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Item 2. Management’s Discussion and Analysis

2023-05-04 compared with 2022-11-04 · 292 added, 398 removed, 457 unchanged (60% 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 2022 Annual Report on Form 10-K.

Results of operations for the nine month periods ended September 30, 2022 are not necessarily indicative of results to be attained for any other period.

Results of operations for the three month periods ended March 31, 2023 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 2022 Annual Report on Form 10-K.

During the quarter ended September 30, 2022, there were no material changes to the Risk Factors disclosed in the Company's 2021 Annual Report on Form 10-K.

During the quarter ended March 31, 2023, there were no material changes to the Risk Factors disclosed in the Company's 2022 Annual Report on Form 10-K.

Critical Accounting Estimates and Related Policies

4 unchanged sentences

Selected Financial Data

Three Months Ended September 30 Nine Months Ended September 30

2022 2021 2022 2021

Three Months Ended March 31

Per Share Data

10 unchanged sentences

Equity to loans (1)

17.45 23.17 19.19 21.68

Equity to deposits 10.23 11.33

4 unchanged sentences

Non-interest income to revenue (2)

35.99 39.11 37.34 39.66

Efficiency ratio (3)

55.19 59.95 57.48 57.76

Tier I common risk-based capital ratio 14.47 13.92

24 unchanged sentences

Results of Operations

Three Months Ended September 30 Nine Months Ended September 30

(Dollars in thousands) 2022 2021 % change 2022 2021 % change

Three Months Ended March 31 Increase (Decrease)

(Dollars in thousands) 2023 2022 Amount % change

Net interest income $ 251,623 $ 208,786 $ 42,837 20.5 %

1 unchanged sentence

Non-interest income 137,612 131,769 5,843 4.4

Investment securities gains, net 3,410 13,108 (74.0) 11,602 39,765 (70.8)

Investment securities gains (losses), net (306) 7,163 (7,469) (104.3)

Non-interest expense (224,107) (205,648) 18,459 9.0

Income taxes (32,813) (31,902) 911 2.9

Non-controlling interest expense (3,364) (3,193) 5.4 (9,595) (9,373) 2.4

Non-controlling interest income (expense) (1,101) (1,872) (771) (41.2)

Net income attributable to Commerce Bancshares, Inc.

$ 119,452 $ 118,154 1,298 1.1 %

For the quarter ended September 30, 2022, net income attributable to Commerce Bancshares, Inc.

(net income) amounted to $122.8 million, an increase of $262 thousand, or .2%, compared to the third quarter of the previous year.

For the quarter ended March 31, 2023, net income attributable to Commerce Bancshares, Inc.

(net income) amounted to $119.5 million, an increase of $1.3 million, or 1.1%, compared to the first quarter of the previous year.

For the current quarter, the annualized return on average assets was 1.54%, the annualized return on average equity was 18.75%, and the efficiency ratio was 57.49%.

Diluted earnings per common share was $1.02, an increase of 3.0% compared to $0.99 per share in the third quarter of 2021, and increased 6.3% compared to $.96 per share in the previous quarter.

Compared to the third quarter of last year, net interest income increased $32.3 million, or 15.1%, mainly due to increases of $28.4 million in interest income on loans and $15.7 million in interest income on investment securities, partly offset by an increase in deposits and borrowings interest expense of $13.3 million.

The provision for credit losses increased $22.7 million due to an increase in the estimate of the allowance for credit losses on loans and unfunded lending commitments and higher net loan charge-offs, coupled with the release of allowances associated with certain pandemic-related estimates in the third quarter of 2021.

Non-interest income increased $1.0 million, or .7%, compared to the third quarter of 2021, mainly due to increases in net bank card fees and cash sweep commissions, partly offset by lower loan fees and sales and trust fees.

Net gains on investment securities totaled $3.4 million in the current quarter compared to net gains of $13.1 million in the same quarter of last year.

Net securities gains in the current quarter primarily resulted from net fair value gains of $14.1 million in the Company's private equity investment portfolio, partly offset by a loss of $10.7 million on the sale of an available for sale security.

Non-interest expense increased $1.3 million, or .6%, over the third quarter of 2021 mainly due to higher salaries expense, data processing and software expense and travel and entertainment expense, partly offset by $8.2 million in litigation settlement costs recorded in 2021.

Net income for the first nine months of 2022 was $356.8 million, a decrease of $59.1 million, or 14.2%, from the same period last year.

Diluted earnings per common share was $2.95, a decrease of 12.5% compared to $3.37 per share in the same period last year.

For the first nine months of 2022, the annualized return on average assets was 1.39%, the annualized return on average equity was 16.08%, and the efficiency ratio was 57.48%.

Net interest income increased $59.8 million, or 9.5%, over the same period last year.

This growth was due to increases of $70.7 million in interest income on investment securities, $11.8 million in interest income on loans and $7.0 million in interest earned on balances with the Federal Reserve, partly offset by a decrease in interest income on securities purchased under agreements to resell of $14.9 million and an increase in deposits and borrowings interest expense of $15.0 million.

The provision for credit losses was expense of $12.6 million for the first nine months of 2022, compared to a recovery of $59.3 million in the same period last year, resulting in an increase in provision expense of $71.9 million.

Non-interest income decreased $3.0 million, or .7%, from the first nine months of last year mainly due to lower loan fees and sales, partly offset by higher net bank card fees.

Non-interest expense increased $29.7 million, or 4.9%, over the first nine months of last year mainly due to increases in salaries and benefits expense and data processing and software expense.

Diluted earnings per common share was $.95, an increase of 3.3% compared to $.92 per share in the first quarter of 2022, and decreased 8.7% compared to $1.04 per share in the previous quarter.

Compared to the first quarter of last year, net interest income increased $42.8 million, or 20.5%, mainly due to an increase of $91.7 million in interest income on loans, partly offset by an increase in deposits and borrowings interest expense of $54.2 million.

The provision for credit losses increased $21.3 million mainly due to an increase in the estimate of the allowance for credit losses on loans and higher net loan charge-offs, partly offset by a decrease in the liability for unfunded lending commitments.

Non-interest income increased $5.8 million, or 4.4%, compared to the first quarter of 2022, mainly due to increases in net bank card fees and cash sweep commissions, partly offset by lower trust fees and loan fees and sales.

Net losses on investment securities totaled $306 thousand in the current quarter compared to net gains of $7.2 million in the same quarter of last year.

Net securities losses in the current quarter primarily resulted from losses of $3.1 million realized on the sales of available for sale debt securities, mostly offset by net fair value gains of $2.3 million and a gain of $653 thousand on the sale of an investment, both in the Company's private equity investment portfolio.

Non-interest expense increased $18.5 million, or 9.0%, over the first quarter of 2022 mainly due to higher salaries and employee benefits expense, data processing and software expense, miscellaneous losses and travel and entertainment expense.

Net Interest Income

2 unchanged sentences

Analysis of Changes in Net Interest Income

Three Months Ended September 30, 2022 vs.

2021 Nine Months Ended September 30, 2022 vs.

Change due to Change due to

Three Months Ended March 31, 2023 vs.

Change due to

(In thousands) Average

Volume Average

Total Average

Volume Average

Interest income, fully taxable equivalent basis:

32 unchanged sentences

Net interest income, tax equivalent basis $ (7,357) $ 49,375 $ 42,018

Net interest income in the third quarter of 2022 was $246.4 million, an increase of $32.3 million over the third quarter of 2021.

On a fully taxable-equivalent (FTE) basis, net interest income totaled $248.7 million in the third quarter of 2022, up $31.9 million over the same period last year and up $13.7 million over the previous quarter.

The increase in net interest income

compared to the third quarter of 2021 was mainly due to higher interest income earned on loans (FTE) of $28.5 million and investment securities (FTE) of $15.6 million, partly offset by higher interest expense on deposits and borrowings of $13.8 million.

The increase in interest on investment securities (FTE) was the result of higher average rates earned and average balances, while the increase in interest expense was due to higher rates paid on deposits and borrowings.

The Company's net yield on earning assets (FTE) was 3.01% in the current quarter compared to 2.58% in the third quarter of 2021.

Total interest income (FTE) increased $45.7 million over the third quarter of 2021.

Interest income on loans (FTE) was $172.4 million during the third quarter of 2022, an increase of $28.5 million, or 19.8%, over the same quarter last year.

The increase in interest income over the same quarter last year was primarily due to an increase of 63 basis points in the average rate earned and growth of $386.9 million, or 2.5%, in average loan balances.

Most of the increase in interest income occurred in the business, business real estate, construction and consumer loan categories.

The largest increase to interest income occurred in business real estate loan interest, which grew $10.1 million due to a 94 basis point increase in the average rate earned, coupled with growth in average balances of $275.3 million, or 9.2%.

Business loan interest income increased $5.8 million due to an increase of 51 basis points in the average rate earned, partly offset by a decline of $119.8 million in average balances.

Net interest income in the first quarter of 2023 was $251.6 million, an increase of $42.8 million over the first quarter of 2022.

On a fully taxable-equivalent (FTE) basis, net interest income totaled $253.4 million in the first quarter of 2023, up $42.0 million over the same period last year and down $3.3 million from the previous quarter.

The increase in net interest

income compared to the first quarter of 2022 was mainly due to higher interest income earned on loans (FTE) of $92.0 million, partly offset by higher interest expense on deposits and borrowings of $55.0 million.

The increase in total interest earned on loans (FTE) was the result of higher loan yields on all loan products, especially commercial loans, many of which have variable rates, coupled with higher average balances, while the increase in interest expense was due to higher rates paid on deposits and borrowings.

The Company's net yield on earning assets (FTE) was 3.26% in the current quarter compared to 2.45% in the first quarter of 2022.

Total interest income (FTE) increased $97.0 million over the first quarter of 2022.

Interest income on loans (FTE) was $225.0 million during the first quarter of 2023, an increase of $92.0 million, or 69.2%, over the same quarter last year.

The increase in interest income over the same quarter of last year was primarily due to an increase of 202 basis points in the average rate earned and growth of $1.2 billion, or 7.8%, in average loan balances.

