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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-06 · 276 added, 274 removed, 658 unchanged (46% 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 six months ended June 30, 2024 are not necessarily indicative of results to be attained for any other period.

Results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of results to be attained for any other period.

Forward-Looking Information

10 unchanged sentences

changes in economic conditions in the Company's market area, 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 June 30, 2024, there were no material changes to the Risk Factors disclosed in the Company's 2023 Annual Report on Form 10-K.

During the quarter ended September 30, 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 June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

2024 2023 2024 2023

47 unchanged sentences

Results of Operations

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

(Dollars in thousands) 2024 2023 % change 2024 2023 % change

8 unchanged sentences

$ 138,007 $ 120,596 14.4 % $ 390,223 $ 367,837 6.1 %

For the quarter ended June 30, 2024, net income attributable to Commerce Bancshares, Inc.

(net income) amounted to $139.6 million, an increase of $11.8 million, or 9.2%, compared to the second quarter of the previous year.

For the quarter ended September 30, 2024, net income attributable to Commerce Bancshares, Inc.

(net income) amounted to $138.0 million, an increase of $17.4 million, or 14.4%, compared to the third quarter of the previous year.

For the current quarter, the annualized return on average assets was 1.80%, the annualized return on average equity was 16.81%, and the efficiency ratio was 56.31%.

Diluted earnings per common share was $1.07 per share in the current quarter, an increase of 10.3% compared to $.97 per share in the second quarter of 2023, and increased 24.4% compared to $.86 per share in the previous quarter.

Compared to the second quarter of last year, net interest income increased $12.7 million, or 5.1%, mainly due to an increase in interest income on loans of $26.1 million and a $21.7 million decrease in interest expense on borrowings.

This increase was partly offset by an increase of $29.7 million in interest expense on deposits.

Diluted earnings per common share was $1.07 per share in the current quarter, an increase of 16.3% compared to $.92 per share in the third quarter of 2023, and did not change compared to $1.07 per share in the previous quarter.

Compared to the third quarter of last year, net interest income increased $13.8 million, or 5.6%, mainly due to an increase in interest income on loans of $13.8 million and a $10.5 million decrease in interest expense on borrowings.

This increase in interest income was partly offset by an increase of $7.6 million in interest expense on deposits.

The provision for credit losses decreased $2.5 million, or 21.5%, compared to the same quarter in the prior year.

Non-interest income increased $4.6 million, or 3.1%, compared to the second quarter of 2023, mainly due to an increase in trust fees, capital market fees, and deposit account fees, partly offset by lower letter of credit fees.

Non-interest income increased $16.1 million, or 11.2%, compared to the third quarter of 2023, mainly due to an increase in trust fees, gains on sales of real estate, capital market fees, and deposit account fees.

Net gains on investment securities totaled $3.9 million in the current quarter compared to net gains of $4.3 million in the same quarter of last year.

Securities gains in the current quarter primarily resulted from net gains of $178.2 million on equity investments and net gains in fair value of $5.7 million recorded on private equity investments.

These gains were largely offset by net losses of $179.1 million on sales of available for sale debt securities.

Non-interest expense increased $4.6 million, or 2.0%, over the second quarter of 2023, mainly due to increases in salaries expense and data processing and software expense, partly offset by lower deposit insurance expense and lower marketing expense.

Net income for the first six months of 2024 was $252.2 million, an increase of $5.0 million, or 2.0%, from the same period last year.

Securities gains in the current quarter primarily resulted from net gains of $2.0 million on sales of private equity investments and net gains in fair value of $7.4 million recorded on private equity investments.

These gains were partly offset by net losses of $5.4 million on sales of available for sale debt securities.

Non-interest expense increased $9.6 million, or 4.2%, over the third quarter of 2023, mainly due to increases in salaries and benefits expense, data processing and software expense, and marketing expense, partly offset by lower deposit insurance expense.

Net income for the first nine months of 2024 was $390.2 million, an increase of $22.4 million, or 6.1%, from the same period last year.

Diluted earnings per common share was $3.00, an increase of 7.1% compared to $2.80 per share in the same period last year.

For the first six months of 2024, the annualized return on average assets was 1.67%, the annualized return on average equity was 16.98%, and the efficiency ratio was 58.75%.

For the first nine months of 2024, the annualized return on average assets was 1.71%, the annualized return on average equity was 16.92%, and the efficiency ratio was 57.92%.

Net interest income increased $23.9 million, or 3.2%, over the same period last year.

This growth was largely due to an increase of $67.0 million in interest income on loans, an increase of $16.5 million in interest earned on deposits with banks, and a $24.8 million decrease in interest expense on borrowings, largely offset by a $85.3 million increase in interest expense on deposits.

The provision for credit losses was $10.3 million for the first six months of 2024, compared to a provision of $17.9 million in the same period last year.

Non-interest income increased $15.9 million, or 5.6%, from the first six months of last year mainly due to higher trust and deposit account fees.

Non-interest expense increased $26.2 million, or 5.8%, over the first six months of last year mainly due to increases in salaries and data processing and software expense and higher litigation settlement expense.

This growth was largely due to an increase of $80.8 million in interest income on loans, an increase of $19.8 million in interest earned on deposits with banks, and a $35.4 million decrease in interest expense on borrowings, partly offset by a $92.9 million increase in interest expense on deposits.

The provision for credit losses was $19.4 million for the first nine months of 2024, compared to a provision of $29.6 million in the same period last year.

Non-interest income increased $32.0 million, or 7.5%, from the first nine months of last year mainly due to higher trust fees, deposit account fees, and capital market fees.

Non-interest expense increased $35.8 million, or 5.3%, over the first nine months of last year mainly due to increases in salaries expense, data processing and software expense, and litigation settlement expense.

Net Interest Income

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Analysis of Changes in Net Interest Income

Three Months Ended June 30, 2024 vs.

2023 Six Months Ended June 30, 2024 vs.

Three Months Ended September 30, 2024 vs.

2023 Nine Months Ended September 30, 2024 vs.

Change due to Change due to

36 unchanged sentences

Total interest expense (18,520) 15,577 (2,943) (34,191) $ 90,937 $ 56,746

Net interest income, tax equivalent basis $ 19,719 $ (6,898) $ 12,821 $ 20,045 $ (9,323) $ 10,722

Net interest income in the second quarter of 2024 was $262.2 million, an increase of $12.7 million over the second quarter of 2023.

On a fully taxable-equivalent (FTE) basis, net interest income totaled $264.6 million in the second quarter of 2024, up $12.8 million over the same period last year and up $13.3 million over the previous quarter.

Net interest income, fully taxable-equivalent basis $ 13,982 $ (306) $ 13,676 $ 33,299 $ (8,901) $ 24,398

Net interest income in the third quarter of 2024 was $262.4 million, an increase of $13.8 million over the third quarter of 2023.

On a fully taxable-equivalent (FTE) basis, net interest income totaled $264.6 million in the third quarter of 2024, up $13.7 million over the same period last year and up $60 thousand over the previous quarter.

The increase in net interest income

compared to the second quarter of 2023 was mainly due to higher interest income earned on loans (FTE) of $26.5 million and lower interest expense on borrowings of $21.7 million, partly offset by higher deposit interest expense of $29.7 million.

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

Interest expense on borrowings decreased mainly due to lower average balances, while the increase in deposit interest expense was due to higher average rates paid.

The Company's net yield on earning assets (FTE) was 3.55% in the current quarter compared to 3.12% in the second quarter of 2023.

Total interest income (FTE) increased $20.8 million over the second quarter of 2023.

Interest income on loans (FTE) was $269.2 million during the second quarter of 2024, an increase of $26.5 million, or 10.9%, 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 46 basis points in the average rate earned and growth of $505.4 million, or 3.0%, in average loan balances.

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

compared to the third quarter of 2023 was mainly due to higher interest income earned on loans (FTE) of $14.1 million and lower interest expense on borrowings of $10.6 million, partly offset by higher deposit interest expense of $7.6 million and lower investment securities interest income of $7.0 million.

The increase in total interest earned on loans (FTE) was mainly the result of higher loan yields on most loan products, especially commercial loans, many of which have variable rates.

Interest income on investment securities declined mainly due to lower average balances.

Interest expense on borrowings decreased mainly due to lower average balances, while the increase in deposit interest expense was due to higher average rates paid, partly offset by lower average balances.

The Company's net yield on earning assets (FTE) was 3.50% in the current quarter compared to 3.11% in the third quarter of 2023.

Total interest income (FTE) increased $10.7 million over the third quarter of 2023.

Interest income on loans (FTE) was $271.8 million during the third quarter of 2024, an increase of $14.1 million, or 5.5%, 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 33 basis points in the average rate earned and growth of $57.6 million in average loan balances.

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

The largest increase to interest income occurred in business loan interest, which grew $7.4 million due to a 40 basis point increase in the average rate earned, coupled with growth in average balances of $117.6 million, or 2.0%.

Business real estate loan interest income increased $4.5 million due to an increase of 30 basis points in the average rate earned and higher average balances of $125.2 million, or 3.5%.

Consumer loan interest income grew $5.2 million due to a 93 basis point increase in the average rate earned.

In addition, construction and land loan interest income increased $1.9 million due to an increase of 44 basis points in the average rate earned and higher average loan balances of $21.3 million, or 1.5%.

