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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-06 · 310 added, 420 removed, 474 unchanged (61% of the section changed)

2 unchanged sentences

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Company's 2023 Annual Report on Form 10-K.

Results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of results to be attained for any other period.

Results of operations for the three months ended March 31, 2024 are not necessarily indicative of results to be attained for any other period.

Forward-Looking Information

9 unchanged sentences

Such possible events or factors include:

changes in economic conditions in the Company's market area, the effects of the COVID-19 pandemic, changes in policies by regulatory agencies, governmental legislation and regulation, fluctuations in interest rates, changes in liquidity requirements, demand for loans in the Company's market area, changes in accounting and tax principles, estimates made on income taxes, competition with other entities that offer financial services, cybersecurity threats, and such other factors as discussed in Part I Item 1A - "Risk Factors" and Part II Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2022 Annual Report on Form 10-K.

During the quarter ended September 30, 2023, there were no material changes to the Risk Factors disclosed in the Company's 2022 Annual Report on Form 10-K.

changes in economic conditions in the Company's market area, 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 2023 Annual Report on Form 10-K.

During the quarter ended March 31, 2024, there were no material changes to the Risk Factors disclosed in the Company's 2023 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

2023 2022 2023 2022

Three Months Ended March 31

Per Share Data

10 unchanged sentences

Equity to loans (1)

15.90 17.45 16.00 19.19

Equity to deposits 12.05 10.23

4 unchanged sentences

Non-interest income to revenue (2)

36.51 35.99 36.35 37.34

Efficiency ratio (3)

58.15 55.19 57.62 57.48

Tier I common risk-based capital ratio 15.35 14.47

24 unchanged sentences

Results of Operations

Three Months Ended September 30 Nine Months Ended September 30

(Dollars in thousands) 2023 2022 % change 2023 2022 % change

Three Months Ended March 31 Increase (Decrease)

(Dollars in thousands) 2024 2023 Amount % change

Net interest income (expense) $ 248,999 $ 251,623 $ (2,624) (1.0 %)

4 unchanged sentences

Income taxes (31,652) (32,813) (1,161) (3.5)

Non-controlling interest income (expense) (2,104) (3,364) (37.5) (5,879) (9,595) (38.7)

Non-controlling interest income (expense) (2,789) (1,101) 1,688 N.M.

Net income attributable to Commerce Bancshares, Inc.

$ 112,663 $ 119,452 $ (6,789) (5.7 %)

For the quarter ended September 30, 2023, net income attributable to Commerce Bancshares, Inc.

(net income) amounted to $120.6 million, a decrease of $2.2 million, or 1.8%, compared to the third quarter of the previous year.

For the quarter ended March 31, 2024, net income attributable to Commerce Bancshares, Inc.

(net income) amounted to $112.7 million, a decrease of $6.8 million, or 5.7%, compared to the first quarter of the previous year.

For the current quarter, the annualized return on average assets was 1.48%, the annualized return on average equity was 15.39%, and the efficiency ratio was 61.67%.

Diluted earnings per common share was $.96 per share in the current quarter, a decrease of 1.0% compared to $0.97 per share in the third quarter of 2022, and decreased 5.9% compared to $1.02 per share in the previous quarter.

Compared to the third quarter of last year, net interest income increased $2.2 million, or .9%, mainly due to increases in interest income on loans and interest income on deposits with banks of $85.0 million and $26.2 million, respectively.

These increases were partly offset by an increase in deposits and borrowings interest expense of $96.3 million.

Diluted earnings per common share was $.86 per share in the current quarter, a decrease of 5.5% compared to $.91 per share in the first quarter of 2023, and increased 2.4% compared to $.84 per share in the previous quarter.

Compared to the first quarter of last year, net interest income decreased $2.6 million, or 1.0%, mainly due to an increase in interest expense on interest bearing accounts of $55.7 million.

This decrease was mainly offset by an increase in interest income on loans of $40.9 million, and an increase in deposits with banks of $17.1 million.

The provision for credit losses decreased $6.7 million, or 58.2%, compared to the same quarter in the prior year.

Non-interest income increased $4.4 million, or 3.2%, compared to the third quarter of 2022, mainly due to an increase in trust fees and bank card fees, partly offset by lower deposit account charges and consumer brokerage services fees.

Net gains on investment securities totaled $4.3 million in the current quarter compared to net gains of $3.4 million in the same quarter of last year.

Net securities gains in the current quarter primarily resulted from gains of $5.6 million related to fair value adjustments on private equity investments, partly offset by $1.2 million of net losses realized on the sales of private equity investments.

Non-interest expense increased $15.1 million, or 7.1%, over the third quarter of 2022, mainly due to higher salaries and employee benefits expense, higher data processing and software expense and higher FDIC insurance expense.

Net income for the first nine months of 2023 was $367.8 million, an increase of $11.1 million, or 3.1%, from the same period last year.

Diluted earnings per common share was $2.93, an increase of 4.3% compared to $2.81 per share in the same period last year.

For the first nine months of 2023, the annualized return on average assets was 1.53%, the annualized return on average equity was 18.42%, and the efficiency ratio was 57.62%.

Net interest income increased $62.2 million, or 9.0%, over the same period last year.

This growth was largely due to an increase of $275.5 million in interest income on loans and an increase in interest on deposits at the Federal Reserve of $61.2 million.

These increases were partly offset by increases in interest expense on deposits and borrowings of $243.9 million.

The provision for credit losses was $29.6 million for the first nine months of 2023, compared to $12.6 million in the same period last year.

Non-interest income increased $18.5 million, or 4.5%, from the first nine months of last year mainly due to higher bank card fees, letters of credit fees, and cash sweep commission fees, partly offset by lower deposit account fees.

Non-interest expense increased $47.7 million, or 7.5%, over the first nine months of last year mainly due to increases in salaries and benefits expense, higher FDIC insurance expense, and higher data processing and software expense.

Non-interest income increased $11.2 million, or 8.2%, compared to the first quarter of 2023, mainly due to an increase in trust fees and deposit account fees, partly offset by lower consumer brokerage services fees.

Net losses on investment securities totaled $259 thousand in the current quarter compared to net losses of $306 thousand in the same quarter of last year.

Net securities losses in the current quarter primarily resulted from losses of $8.5 million related to the sales of available for sale debt securities, partly offset by $7.1 million of fair value adjustments on private equity investments and $969 thousand in gains on sales of private equity investments.

Non-interest expense increased $21.6 million, or 9.6%, over the first quarter of 2023, mainly due to increases in salaries and employee benefits expense, data processing expense, Federal Deposit Insurance Corporation ("FDIC") insurance expense and litigation settlement expense.

Net Interest Income

2 unchanged sentences

Analysis of Changes in Net Interest Income

Three Months Ended September 30, 2023 vs.

2022 Nine Months Ended September 30, 2023 vs.

Change due to Change due to

Three Months Ended March 31, 2024 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 $ 4,555 $ (6,654) $ (2,099)

Net interest income in the third quarter of 2023 was $248.5 million, an increase of $2.2 million over the third quarter of 2022.

On a fully taxable-equivalent (FTE) basis, net interest income totaled $251.0 million in the third quarter of 2023, up $2.2 million over the same period last year and down $795 thousand from the previous quarter.

The increase in net interest income

compared to the third quarter of 2022 was mainly due to higher interest income earned on loans (FTE) of $85.3 million and balances at the Federal Reserve of $26.2 million, partly offset by higher interest expense on deposits and borrowings of $95.9 million.

Net interest income in the first quarter of 2024 was $249.0 million, a decrease of $2.6 million from the first quarter of 2023.

On a fully taxable-equivalent (FTE) basis, net interest income totaled $251.3 million in the first quarter of 2024, down $2.1 million from the same period last year and up $765 thousand over the previous quarter.

The decrease in net interest income

compared to the first quarter of 2023 was mainly due to higher deposit interest expense of $55.7 million and lower interest income earned on investment securities (FTE) of $5.8 million, partly offset by higher interest income earned on loans (FTE) of $41.2 million and balances at the Federal Reserve of $17.1 million.

The increase in deposit interest expense was mainly due to higher rates paid, while interest earned on investment securities (FTE) declined mainly due to lower average balances.

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.

The increase in interest earned on balances at the Federal Reserve was due to higher rates and average balances, while the increase in interest expense was mainly due to higher rates paid on deposits and borrowings.

The Company's net yield on earning assets (FTE) was 3.11% in the current quarter compared to 3.01% in the third quarter of 2022.

Total interest income (FTE) increased $98.2 million over the third quarter of 2022.

Interest income on loans (FTE) was $257.7 million during the third quarter of 2023, an increase of $85.3 million, or 49.5%, 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 165 basis points in the average rate earned and growth of $1.3 billion, or 8.5%, in average loan balances.

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

The Company's net yield on earning assets (FTE) was 3.33% in the current quarter compared to 3.26% in the first quarter of 2023.

Total interest income (FTE) increased $49.6 million over the first quarter of 2023.

Interest income on loans (FTE) was $266.2 million during the first quarter of 2024, an increase of $41.2 million, or 18.3%, 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 71 basis points in the average rate earned and growth of $676.2 million, or 4.1%, in average loan balances.

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

The largest increase to interest income occurred in business loan interest, which grew $14.6 million due to a 76 basis point increase in the average rate earned, coupled with growth in average balances of $217.4 million, or 3.84%.

Business real estate loan interest income increased $9.6 million due to an increase of 61 basis points in the average rate earned and higher average balances of $249.3 million, or 7.2%.

Construction and land loan interest grew $13.9 million due to a 290 basis point increase in the average rate earned and growth of $220.1 million, or 17.1%, in average loan balances.

In addition, consumer loan interest increased $9.5 million due to an increase of 180 basis points in the average rate earned, while consumer credit card loan increased $2.9 million mainly due to a 172 basis point increase in the average rate earned.

Consumer loan interest income grew $6.1 million due to a 109 basis point increase in the average rate earned.

In addition, construction and land loan interest income increased $5.3 million due to an increase of 107 basis points in the average rate earned and higher average loan balances of $61.7 million, or 4.4%.

Personal real estate loan interest income grew $3.7 million due to a 34 basis point increase in the average rate earned and growth of $97.4 million, or 3.3%, in average loan balances.

Interest income on investment securities (FTE) was $70.3 million during the third quarter of 2023, which was a decrease of $11.0 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 $6.9 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 $6.0 million from the same quarter last year.

Interest income earned on state and municipal securities declined $4.9 million due to a $661.4 million, or 32.2%, decrease in average balances and a 32 basis point decline in the average rate earned.

