What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-05 · 284 added, 294 removed, 599 unchanged (49% of the section changed)

2 unchanged sentences

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 six month periods ended June 30, 2021 are not necessarily indicative of results to be attained for any other period.

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

10 unchanged sentences

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 June 30, 2021, there were no material changes to the Risk Factors disclosed in the Company's 2020 Annual Report on Form 10-K.

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 several policies as being critical because they require management to make particularly difficult, subjective and/or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions.

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.

2 unchanged sentences

Selected Financial Data

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2021 2020 2021 2020

37 unchanged sentences

Less non-controlling interest 10,551 601

Less preferred stock — 144,784

Less goodwill 138,921 138,921

7 unchanged sentences

Results of Operations

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

(Dollars in thousands) 2021 2020 % change 2021 2020 % change

3 unchanged sentences

Investment securities gains (losses), net 13,108 16,155 (18.9) 39,765 (1,275) N.M.

26,657 (17,430) N.M.

Non-interest expense (211,620) (190,858) 10.9 (602,319) (572,068) 5.3

7 unchanged sentences

- Not meaningful

For the quarter ended June 30, 2021, net income attributable to Commerce Bancshares, Inc.

(net income) amounted to $162.3 million, an increase of $122.5 million, or 307.2%, compared to the second quarter of the previous year.

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 $1.38, an increase of 331.3% compared to $.32 per share in the second quarter of 2020, and increased 24.3% compared to $1.11 per share in the previous quarter.

Compared to the second quarter of last year, net interest income increased $4.9 million, or 2.4%, mainly due to a decline of $7.1 million in interest expense on deposits and borrowings, coupled with an increase of $4.7 million in interest income on investment securities.

These increases to net interest income were partly offset by a decrease of $6.8 million in interest income on loans.

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 $21.6 million, or 18.4%, compared to the second quarter of 2020, mainly due to growth in net bank card fees, trust fees and loan fees and sales, partly offset by lower cash sweep fees.

Investment securities net gains totaled $16.8 million in the current quarter compared to net losses of $4.1 million in the same quarter last year.

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 $10.6 million, or 5.7%, over the second quarter of 2020 mainly due to lower deferred loan origination costs, higher salaries and benefits expense and higher marketing expense.

Net income for the first six months of 2021 was $293.3 million, an increase of $201.6 million, or 219.8%, over the same period last year.

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 six months of 2021, the annualized return on average assets was 1.78%, the annualized return on average equity was 17.42%, and the efficiency ratio was 56.64%.

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 largely due to a decrease of $23.6 million in deposits and borrowings interest expense, partly offset by a $19.5 million decrease in interest income on loans.

The provision for credit losses was a recovery of $51.9 million for the first six months of 2021, compared to provision expense of $138.5 million in the same period last year, resulting in a decrease of $190.4 million.

Non-interest income increased $34.0 million, or 14.1%, over the first six month of last year mainly due to higher trust fees, net bank card fees and loan fees and sales.

Non-interest expense increased $9.5 million, or 2.5% over the first six 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.

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.

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.

Net Interest Income

2 unchanged sentences

Analysis of Changes in Net Interest Income

Three Months Ended June 30, 2021 vs.

2020 Six Months Ended June 30, 2021 vs.

Three Months Ended September 30, 2021 vs.

2020 Nine Months Ended September 30, 2021 vs.

Change due to Change due to

22 unchanged sentences

Total interest on investment securities 14,673 (11,474) 3,199 59,505 (53,435) 6,070

Federal funds sold and short-term securities

purchased under agreements to resell 1 1 2 4 (4) —

Long-term securities purchased under agreements

to resell 1,107 (1,427) (320) 939 2,407 3,346

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

11 unchanged sentences

Net interest income, tax equivalent basis $ 15,810 $ (18,070) $ (2,260) $ 71,167 $ (64,248) $ 6,919

Net interest income in the second quarter of 2021 was $208.0 million, an increase of $4.9 million over the second quarter of 2020.

On a tax equivalent (T/E) basis, net interest income totaled $211.1 million in the second quarter of 2021, up $4.8 million over the same period last year and up $2.3 million over the previous quarter.

The increase in net interest income compared to the second quarter of 2020 was mainly due to higher interest income on investment securities (T/E) of $4.7 million and lower interest expense on interest bearing deposits and borrowings of $7.1 million, partly offset by lower interest income earned on loans (T/E) of $7.1 million.

The increase in total interest earned on investment securities (T/E) was mainly the result of growth in average balances, partly offset by a decline in the average rate earned.

The decrease in expense on interest bearing deposits and borrowings was a result of a decline in the average rate paid, while the decrease in interest earned on loans (T/E) was mainly the result of lower yields on most loan products.

The Company's net yield on earning assets (T/E) was 2.60% in the current quarter compared to 2.94% in the second quarter of 2020.

Total interest income (T/E) decreased $2.3 million from the second quarter of 2020.

Interest income on loans (T/E) was $145.6 million during the second quarter of 2021, a decrease of $7.1 million, or 4.7%, from the same quarter last year.

