COMMERCE BANCSHARES INC /MO/

Previous wording

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Company's 2025 Annual Report on Form 10-K. Results of operations for the three and six months ended June 30, 2026 are not necessarily indicative of results to be attained for any other period.

Current wording

The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and with the statistical information and financial data appearing in this report as well as the Company's 2025 Annual Report on Form 10-K. Results of operations for the three and nine months ended September 30, 2026 are not necessarily indicative of results to be attained for any other period.

Previous wording

This report may contain "forward-looking statements" that are subject to risks and uncertainties and include information about possible or assumed future results of operations. Many possible events or factors could affect the future financial results and performance of the Company. This could cause results or performance to differ materially from those expressed in the forward-looking statements. Words such as "expects", "anticipates", "believes", "estimates", variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed throughout this report. Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. Such possible events or factors include: changes in economic conditions in the Company's market area; changes in policies by regulatory agencies; governmental legislation and regulation; fluctuations in interest rates; changes in liquidity requirements; demand for loans in the Company's market area; changes in accounting and tax principle;, estimates made on income taxes; competition with other entities that offer financial services; cybersecurity threats; risks related to the merger with FineMark including, among others, (i) the Company's ability to promptly and effectively integrate the merger, (ii) diversion of management’s attention from ongoing business operations and opportunities, (iii) cost savings and any revenue synergies from the merger may not be fully realized or may take longer than anticipated to be realized, (iv) deposits attrition, customer or employee loss and/or revenue loss as a result of the merger, and (v) expenses related to the merger being greater than expected; and such other factors as discussed in Part I Item 1A - "Risk Factors" and Part II Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2025 Annual Report on Form 10-K and Part II, Item 1A. - "Risk Factors" in this report.

Current wording

This report may contain "forward-looking statements" that are subject to risks and uncertainties and include information about possible or assumed future results of operations. Many possible events or factors could affect the future financial results and performance of the Company. This could cause results or performance to differ materially from those expressed in the forward-looking statements. Words such as "expects", "anticipates", "believes", "estimates", variations of such words and other similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in, or implied by, such forward-looking statements. Readers should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed throughout this report. Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made or to reflect the occurrence of unanticipated events. Such possible events or factors include: changes in economic conditions in the Company's market area; changes in policies by regulatory agencies; governmental legislation and regulation; fluctuations in interest rates; changes in liquidity requirements; demand for loans in the Company's market area; changes in accounting and tax principles; estimates made on income taxes; competition with other entities that offer financial services; cybersecurity threats; risks related to the merger with FineMark including, among others, (i) the Company's ability to promptly and effectively integrate the merger, (ii) diversion of management’s attention from ongoing business operations and opportunities, (iii) cost savings and any revenue synergies from the merger may not be fully realized or may take longer than anticipated to be realized, (iv) deposit attrition, customer or employee loss and/or revenue loss as a result of the merger, and (v) expenses related to the merger being greater than expected; and such other factors as discussed in Part I Item 1A - "Risk Factors" and Part II Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2025 Annual Report on Form 10-K and Part II, Item 1A. - "Risk Factors" in this report.

Previous wording

For the quarter ended June 30, 2026, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $159.8 million, an increase of $7.3 million, or 4.8%, compared to the second quarter of the previous year. For the current quarter, the annualized return on average assets was 1.84%, the annualized return on average equity was 14.70%, and the efficiency ratio was 58.40%. Diluted earnings per common share was $1.10 per share in the current quarter, an increase of .92% compared to $1.09 per share in the second quarter of 2025, and increased 14.6% compared to $.96 per share in the previous quarter.

Current wording

For the quarter ended September 30, 2026, net income attributable to Commerce Bancshares, Inc. (net income) amounted to $155.0 million, an increase of $13.5 million, or 9.5%, compared to the third quarter of the previous year. For the current quarter, the annualized return on average assets was 1.79%, the annualized return on average equity was 14.17%, and the efficiency ratio was 56.69%. Diluted earnings per common share was $1.08 per share in the current quarter, an increase of 6.9% compared to $1.01 per share in the third quarter of 2025, and decreased 1.8% compared to $1.10 per share in the previous quarter.

Previous wording

Compared to the second quarter of last year, net interest income increased $34.9 million, or 12.5%, mainly due to increases in interest income on loans and interest income on investment securities of $31.0 million and $2.7. million, respectively. Interest expense on deposits increased $3.3 million, while interest expense on borrowings decreased $2.5 million. The provision for credit losses increased $3.1 million compared to the same quarter in the prior year. Non-interest income increased $18.2 million, or 11.0%, compared to the second quarter of 2025, mainly due to increases in trust fees and deposit account fees of $15.9 million and $3.0 million, respectively. Net gains on investment securities totaled $12.8 million in the current quarter compared to net gains of $437 thousand in the same quarter of last year. Securities gains in the current quarter primarily resulted from net gains of $114.1 million recorded on equity securities, largely offset by net losses of $97.7 million on sales of available for sale debt securities. Non-interest expense increased $52.6 million, or 21.5%, over the second quarter of 2025, mainly due to higher salaries and benefits expense of $24.9 million, primarily a result of onboarding FineMark team members at the beginning of 2026. Data processing and software expense and professional and other services expense also increased $5.3 million and $3.5 million, respectively. Additionally, other non-interest expense increased $15.6 million, primarily due to $12.0 million in litigation expense and $5.4 million in intangible amortization expense related to the FineMark acquisition.

Current wording

Compared to the third quarter of last year, net interest income increased $29.4 million, or 10.5%, mainly due to increases in interest income on loans and securities purchased under agreements to resell, partially offset by lower interest income on interest earning deposits at banks and higher interest expense. Interest income on loans and securities purchased under agreements to resell increased $32.1 million and $3.1 million, respectively, in the third quarter of 2026 as compared to the third quarter of 2025, while interest income on deposits at the Federal Reserve decreased $6.1 million during that period. Interest expense on deposits increased $3.6 million during the current quarter compared to the same quarter last year, while interest expense on borrowings decreased $4.4 million. The provision for credit losses decreased $10.0 million compared to the same quarter in the prior year. Non-interest income increased $24.0 million, or 14.8%, compared to the third quarter of 2025, mainly due to increases in trust and bank card fees of $15.0 million and $3.6 million, respectively. Net gains on investment securities totaled $4.1 million in the current quarter compared to net gains of $7.9 million in the same quarter of last year. Net securities gains in the current quarter primarily resulted from fair value adjustments on private equity investments, net gains on sales of private equity investments, and net gains on equity securities, offset by net losses on sales of available for sale debt securities. Non-interest expense increased $41.9 million, or 17.2%, over the third quarter of 2025, mainly due to higher salaries and benefits expense of $24.1 million, primarily a result of onboarding FineMark team members at the beginning of 2026. Data processing and software expense increased $5.3 million, and professional and other services expense increased $3.4 million. Additionally, other non-interest expense increased $5.7 million, mainly due to $5.4 million in intangible amortization expense related to the FineMark acquisition.

Previous wording

Net income for the first six months of 2026 totaled $301.4 million, an increase of $17.3 million, or 6.1% from the same period last year. Diluted earnings per common share was $2.06, an increase of 1.98% compared to $2.02 per share in the same period last year. For the first six months of 2026, the annualized return on average assets was 1.73%, the annualized return on average equity was 13.96%, and the efficiency ratio was 59.19%. Net interest income increased $65.7 million, or 12.0%, over the same period last year. This growth was largely due to an increase in interest income on loans of $65.2 million. Interest expense on deposits increased $7.4 million, while interest expense on borrowings decreased $5.2 million, over the same period last year. The provision for credit losses was $19.7 million for the first six months of 2026, compared to a provision of $20.1 million in the same period last year. Non-interest income increased $35.1 million, or 10.8%, from the first six months of last year largely due to increases in trust fees and deposit account fees, partly offset by lower gains of sales on assets. Non-interest expense increased $105.4 million, or 21.8%, over the first six months of last year, mainly due to higher salaries and benefits expense of $52.6 million, primarily a result of onboarding FineMark team members at the beginning of 2026. Professional and other services expense increased $12.3 million, partly due to acquisition-related legal and professional fees, while data processing and software expense increased $11.4 million. Additionally, other non-interest expense increased $22.6 million over the same period in the prior year, mainly due to $12.0 million in litigation expense and an increase of $10.7 million in acquisition-related intangible amortization expense.

