ZIONS BANCORPORATION NATIONAL ASSOCIATION UT
For the period ended Sep 30, 2024. Filed Nov 7, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 7, 2024
ZION$64.76-0.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-07.
0000109380-24-000124
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-07.
0000109380-24-000134
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 280 previous paragraphs and 288 current paragraphs.
169 unchanged; 83 reworded; 35 added; 28 removed; 0 previous and 1 current paragraphs rearranged.
Tables are not compared: 43 previous and 43 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (35)
Current report
Third Quarter 2024 Financial Performance
Current report
◦Average interest-bearing liabilities increased $4.3 billion, or 8%, driven by increases in average interest-bearing deposits and average borrowed funds.
Current report
•Customer-related noninterest income increased $4 million, or 3%, driven largely by increases in capital markets fees and commercial account fees, partially offset by a decline in loan-related fees and income. Decreases in noncustomer-related noninterest income were primarily due to credit valuation adjustments on client-related interest rate swaps, and a decline in dividends on Federal Home Loan Bank (“FHLB”) stock.
Current report
•Noninterest expense increased $6 million, or 1%. Salaries and employee benefits expense increased primarily due to a decline in capitalized salaries related to reduced software development activities, and technology, telecom, and information processing expense increased primarily due to higher application software, license, and maintenance expenses. These increases were partially offset by decreases in other expenses, including professional and legal services and occupancy and equipment expenses.
Current report
•Net loan and lease charge-offs totaled $3 million, or 0.02%, of average loans and leases, compared with $14 million, or 0.10%, in the prior year quarter. The ratio of allowance for credit losses (“ACL”) to total loans and leases was 1.25%, compared with 1.30%.
Current report
•Nonperforming assets totaled $368 million, or 0.62%, of total loans and leases and other real estate owned, compared with $219 million, or 0.38%. The increase was primarily due to a small number of loans in the commercial and industrial and term commercial real estate (“CRE”) portfolios.
Current report
•Classified loans totaled $2.1 billion, or 3.55%, of total loans and leases, compared with $769 million, or 1.35%. The increase was primarily in the multifamily CRE loan portfolio, largely due to a change in approach to risk grading that places more emphasis on current cash flow, which is the primary source of repayment, and less emphasis on the adequacy of collateral values and the strength of guarantors and sponsors. The increase in classified loans was also attributable to weaker performance, particularly for 2021 and 2022 construction loan vintages, as borrowers missed projections due to lower-than-anticipated leasing, rent concessions, elevated costs, and higher interest rates.
Current report
Average interest-bearing liabilities increased $4.3 billion, or 8%, from the prior year quarter, driven by increases of $2.5 billion in average interest-bearing deposits, primarily due to customer deposit growth, and $1.8 billion in average borrowed funds, primarily due to increased short-term borrowings.
Current report
For the nine months ended September 30, 2024, net interest income decreased $52 million, or 3%, relative to the same prior year period, as higher funding costs more than offset higher earning asset yields.
Current report
Average deposits decreased $0.7 billion, or 1%, to $75.0 billion at an average cost of 2.14%, from $75.7 billion at an average cost of 1.92% in the third quarter of 2023. Average noninterest-bearing deposits decreased $3.2 billion, or 11%, relative to the prior year quarter, and were relatively flat compared with the ending balance at June 30, 2024, reflecting stabilization during the current quarter. Average noninterest-bearing deposits decreased to 33% of total deposits, compared with 37% during the same prior year period.
Current report
Average borrowed funds, consisting primarily of secured borrowings, increased $1.8 billion, or 39%, to $6.3 billion, primarily due to increased short-term borrowings, including advances under the Bank Term Funding Program (“BTFP”).
Current report
Customer-related noninterest income increased $4 million, or 3%, compared with the prior year period. Capital markets fees increased $10 million, largely due to increased swap fees, loan syndication fees, and expanded real estate capital markets activity, and commercial account fees increased $3 million. These increases were partially offset by a $6 million decrease in loan-related fees and income, primarily due to higher gains on loan sales in the prior year period and a decline in loan servicing income resulting from the sale of associated mortgage servicing rights in the third quarter of 2023.
Current report
Total noninterest expense increased $6 million, or 1%, relative to the prior year quarter. Salaries and employee benefits expense increased $6 million, or 2%, primarily due to a decline in capitalized salaries related to reduced software development activities, as well as higher benefits accruals, and an additional business day during the current quarter. Technology, telecom, and information processing expense increased $4 million, or 6%, primarily due to increases in application software, license, and maintenance expenses. These increases were partially offset by decreases in other expenses including professional and legal services associated with reduced technology-related consulting services and occupancy and equipment expenses.
Current report
For the nine months ended September 30, 2024, noninterest expense increased $21 million, or 1%, relative to the same prior year period. Technology, telecom, and information processing expense increased $19 million, or 11%, primarily due to increases in software amortization expenses associated with the replacement of substantially all of our in-scope core loan and deposit banking systems. Deposit insurance and regulatory expense increased $14 million, or 23%, driven largely by a $13 million accrual associated with an updated special assessment estimate by the Federal Deposit Insurance Corporation (“FDIC”) during the first quarter of 2024. These increases were partially offset by a decrease of $8 million, or 1%, in salaries and employee benefits expense, primarily due to higher severance expense and incentive compensation accruals in the prior year period.
