# Hancock Whitney Corp: Form 10-Q for the period ended Mar 31, 2023

- Company: [Hancock Whitney Corp](/companies/hwc.md) (CIK 750577)
- Form: 10-Q
- Filed: 2023-05-05
- Accepted by EDGAR: May 4, 2023, 22:22 ET
- Period: 2023-03-31
- Accession: 0000950170-23-018025
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/750577/000095017023018025/hwc-20230331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/750577/000095017023018025/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $87.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $32.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | $126.5m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | $1.45 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | $1.45 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 86,282,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | $85.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $5.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-01-01 to 2023-03-31 | $26.2m | us-gaap:PaymentsOfDividendsCommonStock |
| Total assets | at 2023-03-31 | $37.55bn | us-gaap:Assets |
| Total liabilities | at 2023-03-31 | $34.02bn | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $242.1m | us-gaap:LongTermDebt |
| Short-term borrowings | at 2023-03-31 | $3.52bn | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-03-31 | $3.53bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 116,586 characters.

### FORWARD-LOOKING STATEMENTS

The objective of this discussion and analysis is to provide material information relevant to the assessment of the financial condition and results of operations of Hancock Whitney Corporation and subsidiaries during the three months ended March 31, 2023 and selected comparable prior periods, including an evaluation of the amounts and certainty of cash flows from operations and outside sources. This discussion and analysis is intended to highlight and supplement financial and operating data and information presented elsewhere in this report, including the consolidated financial statements and related notes. The discussion contains forward-looking statements within the meaning and protections of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, our actual results may differ from those expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q and in other reports or documents that we file from time to time with the SEC include, but are not limited to, the following:

- general economic and business conditions in our local markets, including conditions affecting employment levels, interest rates, inflation, supply chains, the threat of recession, volatile equity capital markets, collateral values, customer income, creditworthiness and confidence, spending and savings that may affect customer bankruptcies, defaults, charge-offs and deposit activity; and the impact of the foregoing on customer and client behavior (including the velocity and levels of deposit withdrawals and loan repayments);
- recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity and regulatory responses to these developments (including increases in the cost of our deposit insurance assessments), the Company's ability to effectively manage its liquidity risk and any growth plans, and the availability of capital and funding;
- balance sheet and revenue growth expectations may differ from actual results;
- the risk that our provision for loan losses may be inadequate or may be negatively affected by credit risk exposure;
- loan growth expectations;
- management’s predictions about charge-offs;
- the risk that our enterprise risk management framework may not identify or address risks adequately, which may result in unexpected losses;
- the impact of future business combinations upon our performance and financial condition including our ability to successfully integrate the businesses;
- deposit trends, including growth, pricing and betas;
- credit quality trends;
- changes in interest rates;
- the impact of reference rate reform;
- net interest margin trends, including the impact of changes in interest rates;
- changes in the cost and availability of funding due to changes in the deposit and credit markets;
- success of revenue-generating and cost reducing initiatives;
- future expense levels;
- improvements in expense to revenue (efficiency ratio), including the risk that we may not realize and/or sustain the expected benefits from our efficiency and growth initiatives or that we may not be able to realize these cost savings or revenue benefits in the time period expected, which could negatively affect our future profitability;
- the effectiveness of derivative financial instruments and hedging activities to manage risks;
- risks related to our reliance on third parties to provide key components of our business infrastructure, including the risks related to disruptions in services or financial difficulties of a third-party vendor;
- risks related to potential claims, damages, penalties, fines and reputational damage resulting from pending or future litigation, regulatory proceedings or enforcement actions;
- risks related to the ability of our operational framework to manage risks associated with our business such as credit risk and operation risk, including third-party vendors and other service providers, which could among other things, result in a breach of operating or security systems as a result of a cyber-attack or similar act;
- the extensive use, reliability, disruption, and accuracy of the models and data we rely on;
- risks related to our implementation of new lines of business, new products and services, new technologies, and expansion of our existing business opportunities;
- projected tax rates;
- future profitability;
- purchase accounting impacts, such as accretion levels;
- our ability to identify and address potential cybersecurity risks on our systems and/or third party vendors and service providers on which we rely, heightened by increased use of our virtual private network platform, including data security breaches, credential stuffing, malware, “denial-of-service” attacks, “hacking” and identity theft, a failure of which could disrupt our business and result in the disclosure of and/or misuse or misappropriation of confidential or proprietary information, disruption or damage to our systems, increased costs, losses, or adverse effects to our reputation;
- our ability to receive dividends from Hancock Whitney Bank could affect our liquidity, including our ability to pay dividends or take other capital actions;
- the risk that we may be required to make substantial expenditures to keep pace with regulatory initiatives and the rapid technology changes in the financial services market;
- the impact on our financial results, reputation, and business if we are unable to comply with all applicable federal and state regulations or other supervisory actions or directives and any necessary capital initiatives;
- our ability to effectively compete with other traditional and non-traditional financial services companies, some of whom possess greater financial resources than we do or are subject to different regulatory standards than we are;
- our ability to maintain adequate internal controls over financial reporting;
- the financial impact of future tax legislation;
- the effects of war or other conflicts, including Russia's military action in Ukraine, acts of terrorism, climate change, natural disasters such as hurricanes, freezes, flooding, man-made disasters, such as oil spills in the Gulf of Mexico, health emergencies, epidemics or pandemics, or other catastrophic events that may affect general economic conditions;
- risks related to environmental, social and governance ("ESG") legislation, rulemaking, activism and litigation, the scope and pace of which could alter our reputation and shareholder, associate, customer and third-party affiliations; and
- changes in laws and regulations affecting our businesses, including governmental monetary and fiscal policies, legislation and regulations relating to bank products and services, increased regulatory scrutiny resulting from recent bank failures, the possibility that the U.S. could default on its debt obligations, as well as changes in the enforcement and interpretation of such laws and regulations by applicable governmental and self-regulatory agencies, which could require us to change certain business practices, increase compliance risk, reduce our revenue, impose additional costs on us, or otherwise negatively affect our businesses.

Also, any statement that does not describe historical or current facts is a forward-looking statement. These statements often include the words “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “forecast,” “goals,” “targets,” “initiatives,” “focus,” “potentially,” “probably,” “projects,” “outlook,” or similar expressions or future conditional verbs such as “may,” “will,” “should,” “would,” and “could.” Forward-looking statements are based upon the current beliefs and expectations of management and on information currently available to management. Our statements speak as of the date hereof, and we do not assume any obligation to update these statements or to update the reasons why actual results could differ from those contained in such statements in light of new information or future events.

Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such statements. Actual results may differ materially from those set forth in the forward looking statements. Additional factors that could cause actual results to differ materially can be found in Part II, Item 1A. "Risk Factors" herein, in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, or in other periodic reports that we file with the SEC.

You are cautioned not to place undue reliance on these forward-looking statements. We do not intend, and undertake no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.

### OVERVIEW

### Non-GAAP Financial Measures

Management’s Discussion and Analysis of Financial Condition and Results of Operations include non-GAAP measures used to describe our performance. These non-GAAP financial measures have inherent limitations as analytical tools and should not be considered on a standalone basis or as a substitute for analyses of financial condition and results as reported under GAAP. Non-GAAP financial measures are not standardized and therefore, it may not be possible to compare these measures with other companies that present measures having the same or similar names. These disclosures should not be considered an alternative to GAAP.

A reconciliation of those measures to GAAP measures are provided in the Consolidated Financial Results table later in this item. The following is a summary of these non-GAAP measures and an explanation as to why they are deemed useful.

Consistent with the provisions of subpart 229.1400 of the Securities and Exchange Commission’s Regulation S-K, “Disclosures by Bank and Savings and Loan Registrants,” we present net interest income, net interest margin and efficiency ratios on a fully taxable equivalent (“te”) basis. The te basis adjusts for the tax-favored status of net interest income from certain loans and investments using a statutory federal tax rate of 21% to increase tax-exempt interest income to a taxable equivalent basis. We believe this measure to be the preferred industry measurement of net interest income, and that it enhances comparability of net interest income arising from taxable and tax-exempt sources.

We present certain additional non-GAAP financial measures to assist the reader with a better understanding of the Company’s performance period over period, as well as to provide investors with assistance in understanding the success management has experienced in executing its strategic initiatives. These non-GAAP measures may reference the concept “operating.” We use the term “operating” to describe a financial measure that excludes income or expense considered to be nonoperating in nature. Items identified as nonoperating are those that, when excluded from a reported financial measure, provide management or the reader with a measure that may be more indicative of forward-looking trends in our business.

We define **Operating Pre-Provision Net Revenue** as total revenue (te) less noninterest expense, excluding nonoperating items. Management believes that operating pre-provision net revenue is a useful financial measure because it enables investors and others to assess the Company’s ability to generate capital to cover credit losses through a credit cycle.

### Current Economic Environment

The persistent high level of inflation remained the center of economic focus in the first quarter of 2023. The Federal Reserve continued its aggressive approach to tempering inflation, issuing additional 25-basis point interest rate increases in February and March. Thus far, there have been mixed indications as to whether the Federal Reserve will be successful in its efforts to combat inflation and slow economic growth. The U.S Treasury yield curve remained inverted throughout the first quarter, historically an indication of an impending recession. Signs of inflation cooling began to show in late 2022 and continued in the first quarter of 2023, but the rate remained elevated at 5% on an annual basis in March, far above the Federal Reserve's target of 2%. Positive economic indicators in the first quarter of 2023 include gains in the U.S. stock market and modest gross domestic product (GDP) growth of 1.1% on an annual basis. The U.S. remains at the full-employment level of 3.5% and, while the strong labor market may help temper recessionary concerns, consistent high wage growth indicates that additional rate increases may be forthcoming before reaching the terminal rate.

In March 2023, the financial services industry was significantly impacted by fallout from what were the second and third largest bank failures in U.S. history in the span of three days. Those failures were eclipsed in May by a third bank failure which now stands as the second largest in U.S. history. The factors that played a role in the ultimate failure of these institutions, including the impact of the rapid rise in interest rates, are affecting many financial institutions. However, the circumstances leading to the run on deposits and insufficient liquidity to meet the demand appear to be somewhat unique to those institutions. Fear and speculation that these events are indicative of a broader-reaching problem within the industry created a ripple effect and continue to impact the financial services sector generally. A number of other institutions experienced smaller-scale deposit runoff in the days that followed the March failures, and stock prices fell rapidly for most of the financial services industry, which remain depressed for many regional banks. Regulators responded by fully protecting all depositors of the failed institutions through a systemic risk exception in order to strengthen public confidence in the banking system. Further, the Federal Reserve established a Bank Term Funding Program, available to eligible depository institutions, to provide an additional source of liquidity secured by U.S. Treasury and Agency and mortgage-backed securities, and other eligible assets at par. While markets have somewhat stabilized, a great deal of uncertainty and concern around financial institution liquidity remains. A sustained lack of depositor confidence and stability could result in continued stress in the industry and lead to a broad tightening of lending standards across financial institutions.

We believe our core client deposit base is stable and well diversified. We have not experienced rapid deposit runoff or lack of depositor confidence; to the contrary, core client deposits, defined as total deposits excluding public funds and brokered deposits, increased during the first quarter of 2023. We have experienced limited declines in April 2023, attributed in part to tax-related seasonal outflows. We believe we have sufficient liquidity to meet depositor demands. As a cautionary measure, we added $568 million in brokered certificates of deposit and drew an incremental $1.2 billion in FHLB borrowings during the first quarter to hold excess on-balance sheet liquidity should further upheaval in the industry occur. We held the excess liquidity through early May 2023. Further, we experienced a sizable shift in deposit portfolio mix from noninterest-bearing accounts to higher cost interest-bearing products, which contributed to compression in the net interest margin in the first quarter.

Outside of these events, loan growth during the quarter was in line with expectations, and higher yields on new and repricing assets contributed favorably to the net interest margin, although offset by an increase in funding costs. Asset quality metrics remain stable and capital levels remain solid. We are continuously monitoring industry developments, deposit metrics, including the level of uninsured deposits, liquidity position and capital levels to ensure the ability to weather the current state of macroeconomic and industry-specific conditions.

### Economic Outlook

We utilize economic forecasts produced by Moody’s Analytics (Moody’s) that provide various scenarios to assist in the development of our economic outlook. This outlook discussion utilizes the March 2023 Moody’s forecast, the most current available at March 31, 2023. The forecasts are anchored on a baseline forecast scenario, which Moody’s defines as the “most likely outcome” of where the economy is headed based on current conditions. Several upside and downside scenarios are produced that are derived from the baseline scenario that display varying depictions of economic performance as compared to the baseline.

While the credit loss outlook on our portfolio has not changed significantly, changes in the Moody’s scenarios have led to a shift in our weighting. At December 31, 2022, management applied a weighting of 75% to the mild recessionary S-2 scenario and 25% to the baseline scenario. Assumptions underlying the March 2023 baseline scenario shifted somewhat pessimistically from those included in the December 2022 scenario. Conversely, the assumptions underlying the downside S-2 scenario shifted somewhat optimistically. To align the assumptions underlying the March 2023 macroeconomic forecasts to our economic outlook, management applied weighting of 40% to the baseline, 50% to the mild recessionary S-2 scenario and 10% to the moderate recessionary S-3 scenario in the computation of the allowance for credit losses at March 31, 2023.

The baseline scenario continues to incorporate the belief that the Federal Reserve will accomplish its goal of slowing inflation without precipitating a recession. Key assumptions within the March 2023 baseline forecast include the following: (1) recent bank failures, while disruptive, are not symptomatic of a broader problem in the financial system; (2) the Federal Reserve will issue additional rate increases before reaching a terminal rate of 5% to 5.25% by mid-2023, with rate cuts forecasted to begin in early 2024; (3) the unemployment rate will increase from its current state of full-employment at 3.5% to 3.9% in 2024, and 4.0% in 2025; (4) GDP will display modest annual growth of 1.9% in 2023 and 2024, and 2.7% in 2025; and (5) the 10-year U.S. Treasury yield will slowly trend higher until near the year's end.