Personal real estate loan interest income grew $3.5 million due to a 36 basis point increase in the average rate earned and growth of $84.0 million, or 2.8%, in average loan balances.

Interest income on investment securities (FTE) was $71.4 million during the second quarter of 2024, which was a decrease of $3.2 million from the same quarter last year.

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

Interest income earned on mortgage-backed securities declined $4.1 million due to a $762.6 million, or 12.1%, decrease in average balances.

In addition, the Company recorded a $740 thousand adjustment to premium amortization at June 30, 2024, which increased income and reflected slower forward prepayment speed estimates on mortgage-backed securities.

The adjustment this quarter was lower than the $1.7 million in the same quarter last year.

Personal real estate loan interest income increased $3.3 million due to an increase of 37 basis points in the average rate earned and higher average balances of $55.1 million, or 1.8%.

Consumer loan interest income grew $3.9 million due to a 67 basis point increase in the average rate earned and higher average balances of $27.2 million, or 1.3%.

Business real estate loan interest income grew $292 thousand due to a 15 basis point increase in the average rate earned, partly offset by a decrease of $61.2 million, or 1.7%, in average loan balances.

These increases in interest income were partly offset by a decrease in construction and land loan interest income of $1.4 million due to a decline of $108.3 million, or 7.2%, in average loan balances, partly offset by a 27 basis point increase in the average rate earned.

Interest income on investment securities (FTE) was $63.3 million during the third quarter of 2024, which was a decrease of $7.0 million from the same quarter last year.

The decrease in interest income occurred mainly in interest earned on mortgage-backed securities which declined $7.0 million due to a $1.1 billion, or 17.5%, decrease in average balances and an 11 basis point decline in the average rate earned.

In addition, the Company recorded a $286 thousand adjustment to premium amortization at September 30, 2024, which decreased income and reflected slightly faster forward prepayment speed estimates on mortgage-backed securities.

This was lower than the $1.3 million adjustment increasing income in the same quarter last year.

Interest income earned on asset-backed securities declined $3.9 million due to lower average balances of $1.0 billion, or 40.3%, partly offset by a 46 basis point increase in the average rate earned.

Interest income earned on state and municipal obligations declined $2.5 million due to a $462.6 million, or 30.2%, decrease in average balances.

Interest income earned on state and municipal obligations declined $2.5 million mainly due to a $534.9 million, or 38.4%, decrease in average balances.

Interest earned on other securities decreased $5.3 million, mainly due to a $2.3 million dividend from a private equity investment received in the third quarter of 2023, coupled with a decline of $290.3 million, or 56.4%, in average balances of debt securities.

These decreases to interest income were partly offset by growth in interest income on U.S.

government and federal agency obligations of $6.2 million, driven by a 162 basis point increase in the average rate earned and higher average balances of $166.3 million.

government and federal agency obligations of $11.7 million, driven by a 137 basis point increase in the average rate earned and higher average balances of $902.7 million, or 91.5%.

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), increased $1.2 million over the same quarter last year.

Additionally, the average rate earned on investment securities during the three months ended June 30, 2024 increased 38 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 $10.4 billion in the second quarter of 2024, compared to $12.6 billion in the second quarter of 2023.

Interest income on securities purchased under agreements to resell decreased $1.7 million from the same quarter last year, due to a decline of $521.4 million in the average balance, partly offset by an increase of 122 basis points in the average rate earned.

Interest income on balances at the Federal Reserve decreased $624 thousand due to a decrease of $184.4 million in the average balance invested, partly offset by an increase of 34 basis points in the average rate earned.

The average fully taxable-equivalent yield on total interest earning assets was 4.98% in the second quarter of 2024, up from 4.34% in the second quarter of 2023.

Total interest expense increased $8.0 million compared to the second quarter of 2023 due to an increase of $29.7 million in interest expense on interest bearing deposits, partly offset by a $21.7 million decrease in interest expense on borrowings.

The increase in deposit interest expense resulted mainly from an increase of $26.8 million in interest expense on interest checking and money market deposit accounts due to an 80 basis point increase in the average rate paid and an increase of $243.7 million in average balances.

In addition, interest expense on certificates of deposit increased $2.9 million mainly due to an increase of 55 basis points in the average rate paid.

The overall rate paid on total deposits increased 70 basis points over the same quarter last year.

Interest expense on other borrowings decreased $21.1 million due to a decrease of $1.6 billion in average Federal Home Loan Bank (FHLB) borrowings.

Treasury inflation-protected securities, which is tied to the non-seasonally adjusted Consumer Price Index (CPI-U), decreased $1.8 million from the same quarter last year.

Additionally, the average rate earned on investment securities during the three months ended September 30, 2024 increased 19 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 $10.0 billion in the third quarter of 2024, compared to $11.9 billion in the third quarter of 2023.

Interest income on securities purchased under agreements to resell increased $475 thousand over the same quarter last year, due to an increase of 145 basis points in the average rate earned, partly offset by a decline of $237.5 million, or 33.3%, in the average balance.

Interest income on deposits at the Federal Reserve increased $3.3 million mainly due to an increase of $227.4 million, or 9.7%, in average deposit balances.

The average fully taxable-equivalent yield on total interest earning assets was 4.96% in the third quarter of 2024, up from 4.51% in the third quarter of 2023.

Total interest expense decreased $2.9 million compared to the third quarter of 2023 due to a decrease of $10.6 million in interest expense on borrowings, partly offset by a $7.6 million increase in interest expense on interest bearing deposits.

Interest expense on other borrowings decreased $9.2 million due to a decrease of $684.8 million in average Federal Home Loan Bank (FHLB) borrowings.

In addition, interest expense on federal funds purchased decreased $4.0 million mainly due to a $302.2 million decrease in the average balance, while interest expense on customer repurchase agreements increased $2.6 million mainly due to a 36 basis point increase in the average rate paid.

The overall average rate incurred on all interest bearing liabilities was 2.21% and 1.87% in the second quarters of 2024 and 2023, respectively.

Net interest income (FTE) for the first six months of 2024 was $515.9 million compared to $505.2 million for the same period in 2023.

For the first six months of 2024, the net interest margin was 3.44% compared to 3.18% for the same period in 2023.

Total interest income (FTE) for the first six months of 2024 increased $70.4 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 lower interest income on investment securities (FTE).

The increase in deposit interest expense resulted mainly from an increase of $14.4 million in interest expense on interest checking and money market deposit accounts due to a 41 basis point increase in the average rate paid and an increase of $194.2 million, or 1.5%, in average balances.

This increase was partly offset

by a decrease in interest expense on certificates of deposit of $6.8 million mainly due to a $622.3 million, or 19.8%, decrease in average balances.

The overall rate paid on total deposits increased 24 basis over the same quarter last year.

The overall average rate incurred on all interest bearing liabilities was 2.22% and 2.12% in the third quarters of 2024 and 2023, respectively.

Net interest income (FTE) for the first nine months of 2024 was $780.5 million compared to $756.1 million for the same period in 2023.

For the first nine months of 2024, the net interest margin was 3.46% compared to 3.16% for the same period in 2023.

Total interest income (FTE) for the first nine months of 2024 increased $81.1 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 lower interest income on investment securities (FTE).

Loan interest income (FTE) increased $81.9 million, or 11.3%, due to a 50 basis point increase in the average rate earned and a $410.7 million, or 2.5%, increase in average loan balances.

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

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

Interest income on investment securities (FTE) decreased $16.0 million due to a $2.2 billion decrease in average balances, partly offset by a 28 basis point increase in the average rate earned.

Interest earned on asset-backed and mortgage-backed securities decreased $7.2 million and $4.9 million, respectively, due to lower average balances, partly offset by increases in the average rate earned.

Interest earned on mortgage-backed and asset-backed securities decreased $11.8 million and $11.1 million, respectively, due to lower average balances, partly offset by increases in the average rate earned.

Interest earned on state and municipal obligations decreased $8.5 million due to declines in both the average balance and the average rate earned.

These decreases in interest income on investment securities were partly offset by an increase in interest earned on U.S.

government and federal agency obligations of $5.5 million, mainly due to an increase in the average rate earned.

government and federal agency obligations of $17.2 million, due to increases in both the average balance and the average rate earned.

Interest income on securities purchased under agreements to resell decreased $3.5 million due to lower average balances, partly offset by higher average rates earned.

Interest income on balances at the Federal Reserve increased $16.5 million due to higher average balances and average rates earned.

Total interest expense for the first six months of 2024 increased $59.7 million compared to the same period last year.

Interest income on deposits at the Federal Reserve increased $19.8 million due to higher average balances and average rates earned.

Total interest expense for the first nine months of 2024 increased $56.7 million compared to the same period last year.

Interest expense on deposits increased $92.9 million, due to a 72 basis point increase in the average rate paid and a $138.3 million increase in average balances.

Interest expense on borrowings decreased $25.6 million, mainly due lower FHLB borrowings of $1.1 billion.

Interest expense on borrowings decreased $36.2 million, mainly due lower FHLB borrowings of $950.9 million.

In addition, interest expense on federal funds purchased declined mainly due to lower average balances, while interest expense on customer repurchase agreements increased due to higher average rates and average balances.

