COMMUNITY FINANCIAL SYSTEM, INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) primarily reviews the financial condition and results of operations of Community Bank System, Inc. (the “Company” or “CBSI”) as of and for the three and nine months ended September 30, 2021 and 2020, although in some circumstances the second and first quarters of 2021 are also discussed in order to more fully explain recent trends. The following discussion and analysis should be read in conjunction with the Company’s Consolidated Financial Statements and related notes that appear on pages 3 through 35. All references in the discussion of the financial condition and results of operations refer to the consolidated position and results of the Company and its subsidiaries taken as a whole. Unless otherwise noted, the term “this year” and equivalent terms refers to results in calendar year 2021, “last year” and equivalent terms refer to calendar year 2020, “third quarter” refers to the three months ended September 30, 2021, “YTD” refers to the nine months ended September 30, 2021, and earnings per share (“EPS”) figures refer to diluted EPS. This MD&A contains certain forward-looking statements with respect to the financial condition, results of operations, and business of the Company. These forward-looking statements involve certain risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements are set herein under the caption, “Forward-Looking Statements,” on page 57. Critical Accounting Policies As a result of the complex and dynamic nature of the Company’s business, management must exercise judgment in selecting and applying the most appropriate accounting policies for its various areas of operations. The policy decision process not only ensures compliance with the current accounting principles generally accepted in the United States of America (“GAAP”), but also reflects management’s discretion with regard to choosing the most suitable methodology for reporting the Company’s financial performance. It is management’s opinion that the accounting estimates covering certain aspects of the business have more significance than others due to the relative importance of those areas to overall performance, or the level of subjectivity in the selection process. These estimates affect the reported amounts of assets and liabilities as well as disclosures of revenues and expenses during the reporting period. Actual results could meaningfully differ from these estimates. Management believes that the critical accounting estimates include the allowance for credit losses, actuarial assumptions associated with the pension, post-retirement and other employee benefit plans, the provision for income taxes, investment valuation, the carrying value of goodwill and other intangible assets, and acquired loan valuations. A summary of the accounting policies used by management is disclosed in Note A, “Summary of Significant Accounting Policies” on pages 79-92 of the most recent Form 10-K (fiscal year ended December 31, 2020) filed with the Securities and Exchange Commission (“SEC”) on March 1, 2021. A summary of new accounting policies used by management is disclosed in Note C, “Accounting Policies” on pages 13-14 of this Form 10-Q. Supplemental Reporting of Non-GAAP Results of Operations The Company also provides supplemental reporting of its results on an “operating,” “adjusted” and “tangible” basis, from which it excludes the after-tax effect of amortization of core deposit and other intangible assets (and the related goodwill, core deposit intangible and other intangible asset balances, net of applicable deferred tax amounts), accretion on non-impaired purchased loans, expenses associated with acquisitions,litigation accrual expenses and the unrealized gain (loss) on equity securities. Although these items are non-GAAP measures, the Company’s management believes this information helps investors and analysts measure underlying core performance and improves comparability to other organizations that have not engaged in acquisitions. In addition, the Company provides supplemental reporting for “adjusted pre-tax, pre-provision net revenues,” which excludes the provision for credit losses, acquisition expenses, litigation accrual expenses and the unrealized gain (loss) on equity securities from income before income taxes. Although adjusted pre-tax, pre-provision net revenue is a non-GAAP measure, the Company’s management believes this information helps investors and analysts measure and compare the Company’s performance through a credit cycle by excluding the volatility in the provision for credit losses associated with the adoption of CECL and the economic uncertainty caused by the COVID-19 pandemic. Earnings per share were $0.83 in the third quarter of 2021, up $0.04, or 5.1%, from the third quarter of 2020. Diluted adjusted net earnings per share, a non-GAAP measure, were $0.87 in the third quarter of 2021, compared to $0.88 in the third quarter of 2020, a $0.01 per share, or 1.1%, decrease. Adjusted pre-tax, pre-provision net revenue, a non-GAAP measure, was $1.04 per share in the third quarter of 2021, down $0.06, or 5.5%, from the third quarter of 2020. Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 11. 36 Table of Contents Executive Summary The Company’s business philosophy is to operate as a diversified financial services enterprise providing a broad array of banking and other financial services to retail, commercial and municipal customers. The Company’s banking subsidiary is Community Bank, N.A. (the “Bank” or “CBNA”). The Company’s Benefit Plans Administrative Services, Inc. (“BPAS”) subsidiary is a leading provider of employee benefits administration, trust services, collective investment fund administration and actuarial consulting services to customers on a national scale. In addition, the Company offers comprehensive financial planning, insurance and wealth management services through its Community Bank Wealth Management Group and OneGroup NY, Inc. (“OneGroup”) operating units. The Company’s core operating objectives are: (i) optimize the branch network and digital banking delivery systems, primarily through disciplined acquisition strategies and divestitures/consolidations, (ii) build profitable loan and deposit volume using both organic and acquisition strategies, (iii) manage an investment securities portfolio to complement the Company’s loan and deposit strategies and optimize interest rate risk, yield and liquidity, (iv) increase the noninterest component of total revenues through development of banking-related fee income, growth in existing financial services business units, and the acquisition of additional financial services and banking businesses, and (v) utilize technology to deliver customer-responsive products and services and improve efficiencies. Significant factors reviewed by management to evaluate achievement of the Company’s operating objectives and its operating results and financial condition include, but are not limited to: net income and earnings per share; return on assets and equity; components of net interest margin; noninterest revenues; noninterest expenses; asset quality; loan and deposit growth; capital management; performance of individual banking and financial services units; performance of specific product lines and customers; liquidity and interest rate sensitivity; enhancements to customer products and services and their underlying performance characteristics; technology advancements; market share; peer comparisons; and the performance of recently acquired businesses. On August 2, 2021, the Company, through its subsidiary OneGroup, completed its acquisition of certain assets of Thomas Gregory Associates Insurance Brokers, Inc. (“TGA”), a specialty-lines insurance broker based in the Boston, Massachusetts area for $13.1 million, including $11.6 million in cash and contingent consideration valued at $1.5 million. The Company recorded a $10.9 million customer list intangible asset and $2.2 million of goodwill in conjunction with the acquisition. On July 1, 2021, the Company, through its subsidiary Benefit Plans Administrative Services, Inc., completed its acquisition of Fringe Benefits Design of Minnesota, Inc. (“FBD”), a provider of retirement plan administration and benefit consulting services with offices in Minnesota and South Dakota, for $16.7 million, including $15.3 million in cash and contingent consideration valued at $1.4 million. The Company recorded a $14.0 million customer list intangible asset and $2.1 million of goodwill in conjunction with the acquisition. On June 1, 2021, the Company, through its subsidiary OneGroup, completed its acquisition of certain assets of NuVantage Insurance Corp. (“NuVantage”), an insurance agency headquartered in Melbourne, Florida. The Company paid $2.9 million in cash and recorded a $1.4 million customer list intangible asset and $1.5 million of goodwill in conjunction with the acquisition. On June 12, 2020, the Company completed its merger with Steuben Trust Corporation (“Steuben”), parent company of Steuben Trust Company, a New York State chartered bank headquartered in Hornell, New York, for $98.6 million in Company stock and cash, comprised of $21.6 million in cash and the issuance of 1.36 million shares of common stock. The merger extended the Company’s footprint into two new counties in Western New York State, and enhanced the Company’s presence in four Western New York State counties in which it had already operated. In connection with the merger, the Company added 11 full-service offices to its branch service network and acquired $607.8 million of assets, including $339.7 million of loans and $180.5 million of investment securities, as well as $516.3 million of deposits. Goodwill of $20.0 million, a $2.9 million core deposit intangible asset and a $1.2 million customer list intangible asset were recognized as a result of the merger. Third quarter and YTD net income increased compared to the equivalent 2020 timeframes by $2.5 million, or 5.9%, and $27.9 million, or 23.6%, respectively. Earnings per share of $0.83 for the third quarter of 2021 was $0.04 more than the third quarter of 2020, and 2021 YTD earnings per share of $2.68 was $0.46 higher than 2020 YTD earnings per share. The increases in net income and earnings per share were driven by a significant decrease in the provision for credit losses, reflective of a more favorable economic outlook, improvements in asset quality metrics and a significant increase in noninterest revenues. 37 Table of Contents Third quarter and YTD net income adjusted to exclude expenses associated with acquisitions, acquisition-related provision for credit losses, litigation accrual expenses and the unrealized gain (loss) on equity securities (“operating net income”), a non-GAAP measure, decreased $0.5 million, or 1.0%, as compared to the third quarter of 2020 and increased $19.4 million, or 15.3%, compared to September YTD 2020. Earnings per share adjusted to exclude expenses associated with acquisitions, acquisition-related provision for credit losses, litigation accrual expenses and the unrealized gain (loss) on equity securities (“operating earnings per share”), a non-GAAP measure, of $0.83 for the third quarter decreased $0.02 compared to the third quarter of 2020. Operating earnings per share of $2.68 for the first nine months of 2021 increased $0.30 compared to the prior year period. Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 11. Net income adjusted to exclude income taxes, provision for credit losses, expenses associated with acquisitions, litigation accrual expenses and the unrealized gain (loss) on equity securities (“adjusted pre-tax, pre-provision net revenue”), a non-GAAP measure, of $56.5 million for the third quarter decreased $2.9 million, or 4.9%, as compared to the third quarter of 2020. Adjusted pre-tax, pre-provision net revenue of $173.8 million for the first nine months of 2021 increased $1.6 million, or 0.9%, as compared to the first nine months of 2020. Earnings per share adjusted to exclude income taxes, provision for credit losses, expenses associated with acquisitions, litigation accrual expenses and the unrealized gain (loss) on equity securities (“adjusted pre-tax, pre-provision net revenue per share”), a non-GAAP measure, of $1.04 for the third quarter of 2021 was $0.06 lower than the third quarter of 2020, and 2021 YTD adjusted pre-tax, pre-provision net revenue per share of $3.19 was $0.04 lower than the prior YTD period. The decrease in adjusted pre-tax, pre-provision net revenue per share compared to the third quarter of 2020 was driven by an increase in operating expenses, an increase in diluted weighted average common shares and a decrease in net interest income, partially offset by an increase in noninterest revenues. Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 11. Loans decreased on an ending and average basis as compared to the prior year third quarter, primarily due to decreases in U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loan balances driven by forgiveness granted by the SBA, while deposits increased on an ending and average basis as compared to the prior year third quarter primarily due to large inflows of funds from government stimulus and PPP lending programs. Interest rates on loans, investments and deposits have decreased over the past year primarily due to low short-term market interest rates as well as medium and longer-term market interest rates being below the average levels that existed over the past several years. In connection with these lower rates, coupled with a higher proportion of earnings assets held in cash equivalents, the Company’s interest-earning asset yield for the first nine months of 2021 decreased 62 basis points from the year-earlier period. The Company’s total cost of funds for the first nine months of 2021 decreased 11 basis points from the year earlier period, as the Company’s deposit funding cost and the rate on borrowings both decreased from the prior year period. The majority of borrowings are customer repurchase agreements, rather than wholesale borrowings obtained through capital markets and correspondent banks. Customer repurchase agreements have deposit-like features and typically bear lower rates of interest than other types of wholesale borrowings. The net benefit recognized in the provision for credit losses of $0.9 million for the third quarter and $11.0 million for YTD 2021 resulted in a $2.9 million and $28.3 million lower provision for credit losses than comparable prior year periods, respectively. These decreases are reflective of an improving economic outlook given the state of the post-vaccine economic recovery, elevated real estate and vehicle collateral values, a decrease in individually assessed reserves and solid asset quality metrics, including continued low levels of net charge-offs and declining delinquent loan balances. Additionally, $3.2 million of provision for credit losses was recorded in the second quarter of 2020 related to acquired non-purchased credit deteriorated loans associated with the Steuben acquisition. Net charge-offs were $1.4 million for the third quarter and $1.1 million for the first nine months of 2021, compared to net charge-offs of $1.3 million for the prior year third quarter and $3.7 million for the first nine months of 2020. Third quarter 2021 nonperforming loan ratios increased in comparison to the third quarter of 2020 largely attributable to the Company’s decision to reclassify certain loans under extended pandemic-related forbearance to nonperforming status in the fourth quarter of 2020. Third quarter 2021 nonperforming loan ratios generally improved in comparison to their levels at the end of the fourth quarter of 2020. 38 Table of Contents Net Income and Profitability As shown in Table 1, net income for the third quarter and September YTD of $45.3 million and $146.1 million, respectively, increased $2.5 million, or 5.9%, as compared to the third quarter of 2020 and increased $27.9 million, or 23.6%, compared to September YTD 2020. Earnings per share of $0.83 for the third quarter was $0.04 higher than the third quarter of 2020, while earnings per share for the first nine months of 2021 of $2.68 was $0.46 higher than the first nine months of 2020. The increase in net income and earnings per share for the quarter was primarily the result of higher noninterest revenues, lower litigation accrual expenses, a lower provision for credit losses and lower acquisition expenses, partially offset by higher core noninterest expenses, a higher effective tax rate, lower net interest income and an increase in diluted shares outstanding. The increase in net income and earnings per share for the YTD period was primarily the result of a lower provision for credit losses, higher noninterest revenues, lower acquisition expenses, higher net interest income and lower litigation accrual expenses, partially offset by higher noninterest expenses, a higher effective tax rate and an increase in diluted shares outstanding. Operating net income, a non-GAAP measure, of $45.3 million and $146.1 million for the third quarter and September YTD, respectively, decreased $0.5 million, or 1.0%, as compared to the third quarter of 2020 and increased $19.4 million, or 15.3%, compared to September YTD 2020. Operating earnings per share, a non-GAAP measure, of $0.83 for the third quarter was down $0.02 compared to the third quarter of 2020, while operating earnings per share of $2.68 for the first nine months of 2021 was up $0.30 compared to the first nine months of 2020. The decreases in operating net income and earnings per share for the quarter are primarily due to an increase in operating expenses, partially offset by higher noninterest revenues and a lower provision for credit losses recorded in the current quarter. The increases in operating net income and earnings per share for the YTD period are primarily due to the lower provision for credit losses and higher noninterest revenues recorded in the current YTD period. See Table 11 for Reconciliation of GAAP to Non-GAAP Measures. As reflected in Table 1, third quarter net interest income of $92.6 million was down $0.4 million, or 0.4%, from the comparable prior year period. Net interest income for the first nine months of 2021 increased $3.7 million, or 1.3%, versus the first nine months of 2020. The quarterly decrease resulted from a decrease in yield on interest-earning assets and an increase in interest-bearing liabilities that was only partially offset by an increase in interest-earning asset balances and a decrease in the average rate paid on interest-bearing liabilities. The YTD year-over-year improvement resulted from an increase in interest-earning asset balances and a decrease in the average rate paid on interest-bearing liabilities, partially offset by a decrease in the yield on interest-earning assets and an increase in interest-bearing liability balances. The provision for credit losses for the third quarter and September YTD decreased $2.9 million and $28.3 million as compared to the third quarter and first nine months of 2020, respectively. These decreases are reflective of an improving economic outlook given the state of the post-vaccine economic recovery, elevated real estate and vehicle collateral values, a decrease in individually assessed reserves and solid asset quality metrics, including low levels of net charge-offs and stable delinquent loan balances. Additionally, there was $3.2 million of provision for credit losses recorded in the second quarter of 2020 related to acquired non-purchased credit deteriorated loans associated with the Steuben acquisition. Third quarter and year-to-date noninterest revenues were $64.3 million and $182.3 million, respectively, up $4.6 million, or 7.8%, from the third quarter of 2020 and up $11.1 million, or 6.5%, from the first nine months of 2020. The increase compared to the prior year’s third quarter was primarily a result of increases in employee benefit services revenue, wealth management services revenue, deposit service charges and fees, insurance services revenue, debit interchange and ATM fees, other banking revenue and unrealized gains and losses on equity securities, partially offset by a decrease in mortgage banking revenue. The YTD increase was due to increases in employee benefit services revenue, wealth management services revenue, debit interchange and ATM fees, insurance services revenue, other banking revenue and unrealized gains and losses on equity securities, partially offset by decreases in mortgage banking revenue and deposit service charges and fees. Noninterest expenses of $100.4 million and $287.2 million for the third quarter and September YTD periods, respectively, reflected an increase of $3.5 million, or 3.6%, from the third quarter of 2020 and an increase of $5.7 million, or 2.0%, from the first nine months of 2020. The increase in noninterest expenses for the quarter was due to increases in salaries and benefits, legal and professional fees, data processing and communications expenses, other expenses and amortization of intangible assets, partially offset by decreases in litigation accrual expenses, business development and marketing expenses, acquisition-related expenses and occupancy and equipment expenses. The YTD increase in noninterest expenses was due to increases in salaries and benefits, data processing and communications expenses, occupancy and equipment expenses and legal and professional fees, partially offset by decreases in acquisition-related expenses, litigation accrual expenses, amortization of intangible assets, other expenses and business development and marketing expenses. Excluding acquisition-related expenses and litigation accrual expenses, 2021 operating expenses were $7.2 million, or 7.7%, higher for the third quarter and $13.1 million, or 4.8%, higher for the year-to-date timeframe. 39 Table of Contents The effective income tax rates were 21.1% and 20.9% for the third quarter and YTD 2021, respectively, as compared to 20.3% and 19.8% for the comparable prior year periods. The increase in effective tax rates compared to the prior year periods was primarily attributable to an increase in certain state income tax rates that were enacted in the second quarter of 2021. A condensed income statement is as follows: Table 1: Condensed Income Statements ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (000’s omitted, except per share data) 2021 2020 2021 2020 Net interest income ​ $ 92,611 ​ $ 92,965 ​ $ 278,670 ​ $ 274,970 Provision for credit losses ​ ​ (944) ​ ​ 1,945 ​ ​ (11,001) ​ ​ 17,313 Noninterest revenues ​ 64,309 ​ 59,659 ​ 182,300 ​ 171,219 Noninterest expenses ​ ​ 100,436 ​ ​ 96,966 ​ ​ 287,225 ​ ​ 281,532 Income before income taxes ​ 57,428 ​ 53,713 ​ 184,746 ​ 147,344 Income taxes ​ 12,092 ​ 10,904 ​ 38,616 ​ 29,153 Net income ​ $ 45,336 ​ $ 42,809 ​ $ 146,130 ​ $ 118,191 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted weighted average common shares outstanding ​ 54,541 ​ 54,159 ​ 54,516 ​ 53,276 Diluted earnings per share ​ $ 0.83 ​ $ 0.79 ​ $ 2.68 ​ $ 2.22 ​ Net Interest Income Net interest income is the amount by which interest and fees on earning assets (loans, investments, and cash equivalents) exceeds the cost of funds, which consists primarily of interest paid to the Company's depositors and on borrowings. Net interest margin is the difference between the yield on earning assets and the cost of interest-bearing funds as a percentage of earning assets. As shown in Table 2a, net interest income (with nontaxable income converted to a fully tax-equivalent basis) for the third quarter was $93.4 million, $0.5 million, or 0.5%, less than the same period last year. This was driven by a 45 basis point decrease in the average yield on interest-earning assets and a $987.1 million increase in average interest-bearing liabilities, partially offset by a $1.57 billion increase in average interest-earning assets and a nine basis point decrease in the average rate paid on interest-bearing liabilities in comparison to the third quarter of 2020. As reflected in Table 3, net interest income was unfavorably impacted by $14.1 million due to the decrease in the average yield on interest-earning assets and $0.5 million due to the volume increase in interest-bearing liabilities, partially offset by favorable impacts on net interest income of $12.1 million due to the volume increase in interest-earning assets and $2.0 million due to a decrease in the average rate paid on interest-bearing liabilities. September YTD net interest income (with nontaxable income converted to a fully tax-equivalent basis), as reflected in Table 2b, of $281.2 million, increased $3.3 million, or 1.2%, from the year-earlier period. The September YTD increase resulted from a $2.17 billion increase in average interest-earning assets and a 15 basis point decrease in the average rate paid on interest-bearing liabilities, partially offset by a 62 basis point decrease in the average yield on interest-earning assets and a $1.28 billion increase in average interest-bearing liabilities. As reflected in Table 3, for September YTD, the volume increase in interest-earning assets and the decrease in the average rate paid on interest-bearing liabilities had favorable impacts on net interest income of $52.5 million and $9.2 million, respectively, partially offset by the decrease in the average yield on interest-earning assets having an unfavorable impact on net interest income of $55.9 million and the volume increase in interest-bearing liabilities having a negative impact of $2.5 million. The net interest margin of 2.74% for the third quarter of 2021 was 38 basis points lower than the third quarter of 2020. The decrease was the result of a 45 basis point decrease in the interest-earning asset yield, partially offset by a nine basis point decrease in the average rate on interest-bearing liabilities. The net interest margin of 2.85% for the first nine months of 2021 was 51 basis points lower than the comparable period of 2020. The yield on interest-earning assets decreased 62 basis points, while the rate on interest-bearing liabilities decreased by 15 basis points for the first nine months of 2021 as compared to the prior year period. 40 Table of Contents The 45 basis point decrease in the average yield on interest-earning assets for the quarter was the result of a decrease in the average yield on loans and investments. For the third quarter, the average yield on loans decreased by eight basis points and the average yield on investments, including cash equivalents, decreased 37 basis points compared to the prior year. The 62 basis point decrease in the yield on interest-earning assets for the first nine months of 2021 was the result of an 18 basis point decrease in the average yield on loans and a 64 basis point decrease in the average yield on investments, including cash equivalents, compared to the prior year. The decrease in the loan and investment yields were driven by the comparatively low market rates over the past 12 months, a significant increase in the proportion of lower yielding cash equivalents and included the impact of a $9.2 million YTD increase in loan income recognized on PPP loans. The average rate on interest-bearing liabilities decreased by nine basis points compared to the prior year quarter as the average rate paid on interest-bearing deposits decreased six basis points and the average rate paid on external borrowings decreased 80 basis points from the prior year quarter. For the first nine months of 2021, the average rate on interest-bearing liabilities decreased by 15 basis points from the comparable prior year period as the average rate on interest-bearing deposits decreased 11 basis points and the average rate on external borrowings decreased 89 basis points. The decrease in the average rate paid on interest-bearing deposits was driven by a decrease in the market rates for deposits. The decrease in the average cost of borrowings was primarily the result of a decrease in the variable rates paid on external borrowings due to decreases in market interest rates and the redemption of the Community Capital Trust IV (“CCT IV”) debentures and associated preferred securities during the first quarter of 2021. The third quarter and YTD average balance of investments, including cash equivalents, increased $1.81 billion and $2.05 billion, respectively, as compared to the corresponding prior year periods. Investment securities purchases outpaced maturities, calls and principal payments during third quarter and YTD. The cash equivalents component of average earning assets increased $777.1 million and $1.19 billion for the third quarter and YTD periods, respectively, compared to the prior year periods. The increase in cash equivalents was primarily due to large inflows related to government stimulus-related deposit funding and PPP lending. Average loan balances decreased $240.2 million for the quarter primarily driven by decreases in the average balances of PPP loans and increased $119.8 million YTD as compared to the prior year primarily driven by the Steuben acquisition in June 2020 and an increase in the average balance of PPP loans. Average interest-bearing deposits increased $1.04 billion compared to the prior year quarter and $1.31 billion compared to the prior YTD period. The increase in average interest-bearing deposits for the quarterly period was due to increases in interest checking, savings and money market deposits due primarily to large inflows of government stimulus-related deposit funding, partially offset by a decrease in time deposits. The increase in average interest-bearing deposits for the YTD period was due to increases in interest checking, savings, money market, and time deposits due primarily to large inflows of government stimulus-related deposit funding and the Steuben acquisition in June 2020. The average borrowing balance, including borrowings at the Federal Home Loan Bank of New York and the Federal Home Loan Bank of Boston (collectively referred to as “FHLB”), subordinated notes payable, subordinated debt held by unconsolidated subsidiary trusts and securities sold under agreement to repurchase (customer repurchase agreements), decreased $54.1 million and $32.9 million for the quarter and YTD periods, respectively. The decreases from the prior year quarter and YTD periods was primarily due to the redemption of $77.3 million of trust preferred subordinated debt held by CCT IV, an unconsolidated subsidiary trust, during the first quarter of 2021 and a decrease in average FHLB borrowings, partially offset by an increase in average customer repurchase agreements. Tables 2a and 2b below sets forth information related to average interest-earning assets and interest-bearing liabilities and their associated yields and rates for the periods indicated. Interest income and yields are on a fully tax-equivalent basis (“FTE”) using marginal income tax rates of 24.2% and 24.0% in 2021 and 2020, respectively. Average balances are computed by totaling the daily ending balances in a period and dividing by the number of days in that period. Loan interest income and yields include amortization of deferred loan income and costs, loan origination, prepayment and other fees and the accretion of acquired loan marks. Average loan balances include nonaccrual loans and loans held for sale. 41 Table of Contents Table 2a: Quarterly Average Balance Sheet ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ Three Months Ended ​ ​ September 30, 2021 ​ ​ September 30, 2020 ​ ​ ​ ​ Avg. ​ ​ ​ Avg. ​ ​ ​ Average ​ ​ ​ Yield/Rate ​ Average ​ ​ ​ Yield/Rate ​ (000's omitted except yields and rates) Balance Interest Paid ​ Balance Interest Paid ​ Interest-earning assets: ​ ​ ​ ​ ​ ​ ​ Cash equivalents ​ $ 2,077,996 ​ $ 794 0.15 % ​ $ 1,300,981 ​ $ 332 0.10 % Taxable investment securities (1) ​ 3,800,978 ​ 16,567 1.73 % ​ 2,686,120 ​ 14,549 2.15 % Nontaxable investment securities (1) ​ 384,053 ​ 3,137 3.24 % ​ 461,963 ​ 3,747 3.23 % Loans (net of unearned discount) (2) ​ 7,268,659 ​ 75,973 4.15 % ​ 7,508,895 ​ 79,825 4.23 % Total interest-earning assets ​ 13,531,686 ​ 96,471 2.83 % ​ 11,957,959 ​ 98,453 ​ 3.28 % Noninterest-earning assets ​ 1,495,792 ​ ​ ​ ​ ​ 1,585,501 ​ ​ ​ ​ Total assets ​ $ 15,027,478 ​ ​ ​ ​ ​ $ 13,543,460 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest checking, savings, and money market deposits ​ $ 7,701,717 ​ 792 0.04 % ​ $ 6,658,778 ​ 966 0.06 % Time deposits ​ 960,670 ​ 2,030 0.84 % ​ 962,428 ​ 2,689 1.11 % Customer repurchase agreements ​ 230,906 ​ 177 0.30 % ​ 190,781 ​ 250 0.52 % FHLB borrowings ​ 2,920 ​ 18 2.45 % ​ 7,689 ​ 42 2.14 % Subordinated notes payable ​ 3,288 ​ 38 4.63 % ​ 13,748 ​ 184 5.33 % Subordinated debt held by unconsolidated subsidiary trusts ​ 0 ​ 0 0.00 % ​ 79,023 ​ 394 1.98 % Total interest-bearing liabilities ​ 8,899,501 ​ 3,055 0.14 % ​ 7,912,447 ​ 4,525 0.23 % Noninterest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest checking deposits ​ 3,841,646 ​ ​ ​ ​ ​ 3,312,841 ​ ​ ​ ​ Other liabilities ​ 182,167 ​ ​ ​ ​ ​ 222,961 ​ ​ ​ ​ Shareholders' equity ​ 2,104,164 ​ ​ ​ ​ ​ 2,095,211 ​ ​ ​ ​ Total liabilities and shareholders' equity ​ $ 15,027,478 ​ ​ ​ ​ ​ $ 13,543,460 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest earnings ​ ​ ​ $ 93,416 ​ ​ ​ ​ ​ $ 93,928 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest spread ​ ​ ​ ​ 2.69 % ​ ​ ​ ​ 3.05 % Net interest margin on interest-earning assets ​ ​ ​ ​ 2.74 % ​ ​ ​ ​ 3.12 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fully tax-equivalent adjustment (3) ​ ​ ​ $ 805 ​ ​ ​ ​ ​ $ 963 ​ (1) Averages for investment securities are based on historical cost basis and the yields do not give effect to changes in fair value that is reflected as a component of noninterest-earning assets, shareholders’ equity, and deferred taxes. (2) Includes nonaccrual loans. The impact of interest and fees not recognized on nonaccrual loans was immaterial. (3) The fully-tax equivalent adjustment represents taxes that would have been paid had nontaxable investment securities and loans been taxable. The adjustment attempts to enhance the comparability of the performance of assets that have different tax liabilities. 42 Table of Contents Table 2b: Year-to-Date Average Balance Sheet ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ Nine Months Ended ​ ​ September 30, 2021 ​ September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ Avg. ​ ​ ​ ​ ​ ​ ​ Avg. ​ ​ Average ​ ​ ​ ​ Yield/Rate ​ Average ​ ​ ​ ​ Yield/Rate (000's omitted except yields and rates) ​ Balance ​ Interest ​ Paid ​ Balance ​ Interest ​ Paid Interest-earning assets: ​ ​ ​ ​ ​ Cash equivalents ​ $ 1,941,329 ​ $ 1,772 0.12 % $ 748,236 ​ $ 794 0.14 % Taxable investment securities (1) ​ 3,531,272 ​ 47,553 1.80 % 2,627,302 ​ 44,839 2.28 % Nontaxable investment securities (1) ​ 406,835 ​ 10,018 3.29 % 458,617 ​ 11,520 3.36 % Loans (net of unearned discount) (2) ​ 7,322,581 ​ 231,920 4.23 % 7,202,830 ​ 237,534 4.41 % Total interest-earning assets ​ 13,202,017 ​ 291,263 2.95 % 11,036,985 ​ 294,687 3.57 % Noninterest-earning assets ​ 1,436,252 ​ ​ ​ 1,527,615 ​ ​ ​ Total assets ​ $ 14,638,269 ​ ​ ​ $ 12,564,600 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest checking, savings, and money market deposits ​ $ 7,474,811 ​ 2,309 0.04 % $ 6,187,919 ​ 4,672 0.10 % Time deposits ​ 962,559 ​ 6,588 0.92 % 935,783 ​ 8,701 1.24 % Customer repurchase agreements ​ 250,638 ​ 641 0.34 % 208,317 ​ 1,108 0.71 % FHLB borrowings ​ 4,634 ​ 75 2.15 % 11,988 ​ 172 1.92 % Subordinated notes payable ​ 3,294 ​ 115 4.69 % 13,767 ​ 553 5.37 % Subordinated debt held by unconsolidated subsidiary trusts ​ 20,675 ​ 293 1.89 % 78,027 ​ 1,501 2.57 % Total interest-bearing liabilities ​ 8,716,611 ​ 10,021 0.15 % 7,435,801 ​ 16,707 0.30 % Noninterest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest checking deposits ​ 3,685,556 ​ ​ ​ 2,913,492 ​ ​ ​ Other liabilities ​ 178,402 ​ ​ ​ 212,510 ​ ​ ​ Shareholders' equity ​ 2,057,700 ​ ​ ​ 2,002,797 ​ ​ ​ Total liabilities and shareholders' equity ​ $ 14,638,269 ​ ​ ​ $ 12,564,600 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest earnings ​ ​ $ 281,242 ​ ​ $ 277,980 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest spread ​ ​ ​ 2.80 % ​ ​ 3.27 % Net interest margin on interest-earning assets ​ ​ ​ 2.85 % ​ ​ 3.36 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fully tax-equivalent adjustment (3) ​ ​ $ 2,572 ​ ​ $ 3,010 ​ (1) Averages for investment securities are based on historical cost basis and the yields do not give effect to changes in fair value that is reflected as a component of noninterest-earning assets, shareholders’ equity, and deferred taxes. (2) Includes nonaccrual loans. The impact of interest and fees not recognized on nonaccrual loans was immaterial. (3) The fully-tax equivalent adjustment represents taxes that would have been paid had nontaxable investment securities and loans been taxable. The adjustment attempts to enhance the comparability of the performance of assets that have different tax liabilities. As discussed above and disclosed in Table 3 below, the change in net interest income (fully tax-equivalent basis) may be analyzed by segregating the volume and rate components of the changes in interest income and interest expense for each underlying category. 43 Table of Contents Table 3: Rate/Volume ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2021 ​ ​ Nine months ended September 30, 2021 ​ ​ versus September 30, 2020 ​ ​ versus September 30, 2020 ​ ​ Increase (Decrease) Due to Change in (1) ​ Increase (Decrease) Due to Change in (1) ​ ​ ​ ​ Net ​ ​ ​ Net (000's omitted) Volume Rate Change Volume Rate Change Interest earned on: ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents ​ $ 251 ​ $ 211 ​ $ 462 ​ $ 1,102 ​ $ (124) ​ $ 978 Taxable investment securities ​ 5,237 ​ (3,219) ​ 2,018 ​ 13,410 ​ (10,696) ​ 2,714 Nontaxable investment securities ​ (636) ​ 26 ​ (610) ​ (1,279) ​ (223) ​ (1,502) Loans ​ (2,526) ​ (1,326) ​ (3,852) ​ 3,903 ​ (9,517) ​ (5,614) Total interest-earning assets (2) ​ 12,096 ​ (14,078) ​ (1,982) ​ 52,481 ​ (55,905) ​ (3,424) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest paid on: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest checking, savings and money market deposits ​ 136 ​ (310) ​ (174) ​ 822 ​ (3,185) ​ (2,363) Time deposits ​ (5) ​ (654) ​ (659) ​ 243 ​ (2,356) ​ (2,113) Customer repurchase agreements ​ 46 ​ (119) ​ (73) ​ 192 ​ (659) ​ (467) FHLB borrowings ​ (29) ​ 5 ​ (24) ​ (116) ​ 19 ​ (97) Subordinated notes payable ​ (125) ​ (21) ​ (146) ​ (375) ​ (63) ​ (438) Subordinated debt held by unconsolidated subsidiary trusts ​ (394) ​ 0 ​ (394) ​ (888) ​ (320) ​ (1,208) Total interest-bearing liabilities (2) ​ 514 ​ (1,984) ​ (1,470) ​ 2,523 ​ (9,209) ​ (6,686) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest earnings (2) ​ $ 11,581 ​ $ (12,093) ​ $ (512) ​ $ 49,822 ​ $ (46,560) ​ $ 3,262 (1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of such change in each component. (2) Changes due to volume and rate are computed from the respective changes in average balances and rates of the totals; they are not a summation of the changes of the components. Exclusive of the impact of PPP loans, the Company expects its fourth quarter 2021 net interest margin to remain below results in the comparable prior year quarter due to the significant and precipitous drop in the overnight Federal Funds and Prime interest rates in early 2020 that have remained into 2021. In the near term, expected decreases in average earning asset yields are unlikely to be fully offset by expected decreases in the average cost of funds. Although the stated interest rate on PPP loans is fixed at 1.00%, the Company’s recognition of the interest income on origination fees, net of deferred origination costs, on PPP loans will likely cause earning asset yield volatility as loans are forgiven by the SBA. While the Company expects to recognize the majority of its remaining first draw net deferred PPP fees totaling $0.1 million through interest income during the fourth quarter of 2021 and the majority of its second draw net deferred PPP fees totaling $6.2 million over the next few quarters, the eligibility of the borrowers’ forgiveness requests and the SBA’s ability to provide loan forgiveness in a timely manner remains uncertain at this time. Noninterest Revenues The Company’s sources of noninterest revenues are of four primary types: 1) general banking services related to loans, including mortgage banking, deposits and other core customer activities typically provided through the branch network and digital banking channels (performed by CBNA); 2) employee benefit trust, collective investment fund, transfer agency, actuarial and benefit plan administration services (performed by BPAS and its subsidiaries); 3) wealth management services, comprised of trust services (performed by the trust unit within CBNA), broker-dealer and investment advisory products and services (performed by Community Investment Services, Inc. (“CISI”), OneGroup Wealth Partners, Inc. and The Carta Group, Inc.) and asset management services (performed by Nottingham Advisors, Inc.); and 4) insurance and risk management products and services (performed by OneGroup). Additionally, the Company periodically generates noninterest revenues from investment and borrowing activities, including unrealized gains or losses on equity securities. 