Most of the increase in interest income occurred in the business, business real estate and construction loan categories.

The largest increase to interest income occurred in business loan interest, which grew $35.6 million due to a 238 basis point increase in the average rate earned, coupled with growth in average balances of $331.9 million, or 6.2%.

Business real estate loan interest income increased $22.6 million due to an increase of 227 basis points in the average rate earned and higher average balances of $383.3 million.

Construction and land loan interest grew $15.0 million due to a 357 basis point increase in the average rate earned and growth of $275.9 million, or 24.3%, in average loan balances.

Consumer loan interest increased $3.0 million due to an increase of 46 basis points in the average rate earned and growth in average balances of $60.4 million, or 3.0%.

Interest income on investment securities (FTE) was $81.3 million during the third quarter of 2022, which was an increase of $15.6 million over the same quarter last year.

The increase in interest income occurred mainly in interest earned on asset-backed securities, which rose $7.6 million due to an increase of 54 basis points in the average rate earned, coupled with higher average balances of $842.9 million, or 27.8%.

Interest income earned on mortgage-backed securities increased $5.9 million due to an increase in the average rate earned of 40 basis points, partly offset by a decline of $267.5 million, or 3.8%, in the average balance.

In addition, a $1.5 million increase in premium amortization, reflecting slower forward prepayment speed estimates was recorded in the current quarter, compared to a premium amortization adjustment increase of $5.0 million in the prior year.

Interest on U.S.

government and federal agency obligations grew $2.1 million mainly due to higher average balances of $385.9 million, or 53.0%, and an increase in inflation income on the Company's U.S.

Treasury inflation-protected securities (TIPS), while a decrease of 123 basis points in the average rate earned partly offset these increases in income.

Interest income related to TIPS, which is tied to the non-seasonally adjusted Consumer Price Index (CPI-U), increased $1.8 million over the same quarter last year.

The average balance of the total investment portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $14.8 billion in the third quarter of 2022, compared to $13.8 billion in the third quarter of 2021.

Interest income on securities purchased under agreements to resell decreased $3.0 million from the same quarter last year, due to a decrease of 47 basis points in the average rate earned and a decline of $253.9 million in the average balance.

In addition, consumer loan interest increased $9.0 million due to an increase of 172 basis points in the average rate earned, while consumer credit card loan increased $3.6 million mainly due to a 233 basis point increase in the average rate earned.

Personal real estate loan interest income grew $3.4 million due to a 33 basis point increase in the average rate earned and growth of $124.8 million, or 4.4%, in average loan balances.

Interest income on investment securities (FTE) was $72.5 million during the first quarter of 2023, which was a decrease of $2.3 million from the same quarter last year.

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

government and federal agency obligations, which declined $4.2 million due to a decrease in inflation income on the Company's U.S.

Treasury inflation-protected securities (TIPS).

Interest income related to TIPS, which is tied to the non-seasonally adjusted Consumer Price Index (CPI-U), decreased $4.2 million from the same quarter last year.

Interest income earned on mortgage-backed securities decreased $2.9 million mainly due to a decline of $862.2 million, or 11.8%, in the average balance.

In addition, an $802 thousand increase in premium amortization, reflecting slower forward prepayment speed estimates was recorded in the current quarter, compared to a premium amortization adjustment increase of $7.5 million in the prior year.

These decreases were partly offset by an increase of eight basis points in the average rate earned.

Interest income earned on state and municipal securities declined $1.7 million mainly due to a $283.8 million, or 13.7%, decrease in average balances.

These decreases to interest income were partly offset by growth of $5.1 million in interest earned on asset-backed securities, due to an increase of 88 basis points in the average rate earned, partly offset by lower average balances of $699.3 million, or 17.8%.

The average balance of the total investment portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $13.5 billion in the first quarter of 2023, compared to $15.4 billion in the first quarter of 2022.

Interest income on securities purchased under agreements to resell decreased $1.3 million from the same quarter last year, due to a decline of $908.9 million in the average balance, partly offset by an increase of 70 basis points in the average rate earned.

Interest income on balances at the Federal Reserve grew $8.2 million due to an increase of 449 basis points in the average rate earned, partly offset by a decrease of $1.8 billion in the average balance invested.

The average fully taxable-equivalent yield on total interest earning assets was 3.21% in the third quarter of 2022, up from 2.62% in the third quarter of 2021.

Total interest expense increased $13.8 million compared to the third quarter of 2021 due to increases in interest expense of $6.4 million on interest bearing deposits and $7.4 million on borrowings.

The increase in deposit interest expense resulted mainly from an increase of $5.8 million in interest expense on interest checking and money market deposit accounts due to a 15 basis point increase in the average rate paid and higher average balances of $1.1 billion.

Interest expense on borrowings was higher due to an increase of 129 basis points in the average rate paid on customer repurchase agreements.

The overall average rate incurred on all interest bearing liabilities was .34% and .06% in the third quarters of 2022 and 2021, respectively.

Net interest income (FTE) for the first nine months of 2022 was $695.1 million compared to $636.7 million for the same period in 2021.

For the first nine months of 2022, the net interest margin was 2.75% compared to 2.63% for the same period in 2021.

Total interest income (FTE) for the first nine months of 2022 increased $58.4 million over the same period last year mainly due to higher interest income on investment securities (FTE) and loans (FTE), partly offset by lower interest earned on securities purchased under agreements to resell and higher interest expense.

Loan interest income (FTE) grew $11.9 million, or 2.7%, due to a 20 basis point increase in the average rate earned, partly offset by a $403.8 million decrease in average loan balances.

Most of the increase in loan interest occurred in the business real estate and construction loan categories due to

higher average rates and balances.

In addition, consumer loan interest increased due to higher average balances, partly offset by lower rates earned.

These increases were partly offset by lower interest earned on business and credit card loans due to lower average balances, partly offset by higher rates earned.

Interest income on investment securities (T/E) increased $70.1 million due to a 37 basis point increase in the average rate earned and a $2.1 billion increase in average balances.

Interest earned on U.S.

government and federal agency obligations increased $10.8 million, mainly due to higher TIPS interest income.

Interest earned on mortgage-backed securities increased $34.8 million mainly due to higher average rates earned, while interest on asset-backed securities increased $16.8 million due to higher average balances and average rates earned.

Interest earned on other securities increased $7.9 million mainly due to the receipt of $6.5 million in non-accrual interest on the sale of a private equity investment in the second quarter of 2022.

Interest income on securities purchased under agreements to resell decreased $14.9 million due to lower rates earned, partly offset by higher average balances, while interest income on balances at the Federal Reserve increased $7.0 million due to higher average rates earned.

Total interest expense for the first nine months of 2022 increased $15.6 million compared to the same period last year.

Interest on deposits increased $5.2 million, mainly due to a four basis point increase in the overall rate.

Interest expense on interest checking and money market accounts increased $6.2 million due to a five basis point increase in the average rate and higher average balances.

Interest expense on borrowings increased $10.4 million, mainly due to higher rates paid on customer repurchase agreements.

The overall cost of total interest bearing liabilities increased to .17% compared to .07% in the same period last year.

The average fully taxable-equivalent yield on total interest earning assets was 4.00% in the first quarter of 2023, up from 2.49% in the first quarter of 2022.

Total interest expense increased $55.0 million compared to the first quarter of 2022 due to increases in interest expense of $25.9 million on interest bearing deposits and $29.1 million on borrowings.

The increase in deposit interest expense resulted mainly from an increase of $18.4 million in interest expense on interest checking and money market deposit accounts due to a 57 basis point increase in the average rate paid.

In addition, interest expense on certificates of deposit increased $7.5 million, due to an increase of 230 basis points in the average rate paid.

Interest expense on borrowings was higher due to an increase of $16.8 million in interest expense on customer repurchase agreements resulting from an increase of 283 basis points in the average rate paid.

Interest expense on Federal funds purchased increased $5.6 million mainly due to a 447 basis point increase in the average rate paid, while Federal Home Loan Bank (FHLB) borrowings increased $550.0 million and resulted in an increase of $6.7 million in interest expense.

The overall average rate incurred on all interest bearing liabilities was 1.20% and .06% in the first quarters of 2023 and 2022, 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 Increase (Decrease) Nine Months Ended September 30 Increase (Decrease)

(Dollars in thousands) 2022 2021 Amount % change 2022 2021 Amount % change

Three Months Ended March 31 Increase (Decrease)

(Dollars in thousands) 2023 2022 Amount % change

Trust fees $ 45,328 $ 47,811 $ (2,483) (5.2) %

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, 2022 and 2021.

Three Months Ended September 30 Nine Months Ended September 30

(Dollars in thousands) 2022 2021 $ change % change 2022 2021 $ change % change

The table below is a summary of net bank card transaction fees for the three month periods ended March 31, 2023 and 2022.

Three Months Ended March 31

(Dollars in thousands) 2023 2022 $ change % change

Net debit card fees $ 10,287 $ 9,552 $ 735 7.7 %

3 unchanged sentences

Total bank card transaction fees $ 46,654 $ 42,045 $ 4,609 11.0 %

For the third quarter of 2022, total non-interest income amounted to $138.5 million compared to $137.5 million in the same quarter last year, which was an increase of $1.0 million, or .7%.

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

For the first quarter of 2023, total non-interest income amounted to $137.6 million compared to $131.8 million in the same quarter last year, which was an increase of $5.8 million, or 4.4%.

The increase was mainly due to higher net bank card fees and cash sweep commissions, partly offset by lower trust fees and loan fees and sales.

Trust fees for the quarter decreased $2.5 million, or 5.2%, from the same quarter last year, as a result of lower private client fees (down 4.8%) and institutional trust fees (down 6.0%).

Bank card transaction fees for the current quarter grew $4.6 million, or 11.0%, over the same period last year, mainly due to growth of $3.6 million in net corporate card fees.

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

Trust fees for the quarter decreased $3.5 million, or 7.2%, from the same quarter last year, resulting from lower private client fees and institutional trust fees.

Compared to the third quarter of last year, deposit account fees decreased $640 thousand, or 2.5%, mainly due to lower overdraft and return item fees.