2 unchanged sentences

Non-Interest Income

Three Months Ended June 30 Increase (Decrease) Six Months Ended June 30 Increase (Decrease)

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

(Dollars in thousands) 2024 2023 Amount % change 2024 2023 Amount % change

9 unchanged sentences

* Total revenue includes net interest income and non-interest income.

The table below is a summary of net bank card transaction fees for the six month periods ended June 30, 2024 and 2023.

Three Months Ended June 30 Six Months Ended June 30

The table below is a summary of net bank card transaction fees for the nine month periods ended September 30, 2024 and 2023.

Three Months Ended September 30 Nine Months Ended September 30

(Dollars in thousands) 2024 2023 $ change % change 2024 2023 $ change % change

4 unchanged sentences

Total bank card transaction fees $ 47,570 $ 46,899 $ 671 1.4 % $ 141,977 $ 143,278 $ (1,301) (.9) %

For the second quarter of 2024, total non-interest income amounted to $152.2 million compared to $147.6 million in the same quarter last year, which was an increase of $4.6 million, or 3.1%.

The increase was mainly due to higher trust fees, deposit account fees and capital market fees, partly offset by lower net bank card fees and letter of credit fees.

For the third quarter of 2024, total non-interest income amounted to $159.0 million compared to $142.9 million in the same quarter last year, which was an increase of $16.1 million, or 11.2%.

The increase was mainly due to higher trust fees, capital market fees, deposit account fees and gains on the sales of real estate.

Trust fees increased $5.5 million, or 11.1%, mainly due to growth of $4.5 million in private client trust fees.

Bank card transaction fees for the current quarter declined $2.2 million, or 4.5%, from the same period last year, mainly due to lower net corporate card fees, partly offset by growth in net merchant fees.

The decline in net corporate card fees of $3.0 million was mainly due to lower interchange fees and higher rewards expense.

Net merchant fees increased $506 thousand mainly due to higher interchange fees, partly offset by higher network expense.

Compared to the second quarter of last year, deposit account fees increased $2.7 million, or 11.9%, mainly due to higher corporate cash management fees of $2.4 million.

Consumer brokerage fees declined $199 thousand, while capital market fees increased $1.8 million, or 61.6%, mainly due to higher underwriting fees.

Other non-interest income decreased $3.1 million, or 17.8%, mainly due to decreases of $2.3 million in letter of credit fees and $919 thousand in swap fees.

Non-interest income for the first six months of 2024 was $301.1 million compared to $285.2 million in the first six months of 2023, which was an increase of $15.9 million, or 5.6%.

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

Bank card transaction fees for the current quarter grew $671 thousand, or 1.4%, over the same period last year.

Net credit card fees increased $527 thousand and debit card fees increased $288 thousand mainly due to higher interchange fees and lower rewards expense.

Net corporate card fees grew $234 thousand mainly due to lower rewards expense, while net merchant fees decreased $378 thousand mainly due to higher network expense.

Compared to the third quarter of last year, deposit account fees increased $2.3 million, or 9.9%, mainly due to higher corporate cash management fees of $2.1 million.

Consumer brokerage fees increased $799 thousand, mainly due to higher annuity fees, while capital market fees increased $2.5 million, or 70.1%, mainly due to higher trading securities income.

Other non-interest income increased $3.9 million, or 28.9%, mainly due to an increase of $3.4 million in gains on the sales of real estate and an increase of $1.8 million in fair value adjustments was 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.

These increases were partly offset by lower tax credit sales income of $1.4 million.

Non-interest income for the first nine months of 2024 was $460.1 million compared to $428.2 million in the first nine months of 2023, which was an increase of $32.0 million, or 7.5%.

The increase was mainly due to higher trust fees, deposit account fees and capital market fees.

Trust fees increased $16.3 million, or 11.5%, mainly due to higher private client and institutional trust fees.

Bank card transaction fees for the current year declined $2.0 million, or 2.0%, from the same period last year, mainly due to a decrease of $2.9 million in net corporate card fees, partly offset by an increase in net merchant fees of $402 thousand.

Deposit account fees increased $5.1 million, or 11.5%, mainly due to higher corporate cash management fees and overdraft and return item fees.

Capital market fees increased $2.3 million, or 37.2%, mainly due to higher underwriting fees, while loan fees and sales increased $1.2 million mainly due to higher loan commitment fees and mortgage banking revenue.

Other non-interest income decreased $764 thousand, or 2.5%, mainly due to decreases of $2.2 million in letter of credit fees and $1.4 million in swap fees.

These decreases were partly offset by higher tax credit sales income of $1.9 million and cash sweep commissions of $1.3 million.

Bank card transaction fees for the current year declined $1.3 million, or .9%, from the same period last year, mainly due to a decrease of $2.6 million in net corporate card fees, partly offset by an increase in net credit card fees of $846 thousand.

Deposit account fees increased $7.4 million, or 10.9%, mainly due to higher corporate cash management fees.

Capital market fees increased $4.8 million, or 49.0%, mainly due to higher trading securities and underwriting income, while loan fees and sales increased $1.7 million mainly due to higher loan commitment fees and mortgage banking revenue.

Other non-interest income increased $3.1 million, or 7.1%, mainly due to higher gains on the sales of assets of $3.3 million and an increase of $1.9 million in cash sweep commissions.

These increases were partly offset by declines in letter of credit fees of $2.3 million and swap fees of $1.6 million.

Investment Securities Gains (Losses), Net

Three Months Ended June 30 Six Months Ended June 30

Three Months Ended September 30 Nine Months Ended September 30

(In thousands) 2024 2023 2024 2023

4 unchanged sentences

Total investment securities gains (losses), net $ 3,872 $ 4,298 $ 6,846 $ 7,384

Net gains on investment securities, which were recognized in earnings during the three months ended June 30, 2024 and 2023, are shown in the table above.

Net securities gains of $3.2 million were reported in the second quarter of 2024, compared to net gains of $3.4 million in the same period last year.

The net gains in the second quarter of 2024 were mainly comprised of net gains of $178.2 million on equity investments and net gains in fair value of $5.7 million recorded on private equity investments.

These gains were largely offset by net losses of $179.1 million on sales of available for sale debt securities.

The net gains on investment securities for the same quarter last year were primarily comprised of $9.1 million of net gains in fair value on the Company’s private equity investments, partially offset by losses of $5.4 million on the sale of available for sale securities.

Net gains on investment securities of $3.0 million were recognized in earnings for the six months ended June 30, 2024, compared to net gains of $3.1 million for the same period in 2023.

Net gains in the first half of 2024 were mainly comprised of net gains of $178.3 million on equity investments and net gains in fair value of $12.8 million recorded on private equity investments, largely offset by net losses of $187.5 million on sales of available for sale securities.

Net gains in the first half of 2023 were mainly comprised of net gains in fair value of $11.3 million on private equity investments, due to fair value adjustments, partially offset by losses of $8.4 million on sales of available for sale debt securities.

The portion of private equity activity attributable to minority interests is reported as non-controlling interest in the consolidated statements of income and resulted in expense of $1.8 million during the first six months of 2024 and expense of $2.5 million during the first six months of 2023.

The Company's significant gains in equity securities for the three and six months ended June 30, 2024 primarily relate to gains recorded on its shares of Visa, as described in Note 3, Investment Securities.

Likewise, the $179.1 million losses realized on the Company's available for sale debt securities portfolio relate to the successful execution of its planned available for sale debt security portfolio repositioning, in which the Company sold bonds with an amortized cost of $1.2 billion and subsequently reinvested the proceeds into higher yielding available for sale debt securities.

Net gains on investment securities, which were recognized in earnings during the three months ended September 30, 2024 and 2023, are shown in the table above.

Net securities gains of $3.9 million were reported in the third quarter of 2024, compared to net gains of $4.3 million in the same period last year.

The net gains in the third quarter of 2024 were mainly comprised of net gains in fair value of $7.4 million recorded on private equity investments and net gains of $2.0 million on the sales of private equity investments.

These gains were partly offset by net losses of $5.4 million on sales of available for sale debt securities.

The net gains on investment securities for the same quarter last year were primarily comprised of $5.6 million of net gains in fair value on the Company’s private equity investments, partially offset by a loss of $1.2 million on the sale of private equity investments.

Net gains on investment securities of $6.8 million were recognized in earnings for the nine months ended September 30, 2024, compared to net gains of $7.4 million for the same period in 2023.

Net gains in the first nine months of 2024 were mainly comprised of net gains of $178.1 million on equity investments and net gains in fair value of $20.2 million recorded on private equity investments, largely offset by net losses of $192.9 million on sales of available for sale securities.

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 losses of $8.4 million on sales of available for sale debt securities.

The portion of private equity activity attributable to minority interests is reported as non-controlling interest in the consolidated statements of income and resulted in expense of $3.4 million during the first nine months of 2024 and expense of $3.3 million during the first nine months of 2023.

The Company's significant gains in equity securities for the three and nine months ended September 30, 2024 primarily relate to gains recorded on its shares of Visa, as described in Note 3, Investment Securities.

Likewise, the $192.9 million losses realized on the Company's available for sale debt securities portfolio mainly relate to the successful execution of its planned available for sale debt security portfolio repositioning, in which the Company sold bonds with an amortized cost of $1.2 billion and subsequently reinvested the proceeds into higher yielding available for sale debt securities.

Additional information about the Company's available for sale debt portfolio repositioning transactions is discussed in Note 3, Investment Securities.