Interest income earned on mortgage-backed securities decreased $1.4 million mainly due to a decline of $686.6 million, or 10.0%, in the average balance.

In addition, a $1.3 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 $1.5 million in the prior year.

Interest earned on asset-backed securities decreased $1.7 million due to lower average balances of $1.3 billion, or 34.0%, partly offset by an increase of 58 basis points in the average rate earned.

These decreases to interest income were partly offset by growth in interest income on other securities of $3.9 million, mainly driven by a $2.3 million dividend from a private equity investment in the third quarter of 2023.

Additionally, the average rate earned on investment securities during the three months ended September 30, 2023 increased 15 basis points over the same period in the prior year.

The average balance of the total investment portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $11.9 billion in the third quarter of 2023, compared to $14.8 billion in the third quarter of 2022.

Interest income on securities purchased under agreements to resell decreased $2.2 million from the same quarter last year, due to a decline of $666.9 million in the average balance, partly offset by an increase of 36 basis points in the average rate earned.

Interest income on investment securities (FTE) was $66.7 million during the first quarter of 2024, which was a decrease of $5.8 million from the same quarter last year.

The decrease in interest income occurred mainly in interest earned on asset-backed securities and state and municipal securities.

Interest income earned on asset-backed securities declined $3.6 million due to a $1.1 billion, or 35.5%, decrease in average balances, partly offset by an increase of 38 basis points in the average rate earned.

Interest income earned on state and municipal securities declined $3.5 million due to lower average balances of $462.9 million, or 25.8%, and a 29 basis point decrease in the average rate earned.

Interest income earned on U.S.

government and federal agency obligations declined $736 thousand due to a $247.4 million, or 22.5%, decrease in average balances, partly offset by an increase of 18 basis points in the average rate earned.

Interest income related to the Company's U.S.

Treasury inflation-protected securities, which is tied to the non-seasonally adjusted Consumer Price Index (CPI-U), decreased $584 thousand from the same quarter last year.

Interest income earned on mortgage-backed securities decreased $742 thousand mainly due to a decline of $552.1 million, or 8.6%, in the average balance.

In addition, a $2.0 million increase in premium amortization, reflecting slower forward prepayment speed estimates was recorded in the current year, compared to a premium amortization adjustment increase of $802 thousand in the prior year.

These decreases to interest income were partly offset by growth in interest income on other securities of $3.2 million, mainly driven by dividend payments of $3.4 million from the Company's private equity investments in the first quarter of 2024.

Additionally, the average rate earned on investment securities during the three months ended March 31, 2024 increased 26 basis points over the same period in the prior year.

The average balance of the total investment portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $11.0 billion in the first quarter of 2024, compared to $13.5 billion in the first quarter of 2023.

Interest income on securities purchased under agreements to resell decreased $2.3 million from the same quarter last year, due to a decline of $484.1 million in the average balance.

Interest income on balances at the Federal Reserve grew $17.1 million due to an increase of 81 basis points in the average rate earned and an increase of $1.1 billion in the average balance invested.

The average fully taxable-equivalent yield on total interest earning assets was 4.51% in the third quarter of 2023, up from 3.21% in the third quarter of 2022.

Total interest expense increased $95.9 million compared to the third quarter of 2022 due to increases of $69.4 million in interest expense on interest bearing deposits and $26.5 million on borrowings.

The increase in deposit interest expense resulted mainly from an increase of $36.2 million in interest expense on interest checking and money market deposit accounts due to a 113 basis point increase in the average rate paid, slightly offset by lower average balances of $1.4 billion, or 9.5%.

The average fully taxable-equivalent yield on total interest earning assets was 4.78% in the first quarter of 2024, up from 4.00% in the first quarter of 2023.

Total interest expense increased $51.7 million compared to the first quarter of 2023 due to an increase of $55.7 million in interest expense on interest bearing deposits, partly offset by a $3.9 million decrease in interest expense on borrowings.

The increase in deposit interest expense resulted mainly from an increase of $35.4 million in interest expense on interest checking and money market deposit accounts due to a 108 basis point increase in the average rate paid.

In addition, interest expense on certificates of deposit increased $20.2 million mainly due to an increase of 194 basis points in the average rate paid and an increase in average balances of $1.3 billion.

A portion of this increase was due to brokered deposits added by the Company during the second quarter of 2023.

The brokered deposits consist of short-term certificates of deposit less than $100 thousand, and $401.3 million were outstanding at September 30, 2023.

Interest expense on borrowings was higher due to an increase of $10.9 million in interest expense on customer repurchase agreements resulting from an increase of 183 basis points in the average rate paid.

Interest expense on federal funds purchased increased $6.5 million mainly due to a 292 basis point increase in the average rate paid and a $456.9 million increase in the average balance of federal funds purchased, while

FHLB borrowings increased $684.2 million and resulted in an increase of $9.2 million in interest expense.

The overall average rate incurred on all interest bearing liabilities was 2.12% and .34% in the third quarters of 2023 and 2022, respectively.

Net interest income (FTE) for the first nine months of 2023 was $756.1 million compared to $695.1 million for the same period in 2022.

For the first nine months of 2023, the net interest margin was 3.16% compared to 2.75% for the same period in 2022.

Total interest income (FTE) for the first nine months of 2023 increased $61.0 million over the same period last year mainly due to higher interest income on loans (FTE) and balances at the Federal Reserve, partly offset by higher interest expense on deposit and borrowings and lower interest income on investment securities (FTE).

Loan interest income (FTE) increased $276.5 million, or 61.6%, due to a 193 basis point increase in the average rate earned and a $1.2 billion, or 8.0%, increase in average loan balances.

Most of the increase occurred in the business, business real estate and construction loan categories, but interest income in all loan categories increased due to higher average rates earned and average loan balances.

Interest income on investment securities (FTE) decreased $29.1 million due to a $2.5 billion decrease in average balances, slightly offset by a 12 basis point increase in the average rate earned.

Interest earned on U.S.

government and federal agency obligations decreased $16.0 million, mainly due to lower TIPS interest income.

Interest income earned on state and municipal securities declined $11.0 million due to lower average balances and lower interest rates earned.

Interest earned on mortgage-backed securities decreased $7.0 million due to lower average balances, partly offset by higher average rates earned, while interest on asset-backed securities increased $4.5 million due to higher average rates earned, partly offset by lower average balances.

Interest income on securities purchased under agreements to resell decreased $3.9 million due to lower average balances, partly offset higher average rates earned.

Interest income on balances at the Federal Reserve increased $61.2 million mainly due to higher average rates earned.

Total interest expense for the first nine months of 2023 increased $244.2 million compared to the same period last year.

Interest expense on deposits increased $146.9 million, due to a 116 basis point increase in the average rate paid.

Interest expense on borrowings increased $97.3 million, mainly due to higher rates paid on federal funds purchased and customer repurchase agreements, as well as and higher average balances and higher rates paid on FHLB borrowings.

The overall cost of total interest bearing liabilities increased to 1.74% compared to .17% in the same period last year.

The overall rate paid on total deposits increased 126 basis points over the same quarter last year.

Interest expense on customer repurchase agreements increased $3.9 million due to a 50 basis point increase in the average rate paid and a $93.2 million increase in the average balance.

These increases to interest expense were partly offset by lower interest expense on other borrowings of $6.7 million due to a decrease of $550.0 million in average Federal Home Loan Bank (FHLB) borrowings.

In addition, interest expense on federal funds purchased decreased $1.2 million mainly due to a $165.5 million decrease in the average balance, partly offset by an increase in the average rate paid of 83 basis points.

overall average rate incurred on all interest bearing liabilities was 2.21% and 1.20% in the first quarters of 2024 and 2023, 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) 2023 2022 Amount % change 2023 2022 Amount % change

Bank card transaction fees $ 46,899 $ 45,638 $ 1,261 2.8 % $ 143,278 $ 131,556 $ 11,722 8.9 %

Three Months Ended March 31 Increase (Decrease)

(Dollars in thousands) 2024 2023 Amount % change

Trust fees $ 51,105 $ 45,328 $ 5,777 12.7 %

Bank card transaction fees 46,930 46,654 276 .6

Deposit account charges and other fees 24,151 21,752 2,399 11.0

6 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, 2023 and 2022.

Three Months Ended September 30 Nine Months Ended September 30

(Dollars in thousands) 2023 2022 $ change % change 2023 2022 $ change % change

The table below is a summary of net bank card transaction fees for the three month periods ended March 31, 2024 and 2023.

Three Months Ended March 31

(Dollars in thousands) 2024 2023 $ change % change

Net debit card fees $ 10,405 $ 10,287 $ 118 1.1 %

3 unchanged sentences

Total bank card transaction fees $ 46,930 $ 46,654 $ 276 .6 %

For the third quarter of 2023, total non-interest income amounted to $142.9 million compared to $138.5 million in the same quarter last year, which was an increase of $4.4 million, or 3.2%.

The increase was mainly due to higher trust fees and net bank card fees, partly offset by lower deposit account fees, consumer brokerage services and capital market fees.

Bank card transaction fees for the current quarter grew $1.3 million, or 2.8%, over the same period last year, mainly due to growth of $627 thousand in net merchant fees and $581 thousand in net debit card fees.

The growth in net merchant fees was mainly due to higher interchange fees, and net debit card fees increased mainly due to lower network expense.

Net corporate card fees increased mainly due to lower network and rewards expense, partly offset by lower interchange fees, while net credit card fees decreased due to lower interchange fees.

Trust fees increased $3.8 million, or 8.4%, mainly due to higher private client trust fees.

Compared to the third quarter of last year, deposit account fees decreased $1.4 million, or 5.8%, due to lower overdraft and return item fees, partly offset by higher corporate cash management fees.

Consumer brokerage fees declined $1.3 million due to lower annuity and advisory fees, while capital market fees decreased $983 thousand, or 29.0%.

Other non-interest income increased $3.2 million, or 28.0%, mainly due to growth of $942 thousand in bond underwriting fees and gains on the sale of real estate of $1.3 million recorded in the current quarter.

Non-interest income for the first nine months of 2023 was $428.2 million compared to $409.7 million in the first nine months of 2022, which was an increase of $18.5 million, or 4.5%.

The increase was mainly due to higher net bank card fees and other income, partly offset by lower deposit account fees, capital market fees and loan fees and sales.

Bank card transaction fees for the current quarter grew $11.7 million, or 8.9%, over the same period last year, mainly due to growth of $8.3 million in net corporate card fees and $2.1 million in net debit card fees.

Trust fees increased $1.8 million, or 1.3%, mainly due to higher private client trust fees.

