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Table of Contents



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

For the quarterly period ended September 30, 2021

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

For the transition period from           to   
       
Commission File No. 001-36502
COMMERCE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
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 November 3, 2021, the registrant had outstanding 116,171,392 shares of its $5 par value common stock, registrant’s only class of common stock.



Commerce Bancshares, Inc. and Subsidiaries

Form 10-Q
Page
INDEX
Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020
3
4
5
6
8
9
44
68
69
70
70
70
71

2
Table of Contents
PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS

September 30,
2021 		December 31, 2020
(Unaudited)
(In thousands)
ASSETS
Loans $ 15,148,390  $ 16,329,641 
  Allowance for credit losses on loans (162,775) (220,834)
Net loans 14,985,615  16,108,807 
Loans held for sale (including $11,982,000 and $39,396,000 of residential mortgage loans carried at fair value at September 30, 2021 and December 31, 2020, respectively)
16,043  45,089 
Investment securities:  
Available for sale debt, at fair value (amortized cost of $14,027,284,000 and $12,097,533,000 and
   allowance for credit losses of $— at September 30, 2021 and December 31, 2020, respectively)
14,165,656  12,449,264 
Trading debt 40,114  35,321 
Equity 9,174  4,363 
Other 184,450  156,745 
Total investment securities 14,399,394  12,645,693 
Securities purchased under agreements to resell 1,750,000  850,000 
Interest earning deposits with banks 1,888,545  1,747,363 
Cash and due from banks 344,460  437,563 
Premises and equipment – net 377,476  371,083 
Goodwill 138,921  138,921 
Other intangible assets – net 14,458  11,207 
Other assets 582,631  567,248 
Total assets $ 34,497,543  $ 32,922,974 
LIABILITIES AND EQUITY
Deposits:  
   Non-interest bearing $ 11,622,855  $ 10,497,598 
   Savings, interest checking and money market 14,907,654  14,604,456 
   Certificates of deposit of less than $100,000 452,432  529,802 
   Certificates of deposit of $100,000 and over 1,163,343  1,314,889 
Total deposits 28,146,284  26,946,745 
Federal funds purchased and securities sold under agreements to repurchase 2,253,753  2,098,383 
Other borrowings 4,006  802 
Other liabilities 602,279  477,072 
Total liabilities 31,006,322  29,523,002 
Commerce Bancshares, Inc. stockholders’ equity:  
   Common stock, $5 par value
 
 Authorized 140,000,000; issued 117,870,372 shares
589,352  589,352 
   Capital surplus 2,427,544  2,436,288 
   Retained earnings 396,655  73,000 
   Treasury stock of 1,303,270 shares at September 30, 2021
     and 497,413 shares at December 31, 2020, at cost
(92,047) (32,970)
   Accumulated other comprehensive income 159,166  331,377 
Total Commerce Bancshares, Inc. stockholders' equity 3,480,670  3,397,047 
Non-controlling interest 10,551  2,925 
Total equity 3,491,221  3,399,972 
Total liabilities and equity $ 34,497,543  $ 32,922,974 
See accompanying notes to consolidated financial statements.
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Table of Contents
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended September 30 For the Nine Months Ended September 30
(In thousands, except per share data) 2021 2020 2021 2020
(Unaudited)
INTEREST INCOME
Interest and fees on loans $ 142,887  $ 150,808  $ 433,809  $ 461,500 
Interest and fees on loans held for sale 187  264  736  588 
Interest on investment securities 63,904  60,534  170,604  164,391 
Interest on federal funds sold 1  —  3  2 
Interest on securities purchased under agreements to resell 9,007  11,247  30,551  29,445 
Interest on deposits with banks 995  261  2,108  1,996 
Total interest income 216,981  223,114  637,811  657,922 
INTEREST EXPENSE
Interest on deposits:
   Savings, interest checking and money market 1,817  3,206  5,764  15,492 
   Certificates of deposit of less than $100,000 206  1,028  1,006  4,196 
   Certificates of deposit of $100,000 and over 450  2,512  2,173  11,357 
Interest on federal funds purchased and securities sold under
   agreements to repurchase 480  406  1,112  5,761 
Interest on other borrowings (9) —  (11) 1,032 
Total interest expense 2,944  7,152  10,044  37,838 
Net interest income 214,037  215,962  627,767  620,084 
Provision for credit losses (7,385) 3,101  (59,272) 141,593 
Net interest income after credit losses 221,422  212,861  687,039  478,491 
NON-INTEREST INCOME
Bank card transaction fees 42,815  37,873  123,118  111,818 
Trust fees 48,950  40,769  139,334  118,676 
Deposit account charges and other fees 25,161  23,107  71,724  69,063 
Capital market fees 3,794  3,194  12,102  10,756 
Consumer brokerage services 4,900  4,011  13,484  11,099 
Loan fees and sales 6,842  9,769  24,472  17,653 
Other 5,044  10,849  28,460  31,685 
Total non-interest income 137,506  129,572  412,694  370,750 
INVESTMENT SECURITIES GAINS (LOSSES), NET 13,108  16,155  39,765  (1,275)
NON-INTEREST EXPENSE
Salaries and employee benefits 132,824  127,308  392,608  383,004 
Net occupancy 12,329  12,058  35,877  35,075 
Equipment 4,440  4,737  13,398  14,313 
Supplies and communication 4,530  4,141  12,688  13,226 
Data processing and software 25,598  23,610  76,015  71,002 
Marketing 5,623  4,926  16,461  14,706 
Other 26,276  14,078  55,272  40,742 
Total non-interest expense 211,620  190,858  602,319  572,068 
Income before income taxes 160,416  167,730  537,179  275,898 
Less income taxes 34,662  34,375  111,947  54,209 
Net income 125,754  133,355  425,232  221,689 
Less non-controlling interest expense (income) 3,193  907  9,373  (2,479)
Net income attributable to Commerce Bancshares, Inc. 122,561  132,448  415,859  224,168 
Less preferred stock dividends —  7,466  —  11,966 
Net income available to common shareholders $ 122,561  $ 124,982  $ 415,859  $ 212,202 
Net income per common share — basic $ 1.05  $ 1.06  $ 3.55  $ 1.80 
Net income per common share — diluted $ 1.05  $ 1.06  $ 3.54  $ 1.80 
See accompanying notes to consolidated financial statements.
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Table of Contents
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months Ended September 30 For the Nine Months Ended September 30
(In thousands) 2021 2020 2021 2020
(Unaudited)
Net income $ 125,754  $ 133,355  $ 425,232  $ 221,689 
Other comprehensive income (loss):
Net unrealized gains (losses) on available for sale debt securities (57,068) 330  (160,019) 165,464 
Pension loss amortization
451  327  1,326  1,038 
Unrealized gains (losses) on cash flow hedge derivatives (4,607) (6,483) (13,518) 66,489 
Other comprehensive income (loss) (61,224) (5,826) (172,211) 232,991 
Comprehensive income 64,530  127,529  253,021  454,680 
Less non-controlling interest expense (income) 3,193  907  9,373  (2,479)
Comprehensive income attributable to Commerce Bancshares, Inc. $ 61,337  $ 126,622  $ 243,648  $ 457,159 
See accompanying notes to consolidated financial statements.













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Table of Contents
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Three Months Ended September 30, 2021 and 2020
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
(Unaudited)
Balance June 30, 2021
$ —  $ 589,352  $ 2,424,157  $ 304,739  $ (53,018) $ 220,390  $ 8,210  $ 3,493,830 
Net income 122,561  3,193  125,754 
Other comprehensive loss (61,224) (61,224)
Distributions to non-controlling interest (193) (193)
Purchases of treasury stock (40,165) (40,165)
Sale of non-controlling interest of subsidiary 659  (659) — 
Issuance of stock under purchase and equity
    compensation plans 		(1,137) 1,136  (1)
Stock-based compensation 3,865  3,865 
Cash dividends paid on common stock
     ($0.263 per share)
(30,645) (30,645)
Balance September 30, 2021
$ —  $ 589,352  $ 2,427,544  $ 396,655  $ (92,047) $ 159,166  $ 10,551  $ 3,491,221 
Balance June 30, 2020
$ 144,784  $ 563,978  $ 2,136,874  $ 232,082  $ (69,112) $ 349,261  $ 302  $ 3,358,169 
Net income 132,448  907  133,355 
Other comprehensive loss (5,826) (5,826)
Distributions to non-controlling interest (608) (608)
Redemption of preferred stock (144,784) (5,216) (150,000)
Purchases of treasury stock (167) (167)
Issuance of stock under purchase and equity
     compensation plans 		(229) 229  — 
Stock-based compensation 3,765  3,765 
Cash dividends paid on common stock
     ($.257 per share)
(30,174) (30,174)
Cash dividends paid on preferred stock
     ($.375 per depositary share)
(2,250) (2,250)
Balance September 30, 2020
$ —  $ 563,978  $ 2,140,410  $ 326,890  $ (69,050) $ 343,435  $ 601  $ 3,306,264 
See accompanying notes to consolidated financial statements.
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Table of Contents
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Nine Months Ended September 30, 2021 and 2020
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
(Unaudited)
Balance December 31, 2020
$ —  $ 589,352  $ 2,436,288  $ 73,000  $ (32,970) $ 331,377  $ 2,925  $ 3,399,972 
Net income 415,859  9,373  425,232 
Other comprehensive loss (172,211) (172,211)
Distributions to non-controlling interest (1,088) (1,088)
Purchases of treasury stock (80,052) (80,052)
Sale of non-controlling interest of subsidiary 659  (659) — 
Issuance of stock under purchase and equity compensation plans (20,991) 20,975  (16)
Stock-based compensation 11,588  11,588 
Cash dividends on common stock ($.788 per share)
(92,204) (92,204)
Balance September 30, 2021
$ —  $ 589,352  $ 2,427,544  $ 396,655  $ (92,047) $ 159,166  $ 10,551  $ 3,491,221 
Balance 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 3,766  3,766 
Balance December 31, 2019, adjusted
144,784  563,978  2,151,464  205,328  (37,548) 110,444  3,788  3,142,238 
Net income 224,168  (2,479) 221,689 
Other comprehensive income 232,991  232,991 
Distributions to non-controlling interest (708) (708)
Redemption of preferred stock (144,784) (5,216) (150,000)
Purchases of treasury stock (53,760) (53,760)
Issuance of stock under purchase and equity compensation plans (22,285) 22,258  (27)
Stock-based compensation 11,231  11,231 
Cash dividends on common stock ($.771 per share)
(90,640) (90,640)
Cash dividends on preferred stock ($1.125 per depositary share)
(6,750) (6,750)
Balance September 30, 2020
$ —  $ 563,978  $ 2,140,410  $ 326,890  $ (69,050) $ 343,435  $ 601  $ 3,306,264 
See accompanying notes to consolidated financial statements.



7
Table of Contents
Commerce Bancshares, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30
(In thousands) 2021 2020
(Unaudited)
OPERATING ACTIVITIES:
Net income $ 425,232  $ 221,689 
Adjustments to reconcile net income to net cash provided by operating activities:
  Provision for credit losses (59,272) 141,593 
  Provision for depreciation and amortization 33,554  32,462 
  Amortization of investment security premiums, net 51,822  37,623 
  Investment securities (gains) losses, net (A) (39,765) 1,275 
  Net gains on sales of loans held for sale (18,849) (8,267)
  Originations of loans held for sale (442,853) (169,774)
  Proceeds from sales of loans held for sale 485,231  152,825 
  Net (increase) decrease in trading debt securities (9,093) 5,636 
  Stock-based compensation 11,588  11,231 
  (Increase) decrease in interest receivable 11,449  (11,012)
  Decrease in interest payable (3,168) (7,670)
  Increase (decrease) in income taxes payable 19,831  (7,942)
  Proceeds from terminated interest rate floors —  110,640 
  Other changes, net 20,418  (37,926)
Net cash provided by operating activities 486,125  472,383 
INVESTING ACTIVITIES:
Disbursements received from equity-method investment 13,540  — 
Proceeds from sales of investment securities (A) 10,060  574,376 
Proceeds from maturities/pay downs of investment securities (A) 2,571,116  1,856,780 
Purchases of investment securities (A) (4,457,716) (5,135,211)
Net (increase) decrease in loans 1,166,769  (1,710,009)
Securities purchased under agreements to resell (900,000) — 
Purchases of premises and equipment (37,385) (29,192)
Sales of premises and equipment 4,786  313 
Net cash used in investing activities (1,628,830) (4,442,943)
FINANCING ACTIVITIES:
Net increase in non-interest bearing, savings, interest checking and money market deposits 1,428,561  5,138,314 
Net decrease in certificates of deposit (228,916) (17,565)
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase 155,370  (197,708)
Net increase (decrease) in short-term borrowings 3,204  (1,636)
Preferred stock redemption —  (150,000)
Purchases of treasury stock (80,052) (53,760)
Issuance of stock under purchase and equity compensation plans (16) (27)
Cash dividends paid on common stock (92,204) (90,640)
Cash dividends paid on preferred stock —  (6,750)
Net cash provided by financing activities 1,185,947  4,620,228 
Increase in cash, cash equivalents and restricted cash 43,242  649,668 
Cash, cash equivalents and restricted cash at beginning of year 2,208,328  907,808 
Cash, cash equivalents and restricted cash at September 30
$ 2,251,570  $ 1,557,476 
Income tax payments, net $ 87,989  $ 58,750 
Interest paid on deposits and borrowings $ 13,213  $ 45,508 
Loans transferred to foreclosed real estate $ 172  $ 57 
(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 $18.6 million and $25.9 million at September 30, 2021 and 2020, respectively.
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Table of Contents
Commerce Bancshares, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2021 (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 2020 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 sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Management has evaluated subsequent events for potential recognition or disclosure. The results of operations for the three and nine month periods ended September 30, 2021 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 September 30, 2021 and December 31, 2020 are as follows:

(In thousands)
September 30, 2021 December 31, 2020
Commercial:
Business $ 5,277,850  $ 6,546,087 
Real estate – construction and land 1,257,836  1,021,595 
Real estate – business 2,937,852  3,026,117 
Personal Banking:
Real estate – personal 2,769,292  2,820,030 
Consumer 2,049,559  1,950,502 
Revolving home equity 281,442  307,083 
Consumer credit card 569,976  655,078 
Overdrafts 4,583  3,149 
Total loans $ 15,148,390  $ 16,329,641 

Accrued interest receivable totaled $33.0 million and $41.9 million at September 30, 2021 and December 31, 2020, respectively, and was included within other assets on the consolidated balance sheets. For the three months ended September 30, 2021, the Company wrote-off accrued interest by reversing interest income of $27 thousand and $781 thousand in the Commercial and Personal Banking portfolios, respectively. Similarly, for the nine months ended September 30, 2021, the Company wrote-off accrued interest of $188 thousand and $3.9 million in the Commercial and Personal Banking portfolios, respectively.

At September 30, 2021, loans of $3.5 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 $1.3 billion were pledged at the Federal Reserve Bank as collateral for discount window borrowings.

9
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, CPI inflation rate, HPI, 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.

10
Key model assumptions in the Company’s allowance for credit loss model include the economic forecast, the reasonable and supportable period, 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 September 30, 2021 and June 30, 2021 are discussed below.

Key Assumption September 30, 2021 June 30, 2021
Overall economic forecast
•An optimistic recovery from the Global Coronavirus Recession (GCR) continues
•Assumes improving health conditions
•Assumes gradual easing of supply constraints
•Continued uncertainty regarding the assumptions related to the health crisis
•Uncertainty regarding rising inflation
•An optimistic recovery from the GCR continues
•Assumes improving health conditions and expanding vaccine distribution
•Further fiscal stimulus assumed
•Continued uncertainty regarding the assumptions related to the health crisis
•Uncertainty regarding rising inflation
Reasonable and supportable period and related reversion period
•One year for commercial and personal banking loans
•Reversion to historical average loss rates within two quarters using straight-line method
•One year for commercial and personal banking loans
•Reversion to historical average loss rates within two quarters using straight-line method
Forecasted macro-economic variables
•Unemployment rate ranging from 4.5% to 4.0% during the supportable forecast period
•Real GDP growth ranging from 5.7% to 3.6%
•Prime rate of 3.25%
•Unemployment rate ranging from 4.6% to 4.0% during the supportable forecast period
•Real GDP growth ranging from 10.7% to 1.7%
•Prime rate of 3.25%
Prepayment assumptions
Commercial loans
•5% for most loan pools
Personal banking loans
•Ranging from 26.9% to 16.5% for most loan pools
•62.2% for consumer credit cards
Commercial loans
•5% for most loan pools
Personal banking loans
•Ranging from 25.4% to 16.5% for most loan pools
•60.1% for consumer credit cards
Qualitative factors
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 considered to be COVID-19 impacted
•Changes in the composition of the loan portfolios
•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 considered to be COVID-19 impacted
•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 losses.

The current forecast projects a continued recovery of the COVID-19 pandemic induced recession. This pandemic is unprecedented and information that could be used in the estimation of the allowance for credit losses changes frequently. Trends in health conditions and vaccine distribution could significantly modify economic projections used in the estimation of the allowance for credit losses.

11
A summary of the activity in the allowance for credit losses on loans and the liability for unfunded lending commitments during the three and nine months ended September 30, 2021 and 2020, respectively, follows:

For the Three Months Ended September 30, 2021
For the Nine Months Ended September 30, 2021
(In thousands) Commercial Personal Banking

Total
Commercial Personal Banking

Total
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at beginning of period $ 98,038  $ 74,357  $ 172,395  $ 121,549  $ 99,285  $ 220,834 
Provision for credit losses on loans 186  (6,147) (5,961) (28,302) (15,447) (43,749)
Deductions:
   Loans charged off 190  6,387  6,577  692  27,694  28,386 
   Less recoveries on loans 130  2,788  2,918  5,609  8,467  14,076 
Net loan charge-offs (recoveries) 60  3,599  3,659  (4,917) 19,227  14,310 
Balance September 30, 2021 $ 98,164  $ 64,611  $ 162,775  $ 98,164  $ 64,611  $ 162,775 
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance at beginning of period $ 23,350  $ 858  $ 24,208  $ 37,259  $ 1,048  $ 38,307 
Provision for credit losses on unfunded lending commitments (1,564) 140  (1,424) (15,473) (50) (15,523)
Balance September 30, 2021 $ 21,786  $ 998  $ 22,784  $ 21,786  $ 998  $ 22,784 
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 119,950  $ 65,609  $ 185,559  $ 119,950  $ 65,609  $ 185,559 

For the Three Months Ended September 30, 2020
For the Nine Months Ended September 30, 2020
(In thousands) Commercial Personal Banking

Total
Commercial Personal Banking

Total
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at end of prior period $ 130,553  $ 110,191  $ 240,744  $ 91,760  $ 68,922  $ 160,682 
Adoption of ASU 2016-13 —  —  —  (29,711) 8,672  (21,039)
Balance at beginning of period $ 130,553  $ 110,191  $ 240,744  $ 62,049  $ 77,594  $ 139,643 
Provision for credit losses on loans (1,935) 5,135  3,200  69,418  54,141  123,559 
Deductions:
   Loans charged off 357  10,292  10,649  4,159  32,127  36,286 
   Less recoveries on loans 163  2,902  3,065  1,116  8,328  9,444 
Net loan charge-offs 194  7,390  7,584  3,043  23,799  26,842 
Balance September 30, 2020 $ 128,424  $ 107,936  $ 236,360  $ 128,424  $ 107,936  $ 236,360 
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance at end of prior period $ 34,052  $ 1,247  $ 35,299  $ 399  $ 676  $ 1,075 
Adoption of ASU 2016-13 —  —  —  16,057  33  16,090 
Balance at beginning of period $ 34,052  $ 1,247  $ 35,299  $ 16,456  $ 709  $ 17,165 
Provision for credit losses on unfunded lending commitments (60) (39) (99) 17,536  499  18,035 
Balance September 30, 2020 $ 33,992  $ 1,208  $ 35,200  $ 33,992  $ 1,208  $ 35,200 
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 162,416  $ 109,144  $ 271,560  $ 162,416  $ 109,144  $ 271,560 

12
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 September 30, 2021 and December 31, 2020.