Current report
1 No other geography exceeds 2.7% for September 30, 2024 and December 31, 2023, respectively.
Current report
Real estate appraisals are performed in accordance with regulatory guidelines. In some cases, reports from automated valuation services are used or internal evaluations are performed. An appraisal is ordered and reviewed prior to loan closing, and a new appraisal or evaluation is generally ordered when market conditions indicate a potential decline in the value of the collateral, or when the loan is either modified, renewed, or deteriorates to a certain level of credit weakness. CRE LTVs are calculated by dividing the outstanding loan balance by the estimated collateral value from the most current appraisal. At September 30, 2024, the weighted average LTV ratio for our term CRE portfolio was less than 60%.
Current report
Multifamily CRE
Current report
MULTIFAMILY CRE LOAN PORTFOLIO
Current report
1 For the first nine months of 2024, multifamily CRE classified loan balances significantly increased. See the “Classified Loans” section below on page 29 for more information about changes in these related balances.
Current report
MULTIFAMILY CRE LOAN PORTFOLIO BY COLLATERAL LOCATION
Current report
1-4 Family Residential Mortgages
Current report
Home Equity Credit Lines
Current report
Credit Quality
Current report
We monitor credit quality by analyzing various factors, including (among others) nonperforming status, internal risk grades, and net charge-offs, all of which are used in our overall evaluation of the adequacy of our ACL. See Note 6 of the Notes to Consolidated Financial Statements for more information on these factors and the ACL.
Current report
Classified Loans
Current report
Classified loans are considered loans with well-defined weaknesses and are assigned using our internal risk grade definitions of substandard and doubtful, which are consistent with regulatory risk classifications. The following schedule presents our classified loans by loan segment:
Current report
CLASSIFIED LOANS
Current report
Classified loans totaled $2.1 billion, or 3.55%, of total loans and leases, at September 30, 2024, compared with $825 million, or 1.43%, at December 31, 2023. The increase was primarily in the multifamily CRE loan portfolio, largely due to a change in approach to risk grading that places more emphasis on current cash flow, which is the primary source of repayment, and less emphasis on the adequacy of collateral values and the strength of guarantors and sponsors. The increase in classified loans was also attributable to weaker performance, particularly for 2021 and 2022 construction loan vintages, as borrowers missed projections due to lower-than-anticipated leasing, rent concessions, elevated costs, and higher interest rates. Our CRE loan portfolio continues to benefit from strong underwriting, supported by high borrower equity and guarantor support.
Current report
We estimate current expected credit losses, which include considerations of historical credit loss experience, current conditions, and standard economic forecasts, all of which inform the quantitative portion of our ACL. We also consider qualitative and environmental factors that may indicate losses may differ from levels estimated by our quantitative models. The impact of these factors on our ACL may change from quarter to quarter.
Current report
During recent quarters, the qualitative portion of the ACL has increased primarily due to (1) economic uncertainty, which caused us to increase the weights on recessionary economic forecasts, and (2) portfolio-specific risks, which caused us to use stressed economic forecasts for certain portfolios, particularly CRE.
Current report
The effective duration of the deposits increases as market rates decline due to the inability to reprice as deposits approach their floor.
Current report
2 Includes $42 million pledged for available use through other repo programs.
Current report
Total shareholders’ equity increased $694 million, or 12%, to $6.4 billion at September 30, 2024, compared with $5.7 billion at December 31, 2023. The AOCI balance was a loss of $2.3 billion at September 30, 2024, and largely reflects a decline in the fair value of fixed-rate AFS securities as a result of changes in interest rates, and includes $1.9 billion ($1.4 billion after tax) of unrealized losses on the securities previously transferred from AFS to held-to-maturity (“HTM”). When compared to December 31, 2023, AOCI improved $356 million, primarily due to $147 million in unrealized loss amortization associated with the securities transferred from AFS to HTM, and $137 million primarily related to paydowns on AFS securities. AOCI was also impacted by a $72 million decrease in unrealized losses and other adjustments associated with derivative instruments used for risk management purposes.
Current report
Estimated common equity tier 1 (“CET1”) capital was $7.2 billion, an increase of 6%, compared with $6.8 billion in the prior year period. The estimated CET1 capital ratio was 10.7%, compared with 10.2%. Our tangible common equity ratio increased to 5.7%, compared with 4.4%, primarily due to an increase in retained earnings and reduced unrealized losses in AOCI. For more information on non-GAAP financial measures, see page 38.
Current report
Recent Regulatory Developments
Removed paragraphs (28)
Previous report
Second Quarter 2024 Financial Performance
Previous report
◦Average interest-bearing liabilities increased $3.4 billion, or 7%, driven by an increase in average interest-bearing deposits, partially offset by a decline in average borrowed funds.
Previous report
•Customer-related noninterest income decreased $8 million, or 5%, driven largely by declines in capital markets fees, including loan syndications, swaps, and other related fees. Decreases in noncustomer-related noninterest income were due largely to higher gains in the prior year period associated with the sale of bank-owned property and higher dividends on Federal Home Loan Bank (“FHLB”) stock. During the current quarter, dividends and other income benefited from a $9 million gain on the sale of our Enterprise Retirement Solutions business and a $4 million gain on the sale of a bank-owned property.
Previous report
•Noninterest expense remained relatively stable at $509 million. An increase in technology, telecom, and information processing expense, driven largely by increases in software amortization expenses associated with the replacement of our core loan and deposit banking systems, was partially offset by a decrease in salaries and employee benefits expense, primarily due to higher severance expense in the prior year period.
Previous report
•Net loan and lease charge-offs totaled $15 million, or 0.10% of average loans, compared with $13 million, or 0.09%, in the prior year quarter. Classified loans totaled $1.3 billion, or 2.16%, compared with $768 million, or 1.35%, of total loans and leases, and nonperforming assets were $265 million, or 0.45%, compared with $164 million, or 0.29%, of total loans and leases. The increases in classified loans and nonperforming assets were primarily due to a small number of loans in the commercial and industrial and term commercial real estate portfolios.
Previous report
Average interest-bearing liabilities increased $3.4 billion, or 7%, from the prior year quarter, driven by an increase of $9.2 billion in average interest-bearing deposits, primarily due to customer deposit growth as well as customers moving from noninterest-bearing to interest-bearing products in response to the higher interest rate environment. This increase was partially offset by a decrease of $5.8 billion in average borrowed funds.
Previous report
Average deposits increased $4.5 billion, or 7%, to $74.2 billion at an average cost of 2.11%, from $69.7 billion at an average cost of 1.27% in the second quarter of 2023. Average noninterest-bearing deposits as a percentage of total deposits decreased to 34%, compared with 43% during the same prior year period. The loan-to-deposit ratio based on end-of-period balances was 79%, compared with 77% in the prior year quarter.
Previous report
Average borrowed funds, consisting primarily of secured borrowings, decreased $5.8 billion, or 46%, to $6.8 billion, primarily due to a reduction in wholesale funding needs as a result of an increase in interest-bearing deposits.
Previous report
Customer-related noninterest income decreased $8 million, or 5%, compared with the prior year period. The decrease was driven primarily by declines in capital markets fees, including loan syndications, swaps, and other related fees.
Previous report
Total noninterest expense remained relatively stable at $509 million. Technology, telecom, and information processing expense increased $8 million, or 14%, primarily due to increases in software amortization expenses associated with the replacement of our core loan and deposit banking systems, as well as other related application software, license, and maintenance expenses. Salaries and employee benefits expense decreased $6 million, or 2%, primarily due to higher severance expense during the prior year period.
Previous report
In addition to HTM and AFS securities, we also have a trading securities portfolio, comprised of municipal securities, which totaled $24 million at June 30, 2024, compared with $48 million at December 31, 2023.
Previous report
Multi-family CRE
Previous report
MULTI-FAMILY CRE LOAN PORTFOLIO
Previous report
MULTI-FAMILY CRE LOAN PORTFOLIO BY COLLATERAL LOCATION
Previous report
Loan Modifications
Previous report
Loans may be modified in the normal course of business for competitive reasons or to strengthen our collateral position. Loan modifications may also occur when the borrower experiences financial difficulty and needs temporary or permanent relief from the original contractual terms of the loan. For the first six months of 2024 and 2023, loans that have been modified to accommodate a borrower experiencing financial difficulties totaled $177 million, and $148 million, respectively.
Previous report
If a modified loan is on nonaccrual and performs for at least six months according to the modified terms, and an analysis of the customer’s financial condition indicates that we are reasonably assured of repayment of the modified principal and interest, the loan may be returned to accrual status. The borrower’s payment performance prior to and following the modification is taken into account to determine whether a loan should be returned to accrual status.
Previous report
ACCRUING AND NONACCRUING MODIFIED LOANS TO BORROWERS EXPERIENCING FINANCIAL DIFFICULTY
Previous report
For additional information regarding loan modifications to borrowers experiencing financial difficulty, see Note 6 of the Notes to Consolidated Financial Statements.
Previous report
The RULC is a reserve for potential losses associated with off-balance sheet commitments and is included in “Other liabilities” on the consolidated balance sheet. Any related increases or decreases in the reserve are included in “Provision for unfunded lending commitments” on the consolidated statement of income.
Previous report
The effective duration of the deposits has shortened considerably due to faster deposit repricing.
Previous report
EaR has inherent limitations in describing expected changes in net interest income in rapidly changing interest rate environments due to a lag in asset and liability repricing behavior. As such, we expect net interest income to change due to “latent” and “emergent” interest rate sensitivity. Unlike EaR, which measures net interest income over 12 months, latent and emergent interest rate sensitivity explains changes in current quarter net interest income, compared with expected net interest income in the same quarter one year forward.
Previous report
Latent interest rate sensitivity refers to future changes in net interest income based upon past rate movements that have yet to be fully recognized in revenue but will be recognized over the near term. We expect latent sensitivity to increase net interest income by 8.3% in the second quarter of 2025, compared with the second quarter of 2024.
Previous report
We maintain and regularly test a contingency funding plan to identify sources and uses of liquidity. Our Board-approved liquidity policy requires us to monitor and maintain adequate liquidity, diversify funding positions, and anticipate future funding needs. In accordance with this policy, we monitor our liquidity positions by conducting various stress tests and evaluating certain liquid asset measurements, such as a 30-day liquidity coverage ratio.
Previous report
We perform regular liquidity stress tests and assess our portfolio of highly liquid assets (sufficient to cover 30-day funding needs under stress scenarios). These stress tests include projections of funding maturities, uses of funds, and assumptions of deposit runoff. The assumptions consider the size of deposit account, operational nature of deposits, type of depositor, and concentrations of funding sources including large depositors and aggregate levels of uncollateralized deposits exceeding insured levels. Concentrated funding sources are given large runoff factors up to 100% in projecting stressed funding needs. Our liquidity stress testing considers multiple timeframes ranging from overnight to 12 months. Our liquidity policy requires us to maintain sufficient on-balance sheet liquidity in the form of FRB reserve balance and other highly liquid assets to meet stressed outflow assumptions.