Deposit account fees decreased $4.9 million, or 6.8%, mainly due to lower overdraft and return item fees, partly offset by higher corporate cash management fees and personal deposit account fees.

Capital market fees decreased $2.5 million, or 23.4%, and consumer brokerage fees declined $1.0 million, or 7.0%, due to lower advisory and 12b-1 fees.

Loan fees and sales decreased $2.3 million, or 21.6%, mainly due to lower mortgage banking revenue.

Other non-interest income increased $15.7 million, or 52.8%, mainly due to higher letter of credit fees of $3.1 million, cash sweep commissions of $2.9 million, gains of $2.1 million on the sale of real estate and a write down of $965 thousand on a branch location recorded in 2022.

In addition, increases of $6.0 million in fair value adjustments were recorded on the Company's deferred compensation plan, which is held in a trust and recorded as both an asset and liability, affecting both other income and other expense.

For the first quarter of 2024, total non-interest income amounted to $148.8 million compared to $137.6 million in the same quarter last year, which was an increase of $11.2 million, or 8.2%.

The increase was mainly due to higher trust fees, deposit account fees and tax credit sales income.

Trust fees increased $5.8 million, or 12.7%, mainly due to growth of $4.9 million in private client trust fees and $714 thousand in institutional trust fees.

Bank card transaction fees for the current quarter grew $276 thousand, or .6%, over the same period last year, mainly due to growth in net corporate card fees and net debit card fees.

The growth of $164 thousand in net corporate card fees was mainly due to higher interchange fees, partly offset by higher rewards expense.

Net debit card fees increased $118 thousand mainly due to lower network expense.

Compared to the first quarter of last year, deposit account fees increased $2.4 million, or 11.0%, mainly due to higher corporate cash management fees of $2.0 million.

Consumer brokerage fees declined $677 thousand mainly due to lower variable annuity fees, while capital market fees increased $530 thousand, or 15.8%.

Other non-interest income increased $2.4 million, or 18.5%, mainly due to growth of $1.5 million in tax credit sales income and $731 thousand in cash sweep commissions.

Investment Securities Gains (Losses), Net

Three Months Ended September 30 Nine Months Ended September 30

Three Months Ended March 31

(In thousands) 2024 2023

4 unchanged sentences

Total investment securities gains (losses), net $ (259) $ (306)

Net gains on investment securities, which were recognized in earnings during the three months ended September 30, 2023 and 2022, are shown in the table above.

Net securities gains of $4.3 million were reported in the third quarter of 2023, compared to net gains of $3.4 million in the same period last year.

The net gains in the third quarter of 2023 were primarily driven by the Company's private equity investments, where $5.6 million in net gains in fair value were partially offset by net losses of $1.2 million on sales.

The net gains on investment securities for the same quarter last year 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 debt security.

Net gains on investment securities of $7.4 million were recognized in earnings for the nine months ended September 30, 2023, compared to net gains of $11.6 million for the same period in 2022.

Net gains in the first nine months of 2023 were mainly comprised of net gains in fair value of $16.9 million on private equity investments, due to fair value adjustments, partially offset by net losses of $8.4 million on sales of available for sale securities.

Net gains in the first nine months of 2022 were mainly comprised of net gains in fair value of $37.1 million on private equity investments, partly 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.

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 $3.3 million during the first nine months of 2023 and expense of $6.6 million during the first nine months of 2022.

Net gains and losses on investment securities, which were recognized in earnings during the three months ended March 31, 2024 and 2023, are shown in the table above.

Net securities losses of $259 thousand were reported in the first quarter of 2024, compared to net losses of $306 thousand in the same period last year.

The net losses in the first quarter of 2024 were primarily comprised of net losses of $8.5 million realized on the sale of available for sale securities, mostly offset by net gains in fair value of $7.1 million and a gain of $969 thousand on the sale of an investment, both in the Company's private equity investment portfolio.

The net losses on investment securities for the same quarter last year were primarily comprised of net losses of $3.1 million realized on the sale of available for sale securities, mostly offset by net gains in fair value of $2.3 million and a gain of $658 thousand on sales of an investment, both in the Company's private equity investment portfolio.

The portion of private equity activity attributable to minority interests is reported as non-controlling interest in the consolidated statements of income and resulted in expense of $1.5 million during the first three months of 2024 and expense of $582 thousand during the first three months of 2023.

Non-Interest Expense

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

(Dollars in thousands) 2023 2022 Amount % change 2023 2022 Amount % change

Three Months Ended March 31 Increase (Decrease)

(Dollars in thousands) 2024 2023 Amount % change

Salaries and employee benefits $ 151,801 $ 144,373 $ 7,428 5.1 %

1 unchanged sentence

Net occupancy 13,574 12,759 815 6.4

Marketing 6,167 6,228 (61) (1.0) 18,006 18,408 (402) (2.2)

Deposit insurance 8,017 4,643 3,374 72.7

Equipment 5,010 4,850 160 3.3

Supplies and communication 4,744 4,590 154 3.4

Marketing 4,036 5,471 (1,435) (26.2)

Other 27,362 19,267 8,095 42.0

Total non-interest expense $ 245,697 $ 224,107 $ 21,590 9.6 %

Non-interest expense for the third quarter of 2023 amounted to $228.0 million, an increase of $15.1 million, or 7.1%, compared to expense of $212.9 million in the third 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, FDIC insurance expense and occupancy expense.

Salaries expense increased $6.8 million, or 5.8%, due to higher full-time salaries expense of $6.4 million, or 6.9%.

Employee benefits expense totaled $21.5 million, reflecting growth of $2.6 million, or 13.6%, mainly due to higher healthcare expense.

Full-time equivalent employees totaled 4,714 at September 30, 2023, compared to 4,595 at September 30, 2022.

Non-interest expense for the first quarter of 2024 amounted to $245.7 million, an increase of $21.6 million, or 9.6%, compared to expense of $224.1 million in the first quarter of last year.

The increase in expense over the same period last year was mainly due to litigation settlement expense as well as higher salaries and employee benefits expense, FDIC insurance expense and data processing and software expense, partly offset by lower marketing expense.

Salaries and employees benefits expense increased $7.4 million, or 5.1%, mainly due to higher full-time salaries expense of $5.8 million, or 6.2%, and higher employee benefits expense of $1.3 million, or 4.9%.

Full-time equivalent employees totaled 4,721 at March 31, 2024, compared to 4,636 at March 31, 2023.

Data processing and software expense increased $3.0 million, or 10.7%, due to higher bank card processing fees and increased costs for service providers.

Occupancy expense increased $1.4 million, or 11.2%, mainly due to higher depreciation expense and real estate taxes, partly offset by higher external rent income.

Equipment expense decreased $339 thousand, or 6.7%, mainly due to lower equipment depreciation and repairs expense, while supplies and communication expense increased $382 thousand, or 8.3%, mainly due to higher postage, statement, and plastic expense.

Other non-interest expense increased $1.6 million, or 8.6%, mainly due to higher FDIC insurance expense and lower deferred origination costs of $1.3 million and $982 thousand, respectively.

Non-interest expense amounted to $679.7 million for the first nine months of 2023, an increase of $47.7 million, or 7.5%, over the first nine months of 2022.

Salaries and benefits expense increased $21.0 million, or 5.1%, mainly due to higher full-time salaries expense, healthcare expense and payroll taxes, partly offset by lower incentive compensation expense, largely the result of a $5.4 million accrual for special bonuses in 2022 that did not reoccur in 2023.

Data processing and software expense increased $4.9 million, or 5.9%, due to increased costs for service providers and higher bank card processing fees.

Occupancy expense increased $2.4 million, or 6.3%, mainly due to higher depreciation expense and real estate taxes, partly offset by higher external rent income.

Marketing expense decreased $402 thousand, or 2.2%, while supplies and communication expense increased $523 thousand, or 3.8%, mainly due to higher office supplies, data network, and postage expense.

Other non-interest expense increased $19.2 million, or 38.4%, mainly due to higher FDIC insurance expense of $5.4 million and higher travel and entertainment expense, miscellaneous losses and pension plan expense.

In addition, an increase of $6.0 million in fair value equity adjustments were recorded on the Company's deferred compensation plan, and deconversion costs of $2.1 million relating to the transition of Commerce Financial Advisors support to LPL Financial's Institution Services platform were recorded in the second quarter of 2023.

Occupancy expense increased $815 thousand, or 6.4%, mainly due to higher depreciation expense and real estate taxes, partly offset by higher rent income, while marketing expense declined $1.4 million, or 26.2%.

Deposit insurance increased $3.4 million, due to a $4.0 million accrual adjustment in the current quarter to the special assessment by the FDIC to replenish the Deposit Insurance Fund.

Other non-interest expense increased $8.1 million, or 42.0%, mainly due to litigation settlement expense of $10.0 million, net of insurance.

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

Three Months Ended Nine Months Ended September 30

(In thousands) Sept.

30, 2023 June 30, 2023 Sept.

30, 2022 2023 2022

Three Months Ended

(In thousands) Mar.

31, 2024 Dec.

31, 2023 Mar.

ALLOWANCE FOR CREDIT LOSSES ON LOANS

20 unchanged sentences

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 183,551 $ 187,641 $ 187,945

Three Months Ended Nine Months Ended September 30

30, 2023 June 30, 2023 Sept.

30, 2022 2023 2022

Three Months Ended

31, 2024 Dec.

31, 2023 Mar.

Annualized net loan charge-offs (recoveries)*:

15 unchanged sentences

The Company's policies and processes for determining the allowance for credit losses on loans and the liability for unfunded lending commitments are discussed in Note 1 to the consolidated financial statements and in the " Allowance for Credit Losses" discussion within Critical Accounting Estimates and Related Policies in Item 7 of the 2023 Annual Report on Form 10-K.

Net loan charge-offs in the third quarter of 2023 amounted to $9.8 million, compared to $6.5 million in the prior quarter and $4.8 million in the third quarter of last year.

Comp ared to the same period last year, total net loan charge-offs in the third quarter of 2023 increased $5.0 million and increased $3.3 million from the previous quarter.

The increase over the prior year was mainly driven by increases in net charge-offs on business, consumer credit cards, and consumer loans of $2.2 million, $1.8 million, and $970 thousand, respectively.

The increase from the previous quarter was driven by the increase in net charge-offs on business and consumer loans.

For the three months ended September 30, 2023, annualized net charge-offs on average consumer credit card loans were 3.32%, compared to 3.38% in the previous quarter and 2.08% in the same period last year.

Net loan charge-offs in the first quarter of 2024 amounted to $8.9 million, compared to $8.0 million in the prior quarter and $6.8 million in the first quarter of last year.