Non-Interest Expense

Three Months Ended June 30 Increase (Decrease) Six Months Ended June 30 Increase (Decrease)

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

(Dollars in thousands) 2024 2023 Amount % change 2024 2023 Amount % change

2 unchanged sentences

Net occupancy 13,411 13,948 (537) (3.9) 39,529 39,702 (173) (.4)

Deposit insurance 2,354 4,187 (1,833) (43.8) 10,371 8,830 1,541 17.5

Professional and other services 8,830 8,293 537 6.5 26,095 26,979 (884) (3.3)

Equipment 5,286 4,697 589 12.5 15,387 14,411 976 6.8

1 unchanged sentence

Supplies and communication 4,963 4,963 — — 14,343 14,178 165 1.2

Deposit insurance 2,930 4,029 (1,099) (27.3) 13,301 12,859 442 3.4

Other 9,586 8,364 1,222 14.6 41,267 29,369 11,898 40.5

Total non-interest expense $ 237,600 $ 228,010 $ 9,590 4.2 % $ 715,511 $ 679,728 $ 35,783 5.3 %

Non-interest expense for the second quarter of 2024 amounted to $232.2 million, an increase of $4.6 million, or 2.0%, compared to expense of $227.6 million in the second quarter of last year.

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

Salaries and employees benefits expense increased $3.7 million, or 2.5%, mainly due to higher full-time salaries expense of $3.8 million and other salaries expense of $1.0 million, partly offset by lower healthcare expense of $1.5 million.

Full-time equivalent employees totaled 4,724 at June 30, 2024, compared to 4,680 at June 30, 2023.

Data processing and software expense increased $2.8 million, or 9.8%, mainly due to increased costs for service providers.

Occupancy expense decreased $451 thousand, or 3.5%, while marketing expense declined $1.0 million, or 15.9%.

Deposit insurance expense decreased $1.8 million partly due to a $1.2 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 $1.2 million, or 5.7%, mainly due to a $5.0 million donation to a related charitable foundation, partly offset by deconversion expense of $2.1 million recorded in the same period last year.

Non-interest expense amounted to $477.9 million for the first six months of 2024, an increase of $26.2 million, or 5.8%, over the first six months of 2023.

Salaries and benefits expense increased $11.1 million, or 3.8%, mainly due to higher full-time salaries expense, other salaries expense and payroll taxes, partly offset by a decrease in healthcare expense.

Non-interest expense for the third quarter of 2024 amounted to $237.6 million, an increase of $9.6 million, or 4.2%, compared to expense of $228.0 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 benefits expense, data processing and software expense and marketing expense, partly offset by lower deposit insurance expense.

Salaries and employee benefits expense increased $6.3 million, or 4.3%, mainly due

to higher full-time salaries expense of $3.5 million and incentive compensation expense of $2.2 million.

Full-time equivalent employees totaled 4,711 at September 30, 2024, compared to 4,714 at September 30, 2023.

Data processing and software expense increased $1.5 million, or 4.7%, mainly due to increased costs for service providers, and marketing expense increased $1.1 million, or 18.0%.

Deposit insurance expense decreased $1.1 million which was partly the result of a $525 thousand accrual adjustment in the current quarter to the FDIC's special assessment.

Other non-interest expense increased $1.2 million, or 14.6%, mainly due to an increase of $1.8 million in fair value adjustments recorded on the Company's deferred compensation plan.

Non-interest expense amounted to $715.5 million for the first nine months of 2024, an increase of $35.8 million, or 5.3%, over the first nine months of 2023.

Salaries and benefits expense increased $17.4 million, or 4.0%, mainly due to higher full-time salaries expense, incentive compensation and payroll taxes.

Data processing and software expense increased $7.3 million, or 8.3%, due to increased costs for service providers and higher bank card processing fees.

Occupancy expense increased $364 thousand, or 1.4%, while equipment expense increased $387 thousand, or 4.0%, due to higher depreciation and service contract expense.

Marketing expense decreased $2.4 million, or 20.7%, while deposit insurance increased $1.5 million, or 17.5%, due to accrual adjustments in 2024 to the special assessment by the FDIC.

Other non-interest expense increased $9.3 million, or 23.3%, mainly due to litigation settlement expense of $10.0 million, net of insurance, and the charitable donation of $5.0 million, partly offset by deconversion expense of $2.1 million recorded in 2023.

Equipment expense increased $976 thousand, or 6.8%, mainly due to higher depreciation expense, while marketing expense decreased $1.3 million, or 7.4%.

Other non-interest expense increased $11.9 million, or 40.5%, mainly due to litigation settlement expense of $10.0 million, net of insurance, and a $5.0 million donation to a related charitable foundation, both recorded in 2024, partly offset by deconversion expense of $2.1 million recorded in 2023.

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

Three Months Ended Six Months Ended June 30

(In thousands) June 30, 2024 Mar.

31, 2024 June 30, 2023 2024 2023

Three Months Ended Nine Months Ended September 30

(In thousands) Sept.

30, 2024 June 30, 2024 Sept.

30, 2023 2024 2023

ALLOWANCE FOR CREDIT LOSSES ON LOANS

20 unchanged sentences

ALLOWANCE FOR CREDIT LOSSES ON LOANS AND LIABILITY FOR UNFUNDED LENDING COMMITMENTS $ 178,823 $ 179,262 $ 189,781 $ 178,823 $ 189,781

Three Months Ended Six Months Ended June 30

June 30, 2024 Mar.

31, 2024 June 30, 2023 2024 2023

Three Months Ended Nine Months Ended September 30

30, 2024 June 30, 2024 Sept.

30, 2023 2024 2023

Annualized net loan charge-offs (recoveries)*:

12 unchanged sentences

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

The following schedule provides a breakdown of the allowance for credit losses on loans (ACL) by loan class and the percentage of the allowance for loan losses to the related loan class at period end.

(Dollars in thousands) June 30, 2024 Mar.

31, 2024 June 30, 2023

The following schedule provides a breakdown of the allowance for credit losses on loans (ACL) by loan class and the percentage of the allowance for credit losses to the related loan class at period end.

(Dollars in thousands) Sept.

30, 2024 June 30, 2024 Sept.

Credit Loss Allowance Allocation % of ACL to Loan Category Credit Loss Allowance Allocation % of ACL to Loan Category Credit Loss Allowance Allocation % of ACL to Loan Category

11 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 second quarter of 2024 amounted to $9.8 million, compared to $8.9 million in the prior quarter and $6.5 million in the second quarter of last year.

Comp ared to the same period last year, total net loan charge-offs in the second quarter of 2024 increased $3.3 million and increased $880 thousand from the previous quarter.

The increase over the prior year was mainly driven by increases in net charge-offs on consumer credit card, consumer and business loans of $2.1 million, $531 thousand, and $457 thousand, respectively.

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

For the three months ended June 30, 2024, annualized net charge-offs on average consumer credit card loans were 4.91%, compared to 4.60% in the previous quarter and 3.38% in the same period last year.

Net loan charge-offs in the third quarter of 2024 amounted to $9.6 million, compared to $9.8 million in the prior quarter and $9.8 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 2024 decreased $205 thousand and decreased $178 thousand from the previous quarter.

The decrease over the prior year was mainly driven by a $2.5 million decrease in net charge-offs on business loans, partly offset by higher net charge-offs of $1.6 million and $962 thousand on consumer credit card and consumer loans, respectively.

The decrease from the previous quarter was driven by decreases in net charge-offs on consumer credit card and business loans, partly offset by an increase in net charge-offs on consumer loans.

For the three months ended September 30, 2024, annualized net charge-offs on average consumer credit card loans were 4.46%, compared to 4.91% in the previous quarter and 3.32% in the same period last year.

Consumer loan annualized net charge-offs in the current quarter amounted to .52%, compared to .34% in the prior quarter and .34% in the same period last year.

In the second quarter of 2024 , total annualized net loan charge-offs were .23%, compared to .21% in the previous quarter and .16% in the same period last year.

For the three months ended June 30, 2024, the provision for credit losses on loans was $7.8 million which was a $2.0 million increase over the $5.9 million provision recorded in the same period last year and a $902 thousand increase over the $6.9 million provision recorded at March 31, 2024.

The increase in the provision for credit losses on loans during the second quarter of 2024 over the same period last year was due to higher net loan charge-offs during the second quarter of 2024, partly offset by a larger reduction in the allowance for credit losses on loans in the current quarter compared to the same period last year.

For the six months ended June 30, 2024, net loan charge-offs amounted to $18.6 million, which was a $5.4 million increase over the first six months of 2023.

The increase in net charge-offs on loans during the first six months of 2024 was primarily driven by an increase in net charge-offs on consumer credit card and consumer loans.

For the six months ended June 30, 2024, annualized net loan charge-offs on consumer credit card and consumer loans were 4.75% and .36%, respectively, compared to 3.27% and .25%, respectively, for the same period last year.

The annualized net charge-offs on loans for the six months ended June 30, 2024 and 2023, respectively, were .22% and .16%.

For the six months ended June 30, 2024, the provision for credit losses on loans was $14.8 million, which was a $7.0 million decrease from the $21.8 million provision recorded in the same period last year.

In the third quarter of 2024 , total annualized net loan charge-offs were .22%, compared to .23% in the previous quarter and .23% in the same period last year.