In September 2022, the Company implemented enhancements to consumer checking accounts that eliminate return item fees and are expected to lower overdraft fees for our customers.

Consumer brokerage service fees increased $185 thousand, or 3.8%, due to growth in annuity and mutual fund fees, while loan fees and sales decreased $3.7 million, or 54.8%, due to a decline in mortgage banking revenue.

Other non-interest income increased $6.3 million, or 125.6%, mainly due to higher cash sweep commissions and tax credit sales fees of $3.4 million and $1.1 million, respectively.

Additionally, a $2.0 million loss on an equity method investment was recorded in the third quarter of 2021.

Non-interest income for the first nine months of 2022 was $409.7 million, compared to $412.7 million in the first nine months of 2021, resulting in a decrease of $3.0 million, or .7%.

Bank card fees increased $8.4 million, or 6.9%, mainly due to growth of $8.0 million in net corporate card fees.

Trust fees increased $675 thousand, or .5%, mainly due to growth in private client trust fees, partly offset by lower institutional trust fees.

Deposit account fees increased $668 thousand, or .9%, mainly due to higher corporate cash management fees, partly offset by lower personal account deposit fees.

Capital market fees declined $1.3 million, or 10.4%, while consumer brokerage service fees increased $1.1 million, or 8.3%, due to higher annuity and mutual fund fees, partly offset by lower advisory fees.

Loan fees and sales decreased $13.9 million, or 56.8%, due to lower mortgage banking revenue.

Other income increased $1.3 million, or 4.5%, mainly due to higher cash sweep commissions of $5.3 million and tax credit sales fees of $1.2 million, income of $2.2 million from a life insurance death benefit recorded in the second quarter of 2022, a $2.6 million loss on an equity method investment recorded in 2021 and a lease impairment of $1.1 million recorded in 2021.

These increases were partly offset by gains of $3.7 million recorded on branch sales last year coupled with a write-down of $965 thousand on a branch location recorded in the first quarter of 2022.

In addition, a decrease of $6.8 million in fair value adjustments was recorded on the Company's deferred compensation plan assets, which are held in a trust, recorded as both an asset and a liability, and affect both other income and other expense.

The growth in net corporate card fees was mainly due to higher interchange income.

Compared to the first quarter of last year, deposit account fees decreased $555 thousand, or 2.5%, mainly due to lower overdraft and return item fees of $2.7 million, partly offset by higher personal deposit account fees and corporate cash management fees of $1.0 million and $959 thousand, respectively.

Consumer brokerage service fees increased $639 thousand, or 14.4%, due to growth in annuity fees, partly offset by lower advisory fees.

Capital market fees decreased $763 thousand, or 18.5%, while loan fees and sales decreased $1.6 million, or 38.9%, due to a decline in mortgage banking revenue.

Other non-interest income increased $6.0 million, or 88.9%, mainly due to higher cash sweep commissions of $2.6 million, a write down on a branch location of $965 thousand recorded in the first quarter of 2022 and income of $524 thousand from a life insurance death benefit.

In addition, a $2.0 million increase in fair value adjustments was recorded on the Company's deferred compensation plan assets, which are held in a trust, recorded as both an asset and liability, and affect 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) 2023 2022

Net losses on sales of available for sale debt securities $ (10,692) $ — $ (20,274) $ —

Net gains (losses) on sales of available for sale debt securities $ (3,088) $ —

Fair value adjustments on equity securities, net (127) (287)

1 unchanged sentence

Fair value adjustments on private equity investments 2,251 7,450

Total investment securities gains, net $ 3,410 $ 13,108 $ 11,602 $ 39,765

Net gains on investment securities, which were recognized in earnings during the three months ended September 30, 2022 and 2021, are shown in the table above.

Net securities gains of $3.4 million were reported in the third quarter of 2022, compared to net gains of $13.1 million in the same period last year.

The net gains in the third quarter of 2022 were primarily comprised of $14.1 million of net gains in fair value on the Company’s private equity investments, partially offset by a loss of $10.7 million on the sale of an available for sale security.

Total investment securities gains (losses), net $ (306) $ 7,163

Net gains on investment securities, which were recognized in earnings during the three months ended March 31, 2023 and 2022, are shown in the table above.

Net securities losses of $306 thousand were reported in the first quarter of 2023, compared to net gains of $7.2 million in the same period last year.

The net losses in the first quarter of 2023 were primarily comprised of net losses of $3.1 million on the sale of available for sale securities, mostly offset by net gains in fair value of $2.3 million and a gain of $653 thousand on the sale of an investment, both in the Company’s private equity investment portfolio.

The net gains on investment securities for the same quarter last year were mainly comprised of $7.5 million of net gains in fair value on the Company’s private equity investments.

Net gains on investment securities of $11.6 million were recognized in earnings for the nine months ended September 30, 2022, compared to net gains of $39.8 million for the same period in 2021.

Net gains in the first nine months of 2022 were mainly comprised of net gains of $37.1 million on private equity investments, due to fair value adjustments, offset by losses of $20.3 million on sales of available for sale securities, net losses of $4.2 million on sales of private equity investments, and net losses in fair value of $1.0 million on equity investments.

Net gains in the first nine months of 2021 were mainly comprised of a gain of $1.6 million on the sale of a private equity investment and $38.0 million of net gains in fair value on 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 $6.6 million during the first nine months of 2022 and expense of $7.7 million during the first nine months of 2021.

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 $582 thousand during the first three months of 2023 and expense of $1.5 million during the first three months of 2022.

Non-Interest Expense

Three Months Ended September 30 Increase (Decrease) Nine Months Ended September 30 Increase (Decrease)

(Dollars in thousands) 2022 2021 Amount % change 2022 2021 Amount % change

Three Months Ended March 31 Increase (Decrease)

(Dollars in thousands) 2023 2022 Amount % change

Salaries and employee benefits $ 144,373 $ 135,953 $ 8,420 6.2 %

6 unchanged sentences

Total non-interest expense $ 224,107 $ 205,648 $ 18,459 9.0 %

Non-interest expense for the third quarter of 2022 amounted to $212.9 million, an increase of $1.3 million, or .6%, compared to expense of $211.6 million in the third quarter of last year.

The increase in expense over the same period last year was mainly due to higher salaries expense and data processing and software expense, partly offset by lower other non-interest expense.

Salaries and benefits expense increased $4.6 million, or 3.4%, due to higher full-time salaries expense of $5.6 million, or 6.4%, partly offset by lower incentive compensation expense of $2.5 million.

Full-time equivalent employees totaled 4,595 at September 30, 2022, compared to 4,582 at September 30, 2021.

Data processing and software expense increased $2.5 million, or 9.6%, due to higher software amortization, bank card processing fees and increased costs for service providers.

Occupancy expense increased $215 thousand, or 1.7%, and equipment expense increased $596 thousand, or 13.4%, mainly due to higher equipment repair expense and depreciation expense.

Marketing expense increased $605 thousand, or 10.8%, while other non-interest expense decreased $7.2 million, or 27.5%.

This decrease was mainly due to $8.2 million in litigation settlement costs recorded in the third quarter of 2021, lower legal and professional fees of $1.1 million and higher deferred loan origination costs of $755 thousand.

These decreases to expense were partly offset by increases in travel and entertainment expense of $1.5 million and insurance expense of $619 thousand.

Non-interest expense amounted to $632.0 million for the first nine months of 2022, an increase of $29.7 million, or 4.9%, over the first nine months of 2021.

Salaries and benefits expense increased $23.0 million, or 5.9%, mainly due to higher costs for salaries, incentive compensation, payroll taxes and 401(k) expense.

Salaries expense included expense of $5.4 million for special bonuses paid to non-incentivized full-time and part-time employees in the second half of 2022.

Data processing and software expense increased $6.7 million, or 8.8%, due to higher costs for service providers, software amortization and bank card processing fees.

Occupancy expense increased $1.5 million, or 4.1%, mainly due to higher rent and outside services expense.

Equipment expense increased $940 thousand, or 7.0%, mainly due to higher equipment repair and depreciation expense.

Supplies and communication expense increased $967 thousand, or 7.6%, mainly due to higher bank card reissuance fees and courier expense, while marketing expense increased $1.9 million, or 11.8%.

Other non-interest expense decreased $5.3 million, or 9.5%, mainly due to the litigation settlement mentioned above, coupled with a decline of $6.8 million in fair value equity adjustments on the Company's deferred compensation plan assets.

These decreases were partly offset by increases in travel and entertainment expense of $3.9 million and insurance expense of $1.2 million.

Non-interest expense for the first quarter of 2023 amounted to $224.1 million, an increase of $18.5 million, or 9.0%, compared to expense of $205.6 million in the first quarter of last year.

The increase in expense over the same period last year was mainly due to higher salaries and employee benefits expense, data processing and software expense and other non-interest expense.

Salaries and benefits expense increased $8.4 million, or 6.2%, due to higher full-time salaries expense of $7.6 million, or 8.9%, and employee benefits expense of $1.4 million, or 5.9%, partly offset by lower incentive compensation expense of $957 thousand.

Full-time equivalent employees totaled 4,636 at March 31, 2023, compared to 4,563 at March 31, 2022.

Data processing and software expense increased $1.1 million, or 4.2%, due to higher bank card processing fees and increased costs for service providers.

Occupancy expense increased $463 thousand, or 3.8%, mainly due to higher depreciation and utilities expense, while marketing expense decreased $873 thousand, or 13.8%.

Other non-interest expense increased $9.2 million, or 62.0%, mainly due to higher FDIC insurance, deferred compensation (previously mentioned), miscellaneous losses and travel and entertainment expense of $2.3 million, $2.0 million, $1.3 million and $1.1 million, respectively.

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

Three Months Ended Nine Months Ended September 30

30, 2022 June 30, 2022 Sept.

30, 2021 2022 2021

Three Months Ended

31, 2023 Dec.

31, 2022 Mar.

