# ASSOCIATED BANC-CORP (ASB) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from ASSOCIATED BANC-CORP's 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/7789/000000778923000013/asb-20221231.htm Accession: 0000007789-23-000013 Filing date: 2023-02-13 Report date: 2022-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/ASB/ All MD&A years: /company/ASB/mda/ Previous year: /company/ASB/mda/fy2021/ (FY 2021) Next year: /company/ASB/mda/fy2023/ (FY 2023) ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion is management’s analysis to assist in the understanding and evaluation of the consolidated financial condition and results of operations of the Corporation. It should be read in conjunction with the consolidated financial statements and footnotes and the selected financial data presented elsewhere in this report. Within the tables presented, certain columns and rows may not sum due to the use of rounded numbers for disclosure purposes. The detailed financial discussion that follows focuses on 2022 results compared to 2021. For a discussion of 2021 results compared to 2020, see the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021. Overview The Corporation is a bank holding company headquartered in Wisconsin, providing a broad array of banking and nonbanking products and services to businesses and consumers primarily within our three-state footprint. The Corporation’s primary sources of revenue, through the Bank, are net interest income (predominantly from loans and investment securities) and noninterest income (principally fees and other revenue from financial services provided to customers or ancillary services tied to loans and deposits). Performance Summary and 2023 Outlook •Diluted earnings per common share of $2.34 in 2022 increased $0.16, or 7%, from 2021. •Average loans of $26.2 billion for the full year of 2022 increased $2.1 billion, or 9%, from a year ago, driven by increases of $1.2 billion, or 8%, in commercial loans, $785 million in auto finance, and $205 million, or 3%, in residential mortgages. For 2023, the Corporation expects period end loan growth of 7% to 9%. •Average deposits of $28.8 billion for the full year of 2022 increased $1.1 billion, or 4%, from a year ago, driven by increases in lower cost core deposits partially offset by decreases in higher cost network and time deposits. •Net interest income of $957 million in 2022 increased $231 million, or 32%, from 2021. Net interest margin of 2.91% in 2022 increased 52 bp from 2.39% in 2021. The increases were driven by the execution of our strategic initiatives and rising interest rates during 2022. For 2023, the Corporation expects net interest income growth of 15% to 17%. •Provision for credit losses was $33 million in 2022, compared to a release of $88 million in 2021. For 2023, the Corporation expects to adjust the provision to reflect changes to risk grades, economic conditions, loan volumes, and other indications of credit quality. •Noninterest income of $282 million in 2022 decreased $50 million, or 15%, from 2021, largely influenced by market-driven decreases in mortgage banking income and wealth management fees, customer-friendly changes to our overdraft program, and higher asset gains recognized during 2021. For 2023, the Corporation expects noninterest income compression of 6% to 8%. •Noninterest expense of $747 million in 2022 increased $37 million, or 5%, from 2021, as we continued to invest in people and technology. For 2023, the Corporation expects noninterest expense growth of 4% to 6%. 45 Income Statement Analysis Net Interest Income Table 1 Net Interest Income Analysis [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["","2022","2021","2020"],["($ in Thousands)","Average Balance","Interest Income / Expense","Average Yield / Rate","Average Balance","Interest Income / Expense","Average Yield / Rate","Average Balance","Interest Income / Expense","Average Yield / Rate"],["Assets"],["Earning assets"],["Loans(a)(b)(c)"],["Asset-based lending & equipment finance (d)","$","297,308","","$","13,559","","4.56","%","$","120,903","","$","3,704","","3.06","%","$","177,710","","$","6,039","","3.40","%"],["Commercial and business lending (excl ABL and equipment finance)","9,554,995","","370,597","","3.88","%","8,983,580","","246,381","","2.73","%","9,232,444","","274,566","","2.97","%"],["Commercial real estate lending","6,595,635","","281,485","","4.27","%","6,156,214","","178,354","","2.90","%","5,811,498","","192,545","","3.31","%"],["Total commercial","16,447,938","","665,640","","4.05","%","15,260,697","","428,439","","2.81","%","15,221,651","","473,150","","3.11","%"],["Residential mortgage","8,052,277","","245,975","","3.05","%","7,847,564","","221,099","","2.82","%","8,190,190","","254,814","","3.11","%"],["Auto finance","805,179","","30,749","","3.82","%","19,815","","871","","4.39","%","13,585","","573","","4.22","%"],["Other retail","894,948","","52,266","","5.84","%","929,905","","44,852","","4.82","%","1,112,221","","58,082","","5.22","%"],["Total loans","26,200,341","","994,630","","3.80","%","24,057,980","","695,260","","2.89","%","24,537,648","","786,619","","3.21","%"],["Investment securities"],["Taxable","4,362,394","","75,444","","1.73","%","3,369,612","","37,916","","1.13","%","3,282,274","","59,806","","1.82","%"],["Tax-exempt(a)","2,419,262","","82,771","","3.42","%","2,036,030","","73,975","","3.63","%","1,930,853","","72,901","","3.78","%"],["Other short-term investments","570,887","","11,475","","2.01","%","1,644,995","","7,833","","0.48","%","1,067,788","","9,473","","0.89","%"],["Investments and other","7,352,542","","169,690","","2.31","%","7,050,637","","119,724","","1.70","%","6,280,915","","142,179","","2.26","%"],["Total earning assets","$","33,552,884","","$","1,164,320","","3.47","%","$","31,108,616","","$","814,984","","2.62","%","$","30,818,563","","$","928,799","","3.01","%"],["Other assets, net","3,105,049","","","","3,355,640","","","","3,446,644"],["Total assets","$","36,657,932","","","","$","34,464,257","","","","$","34,265,207"],["Liabilities and stockholders' equity"],["Interest-bearing liabilities"],["Interest-bearing deposits"],["Savings","$","4,652,774","","$","5,033","","0.11","%","$","4,138,732","","$","1,435","","0.03","%","$","3,306,385","","$","2,966","","0.09","%"],["Interest-bearing demand","6,638,592","","35,169","","0.53","%","6,113,660","","4,610","","0.08","%","5,583,144","","12,496","","0.22","%"],["Money market","7,164,518","","36,370","","0.51","%","6,940,513","","4,028","","0.06","%","6,509,924","","15,273","","0.23","%"],["Network transaction deposits","821,804","","14,721","","1.79","%","929,544","","1,120","","0.12","%","1,442,951","","6,219","","0.43","%"],["Time deposits","1,315,793","","7,016","","0.53","%","1,495,060","","7,429","","0.50","%","2,281,040","","30,685","","1.35","%"],["Total interest-bearing deposits","20,593,482","","98,309","","0.48","%","19,617,508","","18,622","","0.09","%","19,123,444","","67,639","","0.35","%"],["Federal funds purchased and securities sold under agreements to repurchase","388,701","","3,480","","0.90","%","207,132","","143","","0.07","%","175,713","","485","","0.28","%"],["Commercial paper","20,540","","2","","0.01","%","49,546","","22","","0.04","%","38,583","","41","","0.11","%"],["PPPLF","\u2014","","\u2014","","\u2014","%","\u2014","","\u2014","","\u2014","%","565,371","","1,984","","0.35","%"],["Other short-term funding","\u2014","","\u2014","","\u2014","%","\u2014","","\u2014","","\u2014","%","4,226","","11","","0.25","%"],["FHLB advances","2,784,403","","75,487","","2.71","%","1,623,508","","36,493","","2.25","%","2,535,731","","57,359","","2.26","%"],["Long-term funding","249,478","","10,653","","4.27","%","407,912","","17,053","","4.18","%","549,143","","22,365","","4.07","%"],["Total short and long-term funding","3,443,123","","89,621","","2.60","%","2,288,098","","53,712","","2.35","%","3,868,767","","82,245","","2.13","%"],["Total interest-bearing liabilities","$","24,036,605","","$","187,931","","0.78","%","$","21,905,605","","$","72,334","","0.33","%","$","22,992,211","","$","149,883","","0.65","%"],["Noninterest-bearing demand deposits","8,163,703","","","","8,075,906","","","","6,884,241"],["Other liabilities","482,538","","","","403,296","","","","444,183"],["Stockholders\u2019 equity","3,975,086","","","","4,079,449","","","","3,944,572"],["Total liabilities and stockholders\u2019 equity","$","36,657,932","","","","$","34,464,257","","","","$","34,265,207"],["Interest rate spread","","","2.69","%","","","2.29","%","","","2.36","%"],["Net free funds","","","0.22","%","","","0.10","%","","","0.17","%"],["Fully tax-equivalent net interest income and net interest margin","","$","976,389","","2.91","%","","$","742,650","","2.39","%","","$","778,915","","2.53","%"],["Fully tax-equivalent adjustment","","19,068","","","","16,796","","","","15,959"],["Net interest income","","$","957,321","","","","$","725,855","","","","$","762,957"]] [[/GREPCENT_TABLE]] (a) The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21% and is net of the effects of certain disallowed interest deductions. (b) Nonaccrual loans and loans held for sale have been included in the average balances. (c) Interest income includes amortization of net deferred loan origination costs and net accreted purchase loan discount. (d) Periods prior to 2022 do not include equipment finance. Net interest income is the primary source of the Corporation’s revenue. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and the interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. Net interest income is affected by the amount and composition of earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, re-pricing frequencies, loan prepayment behavior, and the use of interest rate derivative financial instruments. 46 Interest rate spread and net interest margin are utilized to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on earning assets and the rate paid on interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average earning assets. The net interest margin exceeds the interest rate spread because net free funds, principally noninterest-bearing demand deposits and stockholders’ equity, also support earning assets. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt loans and investment securities is computed on a fully tax-equivalent basis. Net interest income, interest rate spread, and net interest margin are discussed on a fully tax-equivalent basis. Table 1 provides average daily balances of earning assets and interest-bearing liabilities, the associated interest income and expense, and the corresponding interest rates earned and paid, as well as net interest income, interest rate spread, and net interest margin on a fully tax-equivalent basis for the years ended December 31, 2022, 2021, and 2020. Table 2 presents additional information to facilitate the review and discussion of fully tax-equivalent net interest income, interest rate spread, and net interest margin. Notable Contributions to the Change in 2022 Net Interest Income •Fully tax-equivalent net interest income and net interest income were up $234 million, or 31%, and $231 million, or 32%, respectively, compared to 2021. The increase was driven by the execution of our strategic initiatives and rising interest rates during 2022. See sections Interest Rate Risk and Quantitative and Qualitative Disclosures about Market Risk for a discussion of interest rate risk and market risk. •Average earning assets were $2.4 billion, or 8%, higher than 2021. The increase in average earning assets was driven by an increase of $2.1 billion, or 9%, in average loans. Increases in average commercial loans included increases of $571 million, or 6%, in commercial and business lending (excluding ABL and equipment finance) and $439 million, or 7%, in CRE lending. Increases in average retail loans included auto finance, up $785 million, and residential mortgages, up $205 million, or 3%. •Average interest-bearing liabilities were up $2.1 billion, or 10%, versus 2021. On average, FHLB advances were up $1.2 billion, or 72%, due to funding for loan growth. Interest-bearing deposits increased $976 million, or 5%, primarily driven by increases in lower cost core deposits, partially offset by decreases in higher cost network and time deposits. •The average cost of interest-bearing liabilities was 45 bp higher than 2021. The increase was due to a 39 bp increase in the average cost of interest-bearing deposits, while short and long-term funding increased 25 bp. •The federal funds rate on December 31, 2022 was in the range of 4.25% to 4.50%, which was up 4.25% from the previous year ended December 31, 2021 range of 0.00% to 0.25%. 