1,705 33 — 2,936 — 4,732 
Total Business: Total Business:$1,159,621 $1,075,104 $664,119 $349,113 $304,529 $333,104 $2,020,903 $5,906,493 
Gross write-offs for the six months ended June 30, 2023$— $— $— $41 $— $— $558 $599 
Gross write-offs for the three months ended March 31, 2024
Real estate-constructionReal estate-construction
Risk Rating: Risk Rating:
Risk Rating:
Risk Rating:
Pass
Pass
Pass Pass$221,343 $590,385 $497,885 $66,877 $27,103 $3,102 $33,532 $1,440,227 
Special mention Special mention7,221 269 — — — — — 7,490 
Substandard Substandard— 4,066 — — — — — 4,066 
Total Real estate-construction: Total Real estate-construction:$228,564 $594,720 $497,885 $66,877 $27,103 $3,102 $33,532 $1,451,783 
Gross write-offs for the six months ended June 30, 2023$— $— $— $— $— $— $— $— 
Total Real estate-construction:
Total Real estate-construction:
Gross write-offs for the three months ended March 31, 2024
Real estate-businessReal estate-business
Risk Rating: Risk Rating:
Risk Rating:
Risk Rating:
Pass
Pass
Pass Pass$483,249 $1,142,014 $527,586 $481,254 $355,089 $365,850 $83,463 $3,438,505 
Special mention Special mention— 7,157 915 1,128 9,492 1,323 400 20,415 
Substandard Substandard— 14,487 30,845 16,857 11,885 88,054 21 162,149 
Non-accrual Non-accrual— 14 45 — — 94 — 153 
Total Real estate-business: Total Real estate-business:$483,249 $1,163,672 $559,391 $499,239 $376,466 $455,321 $83,884 $3,621,222 
Gross write-offs for the six months ended June 30, 2023$— $— $— $— $— $— $— $— 
Gross write-offs for the three months ended March 31, 2024
Commercial loansCommercial loans
Risk Rating: Risk Rating:
Risk Rating:
Risk Rating:
Pass
Pass
Pass Pass$1,841,452 $2,790,636 $1,656,590 $873,771 $685,781 $684,733 $2,118,019 $10,650,982 
Special mention Special mention29,911 12,407 22,451 8,820 9,948 5,390 6,394 95,321 
Substandard Substandard71 30,381 40,604 32,605 12,369 98,374 13,906 228,310 
Non-accrual Non-accrual— 72 1,750 33 — 3,030 — 4,885 
Total Commercial loans: Total Commercial loans:$1,871,434 $2,833,496 $1,721,395 $915,229 $708,098 $791,527 $2,138,319 $10,979,498 
Gross write-offs for the six months ended June 30, 2023$— $— $— $41 $— $— $558 $599 
Gross write-offs for the three months ended March 31, 2024

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Term Loans Amortized Cost Basis by Origination Year
Term Loans Amortized Cost Basis by Origination Year
(In thousands)(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
December 31, 2022
(In thousands)
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
December 31, 2023
Business
Business
BusinessBusiness
Risk Rating: Risk Rating:
Risk Rating:
Risk Rating:
Pass
Pass
Pass Pass$1,456,476 $782,409 $464,201 $360,844 $180,375 $219,053 $2,146,380 $5,609,738 
Special mention Special mention3,113 2,548 7,757 1,063 67 — 1,319 15,867 
Substandard Substandard5,752 10,004 685 37 810 10,342 1,739 29,369 
Non-accrual Non-accrual195 1,987 — 792 3,776 — 6,751 
Total Business: Total Business:$1,465,536 $796,948 $472,643 $361,945 $182,044 $233,171 $2,149,438 $5,661,725 
Gross write-offs for the year ended December 31, 2023
Real estate-constructionReal estate-construction
Risk Rating: Risk Rating:
Risk Rating:
Risk Rating:
Pass
Pass
Pass Pass$538,022 $596,465 $129,632 $27,331 $1,305 $2,029 $18,559 $1,313,343 
Special mention Special mention352 — — — — — — 352 
Substandard— 19,494 — — 14,766 13,140 — 47,400 
Total Real estate-construction: Total Real estate-construction:$538,374 $615,959 $129,632 $27,331 $16,071 $15,169 $18,559 $1,361,095 
Total Real estate-construction:
Total Real estate-construction:
Gross write-offs for the year ended December 31, 2023
Real estate- businessReal estate- business
Risk Rating: Risk Rating:
Risk Rating:
Risk Rating:
Pass
Pass
Pass Pass$1,085,379 $616,516 $555,648 $424,641 $163,628 $271,579 $90,799 $3,208,190 
Special mention Special mention4,608 — 618 9,737 976 279 — 16,218 
Substandard Substandard2,795 30,944 61,141 10,490 30,782 46,232 — 182,384 
Non-accrual Non-accrual14 45 — — 124 — 189 
Total Real-estate business: Total Real-estate business:$1,092,796 $647,505 $617,407 $444,868 $195,510 $318,096 $90,799 $3,406,981 
Gross write-offs for the year ended December 31, 2023
Commercial loansCommercial loans
Risk Rating: Risk Rating:
Risk Rating:
Risk Rating:
Pass
Pass
Pass Pass$3,079,877 $1,995,390 $1,149,481 $812,816 $345,308 $492,661 $2,255,738 $10,131,271 
Special mention Special mention8,073 2,548 8,375 10,800 1,043 279 1,319 32,437 
Substandard Substandard8,547 60,442 61,826 10,527 46,358 69,714 1,739 259,153 
Non-accrual Non-accrual209 2,032 — 916 3,782 — 6,940 
Total Commercial loans: Total Commercial loans:$3,096,706 $2,060,412 $1,219,682 $834,144 $393,625 $566,436 $2,258,796 $10,429,801 
Gross write-offs for the year ended December 31, 2023


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The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided as of June 30, 2023March 31, 2024 and December 31, 20222023 below.

Term Loans Amortized Cost Basis by Origination Year
Term Loans Amortized Cost Basis by Origination Year
(In thousands)(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
June 30, 2023
(In thousands)
(In thousands)20242023202220212020PriorRevolving Loans Amortized Cost BasisTotal
March 31, 2024
Real estate-personalReal estate-personal
Real estate-personal
Real estate-personal
Current to 90 days past due
Current to 90 days past due
Current to 90 days past due Current to 90 days past due$256,814 $479,786 $558,080 $746,091 $277,351 $644,588 $10,385 $2,973,095 
Over 90 days past due Over 90 days past due— 722 1,275 1,346 — 2,885 — 6,228 
Non-accrual Non-accrual— 49 — — 167 1,060 — 1,276 
Total Real estate-personal: Total Real estate-personal:$256,814 $480,557 $559,355 $747,437 $277,518 $648,533 $10,385 $2,980,599 
Gross write-offs for the six months ended June 30, 2023$— $18 $— $— $— $18 $— $36 
Gross write-offs for the three months ended March 31, 2024
ConsumerConsumer
Current to 90 days past due
Current to 90 days past due
Current to 90 days past due Current to 90 days past due$317,512 $392,842 $307,047 $162,859 $77,928 $69,972 $780,581 $2,108,741 
Over 90 days past due Over 90 days past due116 323 140 112 50 446 677 1,864 
Total Consumer: Total Consumer:$317,628 $393,165 $307,187 $162,971 $77,978 $70,418 $781,258 $2,110,605 
Gross write-offs for the six months ended June 30, 2023$61 $1,265 $996 $492 $173 $238 $505 $3,730 
Total Consumer:
Total Consumer:
Gross write-offs for the three months ended March 31, 2024
Revolving home equityRevolving home equity
Current to 90 days past due Current to 90 days past due$— $— $— $— $— $— $303,005 $303,005 
Current to 90 days past due
Current to 90 days past due
Over 90 days past due Over 90 days past due— — — — — — 840 840 
Non-accrual
Total Revolving home equity: Total Revolving home equity:$— $— $— $— $— $— $303,845 $303,845 
Gross write-offs for the six months ended June 30, 2023$— $— $— $— $— $— $— $— 
Gross write-offs for the three months ended March 31, 2024
Consumer credit cardConsumer credit card
Current to 90 days past due
Current to 90 days past due
Current to 90 days past due Current to 90 days past due$— $— $— $— $— $— $568,838 $568,838 
Over 90 days past due Over 90 days past due— — — — — — 5,917 5,917 
Total Consumer credit card: Total Consumer credit card:$— $— $— $— $— $— $574,755 $574,755 
Gross write-offs for the six months ended June 30, 2023$— $— $— $— $— $— $11,637 $11,637 
Total Consumer credit card:
Total Consumer credit card:
Gross write-offs for the three months ended March 31, 2024
OverdraftsOverdrafts
Current to 90 days past due
Current to 90 days past due
Current to 90 days past due Current to 90 days past due$7,237 $— $— $— $— $— $— $7,237 
Total Overdrafts: Total Overdrafts:$7,237 $— $— $— $— $— $— $7,237 
Gross write-offs for the six months ended June 30, 2023$1,884 $— $— $— $— $— $— $1,884 
Total Overdrafts:
Total Overdrafts:
Gross write-offs for the three months ended March 31, 2024
Personal banking loansPersonal banking loans
Current to 90 days past due
Current to 90 days past due
Current to 90 days past due Current to 90 days past due$581,563 $872,628 $865,127 $908,950 $355,279 $714,560 $1,662,809 $5,960,916 
Over 90 days past due Over 90 days past due116 1,045 1,415 1,458 50 3,331 7,434 14,849 
Non-accrual Non-accrual— 49 — — 167 1,060 — 1,276 
Total Personal banking loans: Total Personal banking loans:$581,679 $873,722 $866,542 $910,408 $355,496 $718,951 $1,670,243 $5,977,041 
Gross write-offs for the six months ended June 30, 2023$1,945 $1,283 $996 $492 $173 $256 $12,142 $17,287 
Gross write-offs for the three months ended March 31, 2024
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Term Loans Amortized Cost Basis by Origination Year
Term Loans Amortized Cost Basis by Origination Year
(In thousands)(In thousands)20222021202020192018PriorRevolving Loans Amortized Cost BasisTotal
December 31, 2022
(In thousands)
(In thousands)20232022202120202019PriorRevolving Loans Amortized Cost BasisTotal
December 31, 2023
Real estate-personalReal estate-personal
Real estate-personal
Real estate-personal
Current to 90 days past due
Current to 90 days past due
Current to 90 days past due Current to 90 days past due$535,283 $589,658 $783,651 $290,580 $132,305 $568,380 $10,174 $2,910,031 
Over 90 days past due Over 90 days past due514 967 1,338 81 1,388 2,393 — 6,681 
Non-accrual Non-accrual— — 52 169 102 1,043 — 1,366 
Total Real estate-personal: Total Real estate-personal:$535,797 $590,625 $785,041 $290,830 $133,795 $571,816 $10,174 $2,918,078 
Gross write-offs for the year ended December 31, 2023
ConsumerConsumer
Current to 90 days past due
Current to 90 days past due
Current to 90 days past due Current to 90 days past due$536,429 $378,118 $205,849 $106,733 $36,096 $62,255 $731,436 $2,056,916 
Over 90 days past due Over 90 days past due326 251 203 58 267 228 839 2,172 
Total Consumer: Total Consumer:$536,755 $378,369 $206,052 $106,791 $36,363 $62,483 $732,275 $2,059,088 
Total Consumer:
Total Consumer:
Gross write-offs for the year ended December 31, 2023
Revolving home equityRevolving home equity
Current to 90 days past due Current to 90 days past due$— $— $— $— $— $— $296,504 $296,504 
Current to 90 days past due
Current to 90 days past due
Over 90 days past due Over 90 days past due— — — — — — 703 703 
Non-accrual
Total Revolving home equity: Total Revolving home equity:$— $— $— $— $— $— $297,207 $297,207 
Gross write-offs for the year ended December 31, 2023
Consumer credit cardConsumer credit card
Current to 90 days past due
Current to 90 days past due
Current to 90 days past due Current to 90 days past due$— $— $— $— $— $— $578,451 $578,451 
Over 90 days past due Over 90 days past due— — — — — — 5,549 5,549 
Total Consumer credit card: Total Consumer credit card:$— $— $— $— $— $— $584,000 $584,000 
Total Consumer credit card:
Total Consumer credit card:
Gross write-offs for the year ended December 31, 2023
OverdraftsOverdrafts
Current to 90 days past due Current to 90 days past due$14,737 $— $— $— $— $— $— $14,737 
Over 90 days past due220 — — — — — — 220 
Current to 90 days past due
Current to 90 days past due
Total Overdrafts: Total Overdrafts:$14,957 $— $— $— $— $— $— $14,957 
Total Overdrafts:
Total Overdrafts:
Gross write-offs for the year ended December 31, 2023
Personal banking loansPersonal banking loans
Current to 90 days past due
Current to 90 days past due
Current to 90 days past due Current to 90 days past due$1,086,449 $967,776 $989,500 $397,313 $168,401 $630,635 $1,616,565 $5,856,639 
Over 90 days past due Over 90 days past due1,060 1,218 1,541 139 1,655 2,621 7,091 15,325 
Non-accrual Non-accrual— — 52 169 102 1,043 — 1,366 
Total Personal banking loans: Total Personal banking loans:$1,087,509 $968,994 $991,093 $397,621 $170,158 $634,299 $1,623,656 $5,873,330 
Gross write-offs for the year ended December 31, 2023

Collateral-dependent loans
The Company's collateral-dependent loans are comprised of large loans on non-accrual status. The Company requires that collateral-dependent loans are either over-collateralized or carry collateral equal to the amortized cost of the loan. The following table presents the amortized cost basis of collateral-dependent loans as of June 30, 2023March 31, 2024 and December 31, 2022.2023.

(In thousands)Business AssetsOil & Gas AssetsTotal
June 30, 2023
Commercial:
  Business$1,598 $1,508 $3,106 
Total$1,598 $1,508 $3,106 
December 31, 2022
Commercial:
Business$2,778 $1,824 $4,602 
Total$2,778 $1,824 $4,602 
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(In thousands)Business AssetsReal EstateOil & Gas AssetsTotal
March 31, 2024
Commercial:
  Real estate - business$ $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
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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 $173.0$168.8 million at June 30, 2023March 31, 2024 and $179.2$168.9 million at December 31, 2022.2023. The table also excludes consumer loans related to the Company's patient healthcare loan program, which totaled $198.7$210.4 million at June 30, 2023March 31, 2024 and $197.5$211.3 million at December 31, 2022.2023. As the healthcare loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and consumer loans excluded below totaled less than 7% of the Personal Banking portfolio. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at June 30, 2023March 31, 2024 and December 31, 20222023 by FICO score.

Personal Banking Loans Personal Banking Loans Personal Banking Loans
% of Loan Category
Real Estate - PersonalConsumerRevolving Home EquityConsumer Credit Card
June 30, 2023
% of Loan Category% of Loan Category
Real Estate - PersonalReal Estate - PersonalConsumerRevolving Home EquityConsumer Credit Card
March 31, 2024
FICO score:FICO score:
FICO score:
FICO score:
Under 600
Under 600
Under 600Under 6001.7 %2.5 %1.6 %4.2 %2.0 %2.8 %2.0 %5.0 %
600 - 659600 - 6592.2 3.9 3.0 11.6 
660 - 719660 - 7198.1 13.4 9.6 29.3 
720 - 779720 - 77922.6 24.3 22.6 27.5 
780 and over780 and over65.4 55.9 63.2 27.4 
TotalTotal100.0 %100.0 %100.0 %100.0 %Total100.0 %100.0 %100.0 %100.0 %
December 31, 2022
December 31, 2023
FICO score:FICO score:
FICO score:
FICO score:
Under 600
Under 600
Under 600Under 6001.4 %2.2 %1.5 %3.4 %2.0 %2.5 %1.9 %4.7 %
600 - 659600 - 6592.2 4.2 2.8 11.4 
660 - 719660 - 7198.1 14.5 9.7 30.8 
720 - 779720 - 77923.7 26.7 21.4 27.1 
780 and over780 and over64.6 52.4 64.6 27.3 
TotalTotal100.0 %100.0 %100.0 %100.0 %Total100.0 %100.0 %100.0 %100.0 %

Modifications for borrowers experiencing financial difficulty
When borrowers are experiencing financial difficulty, the Company may agree to modify the contractual terms of a loan to a borrower in order to assist the borrower in repaying principal and interest owed to the Company.

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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.


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The following tables present the amortized cost at June 30,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 and six months ended June 30,March 31, 2023.

For the Three Months Ended June 30, 2023
For the Three Months Ended March 31, 2024For the Three Months Ended March 31, 2024



(Dollars in thousands)



(Dollars in thousands)
Term ExtensionPayment DelayInterest Rate ReductionInterest/Fees ForgivenOtherTotal% of Total Loan Category



(Dollars in thousands)
Term ExtensionPayment DelayInterest Rate ReductionInterest/Fees ForgivenOtherTotal% of Total Loan Category
June 30, 2023
March 31, 2024
Commercial:Commercial:
Commercial:
Commercial:
Business
Business
BusinessBusiness$17,097 $ $ $ $ $17,097 0.3 %$11,648 $ $ $ $ $11,648 0.2 0.2 %
Real estate – businessReal estate – business33,966     33,966 0.9 
Real estate – business
Real estate – business
Personal Banking:Personal Banking:
Real estate – personal
Real estate – personal
Real estate – personalReal estate – personal246 1,223    1,469  
ConsumerConsumer31 18 8   57  
Consumer credit cardConsumer credit card  731 224  955 0.2 
Consumer credit card
Consumer credit card
TotalTotal$51,340 $1,241 $739 $224 $ $53,544 0.3 %
Total
Total$29,178 $2,706 $976 $ $ $32,860 0.2 %

For the Six Months Ended June 30, 2023



(Dollars in thousands)
Term ExtensionPayment DelayInterest Rate ReductionInterest/Fees ForgivenOtherTotal% of Total Loan Category
June 30, 2023
Commercial:
Business$18,193 $ $ $ $ $18,193 0.3 %
Real estate – business49,548     49,548 1.4 
Personal Banking:
Real estate – personal246 2,777    3,023 0.1 
Consumer31 75 21  55 182  
Consumer credit card  1,299 487  1,786 0.3 
Total$68,018 $2,852 $1,320 $487 $55 $72,732 0.4 %

For the Three Months Ended March 31, 2023



(Dollars in thousands)
Term ExtensionPayment DelayInterest Rate ReductionInterest/Fees ForgivenOtherTotal% of Total Loan Category
March 31, 2023
Commercial:
Business$3,104 $— $— $— $— $3,104 0.1 %
Real estate – business23,039 — — — — 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.

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The following tables summarize the financial impact of loan modifications and payment deferrals during the three and six months ended June 30,March 31, 2024 and March 31, 2023. The qualitative impact of forbearance and repayment plans is the deferral of payments for 3 months up to 30 years, and therefore, those modifications are excluded from the tables below.

Term Extension
Three Months Ended March 31, 2024Three Months Ended June 30, 2023Six Months Ended June 30,March 31, 2023
Commercial:
BusinessAddedExtended maturity by a weighted average of 9 months to the life of loans.6 months.AddedExtended maturity by a weighted average of 9 months to the life of loans.12 months.
Real estate – businessAddedExtended maturity by a weighted average of 12 months to the life of loans.8 months.AddedExtended maturity by a weighted average of 14 months to the life of loans.17 months.
Personal Banking:
Real estate – personalAddedExtended maturity by a weighted average of 7 months to the life of loans.6 months.Added a weighted average of 7 months to the life of loans.
ConsumerAdded 10 years to the life of loans.Added 10 years to the life of loans.


Payment Delay
Three Months Ended March 31, 2024Three Months Ended June 30, 2023Six Months Ended June 30,March 31, 2023
Personal Banking:
Real estate – personalDeferred certain payments by a weighted average of 288 years.Deferred certainpast due monthly payments byto maturity as a balloon payment. Deferral delayed payments a weighted average of 2027 years.
ConsumerDeferred certainpast due monthly payments byto maturity as a balloon payment. Deferral delayed payments a weighted average of 6 months.Deferred certain payments by a weighted average of 71 months.11 years

Interest Rate Reduction
Three Months Ended March 31, 2024Three Months Ended March 31, 2023
Personal Banking:
ConsumerReduced weighted-average contractual interest rate from average 23% to 6%.Reduced weighted-average contractual interest rate from 20% to 6%.
Consumer credit cardReduced weighted-average contractual interest rate from average 23% to 6%.Reduced weighted-average contractual interest rate from 20% to 6%.


Interest Rate Reduction
Three Months Ended June 30, 2023Six Months Ended June 30, 2023
Personal Banking:
ConsumerReduced contractual interest from weighted average 21% to 6%.Reduced contractual interest from weighted average 21% to 6%.
Consumer credit cardReduced contractual interest from weighted average 21% to 6%.Reduced contractual interest from weighted average 21% to 6%.


Forgiveness of Interest/Fees
Three Months Ended March 31, 2024Three Months Ended June 30, 2023Six Months Ended June 30,March 31, 2023
Personal Banking:
Consumer credit cardApproximately $13 thousand of interest and fees forgiven.Approximately $27$14 thousand of interest and fees forgiven.

The Company had commitments of $6.3$2.4 million and $28.4 million at June 30,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 principal forgiveness, an interest rate reduction,reduction; an other-than-insignificant payment delay,delay; forgiveness of principal, interest, or fees; or a term extension during the current reporting period.

The following table providestables provide the amortized cost basis at March 31, 2024 of loans to borrowers experiencing financial difficulty that had a payment default during the three and six months ended June 30, 2023March 31, 2024 and were modifiedon or after January 1, 2023 (the date we adopted ASU 2022-02) through June 30, 2023. For purposes of this disclosure, within the Company considers "default" to mean 90 days or more past due12 months preceding the payment default, as to interest or principal. In addition to the loans below, the Company charged off $78 thousand of consumer credit card loans during the six months ended June 30, 2023 that were modified during the period.


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For the Three Months Ended June 30, 2023For the Six Months Ended June 30, 2023


(Dollars in thousands)
Payment DelayInterest Rate ReductionInterest/Fees ForgivenTotalPayment DelayInterest Rate ReductionInterest/Fees ForgivenTotal
June 30, 2023
Personal Banking:
Real estate – personal$779 $ $ $779 $779 $ $ $779 
Consumer 6  6  11  11 
Consumer credit card 67 78 145  111 78 189 
Total$779 $73 $78 $930 $779 $122 $78 $979 

The following table presentswell as the amortized cost basis at June 30,March 31, 2023 of loans to borrowers experiencing financial difficulty that havehad 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) through June 30, 2023.



(In thousands)
Current30-89 Days Past Due90 Days Past DueTotal
June 30, 2023
Commercial:
Business$18,193 $ $ $18,193 
Real estate – business49,548   49,548 
Personal Banking:
Real estate – personal2,027 217 779 3,023 
Consumer169 7 6 182 
Consumer credit card1,205 436 145 1,786 
Total$71,142 $660 $930 $72,732 

Troubled debt restructuring disclosures prior to the Company's adoption of ASU 2022-02
Restructured loans are those extended to borrowers who are experiencing financial difficulty and who have been granted a concession. Restructured loans are placed on non-accrual status if the Company does not believe it probable that amounts due under the contractual terms will be collected. Commercial performing restructured loans are primarily comprised of certain business, construction and business real estate loans classified as substandard but renewed at rates judged to be non-market. These loans are performing in accordance with their modified terms, and because the Company believes it probable that all amounts due under the modified terms of the agreements will be collected, interest on these loans is being recognized on an accrual basis. Troubled debt restructurings also include certain credit card and other small consumer loans under various debt management and assistance programs. Modifications to these loans generally involve removing the available line of credit, placing loans on amortizing status, and lowering the contractual interest rate. Certain personal real estate, revolving home equity, and consumer loans were classified as consumer bankruptcy troubled debt restructurings because they were not reaffirmed by the borrower in bankruptcy proceedings. Interest on these loans is being recognized on an accrual basis, as the borrowers are continuing to make payments. Other consumer loans classified as troubled debt restructurings consist of various other workout arrangements with consumer customers.

