UMB FINANCIAL CORP

Previous wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations highlights the material changes in the results of operations and changes in financial condition of the Company for the three and six months ended June 30, 2024. It should be read in conjunction with the accompanying Consolidated Financial Statements, Notes to Consolidated Financial Statements and other financial information appearing elsewhere in this Form 10-Q and the Form 10-K. Results of operations for the periods included in this review are not necessarily indicative of results to be attained during any future period.

Current wording

This Management’s Discussion and Analysis of Financial Condition and Results of Operations highlights the material changes in the results of operations and changes in financial condition of the Company for the three and nine months ended September 30, 2024. It should be read in conjunction with the accompanying Consolidated Financial Statements, Notes to Consolidated Financial Statements and other financial information appearing elsewhere in this Form 10-Q and the Form 10-K. Results of operations for the periods included in this review are not necessarily indicative of results to be attained during any future period.

Previous wording

The first financial objective is to continuously improve operating efficiencies. The Company has focused on identifying efficiencies that simplify our organizational and reporting structures, streamline back-office functions, and take advantage of synergies and newer technologies among various platforms and distribution networks. The Company has identified and expects to continue identifying ongoing efficiencies through the normal course of business that, when combined with increased revenue, will contribute to improved operating leverage. During the second quarter of 2024, total revenue increased $26.3 million, or 7.2%, as compared to the second quarter of 2023, while noninterest expense increased $8.4 million, or 3.5%, for the same period. As part of the initiative to improve operating efficiencies, the Company continues to invest in technological advances that it believes will help management drive operating leverage in the future through improved data analysis and automation. The Company also continues to evaluate core systems and will invest in enhancements that it believes will yield operating efficiencies.

Current wording

The first financial objective is to continuously improve operating efficiencies. The Company has focused on identifying efficiencies that simplify our organizational and reporting structures, streamline back-office functions, and take advantage of synergies and newer technologies among various platforms and distribution networks. The Company has identified and expects to continue identifying ongoing efficiencies through the normal course of business that, when combined with increased revenue, will contribute to improved operating leverage. During the third quarter of 2024, total revenue increased $50.5 million, or 14.2%, as compared to the third quarter of 2023, while noninterest expense increased $21.0 million, or 9.1%, for the same period. As part of the initiative to improve operating efficiencies, the Company continues to invest in technological advances that it believes will help management drive operating leverage in the future through improved data analysis and automation. The Company also continues to evaluate core systems and will invest in enhancements that it believes will yield operating efficiencies.

Previous wording

The second financial objective is to increase net interest income through profitable loan and deposit growth and the optimization of the balance sheet. During the second quarter of 2024, the Company had an increase in net interest income of $19.5 million, or 8.6%, from the same period in 2023. The change in net interest income was driven by increased average loan growth and higher rates, partially offset by higher interest expense due to an unfavorable mix shift in the composition of liabilities. These changes are driven by the higher interest rate environment compared to the second quarter of 2023. The increase in interest income was driven by a $1.6 billion, or 7.3%, increase in average loans, driven by organic loan growth, coupled with the impact of higher short-term and long-term interest rates. The funding for these assets was driven primarily by a $3.3 billion, or 15.8%, increase in average interest-bearing deposits, offset by a decrease in average borrowed funds of $1.4 billion, or 44.4%, compared to the same period in 2023. Net interest margin, on a tax-equivalent basis, increased seven basis points compared to the same period in 2023, primarily due to increased loan yields, earning asset mix, and the benefit of free funds, partially offset by the cost and mix of interest-bearing liabilities. Net interest spread contracted by four basis points during the same period. The Company expects to see continued volatility in the economic markets resulting from governmental responses to inflation and reversionary signs in the economy. These changing conditions could have impacts on the balance sheet and income statement of the Company for the remainder of the year.

Current wording

The second financial objective is to increase net interest income through profitable loan and deposit growth and the optimization of the balance sheet. During the third quarter of 2024, the Company had an increase in net interest income of $25.1 million, or 11.3%, from the same period in 2023. The change in net interest income was driven by increased average loan growth and higher rates, partially offset by higher interest expense due to an unfavorable mix shift in the composition of liabilities. These changes are driven by the higher interest rate environment compared to the third quarter of 2023. The increase in interest income was driven by a $1.6 billion, or 7.2%, increase in average loans, driven by organic loan growth, coupled with the impact of higher short-term and long-term interest rates. The funding for these assets was driven primarily by a $4.5 billion, or 21.0%, increase in average interest-bearing deposits, offset by a decrease in average borrowed funds of $1.1 billion, or 43.8%, compared to the same period in 2023. Net interest margin, on a tax-equivalent basis, increased three basis points compared to the same period in 2023, primarily due to increased loan yields and earning asset mix, partially offset by the cost and mix of interest-bearing liabilities. Net interest spread increased by three basis points during the same period. The Company expects to see continued volatility in the economic markets resulting from governmental responses to inflation and reversionary signs in the economy. These changing conditions could have impacts on the balance sheet and income statement of the Company for the remainder of the year.

Previous wording

The third financial objective is to grow the Company’s revenue from noninterest sources. The Company seeks to grow noninterest revenues throughout all economic and interest rate cycles, while positioning itself to benefit in periods of economic growth. Noninterest income increased $6.8 million, or 5.0%, to $144.9 million for the three months ended June 30, 2024, compared to the same period in 2023. See greater detail below under Noninterest Income. The Company continues to emphasize its asset management, brokerage, bankcard services, healthcare services, and treasury management businesses. For the three months ended June 30, 2024, noninterest income represented 37.2% of total revenue, compared to 38.0% for the same period in 2023. The recent economic changes have impacted fee income, especially those with assets tied to market values and interest rates.

Current wording

The third financial objective is to grow the Company’s revenue from noninterest sources. The Company seeks to grow noninterest revenues throughout all economic and interest rate cycles, while positioning itself to benefit in periods of economic growth. Noninterest income increased $25.4 million, or 19.1%, to $158.7 million for the three months ended September 30, 2024, compared to the same period in 2023. See greater detail below under Noninterest Income. The Company continues to emphasize its asset management, brokerage, bankcard services, healthcare services, and treasury management businesses. For the three months ended September 30, 2024, noninterest income represented 39.1% of total revenue, compared to 37.5% for the same period in 2023. The recent economic changes have impacted fee income, especially those with assets tied to market values and interest rates.

Previous wording

The fourth financial objective is effective capital management. The Company places a significant emphasis on maintaining a strong capital position, which management believes promotes investor confidence, provides access to funding sources under favorable terms, and enhances the Company’s ability to capitalize on business growth and acquisition opportunities. The Company continues to maximize shareholder value through a mix of reinvesting in organic growth, evaluating acquisition opportunities that complement the Company’s strategies, increasing dividends over time, and appropriately utilizing a share repurchase program. At June 30, 2024, the Company had $3.2 billion in total shareholders’ equity. This is an increase of $395.7 million, or 14.0%, compared to total shareholders’ equity at June 30, 2023. At June 30, 2024, the Company had a total risk-based capital ratio of 13.08%. The Company did not repurchase shares of common stock during the second quarter of 2024, except for shares acquired pursuant to the Company's share-based incentive programs.

Current wording

The fourth financial objective is effective capital management. The Company places a significant emphasis on maintaining a strong capital position, which management believes promotes investor confidence, provides access to funding sources under favorable terms, and enhances the Company’s ability to capitalize on business growth and acquisition opportunities. The Company continues to maximize shareholder value through a mix of reinvesting in organic growth, evaluating acquisition opportunities that complement the Company’s strategies, increasing dividends over time, and appropriately utilizing a share repurchase program. At September 30, 2024, the Company had $3.5 billion in total shareholders’ equity. This is an increase of $728.8 million, or 26.0%, compared to total shareholders’ equity at September 30, 2023. At September 30, 2024, the Company had a total risk-based capital ratio of 13.14%. The Company did not repurchase shares of common stock during the third quarter of 2024, except for shares acquired pursuant to the Company's share-based incentive programs.

Previous wording

During November 2023, the Federal Deposit Insurance Corporation (the FDIC) approved a final rule to implement a special assessment to recover the losses to the Deposit Insurance Fund (the DIF) associated with protecting uninsured depositors following the closures of certain financial institutions in March of 2023. The assessment base for the special assessment is equal to an insured depository institution’s uninsured deposits as of December 31, 2022, adjusted to exclude the first $5 billion, and will be collected at an annual rate of 13.4 basis points for eight quarterly assessment periods. The Company’s portion of this special assessment was $52.8 million and was recognized in noninterest expense during the fourth quarter of 2023. During 2024, the FDIC increased the estimated loss attributable to the 2023 bank failures, which in turn increased the special assessment the FDIC will charge to insured depository institutions. The Company recorded $9.2 million of expense related to the updated special assessment during the six months ended June 30, 2024 and its impacts are discussed below.

Current wording

During November 2023, the Federal Deposit Insurance Corporation (the FDIC) approved a final rule to implement a special assessment to recover the losses to the Deposit Insurance Fund (the DIF) associated with protecting uninsured depositors following the closures of certain financial institutions in March of 2023. The assessment base for the special assessment is equal to an insured depository institution’s uninsured deposits as of December 31, 2022, adjusted to exclude the first $5 billion, and will be collected at an annual rate of 13.4 basis points for eight quarterly assessment periods. The Company’s portion of this special assessment was $52.8 million and was recognized in noninterest expense during the fourth quarter of 2023. During 2024, the FDIC increased the estimated loss attributable to the 2023 bank failures, which in turn increased the special assessment the FDIC will charge to insured depository institutions. The FDIC also announced that the special assessment will be collected for an additional two quarters beyond the initial eight-quarter collection period, at an estimated quarterly rate of 1.9 basis points. The projected number of additional quarters and the estimated rate applicable to those quarters is subject to change based on future adjustments to estimated losses or amendments to the assessment base. The Company recorded $7.5 million of expense related to the updated special assessment during the nine months ended September 30, 2024 and its impacts are discussed below.

Previous wording

The following is a summary regarding the Company’s earnings for the second quarter of 2024. The changes identified in the summary are explained in greater detail below. The Company recorded net income of $101.3 million for the three-month period ended June 30, 2024, compared to net income of $90.1 million for the same period a year earlier. Basic earnings per share for the second quarter of 2024 were $2.08 per share ($2.07 per share fully-diluted) compared to $1.86 per share ($1.85 per share fully-diluted) for the second quarter of 2023. Return on average assets and return on average common shareholders’ equity for the three-month period ended June 30, 2024 were 0.96% and 12.73%, respectively, compared to 0.90% and 12.56%, respectively, for the three-month period ended June 30, 2023.

Current wording

The following is a summary regarding the Company’s earnings for the third quarter of 2024. The changes identified in the summary are explained in greater detail below. The Company recorded net income of $109.6 million for the three-month period ended September 30, 2024, compared to net income of $96.6 million for the same period a year earlier. Basic earnings per share for the third quarter of 2024 were $2.25 per share ($2.23 per share fully-diluted) compared to $1.99 per share ($1.98 per share fully-diluted) for the third quarter of 2023. Return on average assets and return on average common shareholders’ equity for the three-month period ended September 30, 2024 were 1.01% and 12.63%, respectively, compared to 0.97% and 13.25%, respectively, for the three-month period ended September 30, 2023.