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

30 – 89
Days Past Due
90 Days Past Due and Still Accruing Non-accrual



Total
September 30, 2021
Commercial:
Business $ 5,266,174  $ 3,029  $ 354  $ 8,293  $ 5,277,850 
Real estate – construction and land 1,257,836  —  —  —  1,257,836 
Real estate – business 2,935,233  2,042  —  577  2,937,852 
Personal Banking:
Real estate – personal 2,762,146  3,029  2,566  1,551  2,769,292 
Consumer 2,029,109  18,147  2,303  —  2,049,559 
Revolving home equity 279,410  1,202  830  —  281,442 
Consumer credit card 560,685  4,848  4,443  —  569,976 
Overdrafts 4,294  289  —  —  4,583 
Total $ 15,094,887  $ 32,586  $ 10,496  $ 10,421  $ 15,148,390 
December 31, 2020
Commercial:
Business $ 6,517,838  $ 2,252  $ 3,473  $ 22,524  $ 6,546,087 
Real estate – construction and land 1,021,592  —  3  —  1,021,595 
Real estate – business 3,016,215  7,666  6  2,230  3,026,117 
Personal Banking:
Real estate – personal 2,808,886  6,521  2,837  1,786  2,820,030 
Consumer 1,921,822  25,417  3,263  —  1,950,502 
Revolving home equity 305,037  1,656  390  —  307,083 
Consumer credit card 635,770  7,090  12,218  —  655,078 
Overdrafts 2,896  253  —  —  3,149 
Total $ 16,230,056  $ 50,855  $ 22,190  $ 26,540  $ 16,329,641 

At September 30, 2021, the Company had $5.5 million in non-accrual business loans that had no allowance for credit loss. At December 31, 2020, the Company had $9.4 million in 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 three and nine months ended September 30, 2021 and 2020, respectively.

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

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

The risk category of loans in the Commercial portfolio as of September 30, 2021 and December 31, 2020 are as follows:

Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total
September 30, 2021
Business
    Risk Rating:
       Pass $ 1,134,349  $ 857,499  $ 719,076  $ 287,921  $ 184,147  $ 316,405  $ 1,662,395  $ 5,161,792 
       Special mention 1,360  742  22,078  19,893  612  3,430  13,958  62,073 
       Substandard 3,489  9,371  7,961  4,124  5  11,444  9,298  45,692 
       Non-accrual 446  —  1  2,057  110  5,655  24  8,293 
   Total Business: $ 1,139,644  $ 867,612  $ 749,116  $ 313,995  $ 184,874  $ 336,934  $ 1,685,675  $ 5,277,850 
Real estate-construction
    Risk Rating:
       Pass $ 448,441  $ 465,051  $ 141,423  $ 43,814  $ 2,691  $ 24,807  $ 27,175  $ 1,153,402 
       Special mention 15,474  28,037  —  995  19,499  —  —  64,005 
       Substandard 239  11,767  —  15,226  13,197  —  —  40,429 
    Total Real estate-construction: $ 464,154  $ 504,855  $ 141,423  $ 60,035  $ 35,387  $ 24,807  $ 27,175  $ 1,257,836 
Real estate-business
    Risk Rating:
       Pass $ 424,347  $ 749,037  $ 577,966  $ 272,536  $ 209,234  $ 324,869  $ 57,801  $ 2,615,790 
       Special mention 1,080  29,998  10,980  22,751  2,117  5,853  2  72,781 
       Substandard 17,021  64,197  11,834  30,993  68,664  52,183  3,812  248,704 
       Non-accrual 198  65  76  205  —  33  —  577 
   Total Real estate-business: $ 442,646  $ 843,297  $ 600,856  $ 326,485  $ 280,015  $ 382,938  $ 61,615  $ 2,937,852 
Commercial loans
    Risk Rating:
       Pass $ 2,007,137  $ 2,071,587  $ 1,438,465  $ 604,271  $ 396,072  $ 666,081  $ 1,747,371  $ 8,930,984 
       Special mention 17,914  58,777  33,058  43,639  22,228  9,283  13,960  198,859 
       Substandard 20,749  85,335  19,795  50,343  81,866  63,627  13,110  334,825 
       Non-accrual 644  65  77  2,262  110  5,688  24  8,870 
   Total Commercial loans: $ 2,046,444  $ 2,215,764  $ 1,491,395  $ 700,515  $ 500,276  $ 744,679  $ 1,774,465  $ 9,473,538 

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Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total
December 31, 2020
Business
    Risk Rating:
       Pass $ 2,472,419  $ 966,068  $ 438,557  $ 329,207  $ 163,357  $ 281,604  $ 1,619,680  $ 6,270,892 
       Special mention 28,612  26,746  14,102  1,781  5,091  1,664  41,749  119,745 
       Substandard 17,246  21,985  5,076  2,675  3,578  13,390  68,976  132,926 
       Non-accrual 12,619  1  5,327  391  502  3,659  25  22,524 
   Total Business: $ 2,530,896  $ 1,014,800  $ 463,062  $ 334,054  $ 172,528  $ 300,317  $ 1,730,430  $ 6,546,087 
Real estate-construction
    Risk Rating:
       Pass $ 483,302  $ 330,480  $ 56,747  $ 3,021  $ 24,426  $ 1,692  $ 27,356  $ 927,024 
       Special mention 29,692  —  1,022  34,532  —  —  —  65,246 
       Substandard 1,154  —  14,989  13,182  —  —  —  29,325 
    Total Real estate-construction: $ 514,148  $ 330,480  $ 72,758  $ 50,735  $ 24,426  $ 1,692  $ 27,356  $ 1,021,595 
Real estate- business
    Risk Rating:
       Pass $ 890,740  $ 666,399  $ 336,850  $ 241,656  $ 313,691  $ 199,534  $ 67,796  $ 2,716,666 
       Special mention 8,936  21,734  49,580  6,597  17,504  1,309  3,002  108,662 
       Substandard 46,882  1,037  4,061  81,435  17,538  45,014  2,592  198,559 
       Non-accrual 478  188  1,480  —  —  84  —  2,230 
   Total Real-estate business: $ 947,036  $ 689,358  $ 391,971  $ 329,688  $ 348,733  $ 245,941  $ 73,390  $ 3,026,117 
Commercial loans
    Risk Rating:
       Pass $ 3,846,461  $ 1,962,947  $ 832,154  $ 573,884  $ 501,474  $ 482,830  $ 1,714,832  $ 9,914,582 
       Special mention 67,240  48,480  64,704  42,910  22,595  2,973  44,751  293,653 
       Substandard 65,282  23,022  24,126  97,292  21,116  58,404  71,568  360,810 
       Non-accrual 13,097  189  6,807  391  502  3,743  25  24,754 
   Total Commercial loans: $ 3,992,080  $ 2,034,638  $ 927,791  $ 714,477  $ 545,687  $ 547,950  $ 1,831,176  $ 10,593,799 


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The credit quality of Personal Banking loans is monitored primarily on the basis of aging/delinquency, and this information is provided as of September 30, 2021 and December 31, 2020 below:

Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2021 2020 2019 2018 2017 Prior Revolving Loans Amortized Cost Basis Total
September 30, 2021
Real estate-personal
       Current to 90 days past due $ 509,080  $ 941,728  $ 379,912  $ 170,651  $ 158,655  $ 595,786  $ 9,363  $ 2,765,175 
       Over 90 days past due 86  663  —  188  167  1,462  —  2,566 
       Non-accrual —  —  185  111  —  1,255  —  1,551 
   Total Real estate-personal: $ 509,166  $ 942,391  $ 380,097  $ 170,950  $ 158,822  $ 598,503  $ 9,363  $ 2,769,292 
Consumer
       Current to 90 days past due $ 441,146  $ 391,312  $ 221,490  $ 96,086  $ 59,935  $ 93,205  $ 744,082  $ 2,047,256 
       Over 90 days past due 54  310  250  230  27  253  1,179  2,303 
    Total Consumer: $ 441,200  $ 391,622  $ 221,740  $ 96,316  $ 59,962  $ 93,458  $ 745,261  $ 2,049,559 
Revolving home equity
       Current to 90 days past due $ —  $ —  $ —  $ —  $ —  $ —  $ 280,612  $ 280,612 
       Over 90 days past due —  —  —  —  —  —  830  830 
   Total Revolving home equity: $ —  $ —  $ —  $ —  $ —  $ —  $ 281,442  $ 281,442 
Consumer credit card
       Current to 90 days past due $ —  $ —  $ —  $ —  $ —  $ —  $ 565,533  $ 565,533 
       Over 90 days past due —  —  —  —  —  —  4,443  4,443 
   Total Consumer credit card: $ —  $ —  $ —  $ —  $ —  $ —  $ 569,976  $ 569,976 
Overdrafts
       Current to 90 days past due $ 4,583  $ —  $ —  $ —  $ —  $ —  $ —  $ 4,583 
    Total Overdrafts: $ 4,583  $ —  $ —  $ —  $ —  $ —  $ —  $ 4,583 
Personal banking loans
       Current to 90 days past due $ 954,809  $ 1,333,040  $ 601,402  $ 266,737  $ 218,590  $ 688,991  $ 1,599,590  $ 5,663,159 
       Over 90 days past due 140  973  250  418  194  1,715  6,452  10,142 
       Non-accrual —  —  185  111  —  1,255  —  1,551 
   Total Personal banking loans: $ 954,949  $ 1,334,013  $ 601,837  $ 267,266  $ 218,784  $ 691,961  $ 1,606,042  $ 5,674,852 
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Term Loans Amortized Cost Basis by Origination Year
(In thousands) 2020 2019 2018 2017 2016 Prior Revolving Loans Amortized Cost Basis Total
December 31, 2020
Real estate-personal
       Current to 90 days past due $ 1,123,918  $ 488,379  $ 218,390  $ 201,971  $ 227,265  $ 544,008  $ 11,476  $ 2,815,407 
       Over 90 days past due 534  375  281  411  388  848  —  2,837 
       Non-accrual 29  191  116  45  65  1,340  —  1,786 
   Total Real estate-personal: $ 1,124,481  $ 488,945  $ 218,787  $ 202,427  $ 227,718  $ 546,196  $ 11,476  $ 2,820,030 
Consumer
       Current to 90 days past due $ 536,799  $ 337,431  $ 161,337  $ 115,886  $ 75,769  $ 86,831  $ 633,186  $ 1,947,239 
       Over 90 days past due 212  358  328  220  174  397  1,574  3,263 
    Total Consumer: $ 537,011  $ 337,789  $ 161,665  $ 116,106  $ 75,943  $ 87,228  $ 634,760  $ 1,950,502 
Revolving home equity
       Current to 90 days past due $ —  $ —  $ —  $ —  $ —  $ —  $ 306,693  $ 306,693 
       Over 90 days past due —  —  —  —  —  —  390  390 
   Total Revolving home equity: $ —  $ —  $ —  $ —  $ —  $ —  $ 307,083  $ 307,083 
Consumer credit card
       Current to 90 days past due $ —  $ —  $ —  $ —  $ —  $ —  $ 642,860  $ 642,860 
       Over 90 days past due —  —  —  —  —  —  12,218  12,218 
   Total Consumer credit card: $ —  $ —  $ —  $ —  $ —  $ —  $ 655,078  $ 655,078 
Overdrafts
       Current to 90 days past due $ 3,149  $ —  $ —  $ —  $ —  $ —  $ —  $ 3,149 
    Total Overdrafts: $ 3,149  $ —  $ —  $ —  $ —  $ —  $ —  $ 3,149 
Personal banking loans
       Current to 90 days past due $ 1,663,866  $ 825,810  $ 379,727  $ 317,857  $ 303,034  $ 630,839  $ 1,594,215  $ 5,715,348 
       Over 90 days past due 746  733  609  631  562  1,245  14,182  18,708 
       Non-accrual 29  191  116  45  65  1,340  —  1,786 
   Total Personal banking loans: $ 1,664,641  $ 826,734  $ 380,452  $ 318,533  $ 303,661  $ 633,424  $ 1,608,397  $ 5,735,842 

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 September 30, 2021 and December 31, 2020.

(In thousands) Business Assets Business Real Estate Oil & Gas Assets Total
September 30, 2021
Commercial:
  Business $ 2,056  $ —  $ 2,518  $ 4,574 
Total $ 2,056  $ —  $ 2,518  $ 4,574 
December 31, 2020
Commercial:
Business $ 13,109  $ —  $ 2,695  $ 15,804 
Real estate - business —  986  —  986 
Total $ 13,109  $ 986  $ 2,695  $ 16,790 

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
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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 $186.0 million at September 30, 2021 and $191.1 million at December 31, 2020. The table also excludes consumer loans related to the Company's patient healthcare loan program, which totaled $189.6 million at September 30, 2021 and $188.1 million at December 31, 2020. As the healthcare loans are guaranteed by the hospital, customer FICO scores are not obtained for these loans. The personal real estate loans and consumer loans excluded below totaled less than 7% of the Personal Banking portfolio. For the remainder of loans in the Personal Banking portfolio, the table below shows the percentage of balances outstanding at September 30, 2021 and December 31, 2020 by FICO score.

   Personal Banking Loans
% of Loan Category
Real Estate - Personal Consumer Revolving Home Equity Consumer Credit Card
September 30, 2021
FICO score:
Under 600 .9  % 1.7  % 0.9  % 3.3  %
600 - 659 2.0  3.8  2.3  11.3 
660 - 719 7.8  14.2  9.2  30.8 
720 - 779 24.4  25.0  21.0  28.5 
780 and over 64.9  55.3  66.6  26.1 
Total 100.0  % 100.0  % 100.0  % 100.0  %
December 31, 2020
FICO score:
Under 600 .8  % 2.3  % 1.3  % 5.0  %
600 - 659 1.9  4.2  2.4  12.3 
660 - 719 8.8  14.1  8.6  31.2 
720 - 779 24.5  23.9  22.2  28.0 
780 and over 64.0  55.5  65.5  23.5 
Total 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.

(In thousands) September 30, 2021 December 31, 2020
Accruing restructured loans:
Commercial
$ 110,583  $ 117,740 
Assistance programs
6,789  7,804 
Consumer bankruptcy
2,327  2,841 
Other consumer
2,293  2,353 
Non-accrual loans
7,866  9,889 
Total troubled debt restructurings
$ 129,858  $ 140,627 
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 follows the guidance under the CARES Act when determining if a
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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 which requires modifications that result in a concession to a borrower experiencing financial difficulty be accounted for 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 through the end of 2021 the relief offered under the CARES Act related to the accounting and disclosure requirements for troubled debt restructurings as a result of COVID-19. The Company elected to adopt the extension of this guidance.

The table below shows the balance of troubled debt restructurings by loan classification at September 30, 2021, 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) September 30, 2021 Balance 90 days past due at any time during previous 12 months
Commercial:
Business $ 53,850  $ 347 
Real estate - construction and land 10,104  — 
Real estate - business 53,240  198 
Personal Banking:
Real estate - personal 3,131  483 
Consumer 2,865  177 
Revolving home equity 23  — 
Consumer credit card 6,645  368 
Total troubled debt restructurings $ 129,858  $ 1,573 

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. No financial impact resulted from those performing loans where the debt was not reaffirmed in bankruptcy, as no changes to loan terms occurred in that process. However, the effects of modifications to loans under various debt management and assistance programs were estimated to decrease interest income by approximately $815 thousand on an annual, pre-tax basis, compared to amounts contractually owed. Other modifications to consumer loans mainly involve extensions and other small modifications that did not include the forgiveness of principal or interest.

The allowance for credit losses 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.

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.

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The Company had commitments of $245 thousand at September 30, 2021 to lend additional funds to borrowers with restructured loans. Additionally, the Company had commitments at September 30, 2021 of $24.0 million related to letters of credit with an internal risk rating below substandard.

Loans held for sale
The Company designates certain long-term fixed rate personal real estate loans as held for sale, and the Company has elected the fair value option for these loans. The election of the fair value option aligns the accounting for these loans with the related economic hedges discussed in Note 11. The loans are primarily sold to Federal Home Loan Mortgage Corporation (FHLMC) and Federal National Mortgage Association (FNMA). At September 30, 2021, the fair value of these loans was $12.0 million, and the unpaid principal balance was $11.6 million.

The Company also designates certain student loan originations as held for sale. The borrowers are credit-worthy students who are attending colleges and universities. The loans are intended to be sold in the secondary market, and the Company maintains contracts with Sallie Mae to sell the loans within 210 days after the last disbursement to the student. These loans are carried at lower of cost or fair value, which at September 30, 2021 totaled $4.1 million.

At September 30, 2021, 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 $115 thousand and $93 thousand at September 30, 2021 and December 31, 2020, respectively. Personal property acquired in repossession, generally autos, totaled $1.0 million and $1.4 million at September 30, 2021 and December 31, 2020, 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 September 30, 2021 and December 31, 2020.

(In thousands) September 30, 2021 December 31, 2020
Available for sale debt securities $ 14,165,656  $ 12,449,264 
Trading debt securities 40,114  35,321 
Equity securities:
Readily determinable fair value 7,118  2,966 
No readily determinable fair value 2,056  1,397 
Other:
Federal Reserve Bank stock 34,379  34,070 
Federal Home Loan Bank stock 10,185  10,307 
Equity method investments 1,834  18,000 
Private equity investments 138,052  94,368 
Total investment securities (1)
$ 14,399,394  $ 12,645,693 
(1)Accrued interest receivable totaled $39.4 million and $41.5 million at September 30, 2021 and December 31, 2020, 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 period, the Company did not record any impairment or other adjustments to the carrying amount of its portfolio of equity securities with no readily determinable fair value.

Other investment securities include Federal Reserve Bank (FRB) stock, Federal Home Loan Bank (FHLB) stock, equity method investments, and investments in portfolio concerns held by the Company's private equity subsidiary. FRB stock and FHLB stock are held for debt and regulatory purposes. Investment in FRB stock is based on the capital structure of the investing bank, and investment in FHLB stock is tied to the 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 income
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statement. The Company's private equity investments, in the absence of readily ascertainable market values, are carried at estimated fair value.

The majority of the Company’s investment portfolio is comprised of available for sale debt securities, which are carried at fair value with changes in fair value reported in accumulated other comprehensive income (AOCI). A summary of the available for sale debt securities by maturity groupings as of September 30, 2021 is shown below. The investment portfolio includes agency mortgage-backed securities, which are guaranteed by agencies such as FHLMC, FNMA, and Government National Mortgage Association (GNMA), in addition to non-agency mortgage-backed securities, which have no guarantee but are collateralized by commercial and residential mortgages. Also included are certain other asset-backed securities, which are primarily collateralized by credit cards, automobiles, student loans, and commercial loans. These securities differ from traditional debt securities primarily in that they may have uncertain maturity dates and are priced based on estimated prepayment rates on the underlying collateral.

(In thousands) Amortized
Cost 		Fair
Value
U.S. government and federal agency obligations:
Within 1 year $ 79,731  $ 81,194 
After 1 but within 5 years 454,372  479,137 
After 5 but within 10 years 198,011  223,859 
Total U.S. government and federal agency obligations 732,114  784,190 
Government-sponsored enterprise obligations:
After 10 years 50,781  51,941 
Total government-sponsored enterprise obligations 50,781  51,941 
State and municipal obligations:
Within 1 year 170,006  171,558 
After 1 but within 5 years 785,942  813,597 
After 5 but within 10 years 752,596  764,446 
After 10 years 410,023  405,475 
Total state and municipal obligations 2,118,567  2,155,076 
Mortgage and asset-backed securities:
  Agency mortgage-backed securities 5,943,839  5,974,802 
  Non-agency mortgage-backed securities 1,228,509  1,225,091 
  Asset-backed securities 3,342,935  3,359,915 
Total mortgage and asset-backed securities 10,515,283  10,559,808 
Other debt securities:
Within 1 year 113,944  115,321 
After 1 but within 5 years 222,106  226,915 
After 5 but within 10 years 255,052  253,271 
After 10 years 19,437  19,134 
Total other debt securities 610,539  614,641 
Total available for sale debt securities $ 14,027,284  $ 14,165,656 

Investments in U.S. government and federal agency obligations include U.S. Treasury inflation-protected securities, which totaled $387.1 million, at fair value, at September 30, 2021. Interest paid on these securities increases with inflation and decreases with deflation, as measured by the Consumer Price Index. At maturity, the principal paid is the greater of an inflation-adjusted principal or the original principal.

Allowance for credit losses on available for sale debt securities
The Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, on January 1, 2020. The adoption of ASU 2016-13 had no impact to the Company's available for sale securities reported in its consolidated financial statements at January 1, 2020. For the nine months ended September 30, 2021 and 2020, the Company did not recognize a credit loss expense on any available for sale debt securities.

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
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watch list and cash flow analyses are prepared on an individual security basis. Credit impairment is determined using 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. At September 30, 2021, the fair value of securities on this watch list was $13.7 million compared to $31.0 million at December 31, 2020.

Significant inputs to the cash flow model used at September 30, 2021 to quantify credit losses were primarily credit support agreements, as the securities on the Company's watch list at September 30, 2021 were securities backed by government-guaranteed student loans and are expected to perform as contractually required. As of September 30, 2021, the Company did not identify any securities for which a credit loss exists.

