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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.
−Removed: (the “Company” or “CBSI”) as of and for the three and six months ended June 30, 2023 and 2022, although in some circumstances the first quarter of 2023 is also discussed in order to more fully explain recent trends.
+Added: (the “Company” or “CBSI”) as of and for the three and nine months ended September 30, 2023 and 2022, although in some circumstances the second and first quarters of 2023 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 34.
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.
−Removed: Unless otherwise noted, the term “this year” and equivalent terms refers to results in calendar year 2023, “last year” and equivalent terms refer to calendar year 2022, “second quarter” refers to the three months ended June 30, 2023, “YTD” refers to the six months ended June 30, 2023, and earnings per share (“EPS”) figures refer to diluted EPS.
+Added: Unless otherwise noted, the term “this year” and equivalent terms refers to results in calendar year 2023, “last year” and equivalent terms refer to calendar year 2022, “third quarter” refers to the three months ended September 30, 2023, “YTD” refers to the nine months ended September 30, 2023, 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.
9 unchanged sentences
A summary of the accounting policies used by management is disclosed in the MD&A on pages 31-33 and Note A, “Summary of Significant Accounting Policies” on pages 76-87 of the most recent Form 10-K (fiscal year ended December 31, 2022) filed with the Securities and Exchange Commission (“SEC”) on March 1, 2023, and there have been no material changes.
−Removed: A summary of new accounting policies used by management is disclosed in Note C, “Accounting Policies” on page 12 of this Form 10-Q.
+Added: A summary of new accounting policies used by management is disclosed in Note C, “Significant Accounting Policies” beginning on page 12 of this Form 10-Q.
Supplemental Reporting of Non-GAAP Results of Operations
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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 adjustment, unrealized loss (gain) on equity securities, realized loss on investment securities and gain on debt extinguishment from income before income taxes.
−Removed: 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 impact of CECL and helps investors and analysts measure underlying core performance and improves comparability to other organizations that have not engaged in acquisitions.
+Added: 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 impact of CECL, helps investors and analysts measure underlying core performance and improves comparability to other organizations that have not engaged in acquisitions.
The Company also provides supplemental reporting of its net interest margin on a “fully tax-equivalent” basis, which includes an adjustment to net interest income that represents taxes that would have been paid had nontaxable investment securities and loans been taxable.
Although fully tax-equivalent net interest margin is a non-GAAP measure, the Company’s management believes this information helps enhance comparability of the performance of assets that have different tax liabilities.
−Removed: Diluted earnings per share were $0.89 in the second quarter of 2023, up $0.16, or 21.9%, from the second quarter of 2022.
−Removed: Diluted adjusted net earnings per share, a non-GAAP measure, were $0.95 in the second quarter of 2023, compared to $0.89 in the second quarter of 2022, a $0.06 per share, or 6.7%, increase.
−Removed: Adjusted pre-tax, pre-provision net revenue, a non-GAAP measure, was $1.17 per share in the second quarter of 2023, up $0.04, or 3.5%, from the second quarter of 2022.
+Added: Diluted earnings per share were $0.82 in the third quarter of 2023, down $0.08, or 8.9%, from the third quarter of 2022.
+Added: Diluted adjusted net earnings per share, a non-GAAP measure, were $0.86 in the third quarter of 2023, compared to $0.94 in the third quarter of 2022, an $0.08 per share, or 8.5%, decrease.
+Added: Adjusted pre-tax, pre-provision net revenue, a non-GAAP measure, was $1.10 per share in the third quarter of 2023, down $0.15, or 12.0%, from the third quarter of 2022.
Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 11.
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The Company’s core operating objectives are:
−Removed: (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 mitigate interest rate and liquidity risk and optimize net interest income generation, (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.
+Added: (i) optimize the branch network and digital banking delivery systems, primarily through disciplined acquisition strategies, certain selective de novo expansions 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 mitigate interest rate and liquidity risk and optimize net interest income generation, (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:
15 unchanged sentences
and the performance of recently acquired businesses.
−Removed: Second quarter 2023 net income increased $8.5 million, or 21.3%, compared to the second quarter of 2022, while YTD net income decreased $32.8 million, or 37.7% compared to the equivalent 2022 timeframe.
−Removed: Earnings per share of $0.89 for the second quarter of 2023 was $0.16 more than the second quarter of 2022, while 2023 YTD earnings per share of $1.00 was $0.60 lower than 2022 YTD earnings per share.
−Removed: The increase in net income and earnings per share between the quarterly periods was due to increases in net interest income and noninterest revenues and decreases in the provision for credit losses and fully-diluted shares outstanding, partially offset by increases in operating expenses and income taxes.
+Added: Third quarter 2023 net income decreased $4.6 million, or 9.4%, compared to the third quarter of 2022, while YTD net income decreased $37.3 million, or 27.5% compared to the equivalent 2022 timeframe.
+Added: Earnings per share of $0.82 for the third quarter of 2023 was $0.08 less than the third quarter of 2022, while 2023 YTD earnings per share of $1.82 was $0.67 lower than 2022 YTD earnings per share.
+Added: The decrease in net income and earnings per share between the quarterly periods was due to an increase in operating expenses and a decrease in net interest income, partially offset by an increase in noninterest revenues and decreases in the provision for credit losses, income taxes and fully-diluted shares outstanding.
The YTD decrease in net income and earnings per share was primarily the result of a $52.3 million pre-tax realized loss on the sale of certain available-for-sale investment securities during the first quarter of 2023 in connection with a balance sheet repositioning executed in order to reduce overnight borrowings and improve net interest income and margin.
The sales were completed in January and February 2023 and preceded the negative developments in the banking industry that occurred in March 2023.
−Removed: On a YTD basis, excluding the realized losses recognized in the first quarter of 2023, increases in net interest income and noninterest revenues and decreases in income taxes, the provision for credit losses and fully-diluted shares outstanding more than offset increases in operating expenses.
−Removed: Second quarter and YTD net income adjusted to exclude acquisition expenses, acquisition-related contingent consideration adjustments, acquisition-related provision for credit losses, gain on debt extinguishment, realized loss on sales of investment securities and the unrealized gain (loss) on equity securities (“operating net income”), a non-GAAP measure, increased $2.8 million, or 6.0%, as compared to the second quarter of 2022 and increased $2.3 million, or 2.5%, compared to June YTD 2022.
−Removed: Earnings per share adjusted to exclude acquisition expenses, acquisition-related contingent consideration adjustments, acquisition-related provision for credit losses, gain on debt extinguishment, realized loss on sales of investment securities and the unrealized gain (loss) on equity securities (“operating earnings per share”), a non-GAAP measure, of $0.91 for the second quarter increased $0.06 compared to the second quarter of 2022.
−Removed: Operating earnings per share of $1.77 for the first six months of 2023 increased $0.05 compared to the prior year period.
+Added: The YTD decrease in net income and earnings per share was also reflective of increases in operating expenses, net interest income and noninterest revenues and decreases in income taxes, the provision for credit losses and fully-diluted shares outstanding.
+Added: Third quarter and YTD net income adjusted to exclude acquisition expenses, acquisition-related contingent consideration adjustments, acquisition-related provision for credit losses, gain on debt extinguishment, realized loss on sales of investment securities and the unrealized loss on equity securities (“operating net income”), a non-GAAP measure, decreased $4.8 million, or 9.8%, as compared to the third quarter of 2022 and decreased $2.5 million, or 1.7%, compared to September YTD 2022.
+Added: Earnings per share adjusted to exclude acquisition expenses, acquisition-related contingent consideration adjustment, acquisition-related provision for credit losses, gain on debt extinguishment, realized loss on sales of investment securities and the unrealized loss on equity securities (“operating earnings per share”), a non-GAAP measure, of $0.82 for the third quarter decreased $0.08 compared to the third quarter of 2022.
+Added: Operating earnings per share of $2.60 for the first nine months of 2023 decreased $0.02 compared to the prior year period.
Reconciliations of GAAP amounts with corresponding non-GAAP amounts are presented in Table 11.
−Removed: The Company’s deposit base and liquidity position continues to be strong, as the Company maintained total immediately available liquidity sources of $4.27 billion at the end of the second quarter of 2023, more than double its estimated uninsured deposits, net of collateralized and intercompany deposits.
−Removed: Estimated insured deposits, net of collateralized and intercompany deposits, represent greater than 80% of second quarter ending total deposits.
−Removed: The Company’s deposit base is well diversified across customer segments, which as of June 30, 2023 is comprised of approximately 63% consumer, 26% business and 11% municipal, and broadly dispersed with an average deposit balance per account of under $20,000.
+Added: The Company’s deposit base and liquidity position continues to be strong, as the Company maintained total immediately available liquidity sources of $4.81 billion at the end of the third quarter of 2023, more than double its estimated uninsured deposits, net of collateralized and intercompany deposits.
+Added: Estimated insured deposits, net of collateralized and intercompany deposits, represent greater than 80% of third quarter ending total deposits.
+Added: The Company’s deposit base is well diversified across customer segments, which as of September 30, 2023 is comprised of approximately 61% consumer, 26% business and 13% municipal, and broadly dispersed with an average deposit balance per account under $20,000.
Since the Federal Reserve began raising the federal funds rate on March 17, 2022 in an effort to combat inflation, the cycle-to-date deposit beta for the Company was 13% and the cycle-to-date total funding beta was 15%, reflective of a high proportion of non-interest bearing deposits, representing approximately 29% of total deposits, and the composition and stability of the customer base.
−Removed: In addition, more than 72% of the Company’s total deposits were in noninterest checking, interest checking and savings accounts at the end of the second quarter, and the Company does not currently utilize brokered or wholesale deposits.
−Removed: Net interest margin increased 28 basis points between the second quarter of 2022 and the second quarter of 2023 and increased 38 basis points on a YTD basis.
−Removed: Fully tax-equivalent net interest margin (a non-GAAP measure) increased 29 basis points between the second quarter of 2022 and the second quarter of 2023 and increased 38 basis points on a YTD basis.
−Removed: Loan balances increased on both an average and ending basis as compared to the prior year second quarter and YTD period, primarily reflective of continued strong organic loan growth along with the second quarter 2022 acquisition of Elmira Savings Bank (“Elmira”) which favorably impacted the average balance growth.
−Removed: Deposit balances decreased on both an average and ending basis as compared to the second quarter of 2022 and YTD due in part to outflows driven by the continued spend down of funds accumulated during the pandemic and higher customer expenditure levels in the inflationary environment as well as rate competition from other banks and non-depository financial institutions.
−Removed: The yield on average interest earning assets increased 85 basis points compared to the prior year second quarter and 83 basis points compared to the prior YTD period, as the yield on average loans and yield on average investments both improved.
−Removed: The yield on average loans for the second quarter increased 70 basis points compared to the second quarter of 2022 and 65 basis points between comparable YTD periods, driven by market-related increases in interest rates on new loans, a significant increase in variable and adjustable rate loan yields driven by rising market interest rates, including the prime rate, and a high level of new loan originations.
−Removed: The yield on average investments, including cash equivalents, increased 35 basis points compared to the prior year’s second quarter and 42 basis points on a YTD basis, which also benefitted from rising market interest rates and reflected the impact of the sale of certain available-for-sale investment securities during the first quarter of 2023.
−Removed: The Company’s total cost of funds increased 58 basis points from last year’s second quarter and 46 basis points YTD, as the rate paid on interest-bearing deposits and the rate paid on borrowings both increased, impacted by the Company transitioning to an overnight wholesale borrowing position during the second quarter of 2022 to meet its funding needs.
−Removed: The provision for credit losses of $0.8 million for the second quarter and $4.3 million for YTD 2023 resulted in a $5.3 million and $2.7 million lower provision for credit losses than comparable prior year periods, respectively.
−Removed: The second quarter and YTD 2023 provision for credit losses were reflective of a stabilizing economic outlook combined with an increase in loans outstanding while the second quarter and YTD 2022 provision for credit losses was reflective of a moderate deterioration in the economic outlook, an increase in loans outstanding and $3.9 million of acquisition-related provision for credit losses due to the Elmira acquisition.
−Removed: Asset quality remained strong during the second quarter of 2023.
−Removed: The nonperforming loan ratio of 0.36% at June 30, 2023 improved 10 basis points from June 30, 2022 and two basis points from one quarter prior.
−Removed: The total delinquent loan ratio remained low at 0.83%, but increased slightly from 0.75% at the end of the second quarter of 2022 and 0.73% at the end of the prior quarter.
−Removed: Net charge-offs were $0.7 million, or an annualized 0.03% of average loans, for the second quarter and $2.2 million, or an annualized 0.05% of average loans, for the first six months of 2023, compared to net charge-offs of $0.4 million, or an annualized 0.02% of average loans, for the prior year second quarter and $0.9 million, or an annualized 0.02% of average loans, for the first six months of 2022.
−Removed: Banking noninterest revenues, comprised of deposit service fees, mortgage banking and other banking services revenues, were up $0.5 million, or 2.7%, as compared to the prior year’s second quarter, but were down $0.1 million, or 0.4%, between the comparable YTD periods.
+Added: In addition, more than 70% of the Company’s total deposits were in noninterest checking, interest checking and savings accounts at the end of the third quarter, and the Company does not currently utilize brokered or wholesale deposits.