The S-2 scenario predicts a recession beginning in the second quarter of 2023 that lasts for three quarters, with the stock market contracting 21%. Contributing to that prediction is the assumption that conflict between Russia and Ukraine spans longer than anticipated in the baseline scenario and results in longer and larger interruption of global commodity supply; in turn, supply chain issues worsen, increasing shortages of affected goods and prolonging elevated inflation. Compounding these factors is the assumption that recent bank failures reduce consumer confidence and cause banks to tighten lending standards. Because of the fragility of the economy, the Federal Reserve will keep interest rates elevated in efforts to tame inflation, but not to the extent assumed in the baseline scenario. The S-2 scenario assumes that the unemployment rate averages 4.8% in 2023, 5.8% in 2024 (peaking at 6.4%), and 4.2% in 2025, with the return to full employment in the second quarter of 2025. Further, the S-2 scenario assumes GDP growth of only 0.9% in 2023 and 0.3% in 2024 before returning to a more moderate level of 3.2% in 2025.

The S-3 scenario predicts a slightly deeper recession beginning in the second quarter of 2023 that lasts for three quarters, with the stock market contracting 35%. Key risks included in the S-3 are similar to those in the S-2 scenario surrounding prolonged inflation and dampened depositor confidence prompting banks to tighten lending standards. The S-3 scenario assumes that the unemployment rate averages 5.6% in 2023, 7.6% in 2024 (peaking at 7.9%) and 6.3% in 2025, and does not return to full employment until early 2028. Further, the S-3 scenario assumes GDP growth of 0.3% in 2023 and contraction of 0.3% in 2024 before returning to modest growth of 2.6% in 2025.

As noted earlier, the credit loss outlook for our portfolio as a whole has not changed materially since year-end. Our asset quality metrics have remained relatively stable over the preceding several quarters, with relatively modest variation in nonaccrual loans and commercial criticized loans and minimal net credit losses. We continue to closely monitor our portfolio for customers that are sensitive to prolonged inflation and the rising interest rate environment. We expect full year 2023 loan growth in the low-to-mid single digit range, reflecting the potential for economic slowdown and a focus on lending to resilient borrowers in light of current economic pressures.

There are a number of uncertainties in the current economic outlook. The effects of inflation and the Federal Reserve's actions to counter those effects in the form of further interest rate increases and quantitative tightening have and are likely to continue to reduce economic growth in the near term. Recent disruption in the financial services industry has negatively affected equity markets, and a prolonged disruption could result in tightening of credit standards and pose risk of further volatility in equity markets. The full extent of the impact of these factors is uncertain and may have a negative impact on the U.S. economy, including the possibility of an economic recession in the near or mid-term.

### Highlights of the First Quarter 2023

We reported net income for the first quarter of 2023 of $126.5 million, or $1.45 per diluted common share, compared to $143.8 million, or $1.65 per diluted common share, in the fourth quarter of 2022 and $123.5 million, or $1.40 per diluted common share, in the first quarter of 2022.

#### First quarter 2023 results compared to fourth quarter 2022:

- Net income of $126.5 million, or $1.45 per diluted share, down $17.3 million, or $0.20 per diluted share
- Pre-provision net revenue (PPNR), a non-GAAP measure, totaled $167.0 million, down $18.0 million, or 10%
- Loans of $23.4 billion increased $290.5 million, or 1.3%
- Criticized commercial loans and nonaccrual loans relatively stable linked quarter; net charge-offs remain modest
- Deposits of $29.6 billion up $542.7 million, or 2%, and includes increases of $233.7 million in core client deposits and $567.6 million in brokered deposits, partially offset by a seasonal decline of $258.5 million in public fund deposits
- Net interest margin decreased 13 basis points (bps) to 3.55%
- Common equity tier 1 ratio of 11.60% was up 19 bps, and tangible common equity ratio of 7.16% was up 7 bps
- Efficiency ratio of 53.76% remains below 55% target

The first quarter of 2023 represents a solid start to the year, despite disruption from recent events within the financial services industry. We maintained what we believe is a seasoned and diversified deposit base. Loan growth and additional interest rate increases contributed favorably to earning asset yield. However, increased deposit interest rates and incremental liquidity have compressed our net interest margin and efficiency ratio, though the ratio remains below our target of 55%. Asset quality metrics remained stable and capital levels remain solid. We believe we are well positioned to weather changes in economic conditions and industry trends.

### Consolidated Financial Results

The following table contains the consolidated financial results for the periods indicated.

*(in thousands, except per share data)*

| Income Statement Data: | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Interest income | $372,603 | $345,676 | $299,737 | $254,864 | $236,786 |
| Interest income (te) (a) | 375,187 | 348,291 | 302,340 | 257,449 | 239,331 |
| Interest expense | 87,609 | 50,175 | 19,430 | 9,132 | 8,323 |
| Net interest income (te) | 287,578 | 298,116 | 282,910 | 248,317 | 231,008 |
| Provision for credit losses | 6,020 | 2,487 | 1,402 | (9,761) | (22,527) |
| Noninterest income | 80,330 | 77,064 | 85,337 | 85,653 | 83,432 |
| Noninterest expense | 200,884 | 190,154 | 193,502 | 187,097 | 179,939 |
| Income before income taxes | 158,420 | 179,924 | 170,740 | 154,049 | 154,483 |
| Income tax expense | 31,953 | 36,137 | 35,351 | 32,614 | 31,005 |
| Net income | $126,467 | $143,787 | $135,389 | $121,435 | $123,478 |
| **Balance Sheet Data:** |  |  |  |  |  |
| Period end balance sheet data |  |  |  |  |  |
| Loans | $23,404,523 | $23,114,046 | $22,585,585 | $21,846,068 | $21,323,341 |
| Earning assets | 34,106,792 | 31,873,027 | 31,213,449 | 31,292,910 | 32,997,323 |
| Total assets | 37,547,083 | 35,183,825 | 34,567,242 | 34,637,525 | 36,317,291 |
| Noninterest-bearing deposits | 12,860,027 | 13,645,113 | 14,290,817 | 14,676,342 | 14,976,670 |
| Total deposits | 29,613,070 | 29,070,349 | 28,951,274 | 29,866,432 | 30,499,709 |
| Stockholders' equity | 3,531,232 | 3,342,628 | 3,180,439 | 3,349,723 | 3,450,951 |
| Average balance sheet data |  |  |  |  |  |
| Loans | $23,086,529 | $22,723,248 | $22,138,709 | $21,657,528 | $21,122,038 |
| Earning assets | 32,753,781 | 32,244,681 | 31,783,801 | 32,780,813 | 33,201,926 |
| Total assets | 35,159,050 | 34,498,915 | 34,377,773 | 35,380,247 | 36,003,803 |
| Noninterest-bearing deposits | 12,963,133 | 13,854,625 | 14,323,646 | 14,655,800 | 14,363,324 |
| Total deposits | 28,792,851 | 28,816,338 | 29,180,626 | 29,979,940 | 30,029,793 |
| Stockholders' equity | 3,412,813 | 3,228,667 | 3,405,463 | 3,383,789 | 3,607,061 |
| **Common Shares Data:** |  |  |  |  |  |
| Earnings per share - basic | $1.45 | $1.65 | $1.56 | $1.39 | $1.40 |
| Earnings per share - diluted | 1.45 | 1.65 | 1.55 | 1.38 | 1.40 |
| Cash dividends per common share | 0.30 | 0.27 | 0.27 | 0.27 | 0.27 |
| Book value per share (period end) | 41.03 | 38.89 | 37.12 | 39.08 | 39.91 |
| Tangible book value per share (period end) | 30.47 | 28.29 | 26.44 | 28.37 | 29.25 |
| Weighted average number of shares - diluted | 86,282 | 86,249 | 86,020 | 86,354 | 86,936 |
| Period end number of shares | 86,066 | 85,941 | 85,686 | 85,714 | 86,460 |

42

*($ in thousands)*

| Performance and other data: | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Return on average assets | 1.46% | 1.65% | 1.56% | 1.38% | 1.39% |
| Return on average common equity | 15.03% | 17.67% | 15.77% | 14.39% | 13.88% |
| Return on average tangible common equity | 20.49% | 24.64% | 21.58% | 19.77% | 18.66% |
| Tangible common equity (b) | 7.16% | 7.09% | 6.73% | 7.21% | 7.15% |
| Tangible common equity Tier 1 (CET1) ratio | 11.60% | 11.41% | 11.10% | 11.08% | 11.12% |
| Net interest margin (te) | 3.55% | 3.68% | 3.54% | 3.04% | 2.81% |
| Noninterest income as a percentage of total revenue (te) | 21.83% | 20.54% | 23.17% | 25.65% | 26.53% |
| Efficiency ratio (c ) | 53.76% | 49.81% | 51.62% | 54.95% | 56.03% |
| Allowance for loan losses as a percentage of total loans | 1.32% | 1.33% | 1.36% | 1.41% | 1.49% |
| Allowance for credit losses as a percentage of total loans | 1.46% | 1.48% | 1.50% | 1.55% | 1.63% |
| Annualized net charge-offs to average loans | 0.10% | 0.02% | 0.02% | -0.01% | 0.01% |
| Nonaccrual loans as a percentage of loans | 0.23% | 0.17% | 0.18% | 0.17% | 0.20% |
| FTE headcount | 3,679 | 3,627 | 3,607 | 3,594 | 3,543 |
| **Reconciliation of operating revenue and operating pre-provision net revenue (non-GAAP measure) (te) (d)** |  |  |  |  |  |
| Net interest income | $284,994 | $295,501 | $280,307 | $245,732 | $228,463 |
| Noninterest income | 80,330 | 77,064 | 85,337 | 85,653 | 83,432 |
| Total revenue | 365,324 | 372,565 | 365,644 | 331,385 | 311,895 |
| Taxable equivalent adjustment | 2,584 | 2,615 | 2,603 | 2,585 | 2,545 |
| Nonoperating revenue | — | — | — | — | — |
| Total revenue (te) | $367,908 | $375,180 | $368,247 | $333,970 | $314,440 |
| Noninterest expense | (200,884) | (190,154) | (193,502) | (187,097) | (179,939) |
| Nonoperating expense | — | — | — | — | — |
| Operating pre-provision net revenue (te) | $167,024 | $185,026 | $174,745 | $146,873 | $134,501 |

(a) For analytical purposes, management adjusts interest income and net interest income for tax-exempt items to a taxable equivalent basis using a federal income tax rate of 21%.

(b) The tangible common equity ratio is common stockholders’ equity less intangible assets divided by total assets less intangible assets.

(c) The efficiency ratio is noninterest expense to total net interest (te) and noninterest income, excluding amortization of purchased intangibles and nonoperating items.

(d) Refer to the non-GAAP financial measures section of this analysis for a discussion of these measures.

### RESULTS OF OPERATIONS

### Net Interest Income

Net interest income (te) for the first quarter of 2023 was $287.6 million, down $10.5 million, or 4%, compared to the fourth quarter of 2022 and up $56.6 million, or 24%, from the first quarter of 2022.

The decrease in net interest income (te) compared to the fourth quarter of 2022 is largely attributable to two fewer accrual days and an increase in interest expense on deposits, resulting from both an increase in average balances and a shift in the mix to higher cost products, as well as increased short-term borrowings, both of which outpaced earning asset growth.

The net interest margin for the first quarter of 2023 was 3.55%, down 13 bps from 3.68% in the fourth quarter of 2022. The decline in the net interest margin from the prior quarter was also largely driven by a change in the funding mix, with increases of $868 million in average interest-bearing deposits and $523 million in average short-term borrowings, mainly in FHLB advances. The increase in average interest-bearing deposits is primarily attributable to the $841 million increase in average time deposits, largely the result of growth driven by promotional rate offerings and, to a lesser degree, the addition of brokered deposits that were added late in the quarter. The change in funding mix resulted in a 46 bp increase in the cost of funds, which was partially offset by a 34 bp increase in the average earning asset yield. The yield on average earning assets was favorably impacted by increases of $363 million in average loans and $211 million in average short-term investments in a rising interest rate environment, partially offset by a decline in average securities of $63 million.

The $56.6 million increase in net interest income (te) compared to the first quarter of 2022 is primarily attributable to a $135.9 million increase in interest income (te), partially offset by a $79.3 million increase in interest expense. The increase in interest income is largely due to the rising interest rate environment, a favorable change in the earning asset mix, and a $5.7 million decrease in premium amortization on the securities portfolio. The favorable change in the average earning asset mix reflects a $2.0 billion increase in loans, $0.4 billion growth in the securities portfolio and a $2.8 billion decrease in short-term investments. The increase in interest income was partially offset by a decline of $5.3 million in PPP loan fee accretion, a $1.5 million decrease in nonaccrual interest recoveries and a $0.7 million decrease in purchase accounting discount accretion. The increase in interest expense was driven by both an 86 bp increase in the cost of total deposits, as interest rate offerings were increased to remain competitive, and a 305 bp increase in the cost of borrowings, primarily attributable to FHLB advances, as low fixed-rate instruments were called and replaced with new instruments at prevailing interest rates.

The net interest margin was up 74 bps compared to the first quarter of 2022 as a result of the rising interest rate environment and a more favorable earning asset mix. Compared to the first quarter of 2022, the yield on earning assets was up 172 bps to 4.63%, while the cost of funds increased 98 bps to 1.08%.

We experienced significant margin widening in 2022 with the rising interest rate environment and our betas, defined as the amount by which deposit or loan costs change in response to movement in short-term interest rate, moved more quickly for loans than deposits. However, in the first quarter of 2023, there was a dramatic shift in deposit betas as pricing became more competitive and customers shifted to the higher cost products. We expect continued net interest margin compression in the second quarter of 2023 as deposit betas are anticipated to continue to increase. The net interest margin could stabilize in the second half of 2023 should deposit betas normalize.

