# HANCOCK WHITNEY CORP (HWC) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from HANCOCK WHITNEY CORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/750577/000095017024022252/hwc-20231231.htm
Accession: 0000950170-24-022252
Filing date: 2024-02-28
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Published MD&A gate trimmed front/tail over-capture.
Confidence: high

Company profile: /company/HWC/
All MD&A years: /company/HWC/mda/
Previous year: /company/HWC/mda/fy2022/ (FY 2022)
Next year: /company/HWC/mda/fy2024/ (FY 2024)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 its subsidiaries during the year ended December 31, 2023 and selected 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, which 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. See Forward-Looking Statements in Part I of this Annual Report.

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. A reconciliation of those measures to GAAP measures are provided in Table 1 “Consolidated Financial Results” and Table 31 “Quarterly Consolidated Financial Results” of this section. The following is an overview of the non-GAAP measures used and the reasons why management believes they are useful and important in understanding the Company’s financial condition and results of operations included below.

Consistent with the provisions of Subpart 229.1400 of 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 interest income from certain loans and investments using the statutory federal tax rate (21% for all periods presented) to increase tax-exempt interest income to a taxable-equivalent basis. This measure is the preferred industry measurement of net interest income and 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. The Company highlights certain significant items that are outside of our principal business and/or are not indicative of forward-looking trends in supplemental disclosure items below our GAAP financial data and presents certain “Adjusted” ratios that exclude these disclosed items. These adjusted ratios provide management and the reader with a measure that may be more indicative of forward-looking trends in our business, as well as demonstrates the effects of significant gains or losses and changes.

We define Adjusted Pre-Provision Net Revenue as net income excluding provision expense and income tax expense, plus the taxable equivalent adjustment (as defined above), less supplemental disclosure items (as defined above). Management believes that adjusted 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. We define Adjusted Revenue as net interest income (te) and noninterest income less supplemental disclosure items. We define Adjusted Noninterest Expense as noninterest expense less supplemental disclosure items. We define our Efficiency Ratio as noninterest expense to total net interest income (te) and noninterest income, excluding amortization of purchased intangibles and supplemental disclosure items, if applicable. Management believes adjusted revenue, adjusted noninterest expense and the efficiency ratio are useful measures as they provide a greater understanding of ongoing operations and enhance comparability with prior periods.

EXECUTIVE OVERVIEW

The discussions and analyses that follow provide insight into the impact of macroeconomic and industry trends on our performance in the most recent fiscal year, and our outlook for the near term.

Current Economic Environment

U.S. economic activity remains resilient nearly two years into the Federal Reserve's aggressive campaign to tame inflation. Thus far, the Federal Reserve has seen some success in slowing economic growth without precipitating a recession. The December 31, 2023 headline and core (less food and energy) inflation have receded considerably from 40-year highs in 2022, though at 3.4% and 3.9%, respectively, both remain well above the Federal Reserve's target rate of 2%. Real Gross domestic product (GDP) increased 2.5% for the full year 2023, reflecting growth in each of the four fiscal quarters. Despite some softening, the labor market remains strong at near full-employment, with the unemployment rate at 3.7% in December 2023. The Federal Reserve issued four 25-basis point interest rate increases between February and July 2023, but has held the rate steady since, indicating the possibility that the target rate has reached its terminal value in the rate hiking cycle. While the continued strong pace of consumer spending and the strength of the labor market may help prevent or reduce the severity of a potential recession, the possibility that rates will remain higher for longer may

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result in below-trend economic growth. Economic trends may be further influenced by factors outside of inflation, such as a potential shutdown of the U.S. government and expanding geopolitical conflict.

Within the financial services industry, particularly in the regional bank space, institutions continue to deal with macroeconomic and industry-specific headwinds. The heightened interest rate environment has fostered a continued shift within deposit composition toward higher cost products, although the pace of movement slowed somewhat towards the end of 2023. High-profile bank failures in the first half of 2023 have prompted increased regulatory scrutiny of banks' liquidity and the stability of their deposit bases, which has intensified competition for deposits and, in turn, placed further pressure on borrowing costs. The interest rate environment has also steadily affected the affordability of credit to consumers and businesses that has tempered loan demand. At the same time, economic uncertainty and industry turmoil has prompted many institutions to tighten credit standards.

We experienced loan growth of 3% during the year ended December 31, 2023, though the majority of the growth occurred in the first half of the year. In the fourth quarter, we experienced a $61.8 million net decline in loans as demand continued to slow in response to heightened interest rates and, in many of the markets we serve, increased insurance costs. Further, we are continuing to narrow our credit appetite in certain sectors and shift our focus toward full-service relationships. Our core client deposits, defined as total deposits excluding public funds and brokered deposits, were up slightly year-over-year. We were able to maintain our diversified deposit base through competitive pricing, as much of our client base remains interest rate sensitive. Despite the increased pressure on funding costs, interest rates on new, renewed and repricing variable rate loans drove an expanded net interest margin in 2023.

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 December 2023 Moody’s forecast, the most current available at December 31, 2023. The forecasts are anchored on a baseline forecast scenario, which Moody’s defines as the “most likely outcome” of where the economy is headed based on current conditions. Several upside and downside scenarios are produced that are derived from the baseline scenario and incorporate varying degrees of favorable and unfavorable adjustments to economic indicators and circumstances as compared to the baseline. The macroeconomic variables underlying the December 2023 economic scenarios differ in certain respects from the comparable forecasts available at December 31, 2022, given the shift in economic circumstances and risks.

The December 2023 baseline forecast continues to incorporate the belief that the Federal Reserve will accomplish its goal of bringing inflation to or below its target without precipitating a recession. Key assumptions within the December 2023 baseline forecast include the following: (1) the Federal Funds rate has reached its terminal value in the rate hiking cycle, with rate cuts of 25 basis points per quarter to begin in June 2024 until reaching 3% in late 2026, and 2.5% by 2030; (2) the U.S. government will avoid the recently-feared shutdown; (3) while the labor market remains strong, there are indications of softening, and the unemployment rate will rise from its current rate of 3.7% to 4.0% in 2024 and 4.1% in 2025, then improve slightly to 4.0% for 2026; (4) GDP will display modest annual growth of 1.7% in both 2024 and 2025 and 2.2% in 2026; and, (5) the 10-year U.S. Treasury yield reached its recent high at nearly 5% in the third quarter of 2023, but will remain above 4% through the end of the decade.

The S-2 scenario presents a downside alternative to the baseline. The S-2 scenario assumes an increased likelihood of a U.S. government shutdown, longer and farther-reaching disturbance from geopolitical conflict, and continued disruption in the financial services industry leading to further tightening of credit standards. Further, the scenario assumes the unemployment rate will increase considerably to 5.7% in 2024 before improving to 5.3% in 2025 and 4.0% in 2026. Despite the weakening economy, the Federal Reserve does not begin rate cuts sooner than what is assumed in the baseline. As a result of these pressures, the U.S. falls into a mild recession beginning in the first quarter of 2024 that lasts for three quarters, with the stock market contracting 20% and a peak-to-trough decline in GDP of 1%.

Management has deemed certain assumptions underlying the S-2 scenario to be somewhat more likely to occur in the near term than those underlying the baseline scenario, and as such, the baseline scenario and the S-2 scenario were given probability weightings of 40% and 60%, respectively, in the calculation of our allowance for credit losses calculation at December 31, 2023.

At December 31, 2023, the credit loss outlook for our portfolio as a whole has not changed significantly from that of a year ago, however, we remain cautious given headwinds from elevated interest rates, increased insurance costs and market concerns surrounding commercial real estate. Aside from a single sizable charge-off in 2023 attributable to borrower-specific circumstances, our asset quality metrics have remained stable over the preceding two years, with nonaccrual loans, commercial criticized loans and all other net charge-offs at relatively low levels. We continue to closely monitor our portfolio for customers that are sensitive to prolonged inflation and the elevated interest rate environment.

The effects of inflation and the Federal Reserve's actions to counter those effects in the form of interest rate increases and quantitative tightening have in the past and could in the near term reduce economic growth. The full extent of the impact of the Federal Reserve’s

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actions to reduce inflation and the timing and scope of further Federal Reserve actions are uncertain and may have a significant negative impact on the U.S. economy, including the possibility of an economic recession in the near or midterm.

Highlights of 2023 Financial Results

Net income for the year ended December 31, 2023 was $392.6 million, or $4.50 per diluted common share, compared to $524.1 million, or $5.98 per diluted common share in 2022. The results for 2023 include a net charge of $75.4 million (pre-tax), or $0.68 per share after tax, comprised of the following supplemental disclosure items: a $65.4 million loss on restructuring of the securities portfolio, a $26.1 million FDIC special assessment charge and a $16.1 million gain on the sale of a parking facility. There were no supplemental disclosure items in 2022. The following is an overview of financial results for the year ended December 31, 2023 compared to December 31, 2022:

•
Net income of $392.6 million, or $4.50 per diluted common share

•
Adjusted pre-provision net revenue (a non-GAAP measure) totaled $635.7 million, down $5.4 million

•
Provision for credit losses of $59.1 million in 2023, compared to a negative provision of $28.4 million in 2022; allowance for credit loss to total loans at 1.41% at December 31, 2023

•
Loan growth of $807.9 million, or 3%, to $23.9 billion

•
Deposits of $29.7 billion at December 31, 2023, up $619.7 million, or 2%

•
Common equity tier 1 capital ratio of 12.33%, up 92 basis points (bps) from December 31, 2022; tangible common equity ratio of 8.37%, up 128 bps

•
Criticized commercial loans and nonperforming loans remained relatively stable at low levels throughout 2023

•
Net interest margin increased 8 bps to 3.34%

•
Efficiency ratio (a non-GAAP measure) of 55.25%, up from 52.93% in 2022

The year ended December 31, 2023 brought many challenges on both a macroeconomic level and within the financial services industry. Our results reflect navigating these headwinds while demonstrating our ability to preserve liquidity and manage operating expenses. The Federal Reserve continued its efforts to combat inflation through interest rate increases, but the benefits of our general asset sensitivity were largely offset by continued increases in funding costs, including a significant shift and deposit mix from noninterest-bearing to interest-bearing products. Disruption in the financial services industry created additional pressure on funding costs and net interest margin, and required incremental noninterest expense through a special assessment to restore the deposit insurance fund. As expected, loan growth has tempered in response to the current interest rate environment and with our continued focus on full service relationships and lending to resilient borrowers in light of current economic pressures. Aside from a single sizable borrower-specific charge-off, our credit metrics remained stable at relatively low levels, with no significant weakening in any portfolio sectors in 2023. A strategic decision to restructure our available for sale securities portfolio and pay down debt is expected to benefit future yield on earning assets, net interest margin and capital. Our capital levels increased year over year, and we believe we have positioned ourselves to effectively navigate the operating environment for this coming year.

The table that follows presents our consolidated financial results. Additional information related to our results and outlook are included in the discussions that follow.

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Table 1. Consolidated Financial Results

[[GREPCENT_TABLE]]
[["(in thousands, except per share data)","2023","","2022","","2021"],["Income Statement:"],["Interest income (a)","$","1,620,497","","$","1,137,063","","$","982,258"],["Interest income (te) (b)","","1,631,604","","","1,147,411","","","993,437"],["Interest expense","","522,898","","","87,060","","","49,023"],["Net interest income (te)","","1,108,706","","","1,060,351","","","944,414"],["Provision for credit losses","","59,103","","","(28,399",")","","(77,494",")"],["Noninterest income","","288,480","","","331,486","","","364,334"],["Noninterest expense","","836,848","","","750,692","","","807,007"],["Income before income taxes","","490,128","","","659,196","","","568,056"],["Income tax expense","","97,526","","","135,107","","","104,841"],["Net income","$","392,602","","$","524,089","","$","463,215"],["Supplemental disclosure items - included above, pre-tax"],["Included in noninterest income:"],["Loss on securities portfolio restructure","$","(65,380",")","$","\u2014","","$","\u2014"],["Gain on sale of parking facility","","16,126","","","\u2014","","","\u2014"],["Gain on sale of Hancock Horizon Funds","","\u2014","","","\u2014","","","4,576"],["Gain on sale of MasterCard Class B common stock","","\u2014","","","\u2014","","","2,800"],["Gain on hurricane-related insurance settlement","","\u2014","","","\u2014","","","3,600"],["Included in noninterest expense:"],["FDIC special assessment","","26,123","","","\u2014","","","\u2014"],["Efficiency initiatives","","\u2014","","","\u2014","","","38,296"],["Hurricane related expenses","","\u2014","","","\u2014","","","4,412"],["Loss on redemption of subordinated notes","","\u2014","","","\u2014","","","4,165"],["Balance Sheet Data:"],["Period end balance sheet data"],["Loans","$","23,921,917","","$","23,114,046","","$","21,134,282"],["Earning assets","","32,175,097","","","31,873,027","","","33,610,435"],["Total assets","","35,578,573","","","35,183,825","","","36,531,205"],["Noninterest-bearing deposits","","11,030,515","","","13,645,113","","","14,392,808"],["Total deposits","","29,690,059","","","29,070,349","","","30,465,897"],["Stockholders' equity","","3,803,661","","","3,342,628","","","3,670,352"],["Average balance sheet data"],["Loans","$","23,594,579","","$","21,915,393","","$","21,207,942"],["Earning assets","","33,160,791","","","32,498,213","","","32,060,863"],["Total assets","","35,633,442","","","35,059,178","","","35,075,392"],["Noninterest-bearing deposits","","11,919,234","","","14,298,022","","","13,323,978"],["Total deposits","","29,478,481","","","29,497,470","","","29,093,709"],["Stockholders' equity","","3,528,911","","","3,405,206","","","3,545,255"],["Common Shares Data:"],["Earnings per share - basic","$","4.51","","$","6.00","","$","5.23"],["Earnings per share - diluted","","4.50","","","5.98","","","5.22"],["Cash dividends per common share","","1.20","","","1.08","","","1.08"],["Book value per share (period end)","","44.05","","","38.89","","","42.31"],["Tangible book value per share (period end)","","33.63","","","28.29","","","31.64"],["Weighted average number of shares - diluted","","86,423","","","86,394","","","87,027"],["Period end number of shares","","86,345","","","85,941","","","86,749"],["Performance and other data:"],["Return on average assets","","1.10","%","","1.49","%","","1.32","%"],["Return on average common equity","","11.13","%","","15.39","%","","13.07","%"],["Return on average tangible common equity","","14.97","%","","21.07","%","","17.74","%"],["Tangible common equity (c)","","8.37","%","","7.09","%","","7.71","%"],["Tier 1 common equity","","12.33","%","","11.41","%","","11.09","%"],["Net interest margin (te)","","3.34","%","","3.26","%","","2.95","%"],["Noninterest income as a percentage of total revenue (te)","","20.65","%","","23.82","%","","27.84","%"],["Efficiency ratio (d)","","55.25","%","","52.93","%","","57.29","%"],["Allowance for loan loss as a percentage of total loans","","1.29","%","","1.33","%","","1.62","%"],["Allowance for credit loss as a percentage of total loans","","1.41","%","","1.48","%","","1.76","%"],["Annualized net charge-offs to average loans","","0.27","%","","0.01","%","","0.15","%"],["Nonaccrual assets as a percentage of loans, ORE and foreclosed assets","","0.26","%","","0.18","%","","0.32","%"],["FTE headcount","","3,591","","","3,627","","","3,486"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["($ in thousands)","2023","","2022","","2021"],["Reconciliation of pre-provision net revenue (te) and adjusted pre-provision net revenue (te) (non-GAAP measures) (e)"],["Net income (GAAP)","$","392,602","","$","524,089","","$","463,215"],["Provision for credit losses","","59,103","","","(28,399",")","","(77,494",")"],["Income tax expense","","97,526","","","135,107","","","104,841"],["Pre-provision net revenue","","549,231","","","630,797","","","490,562"],["Taxable equivalent adjustment","","11,107","","","10,348","","","11,179"],["Pre-provision net revenue (te)","","560,338","","","641,145","","","501,741"],["Adjustments from supplemental disclosure items"],["Loss on securities portfolio restructure","","65,380","","","\u2014","","","\u2014"],["Gain on sale of parking facility","","(16,126",")","","\u2014","","","\u2014"],["Gain on sale of Hancock Horizon Funds","","\u2014","","","\u2014","","","(4,576",")"],["Gain on sale of MasterCard Class B common stock","","\u2014","","","\u2014","","","(2,800",")"],["Gain on hurricane-related insurance settlement","","\u2014","","","\u2014","","","(3,600",")"],["FDIC special assessment","","26,123","","","\u2014","","","\u2014"],["Efficiency initiatives","","\u2014","","","\u2014","","","38,296"],["Hurricane related expenses","","\u2014","","","\u2014","","","4,412"],["Loss on redemption of subordinated notes","","\u2014","","","\u2014","","","4,165"],["Adjusted pre-provision net revenue (te)","$","635,715","","$","641,145","","$","537,638"],["Reconciliation of revenue (te), adjusted revenue (te) and efficiency ratio (non-GAAP measures) (e)"],["Net interest income","$","1,097,599","","$","1,050,003","","$","933,235"],["Noninterest income","","288,480","","","331,486","","","364,334"],["Total GAAP revenue","","1,386,079","","","1,381,489","","","1,297,569"],["Taxable equivalent adjustment","","11,107","","","10,348","","","11,179"],["Total revenue (te)","","1,397,186","","","1,391,837","","","1,308,748"],["Adjustments from supplemental disclosure items"],["Loss on securities portfolio restructure","","65,380","","","\u2014","","","\u2014"],["Gain on sale of parking facility","","(16,126",")","","\u2014","","","\u2014"],["Gain on sale of Hancock Horizon Funds","","\u2014","","","\u2014","","","(4,576",")"],["Gain on sale of MasterCard Class B common stock","","\u2014","","","\u2014","","","(2,800",")"],["Gain on hurricane-related insurance settlement","","\u2014","","","\u2014","","","(3,600",")"],["Adjusted revenue","","1,446,440","","","1,391,837","","","1,297,772"],["GAAP noninterest expense","","836,848","","","750,692","","","807,007"],["Amortization of intangibles","","(11,556",")","","(14,033",")","","(16,665",")"],["Adjustments from supplemental disclosure items"],["FDIC special assessment","","(26,123",")","","\u2014","","","\u2014"],["Efficiency initiatives","","\u2014","","","\u2014","","","(38,296",")"],["Hurricane related expenses","","\u2014","","","\u2014","","","(4,412",")"],["Loss on redemption of subordinated notes","","\u2014","","","\u2014","","","(4,165",")"],["Adjusted noninterest expense","$","799,169","","$","736,659","","$","743,469"],["Efficiency ratio (d)","","55.25","%","","52.93","%","","57.29","%"]]
[[/GREPCENT_TABLE]]

(a) Interest income includes the net impact of discount accretion and premium amortization arising from business combinations totaling $2.4 million, $4.7 million, and $8.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.