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 September 30, 2021 and December 31, 2020. 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. Additionally, management does not intend to sell the securities, and it is more likely than not that management will not be required to sell the securities prior to their anticipated recovery.

Less than 12 months 12 months or longer Total
 
(In thousands)
   Fair Value Unrealized
Losses 		Fair Value Unrealized
Losses 		Fair Value Unrealized
Losses
September 30, 2021
Government-sponsored enterprise obligations $ 19,249  $ 569  $ —  $ —  $ 19,249  $ 569 
State and municipal obligations 757,283  9,795  14,385  436  771,668  10,231 
Mortgage and asset-backed securities:
   Agency mortgage-backed securities 3,076,674  44,140  38,993  1,968  3,115,667  46,108 
   Non-agency mortgage-backed securities 911,825  5,020  —  —  911,825  5,020 
   Asset-backed securities 1,024,409  3,609  107,526  705  1,131,935  4,314 
Total mortgage and asset-backed securities 5,012,908  52,769  146,519  2,673  5,159,427  55,442 
Other debt securities 233,200  4,475  23,375  1,326  256,575  5,801 
Total $ 6,022,640  $ 67,608  $ 184,279  $ 4,435  $ 6,206,919  $ 72,043 
December 31, 2020
Government-sponsored enterprise obligations $ 19,720  $ 98  $ —  $ —  $ 19,720  $ 98 
State and municipal obligations 45,622  230  —  —  45,622  230 
Mortgage and asset-backed securities:
   Agency mortgage-backed securities 470,373  2,802  —  —  470,373  2,802 
   Non-agency mortgage-backed securities 112,861  380  —  —  112,861  380 
   Asset-backed securities 21,360  56  253,734  2,617  275,094  2,673 
Total mortgage and asset-backed securities 604,594  3,238  253,734  2,617  858,328  5,855 
Other debt securities 24,522  175  —  —  24,522  175 
Total $ 694,458  $ 3,741  $ 253,734  $ 2,617  $ 948,192  $ 6,358 

The entire available for sale debt portfolio included $6.2 billion of securities that were in a loss position at September 30, 2021, compared to $948.2 million at December 31, 2020.  The total amount of unrealized loss on these securities was $72.0 million at September 30, 2021, an increase of $65.7 million compared to the loss at December 31, 2020.  Securities with significant unrealized losses are discussed in the "Allowance for credit losses on available for sale debt securities" section above.

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For debt securities classified as available for sale, the following tables show the amortized cost, fair value, and allowance for credit losses of securities available for sale at September 30, 2021 and December 31, 2020, and the corresponding amounts of gross unrealized gains and losses (pre-tax) in AOCI, by security type.

 
 
(In thousands)
Amortized Cost Gross
Unrealized
Gains 		Gross
Unrealized
Losses 		Allowance for Credit Losses
Fair Value
September 30, 2021
U.S. government and federal agency obligations $ 732,114  $ 52,076  $ —  $ —  $ 784,190 
Government-sponsored enterprise obligations 50,781  1,729  (569) —  51,941 
State and municipal obligations 2,118,567  46,740  (10,231) —  2,155,076 
Mortgage and asset-backed securities:
  Agency mortgage-backed securities 5,943,839  77,071  (46,108) —  5,974,802 
  Non-agency mortgage-backed securities 1,228,509  1,602  (5,020) —  1,225,091 
  Asset-backed securities 3,342,935  21,294  (4,314) —  3,359,915 
Total mortgage and asset-backed securities 10,515,283  99,967  (55,442) —  10,559,808 
Other debt securities 610,539  9,903  (5,801) —  614,641 
Total $ 14,027,284  $ 210,415  $ (72,043) $ —  $ 14,165,656 
December 31, 2020
U.S. government and federal agency obligations $ 775,592  $ 62,467  $ —  $ —  $ 838,059 
Government-sponsored enterprise obligations 50,803  3,780  (98) —  54,485 
State and municipal obligations 1,968,006  77,323  (230) —  2,045,099 
Mortgage and asset-backed securities:
  Agency mortgage-backed securities 6,557,098  157,789  (2,802) —  6,712,085 
  Non-agency mortgage-backed securities 358,074  3,380  (380) —  361,074 
  Asset-backed securities 1,853,791  31,125  (2,673) —  1,882,243 
Total mortgage and asset-backed securities 8,768,963  192,294  (5,855) —  8,955,402 
Other debt securities 534,169  22,225  (175) —  556,219 
Total $ 12,097,533  $ 358,089  $ (6,358) $ —  $ 12,449,264 

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

For the Nine Months Ended September 30
(In thousands) 2021 2020
Proceeds from sales of securities:
Available for sale debt securities
$ —  $ 574,374 
Equity securities
—  2 
Other
10,060  — 
Total proceeds
$ 10,060  $ 574,376 
Investment securities gains (losses), net:
Available for sale debt securities:
Gains realized on sales $ —  $ 16,965 
Equity securities:
Gains realized on sales —  2 
 Fair value adjustments, net
152  (126)
Other:
 Gains realized on sales
1,611  — 
Fair value adjustments, net 38,002  (18,116)
Total investment securities gains (losses), net $ 39,765  $ (1,275)

Net gains on investment securities for the nine months ended September 30, 2021 were mainly comprised of gains of $1.6 million realized on the sale of a private equity investment and net gains in fair value of $38.0 million on private equity investments due to fair value adjustments.
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At September 30, 2021, securities totaling $5.7 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 $4.8 billion at December 31, 2020. Securities pledged under agreements pursuant to which the collateral may be sold or re-pledged by the secured parties approximated $213.1 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 exceeded 10% of stockholders’ equity.

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

September 30, 2021 December 31, 2020
 
 
(In thousands)
Gross Carrying Amount Accumulated Amortization Valuation Allowance Net Amount Gross Carrying Amount Accumulated Amortization Valuation Allowance Net Amount
Amortizable intangible assets:
Core deposit premium $ 31,270  $ (30,186) $ —  $ 1,084  $ 31,270  $ (29,912) $ —  $ 1,358 
Mortgage servicing rights 19,747  (8,990) (983) 9,774  15,238  (6,886) (2,103) 6,249 
Total $ 51,017  $ (39,176) $ (983) $ 10,858  $ 46,508  $ (36,798) $ (2,103) $ 7,607 

Aggregate amortization expense on intangible assets was $682 thousand and $859 thousand for the three month periods ended September 30, 2021 and 2020, respectively, and $2.4 million and $1.6 million for the nine month periods ended September 30, 2021 and 2020, respectively. The following table shows the estimated annual amortization expense for the next five fiscal years. This expense is based on existing asset balances and the interest rate environment as of September 30, 2021. 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)
2021 $ 2,929 
2022 1,799 
2023 1,498 
2024 1,244 
2025 1,027 

Changes in the carrying amount of goodwill and net other intangible assets for the nine month period ended September 30, 2021 are as follows:

(In thousands) Goodwill Easement Core Deposit Premium Mortgage Servicing Rights
Balance January 1, 2021
$ 138,921  $ 3,600  $ 1,358  $ 6,249 
Originations —  —  —  4,509 
Amortization —  —  (274) (2,104)
Impairment reversal —  —  —  1,120 
Balance September 30, 2021 $ 138,921  $ 3,600  $ 1,084  $ 9,774 

Goodwill allocated to the Company’s operating segments at September 30, 2021 and December 31, 2020 is shown below.

(In thousands)
Consumer segment $ 70,721 
Commercial segment 67,454 
Wealth segment 746 
Total goodwill $ 138,921 

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

Upon issuance of standby letters of credit, the Company recognizes a liability for the fair value of the obligation undertaken, which is estimated to be equivalent to the amount of fees received from the customer over the life of the agreement. At September 30, 2021, that net liability was $3.1 million, which will be accreted into income over the remaining life of the respective commitments. The contractual amount of these letters of credit, which represents the maximum potential future payments guaranteed by the Company, was $423.6 million at September 30, 2021.

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 September 30, 2021, believes sufficient collateral is available to cover potential swap losses. The RPAs are carried at fair value throughout their term with all changes in fair value, including those due to a change in the third party’s creditworthiness, recorded in current earnings. The terms of the RPAs, which correspond to the terms of the underlying swaps, range from 2 years to 15 years. At September 30, 2021, the fair value of the Company's guarantee liabilities for RPAs was $283 thousand, and the notional amount of the underlying swaps was $268.1 million. The maximum potential future payment guaranteed by the Company cannot be readily estimated but is dependent upon the fair value of the interest rate swaps at the time of default.


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6. Leases
The Company has net investments in direct financing and sales-type leases to commercial, industrial, and tax-exempt entities. These leases are included within business loans on the Company's consolidated balance sheets. The Company primarily leases various types of equipment, trucks and trailers, and office furniture and fixtures. Lease agreements may include options for the lessee to renew or purchase the leased equipment at the end of the lease term. The Company has elected to adopt the lease component expedient in which the lease and nonlease components are combined into the total lease receivable. The Company also leases office space to third parties, and these leases are classified as operating leases. The leases may include options to renew or expand the leased space, and currently the leases have remaining terms of 3 months to 6 years.

The following table provides the components of lease income.

For the Three Months Ended September 30 For the Nine Months Ended September 30
(in thousands) 2021 2020 2021 2020
Direct financing and sales-type leases $ 5,482  $ 6,437  $ 17,398  $ 19,099 
Operating leases(a)
1,717  2,270  5,721  6,491 
Total lease income $ 7,199  $ 8,707  $ 23,119  $ 25,590 
(a) Includes rent from Tower Properties Company, a related party, of $19 thousand for the three month periods ended September 30, 2021 and 2020, and $57 thousand for the nine months ended September 30, 2021 and 2020.

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

For the Three Months Ended September 30 For the Nine Months Ended September 30
(In thousands) 2021 2020 2021 2020
Service cost - benefits earned during the period $ 95  $ 93  $ 284  $ 295 
Interest cost on projected benefit obligation 514  818  1,626  2,463 
Expected return on plan assets (1,151) (1,317) (3,399) (3,911)
Amortization of prior service cost (67) (67) (203) (203)
Amortization of unrecognized net loss 669  503  1,971  1,587 
Net periodic pension cost $ 60  $ 30  $ 279  $ 231 

All benefits accrued under the Company’s defined benefit pension plan have been frozen since January 1, 2011. During the first nine months of 2021, the Company made no funding contributions to its defined benefit pension plan and made minimal funding contributions to a supplemental executive retirement plan (the CERP), which carries no segregated assets.


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

For the Three Months Ended September 30 For the Nine Months Ended September 30
(In thousands, except per share data) 2021 2020 2021 2020
Basic income per common share:
Net income attributable to Commerce Bancshares, Inc. $ 122,561  $ 132,448  $ 415,859  $ 224,168 
Less preferred stock dividends —  7,466  —  11,966 
Net income available to common shareholders 122,561  124,982  415,859  212,202 
Less income allocated to nonvested restricted stock 1,114  1,173  3,792  1,996 
  Net income allocated to common stock $ 121,447  $ 123,809  $ 412,067  $ 210,206 
Weighted average common shares outstanding 115,836  116,256  116,085  116,391 
   Basic income per common share $ 1.05  $ 1.06  $ 3.55  $ 1.80 
Diluted income per common share:
Net income available to common shareholders $ 122,561  $ 124,982  $ 415,859  $ 212,202 
Less income allocated to nonvested restricted stock 1,112  1,170  3,785  1,993 
  Net income allocated to common stock $ 121,449  $ 123,812  $ 412,074  $ 210,209 
Weighted average common shares outstanding 115,836  116,256  116,085  116,391 
  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 241  188  280  219 
  Weighted average diluted common shares outstanding 116,077  116,444  116,365  116,610 
    Diluted income per common share $ 1.05  $ 1.06  $ 3.54  $ 1.80 

Unexercised stock appreciation rights of 94 thousand and 413 thousand for the three month periods ended September 30, 2021 and 2020, respectively, and 58 thousand and 295 thousand for the nine month periods ended September 30, 2021 and 2020, respectively, were excluded from the computation of diluted income per common share 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).

* All prior year share and per share amounts in this note have been restated for the 5% common stock dividend distributed in December 2020.

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9. 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 hedging instruments. The interest rate floors were terminated during 2020, and the realized gains will be amortized into interest income through the original maturity dates of the interest rate floors. Information about unrealized gains and losses on securities can be found in Note 3, and information about unrealized gains and losses on cash flow hedge derivatives is located in Note 11.

Unrealized Gains (Losses) on Securities (1) Pension Loss Unrealized Gains (Losses) on Cash Flow Hedge Derivatives (2) Total Accumulated Other Comprehensive Income (Loss)
(In thousands)
Balance January 1, 2021
$ 263,801  $ (25,118) $ 92,694  $ 331,377 
Other comprehensive loss before reclassifications to current earnings (213,362) —  —  (213,362)
Amounts reclassified to current earnings from accumulated other comprehensive income —  1,768  (18,024) (16,256)
 Current period other comprehensive income (loss), before tax (213,362) 1,768  (18,024) (229,618)
Income tax (expense) benefit 53,343  (442) 4,506  57,407 
 Current period other comprehensive income (loss), net of tax (160,019) 1,326  (13,518) (172,211)
Balance September 30, 2021
$ 103,782  $ (23,792) $ 79,176  $ 159,166 
Balance January 1, 2020
$ 102,073  $ (21,940) $ 30,311  $ 110,444 
Other comprehensive income before reclassifications to current earnings 237,583  —  94,702  332,285 
Amounts reclassified to current earnings from accumulated other comprehensive income (16,965) 1,384  (6,050) (21,631)
 Current period other comprehensive income, before tax 220,618  1,384  88,652  310,654 
Income tax expense (55,154) (346) (22,163) (77,663)
 Current period other comprehensive income, net of tax 165,464  1,038  66,489  232,991 
Balance September 30, 2020
$ 267,537  $ (20,902) $ 96,800  $ 343,435 
(1) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "investment securities gains (losses), net" in the consolidated statements of income.
(2) The pre-tax amounts reclassified from accumulated other comprehensive income to current earnings are included in "interest and fees on loans" in the consolidated statements of income.

10. Segments
The Company segregates financial information for use in assessing its performance and allocating resources among three operating segments: Consumer, Commercial and Wealth. The Consumer segment consists of various consumer loan and deposit products offered through its retail branch network of approximately 155 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.

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


(In thousands)
Consumer Commercial Wealth Segment Totals Other/Elimination Consolidated Totals
Three Months Ended September 30, 2021
Net interest income $ 80,411  $ 115,536  $ 18,075  $ 214,022  $ 15  $ 214,037 
Provision for credit losses (3,557) (69) 9  (3,617) 11,002  7,385 
Non-interest income 35,758  52,092  55,241  143,091  (5,585) 137,506 
Investment securities gains, net —  —  —  —  13,108  13,108 
Non-interest expense (75,823) (84,604) (34,286) (194,713) (16,907) (211,620)
Income before income taxes $ 36,789  $ 82,955  $ 39,039  $ 158,783  $ 1,633  $ 160,416 
Nine Months Ended September 30, 2021
Net interest income $ 239,159  $ 340,345  $ 53,186  $ 632,690  $ (4,923) $ 627,767 
Provision for credit losses (19,122) 4,856  10  (14,256) 73,528  59,272 
Non-interest income 110,911  155,079  158,731  424,721  (12,027) 412,694 
Investment securities gains, net —  —  —  —  39,765  39,765 
Non-interest expense (220,276) (246,502) (101,377) (568,155) (34,164) (602,319)
Income before income taxes $ 110,672  $ 253,778  $ 110,550  $ 475,000  $ 62,179  $ 537,179 
Three Months Ended September 30, 2020
Net interest income $ 80,944  $ 111,527  $ 15,303  $ 207,774  $ 8,188  $ 215,962 
Provision for loan losses (7,654) (200) 13  (7,841) 4,740  (3,101)
Non-interest income 37,115  47,920  47,701  132,736  (3,164) 129,572 
Investment securities gains, net —  —  —  —  16,155  16,155 
Non-interest expense (73,075) (78,277) (30,933) (182,285) (8,573) (190,858)
Income before income taxes $ 37,330  $ 80,970  $ 32,084  $ 150,384  $ 17,346  $ 167,730 
Nine Months Ended September 30, 2020
Net interest income $ 241,195  $ 300,301  $ 41,686  $ 583,182  $ 36,902  $ 620,084 
Provision for credit losses (23,885) (3,122) 10  (26,997) (114,596) (141,593)
Non-interest income 107,489  143,746  139,700  390,935  (20,185) 370,750 
Investment securities losses, net —  —  —  —  (1,275) (1,275)
Non-interest expense (225,791) (237,327) (92,915) (556,033) (16,035) (572,068)
Income before income taxes $ 99,008  $ 203,598  $ 88,481  $ 391,087  $ (115,189) $ 275,898 

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

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

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

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11. Derivative Instruments
The notional amounts of the Company’s derivative instruments are shown in the table below. These contractual amounts, along with other terms of the derivative, are used to determine amounts to be exchanged between counterparties and are not a measure of loss exposure. At September 30, 2021, 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)
September 30, 2021 December 31, 2020
Interest rate swaps $ 2,236,974  $ 2,367,017 
Interest rate caps 185,177  103,028 
Credit risk participation agreements 372,661  381,170 
Foreign exchange contracts 7,566  7,431 
 Mortgage loan commitments
44,233  67,543 
Mortgage loan forward sale contracts 6,987  — 
Forward TBA contracts 37,000  89,000 
Total notional amount $ 2,890,598  $ 3,015,189 

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

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

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. 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. As of September 30, 2021, the total realized gains on the monetized cash flow hedges remaining in AOCI was $105.6 million (pre-tax), which will be reclassified into interest income over the next 5.2 years.

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

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

The fair values of the Company's derivative instruments, whose notional amounts are listed above, are shown in the table below. Information about the valuation methods used to determine fair value is provided in Note 17 on Fair Value Measurements in the 2020 Annual Report on Form 10-K.
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The Company's policy is to present its derivative assets and derivative liabilities on a gross basis in its consolidated balance sheets, and these are reported in other assets and other liabilities. Certain collateral posted to and from the Company's clearing counterparty has been applied to the fair values of the cleared swaps, such that at September 30, 2021 in the table below, the positive fair values of cleared swaps were reduced by $224 thousand and the negative fair values of cleared swaps were reduced by $41.2 million. At December 31, 2020, there were no reductions to the positive fair values of cleared swaps and the negative fair values of cleared swaps were reduced by $69.2 million.

  Asset Derivatives Liability Derivatives
Sept. 30, 2021 Dec. 31, 2020 Sept. 30, 2021 Dec. 31, 2020
(In thousands)    
  Fair Value   Fair Value
Derivative instruments:
   Interest rate swaps $ 53,020  $ 86,389  $ (12,001) $ (17,199)
   Interest rate caps 78  1  (78) (1)
   Credit risk participation agreements 113  216  (283) (701)
   Foreign exchange contracts 108  57  (92) (103)
   Mortgage loan commitments 1,510  3,226  —  — 
   Mortgage loan forward sale contracts 27  —  (9) — 
   Forward TBA contracts 209  —  (3) (671)
 Total $ 55,065  $ 89,889  $ (12,466) $ (18,675)

The pre-tax effects of derivative instruments on the consolidated statements of income are shown in the tables below.



Amount of Gain or (Loss) Recognized in OCI
Location of Gain (Loss) Reclassified from AOCI into Income Amount of Gain (Loss) Reclassified from AOCI into Income
(In thousands) Total Included Component Excluded Component Total Included Component Excluded Component
For the Three Months Ended September 30, 2020
Derivatives in cash flow hedging relationships:
Interest rate floors $ (4,481) $ (4,087) $ (394) Interest and fees on loans $ 4,163  $ 5,509  $ (1,346)
Total $ (4,481) $ (4,087) $ (394) Total $ 4,163  $ 5,509  $ (1,346)
For the Nine Months Ended September 30, 2020
Derivatives in cash flow hedging relationships:
Interest rate floors $ 94,702  $ 121,621  $ (26,919) Interest and fees on loans $ 6,050  $ 9,458  $ (3,408)
Total $ 94,702  $ 121,621  $ (26,919) Total $ 6,050  $ 9,458  $ (3,408)



Location of Gain or (Loss) Recognized in Income on Derivatives Amount of Gain or (Loss) Recognized in Income on Derivatives

For the Three Months Ended September 30 For the Nine Months Ended September 30
(In thousands) 2021 2020 2021 2020
Derivative instruments:
  Interest rate swaps Other non-interest income $ 24  $ 81  $ 1,974  $ 369 
  Interest rate caps Other non-interest income —  1  15  20 
  Credit risk participation agreements Other non-interest income 47  (87) 27  153 
  Foreign exchange contracts Other non-interest income (22) —  62  (82)
  Mortgage loan commitments Loan fees and sales (309) 589  (1,716) 2,678 
  Mortgage loan forward sale contracts Loan fees and sales (10) 20  18  19 
  Forward TBA contracts Loan fees and sales (184) (709) 1,676  (482)
Total $ (454) $ (105) $ 2,056  $ 2,675 

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
31
netting arrangement, irrespective of whether they are offset, and the extent to which the instruments could potentially be offset. Also shown is collateral received or pledged in the form of other financial instruments, which is generally cash or marketable securities. The collateral amounts in this table are limited to the outstanding balances of the related asset or liability (after netting is applied); thus, amounts of excess collateral are not shown. Most of the derivatives in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.