ALLOWANCE FOR CREDIT LOSSES ON LOANS

12 unchanged sentences

Overdrafts 978 230 358

Personal banking net loan charge-offs 4,359 3,940 3,599 12,877 19,227

Total net loan charge-offs 4,812 3,958 3,659 13,418 14,310

Personal banking net loan charge-offs (recoveries) 6,541 5,153 4,578

Total net loan charge-offs (recoveries) 6,767 5,645 4,648

Balance at end of period $ 159,317 $ 150,136 $ 134,710

4 unchanged sentences

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 187,945 $ 183,256 $ 159,742

Three Months Ended Nine Months Ended September 30

30, 2022 June 30, 2022 Sept.

30, 2021 2022 2021

Three Months Ended

31, 2023 Dec.

31, 2022 Mar.

Annualized net loan charge-offs (recoveries)*:

9 unchanged sentences

Overdrafts 89.15 12.28 28.04

Personal banking net loan charge-offs .30 .28 .25 .30 .45

Total annualized net loan charge-offs .12 % .10 % .10 % .12 % .12 %

Personal banking net loan charge-offs (recoveries) .45 .35 .33

Total annualized net loan charge-offs (recoveries) .17 % .14 % .12 %

* as a percentage of average loans (excluding loans held for sale)

2 unchanged sentences

The Company's policies and processes for determining the allowance for credit losses on loans and the liability for unfunded lending commitments are discussed in Note 1 to the consolidated financial statements and in the " Allowance for Credit Losses" discussion within Critical Accounting Estimates and Related Policies in Item 7 of the 2022 Annual Report on Form 10-K.

Net loan charge-offs in the third quarter of 2022 amounted to $4.8 million, compared to $4.0 million in the prior quarter and $3.7 million in the third quarter of last year.

During the third quarter of 2022, the Company recorded net charge-offs on commercial loans of $453 thousand, compared to net charge-offs of $18 thousand in the prior quarter and $60 thousand in the third quarter of 2021.

Business loan net charge-offs increased $442 thousand in the third quarter of 2022, compared to the prior quarte r.

Comp ared to the same period last year, total net loan charge-offs in the third quarter of 2022 increased $1.2 million.

This increase was driven by increases in net charge-offs on overdraft, business, and consumer loans.

For the three months ended September 30, 2022, annualized net charge-offs on average consumer credit card loans totaled 2.08%, compared to 2.19% in the previous quarter and 2.04% in the same period last year.

Net loan charge-offs in the first quarter of 2023 amounted to $6.8 million, compared to $5.6 million in the prior quarter and $4.6 million in the first quarter of last year.

During the first quarter of 2023, the Company recorded net charge-offs on commercial loans of $226 thousand, compared to net charge-offs of $492 thousand in the prior quarter and $70 thousand in the first quarter of 2022.

Comp ared to the same period last year, total net loan charge-offs in the first quarter of 2023 increased $2.1 million and increased $1.1 million over the previous quarter.

The increase over the prior year was mainly driven by increases in net charge-offs on consumer credit cards, overdrafts, and consumer loans of $953 thousand, $620 thousand, and $467 thousand, respectively.

The increase over the previous quarter was driven by increases in net charge-offs on consumer credit card loans and overdrafts, party offset by decreases in net charge-offs on business and consumer loans.

For the three months ended March 31, 2023, annualized net charge-offs on average consumer credit card loans totaled 3.15%, compared to 2.46% in the previous quarter and 2.53% in the same period last year.

Consumer loan annualized net charge-offs in the current quarter amounted to .25%, compared to .29% in the prior quarter and .16% in the same period last year.

In the third quarter of 2022, total annualized net loan charge-offs were .12%, compared to .10% in the previous quarter and .10% in the same period last year.

For the nine months ended September 30, 2022, net loan charge-offs amounted to $13.4 million, compared to $14.3 million during the same period in the prior year.

The decrease in net loan charge-offs in the nine months ended September 30, 2022 was primarily due to a $7.9 million decline in net charge-offs on consumer credit card loans, which was mostly offset by a $5.4 million increase in net charge-offs on business loans driven by two large non-recurring recoveries in 2021.

Net charge-offs on overdraft and consumer loans also increased $942 thousand and $631 thousand, respectively.

For the nine months ended September 30, 2022, annualized net charge-offs on average consumer credit card loans totaled 2.26%, compared to 3.91% during the same period last year, while consumer loan annualized net charge-offs in the nine months ended September 30, 2022 amounted to .15%, compared to .11% during the same period last year.

During first nine months of 2022, total annualized net loan charge-offs were .12%, unchanged from the same period last year.

The provision for credit losses on loans was $10.2 million in the current quarter, which was a $2.9 million increase over the $7.3 million provision recorded in the prior quarter and a $16.1 million increase over the $6.0 million benefit recorded for the nine months ended September 30, 2021.

In the first quarter of 2023, total annualized net loan charge-offs were .17%, compared to .14% in the previous quarter and .12% in the same period last year.

The provision for credit losses on loans was $15.9 million in the current quarter, which was a $3.5 million increase over the $12.4 million provision recorded in the p rior quarter and a $26.6 million increase over the $10.7 million benefit recorded for the three months ended March 31,2022.

The increase in the provision from the prior quarter was due to a slightly less optimistic forecast, which includes a mild recession in the first half of 2023.

The provision for credit losses on loans for the third quarter of the prior year reflected lower than projected net charge-offs and an improved forecast at that point in time, resulting in the release of reserves established for uncertainties related to the pandemic during that quarter.

For the nine months ended September 30, 2022, the provision for credit losses on loans was $6.8 million, compared to a recovery of $43.7 million during the same period in the prior year.

For the nine months ended September 30, 2022, the allowance for credit losses on loans decreased $6.7 million, compared to the allowance for credit losses on loans as of December 31, 2021.

The decrease was primarily the net result of reducing the allowance as pandemic economic concerns lessened compared to December 31, 2021, slightly offset by an emerging mild recession uncertainty related to the geopolitical environment, high inflation, and supply constraints on the economy.

The allowance for credit losses on commercial loans increased by $5.3 million, while the allowance for credit losses related to personal banking loans, including consumer credit card loans, decreased $12.0 million, mostly related to decreases in consumer credit card loans experienced in the first quarter of 2022.

At September 30, 2022, the allowance for credit losses on loans amounted to $143.4 million, compared to $138.0 million at June 30, 2022.

This increase in the allowance for credit losses on loans compared to the prior quarter is due to a less optimistic forecast with a mild recession in the first half of 2023.

The current period estimation for credit losses continues to consider the uncertainty in the economy as inflation rises and supply chain issues continue.

The allowance for credit losses on loans was $162.8 million at September 30, 2021, reflecting pandemic uncertainties and the economic forecast at that point in time, and was .90%, .88% and 1.07% of total loans at September 30, 2022, June 30, 2022 and September 30, 2021, respectively.

In the current quarter, the provision for credit losses on unfunded lending commitments was $5.1 million, compared to a benefit of $125 thousand in the prior quarter and a benefit of $1.4 million in the third quarter of 2021.

For the nine months ended September 30, 2022, the provision for credit losses on unfunded lending commitments was $5.8 million, compared to a benefit of $15.5 million during the same period in the prior year.

At September 30, 2022, the liability for unfunded lending

commitments was $30.0 million, compared to $24.9 million at June 30, 2022 and $22.8 million at September 30, 2021.

The provision for credit losses on loans for the first quarter of the prior year reflected lower than projected net charge-offs and an improved forecast at that point in time, resulting in the release of reserves established for uncertainties related to the pandemic during that quarter.

For the three months ended March 31, 2023, the allowance for credit losses on loans increased $9.2 million, compared to December 31, 2022.

The increase was primarily the result of applying a slightly more pessimistic forecast compared to the forecast used at December 31, 2022.

Compared to March 31, 2022, the allowance for credit losses on loans increased $24.6 million, mainly due to a slightly less optimistic forecast, as described above.

The allowance for credit losses on loans was $159.3 million at March 31, 2023 and was .96%, .92% and .87% of total loans at March 31, 2023, December 31, 2022 and March 31, 2022, respectively.

In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $4.5 million, compared to a provision of $3.1 million in the prior quarter and $828 thousand in the first quarter of 2022.

At March 31, 2023, the liability for unfunded lending commitments was $28.6 million, compared to $33.1 million at December 31, 2022 and $25.0 million at March 31, 2022.

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

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

The Company considers the allowance for credit losses on loans and the liability for unfunded commitments adequate to cover losses expected in the loan portfolio, including unfunded commitments, at September 30, 2022.

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 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.

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

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

5 unchanged sentences

(Dollars in thousands)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Non-accrual loans $ 7,801 $ 8,306

4 unchanged sentences

Total loans past due 90 days and still accruing interest $ 14,800 $ 15,830

Non-accrual loans totaled $7.2 million at September 30, 2022, a decrease of $2.0 million from the balance at December 31, 2021.

The decrease occurred mainly in business loans which decreased $1.7 million.

At September 30, 2022, non-accrual loans were comprised of business (78.6%), personal real estate (19.3%), and business real estate (2.1%) loans.

Foreclosed real estate totaled $354 thousand at September 30, 2022, an increase of $239 thousand when compared to December 31, 2021.

Total loans past due 90 days or more and still accruing interest were $12.5 million as of September 30, 2022, an increase of $812 thousand from December 31, 2021.

Non-accrual loans totaled $7.8 million at March 31, 2023, a decrease of $505 thousand from the balance at December 31, 2022.

The decrease occurred mainly in business loans which decreased $390 thousand.

At March 31, 2023, non-accrual loans were comprised of business (81.5%), personal real estate (16.3%), and business real estate (2.2%) loans.

Foreclosed real estate totaled $167 thousand at March 31, 2023, an increase of $71 thousand when compared to December 31, 2022.

Total loans past due 90 days or more and still accruing interest were $14.8 million as of March 31, 2023, a decrease of $1.0 million from December 31, 2022.

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 $292.5 million at September 30, 2022 compared with $278.7 million at December 31, 2021, resulting in an increase of $13.8 million, or 4.9%.

Such loans totaled $234.8 million at March 31, 2023 compared with $259.7 million at December 31, 2022, resulting in a decrease of $24.9 million, or 9.6%.