(b) 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%.

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

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

(e) See non-GAAP financial measures section of this analysis for a discussion of these measures.

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RESULTS OF OPERATIONS

The following is a discussion of results from operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. Refer to previously filed Annual Reports on Form 10-K Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for discussion of prior year variances.

Net Interest Income

Net interest income was $1.1 billion, up $47.6 million from 2022. Net interest income is the primary component of our earnings and represents the difference, or spread, between revenue generated from interest-earning assets and the interest expense related to funding those assets. For analytical purposes, net interest income is adjusted to a taxable equivalent basis (te) using the statutory federal tax rate of 21% on tax exempt items (primarily interest on municipal securities and loans). Net interest income (te) was $1.1 billion in 2023, up $48.4 million, or 5%, from 2022, and included an increase in interest income (te) of $484.2 million largely offset by an increase of $435.8 million in interest expense. Net interest margin, the ratio of net interest income (te) to average earning assets, increased 8 bps to 3.34% in 2023 from 3.26% in 2022.

The increase in interest income (te) is largely attributable to the impact of the series of Federal Reserve interest rate increases, a favorable change in the mix of earning assets, and, to a lesser extent, a $19.0 million decrease in net premium amortization on the securities portfolio. The yield on earning assets (te) was 4.92% in 2023, up 139 bps from 2022. The yield increase was mainly attributable to the impact of the rising interest rate environment on the loan and, to a lesser extent, investment portfolios, and the favorable change in the mix of average earning assets, with loans up $1.7 billion, investment securities down $112 million, and short-term investments down $888 million. The loan yield was up 155 bps to 5.87%, reflecting the impact of the rise in interest rates on new and repricing loans. The yield on investment securities increased 28 bps in 2023 to 2.39% as new investments were made at higher yields amid the rising interest rate environment, along with yield enhancements from the termination of certain fair value hedges on available for sale securities.

The increase in interest expense is largely attributable to a significant unfavorable change in the average funding mix that is the result of both the interest rate environment and response to the disruption created by the bank failures in early 2023. The rise in interest rates fostered a natural shift from noninterest-bearing to more attractive interest-bearing products. Following the bank failures, scrutiny over deposit composition and overall liquidity intensified competition for deposits; in response, promotional pricing on retail deposits and the addition of brokered time deposits drove a further shift in deposit mix toward higher-cost products. At December 31, 2023, noninterest-bearing deposits comprised 37% of total deposits compared to 47% at December 31, 2022. In addition, average short-term borrowings in 2023 were up $334.7 million from 2022, mostly reflective of incremental FHLB borrowings held for a period of time as a cautionary measure subsequent to the bank failures. As such, the cost of funds increased 131 bps to 1.58% in 2023 from 0.27% in 2022, with average interest-bearing deposit costs increasing 215 bps to 2.53% from 0.38% and other short-term borrowing costs, which consist largely of Federal Home Loan Bank advances, increasing 323 bps to 5.06% in 2023 from 1.83% in 2022.

Our cycle-to-date loan and deposit betas were 46% and 36%, respectively, at December 31, 2023, compared to 40% and 13%, respectively, at December 31, 2022, reflecting the previously mentioned competitive pricing utilized to attract and retain deposits in 2023. Though interest rates remain elevated, we expect deposit costs to be more stable in the near term. Further, in November 2023, we executed a restructuring of the available for sale securities portfolio whereby we sold $1.04 billion of lower-yielding instruments, reinvested approximately half of the $977 million of proceeds in higher-yielding securities and utilized the remainder to repay short-term borrowings as a means to enhance net interest margin. We anticipate an approximate 30 month payback period to cover the loss associated with the sale, with expected benefits in 2024 of $26.2 million in net interest income and 13 bps to net interest margin. We expect further modest expansion of net interest margin in 2024, with an emphasis on improving loan yields and by proactively managing deposit costs as interest rates begin to decline. Our forecast assumes three 25 bp rate cuts beginning in June 2024.

Discussions of Asset/Liability Management and Net Interest Income at Risk later in this item provide additional information regarding our management of interest rate risk and the potential impact from changes in interest rates, respectively.

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TABLE 2. Summary of Average Balances, Interest and Rates (te) (a)

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2023","","","","2022","","","","2021"],["($ in millions)","","Average Balance","","Interest (d)","","Rate","","","","Average Balance","","Interest (d)","","Rate","","","","Average Balance","","Interest (d)","","Rate"],["Assets"],["Interest-Earnings Assets:"],["Commercial & real estate loans (te) (a)","","$","18,556.2","","$","1,131.8","","","6.10","","%","","$","17,682.3","","$","759.9","","","4.30","","%","","$","17,070.3","","$","606.1","","","3.55","","%"],["Residential mortgage loans","","","3,541.2","","","128.3","","","3.62","","","","","2,666.1","","","90.3","","","3.39","","","","","2,445.6","","","90.6","","","3.70"],["Consumer loans","","","1,497.2","","","124.0","","","8.28","","","","","1,567.0","","","88.4","","","5.64","","","","","1,692.1","","","81.6","","","4.82"],["Loan fees & late charges","","","\u2014","","","1.3","","","\u2014","","","","","\u2014","","","7.4","","","\u2014","","","","","\u2014","","","53.7","","0.0"],["Loans (te) (b)","","","23,594.6","","","1,385.4","","","5.87","","","","","21,915.4","","","946.0","","","4.32","","","","","21,208.0","","","832.0","","","3.92"],["Loans held for sale","","","26.0","","","1.7","","","6.63","","","","","43.0","","","1.8","","","4.22","","","","","90.2","","","2.5","","","2.82"],["Investment securities:"],["U.S. Treasury and government agency securities","","","567.2","","","15.3","","","2.70","","","","","426.7","","","8.3","","","1.95","","","","","330.6","","","5.4","","","1.64"],["Mortgage-backed securities and collateralized mortgage obligations","","","7,423.9","","","170.4","","","2.30","","","","","7,652.1","","","154.5","","","2.02","","","","","6,833.1","","","122.3","","","1.79"],["Municipals (te)","","","887.0","","","26.5","","","2.98","","","","","912.0","","","27.0","","","2.96","","","","","928.4","","","27.2","","","2.93"],["Other securities","","","23.5","","","0.8","","","3.51","","","","","22.3","","","0.8","","","3.42","","","","","13.7","","","0.5","","","3.66"],["Total investment securities (te) (c)","","","8,901.6","","","213.0","","","2.39","","","","","9,013.1","","","190.6","","","2.11","","","","","8,105.8","","","155.4","","","1.92"],["Short-term investments","","","638.6","","","31.5","","","4.93","","","","","1,526.7","","","9.0","","","0.59","","","","","2,656.9","","","3.5","","","0.13"],["Total earning assets (te)","","","33,160.8","","","1,631.6","","","4.92","","%","","","32,498.2","","","1,147.4","","","3.53","","%","","","32,060.9","","","993.4","","","3.10","","%"],["Nonearning assets:"],["Other assets","","","2,783.5","","","","","","","","","2,878.4","","","","","","","","","3,420.6"],["Allowance for loan losses","","","(310.9",")","","","","","","","","(317.4",")","","","","","","","","(406.1",")"],["Total assets","","$","35,633.4","","","","","","","","$","35,059.2","","","","","","","","$","35,075.4"],["Liabilities and Stockholders' Equity"],["Interest-bearing Liabilities:"],["Interest-bearing transaction and savings deposits","","$","10,598.6","","$","176.9","","","1.67","","%","","$","11,201.1","","$","21.2","","","0.19","","%","","$","11,216.5","","$","9.1","","","0.08","","%"],["Time deposits","","","3,989.1","","","166.5","","","4.17","","","","","1,056.4","","","4.7","","","0.44","","","","","1,413.0","","","6.5","","","0.46"],["Public funds","","","2,971.6","","","100.5","","","3.38","","","","","2,941.9","","","32.5","","","1.10","","","","","3,140.2","","","10.6","","","0.34"],["Total interest-bearing deposits","","","17,559.3","","","443.9","","","2.53","","","","","15,199.4","","","58.4","","","0.38","","","","","15,769.7","","","26.2","","","0.17"],["Repurchase agreements","","","513.3","","","7.0","","","1.36","","","","","536.7","","","1.1","","","0.21","","","","","559.4","","","0.6","","","0.10"],["Other short-term borrowings","","","1,180.1","","","59.7","","","5.06","","","","","822.0","","","15.1","","","1.83","","","","","1,103.8","","","5.4","","","0.49"],["Long-term debt","","","239.1","","","12.3","","","5.15","","","","","239.3","","","12.4","","","5.19","","","","","314.9","","","16.8","","","5.32"],["Total interest-bearing liabilities","","","19,491.8","","","522.9","","","2.68","","%","","","16,797.4","","","87.0","","","0.52","","%","","","17,747.8","","","49.0","","","0.28","","%"],["Noninterest-bearing:"],["Noninterest-bearing deposits","","","11,919.2","","","","","","","","","14,298.0","","","","","","","","","13,324.0"],["Other liabilities","","","693.5","","","","","","","","","558.6","","","","","","","","","458.3"],["Stockholders' equity","","","3,528.9","","","","","","","","","3,405.2","","","","","","","","","3,545.3"],["Total liabilities and stockholders' equity","","$","35,633.4","","","","","","","","$","35,059.2","","","","","","","","$","35,075.4"],["Net interest income (te) and margin","","","","$","1,108.7","","","3.34","","","","","","$","1,060.4","","","3.26","","","","","","$","944.4","","","2.95"],["Net earning assets and spread","","$","13,669.0","","","","","2.24","","","","$","15,700.8","","","","","3.01","","","","$","14,313.1","","","","","2.82"],["Interest cost of funding earning assets","","","","","","","1.58","","%","","","","","","","0.27","","%","","","","","","","0.15","","%"]]
[[/GREPCENT_TABLE]]

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

(b)
Includes nonaccrual loans.

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

(d)
Included in interest income is net purchase accounting accretion of $2.4 million, $4.7 million and $8.6 million for the years December 31, 2023, 2022, and 2021, respectively.

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TABLE 3. Summary of Changes in Net Interest Income (te) (a) (b)

[[GREPCENT_TABLE]]
[["","2023 Compared to 2022","","2022 Compared to 2021"],["","Due to","","Total","","Due to","","Total"],["","Change in","","Increase","","Change in","","Increase"],["($ in thousands)","Volume","","Rate","","(Decrease)","","Volume","","Rate","","(Decrease)"],["Interest Income (te)"],["Commercial & real estate loans (te) (a)","$","39,213","","$","332,722","","$","371,935","","","$","22,399","","$","131,363","","$","153,762"],["Residential mortgage loans","","31,345","","","6,620","","","37,965","","","","7,809","","","(8,049",")","","(240",")"],["Consumer loans","","(3,297",")","","38,928","","","35,631","","","","(6,180",")","","12,940","","","6,760"],["Loan fees & late charges","","\u2014","","","(6,089",")","","(6,089",")","","","\u2014","","","(46,301",")","","(46,301",")"],["Loans (te) (c)","","67,261","","","372,181","","","439,442","","","","24,028","","","89,953","","","113,981"],["Loans held for sale","","(886",")","","795","","","(91",")","","","(1,672",")","","944","","","(728",")"],["Investment securities:"],["U.S. Treasury and government agency securities","","3,129","","","3,859","","","6,988","","","","1,739","","","1,153","","","2,892"],["Mortgage-backed securities and collateralized mortgage obligations","","(4,779",")","","20,678","","","15,899","","","","15,284","","","16,952","","","32,236"],["Municipals","","(743",")","","181","","","(562",")","","","(485",")","","275","","","(210",")"],["Other securities","","43","","","18","","","61","","","","297","","","(34",")","","263"],["Total investment in securities (te) (d)","","(2,350",")","","24,736","","","22,386","","","","16,835","","","18,346","","","35,181"],["Short-term investments","","(8,066",")","","30,522","","","22,456","","","","(1,976",")","","7,516","","","5,540"],["Total earning assets (te)","","55,959","","","428,234","","","484,193","","","","37,215","","","116,759","","","153,974"],["Interest-bearing transaction and savings deposits","","1,205","","","(156,819",")","","(155,614",")","","","13","","","(12,163",")","","(12,150",")"],["Time deposits","","(40,103",")","","(121,719",")","","(161,822",")","","","1,589","","","262","","","1,851"],["Public funds","","(331",")","","(67,718",")","","(68,049",")","","","710","","","(22,604",")","","(21,894",")"],["Total interest-bearing deposits","","(39,229",")","","(346,256",")","","(385,485",")","","","2,312","","","(34,505",")","","(32,193",")"],["Repurchase agreements","","52","","","(5,871",")","","(5,819",")","","","25","","","(577",")","","(552",")"],["Other short-term borrowings","","(8,771",")","","(35,876",")","","(44,647",")","","","1,669","","","(11,293",")","","(9,624",")"],["Long-term debt","","7","","","106","","","113","","","","3,938","","","394","","","4,332"],["Total interest expense","","(47,941",")","","(387,897",")","","(435,838",")","","","7,944","","","(45,981",")","","(38,037",")"],["Net interest income (te) variance","$","8,018","","$","40,337","","$","48,355","","","$","45,159","","$","70,778","","$","115,937"]]
[[/GREPCENT_TABLE]]

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

(b)
Amounts shown as due to changes in either volume or rate includes an allocation of the amount that reflects the interaction of volume and rate changes. This allocation is based on the absolute dollar amounts of change due solely to changes in volume or rate.

(c)
Includes nonaccrual loans.

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

Provision for Credit Losses

During the year ended December 31, 2023, we recorded a provision for credit losses of $59.1 million compared to a negative provision for credit losses of $28.4 million for the year ended December 31, 2022. The provision for credit losses recorded in 2023 included net charge-offs of $63.4 million, partially offset by a $4.3 million reserve release. The negative provision for credit losses recorded in 2022 included a $30.3 million reserve release, partially offset by net charge-offs of $1.9 million. The provision for credit losses for the year ended December 31, 2023 includes a $29.7 million charge-off attributable to a single participation in a shared national credit, which stemmed from borrower-specific circumstances that we do not believe to be indicative of an industry or portfolio trend. The modest reserve release reflects relatively stable macroeconomic assumptions and credit quality metrics. The negative provision for credit losses for the same period in 2022 reflects the gradual release of certain reserves built in 2020 in response to the economic disruption brought on by the pandemic, as overall credit performance and economic conditions in our markets continued to improve.

Net charge-offs for the year ended December 31, 2023 totaled $63.4 million, or 0.27% of average loans outstanding, comprised of net charge-offs of $52.8 million in the commercial portfolio (inclusive of the $29.7 million single borrower charge-off described above) and $11.8 million in the consumer portfolio, partially offset by net recoveries of $1.2 million in the residential mortgage portfolio. The single customer charge-off comprised 13 bps of the net charge-off ratio, with the remainder representing a more normalized level of losses and lower recoveries. Net charge-offs for the year ended December 31, 2022 totaled $1.9 million, or 0.01% of average loans outstanding, comprised of net charge-offs of $7.4 million in the consumer portfolio, partially offset by net recoveries of $3.9 million in the commercial portfolio and $1.6 million in the residential mortgage portfolio.

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Loan growth, portfolio composition, credit quality metrics and assumptions in economic forecasts will drive the level of credit loss reserves. At present, we expect modest charge-offs and provision expense in 2024.

Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Balance Sheet Analysis—Allowance for Credit Losses” provides additional information on changes in the allowance for credit losses and general credit quality.

Noninterest Income

Noninterest income for the year ended December 31, 2023 totaled $288.5 million, a $43.0 million, or 13%, decrease from 2022. Noninterest income for 2023 includes two supplemental disclosure items totaling $49.3 million, comprised of a $65.4 million loss on restructuring of the available for sale securities portfolio and a $16.1 million gain on the sale of a parking facility. There were no supplemental disclosure items included in noninterest income in 2022. Excluding the supplemental disclosure items, adjusted noninterest income in 2023 was up $6.2 million, or 2%, largely driven by an increase in investment and annuity fees, trust fees, credit-related fees and other miscellaneous income, partially offset by decreases in income from derivatives, secondary mortgage market operations, service charges and bank card and ATM fees, discussed in more detail below.

Table 4 presents, for each of the three years ended December 31, 2023, 2022 and 2021, the components of noninterest income, along with the percentage changes between years. Table 5 presents supplemental disclosure items included in noninterest income (Table 4) by component for the same periods.

