Outstanding
Community
Reinvestment Act
rating for 25 years
44834_CB_Annual_Report_Guts.indd 144834_CB_Annual_Report_Guts.indd 12/14/23 3:01 PM2/14/23 3:01 PMCOMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT1This past year brought a mix of economic uncertainty and market volatility. However, it also brought some reasons for optimism. Portions of the year were marked by negative economic growth and soaring inflation. At the same time, we saw the creation of 4.8 million jobs and positive data that suggest most consumers and businesses are financially healthy. Looking ahead, many economists predict a recession.At Commerce, we have a strong foundation to build from and have historically performed well in challenging times. Underpinning this performance is an engaged team and a best-in-class culture we have shaped for nearly 160 years. This provides us with a strong framework to take care of our customers through the cycle, helping them focus on what matters most. While the outlook is uncertain, the investments in our people and in our long-term growth are key to our success as we discover new ways to unlock our potential and imagine new possibilities in the coming year.About the CoverAt Commerce, our long-term success depends on our ability to attract and retain the best talent. We invest in a variety of developmental programs and activities designed to enhance the professional growth of our team members. The Advanced Leadership Development Program (ALDP) is geared toward our seasoned, high-performing talent who also embody our core values. Pictured are some members of the 2022 ALDP cohort: • James Forse — Division Manager, Commercial Banking • Jodi Clinton — Senior Group Manager, Retail Banking • Jackie Loya-Torres — Manager, Community Reinvestment Act & Community Development • Daniel Shirley — Manager, Data Analytics – Enterprise Analytics & Banking Intelligence 44834_CB_Annual_Report_Guts R1.indd 144834_CB_Annual_Report_Guts R1.indd 12/20/23 2:35 PM2/20/23 2:35 PM Financial Highlights
(In thousands, except per share data)
2018
2019
2020
2021
2022
OPERATING RESULTS
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains (losses), net
Non-interest expense
Net income attributable to Commerce Bancshares, Inc.
Net income available to common shareholders
Cash dividends on common stock
$
823,825 $
42,694
501,341
(488)
737,821
433,542
424,542
100,238
821,293 $
829,847 $
835,424
$
942,185
50,438
524,703
3,626
767,398
421,231
412,231
113,466
137,190
505,867
11,032
768,378
354,057
342,091
120,818
(66,326)
560,393
30,059
805,901
530,765
530,765
122,693
28,071
546,535
20,506
848,777
488,399
488,399
127,466
AT YEAR END
Total assets
Loans, including held for sale
Investment securities
Deposits
Equity
Non-accrual loans
Common shares outstanding1
Tier I common risk-based capital ratio
Tier I risk-based capital ratio
Total risk-based capital ratio
Tier I leverage ratio
Tangible common equity to tangible assets ratio
Efficiency ratio
OTHER FINANCIAL DATA (based on average balances)
Return on total assets
Return on common equity
Loans to deposits
Equity to total assets
Net yield on interest earning assets (FTE)
PER COMMON SHARE DATA
Net income - basic1
Net income - diluted1
Market price1
Book value1
Cash dividends1
Cash dividend payout ratio
$
25,463,842
$ 26,065,789 $
32,922,974 $
36,689,088
$
31,875,931
14,160,992
8,698,666
14,751,626
16,374,730
8,741,888
12,645,693
15,184,974
14,699,511
16,308,095
12,519,177
20,323,659
20,520,415
26,946,745
29,813,073
26,187,440
2,937,149
3,138,472
3,399,972
3,448,324
2,481,577
12,536
135,077
14.22%
14.98
15.82
11.52
10.45
55.58
10,220
129,806
13.93%
14.66
15.48
11.38
10.99
56.87
26,540
129,145
13.71 %
13.71
14.82
9.45
9.92
57.19
9,157
127,509
14.34 %
14.34
15.12
9.13
9.01
57.64
8,306
124,999
14.13 %
14.13
14.89
10.34
7.32
56.90
1.76 %
1.67 %
1.20%
1.55%
1.45%
16.16
69.27
11.24
3.53
14.06
71.54
12.20
3.48
10.64
67.73
11.18
2.99
15.37
56.46
10.11
2.58
$
3.12 $
3.10
$
2.64
$
3.11
46.38
20.67
0.737
23.61%
3.09
58.69
23.06
0.856
27.52 %
2.64
59.59
26.33
0.933
35.32%
$
4.12
4.11
65.47
27.05
0.952
23.12%
17.31
55.41
8.39
2.85
3.86
3.85
68.07
19.85
1.010
26.10 %
1Restated for the 5% stock dividend distributed in December 2022
Return on Average Common Equity
Return on Average Assets
20.0%
15.0%
10.0%
5.0%
0.0%
2.0%
1.5%
1.0%
0.5%
0.0%
2013
2014
2015
2016
2017
2018
2019
2020 2021
2022
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Commerce
Peer Median
Large Bank Median
Commerce
Peer Median
Large Bank Median
Commerce 10-Year Average: 13.2% Peer 10-Year Average: 8.7%
Commerce 10-Year Average: 1.3% Peer 10-Year Average: 1.0%
Sources: S&P Global Market Intelligence, and company reports and filings as of December 31, 2022
2
COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT
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Letter to Our Shareholders
As we begin 2023, the macroeconomic environment is both fragile and volatile.
The worldwide surge in inflation has prompted global central banks to respond
through aggressive interest rate hikes, which has had a moderating effect on
demand and growth. Adding to this economic backdrop, increasing geopolitical
tensions are further contributing to an uncertain outlook. Unfortunately, signals
from economic and market data suggest that the Federal Reserve’s interest rate
hikes could tip the U.S. into recession in 2023.
In the face of these headwinds, your company delivered a solid year of financial
performance in 2022. Profit was strong, fueled by a rate-driven increase in the
net interest margin over the course of the year, reasonably well-controlled
expenses, and low credit costs. Resilient fee-based businesses, coupled with
a well-rounded and healthy balance sheet, continue to provide strong revenue
diversification. We have ample liquidity and capital, and credit performance
remains excellent, reflecting our disciplined approach to underwriting and a
still-benign credit environment. As we look to the future, we are well-positioned
to build upon these strong results and to deliver value-added solutions for our
customers. At the same time, we know there is a lot of uncertainty in the world,
and we actively prepare for the risks that may arise.
We remain focused on generating risk-adjusted returns for our shareholders,
and we are very proud of our track record through the decades. Consistent
with our steady earnings, we returned capital to shareholders through increased
dividends. In February 2023, we increased our quarterly common dividend 7%
to $.27 per share, the 55th consecutive year of dividend increases. Over the past
20 years, the annualized total return to shareholders has been more than 10%,
significantly outperforming the KBW Bank Index annualized return of 4%.
Looking ahead, we continue to build on the foundation that Commerce Bank has established for nearly 160 years,
making strategic investments that will allow us to deliver healthy earnings for many years to come. I would like to
thank our team members, our customers and you, our shareholders, for your ongoing support. We look forward to
working with you and to our shared success in the coming year.
Long-Term Shareholder Return
Cumulative Total Return Indexed, 12/31/2002 = $100
$800
$700
$600
$500
$400
$300
$200
$100
$0
2002
2004
COMMERCE (CBSH)
2006
2008
2010
KBW Bank
2012
2014
KBW Regional Bank
2016
2018
2020
2022
S&P 500
Source: Bloomberg as of December 31, 2022
COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT
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People, Growth & Possibilities
John W. Kemper
President and Chief Executive Officer
C O M M E R C E B A N C S H A R E S , I N C .
F E B R U A R Y 2 2 , 2 0 2 3
Dear Commerce Shareholders:
Despite the hope that 2022 would
bring a more normal and steady
operating environment, the year
instead saw a volatile mix of market
dynamics, including historic inflation,
unforeseen geopolitical disruption,
and an uneven economic emergence
from the pandemic. Strong consumer
demand, record levels of fiscal
stimulus and liquidity, continued
shutdowns in China, and unreliable
supply chains all fueled persistently
high inflation. Responding to price
instability, the Federal Reserve
initiated a series of interest rate hikes
in 2022, with more expected in 2023.
Given all this, many economists are
predicting that a recession looms in
the near future.
Against this highly uncertain picture,
we believe there are still reasons
for optimism. U.S. employment
remains surprisingly resilient, and
as we enter the new year, the job
market is still expanding. Consumer
and commercial spending remain
at healthy levels. Supply chains are
being repaired, and the pace of
inflation has slowed in recent months.
At the same time, we recognize
that a slowdown could weigh on
bank industry earnings — slowing
loan growth, rising credit costs, and
an eventual decline in net interest
margins. Commerce Bancshares
has a strong foundation in place
and an operating model that should
perform well, even if challenging
times are on the horizon. Our ability
to take care of our customers in a
difficult environment can also create
opportunity for the bank. Historically
in times like these, our culture, our
teamwork, and our strength have set
us apart.
I think you will see in the following
report that your company is focused
on the priorities that will drive it
forward — our people, our long-term
growth, and the possibilities ahead.
Our Results
Against the backdrop of a somewhat
volatile economic environment, we
are pleased with our performance in
2022. Like many banks, Commerce’s
profitability was buoyed by a steady
increase in the net interest margin
as rates rose. Our financial results
were also helped by our disciplined
expense management and low credit
costs, despite a tough inflationary
environment. Our balance sheet
continues to be well-positioned, and
we have core, stable deposit funding
(both consumer and commercial)
which has been more valuable in this
rising rate environment.
Fee income as a percent of total
revenue continued to be strong
overall, although key categories such
as asset management and mortgage
banking fees were challenged
by the broader macroeconomic
environment. As in years past, we
4
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Non-Interest
Income
37%
of Total Revenue
in 2022
had very sound credit metrics,
generated ample capital to
support regular dividends,
and have maintained robust
liquidity levels to meet loan
demand across our markets.
Taken together, this amounted
to a fundamentally strong year
for the company with healthy
returns on assets and equity, both of
which remain solidly in the top quartile compared
to peer banks. Our long-term shareholder returns
remain very positive relative to the industry.
Net Interest Income
$ in millions
$942
$821
$680
2016
2019
2022
Strong Foundation for Growth
Commerce has long operated from a strong
foundation, built on the steady execution of
a unique super-community bank model. This
operating model combines the best of small with
the best of big — marrying sophisticated solutions,
capabilities, and advice with high-touch delivery
in the context of deep relationships, excellent
customer service and bankers who are empowered
to take care of their customers and communities.
Foundational to our success and the source of
our long-term competitive advantage is our
culture — one we’ve worked very hard to shape
over time. We take an intentional approach to
introducing and reinforcing culture at every level
of the organization. The strength of the Commerce
franchise also depends on the diversity of our loan
portfolio and fee-based businesses, which gives the
bank earnings resiliency and excellent risk-adjusted
profitability. Our cultural alignment, strong balance
sheet, and diversified revenue sources have proven
to be particularly valuable during this period of
uncertainty.
Commerce has a long history of sound asset quality,
prudent expense management, and strong levels
of capital and liquidity, all of which position us well,
both for future growth and for times of economic
stress. Commerce is proud to be counted among
the safest banks in the country. In
2022, Moody’s reaffirmed our
bank’s financial strength by
assigning Commerce an a1
baseline credit assessment.
Commerce is one of only
five banks in the country
to hold a credit rating at this
level or better.
None of this would be possible without our talented
team members and their unwavering commitment
to our purpose and culture. Our results are a
reflection of the way this team works collaboratively,
communicates, and strives toward the shared goal
of helping our customers focus on what matters
most.
Beyond the Numbers
Commerce is committed to making an impact
beyond the financials we produce and continuously
seeks opportunities to make a difference. We make
ongoing investments in programs and products that
serve our customers, strengthen our communities,
and support a healthy working environment
for our team members. We have a long history
of embedding these principles throughout the
organization. As we have for nearly 160 years, we
maintain strong governance practices to ensure our
strategies, operations and decision-making align
with our principles as a trustworthy company.
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COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT
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6COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORTA strong sense of accountability drives our commitment to improve Diversity, Equity and Inclusion (DEI) in and around Commerce. We have made great strides to advance our DEI efforts against four pillars — our customers, our communities, our suppliers, and our internal workplace. Our community outreach and banking program helps unbanked and underbanked individuals gain access to the banking system and to capital. We expanded the scope of this outreach program in 2022 after a pilot produced encouraging results in the community. We successfully launched Velocity Pay, a prepaid card, to help the unbanked segment access necessary financial services across our footprint. In conjunction with the development of this product, we received the Bank On accreditation seal for connecting consumers with safe and affordable banking solutions. We implemented a new diverse supplier platform powered by Supplier.io to improve our supplier diversity data and create rich reporting and robust search tools. Internally, we continue to enhance our culture and foster an inclusive and engaging team member experience — one where all team members can thrive. At Commerce, we recognize that our workplace diversity makes us a stronger company. To assist our team members in making personal connections and finding a sustaining sense of community at work, Commerce supports multiple voluntary, employee-led resource groups (ERGs) including RISE (empowering women), EMERGE (connecting young professionals), VIBE (valuing multicultural perspectives), and PRIDE (engaging the LGBTQIA+ community). In late 2022, we launched our newest employee resource group, SALUTE, to support our veterans and their careers at Commerce. Participation in our ERGs is entirely voluntary, and more than 40% of team members belong to one of these groups, with 18% participating in more than one group. Commerce’s culture emphasizes the need to build strong relationships with our communities. We take care to ensure our lending products and solutions meet the needs of the community, and we offer affordable options for homeownership through various customer programs. We are proud of the “outstanding” Community Reinvestment Act rating the company has consistently received over the past 25 years for our efforts to support low- and moderate-income communities. In addition to the services we provide as bankers, we contribute philanthropically through the Commerce Bancshares Foundation and the volunteerism that we formally encourage through dedicated paid time off for our team members. Our team members support hundreds of nonprofits in our communities with their time, talent and financial resources. We are honored to work alongside members of our communities to find sustainable and meaningful ways to build a better future. While we are encouraged by the progress made over the last year, we recognize there is more to do. We will continue to advance our work to make our communities and our company a better place to live and work. To learn more about our efforts in these areas, please see our Environmental, Social and Governance Report at commercebank.com. 44834_CB_Annual_Report_Guts R1.indd 644834_CB_Annual_Report_Guts R1.indd 62/20/23 3:30 PM2/20/23 3:30 PM Pursuing the Possibilities in
Our Business Segments
Consumer Banking
Over the past year, our customers navigated an
uncertain environment. Commerce was there to be
their financial partner and to take on their challenges
— providing guidance and advice, introducing new
programs and solutions, and enhancing the variety
of ways customers engage with us.
Fundamental to taking care of our customers is
our ability to communicate with them through
the channels they prefer. Our investments in our
team, branches, customer care center, and in
digital have positioned us well in this regard. To
give our customers more flexibility in the ways
they handle their finances, we provided new
tools to manage liquidity and financial wellness,
including a grace period allowing additional time
to remedy overdrafts. We continued our progress
in the development of flexible payments options.
We launched a new artificial intelligence-guided
tool to better understand the needs of small
business banking clients and pair them with the
right solutions. We also enhanced our Premier
Banking program, designed to provide an elevated
experience and reward customers for their
relationship with Commerce.
Over the course of the year, we continued to invest
in our digital platforms, releasing 20 updates across
online and mobile banking to deliver new features
and functionality. We improved our mobile deposit
experience and added new self-service capabilities,
including internal account-to-account transfers
and improved security at login. Additionally, we
expanded the Commerce Bank CONNECT® mobile
app experience to provide our customers a way
to make personal connections with our bankers
anytime and anywhere, through their smartphone.
Our relationships with customers continue to
be strong. In 2022, we maintained a primary
banking relationship with 76% of our retail banking
customers, marking the fourth consecutive year
at this level or above. For the past three years, we
exceeded our overall customer experience goal,
based on understanding our customers’ needs and
connecting them with relevant solutions. We are
committed to continuing to provide a best-in-class
experience for our customers, which we believe will
serve as the foundation for growth in the years to
come.
Commercial Banking and Commercial Payments
Our commercial banking and payments teams serve
more than 13,000 customers nationally, helping them
obtain funding to capitalize on new opportunities,
maximize cash flow, and manage risk to grow their
businesses.
Commercial loan balances grew to exceed $10
billion in 2022, with notable increases from our
expansion markets. In aggregate, expansion market
loan balances exceeded $3 billion for the first time.
The credit quality of our borrowers continues to be
strong as net loan charge-offs were $1 million, and
our watchlist of troubled credits continued to shrink
throughout the year.
Expansion Market Loan Growth
5-year CAGR
11%
3%
Total Company
Expansion Markets
Our leading position as a payments bank continues
to be a primary driver for attracting deposits, which
ended the year at nearly $11 billion. In addition,
our payments solutions drove an increase of 7% in
commercial fee income for the year, with treasury
management, accounts payable and card-based
services experiencing the highest levels of growth.
The bank saw particularly strong growth in the
healthcare vertical, where our RemitConnect®
payment processing automation solution is
experiencing robust demand.
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COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT
7
8COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORTA particular point of emphasis for our product development teams has been to equip our solutions to integrate directly with core platforms, such as provider networks for insurance payments, electronic medical records and enterprise resource planning software. This work extends the reach and capabilities of our solutions while advancing our reputation in specific industry verticals. Furthermore, we continue to cultivate an array of strategic partnerships with industry trade associations and group purchasing organizations.Looking to the future, we continue to explore growth, both organically and through acquisition, to expand and diversify our commercial segment. In 2022, we entered into a definitive agreement to acquire L.J. Hart & Company, a leading regional municipal bond underwriter and advisory firm. This partnership will enhance Commerce’s offerings for our capital markets customers by adding proprietary municipal products and bolstering our institutional fixed-income business. During 2022, our team continued working on the implementation of a new instant payments service. Commerce was selected by the Federal Reserve as one of approximately 120 organizations to participate in its FedNowSM pilot program. The platform’s go-live date is scheduled for mid-2023 and will enable us to provide customers with an efficient method for making near-real-time payments at any time of their choosing.Wealth Management Like other areas of the bank, our wealth management business faced market-driven challenges in 2022 as the conspiring headwinds of inflation, elevated interest rates, and a deteriorating outlook for the economy created a broad correction in financial asset prices. Alongside broader markets, Commerce Trust’s assets under management fell in 2022, ending the year at $37 billion. Despite this market correction, asset attrition was negligible, and new asset management sales remained strong. Building trusted relationships with our clients — individuals, families, and institutions — continues to be our primary focus at Commerce Trust. As such, we redoubled our efforts to engage and deepen existing relationships as market conditions diminished throughout the year, as reflected in our strong client satisfaction scores (9.5 out of 10) and superior client retention rate of 95%. With a new year upon us, we are poised for strategic growth with plans to enter wealth markets that will complement our existing footprint. Looking ahead, we will seek to build our wealth clientele in high-growth geographies like Dallas and Houston, as well as establish a physical presence in Naples, Florida.Lastly, we are keenly focused on our wealth “blue chip” initiatives. These include transforming our private bank business, revitalizing our client support model, deepening sales training for client service officers, and enhancing our recruiting efforts to retain and attract the best talent in our industry. The wealth management business continues to distinguish itself by offering proactive, holistic advice and portfolio management solutions that are unique for every individual and institutional client, while delivering excellent risk-adjusted profitability to our shareholders.44834_CB_Annual_Report_Guts R1.indd 844834_CB_Annual_Report_Guts R1.indd 82/20/23 3:03 PM2/20/23 3:03 PM None of these improvements are possible without
a diverse team of high-performing individuals.
Some of our most important initiatives are focused
on helping our team members grow their career
at Commerce, and we are fortunate to have a
highly engaged team. Our 2022 team member
engagement survey results showed that we scored
at or above the high-performing organization
benchmark on 95% of the questions asked.
According to our survey administrator Korn Ferry,
the percentage of effective employees, or those
that identify as both engaged and enabled to do
their job, is significantly above the high-performing
company norm.
Just as important, our engagement and enablement
scores have improved over time. This is what we
strive for as an organization: steady progress built
on the hard work of shaping our culture with a
continuous improvement mindset. Affirming these
efforts, Forbes named Commerce to its 2022 list
of America’s Best Midsize Employers for the fifth
consecutive year.
Effective Teams are Engaged and Enabled
based on 2022 Team Member Survey by Korn Ferry
81%
80%
71%
70%
Engagement
Enablement
Commerce
U.S. High-Performing Norm
Continuous Improvement and Innovation
Commerce’s ability to endure and thrive as
an organization is driven by the right cultural
mindset. Our culture emphasizes the importance
of continuous improvement and innovation. The
compounding effect of even modest improvement
over long periods of time can be enormously
powerful. Done correctly, these improvements
sustain a profitable enterprise that can invest
in innovation — new products and solutions,
technology, and talent. We believe investments
such as these will position us for continued growth
and superior returns well into the future.
Commerce delivered improvements, large and
small, in many ways over the course of 2022. Our
team invested heavily in digital delivery across
all our businesses, and consistently updated
our products and customer portals, working in
agile fashion. We improved internal processes,
adopting tools to streamline and distribute work
among our team. Our ongoing investment in
customer relationship management tools allowed
our teams to stay close to customers through
the pandemic, communicating regularly and in
targeted, meaningful ways. Our teams continue
to embrace hybrid ways of getting work done,
using communication tools and reconfiguring
physical workplaces to give more flexibility and to
improve collaboration. In many ways, collaboration
has improved in the last three years, despite the
challenges of a virtual or hybrid work environment.
In addition to these incremental improvements,
other accomplishments were more pioneeringly
innovative. In early 2022, Commerce successfully
implemented a new core banking application. This
project was a tremendous accomplishment for our
collective team and an extraordinary example of
collaboration, agility, innovation, and our ongoing
commitment to our customers. The new core
solution positions us to support the evolving
technologies of tomorrow and to grow alongside
our customers. It helps power greater insight into
our customers, allows us to bring new products to
market more quickly, and positions Commerce for
success well into the future.
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COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT
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10COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORTLooking Ahead: People, Growth & Possibilities Commerce delivered strong results in 2022 — a reflection of our culture in action and our diversified operating model. We successfully executed on our “blue chip” priorities, including the implementation of a new core banking system. We invested in our team and in areas that will provide long-term growth and deliver value to our stakeholders. Over the past year, we helped our customers and team members through some of the most dynamic economic times in modern history. The impact of the Federal Reserve’s actions remains unclear for the overall economy. The good news is that elevated interest rates combined with consistent operational execution can lead to strong performance for Commerce. At the same time, as rates rise and uncertainty persists, balance sheet growth and loan demand may slow. The industry has seen few signs of credit stress thus far, but we are mindful that in an economic downturn, credit losses quickly compound. Looking ahead, we will continue to stay close to our customers. Communication is a top priority, and we have been investing in our technology capabilities over the past year to ensure our communication continues to evolve with the times. Looking further into the future, we continue to have bright growth prospects in payments and wealth management, and we are making steady gains in some geographic markets with attractive growth demographics.This past year was full of twists and turns, and we expect more of the same in 2023. We remain encouraged by the resiliency of our customers, our team members, and the communities we serve. The road is uncertain, but with our strong foundation of people and culture, I am optimistic about our growth and the possibilities that lie ahead. Thank you for the confidence you place in our team. We are focused on the future and grateful for your continued support.Growth in EPS and Stock Price$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50$4.00$0.00$10.00$20.00$30.00$40.00$50.00$60.00$70.00201320162014201520172022Stock PriceEarnings Per Share (EPS)$4.502020201820192021Stock Price Earnings Per Share (EPS)44834_CB_Annual_Report_Guts.indd 1044834_CB_Annual_Report_Guts.indd 102/14/23 3:29 PM2/14/23 3:29 PM Performance Highlights
• Commerce reported earnings per share of $3.85, compared
to $4.11 in 2021. Return on average assets totaled 1.45% in
2022 and return on average equity was 17.3%. This compares
favorably to the top 50 bank industry median of 1.09% for
return on average assets and 10.7% for return on average
equity.
• For 2022, annualized total shareholder return was 5.6%,
outperforming both the KBW Regional Bank Index of -6.9%
and the KBW Bank Index return of -21.4%.
• Net income available to common shareholders totaled $488
million in 2022, compared to $531 million in 2021.
• In 2022, Commerce paid a regular cash dividend of $1.01
per share (restated) on common shares, representing a
6% increase over 2021. In February 2023, we increased our
regular cash dividend 7%, marking the 55th consecutive year
of cash dividend increases. Also in 2022, for the 29th year in
a row, we paid a 5% stock dividend.
• Total shareholders’ equity was $2.5 billion, and our Tier I
common risk-based capital ratio remained strong, ending
2022 at 14.1%.
• Period end total loans grew $1.1 billion, or 7%, in 2022,
including growth of $358 million, or 7%, in business loans
and $348 million, or 11%, in business real estate loans.
• Total revenue, comprised of net interest income and non-
interest income, increased $93 million in 2022 to a record
level of $1.5 billion.
• Net interest income grew $107 million, or 13%, compared to
2021, mostly driven by higher average rates earned on loans.
• The net yield on interest earning assets (FTE) increased 27
basis points in 2022 to 2.85%.
• Bank card transaction fees grew $8 million, or 5%, compared
to 2021, driven by higher net corporate card fees.
• Our efficiency ratio improved to 56.9% in 2022.
• Net loan charge-offs totaled $19 million in both 2022 and
2021. Net charge-offs totaled .12% of average loans in 2022
and the non-accrual loans to total loans ratio was .05% at
December 31, 2022.
• Commerce Bank was recognized on Forbes’ America’s Best
Banks 2022 list — one of the most respected lists in the
industry — for the 13th consecutive year.
2022 Annualized Total Return
5.6%
–6.9%
Commerce
KBW
Regional Bank
–21.4%
KBW Bank
Cash Dividends
per Common Share
$1.01
$.86
$.64
2016
2019
2022
Tier I Common
Risk-Based Capital Ratio
As of December 31, 2022
14.1%
10.6%
9.9%
Commerce
Peer
Median
Large Bank
Median
Total Loans
$16.3
$14.8
$ in billions
$13.4
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2016
COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT
2022
2019
11
Commerce by the Numbers
$31.9
BILLION
$8.5
BILLION
$37.3
BILLION
17.3%
Total
Assets
Market
Capitalization
Trust Assets
Under Management
Return on Average
Common Equity YTD
Ranked 42nd
Among U.S. Banks1
Ranked 22nd
Among U.S. Banks1
Ranked 18th
Among U.S. Banks1
Ranked 6th
Among U.S. Banks2
$26.2
BILLION
Total Deposits
$16.3
BILLION
Total Loans
a1
Baseline Credit
Assessment3
4,594
Full-Time Equivalent
Employees
F U L L - S E RV I C E B A N K I N G F O OT P R I N T
148 full-service branches and 293 ATMs
St. Louis • Kansas City
Springfield • Central Missouri
Central Illinois • Wichita
Tulsa • Oklahoma City • Denver
C O M M E R C I A L O F F I C E S
Cincinnati • Nashville • Dallas
Des Moines • Indianapolis
Grand Rapids • Houston
U. S . P R E S E N C E
Extended Commercial Market Area
Commercial Payments Services
Offered in 48 states across the U.S.
COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT
Source: S&P Global Market Intelligence, and company reports and filings as of December 31, 2022
1Regulated U.S. depositories, which includes commercial banks, bank holding companies and credit unions, as of September 30, 2022
2Based on the top 50 publicly traded U.S. banks by total assets, as of September 30, 2022
3Commerce is 1 of 5 U.S. banks with a Moody’s rating of a1 or better, “Moody’s U.S. Bank Rankings”, November 18, 2022
12
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Community Advisors
Our Community Advisors help us understand the unique needs and challenges of our customers and communities. They
are business owners, educators, professionals and civic leaders who take on the challenges of their organizations and
communities every day. We’re continually impressed by their hard work and grateful to them for sharing their valuable
insights. It is because of our Community Advisors in each of our markets that we’re able to say “Challenge Accepted.®”
Missouri
CAPE GIRARDEAU
Nick Burger
Commerce Bank
Tim Coad
Coad Chevrolet and Coad Toyota
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Mike Kasten
Beef Alliance
Adam Kidd
Kidd’s Gas & Convenience Store
Frank Kinder
Retired
Steve Sowers
Commerce Bank
Susan Layton Tomlin
Layton & Southard, LLC
Allen Toole
Schaefer’s Electrical Enclosures
Ben Traxel
Tenmile Companies
COLUMBIA
Dan Atwill
Boone County Commission
Dr. Holly Bondurant
Tiger Pediatrics
Sarah Dubbert
Commerce Bank
Mark Fenner
Former Energy Industry CEO
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
Douglas D. Neff
Commerce Bancshares, Inc.
Commerce Bank
Robert K. Pugh
Retired, MBS Textbook Exchange
Steve Sowers
Commerce Bank
David Townsend
Agents National Title Insurance
Company
Andy Waters
AW Holdings, LLC
Robin Wenneker
CPW Partnership
Dave Whelan
Commerce Bank
Dr. John S. Williams
Retired, Horton Animal Hospital
MEXICO
Chad Bruns
Chad Bruns Farms
George M. Huffman
Pearl Motor Company
Robby Miller
Mexico Heating Company
Gina Raines
Commerce Bank
Steve Sowers
Commerce Bank
Larry Webber
Webber Pharmacy
MOBERLY
Brent Bradshaw
Orscheln Management Co.
Dr. Clifford J. Miller
Green Hills Veterinary Clinic
Todd Norton
Commerce Bank
Jim Rolls
Retired, Associated Electric Cooperative
Steve Sowers
Commerce Bank
MONITEAU COUNTY
Philip Burger
Burgers’ Smokehouse
Brad Clay
Commerce Bank
Shayne W. Healea
Cornell Farrow Healea, LLC
Bart Jurgensmeyer
Jurgensmeyer Farms, Inc.
Dr. Mike Lutz
Mike Lutz, DDS
Steve Sowers
Commerce Bank
HANNIBAL / QUINCY
C. Todd Ahrens
Hannibal Regional Healthcare System
David M. Bleigh
Bleigh Construction Company
Bleigh Ready Mix Company
Jim Humphreys
Luck, Humphreys and Associates,
CPA, PC
Darin D. Redd
Commerce Bank
Michael C. Riesenbeck
Golden Eagle Distributing
Steve Sowers
Commerce Bank
Joshua J. Williams
HRW Companies, LLC
HARRISONVILLE
Aaron Aurand
Crouch, Spangler & Douglas
Connie Aversman
Commerce Bank
Larry Dobson
Real Estate Investments
Mark Hense
Trinity Technical Group
Scott Milner
Retired, Milner Ford
Brent Probasco
Cass Regional Medical Center, Inc.
Aaron Rains
Commerce Bank
Laurence Smith
ReeceNichols Smith Realty
Dr. Larry Snider
Retired, Snider Optometry
Timothy Soulis
Golden Classics Jewelers
KANSAS CITY
Ali H. Armistead
Alaris Capital, LLC
Kevin G. Barth
Commerce Bancshares, Inc.
Commerce Bank
Rosana Privitera Biondo
Mark One Electric Co., Inc.
Clay C. Blair, III
Clay Blair Services Corp.
Rob Bratcher
Commerce Bank
Timothy S. Dunn
J.E. Dunn Construction Co., Inc.
Jon D. Ellis
LSEG, LLC
Jonathan M. Kemper
Commerce Bancshares, Inc.
Commerce Bank
David F. Kiersznowski
DEMDACO
Michael P. McCoy
Intercontinental Engineering-
Manufacturing Corporation
Stephen G. Mos
Central States Beverage Company
Laura M. Perin
Labconco Corp.
Jeanette Prenger
ECCO Select
Jay Reardon
Commerce Bank
Ora H. Reynolds
Hunt Midwest Enterprises, Inc.
Dr. Nelson R. Sabates
Sabates Eye Centers
Meyer J. Sosland
Sosland Publishing Company
Nick Warren
Commerce Bank
Debbie Wilkerson
Greater Kansas City Community
Foundation
Thomas R. Willard
Commerce Trust
Tower Properties Company
POPLAR BLUFF
Edward L. Baker
Edward L. Baker Enterprises
Brad Chronister
ESA South
Larry Greenwall
Greenwall Vending Co.
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Kenny Rowland
Commerce Bank
Steve Sowers
Commerce Bank
ST. JOSEPH
Mark Barkman
Commerce Trust
Brett Carolus
Hillyard, Inc.
Brendon Clark
Commerce Bank
James H. Counts
Morton, Reed, Counts, Briggs &
Robb, LLC
Pat Dillon
Mosaic Life Care
Todd Meierhoffer
Meierhoffer Funeral Home & Crematory
Patrick Modlin
Room 108/Felix Street Gourmet
Dr. Scott Murphy
Murphy-Watson-Burr Eye Center
Jay Reardon
Commerce Bank
Matt Robertson
CliftonLarsonAllen LLP
Amy Ryan
Commerce Bank
Judy Sabbert
Retired, Mosaic Life Care Foundation
Rick Schultz
RS Electric
Bill Severn
NPG, Inc.
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COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT
13
Heidi Walker
CBIZ Insurance Services
Julie Walker
Commerce Trust
ST. LOUIS METRO
Kwofe A. Coleman
The Muny
Charles L. Drury, Jr.
Drury Hotels Company, LLC
Frederick D. Forshaw, Sr.
Forshaw of St. Louis
James G. Forsyth, III
Moto, Inc.
David S. Grossman
Private Investor
Tom Harmon
Commerce Bank
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
Kristin Humes
Tacony Corporation
Donald A. Jubel
Spartan Light Metal Products
David W. Kemper
Commerce Bancshares, Inc.
John W. Kemper
Commerce Bancshares, Inc.
Commerce Bank
Alois J. Koller, III
Koller Enterprises, Inc.
Kristopher G. Kosup
Buckeye International, Inc.
Alaina Maciá
MTM
Arteveld J. McCoy II
SAGES LLC
James B. Morgan
Subsurface Constructors, Inc.
Chrissy Nardini
American Metals Supply Co., Inc.
Victor L. Richey, Jr.
ESCO Technologies, Inc.
James E. Schiele
Consultant
Paul J. Shaughnessy
BSI Constructors, Inc.
Thomas H. Stillman
Summit Distributing
Andrew Thome
Marsh McLennan Agency
Gregory Twardowski
Private Investor
Kelvin R. Westbrook
KRW Advisors, LLC
ST. LOUIS METRO EAST
Hamilton Callison
Breakthru Beverage Group
Darren L. Clay
Clay Piping
Harlan Ferry, Jr.
Retired, Commerce Bank
Matthew Gomric
Commerce Bank
Jared Katt
Chelar Tool & Die, Inc.
Robert McClellan
Retired, Hortica
Bunch Greenwade
Rancher
James Rauckman
Rauckman High Voltage Sales, LLC
Robert A. Hammerschmidt, Jr.
Commerce Trust
Dr. James T. Rosborg
McKendree University
Richard Sauget Jr.
Mayor of Sauget
Jack Schmitt
Jack Schmitt Family of Dealerships
Kurt Schroeder
Greensfelder, Hemker & Gale, P.C.
Joe Wiley
Quest Management Consultants
ST. LOUIS BUSINESS BANKING
Paul J. Berra III
Missouri Terrazzo
Kevin Bray
St. Charles Community College
Emily B. Bremer
The Bremer Group, LLC
Richard K. Brunk
Attorney at Law
James N. Foster
McMahon Berger
Lou Helmsing
Craftsmen Trailer, LLC
J.L. (Juggie) Hinduja
Sinclair Industries, Inc.
Susan Kalist
Commerce Bank
Dr. Barbara Kavalier
St. Charles Community College
Greg Kendall
Commerce Bank
Stuart Krawll
Beam of St. Louis, Inc.
Patrick N. Lawlor
Lawlor Corporation
Scott Lively
CliftonLarsonAllen LLP
Stephen Mattis
Retired, Allied Industrial
Equipment Corporation
Lisa D. McLaughlin
MGD Law, LLC
McGraw Milhaven
KTRS
Duane A. Mueller
Cissell Mueller Construction Company
Elizabeth Powers
Powers Insurance
Dennis Scharf
Scharf Tax Services
SPRINGFIELD
Christina Angle
The Erlen Group
Dr. Hal L. Higdon
Ozarks Technical Community College
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
Craig Lehman
Shelter Insurance Agency
Sherry Lynch
Commerce Bank
Michael Meek
Investments
James F. Moore
Retired, American Products
Robert Moreland
More-Land Realty, LLC
David Murray
R.B. Murray Company
Douglas D. Neff
Commerce Bancshares, Inc.
Commerce Bank
Keith Noble
Commerce Bank
Richard Ollis
Ollis/Akers/Arney Insurance &
Business Advisors
Doug Russell
The Durham Company
Rusty Shadel
Shadel’s Colonial Chapel
Steve Sowers
Commerce Bank
David Waugh
Independent Stave Company
JOPLIN/PITTSBURG
Donald Cupps
Ellis, Cupps & Cole
Adam Endicott
Unique Metal Fabrication, Inc.
Kathleen M. Flannery
Pittsburg State University
Jay Hatfield
Jay Hatfield Chevrolet
Jerrod Hogan
Anderson Engineering
Wesley C. Houser
Retired, Commerce Bank
David C. Humphreys
TAMKO Building Products, Inc.
Phil Hutchens
Hutchens Construction
Don Kirk
H & K Camper Sales, Inc.
Dr. Tyrone Bledsoe, Sr.
Student African American Brotherhood
Barbara J. Majzoub
Yorktown Properties
Kimberly Chaffin
Hogan Land Title Company
Brian Esther
Retired, Commerce Bank
James P. Ferguson
Heart of America Beverage Co.
Charles R. Greene
American Sportsman Holdings Co.
Douglas D. Neff
Commerce Bancshares, Inc.
Commerce Bank
Eric Schnelle
S & H Farm Supply, Inc.
Lane R. Shumaker
Battery Outfitters, Inc.
Steve W. Sloan
Midwest Minerals, Inc.
Steve Sowers
Commerce Bank
Brian Sutton
Commerce Bank
Clive Veri
Commerce Bank
Wendell L. Wilkinson
Retired, Commerce Bank
Kansas
BUTLER COUNTY (EL DORADO)
Monte A. Cook
Commerce Bank
Vince Haines
Gravity :: Works Architecture
Ryan T. Murry
ICI
Jeremy Sundgren
Sundgren Realty, Inc.
Mark Utech
Commerce Bank
GARDEN CITY
Monte A. Cook
Commerce Bank
Richard Harp
Commerce Bank
Lee Reeve
Reeve Cattle Company
Patrick Rooney
Rooney Farms
Tamara Roth
Allred & Company, CPA’s, Inc.
Pat Sullivan
Retired, Sullivan Analytical Service, Inc.
HAYS
D.G. Bickle, Jr.
Warehouse, Inc.
Monte A. Cook
Commerce Bank
Brian Dewitt
Adams, Brown, Beran & Ball, CPAs
Stuart Lowry
Sunflower Electric Power Corporation
Marty Patterson
Rome Corporation
Shane Smith
Commerce Bank
Kevin Royer
Midland Marketing Cooperative
LAWRENCE
Rob Gillespie
Commerce Bank
Michele Hammann
SSC CPAs + Advisors
Mark Heider
Commerce Bank
Russ Johnson
LMH Health
Eugene W. Meyer
Executive in Residence
Masters HealthCare Administration,
KUMC
Allison Vance Moore
Colliers International
Martin W. Moore
Advanco, Inc.
14
COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT
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Dr. John R. Frame
Breast Health Specialists of Oklahoma
Gip Gibson
Commerce Bank
Kent J. Harrell
Harrell Energy
Ed Keller
Titan Properties
Teresa L. Knox
Hickory House Properties LLC
Ken Lackey
The NORDAM Group, Inc.
Tom E. Maxwell
Retired, Flintco, LLC
Sanjay Meshri
Meshri Holdings
John Neas
Neas Investments
Shannon O’Doherty
Commerce Bank
John Peters
Adwon Properties
Tracy A. Poole
FortySix Venture Capital LLC
Stephanie Regan
AAON, Inc.
Dr. Andy Revelis
Tulsa Pain Consultants
Daryl Woodard
SageNet
Colorado
DENVER
Robert L. Cohen
The IMA Financial Group, Inc.
Joseph Freund, Jr.
Running Creek Ranch
R. Allan Fries
i2 Construction, LLP
Darren Lemkau
Commerce Bank
James C. Lewien
Retired, Commerce Bank
Alek Orloff
Frontier Waste Solutions
David Schunk
Volunteers of America, Colorado Branch
Olivia Thompson
Retired, AlloSource
Jason Zickerman
The Alternative Board
Kevin J. O’Malley
O’Malley Beverage of Kansas, Inc.
Jay Reardon
Commerce Bank
Dan C. Simons
The World Company
Michael Treanor
CT Design + Development
LEAVENWORTH
Arlen Briggs
Armed Forces Insurance Exchange
Jeffrey Chalabi
Central Bag Company
Mark Denney
J.F. Denney Plumbing & Heating
Jeremy Greenamyre
Greenamyre Rentals
Eric Hoins
Young Sign Company, Inc.
Matt Kaaz
Leavenworth Excavating & Equipment
Company, Inc.
Lawrence W. O’Donnell, Jr.
Lawrence W. O’Donnell, Jr., CPA
Chartered
Bill Petrie
Commerce Bank
Jay Reardon
Commerce Bank
Trenton Peter
Trenton Peter Agency LLC
American Family Insurance
MANHATTAN
Mark Bachamp
Olsson Associates
Monte A. Cook
Commerce Bank
Shawn Drew
Commerce Bank
Neal Helmick
Griffith Lumber Co.
Dr. David Pauls
Surgical Associates
WICHITA
Ray L. Connell
Connell & Connell
Monte A. Cook
Commerce Bank
Thomas E. Dondlinger
Dondlinger Construction
Craig Duerksen
Commerce Bank
Ronald W. Holt
Retired, Sedgwick County
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
Eric Ireland
Commerce Bank
Paul D. Jackson
Vantage Point Properties, Inc.
Kristi Krok
Commerce Bank
Brett Mattison
Decker & Mattison Co., Inc.
Douglas D. Neff
Commerce Bancshares, Inc.
Commerce Bank
Marilyn B. Pauly
Retired, Commerce Bank
John Rolfe
Kansas Leadership Center
Barry L. Schwan
House of Schwan, Inc.
David White
Alloy Architecture
Illinois
BLOOMINGTON-NORMAL
Larry H. Dietz
Retired, Illinois State University
Brent A. Eichelberger
Commerce Bank
Neil Finlen
Farnsworth Group, Inc.
Ron Greene
Afni, Inc.
Jared Hall
Central Illinois Veterinary Associates
Mary Bennett Henrichs
Integrity Technology Solutions
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
Colleen Kannaday
Carle BroMenn Medical Center
Nick Kemp
Vogo Cabinets
Douglas D. Neff
Commerce Bancshares, Inc.
Commerce Bank
William J. Phillips IV
Commerce Bank
Jay Reece
Jay D. Reece, P.C. Attorney at Law
Alan Sender
Retired, Chestnut Health Systems
CHAMPAIGN-URBANA
Mark Arends
Arends Hogan Walker, LLC
Matt Deering
Meyer Capel
Brent A. Eichelberger
Commerce Bank
Donna Greene
University of Illinois Foundation
Tim Harrington
Coldwell Banker Commercial
Devonshire Realty
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Kim Martin
Martin Hood, LLC
William J. Phillips IV
Commerce Bank
Jeff Troxell
Commerce Bank
PEORIA
Bruce L. Alkire
Coldwell Banker Commercial
Devonshire Realty
David W. Altorfer
United Facilities, Inc.
Royal J. Coulter
GFL Environmental Inc.
Dr. Michael A. Cruz
OSF HealthCare
Brent A. Eichelberger
Commerce Bank
Gregg E. Hollabaugh
Commerce Bancshares, Inc.
Robert S. Holmes
Commerce Bancshares, Inc.
Commerce Bank
John P. Kaiser
RSM US, LLP
Dr. James W. Maxey
OSF Orthopedics
Douglas D. Neff
Commerce Bancshares, Inc.
Commerce Bank
Rebecca L. Rossman
Peoria Community Against Violence
Leanne Skuse
River City Construction, LLC
Oklahoma
OKLAHOMA CITY
Gary Bridwell
Orange Power Group
Steve Brown
Red Rock Distributing Co.
Jim Cleaver
Midsouth Financial Company
Clay Cockrill
SiteAware
Mark Fischer
Fischer Investments
Zane Fleming
Eagle Drilling Fluids
Mike McDonald
Triad Energy
Shannon O’Doherty
Commerce Bank
Vince Orza
Retired, Family Broadcasting
Corporation
Kathy Potts
Rees Associates, Inc.
Ethan Slavin
Creek Commercial Realty
Jay Soulek
Northwest Crane Service
Joe Warren
Cimarron Production
TULSA
Jack Allen
HUB International Limited
R. Scott Case
Case & Associates, Inc.
Wade Edmundson
Retired, Commerce Bank
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COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT
15
16COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORTTerry D. BasshamRetiredChief Executive Officer and President Evergy, Inc.Blackford F. Brauer*PresidentHunter Engineering CompanyW. Kyle ChapmanPresident and Board MemberBarry-Wehmiller Group, Inc.Karen L. Daniel*RetiredChief Financial Officer and Executive DirectorBlack & VeatchEarl H. Devanny, IIIRetiredChief Executive OfficerTractManagerDavid W. KemperExecutive Chairman Commerce Bancshares, Inc.John W. KemperPresident and Chief Executive OfficerCommerce Bancshares, Inc.Jonathan M. KemperChairman EmeritusCommerce BankKansas City RegionJune McAllister FowlerRetiredSenior Vice PresidentCommunications, Marketing andPublic Affairs of BJC HealthCareBenjamin F. Rassieur, III*President Paulo Products CompanyTodd R. Schnuck*Chairman of the Board and Chief Executive OfficerSchnuck Markets, Inc.Christine B. TaylorChief Executive Officer and PresidentEnterprise Holdings, Inc.Kimberly G. Walker*RetiredChief Investment OfficerWashington University in St. LouisDavid W. KemperExecutive Chairman John W. KemperPresident and Chief Executive OfficerCharles G. KimChief Financial Officerand Executive Vice PresidentKevin G. BarthExecutive Vice PresidentJohn K. HandyExecutive Vice PresidentRobert S. HolmesExecutive Vice PresidentDavid L. OrfChief Credit Officer and Executive Vice PresidentPaula S. PetersenExecutive Vice PresidentDerrick R. BrooksSenior Vice PresidentRichard W. HeiseSenior Vice PresidentKim L. JakovichSenior Vice PresidentPatricia R. KellerhalsSenior Vice PresidentDouglas D. NeffSenior Vice PresidentThomas J. NoackSenior Vice PresidentDavid L. RollerSenior Vice PresidentMargaret M. RoweSecretary, General Counseland Vice PresidentJana L. WebbChief Risk Officer and Vice President Paul A. SteinerControllerAaron C. MeinertAuditorOfficersDirectors*Audit and Risk Committee Member44834_CB_Annual_Report_Guts R1.indd 1644834_CB_Annual_Report_Guts R1.indd 162/20/23 3:07 PM2/20/23 3:07 PM UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☑
☐
OR
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
________________________________________________________
For the Fiscal Year Ended December 31, 2022
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
(Exact name of registrant as specified in its charter)
COMMERCE BANCSHARES, INC.
Missouri
(State of Incorporation)
43-0889454
(IRS Employer Identification No.)
1000 Walnut
Kansas City, MO
(Address of principal executive offices)
64106
(Zip Code)
Registrant's telephone number, including area code: (816) 234-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of class
Trading symbol(s)
Name of exchange on which registered
$5 Par Value Common Stock
CBSH
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
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 ¨
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 ¨
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 ¨ Non-accelerated filer ¨ 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by
any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
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 June 30, 2022, the aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $7,329,000,000.
As of February 16, 2023, there were 124,801,957 shares of Registrant’s $5 Par Value Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its 2023 annual meeting of shareholders, which will be filed within 120 days of December 31, 2022,
are incorporated by reference into Part III of this Report.
Commerce Bancshares, Inc.
Form 10-K
INDEX
PART I
Item 1.
Business
Item 1a.
Risk Factors
Item 1b.
Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4.
Mine Safety Disclosures
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Item 6.
RESERVED
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Item 7a.
Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Item 9a.
Controls and Procedures
Item 9b.
Other Information
Item 9c.
Disclosure regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
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Item 1. BUSINESS
General
PART I
Commerce Bancshares, Inc., a bank holding company as defined in the Bank Holding Company Act of 1956, as amended,
was incorporated under the laws of Missouri on August 4, 1966. Through a second tier wholly-owned bank holding company, it
owns all the outstanding capital stock of Commerce Bank (the “Bank”), which is headquartered in Missouri. The Bank engages
in general banking business, providing a broad range of retail, mortgage banking, corporate, investment, trust, and asset
management products and services to individuals and businesses. Commerce Bancshares, Inc. also owns, directly or through the
Bank, various non-banking subsidiaries. Their activities include private equity investment, securities brokerage, insurance
agency, specialty lending, and leasing activities. A list of Commerce Bancshares, Inc.'s subsidiaries is included as Exhibit 21.
Commerce Bancshares, Inc. and its subsidiaries (collectively, the "Company") is one of the nation’s top 50 bank holding
companies, based on asset size. At December 31, 2022, the Company had consolidated assets of $31.9 billion, loans of $16.3
billion, deposits of $26.2 billion, and equity of $2.5 billion. The Company's principal markets, which are served by 148 branch
facilities, are located throughout Missouri, Kansas, and central Illinois, as well as Tulsa and Oklahoma City, Oklahoma and
Denver, Colorado. Its two largest markets are St. Louis and Kansas City, which serve as central hubs for the Company. The
Company also has offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids that support
customers in its commercial and/or wealth segments and operates a commercial payments business with sales representatives
covering the continental United States of America (“U.S.”).
The Company’s goal is to be the preferred provider of financial services in its communities, based on strong customer
relationships built through providing top quality service with a strong risk management culture, and employing a strong balance
sheet with strong capital levels. The Company operates under a super-community banking format which incorporates large
bank product offerings coupled with deep local market knowledge, augmented by experienced, centralized support in select,
critical areas. The Company’s focus on local markets is supported by an experienced team of bankers assigned to each market
coupled with industry specialists. The Company also uses regional advisory boards, comprised of local business leaders,
professionals and other community representatives, who assist the Company in responding to local banking needs. In addition
to this local market, community-based focus, the Company offers sophisticated financial products usually only available at
much larger financial institutions.
The markets the Bank serves are mainly located in the lower Midwest, which provides natural sites for production and
distribution facilities and serve as transportation hubs. The economy has been well-diversified in these markets with many
major industries represented, including telecommunications, automobile, technology, financial services, aircraft and general
manufacturing, health care, numerous service industries, and food and agricultural production. The personal real estate lending
operations of the Bank are predominantly centered in its lower Midwestern markets.
From time to time, the Company evaluates the potential acquisition of various financial institutions. In addition, the
Company regularly considers the purchase and disposition of real estate assets and branch locations. The Company seeks
merger or acquisition partners that are culturally similar, have experienced management and either possess significant market
presence or have potential for improved profitability through financial management, economies of scale and expanded services.
The Company has not completed any bank acquisitions since 2013.
Employees and Human Capital
The Company employed 4,447 persons on a full-time basis and 151 persons on a part-time basis at December 31, 2022.
None of the Company's employees are represented by collective bargaining agreements.
Attracting and retaining talented team members is key to the Company’s ability to execute its strategy and compete
effectively. The Company values the unique combination of talents and experiences each team member contributes toward the
Company’s success and strives to offer rewards that meet team members’ individual, evolving needs. Well-being is much more
than a paycheck and that’s why the Company takes a comprehensive approach to Total Rewards, supporting team members’
physical well-being, financial well-being, and emotional well-being and career development. The Company’s financial well-
being program includes a company-matching 401(k) plan and health savings accounts, educational and adoption assistance
programs. Emotional well-being programs include paid time off, an employee assistance program (EAP) and company-paid
membership to Care.com. Physical well-being is supported by the Company’s health, dental, vision, life and various other
insurances, and a wellness program that incentivizes team members to live a healthy and balanced lifestyle. Career development
is also a key component of the Company’s Total Rewards, and the Company has a variety of programs to support team
members as they continue to grow within their current role or develop for their next role. Job shadowing, leadership
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development programs, Aspiring Managers program, Managing at Commerce, competency assessments and education
assistance are just a few of the ways the Company helps team members excel.
During the COVID-19 pandemic, the Company focused efforts on providing team members support and resources to
navigate the ever-changing environment. Initiatives included routine communications providing relevant updates and
information, resources for leaders to help keep their teams engaged and connected, new resources for working parents, and
access to emotional support resources. The Company implemented a phased-in approach to returning to on-site work and
created more flexible work categories for team members to provide for ongoing flexibility. While the most significant impacts
of the pandemic appear to have passed, the Company continues to provide most of its team members flexible work schedules.
The Company believes diversity, equity, and inclusion (DEI) builds stronger companies with better results. In 2022, the
Company’s efforts continued around a key initiative focusing on DEI through the lens of our workforce, our suppliers, our
community and our customers. Internal teams continue to iterate to build plans for growth in all four areas. The Company
continues to build a sense of belonging by engaging team members in a variety of Employee Resource Groups (ERGs) to
support its diverse workforce. RISE (empowering women), EMERGE (connecting young professionals), VIBE (valuing
multicultural perspectives), PRIDE (engaging the LGBTQIA+ community), and SALUTE (supporting veterans) are important
forums that provide team members opportunities to connect, learn, and encourage diverse perspectives. Participation in these
ERGs is voluntary, and more than 40% of team members belong to one of these groups. Other internal DEI efforts have
included unconscious bias training, book clubs, listen, talk, and learn sessions, courageous conversation training, mentoring
programs, and review of talent at all levels of the organization. The Company’s longstanding approach of “doing what’s right”
continues to guide its focus on its team members and communities.
The Company’s robust listening strategy allows it to stay connected to the team member experience to understand the
evolving needs of its team members and to focus on what matters most to them. This strategy includes a balance of surveys,
focus groups, and one on one conversations to allow for two-way conversation and provides trends over time by key
demographics. The Company’s goal is to create a sense of belonging which it believes is connected to high levels of
engagement, enablement, retention, and results. The Company’s intentional strategy has allowed it to maintain levels of
engagement that have been recognized by its annual survey partner, Korn Ferry, for being “best-in-class" and to be recognized
by Forbes as one of the best mid-sized employers.