Comp ared to the same period last year, total net loan charge-offs in the first quarter of 2024 increased $2.1 million and increased $858 thousand from the previous quarter.

The increase over the prior year was mainly driven by increases in net charge-offs on consumer credit cards and consumer loans of $2.1 million and $708 thousand, respectively.

The increase from the previous quarter was driven by the increase in net charge-offs on consumer credit cards and consumer loans.

For the three months ended March 31, 2024, annualized net charge-offs on average consumer credit card loans were 4.60%, compared to 3.72% in the previous quarter and 3.15% in the same period last year.

Consumer loan annualized net charge-offs in the current quarter amounted to .38%, compared to .36% in the prior quarter and .25% in the same period last year.

In the third quarter of 2023 , total annualized net loan charge-offs were .23%, compared to .16% in the previous quarter and .12% in the same period last year.

The provision for credit losses on loans was $13.3 million in the current quarter, which was a $7.5 million increase from the $5.9 million provision recorded in the p rior quarter and a $3.2 million increase from the $10.2 million provision recorded for the three months ended September 30, 2022.

The increase in the provision from the prior quarter was due to growth in the related allowance for credit losses on loans.

For the nine months ended September 30, 2023, net loan charge-offs amounted to $23.0 million, compared to $13.4 million for the same period in the prior year.

The increase in net loan charge-offs over the prior year was driven mainly by increases in consumer credit card, business, and consumer loans and overdrafts.

Annualized net charge-offs on consumer credit card loans totaled 3.28% and 2.26% for the nine months ended September 30, 2023 and 2022, respectively, while consumer loan annualized net charge-offs were .28% and .15% in the nine months ended September 30, 2023 and 2022, respectively.

Total annualized net loan charge-offs were .18% and .12% for the nine months ended September 30, 2023 and 2022, respectively.

For the nine months ended September 30, 2023, the provision for credit losses on loans was $35.2 million, which was a $28.4 million increase over the $6.8 million provision recorded in the same period last year.

The increase in the provision over the prior year was due to the buildup of the related allowance for credit losses in the first nine months of 2023 related to an increase in loan net charge-offs as well as a future mild recession forecasted for the fourth quarter of 2023, while the first nine months of 2022 experienced reductions in the related allowance for credit losses primarily related to the improving economic forecast at that time.

For the nine months ended September 30, 2023, the allowance for credit losses on loans increased $12.1 million, compared to the allowance for credit losses on loans at December 31, 2022.

During the nine months ended September 30, 2023, the allowance for credit losses on commercial loans increased by $7.3 million, while the allowance for credit losses related to personal banking loans, including consumer credit card loans, increased $4.8 million.

Compared to September 30, 2022, the allowance for credit losses on loans at September 30, 2023 increased $18.9 million.

The increase in the allowance for credit losses at September 30, 2023 compared to both September 30, 2022 and December 31, 2022 was primarily the result of applying a slightly more pessimistic forecast at September 30, 2023 than was utilized in the prior year, coupled with loan growth and rising interest rates that extended the estimated lives of certain loan portfolios during 2023.

The allowance for credit losses on loans was $162.2 million at September 30, 2023 and was .95%, .92% and .90% of total loans at September 30, 2023, December 31, 2022 and September 30, 2022, respectively.

In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $1.7 million, compared to a provision of $5.1 million at September 30, 2022.

For the nine months ended September 30, 2023, the provision for credit losses on unfunded commitments was a benefit of $5.6 million, compared to a provision of $5.8 million in the first nine months of 2022.

At September 30, 2023, the liability for unfunded lending commitments was $27.5 million, compared to $33.1 million at December 31, 2022 and $30.0 million at September 30, 2022.

In the first quarter of 2024 , total annualized net loan charge-offs were .21%, compared to .19% in the previous quarter and .17% in the same period last year.

The provision for credit losses on loans was $6.9 million in the current quarter, which was a $1.2 million decrease from the $8.2 million provision recorded in the p rior quarter and a $9.0 million decrease from the $15.9 million provision recorded for the three months ended March 31, 2023.

The decrease in the provision from the prior quarter was due to decline in the related allowance for credit losses on loans.

Compared to the allowance for credit losses at December 31, 2023, the allowance for credit losses at March 31, 2024 decreased $1.9 million.

The allowance for credit losses on commercial loans at March 31, 2024 was $2.7 million lower than at December 31, 2023, while the allowance for credit losses related to personal banking loans, including consumer credit card loans, was $807 thousand higher at March 31, 2024 than at December 31, 2023.

Compared to March 31, 2023, the allowance for credit losses on loans at March 31, 2024 increased $1.1 million.

The decrease in the allowance for credit losses at March 31, 2024 compared to December 31, 2023 was primarily the result of applying a less pessimistic forecast at March 31, 2024 than was utilized at December 31, 2023.

The allowance for credit losses on loans was $160.5 million at March 31, 2024 and was .93%, .94% and .96% of total loans at March 31, 2024, December 31, 2023 and March 31, 2023, respectively.

In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $2.2 million, compared to a benefit of $4.5 million during the three months ended March 31, 2023 and an expense of $2.3 million during the prior quarter.

At March 31, 2024, the liability for unfunded lending commitments was $23.1 million, compared to $25.2 million at December 31, 2023 and $28.6 million at March 31, 2023.

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, 2023.

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.

7 unchanged sentences

Loans are placed on non-accrual status when management does not expect to collect payments consistent with acceptable and agreed upon terms of repayment.

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

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

(Dollars in thousands)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Non-accrual loans $ 5,784 $ 7,312

4 unchanged sentences

Total loans past due 90 days and still accruing interest $ 20,281 $ 21,864

Non-accrual loans totaled $8.2 million at September 30, 2023, a decrease of $97 thousand from the balance at December 31, 2022.

The decrease occurred mainly in business and business real estate loans, which decreased $149 thousand and $113 thousand, respectively.

These decreases were partly offset by a $165 thousand increase in personal real estate non-accrual loans.

At September 30, 2023, non-accrual loans were comprised of business (80.4%), personal real estate (18.7%), and business real estate (0.9%) loans.

Foreclosed real estate totaled $114 thousand at September 30, 2023, a slight increase compared to December 31, 2022.

Total loans past due 90 days or more and still accruing interest were $18.6 million as of September 30, 2023, an increase of $2.8 million from December 31, 2022.

Non-accrual loans totaled $5.8 million at March 31, 2024, a decrease of $1.5 million from the balance at December 31, 2023.

The decrease occurred mainly in business and personal real estate non-accrual loans, which decreased $2.6 million and $130 thousand, respectively.

These decreases were partly offset by a $1.2 million increase in business real estate non-accrual loans.

At March 31, 2024, non-accrual loans were comprised of revolving home equity (34.2%), personal real estate (26.3%), business real estate (21.6%), and business (17.9%) loans.

Foreclosed real estate totaled $206 thousand at March 31, 2024, a slight decrease compared to December 31, 2023.

Total loans past due 90 days or more and still accruing interest were $20.3 million as of March 31, 2024, a decrease of $1.6 million from December 31, 2023.

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 $219.4 million at September 30, 2023 compared with $259.7 million at December 31, 2022, resulting in a decrease of $40.4 million, or 15.5%.

Such loans totaled $267.0 million at March 31, 2024 compared with $216.4 million at December 31, 2023, resulting in an increase of $50.6 million, or 23.4%.

(In thousands)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Potential problem loans:

5 unchanged sentences

When borrowers are experiencing financial difficulty, the Company may agree to modify the contractual terms of a loan to a borrower in order to assist the borrower in repaying principal and interest owed to the Company.

At September 30, 2023, the Company held $129.0 million of loans that had been modified during the nine months ended September 30, 2023.

are further discussed in the "Modifications for borrowers experiencing financial difficulty" section in Note 2 to the consolidated financial statements.

At March 31, 2024, the Company held $32.9 million of loans that had been modified during the three months ended March 31, 2024.

These loans 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 9.0% of total loans outstanding at September 30, 2023.

The largest component of construction and land loans was commercial construction, which increased $183.3 million during the nine months ended September 30, 2023.

At September 30, 2023, multi-family residential construction loans totaled approximately $376.0 million, or 28.8%, of the commercial construction loan portfolio, compared to $303.5 million, or 27.0%, at December 31, 2022.

(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, 2024.

The largest component of construction and land loans was commercial construction, which increased $29.5 million during the three months ended March 31, 2024.

At March 31, 2024, multi-family residential construction loans totaled approximately $392.1 million, or 31.3%, of the commercial construction loan portfolio, compared to $414.6 million, or 33.9%, at December 31, 2023.

(Dollars in thousands) March 31,

December 31, 2023

5 unchanged sentences

Real Estate – Business Loans

Total business real estate loans were $3.6 billion at September 30, 2023 and comprised 21.3% of the Company's total loan portfolio.

Total business real estate loans were $3.7 billion at March 31, 2024 and comprised 21.5% 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, 2023, 31.0% of business real estate loans were for owner-occupied real estate properties, which have historically resulted in lower net charge-off rates than non-owner-occupied commercial real estate loans.

(Dollars in thousands) September 30,

At March 31, 2024, 32.1% 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, 2023

3 unchanged sentences

Retail 351,735 9.5 2.0 366,693 9.9 2.1

Hotels 293,420 8.0 1.7 230,972 6.8 1.4

Multi-family 294,342 7.9 1.7 256,657 6.9 1.5

Hotels 293,951 7.9 1.7 292,941 7.9 1.7

Farm 193,307 5.2 1.1 195,981 5.3 1.1

2 unchanged sentences

Total real estate - business loans $ 3,711,602 100.0 % 21.5 % $ 3,719,306 100.0 % 21.6 %

Information about the credit quality of the Company's business real estate loan portfolio as of September 30, 2023 and December 31, 2022 is provided in the table below.

Information about the credit quality of the Company's business real estate loan portfolio as of March 31, 2024 and December 31, 2023 is provided in the table below.

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

September 30, 2023

March 31, 2024

Owner-occupied $ 1,160,578 $ 16,514 $ 13,457 $ 42 $ 1,190,591

2 unchanged sentences

Retail 335,427 15,500 808 — 351,735

Hotels 282,404 9,373 1,643 — 293,420

Multi-family 282,217 10,983 1,142 — 294,342

Hotels 282,311 9,132 1,304 1,204 293,951

Farm 193,307 — — — 193,307

14 unchanged sentences

Revolving Home Equity Loans

The Company had $305.2 million in revolving home equity loans at September 30, 2023 that were collateralized by residential real estate.

The Company had $322.5 million in revolving home equity loans at March 31, 2024 that were collateralized by residential real estate.

