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, 2022 and 2021, although in some circumstances the second and first quarters of 2022 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 32. 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 2022, “last year” and equivalent terms refer to calendar year 2021, “third quarter” refers to the three months ended September 30, 2022, “YTD” refers to the nine months ended September 30, 2022, 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 53. 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 76-88 of the most recent Form 10-K (fiscal year ended December 31, 2021) filed with the Securities and Exchange Commission (“SEC”) on March 1, 2022. A summary of new accounting policies used by management is disclosed in Note C, “Accounting Policies” on pages 12-13 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 acquired non-purchased credit deteriorated (“PCD”) loans, acquisition expenses, acquisition-related contingent consideration adjustments, 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, acquisition-related contingent consideration adjustments, 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 the Current Expected Credit Losses (“CECL”) model and the economic uncertainty caused by the COVID-19 pandemic. Earnings per share were $0.90 in the third quarter of 2022, up $0.07, or 8.4%, from the third quarter of 2021. Diluted adjusted net earnings per share, a non-GAAP measure, were $0.94 in the third quarter of 2022, compared to $0.87 in the third quarter of 2021, a $0.07 per share, or 8.0%, increase. Adjusted pre-tax, pre-provision net revenue, a non-GAAP measure, was $1.25 per weighted average diluted share in the third quarter of 2022, up $0.21, or 20.2%, from the third quarter of 2021. Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 10. 33 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 growth in existing banking, employee benefit, insurance and wealth management 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 May 13, 2022, the Company completed its merger with Elmira Savings Bank (“Elmira”), a New York State chartered savings bank headquartered in Elmira, New York, for $82.2 million in cash. The merger enhanced the Company’s presence in five counties in New York’s Southern Tier and Finger Lakes regions. In connection with the merger, the Company added eight full-service offices to its branch service network and acquired approximately $579.0 million of identifiable assets, including $437.0 million of loans, $11.3 million of investment securities and $8.0 million of core deposit intangibles, as well as $522.3 million of deposits. Preliminary goodwill of $45.8 million was recognized as a result of the merger. Third quarter net income increased compared to last year’s third quarter by $3.4 million, or 7.4%, while YTD net income decreased compared to the equivalent 2021 timeframe by $10.6 million, or 7.2%. Earnings per share of $0.90 for the third quarter of 2022 was $0.07 more than the third quarter of 2021, whereas 2022 YTD earnings per share of $2.49 was $0.19 lower than 2021 YTD earnings per share. The increases in net income and earnings per share between the quarters were due to increases in net interest income and noninterest revenues and a decrease in fully-diluted average shares outstanding, offset, in part, by higher noninterest expenses and increases in the provision for credit losses and income taxes. The decreases in net income and earnings per share between the YTD periods were due to increases in noninterest expenses and the provision for credit losses, including the impacts from the Elmira acquisition, partially offset by increases in net interest income and noninterest revenues and decreases in income taxes and fully-diluted shares outstanding. Third quarter and YTD net income adjusted to exclude acquisition expenses, acquisition-related contingent consideration adjustments, acquisition-related provision for credit losses, litigation accrual expenses and the unrealized gain (loss) on equity securities (“operating net income”), a non-GAAP measure, increased $3.7 million, or 8.1%, as compared to the third quarter of 2021 and decreased $3.5 million, or 2.4%, compared to September YTD 2021. Earnings per share adjusted to exclude acquisition expenses, acquisition-related contingent consideration adjustments, 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 $0.90 for the third quarter of 2022 increased $0.07 compared to the third quarter of 2021. Operating earnings per share of $2.62 for the first nine months of 2022 decreased $0.06 compared to the prior year period. 2021 results were enhanced by a net benefit recorded in the provision for credit losses and higher Paycheck Protection Program (“PPP”)-related revenues than the comparable periods of 2022, which, net of tax, were responsible for a $0.14 decrease in fully-diluted operating earnings per share between the comparable quarters and a $0.45 decrease between the comparable YTD periods. Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 10. 34 Table of Contents Net income adjusted to exclude income taxes, provision for credit losses, acquisition expenses, acquisition-related contingent consideration adjustments, litigation accrual expenses and the unrealized gain (loss) on equity securities (“adjusted pre-tax, pre-provision net revenue”), a non-GAAP measure, of $67.9 million for the third quarter increased $11.4 million, or 20.1%, as compared to the third quarter of 2021. Adjusted pre-tax, pre-provision net revenue of $190.1 million for the first nine months of 2022 increased $16.3 million, or 9.4%, as compared to the first nine months of 2021. Earnings per share adjusted to exclude income taxes, provision for credit losses, acquisition expenses, acquisition-related contingent consideration adjustments, 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 $1.25 for the third quarter of 2022 was $0.21 higher than the third quarter of 2021, and 2022 YTD adjusted pre-tax, pre-provision net revenue per share of $3.49 was $0.30 higher than the prior YTD period as the increases in revenues outpaced the increase in operating expenses between the periods. Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 10. Loans and deposits increased on both an ending and average basis as compared to the prior year third quarter, reflective of large net inflows of funds from government stimulus programs and PPP lending, along with the Company’s continued enhanced focus on organic loan generation and the second quarter 2022 acquisition of Elmira. The yield on average interest-earning assets increased 35 basis points compared to the prior year third quarter as the yields on average investments including cash equivalents and average loans both increased, while on a YTD basis the yield on average interest-earning assets increased four basis points as the yield on average investments including cash equivalents increased while the yield on average loans decreased. The yield on average investments, including cash equivalents, increased 50 basis points compared to the prior year’s third quarter and increased 33 basis points compared to the prior YTD, as the Company meaningfully shifted the composition of earning assets away from cash equivalents that were earning a low yield in the prior year to higher yielding investment securities between the periods. The yield on average loans for the third quarter increased by seven basis points compared to the third quarter of 2021 and decreased 14 basis points on a YTD basis. The yield on average loans included a decline in PPP-related interest income between the periods, which declined $3.9 million on a quarterly basis and $11.9 million on a YTD basis. The Company’s total cost of funds for the first nine months of 2022 remained consistent with the year earlier period, as the decrease in the Company’s deposit funding cost was offset by an increase in the rate on borrowings 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 have lower rates of interest than other types of wholesale borrowings. The provision for credit losses of $5.1 million for the third quarter and $12.0 million for YTD 2022 were up $6.0 million and $23.0 million from the comparable prior year periods, respectively. The third quarter and YTD 2022 provision for credit losses was reflective of a weaker economic forecast and an increase in loans outstanding, partially offset by continued low levels of net charge-offs, delinquent loans and nonperforming loans. The second quarter provision for credit losses included $3.9 million of acquisition-related provision for credit losses due to the Elmira acquisition. Comparatively, at the end of the third quarter of 2021, economic forecasts reflected a post-vaccine economic recovery and included the continuation of elevated real estate and vehicle collateral values, resulting in a release of reserves for the quarter and on a YTD basis. Net charge-offs were $0.4 million for the third quarter and $1.3 million for the first nine months of 2022, compared to net charge-offs of $1.4 million for the prior year third quarter and $1.1 million for the first nine months of 2021. Third quarter 2022 nonperforming and delinquent loan ratios improved in comparison to the third quarter of 2021 largely attributable to the upgrade of several large business loans, primarily customers operating in the hospitality industry whose operations were negatively impacted during the height of the pandemic, from nonaccrual status to accruing status during the fourth quarter of 2021 and first quarter of 2022 . ​ 35 Table of Contents Net Income and Profitability As shown in Table 1, net income for the third quarter and September YTD of $48.7 million and $135.6 million, respectively, increased $3.4 million, or 7.4%, as compared to the third quarter of 2021 and decreased $10.6 million, or 7.2%, compared to September YTD 2021. Earnings per share of $0.90 for the third quarter was $0.07 higher than the third quarter of 2021, while earnings per share for the first nine months of 2022 of $2.49 was $0.19 lower than the first nine months of 2021. The increases in net income and earnings per share between the quarters were due to increases in net interest income and noninterest revenues and a decrease in fully-diluted average shares outstanding, partially offset by higher noninterest expenses and increases in the provision for credit losses and income taxes. The decreases in net income and earnings per share between the YTD periods were due to increases in noninterest expenses and the provision for credit losses, including the impacts from the Elmira acquisition, partially offset by increases in net interest income and noninterest revenues and decreases in income taxes and fully-diluted shares outstanding. Operating net income, a non-GAAP measure, of $49.0 million and $142.6 million for the third quarter and September YTD, respectively, increased $3.7 million, or 8.1%, as compared to the third quarter of 2021 and decreased $3.5 million, or 2.4%, compared to September YTD 2021. Operating earnings per share, a non-GAAP measure, of $0.90 for the third quarter was up $0.07 compared to the third quarter of 2021, while operating earnings per share of $2.62 for the first nine months of 2022 was down $0.06 compared to the first nine months of 2021. 2021 results were enhanced by a net benefit recorded in the provision for credit losses and higher PPP-related revenues than the comparable periods of 2022, which, net of tax, were responsible for a $0.14 decrease in fully-diluted operating earnings per share between the comparable quarters and a $0.45 decrease between the comparable YTD periods. See Table 10 for Reconciliation of GAAP to Non-GAAP Measures. As reflected in Table 1, third quarter net interest income of $110.4 million was up $17.8 million, or 19.2%, from the comparable prior year period. Net interest income for the first nine months of 2022 increased $29.7 million, or 10.7%, versus the first nine months of 2021. The quarterly and year-over-year improvements resulted from an increase in the yield on interest-earning assets and an increase in interest-earning asset balances, partially offset by an increase in the average rate paid on interest-bearing liabilities and an increase in interest-bearing liability balances. The provision for credit losses for the third quarter and September YTD increased $6.0 million and $23.0 million as compared to the third quarter and first nine months of 2021, respectively. The third quarter and YTD 2022 provision for credit losses was reflective of a weaker economic forecast and an increase in loans outstanding, partially offset by continued low levels of net charge-offs, delinquent loans and nonperforming loans. The second quarter provision for credit losses included $3.9 million of acquisition-related provision for credit losses due to the Elmira acquisition. Third quarter and year-to-date noninterest revenues were $65.2 million and $195.0 million, respectively, up $0.9 million, or 1.5%, from the third quarter of 2021 and up $12.7 million, or 7.0%, from the first nine months of 2021. The increase compared to the prior year’s third quarter was a result of increases in insurance services revenue, deposit service charges and fees, debit interchange and ATM fees and unrealized gains and losses on equity securities, partially offset by decreases in employee benefit services revenue, wealth management services revenue, mortgage banking revenue and other banking revenue. The YTD increase was due to increases in insurance services revenue, deposit service charges and fees, employee benefit services revenue and debit interchange and ATM fees, partially offset by decreases in mortgage banking revenue, wealth management services revenue, other banking revenue and unrealized gains and losses on equity securities. Noninterest expenses of $108.2 million and $318.4 million for the third quarter and September YTD periods, respectively, reflected an increase of $7.8 million, or 7.7%, from the third quarter of 2021 and an increase of $31.2 million, or 10.9%, from the first nine months of 2021. The increase in noninterest expenses for the quarter was due to increases in salaries and benefits, business development and marketing expenses, data processing and communications expenses, other expenses, occupancy and equipment expenses, acquisition expenses, amortization of intangible assets and the absence of a litigation accrual expense adjustment, partially offset by a decrease in legal and professional fees. The YTD increase in noninterest expenses was due to increases in salaries and benefits, acquisition expenses, other expenses, business development and marketing expenses, data processing and communications expenses, legal and professional fees, amortization of intangible assets, acquisition-related contingent consideration adjustments, occupancy and equipment expenses and the absence of a negative litigation accrual expense adjustment. Excluding acquisition expenses, acquisition-related contingent consideration adjustments and litigation accrual expenses, 2022 operating expenses were $7.3 million, or 7.3%, higher for the third quarter and $26.2 million, or 9.1%, higher for the year-to-date timeframe, in part due to the acquisition of Elmira Savings Bank in the second quarter of 2022 and financial services acquisitions. ​ 36 Table of Contents The effective income tax rates were 22.0% and 21.6% for the third quarter and YTD 2022, respectively, as compared to 21.1% and 20.9% for the comparable prior year periods. The effective tax rate in the third quarter of 2021 was driven down by a decrease in the Company’s full year effective tax rate projection. The increase in the YTD effective tax rate was fully attributable to lower levels of tax benefits related to stock-based compensation activity. The effective tax rates adjusted to exclude stock-based compensation tax benefits for both YTD periods were 22.0%. 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) 2022 2021 2022 2021 Net interest income ​ $ 110,394 ​ $ 92,611 ​ $ 308,407 ​ $ 278,670 Provision for credit losses ​ ​ 5,061 ​ ​ (944) ​ ​ 12,005 ​ ​ (11,001) Noninterest revenues ​ 65,249 ​ 64,309 ​ 195,019 ​ 182,300 Noninterest expenses ​ ​ 108,185 ​ ​ 100,436 ​ ​ 318,416 ​ ​ 287,225 Income before income taxes ​ 62,397 ​ 57,428 ​ 173,005 ​ 184,746 Income taxes ​ 13,706 ​ 12,092 ​ 37,454 ​ 38,616 Net income ​ $ 48,691 ​ $ 45,336 ​ $ 135,551 ​ $ 146,130 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted weighted average common shares outstanding ​ 54,290 ​ 54,541 ​ 54,396 ​ 54,516 Diluted earnings per share ​ $ 0.90 ​ $ 0.83 ​ $ 2.49 ​ $ 2.68 ​ Net Interest Income Net interest income is the amount by which interest and fees on interest-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 customer and external borrowings. Net interest margin is the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities as a percentage of interest-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 $111.5 million, an increase of $18.1 million, or 19.4%, compared to the same period last year. This was driven by a 35 basis point increase in the average yield on interest-earnings assets and a $1.08 billion increase in average interest-earning assets, partially offset by a nine basis point increase in the average rate paid on interest-bearing liabilities and a $724.5 million increase in average interest-bearing liabilities in comparison to the third quarter of 2021. As reflected in Table 3, net interest income was favorably impacted by $12.5 million due to the increase in the average yield on interest-earning assets and $8.1 million due to the volume increase in interest-earning assets, partially offset by the unfavorable impacts on net interest income of $2.2 million due to an increase in the average rate paid on interest-bearing liabilities and $0.3 million due to the volume increase in interest-bearing liabilities. September YTD net interest income (with nontaxable income converted to a fully tax-equivalent basis), as reflected in Table 2b, of $311.4 million, increased $30.1 million, or 10.7%, from the year-earlier period. The September YTD increase resulted from a $1.24 billion increase in average interest-earning assets and a four basis point increase in the average yield on interest-earning assets, partially offset by an $825.3 million increase in average interest-bearing liabilities and a one basis point increase in the average rate paid on interest-bearing liabilities. As reflected in Table 3, for September YTD, the volume increase in interest-earning assets and the increase in the average yield on interest-earning assets had favorable impacts on net interest income of $27.6 million and $3.8 million, respectively, partially offset by the volume increase in interest-bearing liabilities and the increase in the average rate paid on interest-bearing liabilities having unfavorable impacts on net interest income of $0.9 million and $0.4 million, respectively. The net interest margin of 3.03% for the third quarter of 2022 was 29 basis points higher as compared to the third quarter of 2021. The increase was the result of a 35 basis point increase in the interest-earning asset yield, partially offset by a nine basis point increase in the rate on interest-bearing liabilities. The net interest margin of 2.88% for the first nine months of 2022 was three basis points higher than the comparable period of 2021. The yield on interest-earning assets increased four basis points, while the rate on interest-bearing liabilities increased by one basis point for the first nine months of 2022 as compared to the prior year period. 37 Table of Contents The 35 basis point increase in the average yield on interest-earning assets for the quarter was the result of increases in the average yield on investments and cash equivalents and the average yield on loans. For the third quarter, the average yield on investments, including cash equivalents, increased 50 basis points and the average yield on loans increased by seven basis points compared to the prior year. The four basis point increase in the yield on interest-earning assets for the first nine months of 2022 was the result of a 33 basis point increase in the average yield on investments, including cash equivalents, partially offset by a 14 basis point decrease in the average yield on loans as compared to the prior year. The changes in the loan yields included declines in PPP-related interest income between the periods. During the third quarter of 2022, the Company recorded $0.5 million of PPP-related interest income, a decrease of $3.9 million from the prior year’s third quarter, while during the first nine months of 2022, the Company recorded $3.2 million of PPP-related interest income, a decrease of $11.9 million from the first nine months of 2021. The increase in investment yields were primarily driven by the Company meaningfully shifting the composition of earning assets away from cash equivalents that were earning a low yield at the time to higher yielding investment securities between the periods. The average rate on interest-bearing liabilities increased by nine basis points compared to the prior year quarter as the average rate paid on interest-bearing deposits increased four basis points and the average rate paid on external borrowings increased 95 basis points from the comparable prior year period. For the first nine months of 2022, the average rate on interest-bearing liabilities increased by one basis point from the comparable prior year period as the average rate on interest-bearing deposits decreased one basis point, while the average rate on external borrowings increased 27 basis points. The changes in the average rates paid on interest-bearing deposits were driven by increases in the interest rates paid on interest checking and money market deposits, while the interest rate paid on time deposits decreased. The increases in the average cost of borrowings were primarily the result of higher market interest rates and the Company entering into an overnight borrowing position during in the second quarter of 2022. The third quarter and YTD average balance of investments, including cash equivalents, increased $16.0 million and $742.7 million, respectively, as compared to the corresponding prior year periods. Investment security maturities, calls and principal payments outpaced purchases during the third quarter while investment security purchases outpaced maturities, calls and principal payments during the YTD period. The cash equivalents component of average earning assets decreased $2.05 billion and $1.47 billion for the third quarter and YTD periods, respectively, compared to the prior year periods. The decrease in cash equivalents was primarily due to the Company meaningfully shifting the composition of earning assets away from cash equivalents that at the time were earning a low yield to higher yielding investment securities and loans. Average loan balances increased $1.06 billion for the quarter and $496.7 million YTD as compared to the prior year, driven by organic and acquired growth during both periods, including the Elmira acquisition in May 2022, despite declines in average PPP loan balances. The change in average loan balances for the quarter and YTD periods included a $215.4 million and $300.1 million decrease in average PPP loans, respectively. Average interest-bearing deposits increased $479.9 million compared to the prior year quarter and $733.7 million compared to the prior YTD period. The quarterly increase in average interest-bearing deposits was due to increases in all deposit categories, due primarily to large inflows of government stimulus-related deposit funding and the Elmira acquisition in May 2022. The YTD increase in average interest-bearing deposits was due to increases in savings, interest checking and money market deposits, while time deposits declined. 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”), overnight borrowings at the Federal Reserve Bank of New York (“Federal Reserve”) and FHLB, subordinated notes payable, subordinated debt held by unconsolidated subsidiary trusts and securities sold under agreement to repurchase (customer repurchase agreements), increased $244.5 million and $91.5 million for the quarter and YTD periods, respectively. The increases in average borrowings from the prior year quarter and YTD periods were primarily due to increases in average overnight borrowings and customer repurchase agreements. Tables 2a and 2b below set 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 a marginal income tax rate of 24.1% and 24.2% in 2022 and 2021, 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 prepayment and other fees and the accretion of acquired loan marks. Average loan balances include nonaccrual loans and loans held for sale. 38 Table of Contents Table 2a: Quarterly Average Balance Sheet ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ Three Months Ended ​ ​ September 30, 2022 ​ ​ September 30, 2021 ​ ​ ​ ​ 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 ​ $ 25,730 ​ $ 114 1.76 % ​ $ 2,077,996 ​ $ 794 0.15 % Taxable investment securities (1) ​ 5,701,691 ​ 23,623 1.64 % ​ 3,800,978 ​ 16,567 1.73 % Nontaxable investment securities (1) ​ 551,610 ​ 4,681 3.37 % ​ 384,053 ​ 3,137 3.24 % Loans (net of unearned discount) (2) ​ 8,333,148 ​ 88,575 4.22 % ​ 7,268,659 ​ 75,973 4.15 % Total interest-earning assets ​ 14,612,179 ​ 116,993 3.18 % ​ 13,531,686 ​ 96,471 ​ 2.83 % Noninterest-earning assets ​ 941,117 ​ ​ ​ ​ ​ 1,495,792 ​ ​ ​ ​ Total assets ​ $ 15,553,296 ​ ​ ​ ​ ​ $ 15,027,478 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest checking, savings, and money market deposits ​ $ 8,179,556 ​ 2,206 0.11 % ​ $ 7,701,717 ​ 792 0.04 % Time deposits ​ 962,777 ​ 1,649 0.68 % ​ 960,670 ​ 2,030 0.84 % Customer repurchase agreements ​ 269,958 ​ 216 0.32 % ​ 230,906 ​ 177 0.30 % Overnight borrowings ​ ​ 188,975 ​ ​ 1,226 ​ 2.57 % ​ ​ 0 ​ ​ 0 ​ 0.00 % FHLB borrowings ​ 19,463 ​ 146 2.97 % ​ 2,920 ​ 18 2.45 % Subordinated notes payable ​ 3,261 ​ 38 4.63 % ​ 3,288 ​ 38 4.63 % Total interest-bearing liabilities ​ 9,623,990 ​ 5,481 0.23 % ​ 8,899,501 ​ 3,055 0.14 % Noninterest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest checking deposits ​ 4,192,615 ​ ​ ​ ​ ​ 3,841,646 ​ ​ ​ ​ Other liabilities ​ 56,166 ​ ​ ​ ​ ​ 182,167 ​ ​ ​ ​ Shareholders’ equity ​ 1,680,525 ​ ​ ​ ​ ​ 2,104,164 ​ ​ ​ ​ Total liabilities and shareholders’ equity ​ $ 15,553,296 ​ ​ ​ ​ ​ $ 15,027,478 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest earnings ​ ​ ​ $ 111,512 ​ ​ ​ ​ ​ $ 93,416 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest spread ​ ​ ​ ​ 2.95 % ​ ​ ​ ​ 2.69 % Net interest margin on interest-earning assets ​ ​ ​ ​ 3.03 % ​ ​ ​ ​ 2.74 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fully tax-equivalent adjustment (3) ​ ​ ​ $ 1,118 ​ ​ ​ ​ ​ $ 805 ​ (1) Averages for investment securities are based on amortized 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. ​ 39 Table of Contents Table 2b: Year-to-Date Average Balance Sheet ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended ​ Nine Months Ended ​ ​ September 30, 2022 ​ September 30, 2021 ​ ​ ​ ​ ​ ​ 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 ​ $ 473,112 ​ $ 1,306 ​ ​ 0.37 % $ 1,941,329 ​ $ 1,772 ​ ​ 0.12 % Taxable investment securities (1) ​ ​ 5,655,745 ​ ​ 69,921 ​ ​ 1.65 % ​ 3,531,272 ​ ​ 47,553 ​ ​ 1.80 % Nontaxable investment securities (1) ​ ​ 493,302 ​ ​ 12,153 ​ ​ 3.29 % ​ 406,835 ​ ​ 10,018 ​ ​ 3.29 % Loans (net of unearned discount) (2) ​ ​ 7,819,306 ​ ​ 239,322 ​ ​ 4.09 % ​ 7,322,581 ​ ​ 231,920 ​ ​ 4.23 % Total interest-earning assets ​ ​ 14,441,465 ​ ​ 322,702 ​ ​ 2.99 % ​ 13,202,017 ​ ​ 291,263 ​ ​ 2.95 % Noninterest-earning assets ​ ​ 1,092,450 ​ ​ ​ ​ ​ ​ ​ ​ 1,436,252 ​ ​ ​ ​ ​ ​ ​ Total assets ​ $ 15,533,915 ​ ​ ​ ​ ​ ​ ​ $ 14,638,269 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest checking, savings, and money market deposits ​ $ 8,230,007 ​ ​ 4,037 ​ ​ 0.07 % $ 7,474,811 ​ ​ 2,309 ​ ​ 0.04 % Time deposits ​ ​ 941,094 ​ ​ 5,074 ​ ​ 0.72 % ​ 962,559 ​ ​ 6,588 ​ ​ 0.92 % Customer repurchase agreements ​ ​ 292,411 ​ ​ 642 ​ ​ 0.29 % ​ 250,638 ​ ​ 641 ​ ​ 0.34 % Overnight borrowings ​ ​ 64,204 ​ ​ 1,233 ​ ​ 2.57 % ​ 0 ​ ​ 0 ​ ​ 0.00 % FHLB borrowings ​ ​ 10,890 ​ ​ 238 ​ ​ 2.93 % ​ 4,634 ​ ​ 75 ​ ​ 2.15 % Subordinated notes payable ​ ​ 3,268 ​ ​ 115 ​ ​ 4.69 % ​ 3,294 ​ ​ 115 ​ ​ 4.69 % Subordinated debt held by unconsolidated subsidiary trusts ​ ​ 0 ​ ​ 0 ​ ​ 0.00 % ​ 20,675 ​ ​ 293 ​ ​ 1.89 % Total interest-bearing liabilities ​ ​ 9,541,874 ​ ​ 11,339 ​ ​ 0.16 % ​ 8,716,611 ​ ​ 10,021 ​ ​ 0.15 % Noninterest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest checking deposits ​ ​ 4,075,005 ​ ​ ​ ​ ​ ​ ​ ​ 3,685,556 ​ ​ ​ ​ ​ ​ ​ Other liabilities ​ ​ 96,763 ​ ​ ​ ​ ​ ​ ​ ​ 178,402 ​ ​ ​ ​ ​ ​ ​ Shareholders’ equity ​ ​ 1,820,273 ​ ​ ​ ​ ​ ​ ​ ​ 2,057,700 ​ ​ ​ ​ ​ ​ ​ Total liabilities and shareholders’ equity ​ $ 15,533,915 ​ ​ ​ ​ ​ ​ ​ $ 14,638,269 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest earnings ​ ​ ​ ​ $ 311,363 ​ ​ ​ ​ ​ ​ ​ $ 281,242 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest spread ​ ​ ​ ​ ​ ​ ​ ​ 2.83 % ​ ​ ​ ​ ​ ​ ​ 2.80 % Net interest margin on interest-earning assets ​ ​ ​ ​ ​ ​ ​ ​ 2.88 % ​ ​ ​ ​ ​ ​ ​ 2.85 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fully tax-equivalent adjustment (3) ​ ​ ​ ​ $ 2,956 ​ ​ ​ ​ ​ ​ ​ $ 2,572 ​ ​ ​ ​ (1) Averages for investment securities are based on amortized 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 (FTE basis) may be analyzed by segregating the volume and rate components of the changes in interest income and interest expense for each underlying category. 40 Table of Contents Table 3: Rate/Volume ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three months ended September 30, 2022 ​ ​ Nine months ended September 30, 2022 ​ ​ versus September 30, 2021 ​ ​ versus September 30, 2021 ​ ​ Increase (Decrease) Due to Change in (1) ​ Increase (Decrease) Due to Change in (1) (000’s omitted) Volume Rate Net Change Volume Rate Net Change Interest earned on: ​ ​ ​ ​ ​ ​ ​ ​ Cash equivalents ​ $ (1,493) ​ $ 813 ​ $ (680) ​ $ (2,078) ​ $ 1,612 ​ $ (466) Taxable investment securities ​ 7,912 ​ (856) ​ 7,056 ​ 26,545 ​ (4,177) ​ 22,368 Nontaxable investment securities ​ 1,417 ​ 127 ​ 1,544 ​ 2,130 ​ 5 ​ 2,135 Loans ​ 11,295 ​ 1,307 ​ 12,602 ​ 15,378 ​ (7,976) ​ 7,402 Total interest-earning assets (2) ​ 8,076 ​ 12,446 ​ 20,522 ​ 27,652 ​ 3,787 ​ 31,439 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest paid on: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest checking, savings and money market deposits ​ 52 ​ 1,362 ​ 1,414 ​ 253 ​ 1,475 ​ 1,728 Time deposits ​ 4 ​ (385) ​ (381) ​ (144) ​ (1,370) ​ (1,514) Customer repurchase agreements ​ 31 ​ 8 ​ 39 ​ 98 ​ (97) ​ 1 Overnight borrowings ​ ​ 1,226 ​ ​ 0 ​ ​ 1,226 ​ ​ 1,233 ​ ​ 0 ​ ​ 1,233 FHLB borrowings ​ 123 ​ 5 ​ 128 ​ 129 ​ 34 ​ 163 Subordinated debt held by unconsolidated subsidiary trusts ​ 0 ​ 0 ​ 0 ​ (293) ​ 0 ​ (293) Total interest-bearing liabilities (2) ​ 255 ​ 2,171 ​ 2,426 ​ 922 ​ 396 ​ 1,318 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net interest earnings (2) ​ $ 7,798 ​ $ 10,298 ​ $ 18,096 ​ $ 26,686 ​ $ 3,435 ​ $ 30,121 (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. 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 has other transactions that impact noninterest revenues, including unrealized gains or losses on equity securities. 41 Table of Contents Table 4: Noninterest Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, ​ September 30, (000’s omitted) 2022 2021 ​ 2022 2021 ​ Employee benefit services ​ $ 27,884 ​ $ 29,923 ​ $ 86,385 ​ $ 83,933 ​ Insurance services ​ 11,332 ​ 9,176 ​ 31,521 ​ 25,538 ​ Wealth management services ​ ​ 7,502 ​ ​ 8,322 ​ ​ 24,276 ​ ​ 24,748 ​ Deposit service charges and fees ​ 10,755 ​ 8,816 ​ 29,715 ​ 24,305 ​ Debit interchange and ATM fees ​ 6,697 ​ 6,626 ​ 20,030 ​ 19,453 ​ Mortgage banking ​ 171 ​ 460 ​ 595 ​ 1,479 ​ Other banking revenues ​ 912 ​ 996 ​ 2,521 ​ 2,830 ​ Subtotal ​ 65,253 ​ ​ 64,319 ​ ​ 195,043 ​ ​ 182,286 ​ Unrealized (loss) gain on equity securities ​ (4) ​ (10) ​ (24) ​ 14 ​ Total noninterest revenues ​ $ 65,249 ​ $ 64,309 ​ $ 195,019 ​ $ 182,300 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest revenues/operating revenues (FTE basis) (1) ​ 37.2 % 41.0 % 38.8 % 39.6 % (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 FTE basis excluding acquired non-PCD loan accretion plus noninterest revenues excluding unrealized gains and losses on equity securities. See Table 10 for Reconciliation of GAAP to Non-GAAP Measures. As displayed in Table 4, noninterest revenues, excluding unrealized gain (loss) on equity securities, were $65.3 million for the third quarter of 2022 and $195.0 million for the first nine months of 2022. This represents an increase of $0.9 million, or 1.5%, for the quarter and an increase of $12.8 million, or 7.0%, for the YTD period in comparison to the equivalent 2021 periods. The increase for the quarterly period was driven by increases in insurance services revenue and banking noninterest revenue, partially offset by declines in employee benefit services revenue and wealth management services revenue. The increase for the YTD period was due to increases in insurance services revenue, banking noninterest revenue and employee benefit services revenue, partially offset by a decline in wealth management services revenue. Banking noninterest revenue of $18.5 million for the third quarter and $52.9 million for the first nine months of 2022 increased $1.6 million, or 9.7%, and increased $4.8 million, or 10.0%, respectively, as compared to the corresponding prior year periods. The quarterly and YTD increases were driven by increases in deposit service charges and fees and debit interchange and ATM fees, partially offset by decreases in mortgage banking revenues and other banking revenues. The increases in deposit service charges and fees were reflective of increased post-pandemic transaction activity, including the addition of new deposit relationships from the Elmira acquisition in May 2022. The Company expects to make modifications to its deposit service charges and fees over the next several quarters in order to better align with industry trends and to ensure the Company continues to provide customers with affordable and competitive banking options. Employee benefit services revenue decreased $2.0 million, or 6.8%, but increased $2.5 million, or 2.9%, for the three and nine months ended September 30, 2022, respectively, as compared to the equivalent prior year periods. The decline in quarterly revenues was driven by decreases in employee benefit trust and custodial fees, reflecting the adverse impact from market-related headwinds, while the growth on a YTD basis was primarily driven by incremental revenues from the acquisition of Fringe Benefits Design of Minnesota, Inc. (“FBD”) during the third quarter of 2021. Insurance services revenue was up $2.2 million, or 23.5%, and $6.0 million, or 23.4%, for the third quarter and YTD periods, respectively, driven by organic expansion, as well as the second quarter 2021 acquisition of a Florida-based personal lines insurance agency, the third quarter 2021 acquisition of a Boston-based specialty-lines insurance broker and the first quarter 2022 acquisitions of three other insurance agencies. Wealth management services revenue was down $0.8 million, or 9.9%, for the third quarter of 2022 and $0.5 million, or 1.9%, for September 2022 YTD as compared to the same time periods of 2021, primarily driven by more challenging investment market conditions. ​ 42 Table of Contents The ratio of noninterest revenues to operating revenues (FTE basis), as defined in footnote 1 of Table 4 above, was 37.2% for the quarter and 38.8% for the nine months ended September 30, 2022, respectively, versus 41.0% and 39.6% for the comparable periods of 2021. The decrease for the year-to-date period is a function of a 7.0% increase in adjusted noninterest revenues while adjusted net interest income (FTE basis) increased 10.7%. The decrease for the quarterly periods is reflective of a 1.5% increase in adjusted noninterest revenues while adjusted net interest income (FTE basis) increased 19.2%. 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) ​ 2022 2021 ​ 2022 2021 ​ Salaries and employee benefits $ 66,190 $ 62,883 $ 193,236 ​ $ 178,407 ​ Occupancy and equipment ​ 10,364 ​ 9,867 ​ 31,740 ​ 31,437 ​ Data processing and communications ​ 14,184 ​ 12,966 ​ 40,454 ​ 38,123 ​ Amortization of intangible assets ​ 3,837 ​ 3,703 ​ 11,420 ​ 10,300 ​ Legal and professional fees ​ 3,194 ​ 3,352 ​ 10,196 ​ 8,885 ​ Business development and marketing ​ 3,616 ​ 2,383 ​ 9,975 ​ 7,071 ​ Litigation accrual ​ ​ 0 ​ ​ (100) ​ ​ 0 ​ ​ (100) ​ Acquisition expenses ​ 409 ​ 102 ​ 4,668 ​ 133 ​ Acquisition-related contingent consideration adjustment ​ ​ 0 ​ ​ 0 ​ ​ 400 ​ ​ 0 ​ Other ​ 6,391 ​ 5,280 ​ 16,327 ​ 12,969 ​ Total noninterest expenses ​ $ 108,185 ​ $ 100,436 ​ $ 318,416 ​ $ 287,225 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating expenses (1) /average assets ​ 2.65 % 2.55 % 2.60 % 2.53 % Efficiency ratio (2) ​ 59.3 % 61.7 % 60.0 % 60.1 % (1) Operating expenses, a non-GAAP measure, is calculated as total noninterest expenses less acquisition expenses, acquisition-related contingent consideration adjustment, litigation accrual expenses and amortization of intangibles. See Table 10 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 FTE basis excluding acquired non-PCD loan accretion plus noninterest revenues excluding unrealized gains and losses on equity securities. See Table 10 for Reconciliation of GAAP to Non-GAAP Measures. ​ 43 Table of Contents As shown in Table 5, the Company recorded noninterest expenses of $108.2 million and $318.4 million for the third quarter and YTD periods of 2022, respectively, representing increases of $7.8 million, or 7.7%, and $31.2 million, or 10.9%, from the prior year periods, respectively. Acquisition expenses and acquisition-related contingent consideration adjustments of $0.4 million and $5.1 million are included in third quarter and YTD 2022 noninterest expenses, respectively. Salaries and employee benefits increased $3.3 million, or 5.3%, and $14.8 million, or 8.3%, for the third quarter and YTD periods of 2022, respectively, as compared to the corresponding periods of 2021. The increase in salaries and benefits expense was driven by increases in merit-related employee wages, acquisition-related additions to staffing, higher payroll taxes and higher employee benefit-related expenses. The remaining change to noninterest expenses are attributed to occupancy and equipment (up $0.5 million for the quarter and up $0.3 million YTD), data processing and communications (up $1.2 million for the quarter and $2.3 million YTD), amortization of intangible assets (up $0.1 million for the quarter and $1.1 million YTD), legal and professional fees (down $0.2 million for the quarter and up $1.3 million YTD), business development and marketing (up $1.2 million for the quarter and $2.9 million YTD) and other expenses (up $1.1 million for the quarter and $3.4 million YTD). Noninterest expenses were generally up due to the increase in the level of business activities and incremental expenses due to the end of most pandemic-related restrictions as well as the costs associated with operating an expanded franchise subsequent to the Elmira and financial services acquisitions, including increases in business development and marketing expenses, insurance and travel-related expenses. The increase in data processing and communications expenses was due to the Company’s continued investment in customer-facing and back office digital technologies between the comparable periods. The slight increase in occupancy and equipment expense was driven by inflationary pressures, partially offset by branch office consolidations between the periods. The Company’s efficiency ratio (as defined in the table above) was 59.3% for the third quarter, 2.4 percentage points favorable to the comparable quarter of 2021. This resulted from operating expenses (as described above) increasing 7.5%, while operating revenues (as described above) increased 11.8%. The efficiency ratio of 60.0% for the first nine months of 2022 was 0.1 percentage point favorable compared to the first nine months of 2021 due to 9.0% higher operating expenses (as described above), while operating revenues (as described above) increased by 9.3%. Current year operating expenses, excluding amortization of intangible assets, acquisition expenses, acquisition-related contingent consideration adjustments and litigation accrual expenses, as a percentage of average assets increased 0.10 percentage points versus the prior year quarter and increased 0.07 percentage points versus the prior year-to-date period as operating expenses (as defined above) increased at a faster rate than average assets. Operating expenses (as defined above) increased 7.5% for the quarter and increased 9.0% for the year-to-date period, while average assets increased 3.5% for the quarter and increased 6.1% for the year-to-date period as the strong growth of the book value of earning assets was partially offset by a significant decline in the pre-tax market value adjustment on the investment portfolio. Income Taxes The third quarter and YTD 2022 effective income tax rates were 22.0% and 21.6%, respectively, as compared to 21.1% and 20.9% for the comparable periods of 2021. The effective tax rate in the third quarter of 2021 was driven down by a decrease in the Company’s full year effective tax rate projection. The increase in the YTD effective tax rate was fully attributable to lower levels of tax benefits related to stock-based compensation activity. The Company recorded a $0.6 million and $2.0 million reduction in income tax expense associated with stock-based compensation tax benefits for YTD 2022 and YTD 2021, respectively. The effective tax rates adjusted to exclude stock-based compensation tax benefits for the third quarter and YTD 2022 were both 22.0%, as compared to 21.1% and 22.0%, for the comparable periods of 2021, respectively. Investment Securities The carrying value of investment securities (including unrealized gains and losses) was $5.23 billion at the end of the third quarter, an increase of $248.2 million from December 31, 2021 and $823.9 million higher than September 30, 2021. The carrying value of cash equivalents was $30.0 million at the end of the third quarter, a decrease of $1.69 billion from December 31, 2021 and $2.07 billion from September 30, 2021. The book value of investment securities (excluding unrealized gains and losses) of $6.19 billion at the end of the third quarter increased $1.17 billion from December 31, 2021 and increased $1.74 billion from September 30, 2021. During the first nine months of 2022, the Company purchased $1.14 billion of U.S. Treasury and agency securities with an average yield of 1.62%, $34.6 million of government agency mortgage-backed securities with an average yield of 2.75%, and $182.0 million of obligations of state and political subdivisions with an average yield of 3.96%. Additionally, the Company acquired $11.3 million of investments from Elmira during the second quarter of 2022. These additions were partially offset by $212.4 million of investment maturities, calls and principal payments during the first nine months of 2022. Additionally, there was $14.8 million of net accretion on investment securities during the first nine months of 2022. The effective duration of the investment securities portfolio was 6.5 years at the end of the third quarter of 2022, as compared to 7.5 years at the end of 2021 and 7.6 years at the end of the third quarter of 2021. 44 Table of Contents The change in the carrying value of investment securities is also impacted by the amount of net unrealized gains or losses. At September 30, 2022, the portfolio had a $964.9 million net unrealized loss, as compared to a $44.9 million net unrealized loss at December 31, 2021 and a $47.5 million net unrealized loss at September 30, 2021. 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. The following table sets forth the fair value of the Company’s investment securities portfolio: Table 6: Investment Securities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, ​ September 30, (000’s omitted) ​ 2022 ​ 2021 ​ ​ 2021 Available-for-Sale Portfolio: ​ ​ ​ ​ ​ ​ U.S. Treasury and agency securities ​ $ 4,275,440 ​ $ 3,998,564 ​ $ 3,393,260 Obligations of state and political subdivisions ​ 489,910 ​ 430,289 ​ ​ 421,965 Government agency mortgage-backed securities ​ 384,891 ​ 477,056 ​ ​ 510,676 Corporate debt securities ​ 7,033 ​ 7,962 ​ ​ 8,078 Government agency collateralized mortgage obligations ​ 13,415 ​ 20,339 ​ ​ 24,392 Total available-for-sale portfolio ​ ​ 5,170,689 ​ 4,934,210 ​ ​ 4,358,371 ​ ​ ​ ​ ​ ​ ​ ​ Equity and Other Securities: ​ ​ ​ ​ ​ ​ ​ ​ Equity securities, at fair value ​ 439 ​ 463 ​ ​ 459 Federal Home Loan Bank common stock ​ 18,438 ​ 7,188 ​ ​ 7,251 Federal Reserve Bank common stock ​ 33,568 ​ 33,916 ​ ​ 33,916 Other equity securities, at adjusted cost ​ ​ 4,158 ​ ​ 3,312 ​ ​ 3,401 Total equity and other securities ​ 56,603 ​ 44,879 ​ ​ 45,027 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total investments ​ $ 5,227,292 ​ $ 4,979,089 ​ $ 4,403,398 ​ Loans Loans ended the third quarter at $8.54 billion, an increase of $1.26 billion, or 17.3%, from one year earlier and an increase of $1.17 billion, or 15.9%, from the end of 2021. The increase during the last twelve months was driven by increases in all loan categories, including consumer mortgage, business lending, consumer indirect, home equity and consumer direct loans, due to the Elmira acquisition and net organic growth, despite a $156.2 million decrease in PPP loans due to loan forgiveness activities. The business lending portfolio consists of general-purpose business lending to commercial, industrial, non-profit and municipal customers, mortgages on commercial property and dealer floor plan financing. The business lending portfolio increased $402.2 million, or 13.0%, from September 30, 2021 and increased $418.5 million, or 13.6%, from December 31, 2021, including $125.3 million of loans acquired from Elmira in the second quarter of 2022. The increase in the business lending portfolio was driven by the Elmira acquisition and organic growth despite decreases in PPP loans of $156.2 million from September 30, 2021 and $82.0 million from December 31, 2021. 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. Consumer mortgages increased $504.5 million, or 20.4%, from one year ago and increased $419.4 million, or 16.4%, from December 31, 2021, including $271.4 million of loans acquired from Elmira in the second quarter of 2022. In addition to the Elmira acquisition, the increase in consumer mortgages was driven by refinance activities late last year and early this year, the Company’s competitive product offerings and business development efforts, in addition to strong housing demand throughout the past twelve months. 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. The Company is currently holding almost all of its new consumer mortgage production in portfolio. Home equity loans increased $37.6 million, or 9.5%, from one year ago, and increased $35.0 million, or 8.8%, from December 31, 2021, including $18.4 million of loans acquired from Elmira in the second quarter of 2022. 45 Table of Contents Consumer installment loans, both those originated directly in the branches (referred to as “consumer direct”) and indirectly in automobile, marine and other recreational vehicle dealerships (referred to as “consumer indirect”), increased $316.7 million, or 23.9%, from one year ago and increased $297.1 million, or 22.1%, from December 31, 2021, including $21.9 million of loans acquired from Elmira in the second quarter of 2022. Despite national vehicle supply shortages, the Company’s market area and dealer network have experienced robust sales activity, which, combined with higher sales prices, have resulted in significant growth in the Company’s consumer indirect portfolio. 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. Asset Quality The following table sets forth the allocation of the allowance for credit losses by loan category as well as the proportional share of each category’s loan balance to total loans. This allocation is based on management’s assessment, as of a given point in time, of the risk characteristics of each of the component parts of the total loan portfolio and is subject to changes when the risk factors of each component part change. The allocation is not indicative of either the specific amounts of the loan categories in which future charge-offs may be taken, nor should it be taken as an indicator of future loss trends. The allocation of the allowance to each category does not restrict the use of the allowance to absorb losses in any category. As shown in Table 7, the total allowance for credit losses at the end of the third quarter was $60.4 million, an increase of $10.9 million, or 21.9%, from one year earlier and an increase of $10.5 million, or 21.0%, from the end of 2021, driven primarily by significant loan growth during the intervening period. Table 7: Allowance for Credit Losses by Loan Type ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 December 31, 2021 September 30, 2021 (000’s omitted except for ratios) ​ Allowance ​ Loan Mix ​ Allowance ​ Loan Mix ​ Allowance ​ Loan Mix ​ Business lending ​ $ 23,931 ​ 40.9 % $ 22,995 ​ 41.7 % $ 22,319 ​ 42.5 % Consumer mortgage ​ 13,818 34.8 % 10,017 34.7 % 9,745 33.9 % Consumer indirect ​ 17,018 17.1 % 11,737 16.1 % 12,045 16.1 % Consumer direct ​ 3,015 2.1 % 2,306 2.1 % 2,670 2.1 % Home equity ​ 1,581 5.1 % 1,814 5.4 % 1,720 5.4 % Unallocated ​ ​ 1,000 ​ 0.0 % ​ 1,000 ​ 0.0 % ​ 1,000 ​ 0.0 % Total loans ​ $ 60,363 100.0 % $ 49,869 100.0 % $ 49,499 100.0 % ​ As demonstrated in Table 7 and discussed previously, business lending and consumer installment carry higher credit risk than residential real estate, and as a result, these loans carry allowance for credit losses that cover a higher percentage of their total portfolio balances. The unallocated allowance is maintained for potential inherent losses in the specific portfolios that are not captured due to model imprecision. The unallocated allowance of $1.0 million at September 30, 2022 was consistent with December 31, 2021 and September 30, 2021. The changes in allowance allocations reflect management’s continued refinement of its loss estimation techniques. However, given the inherent imprecision in the many estimates used in the determination of the allocated portion of the allowance, management remained conservative in the approaches used to establish the overall allowance for credit losses. Management considers the allocated and unallocated portions of the allowance for credit losses to be prudent and reasonable. Furthermore, the Company’s allowance for credit losses is general in nature and is available to absorb losses from any loan category. 46 Table of Contents Allowance for credit losses and loan net charge-off ratios are as follows: Table 8: Loan Ratios ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ September 30, ​ ​ 2022 2021 2021 Allowance for credit losses/total loans ​ 0.71 % 0.68 % 0.68 % Allowance for credit losses/nonperforming loans ​ 186 % 110 % 73 % Nonaccrual loans/total loans ​ 0.33 % 0.57 % 0.91 % Allowance for credit losses/nonaccrual loans ​ 215 % 120 % 75 % Net charge-offs (annualized) to average loans outstanding (quarterly): ​ ​ ​ ​ ​ ​ ​ ​ Business lending ​ ​ (0.03) % 0.10 % 0.08 % Consumer mortgage ​ ​ 0.01 % ​ 0.00 % ​ 0.02 % Consumer indirect ​ ​ 0.09 % ​ 0.24 % ​ 0.14 % Consumer direct ​ ​ 0.32 % ​ 0.53 % ​ 0.34 % Home equity ​ ​ 0.02 % ​ 0.01 % ​ 0.02 % Total loans ​ ​ 0.02 % ​ 0.09 % ​ 0.07 % ​ Net charge-offs during the third quarter of 2022 were $0.4 million, a decrease of $1.0 million compared to the third quarter of 2021. The business lending, consumer indirect and consumer mortgage portfolios experienced lower net charge-offs during the third quarter of 2022 as compared to the third quarter of 2021, while the consumer direct portfolio experienced higher net charge-offs as compared to the prior year third quarter, and the net charge-offs in the home equity portfolio were consistent with the equivalent prior year period. The total net charge-off ratio (net charge-offs annualized as a percentage of average loans outstanding for the quarter) for the third quarter was 0.02%, seven and five basis points lower than the ratios for the fourth and third quarters of 2021, respectively. Net charge-off ratios for the third quarter of 2022 for the business lending, consumer indirect and consumer mortgage portfolios were below the Company’s average for the trailing eight quarters, while the net charge-off ratios for the consumer direct and home equity portfolios were above the Company’s average for the trailing eight quarters. Other real estate owned (“OREO”) at September 30, 2022 was $0.5 million. This compares to $0.7 million at December 31, 2021 and $0.9 million at September 30, 2021. At September 30, 2022, OREO consisted of eight residential properties with a total value of $0.5 million. This compares to two residential properties with a total value of $0.1 million and one commercial property with a value of $0.6 million at December 31, 2021, and five residential properties with a total value of $0.3 million and one commercial property with a value of $0.6 million at September 30, 2021. Approximately 15% of the nonperforming loans at September 30, 2022 were related to the business lending portfolio, which is comprised of business loans broadly diversified by industry type. The level of nonperforming business loans decreased significantly from the prior year as the economic environment improved and businesses resumed normal operations. The Company upgraded several large business loans for customers in the hospitality industry that had previously requested extended loan repayment forbearance due to pandemic-related hardship from nonaccrual to accruing status during the first quarter of 2022 and fourth quarter of 2021. These borrowers had successfully restored all past due payment to current status, resumed their pre-forbearance payment obligations for a period of at least nine months, and demonstrated sufficient repayment capacity and cash reserves to be reclassified to accruing status. Approximately 77% of nonperforming loans at September 30, 2022 were comprised of consumer mortgages. Collateral values of residential properties within the Company’s geographic footprint have generally remained stable or have increased over the past several years. Additionally, strong economic conditions prior to COVID-19 and the generally positive economic recovery following, including low unemployment levels, have positively impacted consumers and resulted in generally more favorable nonperforming consumer mortgage ratios throughout the past few years. The remaining 8% 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 186% at the end of the third quarter, as compared to 110% at year-end 2021 and 73% at September 30, 2021. The increase in this ratio between the annual quarterly periods was primarily driven by the decrease in nonperforming business loans noted above combined with a $10.9 million increase in the allowance for credit losses. 47 Table of Contents The Company will continue to closely monitor the impact that forecasted weakening economic conditions 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 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 this analysis, 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 business lending management to monitor their status and discuss relationship management plans. Business 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 0.71% at the end of the third quarter, 29 basis points below the 1.00% at year-end 2021 and 57 basis points below the 1.28% at September 30, 2021. The business lending delinquency ratio at the end of the third quarter of 0.17% was 80 basis points below the level of 0.97% at December 31, 2021 and 155 basis points below the level of 1.72% at September 30, 2021, largely attributable to the reclassification of certain business loans’ status from nonaccrual to accruing during the fourth quarter of 2021 and first quarter of 2022. The delinquency ratio for the home equity portfolio decreased as compared to the levels at both December 31, 2021 and September 30, 2021, while consumer installment and consumer mortgage increased slightly relative to those same periods. Prediction of future delinquency and credit loss performance is difficult, because although, until recently, economic growth had been above average for most of 2021 and the unemployment rate remains low, there continues to be uncertainty regarding the economic fallout created by supply chain constraints and inflationary pressures, as well as a rising interest rate environment. 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. The Company recorded a $5.1 million provision for credit losses in the third quarter of 2022, including a $0.1 million net benefit related to off-balance sheet credit exposures. The third quarter provision for credit losses was $6.0 million higher than the equivalent prior year period’s net benefit in the provision for credit losses of $0.9 million, which was reflective of an economic recovery related to the cessation of most pandemic-related restrictions and included the continuation of elevated real estate and vehicle collateral values, resulting in a release of reserves in that quarter. The allowance for credit losses of $60.4 million as of September 30, 2022 increased $10.5 million compared to December 31, 2021 and increased $10.9 million compared to September 30, 2021, due in part to increases in non-PPP loans outstanding, including $437.0 million of loans acquired from Elmira in the second quarter of 2022, combined with weaker economic forecasts during the third quarter of 2022. The allowance for credit losses to total loans ratio was 0.71% at September 30, 2022, an increase of three basis points from the levels at both December 31, 2021 and September 30, 2021. 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, 2022, the net purchase discount related to the $1.28 billion of remaining non-PCD acquired loan balances was approximately $25.6 million, or 1.99% of that portfolio. ​ 48 Table of Contents Deposits As shown in Table 9, average deposits of $13.33 billion in the third quarter were $830.9 million, or 6.6%, higher than the third quarter of 2021, primarily due to larger than anticipated net inflows of funds related to government stimulus and PPP programs in 2021 and the addition of acquired Elmira deposit liabilities during the second quarter of 2022. The Company acquired $522.3 million of deposits in the Elmira acquisition, including $356.5 million of non-time deposits and $165.8 million of time deposits. Total average deposit balances increased $502.8 million, or 3.9%, from the fourth quarter of last year, primarily due to the addition of acquired Elmira deposit liabilities between the periods. Average noninterest checking deposits as a percentage of average total deposits was 31.4% in the third quarter compared to 30.7% in the third quarter of 2021 and the fourth quarter of last year. Non-maturity deposits (noninterest checking, interest checking, savings and money markets) represent 92.8% of the Company’s average deposit funding base during the third quarter of 2022, while time deposits represent 7.2% of total average deposits. The quarterly average cost of deposits was 0.11% for the third quarter of 2022, compared to 0.08% for the fourth quarter of 2021 and 0.09% in the third quarter of 2021, reflective of increases in the interest rates paid on interest checking and money market deposits, while the interest rate paid on time deposits decreased. The Company continues to focus on expanding its core deposit relationship base through its proactive marketing efforts, competitive product offerings and high quality customer service. Average nonpublic fund deposits for the third quarter of 2022 increased $839.6 million, or 7.5%, versus the fourth quarter of 2021 and increased $983.5 million, or 8.9%, versus the year-earlier period. Average public fund deposits for the third quarter decreased $336.8 million, or 20.2%, from the fourth quarter of 2021 and decreased $152.6 million, or 10.3%, from the third quarter of 2021. Average public fund deposits as a percentage of total average deposits decreased from 11.9% in the third quarter of 2021 to 10.0% in the third quarter of 2022 . Table 9: Quarterly Average Deposits ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ September 30, (000’s omitted) 2022 2021 2021 Noninterest checking deposits ​ $ 4,192,615 ​ $ 3,935,586 $ 3,841,646 Interest checking deposits ​ ​ 3,299,612 ​ 3,215,815 ​ 3,147,360 Savings deposits ​ ​ 2,460,915 ​ 2,227,776 ​ 2,197,592 Money market deposits ​ ​ 2,419,029 ​ 2,510,766 ​ 2,356,765 Time deposits ​ ​ 962,777 ​ ​ 942,205 ​ 960,670 Total deposits ​ $ 13,334,948 ​ $ 12,832,148 $ 12,504,033 Nonpublic fund deposits ​ $ 12,005,491 ​ $ 11,165,894 $ 11,022,010 Public fund deposits ​ ​ 1,329,457 ​ ​ 1,666,254 ​ 1,482,023 Total deposits ​ $ 13,334,948 ​ $ 12,832,148 $ 12,504,033 ​ Borrowings Borrowings, excluding securities sold under agreement to repurchase, at the end of the third quarter of 2022 totaled $142.5 million. This was $137.4 million higher than borrowings at December 31, 2021 and $136.3 million above the level at the end of the third quarter of 2021. The increases were primarily due to an increase in overnight borrowings of $119.8 million to support the funding of strong loan growth and $17.6 million of FHLB borrowings acquired from the Elmira acquisition during the second quarter of 2022. 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 $352.8 million at the end of the third quarter of 2022, an increase of $28.1 million and $36.0 million from their levels at December 31, 2021 and September 30, 2021, respectively. ​ 49 Table of Contents Shareholders’ Equity and Regulatory Capital Total shareholders’ equity was $1.46 billion at the end of the third quarter, down $639.6 million from the balance at December 31, 2021. The decrease was driven by $695.7 million of other comprehensive loss, net of tax, dividends declared of $70.2 million and common stock repurchased of $16.4 million, partially offset by net income of $135.6 million, net activity under the Company’s employee stock plan of $1.6 million, and $5.5 million recognized from employee stock options earned. The other comprehensive loss, net of tax, was comprised of a $696.5 million decrease in the after-tax market value adjustment on the available-for-sale investment portfolio due to a significant amount of securities being purchased and a meaningful upward movement in market interest rates between the periods, partially offset by a positive $0.8 million adjustment to the funded status of the Company’s retirement plans. Over the past 12 months, total shareholders’ equity decreased $608.8 million, as a decrease in the market value adjustment on investments, dividends declared and common stock repurchase activity 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. The dividend payout ratio (dividends declared divided by net income) for the first nine months of 2022 was 51.8%, compared to 46.8% for the nine months ended September 30, 2021. Dividends declared for the first nine months of 2022 increased 2.7% compared to the first nine months of 2021, as the Company’s quarterly dividend per share was raised from $0.43 to $0.44 in the third quarter of 2022, while net income decreased 7.2% versus the equivalent year-to-date period due to increases in the provision for credit losses, acquisition-related provision for credit losses and noninterest expenses, including a $4.9 million increase in acquisition-related noninterest expenses, partially offset by increases in net interest income and noninterest revenues. The 2022 dividend increase marked the Company’s 30 th consecutive year of increased dividend payouts to common shareholders. Additionally, the number of common shares outstanding decreased 0.4% over the last twelve months, as common stock repurchases outweighed issuance activity in the Company’s employee stock plans. The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. The Company and the Bank are required to maintain a “capital conservation buffer,” composed entirely of common equity Tier 1 capital, in addition to minimum risk-based capital ratios. The required capital conservation buffer is 2.5% as of September 30, 2022 and December 31, 2021. Therefore, to satisfy both the minimum risk-based capital ratios and the capital conservation buffer as of September 30, 2022 and December 31, 2021, the Company and the Bank must maintain: (i) Common equity Tier 1 capital to total risk-weighted assets (“Common equity tier 1 capital ratio”) of at least 7.0%, (ii) Tier 1 capital to total risk-weighted assets (“Tier 1 risk-based capital ratio”) of at least 8.5%, and (iii) Total capital (Tier 1 capital plus Tier 2 capital) to total risk-weighted assets (“Total risk-based capital ratio”) of at least 10.5%. In addition, the Company and Bank must maintain a ratio of ending Tier 1 capital to adjusted quarterly average assets (“Tier 1 leverage ratio”) of at least 5.0% to be considered “well capitalized” under the regulatory framework for prompt corrective action. As of September 30, 2022 and December 31, 2021, the Company and Bank meet all applicable capital adequacy requirements to be considered “well capitalized”. As of September 30, 2022 and December 31, 2021, the regulatory capital ratios for the Company and Bank are presented below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2022 December 31, 2021 ​ ​ Community Bank ​ Community ​ Community Bank ​ Community ​ System, Inc. Bank, N.A. System, Inc. Bank, N.A. ​ Tier 1 leverage ratio ​ 8.78 % 7.03 % 9.09 % 7.26 % Tier 1 risk-based capital ratio 15.50 % 12.44 % 18.60 % 14.92 % Total risk-based capital ratio 16.19 % 13.14 % 19.28 % 15.62 % Common equity Tier 1 capital ratio 15.50 % 12.44 % 18.60 % 14.92 % ​ 50 Table of Contents The Company’s Tier 1 leverage ratio was 8.78% at the end of the third quarter, down 31 basis points from year-end 2021 and 44 basis points below its level one year earlier. The decrease in the Tier 1 leverage ratio in comparison to December 31, 2021 was the result of ending shareholders’ equity, excluding intangibles and other comprehensive income, increasing 1.2%, as the impact of net earnings retention outweighed the intangible assets added from the Elmira acquisition and share repurchases, while average assets, excluding intangibles and the market value adjustment on investments, increased 4.8%, primarily due to strong organic loan growth and the Elmira acquisition. The Tier 1 leverage ratio decreased compared to the prior year’s third quarter as shareholders’ equity, excluding intangibles and other comprehensive income, increased 2.9%, as the impact of earnings retention outweighed Elmira acquisition-related intangible assets and share repurchases, while average assets excluding intangibles and the market value adjustment on investments, increased 8.1% primarily due to continued inflows of customer deposits, organic loan growth and the acquisition of Elmira. The net tangible equity-to-assets ratio (a non-GAAP measure) of 4.08% decreased 4.61 percentage points from December 31, 2021 and decreased 4.51 percentage points versus September 30, 2021 (See Table 10 for Reconciliation of Quarterly GAAP to Non-GAAP Measures). The decrease in the net tangible equity to net tangible assets ratio (non-GAAP) from one year prior was primarily driven by a $644.8 million, or 51.8%, decrease in tangible equity due to the decline in the after-tax market value adjustment on available-for-sale investment securities and a $41.1 million net increase in intangible assets due primarily to the Elmira acquisition and a $227.5 million, or 1.6%, increase in tangible assets due to the Elmira acquisition and net inflows of deposits. The decrease in the net tangible equity to net tangible assets ratio (non-GAAP) from the fourth quarter of 2021 was driven by a $679.8 million decrease in tangible equity due to the impact of the Elmira acquisition, the purchase of securities in late 2021 and early 2022 and higher market interest rates on the after-tax market value adjustment on available-for-sale investment securities, while tangible assets increased $1.7 million. 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 conditions 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 metrics 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 when needed. 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. 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 are FHLB or Federal Reserve overnight advances, of which there were $119.8 million of outstanding borrowings at September 30, 2022. 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, 2022, the Bank had $247.4 million of cash and cash equivalents of which $30.0 million are interest-earning deposits held at the Federal Reserve, FHLB and other correspondent banks. The Company also had $1.76 billion in unused FHLB borrowing capacity based on the Company’s quarter-end loan collateral levels and had $487.7 million of funding availability at the Federal Reserve’s discount window. Additionally, the Company has $2.57 billion of unencumbered securities that could be pledged at the FHLB or Federal Reserve to obtain additional funding. There was $25.0 million available in unsecured lines of credit with other correspondent banks at quarter end. 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, 2022, this ratio was 15.1% for 30-days and 15.3% 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%. ​ 51 Table of Contents A sources and uses statement is used by the Company to measure intermediate liquidity risk over the next twelve months. As of September 30, 2022, 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, 2022 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 the establishment of trigger points for monitoring such events and detailed action plans that would be initiated if those trigger points are reached. ​ 52 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, related vaccine and booster rollouts and efficacies, and government measures taken in response thereto, 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 changes in housing or vehicle prices, unemployment rates, labor shortages, supply chain disruption, 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) the effect of, and changes in, monetary and fiscal policies and laws, including future changes in Federal and state statutory income tax rates and interest rate and other policy actions of the Board of Governors of the Federal Reserve System; (4) the effect of changes in the level of checking or savings account deposits on the Company’s funding costs and net interest margin; (5) future provisions for credit losses on loans and debt securities; (6) changes in nonperforming assets; (7) 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; (8) risks related to credit quality; (9) inflation, interest rate, liquidity, market and monetary fluctuations; (10) the strength of the U.S. economy in general and the strength of the local economies where the Company conducts its business; (11) 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; (12) changes in consumer spending, borrowing and savings habits; (13) technological changes and implementation and financial risks associated with transitioning to new technology-based systems involving large multi-year contracts; (14) the ability of the Company to maintain the security of its financial, accounting, technology, data processing and other operating systems and facilities; (15) 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; (16) failure of third parties to provide various services that are important to the Company’s operations; (17) 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; (18) the ability to maintain and increase market share and control expenses; (19) 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, service fees, risk management, securities and other aspects of the financial services industry; (20) changes in the Company’s organization, compensation and benefit plans and in the availability of, and compensation levels for, employees in its geographic markets; (21) the outcome of pending or future litigation, government proceedings and local, state and Federal tax audits; (22) the effects of climate change and natural disasters on the Company’s operations or the operations of its customers; (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 the discussion under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with Securities and Exchange Commission (“SEC”) for the year ended December 31, 2021 and the Quarterly Report on Form 10-Q filed with the SEC on May 10, 2022 for the quarter ended March 31, 2022. 