The decrease in interest income from the same quarter last year was primarily due to a decrease of 15 basis points in the average rate earned, coupled with a decline of $164.8 million, or 1.0%, in average loan balances.

Most of the decrease in interest income occurred in the consumer credit card, consumer, and business real estate loan categories.

Interest income on personal real estate and revolving home equity loans also decreased.

These decreases were partly offset by an increase in the construction and land loan category.

Consumer credit card loan interest decreased $3.3 million due to a decline of $88.2 million in average balances, coupled with a 54 basis point decline in the average rate earned.

Consumer loan interest declined $2.5 million due to a decrease of 64 basis points in the average rate earned, partly offset by an increase of $60.4 million in average balances, or 3.1%.

Business real estate loan interest income fell $1.1 million due to a 22 basis point decrease in the average rate earned, partly offset by higher average balances of $52.9 million, or 1.8%.

Personal real estate loan interest fell $554 thousand from the same quarter last year due to a 38 basis point decline in the average rate earned, partly offset by growth of $221.9 million, or 8.6%, in average balances, and revolving home equity interest income declined $532 thousand due to a decline of $56.2 million in average volume and a 7 basis point decrease in the average rate earned.

Business loan interest income declined slightly from the same quarter last year mainly due to a $549.2 million decrease in average loan balances, mostly offset by a 24 basis point increase in the average rate earned.

The increase in the yield on business loans was primarily driven by an increase in the yield on Paycheck Protection Program (PPP) loans, which was 3.77% in the second quarter of 2021.

These decreases to interest income (T/E) were partly offset by an increase of $870 thousand in interest earned on construction and land loans, mostly due to growth of $192.8 million, or 21.5%, in average loan balances, partly offset by a decline of 39 basis points in the average rate earned.

Interest income on investment securities (T/E) was $57.2 million during the second quarter of 2021, which was an increase of $4.7 million over the same quarter last year.

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

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.

2 unchanged sentences

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 state and municipal obligations grew $2.3 million as a result of growth in the average balance of $681.2 million, or 53.0%, partly offset by a 56 basis point decline in the average rate earned.

In addition, interest on asset-backed securities rose $740 thousand as a result of a $1.3 billion increase in the average balance, partly offset by a 100 basis point decline in the average rate earned.

Interest earned on other securities grew $3.7 million mainly due to the receipt of a dividend and other distributions from investments in the Company's private equity portfolio.

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 $10.3 million due to a 106 basis point decline in the average rate earned, partly offset by an increase of $1.4 billion, or 25.5%, in the average balance.

At June 30, 2021, the Company recorded a $1.9 million adjustment to premium amortization, which decreased interest income this quarter to reflect an acceleration in forward prepayment speed estimates on mortgage-backed securities due to falling interest rates during the quarter.

In addition, interest income on government-sponsored enterprise obligations decreased $705 thousand and resulted from a decline in the average balance of $63.7 million and a decrease of 118 basis points in the average rate earned.

The average balance of the total investment portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $12.9 billion in the second quarter of 2021, compared to $9.4 billion in the second quarter of 2020.

Interest income on long-term securities purchased under agreements to resell decreased $320 thousand from the same quarter last year, due to a decrease of 62 basis points in the average rate earned.

In May 2021, $75 million of securities purchased under agreements to resell, which had been earning interest at an average rate of 5.5%, matured.

These securities were replaced during the second quarter of 2021 with $525 million of securities earning approximately 0.29%.

An additional $250 million, $75 million, and $250 million of securities purchased under agreements to resell will mature in August 2021, November 2021, and February 2022, and these instruments are currently earning interest at average rates of 4.7%, 5.5%, and 6.4%, respectively.

Interest income on balances at the Federal Reserve grew $300 thousand mainly due to an increase of $969.7 million in the average balance invested.

The average tax equivalent yield on total interest earning assets was 2.64% in the second quarter of 2021, down from 3.09% in the second quarter of 2020.

Total interest expense decreased $7.1 million compared to the second quarter of 2020 due to a $6.1 million decrease in interest expense on interest bearing deposits and a $964 thousand decrease in interest expense on borrowings.

The decrease in deposit interest expense resulted mainly from an 18 basis point decline in the overall average rate paid.

Interest expense on certificates of deposit declined $4.0 million due to an 82 basis point decrease in the average rate paid, coupled with a decrease of $105.1 million in the average balance.

Interest expense on interest checking and money market accounts declined $2.2 million, due to an eight basis point decrease in the average rate paid, slightly offset by higher average balances of $1.8 billion.

Interest expense on borrowings decreased due to lower rates paid, mainly on customer repurchase agreements, coupled with lower average balances of other borrowings.

The overall average rate incurred on all interest bearing liabilities was .07% and .25% in the second quarters of 2021 and 2020, respectively.

Net interest income (T/E) for the first six months of 2021 was $419.8 million compared to $410.7 million for the same period in 2020.

For the first six months of 2021, the net interest margin was 2.65% compared to 3.12% for the same period in 2020.

Total interest income (T/E) for the first six months of 2021 increased $9.2 million over the same period last year mainly due to lower interest expense on interest bearing deposits and borrowings, partly offset by lower interest income on loans (T/E).

