What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-05 · 288 added, 430 removed, 453 unchanged (61% 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 2021 Annual Report on Form 10-K.

Results of operations for the three and nine month periods ended September 30, 2021 are not necessarily indicative of results to be attained for any other period.

Results of operations for the three month periods ended March 31, 2022 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 2021 Annual Report on Form 10-K and in Part II Item 1A of this Quarterly Report on Form 10-Q.

Except as set forth in Part II, Item 1A, during the quarter ended September 30, 2021, there were no material changes to the Risk Factors disclosed in the Company's 2020 Annual Report on Form 10-K.

Critical Accounting Policies

During the quarter ended March 31, 2022, there were no material changes to the Risk Factors disclosed in the Company's 2021 Annual Report on Form 10-K.

Critical Accounting Estimates and Related Policies

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

These policies relate to the allowance for credit losses and the valuation of certain investment securities.

A discussion of these policies can be found in the sections captioned "Critical Accounting Policies" and "Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 2020 Annual Report on Form 10-K.

These estimates and related policies are the Company's allowance for credit losses and fair value measurement policies.

A discussion of these estimates and related policies can be found in the sections captioned "Critical Accounting Policies" and "Allowance for Credit Losses on Loans and Liability for Unfunded Lending Commitments" in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 2021 Annual Report on Form 10-K.

There have been no changes in the Company's application of critical accounting policies since December 31, 2021.

Selected Financial Data

Three Months Ended September 30 Nine Months Ended September 30

2021 2020 2021 2020

Three Months Ended March 31

Per Share Data

10 unchanged sentences

Equity to loans (1)

23.17 20.54 21.68 20.96

Equity to deposits 11.33 12.78

4 unchanged sentences

Non-interest income to revenue (2)

39.11 37.50 39.66 37.42

Efficiency ratio (3)

59.95 55.00 57.76 57.37

Tier I common risk-based capital ratio 13.92 13.76

23 unchanged sentences

Results of Operations

Three Months Ended September 30 Nine Months Ended September 30

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

Three Months Ended March 31 Increase (Decrease)

(Dollars in thousands) 2022 2021 Amount % change

Net interest income $ 208,786 $ 205,748 $ 3,038 1.5 %

1 unchanged sentence

Non-interest income 131,769 136,045 (4,276) (3.1)

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

Investment securities gains, net 7,163 9,853 (2,690) (27.3)

Non-interest expense (205,648) (192,573) 13,075 6.8

Income taxes (31,902) (32,076) (174) (.5)

Non-controlling interest income (expense) (3,193) (907) N.M.

(9,373) 2,479 N.M.

Non-controlling interest expense (1,872) (2,257) (385) (17.1)

Net income attributable to Commerce Bancshares, Inc.

$ 118,154 $ 130,972 (12,818) (9.8) %

Preferred stock dividends — (7,466) (100.0) — (11,966) (100.0)

Net income available to common shareholders $ 122,561 $ 124,982 (1.9 %) $ 415,859 $ 212,202 96.0 %

- Not meaningful

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

(net income) amounted to $122.6 million, a decrease of $9.9 million, or 7.5%, compared to the third quarter of the previous year.

For the quarter ended March 31, 2022, net income attributable to Commerce Bancshares, Inc.

(net income) amounted to $118.2 million, a decrease of $12.8 million, or 9.8%, compared to the first quarter of the previous year.

For the current quarter, the annualized return on average assets was 1.33%, the annualized return on average equity was 14.41%, and the efficiency ratio was 60.29%.

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.

Diluted earnings per common share was $.97, a decrease of 8.5% compared to $1.06 per share in the first quarter of 2021, and increased 3.2% compared to $.94 per share in the previous quarter.

Compared to the first quarter of last year, net interest income increased $3.0 million, or 1.5%, mainly due to an increase of $21.5 million in interest income on investment securities, partly offset by decreases in loan interest and interest on securities purchased under agreements to resell of $14.4 million and $5.8 million, respectively.

The provision for credit losses declined $3.6 million due to a decrease in the estimate of the allowance for credit losses on loans and unfunded commitments and lower net loan charge-offs.

Non-interest income increased $7.9 million, or 6.1%, compared to the third quarter of 2020, mainly due to growth in trust fees, net bank card fees and deposit account fees, partly offset by lower loan fees and sales.

Investment securities net gains totaled $13.1 million in the current quarter compared to net gains of $16.2 million in the same quarter last year.

Net securities gains in the current quarter primarily resulted from unrealized fair value gains of $13.0 million in the Company's private equity portfolio.

Non-interest expense increased $20.8 million, or 10.9%, over the third quarter of 2020 mainly due to non-recurring litigation settlement expense, higher salaries and benefits expense and data processing and software expense.

Net income for the first nine months of 2021 was $415.9 million, an increase of $191.7 million, or 85.5%, over the same period last year.

Diluted earnings per common shares was $3.54, an increase of 96.7% compared to $1.80 per share in the same period last year.

For the first nine months of 2021, the annualized return on average assets was 1.65%, the annualized return on average equity was 16.14%, and the efficiency ratio was 57.76%.

Net interest income increased $7.7 million, or 1.2%, over the same period last year.

This growth was due to a decrease of $27.8 million in deposits and borrowings interest expense and growth of $6.2 million in interest income on investment securities, partly offset by a $27.5 million decrease in interest income on loans.

The provision for credit losses was a benefit of $59.3 million for the first nine months of 2021, compared to provision expense of $141.6 million in the same period last year, resulting in a decrease of $200.9 million.

Non-interest income increased $41.9 million, or 11.3%, over the first nine months of last year mainly due to higher trust fees, net bank card fees and loan fees and sales.

Non-interest expense increased $30.3 million, or 5.3%, over the first nine months of last year due to increases in salaries and benefits and data processing and software expense, as well as lower deferred loan origination costs.

Non-interest income decreased $4.3 million, or 3.1%, compared to the first quarter of 2021, mainly due to lower loan fees and sales and income from branch sales, partly offset by growth in net bank card and trust fees.

Net gains on investment securities totaled $7.2 million in the current quarter compared to net gains of $9.9 million in the same quarter last year.

Net securities gains in the current quarter primarily resulted from unrealized fair value gains of $7.5 million in the Company's private equity investment portfolio.

Non-interest expense increased $13.1 million, or 6.8%, over the first quarter of 2021 mainly due to higher salaries and employee benefits, data processing and software, marketing, and travel and entertainment expense.

Net Interest Income

2 unchanged sentences

Analysis of Changes in Net Interest Income

Three Months Ended September 30, 2021 vs.

2020 Nine Months Ended September 30, 2021 vs.

Change due to Change due to

Three Months Ended March 31, 2022 vs.

Change due to

(In thousands) Average

Volume Average

Total Average

Volume Average

Interest income, fully taxable equivalent basis:

27 unchanged sentences

Total interest on deposits 345 (1,657) (1,312)

Federal funds purchased and securities sold under

agreements to repurchase 117 (43) 74 486 (5,135) (4,649)

Federal funds purchased (2) 4 2

Securities sold under agreements to repurchase 86 289 375

Other borrowings — (1) (1)

1 unchanged sentence

Net interest income, tax equivalent basis $ 13,749 $ (11,130) $ 2,619

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.

Net interest income in the first quarter of 2022 was $208.8 million, an increase of $3.0 million over the first quarter of 2021.

On a tax equivalent (T/E) basis, net interest income totaled $211.4 million in the first quarter of 2022, up $2.6 million over the same period last year and up $969 thousand over the previous quarter.

The increase in net interest income compared to the first

quarter of 2021 was mainly due to higher interest income earned on on investment securities (T/E) of $21.3 million, partly offset by lower interest earned on loans (T/E) of $14.4 million and securities purchased under agreements to resell of $5.8 million.

The increase in interest earned on investment securities (T/E) was mainly due to higher average balances and rates earned.

The decrease in total interest earned on loans (T/E) was the result of declines in average balances and rates earned, while the decrease in securities purchased under agreements to resell declined due to lower average rates, partly offset by higher average balances.

The Company's net yield on earning assets (T/E) was 2.45% in the current quarter compared to 2.71% in the first quarter of 2021.

Total interest income (T/E) increased $1.7 million over the first quarter of 2021.

Interest income on loans (T/E) was $133.0 million during the first quarter of 2022, a decrease of $14.4 million, or 9.8%, 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, coupled with a decrease of 12 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.

Business loan interest income decreased $11.3 million due to a decline of $1.2 billion in average balances and a decrease of 16 basis points in the average rate earned.

The decline in business loan average balances was mainly due to a decrease of $1.3 billion in Paycheck Protection Program (PPP) loans, while interest earned on PPP loans declined $10.0 million from the same quarter last year.

Consumer credit card loan interest decreased $1.3 million mainly due to a decline of $67.9 million in average balances, partly offset by a 38 basis point increase in the average rate earned.

Consumer loan interest declined $1.2 million due to a decrease of 43 basis points in the average rate earned, partly offset by a $92.9 million, or 4.8%, increase in average balances.

Personal real estate loan interest income fell $1.5 million due to a 29 basis point decrease in the average rate earned, partly offset by higher average balances of $53.3 million, or 2.0%.