47 Table 2 Rate/Volume Analysis(a) [[GREPCENT_TABLE]] [["","2022 Compared to 2021 Increase (Decrease) Due to","2021 Compared to 2020 Increase (Decrease) Due to"],["($ in Thousands)","Volume","Rate","Net","Volume","Rate","Net"],["Interest income"],["Loans(b)"],["Asset-based lending & equipment finance(c)","$","6,893","","$","2,962","","$","9,855","","$","(1,785)","","$","(551)","","$","(2,336)"],["Commercial and business lending (excl ABL and equipment finance)","16,395","","107,821","","124,215","","(6,967)","","(21,217)","","(28,185)"],["Commercial real estate lending","13,520","","89,610","","103,130","","10,961","","(25,152)","","(14,191)"],["Total commercial","36,808","","200,393","","237,201","","2,208","","(46,920)","","(44,711)"],["Residential mortgage","5,883","","18,994","","24,877","","(10,351)","","(23,364)","","(33,715)"],["Auto finance","30,007","","(129)","","29,878","","273","","24","","297"],["Other retail","(1,740)","","9,154","","7,414","","(9,025)","","(4,205)","","(13,230)"],["Total loans","70,958","","228,412","","299,370","","(16,894)","","(74,465)","","(91,359)"],["Investment securities"],["Taxable","13,296","","24,231","","37,528","","1,552","","(23,442)","","(21,890)"],["Tax-exempt(b)","13,304","","(4,508)","","8,796","","3,883","","(2,808)","","1,074"],["Other short-term investments","(7,891)","","11,534","","3,642","","3,843","","(5,483)","","(1,640)"],["Investments and other","18,709","","31,257","","49,966","","9,278","","(31,733)","","(22,455)"],["Total earning assets","$","89,667","","$","259,669","","$","349,336","","$","(7,617)","","$","(106,198)","","$","(113,814)"],["Interest expense"],["Savings","$","199","","$","3,399","","$","3,598","","$","613","","$","(2,144)","","$","(1,531)"],["Interest-bearing demand","429","","30,129","","30,558","","1,089","","(8,975)","","(7,886)"],["Money market","134","","32,208","","32,342","","949","","(12,194)","","(11,245)"],["Network transaction deposits","(145)","","13,746","","13,602","","(1,686)","","(3,413)","","(5,099)"],["Time deposits","1,061","","(1,473)","","(413)","","(8,186)","","(15,070)","","(23,256)"],["Total interest-bearing deposits","1,679","","78,009","","79,687","","(7,220)","","(41,796)","","(49,016)"],["Federal funds purchased and securities sold under agreements to repurchase","228","","3,109","","3,337","","74","","(417)","","(342)"],["Commercial paper","(9)","","(11)","","(20)","","9","","(28)","","(18)"],["PPPLF","\u2014","","\u2014","","\u2014","","(1,984)","","\u2014","","(1,984)"],["Other short-term funding","\u2014","","\u2014","","\u2014","","(11)","","\u2014","","(11)"],["FHLB advances","30,269","","8,724","","38,994","","(20,507)","","(359)","","(20,866)"],["Long-term funding","(6,758)","","357","","(6,401)","","(5,890)","","578","","(5,312)"],["Total short and long-term funding","23,731","","12,179","","35,910","","(28,309)","","(224)","","(28,533)"],["Total interest-bearing liabilities","25,409","","90,188","","115,597","","(35,529)","","(42,020)","","(77,549)"],["Fully tax-equivalent net interest income","$","64,257","","$","169,481","","$","233,739","","$","27,912","","$","(64,177)","","$","(36,265)"]] [[/GREPCENT_TABLE]] (a) The change in interest due to both rate and volume has been allocated in proportion to the relationship to the dollar amounts of the change in each. (b) The yield on tax-exempt loans and securities is computed on a fully tax-equivalent basis using a tax rate of 21% and is net of the effects of certain disallowed interest deductions. (c) Periods prior to 2022 do not include equipment finance. Provision for Credit Losses The provision for credit losses is predominantly a function of the Corporation’s reserving methodology and judgments as to other qualitative and quantitative factors used to determine the appropriate level of the ACLL, which focuses on changes in the size and character of the loan portfolio, changes in levels of individually evaluated and other nonaccrual loans, historical losses and delinquencies in each portfolio category, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing economic conditions and economic forecasts, the fair value of underlying collateral, and other factors which could affect potential credit losses. The forecast the Corporation used for December 31, 2022 was the Moody's baseline scenario from November 2022, which was reviewed against the December 2022 baseline scenario with no material updates made, over a 2 year reasonable and supportable period with straight-line reversion to historical losses over the second year of the period. See additional discussion under the sections titled Loans, Credit Risk, Nonperforming Assets, and Allowance for Credit Losses on Loans. 48 Noninterest Income Table 3 Noninterest Income [[GREPCENT_TABLE]] [["","Years Ended December 31,","Change From Prior Year"],["($ in Thousands)","2022","2021","2020","$ Change 2021","% Change 2021","$ Change 2020","% Change 2020"],["Wealth management fees","$","84,122","","$","89,854","","$","84,957","","$","(5,732)","","(6)","%","$","4,897","","6","%"],["Service charges and deposit account fees","62,310","","64,406","","56,307","","(2,096)","","(3)","%","8,099","","14","%"],["Card-based fees","44,014","","43,014","","38,534","","1,000","","2","%","4,480","","12","%"],["Other fee-based revenue","15,903","","17,086","","19,238","","(1,183)","","(7)","%","(2,152)","","(11)","%"],["Total fee-based revenue","206,350","","214,360","","199,036","","(8,010)","","(4)","%","15,324","","8","%"],["Capital markets, net","29,917","","30,602","","27,966","","(685)","","(2)","%","2,636","","9","%"],["Mortgage servicing fees, net(a)","8,260","","(434)","","(648)","","8,694","","N/M","214","","(33)","%"],["Gains and fair value adjustment on loans held for sale","1,019","","34,999","","60,000","","(33,980)","","(97)","%","(25,001)","","(42)","%"],["Fair value adjustment on portfolio loans transferred to held for sale","\u2014","","\u2014","","3,932","","\u2014","","N/M","(3,932)","","(100)","%"],["Changes in mortgage servicing rights valuation, net of economic hedge(b)","9,595","","16,186","","(17,704)","","(6,591)","","(41)","%","33,890","","N/M"],["Mortgage banking, net","18,873","","50,751","","45,580","","(31,878)","","(63)","%","5,171","","11","%"],["Bank and corporate owned life insurance","11,431","","13,254","","13,771","","(1,823)","","(14)","%","(517)","","(4)","%"],["Other(c)","10,715","","11,366","","55,445","","(651)","","(6)","%","(44,079)","","(80)","%"],["Subtotal","277,286","","320,333","","341,798","","(43,047)","","(13)","%","(21,465)","","(6)","%"],["Asset gains, net(d)","1,338","","11,009","","155,589","","(9,671)","","(88)","%","(144,580)","","(93)","%"],["Investment securities gains (losses), net","3,746","","(16)","","9,222","","3,762","","N/M","(9,238)","","N/M"],["Gains on sale of branches, net(e)","\u2014","","1,038","","7,449","","(1,038)","","(100)","%","(6,411)","","(86)","%"],["Total noninterest income","$","282,370","","$","332,364","","$","514,056","","$","(49,994)","","(15)","%","$","(181,692)","","(35)","%"],["Mortgage loans originated for sale during period","$","600,114","","$","1,749,556","","$","1,642,135","","$","(1,149,442)","","(66)","%","$","107,421","","7","%"],["Mortgage loan settlements during period","715,035","","1,774,791","","1,959,571","","(1,059,756)","","(60)","%","(184,780)","","(9)","%"],["Mortgage portfolio loans transferred to held for sale during period","\u2014","","\u2014","","269,203","","\u2014","","N/M","(269,203)","","(100)","%"],["Assets under management, at market value(f)","11,843","","13,679","","13,314","","(1,836)","","(13)","%","365","","3","%"]] [[/GREPCENT_TABLE]] N/M = Not Meaningful (a) Includes mortgage origination and servicing fees, net of MSRs amortization/decay. (b) On January 1, 2022, the Corporation made the irrevocable election to account for MSRs at fair value. For all prior periods, MSRs were carried at LOCOM. (c) Includes insurance commissions and fees, which were elevated prior to the sale of ABRC. (d) 2020 includes a gain of $163 million from the sale of ABRC. See Note 2 Acquisitions and Dispositions of the notes to the consolidated financial statements for additional details on the sale of ABRC. (e) Includes the deposit premium on the sale of branches net of miscellaneous costs to sell. See Note 2 Acquisitions and Dispositions of the notes to the consolidated financial statements for addition details on the branch sales. (f) $ in millions. Excludes assets held in brokerage accounts. Notable Contributions to the Change in 2022 Noninterest Income •Mortgage banking, net decreased from 2021, driven by slowing refinance activity and higher retention of mortgages on our balance sheet. •Asset gains, net was down from 2021, driven primarily by gains on private equity investments in 2021. •Wealth management fees decreased from 2021, driven by lower market valuations. 49 Noninterest Expense Table 4 Noninterest Expense [[GREPCENT_TABLE]] [["","Years Ended December 31,","Change From Prior Year"],["($ in Thousands)","2022","2021","2020","$ Change 2021","% Change 2021","$ Change 2020","% Change 2020"],["Personnel","$","454,101","","$","426,687","","$","432,151","","$","27,414","","6","%","$","(5,464)","","(1)","%"],["Technology","90,700","","81,689","","81,214","","9,011","","11","%","475","","1","%"],["Occupancy","59,794","","63,513","","64,064","","(3,719)","","(6)","%","(551)","","(1)","%"],["Business development and advertising","25,525","","21,149","","18,428","","4,376","","21","%","2,721","","15","%"],["Equipment","19,632","","21,104","","21,705","","(1,472)","","(7)","%","(601)","","(3)","%"],["Legal and professional","18,250","","21,923","","21,546","","(3,673)","","(17)","%","377","","2","%"],["Loan and foreclosure costs","5,925","","8,143","","12,600","","(2,218)","","(27)","%","(4,457)","","(35)","%"],["FDIC assessment","22,650","","18,150","","20,350","","4,500","","25","%","(2,200)","","(11)","%"],["Other intangible amortization","8,811","","8,844","","10,192","","(33)","","\u2014","%","(1,348)","","(13)","%"],["Loss on prepayments of FHLB advances","\u2014","","\u2014","","44,650","","\u2014","","N/M","(44,650)","","(100)","%"],["Other","41,675","","38,721","","49,135","","2,954","","8","%","(10,414)","","(21)","%"],["Total noninterest expense","$","747,063","","$","709,924","","$","776,034","","$","37,139","","5","%","$","(66,110)","","(9)","%"],["Average FTEs(a)","4,118","","4,003","","4,459","","115","","3","%","(456)","","(10)","%"]] [[/GREPCENT_TABLE]] N/M = Not Meaningful (a) Average FTEs without overtime Notable Contributions to the Change in 2022 Noninterest Expense •Personnel costs increased from 2021, largely driven by higher incentive compensation and additional hiring tied to our strategic initiatives. •Technology costs increased from 2021, driven by digital investments tied to our strategic initiatives. •FDIC assessment expense increased from 2021, due to a decrease in liquid assets in relation to total assets. •Business development and advertising costs increased from 2021, as business activity picked up throughout the year. Income Taxes The Corporation recognized income tax expense of $94 million for 2022, compared to income tax expense of $85 million for 2021. The Corporation's effective tax rate was 20.34% for 2022, compared to an effective tax rate of 19.55% for 2021. The increase in income tax expense during 2022 was primarily driven by an increase in income before tax in 2022 and by an increase in non-deductible expenses. The increase in the effective tax rate during 2022 was primarily driven by an increase in the state tax provision and an increase in non-deductible expenses. See Note 1 Summary of Significant Accounting Policies of the notes to consolidated financial statements for the Corporation’s income tax accounting policy. Income tax expense recorded on the consolidated statements of income involves the interpretation and application of certain accounting pronouncements and federal and state tax laws and regulations. The Corporation is subject to examination by various taxing authorities. Examination by taxing authorities may impact the amount of tax expense and/or the reserve for uncertainty in income taxes if their interpretations differ from those of management, based on their judgments about information available to them at the time of their examinations. See Note 13 Income Taxes of the notes to consolidated financial statements for more information. 