44 Table of Contents Table 4: Noninterest Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ (000's omitted) 2021 2020 ​ 2021 ​ 2020 Employee benefit services ​ $ 29,923 ​ $ 25,159 ​ $ 83,933 ​ $ 74,593 ​ Deposit service charges and fees ​ 8,816 ​ 7,899 ​ 24,305 ​ 25,318 ​ Mortgage banking ​ ​ 460 ​ ​ 3,908 ​ ​ 1,479 ​ ​ 6,199 ​ Debit interchange and ATM fees ​ 6,626 ​ 6,361 ​ 19,453 ​ 17,404 ​ Insurance services ​ 9,176 ​ 8,531 ​ 25,538 ​ 24,772 ​ Wealth management services ​ 8,322 ​ 6,889 ​ 24,748 ​ 20,389 ​ Other banking revenues ​ 996 ​ 924 ​ 2,830 ​ 2,574 ​ Subtotal ​ 64,319 ​ ​ 59,671 ​ ​ 182,286 ​ ​ 171,249 ​ Unrealized (loss) gain on equity securities ​ (10) ​ (12) ​ 14 ​ (30) ​ Total noninterest revenues ​ $ 64,309 ​ $ 59,659 ​ $ 182,300 ​ $ 171,219 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest revenues/operating revenues (FTE basis) (1) ​ 41.0 % 39.2 % ​ 39.6 % ​ 38.5 % (1) For purposes of this ratio noninterest revenues excludes unrealized gains and losses on equity securities. Operating revenues, a non-GAAP measure, is defined as net interest income on a fully-tax equivalent basis excluding acquired non-impaired loan accretion plus noninterest revenues excluding unrealized gains and losses on equity securities. See Table 11 for Reconciliation of GAAP to Non-GAAP Measures. As displayed in Table 4, noninterest revenues, excluding unrealized (loss) gain on equity securities, were $64.3 million for the third quarter of 2021 and $182.3 million for the first nine months of 2021. This represents an increase of $4.6 million, or 7.8%, for the quarter and an increase of $11.0 million, or 6.4%, for the YTD period in comparison to the equivalent 2020 periods. The increase for the quarterly and YTD periods were driven by increases in employee benefit services revenue, wealth management services revenue and insurance services revenue, partially offset by a decrease in banking noninterest revenue. Banking noninterest revenue of $16.9 million for the third quarter and $48.1 million for the first nine months of 2021 decreased $2.2 million, or 11.5%, and decreased $3.4 million, or 6.7%, respectively, as compared to the corresponding prior year periods. The quarterly decrease was primarily driven by a decrease in mortgage banking revenues as the Company is currently holding almost all of its new consumer mortgage production in portfolio due to a change in its strategy, partially offset by increases in deposit service charges and fees, debit interchange and ATM fees and other banking revenues, reflective of increased transaction activity. The YTD decline was primarily driven by decreases in mortgage banking revenues due to the aforementioned change in strategy and deposit service charges and fees including decreases in overdraft fees in part due to the higher average deposit balances resulting from government stimulus program inflows, partially offset by increases in debit interchange and ATM fees, reflective of increased transaction activity including the impact from the addition of new deposit relationships from the Steuben acquisition and higher other banking revenues. Employee benefit services revenue increased $4.8 million, or 18.9%, and $9.3 million, or 12.5%, for the three and nine months ended September 30, 2021, respectively, as compared to the equivalent prior year periods. This growth primarily related to increases in employee benefit trust and custodial fees, as well as incremental revenues from the acquisition of FBD during the third quarter. Insurance services revenue was up $0.6 million, or 7.6%, and up $0.8 million, or 3.1%, for the third quarter and YTD periods, respectively. These increases were primarily driven by incremental revenues from the acquisitions of TGA during the third quarter and NuVantage during the second quarter. Wealth management services revenue was up $1.4 million, or 20.8%, for the third quarter of 2021 and was up $4.4 million, or 21.4%, for September 2021 YTD as compared to the same time periods of 2020, primarily driven by increases in investment management and trust services revenues due to the addition of new relationships and higher equity market valuations. The ratio of noninterest revenues to operating revenues (FTE basis), as defined in footnote 1 of Table 4 above, was 41.0% for the quarter and 39.6% for the nine months ended September 30, 2021, respectively, versus 39.2% and 38.5% for the comparable periods of 2020. The increase for the year-to-date period is a function of a 6.4% increase in adjusted noninterest revenues while adjusted net interest income (FTE basis) increased at a slower 1.2% pace. 45 Table of Contents The Company expects its full-year mortgage banking revenues in 2021 to continue to be below 2020 as the Company reduced the amount of sales of secondary market eligible residential mortgage loans beginning in the fourth quarter of 2020. Noninterest Expenses Table 5 below sets forth the quarterly results of the major noninterest expense categories for the current and prior year, as well as efficiency ratios (defined below), a standard measure of expense utilization effectiveness commonly used in the banking industry. Table 5: Noninterest Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ (000's omitted) ​ 2021 2020 ​ 2021 ​ 2020 Salaries and employee benefits $ 62,883 $ 57,280 $ 178,407 $ 170,252 ​ Occupancy and equipment ​ 9,867 ​ 10,134 ​ ​ 31,437 ​ ​ 30,627 ​ Data processing and communications ​ 12,966 ​ 12,096 ​ ​ 38,123 ​ ​ 33,342 ​ Amortization of intangible assets ​ 3,703 ​ 3,581 ​ ​ 10,300 ​ ​ 10,772 ​ Legal and professional fees ​ 3,352 ​ 2,365 ​ ​ 8,885 ​ ​ 8,577 ​ Business development and marketing ​ 2,383 ​ 3,145 ​ ​ 7,071 ​ ​ 7,162 ​ Litigation accrual ​ ​ (100) ​ ​ 2,950 ​ ​ (100) ​ ​ 2,950 ​ Acquisition expenses ​ 102 ​ 796 ​ ​ 133 ​ ​ 4,537 ​ Other ​ 5,280 ​ 4,619 ​ ​ 12,969 ​ ​ 13,313 ​ Total noninterest expenses ​ $ 100,436 ​ $ 96,966 ​ $ 287,225 ​ $ 281,532 ​ Operating expenses (1) /average assets ​ 2.55 % 2.63 % ​ 2.53 % ​ 2.80 % Efficiency ratio (2) ​ 61.7 % 58.9 % ​ 60.1 % ​ 59.2 % (1) Operating expenses, a non-GAAP measure, is calculated as total noninterest expenses less litigation accrual expenses,acquisition expenses and amortization of intangibles. See Table 11 for Reconciliation of GAAP to Non-GAAP Measures. (2) Efficiency ratio, a non-GAAP measure, is calculated as operating expenses as defined in (1) above divided by net interest income on a fully tax-equivalent basis excluding acquired non-impaired loan accretion plus noninterest revenues excluding unrealized gains and losses on equity securities. See Table 11 for Reconciliation of GAAP to Non-GAAP Measures. As shown in Table 5, the Company recorded noninterest expenses of $100.4 million and $287.2 million for the third quarter and YTD periods of 2021, respectively, representing an increase of $3.5 million, or 3.6%, and an increase of $5.7 million, or 2.0%, from the respective prior year periods. Combined acquisition-related expenses and litigation accrual expenses of $3.7 million and $7.5 million are included in third quarter 2020 and YTD 2020 noninterest expenses, respectively. Salaries and employee benefits increased $5.6 million, or 9.8%, and $8.2 million, or 4.8%, for the third quarter and YTD periods of 2021, respectively, as compared to the corresponding periods of 2020. The increase in salaries and benefits was driven by increases in merit and incentive-related employee wages, higher payroll taxes, including increases in state-related unemployment taxes, higher employee benefit-related expenses and staffing increases due to recent acquisitions. The remaining change to noninterest expenses can be attributed to occupancy and equipment (down $0.3 million for the quarter driven by branch consolidation activities between the periods and up $0.8 million YTD driven by the Steuben acquisition), data processing and communications (up $0.9 million for the quarter and $4.8 million YTD driven by the Steuben acquisition and the Company’s implementation of new customer-facing digital technologies and back office systems), amortization of intangible assets (up $0.1 million for the quarter due to recent acquisitions and down $0.5 million YTD), legal and professional fees (up $1.0 million for the quarter and $0.3 million YTD due to the general increase in the level of business activities), business development and marketing (down $0.8 million for the quarter and $0.1 million YTD) and other expenses (up $0.7 million for the quarter due to the general increase in the level of business activities and down $0.3 million YTD). Included in other expenses was an increase in non-service related components of the net periodic pension benefit credit (up $0.6 million for the quarter and $2.0 million YTD). 46 Table of Contents The Company’s efficiency ratio (as defined in Table 5 above) was 61.7% for the third quarter, 2.8% unfavorable to the comparable quarter of 2020. This resulted from operating expenses (as described in footnote 1 of Table 5 above) increasing 7.9%, while operating revenues (as described in footnote 2 of Table 5 above) increased a lesser 3.0%. The efficiency ratio of 60.1% for the first nine months of 2021 was 0.9% unfavorable compared to the first nine months of 2020 due to 5.2% higher operating expenses (as described in footnote 1 of Table 5 above), while operating revenues (as described footnote 2 of Table 5 above) increased by 3.4%. Current year operating expenses, excluding intangible amortization, litigation accrual expenses and acquisition expenses, as a percentage of average assets decreased eight basis points versus the prior year quarter and was 27 basis points lower than the prior year-to-date period as operating expenses (as defined above) increased at a slower pace than average assets. Operating expenses (as defined above) increased 7.9% for the quarter and increased 5.2% for the year-to-date period, while average assets increased 11.0% for the quarter and increased 16.5% for the year-to-date period. Income Taxes The third quarter and YTD 2021 effective income tax rates were 21.1% and 20.9%, respectively, as compared to the 20.3% and 19.8% for the comparable periods of 2020. The increase in the third quarter and YTD 2021 effective income tax rates is primarily attributable to an increase in certain state income tax rates that were enacted in the second quarter of 2021. Partially offsetting this was a higher level of benefit derived from stock based compensation activity for YTD 2021. The Company recorded a $2.0 million and $1.3 million reduction in income tax expense associated with stock-based compensation tax benefits for YTD 2021 and YTD 2020, respectively. The effective tax rates adjusted to exclude stock-based compensation tax benefits for the third quarter and YTD 2021 were 21.1% and 22.0%, respectively, as compared to 20.4% and 20.7% for the comparable periods of 2020. Investment Securities The carrying value of investment securities (including unrealized gains and losses) was $4.40 billion at the end of the third quarter, an increase of $808.1 million from December 31, 2020 and $1.13 billion higher than September 30, 2020. The balance of cash equivalents was $2.10 billion at the end of the third quarter, an increase of $629.4 million from December 31, 2020 and $461.7 million higher than September 30, 2020. The book value of investment securities (excluding unrealized gains and losses) of $4.45 billion at the end of the third quarter increased $976.7 million from December 31, 2020 and increased $1.34 billion from September 30, 2020. During the first nine months of 2021, the Company purchased $1.16 billion of U.S. Treasury and agency securities with an average yield of 1.28%, $102.4 million of government agency mortgage-backed securities with an average yield of 1.77%, $13.8 million of obligations of state and political subdivisions with an average yield of 2.44% and $5.0 million of corporate debt securities with an average yield of 3.25%. These additions were partially offset by $313.9 million of investment maturities, calls and principal payments during the first nine months of 2021. Additionally, there was $8.5 million of net accretion on investment securities during the first nine months of 2021. The effective duration of the investment securities portfolio was 7.6 years at the end of the third quarter of 2021, as compared to 7.7 years at the end of 2020 and 3.2 years at the end of the third quarter of 2020. The change in the carrying value of investment securities is also impacted by the amount of net unrealized gains or losses. At September 30, 2021, the portfolio had a $47.5 million net unrealized loss, a decrease of $168.6 million from the net unrealized gain at December 31, 2020 and a $202.8 million decrease from the net unrealized gain at September 30, 2020. These changes in the net unrealized position of the portfolio were principally driven by the movements in medium to long-term interest rates, as well as the volume and rates associated with the securities purchases and maturities that have occurred over the past 12 months. 