(In thousands)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Potential problem loans:

4 unchanged sentences

Total potential problem loans $ 234,802 $ 259,724

At September 30, 2022, the Company had $155.6 million of loans whose terms have been modified or restructured under a troubled debt restructuring.

These loans have been extended to borrowers who are experiencing financial difficulty and who have been granted a concession, as defined by accounting guidance, and are further discussed in the "Troubled debt restructurings" section in Note 2 to the consolidated financial statements.

This balance includes certain commercial loans totaling $140.6 million which are classified as substandard and included in the table above because of this classification.

At March 31, 2023, the Company had $28.8 million of loans modified to a borrower experiencing financial difficulty and are further discussed in the "Modifications for borrowers experiencing financial difficulty" section in Note 2 to the consolidated financial statements.

Loans with Special Risk Characteristics

5 unchanged sentences

Real Estate – Construction and Land Loans

The Company's portfolio of construction and land loans, as shown in the table below, amounted to 7.6% of total loans outstanding at September 30, 2022.

The largest component of construction and land loans was commercial construction, which increased $55.1 million during the nine months ended September 30, 2022.

At September 30, 2022, multi-family residential construction loans totaled approximately $247.4 million, or 25.3%, of the commercial construction loan portfolio, compared to $155.9 million, or 16.9%, at December 31, 2021.

(Dollars in thousands) September 30,

The Company's portfolio of construction and land loans, as shown in the table below, amounted to 8.7% of total loans outstanding at March 31, 2023.

The largest component of construction and land loans was commercial construction, which increased $81.3 million during the three months ended March 31, 2023.

At March 31, 2023, multi-family residential construction loans totaled approximately $330.5 million, or 27.5%, of the commercial construction loan portfolio, compared to $303.5 million, or 27.0%, at December 31, 2022.

(Dollars in thousands) March 31,

December 31, 2022

1 unchanged sentence

Residential construction 130,136 9.1 .8 138,311 10.2 .8

Commercial land and land development 50,145 4.2 .3 48,481 4.3 .3

Residential land and land development 52,595 3.6 .3 50,012 3.7 .3

Commercial land and land development 51,289 3.6 .3 50,667 3.7 .3

Total real estate - construction and land loans $ 1,437,419 100.0 % 8.7 % $ 1,361,095 100.0 % 8.3 %

Real Estate – Business Loans

Total business real estate loans were $3.3 billion at September 30, 2022 and comprised 21.0% of the Company's total loan portfolio.

Total business real estate loans were $3.5 billion at March 31, 2023 and comprised 21.1% 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, 2022, 35.7% 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, 2023, 33.2% 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, 2022

1 unchanged sentence

Office 500,524 14.4 3.0 497,601 14.6 3.1

Industrial 482,093 13.8 2.9 478,534 14.0 2.9

Retail 354,592 10.2 2.1 322,971 9.5 2.0

Multi-family 289,700 8.3 1.8 308,156 9.0 1.9

Industrial 313,230 9.4 2.0 99,800 3.3 .7

Hotels 252,463 7.2 1.5 230,972 6.8 1.4

3 unchanged sentences

Total real estate - business loans $ 3,486,543 100.0 % 21.1 % $ 3,406,981 100.0 % 20.9 %

Information about the credit quality of the Company's business real estate loan portfolio as of March 31, 2023 and December 31, 2022 is provided in the table below.

(Dollars in thousands) Pass Special Mention Substandard Non-Accrual Total

March 31, 2023

Owner-occupied $ 1,148,677 $ 615 $ 7,469 $ 112 $ 1,156,873

Office 497,137 3,387 — — 500,524

Industrial 482,093 — — — 482,093

Retail 352,694 — 1,898 — 354,592

Multi-family 283,119 1,958 4,623 — 289,700

Hotels 241,194 9,606 1,663 — 252,463

Farm 194,488 177 — 58 194,723

Senior living 23,212 — 121,060 1 144,273

Other 111,034 268 — — 111,302

Total $ 3,333,648 $ 16,011 $ 136,713 $ 171 $ 3,486,543

December 31, 2022

Owner-occupied $ 1,129,343 $ 632 $ 6,084 $ 130 $ 1,136,189

Office 494,169 3,432 — — 497,601

Industrial 478,534 — — — 478,534

Retail 321,041 — 1,930 — 322,971

Multi-family 286,202 1,975 19,979 — 308,156

Hotels 174,558 9,725 46,689 — 230,972

Farm 195,685 177 — 58 195,920

Senior living 23,514 — 107,702 1 131,217

Other 105,144 277 — — 105,421

Total $ 3,208,190 $ 16,218 $ 182,384 $ 189 $ 3,406,981

Revolving Home Equity Loans

The Company had $286.0 million in revolving home equity loans at September 30, 2022 that were generally collateralized by residential real estate.

The Company had $295.5 million in revolving home equity loans at March 31, 2023 that were generally collateralized by residential real estate.

Most of these loans (91.8%) 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, 2022, the outstanding principal of loans with an original LTV higher than 80% was $30.1 million, or 10.5% 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 $1.4 million at September 30, 2022 and $1.6 million at December 31, 2021, and there were no revolving home equity loans on non-accrual status at September 30, 2022 or December 31, 2021.

As of March 31, 2023, the outstanding principal of loans with an original LTV higher than 80% was $32.8 million, or 11.1% of the portfolio, compared to $32.4 million as of December 31, 2022.

Total revolving home equity loan balances over 30 days past due were $1.7 million at March 31, 2023 and $1.9 million at December 31, 2022, and there were no revolving home equity loans on non-accrual status at March 31, 2023 or December 31, 2022.

The weighted average FICO score for the total current portfolio balance is 787.

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 38.1% of the consumer loan portfolio at September 30, 2022, and outstanding balances for auto loans were $805.6 million and $855.4 million at September 30, 2022 and December 31,

2021, respectively.

The balances over 30 days past due amounted to $7.4 million at September 30, 2022 and $9.0 million at December 31, 2021, respectively and comprised 0.9% of the outstanding balances of these loans at September 30, 2022 and 1.1% at December 31, 2021, respectively.

For the nine months ended September 30, 2022, $257.5 million of new auto loans were originated, compared to $324.5 million during the first nine months of 2021.

At September 30, 2022, the automobile loan portfolio had a weighted average FICO score of 756, and net charge-offs on auto loans were .2% of average auto loans.

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 10.9% of the consumer loan portfolio at September 30, 2022.

Losses on these loans have historically been low, and the Company saw net recoveries of $29 thousand for the first nine months of 2022.

Private banking loans comprised 33.5% of the consumer loan portfolio at September 30, 2022.

The Company's private banking loans are generally well-collateralized, and at September 30, 2022 were secured primarily by assets held by the Company's trust department.

Auto loans comprised 39.8% of the consumer loan portfolio at March 31, 2023, and outstanding balances for auto loans were $832.8 million and $798.6 million at March 31, 2023 and December 31, 2022, respectively.

The balances over 30 days past due amounted to $8.3 million at March 31, 2023 and $9.9 million at December 31, 2022, respectively and comprised 1.0% of the outstanding balances of these loans at March 31, 2023 and 1.2% at December 31, 2022, respectively.

For the three months ended March 31, 2023, $120.0 million of new auto loans were originated, compared to $84.7 million during the first three months of 2022.

At March 31, 2023, the automobile loan portfolio had a weighted average FICO score of 756, and net charge-offs on auto loans were .3% of average auto loans.

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 11.2% of the consumer loan portfolio at March 31, 2023.

Losses on these loans have historically been low, and the Company saw net recoveries of $22 thousand for the first three months of 2023.

Private banking loans comprised 31.7% of the consumer loan portfolio at March 31, 2023.

The Company's private banking loans are generally well-collateralized, and at March 31, 2023 were secured primarily by assets held by the Company's trust department.

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

Net charge-offs on private banking, health services financing, motorcycle and marine and RV loans totaled $1.1 million in the first nine months of 2022 and were 0.1% of the average balances of these loans at September 30, 2022.

Net charge-offs on private banking, health services financing, motorcycle and marine and RV loans totaled $610 thousand in the first three months of 2023 and were .2% of the average balances of these loans at March 31, 2023.

Consumer Credit Card Loans

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

Out of a portfolio at September 30, 2022 of $563.3 million in consumer credit card loans outstanding, approximately $95.7 million, or 17.0%, carried a low promotional rate.

Out of a portfolio at March 31, 2023 of $558.7 million in consumer credit card loans outstanding, approximately $103.2 million, or 18.5%, carried a low promotional rate.

Within the next six months, $42.5 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 $279.6 million, or 1.8% of total loans at September 30, 2022, an increase of $18.9 million from year end 2021, 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 $285.1 million, or 1.7% of total loans at March 31, 2023, a decrease of $11.3 million from year end 2022, as shown in the table below.

(In thousands)

September 30, 2022 December 31, 2021 Unfunded commitments at September 30, 2022

March 31, 2023 December 31, 2022 Unfunded commitments at March 31, 2023

Extraction $ 233,670 $ 235,933 $ 150,203

7 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 $1.3 billion at September 30, 2022, compared to $1.2 billion at December 31, 2021.

Additional unfunded commitments at September 30, 2022 totaled $1.7 billion.

Income tax expense was $33.9 million in the third quarter of 2022, compared to $32.0 million in the second quarter of 2022 and $34.7 million in the third quarter of 2021.

The Company's effective tax rate, including the effect of non-controlling interest, was 21.7% in the third quarter of 2022, compared to 21.7% in the second quarter of 2022 and 22.1% in the third quarter of 2021.

For the nine months ended September 30, 2022, income tax expense was $97.9 million, compared to $111.9 million for the same period during the previous year, resulting in effective tax rates of 21.5% and 21.2%, respectively.

The balance of SNC loans totaled $1.5 billion at March 31, 2023, compared to $1.4 billion at December 31, 2022.

Additional unfunded commitments at March 31, 2023 totaled $2.0 billion.

Income tax expense was $32.8 million in the first quarter of 2023, compared to $34.5 million in the fourth quarter of 2022 and $31.9 million in the first quarter of 2022.

The Company's effective tax rate, including the effect of non-controlling interest, was 21.6% in the first quarter of 2023, compared to 20.8% in the fourth quarter of 2022 and 21.3% in the first quarter of 2022.