(In thousands)December 31, 2022
Accruing restructured loans:
Commercial$184,388 
Assistance programs5,156 
Other consumer4,049 
Non-accrual loans5,078 
Total troubled debt restructurings$198,671 
Section 4013 of the CARES Act was signed into law on March 27, 2020, and included a provision that short-term modifications are not troubled debt restructurings, if made on a good-faith basis in response to COVID-19 to borrowers who were current prior to December 31, 2019. The Company elected such option under the CARES Act when determining if a customer’s modification is subject to troubled debt restructuring classification. The initial guidance issued under the CARES Act was due to expire on December 31, 2020. During January 2021, the Consolidated Appropriations Act, 2021 was enacted and extended through the end of 2021 the relief offered under the CARES Act related to the accounting and disclosure requirements for troubled debt restructurings as a result of COVID-19. The Company elected to extend its application of this guidance through December 31, 2021. During the period covered by the CARES Act, if it was deemed that the loan
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modification was not short-term, not COVID-19 related or the customer does not meet the criteria under the guidance to be scoped out of troubled debt restructuring classification, the Company evaluated the loan modifications under its existing framework and accounted for the modification as a troubled debt restructuring.

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

(In thousands)December 31, 2022Balance at December 31, 2022 that was 90 days past due at any time during previous 12 months
Commercial:
Business$12,311 $— 
Real estate - construction and land57,547 — 
Real estate - business118,654 — 
Personal Banking:
Real estate - personal2,809 419 
Consumer2,250 268 
Revolving home equity17 — 
Consumer credit card5,083 452 
Total troubled debt restructurings$198,671 $1,139 
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For the Three Months Ended March 31, 2024


(Dollars in thousands)
Payment DelayInterest Rate ReductionInterest/Fees ForgivenTotal
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 DelayInterest Rate ReductionInterest/Fees ForgivenTotal
March 31, 2023
Personal Banking:
Consumer$— $$— $
Consumer credit card— 63 12 75 
Total$— $71 $12 $83 

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

The allowance for credit losses relatedfollowing tables present the amortized cost basis at March 31, 2024 of loans to troubled debt restructuringsborrowers 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 non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which management expects to collect under contractual terms. Performing commercial loans having no other concessions granted other than being renewed at non-market interest rates are judged to have similar risk characteristics as non-troubled debt commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical experience and current economic factors.after January 1, 2023 (the date we adopted ASU 2022-02) through March 31, 2023.

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


(In thousands)
Current30-89 Days Past Due90 Days Past DueTotal
March 31, 2024
Commercial:
Business$25,544 $ $ $25,544 
Real estate – business93,924   93,924 
Personal Banking:
Real estate – personal3,556 1,136 1,761 6,453 
Consumer150 17 14 181 
Consumer credit card2,107 513 296 2,916 
Total$125,281 $1,666 $2,071 $129,018 

The Company had commitments of $12.6 million at December 31, 2022 to lend additional funds to borrowers with restructured loans.


(In thousands)
Current30-89 Days Past Due90 Days Past DueTotal
March 31, 2023
Commercial:
Business$3,104 $— $— $3,104 
Real estate – business23,039 — — 23,039 
Personal Banking:
Real estate – personal1,061 605 — 1,666 
Consumer75 46 129 
Consumer credit card645 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 June 30, 2023,March 31, 2024, the fair value of these loans was $1.6$1.2 million, and the unpaid principal balance was $1.6$1.1 million.
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The Company also designates certain student loan originations as held for sale. The borrowers are credit-worthy students who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company maintains contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are carried at lower of cost or fair value, which at June 30, 2023March 31, 2024 totaled $4.9 million.$763 thousand.

At June 30, 2023,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 $94$206 thousand and $96$270 thousand at June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, and included in those amounts were $94$206 thousand and $96$270 thousand at June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, of foreclosed residential real estate properties held as a result of obtaining physical possession. Personal property acquired in repossession, generally autos, totaled $1.9$2.0 million and $1.6$1.8 million at June 30, 2023March 31, 2024 and December 31, 2022, respectively.2023. Upon acquisition, these assets are recorded at fair value less estimated selling costs at the date of foreclosure, establishing a new cost basis. They are subsequently carried at the lower of this cost basis or fair value less estimated selling costs.

3. Investment Securities
Investment securities consisted of the following at June 30, 2023March 31, 2024 and December 31, 2022.2023.

(In thousands)(In thousands)June 30, 2023December 31, 2022(In thousands)March 31, 2024December 31, 2023
Available for sale debt securitiesAvailable for sale debt securities$10,414,625 $12,238,316 
Trading debt securitiesTrading debt securities29,412 43,523 
Equity securities:Equity securities:
Readily determinable fair valueReadily determinable fair value5,520 6,210 
Readily determinable fair value
Readily determinable fair value
No readily determinable fair valueNo readily determinable fair value6,746 6,094 
Other:Other:
Federal Reserve Bank stockFederal Reserve Bank stock34,985 34,795 
Federal Reserve Bank stock
Federal Reserve Bank stock
Federal Home Loan Bank stockFederal Home Loan Bank stock50,328 10,678 
Equity method investments 1,434 
Private equity investments
Private equity investments
Private equity investmentsPrivate equity investments172,732 178,127 
Total investment securities (1)
Total investment securities (1)
$10,714,348 $12,519,177 
(1)Accrued interest receivable totaled $29.8$28.2 million and $38.8$28.9 million at June 30, 2023March 31, 2024 and December 31, 2022,2023, 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. ThisAt March 31, 2024, this portfolio includesincluded the Company's holdings823,447 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 which havehad a carrying value of zero at March 31, 2024, as there havehad not been observable price changes in orderly transactions for identical or similar investments of the same issuer. During the sixthree months ended June 30, 2023,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. Additionally, the Company's equity method investments are carried at cost, adjusted to reflect the Company's portion of income, loss, or dividends of the investee. These adjustments are included in non-interest income on the Company's consolidated statements of income. The Company's private equity investments are carried at estimated fair value.

The majority of the Company’s investment portfolio is comprised of available for sale debt securities, which are carried at fair value with changes in fair value reported in accumulated other comprehensive income (AOCI). A summary of the available for sale debt securities by maturity groupings as of June 30, 2023March 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
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collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral.
(In thousands)Amortized
Cost
Fair
Value
U.S. government and federal agency obligations:
Within 1 year$464,203 $455,044 
After 1 but within 5 years344,689 327,450 
After 5 but within 10 years176,092 163,321 
Total U.S. government and federal agency obligations984,984 945,815 
Government-sponsored enterprise obligations:
After 5 but within 10 years4,955 4,418 
After 10 years50,726 39,618 
Total government-sponsored enterprise obligations55,681 44,036 
State and municipal obligations:
Within 1 year77,600 76,353 
After 1 but within 5 years346,058 318,691 
After 5 but within 10 years826,895 704,751 
After 10 years151,057 127,942 
Total state and municipal obligations1,401,610 1,227,737 
Mortgage and asset-backed securities:
  Agency mortgage-backed securities4,849,215 4,065,406 
  Non-agency mortgage-backed securities1,378,516 1,174,790 
  Asset-backed securities2,646,850 2,499,675 
Total mortgage and asset-backed securities8,874,581 7,739,871 
Other debt securities:
Within 1 year35,141 34,128 
After 1 but within 5 years221,479 204,297 
After 5 but within 10 years244,000 205,179 
After 10 years16,260 13,562 
Total other debt securities516,880 457,166 
Total available for sale debt securities$11,833,736 $10,414,625 
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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 years380,713 370,689 
After 5 but within 10 years126,085 116,577 
Total U.S. government and federal agency obligations773,053 750,033 
Government-sponsored enterprise obligations:
After 5 but within 10 years4,935 4,454 
After 10 years50,702 39,391 
Total government-sponsored enterprise obligations55,637 43,845 
State and municipal obligations:
Within 1 year81,511 80,031 
After 1 but within 5 years431,208 397,795 
After 5 but within 10 years639,802 550,622 
After 10 years126,706 103,247 
Total state and municipal obligations1,279,227 1,131,695 
Mortgage and asset-backed securities:
  Agency mortgage-backed securities4,524,253 3,754,837 
  Non-agency mortgage-backed securities1,309,628 1,139,113 
  Asset-backed securities1,954,148 1,877,805 
Total mortgage and asset-backed securities7,788,029 6,771,755 
Other debt securities:
Within 1 year60,606 59,575 
After 1 but within 5 years193,035 181,078 
After 5 but within 10 years226,055 192,193 
After 10 years13,260 11,521 
Total other debt securities492,956 444,367 
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 $395.4$396.2 million, at fair value, at June 30, 2023.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 riskcredit ratings, credit support agreements, and industry knowledge to project future cash flows and any possible credit impairment.

At June 30, 2023,March 31, 2024, the fair value of securities on this watch list was $1.6$1.7 billion compared to $1.3$1.2 billion at December 31, 2022. The majority2023. Almost all of the securities included on the Company's watch list in the current quarter were experiencing unrealized loss positions due to the significant increase in interest rates and were analyzed outside of the cash flow model. At June 30, 2023,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 June 30, 2023,March 31, 2024, the Company did not identify any securities for which a credit loss exists, and for the sixthree months ended June 30,March 31, 2024 and 2023, and 2022, the Company did not recognize a credit loss expense on any available for sale debt securities.

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The table below summarizes debt securities available for sale in an unrealized loss position, aggregated by length of loss period, for which an allowance for credit losses has not been recorded at June 30, 2023March 31, 2024 and December 31, 2022.2023. Unrealized losses on these available for sale securities have not been recognized into income because after review, the securities were deemed not to be impaired. The unrealized losses on these securities are primarily attributable to changes in interest rates and current market conditions. At June 30, 2023,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 months12 months or longerTotal
Less than 12 monthsLess than 12 months12 months or longerTotal
(In thousands)
(In thousands)
   Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
(In thousands)
   Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
Fair ValueUnrealized
Losses
June 30, 2023
March 31, 2024
U.S. government and federal agency obligations
U.S. government and federal agency obligations
U.S. government and federal agency obligationsU.S. government and federal agency obligations$355,274 $15,192 $590,541 $23,977 $945,815 $39,169 
Government-sponsored enterprise obligationsGovernment-sponsored enterprise obligations  44,036 11,645 44,036 11,645 
State and municipal obligationsState and municipal obligations82,322 1,999 1,140,008 171,874 1,222,330 173,873 
Mortgage and asset-backed securities:Mortgage and asset-backed securities:
Agency mortgage-backed securities
Agency mortgage-backed securities
Agency mortgage-backed securities Agency mortgage-backed securities50,830 2,159 4,000,228 781,734 4,051,058 783,893 
Non-agency mortgage-backed securities Non-agency mortgage-backed securities1,106 9 1,168,007 203,789 1,169,113 203,798 
Asset-backed securities Asset-backed securities23,848 652 2,457,632 146,649 2,481,480 147,301 
Total mortgage and asset-backed securitiesTotal mortgage and asset-backed securities75,784 2,820 7,625,867 1,132,172 7,701,651 1,134,992 
Other debt securitiesOther debt securities874 126 456,292 59,588 457,166 59,714 
TotalTotal$514,254 $20,137 $9,856,744 $1,399,256 $10,370,998 $1,419,393 
December 31, 2022
December 31, 2023
U.S. government and federal agency obligations
U.S. government and federal agency obligations
U.S. government and federal agency obligationsU.S. government and federal agency obligations$605,840 $17,490 $380,573 $25,940 $986,413 $43,430 
Government-sponsored enterprise obligationsGovernment-sponsored enterprise obligations25,068 4,650 18,040 7,971 43,108 12,621 
State and municipal obligationsState and municipal obligations814,799 26,708 875,329 171,385 1,690,128 198,093 
Mortgage and asset-backed securities:Mortgage and asset-backed securities:
Agency mortgage-backed securities
Agency mortgage-backed securities
Agency mortgage-backed securities Agency mortgage-backed securities1,323,938 125,330 2,966,851 654,327 4,290,789 779,657 
Non-agency mortgage-backed securities Non-agency mortgage-backed securities135,984 16,736 1,069,222 195,218 1,205,206 211,954 
Asset-backed securities Asset-backed securities1,331,055 50,056 2,006,188 140,424 3,337,243 190,480 
Total mortgage and asset-backed securitiesTotal mortgage and asset-backed securities2,790,977 192,122 6,042,261 989,969 8,833,238 1,182,091 
Other debt securitiesOther debt securities166,040 9,690 308,818 54,707 474,858 64,397 
TotalTotal$4,402,724 $250,660 $7,625,021 $1,249,972 $12,027,745 $1,500,632 

The entire available for sale debt portfolio included $10.4$9.1 billion of securities that were in a loss position at June 30, 2023,March 31, 2024, compared to $12.0$9.6 billion at December 31, 2022.2023.  The total amount of unrealized loss on these securities was $1.4$1.2 billion at June 30, 2023, a decreaseMarch 31, 2024, an increase of $81.2$27.1 million compared to the unrealized loss at December 31, 2022.2023.  Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt securities" section above.

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For debt securities classified as available for sale, the following table shows the amortized cost, fair value, and allowance for credit losses of securities available for sale at June 30, 2023March 31, 2024 and December 31, 2022,2023, and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI, by security type.

(In thousands)
(In thousands)
Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair Value
(In thousands)
Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossesFair Value
June 30, 2023
March 31, 2024
U.S. government and federal agency obligations
U.S. government and federal agency obligations
U.S. government and federal agency obligationsU.S. government and federal agency obligations$984,984 $ $(39,169)$ $945,815 
Government-sponsored enterprise obligationsGovernment-sponsored enterprise obligations55,681  (11,645) 44,036 
State and municipal obligationsState and municipal obligations1,401,610  (173,873) 1,227,737 
Mortgage and asset-backed securities:Mortgage and asset-backed securities:
Agency mortgage-backed securities
Agency mortgage-backed securities
Agency mortgage-backed securities Agency mortgage-backed securities4,849,215 84 (783,893) 4,065,406 
Non-agency mortgage-backed securities Non-agency mortgage-backed securities1,378,516 72 (203,798) 1,174,790 
Asset-backed securities Asset-backed securities2,646,850 126 (147,301) 2,499,675 
Total mortgage and asset-backed securitiesTotal mortgage and asset-backed securities8,874,581 282 (1,134,992) 7,739,871 
Other debt securitiesOther debt securities516,880  (59,714) 457,166 
TotalTotal$11,833,736 $282 $(1,419,393)$ $10,414,625 
December 31, 2022
December 31, 2023
U.S. government and federal agency obligations
U.S. government and federal agency obligations
U.S. government and federal agency obligationsU.S. government and federal agency obligations$1,078,807 $29 $(43,430)$— $1,035,406 
Government-sponsored enterprise obligationsGovernment-sponsored enterprise obligations55,729 — (12,621)— 43,108 
State and municipal obligationsState and municipal obligations1,965,028 174 (198,093)— 1,767,109 
Mortgage and asset-backed securities:Mortgage and asset-backed securities:
Agency mortgage-backed securities
Agency mortgage-backed securities
Agency mortgage-backed securities Agency mortgage-backed securities5,087,893 191 (779,657)— 4,308,427 
Non-agency mortgage-backed securities Non-agency mortgage-backed securities1,423,469 92 (211,954)— 1,211,607 
Asset-backed securities Asset-backed securities3,588,025 256 (190,480)— 3,397,801 
Total mortgage and asset-backed securitiesTotal mortgage and asset-backed securities10,099,387 539 (1,182,091)— 8,917,835 
Other debt securitiesOther debt securities539,255 — (64,397)— 474,858 
TotalTotal$13,738,206 $742 $(1,500,632)$— $12,238,316 

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

For the Six Months Ended June 30
For the Three Months Ended March 31For the Three Months Ended March 31
(In thousands)(In thousands)20232022(In thousands)20242023
Proceeds from sales of securities:Proceeds from sales of securities:
Available for sale debt securitiesAvailable for sale debt securities$1,101,782 $51,948 
Available for sale debt securities
Available for sale debt securities
Other investments
Other investments
Other investmentsOther investments28,754 3,805 
Total proceedsTotal proceeds$1,130,536 $55,753 
Investment securities gains (losses), net:Investment securities gains (losses), net:
Investment securities gains (losses), net:
Investment securities gains (losses), net:
Available for sale debt securities:
Available for sale debt securities:
Available for sale debt securities:Available for sale debt securities:
Gains realized on sales$143 $— 
Losses realized on sales
Losses realized on sales
Losses realized on salesLosses realized on sales(8,587)(9,582)
Equity securities:Equity securities:
Equity securities:
Equity securities:
Fair value adjustments, net
Fair value adjustments, net
Fair value adjustments, net Fair value adjustments, net(690)(1,023)
Other:Other:
Gains realized on sales Gains realized on sales879 27 
Losses realized on sales (4,313)
Gains realized on sales
Gains realized on sales
Fair value adjustments, net
Fair value adjustments, net
Fair value adjustments, netFair value adjustments, net11,341 23,083 
Total investment securities gains (losses), netTotal investment securities gains (losses), net$3,086 $8,192 

Net losses on investment securities for the sixthree months ended June 30, 2023March 31, 2024 were mainly comprised of net losses of $8.4$8.5 million on sales of available for sale securities, andpartially offset by net lossesgains in fair value of $690$142 thousand on equity investments, offset bynet gains of $969 thousand on sales of private equity securities, and net gains in private equity securities due to sales and fair value adjustments of $879 thousand and $11.3 million, respectively.$7.1 million.

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At June 30, 2023,March 31, 2024, securities totaling $8.1$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 $4.7$7.5 billion at December 31, 2022. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $206.4 million, while the remaining securities were pledged under agreements pursuant to which the secured parties may not sell or re-pledge the collateral.2023. Except for obligations of the U.S. Treasury and various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in a single issuer exceeded 10% of stockholders’ equity.


4. Goodwill and Other Intangible Assets
The following table presents information about the Company's intangible assets which have estimable useful lives.

June 30, 2023December 31, 2022
March 31, 2024March 31, 2024December 31, 2023
(In thousands)
(In thousands)
Gross Carrying AmountAccumulated AmortizationValuation AllowanceNet AmountGross Carrying AmountAccumulated AmortizationValuation AllowanceNet Amount
(In thousands)
Gross Carrying AmountAccumulated AmortizationValuation AllowanceNet AmountGross Carrying AmountAccumulated AmortizationValuation AllowanceNet Amount
Amortizable intangible assets:Amortizable intangible assets:
Core deposit premiumCore deposit premium$5,550 $(4,977)$ $573 $31,270 $(30,565)$— $705 
Core deposit premium
Core deposit premium
Mortgage servicing rightsMortgage servicing rights22,328 (11,835) 10,493 22,187 (11,258)— 10,929 
TotalTotal$27,878 $(16,812)$ $11,066 $53,457 $(41,823)$— $11,634 

Aggregate amortization expense on intangible assets was $353$331 thousand and $501$356 thousand for the three month periods ended June 30,March 31, 2024 and 2023, and 2022, respectively, and $709 thousand and $1.1 million for the six month periods ended June 30, 2023 and 2022, respectively. The following table shows the estimated annual amortization expense for the next five fiscal years. This expense is based on existing asset balances and the interest rate environment as of June 30, 2023.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) (In thousands)
2023$1,388 
2024
2024
202420241,276 
202520251,130 
20262026988 
20272027851 
2028

During the first quarter of 2023, the Company wrote off $25.7 million of core deposit intangible assets that were fully amortized. During the second quarter of 2023, the Company acquired L.J. Hart & Company, a municipal bond underwriter and advisor, and the acquisition resulted in goodwill of $7.5 million. Changes in the carrying amount of goodwill and other intangible assets for the sixthree month period ended June 30, 2023March 31, 2024 are as follows:

(In thousands)(In thousands)GoodwillEasementCore Deposit PremiumMortgage Servicing Rights(In thousands)GoodwillEasementCore Deposit PremiumMortgage Servicing Rights
Balance January 1, 2023$138,921 $3,600 $705 $10,929 
Acquisition7,450 — — — 
Balance January 1, 2024
Originations, net of disposals
Originations, net of disposals
Originations, net of disposalsOriginations, net of disposals— — — 141 
AmortizationAmortization— — (132)(577)
Balance June 30, 2023$146,371 $3,600 $573 $10,493 
Balance March 31, 2024
Balance March 31, 2024
Balance March 31, 2024

Goodwill allocated to the Company’s operating segments at June 30, 2023March 31, 2024 and December 31, 20222023 is shown below.

(In thousands)(In thousands)June 30, 2023December 31, 2022(In thousands)March 31, 2024December 31, 2023
Consumer segmentConsumer segment$70,721 $70,721 
Commercial segmentCommercial segment74,904 67,454 
Wealth segmentWealth segment746 746 
Total goodwillTotal goodwill$146,371 $138,921 

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5. Guarantees
The Company, as a provider of financial services, routinely issues financial guarantees in the form of financial and performance standby letters of credit. Standby letters of credit are contingent commitments issued by the Company generally to guarantee the payment or performance obligation of a customer to a third party. While these represent a potential outlay by the Company, a significant amount of the commitments may expire without being drawn upon. The Company has recourse against the customer for any amount it is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards and approval process as loans made by the Company. Most of the standby letters of credit are secured, and in the event of nonperformance by customers, the Company has rights to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash and marketable securities.

Upon issuance of standby letters of credit, the Company recognizes a liability for the fair value of the obligation undertaken, which is estimated to be equivalent to the amount of fees received from the customer over the life of the agreement. At June 30, 2023,March 31, 2024, that net liability was $4.2$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 $601.2$634.5 million at June 30, 2023.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 June 30, 2023,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 June 30, 2023,March 31, 2024, the fair value of the Company's guarantee liabilities for RPAs was $88$106 thousand, and the notional amount of the underlying swaps was $411.6$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 1 month3 months to 15 years.

The following table provides the components of lease income.

For the Three Months Ended June 30For the Six Months Ended June 30
For the Three Months Ended March 31
For the Three Months Ended March 31
For the Three Months Ended March 31
(in thousands)
(in thousands)
(in thousands)(in thousands)2023202220232022
Direct financing and sales-type leasesDirect financing and sales-type leases$7,541 $5,114 $14,296 $10,361 
Direct financing and sales-type leases
Direct financing and sales-type leases
Operating leases(a)
Operating leases(a)
Operating leases(a)
Operating leases(a)
3,483 2,158 5,816 4,342 
Total lease incomeTotal lease income$11,024 $7,272 $20,112 $14,703 
Total lease income
Total lease income
(a) Includes rent from Tower Properties Company, a related party, of $19 thousand for both of the three month periods ended June 30, 2023March 31, 2024 and 2022 and $38 thousand for both the six month periods ended June 30, 2023 and 2022.2023.


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

For the Three Months Ended June 30For the Six Months Ended June 30
For the Three Months Ended March 31
For the Three Months Ended March 31
For the Three Months Ended March 31
(In thousands)
(In thousands)
(In thousands)(In thousands)2023202220232022
Service costService cost$116 $131 $232 $263 
Service cost
Service cost
Interest cost on projected benefit obligation
Interest cost on projected benefit obligation
Interest cost on projected benefit obligationInterest cost on projected benefit obligation1,157 665 2,315 1,330 
Expected return on plan assetsExpected return on plan assets(1,001)(1,125)(2,002)(2,251)
Expected return on plan assets
Expected return on plan assets
Amortization of prior service cost
Amortization of prior service cost
Amortization of prior service costAmortization of prior service cost(68)(67)(135)(135)
Amortization of unrecognized net lossAmortization of unrecognized net loss427 497 854 995 
Amortization of unrecognized net loss
Amortization of unrecognized net loss
Net periodic pension costNet periodic pension cost$631 $101 $1,264 $202 
Net periodic pension cost
Net periodic pension cost

All benefits accrued under the Company’s defined benefit pension plan have been frozen since January 1, 2011. During the first sixthree months of 2023,2024, the Company made no funding contributions to its defined benefit pension plan and made minimal funding contributions to a supplemental executive retirement plan (the CERP), which carries no segregated assets.


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8. Common Stock *
Presented below is a summary of the components used to calculate basic and diluted income per share. The Company applies the two-class method of computing income per share, as nonvested share-based awards that pay nonforfeitable common stock dividends are considered securities which participate in undistributed earnings with common stock. The two-class method requires the calculation of separate income per share amounts for the nonvested share-based awards and for common stock. Income per share attributable to common stock is shown in the table below. Nonvested share-based awards are further discussed in Note 13.