Interest income earned on investment securities (T/E) was also higher in the first six months of 2021 than in the same period last year.

Loan interest income (T/E) declined $20.2 million, or 6.5%, due to a 42 basis point decline in the average rate earned, partly offset by a $735.9 million increase in total average loan balances.

The decrease in loan interest occurred in consumer credit card and revolving home equity loans due to lower average loan balances, coupled with lower average rates.

In addition, business real estate and consumer loan interest declined due to lower average rates, partly offset by higher average balances, while business loan interest increased as a result of higher average balances, partly offset by lower rates.

Interest income on investment securities (T/E) grew $2.9 million mainly due to an increase of $3.8 billion in the average balance.

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.

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.

1 unchanged sentence

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 income on long-term securities purchased under agreements to resell increased $3.3 million due to higher average rates and balances.

Interest earned on balances at the Federal Reserve decreased $622 thousand due to a 19 basis point decline in the average rate earned, partly offset by a $927.8 million increase in the average balance invested.

Total interest expense for the first six months of 2021 decreased $23.6 million compared to the same period last year.

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 jumbo CD's declined $7.1 million due to a 107 basis point decline in rates paid.

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.

2 unchanged sentences

Non-Interest Income

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

(Dollars in thousands) 2021 2020 % change 2021 2020 % change

9 unchanged sentences

* 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 six month periods ended June 30, 2021 and 2020.

Three Months Ended June 30 Six Months Ended June 30

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

4 unchanged sentences

Total bank card transaction fees $ 42,815 $ 37,873 13.0 % $ 123,118 $ 111,818 10.1 %

For the second quarter of 2021, total non-interest income amounted to $139.1 million compared to $117.5 million in the same quarter last year, which was an increase of $21.6 million, or 18.4%.

The increase was mainly due to higher net bank card fees and trust fees.

Additionally, loan fees and sales, deposit account fees, and consumer brokerage fees grew compared to the same quarter last year, but were partly offset by lower capital market fees and other non-interest income.

Bank card transaction fees for the current quarter grew $8.9 million, or 26.3%, over the same period last year, due to growth of $5.3 million in net corporate card fees, $1.7 million in net debit card fees, $1.2 million in net credit card fees, and $669 thousand in net merchant fees.

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.

1 unchanged sentence

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 $1.7 million, or 7.7%, mainly due to higher overdraft and return item fees.

Capital market fees decreased $445 thousand, or 11.8%, while loan fees and sales increased $2.8 million, or 60.2%, due to higher mortgage banking revenue.

Consumer brokerage service fees increased $1.5 million, or 49.6%, compared to the same quarter last year, mainly due to growth in annuity and advisory fees.

Other non-interest income decreased $1.1 million, or 9.1%, mainly due to a decline of $2.8 million in cash sweep commissions, partly offset by increases of $773 thousand and $443 thousand in check sales and wire fees and tax credit sales fees, respectively.

In addition, gains on asset sales increased $431 thousand mainly due to a $1.3 million gain on the sale of a branch location, partly offset by a $1.1 million lease impairment.

Non-interest income for the first six months of 2021 was $275.2 million compared to $241.2 million in 2020, resulting in an increase of $34.0 million, or 14.1%.

Bank card fees increased $6.4 million, or 8.6%, due to growth of $2.6 million in net corporate card fees, $1.7 million in net debit card fees, $1.1 million in net credit card fees, and $895 thousand in net merchant fees.

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 $607 thousand due to higher corporate cash management fees, partly offset by lower overdraft and return item fees and deposit fees.

For the six months ended June 30, 2021, corporate cash management fees comprised 52.9% of total deposit fees, while overdraft fees comprised 22.6% of total deposit fees.

Capital market fees increased $746 thousand, while consumer brokerage service fees grew $1.5 million, or 21.1%, as a result of higher annuity and advisory fees.

Loan fees and sales increased $9.7 million, or 123.6%, due to growth in mortgage banking revenue.

Other income increased $2.6 million, mainly due to gains recorded on branch sales, higher check sales and wire fees, interest rate swap fees and tax credit sales fees.

In addition, fair value adjustments on the Company's deferred compensation plan assets, which are held in a trust and recorded as both an asset and a liability, increased $2.4 million over the same period last year,

affecting both other income and other expense.

These increases were partly offset by lower cash sweep commissions and a lease impairment.

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.

Investment Securities Gains (Losses), Net

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

(In thousands) 2021 2020 2021 2020

4 unchanged sentences

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 June 30, 2021 and 2020, are shown in the table above.

Net securities gains of $16.8 million were reported in the second quarter of 2021, compared to net losses of $4.1 million in the same period last year.

The net gains in the second quarter of 2021 were primarily comprised of $16.7 million of net gains in fair value on the Company’s private equity investments.

The net losses on investment securities for the same quarter last year were mainly comprised of $7.5 million of net losses in fair value on the Company’s private equity investments, as the economic conditions resulting from the COVID-19 pandemic negatively impacted investment valuations, partly offset by gains of $3.3 million on sales of available for sale debt securities.

Net gains on investment securities of $26.7 million were recognized in earnings for the six months ended June 30, 2021, compared to net losses of $17.4 million for the same period in 2020.