Previous wording

The Company recorded net income of $211.6 million for the six-month period ended June 30, 2024, compared to net income of $182.5 million for the same period a year earlier. Basic earnings per share for the six-month period ended June 30, 2024 were $4.34 per share ($4.32 per share fully-diluted) compared to $3.77 per share ($3.75 per share fully-diluted) for the same period in 2023. Return on average assets and return on average common shareholders’ equity for the six-month period ended June 30, 2024 were 1.01% and 13.41%, respectively, compared to 0.93% and 13.14%, respectively, for the six-month period ended June 30, 2023.

Current wording

The Company recorded net income of $321.2 million for the nine-month period ended September 30, 2024, compared to net income of $279.1 million for the same period a year earlier. Basic earnings per share for the nine-month period ended September 30, 2024 were $6.59 per share ($6.56 per share fully-diluted) compared to $5.76 per share ($5.73 per share fully-diluted) for the same period in 2023. Return on average assets and return on average common shareholders’ equity for the nine-month period ended September 30, 2024 were 1.01% and 13.13%, respectively, compared to 0.95% and 13.18%, respectively, for the nine-month period ended September 30, 2023.

Previous wording

Net interest income for the three and six-month periods ended June 30, 2024 increased $19.5 million, or 8.6%, and increased $17.2 million, or 3.7%, respectively, compared to the same periods in 2023. For the three-month period ended June 30, 2024, average earning assets increased by $2.0 billion, or 5.2%, and for the six-month period ended June 30, 2024, they increased by $2.7 billion, or 7.2%, compared to the same periods in 2023. Net interest margin, on a tax-equivalent basis, increased to 2.51% and decreased to 2.50% for the three and six-month periods ended June 30, 2024, respectively, compared to 2.44% and 2.59% for the same periods in 2023.

Current wording

Net interest income for the three and nine-month periods ended September 30, 2024 increased $25.1 million, or 11.3%, and increased $42.3 million, or 6.1%, respectively, compared to the same periods in 2023. For the three-month period ended September 30, 2024, average earning assets increased by $3.7 billion, or 9.8%, and for the nine-month period ended September 30, 2024, they increased by $3.0 billion, or 8.1%, compared to the same periods in 2023. Net interest margin, on a tax-equivalent basis, increased to 2.46% and decreased to 2.49% for the three and nine-month periods ended September 30, 2024, respectively, compared to 2.43% and 2.54% for the same periods in 2023.

Previous wording

The provision for credit losses increased by $1.1 million for the three-month period ended June 30, 2024 and decreased by $12.2 million for the six-month period ended June 30, 2024, as compared to the same periods in 2023. These changes were driven by loan growth, portfolio credit metric changes, and changes in macro-economic metrics in the current period as compared to the prior periods. The Company’s nonperforming loans decreased $5.6 million to $13.7 million at June 30, 2024, compared to June 30, 2023. The ACL on loans as a percentage of total loans remained flat at 0.99% as of June 30, 2024, compared to June 30, 2023. For a description of the Company’s methodology for computing the ACL, please see the summary discussion in the “Provision and Allowance for Credit Losses” section included below.

Current wording

The provision for credit losses increased by $13.0 million for the three-month period ended September 30, 2024 and increased by $0.8 million for the nine-month period ended September 30, 2024, as compared to the same periods in 2023. These changes were driven by loan growth, portfolio credit metric changes, and changes in macro-economic metrics in the current period as compared to the prior periods. The Company’s nonperforming loans increased $2.2 million to $19.3 million at September 30, 2024, compared to September 30, 2023. The ACL on loans as a percentage of total loans increased three basis points to 1.00% as of September 30, 2024, compared to September 30, 2023. For a description of the Company’s methodology for computing the ACL, please see the summary discussion in the “Provision and Allowance for Credit Losses” section included below.

Previous wording

Noninterest income increased by $6.8 million, or 5.0%, for the three-month period ended June 30, 2024, and increased by $35.9 million, or 13.4%, for the six-month period ended June 30, 2024, compared to the same periods in 2023. These changes are discussed in greater detail below under Noninterest Income.

Current wording

Noninterest income increased by $25.4 million, or 19.1%, for the three-month period ended September 30, 2024, and increased by $61.3 million, or 15.3%, for the nine-month period ended September 30, 2024, compared to the same periods in 2023. These changes are discussed in greater detail below under Noninterest Income.

Previous wording

Noninterest expense increased by $8.4 million, or 3.5%, for the three-month period ended June 30, 2024, and increased by $26.1 million, or 5.5%, for the six-month period ended June 30, 2024, compared to the same periods in 2023. These changes are discussed in greater detail below under Noninterest Expense.

Current wording

Noninterest expense increased by $21.0 million, or 9.1%, for the three-month period ended September 30, 2024, and increased by $47.2 million, or 6.6%, for the nine-month period ended September 30, 2024, compared to the same periods in 2023. These changes are discussed in greater detail below under Noninterest Expense.

Previous wording

Net interest income is a significant source of the Company’s earnings and represents the amount by which interest income on earning assets exceeds the interest expense paid on liabilities. The volume of interest-earning assets and the related funding sources, the overall mix of these assets and liabilities, and the rates paid on each affect net interest income. Net interest income for the three and six-month periods ended June 30, 2024 increased $19.5 million, or 8.6%, and increased $17.2 million, or 3.7%, compared to the same periods in 2023.

Current wording

Net interest income is a significant source of the Company’s earnings and represents the amount by which interest income on earning assets exceeds the interest expense paid on liabilities. The volume of interest-earning assets and the related funding sources, the overall mix of these assets and liabilities, and the rates paid on each affect net interest income. Net interest income for the three and nine-month periods ended September 30, 2024 increased $25.1 million, or 11.3%, and increased $42.3 million, or 6.1%, compared to the same periods in 2023.

Previous wording

Table 1 shows the impact of earning asset rate changes compared to changes in the cost of interest-bearing liabilities. As illustrated in this table, net interest spread for the three months ended June 30, 2024 decreased four basis points as compared to the same period in 2023. Net interest margin for the three months ended June 30, 2024 increased seven basis points compared to the same period in 2023. Net interest spread for the six-month period ended June 30, 2024 decreased by 21 basis points as compared to the same period in 2023. Net interest margin for the six-month period ended June 30, 2024 decreased by nine basis points compared to the same period in 2023. The changes for three-month period ended June 30, 2024 are primarily due to increased average loan balances and rates and the benefit of free funds, partially offset by higher interest costs due to unfavorable mix shift in the composition of liabilities. The changes for the six-month period ended June 30, 2024 were related to the cost and mix of interest-bearing liabilities, partially offset by increased loan volumes, repricing of earning assets, and the benefit of interest free funds. The impact of the increased cost and mix of interest-bearing liabilities had a significant impact in the second quarter of 2024. The cost of interest-bearing liabilities increased 57 basis points from the second quarter of 2023 while the yield on earning assets increased 53 basis points compared to the same period. The cost of interest-bearing liabilities increased 82 basis points for the six-month period ended June 30, 2024 as compared to the same period in 2023 while the yield on earning assets increased 61 basis points compared to the same period. Earning asset balance increases have been primarily driven by higher average loan balances. The Company expects to see continued volatility in the economic markets and governmental responses to changes in the economy. These changing conditions could have impacts on the balance sheet and income statement of the Company for the remainder of the year. For the impact of the contribution from free funds, see the Analysis of Net Interest Margin within Table 2 below. Table 2 also illustrates how the changes in volume and interest rates have resulted in an increase in net interest income.

Current wording

Table 1 shows the impact of earning asset rate changes compared to changes in the cost of interest-bearing liabilities. As illustrated in this table, net interest spread for the three months ended September 30, 2024 increased three basis points as compared to the same period in 2023. Net interest margin for the three months ended September 30, 2024 increased three basis points compared to the same period in 2023. Net interest spread for the nine-month period ended September 30, 2024 decreased by 12 basis points as compared to the same period in 2023. Net interest margin for the nine-month period ended September 30, 2024 decreased by five basis points compared to the same period in 2023. The changes for three-month period ended September 30, 2024 are primarily due to increased average loan balances and rates, partially offset by higher interest costs due to unfavorable mix shift in the composition of liabilities. The changes for the nine-month period ended September 30, 2024 were related to the cost and mix of interest-bearing liabilities, partially offset by increased loan volumes, repricing of earning assets, and the benefit of interest free funds. The impact of the increased cost and mix of interest-bearing liabilities had a significant impact in the third quarter of 2024. The cost of interest-bearing liabilities increased 36 basis points from the third quarter of 2023 while the yield on earning assets increased 39 basis points compared to the same period. The cost of interest-bearing liabilities increased 66 basis points for the nine-month period ended September 30, 2024 as compared to the same period in 2023 while the yield on earning assets increased 54 basis points compared to the same period. Earning asset balance increases have been primarily driven by higher average loans and increased interest-bearing due from banks balances. The Company expects to see continued volatility in the economic markets and governmental responses to changes in the economy. These changing conditions could have impacts on the balance sheet and income statement of the Company for the remainder of the year. For the impact of the contribution from free funds, see the Analysis of Net Interest Margin within Table 2 below. Table 2 also illustrates how the changes in volume and interest rates have resulted in an increase in net interest income.

Previous wording

The following table presents, for the periods indicated, the average earning assets and resulting yields, as well as the average interest-bearing liabilities and resulting yields, expressed in both dollars and rates. All average balances are daily average balances. The average yield on earning assets without the tax-equivalent basis adjustment would have been 5.38% for the three-month period ended June 30, 2024, and 4.84% for the same period in 2023. The average yield on earning assets without the tax-equivalent basis adjustment would have been 5.31% for the six-month period ended June 30, 2024, and 4.70% for the same period in 2023.

Current wording

The following table presents, for the periods indicated, the average earning assets and resulting yields, as well as the average interest-bearing liabilities and resulting yields, expressed in both dollars and rates. All average balances are daily average balances. The average yield on earning assets without the tax-equivalent basis adjustment would have been 5.41% for the three-month period ended September 30, 2024, and 5.01% for the same period in 2023. The average yield on earning assets without the tax-equivalent basis adjustment would have been 5.35% for the nine-month period ended September 30, 2024, and 4.80% for the same period in 2023.

Previous wording

Table 2 presents the dollar amount of change in net interest income and margin due to volume and rate. Table 2 also reflects the effect that interest-free funds have on net interest margin. The average balance of interest-free funds (total earning assets less interest-bearing liabilities) increased $12.7 million and decreased $645.1 million for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023. The benefit from interest-free funds increased 11 and 12 basis points in the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023, primarily due to increased short-term interest rates.

Current wording

Table 2 presents the dollar amount of change in net interest income and margin due to volume and rate. Table 2 also reflects the effect that interest-free funds have on net interest margin. The average balance of interest-free funds (total earning assets less interest-bearing liabilities) increased $48.9 million and decreased $413.5 million for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023. The benefit from interest-free funds was flat and increased seven basis points in the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023, primarily due to increased short-term interest rates.

Previous wording

Based on the factors above, management of the Company recorded $14.1 million as provision for credit losses for the three-month period ended June 30, 2024, as compared to $13.0 million for the same period in 2023. For the six-month period ended June 30, 2024, management of the Company recorded $24.1 million as provision for credit losses, as compared to $36.3 million for the same period in 2023. These changes are the result of applying the methodology for computing the ACL, coupled with the impacts of the current and forecasted economic environment. As illustrated in Table 3 below, the ACL on loans remained flat at 0.99% of total loans as of June 30, 2024, compared to June 30, 2023.