Competition
The Company operates in the highly competitive environment of financial services. The Company regularly faces
competition from banks, savings and loan associations, credit unions, brokerage companies, mortgage companies, insurance
companies, trust companies, credit card companies, private equity firms, leasing companies, securities brokers and dealers,
financial technology companies, e-commerce companies, investment management companies, and other companies providing
financial services. Some of these competitors are not subject to the same regulatory restrictions as domestic banks and bank
holding companies. Some other competitors are significantly larger than the Company, and therefore have greater economies of
scale, greater financial resources, higher lending limits, and may offer products and services that the Company does not
provide. The Company competes by providing a broad offering of products and services to support the needs of customers,
matched with a strong commitment to customer service. The Company also competes based on quality, innovation,
convenience, reputation, industry knowledge, and price. In its two largest markets, the Company has approximately 12% of the
deposit market share in Kansas City and approximately 8% of the deposit market share in St. Louis.
Operating Segments
The Company is managed in three operating segments: Commercial, Consumer, and Wealth. The Commercial segment
provides a full array of corporate lending, merchant and commercial bank card products, payment solutions, leasing, and
international services, as well as business and government deposit, investment, and cash management services. The Consumer
segment includes the retail branch network, consumer installment lending, personal mortgage banking, and consumer debit and
credit bank card activities. The Wealth segment provides traditional trust and estate planning services, brokerage services, and
advisory and discretionary investment portfolio management services to both personal and institutional corporate customers. In
2022, the Commercial, Consumer and Wealth segments contributed 53%, 23% and 24% of total segment pre-tax income,
respectively. See the section captioned "Operating Segments" in Item 7, Management's Discussion and Analysis, of this report
and Note 13 to the consolidated financial statements for additional discussion on operating segments.
Government Policies
The Company's operations are affected by federal and state legislative changes, by the U.S. government, and by policies of
various regulatory authorities, including those of the numerous states in which they operate. These include, for example, the
4
statutory minimum legal lending rates, domestic monetary policies of the Board of Governors of the Federal Reserve System,
U.S. fiscal policy, international currency regulations and monetary policies, the U.S. Patriot Act, and capital adequacy and
liquidity constraints imposed by federal and state bank regulatory agencies.
Supervision and Regulation
The following information summarizes existing laws and regulations that materially affect the Company's operations. It
does not discuss all provisions of these laws and regulations, and it does not include all laws and regulations that affect the
Company presently or may affect the Company in the future.
General
The Company, as a bank holding company, is primarily regulated by the Board of Governors of the Federal Reserve System
under the Bank Holding Company Act of 1956, as amended (BHC Act). Under the BHC Act, the Federal Reserve Board’s prior
approval is required in any case in which the Company proposes to acquire all or substantially all the assets of any bank,
acquire direct or indirect ownership or control of more than 5% of the voting shares of any bank, or merge or consolidate with
any other bank holding company. With certain exceptions, the BHC Act also prohibits the Company from acquiring direct or
indirect ownership or control of more than 5% of any class of voting shares of any non-banking company. Under the BHC Act,
the Company may not engage in any business other than managing and controlling banks or furnishing certain specified
services to subsidiaries, and may not acquire voting control of non-banking companies unless the Federal Reserve Board
determines such businesses and services to be closely related to banking. When reviewing bank acquisition applications for
approval, the Federal Reserve Board considers, among other things, the Bank’s record in meeting the credit needs of the
communities it serves in accordance with the Community Reinvestment Act of 1977, as amended (CRA). Under the terms of
the CRA, banks have a continuing obligation, consistent with safe and sound operation, to help meet the credit needs of their
communities, including providing credit to individuals residing in low- and moderate-income areas. The Bank has a current
CRA rating of “outstanding.”
The Company is required to file various reports and additional information with the Federal Reserve Board. The Federal
Reserve Board regularly performs examinations of the Company. The Bank is a state-chartered Federal Reserve member bank
and is subject to regulation, supervision and examination by the Federal Reserve Bank of Kansas City and the Missouri
Division of Finance. The Bank is also subject to regulation by the Federal Deposit Insurance Corporation (FDIC). In addition,
there are numerous other federal and state laws and regulations which control the activities of the Company, including
requirements and limitations relating to capital and reserve requirements, permissible investments and lines of business,
transactions with affiliates, loan limits, mergers and acquisitions, issuance of securities, dividend payments, and extensions of
credit. The Bank is subject to federal and state consumer protection laws, including laws designed to protect customers and
promote fair lending. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending
Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and their respective state law counterparts.
If the Company fails to comply with these or other applicable laws and regulations, it may be subject to civil monetary
penalties, imposition of cease and desist orders or other written directives, removal of management and, in certain
circumstances, criminal penalties. This regulatory framework is intended primarily for the protection of depositors and the
preservation of the federal deposit insurance funds. Statutory and regulatory controls increase a bank holding company’s cost of
doing business and limit the options of its management to employ assets and maximize income.
In addition to its regulatory powers, the Federal Reserve Bank affects the conditions under which the Company operates by
its influence over the national supply of bank credit. The Federal Reserve Board employs open market operations in U.S.
government securities and oversees changes in the discount rate on bank borrowings, changes in the federal funds rate on
overnight inter-bank borrowings, and changes in reserve requirements on bank deposits in implementing its monetary policy
objectives. These methods are used in varying combinations to influence the overall level of the interest rates charged on loans
and paid for deposits, the price of the dollar in foreign exchange markets, and the level of inflation. The monetary policies of
the Federal Reserve have a significant effect on the operating results of financial institutions, most notably on the interest rate
environment. In view of changing conditions in the national economy and in the money markets, as well as the effect of credit
policies of monetary and fiscal authorities, the Company makes no prediction as to possible future changes in interest rates,
deposit levels or loan demand, or their effect on the financial statements of the Company.
The financial industry operates under laws and regulations that are under regular review by various agencies and legislatures
and are subject to change. The Company currently operates as a bank holding company, as defined by the Gramm-Leach-Bliley
Financial Modernization Act of 1999 (GLB Act), and the Bank qualifies as a financial subsidiary under the GLB Act, which
allows it to engage in investment banking, insurance agency, brokerage, and underwriting activities that were not available to
banks prior to the GLB Act. The GLB Act also included privacy provisions that limit banks’ abilities to disclose non-public
information about customers to non-affiliated entities.
5
The Company must also comply with the requirements of the Bank Secrecy Act (BSA). The BSA is designed to help fight
drug trafficking, money laundering, and other crimes. Compliance is monitored by the Federal Reserve. The BSA was enacted
to prevent banks and other financial service providers from being used as intermediaries for, or to hide the transfer or deposit of
money derived from, criminal activity. Since its passage, the BSA has been amended several times. These amendments
include the Money Laundering Control Act of 1986 which made money laundering a criminal act, as well as the Money
Laundering Suppression Act of 1994 which required regulators to develop enhanced examination procedures and increased
examiner training to improve the identification of money laundering schemes in financial institutions.
The USA PATRIOT Act, established in 2001, substantially broadened the scope of U.S. anti-money laundering laws and
regulations by imposing significant new compliance and due diligence obligations, creating new crimes and penalties and
expanding the extra-territorial jurisdiction of the U.S. The regulations impose obligations on financial institutions to maintain
appropriate policies, procedures and controls to detect, prevent, and report money laundering and terrorist financing. The
regulations include significant penalties for non-compliance.
The Company is subject to regulation under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2011
(Dodd-Frank Act). Among its many provisions, the Dodd-Frank Act required stress-testing for certain financial services
companies and established a new council of “systemic risk” regulators. The Dodd-Frank Act also established the Consumer
Financial Protection Bureau (CFPB) which is authorized to supervise certain financial services companies and has
responsibility to implement, examine for compliance with, and enforce “Federal consumer financial law.” The Company is
subject to examinations by the CFPB. The Dodd-Frank Act, through Title VI, commonly known as the Volcker Rule, placed
trading restrictions on financial institutions and separated investment banking, private equity and proprietary trading (hedge
fund) sections of financial institutions from their consumer lending arms. The Volcker Rule also restricts financial institutions
from investing in and sponsoring certain types of investments.
In May 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was signed into law which provides a
number of limited amendments to the Dodd-Frank Act. Notable provisions of the legislation include: an increase in the asset
threshold from $50 billion to $250 billion, above which the Federal Reserve is required to apply enhanced prudential standards;
an exemption from the Volcker Rule for insured depository institutions with less than $10 billion in consolidated assets;
modifications to the Liquidity Coverage and Supplementary Leverage ratios; and the elimination of Dodd-Frank company-run
stress tests for banks and bank holding companies with less than $250 billion in assets. Most of these provisions affect
institutions larger than the Company, and the Company is not required to prepare stress testing as specified by the Dodd-Frank
Act.
Subsidiary Bank
Under Federal Reserve policy, the bank holding company, Commerce Bancshares, Inc. (the "Parent"), is expected to act as a
source of financial strength to its bank subsidiary and to commit resources to support it in circumstances when it might not
otherwise do so. In addition, loans by a bank holding company to any of its subsidiary banks are subordinate in right of
payment to deposits and to certain other indebtedness of such subsidiary banks. In the event of a bank holding company’s
bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Deposit Insurance
Substantially all of the deposits held by the Bank are insured up to applicable limits (generally $250,000 per depositor for
each account ownership category) by the FDIC's Deposit Insurance Fund (DIF) and are subject to deposit insurance
assessments to maintain the DIF. In 2011, the FDIC released a final rule to implement provisions of the Dodd-Frank Act that
affected deposit insurance assessments. Among other things, the Dodd-Frank Act raised the minimum designated reserve ratio
from 1.15% to 1.35% of estimated insured deposits, removed the upper limit of the designated reserve ratio, required that the
designated reserve ratio reach 1.35% by September 30, 2020, and required the FDIC to offset the effect of increasing the
minimum designated reserve ratio on depository institutions with total assets of less than $10 billion. The Dodd-Frank Act
provided the FDIC flexibility in the implementation of the increase in the designated reserve ratio and also required that the
FDIC redefine the assessment base to average consolidated assets minus average tangible equity. Due to growth in insured
deposits during the first half of 2020, the DIF reserve ratio fell below statutory minimum of 1.35% on June 30, 2022. The
FDIC Board of Directors adopted an Amended Restoration Plan in an effort to restore the reserve ratio to at least 1.35% by
September 30, 2028. The FDIC Board also increased base deposit insurance assessment rates by 2 basis points, which takes
effect on January 1, 2023. For the year ended December 31, 2022, the Company's deposit insurance expense was $10.6 million.
6
Payment of Dividends
The Federal Reserve Board may prohibit the payment of cash dividends to shareholders by bank holding companies if their
actions constitute unsafe or unsound practices. The principal source of the Parent's cash revenues is cash dividends paid by the
Bank. The amount of dividends paid by the Bank in any calendar year is limited to the net profit of the current year combined
with the retained net profits of the preceding two years, and permission must be obtained from the Federal Reserve Board for
dividends exceeding these amounts. The payment of dividends by the Bank may also be affected by factors such as the
maintenance of adequate capital.
Capital Adequacy
The Company is required to comply with the capital adequacy standards established by the Federal Reserve, which are
based on the risk levels of assets and off-balance sheet financial instruments. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under
regulatory accounting practices. Capital amounts and classifications are also subject to judgments by regulators regarding
qualitative components, risk weightings, and other factors.
A comprehensive capital framework was established by the Basel Committee on Banking Supervision, which was effective
for large and internationally active U.S. banks and bank holding companies on January 1, 2015. A key goal of the Basel III
framework was to strengthen the capital resources of banking organizations during normal and challenging business
environments. Basel III increased minimum requirements for both the quantity and quality of capital held by banking
organizations. The rule includes a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5% and a
common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. 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, stock
repurchases and executive compensation. The rule also adjusted the methodology for calculating risk-weighted assets to
enhance risk sensitivity. At December 31, 2022, the Company's capital ratios are well in excess of those minimum ratios
required by Basel III.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) requires each federal banking agency to take
prompt corrective action to resolve the problems of insured depository institutions, including but not limited to those that fall
below one or more prescribed minimum capital ratios. Pursuant to FDICIA, the FDIC promulgated regulations defining the
following five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well-
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under the
prompt corrective action provisions of FDICIA, an insured depository institution generally will be classified as well-capitalized
(under the Basel III rules mentioned above) if it has a Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital ratio of
at least 6.5%, a total capital ratio of at least 10%, and a Tier 1 leverage ratio of at least 5%. An institution that, based upon its
capital levels, is classified as “well-capitalized,” “adequately capitalized,” or “undercapitalized,” may be treated as though it
were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing,
determines that an unsafe or unsound condition, or an unsafe or unsound practice warrants such treatment. At each successive
lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on
growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on
the acceptance of brokered deposits. Furthermore, if a bank is classified in one of the undercapitalized categories, it is required
to submit a capital restoration plan to the federal bank regulator, and the holding company must guarantee the performance of
that plan. The Bank has consistently maintained regulatory capital ratios above the “well-capitalized” standards.
Stress Testing
As required by the Dodd-Frank Act, the Company performed stress tests as specified by the Federal Reserve requirement
and published results beginning in 2014 through 2017. On May 24, 2018, the Economic Growth, Regulatory Relief, and
Consumer Protection Act was enacted, which eliminated the required stress testing under the Dodd-Frank Act for banks with
consolidated assets of less than $250 billion. The Company continues to perform periodic stress-testing based on its own
internal criteria.
Executive and Incentive Compensation
Guidelines adopted by federal banking agencies prohibit excessive compensation as an unsafe and unsound practice, and
describe compensation as "excessive" when the amounts paid are unreasonable or disproportionate to the services performed by
an executive officer, employee, director or principal shareholder. The Federal Reserve Board has issued comprehensive
guidance on incentive compensation intended to ensure that the incentive compensation policies do not undermine safety and
soundness by encouraging excessive risk taking. This guidance covers all employees that have the ability to materially affect
the risk profile of an organization, either individually or as part of a group, based on key principles that (i) incentives do not
7
encourage risk-taking beyond the organization's ability to identify and manage risk, (ii) compensation arrangements are
compatible with effective internal controls and risk management, and (iii) compensation arrangements are supported by strong
corporate governance, including active and effective board oversight. Deficiencies in compensation practices may affect
supervisory ratings and enforcement actions may be taken if incentive compensation arrangements pose a risk to safety and
soundness.
Transactions with Affiliates
The Federal Reserve Board regulates transactions between the Bank and its subsidiaries. Generally, the Federal Reserve Act
and Regulation W, as amended by the Dodd-Frank Act, limit the Company’s banking subsidiary and its subsidiaries to lending
and other “covered transactions” with affiliates. The aggregate amount of covered transactions a banking subsidiary or its
subsidiaries may enter into with an affiliate may not exceed 10% of the capital stock and surplus of the banking subsidiary. The
aggregate amount of covered transactions with all affiliates may not exceed 20% of the capital stock and surplus of the banking
subsidiary.
Covered transactions with affiliates are also subject to collateralization requirements and must be conducted on arm’s length
terms. Covered transactions include (a) a loan or extension of credit by the banking subsidiary, including derivative contracts,
(b) a purchase of securities issued to a banking subsidiary, (c) a purchase of assets by the banking subsidiary unless otherwise
exempted by the Federal Reserve, (d) acceptance of securities issued by an affiliate to the banking subsidiary as collateral for a
loan, and (e) the issuance of a guarantee, acceptance or letter of credit by the banking subsidiary on behalf of an affiliate.
Certain transactions with the Company's directors, officers or controlling persons are also subject to conflicts of interest
regulations. Among other things, these regulations require that loans to such persons and their related interests be made on
terms substantially the same as for loans to unaffiliated individuals, and must not create an abnormal risk of repayment or other
unfavorable features for the financial institution. See Note 2 to the consolidated financial statements for additional information
on loans to related parties.
Available Information
The Company’s principal offices are located at 1000 Walnut Street, Kansas City, Missouri (telephone number
816-234-2000). The Company makes available free of charge, through its website at www.commercebank.com, reports filed
with the Securities and Exchange Commission as soon as reasonably practicable after the electronic filing. Additionally, a copy
of our electronically filed materials can be found at www.sec.gov. These filings include the annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports.
8
Item 1a. RISK FACTORS
Making or continuing an investment in securities issued by the Company, including its common stock, involves certain risks
that you should carefully consider. If any of the following risks actually occur, the Company's business, financial condition or
results of operations could be negatively affected, the market price for your securities could decline, and you could lose all or a
part of your investment. Further, to the extent that any of the information contained in this Annual Report on Form 10-K
constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important
factors that could cause the Company’s actual results to differ materially from those expressed in any forward-looking
statements made by or on behalf of Commerce Bancshares, Inc.
Market Risks
Difficult market conditions may affect the Company’s industry.
The concentration of the Company’s banking business in the United States particularly exposes it to downturns in the U.S.
economy. In particular, the Company may face the following risks in connection with market conditions:
•
•
•
•
•
In 2022, the United States economy saw an uneven year. Consumer spending and corporate profit growth were
resilient despite high inflation, rising geopolitical tensions, and supply chain disruptions. The Federal Reserve
responded to persistently high inflation by raising its benchmark interest rate in a series of hikes starting in March
2022 and continuing into 2023. While unemployment levels remained low during 2022, an increasing number of
companies, especially in the technology sector, announced layoffs toward the end of 2022 and into 2023. The pace of
inflation slowed late in 2022, but the probability of a looming recession appears to be growing, as many economists
are now predicting a recession in 2023.
The U.S. economy is affected by global events and conditions, including U.S. trade disputes and renewed trade
agreements with various countries. Although the Company does not directly hold foreign debt or have significant
activities with foreign customers, the global economy, the strength of the U.S. dollar, international trade conditions,
and oil prices may ultimately affect interest rates, business import/export activity, capital expenditures by businesses,
and investor confidence. Unfavorable changes in these factors may result in declines in consumer credit usage, adverse
changes in payment patterns, reduced loan demand, and higher loan delinquencies and default rates. These could
impact the Company’s future provision for credit losses, as a significant part of the Company’s business includes
consumer and credit card lending.
In addition to the results above, a slowdown in economic activity may cause declines in financial services activity,
including declines in bank card, corporate cash management and other fee businesses, as well as the fees earned by the
Company on such transactions.
The process used to estimate credit losses in the Company’s loan portfolio requires difficult, subjective, and complex
judgments, including consideration of economic conditions and how these economic predictions might impair the
ability of its borrowers to repay their loans. If an instance occurs that renders these predictions no longer capable of
accurate estimation, this may in turn impact the reliability of the process.
Competition in the industry could intensify as a result of the increasing consolidation of financial services companies
in connection with current market conditions, thereby reducing market prices for various products and services which
could in turn reduce the Company’s revenues.
The performance of the Company is dependent on the economic conditions of the markets in which the Company operates.
The Company’s success is heavily influenced by the general economic conditions of the specific markets in which it
operates. Unlike larger national or other regional banks that are more geographically diversified, the Company provides
financial services primarily throughout the states of Missouri, Kansas, central Illinois, Oklahoma, and Colorado. It also has a
growing presence in additional states through its commercial banking offices in: Texas, Iowa, Indiana, Michigan, Ohio, and
Tennessee. As the Company does not have a significant banking presence in other parts of the country, a prolonged economic
downturn in these markets could have a material adverse effect on the Company’s financial condition and results of operations.
The Company operates in a highly competitive industry and market area.
The Company operates in the financial services industry and has numerous competitors including other banks and insurance
companies, securities dealers, brokers, trust and investment companies, mortgage bankers, and financial technology companies.
Consolidation among financial service providers and new changes in technology, product offerings and regulation continue to
challenge the Company's marketplace position. As consolidation occurs, larger regional and national banks may enter the
Company's markets and add to existing competition. Large, national financial institutions have substantial capital, technology
and marketing resources. These new competitors may lower fees to grow market share, which could result in a loss of
9
customers and lower fee revenue for the Company. They may have greater access to capital at a lower cost than the Company,
and may have higher loan limits, both of which may adversely affect the Company’s ability to compete effectively. The
Company must continue to make investments in its products and delivery systems to stay competitive with the industry, or its
financial performance may suffer.
The soundness of other financial institutions could adversely affect the Company.
The Company’s ability to engage in routine funding transactions could be adversely affected by the actions and commercial
soundness of other financial institution counterparties. Financial services institutions are interrelated because of trading,
clearing, counterparty or other relationships. The Company has exposure to many different industries and counterparties and
routinely executes transactions with counterparties in the financial industry, including brokers and dealers, commercial banks,
investment banks, mutual funds, and other institutional clients. Transactions with these institutions include overnight and term
borrowings, interest rate swap agreements, securities purchased and sold, short-term investments, and other such transactions.
Because of this exposure, defaults by, or rumors or questions about, one or more financial services institutions or the financial
services industry in general, could lead to market-wide liquidity problems and defaults by other institutions. Many of these
transactions expose the Company to credit risk in the event of default of its counterparty or client, while other transactions
expose the Company to liquidity risks should funding sources quickly disappear. In addition, the Company’s credit risk may be
exacerbated when the collateral held cannot be realized or is liquidated at prices not sufficient to recover the full amount of the
exposure due to the Company. Any such losses could materially and adversely affect results of operations.
Regulatory and Compliance Risks
The Company is subject to extensive government regulation and supervision.
As part of the financial services industry, the Company is subject to extensive federal and state regulation and supervision.
Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds, and the banking
system, not shareholders. These regulations affect the Company’s lending practices, capital structure, investment practices,
dividend policy, and growth, among other things. Congress and federal regulatory agencies continually review banking laws,
regulations, and policies for possible changes. Changes to statutes, regulations, or regulatory policies, including changes in
interpretation or implementation of statutes, regulations, or policies, could affect the Company in substantial and unpredictable
ways. Such changes could subject the Company to additional costs, limit the types of financial services and products it may
offer, and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to
comply with laws, regulations, or policies could result in sanctions by regulatory agencies, civil money penalties, and/or
reputation damage, which could have a material adverse effect on the Company’s business, financial condition, and results of
operations. While the Company has policies and procedures designed to prevent any such violations, there can be no assurance
that such violations will not occur.
Significant changes in federal monetary policy could materially affect the Company’s business.
The Federal Reserve System regulates the supply of money and credit in the United States. Its policies determine in large
part the cost of funds for lending and interest rates earned on loans and paid on borrowings and interest-bearing deposits.
Credit conditions are influenced by its open market operations in U.S. government securities, changes in the member bank
discount rate, and bank reserve requirements. Changes in Federal Reserve Board policies are beyond the Company’s control
and difficult to predict, and such changes may result in lower interest margins and a lack of demand for credit products.
Liquidity and Capital Risks
The Company is subject to both interest rate and liquidity risk.
With oversight from its Asset-Liability Management Committee, the Company devotes substantial resources to monitoring
its liquidity and interest rate risk on a monthly basis. The Company's net interest income is the largest source of overall revenue
to the Company, representing 63% of total revenue for the year ended December 31, 2022. The interest rate environment in
which the Company operates fluctuates in response to general economic conditions and policies of various governmental and
regulatory agencies, particularly the Federal Reserve Board, which regulates the supply of money and credit in the U.S.
Changes in monetary policy, including changes in interest rates, will influence loan originations, deposit generation, demand for
investments and revenues and costs for earning assets and liabilities, and could significantly impact the Company’s net interest
income.
As the economy rebounded from the COVID-19 pandemic-induced recession, strong inflation in 2022 caused the Federal
Reserve Board to significantly increase the benchmark interest rate from nearly zero to between 4.25% and 4.50%. Future
economic conditions or other factors could shift monetary policy resulting in additional increases or decreases in the benchmark
10
rate. Furthermore, changes in interest rates could result in unanticipated changes to customer deposit balances and adversely
affect the Company’s liquidity position.
Commerce Bancshares, Inc. relies on dividends from its subsidiary bank for most of its revenue.
Commerce Bancshares, Inc. is a separate and distinct legal entity from its banking and other subsidiaries. It receives
substantially all of its revenue from dividends from its subsidiary bank. These dividends, which are limited by various federal
and state regulations, are the principal source of funds to pay dividends on its common stock and to meet its other cash needs.
In the event the subsidiary bank is unable to pay dividends, the Company may not be able to pay dividends or other obligations,
which would have a material adverse effect on the Company's financial condition and results of operations.
Operational Risks
The impact of the phase-out of LIBOR is uncertain.
In 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that LIBOR would likely be
discontinued at the end of 2021 as panel banks would no longer be required to submit estimates that are used to construct
LIBOR. U.S. regulatory authorities voiced similar support for phasing out LIBOR. On March 5, 2021, LIBOR’s regulator and
its administrator announced that the publication of certain LIBOR tenors will cease immediately after December 31, 2021 and
the remaining LIBOR tenors, including 1-month USD LIBOR, will cease immediately after June 30, 2023. The Alternative
Rates Reference Committee (the “ARRC”), a group of market participants convened by the Federal Reserve Board and the New
York Fed to help ensure a successful transition from LIBOR, identified the Secured Overnight Financing Rate (“SOFR”) as its
preferred alternative rate.
The Company established a LIBOR Transition Program, which is led by the LIBOR Transition Steering Committee
(Committee) whose purpose is to guide the overall transition process for the Company. The Committee is an internal, cross-
functional team with representatives from all relevant business lines, support functions and legal counsel. A LIBOR impact and
risk assessment has been performed, and the Company has developed and prioritized action items. All of the Company's
financial contracts that reference LIBOR have been identified, and LIBOR fallback language has been included in key loan
provisions of new and renewed loans in preparation for the cessation of LIBOR. Significant progress has been made in
converting loans that reference LIBOR to an alternative reference rate during 2022. Additionally, changes to the Company's
systems to utilize alternative reference rates were completed in 2022.
The Company has loans, derivative contracts, and other financial instruments with attributes that are either directly or
indirectly dependent on LIBOR, mostly 1-month LIBOR. As of December 31, 2022, the Company had approximately $1.0
billion of commercial loans, $948 million of derivative contracts (notional value), and $691 million of investment securities that
are expected to mature after June 30, 2023. These amounts are expected to decrease as the Company continues to work with
customers to replace contracts that use LIBOR with alternative reference rates. The Company ceased entering any new loan
contracts that use USD LIBOR as a reference rate in December 2021.
The Company may be adversely affected if the interest rates currently tied to LIBOR on the Company's loans, derivatives,
and other financial instruments are not able to be transitioned to an alternative rate. Furthermore, the Company may be faced
with disputes or litigation with customers regarding interpretation and enforcement of fallback language used in loan
agreements as the transition to a new benchmark rate continues to evolve.
The Company’s asset valuation may include methodologies, models, estimations and assumptions which are subject to differing
interpretations and could result in changes to asset valuations that may materially adversely affect its results of operations or
financial condition.
The Company uses estimates, assumptions, and judgments when certain financial assets and liabilities are measured and
reported at fair value. Assets and liabilities carried at fair value inherently result in greater financial statement volatility. Fair
values and the information used to record valuation adjustments for certain assets and liabilities are based on quoted market
prices and/or other observable inputs provided by independent third-party sources, when available. When such third-party
information is not available, fair value is estimated primarily by using cash flow and other financial modeling techniques
utilizing assumptions such as credit quality, liquidity, interest rates and other relevant inputs. Changes in underlying factors,
assumptions, or estimates in any of these areas could materially impact the Company’s future financial condition and results of
operations. Furthermore, if models used to calculate fair value of financial instruments are inadequate or inaccurate due to flaws
in their design or execution, upon sale, the Company may not realize the cash flows of a financial instrument as modeled and
could incur material, unexpected losses.
11
During periods of market disruption, including periods of significantly rising or high interest rates, rapidly widening credit
spreads or illiquidity, it may be difficult to value certain assets if trading becomes less frequent and/or market data becomes less
observable. There may be certain asset classes in active markets with significant observable data that become illiquid due to the
current financial environment. In such cases, certain asset valuations may require more subjectivity and management judgment.
As such, valuations may include inputs and assumptions that are less observable or require greater estimation. Further, rapidly
changing and unprecedented credit and equity market conditions could materially impact the valuation of assets as reported
within the Company’s consolidated financial statements, and the period-to-period changes in value could vary significantly.
Decreases in value may have a material adverse effect on results of operations or financial condition.
The Company’s operations rely on certain external vendors.
The Company relies on third-party vendors to provide products and services necessary to maintain day-to-day operations.
For example, the Company outsources a portion of its information systems, communication, data management, and transaction
processing to third parties. Accordingly, the Company is exposed to the risk that these vendors might not perform in accordance
with the contracted arrangements or service level agreements because of changes in the vendor’s organizational structure,
financial condition, support for existing products and services, or strategic focus. Such failure to perform could be disruptive to
the Company’s operations, which could have a materially adverse impact on its business, financial condition and results of
operations. These third parties are also sources of risk associated with operational errors, system interruptions or breaches and
unauthorized disclosure of confidential information. If the vendors encounter any of these issues, the Company could be
exposed to disruption of service, damage to reputation and litigation. Because the Company is an issuer of both debit and credit
cards, it is periodically exposed to losses related to security breaches which occur at retailers that are unaffiliated with the
Company (e.g., customer card data being compromised at retail stores). These losses include, but are not limited to, costs and
expenses for card reissuance as well as losses resulting from fraudulent card transactions.
Credit Risks
The allowance for credit losses may be insufficient or future credit losses could increase.
The allowance for credit losses on loans and the liability for unfunded lending commitments at December 31, 2022 reflect
management's estimate of credit losses expected in the loan portfolio, including unfunded lending commitments, as of the
balance sheet date. See Note 2 to the consolidated financial statements and the section captioned “Allowance for Credit Losses
on Loans and Liability for Unfunded Lending Commitments” in Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, of this report for further discussion related to the Company’s process for determining the
appropriate level of the allowance for credit losses on loans and the liability for unfunded lending commitments at
December 31, 2022.
The Company's estimate of credit losses utilizes a life of loan loss concept, and the level of the allowance is based on
management’s methodology that utilizes historical net charge-off rates and adjusts for the impacts in the reasonable and
supportable forecast and other qualitative factors. Key assumptions include the application of historical loss rates, prepayment
speeds, forecast results of a reasonable and supportable period, the period to revert to historical loss rates, and qualitative
factors. The Company’s allowance level is subject to review by regulatory agencies, and that review could also result in
adjustments to the allowance for credit losses. Additionally, the volatility of the Company's provision for credit losses may
change from year to year due to macroeconomic variables that influence the Company's loss estimates, and the volatility in
credit losses may be material to the Company's earnings.
The Company’s investment portfolio values may be adversely impacted by deterioration in the credit quality of underlying
collateral within the various categories of investment securities it owns.
The Company generally invests in liquid, investment grade securities, however, these securities are subject to changes in
market value due to changing interest rates and implied credit spreads. While the Company maintains prudent risk management
practices over bonds issued by municipalities and other issuers, credit deterioration in these bonds could occur and result in
losses. Certain mortgage and asset-backed securities (which are collateralized by residential mortgages, credit cards,
automobiles, mobile homes or other assets) may decline in value due to actual or expected deterioration in the underlying
collateral. Under accounting rules, when an available for sale debt security is in an unrealized loss position, the entire loss in
fair value is required to be recognized in current earnings if the Company intends to sell the security or believes it is more likely
than not that the Company will be required to sell the security before the value recovers. Additionally, the current expected
credit loss model (CECL) implemented by the Company on January 1, 2020, requires that lifetime expected credit losses on
securities be recorded in current earnings. This could result in significant losses.
12
Strategic Risk
New lines of business or new products and services may subject the Company to additional risk.
From time to time, the Company may implement new lines of business or offer new products and services within existing
lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the
markets are not fully developed. In developing and marketing new lines of business and new products or services, the Company
may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and
new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such
as compliance with regulations, competitive alternatives and shifting market preferences may also impact the successful
implementation of a new line of business or a new product or service. Furthermore, any new line of business, or new product or
service, could have a significant impact on the effectiveness of the Company’s system of internal controls. Failure to
successfully manage these risks in the development and implementation of new lines of business and new products or services
could have a material adverse effect on the Company’s financial condition and results of operations.
General Risks
A successful cyber attack or other computer system breach could significantly harm the Company, its reputation and its
customers.
The Company relies heavily on communications and information systems to conduct its business, and as part of its business,
the Company maintains significant amounts of data about its customers and the products they use. The Company’s data is
maintained on its own systems and on the systems of its vendors, business partners and third-party service providers. The
Company relies on a layered system of security controls to secure collection, transmission, storage, and retrieval of data,
including confidential data, in its computer systems and the systems of third parties. Information security risks continue to
increase due to new technologies, the increasing use of the Internet and telecommunication technologies (including mobile
devices) to conduct financial and other business transactions, and the increased sophistication and activities of organized crime,
perpetrators of fraud, hackers, and others. The Company has faced security incidents, which have been minor in scope and
impact, and it expects unauthorized parties to continue to attempt to gain access to its systems or information, as well as those
of its business partners and service providers. The Company makes significant investments in various technology to identify
and prevent intrusions into its information systems. The Company has policies, procedures and controls designed to identify,
protect, detect, respond, and recover from security incidents. The Company also requires ongoing security awareness training
for employees, hosts tabletop exercises to test response readiness, and performs regular audits using both internal and outside
resources. However, there can be no assurance that any such failures, interruptions or security breaches will not occur, or if
they do occur, that they will be adequately addressed. In addition to unauthorized access, denial-of-service attacks or other
operational disruptions could prevent the Company from adequately serving customers. Should any of the Company's systems
become compromised or customer information be obtained by unauthorized parties, the reputation of the Company could be
damaged, relationships with existing customers may be impaired, and the Company could be subject to lawsuits, all of which
could result in lost business and have a material adverse effect on the Company’s business, financial condition and results of
operations.
The Company continually encounters technological change.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new
technology-driven products and services, including the entrance of financial technology companies offering new financial
service products. The Company regularly upgrades or replaces technological systems to increase efficiency, enhance product
and service capabilities, eliminate risks of end-of-lifecycle products, reduce costs, and better serve our customers. During 2022,
the Company replaced its core customer and deposit systems and other ancillary systems (collectively referred to as "core
system"). While the conversion was completed successfully, the Company may face operational risks after the conversion,
including disruptions to its technology systems, which may adversely impact customers. The Company’s future success
depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that
will satisfy customer demands, as well as to create additional efficiencies in the Company’s operations. Many of the
Company’s competitors have substantially greater resources to invest in technological improvements. The Company may
encounter significant problems in effectively implementing new technology-driven products and services and may not be
successful in marketing the new products and services to its customers. These problems might include significant time delays,
cost overruns, loss of key people, and technological system failures. Failure to successfully keep pace with technological
change affecting the financial services industry or failure to successfully complete the replacement of technological systems
could have a material adverse effect on the Company’s business, financial condition and results of operations.
13
The Company must attract and retain skilled employees.
The Company’s success depends, in large part, on its ability to attract and retain key people. Competition for the best people
can be intense, and the Company spends considerable time and resources attracting, hiring, and retaining qualified people for its
various business lines and support units. Companies throughout the U.S. saw significant turnover during 2021 and into 2022,
and the number of candidates in the job market was generally much lower than the demand for talent. The unexpected loss of
the services of one or more of the Company’s key personnel could have a material adverse impact on the Company’s business
because of their skills, knowledge of the Company’s market, and years of industry experience, as well as the difficulty of
promptly finding qualified replacement personnel.
Public health threats or outbreaks of communicable diseases could have an adverse effect on the Company's operations and
financial results.
The Company may face risks related to public health threats or outbreaks of communicable diseases. A widespread
healthcare crisis, such as an outbreak of a communicable disease could adversely affect the global economy and the Company’s
financial performance. For example, the global COVID-19 pandemic caused significant disruption and harm to the economy
and the financial markets in which the Company operates.
The situation surrounding the COVID-19 pandemic remains uncertain. While the U.S. economy has rebounded significantly
since the peak of the pandemic-induced recession, fallout from economic and societal changes resulting from the pandemic may
cause prolonged global or national recessionary economic conditions, which could have a material adverse effect on the
Company's business, results of operations and financial condition. Beyond the impact of the COVID-19 pandemic, the
potential impacts of future epidemics, pandemics, or other outbreaks of an illness, disease, or virus could therefore materially
and adversely affect the Company's business, revenue, operations, financial condition, liquidity and cash flows.
Our business and financial results may be affected by societal and governmental responses to climate change and related
environmental issues.
The current and anticipated effects of climate change have raised concerns for the condition of the global environment.
These concerns have changed and will continue to change the behavior of consumers and businesses. Further, governments
have increased their attention on the issue of climate change. As a result, international agreements have been signed to attempt
to reduce global temperatures and federal and state legislative and regulatory initiatives have been proposed to seek to mitigate
the effects of climate change. The Company and its customers may need to respond to new laws and regulations as well as new
consumer and business preferences resulting from climate change concerns. These changes may result in cost increases, asset
value reductions, and operating process changes to the Company and its customers. The impact on our customers will likely
vary depending on their specific attributes, including reliance on or role in carbon intensive activities. Among the impacts to
the Company could be a drop in demand for our products and services, particularly in certain industries. In addition, the
Company could experience reductions in creditworthiness on the part of some customers or in the value of assets securing
loans. The Company’s efforts to take these risks into account in making lending and other decisions, including by increasing
the Company’s business with climate-friendly companies, may not be effective in protecting the Company from the adverse
impact of new laws and regulations or changes in consumer or business behavior.
Item 1b. UNRESOLVED STAFF COMMENTS
None
14
Item 2. PROPERTIES
The main offices of the Company are located in Kansas City and St. Louis, Missouri. The Company owns its main offices
and leases unoccupied premises to the public. The larger office buildings include:
Building
1000 Walnut
Kansas City, MO
922 Walnut
Kansas City, MO
811 Main
Kansas City, MO
8000 Forsyth
Clayton, MO
Net rentable
square footage
% occupied in
total
% occupied by
Bank
391,000
95 %
53 %
256,000
237,000
178,000
95
100
100
91
100
100
The Company has an additional 148 branch locations in Missouri, Illinois, Kansas, Oklahoma and Colorado which are
owned or leased.
Item 3. LEGAL PROCEEDINGS
The information required by this item is set forth in Item 8 under Note 21, Commitments, Contingencies and
Guarantees on page 137.
Item 4. MINE SAFETY DISCLOSURES
Not applicable
Information about the Company's Executive Officers
The following are the executive officers of the Company as of February 22, 2023, each of whom is designated annually.
There are no arrangements or understandings between any of the persons so named and any other person pursuant to which
such person was designated an executive officer.
Name and Age
Kevin G. Barth, 62
Derrick R. Brooks, 46
John K. Handy, 59
Richard W. Heise, 54
Robert S. Holmes, 59
Positions with Registrant
Executive Vice President of the Company since April 2005, and Community President and
Chief Executive Officer of Commerce Bank since October 1998. Senior Vice President of
the Company and Officer of Commerce Bank prior thereto.
Senior Vice President of the Company and Executive Vice President of Commerce Bank
since January 2021. Senior Vice President of Commerce Bank prior thereto.
Executive Vice President of the Company since January 2018 and Senior Vice President of
the Company prior thereto. Community President and Chief Executive Officer of
Commerce Bank since January 2018 and Senior Vice President of Commerce Bank prior
thereto.
Senior Vice President of the Company since April 2022 and Executive Vice President of
Commerce Bank since July 2021. Prior to his employment with Commerce Bank in
February 2017, he was employed at a healthcare tech services company where he served as
a senior vice president of revenue cycle and financial services.
Executive Vice President of the Company since April 2015, and Community President and
Chief Executive Officer of Commerce Bank since January 2016. Prior to his employment
with Commerce Bank in March 2015, he was employed at a Midwest regional bank where
he served as managing director and head of Regional Banking.
Kim L. Jakovich, 53
Senior Vice President of the Company since April 2022, and Officer of the Company prior
thereto. Senior Vice President of Commerce Bank since July 2015.
15
Name and Age
Patricia R. Kellerhals, 65
David W. Kemper, 72
John W. Kemper, 45
Charles G. Kim, 62
Douglas D. Neff, 54
Thomas J. Noack, 67
David L. Orf, 56
Paula S. Petersen, 56
David L. Roller, 52
Paul A. Steiner, 51
Positions with Registrant
Senior Vice President of the Company since February 2016 and Vice President of the
Company prior thereto. Executive Vice President of Commerce Bank since 2005.
Executive Chairman of the Company and of the Board of Directors of the Company since
August 2018. Prior thereto, he was Chief Executive Officer of the Company and Chairman
of the Board of Directors of the Company. He was President of the Company from April
1982 until February 2013. He is the brother of Jonathan M. Kemper (a former Vice
Chairman of the Company), and father of John W. Kemper, President and Chief Executive
Officer of the Company.
Chief Executive Officer of the Company and Chairman and Chief Executive Officer of
Commerce Bank since August 2018. Prior thereto, he was Chief Operating Officer of the
Company. President of the Company since February 2013 and President of Commerce
Bank since March 2013. Member of Board of Directors since September 2015. He is the
son of David W. Kemper (Executive Chairman of the Company) and nephew of Jonathan
M. Kemper (a former Vice Chairman of the Company).
Chief Financial Officer of the Company since July 2009. Executive Vice President of the
Company since April 1995 and Executive Vice President of Commerce Bank since January
2004. Prior thereto, he was Senior Vice President of Commerce Bank.
Senior Vice President of the Company since January 2019 and Chairman and Chief
Executive Officer of Commerce Bank Southwest Region since 2013.
Senior Vice President of the Company since October 2018 and was also Secretary and
General Counsel of the Company from October 2018 to March 2022. He was Secretary,
General Counsel and Vice President of the Company prior to October 2018. Executive Vice
President of Commerce Bank since September 2021. Prior thereto, he was Secretary,
General Counsel and Vice President of Commerce Bank.
Executive Vice President of the Company since October 2020 and Chief Credit Officer of
the Company since January 2021. Executive Vice President of Commerce Bank since
January 2014 and Senior Vice President of Commerce Bank prior thereto.
Executive Vice President of the Company since January 2022 and Senior Vice President of
the Company prior thereto. Executive Vice President of Commerce Bank since March
2012.
Senior Vice President of the Company since July 2016 and Senior Vice President of
Commerce Bank since September 2010.
Controller of the Company since April 2019. He is also Controller of the Company's
subsidiary bank, Commerce Bank. Assistant Controller and Director of Tax of the
Company prior thereto.
16
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Commerce Bancshares, Inc.
Common Stock Data
Commerce Bancshares, Inc. common shares are listed on the Nasdaq Global Select Market (NASDAQ) under the symbol
CBSH. The Company had 3,421 common shareholders of record as of December 31, 2022. Certain of the Company's shares
are held in "nominee" or "street" name and the number of beneficial owners of such shares is approximately 148,500.
Performance Graph
The following graph presents a comparison of Company (CBSH) performance to the indices named below. It assumes $100
invested on December 31, 2017 with dividends reinvested on a cumulative total shareholder return basis.
2017
2018
2019
2020
2021
2022
Commerce (CBSH)
$ 100.00 $ 107.56 $ 138.44 $ 143.26 $ 159.78 $ 168.73
KBW NASDAQ Regional Banking
100.00
82.51
102.20
93.35
127.57
118.73
NASDAQ OMX Global-Bank
100.00
83.60
114.68
100.00
137.32
113.60
S&P 500
100.00
95.61
125.70
148.74
191.40
156.70
In the preceding year, the Company selected the NASDAQ OMX Global-Bank Index with which to compare its
performance. The Company is replacing this index with the KBW NASDAQ Regional Banking Index as it believes the index
to be more representative of companies similar in size and market capitalization to the Company. In addition, the Company is a
member of the KBW NASDAQ Regional Banking Index.
The Company has a long history of paying dividends. 2022 marked the 54th consecutive year of growth in our regular
common dividend, and the Company has also issued an annual 5% common stock dividend for the past 29 years. However,
17
Five Year Cumulative Total ReturnCommerce (CBSH)KBW NASDAQ Regional BankingNASDAQ OMX Global-BankS&P 500201720182019202020212022$50.00$100.00$150.00$200.00
payment of future dividends is within the discretion of the Board of Directors and will depend, among other factors, on
earnings, capital requirements, and the operating and financial condition of the Company. The Board of Directors makes the
dividend determination quarterly.
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 Exchange Act, during the fourth quarter of 2022.
Period
October 1 - 31 2022
November 1 - 30 2022
December 1 - 31 2022
Total
Total Number of
Shares Purchased
Average Price
Paid per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced
Program
Maximum
Number that May
Yet Be Purchased
Under the
Program
1,491
189,860
140,827
332,178
$71.23
$72.27
$67.28
$70.15
1,491
3,442,745
189,860
3,252,885
140,827
3,112,058
332,178
3,112,058
The Company’s stock purchases shown above were made under authorizations by the Board of Directors. Under the most
recent authorization in April 2022 of 5,000,000 shares, 3,112,058 shares remained available for purchase at December 31, 2022.
Item 6. RESERVED
18
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
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 Commerce Bancshares, Inc. and its subsidiaries (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 which 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 the risk factors identified in Item 1a Risk Factors and the following: changes in economic conditions in the
Company’s market area; changes in policies by regulatory agencies, governmental legislation and regulation; fluctuations in
interest rates; changes in liquidity requirements; demand for loans in the Company’s market area; changes in accounting and tax
principles; estimates made on income taxes; failure of litigation settlement agreements to become final in accordance with their
terms; and competition with other entities that offer financial services.
Overview
The Company operates as a super-community bank and offers a broad range of financial products to consumer and
commercial customers, delivered with a focus on high-quality, personalized service. The Company is headquartered in
Missouri, with its principal offices in Kansas City and St. Louis, Missouri. Customers are served from 275 locations in
Missouri, Kansas, Illinois, Oklahoma and Colorado and commercial offices throughout the nation's midsection. A variety of
delivery platforms are utilized, including an extensive network of branches and ATM machines, full-featured online banking, a
mobile application, and a centralized contact center.
The core of the Company’s competitive advantage is its focus on the local markets in which it operates, its offering of
competitive, sophisticated financial products, and its concentration on relationship banking and high-touch service. In order to
enhance shareholder value, the Company targets core revenue growth. To achieve this growth, the Company focuses on
strategies that will expand new and existing customer relationships, offer opportunities for controlled expansion in additional
markets, utilize improved technology, and enhance customer satisfaction.
Various indicators are used by management in evaluating the Company’s financial condition and operating performance.
Among these indicators are the following:
•
•
•
•
•
Net income and earnings per share — Net income attributable to Commerce Bancshares, Inc. was $488.4 million, a
decrease of 8.0% compared to the previous year. The return on average assets was 1.45% in 2022, and the return on
average common equity was 17.31%. Diluted earnings per share decreased 6.3% in 2022 compared to 2021.
Total revenue — Total revenue is comprised of net interest income and non-interest income. Total revenue in 2022
increased $92.9 million, or 6.7%, from 2021, as net interest income grew $106.8 million, and non-interest income
decreased $13.9 million. Growth in net interest income resulted principally from increases in interest income from
investment securities and loans, partly offset by an increase in interest expense on deposits and borrowings. The
decrease in non-interest income in 2022 was mainly due to lower loan fees and sales income.
Non-interest expense — Total non-interest expense increased 5.3% this year compared to 2021, mainly due to higher
salaries and employee benefits expense and data processing and software expense.
Asset quality — Net loan charge-offs totaled $19.1 million in 2022, an increase of $496 thousand from those recorded
in 2021, and averaged .12% of loans in both 2022 and 2021. Total non-performing assets, which include non-accrual
loans and foreclosed real estate, amounted to $8.4 million at December 31, 2022, compared to $9.3 million at
December 31, 2021, and represented .05% of loans outstanding at December 31, 2022.
Shareholder return — During 2022, the Company paid cash dividends of $1.01 per share on its common stock,
representing an increase of 6.1% over the previous year. In 2022, the Company issued its 29th consecutive annual 5%
common stock dividend, and in February 2023, the Company's Board of Directors authorized an increase of 7.1% in
the common cash dividend. The Company purchased 2,684,667 shares in 2022. Total shareholder return, including
19
the change in stock price and dividend reinvestment, was 11.0%, 14.2%, and 10.4% over the past 5, 10, and 15 years,
respectively.
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related
notes. The historical trends reflected in the financial information presented below are not necessarily reflective of anticipated
future results.
Key Ratios
(Based on average balances)
Return on total assets
Return on common equity
Equity to total assets
Loans to deposits (1)
Non-interest bearing deposits to total deposits
Net yield on interest earning assets (tax equivalent basis)
(Based on end of period data)
Non-interest income to revenue (2)
Efficiency ratio (3)
Tier I common risk-based capital ratio
Tier I risk-based capital ratio
Total risk-based capital ratio
Tier I leverage ratio
Tangible common equity to tangible assets ratio (4)
Common cash dividend payout ratio
2022
2021
2020
2019
2018
1.45%
17.31
8.39
55.41
39.02
2.85
36.71
56.90
14.13
14.13
14.89
10.34
7.32
26.10
1.55%
15.37
10.11
56.46
40.46
2.58
40.15
57.64
14.34
14.34
15.12
9.13
9.01
23.12
1.20%
10.64
11.18
67.73
37.83
2.99
37.87
57.19
13.71
13.71
14.82
9.45
9.92
35.32
1.67%
14.06
12.20
71.54
32.03
3.48
38.98
56.87
13.93
14.66
15.48
11.38
10.99
27.52
1.76%
16.16
11.24
69.27
33.43
3.53
37.83
55.58
14.22
14.98
15.82
11.52
10.45
23.61
(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 total 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 assist 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.
(Dollars in thousands)
Total equity
Less non-controlling interest
Less preferred stock
Less goodwill
Less intangible assets*
2022
2021
2020
2019
2018
$ 2,481,577
$ 3,448,324
$ 3,399,972
$ 3,138,472
$ 2,937,149
16,286
—
138,921
4,305
11,026
—
138,921
4,604
2,925
—
138,921
4,958
3,788
144,784
138,921
1,785
5,851
144,784
138,921
2,316
Total tangible common equity (a)
$ 2,322,065
$ 3,293,773
$ 3,253,168
$ 2,849,194
$ 2,645,277
Total assets
Less goodwill
Less intangible assets*
Total tangible assets (b)
$ 31,875,931
$ 36,689,088
$ 32,922,974
$ 26,065,789
$ 25,463,842
138,921
4,305
138,921
4,604
138,921
4,958
138,921
1,785
138,921
2,316
$ 31,732,705
$ 36,545,563
$ 32,779,095
$ 25,925,083
$ 25,322,605
Tangible common equity to tangible assets ratio (a)/(b)
7.32%
9.01%
9.92%
10.99%
10.45%
* Intangible assets other than mortgage servicing rights.
20
Results of Operations
(Dollars in thousands)
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income taxes
Income (expense) attributable to non-
controlling interest
Net income attributable to Commerce
Bancshares, Inc.
Preferred stock dividends
Net income available to common
shareholders
N.M. - Not meaningful.
2022
2021
2020
'22-'21
'21-'20
'22-'21
'21-'20
$ Change
% Change
$ 942,185 $ 835,424 $ 829,847 $ 106,761 $
94,397
(13,858)
(9,553)
42,876
(13,353)
66,326
560,393
30,059
(805,901)
(145,711)
(28,071)
546,535
20,506
(848,777)
(132,358)
(137,190)
505,867
11,032
(768,378)
(87,293)
5,577
(203,516)
54,526
19,027
37,523
58,418
12.8%
(142.3)
(2.5)
(31.8)
5.3
(9.2)
.7%
(148.3)
10.8
N.M.
4.9
66.9
(11,621)
(9,825)
172
1,796
9,997
18.3
N.M.
488,399
—
530,765
—
354,057
(11,966)
(42,366)
—
176,708
11,966
(8.0)
—
49.9
(100.0)
$ 488,399 $ 530,765 $ 342,091 $
(42,366) $ 188,674
(8.0) %
55.2%
Net income attributable to Commerce Bancshares, Inc. (net income) for 2022 was $488.4 million, a decrease of
$42.4 million, or 8.0%, compared to $530.8 million in 2021. Diluted income per common share was $3.85 in 2022, compared
to $4.11 in 2021. The decrease in net income resulted from an increase of $94.4 million in the provision for credit losses, as
well as an increase of $42.9 million in non-interest expense and a decrease of $13.9 million in non-interest income. These
decreases to net income were partly offset by increases in net interest income of $106.8 million and a decrease in income tax
expense of $13.4 million. The return on average assets was 1.45% in 2022 compared to 1.55% in 2021, and the return on
average common equity was 17.31% in 2022 compared to 15.37% in 2021. At December 31, 2022, the ratio of tangible
common equity to assets decreased to 7.32%, compared to 9.01% at year end 2021.
During 2022, net interest income grew mainly due to increases of $77.6 million in interest income earned on investment
securities, due to higher average rates earned and higher average balances, and $75.5 million in interest income earned on loans,
mainly due to higher average rates earned, partly offset by an increase in interest expense on deposits and borrowings of $43.9
million, due to higher average rates paid. Total rates earned on average interest earning assets increased 41 basis points this
year, while funding costs for deposits and borrowings increased 23 basis points. The provision for credit losses increased in
2022 compared to 2021 due to a significant reduction in the allowance for credit losses on loans during 2021, which did not
reoccur in 2022. In addition, there was an increase in the liability for unfunded lending commitments during 2022, compared to
a decrease in 2021. Net loan charge-offs increased $496 thousand, mainly due to business loan net charge-offs in 2022,
compared to net loan recoveries recorded in 2021, partly offset by lower credit card loan net charge-offs in 2022.
Non-interest income fell 2.5% in 2022, mainly due to a decrease in loan fees and sales income. Net investment securities
gains of $20.5 million were recorded in 2022 and were comprised mainly of net fair value gains on the Company's private
equity investment portfolio, partly offset by losses on sales of available for sale securities. Non-interest expense increased
$42.9 million in 2022 compared to 2021, mainly due to higher salaries and benefits expense and data processing and software
expense.
Net income attributable to Commerce Bancshares, Inc. (net income) for 2021 was $530.8 million, an increase of $176.7
million, or 49.9%, compared to $354.1 million in 2020. Diluted income per common share was $4.11 in 2021, compared to
$2.64 in 2020. The increase in net income resulted from a decrease of $203.5 million in the provision for credit losses, as well
as an increase of $54.5 million in non-interest income. These increases to net income were partly offset by increases in non-
interest expense and income tax expense of $37.5 million and $58.4 million, respectively. The return on average assets was
1.55% in 2021 compared to 1.20% in 2020, and the return on average common equity was 15.37% in 2021 compared to 10.64%
in 2020. At December 31, 2021, the ratio of tangible common equity to assets decreased to 9.01%, compared to 9.92% at year
end 2020.
During 2021, net interest income grew mainly due to a decrease of $29.9 million in interest expense on deposits and
borrowings, due to lower average rates paid, coupled with an increase of $19.5 million in interest income earned on investment
securities, mainly due to higher average balances. These increases to net interest income were partly offset by a decline of
$41.5 million in interest earned on loans, mainly due to lower rates earned. Total rates earned on average interest earning assets
fell 53 basis points in 2021, while funding costs for deposits and borrowings decreased 19 basis points. The provision for credit
losses decreased due to an improved credit outlook and the release of loan loss reserves provided for anticipated credit losses in
21
2020, which did not occur. Net loan charge-offs decreased $16.3 million in 2021 compared to 2020, mainly due to lower credit
card loan net charge-offs and net recoveries on business loans.