Net gains in the first half of 2021 were mainly comprised of a gain of $1.6 million on the sale of a private equity investment and $25.0 million of net gains in fair value on private equity investments.

Net losses in the first half of 2020 were mainly comprised of fair value adjustments on private equity investments partly offset by gains 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 $5.2 million during the first six months of 2021 and income of $3.7 million during the first six months of 2020.

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 June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

(Dollars in thousands) 2021 2020 % change 2021 2020 % change

7 unchanged sentences

Total non-interest expense $ 211,620 $ 190,858 10.9 % $ 602,319 $ 572,068 5.3 %

Non-interest expense for the second quarter of 2021 amounted to $198.1 million, an increase of $10.6 million, or 5.7%, compared to expense of $187.5 million in the second quarter of last year.

The increase in expense was mainly due to lower deferred origination costs, higher salaries and benefits expense and higher marketing expense.

Salaries expense increased $1.3 million, or 1.2%, driven by growth in incentive compensation, partly offset by declines in full and part-time salaries and overtime pay expense.

Employee benefits expense totaled $19.0 million, reflecting an increase of $2.7 million, or 16.5%, mainly as a result of higher healthcare expense, partly offset by lower payroll taxes and other benefits expense.

Full-time equivalent employees totaled 4,590 at June 30, 2021, compared to 4,856 at June 30, 2020.

Occupancy expense grew $258 thousand, while supplies and communication and equipment expense declined $394 thousand and $150 thousand, respectively.

Data processing and software expense increased $1.1 million, or 4.7%, while marketing expense grew $1.9 million, or 49.4%, in support of strategic initiatives and to grow the customer base.

Other non-interest expense increased $3.9 million, or 30.9%, mainly due to lower deferred loan origination costs of $4.0 million, higher FDIC insurance expense of $502 thousand, community service expense of $410 thousand and travel and entertainment expense of $476 thousand.

These increases to expense were partly offset by a $1.0 million reduction in impairment expense on mortgage servicing rights.

Non-interest expense amounted to $390.7 million for the first six months of 2021, an increase of $9.5 million, or 2.5%, over the first six months of 2020.

Salaries and benefits expense increased $4.1 million, or 1.6%, mainly due to higher costs for incentive compensation and healthcare, partly offset by lower full and part-time salaries expense and other benefits expense.

Occupancy expense increased $531 thousand, or 2.3%, while equipment expense decreased $618 thousand, or 6.5%.

Supplies and communication expense declined $927 thousand, or 10.2%, mainly due to lower office supplies and postage expense.

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%.

Other non-interest expense increased $2.3 million, or 8.7%, mainly due to lower deferred loan origination costs and higher FDIC insurance expense, in addition to the previously mentioned fair value equity adjustments of $2.4 million on the Company's deferred compensation plan assets.

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.

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

Three Months Ended Six Months Ended June 30

June 30, 2021 Mar.

31, 2021 June 30, 2020 2021 2020

Three Months Ended Nine Months Ended September 30

30, 2021 June 30, 2021 Sept.

30, 2020 2021 2020

ALLOWANCE FOR CREDIT LOSSES ON LOANS

24 unchanged sentences

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 185,559 $ 196,603 $ 271,560 $ 185,559 $ 271,560

Three Months Ended Six Months Ended June 30

June 30, 2021 Mar.

31, 2021 June 30, 2020 2021 2020

Three Months Ended Nine Months Ended September 30

30, 2021 June 30, 2021 Sept.

30, 2020 2021 2020

Annualized net loan charge-offs (recoveries)*:

15 unchanged sentences

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 second quarter of 2021 amounted to $699 thousand, compared to $10.0 million in the prior quarter and $8.4 million in the second quarter of last year.

During the second quarter of 2021, the Company recorded net recoveries on commercial loans of $5.0 million, compared to net charge-offs of $17 thousand in the prior quarter.

Net loan recoveries on commercial loans resulted from recoveries on two business loans in the current quarter.

In addition to commercial loan net recoveries, net charge-offs on consumer credit card loans declined $3.8 million in the second quarter of 2021, compared to the prior quarte r.

The decrease in consumer credit card net charge-offs compared to prior quarter was mainly due to higher charge-offs in the first quarter of 2021 that resulted from the expiration of a COVID-related relief program.

The program, offered during 2020, caused the past due and charge-off process on some loans to not advance for several months.

As the short-term relief expired, those loans progressed into past due stages during the fourth quarter of 2020 and were ultimately charged-off during the first quarter of 2021.

Comp ared to the same period last year, net loan charge-offs in the second quarter of 2021 decreased $7.7 million.

The decrease in net charge-offs during the second quarter of 2021 compared to the same quarter last year was driven by $4.9 million in net recoveries on business loans and $984 thousand in lower net charge-offs on consumer loans, partly offset by $1.6 million in higher net charge-offs on consumer credit card loans.

For the three months ended June 30, 2021, annualized net charge-offs on average consumer credit card loans totaled 3.59%, compared to 5.98% in the previous quarter and 2.17% in the same period last year.

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 quarte r.