+Added: Net interest margin increased seven basis points between the third quarter of 2022 and the third quarter of 2023 and increased 27 basis points on a YTD basis.
+Added: Fully tax-equivalent net interest margin, a non-GAAP measure, also increased seven basis points between the third quarter of 2022 and the third quarter of 2023 and increased 28 basis points on a YTD basis.
+Added: Loan balances increased on both an average and ending basis as compared to the prior year third quarter and YTD period, primarily reflective of continued strong organic loan growth along with the second quarter 2022 acquisition of Elmira Savings Bank (“Elmira”) which favorably impacted the average YTD balance growth.
+Added: Deposit balances decreased on both an average and ending basis as compared to the third quarter of 2022 and YTD due in part to outflows driven by higher customer expenditure levels in the inflationary environment, as well as increased rate competition from other banks and non-depository financial institutions.
+Added: However, deposit balances were up on an ending basis from the end of the prior quarter and the end of the prior year.
+Added: The yield on average interest earning assets increased 76 basis points compared to the prior year third quarter and 81 basis points compared to the prior YTD period, as the yields on average loans, investments and interest-earning cash equivalents all improved.
+Added: The yield on average loans for the third quarter increased 70 basis points compared to the third quarter of 2022 and 67 basis points between comparable YTD periods, driven by market-related increases in interest rates on new loans, a significant increase in variable and adjustable rate loan yields driven by rising market interest rates, including the prime rate, and a high level of new loan originations.
+Added: The yield on average investments, including cash equivalents, increased 19 basis points compared to the prior year’s third quarter and 35 basis points on a YTD basis, which also benefitted from rising market interest rates and reflected the impact of the sale of certain available-for-sale investment securities during the first quarter of 2023 and the maturity of certain investment securities between the periods.
+Added: The Company’s total cost of funds increased 72 basis points from last year’s third quarter and 55 basis points YTD, as the rate paid on interest-bearing deposits and the rate paid on borrowings both increased.
+Added: The provision for credit losses of $2.9 million for the third quarter and $7.1 million for YTD 2023 were $2.2 million and $4.9 million lower than the provision for credit losses for the comparable prior year periods, respectively.
+Added: The third quarter and YTD 2023 provision for credit losses were reflective of a stabilizing economic outlook combined with an increase in loans outstanding while the third quarter and YTD 2022 provision for credit losses was reflective of a moderate deterioration in the economic outlook, an increase in loans outstanding and $3.9 million of acquisition-related provision for credit losses due to the Elmira acquisition.
+Added: Asset quality remained strong during the third quarter of 2023.
+Added: The nonperforming loan ratio of 0.39% at September 30, 2023 was only one basis point higher than the ratio at September 30, 2022 and three basis points above the ratio one quarter prior.
+Added: The total delinquent loan ratio remained below historical averages at 0.90%, but increased slightly from 0.71% at the end of the third quarter of 2022 and 0.83% at the end of the prior quarter.
+Added: Net charge-offs continued to be well below long-term average levels at $1.2 million, or an annualized 0.05% of average loans, for the third quarter and $3.5 million, or an annualized 0.05% of average loans, for the first nine months of 2023, compared to net charge-offs of $0.4 million, or an annualized 0.02% of average loans, for the prior year third quarter and $1.3 million, or an annualized 0.02% of average loans, for the first nine months of 2022.
+Added: Banking noninterest revenues, comprised of deposit service fees, mortgage banking and other banking services revenues, were down $0.9 million, or 5.1%, as compared to the prior year’s third quarter and were down $1.1 million, or 2.1%, between the comparable YTD periods.
The Company implemented certain deposit fee changes, including the elimination of nonsufficient and unavailable funds fees on personal accounts late in the fourth quarter of 2022.
−Removed: These changes ensure that the Company continues to provide customers with affordable and competitive banking options.
−Removed: Financial services business revenues, comprised of employee benefit services, insurance services and wealth management services revenues, were up $1.4 million, or 3.1%, as compared to the prior year’s second quarter and up $2.0 million, or 2.1%, compared to the prior YTD period, as increases in insurance services revenues due to both organic and acquired growth between the periods were partially offset by declines in employee benefit services and wealth management services revenues that were negatively impacted by more challenging investment market conditions.
−Removed: Noninterest expenses increased $2.6 million, or 2.4%, between the second quarter of 2022 and the second quarter of 2023 and increased $16.9 million, or 8.0%, between June YTD 2023 and June YTD 2022.
−Removed: The YTD increase was primarily due to a $12.5 million increase in salaries and employee benefits driven by increases in merit and severance-related employee wages, minimum wage-related escalation on the lower end of the Company’s pay scale, acquisition-related and other additions to staffing, higher payroll taxes and higher employee benefit-related expenses.
−Removed: The remaining net increase in other expense categories were due to various factors including general inflationary pressures, incremental expenses associated with operating an expanded franchise subsequent to the Elmira acquisition in the second quarter of 2022, larger FDIC insurance expenses due in part to an increase in the base assessment rate effective on January 1, 2023, higher legal and professional fees associated with product launches in the employee benefit services business and other various matters and an increase in data processing and communications expenses due to the Company’s continued investment in customer-facing and back office digital technologies.
+Added: Financial services business revenues, comprised of employee benefit services, insurance services and wealth management services revenues, were up $3.3 million, or 7.1%, as compared to the prior year’s third quarter and up $5.3 million, or 3.7%, compared to the prior YTD period.
+Added: The increase in quarterly financial services business revenues reflected growth in all of the three business units while the YTD increase reflected increases in insurance services and employee benefit services revenues that were partially offset by a slight decline in wealth management services revenues.
+Added: Noninterest expenses increased $8.3 million, or 7.7%, between the third quarter of 2022 and the third quarter of 2023 and increased $25.2 million, or 7.9%, between September YTD 2022 and September YTD 2023.
+Added: The YTD increase was primarily due to a $17.0 million, or 8.8%, increase in salaries and employee benefits driven by increases in merit and market-related employee wages, higher employee benefit-related expenses including higher medical expenses, and certain executive retirement-related expenses.
+Added: The remaining net increase in other expense categories was due to various factors including general inflationary pressures, larger FDIC insurance expenses due in part to an increase in the base assessment rate effective on January 1, 2023, higher legal and professional fees associated with various matters, an increase in data processing and communications expenses due to the Company’s continued investment in customer-facing and back office digital technologies and higher business development and marketing expenses due to the Company’s investment in digital marketing initiatives and higher levels of targeted advertisements intended to generate deposits.
+Added: The Company has initiated a plan to optimize the retail customer service workforce which will temporarily reduce branch-related operating expenses, and reinvest in the retail network through de novo branch expansion in new, more densely populated markets throughout the Company’s geographic footprint.
On July 26, 2023, the SEC finalized rules requiring registrants to disclose material cybersecurity incidents that they experience on Form 8-K and to disclose on an annual basis material information regarding their cybersecurity risk management, strategy, and governance.
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Net Income and Profitability
−Removed: As shown in Table 1, net income for the second quarter and June YTD of $48.3 million and $54.1 million, respectively, increased $8.5 million, or 21.3%, as compared to the second quarter of 2022 and decreased $32.8 million, or 37.7%, compared to June YTD 2022.
−Removed: Earnings per share of $0.89 for the second quarter was $0.16 higher than the second quarter of 2022, while earnings per share for the first six months of 2023 of $1.00 was $0.60 lower than the first six months of 2022.
−Removed: The increase in net income and earnings per share for the quarter was the result of increases in net interest income and noninterest revenues and decreases in the provision for credit losses and fully-diluted shares outstanding, partially offset by increases in operating expenses and income taxes.
+Added: As shown in Table 1, net income for the third quarter and September YTD of $44.1 million and $98.2 million, respectively, decreased $4.6 million, or 9.4%, as compared to the third quarter of 2022 and decreased $37.3 million, or 27.5%, compared to September YTD 2022.
+Added: Earnings per share of $0.82 for the third quarter was $0.08 lower than the third quarter of 2022, while earnings per share for the first nine months of 2023 of $1.82 was $0.67 lower than the first nine months of 2022.
+Added: The decrease in net income and earnings per share for the quarter was reflective of an increase in operating expenses and a decrease in net interest income, partially offset by an increase in noninterest revenues and decreases in the provision for credit losses, income taxes and fully-diluted shares outstanding.
The decrease in net income and earnings per share for the YTD period as compared to the prior year was the result of a decrease in noninterest revenues, primarily due to the impact of a $52.3 million pre-tax realized loss on sales of investment securities in the first quarter of 2023 as part of a balance sheet repositioning, as well as an increase in operating expenses, partially offset by an increase in net interest income and decreases in the provision for credit losses, income taxes and fully-diluted shares outstanding.
−Removed: Operating net income, a non-GAAP measure, of $49.1 million and $95.9 million for the second quarter and June YTD, respectively, increased $2.8 million, or 6.0%, as compared to the second quarter of 2022 and increased $2.3 million, or 2.5%, compared to June YTD 2022.
−Removed: Operating earnings per share, a non-GAAP measure, of $0.91 for the second quarter was up $0.06 compared to the second quarter of 2022, while operating earnings per share of $1.77 for the first six months of 2023 was up $0.05 compared to the first six months of 2022.
+Added: Operating net income, a non-GAAP measure, of $44.2 million and $140.2 million for the third quarter and September YTD, respectively, decreased $4.8 million, or 9.8%, as compared to the third quarter of 2022 and decreased $2.5 million, or 1.7%, compared to September YTD 2022.
+Added: Operating earnings per share, a non-GAAP measure, of $0.82 for the third quarter was down $0.08 compared to the third quarter of 2022, while operating earnings per share of $2.60 for the first nine months of 2023 was down $0.02 compared to the first nine months of 2022.
See Table 11 for Reconciliation of GAAP to Non-GAAP Measures.
−Removed: As reflected in Table 1, second quarter net interest income of $109.3 million was up $6.1 million, or 6.0%, from the comparable prior year period.
−Removed: The quarterly improvement resulted from an increase in the yield on interest-earning assets and a decrease in interest-bearing liability balances, partially offset by a decrease in interest-earning asset balances and an increase in the rate paid on interest-bearing liabilities.
−Removed: Net interest income for the first six months of 2023 increased $22.3 million, or 11.3%, versus the first six months of 2022.
−Removed: The year-over-year improvement resulted from an increase in the tax equivalent yield on average interest-earning asset balances, partially offset by a decrease in average interest-earning asset balances and increases in the cost and average balance of interest-bearing liabilities.
−Removed: The provision for credit losses for the second quarter of $0.8 million and June YTD of $4.3 million decreased $5.3 million and $2.7 million as compared to the second quarter and first six months of 2022, respectively.
−Removed: The second quarter and YTD 2023 provision for credit losses was reflective of a stable economic outlook, continued low levels of net charge-offs, delinquent loans and nonperforming loans and an increase in loans outstanding.
−Removed: The second quarter and YTD 2022 provision for credit losses included $3.9 million of acquisition-related provision for credit losses due to the Elmira acquisition.
−Removed: Second quarter and year-to-date noninterest revenues were $66.0 million and $79.5 million, respectively, up $1.9 million, or 2.9%, from the second quarter of 2022 and down $50.3 million, or 38.8%, from the first six months of 2022.
−Removed: The increase compared to the prior year’s second quarter was a result of increases in insurance services revenue, other banking revenues and debit interchange and ATM fees, partially offset by decreases in deposit service charges and fees, employee benefit services revenues, wealth management services revenues, mortgage banking revenues and unrealized loss on equity securities.
−Removed: The YTD decrease was primarily due to the recognition of the previously mentioned $52.3 million pre-tax realized loss on the sale of certain available-for-sale securities associated with the Company’s first quarter 2023 balance sheet repositioning, as well as decreases in debit interchange and ATM fees, deposit service charges and fees, wealth management services revenues, employee benefit services revenues, mortgage banking revenues and unrealized loss on equity securities, partially offset by increases in insurance services revenue, other banking revenues and gain on debt extinguishment.
−Removed: Noninterest expenses of $113.0 million and $227.1 million for the second quarter and June YTD periods, respectively, reflected an increase of $2.6 million, or 2.4%, from the second quarter of 2022 and an increase of $16.9 million, or 8.0%, from the first six months of 2022.
−Removed: The increase in noninterest expenses for the quarter was due to increases in salaries and benefits, other expenses, business development and marketing expenses, data processing and communications expenses, acquisition-related contingent consideration adjustments and occupancy and equipment expenses, partially offset by decreases in acquisition expenses, legal and professional fees and amortization of intangible assets.
−Removed: The YTD increase in noninterest expenses was due to increases in salaries and benefits, other expenses, legal and professional fees, data processing and communications expenses, business development and marketing expenses, legal and professional fees, data processing and communications expenses, acquisition-related contingent consideration adjustments and occupancy and equipment expenses, partially offset by a decrease in acquisition expenses and amortization of intangible assets.
−Removed: Excluding acquisition expenses and acquisition-related contingent consideration adjustments, 2023 operating expenses were $6.0 million, or 5.6%, higher for the second quarter and $20.5 million, or 10.0%, higher for the year-to-date timeframe.
−Removed: The effective income tax rates were 21.4% and 21.0% for second quarter and YTD 2023, respectively, as compared to 21.6% and 21.5% for the comparable prior year periods.