Current wording

Net income for the first nine months of 2026 totaled $456.4 million, an increase of $30.8 million, or 7.2% from the same period last year. Diluted earnings per common share was $3.14, an increase of 3.6% compared to $3.03 per share in the same period last year. For the first nine months of 2026, the annualized return on average assets was 1.75%, the annualized return on average equity was 14.03%, and the efficiency ratio was 58.34%. Net interest income increased $95.1 million, or 11.5%, over the same period last year. This growth was largely due to an increase in interest income on loans of $97.3 million. Interest expense on deposits increased $10.9 million, while interest expense on borrowings decreased $9.6 million, over the same period last year. The provision for credit losses was $29.7 million for the first nine months of 2026, compared to a provision of $40.1 million in the same period last year. Non-interest income increased $59.1 million, or 12.2%, from the first nine months of last year, largely due to increases in trust fees, bank card fees and deposit account fees. Non-interest expense increased $147.3 million, or 20.3%, over the first nine months of last year, mainly due to higher salaries and benefits expense of $76.7 million, primarily a result of onboarding FineMark team members at the beginning of 2026. Professional and other services expense increased $15.7 million, partly due to acquisition-related legal and professional fees, while data processing and software expense increased $16.7 million. Additionally, other non-interest expense increased $28.4 million over the same period in the prior year, mainly due to a $12.0 million increase in litigation expense and $16.1 million in acquisition-related intangible amortization expense.

Previous wording

Net interest income in the second quarter of 2026 was $315.1 million, an increase of $34.9 million over the second quarter of 2025. On a fully taxable-equivalent (FTE) basis, net interest income totaled $317.5 million in the second quarter of 2026, up $35.0 million over the same period last year and up $15.3 million over the previous quarter. The increase in net interest income compared to the second quarter of 2025 was mainly due to an increase in average loan balances in connection with the acquisition of FineMark on January 1, 2026. Accretion income on FineMark's loans resulting from purchase accounting adjustments totaled $6.2 million in the second quarter of 2026. Interest income earned on loans (FTE) increased over the same period in the prior year mainly due to higher average loan balances, partly offset by lower average rates earned. Total interest earned on investment securities (FTE) increased mainly due to higher average rates earned, while the increase in deposit interest expense was mainly due to higher average balances, partly offset by lower average rates paid. Interest expense on securities sold under agreements to repurchase decreased mainly due to lower average rates paid. The Company's net yield on earning assets (FTE) was 3.77% in the current quarter compared to 3.70% in the second quarter of 2025.

Current wording

Net interest income in the third quarter of 2026 was $308.9 million, an increase of $29.4 million over the third quarter of 2025. On a fully taxable-equivalent (FTE) basis, net interest income totaled $311.3 million in the third quarter of 2026, up $29.5 million over the same period last year and down $6.2 million from the previous quarter. The increase in net interest income compared to the third quarter of 2025 was mainly due to an increase in average loan balances in connection with the acquisition of FineMark on January 1, 2026. Accretion income on FineMark's loans resulting from purchase accounting adjustments totaled $5.0 million in the third quarter of 2026. Interest income earned on loans (FTE) increased over the same period in the prior year mainly due to higher average loan balances, partly offset by lower average rates earned. Total interest earned on investment securities (FTE) decreased due to lower average balances partly offset by higher average rates earned. The increase in deposit interest expense was due to higher average balances, partly offset by lower average rates paid, while interest expense on securities sold under agreements to repurchase decreased due to lower average balances and rates paid. The Company's net yield on earning assets (FTE) was 3.71% in the current quarter compared to 3.64% in the third quarter of 2025.

Previous wording

Total interest income (FTE) increased $35.8 million over the second quarter of 2025. Interest income on loans (FTE) was $293.3 million during the second quarter of 2026, an increase of $31.2 million, or 11.9%, over the same quarter last year. The increase in loan interest income over the same quarter of last year was primarily due to growth of $3.0 billion, or 17.3%, in average loan balances, partly offset by lower average rates earned, which declined 28 basis points. Most of the increase in interest income was due to the acquisition of FineMark, which added $2.7 billion in loan balances. The largest increase to interest income occurred in personal real estate loan interest, which grew $19.6 million due to a $1.3 billion, or 43.9%, increase in average balances coupled with a 49 basis point increase in the average rate earned. Revolving home equity loan interest income increased $4.7 million mainly due to a $267.7 million, or 73.9%, increase in average balances. Business real estate loan interest income increased $3.3 million due to higher average balances of $370.3 million, or 10.0%, partly offset by a decrease of 22 basis points in the average rate earned. The $3.3 million increase in consumer loan interest income was due to a $324.3 million, or 15.1%, increase in average balances, partly offset by a decline of 31 basis points in the average rate earned. Business loan interest income grew $3.2 million due to higher average balances of $617.1 million, or 9.9%, partly offset by a 33 basis point decrease in the average rate earned. These increases in interest income were slightly offset by decreases in construction and land loan and consumer credit card loan interest income. Interest income on construction and land loans decreased $1.7 million due to a 99 basis point decrease in the average rate earned, partly offset by an increase in average balances of $114.9 million, or 8.0%. Consumer credit card loan interest income declined $1.3 million due to a 60 basis point decrease in the average rate earned and a $15.2 million, or 2.7% decrease in the average balance.

Current wording

Total interest income (FTE) increased $28.7 million over the third quarter of 2025. Interest income on loans (FTE) was $297.8 million during the third quarter of 2026, an increase of $32.2 million, or 12.1%, over the same quarter last year. The increase in loan interest income over the same quarter of last year was primarily due to growth of $3.2 billion, or 18.2%, in average loan balances, partly offset by lower average rates earned, which declined 31 basis points. Most of the increase in interest income was due to the acquisition of FineMark, which added $2.7 billion in loan balances. The largest increase to interest income occurred in personal real estate loan interest, which grew $19.6 million due to a $1.3 billion, or 42.0%, increase in average balances coupled with a 51 basis point increase in the average rate earned. Consumer loan interest income increased $5.0 million due to a $492.8 million, or 22.8%, increase in average balances, partly offset by a decline of 45 basis points in the average rate earned. Revolving home equity loan interest income increased $4.7 million due to a $292.8 million, or 81.1%, increase in average balances, partly offset by a 73 basis point decline in the average rate earned. Business loan interest income grew $4.4 million due to higher average balances of $704.5 million, or 11.3%, partly offset by a 33 basis point decrease in the average rate earned. Business real estate loan interest income increased $2.2 million due to higher average balances of $362.4 million, or 9.8%, partly offset by a decrease of 31 basis points in the average rate earned. These increases in interest income were slightly offset by decreases in construction and land loan and consumer credit card loan interest income. Interest income on construction and land loans decreased $2.1 million due to a 95 basis point decrease in the average rate earned, partly offset by an increase in average balances of $74.2 million, or 5.3%. Consumer credit card loan interest income declined $1.5 million due to a 67 basis point decrease in the average rate earned and a $17.9 million, or 3.2% decrease in the average balance.

Previous wording

Interest income on investment securities (FTE) was $83.2 million during the second quarter of 2026, which was an increase of $2.6 million over the same quarter last year. The largest increase in interest income occurred in interest earned on U.S. government and federal agency obligations, which grew $11.9 million, driven by higher average balances of $741.1 million, or 28.2%, and an increase of 48 basis points in the average rate earned. Interest income related to the Company's U.S. Treasury inflation-protected securities (TIPS), which is tied to the non-seasonally adjusted Consumer Price Index (CPI-U), increased $5.0 million over the same quarter last year. During the second quarter of 2026, the Company sold its TIPS portfolio as part of its available for sale debt securities portfolio repositioning. The increase in interest income was partly offset by a decline in interest income earned on asset-backed and mortgage-backed securities, which declined $4.8 million and $3.1 million, respectively. Interest income earned on asset-backed securities declined due to a $528.4 million, or 33.3%, decrease in average balances. A decrease of $626.0 million, or 13.5%, in average balances led to the decline in interest income on mortgage-backed securities. In addition, the Company recorded a $1.1 million adjustment to premium amortization at June 30, 2026, which increased interest income and reflected slower forward prepayment speed estimates on mortgage-backed securities. This increase was higher than the $1.0 million adjustment increasing income in the same quarter last year. The average balance of the total investment portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $9.8 billion in the second quarter of 2026 and $10.2 billion in the second quarter of 2025.