Comp ared 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 second quarter of 2021, total annualized net loan charge-offs were .02%, compared to .25% in the previous quarter and .21% in the same period last year.

The provision for credit losses, which includes the provision for loans and unfunded lending commitments, was a benefit of $45.7 million for the second quarter of 2021, compared to a benefit of $6.2 million in the first quarter of 2021 and an expense of $80.5 million in the second quarter of 2020.

In the current quarter, the provision for credit losses on loans was a benefit of $27.4 million, which was a $17.1 million increase over the $10.4 million benefit in the prior quarter.

The provision for credit losses on loans in the current quarter decreased $104.9 million compared to the provision expense in the second quarter of 2020 .

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 the first and second quarters of 2021.

For the six months ended June 30, 2021, net loan charge-offs totaled $10.7 million, compared to $19.3 million in the same period last year.

During the first six months of 2021, the Company recorded net recoveries of $5.0 million on commercial loans, compared to net loan charge-offs of $2.8 million in the first six months of 2020.

In addition, consumer loan net charge-offs declined $1.9 million, while consumer credit card loan net charge-offs increased $1.4 million in the first six months of 2021, compared to the first six months of the prior year.

The provision for credit losses on loans for the first six months of 2021 was a benefit of $37.8 million.

In the same period last year, provision expense totaled $120.4 million and exceeded net loan charge-offs by $101.1 million.

In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $18.2 million, reflecting a $22.3 million decrease from the provision of $4.1 million in the prior quarter, and decreased $21.3 million compared to the second quarter of 2020.

At June 30, 2021, the liability for unfunded lending commitments was $24.2 million, compared to $42.4 million at March 31, 2021 and $35.3 million at June 30, 2020.

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

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 June 30, 2021, the allowance for credit losses on loans decreased $28.1 million, compared to the allowance for credit losses on loans as of March 31, 2021.

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 decreased $21.6 million as a result of the improved economic forecast and lower than expected net charge-offs.

Additionally, the allowance for credit losses related to personal banking loans, including consumer credit card loans, decreased $6.5 million.

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 June 30, 2021, the allowance for credit losses on loans amounted to $172.4 million, compared to $200.5 million and $220.8 million at March 31, 2021 and December 31, 2020, respectively, and was 1.10%, 1.22% and 1.35% of total loans at June 30, 2021, March 31, 2021, and December 31, 2020, 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 June 30, 2021.

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 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.

13 unchanged sentences

(Dollars in thousands)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Non-accrual loans $ 10,421 $ 26,540

4 unchanged sentences

Total loans past due 90 days and still accruing interest $ 10,496 $ 22,190

Non-accrual loans totaled $11.2 million at June 30, 2021, a decrease of $15.4 million from the balance at December 31, 2020.

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 June 30, 2021, non-accrual loans were comprised of business (79.1%), personal real estate (15.0%), and business real estate (5.9%) loans.

Foreclosed real estate totaled $229 thousand at June 30, 2021, an increase of $136 thousand when compared to December 31, 2020.

Total loans past due 90 days or more and still accruing interest were $12.3 million as of June 30, 2021, a decrease of $9.9 million from December 31, 2020.

At September 30, 2021,

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.

3 unchanged sentences

Although these loans are generally identified as potential problem loans, they may never become non-performing.

Such loans totaled $386.2 million at June 30, 2021 compared with $361.8 million at December 31, 2020, resulting in an increase of $24.5 million, or 6.8%.

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)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Potential problem loans:

4 unchanged sentences

Total potential problem loans $ 335,694 $ 361,753

At June 30, 2021, the Company had $118.4 million of loans whose terms have been modified or restructured under a troubled debt restructuring.

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.

7 unchanged sentences

Real Estate – Construction and Land Loans

The Company's portfolio of construction and land loans, as shown in the table below, amounted to 7.1% of total loans outstanding at June 30, 2021.

The largest component of construction and land loans was commercial construction, which increased $92.1 million during the six months ended June 30, 2021.

At June 30, 2021, multi-family residential construction loans totaled approximately $234.2 million, or 25.5%, of the commercial construction loan portfolio, compared to $238.0 million, or 28.8%, at December 31, 2020.

(Dollars in thousands) June 30,

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,

December 31, 2020

1 unchanged sentence

Residential construction 103,825 8.3 .7 94,729 9.3 .6

Residential land and land development 42,252 3.9 .3 59,299 5.8 .4

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 %

Real Estate – Business Loans

Total business real estate loans were $3.0 billion at June 30, 2021 and comprised 19.3% of the Company's total loan portfolio.

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 June 30, 2021, 37.4% 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) June 30,

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,

December 31, 2020

1 unchanged sentence

Office 362,440 12.3 2.4 385,392 12.7 2.4

Multi-family 351,734 11.7 2.2 301,161 10.0 1.8

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

5 unchanged sentences

Revolving Home Equity Loans

The Company had $283.6 million in revolving home equity loans at June 30, 2021 that were generally collateralized by residential real estate.

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.

1 unchanged sentence

LTV up to 80%, 80% to 90%, and 90% to 100%.