Financial Condition

Balance Sheet

Total assets of the Company were $32.6 billion at September 30, 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 $32.3 billion at September 30, 2022 and $35.5 billion at December 31, 2021, and consisted of 49% in loans and 45% in investment securities at September 30, 2022.

At September 30, 2022, total loans increased $722.6 million, or 4.8%, compared to balances at December 31, 2021.

The increase was mainly due to growth in business real estate, business, and construction loans of $272.8 million, $225.4 million, and $88.7 million, respectively.

The growth in business loans was mainly the result of increased commercial and industrial, lease and commercial card lending, partly offset by a decline in tax free loans.

Personal real estate loans increased $57.1 million.

Consumer loans, which includes automobile, marine and RV, fixed rate home equity and other consumer loans, increased $84.1 million, as growth in other consumer loans was partly offset by a decline in auto loans.

These increases in loan balances were partly offset by a decline in consumer credit card loans of $12.1 million.

Available for sale debt securities, excluding fair value adjustments, decreased $242.8 million at September 30, 2022 compared to December 31, 2021.

Purchases of securities during this period totaled $1.9 billion, offset by sales, maturities and pay downs of $2.2 billion.

The largest declines in outstanding balances occurred in agency mortgage-backed securities, state and municipal obligations, and other debt securities, which decreased $467.5 million, $51.2 million, and $54.3 million, respectively.

These decreases were partially offset by increases in asset-backed securities and non-agency mortgage-backed securities, which increased $209.8 million and $66.0 million, respectively, at September 30, 2022 compared to December 31, 2021.

At September 30, 2022, the duration of the investment portfolio was 3.9 years, and maturities and pay downs of approximately $2.4 billion are expected to occur during the next 12 months.

Total deposits at September 30, 2022 amounted to $27.5 billion, a decrease of $2.3 billion compared to December 31, 2021.

The decline in deposits largely resulted from a decrease in demand deposits, mainly in business demand deposits (decrease of $1.7 billion).

Additionally, certificates of deposit decreased $454.4 million and money market deposits decreased $650.3 million.

These decreases were partly offset by growth in government demand deposits of $325.4 million and interest checking deposits of $58.4 million at September 30, 2022 compared to balances at December 31, 2021.

The Company's borrowings totaled $2.3 billion at September 30, 2022, a decrease of $719.1 million from balances at December 31, 2021, mainly due to a decline in customer repurchase agreements, partly offset by an increase in federal funds purchased.

Total assets of the Company were $32.0 billion at March 31, 2023 and $31.9 billion at December 31, 2022.

Earning assets (excluding the allowance for credit losses on loans and fair value adjustments on debt securities) amounted to $31.6 billion at March 31, 2023 and at December 31, 2022, and consisted of 52% in loans and 41% in investment securities at March 31, 2023.

During the first quarter of 2023, average loans totaled $16.4 billion, an increase of $518.9 million over the prior quarter, and $1.2 billion, or 7.8%, over the same quarter last year.

Compared to the previous quarter, average balances of business, business real estate, and construction loans grew $177.9 million, $177.7 million, and $141.9, respectively.

Personal real estate loans also increased $47.1 million, while consumer loans declined $22.5 million.

During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $3.2 million, compared to $2.4 million in the prior quarter.

Total average available for sale debt securities decreased $591.1 million compared to the previous quarter to $11.8 billion, at fair value.

The decrease in investment securities was mainly the result of lower balances of mortgage-backed, other asset-backed, and state and municipal securities.

During the first quarter of 2023, the unrealized loss on available for sale securities decreased $190.0 million to $1.3 billion and sales, maturities and pay downs were $1.3 billion at period end.

At March 31, 2023, the duration of the available for sale investment portfolio was 3.9 years and maturities and pay downs of approximately $2.0 billion are expected to occur during the next 12 months.

The Company does not have any investment securities classified as held-to-maturity.

Total average deposits decreased $1.4 billion this quarter compared to the previous quarter.

The decrease in deposits mostly resulted from lower demand deposits and interest checking and money market deposits of $1.2 billion and $428.5 million, respectively, partly offset by higher certificate of deposit balances of $333.8 million.

Compared to the previous quarter, total average commercial and consumer deposits declined $868.9 million and $530.1 million, respectively, while average wealth deposits increased $39.8 million.

The average loans to deposits ratio was 65.0% in the current quarter and 59.7% in the prior quarter.

The Company’s average borrowings, which included customer repurchase agreements of $2.4 million, were $3.5 billion in the first quarter of 2023 and $2.6 billion in the prior quarter.

Liquidity and Capital Resources

2 unchanged sentences

(In thousands)

September 30, 2022 September 30, 2021 December 31, 2021

March 31, 2023 March 31, 2022 December 31, 2022

Liquid assets:

4 unchanged sentences

Total $ 13,422,530 $ 17,866,307 $ 13,501,961

Federal funds sold, which are funds lent to the Company's correspondent bank customers with overnight maturities, totaled $14.0 million as of September 30, 2022.

Resale agreements, maturing through 2025, totaled $1.3 billion at September 30, 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 $1.3 billion in fair value at September 30, 2022.

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $642.9 million at September 30, 2022.

The fair value of the available for sale debt portfolio was $12.6 billion at September 30, 2022 and included an unrealized net loss of $1.5 billion.

Approximately $2.4 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.

Federal funds sold, which are funds lent to the Company's correspondent bank customers with overnight maturities, totaled $27.1 million as of March 31, 2023.

Resale agreements, maturing through 2025, totaled $825.0 million at March 31, 2023.

Under these agreements, the Company lends funds to upstream financial institutions and holds marketable securities, safe-kept by a third-party custodian, as collateral, and this collateral totaled $870.8 million in fair value at March 31, 2023.

$700.0 million of the Company's resale agreements will mature in the next 12 months.

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, 2023 and increased $952.7 million over December 31, 2022 balances.

The fair value of the available for sale debt portfolio was $11.2 billion at March 31, 2023 and included an unrealized net loss of $1.3 billion.

Approximately $2.0 billion of the Company's available for sale debt portfolio is expected to mature or pay down during the next 12 months, and at March 31, 2023, the duration of the Company's available for sale debt securities portfolio was 3.9 years.

The Company pledges portions of its investment securities portfolio to secure public fund deposits, securities sold under agreements to repurchase, trust funds, letters of credit issued by the FHLB, and borrowing capacity at the Federal Reserve Bank.

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(In thousands)

September 30, 2022 September 30, 2021 December 31, 2021

March 31, 2023 March 31, 2022 December 31, 2022

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, 2022, such deposits totaled $26.5 billion and represented 96.4% of total deposits.

At March 31, 2023, such deposits totaled $23.1 billion and represented 93.6% 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 $597.1 million at September 30, 2022.

These accounts are normally considered more volatile with higher cost and comprised 2.2% of total deposits at September 30, 2022.

Certificates of deposit of $100,000 and over totaled $1.1 billion at March 31, 2023.

These accounts are normally considered more volatile with higher cost and comprised 4.5% of total deposits at March 31, 2023.

(In thousands)

September 30, 2022 September 30, 2021 December 31, 2021

March 31, 2023 March 31, 2022 December 31, 2022

Core deposit base:

3 unchanged sentences

Total $ 23,104,975 $ 28,180,004 $ 25,193,337

During January 2023, the Company's deposit portfolio declined $964.6 million.

At March 31, 2023, the Company's deposit portfolio was $24.7 billion, compared to $26.2 billion at December 31, 2022.

The Company's uninsured deposits were $9.8 billion, or 39.7% of total deposits at March 31, 2023.

The Company's uninsured deposits include $2.0 billion of affiliate deposits and collateralized deposits.

Excluding those affiliate and collateralized deposits, the Company's uninsured deposits at March 31, 2023 were $7.8 billion, or 31.6% of total deposits.

Other important components of liquidity are the level of borrowings from third party sources and the availability of future credit.

1 unchanged sentence

(In thousands)

September 30, 2022 September 30, 2021 December 31, 2021

March 31, 2023 March 31, 2022 December 31, 2022

Federal funds purchased $ 756,470 $ 17,315 $ 159,860

Securities sold under agreements to repurchase 2,028,089 2,300,146 2,681,874

FHLB advances 1,500,000 — —

Other debt 7,776 9,057 9,672

1 unchanged sentence

Federal funds purchased are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit.

In addition to the amount accessed as of March 31, 2023, the Company had access to an additional $3.9 billion of overnight, approved Federal funds as of that date.

Repurchase agreements are borrowings by the Company from its customers in the form of securities sold under agreements to repurchase.

These repurchase agreements, which generally mature overnight, are comprised of non-insured customer funds totaling $2.0 billion at September 30, 2022 and are collateralized by securities in the Company's investment portfolio.

At September 30, 2022, the value of the collateral pledged for the benefit of customers was $2.0 billion.

These repurchase agreements, which generally mature overnight, are comprised of non-insured customer funds totaling $2.0 billion at March 31, 2023 and are collateralized by securities in the Company's investment portfolio.

At March 31, 2023, the value of the

collateral pledged for the benefit of customers was $2.1 billion.

The Company also borrows on a secured basis through advances from the FHLB.

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

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

Based on the amount and type of collateral pledged, the FHLB establishes a collateral value from which the Company may draw advances against the collateral.

Also, this collateral is used to enable the FHLB to issue letters of credit in favor of public fund depositors of the Company.

The Federal Reserve Bank also establishes a collateral value of assets pledged and permits borrowings from the discount window.

The following table reflects the collateral value of assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future funding capacity available to the Company at September 30, 2022.

September 30, 2022

There were $1.5 billion advances outstanding from the FHLB at March 31, 2023.

The Company pledges certain assets, including loans and investment securities, to both the Federal Reserve Bank (FRB) and the FHLB as security to establish lines of credit and borrow from these entities.

Based on the amount and type of collateral pledged, the FHLB establishes a collateral value from which the Company may draw advances against the collateral and enables the FHLB to issue letters of credit in favor of public fund depositors of the Company.