Current wording

Interest income on investment securities (FTE) was $74.4 million during the third quarter of 2026, which was a decrease of $639 thousand from the same quarter last year. The largest decrease in interest income occurred in mortgage-backed and asset- backed securities, which declined $4.7 million and $3.8 million, respectively. A decrease of $1.0 billion, or 22.8%, in average balances led to the decline in interest income on mortgage-backed securities. Slightly offsetting this decrease, the Company recorded a $955 thousand adjustment to premium amortization at September 30, 2026, which increased interest income and reflected slower forward prepayment speed estimates on mortgage-backed securities. This adjustment exceeded the $314 thousand increase to interest income recorded in the same quarter of the prior year. Interest income earned on asset-backed securities declined due to a $451.6 million, or 30.8%, decrease in average balances. The decreases in interest income were partly offset by an increase in interest earned on U.S. government and federal agency obligations, which grew $8.0 million, driven by higher average balances of $802.2 million, or 29.8%. During the second quarter of 2026, the Company sold its U.S. Treasury inflation-protected securities portfolio (TIPS) as part of its available for sale debt securities portfolio repositioning. The average balance of the total investment portfolio (excluding unrealized fair value adjustments on available for sale debt securities) was $9.2 billion in the third quarter of 2026 and $10.0 billion in the third quarter of 2025.

Previous wording

Interest income on securities purchased under agreements to resell increased $876 thousand over the same quarter last year, mainly due to the growth of $84.6 million in the average balance. These resale agreements were structured with floor spreads to protect against falling interest rates. Interest income on deposits at the Federal Reserve increased $1.1 million due to an increase of $539.2 million in the average balance, partly offset by a decline of 76 basis points in the average rate earned.

Current wording

Interest income on securities purchased under agreements to resell increased $3.1 million over the same quarter last year, mainly due to growth of $300.0 million in the average balance. These resale agreements were structured with floor spreads to protect against falling interest rates. Interest income on deposits at the Federal Reserve decreased $6.1 million due to declines of 71 basis points in the average rate earned and $179.6 million in the average balance.

Previous wording

The average fully taxable-equivalent yield on total interest earning assets was 4.87% in the second quarter of 2026, down from 4.90% in the second quarter of 2025.

Current wording

The average fully taxable-equivalent yield on total interest earning assets was 4.83% in the third quarter of 2026, down from 4.86% in the third quarter of 2025.

Previous wording

Total interest expense increased $757 thousand compared to the second quarter of 2025 due an increase of $3.3 million in interest expense on interest bearing deposits, partly offset by a decrease of $2.5 million in interest expense on borrowings. The increase in deposit interest expense was primarily due to the acquisition of FineMark, which added $2.7 billion in interest bearing deposit balances. Compared to the same quarter last year, interest expense on interest checking and money market deposit balances increased $5.3 million due to growth of $1.9 billion, or 13.4%, in average balances, partly offset by a four basis point decline in the average rate paid. Interest expense on certificate of deposit accounts decreased $2.1 million due to a 45 basis point decline in average rates paid, partly offset by an increase of $69.4 million, or 2.9%, in average balances. The overall rate paid on total deposits decreased ten basis points from the same quarter last year. Interest expense on customer repurchase agreements decreased $3.4 million due to a 50 basis point decline in the average rate paid and a decrease of $71.9 million, or 3.0%, in the average balance. The overall average rate incurred on all interest bearing liabilities was 1.68% and 1.83% in the second quarters of 2026 and 2025, respectively.

Current wording

Total interest expense decreased $830 thousand compared to the third quarter of 2025 due to a decrease of $4.4 million in interest expense on borrowings, partly offset by an increase of $3.6 million in interest expense on interest bearing deposits. The increase in deposit interest expense was primarily due to the acquisition of FineMark, which added $2.7 billion in interest bearing deposit balances. Compared to the same quarter last year, interest expense on interest checking and money market deposit balances increased $6.9 million due to growth of $1.7 billion, or 12.7%, in average balances. Interest expense on certificate of deposit accounts decreased $3.4 million due to a 48 basis point decline in average rates paid and a decrease of $60.8 million, or 2.5%, in average balances. The overall rate paid on total deposits decreased eight basis points from the same quarter last year. Interest expense on customer repurchase agreements decreased $4.6 million due to declines of 47 basis points in the average rate paid and $276.5 million, or 11.0%, in the average balance. The overall average rate incurred on all interest bearing liabilities was 1.73% and 1.87% in the third quarters of 2026 and 2025, respectively.

Previous wording

Total interest income (FTE) for the first six months of 2026 increased $65.8 million over the same period last year mainly due to higher interest income on loans (FTE), securities purchased under agreements to resell and deposit balances at the Federal Reserve, slightly offset by lower interest income on investment securities (FTE). Loan interest income (FTE) increased $65.5 million, or 12.6%, due to a $3.1 billion, or 17.6%, increase in average loan balances, partly offset by a decline of 25 basis points in the average rate earned. Most of the increase in interest income was due to loan balances acquired in the FineMark acquisition. Increases in interest income occurred in the personal real estate, revolving home equity, business real estate, business and consumer loan categories, while decreases occurred in the construction and land and consumer credit card loan categories. Interest income on investment securities (FTE) decreased $1.6 million mainly due to decreases in average balances of asset-backed securities and mortgage-backed securities, partly offset by an increase in average balances of U.S. government and federal agency obligations. Interest earned on asset-backed securities decreased $7.6 million mainly due to a decline in average balances of $491.7 million, while interest earned on mortgage-backed securities decreased $5.7 million mainly due to lower average balances of $601.7 million. These decreases in interest income on investment securities were partly offset by increases in interest earned on U.S. government and federal agency securities of $14.2 million due to higher average balances of $672.9 million, or 25.8%. Higher interest income of $1.9 million was earned on securities purchased under agreements to resell, which saw growth in both average balances and rates earned. Interest income on balances at the Federal Reserve increased $2.2 million due to a $573.8 million increase in the average balance invested, partly offset by a 76 basis point decline in the average rate earned.

Current wording

Total interest income (FTE) for the first nine months of 2026 increased $96.6 million over the same period last year mainly due to higher interest income on loans (FTE) and securities purchased under agreements to resell, slightly offset by lower interest income on deposit balances at the Federal Reserve and investment securities (FTE). Loan interest income (FTE) increased $97.7 million, or 12.5%, due to a $3.1 billion, or 17.8%, increase in average loan balances, partly offset by a decline of 28 basis points in the average rate earned. Most of the increase in interest income was due to loan balances acquired in the FineMark acquisition. Increases in interest income occurred in the personal real estate, revolving home equity, consumer, business, and business real estate loan categories, while decreases occurred in the consumer credit card and construction and land loan categories. Interest income on investment securities (FTE) decreased $2.3 million mainly due to decreases in average balances of asset-backed securities and mortgage-backed securities, partly offset by an increase in average balances of U.S. government and federal agency obligations. Interest earned on asset-backed securities decreased $11.5 million mainly due to a decline in average balances of $478.2 million, while interest earned on mortgage-backed securities decreased $10.3 million mainly due to lower average balances of $741.6 million. These decreases in interest income on investment securities were partly offset by increases in interest earned on U.S. government and federal agency securities of $22.2 million due to higher average balances of $716.5 million, or 27.2%. Higher interest income of $5.0 million was earned on securities purchased under agreements to resell, which saw growth in both average balances and rates earned. Interest income on balances at the Federal Reserve decreased $3.8 million due to a 74 basis point decline in the average rate earned, partly offset by a $319.9 million increase in the average balance invested.