TABLE 4. Noninterest Income

[[GREPCENT_TABLE]]
[["($ in thousands)","2023","","% Change","","","","2022","","% Change","","","","2021"],["Service charges on deposit accounts","$","86,020","","","(2",")","%","","$","87,663","","","8","","%","","$","81,032"],["Trust fees","","67,565","","","4","","","","","65,132","","","4","","","","","62,898"],["Bank card and ATM fees","","82,966","","","(2",")","","","","84,591","","","7","","","","","79,074"],["Investment and annuity fees and insurance commissions","","36,714","","","28","","","","","28,752","","","(3",")","","","","29,502"],["Secondary mortgage market operations","","9,159","","","(21",")","","","","11,524","","","(69",")","","","","36,694"],["Securities transactions","","(65,380",")","n/m","","","","","(87",")","","(126",")","","","","333"],["Income from bank-owned life insurance","","15,454","","","(3",")","","","","15,881","","","(13",")","","","","18,330"],["Credit-related fees","","12,557","","","20","","","","","10,483","","","(5",")","","","","11,001"],["Income from derivatives","","420","","","(93",")","","","","5,832","","","(57",")","","","","13,477"],["Net gains on sales of premises, equipment and other assets","","19,388","","","526","","","","","3,096","","","118","","","","","1,423"],["Other miscellaneous income","","23,617","","","27","","","","","18,619","","","3","","","","","30,570"],["Total noninterest income","$","288,480","","","(13",")","%","","$","331,486","","","(9",")","%","","$","364,334"]]
[[/GREPCENT_TABLE]]

n/m – not meaningful

TABLE 5. Supplemental Disclosure Items Included in Noninterest Income

[[GREPCENT_TABLE]]
[["($ in thousands)","","","2023","","","","2022","","","","2021"],["Securities transactions:"],["Loss on securities portfolio restructure","","$","","(65,380",")","","$","","\u2014","","","$","","\u2014"],["Other miscellaneous income:"],["Gain on sale of parking facility","","$","","16,126","","","$","","\u2014","","","$","","\u2014"],["Gain on sale of Hancock Horizon Funds","","","","\u2014","","","","","\u2014","","","","","4,576"],["Gain on sale of MasterCard Class B common stock","","","","\u2014","","","","","\u2014","","","","","2,800"],["Gain on hurricane-related insurance settlement","","","","\u2014","","","","","\u2014","","","","","3,600"],["Total other miscellaneous income","","$","","16,126","","","$","","\u2014","","","$","","10,976"],["Total supplemental disclosure items in noninterest income","","$","","(49,254",")","","$","","\u2014","","","$","","10,976"]]
[[/GREPCENT_TABLE]]

Service charges on deposit accounts include consumer, business, and corporate deposit account servicing fees, as well as overdraft and nonsufficient funds fees, overdraft protection fees, and other customer transaction-related fees. Service charges on deposit accounts were $86.0 million, down $1.6 million, or 2%, from 2022. The decrease from 2022 was largely driven by a $4.2 million decline in retail nonsufficient funds and overdraft fees, as certain of these fees were eliminated in late 2022, and a $1.2 million decline in consumer service charges as a result of a product suite redesign. These decreases were partially offset by an increase of $3.3 million in commercial analysis fees and nonsufficient funds and overdraft fees, driven by deposit balance activity, pricing changes, strong sales activity and higher instances of overdrafts.

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Trust fee income represents revenue generated from asset management services provided to individuals, businesses and institutions. Trust fees totaled $67.6 million in 2023, a $2.4 million, or 4%, increase from 2022, primarily attributable to an increase of $3.7 million in corporate and institutional trust fees and a decrease of $1.3 million in personal trust, retirement services, and other trust fees. Trust assets under management increased to $9.7 billion at December 31, 2023, compared to $9.1 billion at December 31, 2022.

Bank card and ATM fees include 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 $83.0 million in 2023, down $1.6 million, or 2%, compared to 2022. The decline from 2022 is the result of a decrease in merchant and ATM fees, partially offset by an increase in credit card activity during the year as spending remained strong.

Investment and annuity fees and insurance commissions, which include both fees earned from sales of annuity and insurance products as well as managed account fees, totaled $36.7 million in 2023, an $8.0 million, or 28%, increase from 2022. The increase is largely attributable to an increase in annuity fees and investment fees as sales activity increased amid the favorable interest rate environment, and increases in corporate underwriting and insurance fees. Our 2023 results were also favorably impacted by a full year of operations on an enhanced outsourced service platform with an expanded product suite, while 2022 results were negatively impacted by a temporary business disruption as a result of conversion to that platform.

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 and mortgage loans generated through programs to support customer relationships. Income from secondary mortgage market operations totaled $9.2 million in 2023, a decrease of $2.4 million, or 21%, from 2022. The decline is largely attributable to decreased demand for mortgage loans and refinancing as a result of the elevated interest rate environment and, to a lesser extent, a larger percentage of mortgage loans retained in the held for investment portfolio. The number and dollar amount of mortgage loan applications that closed in 2023 were down 31% and 56%, respectively, from 2022, and the number and dollar amount of closed mortgage loans that were sold in 2023 were down 12% and 14%, respectively, from 2022. Secondary mortgage market operations income will vary based on application volume and the percentage of loans closed and ultimately sold.

Net loss on sales of securities totaled $65.4 million for the year ended December 31, 2023 and resulted from the sale of $1.04 billion of available for sale securities. The loss reflects a strategic decision to restructure the portfolio to enhance net interest margin through deployment of the proceeds into higher-yielding earning assets and repayment of short-term borrowings.

Credit-related fees include fees assessed on letters of credit and unused portions of loan commitments. Credit-related fees were $12.6 million for 2023, up $2.1 million, or 20% compared to 2022. The increase includes $1.3 million of higher letter of credit fees and $0.8 million of higher unused commitment fees. Income from these products will vary based on letters of credit issued, credit line utilization and prevailing assessment rates.

Income from bank-owned life insurance (“BOLI”) is generated through insurance benefit proceeds as well as the growth of the cash surrender value of insurance contracts held. BOLI income totaled $15.5 million, a decrease of $0.4 million, or 3%, from 2022. The decline is largely attributable to a lower level of growth in cash surrender value.

Income from derivatives, largely derived from our customer interest rate derivative program, totaled $0.4 million in 2023, compared to $5.8 million in 2022. Derivative income can be volatile and is dependent upon the composition of the portfolio, volume and mix of sales 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. The decline in derivative income also reflects a $1.8 million increase in losses associated with our Visa B derivative.

The net gains on sales of premises, equipment and other assets consists primarily of net revenue earned from sales of excess-bank owned facilities and equipment no longer in use, gains on sales of Small Business Administration and other non-residential mortgage loans, and leases and other assets associated with the equipment finance line of business. Net gains on sales of premises, equipment and other assets totaled $19.4 million in 2023, compared to $3.1 million in 2023, up $16.3 million. The increase was primarily related to previously mentioned gain on the sale of a stand alone parking facility totaling, $16.1 million, that was identified as a supplemental disclosure item. The sale of the property took advantage of favorable market conditions while exiting a service that was not a part of our core business.

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Other miscellaneous income is comprised of various items, including dividends on FHLB stock, income from small business investment companies (SBICs), and syndication fees, among others. Other miscellaneous income for the year ended December 31, 2023 was $23.6 million, up $5.0 million from the previous year, or 27%, largely due to a $4.8 million increase in FHLB stock dividends as a result of both an increase in prevailing rates and an increase in volume of FHLB stock.

We expect noninterest income in 2024 to increase 3% to 4% from the adjusted 2023 level of $337.7 million.

Noninterest Expense

Noninterest expense for the year ended December 31, 2023 totaled $836.8 million, an $86.2 million, or 11%, increase from 2022. Noninterest expense for the year ended December 31, 2023 includes a supplemental disclosure item of $26.1 million attributable to an FDIC special assessment in connection with the protection of uninsured depositors under the systemic risk exception for two bank failures in 2023. Excluding the supplemental disclosure item, adjusted noninterest expense totaled $810.7 million, up $60.0 million, or 8%, from 2022. The largest individual components of the increase in noninterest expense excluding supplemental items were other retirement expense, data processing, deposit insurance and regulatory fees, and other miscellaneous expense. Explanations of the variances are discussed below in more detail.

Table 6 presents, for each of the three years ended December 31, 2023, 2022 and 2021, noninterest expense, along with the percentage changes between years. Table 7 presents supplemental disclosure items included in noninterest expense (Table 6) by component for the same periods.

TABLE 6. Noninterest Expense

[[GREPCENT_TABLE]]
[["($ in thousands)","2023","","% Change","","","","2022","","% Change","","","","2021"],["Compensation expense","$","376,055","","","(1",")","%","","$","378,482","","","(0",")","%","","$","378,589"],["Employee benefits","","84,740","","","3","","","","","82,153","","","(21",")","","","","103,786"],["Personnel expense","","460,795","","","0","","","","","460,635","","","(5",")","","","","482,375"],["Net occupancy expense","","51,573","","","6","","","","","48,767","","","(2",")","","","","49,786"],["Equipment expense","","18,852","","","2","","","","","18,573","","","2","","","","","18,167"],["Data processing expense","","117,694","","","13","","","","","103,942","","","7","","","","","96,755"],["Professional services expense","","38,331","","","6","","","","","36,065","","","(26",")","","","","48,678"],["Amortization of intangibles","","11,556","","","(18",")","","","","14,033","","","(16",")","","","","16,665"],["Deposit insurance and regulatory fees","","49,979","","","236","","","","","14,889","","","10","","","","","13,582"],["Other real estate and foreclosed assets income","","(624",")","","(86",")","","","","(4,407",")","n/m","","","","","(210",")"],["Corporate value, franchise taxes, and other non-income taxes","","20,355","","","22","","","","","16,744","","","16","","","","","14,478"],["Advertising","","13,454","","","(2",")","","","","13,783","","","11","","","","","12,441"],["Telecommunications and postage","","10,773","","","(9",")","","","","11,870","","","(6",")","","","","12,646"],["Entertainment and contributions","","10,664","","","3","","","","","10,336","","","31","","","","","7,867"],["Tax credit investment amortization","","5,791","","","21","","","","","4,768","","","7","","","","","4,436"],["Travel expenses","","5,469","","","26","","","","","4,336","","","61","","","","","2,697"],["Printing and supplies","","4,073","","","7","","","","","3,795","","","2","","","","","3,728"],["Other retirement expense","","(13,460",")","","(55",")","","","","(29,693",")","","6","","","","","(27,941",")"],["Loss on facilities and equipment from consolidation","","\u2014","","n/m","","","","","\u2014","","n/m","","","","","13,863"],["Loss on extinguishment of debt","","\u2014","","n/m","","","","","\u2014","","n/m","","","","","4,165"],["Other miscellaneous expense","","31,573","","","42","","","","","22,256","","","(32",")","","","","32,829"],["Total noninterest expense","$","836,848","","","11","","%","","$","750,692","","","(7",")","%","","$","807,007"]]
[[/GREPCENT_TABLE]]

n/m - not meaningful

52

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TABLE 7. Supplemental Disclosure Items Included in Noninterest Expense

[[GREPCENT_TABLE]]
[["($ in thousands)","","2023","","2022","","2021"],["Compensation expense","","$","\u2014","","$","\u2014","","$","4,248"],["Employee benefits","","","\u2014","","","\u2014","","","20,192"],["Personnel expense","","","\u2014","","","\u2014","","","24,440"],["Net occupancy expense","","","\u2014","","","\u2014","","","2"],["Equipment expense","","","\u2014","","","\u2014","","","5"],["Deposit insurance and regulatory fees","","","26,123","","","\u2014","","","\u2014"],["Advertising","","","\u2014","","","\u2014","","","16"],["Printing and supplies","","","\u2014","","","\u2014","","","22"],["Entertainment and contributions","","","\u2014","","","\u2014","","","174"],["Travel expenses","","","\u2014","","","\u2014","","","5"],["Loss on facilities and equipment from consolidation","","","\u2014","","","\u2014","","","13,863"],["Loss on extinguishment of debt","","","\u2014","","","\u2014","","","4,165"],["Other miscellaneous expense","","","\u2014","","","\u2014","","","4,181"],["Total supplemental disclosure items included in noninterest expense","","$","26,123","","$","\u2014","","$","46,873"]]
[[/GREPCENT_TABLE]]

Personnel expense consists of salaries, incentive compensation, long-term incentives, payroll taxes, and other employee benefits such as 401(k), pension, and medical, life and disability insurance. Personnel expense totaled $460.8 million in 2023, virtually flat compared to 2022, as merit-based increases in salaries and insurance benefits were largely offset by decreases in incentive-based compensation and retirement benefits.

Occupancy and equipment expenses are primarily composed of lease expenses, depreciation, maintenance and repairs, rent, taxes, and other equipment expenses. Total occupancy and equipment expenses of $70.4 million in 2023, increased $3.1 million, or 5%, from 2022. The increase was largely related to higher insurance cost and equipment depreciation expense.

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 totaling $117.7 million in 2023 was up $13.8 million, or 13%, from 2022. The increase was largely attributable to higher costs associated with ongoing data processing arrangements and the implementation of technology enhancement projects, including maintenance and amortization of bank-owned software of $4.1 million, and new data processing arrangements of $2.4 million.

Professional services expense totaling $38.3 million in 2023 increased $2.3 million, or 6%, from 2022, primarily due to increases of $2.9 million in consulting and other professional services, partially offset by lower legal expense.

Amortization of intangibles in 2023 totaled $11.6 million, a $2.5 million, or 18%, decrease from 2022 as a result of the accelerated amortization methods used.

Deposit insurance and regulatory fees totaled $50.0 million for the year ended December 31, 2023, an increase of $35.1 million from 2022. The increase includes the $26.1 million special assessment made by the FDIC to recover losses to the Deposit Insurance Fund arising from the protection of uninsured depositors under the systemic risk determination following the closures of Silicon Valley Bank and Signature Bank. The assessment base for the special assessment is equal to the institution's estimated uninsured deposits as of December 31, 2022, adjusted to exclude the first $5 billion, multiplied by an annual rate of approximately 13.4 basis points, to be collected for an estimated eight quarters. Because the liability has been incurred and the loss is reasonably estimable, the full amount of the assessment was recorded in the current period. Excluding the special assessment, deposit insurance and regulatory fees were up $9.0 million, or 60%, which includes $6.6 million of incremental expense attributable to a two-basis point increase in the deposit insurance fund assessment effective January 1, 2023. The additional two-basis points of assessment cost will remain in effect until the Deposit Insurance Fund reserve ratio to insured deposits meets the FDIC’s long-term goal for the fund, which is not expected to occur for some time given the recent bank failures. The remaining increase reflects $1.0 million of higher deposit insurance expense that reflects changes in our assessment base and rates, and $1.4 million in state regulatory fees and special assessments. Under the final rule, however, the FDIC retains the ability to cease collection early, extend the special assessment collection period one or more quarters beyond the initial eight-quarter collection period, or impose a final shortfall special assessment on a one-time basis after the receiverships for the two banks are terminated. The collection period may change due to updates to the estimated loss pursuant to the systemic risk determination or if assessments collected change due to corrective amendments to the amount of uninsured deposits reported for the December 31, 2022 reporting period.

Net gains on sales of other real estate and foreclosed assets exceeded expense by $0.6 million in 2023, compared to $4.4 million in 2022. The net gain recorded in the year ended December 31, 2022 includes a $1.8 million gain on the sale of stock in a former

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borrower received in satisfaction of debt. 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.

Business development-related expenses (including advertising, travel, entertainment and contributions), totaling $29.6 million in 2023, were up $1.1 million, or 4%, from 2022 and is reflective of an increase in travel expense.

Corporate value, franchise taxes, and other non-income taxes totaled $20.4 million in 2023, an increase of $3.6 million, or 22%, from 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.

Noninterest expense in each of the years ended December 31, 2023 and 2022 was reduced by a net credit in other retirement expense. The net credit of $13.5 million recorded in 2023 was $16.2 million, or 55%, lower than the net credit recorded in 2022, largely driven by an increase in the discount rate and changes in other actuarial assumptions for the current plan year.

All other expenses totaling $52.2 million in 2023 increased $9.5 million, or 22%, from 2022, as a result of various miscellaneous items, including $4.7 million of insurance and other property related gains and various smaller gains recorded in 2022, with no such gains in 2023.

We expect noninterest expense to increase 3% to 4% in 2024, from the adjusted 2023 level of $810.7 million.

Income Taxes

We recorded income tax expense at an effective rate of 19.9% in 2023, compared to 20.5% in 2022. The comparability of the effective tax rate between 2023 and 2022 is affected by lower pre-tax book income in 2023 that increased the relative impact of net tax benefits related to tax credit investments, tax-exempt interest income and bank-owned life insurance. Based on the current forecast, management expects the effective tax rate to be approximately 20% to 21% in 2024.

Our effective tax rate has historically varied from the federal statutory rate primarily due to 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 contract program are the major components of tax-exempt income.

Table 8 reconciles reported income tax expense to that computed at the statutory tax rate of 21% for the years ended December 31, 2023, 2022 and 2021.