For the Three Months Ended June 30For the Six Months Ended June 30
For the Three Months Ended March 31
For the Three Months Ended March 31
For the Three Months Ended March 31
(In thousands, except per share data)(In thousands, except per share data)2023202220232022(In thousands, except per share data)20242023
Basic income per common share:Basic income per common share:
Net income attributable to Commerce Bancshares, Inc.
Net income attributable to Commerce Bancshares, Inc.
Net income attributable to Commerce Bancshares, Inc.Net income attributable to Commerce Bancshares, Inc.$127,789 $115,794 $247,241 $233,948 
Less income allocated to nonvested restricted stockLess income allocated to nonvested restricted stock1,128 1,052 2,184 2,122 
Net income allocated to common stock Net income allocated to common stock$126,661 $114,742 $245,057 $231,826 
Weighted average common shares outstandingWeighted average common shares outstanding123,885 125,637 123,944 125,987 
Basic income per common share Basic income per common share$1.03 $.92 $1.98 $1.84 
Diluted income per common share:Diluted income per common share:
Net income attributable to Commerce Bancshares, Inc.Net income attributable to Commerce Bancshares, Inc.$127,789 $115,794 $247,241 $233,948 
Net income attributable to Commerce Bancshares, Inc.
Net income attributable to Commerce Bancshares, Inc.
Less income allocated to nonvested restricted stockLess income allocated to nonvested restricted stock1,128 1,050 2,182 2,118 
Net income allocated to common stock Net income allocated to common stock$126,661 $114,744 $245,059 $231,830 
Weighted average common shares outstandingWeighted average common shares outstanding123,885 125,637 123,944 125,987 
Net effect of the assumed exercise of stock-based awards - based on the treasury stock method using the average market price for the respective periodsNet effect of the assumed exercise of stock-based awards - based on the treasury stock method using the average market price for the respective periods122 279 188 293 
Net effect of the assumed exercise of stock-based awards - based on the treasury stock method using the average market price for the respective periods
Net effect of the assumed exercise of stock-based awards - based on the treasury stock method using the average market price for the respective periods
Weighted average diluted common shares outstanding Weighted average diluted common shares outstanding124,007 125,916 124,132 126,280 
Diluted income per common share Diluted income per common share$1.02 $.92 $1.97 $1.84 

Unexercised stock appreciation rights of 427353 thousand and 177226 thousand for the three month periods ended June 30,March 31, 2024 and 2023, and 2022, respectively, and 264 thousand and 151 thousand for the six month periods ended June 30, 2023 and 2022, respectively, were excluded from the computation of diluted income per common share because their inclusion would have been anti-dilutive.

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

* All prior year share and per share amounts in this note have been restated for the 5% common stock dividend distributed in December 2022.2023.

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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)
Unrealized Gains (Losses) on Securities (1)
Unrealized Gains (Losses) on Securities (1)Pension LossUnrealized Gains (Losses) on Cash Flow Hedge Derivatives (2)Total Accumulated Other Comprehensive Income (Loss)
(In thousands)
Balance January 1, 2024
Balance January 1, 2024
Balance January 1, 2024
Unrealized Gains (Losses) on Securities (1)Pension LossUnrealized Gains (Losses) on Cash Flow Hedge Derivatives (2)Total Accumulated Other Comprehensive Income (Loss)
(In thousands)
Other comprehensive income (loss) before reclassifications to current earnings
Pension LossUnrealized Gains (Losses) on Cash Flow Hedge Derivatives (2)Total Accumulated Other Comprehensive Income (Loss)
Balance January 1, 2023$(1,124,915)
Other comprehensive income (loss) before reclassifications to current earnings
Other comprehensive income (loss) before reclassifications to current earningsOther comprehensive income (loss) before reclassifications to current earnings72,335  (5,523)66,812 
Amounts reclassified to current earnings from accumulated other comprehensive incomeAmounts reclassified to current earnings from accumulated other comprehensive income8,444 719 (8,549)614 
Current period other comprehensive income (loss), before tax Current period other comprehensive income (loss), before tax80,779 719 (14,072)67,426 
Income tax (expense) benefitIncome tax (expense) benefit(20,195)(180)3,518 (16,857)
Current period other comprehensive income (loss), net of tax Current period other comprehensive income (loss), net of tax60,584 539 (10,554)50,569 
Balance June 30, 2023$(1,064,331)$(16,647)$44,683 $(1,036,295)
Balance January 1, 2022$23,174 $(20,668)$74,574 $77,080 
Balance March 31, 2024
Balance March 31, 2024
Balance March 31, 2024
Balance January 1, 2023
Other comprehensive income (loss) before reclassifications to current earnings
Other comprehensive income (loss) before reclassifications to current earnings
Other comprehensive income (loss) before reclassifications to current earningsOther comprehensive income (loss) before reclassifications to current earnings(1,123,536)— — (1,123,536)
Amounts reclassified to current earnings from accumulated other comprehensive incomeAmounts reclassified to current earnings from accumulated other comprehensive income9,582 860 (12,204)(1,762)
Current period other comprehensive income (loss), before tax Current period other comprehensive income (loss), before tax(1,113,954)860 (12,204)(1,125,298)
Income tax (expense) benefitIncome tax (expense) benefit278,488 (215)3,051 281,324 
Current period other comprehensive income (loss), net of tax Current period other comprehensive income (loss), net of tax(835,466)645 (9,153)(843,974)
Balance June 30, 2022$(812,292)$(20,023)$65,421 $(766,894)
Balance March 31, 2023
Balance March 31, 2023
Balance March 31, 2023
(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 145140 locations.  This segment also includes indirect and other consumer loan financing businesses, along with debit and credit card loan and fee businesses.  In order to reflect a change in the Company's management of its portfolio of residential mortgage loans that it retains, the Company began including those loans in the Consumer segment on January 1, 2023. These loans had previously been included in the Other/Elimination column. As a result of this change, approximately $1.9 billion of loans were reclassified from the Other/Elimination column into the Consumer segment, and prior periods presented below were restated to also reflect this change.

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

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

(In thousands)
ConsumerCommercialWealthSegment TotalsOther/EliminationConsolidated Totals
Three Months Ended June 30, 2023

(In thousands)

(In thousands)
ConsumerCommercialWealthOther/EliminationConsolidated Totals
Three Months Ended March 31, 2024
Net interest income
Net interest income
Net interest incomeNet interest income$101,552 $116,462 $17,024 $235,038 $14,500 $249,538 
Provision for credit lossesProvision for credit losses(6,430)(90) (6,520)49 (6,471)
Non-interest incomeNon-interest income25,531 64,769 54,513 144,813 2,792 147,605 
Investment securities gains (losses), netInvestment securities gains (losses), net    3,392 3,392 
Non-interest expenseNon-interest expense(83,431)(98,427)(40,472)(222,330)(5,281)(227,611)
Income before income taxesIncome before income taxes$37,222 $82,714 $31,065 $151,001 $15,452 $166,453 
Six Months Ended June 30, 2023
Three Months Ended March 31, 2023
Three Months Ended March 31, 2023
Three Months Ended March 31, 2023
Net interest incomeNet interest income$198,406 $232,628 $34,564 $465,598 $35,563 $501,161 
Provision for credit losses(12,736)(483)(13)(13,232)(4,695)(17,927)
Non-interest income49,834 123,093 107,457 280,384 4,833 285,217 
Investment securities gains (losses), net    3,086 3,086 
Non-interest expense(160,757)(192,050)(80,108)(432,915)(18,803)(451,718)
Income before income taxes$74,747 $163,188 $61,900 $299,835 $19,984 $319,819 
Three Months Ended June 30, 2022
Net interest income
Net interest incomeNet interest income$90,561 $110,182 $19,222 $219,965 $12,420 $232,385 
Provision for loan lossesProvision for loan losses(3,910)(63)23 (3,950)(3,212)(7,162)
Non-interest incomeNon-interest income28,340 56,815 53,983 139,138 289 139,427 
Investment securities gains (losses), netInvestment securities gains (losses), net— — — — 1,029 1,029 
Non-interest expenseNon-interest expense(77,629)(91,316)(36,491)(205,436)(8,069)(213,505)
Income before income taxesIncome before income taxes$37,362 $75,618 $36,737 $149,717 $2,457 $152,174 
Six Months Ended June 30, 2022
Net interest income$177,379 $219,135 $38,091 $434,605 $6,566 $441,171 
Provision for credit losses(8,413)(145)(3)(8,561)11,257 2,696 
Non-interest income54,755 110,466 107,189 272,410 (1,214)271,196 
Investment securities gains (losses), net— — — — 8,192 8,192 
Non-interest expense(152,453)(180,822)(72,779)(406,054)(13,099)(419,153)
Income before income taxes$71,268 $148,634 $72,498 $292,400 $11,702 $304,102 

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

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

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

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11. Derivative Instruments
The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. 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)

(In thousands)
June 30, 2023December 31, 2022

(In thousands)
March 31, 2024December 31, 2023
Interest rate swapsInterest rate swaps$2,161,392 $1,981,821 
Interest rate floorsInterest rate floors1,500,000 1,000,000 
Interest rate capsInterest rate caps152,784 152,784 
Credit risk participation agreementsCredit risk participation agreements580,358 579,925 
Foreign exchange contractsForeign exchange contracts14,590 27,991 
Mortgage loan commitments Mortgage loan commitments3,268 — 
Mortgage loan forward sale contracts
Forward TBA contractsForward TBA contracts4,000 — 
Total notional amountTotal notional amount$4,416,392 $3,742,521 

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

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

As of June 30, 2023,March 31, 2024, the Company holds threeheld four interest rate floors with a combined notional value of $1.5 billionindexed to 1-month SOFR to hedge the risk of declining interest rates on certain floating rate commercial loans. The first floor was purchased duringfloors have a combined notional value of $2.0 billion and are forward-starting. Each of the third quarter of 2022,four interest rate floors has a purchased strike ratesix-year term and a notional amount of 2.50%, is forward-starting beginning on January 1, 2024 and matures on January 1, 2030.$500.0 million. In the event that the index rate falls below zero, the maximum rate spreadthat the Company can earn on the notional amount of each floor is limited to 2.50%. The second floor was purchased during the fourth quarter of 2022, has a purchased strike rate of 3.00%,rate. Information about the floors is forward-starting beginning on April 1, 2024 and matures on April 1, 2030. Inprovided in the event that the index rate falls below zero, the maximum rate the Company can earn on the notional amount is limited to 3.00%. The third floor was purchased during the first quarter of 2023, has a purchased strike rate of 3.50%, is forward-starting beginning on July 1, 2024 and matures on July 1, 2030. In the event that the index rate falls below zero, the maximum rate the Company can earn on the notional amount is limited to 3.50%. table below.

Strike RateEffective DateMaturity Date
3.50 %July 1, 2024July 1, 2030
3.25 %November 1, 2024November 1, 2030
3.00 %March 1, 2025March 1, 2031
2.75 %July 1, 2025July 1, 2031

The premium paid for thesethe floors totaled $61.7$90.2 million. As of June 30, 2023, theThe maximum length of time over which the Company is hedging its exposure to lower rates is approximately 6.57 years. These interest rate floors qualified and were designated as cash flow hedges and were assessed for effectiveness using regression analysis. The change in the fair value of these interest rate floors is recorded in AOCI, net of the amortization of the premiums paid, which are recorded against interest and fees on loans in the consolidated statements of income. As of June 30, 2023,March 31, 2024, net deferred losses on the interest rate floors totaled $8.0$21.9 million (pre-tax) and were recorded in AOCI in the consolidated balance sheet. As of June 30, 2023,March 31, 2024, it is expected that $7.4$10.7 million (pre-tax) interest rate floor premium amortization will be reclassified from AOCI into earnings over the next 12 months.months for the outstanding interest rate floors.

During the year ended December 31, 2020, the Company monetized three interest rate floors that were previously classified as cash flow hedges with a combined notional balance of $1.5 billion and an asset fair value of $163.2 million. As of June 30, 2023,March 31,
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2024, the total realized gains on the monetized cash flow hedges remaining in AOCI was $63.1$45.7 million (pre-tax), which will be reclassified into interest income over the next 3.52.7 years. The estimated amount of net gains related to the cash flow hedges remaining in AOCI at June 30, 2023March 31, 2024 that is expected to be reclassified into income within the next 12 months is $23.0$21.7 million.

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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. In late 2022, the Company temporarily paused sales of these loans and halted entering into the forward contracts, as lower demand for mortgage loans coupled with volatility in the TBA market made it difficult to effectively hedge the Company's mortgage loan production. The Company resumed sales during the first quarter of 2023.

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

The Company's policy is to present its derivative assets and derivative liabilities on a gross basis inon its consolidated balance sheets, and these are reported in other assets and other liabilities. CertainIn prior years, certain collateral posted to and from the Company's clearing counterparty has been applied to the fair values of the cleared swaps, such that at June 30, 2023 in the table below, theswap. There was no reduction to positive or negative fair values of cleared swaps were reduced by $878 thousand. Atat March 31, 2024 and December 31, 2022, positive fair values of cleared swaps were reduced by $27.8 million.2023.

Asset DerivativesLiability Derivatives Asset DerivativesLiability Derivatives
June 30, 2023Dec. 31, 2022June 30, 2023Dec. 31, 2022
Mar. 31, 2024Mar. 31, 2024Dec. 31, 2023Mar. 31, 2024Dec. 31, 2023
(In thousands)
(In thousands)
  Fair Value  Fair Value
(In thousands)
  Fair Value  Fair Value
Derivatives designated as hedging instruments:Derivatives designated as hedging instruments:
Interest rate floors Interest rate floors$53,748 $33,371 $ $— 
Interest rate floors
Interest rate floors
Total derivatives designated as hedging instrumentsTotal derivatives designated as hedging instruments$53,748 $33,371 $ $— 
Derivative instruments not designated as hedging instruments:Derivative instruments not designated as hedging instruments:
Interest rate swaps
Interest rate swaps
Interest rate swaps Interest rate swaps$48,492 $23,894 $(49,370)$(51,742)
Interest rate caps Interest rate caps2,182 2,705 (2,182)(2,705)
Credit risk participation agreements Credit risk participation agreements35 34 (88)(119)
Foreign exchange contracts Foreign exchange contracts399 488 (358)(418)
Mortgage loan commitments Mortgage loan commitments58 —  — 
Mortgage loan forward sale contracts
Forward TBA contracts Forward TBA contracts22 —  — 
Total derivatives not designated as hedging instrumentsTotal derivatives not designated as hedging instruments$51,188 $27,121 $(51,998)$(54,984)
TotalTotal$104,936 $60,492 $(51,998)$(54,984)
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The Company made an election to exclude the initial premiums paid on the interest rate floors from the hedge effectiveness measurement. Those initial premiums are amortized over the periods between the premium payment month and the contract maturity month. The pre-tax effects of the gains and losses (both the included and excluded amounts for hedge effectiveness assessment) recognized in the other comprehensive income from the cash flow hedging instruments and the amounts reclassified from accumulated other comprehensive income into income (both included and excluded amounts for hedge effectiveness measurement) are shown in the table below.





Amount of Gain or (Loss) Recognized in OCILocation of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income

Amount of Gain or (Loss) Recognized in OCILocation of Gain (Loss) Reclassified from AOCI into IncomeAmount of Gain (Loss) Reclassified from AOCI into Income
(In thousands)(In thousands)TotalIncluded ComponentExcluded ComponentTotalIncluded ComponentExcluded Component
For the Three Months Ended June 30, 2023
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)
(In thousands)TotalIncluded ComponentExcluded ComponentTotalIncluded ComponentExcluded Component
For the Three Months Ended March 31, 2024For the Three Months Ended March 31, 2024
Derivatives in cash flow hedging relationships:Derivatives in cash flow hedging relationships:Derivatives in cash flow hedging relationships:
Interest rate floorsInterest rate floors$(14,748)$ $(14,748)Interest and fees on loans$4,165 $7,455 $(3,290)
TotalTotal$(14,748)$ $(14,748)Total$4,165 $7,455 $(3,290)
For the Six Months Ended June 30, 2023
For the Three Months Ended March 31, 2023
For the Three Months Ended March 31, 2023
For the Three Months Ended March 31, 2023
Derivatives in cash flow hedging relationships:Derivatives in cash flow hedging relationships:Derivatives in cash flow hedging relationships:
Interest rate floorsInterest rate floors$(5,523)$ $(5,523)Interest and fees on loans$8,550 $14,899 $(6,349)
TotalTotal$(5,523)$ $(5,523)Total$8,550 $14,899 $(6,349)
For the Three Months Ended June 30, 2022Derivatives in cash flow hedging relationships:
Interest rate floors$— $— $— Interest and fees on loans$6,154 $7,687 $(1,533)
Total$— $— $— Total$6,154 $7,687 $(1,533)
For the Six Months Ended June 30, 2022Derivatives in cash flow hedging relationships:
Interest rate floors$— $— $— Interest and fees on loans$12,204 $15,253 $(3,049)
Total$— $— $— Total$12,204 $15,253 $(3,049)

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 IncomeAmount of Gain or (Loss) Recognized in Income on DerivativesLocation of Gain or (Loss) Recognized in Consolidated Statements of IncomeAmount of Gain or (Loss) Recognized in Income on Derivatives


For the Three Months Ended June 30For the Six Months Ended June 30
For the Three Months Ended March 31
(In thousands)(In thousands)2023202220232022(In thousands)20242023
Derivative instruments:Derivative instruments:
Derivative instruments:
Derivative instruments:
Interest rate swaps Interest rate swapsOther non-interest income$1,873 $870 $2,496 $1,682 
Interest rate capsOther non-interest income —  16 
Interest rate swaps
Interest rate swaps
Credit risk participation agreements
Credit risk participation agreements
Credit risk participation agreements Credit risk participation agreementsOther non-interest income3 (82)(16)(92)
Foreign exchange contracts Foreign exchange contractsOther non-interest income(9)14 (29)— 
Mortgage loan commitments Mortgage loan commitmentsLoan fees and sales(19)(49)58 (534)
Mortgage loan forward sale contracts Mortgage loan forward sale contractsLoan fees and sales1 (4) (4)
Forward TBA contracts Forward TBA contractsLoan fees and sales49 423 50 1,666 
TotalTotal$1,898 $1,172 $2,559 $2,734 

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

While the Company is party to master netting arrangements with most of its swap derivative counterparties, the Company does not offset derivative assets and liabilities under these agreements on its consolidated balance sheets. Collateral exchanged between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually consists of marketable securities. By contract, these may be sold or re-pledged by the secured party until recalled at a 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
Gross Amounts Not Offset in the Balance Sheet
(In thousands)(In thousands)Gross Amount RecognizedGross Amounts Offset in the Balance SheetNet Amounts Presented in the Balance SheetFinancial Instruments Available for OffsetCollateral
Received/
Pledged
Net Amount
June 30, 2023
(In thousands)
(In thousands)Gross Amount RecognizedGross Amounts Offset in the Balance SheetNet Amounts Presented in the Balance SheetFinancial Instruments Available for OffsetCollateral
Received/
Pledged
Net Amount
March 31, 2024
Assets:Assets:
Assets:
Assets:
Derivatives subject to master netting agreements
Derivatives subject to master netting agreements
Derivatives subject to master netting agreementsDerivatives subject to master netting agreements$104,855 $ $104,855 $(746)$(100,290)$3,819 
Derivatives not subject to master netting agreementsDerivatives not subject to master netting agreements81  81 
Total derivativesTotal derivatives$104,936 $ $104,936 
Total derivatives
Total derivatives
Liabilities:Liabilities:
Liabilities:
Liabilities:
Derivatives subject to master netting agreements
Derivatives subject to master netting agreements
Derivatives subject to master netting agreementsDerivatives subject to master netting agreements$51,584 $ $51,584 $(746)$ $50,838 
Derivatives not subject to master netting agreementsDerivatives not subject to master netting agreements414  414 
Total derivativesTotal derivatives$51,998 $ $51,998 
December 31, 2022
Total derivatives
Total derivatives
December 31, 2023
December 31, 2023
December 31, 2023
Assets:Assets:
Assets:
Assets:
Derivatives subject to master netting agreements
Derivatives subject to master netting agreements
Derivatives subject to master netting agreementsDerivatives subject to master netting agreements$60,270 $— $60,270 $(1,007)$(56,816)$2,447 
Derivatives not subject to master netting agreementsDerivatives not subject to master netting agreements222 — 222 
Total derivativesTotal derivatives$60,492 $— $60,492 
Total derivatives
Total derivatives
Liabilities:Liabilities:
Liabilities:
Liabilities:
Derivatives subject to master netting agreements
Derivatives subject to master netting agreements
Derivatives subject to master netting agreementsDerivatives subject to master netting agreements$54,609 $— $54,609 $(1,007)$— $53,602 
Derivatives not subject to master netting agreementsDerivatives not subject to master netting agreements375 — 375 
Total derivativesTotal derivatives$54,984 $— $54,984 
Total derivatives
Total derivatives

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

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The Company is party to agreements commonly known as collateral swaps. These agreements involve the exchange of collateral under simultaneous repurchase and resale agreements with the same financial institution counterparty. These repurchase and resale agreements have the same principal amounts, inception dates, and maturity dates and have been offset against each other in the consolidated balance sheets, as permitted under the netting provisions of ASC 210-20-45. The collateral swaps totaled $200.0 million at June 30, 2023 and December 31, 2022. At June 30, 2023, the Company had posted collateral of $206.2 million in marketable securities, consisting of agency mortgage-backed bonds, and had accepted $209.7 million in agency mortgage-backed bonds.

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

Gross Amounts Not Offset in the Balance Sheet
Gross Amounts Not Offset in the Balance Sheet
(In thousands)(In thousands)Gross Amount RecognizedGross Amounts Offset in the Balance SheetNet Amounts Presented in the Balance SheetFinancial Instruments Available for OffsetSecurities Collateral Received/PledgedUnsecured Amount
June 30, 2023
(In thousands)
(In thousands)Gross Amount RecognizedGross Amounts Offset in the Balance SheetNet Amounts Presented in the Balance SheetFinancial Instruments Available for OffsetSecurities Collateral Received/PledgedUnsecured Amount
March 31, 2024
Total resale agreements, subject to master netting arrangements
Total resale agreements, subject to master netting arrangements
Total resale agreements, subject to master netting arrangementsTotal resale agreements, subject to master netting arrangements$1,025,000 $(200,000)$825,000 $ $(825,000)$ 
Total repurchase agreements, subject to master netting arrangementsTotal repurchase agreements, subject to master netting arrangements2,566,621 (200,000)2,366,621  (2,366,621) 
December 31, 2022
December 31, 2023
Total resale agreements, subject to master netting arrangements
Total resale agreements, subject to master netting arrangements
Total resale agreements, subject to master netting arrangementsTotal resale agreements, subject to master netting arrangements$1,025,000 $(200,000)$825,000 $— $(825,000)$— 
Total repurchase agreements, subject to master netting arrangementsTotal repurchase agreements, subject to master netting arrangements2,881,874 (200,000)2,681,874 — (2,681,874)— 
The table below shows the remaining contractual maturities of repurchase agreements outstanding at June 30, 2023March 31, 2024 and December 31, 2022,2023, 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
Remaining Contractual Maturity of the Agreements
(In thousands)(In thousands)Overnight and continuousUp to 90 daysGreater than 90 daysTotal
June 30, 2023
(In thousands)
(In thousands)Overnight and continuousUp to 90 daysGreater than 90 daysTotal
March 31, 2024
Repurchase agreements, secured by:
Repurchase agreements, secured by:
Repurchase agreements, secured by:Repurchase agreements, secured by:
U.S. government and federal agency obligations U.S. government and federal agency obligations$183,261 $26,168 $15,598 $225,027 
U.S. government and federal agency obligations
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
Agency mortgage-backed securities
Agency mortgage-backed securities
Agency mortgage-backed securities Agency mortgage-backed securities1,574,674 3,826 212,204 1,790,704 
Non-agency mortgage-backed securities Non-agency mortgage-backed securities11,348   11,348 
Asset-backed securities Asset-backed securities537,606   537,606 
Other debt securities Other debt securities1,936   1,936 
Total repurchase agreements, gross amount recognized Total repurchase agreements, gross amount recognized$2,308,825 $29,994 $227,802 $2,566,621 
December 31, 2022
December 31, 2023
Repurchase agreements, secured by:
Repurchase agreements, secured by:
Repurchase agreements, secured by:Repurchase agreements, secured by:
U.S. government and federal agency obligations U.S. government and federal agency obligations$488,053 $26,928 $12,460 $527,441 
U.S. government and federal agency obligations
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
Agency mortgage-backed securities
Agency mortgage-backed securities
Agency mortgage-backed securities Agency mortgage-backed securities1,792,314 21,744 204,500 2,018,558 
Non-agency mortgage-backed securities Non-agency mortgage-backed securities40,950 — — 40,950 
Asset-backed securities Asset-backed securities293,001 — — 293,001 
Other debt securities Other debt securities1,924 — — 1,924 
Total repurchase agreements, gross amount recognized Total repurchase agreements, gross amount recognized$2,616,242 $48,672 $216,960 $2,881,874 


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13. Stock-Based Compensation
The Company issues stock-based compensation in the form of nonvested restricted stock and stock appreciation rights (SARs). Historically, most of the awards have been issued during the first quarter of each year. The stock-based compensation expense charged against income was $3.9$4.3 million and $4.2$4.4 million in the three months ended June 30,March 31, 2024 and 2023 and 2022 respectively, and $8.3 million and $8.4 million in the six months ended June 30, 2023 and 2022, respectively.