Non-interest income grew 10.8% in 2021, mainly due to growth in trust and net bank card fee income. Net gains on
investment securities in 2021 were comprised mainly of net fair value gains on the Company's private equity investment
portfolio, partly offset by net losses on bond sales. Non-interest expense increased $37.5 million in 2021 compared to 2020,
largely due to higher salaries and benefits expense and data processing and software expense, as well as lower deferred loan
origination costs and non-recurring litigation settlement costs recorded in the third quarter of 2021.
The Company distributed a 5% stock dividend for the 29th consecutive year on December 19, 2022. All per share and
average share data in this report has been restated for the 2022 stock dividend.
Critical Accounting Estimates and Related Policies
The Company's consolidated financial statements are prepared based on the application of certain accounting policies, the
most significant of which are described in Note 1 to the consolidated financial statements. Certain of these policies require
numerous estimates and strategic or economic assumptions that may prove inaccurate or be subject to variations which may
significantly affect the Company's reported results and financial position for the current period or future periods. The use of
estimates, assumptions, and judgments are necessary when financial assets and liabilities are required to be recorded at, or
adjusted to reflect, fair value. Current economic conditions may require the use of additional estimates, and some estimates
may be subject to a greater degree of uncertainty due to the current instability of the economy. The Company has identified
several 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.
Allowance for Credit Losses
The Company's Allowance for Credit Losses policies govern the processes and procedures used to estimate the collectability
of its loan portfolio and unfunded lending commitments, and the potential for credit losses in its available for sale investment
portfolio.
Allowance for Credit Losses – Loans and Unfunded Lending Commitments
The Company performs periodic and systematic detailed reviews of its loan portfolio and unfunded lending
commitments to assess overall collectability. The level of the allowance for credit losses on loans and unfunded lending
commitments reflects the Company's estimate of the losses expected in the loan portfolio and unfunded lending
commitments over the assets’ contractual term.
The allowance for credit loss is an estimate that is subject to uncertainty due to the various assumptions and judgments
used in the estimation process.
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.
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 an economic forecast that may affect the collectability of the remaining cash flows over the contractual term
of the loans. The calculated loss rate is increased or decreased to reflect expectations of future losses given a single path
economic forecast. These adjustments to the loss rate are based on results from various regression models projecting the
impact of the macroeconomic variables. The forecast is used for a reasonable and supportable period before reverting to
historical averages using a straight-line method.
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.
Adjustments to the allowance for credit losses are made by increases to or reductions in the provision for credit losses,
which are reflected in the consolidated statements of income.
22
Assumptions, Judgments, and Uncertainties: The uncertainty in the estimation of the allowance for credit losses is
created because key assumptions and judgements are applied throughout the process. Key assumptions include
segmentation of the portfolio into pools, calculations of life of a loan using a combination of contractual terms and expected
prepayment speeds and forecast of macroeconomic conditions. The Company utilizes a third-party macro-economic forecast
that continuously changes due to economic conditions and events. The single path economic forecast includes key
macroeconomic variables including GDP, disposable income, unemployment rate, various interest rates, consumer price
index (CPI) inflation rate, housing price index (HPI), commercial real estate price index (CREPI) and market volatility.
Each reporting period, the base macroeconomic forecast scenario is evaluated to ensure it is not inconsistent with
management’s expectations. Changes in the forecast cause fluctuations in the estimates of the allowance for credit losses on
loans and the liability for unfunded lending commitments. 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.
Data points such as loan mix, level of loan balances outstanding, portfolio performance, line utilization trends and risk
ratings change throughout the life of a portfolio which could cause changes to the expected credit losses.
Qualitative factors not included in historical information or macroeconomic forecast require significant judgment to
identify and determine how to apply to the estimate for credit losses. The qualitative factors continuously evolve in reaction
to other changing assumptions, data inputs and industry trends.
The Company uses its best judgment to assess the macroeconomic forecast, key assumptions and internal and external
data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments. These
estimates are subject to continuous refinement based on changes in the underlying external and internal data.
Impact if actual results differ from assumptions: The allowance for credit losses represents management’s best estimate
of expected current credit losses in the loan portfolio and within the Company’s unfunded lending commitments, but
changes in the inputs and assumptions described above could significantly impact the calculated estimated credit losses.
Therefore, actual credit losses may differ significantly from estimated results. Significant deterioration in circumstances
relating to loan quality and economic conditions could result in a requirement for additional allowance. Likewise, an upturn
in loan quality and improved economic conditions may allow a reduction in the required allowance. In either instance,
changes could have a significant impact on our financial condition and results of operations.
Allowance for Credit Losses - Available for Sale Debt Securities
The level of the allowance for credit losses on available for sale securities reflects the Company’s estimate of the losses
expected in the available for sale debt security portfolio. In order to estimate the allowance for credit losses on available for
sale debt securities, the Company performs quarterly reviews of its investment portfolio to identify securities in an
unrealized loss position. If the unrealized loss is not expected to be recovered, the Company performs further analyses to
determine whether any portion of the unrealized loss indicates that a credit loss exists.
Changes to the allowance for credit losses are made by changes to or reductions in the provision for credit losses, which
are reflected in the consolidated statements of income.
Assumptions, Judgments, and Uncertainties: The Company’s model for establishing its allowance for credit losses uses
cash flows projected to be received over the estimated life of the securities, discounted to present value, and compared to the
current amortized cost bases of the securities. Securities for which fair value is less than amortized cost are reviewed for
impairment. Special emphasis is placed on securities whose credit rating has fallen below Baa3 (Moody's) or BBB-
(Standard & Poor's), whose fair values have fallen more than 20% below purchase price, or who have been identified based
on management’s judgment. These securities are placed on a watch list and cash flow analyses are prepared on an
individual security basis. Certain securities are analyzed using a projected cash flow model, discounted to present value, and
compared to the current amortized cost bases of the securities. The model uses input factors such as cash flow projections,
contractual payments required, expected delinquency rates, credit support from other tranches, prepayment speeds, collateral
loss severity rates (including loan to values), and various other information related to the underlying collateral. Securities
not analyzed using the cash flow model are analyzed by reviewing risk ratings, credit support agreements, and industry
knowledge to project future cash flows and any possible credit impairment.
Impact if actual results differ from assumptions: The allowance for credit losses represents management’s best estimate
of expected credit losses in the available for sale debt portfolio, but significant deterioration in interest rates and economic
23
conditions could result in a requirement for additional allowance. Likewise, an increase in interest rates and improved
economic conditions may allow a reduction in the required allowance. In either instance, anticipated changes could have a
significant impact on our financial condition and results of operations.
Fair Value Measurement
Investment securities, including available for sale debt, trading, equity and other securities, residential mortgage loans held
for sale, derivatives and deferred compensation plan assets and associated liabilities are recorded at fair value on a recurring
basis. Additionally, from time to time, other assets and liabilities may be recorded at fair value on a nonrecurring basis, such as
loan values that have been reduced based on the fair value of the underlying collateral, other real estate (primarily foreclosed
property), non-marketable equity securities and certain other assets and liabilities. These nonrecurring fair value adjustments
typically involve write-downs of individual assets or application of lower of cost or fair value accounting.
Assumptions, Judgments, and Uncertainties: Fair value is an estimate of the exchange price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction (i.e., not a forced transaction, such as a liquidation or distressed sale)
between market participants at the measurement date and is based on the assumptions market participants would use when
pricing an asset or liability. Fair value measurement and disclosure guidance establishes a three-level hierarchy for disclosure of
assets and liabilities recorded at fair value.
Fair value is measured based on a variety of inputs. Fair value may be based on quoted market prices for identical assets or
liabilities traded in active markets (Level 1 valuations). If market prices are not available, quoted market prices for similar
instruments traded in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-
based valuation techniques for which all significant assumptions are observable in the market are used (Level 2 valuations).
Where observable market data is not available, the valuation is generated from model-based techniques that use significant
assumptions not observable in the market (Level 3 valuations). Unobservable assumptions reflect the Company’s estimates for
assumptions that market participants would use in pricing the asset or liability. Valuation techniques typically include
discounted cash flow models and similar techniques, but may also include the use of market prices of assets or liabilities that
are not directly comparable to the subject asset or liability.
The selection and weighting of the various fair value techniques may result in a fair value higher or lower than carrying
value. Considerable judgment may be involved in determining the amount that is most representative of fair value.
For assets and liabilities recorded at fair value, the Company looks to active and observable market data when developing
fair value measurements for those items where there is an active market. Certain assets and liabilities are not actively traded in
observable markets, and the Company must use alternative valuation techniques to derive an estimated fair value measurement.
In doing so, the Company may be required to make judgments about assumptions market participants would use in estimating
the fair value of the financial instrument. The assumptions used to determine fair value adjustments are regularly evaluated by
management for relevance under current facts and circumstances.
Changes in market conditions may reduce the availability of quoted prices or observable data. For example, reduced
liquidity in the capital markets or changes in secondary market activities could result in observable market inputs becoming
unavailable. When market data is not available, the Company uses valuation techniques requiring more management judgment
to estimate the appropriate fair value.
Impairment analysis also relates to long-lived assets and core deposit and other intangible assets. An impairment loss is
recognized if the carrying amount of the asset is not likely to be recoverable and exceeds its fair value. In determining the fair
value, management uses models and applies the techniques and assumptions previously discussed.
At December 31, 2022, assets and liabilities measured using observable inputs that are classified as either Level 1 or Level 2
represented 98.5% and 99.8% of total assets and liabilities recorded at fair value, respectively. Valuations generated from
model-based techniques that use at least one significant assumption not observable in the market are considered Level 3, and
the Company's Level 3 assets totaled $180.0 million, or 1.4% of total assets recorded at fair value on a recurring basis. The fair
value hierarchy, the extent to which fair value is used to measure assets and liabilities, and the valuation methodologies and key
inputs used are discussed in Note 17 on Fair Value Measurements.
Impact if actual results differ from assumptions: Changes in fair value are recorded either in earnings or accumulated other
comprehensive income. Adjustments in the inputs and assumptions described above could significantly impact the fair values
of the Company’s assets and liabilities and have a significant impact on our financial condition and results of operations.
24
Net Interest Income
Net interest income, the largest source of revenue, results from the Company’s lending, investing, borrowing, and deposit
gathering activities. It is affected by both changes in the level of interest rates and changes in the amounts and mix of interest
earning assets and interest bearing liabilities. 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.
(In thousands)
Interest income, fully taxable-equivalent basis
Loans:
Business
Real estate - construction and land
Real estate - business
Real estate - personal
Consumer
Revolving home equity
Consumer credit card
Total interest on loans
Loans held for sale
Investment securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Mortgage-backed securities
Asset-backed securities
Other securities
Total interest on investment securities
Federal funds sold
Securities purchased under agreements to resell
Interest earning deposits with banks
Total interest income
Interest expense
Interest bearing deposits:
Savings
Interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Federal funds purchased
Securities sold under agreements to resell
Other borrowings
Total interest expense
Net interest income, fully taxable-equivalent basis
$
2022
Change due to
Average
Volume
Average
Rate
Total
2021
Change due to
Average
Volume
Average
Rate
Total
$
(14,493) $
3,034
6,909
1,452
2,516
(200)
(3,377)
(4,159)
(434)
25,763 $
18,157
22,671
1,159
5,167
3,002
3,935
79,854
191
11,270 $
21,191
29,580
2,611
7,683
2,802
558
75,695
(243)
(16,872) $
7,585
1,744
6,459
1,859
(1,806)
(10,758)
(11,789)
96
7,591 $
(5,502)
(7,495)
(9,027)
(11,594)
(776)
(3,672)
(30,475)
(76)
12,468
92
1,089
(82)
12,336
4,599
30,502
61
6,449
(1,375)
31,044
(4,261)
21
(1,689)
40,827
13,675
(2,133)
46,440
347
(21,179)
13,271
118,924
8,207
113
(600)
40,745
26,011
2,466
76,942
408
(14,730)
11,896
149,968
336
(1,726)
12,259
24,048
27,557
7,760
70,234
4
20,355
2,610
81,510
15,183
(440)
(6,798)
(38,707)
(24,611)
4,128
(51,245)
(3)
(23,625)
(1,681)
(107,105)
107
732
(174)
(499)
42
31
1,817
2,056
28,988 $
(389)
(496)
17,979
17,247
311
485
1,321
1,820
1,819
1,777
22,393
22,362
1,835
18
43,213
45,269
75,711 $ 104,699 $
294
2,697
(957)
(1,410)
(646)
1,366
(1,029)
315
81,195 $
(218)
(13,115)
(2,782)
(8,961)
(131)
(5,034)
5
(30,236)
(76,869) $
(9,281)
2,083
(5,751)
(2,568)
(9,735)
(2,582)
(14,430)
(42,264)
20
15,519
(2,166)
5,461
(14,659)
2,946
11,888
18,989
1
(3,270)
929
(25,595)
76
(10,418)
(3,739)
(10,371)
(777)
(3,668)
(1,024)
(29,921)
4,326
Net interest income totaled $942.2 million in 2022, increasing $106.8 million, or 12.8%, compared to $835.4 million in
2021. On a fully taxable-equivalent (FTE) basis, net interest income totaled $951.8 million, and increased $104.7 million over
2021. This growth was mainly due to an increase of $75.7 million in interest earned on loans, due to higher average rates paid
and an increase of $76.9 million in interest earned on investment securities, due to higher rates and average balances, partly
offset by an increase of $45.3 million in interest expense on deposits and borrowings, due to higher average rates paid. The net
yield on earning assets (FTE) was 2.85% in 2022 compared with 2.58% in 2021.
25
During 2022, loan interest income (FTE) grew $75.7 million over 2021 mainly due to an increase in rates earned for all loan
categories. The average fully taxable-equivalent rate earned on the loan portfolio increased 51 basis points to 4.18% in 2022
compared to 3.67% in 2021. The higher rates earned on the loan portfolio were mostly related to actions taken by the Federal
Reserve to raise short-term interest rates, which caused most of the Company's variable rate loan portfolio to re-price higher.
Additionally, fixed rate loans were generally originated in 2022 at higher interest rates than the weighted-average of the
portfolio of fixed rate loans. The increase in interest rates earned was partly offset a decline in average loan balances of $102.4
million, or .7%, this year. Increased interest earned on business real estate and construction and land loans was the main driver
of overall higher interest income. Business real estate loan interest grew $29.6 million in 2022 compared to 2021 as a result of
an increase of 71 basis points in the average rate earned and higher average balances of $199.1 million, or 6.6%. Interest
earned on construction and land loans increased $21.2 million due to an increase of 147 basis points in the average rate earned
and growth of $85.2 million, or 7.4%, in average balances. Business loan interest income increased $11.3 million mainly due to
a 49 basis point increase in the average rate earned, partly offset by a decrease of $462.1 million in average balances. Average
balances of business loans included average balances of $41.9 million in Paycheck Protection Program (PPP) loans at
December 31, 2022, which was a decline of $812.2 million from balances of $854.1 billion at December 31, 2021. Interest on
personal real estate loans increased $2.6 million as the average balance grew $44.0 million and the average rate earned
increased four basis points. Interest on consumer loans grew $7.7 million over the prior year as the average rate earned
increased 25 basis points and average balances were higher by $66.2 million. Revolving home equity loan interest increased
$2.8 million due to an increase of 108 basis points in the average rate earned, slightly offset by lower average balances of $5.8
million. Interest on consumer credit card loans was higher by $558 thousand due to an increase of 72 basis points in the
average rate earned, mostly offset by a decline of $30.3 million, or 5.3%, in average balances.
Fully taxable-equivalent interest income on total investment securities increased $76.9 million during 2022, as average
balances grew $1.5 billion and the average rate earned increased 34 basis points. The average rate on the total investment
securities portfolio was 2.15% in 2022 compared to 1.81% in 2021, while the average balance of the total investment securities
portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $14.9 billion in 2022 compared
to an average balance of $13.5 billion in 2021. The increase in interest income was mainly due to higher interest income earned
on mortgage-backed, asset-backed and U.S. government securities. Interest earned on mortgage-backed securities increased
$40.7 million due to a 59 basis point increase in the average rate earned. The increase of $26.0 million in interest earned on
asset-backed securities was due to an increase of 35 basis points in the average rate earned coupled with growth of $1.1 billion
in average balances. Interest earned on U.S. government securities grew $8.2 million and was mainly impacted by growth of
$7.3 million in inflation income on treasury inflation-protected securities (TIPS). Average balances of U.S. government
securities increased $301.9 million, while the average rate earned declined 39 basis points.
Interest on securities purchased under resell agreements decreased $14.7 million compared to 2021 due to a decrease of 142
basis points in the average rate, partly offset by growth in average balances of $220.1 million. Interest earned on deposits with
banks increased $11.9 million over 2021, mainly due to a 98 basis point increase in the average rate earned, partly offset by a
decline in average balances of $1.1 billion.
During 2022, interest expense on deposits increased $19.2 million over 2021 and resulted mainly from an 11 basis point
increase in the overall average rate paid on deposits. Interest expense on interest checking and money market accounts
increased $18.0 million mainly due to higher rates paid, which grew 12 basis points, coupled with higher average balances of
$1.1 billion. Interest expense on certificates of deposit over $100,000 grew $1.3 million, mainly due to a 37 basis point
increase in the average rate paid. The overall rate paid on total deposits increased from .07% in 2021 to .18% in the current
year. Interest expense on borrowings increased $26.0 million mainly due to a 95 basis point increase in the rate paid on
securities sold under repurchase agreements. The overall average rate incurred on all interest bearing liabilities was .30% in
2022, compared to .07% in 2021.
Net interest income totaled $835.4 million in 2021, increasing $5.6 million, or .7%, compared to $829.8 million in 2020.
On a FTE basis, net interest income totaled $847.1 million, and increased $4.3 million over 2020. This increase was mainly
due to a decline of $29.9 million in interest expense on deposits and borrowings, due to lower average rates paid, coupled with
an increase of $19.0 million in interest earned on investment securities, mainly due to higher average balances. These increases
to net interest income (FTE) were partly offset by lower interest earned on loans, which declined $42.3 million, mainly due to
lower rates earned. The net yield on earning assets (FTE) was 2.58% in 2021 compared with 2.99% in 2020.
26
During 2021, loan interest income (FTE) fell $42.3 million from 2020 mainly due to a decline in rates earned for most loan
categories and lower average business and consumer credit card loan balances. The average fully taxable-equivalent rate
earned on the loan portfolio decreased 21 basis points to 3.67% in 2021 compared to 3.88% in 2020. Average loan balances
decreased $232.5 million, or 1.5%, in 2021. The decrease in consumer credit card loan interest income was the main driver of
overall lower interest income. Consumer credit card loan interest declined $14.4 million due to lower average balances of
$91.4 million and a decrease of 64 basis points in the average rate earned. Business loan interest income declined $9.3 million
mainly due to a decrease of $548.7 million in average balances, partly offset by a 13 basis point increase in the average rate
earned. Average balances of business loans included average balances of $854.1 million in PPP loans at December 31, 2021,
which was a decline of $204.9 million from balances of $1.1 billion at December 31, 2020. The average rate earned on PPP
loans increased 193 basis points to 4.81% in 2021 compared to 2.88% in 2020, partly offsetting the decline in average balances.
During 2021, the Company recognized $41.0 million in interest income on PPP loans. As of December 31, 2021, 93% of the
PPP loans originated by the Company had been forgiven. Business real estate loan interest was lower by $5.8 million in 2021
compared to 2020 as a result of a decrease of 25 basis points in the average rate, partly offset by higher average balances of
$46.9 million. Interest on personal real estate loans decreased $2.6 million as the average rate earned declined 32 basis points,
while average balances increased $178.4 million. Interest on consumer loans declined $9.7 million from 2020 as the average
rate earned decreased 58 basis points, but was partly offset by growth in average balances of $42.4 million. These decreases to
loan interest income (FTE) were partly offset by an increase of $2.1 million in interest earned on construction and land loans.
This increase resulted from higher average balances of $187.7 million, partly offset by a 48 basis point decrease in the average
rate earned.
Fully taxable-equivalent interest income on total investment securities increased $19.0 million during 2021, as average
balances grew $3.2 billion, while the average rate earned decreased 38 basis points. The average rate on the total investment
securities portfolio was 1.81% in 2021 compared to 2.19% in 2020, while the average balance of the total investment securities
portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $13.5 billion in 2021 compared
to an average balance of $10.3 billion in 2020. The increase in interest income was mainly due to higher interest income earned
on U.S. government securities, state and municipal obligations, asset-backed securities and other securities. Interest earned on
U.S. government securities grew $15.5 million and was mainly impacted by growth of the same amount in inflation income on
TIPS. Average balances of U.S. government securities increased $15.1 million and the average rated earned grew 191 basis
points. The increase in interest earned on state and municipal obligations resulted mainly from growth of $453.2 million in
average balances, partly offset by a 33 basis point decrease in the average rate earned. Interest on asset-backed securities
increased $2.9 million mainly due to growth of $1.4 billion in the average balance, partly offset by an 87 basis point decrease in
the average rate earned. Other securities interest increased $11.9 million mainly due to higher interest earned on equity
securities, largely as a result of one-time dividend payments of $5.5 million received on private equity portfolio investments in
2021. Partly offsetting these increases in interest income was a decline of $14.7 million in interest income on mortgage-backed
securities, due to a decrease of 56 basis points in the average rate earned, partly offset by higher average balances of $1.3
billion.
Interest on securities purchased under resell agreements decreased $3.3 million compared to 2020 due to a decrease of 185
basis points in the average rate, partly offset by growth in balances of $425.8 million. Interest earned on deposits with banks
increased $929 thousand over 2020, mainly due to growth in average balances of $1.3 billion, partly offset by a seven basis
point decrease in the average rate earned.
During 2021, interest expense on deposits decreased $24.5 million from 2020 and resulted mainly from a 17 basis point
decrease in the overall average rate paid on deposits. Interest expense on interest checking and money market accounts
decreased $10.4 million mainly due to lower rates paid, which fell 10 basis points, but was partly offset by higher average
balances of $1.8 billion. Interest expense on certificates of deposit over $100,000 declined $10.4 million, mainly due to a 74
basis point decline in the average rate paid. The overall rate paid on total deposits decreased from .24% in 2020 to .07% in
2021. Interest expense on borrowings decreased $5.5 million mainly due to lower rates paid on securities sold under repurchase
agreements, partly offset by higher average balances. The overall average rate incurred on all interest bearing liabilities
was .07% in 2021, compared to .26% in 2020.
27
Provision for Credit Losses
The provision for credit losses is comprised of provisions for credit losses on loans and for unfunded lending commitments
and is recorded to adjust the allowance for credit losses on loans and the liability for unfunded lending commitments to a level
deemed adequate by management based on the factors mentioned in the “Allowance for Credit Losses on Loans and Liability
for Unfunded Lending Commitments” section of this discussion. The provision for credit losses was $28.1 million in 2022, an
increase of $94.4 million over the 2021 provision, which was a recovery of $66.3 million.
The provision for credit losses on loans in 2022 was $19.2 million, compared to a recovery in the provision for credit losses
on loans of $52.2 million in 2021. The allowance for credit losses on loans totaled $150.1 million at December 31, 2022, an
increase of $92 thousand compared to the prior year, and represented .92% of loans at year end 2022, compared to .99% at
December 31, 2021.
The provision for unfunded lending commitments was $8.9 million during 2022, compared to a recovery of $14.1 million in
2021, and the liability for unfunded lending commitments was $33.1 million at December 31, 2022, compared to $24.2 million
at December 31, 2021.
Non-Interest Income
(Dollars in thousands)
Trust fees
Bank card transaction fees
Deposit account charges and other fees
Consumer brokerage services
Capital market fees
Loan fees and sales
Other
Total non-interest income
Non-interest income as a % of total revenue*
Total revenue per full-time equivalent employee
$
$
$
2022
184,719
176,144
94,381
19,117
14,231
13,141
44,802
546,535
$
$
36.7%
324.1
$
* Total revenue is calculated as net interest income plus non-interest income.
2021
188,227 $
167,891
97,217
18,362
15,943
29,720
43,033
560,393 $
40.1%
305.6 $
2020
160,637
151,797
93,227
15,095
14,582
26,684
43,845
505,867
37.9%
280.3
% Change
'22-'21
'21-'20
(1.9) %
4.9
(2.9)
4.1
(10.7)
(55.8)
4.1
(2.5) %
17.2%
10.6
4.3
21.6
9.3
11.4
(1.9)
10.8%
Below is a summary of net bank card transaction fees for the years ended December 31, 2022, 2021 and 2020, respectively.
(Dollars in thousands)
Net corporate card fees
Net debit card fees
Net merchant fees
Net credit card fees
2022
2021
2020
'22-'21
'21-'20
% Change
100,012
91,701
$
40,968 $
41,010 $
20,604
14,560
20,036
15,144
82,374
37,644
18,386
13,393
9.1
(.1) %
2.8
(3.9)
4.9%
11.3
8.9%
9.0
13.1
10.6%
Total bank card transaction fees
$
176,144 $
167,891 $
151,797
Non-interest income totaled $546.5 million, a decrease of $13.9 million, or 2.5%, compared to $560.4 million in 2021.
Trust fee income decreased $3.5 million, or 1.9%, as a result of lower institutional (down 7.0%), mutual fund (down 10.9%)
and private client trust fees (down .3%). Private client trust fees comprised 79.7% of trust fee income in 2022. The market
value of total customer trust assets totaled $60.3 billion at year end 2022, which was a decrease of 13.0% from year end 2021
balances. Bank card fees increased $8.3 million, or 4.9%, over the prior year, mainly due to an increase in net corporate card
fees of $8.3 million. The growth in net corporate card fees over the prior year was mainly due to higher interchange income,
partly offset by higher rewards expense. Deposit account fees decreased $2.8 million, or 2.9%, mainly due to lower overdraft
and return item fees of $4.2 million and personal account deposit fees of $1.2 million, partly offset by growth in corporate cash
management fees of $2.5 million. In 2022, corporate cash management fees comprised 55.6% of total deposit fees, while
overdraft fees comprised 21.1% of total deposit fees. In September 2022, the Company implemented enhancements to
consumer checking accounts that eliminated return items fees and lowered overdraft fees. Capital market fees decreased $1.7
million, or 10.7%, compared to the prior year, while revenue from consumer brokerage services increased $755 thousand, or
4.1%, mainly due to growth in annuity fees. Loan fees and sales decreased $16.6 million, or 55.8%, mainly due to lower
mortgage banking revenue. Other non-interest income increased $1.8 million, or 4.1%, over the prior year mainly due to higher
28
cash sweep commissions of $8.2 million and lease income of $1.3 million, income of $2.2 million from a life insurance death
benefit recorded in the second quarter of 2022, a $2.6 million loss on an equity method investment recorded in 2021 and a lease
impairment of $1.1 million recorded in 2021. These increases were partly offset by gains of $5.6 million recorded mainly on
the sales of branch properties last year. In addition, a decrease of $6.6 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 a liability and affect both
other income and other expense.
During 2021, non-interest income totaled $560.4 million, an increase of $54.5 million, or 10.8%, compared to $505.9
million in 2020. Bank card fees increased $16.1 million, or 10.6%, over 2020, due to increases in net corporate card fees of
$9.3 million, net debit card fees of $3.4 million, net credit card fees of $1.8 million and net merchant fees of $1.7 million. The
growth in net corporate and credit card fees over the prior year was due to higher interchange income, partly offset by higher
rewards expense. Net debit card fees increased due to higher interchange income, partly offset by an increase in network
expense. Net merchant fees were up due to an increase in merchant discount fees, partly offset by higher rewards expense.
Trust fee income increased $27.6 million, or 17.2%, as a result of growth in private client trust fees (up 19.1%) and higher
institutional trust fees (up 11.0%). Private client trust fees comprised 78.4% of trust fee income in 2021. The market value of
total customer trust assets totaled $69.3 billion at year end 2021, which was an increase of 13.2% over year end 2020 balances.
Deposit account fees increased $4.0 million, or 4.3%, mainly due to growth in corporate cash management fees and overdraft
and return item fees of $3.3 million and $1.2 million, respectively, partly offset by lower personal deposit account service
charge fees of $1.2 million. In 2021, corporate cash management fees comprised 51.5% of total deposit fees, while overdraft
fees comprised 24.8% of total deposit fees. Capital market fees grew $1.4 million, or 9.3%, compared to 2020, while revenue
from consumer brokerage services increased $3.3 million, or 21.6%, due to growth in advisory and annuity fees. Loan fees and
sales increased $3.0 million, or 11.4%, mainly due to growth in mortgage banking revenue and loan commitment fees. Other
non-interest income decreased $812 thousand, or 1.9%, from 2020 mainly due to lower cash sweep commissions of $7.9
million and a $2.6 million loss recorded on an equity method investment in 2021. These decreases were partly offset by gains
of $5.6 million recorded mainly on sales of branch properties during 2021 and increases in interest rate swap fees and check
sales and wire fees of $2.2 million and $1.0 million, respectively.
29
Investment Securities Gains (Losses), Net
(In thousands)
2022
2021
2020
Net gains (losses) on sales of available for sale debt securities
$
(20,273) $
(3,284) $
21,096
Net gains on sales of equity securities
Fair value adjustments on equity securities, net
Net gains (losses) on sales of private equity investments
Fair value adjustments of private equity investments
17
(943)
(2,128)
43,833
—
187
1,452
31,704
2
37
—
(10,103)
Total investment securities gains, net
$
20,506
$
30,059
$
11,032
Net gains and losses on investment securities during 2022, 2021 and 2020 are shown in the table above. Included in these
amounts are gains and losses arising from sales of securities from the Company’s available for sale debt portfolio and gains and
losses relating to private equity investments, which are primarily held by the Parent’s majority-owned private equity subsidiary.
The gains and losses on private equity investments include fair value adjustments, in addition to gains and losses realized upon
disposition. The portions of private equity investment gains and losses that are attributable to minority interests are reported as
non-controlling interest in the consolidated statements of income, and resulted in expense of $8.5 million in 2022 and $6.5
million in 2021, compared to income of $1.4 million in 2020.
Net securities gains of $20.5 million were recorded in 2022, which included net gains of $43.8 million in fair value
adjustments on private equity investments. This increase was partly offset by losses of $20.3 million realized on sales resulting
from the Company's sale of approximately $105 million (book value) in bonds, mainly mortgage-backed and corporate bond
securities, net losses of $2.1 million on sales of private equity investments, and net losses of $943 thousand in fair value
adjustments on equity securities.
Net securities gains of $30.1 million were recorded in 2021, which included $1.5 million in net gains realized on sales of
private equity investments, net gains totaling $31.7 million of fair value adjustments on private equity investments, and $187
thousand of fair value adjustments on equity investments. These net gains were offset by losses of $3.3 million realized on
bond sales resulting from the Company's sale of approximately $73 million (book value) of bonds, mainly mortgage-backed
securities.
Net securities gains of $11.0 million were recorded in 2020, which included $21.1 million in net gains realized on bond
sales resulting from the Company's sale of approximately $602 million (book value) of bonds, mainly mortgage-backed
securities and municipal securities. These gains were offset by net losses totaling $10.1 million of fair value adjustments on
private equity investments.
30
Non-Interest Expense
(Dollars in thousands)
Salaries
Employee benefits
Data processing and software
Net occupancy
Equipment
Supplies and communication
Marketing
Other
2022
2021
2020
'22-'21
'21-'20
% Change
$
471,260
$
447,238
$
436,087
5.4%
82,787
110,692
49,117
19,359
18,101
23,827
73,634
78,010
101,792
48,185
18,089
17,118
21,856
73,613
76,900
95,325
46,645
18,839
17,419
19,734
57,429
6.1
8.7
1.9
7.0
5.7
9.0
—
2.6%
1.4
6.8
3.3
(4.0)
(1.7)
10.8
28.2
Total non-interest expense
$
848,777
$
805,901
$
768,378
5.3%
4.9%
Efficiency ratio
Salaries and benefits as a % of total non-interest
expense
Number of full-time equivalent employees
56.9%
57.6%
57.2%
65.3%
4,594
65.2%
4,567
66.8%
4,766
Non-interest expense was $848.8 million in 2022, an increase of $42.9 million, or 5.3%, over the previous year. Salaries
and benefits expense increased $28.8 million, or 5.5%, mainly due to higher costs for full-time salaries, incentive
compensation, stock compensation, payroll taxes and 401(k) expense. Salaries expense included expense of $5.4 million for
special bonuses paid to non-incentivized full-time and part-time employees in 2022. Full-time equivalent employees totaled
4,594 at December 31, 2022, compared to 4,567 at December 31, 2021. Data processing and software expense increased $8.9
million, or 8.7%, primarily due to higher bank card processing fees, software amortization and expense, and increased costs for
service providers. Net occupancy expense increased $932 thousand, or 1.9%, mainly due to higher depreciation, utilities and
outside services expense, partly offset by lower real estate taxes expense. Equipment expense increased $1.3 million, or 7.0%,
mainly due to higher depreciation and equipment service contract expense, while marketing expense increased $2.0 million, or
9.0%. Supplies and communication expense increased $983 thousand, or 5.7%, mainly due to higher postage and courier
expense and bank card reissuance fees, partly offset by lower data network expense. Other non-interest expense increased
slightly over 2021. Higher costs for travel and entertainment expense (up $5.1 million), insurance expense (up $1.9 million),
depreciation expense on leased assets (up $958 thousand) and airplane expense (up $864 thousand) were offset by $8.2 million
in non-recurring litigation settlement costs recorded in 2021. In addition, the previously mentioned fair value adjustments on
the Company's deferred compensation plan assets decreased $6.6 million from the prior year.
In 2021, non-interest expense was $805.9 million, an increase of $37.5 million, or 4.9%, over 2020. Salaries and benefits
expense increased $12.3 million, or 2.4%, mainly due to higher incentive compensation and healthcare expense, partly offset by
lower salaries expense. Incentive compensation increased due to higher incentives in wealth and commercial, while full-time
and part-time salaries expense declined mainly due to lower retail banking salaries expense. Full-time equivalent employees
totaled 4,567 at December 31, 2021, reflecting a 4.2% decrease from 2020. Net occupancy expense increased $1.5 million, or
3.3%, mainly due to lower external rent income. Equipment expense decreased $750 thousand, or 4.0%, mainly due to lower
depreciation and equipment service expense, while supplies and communication expense decreased $301 thousand, or 1.7%.
Data processing and software expense increased $6.5 million, or 6.8%, primarily due to higher costs for service providers, bank
card processing fees and software expense, while marketing expense increased $2.1 million, or 10.8%. Other non-interest
expense increased $16.2 million, or 28.2%, over 2020 mainly due to $8.2 million in non-recurring litigation settlement costs
mentioned above. In addition, deferred loan origination costs declined $3.5 million and deposit insurance expense increased
$1.3 million. These increases were partly offset by a reduction in impairment expense of $3.6 million on the Company's
mortgage servicing rights.
Income Taxes
Income tax expense was $132.4 million in 2022, compared to $145.7 million in 2021 and $87.3 million in 2020. The
effective tax rate, including the effect of non-controlling interest, was 21.3% in 2022 compared to 21.5% in 2021 and 19.8% in
2020. Additional information about income tax expense is provided in Note 9 to the consolidated financial statements.
31
Financial Condition
Loan Portfolio Analysis
Classifications of consolidated loans by major category at December 31, 2022 and 2021 are shown in the table below. This
portfolio consists of loans which were acquired or originated with the intent of holding to their maturity. Loans held for sale
are separately discussed in a following section. A schedule of average balances invested in each loan category below is
disclosed within the Average Balance Sheets section of Management's Discussion and Analysis of Financial Condition and
Results of Operations below.
(In thousands)
Commercial:
Business
Real estate — construction and land
Real estate — business
Personal banking:
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Balance at December 31
2022
2021
$
5,661,725 $
1,361,095
3,406,981
2,918,078
2,059,088
297,207
584,000
14,957
5,303,535
1,118,266
3,058,837
2,805,401
2,032,225
275,945
575,410
6,740
$
16,303,131 $
15,176,359
The table below presents contractual maturities of the loan portfolio, based on payment due dates, as well as a breakdown of
fixed rate and floating rate loans at December 31, 2022.
(In thousands)
Commercial:
Business
Real estate — construction and land
Real estate — business
Personal banking:
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans with fixed rates
Loans with floating rates
Total loans
In
One Year
or Less
Principal Payments Due
After One
Year Through
Five Years
After Five
Years Through
Fifteen Years
After Fifteen
Years
Total
$
2,188,745 $
3,097,082 $
374,934 $
964 $
5,661,725
450,456
880,531
716,024
2,182,596
24,958
504,254
5,150
4,107
1,361,095
3,406,981
175,599
554,999
1,063,609
1,123,871
2,918,078
830,809
1,051,373
18,247
66,352
14,957
92,621
198,109
—
176,111
186,339
319,539
—
795
2,059,088
—
—
—
297,207
584,000
14,957
4,461,189 $
8,057,311 $
2,649,744 $
1,134,887 $
16,303,131
1,303,933 $
3,782,069 $
1,521,000 $
622,618 $
7,229,620
3,157,256
4,275,242
1,128,744
512,269
9,073,511
4,461,189 $
8,057,311 $
2,649,744 $
1,134,887 $
16,303,131
$
$
$
32
The following table shows loan balances at December 31, 2022, segregated between those with fixed interest rates and those
with variable rates that fluctuate with an index.
(In thousands)
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Fixed Rate
Loans
Variable Rate
Loans
Total
% Variable Rate
Loans
$
2,249,024 $
3,412,701 $
5,661,725
60.3%
74,713
1,286,382
1,361,095
1,471,746
1,935,235
3,406,981
1,950,578
1,438,912
967,500
2,918,078
620,176
2,059,088
1,775
27,915
14,957
295,432
556,085
—
297,207
584,000
14,957
94.5
56.8
33.2
30.1
99.4
95.2
—
$
7,229,620 $
9,073,511 $
16,303,131
55.7%
Total loans at December 31, 2022 were $16.3 billion, an increase of $1.1 billion, or 7.4%, over balances at December 31,
2021. The increase in loans during 2022 occurred in all categories over the previous year. Business loans increased $358.2
million, or 6.8%, mainly due to a $374 million increase in commercial and industrial loans. Excluding declines in PPP loan
balances, which decreased $121.1 million during 2022, business loans increased $479.3 million, or 9.0%. As of December 31,
2022, nearly 100% of PPP loan balances have been forgiven. Lease lending and commercial card lending, included within
business loans, also increased during 2022, but the increase was partly offset by a decline in tax-advantaged lending.
Construction loans increased $242.8 million, or 21.7% mainly due to growth in commercial construction lending. Business real
estate loans increased $348.1 million, or 11.4%, due mainly to increases in industrial and office building lending, while owner-
occupied, multi-family, and senior living lending declined. Personal real estate loans increased $112.7 million, or 4.0%. The
Company sells certain long-term fixed rate mortgage loans to the secondary market, and loan sales in 2022 totaled $111.3
million, compared to $547.1 million in 2021. Consumer loans increased $26.9 million, or 1.3%, mainly due to growth in
private banking lending. Health services financing and fixed rate home equity loans also increased, offset by declines in auto
lending, other vehicle and equipment lending (mostly comprised of motorcycle loans), and continued run off of marine and
recreational vehicle loan balances. Consumer credit card loans increased $8.6 million, or 1.5%, and revolving home equity loan
balances increased $21.3 million, or 7.7%, compared to balances at year end 2021.
The Company currently holds approximately 31% of its loan portfolio in the Kansas City market, 25% in the St. Louis
market, and 45% in other regional markets. The portfolio is diversified from a business and retail standpoint, with 64% in loans
to businesses and 36% in loans to consumers. The Company believes a diversified approach to loan portfolio management,
strong underwriting criteria and an aversion toward credit concentrations from an industry, geographic and product perspective,
have contributed to low levels of problem loans and credit losses on loans experienced over the last several years.
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. At December 31, 2022, the
balance of SNC loans totaled approximately $1.4 billion, with an additional $2.0 billion in unfunded commitments, compared
to a balance of $1.2 billion, with an additional $1.9 billion in unfunded commitments, at year end 2021.
Commercial Loans
Business
Total business loans amounted to $5.7 billion at December 31, 2022 and includes loans used mainly to fund customer
accounts receivable, inventories, and capital expenditures. The business loan portfolio includes tax-advantaged loans and leases
which carry tax-free interest rates. These loans totaled $618.1 million at December 31, 2022, a decrease of $111.8 million, or
15.3%, from December 31, 2021 balances. In addition to tax-advantaged leases, the business loan portfolio also includes other
direct financing and sales type leases totaling $614.7 million at December 31, 2022, an increase of $75.4 million, or 14.0%,
from December 31, 2021. These loans are used by commercial customers to finance capital purchases ranging from computer
equipment to office and transportation equipment. Additionally, the Company has outstanding oil and gas energy-related loans
totaling $296.4 million at December 31, 2022, which are further discussed within the Oil and Gas Energy Lending section of
the Risk Elements of Loan Portfolio section located within Management's Discussion and Analysis of Financial Condition and
33
Results of Operations. Also included in the business portfolio are corporate card loans, which totaled $367.3 million at
December 31, 2022 and are made in conjunction with the Company’s corporate card business for corporate trade purchases.
Corporate card loans are made to corporate, non-profit and government customers nationwide, but have very short-term
maturities, which limits credit risk.
Business loans, excluding corporate card loans, are made primarily to customers in the regional trade area of the Company,
generally the central Midwest, encompassing the states of Missouri, Kansas, Illinois, and nearby Midwestern markets, including
Iowa, Oklahoma, Colorado, Texas, Tennessee, Michigan, Indiana, and Ohio. This portfolio is diversified from an industry
standpoint and includes businesses engaged in manufacturing, wholesaling, retailing, agribusiness, insurance, financial services,
public utilities, health care, and other service businesses. Emphasis is upon middle-market and community businesses with
known local management and financial stability. Consistent with management’s strategy and emphasis upon relationship
banking, most borrowing customers also maintain deposit accounts and utilize other banking services. Net loan charge-offs in
this category totaled $1.1 million in 2022 compared to net loan recoveries of $4.8 million in 2021. Non-accrual business loans
were $6.8 million (.1% of business loans) at December 31, 2022 compared to $7.3 million at December 31, 2021.
Real Estate-Construction and Land
The portfolio of loans in this category amounted to $1.4 billion at December 31, 2022, an increase of $242.8 million, or
21.7%, from the prior year and comprised 8.3% of the Company’s total loan portfolio. Commercial construction and land
development loans totaled $1.2 billion, or 86.2% of total construction loans at December 31, 2022. These loans increased
$201.6 million from 2021 year end balances, driving the growth in the total construction portfolio. Commercial construction
loans are made during the construction phase for small and medium-sized office and medical buildings, manufacturing and
warehouse facilities, apartment complexes, shopping centers, hotels and motels, and other commercial properties. Commercial
land development loans relate to land owned or developed for use in conjunction with business properties. Residential
construction and land development loans at December 31, 2022 totaled $188.3 million, or 13.8% of total construction loans. A
stable construction market has contributed to low loss rates on these loans, with net loan charge-offs of nearly zero in both 2022
and 2021.
Real Estate-Business
Total business real estate loans were $3.4 billion at December 31, 2022 and comprised 20.9% of the Company’s total loan
portfolio. This category includes mortgage loans for small and medium-sized office and medical buildings, manufacturing and
warehouse facilities, distribution facilities, multi-family housing, farms, shopping centers, hotels and motels, churches, and
other commercial properties. The business real estate borrowers and/or properties are generally located in local and regional
markets where Commerce does business, and emphasis is placed on owner-occupied lending (33.3% of this portfolio), which
presents lower risk levels. Additional information about business real estate loans by borrower is disclosed within the Real
Estate - Business Loans section of the Risk Elements of Loan Portfolio section located within Management's Discussion and
Analysis of Financial Condition and Results of Operations. At December 31, 2022, balances of non-accrual loans amounted to
$189 thousand, less than .1% of business real estate loans, down from $214 thousand at year end 2021. The Company
experienced net loan recoveries of $20 thousand in 2022, compared to net loan recoveries of $64 thousand in 2021.
Personal Banking Loans
Real Estate-Personal
At December 31, 2022, there were $2.9 billion in outstanding personal real estate loans, which comprised 17.9% of the
Company’s total loan portfolio. The mortgage loans in this category are mainly for owner-occupied residential properties. The
Company originates both adjustable and fixed rate mortgage loans, and at December 31, 2022, 33% of the portfolio was
comprised of adjustable rate loans, while 67% was comprised of fixed rate loans. The Company does not purchase any loans
from outside parties or brokers.
The Company originates certain mortgage loans with the intent to sell to the secondary market, generally FNMA or FHLMC
conforming fixed rate loans. The remaining loans are originated with the intent to hold to maturity. Of the $699 million of
mortgage loans originated in 2022, $111.3 million were sold to the secondary market. This compares to $1.3 billion of
mortgage loans originated and $547.1 million of loans sold to the secondary market in 2021. The decrease in loan sales during
2022 compared to 2021 was partly due to lower demand for mortgage loans, as well as the Company's temporary pause on loan
sales in late 2022.
The Company has experienced lower credit losses on loans in this category than many others in the industry and believes
this is partly because of its conservative underwriting culture and the fact that it does not purchase loans from brokers. Net loan
34
recoveries in 2022 totaled $74 thousand, and net loan recoveries were $98 thousand in 2021. Balances of non-accrual loans in
this category were $1.4 million at December 31, 2022, compared to $1.6 million at year end 2021.
Consumer
Consumer loans consist of private banking, automobile, motorcycle, marine, tractor/trailer, recreational vehicle (RV), fixed
rate home equity, patient health care financing and other types of consumer loans. These loans totaled $2.1 billion at
December 31, 2022. Approximately 39% of the consumer portfolio consists of automobile loans, 32% in private banking loans,
11% in fixed rate home equity loans, and 10% in healthcare financing loans. Total consumer loans increased $26.9 million at
year end 2022 compared to year end 2021. Growth of $77.6 million in private banking loans was supplemented by increases in
patient healthcare financing and fixed rate home equity loans. These increases in consumer loan balances were partially offset
by declines of $56.8 million in automobile loans and $19.2 million in motorcycle loans. Net charge-offs on total consumer
loans were $3.8 million in 2022, compared to $2.6 million in 2021, averaging .18% and .13% of consumer loans in 2022 and
2021, respectively.
Revolving Home Equity
Revolving home equity loans, of which more than 99% are adjustable rate loans, totaled $297.2 million at year end 2022.
An additional $846.4 million was available in unused lines of credit, which can be drawn at the discretion of the borrower.
Home equity loans are secured mainly by second mortgages (and less frequently, first mortgages) on residential property of the
borrower. The underwriting terms for the home equity line product permit borrowing availability, in the aggregate, generally up
to 80% or 90% of the appraised value of the collateral property at the time of origination. Net loan recoveries were $60
thousand in 2022, compared to net loan charge-offs of nearly zero in 2021.
Consumer Credit Card
Total consumer credit card loans amounted to $584.0 million at December 31, 2022 and comprised 3.6% of the Company’s
total loan portfolio. The credit card portfolio is concentrated within regional markets served by the Company. The Company
offers a variety of credit card products, including affinity cards, rewards cards, and standard and premium credit cards, and
emphasizes its credit card relationship product, Special Connections. Approximately 38% of the households that own a
Commerce credit card product also maintain a deposit relationship with the subsidiary bank. Approximately 95% of the
outstanding credit card loan balances had a floating interest rate at year end 2022, unchanged from year end 2021. Net charge-
offs amounted to $12.7 million in 2022, a decrease of $7.4 million from $20.0 million in 2021.
Loans Held for Sale
At December 31, 2022, loans held for sale were comprised of certain loans extended to students while attending colleges
and universities. The student loans, carried at the lower of cost or fair value, totaled $4.9 million at December 31, 2022. This
portfolio is further discussed in Note 2 to the consolidated financial statements.
35
Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments
To determine the amount of the allowance for credit losses on loans and the liability for unfunded lending commitments, the
Company has established a 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 Policies above.
Loans subject to individual evaluation generally consist of business, construction, business real estate and personal real
estate loans on non-accrual status. These non-accrual loans are evaluated individually for impairment based on factors such as
payment history, borrower financial condition and collateral. For collateral dependent loans, appraisals of collateral (including
exit costs) are normally obtained annually but discounted based on the date last received and market conditions. From these
evaluations of expected cash flows and collateral values, specific allowances are determined.
Loans which are not individually evaluated are segregated by loan type and sub-type and are collectively evaluated. These
loans consist of commercial loans (business, construction and business real estate) which have been graded pass, special
mention, or substandard, and also include all personal banking loans except personal real estate loans on non-accrual status.
Collectively-evaluated loans include certain troubled debt restructurings with similar risk characteristics.
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.
The Company has internal credit administration and loan review staff that continuously review loan quality and report the
results of their reviews and examinations to the Company’s senior management and Board of Directors. Such reviews also
assist management in establishing the level of the allowance. The Company’s subsidiary bank continues to be subject to
examination by several regulatory agencies, and examinations are conducted throughout the year, targeting various segments of
the loan portfolio for review. Refer to Note 1 to the consolidated financial statements for additional discussion on the
allowance and charge-off policies.
At December 31, 2022, the allowance for credit losses on loans was $150.1 million, compared to $150.0 million at
December 31, 2021. The allowance for credit losses related to commercial loans increased $5.5 million during 2022, due to
increases in the allowance for construction and business loans of $5.6 million and $2.4 million, respectively, partly offset by a
decrease in the allowance for business real estate loans of $2.5 million. The increase in the allowance for credit losses on the
commercial portfolio is due to an increase in outstanding loan balances, partially offset by a reduction in certain pandemic-
related reserves, as those uncertainties and concerns began to resolve. Compared to December 31, 2021, the allowance for
credit losses on consumer credit card loans decreased $10.6 million, due to the changing forecast, as concerns related to
COVID-19 lessened. This decrease was partly offset by a $4.7 million increase in the allowance for personal real estate loans,
as prepayment speeds slowed, extending the estimated average life of the loans and increasing the related allowance. The
provision for credit losses, which includes the provision for loans and unfunded lending commitments, was $28.1 million for
the year, compared to a benefit of $66.3 million in 2021. During 2021, the allowance for credit losses built in 2020 to estimate
the impact of the pandemic were released as the economic forecast and loss projections improved. See Note 2 to the
consolidated financial statements for the various model assumptions utilized in the Company's CECL estimate at December 31,
2022.
The percentage of allowance to loans decreased to .92% at December 31, 2022, compared to .99% at December 30, 2021.
The percentage of allowance to commercial portfolio loans decreased to .99% at December 31, 2022, compared to 1.03% at
December 30, 2021, and the percentage of allowance to personal banking loans decreased to .80% at December 31, 2022
from .92% at December 31, 2021. The allowance fell as a percentage of loans at December 31, 2022 as the forecast used in the
Company's CECL model moved away from the forecast estimating losses related to the trailing impact of the unprecedented
pandemic at year end 2021 to a forecast showing a near term mild recession.
36
Total loans delinquent 90 days or more and still accruing were $15.8 million at December 31, 2022, an increase of $4.1
million compared to year end 2021. The increase was mainly driven by growth of $3.7 million in personal real estate loans.
Non-accrual loans at December 31, 2022 were $8.3 million, a decrease of $851 thousand from the prior year, mainly due to
declines in business and personal real estate non-accrual loans of $561 thousand and $264 thousand, respectively. The
allowance for credit losses as a percentage of non-accrual loans was 1,807.6% at December 31, 2022, compared to 1,638.6% at
December 31, 2021. The increase in the ratio of the allowance to non-accrual loans was driven by the decrease in non-accrual
loans outstanding. The 2022 year-end balance of non-accrual loans was comprised of $6.8 million of business loans, $1.4
million of personal real estate loans, and $189 thousand of business real estate loans.
Net loan charge-offs totaled $19.1 million in 2022, representing a $496 thousand increase compared to net charge-offs of
$18.6 million in 2021. The increase was largely due to net charge-offs of $1.1 million on business loans during 2022,
compared to net recoveries of $4.8 million in the prior year, and higher net charge-offs on consumer loans of $1.2 million in
2022. These increases to net charge-offs were partly offset by lower consumer credit card loan net charge-offs of $7.4 million.
Consumer credit card loan net charge-offs were 2.31% of average consumer credit card loans in 2022, compared to 3.47% in
2021. Consumer credit card loan net charge-offs as a percentage of total net charge-offs decreased to 66.4% in 2022, compared
to 107.8% in 2021. Consumer loan net charge-offs were .18% of average consumer loans in 2022, compared to .13% in 2021,
and represented 19.9% of total net loan charge-offs in 2022. The ratio of net loan charge-offs to total average loans outstanding
was .12% in both 2022 and 2021 and .22% in 2020.
At December 31, 2022, the liability for unfunded lending commitments was $33.1 million, an increase of $8.9 million
compared to December 31, 2021. The increase in the liability for unfunded lending commitments during 2022 was driven
primarily by increases in the balance and the average term of unfunded lending commitments. The Company's unfunded
lending commitments primarily relate to construction loans, and the Company's estimate for credit losses in its unfunded
lending commitments utilizes the same model and forecast as its estimate for credit losses on loans. See Note 2 for further
discussion of the model inputs utilized in the Company's estimate of credit losses.
The Company considers the allowance for credit losses on loans and the liability for unfunded lending commitments
adequate to cover losses expected in the loan portfolio, including unfunded commitments, at December 31, 2022.
37
The schedules which follow summarize the relationship between loan balances and activity in the allowance for credit losses
on loans:
(Dollars in thousands)
Loans outstanding at end of year(A)
Average loans outstanding(A)
Allowance for credit losses:
Balance at end of prior year
Adoption of ASU 2016-13
Balance at beginning of year
Provision for credit losses on loans
Loans charged off:
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans charged off
Recoveries of loans previously charged off:
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total recoveries
Net loans charged off
Balance at end of year
Ratio of allowance to loans at end of year
Ratio of provision to average loans outstanding
Non-accrual loans
Ratio of non-accrual loans to total loans outstanding
Ratio of allowance for credit losses on loans to non-accrual loans
$
$
$
Years Ended December 31
2022
2021
2020
16,303,131
15,561,987
$
$
15,176,359
15,664,388
$
$
16,329,641
15,896,848
150,044
$
220,834
$
160,682
—
150,044
19,155
—
220,834
(52,223)
(21,039)
139,643
116,049
1,474
—
6
159
6,073
77
19,039
2,414
29,242
421
—
26
233
2,283
137
6,381
698
10,179
19,063
810
3
155
134
5,370
188
27,461
1,506
35,627
5,568
2
219
232
2,814
185
7,453
587
17,060
18,567
7,862
—
—
42
7,769
79
32,541
1,754
50,047
4,197
3
47
333
3,325
245
6,562
477
15,189
34,858
$
150,136
$
150,044
$
220,834
.92 %
.12 %
.99%
(.33) %
1.35 %
.73 %
$
8,306
$
9,157
$
26,540
.05 %
.06%
1,807.56
1,638.57
.16 %
832.08
(A) Net of unearned income, before deducting allowance for credit losses on loans, excluding loans held for sale.
