# Hancock Whitney Corp: Form 10-Q for the period ended Jun 30, 2023

- Company: [Hancock Whitney Corp](/companies/hwc.md) (CIK 750577)
- Form: 10-Q
- Filed: 2023-08-04
- Accepted by EDGAR: Aug 4, 2023, 21:06 ET
- Period: 2023-06-30
- Accession: 0000950170-23-038637
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/750577/000095017023038637/hwc-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/750577/000095017023038637/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $131.4m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $219.0m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $29.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $61.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $117.8m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $244.3m | us-gaap:NetIncomeLossAvailableToCommonStockholdersBasic |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $1.35 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $2.80 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $1.35 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $2.81 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 86,370,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 86,350,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | $214.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2023-01-01 to 2023-06-30 | $18.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $52.4m | us-gaap:PaymentsOfDividendsCommonStock |
| Total assets | at 2023-06-30 | $36.21bn | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $32.66bn | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $236.2m | us-gaap:LongTermDebt |
| Short-term borrowings | at 2023-06-30 | $1.63bn | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-06-30 | $3.55bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 125,262 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 six months ended June 30, 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;
- changes in expense to revenue (efficiency ratio), including the risk that we may not realize and/or sustain the expected benefits from efficiency and growth initiatives or that we may not be able to realize 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, 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;
- a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the debt ceiling and the federal budget;
- the risk that the regulatory environment may not be conducive to or may prohibit the consummation of future mergers and/or business combinations, may increase the length of time and amount of resources required to consummate such transactions, and may reduce the anticipated benefit.

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 U.S economy continues to show resiliency despite continued pressures and recessionary concerns. Second quarter 2023 gross domestic product (GDP) growth of 2.4% on an annual basis was notably higher than projected, and the June 2023 unemployment rate of 3.6% continues to hover near the point of full-employment. Thus far, the Federal Reserve's aggressive approach to curbing inflation has effected change without precipitating a recession. Signs of inflation cooling continued in the second quarter of 2023, with the consumer price index (CPI) headline rate falling to a more than two-year low of 3% on an annual basis; however, core inflation (defined as CPI excluding food and energy intended to measure long-run inflation) has been less responsive. The Federal Reserve issued additional 25-basis point interest rates increase in May and July, and has indicated that further interest rate increases are possible during this hiking cycle, depending on performance indicators. While the strength of the labor market may help prevent or reduce the severity of a potential recession, additional rate increases and the likelihood that interest rates will remain higher for longer are likely to result in below-trend economic growth. The U.S Treasury yield curve inversion deepened during the second quarter of 2023, giving further indication of a possible recession.

Within the financial services industry, a number of institutions are facing both macroeconomic and industry-specific headwinds, including tempered loan growth expectations and escalating expense pressures that have been compounded by recent turmoil in the sector. The rising interest rate environment has steadily affected the affordability of credit, and credit standards as a whole have tightened somewhat in the wake of economic uncertainty and post-pandemic effects on certain loan portfolio segments and lines of business. Despite this, we experienced 2% loan growth in the second quarter of 2023 and have yet to experience any significant decline in credit quality. The rising interest rate environment has also prompted a cumulative shift within deposit composition toward higher cost products and created increased competition for deposits; heightened regulatory scrutiny over the stability of an institution's deposit base and adequate levels of liquidity have compounded deposit retention efforts and other borrowing cost pressures, leading to a decline in net interest income and margin. We are continuously monitoring industry developments, deposit metrics, including the level of uninsured deposits, liquidity position and capital levels to support our ability to weather the current state of macroeconomic and industry-specific volatility.

### 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 June 2023 Moody’s forecast, the most current available at June 30, 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 March 31, 2023, management applied a weighting of 40% to the baseline scenario, 50% to the mild recessionary S-2 scenario and 10% to the moderate recessionary S-3 scenario. Assumptions underlying the June 2023 baseline and S-2 scenarios shifted somewhat pessimistically from those included in the respective March 31, 2023 scenarios. To align the assumptions underlying the June 2023 macroeconomic forecasts to our economic outlook, management applied weighting of 40% to the baseline and 60% to the mild recessionary S-2 scenario in the computation of the allowance for credit losses at June 30, 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 June 2023 baseline forecast include the following: (1) the Federal Funds rate has reached its terminal value in the rate hiking cycle, with rate cuts forecasted to begin in March 2024; (2) recent bank failures, while disruptive, are not symptomatic of a broader problem in the financial system; (3) the unemployment rate will increase from its current state of full-employment at 3.6% to 4.1% in 2024, and 4.2% in 2025; (4) GDP will display modest annual growth of 1.6% in 2023, 1.4% in 2024, and 2.4% in 2025; and (5) the 10-year U.S. Treasury yield will peak in the second quarter of 2024 at approximately 4%.

The S-2 scenario predicts a mild recession beginning in the third quarter of 2023 that lasts for three quarters, with the stock market contracting 22%. 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. The scenarios also assumes that the 10-year U.S. Treasury yield falls to below 3% until the first quarter of 2025 due to a flight to quality. Because of the fragility of the economy, the Federal Reserve will keep interest rates elevated in efforts to tame inflation, but will begin lowering rates in the fourth quarter of 2023, earlier than expected in the baseline scenario, due to recessionary conditions. Further, the scenario assumes that the unemployment rate averages 4.2% in 2023, 6.1% in 2024 (peaking at 6.4%), and 4.6% in 2025, with the return to full employment in the third quarter of 2025. Further, the S-2 scenario assumes GDP growth of only 1.2% in 2023 and 0.3% in 2024 before returning to a more moderate level of 3.0% in 2025.

As noted earlier, the credit loss outlook for our portfolio as a whole has not changed materially since March 31, 2023. 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 charge-offs. We continue to closely monitor our portfolio for customers that are sensitive to prolonged inflation and the elevated interest rate environment. We expect full year 2023 loan growth in the low-to-mid single digit range, reflecting our disciplined loan pricing, the potential for economic slowdown and a focus on lending to resilient borrowers with whom we have a full service relationship 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. Further, on August 1, 2023, Fitch Ratings downgraded the United States of America's Long-Term Foreign-Currency Issuer Default Rating to 'AA+' from 'AAA', citing expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers over the last two decades that has manifested in repeated debt limit standoffs and last-minute resolutions. 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 Second Quarter 2023

We reported net income for the second quarter of 2023 of $117.8 million, or $1.35 per diluted common share, compared to $126.5 million, or $1.45 per diluted common share, in the first quarter of 2023 and $121.4 million, or $1.38 per diluted common share, in the second quarter of 2022.

#### Second quarter 2023 results compared to first quarter 2023:

- Net income of $117.8 million, or $1.35 per diluted share, down $8.7 million, or $0.10 per diluted share
- Pre-provision net revenue (PPNR), a non-GAAP measure, totaled $157.8 million, down $9.2 million, or 6%
- Loans of $23.8 billion increased $385.4 million, or 2%
- Criticized commercial loans and nonaccrual loans remain at relatively low levels
- Deposits of $30.0 billion up $430.4 million, or 1%, with core client deposits (exclude public fund and brokered deposits) relatively unchanged
- Net interest margin of 3.30%, down from 3.55%
- Common equity tier 1 ratio of 11.83%, up 23 basis points (bps), and tangible common equity ratio of 7.50%, up 34 bps
- Efficiency ratio of 55.33%

Our results for the second quarter of 2023, while solid, reflect ongoing challenges of the macroeconomic environment and within the financial services industry. The current interest rate environment continued to drive a shift in deposit mix to higher cost products. As a result, deposit betas outpaced loan betas, contributing to a compressing net interest margin. We faced additional headwinds to our efficiency ratio as a result of increased noninterest expense, including deposit insurance and regulatory fees. We continue to maintain what we believe is a stable and diversified deposit base, our asset quality metrics remain at relatively low levels, our allowance for credit losses is robust, and capital levels remain solid. We continue to focus on expense management and growing capital, and remain confident that we are well positioned to weather the challenges of current 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: | Three Months Ended June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income | $405,273 | $372,603 | $345,676 | $299,737 | $254,864 | $777,876 | $491,650 |
| Interest income (te) (a) | 408,110 | 375,187 | 348,291 | 302,340 | 257,449 | 783,297 | 496,780 |
| Interest expense | 131,362 | 87,609 | 50,175 | 19,430 | 9,132 | 218,971 | 17,455 |
| Net interest income (te) | 276,748 | 287,578 | 298,116 | 282,910 | 248,317 | 564,326 | 479,325 |
| Provision for credit losses | 7,633 | 6,020 | 2,487 | 1,402 | (9,761) | 13,653 | (32,288) |
| Noninterest income | 83,225 | 80,330 | 77,064 | 85,337 | 85,653 | 163,555 | 169,085 |
| Noninterest expense | 202,138 | 200,884 | 190,154 | 193,502 | 187,097 | 403,022 | 367,036 |
| Income before income taxes | 147,365 | 158,420 | 179,924 | 170,740 | 154,049 | 305,785 | 308,532 |
| Income tax expense | 29,571 | 31,953 | 36,137 | 35,351 | 32,614 | 61,524 | 63,619 |
| Net income | $117,794 | $126,467 | $143,787 | $135,389 | $121,435 | $244,261 | $244,913 |
| **Balance Sheet Data:** |  |  |  |  |  |  |  |
| Period end balance sheet data |  |  |  |  |  |  |  |
| Loans | $23,789,886 | $23,404,523 | $23,114,046 | $22,585,585 | $21,846,068 | $23,789,886 | $21,846,068 |
| Earning assets | 32,715,630 | 34,106,792 | 31,873,027 | 31,213,449 | 31,292,910 | 32,715,630 | 31,292,910 |
| Total assets | 36,210,148 | 37,547,083 | 35,183,825 | 34,567,242 | 34,637,525 | 36,210,148 | 34,637,525 |
| Noninterest-bearing deposits | 12,171,817 | 12,860,027 | 13,645,113 | 14,290,817 | 14,676,342 | 12,171,817 | 14,676,342 |
| Total deposits | 30,043,501 | 29,613,070 | 29,070,349 | 28,951,274 | 29,866,432 | 30,043,501 | 29,866,432 |
| Stockholders' equity | 3,554,476 | 3,531,232 | 3,342,628 | 3,180,439 | 3,349,723 | 3,554,476 | 3,349,723 |
| Average balance sheet data |  |  |  |  |  |  |  |
| Loans | $23,654,994 | $23,086,529 | $22,723,248 | $22,138,709 | $21,657,528 | $23,372,331 | $21,391,262 |
| Earning assets | 33,619,829 | 32,753,781 | 32,244,681 | 31,783,801 | 32,780,813 | 33,189,197 | 32,990,206 |
| Total assets | 36,205,396 | 35,159,050 | 34,498,915 | 34,377,773 | 35,380,247 | 35,685,113 | 35,690,303 |
| Noninterest-bearing deposits | 12,153,453 | 12,963,133 | 13,854,625 | 14,323,646 | 14,655,800 | 12,556,056 | 14,510,370 |
| Total deposits | 29,372,899 | 28,792,851 | 28,816,338 | 29,180,626 | 29,979,940 | 29,084,477 | 30,004,728 |
| Stockholders' equity | 3,567,260 | 3,412,813 | 3,228,667 | 3,405,463 | 3,383,789 | 3,490,463 | 3,494,809 |
| **Common Shares Data:** |  |  |  |  |  |  |  |
| Earnings per share - basic | $1.35 | $1.45 | $1.65 | $1.56 | $1.39 | $2.81 | $2.79 |
| Earnings per share - diluted | 1.35 | 1.45 | 1.65 | 1.55 | 1.38 | 2.80 | 2.78 |
| Cash dividends per common share | 0.30 | 0.30 | 0.27 | 0.27 | 0.27 | 0.60 | 0.54 |
| Book value per share (period end) | 41.27 | 41.03 | 38.89 | 37.12 | 39.08 | 41.27 | 39.08 |
| Tangible book value per share (period end) | 30.76 | 30.47 | 28.29 | 26.44 | 28.37 | 30.76 | 28.37 |
| Weighted average number of shares - diluted | 86,370 | 86,282 | 86,249 | 86,020 | 86,354 | 86,350 | 86,654 |
| Period end number of shares | 86,123 | 86,066 | 85,941 | 85,686 | 85,714 | 86,123 | 85,714 |

