COMMERCE BANCSHARES INC /MO/ [CBSH] Filings

10-Q 1 cbsh-20240630.htm 10-Q cbsh-20240630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

________________________________________________________

For the quarterly period ended June 30, 2024


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

____________________________________________________________

For the transition period from to

Commission File No. 001-36502


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


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

(816) 234-2000

(Registrant’s telephone number, including area code)


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

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

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

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

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

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

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

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

As of August 1, 2024, the registrant had outstanding 128,917,831 shares of its $5 par value common stock, registrant’s only class of common stock.

Commerce Bancshares, Inc. and Subsidiaries

Form 10-Q


			Page
INDEX
Part I	Financial Information
	Item 1.	Financial Statements
		Consolidated Balance Sheets as of June 30, 2024 (unaudited) and December 31, 2023	3
		Consolidated Statements of Income for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	4
		Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	5
		Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	6
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (unaudited)	8
		Notes to Consolidated Financial Statements	9
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	50
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	76
	Item 4.	Controls and Procedures	76

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

Table of Contents

PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS


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



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

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME


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





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


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

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


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


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

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Three Months Ended June 30, 2024 and 2023


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


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

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

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

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

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

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Six Months Ended June 30, 2024 and 2023


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


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

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

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

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



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

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

See accompanying notes to consolidated financial statements.

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Commerce Bancshares, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS


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


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

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


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


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

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



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


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

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

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

See accompanying notes to consolidated financial statements.

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

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Commerce Bancshares, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024 (Unaudited)

1. Principles of Consolidation and Presentation

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

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

2. Loans and Allowance for Credit Losses

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


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

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

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

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Allowance for credit losses

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

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

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


Key Assumption	June 30, 2024	March 31, 2024

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

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

Sensitivity in the Allowance for Credit Loss model

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

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

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

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

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


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


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


Balance at beginning of period	$	21,636	$	1,450	$	23,086	$	23,909	$	1,337	$	25,246
Provision for credit losses on unfunded lending commitments	(2,273)		(108)		(2,381)		(4,546)		5		(4,541)