50 Balance Sheet Analysis •At December 31, 2022, total assets were $39.4 billion, up $4.3 billion, or 12%, from December 31, 2021. •Interest-bearing deposits in other financial institutions were $157 million at December 31, 2022, down $525 million from December 31, 2021, due to funding of new loan growth. •At December 31, 2022, total loans were $28.8 billion, up $4.6 billion, or 19%, from December 31, 2021, due to increases of $1.3 billion, or 14%, in commercial and business lending, $1.0 billion, or 17%, in CRE, $1.2 billion in auto finance, and $944 million, or 12%, in residential mortgages. See section Loans and Note 4 Loans of the notes to consolidated financial statements for additional information on loans. •At December 31, 2022, total deposits of $29.6 billion were up $1.2 billion, or 4%, from December 31, 2021, driven by an increase in money market deposits of $1.1 billion, or 15%. See section Deposits and Customer Funding and Note 8 Deposits of the notes to consolidated financial statements for additional information on deposits. •At December 31, 2022, to help support loan growth, FHLB advances were up $2.7 billion and securities sold under agreements to repurchase were up $266 million. See section Other Funding Sources and Note 9 Short and Long-Term Funding of the notes to consolidated financial statements for additional details on funding. Loans Table 5 Period End Loan Composition [[GREPCENT_TABLE]] [["","As of December 31,"],["","2022","2021","2020","2019","2018"],["($ in Thousands)","Amount","% of Total","Amount","% of Total","Amount","% of Total","Amount","% of Total","Amount","% of Total"],["Asset-based lending & equipment finance(a)","$","458,887","","2","%","$","178,027","","1","%","$","137,476","","1","%","$","239,182","","1","%","$","306,433","","1","%"],["Commercial and industrial","9,300,567","","32","%","8,274,358","","34","%","8,331,702","","34","%","7,115,411","","31","%","7,091,612","","31","%"],["Commercial real estate \u2014 owner occupied","991,722","","3","%","971,326","","4","%","900,912","","4","%","911,265","","4","%","920,443","","4","%"],["Commercial and business lending","10,751,176","","37","%","9,423,711","","39","%","9,370,091","","38","%","8,265,858","","36","%","8,318,487","","36","%"],["Commercial real estate \u2014 investor","5,080,344","","18","%","4,384,569","","18","%","4,342,584","","18","%","3,794,517","","17","%","3,751,554","","16","%"],["Real estate construction","2,155,222","","7","%","1,808,976","","7","%","1,840,417","","8","%","1,420,900","","6","%","1,335,031","","6","%"],["Commercial real estate lending","7,235,565","","25","%","6,193,545","","26","%","6,183,001","","25","%","5,215,417","","23","%","5,086,585","","22","%"],["Total commercial","17,986,742","","62","%","15,617,256","","64","%","15,553,091","","64","%","13,481,275","","59","%","13,405,072","","58","%"],["Residential mortgage","8,511,550","","30","%","7,567,310","","31","%","7,878,324","","32","%","8,136,980","","36","%","8,277,712","","36","%"],["Auto finance","1,382,073","","5","%","143,045","","1","%","11,177","","\u2014","%","2,982","","\u2014","%","2,123","","\u2014","%"],["Home equity","624,353","","2","%","595,615","","2","%","707,255","","3","%","852,025","","4","%","894,473","","4","%"],["Other consumer","294,851","","1","%","301,723","","1","%","301,876","","1","%","348,177","","2","%","361,049","","2","%"],["Total consumer","10,812,828","","38","%","8,607,693","","36","%","8,898,632","","36","%","9,340,164","","41","%","9,535,357","","42","%"],["Total loans","$","28,799,569","","100","%","$","24,224,949","","100","%","$","24,451,724","","100","%","$","22,821,440","","100","%","$","22,940,429","","100","%"],["Commercial real estate and real estate construction loan detail"],["Non-owner occupied","$","3,313,959","","65","%","$","2,972,584","","68","%","$","2,969,906","","68","%","$","2,589,838","","68","%","$","2,545,751","","68","%"],["Multi-family","1,762,608","","35","%","1,405,264","","32","%","1,360,305","","31","%","1,201,835","","32","%","1,204,552","","32","%"],["Farmland","3,776","","\u2014","%","6,720","","\u2014","%","12,373","","\u2014","%","2,844","","\u2014","%","1,250","","\u2014","%"],["Commercial real estate \u2014 investor","$","5,080,344","","100","%","$","4,384,569","","100","%","$","4,342,584","","100","%","$","3,794,517","","100","%","$","3,751,554","","100","%"],["1-4 family construction","$","436,210","","20","%","$","380,160","","21","%","$","270,467","","15","%","$","261,908","","18","%","$","289,558","","22","%"],["All other construction","1,719,012","","80","%","1,428,816","","79","%","1,569,950","","85","%","1,158,992","","82","%","1,045,474","","78","%"],["Real estate construction","$","2,155,222","","100","%","$","1,808,976","","100","%","$","1,840,417","","100","%","$","1,420,900","","100","%","$","1,335,031","","100","%"]] [[/GREPCENT_TABLE]] (a) Periods prior to 2022 do not include equipment finance. The Corporation has long-term guidelines relative to the proportion of Commercial and Business, CRE, and Consumer loan commitments within the overall loan portfolio, with each targeted to represent 30 to 40% of the overall loan portfolio. The targeted long-term guidelines were unchanged during 2022 and 2021. Furthermore, certain sub-asset classes within the respective portfolios are further defined and dollar limitations are placed on these sub-portfolios. These guidelines and limits are reviewed quarterly and approved annually by the ERC. These guidelines and limits are designed to create balance and diversification within the loan portfolios. 51 The Corporation's loan distribution and interest rate sensitivity as of December 31, 2022 are summarized in the following table: Table 6 Loan Distribution and Interest Rate Sensitivity [[GREPCENT_TABLE]] [["($ in Thousands)","Within 1 Year(a)","1-5 Years","5-15 Years","Over 15 Years","Total","% of Total"],["Asset-based lending & equipment finance","$","244,425","","$","110,330","","$","104,132","","$","\u2014","","$","458,887","","2","%"],["Commercial and industrial","8,764,074","","390,557","","136,591","","9,344","","9,300,567","","32","%"],["Commercial real estate \u2014 owner occupied","570,168","","283,702","","137,291","","562","","991,722","","3","%"],["Commercial real estate \u2014 investor","4,738,638","","194,395","","147,310","","\u2014","","5,080,344","","18","%"],["Real estate construction","2,080,873","","39,382","","24,753","","10,214","","2,155,222","","7","%"],["Commercial - adjustable","10,113,519","","16,902","","16,200","","\u2014","","10,146,622","","35","%"],["Commercial - fixed","6,284,658","","1,001,465","","533,877","","20,120","","7,840,120","","27","%"],["Residential mortgage - adjustable","309,053","","724,865","","1,949,689","","401","","2,984,008","","10","%"],["Residential mortgage - fixed","7,340","","90,867","","614,633","","4,814,703","","5,527,542","","19","%"],["Auto finance","263","","267,133","","1,114,676","","\u2014","","1,382,073","","5","%"],["Home equity","556,258","","16,094","","43,312","","8,689","","624,353","","2","%"],["Other consumer","210,583","","38,547","","29,565","","16,157","","294,851","","1","%"],["Total loans","$","17,481,674","","$","2,155,873","","$","4,301,952","","$","4,860,070","","$","28,799,569","","100","%"],["Fixed-rate","$","6,300,508","","$","1,412,916","","$","2,336,063","","$","4,859,669","","$","14,909,156","","52","%"],["Floating or adjustable rate","11,181,166","","742,957","","1,965,889","","401","","13,890,413","","48","%"],["Total","$","17,481,674","","$","2,155,873","","$","4,301,952","","$","4,860,070","","$","28,799,569","","100","%"]] [[/GREPCENT_TABLE]] (a) Demand loans, past due loans, overdrafts, and credit cards are reported in the “Within 1 Year” category. At December 31, 2022, $20.2 billion, or 70%, of the total loans outstanding and $16.4 billion, or 91%, of the commercial loans outstanding were floating rate, adjustable rate, re-pricing within one year, or maturing within one year. Credit Risk An active credit risk management process is used for commercial loans to ensure that sound and consistent credit decisions are made. Credit risk is controlled by detailed underwriting procedures, comprehensive loan administration, and periodic review of borrowers’ outstanding loans and commitments. Borrower relationships are formally reviewed and graded on an ongoing basis for early identification of potential problems. Further analysis by customer, industry, and geographic location are performed to monitor trends, financial performance, and concentrations. See Note 4 Loans of the notes to consolidated financial statements for additional information on managing overall credit quality. The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within the Corporation's branch footprint. Significant loan concentrations are considered to exist when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2022, no significant concentrations existed in the Corporation’s loan portfolio in excess of 10% of total loan exposure. Commercial and business lending: The commercial and business lending classification primarily includes commercial loans to large corporations, middle market companies, small businesses, and asset-based and equipment financing. Table 7 Largest Commercial and Industrial Industry Group Exposures, by NAICS Subsector [[GREPCENT_TABLE]] [["December 31, 2022","NAICS Subsector","Outstanding Balance","Total Exposure","% of Total Loan Exposure"],["Real Estate(a)","531","","$","1,963,868","","$","3,552,573","","9","%"],["Utilities(b)","221","","2,160,188","","2,524,451","","6","%"],["Credit Intermediation and Related Activities(c)","522","","746,958","","2,136,537","","5","%"]] [[/GREPCENT_TABLE]] (a) Includes REIT lines (b) 55% of the total exposure comes from renewable energy sources (wind, solar, hydroelectric, and geothermal). (c) Includes mortgage warehouse lines The remaining commercial and industrial portfolio is spread over a diverse range of industries, none of which exceed 2% of total loan exposure. The CRE-owner occupied portfolio is spread over a diverse range of industries, none of which exceed 2% of total loan exposure. The credit risk