+Added: As reflected in Table 1, third quarter net interest income of $107.8 million was down $2.6 million, or 2.4%, from the comparable prior year period.
+Added: The quarterly decrease resulted from a decrease in interest-earning asset balances and an increase in the rate paid on interest-bearing liabilities, partially offset by an increase in the yield on interest-earning assets and a decrease in interest-bearing liability balances.
+Added: Net interest income for the first nine months of 2023 increased $19.7 million, or 6.4%, versus the first nine months of 2022.
+Added: The year-over-year improvement resulted from an increase in the yield on average interest-earning asset balances, partially offset by a decrease in average interest-earning asset balances and increases in the cost and average balance of interest-bearing liabilities.
+Added: The provision for credit losses for the third quarter of $2.9 million and September YTD of $7.1 million decreased $2.2 million and $4.9 million as compared to the third quarter and first nine months of 2022, respectively.
+Added: The third quarter and YTD 2023 provision for credit losses was reflective of a stable economic outlook, continued low levels of net charge-offs, delinquent loans and nonperforming loans and an increase in loans outstanding.
+Added: The YTD 2022 provision for credit losses included $3.9 million of acquisition-related provision for credit losses due to the Elmira acquisition.
+Added: Third quarter and year-to-date noninterest revenues were $67.6 million and $147.1 million, respectively, up $2.3 million, or 3.6%, from the third quarter of 2022 and down $48.0 million, or 24.6%, from the first nine months of 2022.
+Added: The increase compared to the prior year’s third quarter was a result of increases in employee benefit services revenue, insurance services revenue, other banking revenues, wealth management services revenues and debit interchange and ATM fees, partially offset by decreases in deposit service charges and fees, mortgage banking revenues and a larger unrealized loss on equity securities.
+Added: The YTD decrease was primarily due to the incurrence of the previously mentioned $52.3 million pre-tax realized loss on the sale of certain available-for-sale securities associated with the Company’s first quarter 2023 balance sheet repositioning, as well as decreases in deposit service charges and fees, debit interchange and ATM fees, wealth management services revenues, mortgage banking revenues and unrealized loss on equity securities, partially offset by increases in insurance services revenues, employee benefit services revenues and other banking revenues and a realization of a gain on debt extinguishment.
+Added: Noninterest expenses of $116.5 million and $343.6 million for the third quarter and September YTD periods, respectively, reflected an increase of $8.3 million, or 7.7%, from the third quarter of 2022 and an increase of $25.2 million, or 7.9%, from the first nine months of 2022.
+Added: The increase in noninterest expenses for the quarterly and YTD periods were due to increases in salaries and benefits, other expenses, data processing and communications expenses, business development and marketing expenses and legal and professional fees, partially offset by decreases in acquisition-related expenses and amortization of intangible assets.
+Added: Excluding acquisition-related expenses comprised of contingent consideration adjustments and integration-related expenses, 2023 operating expenses were $8.6 million, or 8.0%, higher for the third quarter and $29.1 million, or 9.3%, higher for the year-to-date timeframe.
+Added: The effective income tax rates were 21.2% and 21.1% for third quarter and YTD 2023, respectively, as compared to 22.0% and 21.6% for the comparable prior year periods.
+Added: The decline in the quarterly and YTD effective income tax rates were primarily attributable to a decrease in the full-year 2023 pre-tax income projection as a result of the loss on investment security sales recognized in the first quarter of 2023.
A condensed income statement is as follows:
1 unchanged sentence
Three Months Ended
−Removed: Six Months Ended
+Added: Nine Months Ended
+Added: September 30,
+Added: September 30,
(000’s omitted, except per share data)
10 unchanged sentences
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.
−Removed: As shown in Table 2a, net interest income (with nontaxable income converted to a fully tax-equivalent basis) for the second quarter was $110.4 million, an increase of $6.2 million, or 6.0%, compared to the same period last year.
−Removed: This was driven by an 85 basis point increase in the yield on average interest-earnings assets and a $2.8 million decrease in average interest-bearing liabilities, partially offset by a $531.0 million decrease in average interest-earning assets and an 81 basis point increase in the rate paid on average interest-bearing liabilities in comparison to the second quarter of 2022.
−Removed: As reflected in Table 3 for the quarter, net interest income was favorably impacted by $29.6 million due to the increase in the yield on average interest-earning assets, partially offset by the unfavorable impacts on net interest income of $4.1 million due to the volume decrease in interest-earning assets and $19.3 million due to an increase in the rate paid on average interest-bearing liabilities.
−Removed: June YTD net interest income (with nontaxable income converted to a fully tax-equivalent basis), as reflected in Table 2b, of $222.5 million, increased $22.6 million, or 11.3%, from the year-earlier period.
−Removed: The June YTD increase resulted from an 83 basis point increase in the yield on average interest-earning assets, partially offset by a $109.7 million increase in average interest-bearing liabilities, a 66 basis point increase in the average rate paid on interest-bearing liabilities and a $282.8 million decrease in average interest-earning assets.
−Removed: As reflected in Table 3, for June YTD, the increase in the yield on average interest-earning assets had a favorable impact on net interest income of $58.1 million, partially offset by the unfavorable impacts on net interest income of $0.1 million due to the increase in average interest-bearing liabilities, $31.3 million due to the increase in the rate paid on average interest-bearing liabilities and $4.1 million due to the volume decrease in average interest-earning assets.
−Removed: Net interest margin of 3.14% for the second quarter of 2023 was 28 basis points higher as compared to the second quarter of 2022.
−Removed: The fully tax-equivalent net interest margin (non-GAAP) of 3.18% for the second quarter of 2023 was 29 basis points higher as compared to the second quarter of 2022.
−Removed: The increase was the result of an 85 basis point increase in the interest-earning asset yield, partially offset by an 81 basis point increase in the rate paid on average interest-bearing liabilities.
−Removed: Net interest margin of 3.16% for the first six months of 2023 was 38 basis points higher than the comparable period of 2022.
−Removed: The fully tax-equivalent net interest margin (non-GAAP) of 3.19% for the first six months of 2023 was 38 basis points higher than the comparable period of 2022.
−Removed: The yield on interest-earning assets increased 83 basis points, while the rate on interest-bearing liabilities increased by 66 basis points for the first six months of 2023 as compared to the prior year period.
−Removed: The decline in noninterest checking deposit balances also had an adverse impact on the fully tax-equivalent net interest margin (non-GAAP) for both periods.
−Removed: The 85 basis point increase in the average yield on interest-earning assets for the quarter was the result of increases in both the yield on average loans and the yield on average investments, including cash equivalents.
−Removed: The yield on average loans for the second quarter increased by 70 basis points compared to the second quarter of 2022.
−Removed: The second quarter of 2023 yield on average investments, including cash equivalents, increased 35 basis points compared to the prior year.
−Removed: The 83 basis point increase in the yield on interest-earning assets for the first six months of 2023 was the result of a 65 basis point increase in the yield on average loans and a 42 basis point increase in the yield on average investments, including cash equivalents, compared to the prior YTD period.
+Added: As shown in Table 2a, net interest income (with nontaxable income converted to a fully tax-equivalent basis, a non-GAAP measure) for the third quarter was $108.8 million, a decrease of $2.7 million, or 2.4%, compared to the same period last year.
+Added: This was driven by a 100 basis point increase in the rate paid on average interest-bearing liabilities and a $666.2 million decrease in average interest-earning assets, partially offset by a 76 basis point increase in the yield on average interest-earnings assets and a $42.6 million decrease in average interest-bearing liabilities in comparison to the third quarter of 2022.
+Added: As reflected in Table 3 for the quarter, net interest income was unfavorably impacted by $24.3 million due to the increase in the rate paid on average interest-bearing liabilities and $5.5 million due to the volume decrease in interest-earning assets, partially offset by the favorable impact on net interest income of $27.1 million due to the increase in the yield on average interest-earning assets.
+Added: September YTD net interest income (with nontaxable income converted to a fully tax-equivalent basis), as reflected in Table 2b, of $331.3 million, increased $19.9 million, or 6.4%, from the year-earlier period.
+Added: The September YTD increase resulted from an 81 basis point increase in the yield on average interest-earning assets, partially offset by a $58.4 million increase in average interest-bearing liabilities, a $412.0 million decrease in average interest-earning assets and a 77 basis point increase in the average rate paid on interest-bearing liabilities.
+Added: As reflected in Table 3 for September YTD, the increase in the yield on average interest-earning assets had a favorable impact on net interest income of $85.0 million, partially offset by the unfavorable impacts on net interest income of $9.4 million due to the volume decrease in average interest-earning assets, $55.6 million due to the increase in the rate paid on average interest-bearing liabilities and $0.1 million due to the increase in average interest-bearing liabilities.
+Added: Net interest margin of 3.07% and fully tax-equivalent net interest margin (non-GAAP) of 3.10% for the third quarter of 2023 were both seven basis points higher as compared to the third quarter of 2022.
+Added: The increase was the result of a 76 basis point increase in the interest-earning asset yield and the decreases in average interest-earning asset balances and overnight borrowings driven by the sales and maturities of certain available-for-sale investment securities between the periods, partially offset by a 100 basis point increase in the rate paid on average interest-bearing liabilities.
+Added: Net interest margin of 3.13% for the first nine months of 2023 was 27 basis points higher than the comparable period of 2022 while the fully tax-equivalent net interest margin (non-GAAP) of 3.16% for the first nine months of 2023 was 28 basis points higher than the comparable period of 2022.
+Added: The yield on interest-earning assets increased 81 basis points, while the rate on interest-bearing liabilities increased by 77 basis points for the first nine months of 2023 as compared to the prior year period.
+Added: The decline in noninterest and low-rate checking deposit balances also had an adverse impact on the net interest margin and fully tax-equivalent net interest margin (non-GAAP) for both periods.
+Added: The 76 basis point increase in the yield on average interest-earning assets for the quarter was the result of increases in both the yield on average loans and the yield on average investments, including cash equivalents.
+Added: The yield on average loans for the third quarter increased by 70 basis points compared to the third quarter of 2022.
+Added: The third quarter of 2023 yield on average investments, including cash equivalents, increased 19 basis points compared to the prior year.
+Added: The 81 basis point increase in the yield on interest-earning assets for the first nine months of 2023 was the result of a 67 basis point increase in the yield on average loans and a 35 basis point increase in the yield on average investments, including cash equivalents, compared to the prior YTD period.
The increase in loan yields were reflective of market-related increases in interest rates on new loans, a significant increase in variable and adjustable rate loan yields driven by rising market interest rates, including the prime rate and a high level of new loan originations.
−Removed: The increase in investment yields were driven by market interest rate increases and the sales and maturities of certain available-for-sale investment securities during the first six months of 2023.
+Added: The increase in investment yields were driven by market interest rate increases and the sales and maturities of certain available-for-sale investment securities during the first nine months of 2023.
The rate paid on average interest-bearing liabilities increased by 100 basis points compared to the prior year quarter as the average rate paid on interest-bearing deposits increased 92 basis points and the average rate paid on external borrowings increased 200 basis points from the comparable prior period.
−Removed: For the first six months of 2023, the rate paid on average interest-bearing liabilities increased by 66 basis points from the comparable prior year period as the rate paid on average interest-bearing deposits increased 53 basis points and the rate paid on average external borrowings increased 232 basis points.
+Added: For the first nine months of 2023, the rate paid on average interest-bearing liabilities increased by 77 basis points from the comparable prior year period as the rate paid on average interest-bearing deposits increased 67 basis points and the rate paid on average external borrowings increased 212 basis points.
The rate paid on average interest-bearing deposits increased as interest rates on certain interest-bearing deposits were raised in response to market conditions.
−Removed: The increase in the cost of average borrowings was primarily the result of the greater utilization of comparatively higher rate overnight borrowings to fund loan growth, as well as the increase in the rates paid on customer repurchase agreements in response to market conditions.
+Added: The increase in the cost of average borrowings was primarily the result of the greater utilization of comparatively higher rate overnight and term borrowings to fund loan growth, as well as the increase in the rates paid on customer repurchase agreements in response to market conditions.
The Company expects deposit costs to continue to increase to reflect the rapid changes in market interest rates that have occurred over the past year and that the cycle-to-date deposit beta will increase over current levels.
The expected increase in deposit beta is reflective of the Company’s strategy to maintain a strong core deposit base and continue to provide competitive offerings to customers, as well as heightened competition for deposit funding in the higher rate environment.
−Removed: The Company has been and will be proactive in managing customer relationships with depositors, particularly larger consumer, commercial and municipal customers, as a key component of this strategy.
+Added: The Company has been and will be proactive in managing customer relationships with depositors, particularly large balance consumer, commercial and municipal customers, as a key component of this strategy.
In addition, the Company expects funding costs to increase due to higher deposit costs, in part due to the continued migration from noninterest and low rate products to higher rate products, and potentially a greater reliance on comparatively high cost wholesale borrowings.
−Removed: The second quarter and YTD average balance of investments, including cash equivalents, decreased $1.88 billion and $1.70 billion, respectively, as compared to the corresponding prior year periods, primarily due to strong organic loan growth and declines in the investment securities portfolio driven by scheduled maturities and the sales of certain available-for-sale investment securities in connection with the Company’s first quarter balance sheet repositioning.