Nonvested stock awards granted generally vest in 4 to 7 years and contain restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant. A summary of the status of the Company’s nonvested share awards as of June 30, 2023,March 31, 2024, and changes during the sixthree month period then ended, is presented below.



Shares Weighted Average Grant Date Fair Value

Shares Weighted Average Grant Date Fair Value
Nonvested at January 1, 20231,148,873 $58.20
Nonvested at January 1, 2024Nonvested at January 1, 20241,166,335 $58.48
GrantedGranted285,263 63.45Granted314,602 51.9951.99
VestedVested(304,068)50.59Vested(235,194)52.3952.39
ForfeitedForfeited(20,526)60.58Forfeited(11,342)58.6958.69
Nonvested at June 30, 20231,109,542 $61.59
Nonvested at March 31, 2024
Nonvested at March 31, 2024
Nonvested at March 31, 20241,234,401 $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$18.6514.88 
Assumptions:
Dividend yield1.62.1 %
Volatility27.929.3 %
Risk-free interest rate3.94.2 %
Expected term5.86.0 years

A summary of SAR activity during the first sixthree months of 20232024 is presented below.

(Dollars in thousands, except per share data)
(Dollars in thousands, except per share data)
RightsWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
(Dollars in thousands, except per share data)
RightsWeighted Average Exercise PriceWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding at January 1, 2023948,727 $46.82 
Outstanding at January 1, 2024
Granted
Granted
GrantedGranted89,829 65.64 
ForfeitedForfeited(4,011)63.35 
Forfeited
Forfeited
Expired
Expired
ExpiredExpired(5,518)51.82 
ExercisedExercised(45,006)26.08 
Outstanding at June 30, 2023984,021 $49.39 5.3 years$4,857 
Exercised
Exercised
Outstanding at March 31, 2024
Outstanding at March 31, 2024
Outstanding at March 31, 2024


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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 sixthree months ended June 30, 2023,March 31, 2024, approximately 64%63% of the Company’s total revenue was comprised of net interest income, which is not within the scope of this guidance. Of the remaining revenue, those items that were subject to this guidance mainly included fees for bank card, trust, deposit account services and consumer brokerage services.

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

Three Months Ended June 30Six Months Ended June 30
Three Months Ended March 31
Three Months Ended March 31
Three Months Ended March 31
(In thousands)
(In thousands)
(In thousands)(In thousands)2023202220232022
Bank card transaction feesBank card transaction fees$49,725 $43,873 $96,379 $85,918 
Bank card transaction fees
Bank card transaction fees
Trust fees
Trust fees
Trust feesTrust fees47,265 46,792 92,593 94,603 
Deposit account charges and other feesDeposit account charges and other fees22,633 25,564 44,385 47,871 
Deposit account charges and other fees
Deposit account charges and other fees
Consumer brokerage services
Consumer brokerage services
Consumer brokerage servicesConsumer brokerage services4,677 5,068 9,762 9,514 
Other non-interest incomeOther non-interest income9,486 10,750 17,825 15,245 
Other non-interest income
Other non-interest income
Total non-interest income from contracts with customers
Total non-interest income from contracts with customers
Total non-interest income from contracts with customersTotal non-interest income from contracts with customers133,786 132,047 260,944 253,151 
Other non-interest income (1)
Other non-interest income (1)
13,819 7,380 24,273 18,045 
Other non-interest income (1)
Other non-interest income (1)
Total non-interest incomeTotal non-interest income$147,605 $139,427 $285,217 $271,196 
Total non-interest income
Total non-interest income
(1) This revenue is not within the scope of ASC 606, and includes fees relating to capital marketbond 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 contributecontributed approximately 33%31% and 67%69%, respectively, of the Company's deposit account charge revenue. All trust fees and nearly all consumer brokerage services income arewere earned in the Wealth segment.    

The following table presents the opening and closing receivable balances for the sixthree month periods ended June 30,March 31, 2024 and 2023 and 2022 for the Company’s significant revenue from contracts with customers.

(In thousands)(In thousands)June 30, 2023December 31, 2022June 30, 2022December 31, 2021(In thousands)March 31, 2024December 31, 2023March 31, 2023December 31, 2022
Bank card transaction feesBank card transaction fees$16,321 $17,254 $14,598 $16,424 
Trust feesTrust fees1,984 2,038 1,975 2,222 
Deposit account charges and other feesDeposit account charges and other fees6,488 6,631 6,898 6,702 
Consumer brokerage servicesConsumer brokerage services637 949 678 391 

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


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15. Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain financial and nonfinancial assets and liabilities and to determine fair value disclosures. Various financial instruments such as available for sale debt securities, equity securities, trading debt securities, certain investments relating to private equity activities, and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets and liabilities on a nonrecurring basis, such as mortgage servicing rights and certain other investment securities. These nonrecurring fair value adjustments typically involve lower of cost or fair value accounting or write-downs of individual assets.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds).
Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider.
The valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis are described in the Fair Value Measurements note in the Company's 20222023 Annual Report on Form 10-K. There have been no significant changes in these methodologies since then.

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Instruments Measured at Fair Value on a Recurring Basis
The table below presents the June 30, 2023March 31, 2024 and December 31, 20222023 carrying values of assets and liabilities measured at fair value on a recurring basis. There were no transfers among levels during the first sixthree months of 20232024 or the year ended December 31, 2022.2023.

Fair Value Measurements Using
Fair Value Measurements UsingFair Value Measurements Using
(In thousands)(In thousands)Total Fair ValueQuoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
(In thousands)Total Fair ValueQuoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
June 30, 2023
March 31, 2024
Assets:
Assets:
Assets:Assets:
Residential mortgage loans held for sale Residential mortgage loans held for sale$1,566 $ $1,566 $ 
Residential mortgage loans held for sale
Residential mortgage loans held for sale
Available for sale debt securities: Available for sale debt securities:
U.S. government and federal agency obligations
U.S. government and federal agency obligations
U.S. government and federal agency obligations U.S. government and federal agency obligations945,815 945,815   
Government-sponsored enterprise obligations Government-sponsored enterprise obligations44,036  44,036  
State and municipal obligations State and municipal obligations1,227,737  1,226,817 920 
Agency mortgage-backed securities Agency mortgage-backed securities4,065,406  4,065,406  
Non-agency mortgage-backed securities Non-agency mortgage-backed securities1,174,790  1,174,790  
Asset-backed securities Asset-backed securities2,499,675  2,499,675  
Other debt securities Other debt securities457,166  457,166  
Trading debt securities Trading debt securities29,412  29,412  
Equity securities Equity securities5,520 5,520   
Private equity investments Private equity investments172,732   172,732 
Derivatives * Derivatives *104,936  104,843 93 
Assets held in trust for deferred compensation plan Assets held in trust for deferred compensation plan19,482 19,482   
Total assets Total assets10,748,273 970,817 9,603,711 173,745 
Liabilities:Liabilities:
Derivatives *
Derivatives *
51,998  51,910 88 
Derivatives *
Derivatives *
Liabilities held in trust for deferred compensation planLiabilities held in trust for deferred compensation plan19,482 19,482   
Total liabilities Total liabilities$71,480 $19,482 $51,910 $88 
December 31, 2022
December 31, 2023
Assets:
Assets:
Assets:Assets:
Residential mortgage loans held for sale Residential mortgage loans held for sale$— $— $— $— 
Residential mortgage loans held for sale
Residential mortgage loans held for sale
Available for sale debt securities: Available for sale debt securities:
U.S. government and federal agency obligations
U.S. government and federal agency obligations
U.S. government and federal agency obligations U.S. government and federal agency obligations1,035,406 1,035,406 — — 
Government-sponsored enterprise obligations Government-sponsored enterprise obligations43,108 — 43,108 — 
State and municipal obligations State and municipal obligations1,767,109 — 1,765,268 1,841 
Agency mortgage-backed securities Agency mortgage-backed securities4,308,427 — 4,308,427 — 
Non-agency mortgage-backed securities Non-agency mortgage-backed securities1,211,607 — 1,211,607 — 
Asset-backed securities Asset-backed securities3,397,801 — 3,397,801 — 
Other debt securities Other debt securities474,858 — 474,858 — 
Trading debt securities Trading debt securities43,523 — 43,523 — 
Equity securities Equity securities6,210 6,210 — — 
Private equity investments Private equity investments178,127 — — 178,127 
Derivatives * Derivatives *60,492 — 60,458 34 
Assets held in trust for deferred compensation plan Assets held in trust for deferred compensation plan17,856 17,856 — — 
Total assets Total assets12,544,524 1,059,472 11,305,050 180,002 
Liabilities:Liabilities:
Derivatives *
Derivatives *
54,984 — 54,865 119 
Derivatives *
Derivatives *
Liabilities held in trust for deferred compensation planLiabilities held in trust for deferred compensation plan17,856 17,856 — — 
Total liabilities Total liabilities$72,840 $17,856 $54,865 $119 
* The fair value of each class of derivative is shown in Note 11.

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The changes in the Company's 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
DerivativesTotal
For the three months ended June 30, 2023
Balance March 31, 2023$914 $163,418 $(27)$164,305 
Total gains or losses (realized/unrealized):
Included in earnings 9,090 (16)9,074 
Included in other comprehensive income *5   5 
Discount accretion1   1 
Purchases of private equity investments 224  224 
Purchase of risk participation agreement  61 61 
Sale of risk participation agreement  (13)(13)
Balance June 30, 2023$920 $172,732 $5 $173,657 
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2023$ $9,090 $61 $9,151 
*Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2023$5 $ $ $5 
For the six months ended June 30, 2023
Balance January 1, 2023$1,841 $178,127 $(85)$179,883 
Total gains or losses (realized/unrealized):
Included in earnings 11,341 42 11,383 
Included in other comprehensive income *31   31 
Investment securities called(1,000)  (1,000)
Discount accretion48   48 
Purchases of private equity investments 10,756  10,756 
Sale/pay down of private equity investments (27,492) (27,492)
Purchase of risk participation agreement  61 61 
Sale of risk participation agreement  (13)(13)
Balance June 30, 2023$920 $172,732 $5 $173,657 
Total gains or losses for the six months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2023$ $11,341 $42 $11,383 
*Total gains or losses for the six months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2023$10 $ $ $10 

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Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)


(In thousands)
State and Municipal Obligations
Private Equity
Investments
DerivativesTotal
For the three months ended June 30, 2022
Balance March 31, 2022$1,902 $153,411 $221 $155,534 
Total gains or losses (realized/unrealized):
Included in earnings— 15,633 (131)15,502 
Included in other comprehensive income *(87)— — (87)
Discount accretion— — 
Purchases of private equity investments— 822 — 822 
Sale/pay down of private equity investments— (8,095)— (8,095)
Purchase of risk participation agreement— — 314 314 
Sale of risk participation agreement— — (250)(250)
Balance June 30, 2022$1,816 $161,771 $154 $163,741 
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2022$— $15,633 $148 $15,781 
*Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2022$(87)$— $— $(87)
For the six months ended June 30, 2022
Balance January 1, 2022$1,984 $147,406 $571 $149,961 
Total gains or losses (realized/unrealized):
Included in earnings— 23,083 (626)22,457 
Included in other comprehensive income *(170)— — (170)
Discount accretion— — 
Purchases of private equity investments— 1,122 — 1,122 
Sale/pay down of private equity investments— (9,840)— (9,840)
Purchase of risk participation agreement— — 459 459 
Sale of risk participation agreement— — (250)(250)
Balance June 30, 2022$1,816 $161,771 $154 $163,741 
Total gains or losses for the six months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2022$— $23,033 $136 $23,169 
*Total gains or losses for the six months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at June 30, 2022$(170)$— $— $(170)
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 accretion47 — 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$$— $
* Included in "net unrealized gains (losses) on available for sale debt securities" in the consolidated statements of comprehensive income.

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

(In thousands)Loan Fees and SalesOther Non-Interest IncomeInvestment Securities Gains (Losses), NetTotal
For the three months ended June 30, 2023
Total gains or losses included in earnings$(19)$3 $9,090 $9,074 
Change in unrealized gains or losses relating to assets still held at June 30, 2023$58 $3 $9,090 $9,151 
For the six months ended June 30, 2023
Total gains or losses included in earnings$58 $(16)$11,341 $11,383 
Change in unrealized gains or losses relating to assets still held at June 30, 2023$58 $(16)$11,341 $11,383 
For the three months ended June 30, 2022
Total gains or losses included in earnings$(49)$(82)$15,633 $15,502 
Change in unrealized gains or losses relating to assets still held at June 30, 2022$230 $(82)$15,633 $15,781 
For the six months ended June 30, 2022
Total gains or losses included in earnings$(534)$(92)$23,083 $22,457 
Change in unrealized gains or losses relating to assets still held at June 30, 2022$230 $(94)$23,033 $23,169 
(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 significant 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 and held for sale residential mortgage loan commitments.subsidiaries. Information about these inputs is presented in the table below.

Quantitative Information about Level 3 Fair Value MeasurementsQuantitative Information about Level 3 Fair Value MeasurementsWeightedQuantitative Information about Level 3 Fair Value MeasurementsWeighted
Valuation TechniqueUnobservable InputRangeAverage*
Valuation TechniqueValuation TechniqueUnobservable InputRangeAverage*
Private equity investmentsPrivate equity investmentsMarket comparable companiesEBITDA multiple4.0-6.05.2
Mortgage loan commitmentsDiscounted cash flowProbability of funding64.5%-100.0%81.2%
Embedded servicing value.7%-1.5%1.1%
Private equity investments
Private equity investmentsMarket comparable companiesEBITDA multiple3.5-6.05.1
* 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 sixthree months of 20232024 and 2022,2023, and still held as of June 30,March 31, 2024 and 2023, and 2022, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation inputs used to determine each adjustment, and the carrying value of the related individual assets or portfolios at June 30, 2023March 31, 2024 and 2022.2023.

Fair Value Measurements Using
(In thousands)

Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Total Gains (Losses) Recognized During the Six Months Ended June 30
June 30, 2023
Collateral dependent loans$1,647 $ $ $1,647 $588 
June 30, 2022
Mortgage servicing rights$11,407 $— $— $11,407 $304 
Long- lived assets484 — — 484 (965)
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 

The Company's significant Level 3 measurements that are measured on a nonrecurring basis pertain to the Company's mortgage servicing rights retained on certain fixed rate personal real estate loan originations. Mortgage servicing rights are included in other intangible assets-net on the consolidated balance sheets, and information about these inputs at June 30, 2023 is presented in the table below.
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Quantitative Information about Level 3 Fair Value MeasurementsWeighted
Valuation TechniqueUnobservable InputRangeAverage*
Mortgage servicing rightsDiscounted cash flowDiscount rate9.51 %-9.71 %9.58 %
Prepayment speeds (CPR)*6.43 %-7.79 %6.65 %
Loan servicing costs - annually per loan
    Performing loans$70 -$72 $71 
    Delinquent loans$200 -$750 
    Loans in foreclosure$1,000 
*Ranges and weighted averages based on interest rate tranches.

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


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

The estimated fair values of the Company’s financial instruments and the classification of their fair value measurement within the valuation hierarchy are as follows at June 30, 2023March 31, 2024 and December 31, 2022:2023:

Carrying AmountEstimated Fair Value at June 30, 2023
Carrying AmountCarrying AmountEstimated Fair Value at March 31, 2024

(In thousands)

(In thousands)
Carrying Amount

Level 1Level 2Level 3Total

(In thousands)

Level 1Level 2Level 3Total
Financial AssetsFinancial Assets
Loans:Loans:
Loans:
Loans:
Business
Business
BusinessBusiness$5,906,493 $ $ $5,725,065 $5,725,065 
Real estate - construction and landReal estate - construction and land1,451,783   1,431,727 1,431,727 
Real estate - businessReal estate - business3,621,222   3,470,492 3,470,492 
Real estate - personalReal estate - personal2,980,599   2,671,283 2,671,283 
ConsumerConsumer2,110,605   2,044,119 2,044,119 
Revolving home equityRevolving home equity303,845   300,823 300,823 
Consumer credit cardConsumer credit card574,755   542,739 542,739 
OverdraftsOverdrafts7,237   7,045 7,045 
Total loansTotal loans16,956,539   16,193,293 16,193,293 
Loans held for saleLoans held for sale6,776  6,776  6,776 
Investment securitiesInvestment securities10,707,602 951,335 9,497,302 258,965 10,707,602 
Federal funds sold2,750 2,750   2,750 
Investment securities
Investment securities
Securities purchased under agreements to resell
Securities purchased under agreements to resell
Securities purchased under agreements to resellSecurities purchased under agreements to resell825,000   808,605 808,605 
Interest earning deposits with banksInterest earning deposits with banks2,568,695 2,568,695   2,568,695 
Cash and due from banksCash and due from banks366,699 366,699   366,699 
Derivative instrumentsDerivative instruments104,936  104,843 93 104,936 
Assets held in trust for deferred compensation planAssets held in trust for deferred compensation plan19,482 19,482   19,482 
Total Total$31,558,479 $3,908,961 $9,608,921 $17,260,956 $30,778,838 
Financial LiabilitiesFinancial Liabilities
Non-interest bearing deposits
Non-interest bearing deposits
Non-interest bearing depositsNon-interest bearing deposits$8,198,849 $8,198,849 $ $ $8,198,849 
Savings, interest checking and money market depositsSavings, interest checking and money market deposits14,418,974 14,418,974  — 14,418,974 
Certificates of depositCertificates of deposit3,251,621   3,262,639 3,262,639 
Federal funds purchasedFederal funds purchased511,400 511,400  — 511,400 
Securities sold under agreements to repurchaseSecurities sold under agreements to repurchase2,366,621   2,369,489 2,369,489 
Other borrowingsOther borrowings1,004,878  4,878 1,000,000 1,004,878 
Derivative instrumentsDerivative instruments51,998  51,910 88 51,998 
Liabilities held in trust for deferred compensation planLiabilities held in trust for deferred compensation plan19,482 19,482  — 19,482 
Total Total$29,823,823 $23,148,705 $56,788 $6,632,216 $29,837,709 
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Carrying AmountEstimated Fair Value at December 31, 2022
Carrying AmountCarrying AmountEstimated Fair Value at December 31, 2023

(In thousands)

(In thousands)
Carrying AmountLevel 1Level 2Level 3Total

(In thousands)
Level 1Level 2Level 3Total
Financial AssetsFinancial Assets
Loans:Loans:
Loans:
Loans:
Business
Business
BusinessBusiness$5,661,725 $— $— $5,506,128 $5,506,128 
Real estate - construction and landReal estate - construction and land1,361,095 — — 1,347,328 1,347,328 
Real estate - businessReal estate - business3,406,981 — — 3,289,655 3,289,655 
Real estate - personalReal estate - personal2,918,078 — — 2,654,423 2,654,423 
ConsumerConsumer2,059,088 — — 1,999,788 1,999,788 
Revolving home equityRevolving home equity297,207 — — 295,005 295,005 
Consumer credit cardConsumer credit card584,000 — — 538,268 538,268 
OverdraftsOverdrafts14,957 — — 14,666 14,666 
Total loansTotal loans16,303,131 — — 15,645,261 15,645,261 
Loans held for saleLoans held for sale4,964 — 4,964 — 4,964 
Investment securitiesInvestment securities12,511,649 1,041,616 11,244,592 225,441 12,511,649 
Investment securities
Investment securities
Federal funds soldFederal funds sold49,505 49,505 — — 49,505 
Securities purchased under agreements to resellSecurities purchased under agreements to resell825,000 — — 795,574 795,574 
Interest earning deposits with banksInterest earning deposits with banks389,140 389,140 — — 389,140 
Cash and due from banksCash and due from banks452,496 452,496 — — 452,496 
Derivative instrumentsDerivative instruments60,492 — 60,458 34 60,492 
Assets held in trust for deferred compensation planAssets held in trust for deferred compensation plan17,856 17,856 — — 17,856 
Total Total$30,614,233 $1,950,613 $11,310,014 $16,666,310 $29,926,937 
Financial LiabilitiesFinancial Liabilities
Non-interest bearing depositsNon-interest bearing deposits$10,066,356 $10,066,356 $— $— $10,066,356 
Non-interest bearing deposits
Non-interest bearing deposits
Savings, interest checking and money market depositsSavings, interest checking and money market deposits15,126,981 15,126,981 — — 15,126,981 
Certificates of depositCertificates of deposit994,103 — — 982,613 982,613 
Federal funds purchasedFederal funds purchased159,860 159,860 — — 159,860 
Securities sold under agreements to repurchaseSecurities sold under agreements to repurchase2,681,874 — — 2,684,471 2,684,471 
Other borrowingsOther borrowings8,831 — 8,831 — 8,831 
Derivative instrumentsDerivative instruments54,984 — 54,865 119 54,984 
Liabilities held in trust for deferred compensation planLiabilities held in trust for deferred compensation plan17,856 17,856 — — 17,856 
Total Total$29,110,845 $25,371,053 $63,696 $3,667,203 $29,101,952 

17. Legal and Regulatory Proceedings
The Company has various legal proceedings pending at June 30, 2023,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 20222023 Annual Report on Form 10-K. Results of operations for the three and six months ended June 30, 2023March 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, the effects of the COVID-19 pandemic, changes in policies by regulatory agencies, governmental legislation and regulation, fluctuations in interest rates, changes in liquidity requirements, demand for loans in the Company's market area, changes in accounting and tax principles, estimates made on income taxes, competition with other entities that offer financial services, cybersecurity threats, and such other factors as discussed in Part I Item 1A - "Risk Factors" and Part II Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 20222023 Annual Report on Form 10-K. During the quarter ended June 30, 2023,March 31, 2024, there were no material changes to the Risk Factors disclosed in the Company's 20222023 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 20222023 Annual Report on Form 10-K. There have been no changes in the Company's application of critical accounting policies since December 31, 2022.2023.

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Selected Financial Data
Three Months Ended June 30Six Months Ended June 30
Three Months Ended March 31
Three Months Ended March 31
Three Months Ended March 31
2023202220232022 20242023
Per Share DataPer Share Data
Net income per common share — basic
Net income per common share — basic
Net income per common share — basic Net income per common share — basic$1.03 $.92 *$1.98 $1.84 *$.87 $.91 *
Net income per common share — diluted Net income per common share — diluted1.02 .92 *1.97 1.84 * Net income per common share — diluted.86 .91 .91 *
Cash dividends on common stock Cash dividends on common stock.270 .252 *.540 .505 * Cash dividends on common stock.270 .257 .257 *
Book value per common share Book value per common share21.53 21.23 * Book value per common share22.70 20.49 20.49 *
Market price Market price48.70 62.52 * Market price53.20 55.57 55.57 *
Selected RatiosSelected Ratios
(Based on average balance sheets)(Based on average balance sheets)
(Based on average balance sheets)
(Based on average balance sheets)
Loans to deposits (1)
Loans to deposits (1)
Loans to deposits (1)
Loans to deposits (1)
66.15 %53.93 %65.57 %52.91 %69.87 %64.99 %
Non-interest bearing deposits to total deposits Non-interest bearing deposits to total deposits32.63 39.02 34.35 39.18 
Equity to loans (1)
Equity to loans (1)
16.35 18.41 16.05 20.10 
Equity to deposits Equity to deposits10.81 9.93 10.52 10.63 
Equity to total assets Equity to total assets8.29 8.37 8.26 8.82 
Return on total assets Return on total assets1.56 1.36 1.55 1.35 
Return on equity Return on equity18.81 16.29 18.78 15.28 
Return on equity
Return on equity
(Based on end-of-period data)(Based on end-of-period data)
Non-interest income to revenue (2)
Non-interest income to revenue (2)
Non-interest income to revenue (2)
Non-interest income to revenue (2)
37.17 37.50 36.27 38.07 
Efficiency ratio (3)
Efficiency ratio (3)
57.22 57.29 57.35 58.72 
Tier I common risk-based capital ratio Tier I common risk-based capital ratio14.75 13.95 
Tier I risk-based capital ratio Tier I risk-based capital ratio14.75 13.95 
Total risk-based capital ratio Total risk-based capital ratio15.53 14.64 
Tangible common equity to tangible assets ratio (4)
Tangible common equity to tangible assets ratio (4)
7.70 7.56 
Tier I leverage ratio
Tier I leverage ratio
10.46 9.45 
* Restated for the 5% stock dividend distributed in December 2022.2023.
(1) Includes loans held for sale.
(2) Revenue includes net interest income and non-interest income.
(3) The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.
(4) The tangible common equity to tangible assets ratio is a measurement which management believes is a useful indicator of capital adequacy and utilization.
It provides a meaningful basis for period to period and company to company comparisons, and also assists regulators, investors and analysts in analyzing the financial position of the Company. Tangible common equity and tangible assets are non-GAAP measures and should not be viewed as substitutes for, or superior to, data prepared in accordance with GAAP.