The provision for credit losses on loans was $11.9 million, which was a $1.5 million decrease over the $13.3 million provision recorded in the same period last year and a $4.0 million increase over the $7.8 million provision recorded at June 30, 2024.

The decrease in the provision for credit losses on loans during the third quarter of 2024 over the same period last year was due to growth in the allowance for credit losses on loans in the third quarter of 2023.

For the nine months ended September 30, 2024, net loan charge-offs amounted to $28.2 million, which was a $5.2 million increase over the first nine months of 2023.

The increase in net charge-offs on loans during the first nine months of 2024 was primarily driven by an increase in net charge-offs on consumer credit card and consumer loans, partly offset by lower net charge-offs on business loans.

For the nine months ended September 30, 2024, annualized net loan charge-offs on consumer credit card and consumer loans were 4.65% and .41%, respectively, compared to 3.28% and .28%, respectively, for the same period last year.

The annualized net charge-offs on loans for the nine months ended September 30, 2024 and 2023, respectively, were .22% and .18%.

For the nine months ended September 30, 2024, the provision for credit losses on loans was $26.7 million, which was an $8.5 million decrease from the $35.2 million provision recorded in the same period last year.

Changes in the provision are driven by changes in the estimate for the allowance for credit losses on loans.

The decrease in the provision for credit losses on loans in the first half of 2024 compared to the same period last year was primarily due to a reduction of the allowance for credit losses on loans during 2024, caused in part by an improving economic forecast in 2024, whereas the allowance for credit losses on

loans in the first half of 2023 was increasing due to a weakening economic forecast which included a mild recession.

The decrease in the provision for credit losses on loans during the first half of 2024 compared to the same period in the prior year was partly offset by higher net charge-offs recorded in the six months ended June 30, 2024 compared to the first half of 2023.

For the six months ended June 30, 2024, the allowance for credit losses on loans decreased by $3.8 million, compared to the allowance for credit losses on loans at December 31, 2023.

During the six months ended June 30, 2024, the allowance for credit losses on commercial loans decreased by $984 thousand, while the allowance for credit losses related to personal banking loans, including consumer credit card loans, decreased $2.9 million.

The decrease in the allowance for credit losses on loans during the first half of 2024 was primarily the result of a slightly more optimistic economic forecast at June 30, 2024, coupled with a faster prepayment speed assumption in the personal real estate portfolio compared to the assumptions used at December 31, 2023.

The allowance for credit losses on loans was $158.6 million at June 30, 2024 and was .92%, .94% and .94% of total loans at June 30, 2024, December 31, 2023 and June 30, 2023, respectively.

In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $2.4 million, compared to a provision of $607 thousand for the three months ended June 30, 2023.

For the six months ended June 30, 2024, the provision for credit losses on unfunded commitments was a benefit of $4.5 million compared to a benefit of $3.9 million in the first six months of 2023.

At June 30, 2024, the liability for unfunded lending commitments was $20.7 million, compared to $25.2 million at December 31, 2023 and $29.2 million at June 30, 2023.

The decrease in the provision for credit losses on loans in the first nine months of 2024 compared to the same period last year was primarily due to a reduction of the allowance for credit losses on loans during 2024, caused in part by an improving economic forecast in 2024, whereas the allowance for

credit losses on loans in the first nine months of 2023 was increasing due to a weakening economic forecast which included a mild recession.

The decrease in the provision for credit losses on loans during the first nine months of 2024 compared to the same period in the prior year was partly offset by higher net charge-offs recorded in the nine months ended September 30, 2024 compared to the first nine months of 2023.

For the nine months ended September 30, 2024, the allowance for credit losses on loans decreased by $1.6 million, compared to the allowance for credit losses on loans at December 31, 2023.

During the nine months ended September 30, 2024, the allowance for credit losses on commercial loans decreased by $1.2 million, while the allowance for credit losses related to personal banking loans, including consumer credit card loans, decreased $402 thousand.

The decrease in the allowance for credit losses on loans during the first nine months of 2024 was primarily the result of a slightly more optimistic economic forecast at September 30, 2024 and a decrease in outstanding loan balances, partially offset by an increase in the allowance related to loans risk-rated special mention, substandard, or non-accrual.

The allowance for credit losses on loans was $160.8 million at September 30, 2024 and was .94%, .94% and .95% of total loans at September 30, 2024, December 31, 2023 and September 30, 2023, respectively.

In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $2.7 million, compared to a benefit of $1.7 million for the nine months ended September 30, 2023.

For the nine months ended September 30, 2024, the provision for credit losses on unfunded commitments was a benefit of $7.3 million compared to a benefit of $5.6 million in the first nine months of 2023.

At September 30, 2024, the liability for unfunded lending commitments was $18.0 million, compared to $25.2 million at December 31, 2023 and $27.5 million at September 30, 2023.

The liability decreased primarily due to decreases in unfunded lending commitment balances, coupled with improvement in loss rate assumptions for the Company's construction loans.

1 unchanged sentence

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 June 30, 2024.

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.

9 unchanged sentences

(Dollars in thousands)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Non-accrual loans $ 18,419 $ 7,312

4 unchanged sentences

Total loans past due 90 days and still accruing interest $ 21,986 $ 21,864

Non-accrual loans totaled $19.3 million at June 30, 2024, an increase of $12.0 million from the balance at December 31, 2023.

Non-accrual loans totaled $18.4 million at September 30, 2024, an increase of $11.1 million from the balance at December 31, 2023.

The increase occurred mainly in business real estate non-accrual loans, which increased $14.9 million.

The increase was partly offset by a $3.3 million decrease in business non-accrual loans.

At June 30, 2024, non-accrual loans were comprised of business real estate (78.0%), revolving home equity (10.2%), personal real estate (9.2%), and business (2.6%) loans.

Foreclosed real estate totaled $143 thousand at June 30, 2024, a decrease of $127 thousand compared to December 31, 2023.

Total loans past due 90 days or more and still accruing interest were $18.6 million as of June 30, 2024, a decrease of $3.3 million from

December 31, 2023.

At September 30, 2024, non-accrual loans

were comprised of business real estate (81.1%), revolving home equity (10.7%), personal real estate (6.2%), and business (1.9%) loans.

Foreclosed real estate totaled $1.0 million at September 30, 2024, an increase of $780 thousand compared to December 31, 2023.

Total loans past due 90 days or more and still accruing interest totaled $22.0 million as of September 30, 2024, an increase of $122 thousand 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 $242.2 million at June 30, 2024 compared with $216.4 million at December 31, 2023, resulting in an increase of $25.8 million, or 11.9%.

Such loans totaled $319.4 million at September 30, 2024 compared with $216.4 million at December 31, 2023, resulting in an increase of $103.0 million, or 47.6%.

(In thousands)

June 30, 2024 December 31, 2023

September 30, 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 June 30, 2024, the Company held $84.7 million of loans that had been modified during the six months ended June 30, 2024.

At September 30, 2024, the Company held $184.4 million of loans that had been modified during the nine months ended September 30, 2024.

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

6 unchanged sentences

Real Estate – Construction and Land Loans

The Company's portfolio of construction and land loans, as shown in the table below, amounted to 8.1% of total loans outstanding at June 30, 2024.

The largest component of construction and land loans was commercial construction, which decreased $65.2 million during the six months ended June 30, 2024.

At June 30, 2024, multi-family residential construction loans totaled approximately $469.2 million, or 40.5%, of the commercial construction loan portfolio, compared to $414.6 million, or 33.9%, at December 31, 2023.

(Dollars in thousands) June 30,

The Company's portfolio of construction and land loans, as shown in the table below, amounted to 8.1% of total loans outstanding at September 30, 2024.

The largest component of construction and land loans was commercial construction, which decreased $53.8 million during the nine months ended September 30, 2024.

At September 30, 2024, multi-family residential construction loans totaled approximately $459.1 million, or 39.3%, of the commercial construction loan portfolio, compared to $414.6 million, or 33.9%, at December 31, 2023.

(Dollars in thousands) September 30,

December 31, 2023

5 unchanged sentences

Real Estate – Business Loans

Total business real estate loans were $3.6 billion at June 30, 2024 and comprised 20.8% of the Company's total loan portfolio.

Total business real estate loans were $3.6 billion at September 30, 2024 and comprised 21.0% of the Company's total loan portfolio.

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

At June 30, 2024, 33.1% 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) June 30,

At September 30, 2024, 33.4% of business real estate loans were for owner-occupied real estate properties, which have historically resulted in lower net charge-off rates than non-owner-occupied commercial real estate loans.

(Dollars in thousands) September 30,

December 31, 2023

2 unchanged sentences

Industrial 463,220 12.9 2.7 630,713 17.0 3.7

Retail 320,064 9.0 1.9 366,693 9.9 2.1

Hotels 312,371 8.7 1.8 292,941 7.9 1.7

Multi-family 310,255 8.6 1.8 256,657 6.9 1.5

Retail 309,622 8.6 1.8 366,693 9.9 2.1

Farm 188,781 5.3 1.1 195,981 5.3 1.1

2 unchanged sentences

Total real estate - business loans $ 3,586,999 100.0 % 21.0 % $ 3,719,306 100.0 % 21.6 %

Information about the credit quality of the Company's business real estate loan portfolio as of June 30, 2024 and December 31, 2023 is provided in the table below.