The net interest margin for the month of March 2023 was 3.47%, and declined to 3.24% in April 2023. The margin for the month of April 2023 includes the impact of excess liquidity carried as a cautionary measure, which was largely eliminated in early May 2023. Excluding the impact of the excess liquidity, the net interest margin would have been 3.41% for the month of April.

We expect the net interest margin to improve in May 2023 following the repayment of incremental FHLB borrowings. We expect that net interest margin for the second quarter of 2023 will be down a similar amount as we experienced in the first quarter of 2023 compared to the fourth quarter of 2022.

The following tables detail the components of our net interest income (te) and net interest margin.

*($ in millions)*

| Average earning assets | Three Months Ended March 31, 2023 Volume | Interest (d) | Rate | December 31, 2022 Volume | Interest (d) | Rate | March 31, 2022 Volume | Interest (d) | Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial & real estate loans (te) (a) | $18,322.2 | $259.1 | 5.73% | $18,178.5 | $240.6 | 5.52% | $17,119.3 | $150.3 | 3.56% |
| Residential mortgage loans | 3,214.4 | 28.1 | 3.49% | 2,968.9 | 25.6 | 3.45% | 2,441.3 | 21.0 | 3.44% |
| Consumer loans | 1,549.9 | 29.2 | 7.63% | 1,575.9 | 27.2 | 6.86% | 1,561.4 | 18.4 | 4.77% |
| Loan fees & late charges | — | (0.4) | 0.00% | — | (0.2) | 0.00% | — | 4.4 | 0.00% |
| Total loans (te) (b) | 23,086.5 | 316.0 | 5.54% | 22,723.3 | 293.2 | 5.12% | 21,122.0 | 194.1 | 3.72% |
| Loans held for sale | 22.9 | 0.3 | 5.21% | 24.8 | 0.3 | 4.53% | 64.3 | 0.7 | 4.36% |
| US Treasury and government agency securities | 541.3 | 3.4 | 2.49% | 500.3 | 2.9 | 2.32% | 397.8 | 1.6 | 1.64% |
| Mortgage-backed securities and collateralized mortgage obligations | 7,668.0 | 43.3 | 2.26% | 7,769.1 | 42.8 | 2.20% | 7,352.5 | 34.5 | 1.88% |
| Municipals (te) | 904.3 | 6.7 | 2.98% | 907.5 | 6.8 | 2.97% | 916.5 | 6.7 | 2.93% |
| Other securities | 23.5 | 0.2 | 3.50% | 23.6 | 0.2 | 3.50% | 21.0 | 0.2 | 3.31% |
| Total securities (te) (c) | 9,137.1 | 53.6 | 2.35% | 9,200.5 | 52.7 | 2.29% | 8,687.8 | 43.0 | 1.98% |
| Total short-term investments | 507.3 | 5.3 | 4.27% | 296.1 | 2.1 | 2.88% | 3,327.8 | 1.5 | 0.19% |
| Total earning assets (te) | $32,753.8 | $375.2 | 4.63% | $32,244.7 | $348.3 | 4.29% | $33,201.9 | $239.3 | 2.91% |
| Average interest-bearing liabilities |  |  |  |  |  |  |  |  |  |
| Interest-bearing transaction and savings deposits | $10,650.4 | $27.3 | 1.04% | $10,810.7 | $14.6 | 0.53% | $11,423.4 | $1.1 | 0.04% |
| Time deposits | 2,018.6 | 13.4 | 2.70% | 1,178.0 | 3.2 | 1.09% | 1,088.5 | 0.6 | 0.24% |
| Public funds | 3,160.7 | 23.7 | 3.04% | 2,973.0 | 18.2 | 2.43% | 3,154.6 | 2.1 | 0.26% |
| Total interest-bearing deposits | 15,829.7 | 64.4 | 1.65% | 14,961.7 | 36.0 | 0.96% | 15,666.5 | 3.8 | 0.10% |
| Repurchase agreements | 445.8 | 0.8 | 0.69% | 520.8 | 0.8 | 0.60% | 587.5 | 0.1 | 0.06% |
| Other short-term borrowings | 1,652.8 | 19.3 | 4.74% | 1,055.0 | 10.3 | 3.86% | 1,102.4 | 1.3 | 0.49% |
| Long-term debt | 242.1 | 3.1 | 5.11% | 236.7 | 3.1 | 5.21% | 241.8 | 3.1 | 5.17% |
| Total borrowings | 2,340.7 | 23.2 | 4.00% | 1,812.5 | 14.2 | 3.10% | 1,931.7 | 4.5 | 0.95% |
| Total interest-bearing liabilities | 18,170.4 | 87.6 | 1.95% | 16,774.2 | 50.2 | 1.19% | 17,598.2 | 8.3 | 0.19% |
| Net interest-free funding sources | 14,583.4 |  |  | 15,470.5 |  |  | 15,603.7 |  |  |
| Total cost of funds | $32,753.8 | $87.6 | 1.08% | $32,244.7 | $50.2 | 0.62% | $33,201.9 | $8.3 | 0.10% |
| Net interest spread (te) |  | $287.6 | 2.67% |  | $298.1 | 3.11% |  | $231.0 | 2.72% |
| Net interest margin | $32,753.8 | $287.6 | 3.55% | $32,244.7 | $298.1 | 3.68% | $33,201.9 | $231.0 | 2.81% |

(a) Taxable equivalent (te) amounts were calculated using a federal income tax rate of 21%.

(b) Includes nonaccrual loans.

(c) Average securities do not include unrealized holding gains/losses on available for sale securities.

(d) Included in interest income is net purchase accounting accretion of $0.8 million, $0.8 million, and $1.5 million for the three months ended March 31, 2023, December 31, 2022, and March 31, 2022, respectively.

### Provision for Credit Losses

During the first quarter of 2023, we recorded a provision for credit losses of $6.0 million, compared to a provision for credit losses of $2.5 million in the fourth quarter of 2022 and a negative provision for credit losses of $22.5 million in the first quarter of 2022. The first quarter of 2023 provision included net charge-offs of $5.7 million and a reserve build of $0.3 million, compared to net charge-offs of $1.0 million and a reserve build of $1.5 million in the fourth quarter of 2022, and net charge-offs of $0.3 million and a reserve release of $22.8 million in the first quarter of 2022. The modest provision for loan loss in both the first quarter of 2023 and the fourth quarter of 2022 is reflective of our relatively stable credit metrics and economic outlook. The reserve release in the first quarter of 2022 was the result of improved overall credit performance and economic indicators, allowing for the release of reserves built in response to the pandemic.

Net charge-offs in the first quarter of 2023 were $5.7 million, or 0.10% of average total loans on an annualized basis, compared to net charge-offs of $1.0 million, or 0.02%, in the fourth quarter of 2022, and net charge-offs of $0.3 million, or 0.01%, in the first quarter of 2022. The first quarter of 2023 included net charge-offs of $3.4 million in the commercial portfolio, comprised of various smaller losses and lower recoveries compared to recent quarters, and $2.5 million in the consumer portfolio, partially offset by net recoveries of $0.2 million in the residential mortgage portfolio. The fourth quarter of 2022 included net recoveries of $1.2 million in the commercial portfolio and $0.3 million in the residential mortgage portfolio, partially offset by net charge-offs of $2.4 million in the consumer portfolio. The first quarter of 2022 included net recoveries of $0.8 million in the commercial portfolio and less than $0.1 million in the residential mortgage portfolio, partially offset by net charge-offs of $1.2 million in the consumer portfolio.

We currently expect to see low to modest charge-offs and provision for credit losses for the remainder of 2023. However, loan growth, portfolio mix, asset quality metrics and future assumptions in economic forecasts will drive the level of credit loss reserves.

The discussion labeled "Allowance for Credit Losses and Asset Quality" that appears later in this Item provides additional information on these changes and on general credit quality.

### Noninterest Income

Noninterest income totaled $80.3 million for the first quarter of 2023, up $3.3 million, or 4%, from the fourth quarter of 2022, and down $3.1 million, or 4%, from the first quarter of 2022. The increase in noninterest income from the fourth quarter of 2022 was largely attributable to increases in investment and annuity fees and insurance commissions and income from derivatives, partially offset by a decrease in service charges on deposit accounts. The decrease in noninterest income from the first quarter of 2022 is largely attributable to declines in secondary mortgage market operations income, service charges on deposit accounts and other income, including derivatives and specialty fees, partially offset by increases in trust fees and investment and annuity fees and insurance commissions.

The components of noninterest income are presented in the following table for the indicated periods.

*($ in thousands)*

|  | Three Months Ended March 31, 2023 | December 31, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: |
| Service charges on deposit accounts | $20,622 | $22,222 | $21,674 |
| Trust fees | 16,734 | 16,496 | 15,279 |
| Bank card and ATM fees | 20,721 | 20,913 | 20,396 |
| Investment and annuity fees and insurance commissions | 8,867 | 6,832 | 7,427 |
| Secondary mortgage market operations | 2,168 | 1,504 | 3,746 |
| Income from bank-owned life insurance | 3,286 | 3,279 | 3,545 |
| Credit related fees | 2,765 | 2,643 | 2,669 |
| Income from customer and other derivatives | 583 | (554) | 2,349 |
| Securities transactions, net | — | — | (87) |
| Other miscellaneous | 4,584 | 3,729 | 6,434 |
| Total noninterest income | $80,330 | $77,064 | $83,432 |

Service charges on deposit accounts are composed of overdraft and nonsufficient funds fees, business and corporate account analysis fees, overdraft protection fees and other customer transaction-related charges. Service charges on deposits totaled $20.6 million for the first quarter of 2023, down $1.6 million, or 7%, from the fourth quarter of 2022, and down $1.1 million, or 5%, from the first quarter of 2022. The decrease from the previous quarter is largely attributable to a $2.1 million decrease in consumer overdraft and non-sufficient funds fees, largely due to the full quarter's impact of the elimination of certain consumer fees that started December 1, 2022, partially offset by a $0.5 million increase in business analysis fees with higher activity and strong sales and balance changes. The decrease from the first quarter of 2022 includes a $1.7 million decrease in consumer overdraft and non-sufficient funds fees, also reflecting the elimination of certain consumer fees, which was partially offset by $0.5 million of higher business overdraft fees and $0.3 million of check printing and other consumer service charges.

Trust fee income represents revenue generated from a full range of trust services, including asset management and custody services provided to individuals, businesses and institutions. Trust fees totaled $16.7 million, an increase of $0.2 million, or 1%, from the prior quarter and $1.5 million, or 10%, when compared to the same quarter a year ago. The increase from the same quarter last year is largely interest rate driven, as the rising interest rate environment allowed for the resumption of certain fee assessments that are generally waived in a lower interest rate environment.

Bank card and ATM fees include interchange and other income from credit and debit card transactions, fees earned from processing card transactions for merchants, and fees earned from ATM transactions. Bank card and ATM fees totaled $20.7 million for the first quarter of 2023, down $0.2 million, or 1%, from the fourth quarter of 2022 and up $0.3 million, or 2%, from the same quarter last year. The decrease from the prior quarter reflects seasonal declines in debit and consumer credit card activity and merchant fees that were largely offset by increases in purchasing card and business card revenue. The increase from the first quarter of 2022 was largely attributable to an increase in commercial credit card fees, which was partially offset by a decline in merchant fees.

Investment and annuity fees and insurance commissions, which includes both fees earned from sales of annuity and insurance products, as well as managed account fees, totaled $8.9 million, an increase of $2.0 million, or 30%, compared to the fourth quarter of 2022 and $1.4 million, or 19%, compared to the same quarter a year ago. The increase compared to the prior quarter includes $0.9 million of higher annuity sales and fees, $0.5 million of higher managed account fees and investment commissions and fees, and $0.5 million of fees associated with three corporate underwriting deals completed during the current period. The increase compared to the same quarter in the prior year includes higher annuity sales and fees of $1.2 million and $0.5 million of corporate underwriting fees, partially offset by $0.3 million of lower investment fees and commissions.

Income from secondary mortgage market operations is comprised of income produced from the origination and sales of residential mortgage loans in the secondary market. We offer a full range of mortgage products to our customers and typically sell longer-term fixed-rate loans while retaining the majority of adjustable-rate loans, as well as loans generated through programs to support customer relationships. Income from secondary mortgage market operations was $2.2 million in the first quarter of 2023, up $0.7 million, or 44%, from the fourth quarter of 2022 and down $1.6 million, or 42%, from the first quarter of 2022. Secondary mortgage market operations income will vary based on application volume and pull through rates. The increase from the fourth quarter of 2022 is primarily attributable to an increase in application volume, as rates have stabilized somewhat, and in the percentage of loans sold in the secondary market. The decline from the first quarter of 2022 is largely attributable to both a decline in application volume, driven by the sharp rise in interest rates that followed a two-year period of very favorable interest rates, and a lower percentage of originated loans sold in the secondary market, as we are retaining a higher volume of mortgage loans in our held for investment portfolio. The level of mortgage applications during the first quarter of 2023 were up 69% compared to the prior quarter and down approximately 35% when compared to the first quarter of 2022. The percentage of mortgage loans sold in the secondary market to total originations (as opposed to those held in our portfolio), was 24% in the first quarter of 2023, compared to 15% in the fourth quarter of 2022 and 27% in the first quarter of 2022.

Income from bank-owned life insurance (BOLI) is typically generated through insurance benefit proceeds as well as the growth of the cash surrender value of insurance contracts held. Income from BOLI was $3.3 million for the first quarter of 2023, virtually flat when compared to the prior quarter and down $0.3 million, or 7%, from the first quarter of 2022. The decrease from the first quarter of 2022 reflects small variances in both cash surrender value and mortality gains.