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

June 30
March 31March 31
(Dollars in thousands)(Dollars in thousands)20232022(Dollars in thousands)20242023
Total equityTotal equity$2,685,228 $2,675,313 
Less non-controlling interestLess non-controlling interest17,870 16,467 
Less goodwill
Less goodwill
Less goodwillLess goodwill146,371 138,921 
Less intangible assets*Less intangible assets*4,173 4,446 
Total tangible common equity (a)Total tangible common equity (a)$2,516,814 $2,515,479 
Total assetsTotal assets$32,831,262 $33,435,370 
Less goodwillLess goodwill146,371 138,921 
Less intangible assets*Less intangible assets*4,173 4,446 
Total tangible assets (b)Total tangible assets (b)$32,680,718 $33,292,003 
Tangible common equity to tangible assets ratio (a)/(b)Tangible common equity to tangible assets ratio (a)/(b)7.70 %7.56 %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 June 30Six Months Ended June 30
(Dollars in thousands)(Dollars in thousands)20232022% change20232022% change
(Dollars in thousands)
(Dollars in thousands)
Net interest income (expense)
Net interest income (expense)
Net interest income (expense)Net interest income (expense)$249,538 $232,385 7.4 %$501,161 $441,171 13.6 %
Provision for credit lossesProvision for credit losses(6,471)(7,162)9.6 (17,927)2,696 764.9 
Provision for credit losses
Provision for credit losses
Non-interest income
Non-interest income
Non-interest incomeNon-interest income147,605 139,427 5.9 285,217 271,196 5.2 
Investment securities gains (losses), netInvestment securities gains (losses), net3,392 1,029 N.M.3,086 8,192 (62.3)
Investment securities gains (losses), net
Investment securities gains (losses), net
Non-interest expense
Non-interest expense
Non-interest expenseNon-interest expense(227,611)(213,505)6.6 (451,718)(419,153)7.8 
Income taxesIncome taxes(35,990)(32,021)12.4 (68,803)(63,923)7.6 
Income taxes
Income taxes
Non-controlling interest income (expense)Non-controlling interest income (expense)(2,674)(4,359)(38.7)(3,775)(6,231)(39.4)
Non-controlling interest income (expense)
Non-controlling interest income (expense)
Net income attributable to Commerce Bancshares, Inc.
Net income attributable to Commerce Bancshares, Inc.
Net income attributable to Commerce Bancshares, Inc.Net income attributable to Commerce Bancshares, Inc.$127,789 $115,794 10.4 %$247,241 $233,948 5.7 %

For the quarter ended June 30, 2023,March 31, 2024, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $127.8$112.7 million, an increasea decrease of $12.0$6.8 million, or 10.4%5.7%, compared to the secondfirst quarter of the previous year. For the current quarter, the annualized return on average assets was 1.56%1.48%, the annualized return on average equity was 18.81%15.39%, and the efficiency ratio was 57.22%61.67%. Diluted earnings per common share was $1.02$.86 per share in the current quarter, an increasea decrease of 10.9%5.5% compared to $0.92$.91 per share in the secondfirst quarter of 2022,2023, and increased 7.4%2.4% compared to $0.95$.84 per share in the previous quarter.

Compared to the secondfirst quarter of last year, net interest income increased $17.2decreased $2.6 million, or 7.4%1.0%, mainly due to increasesan 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 interest income onan increase in deposits with banks of $98.8 million and $26.8 million, respectively. These increases were partly offset by an increase in deposits and borrowings interest expense of $93.4$17.1 million. The provision for credit losses decreased $691 thousand,$6.7 million, or 9.6%58.2%, compared to the same quarter in the prior year. Non-interest income increased $8.2$11.2 million, or 5.9%8.2%, compared to the secondfirst quarter of 2022,2023, mainly due to an increase in net bank cardtrust fees and letters of creditdeposit account fees, partly offset by lower deposit account charges.consumer brokerage services fees. Net gainslosses on investment securities totaled $3.4 million$259 thousand in the current quarter compared to net gainslosses of $1.0 million$306 thousand in the same quarter of last year. Net securities gainslosses in the current quarter primarily resulted from gainslosses of $9.1$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 partly offset by $5.4 million of net losses realizedand $969 thousand in gains on the sales of available for sale debt securities.private equity investments. Non-interest expense increased $14.1$21.6 million, or 6.6%, over the second quarter of 2022, mainly due to higher salaries and employee benefits expense and higher FDIC insurance expense.

Net income for the first six months of 2023 was $247.2 million, an increase of $13.3 million, or 5.7%, from the same period last year. Diluted earnings per common share was $1.97, an increase of 7.1% compared to $1.84 per share in the same period last year. For the first six months of 2023, the annualized return on average assets was 1.55%, the annualized return on average equity was 18.78%, and the efficiency ratio was 57.35%. Net interest income increased $60.0 million, or 13.6%, over the same period last year. This growth was largely due to an increase of $190.5 million in interest income on loans, partly offset by increases in interest expense on deposits and borrowings of $147.6 million. The provision for credit losses was $17.9 million for the first six months of 2023, compared to a recovery of $2.7 million in the same period last year. Non-interest income increased $14.0 million, or 5.2%, from the first six months of last year mainly due to higher bank card fees, cash sweep commission fees, and letters of credit fees. Non-interest expense increased $32.6 million, or 7.8%9.6%, over the first six monthsquarter of last year2023, mainly due to increases in salaries and employee benefits expense, data processing expense, Federal Deposit Insurance Corporation ("FDIC") insurance expense and and higher FDIC insurancelitigation 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
Three Months Ended March 31, 2024 vs. 2023
Three Months Ended March 31, 2024 vs. 2023
Three Months Ended June 30, 2023 vs. 2022Six Months Ended June 30, 2023 vs. 2022
Change due toChange due to

(In thousands)

(In thousands)
Average
Volume
Average
Rate

Total
Average
Volume
Average
Rate

Total

(In thousands)

(In thousands)
Interest income, fully taxable equivalent basis:
Interest income, fully taxable equivalent basis:
Interest income, fully taxable equivalent basis:Interest income, fully taxable equivalent basis:
Loans:Loans:
Loans:
Loans:
Business
Business
Business Business$2,992 $34,646 $37,638 $5,592 $67,667 $73,259 
Real estate - construction and land Real estate - construction and land2,294 13,862 16,156 4,878 26,238 31,116 
Real estate - construction and land
Real estate - construction and land
Real estate - business
Real estate - business
Real estate - business Real estate - business3,481 19,972 23,453 6,676 39,420 46,096 
Real estate - personal Real estate - personal1,104 2,992 4,096 2,110 5,376 7,486 
Real estate - personal
Real estate - personal
Consumer
Consumer
Consumer Consumer252 10,505 10,757 494 19,239 19,733 
Revolving home equity Revolving home equity261 2,893 3,154 455 5,498 5,953 
Revolving home equity
Revolving home equity
Consumer credit card
Consumer credit card
Consumer credit card Consumer credit card513 3,405 3,918 944 6,601 7,545 
Overdrafts Overdrafts— — — — — — 
Overdrafts
Overdrafts
Total interest on loans
Total interest on loans
Total interest on loans Total interest on loans10,897 88,275 99,172 21,149 170,039 191,188 
Loans held for saleLoans held for sale(33)23 (10)(61)46 (15)
Loans held for sale
Loans held for sale
Investment securities:
Investment securities:
Investment securities:Investment securities:
U.S. government and federal agency securities U.S. government and federal agency securities(1,028)(3,900)(4,928)(922)(8,185)(9,107)
U.S. government and federal agency securities
U.S. government and federal agency securities
Government-sponsored enterprise obligations
Government-sponsored enterprise obligations
Government-sponsored enterprise obligations Government-sponsored enterprise obligations— (1)(1)205 186 391 
State and municipal obligations State and municipal obligations(3,404)(976)(4,380)(4,999)(1,095)(6,094)
State and municipal obligations
State and municipal obligations
Mortgage-backed securities
Mortgage-backed securities
Mortgage-backed securities Mortgage-backed securities(4,178)1,506 (2,672)(8,408)2,796 (5,612)
Asset-backed securities Asset-backed securities(4,073)5,127 1,054 (5,879)11,990 6,111 
Asset-backed securities
Asset-backed securities
Other securities
Other securities
Other securities Other securities4,008 (8,868)(4,860)3,424 (7,230)(3,806)
Total interest on investment securities Total interest on investment securities(8,675)(7,112)(15,787)(16,579)(1,538)(18,117)
Total interest on investment securities
Total interest on investment securities
Federal funds sold
Federal funds sold
Federal funds soldFederal funds sold14 72 86 153 421 574 
Securities purchased under agreements to resellSecurities purchased under agreements to resell(2,256)1,970 (286)(5,052)3,418 (1,634)
Securities purchased under agreements to resell
Securities purchased under agreements to resell
Interest earning deposits with banks
Interest earning deposits with banks
Interest earning deposits with banksInterest earning deposits with banks2,013 24,813 26,826 (685)35,696 35,011 
Total interest incomeTotal interest income1,960 108,041 110,001 (1,075)208,082 207,007 
Total interest income
Total interest income
Interest expense:
Interest expense:
Interest expense:Interest expense:
Deposits:Deposits:
Deposits:
Deposits:
Savings
Savings
Savings Savings(9)38 29 (11)55 44 
Interest checking and money market Interest checking and money market(594)28,333 27,739 (682)46,797 46,115 
Interest checking and money market
Interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of less than $100,000
Certificates of deposit of less than $100,000 Certificates of deposit of less than $100,00076 9,844 9,920 69 11,137 11,206 
Certificates of deposit of $100,000 and over Certificates of deposit of $100,000 and over319 13,627 13,946 160 19,986 20,146 
Certificates of deposit of $100,000 and over
Certificates of deposit of $100,000 and over
Total interest on deposits
Total interest on deposits
Total interest on deposits Total interest on deposits(208)51,842 51,634 (464)77,975 77,511 
Federal funds purchasedFederal funds purchased776 5,397 6,173 1,457 10,295 11,752 
Federal funds purchased
Federal funds purchased
Securities sold under agreements to repurchase
Securities sold under agreements to repurchase
Securities sold under agreements to repurchaseSecurities sold under agreements to repurchase(62)14,374 14,312 (230)31,355 31,125 
Other borrowingsOther borrowings21,136 (1)21,135 27,852 27,854 
Other borrowings
Other borrowings
Total interest expense
Total interest expense
Total interest expenseTotal interest expense21,642 71,612 93,254 28,615 $119,627 $148,242 
Net interest income, tax equivalent basisNet interest income, tax equivalent basis$(19,682)$36,429 $16,747 $(29,690)$88,455 $58,765 
Net interest income, tax equivalent basis
Net interest income, tax equivalent basis

Net interest income in the secondfirst quarter of 20232024 was $249.5$249.0 million, an increasea decrease of $17.2$2.6 million overfrom the secondfirst quarter of 2022.2023. On a fully taxable-equivalent (FTE) basis, net interest income totaled $251.8$251.3 million in the secondfirst quarter of 2023, up $16.72024, down $2.1 million overfrom the same period last year and down $1.7 million fromup $765 thousand over the previous quarter. The increasedecrease in net interest income
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income compared to the secondfirst quarter of 20222023 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 $99.2$41.2 million partly offset by higherand 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 deposits and borrowings of $93.3 million.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, while the increase in interest expense was mainly due to higher rates paid on deposits and borrowings.balances. The Company's net yield on earning assets (FTE) was 3.12%3.33% in the current quarter compared to 2.79%3.26% in the secondfirst quarter of 2022.2023.

Total interest income (FTE) increased $110.0$49.6 million over the secondfirst quarter of 2022.2023. Interest income on loans (FTE) was $242.7$266.2 million during the secondfirst quarter of 2023,2024, an increase of $99.2$41.2 million, or 69.1%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 21271 basis points in the average rate earned and growth of $1.2 billion,$676.2 million, or 7.6%4.1%, in average loan balances. Most of the increase in interest income occurred in the business, business real estate and constructionconsumer loan categories. The largest increase to interest income occurred in business loan interest, which grew $37.6$14.6 million due to a 24276 basis point increase in the average rate earned, coupled with growth in average balances of $372.2$217.4 million, or 6.9%3.84%. Business real estate loan interest income increased $23.5$9.6 million due to an increase of 22661 basis points in the average rate earned and higher average balances of $377.3$249.3 million, or 11.9%7.2%. ConstructionConsumer 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 $16.2$3.7 million due to a 38334 basis point increase in the average rate earned and growth of $224.9$97.4 million, or 18.4%, in average loan balances. In addition, consumer loan interest increased $10.8 million due to an increase of 201 basis points in the average rate earned, while consumer credit card loan increased $3.9 million mainly due to a 245 basis point increase in the average rate earned. Personal real estate loan interest income grew $4.1 million due to a 41 basis point increase in the average rate earned and growth of $135.4 million, or 4.8%3.3%, in average loan balances.

Interest income on investment securities (FTE) was $74.6$66.7 million during the secondfirst quarter of 2023,2024, which was a decrease of $15.8$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 which declined $4.9 million$736 thousand due to a $247.4 million, or 22.5%, decrease in inflationaverage balances, partly offset by an increase of 18 basis points in the average rate earned. Interest income onrelated to the Company's U.S. Treasury inflation-protected securities, (TIPS). Interest income related to TIPS, which is tied to the non-seasonally adjusted Consumer Price Index (CPI-U), decreased $4.5 million$584 thousand from the same quarter last year. Interest income earned on state and municipal securities declined $4.4 million mainly due to a $593.9 million, or 27.9%, decrease in average balances. Interest income on other securities decreased $4.9 million, mainly due the receipt of $6.5 million in non-accrual interest on the sale of a private equity investment recorded in the second quarter of 2022. This increase was partly offset by an increase in the average balance of Federal Home Loan Bank (FHLB) stock. Interest income earned on mortgage-backed securities decreased $2.7 million$742 thousand mainly due to a decline of $842.0$552.1 million, or 11.8%8.6%, in the average balance. In addition, a $1.7$2.0 million increase in premium amortization, reflecting slower forward prepayment speed estimates was recorded in the current quarter,year, compared to a premium amortization adjustment increase of $5.0 million$802 thousand in the prior year. These decreases were partly offset by an increase of ten basis points in the average rate earned. These decreases to interest income were partly offset by growth of $1.1 million in interest earnedincome on asset-backedother securities due to an increase of 73 basis points$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 partly offset by lower average balances of $1.2 billion, or 30.0%.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 $12.6$11.0 billion in the secondfirst quarter of 2023,2024, compared to $15.4$13.5 billion in the secondfirst quarter of 2022.2023.

Interest income on securities purchased under agreements to resell decreased $286 thousand$2.3 million from the same quarter last year, due to a decline of $878.6$484.1 million in the average balance, partly offset by an increase of 96 basis points in the average rate earned.balance. Interest income on balances at the Federal Reserve grew $26.8$17.1 million due to an increase of 43681 basis points in the average rate earned and an increase of $1.0$1.1 billion in the average balance invested.

The average fully taxable-equivalent yield on total interest earning assets was 4.34%4.78% in the secondfirst quarter of 2023,2024, up from 2.86%4.00% in the secondfirst quarter of 2022.2023.

Total interest expense increased $93.3$51.7 million compared to the secondfirst quarter of 20222023 due to increasesan increase of $55.7 million in interest expense of $51.6 million on interest bearing deposits, and $41.6partly offset by a $3.9 million decrease in interest expense on borrowings. The increase in deposit interest expense resulted mainly from an increase of $27.7$35.4 million in interest expense on interest checking and money market deposit accounts due to an 87a 108 basis point increase in the average rate paid, slightly offset by lower average balances of $1.9 billion, or 13.0%.paid. In addition, interest expense on certificates of deposit increased $23.9$20.2 million mainly due to an increase of 361194 basis points in the average rate paid and an increase in average balances of $1.5$1.3 billion. A portion of this increase was due to brokeredThe overall rate paid on total deposits added byincreased 126 basis points over the Company during the secondsame quarter of 2023. The brokered deposits consist of short-term certificates of deposit less than $100 thousand, and $903.9 million were outstanding at June 30, 2023.last year. Interest expense on borrowings was higher due to an increase of $14.3 million in interest expense on customer repurchase agreements resulting from an increase of 261 basis points in the average rate paid. Interest expense on federal funds purchased increased $6.2$3.9 million mainly due to a 42750 basis point increase in the average rate paid while FHLBand a $93.2 million increase in the average balance. These increases to interest expense were partly offset by lower interest expense on other borrowings increased $1.6 billion and resultedof $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 $21.1 million in83 basis points. The
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interest expense. The overall average rate incurred on all interest bearing liabilities was 1.87%2.21% and .12%1.20% in the secondfirst quarters of 2024 and 2023, and 2022, respectively.

Net interest income (FTE) for the first six months of 2023 was $505.2 million compared to $446.4 million for the same period in 2022. For the first six months of 2023, the net interest margin was 3.18% compared to 2.62% for the same period in 2022.

Total interest income (FTE) for the first six months of 2023 increased $58.8 million over the same period last year mainly due to higher interest income on loans (FTE) and balances at the Federal Reserve, partly offset by higher interest expense on deposit and borrowings and lower interest income on investment securities (FTE). Loan interest income (FTE) increased $191.2 million, or 69.2%, due to a 207 basis point increase in the average rate earned and a $1.2 billion, or 7.7%, increase in average loan balances. Most of the increase occurred in the business, business real estate and construction loan categories, but interest income in all loan categories increased due to higher average rates earned and higher average loan balances. Interest income on investment securities (FTE) decreased $18.1 million due to a $2.3 billion decrease in average balances, slightly offset by a ten basis point increase in the average rate earned. Interest earned on U.S. government and federal agency obligations decreased $9.1 million, mainly due to lower TIPS interest income. Interest income earned on state and municipal securities declined $6.1 million mainly due to lower average balances and interest rates earned. Interest earned on mortgage-backed securities decreased $5.6 million due to lower average balances, partly offset by higher average rates earned, while interest on asset-backed securities increased $6.1 million due to higher average rates earned, partly offset by lower average balances. Interest income on securities purchased under agreements to resell decreased $1.6 million due to lower average balances, partly offset higher average rates earned. Interest income on balances at the Federal Reserve increased $35.0 million due to higher average rates earned.

Total interest expense for the first six months of 2023 increased $148.2 million compared to the same period last year. Interest expense on deposits increased $77.5 million, due to a 95 basis point increase in the average rate paid. Interest expense on borrowings increased $70.7 million, mainly due to higher rates paid on federal funds purchased and customer repurchase agreements and higher average balances of FHLB borrowings. The overall cost of total interest bearing liabilities increased to 1.55% compared to .09% in the same period last year.

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

Non-Interest Income
Three Months Ended June 30Increase (Decrease)Six Months Ended June 30Increase (Decrease)
(Dollars in thousands)(Dollars in thousands)20232022Amount% change20232022Amount% change
(Dollars in thousands)
(Dollars in thousands)
Trust fees
Trust fees
Trust fees
Bank card transaction feesBank card transaction fees$49,725$43,873$5,852 13.3 %$96,379$85,918$10,461 12.2 %
Trust fees47,26546,792473 1.0 92,59394,603(2,010)(2.1)
Bank card transaction fees
Bank card transaction fees
Deposit account charges and other fees
Deposit account charges and other fees
Deposit account charges and other feesDeposit account charges and other fees22,63325,564(2,931)(11.5)44,38547,871(3,486)(7.3)
Consumer brokerage servicesConsumer brokerage services4,6775,068(391)(7.7)9,7629,514248 2.6 
Consumer brokerage services
Consumer brokerage services
Capital market fees
Capital market fees
Capital market feesCapital market fees2,5393,327(788)(23.7)5,9017,452(1,551)(20.8)
Loan fees and salesLoan fees and sales2,7353,246(511)(15.7)5,3247,481(2,157)(28.8)
Loan fees and sales
Loan fees and sales
Other
Other
OtherOther18,03111,5576,474 56.0 30,87318,35712,516 68.2 
Total non-interest incomeTotal non-interest income$147,605$139,427$8,178 5.9 %$285,217$271,196$14,021 5.2 %
Total non-interest income
Total non-interest income
Non-interest income as a % of total revenue*Non-interest income as a % of total revenue*37.2 %37.5 %36.3 %38.1 %
Non-interest income as a % of total revenue*
Non-interest income as a % of total revenue*
* Total revenue includes net interest income and non-interest income.

The table below is a summary of net bank card transaction fees for the sixthree month periods ended June 30, 2023March 31, 2024 and 2022.2023.

Three Months Ended June 30Six Months Ended June 30
(Dollars in thousands)20232022$ change% change20232022$ change% change
Net debit card fees$11,340 $10,533 $807 7.7 %$21,627 $20,085 $1,542 7.7 %
Net credit card fees3,812 3,712 100 2.7 7,486 7,434 52 .7 
Net merchant fees5,359 4,934 425 8.6 10,710 9,914 796 8.0 
Net corporate card fees29,214 24,694 4,520 18.3 56,556 48,485 8,071 16.6 
Total bank card transaction fees$49,725 $43,873 $5,852 13.3 %$96,379 $85,918 $10,461 12.2 %
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Three Months Ended March 31
(Dollars in thousands)20242023$ change% change
Net debit card fees$10,405 $10,287 $118 1.1 %
Net credit card fees3,772 3,674 98 2.7 
Net merchant fees5,247 5,351 (104)(1.9)
Net corporate card fees27,506 27,342 164 .6 
Total bank card transaction fees$46,930 $46,654 $276 .6 %

For the secondfirst quarter of 2023,2024, total non-interest income amounted to $147.6$148.8 million compared to $139.4$137.6 million in the same quarter last year, which was an increase of $8.2$11.2 million, or 5.9%8.2%. The increase was mainly due to higher net bank cardtrust fees, deposit account fees and other income, partly offset by lower deposit accounttax 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 $5.9 million,$276 thousand, or 13.3%.6%, over the same period last year, mainly due to growth of $4.5 million 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 income and lowerfees, partly offset by higher rewards and network expense. DebitNet debit card fees increased $118 thousand mainly due to lower network expense, while merchant fees increased due to higher interchange fees.expense. Compared to the secondfirst quarter of last year, deposit account fees decreased $2.9increased $2.4 million, or 11.5%, due to lower overdraft and return item fees. Trust fees increased $473 thousand due to higher private client trust fees, while consumer brokerage fees declined $391 thousand due to lower advisory and annuity fees. Capital market fees decreased $788 thousand, or 23.7% and loan fees and sales decreased $511 thousand, or 15.7%, mainly due to a decline in mortgage banking revenue. Other non-interest income increased $6.5 million, or 56.0%11.0%, mainly due to higher letter of creditcorporate cash management fees of $2.9 million, swap$2.0 million. Consumer brokerage fees of $1.1 million, cash sweep commissions of $855declined $677 thousand and a gain on the sale of real estate of $1.1 million recorded in the current quarter. In addition, an increase of $3.4 million in fair value adjustments was recorded on the Company's deferred compensation plan assets, which are held in a trust, recorded as both an asset and liability, and affect both other income and other expense. These increases were partly offset by a decrease in tax credit sales fees of $1.5 million and the receipt of a $2.2 million life insurance death benefit recorded in the second quarter of 2022.