These decreases to interest income (T/E) were partly offset by an increase of $1.2 million in interest earned on construction and land loans, mostly due to growth of $194.2 million, or 19.9%, in average loan balances, partly offset by a decline of 23 basis points in the average rate earned.

Interest income on investment securities (T/E) was $65.7 million during the third quarter of 2021, which was an increase of $3.2 million over the same quarter last year.

The increase in interest income occurred mainly in interest earned on U.S.

government and federal agency obligations, which grew $3.3 million mainly due to an increase in inflation income on the Company's U.S.

Personal real estate loan interest income fell $1.0 million due to a 12 basis point decrease in the average rate earned and lower average balances of $17.1 million.

These decreases to interest income (T/E) were partly offset by an increase of $984 thousand in interest earned on construction and land loans, due to an increase of 22 basis points in the average rate earned and growth of $42.9 million, or 3.9%, in average loan balances.

Interest income on investment securities (T/E) was $74.8 million during the first quarter of 2022, which was an increase of $21.3 million over the same quarter last year.

The increase in interest income occurred mainly in interest earned on mortgage-backed securities, which increased $11.8 million, partly due to a $7.5 million increase in premium amortization, reflecting slower forward prepayment speed estimates in the current quarter, compared to a premium amortization adjustment increase of $4.1 million in the prior year.

In addition, the average rate earned increased 59 basis points and the average balance increased $318.1 million, or 4.5%.

Interest on U.S.

government and federal agency obligations grew $4.8 million mainly due to an increase in inflation income on the Company's U.S.

Treasury inflation-protected securities (TIPS).

Interest income related to TIPS, which is tied to the Consumer Price Index, increased $4.4 million over the same quarter last year.

Interest earned on other securities grew $1.5 million mainly due to distributions from investments in the Company's private equity portfolio.

Interest on asset-backed securities rose $955 thousand as a result of a $1.5 billion increase in the average balance, partly offset by an 82 basis point decline in the average rate earned.

In addition, interest earned on state and municipal obligations grew $822 thousand as a result of growth in the average balance of $272.4 million, or 15.4%, partly offset by an 18 basis point decline in the average rate earned.

These increases to interest income on investment securities (T/E) were partly offset by a decline in interest earned on mortgage-backed securities, which fell $3.1 million due to a 42 basis point decline in the average rate earned, partly offset by an increase of $855.5 million, or 13.7%, in the average balance.

At September 30, 2021, the Company recorded a $5.0 million adjustment to premium amortization, which increased interest income this quarter to reflect moderately slower prepayment speed estimates on mortgage-backed securities.

The average balance of the total investment portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $13.8 billion in the third quarter of 2021, compared to $11.1 billion in the third quarter of 2020.

The average balance of U.S.

government and federal agency obligations also increased $378.4 million, or 52.2%.

Interest on asset-backed securities rose $3.9 million due to higher average balances of $1.8 billion, partly offset by a decrease of 26 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 $15.4 billion in the first quarter of 2022, compared to $12.6 billion in the first quarter of 2021.

Interest income on securities purchased under agreements to resell decreased $5.8 million from the same quarter last year, due to a decrease of 407 basis points in the average rate earned, partly offset by growth of $883.9 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.

government and federal agency obligations grew $12.7 million, mainly due to higher TIPS interest income.

Interest earned on state and municipal obligations increased $5.6 million due to higher average balances, partly offset by lower average rates earned.

Interest earned on other securities increased partly due to the receipt of distributions from investments in the Company's private equity portfolio.

Interest earned on asset-backed securities also increased over the prior year as a result of higher average balances, partly offset by lower rates earned.

Partly offsetting these increases was a decrease in interest earned on mortgage-backed securities, which declined $17.1 million as a result of lower average rates earned, partly offset by higher average balances.

Interest earned on government sponsored enterprise obligations also decreased due to declines in both the average balance and the average rate earned.

Interest income on securities purchased under agreements to resell increased $1.1 million due to higher average balances, partly offset by lower average rates.

Interest earned on balances at the Federal Reserve increased slightly due to a $1.1 billion increase in the average balance invested, partly offset by a 12 basis point decline in the average rate earned.

Total interest expense for the first nine months of 2021 decreased $27.8 million compared to the same period last year.

Interest expense on interest bearing deposits decreased $22.1 million, mainly due to a 22 basis point decrease in the overall rate paid.

Interest expense on interest checking and money market account balances decreased $9.8 million mainly due to a 12 basis point decrease in rates paid, partly offset by higher average balances.

Interest expense on CD's declined $12.4 million due to an 81 basis point decline in rates paid, coupled with lower average balances.

Interest expense on borrowings decreased $5.7 million, mainly due to lower rates paid on customer repurchase agreements.

The overall cost of total interest bearing liabilities decreased to .07% compared to .31% in the same period last year.

Interest income on balances at the Federal Reserve grew $781 thousand due to an increase of $1.1 billion in the average balance invested and an increase of eight basis points in the average rate earned.

The average tax equivalent yield on total interest earning assets was 2.49% in the first quarter of 2022, down from 2.76% in the first quarter of 2021.

Total interest expense decreased $936 thousand compared to the first quarter of 2021 due to a $1.3 million decrease in interest expense on interest bearing deposits, partly offset by a $376 thousand increase in interest expense on borrowings.

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

Interest expense on certificates of deposit (CD's) declined $969 thousand due to an 18 basis point decrease in the average rate paid, coupled with a decrease of $454.7 million in the average balance.

Interest expense on interest checking and money market accounts declined $244 thousand, due to a two basis point decrease in the average rate paid, partly offset by higher average balances of $2.0 billion.

Interest expense on borrowings was higher due to an increase of four basis points in the average rate paid on customer repurchase agreements.

The overall average rate incurred on all interest bearing liabilities was .06% and .09% in the first quarters of 2022 and 2021, respectively.

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

Non-Interest Income

Three Months Ended September 30 Nine Months Ended September 30

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

Three Months Ended March 31 Increase (Decrease)

(Dollars in thousands) 2022 2021 Amount % change

Bank card transaction fees $ 42,045 $ 37,695 $ 4,350 11.5 %

8 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 nine month periods ended September 30, 2021 and 2020.

Three Months Ended September 30 Nine Months Ended September 30

The table below is a summary of net bank card transaction fees for the three month periods ended March 31, 2022 and 2021.

Three Months Ended March 31

(Dollars in thousands) 2022 2021 $ change % change

4 unchanged sentences

Total bank card transaction fees $ 42,045 $ 37,695 $ 4,350 11.5 %

For the third quarter of 2021, total non-interest income amounted to $137.5 million compared to $129.6 million in the same quarter last year, which was an increase of $7.9 million, or 6.1%.

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

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

Bank card transaction fees for the current quarter grew $4.9 million, or 13.0%, over the same period last year, due to growth of $3.1 million in net corporate card fees, $681 thousand in net debit card fees, $651 thousand in net merchant fees, and $504 thousand in net credit card fees.

The growth in net corporate card fees and net credit card fees was mainly due to higher interchange income, partly offset by higher rewards expense.

The growth in net debit card fees was mainly due to higher interchange income, while the growth in net merchant fees was mostly due to higher merchant fees, partly offset by higher network expense.

Trust fees for the quarter increased $8.2 million, or 20.1%, over the same quarter last year, resulting from higher private client and institutional trust fees, which were up 22.9% and 11.2%, respectively.

Compared to the same period last year, deposit account fees increased $2.1 million, or 8.9%, mainly due to higher overdraft and return item fees and corporate cash management fees.

Capital market fees increased $600 thousand, or 18.8%, while consumer brokerage service fees increased $889 thousand, or 22.2%, due to growth in annuity and advisory fees.

For the first quarter of 2022, total non-interest income amounted to $131.8 million compared to $136.0 million in the same quarter last year, which was a decrease of $4.3 million, or 3.1%.

The decrease was mainly due to lower loan fees and sales and a decline in other non-interest income, partly offset by higher net bank card fees and trust fees.

Bank card transaction fees for the current quarter grew $4.4 million, or 11.5%, over the same period last year, due to growth of $3.5 million in net corporate card fees, $366 thousand in net merchant card fees, $301 thousand in net credit card fees, and $185 thousand in net debit card fees.

The growth in net corporate, credit and debit card fees was mainly due to higher interchange income, partly offset by higher rewards expense.

The growth in net merchant fees was mostly due to higher merchant fees, partly offset by higher network expense.

Trust fees for the quarter increased $3.7 million, or 8.3%, over the same quarter last year, resulting from higher private client fees, which were up 10.1%.

Compared to the same period last year, deposit account fees decreased $268 thousand, or 1.2%, mainly due to lower personal deposit account fees, partly offset by higher corporate cash management fees.

Capital market fees decreased $856 thousand, or 17.2%, while consumer brokerage service fees increased $365 thousand, or 8.9%, due to growth in advisory fees.

Loan fees and sales decreased $5.9 million, or 58.4%, compared to the same quarter last year, mainly due to a decline in mortgage banking revenue.

Other non-interest income decreased $5.8 million, or 53.5%, mainly due to lower cash sweep commissions and tax credit sales fees of $1.6 million and $1.1 million, respectively.

Additionally a $2.0 million loss on an equity method investment was recorded this quarter.