Current wording

Based on the factors above, management of the Company recorded $18.0 million as provision for credit losses for the three-month period ended September 30, 2024, as compared to $5.0 million for the same period in 2023. For the nine-month period ended September 30, 2024, management of the Company recorded $42.1 million as provision for credit losses, as compared to $41.2 million for the same period in 2023. These changes are the result of applying the methodology for computing the ACL, coupled with the impacts of the current and forecasted economic environment. As illustrated in Table 3 below, the ACL on loans increased three basis points to 1.00% of total loans as of September 30, 2024, compared to September 30, 2023.

Previous wording

Table 3 presents a summary of the Company’s ACL for the six-month periods ended June 30, 2024 and 2023, and for the year ended December 31, 2023. Net charge-offs were $5.9 million for the six-month period ended June 30, 2024, compared to $4.5 million for the same period in 2023. See “Credit Risk Management” under “Item 3. Quantitative and Qualitative Disclosures About Market Risk” in this report for information relating to nonaccrual loans, past due loans, restructured loans and other credit risk matters.

Current wording

Table 3 presents a summary of the Company’s ACL for the nine-month periods ended September 30, 2024 and 2023, and for the year ended December 31, 2023. Net charge-offs were $14.3 million for the nine-month period ended September 30, 2024, compared to $9.1 million for the same period in 2023. See “Credit Risk Management” under “Item 3. Quantitative and Qualitative Disclosures About Market Risk” in this report for information relating to nonaccrual loans, past due loans, restructured loans and other credit risk matters.

Previous wording

Noninterest income increased by $6.8 million, or 5.0%, during the three-month period ended June 30, 2024, and increased $35.9 million, or 13.4%, during the six-month period ended June 30, 2024, compared to the same periods in 2023. Table 4 above summarizes the components of noninterest income and the respective year-over-year comparison for each category.

Current wording

Noninterest income increased by $25.4 million, or 19.1%, during the three-month period ended September 30, 2024, and increased $61.3 million, or 15.3%, during the nine-month period ended September 30, 2024, compared to the same periods in 2023. Table 4 above summarizes the components of noninterest income and the respective year-over-year comparison for each category.

Previous wording

Trust and securities processing income consists of fees earned on personal and corporate trust accounts, custody of securities services, trust investments and wealth management services, mutual fund assets, and alternative asset servicing. The increase in these fees for the three and six-month periods ended June 30, 2024, compared to the same periods in 2023, was primarily due to an increase in fund services and corporate trust revenues. For the three-month period ended June 30, 2024, fund services revenue increased $5.6 million, or 16.1%, corporate trust revenue increased $1.5 million, or 11.4%, and trust income increased $1.3 million, or 9.8%, compared to the same period in 2023. For the six-month period ended June 30, 2024, fund services revenue increased $10.6 million, or 15.3%, corporate trust revenue increased $2.5 million, or 9.0%, and trust services revenue increased $2.5 million, or 9.1%, compared to the same period in 2023. The recent volatile markets have impacted the income in this category. Since trust and securities processing fees are primarily asset-based, which are highly correlated to the change in market value of the assets, the related income for the remainder of the year will be affected by changes in the securities markets. Management continues to emphasize sales of services to both new and existing clients as well as increasing and improving the distribution channels.

Current wording

Trust and securities processing income consists of fees earned on personal and corporate trust accounts, custody of securities services, trust investments and wealth management services, mutual fund assets, and alternative asset servicing. The increase in these fees for the three and nine-month periods ended September 30, 2024, compared to the same periods in 2023, was primarily due to an increase in fund services and corporate trust revenues. For the three-month period ended September 30, 2024, fund services revenue increased $5.2 million, or 13.6%, corporate trust revenue increased $1.8 million, or 12.4%, and trust income increased $0.6 million, or 4.2%, compared to the same period in 2023. For the nine-month period ended September 30, 2024, fund services revenue increased $15.8 million, or 14.7%, corporate trust revenue increased $4.3 million, or 10.2%, and trust services revenue increased $3.1 million, or 7.4%, compared to the same period in 2023. The recent volatile markets have impacted the income in this category. Since trust and securities processing fees are primarily asset-based, which are highly correlated to the change in market value of the assets, the related income for the remainder of the year will be affected by changes in the securities markets. Management continues to emphasize sales of services to both new and existing clients as well as increasing and improving the distribution channels.

Previous wording

Trading and investment banking fees for the three-month period ended June 30, 2024 increased $0.7 million, or 13.8%, and increased $0.8 million, or 8.1%, for the six-month period ended June 30, 2024 compared to the same periods in 2023. These changes were primarily driven by the volatile market’s impact on trading volume. The income in this category is market driven and impacted by general increases or decreases in trading volume.

Current wording

Trading and investment banking fees for the three-month period ended September 30, 2024 increased $3.3 million, or 88.8%, and increased $4.2 million, or 30.0%, for the nine-month period ended September 30, 2024 compared to the same periods in 2023. These changes were primarily driven by the volatile market’s impact on trading volume. The income in this category is market driven and impacted by general increases or decreases in trading volume.

Previous wording

Brokerage fees for the three-month period ended June 30, 2024 increased $0.4 million, or 3.1%, compared to the same period in 2023. For the six-month period ended June 30, 2024, brokerage fees decreased $0.1 million, or 0.4%, compared to the same period in 2023. The changes in the three-month and six-month periods were driven by 12b-1 fees and money market income.

Current wording

Brokerage fees for the three-month period ended September 30, 2024 increased $2.3 million, or 17.5%, and increased $2.2 million, or 5.5%, for the nine-month period ended September 30, 2024, compared to the same periods in 2023. The changes in the three-month and nine-month periods were driven by 12b-1 fees and money market income.

Previous wording

Bankcard fees for the three and six-month periods ended June 30, 2024 increased $3.8 million, or 20.3%, and increased $7.6 million, or 20.6%, respectively, as compared to the same periods in 2023. The increase was driven by increased interchange income and lower rewards and rebate costs.

Current wording

Bankcard fees for the three and nine-month periods ended September 30, 2024 increased $3.1 million, or 16.1%, and increased $10.7 million, or 19.0%, respectively, as compared to the same periods in 2023. The increase was driven by increased interchange income for the three-month period and increased interchange coupled with lower rebate costs in the nine-month period.

Previous wording

Investment securities gains, net for the three and six-month periods ended June 30, 2024 decreased $2.8 million, or 307.4%, and increased $11.9 million, or 269.6%, respectively, compared to the same periods in 2023. The decrease for the three-month period ended June 30, 2024, was primarily driven by a change in valuation of one of the Company's securities without readily determinable fair values during the second quarter of 2024. The increase for the six-month period was driven by a net gain of $8.6 million on the disposition of two of the Company's securities without readily determinable market value during the first quarter of 2024, coupled with a $4.9 million impairment loss on one Corporate available-for-sale security during the same period in 2023. The income in this category is highly correlated to the change in market value of the assets, and the related income for the remainder of the year will be affected by changes in the securities markets. The Company’s investment portfolio is continually evaluated for opportunities to improve its performance and risk profile relative to market conditions and the Company’s interest rate expectations. This can result in differences from quarter to quarter in the amount of realized gains or losses on this portfolio.

Current wording

Investment securities gains, net for the three and nine-month periods ended September 30, 2024 increased $2.4 million, or 867.9%, and increased $14.3 million, or 343.8%, respectively, compared to the same periods in 2023. The increase for the three-month period ended September 30, 2024, was primarily driven by net gains on dispositions of, and increased valuations in the Company's securities without readily determinable fair values during the third quarter of 2024. The increase for the nine-month period was driven by a net gain of $12.0 million on dispositions of securities without readily determinable fair values during 2024, coupled with a $4.9 million impairment loss on one Corporate available-for-sale security during the same period in 2023. The income in this category is highly correlated to the change in market value of the assets, and the related income for the remainder of the year will be affected by changes in the securities markets. The Company’s investment portfolio is continually evaluated for opportunities to improve its performance and risk profile relative to market conditions and the Company’s interest rate expectations. This can result in differences from quarter to quarter in the amount of realized gains or losses on this portfolio.

Previous wording

Other noninterest income for the three-month period ended June 30, 2024, decreased $4.6 million, or 27.0%, compared to the same period in 2023, driven by a $4.0 million gain recognized in the second quarter of 2023, a decrease of $2.2 million in company-owned life insurance, partially offset by increases of $0.5 million in derivative and bank-owned life insurance income, respectively. For the six-month period, other noninterest income decreased $0.4 million, or 1.2%, compared to the same period in 2023, primarily driven by a $2.5 million decrease in company-owned life insurance and a $1.9 million decrease in derivative income, offset by a gain on sale of land of $1.8 million received in the first quarter of 2024 and an increase of $1.4 million in bank-owned life insurance.

Current wording

Other noninterest income for the three-month period ended September 30, 2024, increased $7.7 million, or 90.0%, compared to the same period in 2023, driven by a $4.0 million increase in company-owned life insurance income, a $1.1 million gain on the sale of a building, a $0.9 million increase in syndication fees, and a $0.7 million increase in bank-owned life insurance income. For the nine-month period, other noninterest income increased $7.3 million, or 18.2%, compared to the same period in 2023, primarily driven by a $2.1 million increase in bank-owned life insurance income, a $1.5 million increase in company-owned life insurance income, a gain on sale of land of $1.8 million during the first quarter, a gain of $1.1 million on the sale of a building in the third quarter, and increases of $0.9 million in both syndication fees and foreign currency valuation. These increases are offset by a decrease in derivative income of $1.9 million.

Previous wording

Noninterest expense increased $8.4 million, or 3.5%, and increased $26.1 million, or 5.5%, for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023. Table 5 above summarizes the components of noninterest expense and the respective year-over-year comparison for each category.

Current wording

Noninterest expense increased $21.0 million, or 9.1%, and increased $47.2 million, or 6.6%, for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023. Table 5 above summarizes the components of noninterest expense and the respective year-over-year comparison for each category.

Previous wording

Salaries and employee benefits decreased by $0.5 million, or 0.3%, and was flat for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023. Salaries and wages expense increased $2.0 million, or 2.3%, and increased $2.4 million, or 1.4%, for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023. Bonus and commission expense decreased $0.7 million, or 2.2%, and decreased $0.1 million, or 0.2%, for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023. Employee benefits expense decreased $1.7 million, or 6.7%, and decreased $2.3 million, or 4.0%, for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023, driven by changes in deferred compensation expense.

Current wording

Salaries and employee benefits increased by $13.6 million, or 10.2%, and increased $13.7 million, or 3.3%, for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023. Salaries and wages expense increased $5.4 million, or 6.5%, and increased $7.9 million, or 3.1%, for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023. Bonus and commission expense increased $3.6 million, or 12.4%, and increased $3.5 million, or 4.1%, for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023, driven by increased company performance. Employee benefits expense increased $4.6 million, or 22.7%, and increased $2.3 million, or 2.9%, for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023, driven by changes in deferred compensation expense and medical benefit expense.

Previous wording

Equipment expense decreased $1.5 million, or 8.7%, and $2.8 million, or 8.1%, for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023, primarily due to decreased software expense.

Current wording

Equipment expense decreased $1.2 million, or 7.1%, and $4.0 million, or 7.8%, for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023, primarily due to decreased software expense.

Previous wording

Processing fees increased $3.1 million, or 11.8%, and $7.8 million, or 15.7%, for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023, primarily due to increased software subscription costs.

Current wording

Processing fees increased $3.7 million, or 14.1%, and $11.5 million, or 15.2%, for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023, primarily due to increased software subscription costs.

Previous wording

Legal and consulting expense increased $9.5 million, or 134.7%, and $10.1 million, or 70.5%, for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023, primarily due to expense related to the recently announced acquisition of HTLF.

Current wording

Legal and consulting expense increased $2.3 million, or 31.6%, and $12.4 million, or 57.5%, for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023, primarily due to expense related to the recently announced acquisition of HTLF.

Previous wording

Bankcard expense increased $3.5 million, or 42.3%, and $6.9 million, or 45.0%, for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023 primarily driven by higher administrative expense.

Current wording

Bankcard expense increased $3.6 million, or 41.0%, and $10.6 million, or 43.5%, for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023 primarily driven by higher administrative expense.

Previous wording

Regulatory fees decreased $3.6 million, or 58.1%, and increased $10.3 million, or 88.1%, for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023 primarily driven by adjustments to the FDIC special assessment liability.

Current wording

Regulatory fees decreased $1.5 million, or 23.8%, and increased $8.8 million, or 49.5%, for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023 primarily driven by adjustments to the FDIC special assessment liability.

Previous wording

Other expense decreased $0.7 million, or 10.2%, and $4.6 million, or 27.2%, for the three and six-month periods ended June 30, 2024, respectively, compared to the same periods in 2023. For both periods, the decrease was driven by lower operational losses.

Current wording

Other expense decreased $1.2 million, or 14.7%, and $5.8 million, or 23.1%, for the three and nine-month periods ended September 30, 2024, respectively, compared to the same periods in 2023. For both periods, the decrease was driven by lower operational losses.

Previous wording

The Company’s effective tax rate was 18.9% for the six months ended June 30, 2024, compared to 17.6% for the same period in 2023. The increase in the effective tax rate for 2024 is primarily attributable to a smaller portion of income being earned from tax-exempt municipal securities and a decrease in excess tax benefits associated with stock compensation recorded in the first six months of 2024 compared to the same period a year earlier.

Current wording

The Company’s effective tax rate was 19.0% for the nine months ended September 30, 2024, compared to 18.1% for the same period in 2023. The increase in the effective tax rate in 2024 is primarily attributable to a smaller portion of income being earned from tax-exempt municipal securities and higher non-deductible acquisition costs in 2024.

Previous wording

For the six-month period ended June 30, 2024, Commercial Banking net income increased $38.7 million, or 33.0%, to $156.1 million, as compared to the same period in 2023. Net interest income increased $22.3 million, or 7.6%, for the six-month period ended June 30, 2024, compared to the same period in 2023, driven by strong loan growth, earning asset mix changes, and the increase in short-term interest rates. Provision for credit losses decreased $13.1 million for the period, driven by portfolio metric changes and changes in macro-economic metrics in 2024 as compared to 2023, partially offset by loan growth. Noninterest income increased $22.1 million, or 45.5%, compared to the same period in 2023, primarily due to an increase of $10.7 million in investment security gains, an increase of $5.0 million in bankcard income, an increase of $3.2 million in miscellaneous income driven by a legal settlement in the first quarter of 2024, and an increase of $2.5 million in service charges on deposit accounts. Noninterest expense increased $8.3 million, or 4.9%, to $178.2 million for the six-month period ended June 30, 2024, compared to the same period in 2023. This increase was driven by a $5.0 million increase in regulatory fees driven by the FDIC special assessment, an increase of $1.8 million in bankcard expense, a $0.9 million increase in legal and consulting expense, and an increase of $0.8 million in processing fees.

Current wording

For the nine-month period ended September 30, 2024, Commercial Banking net income increased $46.3 million, or 24.6%, to $234.5 million, as compared to the same period in 2023. Net interest income increased $41.4 million, or 9.3%, for the nine-month period ended September 30, 2024, compared to the same period in 2023, driven by strong loan growth, earning asset mix changes, and the increase in short-term interest rates. Provision for credit losses decreased $0.3 million for the period, driven by portfolio metric changes and changes in macro-economic metrics in 2024 as compared to 2023. Noninterest income increased $29.3 million, or 40.8%, compared to the same period in 2023, primarily due to increases of $13.1 million in investment security gains, $6.4 million in bankcard income, $4.9 million in other income driven by a legal settlement in the first quarter of 2024 and increased life insurance income, and $3.2 million in service charges on deposit accounts. Noninterest expense increased $11.7 million, or 4.7%, to $263.4 million for the nine-month period ended September 30, 2024, compared to the same period in 2023. This increase was driven by an increase of $5.6 million in technology, service, and overhead expenses, an increase $2.0 million in salary and employee benefit expense, an increase of $2.0 million in bankcard expense, an increase of $1.2 million in processing fees, and a $0.9 million increase in marketing and business development. These increases were partially offset by a decrease of $0.8 million in other expense driven by lower operational losses in the current period.

Previous wording

For the six-month period ended June 30, 2024, Institutional Banking net income decreased $3.6 million, or 4.6%, compared to the same period last year. Net interest income decreased $4.1 million, or 3.9%, compared to the same period last year, driven by higher deposit interest expense due to the increase in short-term interest rates. Provision for credit losses increased $1.0 million for the period, driven by portfolio metric changes and changes in macro-economic metrics in 2024 as compared to 2023. Noninterest income increased $16.8 million, or 9.8%, primarily due to increases of $13.0 million in trust and securities processing income driven by higher fund services and corporate trust revenue, an increase of $2.8 million in bankcard income, and an increase of $0.9 million in bond trading income. Noninterest expense increased $14.9 million, or 8.3%, primarily driven by increases of $4.5 million in salaries and employee benefits expense, $4.3 million in regulatory fees driven by the FDIC special assessment, $3.9 million in bankcard expense, $2.8 million in processing fees, $1.2 million in equipment expense and $0.9 million in legal and consulting expense. These increases were partially offset by a decrease of $2.8 million in operational losses.