47 Table of Contents Table 6: Investment Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 December 31, 2020 September 30, 2020 ​ ​ Amortized Fair Amortized Fair Amortized Fair ​ (000's omitted) ​ Cost ​ Value ​ Cost ​ Value ​ Cost ​ Value ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available-for-Sale Portfolio: ​ ​ ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 3,467,053 ​ $ 3,393,260 ​ $ 2,423,236 ​ $ 2,501,382 ​ $ 2,034,512 ​ $ 2,149,170 ​ Obligations of state and political subdivisions ​ 404,531 ​ 421,965 ​ 451,028 ​ 475,660 ​ 470,518 ​ 493,496 ​ Government agency mortgage-backed securities ​ 503,548 ​ 510,676 ​ 506,540 ​ 522,638 ​ 508,738 ​ 523,974 ​ Corporate debt securities ​ 8,000 ​ 8,078 ​ 4,499 ​ 4,635 ​ 4,504 ​ 4,602 ​ Government agency collateralized mortgage obligations ​ 23,746 ​ 24,392 ​ 42,476 ​ 43,577 ​ 50,134 ​ 51,480 ​ Total available-for-sale portfolio ​ ​ 4,406,878 ​ 4,358,371 ​ 3,427,779 ​ 3,547,892 ​ 3,068,406 ​ 3,222,722 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity and other Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity securities, at fair value ​ 251 ​ 459 ​ 251 ​ 445 ​ 251 ​ 423 ​ Federal Home Loan Bank common stock ​ 7,251 ​ 7,251 ​ 7,468 ​ 7,468 ​ 7,545 ​ 7,545 ​ Federal Reserve Bank common stock ​ 33,916 ​ 33,916 ​ 33,916 ​ 33,916 ​ 33,916 ​ 33,916 ​ Other equity securities, at adjusted cost ​ ​ 2,651 ​ ​ 3,401 ​ ​ 4,876 ​ ​ 5,626 ​ ​ 4,707 ​ ​ 5,457 ​ Total equity and other securities ​ 44,069 ​ 45,027 ​ 46,511 ​ 47,455 ​ 46,419 ​ 47,341 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total investments ​ $ 4,450,947 ​ $ 4,403,398 ​ $ 3,474,290 ​ $ 3,595,347 ​ $ 3,114,825 ​ $ 3,270,063 ​ ​ Loans As shown in Table 7, loans ended the third quarter at $7.28 billion, down $176.1 million, or 2.4%, from one year earlier and down $133.4 million, or 1.8%, from the end of 2020. The decline during the last twelve months occurred primarily in the business lending portfolio, reflective of a net decrease in PPP loans, along with lesser declines in the home equity and consumer direct portfolios, partially offset by increases in the consumer indirect and consumer mortgage portfolios. The decline from the end of 2020 was also primarily in the business lending portfolio, reflective of a net decrease in PPP loans, along with a lesser decline in the home equity portfolio, partially offset by increases in the consumer indirect, consumer mortgage and consumer direct portfolios. Table 7: Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (000's omitted) ​ September 30, 2021 December 31, 2020 September 30, 2020 Business lending $ 3,092,177 42.5 % $ 3,440,077 46.4 % $ 3,433,565 46.0 % Consumer mortgage ​ 2,470,974 33.9 % 2,401,499 32.4 % 2,410,249 32.3 % Consumer indirect ​ 1,168,378 16.1 % 1,021,885 13.8 % 1,039,925 13.9 % Consumer direct ​ 155,602 2.1 % 152,657 2.0 % 161,639 2.2 % Home equity ​ 395,451 5.4 % 399,834 5.4 % 413,265 5.6 % Total loans ​ $ 7,282,582 100.0 % $ 7,415,952 100.0 % $ 7,458,643 100.0 % ​ The business lending portfolio consists of general-purpose business lending to commercial, industrial, non-profit and municipal customers, mortgages on commercial property and vehicle dealer floor plan financing. The business lending portfolio decreased $341.4 million, or 9.9%, from September 30, 2020, primarily driven by a $336.8 million net decrease in PPP loans as a result of forgiveness granted by the SBA. The portfolio decreased $347.9 million from December 31, 2020, primarily attributable to a $302.6 million net decrease in PPP loans. Highly competitive conditions for business lending continue to prevail in both the digital marketplace and geographic regions in which the Company operates. The Company strives to generate growth in its business portfolio in a manner that adheres to its goals of maintaining strong asset quality and producing profitable margins. The Company continues to invest in additional personnel, technology and business development resources to further strengthen its capabilities in this important product category. 48 Table of Contents The Company participated in both rounds of the PPP, a specialized low-interest loan program funded by the U.S. Treasury Department and administered by the SBA, including lending pursuant to the 2020 Coronavirus Aid, Relief, and Security Act’s (“CARES Act”), now known as first draw loans. In addition, the Company participated in the 2021 Consolidated Appropriations Act’s (“CAA”) PPP loan program, now known as second draw loans. As of September 30, 2021, the Company’s business lending portfolio included 45 first draw PPP loans with a total balance of $14.4 million and 1,341 second draw PPP loans with a total balance of $151.0 million. This compares to 3,417 first draw PPP loans with a total balance of $470.7 million at December 31, 2020 and 3,473 first draw PPP loans with a total balance of $507.2 million at September 30, 2020. Consumer mortgages increased $60.7 million, or 2.5%, from one year ago and increased $69.5 million, or 2.9%, from December 31, 2020 driven by strong housing demand. Interest rate levels, secondary market premiums, expected duration and ALCO strategies continue to be the most significant factors in determining whether the Company chooses to retain, versus sell and service, portions of its new mortgage production. During the fourth quarter of 2020, the Company sold $42.3 million of its secondary market eligible consumer mortgages, which offset a portion of the increase in outstanding balances between the comparable annual periods. The Company changed its strategy to hold the majority of its secondary market eligible consumer mortgages during the fourth quarter of 2020 and is currently holding almost all of its new consumer mortgage production in portfolio, with only $17.0 million of consumer mortgages sold in the first nine months of 2021. Home equity loans decreased $17.8 million, or 4.3%, from one year ago and decreased $4.4 million, or 1.1%, from December 31, 2020. The Company continues to experience paydowns in its home equity portfolio due in part to some consumers using stimulus funds to reduce debt levels and balances being rolled into re-financed first lien consumer mortgages that offer attractive attributes to customers. Consumer installment loans, both those originated directly in the branches (referred to as “consumer direct”) and indirectly in automobile, marine, and recreational vehicle dealerships (referred to as “consumer indirect”), increased $122.4 million, or 10.2%, from one year ago and increased $149.4 million, or 12.7%, from December 31, 2020 due in large part to high demand driven by low market interest rates and added personal liquidity to fund larger down payments. Strained supplies in all categories, while not impactful enough thus far to substantially stunt growth opportunities, will continue to prop up pricing in all indirect collateral categories. Although the consumer indirect loan market is highly competitive, the Company is focused on maintaining a profitable, in-market and contiguous market indirect portfolio, while continuing to pursue the expansion of its dealer network. Consumer direct loans provide attractive returns, and the Company is committed to providing competitive market offerings to its customers in this important loan category. Despite the strong competition the Company faces from the financing subsidiaries of vehicle manufacturers and other financial intermediaries, the Company will continue to strive to grow these key portfolios through varying market conditions over the long term. The ultimate impact the COVID-19 pandemic will have on loan demand and the Company’s loan balances for the rest of 2021 remains uncertain at this time. The Company’s business lending balances will be unfavorably impacted as first draw and second draw PPP loans continue to be forgiven by the SBA. The Company anticipates assisting the remainder of the Company’s first draw PPP borrowers with forgiveness requests during the fourth quarter of 2021 and the majority of the Company’s second draw PPP borrowers with forgiveness requests over the next few quarters. The longer-term implications that COVID-19 and the repayment of PPP loans will have on business lending loan demand are presently difficult to predict. Asset Quality Table 8 below exhibits the major components of nonperforming loans and assets and key asset quality metrics for the periods ending September 30, 2021 and 2020 and December 31, 2020. 49 Table of Contents Table 8: Nonperforming Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ September 30, ​ (000’s omitted) 2021 2020 2020 Nonaccrual loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Business lending ​ $ 47,820 ​ $ 55,709 ​ $ 11,750 ​ Consumer mortgage ​ 15,605 ​ 14,970 ​ 14,821 ​ Consumer indirect ​ 0 ​ 1 ​ 1 ​ Consumer direct ​ 1 ​ 3 ​ 3 ​ Home equity ​ 2,541 ​ 2,246 ​ 2,181 ​ Total nonaccrual loans ​ 65,967 ​ 72,929 ​ 28,756 ​ Accruing loans 90+ days delinquent ​ ​ ​ ​ ​ ​ ​ Business lending ​ 148 ​ 59 ​ 39 ​ Consumer mortgage ​ 1,288 ​ 3,051 ​ 3,182 ​ Consumer indirect ​ 131 ​ 219 ​ 12 ​ Consumer direct ​ 19 ​ 28 ​ 34 ​ Home equity ​ 288 ​ 565 ​ 220 ​ Total accruing loans 90+ days delinquent ​ 1,874 ​ 3,922 ​ 3,487 ​ Nonperforming loans ​ ​ ​ ​ ​ ​ ​ ​ ​ Business lending ​ 47,968 ​ 55,768 ​ 11,789 ​ Consumer mortgage ​ 16,893 ​ 18,021 ​ 18,003 ​ Consumer indirect ​ 131 ​ 220 ​ 13 ​ Consumer direct ​ 20 ​ 31 ​ 37 ​ Home equity ​ 2,829 ​ 2,811 ​ 2,401 ​ Total nonperforming loans ​ 67,841 ​ 76,851 ​ 32,243 ​ Other real estate owned (OREO) ​ 891 ​ 883 ​ 1,209 ​ Total nonperforming assets ​ $ 68,732 ​ $ 77,734 ​ $ 33,452 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonperforming loans / total loans ​ 0.93 % 1.04 % 0.43 % Nonperforming assets / total loans and other real estate ​ 0.94 % 1.05 % 0.45 % Delinquent loans (30 days old to nonaccruing) to total loans ​ 1.28 % 1.50 % 0.79 % Net charge-offs to average loans outstanding (quarterly) ​ ​ 0.07 % 0.07 % 0.07 % Provision for credit losses to net charge-offs (quarterly) ​ ​ (70) % (246) % 155 % ​ As displayed in Table 8, nonperforming assets at September 30, 2021 were $68.7 million, a $9.0 million decrease versus the level at the end of 2020 and a $35.3 million increase as compared to one year earlier. Nonperforming loans decreased $9.0 million from year-end 2020 and increased $35.6 million from September 30, 2020. Nonperforming loans were 0.93% of total loans outstanding at the end of the third quarter, 11 basis points lower than the level at December 31, 2020 and 50 basis points higher than the level at September 30, 2020. With respect to the Company’s lending activities, the Company continues to consider customer forbearance requests to assist borrowers that may be experiencing financial hardship due to COVID-19 related challenges, but such requests diminished significantly in the first nine months of 2021. As of September 30, 2021, the Company had 4 borrowers in forbearance due to COVID-19 related financial hardship, representing $3.9 million in outstanding loan balances, or 0.01% of total loans outstanding. This compares to 74 borrowers and $66.5 million in loans outstanding in forbearance at December 31, 2020 and 216 borrowers and $192.7 million in loans outstanding in forbearance at September 30, 2020. Consistent with industry regulatory guidance, borrowers that were otherwise current on loan payments and granted COVID-19 related financial hardship payment deferrals were reported as current loans throughout the first 180 days of the deferral period. Borrowers that were delinquent in their payments to the Bank prior to requesting a COVID-19 related financial hardship payment deferral were reviewed on a case-by-case basis for troubled debt restructure classification and nonperforming loan status. 