Non-interest income for the first nine months of 2021 was $412.7 million compared to $370.8 million in 2020, resulting in an increase of $41.9 million, or 11.3%.

Bank card fees increased $11.3 million, or 10.1%, due to growth of $5.7 million in net corporate card fees, $2.4 million in net debit card fees, $1.6 million in net credit card fees, and $1.5 million in net merchant fees.

Trust fee income increased $20.7 million, or 17.4%, as a result of growth in private client and institutional trust fee income.

Deposit account fees increased $2.7 million due to higher corporate cash management fees and overdraft and return item fees, partly offset by lower personal account deposit fees.

For the nine months ended September 30, 2021, corporate cash management fees comprised 51.9% of total deposit fees, while overdraft fees comprised 23.9% of total deposit fees.

Capital market fees increased $1.3 million, while consumer brokerage service fees grew $2.4 million, or 21.5%, as a result of higher annuity and advisory fees.

Loan fees and sales increased $6.8 million, or 38.6%, mainly due to growth in mortgage banking revenue.

Other income decreased $3.2 million, mainly due to lower cash sweep commissions, tax credit sales fees and a $2.6 million loss on an equity method investment.

These decreases were partly offset by gains recorded on branch sales and higher interest rate swap fees, check sales and wire fees and international fees.

Other non-interest income decreased $5.6 million, or 45.2%, mainly due to a gain of $2.4 million on the sale of a branch location recorded last year coupled with a write-down of $965 thousand on a branch location recorded in the current quarter.

In addition, swap fees, cash sweep commissions and tax credit sales fees declined $637 thousand, $403 thousand and $394 thousand, respectively.

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, decreased $1.9 million from the same quarter last year, affecting both other income and other expense.

Investment Securities Gains (Losses), Net

Three Months Ended September 30 Nine Months Ended September 30

Three Months Ended March 31

(In thousands) 2022 2021

Net gains on sales of available for sale debt securities $ — $ 13,674 $ — $ 16,965

Net gains on sales of equity securities — — — 2

Net gains (losses) on sales and fair value adjustments of private equity investments $ 7,450 $ 9,888

Fair value adjustments on equity securities, net (287) (35)

Total investment securities gains (losses), net $ 13,108 $ 16,155 $ 39,765 $ (1,275)

Net gains and losses on investment securities, which were recognized in earnings during the three months ended September 30, 2021 and 2020, are shown in the table above.

Net securities gains of $13.1 million were reported in the third quarter of 2021, compared to net gains of $16.2 million in the same period last year.

The net gains in the third quarter of 2021 were primarily comprised of $13.0 million of net gains in fair value on the Company’s private equity investments.

The net gains on investment securities for the same quarter last year were mainly comprised of net gains of $13.7 million realized on sales of available for sale debt securities and $2.4 million of net gains in fair value on the Company’s private equity investments.

Net gains on investment securities of $39.8 million were recognized in earnings for the nine months ended September 30, 2021, compared to net losses of $1.3 million for the same period in 2020.

Net gains in the first nine months of 2021 were mainly comprised of a gain of $1.6 million realized on the sale of a private equity investment and $38.0 million of net gains in fair value on private equity investments.

Net losses in the first nine months of 2020 were mainly comprised of fair value adjustments on private equity investments, which were largely offset by net gains realized on sales of available for sale debt securities.

The portion of private equity activity attributable to minority interests is reported as non-controlling interest in the consolidated statements of income and resulted in expense of $7.7 million during the first nine months of 2021 and income of $3.2 million during the first nine months of 2020.

Total investment securities gains, net $ 7,163 $ 9,853

Net gains on investment securities, which were recognized in earnings during the three months ended March 31, 2022 and 2021, are shown in the table above.

Net securities gains of $7.2 million were reported in the first quarter of 2022, compared to net gains of $9.9 million in the same period last year.

The net gains in the first quarter of 2022 were primarily comprised of $7.5 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 a net gain of $1.5 million realized on the sale of a private equity investment and $8.4 million of net gains in fair value on the Company’s private equity investments.

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 $1.5 million during the first three months of 2022 and expense of $2.0 million during the first three months of 2021.

Non-Interest Expense

Three Months Ended September 30 Nine Months Ended September 30

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

Three Months Ended March 31 Increase (Decrease)

(Dollars in thousands) 2022 2021 Amount % change

Salaries and employee benefits $ 135,953 $ 129,033 $ 6,920 5.4 %

6 unchanged sentences

Total non-interest expense $ 205,648 $ 192,573 $ 13,075 6.8 %

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 $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.

Non-interest expense for the first quarter of 2022 amounted to $205.6 million, an increase of $13.1 million, or 6.8%, compared to expense of $192.6 million in the first quarter of last year.

The increase in expense was mainly due to higher salaries and benefits expense, data processing and software expense, marketing expense and other non-interest expense.

Salaries expense increased $4.4 million, or 4.1%, driven by growth in full-time salary costs and incentive compensation.

Employee benefits expense totaled $24.2 million, reflecting growth of $2.5 million, or 11.5%, mainly as a result of higher healthcare expense, payroll taxes and retirement expense.

Full-time equivalent employees totaled 4,563 at March 31, 2022, compared to 4,619 at March 31, 2021.

Supplies and communication expense increased $588 thousand, or 14.3%, mainly due to higher postage and courier expense, while marketing expense increased $1.2 million, or 23.0%, due to an expansion of marketing efforts in the first quarter of 2022.

Data processing and software expense increased $1.6 million, or 6.1%, due to higher software amortization, including expense related to the completed implementation of the Company's new core customer and deposit system placed into service in January 2022, as well as increased costs for service providers and bank card processing fees.

Other non-interest expense increased $2.3 million, mainly due to higher travel and entertainment expense of $1.1 million, lower deferred origination costs of $1.1 million, partly offset by a $1.9 million decline in the Company's deferred compensation liability, as previously mentioned.

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

Three Months Ended Nine Months Ended September 30

30, 2021 June 30, 2021 Sept.

30, 2020 2021 2020

Three Months Ended

31, 2022 Dec.

31, 2021 Mar.

ALLOWANCE FOR CREDIT LOSSES ON LOANS

Balance at end of prior period $ 172,395 $ 200,527 $ 240,744 $ 220,834 $ 160,682

Adoption of ASU 2016-13 — — — — (21,039)

Balance at beginning of period $ 150,044 $ 162,775 $ 220,834

11 unchanged sentences

Overdrafts 358 375 153

Personal banking net loan charge-offs 3,599 5,693 7,390 19,227 23,799

Personal banking net loan charge-offs (recoveries) 4,578 4,161 9,935

Total net loan charge-offs 4,648 4,257 9,952

1 unchanged sentence

LIABILITY FOR UNFUNDED LENDING COMMITMENTS

Balance at end of prior period $ 24,208 $ 42,430 $ 35,299 $ 38,307 $ 1,075

Adoption of ASU 2016-13 — — — — 16,090

Balance at beginning of period 24,204 22,784 38,307

2 unchanged sentences

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 159,742 $ 174,248 $ 242,957

Three Months Ended Nine Months Ended September 30

30, 2021 June 30, 2021 Sept.

30, 2020 2021 2020

Three Months Ended

31, 2022 Dec.

31, 2021 Mar.

Annualized net loan charge-offs (recoveries)*:

2 unchanged sentences

Real estate-business — — —

Commercial net loan charge-offs (recoveries) — (.19) .01 (.06) .04

Commercial net loan charge-offs — — —

Personal Banking:

4 unchanged sentences

Overdrafts 28.04 30.20 17.50

Personal banking net loan charge-offs .25 .40 .52 .45 .57

Personal banking net loan charge-offs (recoveries) .33 .29 .71

Total annualized net loan charge-offs .12 % .11 % .25 %

2 unchanged sentences

This process provides an allowance based on estimates of allowances for pools of loans and unfunded lending commitments, as well as a second, smaller component based on certain individually evaluated loans and unfunded lending commitments.

The Company's policies and processes for determining the allowance for credit losses on loans and the liability for unfunded lending commitments are discussed in Note 1 to the consolidated financial statements and in the " Allowance for Credit Losses" discussion within Critical Accounting Policies in Item 7 of the 2020 Annual Report on Form 10-K.

Net loan charge-offs in the third quarter of 2021 amounted to $3.7 million, compared to $699 thousand in the prior quarter and $7.6 million in the third quarter of last year.

During the third quarter of 2021, the Company recorded net charge-offs on commercial loans of $60 thousand, compared to net recoveries of $5.0 million in the prior quarter.

Commercial loan net recoveries in the prior quarter resulted from recoveries on two business loans.

Consumer credit card loan net charge-offs decreased $2.2 million in the third quarter of 2021, compared to the prior 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.

The Company's policies and

processes for determining the allowance for credit losses on loans and the liability for unfunded lending commitments are discussed in Note 1 to the consolidated financial statements and in the " Allowance for Credit Losses" discussion within Critical Accounting Estimates and Related Policies in Item 7 of the 2021 Annual Report on Form 10-K.

Net loan charge-offs in the first quarter of 2022 amounted to $4.6 million, compared to $4.3 million in the prior quarter and $10.0 million in the first quarter of last year.

During the first quarter of 2022, the Company recorded net charge-offs on commercial loans of $70 thousand, compared to net charge-offs of $96 thousand in the prior quarter.