Current wording

For the nine-month period ended September 30, 2024, Institutional Banking net income decreased $2.6 million, or 2.3%, to $110.0 million, as compared to the same period last year. Net interest income decreased $1.9 million, or 1.3%, compared to the same period last year, driven by higher deposit interest expense due to the increase in short-term interest rates. Provision for credit losses increased $1.0 million for the period, driven by portfolio metric changes and changes in macro-economic metrics in 2024 as compared to 2023. Noninterest income increased $30.9 million, or 12.0%, primarily due to increases of $19.9 million in trust and securities processing income driven by higher fund services and corporate trust revenue, an increase of $4.9 million in bankcard income, an increase of $4.2 million in bond trading income, an increase of $2.3 million in brokerage income, and an increase of $1.4 million in other income. These increases were partially offset by a decrease of $3.2 million in service charges on deposit accounts. Noninterest expense increased $30.0 million, or 11.2%, primarily driven by increases of $9.8 million in technology, service, and overhead expenses, $9.2 million in salaries and employee benefits expense, $7.4 million in bankcard expense, $4.7 million in processing fees, $1.1 million in legal and consulting expense, and $1.1 million in equipment expense. These increases were partially offset by a decrease of $3.1 million in operational losses.

Previous wording

For the six-month period ended June 30, 2024, Personal Banking net income decreased $6.1 million, or 44.8%, to a net loss of $19.6 million, as compared to the same period in 2023. Net interest income decreased $1.0 million, or 1.5%, compared to the same period last year due to higher deposit interest expense driven by the increase in short-term interest rates. Provision for credit losses decreased $0.1 million for the period, driven by portfolio metric changes and changes in macro-economic metrics in 2024 as compared to 2023. Noninterest income decreased $3.0 million, or 6.2%, for the same period primarily driven by a decrease of $4.9 million in investment securities gains, partially offset by an increase of $2.6 million in trust and securities processing income. Noninterest expense increased $2.9 million, or 2.3%, primarily due to increases of $3.7 million in technology, service, and overhead expenses, and $1.3 million in bankcard expense, partially offset by a decrease of $2.2 million operational losses.

Current wording

For the nine-month period ended September 30, 2024, Personal Banking net income decreased $1.5 million, or 6.9%, to a net loss of $23.2 million, as compared to the same period in 2023. Net interest income increased $2.8 million, or 2.9%, compared to the same period last year due to loan growth and the increase in short-term interest rates. Provision for credit losses increased $0.1 million for the period, driven by portfolio metric changes and changes in macro-economic metrics in 2024 as compared to 2023. Noninterest income increased $1.1 million, or 1.6%, for the same period primarily driven by an increase of $3.2 million in trust and securities processing income, partially offset by a decrease of $2.0 million in investment securities gains. Noninterest expense increased $5.4 million, or 2.9%, primarily due to increases of $5.0 million in technology, service, and overhead expenses, $1.5 million in salaries and employee benefits, and $1.0 million in bankcard expense, partially offset by a decrease of $1.6 million in operational losses.

Previous wording

Total assets of the Company increased $457.7 million, or 1.0%, as of June 30, 2024, compared to December 31, 2023, primarily due to an increase of $1.0 billion, or 4.4% in loan balances. This increase was partially offset by a decrease of $519.4 million, or 10.1%, in interest-bearing due from banks.

Current wording

Total assets of the Company increased $3.5 billion, or 7.9%, as of September 30, 2024, compared to December 31, 2023, primarily due to an increase of $1.8 billion, or 7.8%, in loan balances and an increase of $1.4 billion, or 27.9%, in interest-bearing due from banks.

Previous wording

Total assets of the Company increased $3.2 billion, or 7.8%, as of June 30, 2024, compared to June 30, 2023, primarily due to an increase in loan balances of $1.7 billion, or 7.6%, an increase of $1.3 billion, or 37.7%, in interest-bearing due from banks, and an increase of $197.4 million, or 1.5%, in total securities.

Current wording

Total assets of the Company increased $6.0 billion, or 14.5%, as of September 30, 2024, compared to September 30, 2023, primarily due to an increase in interest-bearing due from banks of $3.0 billion, or 85.7%, an increase of $2.1 billion, or 9.2%, in loan balances, and an increase of $433.7 million, or 3.5% in total securities.

Previous wording

Actual loan balances totaled $24.2 billion as of June 30, 2024, and increased $1.0 billion, or 4.4%, compared to December 31, 2023, and increased $1.7 billion, or 7.6%, compared to June 30, 2023. Compared to December 31, 2023, commercial real estate loans increased $555.7 million, or 6.2%, commercial and industrial loans increased $303.5 million, or 3.1%, and credit card loans increased $145.3 million, or 34.3%. Compared to June 30, 2023, commercial real estate loans increased $1.2 billion, or 14.3%, commercial and industrial loans increased $332.1 million, or 3.4%, credit card loans increased $124.1 million, or 27.9%, and consumer real estate loans increased $102.9 million, or 3.5%. The increase in credit card loans in both periods is related to the purchase of $109.4 million in co-branded credit card receivables during the first quarter of 2024. See further information in Note 4, “Loans and Allowance for Credit Losses” in the Notes to Consolidated Financial Statements.

Current wording

Actual loan balances totaled $25.0 billion as of September 30, 2024, and increased $1.8 billion, or 7.8%, compared to December 31, 2023, and increased $2.1 billion, or 9.2%, compared to September 30, 2023. Compared to December 31, 2023, commercial real estate loans increased $887.1 million, or 10.0%, commercial and industrial loans increased $741.7 million, or 7.5%, and credit card loans increased $157.8 million, or 37.2%. Compared to September 30, 2023, commercial real estate loans increased $1.0 billion, or 11.4%, commercial and industrial loans increased $882.0 million, or 9.0%, consumer real estate loans increased $186.6 million, or 6.4%, and credit card loans increased $131.2 million, or 29.1%. The increase in credit card loans in both periods is related to the purchase of $109.4 million in co-branded credit card receivables during the first quarter of 2024. See further information in Note 4, “Loans and Allowance for Credit Losses” in the Notes to Consolidated Financial Statements.