43

*($ in thousands)*

| Performance and other data: | Three Months Ended June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Return on average assets | 1.30% | 1.46% | 1.65% | 1.56% | 1.38% | 1.38% | 1.38% |
| Return on average common equity | 13.24% | 15.03% | 17.67% | 15.77% | 14.39% | 14.11% | 14.13% |
| Return on average tangible common equity | 17.76% | 20.49% | 24.64% | 21.58% | 19.77% | 19.08% | 19.20% |
| Tangible common equity (b) | 7.50% | 7.16% | 7.09% | 6.73% | 7.21% | 7.50% | 7.21% |
| Tangible common equity Tier 1 (CET1) ratio | 11.83% | 11.60% | 11.41% | 11.10% | 11.08% | 11.83% | 11.08% |
| Net interest margin (te) | 3.30% | 3.55% | 3.68% | 3.54% | 3.04% | 3.42% | 2.92% |
| Noninterest income as a percentage of total revenue (te) | 23.12% | 21.83% | 20.54% | 23.17% | 25.65% | 22.47% | 26.08% |
| Efficiency ratio (c) | 55.33% | 53.76% | 49.81% | 51.62% | 54.95% | 54.54% | 55.47% |
| Allowance for loan losses as a percentage of total loans | 1.32% | 1.32% | 1.33% | 1.36% | 1.41% | 1.32% | 1.41% |
| Allowance for credit losses as a percentage of total loans | 1.45% | 1.46% | 1.48% | 1.50% | 1.55% | 1.45% | 1.55% |
| Annualized net charge-offs to average loans | 0.06% | 0.10% | 0.02% | 0.02% | (0.01)% | 0.08% | (0.00)% |
| Nonaccrual loans as a percentage of loans | 0.33% | 0.23% | 0.17% | 0.18% | 0.17% | 0.33% | 0.17% |
| FTE headcount | 3,705 | 3,679 | 3,627 | 3,607 | 3,594 | 3,705 | 3,594 |
| **Reconciliation of operating revenue and operating pre-provision net revenue (non-GAAP measure) (te) (d)** |  |  |  |  |  |  |  |
| Net interest income | $273,911 | $284,994 | $295,501 | $280,307 | $245,732 | $558,905 | $474,195 |
| Noninterest income | 83,225 | 80,330 | 77,064 | 85,337 | 85,653 | 163,555 | 169,085 |
| Total revenue | 357,136 | 365,324 | 372,565 | 365,644 | 331,385 | 722,460 | 643,280 |
| Taxable equivalent adjustment | 2,837 | 2,584 | 2,615 | 2,603 | 2,585 | 5,421 | 5,130 |
| Nonoperating revenue | — | — | — | — | — | — | — |
| Total revenue (te) | $359,973 | $367,908 | $375,180 | $368,247 | $333,970 | $727,881 | $648,410 |
| Noninterest expense | (202,138) | (200,884) | (190,154) | (193,502) | (187,097) | (403,022) | (367,036) |
| Nonoperating expense | — | — | — | — | — | — | — |
| Operating pre-provision net revenue (te) | $157,835 | $167,024 | $185,026 | $174,745 | $146,873 | $324,859 | $281,374 |

(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 second quarter of 2023 was $276.7 million, down $10.8 million, or 4%, compared to the first quarter of 2023 and was $564.3 million for the first six months of 2023, up $85.0 million, or 18%, from the comparable period in 2022.

The decrease in net interest income (te) compared to the first quarter of 2023 is largely attributable to a combination of growth in and prevailing rates on interest-bearing liabilities outpacing those of earning assets. The increase in cost of funds is largely due to an increase in average interest-bearing deposits, with a shift of noninterest-bearing deposits and lower cost interest-bearing transaction and savings deposits into higher cost products, and increased average short-term borrowings and rates. The impact of the additional day in the second quarter of 2023 added approximately $2.3 million to net interest income (te).

The net interest margin for the second quarter of 2023 was 3.30%, down 25 bps from 3.55% in the first quarter of 2023. The decline in the net interest margin from the prior quarter was largely driven by a change in the funding mix as discussed above, with linked-quarter increases of $1.4 billion in average interest-bearing deposits and $288 million in average short-term borrowings, mainly in FHLB advances. The increase in average interest-bearing deposits is primarily attributable to the $1.7 billion increase in average time deposits, largely the result of growth driven by promotional rate offerings and, to a lesser extent, the addition of brokered deposits in March and May. Accordingly, the cost of funds increased 49 bps, including 38 bps related to interest-bearing deposit growth and increased rate offerings, 6 bps related to the increased cost of short-term borrowings and 4 bps related to incremental liquidity held as a cautionary measure following the recent bank failures. The impact of the increased cost of funds was partially offset by a 24 bp increase in the average earning asset yield that was favorably impacted by increases of $568 million in average loans and $425 million in average short-term investments in a rising interest rate environment, partially offset by a decline in average securities of $129 million.

The $85.0 million increase in net interest income (te) for the six months ended June 30, 2023 compared to the same period in 2022 includes a $286.5 million increase in interest income (te), partially offset by a $201.5 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 an $11.6 million decrease in net premium amortization on the securities portfolio. The favorable change in the average earning asset mix reflects a $2.0 billion increase in loans and a $2.0 billion decline in short-term investments. The increase in interest income was partially offset by a $3.0 million decrease in nonaccrual interest recoveries and a $1.2 million decrease in purchase accounting discount accretion. The increase in interest expense was largely driven by the shift in mix of deposits from noninterest-bearing and low interest-bearing transaction and savings deposits into higher cost products at competitive interest rates in the rising rate environment. In addition, we experienced increased borrowing cost, primarily attributable to FHLB advances, as low fixed-rate instruments were called and replaced with new instruments at prevailing interest rates with higher average balances.

The net interest margin for the six months ended June 30, 2023 was up 50 bps compared to the same period in 2022, largely as a result of the rising interest rate environment and a more favorable earning asset mix. The yield on earning assets was up 172 bps to 4.75%, while the cost of funds increased 122 bps to 1.33%.

Given the pressure on deposit costs and assumed continued shift from noninterest-bearing deposits, we expect to see additional net interest margin compression in the second half of 2023, although likely at a slower pace than what we experienced in the first half of the year. This assumes the one 25 bp increase in the Federal Funds interest rate in July 2023 and then held flat through the end of 2023. This guidance also considers that the noninterest-bearing deposit mix could fall to just below pre-pandemic levels by the end of the year, or about 35% of total deposits.