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

Gross Amounts Not Offset in the Balance Sheet
(In thousands) Gross Amount Recognized Gross Amounts Offset in the Balance Sheet Net Amounts Presented in the Balance Sheet Financial Instruments Available for Offset Collateral
Received/
Pledged 		Net Amount
September 30, 2021
Assets:
Derivatives subject to master netting agreements
$ 53,373  $ —  $ 53,373  $ (144) $ —  $ 53,229 
Derivatives not subject to master netting agreements
1,692  —  1,692 
Total derivatives $ 55,065  $ —  $ 55,065 
Liabilities:
Derivatives subject to master netting agreements
$ 12,354  $ —  $ 12,354  $ (144) $ (11,275) $ 935 
Derivatives not subject to master netting agreements
112  —  112 
Total derivatives $ 12,466  $ —  $ 12,466 
December 31, 2020
Assets:
Derivatives subject to master netting agreements
$ 86,497  $ —  $ 86,497  $ (108) $ —  $ 86,389 
Derivatives not subject to master netting agreements
3,392  —  3,392 
Total derivatives $ 89,889  $ —  $ 89,889 
Liabilities:
Derivatives subject to master netting agreements
$ 18,420  $ —  $ 18,420  $ (108) $ (16,738) $ 1,574 
Derivatives not subject to master netting agreements
255  —  255 
Total derivatives $ 18,675  $ —  $ 18,675 

12. Resale and Repurchase Agreements
The following table shows the extent to which assets and liabilities relating to securities purchased under agreements to resell (resale agreements) and securities sold under agreements to repurchase (repurchase agreements) have been offset in 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 netting is applied); thus, amounts of excess collateral are not shown. The agreements in the following table were transacted under master netting arrangements that contain a conditional right of offset, such as close-out netting, upon default.
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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 collateralized financing transactions, not as sales and purchases of the securities portfolio. The securities collateral accepted or pledged in resale and repurchase agreements with other financial institutions also 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 customers.

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 September 30, 2021 and December 31, 2020. At September 30, 2021, the Company had posted collateral of $202.5 million in marketable securities, consisting of agency mortgage-backed bonds, and had accepted $209.1 million in agency mortgage-backed bonds.

Gross Amounts Not Offset in the Balance Sheet
(In thousands) Gross Amount Recognized Gross Amounts Offset in the Balance Sheet Net Amounts Presented in the Balance Sheet Financial Instruments Available for Offset Securities Collateral Received/Pledged Net Amount
September 30, 2021
Total resale agreements, subject to master netting arrangements
$ 1,950,000  $ (200,000) $ 1,750,000  $ —  $ (1,750,000) $ — 
Total repurchase agreements, subject to master netting arrangements
2,442,408  (200,000) 2,242,408  —  (2,242,408) — 
December 31, 2020
Total resale agreements, subject to master netting arrangements
$ 1,050,000  $ (200,000) $ 850,000  $ —  $ (850,000) $ — 
Total repurchase agreements, subject to master netting arrangements
2,256,113  (200,000) 2,056,113  —  (2,056,113) — 
The table below shows the remaining contractual maturities of repurchase agreements outstanding at September 30, 2021 and December 31, 2020, in addition to the various types of marketable securities that have been pledged by the Company as collateral for these borrowings.

Remaining Contractual Maturity of the Agreements
(In thousands) Overnight and continuous Up to 90 days Greater than 90 days Total
September 30, 2021
Repurchase agreements, secured by:
  U.S. government and federal agency obligations $ 273,267  $ 25,106  $ 19,942  $ 318,315 
  Agency mortgage-backed securities 1,640,466  3,775  209,759  1,854,000 
  Non-agency mortgage-backed securities 31,217  —  —  31,217 
  Asset-backed securities 205,729  —  —  205,729 
  Other debt securities 33,147  —  —  33,147 
   Total repurchase agreements, gross amount recognized $ 2,183,826  $ 28,881  $ 229,701  $ 2,442,408 
December 31, 2020
Repurchase agreements, secured by:
  U.S. government and federal agency obligations $ 150,305  $ —  $ —  $ 150,305 
  Agency mortgage-backed securities 1,598,614  34,018  220,849  1,853,481 
  Non-agency mortgage-backed securities 62,742  —  —  62,742 
  Asset-backed securities 155,917  —  —  155,917 
  Other debt securities 33,668  —  —  33,668 
   Total repurchase agreements, gross amount recognized $ 2,001,246  $ 34,018  $ 220,849  $ 2,256,113 


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13. Stock-Based Compensation
The Company issues stock-based compensation in the form of nonvested restricted stock and stock appreciation rights (SARs). Historically, most of the awards have been issued during the first quarter of each year. The stock-based compensation expense that has been charged against income was $3.9 million and $3.8 million in the three months ended September 30, 2021 and 2020, respectively, and $11.6 million and $11.2 million in the nine months ended September 30, 2021 and 2020, respectively.

Nonvested stock awards granted generally vest in 4 to 7 years and contain restrictions as to transferability, sale, pledging, or assigning, among others, prior to the end of the vesting period. Dividend and voting rights are conferred upon grant. A summary of the status of the Company’s nonvested share awards as of September 30, 2021, and changes during the nine month period then ended, is presented below.

 
 
 

Shares  Weighted Average Grant Date Fair Value
Nonvested at January 1, 2021 1,099,866  $52.11
Granted 224,336  71.90
Vested (242,139) 43.45
Forfeited (20,297) 58.68
Nonvested at September 30, 2021 1,061,766  $58.14

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

Weighted per share average fair value at grant date $16.78 
Assumptions:
Dividend yield
1.4  %
Volatility
28.2  %
Risk-free interest rate
.7  %
Expected term
5.7 years

A summary of SAR activity during the first nine months of 2021 is presented below.

 
 
 
 
(Dollars in thousands, except per share data)
Rights
Weighted Average Exercise Price
Weighted Average Remaining Contractual Term
Aggregate Intrinsic Value
Outstanding at January 1, 2021 1,005,896  $ 44.95 
Granted 72,416  72.91 
Forfeited (6,363) 58.63 
Expired (280) 57.95 
Exercised (214,651) 39.59 
Outstanding at September 30, 2021
857,018  $ 48.55  6.0 years $ 18,372 


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14. 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 nine months ended September 30, 2021, approximately 60% 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.

Three Months Ended September 30 Nine Months Ended September 30
(In thousands) 2021 2020 2021 2020
Bank card transaction fees $ 42,815  $ 37,873  $ 123,118  $ 111,818 
Trust fees 48,950  40,769  139,334  118,676 
Deposit account charges and other fees 25,161  23,107  71,724  69,063 
Consumer brokerage services 4,900  4,011  13,484  11,099 
Other non-interest income 2,510  7,566  17,168  23,718 
Total non-interest income from contracts with customers 124,336  113,326  364,828  334,374 
Other non-interest income (1)
13,170  16,246  47,866  36,376 
Total non-interest income $ 137,506  $ 129,572  $ 412,694  $ 370,750 
(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.

For bank card transaction fees, the majority of debit and credit card fees are earned in the Consumer segment, while corporate card and merchant fees are earned in the Commercial segment. The Consumer and Commercial segments each contribute approximately half of the Company's deposit account charge revenue. All trust fees and consumer brokerage services income are earned in the Wealth segment.    

The following table presents the opening and closing receivable balances for the nine month periods ended September 30, 2021 and 2020 for the Company’s significant revenue categories subject to ASU 2014-09.

(In thousands) September 30, 2021 December 31, 2020 September 30, 2020 December 31, 2019
Bank card transaction fees $ 13,349  $ 14,199  $ 11,501  $ 13,915 
Trust fees 2,211  2,071  2,122  2,093 
Deposit account charges and other fees 5,969  6,933  5,839  6,523 
Consumer brokerage services 513  432  476  596 

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


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

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value. For accounting disclosure purposes, a three-level valuation hierarchy of fair value measurements has been established. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:
•Level 1 – inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
•Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, and inputs that are observable for the assets or liabilities, either directly or indirectly (such as interest rates, yield curves, and prepayment speeds).
•Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value. These may be internally developed, using the Company’s best information and assumptions that a market participant would consider.
The valuation methodologies for assets and liabilities measured at fair value on a recurring and non-recurring basis are described in the Fair Value Measurements note in the Company's 2020 Annual Report on Form 10-K. There have been no significant changes in these methodologies since then.

36
Instruments Measured at Fair Value on a Recurring Basis
The table below presents the September 30, 2021 and December 31, 2020 carrying values of assets and liabilities measured at fair value on a recurring basis. There were no transfers among levels during the first nine months of 2021 or the year ended December 31, 2020.

Fair Value Measurements Using
(In thousands) Total Fair Value Quoted Prices in Active Markets for Identical Assets
(Level 1) 		Significant Other Observable Inputs
(Level 2) 		Significant Unobservable Inputs
(Level 3)
September 30, 2021
Assets:
  Residential mortgage loans held for sale $ 11,982  $ —  $ 11,982  $ — 
  Available for sale debt securities:
     U.S. government and federal agency obligations 784,190  784,190  —  — 
     Government-sponsored enterprise obligations 51,941  —  51,941  — 
     State and municipal obligations 2,155,076  —  2,153,081  1,995 
     Agency mortgage-backed securities 5,974,802  —  5,974,802  — 
     Non-agency mortgage-backed securities 1,225,091  —  1,225,091  — 
     Asset-backed securities 3,359,915  —  3,359,915  — 
     Other debt securities 614,641  —  614,641  — 
  Trading debt securities 40,114  —  40,114  — 
  Equity securities 7,118  7,118  —  — 
  Private equity investments 138,052  —  —  138,052 
  Derivatives * 55,065  —  53,442  1,623 
  Assets held in trust for deferred compensation plan 20,880  20,880  —  — 
  Total assets 14,438,867  812,188  13,485,009  141,670 
Liabilities:
  Derivatives *
12,466  —  12,183  283 
Liabilities held in trust for deferred compensation plan
20,880  20,880  —  — 
  Total liabilities $ 33,346  $ 20,880  $ 12,183  $ 283 
December 31, 2020
Assets:
  Residential mortgage loans held for sale $ 39,396  $ —  $ 39,396  $ — 
  Available for sale debt securities:
     U.S. government and federal agency obligations 838,059  838,059  —  — 
     Government-sponsored enterprise obligations 54,485  —  54,485  — 
     State and municipal obligations 2,045,099  —  2,037,131  7,968 
     Agency mortgage-backed securities 6,712,085  —  6,712,085  — 
     Non-agency mortgage-backed securities 361,074  —  361,074  — 
     Asset-backed securities 1,882,243  —  1,882,243  — 
     Other debt securities 556,219  —  556,219  — 
  Trading debt securities 35,321  —  35,321  — 
  Equity securities 2,966  2,966  —  — 
  Private equity investments 94,368  —  —  94,368 
  Derivatives * 89,889  —  86,447  3,442 
  Assets held in trust for deferred compensation plan 19,278  19,278  —  — 
  Total assets 12,730,482  860,303  11,764,401  105,778 
Liabilities:
  Derivatives *
18,675  —  17,974  701 
Liabilities held in trust for deferred compensation plan
19,278  19,278  —  — 
  Total liabilities $ 37,953  $ 19,278  $ 17,974  $ 701 
* The fair value of each class of derivative is shown in Note 11.

37
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows:

Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)


(In thousands)
State and Municipal Obligations
Private Equity
Investments
Derivatives Total
For the three months ended September 30, 2021
Balance June 30, 2021 $ 7,991  $ 116,246  $ 1,629  $ 125,866 
Total gains or losses (realized/unrealized):
   Included in earnings —  12,971  (262) 12,709 
   Included in other comprehensive income * (175) —  —  (175)
Investment securities called (6,000) —  —  (6,000)
Discount accretion 179  —  —  179 
Purchases of private equity investments —  8,835  —  8,835 
Sale of risk participation agreements —  —  (27) (27)
Balance September 30, 2021 $ 1,995  $ 138,052  $ 1,340  $ 141,387 
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021
$ —  $ 12,971  $ 1,557  $ 14,528 
Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021
$ 2  $ —  $ —  $ 2 
For the nine months ended September 30, 2021
Balance January 1, 2021
$ 7,968  $ 94,368  $ 2,741  $ 105,077 
Total gains or losses (realized/unrealized):
   Included in earnings —  38,002  (1,689) 36,313 
   Included in other comprehensive income * (158) —  —  (158)
Investment securities called (6,000) —  —  (6,000)
Discount accretion 185  —  —  185 
Purchases of private equity investments —  14,491  —  14,491 
Sale/pay down of private equity investments —  (8,832) —  (8,832)
Capitalized interest/dividends —  23  —  23 
Purchase of risk participation agreement —  —  445  445 
Sale of risk participation agreement —  —  (157) (157)
Balance September 30, 2021 $ 1,995  $ 138,052  $ 1,340  $ 141,387 
Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021
$ —  $ 38,002  $ 1,367  $ 39,369 
Total gains or losses for the nine months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2021
$ 23  $ —  $ —  $ 23 
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Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)


(In thousands)
State and Municipal Obligations
Private Equity
Investments
Derivatives Total
For the three months ended September 30, 2020
Balance June 30, 2020
$ 9,490  $ 73,846  $ 1,888  $ 85,224 
Total gains or losses (realized/unrealized):
Included in earnings —  2,389  504  2,893 
Included in other comprehensive income * 271  —  —  271 
Investment securities called (2,000) —  —  (2,000)
Discount accretion 105  —  —  105 
Purchases of private equity investments —  2,522  —  2,522 
Sale/pay down of private equity investments —  (295) —  (295)
Balance September 30, 2020 $ 7,866  $ 78,462  $ 2,392  $ 88,720 
Total gains or losses for the three months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020
$ —  $ 2,409  $ 3,050  $ 5,459 
Total gains or losses for the three months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020
$ 258  $ —  $ —  $ 258 
For the nine months ended September 30, 2020
Balance January 1, 2020
$ 9,853  $ 94,122  $ 369  $ 104,344 
Total gains or losses (realized/unrealized):
Included in earnings —  (18,116) 2,832  (15,284)
Included in other comprehensive income * (101) —  —  (101)
Investment securities called (2,000) —  —  (2,000)
Discount accretion 114  —  —  114 
Purchases of private equity investments —  2,791  —  2,791 
Sale/pay down of private equity investments —  (364) —  (364)
Capitalized interest/dividends —  29  —  29 
Sale of risk participation agreement —  —  (809) (809)
Balance September 30, 2020 $ 7,866  $ 78,462  $ 2,392  $ 88,720 
Total gains or losses for the nine months included in earnings attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020
$ —  $ (18,096) $ 3,262  $ (14,834)
Total gains or losses for the nine months included in other comprehensive income attributable to the change in unrealized gains or losses relating to assets still held at September 30, 2020
$ (52) $ —  $ —  $ (52)
* Included in "net unrealized gains (losses) on other securities" in the consolidated statements of comprehensive income.

39
Gains and losses included in earnings for the Level 3 assets and liabilities in the previous table are reported in the following line items in the consolidated statements of income:

(In thousands) Loan Fees and Sales Other Non-Interest Income Investment Securities Gains (Losses), Net
Total
For the three months ended September 30, 2021
Total gains or losses included in earnings $ (309) $ 47  $ 12,971  $ 12,709 
Change in unrealized gains or losses relating to assets still held at September 30, 2021
$ 1,510  $ 47  $ 12,971  $ 14,528 
For the nine months ended September 30, 2021
Total gains or losses included in earnings $ (1,716) $ 27  $ 38,002  $ 36,313 
Change in unrealized gains or losses relating to assets still held at September 30, 2021
$ 1,510  $ (143) $ 38,002  $ 39,369 
For the three months ended September 30, 2020
Total gains or losses included in earnings $ 591  $ (87) $ 2,389  $ 2,893 
Change in unrealized gains or losses relating to assets still held at September 30, 2020
$ 3,137  $ (87) $ 2,409  $ 5,459 
For the nine months ended September 30, 2020
Total gains or losses included in earnings $ 2,679  $ 153  $ (18,116) $ (15,284)
Change in unrealized gains or losses relating to assets still held at September 30, 2020
$ 3,137  $ 125  $ (18,096) $ (14,834)

Level 3 Inputs
The Company's significant Level 3 measurements, which employ unobservable inputs that are readily quantifiable, pertain to auction rate securities (ARS), investments in portfolio concerns held by the Company's private equity subsidiaries, and held for sale residential mortgage loan commitments. ARS are included in state and municipal securities and totaled $2.0 million at September 30, 2021, while private equity investments, included in other securities, totaled $138.1 million.

Information about these inputs is presented in the table below.

Quantitative Information about Level 3 Fair Value Measurements Weighted
Valuation Technique Unobservable Input Range Average*
Auction rate securities Discounted cash flow Estimated market recovery period 5 years 5 years
Estimated market rate 1.1% - 1.3% 1.2%
Private equity investments Market comparable companies EBITDA multiple 4.0 - 6.0 5.3
Mortgage loan commitments Discounted cash flow Probability of funding 67.2% - 100.0% 87.0%
Embedded servicing value .8% - 1.2% 1.0%
* Unobservable inputs were weighted by the relative fair value of the instruments.

40
Instruments Measured at Fair Value on a Nonrecurring Basis
For assets measured at fair value on a nonrecurring basis during the first nine months of 2021 and 2020, and still held as of September 30, 2021 and 2020, the following table provides the adjustments to fair value recognized during the respective periods, the level of valuation inputs used to determine each adjustment, and the carrying value of the related individual assets or portfolios at September 30, 2021 and 2020.

Fair Value Measurements Using
(In thousands)

Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Total Gains (Losses) Recognized During the Nine Months Ended September 30
September 30, 2021
  Collateral dependent loans $ 2,057  $ —  $ —  $ 2,057  $ (349)
  Mortgage servicing rights 9,774  —  —  9,774  1,120 
  Long-lived assets 1,393  —  —  1,393  (726)
September 30, 2020
  Collateral dependent loans $ 11,772  $ —  $ —  $ 11,772  $ (3,214)
  Mortgage servicing rights 5,731  —  —  5,731  (1,823)

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 assets on the consolidated balance sheet, and information about these inputs is presented in the table below.

Quantitative Information about Level 3 Fair Value Measurements Weighted
Valuation Technique Unobservable Input Range Average*
Mortgage servicing rights Discounted cash flow Discount rate 9.02  % - 9.35  % 9.15  %
Prepayment speeds (CPR)* 11.46  % - 14.21  % 12.55  %
Loan servicing costs - annually per loan
    Performing loans $ 70  - $ 72  $ 71 
    Delinquent loans $ 200  - $ 750 
    Loans in foreclosure $ 1,000 
*Ranges and weighted averages based on interest rate tranches.