Most of these loans (92.0%) 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, 2023, the outstanding principal of loans with an original LTV higher than 80% was $32.2 million, or 10.5% 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 $5.2 million at September 30, 2023 and $1.9 million at December 31, 2022, and there were no revolving home equity loans on non-accrual status at September 30, 2023 or December 31, 2022.

The weighted average FICO score for the total portfolio balance at September 30, 2023 is 785.

As of March 31, 2024, the outstanding principal of loans with an original LTV higher than 80% was $32.2 million, or 10.0% of the portfolio, compared to $32.3 million as of December 31, 2023.

Total revolving home equity loan balances over 30 days past due were $3.8 million at March 31, 2024 and $4.4 million at December 31, 2023, and the outstanding balance of revolving home equity loans on non-accrual status was $2.0 million at both March 31, 2024 and December 31, 2023.

The weighted average FICO score for the total portfolio balance at March 31, 2024 is 783.

At maturity, the accounts are re-underwritten, and if they qualify under the Company's credit, collateral and capacity policies, the borrower is given the option to renew the line of credit or convert the outstanding balance to an amortizing loan.

5 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 38.8% of the consumer loan portfolio at September 30, 2023, and outstanding balances for auto loans were $824.7 million and $798.6 million at September 30, 2023 and December 31, 2022, respectively.

The balances over 30 days past due amounted to $8.6 million at September 30, 2023 and $9.9 million at December 31, 2022, respectively, and comprised 1.0% of the outstanding balances of these loans at September 30, 2023 and 1.2% at December 31, 2022, respectively.

For the nine months ended September 30, 2023, $290.3 million of new auto loans were originated, compared to $257.5 million during the first nine months of 2022.

At September 30, 2023, the automobile loan portfolio had a weighted average FICO score of 755, and net charge-offs on auto loans were .5% 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 11.0% of the consumer loan portfolio at September 30, 2023.

Losses on these loans have historically been low, and the Company saw net recoveries of $55 thousand for the first nine months of 2023.

Private banking loans comprised 32.1% of the consumer loan portfolio at September 30, 2023.

The Company's private banking loans are generally well-collateralized, and at September 30, 2023 were secured primarily by assets held by the Company's trust department.

Auto loans comprised 39.0% of the consumer loan portfolio at March 31, 2024, and outstanding balances for auto loans were $826.8 million and $820.3 million at March 31, 2024 and December 31, 2023, respectively.

The balances over 30 days past due amounted to $8.5 million at March 31, 2024 and $9.5 million at December 31, 2023, respectively, and comprised 1.0% of the outstanding balances of these loans at March 31, 2024 and 1.2% at December 31, 2023, respectively.

For the three months ended March 31, 2024, $101.2 million of new auto loans were originated, compared to $120.0 million during the first three months of 2023.

At March 31, 2024, the automobile loan portfolio had a weighted average FICO score of 756, and net charge-offs on auto loans were .47% of average auto loans.

Losses on these loans have historically been low, and the Company saw net recoveries of $14 thousand for the first three months of 2024.

Private banking loans comprised 33.6% of the consumer loan portfolio at March 31, 2024.

The Company's private banking loans are generally well-collateralized, and at March 31, 2024 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 $1.6 million in the first nine months of 2023 and were .2% of the average balances of these loans at September 30, 2023.

Net charge-offs on private banking, health services financing, motorcycle and marine and RV loans totaled $1.0 million in the first three months of 2024 and were .43% of the average balances of these loans at March 31, 2024.

Consumer Credit Card Loans

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

Out of a portfolio at September 30, 2023 of $574.8 million in consumer credit card loans outstanding, approximately $111.7 million, or 19.4%, carried a low promotional rate.

Out of a portfolio at March 31, 2024 of $564.4 million in consumer credit card loans outstanding, approximately $113.9 million, or 20.2%, carried a low promotional rate.

Within the next six months, $51.0 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 $257.2 million, or 1.5% of total loans at September 30, 2023, a decrease of $39.3 million from December 31, 2022, 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 $296.0 million, or 1.7% of total loans at March 31, 2024, an increase of $24.0 million from December 31, 2023, as shown in the table below.

(In thousands)

September 30, 2023 December 31, 2022 Unfunded commitments at September 30, 2023

March 31, 2024 December 31, 2023 Unfunded commitments at March 31, 2024

Extraction $ 218,821 $ 219,828 $ 161,229

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 $1.5 billion at September 30, 2023, compared to $1.4 billion at December 31, 2022.

Additional unfunded commitments at September 30, 2023 totaled $2.1 billion.

Income tax expense was $33.4 million in the third quarter of 2023, compared to $36.0 million in the second quarter of 2023 and $33.9 million in the third quarter of 2022.

The Company's effective tax rate, including the effect of non-controlling interest, was 21.7% in the third quarter of 2023, compared to 22.0% in the second quarter of 2023 and 21.7% in the third quarter of 2022.

The balance of SNC loans totaled $1.5 billion at both March 31, 2024 and December 31, 2023.

Additional unfunded commitments at March 31, 2024 totaled $2.3 billion.

Income tax expense was $31.7 million in the first quarter of 2024, compared to $32.3 million in the fourth quarter of 2023 and $32.8 million in the first quarter of 2023.

The Company's effective tax rate, including the effect of non-controlling interest, was 21.9% in the first quarter of 2024, compared to 22.8% in the fourth quarter of 2023 and 21.6% in the first quarter of 2023.

Financial Condition

Balance Sheet

Total assets of the Company were $31.4 billion at September 30, 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 $31.2 billion at September 30, 2023 and $31.6 billion at December 31, 2022, and consisted of 55% in loans and 38% in investment securities at September 30, 2023.

At September 30, 2023, total loans increased $826.2 million or 5.1%, compared to balances at December 31, 2022.

The increase was mainly due to growth in business, business real estate and construction loans of $246.6 million, $240.2 million, and $178.5 million, respectively.

The growth in business loans was mainly the result of increased commercial and industrial lending and higher lease and tax free loan balances.

Personal real estate loans increased $106.6 million, and consumer loans, which include automobile, marine and RV, fixed rate home equity and other consumer loans, increased $66.7 million, due to growth in auto loans and other consumer loans.

These increases were partially offset by declines in overdrafts and consumer credit card loans of $11.2 million and $9.2 million, respectively.

Total available for sale debt securities, excluding fair value adjustments, decreased $2.3 billion at September 30, 2023 compared to December 31, 2022.

Purchases of securities during this period totaled $87.4 million, offset by sales, maturities and pay downs of $2.4 billion.

The decline in investment securities was mainly the result of lower balances of asset-backed securities, state and municipal securities, and agency mortgage-backed securities, which decreased $1.1 billion, $583.5 million, and $365.1 million, respectively, at September 30, 2023 compared to December 31, 2022.

At September 30, 2023, the duration of the available for sale investment portfolio was 3.9 years, and maturities and pay downs of approximately $2.1 billion are expected to occur during the next 12 months.

Total assets of the Company were $30.4 billion at March 31, 2024 and $31.7 billion at December 31, 2023.

Earning assets (excluding the allowance for credit losses on loans and fair value adjustments on debt securities) amounted to $29.8 billion at March 31, 2024 and $31.1 billion at December 31, 2023, and consisted of 58% in loans and 36% in investment securities at March 31, 2024.

During the first quarter of 2024, average loans totaled $17.1 billion, an increase of $22.0 million over the prior quarter, and increased $676.2 million, or 4.1%, over the same quarter last year.

Compared to the previous quarter, average balances of business real estate loans grew $83.1 million, while construction and consumer loans declined $51.1 million and $34.8 million, respectively.

During the current quarter, the Company sold certain fixed rate personal real estate loans totaling $7.4 million, compared to $8.7 million in the prior quarter.

Total average available for sale debt securities decreased $116.6 million compared to the previous quarter to $9.5 billion, at fair value.

The decrease in debt securities was mainly the result of lower average balances of asset-backed securities.

During the first quarter of 2024, the unrealized loss on available for sale securities increased $27.2 million to $1.2 billion, at period end.

Also during the first quarter of 2024, purchases of securities totaled $145.7 million with a weighted average yield of approximately 4.65%, and sales, maturities and pay downs were $655.0 million.

At March 31, 2024, the duration of the available for sale investment portfolio was 4.2 years, and maturities and pay downs of approximately $1.6 billion are expected to occur during the next 12 months.

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

Total deposits at September 30, 2023 amounted to $25.1 billion, a decrease of $1.1 billion compared to December 31, 2022.

The decline in deposits largely resulted from a decrease in demand deposits, mainly in business demand deposits (decrease of $1.9 billion).

Additionally, money market and savings deposit balances decreased $931.6 million and $157.3 million, respectively, while certificate of deposit balances grew $2.0 billion and interest checking balances increased $116.0 million over balances at December 31, 2022.

The Company’s borrowings totaled $3.2 billion at September 30, 2023, an increase of $397.4 million over balances at December 31, 2022, mainly due to FHLB advances, which increased $500.0 million during the nine months ended September 30, 2023.

Additionally, federal funds purchased were $346.5 million higher at September 30, 2023 than at December 31, 2022, whereas repurchase agreements declined by $443.0 million during the same period.

Total average deposits decreased $759.5 million this quarter compared to the previous quarter.

The decrease in deposits mostly resulted from lower average demand deposits of $420.1 million and lower average certificates of deposit of $364.2 million, which included lower brokered deposits of $225.4 million.

Compared to the previous quarter, total average commercial deposits declined $743.8 million, while consumer and wealth deposits increased $138.8 million and $71.8 million, respectively.

The average loans to deposits ratio was 69.9% in the current quarter and 67.7% in the prior quarter.

The Company’s average borrowings, which included average customer repurchase agreements of $2.5 billion, decreased $280.0 million to $2.8 billion in the first quarter of 2024, mostly due to a decline of $179.3 million in average FHLB borrowings.

Liquidity and Capital Resources

Liquidity Management

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

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

(In thousands)

September 30, 2023 September 30, 2022 December 31, 2022

March 31, 2024 March 31, 2023 December 31, 2023

Liquid assets:

Available for sale debt securities $ 9,860,828 $ 12,632,510 $ 12,238,316

Balances at the Federal Reserve Bank $ 1,609,614 $ 1,341,854 $ 2,239,010

Federal funds sold — 27,060 5,025

Available for sale debt securities 9,141,695 11,228,616 9,684,760

Securities purchased under agreements to resell 225,000 825,000 450,000

Balances at the Federal Reserve Bank 1,847,641 642,943 389,140

Total $ 10,976,309 $ 13,422,530 $ 12,378,795

The fair value of the available for sale debt portfolio was $9.9 billion at September 30, 2023 and included an unrealized net loss of $1.6 billion.