TABLE 8. Income Taxes

[[GREPCENT_TABLE]]
[["($ in thousands)","2023","","2022","","2021"],["Taxes computed at statutory rate","$","102,927","","$","138,431","","$","119,292"],["Tax credits:"],["QZAB/QSCB","","(1,114",")","","(1,391",")","","(1,633",")"],["NMTC - Federal and State","","(7,177",")","","(5,745",")","","(5,487",")"],["LIHTC and other tax credits","","(4,884",")","","(4,232",")","","(1,936",")"],["LIHTC amortization","","3,732","","","3,329","","","1,167"],["Total tax credits","","(9,443",")","","(8,039",")","","(7,889",")"],["State income taxes, net of federal income tax benefit","","10,323","","","13,272","","","9,048"],["Tax-exempt interest","","(8,755",")","","(8,612",")","","(9,100",")"],["Life insurance contracts","","(4,020",")","","(1,812",")","","(2,653",")"],["Employee share-based compensation","","(505",")","","(2,084",")","","(1,671",")"],["FDIC assessment disallowance","","2,893","","","1,836","","","1,609"],["Net operating loss carryback under CARES Act","","\u2014","","","238","","","(4,948",")"],["Other, net","","4,106","","","1,877","","","1,153"],["Income tax expense","$","97,526","","$","135,107","","$","104,841"]]
[[/GREPCENT_TABLE]]

The main source of tax credits has been investments in tax-advantage securities and tax credit projects. These investments are made primarily in the markets we serve and directed at tax credits issued under the Federal and State New Market Tax Credit (“NMTC”), Low-Income Housing Tax Credit (“LIHTC”) and pre-2018 Qualified Zone Academy Bonds (“QZAB”) and Qualified School Construction Bonds (“QSCB”) programs. The investments generate tax credits which reduce current and future taxes and are recognized when earned as a benefit in the provision for income taxes. Additionally, the amortization of the LIHTC investment cost

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will be recognized as a component of income tax expense in proportion to the tax credits recognized over the 10-year credit period of each project.

We have invested in NMTC projects through investments in our own CDEs, 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.

Based only on tax credit investments that have been made through 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 for 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.

At December 31, 2023, we had a net deferred tax asset of $153.4 million, which is comprised of $293.7 million in deferred tax assets (net of valuation allowance), offset by $140.3 million of deferred tax liabilities. Several factors are considered in determining the recoverability of the deferred tax asset components, such as the history of taxable earnings, reversal of taxable temporary differences, future taxable income and tax planning strategies. Based on our review of these factors, we have established a $3.3 million valuation allowance for state net operating losses and $1.8 million valuation allowance for deferred executive compensation.

In August 2022, the Inflation Reduction Act of 2022 (the 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 (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, our consolidated corporate group does not meet the criteria of an applicable corporation and, as such, are not subject to the 15% CAMT, absent any further changes in law.

BALANCE SHEET ANALYSIS

Short-Term Investments

At December 31, 2023, short-term liquidity investments, including interest-bearing bank deposits and federal funds sold, totaled $627.1 million, an increase of $303.0 million from December 31, 2022. Average short-term investments for 2023 totaled $638.6 million, an $888.1 million decrease from $1.5 billion in 2022. Typically, these balances will change on a daily basis depending upon movement in customer loan and deposit accounts. The year-over-year decline in average balance is the result of the completion of the redeployment of excess liquidity that had been present on our balance sheet attributable to pandemic-related factors. Short-term liquidity assets are held to ensure funds are available to meet the cash flow needs of both borrowers and depositors. See further discussion in the “Liquidity” section that follows.

Investment Securities

Our investment in securities was $7.6 billion at December 31, 2023 compared to $8.4 billion at December 31, 2022. The investment securities portfolio is managed by ALCO to assist in the management of interest rate risk and liquidity while providing an acceptable rate of return. At December 31, 2023, the amortized cost of securities available for sale totaled $5.5 billion and securities held to maturity totaled $2.7 billion, compared to $6.3 billion and $2.9 billion, respectively, at December 31, 2022. The decrease in the available for sale securities portfolio reflects in part a restructuring of the portfolio to enhance net interest margin whereby $1.04 billion of securities were sold and approximately half of the proceeds were redeployed back into the securities portfolio.

Our securities portfolio consists mainly of residential and commercial mortgage-backed securities that are issued or guaranteed by U.S. government agencies. We invest only in high quality investment grade securities and manage the investment portfolio duration generally between two and five and a half years. At December 31, 2023, the average expected maturity of the portfolio was 6.22 years with an effective duration of 4.60 years and a nominal weighted-average yield of 2.48%. Under an immediate, parallel rate shock of 100 bps and 200 bps, the effective duration would be 4.58 years and 4.55 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 change in expected maturity, effective duration, and nominal weighted-average yield is attributable to the fourth quarter 2023 strategic portfolio restructure, reinvestment activity of securities portfolio and the impact of cash flows from the termination of four fair value hedge instruments during the year.

We have in place fair value hedges on certain fixed-rate commercial mortgage backed securities. As of December 31, 2023, we had approximately $478 million in notional amount of forward-starting fixed payer swaps that convert the latter portion of the term of these available for sale securities to a floating rate. These derivative instruments are designated as fair value hedges of interest rate

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risk. This strategy provides a fixed-rate coupon during the front-end unhedged tenor of the bonds and results in a floating-rate security during the back-end hedged tenor.

At the end of each reporting period, we evaluate the securities portfolio for credit loss. Based on our assessments, expected credit loss was negligible for all reporting periods in 2023 and 2022, and therefore no allowance for credit loss was recorded.

There were no investments in securities of a single issuer, other than U.S. Treasury and U.S. government agency securities and mortgage-backed securities issued or guaranteed by U.S. government agencies that exceeded 10% of stockholders’ equity. We do not invest in subprime or “Alt A” home mortgage-backed securities. Investments classified as available for sale are carried at fair value, while held to maturity securities are carried at amortized cost. Unrealized holding gains (losses) on available for sale securities are excluded from net income and are recognized, net of tax, in other comprehensive income and in accumulated other comprehensive income, a separate component of stockholders’ equity.

The following table presents debt securities at amortized cost by type at December 31, 2023 and 2022:

TABLE 9. Debt Securities by Type

[[GREPCENT_TABLE]]
[["($ in thousands)","2023","","2022"],["Available for sale securities"],["U.S. Treasury and government agency securities","$","97,741","","$","113,211"],["Municipal obligations","","203,533","","","207,014"],["Residential mortgage-backed securities","","2,440,411","","","2,655,381"],["Commercial mortgage-backed securities","","2,683,872","","","3,234,278"],["Collateralized mortgage obligations","","47,661","","","76,830"],["Corporate debt securities","","23,500","","","23,500"],["Total Available for sale Securities","$","5,496,718","","$","6,310,214"],["Held to maturity securities"],["U.S. Treasury and government agency securities","$","413,490","","$","426,454"],["Municipal obligations","","664,488","","","698,908"],["Residential mortgage-backed securities","","654,262","","","734,478"],["Commercial mortgage-backed securities","","920,048","","","948,691"],["Collateralized mortgage obligations","","32,491","","","43,964"],["Total Held to maturity securities","$","2,684,779","","$","2,852,495"]]
[[/GREPCENT_TABLE]]

The amortized cost, fair value and yield of debt securities at December 31, 2023, by final contractual maturity, are presented in the table below. Securities are classified according to their final contractual maturities without consideration of scheduled and unscheduled principal amortization, potential prepayments or call options. Accordingly, actual maturities will differ from their reported contractual maturities. The expected average maturity years presented in the table includes scheduled principal payments and assumptions for prepayments. The yield calculation does not include adjustments to amortized cost of available for sale securities for active fair value hedges.

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TABLE 10. Debt Securities Maturities by Type

[[GREPCENT_TABLE]]
[["($ in thousands)","One Year or Less","","Over One Year Through Five Years","","Over Five Years Through Ten Years","","Over Ten Years","","Total","","Fair Value","","Weighted Average Yield (te)","","Expected Average Maturity Years"],["Available for sale"],["U.S. Treasury and government agency securities","$","29,787","","$","29,650","","$","\u2014","","$","38,304","","$","97,741","","$","97,808","","","4.94","%","","4.1"],["Municipal obligations","","\u2014","","","9,631","","","191,548","","","2,354","","","203,533","","","201,412","","","3.31","%","","2.2"],["Residential mortgage-backed securities","","1,111","","","61,803","","","131,397","","","2,246,100","","","2,440,411","","","2,113,866","","","2.24","%","","7.6"],["Commercial mortgage-backed securities","","82,280","","","336,718","","","2,264,874","","","\u2014","","","2,683,872","","","2,437,472","","","2.65","%","","6.7"],["Collateralized mortgage obligations","","\u2014","","","\u2014","","","30,220","","","17,441","","","47,661","","","44,285","","","1.94","%","","2.8"],["Other debt securities","","2,000","","","1,500","","","20,000","","","\u2014","","","23,500","","","20,352","","","3.51","%","","2.0"],["Total debt securities","$","115,178","","$","439,302","","$","2,638,039","","$","2,304,199","","$","5,496,718","","$","4,915,195","","","2.53","%","","6.8"],["Fair Value","$","113,610","","$","429,623","","$","2,385,895","","$","1,986,067","","$","4,915,195"],["Weighted Average Yield (te)","","3.16","%","","3.48","%","","2.56","%","","2.28","%","","2.53","%"],["Held to maturity"],["U.S. Treasury and government agency securities","$","\u2014","","$","133,520","","$","\u2014","","$","279,970","","$","413,490","","$","369,698","","","2.38","%","","6.2"],["Municipal obligations","","6,635","","","186,797","","","396,527","","","74,529","","","664,488","","","646,147","","","3.20","%","","3.1"],["Residential mortgage-backed securities","","\u2014","","","\u2014","","","31,563","","","622,699","","","654,262","","","595,039","","","2.33","%","","5.8"],["Commercial mortgage-backed securities","","85,064","","","344,596","","","354,498","","","135,890","","","920,048","","","844,245","","","2.57","%","","5.4"],["Collateralized mortgage obligations","","\u2014","","","\u2014","","","8,570","","","23,921","","","32,491","","","30,789","","","2.57","%","","2.6"],["Total debt securities","$","91,699","","$","664,913","","$","791,158","","$","1,137,009","","$","2,684,779","","$","2,485,918","","","2.64","%","","5.0"],["Fair Value","$","90,110","","$","634,463","","$","742,927","","$","1,018,418","","$","2,485,918"],["Weighted Average Yield (te)","","2.35","%","","2.64","%","","2.86","%","","2.51","%","","2.64","%"]]
[[/GREPCENT_TABLE]]

Loan Portfolio

Total loans at December 31, 2023 were $23.9 billion, compared to $23.1 billion at December 31, 2022. The $0.8 billion, or 3%, increase is primarily attributable to growth in the residential mortgage and commercial real estate - income producing portfolios.

The composition of our loan portfolio at December 31, 2023 and 2022 was as follows:

TABLE 11. Loans Outstanding by Type

[[GREPCENT_TABLE]]
[["($ in thousands)","2023","","2022"],["Commercial non-real estate","$","9,957,284","","$","10,146,453"],["Commercial real estate - owner occupied","","3,093,763","","","3,033,058"],["Total commercial & industrial","","13,051,047","","","13,179,511"],["Commercial real estate - income producing","","3,986,943","","","3,560,991"],["Construction and land development","","1,551,091","","","1,703,592"],["Residential mortgages","","3,886,072","","","3,092,605"],["Consumer","","1,446,764","","","1,577,347"],["Total loans","$","23,921,917","","$","23,114,046"]]
[[/GREPCENT_TABLE]]

The commercial and industrial (“C&I”) loan portfolio includes both commercial non-real estate and commercial real estate – owner occupied loans. C&I loans totaled $13.1 billion, or 55% of the total loan portfolio, at December 31, 2023, a decrease of $128.5 million from December 31, 2022. Loan growth in this portfolio segment has tempered, as demand has been affected by the interest rate environment, and as a result of a selective credit appetite with a focus on resilient industries and borrowers and on full service client relationships.

Our commercial and industrial customer base is diversified over a range of industries, including wholesale and retail trade in various durable and nondurable products and the manufacture of such products, financial and professional services, healthcare services, energy, marine transportation and maritime construction, and agricultural production. We lend mainly to middle-market and smaller

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commercial entities, although we do participate in larger shared-credit loan facilities generally with businesses/sponsors operating in our market areas that are well known to the relationship officers. Shared national credits funded at December 31, 2023 totaled approximately $2.6 billion, or 11% of total loans, compared to $2.7 million, or 12% of total loans at December 31, 2022. Our shared national credit industry concentration at December 31, 2023 includes approximately $431 million of health care-related facilities, $419 million in finance and insurance and $394 million in real estate, rental and leasing, with the remaining to various other industries.

The following table provides detail of the end of period balances of the more significant industry concentrations for our commercial and industrial loan portfolio, which is based on NAICS codes for all industries, with the exceptions of energy, which is based on the borrower’s source of revenue (i.e. manufacturer whose income is derived from energy-related business is reported as energy).

TABLE 12. Commercial & Industrial Loans by Industry Concentration

[[GREPCENT_TABLE]]
[["","2023","","","","2022"],["","","","Pct of","","","","","","Pct of"],["($ in thousands)","Balance","","Total","","","","Balance","","Total"],["Health care and social assistance","$","1,481,669","","","11","","%","","$","1,407,960","","","11","","%"],["Real estate and rental and leasing","","1,270,568","","","10","","","","","1,520,955","","","12"],["Retail trade","","1,236,830","","","9","","","","","1,218,784","","","9"],["Manufacturing","","1,120,232","","","9","","","","","1,145,947","","","9"],["Wholesale trade","","1,111,643","","","8","","","","","997,930","","","7"],["Construction","","998,802","","","8","","","","","1,034,860","","","8"],["Finance and insurance","","878,824","","","7","","","","","966,683","","","7"],["Transportation and warehousing","","872,379","","","7","","","","","872,234","","","7"],["Professional, scientific, and technical services","","735,381","","","6","","","","","706,430","","","5"],["Accommodation, food services and entertainment","","706,141","","","5","","","","","637,942","","","5"],["Public administration","","461,390","","","3","","","","","542,698","","","4"],["Information","","424,532","","","3","","","","","386,568","","","3"],["Other services (except public administration)","","396,674","","","3","","","","","396,629","","","3"],["Admin, support, waste mgmt, remediation services","","357,390","","","3","","","","","314,921","","","2"],["Educational services","","247,003","","","2","","","","","242,076","","","2"],["Energy","","204,633","","","2","","","","","298,126","","","2"],["Other","","546,956","","","4","","","","","488,768","","","4"],["Total commercial & industrial loans","$","13,051,047","","","100","","%","","$","13,179,511","","","100","","%"]]
[[/GREPCENT_TABLE]]

Commercial real estate – income producing loans totaled $4.0 billion at December 31, 2023, an increase of $426 million, or 12%, from December 31, 2022. The net increase is mostly reflective of construction loans converting to permanent financing, as well as organic growth.

Construction and land development loans totaled approximately $1.6 billion at December 31, 2023, a decrease of $152.5 million, or 9%, from December 31, 2022. The decrease reflects loans converting to permanent financing outpacing the funding of new and existing loans.

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.

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TABLE 13. Commercial Real Estate– Income Producing and Construction by Property Type Concentration

[[GREPCENT_TABLE]]
[["","2023","","","","2022"],["","","","Pct of","","","","","","Pct of"],["($ in thousands)","Balance","","Total","","","","Balance","","Total"],["Multifamily","$","1,268,342","","","23","","%","","$","870,869","","","17","","%"],["Retail","","812,556","","","15","","","","","811,990","","","15"],["Healthcare related properties","","777,473","","","14","","","","","854,563","","","16"],["Industrial","","753,074","","","13","","","","","613,149","","","12"],["Office","","514,763","","","9","","","","","569,452","","","11"],["Hotel, motel and restaurants","","477,761","","","9","","","","","485,865","","","9"],["1-4 family residential construction","","429,107","","","8","","","","","602,867","","","11"],["Other land loans","","187,514","","","3","","","","","213,159","","","4"],["Other","","317,444","","","6","","","","","242,669","","","5"],["Total commercial real estate - income producing and construction loans","$","5,538,034","","","100","","%","","$","5,264,583","","","100","","%"]]
[[/GREPCENT_TABLE]]

Residential mortgages totaled $3.9 billion at December 31, 2023, up $793.5 million, or 26%, from December 31, 2022. The growth in mortgage loans includes a combination of completed construction loans converting to permanent financing, as well as new loan growth. Consumer loans totaled $1.4 billion at December 31, 2023, down $130.6 million, or 8%, compared to December 31, 2022. The decline in the consumer loan portfolio is due in part to a decrease of $64 million attributable to the wind down of our indirect auto lending portfolio, a business line that we have exited, with the remainder reflecting slowing demand.

The following table shows average loans by category, the effective taxable equivalent yield and the percentage of total loans for each of the preceding three years:

TABLE 14. Average Loans

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["","","","Yield","","Pct of","","","","Yield","","Pct of","","","","Yield","","Pct of"],["($ in thousands)","Balance","","(te)","","Total","","Balance","","(te)","","Total","","Balance","","(te)","","Total"],["Commercial & real estate loans","$","18,556,175","","","6.10","%","","79","%","$","17,682,332","","","4.30","%","","81","%","$","17,070,252","","","3.55","%","","80","%"],["Residential mortgages","","3,541,245","","","3.62","%","","15","%","","2,666,134","","","3.39","%","","12","%","","2,445,602","","","3.70","%","","12","%"],["Consumer","","1,497,159","","","8.28","%","","6","%","","1,566,927","","","5.64","%","","7","%","","1,692,088","","","4.82","%","","8","%"],["Total loans","$","23,594,579","","","5.87","%","","100","%","$","21,915,393","","","4.32","%","","100","%","$","21,207,942","","","3.92","%","","100","%"]]
[[/GREPCENT_TABLE]]

The following table sets forth the contractual maturity by portfolio segment at December 31, 2023.

TABLE 15. Loan Maturities by Type

[[GREPCENT_TABLE]]
[["December 31, 2023","Maturity Range"],["($ in thousands)","Within One Year","","After One Through Five Years","","After Five Through Fifteen Years","","After Fifteen Years","","Total"],["Commercial non-real estate","$","2,381,871","","$","5,979,539","","$","1,470,467","","$","125,407","","$","9,957,284"],["Commercial real estate - owner occupied","","131,668","","","1,134,997","","","1,777,630","","","49,468","","","3,093,763"],["Total commercial & industrial","","2,513,539","","","7,114,536","","","3,248,097","","","174,875","","","13,051,047"],["Commercial real estate - income producing","","640,730","","","2,525,345","","","816,435","","","4,433","","","3,986,943"],["Construction and land development","","341,563","","","829,015","","","149,401","","","231,112","","","1,551,091"],["Residential mortgages","","38,498","","","40,085","","","374,885","","","3,432,604","","","3,886,072"],["Consumer","","63,777","","","426,263","","","59,168","","","897,556","","","1,446,764"],["Total loans","$","3,598,107","","$","10,935,244","","$","4,647,986","","$","4,740,580","","$","23,921,917"]]
[[/GREPCENT_TABLE]]

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The sensitivity to interest rate changes for the portion of our loan portfolio that matures after one year is shown below.