The FRB also establishes a collateral value of assets pledged and permits borrowings from the discount window.

March 31, 2023

(In thousands)

1 unchanged sentence

Total collateral value established by FHLB and FRB $ 2,165,815 $ 3,829,015 $ 5,994,830

Advances outstanding (1,500,000) — (1,500,000)

Letters of credit issued (111,515) — (111,515)

15 unchanged sentences

Rating outlook Stable Stable

The cash flows from the operating, investing and financing activities of the Company resulted in a net decrease in cash, cash equivalents and restricted cash of $3.3 billion during the first nine months of 2022, as reported in the consolidated statements of cash flows in this report.

The cash flows from the operating, investing and financing activities of the Company resulted in a net increase in cash, cash equivalents and restricted cash of $822.3 million during the first three months of 2023, 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 $116.1 million and has historically been a stable source of funds.

Investing activities, which occur mainly in the loan and investment securities portfolios, used cash of $247.2 million.

Activity in the investment securities portfolio provided cash of $183.9 million from purchases (net of sales, maturities and pay downs), securities purchased under agreements to resell used cash of $200.0 million, and an increase in the loan portfolio used cash of $736.5 million.

These cash outflows were partially offset by repayments related to securities purchased under agreements to resell, which provided cash of $550.0 million.

Financing activities used cash of $3.5 billion, largely resulting from a a decrease in deposits of $2.5 billion, paired with a decrease in federal funds purchased and securities sold under agreements to repurchase of $708.4 million.

Investing activities, which occur mainly in the loan and investment securities portfolios, provided cash of $888.2 million.

Activity in the investment securities portfolio provided cash of $1.1 billion from sales, maturities, and pay downs (net of purchases), but this increase in investing cash flows was partially offset by growth in the loan portfolio, which used cash of $239.2 million.

Financing activities used cash of $182.0 million, largely resulting from a decrease in deposits of $1.6 billion, paired with a decrease in federal funds purchased and securities sold under agreements to repurchase of $57.2 million.

Borrowings, including FHLB advances during the first three months of 2023, increased financing cash flows by $1.5 billion.

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, 2022 and December 31, 2021, as shown in the following table.

(Dollars in thousands) September 30, 2022 December 31, 2021 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, 2023 and December 31, 2022, as shown in the following table.

(Dollars in thousands) March 31, 2023 December 31, 2022 Minimum Ratios under Capital Adequacy Guidelines

Minimum Ratios

18 unchanged sentences

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, 2022, the Company purchased 2,352,489 shares at an average price of $69.42 in open market purchases and through stock-based compensation transactions.

At September 30, 2022, 3,444,236 shares remained available for purchase under the current Board authorization.

During the three months ended March 31, 2023, the Company purchased 547,381 shares at an average price of $65.93 in open market purchases and through stock-based compensation transactions.

At March 31, 2023, 2,564,677 shares remained available for purchase under the current Board authorization.

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

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

The Company paid a $.270 per share cash dividend on its common stock in the first quarter of 2023, which was a 7.1% increase compared to its 2022 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.

The Company's material cash requirements for the next 12 months are primarily to fund loan commitments, deposit maturities and deposit withdrawals that may occur;

repay borrowings;

and fund loan growth.

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 2022 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.

Further discussion of the Company's longer-term material cash obligations and sources for fulfilling those obligations is below.

Events impacting the banking industry during the first few months of 2023, including the failure of Silicon Valley Bank and Signature Bank, have resulted in decreased confidence in banks among consumer and commercial customers, investors, and other counterparties.

Additionally, rapidly rising interest rates have resulted in unrealized losses in the Company's available for sale debt securities portfolio.

In response to these industry events, the Company sought additional borrowings during the first quarter of 2023, and as a result, the Company’s borrowings increased by $1.4 billion.

Other than the repayment of these additional borrowings, the Company’s material cash requirements have not changed significantly since December 31, 2022.

Further discussion of the Company's longer-term material cash obligations and sources for fulfilling those 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, 2022 totaled $13.9 billion (including $5.1 billion in unused, approved credit card lines).

The most significant of these are loan commitments, which at March 31, 2023 totaled $14.2 billion (including $5.2 billion in unused, approved credit card lines).

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

These contracts totaled $516.2 million and $1.2 million, respectively, at September 30, 2022.

These contracts totaled $588.8 million (net of conveyances to other institutions) and $4.8 million, respectively, at March 31, 2023.

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

The carrying value of the guarantee obligations associated with the standby letters of credit, which has been recorded as a liability on the consolidated balance sheet, amounted to $3.6 million at September 30, 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 September 30, 2022, the liability for unfunded commitments totaled $30.0 million.

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, 2023, the liability for unfunded commitments totaled $28.6 million.

See further discussion of the liability for unfunded lending commitments in Note 2 to the consolidated financial statements.

During the third quarter of 2020, the Company signed a $106.7 million agreement with U.S.

Capital Development to develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri, which is expected to be completed in January 2023.

As of September 30, 2022, the Company has made payments totaling $83.8 million.

Capital Development to develop a 280,000 square foot commercial office building in a two building complex in Clayton, Missouri, which was placed in service at the beginning of March 2023.

As of March 31, 2023, the Company has made payments totaling $105.7 million.

While the Company intends to occupy a portion of the office building for executive offices, a 15 year lease agreement has been signed by an anchor tenant to lease approximately 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 2022, purchases and sales of tax credits amounted to $95.7 million and $99.9 million, respectively.

Fees from sales of tax credits were $4.4 million for the nine months ended September 30, 2022, compared to $3.2 million in the same period last year.

At September 30, 2022, the Company expected to fund outstanding purchase commitments of $12.0 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.

During the first three months of 2023, purchases and sales of tax credits amounted to $22.2 million and $6.7 million, respectively.

Fees from sales of tax credits were $561 thousand for the three months ended March 31, 2023, compared to $783 thousand in the same period last year.

At March 31, 2023, the Company expected to fund outstanding purchase commitments of $93.1 million during the remainder of 2023.

The Company continued to maintain a strong liquidity position throughout the first three months of 2023.

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 2022 and 2021.

The table below is a summary of segment pre-tax income results for the first three months of 2023 and 2022.

(Dollars in thousands)

1 unchanged sentence

Consolidated Totals

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Net interest income $ 96,854 $ 116,166 $ 17,540 $ 230,560 $ 21,063 $ 251,623

1 unchanged sentence

Non-interest income 24,303 58,324 52,944 135,571 2,041 137,612

Investment securities gains, net — — — — 11,602 11,602

Investment securities gains (losses), net — — — — (306) (306)

Non-interest expense (77,326) (93,623) (39,636) (210,585) (13,522) (224,107)

Income before income taxes $ 37,525 $ 80,474 $ 30,835 $ 148,834 $ 4,532 $ 153,366

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Net interest income $ 86,818 $ 108,953 $ 18,869 $ 214,640 $ (5,854) $ 208,786

1 unchanged sentence

Non-interest income 26,415 53,651 53,206 133,272 (1,503) 131,769

Investment securities gains, net — — — — 39,765 39,765

Investment securities gains (losses), net — — — — 7,163 7,163

Non-interest expense (74,823) (89,506) (36,288) (200,617) (5,031) (205,648)

Income before income taxes $ 33,906 $ 73,016 $ 35,761 $ 142,683 $ 9,245 $ 151,928

Decrease in income before income taxes:

Increase (decrease) in income before income taxes:

Amount $ 3,619 $ 7,458 $ (4,926) $ 6,151 $ (4,713) $ 1,438

Percent 10.7 % 10.2 % (13.8 %) 4.3 % (51.0) % .9 %

For the nine months ended September 30, 2022, income before income taxes for the Consumer segment decreased $9.3 million, or 8.4%, compared to the first nine months of 2021.

The decrease in income before income taxes was mainly due to a decline in non-interest income of $21.4 million, or 19.3%, and higher non-interest expense of $5.0 million, or 2.2%.

These decreases to income were partly offset by growth in net interest income of $10.6 million, or 4.4%, and a decrease in the provision for credit losses of $6.4 million, or 33.4%.

Net interest income increased due to a $13.0 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios and a $1.6 million decrease in deposit interest expense.

These increases to income were partly offset by a $4.0 million decline in loan interest income.

Non-interest income decreased mainly due to a decline of $19.6 million in mortgage banking revenue.

Non-interest expense increased over

the same period in the previous year mainly due to higher salaries expense, marketing expense, and allocated service and support costs (mainly bank card fraud operations and information technology), partly offset by lower allocated service costs for branch employees and mortgage operations.

The provision for credit losses totaled $12.7 million, a $6.4 million decrease from the first nine months of 2021, mainly due to lower credit card loan net charge-offs.

For the nine months ended September 30, 2022, income before income taxes for the Commercial segment decreased $25.7 million, or 10.1%, compared to the same period in the previous year.

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

Net interest income decreased $7.0 million, or 2.1%, due higher interest expense on customer repurchase agreements and deposits of $10.0 million and $7.3 million, respectively.

These decreases to income were partly offset by a $9.4 million increase in loan interest income.

Non-interest income increased $12.5 million, or 8.1%, over the previous year mainly due to growth in net bank card fees (mainly corporate card fees), deposit account fees (mainly corporate cash management fees) and cash sweep commissions, partly offset by a decline in capital market fees.

Non-interest expense increased $25.7 million, or 10.4%, mainly due to higher salaries and benefits expense, travel and entertainment expense, and allocated service and support costs (mainly bank operations, branch employees, information technology and commercial payments).

The provision for credit losses increased $5.5 million over the same period last year, mainly due to net charge-offs on business loans in the current year compared to net recoveries in the prior year.

Wealth segment pre-tax profitability for the nine months ended September 30, 2022 decreased $1.7 million, or 1.6%, from the same period in the previous year.

Net interest income increased $3.5 million, or 6.7%, mainly due to an $8.4 million increase in loan interest income, partly offset by a $5.3 million decrease in net allocated funding credits assigned to the Wealth segment's loan and deposit portfolios.

Non-interest income increased $2.3 million, or 1.5%, over the prior year largely due to higher cash sweep commissions, private client trust fees, and brokerage fees.