Information about the credit quality of the Company's business real estate loan portfolio as of September 30, 2024 and December 31, 2023 is provided in the table below.

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

June 30, 2024

September 30, 2024

Owner-occupied $ 1,159,348 $ 6,974 $ 30,125 $ 72 $ 1,196,519

1 unchanged sentence

Industrial 463,220 — — — 463,220

Retail 303,850 15,500 714 — 320,064

Hotels 312,371 — — — 312,371

Multi-family 298,141 10,986 1,128 — 310,255

Retail 294,122 15,500 — — 309,622

Farm 184,531 1,002 3,248 — 188,781

4 unchanged sentences

Owner-occupied $ 1,146,112 $ 10,376 $ 18,928 $ 60 $ 1,175,476

Industrial 630,644 69 — — 630,713

Office 489,320 — — — 489,320

Retail 349,321 15,500 1,872 — 366,693

Industrial 630,644 69 — — 630,713

Hotels 282,105 9,253 1,583 — 292,941

Multi-family 255,507 1,150 — — 256,657

Retail 349,321 15,500 1,872 — 366,693

Farm 195,981 — — — 195,981

3 unchanged sentences

Revolving Home Equity Loans

The Company had $331.4 million in revolving home equity loans at June 30, 2024 that were collateralized by residential real estate.

The Company had $342.4 million in revolving home equity loans at September 30, 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 June 30, 2024, the outstanding

principal of loans with an original LTV higher than 80% was $29.9 million, or 9.0% 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 $4.9 million at June 30, 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 June 30, 2024 and December 31, 2023.

The weighted average FICO score for the total portfolio balance at June 30, 2024 is 785.

As of September 30, 2024, the

outstanding principal of loans with an original LTV higher than 80% was $30.7 million, or 9.0% 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 $4.7 million at September 30, 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 September 30, 2024 and December 31, 2023.

The weighted average FICO score for the total portfolio balance at September 30, 2024 is 785.

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 38.6% of the consumer loan portfolio at June 30, 2024, and outstanding balances for auto loans were $827.6 million and $820.3 million at June 30, 2024 and December 31, 2023, respectively.

The balances over 30 days past due amounted to $9.9 million at June 30, 2024 and $9.5 million at December 31, 2023, respectively, and comprised 1.2% of the outstanding balances of these loans at both June 30, 2024 and December 31, 2023.

For the six months ended June 30, 2024, $196.4 million of new auto loans were originated, compared to $210.1 million during the first six months of 2023.

At June 30, 2024, the automobile loan portfolio had a weighted average FICO score of 757, and net charge-offs on auto loans were .4% of average auto loans.

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 10.7% of the consumer loan portfolio at June 30, 2024.

Losses on these loans have historically been low, and the Company saw net recoveries of $62 thousand for the first six months of 2024.

Private banking loans comprised 34.2% of the consumer loan portfolio at June 30, 2024.

The Company's private banking loans are generally well-collateralized, and at June 30, 2024 were secured primarily by assets held by the Company's trust department.

Auto loans comprised 37.9% of the consumer loan portfolio at September 30, 2024, and outstanding balances for auto loans were $799.7 million and $820.3 million at September 30, 2024 and December 31, 2023, respectively.

The balances over 30 days past due amounted to $11.1 million at September 30, 2024 and $9.5 million at December 31, 2023, respectively, and comprised 1.4% of the outstanding balances of these loans at September 30, 2024 and 1.2% at December 31, 2023.

For the nine months ended September 30, 2024, $260.6 million of new auto loans were originated, compared to $290.3 million during the first nine months of 2023.

At September 30, 2024, the automobile loan portfolio had a weighted average FICO score of 754, and net charge-offs on auto loans were .6% of average auto loans.

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 10.8% of the consumer loan portfolio at September 30, 2024.

Losses on these loans have historically been low, and the Company saw net recoveries of $78 thousand for the first nine months of 2024.

Private banking loans comprised 34.6% of the consumer loan portfolio at September 30, 2024.

The Company's private banking loans are generally well-collateralized, and at September 30, 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 $2.1 million in the first six months of 2024 and were .4% of the average balances of these loans at June 30, 2024.

Net charge-offs on private banking, health services financing, motorcycle and marine and RV loans totaled $3.2 million in the first nine months of 2024 and were .4% of the average balances of these loans at September 30, 2024.

Consumer Credit Card Loans

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

Out of a portfolio at June 30, 2024 of $566.9 million in consumer credit card loans outstanding, approximately $112.3 million, or 19.8%, carried a low promotional rate.

Out of a portfolio at September 30, 2024 of $574.7 million in consumer credit card loans outstanding, approximately $116.0 million, or 20.2%, carried a low promotional rate.

Within the next six months, $48.2 million of these loans are scheduled to convert to the ongoing higher contractual rate.

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Oil and Gas Energy Lending

The Company's energy lending portfolio is comprised of lending to the petroleum and natural gas sectors and totaled $268.8 million, or 1.6% of total loans at June 30, 2024, a decrease of $3.2 million from December 31, 2023, 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 $262.2 million, or 1.5% of total loans at September 30, 2024, a decrease of $9.8 million from December 31, 2023, as shown in the table below.

(In thousands)

June 30, 2024 December 31, 2023 Unfunded commitments at June 30, 2024

September 30, 2024 December 31, 2023 Unfunded commitments at September 30, 2024

Extraction $ 199,521 $ 219,828 $ 150,218

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communities or regional markets and opportunities to provide other banking services are present.

The balance of SNC loans totaled $1.6 billion and $1.5 billion at June 30, 2024 and December 31, 2023, respectively.

Additional unfunded commitments at June 30, 2024 totaled $2.4 billion.

Income tax expense was $38.6 million in the second quarter of 2024, compared to $31.7 million in the first quarter of 2024 and $36.0 million in the second quarter of 2023.

The Company's effective tax rate, including the effect of non-controlling interest, was 21.7% in the second quarter of 2024, compared to 21.9% in the first quarter of 2024 and 22.0% in the second quarter of 2023.

The balance of SNC loans totaled $1.6 billion and $1.5 billion at September 30, 2024 and December 31, 2023, respectively.

Additional unfunded commitments at September 30, 2024 totaled $2.4 billion.

Income tax expense was $38.2 million in the third quarter of 2024, compared to $38.6 million in the second quarter of 2024 and $33.4 million in the third quarter of 2023.

The Company's effective tax rate, including the effect of non-controlling interest, was 21.7% in the third quarter of 2024, unchanged from both the previous quarter, and the third quarter of 2023.

Financial Condition

Balance Sheet

Total assets of the Company were $30.6 billion at June 30, 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 June 30, 2024 and $31.1 billion at December 31, 2023, and consisted of 58% in loans and 33% in investment securities at June 30, 2024.

At June 30, 2024, total loans decreased $42.4 million or .25%, compared to balances at December 31, 2023.

Total assets of the Company were $31.5 billion at September 30, 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 $30.5 billion at September 30, 2024 and $31.1 billion at December 31, 2023, and consisted of 56% in loans and 34% in investment securities at September 30, 2024.

At September 30, 2024, total loans decreased $115.5 million or .7%, compared to balances at December 31, 2023.

The decrease was mainly due to declines in business real estate, construction and consumer credit card loans of $132.3 million, $65.2 million, and $15.2 million, respectively.

These decreases were partly offset by an increase of $29.3 million in business loans, mainly due to growth in commercial and industrial lending and tax-free loan balances.

In addition, personal real estate loans increased $29.1 million, while consumer loans, which includes automobile, marine and RV, fixed rate home equity and other consumer loans, increased $67.9 million, mainly due to growth in other consumer loans.

Total available for sale debt securities, excluding fair value adjustments, decreased $1.3 billion at June 30, 2024 compared to December 31, 2023.

In addition, personal real estate loans increased $17.4 million, while consumer loans, which includes automobile, private banking, health services financing, fixed rate home equity and other consumer loans, increased $30.6 million.

Growth in consumer loans was mainly due to increases in private banking and health services financing loans, partially offset by a decline in auto loan balances.

Total available for sale debt securities, excluding fair value adjustments, decreased $950.7 million at September 30, 2024 compared to December 31, 2023.

Purchases of available for sale debt securities during this period totaled $2.1 billion, offset by available for sale debt security sales, maturities and pay downs of $3.0 billion.

The decline in available for sale debit securities was mainly the result of lower balances of mortgage-backed securities, asset-backed securities and state and municipal obligations, which decreased $812.5 million, $554.0 million, and $476.7 million, respectively, at June 30, 2024 compared to December 31, 2023.

These decreases were partly offset by an increase of $820.0 million in balances of U.S.

The decline in available for sale debit securities was mainly the result of lower balances of mortgage-backed securities, asset-backed securities and state and municipal obligations, which decreased $326.2 million, $716.1 million, and $497.1 million, respectively, at September 30, 2024 compared to December 31, 2023.

These decreases were partly offset by an increase of $1.5 billion in balances of U.S.

government and federal agency obligations.

At June 30, 2024, the duration of the available for sale investment portfolio was 4.0 years, and maturities and pay downs of approximately $1.6 billion are expected to occur during the next 12 months.

At September 30, 2024, the duration of the available for sale investment portfolio was 4.0 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 June 30, 2024 amounted to $24.3 billion, a decrease of $1.1 billion compared to December 31, 2023.