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


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

The estimated fair values of the Company’s financial instruments and the classification of their fair value measurement within the valuation hierarchy are as follows at September 30, 2021 and December 31, 2020:

Carrying Amount
Estimated Fair Value at September 30, 2021

(In thousands)

Level 1 Level 2 Level 3 Total
Financial Assets
Loans:
Business $ 5,277,850  $ —  $ —  $ 5,220,005  $ 5,220,005 
Real estate - construction and land
1,257,836  —  —  1,238,620  1,238,620 
Real estate - business
2,937,852  —  —  2,936,476  2,936,476 
Real estate - personal
2,769,292  —  —  2,772,259  2,772,259 
Consumer
2,049,559  —  —  2,046,338  2,046,338 
Revolving home equity 281,442  —  —  279,165  279,165 
Consumer credit card 569,976  —  —  529,617  529,617 
Overdrafts
4,583  —  —  4,236  4,236 
Total loans 15,148,390  —  —  15,026,716  15,026,716 
Loans held for sale 16,043  —  16,043  —  16,043 
Investment securities 14,395,504  791,308  13,419,585  184,611  14,395,504 
Securities purchased under agreements to resell 1,750,000  —  —  1,757,410  1,757,410 
Interest earning deposits with banks 1,888,545  1,888,545  —  —  1,888,545 
Cash and due from banks 344,460  344,460  —  —  344,460 
Derivative instruments 55,065  —  53,442  1,623  55,065 
Assets held in trust for deferred compensation plan 20,880  20,880  —  —  20,880 
       Total $ 33,618,887  $ 3,045,193  $ 13,489,070  $ 16,970,360  $ 33,504,623 
Financial Liabilities
Non-interest bearing deposits $ 11,622,855  $ 11,622,855  $ —  $ —  $ 11,622,855 
Savings, interest checking and money market deposits 14,907,654  14,907,654  —  —  14,907,654 
Certificates of deposit 1,615,775  —  —  1,617,580  1,617,580 
Federal funds purchased 11,345  11,345  —  —  11,345 
Securities sold under agreements to repurchase 2,242,408  —  —  2,242,486  2,242,486 
Other borrowings 3,949  —  3,949  —  3,949 
Derivative instruments 12,466  —  12,183  283  12,466 
Liabilities held in trust for deferred compensation plan 20,880  20,880  —  —  20,880 
       Total $ 30,437,332  $ 26,562,734  $ 16,132  $ 3,860,349  $ 30,439,215 
42
Carrying Amount
Estimated Fair Value at December 31, 2020

(In thousands)
Level 1 Level 2 Level 3 Total
Financial Assets
Loans:
Business $ 6,546,087  $ —  $ —  $ 6,467,572  $ 6,467,572 
Real estate - construction and land
1,021,595  —  —  995,873  995,873 
Real estate - business
3,026,117  —  —  3,016,576  3,016,576 
Real estate - personal
2,820,030  —  —  2,830,521  2,830,521 
Consumer
1,950,502  —  —  1,953,217  1,953,217 
Revolving home equity 307,083  —  —  304,434  304,434 
Consumer credit card 655,078  —  —  576,320  576,320 
Overdrafts
3,149  —  —  3,068  3,068 
Total loans 16,329,641  —  —  16,147,581  16,147,581 
Loans held for sale 45,089  —  45,089  —  45,089 
Investment securities 12,626,296  841,025  11,638,558  146,713  12,626,296 
Securities purchased under agreements to resell 850,000  —  —  894,338  894,338 
Interest earning deposits with banks 1,747,363  1,747,363  —  —  1,747,363 
Cash and due from banks 437,563  437,563  —  —  437,563 
Derivative instruments 89,889  —  86,447  3,442  89,889 
Assets held in trust for deferred compensation plan 19,278  19,278  —  —  19,278 
       Total $ 32,145,119  $ 3,045,229  $ 11,770,094  $ 17,192,074  $ 32,007,397 
Financial Liabilities
Non-interest bearing deposits $ 10,497,598  $ 10,497,598  $ —  $ —  $ 10,497,598 
Savings, interest checking and money market deposits 14,604,456  14,604,456  —  —  14,604,456 
Certificates of deposit 1,844,691  —  —  1,847,277  1,847,277 
Federal funds purchased 42,270  42,270  —  —  42,270 
Securities sold under agreements to repurchase 2,056,113  —  —  2,056,173  2,056,173 
Derivative instruments 18,675  —  17,974  701  18,675 
Liabilities held in trust for deferred compensation plan 19,278  19,278  —  —  19,278 
       Total $ 29,083,081  $ 25,163,602  $ 17,974  $ 3,904,151  $ 29,085,727 

17. Legal and Regulatory Proceedings
The Company has various legal proceedings pending at September 30, 2021, arising in the normal course of business. While some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at early stages of the legal process. The Company records a loss accrual for all legal and regulatory matters for which it deems a loss is probable and can be reasonably estimated. Some matters, which are in the early stages, have not yet progressed to the point where a loss amount can be determined to be probable and estimable.

43
Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Company's 2020 Annual Report on Form 10-K. Results of operations for the three and nine month periods ended September 30, 2021 are not necessarily indicative of results to be attained for any other period.

Forward-Looking Information
This report may contain "forward-looking statements" that are subject to risks and uncertainties and include information about possible or assumed future results of operations. Many possible events or factors could affect the future financial results and performance of the Company. This could cause results or performance to differ materially from those expressed in the forward-looking statements. Words such as "expects", "anticipates", "believes", "estimates", variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed throughout this report. Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. Such possible events or factors include: changes in economic conditions in the Company's market area, the effects of the COVID-19 pandemic, changes in policies by regulatory agencies, governmental legislation and regulation, fluctuations in interest rates, changes in liquidity requirements, demand for loans in the Company's market area, changes in accounting and tax principles, estimates made on income taxes, competition with other entities that offer financial services, cybersecurity threats, and such other factors as discussed in Part I Item 1A - "Risk Factors" and Part II Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2020 Annual Report on Form 10-K and in Part II Item 1A of this Quarterly Report on Form 10-Q. Except as set forth in Part II, Item 1A, during the quarter ended September 30, 2021, there were no material changes to the Risk Factors disclosed in the Company's 2020 Annual Report on Form 10-K.

Critical Accounting Policies
The Company has identified certain policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies relate to the allowance for credit losses and the valuation of certain investment securities. A discussion of these policies can be found in the sections captioned "Critical Accounting Policies" and "Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 2020 Annual Report on Form 10-K. There have been no changes in the Company's application of critical accounting policies since December 31, 2020.

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Selected Financial Data
Three Months Ended September 30 Nine Months Ended September 30
  2021 2020 2021 2020
Per Share Data
   Net income per common share — basic $ 1.05  $ 1.06  * $ 3.55  $ 1.80  *
   Net income per common share — diluted 1.05  1.06  * 3.54  1.80  *
   Cash dividends on common stock .263  .257  * .788  .771  *
   Book value per common share 30.01  28.23  *
   Market price 69.68  53.61  *
Selected Ratios
(Based on average balance sheets)
   Loans to deposits (1)
54.44  % 66.23  % 57.91  % 69.12  %
   Non-interest bearing deposits to total deposits 40.90  39.61  40.15  36.96 
   Equity to loans (1)
23.17  20.54  21.68  20.96 
   Equity to deposits 12.62  13.60  12.56  14.49 
   Equity to total assets 10.22  10.90  10.22  11.42 
   Return on total assets 1.40  1.71  1.65  1.04 
   Return on common equity 13.74  15.21  16.14  8.93 
(Based on end-of-period data)
   Non-interest income to revenue (2)
39.11  37.50  39.66  37.42 
   Efficiency ratio (3)
59.95  55.00  57.76  57.37 
   Tier I common risk-based capital ratio 14.02  13.45 
   Tier I risk-based capital ratio
14.02  13.45 
   Total risk-based capital ratio 14.83  14.62 
   Tangible common equity to tangible assets ratio (4)
9.71  10.11 
   Tier I leverage ratio
9.31  9.39 
* Restated for the 5% stock dividend distributed in December 2020.
(1) Includes loans held for sale.
(2) Revenue includes net interest income and non-interest income.
(3) The efficiency ratio is calculated as non-interest expense (excluding intangibles amortization) as a percent of revenue.
(4) The tangible common equity to tangible assets ratio is a measurement which management believes is a useful indicator of capital adequacy and utilization.
It provides a meaningful basis for period to period and company to company comparisons, and also assists regulators, investors and analysts in analyzing the financial position of the Company. Tangible common equity and tangible assets are non-GAAP measures and should not be viewed as substitutes for, or superior to, data prepared in accordance with GAAP.

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

September 30
(Dollars in thousands) 2021 2020
Total equity $ 3,491,221  $ 3,306,264 
Less non-controlling interest 10,551  601 
Less goodwill 138,921  138,921 
Less core deposit premium 4,684  1,452 
Total tangible common equity (a) $ 3,337,065  $ 3,165,290 
Total assets $ 34,497,543  $ 31,453,817 
Less goodwill 138,921  138,921 
Less core deposit premium 4,684  1,452 
Total tangible assets (b) $ 34,353,938  $ 31,313,444 
Tangible common equity to tangible assets ratio (a)/(b) 9.71  % 10.11  %

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Results of Operations
Summary
   Three Months Ended September 30 Nine Months Ended September 30
(Dollars in thousands) 2021 2020 % change 2021 2020 % change
Net interest income $ 214,037  $ 215,962  (.9  %) $ 627,767  $ 620,084  1.2  %
Provision for credit losses 7,385  (3,101) (338.1) 59,272  (141,593) (141.9)
Non-interest income 137,506  129,572  6.1  412,694  370,750  11.3 
Investment securities gains (losses), net 13,108  16,155  (18.9) 39,765  (1,275) N.M.
Non-interest expense (211,620) (190,858) 10.9  (602,319) (572,068) 5.3 
Income taxes (34,662) (34,375) .8  (111,947) (54,209) 106.5 
Non-controlling interest income (expense) (3,193) (907) N.M. (9,373) 2,479  N.M.
Net income attributable to Commerce Bancshares, Inc. 122,561  132,448  (7.5) 415,859  224,168  85.5 
Preferred stock dividends —  (7,466) (100.0) —  (11,966) (100.0)
Net income available to common shareholders $ 122,561  $ 124,982  (1.9  %) $ 415,859  $ 212,202  96.0  %
N.M. - Not meaningful

For the quarter ended September 30, 2021, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $122.6 million, a decrease of $9.9 million, or 7.5%, compared to the third quarter of the previous year. For the current quarter, the annualized return on average assets was 1.40%, the annualized return on average equity was 13.74%, and the efficiency ratio was 59.95%. Diluted earnings per common share was $1.05, a decrease of .9% compared to $1.06 per share in the third quarter of 2020, and decreased 23.9% compared to $1.38 per share in the previous quarter.

Compared to the third quarter of last year, net interest income decreased $1.9 million, or .9%, mainly due to decreases in loan interest and interest on securities purchased under agreements to resell of $7.9 million and $2.2 million, respectively. These decreases were partly offset by a decline of $4.2 million in interest expense on deposits and borrowings, coupled with an increase of $3.4 million in interest income on investment securities. The provision for credit losses declined $10.5 million due to a decrease in the estimate of the allowance for credit losses on loans and unfunded commitments and lower net loan charge-offs. Non-interest income increased $7.9 million, or 6.1%, compared to the third quarter of 2020, mainly due to growth in trust fees, net bank card fees and deposit account fees, partly offset by lower loan fees and sales. Investment securities net gains totaled $13.1 million in the current quarter compared to net gains of $16.2 million in the same quarter last year. Net securities gains in the current quarter primarily resulted from unrealized fair value gains of $13.0 million in the Company's private equity portfolio. Non-interest expense increased $20.8 million, or 10.9%, over the third quarter of 2020 mainly due to non-recurring litigation settlement expense, higher salaries and benefits expense and data processing and software expense.

Net income for the first nine months of 2021 was $415.9 million, an increase of $191.7 million, or 85.5%, over the same period last year. Diluted earnings per common shares was $3.54, an increase of 96.7% compared to $1.80 per share in the same period last year. For the first nine months of 2021, the annualized return on average assets was 1.65%, the annualized return on average equity was 16.14%, and the efficiency ratio was 57.76%. Net interest income increased $7.7 million, or 1.2%, over the same period last year. This growth was due to a decrease of $27.8 million in deposits and borrowings interest expense and growth of $6.2 million in interest income on investment securities, partly offset by a $27.5 million decrease in interest income on loans. The provision for credit losses was a benefit of $59.3 million for the first nine months of 2021, compared to provision expense of $141.6 million in the same period last year, resulting in a decrease of $200.9 million. Non-interest income increased $41.9 million, or 11.3%, over the first nine months of last year mainly due to higher trust fees, net bank card fees and loan fees and sales. Non-interest expense increased $30.3 million, or 5.3%, over the first nine months of last year due to increases in salaries and benefits and data processing and software expense, as well as lower deferred loan origination costs.

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Net Interest Income
The following table summarizes the changes in net interest income on a fully taxable equivalent basis, by major category of interest earning assets and interest bearing liabilities, identifying changes related to volumes and rates. Changes not solely due to volume or rate changes are allocated to rate.

Analysis of Changes in Net Interest Income
Three Months Ended September 30, 2021 vs. 2020 Nine Months Ended September 30, 2021 vs. 2020
  Change due to Change due to
 
(In thousands) 		Average
Volume 		Average
Rate
Total 		Average
Volume 		Average
Rate
Total
Interest income, fully taxable equivalent basis:
Loans:
  Business $ (9,486) $ 6,838  $ (2,648) $ (6,101) $ 5,238  $ (863)
  Real estate - construction and land 1,831  (672) 1,159  5,745  (5,159) 586 
  Real estate - business (61) (459) (520) 2,026  (6,914) (4,888)
  Real estate - personal 479  (1,959) (1,480) 6,517  (7,631) (1,114)
  Consumer 517  (2,436) (1,919) 1,193  (9,471) (8,278)
  Revolving home equity (395) 129  (266) (1,470) (846) (2,316)
  Consumer credit card (2,292) (109) (2,401) (8,454) (2,969) (11,423)
  Overdrafts —  —  —  —  —  — 
     Total interest on loans (9,407) 1,332  (8,075) (544) (27,752) (28,296)
Loans held for sale (74) (3) (77) 287  (139) 148 
Investment securities:
  U.S. government and federal agency securities (400) 3,736  3,336  (918) 13,653  12,735 
  Government-sponsored enterprise obligations (284) 19  (265) (1,672) (401) (2,073)
  State and municipal obligations 1,737  (915) 822  11,888  (6,296) 5,592 
  Mortgage-backed securities 4,205  (7,351) (3,146) 24,116  (41,209) (17,093)
  Asset-backed securities 7,218  (6,263) 955  20,737  (19,639) 1,098 
  Other securities 2,197  (700) 1,497  5,354  457  5,811 
     Total interest on investment securities 14,673  (11,474) 3,199  59,505  (53,435) 6,070 
Federal funds sold 1  —  1  4  (3) 1 
Securities purchased under agreements to resell 10,384  (12,624) (2,240) 10,149  (9,043) 1,106 
Interest earning deposits with banks 398  336  734  2,059  (1,947) 112 
Total interest income 15,975  (22,433) (6,458) 71,460  (92,319) (20,859)
Interest expense:
Deposits:
  Savings 66  (46) 20  258  (195) 63 
  Interest checking and money market 428  (1,837) (1,409) 2,550  (12,341) (9,791)
  Certificates of deposit of less than $100,000 (210) (612) (822) (813) (2,377) (3,190)
  Certificates of deposit of $100,000 and over (236) (1,826) (2,062) (1,158) (8,026) (9,184)
     Total interest on deposits 48  (4,321) (4,273) 837  (22,939) (22,102)
Federal funds purchased and securities sold under
   agreements to repurchase 117  (43) 74  486  (5,135) (4,649)
Other borrowings —  1  1  (1,030) 3  (1,027)
Total interest expense 165  (4,363) (4,198) 293  (28,071) (27,778)
Net interest income, tax equivalent basis $ 15,810  $ (18,070) $ (2,260) $ 71,167  $ (64,248) $ 6,919 

Net interest income in the third quarter of 2021 was $214.0 million, a decrease of $1.9 million from the third quarter of 2020. On a tax equivalent (T/E) basis, net interest income totaled $216.9 million in the third quarter of 2021, down $2.3 million from the same period last year and up $5.8 million over the previous quarter. The decrease in net interest income
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compared to the third quarter of 2020 was mainly due to lower interest income earned on loans (T/E) of $8.1 million and securities purchased under agreements to resell of $2.2 million, partly offset by higher interest income earned on investment securities (T/E) of $3.2 million and lower interest expense on interest bearing deposits of $4.3 million. The decrease in total interest earned on loans (T/E) was mainly the result of a decline in average balances, partly offset by growth in the average rate earned. The increase in interest earned on investment securities (T/E) was mainly due to higher average balances, partly offset by lower rates earned, while the decrease in expense on interest bearing deposits was a result of a decline in the average rate paid. The Company's net yield on earning assets (T/E) was 2.58% in the current quarter compared to 2.97% in the third quarter of 2020.

Total interest income (T/E) decreased $6.5 million from the third quarter of 2020. Interest income on loans (T/E) was $143.9 million during the third quarter of 2021, a decrease of $8.1 million, or 5.3%, from the same quarter last year. The decrease in interest income from the same quarter last year was primarily due to a decline of $1.1 billion, or 6.8%, in average loan balances, partly offset by an increase of five basis points in the average rate earned. Most of the decrease in interest income occurred in the business, consumer credit card, consumer, and personal real estate loan categories. These decreases were partly offset by an increase in interest income in the construction and land loan category. Business loan interest income decreased $2.6 million due to a decline of $1.3 billion in average balances, partly offset by an increase of 48 basis points in the average rate earned. The decline in business loan average balances was mainly due to a decrease of $930.8 million in Paycheck Protection Program (PPP) loans, while the increase in the yield was partly due to an increase in the PPP loan yield, which was 7.73% in the third quarter of 2021. Consumer credit card loan interest decreased $2.4 million mainly due to a decline of $79.8 million in average balances. Consumer loan interest declined $1.9 million due to a decrease of 48 basis points in the average rate earned, partly offset by a $48.9 million, or 2.5%, increase in average balances. Personal real estate loan interest income fell $1.5 million due to a 29 basis point decrease in the average rate earned, partly offset by higher average balances of $53.3 million, or 2.0%. These decreases to interest income (T/E) were partly offset by an increase of $1.2 million in interest earned on construction and land loans, mostly due to growth of $194.2 million, or 19.9%, in average loan balances, partly offset by a decline of 23 basis points in the average rate earned.

Interest income on investment securities (T/E) was $65.7 million during the third quarter of 2021, which was an increase of $3.2 million over the same quarter last year. The increase in interest income occurred mainly in interest earned on U.S. government and federal agency obligations, which grew $3.3 million mainly due to an increase in inflation income on the Company's U.S. Treasury inflation-protected securities (TIPS). Interest income related to TIPS, which is tied to the Consumer Price Index, increased $3.4 million over the same quarter last year. Interest earned on other securities grew $1.5 million mainly due to distributions from investments in the Company's private equity portfolio. Interest on asset-backed securities rose $955 thousand as a result of a $1.5 billion increase in the average balance, partly offset by an 82 basis point decline in the average rate earned. In addition, interest earned on state and municipal obligations grew $822 thousand as a result of growth in the average balance of $272.4 million, or 15.4%, partly offset by an 18 basis point decline in the average rate earned. These increases to interest income on investment securities (T/E) were partly offset by a decline in interest earned on mortgage-backed securities, which fell $3.1 million due to a 42 basis point decline in the average rate earned, partly offset by an increase of $855.5 million, or 13.7%, in the average balance. At September 30, 2021, the Company recorded a $5.0 million adjustment to premium amortization, which increased interest income this quarter to reflect moderately slower prepayment speed estimates on mortgage-backed securities. The average balance of the total investment portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $13.8 billion in the third quarter of 2021, compared to $11.1 billion in the third quarter of 2020.

Interest income on securities purchased under agreements to resell decreased $2.2 million from the same quarter last year, due to a decrease of 307 basis points in the average rate earned, partly offset by growth of $783.2 million in the average balance. In the third quarter of 2021, $250.0 million of securities purchased under agreements to resell (resell agreements), which had been earning interest at an average rate of 4.7%, matured and were replaced with $700.0 million of resell agreements earning approximately .28%. Interest income on balances at the Federal Reserve grew $734 thousand due to an increase of $1.6 billion in the average balance invested and an increase of five basis points in the average rate earned.

The average tax equivalent yield on total interest earning assets was 2.62% in the third quarter of 2021, down from 3.07% in the third quarter of 2020.

Total interest expense decreased $4.2 million compared to the third quarter of 2020 due to a $4.3 million decrease in interest expense on interest bearing deposits, slightly offset by a $75 thousand increase in interest expense on borrowings. The decrease in deposit interest expense resulted mainly from a 12 basis point decline in the overall average rate paid. Interest expense on certificates of deposit (CD's) declined $2.9 million due to a 55 basis point decrease in the average rate paid, coupled with a decrease of $267.1 million in the average balance. Interest expense on interest checking and money market accounts declined $1.4 million, due to a five basis point decrease in the average rate paid, partly offset by higher average balances of $1.6 billion.
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Interest expense on borrowings increased slightly due to higher average balances of customer repurchase agreements. The overall average rate incurred on all interest bearing liabilities was .06% and .17% in the third quarters of 2021 and 2020, respectively.