Previous wording

Total interest expense for the first six months of 2026 increased $2.2 million compared to the same period last year. Interest expense on deposits increased $7.4 million, due to a $2.1 billion increase in average balances, partly offset by an 11 basis point decline in the average rate paid. Interest expense on borrowings decreased $5.2 million, due to lower interest expense on securities sold under agreements to repurchase of $6.8 million resulting from lower average rates paid and average balances. This decrease was partly offset by higher interest expense on federal funds purchased of $770 thousand, mainly due to lower average rates paid, partly offset by an increase in average balances, while interest expense on other borrowings increased $845 thousand mainly due to higher average balances. The overall cost of total interest bearing liabilities decreased to 1.70% compared to 1.87% in the same period last year.

Current wording

Total interest expense for the first nine months of 2026 increased $1.3 million compared to the same period last year. Interest expense on deposits increased $10.9 million, due to a $2.0 billion increase in average balances, partly offset by a ten basis point decline in the average rate paid. Interest expense on borrowings decreased $9.6 million, due to lower interest expense on securities sold under agreements to repurchase of $11.4 million resulting from lower average rates paid and average balances. This decrease was slightly offset by higher interest expense on federal funds purchased of $1.0 million, mainly due to an increase in average balances, partly offset by lower average rates paid, while interest expense on other borrowings increased $840 thousand mainly due to higher average balances. The overall cost of total interest bearing liabilities decreased to 1.71% compared to 1.86% in the same period last year.

Previous wording

Summaries of average assets and liabilities and the corresponding average rates earned/paid appear on the last page of this discussion.

Current wording

Summaries of average assets and liabilities and the corresponding average rates earned/paid appear in the Average Balance Sheet- Average Rates and Yields tables at the end of this discussion.

Previous wording

The table below is a summary of net bank card transaction fees for the six month periods ended June 30, 2026 and 2025.

Current wording

The table below is a summary of net bank card transaction fees for the three and nine months ended September 30, 2026 and 2025.

Previous wording

For the second quarter of 2026, total non-interest income amounted to $183.8 million compared to $165.6 million in the same quarter last year, which was an increase of $18.2 million, or 11.0%. The increase was mainly due to higher trust fees and deposit account fees. Trust fees increased $15.9 million, or 28.7%, mainly due to growth of $14.9 million in private client trust fees. Bank card transaction fees for the current quarter increased $1.8 million, or 3.8%, over the same period last year, mainly due to growth in net corporate card and net credit card fees. Net corporate card fees increased $811 thousand compared to the same period last year primarily due to higher interchange fees. Net credit card fees increased $804 thousand mainly due to lower rewards expense and higher interchange fees. Net merchant fees increased $212 thousand mainly due to lower royalty expense and lower network expense, while net debit card fees declined $68 thousand. Compared to the second quarter of last year, deposit account fees increased $3.0 million, or 11.5%, mainly due to higher corporate cash management fees of $2.7 million. Consumer brokerage service fees increased $479 thousand, or 8.9%, mainly due to higher advisory fees, while capital market fees decreased $508 thousand, or 8.2%, mainly due to lower underwriting income. Other non-interest income decreased $2.3 million, or 10.3%, mainly due to decreases of $4.7 million in gains on the sales of assets and $1.0 million in tax credit sales fees. These decreases were partly offset by increases in cash sweep commissions and interest rate swap fees of $1.3 million and $577 thousand, respectively.

Current wording

For the third quarter of 2026, total non-interest income amounted to $185.5 million compared to $161.5 million in the same quarter last year, which was an increase of $24.0 million, or 14.8%. The increase was mainly due to higher trust fees and bank card transaction fees and other non-interest income. Trust fees increased $15.0 million, or 25.7%, mainly due to growth of $15.2 million in private client trust fees. Bank card transaction fees for the current quarter increased $3.6 million, or 8.0%, over the same period last year, mainly due to growth in net corporate card and net merchant fees. Net corporate card fees increased $3.6 million compared to the same period last year primarily due to higher interchange fees, partly offset by higher rewards expense. Net merchant fees increased $241 thousand, while net debit card fees declined $265 thousand. Compared to the third quarter of last year, deposit account fees increased $2.2 million, or 8.1%, mainly due to higher corporate cash management fees of $2.0 million. Consumer brokerage service fees decreased $353 thousand, or 5.3%, mainly due to lower life insurance income, partly offset by higher advisory fees. Capital market fees decreased $1.1 million, or 21.5%, mainly due to lower trading securities income, partly offset by higher underwriting income. Other non-interest income increased $4.5 million, or 30.0%, mainly due to a $2.8 million increase in gains on the sales of assets and higher cash sweep commissions and interest rate swap fees of $881 thousand and $812 thousand, respectively.

Previous wording

Non-interest income for the first six months of 2026 was $359.7 million compared to $324.6 million in the first six months of 2025, which was an increase of $35.1 million, or 10.8%. The increase was mainly due to higher trust fees, deposit account fees and bank card fees. Trust fees increased $30.4 million, or 27.1%, mainly due to higher private client and institutional trust fees. Bank card transaction fees for the current year increased $1.8 million, or 1.9%, over the same period last year, mainly due to growth of $859 thousand in net corporate card fees, $631 thousand in net credit card fees and $233 thousand in net debit card fees. Deposit account fees increased $5.0 million, or 9.4%, mainly due to higher corporate cash management and overdraft and return item fees. Consumer brokerage service fees increased $1.1 million, or 11.2%, mainly due to higher advisory fees. Capital market fees decreased $282 thousand, or 2.5%, while loan fees and sales decreased $306 thousand, or 4.5%, mainly due to lower loan commitment fees. Other non-interest income decreased $2.5 million, or 6.5%, mainly due to decreases of $5.7 million in gains on the sales of assets and $1.4 million in tax credit sales fees. In addition, a decrease in fair value adjustments of $723 thousand was recorded on the Company's deferred compensation plan assets and liabilities. These decreases were partly offset by increases in cash sweep commissions of $2.4 million, bank-owned life insurance income of $936 thousand, and ACH network fees of $814 thousand.

Current wording

Non-interest income for the first nine months of 2026 was $545.1 million compared to $486.1 million in the first nine months of 2025, which was an increase of $59.1 million, or 12.2%. The increase was mainly due to higher trust fees, deposit account fees and bank card fees. Trust fees increased $45.4 million, or 26.6%, mainly due to higher private client and institutional trust fees. Bank card transaction fees for the current year increased $5.4 million, or 3.9%, over the same period last year, mainly due to growth of $4.4 million in net corporate card fees and $718 thousand in net credit card fees. Deposit account fees increased $7.2 million, or 9.0%, mainly due to higher corporate cash management and overdraft and return item fees. Consumer brokerage service fees increased $785 thousand, or 4.7%, mainly due to higher advisory fees, partly offset by lower life insurance income. Capital market fees decreased $1.4 million, or 8.4%, mainly due to lower underwriting income, while loan fees and sales decreased $205 thousand, or 2.0%. Other non-interest income increased $1.9 million, or 3.5%, mainly due to higher cash sweep commissions of $3.3 million, invoice payment services fees of $1.5 million, bank-owned life insurance income of $1.2 million and swap fees of $1.1 million. These increases were partly offset by lower gains on the sales of assets of $2.8 million and tax credit sales fees of $1.4 million.

Previous wording

Net gains and losses on investment securities, which were recognized in earnings during the three months ended June 30, 2026 and 2025, are shown in the table above. Net securities gains of $12.8 million were reported in the second quarter of 2026, compared to net gains of $437 thousand in the same period last year. The net gains in the second quarter of 2026 were mainly comprised of net gains of $114.1 million on equity securities, primarily related to gains recorded on the Company's shares of Visa, as described in Note 4, Investment Securities. The $114.1 million gain on equity securities during the second quarter of 2026 was mainly comprised of $34.5 million in gains on sales of the Company's Visa common stock and gains in fair value of $71.0 million recorded on the Company's Visa common stock still held at June 30 2026. Additionally, the Company recorded $8.6 million in net gains on other equity securities. These gains were largely offset by net losses of $97.7 million on sales of available for sale debt securities, related to the Company's available for sale debt portfolio repositioning, in which the Company sold bonds with an amortized cost of $904.7 million and subsequently reinvested the proceeds into higher yielding available for sale debt securities. Additional information about the Company's available for sale debt portfolio repositioning transactions is discussed in Note 4, Investment Securities. In addition to losses on available for sale debt securities, losses in fair value of $4.0 million were recorded on private equity investments during the second quarter of 2026. During the second quarter of 2025, the net gains on investment securities were primarily comprised of net gains in fair value of $4.4 million recorded on private equity investments and net gains of $1.9 million on equity investments, mostly offset by net losses of $4.2 million on sales of available for sale debt securities.