Federal funds sold, which are funds lent to the Company's correspondent bank customers with overnight maturities, totaled $2.7 million as of September 30, 2023.

Resale agreements, maturing through 2025, totaled $450.0 million at September 30, 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 $479.7 million in fair value at September 30, 2023.

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $1.6 billion at March 31, 2024 and decreased $629.4 million from December 31, 2023 balances.

At March 31, 2024, the Company did not have a balance of federal funds sold, which are funds lent to the Company's correspondent bank customers with overnight maturities.

The fair value of the available for sale debt portfolio was $9.1 billion at March 31, 2024 and included an unrealized net loss of $1.2 billion.

The total net unrealized loss included net losses of $1.0 billion on mortgage-backed and asset-backed securities and $147.5 million on state and municipal obligations.

Resale agreements, maturing through 2028, totaled $225.0 million at March 31, 2024.

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 $239.2 million in fair value at March 31, 2024.

$125.0 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 $1.8 billion at September 30, 2023 and increased $1.5 billion over December 31, 2022 balances.

Approximately $2.1 billion of the Company's available for sale debt portfolio is expected to mature or pay down during the next 12 months, and at September 30, 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.

The Company's available for sale debt securities portfolio has a diverse mix of high quality and liquid investment securities with a duration of 4.2 years at March 31, 2024.

Approximately $1.6 billion of the Company's 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 either new loan demand or offset potential reductions in the Company's deposit funding base.

Total investment securities pledged for these purposes were as follows:

(In thousands)

September 30, 2023 September 30, 2022 December 31, 2022

March 31, 2024 March 31, 2023 December 31, 2023

Investment securities pledged for the purpose of securing:

8 unchanged sentences

* Includes securities pledged for collateral swaps, as discussed in Note 12 to the consolidated financial statements.

Liquidity is also available from the Company's large base of core customer deposits, defined as non-interest bearing, interest checking, savings, and money market deposit accounts.

At September 30, 2023, such deposits totaled $22.1 billion and represented 88.1% of total deposits.

The average loans to deposits ratio is a measure of a bank's liquidity, and the Company’s average loans to deposits ratio was 69.9% for the three months ended March 31, 2024.

Core customer deposits, defined as non-interest bearing, interest checking, savings, and money market deposit accounts totaled $22.0 billion and represented 89.9% of the Company's total deposits at March 31, 2024.

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

Certificates of deposit of $100,000 and over totaled $1.8 billion at September 30, 2023.

These accounts are normally considered more volatile with higher cost and comprised 7.0% of total deposits at September 30, 2023.

Core deposits decreased $511.5 million at March 31, 2024 compared to December 31, 2023, primarily due to decreases in commercial and wealth segment deposits of $473.8 million and $111.7 million, respectively, partially offset by growth in consumer segment deposits.

While the Company considers core consumer and wealth management deposits less volatile, corporate deposits could decline if interest rates increase significantly, encouraging corporate customers to increase investing activities, or if the economy deteriorates and companies experience lower cash inflows, reducing deposit balances.

If these corporate deposits decline, the Company's funding needs may be met by liquidity supplied by investment security maturities and pay downs expected to total $1.6 billion over the next year, as noted above.

In addition, as shown in the table of collateral available for future advances below, the Company has borrowing capacity of $6.6 billion through advances from the FHLB and the Federal Reserve.

Certificates of deposit of $100,000 or greater totaled $1.5 billion at March 31, 2024.

These deposits are normally considered more volatile and higher costing, and comprised 6.0% of total deposits at March 31, 2024.

(In thousands)

September 30, 2023 September 30, 2022 December 31, 2022

March 31, 2024 March 31, 2023 December 31, 2023

Core deposit base:

3 unchanged sentences

Total $ 21,976,675 $ 23,104,975 $ 22,488,208

During the second quarter of 2023, the Company added brokered deposits in the form of short-term certificates of deposit less than $100 thousand, and $401.3 million were outstanding at September 30, 2023.

At September 30, 2023, the Company's total deposit portfolio was $25.1 billion, compared to $26.2 billion at December 31, 2022.

The Company's uninsured deposits were $10.2 billion, or 40.6% of total deposits at September 30, 2023.

The Company's uninsured deposits include $2.1 billion of affiliate deposits and collateralized deposits.

Excluding those affiliate and collateralized deposits, the Company's uninsured deposits at September 30, 2023 were $8.1 billion, or 32.3% of total deposits.

Amid the banking sector's period of uncertainty during the second quarter of 2023, the Company issued several tranches of short-term brokered certificates of deposit totaling $1.2 billion, which all matured by December 31, 2023.

While it is not clear how many brokered certificates of deposit the market would allow the Company to issue, the Company believes brokered certificates of deposits may be an additional, reliable source of liquidity during periods of stress in the banking industry.

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

The Company's outside borrowings are mainly comprised of federal funds purchased, repurchase agreements, and FHLB advances, as follows:

During 2024, the Company's outside borrowings have mainly been comprised of federal funds purchased and repurchase agreements, as follows:

(In thousands)

September 30, 2023 September 30, 2022 December 31, 2022

March 31, 2024 March 31, 2023 December 31, 2023

Federal funds purchased $ 264,470 $ 756,470 $ 261,305

3 unchanged sentences

Total $ 2,507,935 $ 4,292,335 $ 2,910,219

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 September 30, 2023, the Company had access to an additional $3.8 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.

repurchase agreements, which generally mature overnight, are comprised of non-insured customer funds totaling $2.2 billion at September 30, 2023 and are collateralized by securities in the Company's investment portfolio.

At September 30, 2023, the value of the collateral pledged for the benefit of customers was $2.4 billion.

Federal funds purchased, which totaled $264.5 million at March 31, 2024, are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit.

At March 31, 2024, the Company had approved lines of credit totaling $3.5 billion.

Since these borrowings are unsecured and limited by market trading activity, their availability may be less certain than collateralized sources of borrowings.

Retail repurchase agreements are offered to customers wishing to earn interest in highly liquid balances and are used by the Company as a funding source considered to be stable, but short-term in nature.

Repurchase agreements are collateralized by securities in the Company's investment portfolio.

Total repurchase agreements at March 31, 2024 were comprised of non-insured customer funds totaling $2.2 billion at March 31, 2024 and securities pledged as collateral for these retail agreements totaled $2.3 billion at March 31, 2024.

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 $500.0 million in advances outstanding from the FHLB at September 30, 2023.

There were no advances outstanding from the FHLB at March 31, 2024.

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.

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.

Additionally, this collateral is used to enable 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.

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, 2023.

September 30, 2023

March 31, 2024

(In thousands)

1 unchanged sentence

Total collateral value established by FHLB and FRB $ 2,536,792 $ 4,186,053 $ 6,722,845

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

Letters of credit issued (172,416) — (172,416)

Available for future advances $ 2,364,376 $ 4,186,053 $ 6,550,429

In addition to those mentioned above, several other sources of liquidity are available.

No commercial paper has been issued or outstanding during the past ten years.

The Company has no subordinated debt or hybrid instruments which could affect future borrowing capacity.

Because of its lack of significant long-term debt, the Company believes that through its Capital Markets Group or in other public debt markets, it could generate additional liquidity from sources such as jumbo certificates of deposit or privately placed corporate notes or other forms of debt.

The Company receives strong outside ratings from both Standard & Poor's and Moody's on both the consolidated company level and its subsidiary bank, Commerce Bank, which would support future financing efforts, should the need arise.

The Company receives outside ratings from both Standard & Poor’s and Moody’s on both the consolidated company and its subsidiary bank, Commerce Bank.

These ratings are as follows:

8 unchanged sentences

Rating outlook Stable Stable

The cash flows from the operating, investing and financing activities of the Company resulted in a net increase in cash, cash equivalents and restricted cash of $1.3 billion during the first nine 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 $367.7 million and has historically been a stable source of funds.

Investing activities, which occur mainly in the loan and investment securities portfolios, provided cash of $1.7 billion.

Activity in the investment securities portfolio provided cash of $2.3 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 $849.4 million.

Additionally, repayments of securities purchased under agreements to resell provided cash of $375.0 million.

Financing activities used cash of $775.4 million, largely resulting from net decreases in deposits of $1.0 billion and $1.8 billion in repayments of FHLB advances, partially offset by FHLB advance borrowings of $2.3 billion during the first nine months of 2023.

The Company considers these ratings to be indications of a sound capital base and strong liquidity and believes that these ratings would help ensure the ready marketability of its commercial paper, should the need arise.

No commercial paper has been outstanding during the past ten years.

The Company has no subordinated or hybrid debt instruments which would affect future borrowing capacity.

Because of its lack of significant long-term debt, the Company believes that through its Capital Markets Group or in other public debt markets, it could generate additional liquidity from sources such as jumbo certificates of deposit, privately placed corporate notes or other forms of debt.

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 $786.6 million during the first three months of 2024, 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 $135.5 million and have historically been a stable source of funds.

Investing activities, which occur mainly in the loan and investment securities portfolios, provided cash of $540.9 million.

Activity in the investment securities portfolio provided cash of $426.5 million 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 $102.3 million.

Additionally, repayments of securities purchased under agreements to resell (net of purchases) provided cash of $225.0 million.

Investing activities are somewhat unique to financial institutions in that, while large sums of cash flow are normally used to fund growth in investment securities, loans, or other bank assets, they are normally dependent on the financing activities described below.

Financing activities used cash of $1.5 billion, largely resulting from net decreases in deposits of $983.5 million and $403.2 million in federal funds purchased and securities sold under agreements to repurchase during the first three months of 2024.

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, 2023 and December 31, 2022, as shown in the following table.

(Dollars in thousands) September 30, 2023 December 31, 2022 Minimum Capital Requirement Capital Conservation Buffer Minimum Ratios Requirement including Capital Conservation Buffer

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, 2024 and December 31, 2023, as shown in the following table.

(Dollars in thousands) March 31, 2024 December 31, 2023 Minimum Capital Requirement Capital Conservation Buffer Minimum Ratios Requirement including Capital Conservation Buffer

Minimum Ratios

12 unchanged sentences

In the first quarter of 2020, the interim final rule of the Federal Reserve Bank and other U.S.

banking agencies became effective, providing banks that adopt CECL (ASU 2016-13) during the 2020 calendar year the option to delay recognizing the estimated impact on regulatory capital until after a two year deferral period, followed by a three year transition period.

banking agencies became effective, providing banks that adopted CECL (ASU 2016-13) during the 2020 calendar year the option to delay recognizing the estimated impact on regulatory capital until after a two year deferral period, followed by a three year transition period.