related to commercial and business lending is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any. 52 Commercial real estate - investor: CRE-investor is comprised of loans secured by various non-owner occupied or investor income producing property types. Table 8 Largest Commercial Real Estate Investor Property Type Exposures [[GREPCENT_TABLE]] [["December 31, 2022","% of Total Loan Exposure","% of Total Commercial Real Estate - Investor Loan Exposure"],["Multi-Family","4","%","33","%"],["Office","3","%","24","%"],["Industrial","3","%","23","%"]] [[/GREPCENT_TABLE]] The remaining CRE-investor portfolio is spread over various other property types, none of which exceed 2% of total loan exposure. Credit risk is managed in a similar manner to commercial and business lending by employing sound underwriting guidelines, lending primarily to borrowers in local markets and businesses, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and relationship on an ongoing basis. Real estate construction: Real estate construction loans are primarily short-term or interim loans that provide financing for the acquisition or development of commercial income properties, multi-family projects or residential development, both single family and condominium. Real estate construction loans are made to developers and project managers who are generally well known to the Corporation and have prior successful project experience. The credit risk associated with real estate construction loans is generally confined to specific geographic areas but is also influenced by general economic conditions. The Corporation controls the credit risk on these types of loans by making loans in familiar markets to developers, reviewing the merits of individual projects, controlling loan structure, and monitoring project progress and construction advances. Table 9 Largest Real Estate Construction Property Type Exposures [[GREPCENT_TABLE]] [["December 31, 2022","% of Total Loan Exposure","% of Total Real Estate - Construction Loan Exposure"],["Multi-Family","5","%","40","%"],["Industrial","3","%","25","%"]] [[/GREPCENT_TABLE]] The remaining real estate construction portfolio is spread over various other property types, none of which exceed 2% of total loan exposure. The Corporation’s current lending standards for CRE and real estate construction lending are determined by property type and specifically address many criteria, including: maximum loan amounts, maximum LTV, requirements for pre-leasing and/or presales, minimum borrower equity, and maximum loan-to-cost. Currently, the maximum standard for LTV is 80%, with lower limits established for certain higher risk types, such as raw land that has a 50% LTV maximum. The Corporation’s LTV guidelines are in compliance with regulatory supervisory limits. In most cases, for real estate construction loans, the loan amounts include interest reserves, which are built into the loans and sized to fund loan payments through construction and lease up and/or sell out. Residential mortgages: Residential mortgage loans are primarily first lien home mortgages with a maximum loan-to-collateral value without credit enhancement (e.g., private mortgage insurance) of 80%. The residential mortgage portfolio is focused primarily in the Corporation's three-state branch footprint, with approximately 87% of the outstanding loan balances in the Corporation's branch footprint at December 31, 2022. The rates on adjustable rate mortgages adjust based upon the movement in the underlying index which is then added to a margin and rounded to the nearest 0.125%. That result is then subjected to any periodic caps to produce the borrower's interest rate for the coming term. Most of the adjustable rate mortgages have an initial fixed rate term of 3, 5, 7 or 10 years. The Corporation generally retains certain fixed-rate residential real estate mortgages in its loan portfolio, including retail and private banking jumbo mortgages and CRA-related mortgages. As part of management's historical practice of originating and servicing residential mortgage loans, generally the Corporation's 30 year, agency conforming, fixed-rate residential real estate mortgage loans have been sold in the secondary market with servicing rights retained. Subject to management's analysis of the current interest rate environment, among other market factors, the Corporation may choose to retain mortgage loan production on its balance sheet. The Corporation’s underwriting and risk-based pricing guidelines for residential mortgage loans include minimum borrower FICO score and maximum LTV of the property securing the loan. Residential mortgage products generally are underwritten using FHLMC and FNMA secondary marketing guidelines. 53 Home equity: Home equity consists of both home equity lines of credit and closed-end home equity loans. The Corporation’s credit risk monitoring guidelines for home equity are based on an ongoing review of loan delinquency status, as well as a quarterly review of FICO score deterioration and property devaluation. The Corporation does not routinely obtain appraisals on performing loans to update LTV ratios after origination; however, the Corporation monitors the local housing markets by reviewing the various home price indices and incorporates the impact of the changing market conditions in its ongoing credit monitoring process. For junior lien home equity loans, the Corporation is unable to track the performance of the first lien loan if it does not own or service the first lien loan. However, the Corporation obtains a refreshed FICO score on a quarterly basis and monitors this as part of its assessment of the home equity portfolio. The Corporation’s underwriting and risk-based pricing guidelines for home equity lines of credit and loans consist of a combination of both borrower FICO score and the original cumulative LTV against the property securing the loan. Currently, the Corporation's policy sets the maximum acceptable LTV at 90%. The Corporation's current home equity line of credit offering is priced based on floating rate indices and generally allows 10 years of interest-only payments followed by a 20-year amortization of the outstanding balance. The loans in the Corporation's portfolio generally have an original term of 20 years with principal and interest payments required. Indirect Auto: The Corporation currently purchases retail auto sales contracts via a network of approved auto dealerships across 13 states throughout the Northeast, Mid-Atlantic and Midwestern United States. The auto dealerships finance the sale of automobiles as the initial lender and then assign the contracts to the Corporation pursuant to dealer agreements. The Corporation’s underwriting and pricing guidelines are based on a dual risk grade derived from a combination of FICO auto score and proprietary internal custom score. Minimum grade and FICO score standards ensure the credit risk is appropriately managed to the Corporation’s risk appetite. Further, the grade influences loan-specific parameters such as vehicle age, term, LTV, loan amount, mileage, payment and debt service thresholds, and pricing. Maximum loan terms offered are 84 months on select grades with vehicle age, mileage, and other limitations in place to qualify. The program is designed to capture primarily prime and super prime contracts. Over time, the Corporation expects roughly 60% of originations to be secured by used vehicles. Other consumer: Other consumer consists of student loans, short-term personal installment loans, and credit cards. The Corporation had $76 million and $101 million of student loans at December 31, 2022 and 2021, respectively, the majority of which are government guaranteed. As a result of the COVID-19 pandemic, the passage of the CARES Act, and subsequent executive orders, federal student loan relief was extended to borrowers with relief set to expire 60 days after either the resolution of court challenges to the debt relief program or June 30, 2023 if the litigation is not resolved by that date. The student loan portfolio is in run-off and no new student loans are being originated. Credit risk for non-government guaranteed student loans, short-term personal installment loans, and credit cards is influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery of these smaller consumer loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guarantee positions. 54 Nonperforming Assets Management is committed to a proactive nonaccrual and problem loan identification philosophy. This philosophy is implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to ensure that problem loans are identified quickly and the risk of loss is minimized. Table 10 provides detailed information regarding NPAs, which include nonaccrual loans, OREO, and other nonperforming assets: Table 10 Nonperforming Assets [[GREPCENT_TABLE]] [["","As of December 31,"],["($ in Thousands)","2022","2021","2020","2019","2018"],["Nonperforming assets"],["Commercial and industrial","$","14,329","","$","6,279","","$","61,859","","$","46,312","","$","41,021"],["Commercial real estate \u2014 owner occupied","\u2014","","\u2014","","1,058","","67","","3,957"],["Commercial and business lending","14,329","","6,279","","62,917","","46,380","","44,978"],["Commercial real estate \u2014 investor","29,380","","60,677","","78,220","","4,409","","1,952"],["Real estate construction","105","","177","","353","","493","","979"],["Commercial real estate lending","29,485","","60,855","","78,573","","4,902","","2,931"],["Total commercial","43,814","","67,134","","141,490","","51,282","","47,909"],["Residential mortgage","58,480","","55,362","","59,337","","57,844","","67,574"],["Auto finance","1,490","","52","","49","","\u2014","","\u2014"],["Home equity","7,487","","7,726","","9,888","","9,104","","12,339"],["Other consumer","197","","170","","91","","152","","79"],["Total consumer","67,654","","63,309","","69,364","","67,099","","79,992"],["Total nonaccrual loans","111,467","","130,443","","210,854","","118,380","","127,901"],["Commercial real estate owned","325","","984","","2,185","","3,530","","4,047"],["Residential real estate owned","2,878","","3,666","","1,194","","5,696","","2,963"],["Bank properties real estate owned(a)","11,580","","24,969","","10,889","","11,874","","4,974"],["OREO","14,784","","29,619","","14,269","","21,101","","11,984"],["Other nonperforming assets(b)","215","","\u2014","","\u2014","","6,004","","\u2014"],["Total nonperforming assets","$","126,466","","$","160,062","","$","225,123","","$","145,485","","$","139,885"],["Accruing loans past due 90 days or more"],["Commercial","$","282","","$","151","","$","175","","$","342","","$","311"],["Consumer","1,446","","1,111","","1,423","","1,917","","1,853"],["Total accruing loans past due 90 days or more","$","1,728","","$","1,263","","$","1,598","","$","2,259","","$","2,165"],["Restructured loans (accruing)(c)"],["Commercial","$","13,093","","$","22,763","","$","41,119","","$","18,944","","$","28,668"],["Consumer","19,775","","19,768","","10,973","","7,097","","24,595"],["Total restructured loans (accruing)","$","32,868","","$","42,530","","$","52,092","","$","26,041","","$","53,263"],["Nonaccrual restructured loans (included in nonaccrual loans)","$","20,127","","$","17,426","","$","20,190","","$","22,494","","$","26,292"],["Ratios"],["Nonaccrual loans to total loans","0.39","%","0.54","%","0.86","%","0.52","%","0.56","%"],["NPAs to total loans plus OREO and other nonperforming assets","0.44","%","0.66","%","0.92","%","0.64","%","0.61","%"],["NPAs to total assets","0.32","%","0.46","%","0.67","%","0.45","%","0.42","%"],["Allowance for credit losses on loans to nonaccrual loans","315.34","%","245.16","%","204.63","%","188.61","%","205.13","%"]] [[/GREPCENT_TABLE]] 55 