Net interest income (T/E) for the first nine months of 2021 was $636.7 million compared to $629.8 million for the same period in 2020. For the first nine months of 2021, the net interest margin was 2.63% compared to 3.07% for the same period in 2020.
Total interest income (T/E) for the first nine months of 2021 decreased $20.9 million from the same period last year mainly due to lower interest income on loans (T/E), partly offset by higher interest earned on investment securities (T/E). Loan interest income (T/E) declined $28.3 million, or 6.1%, due to a 27 basis point decline in the average rate earned. The decrease in loan interest occurred mainly in consumer credit card loans due to lower average loan balances, coupled with lower average rates. In addition, business real estate, consumer and personal real estate loan interest declined due to lower average rates, partly offset by higher average balances, while interest on home equity loans declined due to lower average balances and rates.

Interest income on investment securities (T/E) grew $6.1 million, mainly due to an increase of $3.4 billion in the average balance, partly offset by a decrease of 55 basis points in the average rate earned. Interest earned on U.S. government and federal agency obligations grew $12.7 million, mainly due to higher TIPS interest income. Interest earned on state and municipal obligations increased $5.6 million due to higher average balances, partly offset by lower average rates earned. Interest earned on other securities increased partly due to the receipt of distributions from investments in the Company's private equity portfolio. Interest earned on asset-backed securities also increased over the prior year as a result of higher average balances, partly offset by lower rates earned. Partly offsetting these increases was a decrease in interest earned on mortgage-backed securities, which declined $17.1 million as a result of lower average rates earned, partly offset by higher average balances. Interest earned on government sponsored enterprise obligations also decreased due to declines in both the average balance and the average rate earned.

Interest income on securities purchased under agreements to resell increased $1.1 million due to higher average balances, partly offset by lower average rates. Interest earned on balances at the Federal Reserve increased slightly due to a $1.1 billion increase in the average balance invested, partly offset by a 12 basis point decline in the average rate earned.

Total interest expense for the first nine months of 2021 decreased $27.8 million compared to the same period last year. Interest expense on interest bearing deposits decreased $22.1 million, mainly due to a 22 basis point decrease in the overall rate paid. Interest expense on interest checking and money market account balances decreased $9.8 million mainly due to a 12 basis point decrease in rates paid, partly offset by higher average balances. Interest expense on CD's declined $12.4 million due to an 81 basis point decline in rates paid, coupled with lower average balances.

Interest expense on borrowings decreased $5.7 million, mainly due to lower rates paid on customer repurchase agreements. The overall cost of total interest bearing liabilities decreased to .07% compared to .31% in the same period last year.

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


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Non-Interest Income
   Three Months Ended September 30 Nine Months Ended September 30
(Dollars in thousands) 2021 2020 % change 2021 2020 % change
Bank card transaction fees $ 42,815  $ 37,873  13.0  % $ 123,118  $ 111,818  10.1  %
Trust fees 48,950  40,769  20.1  139,334  118,676  17.4 
Deposit account charges and other fees 25,161  23,107  8.9  71,724  69,063  3.9 
Capital market fees 3,794  3,194  18.8  12,102  10,756  12.5 
Consumer brokerage services 4,900  4,011  22.2  13,484  11,099  21.5 
Loan fees and sales 6,842  9,769  (30.0) 24,472  17,653  38.6 
Other 5,044  10,849  (53.5) 28,460  31,685  (10.2)
Total non-interest income $ 137,506  $ 129,572  6.1  % $ 412,694  $ 370,750  11.3  %
Non-interest income as a % of total revenue* 39.1  % 37.5  % 39.7  % 37.4  %
* Total revenue includes net interest income and non-interest income.

The table below is a summary of net bank card transaction fees for the three and nine month periods ended September 30, 2021 and 2020.

Three Months Ended September 30 Nine Months Ended September 30
(Dollars in thousands) 2021 2020 % change 2021 2020 % change
Net debit card fees $ 10,402  $ 9,721  7.0  % $ 30,274  $ 27,863  8.7  %
Net credit card fees 3,863  3,359  15.0  11,389  9,749  16.8 
Net merchant fees 5,202  4,551  14.3  14,711  13,165  11.7 
Net corporate card fees 23,348  20,242  15.3  66,744  61,041  9.3 
Total bank card transaction fees $ 42,815  $ 37,873  13.0  % $ 123,118  $ 111,818  10.1  %

For the third quarter of 2021, total non-interest income amounted to $137.5 million compared to $129.6 million in the same quarter last year, which was an increase of $7.9 million, or 6.1%. The increase was mainly due to higher trust fees and net bank card fees. Additionally, deposit account fees, consumer brokerage fees and capital market fees grew compared to the same quarter last year, but were partly offset by lower loan fees and sales and other non-interest income. Bank card transaction fees for the current quarter grew $4.9 million, or 13.0%, over the same period last year, due to growth of $3.1 million in net corporate card fees, $681 thousand in net debit card fees, $651 thousand in net merchant fees, and $504 thousand in net credit card fees. The growth in net corporate card fees and net credit card fees was mainly due to higher interchange income, partly offset by higher rewards expense. The growth in net debit card fees was mainly due to higher interchange income, while the growth in net merchant fees was mostly due to higher merchant fees, partly offset by higher network expense. Trust fees for the quarter increased $8.2 million, or 20.1%, over the same quarter last year, resulting from higher private client and institutional trust fees, which were up 22.9% and 11.2%, respectively. Compared to the same period last year, deposit account fees increased $2.1 million, or 8.9%, mainly due to higher overdraft and return item fees and corporate cash management fees. Capital market fees increased $600 thousand, or 18.8%, while consumer brokerage service fees increased $889 thousand, or 22.2%, due to growth in annuity and advisory fees. Loan fees and sales decreased $2.9 million, or 30.0%, compared to the same quarter last year, mainly due to a decline in mortgage banking revenue. Other non-interest income decreased $5.8 million, or 53.5%, mainly due to lower cash sweep commissions and tax credit sales fees of $1.6 million and $1.1 million, respectively. Additionally a $2.0 million loss on an equity method investment was recorded this quarter.

Non-interest income for the first nine months of 2021 was $412.7 million compared to $370.8 million in 2020, resulting in an increase of $41.9 million, or 11.3%. Bank card fees increased $11.3 million, or 10.1%, due to growth of $5.7 million in net corporate card fees, $2.4 million in net debit card fees, $1.6 million in net credit card fees, and $1.5 million in net merchant fees. Trust fee income increased $20.7 million, or 17.4%, as a result of growth in private client and institutional trust fee income. Deposit account fees increased $2.7 million due to higher corporate cash management fees and overdraft and return item fees, partly offset by lower personal account deposit fees. For the nine months ended September 30, 2021, corporate cash management fees comprised 51.9% of total deposit fees, while overdraft fees comprised 23.9% of total deposit fees. Capital market fees increased $1.3 million, while consumer brokerage service fees grew $2.4 million, or 21.5%, as a result of higher annuity and advisory fees. Loan fees and sales increased $6.8 million, or 38.6%, mainly due to growth in mortgage banking revenue. Other income decreased $3.2 million, mainly due to lower cash sweep commissions, tax credit sales fees and a $2.6 million loss on an equity method investment. These decreases were partly offset by gains recorded on branch sales and higher interest rate swap fees, check sales and wire fees and international fees.

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Investment Securities Gains (Losses), Net
Three Months Ended September 30 Nine Months Ended September 30
(In thousands) 2021 2020 2021 2020
Net gains on sales of available for sale debt securities $ —  $ 13,674  $ —  $ 16,965 
Net gains on sales of equity securities —  —  —  2 
Net gains (losses) on sales and fair value adjustments of private equity investments 12,971  2,389  39,613  (18,116)
Fair value adjustments on equity securities, net 137  92  152  (126)
Total investment securities gains (losses), net $ 13,108  $ 16,155  $ 39,765  $ (1,275)

Net gains and losses on investment securities, which were recognized in earnings during the three months ended September 30, 2021 and 2020, are shown in the table above. Net securities gains of $13.1 million were reported in the third quarter of 2021, compared to net gains of $16.2 million in the same period last year. The net gains in the third quarter of 2021 were primarily comprised of $13.0 million of net gains in fair value on the Company’s private equity investments. The net gains on investment securities for the same quarter last year were mainly comprised of net gains of $13.7 million realized on sales of available for sale debt securities and $2.4 million of net gains in fair value on the Company’s private equity investments.

Net gains on investment securities of $39.8 million were recognized in earnings for the nine months ended September 30, 2021, compared to net losses of $1.3 million for the same period in 2020. Net gains in the first nine months of 2021 were mainly comprised of a gain of $1.6 million realized on the sale of a private equity investment and $38.0 million of net gains in fair value on private equity investments. Net losses in the first nine months of 2020 were mainly comprised of fair value adjustments on private equity investments, which were largely offset by net gains realized on sales of available for sale debt securities. The portion of private equity activity attributable to minority interests is reported as non-controlling interest in the consolidated statements of income and resulted in expense of $7.7 million during the first nine months of 2021 and income of $3.2 million during the first nine months of 2020.

Non-Interest Expense
   Three Months Ended September 30 Nine Months Ended September 30
(Dollars in thousands) 2021 2020 % change 2021 2020 % change
Salaries and employee benefits $ 132,824  $ 127,308  4.3  % $ 392,608  $ 383,004  2.5  %
Net occupancy 12,329  12,058  2.2  35,877  35,075  2.3 
Equipment 4,440  4,737  (6.3) 13,398  14,313  (6.4)
Supplies and communication 4,530  4,141  9.4  12,688  13,226  (4.1)
Data processing and software 25,598  23,610  8.4  76,015  71,002  7.1 
Marketing 5,623  4,926  14.1  16,461  14,706  11.9 
Other 26,276  14,078  86.6  55,272  40,742  35.7 
Total non-interest expense $ 211,620  $ 190,858  10.9  % $ 602,319  $ 572,068  5.3  %

Non-interest expense for the third quarter of 2021 amounted to $211.6 million, an increase of $20.8 million, or 10.9%, compared to expense of $190.9 million in the third quarter of last year. The increase in expense was mainly due to non-recurring litigation settlement expense and higher salaries and benefits expense and data processing and software expense. Salaries and employee benefits expense increased $5.5 million, or 4.3%, mostly due to higher incentive compensation. Full-time equivalent employees totaled 4,582 at September 30, 2021, compared to 4,825 at September 30, 2020. Occupancy and supplies and communication expense grew $271 thousand and $389 thousand, respectively, while equipment expense declined $297 thousand. Data processing and software expense increased $2.0 million, or 8.4%, due to higher bank card processing fees and increased cost for service providers, while marketing expense grew $696 thousand, or 14.1%. Other non-interest expense increased $12.2 million, mainly due to $8.2 million in non-recurring litigation settlement costs. Additionally, legal and professional fees and travel and entertainment expense increased $1.3 million and $1.1 million, respectively.

Non-interest expense amounted to $602.3 million for the first nine months of 2021, an increase of $30.3 million, or 5.3%, over the first nine months of 2020. Salaries and benefits expense increased $9.6 million, or 2.5%, mainly due to higher costs for incentive compensation and healthcare expense, partly offset by lower full and part-time salaries expense. Occupancy expense increased $802 thousand, while supplies and communication expense decreased $538 thousand. Equipment expense decreased $915 thousand mainly due to lower depreciation and service contract expense. Data processing expense increased $5.0 million, or 7.1%, mostly due to higher costs for service providers, while marketing expense grew $1.8 million, or 11.9%.
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Other non-interest expense increased $14.5 million, mainly due to the non-recurring litigation settlement mentioned above, lower deferred loan origination costs and higher FDIC insurance and legal fees expense. These increases to expense were partly offset by lower travel and entertainment expense and a reduction in impairment expense on the Company's mortgage servicing rights.


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Provision and Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments
  Three Months Ended Nine Months Ended September 30
Sept. 30, 2021 June 30, 2021 Sept. 30, 2020 2021 2020
ALLOWANCE FOR CREDIT LOSSES ON LOANS
Balance at end of prior period $ 172,395  $ 200,527  $ 240,744  $ 220,834  $ 160,682 
   Adoption of ASU 2016-13 —  —  —  —  (21,039)
Balance at beginning of period $ 172,395  $ 200,527  $ 240,744  $ 220,834  $ 139,643 
   Provision for credit losses on loans (5,961) (27,433) 3,200  $ (43,749) $ 123,559 
   Net loan charge-offs (recoveries):
     Commercial:
        Business 65  (4,909) 208  (4,848) 3,084 
        Real estate-construction and land —  —  (1) 1  (1)
        Real estate-business (5) (85) (13) (70) (40)
Commercial net loan charge-offs (recoveries) 60  (4,994) 194  (4,917) 3,043 
     Personal Banking:
        Real estate-personal (26) (16) (198) (27) (273)
        Consumer 496  378  211  1,637  3,284 
        Revolving home equity (22) 28  (86) 29  (158)
        Consumer credit card 2,908  5,155  7,263  17,044  20,004 
        Overdrafts 243  148  200  544  942 
Personal banking net loan charge-offs 3,599  5,693  7,390  19,227  23,799 
Total net loan charge-offs 3,659  699  7,584  14,310  26,842 
Balance at end of period $ 162,775  $ 172,395  $ 236,360  $ 162,775  $ 236,360 
LIABILITY FOR UNFUNDED LENDING COMMITMENTS
Balance at end of prior period $ 24,208  $ 42,430  $ 35,299  $ 38,307  $ 1,075 
   Adoption of ASU 2016-13 —  —  —  —  16,090 
Balance at beginning of period 24,208  42,430  35,299  38,307  17,165 
Provision for credit losses on unfunded lending commitments (1,424) (18,222) (99) (15,523) 18,035 
Balance at end of period 22,784  24,208  35,200  22,784  35,200 
ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 185,559  $ 196,603  $ 271,560  $ 185,559  $ 271,560 

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  Three Months Ended Nine Months Ended September 30
Sept. 30, 2021 June 30, 2021 Sept. 30, 2020 2021 2020
Annualized net loan charge-offs (recoveries)*:
Commercial:
  Business —  % (.32  %) .01  % (.11  %) .07  %
  Real estate-construction and land —  —  —  —  — 
  Real estate-business —  (.01) —  —  — 
Commercial net loan charge-offs (recoveries) —  (.19) .01  (.06) .04 
Personal Banking:
  Real estate-personal —  —  (.03) —  (.01)
  Consumer .10  .08  .04  .11  .22 
  Revolving home equity (.03) .04  (.10) .01  (.06)
  Consumer credit card 2.04  3.59  4.47  3.91  3.93 
  Overdrafts 18.87  15.89  29.59  17.59  39.16 
Personal banking net loan charge-offs .25  .40  .52  .45  .57 
Total annualized net loan charge-offs .10  % .02  % .18  % .12  % .23  %
* as a percentage of average loans (excluding loans held for sale)

The Company has an established process to determine the amount of the allowance for credit losses on loans and the liability for unfunded lending commitments, 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 in Item 7 of the 2020 Annual Report on Form 10-K.

Net loan charge-offs in the third quarter of 2021 amounted to $3.7 million, compared to $699 thousand in the prior quarter and $7.6 million in the third quarter of last year. During the third quarter of 2021, the Company recorded net charge-offs on commercial loans of $60 thousand, compared to net recoveries of $5.0 million in the prior quarter. Commercial loan net recoveries in the prior quarter resulted from recoveries on two business loans. Consumer credit card loan net charge-offs decreased $2.2 million in the third quarter of 2021, compared to the prior quarter. Compared to the same period last year, net loan charge-offs in the third quarter of 2021 decreased $3.9 million. The decrease in net charge-offs during the third quarter of 2021 compared to the same quarter last year was driven by a $4.4 million decrease in net charge-offs on consumer credit card loans.

For the three months ended September 30, 2021, annualized net charge-offs on average consumer credit card loans totaled 2.04%, compared to 3.59% in the previous quarter and 4.47% in the same period last year. Consumer loan annualized net charge-offs in the current quarter amounted to .10%, compared to .08% in the prior quarter and .04% in the same period last year. In the third quarter of 2021, total annualized net loan charge-offs were .10%, compared to .02% in the previous quarter and .18% in the same period last year.

The continued recovery of the provision for credit losses on loans is the result of an improved forecast coupled with lower than projected net charge-offs. The allowance for credit losses significantly increased during the first half of 2020 due to the pandemic-induced recession. The economic forecast utilized in the first half of 2020 captured extreme uncertainty with high unemployment rates, but through various governmental stimulus programs, improvements in the public health crisis due to the development and increasing availability of a COVID-19 vaccine, the projected net charge-offs were not realized and the economic forecast improved, thus allowing the release of the allowance for credit losses during 2021. As a result, the provision for credit losses, which includes the provision for loans and unfunded lending commitments, was a benefit of $7.4 million for the third quarter of 2021, compared to a benefit of $45.7 million in the second quarter of 2021 and expense of $3.1 million in the third quarter of 2020. In the current quarter, the provision for credit losses on loans was a benefit of $6.0 million, which was a $21.5 million decrease from the $27.4 million benefit recorded in the prior quarter. The provision for credit losses on loans in the current quarter decreased $9.2 million compared to the provision expense in the third quarter of 2020.

For the nine months ended September 30, 2021, net loan charge-offs totaled $14.3 million, compared to $26.8 million in the same period last year. During the first nine months of 2021, the Company recorded net recoveries of $4.9 million on commercial loans, compared to net loan charge-offs of $3.0 million in the first nine months of 2020. In addition, consumer
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loan net charge-offs declined $1.6 million and consumer credit card loan net charge-offs declined $3.0 million in the first nine months of 2021, compared to the same period last year. The provision for credit losses on loans for the first nine months of 2021 was a benefit of $43.8 million, reducing the allowance for credit losses on loans. The allowance for credit losses on loans as of September 30, 2020 was $236.4 million, and the provision expense for the nine months ended September 30, 2020 was $123.6 million.

In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $1.4 million, reflecting a $16.8 million increase over the provision in the prior quarter (which was a benefit of $18.2 million), and decreased $1.3 million compared to the third quarter of 2020. At September 30, 2021, the liability for unfunded lending commitments was $22.8 million, compared to $24.2 million at June 30, 2021 and $35.2 million at September 30, 2020. 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.

For the quarter ended September 30, 2021, the allowance for credit losses on loans decreased $9.6 million, compared to the allowance for credit losses on loans as of June 30, 2021. The decrease was primarily due to the improved economic forecast. The allowance for credit losses on commercial loans increased slightly by $126 thousand, while the allowance for credit losses related to personal banking loans, including consumer credit card loans, decreased $9.7 million. While the forecast continued to improve, the allowance considered the uncertainty of future potential COVID-19 disruptions on both the consumer and commercial portfolios. At September 30, 2021, the allowance for credit losses on loans amounted to $162.8 million, compared to $172.4 million and $200.5 million at June 30, 2021 and March 31, 2021, respectively, and was 1.07%, 1.10% and 1.22% of total loans at September 30, 2021, June 30, 2021 and March 31, 2021, respectively.

The Company considers the allowance for credit losses on loans and the liability for unfunded commitments adequate to cover losses expected in the loan portfolio, including unfunded commitments, at September 30, 2021.

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 used its best judgment to assess the macro-economic forecast and internal loss data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments. These estimates are subject to periodic refinement based on changes in the underlying external and internal data.

Risk Elements of Loan Portfolio
The following table presents non-performing assets and loans which are past due 90 days and still accruing interest. Non-performing assets include non-accruing loans and foreclosed real estate. Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment. Loans that are 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of collection, or they are personal banking loans that are exempt under regulatory rules from being classified as non-accrual. During 2020, Section 4013 of the CARES Act was signed into law and provided financial institutions the option to suspend the requirement to categorize modifications related to the 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 follows the guidance under the CARES Act when determining if a customer's modification is subject to troubled debt restructuring classification. Refer to Note 2 for additional information.

(Dollars in thousands)
September 30, 2021 December 31, 2020
Non-accrual loans $ 10,421  $ 26,540 
Foreclosed real estate 115  93 
Total non-performing assets $ 10,536  $ 26,633 
Non-performing assets as a percentage of total loans .07  % .16  %
Non-performing assets as a percentage of total assets .03  % .08  %
Total loans past due 90 days and still accruing interest $ 10,496  $ 22,190 

Non-accrual loans totaled $10.4 million at September 30, 2021, a decrease of $16.1 million from the balance at December 31, 2020. The decrease occurred mainly in business loans which decreased $14.2 million. At September 30, 2021,
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non-accrual loans were comprised of business (79.6%), personal real estate (14.9%), and business real estate (5.5%) loans. Foreclosed real estate totaled $115 thousand at September 30, 2021, an increase of $22 thousand when compared to December 31, 2020. Total loans past due 90 days or more and still accruing interest were $10.5 million as of September 30, 2021, a decrease of $11.7 million from December 31, 2020. Balances by class for non-accrual loans and loans past due 90 days and still accruing interest are shown in the "Delinquent and non-accrual loans" section in Note 2 to the consolidated financial statements.