Current wording

Net gains and losses on investment securities, which were recognized in earnings during the three months ended September 30, 2026 and 2025, are shown in the table above. Net securities gains of $4.1 million were reported in the third quarter of 2026, compared to net gains of $7.9 million in the same period last year. The net gains in the third quarter of 2026 were mainly comprised of net gains in fair value of $8.1 million recorded on private equity investments, net gains of $5.3 million on sales of private equity investments, and net gains of $3.1 million on equity securities, primarily related to gains recorded on the Company's shares of Visa, as described in Note 4, Investment Securities. These gains were largely offset by net losses of $12.4 million on sales of available for sale debt securities. During the third quarter of 2025, the net gains on investment securities were primarily comprised of net gains in fair value of $8.0 million recorded on private equity investments, partially offset by net losses of $111 thousand on equity securities.

Previous wording

Net gains on investment securities of $24.5 million were recognized in earnings for the six months ended June 30, 2026, compared to net losses of $7.2 million for the same period in 2025. Net gains in the first half of 2026 were mainly comprised of net gains of $114.3 million on equity securities, mainly Visa common stock as described above, and net gains in fair value of $6.9 million recorded on private equity investments, partially offset by net losses of $97.7 million on sales of available for sale debt securities related to the available for sale debt securities portfolio repositioning. Net losses in the first half of 2025 were mainly comprised of net losses of $4.2 million on sales of available for sale debt securities and net losses in fair value of $4.1 million recorded on private equity investments, partly offset by net gains of $1.8 million on equity securities. The portion of private equity activity attributable to minority interests is reported as non-controlling interest in the consolidated statements of income and resulted in expense of $1.6 million during the first six months of 2026 and income of $943 thousand during the first six months of 2025.

Current wording

Net gains on investment securities of $28.6 million were recognized in earnings for the nine months ended September 30, 2026, compared to net gains of $731 thousand for the same period in 2025. Net gains in the first nine months of 2026 were mainly comprised of net gains of $117.4 million on equity securities, mainly Visa common stock as described above, and net gains in fair value of $15.1 million recorded on private equity investments. These gains were partially offset by net losses of $110.1 million on sales of available for sale debt securities, most of which was related to the Company's available for sale debt securities portfolio repositioning during the second quarter of 2026. Net gains in the first nine months of 2025 were mainly comprised of net gains in fair value of $3.8 million recorded on private equity investments and net gains of $1.7 million on equity securities. These gains were largely offset by net losses of $4.2 million on sales of available for sale debt securities. The portion of private equity activity attributable to minority interests is reported as non-controlling interest in the consolidated statements of income and resulted in expense of $4.3 million during the first nine months of 2026 and expense of $656 thousand during the first nine months of 2025.

Previous wording

Non-interest expense for the second quarter of 2026 amounted to $297.1 million, an increase of $52.6 million, or 21.5%, compared to expense of $244.4 million in the second quarter of last year. The increase in expense over the same period last year was mainly due to higher salaries and employee benefits expense, data processing and software expense, professional and other services expense, litigation expense and intangible amortization expense. Salaries and employee benefits expense increased $24.9 million, or 16.1%, mainly due to the onboarding of FineMark's team members at the beginning of 2026. Acquisition-related salaries and benefits expense was $3.7 million in the current quarter. Full-time equivalent employees totaled 4,976 at June 30, 2026, compared to 4,658 at June 30, 2025. Data processing and software expense increased $5.3 million, or 16.2%, mainly due to higher costs for service providers and software. Professional and other services expense, which increased $3.5 million, or 27.2%, included $1.5 million of acquisition-related legal and professional services expense. Net occupancy expense increased $984 thousand, or 7.2%, and equipment expense increased $713 thousand, or 13.8%, both mainly due to higher depreciation expense. Supplies and communication expense increased $522 thousand, or 10.5%, mainly due to higher supplies and postage and courier expense. Other non-interest expense increased $15.6 million, mainly due to increases of $12.0 million in litigation expense and $5.4 million in intangible amortization expense related to the FineMark acquisition.

Current wording

Non-interest expense for the third quarter of 2026 amounted to $285.9 million, an increase of $41.9 million, or 17.2%, compared to expense of $244.0 million in the third quarter of last year. The increase in expense over the same period last year was mainly due to higher salaries and employee benefits expense, data processing and software expense, professional and other services expense and intangible amortization expense. Salaries and employee benefits expense increased $24.1 million, or 15.3%, mainly due to the onboarding of FineMark's team members at the beginning of 2026. Acquisition-related salaries and benefits expense was $3.3 million in the current quarter. Full-time equivalent employees totaled 4,969 at September 30, 2026, compared to 4,666 at September 30, 2025. Additionally, healthcare expense increased $4.1 million over the same period in the prior year. Data processing and software expense increased $5.3 million, or 15.8%, mainly due to higher costs for service providers. Professional and other services expense, which increased $3.4 million, or 29.8%, included $1.2 million of acquisition-related legal and professional services expense in the current quarter. Net occupancy expense increased $1.6 million, or 11.8%, and equipment expense increased $286 thousand, or 5.3%, both mainly due to higher depreciation expense. Supplies and communication expense increased $655 thousand, or 13.5%, mainly due to higher data network expense, while deposit insurance expense increased $715 thousand, or 23.3%. Other non-interest expense increased $5.7 million, mainly due to intangible amortization expense of $5.3 million related to the FineMark acquisition and higher travel and entertainment expense of $973 thousand.

Previous wording

Non-interest expense amounted to $588.2 million for the first six months of 2026, an increase of $105.4 million, or 21.8%, over the first six months of 2025. Salaries and benefits expense increased $52.6 million, or 17.1%, mainly due to an accrual for retention bonuses, acquisition-related compensation payments and the onboarding of FineMark's team members. Salaries and benefits expense included acquisition-related costs of $10.3 million for the first six months of 2026. Full-time salaries, incentive compensation and stock compensation expense increased $28.2 million, $12.9 million and $4.3 million, respectively, over the prior year. Data processing and software expense increased $11.4 million, or 17.5%, due to increased costs for service providers and software expense. Professional and other services expense increased $12.3 million, or 53.5%, and included $6.1 million in acquisition-related legal and professional fees. Occupancy expense increased $2.3 million, or 8.2%, and equipment expense increased $1.1 million, or 10.9%, both mainly due to higher depreciation expense. Marketing expense increased $1.6 million, or 13.1%, and supplies and communication expense increased $714 thousand, or 7.1%, mainly due to higher supplies and data network expense. Other non-interest expense increased $22.6 million, mainly due to increases of $12.0 million in litigation expense, $10.7 million in acquisition-related intangible amortization expense and $1.2 million in travel an entertainment expense.

Current wording

Non-interest expense amounted to $874.1 million for the first nine months of 2026, an increase of $147.3 million, or 20.3%, over the first nine months of 2025. Salaries and benefits expense increased $76.7 million, or 16.5%, mainly due to an accrual for retention bonuses, acquisition-related compensation payments and the onboarding of FineMark's team members. Salaries and benefits expense included acquisition-related costs of $13.6 million for the first nine months of 2026. Full-time salaries, incentive compensation, stock compensation and healthcare expense increased $38.4 million, $18.3 million, $7.2 million and $6.3 million, respectively, over the prior year. Data processing and software expense increased $16.7 million, or 16.9%, due to increased costs for service providers and software expense. Professional and other services expense increased $15.7 million, or 45.7%, and included $7.3 million in acquisition-related legal and professional fees. Occupancy expense increased $3.9 million, or 9.4%, and equipment expense increased $1.4 million, or 9.0%, both mainly due to higher depreciation expense. Marketing expense increased $1.7 million, or 9.2%, and deposit insurance expense increased $1.4 million, or 14.0%. Supplies and communication expense increased $1.4 million, or 9.2%, mainly due to higher supplies and data network expense. Other non-interest expense increased $28.4 million, mainly due to acquisition-related intangible amortization and other expense of $16.1 million and $2.4 million, respectively, as well as increases in litigation expense of $12.0 million and travel and entertainment expense of $2.2 million.