Consumer credit card loan net charge-offs increased $408 thousand in the first quarter of 2022, compared to the prior quarte r, but declined $5.6 million compared to the same quarter in the prior year.

Comp ared to the same period last year, net loan charge-offs in the first quarter of 2022 decreased $5.4 million, primarily driven by the decrease in net charge-offs on consumer credit card loans.

For the three months ended March 31, 2022, annualized net charge-offs on average consumer credit card loans totaled 2.53%, compared to 2.10% in the previous quarter and 5.98% in the same period last year.

Consumer loan annualized net charge-offs in the current quarter amounted to .16%, compared to .18% in the prior quarter and .16% in the same period last year.

In the third quarter of 2021, total annualized net loan charge-offs were .10%, compared to .02% in the previous quarter and .18% in the same period last year.

In the first quarter of 2022, total annualized net loan charge-offs were .12%, compared to .11% in the previous quarter and .25% in the same period last year.

The continued recovery of the provision for credit losses on loans is the result of an improved forecast coupled with lower than projected net charge-offs.

The allowance for credit losses significantly increased during the first half of 2020 due to the pandemic-induced recession.

The economic forecast utilized in the first half of 2020 captured extreme uncertainty with high unemployment rates, but through various governmental stimulus programs, improvements in the public health crisis due to the development and increasing availability of a COVID-19 vaccine, the projected net charge-offs were not realized and the economic forecast improved, thus allowing the release of the allowance for credit losses during 2021.

As a result, the provision for credit losses, which includes the provision for loans and unfunded lending commitments, was a benefit of $7.4 million for the third quarter of 2021, compared to a benefit of $45.7 million in the second quarter of 2021 and expense of $3.1 million in the third quarter of 2020.

In the current quarter, the provision for credit losses on loans was a benefit of $6.0 million, which was a $21.5 million decrease from the $27.4 million benefit recorded in the prior quarter.

The provision for credit losses on loans in the current quarter decreased $9.2 million compared to the provision expense in the third quarter of 2020 .

For the nine months ended September 30, 2021, net loan charge-offs totaled $14.3 million, compared to $26.8 million in the same period last year.

During the first nine months of 2021, the Company recorded net recoveries of $4.9 million on commercial loans, compared to net loan charge-offs of $3.0 million in the first nine months of 2020.

In addition, consumer

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.

For the quarter ended March 31, 2021, the allowance for credit losses on loans decreased $15.3 million, compared to the allowance for credit losses on loans as of December 31, 2021.

The decrease was primarily due to the improved economic forecast utilized in the Company's estimate of future credit losses at March 31, 2022, coupled with lower than projected net loan charge-offs during the first quarter of 2022.

The allowance for credit losses on commercial loans decreased slightly by $2.9 million, while the allowance for credit losses related to personal banking loans, including consumer credit card loans, decreased $12.4 million.

As a result, the provision for credit losses on loans was a recovery of $10.7 million in the current quarter, which was a $2.2 million increase from the $8.5 million benefit recorded in the prior quarter.

The recovery of the provision for credit losses on loans in the current quarter was $331 thousand more than the recovery recorded in the third quarter of 2020 .

While the forecast reflects a continued recovery from the COVID-19 pandemic, the allowance considered the uncertainty of disruptions caused by higher inflation, the geopolitical environment, and ongoing supply constraints on the economy and on the consumer and commercial loan portfolios.

At March 31, 2022, the allowance for credit losses on loans amounted to $134.7 million, compared to $150.0 million and $200.5 million at December 31, 2021 and March 31, 2021, respectively, and was .87%, .99% and 1.22% of total loans at March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

In the current quarter, the provision for credit losses on unfunded lending commitments was $828 thousand, reflecting a $592 thousand decrease over the provision in the prior quarter and a $3.3 million decrease compared to the first quarter of 2021.

At March 31, 2022, the liability for unfunded lending commitments was $25.0 million, compared to $24.2 million at December 31, 2021 and $42.4 million at March 31, 2021.

The Company's unfunded lending commitments primarily relate to construction loans, and the Company's estimate for credit losses in its unfunded lending commitments utilizes the same model and forecast as its estimate for credit losses on loans.

See Note 2 for further discussion of the model inputs utilized in the Company's estimate of credit losses.

For the quarter ended September 30, 2021, the allowance for credit losses on loans decreased $9.6 million, compared to the allowance for credit losses on loans as of June 30, 2021.

The decrease was primarily due to the improved economic forecast.

The allowance for credit losses on commercial loans increased slightly by $126 thousand, while the allowance for credit losses related to personal banking loans, including consumer credit card loans, decreased $9.7 million.

While the forecast continued to improve, the allowance considered the uncertainty of future potential COVID-19 disruptions on both the consumer and commercial portfolios.

At September 30, 2021, the allowance for credit losses on loans amounted to $162.8 million, compared to $172.4 million and $200.5 million at June 30, 2021 and March 31, 2021, respectively, and was 1.07%, 1.10% and 1.22% of total loans at September 30, 2021, June 30, 2021 and March 31, 2021, respectively.

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

The allowance for credit losses on loans and the liability for unfunded lending commitments are estimates that require significant judgment including projections of the macro-economic environment.

1 unchanged sentence

These changes in the forecast cause fluctuations in the allowance for credit losses on loans and the liability for unfunded lending commitments.

The Company used its best judgment to assess the macro-economic forecast and internal loss data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments.

The Company uses its best judgment to assess the macro-economic forecast and internal loss data in estimating the allowance for credit losses on loans and the liability for unfunded lending commitments.

These estimates are subject to periodic refinement based on changes in the underlying external and internal data.

4 unchanged sentences

Loans that are 90 days past due as to principal and/or interest payments are generally placed on non-accrual, unless they are both well-secured and in the process of collection, or they are personal banking loans that are exempt under regulatory rules from being classified as non-accrual.

During 2020, Section 4013 of the CARES Act was signed into law and provided financial institutions the option to suspend the requirement to categorize modifications related to the COVID-19 pandemic as troubled debt restructurings.

The 2021 Consolidated Appropriations Act signed on December 27, 2020 extends this temporary suspension through January 1, 2022.

The Company follows the guidance under the CARES Act when determining if a customer's modification is subject to troubled debt restructuring classification.

Refer to Note 2 for additional information.

(Dollars in thousands)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Non-accrual loans $ 8,335 $ 9,157

4 unchanged sentences

Total loans past due 90 days and still accruing interest $ 10,670 $ 11,726

Non-accrual loans totaled $10.4 million at September 30, 2021, a decrease of $16.1 million from the balance at December 31, 2020.

The decrease occurred mainly in business loans which decreased $14.2 million.

At September 30, 2021,

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.

Non-accrual loans totaled $8.3 million at March 31, 2022, a decrease of $822 thousand from the balance at December 31, 2021.

The decrease occurred mainly in business loans which decreased $556 thousand.

At March 31, 2022, non-accrual loans were comprised of business (81.1%), personal real estate (16.6%), and business real estate (2.3%) loans.

Foreclosed real estate totaled $296 thousand at March 31, 2022, an increase of $181 thousand when compared to December 31, 2021.

Total loans past due 90 days or more and still accruing interest were $10.7 million as of March 31, 2022, a decrease of $1.1 million from December 31, 2021.

Balances by class for non-accrual loans and loans past due 90 days and still accruing interest are shown in the "Delinquent and non-accrual loans" section 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 $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%.

Such loans totaled $306.6 million at March 31, 2022 compared with $278.7 million at December 31, 2021, resulting in an increase of $27.9 million, or 10.0%.

(In thousands)

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Potential problem loans:

4 unchanged sentences

Total potential problem loans $ 306,636 $ 278,694

At September 30, 2021, the Company had $129.9 million of loans whose terms have been modified or restructured under a troubled debt restructuring.

At March 31, 2022, the Company had $125.8 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 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,

The Company's portfolio of construction and land loans, as shown in the table below, amounted to 7.4% of total loans outstanding at March 31, 2022.

The largest component of construction and land loans was commercial construction, which increased $17.1 million during the three months ended March 31, 2022.

At March 31, 2022, multi-family residential construction loans totaled approximately $180.5 million, or 19.2%, of the commercial construction loan portfolio, compared to $155.9 million, or 16.9%, at December 31, 2021.

(Dollars in thousands) March 31,

December 31, 2021

5 unchanged sentences

Real Estate – Business Loans

Total business real estate loans were $2.9 billion at September 30, 2021 and comprised 19.4% of the Company's total loan portfolio.

Total business real estate loans were $3.1 billion at March 31, 2022 and comprised 20.1% of the Company's total loan portfolio.

These loans include properties such as manufacturing and warehouse buildings, small office and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties.

At September 30, 2021, 38.0% of business real estate loans were for owner-occupied real estate properties, which have historically resulted in lower net charge-off rates than non-owner-occupied commercial real estate loans.