38
Ratio of net charge-offs (recoveries) to average loans outstanding, by loan category:
Business
Real estate — construction and land
Real estate — business
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Years Ended December 31
2022
2021
2020
.02%
(.08) %
.06%
—
—
—
.18
(.02)
2.31
30.40
—
—
—
.13
—
3.47
21.20
—
—
(.01)
.23
(.05)
3.88
38.11
Ratio of total net charge-offs to total average loans outstanding
.12%
.12%
.22%
Average loans outstanding by loan class are listed on the Company's average balance sheet on page 60.
The following schedule provides a breakdown of the allowance for credit losses on loans (ACL) by loan category and the
percentage of each loan category to total loans outstanding at year end.
(Dollars in thousands)
2022
2021
Business
RE — construction and land
RE — business
RE — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total
Credit Loss
Allowance
Allocation
% of Loans
to Total
Loans
% of ACL to
Loan
Category
Credit Loss
Allowance
Allocation
% of Loans
to Total
Loans
% of ACL to
Loan
Category
$ 46,340
34.8 %
.82%
$
43,943
34.9 %
.83 %
28,799
28,154
10,047
10,252
1,576
24,858
110
8.3
20.9
17.9
12.6
1.8
3.6
.1
2.12
.83
.34
.50
.53
4.26
.74
23,171
30,662
5,331
10,073
1,217
35,467
180
7.4
20.2
18.5
13.4
1.8
3.8
—
2.07
1.00
.19
.50
.44
6.16
2.67
$ 150,136
100.0 %
.92%
$ 150,044
100.0 %
.99 %
39
Risk Elements of the Loan Portfolio
Management reviews the loan portfolio continuously for evidence of problem loans. During the ordinary course of business,
management becomes aware of borrowers that may not be able to meet the contractual requirements of loan agreements. Such
loans are placed under close supervision with consideration given to placing the loan on non-accrual status, the need for an
additional allowance for credit loss, and (if appropriate) partial or full loan charge-off. Loans are placed on non-accrual status
when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. After a
loan is placed on non-accrual status, any interest previously accrued but not yet collected is reversed against current income.
Interest is included in income only as received and only after all previous loan charge-offs have been recovered, so long as
management is satisfied there is no impairment of collateral values. The loan is returned to accrual status only when the
borrower has brought all past due principal and interest payments current, and, in the opinion of management, the borrower has
demonstrated the ability to make future payments of principal and interest as scheduled. Loans that are 90 days past due as to
principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of
collection, or they are comprised of those personal banking loans that are exempt under regulatory rules from being classified as
non-accrual. Consumer installment loans and related accrued interest are normally charged down to the fair value of related
collateral (or are charged off in full if no collateral) once the loans are more than 120 days delinquent. Credit card loans and the
related accrued interest are charged off when the receivable is more than 180 days past due.
The following schedule shows non-performing assets and loans past due 90 days and still accruing interest.
(Dollars in thousands)
Total non-accrual loans
Real estate acquired in foreclosure
Total non-performing assets
Non-performing assets as a percentage of total loans
Non-performing assets as a percentage of total assets
Loans past due 90 days and still accruing interest
2022
$ 8,306
96
$ 8,402
2021
9,157
115
9,272
$
$
December 31
2020
$ 26,540
93
$ 26,633
2019
$ 10,220
365
$ 10,585
2018
$ 12,536
1,413
$ 13,949
.05 %
.03 %
.06 %
.03 %
.16 %
.08 %
.07 %
.04 %
.10 %
.05 %
$ 15,830
$ 11,726
$ 22,190
$ 19,859
$ 16,658
Non-accrual loans totaled $8.3 million at year end 2022, a decrease of $851 thousand from the balance at year end 2021.
The decrease from December 31, 2021 occurred mainly in business loans, which decreased $561 thousand, and personal real
estate loans, which decreased $265 thousand. At December 31, 2022, non-accrual loans were comprised of business (81.3%),
personal real estate (16.4%), and business real estate (2.3%) loans. Foreclosed real estate totaled $96 thousand at December 31,
2022, a decrease of $19 thousand when compared to December 31, 2021. Total non-performing assets remain low compared to
the overall banking industry in 2022, with the non-performing assets to total loans ratio at .05% at December 31, 2022. Total
loans past due 90 days or more and still accruing interest were $15.8 million as of December 31, 2022, an increase of $4.1
million when compared to December 31, 2021. 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 of 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 $259.7 million at December 31, 2022,
compared with $278.7 million at December 31, 2021, resulting in a decrease of $19.0 million or 6.8%. The decrease in
potential problem loans was largely driven by an $18.2 million decrease in business real estate loans, partly offset by a $7.2
million increase in construction loans.
(In thousands)
Potential problem loans:
Business
Real estate – construction and land
Real estate – business
Real estate – personal
Total potential problem loans
40
December 31
2022
2021
$
$
29,455 $
47,493
182,526
250
259,724 $
37,143
40,259
200,766
526
278,694
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 a higher risk of loss due to their terms, location, or special conditions. Construction and land loans and
business real estate loans are subject to higher risk because of the impact that volatile interest rates and a changing economy can
have on real estate value, and because of the potential volatility of the real estate industry. Certain home equity loans have
contractual features that could increase credit exposure in a market of declining real estate prices, when interest rates are
steadily increasing, or when a geographic area experiences an economic downturn. For these home equity loans, higher risks
could exist when 1) loan terms require a minimum monthly payment that covers only interest, or 2) loan-to-collateral value
(LTV) ratios at origination are above 80%, with no private mortgage insurance. Information presented below for home equity
loans is based on LTV ratios which were calculated with valuations at loan origination date. The Company does not obtain
updated appraisals or valuations unless the loans become significantly delinquent or are in the process of being foreclosed upon.
For credit monitoring purposes, the Company analyzes delinquency information, current FICO scores, and line utilization. This
has remained an effective means of evaluating credit trends and identifying problem loans, partly because the Company offers
standard, conservative lending products.
Real Estate - Construction and Land Loans
The Company’s portfolio of construction and land loans, as shown in the table below, amounted to 8.3% of total loans
outstanding at December 31, 2022. The largest component of construction and land loans was commercial construction, which
increased $199.5 million during the year ended December 31, 2022. At December 31, 2022, multi-family residential
construction loans totaled approximately $303.5 million, or 27.0%, of the commercial construction loan portfolio.
(Dollars in thousands)
Commercial construction
Residential construction
Commercial land and land development
Residential land and land development
Total real estate – construction and
land loans
Real Estate – Business Loans
December 31,
2022
% of Total
% of Total
Loans
December 31,
2021
% of Total
% of Total
Loans
$
1,122,105
82.4 %
6.9 % $
922,654
82.5 %
6.1 %
138,311
50,667
50,012
10.2
3.7
3.7
.8
.3
.3
96,618
48,481
50,513
8.6
4.3
4.6
.7
.3
.3
$
1,361,095
100.0 %
8.3 % $
1,118,266
100.0 %
7.4 %
Total business real estate loans were $3.4 billion at December 31, 2022 and comprised 20.9% of the Company’s total loan
portfolio. These loans include properties such as manufacturing and warehouse buildings, distribution facilities, small office
and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties. Approximately 33.3%
of these loans were for owner-occupied real estate properties, which present lower risk profiles.
(Dollars in thousands)
Owner-occupied
December 31,
2022
$
1,136,189
Office
Industrial
Retail
Multi-family
Hotels
Farm
Senior living
Other
Total real estate - business
loans
% of Total
% of Total Loans
December 31,
2021
% of Total
% of Total Loans
33.3 %
14.6
14.0
9.5
9.0
6.8
5.8
3.9
3.1
7.0 % $
1,188,469
38.9 %
7.8 %
3.1
2.9
2.0
1.9
1.4
1.2
.8
.6
380,101
99,800
339,874
354,282
234,673
178,780
174,871
107,987
12.4
3.3
11.1
11.6
7.7
5.8
5.7
3.5
2.5
.7
2.2
2.3
1.5
1.2
1.2
.8
497,601
478,534
322,971
308,156
230,972
195,920
131,217
105,421
$
3,406,981
100.0 %
20.9 % $
3,058,837
100.0 %
20.2 %
41
Revolving Home Equity Loans
The Company has revolving home equity loans that are generally collateralized by residential real estate. Most of these
loans (91.4%) 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 shown in the following tables, the percentage of loans with LTV
ratios greater than 80% has remained a small segment of this portfolio, and delinquencies have been low and stable. The
weighted average FICO score for the total portfolio balance at December 31, 2022 was 789. 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 to convert the outstanding balance to an amortizing loan. If criteria are not met, amortization is
required, or the borrower may pay off the loan. Over the next three years, approximately 19.3% of the Company's current
outstanding balances are expected to mature. Of these balances, 88.1% have a FICO score above 700. 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.
(Dollars in thousands)
Loans with interest-only payments
Loans with LTV:
Between 80% and 90%
Over 90%
Over 80% LTV
Total loan portfolio from which above
loans were identified
Principal
Outstanding at
December 31,
2022
271,772
$
New Lines
Originated
*
During 2022
91.4 % $232,767
*
78.3 %
Unused Portion
of Available
Lines at
December 31,
2022
$822,413
Balances
Over 30 Days
Past Due
*
276.7 %
$1,757
*
.6 %
30,110
2,288
32,398
10.1
0.8
10.9
18,229
820
19,049
6.1
.3
6.4
49,154
2,469
51,623
16.5
0.8
17.4
97
16
113
—
—
—
297,207
244,310
846,361
* Percentage of total principal outstanding of $297.2 million at December 31, 2022.
(Dollars in thousands)
Loans with interest-only payments
Loans with LTV:
Between 80% and 90%
Over 90%
Over 80% LTV
Total loan portfolio from which above
loans were identified
Principal
Outstanding at
December 31,
2021
255,636
$
New Lines
Originated
*
During 2021
92.6 % $145,968
*
52.9 %
Unused Portion
of Available
Lines at
December 31,
2021
$760,706
Balances
Over 30 Days
Past Due
*
275.7 %
$1,344
*
.5 %
28,682
2,262
30,944
10.4
0.8
11.2
17,887
—
17,887
6.5
—
6.5
47,283
2,666
49,949
17.1
1.0
18.1
222
—
222
.1
—
.1
275,945
154,000
784,262
* Percentage of total principal outstanding of $275.9 million at December 31, 2021.
Consumer Loans
The Company's consumer loans totaled $2.1 billion and comprised 13% of total loans outstanding at December 31, 2022.
Within the consumer loan portfolio are several direct and indirect product lines comprised mainly of loans secured by
automobiles, motorcycles, marine, and RVs. Auto loans comprised 39% of the consumer loan portfolio at December 31, 2022,
and outstanding balances in the auto loan portfolio were $798.6 million and $855.4 million at December 31, 2022 and 2021,
respectively. The balances over 30 days past due amounted to $9.9 million at December 31, 2022, compared to $9.0 million at
the end of 2021, and comprised 1.2% of the outstanding balances of these loans at December 31, 2022 compared to 1.1% at
December 31, 2021. For the year ended December 31, 2022, $329.3 million of new auto loans were originated, compared to
$400.8 million during 2021. At December 31, 2022, the automobile loan portfolio had a weighted average FICO score of 755,
and net charge-offs on auto loans were .26% of average auto loans.
The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling,
and these loans comprised 11% of the consumer loan portfolio at December 31, 2022. Losses on these loans have historically
been low, and the Company saw net recoveries of $46 thousand in 2022. Private banking loans comprised 32% of the consumer
loan portfolio at December 31, 2022. The Company's private banking loans are generally well-collateralized and at
December 31, 2022 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 $1.7 million in 2022 and
were .16% of the average balances of these loans at December 31, 2022.
42
Consumer Credit Card Loans
The Company offers low introductory rates on selected consumer credit card products. Out of a portfolio at December 31,
2022 of $584.0 million in consumer credit card loans outstanding, approximately $101.4 million, or 17.4%, carried a low
promotional rate. Within the next six months, $37.3 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 promotional feature, 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 was comprised of lending to the petroleum and natural gas sectors and totaled
$296.4 million at December 31, 2022, an increase of $35.8 million from year end 2021, as shown in the table below.
(In thousands)
Extraction
Mid-stream shipping and storage
Downstream distribution and refining
Support activities
Total energy lending portfolio
December 31, 2022
$
235,933 $
43,432
7,675
9,387
296,427 $
$
December 31, 2021
Unfunded
commitments at
December 31, 2022
184,840 $
36,850
24,915
14,039
260,644 $
145,523
93,145
34,735
9,058
282,461
Information about the credit quality of the Company's energy lending portfolio as of December 31, 2022 and December 31,
2021 is provided in the table below.
(Dollars in thousands)
December 31, 2022
% of Energy
Lending
December 31, 2021
% of Energy
Lending
Pass
Special mention
Substandard
Non-accrual
Total
$
$
293,371
99.0 % $
256,186
98.3 %
1,232
—
1,824
.4
—
.6
1,999
—
2,459
0.8
—
0.9
296,427
100.0 % $
260,644
100.0 %
Energy lending balances classified as non-accrual represented .6% of total energy lending loan balances at December 31,
2022. There were no balances classified as substandard at December 31, 2022. The Company recorded $5 thousand of
recoveries on energy loans for the year ended December 31, 2022, compared to $10 thousand of recoveries on energy loans for
the year ended December 31, 2021.
43
Investment Securities Analysis
Investment securities are comprised of securities that are classified as available for sale, equity, trading or other. The largest
component, available for sale debt securities, decreased 4.7% during 2022 to $13.7 billion (excluding unrealized gains/losses in
fair value) at year end 2022. During 2022, debt securities of $2.1 billion were purchased, which included $1.1 billion in asset-
backed securities, $406.3 million in agency mortgage-backed securities, $207.9 million in non-agency mortgage-based
securities, $150.1 million in state and municipal securities, and $152.9 million in U.S. government and federal agency
obligations. Total sales, maturities and pay downs of available for sale debt securities were $2.8 billion during 2022. During
2023, maturities and pay downs of approximately $2.4 billion are expected to occur. The Company's tax-exempt investment
portfolio is primarily comprised of tax-exempt municipal bonds and certain equity securities in its private equity investment
portfolio. There were no significant changes to the Company's tax-exempt investment portfolio during 2022. The average tax
equivalent yield earned on total investment securities was 2.15% in 2022 and 1.81% in 2021.
At December 31, 2022, the fair value of available for sale securities was $12.2 billion, which included a net unrealized loss
in fair value of $1.5 billion, compared to a net unrealized gain of $30.9 million at December 31, 2021. The overall unrealized
loss in fair value at December 31, 2022 included net losses of $43.4 million is U.S. government and federal agency obligations,
net losses of $197.9 million in state and municipal securities, and net losses of $1.2 billion in mortgage and asset-backed
securities. As described in Note 1, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial
Instruments, on January 1, 2020, and the current expected credit loss model (CECL) implemented by the Company requires that
lifetime expected credit losses on securities be recorded in current earnings. For the year ended December 31, 2022, the
Company did not recognize a credit loss expense on any available for sale debt securities.
Available for sale investment securities at year end for the past two years are shown below:
(In thousands)
Amortized Cost
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Total available for sale debt securities
Fair Value
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
December 31
2022
2021
$
1,078,807 $
1,035,477
55,729
50,773
1,965,028
2,072,210
5,087,893
5,698,088
1,423,469
1,383,037
3,588,025
3,546,024
539,255
633,524
$
13,738,206 $
14,419,133
$
1,035,406 $
1,080,720
43,108
51,755
1,767,109
2,096,827
4,308,427
5,683,000
1,211,607
1,366,477
3,397,801
3,539,219
474,858
632,029
Total available for sale debt securities
$
12,238,316 $
14,450,027
At December 31, 2022, the available for sale portfolio included $4.3 billion of agency mortgage-backed securities, which
are collateralized bonds issued by agencies including FNMA, GNMA, FHLMC, FHLB, Federal Farm Credit Banks and FDIC.
Non-agency mortgage-backed securities totaled $1.2 billion and included $328.4 million collateralized by commercial
mortgages and $883.2 million collateralized by residential mortgages at December 31, 2022.
At December 31, 2022, U.S. government obligations included TIPS of $373.8 million, at fair value. Other debt securities
include corporate bonds, notes and commercial paper.
44
The types of securities held in the available for sale security portfolio at year end 2022 are presented in the table below.
Additional detail by maturity category is provided in Note 3 to the consolidated financial statements.
Available for sale debt securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
*Based on call provisions and estimated prepayment speeds.
December 31, 2022
Percent of Total
Debt Securities
Weighted
Average Yield
Estimated Average
Maturity*
8.5 %
1.23 %
2.2 years
0.4
14.3
35.2
9.9
27.8
3.9
2.38
2.00
2.07
2.30
2.07
1.88
13.3
6.3
7.0
5.5
2.0
5.6
Equity securities include common and preferred stock with readily determinable fair values that totaled $6.2 million at
December 31, 2022, compared to $7.2 million at December 31, 2021.
Other securities totaled $225.0 million at December 31, 2022 and $194.0 million at December 31, 2021. These include
Federal Reserve Bank stock and Federal Home Loan Bank (Des Moines) stock held by the bank subsidiary in accordance with
debt and regulatory requirements. These are restricted securities and are carried at cost. 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. Also
included in other securities are private equity investments which are held by a subsidiary qualified as a Small Business
Investment Company. These investments are carried at estimated fair value, but are not readily marketable. While the nature of
these investments carries a higher degree of risk than the normal lending portfolio, this risk is mitigated by the overall size of
the investments and oversight provided by management, and management believes the potential for long-term gains in these
investments outweighs the potential risks.
Other securities at year end for the past two years are shown below:
(In thousands)
Federal Reserve Bank stock
Federal Home Loan Bank stock
Equity method investments
Private equity investments in debt securities
Private equity investments in equity securities
Total other securities
$
December 31
2022
2021
34,795 $
10,678
1,434
66,899
111,228
34,379
10,428
1,834
63,416
83,990
$
225,034 $
194,047
In addition to its holdings in the investment securities portfolio, the Company invests in securities purchased under
agreements to resell, which totaled $825.0 million at December 31, 2022 and $1.6 billion at December 31, 2021. These
investments mature in 2023 through 2025 and have fixed rates or variable rates that fluctuate with published indices. The
counterparties to these agreements are other financial institutions from whom the Company has accepted collateral of $869.6
million in marketable investment securities at December 31, 2022. The average rate earned on these agreements during 2022
was 1.5%, compared to 2.9% in 2021.
The Company also holds offsetting repurchase and resale agreements totaling $200.0 million at December 31, 2022 and
$400.0 million at December 31, 2021, which are further discussed in Note 20 to the consolidated financial statements. 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 been offset against each other in the balance sheet, as
permitted under current accounting guidance. The agreements mature in 2023 and earned an average of 29 basis points during
2022, compared to 30 basis points in 2021.
45
Deposits and Borrowings
Deposits, including both individual and corporate customers, are the primary funding source for the Bank and are acquired
from a broad base of local markets. Total period-end deposits were $26.2 billion at December 31, 2022, compared to $29.8
billion last year, reflecting an decrease of $3.6 billion, or 12.2%.
Average deposits increased $316.6 million, or 1.1%, in 2022 compared to 2021, resulting from increases in interest checking
and money market account balances, and savings account balances of $1.1 billion and $133.5 million, respectively. Partially
offsetting these increases in deposit balances were declines in certificates of deposit balances, which decreased $646.1 million
in 2022. Additionally, average demand deposits decreased $275.7 million, primarily driven by lower balances in business
demand deposits.
The following table shows year end deposit balances by type, as a percentage of total deposits.
Non-interest bearing
Savings, interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Total deposits
December 31
2022
2021
38.4 %
57.8
1.5
2.3
100.0 %
39.4 %
55.7
1.5
3.4
100.0 %
Core deposits, which include non-interest bearing, interest checking, savings, and money market deposits, supported 81%
and 79% of average earning assets in 2022 and 2021, respectively. Average balances by major deposit category for the last six
years are disclosed in the Average Balance Sheets section of Management's Discussion and Analysis of Financial Condition and
Results of Operations below. A maturity schedule of all certificates of deposits outstanding at December 31, 2022 is included
in Note 7 on Deposits in the consolidated financial statements.
Total uninsured deposits were calculated using the same methodology that the Company uses to determine uninsured
deposits for regulatory reporting and amounted to $11.3 billion and $14.6 billion at December 31, 2022 and December 31,
2021. The following table shows a detailed breakdown of the maturities of uninsured certificates of deposit at December 31,
2022. The Company estimated the uninsured deposits in the following table by aggregating all deposit balances by customer
and assuming federal deposit insurance would first apply to demand deposits, followed by savings deposits, and lastly to time
deposits (beginning with the earliest maturity deposits).
(In thousands)
Due in 3 months or less
Due in over 3 through 6 months
Due in over 6 through 12 months
Due in over 12 months
Total
Uninsured Certificates of Deposit
at December 31, 2022
$
$
188,297
68,357
140,672
124,849
522,175
The Company’s primary sources of overnight borrowings are federal funds purchased and securities sold under agreements
to repurchase (repurchase agreements). Balances in these accounts can fluctuate significantly on a day-to-day basis and
generally have one day maturities. Total balances of federal funds purchased and repurchase agreements outstanding at
December 31, 2022 were $2.8 billion, comprised of federal funds purchased of $159.9 million and repurchase agreements of
$2.7 billion. These balances increased $116.5 million from the federal funds purchased and decreased $297.7 million from the
repurchase agreements outstanding at December 31, 2021. On an average basis, these borrowings increased $104.4 million, or
4.5%, during 2022, due to an increase of $44.8 million in repurchase agreements and $59.6 million in federal funds purchased.
The average rate was 2.21% paid on federal funds purchased and 1.02% paid on repurchase agreements during 2022, compared
to the average rate paid on both federal funds purchased and repurchase agreements of .07% during 2021.
In addition to the funding sources above, the Company may borrow from the FHLB on a short-term basis (borrowings with
an original maturity of less than one year) and long-term basis. During 2022, the Company had average short-term borrowings
of $45.1 million. All of the short-term borrowings were repaid by the Company before December 31, 2022, and the average
46
rate paid on the FHLB borrowings during 2022 was 4.02%. The Company did not have any short-term FHLB borrowings
during 2021. The Company did not borrow any long-term funds from the FHLB during 2022 or 2021.
Liquidity and Capital Resources
Liquidity Management
Liquidity is managed within the Company in order to satisfy cash flow requirements of deposit and borrowing customers
while at the same time meeting its own cash flow needs. The Company has taken numerous steps to address liquidity risk and
has developed a variety of liquidity sources which it believes will provide the necessary funds for future growth. The Company
manages its liquidity position through a variety of sources including:
• A portfolio of liquid assets including marketable investment securities and overnight investments,
• A large customer deposit base and limited exposure to large, volatile certificates of deposit,
• Lower long-term borrowings that might place demands on Company cash flow,
• Relatively low loan to deposit ratio promoting strong liquidity,
• Excellent debt ratings from both Standard & Poor’s and Moody’s national rating services, and
• Available borrowing capacity from outside sources.
The Company’s most liquid assets include available for sale debt securities, federal funds sold, balances at the Federal
Reserve Bank, and securities purchased under agreements to resell. At December 31, 2022 and 2021, such assets were as
follows:
(In thousands)
Available for sale debt securities
Federal funds sold
Securities purchased under agreements to resell
Balances at the Federal Reserve Bank
Total
2022
2021
$
12,238,316 $
14,450,027
49,505
2,800
825,000
1,625,000
389,140
13,501,961 $
3,971,217
20,049,044
$
There were $49.5 million federal funds sold at December 31, 2022, which are funds lent to the Company’s correspondent
bank customers with overnight maturities. Resale agreements, maturing through 2025, totaled $825.0 million at December 31,
2022. Under these agreements, the Company lends funds to upstream financial institutions and holds marketable securities,
safe-kept by a third-party custodian, as collateral. This collateral totaled $869.6 million in fair value at December 31, 2022.
Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity
purposes, totaled $389.1 million at December 31, 2022. The fair value of the available for sale debt portfolio was $12.2 billion
at December 31, 2022 and included an unrealized net loss of $1.5 billion. The total net unrealized loss included net loss of $1.2
billion on mortgage-backed and asset-backed securities, $197.9 million on state and municipal obligations, and $43.4 million on
U.S. government and federal agency obligations.
Approximately $2.4 billion of the available for sale debt portfolio is expected to mature or pay down during 2023, and these
funds offer substantial resources to meet either new loan demand or help offset potential reductions in the Company’s deposit
funding base. The Company pledges portions of its investment securities portfolio to secure public fund deposits, securities
sold under agreements to repurchase, trust funds, letters of credit issued by the FHLB, and borrowing capacity at the Federal
Reserve Bank. At December 31, 2022 and 2021, total investment securities pledged for these purposes were as follows:
47
(In thousands)
Investment securities pledged for the purpose of securing:
Federal Reserve Bank borrowings
FHLB borrowings and letters of credit
Repurchase agreements *
Other deposits
Total pledged securities
Unpledged and available for pledging
Ineligible for pledging
2022
2021
$
11,469 $
1,817
17,465
3,218
2,950,240
3,475,589
1,772,974
2,897,576
4,736,500
6,393,848
6,545,695
6,913,721
956,121
1,142,458
Total available for sale debt securities, at fair value
$
12,238,316 $
14,450,027
* Includes securities pledged for collateral swaps, as discussed in Note 20 to the consolidated financial statements
The average loans to deposits ratio is a measure of a bank's liquidity, and the Company’s average loans to deposits ratio was
55.4% for the year ended December 31, 2022. Core customer deposits, defined as non-interest bearing, interest checking,
savings, and money market deposit accounts, totaled $25.2 billion and represented 96.2% of the Company’s total deposits at
December 31, 2022. These core deposits are normally less volatile, often with customer relationships tied to other products
offered by the Company promoting long lasting relationships and stable funding sources. Core deposits decreased $3.2 billion
at year end 2022 compared to year end 2021, primarily due to decreases in commercial and wealth management deposits of
$2.0 billion and $820 million, respectively. While the Company considers core consumer and wealth management deposits less
volatile, corporate deposits could decline if interest rates increase significantly, encouraging corporate customers to increase
investing activities, or if the economy declines and companies experience lower cash inflows, reducing deposit balances. If
these corporate deposits decline, the Company's funding needs can be met by liquidity supplied by investment security
maturities and pay downs expected to total $2.4 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 $2.1 billion through advances from the
FHLB and the Federal Reserve.
(In thousands)
Core deposit base:
Non-interest bearing
Interest checking
Savings and money market
Total
2022
2021
$
10,066,356 $
11,772,374
1,854,336
3,227,822
13,272,645
13,370,263
$
25,193,337 $
28,370,459
Certificates of deposit of $100,000 or greater totaled $607 million at December 31, 2022. These deposits are normally
considered more volatile and higher costing, and comprised 2.3% of total deposits at December 31, 2022.
Other important components of liquidity are the level of borrowings from third party sources and the availability of future
credit. The Company’s outside borrowings are mainly comprised of federal funds purchased and repurchase agreements, as
follows:
(In thousands)
Borrowings:
Federal funds purchased
Securities sold under agreements to repurchase
Other debt
Total
2022
2021
$
159,860 $
2,681,874
9,672
43,385
2,979,582
12,560
$
2,851,406 $
3,035,527
Federal funds purchased, which totaled $159.9 million at December 31, 2022, are unsecured overnight borrowings obtained
mainly from upstream correspondent banks with which the Company maintains approved lines of credit. Retail repurchase
agreements are offered to customers wishing to earn interest in highly liquid balances and are used by the Company as a
funding source considered to be stable, but short-term in nature. Repurchase agreements are collateralized by securities in the
Company’s investment portfolio. Total repurchase agreements at December 31, 2022 were comprised of non-insured customer
funds totaling $2.7 billion, and securities pledged for these retail agreements totaled $2.7 billion.
48
The Company pledges certain assets, including loans and investment securities to both the Federal Reserve Bank and the
FHLB as security to establish lines of credit and borrow from these entities. Based on the amount and type of collateral
pledged, the FHLB establishes a collateral value from which the Company may draw advances against the collateral.
Additionally, this collateral is used to enable the FHLB to issue letters of credit in favor of public fund depositors of the
Company. The Federal Reserve Bank 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 December 31, 2022.
(In thousands)
Total collateral value established by FHLB and FRB
Letters of credit issued
Available for future advances
December 31, 2022
FHLB
Federal Reserve
Total
$
$
1,855,080 $
953,083 $
2,808,163
(678,215)
—
(678,215)
1,176,865 $
953,083 $
2,129,948
The Company receives outside ratings from both Standard & Poor’s and Moody’s on both the consolidated company and its
subsidiary bank, Commerce Bank. These ratings are as follows:
Commerce Bancshares, Inc.
Issuer rating
Rating outlook
Commerce Bank
Issuer rating
Baseline credit assessment
Short-term rating
Rating outlook
Standard & Poor’s
Moody’s
A-
Stable
A
A-1
Stable
A2
a1
P-1
Stable
The Company considers these ratings to be indications of a sound capital base and strong liquidity and believes that these
ratings would help ensure the ready marketability of its commercial paper, should the need arise. No commercial paper has been
outstanding during the past ten years. The Company has no subordinated or hybrid debt instruments which would affect future
borrowing capacity. Because of its lack of significant long-term debt, the Company believes that, through its Capital Markets
Group or in other public debt markets, it could generate additional liquidity from sources such as jumbo certificates of deposit,
privately-placed corporate notes or other forms of debt.
The cash flows from the operating, investing and financing activities of the Company resulted in a net decrease in cash, cash
equivalents and restricted cash of $3.4 billion in 2022, as reported in the consolidated statements of cash flows. Operating
activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of $559.4 million and has
historically been a stable source of funds. Investing activities provided cash of $242.3 million. Sales and maturities proceeds
(net of purchases) of investment securities provided cash of $650.4 million, repayments of securities purchased under
agreements to resell (net of securities purchased under agreements to resell) provided cash of $800.0 million, and a net increase
in the loan portfolio used cash of $1.1 billion. 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.
During 2022, financing activities used cash of $4.2 billion. This decrease in cash was largely driven by a decline in
deposits, which used cash of $3.7 billion. Federal funds purchases and short-term securities sold under agreements to
repurchase used cash in the amount of $181.2 million. The Company paid cash dividends of $127.5 million on common stock,
and treasury stock purchases used cash of $186.6 million during 2022. Future short-term liquidity needs for daily operations
are not expected to vary significantly, and the Company believes it maintains adequate liquidity to meet these cash flows.
49
Cash outflows resulting from the Company’s transactions in its common and preferred stock were as follows:
(In millions)
Purchases of treasury stock
Common cash dividends paid
Preferred stock redemption*
Preferred cash dividends paid
Cash used
2022
2021
2020
$
186.6 $
127.5
—
—
129.4 $
122.7
—
—
$
314.1 $
252.1 $
54.2
120.8
150.0
6.8
331.8
*The period ended December 31, 2020 includes $5.2 million of excess redemption costs over the book value of the preferred stock. This excess payment was
considered a dividend.
The Parent faces unique liquidity constraints due to legal limitations on its ability to borrow funds from its bank subsidiary.
The Parent obtains funding to meet its obligations from two main sources: dividends received from bank and non-bank
subsidiaries (within regulatory limitations) and management fees charged to subsidiaries as reimbursement for services
provided by the Parent, as presented below:
(In millions)
Dividends received from subsidiaries
Management fees
Total
2022
2021
2020
$
$
300.0 $
38.6
338.6 $
340.0 $
36.3
376.3 $
210.0
33.5
243.5
These sources of funds are used mainly to pay cash dividends on outstanding stock, pay general operating expenses, and
purchase treasury stock. At December 31, 2022, the Parent’s investment securities totaled $16.3 million at fair value,
consisting mainly of corporate bonds and preferred stock. To support its various funding commitments, the Parent maintains a
$20.0 million line of credit with its subsidiary bank. There were no borrowings outstanding under the line during 2022 or 2021.
Company senior management is responsible for measuring and monitoring the liquidity profile of the organization with
oversight by the Company’s Asset/Liability Committee. This is done through a series of controls, including a written
Contingency Funding Policy and risk monitoring procedures, which include daily, weekly and monthly reporting. In addition,
the Company prepares forecasts to project changes in the balance sheet affecting liquidity and to allow the Company to better
plan for forecasted changes.
Material Cash Requirements, Contractual Obligations, Commitments, and Off-Balance Sheet Arrangements
The Company's material cash requirements include commitments for contractual obligations (both short-term and long-
term), commitments to extend credit, and off-balance sheet arrangements. The Company's material cash requirements for the
next 12 months are primarily to fund loan growth. Additionally, the Company will utilize cash to fund deposit maturities and
withdrawals that may occur in the next 12 months. Other contractual obligations, purchase commitments, lease obligations, and
unfunded commitments may require cash payments by the Company within the next 12 months, and these, along with longer-
term obligations, are discussed below.
A table summarizing contractual cash obligations of the Company at December 31, 2022, and the expected timing of these
payments follows:
(In thousands)
Operating lease obligations
Purchase obligations
Certificates of Deposit*
Total
*Includes principal payments only.
In One Year or
Less
Payments Due by Period
After One Year
Through Three
Years
After Three Years
Through Five
Years
After Five Years
Total
$
$
6,430 $
234,955
726,984
8,248 $
413,217
232,118
5,241 $
125,675
34,919
14,370 $
128,957
82
34,289
902,804
994,103
968,369 $
653,583 $
165,835 $
143,409 $
1,931,196
In the normal course of business, various commitments and contingent liabilities arise that are not required to be recorded on
the balance sheet. The most significant of these are loan commitments totaling $14.3 billion (including approximately $5.2
billion in unused, approved credit card lines) and the contractual amount of standby letters of credit totaling $555.9 million at
50
December 31, 2022. As many commitments expire unused or only partially used, these totals do not necessarily reflect future
cash requirements. Management does not anticipate any material losses arising from commitments or contingent liabilities and
believes there are no material commitments to extend credit that represent risks of an unusual nature.
The Company funds a defined benefit pension plan for a portion of its employees. Under the funding policy for the plan,
contributions are made as necessary to provide for current service and for any unfunded accrued actuarial liabilities over a
reasonable period. No contributions to the defined benefit plan were made in 2022, 2021 or 2020, and the Company is not
required nor does it expect to make a contribution in 2023.
The Company has investments in low-income housing partnerships generally within the areas it serves. These partnerships
supply funds for the construction and operation of apartment complexes that provide affordable housing to that segment of the
population with lower family income. If these developments successfully attract a specified percentage of residents falling in
that lower income range, federal (and sometimes state) income tax credits are made available to the partners. The tax credits are
normally recognized over ten years, and they play an important part in the anticipated yield from these investments. In order to
continue receiving the tax credits each year over the life of the partnership, the low-income residency targets must be
maintained. Under the terms of the partnership agreements, the Company has a commitment to fund a specified amount that
will be due in installments over the life of the agreements, which ranges from 3 to 18 years. At December 31, 2022, the
investments totaled $59.9 million and are recorded as other assets in the Company’s consolidated balance sheet. Unfunded
commitments, which are recorded as liabilities, amounted to $38.8 million at December 31, 2022.
During the third quarter of 2020, the Company signed a $106.7 million agreement with U.S. Capital Development to
develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri. As of December 31,
2022, the Company has made payments totaling $94.0 million. While the Company intends to occupy a portion of the office
building for executive offices, a 15 year lease has been signed by an anchor tenant to lease approximately 50% of the office
building.
The Company regularly purchases various state tax credits arising from third-party property redevelopment. These credits
are either resold to third parties for a profit or retained for use by the Company. During 2022, purchases and sales of tax credits
amounted to $112.7 million and $126.9 million, respectively. Income from the sales of tax credits were $5.4 million, $4.5
million and $4.2 million in 2022, 2021 and 2020, respectively. At December 31, 2022, the Company had outstanding purchase
commitments totaling $121.8 million that it expects to fund in 2023. These commitments, along with the commitments for the
next five years, are included in the table above.
The Company’s sound equity base, along with its long-term low debt level, common and preferred stock availability, and
excellent debt ratings, provide several alternatives for future financing. Future acquisitions may utilize partial funding through
one or more of these options. Through the various sources of liquidity described above, the Company maintains a liquidity
position that it believes will adequately satisfy its financial obligations. The Company is not aware of any trends, events, or
commitments that are reasonably likely to increase or decrease its liquidity in a material way.
51
Capital Management
Under Basel III capital guidelines, at December 31, 2022 and 2021, the Company met all capital adequacy requirements and
had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table.
(Dollars in thousands)
Risk-adjusted assets
Tier I common risk-based capital
Tier I risk-based capital
Total risk-based capital
2022
2021
$ 24,178,423
$ 22,483,748
3,417,223
3,417,223
3,600,920
3,225,044
3,225,044
3,399,880
Minimum Ratios
under Capital
Adequacy
Guidelines
Minimum Ratios
for Well-
Capitalized
Banks*
Tier I common risk-based capital ratio
14.13%
14.34%
7.00%
6.50%
Tier I risk-based capital ratio
Total risk-based capital ratio
Tier I leverage ratio
Tangible common equity to tangible assets
Dividend payout ratio
* Under Prompt Corrective Action requirements
14.13
14.89
10.34
7.32
26.10
14.34
15.12
9.13
9.01
23.12
8.50
10.50
4.00
8.00
10.00
5.00
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 adopted CECL (ASU 2016-13) during the 2020 calendar year the option to delay recognizing the
estimated impact on regulatory capital until after a two year deferral period, followed by a three year transition period. In
connection with the adoption of CECL on January 1, 2020, the Company has elected to utilize this option. As a result, the two
year deferral period for the Company extends through December 31, 2021. Beginning on January 1, 2022, the Company was
required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in
at the beginning of each subsequent year until fully phased in by the first quarter of 2025.
The Company maintains a treasury stock buyback program under authorizations by its Board of Directors and periodically
purchases stock in the open market. During 2021, the Company purchased 1.8 million shares, and during 2022 the Company
purchased 2.7 million shares. At December 31, 2022, 3.1 million shares remained available for purchase under the current
Board authorization.
The Company’s common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain
adequate capital levels and alternative investment options. Per share cash dividends paid by the Company increased 6.1% in
2022 compared with 2021, and the Company increased its first quarter 2023 cash dividend 7.1%, making 2023 the Company's
55th consecutive year of regular cash dividend increases. The Company also distributed its 29th consecutive annual 5% stock
dividend in December 2022.
On September 1, 2020, the Company redeemed all 6,000 outstanding shares of its 6.00% Series B Non-Cumulative
Perpetual Preferred Stock and the corresponding depositary shares representing fractional interests in the Series B Preferred
Stock at a redemption price of $25 per depositary share (equivalent to $1,000 per share of preferred stock). Regular dividends
on the outstanding shares of the Series B Preferred Stock were paid separately on September 1, 2020 to holders of record as of
the close of business on August 14, 2020, in the customary manner. On and after September 1, 2020, all dividends on the shares
of Series B Preferred Stock ceased to accrue.
52
Interest Rate Sensitivity
The Company’s Asset/Liability Management Committee (ALCO) measures and manages the Company’s interest rate risk
on a monthly basis to identify trends and establish strategies to maintain stability in net interest income throughout various rate
environments. Analytical modeling techniques provide management insight into the Company’s exposure to changing rates.
These techniques include net interest income simulations and market value analysis. Management has set guidelines specifying
acceptable limits within which net interest income and market value may change under various rate change scenarios.
The Company’s main interest rate measurement tool, income simulation, projects net interest income under various rate
change scenarios in order to quantify the magnitude and timing of potential rate-related changes. Income simulations are able
to capture option risks within the balance sheet where expected cash flows may be altered under various rate environments.
Modeled rate movements include “shocks, ramps and twists.” Shocks are intended to capture interest rate risk under extreme
conditions by immediately shifting rates up and down, while ramps measure the impact of gradual changes and twists measure
yield curve risk. The size of the balance sheet is assumed to remain constant so that results are not influenced by growth
predictions.
The Company also employs a sophisticated simulation technique known as a stochastic income simulation. This technique
allows management to see a range of results from hundreds of income simulations. The stochastic simulation creates a vector
of potential rate paths around the market’s best guess (forward rates) concerning the future path of interest rates and allows
rates to randomly follow paths throughout the vector. This allows for the modeling of non-biased rate forecasts around the
market consensus. Results give management insight into a likely range of rate-related risk as well as worst and best-case rate
scenarios.
Additionally, the Company uses market value analyses to help identify longer-term risks that may reside on the balance
sheet. This is considered a secondary risk measurement tool by management. The Company measures the market value of
equity as the net present value of all asset and liability cash flows discounted along the current swap curve plus appropriate
market risk spreads. It is the change in the market value of equity under different rate environments, or effective duration, that
gives insight into the magnitude of risk to future earnings due to rate changes. Market value analyses also help management
understand the price sensitivity of non-marketable bank products under different rate environments.
The tables below show the effects of gradual shifts in interest rates over a twelve month period on the Company’s net
interest income versus the Company's net interest income in a flat rate scenario. Simulation A presents three rising rate
scenarios and three falling rate scenarios and in each scenario, rates are assumed to change evenly over 12 months. In these
scenarios, the current balance sheet is held constant.
The sensitivity of deposit balances to changes in rates is particularly difficult to estimate in low rate environments. Since
the future effects of changes in rates on deposit balances cannot be known with certainty, the Company conservatively models
alternate scenarios with greater deposit attrition as rates rise. Simulation B illustrates results from these higher attrition
scenarios to provide added perspective on potential effects of higher rates.
The Company utilizes these simulations for monitoring interest rate risk. 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 to better understand
interest rate risk and its effect on the Company’s performance.
Simulation A
December 31, 2022
September 30, 2022
(Dollars in millions)
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition
300 basis points rising
$
(0.5)
(.05) % $
200 basis points rising
100 basis points rising
100 basis points falling
200 basis points falling
300 basis points falling
2.0
4.1
(24.0)
(52.6)
(84.9)
.19
.38
(2.2)
(4.82)
(7.78)
—
—
—
—
—
—
$
3.3
7.7
9.9
(28.5)
(62.5)
(101.1)
.32 % $
.75
.97
(2.80)
(6.14)
(9.94)
—
—
—
—
—
—
Under Simulation A, in the three rising rate scenarios and three falling rate scenarios, interest rate risk is less asset sensitive
than the previous quarter. This is mainly due to an increase in the Federal funds rate, which puts upward pressure on deposit
53
rates in the rising rate scenarios and deposit rates have more room to fall in falling rate scenarios. Deposits are held constant for
this simulation in both the current and previous quarters.
Simulation B
December 31, 2022
September 30, 2022
(Dollars in millions)
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition*
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed
Deposit
Attrition
300 basis points rising
$
200 basis points rising
100 basis points rising
100 basis points falling
200 basis points falling
300 basis points falling
(17.9)
(11.4)
(5.0)
3.6
(15.2)
(45.6)
(1.71) % $
(216.7)
$
(1.09)
(.48)
.34
(1.45)
(4.36)
(180.4)
(136.6)
539.3
761.0
792.0
(49.4)
(34.5)
(14.0)
(6.0)
(26.5)
(58.7)
(5.06) % $
(3.54)
(1.43)
(.62)
(2.72)
(6.02)
(848.9)
(716.2)
(405.7)
403.2
849.4
1,446.4
* Compared to the flat rate scenario
In Simulation B, the assumed levels of deposit attrition were modeled to capture the results of a shrinking balance sheet due
to the potential loss of surge deposits. Under this Simulation, in the three rising rate scenarios and three falling rate scenarios,
interest rate risk is less liability sensitive than the previous quarter, which primarily resulted from a decrease in surge deposits
and changes in surge deposit run-off. In the three falling rate scenarios, interest rate risk was also impacted by higher non-
maturity deposit rates, which increased during the current quarter and now have more room to fall.
54
Derivative Financial Instruments
The Company maintains an overall interest rate risk management strategy that permits the use of derivative instruments to
modify exposure to interest rate risk. Such instruments include interest rate swaps, interest rate floors, interest rate caps, credit
risk participation agreements, mortgage loan commitments, forward sale contracts, and forward to-be-announced (TBA)
contracts. The Company’s interest rate risk management strategy includes the ability to modify the re-pricing characteristics of
certain assets and liabilities so that changes in interest rates do not adversely affect the net interest margin and cash flows.
In addition to using derivatives to manage interest rate risk, the Company enters into foreign exchange derivative
instruments as an accommodation to customers and offsets the related foreign exchange risk by entering into offsetting third-
party forward contracts with approved, reputable counterparties. This trading activity is managed within a policy of specific
controls and limits.
In all of these contracts, the Company is exposed to credit risk in the event of nonperformance by counterparties, who may
be bank customers or other financial institutions. The Company controls the credit risk of its financial contracts through credit
approvals, limits and monitoring procedures. Because the Company generally only enters into transactions with high quality
counterparties, there have been no losses associated with counterparty nonperformance on derivative financial instruments.
The following table summarizes the notional amounts and estimated fair values of the Company’s derivative instruments at
December 31, 2022 and 2021. Notional amount, along with the other terms of the derivative, is used to determine the amounts
to be exchanged between the counterparties. Because the notional amount does not represent amounts exchanged by the parties,
it is not a measure of loss exposure related to the use of derivatives nor of exposure to liquidity risk. All of these derivative
instruments utilized by the Company are further discussed in Note 19 on Derivative Instruments.
(In thousands)
Interest rate swaps
Interest rate floors
Interest rate caps
Credit risk participation
agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale
contracts
2022
2021
Notional
Amount
Positive Fair
Value
Negative Fair
Value
Notional
Amount
Positive Fair
Value
Negative Fair
Value
$ 1,981,821
$
23,894
$
(51,742)
$ 2,229,419
$
40,752
$
(11,606)
1,000,000
152,784
579,925
27,991
—
—
33,371
2,705
34
488
—
—
—
(2,705)
(119)
(418)
—
—
—
152,058
485,633
5,119
21,787
1,165
—
147
84
77
764
5
Forward TBA contracts
Total at December 31
—
$ 3,742,521
$
—
60,492
$
—
(54,984)
21,000
$ 2,916,181
$
13
41,842
$
—
(147)
(277)
(45)
—
(1)
(25)
(12,101)
Operating Segments
The Company segregates financial information for use in assessing its performance and allocating resources among three
operating segments. The results are determined based on the Company’s management accounting process, which assigns
balance sheet and income statement items to each responsible segment. These segments are defined by customer base and
product type. The management process measures the performance of the operating segments based on the management
structure of the Company and is not necessarily comparable with similar information for any other financial institution. Each
segment is managed by executives who, in conjunction with the Chief Executive Officer, make strategic business decisions
regarding that segment. The three reportable operating segments are Consumer, Commercial, and Wealth. Additional
information is presented in Note 13 on Segments in the consolidated financial statements.
The Company uses a funds transfer pricing method to value funds used (e.g., loans, fixed assets, cash, etc.) and funds
provided (deposits, borrowings, and equity) by the business segments and their components. This process assigns a specific
value to each new source or use of funds with a maturity, based on current swap rates, thus determining an interest spread at the
time of the transaction. Non-maturity assets and liabilities are valued using weighted average pools. The funds transfer pricing
process attempts to remove interest rate risk from valuation, allowing management to compare profitability under various rate
environments. The Company also assigns loan charge-offs and recoveries (labeled in the table below as “provision for credit
losses”) directly to each operating segment instead of allocating an estimated credit loss provision. The operating segments also
include a number of allocations of income and expense from various support and overhead centers within the Company.
55
The table below is a summary of segment pre-tax income results for the past three years.
(Dollars in thousands)
Consumer
Commercial
Wealth
Segment Totals
Other/
Elimination
Consolidated
Totals
Year ended December 31, 2022:
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains, net
$ 339,080
$ 452,686
$
74,416
$ 866,182
$
76,003
$ 942,185
(17,872)
116,030
—
(1,196)
(8)
224,890
213,388
—
—
(19,076)
554,308
—
(8,995)
(7,773)
20,506
(28,071)
546,535
20,506
Non-interest expense
(300,566)
(365,276)
(144,914)
(810,756)
(38,021)
(848,777)
Income before income taxes
$ 136,672
$ 311,104
$ 142,882
$ 590,658
$
41,720
$ 632,378
Year ended December 31, 2021:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
$ 319,439
$ 453,692
$
71,522
$ 844,653
$
(9,229)
$ 835,424
(23,249)
147,273
—
4,845
211,048
—
(52)
213,617
—
(18,456)
571,938
—
84,782
(11,545)
30,059
66,326
560,393
30,059
Non-interest expense
(293,504)
(329,313)
(136,356)
(759,173)
(46,728)
(805,901)
Income before income taxes
$ 149,959
$ 340,272
$ 148,731
$ 638,962
$
47,339
$ 686,301
2022 vs 2021
Decrease in income before income
taxes:
Amount
Percent
$
(13,287)
$
(29,168)
$
(5,849)
$
(48,304)
$
(5,619)
$
(53,923)
(8.9%)
(8.6%)
(3.9%)
(7.6%)
(11.9%)
(7.9%)
Year ended December 31, 2020:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
$ 321,031
$ 414,724
$
57,925
$ 793,680
$
36,167
$ 829,847
(31,220)
148,586
—
(3,724)
12
(34,932)
(102,258)
(137,190)
194,505
188,942
532,033
—
—
—
(26,166)
11,032
505,867
11,032
Non-interest expense
(297,790)
(316,004)
(124,964)
(738,758)
(29,620)
(768,378)
Income before income taxes
$ 140,607
$ 289,501
$ 121,915
$ 552,023
$ (110,845)
$ 441,178
2021 vs 2020
Increase in income before income
taxes:
Amount
Percent
Consumer
$
9,352
$
50,771
$
26,816
$
86,939
$ 158,184
$ 245,123
6.7%
17.5%
22.0%
15.7%
142.7%
55.6%
The Consumer segment includes consumer deposits, consumer finance, and consumer debit and credit cards. During 2022,
income before income taxes for the Consumer segment decreased $13.3 million, or 8.9%, compared to 2021. This decrease was
due to a decline in non-interest income of $31.2 million, or 21.2%, and higher non-interest expense of $7.1 million, or 2.4%.
These decreases to income were partly offset by growth in net interest income of $19.6 million, or 6.1%, and a decrease in the
provision for credit losses of $5.4 million, or 23.1%. Net interest income increased due to a $19.0 million increase in net
allocated funding credits assigned to the Consumer segment's loan and deposit portfolios. Non-interest income decreased
mainly due to declines of $24.7 million in mortgage banking revenue and $4.0 million in overdraft and return item fees. Non-
interest expense increased over the prior year mainly due to higher occupancy expense, insurance expense and allocated service
and support costs (mainly bank card fraud operations and information technology), partly offset by lower allocated service costs
for branch employees and mortgage operations. The provision for credit losses totaled $17.9 million, a $5.4 million decrease
from the prior year, which resulted mainly from lower credit card loan net charge-offs, slightly offset by higher consumer loan
net charge-offs. Total average loans in this segment decreased $95.5 million, or 5.0%, in 2022 compared to 2021 mainly due to
declines in consumer credit card and auto loans. Average deposits increased $559.8 million, or 4.4%, over the prior year,
resulting from growth in personal demand, savings and interest checking and money market deposit account balances.
56
During 2021, income before income taxes for the Consumer segment increased $9.3 million, or 6.7%, compared to 2020.
This increase was due to a decrease in non-interest expense of $4.3 million, or 1.4%, and a decrease in the provision for credit
losses of $8.0 million. These increases to income were partly offset by a $1.6 million, or .5%, decrease in net interest income
and a $1.3 million, or .9%, decrease to non-interest income. Net interest income decreased due to a $21.9 million decline in
loan interest income, partly offset by a $9.1 million increase in net allocated funding credits assigned to the Consumer
segment's loan and deposit portfolios, and lower deposit interest expense of $11.2 million. Non-interest income decreased
mainly due to a decline in mortgage banking revenue, partly offset by growth in net credit and debit card fees (mainly higher
interchange fees, partly offset by higher credit card rewards expense) and check sales and wire fees. Non-interest expense
decreased from 2020 mainly due to lower salaries and benefits expense, occupancy expense, allocated servicing costs for
mortgage operations and a reduction in impairment expense on mortgage servicing rights. These decreases were partly offset
by higher marketing expense and higher allocated costs for information technology. The provision for credit losses totaled
$23.2 million, an $8.0 million decrease from 2020, which resulted mainly from lower net charge-offs on consumer credit card
and consumer loans. Total average loans in this segment decreased $178.3 million, or 8.5%, in 2021 compared to 2020 mainly
due to declines in consumer credit card, auto and fixed and revolving home equity loans. Average deposits increased $1.6
billion, or 13.8%, over 2020, resulting from growth in personal demand, savings and interest checking and money market
deposit account balances.
Commercial
The Commercial segment provides lending (including the Small Business Banking product line within the branch network),
leasing, international services, and business, government deposit, and related commercial cash management services, as well as
merchant and commercial bank card products. The segment includes the Capital Markets Group, which sells fixed-income
securities to correspondent banks, corporations, public institutions, municipalities, and individuals and also provides securities
safekeeping and bond accounting services. Pre-tax income for 2022 decreased $29.2 million, or 8.6%, compared to 2021,
mainly due to increases in non-interest expense and the provision for credit losses, partly offset by an increase in non-interest
income. Net interest income decreased $1.0 million, or .2%, due to a $21.4 million decrease in net allocated funding credits
assigned to the Commercial segment's loan and deposit portfolios, coupled with higher interest expense on customer repurchase
agreements and deposits of $22.6 million and 18.5 million, respectively. The decreases were partly offset by a $61.2 million
increase in loan interest income. The provision for credit losses increased $6.0 million due to net charge-offs recorded on
business loans in 2022 compared to net recoveries recorded in the prior year. Non-interest income increased $13.8 million, or
6.6%, over 2021 due to higher net bank card fees (mainly corporate card), deposit account fees (mainly corporate cash
management fees), and higher cash sweep commissions. These increases were partly offset by lower capital market fees. Non-
interest expense increased $36.0 million, or 10.9%, during 2022, mainly due to higher salaries and benefits expense, data
processing and software expense, travel and entertainment expense, and allocated service and support costs (mainly bank
operations expense, branch employee expense, and commercial banking expense). Average segment loans decreased $216.9
million, or 2.1%, compared to 2021, mainly due to a decline in business loans, partly offset by increases in business real estate
and construction loans. Average deposits decreased $49.4 million, or .4%, mainly due to declines in business demand and
certificate of deposit account balances, offset by an increase in interest checking and money market deposit account balances.