Credit-related fees include fees assessed on letters of credit and unused portions of loan commitments. Credit-related fees were $2.8 million for the first quarter of 2023, up $0.1 million, or 5%, from the fourth quarter of 2022 and up $0.1 million, or 4%, from the first quarter of 2022.

Income from customer and other derivatives is largely derived from our customer interest rate derivative program and totaled $0.6 million for the first quarter of 2023, compared to a loss of $0.6 million in the fourth quarter of 2022 and income of $2.3 million in the first quarter of 2022. The variances from both comparative periods are primarily attributable to changes in valuation adjustments. Derivative income can be volatile and is dependent upon the composition of the portfolio, volume and mix of sales and termination activity, and market value adjustments due to market interest rate movement.

Other miscellaneous income is comprised of various items, including income from small business investment companies (SBIC), FHLB stock dividends and syndication fees. Other miscellaneous income totaled $4.6 million, up $0.9 million, or 23%, compared to the fourth quarter of 2022 and down $1.9 million, or 29%, from to the first quarter of 2022. The increase compared to the fourth quarter of 2022 was largely driven by an increase of $0.8 million resulting from a loss on sale of assets included in the prior quarter and a $0.4 million increase in dividends on FHLB stock, attributable to the stock purchased in connection with the incremental borrowings we made during the period. The decrease compared to the same quarter last year is primarily attributable to decreases of $0.9 million in SBIC income and $1.1 million from gains on sales of assets, partially offset by a $0.5 million increase in dividends on FHLB stock.

We expect noninterest income in 2023 to increase 3% to 4% from 2022, inclusive of the estimated $10 million to $11 million decrease in certain consumer nonsufficient funds and overdraft fees.

### Noninterest Expense

Noninterest expense for the first quarter of 2023 was $200.9 million, up $10.7 million, or 6%, from the fourth quarter of 2022, and up $20.9 million, or 12%, from the first quarter of 2022. The increase in noninterest expense from the fourth quarter of 2022 was largely driven by increases in other retirement expense, deposit and regulatory fees, data processing expense, and bank share tax, and is also reflective of miscellaneous gains recorded in the fourth quarter. These increases were partially offset by a decrease in personnel expense. The increase when compared to the first quarter of 2022 is largely attributable to increases in personnel expense, data processing expense, other retirement expense, deposit and regulatory fees, franchise taxes and ORE expense. Approximately 54% and 25%, respectively, of the increase in noninterest expense from the quarters ended December 31, 2022 and March 31, 2022, is attributable to the increases in other retirement expense and deposit and regulatory fees. A more detailed discussion of these and other noninterest expense variances follows.

The components of noninterest expense for the periods indicated are presented in the following tables.

*($ in thousands)*

|  | Three Months Ended March 31, 2023 | December 31, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: |
| Compensation expense | $92,403 | $99,349 | $85,993 |
| Employee benefits | 22,920 | 19,798 | 21,403 |
| Personnel expense | 115,323 | 119,147 | 107,396 |
| Net occupancy expense | 12,206 | 12,451 | 11,680 |
| Equipment expense | 4,736 | 4,476 | 4,867 |
| Data processing expense | 28,182 | 26,766 | 24,239 |
| Professional services expense | 9,131 | 10,170 | 7,793 |
| Amortization of intangible assets | 3,114 | 3,271 | 3,748 |
| Deposit insurance and regulatory fees | 5,920 | 4,050 | 3,740 |
| Other real estate and foreclosed asset expense | 155 | (773) | (1,764) |
| Corporate value, franchise and other non-income taxes | 5,253 | 3,928 | 4,248 |
| Advertising | 3,256 | 3,572 | 3,166 |
| Telecommunications and postage | 3,071 | 2,947 | 2,925 |
| Entertainment and contributions | 2,631 | 2,704 | 2,961 |
| Tax credit investment amortization | 1,401 | 1,756 | 1,004 |
| Printing and supplies | 990 | 903 | 1,003 |
| Travel expense | 1,046 | 1,314 | 660 |
| Net other retirement expense | (3,655) | (7,570) | (6,772) |
| Other miscellaneous | 8,124 | 1,042 | 9,045 |
| Total noninterest expense | $200,884 | $190,154 | $179,939 |

Personnel expense consists of salaries, incentive compensation, long-term incentives, payroll taxes, and other employee benefits such as 401(k), pension, and insurance for medical, life and disability. Personnel expense totaled $115.3 million for the first quarter of 2023, down $3.8 million, or 3%, compared to the prior quarter and up $7.9 million, or 7%, compared to the same quarter last year. The decrease from the prior quarter was largely attributable to a $6.6 million decrease in incentive-based compensation that was partly offset by a $3.1 million increase in benefit costs, including retirement and insurance benefits. The increase from the same quarter last year is attributable to higher salaries resulting from annual merit increases, an increase in headcount and increases of $1.5 million in benefit costs.

Occupancy and equipment expenses are primarily composed of lease expenses, depreciation, maintenance and repairs, rent, taxes, and other equipment expenses. Occupancy and equipment expenses totaled $16.9 million for the first quarter of 2023, virtually flat compared to the prior quarter, and up $0.4 million, or 2%, from the same quarter last year.

Data processing expense includes expenses related to third party technology processing and servicing costs, technology project costs and fees associated with bank card and ATM transactions. Data processing expense was $28.2 million for the first quarter of 2023, up $1.4 million, or 5%, compared to the fourth quarter of 2022, and up $3.9 million, or 16%, compared to the first quarter of 2022. The increases from both the fourth quarter of 2022 and the first quarter of 2022 are primarily attributable to costs associated with the implementation of technology enhancement projects.

Professional services expense for the first quarter of 2023 totaled $9.1 million, down $1.0 million, or 10%, compared to the fourth quarter of 2022, and up $1.3 million, or 17%, from the first quarter of 2022. The variance compared to the prior quarter includes declines in legal, audit and consulting fees, where the variance to the same quarter last year is the result of higher consulting costs. Professional service expense may vary from period to period, generally related to consulting and legal needs.

Deposit insurance and regulatory fees totaled $5.9 million, up $1.9 million, or 46%, from the fourth quarter of 2022, and up $2.2 million, or 58%, from the first quarter of 2022. The increases from both comparative periods are primarily attributable to the two-basis point increase in the FDIC assessment effective for the first quarterly assessment period of 2023. The increase compared to prior year also includes a higher risk based assessment rate. The increased assessment is expected to remain in effect until the Deposit Insurance Fund reserve ratio to insured deposits meets the FDIC’s long-term goal for reserve ratios of the deposit insurance fund. The Company may also be subject to a special assessment related to the protection of uninsured depositors under the Systemic Risk Exception in the March 2023 financial institution failures. Federal law requires that any losses to the FDIC’s Deposit Insurance Fund related to this action be repaid by a special assessment on banks. The impact of this assessment to the Company is not yet known.

Other real estate and foreclosed assets expense totaled $0.2 million in the first quarter of 2023, compared to net gains of $0.8 million in the fourth quarter of 2022 and $1.8 million in the first quarter of 2022. The level of expense in the current period reflects a somewhat typical level of expense of maintaining the ORE portfolio; the unfavorable variances from both comparative periods is attributable to the fact that gains on the sales of assets outpaced the cost of maintaining the ORE portfolio in the two comparative periods. Gains or losses on the sale of other real estate and foreclosed assets may occur periodically and are dependent on the number and type of assets for sale and current market conditions.

Corporate value, franchise and other non-income tax expense for the first quarter of 2023 totaled $5.3 million, up $1.3 million, or 34%, from the prior quarter and up $1.0 million, or 24%, compared to the same quarter last year. The increases from both comparative periods are largely attributable to an increase in bank share tax. The calculation of bank share tax is based on multiple variables, including average quarterly assets, earnings and stockholders’ equity to determine the taxable assessment value that is either one or two years in arrears depending on the taxing jurisdiction.

Business development-related expenses (including advertising, travel, entertainment and contributions) totaled $6.9 million for the first quarter of 2023, down $0.7 million, or 9%, from the fourth quarter of 2022, and up $0.1 million, or 2%, from the first quarter of 2022. The timing and level of business development expense can vary based on business needs and promotional campaigns.

All other expenses, excluding amortization of intangibles, totaled $9.9 million for the first quarter of 2023, up $10.9 million from the fourth quarter of 2022, and up $2.7 million, or 38%, from the first quarter of 2022. The variances from both comparative periods are partly attributable to an increase in pension-related other retirement expense that is largely driven by an increase in the discount rate and other actuarial assumptions for the current plan year. The increase compared to the fourth quarter of 2022 was also influenced by miscellaneous gains recorded in the fourth quarter.

We expect noninterest expense for the year 2023 to increase 6% to 7% from 2022. The anticipated year-over-year increase includes increases in retirement (pension) expense and the FDIC assessment as described above. Excluding these items, noninterest expense is expected to increase 4% to 5%.

### Income Taxes

The effective income tax rate for the first quarter of 2023 was approximately 20.2% compared to 20.1% in both the fourth quarter of 2022 and the first quarter of 2022. Based on the current forecast, management expects the effective income tax rate to be approximately 21% in 2023.

Our effective tax rate has historically varied from the federal statutory rate primarily because of tax-exempt income and tax credits. Interest income on bonds issued by or loans to state and municipal governments and authorities, and earnings from the bank-owned life insurance program are the major components of tax-exempt income. The main source of tax credits has been investments in tax-advantaged securities and tax credit projects. These investments are made primarily in the markets we serve and are directed at tax credits issued under the Federal and State New Market Tax Credit (“NMTC”) programs, Low-Income Housing Tax Credit (“LIHTC”) programs, as well as pre-2018 Qualified Zone Academy Bonds (“QZAB”) and Qualified School Construction Bonds (“QSCB”). These investments generate tax credits, which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes.

We have invested in NMTC projects through investments in our own Community Development Entities (“CDE”), as well as other unrelated CDEs. Federal tax credits from NMTC investments are recognized over a seven-year period, while recognition of the benefits from state tax credits varies from three to five years. We have also invested in affordable housing projects that generate federal LIHTC tax credits that are recognized over a ten-year period, beginning in the year the rental activity begins. The amortization of the LIHTC investment cost is recognized as a component of income tax expense in proportion to the tax credits recognized over the ten-year credit period.

Based on tax credit investments that have been made to date in 2023, we expect to realize benefits from federal and state tax credits over the next three years totaling $11.7 million, $9.1 million and $7.7 million in 2024, 2025 and 2026, respectively. We intend to continue making investments in tax credit projects. However, our ability to access new credits will depend upon, among other factors, federal and state tax policies and the level of competition for such credits.

In August 2022, the Inflation Reduction Act of 2022 (IRA of 2022) was signed into law to address inflation, healthcare costs, climate change and renewal energy incentives, among other things. Included in the IRA of 2022 are provisions for the creation of a 15% corporate alternative minimum tax rate (CAMT) that is effective for tax years beginning January 1, 2023 for corporations with an average annual adjusted financial statement income in excess of $1 billion. Based on information available to date, we do not anticipate our consolidated corporate group to be subject to the 15% CAMT, absent any further changes in law.

### LIQUIDITY AND CAPITAL RESOURCES

### Liquidity

Liquidity management ensures that funds are available to meet the cash flow requirements of our depositors and borrowers, while also meeting the operating, capital and strategic cash flow needs of the Company, the Bank and other subsidiaries. As part of the overall asset and liability management process, liquidity management strategies and measurements have been developed to manage and monitor liquidity risk. The Company had access to sufficient liquidity at March 31, 2023, summarized as follows:

*($ in thousands)*

| Available Sources of Funding: Internal Sources: | March 31, 2023 Total Available | Amount Used | Net Availability |
| --- | ---: | ---: | ---: |
| Free securities | $2,261,893 | $— | $2,261,893 |
| External Sources: |  |  |  |
| Federal Home Loan Bank (a) | 6,587,916 | 3,200,034 | 3,387,882 |
| Federal Reserve Bank | 4,903,911 | — | 4,903,911 |
| Brokered deposits | 4,441,961 | 572,501 | 3,869,460 |
| Other | 1,369,000 | — | 1,369,000 |
| **Total Available Sources of Funding** | **$19,564,681** | **$3,772,535** | **$15,792,146** |
| Cash and other interest-bearing bank deposits |  |  | 2,882,521 |
| **Total Liquidity** |  |  | **$18,674,667** |

(a) Amount used includes funded advances and letters of credit.

The recent failures of three major regional U.S. banks that included large-scale deposit runs has brought the subject of bank liquidity into high focus, particularly in relation to an institution's asset and liability composition. At present, the FDIC guarantees a depositor coverage of cash on deposit of up to $250,000 per institution. Dampened depositor confidence over a financial institution's ability to protect deposit balances in excess of the federally insured limit is thought to pose a higher likelihood of a deposit run, and, in turn, the risk that the institution may have insufficient liquidity to meet the demand. At March 31, 2023, our available on and off-balance sheet liquidity of $18.7 billion is well in excess of our estimated uninsured, noncollateralized deposits of approximately $10.7 billion.