As of June 30, 2021, the outstanding principal of loans with an original LTV higher than 80% was $31.2 million, or 11.0% 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 $1.9 million at June 30, 2021 compared to $2.0 million at December 31, 2020, and there were no revolving home equity loans on non-accrual status at June 30, 2021 or December 31, 2020.

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.

6 unchanged sentences

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 June 30, 2021, and outstanding balances for auto loans were $884.9 million and $879.9 million at June 30, 2021 and December 31, 2020, respectively.

The balances over 30 days past due amounted to $6.4 million at June 30, 2021 compared to $9.2 million at December 31, 2020, and comprised .7% and 1.0% of the outstanding balances of these loans at June 30, 2021 and December 31, 2020, respectively.

For the six months ended June 30, 2021, $228.5 million of new auto loans were originated, compared to $206.5 million during the first six months of 2020.

At June 30, 2021, the automobile loan portfolio had a weighted average FICO score of 760, and net charge-offs on auto loans were .11% of average auto loans at June 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 June 30, 2021.

Losses on these loans have historically been low, and the Company saw a small charge-off in 2021.

Private banking loans comprised 28% of the consumer loan portfolio at June 30, 2021.

The Company's private banking loans are generally well-collateralized and at June 30, 2021 were secured primarily by assets held by the Company's trust department.

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.

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 $673 thousand in the first six months of 2021 and were .2% of the average balances of these loans at June 30, 2021.

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.

Consumer Credit Card Loans

The Company offers low promotional rates on selected consumer credit card products.

Out of a portfolio at June 30, 2021 of $586.4 million in consumer credit card loans outstanding, approximately $96.9 million, or 16.5%, carried a low promotional rate.

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.

2 unchanged sentences

Oil and Gas Energy Lending

The Company's energy lending portfolio is comprised of lending to the petroleum and natural gas sectors and totaled $238.8 million, or 1.5% of total loans at June 30, 2021, an increase of $60.1 million from year end 2020, as shown in the table below.

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)

June 30, 2021 December 31, 2020 Unfunded commitments at June 30, 2021

September 30, 2021 December 31, 2020 Unfunded commitments at September 30, 2021

Extraction $ 165,883 $ 133,866 $ 147,581

3 unchanged sentences

Total energy lending portfolio $ 230,364 $ 178,729 $ 258,788

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

(Dollars in thousands) June 30, 2021 % of Energy Lending December 31, 2020 % of Energy Lending

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 %

3 unchanged sentences

Total $ 230,364 100.0 % $ 178,729 100.0 %

Energy lending balances classified as substandard and non-accrual represented 7.7% and 1.1% respectively, of total energy lending loan balances at June 30, 2021.

The Company saw a small recovery on energy loans during the six months ended June 30, 2021.

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.

2 unchanged sentences

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 June 30, 2021 was $854.3 million, a decrease of $572.6 million compared to balances at March 31, 2021.

The change in PPP loan balances reflected a decline of $639.5 million in loan balances from March 31, 2021 (round 1), partially offset by a $67.0 million net increase of loan balances during the second quarter of 2021 (round 2).

Since the start of the PPP, the Company has recognized $40.5 million of a total of $60.2 million of PPP fees as of June 30, 2021, including $9.8 million during the second quarter of 2021.

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.

1 unchanged sentence

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.

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 during the remainder of 2021.

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.

Shared National Credits

2 unchanged sentences

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 June 30, 2021 and December 31, 2020.

Additional unfunded commitments at June 30, 2021 totaled $1.7 billion.

Income tax expense was $45.2 million in the second quarter of 2021, compared to $32.1 million in the first quarter of 2021 and $9.7 million in the second quarter of 2020.

The Company's effective tax rate, including the effect of non-controlling interest, was 21.8% in the second quarter of 2021, compared to 19.7% in the first quarter of 2021 and 19.5% in the second quarter of 2020.

For the six months ended June 30, 2021, income tax expense was $77.3 million, compared to $19.8 million for

the same period during the previous year, resulting in effective tax rates of 20.9% and 17.8%, respectively.

The increase in the effective tax rate in the current quarter compared to the prior quarter and the same quarter last year is primarily due to the mix of taxable and nontaxable income and expenses.

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 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 $33.9 billion at June 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 $32.4 billion at June 30, 2021 and $31.3 billion at December 31, 2020, and consisted of 48% in loans and 41% in investment securities at June 30, 2021.

At June 30, 2021, total loans decreased $710.8 million, or 4.3%, compared to balances at December 31, 2020.

Business loans decreased $742.3 million, primarily due to a decline in Paycheck Protection Plan (PPP) loans.

Consumer credit card loans and personal real estate loans also decreased $68.7 million and $26.8 million, respectively.

These decreases were partially offset by growth in consumer banking loans and construction loans of $98.7 million and $82.1 million, respectively.

Available for sale investment securities, excluding fair value adjustments, increased $979.5 million at June 30, 2021 compared to December 31, 2020.

Purchases of securities during this period totaled $2.8 billion, offset by maturities and pay downs of $1.7 billion.

The largest increases in outstanding balances occurred in asset-backed securities and non-agency mortgage back securities, which increased $1.0 billion and $467.1 million, respectively.