These increases were partly offset by lower mortgage banking revenue and institutional trust fees.

Non-interest expense increased $7.6 million, or 7.5%, mainly due to higher salaries and benefits expense, travel and entertainment expense, and marketing expense.

The provision for credit losses increased $8 thousand over the same period last year, due to higher overdraft loan net charge-offs.

For the three months ended March 31, 2023, income before income taxes for the Consumer segment increased $3.6 million, or 10.7%, compared to the first three months of 2022.

The increase in income before income taxes was mainly due to an increase in net interest income of $10.0 million, or 11.6%, partly offset by a decrease in non-interest income of $2.1 million, or

8.0%, and higher non-interest expense of $2.5 million, or 3.3%.

Net interest income increased due to a $4.8 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios and a $9.2 million increase in loan interest income.

These increases were partly offset by higher deposit interest expense of $4.0 million.

Non-interest income decreased mainly due to lower mortgage banking revenue and deposit account fees, partly offset by growth in debit card fees.

Deposit account fees decreased due to lower overdraft and return item fees, partly offset by higher personal deposit account fees.

Non-interest expense increased over the same period in the previous year mainly due to higher salaries and benefits expense, FDIC insurance expense and occupancy expense, partly offset by lower marketing expense and allocated support costs for information technology.

The provision for credit losses totaled $6.3 million, a $1.8 million increase over the first three months of 2022, mainly due to higher credit card, overdraft and personal loan net charge-offs.

For the three months ended March 31, 2023, income before income taxes for the Commercial segment increased $7.5 million, or 10.2%, compared to the same period in the previous year.

This increase was mainly due to growth in non-interest income and net interest income, partly offset by higher non-interest expense.

Net interest income increased $7.2 million, or 6.6%, mainly due to higher loan interest income of $74.6 million.

This increase was partly offset by lower net allocated funding credits of $32.0 million and increases of $19.0 million in deposit interest expense and $16.8 million in interest expense on customer repurchase agreements.

Non-interest income increased $4.7 million, or 8.7%, over the previous year mainly due to growth in net bank card fees (mainly corporate card fees), deposit account fees (mainly corporate cash management fees) and cash sweep commissions, partly offset by a decline capital market fees.

Non-interest expense increased $4.1 million, or 4.6%, mainly due to higher data processing expense, FDIC insurance expense and allocated service and support costs (mainly bank operations and commercial products and payments).

These increases were partly offset by lower allocated support costs for information technology.

The provision for credit losses increased $311 thousand over the same period last year, mainly due to higher overdraft and commercial credit card loan net charge-offs.

Wealth segment pre-tax profitability for the three months ended March 31, 2023 decreased $4.9 million, or 13.8%, from the same period in the previous year.

Net interest income decreased $1.3 million, or 7.0%, mainly due to an $8.0 million decline in net allocated funding credits and a $2.9 million increase in deposit interest expense, partly offset by a $9.6 million increase in loan interest income.

Non-interest income decreased $262 thousand, or .5%, from the prior year largely due lower private client and institutional trust fees, partly offset by higher cash sweep commissions and consumer brokerage service fees.

Non-interest expense increased $3.3 million, or 9.2%, mainly due to higher salaries and benefits expense and miscellaneous losses.

The provision for credit losses decreased $13 thousand from the same period last year, due to lower personal real estate loan net charge-offs.

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 lower than in the same period last year by $36.2 million.

Unallocated securities gains were $11.6 million in the first nine months of 2022 compared to gains of $39.8 million in 2021.

Also, the unallocated provision for credit losses increased by $72.7 million, primarily driven by increases in the liability for unfunded lending commitments and in the provision for credit losses on loans, which are both not allocated to the segments for management reporting purposes.

The pre-tax profitability of this category was $4.7 million lower than in the same period last year.

Unallocated securities losses were $306 thousand in the first three months of 2023 compared to gains of $7.2 million in 2022.

Also, the unallocated provision for credit losses increased $19.2 million, primarily driven by an increase in the provision for credit losses on loans, partly offset by a decrease in the liability for unfunded lending commitments, 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 $6.7 million lower than net charge-offs in 2022, while the provision was $58.1 million lower than net charge-offs, as the provision was a benefit in 2021.

For the nine months ended September 30, 2022, the Company's provision on unfunded lending commitments was expense of $5.8 million.

These decreases to pre-tax profitability were partly offset by higher net interest income of $52.6 million, non-interest income of $3.6 million, and lower non-interest expense of $8.5 million.

The provision for credit losses on loans was $9.2 million higher than net charge-offs in 2023, while the provision was $15.3 million lower than net charge-offs, as the provision was a benefit in 2022.

For the three months ended March 31, 2023, the Company's provision on unfunded lending commitments was a benefit of $4.5 million.

Additionally, non-interest expense decreased $8.5 million.

These decreases to pre-tax profitability were partly offset by higher net interest income of $26.9 million, and non-interest income of $3.5 million.

Impact of Recently Issued Accounting Standards

3 unchanged sentences

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 December 2022, the FASB issued ASU 2022-06 which extended the sunset date under Topic 848 to December 31, 2024.

The change is to align the temporary accounting relief guidance with the expected cessation date of LIBOR, which was postponed by administrators in 2021 to June 2023, a year after the current sunset date of ASU 2020-04.

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

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

All 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.

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

All LIBOR-based loans must be converted to an alternative index by June 30, 2023, as LIBOR will no longer be published after June 30, 2023.

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

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

The Company plans to finish transitioning the impacted loans by late spring of 2023.

Credit Losses The FASB issued ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326):

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

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

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

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

The guidance is effective January 1, 2023.

The Company expects no material impact to its consolidated financial statements from adoption of this ASU.

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Three Months Ended September 30, 2022 and 2021

Third Quarter 2022

Third Quarter 2021

(Dollars in thousands)

Average Balance

Interest Income/Expense

Rates Earned/Paid

Average Balance Interest Income/Expense Avg.

Rates Earned/Paid

$ 5,317,696 $ 52,813 3.94 % $ 5,437,498 $ 47,032 3.43 %

Real estate — construction and land 1,288,721 17,133 5.27 1,168,566 10,326 3.51

Real estate — business 3,258,128 36,121 4.40 2,982,847 26,027 3.46

Real estate — personal 2,844,376 24,065 3.36 2,775,638 22,854 3.27

Consumer 2,101,622 22,110 4.17 2,041,263 19,085 3.71

Revolving home equity 280,923 3,413 4.82 281,689 2,456 3.46

Consumer credit card 550,058 16,711 12.05 566,406 16,112 11.29

Overdrafts 4,438 — — 5,110 — —

Total loans 15,645,962 172,366 4.37 15,259,017 143,892 3.74

Loans held for sale 7,170 159 8.80 16,021 187 4.63

Investment securities:

government and federal agency obligations 1,113,442 12,664 4.51 727,566 10,525 5.74

Government-sponsored enterprise obligations 55,753 332 2.36 50,785 295 2.30

State and municipal obligations (A)

2,052,908 11,758 2.27 2,039,942 12,062 2.35

Mortgage-backed securities 6,847,912 33,323 1.93 7,115,419 27,461 1.53

Asset-backed securities 3,870,953 15,782 1.62 3,028,076 8,205 1.08

Other debt securities 587,026 2,852 1.93 608,642 3,125 2.04

Trading debt securities (A)

35,621 246 2.74 32,238 82 1.01

Equity securities (A)

8,838 604 27.11 8,756 528 23.92

Other securities (A)

208,708 3,729 7.09 183,397 3,447 7.46

Total investment securities 14,781,161 81,290 2.18 13,794,821 65,730 1.89

Federal funds sold 13,486 94 2.77 792 1 .50

Securities purchased under agreements to resell 1,379,341 5,984 1.72 1,633,205 9,007 2.19

Interest earning deposits with banks 980,273 5,571 2.25 2,602,896 995 .15

Total interest earning assets 32,807,393 265,464 3.21 33,306,752 219,812 2.62

Allowance for credit losses on loans (137,833) (172,112)

Unrealized gain (loss) on debt securities (1,064,534) 230,058

Cash and due from banks 310,713 329,129

Premises and equipment, net 408,884 408,966

Other assets 536,901 523,182

Total assets $ 32,861,524 $ 34,625,975

LIABILITIES AND EQUITY:

Interest bearing deposits:

Savings $ 1,595,857 177 .04 $ 1,484,923 289 .08

Interest checking and money market 14,423,713 7,368 .20 13,343,180 1,528 .05

Certificates of deposit of less than $100,000 397,071 411 .41 464,367 206 .18

Certificates of deposit of $100,000 and over 578,158 871 .60 1,289,665 450 .14

Total interest bearing deposits 16,994,799 8,827 .21 16,582,135 2,473 .06

Federal funds purchased $ 51,929 $ 315 2.41 13,606 $ 3 .10

Securities sold under agreements to repurchase 2,199,866 7,576 1.37 2,347,270 477 .08

Other borrowings (B)

2,010 9 1.78 347 1 1.14

Total borrowings 2,253,805 7,900 1.39 2,361,223 481 .08

Total interest bearing liabilities 19,248,604 16,727 .34 % 18,943,358 2,954 .06 %

Non-interest bearing deposits 10,758,353 11,475,113

Other liabilities 123,691 667,786

Equity 2,730,876 3,539,718

Total liabilities and equity $ 32,861,524 $ 34,625,975

Net interest margin (FTE) $ 248,737 $ 216,858

Net yield on interest earning assets 3.01 % 2.58 %

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

(B) Interest expense capitalized on construction projects is not deducted from the interest expense shown above.

The Company is nearly finished transitioning the impacted loans.

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Nine Months Ended September 30, 2022 and 2021

Nine Months 2022

Nine Months 2021

Three Months Ended March 31, 2023 and 2022

First Quarter 2023

First Quarter 2022

(Dollars in thousands)

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Allowance for credit losses on loans (150,117) (149,685)

Unrealized gain (loss) on debt securities (699,908) 236,702

Unrealized loss on debt securities (1,387,196) (174,297)

Cash and due from banks 314,024 340,242

24 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