−Removed: Investment security sales, maturities, calls and principal payments outpaced purchases during the second quarter and YTD periods.
−Removed: The cash equivalents component of average earning assets decreased $444.2 million and $672.4 million for the second quarter and YTD periods, respectively, compared to the prior year periods due in part to the funding of strong organic loan growth.
−Removed: Average loan balances increased $1.35 billion for the quarter and $1.42 billion YTD as compared to the prior year, due to high levels of organic growth and the impact of the Elmira acquisition.
+Added: The third quarter and YTD average balance of investments, including cash equivalents, decreased $1.64 billion and $1.68 billion, respectively, as compared to the corresponding prior year periods, primarily due to declines in the investment securities portfolio driven by scheduled maturities and the sales of certain available-for-sale investment securities in connection with the Company’s first quarter balance sheet repositioning.
+Added: Investment security sales, maturities, calls and principal payments outpaced purchases during the third quarter and YTD periods.
+Added: The cash equivalents component of average earning assets increased $27.5 million and decreased $436.5 million for the third quarter and YTD periods, respectively, compared to the prior year periods.
+Added: The YTD decline in average cash equivalents was due in part to the funding of strong organic loan growth.
+Added: Average loan balances increased $970.3 million for the quarter and $1.27 billion YTD as compared to the prior year, due to high levels of organic growth and the impact of the Elmira acquisition.
Average interest-bearing deposits decreased $180.4 million compared to the prior year quarter and $190.8 million compared to the prior YTD period.
−Removed: The quarterly decrease in average interest-bearing deposits was due to decreases in interest checking, money market and savings deposits, partially offset by an increase in time deposits.
−Removed: The YTD decrease in average interest-bearing deposits was driven by decreases in interest checking and money market deposits, while time and savings deposits increased.
−Removed: The decrease in deposit balances were due in part to outflows driven by the continued spend down of funds accumulated during the pandemic, including the impact from higher customer expenditure levels in the inflationary environment.
+Added: The quarterly and YTD decreases in average interest-bearing deposits were due to decreases in interest checking, money market and savings deposits, partially offset by an increase in time deposits.
+Added: The decrease in deposit balances were due in part to outflows driven by higher customer expenditure levels in the inflationary environment.
The average borrowing balance, including borrowings at the Federal Home Loan Bank of New York and the Federal Home Loan Bank of Boston (collectively referred to as “FHLB”), subordinated notes payable and securities sold under agreement to repurchase (customer repurchase agreements), increased $137.9 million and $249.2 million for the quarter and YTD periods respectively.
−Removed: The increase in average borrowings from the prior year quarter and YTD periods was primarily due to an increase in overnight borrowings to meet the Company’s funding needs.
+Added: The increase in average borrowings from the prior year quarter and YTD periods was primarily due to an increase in overnight and term borrowings to meet the Company’s funding needs, including $300.0 million of term FHLB borrowings secured during the third quarter of 2023 at a weighted average rate of 4.69%.
Tables 2a and 2b below sets forth information related to average interest-earning assets and interest-bearing liabilities and their associated yields and rates for the periods indicated.
6 unchanged sentences
Three Months Ended
−Removed: June 30, 2023
−Removed: June 30, 2022
+Added: September 30, 2023
+Added: September 30, 2022
(000’s omitted except yields and rates)
30 unchanged sentences
Year-to-Date Average Balance Sheet
−Removed: Six Months Ended
−Removed: Six Months Ended
−Removed: June 30, 2023
−Removed: June 30, 2022
+Added: Nine Months Ended
+Added: Nine Months Ended
+Added: September 30, 2023
+Added: September 30, 2022
(000's omitted except yields and rates)
30 unchanged sentences
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.
−Removed: Three months ended June 30, 2023
−Removed: Six months ended June 30, 2023
−Removed: versus June 30, 2022
−Removed: versus June 30, 2022
+Added: Three months ended September 30, 2023
+Added: Nine months ended September 30, 2023
+Added: versus September 30, 2022
+Added: versus September 30, 2022
Increase (Decrease) Due to Change in (1)
29 unchanged sentences
Three Months Ended
−Removed: Six Months Ended
+Added: Nine Months Ended
+Added: September 30,
+Added: September 30,
(000’s omitted)
11 unchanged sentences
Noninterest revenues/total revenues
−Removed: Noninterest revenues/operating revenues (FTE basis) (1)
−Removed: (1) For purposes of this ratio noninterest revenues excludes loss on sales of investment securities, gain on debt extinguishment and unrealized gain on equity securities.
−Removed: Operating revenues, a non-GAAP measure, is defined as net interest income on a FTE basis plus noninterest revenues, excluding loss on sales of investment securities, gain on debt extinguishment, unrealized loss on equity securities and acquired non-PCD loan accretion.
+Added: Noninterest revenues/operating revenues (FTE basis, non-GAAP) (1)
+Added: (1) For purposes of this ratio noninterest revenues excludes loss on sales of investment securities, gain on debt extinguishment and unrealized loss on equity securities.
+Added: 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 loss on sales of investment securities, gain on debt extinguishment and unrealized loss on equity securities.
See Table 11 for Reconciliation of GAAP to Non-GAAP Measures.
−Removed: As displayed in Table 4, noninterest revenues were $66.0 million for the second quarter of 2023 and $79.5 million for the first six months of 2023.
+Added: As displayed in Table 4, noninterest revenues were $67.6 million for the third quarter of 2023 and $147.1 million for the first nine months of 2023.
This represents an increase of $2.3 million, or 3.6%, for the quarter and a decrease of $48.0 million, or 24.6%, for the YTD period in comparison to the equivalent 2022 periods.
−Removed: The increase for the quarterly period was driven by increases in insurance services revenue and banking noninterest revenue, partially offset by decreases in employee benefit services revenue and wealth management services revenue.
+Added: The increase for the quarterly period was driven by increases in employee benefit services revenue, insurance services revenue and wealth management services revenue, partially offset by a decrease in banking noninterest revenue.
The YTD decrease was primarily a result of a $52.3 million pre-tax realized loss on the sale of certain available-for-sale securities in connection with a strategic balance sheet repositioning executed during the first quarter of 2023 to provide the Company with greater flexibility in managing balance sheet growth and deposit funding.
−Removed: Excluding the realized loss on sale of investment securities and gain on debt extinguishment recognized in the first quarter of 2023, noninterest revenues were up $1.8 million, or 1.4%, between June YTD 2023 and June YTD 2022 which was driven by an increase in insurance services revenue, partially offset by decreases in banking noninterest revenue, employee benefit services revenue and wealth management services revenue.
−Removed: Banking noninterest revenue of $17.8 million for the second quarter and $34.2 million for the first six months of 2023 increased $0.5 million, or 2.7%, and decreased $0.1 million, or 0.4%, respectively, as compared to the corresponding prior year periods.
−Removed: The quarterly increase was driven by an increase in other banking revenues and debit interchange and ATM fees, partially offset by decreases in deposit service charges and fees and mortgage banking revenues.
−Removed: The YTD decrease was driven by decreases in debit interchange and ATM fees, deposit service charges and fees and mortgage banking revenues, partially offset by an increase in other banking revenues.
+Added: Excluding the realized loss on sale of investment securities, unrealized loss on equity securities and gain on debt extinguishment recognized in the first quarter of 2023, noninterest revenues were up $4.2 million, or 2.2%, between September YTD 2023 and September YTD 2022 which was driven by increases in insurance services revenue and employee benefit services revenue, partially offset by decreases in banking noninterest revenue and wealth management services revenue.
+Added: Banking noninterest revenue of $17.6 million for the third quarter and $51.8 million for the first nine months of 2023 decreased $0.9 million, or 5.1%, and decreased $1.1 million, or 2.1%, respectively, as compared to the corresponding prior year periods.
+Added: The quarterly decrease was driven by decreases in deposit service charges and fees and mortgage banking revenues, partially offset by increases in other banking revenues and debit interchange and ATM fees.
+Added: The YTD decrease was driven by decreases in deposit service charges and fees, debit interchange and ATM fees and mortgage banking revenues, partially offset by an increase in other banking revenues.
The decreases in deposit service charges and fees were reflective of the Company’s implementation of certain deposit fee changes, including the elimination of nonsufficient and unavailable funds fees on personal accounts late in the fourth quarter of 2022.
−Removed: The Company expects to continue to evaluate its deposit service charges and other fees for further modifications during 2023 in order to better serve the Company’s customers by offering an array of products and services designed to meet their particular type of banking needs.
−Removed: Employee benefit services revenue decreased $0.4 million, or 1.2%, and $0.6 million, or 0.9%, for the three and six months ended June 30, 2023, respectively, as compared to the equivalent prior year periods primarily related to a decline in certain cyclical administrative-related plan fees.
−Removed: Insurance services revenue was up $2.1 million, or 21.3%, and $3.2 million, or 15.8%, for the second quarter and YTD periods, respectively, driven primarily by a strong premium market and organic expansion, along with acquired growth between the periods.
−Removed: Wealth management services revenue was down $0.3 million, or 3.5%, for the second quarter of 2023 and $0.7 million, or 4.0%, for June 2023 YTD as compared to the same time periods of 2022, primarily driven by more challenging investment market conditions.
−Removed: The ratio of noninterest revenues to total revenues was 37.6% for the second quarter of 2023 and 26.5% for June YTD 2023, compared to 38.3% for the prior year’s second quarter and 39.6% for June YTD 2022.
−Removed: The quarterly decrease was due to noninterest revenues increasing 2.9% while net interest income increased 6.0%.
+Added: The Company expects to continue to evaluate its deposit service charges and other fees for further modifications during the last quarter of 2023 and early 2024 in order to better serve the Company’s customers by offering an array of products and services designed to meet their particular type of banking needs.
+Added: Employee benefit services revenue increased $2.1 million, or 7.6%, and $1.6 million, or 1.8%, for the three and nine months ended September 30, 2023, respectively, as compared to the equivalent prior year periods primarily related to new business and a significant year-over-year increase in the total participants under administration, along with a modest increase from market appreciation.
+Added: Insurance services revenue was up $0.8 million, or 6.9%, and $4.0 million, or 12.6%, for the third quarter and YTD periods, respectively, driven primarily by a strong premium market and organic expansion, along with growth resulting from acquisitions between the periods.
+Added: Wealth management services revenue was up $0.4 million, or 5.8%, for the third quarter of 2023, but down $0.2 million, or 1.0%, for September 2023 YTD as compared to the same time periods of 2022.
+Added: The ratio of noninterest revenues to total revenues was 38.5% for the third quarter of 2023 and 31.0% for September YTD 2023, compared to 37.1% for the prior year’s third quarter and 38.7% for September YTD 2022.
+Added: The quarterly increase was due to noninterest revenues increasing 3.6% while net interest income decreased 2.4% driven by higher funding costs.
The YTD decrease was primarily the result of the $48.0 million, or 24.6%, decrease in total noninterest revenues due to the aforementioned $52.3 million realized loss on sales of investment securities, while net interest income increased 6.4%, driven by net interest margin expansion.
−Removed: The ratio of noninterest revenues to operating revenues (FTE basis, non-GAAP), as defined in footnote 1 of Table 4 above, was 37.6% for the quarter and 37.4% for the six months ended June 30, 2023, respectively, versus 38.3% and 39.6% for the comparable periods of 2022.
−Removed: The decrease between the quarterly periods was due to a 6.2% increase in adjusted net interest income (FTE basis) while adjusted noninterest revenues increased 3.0%.
−Removed: The year-to-date decrease was a function of an 11.3% increase in adjusted net interest income (FTE basis) while adjusted noninterest revenues increased 1.4%.
+Added: The ratio of noninterest revenues to operating revenues (FTE basis, non-GAAP), as defined in footnote 1 of Table 4 above, was 38.5% for the quarter and 37.8% for the nine months ended September 30, 2023, respectively, versus 37.2% and 38.8% for the comparable periods of 2022.
+Added: The increase between the quarterly periods was due to a 3.7% increase in adjusted noninterest revenues, while adjusted net interest income (FTE basis) decreased 2.4%.
+Added: The year-to-date decrease was a function of a 6.4% increase in adjusted net interest income (FTE basis) while adjusted noninterest revenues increased 2.2%.
Noninterest Expenses
2 unchanged sentences
Three Months Ended
−Removed: Six Months Ended
+Added: Nine Months Ended
+Added: September 30,
+Added: September 30,
(000’s omitted)
9 unchanged sentences
Noninterest expenses/average assets
−Removed: Operating expenses (1) /average assets
+Added: Operating expenses (1) /average assets (non-GAAP)
Efficiency ratio (GAAP)
Operating efficiency ratio (non-GAAP) (2)
−Removed: (1) Operating expenses, a non-GAAP measure, is calculated as total noninterest expenses less acquisition expenses, acquisition-related contingent consideration adjustment and amortization of intangibles.
+Added: (1) Operating expenses, a non-GAAP measure, is calculated as total noninterest expenses less acquisition expenses, acquisition-related contingent consideration adjustment and amortization of intangible assets.
See Table 11 for Reconciliation of GAAP to Non-GAAP Measures.
1 unchanged sentence
See Table 11 for Reconciliation of GAAP to Non-GAAP Measures.
−Removed: As shown in Table 5, the Company recorded noninterest expenses of $113.0 million and $227.1 million for the second quarter and YTD periods of 2023, respectively, representing an increase of $2.6 million, or 2.4%, and an increase of $16.9 million, or 8.0%, from the prior year periods.
−Removed: Second quarter and YTD 2023 noninterest expenses included $1.0 million and $1.1 million of acquisition expenses and acquisition-related contingent consideration adjustments, respectively, compared to $4.4 million and $4.7 million in second quarter and YTD 2022, respectively.
−Removed: Salaries and employee benefits increased $2.6 million, or 4.0%, and $12.5 million, or 9.8%, for the second quarter and YTD periods of 2023, respectively, as compared to the corresponding periods of 2022.
−Removed: The remaining change to noninterest expenses are attributed to data processing and communications (up $0.7 million for the quarter and $1.2 million YTD), amortization of intangible assets (down $0.1 million for the quarter and $0.2 million YTD), occupancy and equipment (consistent between the quarters and up $0.1 million YTD), legal and professional fees (down $0.3 million for the quarter and up $1.3 million YTD), business development and marketing (up $1.0 million for the quarter and $1.1 million YTD) and other expenses (up $2.1 million for the quarter and $4.5 million YTD).
−Removed: The increase in salaries and benefits was driven by increases in merit and severance-related employee wages, minimum wage-related escalation on the lower end of the Company’s pay scale, acquisition-related and other additions to staffing, higher payroll taxes and higher employee benefit-related expenses.
−Removed: Other expenses were up due to increases in insurance and travel-related expenses along with general inflationary pressures and the incremental expenses associated with operating an expanded franchise subsequent to the Elmira acquisition in mid-second quarter 2022.
+Added: As shown in Table 5, the Company recorded noninterest expenses of $116.5 million and $343.6 million for the third quarter and YTD periods of 2023, respectively, representing an increase of $8.3 million, or 7.7%, for the quarter and an increase of $25.2 million, or 7.9%, for the YTD period.
+Added: Third quarter and YTD 2023 noninterest expenses included $0.1 million and $1.1 million of acquisition expenses and acquisition-related contingent consideration adjustment, respectively, compared to $0.4 million and $5.1 million in third quarter and YTD 2022, respectively.
+Added: Salaries and employee benefits increased $4.5 million, or 6.8%, and $17.0 million, or 8.8%, for the third quarter and YTD periods of 2023, respectively, as compared to the corresponding periods of 2022.
+Added: The remaining change to noninterest expenses are attributed to data processing and communications (up $1.3 million for the quarter and $2.4 million YTD), occupancy and equipment (consistent between the quarters and up $0.1 million YTD), legal and professional fees (up $0.6 million for the quarter and $1.9 million YTD), business development and marketing (up $1.0 million for the quarter and $2.1 million YTD), amortization of intangible assets (down $0.3 million for the quarter and $0.5 million YTD) and other expenses (up $1.5 million for the quarter and $6.0 million YTD).
+Added: The increase in salaries and benefits was driven by merit and market-related increases in employee wages, higher employee medical expenses and certain executive retirement expenses.
+Added: Other expenses were up primarily due to increases in insurance expenses, travel-related expenses and non-service related components of the net periodic pension benefit credit.
The higher insurance costs included in other expenses reflected larger FDIC insurance expenses due in part to an increase in the base assessment rate effective January 1, 2023.
−Removed: Legal and professional fees were up on a YTD basis primarily due to fees associated with product launches in the employee benefit services business and other various matters.
−Removed: 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.
−Removed: Business development and marketing expenses increased due to the Company’s investment in digital marketing automation technologies and higher levels of targeted advertisements intended to generate deposits.
−Removed: The Company’s GAAP efficiency ratio was 64.5% for the second quarter of 2023, 1.5 percentage points favorable to the comparable quarter of 2022.
−Removed: This resulted from total revenues increasing 4.8%, primarily due to higher net interest income as a result of net interest margin expansion, while total noninterest expenses increased 2.4% due to the factors noted above.
−Removed: The GAAP efficiency ratio of 75.8% for June YTD 2023 was 11.7 percentage points unfavorable to the 64.1% GAAP efficiency ratio for June YTD 2022.
+Added: Legal and professional fees were up on a YTD basis primarily due to fees associated with various matters.
+Added: The increase in data processing and communications expenses was due to the Company’s continued investment in customer-interfacing and digital technologies and the upgrading of operational support systems between the comparable periods.
+Added: Business development and marketing expenses increased due to the Company’s investment in digital marketing initiatives and higher levels of targeted advertisements intended to generate deposit inflows.
+Added: The Company’s GAAP efficiency ratio was 66.4% for the third quarter of 2023, 4.8 percentage points unfavorable to the comparable quarter of 2022.
+Added: This resulted from total noninterest expenses increasing 7.7% due to the factors noted above, while total revenues decreased 0.2%, primarily due to lower net interest income driven by higher funding costs.
+Added: The GAAP efficiency ratio of 72.3% for September YTD 2023 was 9.1 percentage points unfavorable to the 63.2% GAAP efficiency ratio for September YTD 2022.
The increase in the GAAP efficiency ratio between the comparable YTD periods was the result of total revenues decreasing 5.6% primarily due to the $52.3 million pre-tax realized loss on the sale of certain available-for-sale securities during the first quarter of 2023, while total noninterest expenses increased 7.9% due to the factors noted above.
−Removed: Annualized current quarter noninterest expenses as a percentage of average assets increased 0.12 percentage points versus the second quarter of the prior year as noninterest expenses increased 2.4% while average assets decreased 2.0%.
+Added: Annualized current quarter noninterest expenses as a percentage of average assets increased 0.30 percentage points versus the third quarter of the prior year as noninterest expenses increased 7.7% while average assets decreased 2.8%.
On a YTD basis, annualized noninterest expenses as a percentage of average assets increased 0.28 percentage points as noninterest expenses increased 7.9% while average assets decreased 2.1%.
Noninterest expenses increased between both periods due to the factors noted above and average assets decreased between both periods primarily due to the aforementioned sale of certain available-for-sale investment securities during the first quarter of 2023.
−Removed: The Company’s non-GAAP efficiency ratio (as defined in the table above) was 61.7% for the second quarter, 0.6 percentage points unfavorable to the comparable quarter of 2022.
−Removed: This resulted from operating expenses (as described above) increasing 6.0%, while operating revenues (as described above) increased 4.9%.
−Removed: The efficiency ratio of 62.1% for the first six months of 2023 was 1.7 percentage points unfavorable compared to the first six months of 2022 due to 10.4% higher operating expenses (as described above), while operating revenues (as described above) increased by 7.4%.
−Removed: Current year operating expenses (as described above) as a percentage of average assets increased 0.22 percentage points versus the prior year quarter and increased 0.32 percentage points versus the prior year-to-date period as operating expenses (as defined above) increased while average assets decreased on both a quarterly and YTD basis.
+Added: The Company’s operating efficiency ratio (a non-GAAP measure, as defined in the table above) was 64.3% for the third quarter, 5.0 percentage points unfavorable to the comparable quarter of 2022.
+Added: This resulted from operating expenses (as defined above) increasing 8.6%, while operating revenues (as defined above) increased 0.1%.
+Added: The operating efficiency ratio (non-GAAP) of 62.8% for the first nine months of 2023 was 2.8 percentage points unfavorable compared to the first nine months of 2022 due to 9.8% higher operating expenses (as defined above), while operating revenues (as defined above) increased by 4.8%.
+Added: Current year operating expenses (as defined above) as a percentage of average assets (non-GAAP) increased 0.31 percentage points versus the prior year quarter and the prior year-to-date period as operating expenses (as defined above) increased while average assets decreased on both a quarterly and YTD basis.
Operating expenses (as defined above) increased 8.6% for the quarter and 9.8% for the year-to-date period, while average assets decreased 2.8% for the quarter and 2.1% for the year-to-date period.
−Removed: The second quarter and YTD 2023 effective income tax rates were 21.4% and 21.0%, respectively, as compared to 21.6% and 21.5% for the comparable periods of 2022.
−Removed: The decrease in the second quarter and YTD 2023 effective income tax rates are primarily attributable to a decrease in the full-year 2023 pre-tax income projection as a result of the loss on investment security sales recognized in the first quarter of 2023.
+Added: The third quarter and YTD 2023 effective income tax rates were 21.2% and 21.1%, respectively, as compared to 22.0% and 21.6% for the comparable periods of 2022.
+Added: The decrease in the third quarter and YTD 2023 effective income tax rates are primarily attributable to a decrease in the full-year 2023 pre-tax income projection as a result of the loss on investment security sales recognized in the first quarter of 2023.
The Company recorded a $0.3 million and $0.6 million reduction in income tax expense associated with stock-based compensation tax benefits for YTD 2023 and YTD 2022, respectively.
−Removed: The effective tax rates adjusted to exclude stock-based compensation tax benefits for both the second quarter and YTD 2023 were 21.4%, as compared to 21.6% and 22.0% for the comparable periods of 2022.
+Added: The effective tax rates adjusted to exclude stock-based compensation tax benefits for the third quarter and YTD 2023 were 21.2% and 21.3%, respectively, as compared to 22.0% for both of the comparable periods of 2022.
Investment Securities
−Removed: The carrying value of investment securities (including unrealized gains and losses) was $4.23 billion at the end of the second quarter, a decrease of $1.08 billion, or 20.4%, from December 31, 2022 and $1.41 billion, or 25.0%, lower than June 30, 2022.
−Removed: The carrying value of cash equivalents was $34.6 million at the end of the second quarter, an increase of $16.2 million from December 31, 2022 and $14.3 million from June 30, 2022.
−Removed: The book value of investment securities (excluding unrealized gains and losses) of $4.67 billion at the end of the second quarter decreased $1.17 billion from December 31, 2022 and $1.64 billion from June 30, 2022.
−Removed: During the first six months of 2023, the Company purchased $9.8 million of government agency mortgage-backed securities with an average yield of 5.23%, which the Company classified as held-to-maturity.
+Added: The carrying value of investment securities (including unrealized gains and losses) was $3.96 billion at the end of the third quarter, a decrease of $1.35 billion, or 25.5%, from December 31, 2022 and $1.27 billion, or 24.2%, lower than September 30, 2022.
+Added: The balance of cash equivalents was $260.0 million at the end of the third quarter, an increase of $241.6 million from December 31, 2022 and $230.0 million from September 30, 2022.
+Added: The book value of investment securities (excluding unrealized gains and losses) of $4.51 billion at the end of the third quarter decreased $1.33 billion from December 31, 2022 and $1.69 billion from September 30, 2022.
+Added: During the first nine months of 2023, the Company purchased $23.9 million of government agency mortgage-backed securities with an average yield of 5.49%, which the Company classified as held-to-maturity.
These additions were offset by proceeds of $733.8 million from the sale of certain available-for-sale U.S.
−Removed: Treasury securities associated with the first quarter 2023 balance sheet repositioning and $394.5 million of investment maturities, calls and principal payments during the first six months of 2023.
−Removed: Additionally, there was $20.4 million of net accretion on investment securities during the first six months of 2023.
−Removed: The effective duration of the investment securities portfolio was 7.2 years at the end of the second quarter of 2023, as compared to 6.3 years at the end of 2022 and 6.7 years at the end of the second quarter of 2022.
−Removed: The change in the carrying value of investment securities is also impacted by the amount of net unrealized gains or losses.
−Removed: At June 30, 2023, the investment portfolio (excluding held-to-maturity investment securities) had a $435.0 million net unrealized loss, as compared to a $522.7 million net unrealized loss at December 31, 2022 and a $663.9 million net unrealized loss at June 30, 2022.
−Removed: 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, sales, maturities and reclassifications that have occurred over the past 12 months and the recognition of the loss on sales of available-for-sale investment securities related to aforementioned balance sheet repositioning.
+Added: Treasury securities associated with the first quarter 2023 balance sheet repositioning and $582.6 million of investment maturities, calls and principal payments during the first nine months of 2023.
+Added: Additionally, there was $30.1 million of net accretion on investment securities during the first nine months of 2023.
+Added: The effective duration of the investment securities portfolio was 7.2 years at the end of the third quarter of 2023, as compared to 6.3 years at the end of 2022 and 6.5 years at the end of the third quarter of 2022.
+Added: The change in the carrying value of investment securities is also impacted by the amount of net unrealized gains or losses in the available-for-sale and equity securities portfolio.
+Added: At September 30, 2023, the investment portfolio excluding held-to-maturity investment securities had a $546.4 million net unrealized loss, as compared to a $522.7 million net unrealized loss at December 31, 2022 and a $964.9 million net unrealized loss at September 30, 2022.
+Added: 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, maturities and reclassifications that have occurred over the past 12 months and the recognition of the loss on sales of available-for-sale investment securities related to aforementioned balance sheet repositioning.
The following table sets forth the carrying value of the Company’s investment securities portfolio:
Investment Securities
+Added: September 30,
+Added: September 30,
(000’s omitted)
17 unchanged sentences
Total investments
−Removed: Loans ended the second quarter at $9.17 billion, $361.4 million, or 4.1%, higher than December 31, 2022 ending loans and $1.03 billion, or 12.6%, higher than June 30, 2022.