These increases were partially offset by a decrease in agency mortgage-backed securities of $561.1 million at June 30, 2021 compared to December 31, 2020.

At June 30, 2021, the duration of the investment portfolio was 3.4 years, and maturities and pay downs of approximately $2.6 billion are expected to occur during the next 12 months.

Total deposits at June 30, 2021 amounted to $27.5 billion, an increase of $539.5 million compared to December 31, 2020.

The increase in deposits largely resulted from increases in demand deposits, mainly in business demand deposits (increase of $396.7 million) and personal demand deposits (increase of $164.5 million).

Additionally, savings deposits increased $214.5 million.

These increases were partially offset by decreases of $209.3 million in interest checking deposits and $98.4 million in certificates of deposit balances at June 30, 2021 compared to balances at December 31, 2020.

The Company's borrowings totaled $2.3 billion at June 30, 2021, an increase of $221.2 million from balances at December 31, 2020, mainly due to an increase in customer repurchase agreements.

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.

Liquidity and Capital Resources

2 unchanged sentences

(In thousands)

June 30, 2021 March 31, 2021 December 31, 2020

September 30, 2021 June 30, 2021 December 31, 2020

Liquid assets:

1 unchanged sentence

Federal funds sold — 5,945 —

Long-term securities purchased under agreements to resell 1,300,000 850,000 850,000

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

Federal funds sold, which are funds lent to the Company's correspondent bank customers with overnight maturities, totaled $5.9 million as of June 30, 2021.

Long-term resale agreements, maturing through 2023, totaled $1.3 billion at June 30, 2021.

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 $1.4 billion in fair value at June 30, 2021.

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $2.2 billion at June 30, 2021.

The fair value of the available for sale debt portfolio was $13.3 billion at June 30, 2021 and included an unrealized net gain of $214.5 million.

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.

4 unchanged sentences

(In thousands)

June 30, 2021 March 31, 2021 December 31, 2020

September 30, 2021 June 30, 2021 December 31, 2020

Investment securities pledged for the purpose of securing:

9 unchanged sentences

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 June 30, 2021, such deposits totaled $25.7 billion and represented 93.6% of total deposits.

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 $1.3 billion at June 30, 2021.

These accounts are normally considered more volatile and higher costing and comprised 4.6% of total deposits at June 30, 2021.

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)

June 30, 2021 March 31, 2021 December 31, 2020

September 30, 2021 June 30, 2021 December 31, 2020

Core deposit base:

6 unchanged sentences

(In thousands)

June 30, 2021 March 31, 2021 December 31, 2020

September 30, 2021 June 30, 2021 December 31, 2020

Federal funds purchased $ 11,345 $ 12,335 $ 42,270

6 unchanged sentences

The advances are generally short-term, fixed interest rate borrowings.

There were no advances outstanding from the FHLB at June 30, 2021.

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.

2 unchanged sentences

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 June 30, 2021.

June 30, 2021

September 30, 2021

(In thousands)

18 unchanged sentences

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 $338.0 million during the first six months of 2021, as reported in the consolidated statements of cash flows in this report.

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 $696.2 million.

Activity in the investment securities portfolio used cash of $907.6 million from purchases (net of sales, maturities and pay downs), while growth in the loan portfolio provided cash of $678.6 million.

Financing activities provided cash of $706.9 million, largely resulting from an increase in deposits of $587.1 million paired with an increase of $219.8 million in federal funds purchased and securities sold under agreements to repurchase, partially offset by dividend payments of $61.6 million on common stock and treasury stock purchases of $39.9 million.

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

$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 June 30, 2021 and December 31, 2020, as shown in the following table.

(Dollars in thousands) June 30, 2021 December 31, 2020 Minimum Ratios under Capital Adequacy Guidelines

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

14 unchanged sentences

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 has elected to utilize this option.

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.

1 unchanged sentence

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 six months ended June 30, 2021, the Company purchased 535,433 shares at an average price of $74.50 in open market purchases and through stock-based compensation transactions.

At June 30, 2021, 3,009,146 shares remained available for purchase under the Board authorization.

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 second quarter of 2021, which was a 2.1% increase compared to its 2020 quarterly dividend.

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).

1 unchanged sentence

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 June 30, 2021 totaled $13.2 billion (including $4.9 billion in unused, approved credit card lines).

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 $412.7 million and $9.5 million, respectively, at June 30, 2021.

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 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 $2.9 million at June 30, 2021.

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 June 30, 2021, the liability for unfunded commitments totaled $24.2 million.

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.

1 unchanged sentence

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 June 30, 2021, the Company has made payments totaling $33.0 million.

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.

1 unchanged sentence

These credits are either resold to third parties at a profit or retained for use by the Company.

During the first six months of 2021, purchases and sales of tax credits amounted to $62.5 million and $58.9 million, respectively.

Fees from sales of tax credits were $2.6 million for the six months ended June 30, 2021, compared to $2.1 million in the same period last year.

At June 30, 2021, the Company expected to fund outstanding purchase commitments of $125.0 million during the remainder of 2021.

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 six months of 2021 and 2020.