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

*($ in millions)*

| Average earning assets | Three Months Ended June 30, 2023 Volume | Interest (d) | Rate | March 31, 2023 Volume | Interest (d) | Rate | June 30, 2022 Volume | Interest (d) | Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial & real estate loans (te) (a) | $18,670.8 | $280.9 | 6.03% | $18,322.2 | $259.1 | 5.73% | $17,562.0 | $165.9 | 3.79% |
| Residential mortgage loans | 3,469.0 | 31.4 | 3.62% | 3,214.4 | 28.1 | 3.49% | 2,534.6 | 21.1 | 3.33% |
| Consumer loans | 1,515.2 | 30.7 | 8.14% | 1,549.9 | 29.2 | 7.63% | 1,560.9 | 19.6 | 5.03% |
| Loan fees & late charges | — | — | 0.00% | — | (0.4) | 0.00% | — | 1.9 | 0.00% |
| Total loans (te) (b) | 23,655.0 | 343.0 | 5.81% | 23,086.5 | 316.0 | 5.54% | 21,657.5 | 208.5 | 3.86% |
| Loans held for sale | 25.1 | 0.4 | 5.83% | 22.9 | 0.3 | 5.21% | 48.1 | 0.4 | 3.69% |
| US Treasury and government agency securities | 537.4 | 3.4 | 2.50% | 541.3 | 3.4 | 2.49% | 387.6 | 1.7 | 1.79% |
| Mortgage-backed securities and collateralized mortgage obligations | 7,552.0 | 43.2 | 2.29% | 7,668.0 | 43.3 | 2.26% | 7,658.2 | 36.3 | 1.90% |
| Municipals (te) | 894.9 | 6.7 | 3.00% | 904.3 | 6.7 | 2.98% | 912.4 | 6.8 | 2.96% |
| Other securities | 23.5 | 0.2 | 3.51% | 23.5 | 0.2 | 3.50% | 21.2 | 0.2 | 3.34% |
| Total securities (te) (c) | 9,007.8 | 53.5 | 2.38% | 9,137.1 | 53.6 | 2.35% | 8,979.4 | 45.0 | 2.00% |
| Total short-term investments | 931.9 | 11.2 | 4.83% | 507.3 | 5.3 | 4.27% | 2,095.8 | 3.5 | 0.67% |
| Total earning assets (te) | $33,619.8 | $408.1 | 4.87% | $32,753.8 | $375.2 | 4.63% | $32,780.8 | $257.4 | 3.15% |
| Average interest-bearing liabilities |  |  |  |  |  |  |  |  |  |
| Interest-bearing transaction and savings deposits | $10,478.4 | $41.3 | 1.58% | $10,650.4 | $27.3 | 1.04% | $11,412.9 | $1.3 | 0.05% |
| Time deposits | 3,759.3 | 36.9 | 3.93% | 2,018.6 | 13.4 | 2.70% | 1,005.2 | 0.4 | 0.15% |
| Public funds | 2,981.7 | 24.3 | 3.27% | 3,160.7 | 23.7 | 3.04% | 2,906.0 | 3.3 | 0.46% |
| Total interest-bearing deposits | 17,219.4 | 102.5 | 2.39% | 15,829.7 | 64.4 | 1.65% | 15,324.1 | 5.0 | 0.13% |
| Repurchase agreements | 497.9 | 1.7 | 1.38% | 445.8 | 0.8 | 0.69% | 523.0 | 0.1 | 0.08% |
| Other short-term borrowings | 1,888.7 | 24.1 | 5.10% | 1,652.8 | 19.3 | 4.74% | 701.2 | 0.9 | 0.49% |
| Long-term debt | 242.0 | 3.1 | 5.11% | 242.1 | 3.1 | 5.11% | 240.3 | 3.1 | 5.20% |
| Total borrowings | 2,628.6 | 28.9 | 4.40% | 2,340.7 | 23.2 | 4.00% | 1,464.5 | 4.1 | 1.12% |
| Total interest-bearing liabilities | 19,848.0 | 131.4 | 2.65% | 18,170.4 | 87.6 | 1.95% | 16,788.6 | 9.1 | 0.22% |
| Net interest-free funding sources | 13,771.8 |  |  | 14,583.4 |  |  | 15,992.2 |  |  |
| Total cost of funds | $33,619.8 | $131.4 | 1.57% | $32,753.8 | $87.6 | 1.08% | $32,780.8 | $9.1 | 0.11% |
| Net interest spread (te) |  | $276.7 | 2.21% |  | $287.6 | 2.67% |  | $248.3 | 2.93% |
| Net interest margin | $33,619.8 | $276.7 | 3.30% | $32,753.8 | $287.6 | 3.55% | $32,780.8 | $248.3 | 3.04% |

(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 $0.7 million, $0.8 million, and $1.2 million for the three months ended June 30, 2023, March 31, 2023, and June 30, 2022, respectively.

*($ in millions)*

| Average earning assets | Six Months Ended June 30, 2023 Volume | Interest (d) | Rate | June 30, 2022 Volume | Interest (d) | Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial & real estate loans (te) (a) | $18,497.5 | $540.1 | 5.89% | $17,341.9 | $316.3 | 3.68% |
| Residential mortgage loans | 3,342.4 | 59.4 | 3.56% | 2,488.3 | 42.1 | 3.38% |
| Consumer loans | 1,532.4 | 59.9 | 7.88% | 1,561.1 | 37.9 | 4.90% |
| Loan fees & late charges | — | (0.4) | 0.00% | — | 6.3 | 0.00% |
| Total loans (te) (b) | 23,372.3 | 659.0 | 5.68% | 21,391.3 | 402.6 | 3.79% |
| Loans held for sale | 24.0 | 0.7 | 5.53% | 56.1 | 1.1 | 4.07% |
| US Treasury and government agency securities | 539.3 | 6.7 | 2.49% | 392.7 | 3.4 | 1.71% |
| Mortgage-backed securities and collateralized mortgage obligations | 7,609.7 | 86.5 | 2.27% | 7,506.2 | 70.8 | 1.89% |
| Municipals (te) | 899.6 | 13.4 | 2.99% | 914.4 | 13.5 | 2.95% |
| Other securities | 23.5 | 0.4 | 3.50% | 21.1 | 0.3 | 3.32% |
| Total securities (te) (c) | 9,072.1 | 107.0 | 2.36% | 8,834.4 | 88.0 | 1.99% |
| Total short-term investments | 720.8 | 16.6 | 4.63% | 2,708.4 | 5.1 | 0.38% |
| Total earning assets (te) | $33,189.2 | $783.3 | 4.75% | $32,990.2 | $496.8 | 3.03% |
| Average interest-bearing liabilities |  |  |  |  |  |  |
| Interest-bearing transaction and savings deposits | $10,563.9 | $68.6 | 1.31% | $11,418.2 | $2.5 | 0.04% |
| Time deposits | 2,893.8 | 50.3 | 3.51% | 1,046.6 | 1.0 | 0.20% |
| Public funds | 3,070.7 | 48.1 | 3.16% | 3,029.6 | 5.4 | 0.36% |
| Total interest-bearing deposits | 16,528.4 | 167.0 | 2.04% | 15,494.4 | 8.9 | 0.11% |
| Repurchase agreements | 472.0 | 2.5 | 1.05% | 555.1 | 0.2 | 0.07% |
| Other short-term borrowings | 1,771.4 | 43.3 | 4.93% | 900.7 | 2.2 | 0.49% |
| Long-term debt | 242.1 | 6.2 | 5.11% | 241.0 | 6.2 | 5.18% |
| Total borrowings | 2,485.5 | 52.0 | 4.21% | 1,696.8 | 8.6 | 1.02% |
| Total interest-bearing liabilities | 19,013.9 | 219.0 | 2.32% | 17,191.2 | 17.5 | 0.20% |
| Net interest-free funding sources | 14,175.3 |  |  | 15,799.0 |  |  |
| Total cost of funds | $33,189.2 | $219.0 | 1.33% | $32,990.2 | $17.5 | 0.11% |
| Net interest spread (te) |  | $564.3 | 2.43% |  | $479.3 | 2.83% |
| Net interest margin | $33,189.2 | $564.3 | 3.42% | $32,990.2 | $479.3 | 2.92% |

(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 $1.4 million and $2.7 million for the six months ended June 30, 2023 and 2022, respectively.

### Provision for Credit Losses

During the second quarter of 2023, we recorded a provision for credit losses of $7.6 million, compared to $6.0 million in the first quarter of 2023. The provision in the second quarter of 2023 included net charge-offs of $3.4 million and a reserve build of $4.2 million, compared to net charge-offs of $5.7 million and a reserve build of $0.3 million in the first quarter of 2023. The provisions for credit losses in both the second and first quarters of 2023 reflect a modest build for continued loan growth and our relatively stable credit metrics and economic outlook, with the second quarter of 2023 also including an increase in individually evaluated reserves on our nonaccrual portfolio. Net charge-offs in the second quarter of 2023 were $3.4 million, or 0.06% of average total loans on an annualized basis, compared to net charge-offs of $5.7 million, or 0.10%, in the first quarter of 2023. The second quarter of 2023 included net charge-offs of $1.2 million in the commercial portfolio and $2.5 million in the consumer portfolio, partially offset by net recoveries of $0.3 million in the residential mortgage portfolio. The first quarter of 2023 included net charge-offs of $3.4 million in the commercial portfolio and $2.5 million in the consumer portfolio, partially offset by net recoveries of $0.2 million in the residential mortgage portfolio.

We recorded a provision for credit losses of $13.7 million for the six months ended June 30, 2023, compared to a $32.3 million negative provision for credit losses in the same period in 2022. The provision for credit losses in the first six months of 2023 included net charge-offs of $9.1 million and a reserve build of $4.6 million, compared to net recoveries of $0.4 million and a reserve release of $31.9 million in the first six months of 2022. As noted above, the provision for credit losses for the first half of 2023 is reflective of a modest build for continued loan growth, higher individually evaluated reserves on our nonaccrual portfolio, and our relatively stable credit metrics and economic outlook. The negative provision for credit losses in the first half of 2022 reflects the gradual release of pandemic-related allowance as overall credit performance continued to improve. Net charge-offs in the first six months of 2023 were $9.1 million, or 0.08% of average loans, comprised of net charge-offs of $4.6 million in the commercial portfolio and $5.0 million in the consumer portfolio, partially offset by net recoveries of $0.5 million in the residential mortgage portfolio. Net recoveries for the first six months of 2022 were $0.4 million, comprised of net recoveries of $2.4 million in the commercial portfolio and $0.5 million in the residential mortgage portfolio, partially offset by net charge-offs of $2.5 million in the consumer portfolio. The level of recoveries has declined in 2023, returning to a more normalized level of net charge-offs.

We expect to continue 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 $83.2 million for the second quarter of 2023, up $2.9 million, or 4%, from the first quarter of 2023. The increase in noninterest income from the first quarter of 2023 was largely attributable to increases in service charges on deposit accounts, trust fees, credit-related fees and other income, partially offset by a decrease in investment and annuity fees. For the six months ended June 30, 2023, noninterest income totaled $163.6 million, down $5.5 million, or 3%, from the same period in 2022. The decline is largely attributable to decreases in income from derivatives, secondary mortgage market operations, bank-owned life insurance and gains on sales of assets, partially offset by increases in trust fees and investment and annuity fees.

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

*($ in thousands)*

|  | Three Months Ended June 30, 2023 | March 31, 2023 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Service charges on deposit accounts | $21,491 | $20,622 | $20,495 | $42,113 | $42,169 |
| Trust fees | 17,393 | 16,734 | 17,309 | 34,127 | 32,588 |
| Bank card and ATM fees | 20,982 | 20,721 | 21,870 | 41,703 | 42,266 |
| Investment and annuity fees and insurance commissions | 8,241 | 8,867 | 8,001 | 17,108 | 15,428 |
| Secondary mortgage market operations | 2,299 | 2,168 | 2,990 | 4,467 | 6,736 |
| Income from bank-owned life insurance | 3,364 | 3,286 | 4,273 | 6,650 | 7,818 |
| Credit related fees | 3,231 | 2,765 | 2,543 | 5,996 | 5,212 |
| Income from customer and other derivatives | 584 | 583 | 2,728 | 1,167 | 5,077 |
| Securities transactions, net | — | — | — | — | (87) |
| Other miscellaneous | 5,640 | 4,584 | 5,444 | 10,224 | 11,878 |
| Total noninterest income | $83,225 | $80,330 | $85,653 | $163,555 | $169,085 |

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 $21.5 million for the second quarter of 2023, up $0.9 million, or 4%, from the first quarter of 2023. The increase from the previous quarter is largely attributable to the business segment of this fee category, and includes a $0.7 million increase in business analysis fees, driven by higher activity, balance changes and strong sales activity. For the six months ended June 30, 2023, services charges on deposits totaled $42.1 million, down $0.1 million, or less than 1%, from the same period in 2022. Included in the year over year change are increases in analysis and overdraft fees within the business segment of this fee category, reflecting higher activity, balance changes and strong sales activity and higher instances of overdrafts. These increases were offset by a decrease in consumer overdraft and other service charges, largely the result of the elimination of certain consumer non-sufficient funds and overdraft fees in late fourth quarter 2022.

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 $17.4 million for the second quarter of 2023, an increase of $0.7 million, or 4%, from the prior quarter, largely attributable to seasonal income tax preparation fees. For the six months ended June 30, 2023, trust fees totaled $34.1 million, an increase of $1.5 million, or 5%, from the same period in 2022. The year over year increase was primarily from corporate and institutional trust accounts, largely a product of the rising 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 $21.0 million for the second quarter of 2023, up $0.3 million, or 1%, from the first quarter of 2023. The linked quarter increase reflects a return from the typical seasonal declines in debit and consumer credit card activity of the first quarter of the year, and an increase in credit card/purchasing card revenue, partially offset by a decline in merchant fees. Bank card and ATM fees for the six months ended June 30, 2023 totaled $41.7 million, down $0.6 million, or 1%, from the same period in 2022. The year over year decline was driven primarily by decreases in merchant and ATM fees, partially offset by an increase in credit card/purchasing card revenue.

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 $8.2 million, a decrease of $0.6 million, or 7%, from the first quarter of 2023. The linked quarter change includes a $0.4 million decline in corporate underwriting fees and a $0.2 million decline in annuity sales as the previous quarter included two additional underwriting deals and near record annuity sales performance. Investment and annuity fees and insurance commissions totaled $17.1 million, up $1.7 million, or 11%, for the same period in 2022. The year over year increase includes a $1.7 million increase in annuity fees, reflective of increased demand amid the rising interest rate environment, and a $0.7 million increase in corporate underwriting fees. These increases were partially offset by a $0.6 million decline in other investment fees.

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. Secondary mortgage market operations income will vary based on application volume and pull through rates. Income from secondary mortgage market operations was $2.3 million in the second quarter of 2023, up $0.1 million, or 6%, from the first quarter of 2023. The increase from the first quarter of 2023 is primarily attributable to an increase in the number of loans closed and the percentage of loans sold in the secondary market. The percentage of mortgage loans sold in the secondary market to total originations (as opposed to those held in our portfolio) was 34% in the second quarter of 2023, compared to 24% in the first quarter of 2023. Secondary mortgage market operations income for the six months ended June 30, 2023 totaled $4.5 million, down $2.3 million, or 34%, from the same period in 2022. The year over year decline is largely attributable to a decline in application volume and loans closed, driven by the sharp rise in interest rates that followed a two-year period of very favorable interest rates, partially offset by a higher percentage of originated loans sold in the secondary market, up to 30% compared to 24% in the prior year.

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 $3.4 million for the second quarter of 2023, virtually flat when compared to the prior quarter. Income from BOLI for the six months ended June 30, 2023 totaled $6.7 million, down $1.2 million, or 15% from the same period in 2022. The year over year decrease reflects declines in income from 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 $3.2 million for the second quarter of 2023, up $0.5 million, or 17%, from the first quarter of 2023. Credit-related fees for the six months ended June 30, 2023 totaled $6.0 million, up $0.8 million, or 15%, from the same period in 2022. Income from these products will vary based on letters of credit issued, credit line utilization and prevailing assessment rates.

Income from customer and other derivatives is largely derived from our customer interest rate derivative program and totaled $0.6 million for the second quarter of 2023, relatively flat when compared to the first quarter of 2023. For the six months ended June 30, 2023, income from derivatives totaled $1.2 million, down $3.9 million, or 77%, from the same period in 2022. 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. The substantial year over year decline in derivative income is largely tied to the significant change in the interest rate environment present in each of the comparative periods, which affects demand for variable rate loans and related derivative products, valuation adjustments, and related collateral income/expense for the program as a whole.

Other miscellaneous income is comprised of various items, including income from small business investment companies (SBIC), Federal Home Loan Bank (FHLB) stock dividends, gains on sales of assets, and syndication fees. Other miscellaneous income totaled $5.6 million, up $1.1 million, or 23%, compared to the first quarter of 2023. The increase compared to the first quarter of 2023 was largely driven by a $0.4 million increase in dividends on FHLB stock, attributable to the stock purchased in connection with the incremental borrowings held during the period and an increase in the dividend rate, a $0.2 million increase in SBIC income, and a $0.2 million increase in gain on sale of assets. For the six months ended June 30, 2023, other miscellaneous income totaled $10.2 million, down $1.7 million, or 14%, from the same period in 2022. The year over year decline was largely driven by a $1.9 million decrease in gains on sales of assets, a $0.6 million decrease in other loan fees and a $0.2 million decrease in SBIC income, partially offset by an increase of $1.4 million in FHLB stock dividends.

We expect noninterest income for the full year 2023 will increase 1% to 2% from 2022.

### Noninterest Expense

Noninterest expense for the second quarter of 2023 was $202.1 million, up $1.3 million, or 1%, from the first quarter of 2023. The increase in noninterest expense from the first quarter of 2023 was largely driven by increases in data processing expense, occupancy and equipment expense, deposit and regulatory fees, and travel expense, partially offset by a decrease in other miscellaneous and personnel expense. For the six months ended June 30, 2023, noninterest expense totaled $403.0 million, up $36.0 million, or 10%, from the same period in 2022. The year over year increase is attributable to most expense categories, notably personnel expense, other retirement expense, data processing expense, regulatory fees, occupancy and equipment, and other miscellaneous expense. Approximately 35% of the year over year increase in noninterest expense 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 June 30, 2023 | March 31, 2023 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Compensation expense | $94,121 | $92,403 | $94,155 | $186,524 | $180,148 |
| Employee benefits | 20,743 | 22,920 | 21,015 | 43,663 | 42,418 |
| Personnel expense | 114,864 | 115,323 | 115,170 | 230,187 | 222,566 |
| Net occupancy expense | 12,707 | 12,206 | 12,225 | 24,913 | 23,905 |
| Equipment expense | 5,043 | 4,736 | 4,703 | 9,779 | 9,570 |
| Data processing expense | 29,562 | 28,182 | 26,169 | 57,744 | 50,408 |
| Professional services expense | 8,915 | 9,131 | 8,423 | 18,046 | 16,216 |
| Amortization of intangible assets | 2,957 | 3,114 | 3,586 | 6,071 | 7,334 |
| Deposit insurance and regulatory fees | 6,463 | 5,920 | 3,503 | 12,383 | 7,243 |
| Other real estate and foreclosed asset expense (income) | (282) | 155 | (88) | (127) | (1,852) |
| Corporate value and franchise taxes and other non-income taxes | 5,241 | 5,253 | 4,558 | 10,494 | 8,806 |
| Advertising | 3,476 | 3,256 | 3,512 | 6,732 | 6,678 |
| Telecommunications and postage | 2,712 | 3,071 | 2,971 | 5,783 | 5,896 |
| Entertainment and contributions | 2,582 | 2,631 | 2,440 | 5,213 | 5,401 |
| Tax credit investment amortization | 1,402 | 1,401 | 1,004 | 2,803 | 2,008 |
| Printing and supplies | 1,149 | 990 | 918 | 2,139 | 1,921 |
| Travel expense | 1,651 | 1,046 | 1,123 | 2,697 | 1,783 |
| Net other retirement expense | (3,312) | (3,655) | (7,781) | (6,967) | (14,553) |
| Other miscellaneous | 7,008 | 8,124 | 4,661 | 15,132 | 13,706 |
| Total noninterest expense | $202,138 | $200,884 | $187,097 | $403,022 | $367,036 |

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 $114.9 million for the second quarter of 2023, down $0.5 million, or less than 1%, from the prior quarter. The linked quarter decline reflects a decrease in benefits expense and incentive pay, partially offset by an increase in salary expense as a result of increased headcount and merit increases effective April 1. For the six months ended June 30, 2023, personnel expense totaled $230.2 million, up $7.6 million, or 3%, from the same period in 2022. The year over year increase reflects higher salary expense of $11.4 million as a result of increased head count and annual merit increases, partially offset by $5.0 million decrease in bonus and incentive pay expense.

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 $17.8 million for the second quarter of 2023, up $0.8 million or 5%, from the prior quarter. The linked quarter increase was largely attributable to increases in property tax and insurance. For the six months ended June 30, 2023, occupancy and equipment expenses totaled $34.7 million, up $1.2 million, or 4%, driven largely by increases in insurance expense and higher depreciation expense on fixed assets.

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 $29.6 million for the second quarter of 2023, up $1.4 million, or 5%, from the first quarter of 2023. The linked quarter change is primarily attributable to an increase in costs associated with the implementation of technology enhancement projects, including maintenance and amortization of bank-owned software of $0.3 million and new data processing arrangements of $0.6 million. For the six months ended June 30, 2023, data processing expense totaled $57.7 million, up $7.3 million, or 15%, from the same period in 2022, also largely attributable to the same factors driving the linked quarter increase.

Professional services expense for the second quarter of 2023 totaled $8.9 million, down $0.2 million, or 2%, from the first quarter of 2023. For the six months ended June 30, 2023, professional services expense totaled $18.0 million, up $1.8 million, or 11%, from the same period in 2022, driven by an increase in consulting fees. Professional service expense may vary from period to period, generally related to consulting and legal needs.

Deposit insurance and regulatory fees totaled $6.5 million, up $0.5 million, or 9%, from the first quarter of 2023. The linked quarter increase is attributable to a $0.3 million increase in the deposit insurance assessment due to slightly higher assessment base and rate, and a $0.2 million increase in state regulatory fees. For the six months ended June 30, 2023, deposit insurance and regulatory fees totaled $12.4 million, up $5.1 million, or 71%, from the same period in 2022. The year over year increase includes $3.3 million attributable to a two-basis point increase in the deposit insurance fund assessment that was effective January 1, 2023 and will remain in effect until the Deposit Insurance Fund reserve ratio to insured deposits meets the FDIC’s long-term goal for the fund. The remaining increase reflects $1.3 million in higher deposit insurance expense resulting from an increase in our assessment base and rates, and $0.5 million in state regulatory fees. The Company expects to incur an additional FDIC deposit insurance charge in 2023 related to a special assessment to recover the costs associated with the systemic risk exception utilized in the March 2023 bank failures, the amount of which is still unknown. See further discussion in the forward-looking comments at the end of this section.

Net gains on sales of other real estate and foreclosed assets outpaced expense by $0.3 million in the second quarter of 2023, compared to expense of $0.2 million in the first quarter of 2023. The level of expense in the comparative period reflects a somewhat typical level of expense of maintaining the ORE portfolio, but can vary depending on sales activity. For the six months ended June 30, 2023, net gains on sales of other real estate and foreclosed assets outpaced expense by $0.1 million, compared to $1.9 million for the same period in 2022, reflecting higher property sales in the prior year. 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 second quarter of 2023 totaled $5.2 million, virtually unchanged from the prior quarter. For the six months ended June 30, 2023, corporate value, franchise and other non-income tax expense totaled $10.5 million, up $1.7 million, or 19%, from the same period in 2022, largely attributable to 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.

Business development-related expenses (including advertising, travel, entertainment and contributions) totaled $7.7 million for the second quarter of 2023, up $0.8 million, or 11%, from the first quarter of 2023, largely attributable to travel expense. For the six months ended June 30, 2023, business development-related expenses totaled $14.6 million, up $0.8 million, or 6%, from the same period in 2022 and was also largely attributable to travel expense. 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 $9.0 million for the second quarter of 2023, down $1.0 million, or 10%, from the first quarter of 2023, primarily due to other lower miscellaneous losses. For the six months ended June 30, 2023, all other expenses, excluding amortization of intangibles, totaled $18.9 million, up $9.9 million from the same period in 2022. The year over year variance is largely attributable to a $7.6 million increase in pension-related other retirement expense that is driven by an increase in the discount rate and other changes in actuarial assumptions for the current plan year. The remaining difference includes higher other miscellaneous loss of $3.2 million largely related to loss recoveries in the prior year.

We expect noninterest expense for the full year 2023 will increase 7.5% to 8.5% from 2022. The anticipated year-over-year increase includes increases in retirement (pension) expense and the two basis point FDIC assessment increase as described above. This guidance does not include any potential expense from a deposit insurance special assessment in connection with the systemic risk exception discussed below.

On May 11, 2023, the FDIC Board of Directors published a notice of proposed rulemaking that would impose a special assessment to recover the loss to the Deposit Insurance Fund arising from the protection of uninsured depositors in connection with the systemic risk determination announced on March 12, 2023, following the closures of Silicon Valley Bank and Signature Bank. While we expect the final rule will be implemented, we believe that it is likely there will be modifications to the proposed calculation. Based on the information currently available, the Company estimates the special assessment expense under the proposed rule to be approximately $24 million. Upon issuance of the final rule, the Company will accrue the full amount of the special assessment expense in the period in which the expense is probable and estimable, which is expected to occur before year end 2023.

### Income Taxes

The effective income tax rate for the second quarter of 2023 was approximately 20.1% compared to 20.2% in the first quarter of 2023. The effective tax rate for the first six months of 2023 was 20.1%, compared to 20.6% in the same period 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 $12.4 million, $9.8 million and $8.2 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 June 30, 2023, summarized as follows:

*($ in thousands)*

| Available Sources of Funding: Internal Sources: | June 30, 2023 Total Available | Amount Used | Net Availability |
| --- | ---: | ---: | ---: |
| Free securities | $3,502,219 | $— | $3,502,219 |
| External Sources: |  |  |  |
| Federal Home Loan Bank (a) | 6,824,213 | 1,221,175 | 5,603,038 |
| Federal Reserve Bank | 3,418,473 | — | 3,418,473 |
| Brokered deposits | 4,506,525 | 1,162,501 | 3,344,024 |
| Other | 1,369,000 | — | 1,369,000 |
| **Total Available Sources of Funding** | **$19,620,430** | **$2,383,676** | **$17,236,754** |
| Cash and other interest-bearing bank deposits |  |  | 1,237,899 |
| **Total Liquidity** |  |  | **$18,474,653** |

(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 focus. 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 June 30, 2023, our available on and off-balance sheet liquidity of $18.5 billion is well in excess of our estimated uninsured, noncollateralized deposits of approximately $10.3 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 41.23% at June 30, 2023, compared to 28.45% at March 31, 2023 and 41.59% at December 31, 2022. The free securities ratio at March 31, 2023 was impacted by pledging additional securities to the Federal Reserve Bank, done as a precautionary measure to increase borrowing capacity under its discount window as a result of the first quarter bank failures. The total pledged securities were $4.7 billion at June 30, 2023, compared to $6.1 billion at March 31, 2023 and $4.9 billion at December 31, 2022. Both securities and FHLB letters of credit are pledged as collateral related to public funds and repurchase agreements.

| Liquidity Metrics | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Free securities / total securities | 41.23% | 28.45% | 41.59% | 49.79% | 52.61% |
| Core deposits / total deposits | 91.63% | 94.83% | 98.12% | 98.93% | 99.00% |
| Wholesale funds / core deposits | 11.00% | 15.43% | 7.43% | 6.23% | 2.97% |
| Quarter-to-date average loans /quarter-to-date average deposits | 80.53% | 80.18% | 78.86% | 75.87% | 72.24% |

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 June 30, 2023, deposits totaled $30.0 billion, an increase of $430.4 million, or 1%, from March 31, 2023 and an increase of $973.2 million, or 3% from December 31, 2022. The increase from both comparative periods was primarily due to the issuance of brokered certificates of deposit, partially offset by an outflow of public funds deposits. Brokered time deposits totaled $1.2 billion as of June 30, 2023, compared to $573 million at March 31, 2023 and $5 million at December 31, 2022. In March 2023, we added $568 million of brokered certificates of deposit that mature in December 2023 and bear interest plus fees of 5.45% per annum. In May 2023, we added $590 million of brokered certificates of deposit that bear interest plus fees of 5.35% annum, of which, $195 million will mature in February 2024 and $395 million will mature in May 2024. 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 $27.5 billion at June 30, 2023, down $553.7 million, or 2%, compared to March 31, 2023 and down $1.0 billion, or 3%, 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 $394.1 million compared to March 31, 2023 and $810.4 million compared to December 31, 2022, largely due to attractive interest rates offered during those periods. The ratio of core deposits to total deposits was 91.63% at June 30, 2023, compared to 94.83% at March 31, 2023 and 98.12% at December 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 June 30, 2023, the Bank had borrowings of $1.1 billion and approximately $5.6 billion available under this line. The unused borrowing capacity at the Federal Reserve’s discount window is approximately $3.4 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 11.00% of core deposits at June 30, 2023, compared to 15.43% at March 31, 2023 and 7.43% at December 31, 2022. At June 30, 2023, wholesale funds totaled $3.0 billion, a decrease of $1.3 billion, or 30%, from March 31, 2023 and an increase of $0.9 billion, or 43%, from December 31, 2022. The linked-quarter decrease was primarily due to a $2 billion net decrease in FHLB advances as excess liquidity held as a cautionary measure following the March 2023 bank failures was released, partially offset by the addition of $590 million in brokered deposits. The increase from December 31, 2022 reflects the addition of $1.2 billion in brokered deposits, partially offset by a net reduction in FHLB advances of $0.3 billion. 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 second quarter of 2023 was 80.53%, compared to 80.18% for the first quarter of 2023 and 78.86% for the fourth 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 and remain 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 six months ended June 30, 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 $176.0 million at June 30, 2023.

### Capital Resources

Stockholders’ equity totaled $3.6 billion at June 30, 2023, up $23.2 million, or 1%, from March 31, 2023 and $211.8 million, or 6%, from December 31, 2022. The increase from March 31, 2023 is attributable to net income of $117.8 million and $7.1 million of long-term incentive plan and dividend reinvestment activity. These factors were partially offset by other comprehensive loss of $75.3 million, net of tax, primarily attributable to fair value adjustments on securities available for sale and cash flow hedges and dividends of $26.4 million. The increase from December 31, 2022 is attributable to net income of $244.3 million, $10.9 million of long-term incentive plan and dividend reinvestment activity, and other comprehensive income of $9.4 million, net of tax; partially offset by dividends of $52.8 million.

The tangible common equity (TCE) ratio was 7.50% at June 30, 2023, up 34 bps compared to 7.16% at March 31, 2023 and 41 bps compared to 7.09% at December 31, 2022. TCE is influenced by net income, tangible net assets, other comprehensive income or loss, and dividends.

The regulatory capital ratios of the Company and the Bank at June 30, 2023 remained well in excess of current regulatory minimum requirements, including capital conservation buffers, by at least $645 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 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Hancock Whitney Corporation | 10.00% | 13.44% | 13.21% | 12.97% | 12.67% | 12.70% |
| Hancock Whitney Bank | 10.00% | 12.70% | 12.54% | 12.39% | 12.16% | 12.28% |
| Tier 1 common equity capital (to risk weighted assets) |  |  |  |  |  |  |
| Hancock Whitney Corporation | 6.50% | 11.83% | 11.60% | 11.41% | 11.10% | 11.08% |
| Hancock Whitney Bank | 6.50% | 11.68% | 11.52% | 11.43% | 11.20% | 11.28% |
| Tier 1 capital (to risk weighted assets) |  |  |  |  |  |  |
| Hancock Whitney Corporation | 8.00% | 11.83% | 11.60% | 11.41% | 11.10% | 11.08% |
| Hancock Whitney Bank | 8.00% | 11.68% | 11.52% | 11.43% | 11.20% | 11.28% |
| Tier 1 leverage capital |  |  |  |  |  |  |
| Hancock Whitney Corporation | 5.00% | 9.64% | 9.63% | 9.53% | 9.27% | 8.68% |
| Hancock Whitney Bank | 5.00% | 9.52% | 9.57% | 9.54% | 9.35% | 8.83% |

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 June 30, 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 April 27, 2023, our board of directors declared the regular second quarter cash dividend of $0.30 per share. The quarterly common stock cash dividend was paid on June 15, 2023 to shareholders of record on June 5, 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 $674.2 million at June 30, 2023, down $1.6 billion from March 31, 2023 and up $350.1 million from December 31, 2022. Average short-term investments of $931.3 million for the second quarter of 2023 were up $424.7 million from the first quarter of 2023 and up $635.8 million from the fourth quarter of 2022. Typically, the balance of short-term investments will change on a daily basis depending upon movement in customer loan and deposit accounts. The significant linked quarter decline was largely attributable to the repayment of incremental FHLB advances drawn in March of 2023 and held through early May 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 recent 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 $8.2 billion at June 30, 2023, down $195.0 million from March 31, 2023 and $212.9 million from December 31, 2022. The decrease from both comparative periods reflects net payoffs and paydowns, part of a strategic decision to allow cash inflows from the securities portfolio to fund loan growth. The decrease from March 31, 2023 also reflects $69.2 million unfavorable market valuation adjustment. The decrease from December 31, 2022 was partially offset by a $36.3 million favorable market valuation adjustment on the available for sale portfolio.

At June 30, 2023, securities available for sale totaled $5.4 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 June 30, 2023, the average expected maturity of the portfolio was 6.04 years with an effective duration of 4.71 years and a nominal weighted-average yield of 2.32%. Under an immediate, parallel rate shock of 100 bps and 200 bps, the effective durations would be 4.66 and 4.60 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 June 30, 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 June 30, 2023 were $23.8 billion, up $385.4 million, or 2%, compared to March 31, 2023, and $675.8 million, or 3%, from December 31, 2022. New loans and fewer paydowns contributed to the growth, with residential mortgage and commercial and industrial portfolios driving the linked quarter growth, and residential mortgage, income-producing commercial real estate and construction portfolios driving the change since year end.

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

*($ in thousands)*

| Total loans: | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial non-real estate | $10,113,932 | $10,013,482 | $10,146,453 | $9,905,427 | $9,645,092 |
| Commercial real estate - owner occupied | 3,058,829 | 3,050,748 | 3,033,058 | 3,033,133 | 2,964,474 |
| Total commercial and industrial | 13,172,761 | 13,064,230 | 13,179,511 | 12,938,560 | 12,609,566 |
| Commercial real estate - income producing | 3,762,428 | 3,758,455 | 3,560,991 | 3,686,540 | 3,641,243 |
| Construction and land development | 1,768,252 | 1,726,916 | 1,703,592 | 1,541,257 | 1,408,727 |
| Residential mortgages | 3,581,514 | 3,329,793 | 3,092,605 | 2,843,723 | 2,615,807 |
| Consumer | 1,504,931 | 1,525,129 | 1,577,347 | 1,575,505 | 1,570,725 |
| Total loans | $23,789,886 | $23,404,523 | $23,114,046 | $22,585,585 | $21,846,068 |

Commercial and industrial (“C&I”) loans, including both non-real estate and owner occupied real estate secured loans, totaled approximately $13.2 billion, or 55% of the total loan portfolio, at June 30, 2023, up $108.5 million, or 1%, from March 31, 2023 and virtually flat compared to December 31, 2022.

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 June 30, 2023 totaled approximately $2.8 billion, or 12% of total loans, an increase of $86.0 million compared to the prior quarter and $76.9 million compared to December 31, 2022. At June 30, 2023, approximately $450 million of our shared national credits were with healthcare-related customers, with the remainder in commercial real estate, finance and insurance, 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 exception 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: | June 30, 2023 Balance | Pct of Total | 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 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Health care and social assistance | $1,454,716 | 11% | $1,398,300 | 10% | $1,407,960 | 11% | $1,420,861 | 11% | $1,296,666 | 11% |
| Real estate and rental and leasing | 1,249,557 | 9% | 1,368,460 | 10% | 1,520,955 | 12% | 1,483,937 | 11% | 1,460,694 | 12% |
| Retail trade | 1,250,708 | 9% | 1,238,090 | 9% | 1,218,784 | 9% | 1,162,095 | 9% | 1,136,244 | 9% |
| Manufacturing | 1,143,417 | 9% | 1,149,578 | 9% | 1,145,947 | 8% | 1,123,087 | 9% | 1,046,900 | 8% |
| Construction | 1,052,386 | 8% | 1,025,582 | 8% | 1,034,860 | 8% | 1,021,365 | 8% | 1,047,686 | 8% |
| Wholesale trade | 1,064,342 | 8% | 999,258 | 8% | 997,930 | 8% | 1,001,960 | 8% | 999,589 | 8% |
| Finance and insurance | 925,639 | 7% | 914,033 | 7% | 966,683 | 7% | 981,823 | 8% | 914,570 | 7% |
| Transportation and warehousing | 902,181 | 7% | 852,153 | 7% | 872,234 | 7% | 856,599 | 7% | 837,701 | 7% |
| Professional, scientific, and technical services | 768,863 | 6% | 732,068 | 6% | 706,430 | 5% | 696,855 | 5% | 653,555 | 5% |
| Accommodation, food services and entertainment | 714,463 | 5% | 677,488 | 5% | 637,942 | 5% | 669,063 | 5% | 702,313 | 6% |
| Public administration | 489,503 | 4% | 507,291 | 4% | 542,698 | 4% | 556,938 | 4% | 570,069 | 5% |
| Information | 417,465 | 3% | 407,754 | 3% | 386,568 | 3% | 332,230 | 2% | 315,071 | 2% |
| Other services (except public administration) | 393,319 | 3% | 387,396 | 3% | 396,629 | 3% | 405,724 | 3% | 403,874 | 3% |
| Admin, Support, Waste Mgmt, Remediation Services | 348,540 | 3% | 326,667 | 3% | 314,921 | 2% | 244,399 | 2% | 262,326 | 2% |
| Educational services | 264,377 | 2% | 282,488 | 2% | 298,126 | 2% | 268,392 | 2% | 280,377 | 2% |
| Energy | 222,603 | 2% | 227,171 | 2% | 242,076 | 2% | 246,344 | 2% | 246,961 | 2% |
| Other | 510,682 | 4% | 570,453 | 4% | 488,768 | 4% | 466,888 | 4% | 434,970 | 3% |
| Total commercial & industrial loans | $13,172,761 | 100% | $13,064,230 | 100% | $13,179,511 | 100% | $12,938,560 | 100% | $12,609,566 | 100% |

57

Commercial real estate – income producing loans totaled approximately $3.8 billion at June 30, 2023, virtually flat compared to March 31, 2023 and up $201.4 million, or 6%, from December 31, 2022. Construction and land development loans totaled approximately $1.8 billion at June 30, 2023, up $41.3 million, or 2%, from March 31, 2023 and $64.7 million, or 4%, from December 31, 2022. The increase from December 31, 2022 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: | June 30, 2023 Balance | Pct of Total | 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 |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Multifamily | $1,087,984 | 20% | $1,017,351 | 19% | $870,869 | 17% | $872,944 | 17% | $776,723 | 15% |
| Healthcare related properties | 844,304 | 15% | 865,414 | 16% | 854,563 | 16% | 851,998 | 16% | 879,474 | 18% |
| Retail | 822,134 | 15% | 802,220 | 15% | 811,990 | 15% | 803,300 | 15% | 780,454 | 16% |
| Industrial | 698,409 | 13% | 677,907 | 12% | 613,149 | 12% | 602,739 | 12% | 573,993 | 11% |
| Office | 555,080 | 10% | 561,248 | 10% | 569,452 | 11% | 585,614 | 11% | 569,055 | 11% |
| 1-4 family residential construction | 593,238 | 11% | 623,293 | 11% | 602,867 | 11% | 588,122 | 11% | 548,286 | 11% |
| Hotel/motel and restaurants | 448,362 | 8% | 475,377 | 9% | 485,865 | 9% | 453,847 | 9% | 448,949 | 9% |
| Other land loans | 219,398 | 4% | 219,192 | 4% | 213,159 | 4% | 222,723 | 4% | 221,905 | 4% |
| Other | 261,771 | 5% | 243,369 | 4% | 242,669 | 5% | 246,510 | 5% | 251,131 | 5% |
| Total commercial real estate - income producing and construction loans | $5,530,680 | 100% | $5,485,371 | 100% | $5,264,583 | 100% | $5,227,797 | 100% | $5,049,970 | 100% |

The residential mortgage loan portfolio totaled $3.6 billion at June 30, 2023, up $251.7 million, or 8%, from March 31, 2023 and $488.9 million, or 16%, 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 June 30, 2023, down $20.2 million, or 1%, from March 31, 2023 and $72.4 million, or 5%, 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 $345.7 million at June 30, 2023, up $4.3 million from $341.4 million at March 31, 2023, and $4.6 million from $341.1 million at December 31, 2022. The $4.3 million linked-quarter increase in the allowance for credit losses is attributable to $3.4 million of net charge-offs and a provision for credit losses of $7.6 million, reflective of loan growth, higher individually evaluated reserves on our nonaccrual portfolio 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 60% in the computation of the allowance for credit losses at June 30, 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.

Our allowance for credit loss coverage to total loans was 1.45% at June 30, 2023, virtually unchanged compared to 1.46% at March 31, 2023. The allowance for credit losses on the commercial portfolio was up $2.6 million at $280.6 million, or 1.50% of that portfolio, at June 30, 2023, compared to the March 31, 2023 allowance of $278.0 million, or 1.50%, reflecting stable credit performance. Our residential mortgage allowance for credit loss increased modestly to $36.6 million, 1.02% of that portfolio at June 30, 2023, compared to $34.6 million, or 1.04%, at March 31, 2023, due largely to growth in the portfolio. Our allowance for credit losses on the consumer portfolio was $28.4 million, or 1.89% at June 30, 2023, compared to $28.8 million, or 1.89%, at March 31, 2023. The $4.6 million increase in the allowance for credit loss compared to December 31, 2022 is largely related to loan growth and higher individually evaluated loan reserves on our nonaccrual portfolio, with modest improvement in the economic outlook, resulting in a decline in coverage to total loans from 1.48% to 1.45%.

Criticized commercial loans totaled $302.2 million at June 30, 2023, up $6.7 million, or 2%, from $295.5 million at March 31, 2023 and was virtually unchanged from $301.9 million at December 31, 2022. 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 1.62% of that portfolio at June 30, 2023, up from 1.59% at March 31, 2023, but down from 1.64% at December 31, 2022, and remain near historically low levels. Our criticized commercial loans at June 30, 2023 are diversified across many industries, with the largest concentrations being construction, totaling $73.4 million; manufacturing, totaling $40.5 million; wholesale trade, totaling $37.3 million; and accommodation, food services and entertainment, totaling $27.8 million. Commercial loans risk rated pass-watch totaled $419.3 million at June 30, 2023, down $36.7 million from $456.0 million at March 31, 2023, and $38.3 million from $457.6 million at 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 $3.4 million, or 0.06% of average total loans on an annualized basis in the second quarter of 2023, compared to $5.7 million, or 0.10% of average total loans in the first quarter of 2023. Our commercial portfolio had net charge-offs of $1.2 million in the second quarter of 2023, compared to $3.4 million in the first quarter of 2023. Our residential mortgage portfolio had net recoveries of $0.3 million compared to $0.2 million in the first quarter of 2023. Consumer net charge-offs were $2.4 million in the second quarter of 2023 compared to $2.5 million in the first quarter of 2023. For the first six months of 2023, net charge-offs totaled $9.1 million, or 0.08% of average total loans on an annualized basis, compared to a net recovery of $0.4 million in the first six months of 2022. Results for the first half of 2023 reflect a decline in commercial recoveries to more normalized levels.

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 June 30, 2023 | March 31, 2023 | June 30, 2022 | Six Months Ended June 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Allowance for loan losses at beginning of period | $309,385 | $307,789 | $317,843 | $307,789 | $342,065 |
| Loans charged-off: |  |  |  |  |  |
| Commercial non real estate | 2,975 | 4,528 | 1,088 | 7,503 | 3,747 |
| Commercial real estate - owner-occupied | — | — | 857 | — | 857 |
| Total commercial & industrial | 2,975 | 4,528 | 1,945 | 7,503 | 4,604 |
| Commercial real estate - income producing | 73 | — | 1,062 | 73 | 1,066 |
| Construction and land development | 11 | 61 | 3 | 72 | 3 |
| Total commercial | 3,059 | 4,589 | 3,010 | 7,648 | 5,673 |
| Residential mortgages | 8 | 20 | 18 | 28 | 60 |
| Consumer | 3,549 | 3,363 | 2,947 | 6,912 | 5,627 |
| Total charge-offs | 6,616 | 7,972 | 5,975 | 14,588 | 11,360 |
| Recoveries of loans previously charged-off: |  |  |  |  |  |
| Commercial non real estate | 1,661 | 1,033 | 4,461 | 2,694 | 6,603 |
| Commercial real estate - owner-occupied | 155 | 195 | 102 | 350 | 491 |
| Total commercial & industrial | 1,816 | 1,228 | 4,563 | 3,044 | 7,094 |
| Commercial real estate - income producing | 10 | — | — | 10 | 878 |
| Construction and land development | — | 6 | 58 | 6 | 126 |
| Total commercial | 1,826 | 1,234 | 4,621 | 3,060 | 8,098 |
| Residential mortgages | 299 | 181 | 466 | 480 | 527 |
| Consumer | 1,115 | 838 | 1,574 | 1,953 | 3,102 |
| Total recoveries | 3,240 | 2,253 | 6,661 | 5,493 | 11,727 |
| Total net charge-offs | 3,376 | 5,719 | (686) | 9,095 | (367) |
| Provision for loan losses | 8,487 | 7,315 | (10,354) | 15,802 | (34,257) |
| Allowance for loan losses at end of period | $314,496 | $309,385 | $308,175 | $314,496 | $308,175 |
| **Reserve for Unfunded Lending Commitments:** |  |  |  |  |  |
| Reserve for unfunded lending commitments at beginning of period | $32,014 | $33,309 | $30,710 | $33,309 | $29,334 |
| Provision for losses on unfunded lending commitments | (854) | (1,295) | 593 | (2,149) | 1,969 |
| Reserve for unfunded lending commitments at end of period | $31,160 | $32,014 | $31,303 | $31,160 | $31,303 |
| **Total Allowance for Credit Losses** | $345,656 | $341,399 | $339,478 | $345,656 | $339,478 |
| **Total Provision for Credit Losses** | $7,633 | $6,020 | $(9,761) | $13,653 | $(32,288) |
| **Coverage Ratios:** |  |  |  |  |  |
| Allowance for loan losses to period-end loans | 1.32% | 1.32% | 1.41% | 1.32% | 1.41% |
| Allowance for credit losses to period-end loans | 1.45% | 1.46% | 1.55% | 1.45% | 1.55% |
| **Charge-offs ratios:** |  |  |  |  |  |
| Gross charge-offs to average loans | 0.11% | 0.14% | 0.11% | 0.13% | 0.11% |
| Recoveries to average loans | 0.05% | 0.04% | 0.12% | 0.05% | 0.11% |
| Net charge-offs to average loans | 0.06% | 0.10% | (0.01)% | 0.08% | (0.00)% |
| **Net Charge-offs to average loans by portfolio** |  |  |  |  |  |
| Commercial non real estate | 0.05% | 0.14% | (0.14)% | 0.10% | (0.06)% |
| Commercial real estate - owner-occupied | (0.02)% | (0.03)% | 0.10% | (0.02)% | 0.03% |
| Total commercial & industrial | 0.04% | 0.10% | (0.08)% | 0.07% | (0.04)% |
| Commercial real estate - income producing | 0.01% | — | 0.12% | 0.00% | 0.01% |
| Construction and land development | 0.00% | 0.01% | (0.02)% | 0.01% | (0.02)% |
| Total commercial | 0.03% | 0.07% | (0.04)% | 0.05% | (0.03)% |
| Residential mortgages | (0.03)% | (0.02)% | (0.07)% | (0.03)% | (0.04)% |
| Consumer | 0.64% | 0.66% | 0.35% | 0.65% | 0.33% |

60

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: | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial non-real estate | $39,361 | $12,378 | $3,078 | $3,563 | $3,600 |
| Commercial non-real estate - modified/restructured (a) | 907 | 924 | 942 | 965 | 1,230 |
| Total commercial non-real estate | 40,268 | 13,302 | 4,020 | 4,528 | 4,830 |
| Commercial real estate - owner occupied | 1,620 | 1,709 | 1,233 | 2,009 | 2,165 |
| Commercial real estate - owner-occupied - modified/restructured (a) | 675 | 684 | 228 | 228 | 228 |
| Total commercial real estate - owner-occupied | 2,295 | 2,393 | 1,461 | 2,237 | 2,393 |
| Commercial real estate - income producing | 356 | 1,501 | 1,174 | 1,814 | 1,842 |
| Commercial real estate - income producing - modified/restructured (a) | — | — | 66 | 69 | 74 |
| Total commercial real estate - income producing | 356 | 1,501 | 1,240 | 1,883 | 1,916 |
| Construction and land development | 370 | 340 | 306 | 349 | 676 |
| Construction and land development - modified/restructured (a) | — | — | 3 | 4 | 4 |
| Total construction and land development | 370 | 340 | 309 | 353 | 680 |
| Residential mortgage | 27,458 | 30,110 | 23,946 | 22,753 | 18,649 |
| Residential mortgage - modified/restructured (a) | — | — | 1,323 | 1,530 | 1,713 |
| Total residential mortgage | 27,458 | 30,110 | 25,269 | 24,283 | 20,362 |
| Consumer | 7,473 | 6,698 | 6,646 | 6,476 | 7,885 |
| Consumer - modified/restructured (a) | — | — | 46 | 47 | — |
| Total consumer | 7,473 | 6,698 | 6,692 | 6,523 | 7,885 |
| Total nonaccrual loans | $78,220 | $54,344 | $38,991 | $39,807 | $38,066 |
| ORE and foreclosed assets | 2,174 | 1,976 | 2,017 | 2,085 | 3,467 |
| Total nonaccrual loans and ORE and foreclosed assets | $80,394 | $56,320 | $41,008 | $41,892 | $41,533 |
| Modified/Restructured loans - still accruing (a): |  |  |  |  |  |
| Commercial non-real estate | $1,010 | $10 | $307 | $316 | $329 |
| Commercial real estate - owner occupied | — | — | — | — | — |
| Commercial real estate - income producing | — | — | — | — | — |
| Construction and land development | — | — | 113 | 114 | 116 |
| Residential mortgage | — | — | 1,018 | 1,016 | 1,142 |
| Consumer | — | — | 469 | 479 | 905 |
| Total Modified/restructured loans - still accruing (a) | $1,010 | $10 | $1,907 | $1,925 | $2,492 |
| Total reportable modified loans (a) | $2,592 | $1,618 | $— | $— | $— |
| Total troubled debt restructured loans (a) | $— | $— | $4,515 | $4,768 | $5,741 |
| Loans 90 days past due still accruing | $7,552 | $13,155 | $4,585 | $2,600 | $4,697 |
| Ratios: |  |  |  |  |  |
| Nonaccrual loans to total loans | 0.33% | 0.23% | 0.17% | 0.18% | 0.17% |
| Nonaccrual loans plus ORE and foreclosed assets to loans plus ORE and foreclosed assets | 0.34% | 0.24% | 0.18% | 0.19% | 0.20% |
| Allowance for loan losses to nonaccrual loans | 402.07% | 569.31% | 789.38% | 769.00% | 809.58% |
| Allowance for loan losses to nonaccrual loans and accruing loans 90 days past due | 366.67% | 458.35% | 706.33% | 721.85% | 720.66% |
| Loans 90 days past due still accruing to loans | 0.03% | 0.06% | 0.02% | 0.01% | 0.02% |

(a) Loans presented in the June 30,2023 and March 31, 2023 columns represent modified loans to borrowers experiencing financial difficulties, and the columns for December 31, 2022, September 30, 2022, and June 30, 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 $80.4 million at June 30, 2023, up $24.1 million compared to March 31, 2023 and $39.4 million from December 31, 2022. Nonaccrual loans of $78.2 million increased $23.9 million compared to March 31, 2023 and $39.2 million compared to December 31, 2022, and remains at a relatively low percentage of the total portfolio at 0.33%. The increase in nonaccrual loans compared to both periods was largely attributable to the downgrade of a single credit. ORE and foreclosed assets were $2.2 million at June 30, 2023, relatively flat to both March 31, 2023 and December 31, 2022. Nonaccrual loans plus ORE and other foreclosed assets as a percentage of total loans, ORE and other foreclosed assets was 0.34% at June 30, 2023, up 10 bps compared to March 31, 2023 and 16 bps from December 31, 2022.

We expect to continue to see low to modest charge-offs and provision for credit losses for the remainder of 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 above pre-pandemic levels.

The failures of three large U.S. banks in the first half of 2023 has created disruption in the financial services industry. 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. 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 $220.9 million at June 30, 2023, compared to $111.4 million at March 31, 2023 and $12.2 million at December 31, 2022. At June 30, 2023, we have calculated our average deposit account size by dividing period-end deposits by the population of accounts with balances to be approximately $38,400, which includes $199,100 in our commercial and small business lines (excluding public funds), $132,300 in our wealth management business line, and $18,400 in our consumer business line.

Further, at June 30, 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 $13.6 billion at June 30, 2023, down from $14.2 billion at March 31, 2023 and $14.7 billion at December 31, 2022. Approximately half of the linked quarter decline in uninsured deposits is related to the reduction of an intercompany deposit balance. Our uninsured deposit total at June 30, 2023 includes approximately $3.3 billion of public funds that have pledged securities as collateral, leaving $10.3 billion of noncollateralized, uninsured deposits compared to total liquidity of $18.5 billion. Our ratio of noncollateralized, uninsured deposits to total deposits was approximately 34.4% at June 30, 2023, compared to 36.2% at March 31, 2023 and 37.9% at December 31, 2022.

Total deposits were $30.0 billion at June 30, 2023, up $430.4 million, or 1%, from March 31, 2023 and $973.2 million, or 3%, from December 31, 2022. Average deposits for the second quarter of 2023 were $29.4 billion, up $580.0 million, or 2%, from the first quarter of 2023.

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

*($ in thousands)*

|  | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Noninterest-bearing deposits | $12,171,817 | $12,860,027 | $13,645,113 | $14,290,817 | $14,676,342 |
| Interest-bearing retail transaction and savings deposits | 10,455,175 | 10,682,568 | 10,757,495 | 10,924,309 | 11,359,561 |
| Interest-bearing public fund deposits: |  |  |  |  |  |
| Public fund transaction and savings deposits | 2,828,301 | 2,987,565 | 3,132,828 | 2,737,074 | 2,832,720 |
| Public fund time deposits | 97,130 | 98,644 | 111,397 | 59,288 | 50,943 |
| Total interest-bearing public fund deposits | 2,925,431 | 3,086,209 | 3,244,225 | 2,796,362 | 2,883,663 |
| Retail time deposits | 3,328,577 | 2,411,765 | 1,418,596 | 934,866 | 937,676 |
| Brokered time deposits | 1,162,501 | 572,501 | 4,920 | 4,920 | 9,190 |
| Total interest-bearing deposits | 17,871,684 | 16,753,043 | 15,425,236 | 14,660,457 | 15,190,090 |
| Total deposits | $30,043,501 | $29,613,070 | $29,070,349 | $28,951,274 | $29,866,432 |

Noninterest-bearing demand deposits were $12.2 billion at June 30, 2023, down $688.2 million, or 5%, from March 31, 2023 and $1.5 billion, or 11%, from December 31, 2022. The declines from both comparative periods reflect both the continued shift to interest-bearing products, particularly retail time deposits, amid the rising interest rate environment and typical seasonal outflows of public funds deposits. Noninterest-bearing demand deposits comprised 40% of total deposits at June 30, 2023, 43% at March 31, 2023 and 47% at December 31, 2022.

Interest-bearing transaction and savings accounts of $10.5 billion at June 30, 2023 were down $227.4 million, or 2%, from March 31, 2023 and $302.3 million, or 3%, from December 31, 2022. Interest-bearing public fund deposits totaled $2.9 billion at June 30, 2023, down $160.8 million, or 5%, from March 31, 2023 and $318.8 million, or 10%, from December 31, 2022. The decrease in public funds is mostly reflective of typical seasonal outflows. Retail time deposits totaled $3.3 billion at June 30, 2023, up $916.8 million, or 38%, from March 31, 2023 and $1.9 billion, or 135%, from December 31, 2022. The increase in retail time deposits reflects the continued shift from noninterest-bearing or lower yielding interest-bearing products amid the rising interest rate environment as depositors take advantage of the current rate offerings. Brokered time deposits of $1.2 billion at June 30, 2023 represents the addition of brokered time deposits of $568 million in March and $590 million in May. These instruments are short-term in nature, maturing between December 2023 and May 2024 bear interest plus fees of either 5.35% or 5.45%.

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

*($ in millions)*

| Interest-bearing deposits: | June 30, 2023 Balance | Rate | Mix | March 31, 2023 Balance | Rate | Mix | June 30, 2022 Balance | Rate | Mix |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest-bearing transaction deposits | $2,355.0 | 0.74% | 8.0% | $2,468.9 | 0.46% | 8.6% | $2,674.7 | 0.09% | 8.9% |
| Money market deposits | 5,648.8 | 2.62 | 19.2 | 5,497.3 | 1.80 | 19.1 | 5,806.7 | 0.05 | 19.4 |
| Savings deposits | 2,493.7 | 0.01 | 8.5 | 2,684.2 | 0.01 | 9.3 | 2,957.6 | 0.01 | 9.9 |
| Time deposits | 3,740.3 | 3.95 | 12.7 | 2,018.6 | 2.70 | 7.0 | 979.2 | 0.15 | 3.3 |
| Public Funds | 2,981.7 | 3.27 | 10.2 | 3,160.7 | 3.04 | 11.0 | 2,906.0 | 0.46 | 9.7 |
| Total interest-bearing deposits | 17,219.5 | 2.39% | 58.6 | 15,829.7 | 1.65% | 55.0 | 15,324.2 | 0.13% | 51.1 |
| Noninterest-bearing demand deposits | 12,153.4 |  | 41.4 | 12,963.2 |  | 45.0 | 14,655.8 |  | 48.9 |
| Total deposits | $29,372.9 |  | 100.0% | $28,792.9 |  | 100.0% | $29,980.0 |  | 100.0% |

The following sets forth the maturities of time certificates of deposit greater than $250,000 at June 30, 2023.

*($ in thousands)*

|  | June 30, 2023 |
| --- | ---: |
| Three months | $567,620 |
| Over three months through six months | 417,338 |
| Over six months through one year | 341,543 |
| Over one year | 25,771 |
| Total | $1,352,272 |

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 June 30, 2023, short-term borrowings totaled $1.6 billion, down $1.9 billion from March 31, 2023 and down $241.7 million, or 13%, from December 31, 2022. The decline from both comparative periods is primarily attributable to FHLB borrowings. The significant linked quarter decline reflects the repayment of incremental borrowings drawn in March 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. FHLB borrowings totaled $1.1 billion at June 30, 2023 and consisted of one fixed-rate advance maturing July 3, 2023. The remaining variance is largely due to changes in customer repurchase agreements discussed below. Average short-term borrowings of $2.4 billion in the second quarter of 2023 were up $288.0 million, or 14%, from the first quarter of 2023 and up $810.8 million, or 51%, from the fourth quarter of 2022.

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 $236.2 million at June 30, 2023, down $5.9 million, or 2%, from March 31, 2023 and down $5.8 million, or 2%, from December 31, 2022.

Long-term debt at June 30, 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 June 30, 2023, the Company had a reserve for unfunded lending commitments totaling $31.2 million.

The following table shows the commitments to extend credit and letters of credit at June 30, 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 | $10,083,714 | $3,854,996 | $2,587,327 | $2,809,459 | $831,932 |
| Letters of credit | 439,444 | 353,507 | 57,103 | 28,834 | — |
| Total | $10,523,158 | $4,208,503 | $2,644,430 | $2,838,293 | $831,932 |

64

### 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, 7,722 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 June 30, 2023. Shifts are measured in 100 basis point increments in a range from -500 to +500 basis points from base case, with -300 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 |
| ---: | ---: | ---: |
| -300 | -10.23% | -15.42% |
| -200 | -6.46% | -10.05% |
| -100 | -2.90% | -4.46% |
| +100 | 3.03% | 4.22% |
| +200 | 5.70% | 8.18% |
| +300 | 8.37% | 12.18% |

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 noninterest-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.

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 half of 2023, the Company converted all of its LIBOR based cash flow hedges to SOFR and replaced the variable rate loan pools with SOFR based instruments, with limited financial impact or cost.

Effective July 3, 2023, all remaining LIBOR instruments were transitioned in accordance with the statutory framework established by the Federal Reserve with no material financial impact. While we have not had any material issues to-date, the discontinuance of LIBOR could result in customer uncertainty and disputes arising as a consequence of the transition, and could result in damage to our reputation and loss of customers.

## Controls and procedures

As filed, 1,366 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 June 30, 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 June 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 1,032 characters.

In addition to the other information set forth in this Report, in evaluating an investment in the Company’s securities, investors should consider carefully, among other things, the risk factors previously disclosed in Part I, Item 1A of our 2022 Form 10-K, and as disclosed in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, which could materially affect the Company's business, financial position, results of operations, cash flows, or future results. Please be aware that these risks may change over time and other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition or results of operations, or the trading price of our securities.

There are no material changes during the period covered by this Report to the risk factors previously disclosed in our 2022 Form 10-K or our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

Filed Aug 4, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-038637. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.