(Dollars in thousands) September 30,

At March 31, 2022, 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) March 31,

December 31, 2021

1 unchanged sentence

Office 419,430 13.5 2.7 380,101 12.4 2.5

Retail 321,768 11.0 2.1 349,461 11.5 2.1

Multi-family 350,567 11.3 2.3 354,282 11.6 2.3

Retail 336,142 10.8 2.2 339,874 11.1 2.2

Hotels 232,470 7.5 1.5 234,673 7.7 1.5

Senior living 185,116 6.3 1.2 195,800 6.5 1.2

Farm 188,130 6.0 1.2 178,780 5.8 1.2

Senior living 177,534 5.7 1.1 174,871 5.7 1.2

Industrial 111,467 3.6 .7 99,800 3.3 .7

2 unchanged sentences

Revolving Home Equity Loans

The Company had $281.4 million in revolving home equity loans at September 30, 2021 that were generally collateralized by residential real estate.

The Company had $264.4 million in revolving home equity loans at March 31, 2022 that were generally collateralized by residential real estate.

Most of these loans (92.8%) 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 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.

As of March 31, 2022, the outstanding principal of loans with an original LTV higher than 80% was $30.7 million, or 11.6% of the portfolio, compared to $30.9 million as of December 31, 2021.

Total revolving home equity loan balances over 30 days past due were $1.6 million at March 31, 2022 and December 31, 2021, and there were no revolving home equity loans on non-accrual status at March 31, 2022 or December 31, 2021.

The weighted average FICO score for the total current portfolio balance is 790.

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 September 30, 2021, and outstanding balances for auto loans were $874.2 million and $879.9 million at September 30, 2021 and December 31, 2020, respectively.

The balances over 30 days past due amounted to $6.9 million at September 30, 2021 compared to $9.2 million at December 31, 2020, and comprised .8% and 1.0% of the outstanding balances of these loans at September 30, 2021 and December 31, 2020, respectively.

For the nine months ended September 30, 2021, $324.5 million of new auto loans were originated, compared to $321.1 million during the first nine months of 2020.

At September 30, 2021, the automobile loan portfolio had a weighted average FICO score of 758, and net charge-offs on auto loans were .1% of average auto loans at September 30, 2021.

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 11% of the consumer loan portfolio at September 30, 2021.

Losses on these loans have historically been low, and the Company saw a net charge-off of $24 thousand in 2021.

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

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

Auto loans comprised 40% of the consumer loan portfolio at March 31, 2022, and outstanding balances for auto loans were $830.7 million and $855.4 million at March 31, 2022 and December 31, 2021,

respectively.

The balances over 30 days past due amounted to $6.9 million at March 31, 2022 and $9.0 million at December 31, 2021, respectively and comprised .8% of the outstanding balances of these loans at March 31, 2022 and 1.1% at December 31, 2021, respectively.

For the three months ended March 31, 2022, $84.7 million of new auto loans were originated, compared to $106.2 million during the first three months of 2021.

At March 31, 2022, the automobile loan portfolio had a weighted average FICO score of 755, and net charge-offs on auto loans were .1% of average auto loans.

Losses on these loans have historically been low, and the Company saw net recoveries of $28 thousand for the first three months of 2022.

Private banking loans comprised 31% of the consumer loan portfolio at March 31, 2022.

The Company's private banking loans are generally well-collateralized, and at March 31, 2022 were secured primarily by assets held by the Company's trust department.

The remaining portion of the Company's consumer loan portfolio is comprised of health services financing, motorcycles, marine and RV loans.

Net charge-offs on private banking, health services financing, motorcycle and marine and RV loans totaled $958 thousand in the first nine months of 2021 and were .1% of the average balances of these loans at September 30, 2021.

Net charge-offs on private banking, health services financing, motorcycle and marine and RV loans totaled $428 thousand in the first three months of 2022 and were .2% of the average balances of these loans at March 31, 2022.

Consumer Credit Card Loans

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

Out of a portfolio at September 30, 2021 of $570.0 million in consumer credit card loans outstanding, approximately $92.9 million, or 16.3%, carried a low promotional rate.

Out of a portfolio at March 31, 2022 of $544.6 million in consumer credit card loans outstanding, approximately $84.3 million, or 15.5%, carried a low promotional rate.

Within the next six months, $32.7 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 $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.

The Company's energy lending portfolio is comprised of lending to the petroleum and natural gas sectors and totaled $275.8 million, or 1.8% of total loans at March 31, 2022, an increase of $15.1 million from year end 2021, as shown in the table below.

(In thousands)

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

March 31, 2022 December 31, 2021 Unfunded commitments at March 31, 2022

Extraction $ 201,185 $ 184,840 $ 165,853

3 unchanged sentences

Total energy lending portfolio $ 275,768 $ 260,644 $ 271,473

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

Information about the credit quality of the Company's energy lending portfolio as of March 31, 2022 and December 31, 2021 is provided in the table below.

(Dollars in thousands) March 31, 2022 % of Energy Lending December 31, 2021 % of Energy Lending

Pass $ 271,368 98.4 % $ 256,186 98.3 %

Special mention 1,999 .7 1,999 .8

Substandard 9,172 4.0 31,676 17.7

Non-accrual 2,401 .9 2,459 .9

Total $ 275,768 100.0 % $ 260,644 100.0 %

Energy lending balances classified as substandard and non-accrual represented 4.0% and 1.1% respectively, of total energy lending loan balances at September 30, 2021.

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

The Company recorded $15 thousand of net loan charge-offs on energy loans for the year ended December 31, 2020.

Small Business Lending

During April 2020, in response to the COVID-19 crisis, the federal government created the PPP, sponsored by the Small Business Administration ("SBA"), under the CARES Act.

As a participating lender under the program, the Company funded loans of $1.5 billion during 2020 (round 1) and $402.1 million during 2021 (round 2).

The balance of PPP loans at September 30, 2021 was $307.9 million, a decrease of $546.4 million compared to balances at June 30, 2021.

The change in PPP loan balances reflected a decline of $407.6 million in loan balances from June 30, 2021 (round 1), along with a decline of $138.8 million in loan balances from June 30, 2021 (round 2).

Since the start of the PPP, the Company has recognized $51.4 million of a total of $60.4 million of PPP fees as of September 30, 2021, including $10.9 million during the third quarter of 2021.

The Company understands that the PPP loans are fully guaranteed by the SBA.

Therefore, there was no increase in the allowance for credit losses on loans related to these loans as there is no expectation of credit loss.

The maximum term of the loans is five years, however, the Company believes that almost all of the loan balances are expected to be forgiven by the SBA.

As of September 30, 2021, 97% of round 1 and 35% of round 2 PPP loan balances have been forgiven.

The process of loan forgiveness began during the third quarter of 2020, and the Company believes most of the remaining PPP loan balances will be forgiven in the fourth quarter of 2021.

Energy lending balances classified as substandard and non-accrual represented 0.9% of total energy lending loan balances at March 31, 2022.

The Company saw a small recovery on energy loans during the three months ended March 31, 2022.

The Company recorded $10 thousand of recoveries on energy loans for the year ended December 31, 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 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.

The balance of SNC loans

totaled $1.2 billion at March 31, 2022 and December 31, 2021.

Additional unfunded commitments at March 31, 2022 totaled $1.8 billion.

Income tax expense was $31.9 million in the first quarter of 2022, compared to $33.8 million in the fourth quarter of 2021 and $32.1 million in the first quarter of 2021.

The Company's effective tax rate, including the effect of non-controlling interest, was 21.3% in the first quarter of 2022, compared to 22.7% in the fourth quarter of 2021 and 19.7% in the first quarter of 2021.

The effective tax rate in the first quarter has historically been lower than other quarters due to the recognition of share-based excess tax benefits as a reduction to income tax expense.

These benefits result from transactions relating to equity award vesting, most of which occur in the first quarter of each year.

The effective tax rate in the first quarter of 2022 increased compared to the effective tax rate in the first quarter of 2021 mainly due to executive compensation limitations on stock-based compensation.

Financial Condition

Balance Sheet

Total assets of the Company were $34.5 billion at September 30, 2021 and $32.9 billion at December 31, 2020.

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

At September 30, 2021, total loans decreased $1.2 billion, or 7.4%, compared to balances at December 31, 2020.

Business loans decreased $1.3 billion, primarily due to a decline in Paycheck Protection Plan (PPP) loan balances.

As of September 30, 2021, 97% of round 1 and 35% of round 2 PPP loan balances have been forgiven.

Business real estate, consumer credit card and personal real estate loans also decreased $88.2 million, $85.1 million and $50.7 million, respectively.

These decreases were partly offset by growth in construction and consumer banking loans of $236.2 million and $99.1 million, respectively.

Consumer loans, which include automobile, marine and RV, fixed rate home equity, and other consumer loans, increased mainly due to growth in private banking loans.

Available for sale investment securities, excluding fair value adjustments, increased $1.9 billion at September 30, 2021 compared to December 31, 2020.

Purchases of securities during this period totaled $4.5 billion, partly offset by maturities and pay downs of $2.6 billion.

The largest growth in outstanding balances occurred in asset-backed securities and non-agency mortgage back securities, which grew $1.5 billion and $870.4 million, respectively.

These increases were partially offset by a decline in agency mortgage-backed securities of $613.3 million at September 30, 2021 compared to December 31, 2020.

At September 30, 2021, the duration of the investment portfolio was 3.5 years, and maturities and pay downs of approximately $2.8 billion are expected to occur during the next 12 months.

Total deposits at September 30, 2021 amounted to $28.1 billion, an increase of $1.2 billion compared to December 31, 2020.