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

(Dollars in thousands)

1 unchanged sentence

Consolidated Totals

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Net interest income $ 239,159 $ 340,345 $ 53,186 $ 632,690 $ (4,923) $ 627,767

4 unchanged sentences

Income before income taxes $ 110,672 $ 253,778 $ 110,550 $ 475,000 $ 62,179 $ 537,179

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Net interest income $ 241,195 $ 300,301 $ 41,686 $ 583,182 $ 36,902 $ 620,084

7 unchanged sentences

Percent 11.8 % 24.6 % 24.9 % 21.5 % 154.0 % 94.7 %

For the six months ended June 30, 2021, income before income taxes for the Consumer segment increased $12.2 million, or 19.8%, compared to the first six months of 2020.

This increase in income before income taxes was mainly due to growth in non-interest income of $4.8 million, or 6.8%, lower non-interest expense of $8.3 million, or 5.4%, and a decrease in the provision for credit losses of $666 thousand.

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 $13.3 million decline in loan interest income, partly offset by a $4.2 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios, and a $7.6 million decrease in deposit interest expense.

Non-interest income increased mainly due to growth in mortgage banking revenue and increases in net credit and debit card fees, partly offset by a decrease in deposit account fees (mainly overdraft and return item fees and deposit account service charge fees).

Non-interest expense decreased from the same period in the previous year due to lower salaries expense, lower allocated service costs for mortgage operations, and a reduction in impairment expense on mortgage servicing rights.

These decreases were partly offset by growth in marketing expense.

The provision for credit losses totaled $15.6 million, a $666 thousand decrease from the first six months of 2020, mainly due to lower personal and overdraft loan net charge-offs, partly offset by higher credit card loan net charge-offs.

For the six months ended June 30, 2021, income before income taxes for the Commercial segment increased $48.2 million, or 39.3%, 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 loan losses, partly offset by higher non-interest expense.

Net interest income increased $36.0 million, or 19.1%, due to a $40.3 million increase in net allocated funding credits and a decrease in

deposit and borrowings interest expense of $11.6 million.

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

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.

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 $7.2 million, or 7.5%, over the previous year mainly due to growth in net bank card fees (mainly corporate card and merchant fees), interest rate swap fees and deposit account fees (mainly corporate cash management fees).

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 $2.8 million, or 1.8%, mainly due to higher salaries and benefits expense (mainly incentive compensation) and lower deferred origination costs, partly offset by lower travel and entertainment expense and allocated service costs (mainly teller and bank card servicing).

The provision for credit losses decreased $7.8 million from the same period last year, mainly due to net recoveries recorded on business loans and lower net charge-offs on commercial card loans, partly offset by recoveries recorded on lease loans in the prior year.

Wealth segment pre-tax profitability for the six months ended June 30, 2021 increased $15.1 million, or 26.8%, over the same period in the previous year.

Net interest income increased $8.7 million, or 33.1%, mainly due to an $8.1 million increase in net allocated funding credits and lower deposit interest expense of $2.6 million, partly offset by a $2.0 million decrease in loan interest income.

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 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 $5.1 million, or 8.2%, mainly due to a higher salaries expense (mainly incentive compensation) and allocated support costs (mainly information technology and online banking).

The provision for credit losses decreased slightly from the same period last year.

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.

2 unchanged sentences

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 $26.7 million in the first six months of 2021 compared to losses of $17.4 million in 2020.

Also, the unallocated provision for credit losses decreased $181.9 million, as the provision was $48.4 million less than net charge-offs in the first six months of 2021, while the provision was $101.1 million in excess of net charge-offs during the first six months of 2020.

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 $14.1 million for the six months ended June 30, 2021.

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

9 unchanged sentences

Reference Rate Reform The FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting", in March 2020, and has been followed by additional clarifying guidance related to derivatives that are modified as a result of reference rate reform.

The new guidance provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if they reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The new guidance provides optional expedients and

exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if they reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

Further, the guidance applies to derivative instruments that are affected by the discounting transition.

2 unchanged sentences

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Three Months Ended June 30, 2021 and 2020

Second Quarter 2021

Second Quarter 2020

Three Months Ended September 30, 2021 and 2020

Third Quarter 2021

Third Quarter 2020

(Dollars in thousands)

29 unchanged sentences

Total investment securities 13,794,821 65,730 1.89 11,087,429 62,531 2.24

Federal funds sold and short-term securities

purchased under agreements to resell 1,338 2 .60 92 — —

Long-term securities purchased

under agreements to resell 937,372 10,416 4.46 850,000 10,736 5.08

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

26 unchanged sentences

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Six Months Ended June 30, 2021 and 2020

Six Months 2021

Six Months 2020

Nine Months Ended September 30, 2021 and 2020

Nine Months 2021

Nine Months 2020

(Dollars in thousands)

29 unchanged sentences

Total investment securities 13,089,018 176,381 1.80 9,687,072 170,311 2.35

Federal funds sold and short-term securities

purchased under agreements to resell 676 2 .60 209 2 1.92

Long-term securities purchased

under agreements to resell 893,927 21,544 4.86 850,000 18,198 4.31

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

26 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis