HANCOCK WHITNEY CORP

Previous wording

The objective of this discussion and analysis is to provide material information relevant to the assessment of the financial condition and results of operations of Hancock Whitney Corporation and its subsidiaries during the three months ended March 31, 2024 and selected comparable prior periods, including an evaluation of the amounts and certainty of cash flows from operations and outside sources. This discussion and analysis is intended to highlight and supplement financial and operating data and information presented elsewhere in this report, including the consolidated financial statements and related notes. The discussion contains forward-looking statements within the meaning and protections of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, our actual results may differ from those expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q and in other reports or documents that we file from time to time with the SEC include, but are not limited to, the following:

Current wording

The objective of this discussion and analysis is to provide material information relevant to the assessment of the financial condition and results of operations of Hancock Whitney Corporation and its subsidiaries during the six months ended June 30, 2024 and selected comparable prior periods, including an evaluation of the amounts and certainty of cash flows from operations and outside sources. This discussion and analysis is intended to highlight and supplement financial and operating data and information presented elsewhere in this report, including the consolidated financial statements and related notes. The discussion contains forward-looking statements within the meaning and protections of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are subject to risks and uncertainties. Should one or more of these risks or uncertainties materialize, our actual results may differ from those expressed or implied by the forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q and in other reports or documents that we file from time to time with the SEC include, but are not limited to, the following:

Previous wording

general economic and business conditions in our local markets, including conditions affecting employment levels, interest rates, inflation, supply chains, the threat of recession, volatile equity capital markets, property and casualty insurance costs, collateral values, customer income, creditworthiness and confidence, spending and savings that may affect customer bankruptcies, defaults, charge-offs and deposit activity; and the impact of the foregoing on customer and client behavior (including the velocity and levels of deposit withdrawals and loan repayment);

Current wording

general economic and business conditions in our local markets, including conditions affecting employment levels, interest rates, inflation, the threat of recession, volatile equity capital markets, property and casualty insurance costs, collateral values, customer income, creditworthiness and confidence, spending and savings that may affect customer bankruptcies, defaults, charge-offs and deposit activity; and the impact of the foregoing on customer behavior (including the velocity and levels of deposit withdrawals and loan repayment);

Previous wording

changes in interest rates, including actions taken by the Federal Reserve Board;

Current wording

changes in interest rates, including actions taken by the Federal Reserve Board and the impact of prolonged elevated interest rates on our financial projections, models and guidance;

Previous wording

net interest margin trends, including the impact of changes in interest rates;

Current wording

net interest margin trends, including the impact of ongoing elevated interest rates;

Previous wording

the effects of war or other conflicts, including Russia's military action in Ukraine and the Israel-Hamas war, acts of terrorism, climate change, natural disasters such as hurricanes, freezes, flooding, man-made disasters, such as oil spills in the Gulf of Mexico, health emergencies, epidemics or pandemics, or other catastrophic events that may affect general economic conditions, and/or increase costs, including, but not limited to, property and casualty and other insurance costs;

Current wording

the effects of war or other conflicts, acts of terrorism, climate change, natural disasters such as hurricanes, freezes, flooding, man-made disasters, such as oil spills in the Gulf of Mexico, health emergencies, epidemics or pandemics, or other catastrophic events that may affect general economic conditions, and/or increase costs, including, but not limited to, property and casualty and other insurance costs;

Previous wording

The battle against inflation continued to be at the forefront of the economic landscape in the first quarter of 2024. Headline and core (excluding food and energy) inflation have receded considerably below the 40-year highs experienced in 2022, although at 3.5% and 3.8%, respectively, in March 2024, both remain well above the Federal Reserve's target rate of 2%. First quarter 2024 gross domestic product (GDP) was 1.6% on an annual basis, falling short of estimates and significantly lower than fourth quarter 2023, which was revised up to 3.4%. The labor market remains strong, with upward wage pressure persisting and a 3.8% unemployment rate in March 2024. In response to signs of meaningful decrease in inflation in early to mid-2023, the Federal Reserve has held the benchmark interest rate steady since July 2023, with market expectation of rate cuts beginning in mid-2024. However, amid continued strong economic indicators and sustained disparity between the core inflation rate and the Federal Reserve's target, the organization has signaled that it will hold rates at elevated levels for longer than originally anticipated. While the continued strong pace of consumer spending and the strength of the labor market may help prevent or reduce the severity of a potential recession, the likelihood that rates will remain higher for longer and greater uncertainty surrounding the Federal Reserve's future actions with respect to monetary policy may adversely affect capital markets and could result in below-trend economic growth. Economic trends may be further influenced by factors outside of inflation, such continued pressure on the commercial real estate sector, a potential shutdown of the U.S. government and ongoing geopolitical conflict.

Current wording

Persistent inflation and the Federal Reserve's response to such remain in the forefront of the economic landscape. Thus far, the Federal Reserve has been successful in tempering inflation without precipitating a recession. Headline and core (excluding food and energy) inflation have receded considerably below the 40-year highs experienced in 2022, although at 3% and 3.3%, respectively, in June 2024, both remain above the Federal Reserve's target rate of 2%. Second quarter 2024 gross domestic product (GDP) was 2.8% on an annual basis. The labor market remains strong, but has softened, with the unemployment rate at 4.1% in June 2024, up from 3.8% in March 2024 and 3.6% a year earlier. Amid continued strong economic indicators and sustained disparity between the core inflation rate and the Federal Reserve's target rate, the Federal Reserve's benchmark interest rates has remained elevated for longer than originally anticipated. The Federal Reserve signaled in its July 2024 meeting that they will be attentive to both sides of their dual mandate of maximum employment and stable prices, leaving the door open for rate cuts as early as September 2024, depending on continued progress with economic indicators. While the continued strong pace of consumer spending and the strength of the labor market may help prevent or reduce the severity of a potential recession, the prolonged period of elevated interest rates and uncertainty surrounding the Federal Reserve's future actions with respect to monetary policy may adversely affect capital markets and could result in below-trend economic growth. Economic trends may be further influenced by factors outside of inflation, such continued pressure on the commercial real estate sector, uncertainty surrounding the upcoming U.S. presidential election, and ongoing geopolitical conflict.

Previous wording

Within the financial services industry, institutions continue to grapple with both macroeconomic and industry-specific headwinds. The elevated interest rate environment and heightened competition for deposits has fostered a continued shift within deposit composition toward higher cost products, although the pace of movement has slowed in recent months, allowing deposit costs to somewhat stabilize. The interest rate environment has also steadily affected the affordability of credit to consumers and businesses, moderating loan demand. At the same time, economic uncertainty and industry turmoil have prompted financial institutions to tighten credit standards. Many financial institutions, including ours, have also experienced some degree of deterioration in credit quality metrics from the mostly-benign credit environment experienced during the last three years.

Current wording

Within the financial services industry, institutions continue to grapple with both macroeconomic and industry-specific headwinds. The elevated interest rate environment and heightened competition for deposits has fostered a continued shift within deposit composition toward higher cost products, although the pace of movement has continued to slow, allowing deposit costs to stabilize. The interest rate environment has also steadily affected the affordability of credit to consumers and businesses, moderating loan demand. At the same time, economic uncertainty and industry turmoil have prompted financial institutions to tighten credit standards. Many financial institutions, including ours, have also experienced some degree of deterioration in credit quality metrics from the mostly-benign credit environment experienced during the last three years.

Previous wording

Within our markets, loan growth remains tempered in response to heightened interest rates and increased insurance costs. Further, we continue to narrow our credit appetite and focus on full-service relationships. However, interest rates on new, renewed and repricing variable rate loans continue to result in higher yields on earning assets. Our core client deposits, defined as total deposits excluding public funds and brokered deposits, grew $365 million during the quarter as we continue to maintain our diversified deposit base with competitive pricing, as much of our client base remains interest rate sensitive.

Current wording

Within our markets, loan growth remains tempered in response to heightened interest rates and increased insurance costs. Further, we continue to focus on full-service relationships. However, interest rates on new, renewed and repricing variable rate loans continue to result in higher yields on earning assets and, coupled with stabilization in funding costs, has contributed to net interest margin expansion.

Previous wording

We utilize economic forecasts produced by Moody’s that provide various scenarios to assist in the development of our economic outlook. This outlook discussion utilizes the February 2024 Moody’s forecasts, the most current available at the time of our computation of the March 31, 2024 allowance for credit losses. Moody’s state level forecasts for March were delayed due to recalibration, but the general outlook was not materially different than the February forecast utilized. The forecasts are anchored on a baseline forecast scenario, which Moody’s defines as the “most likely outcome” of where the economy is headed based on current conditions. Several upside and downside scenarios are produced that are derived from the baseline scenario that display varying depictions of economic performance as compared to the baseline.

Current wording

We utilize economic forecasts produced by Moody’s that provide various scenarios to assist in the development of our economic outlook. This outlook discussion utilizes the June 2024 Moody’s forecasts, the most current available at the time of our computation of the June 30, 2024 allowance for credit losses. The forecasts are anchored on a baseline forecast scenario, which Moody’s defines as the “most likely outcome” of where the economy is headed based on current conditions. Several upside and downside scenarios are produced that are derived from the baseline scenario that display varying depictions of economic performance as compared to the baseline.

Previous wording

The baseline scenario continues to incorporate the belief that the Federal Reserve will accomplish its goal of bringing inflation to or below its target without precipitating a recession. Key assumptions within the February 2024 baseline forecast include the following: (1) the Federal Funds rate has reached its terminal value in the rate hiking cycle, with rate cuts of 25 basis points in May, June, July and December 2024, with subsequent 25-basis point cuts per quarter until reaching 3% in late 2026, and 2.5% by 2030; (2) the U.S government will avoid a shut down in the current year; (3) while the labor market remains strong, there are indications of softening, and the unemployment rate will rise from its current rate of 3.8% to 3.9% in 2024 and 4.1% in 2025, and then recede to 4.0% in 2026 and 2027; (4) GDP will display modest annual growth of 2.3% in 2024, 1.6% in 2025, and 2.0% in 2026; and (5) the 10-year U.S. Treasury yield will average 4.2% in the first quarter of 2024, and will approach its equilibrium level of 4% over the year and remain near this level through the end of the decade.

Current wording

The baseline scenario continues to incorporate the belief that the Federal Reserve will accomplish its goal of bringing inflation to or below its target without precipitating a recession. Key assumptions within the June 2024 baseline forecast include the following: (1) the Federal Funds rate has reached its terminal value in the rate hiking cycle, with rate cuts of 25 basis points in September and December 2024, with subsequent rate cuts occurring until the benchmark rate reaches 3% in 2027; (2) while there has been softening in the labor market, the economy is at full-employment, and the unemployment rate will remain near its current level of 4% in the coming years; (3) GDP will display modest annual growth of 2.4% in 2024, 1.8% in 2025, and 1.9% in 2026; and (4) the 10-year U.S. Treasury yield will average 4.5% in the second quarter of 2024, and will approach its equilibrium level of 4% in 2025 and remain near this level through the end of the decade.

Previous wording

The S-2 scenario presents a downside alternative to the baseline. The S-2 scenario assumes an increased likelihood of a U.S. government shutdown, longer and farther-reaching disturbance from geopolitical conflict, and continued disruption in the financial services industry leading to further tightening of credit standards. Further, the scenario assumes the unemployment rate will increase considerably to 5.0% in 2024 and 5.8% in 2025 before improving to 4.1% in 2026 and 4.0% in 2027. As the economy weakens, the Federal Reserve commences rate cuts in the second quarter of 2024, deeper than those assumed in the baseline. As a result of these pressures, the U.S. falls into a mild recession beginning in the second quarter of 2024 that lasts for three quarters, with the stock market contracting 22% and a peak-to-trough decline in GDP of 1%.

Current wording

The S-2 scenario presents a downside alternative to the baseline. Compared to baseline, the S-2 scenario assumes that elevated interest rates weaken credit-sensitive spending more than anticipated, geopolitical conflict will create longer and farther-reaching disturbance, and continued disruption in the financial services industry will lead to additional tightening of credit standards. Further, the scenario assumes the unemployment rate will increase considerably to 4.6% in 2024 and 6.4% in 2025 before improving to 4.4% in 2026 and 4.0% in 2027. As the economy weakens, the Federal Reserve commences rate cuts in the third quarter of 2024, deeper than those assumed in the baseline. As a result of these pressures, the U.S. falls into a mild recession beginning in the third quarter of 2024 that lasts for three quarters, with the stock market contracting 22% and a peak-to-trough decline in GDP of 1%.

Previous wording

The credit loss outlook for our portfolio as a whole has not changed materially since December 31, 2023. We continue to closely monitor our portfolio for customers that are sensitive to prolonged inflation, the elevated interest rate environment and/or other economic circumstances that may impact credit quality. We expect full year 2024 loan growth in the low single digit range, reflecting our disciplined loan pricing, the potential for economic slowdown and a focus on lending to resilient borrowers with whom we have a full service relationship.

Current wording

The credit loss outlook for our portfolio as a whole has not changed materially since March 31, 2024. We continue to closely monitor our portfolio for customers that are sensitive to prolonged inflation, the elevated interest rate environment and/or other economic circumstances that may impact credit quality. We expect end-of-period loan balances at December 31, 2024 to be flat or slightly down from the previous year end, reflecting our disciplined loan pricing, the potential for economic slowdown and a focus on lending to resilient borrowers with whom we have a full service relationship.

Previous wording

Highlights of the First Quarter 2024

Current wording

Highlights of the Second Quarter 2024

Previous wording

We reported net income for the first quarter of 2024 of $108.6 million, or $1.24 per diluted common share, compared to $50.6 million, or $0.58 per diluted common share, in the fourth quarter of 2023 and $126.5 million, or $1.45 per diluted common share, in the first quarter of 2023. The first quarter of 2024 includes a charge of $3.8 million, or $0.04 per diluted share after-tax, supplemental disclosure item attributable to a revision of the FDIC special assessment recorded in the prior quarter. The fourth quarter of 2023 included a net charge of $75.4 million, or $0.68 per diluted share after-tax, of supplemental disclosure items that included an FDIC special assessment, a loss on restructuring of the available for sale securities portfolio and a gain on the sale of a parking facility. There were no supplemental disclosure items in the first quarter of 2023.

Current wording

We reported net income for the second quarter of 2024 of $114.6 million, or $1.31 per diluted common share, compared to $108.6 million, or $1.24 per diluted common share, in the first quarter of 2024 and $117.8 million, or $1.35 per diluted common share, in the second quarter of 2023. The first quarter of 2024 includes a charge of $3.8 million, or $0.04 per diluted share after-tax, supplemental disclosure item attributable to a revision of the FDIC special assessment recorded in the prior quarter. There were no supplemental disclosure items in the second quarters of 2024 or 2023.

Previous wording

First quarter 2024 results compared to fourth quarter 2023:

Current wording

Second quarter 2024 results compared to first quarter 2024:

Previous wording

Net income of $108.6 million, or $1.24 per diluted share, up $58.0 million, or $0.66 per diluted share; relatively flat when adjusted to exclude supplemental disclosure items

Current wording

Net income of $114.6 million, or $1.31 per diluted share, up $6.0 million, or $0.07 per diluted share

Previous wording

Adjusted pre-provision net revenue, a non-GAAP measure, totaled $152.9 million, down $4.6 million, or 3%

Current wording

Adjusted pre-provision net revenue, a non-GAAP measure, totaled $156.4 million, up $3.5 million, or 2%

Previous wording

Criticized commercial loans and nonaccrual loans continued to normalize from historically low levels, annualized net charge-offs declined to 0.15% compared to 0.27%

Current wording

Criticized commercial loans and nonaccrual loans continued to normalize from historically low levels; annualized net charge-offs declined to 0.12% compared to 0.15%

Previous wording

Net interest margin of 3.32%, up 5 basis points (bps) from 3.27%

Current wording

Net interest margin of 3.37%, up 5 basis points (bps) from 3.32%

Previous wording

Common equity tier 1 ratio of 12.65%, up 32 bps, and tangible common equity ratio of 8.61%, up 24 bps

Current wording

Common equity tier 1 ratio of 13.25%, up 60 bps, and tangible common equity ratio of 8.77%, up 16 bps

Previous wording

The first quarter of 2024 was a solid start to our 125th anniversary year. The results reflect our efforts to position our balance sheet for continued capital growth and enhanced profitability. We were able to grow core client deposits, hold our loan level relatively flat while focusing on lending to more granular, full service relationships, and, through prudent pricing efforts, experience modest net interest margin expansion. Our allowance for credit losses is solid at 1.42% and our credit metrics remain at or below peer averages. As with many other institutions, credit metrics continue to normalize from the recent benign environment, but we have seen no broad signs of weakening in any portfolio or geographic segment. We remain mindful of potential headwinds, but we believe we are well positioned to navigate the current operating environment.

Current wording

Our results for the second quarter of 2024 represent solid performance. Net interest margin expansion, fee income growth and expense control efforts contributed to improved profitability. Our capital ratios remained strong as we enhanced shareholder value with the deployment of capital through an increased common share dividend and share repurchases during the quarter. Our allowance for credit losses is solid at 1.43% and our credit metrics remain at or below peer averages. As with many other institutions, credit metrics continue to normalize compared to the recent benign environment, but we have not seen signs of significant weakening in any portfolio or geographic segment. We remain mindful of potential headwinds, but we believe we are well positioned to navigate the current operating environment and as we celebrate our 125th anniversary of serving our customers.

Previous wording

The $18.6 million decrease in net interest income (te) compared to the first quarter of 2023 reflects the growth in and prevailing rates on interest-bearing liabilities outpacing those of earning assets. Interest income (te) increased $49.3 million, driven largely by higher yields on loans and loan growth. Interest expense increased $67.9 million, driven largely by the shift in the mix of deposits from noninterest-bearing and low interest-bearing transaction and savings deposits into higher cost products at competitive interest rates, partially offset by a decrease in the cost of borrowings largely the result of the decrease in average FHLB advances. The net interest margin was down 23 bps from the first quarter of 2023, driven largely by the cost of deposits. The rate on interest-bearing liabilities was up 119 bps compared to the first quarter of 2023, with the rate on interest-bearing deposits up 149 bps. The yield on average earning assets was up 61 bps, driven primarily by a 62 bp improvement in the loan yield.

Current wording

The $22.1 million decrease in net interest income (te) for the six months ended June 30, 2024 compared to the same period in 2023 reflects the growth in and prevailing rates on interest-bearing liabilities outpacing those of earning assets. The decline in net interest income (te) includes a $93.7 million increase in interest expense, partially offset by a $71.6 million increase in interest income (te). The increase in interest expense is largely due to a shift in the mix of deposits from noninterest-bearing and low interest-bearing transaction and savings deposits into higher cost products at competitive interest rates, partially offset by a decrease in the cost of borrowings, largely the result of the decrease in average FHLB advances. The increase in interest income (te) was largely driven by the increase in loan yields and loan growth. The net interest margin was down 8 bps from the first six months of 2023, driven largely by the cost of deposits. The rate on interest-bearing liabilities was up 84 bps compared to the first half of 2023, with the rate on interest-bearing deposits up 110 bps. The yield on average earning assets was up 52 bps, primarily driven by a 52 bp improvement in the loan yield.

Previous wording

We expect modest expansion in the net interest margin during 2024. Our expectation incorporates the assumption of three Federal Reserve interest rate cuts of 25 bps each in June, September and December of 2024, and of continued deposit remix, but at a slower pace.

Current wording

We expect modest expansion in the net interest margin during 2024. This guidance assumes no Federal Reserve interest rate cuts, continued deposit remix, but at a slower pace, lower deposit costs, and continued repricing of securities and fixed rate loans.

Previous wording

Included in interest income is net purchase accounting accretion of $0.3 million, $0.4 million, and $0.8 million for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, respectively.

Current wording

Included in interest income is net purchase accounting accretion of $0.8 million, $0.3 million, and $0.7 million for the three months ended June 30, 2024, March 31, 2024, and June 30, 2023, respectively.

Previous wording

Net charge-offs in the first quarter of 2024 were $9.0 million, or 0.15% of average total loans on an annualized basis, compared to net charge-offs of $16.1 million, or 0.27%, in the fourth quarter of 2023 and net charge-offs of $5.7 million, or 0.10% in the first quarter of 2023. The first quarter of 2024 included net charge-offs of $5.3 million in the commercial portfolio and $3.9 million in the consumer portfolio, partially offset by net recoveries of $0.2 million in the residential mortgage portfolio. Net charge-offs in the commercial portfolio for the first quarter of 2024 includes an $8.8 million charge-off on a single commercial real estate - income producing credit and an $11.8 million recovery from a single legacy energy credit. The fourth quarter of 2023 included net charge-offs of $12.7 million in the commercial portfolio and $3.7 million in the consumer portfolio, partially offset by net recoveries of $0.4 million in the residential mortgage portfolio. The first quarter of 2023 included net charge-offs of $3.4 million in the commercial portfolio and $2.5 million in the consumer portfolio, partially offset by net recoveries of $0.2 million in the residential mortgage portfolio.

Current wording

During the second quarter of 2024, we recorded a provision for credit losses expense of $8.7 million, compared to $13.0 million in the first quarter of 2024. The provision in the second quarter of 2024 included net charge-offs of $7.3 million and a reserve build of $1.4 million, compared to net charge-offs of $9.0 million and a reserve build of $4.0 million in the first quarter of 2024. Lower levels of charge-offs, loan balances and unfunded exposures are the primary drivers of the improvement in provision expense linked quarter. Annualized net charge-offs as a percentage of average loans in the second quarter of 2024 was 0.12%, down from 0.15%, in the first quarter of 2024. The second quarter of 2024 net charge-offs included $4.1 million in the commercial portfolio and $3.3 million in the consumer portfolio, partially offset by net recoveries of $0.1 million in the residential mortgage portfolio. The first quarter of 2024 net charge-offs included $5.3 million in the commercial portfolio and $3.9 million in the consumer portfolio, partially offset by net recoveries of $0.2 million in the residential mortgage portfolio. Net charge-offs in the commercial portfolio for the first quarter of 2024 includes an $8.8 million charge-off on a single commercial real estate - income producing credit and an $11.8 million recovery from a single legacy energy credit.

Previous wording

We expect to see low to modest charge-offs and provision for credit losses in 2024. However, loan growth, portfolio mix, asset quality metrics and future assumptions in economic forecasts will drive the level of credit loss reserves.

Current wording

We expect to see modest charge-offs and provision for credit losses in the remainder of 2024. However, loan growth, portfolio mix, asset quality metrics and future assumptions in economic forecasts will drive the level of credit loss reserves.

Previous wording

Noninterest income totaled $87.9 million for the first quarter of 2024, up $48.9 million, or 126%, from the fourth quarter of 2023, and up $7.5 million, or 9%, from the first quarter of 2023. Noninterest income for the fourth quarter of 2023 included two supplemental disclosure items, a $16.1 million gain on the sale of a parking facility and a $65.4 million loss on the restructuring of the available for sale securities portfolio. Excluding the impact of the supplemental disclosure items, noninterest income for the first quarter of 2024 was relatively flat when compared to the fourth quarter of 2023, with increases in service charges on deposit accounts, trust fees, investment and annuity fees and income from secondary mortgage market operations offset by a decline in income from bank-owned life insurance and specialty lines of business. The increase in noninterest income from the first quarter of 2023 is primarily attributable to increases in service charges on deposit accounts, investment and annuity fees, income from bank-owned life insurance, net gains on sales of premises and equipment, and dividends on FHLB stock, partially offset by a decline in income from derivatives. A more detailed discussion of these and other noninterest income variances follows.

Current wording

Noninterest income totaled $89.2 million for the second quarter of 2024, up $1.3 million, or 2%, from the first quarter of 2024. The increase in noninterest income from the first quarter of 2024 is primarily attributable to increases in derivative income, trust fees and bank card and ATM fees, partially offset by a decline in investment and annuity fees and gains on sales of assets. For the six months ended June 30, 2024, noninterest income totaled $177.0 million, up $13.5 million, or 8%, from the same period in 2023. The increase is largely attributable to investment and annuity fees, other miscellaneous fees, gains on sales of assets, service charges on deposits, secondary mortgage market operations, and income from bank-owned life insurance, partially offset by a decline in derivative income. A more detailed discussion of these and other noninterest income variances follows.

Previous wording

Service charges on deposit accounts are composed of overdraft fees, and nonsufficient funds fees on business accounts, business and corporate account analysis fees, overdraft protection fees and other customer transaction-related charges. Service charges on deposits totaled $22.2 million for the first quarter of 2024, up $0.6 million, or 3%, from the fourth quarter of 2023 and up $1.6 million, or 8%, from the first quarter of 2023. The linked-quarter increase is primarily attributable to net analysis fees, driven by deposit balance activity, pricing changes and strong sales activity. The increase from the same period in 2023 was also largely attributable to net analysis fees, and to consumer overdraft fees, driven by higher instances of overdrafts.

Current wording

Service charges on deposit accounts are composed of overdraft fees, and nonsufficient funds fees on business accounts, business and corporate account analysis fees, overdraft protection fees and other customer transaction-related charges. Service charges on deposits totaled $22.3 million for the second quarter of 2024, virtually flat compared to the first quarter of 2024, as analysis fees on business accounts resulting from account activity and sales performance were largely offset by decreases in consumer overdraft and service fees as a result of fewer instances of overdraft and the elimination of paper statement fees. For the six months ended June 30, 2024, services charges on deposits totaled $44.5 million, up $2.4 million, or 6%, from the same period in 2023. The year over year increase was driven primarily by analysis fees on business accounts, as a result of activity levels, balance outflows and sales performance, and consumer overdraft fees, partially offset by a decline in consumer service charges as a result of the elimination of paper statement fees.

Previous wording

Trust fee income represents revenue generated from a full range of trust services, including asset management and custody services provided to individuals, businesses and institutions. Trust fees totaled $17.1 million for the first quarter of 2024, up $0.2 million, or 1%, from the fourth quarter of 2023, and up $0.3 million, or 2%, from the first quarter of 2023, primarily related to institutional trust fees for both periods.

Current wording

Trust fee income represents revenue generated from a full range of trust services, including asset management and custody services provided to individuals, businesses and institutions. Trust fees totaled $18.5 million for the second quarter of 2024, up $1.4 million, or 8%, from the first quarter of 2024, largely attributable to increases in personal trust revenue as a result of seasonal tax preparation fees and institutional trust fees driven by market value and sales volume. For the six months ended June 30, 2024, trust fees totaled $35.6 million, an increase of $1.4 million, or 4%, from the same period in 2023. The year over year increase was primarily attributable to corporate and institutional trust revenue, driven by market value and sales volumes.

Previous wording

Bank card and ATM fees include interchange and other income from credit and debit card transactions, fees earned from processing card transactions for merchants, and fees earned from ATM transactions. Bank card and ATM fees totaled $20.6 million for the first quarter of 2024, down $0.1 million, or less than 1%, from both the fourth quarter of 2023 and the first quarter of 2023, with modestly lower activity across most products.

Current wording

Bank card and ATM fees include interchange and other income from credit and debit card transactions, fees earned from processing card transactions for merchants, and fees earned from ATM transactions. Bank card and ATM fees totaled $21.8 million for the second quarter of 2024, up $1.2 million, or 6%, from the first quarter of 2024. The linked quarter increase reflects a return from the typical seasonal declines in debit and consumer credit card activity of the first quarter of the year, and increases in purchasing card and merchant revenue. Bank card and ATM fees for the six months ended June 30, 2024 totaled $42.4 million, up $0.7 million, or 2%, from the same period in 2023. The year over year change was driven primarily by increases in purchasing card activity and merchant fees.

Previous wording

Investment and annuity fees and insurance commissions, which include both fees earned from sales of annuity and insurance products, as well as managed account fees, totaled $11.8 million, up $0.8 million, or 7%, from the fourth quarter of 2023, and up $3.0 million, or 34% from the first quarter of 2023. The linked quarter and year over year increases reflect continued strong annuity sales performance and fixed-income trading commissions amid the elevated interest rate environment and favorable market conditions.

Current wording

Investment and annuity fees and insurance commissions, which include both fees earned from sales of annuity and insurance products, as well as managed account fees, totaled $9.8 million, down $2.1 million, or 17%, from the first quarter of 2024. The linked-quarter change was largely driven by a $1.1 million decline in annuity sales following record-high sales performance in the previous quarter, and a $0.5 million decline in investment fees. Investment and annuity fees and insurance commissions for the six months ended June 30, 2024 totaled $21.6 million, up $4.5 million, or 26%, from the same period in 2023. The year over year increase includes a $3.2 million increase in investment fees, and a $1.5 million increase in annuity fees, reflective of continued strong annuity sales performance and fixed-income trading commissions amid the elevated interest rate environment and favorable market conditions.

Previous wording

Income from secondary mortgage market operations is comprised of income produced from the origination and sales of residential mortgage loans in the secondary market. We offer a full range of mortgage products to our customers and typically sell longer-term fixed-rate loans while retaining the majority of adjustable-rate loans, as well as loans generated through programs to support customer relationships. Secondary mortgage market operations income will vary based on mortgage application volume, pull through rates, the percentage of loans ultimately sold in the secondary market and the timing of such sales. Income from secondary mortgage market operations was $2.9 million in the first quarter of 2024, up $0.8 million, or 39%, from the fourth quarter of 2023, and up $0.7 million, or 33% from the same quarter last year. The increases from both the fourth quarter of 2023 and the first quarter of 2023 were largely driven by an upward trend in the percentage of mortgage loans sold in the secondary market as opposed to those held in our portfolio.

Current wording

Income from secondary mortgage market operations is comprised of income produced from the origination and sales of residential mortgage loans in the secondary market. We offer a full range of mortgage products to our customers and typically sell longer-term fixed-rate loans while retaining the majority of adjustable-rate loans, as well as loans generated through programs to support customer relationships. Secondary mortgage market operations income will vary based on mortgage application volume, pull through rates, the percentage of loans ultimately sold in the secondary market and the timing of such sales. Income from secondary mortgage market operations was $3.5 million in the second quarter of 2024, up $0.7 million, or 23%, from the first quarter of 2024. For the six months ended June 30, 2024, income from secondary mortgage market operations totaled $6.4 million, up $2.0 million, or 44%, from the same period in 2023. The linked-quarter and year over year increases were largely driven by an upward trend in the percentage of mortgage loans sold in the secondary market as opposed to those held in our portfolio.

Previous wording

Income from bank-owned life insurance (BOLI) is typically generated through insurance benefit proceeds as well as the growth of the cash surrender value of insurance contracts held. Income from BOLI was $4.2 million for the first quarter of 2024, down $0.9 million, or 18%, from the fourth quarter of 2023, and up $0.9 million, or 29% from the first quarter of 2023. The linked quarter decrease was primarily attributable to lower mortality gains, and the increase over the same quarter last year reflects an increase in income from both mortality gains and cash surrender value.

Current wording

Income from bank-owned life insurance (BOLI) is typically generated through insurance benefit proceeds as well as the growth of the cash surrender value of insurance contracts held. Income from BOLI was $3.8 million for the second quarter of 2024, down $0.5 million, or 11%, from the first quarter of 2024, largely attributable to a decline in mortality gains. Income from BOLI for the six months ended June 30, 2024 totaled $8.0 million, up $1.3 million, or 20% from the same period in 2023 and is reflective of increases in both income from cash surrender value and mortality gains.

Previous wording

Credit-related fees include fees assessed on letters of credit and unused portions of loan commitments. Credit-related fees were $3.1 million for the first quarter of 2024, down $0.2 million, or 5% from the fourth quarter of 2023, and up $0.4 million, or 13% from the same quarter last year. The decrease in credit-related fees compared to the prior quarter was due to a decline in letter of credit fees. The increase compared to same quarter last year was in both unused commitment and letter of credit fees. Income from these products will vary based on letters of credit issued, credit line utilization and prevailing assessment rates.

Current wording

Credit-related fees include fees assessed on letters of credit and unused portions of loan commitments. Credit-related fees were $3.1 million for the second quarter of 2024, virtually flat compared to the first quarter of 2024. Credit-related fees for the six months ended June 30, 2024 totaled $6.3 million, up $0.3 million, or 4%, from the same period in 2023. Income from these products will vary based on letters of credit issued, credit line utilization and prevailing assessment rates.

Previous wording

Income or losses from customer and other derivatives is largely from our customer interest rate derivative program and totaled a loss of $2.8 million for the first quarter of 2024, compared to a loss of $1.2 million in the prior quarter, and income of $0.6 million in the first quarter of 2023. Derivative income can be volatile and is dependent upon the composition of the portfolio, volume and mix of sales and termination activity, and market value adjustments due to market interest rate movement. Customer derivative income for the first quarter of 2024 includes a loss of approximately $1.5 million related to assumption changes for certain valuation inputs that is not expected to recur. The remainder of the decline in customer derivatives is largely tied to the change in the interest rate environment present in each of the comparative periods, which affects demand for variable rate loans and related derivative products, valuation adjustments, and related collateral income/expense for the program as a whole. In addition, valuation changes to our Visa B derivative liability in the first quarter of 2024 contributed to increased losses of $0.8 million compared to the fourth quarter of 2023 and $1.0 million compared to the first quarter of 2024.

Current wording

Income or loss from customer and other derivatives is largely from our customer interest rate derivative program and totaled a loss of $1.1 million for the second quarter of 2024, compared to a loss of $2.8 million in the prior quarter. Derivative income can be volatile and is dependent upon the composition of the portfolio, volume and mix of sales and termination activity, and market value adjustments due to market interest rate movement. The linked-quarter improvement is largely reflective of a loss of $1.5 million recorded in the first quarter of 2024 related to assumption changes for certain valuation inputs on customer derivatives. For the six months ended June 30, 2024, loss from customer and other derivatives totaled $3.9 million, compared to income of $1.2 million for the same period in 2023. The current period includes the $1.5 million loss resulting from assumption changes associated with customer derivatives described above and $1.4 million increase in losses resulting from assumption changes to the Visa B derivative liability. The remainder of the decline is largely tied to the change in the interest rate environment present in each of the comparative periods, which affects demand for variable rate loans and related derivative products, valuation adjustments, and related collateral income/expense for the program as a whole.

Previous wording

Net gains on sales of premises, equipment and other assets consists primarily of net revenue earned from sales of excess-bank owned facilities and equipment no longer in use, gains on sales of Small Business Administration and other non-residential mortgage loans, and leases and other assets associated with the equipment finance line of business. The level of net gains or losses in a given reporting period will vary based on a variety of circumstances. Net gains on sales of premises, equipment and other assets totaled $2.8 million for the first quarter of 2024, compared to $17.1 million for the fourth quarter of 2023 and $0.4 million for the first quarter of 2023. The linked-quarter decline was largely driven by the fourth quarter 2023 gain on the sale of a stand-alone parking facility of $16.1 million that was identified as a supplemental disclosure item, partially offset by a first quarter 2024 gain on sale of bank premises and equipment and other miscellaneous activity. The sale of the parking facility allowed us to take advantage of favorable market conditions while exiting a service that was not a part of our core business. The year over year increase is largely attributable to the first quarter 2024 gain on the sale of bank premises and equipment.

Current wording

Net gains on sales of premises, equipment and other assets consists primarily of net revenue earned from sales of excess-bank owned facilities and equipment no longer in use, gains on sales of Small Business Administration and other non-residential mortgage loans, and leases and other assets associated with the equipment finance line of business. Net gains on sales of premises, equipment and other assets totaled $1.0 million for the second quarter of 2024, compared to $2.8 million for the first quarter of 2024. The linked-quarter decline was largely driven by a gain on sale of bank premises and equipment and other miscellaneous activity recorded in the first quarter of 2024. Net gains on sales of premises, equipment and other assets for the six months ended June 30, 2024 totaled $3.8 million, compared to $1.0 million in the same period in 2023. The level of net gains or losses in a given reporting period will vary based on a variety of circumstances.