Total deposits at September 30, 2024 amounted to $25.2 billion, a decrease of $126.1 million compared to December 31, 2023.

The decline in deposits largely resulted from a decrease in demand deposits, mainly in business demand deposits (decrease of $550.2 million).

Additionally, certificate of deposit balances decreased $456.9 million and interest checking balances decreased $150.3 million from balances at December 31, 2023.

The Company’s borrowings totaled $2.6 billion at June 30, 2024, a decrease of $354.8 million from balances at December 31, 2023, mainly due to a decline in FHLB advances, which were repaid in 2023.

Additionally, certificate of deposit balances decreased $250.6 million while interest checking balances increased $723.2 million over balances at December 31, 2023.

The Company’s borrowings totaled $2.2 billion at September 30, 2024, a decrease of $717.8 million from balances at December 31, 2023, mainly due to a decline in securities sold under agreements to repurchase.

Liquidity and Capital Resources

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(In thousands)

June 30, 2024 June 30, 2023 December 31, 2023

September 30, 2024 September 30, 2023 December 31, 2023

Liquid assets:

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Total $ 12,284,739 $ 12,161,204 $ 12,378,795

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $2.2 billion at June 30, 2024 and decreased $24.0 million from December 31, 2023 balances.

At June 30, 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 $8.5 billion at June 30, 2024 and included an unrealized net loss of $1.1 billion.

Interest earning balances at the Federal Reserve Bank, which have overnight maturities and are used for general liquidity purposes, totaled $2.6 billion at September 30, 2024 and increased $403.0 million from December 31, 2023.

Federal funds sold, which are funds lent to the Company's correspondent bank customers with overnight maturities, totaled $10 thousand as of September 30, 2024.

The fair value of the available for sale debt portfolio was $9.2 billion at September 30, 2024 and included an unrealized net loss of $786.4 million.

The total net unrealized loss included net losses of $716.8 million on mortgage-backed and asset-backed securities and $67.2 million on state and municipal obligations.

Resale agreements, maturing through 2029, totaled $475.0 million at June 30, 2024.

Resale agreements totaled $475.0 million at September 30, 2024, with $125.0 million to mature in the next 12 months and the remaining amount to mature through 2029.

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 $490.3 million in fair value at June 30, 2024.

$125.0 million of the Company's resale agreements will mature in the next 12 months.

The Company's available for sale debt securities portfolio has a diverse mix of high quality and liquid investment securities with a duration of 4.0 years at June 30, 2024.

This collateral totaled $502.0 million in fair value at September 30, 2024.

The Company's available for sale debt securities portfolio has a diverse mix of high quality and liquid investment securities with a duration of 4.0 years at September 30, 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.

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(In thousands)

June 30, 2024 June 30, 2023 December 31, 2023

September 30, 2024 September 30, 2023 December 31, 2023

Investment securities pledged for the purpose of securing:

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Total available for sale debt securities, at fair value $ 9,167,681 $ 9,860,828 $ 9,684,760

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

The average loans to deposits ratio is a measure of a bank's liquidity, and the Company’s average loans to deposits ratio was 70.3% for the six months ended June 30, 2024.

Core customer deposits, defined as non-interest bearing, interest checking, savings, and money market deposit accounts totaled $21.9 billion and represented 90.0% of the Company's total deposits at June 30, 2024.

* Includes securities pledged for collateral swaps outstanding at September 30, 2023.

The average loans to deposits ratio is a measure of a bank's liquidity, and the Company’s average loans to deposits ratio was 70.2% for the nine months ended September 30, 2024.

Core customer deposits, defined as non-interest bearing, interest checking, savings, and money market deposit accounts totaled $22.6 billion and represented 89.6% of the Company's total deposits at September 30, 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.

Core deposits decreased $627.7 million at June 30, 2024 compared to December 31, 2023, primarily due to decreases in commercial, wealth, and consumer segment deposits of $371.1 million, $225.5 million, and $70.9 million, respectively.

Core deposits increased $124.5 million at September 30, 2024 compared to December 31, 2023, primarily due to an increase in commercial deposits of $675.9 million, partly offset by decreases in consumer and wealth deposits of $286.1 million and $197.4 million, respectively.

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.

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In addition, as shown in the table of collateral available for future advances below, the Company has borrowing capacity of $6.4 billion through advances from the FHLB and the Federal Reserve.

Certificates of deposit of $100,000 or greater totaled $1.4 billion at June 30, 2024.

These deposits are normally considered more volatile and higher costing, and comprised 5.8% of total deposits at June 30, 2024.

Certificates of deposit of $100,000 or greater totaled $1.5 billion at September 30, 2024.

These deposits are normally considered more volatile and higher costing, and comprised 6.0% of total deposits at September 30, 2024.

(In thousands)

June 30, 2024 June 30, 2023 December 31, 2023

September 30, 2024 September 30, 2023 December 31, 2023

Core deposit base:

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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.

During the third quarter of 2024, the Company issued $100.0 million of brokered certificates of deposit that mature in three months.

The Company may occasionally issue brokered certificates of deposit to test the reliability of this potential funding source.

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.

2 unchanged sentences

(In thousands)

June 30, 2024 June 30, 2023 December 31, 2023

September 30, 2024 September 30, 2023 December 31, 2023

Federal funds purchased $ 113,630 $ 506,355 $ 261,305

3 unchanged sentences

Total $ 2,192,430 $ 3,248,770 $ 2,910,219

Federal funds purchased, which totaled $254.7 million at June 30, 2024, are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit.

At June 30, 2024, the Company had approved lines of credit totaling $3.5 billion.

Federal funds purchased, which totaled $113.6 million at September 30, 2024, are unsecured overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved lines of credit.

At September 30, 2024, the Company had approved lines of credit totaling $3.7 billion.

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

1 unchanged sentence

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

Total repurchase agreements at June 30, 2024 were comprised of non-insured customer funds totaling $2.3 billion, and securities pledged as collateral for these retail agreements totaled $2.3 billion at June 30, 2024.

Total repurchase agreements at September 30, 2024 were comprised of non-insured customer funds totaling $2.1 billion, and securities pledged as collateral for these retail agreements totaled $2.1 billion at September 30, 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 no advances outstanding from the FHLB at June 30, 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.

There were no advances outstanding from the FHLB at September 30, 2024.

The Company pledges certain assets, including loans and investment securities, to both the 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.

1 unchanged sentence

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 June 30, 2024.

June 30, 2024

September 30, 2024

(In thousands)

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Because of its lack of significant long-term debt, the Company believes that through its Commercial Tradable Products division 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 $142.5 million during the first six months of 2024, as reported in the consolidated statements of cash flows in this report.

The cash flows from the operating, investing and financing activities of the Company resulted in a net increase in cash, cash equivalents and restricted cash of $462.8 million during the first nine 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 $714.5 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 $1.2 billion.

Activity in the investment securities portfolio provided cash of $1.2 billion from sales, maturities, and pay downs (net of purchases).

Investing activities, which occur mainly in the loan and investment securities portfolios, provided cash of $968.7 million.

Activity in the investment securities portfolio provided cash of $930.8 million from sales, maturities, and pay downs (net of purchases).

This increase in investing cash flows was further supported by shrinking in the loan portfolio, which provided cash of $86.1 million.

1 unchanged sentence

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 $1.6 billion, largely resulting from net decreases in deposits of $1.1 billion and a net decrease of $357.4 million in federal funds purchased and securities sold under agreements to repurchase during the first six months of 2024.

Additionally, purchases of treasury stock and cash dividends used cash of $79.9 million and $70.1 million, respectively.

Financing activities used cash of $1.2 billion, largely resulting from a net decrease of $726.6 million in federal funds purchased and securities sold under agreements to repurchase along with net decreases in deposits of $268.5 million during the first nine months of 2024.

Additionally, purchases of treasury stock and cash dividends (including distributions to non-controlling interest) used cash of $123.6 million and $110.5 million, respectively.

Capital Management

The Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions at June 30, 2024 and December 31, 2023, as shown in the following table.

(Dollars in thousands) June 30, 2024 December 31, 2023 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 September 30, 2024 and December 31, 2023, as shown in the following table.

(Dollars in thousands) September 30, 2024 December 31, 2023 Minimum Capital Requirement Capital Conservation Buffer Minimum Ratios Requirement including Capital Conservation Buffer

Minimum Ratios

18 unchanged sentences

In April 2024, the Board approved the purchase of additional shares, bringing the total shares authorized for purchase to 5,000,000 at April 17, 2024.

During the six months ended June 30, 2024, the Company purchased 1,491,902 shares at an average price of $53.55 in open market purchases and through stock-based compensation transactions.

At June 30, 2024, 4,315,095 shares remained available for purchase under the current Board authorization.

During the nine months ended September 30, 2024, the Company purchased 2,191,821 shares at an average price of $56.37 in open market purchases and through stock-based compensation transactions.

At September 30, 2024, 3,615,176 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 levels and alternative investment options.

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

The Company paid a $.270 per share cash dividend on its common stock in the third 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

5 unchanged sentences

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 June 30, 2024 totaled $14.9 billion (including $5.7 billion in unused, approved credit card lines).

The most significant of these are loan commitments, which at September 30, 2024 totaled $15.0 billion (including $5.8 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 $619.0 million and $4.9 million, respectively, at June 30, 2024.