Previous report
We have a dedicated funding desk that monitors real-time inflows and outflows of our FRB account, and we have tools, including ready access to repo markets and FHLB advances, to manage intraday liquidity. FHLB borrowings are “open-term,” allowing us the ability to retain or return funds based on our liquidity needs. We pledge a large portion of our highly liquid investment securities portfolio through the General Collateral Funding (“GCF”) repo program. Through this program, high-quality collateral is pledged, and program participants exchange funds anonymously, which allows for near instant access to funding during market hours.
Previous report
December 31, 2024, and another $1.5 billion maturing on January 15, 2025. These advances may be prepaid at any time without penalty. For more information on our liquidity risk management practices, see “Liquidity Risk Management” in our 2023 Form 10-K.
Previous report
Total shareholders’ equity increased $334 million, or 6%, to $6.0 billion at June 30, 2024, compared with $5.7 billion at December 31, 2023. Common stock and additional paid-in capital decreased $18 million, primarily due to common stock repurchases during the first quarter of 2024.
Reworded paragraphs (83)
Previous wording
•Changes in general industry, political, and economic conditions, including elevated inflation, economic slowdown or recession, or other economic challenges; changes in interest and reference rates, which could adversely affect our revenue and expenses, the value of assets and liabilities, and the availability and cost of capital and liquidity; deterioration in economic conditions that may result in increased loan and leases losses;
Current wording
•Changes in general industry, political, and economic conditions, including elevated inflation, economic slowdown or recession, or other economic challenges; changes in interest and reference rates, which could adversely affect our revenue and expenses, the value of assets and liabilities, and the availability and cost of capital and liquidity; deterioration in economic conditions that may result in increased loan and lease losses;
Previous wording
•Natural disasters, pandemics, catastrophic events and other emergencies and incidents and their impact on our and our customers’ operations and business and communities, including the increasing difficulty in, and the expense of, obtaining property, auto, business, and other insurance products;
Current wording
•Natural disasters, pandemics, catastrophic events, and other emergencies and incidents, and their impact on our and our customers’ operations, business, and communities, including the increasing difficulty in, and the expense of, obtaining property, auto, business, and other insurance products;
Previous wording
Comparisons noted below are calculated for the current quarter compared with the same prior year period unless otherwise specified. Growth rates of 100% or more are considered not meaningful (“NM”) as they generally reflect a low starting point.
Current wording
Comparisons noted below are calculated for the current quarter compared with the same prior year period unless otherwise specified. Reasons for changes in the current year-to-date period compared with the same prior year period are generally consistent with the quarter-to-date comparisons unless otherwise specified. Growth rates of 100% or more are considered not meaningful (“NM”) as they generally reflect a low starting point.
Previous wording
Our financial results in the second quarter of 2024 reflected continued improvement in our net interest margin (“NIM”), growth in customer deposits and loans, and low net charge-offs. Diluted earnings per share (“EPS”) was $1.28, compared with $1.11 in the second quarter of 2023, as higher net interest income and a lower provision for credit losses were partially offset by lower noninterest income.
Current wording
Our financial results in the third quarter of 2024 reflected continued improvement in our net interest margin (“NIM”), low net charge-offs, growth in customer deposits and loans, a record quarter for capital markets fee income, and deterioration in certain credit quality metrics. Diluted earnings per share (“EPS”) was $1.37, compared with $1.13 in the third quarter of 2023, as higher net interest income and a lower provision for credit losses were partially offset by lower noninterest income.
Previous wording
•Net interest income increased $6 million, or 1%, relative to the prior year period, as higher earning asset yields were partially offset by higher funding costs. The net interest margin was 2.98%, compared with 2.92%.
Current wording
•Net interest income increased $35 million, or 6%, relative to the prior year period, as higher earning asset yields were partially offset by higher funding costs. Net interest income was also impacted by growth in average interest-earning assets. The net interest margin was 3.03%, compared with 2.93%.
Previous wording
◦Average interest-earning assets decreased slightly by $0.4 billion, as the decline in average securities exceeded the growth in average loans and leases and average money market investments.
Current wording
◦Average interest-earning assets increased $2.2 billion, or 3%, as growth in average money market investments and average loans and leases, was partially offset by a decline in average securities.
Previous wording
◦Total loans and leases increased $1.5 billion, or 3%, primarily due to growth in the consumer 1-4 family residential mortgage and the term commercial real estate (“CRE”) loan portfolios.
Current wording
◦Total loans and leases increased $2.0 billion, or 3%, primarily due to growth in the consumer 1-4 family residential mortgage and commercial and industrial loan portfolios.
Previous wording
◦Total deposits decreased $0.6 billion, or 1%, as a decrease in noninterest-bearing demand deposits was partially offset by an increase in interest-bearing deposits. Customer deposits (excluding brokered deposits) increased $3.6 billion, or 5%, to $69.5 billion, compared with $65.9 billion.
Current wording
◦Total deposits increased $319 million, as an increase in interest-bearing deposits was partially offset by a decrease in noninterest-bearing demand deposits. Customer deposits (excluding brokered deposits) increased $1.7 billion, or 2%, to $70.5 billion, compared with $68.8 billion.
Previous wording
•The provision for credit losses was $5 million, compared with $46 million in the prior year period.
Current wording
•The provision for credit losses was $13 million, compared with $41 million in the prior year period.
Previous wording
•Total borrowed funds, consisting primarily of secured borrowings, increased $146 million, or 2%, from the prior year quarter, primarily due to an increase in short-term borrowings.
Current wording
•Total borrowed funds, consisting primarily of secured borrowings, decreased $1.4 billion, or 29%, from the prior year quarter, primarily due to a decrease in security repurchase agreements.
Previous wording
1 Includes interest income recoveries of $2 million for both the three months ended, and $4 million for both the six months ended June 30, 2024, and 2023, respectively.
Current wording
1 Includes interest income recoveries of $1 million for both the three months ended, and $5 million for both the nine months ended September 30, 2024, and 2023, respectively.
Previous wording
Net interest income accounted for approximately 77% of our net revenue (net interest income plus noninterest income) for the current quarter and increased $6 million, or 1%, relative to the prior year quarter, as higher earning asset yields were partially offset by higher funding costs. The NIM was 2.98%, compared with 2.92%.
Current wording
Net interest income accounted for approximately 78% and 76% of our net revenue (net interest income plus noninterest income) during the third quarter of 2024 and 2023, respectively, and increased $35 million, or 6%, relative to the prior year quarter, as the repricing of interest-earning assets outpaced the increase in funding costs. Net interest income was also impacted by growth in average interest-earning assets. The NIM was 3.03%, compared with 2.93%.
Previous wording
The yield on average interest-earning assets was 5.31% in the second quarter of 2024, an increase of 50 basis points (“bps”), reflecting higher interest rates and a favorable mix change to higher yielding assets, as average securities decreased while average loans increased. The yield on average loans and leases increased 46 bps to 6.11%, and the yield on average securities increased 34 bps to 2.90% in the second quarter of 2024.
Current wording
The yield on average interest-earning assets was 5.35% in the third quarter of 2024, an increase of 33 basis points (“bps”), reflecting higher interest rates and a favorable mix change to higher yielding assets, as average securities decreased, and average loans and average money market investments increased. The yield on average loans and leases increased 31 bps to 6.15%, and the yield on average securities increased 13 bps to 2.86% in the third quarter of 2024.
Previous wording
The rate paid on total deposits and interest-bearing liabilities was 2.36%, compared with 1.88% in the prior year quarter, and the cost of total deposits was 2.11%, compared with 1.27%, reflecting the higher interest rate environment as well as reduced noninterest-bearing deposits.
Current wording
The rate paid on total deposits and interest-bearing liabilities was 2.36%, compared with 2.10% in the prior year quarter, and the cost of total deposits was 2.14%, compared with 1.92%, reflecting the higher interest rate environment and reduced noninterest-bearing deposits.
Previous wording
Average interest-earning assets decreased slightly by $0.4 billion from the prior year quarter, as growth of $1.6 billion in average loans and leases and $0.2 billion in average money market investments, was more than offset by a decline of $2.2 billion in average securities. The decrease in average securities was primarily due to principal reductions.
Current wording
Average interest-earning assets increased $2.2 billion, or 3% from the prior year quarter, as growth of $2.3 billion in average money market investments and $1.7 billion in average loans and leases, was partially offset by a decline of $1.8 billion in average securities. The decrease in average securities was primarily due to principal reductions.
Previous wording
Average loans and leases increased $1.6 billion, or 3%, to $58.3 billion, primarily due to growth in average consumer and commercial real estate loans. Average securities decreased $2.2 billion, or 10%, to $19.8 billion, primarily due to available-for-sale (“AFS”) securities principal reductions.
Current wording
Average loans and leases increased $1.7 billion, or 3%, to $58.7 billion, primarily due to growth in average consumer and commercial real estate loans. Average securities decreased $1.8 billion, or 9%, to $19.4 billion, primarily due to principal reductions.
Previous wording
The ACL was $726 million at June 30, 2024, compared with $711 million at June 30, 2023. The year-over-year increase in the ACL primarily reflects incremental reserves associated with portfolio-specific risks including commercial real estate, declines in credit quality, and average loan growth of $1.6 billion, partially offset by improvements in economic forecasts, changes in our loan portfolio composition, and declines in unfunded lending commitments related to construction lending. The ratio of ACL to total loans and leases was 1.24% and 1.25% at June 30, 2024 and 2023, respectively.
Current wording
The ACL was $736 million at September 30, 2024, and was relatively flat compared with $738 million at September 30, 2023. The slight decrease in the ACL primarily reflects improvements in economic forecasts and declines in unfunded lending commitments related to construction lending, partially offset by increases associated with declines in credit quality, incremental reserves associated with portfolio-specific risks including CRE, average loan growth of $1.7 billion, and changes in our loan portfolio composition. The ratio of ACL to total loans and leases was 1.25% at September 30, 2024, compared with 1.30% at September 30, 2023.
Previous wording
The provision for credit losses, which is the combination of both the provision for loan and lease losses and the provision for unfunded lending commitments, was $5 million, compared with $46 million in the second quarter of 2023. The provision for securities losses was less than $1 million during both the second quarter of 2024 and 2023.
Current wording
The provision for credit losses, which is the combination of both the provision for loan and lease losses and the provision for unfunded lending commitments, was $13 million, compared with $41 million in the third quarter of 2023. The provision for securities losses was less than $1 million during both the third quarter of 2024 and 2023.
Previous wording
The bar chart above illustrates the broad categories of change in the ACL from the prior year period. To estimate current expected losses, we use econometric loss models that include multiple economic scenarios that reflect optimistic, baseline, and stressed economic conditions. The results derived using these economic scenarios are weighted to produce the credit loss estimate. Management may adjust the weights to reflect their assessment of current conditions and reasonable and supportable forecasts. The second bar represents changes in these economic forecasts and current economic conditions, including management's judgment of the weighting of the economic forecasts during the current quarter. These changes contributed to a $132 million decrease in the ACL from the prior year quarter.
Current wording
The bar chart above illustrates the broad categories of change in the ACL from the prior year period. To estimate current expected losses, we use econometric loss models that include multiple economic scenarios that reflect optimistic, baseline, and stressed economic conditions. The results derived using these economic scenarios are weighted to produce the credit loss estimate. Management may adjust the weights to reflect their assessment of current conditions and reasonable and supportable forecasts. The second bar represents changes in these economic forecasts and current economic conditions, including management's judgment of the weighting of the economic forecasts during the current quarter. These changes contributed to a $199 million decrease in the ACL from the prior year quarter.
Previous wording
The third bar represents changes in credit quality factors and includes risk grade migration, portfolio-specific risks, and specific reserves against loans, which, when combined, contributed to a $222 million increase in the ACL, driven largely by an increased focus on certain portfolio-specific risks, including commercial real estate.
Current wording
The third bar represents changes in credit quality factors and includes risk grade migration, portfolio-specific risks, and specific reserves against loans, which, when combined, contributed to a $163 million increase in the ACL, driven largely by declines in credit quality and an increased focus on certain portfolio-specific risks, including commercial real estate.
Previous wording
The fourth bar represents changes in our loan portfolio composition, including changes in loan balances and mix, the aging of the portfolio, and other qualitative risk factors; all of which contributed to a $75 million decrease in the ACL.
Current wording
The fourth bar represents changes in our loan portfolio composition, including changes in loan balances and mix, the aging of the portfolio, and other qualitative risk factors; all of which contributed to a $34 million increase in the ACL.
Previous wording
Total noninterest income decreased $10 million, or 5%, relative to the prior year. Noninterest income accounted for approximately 23% and 24% of our net revenue (net interest income plus noninterest income) during the second quarter of 2024 and 2023, respectively. The following schedule presents a comparison of the major components of noninterest income:
Current wording
Noninterest income accounted for approximately 22% and 24% of our net revenue (net interest income plus noninterest income) during the third quarter of 2024 and 2023, respectively, and decreased $8 million, or 4%, relative to the prior year quarter. The following schedule presents a comparison of the major components of noninterest income:
Previous wording
Noncustomer-related noninterest income decreased $2 million from the prior year quarter. Dividends and other income decreased $4 million, largely due to a $13 million gain in the prior year period associated with the sale of bank-owned property and higher dividends on FHLB stock. During the current quarter, dividends and other income benefited from a $9 million gain on the sale of our Enterprise Retirement Solutions business and a $4 million gain on the sale of a bank-owned property. Fair value and nonhedge derivative income decreased $2 million, primarily due to credit valuation adjustments on client-related interest rate swaps. These decreases were partially offset by an increase of $4 million in net securities gains driven by valuation adjustments in our Small Business Investment Company (“SBIC”) investment portfolio.
Current wording
Noncustomer-related noninterest income decreased $12 million from the prior year quarter. Fair value and nonhedge derivative income decreased $10 million, primarily due to credit valuation adjustments on client-related interest rate swaps, and dividends and other income decreased $7 million, primarily due to a decline in dividends on FHLB stock. These decreases were partially offset by an increase of $5 million in net securities gains, largely due to valuation adjustments in our Small Business Investment Company (“SBIC”) investment portfolio.
Previous wording
Adjusted noninterest expense increased $12 million, or 2%. The efficiency ratio was 64.5%, compared with 62.5% in the prior year period, primarily due to the increase in adjusted noninterest expense and a decrease in adjusted taxable-equivalent revenue, the latter of which was largely driven by a decline in customer-related fees. For information on non-GAAP financial measures, see page 38.
Current wording
Adjusted noninterest expense increased $6 million, or 1%. The efficiency ratio was 62.5%, compared with 64.4%, due to an increase in adjusted taxable-equivalent revenue. For information on non-GAAP financial measures, see page 38.
Previous wording
Total technology spend decreased $5 million, or 4%, relative to the prior year quarter, as an increase in other technology-related expense and the aforementioned increase in technology, telecom, and information processing expense was more than offset by a decrease in certain technology investments, as the final phase of our three-phase project to replace our core loan and deposit banking systems was completed in July 2024.
Current wording
Total technology spend decreased $6 million, or 5%, relative to the prior year quarter, as the aforementioned increase in technology, telecom, and information processing expense and an increase in other technology-related expense was more than offset by a decrease in certain technology investments, as the final phase of our multi-year project to replace substantially all of our in-scope core loan and deposit banking systems was completed in July 2024.
Previous wording
The effective tax rate was 23.3% and 22.6% for the three months ended June 30, 2024 and 2023, respectively. See Note 12 of the Notes to Consolidated Financial Statements for more information about the factors that impacted the income tax rates, as well as information about deferred income tax assets and liabilities.
Current wording
The effective tax rate was 22.7% and 23.2% for the three months ended September 30, 2024 and 2023, respectively. See Note 12 of the Notes to Consolidated Financial Statements for more information about the factors that impacted the income tax rates, as well as information about deferred income tax assets and liabilities.
Previous wording
Preferred stock dividends totaled $11 million and $9 million for the second quarter of 2024 and 2023, respectively. The increase was primarily due to changes in the timing and rates of dividend payments for certain series of preferred stock.
Current wording
Preferred stock dividends totaled $10 million and $7 million for the third quarter of 2024 and 2023, respectively. The increase was primarily due to changes in the timing and rates of dividend payments for certain series of preferred stock.
Previous wording
We invest in securities to actively manage liquidity and interest rate risk and to generate interest income. We primarily own securities that can readily provide us cash and liquidity through secured borrowing agreements without the need to sell the securities. Our fixed-rate securities portfolio helps balance the inherent interest rate mismatch between loans and deposits and protects the economic value of shareholders’ equity. At June 30, 2024, the estimated duration of our securities portfolio, which measures price sensitivity to interest rate changes, was 3.7 percent, compared with 3.6 percent at December 31, 2023.
Current wording
We invest in securities to actively manage liquidity and interest rate risk and to generate interest income. We primarily own securities that can readily provide us cash and liquidity through secured borrowing agreements without the need to sell the securities. Our fixed-rate securities portfolio helps balance the inherent interest rate mismatch between loans and deposits and protects the economic value of shareholders’ equity. At both September 30, 2024 and December 31, 2023, the estimated duration of our investment securities portfolio, which measures price sensitivity to interest rate changes, was 3.6 percent.
Previous wording
For information about our borrowing capacity associated with the investment securities portfolio and how we manage our liquidity risk, refer to the “Liquidity Risk Management” section on page 34. See also Note 3 and Note 5 of the Notes to Consolidated Financial Statements for more information on fair value measurements and the accounting for our investment securities portfolio.
Current wording
For information about our borrowing capacity associated with our investment securities portfolio and how we manage our liquidity risk, refer to the “Liquidity Risk Management” section on page 34. See also Note 3 and Note 5 of the Notes to Consolidated Financial Statements for more information on fair value measurements and the accounting for our investment securities portfolio.
Previous wording
The amortized cost of total held-to-maturity (“HTM”) and AFS investment securities decreased $1.0 billion, or 5%, from December 31, 2023. Approximately 7% of the total HTM and AFS investment securities were floating-rate instruments at both June 30, 2024 and December 31, 2023. Additionally, at June 30, 2024, we had $3.6 billion of pay-fixed swaps designated as fair value hedges against fixed-rate AFS securities that effectively convert the fixed interest income to a floating rate on the hedged portion of the securities.
Current wording
The amortized cost of total investment securities decreased $1.6 billion, or 7%, from December 31, 2023, largely due to principal reductions. Approximately 7% of the total investment securities were floating-rate instruments at both September 30, 2024 and December 31, 2023. Additionally, at September 30, 2024, we had $3.6 billion of pay-fixed swaps designated as fair value hedges against fixed-rate available-for-sale (“AFS”) securities that effectively convert the fixed interest income to a floating rate on the hedged portion of the securities.
Previous wording
At June 30, 2024, our AFS investment securities portfolio included $193 million of net premium that was distributed across the various security categories. Total taxable-equivalent premium amortization for our total investment securities portfolio was $17 million for the second quarter of 2024, compared with $22 million for the same prior year period.
Current wording
At September 30, 2024, our AFS investment securities portfolio included $181 million of net premium that was distributed across the various security categories. Total taxable-equivalent premium amortization for our total investment securities portfolio was $17 million for the third quarter of 2024, compared with $20 million for the same prior year period.
Previous wording
Our municipal loans and securities are primarily associated with municipalities located within our geographic footprint. The municipal loan and lease portfolio is primarily secured by general obligations of municipal entities, real estate, revenue pledges, or equipment. At June 30, 2024, we had $6 million of municipal loans on nonaccrual, and we had no municipal loans on nonaccrual at December 31, 2023.
Current wording
Our municipal loans and securities are primarily associated with municipalities located within our geographic footprint. The municipal loan and lease portfolio is primarily secured by general obligations of municipal entities, real estate, revenue pledges, or equipment. At September 30, 2024, we had a small number of municipal loans on nonaccrual totaling $11 million; we had no municipal loans on nonaccrual at December 31, 2023. These loans were to private commercial entities utilizing a pass-through municipal entity to achieve favorable tax treatment.
Previous wording
We provide a wide range of lending products to commercial customers, generally small- and medium-sized businesses. We also provide various retail lending products and services to consumers and small businesses. The following schedule presents the composition of our loan and lease portfolio:
Current wording
We provide a wide range of lending products to commercial customers, generally small- and medium-sized businesses, as well as other products secured by commercial real estate. We also provide various retail banking products and services to consumers and small businesses. The following schedule presents the composition of our loan and lease portfolio:
Previous wording
During the first six months of 2024, the loan and lease portfolio increased $636 million, or 1%, to $58.4 billion at June 30, 2024. Loan growth was primarily in the consumer 1-4 family residential mortgage and term commercial real estate loan portfolios. At June 30, 2024 and December 31, 2023, the ratio of loans and leases to total assets was 67% and 66%, respectively. The largest loan category was commercial and industrial loans, which constituted 29% of our total loan portfolio for both time periods.