Non-interest income for the first six months of 2023 was $285.2 million compared to $271.2 million in the first six months of 2023, which was an increase of $14.0 million, or 5.2%. The increase was mainly due to higher net bank cardlower variable annuity fees, and otherwhile capital market fees increased $530 thousand, or 15.8%. Other non-interest income partly offset by lower deposit account fees, trust fees and loan fees and sales. Bank card transaction fees for the current quarter grew $10.5increased $2.4 million, or 12.2%18.5%, over the same period last year, mainly due to growth of $8.1$1.5 million in net corporate card fees. Trust fees increased $2.0 million, or 2.1%, mainly due to higher private client and institutional trust fees. Deposit account fees decreased $3.5 million, or 7.3%, mainly due to lower overdraft and return item fees, partly offset by higher corporate cash management fees and personal deposit account fees. Capital market fees decreased $1.6 million, or 20.8%, while loan fees and sales decreased $2.2 million mainly due to lower mortgage banking revenue. Other non-interest income increased $12.5 million, or 68.2%, mainly due to higher cash sweep commissions of $3.5 million, letter of credit fees of $2.8 million, the $1.1 million gain on the sale of real estate mentioned above and a write-down of $965 thousand on a branch location recorded in 2022. In addition, fair value adjustments on the Company's deferred compensation plan assets increased $5.4 million. These increases were partly offset by lower tax credit sales fees of $1.7 millionincome and income of $2.2 million from a life insurance death benefit recorded$731 thousand in 2022.

cash sweep commissions.


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Investment Securities Gains (Losses), Net
Three Months Ended June 30Six Months Ended June 30
Three Months Ended March 31
Three Months Ended March 31
Three Months Ended March 31
(In thousands)(In thousands)2023202220232022
(In thousands)
(In thousands)
Net gains (losses) on sales of available for sale debt securities
Net gains (losses) on sales of available for sale debt securities
Net gains (losses) on sales of available for sale debt securitiesNet gains (losses) on sales of available for sale debt securities$(5,356)$(9,582)$(8,444)$(9,582)
Fair value adjustments on equity securities, netFair value adjustments on equity securities, net(563)(736)(690)(1,023)
Fair value adjustments on equity securities, net
Fair value adjustments on equity securities, net
Net gains (losses) on sales of private equity investmentsNet gains (losses) on sales of private equity investments221 (4,286)879 (4,286)
Net gains (losses) on sales of private equity investments
Net gains (losses) on sales of private equity investments
Fair value adjustments on private equity investments
Fair value adjustments on private equity investments
Fair value adjustments on private equity investmentsFair value adjustments on private equity investments9,090 15,633 11,341 23,083 
Total investment securities gains (losses), netTotal investment securities gains (losses), net$3,392 $1,029 $3,086 $8,192 
Total investment securities gains (losses), net
Total investment securities gains (losses), net

Net gains and losses on investment securities, which were recognized in earnings during the three months ended June 30,March 31, 2024 and 2023, and 2022, are shown in the table above. Net securities gainslosses of $3.4 million$259 thousand were reported in the secondfirst quarter of 2023,2024, compared to net gainslosses of $1.0 million$306 thousand in the same period last year. The net gainslosses in the secondfirst quarter of 20232024 were primarily comprised of $9.1 million of net gains in fair value on the Company’s private equity investments, due to fair value adjustments, partially offset by net losses of $5.4$8.5 million realized on the sale of available for sale securities.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 gainslosses on investment securities for the same quarter last year were primarily comprised of $15.6net losses of $3.1 million of net gains in fair valuerealized on the Company’s private equity investments, partially offset by losses of $9.6 million and $4.3 million on salessale of available for sale securities, and a private equity investment, respectively.

Net gains on investment securities of $3.1 million were recognized in earnings for the six months ended June 30, 2023, compared to net gains of $8.2 million for the same period in 2022. Net gains in the first half of 2023 were mainly comprised ofmostly offset by net gains in fair value of $11.3$2.3 million on private equity investments, due to fair value adjustments, partially offset by lossesand a gain of $8.4 million$658 thousand on sales of available for sale securities. Net gainsan investment, both in the first half of 2022 were mainly comprised of net gains in fair value of $23.1 million onCompany's private equity investments, offset by losses of $9.6 million on sales of available for sale securities, net losses of $4.3 million on sales of private equity investments, and net losses in fair value of $1.0 million on equity investments.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 $2.5$1.5 million during the first sixthree months of 20232024 and expense of $3.8 million$582 thousand during the first sixthree months of 2022.2023.


Non-Interest Expense
Three Months Ended June 30Increase (Decrease)Six Months Ended June 30Increase (Decrease)
(Dollars in thousands)(Dollars in thousands)20232022Amount% change20232022Amount% change
(Dollars in thousands)
(Dollars in thousands)
Salaries and employee benefits
Salaries and employee benefits
Salaries and employee benefitsSalaries and employee benefits$145,429 $142,243 $3,186 2.2 %$289,802 $278,196 $11,606 4.2 %
Data processing and softwareData processing and software28,719 27,635 1,084 3.9 56,873 54,651 2,222 4.1 
Data processing and software
Data processing and software
Net occupancyNet occupancy12,995 12,503 492 3.9 25,754 24,799 955 3.9 
Marketing6,368 5,836 532 9.1 11,839 12,180 (341)(2.8)
Net occupancy
Net occupancy
Deposit insurance
Deposit insurance
Deposit insurance
Equipment
Equipment
EquipmentEquipment4,864 4,734 130 2.7 9,714 9,302 412 4.4 
Supplies and communicationSupplies and communication4,625 4,361 264 6.1 9,215 9,074 141 1.6 
Supplies and communication
Supplies and communication
Marketing
Marketing
Marketing
Other
Other
OtherOther24,611 16,193 8,418 52.0 48,521 30,951 17,570 56.8 
Total non-interest expenseTotal non-interest expense$227,611 $213,505 $14,106 6.6 %$451,718 $419,153 $32,565 7.8 %
Total non-interest expense
Total non-interest expense

Non-interest expense for the secondfirst quarter of 20232024 amounted to $227.6$245.7 million, an increase of $14.1$21.6 million, or 6.6%9.6%, compared to expense of $213.5$224.1 million in the secondfirst 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, and other non-interestpartly offset by lower marketing expense. Salaries and employees benefits expense increased $929 thousand,$7.4 million, or .8%5.1%, mainly due to higher full-time salaries expense of $6.9$5.8 million, or 7.6%6.2%, partly offset by lower incentive compensationand higher employee benefits expense of $5.7 million, largely the result of a $5.4 million accrual for special bonuses in 2022 that did not reoccur in 2023. Employee benefits expense totaled $25.7 million, reflecting growth of $2.3$1.3 million, or 11.4%, mainly due to higher healthcare expense.4.9%. Full-time equivalent employees totaled 4,6804,721 at June 30, 2023,March 31, 2024, compared to 4,5794,636 at June 30, 2022.March 31, 2023. Data processing and software expense increased $1.1$3.0 million, or 3.9%10.7%, due to higher bank card processing fees and increased costs for service providers. Occupancy expense increased $492$815 thousand, or 3.9%6.4%, mainly due to higher depreciation expense and real estate taxes, partly offset by higher rent income. Marketingincome, 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 $532 thousand,$8.1 million, or 9.1%, and supplies and communication expense increased $264 thousand, or 6.1%42.0%, mainly due to higher postage expense. Other non-interest expense increased $8.4 million, or 52.0%, mainly due to higher deferred compensation adjustments (previously mentioned), FDIC insurance and travel and entertainmentlitigation settlement expense of $3.4$10.0 million, $1.8
55

Tablenet of Contents
million and $797 thousand, respectively. Additionally, the Company recorded deconversion expense of $2.1 million relating to the transition of Commerce Financial Advisors support to LPL Financial's Institution Services platform.

Non-interest expense amounted to $451.7 million for the first six months of 2023, an increase of $32.6 million, or 7.8%, over the first six months of 2022. Salaries and benefits expense increased $11.6 million, or 4.2%, mainly due to higher full-time salaries expense, healthcare expense and payroll taxes, partly offset by a decrease in incentive compensation, mainly the special bonus accrual in 2022 mentioned above. Data processing and software expense increased $2.2 million, or 4.1%, due to increased costs for service providers and higher bank card processing fees. Occupancy expense increased $1.0 million, or 3.9%, mainly due to higher depreciation and utilities expense, partly offset by higher external rent income. Marketing expense decreased $341 thousand, or 2.8%, while equipment expense increased $412 thousand, or 4.4%, due to higher furniture and equipment service contracts and rental expense. Other non-interest expense increased $17.6 million, or 56.8%, mainly due to higher FDIC insurance expense, travel and entertainment expense, miscellaneous losses and pension plan expense, in addition to the previously mentioned deconversion costs of $2.1 million and the fair value equity adjustments of $5.4 million on the Company's deferred compensation plan assets.

insurance.


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Provision and Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments
Three Months EndedSix Months Ended June 30
June 30, 2023Mar. 31, 2023June 30, 202220232022
(In thousands)
(In thousands)
(In thousands)
ALLOWANCE FOR CREDIT LOSSES ON LOANS
ALLOWANCE FOR CREDIT LOSSES ON LOANS
ALLOWANCE FOR CREDIT LOSSES ON LOANSALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of periodBalance at beginning of period$159,317 $150,136 $134,710 $150,136 $150,044 
Balance at beginning of period
Balance at beginning of period
Provision for credit losses on loans
Provision for credit losses on loans
Provision for credit losses on loans Provision for credit losses on loans5,864 15,948 7,287 $21,812 $(3,399)
Net loan charge-offs (recoveries): Net loan charge-offs (recoveries):
Net loan charge-offs (recoveries):
Net loan charge-offs (recoveries):
Commercial:
Commercial:
Commercial: Commercial:
Business Business165 230 19 395 96 
Business
Business
Real estate-construction and land
Real estate-construction and land
Real estate-construction and land Real estate-construction and land(115)— — (115)— 
Real estate-business Real estate-business(5)(4)(1)(9)(8)
Real estate-business
Real estate-business
Commercial net loan charge-offs (recoveries)
Commercial net loan charge-offs (recoveries)
Commercial net loan charge-offs (recoveries)Commercial net loan charge-offs (recoveries)45 226 18 271 88 
Personal Banking: Personal Banking:
Personal Banking:
Personal Banking:
Real estate-personal
Real estate-personal
Real estate-personal Real estate-personal(6)(11)(41)(17)(19)
Consumer Consumer1,273 1,275 633 2,548 1,441 
Consumer
Consumer
Revolving home equity
Revolving home equity
Revolving home equity Revolving home equity(20)(26)(14)(46)
Consumer credit card Consumer credit card4,687 4,325 2,937 9,012 6,309 
Consumer credit card
Consumer credit card
Overdrafts
Overdrafts
Overdrafts Overdrafts517 978 425 1,495 783 
Personal banking net loan charge-offs (recoveries)Personal banking net loan charge-offs (recoveries)6,451 6,541 3,940 12,992 8,518 
Personal banking net loan charge-offs (recoveries)
Personal banking net loan charge-offs (recoveries)
Total net loan charge-offs (recoveries)
Total net loan charge-offs (recoveries)
Total net loan charge-offs (recoveries)Total net loan charge-offs (recoveries)6,496 6,767 3,958 13,263 8,606 
Balance at end of periodBalance at end of period$158,685 $159,317 $138,039 $158,685 $138,039 
Balance at end of period
Balance at end of period
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
LIABILITY FOR UNFUNDED LENDING COMMITMENTSLIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance at beginning of periodBalance at beginning of period28,628 33,120 25,032 33,120 24,204 
Balance at beginning of period
Balance at beginning of period
Provision for credit losses on unfunded lending commitments
Provision for credit losses on unfunded lending commitments
Provision for credit losses on unfunded lending commitmentsProvision for credit losses on unfunded lending commitments607 (4,492)(125)(3,885)703 
Balance at end of periodBalance at end of period29,235 28,628 24,907 29,235 24,907 
Balance at end of period
Balance at end of period
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTSALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS$187,920 $187,945 $162,946 $187,920 $162,946 
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS

Three Months EndedSix Months Ended June 30
June 30, 2023Mar. 31, 2023June 30, 202220232022
Mar. 31, 2024
Mar. 31, 2024
Mar. 31, 2024
Annualized net loan charge-offs (recoveries)*:
Annualized net loan charge-offs (recoveries)*:
Annualized net loan charge-offs (recoveries)*:Annualized net loan charge-offs (recoveries)*:
Commercial:Commercial:
Commercial:
Commercial:
Business
Business
Business Business.01 %.02 %— %.01 %— %
Real estate-construction and land Real estate-construction and land(.03)— — (.02)— 
Real estate-construction and land
Real estate-construction and land
Real estate-business
Real estate-business
Real estate-business Real estate-business — —  — 
Commercial net loan charge-offs (recoveries)Commercial net loan charge-offs (recoveries) .01 — .01 — 
Commercial net loan charge-offs (recoveries)
Commercial net loan charge-offs (recoveries)
Personal Banking:
Personal Banking:
Personal Banking:Personal Banking:
Real estate-personal Real estate-personal — (.01) — 
Real estate-personal
Real estate-personal
Consumer
Consumer
Consumer Consumer.24 .25 .12 .25 .14 
Revolving home equity Revolving home equity(.03)(.04)(.02)(.03)— 
Revolving home equity
Revolving home equity
Consumer credit card
Consumer credit card
Consumer credit card Consumer credit card3.38 3.15 2.19 3.27 2.36 
Overdrafts Overdrafts44.79 89.15 30.86 66.40 29.50 
Overdrafts
Overdrafts
Personal banking net loan charge-offs (recoveries)
Personal banking net loan charge-offs (recoveries)
Personal banking net loan charge-offs (recoveries)Personal banking net loan charge-offs (recoveries).44 .45 .28 .44 .30 
Total annualized net loan charge-offs (recoveries)Total annualized net loan charge-offs (recoveries).16 %.17 %.10 %.16 %.11 %
Total annualized net loan charge-offs (recoveries)
Total annualized net loan charge-offs (recoveries)
* 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 20222023 Annual Report on Form 10-K.

Net loan charge-offs in the secondfirst quarter of 20232024 amounted to $6.5$8.9 million, compared to $6.8$8.0 million in the prior quarter and $4.0$6.8 million in the secondfirst quarter of last year. Compared to the same period last year, total net loan charge-offs in the secondfirst quarter of 20232024 increased $2.5$2.1 million and decreased $271increased $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 consumer, and businessconsumer loans of $1.8$2.1 million $640 thousand, and $146$708 thousand, respectively. The decreaseincrease from the previous quarter was driven by decreases in net charge-offs on overdrafts and construction loans, partly offset by anthe increase in net charge-offs on consumer credit cardcards and consumer loans.

For the three months ended June 30, 2023,March 31, 2024, annualized net charge-offs on average consumer credit card loans were 3.38%4.60%, compared to 3.15%3.72% in the previous quarter and 2.19%3.15% in the same period last year. Consumer loan annualized net charge-offs in the current quarter amounted to .24%.38%, compared to .25%.36% in the prior quarter and .12%.25% in the same period last year. In the secondfirst quarter of 20232024, total annualized net loan charge-offs were .16%.21%, compared to .17%.19% in the previous quarter and .10%.17% in the same period last year.

The provision for credit losses on loans was $5.9$6.9 million in the current quarter, which was a $10.1$1.2 million decrease from the $15.9$8.2 million provision recorded in the prior quarter and a $1.4$9.0 million decrease from the $7.3$15.9 million provision recorded for the three months ended June 30, 2022.March 31, 2023. The decrease in the provision from the prior quarter was due to growthdecline in the related allowance for credit losses on loans experienced in the first quarter of 2023, which was not repeated in the second quarter.loans.

For the six months ended June 30, 2023, net loan charge-offs amounted to $13.3 million, compared to $8.6 million for the same period in the prior year. The increase in net loan charge-offs over the prior year was driven mainly by increases in consumer credit card and consumer loans and overdrafts. Annualized net charge-offs on consumer credit card loans totaled 3.27% and 2.36% for the six months ended June 30, 2023 and 2022, respectively. Consumer loan annualized net charge-offs were .25% and .14% in the six months ended June 30, 2023 and 2022, respectively, while annualized net charge-offs on overdrafts were 66.40% and 29.50% for the first half of 2023 and 2022, respectively. Total annualized net loan charge-offs were .16% and .11% for the six months ended June 30, 2023 and 2022, respectively.

For the six months ended June 30, 2023, the provision for credit losses on loans was $21.8 million, which was a $25.2 million increase over the $3.4 million benefit recorded in the same period last year. The increase in the provision over the prior year was dueCompared to the buildup of the related allowance for credit losses in the first six months of 2023 related to forecasting a future mild recession, while the first six months of 2022 experienced reductions in the related allowance for credit losses primarily related to the improving economic forecast at that time.

For the six months ended June 30,December 31, 2023, the allowance for credit losses on loans increased $8.5 million, compared to the allowance for credit losses on loans at DecemberMarch 31, 2022. During the six months ended June 30, 2023, the2024 decreased $1.9 million. The allowance for credit losses on commercial loans increased by $4.7at 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, increased $3.8 million. The increase was primarily the result of applying a slightly more pessimistic forecast compared to the forecast used$807 thousand higher at March 31, 2024 than at December 31, 2022, coupled with raising interest rates that extended the estimate lives of certain loan portfolios.2023. Compared to June 30, 2022,March 31, 2023, the allowance for credit losses on loans at June 30,March 31, 2024 increased $1.1 million. The decrease in the allowance for credit losses at March 31, 2024 compared to December 31, 2023 increased $20.6 million, mainly due towas primarily the result of applying a less optimisticpessimistic forecast that reflected a future mild recession.at March 31, 2024 than was utilized at December 31, 2023. The allowance for credit losses on loans was $158.7$160.5 million at June 30, 2023March 31, 2024 and was .94%.93%, .92%.94% and .88%.96% of total loans at June 30, 2023,March 31, 2024, December 31, 20222023 and June 30, 2022,March 31, 2023, respectively.

In the current quarter, the provision for credit losses on unfunded lending commitments was $607 thousand,a benefit of $2.2 million, compared to a benefit of $125 thousand at June 30, 2022. For$4.5 million during the sixthree months ended June 30,March 31, 2023 and an expense of $2.3 million during the provision for credit losses on unfunded commitments was a benefit of $3.9 million, compared to a provision of $703 thousand in the first six months of 2022.prior quarter. At June 30, 2023,March 31, 2024, the liability for unfunded lending commitments was $29.2$23.1 million, compared to $33.1$25.2 million at December 31, 20222023 and $24.9$28.6 million at June 30, 2022.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.

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The Company considers the allowance for credit losses on loans and the liability for unfunded commitments adequate to cover losses expected in the loan portfolio, including unfunded commitments, at June 30, 2023.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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Table of Contents
are 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of collection, or they are personal banking loans that are exempt under regulatory rules from being classified as non-accrual.

(Dollars in thousands)(Dollars in thousands)June 30, 2023December 31, 2022(Dollars in thousands)March 31, 2024December 31, 2023
Non-accrual loans
Non-accrual loans
Non-accrual loansNon-accrual loans$6,161 $8,306 
Foreclosed real estateForeclosed real estate94 96 
Total non-performing assetsTotal non-performing assets$6,255 $8,402 
Non-performing assets as a percentage of total loansNon-performing assets as a percentage of total loans.04 %.05 %Non-performing assets as a percentage of total loans.03 %.04 %
Non-performing assets as a percentage of total assetsNon-performing assets as a percentage of total assets.02 %.03 %Non-performing assets as a percentage of total assets.02 %.02 %
Total loans past due 90 days and still accruing interestTotal loans past due 90 days and still accruing interest$15,351 $15,830 
Total loans past due 90 days and still accruing interest
Total loans past due 90 days and still accruing interest

Non-accrual loans totaled $6.2$5.8 million at June 30, 2023,March 31, 2024, a decrease of $2.1$1.5 million from the balance at December 31, 2022.2023. The decrease occurred mainly in business and personal real estate non-accrual loans, which decreased $2.0 million.$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 June 30, 2023,March 31, 2024, non-accrual loans were comprised of business (76.8%revolving home equity (34.2%), personal real estate (20.7%(26.3%), business real estate (21.6%), and business real estate (2.5%(17.9%) loans. Foreclosed real estate totaled $94$206 thousand at June 30, 2023,March 31, 2024, a slight decrease compared to December 31, 2022.2023. Total loans past due 90 days or more and still accruing interest were $15.4$20.3 million as of June 30, 2023,March 31, 2024, a decrease of $479 thousand$1.6 million from December 31, 2022.2023. 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 $228.8$267.0 million at June 30, 2023March 31, 2024 compared with $259.7$216.4 million at December 31, 2022,2023, resulting in a decreasean increase of $30.9$50.6 million, or 11.9%23.4%.

(In thousands)(In thousands)June 30, 2023December 31, 2022(In thousands)March 31, 2024December 31, 2023
Potential problem loans:Potential problem loans:
Business
Business
Business Business$62,100 $29,455 
Real estate – construction and land Real estate – construction and land4,100 47,493 
Real estate – business Real estate – business162,353 182,526 
Real estate – personal Real estate – personal258 250 
Total potential problem loansTotal potential problem loans$228,811 $259,724 
Total potential problem loans
Total potential problem loans

At June 30, 2023,When borrowers are experiencing financial difficulty, the Company had $72.7may 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 to a borrower experiencing financial difficulty, and theseduring 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.

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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 8.6%8.7% of total loans outstanding at June 30, 2023.March 31, 2024. The largest component of construction and land loans was commercial construction, which increased $96.1$29.5 million during the sixthree months ended June 30, 2023.March 31, 2024. At June 30, 2023,March 31, 2024, multi-family residential construction loans totaled approximately $370.3$392.1 million, or 30.4%31.3%, of the commercial construction loan portfolio, compared to $303.5$414.6 million, or 27.0%33.9%, at December 31, 2022.2023.

(Dollars in thousands)(Dollars in thousands)June 30,
2023


% of Total
% of
Total
Loans
December 31, 2022
    

% of Total
% of
Total
Loans
(Dollars in thousands)March 31,
2024


% of Total
% of
Total
Loans
December 31, 2023
    

% of Total
% of
Total
Loans
Commercial constructionCommercial construction$1,218,245 83.9 %7.2 %$1,122,105 82.4 %6.9 %Commercial construction$1,252,414 83.6 83.6 %7.2 %$1,222,961 84.5 84.5 %7.1 %
Residential constructionResidential construction134,012 9.2 .9 138,311 10.2 .8 
Residential land and land developmentResidential land and land development57,541 4.0 .3 50,012 3.7 .3 
Commercial land and land developmentCommercial land and land development41,985 2.9 .2 50,667 3.7 .3 
Total real estate - construction and land loansTotal real estate - construction and land loans$1,451,783 100.0 %8.6 %$1,361,095 100.0 %8.3 %Total real estate - construction and land loans$1,497,647 100.0 100.0 %8.7 %$1,446,764 100.0 100.0 %8.4 %

Real Estate – Business Loans
Total business real estate loans were $3.6$3.7 billion at June 30, 2023March 31, 2024 and comprised 21.4%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 June 30, 2023, 31.7%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)(Dollars in thousands)June 30,
2023


% of Total
% of
Total
Loans
December 31, 2022


% of Total
% of
Total
Loans
(Dollars in thousands)March 31,
2024


% of Total
% of
Total
Loans
December 31, 2023


% of Total
% of
Total
Loans
Owner-occupiedOwner-occupied$1,146,899 31.7 %6.8 %$1,136,189 33.3 %7.0 %Owner-occupied$1,190,591 32.1 32.1 %6.9 %$1,175,476 31.6 31.6 %6.8 %
IndustrialIndustrial566,197 15.6 3.3 478,534 14.0 2.9 
OfficeOffice502,774 13.9 3.0 497,601 14.6 3.1 
RetailRetail358,048 9.9 2.1 322,971 9.5 2.0 
Multi-familyMulti-family303,323 8.4 1.8 308,156 9.0 1.9 
HotelsHotels250,269 6.9 1.5 230,972 6.8 1.4 
FarmFarm195,645 5.4 1.2 195,920 5.8 1.2 
Senior livingSenior living171,198 4.7 1.0 131,217 3.9 .8 
OtherOther126,869 3.5 .7 105,421 3.1 .6 
Total real estate - business loansTotal real estate - business loans$3,621,222 100.0 %21.4 %$3,406,981 100.0 %20.9 %Total real estate - business loans$3,711,602 100.0 100.0 %21.5 %$3,719,306 100.0 100.0 %21.6 %
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Information about the credit quality of the Company's business real estate loan portfolio as of June 30, 2023March 31, 2024 and December 31, 20222023 is provided in the table below.