Table 10 Nonperforming Assets (continued) [[GREPCENT_TABLE]] [["","As of December 31,"],["($ in Thousands)","2022","2021","2020","2019","2018"],["Accruing loans 30-89 days past due"],["Commercial and industrial","$","6,283","","$","715","","$","6,119","","$","821","","$","525"],["Commercial real estate \u2014 owner occupied","230","","163","","373","","1,369","","2,699"],["Commercial and business lending","6,512","","878","","6,492","","2,190","","3,224"],["Commercial real estate \u2014 investor","1,067","","616","","12,793","","1,812","","3,767"],["Real estate construction","39","","1,620","","991","","97","","330"],["Commercial real estate lending","1,105","","2,236","","13,784","","1,909","","4,097"],["Total commercial","7,618","","3,114","","20,276","","4,099","","7,321"],["Residential mortgage","9,874","","6,169","","10,385","","9,274","","9,706"],["Auto finance","9,408","","11","","57","","\u2014","","\u2014"],["Home equity","5,607","","3,711","","4,802","","5,647","","6,049"],["Other consumer","1,610","","2,307","","1,543","","2,083","","2,269"],["Total consumer","26,499","","12,198","","16,786","","17,005","","18,024"],["Total accruing loans 30-89 days past due","$","34,117","","$","15,312","","$","37,062","","$","21,104","","$","25,345"],["Potential problem loans"],["Asset-based lending & equipment finance(d)","$","17,698","","$","17,697","","$","\u2014","","$","\u2014","","$","\u2014"],["Commercial and industrial","118,851","","122,562","","139,489","","110,308","","116,578"],["Commercial real estate \u2014 owner occupied","34,422","","26,723","","26,179","","19,889","","55,964"],["Commercial and business lending","170,971","","166,981","","165,668","","130,197","","172,542"],["Commercial real estate \u2014 investor","92,535","","106,138","","91,396","","29,449","","67,481"],["Real estate construction","970","","21,408","","19,046","","\u2014","","3,834"],["Commercial real estate lending","93,505","","127,546","","110,442","","29,449","","71,315"],["Total commercial","264,476","","294,527","","276,111","","159,646","","243,856"],["Residential mortgage","1,978","","2,214","","3,749","","1,451","","5,975"],["Home equity","197","","165","","2,068","","\u2014","","103"],["Total consumer","2,175","","2,379","","5,817","","1,451","","6,078"],["Total potential problem loans","$","266,651","","$","296,905","","$","281,928","","$","161,097","","$","249,935"]] [[/GREPCENT_TABLE]] (a) Primarily closed branches and other bank operated real estate facilities, pending disposition. (b) 2022 includes repossessed assets while 2019 includes a partial settlement of a debt by receiving units of ownership interest in an oil and gas limited liability company. (c) Does not include any restructured loans related to the COVID-19 pandemic in accordance with Section 4013 of the CARES Act. (d) Periods prior to 2022 do not include equipment finance. Nonaccrual loans: Nonaccrual loans are considered to be one indicator of potential future loan losses. See management’s accounting policy for nonaccrual loans in Note 1 Summary of Significant Accounting Policies and Note 4 Loans of the notes to consolidated financial statements for additional nonaccrual loan disclosures. See also sections Credit Risk and Allowance for Credit Losses on Loans. Accruing loans past due 90 days or more: Loans past due 90 days or more but still accruing interest are classified as such where the underlying loans are both well secured (the collateral value is sufficient to cover principal and accrued interest) and are in the process of collection. Restructured loans: Loans are considered restructured loans if concessions have been granted to borrowers that are experiencing financial difficulty. See also Note 4 Loans of the notes to consolidated financial statements for additional restructured loans disclosures. Potential problem loans: The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the appropriate level of the ACLL. Potential problem loans are generally defined by management to include loans rated as substandard by management that are collectively evaluated (not nonaccrual loans or accruing TDRs); however, there are circumstances present to create doubt as to the ability of the borrower to comply with present repayment terms. The decision of management to include performing loans in potential problem loans does not necessarily mean that the Corporation expects losses to occur, but that management recognizes a higher degree of risk associated with these loans. OREO: Management actively seeks to ensure OREO properties held are monitored to minimize the Corporation's risk of loss. 56 Foregone Loan Interest: The following table shows, for those loans accounted for on a nonaccrual basis and restructured loans for the years ended as indicated, the approximate gross interest that would have been recorded if the loans had been current in accordance with their original terms and the amount of interest income that was included in interest income for the period: Table 11 Foregone Loan Interest [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["($ in Thousands)","2022","2021","2020","2019","2018"],["Interest income in accordance with original terms","$","6,182","","$","6,537","","$","11,262","","$","12,032","","$","10,606"],["Interest income recognized","(3,830)","","(4,495)","","(6,891)","","(5,015)","","(5,500)"],["Reduction in interest income","$","2,352","","$","2,042","","$","4,371","","$","7,016","","$","5,106"]] [[/GREPCENT_TABLE]] Allowance for Credit Losses on Loans Credit risks within the loan portfolio are inherently different for each loan type. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and ongoing review of loan payment performance. Active asset quality administration, including early problem loan identification and timely resolution of problems, aids in the management of credit risk and the minimization of loan losses. Credit risk management for each loan type is discussed in the section entitled Credit Risk. See Note 4 Loans of the notes to consolidated financial statements for additional disclosures on the ACLL. To assess the appropriateness of the ACLL, the Corporation focuses on the evaluation of many factors, including but not limited to: evaluation of facts and issues related to specific loans, management’s ongoing review and grading of the loan portfolio, credit report refreshes, consideration of historical loan loss and delinquency experience on each portfolio category, trends in past due and nonaccrual loans, the level of potential problem loans, the risk characteristics of the various classifications of loan segments, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions and economic forecasts, the fair value of underlying collateral, funding assumptions on lines, and other qualitative and quantitative factors which could affect potential credit losses. The forecast the Corporation used for December 31, 2022 was the Moody's baseline scenario from November 2022, which was reviewed against the December 2022 baseline scenario with no material updates made, over a 2 year reasonable and supportable period with straight-line reversion to historical losses over the second year of the period. Assessing these factors involves significant judgment. Because each of the criteria used is subject to change, the ACLL is not necessarily indicative of the trend of future credit losses on loans in any particular segment. Therefore, management considers the ACLL a critical accounting estimate, see section Critical Accounting Estimates for additional information on the ACLL. See section Nonperforming Assets for a detailed discussion on asset quality. See also Note 4 Loans of the notes to consolidated financial statements for additional ACLL disclosures. Table 5 provides information on loan growth and period end loan composition, Table 10 provides additional information regarding NPAs, and Table 12 and Table 13 provide additional information regarding activity in the ACLL. The loan segmentation used in calculating the ACLL at December 31, 2022 and December 31, 2021 was generally comparable. The methodology to calculate the ACLL consists of the following components: a valuation allowance estimate is established for commercial and consumer loans determined by the Corporation to be individually evaluated, using discounted cash flows, estimated fair value of underlying collateral, and/or other data available. Loans are segmented for criticized loan pools by loan type as well as for non-criticized loan pools by loan type, primarily based on risk rating rates after considering loan type, historical loss and delinquency experience, credit quality, and industry classifications. Loans that have been criticized are considered to have a higher risk of default than non-criticized loans, as circumstances were present to support the lower loan grade, warranting higher loss factors. Additionally, management allocates ACLL to absorb losses that may not be provided for by the other components due to qualitative factors evaluated by management, such as limitations within the credit risk grading process, known current economic or business conditions that may not yet show in trends, industry or other concentrations with current issues that impose higher inherent risks than are reflected in the loss factors, and other relevant considerations. The total allowance is available to absorb losses from any segment of the loan portfolio. 57 Table 12 Allowance for Credit Losses on Loans [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["($ in Thousands)","2022","2021","2020","2019","2018"],["Allowance for loan losses"],["Balance at beginning of period","$","280,015","","$","383,702","","$","201,371","","$","238,023","","$","265,880"],["Cumulative effect of ASU 2016-13 adoption (CECL)","N/A","N/A","112,457","","N/A","N/A"],["Balance at beginning of period, adjusted","280,015","","383,702","","313,828","","238,023","","265,880"],["Provision for loan losses","34,000","","(80,000)","","164,457","","18,500","","2,500"],["Provision for loan losses recorded at acquisition","\u2014","","\u2014","","2,543","","\u2014","","\u2014"],["Gross up of allowance for PCD loans at acquisition","\u2014","","\u2014","","3,504","","\u2014","","\u2014"],["Loans charged off"],["Asset-based lending & equipment finance(a)","\u2014","","\u2014","","(6,650)","","(8,777)","","\u2014"],["Commercial and industrial","(4,491)","","(21,564)","","(73,670)","","(54,538)","","(30,837)"],["Commercial real estate \u2014 owner occupied","\u2014","","\u2014","","(419)","","(222)","","(1,363)"],["Commercial and business lending","(4,491)","","(21,564)","","(80,739)","","(63,537)","","(32,200)"],["Commercial real estate \u2014 investor","(50)","","(14,346)","","(22,920)","","\u2014","","(7,914)"],["Real estate construction","(48)","","(5)","","(19)","","(60)","","(298)"],["Commercial real estate lending","(98)","","(14,351)","","(22,938)","","(60)","","(8,212)"],["Total commercial","(4,588)","","(35,915)","","(103,677)","","(63,597)","","(40,412)"],["Residential mortgage","(567)","","(880)","","(1,867)","","(3,322)","","(1,627)"],["Auto finance","(1,041)","","(22)","","(7)","","\u2014","","(4)"],["Home equity","(587)","","(668)","","(1,719)","","(1,846)","","(3,236)"],["Other consumer","(3,363)","","(3,168)","","(4,783)","","(5,548)","","(5,257)"],["Total consumer","(5,558)","","(4,738)","","(8,376)","","(10,716)","","(10,124)"],["Total loans charged off","(10,146)","","(40,652)","","(112,053)","","(74,313)","","(50,536)"],["Recoveries of loans previously charged off"],["Asset-based lending & equipment finance(a)","\u2014","","412","","561","","519","","\u2014"],["Commercial and industrial","5,282","","8,152","","6,444","","11,356","","13,714"],["Commercial real estate \u2014 owner