Pre-tax income for 2021 increased $50.8 million, or 17.5%, compared to 2020, mainly due to increases in net interest
income and non-interest income and a decline in the provision for credit losses, partly offset by an increase in non-interest
expense. Net interest income increased $39.0 million, or 9.4%, due to higher net allocated funding credits of $56.9 million and
lower interest expense of $12.9 million on deposits and customer repurchase agreements, partly offset by a decrease of $30.9
million in loan interest income. The provision for credit losses decreased $8.6 million due to recoveries recorded on business
loans in 2021 compared to net charge-offs recorded 2020. Non-interest income increased $16.5 million, or 8.5%, over 2020
due to higher net bank card fees (mainly corporate card and merchant fees), deposit account fees (mainly corporate cash
management fees), and higher interest rate swap fees. These increases were partly offset by lower cash sweep commissions.
Non-interest expense increased $13.3 million, or 4.2%, during 2021, mainly due to higher salaries and benefits expense (mainly
incentive compensation), data processing and software expense, allocated support costs for information technology and
commercial banking, and lower deferred origination costs. These increases were partly offset by lower allocated service costs
(mainly lockbox). Average segment loans decreased $327.8 million, or 3.1%, compared to 2020, with the decline occurring in
business loans (mainly PPP loans), partly offset by an increase in construction loans. Average deposits increased $2.1 billion,
or 20.7%, mainly due to growth in business demand deposits.
Wealth
The Wealth segment provides traditional trust and estate planning, advisory and discretionary investment management
services, brokerage services, and includes Private Banking accounts. At December 31, 2022, the Trust group managed
investments with a market value of $37.3 billion and administered an additional $23.0 billion in non-managed assets. It also
provides investment management services to The Commerce Funds, a series of mutual funds with $2.5 billion in total assets at
57
December 31, 2022. In 2022, pre-tax income for the Wealth segment was $142.9 million, compared to $148.7 million in 2021,
a decrease of $5.8 million, or 3.9%. Net interest income increased $2.9 million, or 4.0%, mainly due to a $16.4 million increase
in loan interest income, partly offset by a $12.5 million decrease in net allocated funding credits assigned to the Wealth
segment's loan and deposit portfolios and a $1.0 million increase in deposit interest expense. Non-interest income decreased
$229 thousand, or .1%, from the prior year due to higher cash sweep commissions and brokerage fees, partly offset by lower
mortgage banking revenue and trust fees. Non-interest expense increased $8.6 million, or 6.3%, resulting from higher salaries
and benefits expense, travel and entertainment expense, and marketing expense. The provision for credit losses decreased $44
thousand, mainly due to net recoveries on revolving home equity loans. Average assets increased $253.3 million, or 16.0%,
during 2022 mainly due to higher personal real estate and consumer loan balances. Average deposits decreased $161.0 million,
or 5.4%, due to a decline in interest checking and money market deposit account balances.
In 2021, pre-tax income for the Wealth segment was $148.7 million, compared to $121.9 million in 2020, an increase of
$26.8 million, or 22.0%. Net interest income increased $13.6 million, or 23.5%, due to an $11.0 million increase in net
allocated funding credits and lower deposit interest expense of $4.0 million, slightly offset by a decline in loan interest income
of $1.3 million. Non-interest income increased $24.7 million, or 13.1%, over 2020 largely due to higher private client and
institutional trust fees and brokerage fees, partly offset by lower cash sweep commissions. Non-interest expense increased
$11.4 million, or 9.1%, resulting from higher salaries expense (mainly incentive compensation) and higher allocated support
costs for information technology. The provision for credit losses increased $64 thousand, mainly due to higher net charge-offs
on revolving home equity loans. Average assets increased $178.3 million, or 12.7%, during 2021 mainly due to higher personal
real estate and consumer loan balances. Average deposits increased $694.7 million, or 30.6%, due to growth in business
demand and interest checking and money market account deposit balances.
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 certain administrative functions, the investment securities portfolio,
and the effect of certain expense allocations to the segments. In accordance with the Company's transfer pricing procedures, the
difference between the total provision and total net charge-offs/recoveries is not allocated to a business segment and is included
in this category. In 2022, the pre-tax net income in this category was $41.7 million, compared to $47.3 million in 2021. This
decrease was mainly due to an increase in the provision for credit losses of $93.8 million and an $8.7 million increase in non-
interest expense, partly offset by increases of $85.2 million in net interest income and $3.8 million in non-interest income.
Unallocated securities gains were $20.5 million in 2022, compared to securities gains of $30.1 million in 2021. The increase in
the unallocated provision for credit losses of $93.8 million was primarily driven by an increase in the allowance for credit
losses on loans and the liability for unfunded lending commitments, which are not allocated to segments for management
reporting purposes. Net charge-off are allocated to segments when incurred for management reporting purposes. For the year
ended December 31, 2022, the Company's provision for credit losses on unfunded lending commitments, which is not allocated
to the segments for management reporting, was $8.9 million, compared to a benefit of $14.1 million in 2021. Additionally, the
provision for credit losses on loans was $92 thousand in excess of net charge-offs in 2022, while the provision was $70.8
million lower than net charge-offs in 2021.
58
Impact of Recently Issued Accounting Standards
Reference Rate Reform The 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 new 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 extended the sunset date under Topic 848 to December 31, 2024. The change is to align the temporary accounting relief
guidance with the expected cessation date of LIBOR, which was postponed by administrators in 2021 to June 2023, a year after
the current sunset date of ASU 2020-04.
In order to assess the impact of transition and ensure a successful transition process, the Company established a LIBOR
Transition Program led by the LIBOR Transition Steering Committee (the Committee), which is an internal, cross-functional
team with representatives from all relevant business lines, support functions and legal counsel. A LIBOR impact and risk
assessment has been performed, and the Committee has developed and prioritized action items. All LIBOR-based loans must be
converted to an alternative index by June 30, 2023, as LIBOR will no longer be published after June 30, 2023. All of the
Company's financial contracts that reference LIBOR have been identified, and LIBOR fallback language has been included in
key loan provisions of new and renewed loans in preparation of the transition from LIBOR. The Company ceased originating
new loans with LIBOR as a reference rate at the end of 2021 and is actively working with customers to modify existing loans
that reference LIBOR to a new reference rate. The Company plans to finish transitioning the impacted loans by spring of 2023.
Credit Losses The FASB issued ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326): Troubled Debt
Restructurings and Vintage Disclosures", in March 2022. This ASU eliminates the troubled debt restructuring recognition and
measurement guidance and, instead, requires that an entity evaluate (consistent with the accounting for other loan
modifications) whether the modification represents a new loan or a continuation of an existing loan. The amendments also
enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made
to borrowers experiencing financial difficulty. The amendments require that an entity disclose current period gross write-offs by
year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. The guidance is
effective January 1, 2023. Aside from additional disclosure requirements, the Company expects no material impact to its
consolidated financial statements from adoption of this ASU.
Corporate Governance
The Company has adopted a number of corporate governance measures. These include corporate governance guidelines, a
code of ethics that applies to its senior financial officers and the charters for its audit and risk committee, its committee on
compensation and human resources, and its committee on governance/directors. This information is available on the
Company’s investor relations website at investor.commercebank.com/overview/corporate-governance.
59
AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
2022
Interest
Income/
Expense
Average
Balance
Average
Rates
Earned/Paid
Average
Balance
2021
Interest
Income/
Expense
Average
Rates
Earned/Paid
Average
Balance
2020
Interest
Income/
Expense
Average
Rates
Earned/Paid
Years Ended December 31
(Dollars in thousands)
ASSETS
Loans:(A)
Business(B)
Real estate – construction and land
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities:
U.S. government & federal agency obligations
Government-sponsored enterprise obligations
State & municipal obligations(B)
Mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities(B)
Equity securities(B)
Other securities(B)
Total investment securities
Federal funds sold
Securities purchased under agreements to resell
Interest earning deposits with banks
Total interest earning assets
Allowance for credit losses on loans
Unrealized gain (loss) on debt securities
Cash and due from banks
Premises and equipment - net
Other assets
Total assets
LIABILITIES AND EQUITY
Interest bearing deposits:
Savings
Interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Total interest bearing deposits
Borrowings:
Federal funds purchased
Securities sold under agreements to repurchase
Other borrowings(C)
Total borrowings
Total interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Equity
Total liabilities and equity
Net interest margin (FTE)
$ 5,376,584 $ 198,238
61,893
1,229,977
133,909
3,205,061
94,878
2,841,626
84,044
2,075,781
12,625
280,242
64,832
547,071
—
5,645
650,419
15,561,987
637
7,754
3.69% $ 5,838,682 $ 186,968
40,702
5.03
104,329
4.18
92,267
3.34
76,361
4.05
9,823
4.51
64,274
11.85
—
—
574,724
4.18
880
8.22
1,144,741
3,005,943
2,797,635
2,009,577
286,064
577,411
4,335
15,664,388
21,524
3.20% $ 6,387,410 $ 196,249
38,619
956,999
3.56
110,080
2,959,068
3.47
94,835
2,619,211
3.30
86,096
1,967,133
3.80
12,405
334,866
3.43
78,704
668,810
11.13
—
3,351
—
616,988
15,896,848
3.67
860
18,685
4.09
41,095
1,293
47,121
135,920
58,716
11,811
1,129
2,578
21,103
320,766
412
22,647
15,098
1,009,979
3.74
2.36
2.29
1.95
1.51
1.95
2.74
27.16
10.35
2.15
3.52
1.51
1.11
3.03
740
24,359
1,469
3,898
30,466
1,836
24,022
1,840
27,698
58,164
.05
.17
.36
.58
.18
2.21
1.02
3.96
1.11
.30%
1,097,935
54,768
2,061,620
6,979,862
3,888,405
606,661
41,205
9,492
203,953
14,943,901
11,701
1,495,956
1,362,863
33,384,162
(141,341)
(922,259)
323,296
409,235
552,224
$ 33,605,317
$ 1,583,983
14,475,089
406,580
670,472
17,136,124
83,255
2,356,024
46,459
2,485,738
19,621,862
10,964,573
198,002
2,820,880
$ 33,605,317
32,888
1,180
47,721
95,175
32,705
12,556
452
2,223
18,924
243,824
4
37,377
3,202
860,011
4.13
2.32
2.37
1.36
1.16
2.08
1.24
32.65
11.05
1.81
.59
2.93
.13
2.62
1,129
6,380
1,158
2,577
11,244
17
1,629
5
1,651
12,895
.08
.05
.24
.21
.07
.07
.07
.62
.07
.07%
796,043
50,789
2,015,635
6,985,897
2,824,993
603,720
36,534
6,809
171,322
13,491,742
677
1,275,837
2,420,533
32,874,701
(188,758)
198,722
339,431
408,537
531,102
$ 34,163,735
$ 1,450,495
13,370,226
478,371
1,244,757
16,543,849
23,623
2,311,214
808
2,335,645
18,879,494
11,240,267
591,459
3,452,515
$ 34,163,735
17,369
3,346
42,260
109,834
29,759
10,846
659
2,030
8,732
224,835
3
40,647
2,273
885,606
1,053
16,798
4,897
12,948
35,696
794
5,297
1,029
7,120
42,816
780,903
105,069
1,562,415
5,733,398
1,467,496
444,489
30,321
4,206
133,391
10,261,688
278
849,998
1,115,551
28,143,048
(196,942)
292,898
343,516
399,228
634,949
$ 29,616,697
$ 1,123,413
11,539,717
585,695
1,358,389
14,607,214
126,203
1,840,276
126,585
2,093,064
16,700,278
8,890,263
715,033
3,311,123
$ 29,616,697
$ 951,815
$ 847,116
$ 842,790
3.07%
4.04
3.72
3.62
4.38
3.70
11.77
—
3.88
4.60
2.22
3.18
2.70
1.92
2.03
2.44
2.17
48.26
6.55
2.19
1.08
4.78
.20
3.15
.09
.15
.84
.95
.24
.63
.29
.81
.34
.26%
2.99%
.88%
Net yield on interest earning assets
Percentage increase (decrease) in net interest margin
(FTE) compared to the prior year
2.85%
12.36%
2.58%
.51%
(A) Loans on non-accrual status are included in the computation of average balances. Included in interest income above are loan fees and late charges, net of
amortization of deferred loan origination fees and costs, which are immaterial. Credit card income from merchant discounts and net interchange fees are not
included in loan income.E — A
VERAGE RATES AND
60
2019
Interest
Income/
Expense
Average
Balance
Average
Rates
Earned/Paid
Average
Balance
2018
Interest
Income/
Expense
Average
Rates
Earned/Paid
Average
Balance
2017
Interest
Income/
Expense
Average
Rates
Earned/Paid
Average Balance Five Year
Compound Growth Rate
Years Ended December 31
202,308
49,702
127,635
85,604
92,414
18,204
93,754
—
669,621
1,209
20,968
4,557
38,362
123,806
37,478
9,017
886
1,792
8,466
245,332
55
15,898
6,698
938,813
1,021
38,691
6,368
26,945
73,025
5,332
24,083
952
30,367
103,392
$ 5,214,158 $
909,367
2,859,008
2,178,716
1,930,883
358,474
764,828
9,203
14,224,637
18,577
851,124
191,406
1,220,958
4,594,576
1,372,574
333,105
29,450
4,547
134,255
8,731,995
2,034
741,089
316,299
24,034,631
(160,212)
74,605
370,709
380,350
513,442
$ 25,213,525
918,896
$
10,607,224
610,807
1,396,760
13,533,687
247,126
1,574,972
43,919
1,866,017
15,399,704
6,376,204
360,587
3,077,030
$ 25,213,525
3.88%
5.47
4.46
3.93
4.79
5.08
12.26
—
4.71
6.51
2.46
2.38
3.14
2.69
2.73
2.71
3.01
39.41
6.31
2.81
2.70
2.15
2.12
3.91
.11
.36
1.04
1.93
.54
2.16
1.53
2.17
1.63
.67%
184,837
49,440
117,516
80,365
89,074
17,513
92,269
—
631,014
1,298
21,720
6,098
42,867
111,686
34,223
8,912
759
11,816
12,412
250,493
519
15,881
6,233
905,438
973
26,830
3,215
14,658
45,676
1,582
18,073
45
19,700
65,376
$ 4,963,029 $
967,320
2,737,820
2,093,802
2,010,826
379,715
768,789
4,778
13,926,079
19,493
921,759
308,520
1,410,700
4,203,625
1,455,690
340,458
24,731
26,459
114,438
8,806,380
27,026
696,438
319,948
23,795,364
(158,791)
(113,068)
360,732
343,636
438,362
$ 24,666,235
867,150
$
10,817,169
603,137
1,114,825
13,402,281
82,179
1,431,965
1,747
1,515,891
14,918,172
6,728,971
247,520
2,771,572
$ 24,666,235
3.72%
5.11
4.29
3.84
4.43
4.61
12.00
—
4.53
6.66
2.36
1.98
3.04
2.66
2.35
2.62
3.07
44.66
10.85
2.84
1.92
2.28
1.95
3.81
.11
.25
.53
1.31
.34
1.93
1.26
2.58
1.30
.44%
154,681
37,315
102,009
75,267
81,065
15,516
88,329
—
554,182
1,000
19,697
7,321
62,073
89,623
36,757
8,410
583
2,283
10,507
237,254
230
15,440
2,223
810,329
981
16,328
2,645
10,859
30,813
1,600
8,229
3,086
12,915
43,728
$ 4,832,045 $
881,879
2,694,620
2,019,674
2,036,393
398,611
743,885
4,592
13,611,699
17,452
914,961
452,422
1,720,723
3,784,602
2,083,611
330,365
21,929
60,772
98,564
9,467,949
18,518
688,147
207,269
24,011,034
(156,572)
45,760
361,414
345,639
424,333
$ 25,031,608
819,558
$
10,517,741
676,272
1,404,960
13,418,531
164,156
1,298,231
87,696
1,550,083
14,968,614
7,176,255
250,510
2,636,229
$ 25,031,608
$
835,421
$
840,062
$
766,601
YI
3.48%
(.55%)
3.53%
9.58%
3.20%
4.23
3.79
3.73
3.98
3.89
11.87
—
4.07
5.73
2.15
1.62
3.61
2.37
1.76
2.55
2.66
3.76
10.66
2.51
1.24
2.24
1.07
3.37
.12
.16
.39
.77
.23
.97
.63
3.52
.83
.29%
3.19%
7.75%
2.16%
6.88
3.53
7.07
.38
(6.80)
(5.96)
4.22
2.71
(14.98)
3.71
(34.45)
3.68
13.02
13.29
12.93
13.45
(31.02)
15.65
9.56
(8.77)
16.80
45.74
6.81
(2.03)
N.M.
(2.20)
3.44
5.41
6.07
14.09
6.60
(9.68)
(13.75)
5.01
(12.70)
12.66
(11.93)
9.91
5.56
8.85
(4.60)
1.36
6.07%
(B) Interest income and yields are presented on a fully taxable-equivalent basis using a federal income tax rate of 21% in 2022, 2021, 2020, 2019 and 2018 and
35% in 2017. Loan interest income includes tax free loan income (categorized as business loan income) which includes tax equivalent adjustments of
$4,126,000 in 2022, $4,176,000 in 2021, $4,916,000 in 2020, $6,282,000 in 2019, $5,931,000 in 2018, and $10,357,000 in 2017. Investment securities
interest income includes tax equivalent adjustments of $6,874,000 in 2022, $7,546,000 in 2021, $8,042,000 in 2020, $7,845,000 in 2019, $10,306,000 in
2018, and $22,565,000 in 2017. These adjustments relate to state and municipal obligations, trading securities, equity securities, and other securities.
(C) Interest expense of $1,370,000, $29,000 and $14,000, which was capitalized on construction projects in 2022, 2021, and 2020, respectively, is not deducted
from the interest expense shown above.
61
QUARTERLY AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Year ended December 31, 2022
(Dollars in millions)
ASSETS
Loans:
Business(A)
Real estate – construction and land
$
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities:
U.S. government & federal agency
obligations
Government-sponsored enterprise
obligations
State & municipal obligations(A)
Mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities(A)
Equity securities(A)
Other securities(A)
Total investment securities
Federal funds sold
Securities purchased under agreements
to resell
Interest earning deposits with banks
Total interest earning assets
Allowance for credit losses on loans
Unrealized loss on debt securities
Cash and due from banks
Premises and equipment – net
Other assets
Total assets
5,478
1,269
3,301
2,887
2,090
294
559
7
15,885
7
1,056
56
1,991
6,606
3,714
561
44
10
219
14,257
28
1,174
640
31,991
(143)
(1,582)
327
419
593
4.68% $
6.80
5.15
3.45
4.77
5.89
12.64
—
5.03
10.09
2.01
2.36
2.29
1.88
1.96
1.89
3.81
28.44
6.67
2.07
4.27
2.36
3.69
3.59
5,318
1,289
3,258
2,844
2,102
281
550
4
15,646
7
1,113
56
2,053
6,848
3,871
587
36
9
209
14,782
13
1,379
980
32,807
(138)
(1,065)
311
409
538
3.94% $
5.27
4.40
3.36
4.17
4.82
12.05
—
4.37
8.80
4.51
2.36
2.27
1.93
1.62
1.93
2.74
27.11
7.09
2.18
2.77
1.72
2.25
3.21
5,384
1,225
3,164
2,826
2,071
272
538
6
15,486
8
1,119
56
2,126
7,158
4,038
643
44
9
195
15,388
4
1,704
1,249
33,839
(135)
(851)
315
402
522
3.16% $
4.09
3.70
3.27
3.62
3.69
11.32
—
3.72
8.14
4.93
2.39
2.30
1.99
1.35
1.97
2.46
26.90
22.38
2.36
1.79
1.03
.78
2.86
5,324
1,135
3,095
2,809
2,040
274
541
5
15,223
9
1,104
52
2,078
7,317
3,934
636
41
9
192
15,363
1
1,734
2,608
34,938
(150)
(174)
340
407
557
$
31,605
$
32,862
$
34,092
$
35,918
LIABILITIES AND EQUITY
Interest bearing deposits:
Savings
$
Interest checking and money market
Certificates of deposit under $100,000
Certificates of deposit $100,000 & over
Total interest bearing deposits
Borrowings:
Federal funds purchased
Securities sold under agreements to
repurchase
Other borrowings
Total borrowings
Total interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Equity
Total liabilities and equity
Net interest margin (FTE)
$
$
1,567
13,694
388
597
16,246
144
2,260
179
2,583
18,829
10,361
29
2,386
31,605
257
.06
.38
.73
1.42
.40
3.56
2.29
4.02
2.48
.69%
$
$
$
1,596
14,424
397
578
16,995
52
2,200
2
2,254
19,249
10,758
124
2,731
32,862
249
$
.04
.20
.41
.60
.21
2.41
1.37
1.78
1.39
.34%
$
$
1,610
14,846
412
649
17,517
113
2,258
2
2,373
19,890
11,210
140
2,852
34,092
235
.04
.06
.20
.29
.07
.79
.48
2.37
.50
.12%
$
$
$
1,563
14,950
430
862
17,805
23
2,713
1
2,737
20,542
11,545
505
3,326
35,918
211
Net yield on interest earning assets
3.18%
3.01%
2.79%
2.45%
(A) Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.
62
2.93%
3.76
3.38
3.28
3.59
3.48
11.35
—
3.54
6.48
3.42
2.33
2.29
1.98
1.13
2.00
1.84
26.00
5.91
1.97
.39
1.24
.18
2.49
.05
.04
.13
.20
.05
.12
.10
.53
.10
.06%
— AVERAGE RATES AND YIELDS
Year ended December 31, 2021
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
Average
Balance
Average Rates
Earned/Paid
(Dollars in millions)
ASSETS
Loans:
Business(A)
Real estate – construction and land
$
Real estate – business
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities:
U.S. government & federal agency
obligations
Government-sponsored enterprise
obligations
State & municipal obligations(A)
Mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities(A)
Equity securities(A)
Other securities(A)
Total investment securities
Federal funds sold
Securities purchased under agreements to
resell
Interest earning deposits with banks
Total interest earning assets
Allowance for credit losses on loans
Unrealized gain on debt securities
Cash and due from banks
Premises and equipment – net
Other assets
Total assets
5,193
1,228
3,003
2,785
2,044
276
559
5
15,093
11
1,009
51
2,096
7,141
3,515
630
46
9
190
14,687
1
1,670
2,857
34,319
(162)
86
345
420
522
3.16% $
3.61
3.41
3.21
3.65
3.47
11.06
—
3.62
5.10
3.11
2.30
2.26
1.40
1.03
2.07
1.54
27.64
18.39
1.82
.70
1.62
.15
2.47
5,437
1,169
2,983
2,776
2,041
282
566
5
15,259
16
728
51
2,040
7,115
3,028
609
32
9
183
13,795
1
1,633
2,603
33,307
(172)
230
329
409
523
3.43% $
3.51
3.46
3.27
3.71
3.46
11.29
—
3.74
4.63
5.74
2.30
2.35
1.53
1.08
2.04
1.01
23.92
7.46
1.89
.50
2.19
.15
2.62
6,212
1,088
3,015
2,804
2,005
287
576
4
15,991
23
720
51
1,967
6,685
2,654
606
35
5
157
12,880
1
937
2,725
32,557
(201)
197
329
404
526
3.15% $
3.56
3.49
3.31
3.84
3.43
11.22
—
3.65
4.20
5.52
2.33
2.41
1.11
1.25
2.06
1.19
43.10
11.90
1.78
.60
4.46
.11
2.64
6,533
1,092
3,023
2,826
1,947
299
609
4
16,333
36
725
51
1,959
6,999
2,086
570
32
4
154
12,580
—
850
1,480
31,279
(221)
284
355
401
552
$
35,530
$
34,626
$
33,812
$
32,650
LIABILITIES AND EQUITY
Interest bearing deposits:
Savings
$
Interest checking and money market
Certificates of deposit under $100,000
Certificates of deposit $100,000 & over
Total interest bearing deposits
Borrowings:
Federal funds purchased
Securities sold under agreements to
repurchase
Other borrowings
Total borrowings
Total interest bearing liabilities
Non-interest bearing deposits
Other liabilities
Equity
Total liabilities and equity
Net interest margin (FTE)
$
$
1,507
13,875
442
1,105
16,929
21
2,620
1
2,642
19,571
11,919
562
3,478
35,530
210
.08
.04
.14
.14
.05
.11
.08
—
.08
.06%
$
$
$
1,485
13,343
464
1,290
16,582
14
2,347
—
2,361
18,943
11,475
668
3,540
34,626
217
.08
.05
.18
.14
.06
.10
.08
1.14
.08
.06%
$
$
$
1,474
13,284
491
1,355
16,604
23
2,143
1
2,167
18,771
11,109
527
3,405
33,812
211
.08
.05
.27
.20
.07
.05
.06
.82
.06
.07%
$
$
$
1,333
12,971
517
1,230
16,051
37
2,129
1
2,167
18,218
10,439
608
3,385
32,650
209
Net yield on interest earning assets
2.43%
2.58%
2.60%
2.71%
(A) Stated on a fully taxable-equivalent basis using a federal income tax rate of 21%.
63
3.09%
3.54
3.52
3.40
4.02
3.38
10.97
—
3.66
3.44
2.54
2.36
2.46
1.39
1.39
2.15
1.08
49.56
5.26
1.72
—
5.31
.10
2.76
.08
.06
.37
.35
.09
.05
.06
.98
.06
.09%
SUMMARY OF QUARTERLY STATEMENTS OF INCOME
Year ended December 31, 2022
(In thousands, except per share data)
12/31/2022
9/30/2022
6/30/2022
3/31/2022
For the Quarter Ended
Interest income
Interest expense
Net interest income
Non-interest income
Investment securities gains, net
Salaries and employee benefits
Other expense
Provision for credit losses
Income before income taxes
Income taxes
Non-controlling interest
Net income attributable to Commerce Bancshares, Inc.
Net income per common share — basic*
Net income per common share — diluted*
Weighted average shares — basic*
Weighted average shares — diluted*
Year ended December 31, 2021
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Non-interest income
Investment securities gains (losses), net
Salaries and employee benefits
Other expense
Provision for credit losses
Income before income taxes
Income taxes
Non-controlling interest
Net income attributable to Commerce Bancshares, Inc.
Net income per common share — basic*
Net income per common share — diluted*
Weighted average shares — basic*
Weighted average shares — diluted*
Year ended December 31, 2020
(In thousands, except per share data)
Interest income
Interest expense
Net interest income
Non-interest income
Investment securities gains (losses), net
Salaries and employee benefits
Other expense
Provision for credit losses
Income before income taxes
Income taxes
Non-controlling interest
Net income attributable to Commerce Bancshares, Inc.
Net income per common share — basic*
Net income per common share — diluted*
Weighted average shares — basic*
Weighted average shares — diluted*
* Restated for the 5% stock dividend distributed in 2022.
$
$
$
$
286,377 $
(31,736)
254,641
136,825
8,904
262,666 $
(16,293)
246,373
138,514
3,410
238,154 $
(5,769)
232,385
139,427
1,029
(138,458)
(137,393)
(142,243)
(78,282)
(15,477)
168,153
(34,499)
(2,026)
(75,491)
(15,290)
160,123
(33,936)
(3,364)
(71,262)
(7,162)
152,174
(32,021)
(4,359)
131,628 $
122,823 $
115,794 $
1.05 $
1.04 $
124,311
124,589
.97 $
.97 $
124,840
125,117
.92 $
.92 $
125,987
125,916
For the Quarter Ended
211,782
(2,996)
208,786
131,769
7,163
(135,953)
(69,695)
9,858
151,928
(31,902)
(1,872)
118,154
.92
.92
126,341
126,647
12/31/2021
9/30/2021
6/30/2021
3/31/2021
$
210,479 $
216,981 $
211,133 $
(2,822)
(2,944)
(3,151)
207,657
147,699
(9,706)
(132,640)
(70,942)
7,054
149,122
(33,764)
(452)
214,037
137,506
13,108
(132,824)
(78,796)
7,385
160,416
(34,662)
(3,193)
207,982
139,143
16,804
(130,751)
(67,375)
45,655
211,458
(45,209)
(3,923)
$
$
$
114,906 $
122,561 $
162,326 $
.90 $
.90 $
127,012
127,283
.95 $
.95 $
127,709
127,975
1.26 $
1.25 $
128,070
128,387
209,697
(3,949)
205,748
136,045
9,853
(129,033)
(63,540)
6,232
165,305
(32,076)
(2,257)
130,972
1.01
1.01
128,176
128,522
12/31/2020
9/30/2020
6/30/2020
3/31/2020
For the Quarter Ended
213,323 $
(10,266)
203,057
117,515
(4,129)
(126,759)
(60,753)
(80,539)
48,392
(9,661)
1,132
39,863 $
.29 $
.29 $
128,157
128,377
221,485
(20,420)
201,065
123,663
(13,301)
(128,937)
(64,761)
(57,953)
59,776
(10,173)
2,254
51,857
.38
.38
128,633
128,932
$
214,726 $
223,114 $
(4,963)
(7,152)
209,763
135,117
12,307
(129,983)
(66,327)
4,403
165,280
(33,084)
(2,307)
129,889 $
1.00 $
1.00 $
128,185
128,450
215,962
129,572
16,155
(127,308)
(63,550)
(3,101)
167,730
(34,375)
(907)
132,448 $
.97 $
.97 $
128,173
128,380
$
$
$
64
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is disclosed within the Interest Rate Sensitivity section of Management’s Discussion
and Analysis of Financial Condition and Results of Operations.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Commerce Bancshares, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Commerce Bancshares, Inc. and subsidiaries (the Company)
as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in equity,
and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the
consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 2022, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 22, 2023 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate
opinion on the critical audit matter or on the accounts or disclosures to which it relates.
65
Assessment for credit losses related to loans collectively evaluated for impairment
As discussed in Notes 1 and 2 to the consolidated financial statements, the allowance for credit losses related to loans
evaluated on a collective basis (the December 31, 2022 collective ACL) was $148.0 million of a total allowance for credit
losses of $150.1 million as of December 31, 2022. The allowance for credit losses on loans and leases is measured on a
collective (pool) basis whereas loans are aggregated into pools based on similar risk characteristics. The Company
estimates the collective ACL utilizing average historical loss rates, calculated using historical net charge-offs and
outstanding loan balances during a lookback period for each pool. In certain 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 (forecast
adjusted loss rate). 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. The adjustments are based on results from
various regression models projecting the impact of the macroeconomic variables to loss rates. The forecast is used for a
reasonable and supportable period before reverting back to historical averages using a straight-line method. The forecast
adjusted loss rate is applied to the amortized cost of loans over the remaining contractual lives, adjusted for expected
prepayments. The allowance is further adjusted for certain qualitative factors not included in historical loss rates or the
macroeconomic forecast, which include changes in portfolio composition and characteristics, underwriting practices,
watchlist trends, or significant unique events or conditions.
We identified the assessment of the December 31, 2022 collective ACL as a critical audit matter. A high degree of audit
effort, including specialized skills and knowledge, and subjective and complex auditor judgment was involved in the
assessment due to significant measurement uncertainty. Specifically, this assessment encompassed the evaluation of the
conceptual soundness of the average historical loss model used to estimate the collective ACL, including the following key
factors and assumptions (1) historical losses, (2) the reasonable and supportable forecast period, and (3) the development
and evaluation of qualitative adjustments. In addition, auditor judgment was required to evaluate the sufficiency of audit
evidence obtained.
The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and
tested the operating effectiveness of certain internal controls related to the Company’s measurement of the collective ACL
estimates, including controls over the (1) development and approval of the collective ACL methodology, (2) validation of
the collective ACL methodology and model, (3) identification and determination of the key factors and assumptions used to
estimate the collective ACL, (4) development of qualitative adjustments, and (5) analysis of the collective ACL results,
trends, and ratios. We evaluated the Company’s process to develop the collective ACL estimates by testing certain sources
of data, factors, and assumptions, and considered the relevance and reliability of such data, factors, and assumptions. We
evaluated whether the historical losses in the Company’s portfolio are representative of the credit characteristics of the
current portfolio. We involved credit risk professionals with specialized skills and knowledge, who assisted in:
• evaluating the Company’s collective ACL methodology for compliance with U.S. generally accepted accounting
principles,
• evaluating the collective ACL methodology and model for conceptual soundness by inspecting the methodology and
model documentation to determine whether the methodology and model are suitable for intended use
• testing the historical losses period and the reasonable and supportable forecast period by comparing them to the
Company’s business environment and relevant industry practices
• evaluating the methodology used to develop the qualitative factors and the effect of those factors on the collective ACL
compared with changes in the nature and volume of the entity’s financial assets and identified limitations of the
underlying quantitative model.
We assessed the sufficiency of the audit evidence obtained related to the Company’s December 31, 2022 collective ACL
by evaluating the cumulative results of the audit procedures, qualitative aspects of the Company’s accounting practices and
potential bias in the accounting estimates.
We have served as the Company’s auditor since 1971.
Kansas City, Missouri
February 22, 2023
66
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
Loans
Allowance for credit losses on loans
Net loans
December 31
2022
2021
(In thousands)
$
16,303,131 $
(150,136)
16,152,995
15,176,359
(150,044)
15,026,315
Loans held for sale (including $— and $5,570,000 of residential mortgage loans carried at fair value at
December 31, 2022 and 2021, respectively)
4,964
8,615
Investment securities:
Available for sale debt, at fair value (amortized cost of $13,738,206,000 and $14,419,133,000 at
December 31, 2022 and 2021, respectively, and allowance for credit losses of $— at both
December 31, 2022 and 2021)
Trading debt
Equity
Other
Total investment securities
Federal funds sold
Securities purchased under agreements to resell
Interest earning deposits with banks
Cash and due from banks
Premises and equipment – net
Goodwill
Other intangible assets – net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non-interest bearing
Savings, interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Total deposits
Federal funds purchased and securities sold under agreements to repurchase
Other borrowings
Other liabilities
Total liabilities
Commerce Bancshares, Inc. stockholders’ equity:
Common stock, $5 par value
Authorized 140,000,000; issued 125,863,879 shares at December 31, 2022 and 122,160,705 shares
at December 31, 2021
Capital surplus
Retained earnings
Treasury stock of 605,142 shares at December 31, 2022
and 476,392 shares at December 31, 2021, at cost
Accumulated other comprehensive income (loss)
Total Commerce Bancshares, Inc. stockholders’ equity
Non-controlling interest
Total equity
Total liabilities and equity
See accompanying notes to consolidated financial statements.
67
12,238,316
43,523
12,304
225,034
12,519,177
49,505
825,000
389,140
452,496
418,909
138,921
15,234
909,590
31,875,931 $
14,450,027
46,235
9,202
194,047
14,699,511
2,800
1,625,000
3,971,217
305,539
388,738
138,921
15,570
506,862
36,689,088
10,066,356 $
15,126,981
387,336
606,767
26,187,440
2,841,734
9,672
355,508
29,394,354
11,772,374
16,598,085
435,960
1,006,654
29,813,073
3,022,967
12,560
392,164
33,240,764
$
$
629,319
610,804
2,932,959
2,689,894
31,620
92,493
(41,743)
(1,086,864)
(32,973)
77,080
2,465,291
3,437,298
16,286
11,026
2,481,577
3,448,324
$
31,875,931 $
36,689,088
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
INTEREST INCOME
Interest and fees on loans
Interest on loans held for sale
Interest on investment securities
Interest on federal funds sold
Interest on securities purchased under agreements to resell
Interest on deposits with banks
Total interest income
INTEREST EXPENSE
Interest on deposits:
Savings, interest checking and money market
Certificates of deposit of less than $100,000
Certificates of deposit of $100,000 and over
Interest on federal funds purchased and securities sold under agreements to repurchase
Interest on other borrowings
Total interest expense
Net interest income
Provision for credit losses
Net interest income after credit losses
NON-INTEREST INCOME
Trust fees
Bank card transaction fees
Deposit account charges and other fees
Consumer brokerage services
Capital market fees
Loan fees and sales
Other
Total non-interest income
INVESTMENT SECURITIES GAINS, NET
NON-INTEREST EXPENSE
Salaries and employee benefits
Data processing and software
Net occupancy
Equipment
Supplies and communication
Marketing
Other
Total non-interest expense
Income before income taxes
Less income taxes
Net income
Less non-controlling interest expense (income)
Net income attributable to Commerce Bancshares, Inc.
Less preferred stock dividends
Net income available to common shareholders
Net income per common share - basic
Net income per common share - diluted
See accompanying notes to consolidated financial statements.
For the Years Ended December 31
2022
2021
2020
$
$
$
$
646,293 $
637
313,892
412
22,647
15,098
998,979
25,099
1,469
3,898
25,858
470
56,794
942,185
28,071
914,114
184,719
176,144
94,381
19,117
14,231
13,141
44,802
546,535
20,506
554,047
110,692
49,117
19,359
18,101
23,827
73,634
848,777
632,378
132,358
500,020
11,621
488,399
—
488,399 $
3.86 $
3.85 $
570,549 $
880
236,278
4
37,377
3,202
848,290
7,509
1,158
2,577
1,646
(24)
12,866
835,424
(66,326)
901,750
188,227
167,891
97,217
18,362
15,943
29,720
43,033
560,393
30,059
525,248
101,792
48,185
18,089
17,118
21,856
73,613
805,901
686,301
145,711
540,590
9,825
530,765
—
530,765 $
4.12 $
4.11 $
612,072
860
216,793
3
40,647
2,273
872,648
17,851
4,897
12,948
6,091
1,014
42,801
829,847
137,190
692,657
160,637
151,797
93,227
15,095
14,582
26,684
43,845
505,867
11,032
512,987
95,325
46,645
18,839
17,419
19,734
57,429
768,378
441,178
87,293
353,885
(172)
354,057
11,966
342,091
2.64
2.64
68
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive income (loss):
Net unrealized gains (losses) on other securities
Change in pension loss
Unrealized gains (losses) on cash flow hedge derivatives
Other comprehensive income (loss)
Comprehensive income (loss)
Less non-controlling interest (income) loss
For the Years Ended December 31
2022
2021
2020
$
500,020 $
540,590 $
353,885
(1,148,089)
3,482
(19,337)
(1,163,944)
(663,924)
11,621
(240,627)
4,450
(18,120)
(254,297)
286,293
9,825
161,728
(3,178)
62,383
220,933
574,818
(172)
Comprehensive income (loss) attributable to Commerce Bancshares, Inc.
$
(675,545) $
276,468 $
574,990
See accompanying notes to consolidated financial statements.
69
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Commerce Bancshares, Inc. Shareholders
(In thousands, except per share data)
Preferred
Stock
Common
Stock
Capital
Surplus
Retained
Earnings
Treasury
Stock
Accumulated
Other
Comprehensive
Income (Loss)
Non-
Controlling
Interest
Total
Balance at December 31, 2019
$ 144,784 $ 563,978 $ 2,151,464 $ 201,562 $
(37,548) $
110,444 $
3,788 $ 3,138,472
Adoption of ASU 2016-13
Balance at December 31, 2019, adjusted
144,784
563,978
2,151,464
3,766
205,328
354,057
(37,548)
110,444
3,788
3,142,238
(172)
353,885
3,766
(144,784)
(5,216)
220,933
(691)
Net income
Other comprehensive income
Distributions to non-controlling interest
Redemption of preferred stock
Purchases of treasury stock
Cash dividends paid on common stock
($.933 per share)
Cash dividends paid on preferred stock
($1.125 per depositary share)
Stock-based compensation
Issuance under stock purchase and equity
compensation plans
5% stock dividend, net
Balance at December 31, 2020
Net income
Other comprehensive loss
Distributions to non-controlling interest
Purchases of treasury stock
Sale of non-controlling interest of subsidiary
Cash dividends paid on common stock
($.952 per share)
Stock-based compensation
Issuance under stock purchase and equity
compensation plans
5% stock dividend, net
(120,818)
(6,750)
14,915
(24,271)
(54,163)
25,580
25,374
589,352
294,180
2,436,288
(353,601)
73,000
33,161
(32,970)
—
530,765
331,377
(254,297)
659
15,415
(21,799)
(122,693)
(129,361)
22,710
21,452
259,331
(388,579)
106,648
220,933
(691)
(150,000)
(54,163)
(120,818)
(6,750)
14,915
1,309
2,925
9,825
(886)
3,399,972
540,590
(254,297)
(1,065)
(1,065)
(129,361)
(659)
—
(122,693)
15,415
911
(1,148)
Balance at December 31, 2021
—
610,804
2,689,894
92,493
(32,973)
77,080
11,026
3,448,324
Net income
Other comprehensive loss
Distributions to non-controlling interest
Purchases of treasury stock
Cash dividends paid on common stock
($1.010 per share)
Stock-based compensation
Issuance under stock purchase and equity
compensation plans
5% stock dividend, net
488,399
11,621
500,020
(1,163,944)
(1,163,944)
(6,361)
(6,361)
(127,466)
16,995
(19,563)
(186,622)
21,468
18,515
245,633
(421,806)
156,384
(186,622)
(127,466)
16,995
1,905
(1,274)
Balance at December 31, 2022
$
— $ 629,319 $ 2,932,959 $
31,620 $
(41,743) $
(1,086,864) $ 16,286 $ 2,481,577
See accompanying notes to consolidated financial statements.
70
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Provision for depreciation and amortization
Amortization of investment security premiums, net
Deferred income tax (benefit) expense
Investment securities gains, net (A)
Net gains on sales of loans held for sale
Proceeds from sales of loans held for sale
Originations of loans held for sale
Net (increase) decrease in trading securities, excluding unsettled transactions
Purchase of interest rate floors
Stock-based compensation
(Increase) decrease in interest receivable
Increase (decrease) in interest payable
Increase (decrease) in income taxes payable
Proceeds from terminated interest rate floors
Other changes, net
Net cash provided by operating activities
INVESTING ACTIVITIES
Distributions received from equity-method investment
Proceeds from sales of investment securities (A)
Proceeds from maturities/pay downs of investment securities (A)
Purchases of investment securities (A)
Net (increase) decrease in loans
Securities purchased under agreements to resell
Repayments of securities purchased under agreements to resell
Purchases of premises and equipment
Sales of premises and equipment
Net cash provided by (used in) investing activities
FINANCING ACTIVITIES
For the Years Ended December 31
2022
2021
2020
$
500,020 $
540,590 $
353,885
28,071
46,856
18,805
21,716
(20,506)
(2,660)
123,656
(66,326)
137,190
44,866
66,934
25,613
(30,059)
(22,641)
576,864
43,769
59,863
(19,540)
(11,032)
(16,406)
297,267
(118,850)
(524,597)
(313,329)
4,152
(35,799)
16,995
(28,439)
3,054
(12,936)
—
15,250
559,385
400
106,971
(29,885)
—
15,415
19,788
(3,179)
(5,175)
—
(10,486)
597,722
(770)
—
14,915
(13,399)
(9,444)
12,345
156,740
(68,062)
623,992
13,540
80,811
—
602,477
2,691,260
3,459,106
2,673,510
(2,147,862)
(5,947,891)
(6,991,460)
(1,146,292)
1,134,533
(1,643,775)
(200,000)
(900,000)
1,000,000
125,000
—
—
(65,191)
(56,716)
(33,134)
2,985
8,859
1,878
242,271
(2,082,758)
(5,390,504)
Net increase (decrease) in non-interest bearing, savings, interest checking and money market deposits
(3,254,081)
3,291,466
6,316,100
Net decrease in certificates of deposit
Net increase (decrease) in federal funds purchased and short-term securities sold under agreements to
repurchase
Net increase (decrease) in other borrowings
Preferred stock redemption
Purchases of treasury stock
Issuance of stock under equity compensation plans
Cash dividends paid on common stock
Cash dividends paid on preferred stock
Net cash provided by (used in) financing activities
Increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Income tax payments, net
Interest paid on deposits and borrowings
Loans transferred to foreclosed real estate
(A) Available for sale debt securities, equity securities, and other securities.
See accompanying notes to consolidated financial statements.
(448,511)
(402,077)
(163,321)
(181,233)
924,584
(2,888)
—
11,758
—
(186,622)
(129,361)
(8)
(15)
247,611
(1,616)
(150,000)
(54,163)
(11)
(127,466)
(122,693)
(120,818)
—
—
(6,750)
(4,200,809)
3,573,662
(3,399,153)
2,088,626
4,296,954
2,208,328
6,067,032
1,300,520
907,808
$
$
897,801 $
4,296,954 $
2,208,328
116,995 $
53,740
119,665 $
16,045
457
182
90,066
52,245
93
71
Commerce Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Nature of Operations
Commerce Bancshares, Inc. and its subsidiaries (the Company) conducts its principal activities from approximately 275
branch and ATM locations throughout Missouri, Kansas, Illinois, Oklahoma and Colorado. Principal activities include retail
and commercial banking, investment management, securities brokerage, mortgage banking, trust, and private banking services.
The Company also maintains offices in Dallas, Houston, Cincinnati, Nashville, Des Moines, Indianapolis, and Grand Rapids
that support customers in its commercial and/or wealth segments and operates a commercial payments business with sales
representatives covering the continental U.S.
Basis of Presentation, Use of Estimates, and Subsequent Events
The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All material
inter-company transactions have been eliminated through consolidation. Certain prior year amounts have been reclassified to
conform to the current year presentation. Such reclassifications had no effect on net income or total assets.
The Company follows accounting principles generally accepted in the United States of America (GAAP) and reporting
practices applicable to the banking industry. The preparation of financial statements under GAAP requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes. These estimates
are based on information available to management at the time the estimates are made. While the consolidated financial
statements reflect management’s best estimates and judgments, actual results could differ from those estimates.
Management has evaluated subsequent events for potential recognition or disclosure through the date these consolidated
financial statements were issued.
The Company, in the normal course of business, engages in a variety of activities that involve variable interest entities
(VIEs). A VIE is a legal entity that lacks equity investors or whose equity investors do not have a controlling financial interest
in the entity through their equity investments. However, an enterprise is deemed to have a controlling financial interest and is
the primary beneficiary of a VIE if it has both the power to direct the activities of the VIE that most significantly impact the
VIE’s economic performance and an obligation to absorb losses or the right to receive benefits that could potentially be
significant to the VIE. An enterprise that is the primary beneficiary must consolidate the VIE. The Company’s interests in
VIEs are evaluated to determine if the Company is the primary beneficiary both at inception and when there is a change in
circumstances that requires a reconsideration.
The Company is considered to be the primary beneficiary in a rabbi trust related to a deferred compensation plan offered to
certain employees. The assets and liabilities of this trust, which are included in the accompanying consolidated balance sheets,
are not significant. The Company also has variable interests in certain entities in which it is not the primary beneficiary. These
entities are not consolidated. These interests include certain investments in entities accounted for using the equity method of
accounting, as well as affordable housing limited partnership interests, holdings in its investment portfolio of various asset and
mortgage-backed bonds that are issued by securitization trusts, and managed discretionary trust assets that are not included in
the accompanying consolidated balance sheets.
Adoption of ASU 2016-13
The Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments, and its related amendments (collectively known as “CECL”) on January 1, 2020. The Company adopted
CECL using the modified retrospective method for all financial assets measured at amortized cost and for unfunded lending
commitments. Results for reporting periods beginning on or after January 1, 2020 are presented under CECL, while prior period
amounts continue to be reported in accordance with previously applicable GAAP. The Company recorded a net increase to
retained earnings of $3.8 million as of January 1, 2020 for the cumulative effect of adopting CECL. The transition adjustment
included a decrease to the allowance for credit losses of $29.7 million related to the commercial loan portfolio, an increase to
the allowance for credit losses of $8.7 million related to the personal banking loan portfolio, an increase to the liability for
unfunded commitments of $16.1 million, and a tax impact of $1.2 million.
72
Cash, Cash Equivalents and Restricted Cash
In the accompanying consolidated statements of cash flows, cash and cash equivalents include “Cash and due from banks”,
“Federal funds sold and short-term securities purchased under agreements to resell”, and “Interest earning deposits with banks”
as segregated in the accompanying consolidated balance sheets. Restricted cash is comprised of cash collateral on deposit with
another financial institution to secure interest rate swap transactions. Restricted cash is included in other assets in the
consolidated balance sheets and totaled $6.7 million and $17.4 million at December 31, 2022 and 2021, respectively.
During 2020, the Federal Reserve System, which historically required the Bank to maintain cash balances at the Federal
Reserve Bank, reduced the reserve requirement ratios to zero percent effective March 26, 2020. Other interest earning cash
balances held at the Federal Reserve Bank totaled $389.1 million at December 31, 2022.
Loans and Related Earnings
The Company's portfolio of held-for-investment loans includes a net investment in direct financing and sales type leases to
commercial and industrial and tax-exempt entities, and collectively, the Company's portfolio of loans and leases is referred to as
its "loan portfolio" or "loans". Loans that management has the intent and ability to hold for the foreseeable future or until
maturity or pay-off are reported at amortized cost, excluding accrued interest receivable. Amortized cost is the outstanding
principal balance, net of any deferred fees and costs on originated loans. Origination fee income received on loans and amounts
representing the estimated direct costs of origination are deferred and amortized to interest income over the life of the loan
using the interest method.
Interest on loans is accrued based upon the principal amount outstanding. The Company has elected the practical expedient
to exclude all accrued interest receivable from all required disclosures of amortized cost. Additionally, an election was made
not to measure an allowance for credit losses for accrued interest receivables. The Company has also made the election that all
interest accrued but ultimately not received is reversed against interest income.
Loan and commitment fees, net of costs, are deferred and recognized in interest income over the term of the loan or
commitment as an adjustment of yield. Annual fees charged on credit card loans are capitalized to principal and amortized over
12 months to loan fees and sales. Other credit card fees, such as cash advance fees and late payment fees, are recognized in
income as an adjustment of yield when charged to the cardholder’s account.
Past Due Loans
Management reports loans as past due on the day following the contractual repayment date if payment was not received by
end of the business day. Loans, or portions of loans, are charged off to the extent deemed uncollectible. Loan charge-offs
reduce the allowance for credit losses on loans, and recoveries of loans previously charged off are added back to the allowance.
Business, business real estate, construction and land real estate, and personal real estate loans are generally charged down to
estimated collectible balances when they are placed on non-accrual status. Consumer loans and related accrued interest are
normally charged down to the fair value of related collateral (or are charged off in full if not collateralized) once the loans are
more than 120 to 180 days delinquent, depending on the type of loan. Revolving home equity loans are charged down to the
fair value of the related collateral once the loans are more than 180 days past due. Credit card loans are charged off against the
allowance for credit losses when the receivable is more than 180 days past due.
Non-Accrual Loans
Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable
and agreed upon terms of repayment. Business, construction real estate, business real estate, and personal real estate loans that
are contractually 90 days past due as to principal and/or interest payments are generally placed on non-accrual status, unless
they are both well-secured and in the process of collection. Consumer, revolving home equity and credit card loans are exempt
under regulatory rules from being classified as non-accrual. When a loan is placed on non-accrual status, any interest
previously accrued but not collected is reversed against current interest income, and the loan is charged off to the extent
uncollectible. Principal and interest payments received on non-accrual loans are generally applied to principal. Interest is
included in income only after all previous loan charge-offs have been recovered and is recorded only as received. The loan is
returned to accrual status only when the borrower has brought all past due principal and interest payments current, and, in the
opinion of management, the borrower has demonstrated the ability to make future payments of principal and interest as
scheduled. A six month history of sustained payment performance is generally required before reinstatement of accrual status.
73
Troubled Debt Restructurings
A loan is accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the
borrower's financial difficulties, grants 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.
Section 4013 of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was signed into law on
March 27, 2020, provided financial institutions an option to suspend the requirement to categorize certain loan modifications
related to the global Coronavirus Disease 2019 (COVID-19) pandemic as troubled debt restructurings. The 2021 Consolidated
Appropriations Act signed on December 27, 2020 extends this temporary suspension through January 1, 2022. The Company
elected such option from March 27, 2020 through December 31, 2021. Refer to Note 2 for additional information.
Loans Held For Sale
Loans held for sale include student loans and certain fixed rate residential mortgage loans. These loans are typically
classified as held for sale upon origination based upon management's intent to sell the production of these loans. The student
loans are carried at the lower of aggregate cost or fair value, and their fair value is determined based on sale contract prices.
The mortgage loans are carried at fair value under the elected fair value option. Their fair value is based on secondary market
prices for loans with similar characteristics, including an adjustment for embedded servicing value. Changes in fair value and
gains and losses on sales are included in loan fees and sales. Deferred fees and costs related to these loans are not amortized but
are recognized as part of the cost basis of the loan at the time it is sold. Interest income related to loans held for sale is accrued
based on the principal amount outstanding and the loan's contractual interest rate.
Occasionally, other types of loans may be classified as held for sale in order to manage credit concentration. These loans
are carried at the lower of cost or fair value with gains and losses on sales recognized in loan fees and sales.
Allowance for Credit Losses on Loans
The allowance for credit losses on loans is a valuation amount that is deducted from the amortized cost basis of loans not
held at fair value to present the net amount expected to be collected over the contractual term of the loans. The allowance for
credit losses on loans is measured using 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. An allowance will be created upon origination or acquisition
of a loan and is updated at subsequent reporting dates. The methodology is applied consistently for each reporting period and
reflects management’s current expectations of credit losses. Changes to the allowance for credit losses on loans resulting from
periodic evaluations are recorded through increases or decreases to the credit loss expense for loans, which is recorded in
provision for credit losses on the consolidated statements of income. Loans that are deemed to be uncollectible are charged off
against the related allowance for credit losses on loans.
The allowance for credit losses on loans 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. The allowance for credit
losses on a troubled debt restructuring which continues to accrue interest is also measured on a collective basis. Loans that do
not share similar risk characteristics, primarily large loans on non-accrual status, are evaluated on an individual basis. The
allowance related to these large non-accrual loans is measured using the fair value of the collateral (less selling cost, if
applicable) as most of these loans are collateral dependent and the borrower is facing financial difficulty.
As noted above, the allowance for credit losses on loans does not include an allowance for accrued interest.
Liability for Unfunded Lending Commitments
The Company’s unfunded lending commitments are primarily unfunded loan commitments and letters of credit. Expected
credit losses for these unfunded lending commitments are calculated over the contractual period during which the Company is
exposed to the credit risk. The methodology used to measure credit losses for unfunded lending commitments is the same as
the methodology used for loans, however, the estimate of credit risk for unfunded lending commitments takes into
74
consideration the likelihood that funding will occur. The liability for unfunded lending commitments excludes any exposures
that are unconditionally cancellable by the Company. The loss estimate is recorded within other liabilities on the consolidated
balance sheet. Changes to the liability for unfunded lending commitments are recorded through increases or decreases to the
provision for credit losses on the consolidated statements of income.
Direct Financing and Sales Type Leases
The net investment in direct financing and sales type leases is included in loans on the Company’s consolidated balance
sheets and consists of the present values of the sum of the future minimum lease payments and estimated residual value of the
leased asset. Revenue consists of interest earned on the net investment and is recognized over the lease term as a constant
percentage return thereon.
Investments in Debt and Equity Securities
The majority of the Company's investment portfolio is comprised of debt securities that are classified as available for sale.
From time to time, the Company sells securities and utilizes the proceeds to reduce borrowings, fund loan growth, or modify its
interest rate profile. Securities classified as available for sale are carried at fair value. Changes in fair value are reported in
other comprehensive income (loss), a component of stockholders’ equity. Securities are periodically evaluated for credit losses
in accordance with the guidance provided in Accounting Standards Codification (ASC) 326. Further discussion of this
evaluation is provided in "Allowance for Credit Losses on Available for Sale Debt Securities" below. Gains and losses realized
upon sales of securities are calculated using the specific identification method and are included in investment securities gains
(losses), net, in the consolidated statements of income. Purchase premiums and discounts are amortized to interest income
using a level yield method over the estimated lives of the securities. For certain callable debt securities purchased at a
premium, the amortization is recorded to the earliest call date. For mortgage and asset-backed securities, prepayment
experience is evaluated quarterly to determine if a change in a bond's estimated remaining life is necessary. A corresponding
adjustment is then made in the related amortization of premium or discount accretion.
Accrued interest receivable on available for sale debt securities is reported in other assets on the consolidated balance sheet.
The Company has elected the practical expedient to exclude the accrued interest from all required disclosures of amortized cost
of debt securities. Additionally, an election was made not to measure an allowance for credit losses for accrued interest
receivables. Interest accrued but not received is reversed against interest income.
Equity securities include common and preferred stock and are carried at fair value. Certain equity securities do not have
readily determinable fair values. The Company has elected under ASU 2016-01 to measure these equity securities without a
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. The Company has not recorded any impairment or other adjustments
to the carrying amount of these equity securities without readily determinable fair values.
Other securities include the Company's investments in Federal Reserve Bank stock and Federal Home Loan Bank stock,
equity method investments, and private equity investments. Federal Reserve Bank stock and Federal Home Loan Bank stock
are held for debt and regulatory purposes, are carried at cost and are periodically evaluated for impairment. 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. The Company's private equity investments in portfolio concerns, consisting of both debt and equity instruments, are
held by the Company’s private equity subsidiary, which is a small business investment company licensed by the Small Business
Administration. The Company's private equity investments are carried at fair value in accordance with investment company
accounting guidance (ASC 946-10-15), with changes in fair value reported in current income. In the absence of readily
ascertainable market values, fair value is estimated using internally developed methods. Changes in fair value which are
recognized in current income and gains and losses from sales are included in investment securities gains (losses), net, in the
consolidated statements of income.
Trading account securities, which are debt securities bought and held principally for the purpose of resale in the near term,
are carried at fair value. Gains and losses, both realized and unrealized, are recorded in non-interest income.
Purchases and sales of securities are recognized on a trade date basis. A receivable or payable is recognized for transaction
pending settlements.
Allowance for Credit Losses on Available for Sale Debt Securities
For available for sale debt securities in an unrealized loss position, the entire loss in fair value is required to be recognized in
current earnings if the Company intends to sell the securities or believes it more likely than not that it will be required to sell the
75
security before the anticipated recovery. If neither condition is met, and the Company does not expect to recover the amortized
cost basis, the Company determines whether the decline in fair value resulted from credit losses or other factors. If the
assessment indicates that a credit loss exists, the present value of cash flows expected to be collected is compared to the
amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost
basis, a credit loss has occurred, and an allowance for credit losses is recorded. The allowance for credit losses is limited by the
amount that the fair value is less than the amortized cost basis. Any impairment not recorded through the provision for credit
losses is recognized in other comprehensive income.
Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses on the consolidated
statements of income. Losses are charged against the allowance for credit losses on securities when management believes the
uncollectibility of an available for sale security is confirmed or when either of the conditions regarding intent or requirement to
sell is met.
Accrued interest receivable on available for sale debt securities is excluded from the estimate of credit losses.
Securities Purchased under Agreements to Resell and Securities Sold under Agreements to Repurchase
Securities purchased under agreements to resell and securities sold under agreements to repurchase are treated as
collateralized financing transactions, not as purchases and sales of the underlying securities. The agreements are recorded at the
amount of cash advanced or received.
The Company periodically enters into securities purchased under agreements to resell with large financial institutions.
Securities pledged by the counterparties to secure these agreements are delivered to a third party custodian.
Securities sold under agreements to repurchase are a source of funding to the Company and are offered to cash management
customers as an automated, collateralized investment account. From time to time, securities sold may also be used by the Bank
to obtain additional borrowed funds at favorable rates. These borrowings are secured by a portion of the Company's investment
security portfolio and delivered either to the dealer custody account at the Federal Reserve Bank or to the applicable
counterparty.
The fair value of collateral either received from or provided to a counterparty is monitored daily, and additional collateral is
obtained, returned, or provided by the Company in order to maintain full collateralization for these transactions.
As permitted by current accounting guidance, the Company offsets certain securities purchased under agreements to resell
against securities sold under agreements to repurchase in its balance sheet presentation. These agreements are further discussed
in Note 20, Resale and Repurchase Agreements.
Premises and Equipment
Land is stated at cost, and buildings and equipment are stated at cost, including capitalized interest when appropriate, less
accumulated depreciation. Depreciation is computed using a straight-line method, utilizing estimated useful lives; generally 30
to 40 years for buildings, 10 years for building improvements, and 3 to 10 years for equipment. Leasehold improvements are
amortized over the shorter of 10 years or the remaining lease term. Maintenance and repairs are charged to non-interest
expense as incurred.
Also included in premises and equipment is construction in process, which represents facilities construction projects
underway that have not yet been placed into service, as well as the Company's right-of-use leased assets, which are mainly
comprised of operating leases for branches, office space, ATM locations, and certain equipment.
Foreclosed Assets
Foreclosed assets consist of property that has been repossessed and is comprised of commercial and residential real estate
and other non-real estate property, including auto and recreational and marine vehicles. The assets are initially recorded at fair
value less estimated selling costs, establishing a new cost basis. Initial valuation adjustments are charged to the allowance for
credit losses. Fair values are estimated primarily based on appraisals, third-party price opinions, or internally developed pricing
models. After initial recognition, fair value estimates are updated periodically. Declines in fair value below cost are recognized
through valuation allowances which may be reversed when supported by future increases in fair value. These valuation
adjustments, in addition to gains and losses realized on sales and net operating expenses, are recorded in other non-interest
expense. Foreclosed assets are included in other assets on the consolidated balance sheets.
76
Goodwill and Intangible Assets
Goodwill and intangible assets that have indefinite useful lives, such as property easement intangible assets, are not
amortized but are assessed for impairment on an annual basis or more frequently in certain circumstances. When testing for
goodwill impairment, the Company may initially perform a qualitative assessment. Based on the results of this qualitative
assessment, if the Company concludes it is more likely than not that a reporting unit's fair value is less than its carrying amount,
a quantitative analysis is performed. Quantitative valuation methodologies include a combination of formulas using current
market multiples, based on recent sales of financial institutions within the Company's geographic marketplace. If the fair value
of a reporting unit is less than the carrying amount, an impairment has occurred and is measured as the amount by which the
carrying amount exceeds the reporting unit's fair value. The Company has not recorded impairment resulting from goodwill
impairment tests. However, adverse changes in the economic environment, operations of the reporting unit, or other factors
could result in a decline in fair value.
Intangible assets that have finite useful lives, such as core deposit intangibles and mortgage servicing rights, are amortized
over their estimated useful lives. Core deposit intangibles are generally amortized over periods of 8 to 14 years, representing
their estimated lives, using accelerated methods. Mortgage servicing rights are amortized in proportion to and over the period of
estimated net servicing income, considering appropriate prepayment assumptions. Core deposit intangibles are reviewed for
impairment whenever events or changes in circumstances indicate their carrying amount may not be recoverable. Impairment is
indicated if the sum of the undiscounted estimated future net cash flows is less than the carrying value of the intangible asset.
Mortgage servicing rights, while initially recorded at fair value, are subsequently amortized and carried at the lower of the
initial capitalized amount (net of accumulated amortization), or estimated fair value. The Company evaluates its mortgage
servicing rights for impairment on a quarterly basis, using estimated prepayment speeds of the underlying mortgage loans
serviced and stratifications based on the risk characteristics of the underlying loans. A valuation allowance has been established,
through a charge to earnings, to the extent the amortized cost exceeds the estimated fair value. However, the Company has not
recorded other-than-temporary impairment losses on its intangible assets.
Income Taxes
Amounts provided for income tax expense are based on income reported for financial statement purposes and do not
necessarily represent amounts currently payable under tax laws. Deferred income taxes are provided for temporary differences
between the financial reporting bases and income tax bases of the Company’s assets and liabilities, net operating losses, and tax
credit carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply to
taxable income when such assets and liabilities are anticipated to be settled or realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized as tax expense or benefit in the period that includes the enactment date of the
change. In determining the amount of deferred tax assets to recognize in the financial statements, the Company evaluates the
likelihood of realizing such benefits in future periods. A valuation allowance is established if it is more likely than not that all
or some portion of the deferred tax asset will not be realized. The Company recognizes interest and penalties related to income
taxes within income tax expense in the consolidated statements of income.
The Company and its eligible subsidiaries file a consolidated federal income tax return. State and local income tax returns
are filed on a combined, consolidated or separate return basis based upon each jurisdiction’s laws and regulations.
Additional information about current and deferred income taxes is provided in Note 9, Income Taxes.
Non-Interest Income
Non-interest income is mainly comprised of revenue from contracts with customers. For that revenue (excluding certain
revenue associated with financial instruments, derivative and hedging instruments, guarantees, lease contracts, transferring and
servicing of financial assets, and other specific revenue transactions), the Company applies the following five-step approach
when recognizing revenue: (i) identify the contract with the customer, (ii) identify the performance obligations, (iii) determine
the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as)
the performance obligation is satisfied. The Company’s contracts with customers are generally short term in nature, with a
duration of one year or less, and most contracts are cancellable by either the Company or its customer without penalty.
Performance obligations for customer contracts are generally satisfied at a single point in time, typically when the transaction is
complete and the customer has received the goods or service, or over time. For performance obligations satisfied over time, the
Company recognizes the value of the goods or services transferred to the customer when the performance obligations have been
transferred and received by the customer. Payments for satisfied performance obligations are typically due when or as the
goods or services are completed, or shortly thereafter, which usually occurs within a single financial reporting period.
77
In situations where payment is made before the performance obligation is satisfied, the fees are deferred until the
performance obligations pertaining to those goods or services are completed. In cases where payment has not been received
despite satisfaction of its performance obligations, the Company accrues an estimate of the amount due in the period that the
performance obligations have been satisfied. For contracts with variable components, the Company only recognizes revenue to
the extent that it is probable that the cumulative amount recognized will not be subject to a significant reversal in future periods.
Generally, the Company’s contracts do not include terms that require significant judgment to determine whether a variable
component is included within the transaction price. The Company generally acts in a principal capacity, on its own behalf, in
most of its contracts with customers. For these transactions, revenue and the related costs to provide the goods or services are
presented on a gross basis in the financial statements. In some cases, the Company acts in an agent capacity, deriving revenue
through assisting third parties in transactions with the Company’s customers. In such transactions, revenue and the related costs
to provide services is presented on a net basis in the financial statements. These transactions primarily relate to fees earned
from bank card and related network and rewards costs and the sales of annuities and certain limited insurance products.
Derivatives
Most of the Company's derivative contracts are accounted for as free-standing instruments. These instruments are carried at
fair value, and changes in fair value are recognized in current earnings. They include interest rate swaps and caps, which are
offered to customers to assist in managing their risks of adverse changes in interest rates. Each contract between the Company
and a customer is offset by a contract between the Company and an institutional counterparty, thus minimizing the Company's
exposure to rate changes. The Company also enters into certain contracts, known as credit risk participation agreements, to buy
or sell credit protection on specific interest rate swaps. It also purchases and sells forward foreign exchange contracts, either in
connection with customer transactions, or for its own trading purposes. Additionally, the Company originates and sells certain
personal real estate mortgages. Derivative instruments under this program include mortgage loan commitments, forward loan
sale contracts, and forward contracts to sell certain to-be-announced (TBA) securities.
The Company's interest rate risk management policy permits the use of hedge accounting for derivatives, and the Company
has entered into interest rate floor contracts as protection from the potential for declining interest rates in the commercial loan
portfolio. These floors were designated and qualified as cash flow hedges. In a cash flow hedge, the changes in fair value are
recorded in accumulated other comprehensive income and recognized in the income statement when the hedged cash flows
affect earnings. Both at hedge inception and on an ongoing basis, the Company assesses whether the interest rate floors used in
the hedging relationships are highly effective in offsetting changes in the cash flows of the hedged items. From time to time, the
Company has monetized its interest rate floors that had previously been designated and qualified as cash flow hedges. In such
case, the monetized cash flow hedge is derecognized and the amounts recorded in accumulated other comprehensive income
(AOCI) remain in AOCI until the underlying forecasted transaction impacts earnings, unless the forecasted transaction becomes
probable of not occurring.
The Company has master netting arrangements with various counterparties but does not offset derivative assets and
liabilities under these arrangements in its consolidated balance sheets. However, interest rate swaps that are executed under
central clearing requirements are presented net of variation margin as mandated by the statutory terms of the Company's
contract with its clearing counterparty.
Additional information about derivatives held by the Company and valuation methods employed is provided in Note 17,
Fair Value Measurements and Note 19, Derivative Instruments.
Pension Plan
The Company’s pension plan is described in Note 10, Employee Benefit Plans. In accordance with ASU 2017-07, the
Company has reported the service cost component of net periodic pension cost in salaries and employee benefits in the
accompanying consolidated statements of income, while the other components are reported in other non-interest expense. The
funded status of the plan is recognized as an other asset or other liability in the consolidated balance sheets, and changes in that
funded status are recognized in the year in which the changes occur through other comprehensive income. Plan assets and
benefit obligations are measured as of the fiscal year end of the plan. The measurement of the projected benefit obligation and
pension expense involve actuarial valuation methods and the use of various actuarial and economic assumptions. The Company
monitors the assumptions and updates them periodically. Due to the long-term nature of the pension plan obligation, actual
results may differ significantly from estimations. Such differences are adjusted over time as the assumptions are replaced by
facts and values are recalculated.
78
Stock-Based Compensation
The Company’s stock-based compensation plan is described in Note 11, Stock-Based Compensation and Directors Stock
Purchase Plan. In accordance with the requirements of ASC 718-10-30-3 and 35-2, the Company measures the cost of stock-
based compensation based on the grant-date fair value of the award, recognizing the cost over the requisite service period,
which is generally the vesting period. The fair value of stock appreciation rights is estimated using the Black-Scholes option-
pricing model while the fair value of a nonvested stock award is the common stock (CBSH) market price. The expense
recognized for stock-based compensation is included in salaries and benefits in the accompanying consolidated statements of
income. The Company recognizes forfeitures as a reduction to expense only when they have occurred.
Treasury Stock
Purchases of the Company’s common stock are recorded at cost. Upon re-issuance for acquisitions, exercises of stock-based
awards or other corporate purposes, treasury stock is reduced based upon the average cost basis of shares held.
Income per Share
Basic income per share is computed using the weighted average number of common shares outstanding during each year.
Diluted income per share includes the effect of all dilutive potential common shares (primarily stock appreciation rights)
outstanding during each year. The Company applies the two-class method of computing income per share. The two-class
method is an earnings allocation formula that determines income per share for common stock and for participating securities,
according to dividends declared and participation rights in undistributed earnings. The Company’s nonvested stock awards are
considered to be a class of participating security. All per share data has been restated to reflect the 5% stock dividend
distributed in December 2022.
79
2. Loans and Allowance for Credit Losses
Major classifications within the Company’s held for investment loan portfolio at December 31, 2022 and 2021 are as
follows:
(In thousands)
Commercial:
Business
Real estate — construction and land
Real estate — business
Personal Banking:
Real estate — personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans (1)
2022
2021
$
5,661,725 $
5,303,535
1,361,095
1,118,266
3,406,981
3,058,837
2,918,078
2,805,401
2,059,088
2,032,225
297,207
584,000
14,957
275,945
575,410
6,740
$
16,303,131 $
15,176,359
(1) Accrued interest receivable totaled $55.5 million and $25.9 million at December 31, 2022 and 2021, respectively, and was included within other assets on
the consolidated balance sheet. For the year ended December 31, 2022, the Company wrote-off accrued interest by reversing interest income of $145 thousand
and $3.2 million in the Commercial and Personal Banking portfolios, respectively.
Loans to directors and executive officers of the Parent and the Bank, and to their affiliates, are summarized as follows:
(In thousands)
Balance at January 1, 2022
Additions
Amounts collected
Amounts written off
Balance, December 31, 2022
$
36,141
16,999
(15,372)
—
$
37,768
Management believes all loans to directors and executive officers have been made in the ordinary course of business with
normal credit terms, including interest rate and collateral considerations, and do not represent more than a normal risk of
collection. The activity in the table above includes draws and repayments on several lines of credit with business entities. There
were no outstanding loans at December 31, 2022 to principal holders (over 10% ownership) of the Company’s common stock.
The Company’s lending activity is generally centered in Missouri, Kansas, Illinois and other nearby states including
Oklahoma, Colorado, Iowa, Ohio, and Texas. The Company maintains a diversified portfolio with limited industry
concentrations of credit risk. Loans and loan commitments are extended under the Company’s normal credit standards, controls,
and monitoring procedures. Most loan commitments are short or intermediate term in nature. Commercial loan maturities
generally range from one to seven years. Collateral is commonly required and would include such assets as marketable
securities, cash equivalent assets, accounts receivable, inventory, equipment, other forms of personal property, and real estate.
At December 31, 2022, unfunded loan commitments totaled $14.3 billion (which included $5.2 billion in unused approved lines
of credit related to credit card loan agreements) which could be drawn by customers subject to certain review and terms of
agreement. At December 31, 2022, loans totaling $3.0 billion were pledged at the FHLB as collateral for borrowings and letters
of credit obtained to secure public deposits. Additional loans of $1.3 billion were pledged at the Federal Reserve Bank as
collateral for discount window borrowings.
The Company has a net investment in direct financing and sales type leases to commercial and industrial and tax-exempt
entities of $779.9 million and $725.6 million at December 31, 2022 and 2021, respectively, which is included in business loans
on the Company’s consolidated balance sheets. This investment includes deferred income of $73.2 million and $55.0 million at
December 31, 2022 and 2021, respectively.
80
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, unemployment rate, various
interest rates, consumer price index (CPI) inflation rate, housing price index (HPI), commercial real estate price index (CREPI)
and market volatility. The adjustments are based on results from various regression models projecting the impact of the
macroeconomic variables to loss rates. The forecast is used for a reasonable and supportable period before reverting back to
historical averages using a straight-line method. The forecast adjusted loss rate is applied to the amortized cost of loans over
the remaining contractual lives, adjusted for expected prepayments. The contractual term excludes expected extensions (except
for contractual extensions at the option of the customer), renewals and modifications unless there is a reasonable expectation
that a troubled debt restructuring will be executed. 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.
81
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 December 31, 2022 and 2021 are discussed below.
Key Assumption
Overall economic
forecast
Reasonable and
supportable period and
related reversion period
Forecasted macro-
economic variables
December 31, 2022
December 31, 2021
•
•
•
•
•
•
•
•
Continued high inflation and higher cost of
borrowing create a mild recession in 2023
with stalled job growth and possible job
losses
Assumes interest rates hikes will taper
Reasonable and supportable period of one
year
Reversion to historical average loss rates
within two quarters using a straight-line
method
Unemployment rate ranging from 3.8% to
4.7% during the reasonable and
supportable forecast period
Real GDP growth ranging from (.9)% to
1.3%
Prime rate from 7.6% to 7.7%
BBB corporate yield from 5.1% to 5.8%
•
•
•
•
•
•
•
•
•
•
Continued recovery from the Global
Coronavirus Recession (GCR)
Assumes improving health conditions
Assumes gradual easing of supply
constraints
Continued uncertainty regarding the health
crisis
Uncertainty regarding rising inflation
Reasonable and supportable period of one
year
Reversion to historical average loss rates
within two quarters using a straight-line
method
Unemployment rate ranging from 4.1% to
3.7% during the reasonable and
supportable forecast period
Real GDP growth ranges from 5.0% to
3.4%
Prime rate of 3.25% through the second
quarter of 2022, increasing to 3.5% by the
end of 2022
Prepayment assumptions Commercial loans
•
5% for most loan pools
Personal banking loans
Commercial loans
•
5% for most loan pools
Personal banking loans
•
•
Ranging from 8.3% to 24.8% for most
loan pools
67.9% for consumer credit cards
•
•
Ranging from 28.0% to 16.5% for most
loan pools
64.1% for consumer credit cards
Qualitative factors
Added qualitative factors related to:
•
•
•
•
Certain portfolios sensitive to pandemic
economic uncertainties
Changes in the composition of the loan
portfolios
Uncertainty related to unusually high rate
of inflation and supply chain issues
Loans downgraded to special mention,
substandard, or non-accrual status
Added net reserves using qualitative processes
related to:
•
Loans originated in our expansion markets,
loans that are designated as shared national
credits, and certain portfolios sensitive to
pandemic economic uncertainties
Changes in the composition of the loan
portfolios
Loans downgraded to special mention,
substandard, or non-accrual status
•
•
The liability for unfunded lending commitments utilizes the same model as the allowance for credit losses on loans,
however, the liability for unfunded lending commitments incorporates an assumption for the portion of unfunded commitments
that are expected to be funded.
Sensitivity in the Allowance for Credit Loss model
The allowance for credit losses is an estimate that requires significant judgment including projections of the macro-
economic environment. The forecasted macro-economic environment continuously changes which can cause fluctuations in
estimated expected credit losses.
The current forecast continues to reflect a mild recession in 2023 due to high inflation, higher interest rates, and a weaker
job market. The impacts of the stressed geopolitical environment, trends in health conditions, and market responses to the
usually high inflation could significantly modify economic projections used in the estimation of the allowance for credit losses
and liability for unfunded lending commitments.
82
A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments
during the years ended December 31, 2022 and 2021 follows:
(In thousands)
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance December 31, 2021
Provision for credit losses on loans
Deductions:
Loans charged off
Less recoveries on loans
Net loan charge-offs
Balance December 31, 2022
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance December 31, 2021
Provision for credit losses on unfunded lending commitments
Balance December 31, 2022
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR
UNFUNDED LENDING COMMITMENTS
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at December 31, 2020
Provision for credit losses on loans
Deductions:
Loans charged off
Less recoveries on loans
Net loan charge-offs (recoveries)
Balance December 31, 2021
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance at December 31, 2020
Provision for credit losses on unfunded lending commitments
Balance December 31, 2021
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND UNFUNDED LENDING
COMMITMENTS
For the Year Ended December 31
Commercial
Personal
Banking
Total
$
97,776 $
52,268 $
150,044
6,550
12,605
19,155
1,480
27,762
447
9,732
1,033
18,030
29,242
10,179
19,063
$
103,293 $
46,843 $
150,136
$
$
$
23,271 $
933 $
24,204
8,472
444
8,916
31,743 $
1,377 $
33,120
135,036 $
48,220 $
183,256
121,549
99,285
220,834
(28,594)
(23,629)
(52,223)
968
5,789
(4,821)
34,659
11,271
23,388
35,627
17,060
18,567
$
97,776 $
52,268 $
150,044
37,259
(13,988)
1,048
38,307
(115)
(14,103)
23,271 $
933 $
24,204
121,047 $
53,201 $
174,248
$
$
83
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 December 31, 2022 and
2021.
(In thousands)
December 31, 2022
Commercial:
Business
Real estate – construction and land
Real estate – business
Personal Banking:
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total
December 31, 2021
Commercial:
Business
Real estate – construction and land
Real estate – business
Personal Banking:
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total
Current or Less
Than 30 Days
Past Due
30 – 89 Days
Past Due
90 Days Past Due
and Still Accruing
Non-accrual
Total
$
5,652,710 $
1,759 $
505 $
6,751 $
5,661,725
1,361,095
3,406,207
2,895,742
2,031,827
295,303
572,213
14,090
—
585
14,289
25,089
1,201
6,238
647
—
—
6,681
2,172
703
5,549
220
—
189
1,361,095
3,406,981
1,366
2,918,078
—
—
—
—
2,059,088
297,207
584,000
14,957
$
16,229,187 $
49,808 $
15,830 $
8,306 $
16,303,131
$
5,292,125 $
3,621 $
477 $
7,312 $
5,303,535
1,117,434
3,058,566
2,796,662
2,005,556
274,372
565,335
6,425
832
57
4,125
24,458
772
4,821
315
—
—
2,983
2,211
801
5,254
—
—
214
1,118,266
3,058,837
1,631
2,805,401
—
—
—
—
2,032,225
275,945
575,410
6,740
$
15,116,475 $
39,001 $
11,726 $
9,157 $
15,176,359
At December 31, 2022 and 2021, the Company had $3.8 million and $5.3 million, respectively, of non-accrual business
loans that had no allowance for credit loss. The Company did not record any interest income on non-accrual loans during the
years ended December 31, 2022 and 2021.
84
Credit quality indicators
The following table provides information about the credit quality of the Commercial loan portfolio. The Company utilizes
an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the
expectation of debt repayment based on borrower specific information, including but not limited to, current financial
information, historical payment experience, industry information, collateral levels and collateral types. The “pass” category
consists of a range of loan grades that reflect increasing, though still acceptable, risk. A loan is assigned the risk rating at
origination and then monitored throughout the contractual term for possible risk rating changes. Movement of risk through the
various grade levels in the “pass” category is monitored for early identification of credit deterioration. The “special mention”
rating is applied to loans where the borrower exhibits negative financial trends due to borrower specific or systemic conditions
that, if left uncorrected, threaten its capacity to meet its debt obligations. The borrower is believed to have sufficient financial
flexibility to react to and resolve its negative financial situation. It is a transitional grade that is closely monitored for
improvement or deterioration. The “substandard” rating is applied to loans where the borrower exhibits well-defined
weaknesses that jeopardize its continued performance and are of a severity that the distinct possibility of default exists. Loans
are placed on “non-accrual” when management does not expect to collect payments consistent with acceptable and agreed upon
terms of repayment.
All loans are analyzed for risk rating updates annually. For larger loans, rating assessments may be more frequent if
relevant information is obtained earlier through debt covenant monitoring or overall relationship management. Smaller loans
are monitored as identified by the loan officer based on the risk profile of the individual borrower or if the loan becomes past
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.
85
The risk category of loans in the Commercial portfolio as of December 31, 2022 and 2021 are as follows:
(In thousands)
December 31, 2022
Business
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Business:
Real estate-construction
Risk Rating:
Pass
Special mention
Substandard
Total Real estate-
construction:
Real estate- business
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Real-estate business:
Commercial loans
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Commercial loans:
Term Loans Amortized Cost Basis by Origination Year
2022
2021
2020
2019
2018
Prior
Revolving
Loans
Amortized
Cost Basis
Total
$ 1,456,476 $ 782,409 $ 464,201 $ 360,844 $ 180,375 $ 219,053 $ 2,146,380 $ 5,609,738
15,867
1,063
29,369
37
6,751
1
$ 1,465,536 $ 796,948 $ 472,643 $ 361,945 $ 182,044 $ 233,171 $ 2,149,438 $ 5,661,725
2,548
10,004
1,987
—
10,342
3,776
1,319
1,739
—
3,113
5,752
195
7,757
685
—
67
810
792
$ 538,022 $ 596,465 $ 129,632 $
—
—
—
19,494
352
—
27,331 $
—
—
1,305 $
—
14,766
2,029 $
—
13,140
18,559 $ 1,313,343
352
47,400
—
—
$ 538,374 $ 615,959 $ 129,632 $
27,331 $
16,071 $
15,169 $
18,559 $ 1,361,095
$ 1,085,379 $ 616,516 $ 555,648 $ 424,641 $ 163,628 $ 271,579 $
279
46,232
6
$ 1,092,796 $ 647,505 $ 617,407 $ 444,868 $ 195,510 $ 318,096 $
9,737
10,490
—
976
30,782
124
—
30,944
45
618
61,141
—
4,608
2,795
14
90,799 $ 3,208,190
16,218
182,384
189
90,799 $ 3,406,981
—
—
—
$ 3,079,877 $ 1,995,390 $ 1,149,481 $ 812,816 $ 345,308 $ 492,661 $ 2,255,738 $ 10,131,271
32,437
10,800
259,153
10,527
6,940
1
$ 3,096,706 $ 2,060,412 $ 1,219,682 $ 834,144 $ 393,625 $ 566,436 $ 2,258,796 $ 10,429,801
279
69,714
3,782
8,375
61,826
—
1,043
46,358
916
2,548
60,442
2,032
8,073
8,547
209
1,319
1,739
—
86
(In thousands)
December 31, 2021
Business
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Business:
Real estate-construction
Risk Rating:
Pass
Special mention
Substandard
Total Real estate-
construction:
Real estate- business
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Real-estate business:
Commercial loans
Risk Rating:
Pass
Special mention
Substandard
Non-accrual
Total Commercial loans:
Term Loans Amortized Cost Basis by Origination Year
2021
2020
2019
2018
2017
Prior
Revolving
Loans
Amortized
Cost Basis
Total
$ 1,473,869 $ 704,157 $ 554,759 $ 248,739 $ 159,238 $ 270,454 $ 1,795,073 $ 5,206,289
52,804
37,130
7,312
$ 1,476,920 $ 705,474 $ 581,191 $ 267,274 $ 160,729 $ 289,793 $ 1,822,154 $ 5,303,535
3,232
10,775
5,332
17,576
8,855
1
12,050
4,936
1,549
16,545
10,536
—
1,490
1
—
1,785
836
430
126
1,191
—
$ 598,734 $ 346,507 $
—
11,620
44,649
485
66,985 $
—
—
2,110 $
985
14,896
2,655 $
—
13,158
2,252 $
—
—
13,230 $ 1,032,473
45,634
40,159
—
—
$ 643,868 $ 358,127 $
66,985 $
17,991 $
15,813 $
2,252 $
13,230 $ 1,118,266
$ 775,561 $ 712,173 $ 551,697 $ 230,138 $ 170,888 $ 254,489 $
2,103
45,265
25
$ 796,651 $ 805,434 $ 575,127 $ 270,229 $ 231,890 $ 301,882 $
37,576
2,326
189
2,068
58,934
—
10,500
12,930
—
4,011
17,079
—
30,322
62,939
—
76,641 $ 2,771,587
86,581
200,455
214
77,624 $ 3,058,837
1
982
—
$ 2,848,164 $ 1,762,837 $ 1,173,441 $ 480,987 $ 332,781 $ 527,195 $ 1,884,944 $ 9,010,349
185,019
277,744
7,526
$ 2,917,439 $ 1,869,035 $ 1,223,303 $ 555,494 $ 408,432 $ 593,927 $ 1,913,008 $ 9,480,638
28,076
21,785
1
50,611
22,158
1,738
3,558
72,093
—
30,448
75,750
—
5,335
56,040
5,357
50,445
18,400
430
16,546
11,518
—
87
The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information
is provided as of December 31, 2022 and 2021 below:
(In thousands)
December 31, 2022
Real estate-personal
Current to 90 days past due
Over 90 days past due
Non-accrual
Total Real estate-personal:
Consumer
Current to 90 days past due
Over 90 days past due
Total Consumer:
Revolving home equity
Current to 90 days past due
Over 90 days past due
Total Revolving home equity:
Consumer credit card
Current to 90 days past due
Over 90 days past due
Total Consumer credit card:
Overdrafts
Current to 90 days past due
Over 90 days past due
Total Overdrafts:
Personal banking loans
Current to 90 days past due
Over 90 days past due
Non-accrual
Total Personal banking loans:
Term Loans Amortized Cost Basis by Origination Year
2022
2021
2020
2019
2018
Prior
$ 535,283 $ 589,658 $ 783,651 $ 290,580 $ 132,305 $ 568,380 $
2,393
1,043
$ 535,797 $ 590,625 $ 785,041 $ 290,830 $ 133,795 $ 571,816 $
1,338
52
1,388
102
514
—
967
—
81
169
$ 536,429 $ 378,118 $ 205,849 $ 106,733 $ 36,096 $ 62,255 $
228
$ 536,755 $ 378,369 $ 206,052 $ 106,791 $ 36,363 $ 62,483 $
326
251
267
203
58
$
$
$
$
— $
—
— $
— $
—
— $
$ 14,737 $
220
$ 14,957 $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
— $
—
— $
Revolving
Loans
Amortized
Cost Basis
Total
10,174 $ 2,910,031
6,681
1,366
10,174 $ 2,918,078
—
—
731,436 $ 2,056,916
2,172
732,275 $ 2,059,088
839
296,504 $ 296,504
703
297,207 $ 297,207
703
578,451 $ 578,451
5,549
584,000 $ 584,000
5,549
— $
—
— $
14,737
220
14,957
$ 1,086,449 $ 967,776 $ 989,500 $ 397,313 $ 168,401 $ 630,635 $ 1,616,565 $ 5,856,639
15,325
1,366
$ 1,087,509 $ 968,994 $ 991,093 $ 397,621 $ 170,158 $ 634,299 $ 1,623,656 $ 5,873,330
2,621
1,043
1,541
52
1,060
—
1,655
102
7,091
—
1,218
—
139
169
88
Term Loans Amortized Cost Basis by Origination Year
2021
2020
2019
2018
2017
Prior
$ 690,058 $ 888,631 $ 354,292 $ 157,485 $ 149,391 $ 551,460 $
1,181
1,156
$ 690,306 $ 889,781 $ 354,841 $ 157,718 $ 149,488 $ 553,797 $
1,150
—
124
109
298
251
133
115
97
—
$ 571,455 $ 348,774 $ 192,076 $ 79,887 $ 47,401 $ 78,088 $
351
$ 571,738 $ 349,109 $ 192,333 $ 80,137 $ 47,475 $ 78,439 $
250
283
335
257
74
$
$
$
$
$
$
— $
—
— $
— $
—
— $
6,740 $
6,740 $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
— $
—
— $
— $
—
— $
— $
— $
Revolving
Loans
Amortized
Cost Basis
Total
9,470 $ 2,800,787
2,983
1,631
9,470 $ 2,805,401
—
—
712,333 $ 2,030,014
2,211
712,994 $ 2,032,225
661
275,144 $ 275,144
801
275,945 $ 275,945
801
570,156 $ 570,156
5,254
575,410 $ 575,410
5,254
— $
— $
6,740
6,740
$ 1,268,253 $ 1,237,405 $ 546,368 $ 237,372 $ 196,792 $ 629,548 $ 1,567,103 $ 5,682,841
11,249
1,631
$ 1,268,784 $ 1,238,890 $ 547,174 $ 237,855 $ 196,963 $ 632,236 $ 1,573,819 $ 5,695,721
1,485
—
6,716
—
1,532
1,156
374
109
171
—
416
115
555
251
(In thousands)
December 31, 2021
Real estate-personal
Current to 90 days past due
Over 90 days past due
Non-accrual
Total Real estate-personal:
Consumer
Current to 90 days past due
Over 90 days past due
Total Consumer:
Revolving home equity
Current to 90 days past due
Over 90 days past due
Total Revolving home equity:
Consumer credit card
Current to 90 days past due
Over 90 days past due
Total Consumer credit card:
Overdrafts
Current to 90 days past due
Total Overdrafts:
Personal banking loans
Current to 90 days past due
Over 90 days past due
Non-accrual
Total Personal banking loans:
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 December 31, 2022 and 2021.
(In thousands)
Commercial:
Business
Total
December 31, 2022
December 31, 2021
Business
Assets
Oil & Gas
Assets
Total
Business
Assets
Oil & Gas
Assets
Total
$
$
2,778 $
2,778 $
1,824 $
1,824 $
4,602
4,602
$
$
1,604 $
1,604 $
2,459 $
2,459 $
4,063
4,063
Other Personal Banking loan information
As noted above, the credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and
this information is provided in the table in the above section on "Credit quality indicators." In addition, FICO scores are
obtained and updated on a quarterly basis for most of the loans in the Personal Banking portfolio. This is a published credit
score designed to measure the risk of default by taking into account various factors from a borrower's financial history and is
considered supplementary information utilized by the Company, as management does not consider this information in
evaluating the allowance for credit losses on loans. The Bank normally obtains a FICO score at the loan's origination and
renewal dates, and updates are obtained on a quarterly basis. Excluded from the table below are certain personal real estate
loans for which FICO scores are not obtained because the loans generally pertain to commercial customer activities and are
often underwritten with other collateral considerations. These loans totaled $179.2 million at December 31, 2022 and $185.6
million at December 31, 2021. The table also excludes consumer loans related to the Company's patient healthcare loan
program, which totaled $197.5 million at December 31, 2022 and $186.6 million at December 31, 2021. As the healthcare
loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and
89
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 December 31, 2022 and 2021 by
FICO score.
December 31, 2022
FICO score:
Under 600
600 – 659
660 – 719
720 – 779
780 and over
Total
December 31, 2021
FICO score:
Under 600
600 – 659
660 – 719
720 – 779
780 and over
Total
Personal Banking Loans
% of Loan Category
Real Estate -
Personal
Consumer
Revolving Home
Equity
Consumer Credit
Card
1.4 %
2.2 %
1.5 %
3.4 %
2.2
8.1
23.7
64.6
4.2
14.5
26.7
52.4
2.8
9.7
21.4
64.6
11.4
30.8
27.1
27.3
100.0 %
100.0 %
100.0 %
100.0 %
1.0 %
1.9 %
0.9 %
3.4 %
2.4
7.4
25.2
64.0
3.9
13.8
25.3
55.1
2.6
9.4
20.4
66.7
11.3
29.9
28.2
27.2
100.0 %
100.0 %
100.0 %
100.0 %
Troubled debt restructurings
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.
Section 4013 of the CARES Act was signed into law on March 27, 2020, and includes 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. If it is deemed the modification is 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 will evaluate the loan modifications under its existing framework and account for the
modification as a troubled debt restructuring.
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 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.
90
The table below shows the balances of troubled debt restructurings by accrual status at December 31, 2022 and 2021.
(In thousands)
Accruing loans:
Commercial
Assistance programs
Other consumer
Non-accrual loans
Total troubled debt restructurings
December 31
2022
2021
$
184,388 $
46,867
5,156
4,049
5,078
6,146
4,787
7,087
$
198,671 $
64,887
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)
Commercial:
Business
Real estate – construction and land
Real estate – business
Personal Banking:
Real estate – personal
Consumer
Revolving home equity
Consumer credit card
December 31, 2022
Balance 90 days past
due at any time
during previous 12
months
$
12,311 $
57,547
118,654
2,809
2,250
17
5,083
—
—
—
419
268
—
452
Total troubled debt restructurings
$
198,671 $
1,139
For those loans on non-accrual status also classified as restructured, the modification did not create any further financial
effect on the Company as those loans were already recorded at net realizable value. For those performing commercial loans
classified as restructured, there were no concessions involving forgiveness of principal or interest and, therefore, there was no
financial impact to the Company as a result of modification to these loans. However, the effects of modifications to loans under
various debt management and assistance programs were estimated to decrease interest income by approximately $661 thousand
on an annual, pre-tax basis, compared to amounts contractually owed. Performing consumer loans where the debt was not
reaffirmed in bankruptcy did not result in a concession, as no changes to loan terms occurred in that process. Other
modifications to consumer loans mainly involve extensions and other small modifications that did not include the forgiveness
of principal or interest.
The allowance for credit losses related to troubled debt restructurings on non-accrual status is determined by individual
evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as
troubled debt restructurings. Those performing loans classified as troubled debt restructurings are accruing loans which
management expects to collect under contractual terms. Performing commercial loans having no other concessions granted
other than being renewed at non-market interest rates are judged to have similar risk characteristics as non-troubled debt
commercial loans and are collectively evaluated based on internal risk rating, loan type, delinquency, historical experience and
current economic factors. Performing personal banking loans classified as troubled debt restructurings resulted from the
borrower not reaffirming the debt during bankruptcy and have had no other concession granted, other than the Bank's future
limitations on collecting payment deficiencies or in pursuing foreclosure actions. As such, they have similar risk characteristics
as non-troubled debt personal banking loans and are evaluated collectively based on loan type, delinquency, historical
experience and current economic factors.
91
If a troubled debt restructuring defaults and is already on non-accrual status, the allowance for credit losses continues to be
based on individual evaluation, using discounted expected cash flows or the fair value of collateral. If an accruing, troubled
debt restructuring defaults, the loan's risk rating is downgraded to non-accrual status and the loan's related allowance for credit
losses is determined based on individual evaluation, or if necessary, the loan is charged off and collection efforts begin.
The Company had $12.6 million commitments at December 31, 2022 to lend additional funds to borrowers with restructured
loans, compared to no commitments at December 31, 2021.
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 19. The loans are primarily sold to FNMA and FHLMC. At December 31, 2022,
there was no personal real estate loans held for sale.
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 December 31, 2022 totaled $4.9 million.
At December 31, 2022, none of the loans held for sale were on non-accrual status or 90 days past due and still accruing.
Foreclosed real estate/repossessed assets
The Company’s holdings of foreclosed real estate totaled $96 thousand and $115 thousand at December 31, 2022 and 2021,
respectively. Personal property acquired in repossession, generally autos, marine and recreational vehicles (RV), totaled $1.6
million and $1.1 million at December 31, 2022 and 2021, respectively. 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 December 31, 2022 and 2021:
(In thousands)
Available for sale debt securities
Trading debt securities
Equity securities:
Readily determinable fair value
No readily determinable fair value
Other:
Federal Reserve Bank stock
Federal Home Loan Bank stock
Equity method investments
Private equity investments
Total investment securities (1)
$
2022
12,238,316 $
43,523
2021
14,450,027
46,235
6,210
6,094
7,153
2,049
34,795
10,678
1,434
178,127
12,519,177 $
34,379
10,428
1,834
147,406
14,699,511
$
(1) Accrued interest receivable totaled $38.8 million and $39.5 million at December 31, 2022 and December 31, 2021, respectively, and was included within
other assets on the consolidated balance sheet.
The Company has elected to measure equity securities with no readily determinable fair value at cost minus impairment, if
any, plus or minus changes resulting from observable price changes for the identical or similar investment of the same issuer.
This portfolio includes the Company's holdings of Visa Class B shares, which have a carrying value of zero, as there have not
been observable price changes in orderly transactions for identical or similar investments of the same issuer. During the year-
ended December 31, 2022, the Company did not record any impairment or significant other adjustments to the carrying amount
of its portfolio of equity securities with no readily determinable fair value.
Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, equity
method investments, and investments in portfolio concerns held by the Company's private equity subsidiary. FRB stock and
FHLB stock are held for debt and regulatory purposes. Investment in FRB stock is based on the capital structure of the
92
investing bank, and investment in FHLB stock is tied to 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 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 other comprehensive income (OCI). A summary of the available for sale debt
securities by maturity groupings as of December 31, 2022 is shown in the following table. The weighted average yield for each
range of maturities was calculated using the yield on each security within that range weighted by the amortized cost of each
security at December 31, 2022. Yields on tax exempt securities have not been adjusted for tax exempt status. The investment
portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and GNMA,
in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and
residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit
cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in
that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral.
Total U.S. government and federal agency obligations
1,078,807
1,035,406
(Dollars in thousands)
U.S. government and federal agency obligations:
Within 1 year
After 1 but within 5 years
After 5 but within 10 years
Government-sponsored enterprise obligations:
After 5 but within 10 years
After 10 years
Total government-sponsored enterprise obligations
State and municipal obligations:
Within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years
Total state and municipal obligations
Mortgage and asset-backed securities:
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities:
Within 1 year
After 1 but within 5 years
After 5 but within 10 years
After 10 years
Total other debt securities
Amortized Cost
Fair Value
Weighted
Average Yield
$
350,398 $
537,661
190,748
343,843
515,773
175,790
1.80 *%
1.19 *
.28 *
1.23 *
2.94
2.32
2.38
2.54
2.02
1.83
2.11
2.00
2.07
2.30
2.07
2.10
2.50
1.90
1.82
1.89
4,987
50,742
55,729
223,656
635,080
937,670
168,622
4,531
38,577
43,108
222,705
608,254
792,158
143,992
1,965,028
1,767,109
5,087,893
4,308,427
1,423,469
1,211,607
3,588,025
3,397,801
10,099,387
8,917,835
16,795
265,853
247,347
9,260
16,699
244,826
206,042
7,291
539,255
474,858
1.88 %
Total available for sale debt securities
$
13,738,206 $
12,238,316
* Rate does not reflect inflation adjustment on inflation-protected securities
Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which
totaled $373.8 million, at fair value, at December 31, 2022. Interest paid 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.
93
Allowance for credit losses on available for sale debt securities
Securities for which fair value is less than amortized cost are reviewed for impairment. Special emphasis is placed on
securities whose credit rating has fallen below Baa3 (Moody's) or BBB- (Standard & Poor's), whose fair values have fallen
more than 20% below purchase price, or who have been identified based on management’s judgment. These securities are
placed on a watch list and cash flow analyses are prepared on an individual security basis. Certain securities are analyzed using
a projected cash flow model, discounted to present value, and compared to the current amortized cost bases of the securities.
The model uses input factors such as cash flow projections, contractual payments required, expected delinquency rates, credit
support from other tranches, prepayment speeds, collateral loss severity rates (including loan to values), and various other
information related to the underlying collateral. Securities not analyzed using the cash flow model are analyzed by reviewing
risk ratings, credit support agreements, and industry knowledge to project future cash flows and any possible credit impairment.
At December 31, 2022, the fair value of securities on this watch list was $1.3 billion compared to $13.4 million at
December 31, 2021. The majority of the securities included on the Company's watch list were experiencing unrealized loss
positions due to the significant increase in interest rates and were analyzed outside of the cash flow model. At December 31,
2022, 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
December 31, 2022, the Company did not identify any securities for which a credit loss exists, and for the years ended
December 31, 2022 and 2021, the Company did not recognize a credit loss expense on any available for sale debt securities.
94
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 December 31, 2022 and 2021. 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 December 31, 2022, the Company does not intend to sell the securities, nor is it anticipated that it would be
required to sell any of its impaired securities at a loss.
(In thousands)
December 31, 2022
Less than 12 months
12 months or longer
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
U.S. government and federal agency obligations
$ 605,840 $
17,490 $ 380,573 $
25,940 $ 986,413 $
43,430
Government-sponsored enterprise obligations
25,068
4,650
18,040
7,971
43,108
12,621
State and municipal obligations
814,799
26,708
875,329
171,385
1,690,128
198,093
Mortgage and asset-backed securities:
Agency mortgage-backed securities
1,323,938
125,330
2,966,851
654,327
4,290,789
779,657
Non-agency mortgage-backed securities
135,984
16,736
1,069,222
195,218
1,205,206
211,954
Asset-backed securities
1,331,055
50,056
2,006,188
140,424
3,337,243
190,480
Total mortgage and asset-backed securities
2,790,977
192,122
6,042,261
989,969
8,833,238 1,182,091
Other debt securities
Total
December 31, 2021
166,040
9,690
308,818
54,707
474,858
64,397
$ 4,402,724 $ 250,660 $ 7,625,021 $ 1,249,972 $ 12,027,745 $ 1,500,632
U.S. government and federal agency obligations
$ 296,492 $
2,241 $
— $
— $ 296,492 $
2,241
Government-sponsored enterprise obligations
—
—
State and municipal obligations
876,691
15,874
18,899
32,684
919
1,049
18,899
919
909,375
16,923
Mortgage and asset-backed securities:
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities
Total
3,333,691
1,285,611
2,518,935
7,138,237
270,409
59,044
17,222
19,201
95,467
5,098
265,835
8,720
3,599,526
1,948
87,893
19
1,287,559
525
2,606,828
67,764
17,241
19,726
355,676
9,264
7,493,913
104,731
58,574
3,017
328,983
8,115
$ 8,581,829 $ 118,680 $ 465,833 $
14,249 $ 9,047,662 $ 132,929
The entire available for sale debt securities portfolio included $12.0 billion of securities that were in a loss position at
December 31, 2022, compared to $9.0 billion at December 31, 2021. The total amount of unrealized loss on these securities
was $1.5 billion at December 31, 2022, an increase of $1.4 billion compared to the unrealized loss at December 31, 2021.
Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt
securities" section above.
95
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 December 31, 2022 and 2021 and the corresponding amounts of gross unrealized
gains and losses (pre-tax) in AOCI, by security type.
(In thousands)
December 31, 2022
Amortized Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Allowance for
Credit Losses
Fair Value
U.S. government and federal agency obligations
$
1,078,807 $
Government-sponsored enterprise obligations
State and municipal obligations
Mortgage and asset-backed securities:
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities
Total
December 31, 2021
Government-sponsored enterprise obligations
State and municipal obligations
Mortgage and asset-backed securities:
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Total mortgage and asset-backed securities
Other debt securities
Total
U.S. government and federal agency obligations
$
1,035,477 $
47,484 $
55,729
1,965,028
5,087,893
1,423,469
3,588,025
10,099,387
539,255
29 $
—
(43,430) $
(12,621)
174
(198,093)
191
92
256
539
—
(779,657)
(211,954)
(190,480)
(1,182,091)
(64,397)
— $
1,035,406
—
—
—
—
—
—
—
43,108
1,767,109
4,308,427
1,211,607
3,397,801
8,917,835
474,858
$
13,738,206 $
742 $
(1,500,632) $
— $
12,238,316
50,773
2,072,210
5,698,088
1,383,037
3,546,024
10,627,149
633,524
1,901
41,540
52,676
681
12,921
66,278
6,620
(2,241) $
(919)
(16,923)
(67,764)
(17,241)
(19,726)
(104,731)
(8,115)
— $
—
—
1,080,720
51,755
2,096,827
—
—
—
—
—
5,683,000
1,366,477
3,539,219
10,588,696
632,029
$
14,419,133 $
163,823 $
(132,929) $
— $
14,450,027
96
The following table presents proceeds from sales of securities and the components of investment securities gains and losses
which have been recognized in earnings.
(In thousands)
Proceeds from sales of securities:
Available for sale debt securities
Equity securities
Other
Total proceeds
Investment securities gains (losses), net:
Available for sale debt securities:
Gains realized on sales
Losses realized on sales
Equity securities:
Gains realized on sales
Fair value adjustments, net
Other:
Gains realized on sales
Losses realized on sales
Fair value adjustments, net
Total investment securities gains, net
For the Year Ended December 31
2022
2021
2020
$ 86,240 $ 69,809 $ 602,475
2
—
$ 106,971 $ 80,811 $ 602,477
17
20,714
—
11,002
$
— $
— $ 21,096
(20,273)
(3,284)
17
(943)
—
187
—
2
37
1,670
(3,798)
43,833
—
—
(10,103)
$ 20,506 $ 30,059 $ 11,032
1,611
(159)
31,704
At December 31, 2022, securities totaling $4.7 billion in fair value were pledged to secure public fund deposits, securities
sold under agreements to repurchase, trust funds, and borrowings at the FRB and FHLB, compared to $6.4 billion at
December 31, 2021. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the
secured parties approximated $211.0 million, while the remaining securities were pledged under agreements pursuant to which
the secured parties may not sell or re-pledge the collateral.
Except for obligations of various government-sponsored enterprises such as FNMA, FHLB and FHLMC, no investment in
a single issuer exceeds 10% of stockholders’ equity.
97
4. Premises and Equipment
Premises and equipment consist of the following at December 31, 2022 and 2021:
(In thousands)
Land
Buildings and improvements
Equipment
Right of use leased assets
Total
Less accumulated depreciation
Net premises and equipment
2022
2021
$
89,342 $
673,802
237,867
26,030
1,027,041
608,132
$
418,909 $
91,003
622,642
242,455
25,677
981,777
593,039
388,738
Depreciation expense of $32.3 million in 2022, $31.9 million in 2021, and $32.2 million in 2020, was included in occupancy
expense and equipment expense in the consolidated statements of income. Repairs and maintenance expense of $17.7 million,
$16.0 million, and $16.4 million for 2022, 2021 and 2020, respectively, was included in occupancy expense and equipment
expense. Interest expense capitalized on constructions projects totaled $1.4 million, $29 thousand, and $14 thousand in 2022,
2021 and 2020, respectively.
Right of use leased assets are comprised mainly of operating leases for branches, office space, ATM locations, and certain
equipment, as described in Note 6.
5. Goodwill and Other Intangible Assets
The following table presents information about the Company's intangible assets which have estimable useful lives.
(In thousands)
Amortizable intangible
assets:
Core deposit premium
Mortgage servicing rights
Total
December 31, 2022
December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Valuation
Allowance
Net
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Valuation
Allowance
Net
Amount
$ 31,270
22,187
$ 53,457
$
(30,565) $
(11,258)
$
(41,823) $
—
—
—
$
705
10,929
$ 11,634
$ 31,270
20,870
$
(30,266) $
(9,600)
$ 52,140
$
(39,866) $
—
(304)
$ 1,004
10,966
(304) $ 11,970
The carrying amount of goodwill and its allocation among segments at December 31, 2022 and 2021 is shown in the table
below. As a result of ongoing assessments, no impairment of goodwill was recorded in 2022, 2021 or 2020. Further, the
annual assessment of qualitative factors on January 1, 2023 revealed no likelihood of impairment as of that date.
(In thousands)
Consumer segment
Commercial segment
Wealth segment
Total goodwill
December 31,
2022
December 31,
2021
$
$
70,721 $
67,454
746
138,921 $
70,721
67,454
746
138,921
98
Changes in the net carrying amount of goodwill and other net intangible assets for the years ended December 31, 2022 and
2021 are shown in the following table. During the year ended December 31, 2020, the Company purchased an easement for
$3.6 million in connection with the Developer Services Agreement that was signed during the third quarter of 2020 to develop a
commercial office complex in Clayton, Missouri. The easement, which grants the Company access to all portions of the
parking facility and terrace garden, is perpetual and will be assessed for impairment at least annually, or whenever events or
circumstances indicate an impairment may have occurred. No impairment was identified at December 31, 2022.
(In thousands)
Balance at December 31, 2020
Originations, net of disposals
Amortization
Impairment recovery
Balance at December 31, 2021
Originations, net of disposals
Amortization
Impairment recovery
Goodwill
Easement
Core Deposit
Premium
Mortgage
Servicing Rights
$
138,921 $
3,600 $
1,358 $
—
—
—
—
—
—
—
(354)
—
138,921
3,600
1,004
—
—
—
—
—
—
—
(299)
—
6,249
5,632
(2,714)
1,799
10,966
1,317
(1,658)
304
Balance at December 31, 2022
$
138,921 $
3,600 $
705 $
10,929
Mortgage servicing rights (MSRs) are initially recorded at fair value and subsequently amortized over the period of
estimated servicing income. They are periodically reviewed for impairment at a tranche level, and if impairment is indicated,
recorded at fair value. Temporary impairment, including impairment recovery, is effected through a change in a valuation
allowance. During 2022, impairment recovery of $304 thousand was recognized. The fair value of the MSRs is based on the
present value of expected future cash flows, as further discussed in Note 17 on Fair Value Measurements.
Aggregate amortization expense on intangible assets for the years ended December 31, 2022, 2021 and 2020 was $2.0
million, $3.1 million and $2.4 million, respectively. The following table shows the estimated future amortization expense based
on existing asset balances and the interest rate environment as of December 31, 2022. 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)
2023
2024
2025
2026
2027
$
1,403
1,243
1,101
963
830
99
6. Leases
The Company's leasing activities include leasing certain real estate and equipment, providing lease financing to commercial
customers, and leasing office space to third parties. The Company uses the FHLB fixed-advance rate at lease commencement
or at any subsequent remeasurement event date based on the remaining lease term to calculate the liability for each lease.
Lessee
The Company primarily has operating leases for branches, office space, ATM locations, and certain equipment. As of
December 31, 2022, the right-of-use asset for operating leases, reported within premises and equipment, net, and lease liability,
reported within other liabilities, recognized on the Company's consolidated balance sheets totaled $24.9 million and $25.2
million, respectively, compared to right-of-use assets of $25.2 million and lease liability of $27.2 million at December 31, 2021.
Total lease cost for the year ended December 31, 2022 was $7.9 million, compared to $7.7 million for the year ended
December 31, 2021. For leases with a term of 12 months or less, an election was made not to recognize lease assets and lease
liabilities for all asset classes, and to recognize lease expense for these leases on a straight-line basis over the lease term. The
Company's leases have remaining terms of 1 month to 29 years, most of which contain renewal options. However, the renewal
options are generally not included in the leased asset or liability because the option exercises are uncertain.
The maturities of operating leases are included in the table below.
(in thousands)
2023
2024
2025
2026
2027
After 2027
Total lease payments
Less: Interest
Present value of lease liabilities
Operating
Leases(1)
$
$
$
6,168
4,684
3,001
2,434
2,204
13,743
32,234
7,003
25,231
(1) Excludes $2.1 million of legally binding minimum lease payments for operating leases signed but not yet commenced.
The following table presents the average lease term and discount rate of operating leases.
Weighted-average remaining lease term
Weighted-average discount rate
December 31, 2022
December 31, 2021
10.6 years
3.73 %
11.1 years
3.05 %
Supplemental cash flow information related to operating leases is included in the table below.
(in thousands)
Operating cash paid toward lease liabilities
Leased assets obtained in exchange for new lease liabilities
For the Year Ended
December 31
2022
2021
$
$
6,529
5,161
6,180
4,407
Lessor
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 to expand the leased space, and currently the leases have remaining terms of 3 months to 16
years.
100
The following table provides the components of lease income.
(in thousands)
Direct financing and sales-type leases
Operating leases(1)
Total lease income
For the Year Ended December 31
2022
2021
22,144
8,948
31,092 $
22,736
7,488
30,224
$
(1) Includes rent from Tower Properties, a related party, of $76 thousand for the years ended both December 31, 2022 and 2021.
The following table presents the components of the net investments in direct financing and sales-type leases.
(in thousands)
Lease payment receivable
Unguaranteed residual assets
Total net investments in direct financing and sales-type leases
Deferred origination cost
Total net investment included within business loans
December 31, 2022
December 31, 2021
$
$
$
704,509 $
72,157
776,666 $
3,222
779,888 $
655,885
66,638
722,523
3,035
725,558
The maturities of lease receivables are included in the table below.
(in thousands)
2023
2024
2025
2026
2027
After 2027
Total lease receipts
Less: Net present value adjustment
Present value of lease receipts
Direct Financing and
Sale-Type Leases
Operating
Leases
Total
$
$
9,451 $
11,518
10,248
9,595
11,716
62,977
115,505 $
209,733
180,987
143,140
113,492
85,909
150,237
883,498
200,282 $
169,469
132,892
103,897
74,193
87,260
767,993 $
63,484
704,509
101
7. Deposits
At December 31, 2022, the scheduled maturities of certificates of deposit were as follows:
(In thousands)
Due in 2023
Due in 2024
Due in 2025
Due in 2026
Due in 2027
Thereafter
Total
$
726,984
187,440
44,678
29,009
5,910
82
$
994,103
The aggregate amount of certificates of deposit that exceeded the $250,000 FDIC insurance limit totaled $426.5 million at
December 31, 2022.
8. Borrowings
At December 31, 2022, the Company's borrowings primarily consisted of federal funds purchased and securities sold under
agreements to repurchase (repurchase agreements). The following table sets forth selected information for federal funds
purchased and repurchase agreements.
(Dollars in thousands)
Federal funds purchased and repurchase agreements:
2022
2021
2020
Year End
Weighted
Rate
Average
Weighted
Rate
Average Balance
Outstanding
Maximum
Outstanding at
any Month End
Balance at
December 31
2.01 %
1.1 % $
2,439,279 $
2,841,734 $
2,841,734
.06
.04
.1
.3
2,334,837
3,022,967
3,022,967
1,966,479
2,314,756
2,098,383
Federal funds purchased and repurchase agreements comprised the majority of the Company's short-term borrowings
(borrowings with an original maturity of less than one year at December 31, 2022), and $2.7 billion of these borrowings were
repurchase agreements, which generally have one day maturities and are mainly comprised of non-insured customer funds
secured by a portion of the Company's investment portfolio. Additional information about the securities pledged for repurchase
agreements and repurchase agreement maturity is provided in Note 20 on Resale and Repurchase Agreements.
The Bank is a member of the Des Moines FHLB and has access to term financing from the FHLB. These borrowings are
secured under a blanket collateral agreement including primarily residential mortgages as well as all unencumbered assets and
stock of the borrowing bank. At December 31, 2022, the Bank had no outstanding advances from the FHLB. The FHLB also
issues letters of credit to secure the Bank's obligations to certain depositors of public funds, which totaled $678.2 million at
December 31, 2022.
102
9. Income Taxes
The components of income tax expense from operations for the years ended December 31, 2022, 2021 and 2020 were as
follows:
(In thousands)
Year ended December 31, 2022:
U.S. federal
State and local
Total
Year ended December 31, 2021:
U.S. federal
State and local
Total
Year ended December 31, 2020:
U.S. federal
State and local
Total
Current
Deferred
Total
$
$
$
$
$
$
96,849 $
13,793
110,642 $
104,924 $
15,174
120,098 $
92,035 $
14,798
106,833 $
19,990 $
1,726
21,716 $
22,184 $
3,429
25,613 $
(14,055) $
(5,485)
(19,540) $
116,839
15,519
132,358
127,108
18,603
145,711
77,980
9,313
87,293
The components of income tax (benefit) expense recorded directly to stockholders’ equity for the years ended 2022, 2021
and 2020 were as follows:
(In thousands)
Unrealized gain (loss) on available for sale debt securities
Change in fair value on cash flow hedges
Accumulated pension (benefit) loss
Adoption of ASU 2016-13
Income tax (benefit) expense allocated to stockholders’ equity
2022
2021
2020
$
$
(382,697) $
(6,446)
1,161
—
(387,982) $
(80,211) $
(6,040)
1,484
—
(84,767) $
53,909
20,795
(1,059)
1,183
74,828
Significant components of the Company’s deferred tax assets and liabilities at December 31, 2022 and 2021 were as
follows:
(In thousands)
Deferred tax assets:
Unrealized loss on available for sale debt securities
Loans, principally due to allowance for credit losses
Deferred compensation
Equity-based compensation
Accrued expenses
Unearned fee income
Other
Total deferred tax assets
Deferred tax liabilities:
Equipment lease financing
Cash flow hedges
Land, buildings, and equipment
Private equity investments
Intangible assets
Unrealized gain on available for sale debt securities
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)
2022
2021
$
$
374,973 $
43,553 $
7,864
7,491
6,748
5,534
1,737
447,900
91,913
19,747
17,210
9,393
7,519
—
8,138
153,920
293,980 $
—
41,507
7,777
7,348
6,340
5,258
3,284
71,514
74,827
23,633
18,728
3,034
7,459
7,724
8,396
143,801
(72,287)
Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to
realize the total deferred tax assets, therefore, no valuation allowance is needed for the deferred tax assets at year end.
103
A reconciliation between the expected federal income tax expense using the federal statutory tax rate of 21%, and the
Company's actual income tax expense for 2022, 2021, and 2020 is provided below. The effective tax rate is calculated by
dividing income taxes by income before income taxes less the non-controlling interest expense.
(In thousands)
Computed “expected” tax expense
Increase (decrease) in income taxes resulting from:
Tax-exempt interest, net of cost to carry
State and local income taxes, net of federal tax benefit
Share-based award payments
Other
Total income tax expense
2022
2021
2020
$
130,359 $
142,060 $
92,683
(8,473)
12,260
(1,669)
(119)
(9,002)
14,697
(2,941)
897
$
132,358 $
145,711 $
(10,013)
7,357
(3,090)
356
87,293
The gross amount of unrecognized tax benefits was $1.2 million and $1.3 million at December 31, 2022 and 2021,
respectively, and the total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $1.0
million at both December 31, 2022 and 2021. The activity in the accrued liability for unrecognized tax benefits for the years
ended December 31, 2022 and 2021 was as follows:
(In thousands)
2022
2021
Unrecognized tax benefits at beginning of year
$
1,276 $
1,331
Gross increases – tax positions in prior period
Gross decreases – tax positions in prior period
Gross increases – current-period tax positions
Lapse of statute of limitations
21
—
235
(327)
Unrecognized tax benefits at end of year
$
1,205 $
15
(8)
222
(284)
1,276
The Company and its subsidiaries are subject to income tax by federal, state and local government taxing authorities. Tax
years 2019 through 2022 remain open to examination for U.S. federal income tax and for major state taxing jurisdictions.
10. Employee Benefit Plans
Employee benefits charged to operating expenses are summarized in the table below. Substantially all of the Company’s
employees are covered by a defined contribution (401(k)) plan, under which the Company makes matching contributions.
(In thousands)
Payroll taxes
Medical plans
401(k) plan
Pension plans
Other
Total employee benefits
2022
2021
2020
$
$
29,580 $
31,004
18,590
516
3,097
82,787 $
28,084 $
31,131
17,237
388
1,170
78,010 $
27,664
30,002
16,834
410
1,990
76,900
A portion of the Company’s employees are covered by a noncontributory defined benefit pension plan, however,
participation in the pension plan is not available to employees hired after June 30, 2003. All participants are fully vested in their
benefit payable upon normal retirement date, which is based on years of participation and compensation. Since January 2011,
all benefits accrued under the pension plan have been frozen. However, the accounts continue to accrue interest at a stated
annual rate. Certain key executives also participate in a supplemental executive retirement plan (the CERP) that the Company
funds only as retirement benefits are disbursed. The CERP carries no segregated assets. The CERP continues to provide credits
based on hypothetical contributions in excess of those permitted under the 401(k) plan. In the tables presented below, the
pension plan and the CERP are presented on a combined basis.
Under the Company’s funding policy for the defined benefit pension plan, contributions are made to a trust as necessary to
satisfy the statutory minimum required contribution as defined by the Pension Protection Act, which is intended to provide for
current service accruals and for any unfunded accrued actuarial liabilities over a reasonable period. To the extent that these
104
requirements are fully covered by assets in the trust, a contribution might not be made in a particular year. No contributions to
the defined benefit plan were made in 2022, 2021 or 2020. The minimum required contribution for 2023 is expected to be zero.
The Company does not expect to make any further contributions in 2023 other than the necessary funding contributions to the
CERP. Contributions to the CERP were $14 thousand, $14 thousand and $80 thousand during 2022, 2021 and 2020,
respectively.
The following items are components of the net pension cost for the years ended December 31, 2022, 2021 and 2020.
(In thousands)
Service cost-benefits earned during the year
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of prior service cost
Amortization of unrecognized net (gain) loss
Net periodic pension cost
2022
2021
2020
$
516 $
388 $
2,725
(4,515)
(271)
1,717
2,169
(4,532)
(271)
2,578
$
172 $
332 $
410
3,282
(5,214)
(271)
2,138
345
The following table sets forth the pension plans’ funded status, using valuation dates of December 31, 2022 and 2021.
(In thousands)
Change in projected benefit obligation
Projected benefit obligation at prior valuation date
Service cost
Interest cost
Benefits paid
Actuarial (gain) loss
Projected benefit obligation at valuation date
Change in plan assets
Fair value of plan assets at prior valuation date
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at valuation date
2022
2021
$
121,738 $
127,163
516
2,725
(6,933)
(22,204)
95,842
109,807
(14,492)
14
(6,933)
88,396
388
2,169
(6,735)
(1,247)
121,738
109,615
6,913
14
(6,735)
109,807
Funded status and net amount recognized at valuation date
$
(7,446) $
(11,931)
The pension benefit obligation decreased from the prior year primarily due to an increase in the discount rate from 2.58% to
5.19%, which decreased the pension benefit liability by approximately $23.8 million. This decrease was slightly offset by
updates to lump sum payment assumptions.
The accumulated benefit obligation, which represents the liability of a plan using only benefits as of the measurement date,
was $95.8 million and $121.7 million for the combined plans on December 31, 2022 and 2021, respectively.
105
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income (loss) at
December 31, 2022 and 2021 are shown below, including amounts recognized in other comprehensive income during the
periods. All amounts are shown on a pre-tax basis.
(In thousands)
Prior service credit (cost)
Accumulated gain (loss)
Accumulated other comprehensive income (loss)
Cumulative employer contributions in excess of net periodic benefit cost
2022
2021
$
452 $
(23,363)
(22,911)
15,465
723
(28,277)
(27,554)
15,623
Net amount recognized as an accrued benefit liability on the December 31 balance sheet
$
(7,446) $
(11,931)
Net gain (loss) arising during period
Amortization of net (gain) loss
Amortization of prior service cost
Total recognized in other comprehensive income (loss)
Total income (expense) recognized in net periodic pension cost and other comprehensive income
3,197
1,717
(271)
4,643 $
4,471 $
3,627
2,578
(271)
5,934
5,602
$
$
The following assumptions, on a weighted average basis, were used in accounting for the plans.
Determination of benefit obligation at year end:
Effective discount rate on benefit obligations
Assumed cash balance interest crediting rate
Determination of net periodic benefit cost for year ended:
Effective discount rate on benefit obligations
Effective rate for interest cost on benefit obligations
Long-term rate of return on assets
Assumed cash balance interest crediting rate
2022
2021
2020
5.19 %
5.00 %
2.64 %
2.15 %
4.25 %
5.00 %
2.58 %
5.00 %
2.25 %
1.63 %
4.25 %
5.00 %
2.25 %
5.00 %
3.08 %
2.69 %
5.00 %
5.00 %
106
The following table shows the fair values of the Company’s pension plan assets by asset category at December 31, 2022 and
2021. Information about the valuation techniques and inputs used to measure fair value are provided in Note 17 on Fair Value
Measurements.
(In thousands)
December 31, 2022
Assets:
U.S. government obligations
Government-sponsored enterprise obligations (a)
State and municipal obligations
Agency mortgage-backed securities (b)
Non-agency mortgage-backed securities
Asset-backed securities
Corporate bonds (c)
Equity securities and mutual funds: (d)
Mutual funds
Common stocks
International developed markets funds
Emerging markets funds
Total
December 31, 2021
Assets:
U.S. government obligations
Government-sponsored enterprise obligations (a)
State and municipal obligations
Agency mortgage-backed securities (b)
Non-agency mortgage-backed securities
Asset-backed securities
Corporate bonds (c)
Equity securities and mutual funds: (d)
Mutual funds
Common stocks
International developed markets funds
Emerging markets funds
Total
Fair Value Measurements
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
Total Fair Value
$
9,960 $
9,960 $
— $
1,022
6,840
2,871
2,527
6,768
35,234
4,395
15,868
2,604
307
88,396 $
—
—
—
—
—
—
4,395
15,868
2,604
307
33,134 $
1,022
6,840
2,871
2,527
6,768
35,234
—
—
—
—
55,262 $
6,824 $
6,824 $
— $
2,066
8,000
3,266
2,974
7,648
40,832
6,004
27,702
3,943
548
109,807 $
—
—
—
—
—
—
6,004
27,702
3,943
548
45,021 $
2,066
8,000
3,266
2,974
7,648
40,832
—
—
—
—
64,786 $
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(a) This category represents bonds (excluding mortgage-backed securities) issued by agencies such as the Government National Mortgage Association, the
Federal Home Loan Mortgage Corp and the Federal National Mortgage Association.
(b) This category represents mortgage-backed securities issued by the agencies mentioned in (a).
(c) This category represents investment grade bonds issued in the U.S., primarily by domestic issuers, representing diverse industries.
(d) This category represents investments in individual common stocks and equity funds. These holdings are diversified, largely across the financial services,
technology services, electronic technology, healthcare technology, and retail trade industries.
The investment policy of the pension plan is designed for growth in principal, within limits designed to safeguard against
significant losses within the portfolio. The policy sets guidelines, which may change from time to time, regarding the types and
percentages of investments held. Currently, the policy includes guidelines such as holding bonds rated investment grade or
better and prohibiting investment in Company stock. The plan does not utilize derivatives. Management believes there are no
significant concentrations of risk within the plan asset portfolio at December 31, 2022. Under the current policy, the long-term
investment target mix for the plan is 25% equity securities and 75% fixed income securities. The Company regularly reviews its
policies on investment mix and may make changes depending on economic conditions and perceived investment risk.
107
The assumed overall expected long-term rate of return on pension plan assets used in calculating 2022 pension plan expense
was 4.25%. Determination of the plan’s expected rate of return is based upon historical and anticipated returns of the asset
classes invested in by the pension plan and the allocation strategy currently in place among those classes. The rate used in plan
calculations may be adjusted by management for current trends in the economic environment. The 10-year annualized return for
the Company’s pension plan was 5.0%. During 2022, the plan’s assets lost 12.0% of their value, compared to a gain of 5.9% in
2021. Returns for any plan year may be affected by changes in the stock market and interest rates. The Company expects to
incur pension expense of $2.5 million in 2023, compared to $172 thousand in 2022.
The following future benefit payments are expected to be paid:
(In thousands)
2023
2024
2025
2026
2027
2028 - 2032
$
7,988
7,884
7,810
7,722
7,597
34,819
11. Stock-Based Compensation and Directors Stock Purchase Plan*
The Company’s stock-based compensation is provided under a stockholder-approved plan that allows for issuance of
various types of awards, including stock options, stock appreciation rights, restricted stock and restricted stock units,
performance awards and stock-based awards. During the past three years, stock-based compensation has been issued in the
form of nonvested restricted stock awards and stock appreciation rights. At December 31, 2022, 1,586,377 shares remained
available for issuance under the plan. The stock-based compensation expense that was charged against income was $17.0
million, $15.4 million and $14.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. The total
income tax benefit recognized in the income statement for share-based compensation arrangements was $3.0 million, $2.7
million and $3.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Nonvested Restricted Stock Awards
Nonvested stock is awarded to key employees by action of the Company's Compensation and Human Resources Committee
and Board of Directors. These awards generally vest after 4 to 7 years of continued employment, but vesting terms may vary
according to the specifics of the individual grant agreement. There are 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 of
restricted stock awards. A summary of the status of the Company’s nonvested share awards as of December 31, 2022 and
changes during the year then ended is presented below.
Nonvested at January 1, 2022
Granted
Vested
Forfeited
Nonvested at December 31, 2022
Shares
Weighted
Average Grant
Date Fair Value
1,176,253 $
283,970
(282,845)
(28,505)
1,148,873 $
52.93
67.40
45.45
57.94
58.20
The total fair value (at vest date) of shares vested during 2022, 2021 and 2020 was $18.8 million, $17.6 million and $18.0
million, respectively.
108
Stock Appreciation Rights
Stock appreciation rights (SARs) are granted with exercise prices equal to the market price of the Company’s stock at the
date of grant. SARs generally vest ratably over 4 years of continuous service and have 10-year contractual terms. All SARs
must be settled in stock under provisions of the plan. A summary of SAR activity during 2022 is presented below.
(Dollars in thousands, except per share data)
Shares
Weighted
Average Exercise
Price
Weighted
Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
Outstanding at January 1, 2022
Granted
Forfeited
Expired
Exercised
Outstanding at December 31, 2022
Exercisable at December 31, 2022
940,722 $
101,044
(9,057)
(2,493)
(81,489)
948,727 $
667,936 $
44.01
67.28
58.82
54.17
38.14
46.82
41.11
5.2 years
4.2 years
$
$
20,163
18,007
In determining compensation cost, the Black-Scholes option-pricing model is used to estimate the fair value of SARs on
date of grant. The Black-Scholes model is a closed-end model that uses various assumptions as shown in the following table.
Expected volatility is based on historical volatility of the Company’s stock. The Company uses historical exercise behavior and
other factors to estimate the expected term of the SARs, which represents the period of time that the SARs granted are expected
to be outstanding. The risk-free rate for the expected term is based on the U.S. Treasury zero coupon spot rates in effect at the
time of grant. The per share average fair value and the model assumptions for SARs granted during the past three years are
shown in the table below.
Weighted per share average fair value at grant date
Assumptions:
Dividend yield
Volatility
Risk-free interest rate
Expected term
Additional information about SARs exercised is presented below.
2022
$16.59
2021
$15.22
2020
$8.74
1.5 %
28.4 %
1.6 %
1.4 %
28.2 %
.7 %
1.7 %
20.2 %
1.0 %
5.7 years
5.7 years
5.8 years
(In thousands)
Intrinsic value of SARs exercised
Tax benefit realized SARs exercised
2022
2021
2020
$
2,448 $
462
7,664 $
1,488
6,278
1,252
As of December 31, 2022, there was $31.6 million of unrecognized compensation cost related to unvested SARs and stock
awards. This cost is expected to be recognized over a weighted average period of approximately 3.2 years.
Directors Stock Purchase Plan
The Company has a directors stock purchase plan whereby outside directors of the Company and its subsidiaries may elect
to use their directors’ fees to purchase Company stock at market value each month end. Remaining shares available for issuance
under this plan were 129,665 at December 31, 2022. Shares authorized for issuance under the plan were increased to 150,000
shares in February 2022. In 2022, 21,725 shares were purchased at an average price of $67.27, and in 2021, 14,057 shares were
purchased at an average price of $65.86.
* All share and per share amounts in this note have been restated for the 5% common stock dividend distributed in 2022.
109
12. Accumulated Other Comprehensive Income
The table below shows the activity and accumulated balances for components of other comprehensive income. The largest
component is the unrealized holding gains and losses on available for sale debt securities. Another component is the
amortization from other comprehensive income of losses associated with pension benefits, which occurs as the losses are
included in current net periodic pension cost. The remaining component is gains and losses in fair value on certain interest rate
floors that have been designated as cash flow hedges, including interest rate floors terminated in prior years. For those
terminated floors, the realized gains are amortized into interest income through the original maturity dates of the floors.
Information about unrealized gains and losses on securities can be found in Note 3, information about unrealized gains and
losses on pension plans can be found in Note 10, and information about unrealized gains and losses on cash flow hedge
derivatives is located in Note 19.
(In thousands)
Balance January 1, 2022
Other comprehensive income (loss) before reclassifications to current
earnings
Amounts reclassified to current earnings from accumulated other
comprehensive income
Current period other comprehensive income (loss), before tax
Income tax (expense) benefit
Current period other comprehensive income (loss), net of tax
Balance December 31, 2022
Balance January 1, 2021
Other comprehensive income (loss) before reclassifications to current
earnings
Amounts reclassified to current earnings from accumulated other
comprehensive income
Current period other comprehensive income (loss), before tax
Income tax (expense) benefit
Current period other comprehensive income (loss), net of tax
Unrealized Gains
(Losses) on
Securities (1)
Pension
Loss
Unrealized
Gains (Losses)
on Cash Flow
Hedge
Derivatives (2)
Total
Accumulated
Other
Comprehensive
Income (Loss)
$
23,174 $ (20,668) $
74,574
$
77,080
(1,551,059)
3,197
(2,428)
(1,550,290)
20,273
(1,530,786)
382,697
(1,148,089)
1,446
4,643
(1,161)
3,482
(23,355)
(1,636)
(25,783)
(1,551,926)
6,446
387,982
(19,337)
(1,163,944)
$
$
(1,124,915) $ (17,186) $
55,237
$ (1,086,864)
263,801 $ (25,118) $
92,694
$
331,377
(324,122)
3,627
—
(320,495)
3,284
(320,838)
80,211
(240,627)
2,307
5,934
(1,484)
4,450
(24,160)
(24,160)
6,040
(18,569)
(339,064)
84,767
(18,120)
(254,297)
Balance December 31, 2021
$
23,174 $ (20,668) $
74,574
$
77,080
(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.
13. Segments
The Company segregates financial information for use in assessing its performance and allocating resources among three
operating segments: Consumer, Commercial, and Wealth. The Consumer segment consists of various consumer loan and
deposit products offered through its retail branch network of approximately 150 locations. This segment also includes indirect
and other consumer loan financing businesses, along with debit and credit card loan and fee businesses. Residential mortgage
origination, sales and servicing functions are included in this Consumer segment, but residential mortgage loans retained by the
Company are not considered part of this segment and are instead included in the Other/Elimination column. 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.
The Company’s business line reporting system derives segment information 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. These methodologies are applied in connection with funds transfer pricing and assignment of overhead costs
110
among segments. Funds transfer pricing was used in the determination of net interest income. A standard cost for funds used is
applied to assets, and a credit for funds provided is applied to liabilities based on their maturity, prepayment and/or repricing
characteristics. Income and expense that directly relate to segment operations are recorded in the segment when incurred.
Expenses that indirectly support the segments are allocated based on the most appropriate method available.
The Company uses a funds transfer pricing method to value funds used (e.g., loans, fixed assets, and cash) and funds
provided (e.g., deposits, borrowings, and equity) by the business segments and their components. This process assigns a
specific value to each new source or use of funds with a maturity, based on current swap rates, thus determining an interest
spread at the time of the transaction. Non-maturity assets and liabilities are valued using weighted average pools. The funds
transfer pricing process attempts to remove interest rate risk from valuation, allowing management to compare profitability
under various rate environments.
The following tables present 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.
Segment Income Statement Data
(In thousands)
Year ended December 31, 2022:
Net interest income
Provision for credit losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income before income taxes
Year ended December 31, 2021:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income before income taxes
Year ended December 31, 2020:
Net interest income
Provision for loan losses
Non-interest income
Investment securities gains, net
Non-interest expense
Income before income taxes
Consumer
Commercial
Wealth
Segment Totals
Other/
Elimination
Consolidated
Totals
$
$
$
$
$
$
339,080 $
(17,872)
116,030
—
(300,566)
136,672 $
319,439 $
(23,249)
147,273
—
(293,504)
149,959 $
321,031 $
(31,220)
148,586
—
(297,790)
140,607 $
452,686 $
(1,196)
224,890
—
(365,276)
311,104 $
453,692 $
4,845
211,048
—
(329,313)
340,272 $
414,724 $
(3,724)
194,505
—
(316,004)
289,501 $
74,416 $
(8)
213,388
—
(144,914)
142,882 $
71,522 $
(52)
213,617
—
(136,356)
148,731 $
57,925 $
12
188,942
—
(124,964)
121,915 $
866,182 $
(19,076)
554,308
—
(810,756)
590,658 $
844,653 $
(18,456)
571,938
—
(759,173)
638,962 $
793,680 $
(34,932)
532,033
—
(738,758)
552,023 $
76,003 $
(8,995)
(7,773)
20,506
(38,021)
41,720 $
(9,229) $
84,782
(11,545)
30,059
(46,728)
47,339 $
36,167 $
(102,258)
(26,166)
11,032
(29,620)
(110,845) $
942,185
(28,071)
546,535
20,506
(848,777)
632,378
835,424
66,326
560,393
30,059
(805,901)
686,301
829,847
(137,190)
505,867
11,032
(768,378)
441,178
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.
111
Segment Balance Sheet Data
(In thousands)
Average balances for 2022:
Assets
Loans, including held for sale
Goodwill and other intangible assets
Deposits
Average balances for 2021:
Assets
Loans, including held for sale
Goodwill and other intangible assets
Deposits
$
$
Consumer
Commercial
Wealth
Segment Totals
Other/
Elimination
Consolidated
Totals
1,973,907 $ 10,239,825 $
1,828,792
10,021,057
82,566
13,398,484
11,941,396
67,727
2,066,625 $ 10,550,065 $
10,237,980
1,924,297
80,448
12,838,702
11,990,753
67,832
1,838,023 $ 14,051,755 $ 19,553,562 $ 33,605,317
15,569,741
1,827,283
154,639
746
28,100,697
2,804,781
13,677,132
151,039
28,144,661
1,892,609
3,600
(43,964)
1,584,765 $ 14,201,455 $ 19,962,280 $ 34,163,735
15,685,912
1,575,058
152,626
746
27,784,116
2,965,818
13,737,335
149,026
27,795,273
1,948,577
3,600
(11,157)
The above segment balances include only those items directly associated with the segment. The “Other/Elimination”
column includes unallocated bank balances not associated with a segment (such as investment securities and federal funds
sold), balances relating to certain other administrative and corporate functions, and eliminations between segment and non-
segment balances. This column also includes the resulting effect of allocating such items as float, deposit reserve and capital
for the purpose of computing the cost or credit for funds used/provided.
The Company’s reportable segments are strategic lines of business that offer different products and services. They are
managed separately because each line services a specific customer need, requiring different performance measurement analyses
and marketing strategies. The performance measurement of the 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.
112
14. Common and Preferred Stock*
On December 19, 2022, the Company distributed a 5% stock dividend on its $5 par common stock for the 29th consecutive
year. All per common share data in this report has been restated to reflect the stock dividend.
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 following table. Nonvested
share-based awards are further discussed in Note 11, Stock-Based Compensation.
Basic income per share is based on the weighted average number of common shares outstanding during the year. Diluted
income per share gives effect to all dilutive potential common shares that were outstanding during the year. Presented below is
a summary of the components used to calculate basic and diluted income per common share, which have been restated for all
stock dividends.
(In thousands, except per share data)
Basic income per common share:
Net income attributable to Commerce Bancshares, Inc.
Less preferred stock dividends
Net income available to common shareholders
Less income allocated to nonvested restricted stock
Net income allocated to common stock
Weighted average common shares outstanding
Basic income per common share
Diluted income per common share:
Net income available to common shareholders
Less income allocated to nonvested restricted stock
Net income allocated to common stock
Weighted average common shares outstanding
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
Diluted income per common share
2022
2021
2020
$
$
$
$
$
$
488,399 $
—
488,399
4,450
483,949 $
125,275
3.86 $
488,399 $
4,442
483,957 $
125,275
285
125,560
3.85 $
530,765 $
—
530,765
4,846
525,919 $
127,738
4.12 $
530,765 $
4,838
525,927 $
127,738
300
128,038
4.11 $
354,057
11,966
342,091
3,215
338,876
128,286
2.64
342,091
3,211
338,880
128,286
248
128,534
2.64
Unexercised stock appreciation rights of 163 thousand, 92 thousand and 333 thousand were excluded from the computation
of diluted income per share for the years ended December 31, 2022, 2021 and 2020, respectively, because their inclusion would
have been anti-dilutive.
On September 1, 2020, the Company redeemed all outstanding shares of its 6.00% Series B Non-Cumulative Perpetual
Preferred Stock, $1.00 par value per share, (Series B Preferred Stock) and the corresponding depositary shares representing
fractional interests in the Series B Preferred Stock (Series B Depositary Shares). The 6,000,000 depositary shares, each
representing a 1/1,000th interest in a share of Series B Preferred Stock, were redeemed simultaneously with the redemption of
the Series B Preferred Stock at a redemption price of $25 per depositary share. Regular dividends on the outstanding shares of
the Series B Preferred Stock were paid separately on September 1, 2020 to all holders of record as of August 14, 2020, in the
customary manner, and future dividends ceased to accrue. For the year ended December 31, 2020, preferred stock dividends
totaled $12.0 million, and included $5.2 million related to the preferred stock redemption, which is the excess of the redemption
costs over the book value of the preferred stock.
The Company maintains a treasury stock buyback program authorized by its Board of Directors. The most recent
authorization in April 2022 approved future purchases of 5,000,000 shares of the Company's common stock. At December 31,
2022, 3,112,058 shares of common stock remained available for purchase under the current authorization.
113
The table below shows activity in the outstanding shares of the Company’s common stock during the past three years.
Shares in the table below are presented on an historical basis and have not been restated for the annual 5% stock dividends.
(In thousands)
Shares outstanding at January 1
Issuance of stock:
Awards and sales under employee and director plans
5% stock dividend
Other purchases of treasury stock
Other
Shares outstanding at December 31
Years Ended December 31
2022
2021
2020
121,436
117,138
112,132
306
5,953
(2,684)
(12)
124,999
328
5,790
(1,807)
(13)
121,436
335
5,574
(887)
(16)
117,138
* Except as noted in the above table, all share and per share amounts in this footnote have been restated for the 5% common
stock dividend distributed in 2022.
114
15. Regulatory Capital Requirements
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory and additional discretionary actions by regulators that could
have a direct material effect on the Company’s financial statements. The regulations require the Company to meet specific
capital adequacy guidelines that involve quantitative measures of the Company’s assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The Company’s capital classification is also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
The following tables show the capital amounts and ratios for the Company (on a consolidated basis) and the Bank, together
with the minimum capital adequacy and well-capitalized capital requirements, at the last two year ends.
(Dollars in thousands)
December 31, 2022
Total Capital (to risk-weighted assets):
Actual
Minimum Capital
Adequacy Requirement
Well-Capitalized Capital
Requirement
Amount
Ratio
Amount
Ratio
Amount
Ratio
Commerce Bancshares, Inc. (consolidated)
$ 3,600,920
14.89%
$ 1,934,274
8.00%
N.A.
N.A.
Commerce Bank
3,125,987
13.05
1,916,529
8.00
$ 2,395,661
10.00%
Tier I Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 3,417,223
14.13%
$ 1,450,705
6.00%
N.A.
N.A.
Commerce Bank
2,942,291
12.28
1,437,397
6.00
$ 1,916,529
8.00%
Tier I Common Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 3,417,223
14.13%
$ 1,088,029
4.50%
N.A.
N.A.
Commerce Bank
2,942,291
12.28
1,078,047
4.50
$ 1,557,180
6.50%
Tier I Capital (to adjusted quarterly average assets):
(Leverage Ratio)
Commerce Bancshares, Inc. (consolidated)
$ 3,417,223
10.34%
$ 1,322,102
4.00%
N.A.
N.A.
Commerce Bank
December 31, 2021
Total Capital (to risk-weighted assets):
2,942,291
8.86
1,328,220
4.00
$ 1,660,275
5.00%
Commerce Bancshares, Inc. (consolidated)
$ 3,399,880
15.12%
$ 1,798,700
8.00%
N.A.
N.A.
Commerce Bank
2,939,345
13.19
1,783,288
8.00
$ 2,229,110
10.00%
Tier I Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 3,225,044
14.34%
$ 1,349,025
6.00%
N.A.
N.A.
Commerce Bank
2,764,509
12.40
1,337,466
6.00
$ 1,783,288
8.00%
Tier I Common Capital (to risk-weighted assets):
Commerce Bancshares, Inc. (consolidated)
$ 3,225,044
14.34%
$ 1,011,769
4.50%
N.A.
N.A.
Commerce Bank
2,764,509
12.40
1,003,100
4.50
$ 1,448,922
6.50%
Tier I Capital (to adjusted quarterly average assets):
(Leverage Ratio)
Commerce Bancshares, Inc. (consolidated)
$ 3,225,044
9.13%
$ 1,412,370
4.00%
N.A.
N.A.
Commerce Bank
2,764,509
7.86
1,406,785
4.00
$ 1,758,482
5.00%
The minimum required ratios for well-capitalized banks (under prompt corrective action provisions) are 6.5% for Tier I
common capital, 8.0% for Tier I capital, 10.0% for Total capital and 5.0% for the leverage ratio.
At December 31, 2022 and 2021, the Company met all capital requirements to which it is subject, and the Bank’s capital
position exceeded the regulatory definition of well-capitalized.
115
16. Revenue from Contracts with Customers
The core principle of ASU 2014-09 Revenue from Contracts with Customers is that an entity should recognize revenue to
reflect 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 year ended December 31, 2022, approximately 63% of
the Company’s total revenue was comprised of net interest income, which is not within the scope of this guidance. Of the
remaining revenue, those items that were subject to this guidance mainly included fees for bank card, trust, deposit account
services and consumer brokerage services.
The following table disaggregates non-interest income subject to ASU 2014-09 by major product line.
(In thousands)
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Consumer brokerage services
Other non-interest income
Total non-interest income from contracts with customers
Other non-interest income (1)
Total non-interest income
For the Years Ended December 31
2022
2021
2020
176,144 $
184,719
94,381
19,117
34,742
509,103
37,432
546,535 $
167,891 $
188,227
97,217
18,362
27,223
498,920
61,473
560,393 $
151,797
160,637
93,227
15,095
31,040
451,796
54,071
505,867
$
$
(1) This revenue is not within the scope of ASU 2014-09, and includes fees relating to capital market activities, loan fees and sales, derivative instruments,
standby letters of credit and various other transactions.
The following table presents the opening and closing receivable balances for the years ended December 31, 2022 and 2021
for the Company’s significant revenue categories subject to ASU 2014-09.
(In thousands)
Bank card transaction fees
Trust fees
Deposit account charges and other fees
Consumer brokerage services
December 31, 2022 December 31, 2021 December 31, 2020
$
17,254 $
16,424 $
14,199
2,038
6,631
949
2,222
6,702
391
2,071
6,933
432
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. A description of these revenue categories follows.
116
Bank Card Transaction Fees
The following table presents the components of bank card fee income.
(In thousands)
Debit card:
Fee income
Expense for network charges
Net debit card fees
Credit card:
Fee income
Expense for network charges and rewards
Net credit card fees
Corporate card:
Fee income
Expense for network charges and rewards
Net corporate card fees
Merchant:
Fee income
Fees to cardholder banks
Expense for network charges
Net merchant fees
For the Years Ended December 31
2022
2021
2020
$
44,240 $
44,170 $
(3,272)
40,968
(3,160)
41,010
31,609
(17,049)
14,560
29,214
(14,070)
15,144
217,539
(117,527)
100,012
197,483
(105,782)
91,701
34,583
(10,425)
(3,554)
20,604
33,019
(9,640)
(3,343)
20,036
39,862
(2,218)
37,644
24,921
(11,528)
13,393
179,251
(96,877)
82,374
29,660
(8,115)
(3,159)
18,386
151,797
Total bank card transaction fees
$
176,144 $
167,891 $
The majority of debit and credit card fees are reported in the Consumer segment, while corporate card and merchant fees are
reported in the Commercial segment.
Debit and Credit Card Fees
The Company issues debit and credit cards to its retail and commercial banking customers who use the cards to purchase
goods and services from merchants through an electronic payment system. As a card issuer, the Company earns fees, including
interchange income, for processing the cardholder’s purchase transaction with a merchant through a settlement network.
Purchases are charged directly to a customer’s checking account (in the case of a debit card), or are posted to a customer’s
credit card account. The fees earned are established by the settlement network and are dependent on the type of transaction
processed but are typically based on a per unit charge. Interchange income, the largest component of debit and credit card fees,
is settled daily through the networks. The services provided to the cardholders include issuing and maintaining cards, settling
purchases with merchants, and maintaining memberships in various card networks to facilitate processing. These services are
considered one performance obligation, as one of the services would not be performed without the others. The performance
obligation is satisfied as services are rendered for each purchase transaction, and income is immediately recognized.
In order to participate in the settlement network process, the Company must pay various transaction-related costs,
established by the networks, including membership fees and a per unit charge for each transaction. These expenses are
recorded net of the card fees earned.
Consumer credit card products offer cardholders rewards that can be later redeemed for cash, goods or services to encourage
card usage. Reward programs must meet network requirements based on the type of card issued. The expense associated with
the rewards granted are recorded net of the credit card fees earned.
Commercial card products offer cash rewards to corporate cardholders to encourage card usage in facilitating corporate
payments. The Company pays cash rewards based on contractually agreed upon amounts, normally as a percent of each sales
transaction. The expense associated with the cash rewards program is recorded net of the corporate card fees earned.
117
Merchant Fees
The Company offers merchant processing services to its business customers to enable them to accept credit and debit card
payments. Merchant processing activities include gathering merchant sales information, authorizing sales transactions and
collecting the funds from card issuers using the networks. The merchant is charged a merchant discount fee for the services
based on agreed upon pricing between the merchant and the Company. Merchant fees are recorded net of outgoing interchange
costs paid to the card issuing banks and net of other network costs as shown in the table above.
Merchant services provided are considered one performance obligation, as one of the services would not be performed
without the others. The performance obligation is satisfied as services are rendered for each settlement transaction and income
is immediately recognized. Income earned from merchant fees settles with the customer according to terms negotiated in
individual customer contracts. The majority of customers settle with the Company at least monthly.
Trust Fees
The following table shows the components of revenue within trust fees, which are reported within the Wealth segment.
(In thousands)
Private client
Institutional
Other
Total trust fees
For the Years Ended December 31
2022
2021
2020
$
$
147,239 $
147,653 $
123,941
31,525
5,955
33,890
6,684
30,544
6,152
184,719 $
188,227 $
160,637
The Company provides trust and asset management services to both private client and institutional trust customers including
asset custody, investment advice, and reporting and administrative services. Other specialized services such as tax preparation,
financial planning, representation and other related services are provided as needed. Trust fees are generally earned monthly
and billed based on a rate multiplied by the fair value of the customer's trust assets. The majority of customer trust accounts are
billed monthly. However, some accounts are billed quarterly, and a small number of accounts are billed semi-annually or
annually, in accordance with agreements in place with the customer. The Company accrues trust fees monthly based on an
estimate of fees due and either directly charges the customer’s account the following month or invoices the customer for fees
due according to the billing schedule.
The Company maintains written product pricing information which is used to bill each trust customer based on the services
provided. Providing trust services is considered to be a single performance obligation that is satisfied on a monthly basis,
involving the monthly custody of customer assets, statement rendering, periodic investment advice where applicable, and other
specialized services as needed. As such, performance obligations are considered to be satisfied at the conclusion of each month
while trust fee income is also recognized monthly.
Deposit Account Charges and Other Fees
The following table shows the components of revenue within deposit account charges and other fees.
(In thousands)
Corporate cash management fees
Overdraft and return item fees
Other service charges on deposit accounts
Total deposit account charges and other fees
For the Years Ended December 31
2022
2021
2020
$
$
52,501 $
19,938
21,942
94,381 $
50,051 $
24,157
23,009
97,217 $
46,762
22,951
23,514
93,227
Approximately 60% of this revenue is reported in the Commercial segment, while the remainder is reported in the Consumer
segment.
The Company provides corporate cash management services to its business and non-profit customers to meet their various
transaction processing needs. Such services include deposit and check processing, lockbox, remote deposit, reconciliation,
online banking and other similar transaction processing services. The Company maintains unit prices for each type of service,
and the customer is billed based on transaction volumes processed monthly. The customer is usually billed either monthly or
118
quarterly, however, some customers may be billed semi-annually or annually. The customer may pay for the cash management
services either by paying in cash or using the value of deposit balances (formula provided to the customer) held at the
Company. The Company’s performance obligation for corporate cash management services is the processing of items over a
monthly term, and the obligations are satisfied at the conclusion of each month.
Overdraft fees are charged to customers when daily checks and other withdrawals to customers’ accounts exceed balances
on hand. Fees are based on a unit price multiplied by the number of items processed whose total amounts exceed the available
account balance. The daily overdraft charge is calculated and the fee is posted to the customer’s account each day. The
Company’s performance obligation for overdraft transactions is based on the daily transaction processed and the obligation is
satisfied as each day’s transaction processing is concluded. In September 2022, as discussed in the Non-Interest Income section
of Item 7, the Company implemented enhancements to consumer checking accounts that eliminated return item fees and are
expected to lower future overdraft fees for customers.
Other deposit fees include numerous smaller fees such as monthly statement fees, foreign ATM processing fees,
identification restoration fees, and stop payment fees. Such fees are mostly billed to customers directly on their monthly
deposit account statements, or in the case of foreign ATM processing fees, the fee is charged to the customer on the day that
transactions are processed. Performance obligations for all of these various services are satisfied at the time that the service is
rendered.
Consumer Brokerage Services
The following shows the components of revenue within consumer brokerage services, and nearly all of this revenue is
reported in the Company's Wealth segment.
(In thousands)
Commission income
Managed account services
Total consumer brokerage services
For the Years Ended December 31
2022
2021
2020
$
$
10,359 $
8,758
19,117 $
9,328 $
9,034
18,362 $
8,002
7,093
15,095
Consumer brokerage services revenue is comprised of commissions received upon the execution of purchases and sales of
mutual fund shares and equity securities, in addition to sales of annuities and certain limited insurance products in an agency
capacity. Also, fees are earned on professionally managed advisory programs through arrangements with sub-advisors.
Payment from the customer is due upon settlement date for purchases and sales of securities, at the purchase date for annuities
and insurance products, and upon inception of the service period for advisory programs.
Most of the contracts (except advisory contracts) encompass two types of performance obligations. The first is an obligation
to provide account maintenance, record keeping and custodial services throughout the contract term. The second is the
obligation to provide trade execution services for the customers' purchases and sales of products mentioned above. The first
obligation is satisfied over time as the service period elapses, while the second type of obligation is satisfied upon the execution
of each purchase/sale transaction. Contracts for advisory services contain a single performance obligation comprised of
providing the management services and related reporting/administrative services over the contract term.
The transaction price of the contracts (except advisory contracts) is a commission charged at the time of trade execution.
The commission varies across different security types, insurance products and mutual funds. It is generally determined by
standardized price lists published by the Company and its mutual fund and insurance vendors. Because the transaction price
relates specifically to the trade execution, it has been allocated to that performance obligation and is recorded at the time of
execution. The fee for advisory services is charged to the customer in advance of the quarterly service period, based on the
account balance at the beginning of the period. Revenue is recognized ratably over the service period.
Other Non-Interest Income from Contracts with Customers
Other non-interest income from contracts with customers consists mainly of various customer deposit related fees such as
ATM fees and gains on sales of tax credits, foreclosed assets, and bank premises and equipment. Performance obligations for
these services consist mainly of the execution of transactions for sales of various properties or providing specific deposit related
transactions. Fees from these revenue sources are recognized when the performance obligation is completed, at which time
cash is received by the Company.
119
17. 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 other assets and liabilities
at fair value 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.
When determining the fair value measurements for assets and liabilities required or permitted to be recorded or disclosed at
fair value, the Company considers the principal or most advantageous market in which it would transact and considers
assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active
and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active
markets, the Company looks to observable market data for similar assets and liabilities. Nevertheless, certain assets and
liabilities are not actively traded in observable markets, and the Company must use alternative valuation techniques to derive an
estimated fair value measurement.
120
Instruments Measured at Fair Value on a Recurring Basis
The table below presents the carrying values of assets and liabilities measured at fair value on a recurring basis at December
31, 2022 and 2021. There were no transfers among levels during these years.
(In thousands)
December 31, 2022
Assets:
Residential mortgage loans held for sale
Available for sale debt securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities
Equity securities
Private equity investments
Derivatives *
Assets held in trust for deferred compensation plan
Total assets
Liabilities:
Derivatives *
Liabilities held in trust for deferred compensation plan
Total liabilities
December 31, 2021
Assets:
Residential mortgage loans held for sale
Available for sale debt securities:
U.S. government and federal agency obligations
Government-sponsored enterprise obligations
State and municipal obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Trading debt securities
Equity securities
Private equity investments
Derivatives *
Assets held in trust for deferred compensation plan
Total assets
Liabilities:
Derivatives *
Liabilities held in trust for deferred compensation plan
Total liabilities
*The fair value of each class of derivative is shown in Note 19.
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Fair Value
$
— $
— $
— $
—
1,035,406
43,108
1,767,109
4,308,427
1,211,607
3,397,801
474,858
43,523
6,210
178,127
60,492
17,856
12,544,524
1,035,406
—
—
—
—
—
—
—
6,210
—
—
17,856
1,059,472
—
43,108
1,765,268
4,308,427
1,211,607
3,397,801
474,858
43,523
—
—
60,458
—
11,305,050
54,984
17,856
72,840 $
—
17,856
17,856 $
54,865
—
54,865 $
—
—
1,841
—
—
—
—
—
—
178,127
34
—
180,002
119
—
119
5,570 $
— $
5,570 $
—
$
$
1,080,720
51,755
2,096,827
5,683,000
1,366,477
3,539,219
632,029
46,235
7,153
147,406
41,842
21,794
14,720,027
1,080,720
—
—
—
—
—
—
—
7,153
—
—
21,794
1,109,667
—
51,755
2,094,843
5,683,000
1,366,477
3,539,219
632,029
46,235
—
—
40,994
—
13,460,122
12,101
21,794
33,895 $
—
21,794
21,794 $
11,824
—
11,824 $
$
—
—
1,984
—
—
—
—
—
—
147,406
848
—
150,238
277
—
277
121
Valuation methods for instruments measured at fair value on a recurring basis
Following is a description of the Company’s valuation methodologies used for instruments measured at fair value on a
recurring basis:
Residential mortgage loans held for sale
The Company originates fixed rate, first lien residential mortgage loans that are intended for sale in the secondary market.
Fair value is based on quoted secondary market prices for loans with similar characteristics, which are adjusted to include the
embedded servicing value in the loans. This adjustment represents an unobservable input to the valuation but is not considered
significant given the relative insensitivity of the valuation to changes in this input. Accordingly, these loan measurements are
classified as Level 2.
Available for sale debt securities
For available for sale securities, changes in fair value are recorded in other comprehensive income. This portfolio comprises
the majority of the assets which the Company records at fair value. Most of the portfolio, which includes government-sponsored
enterprise, mortgage-backed and asset-backed securities, are priced utilizing industry-standard models that consider various
assumptions, including time value, yield curves, volatility factors, prepayment speeds, default rates, loss severity, current
market and contractual prices for the underlying financial instruments, as well as other relevant economic measures.
Substantially all of these assumptions are observable in the marketplace, can be derived from observable data, or are supported
by observable levels at which transactions are executed in the marketplace. These measurements are classified as Level 2 in the
fair value hierarchy. Where quoted prices are available in an active market, the measurements are classified as Level 1. Most
of the Level 1 measurements apply to U.S. Treasury obligations.
The fair values of Level 1 and 2 securities in the available for sale portfolio are prices provided by a third-party pricing
service. The prices provided by the third-party pricing service are based on observable market inputs, as described in the
sections below. On a quarterly basis, the Company compares these prices to other independent sources for the same and similar
securities. Variances are analyzed, and, if appropriate, additional research is conducted with the third-party pricing service.
Based on this research, the pricing service may affirm or revise its quoted price. No significant adjustments have been made to
the prices provided by the pricing service. The pricing service also provides documentation on an ongoing basis that includes
reference data, inputs and methodology by asset class, which is reviewed by the Company to ensure that security placement
within the fair value hierarchy is appropriate.
Valuation methods and inputs, by class of security:
•
U.S. government and federal agency obligations
U.S. treasury bills, bonds and notes, including inflation-protected securities, are valued using live data from active
market makers and inter-dealer brokers. Valuations for stripped coupon and principal issues are derived from yield
curves generated from various dealer contacts and live data sources.
•
Government-sponsored enterprise obligations
Government-sponsored enterprise obligations are evaluated using cash flow valuation models. Inputs used are live
market data, cash settlements, Treasury market yields, and floating rate indices such as LIBOR, CMT, and Prime.
•
State and municipal obligations, excluding auction rate securities
A yield curve is generated and applied to bond sectors, and individual bond valuations are extrapolated. Inputs used to
generate the yield curve are bellwether issue levels, established trading spreads between similar issuers or credits,
historical trading spreads over widely accepted market benchmarks, new issue scales, and verified bid information.
Bid information is verified by corroborating the data against external sources such as broker-dealers, trustees/paying
agents, issuers, or non-affiliated bondholders.
•
Mortgage and asset-backed securities
Collateralized mortgage obligations and other asset-backed securities are valued at the tranche level. For each tranche
valuation, the process generates predicted cash flows for the tranche, applies a market based (or benchmark) yield/
spread for each tranche, and incorporates deal collateral performance and tranche level attributes to determine tranche-
specific spreads to adjust the benchmark yield. Tranche cash flows are generated from new deal files and prepayment/
default assumptions. Tranche spreads are based on tranche characteristics such as average life, type, volatility, ratings,
underlying collateral and performance, and prevailing market conditions. The appropriate tranche spread is applied to
the corresponding benchmark, and the resulting value is used to discount the cash flows to generate an evaluated price.
122
Valuation of agency pass-through securities, typically issued under GNMA, FNMA, FHLMC, and SBA programs, are
primarily derived from information from the to-be-announced (TBA) market. This market consists of generic
mortgage pools which have not been received for settlement. Snapshots of the TBA market, using live data feeds
distributed by multiple electronic platforms, are used in conjunction with other indices to compute a price based on
discounted cash flow models.
•
Other debt securities
Other debt securities are valued using active markets and inter-dealer brokers as well as bullet spread scales and option
adjusted spreads. The spreads and models use yield curves, terms and conditions of the bonds, and any special
features (e.g., call or put options and redemption features).
•
Auction rate securities
The available for sale portfolio includes certain auction rate securities. Due to the illiquidity in the auction rate
securities market in recent years, the fair value of these securities cannot be based on observable market prices. The
fair values of these securities are estimated using a discounted cash flows analysis which is discussed more fully in the
Level 3 Inputs section of this note. Because many of the inputs significant to the measurement are not observable,
these measurements are classified as Level 3 measurements.
Trading debt securities
The securities in the Company’s trading portfolio are priced by averaging several broker quotes for similar instruments and
are classified as Level 2 measurements.
Equity securities with readily determinable fair values
Equity securities are priced using the market prices for each security from the major stock exchanges or other electronic
quotation systems. These are generally classified as Level 1 measurements. Stocks which trade infrequently are classified as
Level 2.
Private equity investments
These securities are held by the Company’s private equity subsidiary and are included in other investment securities in the
consolidated balance sheets. Due to the absence of quoted market prices, valuation of these nonpublic investments requires
significant management judgment. These fair value measurements, which are discussed in the Level 3 Inputs section of this
note, are classified as Level 3.
Derivatives
The Company’s derivative instruments include interest rate swaps and floors , foreign exchange forward contracts, and
certain credit risk guarantee agreements. When appropriate, the impact of credit standing as well as any potential credit
enhancements, such as collateral, has been considered in the fair value measurement.
•
Valuations for interest rate swaps are derived from a proprietary model whose significant inputs are readily observable
market parameters, primarily yield curves used to calculate current exposure. Counterparty credit risk is incorporated
into the model and calculated by applying a net credit spread over LIBOR to the swap's total expected exposure over
time. The net credit spread is comprised of spreads for both the Company and its counterparty, derived from
probability of default and other loss estimate information obtained from a third party credit data provider or from the
Company's Credit Department when not otherwise available. The credit risk component is not significant compared to
the overall fair value of the swaps. The results of the model are constantly validated through comparison to active
trading in the marketplace.
Parties to swaps requiring central clearing are required to post collateral (generally in the form of cash or marketable
securities) to an authorized clearing agency that holds and monitors the collateral. The Company's clearing
counterparty characterizes a component of this collateral, known as variation margin, as a legal settlement of the
derivative contract exposure, and as a result, the variation margin is considered in determining the fair value of the
derivative.
Valuations for interest rate floors are also derived from a proprietary model whose significant inputs are readily
observable market parameters, primarily yield curves and volatility surfaces. The model uses market standard
methodology of discounting the future expected cash receipts that would occur if variable interest rates fall below the
strike rates of the floors. The model also incorporates credit valuation adjustments of both the Company's and the
123
counterparties' non-performance risk. The credit valuation adjustment component is not significant compared to the
overall fair value of the floors.
The fair value measurements of interest rate swaps and floors are classified as Level 2 due to the observable nature of
the significant inputs utilized.
•
•
•
Fair value measurements for foreign exchange contracts are derived from a model whose primary inputs are quotations
from global market makers and are classified as Level 2.
The Company’s contracts related to credit risk guarantees are valued under a proprietary model which uses
unobservable inputs and assumptions about the creditworthiness of the counterparty (generally a Bank customer).
Customer credit spreads, which are based on probability of default and other loss estimates, are calculated internally by
the Company's Credit Department, as mentioned above, and are based on the Company's internal risk rating for each
customer. Because these inputs are significant to the measurements, they are classified as Level 3.
Derivatives relating to residential mortgage loan sale activity include commitments to originate mortgage loans held
for sale, forward loan sale contracts, and forward commitments to sell TBA securities. The fair values of loan
commitments and sale contracts are estimated using quoted market prices for loans similar to the underlying loans in
these instruments. The valuations of loan commitments are further adjusted to include embedded servicing value and
the probability of funding. These assumptions are considered Level 3 inputs and are significant to the loan
commitment valuation; accordingly, the measurement of loan commitments is classified as Level 3. The fair value
measurement of TBA contracts is based on security prices published on trading platforms and is classified as Level 2.
Assets held in trust for deferred compensation plan
Assets held in an outside trust for the Company’s deferred compensation plan consist of investments in mutual funds. The
fair value measurements are based on quoted prices in active markets and classified as Level 1. The Company has recorded an
asset representing the total investment amount. The Company has also recorded a corresponding liability, representing the
Company’s liability to the plan participants.
124
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:
(In thousands)
Year ended December 31, 2022:
Balance at January 1, 2022
Total gains or losses (realized/unrealized):
Included in earnings
Included in other comprehensive income *
Discount accretion
Purchases of private equity securities
Sale / pay down of private equity securities
Capitalized interest/dividends
Purchase of risk participation agreement
Sale of risk participation agreement
Balance at December 31, 2022
Total gains or losses for the year included in earnings attributable
to the change in unrealized gains or losses relating to assets still
held at December 31, 2022
Total gains or losses for the year included in other comprehensive
income attributable to the change in unrealized gains or losses
relating to assets still held at December 31, 2022
Year ended December 31, 2021:
Balance at January 1, 2021
Total gains or losses (realized/unrealized):
Included in earnings
Included in other comprehensive income *
Investment securities called
Discount accretion
Purchases of private equity securities
Sale / pay down of private equity securities
Capitalized interest/dividends
Purchase of risk participation agreement
Sale of risk participation agreement
Balance at December 31, 2021
Total gains or losses for the year included in earnings attributable
to the change in unrealized gains or losses relating to assets still
held at December 31, 2021
Total gains or losses for the year included in other comprehensive
income attributable to the change in unrealized gains or losses
relating to assets still held at December 31, 2021
$
$
$
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)
State and
Municipal
Obligations
Private Equity
Investments
Derivatives
Total
$
1,984 $
147,406 $
571 $
149,961
—
(148)
5
—
—
—
—
—
43,833
(591)
43,242
—
—
12,281
(25,437)
44
—
—
—
—
—
—
—
459
(524)
(148)
5
12,281
(25,437)
44
459
(524)
1,841 $
178,127 $
(85) $
179,883
— $
35,333 $
170 $
35,503
(148) $
— $
— $
(148)
7,968 $
94,368 $
2,741 $
105,077
$
$
$
$
36,344
(2,650)
—
(170)
(6,000)
186
—
—
—
—
—
—
—
31,449
(16,523)
1,768
—
—
1,984 $
—
147,406 $
—
—
—
—
—
—
685
(205)
571 $
33,694
(170)
(6,000)
186
31,449
(16,523)
1,768
685
(205)
149,961
— $
28,654 $
475 $
29,129
11 $
— $
— $
11
* Included in "net unrealized gains (losses) on securities" in the consolidated statements of comprehensive income.
125
Gains and losses on the Level 3 assets and liabilities in the table above are reported in the following income categories:
(In thousands)
Year ended December 31, 2022:
Loan Fees and
Sales
Other Non-
Interest Income
Investment
Securities Gains
(Losses), Net
Total
Total gains or losses included in earnings
Change in unrealized gains or losses relating to assets still held at
December 31, 2022
Year ended December 31, 2021:
Total gains or losses included in earnings
Change in unrealized gains or losses relating to assets still held at
December 31, 2021
$
$
$
$
(763) $
172 $
43,833 $
43,242
— $
170 $
35,333 $
35,503
(2,463) $
(187) $
36,344 $
33,694
764 $
(289) $
28,654 $
29,129
Level 3 Inputs
As shown above, the Company's significant Level 3 measurements which employ unobservable inputs that are readily
quantifiable pertain to auction rate securities (ARS) held by the Bank, investments in portfolio concerns held by the Company's
private equity subsidiary, and held for sale residential mortgage loan commitments. ARS are included in state and municipal
securities and totaled $1.8 million at December 31, 2022, while private equity investments, included in other securities, totaled
$178.1 million. At December 31, 2022, there were no mortgage loan commitments outstanding.
For the the Company's significant Level 3 measurements at December 31, 2022, information about the significant
unobservable inputs is presented in the table and discussions below.
Quantitative Information about Level 3 Fair Value Measurements
Auction rate securities
Valuation Technique
Discounted cash flow
Unobservable Input
Estimated market recovery period
Estimated market rate
Private equity investments
Market comparable companies EBITDA multiple
* Unobservable inputs were weighted by the relative fair value of the instruments.
Range
5 years
7.8%
6.5
7.2% -
-
4.0
Weighted
Average*
5 years
7.5%
5.4
The fair values of ARS are estimated using a discounted cash flows analysis in which estimated cash flows are based on
mandatory interest rates paid under failing auctions and projected over an estimated market recovery period. Under normal
conditions, ARS traded in weekly auctions and were considered liquid investments. The Company's estimate of when these
auctions might resume is highly judgmental and subject to variation depending on current and projected market conditions. Few
auctions of these securities have been successful in recent years, and most secondary transactions have been privately arranged.
Estimated cash flows during the period over which the Company expects to hold the securities are discounted at an estimated
market rate. These securities are comprised of bonds issued by various states and municipalities for healthcare and student
lending purposes, and market rates are derived for each type. Market rates are calculated at each valuation date using a LIBOR
or Treasury based rate plus spreads representing adjustments for liquidity premium and nonperformance risk. The spreads are
developed internally by employees in the Company's bond department. An increase in the holding period alone would result in
a higher fair value measurement, while an increase in the estimated market rate (the discount rate) alone would result in a lower
fair value measurement. The valuation of the ARS portfolio is reviewed on a quarterly basis by the Company's chief
investment officers.
The fair values of the Company's private equity investments are based on a determination of fair value of the investee
company less preference payments assuming the sale of the investee company. Investee companies are normally non-public
entities. The fair value of the investee company is determined by reference to the investee's total earnings before interest,
depreciation/amortization, and income taxes (EBITDA) multiplied by an EBITDA factor. EBITDA is normally determined
based on a trailing prior period adjusted for specific factors including current economic outlook, investee management, and
specific unique circumstances such as sales order information, major customer status, regulatory changes, etc. The EBITDA
multiple is based on management's review of published trading multiples for recent private equity transactions and other
judgments and is derived for each individual investee. The fair value of the Company's investment is then calculated based on
its ownership percentage in the investee company. On a quarterly basis, these fair value analyses are reviewed by a valuation
committee consisting of investment managers and senior Company management.
The significant unobservable inputs used in the fair value measurement of the Company’s derivative commitments to
originate residential mortgage loans are the percentage of commitments that are actually funded and the mortgage servicing
126
value that is inherent in the underlying loan value. A significant increase in the rate of loans that fund would result in a larger
derivative asset or liability. A significant increase in the inherent mortgage servicing value would result in an increase in the
derivative asset or a reduction in the derivative liability. The probability of funding and the inherent mortgage servicing values
are directly impacted by changes in market rates and will generally move in the same direction as interest rates.
Instruments Measured at Fair Value on a Nonrecurring Basis
For assets measured at fair value on a nonrecurring basis during 2022 and 2021, and still held as of December 31, 2022 and
2021, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation
assumptions used to determine each adjustment, and the carrying value of the related individual assets or portfolios at
December 31, 2022 and 2021.
(In thousands)
Fair Value
Fair Value Measurements Using
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total Gains
(Losses)
Balance at December 31, 2022
Collateral dependent loans
Mortgage servicing rights
Long-lived assets
Balance at December 31, 2021
Collateral dependent loans
Mortgage servicing rights
Long-lived assets
$
1,988 $
10,929
480
$
1,664 $
10,966
1,018
— $
—
—
— $
—
—
— $
—
—
— $
—
—
1,988 $
(2,090)
10,929
480
1,664 $
10,966
1,018
304
(965)
(213)
1,799
(1,101)
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 on the consolidated balance sheets, and information about these inputs is presented in the
table below.
Quantitative Information about Level 3 Fair Value Measurements
Valuation Technique
Unobservable Input
Mortgage servicing rights
Discounted cash flow
Discount rate
Prepayment speeds (CPR)*
Loan servicing costs - annually per loan
Range
9.51 % -
9.72 %
6.26 % -
7.28 %
Weighted
Average*
9.60 %
6.43 %
Performing loans
Delinquent loans
$ 70
- $ 72
$
71
$ 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.
Valuation methods for instruments measured at fair value on a nonrecurring basis
Following is a description of the Company’s valuation methodologies used for other financial and nonfinancial instruments
measured at fair value on a nonrecurring basis.
Collateral dependent loans
While the overall loan portfolio is not carried at fair value, the Company periodically records nonrecurring adjustments to
the carrying value of loans based on fair value measurements for partial charge-offs of the uncollectible portions of those loans.
Nonrecurring adjustments also include certain impairment amounts for collateral dependent loans when establishing the
allowance for credit losses on loans. Such amounts are generally based on the fair value of the underlying collateral supporting
127
the loan. In determining the value of real estate collateral, the Company relies on external and internal appraisals of property
values depending on the size and complexity of the real estate collateral. The Company maintains a staff of qualified appraisers
who also review third party appraisal reports for reasonableness. In the case of non-real estate collateral, reliance is placed on a
variety of sources, including external estimates of value and judgments based on the experience and expertise of internal
specialists. Values of all loan collateral are regularly reviewed by credit administration. Unobservable inputs to these
measurements, which include estimates and judgments often used in conjunction with appraisals, are not readily quantifiable.
These measurements are classified as Level 3. Nonrecurring adjustments to the carrying value of loans based on fair value
measurements at December 31, 2022 and 2021 are shown in the table above.
Mortgage servicing rights
The Company initially measures its mortgage servicing rights at fair value and amortizes them over the period of estimated
net servicing income. They are periodically assessed for impairment based on fair value at the reporting date. Mortgage
servicing rights do not trade in an active market with readily observable prices. Accordingly, the fair value is estimated based
on a valuation model which calculates the present value of estimated future net servicing income. The model incorporates
assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds,
market discount rates, cost to service, float earnings rates, and other ancillary income, including late fees. The fair value
measurements are classified as Level 3.
Long-lived assets
When investments in branch facilities and various office buildings are determined to be impaired, their carrying values are
written down to estimated fair value, or estimated fair value less cost to sell if the property is held for sale. Fair value is
estimated in a process which considers current local commercial real estate market conditions and the judgment of the sales
agent and often involves obtaining third party appraisals from certified real estate appraisers. The carrying amounts of these
real estate holdings are regularly monitored by real estate professionals employed by the Company. These fair value
measurements are classified as Level 3. Unobservable inputs to these measurements, which include estimates and judgments
often used in conjunction with appraisals, are not readily quantifiable.
128
18. 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 December 31, 2022 and 2021:
Estimated Fair Value at December 31, 2022
Level 1
Level 2
Level 3
Total
$
— $
—
—
—
—
—
—
—
—
—
1,347,328
3,289,655
2,654,423
1,999,788
295,005
538,268
14,666
— $ 5,506,128 $ 5,506,128
1,347,328
—
3,289,655
—
2,654,423
—
1,999,788
—
295,005
—
—
538,268
14,666
—
— 15,645,261 15,645,261
4,964
—
225,441 12,511,649
49,505
795,574
389,140
452,496
60,492
17,856
$ 1,950,613 $ 11,310,014 $ 16,666,310 $ 29,926,937
4,964
1,041,616 11,244,592
—
—
—
—
60,458
—
49,505
—
389,140
452,496
—
17,856
—
795,574
—
—
34
—
$ 10,066,356 $
15,126,981
—
159,860
—
—
—
17,856
$ 25,371,053 $
— $
—
—
—
—
8,831
54,865
—
— $ 10,066,356
— 15,126,981
982,613
159,860
2,684,471
8,831
54,984
17,856
63,696 $ 3,667,203 $ 29,101,952
982,613
—
2,684,471
—
119
—
(In thousands)
Financial Assets
Loans:
Business
Real estate - construction and land
Real estate - business
Real estate - personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities
Federal funds sold
Securities purchased under agreements to resell
Interest earning deposits with banks
Cash and due from banks
Derivative instruments
Assets held in trust for deferred compensation plan
Total
Financial Liabilities
Non-interest bearing deposits
Savings, interest checking and money market deposits
Certificates of deposit
Federal funds purchased
Securities sold under agreements to repurchase
Other borrowings
Derivative instruments
Liabilities held in trust for deferred compensation plan
Total
Carrying
Amount
$ 5,661,725
1,361,095
3,406,981
2,918,078
2,059,088
297,207
584,000
14,957
16,303,131
4,964
12,511,649
49,505
825,000
389,140
452,496
60,492
17,856
$ 30,614,233
$ 10,066,356
15,126,981
994,103
159,860
2,681,874
8,831
54,984
17,856
$ 29,110,845
129
Estimated Fair Value at December 31, 2021
Level 1
Level 2
Level 3
Total
$
— $
—
—
—
—
—
—
—
—
—
— $ 5,229,153 $ 5,229,153
1,099,747
1,099,747
—
3,054,481
3,054,481
—
2,809,490
2,809,490
—
2,031,408
2,031,408
—
273,450
273,450
—
536,468
536,468
—
—
6,458
6,458
— 15,040,655 15,040,655
8,615
—
194,197 14,695,628
8,615
1,087,873 13,413,558
2,800
—
3,971,217
305,539
—
21,794
2,800
1,623,856
3,971,217
305,539
41,842
21,794
$ 5,389,223 $ 13,463,167 $ 16,859,556 $ 35,711,946
—
1,623,856
—
—
848
—
—
—
—
—
40,994
—
$ 11,772,374 $
16,598,085
—
43,385
—
—
—
21,794
$ 28,435,638 $
— $
—
—
—
—
12,514
11,824
—
— $ 11,772,374
— 16,598,085
1,438,919
43,385
2,979,677
12,514
12,101
21,794
24,338 $ 4,418,873 $ 32,878,849
1,438,919
—
2,979,677
—
277
—
(In thousands)
Financial Assets
Loans:
Business
Real estate - construction and land
Real estate - business
Real estate - personal
Consumer
Revolving home equity
Consumer credit card
Overdrafts
Total loans
Loans held for sale
Investment securities
Federal funds sold
Securities purchased under agreements to resell
Interest earning deposits with banks
Cash and due from banks
Derivative instruments
Assets held in trust for deferred compensation plan
Total
Financial Liabilities
Non-interest bearing deposits
Savings, interest checking and money market deposits
Certificates of deposit
Federal funds purchased
Securities sold under agreements to repurchase
Other borrowings
Derivative instruments
Liabilities held in trust for deferred compensation plan
Total
Carrying
Amount
$ 5,303,535
1,118,266
3,058,837
2,805,401
2,032,225
275,945
575,410
6,740
15,176,359
8,615
14,695,628
2,800
1,625,000
3,971,217
305,539
41,842
21,794
$ 35,848,794
$ 11,772,374
16,598,085
1,442,614
43,385
2,979,582
12,514
12,101
21,794
$ 32,882,449
130
19. 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)
Interest rate swaps
Interest rate floors
Interest rate caps
Credit risk participation agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale contracts
Forward TBA contracts
Total notional amount
December 31
2022
2021
$
1,981,821
$
2,229,419
1,000,000
152,784
579,925
27,991
—
—
—
—
152,058
485,633
5,119
21,787
1,165
21,000
$
3,742,521
$
2,916,181
The largest group of notional amounts relate to interest rate swap contracts sold to commercial customers who wish to
modify their interest rate sensitivity. Those 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 those minimum requirements.
As of December 31, 2022, the Company holds two interest rate floors with a combined notional value of $1.0 billion to
hedge the risk of declining interest rates on certain floating rate commercial loans. The first floor has a purchased strike rate of
2.50%, is forward-starting beginning on January 1, 2024 and matures on January 1, 2030. In the event that the index rate falls
below zero, the maximum rate spread the Company can earn on the notional amount is limited to 2.50%. The second floor has
a purchased strike rate of 3.00%, is forward-starting beginning on April 1, 2024 and matures on April 1, 2030. In the event that
the index rate on the second floor falls below zero, the maximum rate the Company can earn on the notional amount of the
second floor is limited to 3.00%. The premium paid for these floors totaled $35.8 million. As of December 31, 2022, the
maximum length of time over which the Company is hedging its exposure to lower rates is approximately 6 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 December 31, 2022,
net deferred gains on the interest rate floors totaled $2.4 million (pre-tax) and were recorded in AOCI in the consolidated
balance sheet. As of December 31, 2022, it is expected that $4.9 million (pre-tax) interest rate floor premium amortization will
be reclassified from AOCI into earnings over the next 12 months.
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
December 31, 2022, the total unrealized gains on the monetized cash flow hedges remaining in AOCI was $74.9 million (pre-
tax). The unrealized gains will be reclassified into interest income as the underlying forecasted transactions impact earnings
through the original maturity dates of the hedged forecasted transactions, or approximately within 4.0 years. The estimated
amount of net gains related to the cash flow hedges remaining in AOCI at December 31, 2022 that is expected to be reclassified
into income within the next 12 months is $23.6 million.
131
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 21 on Commitments, Contingencies and 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 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 17 on Fair Value
Measurements. The Company presents derivative assets and derivative liabilities on a gross basis, as other assets and other
liabilities, on its consolidated balance sheets.
(In thousands)
Derivatives designated as hedging instruments:
Interest rate floors
Total derivatives designated as hedging instruments
Derivatives not designated as hedging instruments:
Interest rate swaps *
Interest rate caps
Credit risk participation agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale contracts
Forward TBA contracts
Total derivatives not designated as hedging instruments
Total
Asset Derivatives
December 31
Liability Derivatives
December 31
2022
2021
2022
2021
Fair Value
Fair Value
$
$
$
$
$
$
33,371
33,371
23,894
2,705
34
488
—
—
—
—
—
40,752
147
84
77
764
5
13
$
$
$
$
$
$
—
—
(51,742)
(2,705)
(119)
(418)
—
—
—
—
—
(11,606)
(147)
(277)
(45)
—
(1)
(25)
$
$
27,121
60,492
$
$
41,842
41,842
$
$
(54,984)
(54,984)
$
$
(12,101)
(12,101)
*Certain collateral was posted to and from the Company's clearing party and has been applied to the fair values of the cleared swaps. As a result, these values
are net of variation margin of $27.8 million and $587 thousand for interest rate swaps in an asset position, and $— million and $29.7 million for interest rate
swaps in a liability position, at December 31, 2022 and 2021, respectively.
132
The Company made an election to exclude the initial premiums paid on the interest rate floors from the hedge effectiveness
measurement. Those initial premiums are amortized over the periods between the premium payment month and the contract
maturity month. The pre-tax effects of the gains and losses (both the included and excluded amounts for hedge effectiveness
assessment) recognized in the other comprehensive income from the cash flow hedging instruments and the amounts
reclassified from accumulated other comprehensive income into income (both included and excluded amounts for hedge
effectiveness measurement) are shown in the table below.
Amount of Gain or (Loss) Recognized in
OCI
Location of Gain (Loss)
Reclassified from AOCI into
Income
(In thousands)
For the Year Ended December 31, 2022
Derivatives in cash flow hedging relationships:
Total
Included
Component
Excluded
Component
(In thousands)
Interest rate floors
(2,428) $
(2,428) $
— $
— $
Total
For the Year Ended December 31, 2021
Derivatives in cash flow hedging relationships:
Interest rate floors
Total
For the Year Ended December 31, 2020
Derivatives in cash flow hedging relationships:
— $
— $
— $
— $
$
$
$
$
(2,428)
(2,428) Total
Interest and fees on loans
—
—
Interest and fees on loans
Total
Interest rate floors
Total
$
$
93,497 $ 120,140 $
93,497 $ 120,140 $
(26,643)
(26,643) Total
Interest and fees on loans
Amount of Gain (Loss) Reclassified from
AOCI into Income
Total
Included
Component
Excluded
Component
$
$
$
$
$
$
23,355 $
23,355 $
30,679 $
30,679 $
(7,324)
(7,324)
24,160 $
24,160 $
30,310 $
30,310 $
(6,150)
(6,150)
10,319 $
10,319 $
15,257 $
15,257 $
(4,938)
(4,938)
The gain and loss recognized through various derivative instruments on the consolidated statements of income are shown in
the table below.
(In thousands)
Derivative instruments:
Interest rate swaps
Interest rate caps
Credit risk participation agreements
Foreign exchange contracts
Mortgage loan commitments
Mortgage loan forward sale contracts
Forward TBA contracts
Total
Location of Gain/(Loss) Recognized in
the Consolidated Statements of Income
Amount of Gain/(Loss) Recognized in Income on
Derivative
For the Years
Ended December 31
2022
2021
2020
Other non-interest income
$
2,472
$
3,170
$
Other non-interest income
Other non-interest income
Other non-interest income
Loan fees and sales
Loan fees and sales
Loan fees and sales
16
172
38
(763)
(4)
1,773
15
(187)
78
(2,463)
4
1,777
317
20
413
(111)
2,768
(4)
(1,440)
$
3,704
$
2,394
$
1,963
133
The following table shows the extent to which assets and liabilities relating to derivative instruments have been offset in the
consolidated balance sheets. It also provides information about these instruments which are subject to an enforceable master
netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset.
Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable
securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after
netting is applied); thus amounts of excess collateral are not shown. Most of the derivatives in the following table were
transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.
While the Company is party to master netting arrangements with most of its swap counterparties, the Company does not
offset derivative assets and liabilities under these arrangements on its consolidated balance sheets. Collateral exchanged
between the Company and dealer bank counterparties is generally subject to thresholds and transfer minimums, and usually
consist of marketable securities. By contract, this collateral 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.
(In thousands)
December 31, 2022
Assets:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
Liabilities:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
December 31, 2021
Assets:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
Liabilities:
Derivatives subject to master netting
agreements
Derivatives not subject to master
netting agreements
Total derivatives
Gross Amount
Recognized
Gross Amounts
Offset in the
Balance Sheet
Net Amounts
Presented in the
Balance Sheet
Gross Amounts Not Offset in the
Balance Sheet
Financial
Instruments
Available for
Offset
Collateral
Received/
Pledged
Net Amount
$
60,270 $
— $
60,270 $
(1,007) $
(56,816) $
2,447
222
$
60,492 $
—
— $
222
60,492
$
54,609 $
— $
54,609 $
(1,007) $
— $
53,602
375
$
54,984 $
—
— $
375
54,984
$
40,970 $
— $
40,970 $
(347) $
— $
40,623
872
41,842 $
—
— $
872
41,842
12,019 $
— $
12,019 $
(347) $
(10,146) $
1,526
$
$
82
$
12,101 $
—
— $
82
12,101
134
20. 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. Additional
information about the Company's repurchase agreements is included in Note 8.
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 December 31, 2022 and $400.0 million at December 31, 2021.
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.
(In thousands)
December 31, 2022
Total resale agreements, subject to
master netting arrangements
Total repurchase agreements, subject
to master netting arrangements
December 31, 2021
Total resale agreements, subject to
master netting arrangements
Total repurchase agreements, subject
to master netting arrangements
Gross Amount
Recognized
Gross Amounts
Offset on the
Balance Sheet
Net Amounts
Presented on the
Balance Sheet
Gross Amounts Not Offset in the
Balance Sheet
Financial
Instruments
Available for
Offset
Securities
Collateral
Received/
Pledged
Unsecured
amount
$
1,025,000 $
(200,000) $
825,000 $
— $
(825,000) $
2,881,874
(200,000)
2,681,874
—
(2,681,874)
$
2,025,000 $
(400,000) $
1,625,000 $
— $
(1,625,000) $
3,379,582
(400,000)
2,979,582
—
(2,979,582)
—
—
—
—
135
The table below shows the remaining contractual maturities of repurchase agreements outstanding at December 31, 2022
and 2021, in addition to the various types of marketable securities that have been pledged by the Company as collateral for
these borrowings.
(In thousands)
December 31, 2022
Repurchase agreements, secured by:
U.S. government and federal agency obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Total repurchase agreements, gross amount recognized
December 31, 2021
Repurchase agreements, secured by:
U.S. government and federal agency obligations
Agency mortgage-backed securities
Non-agency mortgage-backed securities
Asset-backed securities
Other debt securities
Total repurchase agreements, gross amount recognized
Remaining Contractual Maturity of the Agreements
Overnight and
continuous
Up to 90 days
Greater than 90
days
Total
$
$
$
$
488,053 $
1,792,314
40,950
293,001
1,924
2,616,242 $
600,866 $
1,844,652
32,299
422,525
32,450
2,932,792 $
26,928 $
21,744
—
—
—
48,672 $
33,373 $
3,908
—
—
—
37,281 $
12,460 $
204,500
—
—
—
216,960 $
9,259 $
400,250
—
—
—
409,509 $
527,441
2,018,558
40,950
293,001
1,924
2,881,874
643,498
2,248,810
32,299
422,525
32,450
3,379,582
136
21. Commitments, Contingencies and Guarantees
The Company engages in various transactions and commitments with off-balance sheet risk in the normal course of business
to meet customer financing needs. The Company uses the same credit policies in making the commitments and conditional
obligations described below as it does for on-balance sheet instruments. The following table summarizes these commitments at
December 31:
(In thousands)
Commitments to extend credit:
Credit card
Other unfunded loan commitments
Standby letters of credit, net of conveyance to other financial institutions
Commercial letters of credit
2022
2021
$
5,190,942 $
5,007,409
9,102,525
8,319,715
555,858
4,393
418,328
5,304
Commitments to extend credit are legally binding agreements to lend to a borrower providing there are no violations of any
conditions established in the contract. As many of the commitments are expected to expire without being drawn upon, the total
commitment does not necessarily represent future cash requirements. Refer to Note 2 on Loans and Allowance for Credit
Losses for further discussion.
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 cash outflow
by the Company, a significant amount of the commitments may expire without being drawn upon. To mitigate the potential loss
exposure, the Company involves other financial institutions to participate in certain standby letters of credit. Even with such
participation, the Company remains liable for the full amount of the standby letters of credit to the third party. 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
standby 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 the customer, the
Company has rights to the underlying collateral, which could include commercial real estate, physical plant and property,
inventory, receivables, cash and marketable securities.
At December 31, 2022, the Company had recorded a liability of $3.9 million, representing the carrying value of the
guarantee obligations associated with the standby letters of credit. This amount will be accreted into income over the remaining
life of the respective commitments. Excluding amounts conveyed to others, commitments outstanding under these letters of
credit were $614.5 million, which represents the maximum potential future payments guaranteed by the Company at
December 31, 2022.
Commercial letters of credit act as a means of ensuring payment to a seller upon shipment of goods to a buyer. The majority
of commercial letters of credit issued are used to settle payments in international trade. Typically, letters of credit require
presentation of documents which describe the commercial transaction, evidence shipment, and transfer title.
The Company regularly purchases various state tax credits arising from third-party property redevelopment. These tax
credits are either resold to third parties for a profit or retained for use by the Company. During 2022, the Company purchased
and sold state tax credits amounting to $112.7 million and $126.9 million, respectively. At December 31, 2022, the Company
had outstanding purchase commitments totaling $121.8 million that it expects to fund in 2023. The remaining purchase
commitments amount to $398.8 million and are expected to be funded from 2024 through 2029.
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 December 31, 2022, 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 1 to
14 years. At December 31, 2022, the fair value of the Company's guarantee liability RPAs was $119 thousand, and the notional
137
amount of the underlying swaps was $421.0 million. The maximum potential future payment guaranteed by the Company
cannot be readily estimated and is dependent upon the fair value of the interest rate swaps at the time of default.
During the third quarter of 2020, the Company signed a $106.7 million agreement with U.S. Capital Development to
develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri. As of December 31,
2022, the Company has made payments totaling $94.0 million. While the Company intends to occupy a portion of the office
building for executive offices, a 15 year lease has been signed by an anchor tenant to lease approximately 50% of the office
building.
The Company has various legal proceedings pending at December 31, 2022, 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 very 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.
22. Related Parties
The Company’s Chief Executive Officer, its Executive Chairman, and its former Vice Chairman are directors of Tower
Properties Company (Tower) and, together with members of their immediate families, beneficially own approximately 66% of
the outstanding stock of Tower. At December 31, 2022, Tower owned 245,410 shares of Company stock. Tower is primarily
engaged in the business of owning, developing, leasing and managing real property.
Payments from the Company and its affiliates to Tower are summarized below. These payments, with the exception of
dividend payments, relate to property management services, including construction oversight, on three Company-owned office
buildings and related parking garages in downtown Kansas City.
(In thousands)
Leasing agent fees
Operation of parking garages
Building management fees
Property construction management fees
Project consulting fees
Dividends paid on Company stock held by Tower
Total
2022
2021
2020
$
125 $
100
31 $
71
—
81
2,118
2,046
2,110
184
—
248
143
84
234
251
335
229
$
2,775 $
2,609 $
3,006
Tower has a $13.5 million line of credit with the Bank which is subject to normal credit terms and has a variable interest
rate. The line of credit is collateralized by Company stock and based on collateral value had a maximum borrowing amount of
approximately $13.4 million at December 31, 2022. There were no borrowings under this line during 2022, and no balance
outstanding at December 31, 2022. There were no borrowings during 2021 and 2020, and there was no balance outstanding at
December 31, 2021 or 2020. Letters of credit may be collateralized under this line of credit; however, there were no letters of
credit outstanding during 2022, 2021 or 2020, and thus, no fees were received during these periods. From time to time, the
Bank extends additional credit to Tower for construction and development projects. No construction loans were outstanding
during 2022, 2021 and 2020.
Tower leases office space in the Kansas City bank headquarters building owned by the Company. Rent paid to the
Company totaled $82 thousand in 2022, $83 thousand in 2021, and $87 thousand in 2020, at $17.44, $17.25 and $17.19 per
square foot, respectively.
Directors of the Company and their beneficial interests have deposit accounts with the Bank and may be provided with cash
management and other banking services, including loans, in the ordinary course of business. Such loans were made on
substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions
with other unrelated persons and did not involve more than the normal risk of collectability. See Note 2 Loans and Allowance
for Credit Losses for additional information for loans to directors and executive officers of the Company and the Bank, and to
their affiliates.
138
23. Parent Company Condensed Financial Statements
Following are the condensed financial statements of Commerce Bancshares, Inc. (Parent only) for the periods indicated:
Condensed Balance Sheets
(In thousands)
Assets
Investment in consolidated subsidiaries:
Bank
Non-banks
Cash
Investment securities:
Available for sale debt
Equity
Note receivable due from bank subsidiary
Advances to subsidiaries, net of borrowings
Deferred tax assets
Other assets
Total assets
Liabilities and stockholders’ equity
Pension obligation
Other liabilities
Total liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statements of Income
(In thousands)
Income
Dividends received from consolidated bank subsidiary
Earnings of consolidated subsidiaries, net of dividends
Interest and dividends on investment securities
Management fees charged to subsidiaries
Investment securities gains
Net interest income on advances and note to subsidiaries
Other
Total income
Expense
Salaries and employee benefits
Professional fees
Data processing fees paid to affiliates
Other
Total expense
Income tax benefit
Net income
139
December 31
2022
2021
$
2,008,454 $
2,997,775
138,501
233,261
100,347
245,616
5,207
11,129
50,000
20,529
11,987
26,539
4,805
7,977
50,000
40,525
8,645
29,393
$
$
2,505,607 $
3,485,083
7,446 $
32,870
40,316
11,931
35,854
47,785
2,465,291
3,437,298
$
2,505,607 $
3,485,083
For the Years Ended December 31
2022
2021
2020
$
300,001 $
340,001 $
203,965
200,461
2,480
38,632
(872)
1,403
3,709
2,162
36,310
79
51
2,927
549,318
581,991
44,352
2,740
3,173
15,595
65,860
(4,941)
37,362
2,006
2,834
12,973
55,175
(3,949)
210,001
148,435
1,802
33,472
53
233
4,282
398,278
31,277
1,977
2,765
11,850
47,869
(3,648)
$
488,399 $
530,765 $
354,057
Condensed Statements of Cash Flows
(In thousands)
Operating Activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Earnings of consolidated subsidiaries, net of dividends
Other adjustments, net
Net cash provided by operating activities
Investing Activities
(Increase) decrease in investment in subsidiaries, net
Proceeds from maturities/pay downs of investment securities
Purchases of investment securities
(Increase) decrease in advances to subsidiaries, net
Net purchases of building improvements and equipment
Net cash provided by (used in) investing activities
Financing Activities
Preferred stock redemption
Purchases of treasury stock
Issuance of stock under equity compensation plans
Cash dividends paid on common stock
Cash dividends paid on preferred stock
Net cash used in financing activities
Increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Income tax receipts, net
For the Years Ended December 31
2022
2021
2020
$
488,399 $
530,765 $
354,057
(203,965)
(200,461)
(148,435)
2,557
8,842
5,504
286,991
339,146
211,126
(9)
38
(4,534)
19,996
(741)
6
22
(4,786)
(8,618)
(28)
14,750
(13,404)
3
1,410
(4,863)
(5,810)
(94)
(9,354)
—
—
(150,000)
(186,622)
(129,361)
(54,163)
(8)
(15)
(11)
(127,466)
(122,693)
(120,818)
—
—
(6,750)
(314,096)
(252,069)
(331,742)
(12,355)
245,616
73,673
(129,970)
171,943
233,261 $
245,616 $
301,913
171,943
(587) $
(4,808) $
(3,663)
$
$
Dividends paid by the Parent to its shareholders were substantially provided from Bank dividends. The Bank may distribute
common dividends without prior regulatory approval, provided that the dividends do not exceed the sum of net income for the
current year and retained net income for the preceding two years, subject to maintenance of minimum capital requirements.
The Parent charges fees to its subsidiaries for management services provided, which are allocated to the subsidiaries based
primarily on total average assets. The Parent makes cash advances to its private equity subsidiary for general short-term cash
flow purposes. Advances may be made to the Parent by its subsidiary bank for temporary investment of idle funds. Interest on
such advances is based on market rates.
The Bank has $50.0 million of borrowings from the Parent as part of its strategy to manage FDIC insurance premiums. The
note has a rolling 13 month maturity, and the interest rate is a variable rate equal to the one year treasury rate.
For the past several years, the Parent has maintained a $20.0 million line of credit for general corporate purposes with the
Bank. The Parent has not borrowed under this line during the past three years.
At December 31, 2022, the fair value of the investment securities held by the Parent consisted of investments of $5.2 million
in corporate bonds, $6.0 million in preferred and common stock with readily determinable fair values, and $5.1 million in
equity securities that do not have readily determinable fair values.
140
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on accounting and financial disclosure.
Item 9a. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, our principal executive officer
and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the
period covered by this annual report.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our
management, including our principal executive officer and principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal Control — Integrated Framework (2013), our management concluded that our
internal control over financial reporting was effective as of December 31, 2022.
The Company’s internal control over financial reporting as of December 31, 2022 has been audited by KPMG LLP, an
independent registered public accounting firm, as stated in their report which follows.
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred that has materially affected, or is reasonably
likely to materially affect, such controls during the last quarter of the period covered by this report.
141
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Commerce Bancshares, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Commerce Bancshares, Inc. and subsidiaries' (the Company) internal control over financial reporting as of
December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated
statements of income, comprehensive income, changes in equity, and cash flows for each of the years in the three-year period
ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated
February 22, 2023 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Kansas City, Missouri
February 22, 2023
142
Item 9b. OTHER INFORMATION
None
Item 9c. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Items 401, 405, 406 and 407(c)(3), (d)(4) and (d)(5) of Regulation S-K regarding executive
officers, directors, and corporate governance is included at the end of Part I of this Form 10-K under the caption “Information
about the Company's Executive Officers” and under the captions “Proposal One - Election of the 2026 Class of Directors”,
"Corporate Governance Guidelines", “Delinquent Section 16(a) Reports”, “Audit and Risk Committee Report”, “Committees of
the Board" and "Shareholder Proposals and Nominations" in the Company's definitive Proxy Statement relating to the Annual
Meeting of Shareholders to be held on April 19, 2023, which is incorporated herein by reference.
The Company’s senior financial officer code of ethics for the chief executive officer and senior financial officers of the
Company, including the chief financial officer, principal accounting officer or controller, or persons performing similar
functions, is available at www.commercebank.com. Amendments to, and waivers of, the code of ethics are posted on this
website.
Item 11. EXECUTIVE COMPENSATION
The information required by Items 402 and 407(e)(4) and (e)(5) of Regulation S-K regarding executive compensation is
included under the captions “Compensation Discussion and Analysis”, “Executive Compensation”, “Director Compensation”,
“Compensation and Human Resources Committee Report”, and “Compensation and Human Resources Committee Interlocks
and Insider Participation” in the Company's definitive Proxy Statement relating to the Annual Meeting of Shareholders to be
held on April 19, 2023, which is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required by Items 201(d) and 403 of Regulation S-K is included under the captions “Equity Compensation
Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in the Company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on April 19, 2023, which is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Items 404 and 407(a) of Regulation S-K is covered under the captions “Proposal One - Election
of the 2026 Class of Directors” and “Corporate Governance” in the Company's definitive Proxy Statement relating to the
Annual Meeting of Shareholders to be held on April 19, 2023, which is incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our independent registered public accounting firm is KPMG, LLP, Kansas City, Missouri, PCAOB Firm ID: 185
The information required by Item 9(e) of Schedule 14A is included under the captions “Pre-approval of Services by the
External Independent Registered Public Accounting Firm” and “Fees Paid to KPMG LLP” in the Company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on April 19, 2023, which is incorporated herein by
reference.
143
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this report:
(1)
(2)
Financial Statements:
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of Quarterly Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statement Schedules:
All schedules are omitted as such information is inapplicable or is included in the financial
statements.
Page
67
68
69
70
71
72
64
(b) The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed
below.
3 —Articles of Incorporation and By-Laws:
(1) Restated Articles of Incorporation, as amended, were filed in quarterly report on Form 10-Q (Commission
file number 1-36502) dated May 7, 2019, and the same are hereby incorporated by reference.
(2) By-Laws, as amended, were filed in annual report on Form 10-K (Commission file number 1-36502) dated
February 25, 2020, and the same are hereby incorporated by reference.
(3) Termination of Certificate of Designation of 6.00% Series B Non-Cumulative Perpetual Preferred Stock of
Commerce Bancshares, Inc. was filed in current report on Form 8-K (Commission file number 0-2989) dated
September 1, 2020, and the same is hereby incorporated by reference.
4 — Instruments defining the rights of security holders, including indentures:
(1) Pursuant to paragraph (b)(4)(iii) of Item 601 Regulation S-K, Registrant will furnish to the Commission upon
request copies of long-term debt instruments.
(2) Description of Commerce Bancshares, Inc. registered securities was filed in annual report on Form 10-K
(Commission file number 1-36502) dated February 25, 2020, and the same is hereby incorporated by reference.
10 — Material Contracts (Except for the Development Services Agreement and associated Amendments to the Development
Service Agreement listed below, each of the following is a management contract or compensatory plan arrangement):
(1) Commerce Bancshares, Inc. Executive Incentive Compensation Plan amended and restated as of January 1,
2019, was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 21, 2019, and
the same is hereby incorporated by reference.
(2) Commerce Bancshares, Inc. Stock Purchase Plan for Non-Employee Directors amended and restated as of
April 17, 2013 was filed in current report on Form 8-K (Commission file number 0-2989) dated April 23, 2013,
and the same is hereby incorporated by reference.
(3) Commerce Bancshares, Inc. Stock Purchase Plan for Non-Employee Directors amended and restated as of
December 21, 2021 was filed in registration statement on Form S-8 (Commission file number 333-262580) dated
February 8, 2022, and the same is hereby incorporated by reference.
(4) Commerce Executive Retirement Plan amended and restated as of January 28, 2011 was filed in annual report
on Form 10-K (Commission file number 0-2989) dated February 25, 2011, and the same is hereby incorporated
by reference.
(5) 2009 Form of Severance Agreement between Commerce Bancshares, Inc. and the persons listed at the end of
such agreement was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 24,
2015, and the same is hereby incorporated by reference.
144
(6) 2015 Form of Severance Agreement between Commerce Bancshares, Inc. and the persons listed at the end of
such agreement was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 24,
2015, and the same is hereby incorporated by reference.
(7) 2009 Form of Severance Agreement between Commerce Bancshares, Inc. and the persons listed at the end of
such agreement was filed in annual report on Form 10-K (Commission file number 1-36502) dated February 21,
2019, and the same is hereby incorporated by reference.
(8) Trust Agreement for the Commerce Bancshares, Inc. Executive Incentive Compensation Plan amended and
restated as of January 1, 2001 was filed in quarterly report on Form 10-Q (Commission file number 0-2989)
dated May 8, 2001, and the same is hereby incorporated by reference.
(9) Commerce Bancshares, Inc. 2023 Compensatory Arrangements with CEO and Named Executive Officers
were filed in amended current report on Form 8-K (Commission file number 1-36502) dated February 7, 2023,
and the same is hereby incorporated by reference.
(10) Commerce Bancshares, Inc. Amended and Restated 2005 Equity Incentive Plan, amended and restated as of
April 17, 2013 (incorporated by reference to Exhibit 10(j) to Commerce Bancshares, Inc.'s Form 8-K dated April
23, 2013).
(10)(1) Amendment No. 1 dated November 12, 2018 to Commerce Bancshares, Inc. Amended and Restated 2005
Equity Incentive Plan, amended and restated as of April 17, 2013, was filed in annual report on Form 10-K
(Commission file number 1-36502) dated February 21, 2019.
(11) Commerce Bancshares, Inc. Stock Appreciation Rights Agreement and Commerce Bancshares, Inc.
Restricted Stock Award Agreement, pursuant to the 2005 Equity Incentive Plan, were filed in current report on
Form 8-K (Commission file number 0-2989) dated February 23, 2006, and the same are hereby incorporated by
reference.
(12) Commerce Bancshares, Inc. Stock Appreciation Rights Agreement, Commerce Bancshares, Inc. Restricted
Stock Award Agreements for Executive Officers, and Commerce Bancshares, Inc. Restricted Stock Award
Agreements for Employees other than Executive Officers, pursuant to the 2005 Equity Incentive Plan, were filed
in quarterly report on Form 10-Q (Commission file number 0-2989) dated May 6, 2013, and the same are hereby
incorporated by reference.
(13) Form of Notice of Grant of Award and Award Agreement for Restricted Stock for Executive Officers,
pursuant to the Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in quarterly report on Form
10-Q (Commission file number 0-2989) dated May 7, 2014, and the same is hereby incorporated by reference.
(14) Form of Notice of Grant of Award and Award Agreement for Restricted Stock for Employees other than
Executive Officers, pursuant to the Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in
quarterly report on Form 10-Q (Commission file number 0-2989) dated May 7, 2014, and the same is hereby
incorporated by reference.
(15) Form of Notice of Grant of Award and Award Agreement for Stock Appreciation Rights, pursuant to the
Commerce Bancshares, Inc. 2005 Equity Incentive Plan, was filed in quarterly report on Form 10-Q
(Commission file number 0-2989) dated May 7, 2014, and the same is hereby incorporated by reference.
(16) Form of Notice of Grant of Award and Award Agreement for Restricted Stock, pursuant to the Commerce
Bancshares, Inc. 2005 Equity Incentive Plan, was filed in annual report on Form 10-K (Commission file number
1-36502) dated February 21, 2019, and the same is hereby incorporated by reference.
(17) Development Services Agreement* was filed in quarterly report on Form 10-Q (Commission file number
1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(18) Amendment 1 to Development Services Agreement* was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(19) Amendment 2 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(20) Amendment 3 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(21) Amendment 4 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(22) Amendment 5 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(23) Amendment 6 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
145
(24) Amendment 7 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(25) Amendment 8 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(26) Amendment 9 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(27) Amendment 10 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(28) Amendment 11 to Development Services Agreement* was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated November 5, 2020, and the same is hereby incorporated by reference.
(29) Amendment 12 to Development Services Agreement was filed in quarterly report on Form 10-Q
(Commission file number 1-36502) dated August 5, 2022, and the same is hereby incorporated by reference.
(30) Amendment 13 to Development Services Agreement.*
21 — Subsidiaries of the Registrant
23 — Consent of Independent Registered Public Accounting Firm
24 — Power of Attorney
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 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)
* In accordance with Item 601(a)(5) of Regulation S-K, certain schedules and exhibits to this exhibit have been omitted from
this filing. The Company will furnish a copy of any omitted schedule or exhibit to the Securities and Exchange Commission
or its staff upon request. In accordance with Item 601(b)(10)(iv) of Regulation S-K, certain portions of this exhibit have been
redacted because they are both (i) not material and (ii) would likely cause competitive harm to the Company if publicly
disclosed. The Company will provide an unredacted copy of the exhibit on a supplementary basis to the Securities and
Exchange Commission or its staff upon request.
Item 16. FORM 10-K SUMMARY
None.
146
Pursuant to the requirements of Section 13 or 15(d) 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 this 22nd day of February 2023.
SIGNATURES
COMMERCE BANCSHARES, INC.
By:
/s/ MARGARET M. ROWE
Margaret M. Rowe
Vice President & Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities indicated on the 22nd day of February 2023.
By:
By:
By:
/s/ JOHN W. KEMPER
John W. Kemper
Chief Executive Officer
/s/ CHARLES G. KIM
Charles G. Kim
Chief Financial Officer
/s/ PAUL A. STEINER
Paul A. Steiner
Controller
(Chief Accounting Officer)
All the Directors on the Board of Directors*
Terry D. Bassham
Blackford F. Brauer
W. Kyle Chapman
Karen L. Daniel
Earl H. Devanny, III
June McAllister Fowler
David W. Kemper
John W. Kemper
Jonathan M. Kemper
Benjamin F. Rassieur, III
Todd R. Schnuck
Christine B. Taylor
Kimberly G. Walker
____________
* The Directors of Registrant listed executed a power of attorney authorizing Margaret M. Rowe, their attorney-in-fact, to sign
this report on their behalf.
/s/ MARGARET M. ROWE
Margaret M. Rowe
Attorney-in-Fact
By:
147
Exhibit 21
The consolidated subsidiaries of the Registrant at February 1, 2023 were as follows:
Name
CBI-Kansas, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas
State or Other
Jurisdiction of
Incorporation
Commerce Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Commerce Brokerage Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Clayton Holdings, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Clayton Financial Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Clayton Realty Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Illinois Financial, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Illinois Realty, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Commerce Insurance Services, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Commerce Investment Advisors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CBI Equipment Finance, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CB Acquisition, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Tower Redevelopment Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CBI Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Arizona
CFB Partners, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
CFB Venture Fund I, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
CFB Venture Fund, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Capital for Business, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Missouri
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements No. 33-28294, No. 33-82692, No. 33-8075, No.
33-78344, No. 333-14651, No. 333-186867, No. 333-188374, No. 333-214495, and No. 333-262580 on Form S-8 and No.
333-140221 on Form S-3ASR of our reports dated February 22, 2023, with respect to the consolidated financial statements of
Commerce Bancshares, Inc. and the effectiveness of internal control over financial reporting.
Exhibit 23
KPMG LLP
Kansas City, Missouri
February 22, 2023
POWER OF ATTORNEY
Exhibit 24
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby appoint Margaret M. Rowe and Paul A.
Steiner, or either of them, attorney for the undersigned to sign the Annual Report on Form 10-K of Commerce Bancshares, Inc.,
for the fiscal year ended December 31, 2022, together with any and all amendments which might be required from time to time
with respect thereto, to be filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, with
respect to Commerce Bancshares, Inc., with full power and authority in either of said attorneys to do and perform in the name
of and on behalf of the undersigned every act whatsoever necessary or desirable to be done in the premises as fully and to all
intents and purposes as the undersigned might or could do in person.
IN WITNESS WHEREOF, the undersigned have executed these presents as of this 3rd day of February, 2023.
/s/ TERRY D. BASSHAM
/s/ BLACKFORD F. BRAUER
/s/ W. KYLE CHAPMAN
/s/ KAREN L. DANIEL
/s/ EARL H. DEVANNY, III
/s/ JUNE MCALLISTER FOWLER
/s/ DAVID W. KEMPER
/s/ JONATHAN M. KEMPER
/s/ JONATHAN M. KEMPER
/s/ BENJAMIN F. RASSIEUR, III
/s/ TODD R. SCHNUCK
/s/ CHRISTINE B. TAYLOR
/s/ KIMBERLY G. WALKER
CERTIFICATION
Exhibit 31.1
I, John W. Kemper, certify that:
1. I have reviewed this annual report on Form 10-K of Commerce Bancshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
February 22, 2023
/s/ JOHN W. KEMPER
John W. Kemper
President and
Chief Executive Officer
CERTIFICATION
Exhibit 31.2
I, Charles G. Kim, certify that:
1. I have reviewed this annual report on Form 10-K of Commerce Bancshares, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant’s internal control over financial reporting.
February 22, 2023
/s/ CHARLES G. KIM
Charles G. Kim
Executive Vice President and
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32
In connection with the Annual Report of Commerce Bancshares, Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, John W.
Kemper and Charles G. Kim, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, hereby
certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of our knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
/s/ JOHN W. KEMPER
John W. Kemper
Chief Executive Officer
/s/ CHARLES G. KIM
Charles G. Kim
Chief Financial Officer
February 22, 2023
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its staff upon request.
CORPOR ATE HEADQUARTERS
1000 Walnut
P.O. Box 419248
Kansas City, MO 64141-6248
816.234.2000
www.commercebank.com
TR ANSFER AGENT, REGISTR AR
AND DIVIDEND DISBURSING AGENT
Shareholder correspondence should be mailed to:
Computershare
P.O. Box 43078
Providence, RI 02940-3078
Overnight correspondence should be sent to:
Computershare
150 Royall Street, Suite 101
Canton, MA 02021
Within USA Telephone: 800.317.4445
Outside USA Telephone: 781.575.2723
Hearing Impaired/TDD: 800.952.9245
Website: www.computershare.com/investor
Shareholder online inquiries:
https://www.us.computershare.com/investor/contact
STOCK EXCHANGE LISTING
Nasdaq
Common Stock Symbol: CBSH
ANNUAL MEETING
This year’s annual meeting will be a virtual meeting of
shareholders. The meeting will be held Wednesday,
April 19, 2023 at 9:30 a.m. Central, and you may attend via
webcast. Please note there will be no in-person meeting
to attend.
INVESTOR INQUIRIES
Shareholders, analysts and investors seeking information
about the company should direct their inquiries to:
Matt Burkemper
Senior Vice President, Commerce Bank
Corporate Development and Investor Relations
8000 Forsyth Boulevard
St. Louis, MO 63105
314.746.7485
Matthew.Burkemper@commercebank.com
SHAREHOLDERS MAY RECEIVE FUTURE ANNUAL REPORTS AND PROXY MATERIALS ONLINE
To receive materials electronically, rather than by mail, individuals who hold stock in their name may enroll for
electronic delivery at Computershare’s investor website: www.computershare.com/investor
• If you have already created a login ID and password at the above site, log in and follow the prompts to “Enroll in
Electronic Delivery.”
• If you have not created a login ID and password at the above site, choose “Create Login.” You will need the Social
Security number or tax ID number associated with your Commerce stock account to create the login. After you
have created your login, follow the prompts to “Enroll in Electronic Delivery.”
Please note:
• Your consent is entirely revocable.
• You can always vote your proxy on the internet whether or not you elect to receive your materials electronically.
Shareholders who hold their Commerce stock through a bank, broker or other holder of record should refer to the
information provided by that entity for instructions on how to elect to view future annual reports and proxy statements
over the internet.
Employee PIP [401(k)] shareholders who have a company email address and online access will automatically be enrolled to
receive the Annual Report, Proxy Statement, and proxy card over the internet unless they choose to opt out by emailing
the Corporate Secretary at Peggy.Rowe@commercebank.com.
COMMERCE BANCSHARES, INC. | 2022 ANNUAL REPORT
17
C O M M E R C E B A N C S H A R E S , I N C .
1000 WALNUT
P.O. BOX 419248
KANSAS CITY, MO 64141-6248
Phone: 816.234.2000
800.892.7100
Email: CBSHInvestorRelations@commercebank.com
Website: www.commercebank.com
An Equal Opportunity Employer
Copyright © 2023 Commerce Bancshares, Inc. All rights reserved.