50 Table of Contents The increase in nonperforming assets and loans over the prior year was primarily driven by the Company’s decision to reclassify loans under extended pandemic-related forbearance to nonperforming status. More specifically, during the fourth quarter of 2020, several commercial borrowers, which primarily operate in the hospitality, travel and entertainment industries, requested extended loan repayment forbearance due to the continued pandemic-related financial hardship they were experiencing. Although the Company’s management granted these forbearance requests, it also reclassified the majority of these loan relationships from accruing to nonaccrual status, unless the borrower clearly demonstrated current repayment capacity or sufficient cash reserves to service their pre-forbearance payment obligations. Other real estate owned (“OREO”) at September 30, 2021 of $0.9 million was consistent with December 31, 2020 and decreased $0.3 million from September 30, 2020. At September 30, 2021, OREO consisted of five residential properties with a total value of $0.3 million and one commercial property with a value of $0.6 million. This compares to five residential properties with a total value of $0.3 million and one commercial property with a value of $0.6 million at December 31, 2020, and nine residential properties with a total value of $0.6 million and one commercial property with a value of $0.6 million at September 30, 2020. Approximately 71% of the nonperforming loans at September 30, 2021 were related to the business lending portfolio, which is comprised of business loans broadly diversified by industry type. The level of nonperforming business loans increased from the prior year due to the continued pandemic-related financial hardship experienced by certain borrowers as described previously. Approximately 25% of nonperforming loans at September 30, 2021 were comprised of consumer mortgages. Collateral values of residential properties within the Company’s market area have generally remained stable or have increased over the past several years. Additionally, strong economic conditions prior to COVID-19, including lower unemployment levels, positively impacted consumers and had resulted in more favorable nonperforming consumer mortgage ratios. Economic conditions impacted by COVID-19, including increased unemployment rates, travel restrictions and state government shutdowns of certain business activities, as well as COVID-19 related delays in foreclosure processes have improved over the past few quarters, contributing to a modest decrease in nonperforming loans in the consumer mortgage portfolio as compared to one year earlier. The Company will continue to closely monitor the impact that economic conditions associated with the COVID-19 pandemic could have on its level of delinquent loans, nonperforming assets and ultimately credit-related losses and proactively engage with our customers to strive to limit the potential losses. The remaining 4% of nonperforming loans relate to consumer installment and home equity loans, with home equity nonperforming loan levels being driven by the same factors that were identified for consumer mortgages. The allowance for credit losses to nonperforming loans ratio, a general measure of coverage adequacy, was 73% at the end of the third quarter, as compared to 79% at year-end 2020 and 201% at September 30, 2020. The decrease in this ratio between the annual quarterly periods was primarily driven by the increase in nonperforming business loans as mentioned previously. The Company’s senior management, special asset officers and lenders review all delinquent and nonaccrual loans and OREO regularly in order to identify deteriorating situations, monitor known problem credits and discuss any needed changes to collection efforts, if warranted. Based on the group’s consensus, a relationship may be assigned a special assets officer or other senior lending officer to review the loan, meet with the borrowers, assess the collateral and recommend an action plan. This plan could include foreclosure, restructuring loans, issuing demand letters or other actions. The Company’s larger criticized credits are also reviewed on a quarterly basis by senior credit administration management, special assets officers and commercial lending management to monitor their status and discuss relationship management plans. Commercial lending management reviews the criticized business loan portfolio on a monthly basis. Delinquent loans (30 days past due through nonaccruing) as a percent of total loans was 1.28% at the end of the third quarter, 22 basis points below the 1.50% at year-end 2020 and 49 basis points above the 0.79% at September 30, 2020. The business lending delinquency ratio at the end of the third quarter was four basis points below the level at December 31, 2020 and 128 basis points above the level at September 30, 2020, largely attributable to the aforementioned pandemic-related hardship experienced by certain loan customers. The delinquency rates for the consumer mortgage, consumer indirect and consumer direct portfolios all decreased as compared to the levels at December 31, 2020 and September 30, 2020, while the delinquency rate for the home equity portfolio decreased as compared to the level at December 31, 2020 and increased as compared to the level at September 30, 2020. The Company believes the decreases in consumer delinquent loan levels was supported by the extraordinary Federal and State Government financial assistance that has been provided to consumers throughout the pandemic. 51 Table of Contents Prediction of future delinquency and credit loss performance is extremely difficult given the uncertainties centering around the evolution of the virus, the efficacy of vaccination programs, the related pace of the full resumption of business activities, and the trajectory of the economic recovery as government assistance programs are phased out. Due to the Company’s continued focus on maintaining strict underwriting standards and the effective utilization of its collection capabilities, the Company expects that its credit performance will eventually return to levels consistent with its average long-term historical results once public health, government intervention and economic conditions return to a more normalized state. Table 9: Allowance for Credit Losses Activity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ (000’s omitted) 2021 2020 ​ 2021 2020 Allowance for credit losses at beginning of period ​ $ 51,750 ​ $ 64,437 $ 60,869 ​ $ 49,911 ​ Impact of adopting ASC 326 ​ ​ 0 ​ 0 ​ 0 ​ 1,357 ​ Charge-offs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Business lending ​ ​ 872 ​ 827 ​ 925 ​ 1,010 ​ Consumer mortgage ​ ​ 127 ​ 248 ​ 369 ​ 668 ​ Consumer indirect ​ ​ 1,365 ​ 1,281 ​ 3,514 ​ 4,791 ​ Consumer direct ​ ​ 309 ​ 340 ​ 822 ​ 1,214 ​ Home equity ​ ​ 30 ​ 24 ​ 145 ​ 178 ​ Total charge-offs ​ ​ 2,703 ​ 2,720 ​ 5,775 ​ 7,861 ​ Recoveries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Business lending ​ ​ 204 ​ 99 ​ 586 ​ 369 ​ Consumer mortgage ​ ​ 3 ​ 23 ​ 22 ​ 67 ​ Consumer indirect ​ ​ 973 ​ 1,111 ​ 3,402 ​ 3,107 ​ Consumer direct ​ ​ 163 ​ 225 ​ 607 ​ 578 ​ Home equity ​ ​ 10 ​ 5 ​ 19 ​ 23 ​ Total recoveries ​ ​ 1,353 ​ 1,463 ​ 4,636 ​ 4,144 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net charge-offs ​ ​ 1,350 ​ 1,257 ​ 1,139 ​ 3,717 ​ Allowance for credit losses on acquired PCD loans ​ ​ 0 ​ 0 ​ 0 ​ 528 ​ Provision for credit losses related to loans ​ ​ (901) ​ 1,782 ​ (10,231) ​ 13,749 ​ Provision for credit losses related to acquisition ​ ​ 0 ​ 0 ​ 0 ​ 3,134 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses at end of period ​ $ 49,499 ​ $ 64,962 ​ $ 49,499 ​ $ 64,962 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities for off-balance-sheet credit exposures at beginning of period ​ $ 762 ​ $ 1,452 ​ $ 1,489 ​ $ 0 ​ Impact of adopting ASC 326 ​ ​ 0 ​ ​ 0 ​ ​ 0 ​ ​ 1,185 ​ Provision for credit losses related to off-balance-sheet credit exposures from acquisition ​ ​ 0 ​ 0 ​ 0 ​ 67 ​ Provision for credit losses related to off-balance-sheet credit exposures ​ ​ (43) ​ ​ 163 ​ ​ (770) ​ ​ 363 ​ Liabilities for off-balance-sheet credit exposures at end of period ​ $ 719 ​ $ 1,615 $ 719 ​ $ 1,615 ​ Allowance for credit losses / total loans ​ ​ 0.68 % 0.87 % ​ 0.68 % 0.87 % Allowance for credit losses / nonperforming loans ​ ​ 73 % 201 % ​ 73 % 201 % Net charge-offs (annualized) to average loans outstanding: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Business lending ​ ​ 0.08 % 0.08 % ​ 0.01 % 0.03 % Consumer mortgage ​ ​ 0.02 % 0.04 % ​ 0.02 % 0.03 % Consumer indirect ​ ​ 0.14 % 0.07 % ​ 0.01 % 0.21 % Consumer direct ​ ​ 0.34 % 0.26 % ​ 0.17 % 0.47 % Home equity ​ ​ 0.02 % 0.02 % ​ 0.04 % 0.05 % Total loans ​ ​ 0.07 % 0.07 % ​ 0.02 % 0.07 % ​ 52 Table of Contents As displayed in Table 9, net charge-offs during the third quarter of 2021 were $1.4 million, $0.1 million higher than third quarter of 2020 net charge-offs of $1.3 million. Net charge-offs for the nine months ended September 30, 2021 were $1.1 million, $2.6 million below the $3.7 million of net charge-offs during the first nine months of 2020. All portfolios experienced lower levels of net charge-offs for the YTD periods of 2021 as compared to the corresponding period of 2020. The consumer indirect, consumer direct and home equity portfolio experienced slightly higher levels of net charge-offs during the third quarter as compared to the corresponding period of 2020, while the consumer mortgage and business lending portfolios experienced slightly lower levels of net charge-offs as compared to the same period. The annualized net charge-off ratio (net charge-offs as a percentage of average loans outstanding) for the third quarter of 2021 was 0.07%, consistent with the third quarter of 2020. Net charge-off ratios for the third quarter of 2021 for the consumer direct, consumer indirect, home equity and consumer mortgage portfolios were below the Company’s average for the trailing eight quarters, while the net charge-off ratio for the business lending portfolio was above the Company’s average for the trailing eight quarters. The September YTD annualized net charge-off ratio of 0.02% for total loans was five basis points lower than it was for the equivalent prior year period. The Company recorded a $0.9 million net benefit in the provision for credit losses in the third quarter and an $11.0 million net benefit in the provision for credit losses for the YTD period. The third quarter provision for credit losses was $2.9 million less than the $2.0 million provision for credit losses recorded in the prior year’s third quarter. Exclusive of the $3.2 million of acquisition-related provision due to the Steuben transaction recorded in the second quarter of 2020, the YTD provision for credit losses was $25.1 million lower than the equivalent prior year period. The allowance for credit losses of $49.5 million as of September 30, 2021 decreased $15.5 million from the level one year ago. At the end of the third quarter of 2020, unemployment was high and economic forecasts reflected continued weakness due to the state of the COVID-19 pandemic. Conversely, during the third quarter of 2021, economic forecasts remained comparatively favorable given the state of the post-vaccine economic recovery, which, in combination with elevated real estate and vehicle collateral values, drove down expected life of loan losses, resulting in an allowance for credit losses to total loans ratio of 0.68% at September 30, 2021, 19 basis points lower than the level at September 30, 2020 and 14 basis points lower than the level at December 31, 2020. Refer to Note E: Loans of the Consolidated Financial Statements for a discussion of management’s methodology used to estimate the allowance for credit losses. As of September 30, 2021, the net purchase discount related to the $1.10 billion of remaining non-PCD loan balances acquired from prior period acquisitions was approximately $8.8 million, or 0.80% of that portfolio. Deposits As shown in Table 10, average deposits of $12.50 billion in the third quarter were $1.57 billion, or 14.4%, higher than the third quarter of 2020, primarily due to the larger than anticipated net inflows and retention of funds related to government stimulus and PPP programs. Total average deposit balances increased $1.29 billion, or 11.5%, from the fourth quarter of last year, due to continued net inflows of deposits, including those associated with additional stimulus payments and a second round of PPP lending. Average noninterest checking deposits as a percentage of average total deposits was 30.7% in the third quarter compared to 30.3% in the third quarter of 2020 and 29.9% in the fourth quarter of last year. Non-maturity deposits (noninterest checking, interest checking, savings and money markets) represent 92.3% of the Company’s deposit funding base (up from 91.2% one year earlier), while time deposits represent 7.7% of total average third quarter deposits (down from 8.8% one year earlier). The quarterly average cost of deposits was 0.09% for the third quarter of 2021, compared to 0.12% for the fourth quarter of 2020 and 0.13% in the third quarter of 2020, reflective of market-driven decreases in deposit interest rates between the periods and an increase in the proportion of average noninterest checking deposits. The Company continues to focus on expanding its core deposit relationship base through its competitive product offerings and high quality customer service. Average nonpublic fund deposits for the third quarter of 2021 increased $1.14 billion, or 11.6%, versus the fourth quarter of 2020 and increased $1.24 billion, or 12.7%, versus the year-earlier period. Average public fund deposits for the third quarter increased $151.1 million, or 11.4%, from the fourth quarter of 2020 and increased $328.8 million, or 28.5%, from the third quarter of 2020. Average public fund deposits as a percentage of total average deposits increased from 10.5% in the third quarter of 2020 to 11.9% in the third quarter of 2021, impacted by federal and state stimulus program-related support to municipalities to cover COVID-19 expenditures and investments that cover multi-year timeframes. 