The asset portion of the balance sheet provides liquidity primarily through loan principal repayments, maturities and repayments of investment securities and occasional sales of various assets. Short-term investments such as federal funds sold, securities purchased under agreements to resell and interest-bearing deposits with the Federal Reserve Bank or with other commercial banks are additional sources of liquidity to meet cash flow requirements. Free securities represent unpledged securities that can be sold or used as collateral for borrowings, and include unpledged securities assigned to short-term dealer repurchase agreements or to the Federal Reserve Bank discount window. Management has established an internal target for the ratio of free securities to total securities of 20% or greater. As shown in the table below, our ratio of free securities to total securities was 28.45% at March 31, 2023, compared to 41.59% at December 31, 2022. Securities and FHLB letters of credit are pledged as collateral related to public funds and repurchase agreements. The decline in the ratio of free securities to total securities from December 31, 2022 is the result of pledging additional securities to the Federal Reserve Bank done as a cautionary measure to increase borrowing capacity under its discount window.

| Liquidity Metrics | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Free securities / total securities | 28.45% | 41.59% | 49.79% | 52.61% | 50.63% |
| Core deposits / total deposits | 94.83% | 98.12% | 98.93% | 99.00% | 98.94% |
| Wholesale funds / core deposits | 15.43% | 7.43% | 6.23% | 2.97% | 6.21% |
| Quarter-to-date average loans /quarter-to-date average deposits | 80.18% | 78.86% | 75.87% | 72.24% | 70.34% |

The liability portion of the balance sheet provides liquidity mainly through the ability to use cash sourced from customers’ interest-bearing and noninterest-bearing deposit accounts. At March 31, 2023, deposits totaled $29.6 billion, an increase of $542.7 million, or 2%, from December 31, 2022. The net increase was primarily due to the $567.6 million increase in brokered deposits and a $233.7 million increase in core client deposits, partially offset by a $258.6 million seasonal outflows of public funds deposits. Brokered deposits totaled $572.5 million as of March 31, 2023, compared to $4.9 million at December 31, 2022 and $14.2 million at March 31, 2022. Following the recent events impacting the financial services industry, as a cautionary measure, we added $568 million of brokered certificates of deposit to increase on-balance sheet liquidity. These instruments mature in December 2023 and bear interest plus fees of 5.45% per annum. The use of brokered deposits as a funding source is subject to certain policies regarding the amount, term and interest rate.

Core deposits consist of total deposits excluding certificates of deposit of $250,000 or more and brokered deposits. Core deposits totaled $28.1 billion at March 31, 2023, down $441.1 million, or 2%, compared to December 31, 2022. The decline in core deposits reflects the shift of deposits into certificates of deposits of $250,000 or more, up $416.2 million, largely due to attractive interest rates offered during the quarter. The ratio of core deposits to total deposits was 94.83% at March 31, 2023, compared to 98.12% at December 31, 2022 and 98.94% at March 31, 2022.

Purchases of federal funds, securities sold under agreements to repurchase and other short-term borrowings from customers provide additional sources of liquidity to meet short-term funding requirements. Besides funding from customer sources, the Bank has a line of credit with the FHLB that is secured by blanket pledges of certain mortgage loans. At March 31, 2023, the Bank had borrowings of $3.1 billion and approximately $3.4 billion available under this line. The unused borrowing capacity at the Federal Reserve’s discount window is approximately $4.9 billion. There were no outstanding borrowings with the Federal Reserve at any date during any period covered by this report. In response to the March 2023 bank failures and resulting liquidity concerns, the Federal Reserve established a Bank Term Funding Program, available to eligible depository institutions to provide an additional source of liquidity secured by U.S. Treasury and government agency and mortgage-backed securities, and other qualifying assets at par. As a cautionary measure, the Bank registered for the program at its inception, but has not, and does not intend to borrow under this program.

Wholesale funds, which are comprised of short-term borrowings, long-term debt and brokered deposits were 15.43% of core deposits at March 31, 2023, compared to 7.43% at December 31, 2022 and 6.21% at March 31, 2022. At March 31, 2023, wholesale funds totaled $4.3 billion, an increase of $2.2 billion, or 105%, from December 31, 2022 and $2.5 billion, or 131%, from March 31, 2022. The linked-quarter and year over year increases were primarily due to a net increase in FHLB advances and the brokered deposits added during the first quarter of 2023. The increase in wholesale funds were part of a cautionary strategy to hold excess available funds should we see significant shifts in deposit activity. At March 31, 2023, the Company held $2.2 billion in interest-bearing bank deposits with the Federal Reserve. The Company has established an internal target for wholesale funds to be less than 25% of core deposits.

Another measure used to monitor our liquidity position is the loan-to-deposit ratio (average loans outstanding for the reporting period divided by average deposits outstanding). The loan-to-deposit ratio measures the amount of funds the Company lends for each dollar of deposits on hand. Our average loan-to-deposit ratio for the first quarter of 2023 was 80.18%, compared to 78.86% for the fourth quarter of 2022 and 70.34% for the first quarter of 2022. Management has an established target range for the loan-to-deposit ratio of 87% to 89%, but will operate outside that range under certain circumstances, such as those caused by the pandemic where deposits became elevated.

Cash generated from operations is another important source of funds to meet liquidity needs. The Consolidated Statements of Cash Flows included in Part I, Item 1 of this document present operating cash flows and summarize all significant sources and uses of funds during the three months ended March 31, 2023 and 2022.

Dividends received from the Bank have been the primary source of funds available to the Parent for the payment of dividends to our stockholders and for servicing its debt. The liquidity management process takes into account the various regulatory provisions that can limit the amount of dividends the Bank can distribute to the Parent. The Parent targets cash and other liquid assets to provide liquidity in an amount sufficient to fund approximately four quarters of ongoing cash or liquid asset needs, consisting primarily of common stockholder dividends, debt service requirements, and any expected share repurchase or early extinguishment of debt. The Parent may operate below the target level on a temporary basis if a return to the target can be achieved in the near-term, generally not to exceed four quarters. The Parent had cash and liquid assets of $152.1 million at March 31, 2023.

Since quarter end, we have experienced minimal and expected seasonal core client deposit outflows, which were down $376 million, or approximately 1%, at April 30, 2023 when compared to March 31, 2023. In addition, in early May, we repaid approximately $1.4 billion of FHLB borrowings, including the incremental borrowings drawn during the first quarter as a cautionary measure, to return to a more typical overall liquidity level.

### Capital Resources

Stockholders’ equity totaled $3.5 billion at March 31, 2023, up $188.6 million from December 31, 2022. The increase is attributable to net income of $126.5 million, other comprehensive income of $84.7 million, net of tax, primarily attributable to fair value adjustments on securities available for sale and cash flow hedges, and $3.8 million of long-term incentive plan and dividend reinvestment activity. These factors were partially offset by dividends of $26.4 million.

The tangible common equity (TCE) ratio was 7.16% at March 31, 2023, compared to 7.09% at December 31, 2022. The increase is largely attributable to net income and other comprehensive income that resulted from fair value adjustments on the available for sale securities portfolio and cash flow hedges, and long term incentive plan and dividend reinvestments, partially offset by the impact of an increase in tangible assets, and dividends. The excess liquidity at March 31, 2023 negatively impacted the TCE ratio by 36 bps.

The regulatory capital ratios of the Company and the Bank at March 31, 2023 remained well in excess of current regulatory minimum requirements, including capital conservation buffers, by at least $592 million. The Company and the Bank have been categorized as “well-capitalized” in the most recent notices received from our regulators. Refer to the Supervision and Regulation section in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for further discussion of our capital requirements.

The following table shows the regulatory capital ratios for the Company and the Bank as calculated under current rules for the indicated periods. The capital ratios reflect the election to use the CECL five-year transition rule that allowed for the option to delay for two years the estimated impact of CECL on regulatory capital (0% in 2020 and 2021), followed by a three-year transition (25% in 2022, 50% in 2023, 75% in 2024, and 100% thereafter). The two-year delay includes the full impact of January 1, 2020 cumulative effect impact plus an estimated impact of CECL calculated quarterly as 25% of the current ACL over the January 1, 2020 balance (modified transition amount). The modified transition amount was recalculated each quarter in 2020 and 2021, with the December 31,

2021 impact of $24.9 million plus day one impact of $44.1 million (net of tax) carrying through the remaining three years of the transition, as adjusted by the applicable transition percentage.

| Total capital (to risk weighted assets) | Well- Capitalized | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Hancock Whitney Corporation | 10.00% | 13.21% | 12.97% | 12.67% | 12.70% | 12.82% |
| Hancock Whitney Bank | 10.00% | 12.54% | 12.39% | 12.16% | 12.28% | 12.33% |
| Tier 1 common equity capital (to risk weighted assets) |  |  |  |  |  |  |
| Hancock Whitney Corporation | 6.50% | 11.60% | 11.41% | 11.10% | 11.08% | 11.12% |
| Hancock Whitney Bank | 6.50% | 11.52% | 11.43% | 11.20% | 11.28% | 11.27% |
| Tier 1 capital (to risk weighted assets) |  |  |  |  |  |  |
| Hancock Whitney Corporation | 8.00% | 11.60% | 11.41% | 11.10% | 11.08% | 11.12% |
| Hancock Whitney Bank | 8.00% | 11.52% | 11.43% | 11.20% | 11.28% | 11.27% |
| Tier 1 leverage capital |  |  |  |  |  |  |
| Hancock Whitney Corporation | 5.00% | 9.63% | 9.53% | 9.27% | 8.68% | 8.38% |
| Hancock Whitney Bank | 5.00% | 9.57% | 9.54% | 9.35% | 8.83% | 8.49% |

We regularly perform stress analysis on our capital levels. One such scenario included the hypothetical impact of including accumulated other comprehensive losses on market valuations of available for sale securities and cash flow hedges in regulatory capital and a further stress scenario that included both those losses plus losses on the held to maturity investment portfolio in regulatory capital. We estimate that our regulatory capital ratios would remain in excess of the well-capitalized minimums under both of these stress scenarios at March 31, 2023.

On January 26, 2023, our board of directors authorized the repurchase of up to 4,297,000 shares of the Company’s common stock (approximately 5% of the shares of common stock outstanding as of December 31, 2022). The authorization is set to expire on December 31, 2024. The shares may be repurchased in the open market, by block purchase, through accelerated share repurchase plans, in privately negotiated transactions or otherwise, in one or more transactions, from time to time, depending upon market conditions and other factors, and in accordance with applicable regulations of the Securities and Exchange Commission. The Company is not obligated to purchase any shares under this program and the repurchase authorization may be terminated or amended by the Board at any time prior to the expiration date. No shares have been repurchased under this program.

On January 26, 2023, our board of directors declared an 11% increase in the regular first quarter cash dividend from $0.27 per share to $0.30 per share. The quarterly common stock cash dividend was paid on March 15, 2023 to shareholders of record on March 6, 2023. The Company has paid uninterrupted dividends to its shareholders since 1967.

The Inflation Reduction Act of 2022 signed into law during in August 2022 includes a provision for an excise tax equal to 1% of the fair market value of any stock repurchased by covered corporations during a taxable year, subject to certain limits and provisions. The excise tax is effective beginning in fiscal year 2023. While we may complete transactions subject to the new excise tax, we do not expect a material impact to our statement of condition or results of operations.

### BALANCE SHEET ANALYSIS

### Short-Term Investments

Short-term assets are held to ensure funds are available to meet the cash flow needs of both borrowers and depositors. Short-term investments, including interest-bearing bank deposits and federal funds sold, were $2.3 billion at March 31, 2023, up $2.0 billion from December 31, 2022. Average short-term investments of $0.5 billion for the first quarter of 2023 were up $0.2 billion compared to the fourth quarter of 2022. Typically, these balances will change on a daily basis depending upon movement in customer loan and deposit accounts. The increase in short-term investments was largely funded through the addition of $568 million of short-term brokered certificates of deposit and $1.2 billion in incremental FHLB advances funded in March of 2023 as a cautionary measure to provide additional on-balance sheet liquidity in response to the disruption in the financial services industry caused by the bank failures.

### Securities

The purpose of the securities portfolio is to increase profitability, mitigate interest rate risk, provide liquidity and comply with regulatory pledging requirements. Our securities portfolio includes securities categorized as available for sale and held to maturity. Available for sale securities are carried at fair value and may be sold prior to maturity. Unrealized gains or losses on available for sale securities, net of deferred taxes, are recorded as accumulated other comprehensive income or loss in stockholders' equity.

Investment in securities totaled $8.4 billion at March 31, 2023, down slightly from December 31, 2022. The decrease from December 31, 2022 is attributable to net payoffs and paydowns, part of a strategic decision to allow cash inflows from the securities portfolio to fund loan growth. The resulting decrease was partially offset by an $81.0 million favorable market valuation adjustment on the available for sale portfolio.

At March 31, 2023, securities available for sale totaled $5.6 billion and securities held to maturity totaled $2.8 billion.

Our securities portfolio consists mainly of residential and commercial mortgage-backed securities and collateralized mortgage obligations that are issued or guaranteed by U.S. government agencies. We invest only in high quality investment grade securities with a targeted portfolio effective duration generally between two and five and a half years. At March 31, 2023, the average expected maturity of the portfolio was 6.08 years with an effective duration of 4.84 years and a nominal weighted-average yield of 2.31%. Under an immediate, parallel rate shock of 100 bps and 200 bps, the effective durations would be 4.80 and 4.75 years, respectively. At December 31, 2022, the average expected maturity of the portfolio was 6.02 years with an effective duration of 4.87 years and a nominal weighted-average yield of 2.27%. The changes in expected maturity, effective duration, and nominal weighted-average yield were largely the result of maturities, paydowns and the impact from the termination of fair value hedges on available for sale securities. At March 31, 2023, approximately $560 million of our available for sale securities are hedged with $514 million in fair value hedges in order to provide protection and flexibility to reposition and/or reprice the portfolio in a rising interest rate environment, effectively reducing the duration (market price risk) on the hedged securities. Our strategy in the near term will be to utilize the securities portfolio cash flow to fund loan growth and monitor our hedge positions to adjust interest rate sensitivity.

At the end of each reporting period, we evaluate the securities portfolio for credit loss. Based on our assessments, expected credit loss was not material for any period presented, and therefore no allowance for credit loss was recorded.

### Loans

Total loans at March 31, 2023 were $23.4 billion, up $290.5 million, or 1%, from December 31, 2022. New loans and fewer paydowns contributed to the growth, with income-producing commercial real estate and residential mortgage as the main drivers.