Previous wording

Other miscellaneous income is comprised of various items, including income from small business investment companies (SBIC), Federal Home Loan Bank (FHLB) stock dividends, and fees from loan syndication and other specialty lines of business. Other miscellaneous income totaled $5.8 million, down $1.7 million, or 23%, from the prior quarter, and up $1.7 million, or 40% from the first quarter of 2023. The linked quarter decrease was largely driven by a $0.6 million decline in syndication fees and a $0.5 million decline in SBIC income, which can vary from period to period. The increase from the same quarter last year was largely attributable to a $1.3 million increase in dividends on FHLB stock.

Current wording

Other miscellaneous income is comprised of various items, including income from small business investment companies (SBIC), Federal Home Loan Bank (FHLB) stock dividends, and fees from loan syndication and other specialty lines of business. Other miscellaneous income totaled $6.4 million, up $0.6 million, or 9%. The linked-quarter increase was largely driven by a $0.5 million increase in SBIC income, which can vary from period to period. For the six months ended June 30, 2024, other miscellaneous income totaled $12.2 million, up $3.0 million, or 33%, from the same period in 2023. The year over year increase was largely driven by a $2.1 million increase in dividends on FHLB stock and other various smaller items.

Previous wording

We expect noninterest income to be up three to four percent for the full year of 2024 from the 2023 adjusted noninterest income of $337.7 million.

Current wording

We expect noninterest income to be up four to five percent for the full year of 2024 from the 2023 adjusted noninterest income of $337.7 million.

Previous wording

Noninterest expense for the first quarter of 2024 was $207.7 million, down $21.4 million, or 9% from the fourth quarter of 2023, and up $6.8 million, or 3%, from the first quarter of 2023. Included in noninterest expense are supplemental disclosure items of $3.8 million in the first quarter of 2024, attributable to a revision of the FDIC's special assessment, and $26.1 million in the fourth quarter of 2023, attributable to an FDIC special assessment. Excluding the impact of the supplemental disclosure items, noninterest expense for the first quarter of 2024 was up $0.9 million, or less than 1%, from the fourth quarter of 2023, with an increase in personnel expense largely offset by decreases in data processing, professional services, net other retirement expense and other miscellaneous expenses. Excluding the impact of the supplemental disclosure item, noninterest expense for the first quarter of 2024 was up $3.0 million, or 2%, compared to the first quarter of 2023, with the increase being driven primarily by personnel expense. A more detailed discussion of these and other noninterest expense variances follows.

Current wording

Noninterest expense for the second quarter of 2024 was $206.0 million, down $1.7 million, or less than 1%, from the first quarter of 2024. Included in noninterest expense in the first quarter of 2024 was a supplemental disclosure item of $3.8 million attributable to a revision of the FDIC's special assessment related to certain bank failures of 2023. Excluding the impact of the supplemental disclosure item, noninterest expense for the second quarter of 2024 was up $2.1 million, or 1%, from the first quarter of 2024, with increases in data processing, other miscellaneous expenses, travel, professional services, advertising and net other retirement expense partially offset by decreases in personnel expenses, other real estate and foreclosed assets expense, and entertainment and contributions. For the six months ended June 30, 2024, noninterest expense totaled $413.7 million, up $10.7 million, or 3%, from the same period in 2023. Excluding the impact of the supplemental disclosure item, noninterest expense for the six months ended June 30, 2024 was up $6.9 million, or 2%, from the same period in 2023. The year over year increase was largely driven by personnel expense and data processing expense, partially offset by a decrease in net other retirement expense. A more detailed discussion of these and other noninterest expense variances follows.

Previous wording

Personnel expense consists of salaries, incentive compensation, long-term incentives, payroll taxes, and other employee benefits such as 401(k), pension, and insurance for medical, life and disability. Personnel expense totaled $121.2 million for the first quarter of 2024, up $6.8 million, or 6% , from the prior quarter, and up $5.8 million, or 5%, from the same quarter last year. The linked quarter increase in expense reflects seasonal increases in payroll tax and benefits, an increase in incentive expense and a decrease in expense deferrals related to loan originations, as lower origination volume reduced the amount of wages capitalized. The year over year change reflects annual increases across most salary and benefit categories and a decrease in expense deferrals, as lower origination volumes and a larger percentage of mortgage loans sold in the secondary market reduced the amount of wages capitalized.

Current wording

Personnel expense consists of salaries, incentive compensation, long-term incentives, payroll taxes, and other employee benefits such as 401(k), pension, and insurance for medical, life and disability. Personnel expense totaled $118.7 million for the second quarter of 2024, down $2.4 million, or 2%. The linked quarter variance reflects seasonal declines in payroll tax and benefit expenses and a decline in incentive-based pay, which were partially offset by an increase in salaries attributable to annual merit increases. For the six months ended June 30, 2024, personnel expense totaled $239.9 million, up $9.7 million, or 4%, from the same period in 2023. The year over year change reflects annual increases across most salary and benefit categories that were partially offset by savings attributable to a decrease in headcount.