Previous wording

Net loan charge-offs in the second quarter of 2026 amounted to $9.5 million, compared to $15.0 million in the prior quarter and $9.7 million in the second quarter of last year. Comp ared to the same period last year, net loan charge-offs in thesecond quarter of 2026 decreased $149 thousand and decreased $5.4 million from the previous quarter. The decrease from the prior year was mainly driven by a decrease of $418 thousand in business real estate loan recoveries, offset by a decrease of $570 thousand in consumer loan net charge-offs. The decrease in net loan charge-offs for the three months ended June 30, 2026 from the previous quarter was driven by decreases of $5.4 million, $110 thousand and $170 thousand in net charge-offs on business real estate, consumer credit card, and consumer loans, respectively, partially offset by an increase of $201 thousand in net charge-offs on personal real estate loans.

Current wording

Net loan charge-offs in the third quarter of 2026 amounted to $10.6 million, compared to $9.5 million in the prior quarter and $10.3 million in the third quarter of last year. Comp ared to the same period last year, net loan charge-offs in thethird quarter of 2026 increased $275 thousand and increased $1.1 million from the previous quarter. The increase from the prior year was mainly driven by an increase of $583 thousand in consumer loan net charge-offs, partially offset by a decrease of $192 thousand in consumer credit card loan net charge-offs. The increase in net loan charge-offs for the three months ended September 30, 2026 from the previous quarter was driven by increases of $1.3 million and $539 thousand in net charge-offs on consumer and business loans, respectively, partially offset by a decrease of $706 thousand in net charge-offs on consumer credit card loans.

Previous wording

For the three months ended June 30, 2026, annualized net charge-offs on average consumer credit card loans were 5.18%, compared to 5.21% in the previous quarter and 5.08% in the same period last year. Consumer loan annualized net charge-offs in the current quarter amounted to .26%, compared to .30% in the prior quarter and .40% in the same period last year. In thesecond quarter of 2026, total annualized net loan charge-offs were .19%, compared to .30% in the previous quarter and .22% in the same period last year.

Current wording

For the three months ended September 30, 2026, annualized net charge-offs on average consumer credit card loans were 4.60%, compared to 5.18% in the previous quarter and 4.59% in the same period last year. Consumer loan annualized net charge-offs in the current quarter amounted to .43%, compared to .26% in the prior quarter and .42% in the same period last year. In thethird quarter of 2026, total annualized net charge-offs on loans were .20%, compared to .19% in the previous quarter and .23% in the same period last year.

Previous wording

For the six months ended June 30, 2026 and June 30, 2025, total annualized net loan charge-offs were .24% for each period. Net loan charge-offs were $24.5 million in the first six months of 2026, an increase of $4.0 million over net loan charge-offs of $20.5 million in the first six months of 2025. The increase in net loan charge-offs during the first six months of 2026 was mainly driven by higher net charge-offs business real estate loans.

Current wording

For the nine months ended September 30, 2026 and September 30, 2025, total annualized net charge-offs on loans were .23% and .24%, respectively. Net charge-offs on loans were $35.1 million in the first nine months of 2026, an increase of $4.3 million over net charge-offs of $30.8 million in the first nine months of 2025. The increase in net charge-offs on loans during the first nine months of 2026 was mainly driven by higher net charge-offs of business real estate loans, which was partially offset by lower net charge-offs of consumer loans.

Previous wording

For the three months ended June 30, 2026, the provision for credit losses on loans was $6.3 million, which was a decrease of $5.0 million from the provision recorded in the prior quarter. Compared to the same period in the prior year, the provision for credit losses on loans for the three months ended June 30, 2026 decreased $1.6 million. For the six months ended June 30, 2026, the provision for credit losses on loans was $17.6 million, which was a $5.4 million decrease from the $23.0 million provision recorded in the same period last year. Changes in the provision are driven by changes in the estimate for the allowance for credit losses on loans.

Current wording

For the three months ended September 30, 2026, the provision for credit losses on loans was $13.1 million, which was an increase of $6.8 million from the provision recorded in the prior quarter. Compared to the same period in the prior year, the provision for credit losses on loans for the three months ended September 30, 2026 decreased $7.7 million. For the nine months ended September 30, 2026, the provision for credit losses on loans was $30.7 million, which was a $13.1 million decrease from the $43.8 million provision recorded in the same period last year. Changes in the provision are driven by changes in the estimate for the allowance for credit losses on loans.

Previous wording

The allowance for credit losses decreased $3.2 million compared to prior quarter. The allowance for credit losses in the commercial portfolio decreased $1.6 million primarily due to decreases in the allowance on construction loans due to continued low loss rates and lower outstanding loan balances. Additionally, decreases in the allowance for credit losses in business loans lowered the overall allowance for credit losses in the commercial portfolio, due to lower business loan balances in certain industries and improvement in certain economic indicators, partially offset by an overall increase in outstanding business loan balances. The allowance for credit losses on the personal banking portfolio also decreased $1.6 million primarily due to a decrease in the allowance on the personal real estate loans, mostly due to improvements in home sale trends in certain markets. The decrease in allowance caused the allowance as a percentage of outstanding loans to decrease compared to the prior quarter. The forecast utilized to estimate the allowance for credit losses on loans at June 30, 2026 assumes slowing economic expansion and stable unemployment, and changes in the forecast utilized to estimate the allowance at June 30, 2026 did not significantly change the allowance estimate during the quarter.

Current wording

The allowance for credit losses increased $2.5 million compared to prior quarter. The allowance for credit losses in the commercial portfolio increased $3.8 million primarily due to increases in the allowance on business loans and business real estate loans, mainly due to higher outstanding loan balances coupled with an increase in commercial substandard loans. The allowance for credit losses on the personal banking portfolio decreased $1.3 million primarily due to a decrease in the allowance on the personal real estate loans. The forecast utilized to estimate the allowance for credit losses on loans at September 30, 2026 assumes continued elevated levels of inflation with slight improvements in unemployment causing a slight decrease in the allowance that was offset by the factors described above.

Previous wording

At June 30, 2026, the allowance for credit losses increased $15.9 million compared to the allowance for credit losses on loans at December 31, 2025. The most significant driver of the increase in the allowance for credit losses is due to an increase in loan balances as a result of the acquisition of FineMark, as the initial allowance for FineMark loans acquired was $22.8 million. This increase was partially offset by a decrease in the allowance on the consumer and consumer credit card loan portfolios. The allowance as a percentage of outstanding loans decreased compared to December 31, 2025 due to the change in mix of loans caused by the acquisition which included more personal real estate loans that carry a lower allowance for credit losses than other classes. The allowance for credit losses on loans was $195.4 million at June 30, 2026 and was .94%, .97%, and 1.01% of total loans at June 30, 2026, March 31, 2026, and December 31, 2025, respectively.

Current wording

At September 30, 2026, the allowance for credit losses increased $18.4 million compared to the allowance for credit losses on loans at December 31, 2025. The most significant driver of the increase in the allowance for credit losses is due to an increase in loan balances as a result of the acquisition of FineMark, as the initial allowance for FineMark loans acquired was $22.8 million. This increase was partially offset by a decrease in the allowance on the consumer and consumer credit card loan portfolios. The allowance as a percentage of outstanding loans decreased compared to December 31, 2025 due to the change in mix of loans caused by the acquisition which included more personal real estate loans that carry a lower allowance for credit losses than other classes. The allowance for credit losses on loans was $197.8 million at September 30, 2026 and was .93%, .94%, and 1.01% of total loans at September 30, 2026, June 30, 2026, and December 31, 2025, respectively.

Previous wording

In the current quarter, the provision for credit losses on unfunded lending commitments was $2.4 million, compared to a benefit of $2.3 million for the three months ended June 30, 2025. At June 30, 2026, the liability for unfunded lending commitments was $20.1 million, compared to $17.7 million at December 31, 2025 and $16.0 million at June 30, 2025. At June 30, 2026, the liability for unfunded lending commitments remained largely consistent with the liability as of December 31, 2025. The Company's unfunded lending commitments primarily relate to construction loans, and the Company's estimate for credit losses in its unfunded lending commitments utilizes the same model and forecast as its estimate for credit losses on loans. See Note 3 for further discussion of the model inputs utilized in the Company's estimate of credit losses.

Current wording

In the current quarter, the provision for credit losses on unfunded lending commitments was a benefit of $3.0 million, compared to a benefit of $678 thousand for the three months ended September 30, 2025. At September 30, 2026, the liability for unfunded lending commitments was $17.1 million, compared to $17.7 million at December 31, 2025 and $15.3 million at September 30, 2025. At September 30, 2026, the liability for unfunded lending commitments remained largely consistent with the liability as of December 31, 2025. The Company's unfunded lending commitments primarily relate to construction loans, and the Company's estimate for credit losses in its unfunded lending commitments utilizes the same model and forecast as its estimate for credit losses on loans. See Note 3 for further discussion of the model inputs utilized in the Company's estimate of credit losses.

Previous wording

Non-accrual loans totaled $11.6 million at June 30, 2026, a decrease of $4.1 million from the balance at December 31, 2025. The decrease occurred mainly in business real estate non-accrual loans, which decreased $5.4 million. At June 30, 2026, non-accrual loans were comprised of business real estate (80.6%), personal real estate (18.3%), and business loans (0.8%). Foreclosed real estate totaled $1.2 million at June 30, 2026, a decrease of $7 thousand compared to December 31, 2025. Total loans past due 90 days or more and still accruing interest totaled $23.7 million as of June 30, 2026, a decrease of $956 thousand from December 31, 2025. Balances by class for non-accrual loans and loans past due 90 days and still accruing interest are shown in the "Delinquent and non-accrual loans" section in Note 3 to the consolidated financial statements.

Current wording

Non-accrual loans totaled $11.5 million at September 30, 2026, a decrease of $4.2 million from the balance at December 31, 2025. The decrease occurred mainly in business real estate non-accrual loans, which decreased $5.7 million. At September 30, 2026, non-accrual loans were comprised of business real estate (79.4%), personal real estate (18.0%), business (2.3%), and home equity (.3%) loans. Foreclosed real estate totaled $1.4 million at September 30, 2026, an increase of $183 thousand compared to December 31, 2025. Total loans past due 90 days or more and still accruing interest totaled $26.4 million as of September 30, 2026, an increase of $1.8 million from December 31, 2025. Balances by class for non-accrual loans and loans past due 90 days and still accruing interest are shown in the "Delinquent and non-accrual loans" section in Note 3 to the consolidated financial statements.

Previous wording

In addition to the non-performing and past due loans mentioned above, the Company also has identified loans for which management has concerns about the ability of the borrowers to meet existing repayment terms. They are classified as substandard under the Company's internal rating system. The loans are generally secured by either real estate or other borrower assets, reducing the potential for loss should they become non-performing. Although these loans are generally identified as potential problem loans, they may never become non-performing. Such loans totaled $316.6 million at June 30, 2026 compared to $264.9 million at December 31, 2025, resulting in an increase of $51.8 million, or 19.5%.

Current wording

In addition to the non-performing and past due loans mentioned above, the Company also has identified loans for which management has concerns about the ability of the borrowers to meet existing repayment terms. They are classified as substandard under the Company's internal rating system. The loans are generally secured by either real estate or other borrower assets, reducing the potential for loss should they become non-performing. Although these loans are generally identified as potential problem loans, they may never become non-performing. Such loans totaled $441.2 million at September 30, 2026 compared to $264.9 million at December 31, 2025, resulting in an increase of $176.3 million, or 66.6%.

Previous wording

When borrowers are experiencing financial difficulty, the Company may agree to modify the contractual terms of a loan to a borrower in order to assist the borrower in repaying principal and interest owed to the Company. At June 30, 2026, the Company held $110.9 million of loans that had been modified during the six months ended June 30, 2026. These loans are further discussed in the"Modifications for borrowers experiencing financial difficulty"section in Note 3 to the consolidated financial statements.

Current wording

When borrowers are experiencing financial difficulty, the Company may agree to modify the contractual terms of a loan to a borrower in order to assist the borrower in repaying principal and interest owed to the Company. At September 30, 2026, the Company held $154.1 million of loans that had been modified during the nine months ended September 30, 2026. These loans are further discussed in the"Modifications for borrowers experiencing financial difficulty"section in Note 3 to the consolidated financial statements.

Previous wording

Management relies primarily on an internal risk rating system, in addition to delinquency status, to assess risk in the loan portfolio, and these statistics are presented in Note 3 to the consolidated financial statements. However, certain types of loans are considered at high risk of loss due to their terms, location, or special conditions. Additional information about the major types of loans in these categories and their risk features are provided below. Information based on loan-to-value (LTV) ratios was generally calculated with valuations at loan origination date. The Company normally obtains an updated appraisal or valuation at the time a loan is renewed or modified, or if the loan becomes significantly delinquent or is in the process of being foreclosed upon.

Current wording

Management relies primarily on an internal risk rating system, in addition to delinquency status, to assess risk in the loan portfolio, and these statistics are presented in Note 3 to the consolidated financial statements. However, certain types of loans are considered at high risk of loss due to their terms, location, or special conditions. Additional information about the major types of loans in these categories and their risk features is provided below. Information based on loan-to-value (LTV) ratios was generally calculated with valuations at loan origination date. The Company normally obtains an updated appraisal or valuation at the time a loan is renewed or modified, or if the loan becomes significantly delinquent or is in the process of being foreclosed upon.

Previous wording

The Company's portfolio of construction and land loans, as shown in the table below, amounted to 7.2% of total loans outstanding at June 30, 2026. The largest component of construction and land loans was commercial construction, which decreased $87.8 million during the six months ended June 30, 2026. At June 30, 2026, multi-family residential construction loans totaled approximately $493.8 million, or 43.4%, of the commercial construction loan portfolio, compared to $553.1 million, or 45.1%, at December 31, 2025.

Current wording

The Company's portfolio of construction and land loans, as shown in the table below, amounted to 6.8% of total loans outstanding at September 30, 2026. The largest component of construction and land loans was commercial construction, which decreased $140.4 million during the nine months ended September 30, 2026. At September 30, 2026, multi-family residential construction loans totaled approximately $500.8 million, or 46.1%, of the commercial construction loan portfolio, compared to $553.1 million, or 45.1%, at December 31, 2025.

Previous wording

Total business real estate loans were $4.1 billion at June 30, 2026 and comprised 19.5% of the Company's total loan portfolio. These loans include properties such as manufacturing and warehouse buildings, small office and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties. At June 30, 2026, 35.5% of business real estate loans were for owner-occupied real estate properties, which have historically resulted in lower net charge-off rates than non-owner-occupied commercial real estate loans.

Current wording

Total business real estate loans were $4.2 billion at September 30, 2026 and comprised 19.9% of the Company's total loan portfolio. These loans include properties such as manufacturing and warehouse buildings, small office and medical buildings, churches, hotels and motels, shopping centers, and other commercial properties. At September 30, 2026, 34.0% of business real estate loans were for owner-occupied real estate properties, which have historically resulted in lower net charge-off rates than non-owner-occupied commercial real estate loans.