+Added: Loans ended the third quarter at $9.45 billion, $640.7 million, or 7.3%, higher than at December 31, 2022 and $906.5 million, or 10.6%, higher than at September 30, 2022.
The business lending portfolio consists of general-purpose business lending to commercial, industrial, non-profit and municipal customers, mortgages on commercial property and vehicle dealer floor plan financing.
−Removed: The business lending portfolio increased $501.7 million, or 15.1%, from June 30, 2022 and increased $188.0 million, or 5.2%, from December 31, 2022, driven by net organic growth.
−Removed: Growth in commercial mortgages drove the majority of the increase between both periods, in particular commercial real estate non-owner occupied and commercial real estate multi-family, followed by commercial real estate owner occupied, along with increases in commercial and industrial lines of credit, partially offset by decreases in commercial and industrial term loans.
−Removed: While certain macroeconomic concerns are emerging related to non-owner occupied commercial real estate, the Company’s exposure to this portfolio remains relatively low at 180% of total bank-level capital.
−Removed: The increases in these segments are reflective of continued high demand for multi-family housing, expansion of internal resources and proactive business development in the Company’s market areas.
+Added: The business lending portfolio increased $420.5 million, or 12.0%, from September 30, 2022 and increased $269.3 million, or 7.4%, from December 31, 2022, driven by net organic growth.
+Added: Growth in commercial mortgages drove the majority of the increase between both periods, in particular commercial real estate multi-family and commercial real estate non-owner occupied, followed by commercial real estate owner occupied, and to a lesser extent increases in commercial and industrial lines of credit, partially offset by decreases in commercial and industrial term loans.
+Added: While certain macroeconomic concerns are emerging related to non-owner occupied commercial real estate, the Company’s exposure to this portfolio remains diverse and relatively low at 186% of total bank-level regulatory capital, 24% of total loans and 15% of total assets.
+Added: The balance increases are reflective of continued high demand for multi-family housing, expansion of internal resources and proactive business development and pricing in the Company’s market areas.
Competitive conditions for business lending continue to prevail in both the digital marketplace and geographic regions in which the Company operates.
2 unchanged sentences
Consumer mortgages increased $221.2 million, or 7.4%, from one year ago and increased $184.3 million, or 6.1%, from December 31, 2022, reflective of organic growth.
−Removed: Over the past year the Company produced net organic growth in the consumer mortgage segment due to the Company’s competitive product offerings, investments in additional resources and proactive business development efforts, while also benefitting from the comparatively stable housing market conditions in the Company’s primary markets.
+Added: Over the past year, the Company produced net organic growth in the consumer mortgage segment due to the Company’s competitive product offerings, recruitment of additional mortgage loan originators and proactive business development efforts.
Home equity loans increased $11.7 million, or 2.7%, from one year ago, and increased $10.8 million, or 2.5%, from December 31, 2022, in part aided by lower levels of consumer mortgage refinancing-related payoffs and paydowns in the higher interest rate environment.
9 unchanged sentences
The allocation of the allowance to each category does not restrict the use of the allowance to absorb losses in any category.
−Removed: As shown in Table 7, total allowance for credit losses at the end of the second quarter was $63.3 million, an increase of $7.7 million, or 13.9%, from one year earlier and an increase of $2.2 million, or 3.6%, from the end of 2022.
+Added: As shown in Table 7, total allowance for credit losses at the end of the third quarter was $64.9 million, an increase of $4.6 million, or 7.6%, from one year earlier and an increase of $3.9 million, or 6.4%, from the end of 2022.
Allowance for Credit Losses by Loan Type
−Removed: June 30, 2023
+Added: September 30, 2023
December 31, 2022
−Removed: June 30, 2022
+Added: September 30, 2022
(000’s omitted except for ratios)
5 unchanged sentences
The unallocated allowance is maintained for potential inherent losses in the specific portfolios that are not captured due to model imprecision.
−Removed: The unallocated allowance of $1.0 million at June 30, 2023 was consistent with December 31, 2022 and June 30, 2022.
+Added: The unallocated allowance of $1.0 million at September 30, 2023 was consistent with December 31, 2022 and September 30, 2022.
The changes in allowance allocations reflect management’s continued refinement of its loss estimation techniques.
2 unchanged sentences
Allowance for credit losses and loan net charge-off ratios are as follows:
+Added: September 30,
+Added: September 30,
Allowance for credit losses/total loans
7 unchanged sentences
Consumer direct
−Removed: Net charge-offs during the second quarter of 2023 were $0.7 million, an increase of $0.3 million compared to the second quarter of 2022.
−Removed: All portfolios with the exception of consumer indirect experienced higher charge-off levels in the second quarter of 2023 compared to the second quarter of 2022.
−Removed: The total net charge-off ratio (net charge-offs annualized as a percentage of average loans outstanding for the quarter) for the second quarter was 0.03%, six basis points lower than the ratio at December 31, 2022 and one basis point higher than the ratio at June 30, 2022.
−Removed: Net charge-off ratios for the second quarter of 2023 for the business lending, consumer mortgage, and home equity portfolios were above the Company’s average for the trailing eight quarters, while the net charge-off ratio for the consumer indirect and consumer direct portfolios were below the Company’s average for the trailing eight quarters.
+Added: Net charge-offs during the third quarter of 2023 were $1.2 million, an increase of $0.9 million compared to the third quarter of 2022.
+Added: All portfolios except the home equity portfolio experienced higher net charge-off levels in the third quarter of 2023 compared to the third quarter of 2022.
+Added: 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 0.05%, four basis points lower than the ratio at December 31, 2022 and three basis points higher than the ratio at September 30, 2022.
+Added: Despite the increase in net charge-offs in the third quarter of 2023, the net charge-off ratio remains well below the Company’s average for the past ten years of 0.12%.
+Added: Net charge-off ratios for the third quarter of 2023 for the consumer mortgage, consumer direct and home equity portfolios were above the Company’s average for the trailing eight quarters, while the net charge-off ratio for the business lending and consumer indirect portfolios were below the Company’s average for the trailing eight quarters.
Economic conditions have been relatively stable with the unemployment rate in particular remaining low and supporting the continued historically low levels of net charge-offs experienced by the Company.
−Removed: Other real estate owned (“OREO”) at June 30, 2023 was $0.6 million.
−Removed: This compares to $0.5 million at December 31, 2022 and $0.6 million at June 30, 2022.
−Removed: At June 30, 2023, OREO consisted of 11 residential properties with a total value of $0.6 million.
−Removed: This compares to seven residential properties with a total value of $0.5 million at December 31, 2022, and nine residential properties with a total value of $0.5 million and one commercial property with a value of $0.1 million at June 30, 2022.
−Removed: Approximately 11% of the nonperforming loans at June 30, 2023 were related to the business lending portfolio, which is comprised of business loans broadly diversified by industry type.
−Removed: The level of nonperforming business loans decreased from the prior year as certain business lending relationships returned to accrual status, due in part to the stabilization of business conditions within the Company’s market area, particularly in the recreational and lodging industry.
−Removed: Approximately 81% of nonperforming loans at June 30, 2023 were comprised of consumer mortgages.
+Added: Other real estate owned (“OREO”) at September 30, 2023 was $0.6 million.
+Added: This compares to $0.5 million at both December 31, 2022 and September 30, 2022.
+Added: At September 30, 2023, OREO consisted of 10 residential properties with a total value of $0.6 million.
+Added: This compares to seven residential properties with a total value of $0.5 million at December 31, 2022, and eight residential properties with a total value of $0.5 million at September 30, 2022.
+Added: Approximately 15% of the nonperforming loans at September 30, 2023 were related to the business lending portfolio, which is comprised of business loans broadly diversified by industry type.
+Added: While the level of nonperforming business loans was $0.8 million higher than the prior year, the business lending nonperforming loans ratio was consistent as business conditions in the Company’s market area remain stable.
+Added: Approximately 76% of nonperforming loans at September 30, 2023 were comprised of consumer mortgages.
Collateral values of residential properties within most of the Company’s market areas have generally remained stable or increased over the past several years.
1 unchanged sentence
The remaining 9% 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.
−Removed: The allowance for credit losses to nonperforming loans ratio, a general measure of coverage adequacy, was 190% at the end of the second quarter, as compared to 183% at year-end 2022 and 150% at June 30, 2022.
−Removed: The increase in this ratio between the annual quarterly periods was primarily driven by a higher allowance for credit losses due to growth in total loan balances and a weaker economic forecast, combined with a decrease in nonperforming business loan levels.
+Added: The allowance for credit losses to nonperforming loans ratio, a general measure of coverage adequacy, was 176% at the end of the third quarter, as compared to 183% at year-end 2022 and 186% at September 30, 2022.
+Added: The decrease in this ratio between the annual quarterly periods was primarily driven by the increases in nonperforming business loan and consumer mortgage levels rising proportionally more than the allowance for credit 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.
3 unchanged sentences
Business lending management reviews the criticized business loan portfolio on a monthly basis.
−Removed: Delinquent loans (defined as loans 30 days or more past due or in nonaccrual status) as a percent of total loans was 0.83% at the end of the second quarter, six basis points below the 0.89% at year-end 2022 and eight basis points above the 0.75% at June 30, 2022.
−Removed: The business lending delinquency ratio at the end of the second quarter of 0.41% was one basis point above the level of 0.40% at December 31, 2022 and June 30, 2022, due a generally stable business environment in the Company’s market area.
−Removed: The delinquency rates for the consumer indirect and home equity portfolios decreased as compared to the levels at December 31, 2022, while consumer mortgage increased and consumer direct remained consistent.
−Removed: The delinquency rates for the consumer direct, home equity, and consumer mortgage all increased compared to the levels at June 30, 2022, while delinquency rates for consumer indirect decreased.
−Removed: The Company recorded a $0.8 million provision for credit losses in the second quarter of 2023.
−Removed: The second quarter provision for credit losses was $5.3 million lower than the equivalent prior year period’s provision for credit losses of $6.0 million, which included $3.9 million of acquisition-related provision for credit losses from the Elmira acquisition.
−Removed: The second quarter of 2023 provision for credit losses reflects stable economic forecasts and asset quality metrics as well as net loan growth between the periods.
−Removed: The allowance for credit losses of $63.3 million as of June 30, 2023 increased $2.2 million compared to December 31, 2022 and increased $7.7 million compared to June 30, 2022.
−Removed: The allowance for credit losses to total loans ratio was 0.69% at June 30, 2023, consistent with the level at December 31, 2022 and one basis point higher than the level at June 30, 2022.
+Added: Delinquent loans (defined as loans 30 days or more past due or in nonaccrual status) as a percent of total loans was 0.90% at the end of the third quarter, one basis point above the 0.89% at year-end 2022 and 19 basis points above the 0.71% at September 30, 2022.
+Added: The business lending delinquency ratio at the end of the third quarter of 0.49% was nine basis points above the level of 0.40% at December 31, 2022 and 32 basis points above the level of 0.17% at September 30, 2022.
+Added: The delinquency rates for the consumer indirect and consumer direct portfolios decreased as compared to the levels at December 31, 2022, while delinquency rates in the consumer mortgage and home equity portfolios increased.
+Added: The delinquency rates for all loan portfolios increased compared to the levels at September 30, 2022.
+Added: Despite the increase in delinquent loans in the third quarter of 2023, the current quarter delinquency rates remained below the Company’s average for the past ten years of 1.04%.
+Added: The Company recorded a $2.9 million provision for credit losses in the third quarter of 2023.
+Added: The third quarter provision for credit losses was $2.2 million lower than the equivalent prior year period’s provision for credit losses of $5.1 million.
+Added: The third quarter of 2023 provision for credit losses reflects stable economic forecasts and asset quality metrics as well as net loan growth between the periods.
+Added: The allowance for credit losses of $64.9 million as of September 30, 2023 increased $3.9 million compared to December 31, 2022 and increased $4.6 million compared to September 30, 2022.
+Added: The allowance for credit losses to total loans ratio was 0.69% at September 30, 2023, consistent with the level at December 31, 2022 and two basis points lower than the level at September 30, 2022.
Refer to Note E:
Loans and Allowance for Credit Losses in the notes to the consolidated financial statements for a discussion of management’s methodology used to estimate the allowance for credit losses.
−Removed: As of June 30, 2023, the net purchase discount related to the $1.13 billion of remaining non-PCD loan balances acquired in prior period acquisitions was approximately $22.5 million, or 2.0% of that portfolio.
−Removed: As shown in Table 9, average deposits of $12.89 billion in the second quarter were $441.1 million, or 3.3%, lower than the second quarter of 2022.
−Removed: Total average deposit balances decreased $291.0 million, or 2.2%, from the fourth quarter of last year, while on an ending basis total deposits decreased $140.5 million, or 1.1%, from December 31, 2022.
−Removed: The mix of average deposit balances changed as the weighting of non-maturity deposits (noninterest checking, interest checking, savings and money market) to total deposits has decreased slightly from the prior year levels.
−Removed: Average noninterest checking deposits as a percentage of average total deposits was 29.8% in the second quarter compared to 30.5% in the second quarter of 2022 and 31.9% in the fourth quarter of last year.
−Removed: Average non-maturity deposits (noninterest checking, interest checking, savings and money market) represented 90.9% of the Company’s deposit funding base and time deposits represented 9.1% of total average deposits in the second quarter of 2023 compared to 92.9% and 7.1%, respectively in the equivalent period year period.
−Removed: The quarterly average cost of deposits was 0.59% for the second quarter of 2023, compared to 0.18% for the fourth quarter of 2022 and 0.08% in the second quarter of 2022, reflective of the increase in the average interest rate paid on interest-bearing deposits as interest rates on certain interest-bearing deposits were raised in response to market conditions, as well as a decline in the proportion of noninterest and low-rate deposit balances.
+Added: As of September 30, 2023, the net purchase discount related to the $1.09 billion of remaining non-PCD loan balances acquired in prior period acquisitions was approximately $21.6 million, or 2.0% of that portfolio.
+Added: As shown in Table 9, average deposits of $12.77 billion in the third quarter were $562.5 million, or 4.2%, lower than the third quarter of 2022.
+Added: Total average deposit balances decreased $408.1 million, or 3.1%, from the fourth quarter of last year, while on an ending basis total deposits increased $18.5 million, or 0.1%, from December 31, 2022.
+Added: The mix of average deposit balances changed as the weighting of non-maturity deposits (noninterest checking, interest checking, savings and money market) to total deposits has decreased from the prior year levels.
+Added: Average noninterest checking deposits as a percentage of average total deposits was 29.8% in the third quarter compared to 31.4% in the third quarter of 2022 and 31.9% in the fourth quarter of last year.
+Added: Average non-maturity deposits represented 89.2% of the Company’s deposit funding base and time deposits represented 10.8% of total average deposits in the third quarter of 2023 compared to 92.8% and 7.2%, respectively, in the equivalent period year period.
+Added: The quarterly average cost of deposits was 0.76% for the third quarter of 2023, compared to 0.18% for the fourth quarter of 2022 and 0.11% in the third quarter of 2022, reflective of the increase in the average interest rate paid on interest-bearing deposits as interest rates on certain interest-bearing deposits were raised in response to market conditions, as well as a decline in the proportion of noninterest and low-rate deposit balances.
The Company continues to focus on expanding its deposit relationship base through its competitive product offerings and high quality customer service.
−Removed: The Company’s deposit base is well diversified across customer segments, which as of June 30, 2023 is comprised of approximately 63% consumer, 26% business and 11% municipal, and broadly dispersed with an average personal deposit account balance of approximately $12,000 and average business deposit relationship of approximately $60,000, while the Company’s total average deposit account balance is under $20,000.
+Added: The Company’s deposit base is well diversified across customer segments, which as of September 30, 2023 is comprised of approximately 61% consumer, 26% business and 13% municipal, and broadly dispersed with an average personal deposit account balance of approximately $12,000 and average business deposit relationship of approximately $62,000, while the Company’s total average deposit account balance is under $20,000.
In addition, at the end of the quarter, 70% of the Company’s total deposits were in checking and savings accounts and the weighted-average age of the Company’s non-maturity deposit accounts was approximately 15 years.
−Removed: As of June 30, 2023, the Company’s total uninsured deposits, net of collateralized and intercompany deposits, is estimated at approximately $2.05 billion.
−Removed: This amount is determined by adjusting the amounts reported in the Bank Call Report by intercompany deposits, which are not customer facing and are therefore eliminated in consolidation, and municipal deposits which are collateralized by certain pledged investment securities.
−Removed: The Bank Call Report estimated uninsured deposit balances at June 30, 2023 are reported gross at $3.60 billion, which includes intercompany accounts of $304.2 million and collateralized deposits of $1.24 billion.
−Removed: Estimated insured deposits, net of collateralized and intercompany deposits, represent greater than 80% of second quarter ending total deposits.
−Removed: Average nonpublic fund deposits for the second quarter of 2023 decreased $444.4 million, or 3.8%, versus the fourth quarter of 2022 and decreased $297.9 million, or 2.5%, versus the year-earlier period.
−Removed: Average public fund deposits for the second quarter increased $153.4 million, or 11.4%, from the fourth quarter of 2022 primarily due to the Company’s competitive pricing and business development efforts and decreased $143.2 million, or 8.7%, from the second quarter of 2022, due in part to municipalities deploying elevated federal funding received during the pandemic.
−Removed: Average public fund deposits as a percentage of total average deposits decreased from 12.3% in the second quarter of 2022 to 11.6% in the second quarter of 2023.
+Added: As of September 30, 2023, the Company’s total uninsured deposits, net of collateralized and intercompany deposits, is estimated at approximately $2.11 billion.
+Added: This amount is determined by adjusting the amounts reported in the Bank Call Report by intercompany deposits, which are not external customers and are therefore eliminated in consolidation, and municipal deposits which are collateralized by certain pledged investment securities.
+Added: The Bank Call Report estimated uninsured deposit balances at September 30, 2023 are reported gross at $3.92 billion, which includes intercompany account balances of $334.2 million and collateralized deposits of $1.47 billion.
+Added: Estimated insured deposits, net of collateralized and intercompany deposits, represent greater than 80% of third quarter ending total deposits.
+Added: Average nonpublic fund deposits for the third quarter of 2023 decreased $422.2 million, or 3.6%, versus the fourth quarter of 2022 and decreased $589.4 million, or 4.9%, versus the year-earlier period as competition intensified in the rising interest rate environment.
+Added: Average public fund deposits for the third quarter increased $14.1 million, or 1.1%, from the fourth quarter of 2022 and increased $26.9 million, or 2.0%, from the third quarter of 2022, primarily due to the Company’s competitive pricing and business development efforts.
+Added: Average public fund deposits as a percentage of total average deposits increased from 10.0% in the third quarter of 2022 to 10.6% in the third quarter of 2023.
Quarterly Average Deposits
+Added: September 30,
+Added: September 30,
(000’s omitted)
8 unchanged sentences
Total deposits
−Removed: Borrowings, excluding securities sold under agreement to repurchase, at the end of the second quarter of 2023 totaled $251.3 million.
−Removed: This was $539.8 million lower than borrowings at December 31, 2022 and $162.6 million above the level at the end of the second quarter of 2022.
−Removed: The increase from the prior year second quarter was primarily due to an increase in overnight borrowings of $168.0 million to support the funding of loan growth.
−Removed: The decrease from the fourth quarter of 2022 was primarily related to a decrease in overnight borrowings of $534.4 million as the Company utilized proceeds from its first quarter securities sales to pay down these borrowings.
−Removed: Additionally, there was a decrease in other FHLB borrowings of $2.2 million and the early redemption of the remaining acquired subordinated notes payable that had a carrying value of $3.2 million.
+Added: Borrowings, excluding securities sold under agreement to repurchase, at the end of the third quarter of 2023 totaled $316.8 million.
+Added: This was $474.3 million lower than borrowings at December 31, 2022 and $174.3 million above the level at the end of the third quarter of 2022.
+Added: The increase from the prior year third quarter was primarily due to an increase in other FHLB borrowings of $297.4 million as the Company secured $300.0 million of fixed rate FHLB term borrowings in the third quarter of 2023 to support the funding of continued loan growth.
+Added: The decrease from the fourth quarter of 2022 was primarily related to a decrease in overnight borrowings of $768.4 million as the Company utilized proceeds from its first quarter securities sales and subsequent investment security maturities to pay down these borrowings.
Securities sold under agreement to repurchase, also referred to as customer repurchase agreements, represent collateralized municipal and commercial customer accounts that price and operate similar to a deposit instrument.
−Removed: Customer repurchase agreements were $233.5 million at the end of the second quarter of 2023, a decrease of $113.2 million from December 31, 2022 due primarily to the seasonal characteristics of this portfolio, and were $9.7 million above their level at June 30, 2022.
+Added: Customer repurchase agreements were $330.3 million at the end of the third quarter of 2023, a decrease of $16.4 million and $22.5 million from December 31, 2022 and September 30, 2022, respectively.
Shareholders’ Equity and Regulatory Capital
−Removed: Total shareholders’ equity was $1.62 billion at the end of the second quarter, up $65.7 million from the balance at December 31, 2022.
−Removed: The increase was driven by $74.7 million of other comprehensive income, net of tax, net income of $54.1 million, $4.2 million recognized from employee stock options earned and net activity under the Company’s employee stock plans of $0.6 million, partially offset by dividends declared of $47.4 million and common stock repurchased of $20.5 million.
−Removed: The other comprehensive income, net of tax, was comprised of a $75.3 million increase in the after-tax market value adjustment on the available-for-sale investment portfolio due to movements in medium to long-term interest rates, as well as the volume and rates associated with the securities purchases, sales, maturities and reclassifications that have occurred over the past six months and the recognition of the loss on sales of available-for-sale investment securities related to aforementioned balance sheet repositioning, partially offset by a negative $0.6 million adjustment to the funded status of the Company’s retirement plans.
−Removed: Over the past 12 months, total shareholders’ equity decreased $44.3 million, as a decrease in the market value adjustment on investments, dividends declared, common stock repurchase activity and the change in the funded status of the Company’s defined benefit pension and other postretirement plans more than offset net income, the issuance of common stock in association with the employee stock plan, the accretion of the market value adjustment associated with the transfer of securities from available-for-sale to held-to-maturity and the Company’s benefit plans.
−Removed: The dividend payout ratio (dividends declared divided by net income) for the first six months of 2023 was 87.7%, compared to 53.5% for the six months ended June 30, 2022.
+Added: Total shareholders’ equity was $1.55 billion at the end of the third quarter, up $3.2 million from the balance at December 31, 2022.
+Added: The increase was driven by net income of $98.2 million, $6.7 million recognized from employee stock options earned and net activity under the Company’s employee stock plans of $0.7 million, partially offset by $5.3 million of other comprehensive loss, net of tax, dividends declared of $71.5 million and common stock repurchased of $25.7 million.
+Added: The other comprehensive loss, net of tax, was comprised of a $4.4 million decrease in the after-tax market value adjustment on the available-for-sale investment portfolio due to movements in medium to long-term interest rates, as well as the volume and rates associated with the securities purchases, sales, maturities and reclassifications that have occurred over the past nine months and the recognition of the loss on sales of available-for-sale investment securities related to aforementioned balance sheet repositioning, and a negative $0.9 million adjustment to the funded status of the Company’s retirement plans.
+Added: Over the past 12 months, total shareholders’ equity increased $93.8 million, driven primarily by an increase in the market value adjustment on investments, net income, the accretion of the market value adjustment associated with the transfer of securities from the available-for-sale portfolio to the held-to-maturity portfolio and the issuance of stock in association with the employee stock plan, partially offset by dividends declared, common stock repurchase activity and the change in the funded status of the Company’s defined benefit pension and other postretirement plans.
+Added: The dividend payout ratio (dividends declared divided by net income) for the first nine months of 2023 was 72.8%, compared to 51.8% for the nine months ended September 30, 2022.
Excluding the after-tax impact of the loss on sales of investment securities, the YTD 2023 dividend payout ratio was 51.3%.
−Removed: Dividends declared for the first six months of 2023 increased 2.0% compared to the first six months of 2022, 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 37.7% versus the equivalent year-to-date period due to increases in operating expenses and realized loss on investment securities, partially offset by increases in net interest income and noninterest revenues and a decrease in the provision for credit losses.
−Removed: Excluding the after-tax impact of the securities sales in the first quarter of 2023, net income increased 9.7% between the first six months of 2023 and the equivalent prior year period.
+Added: Dividends declared for the first nine months of 2023 increased 1.8% compared to the first nine months of 2022, as the Company’s quarterly dividend per share was raised from $0.43 to $0.44 in the third quarter of 2022 and from $0.44 to $0.45 in the third quarter of 2023, while net income decreased 27.5% versus the equivalent year-to-date period due to increases in operating expenses and realized loss on investment securities, partially offset by increases in net interest income and noninterest revenues and a decrease in the provision for credit losses.
+Added: Excluding the after-tax impact of the securities sales in the first quarter of 2023, net income increased 2.8% between the first nine months of 2023 and the equivalent prior year period.
Additionally, the number of common shares outstanding decreased 0.6% over the last twelve months, as common stock repurchases outweighed new issuance activity in the Company’s employee stock plans.
−Removed: During the third quarter of 2023, the Company announced an additional one-cent, or 2.3%, increase in the quarterly dividend to $0.45 per share on its common stock, which marked the 31 st consecutive year of dividend increases for the Company.
+Added: During the third quarter of 2023, the Company announced a one-cent, or 2.3%, increase in the quarterly dividend to $0.45 per share on its common stock, which marked the 31 st consecutive year of dividend increases for the Company.
The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies.
3 unchanged sentences
The Company and the Bank are required to maintain a “capital conservation buffer” for risk-weighted capital parameters, composed entirely of common equity Tier 1 capital, in addition to minimum risk-based capital ratios.
−Removed: The required capital conservation buffer is 2.5% as of June 30, 2023 and December 31, 2022.
−Removed: Therefore, to satisfy both the minimum risk-based capital ratios and the capital conservation buffer as of June 30, 2023 and December 31, 2022, the Company and the Bank must maintain:
+Added: The required capital conservation buffer is 2.5% as of September 30, 2023 and December 31, 2022.
+Added: Therefore, to satisfy both the minimum risk-based capital ratios and the capital conservation buffer as of September 30, 2023 and December 31, 2022, 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%,
2 unchanged sentences
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.