(Dollars in thousands)(Dollars in thousands)PassSpecial MentionSubstandardNon-AccrualTotal(Dollars in thousands)PassSpecial MentionSubstandardNon-AccrualTotal
June 30, 2023
March 31, 2024
Owner-occupied
Owner-occupied
Owner-occupiedOwner-occupied$1,131,420 $8,446 $6,939 $94 $1,146,899 
IndustrialIndustrial566,103 94   566,197 
OfficeOffice499,432  3,342  502,774 
RetailRetail356,182  1,866  358,048 
Multi-familyMulti-family301,377 1,946   303,323 
HotelsHotels239,115 9,492 1,662  250,269 
FarmFarm195,409 177  59 195,645 
Senior livingSenior living22,858  148,340  171,198 
OtherOther126,609 260   126,869 
TotalTotal$3,438,505 $20,415 $162,149 $153 $3,621,222 
December 31, 2022
December 31, 2023
Owner-occupied
Owner-occupied
Owner-occupiedOwner-occupied$1,129,343 $632 $6,084 $130 $1,136,189 
IndustrialIndustrial478,534 — — — 478,534 
OfficeOffice494,169 3,432 — — 497,601 
RetailRetail321,041 — 1,930 — 322,971 
Hotels
Multi-familyMulti-family286,202 1,975 19,979 — 308,156 
Hotels174,558 9,725 46,689 — 230,972 
FarmFarm195,685 177 — 58 195,920 
Senior livingSenior living23,514 — 107,702 131,217 
OtherOther105,144 277 — — 105,421 
TotalTotal$3,208,190 $16,218 $182,384 $189 $3,406,981 

Revolving Home Equity Loans
The Company had $303.8$322.5 million in revolving home equity loans at June 30, 2023March 31, 2024 that were generally collateralized by residential real estate. Most of these loans (91.0%(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 June 30, 2023,March 31, 2024, the outstanding principal of loans with an original LTV higher than 80% was $33.8$32.2 million, or 11.1%10.0% of the portfolio, compared to $32.4$32.3 million as of December 31, 2022.2023. Total revolving home equity loan balances over 30 days past due were $3.5$3.8 million at June 30, 2023March 31, 2024 and $1.9$4.4 million at December 31, 2022,2023, and there were nothe outstanding balance of revolving home equity loans on non-accrual status was $2.0 million at June 30, 2023 orboth March 31, 2024 and December 31, 2022.2023. The weighted average FICO score for the total current portfolio balance at March 31, 2024 is 788.783. 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 20232024 through 2025,2026, approximately 15%16% of the Company's current outstanding balances are expected to mature. Of these balances, approximately 87%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 39.3%39.0% of the consumer loan portfolio at June 30, 2023,March 31, 2024, and outstanding balances for auto loans were $829.7$826.8 million and $798.6$820.3 million at June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The balances over 30 days past due amounted to $8.2$8.5 million at June 30, 2023March 31, 2024 and $9.9$9.5 million at December 31, 2022,2023, respectively, and comprised 1.0% of the outstanding balances of these loans at June 30, 2023March 31, 2024 and 1.2% at December 31, 2022,2023, respectively. For the sixthree months ended June 30, 2023, $210.1March 31, 2024, $101.2 million of new auto loans were originated, compared to $153.5$120.0 million during the first sixthree months of 2022.2023.  At June 30, 2023,March 31, 2024, the automobile loan portfolio had a weighted average FICO score of 757,756, and net charge-offs on auto loans were .4%.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 11.3%11.0% of the consumer loan portfolio at June 30, 2023.March 31, 2024. Losses on these loans have historically been low, and the Company saw net recoveries of $29$14 thousand for the first sixthree months of 2023.2024. Private banking loans comprised 32.9%33.6% of the consumer loan portfolio at June 30, 2023.March 31, 2024. The Company's private banking loans are generally well-collateralized, and at June 30, 2023March 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 sixthree months of 20232024 and were .4%.43% of the average balances of these loans at June 30, 2023.March 31, 2024.

Consumer Credit Card Loans
The Company offers low promotional rates on selected consumer credit card products. Out of a portfolio at June 30, 2023March 31, 2024 of $574.8$564.4 million in consumer credit card loans outstanding, approximately $110.9$113.9 million, or 19.3%20.2%, carried a low promotional rate. Within the next six months, $44.1$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 $238.2$296.0 million, or 1.4%1.7% of total loans at June 30, 2023, a decreaseMarch 31, 2024, an increase of $58.3$24.0 million from year end 2022,December 31, 2023, as shown in the table below.

(In thousands)
(In thousands)
(In thousands)(In thousands)June 30, 2023December 31, 2022Unfunded commitments at June 30, 2023March 31, 2024December 31, 2023Unfunded commitments at March 31, 2024
ExtractionExtraction$191,884 $235,933 $160,598 
Mid-stream shipping and storageMid-stream shipping and storage26,382 43,432 94,215 
Downstream distribution and refiningDownstream distribution and refining10,686 7,675 12,117 
Support activitiesSupport activities9,202 9,387 5,964 
Total energy lending portfolioTotal energy lending portfolio$238,154 $296,427 $272,894 

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 $1.4$1.5 billion at June 30, 2023, compared to $1.4 billion atboth March 31, 2024 and December 31, 2022.2023. Additional unfunded commitments at June 30, 2023March 31, 2024 totaled $2.1$2.3 billion.

Income Taxes
Income tax expense was $36.0$31.7 million in the secondfirst quarter of 2024, compared to $32.3 million in the fourth quarter of 2023 compared toand $32.8 million in the first quarter of 2023 and $32.0 million in the second quarter of 2022.2023. The Company's effective tax rate, including the effect of non-controlling interest, was 22.0%21.9% in the secondfirst quarter of 2024, compared to 22.8% in the fourth quarter of 2023 compared toand 21.6% in the first quarter of 2023 and 21.7% in the second quarter of 2022.2023.

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Financial Condition
Balance Sheet
Total assets of the Company were $32.8$30.4 billion at June 30, 2023March 31, 2024 and $31.9$31.7 billion at December 31, 2022.2023. Earning assets (excluding the allowance for credit losses on loans and fair value adjustments on debt securities) amounted to $32.5$29.8 billion at June 30, 2023March 31, 2024 and $31.6$31.1 billion at December 31, 2022,2023, and consisted of 52%58% in loans and 37%36% in investment securities at June 30, 2023.March 31, 2024.

At June 30, 2023, totalDuring the first quarter of 2024, average loans totaled $17.1 billion, an increase of $22.0 million over the prior quarter, and increased $653.4$676.2 million, or 4.0%4.1%, comparedover the same quarter last year. Compared to the previous quarter, average balances at December 31, 2022. The increase was mainly due to growth in business,of business real estate loans grew $83.1 million, while construction and constructionconsumer loans of $244.8 million, $214.2declined $51.1 million and $90.7$34.8 million, respectively. The growth in business loans was mainlyDuring the result of increased commercial and industrial lending and higher tax free and lease loan balances. Personalcurrent quarter, the Company sold certain fixed rate personal real estate loans increased $62.5 million. Consumer loans, which includes automobile, marine and RV, fixed rate home equity and other consumer loans, increased $51.5totaling $7.4 million, duecompared to growth$8.7 million in auto loans and other consumer loans. These increases were slightly offset by a decline in consumer credit card loans of $9.2 million.the prior quarter.

Total average available for sale debt securities excluding fair value adjustments, decreased $1.9$116.6 million compared to the previous quarter to $9.5 billion, at June 30, 2023 compared to December 31, 2022. Purchases of securities during this period totaled $87.4 million, offset by sales, maturities and pay downs of $2.0 billion.fair value. The declinedecrease in investmentdebt 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 stateincreased $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 municipal securities,sales, maturities and agency mortgage-backed securities, which decreased $941.2 million, $563.4 million, and $238.7 million, respectively, at June 30, 2023 compared to December 31, 2022.pay downs were $655.0 million. At June 30, 2023,March 31, 2024, the duration of the available for sale investment portfolio was 3.94.2 years, and maturities and pay downs of approximately $2.0$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 at June 30, 2023 amounted to $25.9 billion, a decrease of $318.0decreased $759.5 million this quarter compared to December 31, 2022.the previous quarter. The declinedecrease in deposits largelymostly resulted from a decrease inlower average demand deposits mainly in business demand deposits (decrease of $1.7 billion). Additionally, money market and savings deposit balances decreased $887.4$420.1 million and $70.9 million, respectively, while certificatelower average certificates of deposit balances grew $2.3 billionof $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 interest checking balanceswealth deposits increased $250.2$138.8 million over balances at December 31, 2022.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, totaled $3.9which included average customer repurchase agreements of $2.5 billion, at June 30, 2023, an increasedecreased $280.0 million to $2.8 billion in the first quarter of $1.0 billion over balances at December 31, 2022, mainly2024, mostly due to an increasea decline of $179.3 million in average FHLB advances.borrowings.

Liquidity and Capital Resources
Liquidity Management
The Company’s most liquid assets are comprised ofinclude balances at the Federal Reserve Bank, federal funds sold, available for sale debt securities, federal funds sold,and securities purchased under agreements to resell (resale agreements), andas follows:

(In thousands)March 31, 2024March 31, 2023December 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 securities9,141,695 11,228,616 9,684,760 
  Securities purchased under agreements to resell225,000 825,000 450,000 
  Total$10,976,309 $13,422,530 $12,378,795 

Interest earning balances at the Federal Reserve Bank, as follows:

(In thousands)June 30, 2023June 30, 2022December 31, 2022
Liquid assets:
  Available for sale debt securities$10,414,625 $13,700,308 $12,238,316 
  Federal funds sold2,750 26,000 49,505 
  Securities purchased under agreements to resell825,000 1,450,000 825,000 
  Balances at the Federal Reserve Bank2,568,695 684,994 389,140 
  Total$13,811,070 $15,861,302 $13,501,961 

The fair value of the availablewhich have overnight maturities and are used for sale debt portfolio was $10.4general liquidity purposes, totaled $1.6 billion at June 30,March 31, 2024 and decreased $629.4 million from December 31, 2023 and included an unrealized net lossbalances. At March 31, 2024, the Company did not have a balance of $1.4 billion. Federalfederal funds sold, which are funds lent to the Company's correspondent bank customers with overnight maturities, totaled $2.8maturities. 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 as of June 30, 2023. on state and municipal obligations.

Resale agreements, maturing through 2025,2028, totaled $825.0$225.0 million at June 30, 2023.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, and thiscollateral. This collateral totaled $866.8$239.2 million in fair value at June 30, 2023. $700.0March 31, 2024. $125.0 million of the Company's resale agreements will mature in the next 12 months. Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $2.6 billion at June 30, 2023 and increased $2.2 billion over December 31, 2022 balances.

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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 $2.0$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 at June 30, 2023, the duration ofthese funds offer substantial resources to meet either new loan demand or offset potential reductions in the Company's available for sale debt securities portfolio was 3.9 years.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)(In thousands)June 30, 2023June 30, 2022December 31, 2022
(In thousands)
(In thousands)March 31, 2024March 31, 2023December 31, 2023
Investment securities pledged for the purpose of securing:Investment securities pledged for the purpose of securing:
Federal Reserve Bank borrowings
Federal Reserve Bank borrowings
Federal Reserve Bank borrowings Federal Reserve Bank borrowings$2,852,481 $14,854 $11,469 
FHLB borrowings and letters of credit FHLB borrowings and letters of credit315,323 2,405 1,817 
Securities sold under agreements to repurchase * Securities sold under agreements to repurchase *2,630,852 2,506,986 2,950,240 
Other deposits and swaps Other deposits and swaps2,340,094 2,767,433 1,772,974 
Total pledged securities Total pledged securities8,138,750 5,291,678 4,736,500 
Unpledged and available for pledging Unpledged and available for pledging2,263,586 7,390,389 6,545,695 
Ineligible for pledging Ineligible for pledging12,289 1,018,241 956,121 
Total available for sale debt securities, at fair value Total available for sale debt securities, at fair value$10,414,625 $13,700,308 $12,238,316 
* Includes securities pledged for collateral swaps, as discussed in Note 12 to the consolidated financial statements.

LiquidityThe average loans to deposits ratio is also available froma measure of a bank's liquidity, and the Company's large base of coreCompany’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. At June 30, 2023, such depositsaccounts totaled $22.6$22.0 billion and represented 87.4%89.9% of the Company's total deposits.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 and overor greater totaled $1.7$1.5 billion at June 30, 2023.March 31, 2024. These accountsdeposits are normally considered more volatile withand higher costcosting, and comprised 6.6%6.0% of total deposits at June 30, 2023.March 31, 2024.

(In thousands)(In thousands)June 30, 2023June 30, 2022December 31, 2022
(In thousands)
(In thousands)March 31, 2024March 31, 2023December 31, 2023
Core deposit base:Core deposit base:
Non-interest bearing
Non-interest bearing
Non-interest bearing Non-interest bearing$8,198,849 $11,102,585 $10,066,356 
Interest checking Interest checking6,790,331 2,815,600 1,854,336 
Savings and money market Savings and money market7,628,643 13,247,464 13,272,645 
Total Total$22,617,823 $27,165,649 $25,193,337 

DuringAmid the banking sector's period of uncertainty during the second quarter of 2023, the Company added brokered deposits in the formissued several tranches of short-term brokered certificates of deposit less than $100 thousand, and $903.9 million were outstanding at June 30, 2023. At June 30, 2023, the Company's total deposit portfolio was $25.9totaling $1.2 billion, compared to $26.2 billion atwhich all matured by December 31, 2022. The Company's uninsured2023. 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 were $10.4 billion, or 40.2%may be an additional, reliable source of total deposits at June 30, 2023. The Company's uninsured deposits include $2.2 billionliquidity during periods of affiliate deposits and collateralized deposits. Excluding those affiliate and collateralized deposits,stress in the Company's uninsured deposits at June 30, 2023 were $8.2 billion, or 31.7% of total deposits.banking industry.

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

(In thousands)June 30, 2023June 30, 2022December 31, 2022
Borrowings:
 Federal funds purchased$511,400 $7,750 $159,860 
 Securities sold under agreements to repurchase2,366,621 2,226,546 2,681,874 
 FHLB advances1,000,000 — — 
 Other debt5,613 6,025 9,672 
 Total$3,883,634 $2,240,321 $2,851,406 
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(In thousands)March 31, 2024March 31, 2023December 31, 2023
Borrowings:
 Federal funds purchased$264,470 $756,470 $261,305 
 Securities sold under agreements to repurchase2,241,106 2,028,089 2,647,510 
 FHLB advances 1,500,000 — 
 Other debt2,359 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. In addition to the amount accessed as of June 30, 2023,At March 31, 2024, the Company had access to an additionalapproved lines of credit totaling $3.5 billionbillion. Since these borrowings are unsecured and limited by market trading activity, their availability may be less certain than collateralized sources of overnight, approved federal funds as of that date. Repurchaseborrowings. Retail repurchase agreements are borrowingsoffered to customers wishing to earn interest in highly liquid balances and are used by the Company from its customersas a funding source considered to be stable, but short-term in the form of securities sold undernature. Repurchase agreements to repurchase. These repurchase agreements, which generally mature overnight, are comprised of non-insured customer funds totaling $2.4 billion at
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June 30, 2023 and are collateralized by securities in the Company's investment portfolio. At June 30, 2023, the valueTotal repurchase agreements at March 31, 2024 were comprised of thenon-insured customer funds totaling $2.2 billion at March 31, 2024 and securities pledged as collateral pledged for the benefit of customers was $2.4 billion.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 $1.0 billionno advances outstanding from the FHLB at June 30, 2023.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 and enablesis used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Company. The FRB also establishes a collateral value of assets pledged and permits borrowings from the discount window. The following table reflects the collateral value of assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future funding capacity available to the Company at June 30, 2023.March 31, 2024.

June 30, 2023
March 31, 2024March 31, 2024
(In thousands)(In thousands)

FHLB
Federal Reserve

Total
(In thousands)

FHLB
Federal Reserve

Total
Total collateral value established by FHLB and FRBTotal collateral value established by FHLB and FRB$2,446,938 $4,952,458 $7,399,396 
Advances outstanding(1,000,000)— (1,000,000)
Letters of credit issued
Letters of credit issued
Letters of credit issuedLetters of credit issued(327,541)— (327,541)
Available for future advancesAvailable for future advances$1,119,397 $4,952,458 $6,071,855 

In additionThe 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’sMoody’s
Commerce Bancshares, Inc.
Issuer ratingA-
Rating outlookStable
Commerce Bank
Issuer ratingAA3
Baseline credit assessmenta2
Short-term ratingA-1P-1
Rating outlookStableStable

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

Standard & Poor’sMoody’s
Commerce Bancshares, Inc.
Issuer ratingA-
Rating outlookStable
Commerce Bank
Issuer ratingAA2
Baseline credit assessmenta1
Short-term ratingA-1P-1
Rating outlookStableStable
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The cash flows from the operating, investing and financing activities of the Company resulted in a net increasedecrease in cash, cash equivalents and restricted cash of $2.0 billion$786.6 million during the first sixthree months of 2023,2024, 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 $220.9$135.5 million and hashave historically been a stable source of funds. Investing activities, which occur mainly in the loan and investment securities portfolios, provided cash of $1.1 billion.$540.9 million. Activity in the investment securities portfolio provided cash of $1.9 billion$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 $666.7$102.3 million. Financing activitiesAdditionally, repayments of securities purchased under agreements to resell (net of purchases) provided cash of $678.8 million,$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 borrowings, including FHLB advancesnet 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 sixthree months of 2023 which increased financing cash flows by $2.3 billion. Partly offsetting this cash inflow were repayments of $1.3 billion of FHLB borrowings and decreases of $249.4 million in deposits.2024.

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Capital Management
The Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions at June 30, 2023March 31, 2024 and December 31, 2022,2023, as shown in the following table.

(Dollars in thousands)(Dollars in thousands)June 30, 2023December 31, 2022Minimum Ratios under Capital Adequacy GuidelinesMinimum Ratios
for
Well-Capitalized
Banks *
(Dollars in thousands)March 31, 2024December 31, 2023Minimum Capital RequirementCapital Conservation BufferMinimum Ratios Requirement including Capital Conservation BufferMinimum Ratios
for
Well-Capitalized
Banks *
Risk-adjusted assetsRisk-adjusted assets$24,144,821 $24,178,423 
Tier I common risk-based capitalTier I common risk-based capital3,561,233 3,417,223 
Tier I common risk-based capital
Tier I common risk-based capital
Tier I risk-based capital
Tier I risk-based capital
Tier I risk-based capitalTier I risk-based capital3,561,233 3,417,223 
Total risk-based capitalTotal risk-based capital3,749,447 3,600,920 
Total risk-based capital
Total risk-based capital
Tier I common risk-based capital ratio
Tier I common risk-based capital ratio
Tier I common risk-based capital ratioTier I common risk-based capital ratio14.75 %14.13 %7.00 %6.50 %15.35 %15.25 %4.50 %2.50 %7.00 %6.50 %
Tier I risk-based capital ratioTier I risk-based capital ratio14.75 14.13 8.50 8.00 
Total risk-based capital ratioTotal risk-based capital ratio15.53 14.89 10.50 10.00 
Tier I leverage ratioTier I leverage ratio10.46 10.34 4.00 5.00 
*Under Prompt Corrective Action requirements

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

In the first quarter of 2020, the interim final rule of the Federal Reserve Bank and other U.S. banking agencies became effective, providing banks that adoptadopted 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 beganwas 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 normallyperiodically purchases stock in the open market. During the sixthree months ended June 30, 2023,March 31, 2024, the Company purchased 553,586806,217 shares at an average price of $65.78$52.13 in open market purchases and through stock-based compensation transactions. At June 30, 2023, 2,558,472March 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 and liquidity levels and alternative investment options. The Company paid a $.270 per share cash dividend on its common stock in the secondfirst quarter of 2023,2024, which was a 7.1%5.1% increase compared to its 20222023 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 commitments,growth. Additionally, the Company will utilize cash to fund deposit maturities and deposit withdrawals that may occur; repay borrowings; and fund loan growth.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 20222023 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.

Events impacting the banking industry during the first few months of 2023, including the failure of Silicon Valley Bank and Signature Bank, have resulted in decreased confidence in banks among consumer and commercial customers, investors, and other counterparties. Additionally, rapidly rising interest rates have resulted in unrealized losses in the Company's available for sale debt securities portfolio. In response to these industry events, the Company sought additional borrowings of $1.3 billion during the first quarter of 2023, and as a result, the Company had outstanding borrowings of $1.5 billion from the FHLB as of March 31, 2023. During the second quarter of 2023, the Company initially borrowed an additional $500.0 million but subsequently repaid $1.0 billion of its FHLB borrowings, resulting in $1.0 billion of FHLB borrowings outstanding as of June
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30, 2023. Additionally, the Company added short-term brokered certificates of deposit during the second quarter of 2023 to provide additional liquidity. As of June 30, 2023, the Company had $903.9 million of brokered deposits that are scheduled to mature prior to December 31, 2023. Other than the repayment of these additional borrowings and deposits, the Company’s material cash requirements have not changed significantly since December 31, 2022. Further discussion of the Company's longer-term material cash obligations and sources for fulfilling those obligations is below.

In the normal course of business, various commitments and contingent liabilities arise whichthat are not required to be recorded on the balance sheet. The most significant of these are loan commitments, which at June 30, 2023March 31, 2024 totaled $14.2$14.8 billion (including $5.2$5.5 billion in unused, approved credit card lines). In addition, the Company enters into standby and commercial letters of credit. These contractsThe contractual amount of standby and commercial letters of credit totaled $590.3$622.7 million (net of conveyances to other institutions) and $5.7$9.6 million, respectively, at June 30, 2023.March 31, 2024. As many commitments expire unused or only partially used, these totals do not necessarily reflect future cash requirements. The carrying value of the guarantee obligations associated with the standby letters of credit, which has been recorded as a liability on the consolidated balance sheet, amounted to $4.2 million at June 30, 2023. The allowance for these commitments is recorded in the Company’s liability for unfunded lending commitments within other liabilities on its consolidated balance sheets. At June 30, 2023,March 31, 2024, the liability for unfunded lending commitments totaled $29.2$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 sixthree months of 2023,2024, purchases and sales of tax credits amounted to $55.5$32.2 million and $15.3$45.6 million, respectively. Fees from sales of tax credits were $1.0$2.1 million for the sixthree months ended June 30, 2023,March 31, 2024, compared to $2.7 million$560.7 thousand in the same period last year. At June 30, 2023,March 31, 2024, the Company expected to fund outstanding purchase commitments of $91.4$146.6 million during the remainder of 2023.2024 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 sixthree months of 2023.2024. 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 sixthree months of 20232024 and 2022.2023.