Previous wording

The Company had $649.3 million in revolving home equity loans at June 30, 2026 that were collateralized by residential real estate. Most of these loans (96.2%) are written with terms requiring interest-only monthly payments. These loans are offered in three main product lines: LTV up to 80%, 80% to 90%, and 90% to 100%. As of June 30, 2026, the outstanding principal of loans with an original LTV higher than 80% was $85.2 million, or 13.1% of the portfolio, compared to $27.7 million as of December 31, 2025. Total revolving home equity loan balances over 30 days past due were $2.1 million at June 30, 2026 and $1.9 million at December 31, 2025, and the outstanding balance for revolving home equity loans on non-accrual status was $33 thousand at June 30, 2026 compared to no balance at December 31, 2025. The weighted average FICO score for the total portfolio balance at June 30, 2026 is 778. At maturity, the accounts are re-underwritten, and if they qualify under the Company's credit, collateral and capacity policies, the borrower is given the option to renew the line of credit or convert the outstanding balance to an amortizing loan. If criteria are not met, amortization is required, or the borrower may pay off the loan. During the remainder of 2026 through 2029, approximately 19.5% of the Company's current outstanding balances are expected to mature. Of these balances, approximately 84.0% have a FICO score of 700 or higher. The Company does not expect a significant increase in losses as these loans mature, due to their high FICO scores, low LTVs, and low historical loss levels.

Current wording

The Company had $662.3 million in revolving home equity loans at September 30, 2026 that were collateralized by residential real estate. Most of these loans (96.1%) are written with terms requiring interest-only monthly payments. These loans are offered in three main product lines: LTV up to and including 80%, higher than 80% to 90%, and higher than 90% to 100%. As of September 30, 2026, the outstanding principal of loans with an original LTV higher than 80% was $47.0 million, or 7.1% of the portfolio, compared to $27.7 million as of December 31, 2025. Total revolving home equity loan balances over 30 days past due were $2.7 million at September 30, 2026 and $1.9 million at December 31, 2025, and the outstanding balance for revolving home equity loans on non-accrual status was $32 thousand at September 30, 2026 compared to no balance at December 31, 2025. The weighted average FICO score for the total portfolio balance at September 30, 2026 is 778. At maturity, the accounts are re-underwritten, and if they qualify under the Company's credit, collateral and capacity policies, the borrower is given the option to renew the line of credit or convert the outstanding balance to an amortizing loan. If criteria are not met, amortization is required, or the borrower may pay off the loan. During the remainder of 2026 through 2029, approximately 17.6% of the Company's current outstanding balances are expected to mature. Of these balances, approximately 83.8% have a FICO score of 700 or higher. The Company does not expect a significant increase in losses as these loans mature, due to their high FICO scores, low LTVs, and low historical loss levels.

Previous wording

The consumer loans category is mostly comprised of private banking loans and automobile loans. Private banking loans comprised of 49.3% of the consumer loan portfolio at June 30, 2026. The Company's private banking loans are mostly executive lines of credit, which are secured primarily by assets held by the Company's trust department, and insurance premium finance loans, which are primarily secured by life insurance policies. Automobile loans, which include direct and indirect product lines, comprised 29.5% of the consumer loan portfolio at June 30, 2026, and outstanding balances for auto loans were $744.3 million and $773.6 million at June 30, 2026 and December 31, 2025, respectively. The balances over 30 days past due amounted to $8.2 million at June 30, 2026 and $11.0 million at December 31, 2025, respectively, and comprised 1.1% of the outstanding balances of these loans at June 30, 2026 and 1.4% at December 31, 2025. For the six months ended June 30, 2026, $173.4 million of new auto loans were originated, compared to $190.2 million during the first six months of 2025. At June 30,

Current wording

The consumer loans category is mostly comprised of private banking loans and automobile loans. Private banking loans comprised 51.9% of the consumer loan portfolio at September 30, 2026. The Company's private banking loans are mostly executive lines of credit, which are secured primarily by assets held by the Company's trust department, and insurance premium finance loans, which are primarily secured by life insurance policies. Automobile loans, which include direct and indirect product lines, comprised 28.0% of the consumer loan portfolio at September 30, 2026, and outstanding balances for auto loans were $760.5 million and $773.6 million at September 30, 2026 and December 31, 2025, respectively. The balances over 30 days past due amounted to $7.9 million at September 30, 2026 and $11.0 million at December 31, 2025, respectively, and comprised 1.0% of the outstanding balances of these loans at September 30, 2026 and 1.4% at December 31, 2025. For the nine months ended September 30, 2026, $276.0 million of new auto loans were originated, compared to $282.9 million during the first nine months of 2025. At September 30, 2026, the automobile loan portfolio had a weighted average FICO score of 765, and annualized net charge-offs on auto loans were .6% of average auto loans.

Previous wording

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 8.0% of the consumer loan portfolio at June 30, 2026. Losses on these loans have historically been low, and the Company saw net charge offs of $9 thousand for the first six months of 2026. The remaining portion of the Company's consumer loan portfolio is comprised of healthcare financing, boat, RV, motorcycle, other equipment, and unsecured consumer loans. Net charge-offs on consumer loans, other than automobile and fixed rate home equity loans, totaled $1.4 million in the first six months of 2026 and were .2% of the average balances of these loans at June 30, 2026.

Current wording

The Company's consumer loan portfolio also includes fixed rate home equity loans, typically for home repair or remodeling, and these loans comprised 7.2% of the consumer loan portfolio at September 30, 2026. Losses on these loans have historically been low, and the Company saw net charge offs of $9 thousand for the first nine months of 2026. The remaining portion of the Company's consumer loan portfolio is comprised of healthcare financing, boat, RV, motorcycle, other equipment, and unsecured consumer loans. Net charge-offs on consumer loans, other than automobile and fixed rate home equity loans, totaled $3.0 million in the first nine months of 2026 and were .3% of the average balances of these loans at September 30, 2026, on an annualized basis.

Previous wording

The Company offers low promotional rates on selected consumer credit card products. Out of a portfolio at June 30, 2026 of $561.3 million in consumer credit card loans outstanding, approximately $119.5 million, or 21.3%, carried a low promotional rate. Within the next six months, $54.7 million of these loans are scheduled to convert to the ongoing higher contractual rate. To mitigate some of the risk involved with this credit card product, the Company performs credit checks and detailed analysis of the customer borrowing profile before approving the loan application. Management believes that the risks in the consumer loan portfolio are reasonable and the anticipated loss ratios are within acceptable parameters.

Current wording

The Company offers low promotional rates on selected consumer credit card products. Out of a portfolio at September 30, 2026 of $556.6 million in consumer credit card loans outstanding, approximately $117.8 million, or 21.2%, carried a low promotional rate. Within the next six months, $51.0 million of these loans are scheduled to convert to the ongoing higher contractual rate. To mitigate some of the risk involved with this credit card product, the Company performs credit checks and detailed analysis of the customer borrowing profile before approving the loan application. Management believes that the risks in the consumer loan portfolio are reasonable and the anticipated loss ratios are within acceptable parameters.

Previous wording

The Company's energy lending portfolio is comprised of lending to the petroleum and natural gas sectors and totaled $373.0 million, or 1.8% of total loans at June 30, 2026, an increase of $69.9 million from December 31, 2025, as shown in the table below.

Current wording

The Company's energy lending portfolio is comprised of lending to the petroleum and natural gas sectors and totaled $407.5 million, or 1.9% of total loans at September 30, 2026, an increase of $104.5 million from December 31, 2025, as shown in the table below.

Previous wording

The Company participates in credits of large, publicly traded companies which are defined by regulation as shared national credits, or SNCs. Regulations define SNCs as loans exceeding $100 million that are shared by three or more financial institutions. The Company typically participates in these loans when business operations are maintained in the local communities or regional markets and opportunities to provide other banking services are present. The balance of SNC loans totaled $1.6 billion at June 30, 2026 and $1.5 billion December 31, 2025. Additional unfunded commitments at June 30, 2026 totaled $2.7 billion.

Current wording

The Company participates in credits of large, publicly traded companies which are defined by regulation as shared national credits, or SNCs. Regulations define SNCs as loans exceeding $100 million that are shared by three or more financial institutions. The Company typically participates in these loans when business operations are maintained in the local communities or regional markets and opportunities to provide other banking services are present. The balance of SNC loans totaled $1.6 billion at September 30, 2026 and $1.5 billion at December 31, 2025. Additional unfunded commitments at September 30, 2026 totaled $2.8 billion.