Current wording
During the first nine months of 2024, the loan and lease portfolio increased $1.1 billion, or 2%, to $58.9 billion at September 30, 2024. Loan growth was primarily in the consumer 1-4 family residential mortgage portfolio. At September 30, 2024 and December 31, 2023, the ratio of loans and leases to total assets was 68% and 66%, respectively. The largest loan category was commercial and industrial loans, which constituted 29% of our total loan portfolio for both time periods.
Previous wording
Other noninterest-bearing investments increased $37 million, or 4%, during the first six months of 2024, primarily due to a $25 million increase in FHLB stock, and an $8 million increase in SBIC investments. We are required to invest approximately 4% of our FHLB borrowings in FHLB stock to maintain our borrowing capacity. The increase in period-end FHLB activity stock was due to an increase in short-term FHLB borrowings.
Current wording
Other noninterest-bearing investments decreased $4 million during the first nine months of 2024, primarily due to a decrease in FHLB stock, partially offset by higher valuation adjustments in our SBIC investment portfolio. We are required to invest approximately 4% of our FHLB borrowings in FHLB stock to maintain our borrowing capacity. The decrease in period-end FHLB activity stock was due to a decline in short-term FHLB borrowings.
Previous wording
We have been investing in technology to modernize our financial systems. In July 2024, we successfully completed the final phase of our multi-year project to replace our core loan and deposit banking systems. We have now transitioned substantially all of our commercial, commercial real estate, and consumer loans, as well as our deposit accounts to a modern, integrated core system, which will allow us to deliver improved experiences to our customers and gain incremental operational efficiencies.
Current wording
We continue to invest in technology to modernize our financial systems. In July 2024, we successfully completed the final phase of our multi-year project to replace our core loan and deposit banking systems. We have now transitioned substantially all of our commercial, commercial real estate, and consumer loans, as well as our deposit accounts to a modern, integrated core system, which allows us to deliver improved experiences to our customers and gain incremental operational efficiencies.
Previous wording
Total deposits decreased $1.2 billion, or 2%, to $73.8 billion, from December 31, 2023. At June 30, 2024 and December 31, 2023, customer deposits (excluding brokered deposits) were $69.5 billion and $70.5 billion, and included approximately $7.3 billion and $6.8 billion, respectively, of reciprocal deposits.
Current wording
Total deposits increased $757 million, or 1%, from December 31, 2023, as a $2.0 billion increase in interest-bearing deposits was partially offset by a $1.3 billion decrease in noninterest-bearing demand deposits. At both September 30, 2024 and December 31, 2023, customer deposits (excluding brokered deposits) totaled $70.5 billion, and included approximately $7.3 billion and $6.8 billion, respectively, of reciprocal deposits.
Previous wording
At June 30, 2024, the estimated total amount of uninsured deposits was $32.1 billion, or 44%, of total deposits, compared with $33.2 billion, or 44%, at December 31, 2023, respectively. Our loan-to-deposit ratio was 79%, compared with 77% for the same respective time periods. See “Liquidity Risk Management” on page 34 for additional information on liquidity, including the ratio of available liquidity to uninsured deposits.
Current wording
At September 30, 2024, the estimated total amount of uninsured deposits was $33.1 billion, or 44%, of total deposits, compared with $33.2 billion, or 44%, at December 31, 2023. Our loan-to-deposit ratio was 78%, compared with 77% for the same respective time periods. See “Liquidity Risk Management” on page 34 for additional information on liquidity, including the ratio of available liquidity to uninsured deposits.
Previous wording
We participate in various guaranteed lending programs sponsored by U.S. government agencies, such as the Small Business Administration (“SBA”), Federal Housing Authority, U.S. Department of Veterans Affairs, Export-Import Bank of the U.S., and the U.S. Department of Agriculture. At June 30, 2024, $555 million of related loans were guaranteed, primarily by the SBA. The following schedule presents the composition of U.S. government agency guaranteed loans:
Current wording
We participate in various guaranteed lending programs sponsored by U.S. government agencies, such as the Small Business Administration (“SBA”), Federal Housing Authority, U.S. Department of Veterans Affairs, Export-Import Bank of the U.S., and the U.S. Department of Agriculture. At September 30, 2024, $548 million of related loans were guaranteed, primarily by the SBA. The following schedule presents the composition of U.S. government agency guaranteed loans:
Previous wording
Our commercial loans span various industries and generally mature within a one-to-five-year period with applicable amortization based on the underlying collateral and guarantees. Commercial loans are typically structured as seasonal, term, working capital, or bridge loans in the form of revolving and non-revolving lines of credit, amortizing term loans, guidance facilities, and single-payment loans. These loans include covenants requiring borrowers to provide regular financial reporting to measure leverage, debt service coverage, and liquidity. At June
Current wording
Our commercial loans span various industries and generally mature within a one-to-five-year period with applicable amortization based on the underlying collateral and guarantees. Commercial loans are typically structured as seasonal, term, working capital, or bridge loans in the form of revolving and non-revolving lines of credit, amortizing term loans, guidance facilities, and single-payment loans. These loans include covenants requiring borrowers to provide regular financial reporting to measure leverage, debt service coverage, and liquidity. At
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related to the loan and lease portfolio and unfunded lending commitments as of the balance sheet date.