(Dollars in thousands)

(Dollars in thousands)
ConsumerCommercialWealth
Segment
Totals
Other/ EliminationConsolidated Totals

(Dollars in thousands)
ConsumerCommercialWealth
Segment
Totals
Other/ EliminationConsolidated Totals
Six Months Ended June 30, 2023
Three Months Ended March 31, 2024
Net interest income
Net interest income
Net interest incomeNet interest income$198,406 $232,628 $34,564 $465,598 $35,563 $501,161 
Provision for credit lossesProvision for credit losses(12,736)(483)(13)(13,232)(4,695)(17,927)
Non-interest incomeNon-interest income49,834 123,093 107,457 280,384 4,833 285,217 
Investment securities gains (losses), netInvestment securities gains (losses), net    3,086 3,086 
Non-interest expenseNon-interest expense(160,757)(192,050)(80,108)(432,915)(18,803)(451,718)
Income before income taxesIncome before income taxes$74,747 $163,188 $61,900 $299,835 $19,984 $319,819 
Six Months Ended June 30, 2022
Three Months Ended March 31, 2023
Net interest income
Net interest income
Net interest incomeNet interest income$177,379 $219,135 $38,091 $434,605 $6,566 $441,171 
Provision for credit lossesProvision for credit losses(8,413)(145)(3)(8,561)11,257 2,696 
Non-interest incomeNon-interest income54,755 110,466 107,189 272,410 (1,214)271,196 
Investment securities gains (losses), netInvestment securities gains (losses), net— — — — 8,192 8,192 
Non-interest expenseNon-interest expense(152,453)(180,822)(72,779)(406,054)(13,099)(419,153)
Income before income taxesIncome before income taxes$71,268 $148,634 $72,498 $292,400 $11,702 $304,102 
Increase (decrease) in income before income taxes:Increase (decrease) in income before income taxes:
Amount Amount$3,479 $14,554 $(10,598)$7,435 $8,282 $15,717 
Amount
Amount
Percent Percent4.9 %9.8 %(14.6 %)2.5 %70.8 %5.2 % Percent(24.2)%(11.1)%3.9 %(13.3)%(32.2)%(4.1)%
Consumer
For the sixthree months ended June 30, 2023,March 31, 2024, income before income taxes for the Consumer segment increased $3.5decreased $20.6 million, or 4.9%24.2%, compared to the first sixthree months of 2022.2023. The increasedecrease in income before income taxes was mainly due to an increasea decrease in net interest income of $21.0$14.8 million, or 11.9%, partly offset by a decrease in non-interest income of $4.9 million, or 9.0%10.2%, and higherincreases in non-interest expense of $8.3$3.3 million, or 5.4%.4.2%, and the provision for credit losses of $2.6 million. Net interest income increaseddeclined due to a $13.7$25.8 million increase in netdeposit 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 a $20.8 million increase inhigher loan interest income. These increases were partly offset by higher deposit interest expenseincome of $13.5$7.8 million. Non-interest income decreased mainly due to lower deposit account fees (mainly overdraft and return item fees) and mortgage banking revenue, partly offset by growth in net debit card fees. Non-interest expense increased over the same period in the previous year mainly due to higher salariesallocated support costs for administration and benefits expense, FDIC insuranceoperations, 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 administrationcredit card and operations,personal loan net charge-offs, partly offset by lower marketing expense. The provision for credit losses totaled $12.7 million, a $4.3 million increase over the first six months of 2022, mainly due to higher credit card, personal and overdraft loan net charge-offs.

Commercial
For the sixthree months ended June 30, 2023,March 31, 2024, income before income taxes for the Commercial segment increased $14.6decreased $11.3 million, or 9.8%11.1%, compared to the same period in the previous year. This increasedecrease was mainly due to growth inlower net interest income and higher non-interest income,expense, partly offset by higheran increase non-interest expense.income. Net interest income increased $13.5decreased $10.4 million, or 6.2%7.6%, mainly due to higher loan interest income of $154.1 million. This increase was partly offset by lower net allocated funding credits of $61.4$16.8 million, and increases of $48.6 million in deposit interest expense and $31.3 million incoupled with higher interest expense on deposits and customer repurchase agreements.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 $12.6$5.5 million, or 11.4%9.4%, over the previous year mainly due to growth in net bank card fees (mainly corporate card fees), deposit account fees (mainly corporate cash management fees), letters oftax credit sales fees, capital market fees and cash sweep commissions, partly offset by a decline in capital marketloan commitment fees. Non-interest expense increased $11.2$6.7 million, or 6.2%7.1%, mainly due to higher salaries and benefits expense, FDIC insurance expense and allocated service and support costs (mainly bank operations, commercial sales and commercial productssupport and payments)management expense). These increases were partly offset by lower allocated support costs for information technology. The provision for credit losses increased $338decreased $352 thousand overfrom the same period last year, mainly due to higher commercial credit cardlower business and overdraftbusiness real estate loan net charge-offs.

Wealth
Wealth segment pre-tax profitability for the sixthree months ended June 30, 2023 decreased $10.6March 31, 2024 increased $1.6 million, or 14.6%3.9%, fromover the same period in the previous year. Net interest income decreased $3.5$3.9 million, or 9.3%13.8%, mainly due to an $8.9 million increase in deposit interest expense. This increase was partly offset by a $14.2$2.0 million declineincrease in net allocated funding credits and an $8.7 million increase in deposit interest expense, partly offset by a $19.4$3.0 million increase in loan interest income. Non-interest income increased $268 thousand,$5.5 million, or .3%10.3%, over the prior year largely due to higher private client and institutional trust fees and cash sweep commissions, partly offset by lower private client and institutional trustbrokerage fees. Non-interest expense increased $7.3 million, or 10.1%,decreased $34 thousand mainly due to lower miscellaneous losses, mostly offset by higher salaries and benefits expense and the deconversion costs previously mentioned.expense. The provision for credit losses increased $10decreased $14 thousand overfrom the same period last year.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 brokered deposits, and other items not allocated to the segments. In accordance with the Company’s transfer pricing procedures, the difference between the total provision for credit losses and total net charge-offs/recoveries is not allocated to a business segment and is included in this category. The pre-tax profitability ofin this category was $8.3$24.0 million higher than in the same period last year. Unallocated securities gainslosses were $3.1 million$259 thousand in the first sixthree months of 20232024 compared to gainslosses of $8.2 million$306 thousand in 2022.2023. Also, the unallocated provision for credit losses increased $16.0decreased $8.9 million, primarily driven by an increasedecreases in the provision for credit losses on loans partly offset by a decrease inand 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 sixthree months of 20232024 was $21.8$6.9 million, or $8.5$1.9 million higherlower than net charge-offs due to an increasea decrease in the allowance for credit losses on loans. In the comparable period last year, the provision for credit losses on loans was a benefit of $3.4$15.9 million, or $12.0$9.2 million lowerhigher than net charge-offs, due to a decreasean increase in the allowance for credit losses on loans. For the sixthree months ended June 30, 2023,March 31, 2024, the Company's provision on unfunded lending commitments was a benefit of $3.9$2.2 million. Additionally, net interest income increased $26.5 million and non-interest expense decreased $5.7 million.income increased $271 thousand. These decreasesincreases to pre-tax profitability were partly offset by higher net interest incomenon-interest expense of $29.0 million, and non-interest income of $6.0$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
Reference Rate ReformDisclosure Improvements The Financial Accounting Standards Board ("FASB") issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting", in March 2020, and has been followed by additional clarifying guidance related to derivatives that are modified as a result of reference rate reform. The guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if they reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. Further, the guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The expedients and exceptions provided by the new guidance do not apply to contract modifications made and hedging relationships entered into or evaluated for effectiveness after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022. In December 2022, the FASB issued ASU 2022-06 which extended2023-06, "Disclosure Improvements: Codification Amendments in Response to the sunset date under Topic 848SEC'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 December 31, 2024. The change is to align the temporary accounting relief guidance with the expected cessation dateor technical corrections of LIBOR, which was postponed by administrators in 2021 to June 2023, a year after the current sunsetrequirements. The effective date for each amendment will be the date on which the SEC's removal of ASU 2020-04.that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company's LIBOR Transition Steering Committee completedadoption is not expected to have a significant effect on the Company's transition from LIBOR during the first half of 2023.consolidated financial statements.
Segment Reporting The FASB issued ASU 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures", in November 2023. The amendments require disclosure of significant segment expenses and other segment items on an annual and interim basis. Public entities are required to disclose significant expense categories and amounts for each reportable segment, as well as the amount and a description of the composition of other segment items. Significant expense categories are derived from expenses that are regularly provided to an entity’s chief operating decision-maker (“CODM”), and included in a segment’s reported measures of profit or loss. Public entities are also required to disclose the title and position of the CODM and explain how the CODM uses the reported measures of profit or loss in assessing segment performance and deciding how to allocate resources. This Update requires interim disclosures of certain segment-related disclosures that previously were only required annually. This Update requires annual disclosures for fiscal years beginning January 1, 2024 and interim disclosures for fiscal years beginning January 1, 2025. Early adoption is permitted. The Company is required to apply the amendments in this Update retrospectively to all prior periods presented in the financial statements. Other than the inclusion of additional disclosures, the adoption of this ASU is not expected to have a significant effect on the Company's consolidated financial statements.

Income Taxes The FASB issued ASU 2023-09, "Income Taxes (Topic 740) - Improvements to Income Tax Disclosures", in December 2023. The amendments in this Update require additional disclosures regarding the rate reconciliation and income taxes paid. This Update also removed certain existing disclosure requirements. This Update is effective for annual periods beginning January 1, 2025. Early adoption is permitted. The amendments in this Update should be applied on a prospective basis, though retrospective application is permitted. Other than the inclusion of additional disclosures, the adoption is not expected to have a significant effect on the Company's consolidated financial statements.
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AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
Three Months Ended June 30,March 31, 2024 and 2023 and 2022
Second Quarter 2023Second Quarter 2022 First Quarter 2024First Quarter 2023
(Dollars in thousands)(Dollars in thousands)Average BalanceInterest Income/ExpenseAvg. Rates Earned/PaidAverage BalanceInterest Income/ExpenseAvg. Rates Earned/Paid(Dollars in thousands)Average BalanceInterest Income/ExpenseAvg. Rates Earned/PaidAverage BalanceInterest Income/ExpenseAvg. Rates Earned/Paid
ASSETS:ASSETS:
Loans:Loans:
Loans:
Loans:
Business(A)
Business(A)
Business(A)
Business(A)
$5,757,388 $80,040 5.58 %$5,385,181 $42,402 3.16 %$5,873,525 $88,638 6.07 6.07 %$5,656,104 $74,037 5.31 5.31 %
Real estate — construction and landReal estate — construction and land1,450,196 28,645 7.92 1,225,267 12,489 4.09 
Real estate — businessReal estate — business3,540,851 52,626 5.96 3,163,508 29,173 3.70 
Real estate — personalReal estate — personal2,960,962 27,139 3.68 2,825,578 23,043 3.27 
ConsumerConsumer2,098,523 29,454 5.63 2,070,560 18,697 3.62 
Revolving home equityRevolving home equity300,623 5,661 7.55 272,280 2,507 3.69 
Consumer credit cardConsumer credit card555,875 19,088 13.77 537,681 15,170 11.32 
OverdraftsOverdrafts4,630   5,524 Overdrafts7,696     4,449 4,449 
Total loansTotal loans16,669,048 242,653 5.84 15,485,579 143,481 3.72 
Loans held for saleLoans held for sale5,957 151 10.17 7,933 161 8.14 
Investment securities:Investment securities:
U.S. government and federal agency obligations
U.S. government and federal agency obligations
U.S. government and federal agency obligationsU.S. government and federal agency obligations1,035,651 8,842 3.42 1,119,305 13,770 4.93 
Government-sponsored enterprise obligationsGovernment-sponsored enterprise obligations55,751 331 2.38 55,762 332 2.39 
State and municipal obligations(A)
State and municipal obligations(A)
1,532,519 7,809 2.04 2,126,380 12,189 2.30 
Mortgage-backed securitiesMortgage-backed securities6,316,224 32,930 2.09 7,158,252 35,602 1.99 
Asset-backed securitiesAsset-backed securities2,827,911 14,666 2.08 4,038,113 13,612 1.35 
Other debt securitiesOther debt securities519,988 2,413 1.86 643,463 3,157 1.97 
Trading debt securities(A)
Trading debt securities(A)
46,493 525 4.53 43,904 269 2.46 
Equity securities(A)
Equity securities(A)
12,335 715 23.25 9,094 610 26.90 
Other securities(A)
Other securities(A)
273,587 6,409 9.40 195,090 10,886 22.38 
Total investment securitiesTotal investment securities12,620,459 74,640 2.37 15,389,363 90,427 2.36 
Federal funds soldFederal funds sold7,484 105 5.63 4,269 19 1.79 
Securities purchased under agreements to resellSecurities purchased under agreements to resell824,974 4,099 1.99 1,703,569 4,385 1.03 
Interest earning deposits with banksInterest earning deposits with banks2,284,162 29,254 5.14 1,248,942 2,428 .78 
Total interest earning assetsTotal interest earning assets32,412,084 350,902 4.34 33,839,655 240,901 2.86 
Allowance for credit losses on loansAllowance for credit losses on loans(159,068)(134,670)
Unrealized gain (loss) on debt securitiesUnrealized gain (loss) on debt securities(1,331,002)(851,110)
Unrealized gain (loss) on debt securities
Unrealized gain (loss) on debt securities
Cash and due from banks
Cash and due from banks
Cash and due from banksCash and due from banks309,789 315,352 
Premises and equipment, netPremises and equipment, net449,030 401,663 
Premises and equipment, net
Premises and equipment, net
Other assets
Other assets
Other assetsOther assets1,182,521 521,478 
Total assetsTotal assets$32,863,354 $34,092,368 
Total assets
Total assets
LIABILITIES AND EQUITY:
LIABILITIES AND EQUITY:
LIABILITIES AND EQUITY:LIABILITIES AND EQUITY:
Interest bearing deposits:Interest bearing deposits:
Interest bearing deposits:
Interest bearing deposits:
Savings
Savings
SavingsSavings$1,516,887 186 .05 $1,609,694 157 .04 
Interest checking and money marketInterest checking and money market12,918,399 29,860 .93 14,847,306 2,121 .06 
Certificates of deposit of less than $100,000Certificates of deposit of less than $100,0001,075,110 10,125 3.78 411,655 205 .20 
Certificates of deposit of $100,000 and overCertificates of deposit of $100,000 and over1,472,208 14,416 3.93 648,728 470 .29 
Total interest bearing depositsTotal interest bearing deposits16,982,604 54,587 1.29 17,517,383 2,953 .07 
Borrowings:Borrowings:
Federal funds purchasedFederal funds purchased$507,165 $6,397 5.06 113,128 $224 .79 
Federal funds purchased
Federal funds purchased
Securities sold under agreements to repurchaseSecurities sold under agreements to repurchase2,206,612 17,014 3.09 2,258,184 2,702 .48 
Other borrowings(B)
Other borrowings(B)
1,617,952 21,147 5.24 2,029 12 2.37 
Total borrowingsTotal borrowings4,331,729 44,558 4.13 2,373,341 2,938 .50 
Total interest bearing liabilitiesTotal interest bearing liabilities21,314,333 99,145 1.87 %19,890,724 5,891 .12 %Total interest bearing liabilities19,961,618 109,724 109,724 2.21 2.21 %19,598,174 58,004 58,004 1.20 1.20 %
Non-interest bearing depositsNon-interest bearing deposits8,224,475 11,209,680 
Other liabilitiesOther liabilities598,915 139,986 
Other liabilities
Other liabilities
Equity
Equity
EquityEquity2,725,631 2,851,978 
Total liabilities and equityTotal liabilities and equity$32,863,354 $34,092,368 
Total liabilities and equity
Total liabilities and equity
Net interest margin (FTE)
Net interest margin (FTE)
Net interest margin (FTE)Net interest margin (FTE)$251,757 $235,010 
Net yield on interest earning assetsNet yield on interest earning assets3.12 %2.79 %
Net yield on interest earning assets
Net yield on interest earning assets3.33 %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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AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
Six Months Ended June 30, 2023 and 2022
Six Months 2023Six Months 2022
(Dollars in thousands)Average BalanceInterest Income/ExpenseAvg. Rates Earned/PaidAverage BalanceInterest Income/ExpenseAvg. Rates Earned/Paid
ASSETS:
Loans:
Business(A)
$5,707,026 $154,077 5.44 %$5,354,845 $80,818 3.04 %
Real estate — construction and land1,430,624 54,131 7.63 1,180,334 23,015 3.93 
Real estate — business3,509,789 101,070 5.81 3,129,477 54,974 3.54 
Real estate — personal2,947,431 53,225 3.64 2,817,325 45,739 3.27 
Consumer2,083,040 56,514 5.47 2,055,464 36,781 3.61 
Revolving home equity298,696 10,807 7.30 273,065 4,854 3.58 
Consumer credit card556,048 37,845 13.72 539,254 30,300 11.33 
Overdrafts4,540   5,352 — — 
Total loans16,537,194 467,669 5.70 15,355,116 276,481 3.63 
Loans held for sale5,833 296 10.23 8,654 311 7.25 
Investment securities: 
U.S. government and federal agency obligations1,067,184 13,980 2.64 1,111,570 23,087 4.19 
Government-sponsored enterprise obligations71,332 1,021 2.89 53,777 630 2.36 
State and municipal obligations(A)
1,662,416 17,803 2.16 2,102,125 23,897 2.29 
Mortgage-backed securities6,384,934 65,760 2.08 7,236,993 71,372 1.99 
Asset-backed securities3,029,713 30,707 2.04 3,985,877 24,596 1.24 
Other debt securities524,440 4,936 1.90 639,875 6,291 1.98 
Trading debt securities(A)
46,127 1,043 4.56 42,304 454 2.16 
Equity securities(A)
12,396 1,429 23.25 9,295 1,219 26.45 
Other securities(A)
251,848 10,438 8.36 193,708 13,688 14.25 
Total investment securities13,050,390 147,117 2.27 15,375,524 165,234 2.17 
Federal funds sold23,144 594 5.18 2,670 20 1.51 
Securities purchased under agreements to resell824,987 8,051 1.97 1,718,644 9,685 1.14 
Interest earning deposits with banks1,551,121 38,590 5.02 1,924,731 3,579 .37 
Total interest earning assets31,992,669 662,317 4.17 34,385,339 455,310 2.67 
Allowance for credit losses on loans(154,617)(142,136)
Unrealized gain (loss) on debt securities(1,358,944)(514,573)
Cash and due from banks311,895 327,728 
Premises and equipment, net440,208 404,317 
Other assets908,403 539,219 
Total assets$32,139,614 $34,999,894 
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings$1,533,459 379 .05 $1,586,522 335 .04 
Interest checking and money market13,090,983 49,818 .77 14,898,234 3,703 .05 
Certificates of deposit of less than $100,000747,061 11,550 3.12 420,703 344 .16 
Certificates of deposit of $100,000 and over1,189,372 21,043 3.57 754,890 897 .24 
Total interest bearing deposits16,560,875 82,790 1.01 17,660,349 5,279 .06 
Borrowings:
Federal funds purchased$500,480 $11,983 4.83 $68,490 231 .68 
Securities sold under agreements to repurchase2,312,083 34,509 3.01 2,484,071 3,384 .27 
Other borrowings(B)
1,087,556 27,867 5.17 1,402 13 1.87 
Total borrowings3,900,119 74,359 3.84 2,553,963 3,628 .29 
Total interest bearing liabilities20,460,994 157,149 1.55 %20,214,312 8,907 .09 %
Non-interest bearing deposits8,667,035 11,376,265 
Other liabilities356,829 321,805 
Equity2,654,756 3,087,512 
Total liabilities and equity$32,139,614 $34,999,894 
Net interest margin (FTE)$505,168 $446,403 
Net yield on interest earning assets3.18 %2.62 %
(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 20222023 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. In previous quarters, the Company modeled alternate scenarios with deposit attrition as rates rose.

June 30, 2023March 31, 2023
March 31, 2024
March 31, 2024
March 31, 2024December 31, 2023
(Dollars in millions) (Dollars in millions)
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed Deposit (Attrition)/Growth
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed Deposit (Attrition)/Growth
300 basis points rising300 basis points rising$(30.9)(3.09)%$ $(7.6)(.75)%$— 
300 basis points rising
300 basis points rising
200 basis points rising
200 basis points rising
200 basis points rising200 basis points rising(24.4)(2.44) (6.5)(.63)— 
100 basis points rising100 basis points rising(11.1)(1.11) (1.3)(.13)— 
100 basis points rising
100 basis points rising
100 basis points falling
100 basis points falling
100 basis points falling100 basis points falling$(3.3)(.33)$ (16.0)(1.56)— 
200 basis points falling200 basis points falling(16.6)(1.66) (40.1)(3.92)— 
200 basis points falling
200 basis points falling
300 basis points falling300 basis points falling(34.3)(3.43) (66.5)(6.49)— 
300 basis points falling
300 basis points falling

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 inwhen compared to the rising rate scenarios and less negative in the falling rate scenarios than the previous quarter. This change was primarily due to a decreasemore conservative approach in core deposits, which are lessmodeling premium money market deposit accounts in the falling interest rate sensitive, and an increase in wholesale funding with higher rates, which is more rate sensitive.scenarios.

The comparison above provides insight into potential effects of changes in rates and deposit levels on net interest income.  The Company believes that its approach to interest rate risk has appropriately considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of interest rate risk.

Item 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2023.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 1A. RISK FACTORS
In addition to the other information set forth in this report, the Company's business, financial condition, and results of operations may be materially impacted by the risks that are discussed under the caption “Risk Factors” in Part I, Item 1A of the Company's Annual Report on Form 10-K, as amended, for the year ended December 31, 2022. The risk factors set forth below update, and should be read together with, such risk factors.

Liquidity and Capital Risks

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

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

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

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

The Company maintains a portfolio of investments, which includes available for sale debt securities, trading securities, equity securities, and other investments. At June 30, 2023, the Company did not hold any investments classified as held-to-maturity. The Company's available for sale debt securities portfolio is carried at fair value, with unrealized gains and losses carried in accumulated other comprehensive income (loss) within shareholder's equity. The fair value of investments, including available for sale debt investments, may change with changes in interest rates, credit concerns, or other economic factors. Due to the rapid rise of interest rates during 2022 and early 2023, the fair value of the Company's available of sale debt securities included a net unrealized loss of $1.4 billion at June 30, 2023. Although as of June 30, 2023, the Company has the intent and ability to maintain its available for sale debt investments until maturity, if in the future the Company were to elect to sell or needed to sell the investments before their maturity, the Company could realize significant losses in its income statement.

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

In addition to operational impacts to the Company, the recent events in the banking industry may also result in changes to the laws and regulations governing banks and bank holding companies. As part of the financial services industry, the Company is subject to extensive federal and state regulation and supervision. Changes to regulations, regulatory policies, laws, or supervisory or enforcement activities could affect the Company in substantial and adverse ways, including limiting the services and products the Company may offer, restrict the Company’s ability to pay dividends, result in the Company incurring higher costs, or subject the Company to higher capital requirements. Inability to access short-term funding, loss of client deposits or
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changes in our credit ratings could increase the cost of funding, limit access to capital markets or negatively impact the Company’s overall liquidity or capitalization. The Company may be impacted by concerns regarding the soundness or creditworthiness of other financial institutions, which can cause disruption within the financial markets and increased expenses. The cost of resolving the recent bank failures may also prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments, which would likely increase expenses and negatively impact net income.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table sets forth information about the Company's purchases of its $5 par value common stock, its only class of common stock registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended.

 
 
 
Period
Total Number of Shares Purchased Average Price Paid per ShareTotal Number of Shares Purchased as part of Publicly Announced Program Maximum Number that May Yet Be Purchased Under the Program
April 1 - 30, 20232,907 $56.11 2,907 2,561,770 
May 1 - 31, 2023662 $49.79 662 2,561,108 
June 1 - 30, 20232,636 $49.45 2,636 2,558,472 
Total6,205 $52.61 6,205 2,558,472 
 
 
 
Period
Total Number of Shares Purchased Average Price Paid per ShareTotal Number of Shares Purchased as part of Publicly Announced Program Maximum Number that May Yet Be Purchased Under the Program
January 1 - 31, 2024156,436 $54.03 156,436 1,600,811 
February 1 - 29, 2024379,435 $51.32 379,435 1,221,376 
March 1 - 31, 2024270,346 $52.16 270,346 951,030 
Total806,217 $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, 2,558,472951,030 shares remained available for purchase at June 30, 2023.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 June 30, 2023,March 31, 2024, none of ourthe officers or directors of the Company adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

Item 6. EXHIBITS
The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed below.

10.1 - Commerce Bancshares, Inc. Equity Incentive Plan amended and restated as of April 19, 2023, was filed in current report on Form 8-K (Commission File number 1-36502) dated April 25, 2023, and the same is hereby incorporated by reference.

10.2 - Commerce Bancshares, Inc. Executive Incentive Compensation Planamended and restated as of April 19, 2023, was filed in current report on Form 8-K (Commission File number 1-36502) dated April 25, 2023, and the same is hereby incorporated by reference.

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/ MARGARETMARGARET M. ROWEROWE
Margaret M. Rowe
Date: August 4, 2023May 8, 2024Vice President & Secretary


By /s/ PAUL A. STEINER
Paul A. Steiner
Controller
Date: August 4, 2023May 8, 2024(Chief Accounting Officer)



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