In addition to the non-performing and past due loans mentioned above, the Company also has identified loans for which management has concerns about the ability of the borrowers to meet existing repayment terms. They are classified as substandard under the Company's internal rating system. The loans are generally secured by either real estate or other borrower assets, reducing the potential for loss should they become non-performing. Although these loans are generally identified as potential problem loans, they may never become non-performing. Such loans totaled $335.7 million at September 30, 2021 compared with $361.8 million at December 31, 2020, resulting in a decrease of $26.1 million, or 7.2%.

(In thousands)
September 30, 2021 December 31, 2020
Potential problem loans:
  Business $ 45,710  $ 133,039 
  Real estate – construction and land 40,553  29,378 
  Real estate – business 249,017  198,666 
  Real estate – personal 414  670 
Total potential problem loans $ 335,694  $ 361,753 

At September 30, 2021, the Company had $129.9 million of loans whose terms have been modified or restructured under a troubled debt restructuring. These loans have been extended to borrowers who are experiencing financial difficulty and who have been granted a concession, as defined by accounting guidance, and are further discussed in the "Troubled debt restructurings" section in Note 2 to the consolidated financial statements. This balance includes certain commercial loans totaling $110.6 million which are classified as substandard and included in the table above because of this classification.

Loans with Special Risk Characteristics
Management relies primarily on an internal risk rating system, in addition to delinquency status, to assess risk in the loan portfolio, and these statistics are presented in Note 2 to the consolidated financial statements. However, certain types of loans are considered at high risk of loss due to their terms, location, or special conditions. Additional information about the major types of loans in these categories and their risk features are provided below. Information based on loan-to-value (LTV) ratios was generally calculated with valuations at loan origination date. The Company normally obtains an updated appraisal or valuation at the time a loan is renewed or modified, or if the loan becomes significantly delinquent or is in the process of being foreclosed upon.

Real Estate – Construction and Land Loans
The Company's portfolio of construction and land loans, as shown in the table below, amounted to 8.3% of total loans outstanding at September 30, 2021. The largest component of construction and land loans was commercial construction, which increased $231.6 million during the nine months ended September 30, 2021. At September 30, 2021, multi-family residential construction loans totaled approximately $294.4 million, or 27.7%, of the commercial construction loan portfolio, compared to $238.0 million, or 28.8%, at December 31, 2020.

(Dollars in thousands) September 30,
2021


% of Total
% of
Total
Loans
December 31, 2020
    

% of Total
% of
Total
Loans
Commercial construction $ 1,059,113  84.2  % 7.0  % $ 827,546  81.0  % 5.1  %
Residential construction 103,825  8.3  .7  94,729  9.3  .6 
Commercial land and land development 48,754  3.9  .3  40,021  3.9  .2 
Residential land and land development 46,144  3.6  .3  59,299  5.8  .4 
Total real estate - construction and land loans $ 1,257,836  100.0  % 8.3  % $ 1,021,595  100.0  % 6.3  %

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Real Estate – Business Loans
Total business real estate loans were $2.9 billion at September 30, 2021 and comprised 19.4% of the Company's total loan portfolio. These loans include properties such as manufacturing and warehouse buildings, small office and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties. At September 30, 2021, 38.0% of business real estate loans were for owner-occupied real estate properties, which have historically resulted in lower net charge-off rates than non-owner-occupied commercial real estate loans.

(Dollars in thousands) September 30,
2021


% of Total
% of
Total
Loans
December 31, 2020


% of Total
% of
Total
Loans
Owner-occupied $ 1,115,184  38.0  % 7.4  % $ 1,145,862  37.9  % 7.0  %
Office 362,440  12.3  2.4  385,392  12.7  2.4 
Retail 321,768  11.0  2.1  349,461  11.5  2.1 
Multi-family 301,734  10.3  2.0  301,161  10.0  1.8 
Hotels 265,247  9.0  1.8  271,189  9.0  1.7 
Senior living 185,116  6.3  1.2  195,800  6.5  1.2 
Farm 162,660  5.5  1.1  169,692  5.6  1.0 
Industrial 98,369  3.3  .6  78,341  2.6  .5 
Other 125,334  4.3  .8  129,219  4.2  .8 
Total real estate - business loans $ 2,937,852  100.0  % 19.4  % $ 3,026,117  100.0  % 18.5  %

Revolving Home Equity Loans
The Company had $281.4 million in revolving home equity loans at September 30, 2021 that were generally collateralized by residential real estate. Most of these loans (93.1%) are written with terms requiring interest-only monthly payments. These loans are offered in three main product lines: LTV up to 80%, 80% to 90%, and 90% to 100%. As of September 30, 2021, the outstanding principal of loans with an original LTV higher than 80% was $31.3 million, or 11.1% of the portfolio, compared to $32.1 million as of December 31, 2020. Total revolving home equity loan balances over 30 days past due were $2.0 million at September 30, 2021 and December 31, 2020, and there were no revolving home equity loans on non-accrual status at September 30, 2021 or December 31, 2020. The weighted average FICO score for the total current portfolio balance is 792. At maturity, the accounts are re-underwritten, and if they qualify under the Company's credit, collateral and capacity policies, the borrower is given the option to renew the line of credit or convert the outstanding balance to an amortizing loan.  If criteria are not met, amortization is required, or the borrower may pay off the loan. During the remainder of 2021 through 2023, approximately 15% of the Company's current outstanding balances are expected to mature. Of these balances, approximately 93% have a FICO score of 700 or higher. The Company does not expect a significant increase in losses as these loans mature, due to their high FICO scores, low LTVs, and low historical loss levels.

Consumer Loans
Within the consumer loan portfolio are several direct and indirect product lines, which include loans for the purchase of automobiles, motorcycles, marine and RVs. Auto loans comprised 43% of the consumer loan portfolio at September 30, 2021, and outstanding balances for auto loans were $874.2 million and $879.9 million at September 30, 2021 and December 31, 2020, respectively. The balances over 30 days past due amounted to $6.9 million at September 30, 2021 compared to $9.2 million at December 31, 2020, and comprised .8% and 1.0% of the outstanding balances of these loans at September 30, 2021 and December 31, 2020, respectively. For the nine months ended September 30, 2021, $324.5 million of new auto loans were originated, compared to $321.1 million during the first nine months of 2020.  At September 30, 2021, the automobile loan portfolio had a weighted average FICO score of 758, and net charge-offs on auto loans were .1% of average auto loans at September 30, 2021.

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 September 30, 2021. Losses on these loans have historically been low, and the Company saw a net charge-off of $24 thousand in 2021. Private banking loans comprised 28% of the consumer loan portfolio at September 30, 2021. The Company's private banking loans are generally well-collateralized and at September 30, 2021 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 $958 thousand in the first nine months of 2021 and were .1% of the average balances of these loans at September 30, 2021.

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Consumer Credit Card Loans
The Company offers low promotional rates on selected consumer credit card products. Out of a portfolio at September 30, 2021 of $570.0 million in consumer credit card loans outstanding, approximately $92.9 million, or 16.3%, carried a low promotional rate. Within the next six months, $39.9 million of these loans are scheduled to convert to the ongoing higher contractual rate. To mitigate some of the risk involved with this credit card product, the Company performs credit checks and detailed analysis of the customer borrowing profile before approving the loan application. Management believes that the risks in the consumer loan portfolio are reasonable and the anticipated loss ratios are within acceptable parameters.

Oil and Gas Energy Lending
The Company's energy lending portfolio is comprised of lending to the petroleum and natural gas sectors and totaled $230.4 million, or 1.5% of total loans at September 30, 2021, an increase of $51.6 million from year end 2020, as shown in the table below.

(In thousands)
September 30, 2021 December 31, 2020
Unfunded commitments at September 30, 2021
Extraction $ 165,883  $ 133,866  $ 147,581 
Mid-stream shipping and storage 38,355  15,634  69,398 
Downstream distribution and refining 13,488  18,365  25,710 
Support activities 12,638  10,864  16,099 
Total energy lending portfolio $ 230,364  $ 178,729  $ 258,788 

Information about the credit quality of the Company's energy lending portfolio as of September 30, 2021 and December 31, 2020 is provided in the table below.

(Dollars in thousands) September 30, 2021 % of Energy Lending December 31, 2020 % of Energy Lending
Pass $ 216,674  94.0  % $ 126,380  70.7  %
Special mention 1,999  .9  17,978  10.1 
Substandard 9,172  4.0  31,676  17.7 
Non-accrual 2,519  1.1  2,695  1.5 
Total $ 230,364  100.0  % $ 178,729  100.0  %

Energy lending balances classified as substandard and non-accrual represented 4.0% and 1.1% respectively, of total energy lending loan balances at September 30, 2021. The Company saw a small recovery on energy loans during the nine months ended September 30, 2021. The Company recorded $15 thousand of net loan charge-offs on energy loans for the year ended December 31, 2020.

Small Business Lending
During April 2020, in response to the COVID-19 crisis, the federal government created the PPP, sponsored by the Small Business Administration ("SBA"), under the CARES Act. As a participating lender under the program, the Company funded loans of $1.5 billion during 2020 (round 1) and $402.1 million during 2021 (round 2). The balance of PPP loans at September 30, 2021 was $307.9 million, a decrease of $546.4 million compared to balances at June 30, 2021. The change in PPP loan balances reflected a decline of $407.6 million in loan balances from June 30, 2021 (round 1), along with a decline of $138.8 million in loan balances from June 30, 2021 (round 2). Since the start of the PPP, the Company has recognized $51.4 million of a total of $60.4 million of PPP fees as of September 30, 2021, including $10.9 million during the third quarter of 2021.

The Company understands that the PPP loans are fully guaranteed by the SBA. Therefore, there was no increase in the allowance for credit losses on loans related to these loans as there is no expectation of credit loss. The maximum term of the loans is five years, however, the Company believes that almost all of the loan balances are expected to be forgiven by the SBA. As of September 30, 2021, 97% of round 1 and 35% of round 2 PPP loan balances have been forgiven. The process of loan forgiveness began during the third quarter of 2020, and the Company believes most of the remaining PPP loan balances will be forgiven in the fourth quarter of 2021.

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Shared National Credits
The Company participates in credits of large, publicly traded companies which are defined by regulation as shared national credits, or SNCs. Regulations define SNCs as loans exceeding $100 million that are shared by three or more financial institutions. The Company typically participates in these loans when business operations are maintained in the local communities or regional markets and opportunities to provide other banking services are present. The balance of SNC loans totaled $1.0 billion at September 30, 2021 and December 31, 2020. Additional unfunded commitments at September 30, 2021 totaled $1.6 billion.

Income Taxes
Income tax expense was $34.7 million in the third quarter of 2021, compared to $45.2 million in the second quarter of 2021 and $34.4 million in the third quarter of 2020. The Company's effective tax rate, including the effect of non-controlling interest, was 22.1% in the third quarter of 2021, compared to 21.8% in the second quarter of 2021 and 20.6% in the third quarter of 2020. For the nine months ended September 30, 2021, income tax expense was $111.9 million, compared to $54.2 million for the same period during the previous year, resulting in effective tax rates of 21.2% and 19.5%, respectively.

Financial Condition
Balance Sheet
Total assets of the Company were $34.5 billion at September 30, 2021 and $32.9 billion at December 31, 2020. Earning assets (excluding the allowance for credit losses on loans and fair value adjustments on debt securities) amounted to $33.1 billion at September 30, 2021 and $31.3 billion at December 31, 2020, and consisted of 46% in loans and 43% in investment securities at September 30, 2021.

At September 30, 2021, total loans decreased $1.2 billion, or 7.4%, compared to balances at December 31, 2020. Business loans decreased $1.3 billion, primarily due to a decline in Paycheck Protection Plan (PPP) loan balances. As of September 30, 2021, 97% of round 1 and 35% of round 2 PPP loan balances have been forgiven. Business real estate, consumer credit card and personal real estate loans also decreased $88.2 million, $85.1 million and $50.7 million, respectively. These decreases were partly offset by growth in construction and consumer banking loans of $236.2 million and $99.1 million, respectively. Consumer loans, which include automobile, marine and RV, fixed rate home equity, and other consumer loans, increased mainly due to growth in private banking loans.

Available for sale investment securities, excluding fair value adjustments, increased $1.9 billion at September 30, 2021 compared to December 31, 2020. Purchases of securities during this period totaled $4.5 billion, partly offset by maturities and pay downs of $2.6 billion. The largest growth in outstanding balances occurred in asset-backed securities and non-agency mortgage back securities, which grew $1.5 billion and $870.4 million, respectively. These increases were partially offset by a decline in agency mortgage-backed securities of $613.3 million at September 30, 2021 compared to December 31, 2020. At September 30, 2021, the duration of the investment portfolio was 3.5 years, and maturities and pay downs of approximately $2.8 billion are expected to occur during the next 12 months.

Total deposits at September 30, 2021 amounted to $28.1 billion, an increase of $1.2 billion compared to December 31, 2020. The increase in deposits largely resulted from growth in demand deposits, mainly in business demand deposits (increase of $903.5 million) and personal demand deposits (increase of $149.4 million). Additionally, savings and money market deposits increased $238.1 million and $264.9 million, respectively. These increases were partially offset by decreases of $228.9 million in certificate of deposit balances and $199.9 million in interest checking deposit balances at September 30, 2021 compared to balances at December 31, 2020. The Company's borrowings totaled $2.3 billion at September 30, 2021, an increase of $158.6 million over balances at December 31, 2020, mainly due to an increase in customer repurchase agreements.

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

(In thousands)
September 30, 2021 June 30, 2021 December 31, 2020
Liquid assets:
  Available for sale debt securities $ 14,165,656  $ 13,291,506  $ 12,449,264 
  Federal funds sold —  5,945  — 
  Securities purchased under agreements to resell 1,750,000  1,300,000  850,000 
  Balances at the Federal Reserve Bank 1,888,545  2,161,644  1,747,363 
  Total $ 17,804,201  $ 16,759,095  $ 15,046,627 

There were no federal funds sold at September 30, 2021, which are funds lent to the Company's correspondent bank customers with overnight maturities. Resale agreements, maturing through 2023, totaled $1.8 billion at September 30, 2021. 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 $1.8 billion in fair value at September 30, 2021. Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $1.9 billion at September 30, 2021. The fair value of the available for sale debt portfolio was $14.2 billion at September 30, 2021 and included an unrealized net gain of $138.4 million. The total net unrealized gain included net gains of $44.5 million on mortgage-backed and asset-backed securities, $52.1 million on U.S. government and federal agency obligations, and $36.5 million on state and municipal obligations.

Approximately $2.8 billion of the available for sale debt portfolio is expected to mature or pay down during the next 12 months, and these funds offer substantial resources to meet 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. Total investment securities pledged for these purposes were as follows:

(In thousands)
September 30, 2021 June 30, 2021 December 31, 2020
Investment securities pledged for the purpose of securing:
  Federal Reserve Bank borrowings $ 18,566  $ 25,179  $ 40,792 
  FHLB borrowings and letters of credit 3,736  4,296  5,376 
  Securities sold under agreements to repurchase * 2,511,891  2,573,314  2,322,941 
  Other deposits and swaps 3,210,326  2,982,225  2,438,628 
  Total pledged securities 5,744,519  5,585,014  4,807,737 
  Unpledged and available for pledging 7,123,799  6,369,604  6,310,907 
  Ineligible for pledging 1,297,338  1,336,888  1,330,620 
  Total available for sale debt securities, at fair value $ 14,165,656  $ 13,291,506  $ 12,449,264 
* Includes securities pledged for collateral swaps, as discussed in Note 12 to the consolidated financial statements.

Liquidity is also available from the Company's large base of core customer deposits, defined as non-interest bearing, interest checking, savings, and money market deposit accounts. At September 30, 2021, such deposits totaled $26.5 billion and represented 94.3% of total deposits. These core deposits are normally less volatile, as they are often with customer relationships tied to other products offered by the Company, promoting long lasting relationships and stable funding sources. Certificates of deposit of $100,000 and over totaled $1.2 billion at September 30, 2021. These accounts are normally considered more volatile and higher costing and comprised 4.1% of total deposits at September 30, 2021.

(In thousands)
September 30, 2021 June 30, 2021 December 31, 2020
Core deposit base:
 Non-interest bearing $ 11,622,855  $ 11,085,286  $ 10,497,598 
 Interest checking 2,202,422  2,192,932  2,402,272 
 Savings and money market 12,705,232  12,461,764  12,202,184 
 Total $ 26,530,509  $ 25,739,982  $ 25,102,054 
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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)
September 30, 2021 June 30, 2021 December 31, 2020
Borrowings:
 Federal funds purchased $ 11,345  $ 12,335  $ 42,270 
 Securities sold under agreements to repurchase 2,242,408  2,305,893  2,056,113 
 Other debt 4,006  2,194  802 
 Total $ 2,257,759  $ 2,320,422  $ 2,099,185 

Federal funds purchased are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit. Repurchase agreements are collateralized by securities in the Company's investment portfolio and are comprised of non-insured customer funds totaling $2.3 billion, which generally mature overnight. The Company also borrows on a secured basis through advances from the FHLB. The advances are generally short-term, fixed interest rate borrowings. There were no advances outstanding from the FHLB at September 30, 2021.
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. Also, 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 September 30, 2021.

September 30, 2021
(In thousands)

FHLB
Federal Reserve

Total
Collateral value pledged $ 2,120,480  $ 1,039,017  $ 3,159,497 
Letters of credit issued (184,710) —  (184,710)
Available for future advances $ 1,935,770  $ 1,039,017  $ 2,974,787 

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

Standard & Poor’s Moody’s
Commerce Bancshares, Inc.
Issuer rating A-
Rating outlook Stable
Commerce Bank
Issuer rating A A2
Baseline credit assessment a1
Short-term rating A-1 P-1
Rating outlook Stable Stable

The cash flows from the operating, investing and financing activities of the Company resulted in a net increase in cash, cash equivalents and restricted cash of $43.2 million during the first nine months of 2021, as reported in the consolidated statements of cash flows in this report. Operating activities, consisting mainly of net income adjusted for certain non-cash items, provided cash flow of $486.1 million and has historically been a stable source of funds. Investing activities, which occur mainly in the loan and investment securities portfolios, used cash of $1.6 billion. Activity in the investment securities portfolio used cash of
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$1.9 billion from purchases (net of sales, maturities and pay downs), and securities purchased under agreements to resell used cash of $900 million. These investing cash outflows were partially offset by pay downs in the loan portfolio, which provided cash of $1.2 billion. Financing activities provided cash of $1.2 billion, largely resulting from an increase in deposits of $1.2 billion paired with an increase of $155.4 million in federal funds purchased and securities sold under agreements to repurchase, partially offset by dividend payments of $92.2 million on common stock and treasury stock purchases of $80.1 million.

Capital Management
The Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions at September 30, 2021 and December 31, 2020, as shown in the following table.

(Dollars in thousands) September 30, 2021 December 31, 2020
Minimum Ratios under Capital Adequacy Guidelines
Minimum Ratios
for
Well-Capitalized
Banks *
Risk-adjusted assets $ 22,738,255  $ 21,516,461 
Tier I common risk-based capital 3,189,015  2,950,926 
Tier I risk-based capital 3,189,015  2,950,926 
Total risk-based capital 3,372,335  3,189,432 
Tier I common risk-based capital ratio 14.02  % 13.71  % 7.00  % 6.50  %
Tier I risk-based capital ratio 14.02  13.71  8.50  8.00 
Total risk-based capital ratio 14.83  14.82  10.50  10.00 
Tier I leverage ratio 9.31  9.45  4.00  5.00 
*Under Prompt Corrective Action requirements

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

In the first quarter of 2020, the interim final rule of the Federal Reserve Bank and other U.S. banking agencies became effective, providing banks that adopt CECL (ASU 2016-13) during the 2020 calendar year the option to delay recognizing the estimated impact on regulatory capital until after a two year deferral period, followed by a three year transition period. In connection with the adoption of CECL on January 1, 2020, the Company elected to utilize this option. As a result, the two year deferral period for the Company extends through December 31, 2021. Beginning on January 1, 2022, the Company will be required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025.

The Company maintains a treasury stock buyback program under authorizations by its Board of Directors (the Board) and normally purchases stock in the open market. During the nine months ended September 30, 2021, the Company purchased 1,110,890 shares at an average price of $72.06 in open market purchases and through stock-based compensation transactions. At September 30, 2021, 2,433,689 shares remained available for purchase under the Board authorization.