TABLE 16. Loan Sensitivity to Changes in Interest Rates for Loans that Mature After One Year

[[GREPCENT_TABLE]]
[["","December 31, 2023"],["($ in thousands)","Fixed Rate","","Floating Rate","","Total"],["Commercial non-real estate","$","3,132,833","","$","4,442,580","","$","7,575,413"],["Commercial real estate - owner occupied","","1,973,409","","","988,686","","","2,962,095"],["Total commercial & industrial","","5,106,242","","","5,431,266","","","10,537,508"],["Commercial real estate - income producing","","1,053,820","","","2,292,393","","","3,346,213"],["Construction and land development","","251,959","","","957,569","","","1,209,528"],["Residential mortgages","","2,188,755","","","1,658,819","","","3,847,574"],["Consumer","","224,056","","","1,158,931","","","1,382,987"],["Total loans","$","8,824,832","","$","11,498,978","","$","20,323,810"]]
[[/GREPCENT_TABLE]]

Management expects end of period loan growth in 2024 to be in the low single digits from the December 31, 2023 balance of $23.9 billion, with most of the growth occurring during the second half of the year.

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Asset Quality

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

TABLE 17. Nonaccrual loans, loans modified or restructured, and ORE and foreclosed assets

[[GREPCENT_TABLE]]
[["","December 31,"],["($ in thousands)","2023","","2022"],["Loans accounted for on a nonaccrual basis:"],["Commercial non-real estate","$","20,840","","$","3,078"],["Commercial non-real estate - modified/restructured (a)","","\u2014","","","942"],["Total commercial non-real estate","","20,840","","","4,020"],["Commercial real estate - owner occupied","","2,228","","","1,233"],["Commercial real estate - owner-occupied - modified/restructured (a)","","\u2014","","","228"],["Total commercial real estate - owner-occupied","","2,228","","","1,461"],["Commercial real estate - income producing","","461","","","1,174"],["Commercial real estate - income producing - modified/restructured (a)","","\u2014","","","66"],["Total commercial real estate - income producing","","461","","","1,240"],["Construction and land development","","815","","","306"],["Construction and land development - modified/restructured (a)","","\u2014","","","3"],["Total construction and land development","","815","","","309"],["Residential mortgage","","26,039","","","23,946"],["Residential mortgage - modified/restructured (a)","","98","","","1,323"],["Total residential mortgage","","26,137","","","25,269"],["Consumer","","8,555","","","6,646"],["Consumer - modified/restructured (a)","","\u2014","","","46"],["Total consumer","","8,555","","","6,692"],["Total nonaccrual loans","$","59,036","","$","38,991"],["ORE and foreclosed assets","","3,628","","","2,017"],["Total nonaccrual loans and ORE and foreclosed assets","$","62,664","","$","41,008"],["Modified/Restructured loans - still accruing (a):"],["Commercial non-real estate","$","21,956","","$","307"],["Commercial real estate - owner occupied","","1,774","","","\u2014"],["Commercial real estate - income producing","","\u2014","","","\u2014"],["Construction and land development","","85","","","113"],["Residential mortgage","","359","","","1,018"],["Consumer","","274","","","469"],["Total Modified/restructured loans - still accruing (a)","$","24,448","","$","1,907"],["Total reportable modified loans (a)","$","24,546","","$","\u2014"],["Total troubled debt restructured loans (a)","$","\u2014","","$","4,515"],["Loans 90 days past due still accruing","$","9,609","","$","4,585"],["Ratios:"],["Nonaccrual loans to total loans","","0.25","%","","0.17","%"],["Nonaccrual loans plus ORE and foreclosed assets to loans plus ORE and foreclosed assets","","0.26","%","","0.18","%"],["Allowance for loan losses to nonaccrual loans","","521.56","%","","789.38","%"],["Allowance for loan losses to nonaccrual loans and accruing loans 90 days past due","","448.55","%","","706.33","%"],["Loans 90 days past due still accruing to loans","","0.04","%","","0.02","%"]]
[[/GREPCENT_TABLE]]

(a) Loans presented in the December 31, 2023 column represent reportable modified loans to borrowers experiencing financial difficulties, and those presented in the December 31, 2022 column represent loans modified in a troubled debt restructuring. 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 II, Item 8 of this document for a discussion of the standard.

Nonaccrual loans plus ORE and foreclosed assets totaled $62.7 million at December 31, 2023, up $21.7 million compared to December 31, 2022. Nonaccrual loans totaled $59.0 million, an increase of $20.0 million compared to December 31, 2022. Despite the increase, the level remains relatively low at 0.25% of the total portfolio and compares favorably to those in our peer group. ORE and foreclosed assets were $3.6 million at December 31, 2023, up $1.6 million from December 31, 2022.

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Modified loans to borrowers experiencing financial difficulties totaled $24.5 million in 2023 and includes $0.1 million of nonaccrual loans. Loans modified in TDRs totaled $4.5 million at December 31, 2022, and included $2.6 million of nonaccrual loans.

Criticized commercial loans totaled $273.7 million at December 31, 2023, down $28.2 million, or 9%, compared to December 31, 2022. Criticized loans are defined as those having potential or well-defined weaknesses that deserve management’s close attention (risk-rated special mention, substandard and doubtful), including both accruing and nonaccruing loans. Criticized commercial loans comprised 1.47% of that portfolio at December 31, 2023, down from 1.64% at December 31, 2022, with both comparative periods reflecting a relatively low level of criticized loans. Our criticized commercial loans at December 31, 2023 are spread across many industries, with the largest concentrations being construction, totaling $60.9 million; real estate, rental and leasing, totaling $46.9 million; transportation and warehousing, totaling $41.4 million; manufacturing, totaling $30.1 million; hospitality, totaling $26.5 million; finance and insurance, totaling $20.8 million and energy support services, totaling $16.0 million. Commercial loans risk rated pass-watch totaled $433.6 million at December 31, 2023, compared to $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.

Allowance for Credit Losses

At December 31, 2023, the allowance for credit losses was $336.8 million, comprised of $307.9 million in allowance for loan losses and $28.9 million in the reserve for unfunded lending commitments. The allowance for credit losses decreased $4.3 million from $341.1 million at December 31, 2022, which was comprised of $307.8 million in allowance for loan losses and $33.3 million in the reserve for unfunded lending commitments. Our allowance for credit losses coverage to total loans was 1.41% at December 31, 2023 compared to 1.48% at December 31, 2022. While coverage is down year-over-year, it remains elevated compared to pre-pandemic levels as uncertainty remains in our economic outlook.

The $4.3 million decrease in the allowance for credit losses from December 31, 2022 includes a reduction of $5.5 million in collectively evaluated reserves, partially offset by an increase of $1.2 million in individually evaluated reserves (generally used for nonperforming loans). The modest release reflects our relatively stable economic outlook and credit metrics. The Company probability-weighted two Moody’s macroeconomic scenarios in the calculation of our collectively evaluated allowance for credit losses. The downside mild recessionary S-2 scenario (anchored on the baseline) was weighted more heavily at 60% and the baseline scenario was weighted 40%, as management deemed certain of the forecasted economic circumstances and outcomes included the S-2 scenario to be somewhat more likely to occur in the near term. Each of the scenarios utilized have varying degrees of severity and duration of inflationary pressure, the impacts to economic growth and the labor market, the consequences of the Federal Reserve's actions with regard to monetary policy, the risk of a U.S. government shutdown, the effects of disruption in the financial services industry, and impacts from geopolitical unrest. Refer to the Economic Outlook section of this discussion and analysis for further information on the Moody’s scenarios and our weighting assumptions.

We currently expect only modest charge-offs and provision expense in 2024; however, loan growth, portfolio composition, asset quality metrics and future assumptions in economic forecasts will drive the level of credit loss reserves in future periods.

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The following table sets forth activity in the allowance for loan losses for the periods indicated.

TABLE 18. Summary of Activity in the Allowance for Credit Losses

[[GREPCENT_TABLE]]
[["","December 31,"],["($ in thousands)","2023","","2022","","2021"],["Provision and Allowance for Credit Losses"],["Allowance for Loan Losses:"],["Allowance for loan losses at beginning of period","$","307,789","","$","342,065","","$","450,177"],["Loans charged-off:"],["Commercial non real estate","","59,830","","","7,637","","","33,523"],["Commercial real estate - owner occupied","","\u2014","","","948","","","3,179"],["Total commercial & industrial","","59,830","","","8,585","","","36,702"],["Commercial real estate - income producing","","73","","","1,073","","","425"],["Construction and land development","","72","","","3","","","274"],["Total Commercial","","59,975","","","9,661","","","37,401"],["Residential mortgages","","55","","","137","","","713"],["Consumer","","15,393","","","12,792","","","12,722"],["Total charge-offs","","75,423","","","22,590","","","50,836"],["Recoveries of loans previously charged-off:"],["Commercial non real estate","","6,152","","","11,812","","","8,985"],["Commercial real estate - owner occupied","","957","","","733","","","642"],["Total commercial & industrial","","7,109","","","12,545","","","9,627"],["Commercial real estate - income producing","","14","","","878","","","105"],["Construction and land development","","11","","","134","","","2,172"],["Total commercial","","7,134","","","13,557","","","11,904"],["Residential mortgages","","1,278","","","1,749","","","1,459"],["Consumer","","3,611","","","5,382","","","6,282"],["Total recoveries","","12,023","","","20,688","","","19,645"],["Total net charge-offs","","63,400","","","1,902","","","31,191"],["Provision for loan losses","","63,518","","","(32,374",")","","(76,921",")"],["Allowance for loan losses at end of period","$","307,907","","$","307,789","","$","342,065"],["Reserve for Unfunded Lending Commitments:"],["Reserve for unfunded lending commitments at beginning of period","","33,309","","","29,334","","","29,907"],["Provision for losses on unfunded lending commitments","","(4,415",")","","3,975","","","(573",")"],["Reserve for unfunded lending commitments at end of period","$","28,894","","$","33,309","","$","29,334"],["Total Allowance for Credit Losses","$","336,801","","$","341,098","","$","371,399"],["Total Provision for Credit Losses","$","59,103","","$","(28,399",")","$","(77,494",")"],["Coverage ratios:"],["Allowance for loan losses to period end loans","","1.29","%","","1.33","%","","1.62","%"],["Allowance for credit loss to period end loans","","1.41","%","","1.48","%","","1.76","%"],["Charge-offs ratios"],["Gross charge-offs to average loans","","0.32","%","","0.10","%","","0.24","%"],["Recoveries to average loans","","0.05","%","","0.09","%","","0.09","%"],["Net charge-offs to average loans","","0.27","%","","0.01","%","","0.15","%"],["Net Charge-offs to average loans by portfolio:"],["Commercial non real estate","","0.54","%","","(0.04",")%","","0.25","%"],["Commercial real estate - owner occupied","","(0.03",")%","","0.01","%","","0.09","%"],["Total commercial & industrial","","0.40","%","","(0.03",")%","","0.22","%"],["Commercial real estate - income producing","","0.00","%","","0.01","%","","0.01","%"],["Construction and land development","","0.00","%","","(0.01",")%","","(0.16",")%"],["Total Commercial","","0.28","%","","(0.02",")%","","0.15","%"],["Residential mortgages","","(0.03",")%","","(0.06",")%","","(0.03",")%"],["Consumer","","0.79","%","","0.47","%","","0.38","%"]]
[[/GREPCENT_TABLE]]

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An allocation of the loan loss allowance by major loan category is set forth in the following table for the periods indicated.

TABLE 19. Allocation of Allowance for Loan Losses by Category

[[GREPCENT_TABLE]]
[["","December 31,"],["","2023","","","2022"],["($ in thousands)","Allowance for Loan Losses","","% of Total Allowance","","","Allowance for Loan Losses","","% of Total Allowance"],["Commercial non-real estate","$","101,737","","","33","","%","","$","96,461","","","31","","%"],["Commercial real estate - owner occupied","","40,197","","","13","","","","","48,284","","","16"],["Total commercial & industrial","","141,934","","","46","","","","","144,745","","","47"],["Commercial real estate - income producing","","74,539","","","24","","","","","71,961","","","23"],["Construction and land development","","27,039","","","9","","","","","30,498","","","10"],["Residential mortgages","","38,983","","","13","","","","","32,464","","","11"],["Consumer","","25,412","","","8","","","","","28,121","","","9"],["Total","$","307,907","","","100","","%","","$","307,789","","","100","","%"]]
[[/GREPCENT_TABLE]]

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, among other things. 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 and programs, and a slowdown in customer spending during the height of the pandemic, leading to higher levels of deposits in recent years.

The failures of three large U.S. banks in the first half of 2023 disrupted the financial services industry. While many factors played a role in the ultimate failures, these institutions had significant industry/demographic concentrations within their deposit bases and a high ratio of uninsured deposits to total 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 an insured cash sweep product (ICS) that allows customers to secure deposits above FDIC insured limits. We have seen increased demand for the ICS product following the bank failures, with the balance totaling $303.8 million at December 31, 2023, compared to $12.2 million at December 31, 2022. At December 31, 2023, we have calculated our average deposit account size by dividing period-end deposits by the population of accounts with balances to be approximately $37,800, which includes $191,600 in our commercial and small business lines (excluding public funds), $135,900 in our wealth management business line, and $18,700 in our consumer business line.

Further, at December 31, 2023, our sources of liquidity exceed uninsured deposits. We have estimated the Bank’s amount of uninsured deposits using the methodologies and assumptions required for FDIC regulatory reporting to be approximately $13.8 billion at December 31, 2023, compared to $14.7 billion at December 31, 2022. Our uninsured deposit total at December 31, 2023 includes approximately $3.6 billion of public funds that have pledged securities as collateral, leaving $10.2 billion of noncollateralized, uninsured deposits compared to total liquidity of $18.0 billion. Our ratio of noncollateralized, uninsured deposits to total deposits was approximately 34.4% at December 31, 2023, compared to 37.9% at December 31, 2022.

Total deposits were $29.7 billion at December 31, 2023, up $619.7 million, or 2%, from December 31, 2022. Deposit levels and composition in 2023 were influenced by increased spending, interest rate movement, and our offering of promotional rates in response to increased competition for deposits, all of which contributed to a significant shift between noninterest-bearing to higher cost interest-bearing products. The change in deposit mix also reflects an increase in brokered time deposits, a funding source utilized to hold excess liquidity on our balance sheet as a cautionary measure in the period following the 2023 bank failures. Average deposits of $29.5 billion for 2023 were virtually unchanged from 2022.

The composition of deposits at December 31, 2023 and 2022 is as follows:

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TABLE 20. Deposits

[[GREPCENT_TABLE]]
[["","December 31,"],["($ in thousands)","2023","","2022"],["Noninterest-bearing deposits","$","11,030,515","","$","13,645,113"],["Interest-bearing retail transaction and savings deposits","","10,680,741","","","10,757,495"],["Interest-bearing public fund deposits"],["Public fund transaction and savings deposits","","3,069,341","","","3,132,828"],["Public fund time deposits","","73,674","","","111,397"],["Total interest-bearing public fund deposits","","3,143,015","","","3,244,225"],["Retail time deposits","","4,246,027","","","1,418,596"],["Brokered time deposits","","589,761","","","4,920"],["Total interest-bearing deposits","","18,659,544","","","15,425,236"],["Total deposits","$","29,690,059","","$","29,070,349"]]
[[/GREPCENT_TABLE]]

At December 31, 2023, noninterest-bearing demand deposits were $11.0 billion, down $2.6 billion, or 19%, from December 31, 2022. Noninterest-bearing demand deposits comprised 37% of total deposits at December 31, 2023 and 47% at December 31, 2022. The current mix of 37% is more in-line with pre-pandemic levels.

Interest-bearing transaction and savings accounts of $10.7 billion at December 31, 2023 decreased $76.8 million, or 1%, from December 31, 2022. Interest-bearing public fund deposits totaled $3.1 billion at December 31, 2023, down $101.2 million, or 3%, from December 31, 2022. Year-end public fund account balances are subject to annual fluctuations dependent upon a number of factors, including the timing of tax collections. Seasonal cash inflows from public entities in the fourth quarter of each year typically results in higher balances than at other times during the year with subsequent reductions in the first quarter of the following year. Retail time deposits totaled $4.2 billion at December 31, 2023, up $2.8 billion, or 199%, from December 31, 2022, with approximately 40% of the increase in time deposits greater than $250,000. The increase in retail time deposits reflects our competitive pricing in the heightened interest rate environment. Brokered deposits totaled $589.8 million at December 31, 2023, up $584.8 million from December 31, 2022. Brokered deposits as of December 31, 2023 consist of two short-term deposits bearing interest at 5.35%, with approximately $195 million maturing in February 2024 and approximately $395 million maturing in May 2024.

Table 21 sets forth average balances and weighted-average rates paid on deposits for each year in the three-year period ended December 31, 2023, as well as the percentage of total deposits for each category. Table 22 sets forth the maturities of time certificates of deposit greater than $250,000 at December 31, 2023.