occupied","13","","120","","147","","2,795","","639"],["Commercial and business lending","5,295","","8,684","","7,151","","14,670","","14,353"],["Commercial real estate \u2014 investor","50","","3,162","","643","","31","","668"],["Real estate construction","106","","126","","49","","302","","446"],["Commercial real estate lending","156","","3,288","","692","","333","","1,114"],["Total commercial","5,451","","11,972","","7,844","","15,003","","15,467"],["Residential mortgage","908","","841","","500","","692","","1,271"],["Auto finance","98","","31","","25","","10","","10"],["Home equity","1,385","","2,854","","1,978","","2,599","","2,628"],["Other consumer","1,010","","1,267","","1,076","","858","","803"],["Total consumer","3,401","","4,993","","3,579","","4,158","","4,712"],["Total recoveries","8,852","","16,965","","11,422","","19,161","","20,179"],["Net (charge offs)","(1,294)","","(23,687)","","(100,631)","","(55,152)","","(30,358)"],["Balance at end of period","$","312,720","","$","280,015","","$","383,702","","$","201,371","","$","238,023"],["Allowance for unfunded commitments"],["Balance at beginning of period","$","39,776","","$","47,776","","$","21,907","","$","24,336","","$","24,400"],["Cumulative effect of ASU 2016-13 adoption (CECL)","N/A","N/A","18,690","","N/A","N/A"],["Balance at beginning of period, adjusted","39,776","","47,776","","40,597","","24,336","","24,400"],["Provision for unfunded commitments","(1,000)","","(8,000)","","7,000","","(2,500)","","(2,500)"],["Amount recorded at acquisition","\u2014","","\u2014","","179","","70","","2,436"],["Balance at end of period","$","38,776","","$","39,776","","$","47,776","","$","21,907","","$","24,336"],["Allowance for credit losses on loans","$","351,496","","$","319,791","","$","431,478","","$","223,278","","$","262,359"],["Provision for credit losses on loans","33,000","","(88,000)","","174,000","","16,000","","\u2014"]] [[/GREPCENT_TABLE]] 58 Table 12 Allowance for Credit Losses on Loans (continued) [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["($ in Thousands)","2022","2021","2020","2019","2018"],["Net loan (charge offs) recoveries"],["Asset-based lending & equipment finance(a)","$","\u2014","","$","412","","$","(6,090)","","$","(8,259)","","$","\u2014"],["Commercial and industrial","791","","(13,412)","","(67,226)","","(43,182)","","(17,124)"],["Commercial real estate \u2014 owner occupied","13","","120","","(272)","","2,573","","(724)"],["Commercial and business lending","804","","(12,880)","","(73,588)","","(48,868)","","(17,848)"],["Commercial real estate \u2014 investor","\u2014","","(11,184)","","(22,277)","","31","","(7,246)"],["Real estate construction","58","","121","","31","","243","","149"],["Commercial real estate lending","58","","(11,063)","","(22,246)","","274","","(7,098)"],["Total commercial","862","","(23,943)","","(95,834)","","(48,594)","","(24,946)"],["Residential mortgage","341","","(38)","","(1,367)","","(2,630)","","(355)"],["Auto finance","(943)","","9","","19","","10","","6"],["Home equity","798","","2,186","","259","","753","","(608)"],["Other consumer","(2,353)","","(1,901)","","(3,707)","","(4,690)","","(4,455)"],["Total consumer","(2,157)","","256","","(4,797)","","(6,558)","","(5,412)"],["Total net (charge offs)","$","(1,294)","","$","(23,687)","","$","(100,631)","","$","(55,152)","","$","(30,358)"],["Ratios"],["Allowance for credit losses on loans to total loans","1.22","%","1.32","%","1.76","%","0.98","%","1.14","%"],["Allowance for credit losses on loans to net charge offs","N/M","13.5x","4.3x","4.0x","8.6x"],["Loan Evaluation Method for ACLL"],["Individually evaluated for impairment","$","10,324","","$","15,194","","$","79,831","","$","14,026","","$","11,053"],["Collectively evaluated for impairment","341,172","","304,597","","351,646","","209,252","","251,306"],["Total ACLL","$","351,496","","$","319,791","","$","431,478","","$","223,278","","$","262,359"],["Loan Balance"],["Individually evaluated for impairment","$","76,577","","$","115,643","","$","259,497","","$","111,595","","$","138,543"],["Collectively evaluated for impairment","28,722,992","","24,109,306","","24,192,227","","22,709,845","","22,801,887"],["Total loan balance","$","28,799,569","","$","24,224,949","","$","24,451,724","","$","22,821,440","","$","22,940,429"]] [[/GREPCENT_TABLE]] (a) Periods prior to 2022 do not include equipment finance. Table 13 Net (Charge Offs) Recoveries(a) [[GREPCENT_TABLE]] [["","Years Ended December 31,"],["(In Basis Points)","2022","2021","2020","2019","2018"],["Net loan (charge offs) recoveries"],["Asset-based lending & equipment finance(b)","\u2014","","34","","(343)","","(301)","","\u2014"],["Commercial and industrial","1","","(17)","","(81)","","(60)","","(26)"],["Commercial real estate \u2014 owner occupied","\u2014","","1","","(3)","","28","","(9)"],["Commercial and business lending","1","","(14)","","(78)","","(58)","","(23)"],["Commercial real estate \u2014 investor","\u2014","","(26)","","(54)","","\u2014","","(18)"],["Real estate construction","\u2014","","1","","\u2014","","2","","1"],["Commercial real estate lending","\u2014","","(18)","","(38)","","1","","(13)"],["Total commercial","1","","(16)","","(63)","","(36)","","(19)"],["Residential mortgage","\u2014","","\u2014","","(2)","","(3)","","\u2014"],["Auto finance","(12)","","4","","14","","37","","36"],["Home equity","13","","34","","3","","9","","(6)"],["Other consumer","(79)","","(65)","","(117)","","(133)","","(120)"],["Total consumer","(2)","","\u2014","","(5)","","(7)","","(6)"],["Total net (charge offs)","\u2014","","(10)","","(41)","","(24)","","(13)"]] [[/GREPCENT_TABLE]] (a) Ratio of net charge offs to average loans by loan type. (b) Periods prior to 2022 do not include equipment finance. 59 Notable Contributions to the Change in the Allowance for Credit Losses on Loans •Total loans increased $4.6 billion, or 19%, from December 31, 2021, driven by increases across all major loan portfolios resulting from the Corporation's strategic initiatives. See also Note 4 Loans of the notes to consolidated financial statements for additional information on loans. •Potential problem loans decreased $30 million, or 10%, from December 31, 2021, largely driven by decreases in potential problem loans within the Corporation's real estate construction and CRE-investor portfolios, partially offset by an increase in potential problem loans within the CRE-owner occupied portfolio. See also Note 4 Loans of the notes to consolidated financial statements and section Nonperforming Assets for additional disclosures on the changes in asset quality. •Total nonaccrual loans decreased $19 million, or 15%, from December 31, 2021, primarily driven by a decrease in nonaccrual loans within the Corporation's CRE-investor portfolio, partially offset by an increase in nonaccrual loans within the commercial and industrial portfolio. See also Note 4 Loans of the notes to consolidated financial statements and section Nonperforming Assets for additional disclosures on the changes in asset quality. •For the year ended December 31, 2022, net charge offs decreased $22 million, or 95%, from December 31, 2021, primarily driven by decreased charge off amounts in the Corporation's commercial and industrial and CRE-investor portfolios. See Tables 12 and 13 for additional information regarding the activity in the ACLL. Management believes the level of ACLL to be appropriate at December 31, 2022. Consolidated net income and stockholders’ equity could be affected if management’s estimate of the ACLL is subsequently materially different, requiring additional or less provision for credit losses to be recorded. Management carefully considers numerous detailed and general factors, its assumptions, and the likelihood of materially different conditions that could alter its assumptions. While management uses currently available information to recognize losses on loans, future adjustments to the ACLL may be necessary based on newly received appraisals, updated commercial customer financial statements, rapidly deteriorating customer cash flow, and changes in economic conditions that affect our customers. Additionally, larger credit relationships do not inherently create more risk, but can create wider fluctuations in net charge offs and asset quality measures. As an integral part of their examination processes, various federal and state regulatory agencies also review the ACLL. These agencies may require additions to the ACLL or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examinations. 60 Investment Securities Portfolio Management of the investment securities portfolio involves the maximization of income while actively monitoring the portfolio's liquidity, market risk, quality of the investment securities, and its role in balance sheet and capital management. The Corporation classifies its investment securities as AFS, HTM, or equity securities on the consolidated balance sheets at the time of purchase or adoption of a new accounting standard. Securities classified as AFS may be sold from time to time in order to help manage interest rate risk, liquidity, credit quality, capital levels, or to take advantage of relative value opportunities in the marketplace. Investment securities classified as AFS and equity are carried at fair value on the consolidated balance sheets, while investment securities classified as HTM are carried at amortized cost on the consolidated balance sheets. Table 14 Investment Securities Portfolio [[GREPCENT_TABLE]] [["","At December 31,"],["($ in Thousands)","2022","% of Total","2021","% of Total","2020","% of Total"],["AFS investment securities"],["Amortized cost"],["U.S. Treasury securities","$","124,441","","4","%","$","124,291","","3","%","$","26,436","","1","%"],["Agency securities","15,000","","1","%","15,000","","\u2014","%","24,985","","1","%"],["Obligations of state and political subdivisions (municipal securities)","235,693","","8","%","381,517","","9","%","425,057","","14","%"],["Residential mortgage-related securities"],["FNMA / FHLMC","1,820,642","","61","%","2,709,399","","62","%","1,448,806","","48","%"],["GNMA","502,537","","17","%","66,189","","2","%","231,364","","8","%"],["Private-label","\u2014","","\u2014","%","332,028","","8","%","\u2014","","\u2014","%"],["Commercial mortgage-related securities"],["FNMA / FHLMC","19,038","","1","%","357,240","","8","%","19,654","","1","%"],["GNMA","115,031","","4","%","165,439","","4","%","511,429","","17","%"],["Asset backed securities"],["FFELP","157,138","","5","%","177,974","","4","%","329,030","","11","%"],["SBA","4,512","","\u2014","%","6,594","","\u2014","%","8,637","","\u2014","%"],["Other debt securities","3,000","","\u2014","%","3,000","","\u2014","%","3,000","","\u2014","%"],["Total amortized cost","$","2,997,032","","100","%","$","4,338,671","","100","%","$","3,028,399","","100","%"],["Fair value"],["U.S. Treasury securities","$","109,378","","4","%","$","122,957","","3","%","$","26,531","","1","%"],["Agency securities","13,532","","\u2014","%","14,897","","\u2014","%","25,038","","1","%"],["Obligations of state and political subdivisions (municipal securities)","230,714","","8","%","400,457","","9","%","450,662","","15","%"],["Residential mortgage-related securities"],["FNMA / FHLMC","1,604,610","","59","%","2,691,879","","62","%","1,461,241","","47","%"],["GNMA","497,596","","18","%","67,780","","2","%","235,537","","8","%"],["Private-label","\u2014","","\u2014","%","329,724","","8","%","\u2014","","\u2014","%"],["Commercial mortgage-related securities"],["FNMA / FHLMC","17,142","","1","%","350,623","","8","%","22,904","","1","%"],["GNMA","110,462","","4","%","166,799","","4","%","524,756","","17","%"],["Asset backed securities"],["FFELP","151,191","","6","%","177,325","","4","%","327,189","","11","%"],["SBA","4,477","","\u2014","%","6,580","","\u2014","%","8,584","","\u2014","%"],["Other