The Company's common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain adequate capital and liquidity levels, and alternative investment options. The Company paid a $.263 per share cash dividend on its common stock in the third quarter of 2021, which was a 2.3% increase compared to its 2020 quarterly dividend.

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).

Commitments, Off-Balance Sheet Arrangements and Contingencies
In the normal course of business, various commitments and contingent liabilities arise which are not required to be recorded on the balance sheet. The most significant of these are loan commitments, which at September 30, 2021 totaled $13.3 billion (including $5.0 billion in unused, approved credit card lines). In addition, the Company enters into standby and commercial letters of credit. These contracts totaled $423.6 million and $2.5 million, respectively, at September 30, 2021. As many commitments expire unused or only partially used, these totals do not necessarily reflect future cash requirements. The carrying
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value of the guarantee obligations associated with the standby letters of credit, which has been recorded as a liability on the consolidated balance sheet, amounted to $3.1 million at September 30, 2021. The allowance for these commitments is recorded in the Company’s liability for unfunded lending commitments within other liabilities on its consolidated balance sheet. At September 30, 2021, the liability for unfunded commitments totaled $22.8 million. See further discussion of the liability for unfunded lending commitments in Note 2 to the consolidated financial statements.

During the third quarter of 2020, the Company signed a $106.6 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, which is expected to be completed near the end of 2022. As of September 30, 2021, the Company has made payments totaling $43.7 million. While the Company intends to occupy a portion of the office building for executive offices, a 15 year lease agreement has been signed by an anchor tenant to lease approximately 40% 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 at a profit or retained for use by the Company. During the first nine months of 2021, purchases and sales of tax credits amounted to $77.2 million and $70.8 million, respectively. Fees from sales of tax credits were $3.2 million for the nine months ended September 30, 2021, compared to $3.7 million in the same period last year. At September 30, 2021, the Company expected to fund outstanding purchase commitments of $42.3 million during the remainder of 2021.

Segment Results
The table below is a summary of segment pre-tax income results for the first nine months of 2021 and 2020.


(Dollars in thousands)
Consumer
Commercial
Wealth
Segment
Totals
Other/ Elimination
Consolidated Totals
Nine Months Ended September 30, 2021
Net interest income $ 239,159  $ 340,345  $ 53,186  $ 632,690  $ (4,923) $ 627,767 
Provision for credit losses (19,122) 4,856  10  (14,256) 73,528  59,272 
Non-interest income 110,911  155,079  158,731  424,721  (12,027) 412,694 
Investment securities gains, net —  —  —  —  39,765  39,765 
Non-interest expense (220,276) (246,502) (101,377) (568,155) (34,164) (602,319)
Income before income taxes $ 110,672  $ 253,778  $ 110,550  $ 475,000  $ 62,179  $ 537,179 
Nine Months Ended September 30, 2020
Net interest income $ 241,195  $ 300,301  $ 41,686  $ 583,182  $ 36,902  $ 620,084 
Provision for credit losses (23,885) (3,122) 10  (26,997) (114,596) (141,593)
Non-interest income 107,489  143,746  139,700  390,935  (20,185) 370,750 
Investment securities losses, net —  —  —  —  (1,275) (1,275)
Non-interest expense (225,791) (237,327) (92,915) (556,033) (16,035) (572,068)
Income before income taxes $ 99,008  $ 203,598  $ 88,481  $ 391,087  $ (115,189) $ 275,898 
Increase in income before income taxes:
   Amount $ 11,664  $ 50,180  $ 22,069  $ 83,913  $ 177,368  $ 261,281 
   Percent 11.8  % 24.6  % 24.9  % 21.5  % 154.0  % 94.7  %
Consumer
For the nine months ended September 30, 2021, income before income taxes for the Consumer segment increased $11.7 million, or 11.8%, compared to the first nine months of 2020. This increase in income before income taxes was mainly due to growth in non-interest income of $3.4 million, or 3.2%, lower non-interest expense of $5.5 million, or 2.4%, and a decrease in the provision for credit losses of $4.8 million. These increases to income were partly offset by lower net interest income of $2.0 million, or .8%. Net interest income decreased due to a $17.4 million decline in loan interest income, partly offset by a $5.5 million decrease in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios, and a $9.9 million decrease in deposit interest expense. Non-interest income increased mainly due to growth in net credit and debit card fees (mainly higher interchange fees, partly offset by higher rewards expense) and check sales and wire fees. These increases were partly offset by a decrease in mortgage banking revenue. Non-interest expense decreased from the same period in the previous year 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 allocated support and servicing costs for information technology. The provision for credit
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losses totaled $19.1 million, a $4.8 million decrease from the first nine months of 2020, mainly due to lower credit card and personal loan net charge-offs.

Commercial
For the nine months ended September 30, 2021, income before income taxes for the Commercial segment increased $50.2 million, or 24.6%, compared to the same period in the previous year. This increase was mainly due to higher net interest income and non-interest income and a decrease in the provision for credit losses, partly offset by higher non-interest expense. Net interest income increased $40.0 million, or 13.3%, due to a $48.2 million increase in net allocated funding credits and a decrease in deposit and borrowings interest expense of $12.6 million. These increases to income were partly offset by a $20.7 million decrease in loan interest income. Non-interest income increased $11.3 million, or 7.9%, over the previous year mainly due to growth in net bank card fees (mainly corporate card and merchant fees), deposit account fees (mainly corporate cash management fees), capital market fees and interest rate swap fees. These increases were partly offset by a decline in cash sweep commissions. Non-interest expense increased $9.2 million, or 3.9%, 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 to income were partly offset by lower allocated service costs (mainly lockbox). The provision for credit losses decreased $8.0 million from the same period last year, mainly due to net recoveries recorded on business loans.

Wealth
Wealth segment pre-tax profitability for the nine months ended September 30, 2021 increased $22.1 million, or 24.9%, over the same period in the previous year. Net interest income increased $11.5 million, or 27.6%, mainly due to a $9.8 million increase in net allocated funding credits and lower deposit interest expense of $3.5 million, partly offset by a $1.8 million decrease in loan interest income. Non-interest income increased $19.0 million, or 13.6%, over the prior year largely due to higher trust fees (mainly private client trust fees and institutional trust fees), brokerage fees and mortgage banking revenue, partly offset by lower cash sweep commissions. Non-interest expense increased $8.5 million, or 9.1%, mainly due to higher salaries expense (mainly incentive compensation) and allocated support costs for information technology. There was no change in the provision for credit losses compared to the same period last year.

The Other/Elimination category in the preceding table includes the activity of various support and overhead operating units of the Company, in addition to the investment securities portfolio and other items not allocated to the segments. In accordance with the Company’s transfer pricing procedures, the difference between the total provision for credit losses and total net charge-offs/recoveries is not allocated to a business segment and is included in this category. The pre-tax profitability of this category was higher than in the same period last year by $177.4 million. This increase was partly due to higher non-interest income of $8.2 million, partly offset by lower net interest income of $41.8 million and an increase in non-interest expense of $18.1 million. Unallocated securities gains were $39.8 million in the first nine months of 2021 compared to losses of $1.3 million in 2020. Also, the unallocated provision for credit losses decreased $188.1 million, as the provision was $58.1 million less than net charge-offs in the first nine months of 2021, while the provision was $96.7 million in excess of net charge-offs during the first nine months of 2020. For management reporting purposes, net charge-offs are allocated to the segments when incurred. Additionally, the Company's provision for credit losses on unfunded lending commitments, which is not allocated to the segments for management reporting, was a benefit of $15.5 million for the nine months ended September 30, 2021.

Impact of Recently Issued Accounting Standards
Income Taxes The FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes", in December 2019. The amendments in the ASU eliminate certain exceptions under current guidance for investments, intraperiod allocations, and the methodology for calculating interim income tax. In addition, the amendments also add new guidance to simplify accounting for income taxes. The amendments were effective January 1, 2021, and the Company adopted them on that date. The adoption did not have a significant effect on the Company's consolidated financial statements.

Investment Securities The FASB issued ASU 2020-08, "Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs", in October 2020. The amendments in the ASU clarify that for each reporting period an entity should evaluate whether a callable debt security that has multiple call dates may consider estimates of future principal prepayments when applying the interest method. The guidance was effective January 1, 2021, and the Company adopted it on that date. The adoption did not have a significant effect on the Company's consolidated financial statements.

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
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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 are affected by the discounting transition. The expedients and exceptions provided by the new guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022. The guidance is effective as of March 12, 2020 through December 31, 2022, and the Company is in the process of evaluating and applying, as applicable, the optional expedients and exceptions for eligible contracts and transaction available through December 31, 2022.
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AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
Three Months Ended September 30, 2021 and 2020
 
Third Quarter 2021
Third Quarter 2020
(Dollars in thousands)
Average Balance
Interest Income/Expense
Avg. Rates Earned/Paid
Average Balance Interest Income/Expense Avg. Rates Earned/Paid
ASSETS:
Loans:
Business(A)
$ 5,437,498  $ 47,032  3.43  % $ 6,709,200  $ 49,680  2.95  %
Real estate — construction and land 1,168,566  10,326  3.51  974,346  9,167  3.74 
Real estate — business 2,982,847  26,027  3.46  2,989,652  26,547  3.53 
Real estate — personal 2,775,638  22,854  3.27  2,722,300  24,334  3.56 
Consumer 2,041,263  19,085  3.71  1,992,314  21,004  4.19 
Revolving home equity 281,689  2,456  3.46  329,361  2,722  3.29 
Consumer credit card 566,406  16,112  11.29  646,185  18,513  11.40 
Overdrafts 5,110  —  —  2,689  — —
Total loans 15,259,017  143,892  3.74  16,366,047  151,967  3.69 
Loans held for sale 16,021  187  4.63  24,728  264  4.25 
Investment securities:
U.S. government and federal agency obligations 727,566  10,525  5.74  770,361  7,189  3.71 
Government-sponsored enterprise obligations 50,785  295  2.30  102,749  560  2.17 
State and municipal obligations(A)
2,039,942  12,062  2.35  1,767,526  11,240  2.53 
Mortgage-backed securities 7,115,419  27,461  1.53  6,259,926  30,607  1.95 
Asset-backed securities 3,028,076  8,205  1.08  1,520,988  7,250  1.90 
Other debt securities 608,642  3,125  2.04  514,166  3,036  2.35 
Trading debt securities(A)
32,238  82  1.01  27,267  114  1.66 
Equity securities(A)
8,756  528  23.92  4,193  497  47.15 
Other securities(A)
183,397  3,447  7.46  120,253  2,038  6.74 
Total investment securities 13,794,821  65,730  1.89  11,087,429  62,531  2.24 
Federal funds sold 792  1  .50  337  —  — 
Securities purchased under agreements to resell 1,633,205  9,007  2.19  849,994  11,247  5.26 
Interest earning deposits with banks 2,602,896  995  .15  1,024,435  261  .10 
Total interest earning assets 33,306,752  219,812  2.62  29,352,970  226,270  3.07 
Allowance for credit losses on loans (172,112) (240,286)
Unrealized gain on debt securities 230,058  368,154 
Cash and due from banks 329,129  326,030 
Premises and equipment, net 408,966  404,144 
Other assets 523,182  659,509 
Total assets $ 34,625,975  $ 30,870,521 
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings $ 1,484,923  289  .08  $ 1,193,079  269  .09 
Interest checking and money market 13,343,180  1,528  .05  11,731,494  2,937  .10 
Certificates of deposit of less than $100,000 464,367  206  .18  573,207  1,028  .71 
Certificates of deposit of $100,000 and over 1,289,665  450  .14  1,447,968  2,512  .69 
Total interest bearing deposits 16,582,135  2,473  .06  14,945,748  6,746  .18 
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 2,360,876  480  .08  1,855,971  406  .09 
Other borrowings 347  1  1.14  1,225  —  — 
Total borrowings 2,361,223  481  .08  1,857,196  406  .09 
Total interest bearing liabilities 18,943,358  2,954  .06  % 16,802,944  7,152  .17  %
Non-interest bearing deposits 11,475,113  9,801,562 
Other liabilities 667,786  899,890 
Equity 3,539,718  3,366,125 
Total liabilities and equity $ 34,625,975  $ 30,870,521 
Net interest margin (T/E) $ 216,858  $ 219,118 
Net yield on interest earning assets 2.58  % 2.97  %
(A) Stated on a tax equivalent basis using a federal income tax rate of 21%.
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AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS
Nine Months Ended September 30, 2021 and 2020
Nine Months 2021
Nine Months 2020
(Dollars in thousands)
Average Balance
Interest Income/Expense
Avg. Rates Earned/Paid
Average Balance Interest Income/Expense Avg. Rates Earned/Paid
ASSETS:
Loans:
Business(A)
$ 6,056,664  $ 145,574  3.21  % $ 6,322,644  $ 146,437  3.09  %
Real estate — construction and land 1,116,603  29,538  3.54  931,517  28,952  4.15 
Real estate — business 3,006,780  78,494  3.49  2,935,319  83,382  3.79 
Real estate — personal 2,801,861  69,715  3.33  2,565,740  70,829  3.69 
Consumer 1,998,081  57,567  3.85  1,962,466  65,845  4.48 
Revolving home equity 289,299  7,406  3.42  340,900  9,722  3.81 
Consumer credit card 583,471  48,679  11.15  679,101  60,102  11.82 
Overdrafts 4,136  —  —  3,213  —  — 
Total loans 15,856,895  436,973  3.68  15,740,900  465,269  3.95 
Loans held for sale 25,002  736  3.94  14,692  588  5.35 
Investment securities:  
U.S. government and federal agency obligations 724,269  24,979  4.61  783,006  12,244  2.09 
Government-sponsored enterprise obligations 50,793  885  2.33  117,135  2,958  3.37 
State and municipal obligations(A)
1,988,715  35,779  2.41  1,426,432  30,187  2.83 
Mortgage-backed securities 6,933,544  69,924  1.35  5,426,861  87,017  2.14 
Asset-backed securities 2,592,618  23,594  1.22  1,349,316  22,496  2.23 
Other debt securities 594,984  9,263  2.08  414,553  7,907  2.55 
Trading debt securities(A)
33,171  272  1.10  31,087  560  2.41 
Equity securities(A)
6,013  1,584  35.22  4,201  1,492  47.44 
Other securities(A)
164,911  10,101  8.19  134,481  5,450  5.41 
Total investment securities 13,089,018  176,381  1.80  9,687,072  170,311  2.35 
Federal funds sold 715  3  .56  252  2  1.06 
Securities purchased under agreements to resell 1,143,061  30,551  3.57  849,998  29,445  4.63 
Interest earning deposits with banks 2,273,448  2,108  .12  1,126,600  1,996  .24 
Total interest earning assets 32,388,139  646,752  2.67  27,419,514  667,611  3.25 
Allowance for credit losses on loans (197,631) (184,001)
Unrealized gain on debt securities 236,702  280,616 
Cash and due from banks 337,595  351,435 
Premises and equipment, net 404,697  397,093 
Other assets 533,660  657,969 
Total assets $ 33,703,162  $ 28,922,626 
LIABILITIES AND EQUITY:
Interest bearing deposits:
Savings $ 1,431,386  843  .08  $ 1,086,120  780  .10 
Interest checking and money market 13,200,461  4,921  .05  11,318,376  14,712  .17 
Certificates of deposit of less than $100,000 490,655  1,006  .27  600,295  4,196  .93 
Certificates of deposit of $100,000 and over 1,291,693  2,173  .22  1,364,798  11,357  1.11 
Total interest bearing deposits 16,414,195  8,943  .07  14,369,589  31,045  .29 
Borrowings:
Federal funds purchased and securities sold
under agreements to repurchase 2,231,595  1,112  .07  1,945,669  5,761  .40 
Other borrowings 717  5  .93  168,748  1,032  .82 
Total borrowings 2,232,312  1,117  .07  2,114,417  6,793  .43 
Total interest bearing liabilities 18,646,507  10,060  .07  % 16,484,006  37,838  .31  %
Non-interest bearing deposits 11,011,446  8,425,068 
Other liabilities 601,352  710,824 
Equity 3,443,857  3,302,728 
Total liabilities and equity $ 33,703,162  $ 28,922,626 
Net interest margin (T/E) $ 636,692  $ 629,773 
Net yield on interest earning assets 2.63  % 3.07  %
(A) Stated on a tax equivalent basis using a federal income tax rate of 21%.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate risk management focuses on maintaining consistent growth in net interest income within Board-approved policy limits. The Company primarily uses earnings simulation models to analyze net interest income sensitivity to movement in interest rates. The Company performs monthly simulations that model interest rate movements and risk in accordance with changes to its balance sheet composition. For further discussion of the Company’s market risk, see the Interest Rate Sensitivity section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2020 Annual Report on Form 10-K.

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 in each scenario, rates are assumed to change evenly over 12 months. In these scenarios, the balance sheet remains flat.

The sensitivity of deposit balances to changes in rates is particularly difficult to estimate in exceptionally 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 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 both for monitoring interest rate risk and for liquidity planning purposes.  While the future effects of rising 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 September 30, 2021 June 30, 2021
 (Dollars in millions)
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed Deposit (Attrition)/Growth
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed Deposit (Attrition)/Growth
300 basis points rising $ 101.1  13.87  % $ —  $ 97.4  13.10  % $ — 
200 basis points rising 73.1  10.02  —  73.2  9.85  — 
100 basis points rising 37.7  5.17  —  38.4  5.16  — 

Simulation B September 30, 2021 June 30, 2021
 (Dollars in millions)
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed Deposit (Attrition)/Growth
$ Change in
Net Interest
Income
% Change in
Net Interest
Income
Assumed Deposit (Attrition)/Growth
300 basis points rising $ 67.6  9.27  % $ (1,430.9) $ 65.4  8.79  % $ (1,438.7)
200 basis points rising 54.8  7.51  (849.1) 55.4  7.45  (855.9)
100 basis points rising 33.2  4.55  (237.5) 33.9  4.56  (241.5)

Under Simulation A, in the three rising rate scenarios, interest rate risk is slightly more asset sensitive than the previous quarter, which primarily resulted from an increase in securities purchased under agreements to resell. Deposit attrition was removed from the simulation in both the current and previous quarters. The Company did not model a 100 basis point falling scenario due to the already low interest rate environment.

In Simulation B, the assumed levels of deposit attrition were modeled to capture the results of a shrinking balance sheet. Under this Simulation, in the three rising rate scenarios, interest rate risk is slightly more asset sensitive than the previous quarter, which primarily resulted from an increase in securities purchased under agreements to resell.

Projecting deposit activity in a period of historically low interest rates is difficult, and the Company cannot predict how deposits will actually react to shifting rates.  The comparisons above provide insight into potential effects of changes in rates and deposit levels on net interest income.  The Company believes that its approach to interest rate risk has appropriately considered its susceptibility to both rising and falling rates and has adopted strategies which minimize the impact of interest rate risk.

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Item 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2021. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective. There were no changes in the Company's internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II: OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS
The information required by this item is set forth in Part I, Item 1 under Note 17, Legal and Regulatory Proceedings.

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

 
 
 
Period
Total Number of Shares Purchased
 Average Price Paid per Share
Total Number of Shares Purchased as part of Publicly Announced Program
 Maximum Number that May Yet Be Purchased Under the Program
July 1 - 31, 2021 59,404  $ 72.05  59,404  2,949,742 
August 1 - 31, 2021 314,225  $ 70.20  314,225  2,635,517 
September 1 - 30, 2021 201,828  $ 68.50  201,828  2,433,689 
Total 575,457  $ 69.80  575,457  2,433,689 

The Company's stock purchases shown above were made under authorizations by the Board of Directors. Under the most recent authorization in November 2019 of 5,000,000 shares, 2,433,689 shares remained available for purchase at September 30, 2021.

Item 6. EXHIBITS
31.1 — Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 — Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 — Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 — Interactive data files in Inline XBRL pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text and in detail. The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.

104 — Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COMMERCE BANCSHARES, INC.
By 
/s/  THOMAS J. NOACK
Thomas J. Noack
Date: November 5, 2021
Senior Vice President & Secretary


By  /s/  PAUL A. STEINER
Paul A. Steiner
Controller
Date: November 5, 2021
(Chief Accounting Officer)



71

Exhibit 31.1

CERTIFICATION

I, John W. Kemper, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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.

/s/ JOHN W. KEMPER
John W. Kemper
President and
Chief Executive Officer
November 5, 2021
        
            





Exhibit 31.2

CERTIFICATION

I, Charles G. Kim, certify that:
1. I have reviewed this quarterly report on Form 10-Q 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.

/s/ CHARLES G. KIM
Charles G. Kim
Executive Vice President and
Chief Financial Officer
November 5, 2021
            
        
            




Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Commerce Bancshares, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2021 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
November 5, 2021

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.