The increase in deposits largely resulted from growth in demand deposits, mainly in business demand deposits (increase of $903.5 million) and personal demand deposits (increase of $149.4 million).

Additionally, savings and money market deposits increased $238.1 million and $264.9 million, respectively.

These increases were partially offset by decreases of $228.9 million in certificate of deposit balances and $199.9 million in interest checking deposit balances at September 30, 2021 compared to balances at December 31, 2020.

The Company's borrowings totaled $2.3 billion at September 30, 2021, an increase of $158.6 million over balances at December 31, 2020, mainly due to an increase in customer repurchase agreements.

Total assets of the Company were $35.0 billion at March 31, 2022 and $36.7 billion at December 31, 2021.

Earning assets (excluding the allowance for credit losses on loans and fair value adjustments on debt securities) amounted to $34.2 billion at March 31, 2022 and $35.5 billion at December 31, 2021, and consisted of 45% in loans and 46% in investment securities at March 31, 2022.

During the first quarter of 2022, average loans totaled $15.2 billion, an increase of $130.1 million over the prior quarter, and declined $1.1 billion, or 6.8%, from the same quarter last year.

Compared to the previous quarter, average balances of business loans grew $132.3 million (includes a decline of $132.0 million in Paycheck Protection Program (PPP) average loan balances).

Average business real estate loan balances grew $91.6 million, while construction loan balances declined $93.3 million.

Period end loans increased $282.7 million compared to the prior quarter, including PPP loan balances that decreased $75.7 million this quarter and totaled $53.4 million at March 31, 2022.

Excluding PPP loans, period end business loans increased $280.7 million.

As of March 31, 2022, 97% of PPP loan balances have been forgiven.

During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $55.6 million, compared to $119.3 million in the prior quarter.

Total average available for sale debt securities increased $418.0 million over the previous quarter to $14.9 billion, at fair value.

The increase in investment securities was mainly the result of growth in asset-backed securities.

During the current quarter, purchases of securities totaled $1.8 billion with a weighted average yield of approximately 2.06%.

Maturities and pay downs were $806.5 million.

At March 31, 2022, the duration of the investment portfolio was 3.6 years, and maturities and pay downs of approximately $3.1 billion are expected to occur during the next 12 months.

Total average deposits increased $501.7 million this quarter compared to the previous quarter.

The increase in deposits mostly resulted from growth in interest checking and money market deposits of $1.1 billion, partially offset by declines in demand deposit and certificates of deposit balances of $374.6 million and $255.3 million, respectively.

Compared to the previous quarter, total average consumer and wealth deposits grew $290.2 million and $213.6 million, respectively.

The average loans to deposits ratio was 51.9% in the current quarter and 52.4% in the prior quarter.

The Company’s average borrowings, which include customer repurchase agreements, were $2.7 billion in the first quarter of 2022 and $2.6 billion in the prior quarter.

Liquidity and Capital Resources

2 unchanged sentences

(In thousands)

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

March 31, 2022 March 31, 2021 December 31, 2021

Liquid assets:

4 unchanged sentences

Total $ 17,866,307 $ 15,395,831 $ 20,049,044

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.

There were no federal funds sold at March 31, 2022, which are funds lent to the Company's correspondent bank customers with overnight maturities.

Resale agreements, maturing through 2024, totaled $1.8 billion at March 31, 2022.

Under these agreements, the Company lends funds to upstream financial institutions and holds marketable securities, safe-kept by a third-party custodian, as collateral.

This collateral totaled $1.8 billion in fair value at September 30, 2021.

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $1.9 billion at September 30, 2021.

The fair value of the available for sale debt portfolio was $14.2 billion at September 30, 2021 and included an unrealized net gain of $138.4 million.

The total net unrealized gain included net gains of $44.5 million on mortgage-backed and asset-backed securities, $52.1 million on U.S.

government and federal agency obligations, and $36.5 million on state and municipal obligations.

This collateral totaled $1.9 billion in fair value at March 31, 2022.

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $1.3 billion at March 31, 2022.

The fair value of the available for sale debt portfolio was $14.8 billion at March 31, 2022 and included an unrealized net loss of $645.5 million.

Approximately $3.1 billion of the available for sale debt portfolio is expected to mature or pay down during the next 12 months, and these funds offer substantial resources to meet new loan demand or help offset potential reductions in the Company's deposit funding base.

2 unchanged sentences

(In thousands)

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

March 31, 2022 March 31, 2021 December 31, 2021

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 September 30, 2021, such deposits totaled $26.5 billion and represented 94.3% of total deposits.

At March 31, 2022, such deposits totaled $28.2 billion and represented 96.1% of total deposits.

These core deposits are normally less volatile, as they are often with customer relationships tied to other products offered by the Company, promoting long lasting relationships and stable funding sources.

Certificates of deposit of $100,000 and over totaled $1.2 billion at September 30, 2021.

These accounts are normally considered more volatile and higher costing and comprised 4.1% of total deposits at September 30, 2021.

Certificates of deposit of $100,000 and over totaled $716.3 million at March 31, 2022.

These accounts are normally considered more volatile with higher cost and comprised 2.4% of total deposits at March 31, 2022.

(In thousands)

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

March 31, 2022 March 31, 2021 December 31, 2021

Core deposit base:

6 unchanged sentences

(In thousands)

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

March 31, 2022 March 31, 2021 December 31, 2021

Federal funds purchased $ 17,315 $ 28,490 $ 43,385

6 unchanged sentences

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

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

There were no advances outstanding from the FHLB at March 31, 2022.

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 September 30, 2021.

September 30, 2021

March 31, 2022

(In thousands)

Federal Reserve

Collateral value pledged $ 2,120,480 $ 1,039,017 $ 3,159,497

Collateral value established by FHLB and FRB $ 1,949,603 $ 1,011,829 $ 2,961,432

Letters of credit issued (199,250) — (199,250)

15 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 $43.2 million during the first nine 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 decrease in cash, cash equivalents and restricted cash of $2.7 billion during the first three months of 2022, 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 $124.5 million and has historically been a stable source of funds.

Investing activities, which occur mainly in the loan and investment securities portfolios, used cash of $1.6 billion.

Activity in the investment securities portfolio used cash of

$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.

Investing activities, which occur mainly in the

loan and investment securities portfolios, used cash of $1.5 billion.

Activity in the investment securities portfolio used cash of $1.0 billion from purchases (net of sales, maturities and pay downs), securities purchased under agreements to resell used cash of $200.0 million, and increase in the loan portfolio, which used cash of $287.3 million.

Financing activities used cash of $1.3 billion, largely resulting from a decrease in federal funds purchased and securities sold under agreements to repurchase of $705.5 million, paired with a decrease in deposits of $511.6 million.

Capital Management

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

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

The Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions at March 31, 2022 and December 31, 2021, as shown in the following table.

(Dollars in thousands) March 31, 2022 December 31, 2021 Minimum Ratios under Capital Adequacy Guidelines

Minimum Ratios

16 unchanged sentences

As a result, the two year deferral period for the Company extends through December 31, 2021.

Beginning on January 1, 2022, the Company will be required to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025.

Beginning on January 1, 2022, the Company began to phase in 25% of the previously deferred estimated capital impact of CECL, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2025.

The Company maintains a treasury stock buyback program under authorizations by its Board of Directors (the Board) and normally purchases stock in the open market.

During the nine months ended September 30, 2021, the Company purchased 1,110,890 shares at an average price of $72.06 in open market purchases and through stock-based compensation transactions.

At September 30, 2021, 2,433,689 shares remained available for purchase under the Board authorization.

During the three months ended March 31, 2022, the Company purchased 795,387 shares at an average price of $70.22 in open market purchases and through stock-based compensation transactions.

At March 31, 2022, 941,935 shares remained available for purchase under the Board authorization.

On April 20, 2022, the share repurchase authorization was increased to 5,000,000 shares.

The Company's common stock dividend policy reflects its earnings outlook, desired payout ratios, the need to maintain adequate capital and liquidity levels, and alternative investment options.

The Company paid a $.263 per share cash dividend on its common stock in the third quarter of 2021, which was a 2.3% increase compared to its 2020 quarterly dividend.

On September 1, 2020, the Company redeemed all 6,000 outstanding shares of its 6.00% Series B Non-Cumulative Perpetual Preferred Stock and the corresponding depositary shares representing fractional interests in the Series B Preferred Stock at a redemption price of $25 per depositary share (equivalent to $1,000 per share of preferred stock).

Commitments, Off-Balance Sheet Arrangements and Contingencies

The Company paid a $.265 per share cash dividend on its common stock in the first quarter of 2022, which was a 6.0% increase compared to its 2021 quarterly dividend.

Material Cash Requirements, Commitments, Off-Balance Sheet Arrangements and Contingencies

The Company's material cash requirements include commitments for contractual obligations (both short-term and long-term), commitments to extend credit, and off-balance sheet arrangements.

The Company's material cash requirements for the next 12 months are primarily to fund loan growth.

Additionally, the Company will utilize cash to fund deposit maturities and withdrawals that may occur in the next 12 months.

Other contractual obligations, purchase commitments, lease obligations, and unfunded commitments may require cash payments by the Company, and these are further discussed in the Company's 2021 Annual Report on Form 10-K.