The following table shows the composition of our loan portfolio at each date indicated:

*($ in thousands)*

| Total loans: | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial non-real estate | $10,013,482 | $10,146,453 | $9,905,427 | $9,645,092 | $9,584,480 |
| Commercial real estate - owner occupied | 3,050,748 | 3,033,058 | 3,033,133 | 2,964,474 | 2,868,233 |
| Total commercial and industrial | 13,064,230 | 13,179,511 | 12,938,560 | 12,609,566 | 12,452,713 |
| Commercial real estate - income producing | 3,758,455 | 3,560,991 | 3,686,540 | 3,641,243 | 3,563,299 |
| Construction and land development | 1,726,916 | 1,703,592 | 1,541,257 | 1,408,727 | 1,286,655 |
| Residential mortgages | 3,329,793 | 3,092,605 | 2,843,723 | 2,615,807 | 2,462,900 |
| Consumer | 1,525,129 | 1,577,347 | 1,575,505 | 1,570,725 | 1,557,774 |
| Total loans | $23,404,523 | $23,114,046 | $22,585,585 | $21,846,068 | $21,323,341 |

Commercial and industrial (“C&I”) loans, including both non-real estate and owner occupied real estate secured loans, totaled approximately $13.1 billion, or 56% of the total loan portfolio, at March 31, 2023, a decrease of $115.3 million, or 1%, from December 31, 2022, as payoffs and paydowns outpaced originations.

The Bank lends mainly to middle market and smaller commercial entities, although it participates in larger shared credit loan facilities. Shared national credits funded at March 31, 2023 totaled approximately $2.7 billion, or 12% of total loans, a decrease of $9 million from December 31, 2022. At March 31, 2023, approximately $459 million of our shared national credits were with healthcare-related customers, with the remainder in commercial real estate and other diverse industries.

Our loan portfolio is well diversified by product, client, and geography throughout our footprint. Nevertheless, we may be exposed to certain concentrations of credit risk which exist in relation to different borrowers or groups of borrowers, specific types of collateral, industries, loan products, or regions. The following table provides detail of the more significant industry concentrations for our commercial and industrial loan portfolio, which is based on NAICS codes for all industries, with the exceptions of energy, which is based on the borrower’s source of revenue (i.e. a manufacturer whose income is derived from energy-related business is reported as energy).

*( $ in thousands )*

| Commercial & industrial loans: | March 31, 2023 Balance | Pct of Total | December 31, 2022 Balance | Pct of Total | September 30, 2022 Balance | Pct of Total | June 30, 2022 Balance | Pct of Total | March 31, 2022 Balance | Pct of Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Health care and social assistance | $1,398,300 | 10% | $1,407,960 | 11% | $1,420,861 | 11% | $1,296,666 | 11% | $1,205,237 | 10% |
| Real estate and rental and leasing | 1,368,460 | 10% | 1,520,955 | 12% | 1,483,937 | 11% | 1,460,694 | 12% | 1,369,518 | 11% |
| Retail trade | 1,238,090 | 9% | 1,218,784 | 9% | 1,162,095 | 9% | 1,136,244 | 9% | 1,119,969 | 9% |
| Manufacturing | 1,149,578 | 9% | 1,145,947 | 8% | 1,123,087 | 9% | 1,046,900 | 8% | 1,007,612 | 8% |
| Construction | 1,025,582 | 8% | 1,034,860 | 8% | 1,021,365 | 8% | 1,047,686 | 8% | 1,075,497 | 9% |
| Wholesale trade | 999,258 | 8% | 997,930 | 8% | 1,001,960 | 8% | 999,589 | 8% | 868,886 | 7% |
| Finance and insurance | 914,033 | 7% | 966,683 | 7% | 981,823 | 8% | 914,570 | 7% | 915,851 | 7% |
| Transportation and warehousing | 852,153 | 7% | 872,234 | 7% | 856,599 | 7% | 837,701 | 7% | 785,411 | 6% |
| Professional, scientific, and technical services | 732,068 | 6% | 706,430 | 5% | 696,855 | 5% | 653,555 | 5% | 689,148 | 6% |
| Accommodation, food services and entertainment | 677,488 | 5% | 637,942 | 5% | 669,063 | 5% | 702,313 | 6% | 726,077 | 6% |
| Public administration | 507,291 | 4% | 542,698 | 4% | 556,938 | 4% | 570,069 | 5% | 589,503 | 5% |
| Information | 407,754 | 3% | 386,568 | 3% | 332,230 | 2% | 315,071 | 2% | 296,989 | 2% |
| Other services (except public administration) | 387,396 | 3% | 396,629 | 3% | 405,724 | 3% | 403,874 | 3% | 412,609 | 3% |
| Admin, Support, Waste Mgmt, Remediation Services | 326,667 | 3% | 314,921 | 2% | 244,399 | 2% | 262,326 | 2% | 249,090 | 2% |
| Educational services | 282,488 | 2% | 298,126 | 2% | 268,392 | 2% | 280,377 | 2% | 286,992 | 2% |
| Energy | 227,171 | 2% | 242,076 | 2% | 246,344 | 2% | 246,961 | 2% | 249,235 | 2% |
| Other | 570,453 | 4% | 488,768 | 4% | 466,888 | 4% | 434,970 | 3% | 605,089 | 5% |
| Total commercial & industrial loans | $13,064,230 | 100% | $13,179,511 | 100% | $12,938,560 | 100% | $12,609,566 | 100% | $12,452,713 | 100% |

55

Commercial real estate – income producing loans totaled approximately $3.8 billion at March 31, 2023, an increase of $197 million, or 6%, from December 31, 2022. Construction and land development loans totaled approximately $1.7 billion at March 31, 2023, an increase of $23 million, or 1%, from December 31, 2022. The increase in the commercial real estate – income producing loans was largely the result of completed construction projects moving to permanent financing, with the shift from construction largely offset by continued funding on existing lines. We are continuing to limit our growth in income producing real estate with a focus on resilient projects given the current economic environment. The following table details the end-of-period aggregated commercial real estate – income producing and construction loan balances by property type. Loans reflected in 1-4 family residential construction include both loans to construction builders as well as single family borrowers.

*( $ in thousands )*

| Commercial real estate - income producing and construction loans: | March 31, 2023 Balance | Pct of Total | December 31, 2022 Balance | Pct of Total | June 30, 2022 Balance | Pct of Total | September 30, 2022 Balance | Pct of Total | March 31, 2022 Balance | Pct of Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Multifamily | $1,017,351 | 19% | $870,869 | 17% | $872,944 | 17% | $776,723 | 15% | $695,090 | 14% |
| Healthcare related properties | 865,414 | 16% | 854,563 | 16% | 851,998 | 16% | 879,474 | 18% | 815,090 | 17% |
| Retail | 802,220 | 15% | 811,990 | 15% | 803,300 | 15% | 780,454 | 16% | 793,126 | 17% |
| Industrial | 677,907 | 12% | 613,149 | 12% | 602,739 | 12% | 573,993 | 11% | 568,886 | 12% |
| Office | 561,248 | 10% | 569,452 | 11% | 585,614 | 11% | 569,055 | 11% | 554,005 | 11% |
| 1-4 family residential construction | 623,293 | 11% | 602,867 | 11% | 588,122 | 11% | 548,286 | 11% | 516,580 | 11% |
| Hotel/motel and restaurants | 475,377 | 9% | 485,865 | 9% | 453,847 | 9% | 448,949 | 9% | 441,285 | 9% |
| Other land loans | 219,192 | 4% | 213,159 | 4% | 222,723 | 4% | 221,905 | 4% | 214,446 | 4% |
| Other | 243,369 | 4% | 242,669 | 5% | 246,510 | 5% | 251,131 | 5% | 251,446 | 5% |
| Total commercial real estate - income producing and construction loans | $5,485,371 | 100% | $5,264,583 | 100% | $5,227,797 | 100% | $5,049,970 | 100% | $4,849,954 | 100% |

Our residential mortgages loan portfolio totaled $3.3 billion at March 31, 2023, up $237 million, or 8%, from December 31, 2022. Growth in residential mortgage includes a combination of completed construction loans converting to permanent financing as well new loan growth.

The consumer loan portfolio totaled $1.5 billion at March 31, 2023, down $52 million, or 3%, from December 31, 2022. Changes in the consumer loan portfolio balance include the impact of our exit from the indirect automobile lending market, where the existing portfolio is in run-off.

Management expects the 2023 loan growth percentage to be in the range of low to mid-single digits from the December 31, 2022 balance of $23.1 billion.

### Allowance for Credit Losses and Asset Quality

The Company's allowance for credit losses was $341.4 million at March 31, 2023, up slightly from $341.1 million at December 31, 2022.

The $0.3 million linked-quarter increase in the allowance for credit losses is attributable to $5.7 million of net charge-offs and a provision for credit losses of $6.0 million, reflective of loan growth and a relatively consistent credit loss outlook on the portfolio as a whole. Uncertainty related to inflationary pressure and the outcome of the Federal Reserve’s monetary policy continues to result in an elevated reserve relative to pre-pandemic levels. After considering the variables underlying each of the Moody's economic scenarios, management weighed the baseline scenario at 40%, the downside S-2 mild recessionary scenario at 50% and the downside moderate recessionary scenario at 10% in the computation of the allowance for credit losses at March 31, 2023. Each of the scenarios utilized have varying degrees of severity and duration of inflationary pressure, including volatility in commodities prices stemming from geopolitical unrest, the consequences of the Federal Reserve's actions with regard to monetary policy, and the ultimate effects of recent disruption in the financial services industry on credit trends. Refer to the Economic Outlook section of this discussion and analysis for further information on the Moody’s scenarios and our weighting assumptions.

In the first quarter of 2023, the provision for credit losses included a reserve build of $0.3 million, compared to $1.5 million in the fourth quarter of 2022. Our allowance for credit loss coverage to total loans was 1.46% at March 31, 2023, compared to 1.48% at December 31, 2022, with the modest change reflecting the impact of loan growth with relatively stable asset quality metrics.

The allowance for credit losses on the commercial portfolio was relatively unchanged at $278.0 million, or 1.50% of that portfolio, at March 31, 2023, compared to the December 31, 2022 allowance of $279.0 million, or 1.51%, primarily due to stable credit performance. Our residential mortgage allowance for credit loss increased modestly to $34.6 million, 1.04% of that portfolio at March 31, 2023, compared to $32.5 million, or 1.05%, at December 31, 2022, due largely to growth in the portfolio. Our allowance for credit losses on the consumer portfolio was $28.8 million, or 1.89% at March 31, 2023, compared to $29.6 million, or 1.88%, at December 31, 2022.

Criticized commercial loans totaled $295.5 million at March 31, 2023, down $6.4 million, or 2%, from $301.9 million at December 31, 2022. The decrease in criticized commercial loans is the result of net activity where payoffs, paydowns, upgrades, and charge-offs exceeded downgraded credits during the first quarter. Criticized loans are defined as those having potential weaknesses that deserve management’s close attention (risk-rated as special mention, substandard and doubtful), including both accruing and nonaccruing loans. The Company routinely assesses the ratings of loans in its portfolio through an established and comprehensive portfolio management process. In addition, the Company often reviews portfolios of loans to determine if there are areas of risk not specifically identified in its loan by loan approach. Criticized commercial loans comprised 1.59% of that portfolio at March 31, 2023, down from 1.64% at December 31, 2022 and remain near historically low levels. Our criticized commercial loans at March 31, 2022 are diversified across many industries, with the largest concentrations being construction, totaling $77.2 million; manufacturing, totaling $40.0 million; energy support services, totaling $31.3 million; and wholesale trade, totaling $30.7 million. Commercial loans risk rated pass-watch totaled $456.0 million at March 31, 2023, virtually unchanged when compared to December 31, 2022. The pass-watch risk rating includes credits with negative performance trends that reflect sufficient risk to cause concern, but have not risen to the level of criticized.

Net charge-offs were $5.7 million, or 0.10% of average total loans on an annualized basis in the first quarter of 2023, compared to $1.0 million, or 0.02% of average total loans in the fourth quarter of 2022, and $0.3 million, or 0.01% of average total loans in the first quarter of 2022. Our commercial portfolio had net charge-offs of $3.4 million in the first quarter of 2023, and net recoveries of $1.2 million and $0.8 million in the fourth and first quarters of 2022, respectively. Our residential mortgage portfolio had net recoveries of $0.2 million in the first quarter of 2023, and $0.3 million and less than $0.1 million in the fourth and first quarters of 2022, respectively. Consumer net charge-offs were $2.5 million in the first quarter of 2023, $2.4 million in the fourth quarter of 2022, and $1.2 million in the first quarter of 2022. Charge-off metrics, while up compared to prior periods, remains relatively modest.