−Removed: As of June 30, 2023 and December 31, 2022, the Company and Bank meet all applicable capital adequacy requirements to be considered “well capitalized”.
−Removed: As of June 30, 2023 and December 31, 2022, the regulatory capital ratios for the Company and Bank are presented below.
+Added: As of September 30, 2023 and December 31, 2022, the Company and Bank meet all applicable capital adequacy requirements to be considered “well capitalized”.
+Added: As of September 30, 2023 and December 31, 2022, the regulatory capital ratios for the Company and Bank are presented below.
Regulatory Ratios
−Removed: June 30, 2023
+Added: September 30, 2023
December 31, 2022
+Added: September 30, 2022
Community Bank
Community Bank
+Added: Community Bank
Tier 1 leverage ratio
2 unchanged sentences
Total risk-based capital ratio
−Removed: The Company’s Tier 1 leverage ratio, a primary measure of regulatory capital as defined above, was 9.35% at the end of the second quarter, up 0.56 percentage points from December 31, 2022 and 0.70 percentage points above its level one year earlier.
−Removed: The increase in the Tier 1 leverage ratio in comparison to December 31, 2022 was the result of ending shareholders’ equity, excluding intangibles (net of associated deferred tax liabilities or “net intangibles”) and other comprehensive income or loss items, decreasing 0.7%, primarily as a result of common share repurchases slightly outweighing earnings retention that was negatively impacted by the realized loss on investment security sales in connection with the first quarter 2023 balance sheet repositioning, while average assets, excluding intangibles and the market value adjustment on investments, decreased 6.5%.
−Removed: The Tier 1 leverage ratio increased compared to the prior year’s second quarter as shareholders’ equity, excluding net intangibles and other comprehensive income or loss items, increased 4.9% as net earnings retention outweighed share repurchases, while average assets, excluding intangibles and the market value adjustment on investments, decreased 2.9%.
+Added: The Company’s Tier 1 leverage ratio, a primary measure of regulatory capital as defined above, was 9.44% at the end of the third quarter, up 0.65 percentage points from December 31, 2022 and 0.66 percentage points above its level one year earlier.
+Added: The increase in the Tier 1 leverage ratio in comparison to December 31, 2022 was the result of ending shareholders’ equity, excluding intangibles (net of associated deferred tax liabilities or “net intangibles”) and other comprehensive income or loss items, increasing 0.6%, while average assets, excluding intangibles and the market value adjustment on investments, decreased 6.3%.
+Added: The Tier 1 leverage ratio increased compared to the prior year’s third quarter as shareholders’ equity, excluding net intangibles and other comprehensive income or loss items, increased 3.2% as net earnings retention outweighed share repurchases, while average assets, excluding intangibles and the market value adjustment on investments, decreased 4.1%.
+Added: The increase in shareholders’ equity, excluding net intangibles and other comprehensive income or loss items, between both periods was primarily due to net earnings retention, that despite the negative impact of the realized loss on investment security sales in connection with the first quarter 2023 balance sheet repositioning, outweighed share repurchases.
The decrease in average assets, excluding intangibles and the market value adjustment on investments, between both periods was primarily due to the impact from the Company’s first quarter 2023 balance sheet repositioning.
−Removed: The shareholders’ equity-to-assets ratio was 10.71% at the end of the second quarter of 2023 compared to 9.80% at December 31, 2022 and 10.73% at June 30, 2022.
−Removed: The tangible equity-to-assets ratio (a non-GAAP measure) of 5.34% increased 0.70 percentage points from December 31, 2022 and decreased 0.06 percentage points versus June 30, 2022 (see Table 11 for Reconciliation of Quarterly GAAP to Non-GAAP Measures).
−Removed: The decrease in the tangible equity-to-assets ratio (non-GAAP) from one year prior was primarily driven by a $28.5 million, or 3.6%, decrease in tangible equity due to the decline in accumulated other comprehensive loss related to the Company’s investment securities portfolio, partially offset by a $363.9 million, or 2.5%, decrease in tangible assets due primarily to the aforementioned sales and maturities of certain available-for-sale investment securities.
−Removed: The increase in the net tangible equity-to-assets ratio (non-GAAP) from December 31, 2022 was driven by a $65.7 million, or 9.5%, increase in tangible equity due to the increase in accumulated other comprehensive loss related to the Company’s investment securities portfolio, while tangible assets decreased $727.6 million, or 4.9%, primarily due to the reduction in investment securities and borrowings resulting from the Company’s first quarter balance sheet repositioning and investment maturities.
+Added: The shareholders’ equity-to-assets ratio was 10.11% at the end of the third quarter of 2023 compared to 9.80% at December 31, 2022 and 9.37% at September 30, 2022.
+Added: The tangible equity-to-assets ratio (a non-GAAP measure) of 4.81% increased 0.17 percentage points from December 31, 2022 and increased 0.73 percentage points versus September 30, 2022 (see Table 11 for Reconciliation of GAAP to Non-GAAP Measures).
+Added: The increase in the tangible equity-to-assets ratio (non-GAAP) from one year prior was primarily driven by a $97.4 million, or 16.2%, increase in tangible equity due to the decline in accumulated other comprehensive loss related to the Company’s investment securities portfolio due in part to the timing of the reclassification of certain investment securities from the available-for-sale portfolio to the held-to-maturity portfolio in the fourth quarter of 2022 and a $204.6 million, or 1.4%, decrease in tangible assets due primarily to the aforementioned sales and maturities of certain available-for-sale investment securities.
+Added: The increase in the net tangible equity-to-assets ratio (non-GAAP) from December 31, 2022 was driven by a $3.2 million, or 0.5%, increase in tangible equity, while tangible assets decreased $449.4 million, or 3.0%, primarily due to the reduction in investment securities and borrowings resulting from the Company’s first quarter balance sheet repositioning and investment maturities.
Liquidity risk is a measure of the Company’s ability to raise cash when needed at a reasonable cost and minimize any loss.
8 unchanged sentences
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.
−Removed: The primary source of non-deposit funds are FHLB or Federal Reserve overnight advances, of which there were $234 million of outstanding borrowings at June 30, 2023.
+Added: The primary sources of non-deposit funds are FHLB or Federal Reserve overnight advances and other FHLB term borrowings.
+Added: At September 30, 2023, there were $316.8 million of other FHLB term borrowings and no overnight borrowings outstanding.
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.
−Removed: At June 30, 2023, the Bank had $222.8 million of cash and cash equivalents of which $34.6 million are interest-earning deposits held at the Federal Reserve, FHLB and other correspondent banks.
−Removed: Cash and cash equivalents, net of float, that were readily available for liquidity purposes was $120.4 million at June 30, 2023.
−Removed: The Company also had $1.65 billion in unused FHLB borrowing capacity based on the Company’s quarter-end loan collateral levels and had $1.43 billion of funding availability at the Federal Reserve’s discount window.
+Added: At September 30, 2023, the Bank had $455.8 million of cash and cash equivalents of which $260.0 million are interest-earning deposits held at the Federal Reserve, FHLB and other correspondent banks.
+Added: The Company also had $2.61 billion in unused FHLB & FRB borrowing capacity based on the Company’s quarter-end loan collateral levels.
Additionally, the Company had approximately $1.75 billion of securities that could be sold or pledged at the FHLB or Federal Reserve to obtain additional funding.
There was $25.0 million available in an unsecured line of credit with a correspondent bank at quarter end.
−Removed: The Company’s available sources of immediately available liquidity of $4.23 billion at the end of the second quarter of 2023 represent over 200% of the Company’s estimated uninsured deposits, net of collateralized and intercompany deposits, estimated at approximately $2.05 billion.
+Added: The Company’s sources of immediately available liquidity of $4.81 billion at the end of the third quarter of 2023 represent over 200% of the Company’s estimated uninsured deposits, net of collateralized and intercompany deposits, estimated at approximately $2.11 billion.
The Company’s primary approach to measuring short-term liquidity is known as the Basic Surplus/Deficit model.
2 unchanged sentences
and second, a projection of subsequent cash availability over an additional 60 days.
−Removed: As of June 30, 2023, this ratio was 13.2% for 30-days and 12.0% for 90-days, excluding the Company’s capacity to borrow additional funds from the FHLB and other sources.
+Added: As of September 30, 2023, this ratio was 10.5% for 30-days and 9.3% 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%.
A sources and uses statement is used by the Company to measure intermediate liquidity risk over the next twelve months.
−Removed: As of June 30, 2023, there is more than enough liquidity available during the next year to cover projected cash outflows.
+Added: As of September 30, 2023, 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.
−Removed: The results of the stress tests as of June 30, 2023 indicate the Company has sufficient sources of funds for the next year in all simulated stressed scenarios.
+Added: The results of the stress tests as of September 30, 2023 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.
8 unchanged sentences
Indicators include:
−Removed: core liquidity and funding needs such as the core basic surplus, unencumbered securities to average assets, and free FHLB loan collateral to average assets;
+Added: core liquidity and funding needs such as the core basic surplus, unencumbered securities to average assets, and free FHLB and FRB loan collateral to average assets;
heightened funding needs indicators such as average loans to average deposits, average public and nonpublic deposits to total funding, and average borrowings to total funding;
14 unchanged sentences
(1) adverse developments in the banking industry related to recent bank failures and the potential impact of such developments on customer confidence and regulatory responses to these developments;
−Removed: (2) current and future economic and market conditions, including the effects of changes in housing or vehicle prices, higher unemployment rates, labor shortages, supply chain disruption, inability to obtain raw materials and supplies, U.S.
−Removed: fiscal debt, budget and tax matters, geopolitical matters, and any slowdown in global economic growth;
+Added: (2) current and future economic and market conditions, including the effects of changes in commercial real estate and residential housing or vehicle prices, higher unemployment rates, labor shortages, supply chain disruption, inability to obtain raw materials and supplies, U.S.
+Added: fiscal debt, budget and tax matters, geopolitical matters and conflicts, 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;
10 unchanged sentences
(13) technological changes and implementation and financial risks associated with transitioning to new technology-based systems involving large multi-year contracts;
−Removed: (14) the ability of the Company to maintain the security of its financial, accounting, technology, data processing and other operating systems and facilities;
+Added: (14) the ability of the Company to maintain the security, including cybersecurity, of its financial, accounting, technology, data processing and other operating systems, facilities and data;
(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;
15 unchanged sentences
Three Months Ended
−Removed: Six Months Ended
+Added: Nine Months Ended
+Added: September 30,
+Added: September 30,
(000’s omitted)
41 unchanged sentences
Operating net income (non-GAAP)
−Removed: Amortization of intangibles
−Removed: Tax effect of amortization of intangibles
+Added: Amortization of intangible assets
+Added: Tax effect of amortization of intangible assets
Subtotal (non-GAAP)
7 unchanged sentences
Three Months Ended
−Removed: Six Months Ended
+Added: Nine Months Ended
+Added: September 30,
+Added: September 30,
(000's omitted)
34 unchanged sentences
Operating earnings per share (non-GAAP)
−Removed: Amortization of intangibles
−Removed: Tax effect of amortization of intangibles
+Added: Amortization of intangible assets
+Added: Tax effect of amortization of intangible assets
Subtotal (non-GAAP)
2 unchanged sentences
Diluted adjusted net earnings per share (non-GAAP)
−Removed: Noninterest operating expenses
−Removed: Noninterest expenses (GAAP)
−Removed: Amortization of intangibles
−Removed: Acquisition expenses
−Removed: Acquisition-related contingent consideration adjustment
−Removed: Total adjusted noninterest expenses (non-GAAP)
Efficiency ratio – GAAP
4 unchanged sentences
Efficiency ratio (GAAP)
+Added: Noninterest operating expenses
+Added: Noninterest expenses (GAAP)
+Added: Amortization of intangible assets
+Added: Acquisition expenses
+Added: Acquisition-related contingent consideration adjustment
+Added: Total adjusted noninterest expenses (non-GAAP)
Operating efficiency ratio – non-GAAP
8 unchanged sentences
Operating efficiency ratio (non-GAAP)
+Added: September 30,
+Added: September 30,
(000’s omitted)
1 unchanged sentence
Total assets (GAAP)
−Removed: Intangible assets
−Removed: Deferred taxes on intangible assets
+Added: Goodwill and intangible assets, net
+Added: Deferred taxes on goodwill and intangible assets, net
Total tangible assets (non-GAAP)
1 unchanged sentence
Shareholders' equity (GAAP)
−Removed: Intangible assets
−Removed: Deferred taxes on intangible assets
+Added: Goodwill and intangible assets, net
+Added: Deferred taxes on goodwill and intangible assets, net
Total tangible common equity (non-GAAP)
−Removed: Shareholder's equity-to-assets ratio
+Added: Shareholders' equity-to-assets ratio
Total shareholders' equity (GAAP) - numerator
1 unchanged sentence
Shareholders' equity-to-assets ratio (GAAP)
−Removed: Tangible equity-to-assets ratio at quarter end
+Added: Tangible equity-to-assets ratio
Total tangible common equity (non-GAAP) - numerator
Total tangible assets (non-GAAP) - denominator
−Removed: Tangible equity-to-assets ratio at quarter end (non-GAAP)
+Added: Tangible equity-to-assets ratio (non-GAAP)
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.