There have been no changes in the Company's material cash requirements since December 31, 2021.

Further discussion of the Company's longer-term material cash obligations is below.

In the normal course of business, various commitments and contingent liabilities arise which are not required to be recorded on the balance sheet.

The most significant of these are loan commitments, which at September 30, 2021 totaled $13.3 billion (including $5.0 billion in unused, approved credit card lines).

The most significant of these are loan commitments, which at March 31, 2022 totaled $13.0 billion (including $5.0 billion in unused, approved credit card lines).

In addition, the Company enters into standby and commercial letters of credit.

These contracts totaled $423.6 million and $2.5 million, respectively, at September 30, 2021.

These contracts totaled $502.1 million and $1.4 million, respectively, at March 31, 2022.

As many commitments expire unused or only partially used, these totals do not necessarily reflect future cash requirements.

value of the guarantee obligations associated with the standby letters of credit, which has been recorded as a liability on the consolidated balance sheet, amounted to $3.1 million at September 30, 2021.

The allowance for these commitments is recorded in the Company’s liability for unfunded lending commitments within other liabilities on its consolidated balance sheet.

At September 30, 2021, the liability for unfunded commitments totaled $22.8 million.

The carrying value of the guarantee obligations associated with the standby letters of credit, which has been recorded as a liability on the consolidated balance sheet, amounted to $4.2 million at March 31, 2022.

The allowance for these commitments is recorded in the Company’s liability for unfunded lending commitments within other liabilities on its consolidated balance sheets.

At March 31, 2022, the liability for unfunded commitments totaled $25.0 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 September 30, 2021, the Company has made payments totaling $43.7 million.

As of March 31, 2022, the Company has made payments totaling $63.3 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 50% 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 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.

During the first three months of 2022, purchases and sales of tax credits amounted to $52.1 million and $22.1 million, respectively.

Fees from sales of tax credits were $783 thousand for the three months ended March 31, 2022, compared to $1.2 million in the same period last year.

At March 31, 2022, the Company expected to fund outstanding purchase commitments of $167.3 million during the remainder of 2022.

The Company's sound equity base, along with its long-term low debt level, common and preferred stock availability, and excellent debt ratings, provide several alternatives for future financing.

Future acquisitions may utilize partial funding through one or more of these options.

Through the various sources of liquidity described above, the Company maintains a liquidity position that it believes will adequately satisfy its financial obligations.

The Company is not aware of any trends, events, or commitments that are reasonably likely to increase or decrease its liquidity in a material way.

Segment Results

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

The table below is a summary of segment pre-tax income results for the first three months of 2022 and 2021.

(Dollars in thousands)

1 unchanged sentence

Consolidated Totals

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Net interest income $ 79,896 $ 109,530 $ 18,868 $ 208,294 $ 492 $ 208,786

4 unchanged sentences

Income before income taxes $ 30,758 $ 73,575 $ 35,762 $ 140,095 $ 11,833 $ 151,928

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Net interest income $ 77,939 $ 110,565 $ 17,457 $ 205,961 $ (213) $ 205,748

1 unchanged sentence

Non-interest income 38,248 50,728 50,985 139,961 (3,916) 136,045

Investment securities losses, net — — — — (1,275) (1,275)

Investment securities gains, net — — — — 9,853 9,853

Non-interest expense (70,369) (79,281) (33,043) (182,693) (9,880) (192,573)

Income before income taxes $ 35,917 $ 81,985 $ 35,404 $ 153,306 $ 11,999 $ 165,305

Increase in income before income taxes:

Increase (decrease) in income before income taxes:

Amount $ (5,159) $ (8,410) $ 358 $ (13,211) $ (166) $ (13,377)

Percent (14.4 %) (10.3 %) 1.0 % (8.6 %) (1.4 %) (8.1 %)

For the nine months ended September 30, 2021, income before income taxes for the Consumer segment increased $11.7 million, or 11.8%, compared to the first nine months of 2020.

This increase in income before income taxes was mainly due to growth in non-interest income of $3.4 million, or 3.2%, lower non-interest expense of $5.5 million, or 2.4%, and a decrease in the provision for credit losses of $4.8 million.

These increases to income were partly offset by lower net interest income of $2.0 million, or .8%.

Net interest income decreased due to a $17.4 million decline in loan interest income, partly offset by a $5.5 million decrease in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios, and a $9.9 million decrease in deposit interest expense.

Non-interest income increased mainly due to growth in net credit and debit card fees (mainly higher interchange fees, partly offset by higher rewards expense) and check sales and wire fees.

These increases were partly offset by a decrease in mortgage banking revenue.

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

These decreases were partly offset by higher marketing expense and allocated support and servicing costs for information technology.

The provision for credit

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 $11.3 million, or 7.9%, over the previous year mainly due to growth in net bank card fees (mainly corporate card and merchant fees), deposit account fees (mainly corporate cash management fees), capital market fees and interest rate swap fees.

These increases were partly offset by a decline in cash sweep commissions.

Non-interest expense increased $9.2 million, or 3.9%, mainly due to higher salaries and benefits expense (mainly incentive compensation), data processing and software expense, allocated support costs for information technology and commercial banking, and lower deferred origination costs.

These increases to income were partly offset by lower allocated service costs (mainly lockbox).

The provision for credit losses decreased $8.0 million from the same period last year, mainly due to net recoveries recorded on business loans.

Wealth segment pre-tax profitability for the nine months ended September 30, 2021 increased $22.1 million, or 24.9%, over the same period in the previous year.

Net interest income increased $11.5 million, or 27.6%, mainly due to a $9.8 million increase in net allocated funding credits and lower deposit interest expense of $3.5 million, partly offset by a $1.8 million decrease in loan interest income.

Non-interest income increased $19.0 million, or 13.6%, over the prior year largely due to higher trust fees (mainly private client trust fees and institutional trust fees), brokerage fees and mortgage banking revenue, partly offset by lower cash sweep commissions.

Non-interest expense increased $8.5 million, or 9.1%, mainly due to higher salaries expense (mainly incentive compensation) and allocated support costs for information technology.

There was no change in the provision for credit losses compared to the same period last year.

For the three months ended March 31, 2022, income before income taxes for the Consumer segment decreased $5.2 million, or 14.4%, compared to the first three months of 2021.

The decrease in income before income taxes was mainly due to a decline

in non-interest income of $9.9 million, or 25.9%, and higher non-interest expense of $2.6 million, or 3.7%.

These decreases to income were partly offset by growth in net interest income of $2.0 million, or 2.5%, and a decrease in the provision for loan losses of $5.4 million, or 54.6%.

Net interest income increased due to a $3.7 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios, and a $968 thousand decrease in deposit interest expense.

These increases were partly offset by a $2.7 million decline in loan interest income.

Non-interest income decreased mainly due to a decline of $9.5 million in mortgage banking revenue.

Personal deposit account fees also declined from the prior year, while net credit and debit card fees were higher.

Non-interest expense increased over the same period in the previous year mainly due to higher full-time salaries expense, marketing expense and allocated support costs for information technology.

In addition, impairment expense on mortgage servicing rights (MSR) increased, while MSR amortization expense declined.

The provision for credit losses totaled $4.5 million, a $5.4 million decrease from the first three months of 2021, mainly due to lower credit card loan net charge-offs.

For the three months ended March 31, 2022, income before income taxes for the Commercial segment decreased $8.4 million, or 10.3%, compared to the same period in the previous year.

This decrease was mainly due to an increase in non-interest expense and and a decline in net interest income, partly offset by an increase in non-interest income.

Net interest income decreased $1.0 million, or .9%, due to lower loan interest income of $11.3 million and higher interest expense on customer repurchase agreements of $378 thousand, partly offset by a $10.5 million increase in net allocated funding credits.

Non-interest income increased $2.9 million, or 5.8%, over the previous year mainly due to growth in net bank card fees (mainly corporate card fees) and deposit account fees (mainly corporate cash management fees).

These increases were partly offset by declines in capital market fees and swap fees.

Non-interest expense increased $10.2 million, or 12.9%, mainly due to higher salaries and benefits expense, data processing and software expense and allocated support costs for information technology, and lower deferred origination costs.

The provision for credit losses increased $55 thousand over the same period last year, mainly due to higher commercial card loan net charge-offs.

Wealth segment pre-tax profitability for the three months ended March 31, 2022 increased $358 thousand, or 1.0%, over the same period in the previous year.

Net interest income increased $1.4 million, or 8.1%, mainly due to a $1.0 million increase in loan interest income.

Non-interest income increased $2.2 million, or 4.4%, over the prior year largely due to higher trust fees (mainly private client trust fees) and brokerage fees, partly offset by lower mortgage banking revenue.

Non-interest expense increased $3.2 million, or 9.8%, mainly due to higher salaries and benefits expense.

In addition, travel and entertainment expense and marketing expense also increased.

The provision for credit losses increased $31 thousand over the same period last year, mainly due to higher net charge-offs on personal real estate loans.

The Other/Elimination category in the preceding table includes the activity of various support and overhead operating units of the Company, in addition to the investment securities portfolio and other items not allocated to the segments.

In accordance with the Company’s transfer pricing procedures, the difference between the total provision for credit losses and total net charge-offs/recoveries is not allocated to a business segment and is included in this category.