TABLE 21. Average Deposits

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["($ in millions)","Balance","","Rate","","Mix","","Balance","","Rate","","Mix","","Balance","","Rate","","Mix"],["Interest-bearing deposits:"],["Interest-bearing transaction deposits","$","2,429.5","","","0.93","%","","8.2","%","$","2,630.3","","","0.15","%","","8.9","%","$","2,425.2","","","0.09","%","","8.3","%"],["Money market deposits","","5,762.9","","","2.67","%","","19.6","%","","5,679.8","","","0.30","%","","19.3","%","","6,212.0","","","0.11","%","","21.4","%"],["Savings deposits","","2,424.9","","","0.02","%","","8.2","%","","2,917.4","","","0.01","%","","9.9","%","","2,598.2","","","0.01","%","","8.9","%"],["Time deposits","","3,970.4","","","4.17","%","","13.5","%","","1,030.1","","","0.45","%","","3.5","%","","1,394.1","","","0.47","%","","4.8","%"],["Public Funds","","2,971.6","","","3.38","%","","10.1","%","","2,941.9","","","1.10","%","","10.0","%","","3,140.2","","","0.34","%","","10.8","%"],["Total interest-bearing deposits","","17,559.3","","","2.53","%","","59.6","%","","15,199.5","","","0.38","%","","51.6","%","","15,769.7","","","0.17","%","","54.2","%"],["Noninterest bearing demand deposits","","11,919.2","","","","","40.4","%","","14,298.0","","","","","48.4","%","","13,324.0","","","","","45.8","%"],["Total deposits","$","29,478.5","","","","","100.0","%","$","29,497.5","","","","","100.0","%","$","29,093.7","","","","","100.0","%"]]
[[/GREPCENT_TABLE]]

TABLE 22. Maturity of Time Certificates of Deposit greater than or equal to $250,000*

[[GREPCENT_TABLE]]
[["","December 31,"],["($ in thousands)","2023"],["Three months","$","716,756"],["Over three months through six months","","297,868"],["Over six months through one year","","604,078"],["Over one year","","16,475"],["Total","$","1,635,177"]]
[[/GREPCENT_TABLE]]

* Includes public fund time deposits

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As noted above, we have estimated the Bank’s amount of uninsured deposits at December 31, 2023 to be approximately $13.8 billion, using the methodologies and assumptions required for FDIC regulatory reporting.

Management expects full year 2024 end of period growth in deposits to be in the low single digit range from $29.7 billion at December 31, 2023.

Short-Term Borrowings

Short-term borrowings totaled $1.2 billion at December 31, 2023, down $716.4 million, or 38% from December 31, 2022. Average short-term borrowings for 2023 totaled $1.7 billion, up $334.7 million, or 25%, compared to 2022. The variance compared to December 31, 2022 reflects the net repayment of $725 million of FHLB borrowings. Short-term borrowings are a core portion of the Company’s funding strategy, the balance of which can fluctuate depending on our funding needs and the sources utilized.

Table 23 sets forth balances of short-term borrowings for each of the past three years. Short-term borrowings consist of federal funds purchased, securities sold under agreements to repurchase and borrowings from the FHLB. Customer repurchase agreements are a source of customer funding. These agreements are offered mainly to commercial customers to assist them with their ongoing 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, the amounts available over time will vary.

TABLE 23. Short-Term Borrowings

[[GREPCENT_TABLE]]
[["($ in thousands)","2023","","2022","","2021"],["Federal funds purchased:"],["Amount outstanding at period end","$","350","","","$","1,850","","","$","1,850"],["Average amount outstanding during period","","7,525","","","","13,176","","","","3,762"],["Maximum amount at any month end during period","","100,350","","","","2,350","","","","4,400"],["Weighted-average interest at period end","","4.90","%","","","3.90","%","","","0.15","%"],["Weighted-average interest rate during period","","5.70","%","","","2.82","%","","","0.43","%"],["Securities sold under agreements to repurchase:"],["Amount outstanding at period end","$","454,479","","","$","444,421","","","$","563,211"],["Average amount outstanding during period","","513,306","","","","536,727","","","","559,410"],["Maximum amount at any month end during period","","625,773","","","","640,592","","","","643,403"],["Weighted-average interest at period end","","1.16","%","","","0.53","%","","","0.05","%"],["Weighted-average interest rate during period","","1.36","%","","","0.21","%","","","0.10","%"],["FHLB borrowings:"],["Amount outstanding at period end","$","700,000","","","$","1,425,000","","","$","1,100,000"],["Average amount outstanding during period","","1,172,603","","","","808,784","","","","1,100,000"],["Maximum amount at any month end during period","","3,100,000","","","","1,425,000","","","","1,100,000"],["Weighted-average interest at period end","","5.58","%","","","4.70","%","","","0.49","%"],["Weighted-average interest rate during period","","5.05","%","","","1.82","%","","","0.49","%"]]
[[/GREPCENT_TABLE]]

The $700 million of FHLB short-term borrowings at December 31, 2023 consists of one short-term fixed rate advance purchased on December 29, 2023 that matured on January 2, 2024.

Long-Term Debt

Long-term debt totaled $236.3 million at December 31, 2023, down $5.8 million from December 31, 2022, largely due to activity associated with tax credit fund activity.

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

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

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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.

Commitments to extend credit totaled $9.9 billion at December 31, 2023 and include revolving commercial credit lines, non-revolving loan commitments issued mainly to finance the acquisition and development of 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, which may include the maintenance of sufficient collateral coverage levels, payment and financial performance, and compliance with 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 adjustment or 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.

Letters of credit totaled $482 million at December 31, 2023. 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 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 December 31, 2023, the Company had a reserve for unfunded lending commitments of $28.9 million.

The following table shows the commitments to extend credit and letters of credit at December 31, 2023 and 2022 according to expiration date.

TABLE 24. Loan Commitments and Letters of Credit

[[GREPCENT_TABLE]]
[["","","","Expiration Date"],["($ in thousands)","Total","","Less Than 1 Year","","1-3 Years","","3-5 Years","","More Than 5 Years"],["December 31, 2023"],["Commitments to extend credit","$","9,852,367","","$","3,822,335","","$","2,750,327","","$","2,484,180","","$","795,525"],["Letters of credit","","481,910","","","379,813","","","30,552","","","71,417","","","128"],["Total","$","10,334,277","","$","4,202,148","","$","2,780,879","","$","2,555,597","","$","795,653"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","","Expiration Date"],["($ in thousands)","","","Less Than 1 Year","","1-3 Years","","3-5 Years","","More Than 5 Years"],["December 31, 2022"],["Commitments to extend credit","$","10,202,464","","$","3,997,036","","$","2,557,813","","$","2,819,663","","$","827,952"],["Letters of credit","","400,505","","","343,375","","","56,995","","","135","","","\u2014"],["Total","$","10,602,969","","$","4,340,411","","$","2,614,808","","$","2,819,798","","$","827,952"]]
[[/GREPCENT_TABLE]]

ENTERPRISE RISK MANAGEMENT

We proactively manage risks to capture opportunities and maximize shareholder value. We balance revenue generation and profitability with the inherent risks of our business activities. Enterprise risk management helps protect shareholder value by assessing, monitoring, and managing the risks associated with our businesses. Strong risk management practices enhance decision-making, facilitate successful implementation of new initiatives, and where appropriate, support undertaking greater levels of well-managed risk to drive growth and achieve strategic objectives. Our risk management culture integrates a board-approved risk appetite with senior management direction and governance to facilitate the execution of the Company’s strategic plan. This integration ensures the daily management of risks by product types and continuous corporate monitoring of the levels of risk across the Company. We make changes to our enterprise risk management program and risk governance framework as described here at the direction of senior management and the Board of Directors to capture opportunities and to respond to changes in strategic, business, and operational environments.

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Risk Categories and Definitions

Consistent with other participants in the financial services industry, the primary risk exposures of the Company are credit, market, liquidity, operational, legal, reputational, and strategic. We have adopted these seven risk categories as outlined by the Federal Reserve Board and other bank regulators to govern the risk management of banks and bank holding companies. Oversight responsibility for these categories is assigned within our risk committee governance structure:

•
Credit risk arises from the potential that a borrower or counterparty will fail to perform on an obligation.

•
Market risk is a financial institution’s condition resulting from adverse movements in market rates or prices, such as interest rates, foreign exchange rates, or equity prices.

•
Liquidity risk is the potential that an institution will be unable to meet its obligations as they come due because of an inability to liquidate assets or obtain adequate funding (referred to as “funding liquidity risk”) or that it cannot easily unwind or offset specific exposures without significantly lowering market prices because of inadequate market depth or market disruptions (“market liquidity risk”).

•
Operational risk is the potential that inadequate information systems, operational problems, breaches in internal controls, breaches in customer data, fraud, or unforeseen catastrophes will result in unexpected losses. Consistently and interchangeably for the Company, Basel II defines this risk as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. The Company assesses compliance risk, the risk to current or anticipated earnings or capital arising from violations of laws, rules or regulations, or from non-conformance with prescribed practices, internal policies and procedures or ethical standards, as a subcategory of operational risk.

•
Legal risk is the potential that unenforceable contracts, lawsuits, or adverse judgments can disrupt or otherwise negatively affect the operations or condition of a banking organization.

•
Reputational risk is the potential that negative publicity regarding an institution’s business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions. The Company also recognizes its reputation with shareholders and associates is an important factor of reputational risk.

•
Strategic risk is the risk to current or anticipated earnings, capital, or franchise or enterprise value arising from adverse business decisions, poor implementation of business decisions, or lack of responsiveness to changes in the competitive landscape of banking and financial services industries and operating environment.

Risk Committee Governance Structure

Effective risk management governance requires active oversight, participation, and interaction by senior management and the Board of Directors. Our enterprise risk management framework uses a tiered risk/reward committee structure to facilitate the timely discussion of significant risks, issues and risk mitigation strategies to inform management and the Board’s decision making. Additionally, the committee structure provides ongoing oversight and facilitates escalation within assigned risk committees. Following is a summary of our risk governance structure and related responsibilities:

•
Board risk committees. The Company’s Board of Directors has established a Board Risk Committee and Credit Risk Management Subcommittee of the Board Risk Committee to oversee the effective establishment of a risk governance framework, provide for an independent Credit Review assurance function, ensure the overall corporate risk profile is within its risk appetite, and direct changes or make recommendations to the Board of Directors when determined necessary. Additionally, the Board of Directors has established an Audit Committee to provide independent oversight on the effectiveness of these matters and the Company’s internal control and regulatory environment. The Board Risk Committee is chaired by an independent director. The Board has designated Ms. Joan Teofilo and Ms. Suzette Kent, independent directors who serve on the Board Risk Committee, as risk management experts. Other committees of the Board of Directors oversee certain risks that overlap with the Board Risk Committee's enterprise risk management oversight, including the Compensation Committee, which evaluates and manages any risk posed by compensation and benefits programs and oversees diversity, equity and inclusion efforts, and the Corporate Governance and Nominating Committee, which oversees all ESG related activities.

•
Governance committees. The Capital Committee (CAPCO) of the Company serves as the senior level management risk/reward committee and oversees the business strategy, organizational structure, capital planning, and liquidity strategies for the Company. CAPCO directly oversees the strategic and reputation risk categories, which include litigation strategy and the development of capital stress testing within the Company’s risk governance framework. CAPCO drives business strategy development and execution, provides corporate financial oversight, and is responsible for portfolio risk committee oversight. CAPCO provides oversight of the portfolio risk/reward committees to ensure tactics to address business strategy changes are properly vetted and adopted, and protect the Company’s reputation.

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•
Portfolio committees. The Company has three portfolio risk/reward committees focusing on credit (CREDCO), market and liquidity through asset/liability management (ALCO), and operational, legal and compliance (OPCO) risk categories. These committees review and monitor the risk categories in a portfolio context ensuring risk assessment and management processes are being effectively executed to identify and manage risk and direct changes and escalate issues to CAPCO and Board Risk Committees when needed. The committees also monitor the risk portfolios for changes to the Company’s risk profile as well as ensure the risk portfolio is performing within the board-approved risk appetite. Portfolio committees report to CAPCO. In addition, the Company has established a Sustainability Committee, which is a management committee that develops, monitors and assesses the strategies related to the environment, social responsibility and sustainable growth.

Risk Leadership and Organization

The risk management function of the Company is led by our Chief Risk Officer. The Chief Risk Officer, who reports directly to the CEO, provides overall vision, direction and leadership regarding our enterprise risk management program. The Chief Risk Officer exercises independent judgment and reporting of risk through a direct working relationship with the Board Risk Committee, and the Chief Credit Officer has the same role with the Credit Risk Management Subcommittee. The functional areas reporting to the Chief Risk Officer are the enterprise risk management program office, operational risk management, model validation, data governance, regulatory relations, corporate insurance, credit review (administrative only), Bank Secrecy Act compliance, and the enterprise-wide compliance program. The Chief Risk Officer also works closely with the Chief Internal Auditor to provide assurance to the Board and senior management regarding risk management controls and their effectiveness. The Chief Internal Auditor reports to the Board’s Audit Committee to assure independence of the internal audit function. Another risk management function reporting to the CEO is the Chief Credit Officer.

Credit Risk

The Bank’s primary lending focus is to provide commercial, consumer, and real estate loans to consumers, to small and middle market businesses, to larger corporate clients in their respective market areas, and to state, county, parish and municipal government entities. Diversification in the loan portfolio is a means to reduce the risks associated with economic fluctuations. The Bank has no significant concentrations of loans to individual borrowers or foreign entities.

Our commercial and industrial portfolio, which includes commercial non-real estate and owner occupied commercial real estate lending is diverse across various industries. We continuously manage our exposure to improve our cross industry diversification, and proactively manage potential impacts to earnings.

Real estate loan levels are monitored throughout the year and the bank currently does not have a commercial real estate concentration as defined by interagency guidelines.

Managing collateral is also an essential component of managing the Bank’s real estate-and non-real estate related credit risk exposure. For real estate-secured loans, third party valuations are obtained at the time of origination, and updated if it is determined that the collateral value has deteriorated or if the loan is deemed to be a problem loan. Property valuations are ordered through, and reviewed by, the Bank’s appraisal department. When deemed necessary, third party valuations may also be obtained for non-real estate collateral based on the same criteria as real estate secured loans. Such valuations, along with anticipated selling costs, are used to determine if there is loan impairment, leading to a recommendation for partial charge off or appropriate allowance allocation.

The Bank maintains an active Credit Review function, whose Credit Review Manager reports to the Credit Risk Management Subcommittee, a subcommittee of the Board Risk Committee, to help ensure that developing credit concerns are identified and addressed in a timely manner. Further, an active watch list review process is in place as part of the Bank’s problem loan management strategy, and a list of loans 90 days past due and still accruing is reviewed with management (including the Chief Credit Officer) at least monthly. Recommendations flow from all of the above activities with the goal of recognizing nonperforming loans and determining the appropriate accrual status.

Asset/Liability Management

Asset/Liability Management consists of quantifying, analyzing, and controlling interest rate risk (IRR) to maintain stability in net interest income under varying interest rate environments. The principal objective of asset/liability management is to maximize net interest income while operating within acceptable interest rate risk limits and maintaining adequate levels of liquidity. Our net earnings are materially dependent on our net interest income.

IRR inherent in the Company’s balance sheet consists of reprice, option, yield curve, and basis risks. Reprice risk results from differences in the maturity or repricing of asset and liability portfolios. Option risk arises from “embedded options” present in many

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financial instruments such as loan prepayment options, deposit early withdrawal options, and interest rate options. These options allow customers opportunities to benefit when market interest rates change, which typically results in higher costs or lower revenue for the Company. Yield curve risk refers to the risk resulting from unequal changes in the spread between two or more rates for different maturities for the same instrument. Basis risk refers to the potential for changes in the underlying relationship between market rates and indices, which subsequently results in changes to the profit spread on an earning asset or liability. Basis risk is also present in administered rate liabilities, such as savings accounts, negotiable order of withdrawal accounts, and money market accounts where historical pricing relationships to market rates may change due to the level or directional change in market interest rates.

ALCO manages our IRR exposures through proactive measurement, monitoring, and management actions. ALCO is responsible for maintaining levels of IRR within limits approved by the Board of Directors by adhering to a risk management policy that is designed to promote a stable net interest margin in periods of interest rate fluctuation. Accordingly, the Company’s interest rate sensitivity and liquidity are monitored on an ongoing basis by ALCO, which oversees market risk management and establishes risk measures, limits and policy guidelines for managing the amount of interest rate risk and its effect on net interest income and capital. A variety of measures are used to provide for a comprehensive view of the magnitude of interest rate risk, the distribution of risk, the level of risk over time and the exposure to changes in certain interest rate relationships.

The Company utilizes an asset/liability model as the primary quantitative tool in measuring the amount of IRR associated with changing market rates. The model is used to perform net interest income, economic value of equity (EVE), stochastic, and gap analyses. When performing net interest income at risk analysis, the model is used to quantify the effects of various interest rate scenarios on projected net interest income and projected net income over the next 12-month and 24-month periods. The model measures the impact on net interest income relative to a base case scenario given hypothetical fluctuations in interest rates over the next 24 months. Regarding EVE analysis, the model is used to assess the change in theoretical equity market value that would occur in response to instantaneous and sustained parallel shifts in market interest rates. EVE analysis is primarily used to identify long-term structural mismatches in the balance sheet as market rates move, while net interest income analysis assesses the impact of market rate movements over a short time horizon. Net interest income simulations incorporate assumptions regarding balance sheet growth and mix as well as the pricing, repricing, and maturity characteristics of the existing and projected balance sheet. The impact of interest rate derivatives, such as interest rate swaps, caps and floors, is also included in the model. Other interest rate-related risks such as prepayment, basis, and option risk are also considered.

Net Interest Income at Risk

Our primary market risk is interest rate risk that stems from uncertainty with respect to the absolute and relative levels of future market interest rates that affect our financial products and services. In an attempt to manage our exposure to interest rate risk, management measures the sensitivity of our 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 promote a relatively stable net interest margin under varying 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 December 31, 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 Table 25. Our interest rate sensitivity modeling incorporates a number of assumptions including loan and deposit repricing characteristics, the rate of loan prepayments and other factors. The base scenario assumes that balance sheet composition and 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.