The following table sets forth activity in the allowance for credit losses for the periods indicated:

*($ in thousands)*

| Provision and Allowance for Credit Losses Allowance for loan losses: | Three Months Ended March 31, 2023 | December 31, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: |
| Allowance for loan losses at beginning of period | $307,789 | $306,116 | $342,065 |
| Loans charged-off: |  |  |  |
| Commercial non real estate | 4,528 | 1,271 | 2,659 |
| Commercial real estate - owner-occupied | — | 2 | — |
| Total commercial & industrial | 4,528 | 1,273 | 2,659 |
| Commercial real estate - income producing | — | 7 | 4 |
| Construction and land development | 61 | — | — |
| Total commercial | 4,589 | 1,280 | 2,663 |
| Residential mortgages | 20 | 35 | 42 |
| Consumer | 3,363 | 3,328 | 2,680 |
| Total charge-offs | 7,972 | 4,643 | 5,385 |
| Recoveries of loans previously charged-off: |  |  |  |
| Commercial non real estate | 1,033 | 2,352 | 2,142 |
| Commercial real estate - owner-occupied | 195 | 127 | 389 |
| Total commercial & industrial | 1,228 | 2,479 | 2,531 |
| Commercial real estate - income producing | — | — | 878 |
| Construction and land development | 6 | 2 | 68 |
| Total commercial | 1,234 | 2,481 | 3,477 |
| Residential mortgages | 181 | 286 | 61 |
| Consumer | 838 | 903 | 1,528 |
| Total recoveries | 2,253 | 3,670 | 5,066 |
| Total net charge-offs | 5,719 | 973 | 319 |
| Provision for loan losses | 7,315 | 2,646 | (23,903) |
| Allowance for loan losses at end of period | $309,385 | $307,789 | $317,843 |
| **Reserve for Unfunded Lending Commitments:** |  |  |  |
| Reserve for unfunded lending commitments at beginning of period | $33,309 | $33,468 | $29,334 |
| Provision for losses on unfunded lending commitments | (1,295) | (159) | 1,376 |
| Reserve for unfunded lending commitments at end of period | $32,014 | $33,309 | $30,710 |
| **Total Allowance for Credit Losses** | $341,399 | $341,098 | $348,553 |
| **Total Provision for Credit Losses** | $6,020 | $2,487 | $(22,527) |
| **Coverage Ratios:** |  |  |  |
| Allowance for loan losses to period-end loans | 1.32% | 1.33% | 1.49% |
| Allowance for credit losses to period-end loans | 1.46% | 1.48% | 1.63% |
| **Charge-offs ratios:** |  |  |  |
| Gross charge-offs to average loans | 0.14% | 0.08% | 0.10% |
| Recoveries to average loans | 0.04% | 0.06% | 0.10% |
| Net charge-offs to average loans | 0.10% | 0.02% | 0.01% |
| **Net Charge-offs to average loans by portfolio** |  |  |  |
| Commercial non real estate | 0.14% | (0.04)% | 0.02% |
| Commercial real estate - owner-occupied | (0.03)% | (0.02)% | (0.06)% |
| Total commercial & industrial | 0.10% | (0.04)% | 0.00% |
| Commercial real estate - income producing | — | 0.00% | (0.10)% |
| Construction and land development | 0.01% | (0.00)% | (0.02)% |
| Total commercial | 0.07% | (0.03)% | (0.02)% |
| Residential mortgages | (0.02)% | (0.03)% | (0.00)% |
| Consumer | 0.66% | 0.61% | 0.30% |

58

The following table sets forth for the periods indicated nonaccrual loans and loans modified or restructured, by type, and foreclosed and surplus ORE and other foreclosed assets. The table also includes loans past due 90 days or more and still accruing.

*($ in thousands)*

| Loans accounted for on a nonaccrual basis: | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial non-real estate | $12,378 | $3,078 | $3,563 | $3,600 | $4,065 |
| Commercial non-real estate - modified/restructured (a) | 924 | 942 | 965 | 1,230 | 1,247 |
| Total commercial non-real estate | 13,302 | 4,020 | 4,528 | 4,830 | 5,312 |
| Commercial real estate - owner occupied | 1,709 | 1,233 | 2,009 | 2,165 | 2,514 |
| Commercial real estate - owner-occupied - modified/restructured (a) | 684 | 228 | 228 | 228 | 235 |
| Total commercial real estate - owner-occupied | 2,393 | 1,461 | 2,237 | 2,393 | 2,749 |
| Commercial real estate - income producing | 1,501 | 1,174 | 1,814 | 1,842 | 1,880 |
| Commercial real estate - income producing - modified/restructured (a) | — | 66 | 69 | 74 | 76 |
| Total commercial real estate - income producing | 1,501 | 1,240 | 1,883 | 1,916 | 1,956 |
| Construction and land development | 340 | 306 | 349 | 676 | 578 |
| Construction and land development - modified/restructured (a) | — | 3 | 4 | 4 | 6 |
| Total construction and land development | 340 | 309 | 353 | 680 | 584 |
| Residential mortgage | 30,110 | 23,946 | 22,753 | 18,649 | 20,709 |
| Residential mortgage - modified/restructured (a) | — | 1,323 | 1,530 | 1,713 | 2,036 |
| Total residential mortgage | 30,110 | 25,269 | 24,283 | 20,362 | 22,745 |
| Consumer | 6,698 | 6,646 | 6,476 | 7,885 | 9,093 |
| Consumer - modified/restructured (a) | — | 46 | 47 | — | — |
| Total consumer | 6,698 | 6,692 | 6,523 | 7,885 | 9,093 |
| Total nonaccrual loans | $54,344 | $38,991 | $39,807 | $38,066 | $42,439 |
| ORE and foreclosed assets | 1,976 | 2,017 | 2,085 | 3,467 | 6,345 |
| Total nonaccrual loans and ORE and foreclosed assets | $56,320 | $41,008 | $41,892 | $41,533 | $48,784 |
| Modified/Restructured loans - still accruing (a): |  |  |  |  |  |
| Commercial non-real estate | $10 | $307 | $316 | $329 | $494 |
| Commercial real estate - owner occupied | — | — | — | — | — |
| Commercial real estate - income producing | — | — | — | — | — |
| Construction and land development | — | 113 | 114 | 116 | 117 |
| Residential mortgage | — | 1,018 | 1,016 | 1,142 | 1,363 |
| Consumer | — | 469 | 479 | 905 | 929 |
| Total Modified/restructured loans - still accruing (a) | $10 | $1,907 | $1,925 | $2,492 | $2,903 |
| Total reportable modified loans (a) | $1,618 |  |  |  |  |
| Total troubled debt restructured loans (a) |  | $4,515 | $4,768 | $5,741 | $6,503 |
| Loans 90 days past due still accruing | $13,155 | $4,585 | $2,600 | $4,697 | $4,258 |
| Ratios: |  |  |  |  |  |
| Nonaccrual loans to total loans | 0.23% | 0.17% | 0.18% | 0.17% | 0.20% |
| Nonaccrual loans plus ORE and foreclosed assets to loans plus ORE and foreclosed assets | 0.24% | 0.18% | 0.19% | 0.20% | 0.24% |
| Allowance for loan losses to nonaccrual loans | 569.31% | 789.38% | 769.00% | 809.58% | 748.94% |
| Allowance for loan losses to nonaccrual loans and accruing loans 90 days past due | 458.35% | 706.33% | 721.85% | 720.66% | 680.65% |
| Loans 90 days past due still accruing to loans | 0.06% | 0.02% | 0.01% | 0.02% | 0.02% |

(a) Loans presented in the March 31, 2023 column represent modified loans to borrowers experiencing financial difficulties, and the columns for December 31, 2022, September 30, 2022, June 30, 2022, and March 31, 2022 represent troubled debt restructured loans. The definition of reportable modifications/restructured loans changed for modifications made on or after January 1, 2023 with the adoption of ASU 2022-02. Refer to Note 1 included in Part 1 of this document for a discussion of this standard.

Nonaccrual loans plus ORE and foreclosed assets totaled $56.3 million at March 31, 2023, up $15.3 million from December 31, 2022. Nonaccrual loans of $54.3 million increased $15.4 million compared to December 31, 2022, and remains at a relatively low percentage of the total portfolio at 0.23%. The increase in nonaccrual loans compared to December 31, 2022 was largely attributable to downgrades, partially offset by payoffs and charge-offs. ORE and foreclosed assets were $2.0 million at March 31, 2023, flat to December 31, 2022. Nonaccrual loans plus ORE and other foreclosed assets as a percentage of total loans, ORE and other foreclosed assets was 0.24% at March 31, 2023, up 6 bps from December 31, 2022.

We expect to see low to modest charge-offs and provision for credit losses throughout 2023. Loan growth, portfolio mix, asset quality metrics and future assumptions in economic forecasts will drive the level of credit loss reserves.

### Deposits

Deposits provide the most significant source of funding for our interest earning assets. Generally, our ability to compete for market share depends on our deposit pricing and our wide range of products and services that are focused on customer needs. We offer high-quality banking services with convenient delivery channels, including online and mobile banking. We provide specialized services to our commercial customers to promote commercial deposit growth. These services include treasury management, industry expertise and lockbox services. Since early 2020, deposit levels have also been influenced by pandemic-driven factors, such as inflows from government stimulus payments, deposits related to funding PPP loans into business checking accounts and a slowdown in customer spending during the height of the pandemic. In late 2022, we began to see outflows of some of the deposit bases built over the preceding two years, as spending levels have increased amid inflationary conditions and an increase in competition for deposits, though deposits remain well above pre-pandemic levels.

The failure of two large U.S. banks in the span of three days in March 2023 created sustained disruption in the financial services industry, with yet another failure in early May. While many factors played a role in the ultimate failures, these institutions had significant industry/demographic concentration within their deposit bases and a high ratio of uninsured deposits. Lack of diversity in concentration within a deposit base may increase the risk of events or trends that could prompt a larger-scale demand for deposits outflow. Further, concerns over a financial institution's ability to protect deposit balances in excess of the federally insured limit may increase the risk of a deposit run. We consider our deposit base to be seasoned, stable and well-diversified. We also offer our customers an insured cash sweep product (ICS) that allows customers to insure deposits above FDIC insured limits. We have seen increased demand for the ICS product following the recent bank failures, with the balance totaling $111.4 million at March 31, 2023 compared to $12.2 million at December 31, 2022. At March 31, 2023, we have calculated our average deposit account size by dividing period-end deposits by the population of accounts with balances to be approximately $38,300, which includes $205,800 in our commercial and small business lines (excluding public funds), $140,100 in our wealth management business line, and $18,500 in our consumer business line.

Further, at March 31, 2023, our sources of liquidity exceed uninsured deposits. We have estimated the Bank’s amount of uninsured deposits using the methodologies and assumptions required for FDIC regulatory reporting to be approximately $14.2 billion at March 31, 2023, down from $14.7 billion at December 31, 2022. Our uninsured deposit total at March 31, 2023 includes approximately $3.5 billion of public funds that have pledged securities as collateral, leaving $10.7 billion of noncollateralized, uninsured deposits compared to total liquidity of $18.7 billion. Our ratio of noncollateralized, uninsured deposits to total deposits was approximately 36.2% at March 31, 2023 compared to 37.9% at December 31, 2022. As a cautionary measure, we are holding approximately $1.8 billion of excess liquidity in short-term investments to ensure we have readily available funds to meet our customers’ needs.

Total deposits were $29.6 billion at March 31, 2023, up $542.7 million, or 2%, from December 31, 2022. Average deposits for the first quarter of 2023 were $28.8 billion, down $23.5 million, or less than 1%, from the fourth quarter of 2022. Through April 30, 2023, we experienced minimal and expected seasonal core client deposit outflows, down $376 million, or approximately 1%, from quarter end.

The following table shows the composition of our deposits at each date indicated.

*($ in thousands)*

|  | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Noninterest-bearing deposits | $12,860,027 | $13,645,113 | $14,290,817 | $14,676,342 | $14,976,670 |
| Interest-bearing retail transaction and savings deposits | 10,682,568 | 10,757,495 | 10,924,309 | 11,359,561 | 11,488,607 |
| Interest-bearing public fund deposits: |  |  |  |  |  |
| Public fund transaction and savings deposits | 2,987,565 | 3,132,828 | 2,737,074 | 2,832,720 | 2,962,811 |
| Public fund time deposits | 98,644 | 111,397 | 59,288 | 50,943 | 51,496 |
| Total interest-bearing public fund deposits | 3,086,209 | 3,244,225 | 2,796,362 | 2,883,663 | 3,014,307 |
| Retail time deposits | 2,411,765 | 1,418,596 | 934,866 | 937,676 | 1,010,935 |
| Brokered time deposits | 572,501 | 4,920 | 4,920 | 9,190 | 9,190 |
| Total interest-bearing deposits | 16,753,043 | 15,425,236 | 14,660,457 | 15,190,090 | 15,523,039 |
| Total deposits | $29,613,070 | $29,070,349 | $28,951,274 | $29,866,432 | $30,499,709 |

Noninterest-bearing demand deposits were $12.9 billion at March 31, 2023, down $785.1 million, or 6%, from December 31, 2022. The decrease includes declines in noninterest-bearing commercial and consumer accounts due in part to a to shift to interest-bearing products amid the rising interest rate environment and public funds deposits reflecting typical seasonality. Noninterest-bearing demand deposits comprised 43% of total deposits at March 31, 2023 and 47% at December 31, 2022.

Interest-bearing transaction and savings accounts of $10.7 billion at March 31, 2023 were down $66.3 million, or 1%, from December 31, 2022. Interest-bearing public fund deposits totaled $3.1 billion at March 31, 2023, down $158.0 million, or 5%, from December 31, 2022. The decrease in public funds is mostly reflective of typical seasonal outflows. Retail time deposits totaled $2.4 billion at March 31, 2023, up $1.0 billion, or 70%, from December 31, 2022. The increase in retail time deposits was due to promotional product offerings at rates that reflect management’s strategic approach to attract and maintain deposits. Brokered time deposits of $572.5 million at March 31, 2023 were up $567.6 million, which represents the addition of short-term brokered time deposits to fund excess liquidity. These instruments bear interest plus fees of 5.45% and mature in December 2023.

As previously noted, interest rates paid on deposit accounts continued to increase in the first quarter of 2023, particularly on time deposits where we have offered promotional rates. The following table sets forth average balances and weighted-average rates paid on deposits for the first quarter of 2023 and the fourth and first quarters of 2022.