The pre-tax profitability of this category was higher than in the same period last year by $177.4 million.

This increase was partly due to higher non-interest income of $8.2 million, partly offset by lower net interest income of $41.8 million and an increase in non-interest expense of $18.1 million.

Unallocated securities gains were $39.8 million in the first nine months of 2021 compared to losses of $1.3 million in 2020.

Also, the unallocated provision for credit losses decreased $188.1 million, as the provision was $58.1 million less than net charge-offs in the first nine months of 2021, while the provision was $96.7 million in excess of net charge-offs during the first nine months of 2020.

For management reporting purposes, net charge-offs are allocated to the segments when incurred.

Additionally, the Company's provision for credit losses on unfunded lending commitments, which is not allocated to the segments for management reporting, was a benefit of $15.5 million for the nine months ended September 30, 2021.

The pre-tax profitability of this category was lower than in the same period last year by $166 thousand.

This decrease was partly due to higher non-interest expense of $3.0 million, partly offset by higher net interest income of $705 thousand and non-interest income of $474 thousand.

Unallocated securities gains were $7.2 million in the first three months of 2022 compared to gains of $9.9 million in 2021.

Also, the unallocated provision for credit losses increased $1.7 million, primarily driven by an increase in the liability for unfunded lending commitments and an increase in the provision for credit losses on loans, which are both not allocated to the segments for management reporting purposes.

Net charge-offs are allocated to the segments when incurred for management reporting purposes.

The provision for credit losses on loans was $15.3 million lower than net charge-offs, as the provision was a benefit in 2022, while the provision was $20.3 million lower than net charge-offs, as the provision was also a benefit in 2021.

For the three months ended March 31, 2022, the Company's provision on unfunded lending commitments was expense of $828 thousand.

Impact of Recently Issued Accounting Standards

Income Taxes The FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes", in December 2019.

The amendments in the ASU eliminate certain exceptions under current guidance for investments, intraperiod allocations, and the methodology for calculating interim income tax.

In addition, the amendments also add new guidance to simplify accounting for income taxes.

The amendments were effective January 1, 2021, and the Company adopted them on that date.

The adoption did not have a significant effect on the Company's consolidated financial statements.

Investment Securities The FASB issued ASU 2020-08, "Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs", in October 2020.

The amendments in the ASU clarify that for each reporting period an entity should evaluate whether a callable debt security that has multiple call dates may consider estimates of future principal prepayments when applying the interest method.

The guidance was effective January 1, 2021, and the Company adopted it on that date.

The adoption did not have a significant effect on the Company's consolidated financial statements.

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

The new guidance provides optional expedients and

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

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

The expedients and exceptions provided by the new guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022.

The guidance is effective as of March 12, 2020 through December 31, 2022, and the Company is in the process of evaluating and applying, as applicable, the optional expedients and exceptions for eligible contracts and transaction available through December 31, 2022.

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Three Months Ended September 30, 2021 and 2020

Third Quarter 2021

Third Quarter 2020

(Dollars in thousands)

Average Balance

Interest Income/Expense

Rates Earned/Paid

Average Balance Interest Income/Expense Avg.

Rates Earned/Paid

$ 5,437,498 $ 47,032 3.43 % $ 6,709,200 $ 49,680 2.95 %

Real estate — construction and land 1,168,566 10,326 3.51 974,346 9,167 3.74

Real estate — business 2,982,847 26,027 3.46 2,989,652 26,547 3.53

Real estate — personal 2,775,638 22,854 3.27 2,722,300 24,334 3.56

Consumer 2,041,263 19,085 3.71 1,992,314 21,004 4.19

Revolving home equity 281,689 2,456 3.46 329,361 2,722 3.29

Consumer credit card 566,406 16,112 11.29 646,185 18,513 11.40

Overdrafts 5,110 — — 2,689 — —

Total loans 15,259,017 143,892 3.74 16,366,047 151,967 3.69

Loans held for sale 16,021 187 4.63 24,728 264 4.25

Investment securities:

government and federal agency obligations 727,566 10,525 5.74 770,361 7,189 3.71

Government-sponsored enterprise obligations 50,785 295 2.30 102,749 560 2.17

State and municipal obligations (A)

2,039,942 12,062 2.35 1,767,526 11,240 2.53

Mortgage-backed securities 7,115,419 27,461 1.53 6,259,926 30,607 1.95

Asset-backed securities 3,028,076 8,205 1.08 1,520,988 7,250 1.90

Other debt securities 608,642 3,125 2.04 514,166 3,036 2.35

Trading debt securities (A)

32,238 82 1.01 27,267 114 1.66

Equity securities (A)

8,756 528 23.92 4,193 497 47.15

Other securities (A)

183,397 3,447 7.46 120,253 2,038 6.74

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

Federal funds sold 792 1 .50 337 — —

Securities purchased under agreements to resell 1,633,205 9,007 2.19 849,994 11,247 5.26

Interest earning deposits with banks 2,602,896 995 .15 1,024,435 261 .10

Total interest earning assets 33,306,752 219,812 2.62 29,352,970 226,270 3.07

Allowance for credit losses on loans (172,112) (240,286)

Unrealized gain on debt securities 230,058 368,154

Cash and due from banks 329,129 326,030

Premises and equipment, net 408,966 404,144

Other assets 523,182 659,509

Total assets $ 34,625,975 $ 30,870,521

LIABILITIES AND EQUITY:

Interest bearing deposits:

Savings $ 1,484,923 289 .08 $ 1,193,079 269 .09

Interest checking and money market 13,343,180 1,528 .05 11,731,494 2,937 .10

Certificates of deposit of less than $100,000 464,367 206 .18 573,207 1,028 .71

Certificates of deposit of $100,000 and over 1,289,665 450 .14 1,447,968 2,512 .69

Total interest bearing deposits 16,582,135 2,473 .06 14,945,748 6,746 .18

Federal funds purchased and securities sold

under agreements to repurchase 2,360,876 480 .08 1,855,971 406 .09

Other borrowings 347 1 1.14 1,225 — —

Total borrowings 2,361,223 481 .08 1,857,196 406 .09

Total interest bearing liabilities 18,943,358 2,954 .06 % 16,802,944 7,152 .17 %

Non-interest bearing deposits 11,475,113 9,801,562

Other liabilities 667,786 899,890

Equity 3,539,718 3,366,125

Total liabilities and equity $ 34,625,975 $ 30,870,521

Net interest margin (T/E) $ 216,858 $ 219,118

Net yield on interest earning assets 2.58 % 2.97 %

(A) Stated on a tax equivalent basis using a federal income tax rate of 21%.

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

Further, the guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform.

The expedients and exceptions provided by the new guidance do not apply to contract modifications made and hedging relationships entered into or evaluated for effectiveness after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022.

In April 2022, the FASB proposed extending the sunset date under Topic 848 to December 31, 2024.

The change is to align the temporary accounting relief guidance with the expected cessation date of LIBOR, which was postponed by administrators earlier this year to June 2023, a year after the current sunset date of ASU 2020-04.

In order to assess the impact of transition and ensure a successful transition process, the Company established a LIBOR Transition Program led by the LIBOR Transition Steering Committee (the Committee), which is an internal, cross-functional team with representatives from all relevant business lines, support functions and legal counsel.

A LIBOR impact and risk assessment has been performed, and the Committee has developed and prioritized action items.

All financial contracts that reference LIBOR have been identified and LIBOR fallback language has been included in key loan provisions of new and renewed loans in preparation from transition from LIBOR.

The Company ceased originating new loans with LIBOR as a reference rate at the end of 2021 and is actively working with customers to modify existing loans that reference LIBOR to a new reference rate.

Additionally, changes to the Company's systems have been identified, and the process of installing and testing code was started in the third quarter of 2021.

The installation and testing process is expected to be completed in 2022.

Credit Losses The FASB issued ASU 2022-01, "Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures", in March 2022.

This ASU eliminates the troubled debt restructuring recognition and measurement guidance and, instead, requires that an entity evaluate (consistent with the accounting for other loan modifications) whether the modification represents a new loan or a continuation of an existing loan.

The amendments also enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

The amendments require that an entity disclose current period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20.

The guidance is effective January 1, 2023.

The Company is evaluating the guidance to determine the impact on the Company's consolidated financial statements.

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Nine Months Ended September 30, 2021 and 2020

Nine Months 2021

Nine Months 2020

Three Months Ended March 31, 2022 and 2021

First Quarter 2022

First Quarter 2021

(Dollars in thousands)

34 unchanged sentences

Allowance for credit losses on loans (149,685) (220,512)

Unrealized gain on debt securities 236,702 280,616

Unrealized gain (loss) on debt securities (174,297) 283,511

Cash and due from banks 340,242 354,569

9 unchanged sentences

Total interest bearing deposits 17,804,904 2,326 .05 16,050,609 3,638 .09

Federal funds purchased and securities sold

under agreements to repurchase 2,231,595 1,112 .07 1,945,669 5,761 .40

Federal funds purchased $ 23,356 $ 7 .12 37,034 $ 5 .05

Securities sold under agreements to repurchase 2,712,468 682 .10 2,129,038 307 .06

Other borrowings 768 1 .53 831 2 .98

9 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