debt securities","2,922","","\u2014","%","2,994","","\u2014","%","3,000","","\u2014","%"],["Total fair value and carrying value","$","2,742,025","","100","%","$","4,332,015","","100","%","$","3,085,441","","100","%"],["Net unrealized holding gains (losses)","$","(255,007)","","","$","(6,656)","","","$","57,043"]] [[/GREPCENT_TABLE]] 61 Table 14 Investment Securities Portfolio (continued) [[GREPCENT_TABLE]] [["","At December 31,"],["($ in Thousands)","2022","% of Total","2021","% of Total","2020","% of Total"],["HTM investment securities"],["Amortized cost"],["U.S. Treasury securities","$","999","","\u2014","%","$","1,000","","\u2014","%","$","999","","\u2014","%"],["Obligations of state and political subdivisions (municipal securities)","1,732,351","","44","%","1,628,759","","73","%","1,441,900","","77","%"],["Residential mortgage-related securities"],["FNMA / FHLMC","961,231","","24","%","34,347","","2","%","54,599","","3","%"],["GNMA","52,979","","1","%","48,053","","2","%","114,553","","6","%"],["Private label","364,728","","9","%","\u2014","","\u2014","%","\u2014","","\u2014","%"],["Commercial mortgage-related securities"],["FNMA/FHLMC","778,796","","20","%","425,937","","19","%","11,211","","1","%"],["GNMA","69,369","","2","%","100,907","","5","%","255,742","","14","%"],["Total amortized cost and carrying value","$","3,960,451","","100","%","$","2,239,003","","100","%","$","1,879,005","","100","%"],["Fair value"],["U.S. Treasury securities","$","936","","\u2014","%","$","1,001","","\u2014","%","$","1,024","","\u2014","%"],["Obligations of state and political subdivisions (municipal securities)","1,551,647","","46","%","1,739,988","","74","%","1,575,445","","78","%"],["Residential mortgage-related securities"],["FNMA / FHLMC","816,771","","24","%","36,139","","2","%","57,490","","3","%"],["GNMA","49,628","","1","%","49,631","","2","%","118,813","","6","%"],["Private label","303,505","","9","%","\u2014","","\u2014","%","\u2014","","\u2014","%"],["Commercial mortgage-related securities"],["FNMA/FHLMC","615,839","","18","%","419,400","","18","%","11,211","","1","%"],["GNMA","62,691","","2","%","102,506","","4","%","264,960","","13","%"],["Total fair value","$","3,401,018","","100","%","$","2,348,664","","100","%","$","2,028,943","","100","%"],["Net unrealized holding gains (losses)","$","(559,433)","","","$","109,662","","","$","149,938"],["Equity securities"],["Equity securities carrying value and fair value","$","25,216","","100","%","$","18,352","","100","%","$","15,106","","100","%"]] [[/GREPCENT_TABLE]] At December 31, 2022, the Corporation’s investment securities portfolio did not contain securities of any single non-government or non-GSE issuer that were payable from and secured by the same source of revenue or taxing authority where the aggregate carrying value of such securities exceeded 5% of stockholders’ equity. During the first quarter of 2022, the Corporation redesignated approximately $1.6 billion of mortgage-related securities from AFS to HTM. The reclassification of these investment securities was accounted for at fair value. Management elected to transfer these investment securities as the Corporation has the positive intent and ability to hold these investment securities to maturity. See Note 22 Accumulated Other Comprehensive Income (Loss) of the notes to consolidated financial statements for additional information on the unrealized losses on investment securities transferred from AFS to HTM. The Corporation did not recognize any credit-related write-downs to the allowance for credit losses on investments during 2022, 2021, or 2020. See Note 1 Summary of Significant Accounting Policies for management's accounting policy for investment securities and Note 3 Investment Securities of the notes to consolidated financial statements for additional investment securities disclosures. AFS and HTM Securities U.S. Treasury Securities: U.S. Treasury Securities, including Treasury bills, notes, and bonds, are debt obligations issued by the U.S. Department of the Treasury and are backed by the full faith and credit of the U.S. government. Municipal Securities: The municipal securities relate to various state and political subdivisions and school districts. The municipal securities portfolio is regularly assessed for credit quality and deterioration. Agency Residential and Agency Commercial Mortgage-Related Securities: Residential and commercial mortgage-related securities include predominantly GNMA, FNMA, and FHLMC MBS and CMOs. The fair value of these mortgage-related securities is subject to inherent risks, such as prepayment risk and interest rate changes. The Corporation regularly assesses the valuation of these securities. 62 Private Label Residential Mortgage-Related Securities: Private label residential mortgage-related securities are the most senior AAA-rated tranche CMO securities issued by a non-agency sponsor and collateralized by Prime Jumbo residential mortgage loans. AFS Securities Agency Securities: Agency securities are debt obligations that are issued by a U.S. GSE or other federally related entity, and have an implied guarantee from the U.S. government. FFELP Asset Backed Securities: FFELP asset backed securities are collateralized with government guaranteed student loans. SBA Asset Backed Securities: SBA asset backed securities are securities whose underlying assets are loans from the SBA. These loans are backed by the U.S. government. Other Debt Securities: Other debt securities are primarily comprised of debt securities that mature within 3 years and have a rating of A. Equity Securities Equity Securities with Readily Determinable Fair Values: The Corporation's portfolio of equity securities with readily determinable fair values is primarily comprised of CRA Qualified Investment mutual funds and other mutual funds. Equity Securities without Readily Determinable Fair Values: The Corporation's portfolio of equity securities without readily determinable fair values primarily consists of Visa Class B restricted shares that the Corporation received in 2008 as part of Visa's initial public offering. Regulatory Stock (FHLB and Federal Reserve System) In addition to the AFS, HTM, and equity investment securities noted above, the Corporation is also required to hold certain regulatory stock. The Corporation is required to maintain Federal Reserve Bank stock and FHLB stock as member banks of both the Federal Reserve System and the FHLB, and in amounts as required by these institutions. See Note 3 Investment Securities of the notes to consolidated financial statements for additional information on the regulatory stock. 63 Table 15 Investment Securities Portfolio Maturity Distribution(a) [[GREPCENT_TABLE]] [["","December 31, 2022"],["($ in Thousands)","Amortized Cost","Fair Value","Weighted Average Yield(b)"],["AFS securities"],["U. S. Treasury securities"],["After one but within five years","$","34,631","","$","31,224","","0.84","%"],["After five years but within ten years","89,810","","78,154","","1.22","%"],["Total U. S. Treasury securities","$","124,441","","$","109,378","","1.11","%"],["Agency securities"],["After one but within five years","$","15,000","","$","13,532","","0.91","%"],["Total agency securities","$","15,000","","$","13,532","","0.91","%"],["Obligations of state and political subdivisions (municipal securities)"],["Within one year","$","5,245","","$","5,238","","3.91","%"],["After one but within five years","35,340","","34,586","","3.12","%"],["After five years but within ten years","158,643","","155,411","","3.27","%"],["After ten years","36,465","","35,480","","4.28","%"],["Total obligations of state and political subdivisions (municipal securities)","$","235,693","","$","230,714","","3.42","%"],["Agency residential mortgage-related securities"],["Within one year","$","7,585","","$","7,282","","2.38","%"],["After one but within five years","1,585,136","","1,461,025","","2.58","%"],["After five years but within ten years","730,459","","633,900","","1.62","%"],["Total agency residential mortgage-related securities","$","2,323,180","","$","2,102,207","","2.28","%"],["Agency commercial mortgage-related securities"],["Within one year","$","22,252","","$","21,734","","2.48","%"],["After one but within five years","92,779","","88,728","","3.02","%"],["After five years but within ten years","19,038","","17,142","","4.08","%"],["Total agency commercial mortgage-related securities","$","134,069","","$","127,604","","3.08","%"],["Asset backed securities"],["Within one year","$","130","","$","129","","3.92","%"],["After one but within five years","96,699","","93,283","","5.06","%"],["After five years but within ten years","64,821","","62,256","","5.09","%"],["Total asset backed securities","$","161,650","","$","155,668","","5.07","%"],["Other debt securities"],["Within one year","$","1,000","","$","992","","1.64","%"],["After one but within five years","2,000","","1,930","","2.16","%"],["Total other debt securities","$","3,000","","$","2,922","","1.99","%"],["Total AFS securities","$","2,997,032","","$","2,742,025","","2.50","%"]] [[/GREPCENT_TABLE]] 64 Table 15 Investment Securities Portfolio Maturity Distribution (continued) (a) [[GREPCENT_TABLE]] [["","December 31, 2022"],["($ in Thousands)","Amortized Cost","Fair Value","Weighted Average Yield(b)"],["HTM securities"],["U. S. Treasury securities"],["After one but within five years","$","999","","$","936","","1.20","%"],["Total U. S. Treasury securities","$","999","","$","936","","1.20","%"],["Obligations of state and political subdivisions (municipal securities)"],["Within one year","$","17,660","","$","17,621","","3.49","%"],["After one but within five years","29,137","","28,905","","3.52","%"],["After five years but within ten years","156,937","","154,046","","3.78","%"],["After ten years","1,528,616","","1,351,075","","3.74","%"],["Total obligations of state and political subdivisions (municipal securities)","$","1,732,351","","$","1,551,647","","3.74","%"],["Agency residential mortgage-related securities"],["Within one year","$","892","","$","848","","7.85","%"],["After one but within five years","29,665","","27,209","","2.82","%"],["After five years but within ten years","85,170","","72,175","","2.41","%"],["After ten years","898,483","","766,167","","2.14","%"],["Total agency residential mortgage-related securities","$","1,014,209","","$","866,399","","2.19","%"],["Private-label residential mortgage-related securities"],["After five years but within ten years","$","364,728","","$","303,505","","2.36","%"],["Total private-label residential mortgage-related securities","$","364,728","","$","303,505","","2.36","%"],["Agency commercial mortgage-related securities"],["Within one year","$","51","","$","51","","2.40","%"],["After one but within five years","149,259","","126,011","","1.76","%"],["After five years but within ten years","550,311","","443,290","","1.90","%"],["After ten years","148,544","","109,179","","2.11","%"],["Total agency commercial mortgage-related securities","$","848,165","","$","678,531","","1.91","%"],["Total HTM securities","$","3,960,451","","$","3,401,018","","2.82","%"],["Equity securities"],["Equity securities with readily determinable fair values","$","5,991","","$","5,991","","\u2014","%"],["Equity securities without readily determinable fair values","19,225","","19,225","","\u2014","%"],["Total equity securities","$","25,216","","$","25,216","","\u2014","%"]] [[/GREPCENT_TABLE]] (a) Expected maturities will differ from contractual maturities, as borrowers may have the right to call or repay obligations with or without call or prepayment penalties. (b) Yields on tax-exempt securities are computed on a fully tax-equivalent basis using a tax rate of 21% and are net of the effects of certain disallowed interest deductions. 