TABLE 25. Net Interest Income (te) at Risk

[[GREPCENT_TABLE]]
[["","","","Estimated Increase in NII"],["Change in Interest Rates","","Year 1","Year 2"],["(basis points)"],["-","300","","(6.70)%","(11.96)%"],["-","200","","(4.09)%","(7.53)%"],["-","100","","(1.76)%","(3.37)%"],["+","100","","2.07%","3.26%"],["+","200","","3.82%","6.32%"],["+","300","","5.58%","9.39%"]]
[[/GREPCENT_TABLE]]

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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 rose in the first half of 2023 and remain elevated, 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.

Economic Value of Equity (EVE)

EVE simulation involves calculating the present value of all future cash flows from assets and subtracting the present value of all future cash outflows from liabilities including the impact of off-balance sheet items such as interest rate hedges. This analysis results in a theoretical market value of the bank's equity or EVE. Management’s focus on EVE analysis is not on the resulting calculation of EVE itself, but instead on the sensitivity of EVE to changes in market rates. Policy limits on the change in EVE under a variety of interest rate scenarios are approved by the Board of Directors. The following table presents an analysis of the change in the Bank’s EVE resulting from instantaneous and parallel shifts in rates as of December 31, 2023. Shifts are measured in 100 basis point increments ranging from -500 to +500 basis points from base case, with -300 through +300 basis points presented in Table 26.

TABLE 26. Economic Value of Equity

[[GREPCENT_TABLE]]
[["","","","Estimated Change in EVE at"],["Change in Interest Rates","","December 31, 2023"],["(basis points)"],["-","300","","2.04%"],["-","200","","2.31%"],["-","100","","1.67%"],["+","100","","(2.12%)"],["+","200","","(4.55%)"],["+","300","","(7.07%)"]]
[[/GREPCENT_TABLE]]

The net changes in EVE presented in the preceding table are within the parameters approved by the Boards of Directors. Because EVE measures the present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current year). Further, EVE does not consider factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, possible hedging activities, or changing product spreads, each of which could mitigate the adverse impact of changes in interest rates.

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). Publication of the one week and two month LIBOR offered rates ceased on December 31, 2021 and the publication of the remaining LIBOR offered rates ceased to be representative on 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

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certain LIBOR rates (e.g., AMERIBOR or the Secured Overnight Financing Rate (SOFR)), 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, approximately $3.1 billion of variable rate loans tied to LIBOR were transitioned in accordance with the statutory framework established by the Federal Reserve, with the transition rate to be utilized upon the next reset period, in a manner that is consistent with industry practice. In addition, all of our remaining derivative instruments with LIBOR based indexes were transitioned to the Fallback Rate SOFR benchmark as recommended by the International Swap and Derivatives Association, including interest rate swaps and risk participation agreements with notional amounts totaling $3.5 billion and $163.5 million. There was no material financial impact from this transition in our operating results and we do not expect there will be any significant future impact.

Operational Risk Management

Operational risk is the risk of loss resulting from inadequate or failed internal controls and processes, people and systems, or from external events, including fraud, litigation and breaches in data security. We depend on the ability of our employees and systems to process, record and monitor a large number of transactions on an on-going basis. As operational risk remains elevated and as customer and regulatory expectations regarding information security have increased, the Company continues to enhance its controls, processes and systems in order to protect the Company’s networks, computers, software and data from attack, damage or unauthorized access.

The Board Risk Committee has primary responsibility for the oversight of operational risk. In this capacity, the Board Risk Committee oversees the Company’s processes for identifying, assessing, monitoring and managing cybersecurity risk. In addition, individual business lines have direct and primary responsibility and accountability for identifying, controlling, and monitoring operational risks embedded in their business activities.

See Item 1A. “Risk Factors” for further discussion of the risks associated with an interruption or breach in our information systems or infrastructure and Item 1C. “Cybersecurity” for additional disclosures on cybersecurity and related risk management strategy and governance.

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 following table summarizes available liquidity at December 31, 2023.

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TABLE 27. Net Available Sources of Funds

[[GREPCENT_TABLE]]
[["","","December 31, 2023"],["($ in thousands)","","Total Available","","Amount Used","","Net Availability"],["Available Sources of Funding:"],["Internal Sources"],["Free securities","$","2,845,233","$","\u2014","$","2,845,233"],["External Sources"],["Federal Home Loan Bank (a)","","6,613,696","","1,183,088","","5,430,608"],["Federal Reserve Bank","","3,301,659","","\u2014","","3,301,659"],["Brokered deposits","","4,453,509","","589,761","","3,863,748"],["Other","","1,329,000","","\u2014","","1,329,000"],["Total Available Sources of Funding","$","18,543,097","$","1,772,849","$","16,770,248"],["Cash and other interest-bearing bank deposits","","","","","","1,188,286"],["Total Liquidity","","","","","$","17,958,534"]]
[[/GREPCENT_TABLE]]

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

TABLE 28. Liquidity Metrics

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["Free securities / total securities","","38.80","%","","41.59","%","","53.95","%"],["Core deposits / total deposits","","92.51","%","","98.12","%","","98.66","%"],["Wholesale funds / core deposits","","7.21","%","","7.43","%","","6.45","%"],["Liquid assets / total liabilities","","12.69","%","","13.61","%","","26.96","%"],["Average loans / average deposits","","80.04","%","","74.30","%","","72.90","%"]]
[[/GREPCENT_TABLE]]

The failures of three major regional U.S. banks in 2023 that experienced 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 December 31, 2023, our available on and off-balance sheet liquidity of $18.0 billion is well in excess of our estimated uninsured, noncollateralized deposits of approximately $10.2 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 Table 28 above, our ratios of free securities to total securities were 38.80% and 41.59% at December 31, 2023 and 2022, respectively. Securities and FHLB letters of credit are pledged as collateral related to public funds and repurchase agreements. The carry value of total pledged securities was $4.7 billion at December 31, 2023, a decrease of $213.5 million from December 31, 2022. Both securities and FHLB letters of credit can be pledged as collateral related to public funds and repurchase agreements. While the value of pledged securities decreased year-over-year, the ratio of free securities to total securities also declined as a result of the decrease in the securities portfolio.

The liability portion of the balance sheet provides liquidity mainly through the ability to use cash sourced from various customers’ interest-bearing and noninterest-bearing deposit accounts. At December 31, 2023, deposits totaled $29.7 billion, an increase of $619.7 million, or 2%, from December 31, 2022. This increase was primarily attributable to an increase in retail time deposits, a result of the favorable interest rate environment, and brokered time deposits, partially offset by a decline in noninterest-bearing deposits. Some of the decline in noninterest-bearing deposits represents a shift to interest-bearing products amid the favorable interest rate environment.

Core deposits represent total deposits excluding certificates of deposits (“CDs”) of $250,000 or more and brokered deposits. Core deposits totaled $27.5 billion at December 31, 2023, a decrease of $1.1 billion from December 31, 2022. The ratio of core deposits to total deposits was 92.51% at December 31, 2023 down from 98.12% at December 31, 2022. The decrease in the ratio is a result of increases in CDs of $250,000 or more and the addition of brokered deposits. Brokered deposits totaled $589.8 million as of December 31, 2023, up from $4.9 million at December 31, 2022 as the result of the addition of $589.8 million of brokered certificates of deposit that bear interest plus fees of 5.35% per annum, of which, $195.0 million will mature in February 2024 and $394.8 million will mature

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in May 2024. The use of brokered deposits as a funding source is subject to certain policies regarding the amount, term and interest rate.

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. In addition to 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 December 31, 2023, the Bank had borrowed $700 million from the FHLB and had approximately $5.4 billion remaining available under this line. The Bank also has unused borrowing capacity at the Federal Reserve’s discount window of approximately $3.3 billion. There were no outstanding borrowings with the Federal Reserve at December 31, 2023 and December 31, 2022, or at any point during the years then ended. 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, comprised of short-term borrowings, long-term debt and brokered deposits were 7.21% of core deposits at December 31, 2023 and 7.43% at December 31, 2022. Wholesale funds totaled $2.0 billion at December 31, 2023, a decrease of $137.4 million from December 31, 2022. The decrease was primarily due to a decrease in FHLB borrowings, partially offset by the increase in brokered deposits. The Company has established an internal target for wholesale funds to be less than 25% of core deposits.

Other key measures used to monitor liquidity include the liquid asset ratio and the loan to deposit ratio. The liquid asset ratio (liquid assets, consisting of cash, short-term investments and free securities, divided by total liabilities) measures our ability to meet short-term obligations. Our liquid asset ratio was 12.69% at December 31, 2023 compared to 13.61% at December 31, 2022. Management has established a minimum liquid asset ratio of 7.5% and an internal target of 12% or greater. The loan to deposit ratio (average loans outstanding during the reporting period divided by average deposits outstanding) measures the amount of funds the Company lends for each dollar of deposits on hand. Our average loan-to-deposit ratio was 80.04% for the year ended December 31, 2023 compared to 74.3% for the year ended December 31, 2022. Management has established a 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 continuing impact of the pandemic where deposits became and have remained elevated.

Cash generated from operations is another important source of funds to meet liquidity needs. The Consolidated Statements of Cash Flows included in Part II, Item 8 of this document present operating cash flows and summarize all significant sources and uses of funds during the years ended December 31, 2023 and 2022.

Dividends received from the Bank have been the primary source of funds available to the Parent Company 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 that the Bank can distribute to the Parent Company, as described in Note 12 – Stockholder's Equity to the consolidated financial statements. The Parent targets cash and other liquid assets to provide liquidity in an amount sufficient to fund approximately six 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 temporarily operate below that level if a return to the target can be achieved in the near-term, generally not to exceed four quarters. The Parent had cash totaling $218.7 million at December 31, 2023.

Material Cash Requirements

The Company has sufficient access to liquidity for operations. The following table summarizes select significant contractual obligations as of December 31, 2023, according to payments due by period. The table excludes obligations under deposit contracts and short-term borrowings discussed previously in this analysis. The maturities of time deposits in amounts greater than $250,000 are presented in Table 22. Purchase obligations represent material legal and binding contracts to purchase services and goods that cannot be settled or terminated without paying substantially all of the contractual amounts.

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TABLE 29. Contractual Cash Obligations

[[GREPCENT_TABLE]]
[["","Payment due by period"],["($ in thousands)","Total","","Less Than 1 Year","","1-3 Years","","3-5 Years","","More Than 5 Years"],["Long-term debt obligations","$","638,505","","$","12,105","","$","64,697","","$","44,357","","$","517,346"],["Operating lease obligations","","154,862","","","18,240","","","34,645","","","29,409","","","72,568"],["Purchase obligations","","173,131","","","89,981","","","60,052","","","22,197","","","901"],["Commitments to fund low income housing and small business investment company","","15,321","","","15,321","","","\u2014","","","\u2014","","","\u2014"],["Total","$","981,819","","$","135,647","","$","159,394","","$","95,963","","$","590,815"]]
[[/GREPCENT_TABLE]]

Capital Resources

The Company currently has a strong capital position which is vital to continued profitability, promotes depositor and investor confidence, and provides a solid foundation for economic downturns, future growth and flexibility in addressing strategic opportunities. Stockholders’ equity totaled $3.8 billion at December 31, 2023 compared to $3.3 billion at December 31, 2022. The $461.0 million increase from December 31, 2022 is attributable to net income of $392.6 million, $151.1 million of other comprehensive income and $22.9 million of long-term incentive and dividend reinvestment activity, partially offset by dividends of $105.6 million.

At December 31, 2023, our tangible common equity ratio was 8.37%, compared to 7.09% at December 31, 2022. The 128 bp increase from December 31, 2022 is comprised of net income (+118 bps), other comprehensive income (+44 bps), and stock-based compensation and other activity (+6 bps), partially offset by dividends (-31 bps) and tangible asset growth (-9 bps). Other comprehensive income was favorably impacted by the improvement in long-term rates and the impact of the late 2023 restructuring of the available for sale securities portfolio whereby we sold $1.04 billion of securities and reclassified $52.7 million of accumulated comprehensive loss, net of tax, to earnings. The restructuring was a strategic decision made to provide net interest margin enhancement. The Company has adequate liquidity and, therefore, does not plan to sell additional available for sale securities in the near term and, more likely than not, will not be required to do so before the recovery of the losses reflected in accumulated other comprehensive loss.

The primary quantitative measures that regulators use to gauge capital adequacy are the ratios of Total, Tier 1 and Common Equity Tier 1 regulatory capital to risk-weighted assets (risk-based capital ratios) and the ratio of Tier 1 capital to average total assets (Leverage ratio). The Federal Reserve Board’s final rule implementing the Basel III regulatory capital framework and related changes per the Dodd-Frank Act established the Basel III minimum regulatory capital requirements for all organizations for Total, Tier 1 and Common Equity Tier 1 risk-based capital ratios equal to 8.00%, 6.00%, and 4.5%, respectively, as well as set a conservation buffer of 2.5% and a Leverage ratio of 4.0%. Based on capital ratios as of December 31, 2023 using Basel III definitions, the Company and the Bank exceeded all capital requirements of the rule. The Company and the Bank have established internal target ranges for Total, Tier 1 and Common Equity Tier 1 risk-based capital ratios and the leverage ratio. At December 31, 2023, each of these capital ratios fell within, or above, their respective target range.

At December 31, 2023, our regulatory capital ratios were well in excess of current regulatory minimum requirements, including the conservatism buffers, by at least $737 million. Additionally, both the Company and the Bank were considered “well capitalized” by regulatory agencies. Note 12 – Stockholders’ Equity to the consolidated financial statements provides additional information about the Bank’s regulatory capital ratios.

The following table shows certain of the Company's capital ratios and our regulatory capital ratios as calculated under current rules at December 31, 2023 and 2022.

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TABLE 30. Risk-Based Capital and Capital Ratios

[[GREPCENT_TABLE]]
[["($ in thousands)","2023","","2022"],["Common equity tier 1 capital","$","3,584,474","","$","3,279,419"],["Additional tier 1 capital","","\u2014","","","\u2014"],["Tier 1 capital","","3,584,474","","","3,279,419"],["Tier 2 capital","","464,771","","","447,415"],["Total capital","$","4,049,245","","$","3,726,834"],["Risk-weighted assets","$","29,067,426","","$","28,734,106"],["Ratios"],["Leverage (Tier 1 capital to average assets)","","10.10","%","","9.53","%"],["Common equity tier 1 capital to risk-weighted assets","","12.33","%","","11.41","%"],["Tier 1 capital to risk-weighted assets","","12.33","%","","11.41","%"],["Total capital to risk-weighted assets","","13.93","%","","12.97","%"],["Common stockholders' equity to total assets","","10.69","%","","9.50","%"],["Tangible common equity to total assets","","8.37","%","","7.09","%"]]
[[/GREPCENT_TABLE]]

We regularly perform stress analysis on our capital levels. One such scenario includes 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 includes 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 December 31, 2023.

In January 2023, the Company's board of directors declared an 11% increase in the regular quarterly cash dividend to $0.30 per share. The increase was reflective of our strong regulatory ratios, allowing for improved shareholder returns. Throughout 2023, the Company paid quarterly dividends of $0.30 per share, for an annual cash dividend rate of $1.20 per share. During 2022, the Company paid quarterly dividends of $0.27 per share, for an annual cash dividend rate of $1.08 per share. The Company has paid uninterrupted quarterly dividends to shareholders since 1967.

STOCK REPURCHASE PROGRAM

In January 2023, the Company's board of directors authorized a stock repurchase program pursuant to which the Company may, from time to time, purchase up to approximately 4.3 million shares of its outstanding common stock (approximately 5% of the shares of common stock outstanding as of December 31, 2022). 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 program has an expiration date of December 31, 2024 and does not obligate the Company to purchase any shares. The program may be terminated or amended by the Board at any time prior to the expiration date. This program allows us to continue to opportunistically repurchase shares of our common stock when the market is advantageous. To date, no shares have been repurchased under this program.

Prior to its expiration on December 31, 2022, the Company had in place a stock repurchase program that was authorized by the Company's board of directors in April 2021 whereby the Company was authorized to repurchase up to approximately 4.3 million shares of its common stock through the program’s expiration date. The program allowed the Company to repurchase its common shares in the open market, by block purchase, through accelerated share repurchase programs, in privately negotiated transactions, or otherwise, in one or more transactions. The Company was not obligated to purchase any shares under this program, and the board of directors had the ability to terminate or amend the program at any time prior to the expiration date. During the year ended December 31, 2022, the Company repurchased 1.2 million shares of its common stock at an average cost of $48.90 per share, inclusive of commissions. In total, the Company repurchased 1.7 million of the 4.3 million authorized shares under the buyback program at an average cost of $48.77 per share.

The Inflation Reduction Act of 2022, signed into law 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 after December 31, 2022. Subject to certain limits and provisions, the excise tax is computed on the value of stock repurchased, net of stock issuances during the year, including shares issues under compensatory arrangements. Additionally, stock repurchases excludes repurchases where the value of the stock repurchased is contributed to an employer-sponsored retirement plan, employee stock ownership plan or a similar plan, among other exclusions. To date, the Company has not executed any transactions subject to this excise tax. While we may complete transactions subject to the excise tax in the future, we do not expect a material impact to our statement of condition or results of operations.

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FOURTH QUARTER RESULTS

Net income for the fourth quarter of 2023 was $50.6 million, or $0.58 per diluted common share, compared to $97.7 million, or $1.12 per diluted common share, in the third quarter of 2023 and $143.8 million, or $1.65 per diluted common share, in the fourth quarter of 2022. The fourth quarter of 2023 included a net charge of $75.4 million, or $0.68 per diluted share after-tax, of supplemental disclosure items that included an FDIC Special Assessment, a loss restructuring of the available for sale securities portfolio, and a gain on the sale of a parking facility.