53 Table of Contents Table 10: Quarterly Average Deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, September 30, (000's omitted) ​ 2021 ​ 2020 ​ 2020 Noninterest checking deposits ​ $ 3,841,646 ​ $ 3,356,156 ​ $ 3,312,841 Interest checking deposits ​ 3,147,360 ​ 2,791,708 ​ 2,676,279 Savings deposits ​ 2,197,592 ​ 1,916,715 ​ 1,859,544 Money market deposits ​ 2,356,765 ​ 2,209,455 ​ 2,122,955 Time deposits ​ 960,670 ​ 935,886 ​ 962,428 Total deposits ​ $ 12,504,033 ​ $ 11,209,920 ​ $ 10,934,047 ​ ​ ​ ​ ​ ​ ​ Nonpublic fund deposits ​ $ 11,022,010 ​ $ 9,878,990 ​ $ 9,780,843 Public fund deposits ​ 1,482,023 ​ 1,330,930 ​ 1,153,204 Total deposits ​ $ 12,504,033 ​ $ 11,209,920 ​ $ 10,934,047 ​ Borrowings Borrowings, excluding securities sold under agreement to repurchase, at the end of the third quarter of 2021 totaled $6.2 million. This was $81.1 million, or 92.9%, lower than borrowings at December 31, 2020 and $92.5 million, or 93.7%, below the level at the end of the third quarter of 2020. The decrease from the prior year third quarter was primarily due to the redemption of $77.3 million of trust preferred subordinated debt held by Community Capital Trust IV (“CCT IV”), an unconsolidated subsidiary trust, during the first quarter of 2021, the redemption of $10.4 million of subordinated notes payable acquired from the Kinderhook Bank Corp. acquisition during the fourth quarter of 2020 and a decrease in other FHLB borrowings. The decrease from the fourth quarter of 2020 was primarily related to the aforementioned redemption of the trust preferred subordinated debt held by CCT IV and a decrease in other FHLB borrowings. Securities sold under agreement to repurchase, also referred to as customer repurchase agreements, represent collateralized municipal and commercial customer accounts that price and operate similar to a deposit instrument. Customer repurchase agreements were $316.8 million at the end of the third quarter of 2021, an increase of $32.8 million from December 31, 2020 due primarily to the seasonal characteristics of this portfolio, and were $36.0 million above their level at September 30, 2020, impacted by federal and state stimulus program-related support to municipalities to cover COVID-19 expenditures and investments that cover multi-year timeframes. Shareholders’ Equity Total shareholders’ equity was $2.07 billion at the end of the third quarter, down $34.2 million from the balance at December 31, 2020. The decrease was driven by $125.9 million of other comprehensive loss, net of tax, and dividends declared of $68.4 million, partially offset by net income of $146.1 million, net activity under the Company’s employee stock plan of $9.2 million, and $4.8 million recognized from employee stock options earned. The other comprehensive loss, net of tax, was comprised of a $128.1 million decrease in the after-tax market value adjustment on the available-for-sale investment portfolio as market interest rates increased between the periods, partially offset by a positive $2.2 million adjustment to the funded status of the Company’s retirement plans. Over the past 12 months, total shareholders’ equity decreased $28.7 million, as a decrease in the market value adjustment on investments and dividends declared more than offset net income, the issuance of common stock in association with the employee stock plan and the Company’s benefit plans, and the change in the funded status of the Company’s defined benefit pension and other postretirement plans. 54 Table of Contents The Company’s Tier 1 leverage ratio, a primary measure of regulatory capital for which 5% is the requirement to be “well-capitalized”, was 9.22% at the end of the third quarter, down 94 basis points from year-end 2020 and 99 basis points below its level one year earlier. The decrease in the Tier 1 leverage ratio in comparison to December 31, 2020 was the result of ending shareholders’ equity, excluding intangibles and other comprehensive income items, decreasing 0.4%, primarily from the redemption of $75.0 million of junior subordinated debt partially offset by net earnings retention, while average assets, excluding intangibles and the market value adjustment on investments, increased 9.7%, primarily due to continued inflows of customer deposits as a result of government stimulus programs. The Tier 1 leverage ratio decreased compared to the prior year’s third quarter as shareholders’ equity, excluding intangibles and other comprehensive income, increased 2.0% primarily due to earnings retention partially offset by the redemption of $75.0 million of junior subordinated debt, while average assets, excluding intangibles and the market value adjustment on investments, increased 12.9% primarily due to government stimulus program and PPP lending-related funding inflows. The net tangible equity-to-assets ratio (a non-GAAP measure) of 8.59% decreased 133 basis points from both December 31, 2020 and September 30, 2020 (See Table 11 for Reconciliation of Quarterly GAAP to Non-GAAP Measures). The decrease in the tangible equity to assets ratio over the past 12 months was primarily driven by a $1.47 billion, or 11.2%, increase in tangible assets due to the aforementioned government stimulus-related funding inflows, as well as a $154.1 million decline in the after-tax market value adjustment on the Company’s available-for-sale investment securities portfolio due to higher market interest rates and changes in the composition of the portfolio. The dividend payout ratio (dividends declared divided by net income) for the first nine months of 2021 was 46.8%, compared to 55.8% for the nine months ended September 30, 2020. Dividends declared for the first nine months of 2021 increased 3.7% compared to the first nine months of 2020, as the Company’s quarterly dividend per share was raised from $0.41 to $0.42 in the third quarter of 2020 and from $0.42 to $0.43 in the third quarter of 2021, while net income increased 23.6% versus the equivalent year-to-date period due in most part to a significantly lower provision for credit losses. The 2021 dividend increase marked the Company’s 29 th consecutive year of increased dividend payouts to common shareholders. Additionally, the number of common shares outstanding increased 0.7% over the last twelve months, primarily related to activity in the Company’s employee stock plans. Liquidity Liquidity risk is a measure of the Company’s ability to raise cash when needed at a reasonable cost and minimize any loss. The Company maintains appropriate liquidity levels in both normal operating environments as well as stressed environments. The Company must be capable of meeting all obligations to its customers at any time and, therefore, the active management of its liquidity position remains an important management objective. The Bank has appointed the Asset Liability Committee (“ALCO”) to manage liquidity risk using policy guidelines and limits on indicators of potential liquidity risk. The indicators are monitored using a scorecard with three risk level limits. These risk indicators measure core liquidity and funding needs, capital at risk and change in available funding sources. The risk indicators are monitored using such statistics as the core basic surplus ratio, unencumbered securities to average assets, free loan collateral to average assets, loans to deposits, deposits to total funding and borrowings to total funding ratios. Given the uncertain nature of the Company’s customers' demands, as well as the Company's desire to take advantage of earnings enhancement opportunities, the Company must have adequate sources of on and off-balance sheet funds available that can be utilized in time of need. Accordingly, in addition to the liquidity provided by balance sheet cash flows, liquidity must be supplemented with additional sources such as credit lines from correspondent banks and borrowings from the FHLB and the Federal Reserve Bank of New York (“Federal Reserve”). Other funding alternatives may also be appropriate from time to time, including wholesale and retail repurchase agreements, large certificates of deposit and the brokered CD market. The primary source of non-deposit funds is FHLB overnight advances, of which there were no outstanding borrowings at September 30, 2021. The Company’s primary sources of liquidity are its liquid assets, as well as unencumbered loans and securities that can be used to collateralize additional funding. At September 30, 2021, the Bank had $2.32 billion of cash and cash equivalents of which $2.10 billion are interest-earning deposits held at the Federal Reserve, FHLB and other correspondent banks. The Company also had $1.66 billion in unused FHLB borrowing capacity based on the Company’s quarter-end loan collateral levels and maintained $248.9 million of funding availability at the Federal Reserve Bank’s discount window. Additionally, the Company has $2.03 billion of unencumbered securities that could be pledged at the FHLB or Federal Reserve to obtain additional funding. There is $25.0 million available in unsecured lines of credit with other correspondent banks at quarter-end. 55 Table of Contents The Company’s primary approach to measuring short-term liquidity is known as the Basic Surplus/Deficit model. It is used to calculate liquidity over two time periods: first, the amount of cash that could be made available within 30 days (calculated as liquid assets less short-term liabilities as a percentage of average assets); and second, a projection of subsequent cash availability over an additional 60 days. As of September 30, 2021, this ratio was 24.9% for 30-days and 25.1% for 90-days, excluding the Company's capacity to borrow additional funds from the FHLB and other sources. This is considered to be a sufficient amount of liquidity based on the Company’s internal policy requirement of 7.5%. A sources and uses statement is used by the Company to measure intermediate liquidity risk over the next twelve months. As of September 30, 2021, there is more than enough liquidity available during the next year to cover projected cash outflows. In addition, stress tests on the cash flows are performed in various scenarios ranging from high probability events with a low impact on the liquidity position to low probability events with a high impact on the liquidity position. The results of the stress tests as of September 30, 2021 indicate the Company has sufficient sources of funds for the next year in all simulated stressed scenarios. To measure longer-term liquidity, a baseline projection of loan and deposit growth for five years is made to reflect how liquidity levels could change over time. This five-year measure reflects ample liquidity for loan and other asset growth over the next five years. Though remote, the possibility of a funding crisis exists at all financial institutions. Accordingly, management has addressed this issue by formulating a Liquidity Contingency Plan, which has been reviewed and approved by both the Company’s Board of Directors (the “Board”) and the Company’s ALCO. The plan addresses the actions that the Company would take in response to both a short-term and long-term funding crisis. A short-term funding crisis would most likely result from a shock to the financial system, either internal or external, which disrupts orderly short-term funding operations. Such a crisis would likely be temporary in nature and would not involve a change in credit ratings. A long-term funding crisis would most likely be the result of drastic credit deterioration at the Company. Management believes that both potential circumstances have been fully addressed through detailed action plans and the establishment of trigger points for monitoring such events. 