In connection with the adoption of CECL on January 1, 2020, the Company elected to utilize this option.

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

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

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

During the nine months ended September 30, 2023, the Company purchased 941,890 shares at an average price of $59.67 in open market purchases and through stock-based compensation transactions.

At September 30, 2023, 2,170,168 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 $.270 per share cash dividend on its common stock in the third quarter of 2023, which was a 7.1% increase compared to its 2022 quarterly dividend.

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

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

During the three months ended March 31, 2024, the Company purchased 806,217 shares at an average price of $52.13 in open market purchases and through stock-based compensation transactions.

At March 31, 2024, 951,030 shares remained available for purchase under the current Board authorization.

On April 17, 2024, the share repurchase authorization was increased to 5,000,000 shares.

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

The Company paid a $.270 per share cash dividend on its common stock in the first quarter of 2024, which was a 5.1% increase compared to its 2023 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 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.

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 of $1.3 billion during the first quarter of 2023, and as a result, the Company had outstanding borrowings of $1.5 billion from the FHLB as of March 31, 2023.

During the second quarter of 2023, the Company initially borrowed an additional $500.0 million but subsequently repaid $1.0 billion of its FHLB borrowings, resulting in $1.0 billion of FHLB borrowings outstanding as of June 30, 2023.

During the third quarter of 2023, the Company repaid $500.0 million of its FHLB borrowings, resulting in $500.00

million of FHLB borrowings outstanding as of September 30, 2023.

Additionally, the Company added short-term brokered certificates of deposit during the second quarter of 2023 to provide additional liquidity.

As of September 30, 2023, the Company had $401.3 million of brokered deposits that are scheduled to mature prior to December 31, 2023.

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

The Company's material cash requirements for the

next 12 months are primarily to fund loan growth.

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

Other contractual obligations, purchase commitments, lease obligations, and unfunded commitments may require cash payments by the Company within the next 12 months, and these are further discussed in the Company's 2023 Annual Report on Form 10-K.

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, 2023 totaled $14.3 billion (including $5.2 billion in unused, approved credit card lines).

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

The most significant of these are loan commitments, which at March 31, 2024 totaled $14.8 billion (including $5.5 billion in unused, approved credit card lines).

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

The contractual amount of standby and commercial letters of credit totaled $583.1 million and $5.1 million, respectively, at September 30, 2023.

The contractual amount of standby and commercial letters of credit totaled $622.7 million and $9.6 million, respectively, at March 31, 2024.

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 $3.4 million at September 30, 2023.

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, 2023, the liability for unfunded commitments totaled $27.5 million.

At March 31, 2024, the liability for unfunded lending commitments totaled $23.1 million.

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

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 2023, purchases and sales of tax credits amounted to $89.3 million and $52.4 million, respectively.

Fees from sales of tax credits were $3.0 million for the nine months ended September 30, 2023, compared to $4.4 million in the same period last year.

At September 30, 2023, the Company expected to fund outstanding purchase commitments of $55.9 million during the remainder of 2023 and had purchase commitments of $524.7 million that it expects to fund from 2024 through 2029.

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

During the first three months of 2024, purchases and sales of tax credits amounted to $32.2 million and $45.6 million, respectively.

Fees from sales of tax credits were $2.1 million for the three months ended March 31, 2024, compared to $560.7 thousand in the same period last year.

At March 31, 2024, the Company expected to fund outstanding purchase commitments of $146.6 million during the remainder of 2024 and had purchase commitments of $420.2 million that it expects to fund from 2025 through 2030.

The Company continued to maintain a strong liquidity position throughout the first three months of 2024.

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

Segment Results

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

The table below is a summary of segment pre-tax income results for the first three months of 2024 and 2023.

(Dollars in thousands)

1 unchanged sentence

Consolidated Totals

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Net interest income $ 129,676 $ 126,687 $ 24,155 $ 280,518 $ (31,519) $ 248,999

4 unchanged sentences

Income before income taxes $ 64,479 $ 90,092 $ 43,004 $ 197,575 $ (50,471) $ 147,104

Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Net interest income $ 144,460 $ 137,127 $ 28,025 $ 309,612 $ (57,989) $ 251,623

7 unchanged sentences

Percent (24.2) % (11.1) % 3.9 % (13.3) % (32.2) % (4.1) %

For the nine months ended September 30, 2023, income before income taxes for the Consumer segment increased $8.2 million, or 7.6%, compared to the first nine months of 2022.

The increase in income before income taxes was mainly due to an increase in net interest income of $34.3 million, or 12.7%, partly offset by a decrease in non-interest income of $7.7 million, or 9.3%, and increases in non-interest expense of $11.3 million, or 4.9%, and the provision for credit losses of $7.1 million, or 55.4%.

Net interest income increased due to a $32.8 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios and a $31.8 million increase in loan interest income.

These increases were partly offset by higher deposit interest expense of $30.3 million.

Non-interest income decreased mainly due to lower deposit account fees (mainly overdraft and return item fees) and mortgage banking revenue, partly offset by growth in net debit card 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 allocated support costs for consumer administration and operations, partly offset by lower marketing expense.

The provision for credit losses totaled $19.8 million, and increased over the first nine months of 2022, mainly due to higher consumer credit card and personal loan net charge-offs.

For the nine months ended September 30, 2023, income before income taxes for the Commercial segment increased $17.8 million, or 7.8%, compared to the same period in the previous year.

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

Net interest income increased $22.4 million, or 6.7%, mainly due to higher loan interest income of $223.5 million.

This increase was partly offset by lower net allocated funding credits of $76.2 million and increases of $83.3 million in deposit interest expense and $41.9 million in interest expense on customer repurchase agreements.

Non-interest income increased $16.7 million, or 10.0%, over the previous year mainly due to growth in net bank card fees (mainly corporate card and merchant fees), deposit account fees (mainly corporate cash management fees), letters of credit fees and cash sweep commissions, partly offset by a decline in capital market fees.

Non-interest expense increased $18.7 million, or 6.9%, mainly due to higher salaries and benefits expense, FDIC insurance expense and allocated service and support costs (mainly bank operations, commercial sales and products and credit administration).

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

The provision for credit losses increased $2.6 million over the same period last year, mainly due to higher business loan net charge-offs.

Wealth segment pre-tax profitability for the nine months ended September 30, 2023 decreased $10.8 million, or 9.9%, from the same period in the previous year.

Net interest income decreased $2.5 million, or 4.5%, mainly due to a $12.3 million decline in net allocated funding credits and a $17.2 million increase in deposit interest expense, partly offset by a $27.0 million increase in loan interest income.

Non-interest income increased $1.8 million, or 1.1%, over the prior year largely due to higher private client trust fees and cash sweep commissions, partly offset by lower brokerage fees.

Non-interest expense increased $10.0 million, or 9.2%, mainly due to higher salaries and benefits expense and the deconversion costs previously mentioned.

The provision for credit losses increased $16 thousand over the same period last year.

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

For the three months ended March 31, 2024, income before income taxes for the Consumer segment decreased $20.6 million, or 24.2%, compared to the first three months of 2023.

The decrease in income before income taxes was mainly due to a decrease in net interest income of $14.8 million, or 10.2%, and increases in non-interest expense of $3.3 million, or 4.2%, and the provision for credit losses of $2.6 million.

Net interest income declined due to a $25.8 million increase in deposit interest

This decrease was partly offset by a $3.4 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios and higher loan interest income of $7.8 million.

Non-interest expense increased over the same period in the previous year mainly due to higher allocated support costs for administration and operations, information technology and online banking.

These increases were partly offset by lower marketing expense and allocated support costs for the deposit system.

The increase in the provision for credit losses over the first three months of 2023, was mainly due to higher consumer credit card and personal loan net charge-offs, partly offset by lower overdraft loan net charge-offs.

For the three months ended March 31, 2024, income before income taxes for the Commercial segment decreased $11.3 million, or 11.1%, compared to the same period in the previous year.

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

Net interest income decreased $10.4 million, or 7.6%, mainly due to lower net allocated funding credits of $16.8 million, coupled with higher interest expense on deposits and customer repurchase agreements of $21.0 million and $4.0 million, respectively.

These decreases were partly offset by an increase of $31.9 million in loan interest income.

Non-interest income increased $5.5 million, or 9.4%, over the previous year mainly due to growth in deposit account fees (mainly corporate cash management fees), tax credit sales fees, capital market fees and loan commitment fees.

Non-interest expense increased $6.7 million, or 7.1%, mainly due to higher salaries and benefits expense and allocated service and support costs (mainly bank operations, commercial sales and support and management expense).

The provision for credit losses decreased $352 thousand from the same period last year, mainly due to lower business and business real estate loan net charge-offs.

Wealth segment pre-tax profitability for the three months ended March 31, 2024 increased $1.6 million, or 3.9%, over the same period in the previous year.

Net interest income decreased $3.9 million, or 13.8%, mainly due to an $8.9 million increase in deposit interest expense.

This increase was partly offset by a $2.0 million increase in net allocated funding credits and a $3.0 million increase in loan interest income.

Non-interest income increased $5.5 million, or 10.3%, over the prior year largely due to higher private client and institutional trust fees and cash sweep commissions, partly offset by lower brokerage fees.

Non-interest expense decreased $34 thousand mainly due to lower miscellaneous losses, mostly offset by higher salaries and benefits expense.

The provision for credit losses decreased $14 thousand from the same period last year due to lower overdraft loan net charge-offs.

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 $3.5 million lower than in the same period last year.

Unallocated securities gains were $7.4 million in the first nine months of 2023 compared to gains of $11.6 million in 2022.

Also, the unallocated provision for credit losses increased $7.4 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.

The pre-tax profitability in this category was $24.0 million higher than in the same period last year.

Unallocated securities losses were $259 thousand in the first three months of 2024 compared to losses of $306 thousand in 2023.

Also, the unallocated provision for credit losses decreased $8.9 million, primarily driven by decreases in the provision for credit losses on loans and 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 in the first nine months of 2023 was $35.2 million, or $12.1 million higher than net charge-offs due to an increase in the allowance for credit losses on loans.

In the comparable period last year, the provision for credit losses on loans was $6.8 million, or $6.7 million lower than net charge-offs, due to a decrease in the allowance for credit losses on loans.

For the nine months ended September 30, 2023, the Company's provision on unfunded lending commitments was a benefit of $5.6 million.

Additionally, non-interest expense increased $7.6 million.

These decreases to pre-tax profitability were partly offset by higher net interest income of $8.0 million, and non-interest income of $7.7 million.