65 Analysis of Deposits and Funding Deposits and Customer Funding The following table summarizes the composition of our deposits and customer funding: Table 16 Period End Deposit and Customer Funding Composition [[GREPCENT_TABLE]] [["","As of December 31,"],["","2022","2021","2020"],["($ in Thousands)","Amount","% of Total","Amount","% of Total","Amount","% of Total"],["Noninterest-bearing demand","$","7,760,811","","26","%","$","8,504,077","","30","%","$","7,661,728","","29","%"],["Savings","4,604,848","","15","%","4,410,198","","15","%","3,650,085","","14","%"],["Interest-bearing demand","7,100,727","","24","%","7,019,782","","25","%","6,090,869","","23","%"],["Money market","8,239,610","","28","%","7,185,111","","25","%","7,322,769","","28","%"],["Brokered CDs","541,916","","2","%","\u2014","","\u2014","%","\u2014","","\u2014","%"],["Other time deposits","1,388,242","","5","%","1,347,262","","5","%","1,757,030","","7","%"],["Total deposits","29,636,154","","100","%","28,466,430","","100","%","26,482,481","","100","%"],["Other customer funding(a)","261,767","","","354,142","","","245,247"],["Total deposits and other customer funding","$","29,897,921","","","$","28,820,572","","","$","26,727,727"],["Network transaction deposits(b)","$","979,003","","","$","766,965","","","$","1,197,093"],["Net deposits and other customer funding(c)","$","28,377,001","","","$","28,053,607","","","$","25,530,634"]] [[/GREPCENT_TABLE]] (a) Includes repurchase agreements and commercial paper. (b) Included above in interest-bearing demand and money market. (c) Total deposits and other customer funding, excluding brokered CDs and network transaction deposits. •Total deposits, which are the Corporation's largest source of funds, increased $1.2 billion, or 4%, from December 31, 2021. •Time deposits, which include brokered CDs and other time deposits, increased $583 million, or 43%, from December 31, 2021, due to the addition of brokered CDs during the fourth quarter of 2022. •Included in the above amounts were network deposits, primarily sourced from other financial institutions and intermediaries. These account for 3% of the Corporation's total deposits at December 31, 2022. Network deposits increased $212 million, or 28%, from December 31, 2021. Table 17 Maturity Distribution – Uninsured Time Deposits [[GREPCENT_TABLE]] [["($ in Thousands)","December 31, 2022"],["Three months or less","$","101,614"],["Over three months through six months","41,141"],["Over six months through twelve months","19,760"],["Over twelve months","13,441"],["Total","$","175,956"]] [[/GREPCENT_TABLE]] Selected period end deposit information is detailed in Note 8 Deposits of the notes to consolidated financial statements, including a maturity distribution of all time deposits at December 31, 2022. See Table 1 for additional information on average deposit balances and deposit rates. Other Funding Sources Short-Term Funding: Short-term funding is comprised of short-term FHLB advances (with original contractual maturities less than one year), federal funds purchased, securities sold under agreements to repurchase, and commercial paper. Many short-term funding sources are expected to be reissued and, therefore, do not represent an immediate need for cash. Short-term funding sources at December 31, 2022 were $3.7 billion, an increase of $3.4 billion from December 31, 2021, driven by a $3.1 billion increase in short-term FHLB advances to fund loan growth. Long-Term Funding: Long-term funding is comprised of long-term FHLB advances (with original contractual maturities greater than one year), subordinated notes, and finance leases. Long-term funding at December 31, 2022 was $1.4 billion, a decrease of $427 million, or 23%, from December 31, 2021, driven by the prepayment of $400 million in long-term FHLB advances during the first quarter of 2022 with no prepayment fee. 66 See Note 9 Short and Long-Term Funding of the notes to consolidated financial statements for additional information on short-term and long-term funding. See Table 1 for additional information on average funding and rates. Contractual Obligations, Commitments, Off-Balance Sheet Arrangements, and Contingent Liabilities The following table summarizes significant contractual obligations and other commitments at December 31, 2022, at those amounts contractually due to the recipient, including any unamortized premiums or discounts, hedge basis adjustments, or other similar carrying value adjustments. Table 18 Contractual Obligations and Other Commitments [[GREPCENT_TABLE]] [["($ in Thousands)","Note Reference","One Year or Less","One to Three Years","Three to Five Years","Over Five Years","Total"],["Time deposits","8","$","1,545,286","","$","349,633","","$","35,233","","$","5","","$","1,930,158"],["Short-term funding","9","605,937","","\u2014","","\u2014","","\u2014","","605,937"],["FHLB advances","9","3,125,476","","393,121","","605,366","","195,899","","4,319,861"],["Other long-term funding","9","86","","247,779","","182","","23","","248,071"],["Operating leases","7","5,517","","9,239","","7,521","","6,080","","28,357"],["Total","","$","5,282,303","","$","999,771","","$","648,302","","$","202,006","","$","7,132,383"]] [[/GREPCENT_TABLE]] The Corporation also has obligations under its retirement plans, derivatives, and lending-related commitments as described in Note 12 Retirement Plans, Note 14 Derivative and Hedging Activities, and Note 16 Commitments, Off-Balance Sheet Arrangements, and Legal Proceedings of the notes to consolidated financial statements, respectively. Further discussion of the nature of each obligation is included in the referenced note to the consolidated financial statements. Liquidity The objective of liquidity risk management is to ensure that the Corporation has the ability to generate sufficient cash or cash equivalents in a timely and cost effective manner to satisfy the cash flow requirements of depositors and borrowers and to meet its other commitments as they become due. The Corporation’s liquidity risk management process is designed to identify, measure, and manage the Corporation’s funding and liquidity risk to meet its daily funding needs in the ordinary course of business, as well as to address expected and unexpected changes in its funding requirements. The Corporation engages in various activities to manage its liquidity risk, including diversifying its funding sources, stress testing, and holding readily-marketable assets which can be used as a source of liquidity, if needed. The Corporation performs dynamic scenario analysis in accordance with industry best practices. Measures have been established to ensure the Corporation has sufficient high quality short-term liquidity to meet cash flow requirements under stressed scenarios. In addition, the Corporation also reviews static measures such as deposit funding as a percent of total assets and liquid asset levels. Strong capital ratios, credit quality, and core earnings are also essential to maintaining cost effective access to wholesale funding markets. At December 31, 2022, the Corporation was in compliance with its internal liquidity objectives and had sufficient asset-based liquidity to meet its obligations even under a stressed scenario. The Corporation maintains diverse and readily available liquidity sources, including: •Investment securities, which are an important tool to the Corporation’s liquidity objective and can be pledged or sold to enhance liquidity, if necessary. See Note 3 Investment Securities of the notes to consolidated financial statements for additional information on the Corporation's investment securities portfolio, including pledged investment securities. •Pledgeable loan collateral, which is eligible collateral with both the Federal Reserve Bank and the FHLB under established lines of credit. Based on the amount of collateral pledged, the FHLB established a collateral value from which the Bank may draw advances, and issue letters of credit in favor of public fund depositors, against the collateral. As of December 31, 2022, the Bank had $958 million available for future funding. The Federal Reserve Bank also establishes a collateral value of assets to support borrowings from the discount window. As of December 31, 2022, the Bank had $607 million available for discount window borrowings. •A $200 million Parent Company commercial paper program, of which $21 million was outstanding at December 31, 2022. •Dividends and service fees from subsidiaries, as well as the proceeds from issuance of capital, which are also funding sources for the Parent Company. 67 •Acquisition related equity issuances by the Parent Company; the Corporation has filed a shelf registration statement with the SEC under which the Parent Company may, from time to time, offer shares of the Corporation’s common stock in connection with acquisitions of businesses, assets, or securities of other companies. •Other issuances by the Parent Company; the Corporation maintains on file with the SEC a universal shelf registration statement, under which the Parent Company may offer the following securities, either separately or in units: debt securities, preferred stock, depositary shares, common stock, and warrants. •Bank issuances; the Bank may also issue institutional CDs, network transaction deposits, and brokered CDs. •Global Bank Note Program issuances; the Bank has implemented a program pursuant to which it may from time to time offer up to $2.0 billion aggregate principal amount of its unsecured senior and subordinated notes. Based on contractual obligations and ongoing operations, the Corporation's sources of liquidity are sufficient to meet present and future liquidity needs. See Table 18 for information about the Corporation's contractual obligations and other commitments. Credit ratings impact the Corporation’s ability to issue debt securities and the cost to borrow money. Adverse changes in credit ratings impact not only the ability to raise funds in the capital markets but also the cost of these funds. For the year ended December 31, 2022, net cash provided by operating and financing activities was $847 million and $4.0 billion, respectively, while investing activities used net cash of $5.3 billion, for a net decrease in cash and cash equivalents of $404 million since year-end 2021. During 2022, total assets increased to $39.4 billion, up $4.3 billion compared to year-end 2021, primarily due to an increase of $4.6 billion in loans as a result of the execution of our strategic initiatives. On the funding side, deposits increased $1.2 billion, mainly driven by increases in money markets and time deposits of $1.1 billion and $583 million, respectively. Additionally, FHLB advances were up $2.7 billion to fund the loan growth that resulted from the execution of the strategic initiatives. For the year ended December 31, 2021, net cash provided by operating and financing activities was $530 million and $1.4 billion, respectively, while investing activities used net cash of $1.6 billion, for a net increase in cash and cash equivalents of $309 million since year-end 2020. During 2021, total assets increased to $35.1 billion, up $1.7 billion compared to year-end 2020, primarily due to an increase of $1.6 billion in total investment securities, which was driven by the deployment of cash into higher yielding assets. On the funding side, deposits increased $2.0 billion, mainly driven by increases in demand deposits and savings deposits of $1.8 billion and $760 million, respectively. Additionally, total short and long-term funding was down $210 million. The decrease in funding was primarily driven by the redemption of the Bank's senior notes on July 13, 2021.