*($ in millions)*

| Interest-bearing deposits: | March 31, 2023 Balance | Rate | Mix | December 31, 2022 Balance | Rate | Mix | March 31, 2022 Balance | Rate | Mix |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing transaction deposits | $2,468.9 | 0.46% | 8.6% | $2,604.5 | 0.07% | 9.0% | $2,574.9 | 0.07% | 8.6% |
| Money market deposits | 5,497.3 | 1.80 | 19.1 | 5,349.0 | 0.92 | 18.6 | 6,020.1 | 0.04 | 20.1 |
| Savings deposits | 2,684.2 | 0.01 | 9.3 | 2,857.2 | 0.01 | 9.9 | 2,828.5 | 0.01 | 9.4 |
| Time deposits | 2,018.6 | 2.70 | 7.0 | 1,178.0 | 1.09 | 4.1 | 1,088.5 | 0.24 | 3.6 |
| Public Funds | 3,160.7 | 3.04 | 11.0 | 2,973.0 | 2.43 | 10.3 | 3,154.5 | 0.26 | 10.5 |
| Total interest-bearing deposits | 15,829.7 | 1.65% | 55.0 | 14,961.7 | 0.96% | 51.9 | 15,666.5 | 0.10% | 52.2 |
| Noninterest bearing demand deposits | 12,963.2 |  | 45.0 | 13,854.6 |  | 48.1 | 14,363.3 |  | 47.8 |
| Total deposits | $28,792.9 |  | 100.0% | $28,816.3 |  | 100.0% | $30,029.8 |  | 100.0% |

The following sets forth the maturities of time certificates of deposit greater than $250,000 at March 31, 2023.

*($ in thousands)*

|  | March 31, 2023 |
| --- | ---: |
| Three months | $139,855 |
| Over three months through six months | 270,903 |
| Over six months through one year | 515,746 |
| Over one year | 31,184 |
| Total | $957,688 |

Management expects relatively flat or low single digit end of period deposit growth for 2023 compared to the balance of $29.1 billion at December 31, 2022.

### Short-Term Borrowings

At March 31, 2023, short-term borrowings totaled $3.5 billion, up $1.6 billion, or 88%, from December 31, 2022. The increase from December 31, 2022 is primarily attributable to a $1.7 billion increase in FHLB borrowings, approximately $1.2 billion of which was drawn as a cautionary measure to increase on-balance sheet liquidity in light of the current business environment following the March bank failures. FHLB borrowings totaled $3.1 billion at March 31, 2023, and consisting of five fixed rate advances maturing between April 3, 2023 through May 3, 2023. Subsequent to quarter end, in early May, $1.4 billion of the borrowings were repaid at maturity, reducing cautionary excess liquidity. The remaining variance is largely due to changes in customer repurchase agreements discussed below. Average short-term borrowings of $2.1 billion in the first quarter of 2023 were up $522.8 million, or 33%, compared to the prior quarter.

Short-term borrowings are a core portion of the Company’s funding strategy and can fluctuate depending on our funding needs and the sources utilized. Customer repurchase agreements and FHLB borrowings are the major sources of short-term borrowings. Customer repurchase agreements are offered mainly to commercial customers to assist them with their cash management strategies or to provide a temporary investment vehicle for their excess liquidity pending redeployment for corporate or investment purposes. While customer repurchase agreements provide a recurring source of funds to the Bank, amounts available will vary. FHLB borrowings are funds from the Federal Home Loan Bank that are collateralized by certain residential mortgage and commercial real estate loans included in the Bank’s loan portfolio, subject to specific criteria.

### Long-Term Debt

Long-term debt totaled $242.1 million at March 31, 2023, virtually unchanged from December 31, 2022.

Long-term debt at March 31, 2023 includes subordinated notes payable with an aggregate principal amount of $172.5 million, a stated maturity of June 15, 2060, and a fixed rate of 6.25% per annum that qualify as Tier 2 capital of certain regulatory capital ratios. Subject to prior approval by the Federal Reserve, the Company may redeem these notes in whole or in part on any of its quarterly interest payment dates after June 15, 2025.

### OFF-BALANCE SHEET ARRANGEMENTS

### Loan Commitments and Letters of Credit

In the normal course of business, the Bank enters into financial instruments, such as commitments to extend credit and letters of credit, to meet the financing needs of its customers. Such instruments are not reflected in the accompanying consolidated financial statements until they are funded, although they expose the Bank to varying degrees of credit risk and interest rate risk in much the same way as funded loans. Under regulatory capital guidelines, the Company and Bank must include unfunded commitments meeting certain criteria in risk-weighted capital calculations.

Commitments to extend credit include revolving commercial credit lines, non-revolving loan commitments issued mainly to finance the acquisition and development or construction of real property or equipment, and credit card and personal credit lines. The availability of funds under commercial credit lines and loan commitments generally depends on whether the borrower continues to meet credit standards established in the underlying contract and has not violated other contractual conditions. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the borrower. Credit card and personal credit lines are generally subject to cancellation if the borrower’s credit quality deteriorates. A number of commercial and personal credit lines are used only partially or, in some cases, not at all before they expire, and the total commitment amounts do not necessarily represent our future cash requirements.

A substantial majority of the letters of credit are standby agreements that obligate the Bank to fulfill a customer’s financial commitments to a third party if the customer is unable to perform. The Bank issues standby letters of credit primarily to provide credit enhancement to its customers’ other commercial or public financing arrangements and to help them demonstrate financial capacity to vendors of essential goods and services.

The contract amounts of these instruments reflect our exposure to credit risk. The Bank undertakes the same credit evaluation in making loan commitments and assuming conditional obligations as it does for on-balance sheet instruments and may require collateral or other credit support. At March 31, 2023, the Company had a reserve for unfunded lending commitments totaling $32.0 million.

The following table shows the commitments to extend credit and letters of credit at March 31, 2023 according to expiration date.

*($ in thousands)*

|  | Total | Expiration Date Less than 1 year | 1-3 years | 3-5 years | More than 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commitments to extend credit | $10,285,535 | $3,948,624 | $2,809,683 | $2,689,948 | $837,280 |
| Letters of credit | 430,026 | 360,265 | 69,513 | 248 | — |
| Total | $10,715,561 | $4,308,889 | $2,879,196 | $2,690,196 | $837,280 |

62

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There were no material changes or developments during the reporting period with respect to methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with those generally practiced within the banking industry which require management to make estimates and assumptions about future events. Estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, and the resulting estimates form the basis for making judgments about the carrying values of certain assets and liabilities not readily apparent from other sources. Actual results could differ significantly from those estimates.

### NEW ACCOUNTING PRONOUNCEMENTS

Refer to Note 14 to our consolidated financial statements included elsewhere in this report.

## Market risk

As filed, 9,455 characters.

The Company’s net income is materially dependent upon net interest income. The Company’s primary market risk is interest rate risk which stems from uncertainty with respect to absolute and relative levels of future market interest rates that affect financial products and services. In order to manage the exposures to interest rate risk, management measures the sensitivity of net interest income and cash flows under various market interest rate scenarios, establishes interest rate risk management policies and implements asset/liability management strategies designed to produce a relatively stable net interest margin under varying interest rate environments.

The following table presents an analysis of our interest rate risk as measured by the estimated changes in net interest income resulting from an instantaneous and sustained parallel shift in rates at March 31, 2023. Shifts are measured in 100 basis point increments in a range from -500 to +500 basis points from base case, with -200 through +300 basis points presented in the table below. Our interest rate sensitivity modeling incorporates a number of assumptions including loan and deposit repricing characteristics, the rate of loan prepayments and other factors such as loan floors and the impact of off-balance sheet hedges. The base scenario assumes that the current interest rate environment is held constant over a 24-month forecast period and is the scenario to which all others are compared in order to measure the change in net interest income. Policy limits on the change in net interest income under a variety of interest rate scenarios are approved by the Board of Directors. All policy scenarios assume a static volume forecast where the balance sheet is held constant, although other scenarios are modeled.

| Change in Interest Rates (basis points) | Estimated Increase (Decrease) in NII Year 1 | Year 2 |
| --- | ---: | ---: |
| -200 | -7.75% | -11.49% |
| -100 | -3.56% | -5.44% |
| +100 | 3.29% | 5.02% |
| +200 | 6.38% | 9.73% |
| +300 | 9.40% | 14.33% |

The results indicate a general asset sensitivity across most scenarios driven primarily by repricing in variable rate loans and a funding mix which includes a large percentage of non-interest bearing and lower rate sensitive deposits. As rates have risen over the past year, the funding mix has experienced a shift to more rate sensitive deposit and wholesale funding which has resulted in a lower Net Interest Income at risk measurements compared to recent years. When deemed prudent, management has taken actions to mitigate exposure to interest rate risk with on-or off-balance sheet financial instruments and intends to do so in the future. Possible actions include, but are not limited to, changes in the pricing of loan and deposit products, modifying the composition of earning assets and interest-bearing liabilities, and adding to, modifying or terminating existing interest rate swap agreements or other financial instruments used for interest rate risk management purposes.

Even if interest rates change in the designated amounts, there can be no assurance that our assets and liabilities would perform as anticipated. Additionally, a change in the U.S. Treasury rates in the designated amounts accompanied by a change in the shape of the U.S. Treasury yield curve would cause significantly different changes to net interest income than indicated above. Strategic management of our balance sheet and earnings is fluid and would be adjusted to accommodate these movements. As with any method of measuring interest rate risk, certain shortcomings are inherent in the methods of analysis presented above. For example, although certain assets and liabilities may have similar maturities or periods to repricing, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Certain assets such as adjustable-rate loans have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Also, the ability of many borrowers to service their debt may decrease in the event of an interest rate increase. All of these factors are considered in monitoring exposure to interest rate risk.

### LIBOR Transition

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (LIBOR). In November 2020, the administrator of LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication of the one week and two month LIBOR offered rates will cease after December 31, 2021; but, the publication of the remaining LIBOR offered rates will continue until June 30, 2023. The Company discontinued the use of LIBOR for new contracts after December 31, 2021, with limited exceptions as permitted by regulatory guidance and internal policy.

Regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee (ARRC)) have, among other things, published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., AMERIBOR or the Secured Overnight Financing Rate (SOFR) as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments. Further, the Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace U.S. dollar LIBOR with a benchmark rate based on the SOFR for contracts governed by U.S. law that have no or ineffective fallbacks, and in December 2022, the Federal Reserve Board adopted related implementing rules. In addition, where fallback language allows the Bank to select a benchmark rate, the statutory framework grants the authority to select the Board-selected benchmark replacement as the benchmark replacement, including the safe harbor provisions that, among other things, generally provide that such selection or use will not discharge or excuse performance under, give any person the right to unilaterally terminate or suspend performance under, or constitute a breach, of the contract.

Our LIBOR Transition Working Group (the “Group”), whose purpose is to direct the overall transition process for the Company, is an internal, cross-functional team with representatives from business lines, support and control functions and legal counsel. Beginning in the third quarter of 2019, key provisions in our loan documents were modified to ensure new and renewed loans include appropriate pre-cessation trigger language and LIBOR fallback language for transition from LIBOR to the new benchmark when such transition occurs. All direct exposures resulting from existing financial contracts that mature after 2021 have been inventoried and are monitored on an ongoing basis. The Group has also inventoried indirect LIBOR exposures within the Company's systems, models and processes. Management has developed and prioritized remediation plans, and the Group is continuing to monitor developments and taking steps to ensure readiness when the LIBOR benchmark rate is discontinued. The Group expects that the majority of our existing LIBOR contracts will transition in accordance with the statutory framework established by the Federal Reserve.

The Bank has adopted several replacement benchmarks to use in place of LIBOR benchmark rates, including Chicago Mercantile Exchange Inc. (CME) Term SOFR, FRB-NY SOFR and AMERIBOR as the primary rates. The replacement benchmark rates adopted by the Bank have been affirmed to comply with the 19 principles set forth by the International Organization of Securities Commissions (IOSCO) for Financial Benchmarks, and it further provides the Bank confidence these replacement benchmarks are based on transparent, market-based transactions. The Bank began using these replacement benchmarks towards the end of the third quarter of 2021. In the first quarter of 2023, the Company converted all of its LIBOR based cash flow hedges to SOFR with limited financial impact or cost.

We continue to have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR has resulted in and could continue to result in added costs and employee efforts and could present additional risk. Since alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Even with provisions allowing for designation of alternative benchmarks or “fallback” provisions, the discontinuance of LIBOR could result in customer uncertainty and disputes arising as a consequence of the transition from LIBOR. All of this could result in damage to our reputation and loss of customers.

At March 31, 2023, approximately 16% of our loan portfolio consisted of variable rate loans tied to LIBOR, along with related derivatives and other financial instruments.

## Controls and procedures

As filed, 1,368 characters.

In connection with the preparation of this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2023, the Company’s disclosure controls and procedures were effective.

Our management, including the Chief Executive Officer and Chief Financial Officer, identified no change in our internal control over financial reporting that occurred during the three month period ended March 31, 2023, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 1,822 characters.

There were no changes to the risk factors that were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, except for the addition of the item below.

***Recent negative developments in the banking industry could adversely affect our current and projected business operations and our financial condition and results of operations.***

The recent bank failures and related negative media attention have generated significant market trading volatility among publicly traded bank holding companies and, in particular, regional banks like the Company. These developments have negatively impacted customer confidence in regional banks, which could prompt customers to maintain their deposits with larger financial institutions. Further, competition for deposits has increased in recent periods, and the cost of funding has similarly increased, putting pressure on our net interest margin and results of operation.

The FDIC estimates that the two recent failures of Silicon Valley Bank and Signature Bank resulted in losses of approximately $22.5 billion, of which $19.2 billion is attributable to the protection of uninsured depositors under the Systemic Risk Exception. Federal law requires that any losses to the FDIC’s Deposit Insurance Fund related to this action be repaid by a special assessment on banks. The impact of the assessment to the Company for these failures or any potential future failures is not yet known, but is expected to negatively impact operating results.

The risks described herein and in our Annual Report on 10-K may not be the only risks we face. Additional risks and uncertainties not currently known to us or that are currently considered to not be material also may materially adversely affect our business, financial condition, and/or operating results.

Filed May 5, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-018025. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.