56 Table of Contents Forward-Looking Statements This report contains comments or information that constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995), which involve significant risks and uncertainties. Forward-looking statements often use words such as “anticipate,” “could,” “target,” “expect,” “estimate,” “intend,” “plan,” “goal,” “forecast,” “believe,” or other words of similar meaning. These statements are based on the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from the results discussed in the forward-looking statements. Moreover, the Company’s plans, objectives and intentions are subject to change based on various factors (some of which are beyond the Company’s control). Factors that could cause actual results to differ from those discussed in the forward-looking statements include: (1) the macroeconomic and other challenges and uncertainties related to the COVID-19 pandemic, variants of COVID-19, and related vaccine rollout and efficacy, including the negative impacts and disruptions on public health, the Company’s corporate and consumer customers, the communities the Company serves, and the domestic and global economy, which may have an adverse effect on the Company’s business; (2) current and future economic and market conditions, including the effects of a decline in housing or vehicle prices, higher unemployment rates, labor shortages, inability to obtain raw materials and supplies, U.S. fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth; (3) changes to the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (the “PPP”), including to the rules under which the PPP is administered, with respect to the origination, servicing, or forgiveness of PPP loans, whether now existing or originated in the future, or the terms and conditions of any guaranteed payments due to the Company from the SBA with respect to PPP loans; (4) the effect of, and changes in, monetary and fiscal policies and laws, including future changes in Federal or State statutory income tax rates and interest rate and other policy actions of the Board of Governors of the Federal Reserve System; (5) the effect of changes in the level of checking or savings account deposits on the Company’s funding costs and net interest margin; (6) future provisions for credit losses on loans and debt securities; (7) changes in nonperforming assets; (8) the effect of a fall in stock market or bond prices on the Company’s fee income businesses, including its employee benefit services, wealth management, and insurance businesses; (9) risks related to credit quality; (10) inflation, interest rate, liquidity, market and monetary fluctuations; (11) the strength of the U.S. economy in general and the strength of the local economies where the Company conducts its business; (12) the timely development of new products and services and customer perception of the overall value thereof (including features, pricing and quality) compared to competing products and services; (13) changes in consumer spending, borrowing and savings habits; (14) technological changes and implementation and financial risks associated with transitioning to new technology-based systems involving large multi-year contracts; (15) the ability of the Company to maintain the security of its financial, accounting, technology, data processing and other operating systems and facilities; (16) effectiveness of the Company’s risk management processes and procedures, reliance on models which may be inaccurate or misinterpreted, the Company’s ability to manage its credit or interest rate risk, the sufficiency of its allowance for credit losses and the accuracy of the assumptions or estimates used in preparing the Company’s financial statements and disclosures; (17) failure of third parties to provide various services that are important to the Company’s operations; (18) any acquisitions or mergers that might be considered or consummated by the Company and the costs and factors associated therewith, including differences in the actual financial results of the acquisition or merger compared to expectations and the realization of anticipated cost savings and revenue enhancements; (19) the ability to maintain and increase market share and control expenses; (20) the nature, timing and effect of changes in banking regulations or other regulatory or legislative requirements affecting the respective businesses of the Company and its subsidiaries, including changes in laws and regulations concerning taxes, accounting, banking, risk management, securities and other aspects of the financial services industry, specifically the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 or those emanating from COVID-19; (21) changes in the Company’s organization, compensation and benefit plans and in the availability of, and compensation levels for, employees in its geographic markets; (22) the outcome of pending or future litigation and government proceedings; (23) other risk factors outlined in the Company’s filings with the SEC from time to time; and (24) the success of the Company at managing the risks of the foregoing. The foregoing list of important factors is not all-inclusive. For more information about factors that could cause actual results to differ materially from the Company’s expectations, refer to “Item 1A Risk Factors” in the Company’s Annual Report on Form 10-K filed with Securities and Exchange Commission for the year ended December 31, 2020. Any forward-looking statements speak only as of the date on which they are made and the Company does not undertake any obligation to update any forward-looking statement, whether written or oral, to reflect events or circumstances after the date on which such statement is made. If the Company does update or correct one or more forward-looking statements, investors and others should not conclude that the Company will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. 57 Table of Contents Reconciliation of GAAP to Non-GAAP Measures Table 11: GAAP to Non-GAAP Reconciliations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Nine Months Ended ​ ​ September 30, ​ September 30, (000's omitted) 2021 2020 2021 2020 Income statement data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pre-tax, pre-provision net revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (GAAP) ​ $ 45,336 ​ $ 42,809 ​ $ 146,130 ​ $ 118,191 Income taxes ​ 12,092 ​ 10,904 ​ 38,616 ​ 29,153 Income before income taxes ​ 57,428 ​ 53,713 ​ 184,746 ​ 147,344 Provision for credit losses ​ (944) ​ 1,945 ​ (11,001) ​ 17,313 Pre-tax, pre-provision net revenue (non-GAAP) ​ 56,484 ​ 55,658 ​ 173,745 ​ 164,657 Acquisition expenses ​ 102 ​ 796 ​ 133 ​ 4,537 Unrealized loss (gain) on equity securities ​ 10 ​ 12 ​ (14) ​ 30 Litigation accrual ​ ​ (100) ​ ​ 2,950 ​ ​ (100) ​ ​ 2,950 Adjusted pre-tax, pre-provision net revenue (non-GAAP) ​ $ 56,496 ​ $ 59,416 ​ $ 173,764 ​ $ 172,174 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pre-tax, pre-provision net revenue per share ​ ​ ​ ​ ​ ​ Diluted earnings per share (GAAP) ​ $ 0.83 ​ $ 0.79 ​ $ 2.68 ​ $ 2.22 Income taxes ​ 0.22 ​ 0.20 ​ 0.71 ​ 0.55 Income before income taxes ​ 1.05 ​ 0.99 ​ 3.39 ​ 2.77 Provision for credit losses ​ (0.01) ​ 0.04 ​ (0.20) ​ 0.32 Pre-tax, pre-provision net revenue per share (non-GAAP) ​ 1.04 ​ 1.03 ​ 3.19 ​ 3.09 Acquisition expenses ​ 0.00 ​ 0.02 ​ 0.00 ​ 0.09 Unrealized loss (gain) on equity securities ​ 0.00 ​ 0.00 ​ 0.00 ​ 0.00 Litigation accrual ​ ​ 0.00 ​ ​ 0.05 ​ ​ 0.00 ​ ​ 0.05 Adjusted pre-tax, pre-provision net revenue per share (non-GAAP) ​ $ 1.04 ​ $ 1.10 ​ $ 3.19 ​ $ 3.23 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ Net income (GAAP) ​ $ 45,336 ​ $ 42,809 ​ $ 146,130 ​ $ 118,191 Acquisition expenses ​ 102 ​ 796 ​ 133 ​ 4,537 Tax effect of acquisition expenses ​ (21) ​ (162) ​ (27) ​ (915) Subtotal (non-GAAP) ​ 45,417 ​ 43,443 ​ 146,236 ​ 121,813 Acquisition-related provision for credit losses ​ 0 ​ 0 ​ 0 ​ 3,201 Tax effect of acquisition-related provision for credit losses ​ 0 ​ 0 ​ 0 ​ (649) Subtotal (non-GAAP) ​ ​ 45,417 ​ ​ 43,443 ​ ​ 146,236 ​ ​ 124,365 Unrealized loss (gain) on equity securities ​ ​ 10 ​ ​ 12 ​ ​ (14) ​ ​ 30 Tax effect of unrealized loss (gain) on equity securities ​ ​ (2) ​ ​ (2) ​ ​ 2 ​ ​ (6) Subtotal (non-GAAP) ​ ​ 45,425 ​ ​ 43,453 ​ ​ 146,224 ​ ​ 124,389 Litigation accrual ​ ​ (100) ​ ​ 2,950 ​ ​ (100) ​ ​ 2,950 Tax effect of litigation accrual ​ ​ 21 ​ ​ (599) ​ ​ 21 ​ ​ (599) Operating net income (non-GAAP) ​ 45,346 ​ 45,804 ​ 146,145 ​ 126,740 Amortization of intangibles ​ 3,703 ​ 3,581 ​ 10,300 ​ 10,772 Tax effect of amortization of intangibles ​ (780) ​ (727) ​ (2,155) ​ (2,130) Subtotal (non-GAAP) ​ 48,269 ​ 48,658 ​ 154,290 ​ 135,382 Acquired non-impaired loan accretion ​ (906) ​ (1,326) ​ (3,177) ​ (4,156) Tax effect of acquired non-impaired loan accretion ​ 191 ​ 269 ​ 666 ​ 821 Adjusted net income (non-GAAP) ​ $ 47,554 ​ $ 47,601 ​ $ 151,779 ​ $ 132,047 ​ 58 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Nine Months Ended ​ ​ September 30, ​ September 30, (000's omitted) 2021 2020 2021 2020 Return on average assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted net income (non-GAAP) ​ $ 47,554 $ 47,601 ​ $ 151,779 ​ $ 132,047 ​ Average total assets ​ 15,027,478 ​ 13,543,460 ​ 14,638,269 ​ 12,564,600 ​ Adjusted return on average assets (non-GAAP) ​ 1.26 % ​ 1.40 % 1.39 % 1.40 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on average equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted net income (non-GAAP) ​ $ 47,554 $ 47,601 ​ $ 151,779 ​ $ 132,047 ​ Average total equity ​ 2,104,164 ​ 2,095,211 ​ 2,057,700 ​ 2,002,797 ​ Adjusted return on average equity (non-GAAP) ​ 8.97 % ​ 9.04 % 9.86 % 8.81 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per common share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings per share (GAAP) ​ $ 0.83 ​ $ 0.79 ​ $ 2.68 ​ $ 2.22 ​ Acquisition expenses ​ 0.00 ​ 0.02 ​ 0.00 ​ 0.09 ​ Tax effect of acquisition expenses ​ 0.00 ​ 0.00 ​ 0.00 ​ (0.02) ​ Subtotal (non-GAAP) ​ 0.83 ​ 0.81 ​ 2.68 ​ 2.29 ​ Acquisition-related provision for credit losses ​ 0.00 ​ 0.00 ​ 0.00 ​ 0.06 ​ Tax effect of acquisition-related provision for credit losses ​ 0.00 ​ 0.00 ​ 0.00 ​ (0.01) ​ Subtotal (non-GAAP) ​ 0.83 ​ 0.81 ​ 2.68 ​ 2.34 ​ Unrealized loss (gain) on equity securities ​ 0.00 ​ 0.00 ​ 0.00 ​ 0.00 ​ Tax effect of unrealized loss (gain) on equity securities ​ 0.00 ​ 0.00 ​ 0.00 ​ 0.00 ​ Subtotal (non-GAAP) ​ ​ 0.83 ​ ​ 0.81 ​ ​ 2.68 ​ ​ 2.34 ​ Litigation accrual ​ ​ 0.00 ​ ​ 0.05 ​ ​ 0.00 ​ ​ 0.05 ​ Tax effect of litigation accrual ​ ​ 0.00 ​ ​ (0.01) ​ ​ 0.00 ​ ​ (0.01) ​ Operating earnings per share (non-GAAP) ​ 0.83 ​ 0.85 ​ 2.68 ​ 2.38 ​ Amortization of intangibles ​ 0.07 ​ 0.07 ​ 0.19 ​ 0.21 ​ Tax effect of amortization of intangibles ​ (0.01) ​ (0.01) ​ (0.04) ​ (0.03) ​ Subtotal (non-GAAP) ​ 0.89 ​ 0.91 ​ 2.83 ​ 2.56 ​ Acquired non-impaired loan accretion ​ (0.02) ​ (0.03) ​ (0.06) ​ (0.09) ​ Tax effect of acquired non-impaired loan accretion ​ 0.00 ​ 0.00 ​ 0.01 ​ 0.01 ​ Diluted adjusted net earnings per share (non-GAAP) ​ $ 0.87 ​ $ 0.88 ​ $ 2.78 ​ $ 2.48 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expenses (GAAP) ​ $ 100,436 ​ $ 96,966 ​ $ 287,225 ​ $ 281,532 ​ Amortization of intangibles ​ (3,703) ​ (3,581) ​ (10,300) ​ (10,772) ​ Acquisition expenses ​ (102) ​ (796) ​ (133) ​ (4,537) ​ Litigation accrual ​ ​ 100 ​ ​ (2,950) ​ ​ 100 ​ ​ (2,950) ​ Total adjusted noninterest expenses (non-GAAP) ​ $ 96,731 ​ $ 89,639 ​ $ 276,892 ​ $ 263,273 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Efficiency ratio ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted noninterest expenses (non-GAAP) - numerator ​ $ 96,731 ​ $ 89,639 ​ $ 276,892 ​ $ 263,273 ​ Fully tax-equivalent net interest income ​ 93,416 ​ 93,928 ​ 281,242 ​ 277,980 ​ Noninterest revenues ​ 64,309 ​ 59,659 ​ 182,300 ​ 171,219 ​ Acquired non-impaired loan accretion ​ (906) ​ (1,326) ​ (3,177) ​ (4,156) ​ Unrealized loss (gain) on equity securities ​ 10 ​ 12 ​ (14) ​ 30 ​ Operating revenues (non-GAAP) - denominator ​ $ 156,829 ​ $ 152,273 ​ $ 460,351 ​ $ 445,073 ​ Efficiency ratio (non-GAAP) ​ 61.7 % 58.9 % 60.1 % 59.2 % ​ 59 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, September 30, ​ (000's omitted) ​ 2021 ​ 2020 ​ 2020 ​ Balance sheet data – at end of quarter ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets (GAAP) ​ $ 15,331,098 ​ $ 13,931,094 ​ $ 13,845,325 ​ Intangible assets ​ (868,104) ​ (846,648) ​ (850,214) ​ Deferred taxes on intangible assets ​ 43,768 ​ 44,370 ​ 44,733 ​ Total tangible assets (non-GAAP) ​ $ 14,506,762 ​ $ 13,128,816 ​ $ 13,039,844 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total common equity ​ ​ ​ ​ ​ ​ ​ Shareholders' Equity (GAAP) ​ $ 2,069,934 ​ $ 2,104,107 ​ $ 2,098,660 ​ Intangible assets ​ (868,104) ​ (846,648) ​ (850,214) ​ Deferred taxes on intangible assets ​ 43,768 ​ 44,370 ​ 44,733 ​ Total tangible common equity (non-GAAP) ​ $ 1,245,598 ​ $ 1,301,829 ​ $ 1,293,179 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net tangible equity-to-assets ratio at quarter end ​ ​ ​ ​ ​ ​ ​ Total tangible common equity (non-GAAP) - numerator ​ $ 1,245,598 ​ $ 1,301,829 ​ $ 1,293,179 ​ Total tangible assets (non-GAAP) - denominator ​ $ 14,506,762 ​ $ 13,128,816 ​ $ 13,039,844 ​ Net tangible equity-to-assets ratio at quarter end (non-GAAP) ​ 8.59 % 9.92 % 9.92 % ​ ​