The contractual amount of standby and commercial letters of credit totaled $614.6 million and $3.5 million, respectively, at September 30, 2024.

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

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 June 30, 2024, the liability for unfunded lending commitments totaled $20.7 million.

At September 30, 2024, the liability for unfunded lending commitments totaled $18.0 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 six months of 2024, purchases and sales of tax credits amounted to $53.7 million and $68.0 million, respectively.

Fees from sales of tax credits were $2.9 million for the six months ended June 30, 2024, compared to $1.0 million in the same period last year.

At June 30, 2024, the Company expected to fund outstanding purchase commitments of $111.0 million during the remainder of 2024 and had purchase commitments of $484.5 million that it expects to fund from 2025 through 2030.

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

During the first nine months of 2024, purchases and sales of tax credits amounted to $89.8 million and $76.1 million, respectively.

Fees from sales of tax credits were $3.5 million for the nine months ended September 30, 2024, compared to $3.0 million in the same period last year.

At September 30, 2024, the Company expected to fund outstanding purchase commitments of $72.5 million during the remainder of 2024 and had purchase commitments of $495.2 million that it expects to fund from 2025 through 2030.

The Company continued to maintain a strong liquidity position throughout the first nine 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 six months of 2024 and 2023.

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

(Dollars in thousands)

1 unchanged sentence

Consolidated Totals

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Net interest income $ 384,700 $ 387,387 $ 66,390 $ 838,477 $ (64,878) $ 773,599

4 unchanged sentences

Income before income taxes $ 185,362 $ 278,595 $ 127,868 $ 591,825 $ (86,169) $ 505,656

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Net interest income $ 421,327 $ 393,318 $ 76,807 $ 891,452 $ (141,744) $ 749,708

7 unchanged sentences

Percent (20.6) % (1.7) % 6.0 % (7.1) % (46.6) % 6.2 %

For the six months ended June 30, 2024, income before income taxes for the Consumer segment decreased $37.8 million, or 23.3%, compared to the first six months of 2023.

For the nine months ended September 30, 2024, income before income taxes for the Consumer segment decreased $48.0 million, or 20.6%, compared to the first nine months of 2023.

The decrease in income before income taxes was mainly due to a decline in net interest income of $36.6 million, or 8.7%, and increases in non-interest expense of $5.5 million, or 2.3%, and the provision for credit losses of $7.7 million.

1 unchanged sentence

This decrease was partly offset by higher loan interest income of $18.1 million and a $6.3 million increase in net allocated funding credits assigned to the Consumer segment's loan and deposit portfolios.

Non-interest income increased $501 thousand, or 1.0%, mainly due to higher net bank card fees (mainly credit and debit card fees) and deposit account fees.

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

The increase in the provision for credit losses over the first six months of 2023 was mainly due to higher consumer credit card loan net charge-offs.

For the six months ended June 30, 2024, income before income taxes for the Commercial segment decreased $15.2 million, or 7.8%, compared to the same period in the previous year.

T his decrease was mainly due to lower net interest income and non-interest expense, partly offset by higher non-interest income.

Net interest income decreased $13.3 million, or 5.0%, mainly due to lower net allocated funding credits of $28.2 million, coupled with higher interest expense on deposits and customer repurchase agreements of $28.6 million and $6.4 million, respectively, partly offset by higher loan interest income of $50.8 million.

Non-interest income increased $5.9 million, or 4.8%, 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 income increased $1.8 million, or 2.4%, mainly due to higher net bank card fees (mainly credit and debit card fees), deposit account fees and mortgage banking revenue.

Non-interest expense increased over the same period in the previous year mainly due to higher miscellaneous losses and allocated support costs for information technology and retail operations, partly offset by lower allocated management support costs.

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

For the nine months ended September 30, 2024, income before income taxes for the Commercial segment decreased $4.9 million, or 1.7%, compared to the same period in the previous year.

T his decrease was mainly due to lower net interest income and higher non-interest expense, partly offset by higher non-interest income and a decrease in the provision for credit losses.

Net interest income decreased $5.9 million, or 1.5%, mainly due to lower net allocated funding credits of $27.4 million, coupled with higher interest expense on deposits and customer repurchase agreements of $28.3 million and $9.1 million, respectively.

These decreases to income were partly offset by higher loan interest income of $58.4 million.

Non-interest income increased $9.2 million, or 5.0%, over the previous year mainly due to growth in deposit account fees (mainly corporate cash management fees), capital market fees and loan commitment fees.

These increases were partly offset by decreases in net bank card fees (mainly corporate card fees), letter of credit fees and swap fees.

Non-interest expense increased $7.5 million, or 3.9%, mainly due to higher salaries and benefits expense and allocated service and support costs for software, electronic banking and management expense.

Non-interest expense increased $10.4 million, or 3.6%, mainly due to higher salaries and benefits expense and allocated servicing and support costs for commercial banking sales and administration, management and bank operations.

These increases were partly offset by lower allocated commercial sales and payment support costs.

The provision for credit losses increased $283 thousand over the same period last year, mainly due to higher commercial credit card and commercial loan net charge-offs.

Wealth segment pre-tax profitability for the six months ended June 30, 2024 increased $4.2 million, or 5.2%, over the same period in the previous year.

The provision for credit losses declined $2.3 million from the same period last year, mainly due to lower commercial and industrial loan net charge-offs.

Wealth segment pre-tax profitability for the nine months ended September 30, 2024 increased $7.3 million, or 6.0%, over the same period in the previous year.

Net interest income decreased $10.4 million, or 13.6%, mainly due to a $19.2 million increase in deposit interest expense.

This decrease was partly offset by a $1.6 million increase in net allocated funding credits and a $5.7 million increase in loan interest income.

Non-interest income increased $10.5 million, or 9.8%, 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 $1.7 million, or 2.1%, mainly due to deconversion expense recorded in the prior year and lower professional fees, partly offset by higher salaries and benefits expense.

The provision for credit losses decreased $17 thousand from the same period last year due to lower overdraft loan net charge-offs.

This decrease was partly offset by an $8.0 million increase in loan interest income and an $852 thousand increase in net allocated funding credits.

Non-interest income increased $17.0 million, or 10.4%, over the prior year largely due to higher private client and institutional trust fees and cash sweep commissions.

Non-interest expense decreased $507 thousand, or .4%, mainly due to deconversion expense recorded in the prior year, partly offset by higher salaries and benefits expense.

The provision for credit losses decreased $164 thousand from the same period last year due to lower revolving home equity loan net charge-offs.

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

1 unchanged sentence

The pre-tax profitability in this category was $75.2 million higher than in the same period last year.

Unallocated securities gains were $3.0 million in the first six months of 2024 compared to gains of $3.1 million in 2023.

Unallocated securities gains were $6.8 million in the first nine months of 2024 compared to gains of $7.4 million in 2023.

Also, the unallocated provision for credit losses decreased $15.4 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 segment s when incurred for management reporting purposes.

The provision for credit losses on loans in the first six months of 2024 was $14.8 million, or $3.8 million lower than net charge-offs, due to a decrease in the allowance for credit losses on loans.

The provision for credit losses on loans in the first nine months of 2024 was $26.7 million, or $1.6 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 $35.2 million, or $12.1 million higher than net charge-offs, due to an increase in the allowance for credit losses on loans.

Fo r the six months ended June 30, 2024, the Company's provision on unfunded lending commitments was a benefit of $4.5 million.

Additionally, net interest income increased $62.7 million.

This increase to pre-tax profitability was partly offset by lower non-interest income of $1.0 million and higher non-interest expense of $18.5 million.

For th e nine months ended September 30, 2024, the Company's provision on unfunded lending commitments was a benefit of $7.3 million.

Additionally, net interest income increased $76.9 million and non-interest income increased $3.9 million.

The increase in net interest income was driven by decreases in interest expense on borrowings and deposits of $44.2 million and $15.4 million, respectively, and a $20.2 million decrease in net allocated funding credits.

These increases to pre-tax profitability were partly offset by higher non-interest expense of $20.4 million.

Regulatory Changes

1 unchanged sentence

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.

The rule applies to all insured depository institutions and states 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:

3 unchanged sentences

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 paid $2.0 million towards the special assessment in June 2024 and has an accrual of $16.8 million at June 30, 2024 for FDIC special assessment liabilities.

The Company paid $2.0 million towards the special assessment in both June and September 2024 and has an accrual of $14.3 million at September 30, 2024 for FDIC special assessment liabilities.

SEC Climate Disclosure Rule

11 unchanged sentences

Impact of Recently Issued Accounting Standards

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

Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative," in October 2023.

The amendments in this Update modify the disclosure or presentation requirements of a variety of topics in the Codification.

Certain of the amendments represent clarifications to or technical corrections of the current requirements.

The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

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

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

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AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Three Months Ended June 30, 2024 and 2023

Second Quarter 2024

Second Quarter 2023

Three Months Ended September 30, 2024 and 2023

Third Quarter 2024

Third Quarter 2023

(Dollars in thousands)

61 unchanged sentences

AVERAGE BALANCE SHEETS — AVERAGE RATES AND YIELDS

Six Months Ended June 30, 2024 and 2023

Six Months 2024

Six Months 2023

Nine Months Ended September 30, 2024 and 2023

Nine Months 2024

Nine Months 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