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. ​ 53 Table of Contents Reconciliation of GAAP to Non-GAAP Measures Table 10: GAAP to Non-GAAP Reconciliations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ Nine Months Ended ​ ​ September 30, September 30, (000’s omitted) ​ 2022 ​ 2021 2022 2021 ​ Income statement data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pre-tax, pre-provision net revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (GAAP) ​ $ 48,691 ​ $ 45,336 ​ $ 135,551 ​ $ 146,130 ​ Income taxes ​ 13,706 ​ ​ 12,092 ​ 37,454 ​ ​ 38,616 ​ Income before income taxes ​ ​ 62,397 ​ ​ 57,428 ​ ​ 173,005 ​ ​ 184,746 ​ Provision for credit losses ​ ​ 5,061 ​ ​ (944) ​ ​ 12,005 ​ ​ (11,001) ​ Pre-tax, pre-provision net revenue (non-GAAP) ​ ​ 67,458 ​ ​ 56,484 ​ ​ 185,010 ​ ​ 173,745 ​ Acquisition expenses ​ ​ 409 ​ ​ 102 ​ ​ 4,668 ​ ​ 133 ​ Acquisition-related contingent consideration adjustment ​ ​ 0 ​ ​ 0 ​ ​ 400 ​ ​ 0 ​ Unrealized loss (gain) on equity securities ​ ​ 4 ​ ​ 10 ​ ​ 24 ​ ​ (14) ​ Litigation accrual ​ ​ 0 ​ ​ (100) ​ ​ 0 ​ ​ (100) ​ Adjusted pre-tax, pre-provision net revenue (non-GAAP) ​ $ 67,871 ​ $ 56,496 ​ $ 190,102 ​ $ 173,764 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pre-tax, pre-provision net revenue per share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings per share (GAAP) ​ $ 0.90 ​ $ 0.83 ​ $ 2.49 ​ $ 2.68 ​ Income taxes ​ ​ 0.25 ​ ​ 0.22 ​ ​ 0.69 ​ ​ 0.71 ​ Income before income taxes ​ ​ 1.15 ​ ​ 1.05 ​ ​ 3.18 ​ ​ 3.39 ​ Provision for credit losses ​ ​ 0.10 ​ ​ (0.01) ​ ​ 0.22 ​ ​ (0.20) ​ Pre-tax, pre-provision net revenue per share (non-GAAP) ​ ​ 1.25 ​ ​ 1.04 ​ ​ 3.40 ​ ​ 3.19 ​ Acquisition expenses ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.08 ​ ​ 0.00 ​ Acquisition-related contingent consideration adjustment ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.01 ​ ​ 0.00 ​ Unrealized loss (gain) on equity securities ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Litigation accrual ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Adjusted pre-tax, pre-provision net revenue per share (non-GAAP) ​ $ 1.25 ​ $ 1.04 ​ $ 3.49 ​ $ 3.19 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income (GAAP) ​ $ 48,691 ​ $ 45,336 ​ $ 135,551 ​ $ 146,130 ​ Acquisition expenses ​ ​ 409 ​ ​ 102 ​ ​ 4,668 ​ ​ 133 ​ Tax effect of acquisition expenses ​ ​ (90) ​ ​ (21) ​ ​ (1,009) ​ ​ (27) ​ Subtotal (non-GAAP) ​ ​ 49,010 ​ ​ 45,417 ​ ​ 139,210 ​ ​ 146,236 ​ Acquisition-related contingent consideration adjustment ​ ​ 0 ​ ​ 0 ​ ​ 400 ​ ​ 0 ​ Tax effect of acquisition-related contingent consideration adjustment ​ ​ 0 ​ ​ 0 ​ ​ (86) ​ ​ 0 ​ Subtotal (non-GAAP) ​ ​ 49,010 ​ ​ 45,417 ​ ​ 139,524 ​ ​ 146,236 ​ Acquisition-related provision for credit losses ​ ​ 0 ​ ​ 0 ​ ​ 3,927 ​ ​ 0 ​ Tax effect of acquisition-related provision for credit losses ​ ​ 0 ​ ​ 0 ​ ​ (848) ​ ​ 0 ​ Subtotal (non-GAAP) ​ ​ 49,010 ​ ​ 45,417 ​ ​ 142,603 ​ ​ 146,236 ​ Unrealized loss (gain) on equity securities ​ ​ 4 ​ ​ 10 ​ ​ 24 ​ ​ (14) ​ Tax effect of unrealized loss (gain) on equity securities ​ ​ (1) ​ ​ (2) ​ ​ (5) ​ ​ 2 ​ Subtotal (non-GAAP) ​ ​ 49,013 ​ ​ 45,425 ​ ​ 142,622 ​ ​ 146,224 ​ Litigation accrual ​ ​ 0 ​ ​ (100) ​ ​ 0 ​ ​ (100) ​ Tax effect of litigation accrual ​ ​ 0 ​ ​ 21 ​ ​ 0 ​ ​ 21 ​ Operating net income (non-GAAP) ​ ​ 49,013 ​ ​ 45,346 ​ ​ 142,622 ​ ​ 146,145 ​ Amortization of intangibles ​ ​ 3,837 ​ ​ 3,703 ​ ​ 11,420 ​ ​ 10,300 ​ Tax effect of amortization of intangibles ​ ​ (843) ​ ​ (780) ​ ​ (2,472) ​ ​ (2,155) ​ Subtotal (non-GAAP) ​ ​ 52,007 ​ ​ 48,269 ​ ​ 151,570 ​ ​ 154,290 ​ Acquired non-PCD loan accretion ​ ​ (1,397) ​ ​ (906) ​ ​ (3,154) ​ ​ (3,177) ​ Tax effect of acquired non-PCD loan accretion ​ ​ 307 ​ ​ 191 ​ ​ 685 ​ ​ 666 ​ Adjusted net income (non-GAAP) ​ $ 50,917 ​ $ 47,554 ​ $ 149,101 ​ $ 151,779 ​ ​ 54 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended Nine Months Ended ​ ​ ​ September 30, September 30, ​ (000's omitted) ​ 2022 2021 ​ 2022 ​ 2021 ​ Return on average assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted net income (non-GAAP) ​ $ 50,917 ​ $ 47,554 ​ $ 149,101 ​ $ 151,779 ​ Average total assets ​ ​ 15,553,296 ​ ​ 15,027,478 ​ ​ 15,533,915 ​ ​ 14,638,269 ​ Adjusted return on average assets (non-GAAP) ​ ​ 1.30 % ​ 1.26 % ​ 1.28 % ​ 1.39 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Return on average equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted net income (non-GAAP) ​ $ 50,917 ​ $ 47,554 ​ $ 149,101 ​ $ 151,779 ​ Average total equity ​ ​ 1,680,525 ​ ​ 2,104,164 ​ ​ 1,820,273 ​ ​ 2,057,700 ​ Adjusted return on average equity (non-GAAP) ​ ​ 12.02 % ​ 8.97 % ​ 10.95 % ​ 9.86 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per common share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings per share (GAAP) ​ $ 0.90 ​ $ 0.83 ​ $ 2.49 ​ $ 2.68 ​ Acquisition expenses ​ 0.00 ​ 0.00 ​ ​ 0.08 ​ ​ 0.00 ​ Tax effect of acquisition expenses ​ 0.00 ​ 0.00 ​ ​ (0.02) ​ ​ 0.00 ​ Subtotal (non-GAAP) ​ 0.90 ​ 0.83 ​ ​ 2.55 ​ ​ 2.68 ​ Acquisition-related contingent consideration adjustment ​ 0.00 ​ 0.00 ​ ​ 0.01 ​ ​ 0.00 ​ Tax effect of acquisition-related contingent consideration adjustment ​ 0.00 ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Subtotal (non-GAAP) ​ 0.90 ​ 0.83 ​ ​ 2.56 ​ ​ 2.68 ​ Acquisition-related provision for credit losses ​ 0.00 ​ 0.00 ​ ​ 0.07 ​ ​ 0.00 ​ Tax effect of acquisition-related provision for credit losses ​ 0.00 ​ 0.00 ​ ​ (0.01) ​ ​ 0.00 ​ Subtotal (non-GAAP) ​ 0.90 ​ 0.83 ​ ​ 2.62 ​ ​ 2.68 ​ 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) ​ ​ 0.90 ​ ​ 0.83 ​ ​ 2.62 ​ ​ 2.68 ​ Litigation accrual ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Tax effect of litigation accrual ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ ​ 0.00 ​ Operating earnings per share (non-GAAP) ​ ​ 0.90 ​ ​ 0.83 ​ ​ 2.62 ​ ​ 2.68 ​ Amortization of intangibles ​ 0.07 ​ 0.07 ​ ​ 0.21 ​ ​ 0.19 ​ Tax effect of amortization of intangibles ​ (0.02) ​ (0.01) ​ ​ (0.05) ​ ​ (0.04) ​ Subtotal (non-GAAP) ​ ​ 0.95 ​ ​ 0.89 ​ ​ 2.78 ​ ​ 2.83 ​ Acquired non-PCD loan accretion ​ ​ (0.02) ​ ​ (0.02) ​ ​ (0.06) ​ ​ (0.06) ​ Tax effect of acquired non-PCD loan accretion ​ ​ 0.01 ​ ​ 0.00 ​ ​ 0.02 ​ ​ 0.01 ​ Diluted adjusted net earnings per share (non-GAAP) ​ $ 0.94 ​ $ 0.87 ​ $ 2.74 ​ $ 2.78 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest operating expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest expenses (GAAP) ​ $ 108,185 ​ $ 100,436 ​ $ 318,416 ​ $ 287,225 ​ Amortization of intangibles ​ (3,837) ​ (3,703) ​ ​ (11,420) ​ ​ (10,300) ​ Acquisition expenses ​ ​ (409) ​ ​ (102) ​ ​ (4,668) ​ ​ (133) ​ Acquisition-related contingent consideration adjustment ​ 0 ​ 0 ​ ​ (400) ​ ​ 0 ​ Litigation accrual ​ 0 ​ 100 ​ ​ 0 ​ ​ 100 ​ Total adjusted noninterest expenses (non-GAAP) ​ $ 103,939 ​ $ 96,731 ​ $ 301,928 ​ $ 276,892 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Efficiency ratio ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Adjusted noninterest expenses (non-GAAP) - numerator ​ $ 103,939 ​ $ 96,731 ​ $ 301,928 ​ $ 276,892 ​ Fully tax-equivalent net interest income ​ ​ 111,512 ​ ​ 93,416 ​ ​ 311,363 ​ ​ 281,242 ​ Noninterest revenues ​ ​ 65,249 ​ ​ 64,309 ​ ​ 195,019 ​ ​ 182,300 ​ Acquired non-PCD loan accretion ​ ​ (1,397) ​ ​ (906) ​ ​ (3,154) ​ ​ (3,177) ​ Unrealized loss (gain) on equity securities ​ ​ 4 ​ ​ 10 ​ ​ 24 ​ ​ (14) ​ Operating revenues (non-GAAP) - denominator ​ $ 175,368 ​ $ 156,829 ​ $ 503,252 ​ $ 460,351 ​ Efficiency ratio (non-GAAP) ​ ​ 59.3 % ​ 61.7 % ​ 60.0 % ​ 60.1 % ​ 55 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, December 31, September 30, ​ (000’s omitted) ​ 2022 ​ 2021 ​ 2021 Balance sheet data - at end of quarter ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets (GAAP) ​ $ 15,594,547 ​ $ 15,552,657 ​ $ 15,331,098 ​ Intangible assets ​ (909,224) ​ (864,335) ​ (868,104) ​ Deferred taxes on intangible assets ​ 48,893 ​ 44,160 ​ 43,768 ​ Total tangible assets (non-GAAP) ​ $ 14,734,216 ​ $ 14,732,482 ​ $ 14,506,762 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total common equity ​ ​ ​ ​ ​ ​ ​ Shareholders’ Equity (GAAP) ​ $ 1,461,163 ​ $ 2,100,807 ​ $ 2,069,934 ​ Intangible assets ​ (909,224) ​ (864,335) ​ (868,104) ​ Deferred taxes on intangible assets ​ 48,893 ​ 44,160 ​ 43,768 ​ Total tangible common equity (non-GAAP) ​ $ 600,832 ​ $ 1,280,632 ​ $ 1,245,598 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net tangible equity-to-assets ratio at quarter end ​ ​ ​ ​ ​ ​ ​ Total tangible common equity (non-GAAP) - numerator ​ $ 600,832 ​ $ 1,280,632 ​ $ 1,245,598 ​ Total tangible assets (non-GAAP) - denominator ​ $ 14,734,216 ​ $ 14,732,482 ​ $ 14,506,762 ​ Net tangible equity-to-assets ratio at quarter end (non-GAAP) ​ 4.08 % 8.69 % 8.59 % ​ ​