Highlights of our fourth quarter of 2023 results (compared to third quarter of 2023):

•
Net income of $50.6 million, down $47.1 million, reflecting supplemental disclosure items noted above

•
Adjusted pre-provision net revenue (a non-GAAP measure) of $157.5 million was up $4.1 million, or 3%

•
Loans declined $61.8 million, or 1%, linked-quarter annualized

•
Criticized commercial loans and nonaccrual loans remain at low levels

•
Allowance for credit losses coverage remained strong at 1.41%

•
Deposits decreased $630.3 million, or 8% linked-quarter annualized, largely due to the maturity of $567.5 million in brokered deposits

•
Net interest margin unchanged at 3.27%

•
Common equity tier 1 ratio was 12.33%, up 27 bps; tangible common equity ratio of 8.37%, up 103 bps

•
Efficiency ratio (a non-GAAP measure) improved 80 bps to 55.58%

Total loans at December 31, 2023 were $23.9 billion, a decrease of $61.8 million, or less than 1%, from September 30, 2023. The linked-quarter decline reflects decreases in most of the portfolio segments, as demand has softened as a result of the interest rate environment and as we focus on full service client relationships. These declines were partially offset by growth in the residential mortgage portfolio that was driven in part by the completion of one-time close residential mortgage construction products converting to permanent financing.

Total deposits at December 31, 2023 were $29.7 billion, down $630.3 million, or 2%, from September 30, 2023. The decline is largely the result of the maturity of $567.5 million of brokered time deposits.

Noninterest-bearing deposits totaled $11.0 billion at December 31, 2023, down $595.9 million, or 5%, from September 30, 2023 and comprised 37% of total deposits at December 31, 2023. Interest-bearing transaction and savings deposits totaled $10.7 billion at December 31, 2023, down $8.3 million, or less than 1%, compared to September 30, 2023. Interest-bearing public fund deposits increased $289.8 million, or 10%, to $3.1 billion at December 31, 2023. The increase in public funds is seasonal and primarily attributable to year-end tax collections by local municipalities. Typically, these balances begin to runoff in the first quarter of each year. Time deposits of $4.9 billion decreased $315.9 million, or 6%, from September 30, 2023, largely attributable to maturing brokered deposits noted above, and partially offset by an increase in retail time deposits in response to promotional rate offerings.

Net interest income (te) for the fourth quarter of 2023 was $272.3 million, up $0.2 million, or less than 1%, from the third quarter of 2023. The net interest margin for the fourth quarter of 2023 was flat at 3.27%, as higher loan yields and a more favorable earning asset mix (+8 bps), decreased short-term borrowing costs (+6 bps), and the securities portfolio restructure (+3 bps) offset the impact of the growth in average interest-bearing deposits and higher rate offerings (-17 bps).

The provision for credit losses recorded in the fourth quarter of 2023 was $17.0 million, compared to $28.5 million in the third quarter of 2023. Net charge-offs were $16.1 million, or 0.27% of average total loans on an annualized basis in the fourth quarter of 2023, down from $38.3 million, or 0.64% of average total loans, in the third quarter of 2023, which included a charge-off of $29.7 million attributable to single borrower. Our allowance for credit losses was $336.8 million at December 31, 2023, up $0.9 million from September 30, 2023. Our asset quality metrics remained stable, with criticized commercial loans at $273.7 million, or 1.47% of total commercial loans, compared to $275.1 million, or 1.46% of total commercial loans at September 30, 2023. Nonaccrual loans totaled $59.0 million, or 0.25% of total loans at December 31, 2023, compared to $60.3 million, or 0.25% of total loans at September 30, 2023. ORE and foreclosed assets totaled $3.6 million at December 31, 2023, down $0.9 million from $4.5 million at September 30, 2023.

Noninterest income totaled $39.0 million for the fourth quarter of 2023, down $47.0 million, or 55%, from the third quarter of 2023. Noninterest income for the fourth quarter included two supplemental disclosure items, a $16.1 million gain on the sale of a parking facility and a $65.4 million loss on the restructuring of the available for sale securities portfolio. Excluding the supplemental

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disclosure items, noninterest income was $88.2 million, up $2.2 million, or 3%, from the prior quarter. Investment and annuity fees and insurance commissions were up $2.6 million, or 30%, from the third quarter of 2023 as a result of strong sales amid the favorable interest rate environment. Trust fees were up $0.3 million, or 2%, and bank card and ATM fees were up $0.2 million, or 1%, from the prior quarter. Service charges were down $0.6 million, or 3%, from the prior quarter. Income from secondary mortgage operations totaled $2.1 million, down $0.5 million, or 20%, as a result of declining demand for mortgage loans and refinancing.

Noninterest expense totaled $229.2 million, up $24.5 million, or 12%, from the third quarter of 2023. Noninterest expense included a supplemental disclosure item in the amount of $26.1 million related to the FDIC special assessment. Excluding this supplemental disclosure item, noninterest expense totaled $203.0 million, down $1.6 million or 1%, from the prior quarter. The primary driver of the decrease is attributable to personnel expense, which was down $1.9 million, or 2%, from the third quarter of 2023, due to lower incentive expense.

The effective income tax rate for fourth quarter 2023 was 18.8%. The effective income tax rate continues to be less than the statutory rate primarily due to tax-exempt income and income tax credits.

The following table provides selected comparative financial information for the five quarters ending with December 31, 2023.

TABLE 31. Quarterly Consolidated Financial Results

[[GREPCENT_TABLE]]
[["(in thousands, except per share data)","December 31, 2023","","September 30, 2023","","June 30, 2023","","March 31, 2023","","December 31, 2022"],["Income Statement Data:"],["Interest income","$","426,794","","$","415,827","","$","405,273","","$","372,603","","$","345,676"],["Interest income (te) (a)","","429,628","","","418,679","","","408,110","","","375,187","","","348,291"],["Interest expense","","157,334","","","146,593","","","131,362","","","87,609","","","50,175"],["Net interest income (te)","","272,294","","","272,086","","","276,748","","","287,578","","","298,116"],["Provision for credit losses","","16,952","","","28,498","","","7,633","","","6,020","","","2,487"],["Noninterest income","","38,951","","","85,974","","","83,225","","","80,330","","","77,064"],["Noninterest expense","","229,151","","","204,675","","","202,138","","","200,884","","","190,154"],["Income before income taxes","","62,308","","","122,035","","","147,365","","","158,420","","","179,924"],["Income tax expense","","11,705","","","24,297","","","29,571","","","31,953","","","36,137"],["Net income","$","50,603","","$","97,738","","$","117,794","","$","126,467","","$","143,787"],["Supplemental disclosure items-included above, pre-tax:"],["Included in noninterest income:"],["Gain on sale of parking facility","$","16,126","","$","\u2014","","$","\u2014","","$","\u2014","","$","\u2014"],["Loss on securities portfolio restructure","","(65,380",")","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Included in noninterest expense:"],["FDIC special assessment","","26,123","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Balance Sheet Data:"],["Period end balance sheet data:"],["Loans","$","23,921,917","","$","23,983,679","","$","23,789,886","","$","23,404,523","","$","23,114,046"],["Earning assets","","32,175,097","","","32,733,591","","","32,715,630","","","34,106,792","","","31,873,027"],["Total assets","","35,578,573","","","36,298,301","","","36,210,148","","","37,547,083","","","35,183,825"],["Noninterest-bearing deposits","","11,030,515","","","11,626,371","","","12,171,817","","","12,860,027","","","13,645,113"],["Total deposits","","29,690,059","","","30,320,337","","","30,043,501","","","29,613,070","","","29,070,349"],["Stockholders' equity","","3,803,661","","","3,501,003","","","3,554,476","","","3,531,232","","","3,342,628"],["Average balance sheet data:"],["Loans","","23,795,681","","","23,830,724","","","23,654,994","","","23,086,529","","","22,723,248"],["Earning assets","","33,128,130","","","33,137,565","","","33,619,829","","","32,753,781","","","32,244,681"],["Total assets","","35,538,300","","","35,626,927","","","36,205,396","","","35,159,050","","","34,498,915"],["Noninterest-bearing deposits","","11,132,354","","","11,453,236","","","12,153,453","","","12,963,133","","","13,854,625"],["Total deposits","","29,974,941","","","29,757,180","","","29,372,899","","","28,792,851","","","28,816,338"],["Stockholders' equity","","3,560,978","","","3,572,487","","","3,567,260","","","3,412,813","","","3,228,667"],["Common Shares Data:"],["Earnings per share:"],["Basic","$","0.58","","$","1.12","","$","1.35","","$","1.45","","$","1.65"],["Diluted","","0.58","","","1.12","","","1.35","","","1.45","","","1.65"],["Cash dividends per common share","","0.30","","","0.30","","","0.30","","","0.30","","","0.27"],["Performance Ratios:"],["Return on average assets","","0.56","%","","1.09","%","","1.30","%","","1.46","%","","1.65","%"],["Return on average common equity","","5.64","%","","10.85","%","","13.24","%","","15.03","%","","17.67","%"],["Efficiency ratio (b)","","55.58","%","","56.38","%","","55.33","%","","53.76","%","","49.81","%"],["Net interest margin (te)","","3.27","%","","3.27","%","","3.30","%","","3.55","%","","3.68","%"],["Annualized net charge offs to average loans","","0.27","%","","0.64","%","","0.06","%","","0.10","%","","0.02","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["",".."],["(in thousands, except per share data)","December 31, 2023","","September 30, 2023","","June 30, 2023","","March 31, 2023","","December 31, 2022"],["Reconciliation of pre-provision net revenue (te) and adjusted pre-provision net revenue(te) (non-GAAP measures) (c)"],["Net income (GAAP)","$","50,603","","$","97,738","","$","117,794","","$","126,467","","$","143,787"],["Provision for credit losses","","16,952","","","28,498","","","7,633","","","6,020","","","2,487"],["Income tax expense","","11,705","","","24,297","","","29,571","","","31,953","","","36,137"],["Pre-provision net revenue","","79,260","","","150,533","","","154,998","","","164,440","","","182,411"],["Taxable equivalent adjustment","","2,834","","","2,852","","","2,837","","","2,584","","","2,615"],["Pre-provision net revenue (te)","","82,094","","","153,385","","","157,835","","","167,024","","","185,026"],["Adjustments from supplemental disclosure items"],["Loss on securities portfolio restructure","","65,380","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Gain on sale of parking facility","","(16,126",")","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["FDIC special assessment","","26,123","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Adjusted pre-provision net revenue (te)","$","157,471","","$","153,385","","$","157,835","","$","167,024","","$","185,026"],["Reconciliation of revenue (te), adjusted revenue (te) and efficiency ratio (non-GAAP measures) (c)"],["Net interest income","$","269,460","","$","269,234","","$","273,911","","$","284,994","","$","295,501"],["Noninterest income","","38,951","","","85,974","","","83,225","","","80,330","","","77,064"],["Total GAAP revenue","","308,411","","","355,208","","","357,136","","","365,324","","","372,565"],["Taxable equivalent adjustment","","2,834","","","2,852","","","2,837","","","2,584","","","2,615"],["Total revenue (te)","","311,245","","","358,060","","","359,973","","","367,908","","","375,180"],["Adjustments from supplemental disclosure items"],["Loss on securities portfolio restructure","","65,380","","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Gain on sale of parking facility","","(16,126",")","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Adjusted revenue","","360,499","","","358,060","","","359,973","","","367,908","","","375,180"],["GAAP noninterest expense","","229,151","","","204,675","","","202,138","","","200,884","","","190,154"],["Amortization of intangibles","","(2,672",")","","(2,813",")","","(2,957",")","","(3,114",")","","(3,271",")"],["Adjustments from supplemental disclosure items"],["FDIC special assessment","","(26,123",")","","\u2014","","","\u2014","","","\u2014","","","\u2014"],["Adjusted noninterest expense","$","200,356","","$","201,862","","$","199,181","","$","197,770","","$","186,883"],["Efficiency ratio (b)","","55.58","%","","56.38","%","","55.33","%","","53.76","%","","49.81","%"]]
[[/GREPCENT_TABLE]]

(a) Taxable equivalent basis (te). 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 efficiency ratio is noninterest expense to total net interest (te) and noninterest income, excluding amortization of purchased intangibles and supplemental disclosure items.

(c) Refer to the Non-GAAP Financial Measures section of this analysis for a discussion of these measures.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

The accounting principles we follow and the methods for applying these principles conform to accounting principles generally accepted in the United States of America and general practices followed by the banking industry. The significant accounting principles and practices we follow are described in Note 1 to the consolidated financial statements, included in Item 8 of this document. These principles and practices require management to make estimates and assumptions about future events that affect the amounts reported in the consolidated financial statements and accompanying notes. Management evaluates the estimates and assumptions made on an ongoing basis to help ensure the resulting reported amounts reflect management’s best estimates and judgments given current facts and circumstances. The following discusses certain critical accounting policies that involve a higher degree of management judgment and complexity in producing estimates that may significantly affect amounts reported in the consolidated financial statements and notes thereto.

Allowance for Credit Losses

The allowance for credit losses (ACL) is comprised of the allowance for loan and lease losses (ALLL), a valuation account available to absorb losses on loans and leases held for investment, and the reserve for unfunded lending commitments, a liability established to absorb credit losses for the expected life of the contractual term of on and off-balance sheet exposures as of the date of the determination. Accounting standards require that management incorporate an economic forecast for a reasonable and supportable period, which is two years based on our current policy. We utilize third party forecasts that consist of multiple economic scenarios, including a baseline, with a probability distribution of 50% better or worse economic performance and various upside and downside scenarios utilized at an aggregated state (or regional) levels across our footprint or national level, depending on the portfolio. The economic forecasts are generally lagging and may not incorporate all events and circumstances through the financial statement date.

The Company’s management considers available forecasts, current events not captured and our specific portfolio characteristics and applies weights to the scenario output based on a best estimate of likely outcomes. Changing economic conditions introduce enhanced estimation uncertainty in the forecasts used to estimate expected credit loss. Our credit loss models were built using historical data that may not correlate to existing economic conditions. The estimate of the life of a loan considers both contractual cash flows as well as estimated prepayments and forecasted draws on unfunded loan commitments that were also built on historical data that may react

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differently given the current environment. Such forecasted information is inherently uncertain, therefore, actual results may differ significantly from management’s estimates.

Management applies significant judgment when weighting the macroeconomic scenarios for the reasonable and supportable period. Our assessment considers the scenario description compared to our portfolio performance and benchmarking select variables to other third party forecasts. At December 31, 2023, the Company weighted the Moody’s baseline scenario at 40% and the mild recessionary S-2 scenario at 60%. Results by scenario can vary significantly from period to period as both the scenario assumptions and the portfolio composition are changing, therefore comparison of scenario weighting from period to period may not be meaningful. For example, holding all other assumptions constant, the slower growth S-2 scenario produced expected credit losses 34% higher than utilization of the baseline scenario at December 31, 2023. In contrast, for the year ended December 31, 2022, the slower growth S-2 scenario produced results 44% greater than the baseline scenario. In addition, these quantitative results are adjusted, sometimes materially, by the qualitative assessment described below.

The quantitative loss rate analysis is supplemented by a review of qualitative factors that considers whether conditions differ from those existing during the historical periods used in the development of the credit loss models. Such factors include, but are not limited to, problem loan trends, changes in loan profiles and volumes, changes in lending policies and procedures, current or expected economic trends, business conditions, credit concentrations, model limitations and other relevant factors not captured by our models. While quantitative data for these factors is used where available, there is significant judgment applied in these processes.

For credits that are individually evaluated, a specific allowance is calculated as the shortfall between the credit’s value and the bank’s exposure. The loan’s value is measured by either the loan’s observable market price, the fair value of the collateral of the loan (less liquidation costs) if it is collateral dependent, or by the present value of expected future cash flows discounted at the loan’s effective interest rate. Collateral supporting loans individually evaluated for credit loss may include, but is not limited to, commercial and residential real estate, accounts receivable and other corporate assets. Valuations are highly subjective and based on information available at the time of valuation and the current resolution strategy. These values are difficult to assess and have heightened uncertainty resulting from current market conditions. Actual results could differ from these estimates.

Management considers the appropriateness of these critical assumptions as part of its allowance review and believes the ACL level is appropriate based on information available through the financial statement date. Refer to Note 3 – Loans and Allowance for Credit Losses, included in Part II, Item 8 of this document, for further discussion of significant assumptions used in the current allowance calculation.

Accounting for Retirement Benefits

Management makes a variety of assumptions in applying principles that govern the accounting for benefits under the Company’s defined benefit pension plans and other postretirement benefit plans. These assumptions are essential to the actuarial valuation that determines the amounts recognized and certain disclosures it makes in the consolidated financial statements related to the operation of these plans. Two of the more significant assumptions concern the expected long-term rate of return on plan assets and the rate needed to discount projected benefits to their present value. Changes in these assumptions impact the cost of retirement benefits recognized in net income and comprehensive income. Certain assumptions are closely tied to current conditions and are generally revised at each measurement date. For example, the discount rate is reset annually with reference to market yields on high quality fixed-income investments. Other assumptions, such as the rate of return on assets, are determined, in part, with reference to historical and expected conditions over time and are not as susceptible to frequent revision. Holding other factors constant, the cost of retirement benefits will move opposite to changes in either the discount rate or the rate of return on assets. Note 17 – Retirement Plans, included in Part II, Item 8 of this document, provides further discussion on the accounting for retirement and employee benefit plans and the estimates used in determining the actuarial present value of the benefit obligations and the net periodic benefit expense.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 1 to our consolidated financial statements that appears in Part II, Item 8. “Financial Statements and Supplementary Data.”