The provision for credit losses on loans in the first three months of 2024 was $6.9 million, or $1.9 million lower than net charge-offs due to a decrease in the allowance for credit losses on loans.

In the comparable period last year, the provision for credit losses on loans was $15.9 million, or $9.2 million higher than net charge-offs, due to an increase in the allowance for credit losses on loans.

For the three months ended March 31, 2024, the Company's provision on unfunded lending commitments was a benefit of $2.2 million.

Additionally, net interest income increased $26.5 million and non-interest income increased $271 thousand.

These increases to pre-tax profitability were partly offset by higher non-interest expense of $11.7 million.

Regulatory Changes

During the second quarter of 2023, the Federal Deposit Insurance Corporation (“FDIC”) issued a proposed rule to impose a special assessment to recover losses to the FDIC’s Deposit Insurance Fund following the failure of two financial institutions.

The proposed rule applies to all insured depository institutions.

Under the proposed rule, the assessment base for would be equal to an insured depository institution’s estimated insured deposits reported as of December 31, 2022, adjusted to exclude the first $5 billion of uninsured deposits.

The proposed special assessment would apply an annual rate of 12.5 basis points.

If the final rule is adopted as proposed, the estimated impact of the special assessment on the Company is approximately $14.9 million to be recognized at the time the rule is finalized and paid in eight quarterly installments beginning in the first quarter of 2024.

The actual assessment may vary as a result of the final rule.

In July 2023, the SEC adopted a final rule requiring registrants provide enhanced disclosures regarding cybersecurity incidents as well as reporting on cybersecurity risk management, strategy, and governance.

The final rule requires registrants to disclose on Form 8-K material cybersecurity incidents within four business days after the company determines that the cybersecurity incident is material.

Additionally, registrants are also required to disclose annually on Form 10-K information the Company’s processes for assessing, identifying, and managing material risks from cybersecurity threats, management’s role in assessing and managing material risks from cybersecurity threats, and the board of directors’ oversight of cybersecurity risks.

Companies are required to comply with the Form 8-K incident disclosure requirements beginning December 18, 2023.

The annual disclosures in Form 10-K are required for fiscal years ending on or after December 15, 2023.

Deposit Insurance

On November 16, 2023, Federal Deposit Insurance Corporation (“FDIC”) issued a final rule to impose a special assessment to recover losses to the FDIC’s Deposit Insurance Fund following the failure of two financial institutions.

The rule applies to all insured depository institutions and stated that the special assessment would be collected at an annual rate of approximately 13.4 basis points for an anticipated total of eight quarterly assessment periods.

Because the estimated loss pursuant to the systemic risk determination will be periodically adjusted, the FDIC could:

• Cease collection early, if it has collected enough to recover actual or estimated losses;

• Extend the special assessment collection period one or more quarters beyond the initial eight-quarter collection period, if actual or estimated losses exceed the amounts collected;

• Impose a final shortfall special assessment on a one-time basis after the receiverships for certain failed banks terminate, if actual losses exceed the amounts collected.

During the first quarter of 2024, the FDIC increased its estimate of losses to the Deposit Insurance Fund and in turn increased its estimated special assessment, announcing that the special assessment would come in the form of a June 2024 invoice based on its March 31, 2024 estimate loss in the Deposit Insurance Fund.

The Company has accrued $20.1 million FDIC special assessment liabilities at the end of March 31, 2024.

SEC Climate Disclosure Rule

On March 6, 2024, the Securities and Exchange Commission adopted rules to enhance and standardize climate-related disclosures by public companies and in public offerings.

This climate-related disclosure rule will have significant disclosure impact to the public companies affected, including the Company.

Among many other items, this rule requires companies to disclose:

• Climate-related risks that have had or are reasonably likely to have a material impact on the registrant’s business strategy, results of operations, or financial condition;

• The actual and potential material impacts of any identified climate-related risks on the registrant’s strategy, business model, and outlook;

• If, as part of its strategy, a registrant has undertaken activities to mitigate or adapt to a material climate-related risk, a quantitative and qualitative description of material expenditures incurred and material impacts on financial estimates and assumptions that directly result from such mitigation or adaptation activities;

• Specified disclosures regarding a registrant’s activities, if any, to mitigate or adapt to a material climate-related risk including the use, if any, of transition plans, scenario analysis, or internal carbon prices;

• Scope 1 and Scope 2 greenhouse gas (GHG) emissions, when material;

• Capitalized costs, expenditures, charges, and losses incurred as a result of severe weather events or other natural conditions.

However, in April 2024, the SEC issued an order to stay the rules pending judicial review, due to legal challenges to this mandate.

Impact of Recently Issued Accounting Standards

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

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

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

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

In 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.

The Company's LIBOR Transition Steering Committee completed the Company's transition from LIBOR during the first half of 2023.

Disclosure Improvements The FASB issued ASU 2023-06, "Disclosure Improvements:

4 unchanged sentences

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

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Three Months Ended September 30, 2023 and 2022

Third Quarter 2023

Third Quarter 2022

(Dollars in thousands)

Average Balance

Interest Income/Expense

Rates Earned/Paid

Average Balance Interest Income/Expense Avg.

Rates Earned/Paid

$ 5,849,227 $ 85,104 5.77 % $ 5,317,696 $ 52,813 3.94 %

Real estate — construction and land 1,508,850 31,070 8.17 1,288,721 17,133 5.27

Real estate — business 3,642,010 56,236 6.13 3,258,128 36,121 4.40

Real estate — personal 2,992,500 28,126 3.73 2,844,376 24,065 3.36

Consumer 2,102,281 31,630 5.97 2,101,622 22,110 4.17

Revolving home equity 304,055 5,947 7.76 280,923 3,413 4.82

Consumer credit card 564,039 19,570 13.77 550,058 16,711 12.05

Overdrafts 5,341 — — 4,438 — —

Total loans 16,968,303 257,683 6.02 15,645,962 172,366 4.37

Loans held for sale 5,714 152 10.55 7,170 159 8.80

Investment securities:

government and federal agency obligations 986,284 5,750 2.31 1,113,442 12,664 4.51

Government-sponsored enterprise obligations 55,676 331 2.36 55,753 332 2.36

State and municipal obligations (A)

1,391,541 6,823 1.95 2,052,908 11,758 2.27

Mortgage-backed securities 6,161,348 31,942 2.06 6,847,912 33,323 1.93

Asset-backed securities 2,553,562 14,129 2.20 3,870,953 15,782 1.62

Other debt securities 514,787 2,268 1.75 587,026 2,852 1.93

Trading debt securities (A)

35,044 451 5.11 35,621 246 2.74

Equity securities (A)

12,230 711 23.06 8,838 604 27.11

Other securities (A)

237,518 7,859 13.13 208,708 3,729 7.09

Total investment securities 11,947,990 70,264 2.33 14,781,161 81,290 2.18

Federal funds sold 2,722 45 6.56 13,486 94 2.77

Securities purchased under agreements to resell 712,472 3,740 2.08 1,379,341 5,984 1.72

Interest earning deposits with banks 2,337,744 31,738 5.39 980,273 5,571 2.25

Total interest earning assets 31,974,945 363,622 4.51 32,807,393 265,464 3.21

Allowance for credit losses on loans (158,335) (137,833)

Unrealized gain (loss) on debt securities (1,458,141) (1,064,534)

Cash and due from banks 295,711 310,713

Premises and equipment, net 463,828 408,884

Other assets 990,683 536,901

Total assets $ 32,108,691 $ 32,861,524

LIABILITIES AND EQUITY:

Interest bearing deposits:

Savings $ 1,436,149 194 .05 $ 1,595,857 177 .04

Interest checking and money market 13,048,199 43,601 1.33 14,423,713 7,368 .20

Certificates of deposit of less than $100,000 1,423,965 15,499 4.32 397,071 411 .41

Certificates of deposit of $100,000 and over 1,718,126 18,942 4.37 578,158 871 .60

Total interest bearing deposits 17,626,439 78,236 1.76 16,994,799 8,827 .21

Federal funds purchased $ 508,851 $ 6,833 5.33 51,929 $ 315 2.41

Securities sold under agreements to repurchase 2,283,020 18,431 3.20 2,199,866 7,576 1.37

Other borrowings (B)

685,222 9,160 5.30 2,010 9 1.78

Total borrowings 3,477,093 34,424 3.93 2,253,805 7,900 1.39

Total interest bearing liabilities 21,103,532 112,660 2.12 % 19,248,604 16,727 .34 %

Non-interest bearing deposits 7,939,190 10,758,353

Other liabilities 367,741 123,691

Equity 2,698,228 2,730,876

Total liabilities and equity $ 32,108,691 $ 32,861,524

Net interest margin (FTE) $ 250,962 $ 248,737

Net yield on interest earning assets 3.11 % 3.01 %

(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.

Segment Reporting The FASB issued ASU 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures", in November 2023.

The amendments require disclosure of significant segment expenses and other segment items on an annual and interim basis.

Public entities are required to disclose significant expense categories and amounts for each reportable segment, as well as the amount and a description of the composition of other segment items.

Significant expense categories are derived from expenses that are regularly provided to an entity’s chief operating decision-maker (“CODM”), and included in a segment’s reported measures of profit or loss.

Public entities are also required to disclose the title and position of the CODM and explain how the CODM uses the reported measures of profit or loss in assessing segment performance and deciding how to allocate resources.

This Update requires interim disclosures of certain segment-related disclosures that previously were only required annually.

This Update requires annual disclosures for fiscal years beginning January 1, 2024 and interim disclosures for fiscal years beginning January 1, 2025.

Early adoption is permitted.

The Company is required to apply the amendments in this Update retrospectively to all prior periods presented in the financial statements.

Other than the inclusion of additional disclosures, the adoption of this ASU is not expected to have a significant effect on the Company's consolidated financial statements.

Income Taxes The FASB issued ASU 2023-09, "Income Taxes (Topic 740) - Improvements to Income Tax Disclosures", in December 2023.

The amendments in this Update require additional disclosures regarding the rate reconciliation and income taxes paid.

This Update also removed certain existing disclosure requirements.

This Update is effective for annual periods beginning January 1, 2025.

Early adoption is permitted.

The amendments in this Update should be applied on a prospective basis, though retrospective application is permitted.

Other than the inclusion of additional disclosures, the adoption is not expected to have a significant effect on the Company's consolidated financial statements.

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Nine Months Ended September 30, 2023 and 2022

Nine Months 2023

Nine Months 2022

Three Months Ended March 31, 2024 and 2023

First Quarter 2024

First Quarter 2023

(Dollars in thousands)

61 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